1997 Report Summary BookletREPORT OF THE AUDITOR GENERAL Disclaimer Table of Contents
Chapter 1 Chapter 2 Chapter 3 Monitoring Agencies of the Crown Monitoring Expenditures of the Consolidated Revenue Fund The Privatization of Newfoundland and Labrador Computer Services Limited Newfoundland and Labrador Teachers' Association Group Insurance Plan Backup and Disaster Recovery Procedures for Government Microcomputer Systems Accounts and Loans Receivable in Government Review of Government's Pension Plans Newfoundland Liquor Corporation Government Purchasing Agency - Public Tender Act Exception Reporting Newfoundland Farm Products Corporation The Privatization of Newfoundland Hardwoods Limited Central Regional Community Health Board Faculty of Medicine of Memorial University of Newfoundland Western Memorial Hospital Corporation Health Care Corporation of St. John's Newfoundland Cancer Treatment and Research Foundation Workers' Compensation Commission Newfoundland Legal Aid Commission Newco Corporations - Middle Distance Fishing Vessels Chapter 4 Update on Prior Years' Report Items This document is presented as a summary of the Report of the
Auditor General to the House of Assembly on Reviews of Departments and Crown
Agencies for the Year Ended 31 March 1997. That Report contains
approximately 300 pages of conclusions, commentary, recommendations and
auditees' comments. When readers identify a topic of interest, we encourage them
to read the relevant section in the Report. This document contains information
on the items reported in Chapters 1 through 4 and are numbered to coincide with
the Report. The Report of the Auditor General to the House of Assembly on Reviews of Departments and Crown Agencies for the Year Ended 31 March 1997 was prepared in compliance with Section 12 of the Auditor General Act. Section 12 requires that the Report outline significant matters noted during the course of examining the accounts of the Province, agencies of the Crown and other entities which, in our opinion, should be brought to the attention of the House of Assembly. Comments on the audit of the financial statements of the Province are contained in a separate report entitled Report of the Auditor General to the House of Assembly on the Audit of the Financial Statements of the Province for the Year Ended 31 March 1997. Therefore, along with this Summary, two reports are tabled before the House of Assembly. Chapter 1 This chapter provides an introduction to the Report of the Auditor General to the House of Assembly on Reviews of Departments and Crown Agencies for the Year Ended 31 March 1997. Chapter 2 2.1 Framework of Accountability I again express concern over the lack of information being provided to the House of Assembly on Crown agencies which are funded primarily by the public purse. The House of Assembly, as part of the budgetary process, approves funding for these agencies and should receive information on how this funding was spent and what this funding has achieved. While considerable attention is given to the Government's budget, there is a lack of emphasis on receiving and reviewing information on how agencies spent the monies which were approved during the budget process. Our review of the 1996 annual reports tabled in the House of Assembly disclosed that only 7 entities receiving $157.9 million in Government funding had their reports tabled in the House of Assembly. There were no reports tabled in the House of Assembly for the remaining 78 entities which received $1.395 billion in Government funding. In June 1997, the Minister of Finance and President of Treasury Board was directed, by Cabinet, to proceed with the implementation of a new authority and accountability framework for Government departments. During the year, Government also established the Public Service Reform Initiative which focuses on organizational and structural issues which impact on how Government operates. One of the three Task Forces that were established as part of this process will focus on the development of an accountability framework for Crown agencies. In addition, no action has been taken to establish a system of accountability over Memorial University of Newfoundland, which received $134 million in public funding for the year ended 31 March 1997. We again recommend that the system of accountability over Government departments, agencies of the Crown and Memorial University of Newfoundland be strengthened. Chapter 3 3.1 Monitoring Agencies of the Crown As at 31 March 1997 there were approximately 163 Crown agencies in the Province. Of these, 91 were required to prepare annual financial statements while 72 were considered non-financial and did not prepare financial statements. Any expenditures related to the operation of these 72 entities are included with those of the government department responsible for the entity and are audited annually as part of our audit of the public accounts of the Province. Of the 91 entities required to prepare annual financial statements, 26 were audited by our Office while the remaining 65 were audited by private sector auditors. Most of these entities do not have any requirement to report to the House of Assembly on the discharge of their responsibilities. As a result, a major role of the Office of the Auditor General is to monitor these entities in order to provide some accountability to the House of Assembly. Section 14 of the Auditor General Act requires all private sector auditing firms to submit to the Auditor General a copy of the audited financial statements and any management letters for all Crown agencies which they audit. These financial statements and management letters along with our audits of Crown agencies provide the basis for the monitoring of all Crown agencies. The results of our monitoring activities are outlined in Part 3.1 of the Report of the Auditor General to the House of Assembly on Reviews of Departments and Crown Agencies for the Year Ended 31 March 1997. 3.2 Monitoring Expenditures of the Consolidated Revenue Fund As part of our audit of the financial statements of the Consolidated Revenue Fund (CRF), we perform tests and reviews of the expenditures made by the various departments. During the past year, we obtained expenditure information from Government's accounting system relating to grants and subsidies, purchased services, and professional services. This information is provided in Part 3.2 of the Report of the Auditor General to the House of Assembly on Reviews of Departments and Crown Agencies for the Year Ended 31 March 1997. The common parliamentary means of providing spending authority to government is through the annual passing of supply acts. This involves having the Members of the Legislature vote on the government's funding requests. Approval by a majority of the Members of the House of Assembly is needed to pass an Act. There are three types of supply acts which are usually approved by the Legislature each year. These are the main Supply Act, the Interim Supply Act and the Supplementary Supply Act. Through the use of a "special warrant", the government can authorize itself to spend public money without obtaining the prior approval of the Legislature. Section 28 of the Financial Administration Act outlines two instances where a special warrant can be approved and additional funding can be provided to Government if the expenditures are of an urgent and immediate nature. There were seven