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1986 Report of the Auditor General of Canada

Introduction

13.1 In our 1980 Report, we reported the findings from the first comprehensive audit of the Veterans Affairs Portfolio. In this audit we looked at many of the same areas and issues that were reported in 1980. However, we did not re-examine every issue raised in the earlier report, nor did we restrict our scope to the areas looked at then. Using the 1980 chapter as a guide, along with the substantial knowledge of the Department and its operations gleaned from our annual Public Accounts audit work, we carried out a new survey of the Portfolio to identify the issues and areas that are salient to the Portfolio and to Parliament in 1986. We found much that had changed and much that had stayed the same.

The Environment in which the Portfolio Operates

13.3 The move to Charlottetown. At the time of our last audit, the Portfolio was entering the most active stage of a move that would see the Department's entire administrative apparatus and the staffs of the four agencies move from Ottawa to Charlottetown. Approximately 900 positions moved to Prince Edward Island, leaving only a small departmental headquarters complement, including the Deputy Minister and his office, and the Assistant Deputy Minister, Field Operations, in Ottawa to provide daily support to the Minister. The Department estimates that the move was accomplished at a cost of $28 million in 1979 dollars and required 720 person-years. The structure of the Department's accounts is such that we could not audit these numbers. The 1979 plan called for a cost of $24 million and 702 person-years.

13.4 In addition to the effects on operations, the move brought its own problems with it, not the least of which is the widely held view that the move has and continues to have adverse effects. Additionally, like all stresses, it exacerbated to some extent the effects of problems that already existed.

13.5 One of the key examples of the latter is the effect that the loss of corporate memory had on many areas of Portfolio operations. Fewer than 15 per cent of the people on staff made the move to Charlottetown, and few of these stayed in their old functions. Corporate memory was lost at virtually all levels and in nearly all functions. Further, the Department was not well equipped with systems and documentation. Before the move it had had a relatively stable labour force; staff carried much of the essential operational know-how around in their heads and took it with them when they left.

13.6 We found many examples, large and small, of the effects of this type of problem. One of the most notable arose when, shortly after the implementation of the Canadian Pension Commission Benefit Delivery System, the Commission and its related service groups in the Department of Veterans Affairs moved to Prince Edward Island. The system development staff did not relocate and dispersed to other jobs. They left a new and "undebugged" system with few instructions on its use and little documentation. The system has never performed up to its potential, and the repeated failures of the system have contributed to the problems encountered by the whole pension process. We discuss this more fully in Exhibit 13.8.

Exhibit not available

13.7 We found that, in addition to tangible problems, there is a pervasive view that the move and related events have created a situation of extreme organizational instability to the point that they have reduced the ability of staff, individually and collectively, to adapt to further adjustments. The Department offers this as an explanation of why some recognized improvements have either not been acted on or have been postponed. Nearly every manager we spoke to has raised this with us, usually during the first meeting and without prompting.

13.8 The need to encourage a stable and experienced work force in Charlottetown led to a commitment to provide a guarantee, to anyone relocating from outside the Atlantic region, of at least two years employment in their place of origin provided they stayed in Charlottetown for at least two years. The return option must be exercised within five years of relocation. We found that, although the program had influenced some employees to move to Charlottetown, many of them are requesting a return as the end of the five years approaches simply to protect their options.

13.9 Other operational changes. In addition to the move, several other events have contributed to the sense of instability in the Portfolio. The Disability Pension Process has been the subject of an independent Commission of Inquiry and an internal task force reporting direct to the Minister. For over a year, there has been intense pressure from the Minister to produce significant reductions in processing times. This was achieved, but at the cost of diverting energy and attention from the resolution of other administrative problems. Management's view was that these largely internal matters were less pressing than the need to improve the services to veterans.

13.10 The Nielsen Task Force recommended that all Portfolio services in an area be consolidated into a single location to provide "one-stop shopping." This meant that separate district field offices for different programs, sometimes in different locations, were to be consolidated into a single location in each district. Additionally, there was a major restructuring that has changed the responsibilities of one Assistant Deputy Minister position, created a new Assistant Deputy Minister position, and deleted another (see Exhibit 13.1). The Minister has announced a full scale legislative review to co-ordinate and simplify the 27 Acts that the Portfolio administers. These have added up to an environment in which management at all levels regards its first task as the achievement of stability.

Exhibit not available

13.11 Within the past two years the Department has seen the installation of an entirely new executive-level management team: a new Deputy Minister, and replacement of all the Assistant Deputy Ministers. While the Deputy and one of the Assistant Deputies are new to the Department, the fact that the three other Assistant Deputy Ministers have had extensive experience in the Department ensures that the new team has been put in place with a minimum of corporate memory loss at that level. At the time of our audit, this new team had begun a number of initiatives to deal with the many problems facing the Portfolio. However, most of these had not reached the stage where we could audit them.

13.12 Additionally, with the exception of the War Veterans Allowance Board, all the agency heads have changed in the last two years.

13.13 The aging veteran population. Another important factor in the Portfolio's environment is the aging of its client population. There are no comprehensive administrative data on the number of veterans or on the number that are or could be eligible for the Department's programs. The best available data are based on extrapolations from the results of information gathered in the 1971 Census, using a definition of "veteran" that is much less restrictive than the Department's. These estimates suggest that there are now about 650,000 surviving veterans. It is estimated that about half of these have the theatre-of-war experience that is a basic criterion for access to most of the Department's programs. Because this is a closed population, it is possible to predict the size and future age composition of these "census veterans" with reasonable certainty.

13.14 Exhibit 13.2 shows the Department's predicted size and age composition for this population in the years 1986, 1991, 1996, and 2001. There is a rapidly accelerating decline in the size of the population, particularly toward the end of the century. This suggests that the major challenges facing the Department must be met in the next 15 years. The distributions also show that in the next 15 years the changing age structure will place new demands on each of the Portfolio's three main programs. The demand for each will follow a pattern of initially slow growth, a rapid rise to a peak, and a drop to very little.

Exhibit not available

13.15 For the War Veterans Allowance program, where at age 65 the payments drop from the $500 to $1,000 a month range to less than $100 a month as a top up to the Old Age Security/Guaranteed Income Supplement, the peak has already passed. By the end of 1986 over 50 per cent of the population will have passed age 65. By 1991, this will be the case for over 85 per cent of the population. With a median age of over 70 in 1991, the period from 1991 to 1996 will represent the key years for the Veterans Independence Program, as it helps veterans to avoid permanent institutionalization for as long as possible. In the last five years of the decade, the rapidly shrinking number of veterans will have a median age of over 75 and will make growing demands on the provision of long-term institutional care.

13.16 For the Portfolio to meet these changes in an economic and efficient manner, considerable planning will be required to ensure that resources are diverted from programs with declining demand into areas of growing demand. This is the challenge for the Portfolio for the rest of this century.

13.17 A final feature of the Portfolio's environment that should be noted is the view held of it by Members of Parliament. On 27 May 1986, the Minister and senior management of the Portfolio appeared before the Standing Committee on Veterans Affairs to answer questions on the Portfolio's Estimates for 1986-87. In tone and content the hearing praised the Portfolio and its programs. In particular, the Veterans Independence Program received much attention. Members pointed out the future importance to the country as a whole of the experience gained in this program. The praise was extended by all three political parties. At the conclusion it was moved and passed unanimously that the Committee report the Estimates of the Portfolio to the House of Commons without amendment.

Audit Scope

13.19 In addition to auditing the major programs, we examined a number of the corporate functions in the Department, particularly with respect to their relationship to the main programs. The functions examined included: strategic planning, program evaluation, performance measurement/management information, electronic data processing management, personnel management and financial management and control. The examination of the last area was more intensive because the Portfolio was part of the sample for the Office's government-wide study of financial management and control to be reported in 1987.

