Photos: Dick Hemingway Editorial Photographs
In the early years of Ontario’s history, provincial government activities were limited. The public service consisted of a few hundred employees, often hand-picked by the government in power. The amount of money government spent was relatively small.
Since that time, the responsibilities delegated to and assumed by the provincial government have greatly expanded, which has been reflected in the government’s finances. For instance, in 1886 (the year the Audit Act was introduced), Ontario’s budget amounted to a mere $3 million. By comparison, in 2003, it totalled over $65 billion.
The earliest provincial audit function can be traced back to 1869, when the Executive Council (the Cabinet) created an Audit Branch in the Treasury to establish “the proper auditing of the accounts and disbursements connected with all the branches of the public service.” As stated in the Order in Council, supervision of those entrusted with public moneys was advisable because of “the wholesome effect which will be produced on such persons by the ever recurring dread that their acts and doings will be subject to the closest surveillance.” The new Audit Branch was “to be presided over by a competent head, whose salary shall be $2,000 per annum.” The Honourable William Cayley, a retired member of the Canadian Legislature, was appointed Auditor in 1869.
The new Auditor’s duties involved keeping records of all moneys paid into the Treasury. Each government department prepared a monthly statement of moneys received and then transmitted it to the Auditor “for the purpose of comparison and the correction of any errors that may have crept in.” The Auditor kept an appropriation book, in which every application for money was entered. (An appropriation is a planned and approved expenditure.) When an application to spend money was sent up from the Treasury Department, reference was made to the book to see if there was enough money in the relevant appropriation. If so, the application was then endorsed by the Auditor and forwarded to the Executive Council, which then issued a warrant. With this authority, cheques would be drawn and payments made. The cheques were all signed by the Treasurer and countersigned by the Auditor.
By the late 1870s, the Treasury Department — which numbered six staff, with an Audit Department of two staff — reported that it had “taken on a very large burden of work.” According to the Treasurer’s budget speech in 1879, correspondence since 1871 had nearly tripled and the number of cheques issued had increased from 4,000 to nearly 10,000 per year. A larger and more complete auditing system was needed. Thus, in 1886, An Act to Provide for the Better Auditing of the Public Accounts of the Province (the Audit Act) was passed.
The introduction of the 1886 Audit Act may well have been precipitated by certain irregularities in the Treasury Department. In 1885, discrepancies had been uncovered between the balance of government accounts in the banks, and the balance of these accounts recorded in the Treasury’s books. It was found that the Treasury’s books were inaccurate by a total of $14,680 — not a small amount at that time. An outside accountant was eventually called in to investigate, and the complete banking transactions of the government for the past 20 years were examined. It was discovered that a system of irregularities in the accounting system had begun in 1869 but had gone unnoticed. To complicate matters further, the bank balance investigation uncovered certain “errors of a grave nature” indicating that fraud had also occurred.
The 1886 Audit Act made provision for a Provincial Auditor who would be independent of the Treasury Department. He was to be appointed by the Lieutenant Governor, and the Auditor’s staff was to be appointed by the Lieutenant Governor in Council. All office and accounting procedures were to be approved by the Treasury Board — a newly appointed body consisting of the Treasurer, Premier, and Attorney General.
The Provincial Auditor was to ensure that no money was spent without legislative authority, and any cheque issued by the Treasurer was to be countersigned by the Auditor. The Auditor was to keep an appropriation ledger, against which all authorized expenditures would be charged. He was to furnish each department with a monthly statement of the charges entered against the appropriations, showing the balance at the close of the month. Finally, the Auditor was to have the power and authority to examine any person on oath in connection with any account audited.
The Auditor would not have a completely free hand, however. His decisions could be overruled by the Treasury Board, which comprised three members of the Executive Council. If a difference arose between the Treasury Department and the Auditor, the matter would be referred to the Treasury Board.
The Act stipulated that “it shall be the duty of the Provincial Auditor to prepare and deliver to the Treasurer the Public Accounts to be annually laid before the Legislature. It also outlined the Auditor’s reporting responsibilities:
It shall be the duty of the Provincial Auditor … to prepare a statement of all such legal opinions, reports of Council, special warrants, and cheques issued without his certification which statement he shall deliver to the Treasurer, to be by him presented to the Legislative Assembly at the same time as the Public Accounts are presented.
Charles Sproule, already serving as head of the Audit Branch of the Treasury, was appointed the first official Provincial Auditor of Ontario.
In 1886, the Office of the Provincial Auditor comprised a staff of three — the Auditor, a bookkeeper, and a clerk. In its first year of operation, the Office’s expenses amounted to a modest $4,775.91, with the bulk of it going to salaries (the Provincial Auditor earned $2,400).
