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1987 Report of the Auditor General of Canada

Introduction

15.1 Much of the Audit Office's work concentrates on comprehensive audits of departments or on government-wide audits. Over the past several years, however, the Office has begun to conduct "special" audits of specific programs or activities that would not be addressed by comprehensive or government-wide examinations.

15.2 The responsibility for these special audits has been consolidated and provision was made for the results of the work to be reported in one chapter.

15.3 The Special Audits group examines specific programs or activities within a department or across several departments. Normally, the audits address matters that would not be audited on a regular basis, but that are important nonetheless. This approach increases the efficiency and effectiveness of the Audit Office and at the same time allows the results of work to be reported to Parliament as quickly as possible.

15.4 This year's chapter contains reports on Fraud Reporting, Risk Management, Major Capital Projects, Emergency Preparedness, and Microcomputers.

FRAUD REPORTING

Reporting of Fraud and Other Illegal Activity Against the Government of Canada

15.6 Section 92 of the FAA was also amended to require every person connected with the collection, management or disbursement of public money who has knowledge of a violation of the FAA, associated regulations or any revenue law or of fraud against Her Majesty to report it in writing to any superior officer. The penalty on conviction for failure to report is a fine not exceeding $5,000 and imprisonment for up to five years.

15.7 In 1984 the Office of the Auditor General initiated a review of the government's procedures to report instances of fraud and other illegal activities against the Crown. In 1985 we advised the President of Treasury Board that:

- procedures were inadequate to ensure that Treasury Board, the RCMP, the Deputy Attorney General and Parliament received reliable reports of instances of illegal activity against the Crown;

- procedures were inadequate to ensure that ministers and deputy heads received reliable reports on suspected unlawful activity and that such instances were being investigated in an independent, co-ordinated and timely manner;

- most departments did not have a centre responsible for receiving reports of suspected illegal activity and co-ordinating subsequent action and reporting; and

- employees had not been informed of their increased responsibilities to report fraud and violations of the FAA and associated regulations under the revised FAA.

- the Treasury Board take action to establish uniform procedures to ensure that frauds and other illegal activity against Her Majesty in departments and Crown corporations are independently investigated and reported to the minister, the deputy minister, the RCMP and the Deputy Attorney General and Parliament;

- agencies designate a co-ordinating unit to receive reports of suspected cases and ensure that they are investigated and reported in an independent and timely manner; and

- deputy ministers advise their employees in writing about their responsibilities under section 92 of the FAA.

Governor in Council and Treasury Board Action

15.11 The Circular requires that losses of money because of fraud or illegal activity be reported to the RCMP, the Assistant Deputy Attorney General and to Parliament in the Public Accounts. It advises deputy heads that the RCMP, not departmental officials, has primary responsibility for investigating offences against the Crown.

15.12 It also advises deputy heads that agencies should establish measures to reduce the opportunity for fraud and other illegal activity. The measures expected are outlined in Annex A of the Circular. They include the designation of an existing independent function, reporting to the deputy head, to receive all reports and ensure that an independent investigation is conducted. There is also a requirement to inform employees of their responsibilities under the Criminal Code and the FAA.

15.13 The policies and procedures outlined in the Treasury Board Circular address most of the matters we raised with the President of Treasury Board regarding losses of money resulting from illegal activity in departments and agencies. We plan to conduct an audit of the adequacy of the implementation of the procedures in 1987-88.

Crown Corporations

15.15 We recommend that material losses in Crown corporations due to fraud and illegal activity be consolidated and reported to Parliament. The Crown Corporation Directorate has suggested that sufficient avenues exist for material losses of Crown corporations to be brought to light through the mechanisms of annual audits and special examinations and through specific requests by parliamentary committees. We believe it would be more desirable for information to be made available to Parliament in an annual consolidated report by the Treasury Board, for example, the President of Treasury Board's annual report on Crown corporations.

Losses of Public Property

RISK MANAGEMENT AUDITS

15.18 We focused our attention in this area on selected major capital projects. During 1986-87 we conducted risk management audits of three of the capital projects discussed in the Major Capital Projects section of this chapter. These include the Types 1050 and 1100 Navaids Tender/Light Icebreaker, buildings for the National Research Council Institutes in St. John's, Newfoundland, and Winnipeg, Manitoba, and the Canada Olympic Park in Alberta.

15.19 We found deficiencies in procedures to reduce the risk of loss. We have referred the matters to the responsible departments for any further examination and corrective action.

Navaids Tender/Light Icebreaker

15.21 The receiver for the company reported that the actual amount spent on building the ship was $8,808,072. His report stated that the "balance of the funding of $10,320,615 appears to have funded other costs within the company." We also could not determine exactly where the funds had been spent.

15.22 The Department of Supply and Services (DSS) did not prevent or detect this apparent use of funds for purposes not specified in the contract.

Department's response : DSS states that, consistent with the objectives of the Special Recovery Capital Projects Program, payments under this contract included a profit element and were based on the contractor's achievement of certain "milestones" described in the contract. Thus, unlike cost-reimbursable contracts, where payments are based on the actual cost of work done, in this case, there was nothing to compel the contractor to apply moneys received, at any particular instant in time, solely to this specific contract. As it achieved each milestone described in the contract, it became entitled to the payment corresponding to that milestone.

The situation which apparently resulted in the above-noted case was specifically rectified in the renegotiated contract for the completion of the Type 1100, in that "milestones" were deleted from the contract, and "progress payments based on the assessed percentage completion of the actual physical progress of the work" were used instead. The contract was successfully completed using this approach.

Department of Supply and Services

15.24 It is DSS's policy to investigate a firm or individual if it believes there is cause to do so. The Department, in the absence of cause, states that it relies on the judgement and experience of contracting officers.

15.25 We believe a more systematic verification procedure may be required. We suggest that DSS review its procedures and consider developing a sampling-based verification program to provide the necessary assurances and act as a deterrent to the provision of false or misleading information.

