Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
OTTAWA, Wednesday, May 2, 2012
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:17 p.m. to examine the document entitled: Passport Canada's Fee-for-Service proposal to Parliament, dated March 2012, pursuant to the User Fees Act, S.C. 2004, c. 6, sbs. 4(2).
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Honourable senators, the Standing Senate Committee on Foreign Affairs and International Trade is continuing our examination of the document entitled: Passport Canada's Fee-for-Service Proposal to Parliament, dated March 2012, pursuant to the User Fees Act.
This afternoon the committee has three departments before us. From Foreign Affairs and International Trade Canada we have Marc Vidricaire, Director General, Consular Policy and Advocacy, and Bradley Bélanger, Director, Financial Resource Planning Division.
From Service Canada we have Julie Lalonde-Goldenberg, Director General, Interdepartmental Partnerships and Service Offerings, Citizen Service Branch; and from Canada Border Services Agency we have Maria Romeo, Director, Emerging Border Programs Division, Border Programs Directorate, Programs Branch.
I understand that the witnesses from Foreign Affairs and International Trade Canada do not have an opening statement. You heard our previous testimony and you are here to answer any questions within your area of expertise on this.
There will be an opening statement from Service Canada.
[Translation]
Julie Lalonde-Goldenberg, Director General, Interdepartmental Partnerships and Service Offerings, Citizen Service Branch, Service Canada: Thank you very much, Madam Chair. Good afternoon. I am pleased to have this opportunity to talk about Service Canada's role in helping Passport Canada implement the passport program, as their service delivery agent.
Launched in 2005, and situated within the Human Resources and Skills Development portfolio, Service Canada works to provide single-window services in order to facilitate access to government information, programs and services, and to meet Canadians' needs. Our national integrated service delivery network makes it easier for Canadians to obtain what they want or need from government, however or whenever they want it — over the Internet, by telephone, by mail, or in person at our offices.
[English]
However, our collaboration with Passport Canada predates the launch of the Service Canada initiatives. A pilot agreement was entered into in 2004 to expand access to passport services to Canadians and this is by using Service Canada centres across the country to complement Passport Canada's in person service delivery and filling gaps, particularly in remote and rural areas.
The pilot proved to be a success and with the introduction of the U.S. Western Hemisphere Travel Initiative, a dramatic expansion of Service Canada's role took place. In 2007, Passport Canada asked Service Canada to introduce passport receiving agent services in approximately 100 Service Canada centres. This was to address the expected increase in demand, knowing that millions of Canadians who cross the border to the U.S. would be required to possess a valid passport.
[Translation]
In passport receiving agent sites, we receive applications from clients, ensure that they are complete and accurate, collect payments and forward applications and supporting documents to Passport Canada for processing. This in- person assistance is provided without additional administrative charges to the client.
Service Canada now provides receiving agent services in 144 Service Canada centres. This service has become a significant part of our business. Passport in-person service represents approximately 11 per cent of Service Canada's total in-person volume.
By adding our offices to the existing passport receiving agent network, the passport program is accessible through in-person counters to over 80 per cent of Canadians, within a 100-km radius of where they live.
[English]
In 14 of these 144 sites, our staff validates identity documents, or what we call documents of evidence of citizenship. They do that so those documents can be returned to clients, which alleviates concerns and inconvenience applicants may experience when they have to submit documents through the mail.
While the convenience of access that Service Canada provides to clients is a big factor for ongoing value of our partnership, another key outcome is improved quality of applications received by Passport Canada. Service Canada staff is trained to address errors and applications they review with clients before them. Ensuring that we address the errors with clients at the beginning of the application process eliminates the need for callbacks and delays to clients that may be encountered when they use the mail-in approach and errors are found. By carefully monitoring and improving our agents' skills we have all but eliminated errors for applicants submitted through our offices. This supports Passport Canada in achieving its service standard, which is also of significant importance in the user fee model under which Passport Canada operates.
We are an important component of passport service delivery network. Last year over 480,000 applications were received in Service Canada offices, which accounts for approximately 10 per cent of the Passport Canada application volume.
Acting as an agent of Passport Canada means that we take direction from them. Within the cost recovery model under which Passport Canada operates, we work in close collaboration to determine how Service Canada's service delivery network can be leveraged to optimize passport service delivery.
[Translation]
We provide our services to Passport Canada on a cost recovery basis. While sustaining our focus on client service to continue helping Canadians acquire their passport, we are mindful that the service delivery costs need to be kept in check.
Our role in helping Passport Canada administer this program is one that we are pleased to provide, and we will continue to ensure that Canadians receive prompt, polite, secure and efficient service in their dealings with Service Canada.
[English]
We are working with Passport Canada on a plan to help raise awareness of the new fee structure and the ePassport to Canadians who visit Service Canada by click, call or visit to our offices.
[Translation]
I will be pleased to answer any questions you and members of the committee may have.
Maria Romeo, Director, Emerging Border Programs Division, Border Programs Directorate, Programs Branch, Canada Border Services Agency: Madam Chair, good afternoon. My name is Mario Romeo, and I am the Director of the Emerging Border Programs Division of the Programs Branch at the Canada Border Services Agency.
I would like to thank the committee for the opportunity to speak to you today about the CBSA's role in processing travellers and the measures we take to ensure document integrity from a border operations perspective.
[English]
The mandate of the Canada Border Services Agency is to ensure the free flow of secure travel and trade while stopping those who pose a threat from entering Canada. It offers services at approximately 1,200 service points across Canada and 39 abroad.
In 2011, border services officers across Canada processed over 95 million travellers. The agency's border security operations are part of a larger continuum to keep the country's economy prosperous and its citizens safe and secure. To fulfil its mandate, CBSA uses the principles of risk management to push the border out by assessing the level of risk associated with people and goods before they arrive at the physical border.
To do this, the CBSA begins by deploying an international network of more than 60 liaison officers posted to strategic locations in over 40 countries. These officers focus much of their effort on interdiction activities aimed at combating a regular migration to Canada. In addition, they also gather information about emerging irregular migration trends, new travel document forgery methods and the activities of suspected human smugglers. That information is shared with our front-line officers here in Canada so that they are equipped to make informed, practical decisions about who may or may not be permitted to enter the country.
Upon arrival, all persons who attempt to enter Canada are required to provide proof of identification. The Government of Canada recommends that Canadian citizens travel with a valid Canadian passport because it is the only reliable and universally accepted travel and identification document available to the Canadians for the purposes of international travel.
Starting in the spring of 2013, all new Canadian passports will be electronic passports, or ePassports, with this transition to the ePassport beginning toward the end of this year.
The Canadian ePassport will have an electronic chip embedded in the back cover of the book. The chip adds an extra layer of security to the passport and makes it more tamper-proof. At border crossings equipped with document readers, the ePassport is put in a scanner that reads the machine-readable zone, which in turn allows the chip to be read.
At border crossings not equipped with electronic document readers, border services officers will continue to examine travellers' passports as they do now by confirming other security features, such as holographic images. The security and integrity of travel documents such as passports are key elements of securing the border for the CBSA. The agency works closely with its national and international partners to improve document integrity, to reduce identity fraud and abuse of government programs.
In keeping with its risk management principles that I referred to earlier, the CBSA uses a multilayered approach to ensure document integrity.
Over the past several years, the CBSA has worked to implement a comprehensive strategy to combat document fraud before arrival in Canada, at the border and in Canada. Key elements of this strategy include the administration fee program for transportation companies that bring improperly documented persons to Canada, the CBSA liaison officer network abroad, and providing our border service officers with document fraud recognition, as well as tools to identify document fraud.