special warrants totalling $75.7 million issued in the 1996-97 fiscal year, all of which were issued in March 1997. Of the $75.7 million in special warrants issued in 1996 -97, $36.9 million were issued although it appears there was not an urgent requirement for the funding. Expenditures authorized by special warrants will be recorded as expenditures in the financial statements of the Consolidated Revenue Fund in the same year that the warrant is issued. As a result, these expenditures will decrease surpluses or increase deficits of the Consolidated Revenue Fund in the year in which the warrant is issued. Because special warrants authorize expenditures that impact the reported surplus or deficit in the financial statements of the Consolidated Revenue Fund, the issuance of special warrants should be in compliance with the Financial Administration Act. 3.4 The Privatization of Newfoundland and Labrador Computer Services Limited On 13 October 1994, Government announced the completion of negotiations for the sale of all the shares of Newfoundland and Labrador Computer Services Limited (NLCS) to NewTel Enterprises Limited (NewTel) and its consortium partners Bell SYGMA Inc. (Sygma) and Andersen Consulting (Andersen), representing 80%, 10% and 10% ownership respectively. NewTel and its consortium partners incorporated a new company called NewTel Information Solutions (NIS). As a result of the privatization of Newfoundland and Labrador Computer Services Limited, Government entered into several legal agreements whereby the Province would receive the following:
In addition, the Share Purchase Agreement entitles the Government to have a representative on the Board of Directors of NIS during the term of the Service Level Agreement which covers the period from September 20, 1994 to March 31, 2002. For their part, Government and Memorial University of Newfoundland have contracted with NIS to purchase a minimum of $17.5 million annually in IT services during the term of the Service Level Agreement. During 1997 we completed a follow up review of the privatization of NLCS. Our review indicated the following.
3.5 Newfoundland and Labrador Teachers' Association Group Insurance Plan The Newfoundland and Labrador Teachers' Association (NLTA) offers a Group Insurance Plan for all its members and those who are retired. There are about 9,500 active teachers and retirees participating in this Plan. The NLTA has appointed a Board of Trustees to administer the Plan. The Board, in turn, has entered into an agreement with an independent third party administrator to act as broker, administrator and consultant for the Group Insurance Plan. In accordance with the NLTA Provincial Collective Agreement, the Province funds the premiums relating to group health, group life, dependent life, and mandatory accidental death and dismemberment insurance on a 50/50 cost-shared basis with teachers and retirees. The annual payments for these premiums as at 31 August 1995 was $6.3 million with Government's share being approximately $3.1 million. The Collective Agreement dated 27 June 1994 defines the premium approval process and outlines the process to be followed in the event of a dispute between Government and the NLTA. The most recently available financial statements of the NLTA Insurance Fund obtained by Government were for the year ended 31 August 1996. These financial statements indicated that the Plan had a surplus of approximately $5.3 million at that time. Since both Government and teachers fund the Plan, the $5.3 million surplus arose from those contributions. Officials at Treasury Board Secretariat indicated that, in their opinion, approximately $3.0 million of the surplus is attributable to excess Government contributions and as such should be refunded to Government. However, Government does not have an agreement in place with the NLTA as to the ownership and disposition of refunds, surpluses and deficits. The Collective Agreement provides Government with an option to request arbitration if there is a disagreement on the reasonableness of the premium rates. Government, however, has not attempted to recover the estimated $3 million surplus through this process. Although Government has received audited financial statements from the NLTA Insurance Fund, the financial statements do not segregate the financial position and results of operation of the provincially funded plans from other activities of the NLTA Insurance Fund. Government does receive annual financial information on the programs which it cost shares; however, it is not audited. Government contributes its portion of the insurance premium to an independent third party administrator. This administrator deducts an administration fee and submits a net premium amount to the Insurer. Government, however, does not receive any reports to show what is included in the administration fee. Minute of Council 94-0520, dated 2 June 1996, directed that Treasury Board "...advise all boards, agencies and commissions, etc., that compliance in all respects with compensation standards which have been established for Government departments is mandatory." It is clear that Government wanted to ensure that no public sector entity was providing compensation over and above that which had been established for Government departments. Treasury Board, however, did not advise the boards, agencies and commissions, etc., that compliance with Government's compensation standards is mandatory. The result of Treasury Board not informing the entities was clearly evident during our review of Crown-controlled corporations and agencies of the Crown since the issuance of Minute of Council 94-0520. Our reviews have indicated numerous incidents where the entities provided compensation to employees that was not consistent with the compensation standards established for government departments. In all instances, the entities indicated that they were never informed of the requirement to comply with Government's compensation standards. 3.7 Backup and Disaster Recovery Procedures for Government Microcomputer Systems The use of microcomputer hardware and software in Government departments has increased in past years. Most departments of Government have installed local area networks (LAN) that have become critical to day-to-day operations. Employees use the LAN daily for purposes such as word processing, financial analysis and communication by electronic mail. Many departments also have purchased or developed microcomputer systems which reside on departmental LANs, or stand alone machines, that are used to deliver Government programs. The loss or unavailability of microcomputer systems could result in either a cost to reconstruct programs and data, delays in delivery of programs and/or loss of prestige and embarrassment to Government. Microcomputer hardware and software systems can fail. Threats to continuity of system operations include, for example, unforeseen mechanical or electronic failure and the introduction of computer viruses. Disruption to operations and Government programs can be minimized when systems fail, by ensuring adequate backup copies of programs and data are maintained and a disaster recovery plan exists to enable staff to perform a controlled and orderly recovery of the system to normal operations. Treasury Board Secretariat is responsible for preparation and maintenance of Government's information technology policies. These are documented in the Government of Newfoundland and Labrador Management Manual which was approved by Government in 1985. The Manual states that "The operation of information systems has become critical factor in the operation of government services. It is essential to ensure continuous services, or the prompt resumption of services in the event of system failure." Furthermore, the Manual assigns responsibility to departments for ensuring that backup and recovery procedures are in place. Many Government departments are not complying with Government's information technology policies and procedures. Specifically:
3.8 Accounts and Loans Receivable in Government Our previous reports to the House of Assembly have indicated that Government's systems for recording, reporting and controlling accounts receivable did not always provide timely and accurate information to users. As a result, Government did not know how much money was owed to it at any given point in time. The general exception was the amount owed as of 31 March of each year which was determined subsequent to year end in order to prepare the financial statements of the Province. Government anticipates that this problem will be addressed with the implementation of its new accounting system, which is presently in the development stage. Our review of Government departments also indicated that a significant portion of their accounts receivable were in arrears and that their cash management program, which includes the collection of these accounts, was not adequate. We reviewed the amounts owing to Government as at 31 March 1997 to determine whether they are collected on a timely basis. Our review indicated that, in addition to not collecting amounts owed to it on a timely basis, Government has written off significant amounts owed to it. The systems in place to record, monitor, control and collect amounts owed to Government are not adequate. Our review also disclosed that at 31 March 1997 the Consolidated Revenue Fund had total receivables of $474.8 of which $215.2 was considered to be uncollectible. In addition, during the period 1993 to 1997, Government has written off $190.3 million in accounts receivables, $16.5 million in tax remission and $9.1 million in tax forgiveness. 3.9 Atlantic Lottery Corporation The Atlantic Lottery Corporation Inc. (ALC) was incorporated in 1976 under the Canada Business Corporations Act, and is jointly and equally owned by the four Atlantic Provinces. It is a public sector entity that is extensively and directly involved in the management of a variety of lottery and gaming activities on behalf of the Atlantic Provinces. During 1994 and 1995, the Auditors General of Nova Scotia and New Brunswick, under their respective legislative audit mandates, had attempted, unsuccessfully, to gain full and direct access to ALC for audit purposes. However, on 15 December 1995, the Nova Scotia Gaming Corporation, in its capacity as the Nova Scotia shareholder for ALC, requested the Auditor General of Nova Scotia to "perform an audit of the operations of the Atlantic Lottery Corporation including issues on economy and efficiency that could impact the Province of Nova Scotia." Subsequent to accepting this assignment, the Auditor General of Nova Scotia invited the Auditors General from the other three Atlantic Provinces to participate in this audit. There were no restrictions or limits placed on the scope of the assignment which was planned and conducted as a legislative audit. The audit was performed jointly by audit staff from Nova Scotia and New Brunswick, with audit plans and results being reviewed with the Auditors General of Newfoundland and Prince Edward Island. Since being established in 1976, ALC has reported sales in excess of $4.7 billion up to and including the fiscal year ended 31 March 1996. After prizes, commissions and other costs of approximately $3.1 billion, ALC has distributed profits of $1.56 billion to its shareholders of which $383 million has been distributed to Newfoundland. On behalf of its four shareholders, ALC is now directly involved in the annual management and control of more than $1 billion of public funds through its various gaming products and related activities. The objective of the audit was to review the systems and practices for the management and control of selected areas or aspects of ALC's operations. The audit indicated the following.
3.10 Review of Government's Pension Plans Prior to 1967, public service pensions in the Province were paid under the authority of the Civil Service Act. These pensions were non-contributory and as such employees and Government were not required to make contributions to a pension plan. The Province was paying 100% of the annual pension benefits out of the Consolidated Revenue Fund. In 1967, legislation was enacted which required that employees contribute to a pension plan along with the Province. These employee contributions were paid into the Consolidated Revenue Fund and pension benefits continued to be paid out of it. In 1981 the Pensions Funding Act was enacted to create a separate fund for the funding of public service pensions. This legislation required that employee and employer pension premium contributions be paid into a separate fund, the Province of Newfoundland Pooled Pension Fund. The affairs of the Fund are managed by the Minister of Finance, as Trustee of the Fund. The Fund is comprised of four pension plans: the Public Service Pension Plan, the Teachers' Pension Plan, the Uniformed Services Pension Plan and the Members of the House of Assembly Pension Plan. The Teachers' Pension Plan includes the Teachers' Ancillary Pension Plan. The large increase in pensions and pensioners has contributed to the financial uncertainty of each of the pension plans. At 31 March 1997 the plans had an estimated unfunded liability of $3.1 billion. Commencing during the fiscal year 1997-98, Government is proposing to make special payments to the Public Service Pension Plan. Government has announced that it will contribute $30 million in each of 1997-98 and 1998-99. Every year after that it will continue with payments of at least $40 million per year until the pre-1980 debt is repaid. In addition, Government is proposing to increase the contributions for employees and employers over the next four years. This will extend the life of the plan beyond the year 2030. We reviewed pensions paid by the Province of Newfoundland Pooled Pension Fund from 1 January 1987 to 31 December 1996. Our review indicated the following:
3.11 Newfoundland Liquor Corporation The Newfoundland Liquor Corporation is an agent of the Crown incorporated under the Liquor Corporation Act of 1973. It is charged with overseeing the import, manufacture, possession, and sale of all alcoholic beverages within the Province. It is governed by a board of directors appointed by the Lieutenant-Governor in Council. Each year the Corporation remits contributions from its net income to the Province. Over the past six years these have ranged from $73.3 million to $81.5 million with $81.2 million budgeted for the fiscal year ended 31 March 1998. In 1992 the Newfoundland Liquor Licensing Board, charged with the issuing and enforcing of liquor licences, was merged with the Liquor Corporation. With this merger, however, each entity's board of directors was retained to manage the two different aspects of the Corporation's operations. Effective 1 January 1997 the boards were merged into one new board. Effective 1 April 1995 the licensing branch was made part of the new Government Service Centre, leaving only the enforcement division of the old Liquor Licensing Board as part of the Liquor Corporation. We completed our review of the Corporation in November 1997. Our review indicated the following:
Minute of Council 1272-79 assigned the Department of Works, Services and Transportation with the responsibility for the efficient and effective management of Government's fleet of light vehicles including cars, station wagons, 4-wheel drives, vans and small trucks. Government had 869 light vehicles in operation at 20 February 1997. These vehicles had a total acquisition cost of approximately $15 million. In addition to these 869 vehicles, the fleet inventory, at the end of February 1997, also included 94 vehicles which were being held for disposition. For this same period, Government also rented 117 vehicles for the equivalent of 307 months at approximate rental, maintenance and operating costs of $601,000. These costs were obtained from the various departments and from the Equipment Management System. However, it was not possible to identify all costs relating to rental vehicles. For example, operating costs are not available for the vehicles rented by the Departments of Fisheries, Food and Aquaculture, Justice, and Executive Council, nor are operating costs available which were reimbursed on travel claims or acquired through direct purchase order. Without this information, it is not possible to determine whether it is more cost effective for Government to rent or purchase vehicles. For the year ended 31 March 1997, total costs associated with managing Government's light vehicles, excluding the operation of repair facilities, insurance, and other transportation costs was approximately $7.7 million. For the same period, approximately $15 million was incurred for the operation of repair facilities (excluding capital) and $667,000 was incurred for insurance. These amounts, however, are for maintaining both heavy and light vehicles and equipment and information on the cost allocation between heavy and light vehicles and equipment could not be provided. In addition, $12.1 million was spent on other transportation methods. This includes, not only taxis, personal mileage and short-term rentals, but also airfares, hotels and meals. There is no information available on costs specific to taxis, personal mileage and short-term rentals. We completed our review of fleet management for light vehicles in May 1997. Our review focused on the Fleet Management Branch and the Departments of Works, Services and Transportation, Forest Resources and Agrifoods, Justice, Government Services and Lands, and Tourism, Culture and Recreation. These five departments operate approximately 90% of Government's light vehicles. Our review of Government's light vehicles indicated the following.
3.13 Government Purchasing Agency - Public Tender Act Exception Reporting The Public Tender Act provides legislative direction for the calling of tenders for the acquisition of goods and services by all government funded bodies. Government funded bodies include all departments, the Government Purchasing Agency, Crown corporations and agencies of the Crown, municipalities, school boards, hospitals and Memorial University of Newfoundland. In general, the Public Tender Act requires that, with few specific exceptions, tenders be invited for the purchase of goods or services or the execution of a public work. Where a tender is required and one has not been called, the head of the government funded body must inform the Minister of Works, Services and Transportation within five days of the awarding of the contract. The Minister must table this information in the House of Assembly within thirty days indicating the reasons why a tender was not called for each of the items not tendered. We carried out a review at the Government Purchasing Agency to determine whether all public tender exceptions were tabled in the House of Assembly as required by the Public Tender Act. We also reviewed the system in place at the Government Purchasing Agency to determine whether it was recording all public tender exceptions. Our review disclosed that although all exceptions that are reported to the Government Purchasing Agency are forwarded to the Minister of Works, Services and Transportation for tabling in the House of Assembly, the Government Purchasing Agency is not notified by government funded bodies of all exceptions. Therefore, the exception reports which are tabled in the House of Assembly are incomplete. Although the Act and Regulations require government funded bodies to report their public tender exceptions to the Minister of Works, Services and Transportation within five days of the awarding of the contract, our review indicated that some exceptions were not reported by the government funded body until more than two years after the awarding of the contract. In addition, some of the reports which are tabled in the House of Assembly are not being tabled within the time frame specified in the Act. 3.14 School Board Expense Review The Department of Education spent in excess of $734 million on developing and maintaining a provincial education system in 1996-97. Seventy-five percent of this amount was spent in providing financial assistance to school districts to administer a primary, elementary and secondary school system. On 1 August 1996, in accordance with subsection 4(1) of the amended Schools Act, the Lieutenant-Governor in Council established 10 school districts under the Boundaries of School Districts Order. The existing 27 school boards continued to exist and administer the schools within their jurisdiction until their dissolution on 31 December 1996. We completed a review of the restructuring of the 27 school boards into 10 district school boards. The objective of this review was to assess whether financial controls and practices during the windup were adequate and whether transactions were made in accordance with Government and board policies and procedures. This review included an examination of staff remuneration, operating expenses and capital asset controls of three former school boards, and a review of staff remuneration for seven other former boards during the 18-month period prior to the dissolution of these school boards. As a result of findings during our review of the old boards, we expanded our examination to review compensation practices at three of the new district school boards. Our review indicated the following. Financial controls and practices during the windup of the Province's 27 school boards and the start-up of the 10 new district school boards were not adequate. In addition, in areas where it was apparent that boards were not complying with Department of Education policy, the Department did not initiate any action to ensure boards adhered to its policies. Specifically:
Our review of 10 former school boards during the period of dissolution indicated numerous instances where the boards did not comply with the direction of the Minister of Education and the Schools Act. Specifically:
3.15 Newfoundland Farm Products Corporation Newfoundland Farm Products Corporation was established in 1963 under the Farm Products Corporation Act. On 6 October 1997, Government announced the sale of the Corporation to a consortium of local chicken producers. As a Provincial Crown corporation, Newfoundland Farm Products Corporation produced a full range of chicken products which were marketed throughout the Province, the Maritimes and central Canada. The Corporation operated two federally inspected abattoir complexes in the Province, one in St. John's and one in Corner Brook. The Corporation processed 8.0 million chickens per year, 5.1 million in St. John's and 2.9 million in Corner Brook, resulting in 11.8 million kilograms of saleable product in 1996-97. The Corporation employed approximately 275 people and had an annual payroll of $10.2 million. Sales for the past 10 years averaged $25.3 million per year, ranging from $21.4 million in 1987-88 to $35.9 million in 1996-97. The net operating loss for the past 10 years averaged $4.3 million per year, ranging from $2.1 million in 1987-88 to $7.9 million in 1996-97. Operating grants from the Province for the past 10 years totalled $35.7 million. We commenced a review of Newfoundland Farm Products Corporation in January 1997, prior to the privatization of the Corporation. Our review indicated that certain compensation practices at the Corporation were not appropriate. We identified payments totalling $76,106 to three senior officials which did not comply with Government's compensation policies. In accordance with Section 15(1)of the Auditor General Act, these matters were reported to the Lieutenant-Governor in Council in April 1997. I have been informed by Government that it directed the Corporation to recover amounts totalling $55,406, comprised of $5,801, $28,336 and $20,909 from the respective officials. In accordance with Section 15(1) of the Auditor General Act, certain other transactions of the Corporation were reported to the Lieutenant-Governor in Council in November 1997. Government is presently reviewing that report. As a result, the audit report on Newfoundland Farm Products Corporation has not been included in this Annual Report. 3.16 The Privatization of Newfoundland Hardwoods Limited As at 31 March 1995, Newfoundland Hardwoods Limited had total assets of $14.8 million, liabilities of $1.0 million and shareholders' equity of $13.8 million. From 1991 to 1995, Hardwoods had annual average sales of $12.9 million and during that period remitted dividends to the Province totalling $4.7 million. When Government decided to privatize the Corporation, a business valuation performed by the divestiture consultant indicated the fair market value of the Corporation ranged from $8.6 million to $9.6 million. The 1995-96 provincial budget indicated that proceeds from this privatization were estimated at $8.5 million. Government sold the capital assets and inventory of the company in August and September 1995 for $6.7 million and estimated the immediate cash flow from this privatization to be $7.0 million. The Province will also receive 10% of Wood Preservation Industries Limited's net income to 31 October 2000. Wood Preservation Industries Limited purchased the poles and timber treatment operations of Hardwoods. In our 1996 Annual Report to the House of Assembly, we reported on the results of our review of the privatization of Newfoundland Hardwoods Limited. This review disclosed that although the assets of Newfoundland Hardwoods were sold in August and September 1995, as of October 1996, the transaction had yet to be finalized, audited financial statements for the year ended 31 March 1996 had not been released, and the Province had only received $5.6 million of the anticipated $7.0 million in proceeds. We now report that, as of November 1997, the transactions relating to the sale of the Corporation have still not been finalized, the audited financial statements for the years 31 March 1996 and 1997 are still not available, and the Province has still not received $1.4 million of the $7.0 million that was initially estimated. In addition, the consultant who had originally been engaged based on a proposal of $39,000 plus disbursements for phase 1 of the divesture is still engaged to wind up the Corporation. Total fees paid to this consultant to date have been approximately $500,000 while other consultants have been paid $400,000. 3.17 Residential Services Program In an effort to provide individuals with developmental disabilities with access to the community and to reduce overall Government expenditures, the Department of Social Services set up the Residential Services Program and closed institutions such as Exon House and Children's Home. This new Program included the use of special foster care in private homes, a developmental group home, 2 developmental maximization units and 24 group homes. As a result of a departmental review in 1989, it was recognized that group homes were not fulfilling their original mandate of placing individuals in a home-like environment and there was an increased availability of other community living arrangements, such as co-operative apartments, alternate family care and individual living arrangements. Expenditures for group homes and co-operative apartments under the Residential Services Program for individuals with developmental disabilities has decreased from $13.1 million in 1990-91 to $7.1 million in 1996-97. There are approximately 71 individuals served at an average monthly cost of $10,392, for an annualized expenditure of $124,704 per individual. By way of comparison, the average cost per individual per month under the Home Support Services Program is $1,212, for an annualized expenditure of $14,544 per individual. Our review of the Residential Services Program indicated that there are a number of weaknesses in the management of the Program and as a result there are opportunities to strengthen controls. The following issues were identified during our review:
Several group homes and co-operative apartments have exceeded rates established for certain categories of expenditures. The Department has not determined the reasons for these variances and has not carried out any on-site reviews of these expenditures. Not all expenditure categories have limits. As a result, certain types of expenditures vary significantly between group homes and co-operative apartments. These costs are budgeted and recorded elsewhere in the Department and, as a result, the total cost of the Residential Services Program is not considered when monitoring expenditures. 3.18 Central Regional Community Health Board The Central Regional Community Health Board was established in February 1994 and operates under the authority of the Public Health Act and the Central Regional Community Health Board Order. Its operations are governed by a Board of Directors, comprised of 14 members appointed by the Minister of Health. The Board is responsible for providing community health services to approximately 120,000 people in 210 communities. By the start of the 1995-96 fiscal year, the Board had integrated the services, programs and staff members from the Gander and District Continuing Care Program, the Central Newfoundland Health Unit, and the Drug Dependency Services Division of the Department of Health. Since then, the Board has assumed additional programs, and now employs approximately 125 staff. Operating expenditures for 1995-96 were approximately $10.1 million and $12.7 million for 1996-97. We completed our review of the Central Regional Community Health Board in February 1997. Our review indicated the following.
