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1981 Report of the Auditor General of Canada

Introduction

The Corporation

11.1 The Corporation of the National Museums of Canada was established in 1968 by the National Museums Act ( R.S.C. 1870, c. N-12 ). In addition to setting up the office of the Secretary-General, the Act recognized four institutions: the National Gallery of Canada, a museum of fine arts; the National Museum of Man, which includes the Canadian War Museum, and where the story of Man is retold through archaeology, ethnology, folk culture and Canadian history; the National Museum of Natural Sciences, holding collections in the fields of botany, zoology, paleontology and mineral sciences; and the National Museum of Science and Technology, which also houses the National Aeronautical Collection.

11.2 The head office of the National Museums of Canada is in Ottawa. The Corporation is directed by a board of 14 trustees and, since 31 July 1980, has reported to the Minister of Communications. It is designated as a departmental corporation in Schedule B of the Financial Administration Act.

11.3 The National Museums Act sets out the purpose of the Corporation as follows: "to demonstrate the products of nature and the works of man, with special but not exclusive reference to Canada, so as to promote interest therein throughout Canada and to disseminate knowledge thereof." The sub-objectives in the Estimates more specifically express the global objective:

- to acquire objects, artifacts and works of art by field work and purchase;

- to classify, preserve, develop and maintain the collections relative to the products of nature and works of man;

- to conduct basic research including analysis and interpretation of data on the collections and methods of preservation;

- to exhibit objects and artifacts of national cultural and scientific importance in an attractive and interesting presentation to the public to stimulate, educate and inform; and

- to democratize and decentralize museum activities by developing the best possible distribution of cultural resources through a network of museums and providing assistance in restoration and conservation, display and financial support.

Organization

11.6 There is a director for each museum, appointed by Governor in Council, who directs the activities of the museum. The Secretary-General is also appointed by Governor in Council and, under the Corporation's by-laws, is designated as chief executive officer. He is not a member of the Board of Trustees.

11.7 The Office of the Secretary-General includes Central Services and National Programs. Central Services include personnel, finance, administration, security and several other support and technical services. The National Programs Branch is responsible for implementing the National Museums Policy and is made up of a co-ordination division and five directorates:

- Museum Assistance, a program that provides financial support in the form of grants and technical assistance to museum organizations;

- the Canadian Conservation Institute, a laboratory for research into methods of conservation and restoration where highly specialized work is performed;

- the National Inventory Program, which has the goal of compiling a computer-based inventory of the scientific and cultural collections held in Canada's museums;

- the Mobile Exhibits Program, which sponsors caravans that travel across the country with the goal of stimulating curiosity, opening new horizons and enriching Canadians' cultural experience; and

- the International Program, which co-ordinates international exhibitions touring Canada and Canadian exhibits abroad.

(Exhibit 11.1 is not available)

Resources

Environment

Audit Scope

11.12 We did not include in our audit any qualitative issues concerning arts and culture.

Summary of Audit Observations

11.14 During our audit, we noted a number of cases of overlapping jurisdiction and responsibilities at senior levels in the organization. For example, the Secretary-General is responsible for establishing and providing security services for museums, while museum directors are responsible for the safekeeping of their collections. Because the Secretary-General and museum directors all report directly to the Board of Trustees, any misunderstanding with regard to security must be brought before the Board; no single manager has full authority in management matters. In effect, this situation gives general management responsibilities to a Board of Trustees that meets officially only four times a year. Overlapping and lack of precision in defining duties do not promote operational efficiency or accountability of managers for their respective tasks.

11.15 A set of policies is essential to ensure some degree of consistency in action, especially where managers' roles and duties have not been clearly defined. Our audit showed that the National Museums of Canada had begun developing policies in some areas; however, a number of major activity sectors did not have a policy framework approved by the Board of Trustees.

11.16 Considerable progress has recently been made toward better planning in the National Museums of Canada. Achievements have included establishment of a Policy, Planning and Evaluation Group, adoption of a statement of intent that serves as a strategic plan, and revision of the budgetary system on the basis of museum functions.

11.17 Our examination of the statement of intent and the new budget planning system revealed that a great deal remains to be done to complete the general planning framework for the National Museums of Canada. It would be particularly desirable to translate objectives more clearly into measurable terms and to link budget forecasts more closely to priorities, and priorities to objectives. In the absence of such links, it is difficult to establish accountability, and efforts to evaluate program effectiveness may be limited to a simple review of services without reference to the objectives of the National Museums of Canada.