Our liaison officers abroad provide international support by assisting airlines as they intercept improperly documented people from boarding planes destined for Canada, and providing document integrity training to their foreign counterparts. At the front line here in Canada, border services officers verify the authenticity of the passport. Furthermore, the document integrity unit within the CBSA provides analysis of suspected document and identity fraud abroad and at ports of entry which, along with national and international partners, acts as a centre of expertise.
The CBSA must work closely with its partners, such as Citizenship and Immigration Canada and Passport Canada, to ensure the smooth flow of travel at the border. Departments and agencies routinely share information pertaining to the validity of travel documents to ensure that those documents presented at the border are indeed legal.
Part of working closely with our partners includes the Beyond the Border Action Plan, and the CBSA will continue to work with these partners domestically and with the United States to build on existing initiatives to enhance travel and maintain security at the Canada-U.S. border.
[Translation]
Madam Chair, this concludes my opening statement. I would be pleased to answer any questions the committee may have.
[English]
The Chair: Thank you for the presentations and your presence here today.
Senator Downe: I have a question for Ms. Lalonde-Goldenberg. In your presentation, you indicated with the services provided at Service Canada for passports that there is no additional charge to client; is that correct?
Ms. Lalonde-Goldenberg: Yes, that is correct.
Senator Downe: Further on in your presentation you indicate that you provide the service in cooperation with Passport Canada on a cost-recovery basis; so do they submit to you some of the fee they would normally charge for a regular passport?
Ms. Lalonde-Goldenberg: The way our cost recovery works is that we charge Passport Canada for the services we provide. For the services we provide, there are various types of charges, but largely the charges that we charge Passport Canada are for a unit cost for the price of the transaction that we provide. That has been established through time and motion studies to ensure that it is still a relevant cost and that charge is provided regularly for the actual applications that we take and provide to them.
Senator Downe: In 130 of your sites you do one procedure and in 14 you do an enhanced procedure. For the units for the 130 sites, what do you charge Passport Canada and what do you charge for the other 14 sites for the enhanced service?
Ms. Lalonde-Goldenberg: For the basic service, we charge, for the per unit cost, $12.39. Where we do that plus the enhanced service, we charge them $14.14.
Senator Downe: Those are good round numbers. Maybe that includes the GST.
For the enhanced service in these 14 other stations which you charge an additional $2 for, that is the service where you just validate the proof of Canadian citizenship and give the documents back to the client. Is that correct?
Ms. Lalonde-Goldenberg: That is correct.
Senator Downe: That is the only additional service for that additional fee?
Ms. Lalonde-Goldenberg: Yes, it is.
Senator Downe: Has Passport Canada indicated to you any interest in expanding the service you now do in those 14 Service Canada locations to all 141?
Ms. Lalonde-Goldenberg: As you know from my remarks, the service that we provide is as an agent so we are in constant communication with Passport Canada to see how we can improve services. Decisions on the service delivery of passports are of course within the responsibility of Passport Canada and they obviously make those decisions based on a number of factors. While there have been discussions and there are ongoing discussions at this point, this is what they have asked us to do.
Senator Downe: Thank you for that. According to your presentation, 11 per cent of your total in-person volume is for passports. What is the total reimbursement from Passport Canada? Do you happen to know that?
Ms. Lalonde-Goldenberg: The total bill for Passport Canada in 2010-11 was $4,952,000.
Senator Downe: That is another good round figure.
[Translation]
Senator Fortin-Duplessis: My question is for anyone who wants to answer it. Could you tell me whether the new electronic passports will make border crossings faster?
[English]
Ms. Romeo: I can certainly answer that. The new passport will make passage crossing more secure. However, since these passports are not in existence right now, I cannot speak to how they will affect how rapidly you will be able to cross.
[Translation]
Senator Fortin-Duplessis: What happens if the chip in an electronic passport does not work? Is the passport still valid, or do users have to return it so that you can install a new chip?
[English]
Ms. Romeo: I can explain what would happen immediately if the Canada Border Services Agency encountered a passport whose chip was not working. For any questions with regard to replacement or how that would be handled, Passport Canada would have to respond to that.
If an individual did cross the border with a passport and we were unable to read the chip, we have alternate mechanisms. We would look at the security features on the passport. If we suspected that it was a fraudulent passport, then that individual would be referred to secondary for further examination and validation.
[Translation]
Senator Fortin-Duplessis: I am not sure whether you are aware of this, but 95 countries — including the United States, the United Kingdom and France — have been using these electronic passports for several years already. Have you looked into whether any electronic chip defects have been reported?
[English]
Ms. Romeo: Again, this is not something that I know a border agency would have looked into. This would be a question that Passport Canada would have to respond to, as they did their analysis.
[Translation]
Senator Fortin-Duplessis: I have another question, but I do not think you will be able to answer it. Thank you.
[English]
The Chair: Do you want to put your other question to her just to test them?
[Translation]
Senator Fortin-Duplessis: In the United States, electronic passports have been issued since 2006. Experts have shown that the chips can be pirated, and that criminals can use readers available on the Internet to steal personal data stored on the chip. That development forced the U.S. government to issue cases for passports to be placed into so that people could not steal the data stored on the chip. Can you tell us whether the Canadian technology will be even more secure?
[English]
Ms. Romeo: Again, unfortunately, that is a question for Passport Canada.
The Chair: Senator Fortin-Duplessis, I am sure that Passport Canada will review our testimony. Perhaps we will get some written responses to your two questions, if possible.
Senator D. Smith: I feel pretty positive about this, and maybe you can confirm this. I do not mean to keep bringing this up but it is on the record that I have had trouble getting tickets issued because I have a common name. A reporter phoned me today and said he had seen it on television and found someone with my name in the States who had done something bad last year, but he was in his twenties.
When they hesitate and they have to make a phone call, they always want to know the exact date of birth. I am not in my twenties; that was a long time ago.
Would this chip thing really solve it? In other words, I would have a chip and only one person would ever have that chip. Do you think that would solve the problem I have had lately?
Ms. Romeo: I certainly cannot confirm that it will solve all the problems, but the Canada Border Services Agency would have an opportunity, if you crossed with an ePassport, to read the chip and the MRZ, unlock the chip, and your photo would be displayed. Certainly we would be able to identify who you are with the passport.
Senator D. Smith: I usually do not use my passport when I am travelling in Canada. I use a NEXUS card, which is good but it has no chip. It only has a date of birth. What is your experience with NEXUS and how effective they are?
Ms. Romeo: I cannot speak to my personal experiences with NEXUS. However, the NEXUS program is a binational program that has been endorsed by Canada and the United States. It is an effective program that we certainly support and we would continue to support.
Senator D. Smith: That is what I use when I travel within Canada. Maybe I will have to start getting a passport chip and use that. Actually it does sound promising, because it has been a huge pain for me in the recent months.
The Chair: You might test that and then you can come and tell us whether it works.
Senator D. Smith: Personal experiences always register on our radar screen, so why not? It is firsthand experience.
The Chair: I do not have your problem, either with my first or my second name. I commiserate with you but I am not sure whether the ePassport will solve it. I am hearing that it should, in most cases.
Senator D. Smith: That is what they are saying. It will because of the chip.
The Chair: Yes; exactly.
Senator D. Smith: You cannot make a counterfeit chip; is that your understanding?
Ms. Romeo: I cannot confirm if you can make a counterfeit chip, but I do know that we would have to unlock the chip and, as a result of that, it is your photo and your biographic and biometric information that would show up.
