1989 Report of the Auditor General of Canada

Main Points

15.1 Under the Canada Assistance Plan (CAP) the federal government shares 50 percent of the costs of eligible social service programs delivered by the provinces and territories. Federal payments were forecast at $4.5 billion for 1988-89 and a further $600 million is provided in tax transfers to the Province of Quebec (paragraph 15.6).

15.2 CAP expenditures are statutory and do not require annual parliamentary approval except for administrative costs. CAP is also open-ended; there is no ceiling on the amount of federal support that will be provided (15.10 and 15.11).

15.3 In our view, the documentation of monitoring and verification activities that we reviewed was not adequate to support the federal certification that costs reported by the provinces for federal cost sharing were eligible and in compliance with CAP agreements (15.23 to 15.55).

15.4 We noted considerable progress in two areas that we commented on in previous audits. The settlement of claims has been brought to a more current basis and program policies and procedures have been documented (15.56 to 15.60).

15.5 In our view, the lack of information regarding social programs funded by CAP continues to be a problem. Members of Parliament and CAP management are not receiving comprehensive and descriptive information about the impact of CAP. The annual report, required by law, has not been published since 1984-85. In our view, Part III of the Estimates can be improved significantly (15.61 to 15.83).

Introduction

Background

The federal government spends $5.1 billion as its share of the Canada Assistance Plan

15.6 The Canada Assistance Plan (CAP) is Canada's largest federal-provincial shared-cost program. CAP shares in the cost to the provinces and territories of providing social assistance to persons in need, and welfare services to persons in need or likely to become in need if they do not receive such services. While the federal government specifies conditions for cost sharing, provincial governments are responsible for the design and delivery of programs to the public. Federal payments to the provinces under CAP were forecast to be $4.5 billion in 1988-89. An estimated additional $600 million was to be provided via tax transfers to the Province of Quebec.

15.7 The Canada Assistance Plan Act became effective 1 April 1966. The wording of the CAP Act respected the provinces' jurisdictional responsibility for social programs. That is, the federal role was created as a passive or reactive one, limited to supporting provincial programs by contributing toward their cost.

15.8 All ten provinces had signed agreements under Part I of the Act by August 1967. Part II of the Act provided for the cost sharing of social services to status Indians living on reserve. Part III made provision for sharing in the cost of work-activity programs. No agreements have ever been signed under Part II of the Act and Part III agreements account for only a small percentage of CAP expenditures.

15.9 The Department has defined the objective of CAP in the Estimates Part III as being,

"To support the provision by provinces and territories of adequate assistance and institutional care programs for persons in need, and the provision by provinces and territories of welfare services programs which have as their objective the lessening, removal or prevention of the causes and effects of poverty, child neglect or dependence on public assistance."

Federal support is open-ended

15.10 CAP is an open-ended, shared-cost program. Open-ended means that there is no ceiling on the amount of federal financial support that will be provided. Canada will pay 50 percent of all provincial costs found to be eligible and shareable under the terms of the agreements.

15.11 CAP payments are statutory; that is, the spending authority is provided by the Act and does not require further parliamentary approval. Nonetheless, the forecast expenditures are included in the Estimates to provide Parliament with a more complete picture of spending plans. Operating expenditures for CAP, which are approved annually by Parliament, were forecast to be about $6 million in 1988-89, or roughly 0.1 percent of total expenditures. This included the salary costs associated with 104 person-years.

15.12 CAP expenditures relate to millions of individual transactions at the provincial and municipal levels generated through hundreds of eligible programs. There are roughly one million social assistance case files that account for approximately 70 percent of CAP expenditures. There are also 6,000 homes for special care and 5,600 welfare service agencies, all providing services to eligible persons.

Previous audits: some concerns have been addressed; other previously identified problems persist

15.13 We previously examined and reported on CAP in 1978, 1982 and 1985.

15.14 Some of the concerns raised in our earlier reports have been addressed. In particular, we found considerable progress in the settlement of final claims and the documentation of program policy and operating procedures. We observed, however, that problems persist in the verification of claims and the provision of program information.

