2001 Report Summary Booklet

Disclaimer 
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 2001. That Report contains approximately 350 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 2001 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 2001. 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 2001.

In my previous Reports to the House of Assembly, I have expressed concern over the lack of information being provided to the House of Assembly by government departments, agencies of the Crown and Memorial University of Newfoundland all of which are funded primarily by the public purse. Since $4 billion in funding is approved annually for these organizations during the annual budgetary process, the House of Assembly (and the public) should receive information on how each organization plans to spend its funding, how it actually spent the funding provided, and what results the funding achieved. This information would provide for the accountability of Government departments, Crown agencies, and Memorial University.

For each of the past ten years I have recommended the implementation of a legislated accountability framework for all public sector entities in the Province, including government departments, all Crown agencies and Memorial 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 reports to the House of Assembly.

Again this year, as in previous years, very little information is being provided to the House of Assembly. While considerable attention is given to the government’s budget, there is a lack of emphasis on receiving and reviewing information on how departments, Crown agencies and Memorial University intended to spend the monies which were approved during the budget process and compared with how they actually spent those monies.

Our review of the legislation of the other jurisdictions has disclosed that Canada and the other provinces have some form of legislation which requires that departments and Crown agencies table annual reports on their operations. In addition, in a number of provinces Treasury Board (Management Board) has provided formal directives relating to the preparation and tabling of annual reports. Our review has disclosed that in all jurisdictions, except this Province, an annual report is required to be tabled in the legislature by departments and Crown agencies.

Government has not made sufficient progress in implementing a framework of accountability for Government departments, Crown agencies and Memorial University.

While Government has undertaken some initiatives to improve accountability within Government, none of the initiatives undertaken by Government require any of the plans, information or reports to be tabled in the House of Assembly. True accountability requires that this information be provided to the House of Assembly.

I recommend that Government draft legislation for consideration by the House of Assembly which requires that Government and all of its departments and Crown agencies including Memorial University of Newfoundland be held accountable to the Legislature for their use of public resources. This legislation should, as a minimum, require that Government, its departments and each of its other entities table annual accountability reports in the House of Assembly on their financial and operational results compared with approved plans.

Chapter 3

3.1    Monitoring Agencies of the Crown

As at 31 March 2001 there were approximately 151 (2000 - 154) agencies of the Crown in the Province. Of these, 85 (2000 - 84) were required to prepare annual financial statements, while the remaining 66 (2000 - 70) were considered non-financial and were not required to prepare financial statements. Any expenditures related to the operation of these 66 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 85 entities required to prepare annual financial statements, 31 (2000 - 31) were audited by our Office while 52 (2000 - 53) were audited by private sector auditors. Two of the 85 entities, the Memorial University Foundation and the Newfoundland and Labrador Occupational Therapy Board, have never submitted audited statements in accordance with governing legislation.

Most 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 the auditor of an agency of the Crown or a Crown controlled corporation to deliver to the Auditor General, after completion of the audit, a copy of the auditor’s report, audited financial statements and recommendations to management. These financial statements and management letters along with our Office’s audits of Crown agencies provide the basis for our monitoring of all Crown agencies.

The results of our monitoring activities are presented 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 2001.

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 on Reviews of Departments and Crown Agencies for the Year Ended 31 March 2001.

3.3    Government’s Results of Financial Operations

Each year a budget document is debated and approved in the House of Assembly. This document outlines Government’s budgeted revenues and expenditures and its surplus or deficit for the fiscal year on a cash basis. This budget document represents financial planning information published by Government which focuses on its finances as set out in one government fund called the Consolidated Revenue Fund. The Consolidated Revenue Fund represents the activities of the Departments of Government and does not include all of the activities of Government’s Crown agencies. The budget document serves as one of the means by which Government is held accountable for its activities in any given year. In accordance with the Financial Administration Act, Government is required to table its financial statements which outline the actual revenues and expenditures along with the budget approved by the House of Assembly.

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 cash surplus or cash deficit through arbitrary Government decisions about which revenues or expenditures to include. For the 2000-2001 fiscal year, if Government had chosen not to defer revenues which it had budgeted and had not incurred expenditures in contravention of the Financial Administration Act, it would have reported a cash surplus of $179.7 million for the Consolidated Revenue Fund rather than a cash deficit of $30 million.

I am also concerned that the budget or financial planning information published by Government focuses on an incomplete picture. This planning information is not complete because the budget is prepared on a cash basis of accounting and therefore, does not include many significant accounting adjustments or transactions required to provide the actual results of Government operations. In addition, the financial planning information published by Government focuses on its finances as set out in one government fund called the Consolidated Revenue Fund. That picture is not complete because other Government activity takes place outside of that Fund. This activity takes place in organizations including the Health Care Sector, the Education Sector, Newfoundland and Labrador Hydro and other organizations which are owned or controlled by, and are accountable to, Government.

When all of these accounting transactions and activities of Government agencies outside of the Consolidated Revenue Fund are included, Government’s actual deficit for the year ended 31 March 2001 is $349.7 million.

3.4    Creation of Crown Corporations and Borrowing Without Legislative Authority

Crown agencies are generally created by the Legislature under some form of legislation to be an instrument for carrying out public policy on behalf of the Crown. This legislation generally provides authority and direction relating to the mandate, purpose, and responsibility of each entity.

Of the 85 Crown agencies which existed at 31 March 2001, 16 were created under the Corporations Act rather than by legislation enacted by the Legislature. If there is to be appropriate legislative control over the creation and operation of Crown agencies and if they are to be held accountable to the House of Assembly, then all Crown agencies should be created under the authority of the Legislature. An act of the Legislature would outline the mandate of a Crown agency and also state its purpose, authority and responsibility. In this way all members of the House of Assembly would be aware of newly created Crown agencies.

The most recent financial statements of the 16 Crown agencies created under the Corporations Act disclosed that four of these entities had a total of $7.1 million in outstanding debt due to entities outside of the government reporting entity. If the enabling legislation of an agency does not provide specific authority for it to borrow funds or if it has been created under the Corporations Act, then the Crown agency does not have the legislative authority to borrow. The Financial Administration Act prohibits the raising of money by way of loan without legislative authority. As a result, these entities contravened the Financial Administration Act by borrowing money without legislative authority.

3.5    Non-Compliance with the Financial Administration Act

The Financial Administration Act is the primary act governing the financial operations of the Province. The Act outlines the legislative requirements for the collection and disbursement of public funds, the raising of certain loans authorized by the Legislature and the auditing of the financial statements of the Province. Concepts provided for in the Financial Administration Act and central to our democratic system are that Government can not spend beyond the limits approved by the Legislature, money can only be spent for purposes authorized by the Legislature and Government can not raise money without the approval of the Legislature.

Each year our audit identifies instances whereby departments or Crown agencies did not comply with the Financial Administration Act. This Act is one of the most significant pieces of legislation since it provides for the collection and disbursement of all public money and the raising of all public debt. During the past two years I have noticed an increase in the number of significant instances of non-compliance with the Financial Administration Act. In prior years, instances of non-compliance were more isolated and could be attributed to errors. The instances of non-compliance identified during my audit work this year are more prevalent.