The Board is not adequately safeguarding its capital assets since there is no listing of capital assets and assets are not tagged, counted annually, or agreed to the financial records. In November 1995, the Board requested Treasury Board to approve its reclassification of 12 management positions. The Minister of Health advised the Board not to proceed with this reclassification. The Board, however, proceeded with the reclassification and paid $69,302 in retroactive salary to these 12 staff. 3.19 Faculty of Medicine of Memorial University of Newfoundland The Faculty of Medicine of Memorial University of Newfoundland was established in 1967. Its purpose is to enhance the health of the people of Newfoundland and Labrador by educating physicians and health scientists, by conducting research in clinical and basic medical sciences and applied health sciences and by promoting the skills and attitudes of lifelong learning. Each year approximately 60 students are accepted into the Faculty's four year undergraduate program, with the majority of places reserved for residents of Newfoundland. Tuition fees for an undergraduate degree are $6,250 per year for Canadian students and $30,000 per year for non-Canadian students. The Faculty also offers programs in postgraduate training (residency), continuing medical education and graduate studies leading to the degrees of Medical Science and Doctorate. The Department of Health provides annual operating grants of approximately $17.0 million to the Faculty of Medicine of Memorial University of Newfoundland. For the year ended 31 March 1997, this operating grant of $17.0 million represented 68% of the Faculty's total revenue and 84% of its operating revenues. In addition to the $17.0 million operating grant, the Department also provides annual funding of approximately $8.9 million for the training of post-graduate students. Although this funding is submitted in a separate budget by the Faculty, the funds are actually paid to the Health Care Corporation of St. John's with whom the students are training. Our review indicated that the Department of Health does not have an adequate system of accountability over the grants provided to the Faculty of Medicine. For example: 3.20 Western Memorial Hospital Corporation In our 1996 Annual Report to the House of Assembly, we reported on the results of our review of the Western Memorial Hospital Corporation. The audit identified significant problems at the Corporation, details of which were included in our 1996 Annual Report. Our review in 1996 focused on the Corporation's financial statements for the year ended 31 March 1995, as audited by a public accounting firm, and subsequent transactions to 31 December 1995. At this time the Corporation was amalgamated with the new Western Health Care Corporation. Subsequent to this review, we requested a copy of the Western Memorial Hospital Corporation's audited financial statements for the period ended 31 December 1995 and copies of the Western Health Care Corporation's audited financial statements for the period ended 31 March 1996 and the fiscal year ended 31 March 1997. These financial statements would indicate the Corporation's surplus or deficit for each period, as well as the financial position at the end of each period. Of particular interest is the extent to which the Corporation's debt has increased or decreased from the $4.5 million as at 31 March 1995, the amount of the Corporation's accumulated deficit, and the amounts owing from third parties and associated funds. During a Public Accounts Committee meeting on 9 September 1997, officials of the Corporation indicated that their line of credit was at $13.0 million. We have been informed by officials of the Corporation and the Department of Health that audited financial statements for the period ended 31 March 1996 and the fiscal year ended 31 March 1997 are not available. It concerns us that given the significance of issues raised during our 1996 review, the audited financial statements of the Western Health Care Corporation for the period ended 31 March 1996 and the fiscal year ended 31 March 1997 are still not available as at 31 October 1997. In our opinion, without timely audited financial statements, the Corporation is not being accountable for the expenditure of large amounts of public funds and as a result is not fulfilling its responsibility. 3.21 Health Care Corporation of St. John's On 2 December 1996, the Public Accounts Committee by resolution requested the Auditor General to conduct an inquiry into and report on the financial affairs of the Health Care Corporation of St. John's. We commenced our review in January 1997 and forwarded our report to the Public Accounts Committee on 29 August 1997. On 4 September 1997, the Chairman of the Public Accounts Committee tabled the Report in the House of Assembly. Our review disclosed the following. We have three major concerns regarding the completeness and accuracy of information relating to the planned restructuring of health care services. These can be summarized as follows:
The Corporation was also experiencing problems in maintaining sufficient funds to meet its current obligations. Its cash flow problems are caused primarily by a combination of its deficit, its uncollected accounts, and the timing of the last monthly budget advance from the Department of Health. The Corporation's overdraft was highest in April 1997 and April 1996. Bank overdrafts for these two months were $10.0 million and $12.1 million respectively. In addition, we had also intended to compare salary expenditures for several years with the original and revised salary budgets for those fiscal years to determine whether total salaries paid by the Corporation had increased or decreased over the period. Given the significance of the Corporation's salary expenditures, and the three downsizing initiatives which occurred over the past three years, this information would indicate whether the total salaries paid by the Corporation had in fact decreased. However, we were unable to obtain the Corporation's original salary budget for 1996-97, and the original salary budget and actual salary expenditures for 1995-96. In March 1997, a Budget Review Committee comprised of representatives from the Corporation, the Department of Health and the Treasury Board Secretariat was established to carry out a similar exercise and conduct a comprehensive review of the Corporation's 1996-97 budget, review its projected costs, identify clinical impacts and prepare a three year budget forecast. We look forward to the report of the Committee which is expected to be completed near the end of 1997. The Corporation did not tender for 79 of these purchases with a dollar value of $9.7 million as the were acquired from "the only available source." These 79 purchases along with another 91 purchases were reported to the Minister of Works, Services and Transportation, between 1 April 1995 and 31 December 1996, as being available from only one source. However, our review disclosed instances where there was insufficient information in the Corporation's files to fully support why the purchases were not publicly tendered. 