Audit Scope

We concentrated on the federal administration and delivery of the Plan

15.15 Our audit concentrated on the federal administration and delivery of the Canada Assistance Plan, which is by far the largest activity managed by the Social Services Programs Branch. It accounts for 98 percent of expenditures and 36 percent of Branch person-years.

Monitoring and Verification of Compliance

The contribution agreement with each province specifies the conditions that are to be met

15.16 The legislated objective of CAP is to make contributions toward the costs of provincial programs. There is a contribution agreement in place with each province that provides for federal cost sharing of provincial programs if certain specified conditions are met. These conditions are:

(a) financial assistance must be provided to persons in need;

(b) provinces must agree that a period of residence in the province or in Canada will not be required as a condition of eligibility for assistance; and,

(c) provinces must establish, by law, a procedure for appeals from decisions with respect to social assistance.

CAP staff's main responsibility is to ensure that provinces conform with CAP agreements for purposes of cost sharing

15.17 Because the provincial governments are responsible for the design and delivery of programs, the main responsibility of CAP staff is to manage the contribution agreements by ensuring that provinces comply with the conditions for cost sharing and also that federal obligations are carried out as required. Obligations to the provinces include the payment of contributions and making available statistical and other program information.

(Exhibit 15.1 not available)

15.18 The 1989-90 Estimates Part III defines the federal responsibility for ensuring provincial compliance in more specific terms. "The main priority of headquarters and field staff is to determine shareability of provincial programs in accordance with the authorities. The second major activity relates to the review and audit of claims under CAP...."

15.19 CAP management monitors and verifies provincial compliance through the reviews by the CAP field operations staff on questions of eligibility and shareability, and by contracting for an audit of the accuracy of claimed costs.

15.20 Each month the provinces submit claims for cost sharing to the federal field offices. These are reviewed by the field office staff and submitted to headquarters for payment. Within a year or more after the end of the fiscal year, the provinces summarize the total shareable costs on a final claim, duly certified by the province and an auditor designated by the province.

15.21 The Federal Field Representative (FFR) then certifies that the final (summary) claim received "...represents fairly the eligible and shareable assistance and welfare services as provided in the Canada Assistance Plan Agreement". The accuracy of the costs on the final claim is verified by an audit at the federal level arranged for by CAP headquarters.

15.22 Any disagreements between the province and CAP headquarters over final claims are subject to negotiation. When agreement is reached, a letter, accompanied by a schedule, is forwarded to the province to confirm the adjustments. This finalization of a year's contributions is known as claims settlement.

Planning and Control

15.23 We observed weaknesses in the planning and documentation of monitoring and verification activities. In particular, we concluded that the Federal Field Representative's certification was not supported by the records and files we examined.

The planning process is incomplete

15.24 The planning process that supports the compliance activities is incomplete. There is no description of the overall planned approach showing, for example, how the review activities at provincial and federal levels combine to provide assurance that cost- sharing conditions are met. In the audit area, CAP management has now begun to work with some provinces to plan an improved approach to audit activities.

15.25 The Field Operations Division had a formal work-planning process in place during 1988-89. There are plans to have a Branch-wide planning process in place for 1989-90.

15.26 Monitoring and verification activities were not supported by performance measurement systems. There are plans to develop such systems during 1989-90 in conjunction with the revised work-planning process.

Conditions for Cost Sharing

We found instances of apparent non-compliance

15.27 As required, the final CAP claim and certificate signed and submitted annually by each province provides a general statement of compliance. None of the claims we examined noted any exceptions in terms of compliance.

15.28 Although our audit focussed on the federal administration of CAP, we did become aware of some instances of apparent non-compliance by provinces with the CAP Act. We found nothing to indicate how these instances were considered to be in compliance with the Act and the stated federal objectives of CAP.

Difficulties exist as to the definition of adequacy

15.29 Provinces can extend cost-shared social assistance to all persons in need, regardless of the cause of need. Individual eligibility is determined by the application of a provincial needs test that takes into account a person's net budgetary requirements. Provincial or municipal assistance rates are intended to provide for the basic requirements of the recipient.

