2000 Report Summary Booklet

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The printed version of the document stands as the official record. The Office of the Auditor General assumes no responsibility for any discrepancies that may have been transmitted with the electronic version. 

TABLE OF CONTENTS

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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 2000. That Report contains approximately 400 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 2000 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 2000. Therefore, along with this Summary, two reports are tabled before the House of Assembly.

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 2000.

In my previous Reports to the House of Assembly, I expressed concern over the lack of information being provided to the House of Assembly by agencies of the Crown and Memorial University of Newfoundland (the University) which are funded primarily by the public purse. Operating grants paid to hospitals, school boards, other agencies of the Crown and the University by government departments are included in total funding approved for each department by the House of Assembly as part of the annual budgetary process. Having approved this funding, the House of Assembly should then receive information on how this public money was used and what the funding has achieved.

I have recommended the implementation of a legislated accountability framework for all public sector entities in the Province, including government departments, all agencies of the Crown and the University. I have also recommended that the framework include a strategic and operational planning process, clearly defined objectives, measurement criteria, a financial budget and a reporting system which provides appropriate information at various levels. The reporting process should include a report to the House of Assembly.

Of the 82 Crown agencies, only 4 entities receiving $175.5 million had their reports tabled in the House of Assembly. These four entities received only $175.5 million of total funding of $1.668 billion provided to various Crown agencies. There were no reports tabled in the House of Assembly which related to the remaining $1.493 billion.

While I am pleased to see that some action has been taken towards developing a framework of accountability, I am extremely concerned with the current state of affairs. I have two concerns:

• The present initiatives for government departments, Crown agencies and Memorial University, are not legislated. With respect to the initiatives for Crown agencies and Memorial University, they are not mandatory in that they are at the discretion of the minister responsible.
  
   
• None of the plans, information or reports generated under these initiatives are required to be tabled in the House of Assembly.

As at 31 March 2000 there were approximately 154 (1999 - 152) agencies of the Crown in the Province. Of these, 84 (1999 - 83) were required to prepare annual financial statements while 70 (1999 - 69) were considered non-financial and did not prepare financial statements. Any expenditures related to the operation of these 70 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 84 entities required to prepare annual financial statements, 30 (1999 - 30) were audited by our Office while 53 (1999 - 52) were audited by private sector auditors and 1 has not completed its first year of operations.

Most of the agencies of the Crown 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 this Office 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 our Office a copy of the audited financial statements and any management letters for all agencies of the Crown which they audit. These financial statements and management letters along with our Office’s audits of agencies of the Crown provide the basis for our monitoring of all agencies of the Crown.

The results of our monitoring activities are presented in Part 3.1 of the Report of the Auditor General to the House of Assembly for the year ended 31 March 2000.

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 all expenditures of the Consolidated Revenue Fund. We performed a general review and analysis of amounts paid relating to: grants and subsidies; property, furnishings and equipment; purchased services; professional services; allowances and assistance; and transportation and communications. Details of the expenditures in each of these categories are presented in Part 3.2 of the Report of the Auditor General to the House of Assembly for the year ended 31 March 2000.

The Provincial budget outlines Government’s budgeted revenues and expenditures and its surplus or deficit for the fiscal year on a cash basis. Once the year is over, Government reports its actual revenues and expenditures and its surplus or deficit and compares them to what was budgeted.

This year I am again expressing my concern with the manner in which the Government is calculating its surplus or deficit. Specifically, I am concerned about the way Government can "adjust" its actual revenues and expenditures to achieve whatever surplus or deficit it desires, through the use of special warrants or through the deferral of budgeted revenues.

For the 1999-2000 fiscal year, if Government had not issued special warrants in contravention of the Financial Administration Act and had received Hydro dividends, sinking funds and guarantee fees in the amounts it had budgeted, it would have reported a cash surplus of $167.1 million rather than a cash deficit of $13.0 million.

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 House of Assembly vote on the government’s funding requests before the spending authority is provided. Approval by a majority of the Members of the House of Assembly is needed to pass an Act.

Through the use of a "special warrant", Government can, without the prior approval of the Members of the House of Assembly, spend public money. 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.

There were 7 special warrants totalling $70.8 million issued in the 1999-2000 all of which were issued in March 2000. All of these special warrants were, in my opinion, issued in contravention of the Financial Administration Act in that they were not urgently required and the House of Assembly was in session when the funds were distributed.

The issuance of special warrants along with other mechanisms provide Government with the flexibility to "adjust" the cash surplus or deficit of the Consolidated Revenue Fund and produce a result closer to that originally budgeted on the cash basis.

Our review of Government departments indicated that a significant portion of their accounts receivable are in arrears. These amounts owed include accounts and taxes receivable, as well as loans, advances and mortgages receivable.

In addition to not collecting amounts owed to it on a timely basis, Government has written off significant amounts owed to it.

In May 1999 Government introduced the accounts receivable function of its accounting system. Government anticipates that this system will improve its recording, controlling and monitoring of accounts receivable. Our work during the current year disclosed that as at 31 March 2000 the accounts receivable system had not been fully implemented in the departments of Executive Council, Health and Community Services, and Works, Services and Transportation.

Steelcor Industries Incorporated, a precision machine shop in the Town of Buchans, is 51% owned by the Province. The Province initially became involved with Steelcor in December 1989 when Enterprise Newfoundland and Labrador Corporation’s (ENL) predecessor, the Newfoundland and Labrador Development Corporation, approved funding of $100,000 in the form of a $1 equity investment in the common shares of Steelcor and a $99,999 convertible shareholder’s loan.

Since Steelcor commenced business in 1989, the Province has advanced $3.119 million to the Corporation. As of September 2000, the Province has only recovered $313,000.

ENL files indicate that no private investment has been put into the company since ENL became the prime source of financing for Steelcor in 1993. Since 1997 ENL has been negotiating the divestiture of its ownership interest in Steelcor with various parties. Various divestiture plans have been put forth with little success.

Picadilly Plastic Incorporated operates a plastic thermoforming business on the Port au Port Peninsula on the West Coast of the Province. The Province initially became involved in Picadilly Plastic in June 1995. Since then, the Province has advanced $1.279 million to the company of which $1.029 million was provided by ENL and $250,000 was provided by the Newfoundland Industrial Development Corporation (NIDC).

While the amount owed to ENL by Picadilly Plastic has been written off, the $250,000 owed to NIDC is still outstanding. The company has been shut down since April 2000 and the $250,000 owed to NIDC is doubtful of collection.

Between 1997 and 2000 there were $3.055 million in loan guarantees being managed by the Department of Development and Rural Renewal. These loan guarantees were provided to 11 companies. We reviewed loan guarantees totalling $2.555 million for 10 of the 11 companies. The remaining guarantee for $500,000 to BPS Imaging Partnership was audited and reported on in my 1999 Annual Report.

Of the $2.555 million in loan guarantees reviewed, Government paid out $1.675 million and $180,000 expired, leaving outstanding loan guarantees of $700,000 as of 31 March 2000. In one case, the Department recovered $150,000 from the sales proceeds of certain secured assets.

Our review of ten loan guarantees in place at the Department of Development and Rural Renewal indicated the following:

• Four instances were noted where security that was taken was insufficient to cover the loan guarantee, or security the Department originally had in place was subordinated in favour of other interests.
  
   
• Loan guarantee agreements may include a restriction on the amount of remuneration that the companies can pay to their shareholders and directors. However, information on the remuneration paid was not always apparent from the financial information submitted to the Department.

