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1996 September Report of the Auditor General of Canada

Main Points

17.2 Over the past 10 years, CPP Disability benefit payments have more than tripled, climbing from $841 million in 1986-87 to close to $3 billion in 1995-96. The number of beneficiaries has almost doubled over the same period, from 155,000 to 300,000. The increase in Disability payments has had an important impact on the increase in the most recent projected pay-as-you-go rate.

17.3 Important improvements need to be made to management practices related to the eligibility of Disability benefits. Moreover, CPP management does not have complete and relevant data that would enable it to manage eligibility with due regard to economy. We noted that:

• management information systems are limited and do not allow for sound analysis. Variances between actuarial estimates and actual results have not been examined and reported regularly;
• applications are often adjudicated on the basis of information obtained from the applicants and their physicians. No analysis has been carried out to determine at what stage in the process it would be most economical to search for additional information;
• quality control necessary to improve the soundness of disability adjudication is neither formal nor systematic;
• the effect of guidelines on the number and profile of new applications accepted is not determined;
• few beneficiaries are subject to reassessment for assessing continuing eligibility; and
• there is limited exchange of information between the CPP and other disability plans.

• new incentives to reduce barriers to employment of CPP Disability beneficiaries;
• revised Disability determination guidelines;
• improved communication with clients; and
• improvement of the reassessment program.

17.5 Guidelines introduced over the years have had a significant impact on costs, which are reflected eventually in the long-term projected contribution rate. While legislative changes require estimates of the impact of contribution rates, and formal consultation with the provinces, we are concerned that some important changes to Disability eligibility practices were introduced in the past without proper assessment of projected costs or actuarial impact analysis.

17.6 The actual cost of Disability benefits exceeded actuarial estimates for the period reviewed until 1995. The roles and responsibilities of the CPP and the Chief Actuary of the Office of the Superintendent of Financial Institutions for ensuring the reliability and integrity of the data used for actuarial projections are unclear. Furthermore, we believe that the Department would benefit from having in-house actuarial expertise to improve the exchange of operational and strategic information.

17.7 The Canada Pension Plan was created in 1966 as a mandatory social insurance program to provide some measure of protection to Canadian workers and their families from loss of earnings resulting from retirement or death, as well as from serious and prolonged disability. CPP Disability provides, on average, about half of recipients' incomes; this share is partly due to the fact that some other income providers reduce their benefits by the amount of CPP Disability benefits. This makes the Plan a first payer in most situations.

17.8 There is limited exchange of information between the CPP and provincial plans or private insurers on medical assessment, decisions rendered, rehabilitation, follow-up and termination of payment to beneficiaries who are receiving benefits from more than one of these organizations. However, the Act that governs the disclosure of information considerably limits the exchange of information. Because there is little co-ordination, beneficiaries often provide the same information to several plans, which results in unnecessary duplication of effort and cost. Better co-ordination among the plans would not only improve service but also reduce expenditures for all plans.

17.9 Recent evaluation studies provide useful information about beneficiaries and alternative ways of providing public disability insurance. Overall, the issues and questions addressed by the studies were appropriate and extensive. The evaluation's Interim Report presented a number of proposals for improving adjudication and appeals processes. The fact that CPP Disability does not have precisely defined objectives has hampered the evaluation's measurement of program success. More discussion and clarification of what CPP Disability is expected to accomplish would be desirable. In addition, more information is needed to cover the significant performance information gaps. The Department has yet to take sufficient steps to fill the identified gaps.

17.10 Our audit did not attempt to determine whether the CPP is a better plan than the Quebec Pension Plan (QPP) from the viewpoint of either the beneficiaries or the contributors. CPP legislation requires that comparable benefits be provided by the Canada Pension Plan and the QPP. The legislation allows a province to opt out of the CPP provided that the province sets up a comprehensive pension plan that provides benefits comparable with those provided by the CPP. According to CPP management, changes to both the CPP and QPP over the years have resulted in differences that at times have increased the distinctions and at other times narrowed them. It is therefore important to evaluate the differences between these plans and make adjustments where appropriate. Important differences between the Disability programs of the two plans have been identified, which may explain the increasing disparity between utilization rates.

17.11 We recognize that determination of disability is a very difficult task. However, every effort should be made to minimize subjectivity in the process. In the context of regionalization, closer monitoring and proper guidance would assist adjudicators in making fair and consistent decisions. Tighter controls on the quality of decisions and greater emphasis on operational controls, such as reassessment, would also reduce the risk of paying benefits to persons no longer eligible. It is important that CPP management have appropriate controls in place to ensure that those, and only those, who are eligible for benefits are accepted and/or continue to receive benefits and that all beneficiaries are treated equitably and in compliance with the legislation.

17.12 We acknowledge that the issues we have raised in this chapter will be difficult to resolve and cannot all be addressed at once. Those involved in administering CPP Disability would benefit from a comprehensive action plan that sets out the accountability, priorities, responsibilities and resources, if required. Such a plan would foster a common mindset on the issues. The number of recommendations proposed implies that additional resources may be required, although the success of many ongoing projects will depend to some extent upon other projects being implemented concurrently. We are convinced, however, that significant savings in program costs can be achieved as a result of additional efforts to improve the administration of CPP Disability and without causing any prejudice to applicants who meet the eligibility criteria of the Plan.

Introduction

17.14 The main focus of Income Security Programs is to provide benefits that promote or improve income security for the elderly, persons with disabilities, survivors and migrants. The two major areas of activity are Old Age Security and the Canada Pension Plan.

17.15 The Canada Pension Plan (CPP) is a social insurance program with the objective of ensuring some measure of income protection to Canadian workers and their families against loss of earnings resulting from retirement, serious and prolonged disability or death. The CPP is a federal-provincial plan in force in all the provinces and territories with the exception of Quebec, which has a similar plan, the Quebec Pension Plan (QPP). Any changes to the CPP require the agreement of two thirds of the provinces with two thirds of the population. This is a unique feature of the Plan. CPP Disability is a component of the CPP and is not, as such, administered as a separate program or entity.

17.16 Employers and almost all wage earners and self-employed workers between the ages of 18 and 65 are obliged to contribute to the CPP. Approximately 10 million workers and 1,200,000 employers contribute annually to the Plan. Of the 3,674,000 persons to whom monthly CPP benefits are to be paid in 1996-97, approximately 300,000 will receive Disability benefits and 100,000 children of disabled contributors will be entitled to monthly flat-rate benefits.

17.17 To be eligible for CPP Disability benefits, a person must be between the ages of 18 and 65, have contributed to the Plan for at least two of the last three years or five of the last ten years before the date of the disability, be disabled according to the definitions of the Plan, and apply in writing on a prescribed form. Benefits are payable monthly, after a waiting period of three months, until the person dies, reaches the age of 65, regains capacity to work or is no longer disabled for CPP purposes. In 1996, monthly Disability benefits range from a minimum of $326 to a maximum of $871. A person who receives Disability benefits is also entitled to benefits of $164 per month for each dependant child up to the age of 18, or 25 if the child is attending an educational institution full time. Disability benefits are indexed to the cost of living and are taxable. There is no provision in the CPP for partial payments.

17.18 By virtue of the legislative provisions governing the CPP, departmental personnel administer the benefits, Revenue Canada collects the contributions, the Department of Finance manages the Investment Account and the Chief Actuary of the Office of the Superintendent of Financial Institutions prepares the actuarial estimates.

17.19 The management and delivery of Income Security Programs (ISP), including CPP and Disability, are fully integrated. National headquarters is headed by an assistant deputy minister who is responsible for operational and program policy development, national planning, program integrity and the monitoring of program and policy implementation of all ISP activities. In each province, implementation of all departmental programs and delivery of services are co-ordinated by a regional executive head supported by a Service Delivery Network under his administrative authority. The regional executive heads are responsible to the Deputy Minister. ISP activities are being integrated into the Department's regional Human Resource Centres.

