Introduction

Background

1. The Laurentian Pilotage Authority is a federal Crown corporation established in 1972. It reports to Parliament through the Minister of Transport and is 1 of 4 pilotage authorities established under the Pilotage Act. This act establishes the corporation’s mission, which is to establish, operate, maintain, and manage, in the interests of navigation safety, an efficient pilotage service in the Laurentian region, specifically on the SaintSt. Lawrence and Saguenay rivers.

2. Following amendments to the Pilotage Act that came into force between 2019 and 2021, the corporation no longer has the power to make regulations concerning the provision of pilotage services. That responsibility was transferred to the Governor in Council^{Definition 1}, who may make regulations on the recommendation of the Minister of Transport. In particular, the Governor in Council may make regulations on compulsory pilotage areas, ships or classes of ships that are subject to compulsory pilotage, the qualifications (including physical and mental fitness, degree of general and local knowledge, skill, training, and experience) required of an applicant for a licence in a compulsory pilotage area, and the examinations required to determine whether the licence qualifications have been met.

3. Under the Pilotage Act, the corporation is required to set pilotage charges that are fair and reasonable, and that allow it to be financially self-sufficient.

4. The General Pilotage Regulations establish 3 compulsory pilotage districts for the Laurentian Pilotage Authority: the navigable waters between Montréal and Pointe-aux-Trembles (District 1.1); the navigable waters between Montréal and the City of Québec (District 1); and the navigable waters between the City of Québec and Les Escoumins, including the Saguenay River (District 2) (Exhibit 1).

5. The regulations also set out the criteria for determining which ships or classes of ships are subject to compulsory pilotage. Ships that travel through the compulsory pilotage areas in the Laurentian Pilotage Authority region must be under the conduct of a licensed pilot (that is, a person who does not belong to a ship and has the conduct of it) or a pilotage certificate holder. Pilotage services in each district are provided by 2 pilot organizations that are independent of the corporation.

6. The regulations establish the classes of licences that can be issued and the qualifications that applicants and licence holders must meet for the Laurentian region.

7. The corporation has around 60 employees working at its head office in Montréal, at the Les Escoumins pilot boarding station, and on the Ville-Marie shuttle serving the Port of Montréal.

8. The corporation’s expenses are financed by pilotage revenues, which come primarily from what it charges its clients for pilotage services. Most of the corporation’s expenses are related to pilots’ fees. Exhibit 2 presents the financial results for the last 4 fiscal years.

Focus of the audit

9. Our objective for this audit was to determine whether the systems and practices we selected for examination at the Laurentian Pilotage Authority were providing the corporation with reasonable assurance that its assets were safeguarded and controlled, its resources were managed economically and efficiently, and its operations were carried out effectively, as required by section 138 of the Financial Administration Act.

10. In addition, section 139 of the Financial Administration Act requires that we state an opinion, with respect to the criteria established in subsection 138(3), on whether there was reasonable assurance that there were no significant deficiencies in the systems and practices we examined. We define and report significant deficiencies when, in our opinion, the corporation could be prevented from having reasonable assurance that its assets are safeguarded and controlled, its resources are managed economically and efficiently, and its operations are carried out effectively.

11. On the basis of our risk assessment, we selected systems and practices in the following areas:

• Corporate management practices
• Management of pilotage services

The selected systems and practices, and the criteria used to assess them, are found in the exhibits throughout the report.

12. More details about the audit objective, scope, approach, and sources of criteria are in About the Audit at the end of this report.

Findings, Recommendations, and Responses

Corporate management practices

The corporation had good corporate management practices in some areas but improvements were needed in governance, performance monitoring, and risk management

13. We found that the corporation had some good corporate management practices in place. However, we found opportunities for improvement in board independence and oversight; performance monitoring; and risk mitigation, monitoring, and reporting.

14. The analysis supporting this finding discusses the following topics:

• Corporate governance
• Strategic planning
• Corporate risk management

15. The corporation’s Board of Directors consists of the Chair and a maximum of 6 other members. All board members are from outside the corporation. The Pilotage Act prohibits from board membership anyone who provides pilotage services or is employed by a person providing or using such services. Board members, other than the Chair, are appointed for a term not exceeding 4 years, which can be renewed. They may continue to serve until a successor is appointed or their term is renewed. The Minister of Transport, with the approval of the Governor in Council, is responsible for appointing board members with the exception of the Chair, who is appointed by the Governor in Council.