11.18 Our audit of collections management showed that the inventory was incomplete and that documentation was insufficient. Efforts have been made to improve these areas, particularly at the National Gallery.

11.19 In 1972, the National Museums of Canada set up a program known as the National Inventory with the goal of compiling a computer-based inventory of all objects held in Canada's museums. Eight years of work involved expenditures in the order of $7.5 million, excluding $4.3 million granted to Canadian museums through the Registration Assistance program and $1.2 million of services rendered through the Youth Assistance program. However, National Inventory program managers still had not fully evaluated the task at hand, nor had they set up a schedule for completion. It was, therefore, impossible to estimate realistically the progress that had been made. Because the computer systems were already overloaded, the program had been refusing new clients for the past three years.

11.20 In June 1981, program management proposed a change of computers and software to remedy the situation. The proposal was not, however, based on a thorough feasibility study or a clear definition of the needs the program should be capable of meeting.

11.21 In the areas of research and the dissemination of knowledge, we observed that there were weaknesses in the mechanisms for establishing objectives and priorities for planning and control. The results of publication activities illustrate the consequences of such weaknesses. For example, publications were frequently brought out at great expense but, because there was no market for them, they piled up in warehouses.

11.22 Although security services seemed to be adequately managed despite some overlapping responsibilities, the protection of the collections is not necessarily ensured because of the inadequacy of the buildings housing them, which is beyond the control of the National Museums. Collection items are dispersed throughout many of the 43 premises of the National Museums of Canada. The state of a number of these premises is such that the items stored in them deteriorate and are constantly threatened by fire, flood, mould, dryness and so on. Furthermore, several premises have been condemned by the Dominion Fire Commissioner, the Department of National Health and Welfare, and the Department of Labour. National Museums management carried out, with the Department of Public Works, a study of the accommodation needs of the four museums and, in early 1981, presented to Cabinet a number of proposals for solving accommodation problems.

11.23 In 1979 and 1980, the National Museums of Canada ordered and carried out a number of studies on various aspects of human resource management. Following those studies, the Museums began a complete reorganization of the Personnel Administration Branch. It is expected that this Branch will soon be able to help managers gain the knowledge and skills required to improve their management of human resources.

11.24 Since our 1977 Financial Management and Control Study, financial management in the National Museums of Canada has improved. However, we found there were still some major shortcomings with regard to control of revenues and assets.

11.25 In general, the internal audit function of the National Museums of Canada met criteria established by our Office and conformed to the internal financial audit standards developed by the Office of the Comptroller General. However, there were still some improvements required, particularly regarding adherence to plans and the follow-up of audit findings and recommendations.

Observations and Recommendations

Roles and Duties

11.27 Section 7 of the National Museums Act stipulates that, "subject to the by-laws of the Corporation, a director of a museum has, on behalf of the Board, the direction of the activities of the museum for which he is appointed director". Section 8 provides that," subject to the by-laws of the Corporation, the Secretary-General has, on behalf of the Board, the direction and management of the business of the Corporation in all matters that are not by this Act or by the by-laws specifically reserved to the Board, a committee of the Board or a director of a museum". A commonly held view in the Corporation is that these sections confer absolute authority on the four directors for the operations of their museums and residual authority on the Secretary-General, with all five people on an equal footing before the Board.

11.28 Under authority of section 13, the Board of Trustees passed a by-law to define the duties of directors and the Secretary-General. The by-law makes the Secretary-General both the representative of the Board between meetings and the chief executive officer of the Corporation for the purposes of the Financial Administration Act, the Public Service Employment Act and the Official Languages Act. This implies authority over the museums and their directors.

11.29 It is not possible to define roles and relationships or to establish accountability among these positions and between them and the Board of Trustees on the basis of the National Museums Act and the Corporation's by-laws. The Board is, therefore, frequently called on to serve as arbitrator, particularly where there are policy conflicts between Central Services and other components of the organization.

11.30 Security of collections provides an example of this problem. The Secretary-General is responsible for establishing and providing security services to museums; museum directors are responsible for safeguarding their collections. Any misunderstanding regarding security must be brought before the Board of Trustees, as no single manager has full and indisputable authority in this area. The same holds true for almost all areas of management.