In one case where information was available, the company contravened the provisions contained in the loan guarantee agreement by paying dividends of $95,800, and shareholders’ advances and management wages which were $60,000 in excess of the amount authorized in the guarantee agreement. In October 1998, this issue was brought to the attention of the company. However, there is no further information on file indicating that the Department followed up on this issue, whether excess amounts were returned to the company, and that no further excess payments were made to management and shareholders.

• Under the terms and conditions of their guarantee, some companies were required to submit internally prepared financial statements on a monthly basis, but this did not occur. All companies were required to submit annual financial statements; however, the files did not always contain the required annual financial statements.
  
   
• Companies are required to maintain insurance on assets that have been pledged as security for the loan guarantee. In one instance, we were unable to locate any documentation to show that the company had maintained insurance and had provided proof of such insurance to the Department.
  
   
• Guarantees were provided to three companies even though those companies were in arrears on loans with the Department. In two of these cases, the Department was required to honour the guarantees. In the other case, the loan guarantee is still outstanding.
  
   
• In January 1999, the Department wrote off loans totalling approximately $1.2 million for one company which included the pay out of a loan guarantee of $425,000. Although the Department had a charge on the company’s assets, it did not realize on its security.

In December 1998, Cabinet authorized a Crown corporation, the Newfoundland Industrial Development Corporation (NIDC), to provide this same company with a grant of $105,000 and a loan of $250,000. The $250,000 term loan provided by NIDC is interest and payment free for the first three years. After this three year period, the loan is to be repaid over seven years and will bear an interest rate of 8.75%. NIDC has taken a security position on the same assets which the company used as security for the loan provided by the Department and which was written off.

• As a result of a financial restructuring, the Department has a 51% voting control of one of the companies. By holding 51% of the outstanding voting shares the company meets the definition of a Crown controlled corporation for purposes of the Auditor General Act.

 

In 1996, Government announced that it was reorganizing the college system and consolidating the five colleges existing at that time into one college now known as the College of the North Atlantic. The objectives of the reorganization were outlined by the Minister of Education at that time. In addition, the 1996 Budget Speech stated that "the consolidation of the administration of the five existing colleges into one single College is expected to save $3.5 million in 1996-97." The financial analysis prepared by the College indicated that administrative expenses decreased from approximately $20.9 million in 1995-96 to $16.7 million in 1997-98. However, administrative expenses have since increased from the $16.7 million in 1997-98 to $21.8 million in 1999-00.

From the establishment of the one college system in 1997 to 31 March 1999, there was a significant decline in the cash and working capital position of the College. As at 31 March 1997, which was the last year that the five colleges were required to report their financial positions separately, they had combined cash of $3.0 million and working capital of $1.3 million. As at 31 March 1999 the College of the North Atlantic, which is comprised of the five former colleges, had a cash deficiency of $2.4 million and a working capital deficiency of $1.2 million. However, in 1999-00, the Department of Education provided the College with an additional $5.0 million in grant-in-aid and, as a result, the cash position and working capital improved as at 31 March 2000.

Our review of the College of the North Atlantic indicated the following:

• The level of funding provided by the Department each year is based, for the most part, on the level of funding provided in previous years. The funding is not linked to the College’s performance, the number of students, or the College’s Strategic Plan but is based on the historical levels of funding adjusted for new, modified, or discontinued programs. Since funding is not linked to the College’s performance or other outcomes, the current funding arrangement does not ensure that the College is operating efficiently.
  
   
• The College has $48 million in furniture and equipment. There are significant weaknesses in the controls over these assets as the College does not know what comprises the $48 million.

The College has commenced itemizing these assets; however, they have not made as much progress as they had initially anticipated. The College’s review of assets at several campuses has identified a number of problems including missing computers and other equipment. Our review also identified equipment that was missing or was scrapped without documentation to support this.

• At the time of our review, the College owned or leased 49 vehicles. The College spends approximately $180,000 annually to operate these vehicles. These vehicles and their operating costs are not being monitored. Furthermore, the College does not control and monitor usage of its 48 credit cards used for fueling its vehicles.

At the time of our review the College did not have a current listing of their vehicles or their usage. The College also paid duplicate insurance premiums on some vehicles and paid insurance premiums on vehicles that they had scrapped or returned under lease agreements.

• The College is not always complying with the Public Tender Act. For example:
   

• the Act requires that three quotes be obtained for purchases estimated to cost less than $10,000. This is not always done.
  
   
• the Act requires that tenders be publicly advertised for purchases estimated to cost more than $10,000. This is not always done.
  
   
• the Act does allow tenders not to be called for some purchases estimated to cost more than $10,000 if certain conditions, as defined in the Act, are met. However, these exceptions must be tabled in the House of Assembly and publicly disclosed. This is not always done.

In addition, we identified a number of instances where the request for quotes or the public tender specified a specific make and/or model number. This is not within the spirit and intent of the Act.

• Travel expenditures in 1999-2000 totalled $1.7 million. The College has serious problems in the processing and payment of travel expenditures. Our review identified expenses which were paid twice, payments for personal items, payments which were not adequately supported and unauthorized entertainment expenses. In addition, the College’s internal auditors issued a report in 1998 identifying a number of areas for improvement, including conference calls in lieu of meetings and reducing the rental of vehicles.
  
   
• At the time of our audit, the College had 93 cellular phones. Costs have been increasing over each of the past three years and total expenditures for this period are approximately $130,000. There is no monitoring of College cellular phone costs and there are no policies on the acquisition and administration of cellular phones.
  
   
• In September 1998, the College took over four programs from the Newfoundland Career Academy: Avionics Technician, Dental Assistant, Massage Therapist, and Professional Pilot. Up to July 2000, the College spent approximately $5.0 million on these four programs. Of particular concern were issues relating to two of the programs as follows:

• Dental equipment was purchased in December 1998 through the Career Academy’s trustee for $159,850 for the Dental Assistant program. In May 1999, just six months later, the equipment was sold for $57,557, a loss of $102,293.
  
   
• Of the $2.9 million spent to complete the training of the students in the Professional Pilot program, approximately $2.1 million was paid to one company for flight training of the students without going to public tender.

• The Memorandum of Understanding required a payment of $1.44 million over the life of the 15 month agreement for 12,000 hours of flying lessons. In accordance with the agreement, the payment for the 12,000 hours was to be made regardless of the actual usage. Our review of how many hours were actually used as per invoices up to January 2000 indicated that only 7,270 hours of flight time was used, a shortage of 4,730 hours. Therefore, the College paid $567,600 for hours which were not used by the students.

• The single biggest expenditure for the College is salaries and employee benefits. Salaries and employee benefits totaled $55.0 million for the 1998-99 fiscal year. Of the $55.0 million, $47.8 million related to general operating salaries and $7.2 million related to salaries for contract training and special projects.

Our review indicated that expenditures for salary and employee benefits decreased subsequent to the reorganization in 1997; however, it has been increasing for the two years subsequent. In addition, officials at the College indicated that the number of permanent positions have also increased.

At the present time, the College does not have a salary position and monitoring system to indicate the approved positions within the College and the status and salaries of these positions. Until the College rationalizes the number of employees it requires, and the duties and qualifications of those employees, it does not know how many employees it needs to operate the College and deliver its programs. A salary position and monitoring system is necessary for an organization as large as the College so that the number of positions can be controlled. In addition, such a system is necessary to establish and control the salary budget of the College. Since the College is funded by the Department of Education, a salary position and monitoring system would be mutually beneficial.

As at 31 December 1996, there were approximately 445 schools in the Province with a total enrolment of 110,450 students. The number of schools and student enrolment have declined by 23% and 15% respectively, in the past four years.

