1985 Report of the Auditor General of Canada
Chapter 2—General Summary—1985 Annual Report
2.1 This chapter contains a synopsis of each audit chapter in the 1985 annual Report of the Auditor General to the House of Commons. The synopses are set out in the order in which the audit chapters appear in the Report. Chapter 1, Matters of Special Importance and Interest, Chapter 3, Audit Notes, and Chapter 14, Follow-up and Status Report are not summarized in this chapter.
- Chapter 4 - Public Pension Management
- Chapter 5 - Mixed and Joint Enterprises
- Chapter 6 - Public Service Commission
- Chapter 7 - Customs Canada
- Chapter 8 - Atomic Energy Control Board
- Chapter 9 - Department of the Environment - Atmospheric Environment Service
- Chapter 10 - Law Reform Commission
- Chapter 11 - Canadian Human Rights Commission
- Chapter 12 - Department of Regional Industrial Expansion
- Chapter 13 - Department of Transport - Canadian Air Transportation Administration
Chapter 4 - Public Pension Management2.2 The elderly in Canada are dependent on public pension benefits for nearly 50 per cent of their income. The two largest public pension programs, the Old Age Security Program and the Canada Pension Plan, are administered by the federal government. 2.5 million Canadians receive Old Age Security benefits, and 1.3 million of these people and 400,000 other individuals also receive benefits from the Canada Pension Plan.
2.3 Scope of the audit. Our overall objectives were to assess the adequacy and accuracy of financial and other information provided to Parliament about these two programs, and to evaluate the adequacy of systems and procedures in place for managing them.
2.4 The costs of supporting public pension programs are enormous. Total annual benefit payments for the Old Age Security and Canada Pension Plan programs amounted to $9 billion in 1980-81 and $16 billion in 1984-85. Assuming no further changes in level of benefits to the end of the decade, they will be over $23 billion in 1989-90. These costs will continue to increase significantly as the projected ratio of Canadians aged 65 and over to those under 65 rises from 1 in 10 to 1 in 5 in less than 50 years.
2.5 We are concerned that Members of Parliament do not have adequate information to assess and understand fully both long and short-term financial implications of public pension programs. Given the magnitude of the costs, an increasing elderly population, and the complexity of other factors affecting these programs, it is reasonable to assume that there should be quantification and a periodic review of long-term financial implications. However, except for the Canada Pension Plan, long-term costs are not estimated regularly. Moreover, despite previous recommendations by parliamentary committees, there is no mechanism in place to ensure regular reviews of long-term financial implications and commitments for public pension programs.
2.6 We are also concerned that the quality of information provided to Parliament through the Estimates and annual reports has deteriorated, with the result that there is, in our opinion, insufficient information for Members of Parliament to assess the financial performance of the programs.
2.7 The process for forecasting and determining pension costs is complex. Three departments, National Health and Welfare, Finance and Insurance, are involved in the process as well as three different professional disciplines - economists, accountants and actuaries. Users consider these forecasting processes to be good.
2.8 However, there is room for improved co-ordination and communication among the parties concerned to ensure that management and Members of Parliament are provided with consistent and timely information. An example of our concern is illustrated by the significant differences in estimates of the cost of proposed program changes between the Parliamentary Task Force on Pension Reform and the Departments of National Health and Welfare and Insurance (see paragraph 4.64).
2.9 The Old Age Security and Canada Pension Plan programs are large and complex to administer. They involve extensive policy negotiations and consultations within the federal government and with the provinces and numerous special interest groups. They also involve running one of the largest and most important service operations in the federal government, maintaining a very large computerized record-keeping system, and ensuring that over four million cheques are delivered on time every month to over three million individuals. The Department of National Health and Welfare has the main responsibility for administering these programs.
2.10 Great emphasis is placed on maintaining a high level of service to the public, and particularly on ensuring that benefit payments are made on time.
2.11 The operational systems and processes that support the benefit delivery system work, but they are considered to be costly, inefficient, limited, outdated and, in some instances, fragile. EDP systems are old, using the technology of the 1960s, and they have been extensively modified. There are numerous inefficient manual processes, including application processing, benefit calculations and record keeping.
2.12 Management's concern about the situation is reflected in the numerous studies and reviews that have been undertaken over the past several years. In addition, a major long-term initiative is currently under way to streamline and upgrade the systems. We strongly support these initiatives.
2.13 However, we are concerned about the length of time taken to implement improvements. The need for major system overhauls was first identified in the mid-1970s. Present initiatives, if completed on schedule, will not be complete until the 1990s. Delays in achieving systems upgrades have been due in part to the Department's caution about undertaking too many initiatives at the same time that might disrupt service to its clients. It is also due to successive governments cancelling and rescheduling government decentralization initiatives.
2.14 For the past eight years, we have commented to the Department in our annual Reports on areas where specific improvements to existing systems and processes can be made. Although serious consideration has been given to our observations, little has resulted to date in terms of concrete improvements in these areas. They include:
- - addressing productivity improvements through the introduction of better performance measurement systems;
- - intensifying efforts to detect, correct and prevent benefit overpayments; and
- - improving co-ordination and communication among departments involved in the administration of the programs.
2.16 Finally, the Department of National Health and Welfare does not have the proper mechanisms in place to identify, monitor, control and report administrative costs incurred by it and other departments in running the Old Age Security and Canada Pension Plan programs.
Chapter 5 - Mixed and Joint Enterprises
Purpose and Scope2.17 Mixed and joint enterprises are corporations with share capital in which the federal government has a direct equity position together with private sector participants or with other governments in order to further common objectives. The federal government's equity represents an investment of public money on behalf of taxpayers - and it is Parliament that authorizes that investment. As an investor of the public's money and a shareholder in mixed and joint enterprises, the government is accountable to Parliament for equity investments that total over half a billion dollars at cost and the achievement of related public policy objectives.