13.20 Financial management and control is an activity that extends well beyond such essential matters as keeping complete accounts and doing the related sums correctly. It is best described as an attitude that all managers, not just the departmental bookkeepers, must bring to all aspects of their work. At its root it involves in each activity a concern for the financial implications of actions and a conscious and systematic effort to ensure value for money in both the short and medium term. An examination of this would accordingly involve a number of areas of management including planning and budgeting, program delivery and related accounting and control, and realistic monitoring - including reporting and action where necessary.

13.21 We did not audit internal audit because it was reviewed as part of the 1984 government-wide audit of that function. In several areas we were able to rely on the value for money work done by the internal audit function. We also noted that in many cases their findings were similar to ours. For example, they warned the Department about incorrect War Veterans Allowance payments in 1983.

13.22 We also followed up on our audit note on trust accounts that appeared in last year's annual Report. This led to a wider investigation of all aspects of the Portfolio's management of veterans' funds in trust situations.

Veterans' Trust Accounts

Background

13.24 In this context it is important to note that it has only been very recently, through the Guerin decision of the Supreme Court (December 1984), that attention has been focused on the trusts administered by the federal Crown. This landmark decision clarified both the rights and obligations of the Crown in fiduciary situations (a trust is a special fiduciary situation). Prior to this decision, these matters had been unclear.

13.25 The War Veterans Allowance Act, the Pension Act and the Veterans' Treatment Regulations contain sections that permit the Department or the Canadian Pension Commission (CPC) to assume the management of money being received by a veteran if, in its view, he or she is incapable of managing those funds or is unlikely to use them to best advantage. The administration of all the veteran's funds (including Canada Pension Plan and Old Age Security/Guaranteed Income Supplement benefits) is undertaken in some cases. Many CPC recipients are also War Veterans Allowance recipients and in most cases these dual recipients' trusts are handled through War Veterans Allowance (WVA). Additionally, the Department is responsible for the trusteeship of trust funds arising, for example, out of bequests to the Department and from veteran estates, pending probate of the affairs of a veteran with funds in trust. These last types of trust were not covered by this audit.

13.26 Our examination of the statutes and the Department/Commission's procedures for dealing with these cases, and our review of documents used by the Department and the Commission, demonstrate clearly that the nature of the relationship established between the veterans and the Department or Commission is a trust. The Department and the Commission recognize it as such. While the legislation governing trusts is all provincial, this does not affect the federal power to establish such relationships. Nor does it bind the federal Crown to follow provincial legislation in doing so, although it may if it chooses. Based on their actions, it appears that the Department and Commission have chosen not to be bound by provincial law, and accordingly are governed by the common law of trusts.

13.27 We based our audit criteria on the common law of trusts. These criteria, in summary form, are a series of duties to be fulfilled by the trustee. In all of these the duty should be fulfilled to the standard of "reasonable persons of business administering their own affairs." These specific duties are:

- The duty not to delegate. The trustee may not delegate responsibility for the trust to another person, but appropriately trained and qualified persons may be employed to assist in their professional capacity. Where they are employed to assist in trust administration, the trustee must ensure that they are fully qualified and must provide reasonable supervision of their conduct. Ultimate responsibility resides with the trustee.

- The duty to account. The trustee must ensure that proper accounts and records of disbursements and decisions are maintained, and that accounts are rendered to the beneficiary at appropriate intervals.

- The duty to invest. The trustee must ensure that funds are invested in suitable instruments to earn a return for the beneficiary.

- The duty to avoid conflict of interest. The trustee must derive no benefit from the administration of the trust. In particular, no use may be made by the trustee of trust moneys or assets. The trustee must not enter into conflict of interest situations.

The Administration of Trust Accounts

13.29 The informal procedures used by the Department and the Canadian Pension Commission have evolved over the years in the various districts in response to the needs of their clients. However, the person whose rights are being affected is entitled to the following: a formal hearing; formal notice of the hearing; an opportunity to be present at the hearing and to be represented by counsel; formal notification of the determination; and some right of appeal. We are concerned that currently the Commission and the Department have virtually none of these procedures. We appreciate that it might not be practicable to follow them fully with all their clients.

13.30 Delegation to, and supervision of, agents. The practice in both the Department and the Commission has been, where possible, to find a third party to administer the trust account. If such a person cannot be found, the Department or Commission uses its own staff to manage the accounts.

13.31 Third party delegation. On finding a third party who is willing to act, departmental practice is to meet the person and explain that he or she will be getting the veteran's WVA cheque and is to administer the money for the veteran. The Department does not fulfil the duty to provide the delegate with the information and instruction necessary to manage the account, such as advice on opening a separate bank account, ensuring that the trust funds are in an interest-bearing account, and keeping proper records of transactions. There is little or no further contact with the administrator unless the administrator contacts the district office or the veteran complains that the money is being mishandled.

13.32 The Canadian Pension Commission does provide some guidance to third party administrators and requires them to sign an agreement on accepting the responsibility of administering a veteran's pension. In addition, the third party is required to account annually, by completing a form, for the expenditure of trust moneys. They are not required to produce bank statements, and their accounts are not audited. If any irregularities are found or complaints arise, administrators may be removed and others appointed to act. In all these ways, the Commission is making an attempt to supervise third party administrators as required.

13.33 In spite of these efforts, the guidance and supervision of these third parties by the Department and the Commission fall short of what would normally be envisioned as proper in using them to assist the trustee in administration of the trust. Effectively the role of trustee has devolved on these persons, although the Department/Commission continues to be the trustee and is accountable for third party actions in that role.

13.34 Staff administration. If the Department cannot find a third party, then it administers the account. This is also problematic. First, there are no formal instruments of delegation that would provide authority for anyone other than the Minister to administer the trust.

13.35 Second, no training in trust administration is provided by the Department. Knowledge of this area is not a basic requirement for a counsellor's job and it is not even included in the job description. The counsellor has always been considered a caseworker rather than a trust administrator.

13.36 In addition, neither counsellors nor employees dealing with the financial administration of trusts have any real knowledge of the responsibilities associated with trust accounting; further, there are no procedural guides and policies. The result is that persons who have no real knowledge of the trustee's duties administer trusts as they see fit with virtually no formal guidance.

13.37 As a result of this lack of guidance, the conduct of the administration varies according to the region and district involved. Some districts try to help veterans gradually to take control of their affairs until they no longer need the Department's assistance. This process has assisted one district to decrease its administered case load from 160 in 1980 to less than 30 at present. Most other districts have no such programs and maintain many people on administration for years.

13.38 We observed that the standard of practice in the Department's administration of foreign trust accounts, while not up to the required level, was better than the practice overall.

13.39 The Department has few procedures to ensure that the overall standards of care are maintained. There are informal means in some districts for checking the validity of disbursements from trust accounts. However, there are not sufficient controls to ensure that they are reasonable and in the beneficiary's best interest. This creates a possible liability on the part of the Department for failure to fulfil its duty to supervise its agents.

13.40 CPC trust administration raises much the same problems as WVA administration. Because administration of these trust accounts is only a small part of the CPC staff's jobs, they receive no specific training and have no specific knowledge of the trustee's standard of care.

13.41 The duty to account. Although a trustee has a basic responsibility to keep accounts and all documentation regarding the trust, we found that the Department is generally unable to render a complete accounting on most accounts or any accounting on WVA accounts administered by third parties. Supporting documentation and justification for disbursements from accounts was insufficient or non-existent, although such documentation is necessary to prove that funds were actually requested and paid, and were paid for a proper purpose. Especially where a trust is being administered for a person unable to care for himself or herself, we would expect such documentation to be on file to show good faith on the part of the trustee. Such documentation would also guard against any allegations of fraud or mismanagement.

13.42 In addition, we found there was no regular reporting to veterans on the state of their accounts. Beneficiaries are entitled to regular statements and a final statement at the conclusion of the trust.

