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1983 Report of the Auditor General of Canada

Synopsis

11.1 In spite of its relatively small size, Labour Canada has a significant impact on Canadian employers and employees. It was originally established in 1900 to help resolve industrial disputes and to collect and distribute information on labour issues. Since then, its mandate has expanded to include protecting and promoting the health and safety of workers under federal jurisdiction and enforcing the labour standards in the Canada Labour Code. The Department delivers its programs through 18 district offices, 5 regional offices and the head office. Exhibit 11.1 provides a summary of the Department's organization.

Exhibit not available

11.2 Senior management changed during our audit. Since most of our work was done before May 1983, our comments are based on systems that existed prior to the change in management. We noted, however, that management is taking a positive approach to problems we identified. Most of our observations relate to problem areas that management is aware of, has given high priority to, and is in the process of resolving. However, it was too soon to see the results of management's efforts.

11.3 Regional Operations. The delivery of the Occupational Safety and Health program and the Conditions of Work program was not well managed. For example, Regional Operations performed activities, such as inspecting and investigating complaints, without clear, measurable objectives for these activities. Although Regional Operations used a mix of activities such as education, promotion and counselling, explicit consideration had not been given to the most cost-effective mix of these alternatives. Information on companies in the Department's jurisdiction was inadequate to properly plan program activities and evaluate their effectiveness. Labour Affairs Officers did not regularly conduct follow-up visits to ensure that previously identified safety hazards had been corrected. Serious violations might as a result go uncorrected, and disasters, such as those that occurred in an east coast coal mine and a grain elevator on the west coast, might not be prevented.

11.4 Federal Mediation and Conciliation Service. The Federal Mediation and Conciliation Service had no major problems in the management controls in place to ensure economy and efficiency, although more complete effectiveness information should be reported to Parliament.

11.5 Administration of the Government Employees Compensation Act. Since 1979, the Department has known that it could realize considerable savings in processing more than $30 million in claims each year by installing an automated processing system. We estimated that if the Department had implemented this system in 1979, it could now be saving at least $375,000 a year.

11.6 Labour Adjustment Benefits Program. The Department was given responsibility for this program by Parliament. However, it had not obtained from the Canada Employment and Immigration Commission sufficient and appropriate information to allow it to determine that payments, which in 1982-83 amounted to $9.3 million, were made only to those who were eligible to receive them.

11.7 Program Evaluation and Internal Audit. Program evaluation and internal audit are basic management tools that do not have a high profile in the Department. Although there have been program evaluation activities since before 1979, senior management had not been provided with a complete evaluation report. One study was in progress. In our opinion, the Department has not made satisfactory progress in evaluating the efficiency and effectiveness of its programs, particularly given the extent of the resources allocated to the program evaluation function. Although internal audit identified significant problems in key activities, the Department had not ensured that recommendations made by internal audit were adequately resolved.

11.8 Electronic Data Processing. The needs and priorities for EDP services had not been adequately determined. As a result, the Data Processing Branch was unable to respond promptly to the needs of users. It had not, for example, been able to offer the guidance necessary to allow users to realize the savings possible through automated information processing, such as in the payment of Government Employees Compensation claims.

Audit Scope

11.9 Labour Canada is one of the smaller departments in the federal government, with 815 person-years and total expenditures of $87 million in 1982-83. Despite its size, the Department has a significant impact on Canadian employers and employees. This is the first time it has been the subject of a comprehensive audit.

11.10 The Department of Labour was originally established in 1900 to help resolve industrial disputes and to collect and distribute information on labour issues. In the 1960s, its mandate was expanded to include promoting and protecting the health and safety of workers and setting and enforcing labour standards for the federally regulated jurisdiction. These responsibilities were consolidated in 1970 in the Canada Labour Code, which in part specifies minimum standards of employment, such as minimum wages, and requirements for safe and healthy working conditions. This part of the Code applies to approximately 3,700 employers and 600,000 employees in banks, interprovincial and international transportation and communications, certain Crown corporations, and industries deemed by Parliament to be in the national interest of Canada. The Department's programs in these areas account for 32 per cent of its person-years. We assessed the degree to which these programs were operated with due regard for economy and efficiency and had adequate procedures to measure and report effectiveness.

11.11 The Canada Labour Code also gives the Department a mandate to help resolve industrial disputes through mediation and conciliation. Because of the Federal Mediation and Conciliation Service's significant impact on work stoppages and the interest displayed by Parliament, we reviewed procedures for measuring and reporting effectiveness.