Department's response : The Department agrees to review its procedures, but is concerned that the proposed sampling approach would prove objectionable to suppliers and would not produce value for money. As an alternative, we would introduce a standard clause in contracts for the services of individuals which would require proposers to certify the accuracy of their statements with provision for verification as necessary.

MAJOR CAPITAL PROJECTS

Overview

Audit Scope

15.28 We placed particular emphasis on the contracting phase of implementation. This was done to determine whether the service agencies (Department of Supply and Services and Department of Public Works) had followed existing regulations and had given due regard to economy in their phases of project development.

15.29 We also examined the commissioning phase - the time when services or goods are delivered - to ensure that departments actually received the equipment or building as contracted.

Observations

Planning

Needs Definition

Contracting

Case Study 1. The Type 1050 and Type 1100 Navaids Tender/Light Icebreaker

15.34 Background. In 1979 the government approved the Canadian Coast Guard Fleet Capital Investment Plan Segment I. It gave preliminary project approval to construct four Type 1100 ships. The Plan was updated in 1982 to include a total of 25 fleet units, 13 of which were to be Type 1100. Twelve were to be Type 1000 (2 of the 12 were designated Type 1050). In April 1983, the government announced the Special Recovery Capital Projects Program, and the Department of Transport proposed a project for vessel acquisition and modernization in accordance with the Fleet Capital Investment Plan. The Department received effective project approval to construct six Type 1100 and two Type 1050 ships and to refit the Sir Humphrey Gilbert. The remaining ships are to be constructed in accordance with the Fleet Capital Investment Plan Schedule.

15.35 Audit scope. We concentrated on the planning, acquisition and implementation phases for the Type 1050 and Type 1100 ships. We reviewed only those aspects of the Fleet Capital Investment Plan related to the statement of requirement for these ships.

15.36 Needs definition. The definition of need, requirements and options analysis for the Type 1050 and 1100 vessels is contained in the Plan. This analysis points out that "the core fleet capability for basic aids to navigation support and light icebreaking is provided by vessels in the Type 1000/1100 category".

15.37 We found that in identifying the need for these vessels, the Department stated that the objective of the Fleet Capital Investment Plan is to ensure that the necessary Coast Guard operational mission capability is maintained. At present, Canadian Coast Guard fleet capital investment focuses on replacing vessels to provide core level support. According to the Plan, "levels of service do not have a major impact on Fleet Capital Investment Plan priorities at this stage". In our view, levels of service are an integral part of the planning process to ensure that the fleet size is adequate for the operational mission.

15.38 We did not find evidence that specific life cycle costing had been prepared for these vessels. We are concerned that the failure to establish specific life cycle costs could result in the Department of Transport acquiring vessels that are unnecessarily costly to construct, operate and maintain.

15.39 Contracting. Contracting for the two Type 1050 vessels was relatively straightforward. The Coast Guard sent the specifications and requisitions to the Department of Supply and Services (DSS). DSS identified 16 shipyards to whom Requests for Proposal were sent. Because of regional considerations, it was decided to select one yard on the east coast and one on the west coast. The lowest qualifying bid from each coast was selected and the contracts were negotiated.

15.40 For the Type 1100 vessels, the process was more complex. Initially the Requests for Proposal for two ships were sent to seven shipyards. Seven bids were received by the bid closing date. A joint Coast Guard/Supply and Services evaluation team was formed. It was prepared to recommend awarding the contract shortly after the bids were received.

15.41 On 19 April 1983 the government announced the Special Recovery Capital Projects Program. The Department of Transport responded by increasing the requirement for vessels to six, all to be constructed within a three-year period. The original seven yards were instructed to amend their proposals to include the construction of one or two vessels. An evaluation committee was able to clarify all bids except one, from a yard that had not provided adequate information. In addition this yard was deemed non-responsive and unqualified because it had not built a ship of the Type 1100 size for 15 years and had a less than satisfactory on time/within budget performance.

15.42 Contracts for five of the six ships were awarded as follows:

15.44 The decision was made to award the contract to a shipyard initially assessed as non-responsive, and later assessed by DSS as qualified and responsive, even though the contractor's past performance demonstrated there was a higher risk of its being unable to perform. This placed the government at greater risk than normal. In our view this removed the protection normally afforded the Crown throughout the bidding process.

15.45 Contract monitoring. The contracts for the six Type 1100 vessels were designed to provide a degree of 'self-financing'. The amount paid to each contractor was based on milestones tied to the contractor's projected cash flow rather than the master work schedule. This resulted in a saving to the government on the contract price of approximately $1.5 million for each Type 1100 ship.

15.46 With the use of these milestones, payments in excess of work completed of $2 million to $3 million were expected based on projected cash flow. However, the milestones did not specify the level of parallel or ancilliary work such as piping and outfitting required to meet a milestone.

15.47 When a specific milestone had been reached, the contractor submitted a statutory declaration and a claim for payment. The statutory declaration stated "that no accounts payable are overdue to suppliers or sub-contractors" and "that all wages have been paid". The claim form, certified by the contractor, stated that "the claim is consistent with progress of the work and conforms to the terms of the contract" and that "no liens or claims exist against the work".

15.48 The claim form was certified by the DSS Inspection Authority and the DSS contract manager. It was then sent to the Coast Guard for certification by the project manager as to work performed and for certification pursuant to section 27 of the Financial Administration Act.

15.49 For five of the six ships, these procedures were adequate. But in the case of the ship contracted to the bidder initially deemed non-responsive, this was not the case.

15.50 At the outset, the Department of Supply and Services and the Coast Guard were clearly aware of the shipyard's technical and management shortcomings. The Coast Guard had advised DSS of its concerns in this matter. When we reviewed the DSS and Coast Guard files related to this contract, we noted problems with respect to certifications. The contractor had certified that accounts payable relating to progress claims were not overdue at the time of the claims. But at the time the yard went into receivership, 14 months after the contract was signed, accounts payable to suppliers and sub-contractors totalled $2.6 million as of the date of receivership.

