1989 Report of the Auditor General of Canada

Main Points

26.1 The follow-up chapter reports on the actions taken by departments and agencies in response to our past observations and recommendations. We give a mixed report card. In some cases considerable progress has been made, while in others it has been slow.

26.2 1986 Audit: In three of the four program areas in the Department of Agriculture that were audited in 1986 ,reasonable progress has been made. The fourth -- Farm Income Services -- is presently the subject of a major policy review (paragraphs 26.16 to 26.21).

26.3 1987 Audits: National Revenue - Customs and Excise has addressed most of our recommendations; however, some issues have not been fully resolved (26.22 to 26.32).

26.4 Action has been taken at the Department of Energy, Mines and Resources on a number of problems identified in our report. But major challenges remain. Continuing problems involve inadequate information at the corporate level and for planning, managing and reporting on new initiatives (26.33 to 26.39).

26.5 Progress has been slow in implementing major changes to processes and systems needed to address the concerns identified in our audit of common administrative systems at the Department of External Affairs. The Department states that factors beyond its control within the federal government have contributed to delays (26.40 to 26.68).

26.6 The Department of National Defence is taking action on most of our recommendations. Many of the initiatives are longer-term and it is important that interim measures be pursued and enhanced. The Department has assisted the follow-up by submitting to us semi-annual reports on progress (26.69 to 26.83).

26.7 Satisfactory progress has been made by Canada Employment and Immigration Commission in the area of financial information systems. But no policy on financial analysis for new programs has been put in place. Little progress has been made in two other areas (26.84 to 26.101).

26.8 Our follow-up of Special Audits finds that progress has been satisfactory in Risk Management. Progress has been made in the use and management of Microcomputers. We are going to audit again in 1991(26.102 to 26.112).

Introduction

26.9 This is the fifth year that we have reported on the status of action taken by departments and agencies in response to the Office's observations and recommendations.

26.10 We found that the progress in taking corrective action varied among departments. In some cases considerable progress has been made, while in others it has been slow. However, 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 to correct the deficiencies noted.

26.11 Follow-up results on Emergency Preparedness (Special Audits Chapter) and Department of Supply and Services audits are contained in Chapters 27 and 21 respectively of this report.

26.12 The follow-up audit on the 1987 Financial Management and Control Study is reported in Chapter 25.

26.13 Because the findings in the follow-up of the 1987 Management Category Chapter were extensive and wide-ranging, these have also been reported separately -- in Chapter 8.

26.14 A follow-up report on the 1987 Department of National Defence audit of Major Capital Projects has been deferred because the area is included in audit work currently under way and scheduled for reporting in 1991.

26.15 The follow-up of the 1987 National Health and Welfare audit has been deferred to 1990, when the areas covered in the 1987 chapter will be the focus of our audit activity in that Department.

Department of Agriculture - 1986, Chapter 8

Background

26.16 The 1986 audit of the Department of Agriculture reported on a number of diverse program areas:

• Farm Income Services, including Crop Insurance and Western Grain Stabilization, which administers payments designed to protect farm assets in the short run.
• The Research Branch, including the management of its research operations, major capital projects and human resources. The Branch is responsible for maintaining and improving the productivity of the agri-food sector through developing and transferring new knowledge and technology.
• Prairie Farm Rehabilitation programs addressing rural water development, community pastures, and emergency drought assistance for livestock and crops.
• The management, handling, storing and disposing of toxic waste and hazardous materials from laboratories and research facilities.

26.17 The 1986 Report made recommendations in each of these program areas. It was discussed at two sessions of the Public Accounts Committee in April 1987. The Committee was concerned with the Department's slow progress in implementing recommendations from our 1982 audit, as well as its response to our 1986 audit, and asked the Department for a report on its progress, as of 31 December 1987, in implementing our recommendations. The Department of Agriculture submitted the progress report; because its target date for completing many of our 1986 recommendations was October 1988, we scheduled our follow-up audit for 1989.

26.18 Our purpose was to determine whether the Department's efforts in implementing our 1986 recommendations represent reasonable progress and are consistent with commitments made to the Public Accounts Committee. We did not attempt to evaluate the success of the Department's efforts in correcting the problems we identified in 1986.

26.19 Our follow-up findings are based on a management representation we requested from the Deputy Minister of Agriculture outlining the Department's actions to December 1988 in respect of each of our 1986 recommendations. We verified this by examining the documentary evidence cited by the Department in support of its statements of progress, and we conducted limited interviews with program managers.

Conclusion

26.20 Based on our review of the Department's management representations to us, except for progress in the Farm Income Services area as described in the following paragraph, we believe there has been reasonable progress overall in implementing our 1986 recommendations. Progress in some areas has not been as rapid as the Department originally anticipated in its responses to the Public Accounts Committee. However, the Department has indicated that this slippage is due, in no small part, to the scope and complexity of the tasks involved.