In 1905, Charles Sproule resigned and former Conservative MP James Clancy was appointed to serve as the province’s Auditor.
The first decade of the 20th century saw changes that affected the work of the new Provincial Auditor’s Office. In 1907, the Treasurer urged the Legislature to change the fiscal year from the calendar year (January 1 to December 31) to a November 1 to October 31 fiscal year. This would allow the Public Accounts to be prepared in time for an early meeting of the Legislature in December or January. The change was made in 1909 by a separate Act (An Act Respecting the Fiscal Year). A clause in the Act provided that in cases where the Auditor was overruled by the Treasury Board, he was to prepare a statement containing all correspondence, legal opinions, reports of counsel, special warrants, cheques issued without his certificate, and all connected expenses. The Treasurer was to present the Auditor’s statement to the Legislative Assembly no later than the third day of the next session. This clause introduced the practice of an Auditor’s Report that was separate from the Auditor's responsibility to prepare and deliver the Public Accounts. After 1909, the Auditor’s Report was printed as an individual document.
In 1920, Gordon A. Brown was appointed Provincial Auditor of Ontario. By this time, the Auditor’s salary was $5,000, and the office had a staff of 23 and annual expenses of more than $52,000.
In 1920, a number of amendments were made to the Audit Act. For instance, the provision for appointing the Auditor’s staff was amended so that such appointment could now only be made on the recommendation of the Auditor. Provision was also made for an Assistant Auditor to be appointed. As well, an officer designated by the Auditor could now countersign cheques. Story has it that for many years, this responsibility fell to Frank Howard Lee, who was chosen by Gordon Brown because he had the shortest name in the office! He signed himself F.H. Lee.
In the 1920s, significant changes in the province’s accounting system were introduced. In his budget speech of 1924, the Treasurer pointed out that since Confederation, there had been “no real audit of receipts in this province. The only audit carried out by the Provincial Auditor is that of disbursements.” Apparently, the lack of control over revenue was particularly poor in the departments located outside the Parliament buildings. An auditor was assigned to look into some of the problems and found some alarming things: cash received in one office was found to be sticking out of files, and in some cases cheques were left undeposited for months. By 1925, the Treasurer announced the Treasury was instituting a system of intensive audits in every government department, as well as five-year back audits. By the following year, the Treasurer reported that the new intensive audits were having a positive effect. This was corroborated by the Provincial Auditor: “Since the audits have been under way, every department seems to have realized the importance of keeping a closer eye on revenue, with the result that an increase of revenue will be shown in nearly every department.”
In the 1930s, deficits were a concern to governments as the province and the country battled the Depression. In response, in 1935, the Ontario Premier of the day, Mitch Hepburn, announced a major initiative to eliminate unnecessary government expenditures and to tighten up administration. He appointed the Deputy Minister of Public Works to investigate all government departments “in order to learn where economies might be effected.”
The Provincial Auditor’s Office, along with the Treasury Department, were among the first to be investigated. The investigation included a review of the duties in the Office, the scope of the Office’s work, and the number of staff performing this work. As well, each member of staff were to be interviewed. At that time, the Provincial Auditor’s Office had a permanent staff of 48 with expenditures of $90,000.
Indeed, all employees of the Office were called in and interviewed in a no-nonsense manner. Some of the cross examination tactics bordered on the intimidating. One employee, who had the misfortune of being first on the witness stand, was questioned about his political activity, his drinking habits, and his debts! Even the Assistant Auditor did not escape a dressing down for failing to keep an attendance record.
A former employee of the Office recalled that during the investigation: “each one of the employees of the Office was called in and interviewed, and if anything turned up, they were gone … there were a lot of people at a pretty senior level in our office who parted ways.”
Following the investigation, a number of changes were made in the Office. However, the Premier’s initiative to find economies and the subsequent investigations were seen by the press of the day as an exercise in political housecleaning.
In 1935, another measure was viewed by the press as political—that was the amendment to the Audit Act that changed the fiscal year once again, from a November 1 to October 31 fiscal year to one running from April 1 to March 31. This drew strong criticism in one editorial because it would delay the printing of the Public Accounts and therefore the disclosure of the government’s expenditures for the year.
In 1938, Harvey Cotnam was appointed Provincial Auditor. He was both the youngest to hold this office and the first chartered accountant to be appointed. Because of his accounting and auditing expertise, Mr. Cotnam heralded a new era in the Office’s history — bringing about improvements in the way the Office operated. “I think there was greater pride,” said an employee talking of Mr. Cotnam’s term in office. “The actual record keeping was vastly improved. He brought in attendance systems. There was no question he was more conscious of rules and procedures.”
