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1991 Report of the Auditor General of Canada

Main Points

15.2 For the traveller initiatives, we found that planning needs to be improved. While the Department conducts its third pilot test of the special/express lanes concept, congestion and delays at many border crossings continue. We also found that facilities constraints hamper processing. The most recent version of the cash register system looks promising (15.17 to 15.46).

15.3 The commercial initiatives we examined are well received by brokers and self-clearing importers. They advised us that the initiatives have contributed to earlier access to goods and improved quality control in preparing accounting documents (15.47 to 15.57).

15.4 Seizure statistics show that the Department is a major contributor in preventing illegal drugs from entering Canada. However, it lacks a comprehensive risk assessment at the departmental level and a departmental interdiction plan; and drug intelligence gathering, sharing, analysis and dissemination have not been fully explored. We also found that the tools and facilities needed to carry out examinations for illegal drugs are not always available. Training and performance measurement for this enforcement activity could be improved (15.58 to 15.82).

15.5 The Department has a role to play in controlling the importation of hazardous materials but this role has not been clearly established. There is no defined program in place for dealing with hazardous materials. With the exception of the Department of the Environment, there are no agreements with other departments on the enforcement for hazardous materials. The implementation of the agreement with the Department of the Environment has just started (15.83 to 15.108).

Background

Customs Operations is one of the Department's most visible components and has the largest allocation of staff

15.7 The Branch accounts for approximately 7,300 person-years, with an annual budget of about $400 million for 1991-92 (the department-wide budget for 1991-92 is 14,300 person-years and $956 million). Its many responsibilities include all traveller, commercial, postal and courier operations; regional appraisal and adjustment of tariffs and duties; and program development, management and support to operations. The valuation, assessment, evaluation, adjudication and legislative development for tariff purposes are carried out by the Customs Programs Branch.

In addition to revenue collection, Customs exercises import and export controls at ports of entry

15.9 In addition to major statutes applying to the Department - the Customs Act, the Customs Tariff, the Special Import Measures Act, the Excise Act and the Excise Tax Act - Customs also administers over 70 pieces of legislation on behalf of other departments.

15.10 The Customs Operations Branch collected $5.2 billion in import duties and $3 billion in federal sales tax on imports in 1989-90. In addition to revenue collection, the Branch exercises a variety of regulatory controls at all ports of entry in discharging its mandate. Customs shares many of these regulatory control functions with other departments, some of which, like the departments of Agriculture and Immigration, have staff resident at certain Customs' locations. Other examples include the verification of import and export permits for the Department of External Affairs, the gathering of import data for Statistics Canada, and the interdiction of illegal drugs in conjunction with the Royal Canadian Mounted Police (RCMP) and other law enforcement agencies.

15.11 The Customs environment has undergone significant changes in recent years. In 1988, Canada adopted and implemented the Harmonized Commodity Description and Coding System, a new tariff system. This, coupled with technological advancement and the Department's objective to streamline commercial operations, led to the introduction of the Customs Commercial System - a major automated system which supports the processing of commercial cargo. The Free Trade Agreement with the United States, implemented in January 1989, established a schedule of tariff reduction and elimination over a 10-year period which has increased the complexity of Customs' commercial operations. With the introduction of the goods and services tax (GST) in January 1991, the Department had to implement systems to collect the GST on imports. In the meantime, there has been a significant increase in the volume of goods and travellers entering Canada ( Exhibit 15.1 ). The increase in traffic volume, the changes in the program environment and the introduction of the Customs Commercial System all affect the way Customs operates.

15.12 Customs operates under the principle that the majority of the public voluntarily complies with the law, especially when they are well informed about it. The Department supports this principle through selective enforcement against those who try to evade the law. The Customs 2000 document announced by the Minister of National Revenue in March 1990 represents a blueprint for the Department's Customs operations to the year 2000. It advocates the streamlining of the movement of low-risk goods and people across Canadian borders and an enhanced enforcement program based on risk analysis and selectivity, supported with a system of appropriate sanctions and penalties. The facilitation aspect, streamlining movement of goods and people, is an integral part of Customs' responsibility to serve the public. In this combination of duties, the Department states that it is mindful of the challenge to maintain a balance between facilitation and enforcement.

Audit Scope and Objective

15.14 On the facilitation side, we examined Customs initiatives undertaken for both traveller and commercial operations. There has been a phenomenal growth in the number of travellers entering Canada in the past few years and in the number of Canadians travelling and shopping south of the border. One notable result has been long line-ups at highway crossings, particularly on weekends and during holiday seasons. We reviewed the Department's response to this changing traffic volume and pattern and examined two departmental initiatives -the special/express lanes and the cash registers at land border crossings. In the area of commercial operations, there has been a comparable increase in incoming commercial cargoes. We audited two initiatives - release of commercial goods on the basis of minimum documentation and electronic transmission of accounting data.