13.43 The duty to invest trust funds. One of the most basic duties of the trustee is to invest trust funds. He or she must use prudence in selecting good investments and ensuring they are suitable, given the terms of the trust and the interests of the beneficiaries. The Department does not invest or pay interest on money held in any trust account. Where veterans have raised the matter of receiving interest, they have been told by departmental officials that such arrangements are not possible.

13.44 As a trustee, the Department has a responsibility to invest trust funds in approved investments and account to the beneficiary regularly. The Department is vulnerable to legal action by veterans to recover the difference between the amounts accumulated in the trust accounts and what would have been produced if the money had been properly invested. Given the amounts involved and the length of time that many of these accounts have been in existence, this liability could be large.

13.45 Conflict of interest and duty: Crown self-dealing in trust funds. While there does not appear to be a conflict of interest problem with staff employed by the Department, the Crown as trustee may be viewed as being in a position where its interest and duty conflict. Technical self-dealing arises with respect to the Crown's failure to invest or pay interest on moneys held in trust accounts in the Consolidated Revenue Fund.

13.46 Implications. The Department and the Commission recognize that a trust relationship exists with their administered account clients. However, neither has met the minimum obligations of this situation. Recipients whose affairs have been administered by the Department have, at best, had the benefit of its good intentions. However, they have been deprived of the investment value of their funds. Those whose affairs have been placed in the hands of third parties may in some instances have had the benefit of some interest on their funds, but at the cost of having their affairs left unsupervised.

Departmental Action

War Veterans Allowance Program

Background

13.49 In 1984, significant changes were made to the War Veterans Allowance Act. One of the major thrusts of the amendments was, for reasons discussed in the rest of this section, to bring the income definitions and procedures for reporting income more closely in line with those used in the Guaranteed Income Supplement. This process, known as "Harmonization" in the Department, will enhance its ability to co-ordinate program delivery more effectively with the Department of National Health and Welfare, and will also help in reducing the long standing problems that the Department has had with over- and under-payments.

13.50 We examined planning for the program, considered whether due regard had been given to the efficiency and effectiveness of program operations, and examined the adequacy of financial management and controls. Our observations are related to the following major challenges we believe management faces:

- significant numbers and amounts of incorrect payments to recipients;

- financial control inadequacies;

- significant operational inefficiencies; and

- long-term planning inadequacies.

Incorrect Payments

13.52 For 1985-86, on the basis of a review of 200 client files, we estimate that there have been $9.4 million in overpayments to clients that were not preventable under the operating policies and procedures in effect during the period under audit, $26.4 million in overpayments that could have been prevented, and $3.8 million in underpayments to clients. Because of the effects of sampling errors, we estimate the total value of overpayments of $35.8 million has a possible range of between $22.9 and $54.6 million. The underpayments have a possible range of between $1.4 million and $14.6 million. Both ranges are based on a 95 per cent confidence interval.

13.53 The amount of incorrect payments is considerably larger than the approximately $20 million the Department spends annually to administer the program. The majority of the incorrect payments could have been prevented through a combination of legislative changes and comparatively inexpensive changes to operations. Nearly a quarter are not preventable under the legislation, procedures and policies in effect during our audit; for example, where the Department receives notice of an income change after the cheque for the affected month has been sent. The frequency of these unpreventable incorrect payments should decline after April 1986 with the introduction, as part of Harmonization, of a simpler income test based on the previous year's income. Four other causes that could be prevented account for the remaining three-quarters of the incorrect payments (see Exhibits 13.3 and 13.4).

Exhibits not available

13.54 The first of the four is a legislative overlap problem between the Department and National Health and Welfare, at the time a recipient applies for Old Age Security, Canada Pension Plan and/or Guaranteed Income Supplement. This accounts for a quarter of the incorrect payments. Pursuant to WVA Act and regulations, the Department is obliged to continue to pay WVA from the time a WVA recipient is eligible for OAS/GIS until it is granted by the Department of National Health and Welfare. On occasion, this may be much later if there is a problem in establishing eligibility. In such cases, National Health and Welfare pays a retroactive lump sum for the time since the person became eligible. There is no provision in the law to deduct the amount received under WVA. In effect, the recipient gets paid double until the application is approved. The Department does inform the recipient that he or she should apply for OAS/GIS. However, the Department could take further actions to minimize the double payments. In our opinion, most of these double payments could be prevented or reduced if the two departments worked together to co-ordinate the granting of OAS/GIS to WVA recipients. As well, the Department suggests that, with a legislative change, National Health and Welfare could simply subtract the WVA overlapping payment from the retroactive lump sum payment for OAS/GIS.

13.55 The Department of Veterans Affairs should attempt, in conjunction with the Department of National Health and Welfare, to eliminate the incidence of double payment of income support benefits to veterans.

Management's response: The possibility of a legislative change to permit recovery of overlapping payments is being pursued. Also, as mentioned by the Auditor General, the Department is in the process of implementing Harmonization and the transfer, by magnetic tape, of the necessary data. These three measures should eliminate most, if not all, of the double payments.

13.56 An equally important cause, accounting for almost a quarter of incorrect payments, was the failure to ask clients regularly to report their income and domestic status. The Department's policy is to request information annually only from those clients considered most susceptible to income fluctuation.

13.57 As a result, about one-third of clients had not been asked since 1983 to report income information. One in every eight had not been asked since 1980 to report income information. Hence, the information on which payments were based was sometimes more than five years old. In many of these cases income had changed, so the recipient was receiving too much or too little from WVA. Most of these cases should be eliminated by the planned tape-to-tape transfer of income data from National Health and Welfare (see paragraph 13.76) and a proposed increase in departmental requests for income information.

13.58 The third cause, again accounting for nearly a quarter of incorrect payments, was departmental delays in acting on notification of changes in a recipient's income or circumstances. Some improvements were made with the introduction, on 1 April 1986 as part of Harmonization, of a new computer program enhancement that more quickly processed income changes resulting from the annual income solicitation. As well, the Department used specially recruited staff to handle the annual income reporting. By the end of April, action had been taken on all notifications from the income solicitation received by that date.

13.59 The Department has acted on one of our 1980 recommendations by establishing procedures and an electronic data processing system to anticipate significant changes in a client's income. Although the Department did not always fully adhere to these procedures, we noted that incorrect payments had been reduced where they were followed.

13.60 Management could have taken further action to minimize delays at comparatively low cost, but did not. For example, in one region, 20 per cent of notifications had not been acted on five months after receipt. We found that management was not ensuring that the most significant notifications were identified and acted on first. Nor in the past had sufficient use been made of temporary or part-time staff during monthly and annual peaks in activity. As noted above, temporary staff were used this spring to deal with the volume from annual income solicitation.

13.61 The fourth cause of incorrect payments, accounting for less than 5 per cent, was administrative errors by program staff. These included arithmetic errors, failure to grant income exemptions, and incorrect interpretation of notifications from clients. Such errors occurred despite the existence of two separate quality control processes designed to detect them.

13.62 In summary, the Department has taken or is in the process of taking a number of actions through Harmonization that should, among other things, lead to reductions in incorrect payments, but more could be done as a number of other cost-effective solutions exist.

13.63 The Department of Veterans Affairs should institute additional procedures, including establishing clear processing priorities, to ensure that incorrect War Veterans Allowance payments are held to a minimum.

Management's response: As noted by the Auditor General, the Department changed its procedures for processing annual income reporting in April 1986, and eliminated delays previously experienced in this area. As well, the Department plans to minimize processing delays in other areas. These steps, together with those mentioned in reply to the first recommendation should ensure that incorrect War Veterans Allowance payments are held to a minimum.

