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1999 April Report of the Auditor General of Canada

Main Points

7.2 Most of the deficiencies noted in the audit relate to a lack of diligence in assessing project proposals and signing contribution agreements, as well as lack of monitoring by the Department.

7.3 Many of the files contained no project proposals; in others, proposals were not sufficiently developed to allow proper assessment. Some agreements lacked complete information, included ineligible costs, or did not correspond to the measure under which the project was funded. There was little evidence of on-site monitoring visits to examine expense records.

Background and other observations

7.5 Those expenditures were not covered in our audit of The Atlantic Groundfish Strategy, reported in Chapter 16 of our October 1997 Report. Following the publication of that Report, the House of Commons Standing Committee on Fisheries and Oceans requested that we audit the expenditures.

7.6 Our Office and the Internal Audit Bureau (IAB) of Human Resources Development Canada agreed that IAB would audit the grants and contributions made under TAGS. We closely monitored and reviewed that audit so we could rely on the findings for this chapter.

7.7 TAGS had increased the caseload of officers by some 40,000 participants over a short period of time. This created pressure to identify, approve and contract for an unprecedented number of projects.

7.8 Several contributions went to projects that were not clearly related to TAGS. More than half of the agreements were signed after projects had begun. Expenditures were reimbursed without supporting documentation for the claims. For more than half of the projects reviewed, there was no evidence that the files had been closed, although most of those projects had been completed more than two years earlier.

Overall, Human Resources Development Canada agrees with the findings of the audit and recognizes that a number of important points and concerns are raised in the chapter. Actions undertaken to address the issues include the development of new policies and procedures, training for managers and staff and, in new initiatives, securing resources to ensure sufficient monitoring.

Introduction

7.10 Human Resources Development Canada (HRDC) was responsible for the labour adjustment component of TAGS, a series of active measures aimed at adjusting affected workers out of the fishery and enhancing the profession of those fishers who remained active in the fishing industry. Exhibit 7.1 outlines these measures and indicates the amount of expenditures spent on each of them.

7.11 A key objective of the government was to ensure that the communities affected by the groundfish moratorium had sufficient funds to maintain essential economic and social activities. To that end, Human Resources Development Canada gave priority to income support for affected workers. To be eligible for income support, fishers and plant workers had to agree to participate in the active labour adjustment measures.

7.12 As TAGS evolved and participation proved higher than had been forecast, funds designated for the active labour adjustment measures had to be transferred twice to income support (in January 1995 and July 1996). As a result, the requirement to participate in these measures was gradually abandoned. The last projects under TAGS were approved more than two years ago.

7.13 TAGS increased the caseload of officers by some 40,000 participants over a short period of time. This created pressure to identify, approve and contract for an unprecedented number of projects.

7.14 Moreover, given the lack of time available to plan and design the labour adjustment measures, HRDC developed some new options but mostly used those existing under another of its programs at the time, the Canadian Jobs Strategy, with little adaptation to reflect TAGS objectives. Furthermore, policies were introduced and changed as TAGS evolved, and so local managers had to be flexible and adapt accordingly. While implementing TAGS, the Department was also modifying its programs and reducing its work force.

7.15 Aspects of the labour adjustment component were discussed in our October 1997 Report Chapter 16 on TAGS. Following the tabling of our Report, the House of Commons Standing Committee on Fisheries and Oceans passed a motion requesting that our Office audit the expenditures made under the grants and contributions administered by HRDC for the active labour adjustment measures. A copy of the Committee's request is presented as an Appendix to this chapter. These expenditures represent about $150 million of the $1.9 billion allocated to TAGS.

Focus of the audit

7.17 The Internal Audit Bureau (IAB) of Human Resources Development Canada had already planned an audit of grants and contributions provided by the Department. We agreed with IAB that it would conduct the audit, and that we would monitor and review its work to assess its relevance to our objectives and to determine whether the supporting evidence was appropriate for our purposes.

7.18 Further details on our audit can be found at the end of the chapter, in About the Audit .

Observations

7.20 The IAB audit team reviewed 193 project files, including 167 contribution agreements and 26 grants. It also met, where possible, with sponsors and with employees at Human Resource Centres of Canada. Four general criteria were used:

• The contracting process should comply with Treasury Board and HRDC standards for grants and contribution agreements.
• Projects should be managed effectively and be monitored operationally and financially.
• Sponsors should comply with the terms and conditions of their agreements.
• Grants and contributions should be paid only to entitled individuals or organizations, and contributions should be used solely for their intended purposes.

Weak Management, Control and Monitoring of TAGS Contribution Agreements

Proposals were not fully analyzed

7.23 Few files contained enough information for the audit to verify whether the project sponsor had been entitled to the contribution under the measure for which the proposal had been submitted. Moreover, there was no indication that sponsors had been checked to see if they had any outstanding debt to the Crown, or were already receiving funds for similar activities.

Many projects were not clearly linked to TAGS

7.25 Certain projects, particularly where courses were purchased, included TAGS and non-TAGS participants but expenditures for both groups were funded through TAGS alone, instead of under the proper funding authorities in proportion to TAGS and non-TAGS participants.

Contribution agreements were undermanaged

7.27 In some cases, funds provided for a project were attributed to a measure other than the one under which the agreement had been signed. These changes were reflected on a schedule to the agreement that identified the project's eligible costs, but with no explanations for the change. Moreover, the changes were not made in the body of the agreement that spells out for the sponsor the terms and conditions that apply. There were unexplained differences between agreements, particularly in their clauses on objectives, sponsor/co-ordinator/employer eligibility, costs, eligibility of participants, recruitment of participants, training, payments, GST and disposition of assets.

