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1996 May Report of the Auditor General of Canada

Assistant Auditor General: Don Young
Responsible Auditor: Douglas Timmins

Main Points

9.2 The changing global agricultural economy has increased the pressure on the Department to allow additional imports, increasing risk to Canada. The Department has responded by assessing the risk of imports and by reacting quickly to threats identified. At the same time, the Department has made extensive efforts to realign its business approach to health protection, while also responding to significant resource reductions.

9.3 The Department has developed a risk assessment process and, as a result, is recognized internationally as a leader in this area. The process provides the Department with a scientific basis to assist in making risk management decisions. Domestic health threats, regulated diseases, weeds and toxic substances have not been and will not be assessed in the foreseeable future, using this analytical tool, unless the emphasis shifts away from import trade-related activities. Consequently, the Department lacks sufficient reliable information to rank threats based on greatest risk, set priorities on a program-wide basis or demonstrate that it has made the best use of its available resources.

9.4 Program objectives have been expressed in measurable terms. However, management has developed few performance indicators or other summary information to allow parliamentarians to understand and assess planned and actual performance and departmental action in response to serious outbreaks of diseases and pests.

9.5 Over 1,100 managers, inspectors and laboratory staff deliver the Animal and Plant Health Program, at a cost of more than $100 million a year. While the Department has acted on a number of opportunities for cost reduction and cost avoidance, it continues to operate the Program and to plan future activities without rationalizing the need for the existing level of resources.

9.6 Cost recovery has been implemented for some services previously provided without charge and will be expanded to others, to offset significant reductions in program funding. Considering the difficulties associated with maintaining industry competitiveness and international market access, with identifying beneficiaries and with developing a flexible and consultative approach to cost recovery, the Department has made progress over the short term. Our main concern is that the amounts currently being recovered fall at least 60 percent short of the full costs of delivering the service - service of which industry is the primary beneficiary.

Introduction

• import activities - to prevent the introduction into Canada of undesirable/quarantinable diseases, insects, weeds and other dangerous entities of plant and animal origin;
• surveillance activities - to identify, control or eradicate undesirable/quarantinable diseases, insects, weeds and other dangerous entities of plant and animal origin that gain entry into Canada;
• domestic activities - to prevent, control or eradicate identified domestic animal diseases and plant pests of significance to human health and the economy; and
• export activities - to provide inspection and health certification required for agri-food products being exported or traded interprovincially and internationally.

9.9 In the 6 March 1996 Budget, the government announced its intention to introduce legislation to create a single Food Inspection Agency that will include the activities of the Animal and Plant Health Program examined in this audit. This decision does not affect the nature, significance or relevance of the observations and recommendations contained in this chapter.

A Period of Program Realignment

9.11 During 1991 and 1992, the Department came under pressure as significant costs and problems were encountered in the control of tuberculosis-infected elk in northwestern Canada and a viral disease in potatoes in Atlantic Canada. In addition, international trade issues, combined with increasing demands of producers, industry associations, communities, the provinces and agricultural diversification, rapidly escalated the need for a change in the approach to disease and pest control in Canada.

9.12 The period from 1992 to 1996 has been very busy for those involved in the Department's Animal and Plant Health Program. Not only did they have to continue carrying out ongoing activities, respond to significant resource reductions and manage disease outbreaks, but they were also involved in an extensive effort to realign the entire federal approach to animal and plant health protection that had served agriculture for over 100 years.

9.13 In 1992, the Food Production and Inspection Branch conducted a regulatory review of the Health of Animals Act, the Plant Protection Act and the Seeds Act with a view to improving industry competitiveness, using government resources more efficiently and effectively, reducing costs and improving service to industry and consumers, and ensuring an appropriate relationship between the costs and benefits of the regulatory regime.

9.14 In 1993, the Branch issued policy direction through a document called the Business Alignment Plan , intended to change program delivery to meet the following four objectives:

• to move toward a market-driven system that uses market forces to determine the value and need for a service by industry;
• to redefine the roles of governments and the private sector in the delivery of its regulatory programs and services;
• to have the beneficiary assume the responsibility for paying for the cost of the service; and
• to establish a mechanism that allows adaptation to future changes.

Understanding the Role of the Department in Animal and Plant Health

9.17 The budget for the Branch's Animal and Plant Health Program is approximately $107.4 million a year ( see Exhibit 9.3 ), based on 1994-95 operating expenditures of $74.4 million for animal health and $33.0 million for plant protection.

9.18 Canadian industries affected by the Animal and Plant Health Program are varied, diverse and distributed throughout the nation. The primary industries are raising animals and growing plants for food and other purposes. Others involve purebred stock, horses for racing and pleasure, pets, zoo animals, ranched game species, wildlife in recreational areas and wildlife habitat.

9.19 Canada's agricultural and forestry industries continually look for animal and plant products from other countries to enhance the productive capacity of existing resources or to develop new products and markets for consumption domestically and internationally. Importation is therefore conducted in an environment where health risks have to be assessed and managed.