26.21 In the Farm Income Services area, while significant progress has been made, many of the structural problems related to our recommendations remained unresolved at the time of our follow-up. However, a major policy review, encompassing all the programs in this area, is in progress. This review was initiated by the Minister, and its terms of reference include virtually all the areas of concern with respect to these programs raised in our chapter. The final resolution of these matters awaits the results and recommendations of the policy review, to be presented to the Minister.

Department of National Revenue - Customs and Excise - 1987, Chapter 5

Background

26.22 Our 1987 audit of the Department of National Revenue - Customs and Excise was part of the government-wide study of financial management and control. We audited the revenue systems and the planning, budgeting and reporting framework, including a review of the financial and internal audit functions and the Memorandum of Understanding with Treasury Board. We also reviewed two financial information systems and the remission programs.

Conclusion

26.23 The Department has addressed most of the recommendations made in our 1987 Report. However, some issues in certain areas have not been fully resolved. Three of our recommendations on remission programs were directed to the Department of Finance and the Department of National Revenue - Customs and Excise. Significant improvements have also been noted in some of these areas.

Observations

26.24 Operational Plan Framework. The Department, the Treasury Board Secretariat and the Office of the Comptroller General have been working together to update the Departmental Accountability Regime which includes a revised Operational Plan Framework. This document has been approved by the Secretariat and the framework component has been formally approved by the Treasury Board. The Department has included new program performance indicators which will provide more meaningful information to Parliament, senior management and the central agencies. Some of these indicators have been developed and implemented; for example, indicators relating to revenue, accounts receivable, tax change and percentage of accounts audited in the Excise Branch. Program effectiveness indicators and qualitative performance indicators on the effects of facilitation initiatives and level of service are continuing to be developed and refined.

26.25 Financial function. The financial function is now playing a stronger role at Customs and Excise. Some examples of this are an improved performance measurement framework in the Departmental Accountability Regime, improved information in Part III of the Estimates and a new Project Manager's Handbook.

26.26 Managing initiatives. The Department has taken steps to improve the quality of financial analysis to support initiatives. The new Project Manager's Handbook, issued in early 1989, includes improved guidelines on preparing feasibility studies and cost benefit analyses. We have not had an opportunity to review the financial analysis for initiatives prepared since the Handbook was issued.

26.27 Internal audit. Internal audit has strengthened its activities in the areas of audit planning and computer auditing. The Internal Audit Long Range Plan is now structured according to the Operational Plan Framework. The number of audits of computer systems has increased. The Department has started to strengthen the computer auditing capability through staffing and training and is continuing its efforts in this area.

26.28 Information to Parliament on remission programs. The government has taken steps to improve the information Parliament receives on remission programs, but there is still little information available on the results that have been achieved. Semi-annual reports on new remission orders and details on all remission orders over $20 million are now required to be tabled in Parliament. The reporting of remission orders in the Public Accounts was revamped. Starting with the 1988-89 Public Accounts, departments will report remissions at the Order-in-Council level rather than reporting those in excess of $1,000 by beneficiary. National Revenue - Customs and Excise has included some information on remissions in its 1989-90 Part III of the Estimates.

26.29 Evaluation of remission programs. The Duties Relief Act, which brought together five major remission programs, was repealed and replaced by sections of the Customs Tariff proclaimed in January 1988. The Department of Finance indicated that many other remission orders will be eliminated as a result of the Free Trade Agreement between Canada and the United States. As a result, it is the Department's view that remission programs have been or will be terminated; that the value of tariff remissions will be reduced from $1 billion to $50 million-$100 million annually by 1998; and that further cuts in this annual total will be made by continuing to convert remissions into statutory provisions. The Department of Finance advised us that since its evaluation resources are limited, it intends to use these resources to examine other tax measures of a continuing nature and greater significance. In our opinion, although many of the remission programs form part of the Customs Tariff, remissions such as those relating to the machinery program and other remission orders should continue to be evaluated from time to time to ensure that they are achieving the results expected of them.

26.30 Cumbersome remission process. The government has streamlined the tariff relief process. Section 101 of the new Customs Tariff authorizes the Governor in Council, on the recommendation of the Minister of Finance or the Minister of National Revenue, to remit taxes by order. There is no longer a need for the President of the Treasury Board to recommend the remission. The Department of National Revenue - Customs and Excise has informed us that it is developing internal procedures for using its Legislative Index System to improve the efficiency and effectiveness of processing Orders-in-Council.

26.31 In the April 1989 federal budget, the Minister of Finance announced the conversion of several long-standing remission orders to statutory provisions. The Budget Papers stated that the conversion will provide the business community with greater certainty regarding tariff relief and will relieve the administrative burden which the remission orders place on the importing community.