Senator D. Smith: Right.
[Translation]
Senator Nolin: I have a question for the representatives of Foreign Affairs and International Trade Canada. Does the introduction of electronic passports require your organization to change its structure, to provide additional training? In other words, are there any additional costs involved?
Marc Vidricaire, Director General, Consular Policy and Advocacy, Foreign Affairs and International Trade Canada: There will not really be any additional costs for our organization. As for passports issued abroad, I do not know to what extent or when Passport Canada will be ready to issue electronic passports outside the country. We are responsible only for passports issued abroad — consular services. Passport Canada comes under the jurisdiction of the Department of Foreign Affairs and International Trade.
I think it will take some time for electronic passports to become available, to be issued abroad. In any case, passports are issued in Canada. Therefore, Passport Canada will issue the passports. So there will be no additional cost for consular affairs, for Foreign Affairs and International Trade Canada.
Senator Nolin: Can you explain to the committee members what the $25 consular fees consist of?
Mr. Vidricaire: The $25 consular fees were introduced in 1995. Those fees are supposed to cover consular services such as providing assistance to Canadians in distress — child kidnapping cases, imprisonment. They also cover indirect services, such as financial assistance. So those fees are not for passport-related services; they are actually for all other consular services. But as far as passports go, the fees only apply to Canadians who have lost their passport. In those cases, some time is included for consular assistance. As far as the actual passport issuance goes, passports are now issued in Canada, but our consular officers receive the forms. Passport Canada compensates us for that. Therefore, the $25 amount is intended strictly for consular services of assisting Canadians abroad.
Senator Nolin: So this means that the $25 amount is not accounted for in the $135? Your $25 is not part of the $135.
Mr. Vidricaire: The $25, I do not know.
Senator Nolin: What will ultimately be the 10-year passport, the most common one.
Mr. Vidricaire: Yes, the $25 will still be there.
Senator Nolin: Perhaps Mr. Bélanger could answer this. According to note 6 in the audited financial statements of the Passport Canada Revolving Fund for the year ending on March 31, 2011, the fund collected and remitted to your department $86 million and change in consular fees, and the figure was $95 million in 2010.
What will the impact be for you, because right now passports are valid for five years. When the $25 fee is spread out over 10 years, what will that mean for you financially?
Bradley Bélanger, Director, Financial Resource Planning Division, Foreign Affairs and International Trade Canada: Just to clarify, the fee is remitted directly to the Consolidated Revenue Fund. It does not go to the department. That is the arrangement that was made in 1995.
Senator Nolin: Why, then, do the financial statements specifically indicate that the Passport Canada Revolving Fund collected and remitted to DFAIT $86 million in 2011 and $95 million in 2010 for consular fees?
Mr. Bélanger: Are you talking about our performance report?
Senator Nolin: Not yours, the Passport Canada fund, they have one.
Mr. Bélanger: In our financial statements, in terms of what is remitted for the amount, we took in $65 million and the fees collected by Revenue Canada are deposited to the Consolidated Revenue Fund.
Mr. Vidricaire: Perhaps Passport Canada made a mistake in presenting it that way. They will receive the money, of course, but the money is deposited to the Consolidated Revenue Fund according to how much is collected in consular fees.
Senator Nolin: In that case, perhaps there is some accounting technique involved that makes it clearer, on their end, to say that the money was collected by them, because of your charge?
Mr. Vidricaire: We got a portion of that money, the $65 million that was in our financial statements.
Senator Nolin: What will it mean for you financially to collect the $25 fee every 10 years rather than every 5 years? I assume it will mean a 50 per cent reduction?
Mr. Vidricaire: That is an excellent question and we actually do not know. We do not know how many people will opt for the 10-year passport over the 5-year document because the two will continue to exist, and in the first 5 years of the 10-year validity cycle, we will receive the same amount. As of 2013, people will be able to choose the 10-year passport. So it will be 5 years before we know the full extent of the impact. We will not start seeing the impact until 2018. However, beginning in 2013, we will have a better idea because we will see how many people choose the 10-year option. Initially, Passport Canada was saying that 70 per cent of people would opt for the 10-year passport; now they are saying 80 per cent.
Certainly, it is going to be an issue. If we want to retain the same level of revenue, we will have to start planning over a 10-year period, and that could be up for discussion because, as things stand now, we are able to cover the cost of providing consular services with the money coming in, as they are supposed to balance out given that they are fees. We are able to recover our costs over a 5-year period, but the only way will be to do it over 10 years. When you start seeing the 10-year passports, people will renew their passports, and it will take 5 years before we feel the impact in 2018; the impact of 10-year passports over 5 years will count, so the revenue should drop and in 2023, the 10-year passports will be up for renewal. That will be problematic for us, and we absolutely must revisit our fee structure for consular services.
Senator Nolin: Passport Canada had the same problems. Its officials were here last week, and we looked at their chart and we observed the same thing; Senator De Bané pinpointed the issue. We are not talking about a decline but a sharp drop in revenue after the fifth year. They planned all this without knowing how many Canadians would opt for the 5-year passport versus the 10-year passport. They worked out the figures because they are asking us for $135; so they really took the time to assess their financial needs and cost everything out. You do not appear to have done such an assessment. Did they consult you?
Mr. Vidricaire: They absolutely consulted us. It is important to realize that the amounts we currently receive offset the consular costs, technically speaking. In other words, it evens out over a five-year period. There are ebbs and flows. Consider 2012, which will be a high-volume year for issuing passports because of the U.S.-imposed passport requirement. In 2007, the number of applications shot up. But it does fluctuate.
The problem in our case is that choosing to increase or, say, double the passport consular fee would balance out our costs for five years but produce a significant revenue surplus in the next five years. And we cannot have a surplus; we cannot start lowering the price of passports.
Senator Nolin: But the alternative is to run up a deficit.
Mr. Vidricaire: We will have to look at other ways of breaking even. That is something we are examining as we speak. We have looked at some models. But to impose the cost of providing consular services abroad and at headquarters — because keep in mind there are people who do consular work at the head office, including myself — solely through passports, could pose a problem unless we receive permission to do it over ten years. It is indeed a real challenge for us, a puzzle we have to solve.
Senator Robichaud: Tying in to Senator Nolin's question, I would like to know whether the numbers Passport Canada gave us at one point could be out of sync with the actual reality. You are saying that the consular fee included in the passport price was factored into the estimates. Could that change the figures we were given?
Mr. Vidricaire: As far as passport price goes, right now, the consular fee is staying at $25 for both the 5-year and the 10-year passports. But will that decision have to be reviewed to take into account the need to reconcile consular costs and revenue? Probably. We do not know what the impact will be. It will all depend on how many people decide to go for the 10-year passport, and there are a number of studies in that respect. I know Passport Canada has done quite a bit of work on projections, but they are just that, projections. Since we have to charge enough to meet our financial needs, and no more than that amount, we have to wait until the first year to see the outcome of 2013, meaning how many people apply for the 10-year passport, what that number represents. That is when we will have a projection we can use as a solid basis for going forward. There are other options; we could have the $25 fee just for adult passports. The NEXUS card is not included in that, and a lot of people apply for the NEXUS card to travel primarily to the U.S. It does not apply to children's passports either. In 1995, we did have passports specifically for children but children were still allowed on adult passports.
Will that be expanded to other documents or will we find other ways to cover consular fees? Keep in mind that consular fees are paid by those who apply for passports, but you do not need a passport to access consular services.