15.51 DSS certified the quality and progress of work. But we noted instances where only steel work had been completed; ancillary work such as piping and outfitting had not kept pace. By the time the yard went into receivership, milestone payments totalled $19,128,687. The receiver reported that "actual payments made, assuming all overheads as applied to the 1100 Navaids contract have been paid, amount to $8,808,072". His report also states that "the balance of the funding of $10,320,615 appears to have funded other costs within the company".

15.52 Despite the fact that the Department of Supply and Services had noted problems with respect to ancillary work keeping pace with milestone payments, they did not take appropriate steps to determine what costs were being funded by the milestone payments. Consequently, the shipyard was apparently able to divert $10.3 million to costs other than the Type 1100.

15.53 There were other problems in the construction of this vessel. Early in construction, the vessel's keel sagged 1-1/2 inches on the building berth when the main propulsion machinery was installed. This caused several decks and bulkheads to buckle. The breadth of the vessel was also reduced slightly. As a result, the Coast Guard required that Lloyds of London and Coast Guard Ship Safety give assurance that the ship was certifiable.

15.54 Because of the deformation, the vessel was outside dimensional tolerances, and the DSS Inspection Authority refused to certify the progress payments. Five progress payments totalling $6.1 million were made between March 1986 and June 1986, without certification by the Inspection Authority that the quality of work was in accordance with the standards of the contract, although $342,565 was retained as a holdback. The ship was ultimately accepted by Lloyds and by Ship Safety.

15.55 Contract renegotiations. Because of the yard's receivership and bankruptcy, DSS had to renegotiate the contract for the type 1100 as well as the contracts for the modernization of two other ships, with the receiver. The receiver indicated that the shipyard had a funding deficiency of $28.6 million on all these government contracts to be divided between federal and provincial governments (the guarantors). One of the amounts included in the deficiency figure of $28.6 million was $10.1 million for accounts payable. The additional amount required from the federal government to pay the total debt was $10.7 million. The Coast Guard agreed to fund $5.6 million of this deficiency, subject to all accounts payable being settled in full. Funding for the remaining $5.1 million was requested from the Cabinet Committee on Economic and Regional Development.

15.56 In June 1985, Treasury Board gave approval in principle to renegotiate contracts with the receiver for refitting two ships and completing the Type 1100 vessel, subject to conditions that included settlement of suppliers' and sub-contractors' accounts.

15.57 Once the new contracts had been finalized, the Coast Guard indicated its concern that the suppliers' accounts were being settled at less than 100 per cent; thus the Coast Guard argued the conditions had not been fulfilled. DSS responded that emphasis had been placed initially on settling trade accounts in full, but in the latter stages of negotiation the understanding was reached that the receiver would settle accounts to the extent necessary to obtain releases. Thus, although $10.1 million for suppliers' and sub-contractors' accounts had been included in calculating the shortfall and the proportionate share to be borne by the Federal and Provincial governments, the settlement of these accounts by the receiver appointed by the Province has not resulted in suppliers and sub-contractors being paid in full.

15.58 Commissioning. At the time of our audit the Type 1050 vessels and four of the six Type 1100 ships had been delivered. Both 1050s are operating with only minor problems. The first two 1100s delivered are operating on the west coast. Although both ships had propulsion system control problems, these difficulties have been partially corrected.

15.59 But a more serious problem was encountered with the buoy handling system for the six Type 1100 ships. This equipment was specified by the Coast Guard in accordance with the requirement of the Department of Regional Industrial Expansion to maximize Canadian content in the ships. A Canadian firm was specified as the supplier, with a number of Canadian and foreign companies involved. The buoy handling equipment does not meet specifications and has required extensive modification.

Case Study 2. National Research Council Institutes

15.61 The National Research Council was directed by the government to locate the institutions in St. John's and in Winnipeg. As a result of this, costs of at least $32.5 million were incurred that were unrelated to the Council's initial objectives. It cost a further $225,000 to accelerate the construction schedules for the building in Winnipeg in an attempt to meet the time objectives of the Special Recovery Capital Projects Program. In addition, the National Research Council continues to incur operating costs of approximately $1 million annually to maintain what was, at the time of our audit, an empty building in Winnipeg. It was empty because of a government decision to cancel the program for which the building was built. With the exception of a segmented wave-making capability, the St. John's facility is functioning.

Institute for Marine Dynamics (St. John's)

15.63 The National Research Council finished defining the technical requirements of the integrated centre after Treasury Board had initially approved the project. Also after initial Treasury Board approval, the Council commissioned a consultant's study on the potential use of the new facility. The consultant's report urged caution and was pessimistic about potential commercial returns. The consultant indicated that the Council could expect an increase in annual revenues of only $60,000 from the project. The Council did not consider this information of sufficient import to require changing the project plan. Nor was it referred to Treasury Board for its consideration.

15.64 In our view, with which NRC agrees, the Council could have met the objectives of the Oceans Policy and saved $30 million by increasing its marine dynamics capability in Ottawa.

15.65 Program management. We examined the management of the project and concluded that, once construction of the facility started, the National Research Council, the Department of Public Works and the Department of Supply and Services managed the project well. With the exception of a segmented wavemaker, a major item of equipment expected to cost between $10 million and $12 million, the project is complete, and it is within the costs approved by Treasury Board.

15.66 Present situation. The building and facilities are essentially complete and in operation, but at the time of our audit they had attracted few clients. In implementing this project, NRC assumed a sizeable risk in terms of whether the new facilities would address technical requirements that were in fact growing and that would be relevant to the needs of Canadian clients. This risk was considerably greater than it would have been had NRC been authorized to proceed with its initial proposal. The facilities will not have an advanced stability testing capability until the segmented wavemaker is installed.

Canadian Institute for Industrial Technology (Winnipeg)

15.68 In response to a request from the government of Manitoba in 1980, the National Research Council proposed to build a national institute to conduct applied research in manufacturing science and production technology. In 1983, the proposed institute was included under the Special Recovery Capital Projects Program at an approved cost of $42.6 million.