15.15 We examined two of the many regulatory programs that Customs enforces at ports of entry by providing an initial screening process -illegal drugs and hazardous materials. In 1990, our Office reported on federal law enforcement for illegal drugs by the RCMP. We addressed co-ordination between the RCMP and Customs. This audit examines Customs' role in interdicting illegal drugs. We selected the hazardous materials program because environmental issues are of concern to all Canadians. Appropriate control over importation of hazardous materials at border points could save time, money and effort in clean-ups and better protect our environment. We did not audit revenue collection by Customs, and have deferred plans to audit enforcement and collection of revenue because of the tariff rate reductions arising from the Free Trade Agreement and the recent introduction of the goods and services tax.

15.16 Our examination was carried out at headquarters in Ottawa and 8 of the 10 regional offices. We also visited many ports of entry and Customs locations within these regions. For the two facilitation initiatives on the commercial side, we interviewed 44 brokers and self-clearing importers and representatives of the Canadian Association of Customs Brokers and the Canadian Importers Association for feedback. These brokers and importers account for over 70 percent of the volume of electronic transmission of accounting data for incoming commercial cargo.

Travellers at Land Border Crossings

There has been a phenomenal growth in the number of travellers entering Canada

15.18 The increase in the number of travellers and cross-border shoppers has led to congestion at many land border crossings, causing long line-ups and increased waiting times, particularly on weekends and holidays. While the full extent of the increase in traffic volume was not predictable by Customs, the resulting congestion has placed additional pressure on the inspectors at the Department's primary inspection line booths, and on officers conducting secondary examinations or computing duties and taxes and receiving payments from taxpayers. This increases the risk of compromising inspection efforts and loss of revenue. The special/ express lanes initiative was taken to create a streamlined process to move travellers with no goods to declare quickly through Customs inspection. The new generations of cash registers were introduced to expedite the payment process and assist in tariff coding and rating for revenue collection purposes.

15.19 We looked for adequate planning for these initiatives, including need and cost-benefit analysis, the use of cost-effective and up-to- date technology, and the use of performance measurement information by management to assist in monitoring and improving upon the initiatives.

Pilot testing of the special/express lanes initiative is continuing

15.21 The special/express lanes concept was designed to minimize the processing time at the primary inspection line booths. Qualifying travellers could use these lanes and be stopped for immigration clearance only or drive through with no requirement to stop. The initiative was intended primarily for frequent travellers and local commuters in communities near the Canada-United States border with no goods to declare, who had been absent from or were entering Canada for less than 24 hours.

15.22 The special lanes project was launched at three bridges in Ontario, with plans that it would run from 1 August to 31 October 1990. Frequent travellers with no goods to declare were to complete declaration cards and place them in the front windshields of their vehicles. At a dedicated lane, the Customs inspector at the primary inspection line checked for the cards and asked only immigration questions. The dedicated lane was to operate only during specific hours of the day.

15.23 The express lanes project was tried at a tunnel crossing into Ontario from 27 August to 14 December 1990. Like the special lanes project, travellers qualified only if they had no goods to declare. Unlike the other project, users had to first apply for an identification symbol for their vehicle and an individual permit. Customs, with assistance from Immigration officials, performed background checks and approved applications only if the applicant had no criminal record or record of other violation of Customs and Immigration laws. Approved users placed their symbol in the front windshield and proceeded slowly through dedicated express lanes, showing their permit. Customs inspectors checked for the symbol and the permit and did not have to stop the vehicle for questioning. As in the special lanes project, the express lanes only operated during specific hours of the day.

15.24 Neither project has been successful because of the low utilization rates. Although 11 percent of travellers qualified for the special lanes at two of the bridges, only 0.5 percent used them. In fact, the project at these two sites was discontinued after five weeks, seven weeks ahead of schedule. Regular lanes were processing about 125 vehicles an hour; the special lane was only processing, on average, 3 vehicles an hour. At the third site, about 40 vehicles an hour were processed in special lanes, compared with 100 to 140 vehicles in regular lanes, and this project was completed as scheduled. Utilization of the express lanes at the tunnel crossing averaged 65 vehicles an hour and was up to 105 vehicles from 5 p.m. to 6 p.m. on weeknights. However, the regular lanes were processing 210 vehicles an hour in the same time period. As no stopping was required in the express lanes, their use was well below capacity.

15.25 The Customs Operations Branch conducted a post-implementation evaluation of the initiative in March 1991. It concluded that these pilot projects were underutilized because few travellers had nothing to declare.

15.26 We found minimal evidence of pre- planning for the projects. It is the Department's view that the projects did not merit an extensive planning exercise because of the tight time frame necessary to implement them in time to give some assistance to their inspection staff during the summer rush and the fact that they were done at nominal cost. However, the issue of border congestion is of major significance. The objective and the problem to be addressed by these projects have not been clearly defined. There was no analysis to assess the effect that this initiative might have on cross-border shopping and revenue collection. It was also unclear to what extent this initiative would help resolve the problem of border congestion. For example, before the projects were launched, there was no research or analysis of travellers' profiles such as information on their residency status, departure and destination points, volume trends during the day and over the course of a year, the mix of same-day return trips and multi-day trips, and the goods they carry which have to be declared. The standards for the level of service to be achieved in this type of initiative have also not been set.

