Auditor General Sheila Fraser warned the government faces long-term fiscal pressures that will mean "very hard choices" between raising taxes or cutting programs, as she bid farewell to a decade as the country's top financial watchdog Wednesday.

In her final public appearance before a luncheon crowd at the Canadian Club of Ottawa, and in remarks to the media afterward, Fraser said there had been much progress in the government's financial management over the past 10 years.

But she said she worries that a smaller workforce due to the aging population "could potentially mean less revenues coming in, greater pensions going out, greater costs for healthcare." That’s in addition to costs from the impact of climate change and an aging infrastructure.

And she reserved special attention for the "truly shocking" lack of improvement in living conditions on First Nations reserves.

Fraser was adamant that the government needs to better prepare Canadians for the choices that lie ahead.

"It could be an increase in taxes, it could be a reduction in programs. But there’s only really two areas that you can work on to be able to balance the budget. Unless we decide, we are going to leave a debt for our children and grandchildren," she said in response to a reporter's question.

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Auditor General Sheila Fraser delivers her final speech in Ottawa, Wednesday May 25, 2011. (Adrian Wyld/Canadian Press)

Fraser said she encouraged the government to make available its long-term fiscal projections because "without them, we cannot begin to understand the scale and complexity of our financial challenges and the implication of policy choices."

Lack of progress for First Nations

On the issue of conditions on First Nations reserves, Fraser said "conditions are getting worse instead of getting better."

Over the course of her 10-year mandate, her office produced no fewer than 31 audit reports on aboriginal issues. And last year, Indian and Northern Affairs Canada reported there was little or no progress in the well-being of First Nations communities, a gap Fraser called "unacceptable."

Fraser's greatest hits

It’s no exaggeration to say that outgoing Auditor General Sheila Fraser is one of the most important — not to mention popular — Canadian national figures of the last decade.

Known for her scrupulousness, forthright manner and general unflappability, she issued sharp but even-handed critiques of the spending practices of both Liberal and Conservative governments that ruled during her tenure.

An accountant by trade, Fraser joined the Office of the Auditor General of Canada as Deputy Auditor General, Audit Operations, in 1999. She was appointed Auditor General in May 2001.

Her tenure ends May 30 and it has been lively, to say the least. Read a list of the issues — and quotes — that defined her term.

"I actually think it’s quite tragic when you see that there is a population in this country that does not have the sort of basic services that Canadians take for granted."

Fraser called for "a fundamental re-look" at how programs and services to First Nations have been structured, and how they’re being delivered.

Despite "some" federal action to her recommendations over the years, Fraser maintains too many First Nations people still lack clean drinking water, and notes there is no legislation that sets out responsibilities for educating children on reserves and no assured funding.

Fraser summarized her reflections in a special report titled, Serving Parliament Through a Decade of Change.

In it, Fraser also concludes the 2003 sponsorship audit was "a pivotal event with a lasting impact" both inside her office and beyond.

Canadians will remember Fraser as the civil servant who blew the lid off what became known as the sponsorship scandal, in which money to promote the Government of Canada in Quebec was funnelled back to members and friends of the Liberal Party of Canada for little or no work done.

Civil servants "broke just about every rule in the book," Fraser said at the time.

Looking back on the sponsorship audit, Fraser said it "affected the way our Office was seen by the government and the public and, just as important, the way we saw ourselves and the importance of our role."

2010 battle showed need for independence

To continue to do its work properly, Fraser said the Office of the Auditor General must remain independent.

In April 2010, Fraser reported that some departments and agencies were refusing her access to complete audits of the acquisition of military helicopters and the government's budgetary measures.

"In a couple of the audits that we did, notably development of IT systems, we had difficulty getting information from the Treasury Board Secretariat. They indicated at the time, that all the information within the Secretariat was a cabinet confidence, which we did not accept. ... A lot of the information was not going to cabinet, was not discussions between ministers," Fraser said Wednesday.

However, as she notes in her special report, "at the last minute" the government agreed to instruct the departments and agencies in question to provide the information requested.

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Host Evan Solomon talks with Ian Capstick, Geoff Norquay and Tim Murhpy about Bob Rae, Sheila Fraser and Jim Flaherty's announcement he'll phase out the per-vote party subsidy when he "reintroduces" his budget June 6. Listen to the Power & Politics War Room podcast.

Although the issue was resolved, Fraser believes the office of the Auditor-general must "actively" protect its independence.

For example, Fraser said the office, along with those other Officers of Parliament, must continue to push for a funding arrangement "without real or perceived influence on its ability to fulfill its duties."

Fraser's final reports

The recent federal election delayed Fraser's final spring 2011 reports, which were to be released in April. With Parliament scheduled to return on June 2, those reports are expected to be tabled June 9, after Fraser's May 30 departure.

Fraser's final report includes two chapters on the G8 and G20 summits, one looking at money spent during the summits and a second at the G8 Legacy Infrastructure Fund that pumped millions into then industry minister Tony Clement's Muskoka-Parry Sound riding, which hosted the G8 summit.

Another chapter in her spring report looks at the way in which the Defence Department implemented a pension plan for the reserve force. Other chapters will be follow-up audits on projects like large technology projects, programs for First Nations on reserves and the RCMP's policing services.

Fraser said a permanent replacement would likely not be in place until the fall, in part to give Parliament an opportunity to review the nominee, as yet to be named.

In the meantime, CBC News has learned that Fraser's deputy, John Wiersema, would be named acting auditor general, and will present the office's next review of government spending in early June.

A search for the next auditor general began last October with a notice of vacancy.

The job description clearly states, "The Auditor General of Canada is an Officer of Parliament who is independent of the government of the day."

The job comes with a salary of $322,900 but no mention is made of the length of the mandate.

Ms. Fraser was appointed for a 10-year term.

LIVE BLOG RECAP: Fraser's final remarks

Corrections

  • This story has been edited from an earlier version to update the date when the Auditor General's Spring reports and status reports will be tabled. That date is now June 9.
    May 27, 2011 12:15 PM ET