2.18 If Parliament is to exercise fully its roles of scrutinizing and authorizing the commitment and expenditure of public funds in relation to mixed and joint enterprises, and holding the government to account for the achievement of associated public policy objectives, it must be provided with appropriate information. In particular, Parliament needs to be informed of the purpose, nature and extent of the government's investments and of the ongoing operations, financial position and results of such corporations.
2.19 Accordingly, our study focused on the adequacy of information available to Parliament with respect to the 13 mixed and joint enterprises of which the government is currently a part owner. Our purpose was to:
- - identify and describe the nature and extent of the federal government's involvement in mixed and joint enterprises;
- - review and assess the information that is currently available to Parliament with respect to such corporations; and
- - review the means by which Parliament receives the information.
Profile and Characteristics2.20 The study identified a total of 13 mixed and joint enterprises. The proportion of federal ownership in these corporations ranged from a low of 18 per cent to a high of over 60 per cent in 1984. At cost, Canada's equity was over half a billion dollars. In 4 of the 13 corporations, ownership is shared with other governments; these are referred to as "joint" enterprises. The remaining nine corporations are "mixed" enterprises, in which the other owners include private sector interests.
2.21 The corporations operate in a variety of sectors, including mining, shipping, telecommunications, energy, fisheries, and regional and community development. They include holding companies as well as operating companies. One corporation is currently inactive.
2.22 In 1984, the active mixed and joint enterprises had total assets and liabilities of $8.7 billion and $7.1 billion respectively. By way of comparison, the assets and liabilities of Crown corporations scheduled under the Financial Administration Act amounted to $49 billion and $37.6 billion respectively for their financial years ending on or before 31 July 1984. The total assets and liabilities of the mixed and joint enterprises in 1984 were dominated by the consolidated assets ($7.6 billion) and liabilities ($6.5 billion) of the Canada Development Corporation.
Information Available to Parliament2.23 A number of sources of information on mixed and joint enterprises are available, or potentially available, to Parliament. The main ones are:
- - the annual consolidated report of the President of the Treasury Board, which is required to be tabled in Parliament pursuant to section 153 of the Financial Administration Act;
- - other reports, including the annual reports of the corporation and/or the departments in the portfolios of the responsible ministers;
- - the Main and Supplementary Estimates, which provide Parliament with the opportunity to scrutinize the expenditure proposals of the government;
- - the Public Accounts, which summarize the financial operations of the government during the preceding year - including the operations of Crown corporations and certain other bodies whose accounts are maintained separately from the accounts of Canada; and
- - enabling instruments, including incorporating documents, shareholders' agreements and legislation providing authority for the incorporation or acquisition of corporations.
2.25 The amount of information Parliament receives with respect to mixed and joint enterprises is not consistent across the corporations. For example, only one corporation's annual report (Telesat Canada's) is tabled in Parliament, and the information provided in the Public Accounts varies among the corporations.
2.26 The existing sources provide Members of Parliament with little or no information about such matters as the federal government's objectives in making or maintaining the investments or the extent to which the government's objectives are being achieved. Similarly, there is no information on the proportion of federal ownership in specific corporations, on who the other owners are, or on the subsidiaries or associates of mixed and joint enterprises.
2.27 There is no regular flow of information to Parliament through the Public Accounts or other reports concerning the financial position or results of operations of each mixed and joint enterprise. As a result, Parliament is not regularly informed of the magnitude of individual corporations or of potential situations where erosion of the financial positions of corporations could put the government's investment in jeopardy or place demands on the public purse beyond the government's initial investment.
2.28 We concluded that there is both a need and an opportunity to improve the flow of information to Parliament on the nature, extent and results of the government's involvement in mixed and joint enterprises.
2.29 We believe also that a consideration by the government of the full range of issues involved in the accountability of mixed and joint enterprises would be especially timely in light of the government's announced intention to privatize a number of Crown corporations, including, for example, Canadian Arsenals Limited, Teleglobe Canada and Canadair Limited. Experience in other countries and jurisdictions shows that the privatization process can result in governments retaining some ownership interest in privatized corporations either permanently or during a transitional period - thereby creating new mixed and joint enterprises.
Chapter 6 - Public Service Commission2.30 The Public Service Commission (PSC) is responsible to Parliament for administering the Public Service Employment Act (PSEA) and, as a result, for ensuring that all public service staffing activities comply with the merit principle. The PSC also has other responsibilities, the most important being the delivery of language training and staff training and development programs under agreements signed with Treasury Board in 1982.
2.32 Inadequate mechanisms for analysis and monitoring. Our examination of the Commission's means of directing and supervising the staffing system revealed that the Commission does not analyse the needs and problems encountered by the public service as a whole in the use of the staffing system. The PSC does not monitor staffing operations in departments. Nor does it monitor the administration of exclusion approval orders by departments, despite the fact that a special audit by the Commission revealed signs of abuses in the system. The Commission has little information about the appropriateness and effectiveness of its staffing policies.
2.33 Audits of staffing lack rigour. The quality and quantity of audit work done to ensure that staffing activities are conducted in accordance with the PSEA and the merit principle cannot be assessed on the basis of information contained in the working paper files. We found weaknesses in the planning, execution and reporting phases of audit projects. The Commission was aware of some of these weaknesses because it issued directives on working documents and introduced a project management system during 1984-85. These measures will not, however, correct the weaknesses we observed in the training and supervision of auditors and in the review of audit work.