Financial Management and Control

13.65 Financial controls. The most essential control in a financial system, and one that is required by the Receiver General, is the periodic reconciliation of independent sources of information. The Department did not design its procedures to permit reconciliation of the Veterans Services/Benefit Delivery System, (see Exhibit 13.5) and the government-wide Departmental Reporting System (DRS) in which all transactions with an effect on the Accounts of Canada are recorded. Hence, no reconciliations are performed to ensure that the two principal systems in which WVA expenditures are recorded agree.

Exhibit not available

13.66 As part of the Department's submission for the Public Accounts of Canada, it signs a certificate to the effect that the financial statements contain accurate and complete data. Although the systems do not reconcile, and errors are present, the certificate has been signed by the Department each year.

13.67 We found similar problems in controls over the recovery from clients of excess benefit payments. As a result, the Department has collected too much or too little from some clients. As well, the amount of recovered or forgiven excess payments reported in the Public Accounts of Canada is incomplete and inaccurate.

13.68 Program costs. Little accurate information on the costs of administrating the program is available. For example, the Department's financial systems, Part III of the Estimates, and the Public Accounts report that WVA uses approximately 700 person-years. Studies by the Department reveal that 400 to 500 staff are actually used by the program. This lack of agreement is a result of not having a system that records staff time spent on different programs.

13.69 The Department has informed us that action is being taken to deal with each of these accounting problems. In the case of the reconciliation, results are expected by the end of the fiscal year.

Operational Efficiency

- processing new applications, which involves determining and verifying the applicant's service eligibility, income and age or health status;

- maintaining information on existing clients, which involves recording and calculating the effect of changes in income or domestic status; and

- issuing monthly cheques.

13.72 The question of WVA operational efficiency will be increasingly important during the next 15 years. As benefits fall dramatically, it is critical that management be continually aware of opportunities for improving efficiency to ensure that processing methods are appropriate to the reduced scale of operations.

13.73 We found that management was concerned with operational efficiency and had taken two significant actions to improve it. It introduced changes in the handling of client contacts - the "service policies" of the program - and, through amendments in 1984 to the War Veterans Allowance Act, made program operations harmonize with, or parallel more closely, the operations of the Old Age Security/Guaranteed Income Supplement.

13.74 The changes to service policies reduced the contact between field counsellors and clients by, for example, having applicants mail applications rather than applying in person. War Veterans Allowance operations could then be centralized from district offices in the field to larger regional offices. As a result, the Department estimated that by November 1985, 130 person-years were made available for reallocation to the growing Veterans Independence Program (VIP).

13.75 This transfer of resources arises from an agreement made at the time the extension to VIP and the Harmonization initiative for WVA were approved. The agreement was to use resources saved from operational enhancements, such as the new service policies, and declining work from WVA to provide staff for VIP.

13.76 The Harmonization initiative resulted from studies, including a 1983 program evaluation, of whether the War Veterans Allowance could take advantage of the existence of the Guaranteed Income Supplement program. The similar purposes and similar client base of the two programs have caused many observers, including the Public Accounts Committee, to ask about the feasibility of integrating them. Departmental studies concluded that integration was premature because a sizeable number of clients have yet to reach 65, but that administrative savings would result from some harmonization of the programs. Savings would come partly from adopting aspects of the GIS income test to calculate benefits, but more significant savings would result from eliminating duplication in income reporting by clients. Those over 65 would report income changes to the Guaranteed Income Supplement, and the War Veterans Allowance program would rely on the GIS information that it would receive from a tape-to-tape transfer of the data from the Department of National Health and Welfare. When the necessary computer link is established, the Department anticipates that staff requirements will be reduced by 70.

13.77 These initiatives illustrate the Department's regard for improving efficiency. On the other hand, full implementation of the Harmonization initiative was delayed when the Department decided to postpone the tape-to-tape transfer of income data and concentrate on implementing the new income test that came into effect 1 April 1986. According to the Department, this decision was based on National Health and Welfare's assertion that it could not respond by 1 April 1986, and further, on the Department's view that the disruption arising from an attempt at full implementation in a single step would degrade levels of service. When it is fully implemented, we estimate that savings of at least $15 million resulting from the combination of reduced incorrect payments and staff savings can be achieved. At the end of our audit the Department was preparing a Treasury Board submission for approval to proceed.

13.78 Although it has acted to improve efficiency in some areas, the Department has not systematically analysed and improved the efficiency of other key operations of the program. The fundamental source of inefficiencies is the design of the Veterans Services/Benefit Delivery System that is used to maintain information on clients and issue monthly cheques.

13.79 The Department spent at least $17 million between 1978 and 1984 designing and implementing the system. Exhibit 13.5 gives the history of the project and explains why, in our opinion, it did not yield sufficient value for money. Although its objective was to save 155 person-years, the productivity improvement was much less than promised.

Exhibit not available

13.80 In conjunction with departmental personnel, we determined that the design of the system could be improved. For example, computer-generated letters could provide clients with the same information as letters currently written by staff, and reduce the time needed for each case by 20 per cent. Management has a series of options that it agrees are cost-justifiable, from relatively inexpensive measures to a major redesign of portions of the system. The Department informs us that it plans to make system enhancements once the tape-to-tape link with National Health and Welfare is complete. In any event, changes in program administration would have to be acceptable to the War Veterans Allowance Board, which hears appeals by recipients on departmental adjudications. In the past, the Board has reversed administrative changes when it felt that these adversely affected recipients or the quality of service available to them.

Program Planning

13.82 As a result of this and other factors such as mortality, the relative importance of the program will decrease dramatically over the next 15 years. This is evident in the forecast of program expenditures in Exhibit 13.6, showing a drop in benefits from $450 million to $40 million over the comparatively short span of 15 years. This creates the need for considerable long-term planning to guide the program.

Exhibit not available

13.83 We found that, although short-term plans had been developed, there is no long-term plan for the War Veterans Allowance program. As a result, fundamental decisions have not been made on the future of the program through the medium and long term.

13.84 A major challenge for the Department is keeping administrative costs in line with benefits paid. At present, the monthly cost of administration exceeds $20 a client. This cost becomes comparatively more significant as cheque amounts drop to less than $100 a month.

13.85 The possible future directions for the program have been identified in both the Nielsen Task Force report on Veterans Affairs and in a recently completed internal study. The identified options include a number of possibilities ranging from maintaining the status quo to changing the program to operate on the same basis as the GIS. The options are not mutually exclusive in that some may be more attractive in the short run and others may become more attractive in the medium term (1991-1993) as the number of clients under 65 declines to a fairly small proportion of the total client base (see Exhibit 13.7).

Exhibit not available

13.86 The need to decide on the long-term administration of the program is urgent because the option or sequence of options selected will affect departmental actions in the short term. In particular, decisions taken now could well affect in a material way the nature and direction of electronic data processing development work for the program.

13.87 The Department of Veterans Affairs should establish a long-term plan for the administration of the War Veterans Allowance program that includes the actions to be taken now to ensure the most economic and efficient evolution of the program.

Management's response: The Department is in the process of developing a long-term plan for the administration of the War Veterans Allowance program. Possible options have been identified, but further consideration of these options is still required. However, initiatives such as Harmonization have been designed to ensure that any of the identified options may still be chosen at a later date.

Disability Pension Process

Background

Exhibit not available

13.89 The disability pension process has been the subject of close scrutiny for many years. Our 1980 Report, the Tenth Report of the Public Accounts Committee (1981), the McCracken Study (1982), the Marin Committee (1984) and the Nielsen Task Force (1985) have all reported on its problems. Most of these studies focused on the inability of the process to adjudicate disability pension cases promptly.

13.90 Our 1980 Report noted the length of time that the pension process seemed to be taking, and we recommended that the Canadian Pension Commission formalize processing time standards in all areas of the pension adjudication process within its control.