During the reviews conducted by our Office for the year ended 31 March 2001, we determined that a number of government departments are not complying with the Financial Administration Act. Specifically:

 

• a number of departments entered into commitments for goods and services in excess of the amount of funding provided for by the Legislature;

   

   

• a number of departments made payments from accounts for purposes other than those authorized by the Legislature; and

   

   

• a number of Crown agencies borrowed money without the authority of the Legislature.

   

3.6    Special Warrants

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. The Financial Administration Act outlines the circumstances which must exist in order for a special warrant to be approved and additional funding provided to Government.

Government’s use of special warrants increased significantly from 1997 onward. I have previously expressed concern that many of these special warrants do not meet the requirements of the Financial Administration Act. I have also indicated that Government’s use of special warrants, especially during the last month of each fiscal year are used to reduce the cash surplus of Central Government and produce whatever financial results the Government desires.

There were 6 special warrants totalling $61.5 million issued in the 2000-01 year, of which, four amounting to $33.0 million were issued in March 2001. Our review of the four special warrants which were issued on 28 and 30 March 2001 indicated that they were issued in contravention of the Financial Administration Act in that they were not urgently required. Since the funds were not urgently required and the House of Assembly was in session, the request for the additional funding should have been included in either a Supplementary Supply Act for 2000-01 and presented to the House of Assembly for approval in that year or included in the 2001-02 budget.

Of the special warrants totalling $268.3 million which were issued from 1999 to 2001, $172.5 million or 64% were for the Department of Health and Community Services. For the preceding six fiscal years 1993 to 1998, only $7.3 million in special warrants was issued for the Department of Health and Community Services. The large amount of funding provided by way of special warrant rather than through the normal budget process is indicative of the significant issues regarding the amount of funding required by the Health Care Boards to provide health services.

Of the $172.5 million in special warrants issued from 1999 to 2001 for the Department of Health and Community Services, $131.4 million was provided during the last month of the fiscal year. Government generally waits until March of each year, determines its cash surplus at that point in time and provides additional funding to the extent necessary to provide a predetermined financial result in the Consolidated Revenue Fund.

3.7    Accounts and Loans Receivable in Government

In my previous reports to the House of Assembly, I have indicated that Government needs to significantly improve on its collections of amounts owed to it. Government’s financial information indicates that Government does not do a good job in collecting amounts owed to it. As a result, a significant portion of these amounts have been written off or are considered doubtful of collection. These amounts owed include accounts and taxes receivable, as well as loans, advances and mortgages receivable.

Our review disclosed that Government has written off $216 million owed to it during the past 10 years. In addition, Government was owed $515 million as of 31 March 2001 of which $273 million was considered doubtful of collection. In my opinion, Government does not do a good job of collecting amounts owed to it.

Our review also disclosed that, as at 30 November 2001, all Government departments except Works, Services and Transportation had implemented Government’s new accounts receivable system.

3.8    A Review of Overtime

For the year ended 31 March 2001, employees of Government departments were paid salaries of $288.3 million which included $13.5 million in overtime compensation. Overtime compensation is provided to employees who are required to perform duties outside normal working hours. Compensation for overtime is determined in accordance with various policies and collective agreement provisions.

Over the last five years reviewed, overtime payments have increased significantly, from $7.7 million for the year ended 31 March 1997 to $13.5 million for the year ended 31 March 2001. This represents an increase of 75% over these five years. Three departments incurred 88% of the overtime paid during the year ended 31 March 2001. These three departments were the Department of Works, Services and Transportation (69%), the Department of Justice (12%), and the Department of Forest Resources and Agrifoods (7%).

For the last three fiscal years, Government significantly exceeded its budget for overtime by $4.4 million, $5.6 million and $5.5 million respectively. Three departments were responsible for 84% of the overtime payments in excess of budget during the year ended 31 March 2001. These three departments were the Department of Works, Services and Transportation (58%), the Department of Justice (13%), and the Department of Forest Resources and Agrifoods (13%).

Our review of the transfer of funds to and from salaries for the year ended 31 March 2000 indicated that many of these transfers did not comply with Government’s Transfer of Funds Policy.

In addition to paying employees for overtime worked, Government also allows employees to accumulate or bank their overtime and use it as paid leave or receive monetary compensation at a later date such as upon termination. Accumulated and unpaid overtime owed to employees has increased from $2.4 million at 31 March 1997 to $4.2 million at 31 March 2001. Although Government knows that this amount is owed to employees as at 31 March 2001, because of the inadequacies in leave systems in most departments, it does not have details on the total overtime earned and banked during the year or the amount which has been used as paid leave. As a result of this lack of information, Government cannot adequately manage overtime costs.

Overtime payments to employees are not always accurate. Our review of 150 random overtime payments in 2000-2001 identified 10 payment errors ranging from an underpayment of $18 to an overpayment of $1,015.

3.9    A Review of Succession Planning

Human capital is the collective knowledge, skills, and experience of an organization’s staff. Investment in human capital within the public service is significant. Recorded in Government’s Summary Financial Statements for the year ended 31 March 2001 are salaries and employee benefits of $1.5 billion which represents 36% of total expenditure. The focus of this report is on central Government operations which recorded $337 million in salaries and employee benefits in the Consolidated Revenue Fund Financial Statements for the year ended 31 March 2001. The maintenance and development of human capital within the public service is essential for the delivery of quality public service.

For purposes of our review, the core public service is defined as employees active on the payroll who are classified as permanent, temporary or contractual, including inactive employees who are expected to return to work (e.g. paid or unpaid education leave, extended sick leave, injury on duty, leave without pay, maternity leave), but excluding Members of the House of Assembly, political staff, special project staff, students and student assistants.

Over the past fifteen years, there has been a significant increase in the average age of the core public service. From 1987 to 2001, the average age of the core public service has increased from 38.8 years to 42.4 years, an increase of 3.6 years or 9.3%.

During this same period, the age distribution of the public service has changed dramatically with the percentage of employees less than 35 years of age decreasing from 41% to 21%, while employees between 36 and 49 years of age increased from 40% to 55% and employees aged 50 years and older increased from 19% to 24%.

Over the next six years, 25% of the core public service including 46% of Executive and 41% of Senior Managers will reach the age of 56 or older and may retire. By 2012, at least 42% of the core public service, including 76% of Executive and 70% of Senior Managers may retire. These statistics indicate the need for succession planning in Government including recruitment and retention strategies, and training and development.

While Treasury Board Secretariat and Government departments have identified the need for succession planning as a significant human resources issue, plans of actions to address this issue have been isolated, are general in nature, or are planned for development in 2002 and beyond. Unless Government implements effective human resources strategies to address the upcoming retirement of a significant portion of the core public service, including recruitment and training, the attrition rate due to retirement has the potential to leave a significant gap in the knowledge, skills and experience required to provide a quality public service.

3.10    A Review of Protocol Expenditures

The Protocol Office functions under the Cabinet Secretariat of the Office of the Executive Council. The Protocol Office is responsible for the co-ordination of major Government sponsored events, and the arrangement of itineraries for visiting dignitaries.