11.12 While the Canada Labour Code applies to only five per cent of all Canadian workers, Labour Canada's influence extends beyond this group, in part through the collection and dissemination of data on labour issues. Our review of data dissemination activities included the Survey of Wages and Working Conditions and the statistics unit of the Occupational Safety and Health Branch, because their outputs have many users both inside and outside the Department. These activities account for expenditures of just under $1 million annually. We concentrated on the manner in which the Department had determined the needs of potential users and its methods of controlling the quality of its data.

11.13 Labour Canada administers the Government Employees Compensation Act, under which, in 1982-83, it paid about $34 million to an estimated 50,000 injured employees and former employees of government departments and Crown corporations. This program accounted for 46 per cent of departmental expenditures in 1982-83. We reviewed the financial controls of this program and whether it was operated with due regard for economy and efficiency.

11.14 Parliament has also given the Department authority to make grants to specified workers and labour organizations. The Labour Adjustment Benefits Program assists workers who have lost their jobs due to import competition. The Labour Education Program provides funds to unions and other labour organizations to educate workers on labour issues. The Quality of Working Life Program awards grants to employers, unions and other parties interested in experimenting with innovative forms of labour-management relations. We audited the adequacy of financial controls over these grant and contribution programs, which accounted for approximately 17 per cent of the Department's expenditures in 1982-83.

11.15 As well as auditing departmental programs developed in response to specific legislation, we examined operational planning, effectiveness monitoring, internal audit, program evaluation, and electronic data processing planning and control. These processes are essential to the successful operation of the Department.

11.16 In addition, we reviewed several areas and concluded that no detailed audit work was warranted. Human resource management had been audited recently by several groups, including our Office. Our review indicated that the Department was implementing recommendations from these audits, making further audit work unnecessary at this time. We relied on Internal Audit's examination of the financial management function. Other areas, such as the Women's Bureau, policy development and some administrative functions, were also excluded from audit because our initial review indicated there were no significant audit issues.

Observations and Recommendations

Regional Operations

Introduction
11.17 In 1982-83, Regional Operations spent $10.3 million and used 260 person-years to ensure that employers under federal jurisdiction met minimum employment standards and provided healthy and safe workplaces. The federally regulated jurisdiction includes industries involved in interprovincial commerce, Crown corporations, and those companies deemed in the Canada Labour Code to be "for the general advantage of Canada". Examples of industries subject to federal regulation are railways, air transport, communications and banking. These industries include companies such as CP Rail, Wardair and Bell Canada. Crown corporations, such as Devco, are also under federal regulation.

11.18 The significance of Regional Operations activities is highlighted by the fact that, in 1981, approximately 82,000 workers were injured and 18 died in on-the-job accidents within Labour Canada's jurisdiction. Approximately 2,000 complaints were lodged by workers against employers for failure to provide minimum benefits specified in Part III of the Canada Labour Code.

Management Information
11.19 In delivering the Occupational Safety and Health and the Conditions of Work programs, Regional Operations responds to all complaints about unsafe conditions and failure to meet minimum standards and inspects workplaces to determine whether they are safe. It also ensures that workers are receiving minimum benefits and counsels employers and employees on requirements of the legislation.

11.20 Managers need information on the nature and types of program activities, outputs and results to plan and control their work. In the case of Regional Operations, we found key aspects of this information to be inadequate:

    - A record of the establishments that fall within its jurisdiction is necessary to ensure that they are subject to inspection. This information was incomplete in the regions we audited. For example, the list of companies in key industries, such as air transport and interprovincial trucking, had omissions of at least 25 to 30 per cent. We found that other, more stable industries had lower omission rates.
    - Information on the record of each establishment, such as serious compliance violations, accident rates and incidence of occupational illness, was incomplete, out of date or not recorded. Such information would be useful in monitoring and in setting priorities.
    - A record of the level and type of activities carried out in each establishment and industry is required for an understanding of where the program's resources have been used. It is also basic information for planning activities. This information was inaccurate and was not standardized from region to region.
    - Information on the results of program activities, such as the degree to which accident frequency and severity have been reduced, was either out of date or not collected. This information would be useful in allocating resources and in assessing the impact of Regional Operations' efforts.
11.21 As a consequence of not having adequate information, management cannot ensure that it is operating its programs in the most cost-effective manner. An example of information that is needed in the planning process is an analysis of the relationship between inspection efforts and the number of accidents for each industry. Exhibit 11.2 illustrates that, in a number of industries, there is not a direct relationship between inspection effort and accident rates. The banking industry had the lowest accident rate in the federal jurisdiction, yet six other industries received less inspection effort. Other types of comparisons can be made between accident experience and inspections. For example, focusing on the number of accidents, workers in the communications industry suffered three times the injuries of those in broadcasting; however, fewer inspections were conducted in communications. In the absence of any analysis to support such anomalies, it appears that resources spent on enforcing Occupational Safety and Health legislation were not allocated to those industries that represent the greatest potential hazard and provide the greatest opportunity to improve conditions.