So that factors into the discussion as well. We ask people for proof of their Canadian identity when they are abroad, but we do not ask to see a Canadian passport. There are people, then, who receive consular services without necessarily having a Canadian passport.
Senator Robichaud: If you are asking them for proof of their Canadian identity, would passports not be the best requirement?
Mr. Vidricaire: Yes, they are, but you also have smaller countries that do not require visitors to have a passport. That was the case with Mexico and the Dominican Republic. They recently changed that, but it did used to be that way. You also have Canadians with citizenship in other countries and who can travel using the other country's passport; if those Canadians run into some kind of trouble, they can call on our embassies abroad for help. In light of that, we verify that they have Canadian citizenship, but not a Canadian passport.
Senator Robichaud: In that case, we can expect to see a noticeable, if not major, change in these projections a few years down the road, depending on how many people go from 10 to 50. That is what you are saying, is it not?
Mr. Vidricaire: Yes, and since these are user fees, we will have to go the legislative route in order to revisit the user fees and all that the legislation entails. That is why we need to prepare, yes, but we also need a good idea of the numbers, because the fees are determined so as to offset real costs, and we are not allowed to take in more than what covers our cost; that is the real challenge.
Senator Robichaud: My second question is for Ms. Lalonde-Goldenberg of Service Canada. Under this budget, will Service Canada's financial and human resources shrink?
I am asking because that could affect the service you provide to people on Passport Canada's behalf, could it not?
Ms. Lalonde-Goldenberg: Thank you for that excellent question, which I cannot fully answer. However, the passport service we provide to Passport Canada is, as I mentioned, a service that Passport Canada pays us for, thereby ensuring we have the necessary resources to do the work. That is the reason that we bill for our services. What that means, then, is that once Passport Canada asks us to provide the service, we will make sure the receiving agents are in place to do the job.
Senator Robichaud: I understand that, but you still need to have agents on site.
Ms. Lalonde-Goldenberg: Absolutely.
Senator Robichaud: Last week, we talked about how Service Canada was going to provide service to people in Prince Edward Island. That means you will have more work to do because you will no longer have a passport office there. Will you have enough staff to deliver the service the people of Prince Edward Island expect to receive?
Ms. Lalonde-Goldenberg: Although I cannot confirm that cuts will not be made in our department, because cuts are happening all over, I can say that the positions of the people in place to provide the services will not be cut. In the case of Prince Edward Island, where we have receiving agents in the five offices, those positions will not be cut; they will be kept to ensure service delivery, including passport service.
Senator Robichaud: The people at Service Canada do more than provide services to just Passport Canada, do they not? They handle employment insurance and a slew of other services. Can you give me an idea of the services you provide in your local offices?
Ms. Lalonde-Goldenberg: Definitely. The local offices administer services related to employment insurance, as you mentioned, the Canada Pension Plan, old age pensions. Those are the main services we provide. But we do deliver other programs for the department, such as the Wage Earner Protection Program and apprenticeship programs. Our service centres also provide information on a multitude of Government of Canada programs.
As I said, the passport services account for a large chunk of our programs, representing about 10 per cent of our in- person services.
Senator Robichaud: There is something I want to ask you, but it is not meant to catch you out. Since you operate on a cost-recovery basis with respect to passports, will your employment insurance clients become less of a priority given that you do not recover the costs associated with that service?
Ms. Lalonde-Goldenberg: It is crucial to us that we make sure we have the necessary resources and staff in place to administer all the programs within our mandate. In high-volume offices, it is necessary to have lineups specifically for passports, so that we can manage wait times for the various programs.
We do not charge for the costs of providing the services that come under the responsibility of our own department, because Service Canada is an initiative of the Department of Human Resources and Skills Development. So we already receive the funding to carry out those programs. Our department's budgets for those programs are allocated to service delivery, meaning that we should have the funding we need to administer all the programs that fall within our mandate.
[English]
Senator Downe: I would like to follow up on those questions asked by Senator Robichaud.
If Service Canada is providing these two levels of services, which are varied depending on the geographic location, and 14 of the services offer the ability to validate the citizenship documents, and if this model is so acceptable to Passport Canada, why would they have Passport Canada offices? Why would they not simply turn this over to Service Canada? Passport Canada has currently 34 offices across Canada, but Service Canada has over 144. You can provide this service. Why is Passport Canada basically duplicating some of what you do — not all of what you do — in 34 of their offices when you could be doing that first stage for all the passports everywhere across Canada on a cost recovery from Passport Canada, and these 34 offices would not have to be continued?
Ms. Lalonde-Goldenberg: Thank you for your question. I will begin by answering that it is a question that is more properly answered by Passport Canada. We are a service delivery agent and we are very happy to partner with Passport Canada and to provide services, the breadth and scope that they wish us to deliver.
I did mention that we have receiving agent services in 144 of our offices. Those are not all of our offices. We have over 330 offices across the country and more than 600 points of services when we look at scheduled outreach and others.
We are always happy to have discussions with Passport Canada, but it is very clear as well, as you have mentioned, that Service Canada does not provide all of the services that Passport Canada does. In the offices where we do the validation of birth, the documentary evidence of citizenship, that is an enhanced service mostly because clients do not have to give their documents. Where we do not do that service, we take those documents and send them along to Passport Canada.
Of course, in Passport Canada offices there is an ability to have an urgent passport and there are also some applications that Service Canada does not currently take, more complex applications that we do have to refer to passport services.
Senator Downe: There are over 300 Service Canada offices, and Passport Canada has only asked 144 of your service centres to provide their service, and of those, 14 have what we call "enhanced." Service Canada did not want any competition with their existing offices, so you do not provide that service where they are located. For example, you would not provide that service in Ottawa, I assume.
Ms. Lalonde-Goldenberg: Yes, we do. The discussions we have had with Passport Canada to determine where we will provide services have largely been based on Passport Canada's needs, where there are volumes, and where there are no offices nearby. Therefore, there is a complementary element of offices in our full network. There are some places where both of us have passport services and, in some cases, it is because the volume warrants that.
Senator Downe: Passport Canada pays you, for example, in Ottawa to do a service they also provide at their office, but if it is done at your office, they reimburse you for the cost; is that right?
Ms. Lalonde-Goldenberg: That is right.
Senator Robichaud: Which service is cheaper?
The Chair: Senator Robichaud, are you posing another question? If you wish an answer we will have to put it on the record.
I will ask a general question. More and more the discussions are around the "passport as the identity document." About 10 years ago, we went through talks about identity cards, which have been used in other countries for election purposes, for travel purposes, et cetera. It would be a "this is who you are" type of card.
Internationally, are we relying more and more on the passport exclusively, or are we still pursuing NEXUS beyond the United States? Could someone from the Department of Foreign Affairs and International Trade answer? Maybe it would be in your area.
Mr. Vidricaire: I can answer that as far as I know. I am not very familiar with the extension of NEXUS. It is really a program with the United States, but I have no knowledge of any attempt to use NEXUS elsewhere. The use of passports is becoming almost universal.
I mentioned before that, once, you could travel to Mexico without a Canadian passport, using only some proof of identity. Until last month, you could travel to the Dominican Republic with only a proof of identity. Now you need a passport. People will remember that you used to be able to travel without a passport to the United States. Now we have NEXUS, but many people use their passports, also. It is more the passport that is becoming the norm.
The Chair: The use of the passport with the chip was designed to ensure identity, but to stop the fraud in Canadian passports. We continue to hear that our passports are a most sought-after commodity elsewhere. Are you contemplating, therefore, the decline in the inappropriate use of our passports because of the chip; are you relying on that?
