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2003 November Report of the Auditor General of Canada

November 2003 Report—Chapter 3

Case Study 3.1—Transactions with Crown entities are cause for concern

Sponsorship of television series

Around 1998, PWGSC's Communications Coordination Services Branch (CCSB) agreed verbally to sponsor several projects, including television series produced by L'Information essentielle Inc., a private production company in Quebec. We do not question the merits of these series, nor do we question any of the actions of L'Information essentielle.

A representative of L'Information essentielle told us the following:

  • He had approached the Executive Director of CCSB about having the Government of Canada sponsor three different television series.
  • The Executive Director agreed, and verbally committed the government to funding that included $7.5 million for a series on Maurice Richard, $1.2 million for Le Canada du Millénaire, and funding for a series called 'Innovation.'
  • No business case was presented; the Government of Canada did not sign a contract with the company; and no other documentation or exchange of correspondence between the government and L'Information essentielle reflected these commitments.

Maurice Richard Series—1998 to 2000

Funds advanced to a private sector company on the basis of verbal agreements

According to a representative of L'Information essentielle, he was told by CCSB's Executive Director that the company would receive $7.5 million in sponsorship funds, from a variety of sources for the Maurice Richard series. Subsequently, the Executive Director told L'Information essentielle to contact VIA Rail and Canada Post for portions of the funds; the rest would be transferred from CCSB to L'Information essentielle through a number of communications agencies.

VIA Rail. VIA told us that initially it had turned down the request by L'Information essentielle. Later in 1998, however, CCSB asked VIA to advance the money on the understanding that it would be reimbursed once PWGSC received supplementary funding from Parliament (it did not have money in its current appropriation). VIA Rail's President informed us that he had agreed to advance the money to L'Information essentielle based on a verbal agreement with the Executive Director of CCSB.

He added that in his opinion, if CCSB had been unable to reimburse VIA Rail, VIA would nevertheless have received full value for its expenditure in the form of valuable visibility on the television series. VIA Rail was unable to provide us with a business case or any other analysis prepared at the time to show how the decision was made or what results were expected.

On 7 December 1998, L'Information essentielle invoiced VIA Rail the sum of $650,000 plus taxes as production costs for the Maurice Richard series. On 31 August 1999, L'Information essentielle sent VIA two identical bills, each for $130,000 plus taxes. A representative of L'Information essentielle informed us that his company had invoiced VIA Rail on the instruction of CCSB's Executive Director. He further stated that the two invoices for identical amounts had been issued to VIA Rail on the same day because VIA had asked for two invoices.

VIA Rail paid L'Information essentielle for all three invoices, a total of $910,000 plus taxes, without a contract with L'Information essentielle. VIA Rail recorded the $910,000 as an accounts receivable from the Government of Canada (this was reflected in VIA's financial statements for 1999).

Later in 1999, the Executive Director of CCSB with whom VIA had a verbal agreement retired. The President of VIA Rail informed us that he had negotiated with CCSB's new Executive Director to recover the amount that VIA Rail had advanced. While VIA Rail's financial records show that the entire $910,000 had been recorded as a receivable, the President informed us that it was his understanding that only $750,000 would be recovered from CCSB.

In December 1999, CCSB entered into a contract with Lafleur Communication for $862,500 in production services, but the real purpose was to reimburse VIA Rail. The contract stated that the $862,500 was for work to be done between 23 December 1999 and 31 March 2000. The contract was worded in very general terms and was not clear on what Lafleur was to deliver. In February 2000 Lafleur invoiced CCSB for $750,000 plus $112,500 for the agency's commission of 15 percent—for delivering the cheque.

On 31 March 2000, VIA Rail invoiced Lafleur for $750,000 plus taxes for sponsorship funding and on the same day VIA received payment by cheque. The VIA invoice mentioned sponsorship but made no reference to the true substance of the transaction—repayment to VIA for part of the money it had advanced to L'Information essentielle on CCSB's behalf. VIA considered writing off the remaining $160,000 since it had been set up as an account receivable. However, after its management concluded that VIA had received good visibility from the series, the $160,000 was finally recorded as an advertising expense.