15.30 The CAP Act does not specifically require that provincial assistance rates be adequate to provide for the basic requirements -- food, shelter, clothing, utilities, household supplies, and personal requirements. CAP cost shares assistance regardless of the level or adequacy of the rates. However, the objective of CAP calls for federal funding in support of adequate assistance.

15.31 A recent illustration of the complexity of assessing whether assistance rates are adequate to provide for basic requirements is the Finlay case. There the Federal Court of Canada ruled that CAP payments to a province were illegal so long as an allowance was reduced below the level of basic requirements as determined by the province in order to collect debts for overpayments. The federal government is appealing this ruling. The Department of Justice filed notice in the Federal Court of Appeal in April 1989.

15.32 We noted that in another province certain applicants could be provided with an amount less than the rate of assistance set by provincial law for basic requirements. This is normally done to encourage or discourage certain actions on the part of the recipient.

There are inconsistencies relating to residency requirements

15.33 Under the provisions of the CAP Act and agreements, a province shall not require a period of residence in the province to be a condition of eligibility for assistance. The intent of this provision is to ensure that persons in Canada who move from one province to another should have immediate access to assistance as required.

15.34 An exception to the Act has resulted from an understanding between the Department of National Health and Welfare and the Department of Indian Affairs and Northern Development that exempts provinces from applying the "no period of residence" condition to status Indians until they have established residency off reserve, usually for a period of 12 months. In one province, we found that municipalities also require applicants who are status Indians to prove that they were self-sufficient for that same period before qualifying for assistance. In that province the federal government, in effect, pays for almost the full cost of assistance to status Indians regardless of where they live.

15.35 In 1988, in our chapter on Indian Affairs, we reported that the Department made "...payments of approximately $50 million for social services to status Indians living off reserve who have not met provincial residency requirements for assistance". We were advised by CAP management that this did not result in a denial of assistance to anyone. However, if the arrangement regarding status Indians with provincial governments had not existed, the cost to the federal government would have been only $25 million, that is, 50 percent of the shareable costs.

15.36 Another instance of a residency restriction came to our attention. In that jurisdiction certain individuals may be required to have established residence for 12 months prior to application for assistance or have been employed there for 3 of the previous 12 months before applying for assistance.

15.37 The amounts involved in these instances may be small relative to total CAP payments. Nonetheless, we believe that where program delivery practices may be at odds with CAP legislation, they should be explicitly addressed either by enforcing the legislation or changing it, rather than by administrative policy.

15.38 Instances of possible non-compliance with the CAP Act should be investigated. The Act should be complied with, or amended if required.

Department's response: The program does not, nor can it contest provincial interpretation of provincial legislation. This finding (paragraph 15.32) is based on an interpretation of provincial law by the Auditor General, different from that by the Province as explained to CAP officials.

The Department is satisfied that it investigates areas of potential non-compliance, once it becomes aware of them, and that the investigations are appropriate to the circumstances in each case. The recommendation is overly simplistic as it recognizes neither the complexity of the legislation involved nor the difficulty of consistently applying its terms and conditions for sharing with twelve independent jurisdictions. The Department agrees with the Auditor General's comment that the amounts involved are not significant.

The outcome of appeals should be monitored

15.39 Provinces comply with the requirement to have an appeals procedure in place for social assistance cases. However, CAP field staff do not consistently monitor the outcomes of provincial appeal tribunals to determine whether rulings raise questions regarding compliance of provincial policy with the CAP Act. We also noted that some provinces had established limits on the appeals process. CAP management was concerned that these limits should not unduly restrict the application of appeal provisions in the CAP agreements. We were advised that CAP management intended to examine these limits to ensure that provinces were still in compliance with the CAP agreements.

Field Operations

15.40 The CAP Directorate maintains field offices in nine provincial capitals. These field offices are headed by a Federal Field Representative (FFR) supported by field officers and eligibility clerks. Their primary functions are federal/provincial liaison and the certification of provincial claims.

15.41 Claims certification, as outlined in a Field Operations Division December 1985 planning document, consists of the following activities:

• establishing that claims are shareable and that they are based on costs that can be identified in financial records, and
• verifying eligibility and shareability of amounts claimed.