16. The board is supported by the Audit Committee and the Governance and Human Resources Committee.

17. In May 2022, the corporation announced the upcoming departure of the Chief Executive Officer, who left at the end of October 2022, after the period covered by the audit. The position was staffed on an acting basis pending the appointment of a new chief executive officer by the board.

18. The corporation is subject to Part X of the Financial Administration Act, which requires it to prepare an annual corporate plan. The corporate plan sets out a Crown corporation’s objectives, strategies, and operational and financial performance indicators and targets. It also includes operating and capital budgets. The plan is submitted to the responsible minister for approval by the Government of Canada.

19. The corporation’s 2022–26 corporate plan summary lists the following 3 strategic priorities:

• Optimize the establishment, operation, maintenance, and management, for navigation safety, of an effective and efficient pilotage service in the navigable waters under its jurisdiction and ensure sound risk management taking technological developments into account.
• Maintain the corporation’s financial self-sufficiency in order to reach strategic objectives, ensure the sustainability of assets, cover unforeseen circumstances, and provide quality services while maintaining fair and reasonable pilotage charges.
• Support the government’s objectives with respect to safety, the efficiency and effectiveness of the marine transportation system, the safety of marine personnel and the protection of the public, property, and the environment in keeping with the policies, directives, and instructions of the Minister of Transport and the Government of Canada.

20. Our recommendations in this area of examination appear at paragraphs 25, 26, 29, 33, 40, 41, and 42.

21. Analysis. We found that the corporation had good systems and practices for providing strategic direction and for board appointments and competencies. However, certain aspects of board independence and oversight needed improvement (Exhibit 3).

22. Weaknesses—Board independence. Obligations of board members in relation to conflicts of interest were clearly defined, and the members annually disclosed the names of any companies with which they or their close family had employment or business ties if those companies were likely to have a business relationship with the corporation. However, we found that those disclosures did not address all types of conflicts of interest, and that the board and its committees did not systematically ask their members to declare any conflicts of interest at the start of meetings. In addition, the corporation did not have a systematic process in place to document the measures taken regarding disclosed conflicts of interest.

23. We also found that the corporation had informed board members of the statutory requirements and guidelines to which they were subject concerning values, ethics, behaviour, and conflicts of interest. The corporation had also provided board members with the employee code of conduct. However, the corporation did not have a code of conduct for board members, supported by a process for ensuring compliance. A code of conduct sets out the values and behaviour expected in the performance of professional duties.

24. These weaknesses matter because the regular disclosure of potential conflicts of interest and the documentation of safeguard measures to address such conflicts are important for establishing the corporation’s credibility and fostering sound governance and accountability. In addition, establishing a process to ensure compliance with a code of conduct for board members would help the members carry out their duties as expected.

25. Recommendation. The corporation should establish a regular disclosure process for members of the Board of Directors covering all types of conflicts of interest, and should document any measures taken, if necessary.

The corporation’s response. Agreed. The corporation will improve the current disclosure process by December 2023 so that it covers all types of conflicts of interest and will document any measures taken to address disclosed conflicts of interest. In addition, as of March 2023, an item will be systematically added to the Board of Directors’ meeting agenda so that at the start of meetings, members can declare conflicts of interest, if necessary.

26. Recommendation. The corporation should establish a code of conduct for members of the Board of Directors and ensure compliance with the code.

The corporation’s response. Agreed. A draft code of conduct for members of the Board of Directors was submitted to the Governance and Human Resources Committee in August 2022. The corporation will put in place an annual process for board members to declare their compliance with the code. The corporation will finalize the code and implement the process for compliance with the code by fall 2023.

27. Weakness—Board oversight. We found that management had not provided the board with the following information that would enable it to exercise comprehensive oversight:

• Ethical performance. The corporation had a code of conduct covering conflict-of-interest requirements and expected behaviour for all employees. We found that the corporation’s employees did not declare their commitment to comply with the code, either at the time of hiring or at a later date. In addition, although there was an annual disclosure process for certain types of conflict of interest, it did not apply to all types of conflict of interest or all employees. We also found that the board was not informed of the results of the disclosure process.
• Risk management. We found that the board had received some information about corporate risks, and that it had contributed to the risk identification and assessment process. However, the board was not provided with complete information enabling it to ensure that measures were in place to mitigate the risks (see Exhibit 5, under Risk monitoring and reporting).