13.91 The Tenth Report of the Public Accounts Committee, 23 November 1981, recommended that:

- the Canadian Pension Commission provide your Committee with a report by March 31, 1982 indicating the resource costs, and the systems and legislative changes which would be required to enable the Commission to process pension applications through all levels in a maximum of 180 days; and

- the Canadian Pension Commission take measures to expedite its pension settlements.

Pension Process Task Force

13.94 The Task Force examined the reports on the process as well as 29 briefs and submissions and 110 letters to the Minister. It extracted 237 issues and analysed them in terms of how they were related to the process, who was responsible for addressing them, how they should be addressed, how long they should take to resolve, and whether they could be addressed within the present legislative framework.

13.95 The Task Force report, issued in September 1985, listed the improvements made to the process between October 1984 and 30 June 1985 and concluded that "significant progress had been made in speed, courtesy and generosity in treating veterans' claims." Our analysis of the report identified 41 actions that had been taken.

13.96 The public perception that turnaround times were unreasonably long was one of the major criticisms leading to the Marin Committee. Immediate and intensive effort was directed to the task of achieving significant reductions in the time taken to do the processing. In view of the continuing problems from the move (see also Exhibit 13.8), achieving significant reductions in turnaround time was to be, for those involved in the disability pension process, a long and very difficult task. It took over a year to bring levels down to the current levels of performance. The photo shows the Minister's evaluation of the result.

Exhibit not available

13.97 In our opinion, the Task Force met its objectives of identifying concerns that could be corrected immediately and expediting action, arranging for study, and making further recommendations for corrective action. Most significantly, it established clear priorities and a precise definition of the key problems and issues that faced the management of each of the disability pension process organizations. It also forced managers who had not co-operated before to agree on the best means of dealing with the issues raised, and aided in identifying significant variances and gaps in the systems used to measure turnaround times within the Portfolio.

Turnaround Time Measurement

13.99 We selected a sample from cases on which a first decision was being made and determined that the processing time - from the date of intent to apply to the date the case was entered into the delivery system as "in pay" - was longer than reported by the Pension Process Task Force. The Task Force figures were compiled from individual reports from the organizations involved in the process. Our sample results for the month of December 1985, estimate a mean processing time of 13.2 months compared with a mean value of 11.0 reported by the Task Force for that month.

13.100 The Pension Process Task Force and the Minister's announcements indicate that the average processing time has been significantly reduced. Although our sample indicated somewhat higher values for average processing times than the data produced by the agencies, it also indicated that turnaround times have decreased by a magnitude similar to that reported by the agencies.

Disability Pension Process Efficiency

13.102 We examined the efficiency of the process in two areas - adjudicative support and pension pay. We found only minor inefficiencies in the work flow methods used in adjudicative support.

13.103 In the pension pay area, we concentrated on pay calculation and, in particular, on the potential for gains through automating this and related processes. Management in the pension pay area had been conducting pilot investigations into the possibility of automating the calculation process with microcomputers. We found that, while there was little gain to be had from automation of the calculation process itself, it was an essential prerequisite to steps that could yield significant benefits. We determined that the greatest potential for savings, and/or reductions in turnaround times, lay, once the calculations were automated, in entering the calculated data directly, keeping an electronic payment history file, and modifying the payment verification process.

13.104 Establishing a procedure for direct data entry of the calculation results would eliminate the need for manual transcription, key entry and verification, and rechecking of results. A payment history data file would greatly speed the calculation process and, over time, would eliminate the need to maintain the hundreds of thousands of manually kept ledger cards that make up the current history record. It would also result in better control over payment history. At present, control over the physical access to this history is inadequate. These two steps would, in turn, allow significant modifications to be made to enhance the productivity of the payment verification process.

13.105 We estimate that with these changes productivity gains of the order of 25 per cent could reasonably be expected. This level of improvement would make the necessary EDP investment cost-justified. Management may choose to take these gains in the form of reduced turnaround times, reduced labour costs or some combination of both.

13.106 Management has for some time recognized the need to improve the pension pay area, but for a variety of reasons has not implemented the changes that would have made these improvements possible. One reason was the failure of the Canadian Pension Commission/Benefit Delivery System (CPC/BDS) to automate the calculation process and payment history as had been expected by management. Management has been constrained by the need over the past 18 months to devote all the energy of those involved in the benefit delivery process to reducing backlogs to acceptable levels. Exhibit 13.8 sets out the key findings with respect to the problems with the Benefit Delivery System.

Exhibit not available

13.107 The Department has expressed concern about the shortcomings of the CPC/BDS. A project was initiated to investigate alternatives for improving the process through additional automation, including a preliminary proposal for extensively redeveloping most of the CPC/BDS.

13.108 The Department of Veterans Affairs should take prompt action to achieve the level of efficiency that is possible for the disability pension process.

Management's response: The Department has devoted considerable resources during the last two years to achieving the dramatic reduction in turnaround times referred to by the Auditor General. In addition, with the consolidation of all of the administrative aspects of the disability pension process under a single management, the Department will be making every effort through changes to computer procedures and work methods to achieve a level of efficiency concomitant with the human and financial resources available.

Financial Control

13.110 As we reported in 1980, we again found, after testing disability pension payments during the period from April to October 1985, that payments were made to eligible recipients in the correct amount.

13.111 The financial controls over the systems for placing individuals in a pay status were strong, but there were significant weaknesses and errors in accumulating accounting information for financial reporting purposes.

13.112 The Canadian Pension Commission - Benefit Delivery System provides information for the production of cheques by the Department of Supply and Services and for the Departmental Reporting System, which provides financial reports. There is no reconciliation of the accounting information in the Canadian Pension Commission - Benefit Delivery System to that in the Departmental Reporting System.

13.113 Because of design flaws in CPC/BDS and a general lack of understanding of how the system works, incorrect entries have been made to the Departmental Reporting System. Since this system serves as the information source for the production of the Public Accounts of Canada, the errors are reflected in the Public Accounts. The Department has developed a work plan to resolve this problem by July 1987.

13.114 We found that the financial controls over the accounting for disability pension overpayments were also inadequate. This endangers the ability of the Department to ensure that overpayments are recovered promptly and in the right amounts.

Classification

Health and Social Services

13.117 The major vehicle for delivering health care benefits will be the Veterans Independence Program. Eligibility for this program will form the basis for access to most departmental health care benefits. Our audit examined the planning for this program and its delivery.

13.118 One of the principles behind the Department's policy that it will cover only those treatment costs that are not borne by the provinces is that the veteran is entitled to receive the full array of provincial services. To the extent that a service is insured, the insurance scheme will pay the cost, with the Department "topping up" to cover any costs that the scheme does not cover. For example, under the Doctor of Choice program the Department pays the excess portion of an extra-billing doctor's fees, the balance being paid by the province in the usual way. The only exception to this is where the treatment is directly related to a pensionable condition as defined in the Canadian Pension Program, in which case the Department accepts responsibility for the full costs.

The Veterans Independence Program

13.120 The program represents an innovative approach to providing care to an aging segment of the population. Similar programs are being implemented by some provinces to meet the increasingly pressing demands being made on their institutions as a result of the rapidly growing elderly population.

13.121 The Aging Veterans Program was limited to pensioners, and assistance was related to their pensionable condition. In 1983 the program was extended to needy veterans as well, with financial need to be assessed through the income test used for the War Veterans Allowance program. The extensions are to be phased in over four years, beginning in 1985 and ending in 1988 with the inclusion of War Veterans Allowance "near recipients". (This group is defined as those who would be eligible to receive the War Veterans Allowance were it not for the income they receive under the Old Age Security Act.) This is a major extension of the program that will pose a series of planning and administrative problems in the next few years. On the positive side, it brings the delivery and management of the full spectrum of veterans' health care services under a single umbrella program.