26.32 Special temporary entry remissions. Regulations were drafted by the Department of National Revenue - Customs and Excise and published in the Canada Gazette on 4 February 1989 with respect to special temporary entry remissions. The Department has informed us that the regulations are expected to eliminate the need for more than 80 percent of the special Orders-in-Council pertaining to temporary entry.

Department of Energy, Mines and Resources - 1987, Chapter 7

Background

26.33 At the Public Accounts Committee hearing in 1988, the Department indicated that it had taken action to address our report. We found that many significant managerial and organizational changes are under way in Energy Mines and Resources. However, the Department has not developed a plan for implementing the specific recommendations in our report, nor monitored progress toward achieving improvements. Although action was taken to correct a number of problems listed as specific examples in our report, major challenges remain.

26.34 Our 1987 audit focused on six main issues. We followed up five of these issues this year. We will follow up on information in the Estimates, Part III, next year.

Progress was satisfactory in three areas:

• financial management at the branch level;
• financial controls; and
• management of the informatics function.

However, there was little progress in two areas. These will require further follow-up:

• inadequate information at the corporate level; and
• inadequate information for planning new initiatives.

26.35 Some progress regarding corporate level information has been made since 1987, notably the signing of a Memorandum of Understanding on Increased Ministerial Accountability and Authority in June 1989. However, the accountability accords between the Deputy Minister and the Assistant Deputy Ministers, and other reports provided to the Deputy Minister include few specific targets, measures of efficiency or levels of service. As a result, we could not conclude that corporate management and staff critically challenge the Department's resource base each year.

26.36 The Department has not established guidelines for planning, managing and reporting on new initiatives. There are still inconsistencies in the quality of information for these purposes for two of the initiatives that we reported on in our 1987 Report.

26.37 Processes used to plan, manage and control work at the branch level, which we found to be generally satisfactory, are essentially unchanged since our last audit. However, information collected and reported at the project and branch level should contain more performance information.

26.38 Specific examples of financial control weaknesses cited in our 1987 Report, have been corrected. However, asset valuation and the system for accountability for assets are very much in need of restructuring. As the result of a recent internal audit, materiel management has developed an implementation plan to address weaknesses.

26.39 Information technology services at the corporate level have been reorganized in a single branch. This will help provide a focal point for planning and monitoring information technology in the Department.

Department of External Affairs - 1987, Chapter 8

Background

26.40 Our 1987 audit of the Department of External Affairs examined common administrative services, including the Finance and Administration Branch, Personnel Branch, Corporate Management Bureau, Internal Audit and Program Evaluation, and related functions at posts abroad. We did not examine the organizational structure of the Department within which these services are provided. In this follow-up exercise, conducted mainly from January to March 1989, we discussed with management in Ottawa the steps the Department had taken to implement our recommendations and reviewed the documentation provided to us on the progress it had made since 1987. We also visited two posts to examine progress at that level.

Conclusion

26.41 Progress in implementing major changes to processes and systems which address our concerns has been slow. There are delays in the multi-million dollar COSICS on-line secure information and communication system, in the implementation of the FINEX financial accounting system -- particularly at posts abroad -- and in improvements to planning and monitoring of post operations and the PERNET personnel information system. Managing real properties abroad and simplifying the Foreign Services Directives are other areas in which improved processes and systems have not been fully implemented. Furthermore, there has been a delay in negotiating an Increased Ministerial Authority and Accountability (IMAA) agreement with Treasury Board. We remain concerned that the Internal Audit Division has not fulfilled its comprehensive audit mandate and that there have been few significant studies that measure the effectiveness of External Affairs program activities listed in Part III of the Estimates. The Department stated that factors beyond its control within the federal government have contributed to delays.

Observations

26.42 The Department of External Affairs is responsible for protecting and promoting Canadian interests abroad and ensuring that the domestic policy developments of other government departments are consistent with Canada's international obligations and foreign affairs interests. The Department points out that these responsibilities, together with the impact of decisions of foreign governments, produce an environment of continuing flux in which long-term planning is difficult and priorities must be constantly reordered and resources reallocated. Recent examples quoted by the Department include the decision of the government to decentralize the aid delivery program to missions abroad, the consequences of international terrorism and political and economic repression on the delivery of the immigration program, and the decision of certain foreign governments to relocate their capitals.

Financial Management and Control

26.43 Changes are slow in the planning and control of program delivery. Many of External Affairs' activities are of a policy development nature. However, program delivery in areas such as immigration, trade, consular services and aid is becoming an increasingly significant aspect of operations in Ottawa and missions abroad. We pointed out in 1987 that the planning process for program delivery required improvements such as development of alternative management strategies at the program level, operational plans -- particularly at the post level -- that were precise enough to use in managing operations, and proper monitoring of the implementation of plans. The Department told us that it had been gradually changing the planning process to add these features.

26.44 We found that these changes have been slow. At the time of our follow-up, the Department was planning to introduce an integrated work planning and reporting system within the headquarters and mission operational planning process, with complete implementation expected for reporting in 1991 under the Increased Ministerial Authority and Accountability (IMAA) regime.