Our review of expenditures charged to the Protocol Office for the year ended 31 March 2001 disclosed the following:

 

• Expenditures totalling $676,431 were charged to Protocol accounts for the year ended 31 March 2001. Of this amount, $150,867 was subsequently transferred to other expenditure accounts. The $150,867 charged to Protocol was not Protocol expenditure and as a result, expenditures were made from this account for purposes other than those approved by the Legislature and in contravention of the Financial Administration Act.

   

• Travel for the Premier and his staff is being charged not only to the Protocol Office and the Premier’s Office but also to the Minister’s Office in other departments and in many cases, to expenditure accounts other than the Minister’s Office. In addition, our review indicated that $12,815 in travel costs for the Premier and his staff that was originally paid through the Protocol account was subsequently reimbursed by Newfoundland and Labrador Hydro and recorded as an expenditure in that Corporation. As a result, some of these expenditures are not being charged to appropriate expenditure accounts. In addition, as this travel is charged to such a variety of accounts, any information requests pertaining to travel for the Premier and his staff are very difficult to determine.

   

• Contrary to Government policy, departments are not always informed of expenditures being transferred from Protocol to expenditure accounts in their departments. This process of transferring expenditures from Protocol to other departments also makes it more difficult for these departments to manage and control their own operating budgets.

   

• Executive Council is not complying with Government’s "Transfer of Funds Policy" as funds were transferred out of an expenditure account even though there were no permanent savings and additional monies had been transferred back in.

3.11    Labrador Transportation Initiative Fund

In September 1996, Cabinet authorized the Premier and the Minister of Works, Services and Transportation to meet with the Federal Minister of Transport to establish principles upon which the Province and the Federal Government could negotiate funding for a Labrador transportation initiative. The framework for the initiative was to include provision whereby the Province would accept responsibility for the Labrador Coastal Service and the St. Barbe Ferry Service in return for financial compensation from the Federal Government sufficient to operate these services in perpetuity.

In March 1997, the Province entered into an agreement with the Federal Government and received $347.6 million in December 1997 as a cash settlement, together with related ferry service infrastructure. In consideration for this compensation, the Province assumed all responsibility for maintaining the operation of marine freight and passenger services on and to the coast of Labrador.

Government decided that the Labrador Transportation Initiative Fund would be used to operate the Labrador ferry services and construct the Trans Labrador Highway. The $347.6 million was invested by the Province and interest earned increased it to $349.2 million by January 1998 when it was transferred to the Fund.

In May 2001, the Department of Works, Services and Transportation estimated that the Labrador Transportation Initiative Fund will be depleted by 2014-15 after construction of the Trans Labrador Highway at an estimated cost for Phases I and II of $190.4 million, and estimated annual operating costs for the Labrador ferry services from 2002-03 to 2014-15 ranging from $13 million to $15 million. The operating costs estimated by the Department are based on discontinuing the ferry services from Lewisporte and St. Anthony to Labrador and disposing of the two ferry vessels, the Sir Robert Bond and the Northern Ranger. Our review indicated that as at November 2001, Government had increased its estimated costs to operate the Labrador ferry services for 2001-02 and 2002-03, and as a result, the Fund will be depleted earlier than 2014-15.

3.12    Computer Hardware - Agencies of the Crown

In the past decade, Government agencies have become increasingly reliant on computer technology to deliver and manage its programs. Accordingly, these agencies have made significant investments in computer hardware which consists of items such as computers, monitors and printers. Computer hardware is considered to be a moveable capital asset and as such, is susceptible to misappropriation or unintentional loss. As a result, it is important that all Government agencies have proper procedures and inventory systems in place to control and account for this computer hardware.

Of the 66 Government agencies included in the Province’s Consolidated Summary financial statements, our review was conducted in 15 agencies throughout the Province. The objective of the review was to assess whether Government agencies have proper procedures and inventory systems in place to control and account for their computer hardware.

Our review indicated that controls over computer hardware in the 15 Government agencies reviewed are not adequate. Specifically:

 

• Agencies can not always locate their computer equipment. 3 of the 15 agencies reviewed did not have an inventory information system. Of the 12 remaining agencies that did have a system or an inventory listing, the information in these systems or on the listing was not complete or accurate.

   

  Our review at the 12 agencies that had an inventory information system indicated the following:

 

• A sample of 241 purchases was selected of which 154 purchases were not recorded in the agencies’ inventory information system and 36 items could not be located by the agencies at the time of our review. Subsequent to our review, agency officials indicated that 20 of 36 items not located at the time of our review were found and 2 had been disposed.

   

• A sample of 699 items from the inventory information systems was selected of which 438 items of hardware or 63% were found where recorded in the inventory information systems, 97 items of hardware or 14% were found in a different location from that recorded in the inventory information systems and 164 items of hardware or 23% as recorded in the inventory information systems could not be located by either ourselves or officials of the particular agencies at the time of our review. Subsequent to our review, agency officials indicated that 45 of 164 items of hardware not located at the time of our review were found in a different location from that recorded in the inventory information system and 7 had been disposed.

   

• A sample of 685 items of computer hardware was selected of which 254 items of hardware or 37% were found as recorded in the inventory information systems, 99 items of hardware or 14% were found in a different location from that recorded in the inventory information systems and 332 items of hardware or 49% that were examined were not recorded in the agencies’ inventory information systems.

 

• Periodic physical counts of computer hardware are not conducted by 12 of the 15 agencies reviewed. One agency recently conducted a physical count of computer hardware, but there are no plans to conduct this count on an annual basis. The remaining 2 agencies indicate that they perform annual counts; however, one of these agencies did not provide us with any evidence of these counts and the inventory system maintained by the other agency is not maintained in an adequate manner to ensure an effective reconciliation with the physical count.

   

   

• Only 4 of the 15 agencies had documented and approved inventory control procedures for computer hardware.

   

3.13    Monitoring of School Boards

In 1996 the school system in the Province was reorganized with the dissolution of 27 church run school boards and the creation of 10 new English language school boards and one French language school board. The 27 school boards continued to exist and administer the schools within their jurisdiction until their dissolution on 31 December 1996. As at 31 December 1996, there were approximately 445 schools in the Province with a total enrolment of 110,450 students. As at 31 December 2000, there were 337 schools with a student enrolment of 90,167. The number of schools and student enrolment have declined by 24% and 18% respectively, in the past five years.

Our review of school boards in 2001 included an assessment and comparison of the financial position and operating results of each of the 11 boards. Our review disclosed the following:

 

• The 11 school boards had accumulated deficits totalling $100.006 million for the year ended 30 June 2001. This is comprised of $96.741 million in accrued severance pay and a net accumulated operating deficit of $3.265 million.

   

   

• During 2000-01, 6 of the 10 boards that had audits completed incurred operating deficits ranging from $21,000 for District 7 to $482,000 for District 1.

   

   

• 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 $18.4 million, including $5.9 million in teaching services grants, $9.4 million in operating grants and $3.1 million in other revenues. The total revenue per pupil increased by 18% from $4,796 in 1995-96 to $5,636 in 2000-01.