7.28 Terms and conditions of one measure were sometimes confused with those of another and applied under the wrong agreement. For example, agreements under the Delivery Assistance measure were used to contract for counselling services in remote areas, but the correct measure for those services was Employment Assistance. The Portable Wage Subsidies and Job Opportunities measures were similarly confused.

7.29 Whether it was a case of attributing the funds to the wrong measure or of using the wrong measure, the result was that the wrong terms and conditions were communicated to the project sponsor. This makes it difficult to determine under what criteria the projects were approved, managed, controlled and monitored. It also puts into question the reliability of reports on the funds used for each measure.

7.30 More than half of the agreements were signed after the project started. In one case, the project officer issued a "prior commitment letter" to the sponsor before the agreement was approved, allowing the project to proceed without a formal agreement. In another case, an agreement for $141,200 was signed after the project had been completed and the claim for reimbursement received. In addition, payments of over $50,000 were made to a few projects with no signed agreement.

7.31 The auditors could not verify the authenticity of some signatures in all HRDC regions. Moreover, few files contained evidence that the sponsor signatories were signing officers with their respective organizations.

7.32 A project established at $463,000 was split into four separate projects so that the local manager could sign the agreements. This practice does not comply with the delegation of authority.

7.33 Few projects were subject to on-site operational or financial monitoring and only about half the files showed evidence of any off-site monitoring (phone calls, memos and so on). In particular, one company received in excess of $500,000 over the life of a project, went into receivership and was closed down before the project was completed. There was no evidence that the project had been monitored. Indications of problems existed early in the life of the project, and monitoring could have prevented the loss of more than $100,000 that had been advanced to the sponsor but was not accounted for.

7.34 Some recipients of Self-Employment Assistance continued to receive payments for several months after their businesses had closed down. In another case, an employer under a Portable Wage Subsidy agreement continued receiving payments after the employee for whom the contribution was intended had become a partner in the company.

7.35 In most cases, expenditures were reimbursed although the claims had been submitted without supporting documentation. In some cases, errors in claims went undetected and so payments were made for expenses that were not covered by the agreement.

7.36 Although most of the audited projects had been completed for almost two years, nearly half the files showed no evidence of the required close-out procedures. This made it impossible to determine, among other things, if the sponsor had accounted for all advances received, if overpayments had been made and had been recovered, if assets had been disposed of as directed, and if the project had achieved the expected results.

7.37 In summary, the review of the files found serious weaknesses in the management, monitoring and control of contribution agreements. Proposals did not exist or were not sufficiently developed to allow proper evaluation. Some agreements did not contain complete information, included ineligible costs, or did not correspond to the measure under which the project was funded. Expense claims were not supported by documentation, and there was very little evidence of on-site monitoring visits to examine expense records. Objectives and expected results of projects were generally not clear. In general, the outcome of projects was not documented or known.

Grant Payments Generally Complied

Applicable policies and procedures were followed

Conclusion and Recommendation

7.40 We are concerned about the findings of this audit. They clearly indicate a lack of diligence in assessing proposals and signing agreements, and a lack of monitoring.

7.41 These weaknesses could be a reflection of the circumstances that prevailed when TAGS was implemented, but that does not explain them away. We believe that the observations made in this chapter could apply to other situations. We note, however, that IAB is continuing its audit of active grants and contributions and has recommended that lessons learned from this audit be used to strengthen the management of grants and contributions in general.

7.42 Labour adjustment measures have been substantially modified. Several of the measures reviewed in the audit still exist and are applied in a context where greater authority has been delegated downward in the Department, when not wholly vested in the provinces. Although TAGS has now been terminated, the possibility remains that new partnerships may be entered into with the same sponsors.

7.43 Under the current labour adjustment programs, Human Resources Development Canada should ensure that:

• contribution proposals are properly developed and are reviewed carefully;
• analyses and the reasons for decisions are clearly documented; and
• contribution agreements are adequately monitored.

HRDC recognizes that the chapter raises a number of important points and concerns related to the managing, controlling and monitoring of TAGS grants and contribution agreements. As a result, the positive and valuable lessons learned from this audit are serving as a basis to assist HRDC to better manage, control and monitor grants and contribution agreements in other programs. In fact, HRDC has taken action: to develop new policies and procedures, to provide training for managers and staff, and to secure resources in new initiatives to ensure sufficient monitoring. Some of these actions are reflected in Chapter 8 of this Report, The Atlantic Groundfish Strategy: Follow-up .

About the Audit

Objective

Approach

We expected:

• that the internal audit work would be planned and conducted in accordance with generally accepted auditing standards;
• that audit reports would properly outline findings, be discussed with management, and be submitted to the Deputy Minister or the Audit Committee in a timely manner.

Scope

Audit Team

For information, please contact Louis Lalonde.

Appendix

Letter from Chairman of House of Commons Standing Committee on Fisheries and Oceans

Mr. L. Denis Desautels, FCA.,
Auditor General of Canada
240 Sparks Street
Ottawa, Ontario
K1A 0G6

Dear Mr. Desautels:

During your testimony before the Committee on October 21, 1997, you advised us that you have the mandate and the ability to conduct a further, or more in-depth audit, to determine "where the money went" in regard to the list of TAGS-funded items provided by "The Help Group":

Please accept this letter as an official request on behalf of the Steering Committee of Fisheries and Oceans to have said audit conducted at your earliest possible convenience.

I would appreciate hearing back from you as soon as possible as to what sort of a time frame this audit will involve so that I may report back to the Steering Committee.

Yours truly,

George Baker, M.P.,
Chairman,
Fisheries and Oceans Committee

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