28. This weakness matters because the board must ensure that the corporation is managing its operations effectively. Without comprehensive ethical performance measures and complete information on ethical performance and risks, the board was unable to fully perform its oversight role.

29. Recommendation. The corporation should put in place a process enabling employees to declare their compliance with the code of conduct, supported by an annual conflict-of-interest disclosure process, and should report on this to the Board of Directors. The corporation should also provide the board with complete information on risk management.

The corporation’s response. Agreed. The corporation will put in place a process enabling employees to declare their compliance with the code of conduct and annually disclose all types of conflict of interest, starting in fall 2023. In addition, as of December 2023, the corporation will provide the Board of Directors with complete information on the results of its conflict-of-interest disclosure process. Concerning risk management, since November 2022, the corporation has been providing additional information to the Audit Committee about monitoring the main risks.

30. Analysis. We found that the corporation had good systems and practices for strategic planning. However, performance monitoring needed improvement (Exhibit 4).

31. Weakness—Performance measurement, monitoring, and reporting. The corporation established organizational and operational performance indicators to support the achievement of its strategic objectives, and set targets for several of those indicators. However, we found that the corporation did not monitor progress against all performance indicators and did not monitor progress against any of the targets set.

32. This weakness matters because without monitoring performance indicators and related targets, the corporation cannot fully assess the achievement of its strategic objectives or determine whether corrective action is needed.

33. Recommendation. The corporation should regularly monitor progress against the performance indicators and targets it has set in support of its strategic objectives and should report on that progress to the Board of Directors.

The corporation’s response. Agreed. The corporation plans to review the performance indicators and targets by fall 2023 to ensure that they are adequate and relevant. In addition, starting in March 2024, the corporation will regularly monitor the performance indicators and targets and will report back to the Board of Directors.

34. Analysis. We found that the corporation had good systems and practices for identifying and assessing risks. However, improvements were needed in risk mitigation and monitoring and in reporting on progress to the board (Exhibit 5).

35. Weaknesses—Risk mitigation, monitoring, and reporting. The corporation had a register in which it documented organizational and operational risks, along with the inherent and residual risks for each. In addition, the corporation identified mitigation measures for each risk. We found that the corporation had not fully put in place some mitigation measures for risks related to boarding operations (see paragraphs 52 and 53).

36. We also found that the corporation had some elements of a business continuity and disaster recovery plan, but that other elements were missing. The corporation had basic procedures for dealing with an emergency and had recovery procedures to follow in the event of computer failures. It also had an off-site backup system to ensure redundancy for priority systems. However, the corporation did not carry out an analysis of the potential threats, the most critical functions, or the impact on operations. A comprehensive plan would also include roles and responsibilities, information on coordinating activities internally and with stakeholders, detailed emergency procedures for each operational area, and a test plan.

37. We also found that the corporation did not set its risk appetite and tolerance levels. The risk appetite level is the degree of risk that the corporation is prepared to accept in pursuing its objectives. The risk tolerance level, which represents the extent to which the corporation is willing to assume a particular risk in relation to its risk appetite, enables the corporation to determine whether additional measures are required.

38. The corporation identified actions for mitigating the main risks that it had identified. We found that the corporation did not monitor the implementation of those actions and did not report on the results to the board.

39. These weaknesses matter because it is important to put in place measures for responding to identified risks that require mitigation and to report on the progress made. In addition, a business continuity and disaster recovery plan contributes to ensuring continued operations and helps protect the corporation’s data and assets. Risk appetite and tolerance levels guide decision making and help an organization select the risks that require additional mitigation measures and monitoring.

40. Recommendation. The corporation should monitor the implementation of risk mitigation measures, take the necessary actions should such measures not be in place, and report on progress to the Board of Directors.

The corporation’s response. Agreed. Starting in summer 2023, the corporation will strengthen its monitoring of the implementation of mitigation measures for the main risks identified. It will document the necessary actions taken and will report to the Audit Committee on the progress made.