   

   

• 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 $17.8 million, comprising $9.1 million in instructional, $5.6 million in administration, and $3.1 million in other expenditures. Expenditure on instruction per pupil increased by 20% from $3,841 in 1995-96 to $4,604 in 2000-01.

   

   

• As indicated previously, during 2000-01, 6 of the 10 boards that have audits completed, incurred operating deficits. There was no approval given by the Minister to these 6 boards as required by the Schools Act, 1997. As a result, these boards did not comply with the Schools Act, 1997.

   

   

• In addition, the Schools Act, 1997 requires each school board to submit its annual budget to the Minister at a date determined by the Minister. As of the date of our review in November 2001, the Department had received seven of the required 2001-02 budgets from the 11 school boards; five were received prior to the required date of 28 September 2001.

   

3.14    C. A. Pippy Park Commission

The C.A. Pippy Park Commission (the Commission) was incorporated in 1968 and operates under the authority of the Pippy Park Commission Act (the Act). The purpose of the Commission is to provide a park-like setting to house the headquarters of the Provincial Government, as well as various government, cultural and educational facilities, and Memorial University of Newfoundland. Its affairs are managed by a Board of Commissioners, the majority of whom are appointed by the Lieutenant-Governor in Council. The Commission has broad powers under the Act to implement a master plan and accordingly regulate land use within C. A. Pippy Park. In its financial statements for the year ended 31 March 2001, the Commission reported an operating deficit of $261,000 (2000 - deficit of $85,000).

The Commission currently owns the two golf courses located within Pippy Park. In November 1997, an agreement covering the management and operation of the two golf courses was entered into between the Commission, Thomas Development (1989) Corporation (TDC) and the Minister of Works, Services and Transportation on behalf of the Province. Under the agreement, TDC is to manage and operate the golf courses for an initial seven year term expiring 31 December 2004, with an option for an extended term after that date.

Our review covered two significant aspects of Commission operations, namely activities relating to capital transactions and the agreement covering the management and operation of the golf courses.

Our review disclosed that financial assistance has been provided to TDC which was not required under the management agreement. This assistance represents a direct subsidy to TDC’s operations and can be summarized as follows:

 

• Short term, interest free, repayable advances of $10,000 made to TDC to cover start-up costs for each of the 1999 and 2000 golf seasons. Such advances were not approved by the Commission. In both instances, the funds advanced were refunded by TDC.

   

• In February 2001, a special assistance grant of $45,000 was paid by Government, through the Commission, to TDC. The $45,000 was charged to a program in the Department of Municipal and Provincial Affairs used for the ".... payment of special assistance grants to municipalities." TDC is not a municipality and as a result, the Department of Municipal and Provincial Affairs contravened the Financial Administration Act.

   

• The golf course clubhouse was built and financed by TDC in 1998. Since the clubhouse was financed by TDC, it has been pledged as security for TDC’s bank loan. As at the date of our audit, TDC owed the bank approximately $1.3 million. In 2000-01, the Commission spent $270,000 to make renovations on the clubhouse even though it is held as security for TDC’s bank loan. Should TDC default on its loan at the bank, the bank would have first access to the clubhouse and other related assets.

   

• In March 2001, Government directed the Commission to waive the 2001 TDC fee of $250,000 owed to the Commission. In addition, the 31 March 2000 fee of $200,000 has not yet been received.

The Management Agreement between TDC and the Government is not always being complied with.

From 1 April 1997 to 31 March 2001, Government has provided the Commission with $658,000 in capital funding. Of the $658,000, approximately $337,000 was used for purposes other than intended by Government.

During 2000-01, $270,000 was provided by Government to the Commission for renovations at the golf course clubhouse. There was insufficient documentation at the Commission to support approximately $265,000 of the $270,000 spent on the clubhouse renovations in that there were no purchase orders or tenders. As a result, we could not determine how the various suppliers were selected and whether a fair and reasonable price was established.

3.15    Health and Post Secondary Education Tax

The Health and Post Secondary Education Tax (Payroll Tax) was introduced on 1 August 1990 by the Provincial Government as a revenue generating measure. The Tax Administration Branch of the Department of Finance is responsible for the administration of Payroll Tax by ensuring that the Health and Post Secondary Education Tax Act (the Act) and its regulations, along with Departmental policies, are being complied with by companies with employees in Newfoundland and Labrador. The Act requires that all employers pay a 2% tax on the portion of remuneration paid to employees who report for work in the Province and which is in excess of a tax free exemption. This exemption is available to all companies registered under the Act, although associated companies must share one exemption. This exemption is periodically revised by amending the Act.

For the year ended 31 March 2001, Government received $80.1 million in Payroll Tax of which $30.4 million was received from Provincial Government departments and agencies and $9.2 million was received from other levels of Government. For the year 2001-02, the threshold has increased from $400,000 to $500,000. Based on the results at 31 March 2001, this change in threshold will result in the elimination of approximately 805 businesses and $500,000 in revenues. As a result, next year the various levels of Government will be paying a higher proportion of the total Payroll Tax than companies in the private sector.

One of the most challenging issues facing the Department is how to determine whether all employers subject to this tax are registered. The Department relies mainly on voluntary compliance of employers to register themselves. The processes in place for the identification of unregistered employers is not adequate.

Although useful information is available from the Canada Customs and Revenue Agency that could be used to both identify unregistered employers and confirm the amount of Payroll Tax owing by employers, the Department has not used any of this data to confirm the amount of Payroll Tax owing by employers. The information has been used to identify unregistered employers. This comparison was completed for 1996, 1997, 1998 and 1999 and employers were identified as not being registered. However, a number of issues that were identified by using the data for all four years are still unresolved.

In January 2001, the Department of Finance advised remitters of payroll tax that the Minister had waived the requirement for an Annual Declaration in the 2000 taxation year (including the T4 and T4A Summary) as permitted by the Act. However, since the Department is not using information from the Canada Customs and Revenue Agency on a timely basis to verify the accuracy of payroll tax received from individual companies, the Annual Declaration and the accompanying T4 and T4A Summary would have provided some assurances as to whether companies had remitted the correct amount of Payroll Tax.

Employers that are below the exemption threshold are often terminated by the Department so they are no longer required to file monthly and annual returns. No one at the Department regularly reviews terminated employers to ensure that only those approved were terminated. Also, when employers are placed in this category, they are not considered for audit. In addition, the Department relies on these employers to re-register if their circumstances change.

The Department does not have an audit plan for Payroll Tax that would ensure employers are audited on a rational and cyclical basis.

At 31 March 2001, Payroll Tax receivables totalled $8.3 million of which $1.4 million had been outstanding in excess of 1 year. In addition, the Tax Administration System included $1 million in credit balances for which no refund had been made to employers.

3.16    Pooled Pension Fund - Actuarial Valuations

The Province of Newfoundland and Labrador Pooled Pension Fund was created 1 July 1980 under the authority of the Pensions Funding Act for the purpose of providing for the funding of pension plans sponsored by the Province. These plans include the Members of the House of Assembly Pension Plan, the Uniformed Services Pension Plan, the Teachers’ Pension Plan and the Public Service Pension Plan. The affairs of the Fund are managed by the Pension Investment Committee, with the Minister of Finance as Trustee of the Fund.

