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1983 Report of the Auditor General of Canada

Synopsis

7.1 Follow-up of 1978 audit. In 1978, we examined management controls in various elements of the Radio Frequency Spectrum Management activity and the Government Telecommunications Agency. We also examined other management support activities, including the organization of the financial function, internal audit, contracting procedures, and financial and inventory control systems. We identified a number of weaknesses in these areas, some of which have since been corrected. The most significant areas where problems remain, or are just now being addressed, are cost recovery practices, internal audit and inventory control.

7.2 Policy Sector. In the policy analysis and development process, overall responsibility for an issue is assigned to a specific branch, and a general time frame is established for developing proposals. However, the Sector has not specified the essential steps to be followed or the basic level of documentation required in carrying out policy development projects, including matters such as development of work plans showing specific activities and deadlines, consultation and co-ordination with others, and progress reporting.

7.3 Radio Frequency Spectrum Management. In 1978, Cabinet directed that the Radio Frequency Spectrum Management activity recover its full costs. Despite a fee increase in 1979, the activity's costs were not entirely recovered. The 1981-82 deficit was $23.4 million, due, in part, to revenues foregone as a result of exemptions under the Radio Act and costs not recovered from the CRTC. Another licence fee revision took place on 1 April 1982. The corresponding deficit for 1982-83 is now estimated at $25.3 million. The Department has not identified the proportion of costs it is attempting to recover.

7.4 Space Sector. In 1981, we developed and published criteria for planning and control of research and development projects. The Space Sector met these criteria.

7.5 Research Sector. Our audit focused on the systems used for project planning and control. The Sector follows a tradition of relying heavily on meetings and discussions for planning and controlling its projects. Although planning documents are produced to meet central agency requirements, these generally do not contain sufficient information for project planning and control purposes. The Sector is developing a new information system which should provide the basis for improved planning and control.

7.6 Telidon began as a four-year program in April 1979 with a total funding of $9 million. The Telidon program has now been extended to 1985, with a total funding of $59.3 million. To date, the program has not been evaluated to determine whether it is achieving its objectives.

7.7 Arts and Culture program. In July 1980, the Arts and Culture program was transferred from the Department of the Secretary of State to the Department of Communications. The transfer was made in recognition of the increasingly close links between culture and communications. However, this has not been reflected in a revised definition of objectives for the program. Various documents - the Estimates, the Annual Report, the Department's submission to the Applebaum-Hébert Committee - describe program objectives differently but not more precisely than prior to the transfer. This lack of clear objectives makes it difficult to establish program priorities and identify what the program is intended to accomplish.

7.8 Postal subsidy. The largest single item in the Arts and Culture program budget is a subsidy paid to the Canada Post Corporation to cover its losses as a result of offering preferential rates for publication mailings. The 1981-82 Estimates provided for $189 million, and the 1982-83 Estimates $220 million, for this subsidy. Specific objectives have not been documented by program management for the subsidy.

7.9 The Department, Canada Post and the central agencies have now agreed that the Department is to be responsible for $53 million of the subsidy, and the remainder will be provided direct from the Consolidated Revenue Fund rather than from the Department's budget.

7.10 Program evaluation. The Department established a Program Evaluation and Audit Group in 1978. However, the evaluation unit was not given any permanent staff and did not become active until it was made a separate Division with its own staff in early 1982. It is too soon to comment on its activities.

7.11 Despite the absence of evaluation information, the Department received approval to extend the Canadian Book Publishing Development Program for three years after 31 March 1982 at an annual cost of $8.9 million. The program was established in 1980 for a two-year period. Cabinet approved the extension despite a previous directive that the program be evaluated after two years. In approving this extension, Cabinet directed that the program be evaluated in 1984.

7.12 The Special Program of Cultural Initiatives was extended for two years at a total cost of $34.1 million. The program was originally approved in October 1980 and was to terminate on 31 March 1983. The Department was to have evaluated the program by November 1982. The evaluation is now planned for March 1984.

7.13 Internal audit. In 1978, we commented on deficiencies in the internal audit function and made a number of recommendations for improvement. In February 1982, the Office of the Comptroller General noted that there were still a number of serious problems. We agreed with this opinion. Later in 1982, the group was reorganized and a new director appointed. Action is being taken to address the concerns expressed by our Office and the Comptroller General.