9.20 Canada has laws and regulations to prohibit or restrict the entry of animals or plants and their products from foreign countries. The Department uses several tools in Canada and in the country of origin to reduce the risk of importing health threats. In almost all cases, import permits are required for each shipment to control the movement of foreign animals or plants that may carry a disease or pest that poses a threat to human health or the economy. Further, the Department usually requires diagnostic tests for specific conditions, certification of the health of the commodity, and attestation by the foreign government that the procedures and requirements as set out in the import permit have been met. In addition, retesting, reinspection, and quarantine upon entry into Canada may be required to provide additional assurances.

9.21 As a further control over imports, foreign animals and plants are subject to possible inspection at land, sea, air and mail ports of entry into Canada. Millions of tourists and approximately 250,000 immigrants and their effects arrive annually. Customs officials detain goods and notify inspectors from Agriculture and Agri-Food Canada as animal and plant commodities arrive at the border with passengers or cargo.

9.22 The Department is charged with eradicating or controlling undesirable foreign or indigenous animal diseases or plant infestations that have serious economic implications for Canada, and with protecting the Canadian public against life- and health-threatening diseases from animals within Canada. Canadian law requires that certain diseases and pests identified in Canada be reported to the Department. To fulfill its mandate, the Department conducts investigations, monitors and identifies diseases and pests, controls outbreaks (i.e. testing, isolation, treatment, destruction and disposal) and restricts the movement of animals and plants in specified circumstances. Several laboratories support these activities by providing diagnostic services, expert advice and technology development and transfer.

9.23 The Department's involvement in export operations is driven by international conventions that, for most plant and animal exports, require Canada to certify that the commodities meet the import requirements of the destination country. These requirements are negotiated between Canada and the importing country, and may involve inspection, testing and pre-shipment quarantine in Canada. Export market access is also dependent on maintaining international acceptance of Canada's domestic control and surveillance activities.

9.24 Because Canada exports a much greater volume (and value) than it imports, export certification requires significantly more resources. For many years, Canada has used accredited veterinarians to certify the health of animals, with the Department "endorsing" their work through monitoring. The use of accreditation is being expanded to cover the export of certain low-risk plant products to the United States and the export of seeds. Canada remains responsible for monitoring the accredited professionals and for ensuring that the quality of the service they provide continues to meet the standards required by our trading partners.

9.25 Unlike imports, exports do not threaten the health of Canadians or Canada's animal and plant resources. The direct beneficiary of these services is the exporter, whose access to markets is protected. The only significant risk for Canada is an economic one, in that exporting an unhealthy animal or plant that does not meet the import requirements of the recipient could threaten future exports to that country or other countries. This could, in turn, damage the Canadian economy and accordingly affect a much broader base of Canadians.

Observations and Recommendations

Program Design and Delivery

An internationally recognized risk assessment process has been developed

9.27 To facilitate the risk assessment process and in response to our recommendation in 1988, the Department has developed the Animal and Plant Health Risk Assessment Network (APHRAN). This risk assessment process allows the Department to answer these questions:

• What is the threat?
• What is the probability of entry, transmission and spread?
• What are the biological, economic and environmental impacts?

9.29 The Department has dedicated resources to carry out scientific risk assessments of specific commodities, diseases or pests, using APHRAN. For animal health more than 50 risk assessments have been completed. These cover a wide range of commodities from several countries and include exotic commodities such as embryos and ostrich eggs, as well as more common commodities such as cattle and swine. Close to 300 risk assessments have been completed for plants. These include commodities such as bark (on imported logs), potatoes and apples, and pests such as hemlock woolly adelgid (a pest of hemlock) and corn cyst nematode (a pest of corn). The Department now has developed a common and consistent approach to implement the risk assessment process.

Information is critical to scientific risk assessment and risk management

9.31 We found that the scientific risk assessments completed by the Department provide valuable scientific information on the threats associated with specific diseases or pests. However, in 11 cases we examined, the assessment of the economic impact of the threat could be strengthened, improving the overall value of the assessment. More specifically, there was limited information on who would benefit, who would be at risk, the volume and value of the commodity at risk and other commodities that might potentially be at risk, and possible trade restrictions and the value of such restrictions. Sources of economic information are not well developed, making it difficult to assess the economic impact of a threat.

9.32 Commodity-specific risk assessments rely on information about the country wishing to export the commodity to Canada as well as information on specific diseases or pests. Of particular importance is information on new and emerging diseases and pests and on the disease and pest management practices of the exporting country. Therefore, we expected that the Department would integrate scientific and economic information on existing and emerging threats and on disease and pest management practices of an exporting country in the risk assessment process and in managing risk. The Department continues to develop valuable international contacts and to identify new sources of information. These sources are particularly valuable in providing intelligence on existing and emerging threats internationally, and on the disease and pest management practices of other countries. However, this intelligence comes from a number of sources and some of it is gathered informally. It is also integrated into the risk assessment process in an informal way. In Plant Protection, this is further complicated by the fact that international reporting of pest outbreaks is not as fully developed as it is for Animal Health. As an international leader in risk assessment, there is a significant role for the Department in facilitating the development of early warning systems and reporting requirements by all nations participating in international plant health organizations.