An internal review by PWGSC in 2002 revealed that when the contract was set up, CCSB staff knew the real purpose: to reimburse VIA Rail for the funds it had advanced to L'Information essentielle the year before for the Maurice Richard series. In our opinion, CCSB created a fictitious contract and made payments of $862,500 that contravened the Financial Administration Act.

In our opinion, given the highly unusual nature of these transactions such as

  • the use of scarce VIA Rail funds to advance money to a private sector production company on CCSB's behalf without a contract or other legal obligation to do so, and
  • the issuing of a fictitious invoice to a communications agency, Lafleur (which neither had a contract with VIA nor had rendered VIA any services) in order to recover a part of the funds in the full knowledge that any funds recovered would be coming from CCSB,

we would expect that as a minimum, VIA Rail's Board of Directors and especially its Audit Committee would have been informed of these transactions. This did not happen. VIA's management has informed us that the dollar amounts of these transactions did not require its Board's approval.

It appears that these transactions were part of an elaborate process used to obtain funds from current PWGSC appropriations, in order to pay for a highly irregular and questionable expenditure incurred by VIA Rail in the previous year and also to facilitate the payment of a commission to the communications agency. In our opinion, this resulted in the circumvention of the parliamentary appropriation process.

Canada Post. We are concerned about a lack of documentation to support payments made by Canada Post for the Maurice Richard series. Canada Post paid L'Information essentielle $1,625,000 (plus taxes) with no signed contract. There was no signed proposal or written business case to support the decision to spend $1,625,000. Canada Post informed us that it had received a proposal from L'Information essentielle listing costs and benefits, but we found that the proposal was neither signed by L'Information essentielle nor accepted in writing by Canada Post. Canada Post also informed us that it had done a cost-benefit analysis, but it provided us with no evidence of this.

Canada Post's sponsorship policy requires that it document the objectives and budget for sponsoring an event and the results it expects to achieve for its investment. Canada Post has agreed that written documentation to support its decision to be a main advertiser on the series would have been desirable. However, Canada Post informed us that it entered into this transaction in order to achieve marketing and not sponsorship objectives. Given that Canada Post was identified as a sponsor on the series and invoices indicate that it was sponsoring the production of the series, we believe that Canada Post should have followed its sponsorship policy and maintained appropriate documentation.

CCSB. Including the money it reimbursed to VIA Rail, CCSB paid L'Information essentielle in total $2.97 million in sponsorship funds through ten separate contracts with four different communications agencies and an agency of record. CCSB did not have a written contract with L'Information essentielle and we saw no evidence of any rationale for selecting this production firm. We saw no proposal from L'Information essentielle describing the objectives and the total cost of the series.

A representative of L'Information essentielle informed us that no contract had been drawn up with CCSB or anyone else; CCSB's Executive Director had never asked for one. The representative also stated that the four communications agencies neither had any contracts with L'Information essentielle nor did any work for it.

We saw no documents supporting CCSB's decision to spend $2.97 million on sponsorship for the Maurice Richard television series and no business case indicating the government's total contribution to the production cost and the results the expenditure was expected to achieve. The four agencies and the agency of record received commissions totalling about $438,000 for simply transferring the money to L'Information essentielle.

Most of the cost of the series was paid by CCSB, and although Canada Post and VIA Rail had several commercial spots throughout the four-hour program, the federal government received visibility only through the appearance of the Canada wordmark in the opening and closing credits. We do not question the artistic merits of the series, nor have we analyzed the value of the visibility it provided to the government. Our concern here is about the large commitments of taxpayers' money made without documented objectives, analyses, and contracts, and with no evaluation of the results by CCSB.