7.14 Inventory control. The Department has an inventory with an approximate value of $80 million. Inventory was not documented in a consistent way across the Department. Some responsibility centres recorded leased materiel; others did not. Some entered standard items using standard forms, others used data found in contracts, still others took the information from invoices. At the Communications Research Centre, office equipment and furniture were not recorded in the national inventory system.

Overview

7.16 The objective of the Communications program, as indicated in the 1982-83 Estimates, is "to foster the orderly development and operation of communications for Canada in the domestic and international spheres". The program also includes administration of the Government Telecommunications Agency Revolving Fund, whose objective is "to plan, establish, and manage telecommunication facilities and services that will satisfy the requested needs of federal departments and agencies on an economic basis".

7.17 In July 1980, the Arts and Culture portfolio, which had been under the jurisdiction of the Secretary of State, became the responsibility of the Minister of Communications. At the same time, the Arts and Culture program was transferred from the Department of the Secretary of State to the Department of Communications. The objective of the Arts and Culture program is "to formulate and develop policies and programs for the achievement of national arts and cultural objectives and to promote effective inter-agency, inter-departmental and inter-government co-operation in the achievement of these objectives".

7.18 This change added a new dimension, that of culture, to the responsibilities the Department already had in the fields of telecommunications policy, communications research, information and space technology, regulation of the radio frequency spectrum and government telecommunications. The Department operates in a field of rapid and constant technological development. The laws regulating its activities have not been revised since the Department was created in 1969.

7.19 The Canada Council, Canadian Broadcasting Corporation, Canadian Film Development Corporation, Canadian Radio-television and Telecommunications Commission (CRTC), National Arts Centre Corporation, National Film Board, National Library, Public Archives, National Museums of Canada and Social Sciences and Humanities Research Council of Canada are all included in the Communications portfolio. However, they are not part of the Department and are not covered by this comprehensive audit. The Office has undertaken separate comprehensive audits of the National Library and Public Archives. These audits are reported in Chapters 14 and 15 respectively.

7.20 As indicated in Exhibit 7.1, the Department is divided into six major sectors: Policy, Research, Space, Radio Frequency Spectrum Management and Government Telecommunications, Arts and Culture, and Administration.

Exhibit not available

7.21 For 1982-83, the Department's appropriations totalled some $365 million, including a $220 million subsidy for the Canada Post Corporation from the Arts and Culture program. It should be noted that in 1983-84, the share of the subsidy to be covered by the program will amount to $53 million.

7.22 In 1982-83, the Department had approximately 2,300 authorized person-years: 1,600 at Headquarters in Ottawa and 700 in the 5 regions. Exhibit 7.2 shows the human and financial resources allocated to the various sectors of the Communications and Arts and Culture programs.

Exhibit not available

Audit Scope

7.24 We also examined management systems common to all sectors of the Department: financial management and control; electronic data processing; internal audit; and inventory control.

7.25 As well, we included in this audit a follow-up of the observations and recommendations made in our 1978 comprehensive audit of the Department and our 1979 study of government telecommunications.

Observations and Recommendations

Communications Program

Policy Sector

7.27 The Broadcasting and Social Policy Branch of the Policy Sector, as indicated to the Applebaum-Hébert Committee in January 1982, has, among other things, a responsibility for "the development of policies having socio-cultural and economic impacts in the area of broadcasting and the development of appropriate legislation in respect of these policies." Other branches in the Sector also spend a considerable amount of time dealing with various aspects of broadcasting in support of the Broadcasting and Social Policy Branch.

7.28 The Department's role is described in the Radio Act, the Broadcasting Act, the Department of Communications Act and other legislation. According to the Broadcasting Act, the CRTC "shall regulate and supervise all aspects of the Canadian broadcasting system ... ". There are many grey areas relating to jurisdiction between the Department and the CRTC since the Department advises the Governor in Council on appeals to CRTC decisions. It also advises the Government on the broad policy framework within which the CRTC implements specific regulatory policy. The 1979-80 Annual Report of the CRTC states that its Planning Division is responsible for "undertaking policy, market, and regulatory studies of a short, medium, and long term nature of both the broadcasting and cable industries" and "developing policies and plans for the broadcasting and cable industries to meet the objectives of the Broadcasting Act by considering present and future market, economic, and technological constraints and conditions." We are aware, however, that the Department's role in appeals from decisions of the CRTC results in some inevitable overlap in the activities and research of the two bodies.