Our review of school board financial statements disclosed that 7 of the 11 school boards had bank indebtedness totalling $4.024 million as at 30 June 2000 to finance board deficits and other expenditures. Seven of the 11 school boards had accumulated deficits of $3.873 million from operations excluding severance pay accruals.

Our review of the financial position of the 11 school boards identified that their accumulated operating positions declined by $5.603 million during 1999-2000.

Using 1995-96 as the base year which was the last full year that the former 27 school boards operated, school board provincial revenues have declined by $27.8 million, comprised of $14.1 million in teaching services grants and $13.7 million in other revenues. The total revenue per pupil increased by 11% from $4,796 in 1995-96 to $5,311 in 1999-00.

Using 1995-96 again as the base year which was the last full year that the former 27 school boards operated, school board expenditures declined by $23.5 million, comprised of $15.6 million in instructional, $5.2 million in administration, and $2.7 million in other expenditures. Expenditure on instruction per pupil increased by 13% from $3,841 in 1995-96 to $4,349 in 1999-00.

The Workplace Health, Safety and Compensation Commission was established in 1951. The Commission is responsible for administering programs for the payment of benefits to injured workers and dependants, rehabilitation of injured workers, setting rates and collecting employer assessments, and making investments necessary to ensure adequate funding for services. In 1998, the Commission’s mandate was expanded to include the Occupational Health and Safety Programs Division of the Department of Environment and Labour. The Commission is governed by a ten member Board appointed by the Lieutenant-Governor in Council and reports to the House of Assembly through the Minister of Environment and Labour.

Prior to 1984, the Commission had a disability system in place which compensated injured workers based upon the nature of their disability. In 1984, the Commission implemented a wage loss system which compensated workers on an ongoing basis for their loss of income from a disability.

Initially, the Commission found that, due to a lack of historical claim information, it was not able to reasonably estimate the future costs associated with injuries which had already occurred. However, actuarial studies carried out estimated the future liabilities of the Commission including the portion of the future liabilities for which there was no funding. This is referred to as the "unfunded liability."

In 1991, the unfunded liability of the Workplace Health, Safety and Compensation Commission reached $176 million. In that same year, the Commission prepared a financial strategy to address the problem of the increasing unfunded liability. From that time until 1997, the unfunded liability of the Commission had been decreasing. In 1998, the unfunded liability increased but was still in line with the financial strategy prepared in 1991.

The Commission’s 1999 Annual Report indicated that the unfunded liability had increased significantly from $111 million as at 31 December 1998 to $180 million as at 31 December 1999. As a result, the Commission’s unfunded liability as at 31 December 1999 approximates the unfunded liability as at 31 December 1991, when the Commission prepared its strategy to address the problem.

The Provincial Government has invested directly and through Federal/Provincial cost shared agreements $27.0 million in the Marble Mountain resort area as at 30 April 2000. Included in this $27.0 million are expenditures of $3.1 million for the construction of 31 condominium units which were completed in January 1999. These condominiums have square footage ranging from 311 square feet to 918 square feet. In addition to the $27.0 million invested by the Provincial Government, an additional $10.4 million has been provided by the Federal Government. As of October 2000, none of the 31 units have been sold. Commencing in July 2000, the condominiums were available to be rented on a daily basis.

The 31 condominiums were constructed and marketed in 1998 yet no new marketing surveys were conducted subsequent to 1994. The market survey carried out in 1994 indicated that people preferred renting over purchasing. In 1996 only 11 of the condominiums had potential buyers and in 1998 none of the units were pre-sold when the construction was started. Although the market information indicated that there were very few potential buyers for the condominiums, the 31 condominiums were built in 1998 and marketed initially as sales units only. Twenty-five of the units are furnished or partially furnished while the remaining six are unfurnished.

One of the objectives in building the condominiums was to increase the viability of the Marble Mountain area and eventually reduce or eliminate the need for operating and capital grants from the Provincial Government. However, additional financial assistance from the Province has been required to construct the condominiums and maintain them since none of the units have been sold to date and few have been rented. As a result, Marble Mountain has not been able to operate without the assistance of Government. For example, before Government assistance the Corporation has shown a deficit in each year since 1993. These annual operating deficits have ranged from $92,000 to $875,000 and do not include depreciation on the Corporation’s assets. Furthermore, revenues from operations are also decreasing since skier visits have declined from 79,000 in 1995 to 53,000 in 2000.

For the period 1996 to 2000, Government’s loan guarantee program has resulted in the payout or assumption of debt in excess of approximately $114 million, of which $95 million related to Crown corporations and $19 million related to private companies. Of the $114 million, $4.9 million was recovered from four Crown corporations relating to the sale of four middle distance fishing vessels. Government’s involvement with these vessels resulted in costs totalling $35.6 million in guarantee payouts and other related costs. A total of $12,700 was also recovered through realization of security Government had in place for a $73,000 payout on a loan guarantee.

The most significant changes occurred between 1998 and 1999 and between 1999 and 2000. The decrease in the total amount guaranteed between 1998 and 1999 is primarily due to the assumption of $70.9 million in debt resulting from the divestiture of Newfoundland Ocean Enterprises Limited and $10.2 million in debt resulting from the divestiture of Newfoundland Farm Products Corporation. The increase in the total amount guaranteed between 1999 and 2000 is primarily due to the guarantee of $110 million in debt relating to the Health Care Corporation of St. John’s relating to the Corporation’s site relocation and renovation project.

As of 31 March 1999 there were loan guarantees to 12 private companies totalling $21.5 million. We reviewed 6 of the12 loan guarantees which accounted for $18.5 million. Our review of these guarantees extended to May 2000.

In 1990, Cabinet established criteria which companies are required to meet before the Province will provide loan guarantee assistance. The Department of Finance developed policies to address these criteria. However, we found that some of the policies are not specific enough. For example the criteria established by Cabinet requires that the company satisfactorily demonstrate that it can be viable over the long term. However, there is nothing in the policies to tell staff how to determine viability. Cabinet also provided that criteria could be waived in cases where there would be significant community impact. Again, there is no guidance in the policies to tell staff what would constitute significant community impact.

Our review also indicated that the criteria established by Cabinet is not always being complied with. For example:

• Three of the six loan guarantees reviewed did not meet the criteria approved by Cabinet. The three companies were not established businesses as required by Cabinet criteria and one of the three companies used its loan guarantee to secure term financing which was not permitted by Cabinet. Of these three guarantees, two resulted in payouts totalling $18 million.
  
   
• While Cabinet directed that guarantees normally would not exceed a one year duration, most loan guarantees are being issued without expiry dates. Of the private companies examined which received loan guarantees, the average length of time the company had been in receipt of a loan guarantee was 6.3 years. Two guarantees had been in place for in excess of 10 years with the longest of these two in effect for 13 years. One other guarantee has been outstanding approximately 8 years.

Monitoring of loan guarantees requires improvement. Some of the significant issues identified include:

• Although guarantee agreements require audited financial statements to be submitted, our review of files maintained by the Department indicated that the files did not always contain recent audited financial statements.
  
   
• There is no formal mechanism in place to ensure that the financial position of companies receiving loan guarantees is being reviewed on a regular and current basis. The Department’s reviews are generally completed when a company’s year end financial statements are received. Since this information is not received in a timely manner, significant periods of time may pass between reviews.
  
   
• Loan guarantee recipients did not always have appropriate insurance in place as required by the guarantee agreement. There is also no system in place to remind Department of Finance staff when a policy is expiring and thus prompt them to request evidence that insurance coverage is in place.