41. Recommendation. The corporation should develop and test a business continuity and disaster recovery plan.

The corporation’s response. Agreed. The corporation will develop a comprehensive business continuity and disaster recovery plan, which will include the existing emergency procedures and the recovery procedures to follow in the event of computer failures. This plan will be adequately tested. All of this work will be completed in spring 2024.

42. Recommendation. The corporation should set its risk appetite and tolerance levels.

The corporation’s response. Agreed. The corporation expects to finish its review of its risk management policy by spring 2024. As part of the review, the corporation will set its risk appetite and tolerance levels.

Management of pilotage services

Pilot boarding systems and practices had a significant deficiency, and improvements were needed in the approval of training and apprenticeship programs and in the monitoring of training

43. We found a significant deficiency in the systems and practices for pilot boarding because the corporation had not implemented the safety measures for Les Escoumins station as intended. In addition, the corporation conducted only limited oversight of the safety measures put in place by an independent organization that it had a contract with. We also found that the corporation had not approved the pilot and apprentice pilot training programs for 1 of the pilot corporations and had not conducted any monitoring of the training.

44. The analysis supporting this finding discusses the following topic:

• Management of pilotage services

45. The corporation’s pilotage services are provided by pilots from 2 organizations that are independent and that share a distinct geographical area. The corporation has service contracts with each organization. More than 200 licensed pilots, about 10 apprentice pilots, and 2 pilotage certificate holders cover the compulsory pilotage areas serviced by the corporation.

46. The pilots are assigned to ships by the corporation’s dispatch centre at its headquarters in Montréal. The centre operates 24 hours a day, 365 days a year. The Marine Safety and Efficiency, Finance and Administration, and Legal Affairs departments are also located at headquarters.

47. Pilot boats ferry pilots to and from ships that are moving or at anchor (Exhibit 6). There are 5 boarding stations. The Québec, Trois-Rivières, Sorel, and Montréal stations are owned and managed by an independent organization contracted by the corporation. Les Escoumins station is owned and operated by the corporation and ferries pilots with its 2 pilot boats. Boarding operations involve risk, and a boarding incident or accident could result in serious or even fatal injuries.

48. According to a 2018 study on the economic impacts of shipping in the Great Lakes–SaintSt. Lawrence region, available on the Chamber of Marine Commerce website, every year ships deliver more than 230 million metric tonnes of cargo, worth over $100 billion, in the region. In 2021, the corporation reported that 1,288 different ships received marine pilotage services, for a total of 21,153 assignments and 14,858 boardings (around 30% at Les Escoumins station and 70% at the other stations). Note that a particular ship may have made a number of trips throughout the year, each requiring the assignment of several pilots depending on the itinerary or type of ship. In addition, not all assignments require boarding services because pilots sometimes board ship at the dock.

49. The corporation reported 8 incidents or accidents^{Definition 2} involving a ship under the conduct of a pilot in 2021, but none of them were qualified as major by the corporation. The corporation reported no incidents or accidents involving its own pilot boats or those of the independent organization in 2021.

50. Our recommendations in this area of examination appear at paragraphs 55, 56, and 59.

51. Analysis. We found that there was a significant deficiency in the systems and practices for pilot boarding, and that improvements were needed in the approval of pilot and apprentice pilot training programs and in the monitoring of training. However, we found that the corporation had good systems and practices for the planning of pilotage services; the setting of pilotage charges; pilot dispatching; and relations with clients, the responsible department, and other stakeholders (Exhibit 7).

52. Significant deficiency—Pilot boarding. The corporation had pilot boat operating manuals for Les Escoumins station. The manuals covered, in particular, training for pilot boat captains and engineers, boarding procedures, emergency measures, the health and safety committee, pilot boat and safety equipment inspections, and safety operating procedures. We found that the following safety measures were not implemented in accordance with the manuals:

• Fire drills, search and rescue exercises for a person overboard, and pilot boat and safety equipment inspections were not conducted monthly, as specified in the manuals.
• Random audits of pilot boats and of staff knowledge that should have been conducted throughout the year had not been carried out since August 2021.
• The health and safety committee was inactive from July 2020 to February 2022, despite the fact that meetings should have been held at least twice a year.
• The annual training program had not been developed for pilot boat crew members.
• Some instances of non-compliance identified during pilot boat inspections were not recorded in the report used by the corporation for performing the necessary follow-up.