15.69 Needs definition/options analysis. The Council's immediate response to the request from the government of Manitoba was to identify the need for an institute. But it did not fully determine the extent to which industry would support the project financially. Nor did it evaluate the consequences that could arise if government support failed to materialize as promised.

15.70 The National Research Council considered several locations in Winnipeg for the site of the Institute. But in line with a Canada-Manitoba Agreement on the redevelopment of the Winnipeg downtown core area, it was directed to locate in the downtown core of Winnipeg. As a result, the Council had to pay about $2.5 million more than the cost of other properties it considered suitable.

15.71 Project management. We reviewed the implementation phase of the project and found that the National Research Council, Public Works Canada and Supply and Services Canada generally acted with due regard for economy. But in attempting to meet the objectives of the Special Recovery Capital Projects Program, shortcuts were taken and additional costs were incurred. Work under a $1.6 million consultant's agreement with Public Works Canada began before Treasury Board gave contract approval. Material was purchased in advance of need, resulting in additional inventory costs of approximately $160,000. A contractor claimed additional costs of $95,000 for extra work undertaken to ensure that the project would be completed on time.

15.72 These additional costs, totalling at least $255,000, were incurred as a result of trying to meet the wider government objectives of the Special Recovery Capital Projects Program for a building that has remained mostly unoccupied and unused.

15.73 In the fall of 1984, the government cancelled this facet of NRC's industrial technology program but directed that the building be completed. With the exception of procuring all equipment, the project is finished. Academic and industrial organizations are prepared to participate in the Institute's programs as outlined originally in 1980. But the withdrawal of government resources, for which NRC had approval and which it had designated as a full commitment to the program, means these organizations are reluctant to commit themselves. In the meantime, at the time of our audit, the building was largely empty, incurring operating costs of as much as $100,000 a month, which do not include amortization of the capital costs of $28.42 million. This is directly related to the project being cancelled. So the total estimated annual cost of the facility, including $2.8 million for amortization, is $3.8 million.

15.74 We have been informed that the Council has now secured tenants for the building. This will reduce the annual operating cost to government.

Case Study 3. Lake Louise Development Program

15.76 Options analysis. In the planning process, three parts of the Lake Louise area that already had some development were considered as alternative sites where development might take place - the valley floor, the lakeside and a nearby ski hill.

15.77 In weighing the relative merits of these three options, the Department considered criteria such as protection of the natural environment, transportation needs, and site characteristics affecting the quality of experiences for the visitor. However, the life cycle costs of these options were not taken into account in opting for the valley floor as the area where development would occur.

15.78 Program funding. The submission to Treasury Board for preliminary program approval requested $34.4 million in constant dollars, or $45.6 million in current dollars. An inflation factor of 10 per cent was used in arriving at the $45.6 million, but this was not disclosed in the submission. Treasury Board approved the $45.6 million, with the proviso that preliminary and effective project approvals be sought on a project-by-project basis. In subsequent submissions to obtain these approvals, an inflation factor of 5 per cent was used consistently, but the program cost ceiling was not changed.

15.79 When the inflation factor used in the Treasury Board submissions was reduced from 10 per cent to 5 per cent, the program ceiling should have been recalculated. If this had been done, the program total would have been $39.8 million rather than $45.6 million, a reduction of $5.8 million.

15.80 Project management. Construction began in 1980-81. From the outset, the program management structure and controls were inadequate. Deadlines were frequently revised, there was inadequate on-site supervision, and required planning documents for some projects were not prepared on a timely basis or not prepared at all. Appropriate steps to correct the situation, including appointing a full-time program engineer, were not taken until 1984, about mid-way through the Lake Louise Development Program.

15.81 Parks Canada did not establish basic management procedures to provide effective control over program implementation.

15.82 For the Lake Louise Development Program, there is no project monitoring and reporting system that allows managers at appropriate levels to compare physical progress and costs against established milestones on a continuing basis.

15.83 Parks Canada has no evaluation system to measure the success or failure of the projects in meeting the objectives of the Development Program. It does not know, therefore, whether value for money has been achieved.

15.84 Land boundary issues. A private sector corporation, Canadian Pacific Railways, has railway lines running through the area covered by the Lake Louise Development Program. When the trans-Canada railway was built more than 100 years ago, the government gave the railway financial assistance in the form of substantial grants of land at no cost. Some land was to be dealt with as the railways saw fit ("subsidy lands"). Other lands were granted for use solely for railway purposes, reverting to the Crown should they cease being used for those purposes ("reversionary lands").

15.85 Boundary definitions between Crown and Canadian Pacific lands in the Lake Louise Development area are not clear. The distinction between reversionary and subsidy land in the Lake Louise Development area has been determined only recently by the Department. It has not sought Canadian Pacific's agreement. (An issue regarding reversionary lands in downtown Banff and throughout the National Parks system was dealt with in our 1984 annual Report -Chapter 6, paragraphs 6.90 to 6.93.)

15.86 In the course of the Development Program, the Crown has built on land purportedly belonging to Canadian Pacific Railways on more than one occasion.

15.87 The Department has recognized these issues and has advised us that efforts are under way to resolve them, including clarifying boundary definitions and negotiating with Canadian Pacific Railways to acquire the CPR land on which the Crown has built.

15.88 Private sector activity. Our review of departmental documentation regarding private sector work to date revealed a number of deficiencies. Buildings were constructed and occupied before agreements with the Crown were finalized. Rents charged by employers for staff housing are subject to review and approval by Parks Canada, but this has not been done. Rents charged have sometimes exceeded guidelines set by Canada Mortgage and Housing Corporation. For several years, because of inadequate sewage-handling facilities, Canadian Pacific Railways was polluting the Bow River. Despite repeated requests by Parks Canada, corrective action was taken only recently.

15.89 In our opinion, private sector development is not being controlled adequately.

15.90 The Department of the Environment should determine whether these problems result from non-enforcement of existing regulations and guidelines, or whether the controls in place are inadequate. Appropriate action should then be taken to enforce or strengthen existing controls or to implement new ones if necessary, to ensure that departmental objectives with respect to the Lake Louise Development Program area are met during the construction period and in the future.

