audit and its evolution over the past 10 years, and the efforts my Office has made to identify problems and seek reform in central agencies and in program delivery. In this chapter I want to concentrate on a theme that is central to our Office and dear to my heart: how to improve the way spending is managed in the public sector. Despite honest efforts and repeated commitments to improvement, expenditure management in the federal public sector is still not as good as it should be and can become. To this end, I set out some basic principles that should be informing spending decisions and practices in a parliamentary system of government like our own, and I draw out some of their implications. I also discuss how a strong framework of values and ethics and appropriately structured incentives can help to ensure that these principles of public spending are observed. Despite the retrenchment and cutbacks of the past decade, spending by the federal government remains at historically high levels - roughly $175 billion a year. How well this money is spent is clearly of great interest to the taxpayers, who bear the cost, and to the public at large, on whose behalf the spending takes place. Earlier this year, the disclosure of serious shortcomings in the management of grants and contributions at Human Resources Development Canada (HRDC) created a major stir. Public reaction was strong because the amounts involved were large and also, I believe, because years of rising taxes