There are shortcomings in the review process

15.42 Annual work plans are prepared by each of the FFRs. They describe the various review activities undertaken in support of the certification of provincial claims. The work plans are not based on an assessment of the relative value of the various types of review activities, or of the minimum amount of review required.

15.43 The review of social assistance case files is one of the claims certification activities. A sample of files is selected and reviewed to ensure that the recipient is eligible for and entitled to the benefit. The planning process does not require documentation of how the sample of case files is to be selected for review or how the number of files for review has been determined.

15.44 The actual number of files reviewed for 1988-89 in most regions was much lower than planned. By March 31, the end of the fiscal year, only 25 percent of the 24,475 planned case file reviews had been completed. In the previous year, 66 percent of the plan was accomplished. We found that neither the regions nor headquarters analyzed the cause or effect of this situation.

15.45 Some regions plan for field trips to various areas in their province. Others limit their review primarily to files located in the provincial capital. Planned trips are sometimes cancelled because of cuts to travel budgets. Changes to these planned review activities are not analyzed to determine the impact on eventual certification of the final claim. Most of the quarterly status reports that we reviewed did not provide explanations for variances from the review plan.

15.46 The review work performed by the field offices provides the support for certification of final claims. Although the written record of what work was done by the field staff varies from region to region, generally it does not fully show what tests were conducted. The records do not include information on determination of sample size, rationale for selection, or description of the tests performed.

Federal Audit of CAP

There is no national assessment of audit requirements

15.47 Audit is another part of the overall review effort directed at ensuring the propriety of provincial claims. Although review work by the federal field staff is carried out on an ongoing basis, the audit is conducted only after a final claim, certified by a provincial auditor, has been received for settlement. At present, CAP management does not rely fully on the opinion of provincial auditors with respect to the accuracy of costs or of their eligibility and shareability. As a result, CAP management contracts for a federal audit in the provinces and territories. The 1988-89 budget for audit was approximately $1 million.

15.48 There is no overall planning document that assesses audit requirements as a basis for developing the annual audit budget. Without this documented assessment, it is difficult to determine whether the amount of audit is too much or too little.

15.49 We found that CAP management has a well-documented process for the follow-up and resolution of audit findings.

New initiatives are underway

15.50 CAP management is working to better co-ordinate the different levels of audit that address the programs and costs claimable under CAP. For example, in one province, a public accounting firm conducts a review of claimed costs on behalf of a federal/provincial audit and settlement committee.

15.51 During the past few years, field operations staff have been developing a new approach for their review activities. This approach starts with a listing of all approved provincial programs and the identification of specific programs for detailed review by the FFR. The process improves on the current planning by clearly identifying the total population subject to review and by establishing review priorities.

15.52 We believe that the guidelines could be improved if they included reference to a process for co-ordination of audit and review at the federal or provincial level, and for appropriate reliance on this work. The guidelines could also specify what documentation staff performing reviews should include in their files as evidence of the work performed.

Recommendations Related to Monitoring and Verification

15.53 An overall planning document for monitoring and verification of compliance should be developed on a province-by-province basis. It should include an identification of audit and review activities at federal and provincial levels, and an assessment of the extent to which CAP can rely on the results of these reviews.

15.54 The nature, extent and timing of planned and actual review work should be documented.

15.55 Variations from annual review plans should be analyzed and the results used in updating the review plans.

Department's response: Paragraph 15.21 does not adequately reflect the complete process. The FFR's certification is invariably accompanied by a long form report which notes exclusions from the overall certification, areas of concern to be covered through further verification process, and areas which require policy interpretation to be addressed through the issue resolution process.

The Department does not contest the auditor's comment on the documentation of monitoring and verification processes. It does however consider that the planning of the process is complete in that it takes into consideration local conditions, problems, and opportunities and is aimed at providing a level of assurance consistent with the requirements of Central Agencies for the stewardship of federal contributions.

This report does not adequately reflect that the overall verification process leading to certification is effective. The Department accepts the comment and is now working to improve documentation.