Corporate and municipal loan guarantees are approved by Cabinet and tabled in the House of Assembly; however, fisheries loan guarantees are approved by the Fisheries Loan Board and are not approved by Cabinet or tabled in the House of Assembly. As at 31 March 2000, fisheries guaranteed bank loans totalled $24.1 million.

Cabinet criteria specifies that security must be available to government on a book value basis to the value of the loan guarantee either through the company or personal guarantees of the principals. Our review indicated that assets taken as security are usually insufficient to cover the loan guarantee and are often subordinated to other creditors. In addition, there is usually no action to realize on security held.

Some recipients of loan guarantees have also received loans and/or equity financing from the Department of Development and Rural Renewal. This increases the Province’s total exposure in cases of default. There is no guidance as to when a company would receive a guarantee from the Department of Finance versus the Department of Development and Rural Renewal.

Newfoundland Farm Products Corporation was established in 1963 under the Farm Products Corporation Act. 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.

In 1996, a new Board of Directors was appointed and given the mandate to pursue privatization of the Corporation. In October 1997, the sale of the St. John’s processing operation to Integrated Poultry Limited, a consortium of local chicken producers, was concluded.

On 17 June 1997, Newfoundland Farm Products Corporation entered into an Agreement of Purchase and Sale with IPL Processing Limited and a Share Purchase Agreement with Integrated Poultry Limited and IPL Processing Limited. These agreements provided for the sale of the St. John’s chicken processing operation to IPL Processing Limited effective 4 October 1997.

On 23 February 2000, Integrated Poultry Limited went into receivership and on 9 March 2000, the assets of Integrated Poultry Limited were sold by the Receiver to 10874 Newfoundland Inc. (now known as Country Ribbon Inc.), a company formed by ACA, a chicken processing company situated in Nova Scotia and Atlantic Co-op, a co-operative of chicken producers in Atlantic Canada.

Since 1997, Government has provided financial assistance to Integrated Poultry Limited or incurred expenditures relating to Integrated Poultry Limited of approximately $22.2 million. The $22.2 million does not include either the transfer of a lease for land and buildings or the transfer of equipment of Newfoundland Farm Products Corporation to Integrated Poultry Limited for a nominal value of $1 each.

In addition to the above financial assistance, the following observations were also made with respect to Integrated Poultry Limited:

• During 1999, the Province also provided other loan guarantees in the amount of $1.9 million for certain financing transactions of Integrated Poultry Limited but the related loans were repaid and the loan guarantees cancelled.
  
   
• In October of each year, Integrated Poultry Limited was required to remit an annual loan guarantee fee, in the amount of 1% of the outstanding loan guarantee, to the Department of Finance. At the time of the receivership of Integrated Poultry Limited, Government was owed a total of $115,820 in guarantee fees which had been outstanding since October 1999. In preparing its 31 March 2000 financial statements, Government has provided a full allowance for the $115,820.
  
   
• During 1998-99, in order for Integrated Poultry Limited to obtain financing, Government relinquished a portion of its security on the assets of Integrated Poultry Limited. The remaining security on the assets was released upon the sale of Integrated Poultry Limited to 10874 Newfoundland Inc.

During the last period of operation in 1997-98 and up until the year ended 31 March 2000, Government has provided financial assistance to Newfoundland Farm Products of approximately $19.6 million.

On 9 March 2000, the Province, the Newfoundland Chicken Marketing Board, Newfoundland Farm Products Corporation and 10874 Newfoundland Inc. (now known as Country Ribbon Inc.) entered into an agreement regarding certain matters related to the purchase of IPL Production Limited and IPL Processing Limited by 10874 Newfoundland Inc. This Agreement included, among other things, the transfer of quotas and other Government approvals necessary for the Corporation to operate as well as the provision of an environmental indemnity guarantee by Government relating to the Pleasantville and Cochrane Pond sites. The Agreement also covers responsibilities by 10874 Newfoundland Inc., including the provision of a Business Plan to Government and a commitment to invest $3.0 million for capital improvements and to maintain continuously until 9 March 2005, an average employment level, expressed in person years, at not less than 75% of the employment level existing on 9 March 2000.

Government officials have informed us that, where determinable to date, the terms of the Agreement have been complied with. They have also indicated that other provisions, such as employment levels, are not yet measurable. This area will be subject to future audit by this Office.

The Department of Forest Resources and Agrifoods is responsible for the management of all forest and agricultural activities of the Province. This responsibility is divided into four main programs: executive and administrative support, forest management, wildlife and agricultural development.

Within the agricultural development program the Soils and Land Management Division manages land in the Province through identifying areas suitable for agricultural development and expansion for silviculture initiatives; acting as an intermediary in objections to agricultural development; and mapping farmland and maintaining a database of land and soil information.

In our review of the Department’s expenditures for the year ended 31 March 2000, and specifically those under the Land Consolidation Program, we identified expenditures that did not meet the purpose for which the funding was approved by the House of Assembly.

There were no funds approved by the House of Assembly under the Soil and Land Management - Land Development Program against which expenditures of $64,000 for the purchase of three vehicles could properly be charged. As a result, these payments were made contrary to the Financial Administration Act.

The 1998 Annual Report of the Auditor General to the House of Assembly included a report item in Part 3.15 resulting from a review of food premises inspection and licensing activities at the Government Service Centre. The 1998 review disclosed that some food premises were operating without a valid licence and that food premises in the Province were not being inspected the required number of times each year.

On an annual basis, we monitor and update the comments and recommendations included in our previous Annual Reports to the House of Assembly. During our review, it came to our attention that one of the suppliers which provided various meat products to the health care facilities administered by the Health Care Corporation of St. John’s was not licensed by the Department of Government Services and Lands as required by the Food Premises Regulations.

Our subsequent review disclosed the following:

• One supplier had been licensed under the Food Premises Regulations in the 1998-1999 licence year but did not have a licence renewal inspection completed for 1999-2000. Furthermore, inspection for the 2000-2001 licence year was not completed until 20 April 2000. This inspection was not completed until after meat products were provided to the Health Care Corporation of St. John’s in accordance with the contract. Inspections for this supplier were not completed in accordance with the required frequencies.
  
   
• The second supplier was last licensed in the 1998-1999 licence year. In this case, the last renewal inspection completed was in March 1998. As of September 2000, no inspections have been completed since March 1998. Inspections for this supplier were not completed in accordance with the required frequencies.
  
   
• The third supplier should have been licensed under the Food Premises Regulations but had not been licenced up to the point of our initial inquiry in March 2000. After receiving our request, an inspector was sent by the Government Service Centre to inspect the supplier’s premises. Upon completion of the inspection, it was determined that the premises should have been licensed but had been missed. The company was not licensed until 13 March 2000.

Officials indicated that the failure to licence the food premises operated by this supplier was an oversight but that the omission should have been detected through routine canvassing of the area by inspectors.

In completing the licensing inspection, several health hazards were identified by the inspector, with compliance times recorded on the inspection report in which the supplier was to have the identified health hazards corrected. The compliance times ranged from April 2000 to June 2000.

Our review indicated that there was no follow-up on these identified health hazards by the Government Service Centre to ensure they were corrected within the compliance times noted on the inspection report. As a result of our queries, a follow-up inspection was completed in September 2000 which indicated that the health hazards identified in March 2000 had been rectified; however, two new potential hazards were identified for which no compliance time was provided.

Based on the results of our subsequent review of the licensing of the meat supply contractors by the Department of Government Services and Lands, we are concerned that contracts for the supply of meat products for consumption at the Province’s health care facilities are awarded to suppliers who are operating without the required licences and inspections.