2.34 Adequate management controls over central services offered by PSC. With respect to its non-delegated responsibilities, the Commission operates a national inventory of applicants so that Canadians in all parts of the country can have equal access to federal public service jobs. The PSC also provides central services to departments, such as administering language tests, operating a lateral transfers system and operating a priorities system so that employees declared surplus or laid off can be given first consideration for public service jobs. The Commission has exercised adequate management controls over its outside recruitment activities and other central services provided to departments.
Language Training2.35 The Commission's language training program is one of those introduced by the government to meet the requirements of its official languages policy. The PSC's role is to develop and give language training courses, while the role of Treasury Board is to set policy and strategic objectives for language training, assess training needs, determine the level of funding, and evaluate the policy.
2.36 Decline in demand but not in resources. The overall demand for language training has declined by 20 per cent over the past three years. The resources the PSC devotes to teaching have remained relatively stable, however, resulting in a 16 per cent decline in efficiency. In other words, the present number of student-hours could be provided with 79 fewer person-years. The surplus resources have been assigned to preparation and other teaching-related activities, teacher training and new course development. The PSC approached Treasury Board in September 1984 with proposals for new course arrangements to reflect the decline in demand and make better use of its resources.
Staff Training and Development2.37 The PSC offers a staff training and development program within the framework of Treasury Board's 1981 training policy. Under a 1982 agreement between the two agencies, the Commission is responsible for developing and delivering training for departments. The responsibility for developing and evaluating the federal training policy rests with the Treasury Board.
2.38 Progress made in administration. Since 1981, the PSC has made marked progress in its administration of training. The choice of courses offered has been rationalized, and the human resources devoted to training have been reduced. The Commission has been able to move from a deficit in the revolving fund that finances the Staff Development Branch to a position where it is now recovering its costs.
Program Planning and Evaluation2.39 No program evaluations done to date. The PSC has had an integrated corporate planning and control system since 1977-78. We found certain elements of the system to be in line with central agency directives. At the time of our audit, however, the Commission had not yet evaluated any of its programs, despite the fact that it has been eight years since the Commission set up its corporate management system and the Treasury Board issued its program evaluation policy.
Chapter 7 - Customs Canada2.40 Customs is one of the oldest government programs, based on legislation dating back to 1848. It administers 70 legislative acts, most of them on behalf of other government departments such as Immigration, Agriculture, and National Health and Welfare.
2.41 In 1984, Customs collected about $5 billion in revenue - nearly 9 per cent of the government's total revenues. To do so, it processed some 12 million cargo control documents that list goods being imported. The Department also processed close to 80 million international travellers that entered Canada.
2.42 Customs must be rigorous in enforcing the various acts it administers, but it must also be sensitive and responsive to legitimate needs and expectations of importers and travellers. To carry out its varied and complex tasks, Customs had a budget of $281 million in 1984-85. Almost nine-tenths of it was used to pay a staff of about 7,800 people.
2.43 Audit scope. The theme of our audit was "Delivering the Customs Mandate". We reviewed departmental management principles and practices as they relate to operations and mandate delivery and the process the Department uses to convert legislation into operating procedures. We examined to what extent Customs keeps the public informed about the need to comply with the law. The audit also covered the operations of facilitating and controlling the entry of international travellers and commercial imports. Finally, we report on the extent to which Customs has objective and reliable information about compliance in its port operations and about its success in detecting non-compliance.
2.44 We conducted a previous comprehensive audit of Customs in 1978. Wherever applicable, we compared the current status of Customs operations to their status at the time of our 1978 audit.
2.45 Progress has been made since our 1978 audit. Customs has made progress in a number of areas. Management has established a climate in the Department that fosters co-operation and team work; it is professional and businesslike. The Department addressed many of the recommendations we made and has developed and published a statement of operating principles that guides departmental policies and activities in important areas. It has also produced a code of conduct and a system of accountability contracts between supervisory personnel and those to whom they report.
2.46 Improvement in communications. The relationship between the Department and the Customs Excise Union is professional and objective. Communications between the Department and customs brokers are open and are being used regularly. The Department is following a policy of sensitivity and responsiveness in dealing with the public.
2.47 Administering legislative acts for other departments. The Department has a formal mechanism in place to negotiate agreements with its client departments. It converts the agreements and other relevant legislative acts into operating procedures and directives for use by Customs Officers across the country. In some cases, the application of these directives is not uniform. To reinforce consistent application of these directives, the Department is planning to establish a monitoring program.
2.48 Service to the public. The Department recognizes service to the public as an important part of its mandate delivery. It has established channels to disseminate information and to communicate with the public. Where justified, it makes interpreters available to communicate with people who do not speak Canada's official languages. Our observations indicate that Customs Officers are generally treating the public with courtesy and are following the published code of conduct.
2.49 Processing international travellers. During 1984, about 80 million international travellers entered Canada and reported to Canadian Customs Officers for questioning and for examination of baggage. The department's objective is that no traveller should have to wait more than 30 minutes to complete Primary Inspection. We noted that this objective is met in most cases. The primary purpose of the Customs passenger program is one of protection. Part of this protection function is the detection of terrorists and illegal immigrants, and of items such as firearms, narcotics, pornography and agricultural hazards.
2.50 We noted some uncertainty on the part of Customs Inspectors as to whether they were expected to concentrate primarily on sensitivity and responsiveness or on detection, deterrence and enforcement. The Department has recognized this problem and is taking steps to clarify the issue.
2.51 Commercial program. Besides processing international travellers, Customs' other major activity is the commercial program. It is designed to facilitate the entry of permitted goods into Canada, together with assessing and collecting the correct amounts of duties and taxes. During 1984, Customs collected about $5 billion of such revenue. We noted some room for improvement in the control over cargo documents and the declaration of goods, and in the identification of high-risk shipments. The Department is taking steps to improve these aspects of its operations.