26.45 At that time, however, the Department's efforts had not resulted in significantly better operational planning, monitoring or resource allocation processes. Inconsistencies remained in the quality of annual work plans for individual posts for certain activities. Levels of service were not always clearly defined. The Department had been generating substantial data from its various tracking systems and was assessing their usefulness for planning and monitoring operations. Data collection processes appeared to satisfy the requirements of the Treasury Board and other government agencies for more quantitative information on workload. For activities such as consular and trade, the information gathered was not always independently validated for accuracy, completeness and consistency among posts. The budget process largely continued to be based on existing staffing and perceived need, rather than on a less subjective analysis of the range and extent of services that will be provided at posts abroad for such activities. The planning process has not changed significantly despite the growth in available data. We are told that the proposed changes related to the IMAA process will provide a stronger basis for planning and control. The Department's response has been that, to the extent possible, appropriate measures have been taken to improve planning systems to allow the Department to manage its programs better in the unpredictable environment in which it operates. Deadlines established for implementation of improvements have been agreed to by senior management and necessary resources will need to be reallocated to ensure these are achieved.

26.46 Financial information systems are still being implemented. We were concerned that financial information at External Affairs was being produced on three separate systems, posing problems of incompatibility, duplication and lack of aggregation of information. The Department s still in the process of implementing its new computerized financial accounting system (FINEX) in Ottawa and abroad; it is therefore too early to comment on the results. The outputs in the form of reports to management have not been fully designed, and implementation at the posts is dependent on COSICS. As a result, black book systems will continue to be used in Ottawa and the posts until the new system is fully implemented and users develop more confidence in it.

26.47 The method of allocating costs of passport operations has been revised. We recommended in 1987 that the Department ensure that the cost of passport operations at missions was appropriately estimated and recorded in the Passport Revolving Fund. The costing formula has now been revised.

26.48 Information on capital expenditures is better but not complete. We pointed out in 1987 that the information on capital expenditures presented in Part III of the Department's Estimates was not complete and did not provide continuity with information presented in prior years. Although a schedule of distribution of capital expenditures, and continuity with prior years' information have been added to the 1988-89 Estimates, the information is still not complete since only $62.2 million of the $94.8 million budget is explained, and information on minor capital expenditures has not been included.

26.49 Reasonable progress has been made in control over monetary assets. We identified a need for the Department to improve its monitoring and reporting of monetary assets to ensure that records are complete and cash on hand is kept to a minimum. Reasonable progress has been made in controlling working capital advances to missions, medical loans and security deposits as well as preparing a central registry of debentures, as we suggested.

26.50 Control is still needed for surplus materiel. We recommended that the Department ensure that surplus materiel is properly controlled and adequate materiel records are maintained. We continue to be concerned that inventory records at missions are not universally maintained and kept up to date. Practices for ensuring the proper control of surplus materiel at the missions have not significantly changed. For example, it often remains unrecorded and inventory records do not indicate its age, although this is required to support replacement decisions. Procedures are still needed at headquarters for monitoring mission compliance with departmental regulations on disposals.

Real Property

26.51 Roles and responsibilities. We commented in 1987 that the lack of clearly defined and communicated roles and responsibilities was affecting the Department's ability to manage its real properties. We noted instances of weaknesses in the accommodation planning processes, the monitoring of departmental staff quarter accommodation costs, the adherence to staff quarter standards, and the issuing of guidelines on property management to missions. We recommended that the Department clearly define and communicate appropriate roles and responsibilities for planning and monitoring accommodation.

26.52 Progress in this area has also been slow. In March 1989, the Department started a detailed review and evaluation of its management of accommodation, including its long-range capital plan. The scope and objectives of this study address the issues raised in our 1987 Report, including clearer definition and communication of roles and responsibilities for managing real properties abroad. It has not changed its existing delegation of authority pending completion of this study, scheduled for September 1989.

26.53 Management of property abroad is still reactive. We noted in 1987 that management had not been achieving its objective of increasing ownership of accommodation and reducing rental costs abroad. We recommended that the Department further improve its accommodation planning process by ensuring that inputs to the long-range capital program result from systematic review of current holdings, accommodation needs and costs. This situation has not significantly changed. The involvement of missions in the staff accommodation purchasing process has not been significant. We were told that, while the process of determining needs and reviewing holdings of staff accommodation has begun, adequate planning will not be possible until there is an agreed staff quarter profile for each mission.

26.54 The tendency to manage the capital expenditure program on an ad-hoc basis has continued. Information on missions' accommodation needs, to help set priorities, is not substantially better. Priority areas for acquisition of staff accommodation have been identified but have largely not been acted on. Also, life cycle costing and other useful information is still not used when considering the need for new or replacement facilities.