Section 5 of the Pension Benefits Act Regulations requires the administrator of a pension plan to have the plan reviewed at intervals not exceeding three years and to file the resulting actuarial reports with the superintendent not later than 9 months after the review date. The latest valuation dates for the pension plans and the due dates for the next required valuation reviews and actuarial reports are as follows:

The actuarial report for the Teachers’ Pension Plan, while completed in October of 2001, was not filed with the Superintendent until 9 January 2002. The required valuation reviews for the Members of the House of Assembly Pension Plan, the Uniformed Services Pension Plan, and the Public Service Pension Plan are still not completed as of 9 January 2002. As a result, the Pension Committee has not complied with the requirements of the Regulations with respect to any of the Province’s pension plans.

3.17    Aquaculture Program

I have previously reported on Government’s assistance to SCB Fisheries Limited in my 1998 and 1999 Annual Reports to the House of Assembly. The purpose of this year’s report item is to conclude my review of Government’s involvement with this company.

Government’s involvement with SCB Fisheries Limited commenced in 1992 and was completed in June 2001. During that period SCB Fisheries Limited cost Government a total of $9.7 million as follows:

 

• $2.8 million balance of loan provided by Enterprise Newfoundland and Labrador Corporation;

   

   

• $6.5 million loan guarantee payout; and

   

   

• $400,000 out of court settlement.

   

Government will not recover any of this money.

3.18    Agriculture Safety Nets

The Farm Business and Evaluation Division in the Department of Forest Resources and Agrifoods provides financial and management services for the development of the agricultural industry in the Province. It delivers farm management counselling and training programs, crop and livestock income insurance and other agriculture safety net programs, and other development assistance. During 2001, the Division’s offices were moved to the Province’s west coast as part of Government’s efforts to regionalize services.

The largest expenditure in the Farm Business and Evaluation Division is in the Agriculture Safety Nets (ASN) activity. ASN is a 60/40 Federal and Provincial cost shared initiative which began in 1996 and which is intended to enhance long-term stability for the provincial agriculture industry. The original agreements expired in 2000, with a second set covering the 2000 to 2003 period. Expenditures are made by the Province with related revenue being recovered from the Federal Government for its share.

The majority of funding under ASN relates to the Agri-Food Innovation Program (e.g. for 2001, $2.3 million of the total $2.6 million for ASN related to the Innovation Program and for 2000, $2.7 million of the total $2.8 million was for this Program). Activities under this Program are designed to address research, development, marketing, value-added and diversification needs and to promote long-term stability of the agriculture and agrifoods sectors.

Our review, which focused on expenditures under the Agri-Food Innovation Program, disclosed the following:

 

• Information obtained at the Department of Forest Resources and Agrifoods indicated that priority for funding under the Agri-Food Innovation Program was to be directed to individual agricultural producers in the Province. Our review disclosed that approved projects have not been restricted to activities which provide funding directly to producers, but in many cases were used by the Department to fund Departmental activities or to fund non-producers such as operational funding for agriculture related provincial organizations. For example, in both years reviewed, more than 50% of project funding was used for Government sponsored projects with a further 10% used for non-producers. This results in less than 40% of funding being available directly to producers.

   

   

• The average expenditure for funded projects in the three applicant categories varied significantly. The average payment per project to individual producers in 2000-01 was $6,000 compared to $26,000 for Government and $13,000 for non-producers.

   

   

• The Department contravened the Financial Administration Act by purchasing four vehicles for divisions which did not have the funding to do so. Payments for these vehicles were inappropriately charged to the ASN activity.

   

   

• Our review identified numerous instances where the Department did not comply with the Federal/Provincial Agreement and their own policies in the approval of projects, the payment of funds and the monitoring of projects. For example, many projects were funded without being approved by the Management Committee. As well, projects were identified which were questionable as to their eligibility for Program funding. As a result, controls over expenditures were not adequate.

   

   

• Reasons provided for rejection or deferral of applications for funding included references to limited funding being available to provide the assistance requested. Other reasons included the fact that previous contributions had been made to the applicant. This reasoning is in contrast to the actions taken later by the Department in transferring available funding from ASN for use for other Departmental activities and through charging expenditures for other Divisions directly to the ASN activity. There was no indication that applications for funding which had been rejected or deferred earlier due to lack of available Program funding, were reassessed prior to these transfers being made.

   

   

• The Department does not prepare an annual report relating to ASN activities. While the Department has developed a database of approved projects, the information maintained in this database does not provide evaluative information on the degree of success of the Program in relation to its objectives.

   

3.19    Fire Suppression and Communications Expenditures

The Department of Forest Resources and Agrifoods is responsible for the management of all forest and agricultural activities of the Province. In each of the past three years the Department’s expenditures have exceeded those originally budgeted. In total the Department’s gross expenditure of $138.4 million for these three years exceeded its original budget of $127.2 million by $11.2 million.

For the fiscal years 1999 to 2001, cost overruns in the Fire Suppression and Communications program was the major factor in the Department’s increased expenditure. From 1999 to 2001, the Fire Suppression and Communications program accounted for approximately $9.3 million or 83% of the $11.2 million increase in expenditures over the original estimates.

Our review indicated that $565,000 or 63% of the supplies expenditure of $895,000 was made from December 2000 to March 2001, after the normal fire season from mid-April to mid-September. Some of this money was used to buy items such as ATVs, boats, motors, and trailers during the latter part of March 2001 which is the last month of the fiscal year. It is questionable whether such expenditures could be regarded as emergency fire suppression costs for 2000-01.

The Department contravened the Financial Administration Act by purchasing equipment from funds provided by the Legislature for supplies.

The Department also contravened the Financial Administration Act by purchasing equipment for wildlife compliance from funds provided by the Legislature for supplies for the Fire Suppression and Communications program.

3.20    Direct Program Costs - Child Welfare Program

Effective 1 April 1998, Government transferred responsibility for the previous Child Welfare Program from the Department of Human Resources and Employment to the Department of Health and Community Services. Government directed that the direct client service portion of the program be integrated and delivered by the Province’s four health and community services boards and as separate components of the Grenfell Regional Health Services Board and the Health Labrador Corporation.

The Child, Youth and Family Services Program delivered by Health and Community Services - St. John’s Region (the Board) is responsible for the provision of protection and support services to children, youth and their families in the greater St. John’s region from seven locations encompassing Conception Bay South in the North to Ferryland in the South and including Bell Island.

Our review disclosed that payments made by Health and Community Services - St. John’s Region are not always properly approved and supported. Specifically:

 

• Client files are often poorly organized, incomplete and not consistent regarding the documentation included therein. This makes it difficult to ensure that there is sufficient documentation to support payments made to or on behalf of clients.

   

• The Board is not adequately reviewing expenditure summaries to ensure that all payments are legitimate. Our audit identified $99,295 paid by the Board that actually belonged to another community health board.

   

• There are inadequate financial controls and procedures in place to ensure that only properly authorized expenditures occur. This has resulted in overpayments.

   

• The Board does not have a system in place to monitor, collect and report overpayments. One of the Board’s offices had compiled a listing and sent out collection letters, but this listing of overpayments was incomplete and did not include potential overpayments for other offices in the region.