Exhibit not available

11.22 The information necessary to plan and control Regional Operations should be collected, kept up to date and used to ensure that regional resources are allocated in the most cost-effective manner.

Department's response: The Department agrees.

Program Objectives
11.23 We noted that operational objectives for the programs administered by Regional Operations were stated in terms of outputs or units of work, such as the number of inspections to be carried out, rather than in terms of the results or benefits to be achieved. A review of practices in other jurisdictions indicates that objectives can readily be specified in terms of expected effects on clients, such as reduced accident rates or increased levels of compliance. Such results-oriented objectives would assist managers in planning and carrying out their work and in establishing accountability for achieving desired benefits from resources used.

11.24 The Department should develop results-oriented objectives for the Occupational Safety and Health and the Conditions of Work programs and should use them to plan and control the delivery of the programs.

Department's response: The Department agrees.

Alternative Methods of Program Delivery
11.25 Although the Department employs alternative methods of ensuring compliance with safety, health and labour standards, the costs and benefits of these alternatives have not been explicitly considered. Alternatives include encouraging industry and labour to self-regulate and emphasizing prosecutions. Without explicit consideration of the appropriate mix of strategies, the Department cannot be assured that it is using the most cost-effective enforcement policies.

11.26 The Department should consider alternative enforcement strategies for ensuring compliance with safety and health and labour standards, assess their costs and benefits, and adopt those that would improve compliance.

Department's response: The Department agrees and is currently reviewing the monitoring, compliance and enforcement policies and procedures with a view to determining more appropriate regulatory sanctions as well as sanctions through the courts.

Follow-up
11.27 The Department did not regularly carry out follow-up visits after finding safety violations that represented serious hazards to workers. In our opinion, timely follow-up visits are necessary to determine whether or not serious violations have been corrected. The need to ensure compliance with the law has been demonstrated by two Commissions of Inquiry formed after major disasters. We found that, since that time, the Department had made major improvements in carrying out inspections, although it had done very little in following up on corrective action after identifying serious violations.

11.28 The Department should carry out more regular and timely follow-up visits to ensure that serious safety violations have been corrected.

Department's response: The Department agrees.

Mediation and Conciliation

11.29 The objective of the Federal Mediation and Conciliation Service (FMCS) is to prevent or settle collective bargaining disputes in jurisdictions governed by the Canada Labour Code (Part V). The primary activity of the Service is to provide third-party conciliation and mediation when labour and management have not been able to come to an agreement. These activities are important because preventing work stoppages in industries, such as rail or air transportation, can significantly affect the economy of Canada.

11.30 Our preliminary review did not indicate any serious management deficiencies. Nonetheless, because of the significant impact of FMCS activities, we reviewed the method of measuring and reporting the effectiveness of the program.

Effectiveness Indicators
11.31 As its indicator of effectiveness, the Service reports the proportion of all referred cases that are settled without a work stoppage. This indicator is similar to that used in other jurisdictions with the same mandate. Our review indicated that the reported values were in a reasonable range for this kind of service. However, reporting only the proportion of cases ending without work stoppage does not give Parliament an appreciation of the size or the significance of the bargaining units involved.

11.32 Information reported to Parliament on those cases referred to the Federal Mediation and Conciliation Service should be expanded to indicate the significance of the cases.

Department's response: The Department agrees.

Administration of the Government Employees Compensation Act

11.33 Labour Canada reimburses provincial Workers' Compensation Boards ( WCBs) for compensation paid to federal workers who are injured on the job. Last year, these payments amounted to $34 million. In addition, $6 million was paid to Boards for administering these claims. A federal worker who is injured while at work submits his claim to a provincial WCB. The Board certifies the injury as a legitimate work-related injury and then bills the Department. The Department in turn pays the WCB and certifies that the worker is a federal employee. The Department receives about 35,000 new claims a year and processes them manually. This program is carried out by 59 people.

Computerization of Claims Processing
11.34 In 1979, management first formally recognized the need for a computer-based system. However, it was not until 1982 that formal approval was given to study the feasibility of computerization. At 31 March 1983, a draft feasibility study had been approved and work had been done on the system design. In our opinion, the Department could realize significant savings by automating the claims-processing operation. Had the Department initiated action in 1979, our estimates show that it would now be saving at least $375,000 a year. Departmental officials state that one reason for the delay has been an excessive turnover in staff which we, ourselves, recognize has been a major problem for computer services groups in small departments.