It appears that these transactions were in essence designed to transfer money from CCSB to L'Information essentielle. We found no exchange of correspondence or other documentation between these two organizations. We are concerned about the method used to transfer the funds, which went from CCSB to L'Information essentielle through intermediary organizations. None of the contracts between CCSB and the communications agencies mentioned that the agencies were to transfer the money to L'Information essentielle. The design of these transactions hid the source of the funding and the true substance of the transactions. The parliamentary appropriations process was not respected.

Le Canada du Millénaire Series—1998 to 2000

Unusual methods of funding Millénaire series

From 1998 to 2000, the government paid about $1.7 million to L'Information essentielle through various funding mechanisms to sponsor Le Canada du Millénaire, a series with a total budget of $2.5 million. CCSB had no written contract with L'Information essentielle.

CCSB used a complex series of funding mechanisms to move the money to L'Information essentielle through communications agencies, Business Development Bank of Canada (a Crown corporation), and private entities. The true nature of the transaction was hidden by the structure of the transfers, which are set out below:

  • In 1998, Business Development Bank of Canada (BDC) made two payments totalling $250,000 directly to L'Information essentielle, without a written contract.
  • In July 1998, CCSB gave a total of $143,750 to two agencies, who paid $125,000 directly to L'Information essentielle and retained the rest as a commission for making the transfer.
  • In June 1999, CCSB gave the same two agencies another $143,750; in March 2000 the agencies transferred $125,000 to BDC, and on 31 March 2000 BDC issued a cheque for $125,000 to L'Information essentielle.
  • The Canada Information Office (CIO) gave $1.2 million to BCE Media, who then gave $1.2 million plus its own contribution to L'Information essentielle for the Millénaire series.

We saw no business case showing what visibility the government was to receive from the series and no analysis of what it did receive. We did not see a post-mortem report in the files. Commissions totalling $37,500 (15 percent) were paid to the two communications agencies for simply transferring money, with little indication that they had added value. We saw no analysis or rationale to explain why CCSB chose to pay L'Information essentielle through a Crown corporation or through a communications agency.

BDC, the Crown corporation, was used to facilitate the transfer of $125,000. In January 2000, Lafleur Communication Marketing instructed BDC to invoice Media/I.D.A Vision, CCSB's agency of record, for $125,000. BDC received that amount from Media/I.D.A Vision and then issued a cheque to L'Information essentielle for $125,000. BDC officials told us this flow-through transaction was processed on one-time "accommodation" basis on the last day of the CCSB fiscal year given that no BDC funds were involved, and that they had been informed at that time that an administrative error had been made by Media/I.D.A Vision. The BDC officers approving the payment appear to have gone beyond the financial authorities delegated to them. As noted later, in our opinion BDC should review and clarify its delegation policies.

BDC informed us that it had transferred the funds from Media/I.D.A Vision to L'Information essentielle on instructions given in error by Lafleur and that the funds should have been transferred directly by Media/I.D.A Vision to L'Information essentielle. However, BDC complied with these instructions by issuing invoices to Media/I.D.A Vision and in turn paid L'Information essentielle with the money it received. The individuals who prepared those invoices are no longer with BDC and its current management could not explain the reasons for the issuance of invoices and the transfer of funds.

However, in CCSB's files we found that in April 1999, nine months before Lafleur's instructions to BDC, CCSB had entered into contracts with Lafleur and Media/I.D.A Vision for $125,000 to sponsor the special event/activity "Millénaire BDC." CCSB paid Media/I.D.A. Vision $100,000 in June 1999 and $25,000 in February 2000; Media/I.D.A Vision's transfer of $125,000 to BDC was made in March 2000. It would appear that BDC's participation in the transfer of $125,000 to L'Information essentielle on 31 March 2000 was not made in error, given that CCSB had contracts and money already in place for the transfer to BDC. We observed that BDC had written to CCSB as early as May 1998 with the L'Information essentielle proposal for Le Canada du Millénaire series.