Ms. Romeo: I can speak to that. That is an excellent question.
With regard to the new passport, it is a much more secure passport. At the same time, those individuals who want to defraud government become more sophisticated themselves. We would see that they are switching their modus operandi and rather than changing the document itself and making the document fraudulent, it is more that there are impostors who are using legitimate documents.
That is what we see a trend toward that right now in terms of fraudulent document use. However, the ePassport gives us an opportunity to detect those imposters.
The Chair: With the extension for 10 years, you will need a different type of tracking system because that passport will have validity for a longer time, maybe in the wrong hands?
Ms. Romeo: Yes, but we would still be utilizing the same security features.
Mr. Vidricaire: I could add that it will become more and more difficult to have what we would call a fake passport. The problem then is the document that you use to get a passport and that is a big issue for our missions abroad, in terms of proof of Canadian citizenship for people born abroad. In many countries, it is quite complicated to verify the authenticity of the documents, because you could get a birth certificate that you should not get.
Our missions are more and more aware that they have to be very careful when they look at official documents that people present to get their proof of Canadian citizenship. That will be a bigger and bigger challenge the more and more secure the passport will become.
The Chair: It is a question of cost to implement these changes. It is also a question of understanding the other aspects that will come with that 10-year passport. If you look at security issues, governments are trying to catch up to the nefarious activity and then they move into a different venue. Not only will you have to track your costs between the 5- and the 10-year passport, you will have to track the consequences of using the 5- to 10-year passport in inappropriate ways.
Is somebody doing that? Is that Passport Canada's responsibility? Is it DFAIT's responsibility, the Canada Border Services Agency, or do you have some coordinating committee that will look at the consequences of these actions totally rather than "user fees here, security issues there"? Is someone looking at what it does to a Canadian to have a 10-year passport?
Ms. Romeo: I believe Passport Canada would be responding to that, but we all have a shared role in document integrity, ensuring and validating the use of that document, and identifying the document fraud either at the border through consular fees or through Service Canada as they examine the supporting documents. It is a shared responsibility across government.
Mr. Vidricaire: We are in almost daily contact with Passport Canada because of our responsibility of providing assistance to the issuance of passports for people who are applying from abroad. You have a fairly large Canadian community abroad — close to 2.8 million Canadians are residing abroad. It is not unusual to have people applying for a Canadian passport in countries where people do not speak either of the two official languages. That is why our services are needed to help people apply for a passport.
We are aware of that and are working with Passport Canada in training, especially our locally-engaged staff, in identifying possibility of fraud. That is really something that Passport Canada is aware of and I am sure that CBSA is aware of it, as are DFAIT and Citizenship and Immigration Canada. We are all working together on that. However, it is a big challenge because, in some countries, how document reliability is often a challenge.
In order, for example, to issue a proof of Canadian citizenship for a child born abroad, we may ask for a DNA test. We use new technologies, so this is something new.
The Chair: Do you have a follow up, Senator Wallin?
Senator Wallin: Yes, I wanted to follow up on the chair's question because we did raise this with Passport Canada. Again this is just more to get your opinions — and all of you please jump in — but the question about the security of a 10-year passport is not just related to those living abroad or those receiving them through a consular office. You could go to the extreme case of the homegrown terrorist here in Canada and say that 10 years is a long time without some check as to who that person is, unless they choose to do it voluntarily. One of the responses was that people might choose a 5-year passport and then we would be kept on top of that issue, but they do not have to.
Are you all confident from your different vantage points on this that there is no increased security threat because of that length of time — 10 years?
The Chair: It is purely discretionary if you wish to respond.
Ms. Romeo: I cannot comment specifically on the security of a 10-year passport. However, I can confirm that as individuals are returning to Canada — as part of the Border Services officers' role and our traveller processing and screening — we are conducting checks when we are looking at that passport. That passport is scanned through various security databases, so we have an opportunity to assess that individual when they are coming into the country.
Senator Robichaud: How often do you find people with fraudulent passports?
Ms. Romeo: I do not have a full picture of every one. However, I can indicate that in 2011 we found that of the fraudulent documents we have identified, 75 per cent of those documents that are Canadian passports detected by the Canada Border Services Agency are as a result of imposter fraud. That is where I indicated we see that trend with the individual using the passport.
Senator Johnson: I was curious if you have encountered problems from other countries that currently use similar chip technology and could you tell us any of the countries that do?
Ms. Romeo: I do not have any information specific to the distinction between the use of a Canadian passport at the border or an ePassport. Unfortunately, our services do not distinguish between the use of those two types of passports at this point.
Senator Johnson: That is interesting.
Senator D. Smith: When you say an imposter passport, is it an original passport, but it is just the wrong name? How do you define that?
Ms. Romeo: It is an original passport but the wrong person using it.
Senator D. Smith: Right. That is what I thought.
Senator Johnson: I was wondering about other countries with this technology. You do not know? That is okay.
Mr. Vidricaire: I know that Passport Canada has looked at that issue because I have seen some reports on the studies they did. Also, there are many countries that have a 10-year passport and ePassports. We are catching up with the ePassport; we are not in the lead on that issue. They would probably be able to answer their question, I am sure.
Senator De Bané: Ms. Romeo, when you find an imposter, what is his punishment? What can you do?
Ms. Romeo: It depends on the individual and the citizenship of that individual. For example, if it is a foreign national and they are coming in from the United States or abroad, that person could be immediately returned, or we would hold that person and refer them to secondary for further examination. However, if it is a Canadian citizen who has a right of entry into Canada, then we would look at that in terms of criminal charges against that individual.
The Chair: Thank you for coming. As you can see there is great interest not only on the cost, on the User Fees Act, but the whole issue of passports, the efficiency of them, the advisability of moving to modern technology and also the 10-year passport. We know from our other studies that the 10-year passport has some validity in the business world and otherwise. It will be interesting to see when we move to ePassports — with discretion 5 to 10 years — what the consequences will be, both intended and otherwise.
Thank you for your information and for the questions that have gone beyond what you might have expected when you arrived here. On behalf of the committee, I appreciate the information.
We will now continue with the second session involving our examination of the document entitled Passport Canada's Fee-for-Service Proposal to Parliament, dated March 2012, pursuant to the User Fees Act. This is in relation to the fees for passports.
We have before us, from the Office of the Auditor General, Mr. Clyde MacLellan, Assistant Auditor General of Canada, and Ms. Wendy Loschiuk, Assistant Auditor General.
I understand you have a statement and we will follow with questions. Welcome to the committee.
Clyde MacLellan, Assistant Auditor General of Canada, Office of the Auditor General of Canada: Honourable senators, thank you for this opportunity to appear before you today. As mentioned, I am accompanied by Wendy Loschiuk, Assistant Auditor General, who is responsible for our audits of Passport Canada.
We are pleased that your committee is taking on this study on passport fees and we are hopeful that we can respond to any questions that you may have.
Although we have not done recent audit work on this particular issue, there are some past audit findings that may be useful to your discussions. Our 2008 audit looked at consular fees — fees that are included within the overall cost of an adult passport — whereas our 2009 audit looked at how Passport Canada copes with increases in demand.
[Translation]
Let me begin with our May 2008 report chapter entitled "Management of Fees in Selected Departments and Agencies", in which we audited the management of 13 government fees established by 6 federal organizations, including Foreign Affairs and International Trade Canada. We looked at how that department established its consular services fee; determined the amount to be charged for the fee; and measured, monitored and reported on the performance of the fee-related activities.
