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1988 Report of the Auditor General of Canada

Chapter 20—Follow-Up of Recommendations in Previous Reports

Introduction

Secretary of State of Canada - Canada Student Loans Program—1984, Chapter 14

Scope and Observations

New Orientation

Public Service Commission—1985, Chapter 6

Background

Scope of Follow-up

Overall Conclusion

Summary by Observations

PAC Recommendations

Customs Canada—1985, Chapter 7

Introduction

Conversion of Interdepartmental Agreements into Operating Procedures

Facilitating and Controlling the Entry of International Travellers

Facilitating and Controlling Commercial Imports

Measurement of Enforcement Results in Customs Port Operations

Conclusion

Law Reform Commission of Canada—1985, Chapter 10

Introduction

Findings

Conclusion

Canadian Human Rights Commission—1985, Chapter 11

Introduction

Findings

Conclusion

Income Tax Expenditures—1986, Chapter 4

Introduction

Taxpayer-induced Avoidance Mechanisms

Managing Tax Expenditures

The Tax System and Crown Corporations

Information to Parliament

Conclusion

Ministry of the Solicitor General—Correctional Service of Canada—1986, Chapter 7

Introduction

Findings

Conclusion

Department of Agriculture—1986, Chapter 8

Department of External Affairs—Trade Function—1986, Chapter 9

Introduction

Scope and Methodology

Overall Conclusion

Levels of Service

Cost Recovery

Interdepartmental Operating Relationships

Post Planning and Monitoring

Program for Export Market Development (PEMD)

Market Information

Trade Information

Human Resource Management Policies

Human Resource Management Information Systems

Effectiveness Measurement and Reporting

Department of Insurance—1986, Chapter 12

Supervision of Financial Institutions

Supervision of Pension Plans

Actuarial Services

Reporting to Parliament

Planning and Evaluation

Cost Recovery

The Veterans Affairs Portfolio—1986, Chapter 13

Special Audits—1986, Chapter 14

Free Publications

Findings

Conclusion

Department of Energy, Mines and Resources

Management of the Public Communications Function

Introduction

Findings

Conclusion

Social Sciences and Humanities Research Council

Introduction

Developments Since 1986

Scope of Follow-up

Overall Conclusion

Summary of Observations

Managerial Problem-solving Process

General Planning and Human Resource Management

Project Follow-up

Results of Research

Program Evaluation

Introduction

20.1 This is the fourth year we have reported on the status of action taken by departments and agencies in response to the Office's observations and recommendations. We believe this follow-up work, which generally occurs two years after the original reporting in the annual Report, has been useful in keeping the Public Accounts Committee and Parliament informed about action taken in correcting the deficiencies noted.

20.2 The progress of action taken varies considerably. In some cases considerable progress has been made, while in others little has transpired. At the Canada Employment and Immigration Commission, the programs and organization have changed so dramatically since our 1986 Report that we concluded there was little point in conducting a follow-up.

20.3 The Department of Agriculture's final target date for completing the planned corrective measures in response to our 1986 report was 31 October 1988, so we have deferred the follow-up until 1989. This year we are reporting on follow-up work on four 1985 chapters which had been delayed for similar reasons and one 1984 chapter, which was also followed up in 1986.

20.4 Follow-up reports on the 1986 chapters on Fisheries and Oceans - Pacific and Freshwater Fisheries and Indian Affairs and Northern Development are included after this year's reports on those departments in Chapters 13 and 14 respectively.

Secretary of State of Canada - Canada Student Loans Program - 1984, Chapter 14

Scope and Observations

20.5 Our 1984 audit covered the principal operations of the Secretary of State, including the Canada Student Loans Program. We drew attention to several weaknesses in the management of a project then under way to develop a new information system. In 1986 we followed up on how the system was being implemented and found problems that were causing delays and contributing to increased costs. The Secretary of State assured us, however, that the system would be in operation by the end of 1986.

20.6 The purpose of this follow-up is to trace the progress made since our last report and to assess development costs to date.

20.7 Development of the new information system for the Canada Student Loans Program has been delayed again, for an indefinite period. The design phase started back in 1984 and was contracted out to the private sector as a turnkey system project. A turnkey system project is a well defined system that should be developed, fully tested, installed and implemented with little or no involvement from the user.

20.8 In January 1987, the Secretary of State stopped the project after an investment of seven years and approximately $5 million. The decision was taken when the Department realized that the system being developed could not be implemented as planned without an additional one or two person-years and another $.5 million to $1 million as well as additional maintenance costs beyond initial forecasts. Even then there would be no guarantee of success. According to an internal study, development up to the time of the decision to stop the project had produced a system that was neither reliable nor operationally effective.

20.9 The factors that led to this situation were numerous and their interrelationships complex. The most significant among them:

    - The Secretary of State did not assign to the project personnel with the necessary experience to carry out such an ambitious and complex project.
    - The Secretary of State did not assign to the project personnel with sufficient experience in managing contracts for systems development. Several of the Department's decisions and actions during the project negated the possibility of delivering a complete turnkey project.
    - The Secretary of State did not adequately define in advance the features it wanted in the new system, leading to many changes during the implementation phase. In a few instances, these changes meant that part of the development work had to be redone.
    - There was inadequate continuity between the team responsible for the initial conceptual work between 1981 and 1983 and the system design team responsible for the implementation between 1984 and 1986. In addition, most members of the design team were from outside the Department and the implementation phase was also assigned to another external team.
    - Communication between users of the system and the implementation development group was ineffective, and relations were strained at times during the project.

New Orientation

20.10 At the beginning of 1987, the Secretary of State reorganized the Canada Student Loans Program and its management team.

20.11 The reorganization added team members to the Program with more experience in the field of finance and in managing large projects.

20.12 The Secretary of State has identified alternative ways to replace the current Student Loans system. The first option considered was the purchase of commercial accounts receivable software. The second option being considered is the use of a commercial integrated off-the-shelf student loans computer system. A third option would be to restructure the current information system and to develop additional programs to improve effectiveness and control.

20.13 We are informed by management that, in addition to the above options, a re-evaluation of the approach and means being used to meet the Program objectives is being undertaken jointly with Treasury Board.

20.14 At present, the Program team is optimistic; solutions have been identified, the Systems Branch has become involved, and potential suppliers are responding to requests for information concerning a commercially available integrated off-the-shelf Student Loans system.

20.15 Given the current state of progress on the search for alternative solutions, we are not in a position to gauge the probable success of the Secretary of State in introducing a reliable and adequately controlled system for the Canada Student Loans Program. At the same time, we note that the new team intends to proceed cautiously so as to avoid repeating past mistakes. It is an approach we cannot but encourage.

Public Service Commission - 1985, Chapter 6

Background

20.16 Our 1985 comprehensive audit of the Public Service Commission (PSC) addressed a number of staffing activities including policy development, delegation of staffing authority, monitoring of operations, and the evaluation and audit of the staffing system. We looked at certain appeals and investigation activities as well as those relating to the Commission's selection standards and tests. We also looked at planning and control methods with respect to language training and administrative activities in staff training and development. Finally, we examined the Commission's administrative planning, review and control mechanisms.

20.17 Our observations resulted in 20 recommendations in the areas of needs analysis, project management, monitoring operations, staffing system evaluation, exclusion approval orders, staffing audit, linguistic services and program planning and evaluation.

20.18 The Public Accounts Committee held three hearings on our Report chapter. In its Tenth Report to the House, tabled in April 1986, the Committee made 13 recommendations to the Government and the PSC.

Scope of Follow-up

20.19 We reviewed the actions taken by the Commission pursuant to our recommendations and those of the Public Accounts Committee. In addition to formal presentations made by management, our follow-up audit included interviews with management and staff, a review of relevant documentation and of reports prepared by the Commission for the Public Accounts Committee. It did not include visits to departments carrying out delegated staffing activities. Accordingly, we cannot fully assess the results of the initiatives introduced by the Commission to deal with these matters.

Overall Conclusion

20.20 The Commission has moved aggressively: of 33 recommendations (13 from the Public Accounts Committee and 20 from our Office) 23 have been implemented, 9 are in the process of being implemented, and the other is no longer applicable.

Summary by Observations

20.21 Needs analysis. In 1985 we reported that the Commission had not analyzed the needs and problems the public service encountered in the staffing system. Although the Commission could count on a number of sources of information, we found no centralized mechanism to systematically analyze this information. Since then, several projects have been put into place by the Commission to correct this situation:

    - The Commission carried out studies on information needs relating to the staffing process, and covering such areas as definition of existing data sources, data bank and information systems, evaluation of information requirements and definition of a streamlined and simplified information structure.
    - Administrative reform projects were completed in several departments to improve the efficiency and effectiveness of current staffing practices within the existing legislative framework. The results of these projects were reported to the Commission and are a useful source of information covering both global and individual needs.
    - Organizational changes within the Staffing Branch were made, so as to rationalize and simplify its activities. The data, systems, analysis and monitoring units are presently centralized and "functional". According to the PSC, this should provide for better use of the information collected, allow for global analysis and enable it to report on important staffing issues and needs.
    - A consultative sub-committee was created, made up of chiefs of staffing, to provide a means of consulting on staffing policies, programs or studies. This will facilitate participation of users in needs analysis before policies are issued or modified.
    - The Commission is presently completing the development of a Staffing System Model to identify managers' decision points in the staffing system and a staffing policy framework to include such things as policy statements, guidelines, and performance indicators.
20.22 Project management. In 1985 we found weaknesses in planning and controlling projects relating to policy and program development, administrative reform and delegation of activities.