2.52 The Department has developed a large computer system to assist its Commercial Program. This system has been implemented at 33 sites across Canada. During our 1978 audit, we noted a number of weaknesses in the operations of the Commercial Program. The Department stated at that time that many of these concerns would be alleviated through further development of the data base and data retrieval features of its computer system. Since only part of that system has been implemented to date, a number of weaknesses remain, particularly in the area of selecting entries for examination and assessment. The Department is continuing to develop and implement further modules of its computer system.
2.53 Measuring and reporting enforcement results. The Department has made progress toward measuring and reporting enforcement results in its Customs Port Operations. In Passenger Operations, an ongoing system has been implemented that measures the levels of voluntary compliance by air travellers and the Department's own success in detecting non-compliance. There are some problems of data objectivity in this system.
2.54 In Commercial Operations, the Department does not yet have satisfactory procedures in place to measure and report on the level of compliance. In its response to our recommendation, the Department indicates that there is work in progress to determine the most cost-effective procedures for obtaining this information.
2.55 Need to intensify efforts concerning sufficient reliable information. Over the past few years, the Department has made it easier for importers and travellers to comply with Customs regulations. In some specialized areas, such as detection of firearms, narcotics, explosives and pornography, the Department's enforcement activities are more intense than they were some years ago. On the other hand, the Department has fewer resources than it had in earlier years, it is coping with a larger work load, and it has insufficient objective and reliable information on the public's compliance and on its own success at detecting non-compliance. It is possible therefore that the deterrent and enforcement aspects of Customs in some other areas may have diminished. Despite past efforts, the Department still does not have sufficient, reliable information to determine to what degree this might be the case. In our view, the Department needs to intensify its efforts to acquire sufficient objective and reliable information about the level of compliance by the public and about its own success in detecting non-compliance. The Department recognizes the importance of having such information and is re-examining the means of obtaining it.
Chapter 8 - Atomic Energy Control Board
2.57 The Board's regulatory focus is now in two areas: radiation health and safety of workers and the public, and security including safeguarding certain prescribed nuclear materials to prevent their use in the fabrication of nuclear explosive devices.
2.58 The Board's legislation, little changed since 1946, gives it a broad but skeletal mandate. Its activities are guided by regulations, made by the Board and approved by the Governor in Council; Parliament has provided little detailed guidance on the purpose or conduct of AECB activities.
2.59 In the area of health and safety, the Board exercises regulatory control through a comprehensive licensing and inspection system. This covers all aspects of nuclear facilities and dealings in certain prescribed substances and equipment.
2.60 Canadian nuclear policy is to promote the peaceful use of nuclear energy and the non-proliferation of nuclear weapons. This policy is reflected in the obligations and commitments assumed by Canada in entering into various nuclear co-operation agreements with her trading partners and by becoming a party to the Treaty on Non-proliferation of Nuclear Weapons in 1970. Pursuant to this Treaty, Canada has agreed with the International Atomic Energy Agency (IAEA) to establish controls over nuclear materials and to have its facilities inspected by the IAEA.
2.61 In general, non-proliferation is pursued internationally by having the IAEA monitor the peaceful uses of atomic energy to ensure that the diversion of nuclear materials to nuclear weapons will not go undetected. If diversion is detected, international sanctions can be applied. AECB is responsible for administering Canada's obligations and requirements under these agreements inside Canada. AECB also controls the export of nuclear materials, equipment and technology.
Licensing and Inspection System2.63 In each area of AECB responsibility we found well defined licensing and inspection procedures; we did not find any significant weakness in the administration of this activity.
Regulatory Framework2.64 The AECB uses a co-operative, co-ordinated process to create a regulatory framework consisting of regulations, regulatory policy statements, generic licence conditions and regulatory guides. This process is generally well controlled and allows participation by the public and others.
2.65 An important step in developing a regulation is an analysis of its socio-economic impact. Such an analysis is called for when the impact is expected to be major. The AECB, consistent with government practice in this area, has not yet done a full-scale socio-economic impact analysis on any of its regulations. However, we believe it should develop procedures for conducting socio-economic impact analyses that are specially designed to suit the various sectors and components of the atomic energy industry.
Non-proliferation of Nuclear Weapons2.66 We found no significant weaknesses in the administration of AECB activities in relation to non-proliferation of nuclear weapons.
Human Resource Management2.67 The human resources of the AECB are critical to organizational success. We found that people were being managed in a way that fostered personal commitment and enthusiasm for achieving their objectives.
Chapter 9 - Department of the Environment - Atmospheric Environment Service2.68 The Atmospheric Environment Service (AES) is the sole agency responsible for forecasting the weather over the majority of the Canadian land mass, adjacent sea areas and certain international air corridors. Since 1971, AES has expanded its services to include new emphasis on air quality, ice services, climatological services and the application of these to a broad range of environmental and socio-economic problems.
2.69 Audit scope. Our audit focused on the weather services activity which accounted for $151 million, or 72 per cent of AES's budget. We concentrated on the systems that carry out two critical functions: the preparation of regional forecasts and the dissemination of weather forecasts to the ultimate users. Regional weather forecasts are AES's most important products. In cases of severe and volatile weather situations, the quality of the forecast and its dissemination can affect the survival and livelihood of Canadians.
2.70 In addition, we examined selected significant transactions with a view to assessing whether they were carried out in general accordance with relevant government authorities and with due regard for economy and efficiency.
2.71 Responding to the demand for specialized weather services. In addition to its basic weather forecasting services, AES receives and attempts to respond to an almost unlimited quantity and range of demands for specialized weather forecast services. However, it does not manage its response in a manner that recognizes:
- - what should be provided as an essential public service and what can and should be done by other agencies of government and the private sector;
- - what services should be provided at public cost and what should be subjected to cost recovery; or
- - who should disseminate weather information and how.