11.31 Consequently, there have been undue delays in implementing appropriate planning, co-ordination and management control mechanisms. Since the Board of Trustees holds a regular meeting only once every three months, it finds itself faced with excessive additional work. It is evident, therefore, that the sole authority in policy and co-ordination matters -- that is, the Board of Trustees at its plenary meeting -- can act only sporadically.

11.32 The Board has set up five advisory committees, one for each museum and one for National Programs. The committees, made up of "members of the Board and other persons", provide advice on all matters that the directors present. The National Gallery advisory committee also has decision-making powers regarding acquisitions.

11.33 Since 1970, successive Boards of Trustees have commissioned reorganization studies and have had repeated discussions on the redefinition of the roles of the Board, its Chairman, advisory committees, the Secretary-General and museum directors. No action had been taken on these matters at the time of our audit.

11.34 The Board of Trustees should review the organization studies already carried out, draw appropriate conclusions from them and recommend, to the minister responsible for the National Museums of Canada, an appropriate clarification of the roles, duties, authority and responsibilities within the Corporation.

Policies and planning

11.36 The Board of Trustees should ensure that its policies cover all major activity sectors, that they are consolidated in a manual and communicated to all managers, and are monitored and evaluated to assess compliance and continuing appropriateness.

11.37 Planning. Three major steps toward better planning have recently been taken within the Corporation. The first of these measures was the establishment in 1977 by the National Museums of Canada management of the Planning Secretariat, which was replaced by the Policy, Planning and Evaluation Group (PPEG) in 1979, reporting directly to the Secretary-General. It reviewed, in particular, the activities performed by National Programs, also responsible to the Secretary-General. The Group was also responsible for co-ordinating the preparation of a statement of intent and a multi-year operational plan, in addition to its program evaluation activities, which will be discussed in the next section.

11.38 In December 1980, the Board of Trustees took a second step toward better planning by adopting the draft statement of intent entitled "A National Museum Policy for the Eighties". The document restated general objectives and established the following priorities: improvement of buildings; clarification of government-museums relations; modification of organizational structures; increase of resources; restructuring of the Museum Assistance Program; management of collections; conservation; research; and improvement of public programs.

11.39 None of the planning documents available at the time of our audit contained an analysis of the alternatives that could be taken to reach the proposed objectives. There was no explicit plan of action, and only by examining the budget could we conclude that the plan of action consisted of continuing activities under way since 1972. No clear links could be established between the budget and priorities, or between priorities and objectives.

11.40 The third main element of comprehensive planning was the modification of the budgeting system, in accordance with Treasury Board directives, and the preparation of the first multi-year operational plan, for the 1982-83 fiscal year, based on this new system. The operational plan contains a breakdown of resources for each component by museum function, which meets the need for management information.

11.41 The new format for presenting the Estimates could be the first step toward the development of a performance information system for the National Museums of Canada. However, the operating plan included only a sketchy account of the Corporation's plans for use of the resources available to it. The indication of the nature, frequency or scope of the activities that would be initiated or continued during the fiscal year was not sufficient.

11.42 Moreover, the statement of objectives in the operating plan was not specific enough to be used for performance measurement. For example, the objectives, "to promote high professional standards in all fine arts museum activities" and "to classify, conserve, develop and maintain museum collections" were not sufficiently precise to be used for this purpose. Further, the plan did not show how the objectives were linked with the statement of intent.

11.43 In an attempt to evaluate the performance of the components of the Corporation, the Policy, Planning and Evaluation Group had begun to develop performance indicators in co-operation with the museum directors. However, because objectives were not sufficiently precise and measurable and the planning and control systems did not make provision for a comparison of resource utilization and results with the plans, performance evaluation was not possible and the Corporation's activities could not be effectively controlled.

11.44 The National Museums of Canada should complete its planning and control work by:

- developing a strategic plan including clear, precise objectives, a critical review of possible action plans, a description of the approved plan of action, and an illustration of the links between the plan of action, priorities and objectives;

- including further details in its operational plans to show the activities that will be initiated or continued during the year and the links between resource allocation and the approved action plan; and

- defining appropriate performance indicators.