7.29 The Department should establish a procedure for sharing information as appropriate with the CRTC and ensuring that areas of possible overlap respecting studies and activities are subject to continuing scrutiny.

Department's response: Senior officials of the Department regularly meet with senior officials of the CRTC on an informal basis. However, the Department undertakes to discuss with the CRTC the method of implementing this recommendation.

7.30 Management of policy development. Four studies commissioned by the Department recommended a reorganization or general reorientation of activities in the Policy Sector. They emphasized the lack of inter-sectoral co-ordination and, within the Sector, the lack of priorities and of control over the use of resources. Management had received the results of the four studies before we began our audit.

7.31 Although the staff of the Sector agree on the essential steps to be followed in carrying out policy development projects, no official process has been established to provide for consistency and to ensure that all steps are included. The steps to be carried out in developing policy proposals have not been documented. This is required in the Department for planning time, allocating resources, monitoring progress, and improving control and the quality of projects.

7.32 The Policy Sector should establish and document the essential steps to be followed in the policy development process.

Department's response: The Policy Sector agrees and will continue to build on measures already under way for an effective policy process.

Radio Frequency Spectrum Management

7.34 This Sector accounts for approximately 25 per cent of the financial resources and 49 per cent of the human resources of the Communications program: 30 per cent at Headquarters in Ottawa, and 70 per cent in the 5 regional offices, which include 44 district offices.

7.35 The Sector has three objectives: to ensure a suitable distribution of radio frequency bands among the various services (broadcasters, amateur radio operators, ships, satellites and so on); to ensure users equitable access to frequencies as quickly as possible; and to establish and maintain the quality of the spectrum. To fulfil these objectives, the Sector has been divided into three groups: the spectrum planning and engineering group, which allocates frequency bands; the authorization group, which assigns frequencies to users by issuing licences and operator's certificates; and the spectrum control group, which is responsible for supervising application of the Radio Act and regulations to maintain the quality of the spectrum.

7.36 The Spectrum Management System (SMS) project. In 1975, the Sector obtained authority from Treasury Board to carry out a project to upgrade the automated procedures and equipment used to assign radio frequencies and issue licences. This project was to last five years and cost approximately $10 million.

7.37 In our 1978 audit, the focus of our comments was that management and control of the project should include regular review by a steering committee. The Department accepted this recommendation and set up a committee attached specifically to the SMS project.

7.38 In the 1980 submission to Treasury Board to obtain approval for national implementation of the system, the Department forecast savings of $3.8 million in the seven years following introduction of the system in 1982-83, including a saving of 600 person-years as a result of reductions in staff growth.

7.39 During our audit, which took place in the system's first year of operation, a few fine-tuning problems arose in areas such as data conversion, service bureau performance, the personnel training program and operating delays in some functions of the system.

7.40 We were informed that an evaluation of the system would be conducted during the coming months.

7.41 In carrying out the planned evaluation of the Spectrum Management System after its national implementation, the Department should determine, among other things, whether projected savings have been realized.

Department's response: The Department intends to determine, in the course of the planned evaluation of the Spectrum Management System, whether projected savings are being realized.

7.42 Management information system. In our 1978 Report, we recommended that the Department continue to develop and improve its regional reporting system with regard to measures of operational effectiveness. The Department accepted our recommendation by introducing the Spectrum Telecommunications Management Information System. Improvements in the system led to the development of a new information system for regional operations, which was implemented on 1 April 1982. The Department is now developing a similar system to be introduced at Headquarters.

7.43 Recovery of spectrum management costs. The Radio Act gives the Governor in Council the power to "prescribe the tariff of fees to be paid for licences and for examination of certificates of proficiency". The Act also specifies that users of the frequency spectrum must obtain a licence for operating a radio apparatus or station. Under the Act, certain users, such as municipalities, governments and some Crown corporations, benefit from complete or partial exemption from these fees.

7.44 In our 1978 audit, we recommended that the Department update its fee structure periodically, with a view to recovering the full costs of spectrum management. The Department indicated that this had been done; an updated fee schedule would be implemented in 1979-80.