- - there are inconsistencies in the provision of specialized services;
- - there is a risk that the growth of the private meteorological sector is being inhibited;
- - potential revenue to the Crown is being lost; and
- - the relationship of AES with the broadcast media provides little control over the quality of the delivered weather forecasts or assurance that Canadians most affected by weather warnings are receiving appropriate information as to how to react.
2.73 Quality assurance. Quality assurance is an aspect of management control over forecast preparation that ensures that forecast products are of appropriate quality before the public is informed. It involves having appropriate management scrutiny and peer review measures in place to support the exercise of professional judgement. It is very important because weather forecasts contain information on the basis of which users make decisions that often involve irrevocable commitments.
2.74 Although, in general, forecasts are produced on schedule and in the format prescribed by AES management, there are weaknesses in the application of quality assurance to forecasts prior to their release. This means that AES cannot be assured that it is producing forecasts of the quality that it is capable of producing. Therefore, there is a need for AES to recognize explicitly the importance of quality assurance as an integral part of weather forecast preparation, through better organization and use of existing personnel.
2.75 Management information. For AES to manage the overall forecast production process, it needs information from a client/user perspective, on the accuracy and usefulness of the weather forecast products, and from an operational perspective, on the different factors contributing to the overall accuracy and usefulness of the forecasts.
2.76 We found that AES has limited information to indicate how well it is doing or where to change its operations to do better:
- - Although considerable time and effort have been dedicated to systems designed to measure the accuracy of AES numerical weather prediction guidance and regional weather forecasts, they yield limited useful information on which management can act in terms of improving the forecast.
- - Management has very limited diagnostic information relating to how various factors such as forecaster skill, workstation environment, numerical weather prediction guidance, weather observations, satellite imagery, or communications contribute to the accuracy of the weather forecasts.
2.78 Building leased for the installation of major computer equipment. AES and its agent, the Department of Public Works (DPW), were placed in a "captive tenant" position when negotiating a renewal of a lease (October 1980 to September 1985) for a building that contains the Canadian Meteorological Centre (CMC) in Montreal. A further renewal in 1985 resulted in a 20-year lease that could cost the Crown substantially more than might have been necessary had suitable alternative arrangements been more actively pursued in time.
2.79 Major computer acquisition. In 1981, AES prepared a needs analysis proposing to update its numerical weather prediction facilities that produce guidance and other material for Canadian weather forecasters. This needs analysis was to be used to seek approval in principle to enter into a procurement process that ultimately resulted in a commitment of $32 million for leasing computer services over a 10-year period.
2.80 We found that the material presented for decision making was not sufficiently complete and reliable for the purpose of approving an expenditure of this magnitude.
2.81 Contract for the supply of aircraft for ice reconnaissance. Since 1972, AES has contracted with the private sector for the provision of aircraft, crews and equipment to conduct year-round surveillance of ice conditions in Canadian waters. Our review of the management of these service contracts over the last three years revealed certain questionable practices. These relate to overpayments in the areas of the cost of scheduled air flights for crews, in-flight meals and certain bonus provisions that were paid but not earned according to the conditions of the contract. For the three-year period reviewed, these overpayments and potential overpayments amounted to at least $200,000. In contrast, we found no irregularities over the three years in the administration of contracts for aircraft use and fuel costs which amounted to approximately $9 million.
2.82 Since our audit, the Department has taken measures to recover the overpayments from the carrier and to ensure that, in future, payments will only be made in accordance with the terms of the contract. It has also ceased paying daily meal allowance to employees involved in ice reconnaissance.
Chapter 10 - Law Reform Commission2.83 The Law Reform Commission of Canada (LRC) was established under the Law Reform Commission Act in 1971. Its objective is to study and keep under review the laws of Canada with a view to making recommendations to Parliament for improving, modernizing and reforming them. In 1984-85, the Commission had a budget of $5 million and 47 person-years.
2.84 We examined the systems and procedures used by the Commission in managing its projects. We also examined the Criminal Law Review project in which the Department of Justice and the Ministry of the Solicitor General also participate.
2.85 Research program not updated. The Commission is required under its Act to "...prepare and submit to the Minister from time to time detailed programs for the study of particular laws or branches of the law...". In March 1972, the Commission submitted a program to the Minister who tabled it in the House of Commons. The Commission estimated three years for completing this research program and also envisaged submitting supplementary programs relating to further specific areas requiring reform.
2.86 The Commission has not revised its original research program or submitted a supplementary or second program, although changes in its work have taken place and significant delays have occurred. Many of the original projects are still in progress 10 years after their scheduled completion date.
2.87 Program effectiveness not measured. The Commission is not satisfied with its impact on legislative change; in its 14 years, some recommendations from 5 of its 22 reports have resulted in new or amended legislation. Recommendations from many other reports were included in bills that died at the end of various sessions of Parliament. As documented in its annual reports, the Commission has had an impact on judicial decisions, legal education and research. However, it has not measured the achievement of its objectives.
2.88 Project management direction needed. Since its establishment, the Commission has managed many projects and sub-projects, mostly carried out by outside consultants. However, it has not developed a system and methodology that would provide for the use of at least minimum project management standards and the application of consistent project management procedures and discipline. A project management guide or directive would be a useful starting point for this purpose.
2.89 Undocumented contracting procedures. The Commission has not documented its contracting procedures or set out its minimum expectations for project co-ordinators and consultants.
Audit of Management Procedures of the Criminal Law Review2.90 We examined the Criminal Law Review project, in which the Law Reform Commission, the Department of Justice, and the Ministry of the Solicitor General all participate. Our purpose was to assess the appropriateness of the management process. We did not audit the appropriateness or quality of the research or draft legislation produced by the project.