Program Effectiveness Evaluation

11.46 Because of their nature, many activities of the National Museums of Canada do not lend themselves to short-term effectiveness evaluation. This applies particularly to objectives relating to collection, conservation and research. Nonetheless, some other museum functions are relatively easy to evaluate, and proven techniques exist to do so. Such is the case, for example, in the area of public programs -- exhibitions, presentations and publications. We found, however, that the activities of the four national museums in these areas had not been evaluated because the Policy, Planning and Evaluation Group had focused its attention on National Programs.

11.47 In general, the studies conducted by the Group assessed whether operational objectives had been achieved but did not, for the most part, measure the effects of the programs.

11.48 The National Museums of Canada should carry out a systematic evaluation of its activities in relation to its objectives.

Museum Functions

11.50 Collection. The Board of Trustees recently approved a comprehensive collection policy which includes an acquisition plan for each museum and covers almost every area of interest. The plan did not specify the respective roles and priorities of each museum, with the result that it was not possible to identify their common areas of interest or to assign specific areas of activity to each one to minimize duplication and underutilization of the collections. Without such a plan, each case of overlapping responsibilities must be considered separately. The case of contemporary native art, for example, required specific agreement between the National Museum of Man and the National Gallery. Many other cases remain unsettled for want of specific agreement between the museums concerned.

11.51 In accordance with the new policy, the national museums have started to develop procedures for acquiring, documenting, insuring, handling, maintaining, storing and safeguarding their collections.

11.52 The acquisition process recommended in the collection policy related only to methods of acquisition. It did not require that each acquisition be made in accordance with a predetermined plan and did not take into account the potential use of the objects or the museums' capacity to conserve them and to restore them if necessary. Further, the acquisition process did not require that even basic documentation be prepared before the decision was made to acquire a particular item. This documentation should include at least a description of the object, its history and the rationale for its acquisition.

11.53 Although the policy was specific with regard to procedures and criteria, it did not clearly identify who was responsible for its implementation and did not provide for any control mechanisms. The imprecise definition of roles and responsibilities and overlapping of authority will undoubtedly increase the difficulty of exercising necessary controls.

11.54 Documentation on collections includes the inventory records and the most recent information available about the objects, their location and their condition. The catalogue of the collections in the national museums was incomplete. At the National Gallery of Canada, the catalogue of the photographic collection was not complete, and the number of items making up the collection could only be approximated. The same was true in the National Museum of Science and Technology and the National Museum of Man, where many objects had not yet been inventoried. We did not review this aspect of the collection function at the National Museum of Natural Sciences. Information in the collection records was not standardized in any of the museums and was insufficient everywhere except at the National Gallery of Canada.

11.55 Establishing priorities for acquisition and co-ordinating purchases thus become difficult. Unrecorded items may be lost; if this happens the collection may lose its significance and value. Finally, storage conditions and capacities are almost impossible to assess.

11.56 Collections were not examined regularly to assess their condition and, if necessary, take appropriate measures. Annual or cyclical inventory checks were not conducted. Inspections, made at random, were not always reported. This situation increased the likelihood of loss.

11.57 Because of insufficient documentation, the national museums were not fully aware of the size, value and condition of their collections. It was therefore difficult to make informed decisions on purchases, acceptance of gifts and disposal of objects. This state of uncertainty encouraged the tendency to acquire as much as possible and to dispose of as little as possible, which increased costs for storage and security.

11.58 In summary, the national museums had not rationalized their main activity -- the management of objects under their care. They had an incomplete knowledge of their current collections and had not taken the measures necessary to fill the gaps in their knowledge or to plan the development of the collections and protect them from loss and deterioration.

11.59 The National Museums of Canada should improve its acquisition process and specify its collection priorities. It should complete its inventory and conduct regular inspections of its collections.

11.60 Because of the large number of objects in Canadian museums, collections and the importance of knowing their history, storage location and condition and the environment required for their conservation, the National Museums of Canada concluded that a computer-based inventory could prove to be a suitable collection management tool.

11.61 Since its establishment in 1972, the National Inventory program has concentrated on developing a complete inventory of works of art and cultural objects in all of Canada's museums, which would be accessible to researchers, museum managers and the general public.

11.62 At the end of the fiscal year 1980-81, the cumulative operating expenses since 1972 for the National Inventory program amounted to $7.5 million, according to National Museums of Canada estimates. This did not include contributions to Canadian museums of $4.3 million through the Registration Assistance program and $1.2 million of services rendered through the Youth Employment program.