We found that the department allocated to the consular services fee costs for activities beyond those outlined in the original approval of the fee. These included costs for activities performed on behalf of Passport Canada and on behalf of Citizenship and Immigration Canada. We noticed that more was collected in consular fees than the cost of providing the related services, putting the department at risk of appearing to have not determined the charge for the fee on a cost- recovery basis, as was required by its legislation.
To that effect, we recommended that Foreign Affairs and International Trade Canada review the allocation of costs and activities to the consular services fee to ensure that these remain consistent with the authorization for the fee and exclude the costs of services on behalf of other organizations that are not part of the consular services fee.
[English]
In our March 2009 report chapter, we reported on Passport Services. At that time, we noted that Passport Canada had recently launched a new forecasting model for calculating the expected demand for passports so that it can set its budgets and adjust its production capacity. With this forecast, the agency can estimate revenue by multiplying the number of passport applications expected to the user fees charged and can estimate the expenditures it would incur to provide the required services.
Because of problems it experienced with the old model, where demand was significantly underestimated, the agency developed a new model that it believed would give more accurate forecast of the number of passport applications to expect. We did not audit this new model and have not revisited Passport Services so we cannot comment on its accuracy in predicting demand.
Your committee may wish to ask officials of Foreign Affairs and International Trade Canada, who I realize you have just had, and of Passport Canada, who you spoke to earlier in the week, for detailed information of the forecasting model and of the costing components of the passport fee, all of which I understand from reading transcripts that you have had opportunities to discuss with them.
Madam Chair, your committee's review of the government's proposal is obviously an important step in ensuring that the amount charged for a passport is related to the cost and value of the service provided.
[Translation]
Madam Chair, that concludes my opening statement. We would be pleased to answer the committee's questions.
[English]
The Chair: May I ask an information question? How do you determine when you will do these audits? Is it your workload capacity and priorities?
Senator D. Smith: It is when they smell something.
The Chair: Perhaps there is an irregularity and you want to go into it.
You started out by saying that you have not done a recent one. Of course, I then ask the question: When will you do one and how do you factor that in, in your model?
Mr. MacLellan: Perhaps I will start. I will give you a broad overview in respect to the question as to how we determine what we will audit. I will then ask Ms. Loschiuk to respond specifically to your question about what we plan to do for Passport Canada.
Essentially, as you indicated, we consider many things in planning audits. We consider risks that we perceive to exist in government departments about the proper performance of various programs. We look at resourcing issues. We have our own. We look at requests and issues that have been raised. Also, we try, as part of planning for our office, to look holistically at the Government of Canada and try to determine where the key areas of concern and risk ought to lie. That will lead us down to individual departments, and from there to specific issues that we identify are of importance to individual programs and issues within those departments.
Wendy Loschiuk, Assistant Auditor General of Canada, Office of the Auditor General of Canada: Thank you very much for the question.
We looked at Passport Canada in the past over a series of audits. We looked at them in 2005 and then we followed up to see what they had done in 2007. Our work in 2009 did result, as you say, partially because something had happened. If you will recall, when the WHTI came into play with the U.S., there were lineups of people on the sidewalk, missing their March break vacations because they could not get a passport. It was pretty well reported and widely criticized; so we did another piece in 2009 where we wanted to see if they had corrected those problems because, as you know, in June 2009 I believe another WHTI was coming into play and we wanted to make sure it did not happen again. That was our 2009 audit.
Generally, with Passport Canada, we would look at more the issues. If they come into play in the issues that we are looking at, then we would pull them in. For example, part of my portfolio includes looking at areas of security and foreign affairs. In the process of doing some of that work, we may determine that Passport Canada's activities and services would fall under the area that we are looking at.
Right now, we have no particular plans to go into and audit Passport Canada, specifically. We may include them, though, in some future work we are doing, of which they would have a particular role to play.
The Chair: To follow up on that, we have heard about this 5-year passport and 10-year-passport and the difficulty of knowing what take-up there will be on a 5-year passport and a 10-year-passport. That then leads to the efficiency and costs. Would you therefore be contemplating that as an issue that you might wish to track?
Ms. Loschiuk: We would probably follow the concerns or any of the service delivery issues that may arise with Passport Canada as we continue to monitor their responses to our recommendations.
We continue to keep an eye on the activities in a department or agency as we go back and ask them how they have done in responding to our recommendations. If there were any concerns that we had with which we felt we could contribute with an audit, then that would play into our planning exercise.
Senator Downe: I am interested in Passport Canada's forecasting. I notice it is mentioned in your opening remarks. They presented documents to us indicating the revenue runs a little under $600 million a year. In 2017 and 2018, according to their projections, the revenue is $574 million. Then it drops in 2018 and 2019 to $28 million and it stays under $100 million out to 2023.
I asked Passport Canada officials why we are offering two options in the 10-year-passport and the 5-year passport. They indicated there were two major, significant countries — Japan and I think Switzerland — but with everyone else, you have a choice of 10 or 5, which seemed to me to increase the costs.
I then look at the fees they are charging and it is $135 for the 10-year-passport but $95 for the 5 year. In other words, it is $13.50 for every year you have a 10-year-passport and it is $19 for every year you have a 5-year passport. The 5- year passport, if it was at the same fee level, should be $67.50.
They were originally projecting that 70 per cent of Canadians would be interested in the 10 year; now they are saying 80. The way they have this scaled, it will be well over 80 in my opinion who will take the 10 years. You then get back to the forecasts where their revenues simply fall off a cliff and stay low for a number of years.
There must be some way they could slowly introduce a 10 year and reduce the option of having a 10 or a 5. Would this be one of the areas that you would question them on, or would you only do that if you did a full audit?
Mr. MacLellan: Let me start and then my colleague may add some comments.
When it comes to looking at the issue of the overall fee and whether it is covering the costs, you are absolutely correct that an important component of that is the revenue forecast. We do not have any specific comment on the merits of a 5 year and a 10 year and anything of that nature. However, certainly you would want to understand just the types of things that you have inquired about: What is the take-up of one versus the other and how can you manage that smoothly so that you can keep a relatively constant level of activity? That would be one thing to consider, if that is possible to do.
Certainly, senator, I think those are prudent questions to ask about understanding the document that is before you.
Ms. Loschiuk: Perhaps, senator, I can talk a bit about the forecasting model.
As we noted in our opening statement, back in 2009 they did have to change models, because their previous model gave them faulty numbers. They were unprepared when they were trying to respond to WHTI the first time around; they just did not think that so many people would ask for a passport.
With the new model, they corrected some of that by trying to get at better information about the current number of people who have a passport, when they are likely to expire, how old they are, whether they live close to the U.S. border, and questions like that. They have put into place a new model that asks a lot more pertinent questions.
Unfortunately, I do not know how well that new model is working. I would assume they have had the numbers they have given you for a year or two to test them. Those figures that they have projected are hopefully based on good calculations.
Senator Downe: We will not hold you to that. Those are their figures, not yours.
Ms. Loschiuk: All right.
Senator Downe: My second question is from the 2005 report of the Auditor General where you indicated the Passport Canada and DFAIT did not meet the ongoing requirement for ongoing consultation and service standards and how they relate to passport and consular fees. We had a previous witness from Service Canada indicate that they have over 300 service centres across Canada, but Passport Canada is only contracted with 144 of them for services related to passports.