During Mr. Cotnam’s term as Auditor, the Office had a smooth working relationship with the Treasury and the government of the day. “We considered ourselves under the Treasury. We were supposed to be a separate office, but we dovetailed with the Treasury pretty closely,” recalled a former employee who started with the office in 1913. “I can’t recall any interference on the part of the government. I think we had the independence, but it wasn’t spelled out in the Act.”
By the late 1940s, members of the Legislative Assembly were voicing their concern that the Auditor’s activities fell under the guidance of the Treasury Board and Treasurer. Some suggested the Auditor should be free to do his duty without any direction from the Treasury. The then Premier and then Treasurer were amenable to the suggestions being put forth. A number of discussions took place in the Public Accounts Committee. The Committee, which was first established in 1868, focused at this time on examining items in the Public Accounts and investigating specific financial transactions and affairs involving the province. The Auditor's work did not figure centrally in the Committee's proceedings. For example, in its 1925 report, the Auditor is mentioned only briefly, in reference to bookkeeping at the Highway Department: "The Committee is glad to observe that the Auditor's report shows that a proper system of accounting and auditing has now been installed." With the concerns about the Auditor's relationship with the Treasury in the 1940s, the Committee passed a motion recommending that the Audit Act be amended. Among other provisions, it was suggested that “…the Provincial Auditor present to the Provincial Legislature an auditor’s report, dealing with such qualifications and recommendations as he wishes to make….”
The amendments and resulting 1950 Audit Act strengthened both the Provincial Auditor’s independence and powers. The Office’s rules and accounting procedures were no longer dependent on Treasury Board’s Approval. The Auditor could refer any questionable payment or request for payment to the Lieutenant Governor in Council rather than the Treasury Board for approval. The right of access by the Auditor to all necessary documents was established. Furthermore, the Auditor was to present the Public Accounts to the Lieutenant Governor in Council, not to the Treasurer, and a definite time for their presentation was established.
The Auditor’s report was now specifically provided for by a separate section of the Act, and for the first time, he was to 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 Auditor was also to inform the Legislature of any matter “he desires to bring to the attention of the Assembly.”
From this point on, it can be said that the Provincial Auditor assumed a more vocal role in the financial affairs of Ontario.
After Mr. Cotnam's lengthy 25-year tenure ended, George Spence was appointed Provincial Auditor in 1963. He presided over the Office’s move from pre- to post-audit. Pre-audit essentially means auditing a transaction before it was processed, while post-audit means auditing the transaction after it had been processed.
Until the 1970s, the Office’s traditional audit activities had consisted of a post-audit of revenues and a pre-audit of expenditures. The idea behind the pre-audit of expenditures was that a careful review of accounts before cheques were issued would reduce the risk of theft and fraud.
By the 1960s, with the civil service totalling over 34,000 employees and the provincial budget at $738 million, “volume was getting to such a state there was no way you could pre-audit thousands of cheques.” A former office employee remembered the move to post-audit as being seen as “inevitable”. In 1964, the Provincial Auditor, along with the Deputy Provincial Treasurer and the Secretary of the Treasury Board, appeared before the Committee at four meetings to explain and discuss their responsibilities. The Committee recommended at this time that "further consideration should be given to a study of our pre-audit system as compared with the post-audit system."
In the early 1970s, the Committee on Government Productivity was also recommending, among other things, that the Provincial Auditor be relieved of duties involving pre-audit and begin post-audit. Pre-audit activities were to be taken over entirely by government departments. The new system put the onus on managers in government departments to be responsible for ensuring that the processing of revenues and expenditures was appropriate. The Provincial Auditor’s responsibility would now be centred on assessing financial system procedures and controls rather than checking individual transactions.
The change resulted in a strengthening of the relationship between the Provincial Auditor and the Public Accounts Committee. The Committee recommended "that the Provincial Auditor be given full assistance and support during the re-organization of his Office to enable the Auditor to effectively perform the post-audit review of expenditures on behalf of the Legislature." The Committee recognized at this time that the Provincial Auditor "is the most important resource of the Public Accounts Committee," which became even clearer as post-audit work proceeded. Under the post-audit system, the Auditor became more and more an advisor to the Committee, not just answering questions but giving full reports based on the post-audit of payments of government accounts.
The transition from pre- to post-audit had its difficult moments. The Public Accounts Committee, and especially members of the opposition, were concerned that the job of watchdog was not being properly performed. Their chief concern was the lack of independence of the Provincial Auditor.