   

• In those instances where procedures have been implemented to address internal control weaknesses, they have not always been implemented in all of the Board offices.

Expenditures under the child welfare program, by their very nature, involve the payment of a large number of low dollar amounts to many suppliers. As a result, the Board should ensure that there are strong systems and controls in place over expenditure payments. Controls over expenditures would be improved if the Board had systems which could produce financial information by child showing details of payments on a comparative year basis. Furthermore, information should be produced showing total payments to foster parents and for what purpose. Given the cost of the child welfare programs and the significant increases experienced by some of the programs in recent years, this information would strengthen the monitoring and control of expenditures.

3.21    Monitoring 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. Health and community services in Northern Newfoundland and Labrador are administered as separate components of the Grenfell Regional Health Services Board and the Health Labrador Corporation.

The health and community services boards provide traditional community health services including health promotion and protection, mental health services, continuing care, and immunization services. In addition, community service programs including child welfare, community and corrective services, and family rehabilitative services, are delivered under the health and community services boards.

The financial position of the four community services boards has been deteriorating over the past several years. In an effort to control operating deficits, boards have implemented changes to reduce costs and Government has provided additional funding. As a part of our audit work, we continue to monitor the financial position and results of operations of the four community services boards.

Our review disclosed that the financial position and operating results of the four health and community services boards remained in poor condition in 2000-01. The total net liabilities of the four boards increased to $19.8 million at 31 March 2001, from $9.2 million at 31 March 2000. These net liabilities will eventually have to be funded by Government.

Although Government provided $162.1 million in funding to the boards in 2000-01, compared to $148.6 million in 1999-00, the four boards incurred operating deficits totalling $11.7 million in 2000-01. These deficits indicate a further deterioration in operating results compared to the $4.6 million operating deficit incurred by the four boards in 1999-00.

3.22    Monitoring Hospital Boards

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 has been deteriorating over the past several years. In an effort to control operating deficits, boards have implemented changes to reduce costs and Government has provided additional funding. As a part of our audit work, we continue to monitor the financial position and results of operations of the eight hospital boards.

Our review disclosed that the financial position of the eight hospital boards is continuing to deteriorate although funding has increased substantially. The net liabilities of the eight boards has increased from $286.0 million at 31 March 2000 to $362.2 million at 31 March 2001. These net liabilities will eventually have to be funded by Government.

Government funding provided to the boards increased from $645.6 million in 1999-00 to $682.3 million in 2000-01. Although additional funding was provided, these boards still reported current year operating deficits totalling $60.5 million for the year ended 31 March 2001 compared to operating deficits totalling $33.6 million in 1999-00.

3.23    Community Corrections

Community Corrections is a branch of the Adult Corrections Division of the Department of Justice. This Branch is responsible for providing pre-sentence investigation services to assist the Court in determining the most appropriate sentence and to administer community-based sentencing alternatives through which the Courts may satisfy a range of sentencing objectives. Community Corrections has 14 regional offices located throughout the Province with a total staff complement of 48. In addition, there are 14 paraprofessional Assistant Probation Officers who are hired on a fee-for-service basis to provide services to remote communities which are otherwise difficult to service.

Although there is a Policy Manual at the Department, it does not reflect all current practices. The Manual is currently being reviewed and updated. Our review of compliance with policies and procedures indicated the following:

 

• Probation is a community based sentence imposed by the Court covering a period of time to a maximum of three years. A conditional sentence is a sentencing option imposed by a judge as an alternative to incarceration. The conditional sentence order provides for offenders to serve an incarceral sentence in the community rather than in custody for a maximum period of two years less one day. This option only became available in 1996 as a result of Federal legislation. Offenders on either probation or a conditional sentence are assessed by the Probation Officer and can be assessed as low risk, medium risk or high risk.

   

   

• Our review indicated that the Department is not complying with its policies regarding the assessment of offender risk, offenders are not being visited and/or monitored as required, and the data from the computerized system being used for offender risk assessment is producing results inconsistent with policy. As a result, some offenders who have been assessed as high risk are in the community without the required supervision.

   

   

• Community Corrections policy requires that a case plan be completed within 30 working days of the initial interview with the offender. The case plan outlines how the terms of a probation order or a conditional sentence order will be carried out and the counseling requirements and programs that may be required to rehabilitate the offender. Our review indicated that case plans are not always completed as required by Departmental policy.

   

   

• Community Corrections policy requires that the Chief Probation Officer carry out operational audits on regional offices, three times per year. During these audits the Chief Probation Officer would review case files to ensure that activities reflect Community Corrections policies and procedures, as well as utilizing appropriate methods of intervention to achieve planned outcomes. These audits are not being carried out. Much of this information is in the Community Corrections Information System but the Chief Probation Officer can not access the other regions from Head Office.

   

   

• Community Corrections policy, for the electronic monitoring program, requires that only offenders who have been assessed as medium risk and non-violent can be placed on this program. We found that of 478 offenders who were on the program from 1994 to 31 March 2000, 186 had been classified as high risk.

   

   

• Electronic Monitoring policy requires a minimum of 2 visits per 8 day period with offenders by Corrections staff. In all of the case files examined this level of contact was not achieved.

   

   

• The Community Corrections Branch has 33 electronic monitoring devices. The Branch is required to keep an inventory of these devices. When we performed an inventory count in October 2000, the Branch could not locate 9 of the devices.

   

   

• The number of offenders being placed on electronic monitoring is declining. Initially, there were 50 monitoring devices in inventory which has since been reduced to 33. The average daily usage for 2000-01 was 17 units. When we performed an inventory count in October 2000, there were 11 offenders on electronic monitoring. The Community Corrections Branch has excess capacity in monitoring units. These devices cost the Branch $3,825 per month in rental fees.

   

The Community Corrections Branch provides for community-based intervention programs, in such areas as anger management, sex offenders and male batterers, to offenders to assist in their safe reintegration into society such that the risk of re-offending is reduced. The Branch has two contracts at an annual cost of $456,000, to provide programs in both St. John’s ($356,000) and on the West coast of the Province ($100,000). Our review of these contracts disclosed there were no proposal calls and they have not been approved by Cabinet as required by Government’s policy on the hiring of consultants. As well, instances were identified where the minimum number of contracted hours were not provided by the contractor. Also, although the contract in St. John’s has been renewed since 1997-98 at the same cost of $356,000, our review indicated that the number of hours of service provided under the contract has been decreasing.

The Community Corrections Information System operated by Community Corrections to manage case files is not adequate to meet their needs.

3.24    Royal Newfoundland Constabulary - Firearms Review

The Royal Newfoundland Constabulary was established in 1871. The mission of the Royal Newfoundland Constabulary is to work with communities in Newfoundland and Labrador to foster safe communities by providing quality, professional, accessible, timely and fair police services to all. The Royal Newfoundland Constabulary is responsible for policing three regions of the Province - the North East Avalon, Corner Brook and Labrador West. The population of these regions is approximately 205,000 (1996 census). In providing these services, the Royal Newfoundland Constabulary currently employs 304 police members and 82 civilian staff.