11.35 The Department should consider placing higher priority on automating the claims processing system in order to realize estimated savings as quickly as possible.

Department's response: The Department will review the costing and corresponding savings potential of all alternatives, in the process of reviewing the federal-provincial arrangements for the claims and compensation system as a whole.

Financial Controls
11.36 We found that control over the administration agreements with the Workers' Compensation Boards was not adequate. The agreements with the Boards do not specify which costs are included under administrative expenses. As a result, the Department pays for different types of administrative costs in different provinces, without having an adequate basis for validating the claims. In addition, we noted that the Department had $400,000 in suspense accounts. Suspense accounts contain items that have been paid on behalf of claimants whose eligibility has not been resolved. Some of the items in the accounts date back to 1978. At the time of our audit, the Department had not resolved the question of the eligibility of these workers, although it is now doing so.

11.37 The Department should clarify administration contracts with Workers' Compensation Boards and ensure prompt resolution of suspense items.

Department's response: The Department agrees. Definitions for administrative costs will be clarified in order to facilitate verification. The Department has reviewed the $400,000 in suspense accounts, and the balance was reduced to $84,000, of which $55,000 was brought to the attention of the appropriate Board, and the real balance of $29,000 is being vigorously pursued.

Grants and Contributions

Labour Adjustment Benefits Program
11.38 Parliament appropriated $10.8 million in 1982-83 to provide Labour Canada with funds to assist workers laid off in industries adversely affected by import competition. Labour Canada certifies that groups of workers are potentially eligible to receive benefits. However, the Canada Employment and Immigration Commission (CEIC) determines eligibility for benefits on an individual basis, and makes the payments to those eligible.

11.39 Our audit disclosed that the Department did not have adequate management and financial controls over the expenditures of this program. Although the Department certified groups of individuals as being potentially eligible to receive benefits, it did not obtain a list of people actually receiving benefits or the amounts paid to them. In our opinion, because the funds have been appropriated to Labour Canada, it should be aware of who is being paid under this program and should ensure that payment is made only to eligible individuals.

11.40 The Department should obtain from the Canada Employment and Immigration Commission the information needed to ensure that payments under the Labour Adjustment Benefits Program are made only to those eligible.

Department's response: The Department agrees and is currently obtaining appropriate information from CEIC.

Labour Education and Quality of Working Life Programs
11.41 We audited the financial controls over two other grant programs, the Labour Education Program and the Quality of Working Life Program, and found only minor weaknesses.

Data Dissemination

11.42 Under the Department of Labour Act, the Department has a mandate to "collect, digest, and publish in suitable form statistical and other information relating to the conditions of labour." These data include information on industries both within and outside the federal jurisdiction, and they cover a wide range of labour issues, including strikes and lockouts, labour organizations, wage rates and benefits and occupational injuries. Two examples of data dissemination activities are the Survey of Wages and Working Conditions and the Occupational Safety and Health Statistics.

Survey of Wages and Working Conditions
11.43 This annual Survey is the only comprehensive source of data on occupational pay rates in Canada. This information has been collected since the turn of the century. The objective of the Survey is to provide accurate, current and relevant data on occupational rates of pay and working conditions. One of the main uses of the Survey is for wage and salary determination in Canadian industry. It is estimated that its cost was $735,000 in 1982-83.

11.44 We found that the Department had not carried out an in-depth study of whether the survey data were actually needed by users. The last such review took place 10 years ago.

11.45 The Department had no formalized procedures or standards for informing users of either the quality or limitations of the data. The response rate was about 56 per cent and had been declining. It also varied substantially by respondent category (for example, size of reporting unit). Although the Department had a variety of procedures to ensure maximum response rates, it had no procedures or standards for assessing how the response rate affected the accuracy of the results. Explanatory notes to the tables do not refer to the response rates, giving the impression that the coverage of the Survey is complete. The reader is led to assume that wage rates reported in the tables are accurate when, in fact, errors caused by non-response alone might make them invalid. This would mean that comparisons of wage rates between males and females, for example, or between occupations or communities, could be misleading.

Occupational Safety and Health Statistics
11.46 The Department also collects and publishes accident experience statistics on employees in the federally regulated jurisdiction and on work injuries and fatalities for all jurisdictions. The information is intended to be used for policy formulation and for planning, controlling and evaluating the Occupational Safety and Health Program. As no other comprehensive source of injury data exists, other departments, agencies and the public also use this output. The estimated cost of collecting and compiling Occupational Safety and Health Statistics was $150,000 in 1982-83.