20.23 During 1987, in response to our observations, the Public Service Commission developed and distributed to all its employees an administrative policy on project planning and control.

20.24 We found that better defined management practices were in place to ensure proper planning and control over projects by the Staffing Branch. The projects we examined were well defined, planned and monitored.

20.25 Monitoring. We observed in 1985 that the Commission did not have a monitoring process to provide assurance that staffing policies and practices achieved intended results, were effectively applied, and that delegated authority was being properly exercised.

20.26 In response to our recommendation, the Commission established a Monitoring and Review Unit to monitor departmental staffing activities. Monitoring requirements for Commission staffing policies and procedures are presently being developed.

20.27 Audit of staffing. In 1985 we recommended that the Commission clarify its auditing mandate and related audit objectives. We also made recommendations in the following areas:

    - completion of directives and guidelines for audit methods, scope and documentation required to support findings;
    - adherence to these directives;
    - revision of audit files;
    - post-audit quality control; and
    - training of auditors in audit concepts and techniques.
20.28 In response to our recommendations, the Public Service Commission has clarified its staffing audit mandate and objectives. This is reflected in the Commission's new audit policy dated 29 September 1986, which sets out the roles, responsibilities, scope and objectives of the Audit Branch. As well, the personnel audit agreement between the Treasury Board Secretariat and the PSC was revised in September 1986. This agreement specifies the policies, procedures and systems to be audited by the Commission. Further, the Commission has improved its Estimates Part III to more accurately reflect its audit mandate.

20.29 With respect to the other observations raised in our Report, the Commission has made progress in addressing most of our recommendations. However, because the majority of these initiatives have only recently been taken, and because of the limited extent of their application, we were unable to assess their implementation and results. Our findings are summarized below:

    - New guidelines and directives for audit activities delegated by TBS were developed, except for those pertaining to the reliance on departmental internal audits, and were implemented during 1987.
    - At the time we completed our review in April 1988, action had not yet been taken with respect to staffing guidelines. These are expected to be developed and in use by the fall of 1988.
    - A draft Audit Manual, describing the audit process, methods and work instruments to be used, has recently been developed by the Audit Branch and was being applied for the first time during our review.
    - Except for the lack of standard audit programs, significant improvements in file documentation were noted. Their future development will ensure that all audit areas and procedures are covered and applied. It was also noted that file reviews were now being done. However, the timeliness of these reviews needs to be improved.
    - Although no action had been taken toward implementing an independent post-audit quality control review process, we have been informed that this process will be fully operational by the end of 1988.
    - Finally, during 1987-88, appropriate action was taken toward developing and implementing an Audit Branch training program and plan.
20.30 Exclusion approval orders. Section 39 of the Public Service Employment Act permits the Commission, with the approval of the Governor in Council, to exclude persons, positions or classes of positions in whole or in part from the operations of the Act where it is not practicable or in the best interests of the PSC to apply the Act.

20.31 In 1985 we recommended that the Public Service Commission document the factors it takes into account when recommending exclusion approval orders and that it monitor departmental administration of these orders. The Commission has taken corrective measures in this regard.

20.32 In 1986 revised guidelines were issued to departments to outline pertinent information they should provide to the Commission in support of their applications, to ensure that all exclusion approval orders granted are subject to a monitoring process, and to develop a consultation process with unions so that their views and concerns are taken into account.

20.33 Our review of exclusion approval orders granted since the application of these new guidelines revealed that the Commission is now documenting the factors it takes into account in recommending approval by the Governor in Council.

20.34 As previously mentioned, the PSC is still in the process of developing its monitoring requirements for the Staffing Branch. Nevertheless, the Commission is conducting a review and analysis of periodic reports submitted by departments on their administration of individual exclusion approval orders.

20.35 Linguistic Services. In 1985 we reported several weaknesses in the Linguistic Services Directorate (now known as the Course Development Directorate). These pertained to setting objectives, assigning priorities and recording project selection criteria, lack of information on requests for services, and project management.

20.36 Our review disclosed that all our recommendations had been addressed and corrective measures taken, except in one case where the observation was no longer applicable.

20.37 Evaluating the staffing system. In 1985 we observed that the PSC had little information on the suitability and effectiveness of its policies. This responsibility had been delegated to the Treasury Board Secretariat in 1982, and only two evaluations had been done.

20.38 We recommended that the Commission review the merits of delegating the evaluation of its staffing policies to Treasury Board. An agreement was reached by the two organizations that this activity be repatriated by the PSC.

20.39 Program planning and evaluation. We reported in 1985 that the Commission had not yet evaluated any of its programs. We recommended that it finish assembling its program evaluation team and also integrate in its evaluation plan all evaluation activities, including staffing policies.

20.40 We found that the program evaluation function has been operational since 1986 and is fully staffed.

PAC Recommendations

20.41 The Public Accounts Committee in its Tenth Report to Parliament, tabled in April 1986, made a number of recommendations pertaining to the Commission's staffing audit mandate; the simplification of its staffing process; its monitoring of departmental staffing procedures; and the development of guidelines governing the implementation of the reverse order of merit principle. It requested the Commission to make written reports by 30 September 1986 on its progress in implementing its recommendations, as well as those of the Auditor General.

20.42 It further requested, in December 1986, that the Commission report in writing to the Committee by 31 March 1987 and again by 31 March 1988 on its administrative reform project and on the audit of staffing.

20.43 Our follow-up review disclosed that the Commission had submitted on a timely basis the progress reports requested by the Public Accounts Committee. Action had been taken on all recommendations, and improvements were evident in several areas.

Customs Canada - 1985, Chapter 7

Introduction

20.44 In our 1985 Report chapter on the audit of Customs Canada, we focussed on the operational activities in Customs Ports and reviewed systems and procedures that were in direct support of Customs' operational activities. The chapter also addressed some departmental management principles that affected overall operations.

20.45 Over the past three years there have been several major initiatives that have affected or will affect the Department - revision of the Customs Act, implementation of the Harmonized System and signing of the free trade agreement - but none of these has had a direct impact on our 1985 recommendations.

20.46 In January 1988, the Customs Commercial System was implemented nation-wide, and it is relevant to three of the eight recommendations on which we are reporting.

20.47 Our follow-up findings, based on a review of departmental activities to March 1988, are summarized below according to the categories in which they were originally reported. The references are to the 1985 chapter paragraphs.

Conversion of Interdepartmental Agreements into Operating Procedures

7.44 The Department should intensify its review of the consistency with which directives are being applied in the field, and it should take corrective action where indicated.
20.48 We noted that the Department is addressing the uniformity of application of directives by focussing on two elements - administration and legislation.

20.49 Within the administrative area, regular regional and headquarters audits, as well as the Operational Compliance Check System, provide procedures for administering directives in a consistent manner.

20.50 Within the legislative area, the Department's directives do not permit any professional judgment or interpretation. However, because of environmental circumstances, Customs Inspectors do apply judgment in carrying out some of these directives. The Department has some mechanisms for reviewing the consistency with which these directives are being applied, but they still need to be improved.

Facilitating and Controlling the Entry of International Travellers

7.78 The Department should monitor the application of instructions on the roles of enforcement and facilitation to determine if the intended results are being achieved.
20.51 In 1985 we noted that Customs Inspectors were uncertain as to the appropriate balance between facilitating the entry of travellers and enforcing the various statutes. Uncertainty therefore existed about the role that Inspectors were required to fulfil when processing passengers.

20.52 The Department has established mechanisms to ensure that employees are aware of, and understand, the significance of achieving a functional balance between facilitation and enforcement. This concept is disseminated through formal training, ongoing monitoring and personnel appraisals.

20.53 In addition, the Department has modified its enforcement strategies in an effort to provide Inspectors with a means of focussing their attention on higher risk travellers. In adopting this approach, the Department intends to facilitate the processing of passengers complying with the law.

20.54 Both the mechanisms and the updated enforcement strategies give the Department an improved ability to convey to Customs Inspectors its philosophy and to provide them with a practical means of achieving the appropriate balance between facilitation and enforcement.

Facilitating and Controlling Commercial Imports

20.55 Three recommendations made in our 1985 Report relate to the new Customs Commercial System (CCS) and are addressed below.