The Department of Government Services and Lands operates five permanent weigh scale inspection stations in the Province located at intervals along the Trans Canada Highway. These stations are located at Foxtrap, Goobies, Grand Falls-Windsor, Pynn’s Brook and Port aux Basques. In addition, there are six two-person inspection teams which provide weigh scale operations along the Province’s road system using highway enforcement vehicles and portable weigh scales. Weigh scale inspectors are responsible for commercial vehicle inspection and enforcement activities related to several legislative authorities including the Highway Traffic Act and the Dangerous Goods Transportation Act.

Operation of the Provincial weigh scale inspection stations is designed to monitor vehicles for compliance with various legislated highway safety standards. Vehicles which do not meet these standards pose a risk to both the safety of the public travelling on the Province’s highways and to the highway infrastructure itself.

The administration of weigh scales activities is not adequate to ensure that the highway safety objectives of the program are being met. There is no planning process in place to ensure the use of available resources is optimized in addressing these objectives. As well, considerable judgement is exercised by weigh scale inspectors in the performance of their duties in terms of scheduling shifts, the inspection process, enforcement of legislative provisions, and documentation of their work. Compounding this is the fact that supervision of weigh scale operations is lacking and reporting is virtually non-existent. In particular, our review disclosed the following:

• There is no plan available which addresses activities for weigh scale inspectors. The current deployment of permanent inspection stations and portable inspection teams has been in place for several years and there has been no assessment carried out to determine whether current activities are optimal in achieving highway safety objectives.
  
   
• While the Department has indicated to the public that the permanent weigh scale inspection stations are open "24 hours per day", this is not the case. The hours during which permanent and portable weigh scale operations are operational contain significant gaps, many of which are predictable and could facilitate the avoidance of enforcement activities. Our review of one of the five permanent weigh scale stations indicated that the station was closed 1,811 hours of a total of 8,784 in 1999-00 or 20% of the total hours in the year. On a daily equivalent basis, this would equate to being closed a total of 75 days during the year. The number of hours closed ranged from 55 hours or 7% of the time in January 2000 to 286 hours or 38% of the time in July 1999.
  
   
• There is insufficient guidance to inspectors to assist in the performance of their duties. For example, there is no policy manual to provide direction to weigh scale inspectors. Although numerous memoranda have been prepared over the years, there is no master listing available to ensure the completeness of the memoranda retained by individual inspectors.
  
   
• Although a computerized weight measurement system was in place at permanent weigh scale stations visited during the review, considerable discretion is used by inspectors in the use of this system for enforcement purposes. As well, the system does not in itself detect whether a vehicle is over allowable weight limits. The computer system retains a record of the weight for each vehicle being weighed; however, it does not at present have the capability to determine whether the vehicle being weighed is within the permitted weight for its configuration. Accordingly, the system is severely limited in terms of monitoring activities at the weigh scale inspection stations. Also, the system is maintained on computers at the inspection stations that are not currently accessible by the Motor Registration Division for management information purposes.
  
   
• Weigh scale inspectors have several options available to them in dealing with instances of non-compliance with authorities identified when weighing commercial vehicles or when completing vehicle inspections. These include a verbal warning, a written warning, or a ticket summons. In addition, weigh scale inspectors may require commercial vehicles to offload a portion of their cargo to reduce weight as necessary. We found that these penalties are not consistently applied by weigh scale inspectors. As a result, this does not provide for consistency of enforcement for all commercial vehicles weighed at the permanent weigh scale stations throughout the Province.
  
   
• The legislative requirement which is posted at the permanent weigh scale inspection stations is for all commercial vehicles to stop if they have a gross mass in excess of 4,500 kilograms. In practice, commercial vehicles such as busses which are in excess of the 4,500 kilograms do not adhere to this requirement. As well, in practice, empty commercial vehicles which do exceed the 4,500 kilograms are permitted to by-pass the weigh decks at the permanent weigh scale stations; however, these vehicles are not examined to ensure that they are empty.
  
   
• There is no reporting on weigh scale operations to assess whether these operations have contributed to the overall objectives of highway safety enforcement. This is in part due to a lack of available management information which can be used to assess the performance of weigh scale operations.

 

From 1 November 1994 to 1 January 1996 the Government of Newfoundland and Labrador established eight regional health care institutions boards to administer health care facilities in Newfoundland and Labrador. These boards took over the facilities previously administered by many small local boards.

The financial position of the eight hospital boards is continuing to weaken despite the injection of deficit reduction funding. In 1998-99, the Province provided the boards with $48.4 million to reduce cumulative deficits to 31 March 1999. In 1999-00, the Province provided an additional $31.3 million in stabilization funding comprised of $17.4 million in base budget stabilization funding and $13.9 million in one-time stabilization funding. Even with this extra funding, the boards still reported current year operating deficits totalling $20.0 million before non-shareable items for the year ended 31 March 2000.

In addition, the eight hospital boards are projecting operating deficits totalling $39.8 million before non-shareable items for 2000-01 fiscal year. This $39.8 million does not include increases in severance and vacation pay which are expected to further increase the deficits. Funding to alleviate these projected deficits has not been approved by the Department of Health and Community Services.

On 1 April 1998, Government transferred programs for community services from the Department of Human Resources and Employment to the Department of Health and Community Services. Effective this same date, Government directed that community service programs including Child Welfare, Community and Corrective Services and Family Rehabilitative Services, be integrated and delivered under the health and community services boards.

There are four health and community services boards in the Province comprised of St. John’s, Eastern, Central and Western regions. Each of these boards has local offices throughout the Province.

The financial position and operating results of the four health and community services boards remained in poor condition in 1999-00. The total net liabilities of the four boards increased from $800,000 at 31 March 1998, to $7.4 million at 31 March 1999 and further increased to $9.2 million at 31 March 2000.

The operating deficits before non-shareable items in 1999-00 was $2.8 million compared to $3.9 million in 1998-99 after $4.2 million in additional funding was provided by Government. Without this additional funding of $4.2 million, the operating deficits of $2.8 million for the four boards would have increased to $7.0 million.

The 1999-00 operating deficit of $2.8 million indicates a slight improvement compared to the $3.9 million operating deficit incurred in 1998-99, but has deteriorated from 1997-98 when the four boards reported an operating surplus before non-shareable items of $2.2 million. The deterioration of the operating results of the four boards has occurred even though government provided additional funding of $2.3 million in 1998-99 and $4.2 million in 1999-00.

In addition, the four boards are projecting operating deficits totalling $7.8 million for 2000-01. This $7.8 million does not include increases in severance and vacation pay which are expected to further increase the operating deficits. The Department has not committed any additional funding to help fund these operating deficits.

The Newfoundland Government Fund Limited was incorporated on 10 November 1995 under the Corporations Act of the Province of Newfoundland. All shares of the Corporation are held by Ministers of the Crown on behalf of the Province. Its affairs are governed by a Board of Directors which is elected by the shareholders of the Corporation.

The Corporation is a Government-administered venture capital fund under the Immigration Act (Canada) and Regulations. Under the Canadian Immigrant Investor Program, the Corporation issued an Offering Memorandum in September of 1996 to raise funds from immigrant investors in order to provide loan and equity capital to establish, expand, purchase, maintain or revitalize businesses or commercial ventures in Newfoundland. For the immigrant investors, in addition to earning a nominal return on their capital, their investment in the Corporation helps satisfy a portion of their visa requirements under Canada’s Immigrant Investor Program.