11.47 The user needs for these data have not been adequately determined. The prime users are the regions, and their needs had not been identified. The public's need has never been assessed.

11.48 The Department did indicate data limitations and response rates for information on occupational injuries. However, lack of a reliable list of all federally regulated industries seriously impaired the Department's ability to ensure that the collection of work injury data from employers was reasonably complete.

11.49 The Department should periodically review user needs for the Survey and Occupational Safety and Health Statistics data and, where appropriate, revise data dissemination activities to meet these needs.

Department's response: The Department agrees and is planning to carry out such a review with respect to the Survey of Wages and Working Conditions within the next year. The Department will utilize the results of this study to revise its data dissemination activities in this area.

11.50 The Department should develop formal standards and procedures for assessing the accuracy of the Survey and Occupational Safety and Health Statistics data and informing users of their quality, limitations and applicability.

Department's response: The Department agrees.

11.51 The Department should ensure that information on the employers in the federally regulated jurisdiction, designed to meet the needs of Regional Operations and other users, is reasonably complete and up to date.

Department's response: The Department agrees.

Electronic Data Processing

11.52 Our review focused on the role of senior management in relation to electronic data processing (EDP) systems and how priorities were set for developing EDP systems and acquiring hardware. We found two important deficiencies: the Department had no long-range EDP systems plan in place, and priorities had not been established for EDP systems projects.

11.53 A long-range EDP plan should include an appropriate timetable and priorities for developing new systems and acquiring hardware, the nature and number of staff that will be required and a definition of management's role in decision making. We found no evidence that Labour Canada had formally addressed these considerations.

11.54 Automation of the Government Employees Compensation Act (GECA) administration and the Automated Federal Jurisdiction Universe (AFJU) system provides examples of inadequate planning and control. The need for automating the GECA system was first formally recognized in 1979. It was two years before work was started on the system and, at the time of our audit, only a draft feasibility study had been completed. The first phase of the AFJU system was completed in 1980, but a post-implementation report produced in 1981 and reissued in 1982 stated that the system would not meet user needs and recommended halting any further activity in the system. The Department, however, was still investing time and effort in attempting to up-date this database rather than clarifying user needs.

11.55 Inadequate control over EDP systems development activities can be traced in part to the ineffectiveness of the Data Processing Priorities and Review Committee. The Committee was formed in April 1982 to encourage program managers to exploit data processing techniques and to review and set priorities for all new work. However, it has met only once, to organize.

11.56 There is a pressing need for a priority-setting mechanism. The Department estimated there was a 20 person-year backlog of work. Given the current staff levels, most users could expect to wait at least four years for their problems to be addressed. Meanwhile, inefficient manual systems were being used to process GECA claims and store information on establishments in the federally regulated jurisdiction. In addition, some regions were buying word processors to help process GECA claims.

11.57 The departmental Data Processing Priorities and Review Committee should take a more active role in planning and controlling EDP systems development.

Department's response: The Department agrees and has taken steps to ensure that the Committee will take an active role in planning and controlling EDP systems development.

Program Evaluation

11.58 Program evaluation is an important control mechanism for holding management accountable for achieving program objectives and delivering programs more efficiently. A Program Evaluation Unit has been operating at Labour Canada since 1979. Since that time, the Unit has spent approximately $160,000 and used at least six person-years. At 31 March 1983, however, the Unit had not produced a complete evaluation report, although one study was in progress. In our opinion, particularly given the resources consumed, Labour Canada has not made satisfactory progress in evaluating departmental programs.

Internal Audit

11.59 The Department's internal audit function is carried out under contract by the Audit Services Bureau of the Department of Supply and Services. We found that internal audit had reported significant inefficiencies in key operations. It made recommendations that, if followed, could have meant considerable savings for the Department. Examples include computerizing and eliminating redundant functions in claims processing for the Government Employees Compensation Program. The Department had not developed an adequate mechanism for ensuring that internal audit recommendations were adequately resolved.

Departmental Expenditure Plan, Part III of the Estimates 1983-84

11.60 The Department has prepared an Expenditure Plan. The new form of the Estimates is directed toward improving the government's accountability to Parliament by providing more and better information on programs. Since this was the Department's first attempt to provide such information, we did not audit the Expenditure Plan. However, a number of the recommendations in this chapter will, if carried out, provide the Department with an improved information base for meeting the needs of Members of Parliament.