7.88 The Department should ensure that unmatched Cargo Control Documents are properly acquitted, and that proper supervision is maintained over the process.
20.56 The acquittal process, which matched entry documents with accounting documents, was an important control for ensuring completeness of revenue collection. To provide better control over revenue collection, the Department has introduced an Overdue Release Report and has transferred responsibility for payment from the carrier to the importer.

7.101 The Department should, as soon as practical, establish a formal system to identify and select high-risk shipments, and a statistically valid selection system to measure the compliance rate of importers.
20.57 The CCS provides a formal, on-line integrated system for identifying and selecting high risk shipments. The system also contains a statistical selection mechanism which is being used in an effort to ensure adequate coverage in the selection of commercial shipments for examination. An overall commercial compliance rate is still not measured. However, compliance rates for limited segments of commercial operations have been measured using means other than the CCS.

7.104 The Department should, as soon as practical, provide a profiling system to assist Commodity Specialists and Dominion Customs Appraisers in selecting high-risk entries for assessment.
20.58 A system has been formalized through CCS for selecting entries. This system is also equipped with a random selection feature that establishes minimal coverage of entries. However, the newly established data bank does not yet provide for the selection of all high risk entries due to the limited number of regional criteria which have been instituted to date.

20.59 Two additional recommendations in this area have not been affected by the implementation of the CCS.

7.93 The Department should regularly verify, for all modes of transport, compliance with the requirement to declare goods being imported.
20.60 The Department has since enhanced its methods of ensuring accurate declaration of goods by formalizing detailed reporting of carrier profiles. The data bank for the carrier profile system is in an early development stage, and completion will require continual co-operation from the regions.

7.96 The Department should ensure that an adequate level of audit coverage of Post-Audit Carriers is maintained.
20.61 To improve audit coverage, the Department has formalized its planning system for selecting Post-Audit Carriers and staff for the conduct of these audits. It is too early to determine whether audit cycles for individual risk categories will prove reasonable, or whether they will be respected.

Measurement of Enforcement Results in Customs Port Operations

7.125 The Department should ensure that it has sufficient objective and reliable information on the level of compliance in Passenger and Commercial Operations and on its success in detecting non-compliance.
20.62 In our follow-up review we found that the continuous performance information system for air passengers, which was in place and operating in 1985, had been suspended in favour of a periodic sampling measurement system. The results from this measurement system were finalized and reported in March 1988, and the Department plans to continue this type of measurement for 1988-89. As of March 1988, passenger travel and commercial operations, other than air passenger travel, had not been provided with a mechanism for detecting the overall level of compliance and the corresponding rate in detecting non-compliance. However, the Audit and Evaluation Branch has measured the compliance rates in specific commercial areas.

Conclusion

20.63 Progress has been made in addressing the majority of our recommendations, even with the significant events affecting the Department. However, since 1985 no progress has been made in the overall measurement and reporting of compliance or the rate of detecting non-compliance, except for air passengers, although some segmented compliance rates have been measured in specific areas of Commercial Operations. Since several key recommendations have been addressed recently, it is premature to report on the success of the measures implemented.

Law Reform Commission of Canada - 1985, Chapter 10

Introduction

20.64 Our 1985 audit focussed on the implementation of the Commission's Research Program and on project management procedures. It included, as a case study, an examination of one of the Commission's major research projects, the Criminal Law Review Project, which is a joint undertaking by the Commission, the Department of Justice and the Ministry of the Solicitor General. We did not examine the quality of the research work.

Findings

20.65 Research Program. The Commission has revised and updated its Research Program and has recently submitted it for ministerial approval. It now provides information on the Commission's current and proposed activities. Although we recognize that legal research is a complex undertaking and that it is difficult to accurately estimate time requirements, more information is still needed. For example, we believe the document would be improved if it included more detailed information on each research project, such as the approximate start and finish dates and the estimated total cost. The only cost information now included in the document is an indication of what percentage of its annual budget over the next five years the Commission proposes to spend on each of the six research projects comprising the program. The Commission, following our review, is currently revising its Research Program to include more information on timing, cost and completion dates for the research projects.

20.66 The Commission has undertaken some preliminary work in program evaluation. But it has yet to carry out an overall effectiveness evaluation of its program. This can be done only after clearly determining how to measure the effectiveness of the program; we acknowledge that it is a difficult task. In the meantime, the Commission is using a number of indicators as partial measures of effectiveness. Some of these indicators are the number of reports submitted to Parliament, the number of its recommendations implemented by new legislation, the number of times its recommendations are cited by the judiciary, the number of draft bills introduced but not enacted and the use made of the Commission's work by faculties of law.

20.67 Project management. The Commission has improved its project management procedures. Work plans are now included in the contracts of project co-ordinators and of other consultants. These work plans contain adequate data for monitoring activities and related projects or sub-projects. Senior management monitors activity informally and through personal contact with the project co-ordinators and with other consultants.

20.68 The Commission has documented both its procedures for hiring consultants and its Administrative Committee's terms of reference, and also carries out appraisals of the consultants' performance.

20.69 The Commission has recently completed the first part of its review of the Criminal Law Review Project (called "the substantive aspects"). Tabling in Parliament of the related report was tentatively scheduled for May 1988. General improvements in project management practices have addressed our specific recommendations regarding this project.

Conclusion

20.70 The Commission has acted on our 1985 recommendations and, in general, has implemented reasonable measures. However, further improvement is required. The Research Program should present better information on resource needs and on time frames for completing the suggested research projects; the Commission is currently addressing this issue.

Canadian Human Rights Commission - 1985, Chapter 11

Introduction

20.71 Our 1985 audit focussed on the Commission's major activity, managing complaints from individuals. We also examined the Commission's interpretation of its role and mandate as well as its strategic and operational planning.

Findings

20.72 Processing and managing complaint investigations. The Commission has made progress in identifying the nature and underlying causes of delays in investigations. It has yet to determine which of those causes it can address. Furthermore, despite improvements in processing complaints, the number of outstanding cases continues to increase. At the end of December 1987 the number was 972, an increase of approximately 43 percent over March 1985. The Commission actually closed more cases in 1986 (302 cases) and 1987 (373 cases), but the number of complaints accepted each year has increased. The Commission believes that the proportion of complaints being substantiated and channelled toward adjudication will continue to increase and that, as a result, and with the current levels of resources, the number of outstanding complaints will not be decreased in the near future.

20.73 The Commission has taken a number of steps to improve the way it processes complaints. To start with, it has issued a comprehensive operating manual which defines the roles and responsibilities of all parties involved. It also contains policies and procedures, including work tools such as forms and specimen letters to be used during complaint investigations. In addition, the Commission has developed qualitative and quantitative standards of performance and work, which are also used in resource allocation. Finally, it has developed a quality assurance program, although it is currently reviewing it to make improvements.

20.74 Notwithstanding these changes, further improvements are required in two important aspects. First, the Commission still undertakes complaint investigations on a first come-first served basis. It has indicated that future improvements in planning will permit the allocation of more resources to handling some complaints on a priority basis.

20.75 Second, the management information system is not adequate to assist managers in monitoring the progress of complaint investigations and the productivity of the investigating staff. The system produces various statistics and provides periodic status reports on each complaint investigation. However, the information is often out of date. This lack of adequate management information also contributes to the delays in investigations.

20.76 Role, mandate and planning. The Commission has identified ways to address its dual mandate, of enforcing compliance with the provisions of the CHRC Act and educating the public about those provisions, through its new planning process, which it implemented in 1986. It includes a strategic plan, updated annually, and annual operating plans. The strategic plan defines long-term priority objectives and strategies to achieve them. The Commission is working on further improvements to its planning process.

Conclusion

20.77 The Commission has acted positively on our 1985 recommendations and has initiated corrective action on all issues. Further improvements are under way and the Commission is looking for ways to reduce the backlog of complaint investigations.

Income Tax Expenditures - 1986, Chapter 4

Introduction

20.78 In our 1986 chapter on income tax expenditures, we discussed the risks involved in using the income tax system to deliver programs; the management of tax expenditures by the Department of Finance; the tax system and Crown corporations; and the information Members of Parliament receive about income tax expenditures. We made recommendations on each of these topics.

20.79 Our follow-up review focussed on whether action had been taken by the government or by the Department of Finance in response to our recommendations. Our findings follow under appropriate headings from, and with paragraph references to, the 1986 Report chapter.

Taxpayer-induced Avoidance Mechanisms

20.80 The first recommendation (4.54) covered taxpayer-induced avoidance mechanisms.

20.81 The government has improved the timeliness with which it reacts to taxpayer-induced avoidance mechanisms. This is usually accomplished by issuing a press release from the Department of Finance as soon as the government's reaction to the mechanism has been determined. The press release may include draft legislation or an indication of what will be in the legislation, but this is not always the case. When the implementing legislation is enacted, it is effective from the date of the press release.