As well, as the transition began, many of the Office’s staff were pre-audit clerks who had been hired to perform the routine checking of accounts done under pre-audit but did not have the training and experience to assess the adequacy of financial accounting systems. Eventually, most of the existing staff were transferred to government departments, and there was a notable change in the Office’s staff composition. One news article of the day stated: “bright young accountants who have avoided the place for years are rushing to get jobs.”
One such bright young accountant was William Groom. He was appointed Provincial Auditor in 1973, but his outstanding career was cut short when he, along with his wife, were killed in a highway accident in 1973.
Bill Groom transformed the Auditor’s Report from a dry verification of accounts into a serious examination of questionable government spending practices. Furthermore, through his efforts to raise the image of the Office, better rapport was built up with the Public Accounts Committee.
It was also on Mr. Groom’s initiative that the Conference of Canadian Legislative Auditors was created. Today this conference is an annual event at which the Auditors and Assistant Auditors from across the country belonging to the Canadian Council of Legislative Auditors (CCOLA) meet to discuss common issues and to develop closer working relations (for more on CCOLA, visit our Links page).
After Mr. Groom’s death, Norman Scott was appointed Provincial Auditor in 1974. During Mr. Scott’s years as Auditor, the nature of the Office’s work changed, and the pre-audit of expenditures was totally phased out. The new audit activity on the horizon was value-for-money auditing — a concept that had been discussed in Ontario’s Public Accounts Committee as early as 1971. In its report to the Legislature in 1975, the Committee reiterated the need for value-for-money auditing, and recommended that a new Audit Act be drafted. Under Mr. Scott's leadership, the Office began to undertake audits that added a value-for-money perspective to their traditional financial objectives.
A new Audit Act was passed in 1978. The Act further strengthened the role and responsibility of the Provincial Auditor and also provided the Auditor with the clear mandate to conduct value-for-money audits.
The value-for-money mandate required that the Provincial Auditor report his observations on the economy and efficiency of expenditures, as well as on the procedures undertaken by the ministries to measure the effectiveness of their programs.
The Act broadened the powers and responsibilities of the Provincial Auditor by allowing for inspection audits of transfer-payment recipients — that is, hospitals, school boards, universities, etc. Inspection audits are defined as "an examination of accounting records." This wording precluded the Provincial Auditor from conducting full-scope value-for-money audits of transfer-payment recipients. The Act also expanded the powers and responsibilities of the Provincial Auditor regarding the audits of agencies of the Crown and Crown-controlled corporations.
The independence of the Provincial Auditor was clearly spelled out in the new legislation. Previously, the Office’s staff had been appointed by the Lieutenant Governor in Council, and the Auditor was required to submit his estimates through the Management Board of Cabinet. Under the provisions of the new Act, the Office was to secure both staff and financial resources through the Board of Internal Economy, an all-party legislative committee that is independent of the government’s administrative processes. As well, the Provincial Auditor was now to report to the Legislature through the Speaker of the House instead of through the government or its ministers.
In 1982, Douglas Archer was appointed the new Provincial Auditor. During his time as Auditor, the Office's value-for-money work was significantly expanded and the Auditor’s role as watchdog of the public purse became much more public and well known. Mr. Archer recognized the importance of having the public know about the valuable work undertaken by the Office and, after being urged by the Public Accounts Committee, the Auditor held the Office’s first-ever press conference when he released his 1984 Annual Report. The media were very supportive of this more forthcoming approach. The news coverage of the annual report increased substantially as a result of this initiative and in successive years. The Provincial Auditor began to be regularly interviewed on radio and television following the report’s release. This sort of coverage further contributes to the accountability process and assists legislators and the public in being better informed about the results of our work.
Douglas Archer retired in 1991, and in 1992 Jim Otterman, the Assistant Provincial Auditor, assumed the duties of the Provincial Auditor until 1993, when Erik Peters was appointed Provincial Auditor. Mr. Peters advocated major changes in government accounting. At his urging, a number of significant improvements were made to the province’s accounting practices, including the government’s move from a cash-basis of accounting to accrual accounting, its use of the same new accounting rules in preparing both the Budget and the Financial Statements, and the government’s more inclusive financial reporting of all of its activities. During his years as Auditor, Mr. Peters also maintained the Office's focus on government accountability and value-for-money auditing, wherein government programs are audited to see whether they: are being well managed, provide good value for the taxpayer, and comply with relevant legislation and government policy. The Office's annual reporting was enhanced by the inclusion, for the first time, of recommendations, and a follow-up process was instituted to determine to what extent previous recommendations were acted on. Through Mr. Peters' initiatives, which also included advocating the establishment of the Ontario Financial Review Commission and promoting better accountability, governance, and the relevance of the value-for-money reports, the public profile and recognition of the Office by the media and Ontarians at large were enhanced during Mr. Peters' term of office.