26.55 We recommended that the Department develop better contingency plan arrangements with the Treasury Board to ensure optimal use of funds available for capital projects and obtain authority to use disposal proceeds when acquiring property for the same purpose. We were concerned that weaknesses in the system would result in missed opportunities in acquiring and disposing of property. We were told that procedures have been developed but cannot be implemented until the Increased Ministerial Authority and Accountability (IMAA) process has been approved.

26.56 We recommended that the Department should negotiate standards for staff quarters with the Treasury Board and monitor adherence to them by missions. The Department has reviewed the standards for staff quarters, as we recommended, and, after approval by the Treasury Board, distributed to posts "New Staff Quarter Guidelines and Accommodation Procedures" in August 1988. Procedures for monitoring compliance with these standards will take effect when the missions send all the necessary information requested by headquarters.

26.57 In our 1982 Report, we observed that the Post Property Manual issued in the early 1970s was out of date. By 1985 a new manual had been drafted but not issued. In November 1988, the Department stated that a special review was expected to be completed by February 1989. However, this document is only half finished and completed sections have not been circulated outside the headquarter's property management area for advice, information or concurrence. At the current rate of progress, this important manual will not be available to managers and staff at the posts in the near future. This is now recognized by the Finance and Administration Branch as a priority for 1989-90.

Human Resource Management

26.58 Personnel information system will not be completed until 1990. The importance of people as a significant resource is being re-emphasized by the Deputy Minister. In our 1987 Report we drew attention to the lack of a formal skills identification system in the Department's human resource planning process. The Department promised to rectify this and has included a formal documentation of employee functional skills as part of a new personnel information system (PERNET). However, the design and approval of PERNET have been slow. Recently an officer was assigned to the project, funds were allocated to cover the $2.4 million development cost over the next two years, and data elements were chosen. We were told that the project will not be completed and the system installed on line until 1990. The delay has resulted from the need to ensure compatibility with another computer system in the Department.

26.59 Review of Foreign Service Directives has been postponed. We had many concerns about the Foreign Service Directives, recommending that the Department compare actual costs to the estimated costs resulting from changes to them and determine the reasons for variances. We are now informed that this comparison and review will not be possible until the new financial information system (FINEX) is fully implemented. This has been rescheduled for 1990.

26.60 Our recommendation that the Treasury Board Secretariat regularly evaluate and report the extent to which the Foreign Service Directives achieve their intent was also postponed until the Board Secretariat review in early 1989. Also, we were told that ways to simplify the directives and make them easier to apply have not been examined by the Department due to postponement of participation by the Treasury Board Secretariat until 1989. Simplification of the Foreign Service Directives is viewed by the Deputy Minister as a matter that requires serious attention.

26.61 Procedures for recording leave are being strengthened. Our recommendation to strengthen the procedures for recording and monitoring leave has recently been responded to by the Department. Procedures used in other departments and consultants' advice are being reviewed to identify opportunities and suggestions for improvement.

Telecommunications and Records Management

26.62 Telecommunications system costs have increased. In our 1987 Report we identified a high risk that cost estimates for the Department's new Canadian On-Line Secure Information and Communication System (COSICS) would be exceeded, and cautioned that savings would not be fully realized. The Department subsequently updated its cost estimates; in August 1988, the Treasury Board approved a cost increase from $111 million to $208.6 million for the project.

26.63 The revised estimate of the cost of the COSICS Office Processing System (COPS) exceeded initial estimates by $41 million because there was no detailed user requirements analysis and insufficient traffic projections in the initial proposal. Other cost increases were due to items not included in the original estimates, such as the chancery alarm and reporting system and additional site preparation that was necessary for installing the systems. The contract for development and implementation of Phase 1 of the project was signed in August 1988.

26.64 The risk of further cost increases still exists. Since performance specifications were not included in the contract for the COSICS Automated Message Switching system (CAMS), it may require additional costs as the design progresses. Also, at the time of our follow-up audit the design of the COSICS Automated Text Storage system (CATS) had not been completed, and the final configuration could require additional costs.

26.65 The additional operational requirements could jeopardize a portion of the expected savings in person-years, which in turn could reduce the internal savings of $81 million projected to finance some of the costs. We propose to conduct a full audit of COSICS implementation following the completion of Phase 1 of the project in the United States.

26.66 Records management standards have not been developed. We recommended that the Department develop standards for records management with a view to improving productivity. The results obtained by working groups recently established to deal with the underlying problems in measuring productivity have not yet been documented. Since COSICS implementation is taking longer than anticipated, and the design of the CATS system has yet to be proven, it will take time before appropriate standards can be applied to records management.