Case Study 4. Canada Olympic Park

15.92 Project management. We visited the site and examined the project files and documents in the Office of the Federal Co-ordinator for the Games (who reports to the Deputy Minister, Health and Welfare Canada) and in the Department of Public Works. We concluded from our audit work that this complex project was well managed.

EMERGENCY PREPAREDNESS

Introduction

15.94 In Canada, the municipal, provincial and federal governments share the development and implementation of plans to deal with emergencies. The first responsibility for responding to an emergency rests with the municipality. As larger emergencies overcome the capacities of municipalities, responsibility passes to provincial governments and, if the problem is beyond their capacity, a further obligation to respond is added, this time to the federal government.

15.95 In the federal government, responsibility for emergency preparedness is shared between Emergency Preparedness Canada, and each federal department, agency and Crown corporation. In 11 of these, there are special planning responsibilities for structures called National Emergency Agencies.

15.96 Canada's arrangements for peacetime emergencies are therefore highly decentralized in terms of how, where, and by whom preparations are to be made.

Background

15.98 In the late 1950s, federal preparations for civil defence were centred in the Emergency Measures Organization. This organization was given responsibility for co-ordinating civil defence planning in federal departments. The focus of federal attention was the risk of a nuclear attack on North America.

15.99 In the 1970s the federal government commissioned Lieutenant General M.R. Dare to study federal crisis handling capacity. The Dare report -"The Enhancement of Crisis Handling Capability within the Canadian Federal Structure" - was presented to the government in October 1972 and was tabled in the House of Commons in condensed form in March 1974.

15.100 The government accepted the foremost recommendation that federal departments and agencies should retain primary responsibility for handling emergencies falling within their areas of responsibility. It also accepted the need expressed in the report for some measure of federal involvement in peacetime emergency planning.

15.101 During the 1970s, responsibility for policy and the coordination of federal emergency planning was divided between the Privy Council Office and the Department of National Defence. A small secretariat in the Privy Council Office provided policy assistance to the responsible Cabinet Committee and passed ministerially-approved tasks to the Emergency Measures Organization in the Department of National Defence.

15.102 In November 1980 the government announced a new federal policy for emergencies that included peacetime concerns as well as civil defence. The objectives of the policy were:

- to provide leadership in working towards improved emergency preparedness in general;

- to develop a credible national capability to meet emergencies of all types;

- to work towards an adequate and reasonably uniform standard of emergency services across the country; and

- to be sensitive to humanitarian concerns.

Emergency Planning Order

15.105 Because the effects of an emergency may be felt in other responsibility areas, in addition to where it began, ministers must also be prepared to provide assistance to any colleague minister who may be assigned responsibility for handling an emergency.

15.106 Eleven ministers are assigned unique responsibilities by the Order In Council. They must establish plans for National Emergency Agencies. The Order In Council calls on those ministers to prepare for establishing National Emergency Agencies so that they may function effectively "in any region of Canada in time of national emergency...". These agencies may come into being, as needed, when a "national emergency" is declared by the Governor In Council. They would call on the resources of the department to which they belong, other federal departments and if the situation is sufficiently serious, all national resources.

15.107 The National Emergency Agencies are intended to manage critical national resources during a national emergency such as a major nuclear accident, earthquake, the release of toxic chemicals and war. The Order does not define the words "national emergency." However, it defines "emergency" as an "abnormal situation that requires prompt action beyond normal measures to prevent or limit injury to persons or damage to property or the environment".

15.108 The National Emergency Agencies are dual-purpose organizations and are intended to be ready for possible use in national emergencies arising out of normal, that is, "peacetime", conditions, and those arising out of war or events leading to war. Where possible and desirable they are expected to secure the co-operation and help of the private sector and the provinces.

Audit Scope

Specifically, we examined:

- the legislative authority and organizational structure for federal peacetime emergency planning; and

- the extent to which the 1981 Emergency Planning Order had been implemented in setting up the National Emergency Agencies.

15.111 We inquired whether federal emergency plans existed so that the federal government, if called on, could meet its responsibilities in responding to major nuclear and chemical accidents, and earthquakes. In carrying out this review, we relied on departmental studies and reports.

Organization

Prime Minister

15.113 If an emergency should arise in which the federal responsibility is not clear, the Prime Minister may designate a minister (a department) to assume "lead" responsibilities. So far, the departments of National Health and Welfare, the Solicitor General and National Defence have been nominated in advance to facilitate preparations for specific types of emergencies.

Minister Responsible for Emergency Preparedness

15.115 The Minister Responsible for Emergency Preparedness is supported by an Interdepartmental Committee on Emergency Preparedness for policy and co-ordination, as well as by Emergency Preparedness Canada itself.

15.116 From time to time the minister meets with his provincial counterparts to discuss emergency preparedness issues. The last federal-provincial meeting of ministers took place in February 1986 in Ottawa.

Emergency Preparedness Canada

15.118 Its role, as described in Part III of the 1986-87 Estimates, is to be responsible for stimulating, facilitating, and co-ordinating federal emergency planning activity. Working with other levels of government to prepare for emergencies, Emergency Preparedness Canada also "aims to enhance national emergency response capability by establishing adequate and reasonably uniform emergency services across the country".

15.119 In practice, Emergency Preparedness Canada is the federal agency responsible for federal policy development, inter-departmental co-ordination and the provision of planning and training support to provincial governments on request. It also carries international responsibilities relating to Canada's commitments to the North American Treaty Organization and to Canada-United States joint interests in co-operative emergency preparedness.

15.120 However, Emergency Preparedness Canada has no authority over officials of other federal departments. It must carry out its task by persuasion. This is also true of its dealings with the provinces, some of which have highly developed emergency preparedness agencies.