15.27 In addition, there was little marketing to promote the initiative and encourage eligible travellers to take advantage of the service. The express lanes project was delayed from 1 August to 27 August to permit more individuals to apply, so there would be enough approved travellers to justify starting the project. Vehicles had difficulty getting to the dedicated lanes because of restricted space in the entry area to the primary inspection line booths; this also contributed to the underutilization of the dedicated lanes. The issue of inadequate port facilities is further addressed in paragraphs 15.37 to 15.46.

15.28 We were advised that the projects at the three bridges and the tunnel were launched on short notice to respond quickly to operational pressures and to provide immediate relief. The ports had less than three weeks to produce and distribute the brochures and promote the initiative.

15.29 During our regional visits, we noted the development of another variation of the special/express lanes concept, permitting pre-approved travellers to make a voluntary declaration of goods brought back to Canada and pay on credit. It was announced in March 1991 and is planned to run from May 1991 to March 1992 at one port. This third pilot addresses the finding from the two previous projects that most frequent travellers have goods to declare for duty and tax purposes and, at the same time, tests the feasibility of an alternative duty collection system. It is too early to determine the results of this project.

15.30 The cross-border shopping and traffic congestion at many highway ports have persisted for the past few years. With the reduction or elimination of duties under the Free Trade Agreement, the perceived price difference of goods in the United States, and a relatively stable Canadian dollar, the trend continues. We are concerned that the pressure arising from the congestion increases the risk of compromising Customs enforcement efforts, including revenue collection. We understand the Department's need to conduct pilot testing. However, two years after the implementation of the Free Trade Agreement, the Department continues in a pilot mode and little has changed.

The cash registers initiative looks promising

15.32 In February 1989, a pilot test of the cash register system was initiated at a highway port; a second test of the same system was implemented at an airport in June 1989. Shortly after installation, shortcomings in the system became evident. Processing was only partially automated; duty rates continued to be determined manually. Further, these cash registers were equipped to handle only up to 500 of about 26,000 existing Harmonized System codes. Some manual tariff classification was still needed, and some tariff items had to be grouped together because of the cash register coding limitations. The system was also slow in printing. While it is an improvement over a completely manual process, it does not meet the needs of port operations - to reduce the processing time further and minimize the chance of compromising tariff coding and revenue by grouping tariff items.

15.33 Despite these known shortcomings, management decided that the system was needed to provide relief from handling collections manually. Regional management for two ports declined to use the system because it did not meet their operational requirements. One of them, Windsor, took the initiative to develop a second generation of cash registers and began testing it in December 1989 for a period of three months. In the meantime, 21 sites in all installed the first generation cash register system at a cost of approximately $400,000.

15.34 The refined version of the second generation system, known as the Travellers Entry Processing System, is fully automated and is capable of handling the full range of Harmonized System codes. The Travellers Entry Processing System was accepted by the Department and has been installed at 22 new sites. The Department plans to convert the first generation system to the new system at the other sites, and expects that it will be able to use about $170,000 worth of hardware from the first generation cash registers.

15.35 At the end of the audit, the Travellers Entry Processing System looks promising and is a definite improvement over the previous pilot. However, the planning for the initiative could have been improved. The semi- automated system was put in place as a stopgap measure without the operational requirements having been fully researched. This delayed the possibility of a solution to the concerns for almost a year, leading to potential loss of productivity and forgone revenue. Furthermore, some additional direct costs were incurred and there will be a need for further training of Customs officers when the system is converted to the Travellers Entry Processing System.

15.36 The Department should determine level of service standards for processing travellers at land border crossings and take action to expedite processing time at major ports, including reviewing the feasibility and applicability of the current special/express lanes pilot test, and analyzing travellers' profiles at these ports. In addition, there should be a requirement for minimum documentation of pre-implementation planning for new projects, defining the objective and analyzing the problem, to justify the projects and to facilitate the challenge and evaluation by management.

Department's response: The Department is currently working on possible solutions to expedite traveller processing times at major ports including the pilot testing of special/express lanes which addresses the analysis of traveller profiles. Levels of service standards will be determined after the pilots. The Department has in place policy and guidelines dealing with the management and documentation of projects. In the case of the special/express lanes projects, the tight time frames and the limited costs involved (less than $65,000) did not warrant the extensive planning process which is appropriate for a larger project.

Inadequate land border facilities could undermine Customs' enforcement and facilitation efforts

15.38 We looked for adherence to capital property management principles consistent with those contained in the Treasury Board Administrative Policy Manual. Good management principles call for systematic assessment of the operating condition and performance of capital properties relative to current and future needs, and the development of long-term capital plans identifying strategies for property acquisition, maintenance, preservation, renewal and disposal. We also looked for compliance with planning procedures and facility requirements set by the Department.