2.91 Since the introduction of the Criminal Code of Canada in 1892, many royal commissions and interested groups have recommended a review and revision of the Criminal Code of Canada. Parliament created the Law Reform Commission in 1971 and the work on Criminal Law reform started. Progress on this large task was slow, so, in 1980, to accelerate the process, the Minister of Justice announced that a new mechanism involving the Law Reform Commission, the Department of Justice, and the Ministry of the Solicitor General was being put in place, with close working relationships with other ministries and with the provincial and territorial governments. The government provided additional resources to the Commission and the two departments for use in the Criminal Law Review.
2.92 Significant delays in completing planned work. The objectives of the 1981 Criminal Law Review project were broad statements that defined the intent of the Review as the production of a new Code. But they provided little guidance to managers involved, particularly since the objectives were not defined in operational terms. At the time of our audit, many of the sub-projects were not complete and some had not started. Given the delays, it is unlikely that the Criminal Law Review, as set out in the 1981 plan, will be completed by October 1986 as planned.
2.93 Inadequate work planning and scheduling. The Review is a complex research-based endeavour involving three entities. The project has three phases and each participant has distinct responsibilities with regard to each phase.
2.94 The work planning has not been adequate to support an interdepartmental project of this size and complexity. Work planning has constituted a list of project titles with target dates, unsupported by any detailed tasks or resource analysis. Commitments to milestones and deadlines set out in the workplans have not been kept; they have changed frequently.
2.95 Lack of control and monitoring. The overall management of the Criminal Law Review is the responsibility of an Executive Committee, chaired by the Deputy Minister of the Department of Justice and including the Deputy Solicitor General and the President of the Commission. The Committee has delegated many of its responsibilities to a Program Management Group. This group includes the Assistant Deputy Ministers from the two Departments and the project Co-ordinators from all three organizations.
2.96 There has been no statement of roles and responsibilities for either group. There is also a lack of formal decision-making procedures.
2.97 Although the Department of Justice was designated as a lead agency for the Review, it has not actively pursued this lead role. We believe that the Department of Justice has provided insufficient interdepartmental work planning and monitoring to support the Executive Committee. Justice's lead role is made difficult by the autonomy and independence of the Law Reform Commission and the Ministry of the Solicitor General in that it has no authority to compel them to comply with the decisions of the Executive Committee or with the workplans.
2.98 Inadequate co-ordination of consultations. Consultation on its research and study papers is a major activity for the Review, and all three organizations are involved. We noted a lack of overall planning and co-ordination for consultation activities, which has led to some duplication of consultations, and a lack of a clear record of what benefits are derived from the consultation process.
Chapter 11 - Canadian Human Rights Commission2.99 The Canadian Human Rights Commission (CHRC) was established in 1978 under the Canadian Human Rights Act. The Commission's mandate is to accept and investigate complaints of discrimination, arrive at settlements in cases of discrimination, and combat discriminatory practices and policies through information, persuasion and research. Although all Canadians may seek recourse under the Act, the Commission estimates that over 3 million employees of the 1,500 organizations subject to the Act are more likely to do so. In 1984-85, CHRC's budget was $9.2 million and 156 person-years.
2.100 Our audit focused on the Commission's major program activity - processing complaints from individuals. We also examined the Commission's interpretation of its role and mandate and its strategic and operational planning.
2.101 At the time of our audit, the Commission had recognized the need for improving its management process. It was clarifying the roles and responsibilities of its staff, designing training programs, initiating a management reporting system, and streamlining the complaints management process. We were unable to assess the impact of these changes, given that they were mostly in the development or early implementation stages.
2.102 Need to clarify role and mandate. The Commission's mandate to reduce discrimination and to promote equal opportunity for all is virtually unlimited in its scope. The Act confers a twofold power of intervention on the Commission - as an enforcing agent and as an entity for advising and informing organizations by making available educational programs, instructional materials and research findings. The Commission is required to play a reactive role in dealing with individual complaints, and it has favoured a persuasive approach in dealing with employers, unions and minority groups. Under its mandate, the Commission can take an active role in examining discriminatory practices in organizations and it can initiate complaints on its own. So far it has initiated very few. Its twofold mandate results in a dual role, placing it in a difficult position. Therefore, the Commission needs to identify clearly how it intends to interpret its mandate and in which ways it plans to fulfil it. This definition could then be the basis for strategic and operational planning.
2.103 Limited planning, but annual objectives are clear. The Commission's planning has so far been limited to the development of an annual operational plan - determining and communicating annual objectives and priorities and allocating resources. Managers give priority to operational planning and annual objectives are clearly defined, quantified and discussed internally. They are used for quarterly reviews and managers' performance appraisals.
2.104 The Commission, however, has not implemented a strategic planning process or developed a strategic plan. We found no evidence to indicate that it had examined options and their potential impact on resource requirements or analysed data relating to its environment to support planning. The Commission needs to develop a strategic plan and conduct its operational planning within that framework.
2.105 Increased backlog and delays in investigating complaints. Since its establishment, the Commission's major operational challenge has been to develop and implement a management system that would enable it to investigate complaints promptly and efficiently. So far it has been unable to do so for a large proportion of its cases.
2.106 Of the 2,352 complaints accepted by the Commission since its creation to 30 June 1984, approximately 39 per cent took over 12 months to deal with. These delays are significant in relation to the six-month time frame that the Commission's managers believe it should take to process an average case.
2.107 These delays in handling complaints have a major impact on the backlog of cases. At 31 December 1984, the backlog represented over two years of work at the current rate of handling cases.