3.22 Newfoundland Cancer Treatment and Research Foundation The Newfoundland Cancer Treatment and Research Foundation was established in 1971 to conduct a program of cancer diagnosis, treatment and research. The Foundation is governed by an eight member Board of Trustees which is appointed by the Minister of Health. The Foundation operates province wide through clinics and treatment centres within existing health care facilities and also operates the Dr. H. Bliss Murphy Cancer Centre in St. John's. For the year ended 31 March 1997, total patient visits for the major clinics were reported at 14,598. For this same period, the Foundation reported revenue of $7.8 million, of which 90% was received from the Province, and expenditures of $8.7 million. On 2 December 1996, the Public Accounts Committee of the House of Assembly passed a resolution requesting that we conduct a review of the financial affairs of the Foundation. Our review covered the period from 1 April 1995 to 31 March 1997. Our report on this review was presented to the Public Accounts Committee on 1 December 1997 and was tabled in the House of Assembly on 2 December 1997. Our review indicated the following. The Foundation's annual budget, which provides for the allocation of funding to the various programs, is not approved by the Board. The Foundation's annual report is not an accountability document as it is not issued on a timely basis and provides no linkage of results with objectives. In addition, this report is not tabled in the House of Assembly. The Foundation did not tender another 11 purchases, totalling $259,250, which were all greater than $7,500. However, for these 11 purchases, the Foundation filed a public tender exception report with the Minister of Works, Services and Transportation. Ten of these reports indicated that the vendor was a sole-source supplier; however, for two of these purchases totalling $102,063, other sources were available and a public tender was therefore required. The other public tender exception report related to a moving company where it was stated that rates did not vary. However, quotations had been obtained and the supplier with the lowest quote was awarded the contract. We also reviewed 10 purchases under $7,500 where the Public Tender Act requires the purchaser to obtain quotations from 3 suppliers or establish for the circumstance a fair and reasonable price for the goods or services. The Foundation did not obtain quotes for 1 of these 10 purchases. Board expenditures of $80,211 were charged to the operating account which is funded by the Department of Health. There is a lack of segregation of incompatible duties over the accounting services provided by the Health Care Corporation of St. John's on behalf of the Foundation. In addition, monitoring of expenditures by the Foundation is limited to a monthly review of variance reports. As a result of these weaknesses over the approval and monitoring process for expenditures, inappropriate or inaccurate expenditures may not be detected. The Foundation does not have adequate insurance coverage over its capital assets due to recent significant capital assets acquisitions. The Foundation may only invest money in investments authorized under the Trustee Act. The Foundation invested $58,487 in a mutual fund which is not an authorized investment under the Trustee Act.
3.23 Workers' Compensation Commission The Workers' Compensation Commission was established in 1951. In accordance with the Workers' Compensation Act and its supporting regulations, the Commission is responsible for administering programs for the payment of benefits to injured workers and dependents, rehabilitation of injured workers, setting rates and collecting employer assessments, and making investments necessary to ensure adequate funding for services. The Commission is governed by a seven member Board comprised of a chairperson, two employer representatives, two worker representatives and two members at large. In addition, there are two ex-officio members - the Chief Executive Officer of the Commission and the Assistant Deputy Minister of the Department of Environment and Labour responsible for Occupational Health and Safety. The Board is appointed by the Lieutenant-Governor in Council. The Commission reports to the House of Assembly through the Minister of Environment and Labour. The Commission is funded through employer assessments and income earned on investments maintained in an investment portfolio. Of the $122.5 million in total revenue for the 1995 calendar year, 75.5% or $92.5 million came from regular assessments on employers' payroll to meet current year obligations, 10.9% or $13.4 million came from an additional assessment on employers' payroll to amortize the unfunded liability and 13.6% or $16.6 million came from the Commission's investment portfolio. There are approximately 13,000 registered employer accounts representing approximately 180,000 workers covered by Workers' Compensation programs. Monies received form an Injury Fund which is used to pay all the expenses of the Commission, expenses of the Department of Environment and Labour for the Occupational Health and Safety Division, the Employer and Worker Advisors, the Statutory Review Committee and all expenses of the Department's Workers' Compensation Review Division. The Commission's total expenditures for the year ended 31 December 1995 were $106.7 million. Our review of the Commission indicated the following. The Commission has taken initiatives to strengthen its accountability to the House of Assembly. For the 1995 calendar year, the Commission prepared a report to demonstrate its performance relative to predetermined targets. The report was a good initial effort in providing more useful information to the House of Assembly; however, improvements are required so that all strategic objectives identified by the Commission have predetermined targets against which actual performance is reported. In 1991, the Commission prepared a financial strategy to address its unfunded liability, which, at that time, had increased to $176 million. There were two significant initiatives implemented to address the unfunded liability. First, a special assessment, currently totalling $13 million annually, was put in place so that the unfunded liability could be fully funded by 2012 and secondly, to reduce the cost of workers' benefits, the income replacement ratio was reduced from 90% to 75% for the first 39 weeks and to 80% after 39 weeks. As at 31 December 1995, the unfunded liability was $117 million. As a result of structural changes at the Commission, the staff complement has increased from 166 in 1990 to 223 in 1995. Also, salary costs have increased from $6.1 million in 1990 to $8.8 million in 1995. Physical security at the Commission requires improvement. The Commission is providing loans to employees, at prime plus one percent, for the purchase of computer equipment. During 1995, $98,000 in loans were advanced to employees for computer loans. Also in 1995, the Commission provided interest free loans totalling $1,300 to employees to cover the costs of tuition and books for career related training. There is no authority in the Workers' Compensation Act to provide these loans. With minor exceptions, the Commission was generally in compliance with the Public Tender Act and Regulations. The Commission does not have formal guidelines for the hiring of external consultants. Some of the consultants engaged by the Commission have been renewed on an annual basis without any public call for proposal. 