15.39 Customs owns and operates facilities at land border crossings. Facilities at most bridge and tunnel crossings are owned privately or by public authorities.

15.40 The Customs Administrative Management Manual requires that two types of site reviews be performed: an annual review to identify repair and maintenance requirements and the need for minor capital expenditures, and comprehensive cyclical site assessments to be performed every five years on each facility to assess maintenance, enhancement and replacement requirements. Each year, Customs updates its three-year capital plan. Regions are asked to identify and rank their capital requirements on the basis of the annual review and the most recent cyclical site assessment. These are reviewed and further ranked by headquarters, and funding is allocated accordingly. The Department has developed a Land Border Facility Design Guide setting out statements of requirements for all land border facilities. It also describes the functional components and performance requirements for the construction of new facilities.

15.41 Annual site reviews are conducted by the regions. However, cyclical assessments are not being carried out on a systematic basis to ensure that all facilities are covered every five years. In 1990-91, none of the facilities was assessed. Although the requirement to conduct cyclical assessments has been in place since 1988, only 49 of the 122 facilities owned by Customs had been assessed as of March 1991 and most sites do not have any comprehensive assessment to provide the basis for determining capital requirements. In addition, many of the existing assessments reflect only the condition of the buildings and do not identify operational deficiencies or variances from benchmarks provided in the Guide. As a result, not all deficiencies are identified for consideration and inclusion in the capital plan, which minimizes the likelihood of their being addressed.

15.42 The Guide also does not provide guidelines on the number of primary inspection line booths needed or parking spaces and inspection bays required, given a particular traffic demand level. Furthermore in planning for facilities, there is no requirement to compile delay statistics or analyze how the physical facilities might have been a cause of the delays. Nor is there a data base of all owned facilities with information on their condition, records of their capital investment, repair and maintenance actions and their replacement planning.

15.43 With limited resources, only some of the proposed projects in the capital plan receive funding each year. We found that ports requesting essential operating facilities as far back as 1988, such as construction of a secondary inspection garage, are still awaiting funding. Search rooms are needed to support enforcement for illegal drugs. The Guide also specifies requirements for search and holding rooms. Our review of the 1991-92 capital plan showed that at least 16 ports still do not have search rooms.

15.44 Similarly, some facilities are less than adequate at bridge and tunnel crossings not owned by Customs. For example, at the tunnel where the express lanes project was implemented, regional managers told us that they have tried without success to have two primary inspection line booths replaced for the past six years. The booths have deteriorated to the point where they cannot be used.

15.45 Inadequate land border facilities hamper processing and increase the risk of undermining facilitation and enforcement efforts, including revenue collection. Under Customs 2000, many initiatives are being planned. Planning for physical facilities needs to be considered at the same time to support these initiatives.

15.46 The Department should integrate port facility planning and management with operational requirements planning, develop and maintain a data base of the facilities and their pertinent information, and take action to ensure that facilities provide adequate support for current and future operational needs.

Department's response: The Department has established a Facilities Section within Customs Operations Branch to act as a focal point in the management of facilities to ensure operational requirements are integrated into facilities planning. An automated inventory of facilities is being developed and, subject to funding availability, will be further developed in 1991-92. As part of the Customs 2000 planning the Department has established a working committee to examine facility projects in the planning stages and those under construction.

Release and Accounting for Commercial Goods

15.48 In our examination, we looked for the achievement of intended benefits to external users, the use of cost-effective and up-to-date technology, and the collection and use of performance measurement information to assist management in monitoring and improving upon the initiatives.

The initiatives are well received by external users

15.50 The Customs Automated Data Exchange (CADEX) component was implemented in January 1988 to reduce the time and cost of processing commercial entries and accounting documents for importers and brokers, to reduce errors by these users, and to improve the accuracy of tariff information provided to them. In the view of most of the CADEX users we interviewed, the initiative has been valuable to their business. It has helped those who wish to centralize their accounting operations and many have improved their control over the quality of the entry documents they prepare. Better tariff information is available to them on CADEX, and Customs requirements have been standardized, promoting a better understanding by importers and brokers. Some users have also benefited from extensive edit checks they themselves have incorporated. Users also advised us that CADEX implementation has been well supported by Customs and that its ongoing support is satisfactory.

15.51 Our interviews also showed that most non-CADEX users intend to use this automated system in the future and that they have been encouraged to participate.

15.52 Many of the users we interviewed said that the intended benefit of reducing time and costs has not yet been fully realized. Nevertheless, most users are optimistic about future savings. In their view, with the development of sophisticated systems and the support of some classification and rating specialists, they will improve productivity and staff mix.