While we have not received an adequate explanation for BDC's participation in these specific transfers, the files do explain its participation in the sponsorship of the series. BDC expected to receive visibility valued at $500,000, half of which it paid; the remaining half was provided by CCSB. In effect, CCSB subsidized the operations of this Crown corporation. CCSB should have asked the Treasury Board for authority to transfer funds to BDC. By not doing so, CCSB violated the intent of the Treasury Board's transfer payment policy.

BDC had no contract or other written agreement with Media/I.D.A Vision, Lafleur Communication Marketing, or L'Information essentielle, and it is most unusual that BDC would receive program funding from a government department. Following changes in BDC's management, we have noted several improvements in its sponsorship activities, as the following discussion of the television series "Innovation" demonstrates.

Innovation Series—1999 to 2004

Some concerns and some improvements

In this case, according to a representative from L'Information essentielle, CCSB's Executive Director verbally committed the government to providing funds for several television series, including one on innovation. When the Executive Director retired in 1999, his successor at CCSB declined to sponsor the series. Following a discussion between L'Information essentielle and staff in the Minister's office, the government agreed to sponsor the series. We did not see any business case specifying what the government would receive or any analyses to support this decision.

Télémission Information Inc., a company related to L'Information essentielle, approached the Business Development Bank of Canada (BDC) and also requested funding for the series. The process by which this project was approved is unclear. BDC went to Communication Canada (which by then had replaced CCSB) in September 2001 to ask for $700,000 annually for three years. BDC itself would contribute $75,000 annually. In October Communication Canada agreed to give BDC $700,000 annually to help finance the Innovation series. We question the involvement of a Crown corporation in routing funds from a department to a private sector company, Télémission Information Inc., when the department (Communication Canada) is contributing 90 percent of the funds. We saw no evidence that the Treasury Board was informed about the transfer of departmental funds to a Crown corporation for this series.

In October 2001, the new management at BDC began contract negotiations with Télémission Information Inc. and signed a $2.325 million, three-year contract in February 2002. Concurrently, BDC signed an agreement with Communication Canada for $2.1 million which BDC would receive; it would also contribute $225,000 of its own funds.

BDC explained that because the subject matter of the series—innovation—was a core element of BDC's Corporate Plan, it agreed to manage the project on behalf of Communication Canada and to ensure that the series addressed the theme of innovation, a government priority. Communication Canada would provide a link with 15 federal departments who would contribute $10,000 each.

We do not understand why Communication Canada, as the main contributor to the series, does not have a contract with Télémission Information. We are concerned that without a contract, it has no way of ensuring that Télémission Information delivers the benefits expected for the government; Communication Canada is relying on BDC to carry out this responsibility on its behalf.

In a separate agreement with L'Information essentielle, VIA Rail agreed to contribute to the Innovation series and paid $175,000 for one year, in exchange for four 15-second commercial spots on 104 episodes.

BDC reissued cheques that it received from Communication Canada ($700,000) to L'Information essentielle rather than to Télémission Information. The BDC officers approving the payment appear to have gone beyond the financial authorities delegated to them.

BDC officials again told us that this transaction was exceptional and was not contemplated by its policy on delegation of authority. BDC decided that the delegation limits did not apply because in its view CCSB was paying $700,000 and their own costs were only $75,000. We recommend that the Bank's policy on Delegation of Authority be clarified on that issue so that the aggregate amount of any future such payments would be taken into account.

Some significant improvements. Unlike the Maurice Richard and Millénaire series, for the Innovation series there is a contract between BDC and Télémission Information Inc. that defines deliverables, a timeline, and terms of payment. There is also a formal agreement between BDC and Communication Canada that describes their respective roles and responsibilities and the deliverables and costs of the project. No communications agencies were used in the transfer of funds and therefore no commission fees were paid.

As the project manager, BDC is taking steps to ensure that it receives from Télémission Information/L'Information essentielle what it has paid for by monitoring progress against deadlines, ensuring that deliverables are in accordance with the terms of the contract, and withholding payments when terms have not been met. Overall, we found adequate documentation and transparency. BDC is keeping Communication Canada informed about the status of the project.