7.45 A revision of the fee schedule was implemented on 1 April 1979. In 1978, when the Department asked for approval of the new fees which were to enable it to recover the cost of administering the spectrum, it indicated that revenues for 1979-80 were forecast at $30 million. These revenues were expected to be sufficient to defray spectrum administration costs. Cabinet approved the new fees and asked the Department to submit recommendations at least every two years for revision of the radio licence fee schedule. These recommendations were to be formulated in a way that enabled the Department to fully recover the cost of managing the spectrum.

7.46 The Department did not fully recover the costs of managing the spectrum in 1979-80, 1980-81 or 1981-82, even taking into account revenues not received due to exemptions under the Radio Act and costs not recovered from the CRTC. The 1981-82 deficit was $23.4 million, excluding these foregone revenues.

7.47 Further, the Department did not submit recommendations in 1981 for revision of the licence fee schedule. We were unable to find in the documentation supporting the 1 April 1982 fee increase any justification of the non-recovery of full spectrum management costs between April 1979 and March 1982.

7.48 Cabinet approved a subsequent revision of the fee schedule effective 1 April 1982. At the same time as it was obtaining this approval, the Department projected a $13.6 million deficit; revenues were expected to total $31.2 million, including an allowance of $13 million for foregone revenues, and expenditures $44.8 million.

7.49 Cabinet had, moreover, asked the Department to proceed with public consultation on the fee revision process and to submit a new fee schedule for implementation on 1 April 1983. The Department, which was still in the process of consultation, did not submit the new schedule to Cabinet.

7.50 Also, there was no discussion or explanation of what the estimates of revenues of $30 million for 1979-80 and $31.2 million for 1982-83 were composed of. Revenues that could not be recovered because of exemptions provided for in the Radio Act and costs not recovered from the CRTC were included as if they had been charged to these groups.

7.51 The Department estimated that the exemptions under the Radio Act, such as those granted to municipalities, governments and certain Crown corporations, totalled some $5 million in 1982-83. An internal departmental study estimates the costs of services for broadcasting, such as development of technical standards and certification, to be in the order of $8 million in 1982-83. These are not recovered from the CRTC.

7.52 The revenue totals projected for 1979-80 and 1982-83 in the documentation supporting the applications for revision of the fee schedule differed considerably from the actual revenues for 1979-80 and the projected revenues for 1982-83 indicated in the Estimates. Revenues, including an allowance for exemptions and costs not recovered from the CRTC, were forecast at $30 million for 1979-80. Actual revenue received, which excluded the allowance for foregone revenue, totalled $11.1 million. Revenues for 1982-83 were projected at $31.2 million, including the $13 million attributed by the Department to foregone revenue. However, actual revenues were estimated at $12.4 million in the 1982-83 Estimates. This is illustrated in Exhibit 7.3.

Exhibit not available

7.53 As a result of the Treasury Board directive limiting increases to six and five per cent, the Department cannot now make any increases without Treasury Board approval.

7.54 Following the public consultation now under way, the Department should develop and justify a cost-recovery plan and policy and have them approved. The policy should indicate whether the Department should recover costs fully or in part and, if in part, specify the proportion of costs which should be recovered.

Department's response: The Department is preparing a discussion paper on cost recovery for spectrum management. This paper will provide the basis of consultation with interested parties and, following such consultation, the Department will be making recommendations on various matters relating to cost recovery.

7.55 The Department should, as requested by Cabinet, prepare recommendations every two years for revision of the licence fee schedule. If it is unable to do so, it should get Cabinet's approval for a postponement.

Department's response: The last revision of the licence fee schedule was effective April 1, 1982. The Department intends to make a recommendation concerning further revisions of the schedule in time for any changes to be effective April 1, 1984.

7.56 In its recommendations for revision of the licence fee schedule, the Department should indicate the proportion of non-recoverable revenue resulting from exemptions under the Radio Act and costs not recovered from the CRTC.

Department's response: The Department agrees to identify non-recoverable revenues resulting from exemptions when it recommends revision of the licence fee schedule.

Government Telecommunications Agency

7.58 Management of the shared inter-city voice network. With regard to network capacity, GTA has established service objectives which make it possible to determine the number of inter-city circuits required between the various cities in the network to meet client demand. In our 1978 audit, we recommended that the Agency re-examine its service objectives for the inter-city network and submit them to Treasury Board for approval. Although GTA has conducted some studies on the subject, these service objectives had not been rationalized or approved by Treasury Board at the time of our audit.

7.59 The introduction of digital switches, which GTA will soon be using in the National Capital Region, the heart of the network, will provide useful information for the development of new service objectives. These can then take into account both the possibilities offered by the new switches and the requirements of client departments.