11.63 Although the National Inventory program had been in operation for eight years, management could not provide precise figures on the number of potential client museums, the number of objects or groups of objects to be inventoried or the size of the data base required. Although the program documentation refers to 1,300 Canadian museums, this number has never been confirmed. Available documentation provides estimates of 25 million and 40 million objects to be inventoried but, since many of the objects may be grouped together, it is virtually impossible, at the present time, to estimate the size of the data base that must be created and maintained. Program managers could not make reliable estimates of the number of transactions that establishing and maintaining the data base and retrieving information from it would entail.

11.64 Since these figures were not available, management could not give a schedule for completion of the project or an estimate of the costs of implementation. It was, therefore, impossible to estimate how far the work had progressed, although management suggested a figure of five per cent completion in March 1980.

11.65 The collections of 150 Canadian museums were already completely or partially inventoried. The National Inventory program had not accepted any new clients for the past three years. It was not able to complete the inventories it had begun and was experiencing major delays in updating the data already in the system.

11.66 This situation was attributable to the fact that the scope of the program has never been defined. National Museums has recognized this and, at the beginning of 1981, decided to postpone temporarily all decisions pertaining to the data processing activities of the National Inventory program.

11.67 During our audit, we were informed that management was considering a project to change data processing methods and equipment. The Board of Trustees agreed to the project at its June 1981 meeting. The project deals mainly with changing the computer and the software; this would greatly increase the system's capabilities but would not, by itself, make it possible to foresee the completion of the National Inventory.

11.68 Although many studies of this program have been undertaken in the past few years, their scope has not been broad enough. We believe, therefore, that, before making a major investment in new data processing methods and equipment, the National Museums of Canada should undertake a comprehensive feasibility study of the whole National Inventory program. This study should include identifying the program's scope and extent and available alternatives, analysis of costs and benefits, a proposal for the preferred option, and a complete implementation plan.

11.69 The National Museums of Canada should determine the needs to which the National Inventory program should be capable of responding and conduct a feasibility study, to ensure that an informed decision is made regarding the most appropriate method of achieving the program's objectives.

11.70 Research. The National Museums of Canada had little information about the human and financial resources devoted to its research activities. However, estimates show that research accounted for 31 and 25 per cent respectively of the budgets of the National Museum of Man and the National Museum of Natural Sciences and approximately 23 per cent of the budget of the Canadian Conservation Institute.

11.71 To ensure that research efforts are properly co-ordinated and directed toward the most appropriate goals, there is a need for priorities to be established in a comprehensive research plan. This would reduce the risk that research would be oriented solely toward the interests of a particular scientist or curator in a given field rather than toward specific objectives. We found that no such plan existed for the Corporation as a whole or for any of the components that carry out research.

11.72 The National Museums of Canada should determine the areas in which research efforts should be concentrated to attain specific objectives; these objectives should be included in a comprehensive research plan.

11.73 In addition to the need for a comprehensive plan and operational plans for research, due regard for economy and efficiency in research projects requires the following steps: the development of project proposals; project selection; detailed planning; final approval; implementation; and input of project data in the management information system for control and evaluation purposes.

11.74 Each of these steps must be carefully controlled according to directives which specify management goals and expectations for researchers. Furthermore, the research process must be documented. However, we did not find any documented evidence that these steps had been followed. For example, we did not find any files for major research projects containing authorizations, descriptions of projects, project objectives and methodology, estimates of the resources required or schedules.

11.75 It is easier to control the progress of projects when this type of basic information is incorporated in a management information system, allowing achievements to be compared with original plans, variances to be analysed, and corrective measures to be taken as required. Such a system did not exist, and control, which varied from one museum to the next, and sometimes even from one division to the next in the same museum, was exercised informally.

11.76 The National Museums of Canada should develop and implement an appropriate management process for research projects.

11.77 Dissemination of knowledge. Exhibitions. Permanent and temporary exhibitions presented by the National Museums of Canada may be completely or partially prepared by the museums or rented or borrowed from other museums in Canada or abroad. The choice of an exhibition from all the possible alternatives requires that a museum's role and objectives be clearly stated, that its target audience be defined and that selection criteria be established for the extent and duration of the exhibition and the possibility of putting it on tour. There must be clear objectives for the exhibition itself, in line with those of the museum. A detailed activities plan and a budget of related costs must be prepared before an exhibition is selected. Without these elements, it is difficult, if not impossible, to allocate resources properly for exhibitions.