The Provincial Auditor's promotion of improved accounting and accountability in the early years of the new century had unexpected resonance as the corporate world was rocked by some spectacular audit-related scandals in the United States. The Enron Corporation filed for bankruptcy protection in December 2001. While Enron investors, creditors, and employees suffered huge losses, it was revealed that the corporation was guilty of gross accounting violations. Enron's collapse was soon followed by the collapse of other large corporations such as Global Crossing and World-Com, guilty of the same violations. These failures gave rise to the demand for and development of major reforms in the auditing profession. Highest on the list of priorities was finding ways to better ensure the independence and objectivity of auditors and audit committees.
While the new accounting and auditing standards resulting from these events were largely directed towards the private, rather than the public, sector, the Office was (and remains) affected. First, the standards of practice that the Office maintained had never been higher. Second, the market value of qualified, experienced accountants and auditors sharply increased, making it more difficult for the Office to acquire and retain the staff needed to fulfill its audit mandate.
During this same period, renewed thought was being given to the Office's audit mandate, which had remained unchanged since 1978. The 1978 Audit Act gave the Provincial Auditor the authority to conduct value-for-money work only in ministries and Crown agencies; insofar as the mandate excluded value-for-money auditing of organizations receiving government grants — constituting over 50% of total government expenditures — Office management had for years advocated that its mandate needed to be expanded and these organizations needed to be held more accountable to the Legislature and Ontario taxpayers.
The Office's proposed amendments to the Audit Act to address this issue were initially discussed with the Standing Committee on Public Accounts in 1989–90. Throughout the 1990s, several more presentations were made to the Committee. In late 2003, the Minister of Finance introduced a bill in the Legislature that would amend the Audit Act. What became the Auditor General Act came into force on November 30, 2004, authorizing the Auditor General to perform, from April 1, 2005 onwards, value-for-money audits of institutions in the broader public sector that receive government grants, such as hospitals, colleges, school boards, universities, and thousands of smaller organizations. The Act further authorized value-for-money audits of Crown-controlled corporations and their subsidiaries. Also enshrined in the legislation were title changes: the title of Auditor General replaced that of Provincial Auditor, and the new designation for the Assistant Provincial Auditor was Deputy Auditor General.
The first appointment under the new Act was that of current Auditor General Jim McCarter, who had been acting as the Provincial Auditor since the retirement of Erik Peters in September 2003. The appointment became effective in December of 2004. In recognition of the importance of these changes to our Office, the Office embarked on a project to renew and revitalize its visual identity during 2004/05, including redesigning the annual report and website.
Two other statutes came into force in 2004 that affect the work of the Office. The first arose out of a 1999 review the Office conducted of government advertising. The annual report for that year pointed out that government directives on advertising did not provide criteria to help distinguish between informative government advertising and partisan advertising. The Auditor recommended that such criteria and supporting principles and guidelines be established for taxpayer-funded advertising. In November 2003, the government responded to the Office's concerns over partisan advertising and proposed that the Provincial Auditor review government advertising to ensure it is not partisan in nature. Discussions ensued, culminating in the introduction and passage of legislation. The Government Advertising Act, 2004 requires that the Auditor General pre-screen specified advertising, printed matter, and messages proposed by the government and determine if they are in accordance with legislated standards. This is a task that the Auditor General, with the support of a committee including experts in the field, undertakes as proposed advertisements are submitted to the Office for his review throughout the year.
The second other statute affecting the work of the Office was the Fiscal Transparency and Accountability Act, 2004. This Act, which repealed the Balanced Budget Act, 1999, requires that the Ministry of Finance release to the public a pre-election report about Ontario's finances. The Auditor General is required to review the report to determine whether it is reasonable and release a statement describing the results of the review.
With these expanded duties and responsibilities, as well as with its new visual identity and title, the Office entered and is experiencing the most challenging and exciting era yet in its rich history.
In 1886, the Auditor’s Office was an adjunct of Treasury — a small but indispensable part of government administration. Today it is an independent body that contributes to accountability in government. Where once audit clerks checked off government expenditures in appropriate ledgers, today auditors with professional accounting designations assess government and broader public-sector programs and systems to assist the Legislative Assembly to improve the government's delivery of programs and help ensure that value for money is received by Ontario's taxpayers.