7.60 The Government Telecommunications Agency should develop new service objectives and submit them to Treasury Board for approval before implementing new service features offered by the digital switches.

Department's response: The introduction of digital technology in Government of Canada telephone consolidations will make available certain state-of-the-art features to all users as an inherent part of the system. In addition, a multitude of optional modern features are available at additional cost. Directives and guidelines for various classes of users, including the approval and provision of optional features, are being developed for approval by Treasury Board.

7.61 Aside from our comments on service objectives, we believe that GTA has taken satisfactory action to follow up on the recommendations we made in 1978 and 1979.

Space Sector

Research Sector

7.64 Project planning. We examined the systems used to plan and control projects carried out in the Research Sector, taking the Department's Operational Plans for the 1981-82 budget year as a basis for review. The criteria we used to assess planning and control were those published as an appendix to the review of Research and Development in the 1981 Report of the Auditor General.

7.65 We reviewed project descriptions to determine whether objectives and outputs were clear and measurable; project plans related inputs to outputs; and timetables, dates and responsibilities were identified. We observed that project proposals were not sufficiently specific, in terms of expected outputs, tasks, and assignment of responsibilities, for project management and control purposes. There were no guidelines for preparing proposals or work plans. Project proposals or work plans were not routinely prepared at the sub-project level except for work related to military research.

7.66 Some of these shortcomings will likely be corrected when the Research Sector implements the new management information system currently under development. However, we believe that certain additional steps are needed to strengthen project planning.

7.67 The Research Sector should:

- develop and promulgate guidelines for project proposals; and

The information provided by the management information system will go well beyond that recommended by the Auditor General in that it will also relate proposals to priorities and long-term and strategic plans.

7.68 Project control. Our examination of control processes revealed that monthly reports on expenditures and commitments were prepared for review by Sector management. However, progress on projects, in terms of performance and results achieved, was not always reviewed systematically against plans, because project descriptions did not provide enough detail related to key dates or activities.

7.69 Each branch of the Research Sector had its own system of monthly, quarterly or ad hoc reporting. Reports generally gave a brief summary of activities undertaken since the last report and were used primarily to inform managers of responsibility centres about activities undertaken in their areas.

7.70 The Research Sector should develop standards for periodic progress reports.

Department's response: Such standards are being incorporated in the management information system.

7.71 The Telidon program. Telidon is a major program of the Research Sector of the Department of Communications. "Telidon" is the name given to the Canadian Videotex and Teletext systems. Teletext is a one-way, or receive-only, system. Videotex systems have a two-way communications link connecting the user and the information source. This allows the user to select the specific information required and enter information or commands. With the addition of a decoder box, Videotex allows a television set to be connected, via telephone lines, with computer databases, thus allowing access to information and data ranging from current weather forecasts to stock market quotations.

7.72 Telidon began as a four-year program in April 1979, with total funding of $9 million. In September 1979, a Telidon program plan was prepared. It was used for approximately two months before rapidly changing events required that it be abandoned. In March 1981, a study was completed on a project planning and control system for Telidon, but the report describing the proposed system was never used. The 1981-82 Operational Plan specifies that, by 1 April 1982, monthly reports of activities for management decision-making should be produced. There were no reports at the time of our audit, nor a system for producing them.

7.73 To cope with the rapidly changing reality of the Telidon program, an informal planning and control process has evolved based on frequent meetings and small development teams. Priorities are set, plans and evaluations made and short-term direction given at weekly meetings. External advice is provided by the Canadian Videotex Co-ordinating Committee and its sub-committees.

7.74 The Telidon program has recently received approval for further funding amounting to $17 million. The total Department of Communications budget for Telidon by the end of 1985 will have reached $59.3 million. Although the program has not been evaluated to determine whether it is meeting its objectives, the Department has indicated that a program evaluation of Telidon is to be completed by the end of March 1984.

7.75 The Department should ensure that Telidon is evaluated as planned.

Department's response: The Department responds that it is planning to complete the Telidon evaluation as scheduled.

Arts and Culture Program

7.77 The Estimates indicate that the objective of the program is "to formulate and develop policies and programs for the achievement of national arts and cultural objectives and to promote effective inter-agency, interdepartmental and inter-government co-operation in the achievement of these objectives."