20.82 Dealing with taxpayer-induced avoidance mechanisms on a timely basis is a difficult task. Press releases announcing changes can be effective in stopping a revenue loss due to the identified mechanism. However, until legislation is presented to Parliament, taxpayers have a degree of uncertainty about the law. Should future press releases on avoidance mechanisms become necessary, we would encourage the Department of Finance to include draft legislation in the press release and to present the appropriate legislation to Parliament at the earliest possible moment.

Managing Tax Expenditures

20.83 Three recommendations (4.100, 4.103 and 4.105) dealt with the management of tax expenditures, concentrating on their evaluation.

20.84 One of our concerns was that, before being implemented, tax expenditures were not subjected to appropriate procedures, including an appropriate analysis. Since our chapter was written, the most significant change in the income tax area has been tax reform, which eliminated a number of tax expenditures. Department of Finance officials testified extensively at parliamentary committees on tax reform, explaining the reasons behind the government's proposals. The increased emphasis on consultation and the testimony given before parliamentary committees provide some evidence that more analysis of tax expenditures is being carried out at the pre-implementation stage.

20.85 The Department has improved its post-implementation procedures. A tax measures evaluation unit has been set up to provide evaluations independent from line management. The unit has succeeded in attracting qualified staff, is currently undertaking its first evaluations, and has plans for future evaluations. We are encouraged by these developments and will continue to monitor the Department's progress. With respect to monitoring tax expenditures, some improvement has been made for those that were recently introduced into the system or substantially altered. For example, taxpayers wishing to use the Cape Breton Investment Tax Credit must have their projects pre-certified. Also, taxpayers seeking refunds of Investment Tax Credits for scientific research must have their claims audited before payment unless they have demonstrated an acceptable track record in research and development.

The Tax System and Crown Corporations

20.86 In paragraph 4.112, we recommended that the government ensure that the confidentiality provisions of the Income Tax Act do not hamper Parliament's ability to receive all relevant information on Crown corporations.

20.87 The government has taken no action on this recommendation. The Minister of Finance has said in a letter to the Public Accounts Committee that he considers the provision of explicit information on tax expenditure use by Crown corporations to be neither necessary nor appropriate. We disagree with this position because Crown corporations that are technically defined as taxable Canadian corporations are able to bypass the normal parliamentary budgetary processes and obtain additional funds through the tax system.

Information to Parliament

20.88 Two recommendations (4.147 and 4.149) dealt with the information on tax expenditures available to Members of Parliament at the time of the regular budgetary and spending review process and when Parliament is requested to enact technical amendments to the Income Tax Act.

20.89 The government has not produced a tax expenditure account since 1985. The Minister of Finance has said that the government is committed to the regular publication of valid, useful and acceptable measures of accountability in taxation. He has directed the Department of Finance to conduct extensive consultations and discussions on the subjects of tax expenditures and accountability in taxation, with a view to determining what information would be most useful to Members of Parliament. Results of the study are not expected before the end of 1988. We welcome the government's commitment to provide valid and useful information. However, although we recognize the difficulties involved, we believe it would be better to publish some information on a regular basis, with refinements to follow, than to wait until all the kinks are ironed out.

Conclusion

20.90 The Department of Finance has addressed many of our recommendations. In our opinion, the provision of information on the use of tax expenditures by Crown corporations is the one major issue that remains outstanding. Other issues will require further monitoring to ensure that the results envisaged are in fact achieved.

Ministry of the Solicitor General - Correctional Service of Canada - 1986, Chapter 7

Introduction

20.91 In 1986 we examined the major activities of the Correctional Service of Canada (CSC): inmate accommodation; inmate population management, including education, training and employment of inmates; the Parole program; recruitment and training of personnel and monitoring of overtime; and support services such as the financial function, internal audit, program evaluation, materiel management and reporting to Parliament.

20.92 The most significant issues reported on in 1986 were:

    - inmate accommodation;
    - inmate population management; and
    - management of the correctional staff.

Findings

20.93 Inmate accommodation. In 1986 we reported a significant imbalance between the planned capacity of institutions and forecasts of the inmate population at the medium and maximum security levels. As a result, there was going to be excess capacity in some areas and a shortage of capacity in other areas. This surplus capacity would lead to significant extra expenditure, while the shortage would result in increasing use of double bunking in some regions, with all its attendant negative effects.

20.94 There were also serious weaknesses in the accommodation planning process and in project management procedures, which led to costly changes in plans and design after construction projects had begun.

20.95 Policy, planning process and plans. CSC has reviewed its accommodation policy and has made some revisions, which are reflected in the 1987 update of its Long Range Accommodation Plan (LRAP). In April 1988, Treasury Board approved the LRAP and approved in principle the proposed capital construction projects, with some exceptions. However, CSC has not yet carried out a cost-effectiveness analysis of its accommodation policy, particularly with respect to the part relating to the special categories of inmate population. These categories represent about nine percent of the total inmate population. CSC plans to carry out the required analyses before finalizing, documenting and communicating its accommodation policy to all the parties concerned.

20.96 CSC has also improved its accommodation planning process. The revised process calls for the monitoring and co-ordination of regional accommodation plans, which should be supported by adequate cost-benefit analyses, and for an annual updating of the Long Range Accommodation Plan. For the most part, CSC followed its revised process in 1987. However, closer adherence to the process is required; we noted significant revisions to proposed accommodation plans without adequate cost-benefit analyses. CSC has updated its LRAP and has indicated that it will continue to review it annually to make adjustments for significant unforeseen developments.

20.97 CSC has revised its accommodation plans to ensure closer matching of planned capacity with forecasts of the inmate population by security level and region. To achieve this, CSC plans to phase out capacity in part or in total at some existing institutions, to use surplus capacity at maximum security institutions to meet shortages at other security levels, to build new capacity at the medium security level and to increase the use of exchanges with provinces. As a result, the overall planned capacity outlined in the 1987 LRAP generally matches the forecast of the inmate population, over the planning horizon. This match takes into account the acceptance of temporary double bunking to a maximum of 10 percent of the inmates by region, as proposed in the accommodation policy.

20.98 Since our 1986 audit, CSC has almost completed the construction of a penitentiary in Port Cartier. As a result, CSC will face extra operational costs of about $30 million over the life cycle of this institution, as noted in our 1986 Report. CSC has taken into account the planned capacity of this institution in revising its accommodation plans.

20.99 Project management. CSC has revised its project management process by developing and issuing improved planning and construction procedures and by implementing control measures. These steps require the identification of standards and requirements for new accommodation before its design is undertaken and should minimize changes during construction.

20.100 Inmate population management. In 1986 we reported that CSC had no documentation systematically aggregating inmates' needs and, as a result, was unable to develop an overall picture of the extent to which those needs were being met. Furthermore, improvements in efficiency and effectiveness measures of inmate education, training and employment programs were also required.

20.101 The Parole program had no explicit criteria for making decisions on granting parole and no evaluation of the program had yet been carried out.

20.102 Case management. Work is ongoing to identify the inmates' needs and to measure the extent to which they are met. In 1987, CSC started to implement its "Case Management Strategy", an improved and more focussed case management method aimed at identifying the root causes or factors that led to an offender's criminal behaviour. Once these have been determined, the inmate's most important needs can then be specified. These are still recorded by hand in the inmate file but CSC anticipates that its new Offender Management System, currently under development, will permit the systematic aggregation of inmates' needs. This should provide a basis to measure the extent to which needs are being met.

20.103 Industries Program. CSC has reviewed and redefined the objectives of the former Industries Program (now part of the Occupational Development Program); nevertheless, additional effort is required for clearly defining some key terms used in the wording of the objectives with a view to operationalizing them. For example, CSC has yet to clearly define key targets for good work habits and transferable skills, although it has taken some initial steps. In addition, measures to assess the effectiveness of this program still need to be developed.

20.104 CSC is continuing to address the constraints facing the Industries Program; for example, by experimenting with monetary incentives for inmates to enhance productivity. It has also implemented better management controls over the inventory of finished goods and is looking for ways to improve marketing of them.

20.105 Education and training program. CSC has taken initial steps to identify key indicators of program efficiency and effectiveness. It has also issued national guidelines for the quarterly collection of program effectiveness information from all institutions. However, it has yet to develop formal systems and procedures to ensure that information about individual inmates is automatically transferred to the Case Management group. CSC plans to address this issue with the development of its Offender Management System.

20.106 Parole program. CSC and the National Parole Board (NPB) have worked together on a number of evaluation projects relating to Bill C-67, now part of the Parole Act. This Bill broadened the discretionary powers of the NPB by enabling it to continue the confinement of certain inmates past their normal automatic release at the mandatory supervision date. Other inmates may benefit by obtaining an earlier release, because the Bill provides for automatic review after one-sixth of a sentence has been served.

20.107 The Bill has had a profound impact on the operations of the NPB and CSC. Full evaluations of the "detention" and "early release" provisions of the Bill are either under way or will be started in the near future, and will be considered a partial evaluation of the Parole program.