53. Regarding boarding operations carried out by the independent organization, we found that the corporation conducted limited oversight of the following safety measures set out in the service contracts:

• Inspections of pilot boats and their equipment. The corporation could conduct inspections at any time and did so once a year. We found that the corporation did not adopt a systematic method to support the frequency and coverage of inspections. During the 2021 inspection visit, 6 pilot boats, or around one third, were not inspected.
• Inspection observations. The corporation informed pilot boat crews about the observations made during inspections. We found that it did not follow up to ensure that measures had been taken in response to the observations.
• Search and rescue exercises for a person overboard. The corporation could conduct such exercises at any time. We found that the corporation did not adopt a systematic method to support the frequency and coverage of these exercises.
• Competencies of the independent organization’s crews. The corporation could request confirmation from the independent organization that all crew members had taken the required training. We found that the corporation did not ask for that confirmation.

54. This significant deficiency matters because

• The measures set out in the pilot boat operating manuals help mitigate some of the risks related to the safety of boarding operations at Les Escoumins station.
• Proper documentation for instances of non-compliance identified during inspections helps to ensure and demonstrate that follow-up has taken place.
• Oversight of the safety measures set out in the service contracts and of crew training helps ensure that the independent organization properly manages the risks related to pilot boarding.

55. Recommendation. The corporation should conduct monitoring to ensure that the safety measures set out in the operating manuals for the pilot boats at Les Escoumins station are implemented.

The corporation’s response. Agreed. By May 2023, the corporation will develop and implement a plan for monitoring the measures set out in the operating manuals.

56. Recommendation. The corporation should increase its oversight of the pilot boarding safety measures put in place by the independent organization.

The corporation’s response. Agreed. The corporation will increase its oversight by developing and implementing a plan by July 2023 for monitoring the safety measures set out in the current boarding services contracts. In addition, the new boarding services contracts that come into effect in 2024 will include additional indicators and oversight tools, which will enable the corporation to increase its oversight of the independent organization’s operational safety measures.

57. Weakness—Pilot and apprentice pilot competencies and qualifications. The service contracts with the pilot corporations stipulate that the corporation must approve pilot training programs and assessment grids, and apprenticeship programs for apprentice pilots. We found that the programs and assessment grid had been approved for 1 of the 2 pilot corporations. For the other pilot corporation, the draft pilot training program had been received without the assessment grid. However, the corporation had not yet approved the training program and had not received the apprenticeship program for apprentice pilots. In addition, although the corporation had obtained information on some of the training received by pilots, it had not conducted any monitoring to ensure that the pilots had completed the training prescribed in the training programs. In addition, the corporation had received apprenticeship progress reports for apprentice pilots from only 1 of the pilot corporations.

58. This weakness matters because monitoring of the training taken is an essential part of enabling the corporation to ensure that pilots and apprentice pilots have acquired, maintained, and mastered the competencies and skills needed to perform their duties.

59. Recommendation. The corporation should obtain and approve the pilot training programs and apprenticeship programs for apprentice pilots and should follow up to ensure their completion.

The corporation’s response. Agreed. By December 2022, the corporation had received all pilot training programs and expects to approve them by March 2023. The apprenticeship programs for apprentice pilots will be obtained and approved by December 2023. The corporation will implement a tracking process to ensure their completion once the regulations governing these matters enter into force.

Conclusion

60. In our opinion, on the basis of the criteria established, there was a significant deficiency in the corporation’s systems and practices for pilot boarding, but there was reasonable assurance that there were no significant deficiencies in the other systems and practices we examined. We concluded that except for this significant deficiency, the Laurentian Pilotage Authority maintained its systems and practices during the period covered by the audit in a manner that provided the reasonable assurance required under section 138 of the Financial Administration Act.

Subsequent Event

61. The corporate governance section of this report discusses our finding about positions on the Board of Directors. At the end of July 2022, the position of Chair of the Board was vacant and the terms of 3 board members had expired. On 28 October 2022, the Governor in Council approved the reappointment for these 3 members. At the time of finalizing our report, the position of Chair of the Board was still vacant but had been filled on an acting basis.