Internal Audit and Effectiveness Measurement

26.67 Internal audit is still not comprehensive. A departmental Inspector General with responsibility for internal audit and reviews has recently been appointed. This strengthens the independence of the function from an organizational point of view. However, we continue to be concerned that steps have not been taken to meet the comprehensive internal audit mandate. We were told that this is due to lack of resources which has resulted in slippages in executing plans. Thus, the Internal Audit Division had not audited major program activities, such as political and economic reporting and trade, or been actively involved in examining controls during the development of the FINEX and COSICS systems.

26.68 Effectiveness measurement could be further improved. The Program Evaluation and Resource Review Division spends time and effort on resource reviews, as well as program evaluations. These are necessary corporate activities that include cost-cutting and person-year savings exercises. The Division has completed a few studies that relate to the measurement of the effectiveness of program activities listed in Part III of the Estimates. Others, we are told, are in progress in accordance with an agreed-upon schedule with the Office of the Comptroller General. This includes evaluations of aspects of overseas development assistance activities, such as aid decentralization. These studies could consume an increasing portion of the resources of the Division. It is important that they focus more on effectiveness measurement and less on administrative efficiency because the latter is already under the purview of internal audit. Otherwise, the Division's contribution to effectiveness measurement may again decline.

Department of National Defence - 1987, Chapter 10

Background

26.69 From 1984 to 1987 we made 48 recommendations that dealt with a broad range of the Department's systems and areas of responsibility. The Public Accounts Committee subsequently made eight additional recommendations. The Department has assisted us in our efforts to follow up on its response to these recommendations by submitting to us semi-annual reports on progress.

26.70 This report focusses on the recommendations contained in Chapter 10 of our 1987 Report, which deals with the Materiel Support system in DND, and on some of the key recommendations contained in our 1984 Report. We did not review progress related to recommendations in the areas of Human Resources Management and Major Capital Projects; these will be dealt with as part of comprehensive audits currently under way or planned.

Conclusion

26.71 The Department is taking action on most of our recommendations. In a few cases, factors external to the Department constrain its ability to move as quickly as it would like in making needed changes. Given the longer term nature of most of the departmental initiatives, it is important that interim measures be taken, so that problems do not persist until the major initiatives are completed. The Department has taken a number of initiatives of this type, and although resource limits constrain the pace at which the initiatives can be pursued, it is important that these efforts be maintained and enhanced.

Observations

Force Structure Planning and Feedback Mechanisms

26.72 In our 1984 Report we noted that DND was still adapting to the effects of the decisions to unify the forces and integrate the civilian and military components of the Department. We stressed the need for a peacetime force structure for the longer term with an appropriate link to wartime requirements, which could be used as a basis for shorter-term decisions. We also suggested improved and co-ordinated feedback on defence capabilities.

26.73 Major initiatives that have been taken include: the creation of two new organizational entities, the Chief Operational Planning and Force Development and the Chief Review Services; the production of a Canadian Forces Development Plan (CFDP), presently approved as provisional; and the development of the Operational Readiness and Effectiveness System (ORES). The impact of each of these initiatives will be realized over the long term.

Materiel Support

26.74 The 1987 audit of Materiel Support addressed six major areas: the materiel support framework; acquisition; distribution network operations; inventory management; supply support to maintenance; and management information and feedback.

26.75 We concluded that neither the materiel support system nor the logistics framework was suitably developed for sustained conflict and that, for many of the same reasons, the supply system exhibited significant economy and efficiency difficulties in peacetime. The Public Accounts Committee devoted two sessions to this Chapter.

26.76 One of the Department's most important undertakings regarding materiel support is the Canadian Forces Supply System Upgrade (CFSSU) project, which is now in the project definition stage. Originally planned for completion in the late 1980s, its anticipated completion date is now 1997. Should the CFSSU be carried out as currently proposed, it will be a positive step toward meeting many of our concerns.

26.77 Materiel support framework. We recommended that DND clearly define the responsibility for materiel support throughout the chain of command and that the doctrine and concepts of operation be updated to reflect current requirements. The Department has commenced work on these issues as part of the major initiatives outlined above, and through other initiatives such as undertaking Combat Development Studies and the establishment of an Aerospace Doctrine Board.

26.78 Acquisition, inventory management and distribution. We noted weaknesses in the training of supply managers, and this area is now being addressed. We pointed out the need for greater accuracy in the data used to determine procurement quantities; work in this area has begun and needs to be expanded. We also identified increased costs resulting from the manner in which procurement was being carried out through a co-operative logistics (COLOG) arrangement with the Department of Defense in the United States. New instructions have been written and implemented by DND and DSS for purchasing through COLOG at advantageous prices to the Crown. As a result, the value of COLOG procurement has increased from $34 million in 1986-87 to approximately $80 million in 1988-89.

26.79 Some related matters noted in our 1987 Report which may require interim measures until the CFSSU is completed include: the re-evaluation of computer formulae that recommend purchase quantities; systematic review of existing maximum stock levels; and enhanced review of the requirements determination process and the resulting purchase decisions.

26.80 In response to our observations about inventory that exceeded requirements, the Department is now reviewing 4,000 line items each month.