9.33 Exhibit 9.4 illustrates that, as a result of the lack of an international reporting requirement, an emerging threat was not identified as early as possible, which resulted in a delayed response by the Department. As noted in Exhibit 9.5 , the Department exposed itself to the risk of importing an exotic pest associated with an imported commodity that was poorly managed and therefore posed a greater risk of carrying pests. ( see photograph )

9.34 The Department should:

• assess the economic impact of threats more comprehensively;
• facilitate the development of early warning systems and international reporting requirements for pest outbreaks, by nations participating in international plant health organizations; and
• be more rigorous in using information gathered on disease and pest management practices in other countries.

As a complement to existing international disease/pest information and intelligence gathering and monitoring practices, the Department will continue to advocate the need for more formalized transparent, co-operative international approaches.

Several projects have already been initiated to address these concerns. They include:

• the proposed development of an instrument to assess the competency of the regulatory sanitary infrastructure in other countries;
• the formalization of an agreement in principle with several major trading partners to share risk assessments, inspection reports and audits undertaken of third countries;
• the establishment of a geographic-based international trade team to build relationships with regulatory counterparts in assigned areas and to better network with agricultural trade and commercial staff at Canadian embassies abroad; and
• the establishment of a position to provide economic impact assessment to support the risk management process.

Scientific risk assessments have focussed on import trade-related activities

9.36 To date, the main focus of the assessments has been on specific import requests, reflecting the emphasis the Department is placing on trade-related activities to protect Canada's health status and the urgency associated with import requests. The completed assessments for import requests have been considered in modifying program design and delivery. Most regulated pests have been subjected to scientific risk assessments, but no assessments have been completed on regulated diseases, weeds or toxic substances. Tuberculosis, brucellosis and rabies, which consume 90 percent of the animal health resources allocated to domestic activities ($22.4 million), have not undergone scientific risk assessments. Unless the emphasis shifts from consideration of import health threats, domestic health threats as well as regulated diseases, weeds and toxic substances will not be assessed in the foreseeable future.

9.37 While regulated-disease assessments rarely have the urgency of trade health-related assessments, the Department's mandate implies that it needs to be able to demonstrate how it has dealt with threats while balancing its responsibilities for domestic health issues and trade obligations. As the demand increases for services to facilitate international trade, so does the importance of having a means to ensure that domestic health issues and trade obligations are balanced appropriately.

9.38 Currently, diseases, pests and weeds are regulated while toxic substances are not. The Department has interpreted its role as proactive with respect to diseases and pests and reactive with respect to toxic substances. It does not actively encourage preventive measures and takes action only if advised that animals have been exposed to or contaminated by toxic materials. As a result, regulations have not been developed on tolerance levels and standards for toxic substances that may affect animals or be transmitted from animals to humans. The Department's interpretation of responsibilities set out in the Health of Animals Act for diseases is not the same as for toxic substances.

9.39 The Department should:

• complete scientific risk assessments for all regulated diseases and pests, as well as for other significant diseases, pests, weeds and toxic substances; and
• ensure that it is meeting its legislative responsibilities in the priority it assigns to toxic substances that may affect animals or be transmitted from animals to humans.

The establishment of the Single Food Inspection Agency will provide a tighter integration of standards development between animal and human health risks. The Department will carry out a risk assessment to identify and prioritize known toxic substances.

Program-wide priorities and resource allocation not based on scientific risk assessment

9.41 An approach has been developed for ranking plant pests based on questions of biological significance covered in the APHRAN process. A similar approach for ranking animal diseases has not been developed. This approach for ranking plant pests could be used to categorize risks into high, medium and low for all domestic health threats of economic significance as well as regulated diseases and pests. This categorization would allow the Department to focus future scientific risk assessment efforts on the highest-risk areas and to incorporate the results in program-wide priority setting and allocating resources. Further, the level of federal involvement in medium- and low-risk threats could be reassessed. For low or no risk, federal involvement could be reduced or possibly discontinued.

9.42 With increasing pressure to reduce resources, basing priorities on risk becomes more important. Yet it must be recognized that scientific risk assessment is a complex and time-consuming activity. When it is used for program-wide priority setting and allocating resources there is the added complexity of making decisions on risk involving diverse program activities (animal health and plant protection), each dealing with different commodities and each posing different degrees of risk to health or to international trade.

9.43 Since our last audit of this Program in 1988, the responsibility for the day-to-day risk management has been delegated to the regions. This change has given the regions flexibility to adapt their operations to specific regional needs and circumstances. However, as the responsibility for program delivery becomes more decentralized, the concept of a national program may become threatened. Decisions on resources within the regions are complicated by the need to justify resource allocations among animal health, plant protection and the Branch's other lines of business (for example, meat hygiene).