20.108 At the beginning of 1988, the NPB issued its "Pre-Release Decision Policies", designed to make explicit to all interested parties the criteria used and the process followed in making Board decisions. NPB plans to monitor the policies closely during the first year of their application with a view to eventually evaluating them.

20.109 Management of correctional staff. In 1986 we reported that the overall program of recruitment, training and development of correctional officers needed further review, due to operational changes aimed at cost reduction and decentralization. Furthermore, the monitoring of overtime expenditures for the correctional officer group needed improvements.

20.110 Recruitment, training and development of CX Officers. CSC has adopted a set of principles providing for continuous and meaningful interaction between staff and inmates, integration of the custodial and inmate management functions, staff participation in the decision-making process and delegation of authority to the lowest level possible, including increased responsibility for decisions and actions. These principles are directly linked to the CSC Mission Statement.

20.111 Based on these principles, CSC developed its recruitment program and staffing tools designed to standardize recruiting across all regions. CSC is currently developing an automated tracking system to monitor the performance of new recruits during their first two years. It has also undertaken a comprehensive review of its training activities, with a view to developing training programs to meet the needs of Correctional Officers at all levels.

20.112 Overtime control. Overtime budgets are still based largely on historical patterns of overtime usage adjusted to reflect the objective of reducing overtime expenses. CSC has strengthened its procedures for monitoring overtime and has hired some part-time Correctional Officers. However, CSC has yet to determine the optimum level of overtime necessary to operate economically and efficiently. Thus, it does not know what would constitute a realistic goal in its efforts to reduce overtime expenses.

20.113 Financial function. In accordance with the views of the Department's senior management, the Finance Branch is playing an increasing role in the decision-making process. Usually, the Finance Branch is asked to provide advice and to review and/or carry out financial analyses of major initiatives.

20.114 Materiel management. CSC has begun to develop an automated corporate asset management system to control materiel. Until the system is implemented in 1990, most of the deficiencies identified in our 1986 audit will continue to exist.

20.115 Internal audit. CSC has clarified the role and mandate of the Inspector General's Branch and has set policy to ensure the independence and objectivity of the internal audit function. The Branch has taken action to strengthen its expertise in value-for-money auditing and in computer auditing. However, further improvements are required in planning, controlling and documenting management reviews, although we noted some improvement since 1986. The Branch has indicated that it will continue to address these issues.

20.116 Program evaluation. The program evaluation function is now fully operational and is an integral part of the management process. Although at the time of our follow-up CSC had yet to complete an evaluation of any major part of its operations, it had completed some evaluation projects. Current departmental policy on program evaluation, issued in January 1987, calls for a review of each program at least once every five years. The five-year evaluation plan submitted by the Program Evaluation Unit is adjusted annually, in accordance with senior management's priorities.

20.117 Reporting to Parliament. CSC has assigned to one group the responsibility for co-ordinating and preparing reports to Parliament. This approach should improve the presentation of information in its Part III Estimates and in its annual report (included in that of the Solicitor General).

Conclusion

20.118 CSC has taken or is taking corrective action on all issues raised in our 1986 Report. However, although corrective action is generally proceeding, there are a number of significant issues that have not yet been fully resolved. For example, CSC still requires:

    - cost-effectiveness analysis to support CSC's accommodation policy;
    - better definition of some key terms used in the wording of the objectives of the Industries Program;
    - systems and procedures for the automatic transmittal to the Case Management group of information on the performance of inmates participating in the Industries and Education and Training programs; and
    - determination of the optimum level of overtime to be incurred by its CX group.

Department of Agriculture - 1986, Chapter 8

20.119 Our 1986 audit addressed the Department of Agriculture's delivery of farm income services; its management of the research branch; efforts to improve domestic and international markets for Canadian products; the services and programs offered by the Prairie Farm Rehabilitation Administration; and the controls surrounding toxic waste and hazardous materials. Our report included several recommendations in these areas.

20.120 The 1986 Report chapter was considered at two sessions of the Public Accounts Committee, on 28 and 30 April 1987. The Committee was concerned with the Department's slow progress in implementing recommendations from earlier audits. It asked the Department for a report in writing, by 29 January 1988, on progress as of 31 December 1987 in implementing our recommendations.

20.121 The Committee also asked the Department to provide us with a copy of the response so that we could follow up on it, on behalf of the Committee, and report the results within a reasonable period.

20.122 We have received the Department's original response. Our preliminary assessment earlier this year was that the Department had made progress, through 31 December 1987, in implementing our 1986 recommendations. However, some work remains to be done. The Department's target date for completing a large number of the planned corrective measures was 31 March 1988, with the final target completion date set for 31 October 1988.

20.123 In the circumstances, we decided to defer our full follow-up and related report to next year. This would permit us to examine the implementation of all the planned corrective measures and to provide the Committee with an overall assessment of their appropriateness.

Department of External Affairs - Trade Function - 1986, Chapter 9

Introduction

20.124 The 1986 value-for-money audit of the Department of External Affairs Trade function focussed on trade development and related program administration. The recommendations of the 1986 Report chapter dealt with levels of service, cost recovery, trade and market information, post planning and monitoring, interdepartmental operating relationships and human resource management. In addition to explicit recommendations in these areas, the 1986 Report also contained observations on the Program for Export Market Development (PEMD) and the Department's procedures for measuring and reporting on the effectiveness of the Trade function.

20.125 The Public Accounts Committee (PAC) made recommendations and observations in its Sixth Report, dated 20 May 1987, that reiterated many of ours. The Committee reserved comment on PEMD pending the results of our follow-up in this area.

Scope and Methodology

20.126 In our follow-up of the 1986 Report, we reviewed the actions taken by the Department of External Affairs to address our recommendations and our observations in the areas of PEMD and effectiveness measurement.

20.127 We discussed with management in Ottawa the implementation of the recommendations and reviewed documentation provided to us. We also conducted follow-up visits at two posts in the United States to obtain the views of personnel on site.

Overall Conclusion

20.128 The Department has dealt with most of our 1986 recommendations. However, after further study in the areas of levels of service, cost recovery, and post planning and monitoring, it has decided not to implement our recommendations fully at this time. The Department's position and our own views on all the issues are set out in the paragraphs that follow.

Levels of Service

20.129 Our 1986 Report stressed the need to establish and agree on the levels of service to be provided by the posts. (Level of service refers to both the type and amount, or extent, of service to be provided.) Appropriate levels of service would be tailored to meet local conditions and would respond to requests for assistance received from the business community. We noted that the Department had no documented standards against which to measure its Trade officers' activities in meeting these demands for service. Individual Trade officers made daily decisions based on their own judgment or interpretation of the desirable level of service. This had led to wide variations in the emphasis given to particular kinds of work performed in support of the Trade function. Our principal concern was the need to establish an appropriate basis for allocating staff and controlling costs.

20.130 The Department has taken steps to establish a standardized list of the types of services provided at posts abroad and to communicate it to the business communities. However, this is a general list and it does not capture variations in the types of service that are provided at different posts. The Department has decided not to further define the levels of services offered. It has come to the conclusion, after consultations with officials and business people, that the extent to which specific services are offered and the manner in which they are provided are satisfactory.

20.131 The levels of service provided are decided at posts on a case-by-case basis, by Trade officers who are expected to use their own judgment and, more generally, by Headquarters staff who determine resource levels based on a variety of factors, particularly the potential for export success. Levels of service are also influenced by overall resource constraints resulting from the priority being given by the government to deficit reduction. The Department does not consider it appropriate to specify either the type or amount of service on an aggregated or a post-by-post basis. Maintaining program flexibility by allowing for the exercise of judgment is considered of vital importance to the Department. It believes the government's trade promotion effort would not noticeably benefit from taking the "defined levels of service" idea further, as recommended by this Office and by the Public Accounts Committee.

20.132 The Department's views on levels of service have been noted. We believe that our recommendation can be pursued in the context of cost recovery.

Cost Recovery

20.133 In 1986 we recommended that the Department further examine cost recovery possibilities for the Trade function and make appropriate recommendations to the government. We observed that, since many of the services offered were being rendered at the request of identifiable groups or individuals, consideration should be given, as provided for in the Treasury Board's Guide on Financial Administration, to whether the cost of these services should be borne by them. We also observed that partial cost recovery is a potential means of imposing additional rigour on individuals or organizations requesting the service, which could lead to greater efficiency, economy and effectiveness in the Trade function.

20.134 The Department has conducted a limited review and held discussions on the feasibility of introducing further cost recovery measures. However, it has not undertaken a comprehensive examination of the impact on economy and efficiency that introducing cost recovery for services at posts abroad would have. Also, it has not pursued our suggestion that an explicit recommendation be made to the government.