17.20 Some CPP Disability operations are currently being regionalized. Regional offices are now responsible for initial assessment of applications for Disability benefits, the first two levels of appeal (reconsideration and Review Tribunal) and related administrative processing. The timetable for regionalization runs from November 1995 to 1998. Regionalization is an important challenge for headquarters, in that implementation of Income Security Programs requires that they be co-ordinated with other programs administered in the regions. The regions must deal with staff cuts, major restructuring of other programs due to legislative changes and significant changes to administrative and operating systems.

17.21 Over the last three years, Income Security Programs has been restructured, with new incumbents assuming most management positions, as in many other sectors of the Department. In addition to having to deal with the human resource implications of downsizing, Program Review, Service Delivery Network and implementation of the ISP Redesign Project, the management and staff have undertaken several initiatives and/or projects to address ongoing issues. These initiatives are described in the Estimates Part III - Expenditure Plan, which is available to the public and Parliament, and is updated annually. Management has also responded to the Public Accounts Committee's report on outstanding matters resulting from our 1993 audit.

17.22 At a time of budgetary constraint, public and private disability benefit programs are the subject of in-depth studies in Canada, and indeed in all Western countries. In many countries, disability benefits have reached unprecedented heights in the last decade in terms of payments and caseloads.

Disability is a complex state and difficult to determine with precision

17.24 According to the Canada Pension Plan Act , a person is considered to be disabled only if he or she is determined to be suffering from a severe and prolonged mental or physical disability. A disability is severe only "if by reason thereof the person in respect of whom the determination is made is incapable regularly of pursuing any substantially gainful occupation." A disability is prolonged only if it is determined that the disability is "likely to be long continued and of indefinite duration or is likely to result in death."

17.25 A beneficiary who is dissatisfied with a decision can ask the Minister of Human Resources Development, in writing, to reconsider it, within 90 days of receiving the decision. If the beneficiary is still dissatisfied after reconsideration, an appeal may be lodged with the Review Tribunal. The Tribunal, which is an entirely independent body, can confirm or reverse the decision made at the reconsideration level. Any party to the appeal who is dissatisfied with the Review Tribunal's decision may request leave to appeal to the third level of appeal, the Pension Appeals Board (Board). Unlike the first two levels, an appeal to the Board is not automatic upon request. Decisions of the Board are subject to judicial review by the Federal Court of Canada.

17.26 Disability benefits are not granted according to specific medical diagnoses but rather on the basis of an assessment of the extent to which a medical condition prevents an individual from being able to engage regularly in any substantially gainful occupation. Those familiar with the process consider it impossible to eliminate all subjectivity in adjudicating Disability applications because some eligibility criteria are considered subjective compared with the criteria that govern other programs in the Plan. For instance, criteria based on age, years of contribution and date of death allow for an objective decision with a minimum of intervention. The consequences of error are costly, both for the Plan and for persons to whom benefits may be unfairly denied.

Disability benefits have more than tripled over the past decade

17.28 Over the past 10 years, Disability benefit payments have more than tripled, climbing from $841 million in 1986-1987 to close to $3 billion in 1995-1996. Disability benefits currently account for 17.5 percent of total CPP payments. As Exhibit 17.1 shows, Disability benefit payments climbed sharply in 1987-88 and 1993-94, the years corresponding to the coming into force of major legislative amendments (see paragraphs 17.40 to 17.46). While benefit payment information is available to the public in the Estimates Part III - Expenditure Plan, information about the cost of administration and other program resources is not.

17.29 The administrative costs of the CPP, including those attributable to Disability benefits, rose from $140.4 million (or 2.5 percent of total CPP expenditures) in 1986-87 to $219 million (or 1.4 percent of total CPP expenditures) in 1995-96.

Objective and scope of the audit

17.31 Our audit did not attempt to determine whether the CPP is a better plan than the QPP from the point of view of either the beneficiaries or the contributors. However, key differences between the CPP and QPP Disability were noted to gain a clearer understanding of the causes of the rapid growth in Disability payments. In addition to the current year, our audit covered past periods in order to better understand the issues and to assess the results of the corrective actions implemented by CPP management. Further details on the objective, scope and criteria of the audit are provided at the end of the chapter, in the section entitled About the Audit .

Observations and Recommendations

Causes of Rapid Growth in Disability Benefit Payments

17.33 Applications received and accepted reached an unprecedented high of 109,000 and 61,000 respectively in 1993-94. The applications accepted have subsequently dropped to about the same level as terminations. Exhibit 17.2 shows the trends for applications received, applications accepted and terminations for the period 1985-86 to 1995-96. The Department has reported that the number of beneficiaries has declined for five consecutive months since February 1996. CPP management attributes this decline to the implementation of recent administrative measures, such as the adoption of new guidelines to determine medical eligibility. It is too early to conclude on the overall impact of these measures on CPP Disability, as many cases are being appealed.

17.34 The number of beneficiaries rose from 155,000 in 1986-87 to almost 300,000 in 1995-96, an increase of 93 percent (a compound annual rate of growth of 6.8 percent). Over the same period, the labour force (persons 15 and over who had a job or were unemployed) rose by 11.9 percent (compound annual rate of growth of only 1.1 percent). In contrast, the number of Quebec Pension Plan beneficiaries remained relatively stable over the same period. The differences between the two plans are analyzed in paragraphs 17.134 to 17.142.

17.35 The increase in Disability payments, particularly since the mid-1980s, has had an important impact on the increase in the most recent pay-as-you-go (PAYGO) rate (ratio of the year's projected total expenditures to the year's projected total contributory earnings) projected by the Chief Actuary of the Office of the Superintendent of Financial Institutions. Our review of the changes in the PAYGO rates projected in 1985 and 1993 for the year 2025 revealed that the main cause of the increase is the Disability component of the CPP. Exhibit 17.3 outlines the causes of the main changes in those PAYGO rates. Disability accounts for 61 percent of the increase in the projected rate.

Delayed reaction to cost increase

17.37 Repeated questions from the Chief Actuary, especially since December of 1993, on the causes of a 30 percent increase in the incidence rate (number of new beneficiaries divided by working population) spurred the Department to undertake the Study on the Incidence of Disability. The results of this study were made public in 1995.

17.38 The Department's study outlined a number of factors that potentially contributed to the rapid increase in the number of beneficiaries and in benefit payments. Among the most important factors were:

• legislative amendments increasing the statutory benefit rates and reducing the number of years of contribution required for eligibility (1987) and authorizing retroactive applications (1992);
• guidelines issued in 1988-89 to explicitly consider age and socio-economic factors, such as opportunities for employment, in assessing the eligibility of applications;
• increases in the number of applications due to unfavourable economic conditions in the early '90s (recession and high unemployment);
• increased efforts on the part of other programs to refer their applicants to CPP Disability (for example, provincial social assistance programs, private insurers that cover long-term disability and workers compensation plans); and
• increased efforts to improve public awareness of the Plan.

Cost increase due in part to legislative changes

17.41 Our analysis also indicates that the increases in the number of beneficiaries account for the largest proportion of the cost increases. Even if benefit rates had not risen, these additional beneficiaries would have caused costs to increase by 36 percent. In addition, they received the new rates, which explains the remaining 30 percent of the cost increase. The increase in the number of beneficiaries comes from changes in the following rates: application rate (number of applications divided by working population), approval rate (number of applications accepted divided by number of applications) and termination rate (number of terminations divided by total number of beneficiaries). To assess the relative significance of these changes, we computed the averages of these rates and of the labour force for three five-year periods from 1980-81 to 1994-95. Exhibit 17.5 illustrates these trends.

17.42 Over the period 1980-81 to 1994-95, the labour force grew by 17.9 percent. Some of this growth, up to about 1986, was due to "baby boomers" coming into the labour force. Since 1986, growth in the labour force has been mainly due to population increase and increased participation by women. Since the incidence of disability is strongly correlated with age, we would have expected application rates to go down during the earlier part of our analysis period and to begin rising only as "baby boomers" hit their late forties. The oldest boomers, those born in 1946, turned 45 in 1991. For these reasons, labour force growth is not considered to be a major factor in the application growth over this period.