The offering was comprised of a number of units each of which represents a $250,000 promissory note bearing interest at the simple rate of 2% per annum. Although each promissory note is repayable in full five years from the date on which 70% of the investor proceeds are invested, or is refundable upon refusal of an investor’s Canadian visa application, neither the Government of Canada nor the Government of Newfoundland and Labrador offers any guarantees or assurances of a return on an investor’s original investment and neither government is liable for any loss or damages that may be suffered by an investor as a result of the investment. The minimum and maximum amounts of the offering were $3,500,000 (14 units) and $35,000,000 (140 units) respectively.

We updated our 1999 review of the Newfoundland Government Fund Limited in November 2000. Our conclusions are as follows:

The Corporation has taken action to address many of the issues that we raised in previous reports. However, further improvements are required. For example:

• The Corporation has not invested 70% of the $5 million investment proceeds closed in January 2000 (or $3.5 million) in eligible business operations within 9 months after the release of the proceeds from the Escrow Agent. Therefore, the Corporation is not in compliance with the Immigration Act (Canada) and Regulations.
  
   
• The Corporation had still not exercised its rights as permitted under the Offering Memorandum to have the Escrow Agent enforce the requirement that investors make the minimum required deposit and pay the balance within the required time frame. As well, subscription documents are not being forwarded to the Corporation on the closing dates by the Escrow Agent. Therefore, the Corporation is still not exercising all of its rights in accordance with the Offering Memorandum.
  
   
• The Corporation has not approved the closing of units on a timely basis which results in a loss of interest revenue for the Corporation.

As of November 2000, the Corporation has invested $9.45 million in two eligible projects which involve the construction of health care facilities in Bonne Bay and Fogo Island. The prime consultants have been selected for each project and work on project design and site construction is progressing. The developer has been selected for the Bonne Bay project and once the formal agreements are signed, the Corporation will make a final advance of $3.9 million for a total investment of $8.9 million in the Bonne Bay health care facility.

It is expected that the tender for the developer in the Fogo Island project will be called in spring 2001. The latest estimate of the cost of the Fogo Island health care facility is $8.8 million, however, the final cost will be finalized once the developer is selected.

The total investment in the two eligible projects may be $17.70 million based upon the known cost of the Bonne Bay project and the most recent estimate of the Fogo Island project, which will represent 70% of the proceeds received from 102 investors. The Corporation has already used the proceeds received from 54 investors to fund the first advance for the two projects. Therefore, the Corporation requires that an additional 48 units are available for the final advances to the projects. We were informed by Corporation officials and the Escrow Agent that it is unlikely that the proceeds from 102 units will be available for investment by the Corporation as all visa applications may not be approved. As a result, the Corporation may not have sufficient proceeds to fully fund approved eligible projects.

On 2 December 1997, a Select Committee of the House of Assembly was appointed to enquire into the arming policy of the Royal Newfoundland Constabulary, and report its findings to the House of Assembly by 31 March 1998. As a result of the recommendations of the Select Committee on the Arming Policy of the Royal Newfoundland Constabulary, members on operational duty were permitted to wear sidearms commencing 14 June 1998. To provide specific direction to members on the control and usage of firearms, a revised Firearms Policy was also issued at this time. As of September 2000, 581 firearms were maintained by the Royal Newfoundland Constabulary.

One of the recommendations of the Select Committee on the Arming Policy of the Royal Newfoundland Constabulary was that a firearms audit acceptable to the Minister of Justice be performed annually and submitted to the House of Assembly. To comply with this recommendation, the Chief of Police again requested my Office to conduct an annual audit of firearms in 2000. In November 2000 we completed our second annual review.

The Royal Newfoundland Constabulary has established policies to provide for the management and control of its firearms and ammunition. In our 1999 review of inventory controls we concluded that, although there were weaknesses in the system, improvements had been made since our review in 1996. Our review in 2000 indicated that there are still weaknesses which require improvement. For example:

• The firearms and ammunition inventory is not accurate. For example, four firearms used for ceremonial purposes were not recorded in the inventory system, a number of firearms were located in a different physical location than that recorded in the inventory system and ammunition recorded in the inventory system did not always agree with the amounts on hand.
  
   
• Although the inventory system is a perpetual system (i.e. it is updated on an on-going basis), we determined that required adjustments, including acquisitions, dispositions and internal re-assignments of firearms and ammunition, are not always made on a timely basis. As a result, information on firearms and ammunition inventory is not always accurate and up to date.

Our review indicated that the Firearms Policy developed by the Royal Newfoundland Constabulary is comparable to that of other Canadian police jurisdictions and covered similar issues pertaining to the use and control of firearms. Our review of compliance with the Firearms Policy indicated that members are not always complying with policy. For example:

• Although policy requires that unloaded firearms be secured in the members personal firearms storage locker at the Royal Newfoundland Constabulary facilities or in other approved locations when the member is not on duty, this is not always done.
  
   
• Monthly inspections of service firearms are not being conducted as required by policy.
  
   
• In September 2000, the RNC amended its Firearms Policy to require that members store their pepper spray in their firearms locker. During the November 2000 inspection there were a significant number of instances identified where the pepper spray that should have been stored in the firearm storage locker was not. More importantly, it was very apparent that the change in policy that required members to store their pepper spray in their firearms locker was not well communicated to all members.
  
   
• A significant number of Royal Newfoundland Constabulary members have not received training in firearms and use of force so far this calendar year as required by policy.

Although Use of Force Reports are required to be prepared by members and reviewed by supervisors to monitor members’ compliance with Firearms and Use of Force Policies, Use of Force Reports do not always contain all required information such as member name and type of force used.

In addition, Use of Force Reports are not always submitted to the Use of Force Review Board on a timely basis.

Section 5 of the Public Service Commission Act (the Act) provides for the establishment of the Newfoundland Public Service Commission, a three member commission appointed by the Lieutenant-Governor in Council. One of the members of the Commission shall be the Chairperson.

The Act requires that the Commission prescribe the standards and procedures for the recruitment and selection of candidates for appointment and promotion within the public service as defined by the Act. The Act allows the Commission to delegate appointments and promotions to a chief executive officer or Deputy Minister subject to a review by the Commission on an annual basis.

Prior to 1 April 1997, the Public Service Commission was actively involved in the recruitment of staff for the government departments and 5 Crown agencies covered by the Public Service Commission Act. With effect from 1 April 1997 and in accordance with the Minute of Council issued in May 1996, the Commission entered into agreements with each entity covered by the Act relating to the delegation of recruitment and staffing. The Commission retained responsibility to review the appointments and promotions in these entities. Our review of this area indicated the following:

• Although there are approximately 43,000 employees in the Provincial public sector, the Public Service Commission Act applies only to 6,400 employees of Government departments and 5 Crown agencies. Furthermore, since the Act only applies to the recruitment of permanent employees and does not apply to the appointment of temporary employees, seasonal employees, and a number of other positions within the public service, only 5,277 of the 8,404 positions in the various departments of government are covered by the Act. As a result, the Act does not provide for consistency of recruitment within the entire public service.

The Public Service Commission Act was enacted in 1973 and the organizations which fall within the jurisdiction of the Commission were defined at that time. Since 1973 there have been many changes in the organizations which comprise the public service. As a result, all Crown agencies and all positions within the entire public service should be reviewed to determine which ones should fall within the mandate of the Public Service Commission. Recruitment in the public service would be improved if the mandate of the Public Service Commission applied to all positions within the entire public service.

The Commission is not complying with the Public Service Commission Act since it does not conduct annual reviews of the appointments and promotions at government departments and the 5 Crown agencies. Our review also indicated the following weaknesses in the reviews conducted by the Commission:

• The reviews carried out by the Commission were based on information provided by each department or agency. The Commission did not perform any independent verification procedures to ensure that the information which it had received was complete and accurate relating to all appointments or promotions during the period.
  