Inappropriate transfer of sponsorship funds for a Crown corporation's capital asset

Old Port of Montreal—Sponsorship
Screen, Visibility Plan, and Production—2000-01

As part of its operations, Old Port of Montreal wanted to purchase a giant screen for its Science Centre but lacked sufficient funds. We were informed that initially Old Port had approached CCSB to obtain funding for the giant screen. However, CCSB did not provide it with any funds. Following a presentation by Old Port to the Minister of Public Works and Government Services Canada, CCSB offered verbally to provide $1.5 million in sponsorship funds in return for federal visibility.

Rather than make a direct payment, CCSB contracted with Lafleur Communication Marketing and Media/I.D.A Vision (CCSB's agency of record) to transfer $1.5 million to Old Port. The files contain nothing to support the selection of these agencies. CCSB paid the agencies $225,000 for facilitating the transfer. The files did not show what, if any, value the Crown received for the $225,000.

Although Old Port had not signed a contract with the agencies or with CCSB, it was informed by Lafleur that it would receive $1.5 million in April 2000. Old Port decided, with no involvement from Media/I.D.A Vision or Lafleur, to launch a process for issuing a $1.5 million contract to acquire a giant screen and related programming services. In August 2000—after it had issued the purchase order to the supplier—Old Port received $1.2 million as the first payment from Media IDA Vision. At the time of our audit, Old Port had not received the remaining $300,000 it had been promised.

CCSB awarded additional contracts to Lafleur to create visibility for the government on the giant screen—for example, $100,000 to develop a visibility plan and $57,000 to produce video clips, $40,000 of which work was subcontracted out. In total, CCSB paid Lafleur $297,000 in various fees to transfer money, to produce a visibility plan, and to subcontract production work. We found nothing in the file to show specifically what CCSB expected to receive from Lafleur or what it did receive.

In large part, the substance of the transaction was a transfer of funds from CCSB to Old Port of Montreal to buy a capital asset for Old Port. CCSB should have asked the Treasury Board for the authority to transfer funds to Old Port. By not doing so, CCSB violated the intent of the Treasury Board's transfer payments policy, which was designed to ensure that a grant or contribution is not used as a substitute for financing a Crown corporation's operating or capital requirements. The Treasury Board Secretariat was not consulted or given a business case to support this purchase.

In our opinion, CCSB did not have the authority to transfer money from PWGSC's appropriation to support the operations of a Crown corporation. It spent nearly a quarter of a million dollars on commission fees to two agencies for transfering money between two government entities. CCSB paid fees to the same agency for the transfer, for production, and for subcontracting work, with no supporting business case and no written agreement with Old Port of Montreal.


Sponsorship funds used to support commercial operations of a Crown corporation

Canada Post—Sponsorship
Concours création de timbres—1998-99

In early 1998, Canada Post Corporation (CPC) decided to participate with the U.S. Postal Service in a stamp competition with over 30 other countries. We did not see any documentation to support Canada Post's decision. For example, there was no business case that documented the project's objectives and budget or the expected results that would be a benchmark against which the success of the event could be measured. Canada Post hired Lafleur to manage this project, including finding partners. One of the partners solicited by Lafleur and the only financial contributor to the stamp competition was CCSB.

With no written agreement between them, CCSB paid Canada Post $521,739 through Lafleur and Media/I.D.A Vision, with whom CCSB had contracts. The two agencies received $78,261 (15 percent) in commission fees simply for transferring the money. We do not understand why CCSB did not pay Canada Post directly and avoid paying the commissions. CCSB's contract with Lafleur provided no indication of the extent of visibility the government expected to receive for the $521,739.

In return for receiving the funds, Canada Post provided visibility for the Government of Canada. We question the value of this sponsorship, since Canada Post was already required to display the Canada wordmark on all its corporate identity applications, under the Treasury Board's Policy on Federal Identity Program (FIP). CPC has informed us that while they have not quantified and documented the extent of additional visibility received by the government, in their opinion the presence of ministers at various functions and the prominent display of the Canada wordmark did provide additional visibility.