11.78 Efforts have recently been directed toward choosing and organizing exhibitions and controlling their preparation at the National Gallery of Canada and the National Museum of Natural Sciences. We found no documentation at the National Museum of Science and Technology that would allow us to ascertain whether the conditions described in the preceding paragraph regarding exhibition choice and organization were being met. We did not examine this activity at the National Museum of Man.

11.79 The changes under way will make it possible to improve the allocation of resources for exhibitions at the museums concerned but, in the absence of objectives for individual museums, specific aims for the exhibitions, or appropriate evaluation mechanisms, selection of exhibitions can only be arbitrary.

11.80 The four national museums should specify the operational objectives and implementation and control procedures for exhibitions and develop indicators for measuring the achievement of these objectives.

11.81 Publications and boutiques. To enable it to reach its objective of "inseminating knowledge" the National Museums of Canada is authorized by the Act to "arrange for the acquisition or publication and the sale to the public of books, pamphlets, replicas and other materials related to its purposes". Under this authority, the National Museums operates boutiques and carries on an extensive publishing program. At the end of 1980, approximately 1,200 publications and 300 miscellaneous articles produced by or for the National Museums of Canada were available. However, there was no policy or overall planning for this activity.

11.82 Planning for publications did not cover all the elements required for making decisions or controlling and evaluating the product, such as content, target audience, type of presentation desired (format, binding, illustrations and so on), estimated unit cost, sale price, press run and date of publication.

11.83 We were informed that the basic specifications for a number of recent publications were modified during the production process with the result that the publications were very different from those planned at the outset. Because of a lack of planning, exhibition catalogues, for example, were frequently not available during much of the exhibition, at the time when public interest was at its peak. Other examples are more complicated. One book, originally intended for sale to young people at a price of $10 to $13, was finally published in a cloth-covered case-bound deluxe edition, containing a number of polychrome illustrations and 20 per cent more pages than planned. It was priced at $30 because production costs had exceeded estimates by 28 per cent, even though the number of copies produced was 19 per cent fewer than planned. The target audience was not reached and most of the books ended up on shelves in the warehouse. In other instances, to reduce unit costs and justify a reasonable sale price, print runs were increased without considering the demand for the publication. In a number of cases, high additional costs and considerable delays were incurred because of unexpected changes in specifications, particularly for the quality or number of illustrations.

11.84 In the absence of sufficiently detailed and officially approved plans, it was difficult to estimate the cost of variances between the original plan and the final product, to determine whether those variances had been officially approved and whether they had contributed to the attainment of the objectives pursued.

11.85 Costs of publication were distributed among the budgets of a number of responsibility centres and one special account; this situation did not facilitate realistic cost analysis or sound management. The practice of lumping together in a single special account part of the expenditures and total receipts for the publications of three museums and the four museum boutiques made it impossible to get a clear picture of these operations.

11.86 Our audit showed that the receipts of $401,000 from the sale of publications in the 1980-81 fiscal year covered only about 17 per cent of those production costs that could be readily identified in the accounts and the operating costs of the responsibility centres whose main activities are publishing and distribution of publications. We could find no clear policy regarding cost recovery for publications.

11.87 In our analysis, we could not take into account a number of cost elements, the largest of which was writing by in-house authors, for whom there were no time records. Our estimate of expenditures also excluded the cost of managing the publishing activity, which occupied a significant task group for the entire year, and rent, photocopying, pension funds and other general expenses.

11.88 The National Museums of Canada should develop and implement a Corporation-wide policy for the production and sale of publications. The policy should specify a planning process that would allow informed decisions to be made, control mechanisms that include a calculation of total costs and clear standards for subsidizing publications.

11.89 Each museum has a boutique where books, souvenirs and other items are sold to visitors. Most of these goods are acquired from commercial enterprises. Some National Museums of Canada publications are also sold, but these sales account for only a small proportion of the boutiques' receipts.

11.90 Expenditures for the boutiques, like those for publications, were divided among the special account and operating budgets. The cost of goods sold was entered in the special account; salaries of employees and some other expenditures directly incurred in operating the boutiques were included in operating budgets. Rent, administrative expenditures and general expenses were not broken down in the accounts, and we were, therefore, unable to determine their amounts. The boutique-related expenditures that we identified in the special account and operating budgets of the National Museums of Canada totalled $738,000 for the 1980-81 fiscal year. Over the same period, the proceeds from sales in boutiques were $602,000.