9.44 The plant protection line of business began developing its plans for the 1996-97 fiscal year using a regionally focussed approach that incorporated consideration of risk based on the cumulative knowledge and experience of both the national and the regional plant protection managers. While the determination of risk was not as rigorous as formal risk assessments would be, the approach was a reasonable attempt to consider risk in allocating resources.

9.45 For animal health, there has been an attempt to prioritize the various components and activities of the animal health line of business using the practical experience of animal health staff. This has not significantly affected the allocation of resources, although the import inspections of low-risk animal products and by-products may be decreased or discontinued. Without the assurance provided by risk assessment, the current approach could result in resources being allocated to areas that do not pose the highest risk.

9.46 Canada declared itself virtually free of brucellosis in 1985 and subsequently reduced testing, primarily based on the evidence of low incidence of this disease. The incidence of confirmed cases of brucellosis in Canada decreased from one in 1988-89 to zero in 1994-95 and the number of tests conducted and staff assigned have been reduced ( see Exhibit 9.6 ). The Department has recently established a centre of expertise to deal with this disease, even though the number of tests conducted and resources allocated for brucellosis have not been based on a scientific risk assessment. Testing is carried out at a level accepted by trading partners, but may exceed appropriate levels relative to other program risks.

9.47 The Department should make more effective use of scientific risk assessments, in conjunction with other considerations, in determining program-wide priorities and allocating resources to program areas where risks are greatest.

Department's response: In addition to scientific risk assessments, the Department's priority setting and resource allocation practices must reflect other important factors such as multilateral trade agreement obligations, risk management and communication concepts, consumer confidence, societal values, industry interests, political realities, resource constraints and international credibility/integrity. The Department will explore opportunities to use risk assessments more effectively in determining program-wide priorities and allocating resources.

Lack of reliable information to monitor program delivery against plans

9.49 During 1995-96, the Department introduced the first phase of a new information system, the Resource Management System. It tracks the number of inspections performed and the resources used based on time standards, but does not track the volume of products inspected and not inspected. The new system is an improvement in that it provides uniform time standards for activities, making comparisons among regions possible. The Department has indicated that it also plans to use the new system to identify locations with efficient inspection practices that can be used to improve operations at other locations. However, there is a risk that gaps are not identified between what needs to be inspected and what actually is inspected. Since the Resource Management System does not track commodity shipment totals, it is not possible to determine whether 50 percent or 10 percent of a specific commodity has been inspected. This information may be known by less formal means in the regions, but is not regularly available to or monitored by program managers at headquarters.

9.50 Both the new system and the old system show considerable variation between the planned and actual number of inspections for any given region. We were advised that these differences were the result of unexpected fluctuations in the volume of products inspected. The regions need to have the flexibility to respond to unexpected volumes of shipments. But any increase in inspections of one commodity would be at the expense of the level of inspection planned for a different commodity. We found that the extent of such changes during the year by the regions, and the total products available for inspection, currently are not captured or summarized even though this information would be valuable for future years' planning.

9.51 The fact that some high-priority inspections were not being performed was included in a recent departmental evaluation report on plant protection. As currently designed, the Resource Management System will not identify those areas where work was not performed but should have been. Data on actual inspections compared with target levels would help managers correct program delivery problems sooner.

9.52 The new system also does not track the results of inspections. This would be useful for costing purposes. Also, the number of "problems" identified during inspections would provide valuable information about the actual incidence of disease and pests experienced by each region. This information is crucial to resource allocation. Changing patterns in disease or pest incidence could also be used in future years' planning as a basis to reallocate resources among regions.

9.53 Enhancements to the Resource Management System are planned for 1996-97, but these will not address the lack of information on inspections performed. The system does track activities performed and thus provides information for billing of services performed by the Department. However, its usefulness as a management tool is limited by the lack of performance information and of variance reporting.

9.54 The Department should ensure that it has reliable management information that allows a comparison of planned and actual program delivery, and explain how variances from plan will be addressed.

Department's response: One of the major undertakings of the Food Production and Inspection Branch in 1994 was the development of a sophisticated computer-based system that tracks the work of inspectors.

The first phase of the Resource Management System (RMS) was implemented last year. The need for increased accountability was identified by the Department as a priority through an internal review. As a result, enhancements to the RMS planned for implementation in fiscal year 1996-97 will enable the Department to set out national standards based on inspection priorities that target resources for program delivery. Actual resource utilization will be measured against planned, allowing management analysis and decisions on reallocation of resources, program priorities, etc.

Opportunities for efficiencies need more examination

• How successful is a particular port of entry in preventing the introduction of diseases and pests?
• Has the rate of compliance improved since the introduction of the revised regulations?
• Do current shipments from a particular country contain fewer pests than one or two years ago?

9.57 There are other performance indicators currently being piloted by one of our major trading partners that have relevance to Canada. These indicators would attempt to measure the threat of diseases and/or pests gaining entry to Canada and the success of the program in intercepting them. Some of these include:

• Pest Threat Rate - an estimate of the proportion of units (cars, passengers, etc.) approaching a port of entry while carrying diseases or pests that could put Canada's agricultural and forest sectors at risk;
• Interception Gap - the difference between the estimated number of diseases and/or pests approaching a port of entry less the number actually intercepted; and
• Targeting Efficiency Ratio - a measure of how much more effective risk-based inspections at ports of entry are than those carried out randomly.