Canada Post's sponsorship policy requires that it document the objectives and the budget for sponsoring an event and the results it expects to achieve for its investment. Canada Post did not follow its sponsorship policy. It acknowledges that additional documentation would have been desirable but informed us that it disagrees with our conclusion. In its view, the stamp contest was not a sponsorship transaction but rather a marketing activity, a strictly commercial operation.

We note that the $521,739 came from the government's Sponsorship Program. In our opinion, sponsorship funds were used to support Canada Post's commercial operations and violated the intent of the Treasury Board's transfer payment policy, which stipulates that a grant, contribution, or other transfer payment should not be a substitute for financing a Crown corporation's operating requirements.

We observed that of the $521,739 it received from CCSB, Canada Post paid Lafleur $516,000. However, Canada Post did not have a contract with Lafleur. Canada Post's own contracting policy requires competitive tendering for acquiring goods and services. Canada Post officials informed us that they had awarded the contract to Lafleur on a sole-source basis because of the quality of services Lafleur had provided in the past. However, we found no documentation on file containing any analysis or other rationale to support this decision.

One of Lafleur's invoices, paid by Canada Post, shows a commission to the agency of 17.65 percent, which CPC informs us was for finding partners and for ad placement fees. In normal circumstances, a contract would specify both the work to be performed and the fee structure. In the absence of a contract, we cannot determine on what basis charging the commission can be justified. We are concerned about the various fees paid to Lafleur by CCSB and Canada Post to transfer money that was destined for Lafleur in any case.

We found that both Canada Post and CCSB purchased similar goods from Lafleur (concept design and production of prototypes, or maquettes). Canada Post told us it had not been aware that CCSB too had engaged Lafleur to produce the goods, and Canada Post did not receive any goods for the event from Lafleur on the government's behalf. We informed Canada Post and PWGSC and asked them to confirm with Lafleur that double payments were not made.

Overall, we found that neither Canada Post nor CCSB had a business case to support their involvement in this stamp competition. The communications agencies were selected by CPC without competition. There is no evidence of any post-event analysis of what CCSB received for the money it spent. We do not understand why CCSB paid for a Canada Post event that should have been considered part of Canada Post's normal operations, especially when Canada Post paid Lafleur most of the funds that it had received through Lafleur in the first place.


Questionable sponsorship funding for VIA Magazine

VIA Magazine—Sponsorship
1997 to 2000

In 1997, Lafleur Communication and Marketing made a proposal to VIA Rail to produce the VIA magazine at an estimated yearly cost of $1.8 million. A total of 45,000 copies would be distributed including 30,000 on trains. CCSB and VIA entered into separate agreements with Lafleur, each stating that it would pay $500,000 annually. Lafleur would seek funding for the remaining $800,000 by selling space in the magazine to other advertisers. From 1997 to 2000, CCSB had five separate contracts with Lafleur, and the funding was provided by the Sponsorship Program. There was no written agreement between CCSB and VIA Rail.

During 1997 to 2000, VIA Rail and CCSB paid Lafleur a total of $3,564,500—about $1,574,000 from VIA and $1,990,500 from CCSB. There was no competitive process to solicit other potential suppliers of the services Lafleur was to provide, although two other companies indicated a willingness to produce the magazine.

Lafleur subcontracted all of the publishing to its subsidiary, Satellite Publishing Inc. In 2002, an internal review by PWGSC found that one individual, who was the President of Lafleur Communications Marketing, the President and Publisher of VIA Magazine, and the President and Editor of Satellite Publishing/Les Éditions Satellite Inc. had been responsible for getting the sponsorship funding, creating and managing the publishing vehicle (VIA Magazine), and printing the magazine. Although the Crown paid two thirds of the cost of the magazine, Lafleur retained the magazine's ownership.