3.24 Newfoundland Legal Aid Commission The Newfoundland Legal Aid Commission was created under Section 3(1) of the Legal Aid Act and operates under that Act and Regulations. The affairs and operations of the Commission are under the direction of a Board of Commissioners consisting of five members appointed by the Lieutenant-Governor in Council and two ex-officio members, specifically the Deputy Minister of Justice and the Provincial Director of Legal Aid. The purpose of the Commission is to establish and administer a plan to provide legal aid to residents who qualify under the Legal Aid Act. To obtain legal aid, an individual must complete an application providing a brief description of the legal problem and information on income, expenses and net assets. Each application for legal aid is evaluated in accordance with its legal merit and the applicant's financial eligibility, as outlined in the Act and Regulations. Criminal, family and civil legal services are provided at nine area offices throughout the Province. These area offices are located in St. John's, Corner Brook, Gander, Grand Falls, Carbonear, Clarenville, Marystown, Stephenville and Happy Valley. Each area office is managed by an Area Director who is responsible for the general administration of legal aid in that area. We completed our review of the Newfoundland Legal Aid Commission in March 1997. Our review indicated the following. Controls over accounts receivable, totalling $337,322 as at 31 March 1997 (1996 - $301,391), are inadequate and the Commission has not been successful in collecting amounts owing to it. Accounts receivable include credit balances totalling $30,163 (1996 - $25,596), some of which are owing to clients but have not been paid. The Commission could not always provide client files to support the account receivable balances. Funds remain deposited in trust for cases that have been completed. These funds were never transferred from the trust account to the operating account. The Commission provided a loan to an employee. Public money should not be used for employee loans. The applicant assessment process is deficient in that income verification is not always documented and intake workers have not been provided with guidelines to determine the reasonableness of certain applicant expenses. Accountability at the Newfoundland Legal Aid Commission requires improvement. The Commission does not prepare an annual report to show its actual results of operations compared to its objectives and demonstrate its accountability to the Minister, Government or the House of Assembly. Improvements could be made to the Commission's management practices. There were instances of non-compliance with the Legal Aid Act and Regulations. For example, the Commission does not always require a determination of expenses and net assets in assessing the financial eligibility of applicants, the Commission does not provide an annual report to the Minister concerning its work and the Commission's Area Directors do not submit monthly or annual reports to the Provincial Director on the operations of the area offices. The Commission does not have conflict of interest guidelines for the Board and staff. Employee performance evaluations are not completed on a regular basis and employee position descriptions are not in place for all employees. 3.25 Newco Corporations - Middle Distance Fishing Vessels The Department of Fisheries began a program in the late 1970's to evaluate the use of fixed-gear technology on mid-size vessels in the Newfoundland groundfish fishery. During 1987, the program was expanded with the construction, by Marystown Shipyard Limited, of two middle distance fishing vessels, the Funk Island Banker and Belle Isle Banker, that were specifically designed for Newfoundland conditions. As a result of a financing arrangement between the Province and a leasing company, the two vessels were purchased by Roylease Limited and leased back to the Province through two companies, Newco I and Newco II, which were created under the Corporations Act. During 1988 and 1989 the program was further expanded with the construction, by Marystown Shipyard Limited, of two additional middle distance fishing vessels, the Makkovik Banker and Nain Banker. This time, the two vessels were purchased by Pitney Bowes Limited and leased back to the Province through two companies, Newco III and Newco IV, which were created under the Corporations Act. The Province, through senior Government officials, held an 85% ownership interest in each of the four Newco corporations. The Province's involvement with the Newco corporations is estimated to cost approximately $31.1 million to 31 March 1997. As at 31 March 1997, the Province was owed $5.6 million by Newco IV Corporation. The Province has also guaranteed the lease payments of Newco IV which have a principal balance of $3.0 million at 31 March 1997. In addition, the Province has written off $15.3 million dollars in advances and related interest charges to the Newco corporations and lost $7.2 million on the sale of the three middle distance vessels. The remaining middle distance fishing vessel, the Nain Banker, was leased to a private interest under a one-year agreement commencing in April 1997. The agreement provides the operator with an option to enter into negotiations to purchase the vessel within the term of the agreement. There is also an option to extend the existing agreement for an additional one-year term. On 13 February 1997, the Public Accounts Committee of the House of Assembly passed a resolution requesting that we carry out a review of the administrative and financial operations of the Town of Pouch Cove. We commenced our review in February 1997 and the review covered the period from 15 November 1993 to 27 February 1997. Our report on this review, together with Council's response, was presented to the Public Accounts Committee on 28 August 1997 and was tabled in the House of Assembly on 4 September 1997. Our review indicated the following. In addition, of $141,101 in adjustments and write-offs to tax accounts, only $17,261 was approved by Council as required under the Municipalities Act. Chapter 4 Update on Prior Years' Report Items This year we continued a process whereby the recommendations are monitored and the results reported within two years of the original report date. This chapter provides the results of this monitoring process relating to the recommendations contained in the Reports of the Auditor General to the House of Assembly on Reviews of Departments and Crown Agencies for the Years Ended 31 March 1994 and 1995. |
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