17.43 In our opinion, one of the main reasons for the increase in the number of beneficiaries is the increase in the application rate (by 73 percent). It is not possible with the data available to determine why this should be the case. However, background studies done for the recent evaluation of CPP Disability also support the importance of the application rate. They conclude that the unfavourable economic conditions in the early 1990s (for example, high unemployment rate) combined with the 1987 and 1992 legislative changes have had a significant impact on the variation in the observed application rates.

17.44 Fewer (by 19 percent) beneficiaries were accepted in relation to the applications received. Greater visibility of the disability program among applicants may have contributed to increasing the number of applications that were less credible and thus more likely to be denied. In addition, the approval rate for applications stemming from the 1992 amendment to the Canada Pension Plan Act (thereby accepting retroactive applications) is approximately half the acceptance rate for other applications. The Department estimates that it received about 52,850 retroactive applications, 15,670 of which were accepted between January 1992 and 31 March 1995.

17.45 The drop (by 35 percent) in the average termination rate can be explained in part by the average age of new beneficiaries; they are younger and therefore receive Disability benefits for a longer period. This drop would also have had a significant effect on the increase in caseload.

17.46 For purposes of evaluation, strategic decision making, redirection and accountability, we encourage the Department to give continuing attention to determining the fundamental causes underlying the changes in the cost of Disability benefits.

Lack of relevant data restricts analysis of causes of cost increase

17.48 In particular, the Department until recently has had no data on the population covered, that is, the number of contributors who contributed during two of the last three years or five of the last ten years. Moreover, the profiles of applications received and applications accepted and denied as a result of significant legislative or administrative amendments are not known. Efforts are currently being made to develop profiles. Such information is crucial for a better understanding of the changes in the cost of Disability benefits.

17.49 Once the essential data are gathered, early-warning indicators could be used to closely monitor unusual or unexpected changes in the profiles of applications, approvals and terminations and to take appropriate measures where required. Such indicators are fundamental, given that the Department is decentralizing its operations. The Department informed us that they are being developed and will be implemented soon.

17.50 The Department should:

• establish, as soon as possible, a comprehensive plan for gathering data and analyzing changes in the Disability benefits paid; and
• implement early-warning indicators to identify, in a timely fashion, any unusual changes in the profile of potential or existing Disability beneficiaries that require closer monitoring.

Memorandum of understanding unclear as to roles and responsibilities

17.52 In order to have an independent opinion, the Canada Pension Plan stipulates that three-year and five-year actuarial estimates, and estimates relating to legislative changes, must be made by the Chief Actuary.

17.53 We examined the assumptions made for financial forecasts by the Chief Actuary in his Fifteenth Actuarial Report as at 31 December 1993 and found them to be adequate and appropriate. The Chief Actuary pointed out, "Higher projected expenditures in the long term, as compared to the previous report, stem primarily from the assumption that the higher incidence of disability (number of new cases as a proportion of the eligible population) experienced in recent years will be a permanent feature of the CPP."

17.54 The impact of the 1987 and 1992 legislative changes on estimated future disbursements for CPP Disability benefits is forecast and disclosed by the Chief Actuary in a separate actuarial report, as required under the Plan. For example, the additional annual disbursements stemming from the coming into force of Bill C-57 in June 1992, which allowed the acceptance of retroactive claims, were estimated to be $30 million in 1992, and to increase gradually to $57 million by the year 2000. Exhibit 17.6 shows that the actual costs of CPP Disability benefits have always exceeded the actuarial estimates, except for 1995.

17.55 As the actual additional disbursements resulting from the legislative changes have not been computed by the Department, the causes of the variances between actuarial estimates and actual results have not been analyzed and reported. The memorandum of understanding does not cover such a requirement. As a result, important lessons to be learned could not be drawn from such unexpected variances, and corrective measures that need to be taken were not determined. We noted that a QPP actuarial report outlines the causes of the variances between actuarial estimates and actual results.

17.56 Analysis of variances between actuarial estimates and actual disbursements would enable officials to understand the causes underlying unexpected changes, to take corrective measures in a timely fashion and to use the lessons learned to improve forecasting practices.

17.57 If the Department had in-house actuarial expertise, the collection, analysis and exchange of operational and strategic information between the Department and the Chief Actuary for management and forecasting purposes would be far easier.

17.58 This type of expertise, however, does not reside in the CPP. The administration informed us that in the past it has used services of the Chief Actuary that are not specified in the legislation. Taking into account the responsibilities of the Chief Actuary, which are not limited to the Plan, the CPP could benefit from having in-house actuarial expertise.

17.59 The Department should:

• clarify with the Chief Actuary, in the existing memorandum of understanding, their respective roles and responsibilities regarding reliability and integrity of data used by the Chief Actuary for actuarial forecast of CPP Disability benefits;
• analyze the reasons for the variances between actual results and financial forecasts of CPP Disability benefits prepared by the Chief Actuary and disclose them to the federal and provincial authorities; and
• define its essential needs in terms of actuarial and/or analytical expertise for the CPP Disability program and analyze the most cost-effective way of acquiring such expertise, where applicable.

Management Practices for Assessing Eligibility

Key guidelines affecting adjudication of applications are not entrenched in the Act

17.62 According to the Act, the following types of substantive amendments require provincial consent to come into force:

• general level of benefits;
• classes of benefits provided;
• contribution rate;
• formulas for calculating the contributions and benefits payable;
• management or operation of the CPP Account or the CPP Investment Fund; and
• constitution of, or duties of, the CPP Advisory Board.

17.64 During the 1980s, CPP management issued guidelines affecting application adjudication. Exhibit 17.7 sets out two guidelines that documented practices already in force related to adjudicating an application. The guidelines also reflected judicial decisions by the Review Tribunals and the Pension Appeals Board, which could explain why management did not consider that legislative changes were needed at that time. Although the guidelines represented an important change, their impact on the number of applications accepted and the contribution rate has not been assessed. Management did identify them as a factor in the increase in costs (see paragraph 17.38).

17.65 With the implementation of the March 1989 guideline, an interpretation of "prolonged" was provided (see Exhibit 17.7 ). Because the interpretation allows for a regained capacity to work within one year, with an element of uncertainty as to when, it requires regular monitoring. Indeed, some beneficiaries do eventually re-enter the job market; however, the reassessment process needs to be improved (see paragraphs 17.88 to 17.99).

17.66 The guidelines were revised in September 1995. Henceforth, socio-economic factors are no longer considered in adjudicating an application and no special consideration is given to persons aged 55 and over. According to CPP administration, all applicants are now treated consistently.

17.67 At the request of CPP administration, the Chief Actuary assessed the impact of revising these guidelines on the incidence rate of disability. He concluded that the changes to the guidelines constituted a change in the Plan provisions. He pointed out that this type of amendment should normally be considered in terms of effect on the cost of funding and benefits at the time of the five-year review of contribution rates by the ministers of Finance.

17.68 According to CPP administration, changes in projected program costs, including those derived from the interpretation of the guidelines, are examined jointly by federal and provincial governments within the quinquennial review process. Because the impact of the 1988-89 guidelines has never been assessed and made public, there is no evidence that they were ever the subject of a review by the federal and provincial governments.

17.69 What impact did the guidelines have on the projected contribution rates? Should the guidelines have been entrenched in the Act? Should the provinces have been formally consulted? Where do the responsibilities of CPP administration for interpreting the Act begin and end? These questions need to be answered.

17.70 The Department should assess the effect on the cost of funding and level of benefits of any proposed amendments in the adjudication of applications, in order to determine whether the amendments should be reflected in a guideline or in the Act.

Department's response: The quinquennial review of the CPP examines, among other issues, the projected changes in program costs, including costs associated with the interpretation of the guidelines. The Department does not assess the substance of any suggested amendments to adjudication rules in isolation; both federal and provincial governments are consulted in the process.

It must be understood that in the absence of written guidelines, the responsibility of officials to apply the law in adjudication would have to be fulfilled, as it was prior to 1989, without a source of uniformity and accountability. However, it would remain the case that those adjudications would and should be affected by judicial interpretation and legal advice. The absence of guidelines would not in any way ensure a static interpretation of the law over time.

Parliament has the responsibility to make changes to the CPP. Section 114.4 of the CPP specifies which type of amendments would also require provincial consent to come into force. The administration is very careful to ensure that these rules are applied to fully respect the role of the provinces. For example, extensive consultations took place with provinces and provincial approval was sought before Bill C-57 became law.