There was no evidence that any subcontracting of work followed a competitive process, as required by CCSB's sponsorship contract with Lafleur. Occasionally, CCSB paid Lafleur invoices that showed commission fees of 12 percent to 15 percent charged for subcontracting work to a related company. CCSB did not question the relationship between Lafleur and the subcontractor to determine if the commissions charged were in compliance with the contract terms. We elaborate on this issue in paragraphs 3.76 and 3.77.

In 1997, VIA had a two year agreement or Letter of Intent with Lafleur to share 50 percent of annual profits and losses up to a maximum of $100,000 and VIA would receive or pay $50,000 per year, This agreement was not amended although the magazine continued to 2000. We saw no evidence that VIA received financial reports from Lafleur until the final year, 2000. During the three and a half years, Lafleur declared no losses and VIA received no profits except in the final year, when VIA received $50,000 from Satellite Publishing. VIA informed us that the Vice-president of Marketing responsible for this file reviewed the annual budget, actual results and reconciliation to ensure that VIA's interests were well protected. While VIA Rail provided some documentation of costs for the year 2000, we are concerned that we had not seen adequate documentation to demonstrate that there was adequate monitoring in prior years.

In September 2000, just before the magazine was to be cancelled, VIA asked CCSB to transfer the remaining $205,000 that CCSB would have contributed to the magazine, for an upgrade of signs at train stations across Canada. CCSB transferred the $174,246 to VIA through Lafleur, which retained $30,754 or 17.65 percent as a commission for simply facilitating the transfer. We saw no documented rationale for CCSB's use of sponsorship money to subsidize operations that would normally be VIA's operating cost. Here, again, CCSB should have asked the Treasury Board for authority to transfer funds to VIA. By not doing so, CCSB violated the intent of the TB's Transfer Payments policy. In our opinion, this resulted in the circumvention of the appropriation process.

Overall, we are especially concerned about what appears to be unnecessary commissions paid for transferring money from one Crown entity to another. The annual payment of $500,000 by VIA was approved by VIA's Board of Directors after reviewing the corporation's plan. In CCSB's files, we found no analysis or justification for this transaction. Lafleur and its subsidiary were not selected by a competitive process, and payments of commission to its subsidiary for printing were made without any challenge by CCSB. The relationship between the parent company and its subsidiary was not properly disclosed as required by the contract. Finally, CCSB's sponsorship funds were used to upgrade VIA's signs, in our opinion violating the transfer payments policy and circumventing the appropriation process.


Sponsorship Program money to subsidize RCMP operating expenditures

RCMP's 125th Anniversary Celebration—Sponsorship
1997 to 1999

In 1997, CCSB decided to contribute to the Royal Canadian Mounted Police's 125th anniversary celebration. Up to 1999, CCSB contributed more than $3 million from the Sponsorship Program through eight separate contracts with two communications agencies and an agency of record. The RCMP received $1,704,000 of that amount through Gosselin, Lafleur, and Media/I.D.A Vision. These agencies retained a total of $244,380 in commission fees for transferring funds from CCSB to the RCMP. The balance, $1,081,910, went to Lafleur and Gosselin to pay for production work related to the RCMP 125th anniversary event.

Of the $1,704,000 in sponsorship funds received by the RCMP, we found only one agreement signed in 1998 between the RCMP and Gosselin Communications (representing the Government of Canada) for $800,000. In return for this money, the RCMP was to provide visibility opportunities that would profile the Government of Canada, including the placement of the Canada wordmark in the RCMP's 125th anniversary activities. We question the added value to the government of this sponsorship, given that the RCMP was already required to display the Canada wordmark under the Treasury Board's Policy on the Federal Identity Program (FIP). We found no documented evidence of any additional visibility received in return for the sponsorship money.