11.91 We could not find any policy or directives governing boutique operation and indicating profit or subsidization objectives.

11.92 The National Museums of Canada should develop and implement a policy for boutique operation and production and sale of souvenirs. The policy should specify control mechanisms that include a calculation of total costs and set specific profit or subsidization objectives for boutiques.

Security and Protection of Collections

11.94 The Security Services Branch provides security advice, resources and services to the four museums, the National Programs Branch and Central Services. The security policy of the National Museums of Canada, which was approved in December 1979, had still not been communicated to staff at the time of our audit. It establishes three priorities for protection: people, collections and buildings. In its 1980-81 budget, approximately $10 million and 200 person-years were budgeted for security services. In the Estimates, security expenditures and person-years are distributed among the budgets of the six components of the National Museums of Canada.

11.95 The management of security functions, services and activities appeared to be satisfactory. However, our audit revealed two sources of weakness in protection measures: the overlapping responsibilities at the management level, as noted previously; and the inadequacy of buildings housing the collections, as described below, which is beyond the control of the National Museums. Security measures, which are based on general criteria agreed to by all parties, were not implemented in a uniform manner in all components of the Corporation.

11.96 Preservation and protection of collections are made more difficult because work, display and storage facilities are of poor quality and are dispersed throughout a large number of locations. The buildings are unsuitable for some methods of fire, theft and vandalism prevention or detection and are impossible to maintain at the constant temperature and humidity required to preserve certain objects. According to the Department of National Health and Welfare and the Department of Labour, a number of the premises are very unsafe for staff and the collections because of the presence of the large quantities of toxic and inflammable substances required for preservation, research and restoration-. A single accident could result in the loss of almost all the collection in a particular discipline. Although dispersal of the collection may limit damage in the event of an accident,. it increases the risk of theft and vandalism, adds to surveillance costs and slows down security services in emergencies.

11.97 The National Museums of Canada is aware of this problem and has already presented to Cabinet a number of proposals for solving accommodation problems.

Payroll Costs Management

11.99 At the time of our audit, there was no system for human resource planning, and training needs were not identified on a systematic basis. Human resource information was incomplete and out of date. The reorganization was, however, addressing these problems.

11.100 Systems for management information and human resource planning, appraisal and training were being developed. A procedure manual had been prepared and was scheduled for approval and distribution in the near future. When these systems are in place, the Personnel Services Branch will be in a position to assist responsibility centre managers to define their respective roles in human resource management.

Financial Management

11.102 Financial management in the National Museums of Canada has improved since our 1977 Financial Management and Control Study. These improvements were noted in the IMPAC survey conducted by the Office of the Comptroller General in 1980. They were mainly in the organization and management of the financial function, control of budgets, and the accounting and expenditure control systems.

11.103 Receipts and accounts receivable. Forecasting, control and accounting for receipts and collection of accounts were inadequate. By special authorization of Parliament, the National Museums of Canada retains most of its revenue and uses it to finance its publication program and to replenish stock in the boutiques. Since a number of publications must come out on specific dates, it is essential to make accurate forecasts of cash flows to avoid overcommitment.

11.104 We found that the National Museums of Canada did not have an appropriate system for managing its accounts receivable. There were no written procedures for approving or processing orders or making shipments to clients. During the past fiscal year, no statements of account were sent to purchasers, and by the end of the year, accounts receivable totalled $255,000, an increase of $81,000 over the previous year. A similar situation existed with respect to accounts receivable from joint publishing contracts under which books are designed, written and prepared by the National Museums of Canada and are published and distributed by private publishers. These accounts were not followed up systematically, and there was no method for verifying whether royalties paid by co-publishers and distributors were those specified in the contracts.

11.105 The National Museums of Canada should establish appropriate mechanisms for forecasting cash flows and collecting accounts receivable.

11.106 Control of assets. In our 1977 Financial Management and Control Study, we pointed out that for the most part there was no procedure for the control of fixed assets in the National Museums of Canada. Since that time, measures taken to remedy the situation have been irregular and unco-ordinated and, on the whole, control of fixed assets was still inadequate.

11.107 There were major shortcomings in financial and physical control systems for inventories of publications and boutique stocks. On 31 March 1981, the inventories were worth $1.8 million and $360,000 respectively.