Information essential to manage is deficient

17.72 The management information systems are limited, that is, they do not capture all the data necessary for sound analysis. Even with limited systems, CPP management should have been able to produce some data on performance measurement; it has not done so. Information gaps make it impossible for management to fulfil its responsibilities completely. It is essential, especially in the context of regionalization, that the management information system be improved to provide the necessary data to support well-informed decisions.

17.73 The proposed computer system currently being developed under the ISP Redesign Project is expected to be fully operational by the year 2000. This system could in part meet CPP management's information needs. In the meantime, however, management still needs essential information to ensure sound management of resources and operations.

17.74 The Department should take steps, even if they are only interim, to fill the identified gaps in management information on the eligibility for CPP Disability benefits .

Department's response: The Department has taken a number of steps to improve its management information. It has recently introduced the Disability Caseload Growth Analysis report, aimed at senior management, which provides monthly information on trends relating to disability caseload growth such as applications, new grants and denials, appeals and terminations. The report also tracks disability expenditures.

Income Security Programs produces regular operational administrative statistics covering caseload, new benefits and expenditures according to various demographic categories of beneficiaries. These data are critical to the development and analysis of trends within the program.

Income Security Programs has recently improved its capacity to analyze trends in disability and demographic profiles within the client population. This has allowed the Department to better determine the impacts of proposed policy changes to the program.

Lack of consistency in adjudicating applications

17.76 In practice, however, each case is unique and determination of eligibility cannot be entirely objective. Some individuals respond better to treatment; a secondary condition may have an impact on the primary condition; some individuals have a stronger desire to continue working. This is why, especially in a context of regionalization, tighter monitoring and detailed guidelines are essential to help adjudicators make fair and consistent decisions.

17.77 In fact, some applications denied at the initial evaluation and at the first level of appeal were accepted prior to a hearing at the Review Tribunal. Using the same tools (Act, regulations and guidelines), and based on the same documentation, several adjudicators had arrived at different decisions. More precise and prescriptive guidelines to assess an application could improve consistency.

17.78 Assessment of an applicant's capacity to work is not always well documented in the files. In many cases, the physician chosen by the claimant gives an opinion on the applicant's disability and capacity to work, even though the latter is not necessarily within the physician's field of expertise. This information is reflected in a medical report, which can either be sent to the CPP directly by the physician or given to the applicant, who encloses it with the CPP application. The CPP pays up to $50 directly to physicians for a medical report that supports an application. In most cases, the medical report is given to the applicant. This procedure raises questions concerning the objectivity of the information. The applicant can choose to obtain another report from another physician if he or she feels the report does not support the application.

17.79 Furthermore, in some instances, information provided by the applicant that indicates a capacity to work is not taken into account (for example, the receipt of regular employment insurance benefits). As illustrated in Exhibit 17.9 , incomplete assessment can lead to wrong decisions.

17.80 Adjudicators need guidance on the type and quality of information that is needed to support an application. A search for information is often needed when assessing an application in order to minimize subjectivity in the decision-making process. Applications are often adjudicated on the basis of information obtained from the applicant and his or her physician. This information, however, does not always allow for a well-informed decision because of the issue of objectivity versus subjectivity. Although the adjudicator does not meet the applicant, an attempt to obtain additional information may be made, if deemed necessary. Additional information could come from various other sources, which would add supporting evidence to the application. For example, adjudicators could obtain independent medical reports from specialists selected by the CPP, but they rarely do so. Exhibit 17.10 illustrates a situation where a search for additional information was deemed necessary but was not done.

17.81 With regard to retroactive applications, it is difficult to demonstrate that a person was disabled on the cut-off date for qualification. A guideline has been drafted to clarify the information that is necessary to establish the date of disability in such cases. In general, for this type of application, a retroactive payment covering a maximum of 11 months of benefits is paid to the applicant. Exhibit 17.11 illustrates the situation.

17.82 No analysis has been carried out to determine under what circumstances and at what stage in the adjudication process it would be most economical to search for additional information, for example, obtaining a specialist's report or arranging for examination by a physician selected by the Department. How does the adjudicator handle contradictory information obtained from various sources? Could appeals be avoided by obtaining additional information earlier in the process? Analysis of decisions overturned on appeal could identify adjudication training requirements and possible amendments to the Act, regulations and guidelines. Furthermore, this type of analysis would ensure efficient and effective processing of applications.

17.83 Although the Department has attempted to more clearly define eligibility criteria by issuing new guidelines, files do not always contain information that is both complete and relevant to the decision-making process.

Formal and systematic quality control is required

17.85 Although the CPP does not have a quality control program, some mechanisms are in place to monitor the quality of decisions, such as:

• random reviews undertaken by the Program Results and Integrity Unit that provide management information on accuracy of payments;
• review of some regional files to monitor the quality of regional decision making;
• peer review of random files; and
• case review committee to discuss difficult cases.

17.86 Quality control, if independent of the unit in which a decision is made, would allow systematic review of important decisions. The administration could select a random sample of cases, analyze the causes of error, take corrective measures, test new adjudication methods and determine adjudicators' training needs.

17.87 The Department should:

• clearly define its guidelines on eligibility for CPP Disability benefits and develop management practices to ensure greater consistency in the adjudication of an application; and
• introduce a quality control program to ensure that the decisions made are relevant and fair.

The Department agrees that there is no formal quality review/control program. However, there are numerous quality control mechanisms embedded in the administrative practices of the Department to ensure that the decision-making process for Disability benefits is of high quality, consistent and fair to all clients.

The Department lacks systems that would aid in this endeavour. When the re-engineering of the current systems under the ISP Redesign Project is complete, the new system will greatly enhance the Department's ability to monitor the quality of decision making. In the meantime, the Department is making the best use of the existing systems. The focus on building front-end quality control mechanisms, as the system is being re-engineered, will continue in line with the Total Quality Management practices and approaches.

A program to monitor consistency in the application of Disability guidelines has been initiated and will be expanded. Further, the existing quality control mechanisms and those being developed will be formalized and set in a strategic framework for quality control of the Disability program.

Reassessment process needs to be improved

17.89 Reassessment consists of monitoring and reviewing those files of beneficiaries who may no longer meet eligibility criteria. Monitoring is exercised on a file flagged for reassessment when the application is accepted. When the assessor deems there to be a strong probability that the beneficiary may eventually regain the capacity to work, the appropriate time for reassessment is entered in the file. Control and detection are done by other methods (for example, checking Revenue Canada's record of earnings, complaint from a third party, identification of specific characteristics, a link with another program or other sources of information). Verification of information received from the beneficiary may also be used in reassessment. "Return to work" notices are submitted voluntarily by the beneficiary and indicate to the Minister that a return to work has occurred. Exhibit 17.12 shows the results of reassessment.

17.90 Over the years, the number of Disability beneficiaries has risen considerably, to such an extent that, in the mid-1980s, it was necessary to cut back on reassessments as most resources were assigned to processing applications. During that period, only urgent cases were reassessed. In our 1993 Report, we concluded that the Department's reassessment activities were inadequate. Since our 1993 Report, the Department has taken steps to improve its reassessment program by dedicating additional resources, developing a new computer system, undertaking staff training, implementing an integrated communications strategy and expanding reassessment resources for future years. Although a reassessment unit was established, the results obtained indicate that the number of benefit terminations was no greater than in preceding years. Exhibit 17.13 illustrates the benefit termination trend for the past 20 years due to recovery of the capacity to work.

17.91 Beneficiaries who have a reasonable chance to improve medically are identified for subsequent reassessment at the time the application is accepted. However, most of these cases are never reviewed. Over the past three years, the staff have reviewed 1,575 beneficiary files previously flagged. While the Department cannot determine the exact number of files originally flagged, it estimates that thousands of prescheduled reassessments have not been processed on time due to the fact that system problems have prevented CPP administration from identifying those cases. The Department does not give high priority to this type of reassessment, concentrating its efforts instead on handling "return to work" cases. Thus, it appears that important information gathered from the initial adjudicators is almost lost in the process. Exhibit 17.14 illustrates a case where the information obtained at the time the application for benefits was accepted was not properly used.