Before our audit, the RCMP had completed an internal audit of this sponsorship event. Its audit had concluded with reasonable assurance that the RCMP had received CCSB sponsorship funds through Lafleur and Gosselin. However, given that not all of the information needed to complete the audit was available, the auditors could not provide reasonable assurance that expenses had complied with applicable sponsorship agreements, policies, procedures, and regulations (including the Financial Administration Act, the Treasury Board's contracting policy, and the Policy on Delegation of Authorities). Nor could the auditors provide reasonable assurance that sponsorship funds and related expenses had been recorded properly and accurately for financial reporting purposes. Subsequently, as the internal audit had recommended, the RCMP started an administrative review of the sponsorship of its 125th anniversary celebrations.

Reconciliation of total dollars for the RCMP 125th Anniversary

RCMP received in cash ($530,000 + $1,174,000)

$1,704,000

Commissions paid to agencies to transfer funds

Gosselin
Lafleur
Media/I.D.A. Vision

$140,880
64,500
      39,000



244,380

Production of goods and services to RCMP

Lafleur
Gosselin

$967,750
     114,160


    1,081,910

Total paid by CCSB

 

 

$3,030,290

Our audit revealed a number of anomalies:

  • A separate non-government bank account was used for all deposits and payments to the RCMP's Quebec Division; this was a contravention of the Financial Administration Act. The internal audit report mentioned that the Receiver General account was not used and approval was not obtained for a departmental bank account—a requirement under Treasury Board policy. In addition, all transactions for Quebec Division were recorded in a manual accounting system rather than in the RCMP's corporate accounting system. We were unable to verify the transactions from the Quebec bank account because some of the supporting documents had been destroyed.
  • CCSB paid Lafleur almost $200,000 for production work that was subcontracted to a company related to Lafleur (Publicité Dézert). We did not see evidence of a competitive process for subcontracting, which the contract required. We found cases where CCSB paid Lafleur for invoices showing 12 percent to 15 percent in commission fees charged for subcontracting work to Publicité Dézert. CCSB did not question the relationship between the two companies to determine if the commissions were in compliance with the contract terms. We elaborate on this issue in paragraphs 3.76 and 3.77.
  • The RCMP spent $65,000 of the CCSB sponsorship funds that it received through Media/I.D.A Vision and Lafleur to purchase goods from Lafleur. Lafleur subcontracted most of this work to Publicité Dézert and again charged a commission. No written contract was issued between the RCMP and Lafleur. According to the RCMP's internal audit report, these expenses were not processed according to the contracting policies of the RCMP and the Treasury Board.
  • We found that both the RCMP and CCSB purchased similar goods from Lafleur. We informed the RCMP and PWGSC of this matter and asked them to confirm with their supplier that double payments were not made.
  • The RCMP used some of the sponsorship funds it received for its own operations. We find this an inappropriate use of sponsorship money. For example, it spent more than $150,000 to hire two co-ordinators for the 125th anniversary celebrations; six horses and two trailers were purchased for $107,268; and an $82,436 surplus of sponsorship money in the Quebec Division was used as a credit against departmental expenditures.
  • There was little documentation in the CCSB's files to support the Sponsorship Program's funding of the RCMP 125th anniversary event. There were no business plans, no visibility plans, and no post mortem report accounting for the value of additional visibility the government received for the majority of the $3 million spent.

In response to our findings, the RCMP has informed us that

  • it agrees with the facts presented in this case;
  • it agrees that the Financial Administration Act was contravened but says the RCMP's own administrative review concluded that this was due to a lack of understanding by local managers and not malicious intent;
  • although it acknowledges that the agencies received commissions on funds transferred to the RCMP, the RCMP did not knowingly pay any commissions directly to the communication agencies; and
  • it takes our findings seriously and has taken and continues to take corrective action.

In our view, most of the expenses were for the RCMP's 125th anniversary celebrations, costs that the RCMP should have been expected to cover from its own appropriations or by seeking supplementary appropriations if necessary. In this case, it appears that appropriations provided by Parliament to PWGSC were used to subsidize the RCMP's operating expenditures. We do not believe that Parliament appropriated funds to PWGSC with the intent that they be used to purchase horses for the RCMP. Given that they were, however, we can see no reason why CCSB did not transfer the funds directly to the RCMP and save $244,380 in commissions.