Claims Settlement

There has been considerable progress toward achieving settlements on a timely basis

15.56 In the last two years there has been considerable progress in bringing settlements to a more current basis. The two largest provinces, however, are still considerably in arrears. As of 31 March 1989, Quebec was five years in arrears, and Ontario, seven. Until such time as settlement is reached, the payments to provinces continue to be in the nature of advances. However, we noted that when final settlements are reached, the adjustments required are relatively small when compared to total payments.

15.57 Issue resolution committees have been recently introduced in most provinces. These new federal/provincial committees are to resolve issues on a more timely basis, thereby keeping settlements more current.

Department's comments: The Department has noted that this Report does not give, in is view, adequate recognition of the factors which have caused this result. The fact that required adjustments are relatively small, at time of final settlement, is directly attributable to the overall verification process which incorporates audit on behalf of CAP, audit on behalf of the provinces, work carried out by the federal field representatives and the work of the federal/provincial issue resolution committees.

Manuals and Guidelines

Some progress: more work still to be done

15.58 Since 1978, when we first reported the need for documented procedures and guidelines, considerable progress has been made. These documents contain two types of instruction. They specify what activities are acceptable for cost sharing, as well as the procedures to be followed by CAP staff, primarily the field office staff.

15.59 At the end of our audit, the policy manual, which was to have been formally released in November 1985, had not yet been released to the provinces.

15.60 We found that there were no formal procedures in place for the revision and updating of manuals and guidelines.

A Lack of Information

15.61 The lack of information regarding social programs funded by CAP is a long-standing issue. Over the years there have been many studies and reports that recommended various actions to improve CAP-related information.

15.62 There has been limited action by CAP management to identify the information requirements of potential users of information about the operations and results of CAP, and to examine and meet their needs. For example, the information requirements of Members of Parliament (MPs) and the provinces (for national data) have not been defined.

Little information on program results

15.63 Comprehensive and descriptive information about the operations and impact of CAP is essential for informed consideration of this major federal program and its relation to other social security programs. However, MPs and others are not currently receiving such information.

15.64 Given the Department's stated objective for CAP, the most serious information gap may be the lack of information on program results. Why do individuals require assistance; how often; for how long? What programs have proved most or least effective in reducing reliance on welfare? Improved information regarding the causes, extent and effects of poverty and the impact of existing programs is necessary to evaluate the impact of federal cost sharing on Canada's social security system.

15.65 Because provinces design and deliver assistance and welfare services programs, it can be difficult for federal field staff to obtain information on the extent to which provincial programs achieve their stated objectives. However, the CAP agreement with each province provides that CAP management may request any information on the administration and operation of CAP that is practicable for the province to provide. This gives CAP management the right to an active role in obtaining information which could be used for planning and evaluation purposes. CAP management is now requesting such information under the CAP agreements to develop a national data base.

(Exhibit 15.2 not available)

15.66 Since its inception, no program evaluation of CAP has been carried out. In April 1989, an evaluation assessment report, prepared by the Department, recommended that a program evaluation of CAP be conducted. Following consultation with the provinces, agreement was reached to proceed with an evaluation study that is scheduled to be reported early in 1990.

Inadequate reporting

15.67 There is presently a lack of opportunity on an ongoing basis for MPs and others to review and consider the results of CAP. Part III of the Estimates should provide information on how dollars will be spent to achieve objectives, and on performance related to past spending. The annual report is intended to provide an opportunity for parliamentary review of CAP operations and payments under each of the agreements under the Act. Neither of these documents is accomplishing its intended purpose.

Estimates Part III: an opportunity for additional and fuller information

15.68 The reporting of the operations of CAP and its effects is incomplete. The federal government specifies conditions for cost sharing. Other than the review and audit of claims, Part III of the Estimates gives no indication how these conditions for cost sharing are monitored or the extent to which they are being met.

15.69 In June 1988, the Deputy Minister approved a new mandate for the Social Services Program Branch and its directorates, including CAP. The thrust is "to develop, promote and implement social welfare policies and programs which support and advance the well-being of the people of Canada." The program objective for CAP, as stated in the Estimates Part III, does not reflect this new proactive mandate.