7.78 The 1980-81 Annual Report indicates that the Department is responsible for the formulation of cultural policy for the federal government and for ensuring "that communications policy is conducted with the highest concern for the cultural content and the cultural implications of communications technology." The Department's aim is to ensure that its activities "contribute positively to Canadian cultural expression and the fabric of our society."

7.79 The Department's submission to the Applebaum-Hébert Commission states that it is the responsibility of the Minister to ensure that "communications policy reflects the highest concern for Canadian cultural content and, simultaneously, that those involved in the arts and in culture are kept abreast of technological progress in communications." The objectives listed for the activities of the program are to assist the Minister in developing policy and legislation and in co-ordinating the activities of federal cultural agencies and interdepartmental, federal-provincial and international activities and projects; to implement federal programs; to initiate and monitor cultural research projects; and to inform the public about departmental activities.

7.80 Because these documents do not describe the Department's responsibilities more precisely, it is difficult to identify specific and measurable objectives, to pinpoint the main role or roles of the programs and to determine priorities among activities. In addition, performance indicators have not been established by program management.

7.81 A 1979 Initiative for Improved Management Practices and Controls (IMPAC) survey, conducted in the Department of the Secretary of State by the Office of the Comptroller General, revealed these same difficulties and established a link between the difficulty of developing objectives and setting priorities and the vagueness of the program's mandate.

7.82 The Department should clearly define its role and objectives in the arts and culture field.

Department's response: In the sectoral response to the Applebaum-Hébert Report, the Department's role and objectives are gradually being defined. This process was further enhanced by the cultural policy framework approved by Cabinet in the summer of 1983.

7.83 Postal subsidy. In September 1978, the Department of the Secretary of State and the Post Office Department reached an agreement on a subsidy to cover losses incurred as a result of preferential rates for publication mailings. The Secretary of State Department was to develop a policy on eligibility, identify beneficiaries and establish a fee structure. Responsibility for negotiating agreements was assigned to the Arts and Culture program and thus became the responsibility of the Department of Communications in 1980. The Post Office Department's part was to administer the activity and provide the Arts and Culture program with data on volume and client types to enable it to develop or amend its policies. Substantial amounts have been authorized under this agreement: $189 million in 1981-82 and $220 million in 1982-83.

7.84 We were unable to find any documentation developed by program management outlining the objectives of this preferential rate.

7.85 In December 1982, Cabinet decided that only $53 million of the subsidy would be charged to the Arts and Culture program in 1983-84. This amount is an estimate to cover the additional revenue the Canada Post Corporation could earn if it were allowed to charge commercial rates. A separate subsidy of $170 million will also be paid in 1983-84 to Canada Post to defray associated overhead and operating costs. This amount will be paid from the Consolidated Revenue Fund rather than from the Arts and Culture program's budget.

7.86 The Department should establish and document its objectives in subsidizing preferential rates for publication mailings.

Department's response: We are expecting a major research report on periodicals this year from a major consulting firm. Perhaps the most significant aspect of this research is the review of the postal rate program. New policy proposals for both books and periodicals will be proposed in the spring of 1984 and will address the question of postal rates.

7.87 The Film Certification Office. The mandate of the Film Certification Office is to certify eligibility of films for capital cost allowance under the Income Tax Act on the basis of production criteria relating to Canadian content. This program was adopted to encourage the private sector to invest in Canadian film production.

7.88 Despite the fact that the Office asks producers to submit audited financial statements with their applications, it has on several occasions suspected producers of inflating their statements of costs. The Office has not revoked certification in such cases, because production costs are not a criterion for certification of a film as Canadian and because an investigation would have been required to prove that there was a discrepancy between the real and declared costs.

7.89 When the Office believes or considers costs to be too high, it informs Revenue Canada, because ensuring conformity between declared and real costs comes under its jurisdiction and not that of the Department of Communications. Recently, the Office discovered such a case and alerted Revenue Canada, but Revenue Canada decided not to follow up on the matter. The RCMP was called in by the Office, and charges were laid. This case demonstrates that controls over the program need to be tightened.

7.90 The Department of Communications should initiate negotiations with Revenue Canada to reach agreement on an official procedure for dealing with cases of possible fraud.

Department's response: The Department intends to approach Revenue Canada with such a proposal but it is essentially within Revenue Canada's mandate to determine whether such a procedure is necessary.