   
• The Commission did not retain adequate audit files supporting its work in reviewing appointments and promotions at government departments and the 5 Crown agencies.
  
   
• The Commission is not receiving complete information on all recruitments and promotions occurring in the public service that fall within their responsibility.

• The Commission’s work indicated that there are numerous problems in the recruitment process of certain departments and Crown agencies. Our review also indicated that many permanent positions, which fall under the jurisdiction of the Public Service Commission, are not permanently filled in accordance with the Public Service Commission Act but rather are occupied by other employees on a temporary basis, often for lengthy periods of time. As a result, these appointments do not fall under the jurisdiction of the Public Service Commission.

Our review also indicated the following:

• At the date of our review, September 2000, legislative amendments to the Public Service Commission Act as required by Cabinet Directive MC-96-0358 dated 22 May 1996, have not been made. These amendments would provide for the transfer of a number of personnel areas from the Public Service Commission to Treasury Board Secretariat. Although the transfer has occurred, there is no legislative authority since the amendments have never been made.
  
   
• The Public Service Commission is required by its Act to prepare annual reports for tabling in the House of Assembly. The reports of the Public Service Commission for 1996,1997 and 1998 years were not tabled in the House of Assembly within the required time frame. In May 2000, the report of the Commission for the period 1996 to 1999 was tabled in the House of Assembly.

 

The Art Procurement Program was established by the Province in 1982 and is administered by the Cultural Affairs Division of the Department of Tourism, Culture and Recreation. The Program’s mandate is to acquire original works of art by Newfoundland and Labrador artists for the enrichment and enhancement of public buildings in the Province. In addition, the Program’s mandate includes providing support and encouragement for visual artists living and working in Newfoundland and Labrador and contributing to the cultural life of the Province.

Our review indicated serious deficiencies in the management and control of art work acquired under the Art Procurement Program. In particular:

• Our examination of 506 pieces of art work determined that 102 pieces, at a cost of $106,463, could not be accounted for by officials of the Art Procurement Program. An additional 72 pieces of art, at a cost of $119,309, were located either in a different room or building from that identified by the inventory information system. The inventory information system also identified 16 pieces of art work, at a cost of $5,365, as lost.

There is no process to report and record the movement of art work from its original assigned location. As a result, the information system which identifies the location of art work is not being accurately updated and art work can not always be accounted for.

• The location of acquired art work is not always documented in the information system. Furthermore, some of the art work that is documented in the information system is not recorded on a timely basis. This increases the difficulty of accounting for and adequately controlling this art work.
  
   
• Periodic physical counts are not conducted. In addition, no alternate procedures are performed to identify discrepancies between the physical art work and the location of the art work as identified in the information system.
  
   
• There is no regular conservation and maintenance process to reduce the risk of damage and deterioration to the collection.

Other observations over the management of art work included the following:

• Documentation with respect to the rationale for individual acquisitions is destroyed within 6 months of acquisition decisions. Authority for the destruction of these public records has not been obtained as required under the Archives Act.
  
   
• Backup and recovery procedures for the inventory information system are not effective. In addition, controls over access to the inventory information system need improvement.
  
   
• There are no policies with respect to physical and accounting controls over art work.

 

3.24 Public Records

The management of public records is an important part of the administration of all entities which make up the public sector of the Province.

Responsibility for records management rests with the Department of Tourism, Culture and Recreation. The Archives Act establishes the Provincial Archives of Newfoundland and Labrador and creates the Records Management Branch of the Department of Tourism, Culture and Recreation.

Section 7 of the Archives Act creates the Public Records Committee and provides that its duties include establishing and revising disposal schedules for the retention, destruction or transfer of records, and making recommendations to the Minister regarding the disposal of public records that are no longer required by a department or agency.

Section 11 of the Archives Act prohibits the destruction or disposal of public records unless authorized by the Minister on the recommendation of the Public Records Committee. Therefore, a department or agency of the Crown must have in place a system of adequate control over, and safe storage of, all records until they have been approved for disposal.

As a result of our work we have concluded that records management in Government is not adequate. For example:

• The Records Management Branch is not providing adequate direction and advice to the majority of agencies of the Crown for the administration of public records as required by the Archives Act.
  
   
• The Records Management Branch is not disposing of inactive records in a timely manner. Of the 14,000 boxes of inactive records stored at the Records Centre, in excess of 9,500 boxes have passed their planned disposal date.
  
   
• Although the Records Management Branch could provide information on the age of the 14,000 boxes of inactive records stored at the Records Centre, it did not have any information available on the status of the 40,000 boxes of records stored in other Government buildings and outside private storage facilities. As a result, there was no information as to how many of the 40,000 boxes of records could be disposed of.
  
   
• Discussions with senior officials indicated that information on the number of boxes of records in storage at school boards, health care boards, and the College of the North Atlantic was not readily available. These agencies do not have contact with the Records Management Branch and generally retain records by division or location and do not have a system in place to provide an accurate number of the boxes of inactive records within their entity. Most entities informed us that the storage of inactive records is now a major problem for their organization.
  
   
• Although the Records Management Branch has developed an Information Management System for Administrative Records as required by Cabinet directive, it has not fully complied with the direction of Cabinet because it has not issued any policies or directives relating to operational records or computerized records. Only two departments have entered into agreements with the Provincial Archives respecting the implementation of the Information Management System for Administrative Records.

 

The Air Services Division of the Department of Works, Services and Transportation is responsible for the operation and maintenance of a fleet of 11 aircraft consisting of 2 air ambulances, 1 fire spotter and 8 water bombers. It is also responsible for chartering helicopters and fixed wing aircraft for all Government Departments. The cost to operate this Division in 1999-2000 was $9.1 million. Government departments also spent $5.8 million in 1999-2000 for helicopter and fixed wing charters.

In October 2000, we completed a review of the Air Services Division. Our conclusions are as follows:

In June 2000 Government Air Services Division replaced the existing air ambulance with a King Air 350 aircraft at a total cost of $4.95 million. We asked the Department of Works, Services and Transportation to provide us with their assessment of the options they examined to replace the King Air 100 along with the financial implications of each option. Several months after our initial request, information was provided.

When two new CL215 water bombers were purchased in 1995, two CV14 Canso water bombers were placed in storage to be used as back up to the existing fleet. Air worthiness maintenance was discontinued in 1997 and the two aircraft were grounded. In 1999 Air Services determined that the two aircraft had deteriorated to the point that it was no longer cost effective to refurbish them. We note that a water bomber had to be leased during the 1999 fire season at a cost of $275,000. In addition, the Department sold two other CV14 Canso water bombers in 1996 for a total of $427,000. At the time of our audit, the two Canso water bombers remain in unheated storage and there has been no action taken to dispose of the obsolete aircraft.

The inventory at Air Services, valued at approximately $3 million, is not properly controlled. Of this total, $2.5 million is located at the St. John’s hangar and $500,000 of small usable parts and obsolete Canso inventory is located in the Gander hangar.

Air Services Division is currently not utilizing Government’s Financial Management System to identify the costs of operating each individual aircraft. As a result, there is no comparison and analysis of these costs over time, between aircraft, by hours flown and to industry standards. Such information is necessary to manage the aircraft and make informed decisions.