11.108 Books on consignment to Canadian and international distributors were included in warehouse inventories, which made it difficult to reconcile inventory records with annual stock-taking. Reconciliation was further complicated by major delays in recording returns from retailers.

11.109 Contrary to common practice in the book industry, there was no policy or procedure in the National Museums of Canada for writing off or revaluing publications that were damaged or outdated or that could not be sold for other reasons. Establishing the value of inventories posed a number of problems: some publications were more than 50 years old and should have been revalued or written off. In some cases, the suggested retail price or the sale price to retailers was less than the production cost; in other cases, production costs were unknown.

11.110 As there was no permanent inventory for boutique stock, financial and physical control of inventories was impossible.

11.111 The National Museums of Canada should improve the physical and financial control of inventories of all publications produced by the National Museums of Canada and of boutique stock; inventories should be revalued each year and changes reflected in the Corporation's financial statements and management reports.

Internal Audit

11.113 During the 1980-81 fiscal year, Branch expenditures were approximately $203,000. The cost of audits performed under contract by various consultants accounted for 61 per cent of expenditures. In general, the internal audit function met the criteria established by our Office and conformed to the internal financial audit standards developed by the Office of the Comptroller General. These include defining responsibilities clearly, planning audits on an annual and three-yearly basis, bringing internal audit policy to the attention of all managers, and so on. However, we noted that during the first two years of the three-year plan the work schedule was not followed, and a large number of audits had to be postponed.

11.114 The Internal Audit Branch has not conducted systematic follow-up studies on the implementation of the recommendations made as a result of internal audits completed since March 1976. Although the Administrative Manual of the National Museums of Canada requires managers to submit their comments on the recommendations within 30 days, considerable delays were identified in the majority of cases.

11.115 The Internal Audit Branch should follow up and report on the corrective actions taken in accordance with internal audit recommendations.

Information for Parliament

11.117 The information contained in the Estimates and the Public Accounts describes the main objects of expenditure but is not descriptive of the operations of the National Museums of Canada. We noted that the definition of activities was based on the Corporation's organizational structure, which is useful for identifying the relationship between the amounts allocated and spending authorities. However, from the point of view of accountability, it would be more informative to define activities in relation to basic museum functions. This type of definition would highlight the museums' goals and the activities to which funds are allocated. As mentioned above, the Corporation has initiated a preliminary multi-year operational plan for the 1982-83 fiscal year in which activities are defined according to museum functions. We support this initiative.

Summary of Recommendations and Management's Comments

Roles and Duties

Recommendation

Policies and Planning

Recommendations

11.44 The National Museums of Canada should complete its planning and control work by:

- developing a strategic plan including clear, precise objectives, a critical review of possible action plans, a description of the approved plan of action, and an illustration of the links between the plan of action, priorities and objectives;

- including further details in its operational plans to show the activities that will be initiated or continued during the year and the links between resource allocation and the approved action plan; and

- defining appropriate performance indicators.

Program Effectiveness Evaluation

Recommendation

Museum Functions

Recommendations

11.69 The National Museums of Canada should determine the needs to which the National Inventory program should be capable of responding and conduct a feasibility study to ensure that an informed decision is made regarding the most appropriate method of achieving the program's objectives.

11.72 The National Museums of Canada should determine the areas in which research efforts should be concentrated to attain specific objectives; these objectives should be included in a comprehensive research plan.

11.76 The National Museums of Canada should develop and implement an appropriate management process for research projects.

11.80 The four national museums should specify the operational objectives and implementation and control procedures for exhibitions and develop indicators for measuring the achievement of these objectives.

11.88 The National Museums of Canada should develop and implement a Corporation-wide policy for the production and sale of publications. The policy should specify a planning process that would allow informed decisions to be made, control mechanisms that include a calculation of total costs and clear standards for subsidizing publications.

11.92 The National Museums of Canada should develop and implement a policy for boutique operation and production and sale of souvenirs. The policy should specify control mechanisms that include a calculation of total costs and set specific profit or subsidization objectives for boutiques.

Financial Management

Recommendations

11.111 The National Museums of Canada should improve the physical and financial control of inventories of all publications produced by the National Museums of Canada and of boutique stock; inventories should be revalued each year and changes reflected in the Corporation's financial statements and management reports.

Internal Audit

Recommendation