Management Systems

Electronic Data Processing (EDP)

7.92 We reviewed the Department's EDP Policy and Procedures Manual, published in November 1981. We found it was generally satisfactory, although there were no clear policy and procedures for long-range EDP planning. The absence of a long-range EDP plan was also highlighted in a departmental EDP audit report in May 1980.

7.93 The EDP Policy and Procedures Manual should be modified to include long-range EDP planning for the whole of the Department.

Department's response: Discussions are being held to ascertain the optimum approach for the modification of the EDP Policy and Procedures Manual which will include the methodology of and responsibility for long-range EDP planning for the Department.

7.94 The internal audit of the departmental EDP function in May 1980 noted various deficiencies which we also observed during our audit. The Department has implemented some of the recommendations made in the 1980 audit report. However, there had been no formal follow-up of the report in the past year by the Information System Steering Committee to identify deficiencies that still remain to be corrected.

7.95 The Information System Steering Committee should follow up on internal EDP audit reports and monitor progress in implementing recommendations.

Department's response: The Director of Computer Services will ensure the Information System Steering Committee follows up on the internal audit reports and the implementation of the recommendations.

Program Evaluation

7.97 From 1978 to 1981, the program evaluation unit had no permanent staff, and it was not until early 1982, when a separate Program Evaluation Division was established and a director hired, that the Department made a serious effort in this area. It is too early to comment on program evaluation in the Department since this Division, which is responsible for evaluation studies, is still in the preliminary stages of its work.

7.98 Evaluation of the Canadian Book Publishing Development Program. This program was established in 1980 for a two-year period. In approving it, Cabinet asked that the Department evaluate the program's efficiency and effectiveness before extending it.

7.99 No evaluation was carried out; yet, in January 1982, the Department asked Cabinet to extend the program to 1984-85, indicating that it had not been possible to conduct an evaluation due to a lack of data. Cabinet agreed to extend the program, with the express condition that an evaluation be made in 1984. The Department has indicated that an evaluation of this program will be completed by the end of December 1983.

7.100 Evaluation of the Special Program of Cultural Initiatives. In October 1980, Cabinet approved implementation of this program and operation to 1982-83 at a total cost of $39.6 million. It requested, however, that the program be evaluated in accordance with Treasury Board requirements. The Department was to conduct the evaluation and submit a report before November 1982. This was not done. The program was extended to the end of 1984-85, at a total cost of $34.1 million. An evaluation is now planned for March 1984.

7.101 The Department should ensure that the evaluations of the Canadian Book Publishing Development Program and the Special Program of Cultural Initiatives are completed as planned.

Department's response: The Department responds that it is proceeding with these evaluations as planned.

Internal Audit

7.103 The unit was also reviewed in 1981 by the Office of the Comptroller General (OCG), which issued a report in February 1982. In this report, the OCG noted serious deficiencies and indicated that the Internal Audit unit had not taken action on the recommendations we made in 1978.

7.104 Following the OCG's evaluation, we reviewed their files and agreed with their observations. We followed up their recommendations and reported to the Department. Although progress has been made since that time, it was too early at the time of our audit to determine to what extent the problems noted had been solved.

Inventory Control

7.106 Also, taking physical inventory has become increasingly difficult. Lists produced by the system are several weeks old. Identical items are classified in different categories and under different numerical codes in the various responsibility centres. Some items do not have identification stickers. As a result, time is wasted and there is a risk of items being lost. We also noted that a microprocessor, valued at $40,000, had been deleted from the Communications Research Centre's lists without authorization or explanation. The Department told us that it had disposed of this equipment. However, we were unable to find documentation supporting or authorizing its disposal. About four months later, the Department indicated that the deletion involved a duplicate record only and that the equipment was still in use but had been given a different identification number and description. We confirmed that this was the case. We concluded that the Department's inventory system was not meeting its objectives of providing a national listing of departmental goods and materiel and controlling this inventory in an efficient and economic manner.

7.107 The Materiel Management Division should develop an inventory control system that meets departmental needs. It should ensure that all responsibility centres in the Department record their inventory in a uniform manner and that the system is updated regularly.

Department's response: The Materiel Management Division will initiate modifications to the Departmental Inventory Control System in order for it to meet departmental needs. The Division will also monitor the recording of the assets at the Communications Research Centre to ensure that it is done in a manner consistent with the rest of the Department.