13.122 Planning. Because of the limited data the Department has on its client population and their needs, planning and forecasting for this program has proven difficult. In 1980, we were critical of the planning and evaluation arrangements for the pilot program leading to the Aging Veterans Program. Exhibit 13.9 compares actual case load and expenditure results with projections in 1983 and 1985. The 1983 projections were used for the proposal to extend the program.

Exhibit not available

13.123 The 1985 projections are significantly better, reflecting longer experience with the program. However, client numbers are still slightly underestimated. Actual cost figures have so far been fairly accurate, although the Department has used a projected cost per case that is about one and a half times its actual experience. This resulted from higher than expected take-up rates in the west (where costs per case are low) combined with lower take-up in the east (where costs per case are high).

13.124 We are, however, concerned about forecasts for the 1988-89 year and later. The Department has no reliable data on the size or distribution of the near recipient population, in spite of the fact that its future costs and workloads will depend on the size of this group.

13.125 The Department is aware of its problems in forecasting for the Veterans Independence Program and has commissioned the design of a new forecasting model. However, a new model cannot overcome the absence of critical data.

13.126 It should be noted that the costs given for the Veterans Independence Program are only the costs of disbursements made under the program. The assessment and counselling costs, usually involving several hours of professional time for each new veteran served, and the administrative costs of the program are not included. These costs are likely to be significant, but they are not currently known. According to the Department the revision being made to the Operational Planning Framework will facilitate accounting for these costs.

13.127 Operations. There are 9,500 veterans currently in receipt of assistance under VIP. Claims for services are often monthly, and the number of claims received by the district offices is very high. Treasury Board requirements make it necessary to process each claim through a complex system of accounts and authorities before it can be paid, whether it is a small claim for snow removal, or a larger claim for home improvements. As the take-up of the program increases, the paper burden will become more significant. The risk to the Department is an overload of district office operations to a degree that will affect the efficiency and effectiveness of program delivery. The Department is fully aware of the dimensions of this problem and is studying possible solutions in conjunction with Treasury Board.

13.128 Monitoring and evaluation. In our 1983 audit of program evaluation, we audited the initial evaluation of the Veterans Independence Program. Since then, the Department has finished an evaluation framework for identifying the data needs for monitoring and evaluation, and the program is to be evaluated again in 1988. We consider this to be a reasonable evaluation schedule.

13.129 Although the Deputy Minister approved the evaluation framework in 1984 and instructed that data on the program be collected regularly, no action plan was developed by program management to ensure that this would be done. This means that management may not have all the information it needs to assess critical effectiveness issues. The Veterans Independence Program is a major innovation for the government in meeting its health care obligations to elderly citizens. The limited problem it is dealing with now will become widespread in the general population over the next 20 to 25 years. While the Department must give first priority to program delivery, it also has a very real opportunity to learn lessons that will not only save millions in the Veterans Independence Program but could in future save much more as similar programs are created to serve society on a much wider scale.

13.130 The Program Evaluation Directorate has reviewed the design for the program administration forms. In its view these could, if properly completed, provide a basis for assessing whether the program has succeeded in its objective of delaying veterans' institutionalization. However, the annual review of the data entered on these forms has not been regularly done.

13.131 A management information system has been established in the past year. It relies almost entirely on labour-intensive manual reports, and serves mainly as a basis for classifying and counting outputs. The system does not produce data on outcomes, such as turnaround times, that would allow management to relate the outputs to the achievement of proposed objectives.

Contract Hospitals

13.133 Audit of payments. The Ontario region has developed an audit process for auditing the submissions for payment of the portion of contract hospital costs for which the Department is responsible. This has resulted in significant adjustments to the claims submitted by the contract hospitals. In 1983-84, the audit work resulted in a reduction of approximately $220,000 in the claims of just two contract hospitals. An important part of the audit process is the preparation of a memorandum of understanding between a contract hospital and the Department. This outlines the cost allocation for subsequent years to avoid the repeated inclusion of unacceptable costs.

13.134 In our opinion, if the Department adopted this methodology in other regions with similar contract hospital arrangements, it could significantly reduce its contract hospital costs.

13.135 Bed planning. For the rest of this century the provision of institutional care for veterans will place a growing demand on departmental and provincial resources. At the time of our audit, several basic questions had not been resolved.

13.136 The Department has not yet established the extent of its liability for provision of institutional care. If it is to plan for the provision of beds it will need to establish this clearly. Specifically, it will need to determine whether eligibility should be restricted to Canadian Pension Commission and War Veterans Allowance recipients or should include all veterans with theatre-of-war experience. These are very different populations with respect to need, ability to pay and size. The inclusion or exclusion of one or more of these groups would have a significant effect on bed requirements. Currently, according to departmental regulations, all three categories are equally eligible for care in priority access beds, although departmental practice gives preference to pensioners and needy veterans when there is a scarcity.

13.137 The Department needs to determine, in the event of a shortage of beds, how the necessary beds will be built or bought. It also needs to know what its part will be in ensuring that there are enough beds for the growing needs of veterans.

13.138 The need for a long-term bed plan to determine the numbers, types and locations of beds that will be needed in the future was identified in the 1983-84 Multi-year Operational Plan. An initial projection of bed demand was provided in that plan.

13.139 Although the Department recognizes the need to co-ordinate these plans with provincial and institutional bed planning, no specific mechanism to do so has been established. Some provincial governments have planning initiatives to provide these beds. At the present time, there are not enough long-term-care beds in the country, and even with construction programs under way, this situation is likely to persist with Canada's rapidly aging population.

13.140 It is our understanding that detailed bed planning work is under way, and that the first stage has been submitted to senior management for review.

13.141 The Department of Veterans Affairs should determine the categories and numbers of veterans for whom it is obliged to provide institutional care, and plan specifically how it will meet this obligation if there is a shortage of beds.

Management's response: As noted by the Auditor General, detailed bed planning work is under way and the first stage, identification of need, has been completed. This shows that the Department's present number of beds appears not to be sufficient to meet future needs. The second stage, the identification of sources for, and financing of, additional beds is just commencing and will involve extensive discussions with provincial governments.

St. Anne's Hospital

Corporate Functions

Financial Management and Control

13.144 Our findings have led us to the view that there are serious weaknesses in basic internal controls and that insufficient emphasis and attention appear to have been given to the financial implications of decisions. The effects of this are compounded by the fact that financial management information, though voluminous, is not regarded by managers as useful or reliable. In addition to the matters reported on in the chapter, many findings of a less significant nature have been discussed with management.

13.145 Management has identified and begun action on many of the specific problems that led to our overall concern about the state of financial management. However, many of these are long standing problems. Management explanations of the reasons why they are only now being addressed range from the view that they have only been seen as problems by current management to the view that, because of the disruption caused by the move, attention and energy were fully devoted to maintaining levels of service to veterans.

Planning

13.147 Strategic planning. In 1980 we observed that the Department had not established an adequate strategic planning function. In its response, the Department concurred and stated that steps would be taken to deal with the problem. Some progress was made, and in 1982 a departmental long-range plan was developed. However, it was not regularly maintained and was soon outdated.

13.148 In 1983-84, the Deputy Minister created a new Corporate Planning Directorate, and in the past year progress has been made. Some but not all of the basic elements of a planning infrastructure are now present. At the end of our audit, the remaining infrastructure elements - a planning manual and a planning policy - had been developed as drafts.

13.149 In the past year the Department has taken the first and most difficult step in developing a strategic plan. As the result of a lengthy process involving all of the Department's senior managers, strategic objectives have been established. These have been published in Veterans Affairs' A Direction for the Future: 1986 - 1991. This document establishes a basic mission statement for the Department, and sets out six basic objectives to be pursued over the next five years.

13.150 Long-range planning for key programs. In its 1981 report, the Public Accounts Committee expressed the following views:

15. Your Committee noted that, in most cases, there will be a notable decline in the demand for services of the Department and its associated agencies by the turn of the century. For example, the Veterans' Land Administration (VLA), under whose provisions lending was terminated in 1977, has a clearly defined "sunset" around the year 2007.