15.121 Federal emergency policy and the role of Emergency Preparedness Canada are based on the premise that "initial responsibility for handling emergencies normally rests with those directly affected". This principle is reflected in Memoranda of Understanding signed with seven provinces and two territories so far. These Memoranda are being developed to provide a framework for intergovernmental co-operation.

15.122 Along with its co-ordination and secretariat role, Emergency Preparedness Canada also carries significant responsibilities for wartime planning.

Interdepartmental Committee on Emergency Preparedness

15.124 Established when the secretariat function for emergency planning was located in the Privy Council Office, the committee was supposed to be composed of assistant deputy ministers from 17 federal departments and agencies. It now meets on an as-needed basis and most assistant deputy ministers now delegate their attendance to lower-ranked departmental representatives.

National Emergency Agencies

15.126 Listed below are the 11 departments and agencies with responsibility for planning the National Emergency Agencies.

15.128 A few other federal departments support Agency planning. For example, the Department of Agriculture is supported by the Department of Fisheries and Oceans, while Employment and Immigration works closely with the Department of Labour. Departments may also be involved with co-ordinating their activities with the provinces, and through them, down to the municipal level.

15.129 The combined plans for the National Emergency Agencies can be viewed as the federal program reserved for national emergencies.

Observations

Authority and Organization

15.131 Until recently, the assignment of priorities and resources for National Emergency Agencies that are national in scope has been left in the hands of departments whose interests and priorities are more narrowly focused. There are no clear arrangements for inter-departmental direction from other levels of authority.

15.132 The role of the Interdepartmental Committee on Emergency Preparedness in developing and testing National Emergency Agency plans is not clearly defined.

15.133 Finally, except for the War Measures Act, there was no general standing statutory authority for the federal government to declare an emergency in peacetime that would provide it with the authority to fulfil its responsibilities.

15.134 It should be noted that, under the Energy Supplies Emergency Act (1979), the Energy Supplies Allocation Board in the Department of Energy, Mines and Resources is authorized to develop contingency plans to respond to disruptions in the international oil market as a particular national emergency.

Implementation

15.136 The 1986 Annual Review of Emergency Preparedness Canada states that "by the end of the decade all departments should have developed their plans and arrangements to the point where (their) plans will be able to be tested in national exercises and used if necessary." It also states that almost all Agencies have passed the first milestone, the "articulation of concepts of operations."

15.137 The conclusions about the first milestone and the "end of the decade" expectation were reached without formally consulting the departments responsible for the National Emergency Agencies.

15.138 We found it difficult to assess progress toward the development of National Emergency Agency plans because no milestones had been established. It is not clear how many milestones there are and what they are.

15.139 No formal system of "national" hazard or risk assessment is in place that would permit co-operative federal-provincial planning and federal inter-departmental planning for potential peacetime national emergencies.

Accountability

Examples of Possible National Emergencies

15.142 The strategy used by current federal emergency planning is described by Emergency Preparedness Canada as the "all-hazard" approach. Emergency Preparedness Canada explains that the planning system recognizes that the effects of emergencies are similar or alike (i.e., all-hazards) whatever the cause. There are medical, social, physical, and communications problems, for example, that must be met in many emergencies. Planning, therefore, focuses on developing those individual preparedness arrangements. Although we recognize the utility of this approach in terms of resource utilization, we believe it could be supplemented by preparing plans for drawing together and co-ordinating the appropriate combinations of elements to respond to specific kinds of national emergencies.

15.143 Major disasters, although of low probability, could occur. If they did, their severity would require co-operation between the federal government and the province or provinces affected. In turn, this could involve activating one or more of the National Emergency Agencies, which are designed to respond to national emergencies.

15.144 We found that National Emergency Agency planning for peacetime emergencies concentrates on the specific responsibilities assigned by the Order in Council. These in turn are based on existing departmental duties. Co-ordinated planning for national emergencies of the type mentioned, which would cut across departmental lines, is not apparent.

15.145 The process of preparing for a national emergency highlights the dilemma facing senior management and emergency planners everywhere - how many resources are to be applied to events of low probability but of high risk to both people and property? Judgements must be made on the basis of risks and the availability of resources.

15.146 At the federal level, there is little rigorous risk analysis or the development of worst-case scenarios that would help decide what national peacetime emergency is likely to require the help and resources of the federal government.

15.147 Planning for potential and specific "national" disasters does not exist. There is little federal planning co-ordination among the National Emergency Agencies, or between them and Emergency Preparedness Canada, for such potential large scale disasters as a nuclear accident, an earthquake, or the release of toxic materials. It is not specified who would co-ordinate the National Emergency Agencies involved, even in the initial phase of the emergency, should any major disaster occur.

Nuclear Accidents

- The federal nuclear response plan is not the responsibility of the officer responsible for departmental emergency planning and National Emergency Agency planning for the department. That officer was kept on the fringes of the action, had difficulty making contact with the departmental unit responsible for informing the public about radiation, and had to contact Emergency Preparedness Canada for information.

- Emergency Preparedness Canada was not identified as a core member of the Federal Nuclear Emergency Response Plan.

- The objectives of the Federal Nuclear Emergency Response Plan and the means to achieve them were not clearly defined.

Chemical Accidents

15.151 The report provides an overview of measures taken by industries and governments to prepare for, and respond to, major chemical accidents in Canada. It identifies gaps or needs. For all levels of government, the report suggested that significant improvements could be made in:

- prevention and readiness;

- hazard analysis;

- response capabilities; and

- upgrading the skills of emergency personnel throughout the system.

15.153 We recognize that the issue of potentially serious chemical accidents is complex and involves major co-ordination problems. One would expect, however, that it would be treated as a possible national emergency for which co-ordinated federal-provincial plans could be prepared. At present there is no evidence that this is being done.

Earthquakes

Recommendations

15.156 Risk assessment should be conducted to determine what potential specific national emergencies or hazards require the development of plans; to identify current response capabilities; and to determine the nature and level of federal support that may be required.