15.53 With respect to the objective of reducing error rates, users advised us that they had experienced problems with CADEX when there were major updates to the tariff rate data base. We charted the classification error rates of eight major brokers by month from January 1990 to March 1991 ( Exhibit 15.2 ), and noted that error instances peaked in the month of January. Tariff rates are updated at the start of each calender year to reflect changes such as those relating to the Free Trade Agreement with the United States. The Department disseminates rate change information to brokers and importers but, at times, has failed to update the CADEX database properly. As a result, users' documents with correct tariff rates were rejected by automated systems in the Department. Users had to submit entries with the incorrect codes and rates and make adjustments after the CADEX database has been corrected, or have their submissions rejected.

Program evaluation is under way

15.55 The performance measurement system for CADEX consists of a number of key indicators, including volume of transactions, response time, number of entries, number of rejects, and the breakdown of entry by type. The information is tracked over time for operational purposes.

15.56 The Department started a comprehensive program evaluation of the Customs Commercial System in January 1991. It evaluates the Department's success in achieving the system's objectives and making its major components fully operational and effective. The evaluation includes a formal survey of external and internal users' satisfaction and an examination of the technical performance of the computerized system against existing standards. The Department advised us that this evaluation is in the final stages of reporting.

15.57 The Department should review and determine the level of service standard of release time for commercial goods. It should also improve control over annual tariff data base updates.

Department's response: The Department has developed release standards several times in the past, but has not implemented them for a variety of reasons, such as regional variances and cost considerations. Given the positive feedback from users of the system it is not justified to implement a complex measurement system, instead, the Department will conduct surveys from time to time to gauge client satisfaction with release time. In the future, with fully automated systems, the question of release time can be re-examined.

The difficulty of performing tariff file updates relatively error free has been acknowledged for some time. A project was implemented 1 July 1991 to reduce errors. At that time over 800 Free Trade Agreement changes were made to the tariff data base relatively error free.

Illegal Drugs

Canada is vulnerable to the illegal drug trade

15.59 Canada is particularly vulnerable to the illegal drug trade because of its size and the many points of access across the country - vast land borders, long coastlines, and numerous airports and landing strips ( Exhibit 15.3 ).

15.60 Studies have estimated the number of Canadian users of illegal drugs at 2.5 million, creating a market of about $10 billion annually. In addition to human loss and suffering, this has resulted in significant social and economic costs to our society. Other studies show that the costs related to policing, the judicial system, incarceration, medical facilities and treatment, insurance, losses through crime and loss of productivity exceed $12 billion a year.

The Department plays a major role in drug interdiction

15.62 In 1987, Canada launched the National Drug Strategy to counter the illegal drug trade. This strategy enlisted five departments, of which National Health and Welfare was identified as the lead agency while Customs was given additional resources to interdict illegal drugs from entering Canada.

15.63 In Chapter 26 of our 1990 Report dealing with federal law enforcement by the RCMP, we noted a strained relationship between the RCMP and Customs, resulting in conflicts and duplications in drug interdiction operations. We recommended that their roles and responsibilities in drug enforcement be clarified. In February 1991, Customs and the RCMP signed a Statement of Principles to start addressing these issues. The Statement clarifies that Customs' jurisdiction in drug interdiction is only at the ports of entry.

15.64 Exhibit 15.4 shows the number of seizures of illegal drugs made by Customs, with their street value, from 1986 to 1990. Seizure statistics from the Department's drug reports show that it is a major contributor in drug interdiction efforts: from 1987 to 1989, Customs participated in seizures that amounted to, on average, 67 and 17 percent respectively of the total heroin and cocaine seized in Canada. The Department's intelligence and interdiction workforce involves some 250 direct person-years and an annual budget of about $13 million and is supported by Customs inspectors at the primary inspection line. The Enforcement Directorate at headquarters was reorganized in 1990 and the intelligence services function became a separate division. With the signing of the Statement of Principles, the Department continues to have a major role in drug interdiction at ports of entry.

15.65 In examining the Department's efforts in controlling drug smuggling, we looked for compliance with the relevant legislation, risk assessment and training, the availability of necessary tools, equipment and facilities, and ongoing monitoring and periodic evaluation.

Inherent risk assessments are isolated; the gathering, sharing, analysis and dissemination of intelligence have not been fully explored; and there is no departmental interdiction plan

15.67 We found pockets of initiatives for assessing the inherent risk of smuggling illegal drugs into Canada through the various points of entry using different modes of transportation. For example, at the departmental level, we noted some efforts undertaken by headquarters to identify high risk countries of embarkation for air flights. In 1988, there was a project to study the risks of illegal drug entry through marine containers. Of the regions we visited, only the Pacific Region had conducted a risk assessment involving all ports of entry within the region.

15.68 There is no comprehensive assessment of the inherent risk of drug smuggling through the various ports at the departmental level. Without identifying and assessing this risk, the Department's ability to develop and rank control procedures to form an effective departmental action plan for its participation in drug interdiction becomes restricted. International drug traffickers are well organized, resourceful, and are most responsive to enforcement activities. The Department needs a flexible and responsive interdiction plan formulated on the basis of a department-wide risk assessment to anticipate and counter the sophisticated operations of illegal drug smuggling.