In 1998, the Royal Newfoundland Constabulary were permitted to wear firearms as part of their regular uniform. The Select Committee of the House of Assembly which recommended the new arming policy also recommended that a firearms audit be performed annually and submitted to the House of Assembly. As a result, this is our third annual firearms audit.

In our two previous audits we reviewed the firearms policy of the Royal Newfoundland Constabulary and reported a number of issues which had to be addressed. Since the policy was new, we expected that deficiencies would be identified in the early years and that the Royal Newfoundland Constabulary would strengthen its processes in response to the deficiencies that we had identified. Given the serious repercussions that could result from the use of firearms, it is critical that the Royal Newfoundland Constabulary have adequate systems in place to protect the interests of both the Royal Newfoundland Constabulary members and the public.

The Royal Newfoundland Constabulary has established policies to provide for the management and control of its firearms and ammunition. The Constabulary has, for the most part, made improvements since 1998 regarding the management and control of its firearms and ammunition. However, our review for 2001 identified a number of issues which should be addressed. The most serious issues are as follows:

 

• We identified 10 members of the Royal Newfoundland Constabulary who had each others firearms stored in their firearm locker. These are very serious infractions. Should a firearm be discharged, there is a possibility that the discharging of the firearm could be associated with an incorrect Royal Newfoundland Constabulary member.

   

   

• Grips are being installed on firearms making it impossible to readily read the serial number. As a result, during inspections it is not possible to check serial numbers and agree it to Royal Newfoundland Constabulary records to ensure that the correct member is in possession of the correct firearm. For example, we removed a few of these grips and identified 1 instance (included in the 10 above) where the serial number on the firearm confirmed that a Royal Newfoundland Constabulary member did not have the firearm which has been signed out to them. It is a concern that members with a firearm other than that assigned to them could go undetected during monthly firearm locker inspections.

   

   

• Although Royal Newfoundland Constabulary policy requires that all members receive, on an annual basis, a requalification for the use of firearms, we found that 114 members had not received the required training.

   

3.25    Prospectors and Industry Assistance Program

The Mineral Development Division within the Department of Mines and Energy is responsible for the technical monitoring and analysis of the mining industry, the development and implementation of mineral policy, evaluations of potential mining properties, development and enforcement of the Mining Act and management of incentive programs for exploration and development.

We reviewed the Prospectors and Industry Assistance Program which consists of three main components: the Junior Company Exploration Assistance Program; the Prospectors Assistance Program; and the Dimension Stone Incentive Program.

Our review disclosed the following:

 

• Weaknesses were identified with respect to project controls relating to: assessments of project proposals; monitoring of approved projects; evaluations of completed projects; and review of support for claimed project expenditures.

   

   

• The database maintained by the Department is incomplete. Project information is not being adequately tracked for project and Program monitoring purposes.

   

   

• Irregularities were identified with respect to approved projects for one applicant. This applicant had three projects approved under the Dimension Stone Incentive Program and two projects approved under the Junior Company Exploration Assistance Program. A total of $190,000 was approved for these contracts.

   

A review of projects approved for this applicant revealed the following:

 

• inadequate application form review and assessment;

   

• inadequate quotations obtained in support of proposed expenditures, including serious concerns expressed by the Department relating to authenticity of quotations presented by the applicant. These concerns related to an application for a project which was received from the applicant in July 2000. Subsequent correspondence from the Department dated in July disclosed that this application could not be processed because the tendering process was "flawed/incomplete". In requesting the required 2 quotes for goods/services, the applicant indicated that quotation requests had been faxed to two unrelated companies. However, the Department determined that one company did not exist while no quotation request had ever been forwarded to the other company by the applicant as had been represented in the application. Despite the serious concerns expressed by the Department relating to authenticity of information provided by the applicant, the Department subsequently approved $44,000 in funding for this project;

   

• inadequate site visits completed by the Department;

   

• inadequate reporting by the applicant;

   

• inadequate project evaluations completed by the Department

   

• lack of inspection or audit of the applicant’s records; and

   

• inadequate support for claimed expenditures.

3.26    Newfoundland and Labrador Film Development Corporation

The Newfoundland and Labrador Film Development Corporation (the Corporation) was incorporated in October 1997. The purpose of the Corporation is to promote the development of, and to stimulate employment and investment in, the Newfoundland film and video industry by providing financial and other assistance. The Corporation’s Board of Directors is appointed by Government.

When Cabinet authorized the establishment of the Newfoundland and Labrador Film Development Corporation in 1996, it directed that the Corporation was to have an initial five year mandate "with a complete review to be undertaken at the end of three years to ensure adequate progress towards the policy objectives". Since 1996, $4 million in funding has been provided to the Corporation; however, the review as directed by Cabinet has never been undertaken. We are recommending that this review be completed to determine whether the objectives of Government are being met.

Our review of the Corporation identified some other areas that require improvement and these have been reported to the Corporation. At the time of our audit, the Corporation had taken action to address our concerns.

3.27    Special Celebrations Corporation of Newfoundland and Labrador Inc.

The Special Celebrations Corporation of Newfoundland and Labrador, Inc. was incorporated under the Corporations Act on 27 August 1998. It was established to plan, organize, manage and supervise tourism special events for the Government of Newfoundland and Labrador. During the course of the financial statement audit of the Corporation for the year ended 31 March 2001 significant concerns were noted with the Corporation’s non-compliance with Government’s Guidelines Covering the Hiring of External Consultants and the Public Tender Act.

Concerns related to the hiring of consultants included:

 

• On 25 February 2000, the Corporation entered into a contract with a company for the production and fabrication of the Viking Museum Exhibit for a total value of $443,686. Our review of this contract indicated that Cabinet authorized the selection of this consultant as required by the Guidelines. As this contract is greater than $50,000, the Guidelines also require that prior to the selection of the consultant, the Corporation conduct a public call for proposals; however, the Corporation did not conduct any call for proposals.

   

   

• During the year ended 31 March 2001, a consultant was hired for a contract up to a maximum of $80,000. This contract was not a fee for service agreement and thus the Guidelines require that the Corporation conduct a public proposal call. Our review indicated that the Corporation did not conduct any call for proposals and therefore, did not comply with the Guidelines.

   

   

• During the year ended 31 March 2001, a consultant was hired under five separate contracts for a total value of $107,500. Although each contract was under $50,000, the Corporation did not obtain three proposals as required by the Guidelines. This contract was not a fee for service agreement nor could officials of the Corporation provide any support that there were any time constraints considerations or that there were not a sufficient number of consultants that provide this service.

   

   

• $9,360 was paid to a consultant under a ten week contract. This contract was extended on two consecutive occasions for an additional 48 weeks (up to 31 August 2001). The total contract covered a 58 week period with a total contract value of $52,560 plus expenses. The Corporation did not obtain any proposals for either the initial contract or the two extensions. This contract was not a fee for service agreement nor could officials of the Corporation provide any support that there were any time constraints or that there were not a sufficient number of consultants that provide this service.

   

   

• $10,000 was paid to one consultant without three proposals being obtained. This contract was not a fee for service agreement nor could officials of the Corporation provide any support that there were any time constraints or that there were not a sufficient number of consultants that provide this service.