My question pertains to the varying degrees of service Canadians are entitled to in this country and why it varies depending where you live geographically. This is a cost recovery operation and I cannot understand why 34 Passport Canada offices would offer deluxe service, depending where you live geographically, and the rest of Canadians can try to find one of these 144 Service Canada centres. We were told by the previous witnesses that some of them are located geographically in the same area as the Passport Canada office.
If they are trying to reduce duplication and therefore reduce the cost to Canadians for passports, why would there not be a consolidation of services, and why would some Canadians have to put up with a level of service that is comparably lower to other Canadians, depending on where you live in this country, when you pay the same fee for a passport? Is that a concern of yours?
Mr. MacLellan: I do not think we have looked at that enough to have any comment on that, senator; I am sorry.
Ms. Loschiuk: No.
Senator Downe: That was a free-time political broadcast.
Senator D. Smith: You mean like in Prince Edward Island?
Senator Downe: Exactly.
Senator Wallin: I want to ask you the question of security and a security audit.
I have been in the New York consulate after 9/11, and no one can predict what a 9/11 or subsequent Western Hemisphere Travel Initiatives would do to travel demand and everything else, so I give them a break on this; it changes.
What is encompassed in a security audit on this particular issue? What would you be looking at?
Ms. Loschiuk: When we did the first security audit in 2005, the areas we looked at were: Did they do the things that they necessarily needed to do to ensure that identity was verified; did they go through the appropriate training for their examiners; and did they do the right security clearances for people who were trusted to do this?
They looked at some of the quality assurance that was in place. The audit also looked at whether the people who did the job had the right tools at their disposal and whether they were able to make determinations appropriately. It also looked at what some of the challenges were if Canadians would show up at a consulate or an embassy and need to get a passport. If they had lost theirs, for instance, what were some of the security arrangements around issuing passports outside of Canada?
Senator Wallin: Was that a bigger issue or concern? The previous guest gave us a figure that 2.8 million Canadians live abroad. Is that a larger issue for you people who are in Kuala Lumpur and maybe do not have a copy of their birth certificate handy with them, or was it just as serious a concern in downtown Ottawa or Winnipeg?
Ms. Loschiuk: The concern that the audit covered off in 2005 was whether or not there was appropriate security around the documents that were being given. I think there was some concern that those documents were deemed to be temporary and may not have had the same level of security embedded in them that more permanent passports did. That was back in 2005, so that has changed.
Senator Wallin: That was the other point I was going to make.
In general, what is your sense, as someone in whose bailiwick this issue falls, about the chip?
Ms. Loschiuk: I have not audited the chip. I really have no comments on it.
Senator Wallin: Thank you.
[Translation]
Senator Nolin: I will ask the question in French, and then you can respond in English. I want to come back to your 2008 audit of Foreign Affairs and International Trade Canada. They appeared before you, but I wish it would have been the other way around.
[English]
Is it possible to have witnesses come back? I am back in the area of the $25 consular fees. They were audited in 2008 and were told to do their homework properly. Obviously they have not. I want to understand what you have done.
[Translation]
What were your recommendations to them in 2008? I am reading your opening statement, and I want to discuss it a bit further. I was somewhat shocked by the answer earlier. They know the 10-year passports are coming, and the fee structure alone clearly makes that document the more attractive, and thus more popular, option, as compared with the 5-year passport.
They are not in a position to predict what will happen to the infamous $25 consular fee beyond a 5-year period. I see that you called them out in 2008, and perhaps that scared them so much that they did not want to look any farther ahead than five years. But I want to get a handle on the areas you examined in 2008, the recommendations that you made and that were clearly not followed.
Mr. MacLellan: Thank you for your question. I will take you up on your offer to answer in English, if you do not mind. When it comes to accounting jargon, I have a bit of trouble in French.
[English]
In 2008 we did an audit of user fees broadly, as I mentioned. One of those fees was the consular service fee. It is important to understand that the consular service fee, which you are having a discussion about today, is a component of the overall fee charged for passport. As you heard in testimony, Passport Canada transfers it to the consolidated revenue fund, which is accounted for in the financial statement of the Department of Foreign Affairs.
A key issue when determining the suitability for a fee is what the appropriate cost is to be recognized against that fee revenue. In this particular case, what are the costs of providing consular services in relation to the $25?
The first time that we went to look at this, we found that the Department of Foreign Affairs was informing us that the cost to provide consular services were far in excess of the fee. That is essentially to say that if you calculated it on a per passport basis —
Senator Nolin: It would be exorbitant?
Mr. MacLellan: It costs considerably more than $25. That, in turn, resulted in a deficit that they were recognizing and reporting on in relation to that fee.
However, as I think you have heard in testimony, when you apply what they refer to as "activity-based costing" — and I think you heard that term in evidence earlier this week — it is important to ensure that only the costs related to providing consular services are recognized as the activities and the costs associated with that. As well, the ancillary costs that are provided by other parties — those would be indirect-type costs — are included in the calculation so that you get a full cost of what it takes to provide consular services and no more, no less.
Our audit found concerns with respect to how the allocation of cost was taking place. We found that included in the costs that they were saying are associated with the consular services fee, there were things that should not have been there. The real cost of the fee was not as high as it was being reported. In our report we actually recalculated the revenues and expenses and found that there was a trend to profit from the consular services fee. That is an issue distinct from Passport Canada because they are just levying a fee on behalf of someone else. This became very much an issue focused entirely on Foreign Affairs and the work that they did.
The issue was the costing model that was being used. That costing model had a flaw in it because it did not properly reflect the level of activity being formed by different parties and was including too much.
Senator Nolin: You are still talking about Foreign Affairs?
Mr. MacLellan: I am still talking about Foreign Affairs.
Senator Nolin: Okay.
Mr. MacLellan: Our recommendation was you have to go back and revisit your costing model, determine whether or not you are properly reflecting the cost structure associated with providing those services and that it be consistent with the Treasury Board approval you received. They agreed. In context, at the time in 2008 there was a lot of discussion about whether there would be a 10-year-passport and what would be happening. They agreed that they would undertake to do such a review, ensure the validity of the costing model so that it properly reflected the costs, and adopt that in their reporting in their performance report, all for Foreign Affairs.
We have not gone back to audit that since that point in time. I reviewed their documents. In their performance report I see they make mention of adopting a new costing model. I have listened to the testimony of the witnesses from Foreign Affairs who refer to the fact that they have a new costing model and that its cost and revenues are equal. However, I cannot comment on whether that is or is not the case since I have not done any follow-up work on it. Obviously, that is an important line of questioning for you not just with respect to the consular services fee, but being comfortable that due diligence has been provided by both Foreign Affairs and Passport Canada in the development of their costing models.
If I may make one final comment, one of the things that we often look at when we go back and discuss with departments is to see what action plans they have developed in relation to our recommendations, how they have been implemented in a given point in time, and whether or not internal audit has played a role in validating some of the issues and concerns that have been raised.
I hope that answers your question.
Senator Nolin: I am even more concerned because the witnesses specifically mentioned that after five years it is a big unknown for them. They may have to come back. What about forecasting?
To add another layer of concern to that, in the 2009 evaluation that you did at Passport Canada, you asked them to really refine their costing model. I specifically asked both gentlemen from Foreign Affairs, "Are you in touch with Passport Canada?" Of course we are. We are consulted. We are working together. We need answers because forecasts for 10 years are for 10 years, not five years and then we will see in five years.
I know we are not talking about a huge amount of per capita dollars, but that is the raison d'être of the request. Do you have any comments?
