ARCHIVED - The Financial Administration Act: Responding to Non-compliance - Meeting the Expectations of Canadians

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5. Criminal Sanctions

The FAA sets out criminal offences for office holders having engaged in certain behaviours connected with the collection or management of public funds.

Research on compliance has confirmed that criminal proceedings are not necessarily the most appropriate—or most useful—first response to instances of mismanagement. In addition to its shortcomings as a deterrent and a tool to modify behaviours, the use of the criminal justice system is costly and slow, and the intervention of many different factors makes the outcome somewhat unpredictable. That said, there are certainly situations where the laying of criminal charges by law enforcement officers stands as a clearly appropriate response.

5.1 The current criminal regime

Corrupt and inefficient practices, described as rampant within federal government departments from the mid-1800s, are likely what led to Parliament's 1867 decision to set out the criminal liability of certain officers for the custody and accounting of public funds in sections of the Revenue Act. The essence of these provisions was retained in successive consolidated revenue acts—including the Consolidated Revenue and Audit Act of 1931—that centralized the financial mechanisms for government spending, thereby allowing for greater executive control.^[8] 

Criminal offences are set out in sections 80 and 81 of the FAA. For the most part, they pertain to corruption of public officials and falsification of records. Section 80 contains one specific offence that is committed when a person who manages funds for the government fails to report to a superior officer, in writing, information about a contravention of the FAA or its regulations.

Despite the long-standing existence of these provisions, a review of reports of judicial decisions rendered in Canada has failed to yield any judgment indicating that they have been used in prosecuting actual or former officials. The Attorney General's Federal Prosecution Service also advises that it has never been referred any charges for prosecution under the FAA by law enforcement officers.

This is not to say that actual or former employees have not been prosecuted. In fact, over the last two years, as reported in the media, there have been a number of occasions involving the laying of criminal charges related to employees' actions in the management of public funds. These charges were laid pursuant to provisions of the Criminal Code.^[9]

Generally, the authority to prosecute offences under the Criminal Code is given to provincial attorneys general. Provincial Crown prosecutors work closely with law enforcement agencies operating in the same jurisdiction and will develop ongoing working relationships with police officers. Those working relationships, along with the familiarity of provincial prosecutors and police officers with the Criminal Code and its workings, are factors in establishing the preference to work with the Criminal Code rather than with the FAA (these prosecutions would normally be handled by federal Crown attorneys).

Under the Policy on Losses of Money and Offences and Other Illegal Acts Against the Crown, all losses of money and suspected cases of fraud, defalcation, or any other offence or illegal act against the Crown must be reported to law enforcement authorities. Police forces normally use a prioritization system to allocate resources to the investigation of a file or a category of files. From our consultations, it appears that these systems do not result in a very high priority being given to files involving breaches of the FAA, except where they may disclose instances of corruption or represent important occurrences of theft or fraud.

The law enforcement officials consulted during the review expressed the opinion that the provisions of the Criminal Code do not leave any gap and are broad enough to allow prosecution in the situations of serious mismanagement that they have encountered. Prosecutors and police officers also expressed a strong preference for working with the Criminal Code, with which they are familiar, rather than with a financial administration statute.

Criminal offences contravene fundamental rules and involve clearly apparent harm.^[10] It is evident that the Criminal Code is a very comprehensive and useful tool for addressing clearly criminal activities.

A comparison between the offences contained in the FAA and those set out in the Criminal Code confirms that all of the FAA offences, save one, are found in both statutes. The exception is the failure to report a breach, which was referred to above, for which there is no counterpart in the Criminal Code.

This raises three possible scenarios: creating offences targeting specifically the responsibilities attributed to public service managers; simply doing away with offences in the FAA, recognizing that they are not used; or creating a regulatory regime in lieu of a criminal regime for FAA‑related offences.

5.2 Examining new directions

The scope of the FAA offences is very narrow. The types of conduct the FAA prohibits do not, for the most part, reflect the range of management duties and obligations. Section 126 of the Criminal Code, a provision that creates an offence for disobeying any federal statute, does fill this vacuum in part. This section is not very useful, however, in securing compliance with those particular provisions nor does it cover the breach of regulations.

The FAA sets out a number of positive obligations and duties, the breach of which could conceivably give rise to offences as follows: 

• subsection 9(1): Failure to keep accounts in prescribed form
• subsections 9(2) and (3): Failure to provide information and any documents required by the Treasury Board
• subsection 17(1): Failure to deposit public money as required
• subsection 31(3): Failure to ensure an adequate system of internal control and audit
• sections 26 and 28: Making payments out of the Consolidated Revenue Fund, except as authorized
• subsections 24.1(1), (2), and 25(2): Forgiveness of debts or obligations in a way other than as provided
• section 160: Breaching regulations, prescribed policies, and procedures

Figure 3 illustrates the offences that Australia, New Zealand, and South Africa have included in their government financial administration legislation and that pertain specifically to duties and obligations created by those statutes. They vary greatly, and the penalties imposed by these jurisdictions also range from the very mild to the very harsh. For example, New Zealand stipulates a maximum $2,000 fine on a summary conviction for anyone refusing or failing to produce information in his or her possession or control relating to financial or banking activities of any Crown asset or liability. For the equivalent offence, South Africa imposes a maximum of 15 years' imprisonment upon conviction. Canada has the equivalent prohibition in the FAA but does not specifically provide for an offence in the event of a lack of compliance.^[11]  

Figure 3. Overview of Offences in Three Jurisdictions

Note: The UK does not have a general financial management statute.

Description of Offence	Australia[12]	New Zealand[13]	South Africa[14]
Public money paid into a non-official account	√	√	√
Receipt of public money by outsiders without the minister's authority	√
Withdrawals from official accounts made without being authorized by the finance minister	√
Misapplying or improperly disposing of or using public money	√
Refusing or failing to provide information		√	√
Resisting or obstructing persons acting in the discharge of their duties		√	√
Making false statements or giving information knowing it to be false or misleading		√
Committing acts for the purpose of procuring any improper payment of public money or improper use of any public financial resource		√
Failure to keep records			√
Destroying or tampering with records			√
Failure to report suspicious or unusual transactions			√
Unauthorized disclosure			√
Misuse of information			√
Failure to formulate and implement internal rules			√
Failure to provide training or appoint a compliance officer			√
Unauthorized access to or modification of the contents of a computer system			√

 Canada's system of criminal offences for mismanagement has been operating under a duplicated regime. It is not clear that this duplication serves any purpose:

• First, the systematic preference for the Criminal Code may have affected the deterrence value of the existing FAA offences.
• Second, short of creating, funding, and promoting a special investigative and prosecuting capacity with a specific mandate, the federal government does not have any influence over how the law enforcement community approaches breaches of the FAA.^[15]

This leaves the government with limited tools to address serious—though not criminal in the traditional sense of the term—instances of failure to abide by management rules. It raises a question as to whether a criminal regime that only minimally takes into account the specific nature of the FAA remains an appropriate tool.

The discussion above also raises the question of whether it is appropriate to have two sets of offences that practically duplicate each other. Removing the criminal sanctions would recognize that a threat of stiffer punishment does not bring about behaviour change and is not always appropriate in all situations. If accompanied by new administrative or regulatory sanctions, it also creates distinctions between fundamentally criminal behaviour and immoral behaviour that is not criminal at root. Law enforcement officers are more familiar with the Criminal Code and can efficiently work with this regime.

 

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