15.69 For example, the 1988 marine container study led to the start of a container inspection program in 1989 at three major marine ports - Halifax, Montreal and Vancouver. As of March 1991, the program had resulted in several seizures, primarily at the port of Montreal. However, there had been limited success at the other two ports, and most of the seizures took place early on in the program. While the Department properly identified drug trafficking risks associated with marine containers entering Canada, drug traffickers could turn to other means and there was no departmental interdiction plan to help Customs to keep pace with them. A plan identifying all high priority targets and the related enforcement activities would have permitted the Department to vary the intensity of marine container examination and redeploy some of the resources to other drug interdiction activities.

15.70 The use of intelligence is an essential element of drug interdiction. We believe that a drug intelligence function provides additional preventive controls to complement a comprehensive risk assessment. The use of this type of intelligence provides strategic information and helps identify specific targets and facilitate advance planning for interdiction.

15.71 We found that the intelligence function emphasizes data collection and analysis on a case-by-case basis. Seizure reports are filed and copies are disseminated to the ports and regions manually or through the use of facsimile machines. Some overall analysis is performed to support staff training but there is no department-wide or inter-regional analysis of drug smuggling information for strategic use. At the regional level, due to the varying priorities assigned to drug interdiction, the functions of the intelligence officers vary widely. They range from collecting and maintaining intelligence and operating independently of interdiction efforts, to taking the initiative in developing a localized analysis system to support the interdiction function.

15.72 In recent years, there has been increased co-operation between Customs and other law enforcement agencies in the gathering and sharing of drug intelligence and interdiction actions. In particular, the Department has arrangements with the U.S. Customs Service and a number of other countries to exchange certain intelligence. There have also been cases of joint force operations involving Customs, RCMP, and provincial and municipal police forces resulting in drug seizures and arrests. We are also aware of a multi-force intelligence centre in the United States collecting and analyzing information from domestic and international sources, and disseminating the intelligence to law enforcement agencies at all government levels, including U.S. Customs Service. The RCMP has a unit which collects, analyzes and disseminates drug intelligence to most police forces. Customs could explore the merit of further participation and information exchange with the RCMP.

15.73 We believe the increased use of drug intelligence would further drug interdiction planning and efforts. This could provide better information in targeting specific travellers, conveyances or cargo, or supporting, on the basis of trend analysis, strategic actions included in the departmental interdiction plan.

15.74 There is no requirement to maintain a minimum level of drug inspection frequency in the regions to provide a deterrent effect. In addition to the development and ranking of control procedures, a departmental interdiction plan could foster drug interdiction efforts by setting minimum examination requirements at the regional level. We also found that drug enforcement actions in the regions received varying priorities. While the risks of drug smuggling vary from port to port, in some cases, members of the Drug Team were reassigned to conduct investigative work. Drug interdiction at ports of entry was left entirely to general Customs inspectors who have to help enforce over 70 other Acts of Parliament. In two of the regions we visited, the person-year for the vacant dog handler position had been left unfilled for some time.

Necessary tools and facilities are not always available; training could be improved

15.76 The Department is an official user of the RCMP's Police Information Retrieval System and the Canadian Police Information system. Both systems are operated by the RCMP for all member police forces; the Police Information Retrieval System is owned by the RCMP. However, Customs' access to these automated systems is limited in some ports and not available in some others. At the larger ports where access is available, Customs does not have any automated system to help it compare and analyze the data in a single application. Where it is deemed necessary to place a lookout - specific targeting - the information is disseminated manually and there is no automated system to assist Customs inspectors in identifying and verifying the suspect traveller or conveyance.

15.77 Many search and examination facilities are not adequate for full inspections. As reported in paragraph 15.43, despite departmental guidelines calling for search rooms to support the National Drug Strategy, some have only makeshift rooms and others do not have suitable facilities. Many ports do not have vehicle examination facilities; some do not have adequate facilities for conducting inspections of commercial cargo for illegal drugs.

15.78 New inspectors are required to take a comprehensive introductory course on various aspects of Customs operations and members of the Drug Team are given a training course to target smugglers. There are no refresher or update courses. There is also no training provided on examining conveyances, particularly recreational vehicles, trains, cruise ships or aircraft, for concealment of illegal drugs.

Performance measurement is lacking

15.80 We found that no analysis was being carried out to assess the effectiveness of the use of drug intelligence or co-operative efforts with other law enforcement agencies, or the reasons leading to seizures. Performance measurement data in drug enforcement consisted primarily of seizure statistics. There was also no analysis comparing seizures resulting from routine examination with those resulting from targeted examination and lookouts. Other performance indicators need to be developed for ongoing management monitoring and periodic evaluation.

15.81 There has been no program evaluation to date. However, the Department recently completed a plan to assess certain enforcement functions, including drug interdiction and intelligence. The plan to evaluate the effectiveness of drug enforcement initiatives implemented under the National Drug Strategy has been approved and is scheduled for the near future. We support the Department's plans for carrying out program evaluation, which could then be used in determining the most effective course of action.