20.135 Such a comprehensive examination would require studies of all Trade function costs. It would also include cost-benefit analysis to determine which costs should be absorbed by the government; allocation of costs among services and user groups; assessment of the price responsiveness of different user groups to varying levels of services; and consideration of alternative cost recovery targets and charging mechanisms for Trade officers' time and for other services provided to business.

20.136 The Department informed us that it has introduced enhanced cost recovery in the trade fair and missions area and charged a registration fee for companies seeking interviews with the trade commissioners brought back to Canada for "Marketplace '87". It has also issued instructions to officials to be vigilant regarding any additional potential for cost recovery. It does not believe much more can be done without reducing the cost effectiveness of the Trade function.

20.137 We believe that a more comprehensive examination is needed to determine whether extending cost recovery for at least some of the services provided at posts would be desirable and to support an appropriate recommendation to the government.

Interdepartmental Operating Relationships

20.138 We were concerned in 1986 that the Department had not reached a consensus, at the operating level, with other government departments on the best method of working together in pursuit of trade objectives. This concern led to a recommendation that External Affairs establish guidelines on operational relationships with other government departments that have an ongoing involvement in developing and implementing Trade policy.

20.139 The Department has made progress in this area, improving communication with other departments through increased emphasis on consultation and co-ordination, new memoranda of understanding and more active interdepartmental committees. Improved planning processes provide a forum for the continuing development of operational relationships and for resolution of interdepartmental issues.

Post Planning and Monitoring

20.140 We found in 1986 that instructions and controls in the post planning system did not sufficiently address attributes of good planning information, such as completeness, quality and validity at all operational levels. Also, the planning process did not formally consider alternative delivery options in allocating funds; and there was no monitoring system to ensure adherence to plans or to collect data on the results of various activities.

20.141 We recommended that the Department ensure that the planning system contain accurate information on all post activities, so that Trade officers' time could be allocated with the most effective mix of responsive activities and new initiatives.

20.142 The Post Planning and Tracking System, introduced since our 1986 audit, constitutes an important step in the development of planning mechanisms in the Department. Information on the allocation of total available time by each Trade officer at each post is projected, and its distribution by economic sector in export promotion is established during the planning stage. However, the plan does not contain information on how each Trade officer's time is to be divided between responsive activities and new initiatives. The Department maintains that it is difficult to distinguish between the two.

20.143 We also recommended that the Department of External Affairs monitor Trade officers' activities and compare the results of these activities against post plans and objectives as a basis for assessing alternative delivery options.

20.144 The Department now does this to the extent that, for key activities, it keeps track of actual results against anticipated results. This is a significant improvement since our 1986 audit.

20.145 The Department has no provision in its planning system for specific allocation of Trade officers' time, between what it defines as "key" activities and other activities. It is therefore not able to formally monitor the extent to which Trade officers are allocating sufficient time to activities that Headquarters has agreed are the key activities for the post. Furthermore, without specific information on the planned and actual time spent on these key activities, it is difficult to assess their cost effectiveness. As a result, the Department's ability to evaluate the costs and benefits of alternative delivery options remains limited.

Program for Export Market Development (PEMD)

20.146 We reported several concerns about PEMD in 1986. The eligibility criteria for receiving funds under the program had not been met in some cases; monitoring of larger projects was inadequate; adequate qualitative information on program results had not been collected; and procedures to identify and collect receivables did not ensure maximum recoveries.

20.147 Eligibility criteria for receiving funds are now being applied. Companies that have been unsuccessful, that have not submitted required Business Development Reports or that have unrealistic marketing plans are not eligible for PEMD contributions. Proposals that are not viewed as being incremental will also be rejected.

20.148 Procedures for identifying and collecting accounts receivable have been improved. Auditing of contributions for potential repayment has been significantly increased. We were informed that the number of repayments subject to audit has increased substantially. Monitoring of the export performance of companies also has been improved. Procedures are being instituted to regularly monitor larger projects.

20.149 Procedures for measuring program effectiveness have been strengthened, in that there is now a plan for collecting data for future evaluation of the program. However, discussions on the assignment of specific responsibilities for data collection are still in progress. Assigning such responsibilities will increase the likelihood that the specified data will be gathered in a timely and economic manner. Some of these data may have to be collected by other government departments. In addition, operational targets for the program, such as improving the level of business activity, expanding the number of business contacts and identifying suitable local representation, have yet to be established.

Market Information

20.150 In 1986 we reported a need to develop and implement a management framework to ensure that important export sectors are supported by market intelligence, co-ordination with other government departments and dissemination of market strategies to industry.

20.151 The Department has made serious efforts to address this need through its Post Planning and Tracking System, now operating in conjunction with its resource management annual cycle as part of the Department's overall planning process.

20.152 The system provides a sound framework for disseminating and co-ordinating market strategies and intelligence among government departments, the provinces and industry.

Trade Information

20.153 We noted in 1986 that there was little uniformity or consistency of analysis in the use of trade statistics in the Department. We recommended that the Department assign responsibility to a specific responsibility centre, to establish and implement policies on collecting, analyzing and disseminating trade information.

20.154 The Department has given the Economic and Trade Analysis Directorate responsibility for collecting, reconciling, interpreting and presenting internally consistent trade and economic data in support of priority departmental programs, and for providing guidance to other bureaus on the use and limitations of statistical information.

Human Resource Management Policies

20.155 The 1986 Report recommended establishing clear guidelines for the management of human resources. We considered such guidelines to be important tools for post managers in reaching decisions on whether to staff positions with Canada-based or locally-engaged employees and whether to staff with specialists seconded from other organizations. Clear guidelines would also help decide on appropriate training for staff and on the duration of postings.

20.156 Since 1986, the Department has converted a number of positions from Canada-based to locally-engaged status and has revised the policy guidelines on postings to encourage longer assignments, particularly in relation to level III hardship posts, where the standard two-year posting has been extended to three years. In addition, it has developed a policy and specified the factors to be used in deciding whether to staff with Canada-based or locally-engaged staff. However, this policy had not been formally disseminated to posts abroad as of 31 March 1988.

20.157 A personnel policy dealing with the training of staff has been promulgated.

20.158 With regard to the use of specialists, the Department informed us that it is considering a "cadre concept", envisaging the establishment of talent pools of specialized expertise to ensure that people with the necessary talents are identified and available for placement at posts abroad.

Human Resource Management Information Systems

20.159 Our recommendation on human resource management information systems resulted from a concern that the Department's information systems did not allow for the comprehensive matching of personnel skills with job requirements. This recommendation had not been fully addressed as of 31 March 1988. We were informed that implementation of a comprehensive system (PERNET) has been deferred, due to the higher priority of the World Information Network (WIN) and the Canadian On-line Secure Information and Communications System (COSICS). The Department told us that PERNET will be further considered when COSICS computer equipment has been selected and is operational.

20.160 The Department has established, as an interim measure, a stand-alone microcomputer system to carry out the matching of skills to job requirements. However, not all the required data on skills and job information have been entered. We were informed that data entry would be completed and the improved system would be fully operational by 31 August 1988.

Effectiveness Measurement and Reporting

20.161 We observed in 1986 that the Department's measurement and reporting of Trade function effectiveness were not adequate. Its evaluation plan called for only a limited amount of such information. We also observed that there were no agreements or understandings on how trade activities were to be evaluated where they were shared with other government departments.

20.162 The Department has now completed a substantial amount of work on measurement. In particular, the evaluations and resource reviews conducted, and the implementation of the Planning and Tracking System, begin to address the need for information on effectiveness. Additional work remains to be done in such areas as specifying the precise measures of results of the Trade function, and in assessing the feasibility of attributing changes in these results to specific initiatives of the government departments involved.

20.163 Explicit specification of user needs and of related levels of satisfaction as an effectiveness measure are also needed. Finally, the Department should continue to develop indicators of performance. This would further assist the measurement and reporting of how well Trade officers are contributing to the Trade effort.

Department of Insurance - 1986, Chapter 12

20.164 This follow-up covers all the major observations and recommendations we made in 1986 as well as the progress of the initiatives that were under way at the time of our audit.

20.165 In July 1987 the operations of the Department of Insurance and the Inspector General of Banks were merged into the newly created Office of the Superintendent of Financial Institutions (OSFI). The legislation establishing the new Office also gave the federal government stronger regulatory powers over the institutions.

20.166 At the time of our follow-up in May and June 1988, the Office was in the process of formulating strategic and operational plans, advising on the development of new legislation for financial institutions, reviewing its current methods for assessing financial solvency of these institutions, and implementing new operating systems and procedures.

Supervision of Financial Institutions

20.167 The former Department of Insurance was responsible for supervising the activities of the trust and loan and insurance companies.

20.168 In 1986 we recommended that the Department improve its process for monitoring and assessing the financial solvency of the companies it regulated, and increase the efficiency of its regulatory process. We also noted that standards and procedures for carrying out supervisory activities were informal in many areas, and work tools were outdated and inefficient, but that there were efforts under way in the Department to address these matters.