9.59 The Department has made efforts to improve its efficiency and effectiveness in several areas. For example, it initiated the Enhanced Import Operations project in 1993, with the objective of improving import compliance and service for shipments from the United States. One of the project's goals is to increase the co-ordination between departmental inspectors and customs inspectors. The project also intends to accelerate the verification of documentation accompanying low-risk commodities, for importers who use the service frequently. Enhanced Import Operations plans to increase the effectiveness of import operations while providing a small cost saving through reduced overtime. While the project has not yet been implemented fully, it may eventually improve program monitoring by providing better information on the number of shipments inspected and not inspected.

9.60 A second example of the Department's efforts to increase effectiveness is the use of "blitz" inspections. At various times in the past three years the Department has conducted a "blitz" at import border points. A blitz is unannounced and involves a complete inspection of all agricultural shipments, or those of a specified commodity. As the use of blitzes continued, there was evidence of increased compliance with import regulations. This change was largely related to better compliance with documentation requirements. Since 1994-95, responsibility for blitzes has shifted to the regions, with the result that blitzes may receive a different priority in each region. Since blitzes have a deterrent effect, headquarters needs to ensure that an appropriate number of blitzes are carried out in all regions. Blitzes could also be used to validate the choice of performance indicators and the effectiveness of targeted inspections.

9.61 While some efficiencies in program delivery have been initiated, opportunities for others may go undetected because the lack of performance indicators inhibits their identification. For example, border inspection is an area where potential changes could increase the efficiency of program delivery. (See Exhibit 9.7 for details.)

9.62 Also, by questioning how well the Program is delivered it is possible to improve effectiveness without incurring additional costs. Inspection at airports is an area where changes could increase effectiveness without additional cost, as shown in Exhibit 9.8 .

9.63 The Department should further examine inspection and other activities with a view to identifying and implementing additional efficiencies in program delivery. The Department should develop and use performance indicators that will aid in identifying opportunities to improve the efficiency and effectiveness of program delivery.

Department's response: The Department is committed to pursuing creative and alternative means of achieving program goals. The Department will continue to build on improvements to program efficiency achieved through its three-pronged approach of cost avoidance, cost reduction and cost recovery for services; internal reviews; and the 1991 Regulatory Review.

Program managers will endeavor to ensure that policies and procedures are reviewed to provide for the most efficient means of delivery to maintain program integrity without incurring regulatory liability. The program divisions are also committed to improving performance indicators, measurement tools and corporate workplan development. Communications with other regulatory agencies in Canada and abroad have identified models that could be adopted for use.

Readiness to respond to unanticipated threats is uncertain

9.65 In the past, the Department has reacted quickly to a number of threats, including Asian gypsy moth, bovine spongiform encephalopathy (mad cow disease - see Exhibit 9.9 ), blueberry maggot and vesicular stomatitis, by taking action to control or eradicate the disease or pest before it could spread. The emergency response actions taken in these cases were not based on the emergency response manuals, but rather were managed through committees that were formed to deal with each threat. Internal reviews of the emergency response actions were completed subsequent to the elimination of the threat so that the Department could take advantage of the lessons learned from its response.

9.66 To assist in departmental preparedness, the Department has developed manuals on emergency responses to foreign animal diseases and plant pests. These manuals provide guidance on who is responsible in an emergency and how they should respond. When the manuals were developed, training sessions were held across the country to educate staff on how to use them. Despite this effort, we found that the manuals were used in only one of the disease and pest incursions responded to by the Department. While several joint simulations involving headquarters and one or two regions have been completed, nation-wide simulations involving all regions at the same time have not been completed to ensure a uniform measure of readiness. Determining the need for regional simulations is at the discretion of each region. The result is that not all regions perform regular simulations. Similar to the emergency response review, simulations would highlight areas in the Department's response that need improvement and would help ensure readiness for an actual emergency. We also found that the manuals were not updated to reflect the lessons learned from actual emergency response cases or from simulations conducted. A new initiative to update the manuals and make them more user-friendly is currently under way. The Department is also preparing documents for a number of foreign animal diseases to aid in industry's understanding of procedures in the event of an incursion.

9.67 The Department should conduct regular simulations and maintain updated procedures manuals to better ensure a readiness to respond to an incursion of a serious disease or pest.

Department's response: The Department appreciates the Auditor General's recognition of its quick responses to past threats including Asian gypsy moth and bovine spongiform encephalopathy (mad cow disease).

Regional simulations of emergency situations will continue to be held. Training initiatives and technical manuals are being revised in the key areas of cleaning/disinfection and disposal/destruction. A contingency has been established to utilize emergency response opportunities and disease outbreaks external to Canada as training opportunities for critical elements of national and regional emergency situations. Also critical to emergency preparedness is the Department's ability to detect/diagnose threats, train personnel in recognizing pest and animal diseases and appropriate response measures, provide scientific advice and develop improved detection technologies. Agriculture and Agri-Food Canada centres of expertise for plant quarantine pests and foreign animal diseases perform these functions.