26.81 A matter that needs to be resolved is the management of the distribution network and improvements in information for this purpose. We were informed by the Department that preliminary studies have been conducted and work must continue in this area.

26.82 Feedback and management information systems. We recommended that comprehensive measures of materiel support effectiveness be established to cover the full range of Headquarters and Command materiel support responsibilities. We also recommended regularly scheduled, comprehensive Canadian exercises to fully evaluate the entire materiel support system.

26.83 The Department has included materiel support tasks in its Operational Readiness and Effectiveness System (ORES), which is still in the development stage. We are unable to conclude at this time whether it will cover the full range of materiel support responsibilities or properly report the impact of supply on equipment readiness. If the Canadian Forces Development Plan (Provisional) is approved as intended, the ORES should become fully operational by 1990. The Department has not yet taken action to evaluate the entire materiel support system as part of regularly scheduled comprehensive Canadian exercises.

Canada Employment and Immigration Commission - 1987, Chapter 14

Background

26.84 Our 1987 report addressed the development, implementation and operations of the Canadian Jobs Strategy and the financial management and control in Employment and Immigration Canada (EIC).

26.85 We examined the measures taken by EIC following our 1987 recommendations and observations. Our follow-up comprised interviews with management and employees and an examination of relevant documentation. We did not, however, perform extensive testing in the regions and local offices to corroborate management assertions.

Conclusion

26.86 Satisfactory progress has been made in the area of financial information systems. However, no policy on financial analysis for new programs has been put in place. Little progress has been made in the area of information for resource allocation and operations for the Canadian Jobs Strategy and the National Employment Service.

Observations

Canadian Jobs Strategy

26.87 Financial analysis of recommended options. In our 1986-87 audit, we observed that EIC had not carried out any formal financial analysis of alternative approaches when developing the Canadian Jobs Strategy program, to ensure that expenditures were made with due regard to economy.

26.88 Despite the fact that no new program has been developed since our audit, we expected that EIC would have established a policy or directives calling for a financial analysis of options to be considered when developing new programs. We did not find such a policy or directive. While EIC is of the opinion that financial analysis would not be meaningful given the multitude of uncontrollable variables in socio-political decision-making, we believe that decision makers should be provided with data on the relationship of the costs and the benefits of a new initiative.

26.89 Projects' compliance with program directives. During our 1986-87 examination of the Canadian Jobs Strategy, more specifically the Job Development program, we noted that a major proportion of project files we examined did not include all the information necessary on continuing employment potential, local market needs or training plans. Consequently, EIC had no assurance that all proposals for Job Development were selected and approved in accordance with program objectives or that all participants were eligible.

26.90 A new manual was published and put in place in July 1988. The manual defines responsibilities and establishes procedures to be followed by all parties involved with respect to labour market needs and training plans. We did not verify compliance with these procedures but our next audit of the Canadian Jobs Strategy will cover this.

26.91 We also recommended in 1987 that formal procedures be established to define the authority for determining and monitoring the eligibility of participants when outside organizations are involved. We found that this authority has been defined.

26.92 Finally we recommended that the client information form be amended to include the signature of each participant, attesting to his or her eligibility at the time of admission to the program. The form has been amended, to require participants to attest to information provided on it.

26.93 Participation targets. When the Canadian Jobs Strategy was implemented, EIC incorporated in its plans participation targets for the clientele covered by employment equity measures (for example, women, native people and visible minorities). We noted then that established targets were not realistic on a short-term basis. Since then, EIC has put a system in place that specifies both long-term and operational objectives.

26.94 Operational objectives are established by regional offices but there is no uniformity in the way they are developed. Each region has its own strategy and sets its objectives according to that strategy and to the long-term objectives developed at Headquarters.

26.95 Long-term objectives are in some cases not realistic, especially for disabled people and visible minorities in the Skill Shortages and Skill Investment programs. For the same target population, some regions are far from reaching their objectives while others have already exceeded theirs.

26.96 EIC has recognized this situation and is revising its objectives, using data from the 1986 Census. New objectives should be in use for 1990-91.

Financial Management and Control

26.97 Information for resource allocation and operations. Our 1986-87 examination of financial management and control uncovered some weaknesses. Objectives for the Employment and Insurance Program and for the Human Resource Development activity and its sub-activities were too broad; they were not sufficiently precise to serve as a basis for allocating resources, measuring performance or ensuring accountability. Moreover, for the Unemployment Insurance program sub-activities, neither the expected results nor the performance indicators were linked to the portion of the program objective which was directed to facilitating growth and adjustment in the economy. The Operational Plan Framework needed improvement, particularly in relation to the performance indicators established for the National Employment Service. We also noted that analysis of the financial and operational results of the Canadian Jobs Strategy was not integrated in reports to the National Executive Committee.