Emergency Preparedness Canada's response : Emergency Preparedness Canada states that this recommendation's reference to "specific national emergencies" reflects an apparent preoccupation with the factors which cause an emergency rather than the consequent effects. The effects of disasters tend to be similar in nature, regardless of the cause, and vary from emergency to emergency only in their relative importance or severity. People are made homeless, people must be fed and given medical attention; transportation and communications problems develop, areas may need to be evacuated, to cite a few of the effects common to many emergencies.

The similarity of the effects of emergencies, coupled with the organization of the federal government on functional lines and the division of responsibilities in a federal country, lead to the conclusion that the most effective and efficient structuring of federal emergency preparedness is one based on effects rather than on causes. The department best able to deal with housing problems, or health problems, or transportation problems is required to plan to do so, regardless of the cause of the problem. This is the essence of the federal government's "all hazards" approach to emergency response. The people most knowledgeable about a particular effect deal with it, using the specialized resources of the department or agency whose normal functions are most closely related.

The need for an all hazards approach is reinforced by the federal-provincial dimension. When governmental action is required in an emergency, the responsibility for providing assistance passes first to the municipality affected, then to the province, then to the federal government. Given this established sequence of responsibility, which the provinces are most anxious to have observed, the federal government becomes involved in emergency response only when requested to do so by a province or when aspects of the emergency clearly fall within federal jurisdiction. The nature and level of federal assistance needed varies significantly from occasion to occasion, depending on the severity of the emergency and on local and provincial capabilities, but generally it is support in meeting particular effects which is asked for.

While risk analysis at the national level is helpful in determining the likely distributions of the demand for federal involvement, with regard to the nature, scale and location of the assistance needed, this analysis is not required with the same precision as is needed by those responsible for emergency response in the first instance.

15.157 Goals and deadlines should be established for the completion and testing of plans for National Emergency Agencies.

Emergency Preparedness Canada's response : EPC agrees with this recommendation.

15.158 National Emergency Agencies should annually report their goals and progress toward those goals to Parliament.

Emergency Preparedness Canada's response : This recommendation will be accommodated by an annual report to Parliament which the Minister Responsible for Emergency Preparedness will be required to make under the Emergency Preparedness Act tabled in the House of Commons on June 26th.

15.159 The designation of lead departments for specific national emergencies should be updated to ensure that the most appropriate departments have been identified.

Emergency Preparedness Canada's response : This recommendation also refers to "specific national emergencies" and hence the response to the first recommendation applies here as well. In any case, the appropriateness of the particular responsibilities for which departments have been designated is reviewed regularly, as is the feasibility of new designations.

15.160 The duties of the major federal responsibility centres - the Minister Responsible for Emergency Preparedness, Emergency Preparedness Canada, the Interdepartmental Committee on Emergency Preparedness, and the respective ministers responsible for National Emergency Agencies - should be re-examined and their respective responsibilities defined.

Emergency Preparedness Canada's response : This recommendation is met by provisions of the Emergencies Act and the Emergency Preparedness Act, both of which were tabled in the House of Commons by the Minister Responsible for Emergency Preparedness on June 26th.

15.161 Consideration should be given to providing statutory authority for federal emergency planning and for the government to declare a national emergency in peacetime.

Emergency Preparedness Canada's response: This recommendation is met by provisions of the Emergencies Act and the Emergency Preparedness Act, tabled in the House of Commons on June 26th.

15.162 Co-ordination and the testing of specific national emergency plans - between federal entities and between the federal government and the provinces - should be made the responsibility of a designated federal agency.

Addendum

15.164 On 26 June 1987, the Minister responsible for Emergency Preparedness introduced draft federal emergencies legislation into the House of Commons - the Emergencies Act, and the Emergency Preparedness Act - and announced that the federal government would be repealing the War Measures Act. Simultaneously the government revoked the Emergency Planning Order.

15.165 To cover the interim period until the Emergency Preparedness Act is passed, Cabinet has directed federal departments, agencies and Crown corporations to continue planning for emergencies in accordance with current government policy and the spirit of the provisions of the Emergency Preparedness Act.

15.166 Some of the observations made in this report may be of relevance to the proposed new arrangements.

MICROCOMPUTER STUDY

Introduction

15.168 As of March 1986, Treasury Board Secretariat estimates that the Federal Government had about 12,000 microcomputers. The initial cost of this equipment would have been approximately $60 million. This represents almost one-quarter of all reported computer workstations in the federal government; thus the microcomputer is a significant component of the government's overall computing capability.

15.169 When considering the potential benefits of microcomputers it is important to realize that the initial capital investment in these machines is only the beginning. Costs to bring the hardware into productive use can be up to six times the initial purchase price. Ongoing additional costs come from the need to give users technical support, training, and time to experiment, develop and perfect applications. Because individual microcomputer solutions should ideally evolve into common systems for staff performing the same tasks, there is a further cost associated with building individual microcomputer systems into common applications for larger groups of staff.

Audit Objective and Scope

15.171 We did not audit the use of other forms of workstations such as computer terminals and special-purpose word processors. Other components of office automation, telecommunications, for example, were not examined.

15.172 We audited the use of microcomputers in five organizations:

- Agriculture Canada;

- National Revenue - Customs and Excise;

- Energy, Mines and Resources;

- Statistics Canada; and

- Transport Canada.

Observations and Recommendations

General Assessment

- word processing;

- spreadsheet data analysis and modelling;

- drafting and graphics applications;

- scientific applications;

- specifically developed applications; and

- terminals to mainframes and minicomputers.

15.176 However, in our review we have found that microcomputer technology is not yet sufficiently well planned and controlled to ensure that the full potential of this important tool is realized.

15.177 At present, there is little assurance that the government is realizing the potential benefits from its investment in this technology. Managers are generally not measuring its effects on productivity. Microcomputers are acquired primarily in response to individual staff requests, not as a part of any overall plan for the development of computing in departments. There is a need to improve training, support and guidance for microcomputer users. We found that departments were not paying enough attention to security and control of data on microcomputers and that software copying policies were not being monitored or enforced effectively.