20.169 Trust and loan companies. At the time of our review, the supervisory activities for the trust and loan companies had recently been amalgamated with the banking activities in the Deposit Taking Institutions Sector of OSFI. The Office was also in the process of examining its current approach to assessing financial solvency of these organizations. In addition, a major reorganization was under way, including recruitment efforts to staff recently created senior management positions, and most of the operations were being transferred to Toronto.

20.170 All these efforts are indicative of a desire to strengthen the supervisory practices. But, until operating systems and procedures are more firmly established within the Sector, we are unable to assess the full extent of the progress made to address our recommendations.

20.171 We did note, however, a significant improvement in the field examination process for trust and loan companies. There is better documentation of risks considered and evaluated during the examination, improved co-ordination with the external auditors and evidence of proper review and supervision.

20.172 Insurance companies. Important progress has been made in addressing many of our observations about the supervision of insurance companies. For instance, risk assessment procedures have been better defined, the number of specialist positions have been increased and other positions have been upgraded. Systems and procedures in all areas of the insurance operations are better documented. As with the trust and loan companies, field examination procedures have been significantly improved and streamlined.

20.173 There are a number of areas affecting both trust and loan and insurance companies where progress has been slow because the issues are being addressed from an Office-wide perspective. For instance, we recommended that more time be devoted to reviewing and assessing future industry trends. Responsibility for this activity has been centralized, but it is not expected that the function will be operational before March 1989. In another area, the introduction of computer technology has been slow. Currently, the Office is in the process of developing a computerized institutional information system which is expected to be fully implemented by early 1989.

Supervision of Pension Plans

20.174 Pension reform. Amendments to the Pension Benefits Standards Act came into effect 1 January 1987, bringing with it an increased workload for the Pension Benefits Division. We recommended that work plans be developed to deal with the changes in legislation, so the Division could cope with the increased workload in an efficient and effective way. Plans were developed, but the amount of work involved in dealing with the new legislation was underestimated, and a backlog resulted.

20.175 At the time of our review in June 1988, the Division was behind in completing detailed reviews of annual information returns. This was due in part to the increased workload under the new legislation. For instance, one of the new legislative requirements is the submission of amended plan texts, all of which are due by 31 December 1988. As of early June 1988, of some 900 plans regulated by the Pension Benefits Standards Act, 259 had been received, 125 had been reviewed, 4 were registered and 2 were ready for registration. The Office was aware of the situation and was in the process of recruiting additional resources.

20.176 Assessing financial solvency. In 1986 we recommended that the supervisory practices for pension plans be thoroughly reviewed. We were particularly concerned that there was no formal process for assessing risk, few field examinations were being carried out and procedures for monitoring pension plan assets were inadequate. We also recommended that there should be procedures in place to ensure adequate supervision of the pension plans that are monitored by provincial authorities under reciprocal arrangements.

20.177 In response to our recommendation, an extensive evaluation of the supervisory process was carried out. This was completed in July 1987. An action plan to address the study's recommendations has been drafted, and steps are now under way in a number of areas to improve systems and procedures. The draft plan calls for full implementation of the recommendations by 31 March 1989.

20.178 It is too early for us to assess the full extent of the improvements. However, the new legislative change, which calls for annual audited financial statements rather than the previously required triennial information, together with the implementation of the study's recommendations, should considerably improve procedures for monitoring pension plan assets. Reciprocal agreements with provinces are being rewritten. The planned field examination of some 40 plans each year, beginning in 1988-89 (up from the previous two or three a year), together with the development of examination standards and guidelines of the same calibre as those for financial institutions, should significantly strengthen the supervisory process. However, given that there are some 900 plans, the Office should monitor this process closely to ensure that the scope and frequency of the examinations are sufficient.

20.179 There is still one important area that concerns us: this is the need to strengthen the risk assessment process. Although some work has been done in this area, the factors the Office takes into account in evaluating risky situations have not yet been fully defined and formally communicated to all staff involved in the supervision process. Without a clearly defined and documented process for reviewing and assessing risk, the Office may not be able to detect financial problems early enough to take appropriate corrective action.

20.180 We will continue to monitor this situation closely.

Actuarial Services

20.181 In 1986 we pointed out that there was a problem with providing actuarial reports on employee pension plans on time. There is still a problem, but the situation is improving. The average time for completing the reports has been reduced from four years to three. The actuarial staff is currently working toward meeting the recently introduced 18-month statutory requirement for tabling actuarial reports on pension plans; two of the last four major reports were completed in less than 20 months.

20.182 There is better communication with the departments responsible for providing the employee data, and the lessening of requests for special work has enabled the actuarial staff to devote more time to this area.

Reporting to Parliament

20.183 In 1986, we made recommendations to improve the annual reports and the actuarial reports that are tabled in Parliament. The quality of the annual Report on the Pension Benefits Standards Act was improved, the tabling of certain other annual Reports is no longer required and our recommendations concerning actuarial reports are currently under review.

Planning and Evaluation

20.184 In 1986, we commented on the need to improve planning and evaluation. OSFI is in the process of developing strategic and operational plans. It plans to establish an evaluation function in two years.

Cost Recovery

20.185 In 1986, we observed that billing financial institutions for recoverable costs as they were incurred, rather than annually, would result in significant savings to the government. For 1987-88, OSFI commenced a system of interim and final billings. The first interim billing was sent out in April 1988. This resulted in savings of $600,000 (this is based on billings to banks, as well as trust and loan and insurance companies). Billing on a more frequent basis would result in additional savings. We estimate that billing on a quarterly basis during the same period would have produced additional savings of $900,000.

The Veterans Affairs Portfolio - 1986, Chapter 13

20.186 Our 1986 audit covered Veterans' Trust Accounts, the three major expenditure areas - the War Veterans Allowance program, the Disability Pension program and the Health Services program - and extended to a number of corporate functions. We made several recommendations on the major programs and commented on the extent and quality of the procedures and practices for Veterans' Trust Accounts.

20.187 This year we followed up on all the major observations and recommendations we made in 1986. Because many of the initiatives have target completion dates after 31 March 1988, we are providing a preliminary assessment of progress.

20.188 Since the audit in 1986, the Department has instituted several reviews of its programs, administration and operations and approved an independent study of the War Veterans Allowance program and a study of the procedures and practices for Veterans' Trust Accounts. It has implemented procedures to minimize incorrect War Veterans Allowance payments and reconciled its War Veterans Allowance and Disability Pension expenditures to the government reporting system.

20.189 All these initiatives address the intent of the observations and recommendations we made in 1986. The Department has moved aggressively after deciding the most appropriate course of action for each issue.

20.190 We will perform further follow-up in 1990 when the initiatives have been completed and their operational effects are known. This will enable us to provide an overall assessment of the Department's actions.

Special Audits - 1986, Chapter 14

Free Publications

20.191 Our 1986 special audit addressed the policies and procedures regulating government publications that are made available to the public without charge. We also looked at the publishing operations of four departments.

20.192 We found a lack of due regard for economy and efficiency in expenditures on free publications.

20.193 Our 1986 recommendations therefore addressed two matters: the policies of the central agencies, such as the Treasury Board and the Department of Supply and Services' Publishing Centre, and departmental procedures. We recommended that policy and procedures be established to ensure control over the production, issue, and disposal of free publications.

Findings

20.194 The Treasury Board Secretariat believes publishing, and our concerns about free publications, are an integral part of communications activities and cannot be considered in isolation.

20.195 The Secretariat is reviewing all its communications policies as part of a communications management review being undertaken at present by the Privy Council Office (PCO). The PCO expects a policy framework for communications to be approved by late 1988.

20.196 Also as part of its internal review process, the Secretariat is seeking to ensure that communications policies are consistent with the move toward increased ministerial authority and accountability and the cost recovery/user pay policy of the Treasury Board.

20.197 Guidelines and criteria for free publications were issued in July 1988 by the Treasury Board as part of the overall policy framework for communications.

20.198 The Canadian Government Publishing Centre is emphasizing the gathering of cost data for priced publications. The Centre expects that this costing system will improve financial discipline for priced publications and will also have an effect on free publications. The Centre is responsible for carrying out reviews of departmental publishing plans.

20.199 Our review of specific departments found that they are addressing the recommendations we made as part of the process of developing new communications policies. Most of this work is at the draft stage. One department is implementing its draft policies.

Conclusion

20.200 With the exception of one department, we did not find substantial progress toward controlling departmental expenditures on free publications as recommended. Most of the progress was reflected in draft departmental communications policies.

20.201 The effect that the communications review, and the administrative procedures developed by the Treasury Board Secretariat, will have in ensuring the development of control mechanisms for free publications will have to be assessed in the future.

Department of Energy, Mines and Resources

Management of the Public Communications Function

Introduction

20.202 Our 1986 audit focussed on the management of the Communications function in the Department of Energy, Mines and Resources (EMR), and on its communication with the general public.