16. Your Committee recommends that the Department and its associated agencies take steps now to plan for the reduction and, in many cases, elimination of programs for which no appreciable clientele will exist within 20 years. Measures to reduce the scale of departmental staff and related expenditures should be particularly well advanced in the case of VLA and programs like it.

13.152 As discussed in paragraphs 13.81 to 13.86, in the absence of a long-range plan for the War Veterans Allowance, fundamental decisions have not been made on the medium- to long-term administration of the program. Additionally, the Department has yet to develop a long-term plan that identifies the nature and extent of its need for beds and matches that with known supplies. However, work was under way at the time of our audit to develop a plan for bed accommodation. Additionally, studies were in progress at the time of our audit that will provide input to long-term planning for other programs.

13.153 Long-range planning for electronic data processing (EDP) is severely hampered by the absence of long-range plans for key programs. The Department does not own any large computers of its own, and accordingly contracts out for the operation of all its major systems. A decision on its computing direction was required in 1984, when the Department's five-year contract for computer services expired. In the absence of a long-range data processing plan, the decision was postponed in 1984 and again in 1985 by extending the contract. Work on developing a long-range plan began in 1985.

13.154 In part to prepare for re-tendering the contract, EDP planning was begun, without long-range program plans on which to base future computer requirements. The plan was not complete by the end of our audit. Because long-range program decisions had not been made, the resulting tender specifications assumed that the Department's major systems would be enhanced during the five-year contract period, and that these systems would continue to use large batch processing computers. Because of these assumptions, the tender specifications called for a twofold to threefold increase in computer capacity, even though the processing load of existing programs, in particular WVA, is forecast to decrease markedly. The planners were aware, however, that some additional program-related development would be required in areas such as Health Care and management information systems. However, detailed estimates of the system capacity necessary to meet these were not prepared, as the nature and extent of the need was only very generally defined.

13.155 Through the tendering process the Department was able to obtain this increase in computing capacity for $13 million over five years; a cost per unit of capacity that is less than under the old contract.

13.156 In summary, there are currently few long-range plans for the Department's major programs and functions, even though these programs face major changes. Key decisions about how to cope with these changes will have to be made soon if it is to be done in the most economic way. In the view of the Public Accounts Committee, some aspects of this were urgent six years ago.

13.157 Information for planning. Our 1980 audit observed that Veterans Affairs had little data on the current characteristics and needs of the veteran client population. At that time the Department assured us that it was examining the potential of conducting surveys to gather the necessary data.

13.158 In 1986, the Department still does not know how many veterans there are - as defined by its various Acts - or what proportion of that population is eligible for the programs it delivers. As noted in paragraph 13.13, it has only very general information on "Census Veterans" from the 1971 Census. It does not know how much of the target population its programs are reaching. As we note in paragraph 13.124, the Department also lacks reliable data on the number of "near recipients" and on the distribution of income in this group; that is those that would receive the War Veterans Allowance were it not for their receipt of Old Age Security/Guaranteed Income Supplement.

13.159 One initiative proposed by the Department that has considerable potential is to use the Old Age Security/Guaranteed Income Supplement program to obtain information on veterans over 65. As the population ages, this will cover an increasing proportion of veterans. Questions would be added to the National Health and Welfare Old Age Security/Guaranteed Income Supplement application form to provide information on the recipients' veteran status. A one-time survey of Old Age Security/Guaranteed Income Supplement recipients through a mail-back card is also proposed. An important opportunity was missed, however, when it was not dealt with before the recent revision of Health and Welfare application form. The Department informs us that it is also looking at the use of Statistics Canada's survey capacity to gather this information.

13.160 The Department is increasing its use of models to estimate future program activity, but as these are based on the 1971 Census definition of "veteran", inaccuracies are being magnified. While we commend the increasing use of forecast models, these are no substitute for reliable planning information. The models are ultimately no better than the data fed into them.

13.161 Operational planning. We would expect the annual development process for the operational plan to begin with goals to be achieved by the Department in the coming year. These would be set out in broad but clear terms by the Deputy Minister and would be expressed in increasing detail and become increasingly specific as they move down the levels of management.

13.162 Once goals are established, we would expect them to be ranked in order of priority. In the current climate of restraint, it is likely that there will not be enough resources to meet all goals, and priorities are necessary to ensure that scarce resources are used to meet goals that are critical.

13.163 We found that in the past goals and objectives were often not clear enough to enable managers to measure the costs of achieving them or to determine with certainty whether they had been achieved. However, for the year now in progress, the Deputy Minister has established accountability contracts with each of the Assistant Deputy Ministers. These establish the goals and performance standards to be achieved by each of them in the next year. It is too early to tell how this innovation will work.

13.164 An effective financial planning process should, whenever possible, specify planned results and link these results to resource requirements. This requires clear, measurable goals and objectives and links between them and requests for resources.

13.165 We found that resource requests were not always related to the work to be performed. Were this to be done, it would be possible to allocate resources according to the level of service needed or chosen. As an example, the total number of counsellors required by a region could be determined by the number of veterans in the region, and the workload associated with serving them. Some of this information is gathered as part of the departmental performance measurement system (see paragraph 13.177). However, the work standards are out of date, and hence the information is regarded as unreliable by management and has not been used in resource allocation.

13.166 One result of this is that there has been no basis for ensuring equitable resourcing among the regions. There has been no significant reallocation of resources among regional offices since their creation in 1980. Nonetheless, there are marked, and widening, differences in their workloads. A study by the Department in 1985 showed that a staff member in the Atlantic region is responsible for twice as many clients as a staff member in the Prairie region. In the absence of an ongoing, detailed performance measurement system, it is not clear the extent to which these are efficiency differences or the result of fundamental regional differences.

13.167 As a consequence, the budgetary process is largely incremental, and we found little evidence that the budgets were prepared on the basis of unit cost per approved service. The prevailing view in the Portfolio is that there is very little room to "manage" the program funds. A Portfolio report to Treasury Board indicated that $16 million of the operating cost is considered to be discretionary spending. The rest of the Portfolio's expenditures are regarded as quasi-statutory, or as essential to meeting these quasi-statutory requirements, and hence are of a non-discretionary nature.

13.168 Budget challenge and review. As a budget submission moves up the line from the responsibility centre level, it should be fully and rigorously challenged by the next level of management before it is accepted. We would expect such a challenge to include a review of goals and priorities and the achievement indicators proposed in the plan, and an analytical review and challenge of resource requests and their relationship to workloads. While it is expected that the most severe challenges would be directed to cases where the resources to workload ratio appears to have increased, budgets that remain the same should not be passed without review. Indeed, procedures should ensure that all expenditures are challenged on a cyclical basis. Given the importance of budget challenge to management, we would expect that it would be a relatively formal and fully documented process.

13.169 We examined the budget preparation process in the Veterans Service Branch, which accounted for over 80 per cent of the Department's operating expenditures. In the two regions we visited and at headquarters, the review of budget submissions was informal and not documented. We were informed that questions are raised and discussed with the responsibility centres and that this leads to budgetary recommendations. Minutes of meetings were not kept and decisions were not documented, and we could find no working papers to ascertain the depth of any review.

13.170 Budgeting approaches were different among regions, and the differences were not identified by headquarters or the regions. The planning instructions issued by financial and branch management contained no clear guidelines setting out a standard budgeting approach using predicted costs, volumes, etc. The Veterans Services Branch planning group did not know the bases for regional forecasts and did not conduct a review and challenge that requested details of how the forecasts were prepared or, for example, the basis of volume or unit costs of providing the services. For example, the workload to resources variances among the regions noted in paragraphs 13.166 were not picked up in review.

13.171 The Department of Veterans Affairs should ensure that an adequate budget challenge and review is conducted and documented.