17.92 Some control and detection methods to identify ineligible beneficiaries are still being tested. It is difficult to draw conclusions from the results obtained to date on the real potential for future savings. Very few reassessments of this type have been done. If we exclude the "return to work" notices and prescheduled reassessments, only 6,114 reassessments were done over a three-year period.

17.93 Checking the income reported in the beneficiaries' record of earnings is the method most commonly used by CPP administration in its control and detection reassessments. Based on examination of files for this type of reassessment, we found that better follow-up (average processing time at present is 15 months once earnings have been identified) combined with improved flagging of files would reduce the workload and increase the success rate. Exhibit 17.15 illustrates an example of delays experienced.

17.94 Since 1993, reassessment has focussed on "return to work" notices and development of a computerized system designed to improve the capacity for analyzing client characteristics. The project has enabled the Department to acquire new tools for improving its reassessment methods and increasing its knowledge. Although the system appears promising, it will be useful only to the extent that it is able to identify high-risk cases.

17.95 Close to half of the reassessments done over the past three years refer to "return to work" notices. Because beneficiaries voluntarily submitted the information, the savings resulting from these cases are unrelated to any monitoring, detection or control efforts by the Department. The total potential savings, as of March 1996, were estimated at $52 million, of which $45 million is attributable to cases involving "return to work".

17.96 New measures to reduce disincentives to work, introduced by the Department in 1995, modify the continuous eligibility criteria. We believe that this policy directive reflects some of the realities faced by disabled persons trying to re-enter the labour market. One of these measures is to maintain benefits for three months after the individual returns to work. However, the three-month eligibility extension is not consistent with the Act, which defines a severe disability as one where a person is incapable regularly of pursuing a substantially gainful occupation. This policy directive establishes a new fundamental design feature for the reassessment function. The impact of this policy directive has not been determined.

17.97 We found that the approach of some organizations in the private sector to reassessment is far more proactive. Exhibit 17.16 describes the approach, which consists of a follow-up of all files where potential for improvement in the situation exists. Those files are generally identified at the initial application. Beneficiaries deemed to have a long-term disability must, at regular intervals, submit a statement of continued eligibility; other beneficiaries are followed up until they return to the labour force. To adopt such an approach would require a cost/benefit analysis, as additional administrative costs as well as a decrease in program costs may be expected.

17.98 Reassessment remains an essential tool for confirming eligibility. It must be as effective as possible, especially in a context in which the number of clients is rising and activities are being decentralized. Few beneficiaries have in fact been reassessed. More than 160,000 new cases have been accepted over the past three years. The total number of active cases is actually 300,000 and only 14,685 have been reassessed over the last three years. It is difficult to determine how many reassessments should be done until the Department has a better understanding of the clientele profile.

17.99 The reassessment project initiated in 1993 has not yet demonstrated that it would enable the Department to control continued eligibility of all beneficiaries. Most of the prescheduled reassessments are rarely done. Many beneficiaries escape reassessment because of shortcomings in follow-up and in the flagging and selection of files to be reviewed. Our concerns include the low profile of this activity and the possibility that some clients do not notify the Department when they return to work or when their health improves. The risks are high that large sums of money are paid to beneficiaries who no longer meet the Plan's eligibility criteria.

17.100 The Department should:

• provide follow-up based primarily on information collected at the time an application is accepted;
• conduct more reassessments and clearly flag the cases to be reviewed; and
• heighten the visibility of reassessment as an element of eligibility control.

As a result of the Auditor General's recommendations in an earlier audit, the Department has implemented a rules-based computer system, which will allow for improved identification and use of information for reassessment purposes, collected at the time of application. The Department has already increased the number of reassessments. The reassessment of beneficiaries has increasingly become one of the essential tools for controlling continuing eligibility during the past three years. The identification of cases to be reviewed will be easier with the new technology, now in place.

A recent Treasury Board submission has secured additional resources to enhance the reassessment activities.

Overpayments underestimated

17.102 The 1995 Study on the Incidence of Disability, which included a review of prior medical decisions, concluded that between 4.5 and 8 percent of the applications accepted in 1994 were not justified. This corresponds to potential overpayments of $21 million to $38 million. If this rate were to be applied to all beneficiaries, it could account for significant overpayment amounts. In our opinion, the estimate of $14 million of overpayments for all beneficiaries is underestimated. It is significant to note that neither penalty nor interest is charged to those at fault.

17.103 The less rigorous the eligibility controls, the greater the tendency of the beneficiaries to consider benefits as a right acquired for life, regardless of any change in their situation. This right, however, should be based on a confirmed entitlement. We acknowledge that to help dispel this myth, the Department has undertaken a direct mail campaign through which all Disability beneficiaries are being sent a letter explaining their responsibility to report a change in their condition or a return to work. The activities of the Unit provide important feedback to management on the levels of estimated mispayments and on corrective remedies to prevent them from recurring.

17.104 The Department should improve the procedures used for estimating Disability benefit overpayments.

Department's response: The currently used methodology for estimating Disability overpayments has been developed by the Department in collaboration with the Office of the Auditor General. The design for this methodology is consistent with the previous Auditor General Report recommendations.

If the Office of the Auditor General has any suggested improvements to the previous methodology, the Department will be pleased to consider any modifications to improve its estimates of the overpayments.

It should also be noted that random reviews were designed to estimate error in the payment base for the full disability beneficiary population in 1994, while the Incidence report concerns new benefit payments. These are two different sampling frameworks. The integration of the conclusions of the two frameworks can therefore not be reliably extrapolated.

Scope of rehabilitation could be expanded

17.106 It is reasonable to expect the Department to be involved in rehabilitation. We wish to emphasize, however, that the services offered are restricted to vocational rehabilitation, that is, guidance, training and selective placement designed to enable a disabled person to secure and retain suitable employment.

17.107 In the past few years, many cases of disability have been attributable to new medical conditions for which a diagnosis is difficult to make. Examples include chronic fatigue syndrome, repetitive strain injuries, environmental illnesses and chronic pain syndrome. These cases are now part of the caseload from which beneficiaries with rehabilitation potential are selected.

17.108 The treatment and management of these illnesses differ from the treatment of traditional disability cases and require more psycho-social interventions. It is no longer a matter of dealing only with a physical problem and its environment, but also of considering the concept of disability as related to the individual, his or her social position and the times we live in.

17.109 Some private organizations that provide services to persons with disabilities (other than CPP beneficiaries) use a proactive case management approach, on the premise that an approach based solely on vocational rehabilitation is insufficient (see Exhibit 17.16 ). These organizations have observed that time, the willingness to improve the current situation and adequate treatment all have a positive influence on people. These aspects are all considered in today's psycho-social approach to rehabilitation. The emphasis is on the candidates' potential for recovery, rather than the disability. The objective is to help them, in a positive manner, to improve their condition and enhance their capacity.

17.110 The need for early intervention in rehabilitation is generally recognized. The CPP is at a clear disadvantage here, as the applications for benefits are usually submitted after other available benefits (for example, accumulated sick leave from an employer and sickness benefits available from employment insurance) have been exhausted. Other factors also contribute to delaying the time at which the rehabilitation unit is informed of a potential client's existence:

• application processing backlog of up to three months;
• acceptance of late filers (for example, retroactivity);
• significant number of cases that go to appeal, where processing time is far longer; and
• regionalization of functions.

17.112 Though the Plan allows the administration to penalize those who refuse to participate in rehabilitation, it is rare that it does. The reasons given for refusing need to be analyzed with a view to taking appropriate corrective measures. While only individuals who are truly interested use the service, all beneficiaries must be treated equally. The Department needs to ensure that those who enter rehabilitation run no more risk than those who choose not to participate.

17.113 If the Department decides to continue rehabilitation activities, it is important that it define the spectrum of services that constitutes reasonable rehabilitation measures and how it will equitably serve all beneficiaries who have a potential for rehabilitation. Should rehabilitation produce the expected results, important savings for the Plan and considerable advantages for the beneficiaries could be achieved.