15.82 The Department should conduct a comprehensive department-wide risk assessment, leading to a more flexible and responsive departmental operations plan to counter international drug trafficking actions and patterns, and set a minimum enforcement level in regions, to optimize deployment of resources in drug interdiction. It should also explore more extensive use of drug intelligence and the opportunity to participate in government- wide or multi-force intelligence centres with other law enforcement agencies to achieve its goals.

Department's response: The Department recognizes the need for a more comprehensive approach to drug enforcement. A recent reorganization of the Enforcement Directorate emphasized the requirement for broader risk assessment and more co-ordinated and responsive drug operations. A study has been commissioned on performance measurement criteria. In support of drug operations three Customs 2000 projects have been undertaken to: support the capability of developing regional and national threat assessments; define and introduce the functions to support a more flexible and responsive departmental operations plan; and to deliver an integrated national informatics system.

The Department concurs fully with the recommendation concerning sharing of intelligence and is actively pursuing this concept with other law enforcement agencies.

Hazardous Materials

The legislative framework for regulating hazardous materials is complex and involves various federal departments

15.84 The legislative framework for regulatory control of hazardous materials is made up primarily of three Acts and their regulations: the Transportation of Dangerous Goods Act, the Canadian Environmental Protection Act and the Hazardous Products Act. In its Part III of the Estimates, the Department includes these Acts as among those that it administers in whole or in part. The framework is complex and involves other departments, primarily the departments of Transport, Environment and Consumer and Corporate Affairs.

15.85 The Transportation of Dangerous Goods Act regulates the movement of hazardous materials while in Canada by setting safety standards in transportation. It is administered by the Department of Transport. The sections relating to hazardous wastes are jointly enforced with the Department of the Environment.

15.86 The Canadian Environmental Protection Act, administered primarily by the Department of the Environment, provides a framework for the management of toxic substances and control over importation and exportation of certain substances, including hazardous wastes. At the time of our audit, about six classes of substances were prohibited from importation under this Act. Over 40 other substances have been identified as priority items for analysis to determine if they need to be regulated. The goal in the Green Plan is to have 100 priority substances assessed for toxicity by the year 2000, and where appropriate, to have corresponding regulations enacted. These regulations may include import and export controls.

15.87 Consumer and Corporate Affairs administers the Hazardous Products Act, which prohibits or controls the importation of certain industrial and consumer products. In some cases, regulatory control is exercised through a requirement to display warning labels.

15.88 We looked for Customs' compliance with legislative requirements, co-ordination with other concerned departments, risk analysis and training, and management control and monitoring.

The Department has a role to play in controlling the importation of hazardous materials

15.90 In Part III of the Department's Estimates, it states that its mission is:

to protect the Canadian public by ensuring compliance with all legislation for which it has administrative responsibility in an efficient and responsive manner.

15.91 Because of its strategic location and placement of officers, it is logical for the Department to play a role in controlling the movement of hazardous materials. An example is detaining and interdicting banned substances at the time of importation rather than having other agencies seek out prohibited shipments and contain their movement after entering Canada. The initial screening at points of entry also serves as a first control point for substances that require monitoring.

There is no defined program to deal with hazardous materials

15.93 The Department provides instructions on enforcement activities to its staff in its enforcement manual, through a series of departmental memoranda, and through training.

15.94 The enforcement manual does not deal with hazardous materials. There is no departmental memorandum on hazardous wastes or toxic substances regulated under the Transportation of Dangerous Goods Act or Canadian Environmental Protection Act; the only memorandum on hazardous products regulated under the Hazardous Products Act was issued in 1984. During our examination, a departmental directive was issued to staff on dealing with hazardous materials abandoned to the Crown. This was the first guidance to staff on handling such materials.

15.95 The Department's 16-week comprehensive training program for new Customs inspectors does not include the subject of hazardous materials. There was no training to accompany the 1984 memorandum on hazardous products or the new directive dealing with abandoned materials.

15.96 We noted that, in recent years, the Interdiction and Intelligence functions have focussed enforcement activities primarily on illegal drugs. Limited initiatives were undertaken by the Department in relation to hazardous materials. Little was done to gather information, analyze and assess the risk of illicit importation or non-compliance with relevant legislation or to target cargo entries for examination of hazardous materials. The Department has appointed environmental liaison officers in each of its Customs regions; however, they were not advised of their roles and responsibilities in this capacity and did not receive any training.

15.97 With the complex legislative framework in this area and the involvement of various departments, we would expect Customs to co-ordinate its efforts with the other departments concerned. However, Customs' only agreement is with the Department of the Environment. The two departments signed a memorandum of understanding in November 1989, agreeing to work together so that Customs inspectors could be adequately trained and support the Department of the Environment in enforcing the Canadian Environmental Protection Act and its prescribed regulations at points of entry. The implementation of the agreement has just started. The Department's co-ordination with other departments has been ad hoc and issues have been addressed on a case-by-case basis.