Management's response: Recent initiatives have introduced a challenge process at the Departmental Executive Board level as a regular feature of the budget process. A similar process is taking place within the branches of the Department.

Monitoring and Evaluation

13.173 Financial management information. The Department does not have an integrated financial management information system that compares actual to budgeted expenditures on a timely basis, or provides up-to-date information on free balances. Managers have developed their own systems to maintain control over their budgets. There are thus a variety of uncoordinated systems in many responsibility centres that need to be reconciled with the formal systems. There is no assurance that this is done regularly and no assurance that their data agrees with the formal systems.

13.174 The Department receives over 60,000 pages of financial reports monthly from the Department of Supply and Services, and the Benefit Delivery Systems produce over 200,000 pages in the same period. Of the reports that are used, most are in a format that makes interpretation and analysis difficult. Many have to be manipulated and reformatted to make them acceptable to departmental managers. A comprehensive needs analysis and distribution study to assess the usefulness of these reports has not been done for a number of years.

13.175 The Department has recognized these problems. It is developing an automated financial management system capability to improve its use of the departmental reporting system and to replace labour-intensive manual systems. It has also initiated a major project to develop a classification of accounts and a financial information system that will provide management with appropriate information on both organizational and program lines.

13.176 Personnel management information. The personnel information system now in place in the Department does not provide timely information to managers and is not regarded by them as a credible source of information on matters such as training and secondments. These are serious shortcomings in a labour-intensive organization. We were informed that plans are being developed to remedy the problems with the personnel management information system.

13.177 Performance measurement. In 1980, we reported that the departmental efficiency performance measurement system was out of date but was being redesigned. It has since been completed and implemented nationally at an annual cost exceeding $500,000. However, management has never been satisfied with the reliability of the information, and there is little evidence of much use having been made of it. For example, performance standards were developed in 1982 in one region but not validated. In 1985 the Department stopped calculating efficiency indices because the performance standards were out of date. It is now used only as a source of information on outputs (for example, on the number of hearing aids dispensed).

13.178 During our audit, the Department began redesigning the system with the goal of having the new system operational by 1987-88. The work completed by the end of our audit appeared satisfactory, although none of the project products had yet been issued.

13.179 We found that insufficient information on quality of service was being gathered on the Portfolio's programs. The information gathered on client satisfaction and processing times was not adequate, and what was being gathered was unreliable.

13.180 The Portfolio relies on analysis of client mail and representations from veterans' organizations to monitor client satisfaction with the Portfolio's services. While these provide important feedback of a general nature, they do not provide systematic information on specific elements of the services. A comprehensive survey of client satisfaction was done in 1980, but we found little evidence that the results were used and it was never repeated.

13.181 Management at all levels of the organization told us that the time taken to deliver programs to veterans was the key indicator used to monitor operations. In several areas, managers are required to provide written explanations whenever their operations exceed pre-set processing time standards. However, we found that measurements of the most important processing times were inaccurate. This was generally due to a failure to ensure that various organizational units calculated times uniformly. The Department had no quality control mechanism to ensure that measurements were accurate or consistent. For example, the Department reported that the average War Veterans Allowance application during 1985-86 was processed in 28.9 days. Our audit sample estimated that the time was approximately 42 days. One cause of the understatement was the practice in one regional office of arbitrarily assigning rejected applications a processing time of one day. In fact, these generally require the same time as approved applications.

13.182 The Department does not know with any certainty the number of person-years used in delivering programs such as the War Veterans Allowance Program or the Veterans Independence Program. As a result, it cannot make precise estimates of the person-year savings to be made through innovations in a particular program. When changes are made, it does not know whether the intended economies have been achieved.

13.183 The Department makes substantial use of overtime to meet a variety of needs including seasonal surges in workloads. Information is available on hours of paid overtime but not on cases where the employee elects additional leave in lieu of overtime payment. Although reliable information was not available through the Central Leave Reporting System, a conservative estimate of the total amount of leave taken in lieu of overtime by Department of Veterans Affairs employees in 1984-85 was 100,000 hours, or the equivalent of about 50 person-years. Overtime paid was equivalent to about 100 person-years.

13.184 This represents a significant expenditure of resources by the Department. Much of the overtime arises from operations at St. Anne's Hospital where, as noted previously, we observed that it was adequately documented and controlled. However, the fact that reliable and timely data are not available for the remaining departmental programs raises concerns about the accuracy of the Department's information on the costs of program delivery and about the extent to which the use of overtime is being managed and controlled.

13.185 Program evaluation. In our 1983 government-wide audit of program evaluation we noted substantial progress in the conduct of effectiveness evaluations since 1980. Management processes were in place and satisfactory effectiveness evaluations had been produced. However, implementation of evaluation recommendations was not being monitored systematically.

13.186 The Portfolio has now developed a monitoring system and has evaluated a substantial portion of its programs. We found evidence that evaluation results have been used. For example, a 1983 evaluation of the Department's drug programs led to increasing use of private sector drug plans to deliver the program. The most recently completed evaluation, that of the Bureau of Pensions Advocates, provided extensive data on many key aspects of the Bureau's operations, including data on client satisfaction, and the Bureau has begun to act on many of the recommendations in the report.

13.187 The evaluation function has continued to make significant progress. Since 1980, it has served as the Portfolio's principal means of assessing program effectiveness, and has covered its major programs.

13.188 Accountability to Parliament. The Portfolio provides information to Parliament in its annual report and in Part III of the Estimates. We examined this information to determine whether it was accurate and complete enough to provide a comprehensive picture of the Portfolio's financial and operational performance.

13.189 Both documents conform to government guidelines and provide an initial basis for parliamentary review. Improvements have been made in the reports every year. However, there were significant inaccuracies in some of the information provided, and insufficient performance information for some programs, notably the Department's health programs. It would be difficult, where this is the case, for Members of Parliament to determine whether value had been received for the money voted. The Portfolio informs us that more performance information will be provided when new performance measurement systems are completed.

13.190 We concluded that the Portfolio has not paid enough attention to ensuring the correctness of its accountability reports. Most of the inaccuracies resulted from inaccuracies in the Portfolio's internal information systems. Quality control mechanisms are inadequate to ensure that information reported internally and externally is correct. As a result, as we note in paragraph 13.181, information on processing times was substantially understated for the War Veterans Allowance program. Similarly, the Canadian Pension Commission reports average processing times for 1984-85 disability pension applications through all levels of the Canadian Pension Commission that are approximately half the actual times recorded during this period. As noted in paragraph 13.68, program costs reported for War Veterans Allowance operations are 50 per cent higher than actual costs, and correspondingly, Health Care costs were understated by the same amount.

13.191 The Portfolio reported the findings of the Bureau of Pensions Advocates program evaluation in Part III of the Estimates. The evaluation measured whether case preparation was satisfactory and gathered information on clients' satisfaction with the Bureau's efforts. Such reporting serves to inform Members of Parliament about program effectiveness. However, we found that the reporting of the evaluation somewhat overstated the evaluation's generally positive conclusions. The Portfolio reported that "a case study of recently submitted cases revealed that the Bureau is meeting its objective of ensuring the highest possible level of entitlement and assessment through the quality of its representation of clients". In fact, the evaluation concluded that the Bureau was meeting this objective "for the most part" and listed several areas where improvements in effectiveness were required. These qualifications were omitted in the Part III Estimates report. As well, the evaluation did not, nor could it, actually measure whether the "highest possible level of entitlement and assessment" was achieved.

13.192 The Veterans Affairs Portfolio should devote greater attention to ensuring that the accountability information in Part III of the Estimates and its annual report to Parliament is accurate and consistent and that reasonable performance information is presented.

Management's response: The proposed new Operational Planning Framework and Performance Measurement Systems, combined with changes to the internal reporting process, should ensure that all information is accurate and consistent.