20.203 We found a need to improve management practices and controls.

20.204 Based on our findings we recommended that EMR clarify the responsibility and authority for managing and co-ordinating communication with the general public; that files and plans contain adequate information (including actual costs where possible ) on all aspects of product planning; and that EMR examine the effectiveness of its Communications function in fulfilling program objectives, including contact with the public.

Findings

20.205 The EMR Communications Branch is beginning to address most of our recommendations.

20.206 A publishing policy has been approved for the Department. It includes definitions for scientific and general publications; the role of senior officials with respect to publishing; and guidelines and procedures for information product planning, production, distribution, disposal, control and assessment.

20.207 The EMR Communications Branch and the Mineral Policy Sector have developed procedures for preparing information product plans which will cover their objectives, costs and benefits, target audience, and distribution and storage. Other sectors of the Department are expected to follow suit.

20.208 In response to our recommendations on the need for evaluation, EMR carried out a number of evaluations in 1987 on information products and the effectiveness of the different media used. The Evaluation Officer position, established in 1986, has now been eliminated due to downsizing, and the Communications Branch plans to contract out the work. At the same time, activity in this area is expected to be scaled down due to budget restraints.

Conclusion

20.209 Some progress has been made in the improvement of management controls and practices in the Communications function.

20.210 The new publishing policy and new planning procedures are steps in the right direction. The full impact of these changes will be assessed on implementation.

Department of Energy, Mines and Resources

Canada Oil and Gas Lands Administration

20.211 Our 1986 audit of the Canada Oil and Gas Lands Administration (COGLA) recommended that outstanding transaction fees be collected and that a program evaluation study be done. We have now completed a follow-up of the two recommendations. We examined the new systems and procedures implemented by COGLA, designed to collect transaction fees. We also discussed the issue of a program evaluation study with COGLA management, officials from the evaluation branches of the Department of Energy, Mines and Resources and the Department of Indian and Northern Affairs, and the Office of the Comptroller General.

20.212 Our first recommendation concerned the lack of a system and of associated procedures for collecting revenue due the government from the granting of exploration agreements to firms exploring on Canada Lands. COGLA has since developed and implemented an accounts receivable system to handle the recording, monitoring and collection of these receivables. (Licensing has replaced exploration agreements under the Canada Petroleum Resources Act of 1986.)

20.213 Transaction fees in excess of $1 million, noted as uncollected in our 1986 Report, have been collected, with only $1,287 still outstanding.

20.214 The second recommendation was that a program evaluation study of COGLA's program activities should be completed in accordance with a timetable agreed to by the program evaluation branches of the Departments of Energy, Mines and Resources and Indian Affairs and Northern Development.

20.215 The two departments completed a joint evaluation assessment study in 1987. The study recommended a comprehensive evaluation of COGLA, covering some 17 evaluation issues, including the achievement of COGLA's objectives, the effectiveness of the Agency and the possibility of duplication and overlap with other federal agencies, which we had outlined in our 1986 Report.

20.216 However, senior officials from the two departments then met and decided not to proceed with the proposed evaluation. To support the decision, several factors were cited, the principal one being that work on key issues to be addressed in the evaluation had already been done in a number of internal and external studies. Examples of these studies include the report of the Senate Committee on Energy, which reviewed the methods for transportation of Beaufort Sea oil; a study on the Assessment of the Impact of Regulatory Regimes on Oil and Gas Exploration on Lands North of 60; and the Task Force responding to the Ocean Ranger tragedy.

20.217 Although these studies addressed some of our concerns, many important issues raised in the evaluation assessment study and in our 1986 Report have yet to be satisfactorily examined. These include the overall performance of COGLA in achieving its objective of vigorous and responsible development, and the issue of co-ordination with other departments.

20.218 Both EMR and DIAND have now included an evaluation of COGLA in their long-term evaluation schedules, although there is no apparent consensus as to the timing of the evaluation. We encourage officials in the two departments to resolve the issue of timing and to undertake an evaluation of COGLA as soon as possible.

Social Sciences and Humanities Research Council

Introduction

20.219 The Social Sciences and Humanities Research Council (SSHRC) is a departmental corporation under Schedule B of the Financial Administration Act, reporting to Parliament through the Secretary of State. SSHRC's mandate is to promote and assist research and scholarship in the social sciences and humanities and to encourage excellence therein.

20.220 Our 1986 audit of SSHRC focussed on the management process, including management roles and responsibilities, general planning and human resource management, operational control, research communication and program evaluation. We identified problems in most of these areas and made seven recommendations.

Developments Since 1986

20.221 SSHRC has undergone significant changes in its staff since the time of our report. For example, it has been without a full-time President and Chief Executive Officer since December 1987. The duties of this position are being discharged in the interim by a member of the Council. In the fall of 1987 both the Director General of Programs and the Secretary of the Council left; we have been informed that the Secretary position will remain vacant until a new President is appointed. The Director, Policy and Planning, the Director of Research Communication and International Relations, the Director of Information, the Chief of Personnel and the Co-ordinator of Program Evaluation also left in 1987.

20.222 It is understandable that these changes have had a direct impact on the nature and timeliness of actions taken by SSHRC in response to our 1986 recommendations.

Scope of Follow-up

20.223 Our follow-up of the 1986 audit consisted primarily of a series of interviews with members of senior management and other officials of SSHRC. We reviewed documents such as committee minutes, including those of Council, procedure manuals, and management and independent consultant reports. Our examination also included, on a test basis, a review of the monitoring activity over completed grant research projects.

Overall Conclusion

20.224 As of April 1988, none of our recommendations had been fully implemented. However, bearing in mind SSHRC's significant personnel changes, its efforts to address our recommendations have been tangible. Because most initiatives have been taken recently and action is still under way, these issues will be further examined during a subsequent audit.

Summary of Observations

20.225 Our 1986 audit report contained a number of recommendations aimed at achieving the following improvements:

    - clarifying the managerial problem-solving process;
    - reducing delays in solving problems referred to Council;
    - developing and implementing operational and human resource plans;
    - establishing a follow-up and review system for completed research projects; and
    - systematically reporting the results of subsidized research projects.

Managerial Problem-solving Process

20.226 In 1986, we reported that SSHRC's day-to-day operations were frequently dealt with at all levels of management and there were notable delays in solving problems that were referred to Council. This increased the likelihood of inefficiency and jeopardized the best use of resources. We recommended that Council clarify the roles of different management levels and give appropriate consideration to problems brought to its attention. Neither of these recommendations have yet been implemented.

20.227 Although a draft document defining the roles and responsibilities of Council, the Executive Committee and the President is nearly complete, we have been informed that Council is awaiting the appointment of its new President as well as a revision of its by-laws before finalizing this document. Full implementation is expected in late 1988.

20.228 Our review of how Council has dealt with the delays in solving problems was limited to a follow-up of the examples illustrated in our 1986 report. Although SSHRC has taken the initiatives mentioned in this report, these problems have not been completely corrected.

General Planning and Human Resource Management

20.229 We recommended that SSHRC's senior management develop an overall annual plan defining its operational objectives and priorities and that it adopt a planned approach to managing human resources. Although neither recommendation has been implemented, SSHRC has made some attempts to address these weaknesses.

20.230 Council initially considered these observations in December 1986. Before developing the recommended plans, Council decided it needed a clearer sense of program priorities for the next few years. A task force made up of Council members was struck to define these priorities, and a second was formed in the fall of 1987 to continue the work. Among other things, this group was to design and propose new strategic programs. An interim report was tabled at the January 1988 Council meeting, at which time the idea of preparing a corporate plan for SSHRC for September 1988 was approved.

20.231 In addition, in June 1987 senior management approved the development of a coherent operational management infrastructure. In September 1987, the operations committee developed and presented a detailed working plan in support of this initiative. This project is ongoing and senior management expects that operational and human resource plans will be developed and implemented by the end of 1988.

Project Follow-up

20.232 In 1986, we recommended that management establish a follow-up system to ensure that grant projects have been completed and that any unused moneys are collected by SSHRC. In this area, progress has been made. In 1986, we reported that in 46 percent of cases reviewed complete follow-up had not been done. Our recent audit found that this percentage had declined to 18 percent.

20.233 We also recommended that, on a random selection basis, management perform a detailed review of completed projects to ensure compliance with grant agreements. In June 1986, a committee was established by Council to, among other things, review terminated major projects. As of April 1988, no review of completed projects had been done.

Results of Research

20.234 Our recommendation in this area called for senior management to provide Council with pertinent information at regular intervals on the results of research, and to make this information available to the research community and other interested parties.

20.235 Senior management considered running a pilot project to collect results of research from subsidized researchers for an initial period of one year. This information would then be added to a longitudinal data bank now under development. However, at the time of our follow-up, this project had not been initiated.

Program Evaluation

20.236 Although we made no specific recommendations in this area in 1986, we noted that the position of Co-ordinator of Evaluation was vacant. The position has now been filled.