17.114 The Department should:

• promptly take the measures necessary to maximize the chances of success of rehabilitation; and
• review the project as a whole to ensure tighter control of continued eligibility for CPP Disability benefits and equitable treatment of all beneficiaries.

Due to the initial success of the National Vocational Rehabilitation Project pilot, which is currently being evaluated, the Department is incorporating rehabilitation activities into its ongoing operations. CPP administration will continue to ensure that the beneficiaries who participate in the rehabilitation program receive full assistance in regaining their capacity to work. While only individuals who are truly interested use the service, all beneficiaries must be treated equitably. The Department is striving to ensure that those beneficiaries who enter rehabilitation programs run no more risk of having their benefits terminated than those who choose not to participate.

Limited exchange of information between key stakeholders

• the Quebec Pension Plan;
• provincial and territorial workers compensation plans, which pay benefits to persons disabled on the job;
• private insurers who pay benefits to holders of long-term disability insurance policies; and
• provincial social assistance programs.

17.117 There is insufficient exchange of information between the CPP and provincial workers compensation plans or private insurers on medical assessment, decisions rendered, rehabilitation, follow-up and termination of payment to beneficiaries who are receiving benefits from more than one of these organizations.

17.118 The lack of information exchange increases the risk of some beneficiaries receiving benefits to which they are no longer entitled, thus increasing the amount of benefits paid out. The extent of this risk cannot be evaluated, as the data available are incomplete.

17.119 The systematic exchange of information among the CPP, Workers Compensation Boards and private insurers on termination of benefits could improve the detection in a more timely manner of beneficiaries who may no longer be eligible for CPP benefits, and could reduce overpayments. For example, if we assume that the benefits of 10 percent of co-beneficiaries (beneficiaries of more than one plan) under 55 years of age could be terminated because those individuals are fit for work, benefits paid out by CPP could be reduced by up to $42 million per annum. While this reduction may not entirely be due to the exchange of information, it could improve the current performance.

17.120 Each plan manages files and incurs expenditures for similar activities with respect to initial and continuous eligibility of beneficiaries. Currently, there is little exchange among plans. This lack of co-ordination means that some beneficiaries must often provide the same information to several plans, which results in useless duplication of effort and cost. The extent of this phenomenon, however, cannot be established from the data available.

17.121 The Canada Pension Plan Act governs the disclosure of information gathered on beneficiaries. Apart from exceptions recognized by the Plan, without written authorization from the contributor or applicant, or his or her legal representative, addressed to the Minister, a civil servant cannot disclose the information gathered. However, the practice of obtaining such authorization is becoming more and more widespread, both by the CPP and the other organizations that offer disability insurance.

17.122 The CPP pays retroactive amounts owed to beneficiaries directly to other plans when CPP benefits are to be deducted from benefits granted by the other organization. With the exception of social assistance programs, these payments are made at the request of the organization in question, according to agreements to this effect.

17.123 The importance of improving the exchange of information with other organizations is recognized by management. It has recently undertaken measures in this regard with Workers Compensation Boards. A federal- provincial agreement is about to be signed with one province and negotiations have started with four other provinces. To date, exchange of information has been limited and done on a case-by-case basis.

17.124 However, there is discussion of forging closer links among CPP , Employment Insurance, workers compensation plans, private insurers and provincial programs. Taking into account the potential for savings through increased information exchange, we urge the Department to step up its efforts to conclude agreements with the remaining Workers Compensation Boards and to undertake similar negotiations with other organizations.

17.125 At the outset, improved co-ordination would foster a better understanding of the profile of co-beneficiaries of the CPP, workers compensation and private insurers. It would also ease the way for concluding other agreements on the exchange of information and on co-operation in joint activities, including cost sharing. Improved co-ordination could also lead to new ways, where feasible, of integrating common activities and improving the efficiency of operations, and could generate savings in both operating and program costs.

17.126 Greater exchange of information on co-beneficiaries between the CPP and private insurers and workers compensation plans could:

• improve service to beneficiaries by reducing the number of medical examinations required and reduce the cost of health services;
• improve the quality of some CPP decisions by providing more information than available at present;
• reduce program expenditures;
• avoid duplication of occupational rehabilitation services; and
• enable timely flagging of beneficiaries no longer eligible for CPP Disability benefits and reduce overpayments.

• better understand the profile and characteristics of co-beneficiaries of CPP Disability, workers compensation and private insurers; and
• conclude exchange of information and co-operation agreements with the above-mentioned groups.

Extensive negotiations took place to complete the first successful agreement with the Alberta Workers Compensation Board (WCB). The success of these negotiations has allowed for a much faster progress in negotiations with other provinces. The Department is currently negotiating agreements with the New Brunswick, Newfoundland, Manitoba, Nova Scotia and British Columbia WCBs. The exchange of information between the CPP and private insurers would be beneficial and could lead to additional savings. The Department is currently pursuing the possibility of a pilot project to determine the extent of possible savings.

Harmonization with Other Programs

17.129 The survey data referred to in paragraph 17.116 are not a substitute for regularly collecting information on income and income sources. This information is essential to establish the profile of beneficiaries who stack benefits and are not covered by other plans, and to monitor the situation with a view to harmonizing CPP Disability with other plans.

Limited harmonization with workers compensation plans

17.131 Although the amounts paid by the CPP to beneficiaries of workers compensation plans are appreciable, the CPP has little information from which to accurately assess the number of co-beneficiaries and the amounts paid out. The most recent survey suggests that 17 percent of respondents also receive benefits from workers compensation plans.

17.132 The Canada Pension Plan contains no provision concerning the treatment of disability benefits from other sources, other than provisions allowing for reimbursement of advances paid by other plans. As other programs' benefits are not taken into account, this makes the Plan a first payer. At the time the CPP was created, most workers compensation programs also took a first payer position, ignoring benefits from other programs. However, in recent years a number of plans have adopted policies aimed at reducing their payments by CPP Disability benefit amounts. The policies vary from board to board.

17.133 In Quebec, the Commission de santé et de sécurité au travail is the first payer in relation to Quebec Pension Plan disability pensions. This has been enshrined in the legislation since 1986. According to the Régie des rentes du Québec, four percent of applicants are denied a disability pension because of this provision. If the CPP had adopted a policy similar to the Quebec policy, costs could have been $9 million to $40 million less in 1995-1996, considering that overlap accounts for between 4 and 17 percent of new CPP beneficiaries. Such a provision would require federal and provincial approval.

Key differences between the CPP and QPP

17.135 The CPP administers a number of accounts for contributors who participate in both the Canada Pension Plan and the Quebec Pension Plan (QPP). Under the terms of an understanding between the administrators of the two plans, benefits are granted by the paying organization according to the Act, regulations and procedures in force. The proportion of pensions and benefits payable by each plan is based on the contributions paid into it. In 1994-1995, CPP Disability benefits accounted for 18.7 percent of total payments; for the QPP, they accounted for 9.2 percent.

17.136 Given that the legislation requires that comparable benefits be provided by both plans, it is important to identify the differences between these plans and to evaluate their effects. Exhibit 17.18 shows the difference between the utilization rates of Disability benefits for the two plans. Utilization rate is determined by dividing the average number of beneficiaries by the number of contributors.

17.137 Since 1975, the CPP utilization rate has been higher than the QPP rate. The disparity remained stable from 1975 to 1985; however, since 1985, the QPP utilization rate has remained virtually unchanged while the CPP rate has almost doubled. Analysis of the changes to the CPP since 1985 seems advisable in order to determine their impact on the different patterns of change in the two plans.

17.138 Exhibit 17.19 shows that, between 1986 and 1994, the number of recipients of QPP Disability benefits increased by only 2 percent, compared with 92 percent for the CPP. Furthermore, and also shown in Exhibit 17.19 , beneficiaries of the two plans differ by cause of disability, although the two plans have similar purposes.