Mr. MacLellan: My only comment, as I mentioned to the other senator, is that just as much as focusing on the revenues and understanding the model that develops those revenues and what is happening to that in the forecasting, the same applies to the cost; Be comfortable that a good due diligence is performed around establishing and identifying what that cost structure is, and the ability to know whether the level of service that you need to provide will be affected by a change in 10 years versus five years. Those are the types of modeling that would normally be done in helping develop what a fee structure would look like.
Senator Nolin: My colleague Senator Downe mentioned the fact that the price per year on the five years is way over the price of the 10 years. Someone made that calculation. Someone put those numbers together. If we recall last week, Passport Canada told us that they were hoping that Canadians would buy the five-year passport because that would help them to streamline their operation more evenly over the ten-year period. I am even more puzzled by all that because the price will be more.
The Chair: Senator Nolin, that can be our discussion.
Senator Nolin: You may want to ask those witnesses from Foreign Affairs to come back.
The Chair: Yes, we will discuss that later.
Is it fair in a model to say that at some point we will re-evaluate and reassess? In light of their experience, that change has occurred at the border and they had this influx of passports way beyond anyone's anticipation; they were caught wanting. They have come back and said that they will do an analysis. Rather than saying ten years and we will predict what people will do at five or ten, they are saying they will re-evaluate at the five-year point. Is that a valid model in your audit?
Mr. MacLellan: Let me speak to that at two levels, if I may. When we perform audits of any organization we look a lot at modelling and the process of determining forecasts. To answer that question at a very conceptual level, certainly it is necessary to refine one's forecasting as time goes by. I will certainly accept that as a premise. What becomes a particular challenge within the context of a user fee proposal in particular is that when we did the audit in 2008, and I think it is still the case today, the user fees draw considerable attention in a litigious nature from users of those fees, because they are very much interested in whether or not that fee is too much in relation to the cost and/or is cross- subsidizing other fees that might be related to the service.
While your comment is valid that it is a necessary evil, if you will, and it is impossible to predict the future with any certainty, you need to then be constantly reviewing and revising. In the context of a user fee proposal, it is particularly important to try to get that forecasting as good as you possibly can, as early as you possibly can, to mitigate the risks that may arise from it being challenged.
Senator Wallin: To the chair's point, given all the uncertainties we just discussed — 9/11, not knowing how Canadians will react — is it an acceptable practice to say we will look at this issue in five years to see how good our estimates were?
Ms. Loschiuk: I would point out that while we have not audited their model in terms of forecasting demand, but it is a component, when we looked at it in 2009 they did project out five years. It seems from our experience that Passport Canada has always done five-year rolling projections. It is the way they have done business in the past, but we have in our audit, Exhibit 5.3, a chart of what their projections were using this new model. The projections now that we are in, 2012 going into 2013, are not that far off. I would expect they would make sure the new forecasting model is accurate and gives them the right information in terms of demand. Just looking at what they say they have been getting and what they said back in 2009 they thought they would get is not very far off. It is reasonably good.
Senator De Bané: I need your guidance to understand. There are fixed costs and there are variable costs. We were told that in producing a five-year passport or a ten-year passport the costing is exactly the same. You type "5" instead of "10" on your keyboard. There are fixed costs. Whether I want a passport for one week or for 10 years, there is work to be done, a basic cost that is fixed.
I need your guidance to understand because from what I have heard they were costing in order to maintain a certain number of bodies to process those requests. Even if it were five years, ten years, twenty years, how much should we charge to pay the wages of all those bodies that are working? I always thought that the great art is to produce at the least cost, but here we are told, "No, no, for a passport of 10 years it will cost the same as 5 years, but we have to charge more." Why more? There is something I need your guidance to understand. Why do they have to charge more when their costing is exactly identical?
Mr. MacLellan: There are two elements that come into this. You are correct that costing requires an appropriate allocation of the direct costs, which might include salaries, printing costs, all of those different types of things, the chip that goes into the passport, as well as the fixed costs, which in the case of Passport Canada would include such things as the technology they have invested in, computer systems, manufacturing plants, all of those different types of things. In determining a fee, one has to relate to a number of issues in terms of coming up with that fee. The first would be to try to make sure you can properly determine the per-unit cost that is associated with developing the item in question.
I do not know, in terms of their proposal, which is insufficient from the details they provided, what are some of the elements of coming up with that per-unit cost. You can decide in applying activity-based costing, which is certainly very recognized, the number of passports as the base on which to allocate the number fixed costs. You could determine the number of man-hours as the basis to do that allocation, as long as the base on which you do the allocation is reasonable in relation to the service provided.
You would not, for example, allocate out costs of providing passports in relation to the number of auditors there are at the OAG, for example. There would be no correlation whatsoever to something like that. Once you do that, you then have the aspect of what is the base cost of providing that fee.
In the case of a passport fee, you then have to ask that what I charge should then be somewhat in relation to that cost, whether I expect there are changes or variability associated with providing that service. If there is something that I can anticipate is going to be an altering factor, that will deal that. The level of effort to provide a five-year passport or ten-year passport, I do not know the answer to that.
Senator De Bané: They are on record as saying that for ten or five it is the same thing.
Mr. MacLellan: Presumably, that would result in a calculation that produces an equivalent cost. There would have to be some other factor, of which I am not aware knowing that we have not audited this, for what the additional costs will be to drive a different fee structure.
Senator De Bané: The director of financial services was here. I asked him which would cost more: a 10-year passport or a 5-year passport. He said, no, they are the same. You press 5 on your keyboard or you press 10, and it is the same. I can send you the transcript. It was the director of finance. He said that for us, it is the same.
The Chair: We are getting into a discussion rather than questions and answers. I am mindful that we have to vacate the room in seven minutes.
Senator De Bané: Mr. MacLellan is intrigued by this.
Mr. MacLellan: To close this, you are absolutely correct: Those are the types of questions you need to ask to be certain that the cost structure associated with the service provided reflects the cost in delivery. That is a critical aspect in establishing user fees.
The Chair: Senator De Bané indicated that we did due diligence and asked those questions. Thank you for that.
Senator Downe: If Passport Canada is a cost-recovery agency, then I assume there is no additional revenue to go back to the government every year.
Mr. MacLellan: My understanding is that it is a cost recovery organization that operates under a revolving fund. Essentially, the money stays within an account set aside within the government's financial statements to help balance out the ongoing number of years that it will operate. You recognize that when you run any type of operation, you cannot hit zero every day, so they keep the money in this account to help balance things.
My understanding is that revolving funds are consolidated in the Government of Canada, so there would be some recommendation in the overall financial statements. Basically, your understanding is correct.
Senator Downe: How much flexibility do cost recovery agencies have for not recovering the whole cost? We heard from Passport Canada that a decision was made whereby in one area they would not recover the costs, which was for children. Is that common?
Mr. MacLellan: With respect to the regulations involving cost recovery, it is not required that all costs be recovered. The decision on what to charge must be made in relation to the cost, cannot exceed the cost, but does not have to recover all costs. The risk, however, that must be managed by a department in those particular cases is to ensure that they are not prone to an argument of cross-subsidization, where a user may argue that he is paying more so that somebody else can pay less. That becomes an important issue for the department and the organization charging the fee to manage. I have no comments in this particular case on what is right or what is wrong but, in answer your question, that is a particular risk that must be managed.
Senator Downe: Thank you.
The Chair: Thank you, Mr. MacLellan and Ms. Loschiuk, for coming to field our questions and to bring us up to date in your work.
(The committee continued in camera.) |