26.98 Our follow-up audit revealed that, although some efforts had been made, improvements are not yet visible in the operational results. In the context of the Increased Ministerial Authority and Accountability (IMAA) agreement signed with Treasury Board in July 1988, EIC has revised the sections of its Operational Planning Framework dealing with Human Resource Development and Unemployment Insurance. Work is progressing on the sections on Corporate and Special Service, Program Management and National Employment Services. Our examination showed that objectives have not changed, and performance indicators for the Unemployment Insurance program are still not linked to growth and adjustments in the economy. In addition, the National Employment Service has not yet completed its selection of performance indicators, as noted in Chapter 24 of this report. No change has been made to the analysis presented in the reports to the National Executive Committee on the Canadian Jobs Strategy, although two new indicators linking financial and operational results have been developed in the context of IMAA.

26.99 Financial control. In 1987 we referred to a reservation in our opinion on the financial statements of the Unemployment Insurance Account concerning the validity of the amount overcharged to the government share of expenditures on claims in 1985. Corrective measures have been taken, and we no longer have a reservation.

26.100 Financial information systems. During our 1987 examination we noted that the Employment and Immigration Information System (EIIS) did not meet some managers' requirements for timeliness, particularly those in district and local offices.

26.101 Since then, EIC has put in place a new decentralized accounting system in its 400 larger Canada Employment Centres (CEC). According to some CEC managers, this system meets most of their financial information needs on a timely basis and has eliminated most of the manual records which used to be kept in the local offices. However, there are still elements of the system to be implemented. Although the system must still be installed in 100 Canada Immigration Centres, we believe the progress made to date has been satisfactory.

Special Audits - 1987, Chapter 15

Risk Management

26.102 Our 1987 work focussed on three major capital projects where we found deficiencies in procedures for reducing the risk of losses to the Crown. For follow-up purposes we reviewed the action taken to rectify the deficiencies noted and found that progress has been satisfactory.

Microcomputer Study

Background

26.103 In 1987 this Office conducted a special study on the government's use and management of microcomputers. We also examined whether departments were realizing the benefits projected and controlling the risks inherent in acquiring and using microcomputers.

26.104 Five departments were involved in the 1987 study:

• Agriculture;
• National Revenue - Customs and Excise;
• Energy, Mines and Resources;
• Statistics Canada; and
• Transport.

Conclusion

26.105 We believe that some progress has been made since the completion of our study in 1987 and that departments are becoming more aware of the advantages to be gained from the efficient use of microcomputer technology. We are also aware that other departments, outside the scope of this study, are pressing on with innovative applications involving the use of microcomputers. However, due to the extensive amount of microcomputer evaluation, audit and policy development work now going on in different departments, it is our opinion that a further look at the situation in 1991 would be justified.

Observations

26.106 Our 1987 study observed that the microcomputer had a very significant role to play in government computer projects, but that the technology itself was not sufficiently well planned or controlled to ensure the realization of its full potential.

26.107 We found that since our study in 1987 the departments reviewed had acquired significant numbers of additional microcomputers. The number in Customs and Excise has increased from 650 to 1,300; in Statistics Canada from 750 to 1,300; and Energy, Mines and Resources (EMR) now has approximately 1,500, a ratio in that department of about one micro for every three employees.

26.108 In 1987 Treasury Board published a policy overview in the document, "Strategic Direction in Information Technology Management in the Government of Canada". This stated that adjustments to current policies were needed to take into account the merging of information technologies, human resource considerations and recent technological developments.

26.109 To this end, Treasury Board is overhauling the technology policies in the TB Administrative Policy Manual (Chapters in the 400 series). New policies on the "Management of Information Technology" are expected to be published in late 1989. Departments are contributing to these policies through a working group of the Advisory Committee on Information Management.

26.110 The computer environment in government departments is changing radically to accommodate microcomputer and communications technologies. Many new initiatives are under way incorporating these technologies, and departments are doing their best to make the most of the opportunities offered as well as fulfilling their day-to-day duties in satisfying their program and legislative responsibilities.

26.111 Major studies are under way in different departments. EMR, for instance, is studying the management of microcomputers in the Department; Statistics Canada is planning an audit of the use of microcomputer technology across the Department; Customs and Excise is moving to an integrated single technology environment; and Treasury Board is redefining all Information Technology policies to accommodate new developments and departmental requirements.

26.112 Our 1987 study recommended that departments should investigate bulk purchasing or site licences when buying microcomputer software. Some departments have examined this method of purchasing software, and in fact several have site licences for various packages, including WordPerfect and Oracle. We noted, however, that departments believe that the federal government could have more leverage, and therefore get more value for money, in microcomputer software purchases if the negotiations for bulk, site, or departmental agreements were performed by the Department of Supply and Services (DSS) on behalf of all government departments. At present each department does this independently. DSS has recently issued a series of National Master Standing Offers for the purchase of microcomputer software.