Keeping Parliament Informed

• clearly explain the objectives of the Program, preferably expressed in measurable terms;
• demonstrate whether the "lines of business" were achieving the results intended, using key performance indicators and other relevant information; and
• relate the "lines of business" and activities to the use of resources to meet the demands for service.

Need to develop indicators to monitor performance

9.70 The Department has interpreted its Inspection and Regulation objective more specifically for the Animal and Plant Health Program as:

• prevention of the entry into Canada of exotic diseases, insects, weeds and dangerous entities of plant or animal origin;
• control or eradication of exotic diseases, insects, weeds and other dangerous entities of plant or animal origin that gain entry into Canada;
• prevention, eradication and control of domestic animal or plant diseases and pests of economic or human health significance; and
• provision of inspection and certification required for agri-food products being exported.

9.72 The Animal and Plant Health Program is controlling the spread of most economically significant animal diseases and plant pests. As a result, we believe that most taxpayers would have difficulty identifying cases where disease or pest outbreaks have seriously threatened human health or significantly damaged our export trade. Yet we found that the Department reports only one performance indicator in support of results achieved - the number of foreign diseases or pests that have become established in Canada during the year. The 1995-96 Estimates Part III states that no reportable diseases have become "established in Canada" in the past three fiscal years. In actual fact, at least one pest has become "established" in Canada during this period ( see Exhibit 9.10 ).

9.73 There are two important limitations to the use of "established in Canada" as a performance indicator that need to be explained in the Part IIIs. First, "established in Canada" has different meanings for animal health and for plant protection. Second, the reliability of this indicator is affected by the number of surveys conducted by the Department. In recent years only about 14 pest surveys have been conducted annually, while potential pests number in the hundreds.

9.74 If clearly explained, substantiated and reported, this indicator would provide valuable insight into the Department's ability to prevent the entry of foreign diseases and pests. As presently reported, however, it is inaccurate and possibly misleading.

9.75 How the Department responds to disease or pest outbreaks may be relevant for Parliament and is critical for industry. It is not possible to prevent the occasional entry of foreign diseases or pests, no matter how well designed and managed the Animal and Plant Health Program may be. International conventions require countries to immediately notify their trading partners whenever certain serious diseases (listed in the conventions) are identified. This obligation is designed to protect all trading nations by ensuring that all countries have timely information about potentially serious outbreaks of a disease or pest. Consequently, the Department's tactical response to disease outbreaks is critical to maintaining and/or restoring the market access necessary for trade. Past responses represent what some in the Department believe have been its most significant contributions or results.

9.76 Summary information in the Estimates Part III on results achieved in relation to objectives of prevention, control, eradication and export services would give Parliament the necessary performance information that is not currently provided there. This information could be a combination of quantitative information, such as the number of surveys conducted and the number of disease or pest outbreaks being controlled or eradicated, and qualitative information, such as the nature, significance and current status of outbreaks. Qualitative information, as described in Exhibit 9.11 , might be provided only for significant outbreaks, whereas full details of all outbreaks, similar to the information already provided to trading partners, could be available to parliamentarians through other documents.

9.77 The Department also needs to make available summary information on the volume, cost and resource requirements of the important program activities and sub-activities. The Department does provide some information, but it needs to be related more directly to the workload requirements of the activities involved. For example, in relation to the export services objective it would be useful to disclose (on a comparative-year basis) the number of export certificates issued and the value of the export products, the number of full-time staff and cost required to deliver services and the average cost per certificate issued. Similar summary information could be provided for other major activities. Such information could be provided through a modification to, or in place of, the information currently shown.

9.78 The Department has improved the information it provides to Parliament about the Program since our 1988 audit, and continues to do so. In the Preface to its 1995-96 Estimates Part III, the Department advises that "a process to completely revise the Operational Planning Framework is under way." This Framework is used by the Department as the basis for planning, budgeting, expenditure management and performance monitoring. There is an opportunity for the Department to integrate our recommendations in this ongoing work.

9.79 The Department should give parliamentarians access to improved summary information by:

• developing and reporting measurable performance indicators for all aspects of its objectives (prevention, control, eradication and export services);
• specifically identifying disease or pest outbreaks of critical significance to human health or the economy that have occurred, and demonstrating how the Department has managed or reduced the threat to Canada; and
• modifying information on use of resources to be more directly related to workload requirements.

New Ways of Doing Business

Cost recovery, cost avoidance and cost reduction

9.81 The Department developed its Business Alignment Plan in response to these reduced funding levels. As described in its 1995 - 96 Estimates Part III, "The Department is aligning its program base in response to the market forces shaping the Canadian agri-food sector. Negotiations are under way with groups of stakeholders to select business arrangements that will permit the continued delivery of services critical to industry viability while enabling the Department to implement plans addressing the government's fiscal restraint measures." The planned realignment of the program base is proceeding along three main initiatives:

• cost recovery - having the beneficiary of the service share in its cost;
• cost avoidance - having someone other than the Department deliver and pay for the service (for example, privatization); and
• cost reduction - reducing the cost of providing the service through greater efficiencies, eliminating unnecessary procedures or, in some cases, discontinuing the service.