Experimentation and Innovation

15.179 Departments are doing a lot of experimenting and innovating with microcomputers. In some cases, this process had advanced to the point where applications of common use were being disseminated throughout departments. For example, in Statistics Canada, a user in one of the regional offices developed a staff scheduling system. It won a departmental suggestion award and was subsequently documented and distributed to other regional offices for their use.

15.180 The Department of Transport is developing a new Multipurpose Information Display System involving a network of 250 microcomputers across Canada. It is replacing manual processes that made use of wall maps, teletype messages and clip boards. The Department finds that the microcomputers are providing more current information and better service to pilots in preparing their flight plans and while in flight. The intended result is improved aviation safety, particularly in severe weather conditions.

Efficiency and Effectiveness Improvements

15.182 In many cases, the use of microcomputers has led to significant changes in the work accomplished. Tasks are being carried out more quickly and efficiently, more data is analysed and better quality information is being produced. Much of the increase in productivity comes from improved personal performance as staff use off-the-shelf software such as word processing and spreadsheets to do their work faster and better. In other cases, systems have been built by users who have taken advantage of their personal computers to design systems that carry out the business of the department better.

15.183 For example, Transport Canada's Vehicle Fleet Management System uses microcomputers to increase productivity. The Department has found that its initial investment of $31,000 has allowed it to automate records related to current fleet inventories and operating information. Management reports are now produced on demand. This has enabled the organization to improve the quality of fleet management and reduce the clerical work of various staff members. Based on the information provided, we estimate savings in excess of $60,000 per year.

15.184 Transport Canada also uses microcomputers to prepare contract documents. Technical and engineering staff can create, edit and update tendering documents in less time than before. They avoid having to annotate draft copies, send them to a word processing operator and then proofread the results. The graphics capabilities of microcomputers mean that staff can often prepare diagrams without needing drafting skills.

15.185 We also saw productivity gains in other departments. In Agriculture Canada, microcomputers allow laboratory results to be analysed in 26 minutes rather than 36 hours. And Energy, Mines and Resources installed a microcomputer network at an initial cost of $225,000, leading to a reduction in service bureau and operating costs of $520,000 a year.

15.186 But some projects based on microcomputers have been less successful. Most of these were experiments that did not result in usable systems. We did not find evidence of widespread waste of funds on microcomputer projects. But experimentation, training and introduction time involving all levels of staff can lead to large indirect personnel costs. We are concerned that management may not be aware of the overall costs associated with introducing this technology.

15.187 We also saw no evidence that management has examined the impact of investing in microcomputers. Industry experience has shown that it is difficult to assess the costs and benefits of individual microcomputer acquisitions; introducing microcomputers frequently leads to significant changes in the way work is carried out. It also leads to such benefits as faster turnaround times, improved accuracy and higher quality output. But even though the task is not easy, organizations need to assess overall costs and benefits that result from using microcomputers over time so they can be assured that their investment, which in most cases is substantial, is having the intended results. Despite initial successes, there is no guarantee that aggregate investment in microcomputers is resulting in increased productivity.

15.188 Departments should assess the overall effect of microcomputers on the efficiency and effectiveness of their operations with a view to ensuring that they are getting value for their investment.

Planning and Integration

15.190 We found that many users have automated their manual financial systems on microcomputers. But this was often done in isolation from central departmental financial systems, leading to duplication of data entry effort. Timely information did not flow between these systems, and there is the possibility that different versions of information will be in the various systems, particularly if they are not reconciled.

15.191 In one area of Energy, Mines and Resources, managers developed a spreadsheet-based financial system for their group. They continued to provide input to the departmental financial system, but used the reports generated by the central system mainly for reconciliation. They considered the information in their microcomputer system more timely and useful.

15.192 Departments should include the use to be made of microcomputer applications in their information technology strategies.

Guidance and Support

15.194 We found that several techniques were used to introduce microcomputers. For example, special technical support groups were established; more advanced users were giving assistance to the less experienced.

15.195 Departments have addressed the need to provide a base of technical expertise to evaluate and support the rapidly changing field of new microcomputer products. A central microcomputer support group existed in each of the five departments examined. For example, they typically:

- provided product evaluation and research;

- operated a demonstration centre where users could test and evaluate new products;

- provided advice on acquisition, installation and maintenance;

- rented units to users;

- operated a hotline for users with problems; and

- published a monthly newsletter.

15.197 The changing role of clerical and secretarial support staff has yet to be addressed by government departments. As office staff begin to use microcomputers in their work, the need for secretarial and typing support shifts to the requirement to provide technical help direct to microcomputer users. This has a far-reaching impact on the nature and definition of support staff work as well as on the ability of departments to derive achievable benefit from the substantial investment being made in microcomputers.

15.198 Departments should assess the traditional roles of office support staff and initiate action to ensure that staff acquire the skills necessary to take full advantage of microcomputer technology.

Procurement

15.200 One means of reducing the unit cost of software is to negotiate "site" licenses for multiple copies of a software package. The potential reduction of the unit cost of software purchased is as much as 50 per cent. This method is practical when large numbers of microcomputer users group their purchasing requirements. Strategies for standardizing software packages allow for these potential economies. Despite the large population of microcomputers in government, we encountered little evidence of bulk purchasing or "site" licensing of software.

15.201 Departments should investigate the use of bulk purchase or site licensing agreements for microcomputer software.

Security and Control

15.203 Microcomputers that process and store sensitive or classified information require adequate protection against unauthorized access. In addition, for systems that produce information used to make critical decisions, appropriate procedures should exist to ensure processing and data integrity, back-up and documentation. Although most managers we interviewed were aware of the potential for security and control problems with microcomputers, we found little evidence of specific departmental action to address these issues.

15.204 Departments should assess the security and control risks associated with their microcomputer systems and institute measures to ensure adequate processing controls and levels of protection over the information contained in them.

Software Copying Policies

15.206 Departments should take steps to ensure compliance with policies regarding the transfer, copying and duplication of software.