Customs' participation in inspecting hazardous materials at ports of entry is infrequent

15.99 The Customs Commercial System, the automated system supporting commercial operations, selects entries for examination at random. However, we were advised that if the selected entry were to contain hazardous materials, the inspector would override and release the shipment. This practice arose from concern for inspectors' safety. The Customs Commercial System also provides information on regulatory requirements for, and import prohibitions on, products. We carried out a test check of the six classes of substances that are banned from importation under the Canadian Environmental Protection Act and two substances banned under the Hazardous Products Act. The System only identified the two latter substances as prohibited; the other six drew no response.

15.100 In the area of enforcement of the Canadian Environmental Protection Act, the Department of the Environment carries out inspection programs for prohibited substances and occasionally requests Customs' support, such as allowing access to and use of its physical facilities, directing identified shipments to Environment officials, or providing data on commercial shipments. The Department primarily responds to requests for assistance from other departments on a case-by-case basis.

15.101 From our discussions with Customs officials and our review of files, we concluded that Customs' participation in inspection programs aiming at ensuring compliance with hazardous materials regulations at points of entry is infrequent. Major multi-departmental inspection efforts were only made in response to media allegations and publicity and were not part of an ongoing enforcement program.

15.102 A well-known example is the case in May 1989, where it was alleged in the media that fuel laced with polychlorinated biphenyl (PCB) was coming into Canada from the United States. Newspaper articles also described a fuel tax evasion scheme for defrauding the federal and provincial governments. Polychlorinated biphenyl is regulated under the Canadian Environmental Protection Act and is one of the substances banned from importation. A combined forces petroleum task force was commissioned to investigate the allegations, and the Minister of National Revenue announced an enhanced inspection program for importation of bulk liquid fuels at 31 ports effective 15 May 1989. The program called for the referral of all bulk liquid fuel shipments to Department of the Environment officials for inspection and testing. No contaminated shipments were found in the enhanced inspection program but the task force did conclude that there had been shipments of PCB-tainted fuels into Canada and that the practice had ceased by spring 1988.

15.103 With respect to enforcement of the Transportation of Dangerous Goods Act, we found no evidence of Customs' involvement, except where certain ports in one region received and accepted requests from the Department of Transport to co-operate. Customs officers in these ports referred carriers to on-site Transport officials for inspection and verification of compliance with the requirements under the Act. (See photograph )

15.104 In addition to setting requirements for training and emergency response measures, the legislation calls for placement of placards on conveyances and containers, and specific documents to warn of the hazardous nature of the cargo. Furthermore, legislation requires importers of hazardous wastes to give notice, at least 60 days in advance of shipment into Canada. The Department does not attempt to identify shipments and verify compliance with placarding or other documentation requirements.

15.105 There is no evidence of Customs' actions in enforcing the Hazardous Products Act. The 1984 memorandum on hazardous products was never updated, despite changes to the Act and regulations over the years. For example, there is no reflection of the fact that the regulations have been updated over time to change the list of products prohibited for importation. Also, the memorandum instructs Customs inspectors to release shipments found to contain prohibited or restricted commodities, subject to advising Consumer and Corporate Affairs, even though the importation of these products is clearly prohibited under the Act.

15.106 There is a significant volume of legitimate movement of hazardous materials internationally. Many of these substances are used in manufacturing processes; there are also waste shipments entering Canada for recycling or disposal. It is estimated that over 70 percent of the chemicals used by Canadian industries are imported; and Quebec and Ontario have each reported annual importation of about 70,000 tons of hazardous wastes. There is a need for a more concerted effort to control importation of legitimate shipments of hazardous materials and prohibit banned substances to protect the environment and the public interest. In addition, enforcement efforts to control hazardous products help to maintain the competitiveness of Canadian industries by ensuring that imported commodities meet the same safety standards. The lack of an enforcement program by the Department also increases the risk of not detecting the smuggling of other commodities or contraband in shipments of hazardous materials.

15.107 The memorandum of understanding with the Department of the Environment, which calls for a pro-active approach, is a step in the direction of better co-operation and control. It provides for the Department of the Environment to train Customs inspectors so that the two departments could work together in identifying, handling and controlling waste shipments to enforce the Canadian Environmental Protection Act. Its implementation would also foster ongoing intelligence exchange to support targeting of shipments for examination. The Department could also contribute to the legislative controls provided by the Transportation of Dangerous Goods Act by checking for placard requirements and verifying legislated shipping documents at the time of importation.

15.108 The Department should review and define its role with respect to enforcement of controls over the movement of hazardous materials. This could include consulting, co-ordinating and seeking agreement with other concerned departments to put in place a program that would:

• provide direction and training to Customs inspectors;
• support the handling and inspection of hazardous materials with appropriate equipment and facilities or through arrangements with other departments;
• support operations by conducting risk analysis and by gathering and sharing intelligence; and
• provide ongoing monitoring and periodic evaluation of operations.