15.70 The impact of the statutory nature of CAP is not explained in Part III. The narrative material does not inform MPs that they are voting only the operating costs, which account for roughly 0.1 percent of CAP's total costs.

15.71 Our comparison of CAP Main Estimates and actual expenditures for 1983-84 to 1987-88 indicated that the projections of CAP expenditures for the last five years were fairly accurate (low of 1 percent and high of 4.7 percent variance).

15.72 With respect to the number of individuals who benefit from CAP-funded programs, the Part III reports only order-of-magnitude information. The same figures have been reported for many years and give no indication of trends that may be developing in the recipient population. For example, the 1989-90 Part III reported "...assistance benefits to just over 2 million Canadians and welfare services to approximately 500,000 persons". These same figures appeared in the four previous Part III documents.

15.73 We believe that the presentation of additional information, such as trend data on the number of beneficiaries and poverty levels and comparative figures on assistance rates, would assist MPs in their consideration of program effectiveness. The Part III does not indicate where or how additional information may be obtained on CAP. Two examples of useful publications that could be referred to are the Inventory of Income Security Programs in Canada and Social Security Statistics. Both of these documents are produced by the Policy, Communications and Information Branch of the Department from information received from the provinces.

(Exhibit 15.3 not available)

Annual report: a requirement unfulfilled

15.74 The legislated requirement to produce a CAP annual report has not been met since 1984-85. It had been intended to do a 20th anniversary edition in 1985-86. At the time of our audit, it was not known whether, or when, an edition combining the missing years would be produced to comply with the legislated requirement.

15.75 In 1984-85, the annual report contained little more than the information provided in Part III of the Estimates. Earlier reports gave an overview of the income assistance and welfare services activities in each province as well as highlighting CAP activities for the period.

Problems with data collection

15.76 There are difficulties in collecting information. Federal/provincial program definitions are not harmonized and categories of recipients and beneficiaries are not consistent between provinces.

15.77 Also, turnover of clients is substantial with no mechanism to capture the number of individuals who actually benefit over the year. For example, the one million social assistance cases reported by CAP is at a specific point in time. This figure does not convey a sense of how many short-term recipients there may be throughout the year.

No national strategy: information is fragmented

15.78 Since the early 1970s, the Policy, Communications and Information Branch (PCIB) of the Department has funded up to 100 percent of provincial development costs for management information systems. In addition, CAP funds 50 percent of their computer- operating costs. PCIB contributions to date have totalled approximately $20 million.

15.79 Although CAP and PCIB have paid a large portion of the costs of these systems, there is no national strategy for data collection and usage in place. As a result, the data received from provinces is fragmented and difficult to roll up on a national basis. For example, there is no one set of categories common to all jurisdictions with respect to reasons for receiving social assistance.

15.80 Some information is available to CAP management through PCIB. For example, PCIB receives information from provinces that describes program objectives, eligibility criteria, and benefit types and levels. In addition, it receives statistical information on the demographics of provincial caseloads, depicting who the recipients and beneficiaries are -- for example, the disabled, the elderly, the unemployed, single parents, and children.

15.81 This information needs to be analyzed in order to provide a national picture of assistance and welfare services programs and beneficiaries. It could be included in the Estimates Part III, annual reports and other publicly-available documents.

Recommendations Related to Information and Reporting

15.82 CAP management should develop and report more comprehensive information on CAP-related activities and results.

15.83 The CAP Annual Report should be prepared as required by law.

To Sum Up: Accountability is Difficult But Can be Improved

15.84 CAP was designed as a financial support program to make payments to the provinces to share in their costs for providing social assistance and welfare services. The very nature of this type of shared-cost program imposes some limits on the extent to which those administering it at the federal level can be held accountable for its overall costs, other than administrative costs, or its results.

(Exhibit 15.4 not available)

15.85 Initiatives are underway to improve some aspects of CAP's administration. Some areas, particularly those relating to the monitoring of compliance and claims verification, can be further improved. We also believe that CAP management can play a more assertive role in information gathering, analysis, and reporting. We believe that this is essential if better accountability for $5.1 billion in federal expenditures is to be achieved.