• develop a long-term strategy for cost recovery based on identifying the beneficiary of each service provided and recovering costs proportionate to the share of private benefit derived; and
• adopt a consultative and flexible approach with industry.

Industry pays too little for services with little "public good"

9.84 "Additional" services were defined by the Department as those provided in response to requests from industry, foreign country requirements, etc. Examples include activities such as: completion/endorsement of export health certificates; inspection services upon request; laboratory analysis in support of "additional" services; and so on.

9.85 The Department also examined its activities from a slightly different perspective. It stated that a "beneficiary pays" philosophy should be adopted whenever there was an identifiable beneficiary of a service. A discussion paper prepared by the Department argued that "beneficiary participation in program funding will encourage a more realistic demand for services. Beneficiaries will determine which programs are worth supporting based on market forces (i.e. benefits vs. costs). This will facilitate the transition from government-run regulatory programs to industry-operated quality management programs for disease/pest control."

9.86 The Department noted that most of the activities conducted by the Animal and Plant Health Program had several beneficiaries, and that "such programs should therefore be operated as partnerships: business arrangements in which beneficiaries will be able to participate in program design, development and delivery, as well as funding." While this may be quite appropriate, it can lead to complexities in identifying the beneficiary who should be asked to pay ( see Exhibit 9.12 ).

9.87 If a "beneficiary pays" philosophy were to be adopted, several principles would logically follow:

• the Department would give priority to funding activities that promote "national public good";
• the Department would encourage and facilitate beneficiary self-reliance where "private good" is concerned; and
• the Department would apply the "beneficiary pays" principle equitably and consistently to all beneficiaries.

9.89 The Department was faced with a difficult task in determining a specific percentage of costs to be recovered. Rather than try to reach agreement on a specific allocation between private good and public good, it developed an alternative approach. For services that clearly had elements of both private good and public good, the Department argued that whatever the proportion of private good, it was at least 50 percent. This approach had the advantage of avoiding arguments about whether the proportion of private good was, for example, 60 percent, 70 percent or 95 percent. The solution of up to 50 percent as an initial cost-recovery target is appealing because it allowed the Department to move quickly in establishing its cost-recovery initiative. However, it may result in the public bearing a disproportionate share of the costs of activities that provide a limited contribution to the public good, particularly if the percentage of costs recovered is not revised in the future.

9.90 To introduce a cost-recovery regime, the Department had to identify the costs of each of its activities. This was a complex task, because its financial and management control systems had not been designed with this in mind. Consequently, some judgment was required in allocating costs to services, and a considerable amount of analysis was performed to identify the resources used to provide each service.

9.91 To the Department's credit, reasonable costing principles were developed and the full costs of the Animal and Plant Health Program were allocated to its two lines of business and its activities. The full costs were then subdivided into two categories, recoverable and non-recoverable costs. Non-recoverable costs included items such as corporate overhead, equipment and minor construction, accommodation and certain other costs. As a result, recoverable costs amount to approximately 80 percent of total costs.

9.92 For those activities whose cost is being recovered, the current recovery percentage ranges from 30 percent to 50 percent of "recoverable costs". We believe that, to ensure equity and fairness, more of the cost-sharing burden should be borne by industry where public good is minimal.

9.93 The rate of recovery on overall recoverable costs will be much less than current rates would suggest. Exhibit 9.14 indicates that even if all of the required savings from cost avoidance and cost reduction are assumed to be "recoverable", the overall rate of cost recovery will be quite low at 20 percent of total recoverable costs. The overall rate will be influenced by the future revisions to recovery percentages, progress in cost reduction and cost avoidance and possible legislative changes to facilitate the collection of fees.

9.94 In response to industry concerns, we found that the Department made consultation with industry an important element of its Business Alignment Plan. The overall Plan was organized into three rounds, with implementation of the first round beginning in April 1995. For each round the Department prepared an initial information package on its proposals, and then discussed them with industry. This was followed by modifications based on the input received and follow-up discussions with industry to explain how its concerns had been addressed.

9.95 One illustration of the Department's flexibility was its response to industry's concerns about the impact of user fees on its competitive position. Because such a significant portion of our trade is with the United States, there was pressure from industry to keep Canadian export-related user fees in line with those of the United States for similar services. While the Department wanted market forces to determine services to be provided, it did not want to drive industry out of markets by imposing expensive user fees. The Department has indicated that it is aware of the need to minimize the negative impact on industry competitiveness and international market access. This led it to establish cost recovery for export services at 25 percent to 30 percent of "recoverable" costs.

9.96 Cost recovery for services previously provided without charge is currently being phased in over a three-year period to cover the full spectrum of program activities. We think the Department needs to go even further and develop a long-term plan for industry to pay a share of the costs of services that is commensurate with the degree of private benefit derived.