Since there is no system being used to identify the costs of operating each individual aircraft, total costs by aircraft type are determined manually by Air Services. This information is used to support the amounts charged to users of the Government aircraft. Our review of the hourly rates charged by the Air Services Division indicated that, although the cost information is used to calculate an hourly rate, an arbitrary amount is added to this rate in determining the hourly rate to be charged to users. Furthermore, since the current system for the accumulation of costs produces information that contains errors and the overhead allocations cannot be supported, the amounts being charged are not accurate.

Air Services enters into contracts to provide maintenance services and to lease its water bombers to third parties. Air Services could not provide us with sufficient financial information to support their rationale for contracting its aircraft and other services to other jurisdictions and third parties. Furthermore, the Division did not have adequate information to show the final results of its contract work. As a result, the Division does not know whether these contracts were financially beneficial to Government.

In accordance with the Financial Administration Act and Government policy, all expenditures must be charged to expenditure accounts, for which funding has been approved by the House of Assembly. For the past three years, the Division has been charging expenditures to its revenue accounts, which contravenes the Financial Administration Act. In 1999-2000, the Department effectively overspent its travel and supplies funding by $117,900 by charging this amount to revenue accounts.

Air Services is responsible for the operation and maintenance of the six Government-owned water bombers, the Government-owned air ambulance, and the Cessna spotter plane. The Division also co-ordinates and monitors aircraft chartered from a number of private/public companies. In 1999-2000, $1.161 million was spent by Air Services chartering aircraft for air ambulance flights and $5.8 million was spent by departments on chartering flights for departmental use. There is a significant lack of control over the use of these aircraft. For example:

• There was a lack of information on passengers who travelled on the Government-owned Cessna, the Government-owned water bombers, and departmental charters of helicopters, fixed wing aircraft and air ambulance flights which are obtained from a number of companies. Furthermore, we found inconsistent documentation on passengers who travelled on the Government- owned King Air ambulance. As a result, Government did not know who travelled at public expense nor could it verify that passengers were Government employees. Furthermore, the lack of adequate documentation related to passengers is not in accordance with the Government policy as directed by Cabinet.
  
   
• The lack of information on passengers who travelled on the Government-owned Cessna and the Government-owned water bombers is in direct contravention of Transport Canada Regulations which require that a passenger manifest be left at the point of departure and retained pending their audit.
  
   
• All departmental charters are coordinated by Air Services but the department requiring the charter has payment responsibility. Our review of departmental charters identified several weaknesses with respect to the payment of invoices. Key documents to support the payment of the invoice including the Government Aircraft Flight Report and the Aircraft Flight Authorization form were often incomplete and in some cases, were not attached to the invoice.
  
   
• The Public Tender Act requires that goods and services exceeding $10,000 be publicly tendered. We identified a number of aircraft charters that exceeded $10,000 each of which should have been publicly tendered.

Weaknesses were identified with respect to the management of human resources. The Department has not established a human resource succession plan for Air Services, even though all of senior management and many of the pilots are approaching normal retirement age. Air Services incurs significant overtime expenditures due to the emergency nature of its operations, however, overtime is not properly monitored and controlled. In addition, Government policy which limits overtime to 10% of annual salary for management employees has not always been adhered to.

We noted as well that it was accepted practice that dispatchers who leave their shift early are not losing pay or using their leave. This practice has since been corrected by the Department and dispatchers are required to take employee leave when a scheduled shift is not completed. As well, attendance records were not accurate, complete or always approved by management.

The Department of Works, Services and Transportation is responsible for the Province’s ferry operations. During the 1999-2000 fiscal year, the Province spent $31.5 million on ferry operations and collected $16.0 million in revenues. At 31 March 2000, the Province’s ferry operations included 20 vessels serving 16 routes around the Island and coastal Labrador and 1 newly acquired vessel undergoing major refit.

Of the 21 vessels, nine are owned by private ferry operators and the remaining 12 are owned by the Province. Of these 12 vessels, 7 are 25 years of age and older and have an average age of 23 years. Included in these 12 vessels are two marine vessels which were purchased within the past three years. The Captain Earl Winsor was purchased in 1997 and was 25 years old when purchased. The Ahelaid was purchased in 1999 and was 13 years old when purchased. Subsequent to their purchase, both vessels were required to be refitted to meet Canadian standards and Departmental requirements.

Our review of the purchase price and refit costs for the Captain Earl Winsor And the Ahelaid indicated that both vessels cost more to refit than originally estimated by the Department and approved by Government. In particular:

• The total cost to purchase and refit the Earl Winsor was $3.6 million, which was $1.5 million more than the Department’s original estimate of $2.1 million.
  
   
• The refit of the Ahelaid is not yet complete; however, to date, the total cost to purchase and refit the Ahelaid is $3.4 million with a minimum of an additional cost of $656,000 to be incurred for a total of $4.1 million compared to the Department’s original estimate of $2.9 million. Departmental officials indicate that the final costs will exceed this $4.1 million.

The Department is not always complying with the Public Tender Act in that it is not always publicly tendering contracts or reporting exceptions to the House of Assembly. In addition, the Department is not always complying with Government’s policy in hiring consultants.

We also determined that, almost without exception, the Department is not complying with the Financial Administration Act in that purchase orders are prepared after the invoices were received at the Department. Purchase orders are required to be prepared prior to the request for a good or service to ensure that the purchase is properly authorized and that sufficient funding is available to pay for the purchase.

Given that the normal life expectancy of a ferry vessel is about 25 years, significant expenditures will be required to be made by Government in the near future to upgrade or replace its marine vessels. Government commissioned a study in 1993 to review its fleet of marine vessels and determined that $18 million to $25 million was required over the following 10 years. With the exception of the newly acquired Captain Earl Winsor and the Ahelaid, there has not been a significant upgrade of the Province’s fleet of marine vessels since 1993. As a result, the fleet continues to deteriorate.


 

The Accommodations and Realty Services Division of the Department of Works, Services and Transportation is responsible for the administration of space leased by government departments, as well as other government bodies upon request. The details of all leases administered by the Division are maintained in an electronic database. At 2 March 2000, the Division managed 154 leases covering 545,000 square feet of office, storage and land space at an annual lease cost of $6.7 million.

The Public Tender Act provides legislative direction for the calling of tenders for the acquisition of leased space to all government funded bodies.

A review of the 133 office leases being managed by the Division at 2 March 2000 indicated that 74 leases or almost 56 percent of leases currently being managed by the Division are on a month to month arrangement at an annual lease cost of $2.2 million. 49 of these 74 leases, or 66 percent, have been in such an arrangement since 1996 and earlier. For the most part, the reason provided for these lease arrangements is that the tenant "needs additional time to determine future space requirements". As a result, it is evident that space requirements of Government are not being planned and acquired in a co-ordinated and systematic manner. Government does not have an accommodations plan which considers current and future accommodation needs of Government to ensure the optimal use of Government-owned and leased facilities.

In addition, 10 leases, with an annual lease cost of $0.9 million, were exempted by the Lieutenant-Governor in Council from tender as a particular space was required. Prior to 1994, these arrangements were required to be publicly disclosed by a regulation, thus providing transparency to a lease arrangement which was not publicly tendered; however, since 1994, these exemptions are not required to be reported publicly.

Under the current lease terms, only 19 of the 133 leases, or 14 percent, have been publicly tendered with annual lease costs of $1.9 million.

The primary objective of the Public Tender Act, as it pertains to leasing, is to require a public tender when space is required. The Act does permit an exemption from public tendering in certain cases, most of which are required to be publicly disclosed. Given that the majority of lease arrangements currently in place did not result from a public tender, I am concerned that the Department is not complying with the spirit and intent of the Public Tender Act.

This year we continued a process whereby our 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, 1995, 1996, 1997 and 1998.