17.139 Exhibit 17.20 summarizes the legislative and administrative differences between the CPP and the QPP and the possible impact on CPP Disability benefits. In particular, there are major differences between the two plans in contribution criteria and definitions of serious and prolonged disability used to determine contributor eligibility. Since 1987, CPP contribution criteria have been relaxed, with contributions for two of the past three years now making a contributor eligible. This criterion has been in force in the QPP since 1993. For the purpose of the CPP, prolonged disability is defined as "long continued and of indefinite duration". "Long continued" disability is interpreted by CPP administration as lasting at least one year. The QPP defines prolonged disability as likely to result in death or lasting indefinitely.

17.140 Because of the significant and fundamental legislative and administrative differences between the CPP and the QPP, care must be taken when comparing the changes in Disability benefits paid out under the two plans. These differences are probably the principal cause of the increasing disparity between utilization rates for the two plans, although other differences may also be important. According to CPP management, the CPP and QPP are considered comparable plans. Changes to both plans over the years have resulted in differences that at times have increased the distinctions and at other times narrowed them.

17.141 The Auditor General of Quebec in his 1995 report observed that Disability applications resulting from some diseases such as fibromyalgia and chronic fatigue syndrome are accepted by the CPP and refused by the QPP where such a disease is the main basis for the application. In the case of contributors to both plans, the QPP pays disability pensions to beneficiaries who would have been considered ineligible, if their applications had been processed by QPP officials.

17.142 Although contribution rates to the two plans are identical, we found that the disability-related benefits are not the same as to access or amounts paid. This situation reflects important differences between the two plans. The legislative and administrative factors underlying the observed disparities between the two plans have not been evaluated to determine if benefits remain comparable.

17.143 The Department should:

• identify and evaluate the effects of significant differences between Canada Pension Plan and Quebec Pension Plan Disability benefits; and
• make the results of its evaluations available to federal and provincial authorities in a timely fashion.

When Quebec chose to opt out of the CPP to create its own plan, both plans were identical, except for the investment strategy. Over the years, changes to both the CPP and QPP resulted in differences between the plans, which at times increased the gap between the plans, and at other times narrowed it. Differences are found in their financing, supplementary benefits and credit-splitting provisions. However, both plans' fundamental elements are identical (same contribution levels, contributory plans financed by employee/employer contributions, and same type of benefits that are similarly structured).

It is essential to note that the Department cannot fully evaluate the effects of the differences between the two plans on its own. This should be a joint effort of both federal and provincial governments.

Information on Results

Evaluation studies provide useful information

17.145 Overall, the issues and questions addressed by the studies were appropriate and extensive, and provided useful information on CPP Disability. They included comparisons with disability programs in Quebec (QPP Disability) and in seven other countries, some economic analyses, interviews with stakeholders and a survey of beneficiaries. The latter provided information on the incomes of CPP Disability recipients, the source of such incomes, their education and pre-disability work, willingness to undertake vocational rehabilitation, obstacles to their returning to work and an indication of how those obstacles might be surmounted. The various studies provided a great deal of background information about beneficiaries and alternative ways of providing public disability insurance. The Interim Report presented a number of proposals for improving CPP Disability, including changes to adjudication and appeals processes and the possibility of separating it from the CPP.

17.146 Although the evaluation reviewed a number of potential factors, it could not fully answer the question of why the caseload has expanded rapidly in recent years. It found that the extent to which economic conditions were a causal factor in the cost increase could not be resolved with available data. For example, administrative data on the eligible population and on applications did not include age and gender distributions. In addition, we noted problems in the evaluation's design and use of data. In general, the evaluation should have done more analysis on how the incidence of disability, which is strongly age-related, interacted with the movement of the baby boom generation through the eligible population and with the increasing presence of women in the working (eligible) population.

17.147 The evaluation concluded that the program benefits have more than met their target of providing 25 percent replacement of income at Yearly Maximum Pensionable Earnings - a ceiling on coverage set at approximately the average industrial wage - and higher replacement for incomes below that level. CPP Disability provides, on average, about half of recipients' incomes; part of the reason for this proportion is that some other income providers are reducing their benefits by the amount of CPP Disability benefits. The extent to which CPP Disability lowers the cost to other income providers rather than helping the disabled, and the adequacy of disabled recipients' incomes, were not issues in the evaluation (the beneficiary study found that close to 40 percent had incomes below Statistics Canada's low-income cut-off level). The evaluation discussed how contribution requirements and disability criteria affect the total number of beneficiaries, but did not assess fully their impact on eligibility or coverage of particular types or groups of disabled workers, such as older workers.

17.148 CPP Disability does not have precisely defined objectives. This hampered the evaluation's measurement of program success. We expected more discussion and clarification of what CPP Disability is expected to accomplish. For instance, in providing 25 percent replacement of income, CPP Disability also provides higher rates of replacement to those who had lower pre-disability incomes and lower rates to those who had higher pre-disability incomes. There was no discussion of whether this distribution is consistent with CPP Disability goals.

17.149 The evaluation did not discuss major alternatives to providing income to disabled workers, although recommendations to improve administrative efficiency and effectiveness were made. These recommendations were reasonable, although in some instances not directly based on the evidence presented in the evaluation. Examination of the program's rationale did not include examining the extent to which workers are covered by other disability insurance programs, whether disability could be adequately addressed by the provinces or the rationale for public coverage of workers only, rather than all adult citizens, as provided by some of our trading partners. Thus, a number of significant questions about the success of CPP Disability remain unanswered.

17.150 Further research and program monitoring were recommended by the evaluation team and we concur. We also support its recommendation that the preparation of the evaluation framework should begin now, in time for the next quinquennial review of the CPP. The recommendations did not address the major information gaps related to placing CPP Disability in a demographic context. More information is needed about the size and structure of the eligible population and about applications in relation to the working and disabled populations by age, gender and disability type and severity. These information gaps are significant and a recommendation should have been made to rectify them. In our opinion, the proposed beneficiary case/file review, while potentially useful, will not remedy the major information gaps.

Important performance information gaps

17.152 In spite of the efforts of the administration to explain the increase in the cost of Disability benefits, the impact of the changes in benefit rates and number of beneficiaries has not been quantified. No account has been taken of actual additional disbursements resulting from legislative change, nor has any attempt been made to explain unexpected disparities.

17.153 We found significant gaps regarding eligibility information. The management information systems are limited, data required for sound analysis are not all captured and data on performance measurement are incomplete. The combined cost of Disability benefits and of administering the benefits is not taken into account. The discounted value of an average benefit - which would enable case-by-case comparison of the cost/benefit ratio - is not known.

17.154 CPP management has introduced guidelines to assess eligibility; however, the impact of these guidelines has not been assessed. We believe that, over the period in question, the impact on applications accepted has been significant.

17.155 Information is lacking on the number of beneficiaries who receive benefits from more than one plan. We recognize that the characteristics of such a group are not easy to define. Each plan manages its own cases, and the information used in processing them cannot be exchanged. However, the lack of information exchange increases costs for all plans and the risk of some beneficiaries receiving undue benefits or receiving benefits when they are no longer eligible.

17.156 The information gaps identified prevent CPP management from adequately accounting for and managing its allocated resources.

17.157 The Department should take steps to fill the identified gaps in performance information.

Department's response: The Department has made continuous efforts to document the increase in the cost of Disability benefits in recent years.

• Reports are available on the total cost of benefits arising from referrals of provincial social assistance clients to the CPP in Ontario and New Brunswick (as a result of Bill C-57 legislation).
• CPP Disability caseload growth analysis has reported the steadily declining growth in the disability caseload over the past six months. The report has shown a decline in the number of CPP beneficiaries for five consecutive months. It has also indicated that the number of upheld decisions at appeals level has increased during the same time.

A major quality control review is currently in progress to verify consistency of application of guidelines.

The Department is developing a strategic plan to identify any other information gaps and to document the efforts required to fill these gaps.

Separate report on CPP Disability needed

17.159 The importance of CPP Disability in the eyes of the public and parliamentarians is an incentive to gather all significant and relevant information in a single report. Currently, information needs to be extracted from a number of reports, not all of them published simultaneously or in a timely fashion. Is it reasonable to expect to find exhaustive information on CPP Disability in a single report?