   

Concerns related to the Corporation’s non-compliance with the Public Tender Act included:

 

• On 25 February 2000, and as indicated previously in this report, the Corporation entered into a professional services contract with a company for the production and fabrication of the Viking Museum Exhibit for a total value of $443,686. On 26 April 2000, an amendment was added to the original contract to include the production of custom shipping crates for an additional $33,939. The production of custom shipping crates, however, involves the construction of a work and is, therefore, subject to the Public Tender Act. As the Corporation did not call public tenders for this additional contract, it did not comply with the Public Tender Act.

   

• During testing of expenditure, a transaction in the amount of $123,478 was reviewed which represented a payment to a vendor for the mobile facility to feed the satellite uplink for the televising of the landing of the Islendingur at L’Anse Aux Meadows in July 2000. Although the Corporation did not call for public tenders for this contract because it considered the vendor to be the only source available to provide the service in the time frame required, our review indicated that there are a number of vendors that provide this type of service. Officials of the Corporation could not provide any evidence that any contact had been made with any other potential vendors.

  It was further identified that there was no agreement between the vendor and the Corporation defining contract terms including an established price. While the service was provided between the 24th and 28th of July 2000 and the related invoice was received on 18 August 2000, the purchase order which authorizes the service was dated the 25th of August 2000. As a result, the service was provided without proper purchasing authority and without the required commitment of funds.

3.28    Coastal Labrador Marine Services

In April 1997, the Province assumed responsibility for the coastal Labrador marine service and in December 1997 received $347 million from the Federal Government to fund the service in perpetuity. Effective 1 April 1997, the Province contracted Marine Atlantic to provide this service to 31 December 1997. Subsequent to this date, the Province contracted with a private operator to provide this service. In accordance with the contract awarded in April 1998, the Province provides its two marine vessels, the MV Sir Robert Bond and the MV Northern Ranger, to the contractor, and the contractor is responsible for the operation of the two vessels.

The actual cost of operating the service is significantly higher than the estimated cost prepared by the Department in November 1998. In 1998 the Department estimated that the cost of operating the Labrador marine services between 1 April 1998 and 31 March 2001 would be $51.8 million. However, actual costs to 31 March 2001 totalled $62.5 million. The most significant increase occurred in 2000-01 for which the Department estimated costs of $12.6 million in November 1998 while actual costs were $21.0 million.

Our review disclosed the following:

 

• the Department contravened the Public Tender Act and paid the contractor $990,000 for refit work which was not tendered and not provided for under the contract;

   

   

• the Department does not have adequate procedures in place to ensure that freight handling subsidy payments to the contractor of approximately $1.0 million each year are in accordance with the terms of the contract; and

   

   

• the Department does not have adequate procedures in place to ensure that the contractor is complying with the terms of the contract related to the quality of the service to be provided.

   

We also have concerns regarding payments made during refit periods.

3.29    Vessel Replacement Plans

The Department of Works, Services and Transportation is responsible for the Province’s ferry operations. During the 2000-01 fiscal year, the Province spent $40.0 million on ferry operations throughout Newfoundland and Labrador and collected $23.3 million in revenues. At 31 March 2001, the Province’s ferry operations included 21 vessels, 20 of which are serving 16 routes around the Island and coastal Labrador, and one vessel which is undergoing major refit.

We completed a review of the Department’s marine vessel replacement plans including a review of the acquisition and refit costs for the Province’s most recently acquired vessel, the Ahelaid, which was purchased in 1999. The results of our review were as follows:

 

• The Province owns 12 of the 21 marine vessels, ranging in age from 11 years to 38 years, with an average age of 24 years. These vessels continue to deteriorate. Given that the normal life expectancy of a marine vessel is about 25 years, significant expenditures are required to upgrade or replace these vessels.

   

Although a Government commissioned study in 1993 recommended that the Province spend $18 million to $25 million over the following 10 years to upgrade the vessels, this was not done. With the exception of the acquisition of the Captain Earl Winsor and the Ahelaid, there has not been a significant upgrade of the Province’s fleet of marine vessels since 1993.

This matter was reported to the House of Assembly in my 2000 Annual Report. Discussions with Government officials indicated that this matter has still not been addressed and there are no definitive plans to replace and renew Government’s fleet of 12 marine vessels. As a result, Government will be faced with the need to provide significant funds in the near future to refurbish its marine vessels.

 

• The most recently acquired vessel is the Ahelaid which was purchased in 1999. At that time, the Department estimated that the cost to purchase and refit the vessel was $2.9 million. It was expected that the vessel would be in service during the fiscal year 2001-02.

   

The Ahelaid arrived in St. John’s in May 1999. From that time until 31 July 2001, the Department has spent $3.9 million to purchase and refit the vessel and expects to spend an additional $2.6 million to complete the refit bringing the total estimated cost to purchase and refit the Ahelaid for service to $6.5 million. In addition, the Department estimates that the Ahelaid will not be ready for service until the fiscal year 2002-03.

3.30    Government Purchasing Agency

The Government Purchasing Agency was originally created in 1973 by Section 49 of the Department of Public Works and Services Act. The Act provided that the Government Purchasing Agency’s primary duties were to acquire all services that were required by the departments and agencies of the Crown. The Act granted the Agency the authority to delegate purchasing authority to the various departments and agencies if the Director of Purchases is satisfied that it is in the interest of efficiency to do so. The Act also required that the Agency invite tenders for services except in certain specific circumstances.

From 1973 to 1983, the Government Purchasing Agency was independent of Government departments and was attached to the Department of Public Works and Services for administrative purposes only. However, in 1983 as a result of an amendment in the Act, the Government Purchasing Agency was made a part of the Department of Public Works and Services and later, as a result of Government re-organization, was made a part of the Department of Works, Services and Transportation. This 1983 amendment resulted in a loss of independence for the Government Purchasing Agency.

The role of the Government Purchasing Agency is to be responsible for all purchases on behalf of government departments and if deemed efficient on behalf of all agencies of the Crown. The Agency may delegate purchasing authority to departments and agencies if it deems it efficient to do so. However, the Agency is responsible to oversee and monitor the purchasing activities of these entities. As part of its responsibilities, the Agency must prepare a monthly Public Tender Exception Report for the Minister of Works, Services and Transportation for tabling in the House of Assembly.

Our work indicated that approximately 63% of expenditures made by the various Government departments for supplies and services and 65% of the public tender exceptions tabled in the House of Assembly were purchases of the Department of Works, Services and Transportation. This indicates that the great majority of the work of the Government Purchasing Agency is centered around the Department of Works, Services and Transportation, of which it is a part. The fact that the Agency is a part of the Department of Works, Services and Transportation questions whether the Agency can function in a manner which is independent of the Department.

The Government Purchasing Agency is required to assess, critique and report on purchases made by all departments and other entities required to comply with the Public Tender Act, including the Department of Works, Services and Transportation. To accomplish this, it must be in a position of independence.

Chapter 4

Update on Prior Years’ Report Items

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 1999 and prior Reports of the Auditor General to the House of Assembly on Reviews of Departments and Crown Agencies.