2.108 To understand the nature of delays, we examined 81 cases that had taken over 18 months to complete or that were still active after 18 months. In our analysis, we found that there were unusual delays in the assignment, investigation, case analysis and reporting phases. The cause for the delays in the investigation phase included the heavy workload of investigators, changing investigators, failure of respondents to supply information promptly, a lack of follow-up by investigators and unavailability of complainants. The Commission had identified the major deficiencies in the complaints management process and was planning corrective action.
2.109 Deficiencies in the complaints management process. Many of the delays and the backlog are caused by deficiencies in the complaints management process. These include unclear definitions of the roles and responsibilities of regional and headquarters staff that have caused inadequate or late input from specialists, confusion over "ownership" of recommendations in case reports, and friction between headquarters and regional staff.
2.110 Further, the Commission has not validated its performance and work standards, such as elapsed time and staff time to be spent on an average case. These standards are needed for planning and controlling work and for justifying resource requirements.
2.111 Lack of methodology and work tools. The Commission lacks standard methodology and sufficient work tools to guide investigators in their investigations. Tools, such as pre-investigation and investigation plans, that are recognized by the management as being useful, are often not used and standards for file preparation, time recording, and supervisory reviews are not in place.
2.112 Quality control standards not identified. Regional Directors and the Complaints and Compliance Branch at headquarters have a quality control role in reviewing the investigations. The reviews by the Regional Directors are ongoing, whereas those by the Complaints and Compliance Branch are after-the-fact. At the time of our audit, their respective quality review roles were being defined and clarified. The Commission has not identified and documented its quality control standards so they can be communicated to investigators.
2.113 Unreliable management information systems. The Commission's manual and computerized management information systems do not provide reliable and accurate key operational information such as status of active cases, the handling and disposition of similar cases in various regions, and time spent by investigators on each case. A new management reporting system, intended to address the major information needs of management, was initiated in January 1985.
Chapter 12 - Department of Regional Industrial Expansion2.114 The Department of Regional Industrial Expansion (DRIE) was created in December 1983 from the merger of the former Departments of Industry, Trade and Commerce (ITC) and Regional Economic Expansion (DREE). DRIE's objective is to increase overall industrial, commercial and tourism activity in all parts of Canada and, in the process, reduce economic disparity across the country.
2.115 The Department pursues this objective through direct financial assistance programs and other programs involving non-financial assistance. In 1984-85, DRIE's expenditures were $1,070 million, with expenditures on direct assistance programs amounting to $837 million, or roughly 78.2 per cent of the total.
2.116 The reorganization activity involved in creating DRIE was being completed at the time of our audit. The Department had to deal with the resulting changes and disruptions at the same time as it was launching the new Industrial and Regional Development Program which was intended to become DRIE's main instrument for providing direct assistance to industry. The systems and controls needed to administer this program, as well as others that continued in the new organization, had to be developed and implemented during a difficult transition period.
2.117 Most of DRIE's assistance programs are highly discretionary. The Minister has wide authority to approve or reject specific project proposals, and considerable approval authority has been delegated to departmental staff. Two of DRIE's major programs, the Industrial and Regional Development Program and contributions under Federal-Provincial Subsidiary Agreements, are delivered primarily by DRIE's regional offices.
2.118 Corporate direction and control. The discretionary nature of DRIE's programs, together with its decentralized organization, places a requirement on corporate management to have in place effective procedures for guiding and reviewing program activities, and to have timely, complete and accurate information on these activities. We found problems in these critical areas of corporate control.
2.119 Key criteria in the governing legislation of DRIE's major industrial assistance programs require that a project must make a significant contribution to the economic or social benefit of Canada, and that there must be a need for DRIE assistance for the project to proceed. However, these requirements have not been translated into operational terms that are specific enough to guide decision making on individual projects. Consequently, we observed several projects that were funded where the need for DRIE assistance was questionable or where the statements of expected benefits were increased to a level that was not supported in file documentation.
2.120 There was little or no corporate review of projects approved under delegated authority, and there were several areas where, in our opinion, policy direction was required.
2.121 The Department had been required to implement new program management information systems in a relatively short time. Although the systems were operational, there were serious errors in the data they contained. However, by the end of our audit, action was under way to correct the problems we noted.
2.122 Program delivery practices. The lack of corporate guidelines and review procedures, together with the focus on obtaining approval for particular projects, has created an environment that led to many of our observations on some practices followed by the Department in reviewing and approving projects under various programs. These included:
- - the approval of projects of questionable eligibility under program legislation, regulation, or other governing directives;
- - a tendency to increase the statement of benefits expected from a project beyond what could be supported by the information on file;
- - the presentation of information for decision making that was inaccurate, incomplete or not consistent with what was contained in project files; and
- - instances of non-compliance with governing program authorities.
2.124 Follow-up to 1982 audit - Defence Industry Productivity Program. Although some action has been taken in response to the observations in our 1982 report on the Defence Industry Productivity Program, many of the issues we raised are still present. These include the need to finalize guidelines on how to apply key criteria in assessing DIPP projects and the need to link the level of assistance provided with the applicant's need for assistance. Problems relating to project monitoring and audit, and repayment of Crown assistance have also not been completely resolved.
2.125 Program evaluation. The Program Evaluation Branch has responsibility for the evaluation activity across the Department, but it did not take an active role with respect to monitoring the evaluation work carried out in regions. In a number of instances, evaluations of subsidiary agreements had not been carried out as required. Procedures had not been established under which recommendations from regional evaluation studies could be accepted or rejected and action plans developed to implement accepted recommendations. Also, the Branch had not been monitoring whether data needed for effectiveness measurement of the Industrial and Regional Development Program were being collected.