17.160 We believe that it is possible to gather the relevant information on results and performance in a single report. The Department can look to examples set by other plans on such matters as how to gather financial information and information on results. Taking into account questions on funding and the many problems raised by various departmental studies and our audit, a single report - or at least a separate chapter - on Disability benefits is essential. With the aim of accounting for its activities, an exhaustive report might include, among other things, the following information:

• statement of vision, mission, values, priorities and objectives;
• comparison of objectives and results with those of similar organizations;
• comparison of actual costs with forecast costs;
• overall resources and costs allocated to administration and benefits;
• service standards, performance indicators, and performance measurement related to operational activities;
• demographic data and long-term projections to be used in determining client profiles (beneficiaries and contributors);
• contribution (costs incurred) of the departments involved in providing services to the CPP;
• referral to other available statistics, where applicable;
• study of trends in average benefits paid by various programs;
• summary of program changes with their costs;
• detailed information on funding and impact on contributions;
• information on future costs of CPP programs and activities;
• additional information from the CPP Advisory Board, where applicable; and
• update on past and current initiatives and impact on results.

17.162 The Department should produce in a separate report timely, complete and relevant information on the significant activities related to CPP Disability to account for the management of its allocated resources.

Department's response: The Department will assess the feasibility of producing a detailed report on the performance and results of the CPP Disability program. Information on CPP Disability is already being published in the CPP Annual Report, CPP Advisory Board Report and in Part III of the Estimates.

A comprehensive action plan is required immediately

17.164 Early response to the evaluation's Interim Report is encouraged; it contains many recommendations aimed at improving operational efficiency and effectiveness. This chapter also identifies a number of corrective measures, some of which need to be taken as early as possible to remedy long-standing situations.

17.165 We have seen no progress report on actions taken to date or planned. All those involved with the CPP would benefit from a comprehensive action plan that sets out a shared vision and the priorities, and the responsibilities and co-ordination mechanisms required by the various operational units involved. The action plan should also specify the additional resources needed, if any, for carrying out the measures required for implementing recommendations and for monitoring progress in this regard. We believe that a systematic and integrated approach with clearly defined accountability is needed.

17.166 The Department should develop a comprehensive action plan to establish priorities for the timely implementation and follow-up of required corrective measures to improve operational efficiency and effectiveness.

Department's response: The Department has already taken action on eight recommendations documented in the 1995 Study on the Incidence of Disability. These form the basis for development of a framework for the long-term direction of the CPP Disability program.

An action plan to ensure comprehensive follow-up on all evaluation and audit recommendations is being developed. Responsibility for carrying out this plan has been assigned to a senior manager within the Income Security Programs area.

While many of the strategic issues concerning CPP Disability require further action, there are many operational priorities to which the Department has allocated considerable resources and management attention. Considerable progress has been made in the following areas to improve service to clients and manage the current CPP Disability program more efficiently:

w elimination of the backlog of new applications and reduction in the backlog of appeals;

w significant reduction of the waiting time between when an application is received and when a decision is made;

w regionalization of the adjudication of initial applications, reconsideration and appeals;

w establishment of a reassessment program with resources specifically dedicated to addressing the backlog of clients who require a review of their continuing eligibility, including the implementation of new technology for tracking and selecting clients;

w improvements to ensure consistency of adjudication decisions;

w improved communication and outreach to clients; and

w information-sharing agreements with Workers Compensation Boards for exchange of information on mutual clients.

Conclusion

Common mindset needed to meet the challenges ahead

17.168 The Department has only recently identified the main factors causing the growth in Disability payments. It was unable, however, to quantify some of these causes because of the lack of data. The Department has made concrete efforts to define corrective measures. Some of these, which have recently been implemented, appear to be contributing to a reduction in the acceptance rate. It is too early, however, to conclude whether these corrective measures will have a significant and lasting impact on the disability incidence rate.

17.169 Current information is not sufficient to properly manage eligibility for Disability benefits. Data on the measurement of performance (for example, productivity, quality of decisions and speed of service) are not collected or analyzed for management and accountability purposes. Furthermore, the limited importance attached to reassessment activities has diminished the CPP's ability to rigorously monitor continued eligibility.

17.170 One of the consequences of adopting guidelines that have a significant impact on program costs without amending the Act itself is a major disparity between the CPP and the QPP. A number of questions remain unanswered concerning the need to entrench in the Act any new guidelines that may impact significantly on program costs.

17.171 We do not know whether CPP Disability has achieved the objectives set, or whether these objectives are still valid; these are two questions that we expected would be answered by the evaluation. We concur with the conclusions of the evaluation that more research and analysis are required, especially because of the important gaps in demographic information. The combined costs of administration and benefits need to be taken into account for CPP Disability to improve decisions.

17.172 With the administration regionalizing its disability-related activities, the Department cutting back on staff, the major system redesign behind schedule, and the number of applications remaining high, we consider that the deficiencies we have identified require immediate action from management.

17.173 CPP Disability represents a social insurance against disability and is related to participation in the labour market. The Plan's ability to ensure at least a minimum level of protection depends, to a great extent, on its ability to adapt to future challenges, opportunities and restrictions. For example, the effect of an ageing population on the disability incidence rate and, ultimately, on the funding of the Plan is one of the key challenges. Sound management practices, as described in this chapter, can help the Department address the major challenges ahead.

17.174 The Department's role is to assure contributors and parliamentarians that CPP Disability benefits are paid to those, and only those, who are eligible. When costs of benefits rise, governments are faced with the difficult task of balancing the needs of those who have contributed to the CPP fund - and who are now unable to work due to a severe and prolonged physical or mental condition - and the needs of future generations to ensure that they will not be faced with unreasonable burdens.

Departmental Management Comments on the Chapter

Since the 1993 audit chapter on Programs for Seniors, the Department has worked very closely with the Auditor General's Office to develop the current methodologies to determine Income Security Programs mispayments. The current report on the Disability program has raised issues concerning results related to CPP Disability overpayments. The Department is prepared to work with the Office of the Auditor General to develop a mutually agreeable methodology in this area, recognizing the difficulty in determining the moment a disabled client regains the capacity to work.

In recent years, public and private disability earnings-replacement programs in Canada, the U.S. and Europe have experienced the same dramatic increase in demand and subsequent cost pressures as the CPP Disability Program. The Department is actively in contact with these administrations to learn from them and to incorporate their best practices into the Program to ensure its long-term viability.

About the Audit

Objective

• determine the extent to which the causes of the recent growth in Disability benefits are known;
• assess the adequacy of management practices for initial determination of eligibility for benefits and for monitoring continuing eligibility of beneficiaries;
• determine how CPP Disability is harmonized and co-ordinated with other disability programs such as provincial workers compensation plans; and
• examine the adequacy of management systems and practices in place for measuring and reporting on the effectiveness of CPP Disability activities to Parliament.

Scope

We reviewed reports on comparable studies of disability in various countries and audit reports prepared by organizations similar to ours. This review enabled us to appreciate the nature and importance of the challenges and risks related to administering a disability benefit plan. We also examined a number of beneficiary files in order to evaluate the adequacy of current management practices.

Our audit did not attempt to determine whether the CPP is a better plan than the Quebec Pension Plan (QPP) from the point of view of either the beneficiaries or the contributors. However, key differences between the CPP and the QPP Disability were noted to gain a clearer understanding of the causes of the rapid growth in CPP Disability payments.

The quantitative information in the chapter has been drawn from Human Resources Development Canada and other sources indicated in the text. Reasonableness of this information has been examined but not audited.

Criteria

Eligibility for benefits should be established on the basis of relevant and complete information. Disability benefits should be managed with due regard to economy.

Reassessment should be carried out, when deemed appropriate, to ensure continuing eligibility. Rehabilitation measures should be taken when considered effective.

Activities and decisions should be co-ordinated with other disability insurance plans when necessary.

The objectives achieved and the results obtained with CPP Disability benefits should be evaluated comprehensively. The information communicated to Parliament should be relevant, reliable, understandable and timely.

Audit Team

Andrée Bélair
Martin Dompierre
Louise Dubé
Sylvie Paré
Jean-Pierre Plouffe
Yvon Roy
Aline Vienneau

For information, please contact Louis Lalonde, the responsible auditor.