9.97 The Department should determine the level of private good for each service provided and develop a strategy to recover an appropriate amount of revenue relating to the private benefit portion of the services.

Department's response: The Department accepts the recommendation and will proceed to develop a set of criteria that will guide the estimation of the level of private good associated with each functional area of service for each commodity group. These estimates of private good will be discussed with clients during the third round of cost recovery consultations, which are planned for 1997-1998. Departmental progress against these estimated levels will be influenced by the evolution of foreign countries' cost recovery policies and the importance of respecting the Canadian industry's ability to compete in these markets.

Cost avoidance and cost recovery opportunities introduce new risks

9.99 Accordingly, our expectations were that the Department would:

• thoroughly re-examine all of its current services to ensure that they are being delivered as efficiently and effectively as possible; and
• ensure that any changes to program delivery as a result of cost avoidance and/or cost reduction measures will not compromise the Animal and Plant Health Program objectives of safeguarding health and facilitating trade.

9.101 In the plant protection line of business, an example of cost reduction is the introduction of multi-year import permits for certain plants and plant products. This has reduced the number of import permits issued by plant protection in 1994-95 to approximately 6,000 from the 18,000 that were issued in 1992-93. An example of cost avoidance is the Department's move toward the use of industry accreditation for the export of greenhouse plants. This will eliminate the need to issue approximately 10,000 export health certificates annually.

9.102 Cost avoidance through the use of accreditation is not new to the Department. The inspection and testing of animals destined for export (primarily to the United States but also to Mexico) has been done for many years by private sector veterinarians who have been "accredited" by the Department. These accredited veterinarians are also responsible for completing the related export health certificates, which are subsequently "endorsed" by the Department prior to export. Accreditation has also been used successfully in other areas, such as the inspection of hay for export to Japan.

9.103 The use of accreditation as a cost-avoidance tool is being emphasized by the Department. It has identified several other services it currently provides that could be undertaken by "accredited" parties. For example, the Department is developing accreditation models for low-risk nursery plant products, for delivering almost all departmental activities concerning seeds, for some laboratory testing requirements and for other activities. A special team has been created to standardize the use of these models in the Branch by applying internationally recognized ISO 9000 series of quality standards. All of the accreditation initiatives we described are expected to be introduced during the 1996-97 fiscal year.

9.104 Accreditation is a reflection of the changing approach to delivering the Animal and Plant Health Program. In the past, enforcement and inspection have been delivered by federal inspectors. As accreditation becomes more prevalent, the focus will change to monitoring and compliance. To manage the risks associated with this transition successfully, the Department will need to ensure that its expectations of accredited parties are clearly spelled out and that strong monitoring and performance reporting systems are in place. This is a weak area, a fact confirmed by recent internal audits of the current accreditation programs for both animal health and plant protection. In particular, an audit of the accreditation of veterinarians cited specific weaknesses in monitoring and control. As a consequence, a formal review of the program has been completed and the Department has indicated that a modified accreditation program for veterinarians is to be implemented in April 1996.

9.105 The Department has recently completed a limited-scope "Diagnostic Design Project", which had a mandate to develop a new vision, strategic plan and program design for diagnostic testing activities of the Animal and Plant Health Program. The 1994-95 "recoverable" costs of these activities were $32.2 million, approximately 50 percent of which is targeted for recovery from industry. This internal review was able to identify cash savings of $50,000 annually and staff reductions of 10 full-time equivalents, even though cost reductions and cost avoidance were not its primary thrust. This demonstrates the need to conduct an in-depth review of existing laboratory operations to determine if further savings are possible.

9.106 The Department should:

• examine all significant aspects of its operations to identify additional opportunities for cost avoidance and/or cost reduction; and
• establish appropriate systems and practices to monitor and control activities that are performed by "accredited" parties.

The Department agrees that appropriate quality assurance and compliance verification mechanisms are necessary for all methods of program delivery. The adoption of International Standards Organization (ISO) and the internationally recognized Standards Council of Canada (SCC) norms and protocols are being pursued. Negotiations are currently under way with the Standards Council of Canada regarding the accreditation of non-federal laboratories. A transparent consultative process has been established to provide the broadest opportunity for stakeholders to challenge operational procedures and policies.

About the Audit

Objective

Specifically, we assessed whether:

• a sound basis is used to assess the risk of potential threats to human, animal and plant health and the economic consequences;
• program activities are designed and delivered in a way that deals with the most significant risks and is consistent with the mandate and objectives of the Department in this area; and
• the information to demonstrate the achievement of program objectives and results is readily available and reported to Parliament.

Scope

In addition, we examined the changes and other major initiatives that have taken place since our last audit of this area in 1988.

Other aspects of the food production process (see Exhibit 9.2 ) were excluded from the primary focus of this audit. For example, we did not examine Food Inspection (an area we reported on in 1994), Veterinary Drugs and Pesticides (areas regulated by Health Canada).

Audit Team:

For information, please contact Douglas Timmins, the responsible auditor.