2.126 Internal audit. We observed that Internal Audit had an appropriate reporting relationship and an unrestricted mandate. However, because the approach it uses does not include sufficient testing of specific projects, it cannot provide assurance to senior management that program authorities are being complied with and that systems and controls are functioning effectively.
Chapter 13 - Department of Transport - Canadian Air Transportation Administration2.127 The Canadian Air Transportation Administration (CATA), an arm of the Department of Transport, spent $1.219 billion in 1984-85 to provide a wide range of airport, navigation and regulatory facilities and services. Revenues from airlines, passengers and other user charges designed to recover the cost of aviation services exceeded $541 million. The shortfall - the net cost to the government - after removing the impact of inflation, has gone up 25 per cent, since 1980-81, to $678 million in 1984-85. Although this represents a cost-recovery rate of only 44 per cent, it is higher than for other modes of transportation under federal jurisdiction.
2.128 The requirement for economy and efficiency through cost recovery is stated in legislation along with provision for exceptions in support of public policy. The system of major airports and associated navigation facilities has been expected by the Government to recover its costs fully, whereas many regional and remote airports and en route navigation facilities and regulatory activities are recognized as needing some financial support.
2.129 Audit scope. We examined whether due regard had been paid for economy in planning and developing airports and air navigation facilities and for efficiency in operating airports and related facilities. We paid particular attention to financial management and the approach followed to achieve the cost-recovery mandate of the Program. Also, we examined the financial performance of the Program, recognizing all direct, indirect and interest costs associated with the government's investments in air transportation. In addition, we assessed departmental corporate controls such as the role of the Senior Financial Officer, Internal Audit, and Program Evaluation.
2.130 Lack of due regard for economy and efficiency. Although the role of the Department is to provide a safe and efficient air transportation system, in recent years, senior management of CATA has been primarily concerned with safety, in response to the Dubin Commission's Report on Aviation Safety. Questions relating to the economy and efficiency of the system have not been addressed with the same sense of urgency.
2.131 Developing airports and providing associated air navigation services. We found that there should be a greater regard for economy and efficiency in the development of airports and navigational systems and in certain of their operations. Components of the air transportation system show escalating costs and most airports and associated facilities are unable to recover their costs. There is a trend of declining cost recovery that puts an increasing burden on taxpayers. The situation may worsen. Major capital projects in air navigation systems are in the development stage, without a commitment from users on their willingness and ability to pay for the scale of investments proposed.
2.132 Lack of financial discipline. Our audit points out that a lack of financial discipline with regard to costs has been a major contributing factor to the deteriorating financial picture in CATA. For the 23 Canadian airports that make up the system of mature airports expected to recover their costs fully, no targets for financial results were set for individual airports and other operating units. There was a failure to cut capital and operating expenditures in spite of reduced revenues caused by a decline in traffic; uniform national levels of service, operating standards and labour practices were applied without sufficient regard for their financial implications; expenditures were made, with little or no expectation of full cost recovery, for the benefit of smaller planes used by firms and individuals for business and recreation; and increasing subsidies to municipal airports were provided without up-to-date eligibility criteria.
2.133 Inadequate consideration given to obtaining cost recovery commitments from users. A major failing is that the economy and efficiency that could be derived through cost recovery have not been achieved. Development and operations have not been adequately tied to any financial or market test. Charges are not closely related to cost. Cost accounting has not been developed for specific facilities and services. Decisions that affect cost are taken without adequate consideration of whether there will be offsetting revenues, there being no mechanism and little incentive to consider cost recovery implications adequately before commitment is made to new expenditures. The Radar Modernization Project ($810 million) is one example. The airport and airside development at Hamilton's Mount Hope Airport ($49 million) is another.
2.134 Little accountability for containing costs. Part of the financial support provided to the air transportation system may be justified in pursuit of other government objectives for which transportation users should not be expected to pay. However, we were unable to assess the extent to which the rising cost of the system could be fairly attributed to these other objectives, since CATA had not documented what results were expected by the government. The cost of meeting the other objectives has not been segregated from the costs that are recoverable from users. This is a major weakness in the financial management of the Program. As a result, there was little accountability for containing costs or incentive for optimizing revenues.
2.135 Our audit noted that a number of improvements might be pursued in the following areas: cross-utilization of labour and more appropriate maintenance standards at Canadian airports and related facilities; increased revenue from marketing space at airports and disposing of idle lands; reduced overheads at headquarters and in the regions; reduced overlap between certain air traffic control and flight service stations; reduced frequency of inspection of navigation aids without sacrificing safety; increased leasing of aircraft as opposed to owning aircraft used for checking navigation aids and training personnel; and an improved process for challenging the financial implications of proposals, including a strengthened role for the Senior Financial Officer.
2.136 Restructuring the Program. The Department informs us that Government constraints have limited its ability to manage on a commercial basis. There is little question that competing priorities make it more difficult to hold managers accountable. However, the Government has now announced that a new management structure for Canadian airports will be introduced. Major adjustments will be made, although they will take some years to complete. Restructuring the Program will include defining more clearly the federal role in operating the air transportation system and re-examining the existing centralized approach to owning and managing the extensive airport and associated facilities.
2.137 Department will address concerns. The Department's response to our recommendations indicates that many of the issues dealt with in the chapter will be addressed. The general principles for changes to be introduced will be that overhead reductions and the elimination of perceived overlap in activities are the first priorities. The Department informs us that the establishment of the Program Control Board has been a first step in this challenge process. To the greatest extent possible, transportation activities and operations will be streamlined. The Department has established the Airports Authority Group which is examining opportunities for making the airport system more financially viable. In all these actions, of paramount importance, the Department suggests, is emphasis on efficiency and economy through cost recovery in all areas of Transport, in order to minimize the overall cost to the general taxpayer.