Table of Contents
- Preface
- Introduction
- Chapter 1
- Chapter 2
- Treasury Board Secretariat
- Department of Education
- Department of Environment
- Department of Forest Resources and Agrifoods
- Department of Government Services and Lands
- Department of Health and Community Services
- Department of Industry, Trade and Rural Development
- Department of Justice
- Department of Labour
- Department of Municipal and Provincial Affairs
- Department of Tourism, Culture and Recreation
- Department of Works, Services and Transportation
- Chapter 3
Preface
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 2002. That Report contains approximately 325 pages of conclusions, commentary, recommendations and auditees’ comments. This document contains summary information on each item included in the Report. When readers identify a topic of interest, we encourage them to read the relevant section in the Report.
Introduction
The Report of the Auditor General to the House of Assembly on Reviews of Departments and Crown Agencies for the Year Ended 31 March 2002 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 2002 which was tabled in the House of Assembly on 25 November 2002.
Chapter 1
Reflections of the Auditor General
This Chapter provides an introduction to the Report and provides a summary of issues considered by the Auditor General to be of greatest concern. The issues identified are as follows:
1. Accountability
Again this year, Government has not provided the Members of the House of Assembly with information that could be used to assess its performance. Government does not have any legislative requirement for any of its departments or Crown agencies to provide annual performance plans or performance reports for tabling in the House of Assembly.
To put the matter in perspective, there were no performance plans tabled in the House of Assembly during the year and, of the 20 Government departments, the House of Assembly and the 83 Crown agencies receiving approximately $4 billion, only 1 Department and 9 Crown agencies receiving a total of approximately $6.4 million, had an annual report for 2001 tabled. In my opinion, this represents a significant lack of information which is required by the Members of the House of Assembly in order to assess Government’s actual performance relative to a performance plan.
I believe Government should have a legislative framework which requires the tabling of annual performance plans and performance reports in the House of Assembly for all Government departments and Crown agencies.
2. Legislation
There are two pieces of legislation which set rules relating to the financial operations of Government – the Financial Administration Act and the Public Tender Act. As in other years, my Office continues to identify instances where Government and its agencies have contravened these Acts.
There were a number of examples during the year where Government contravened the Financial Administration Act including the issuance of special warrants, in instances where, in my opinion, there was no urgent requirement, Government entities borrowing without authority, and funds provided under the Special Assistance Fund for purposes other than that authorized by the Legislature.
Examples were also found where Government and its agencies contravened the Public Tender Act
I am concerned that Government continues to contravene the Financial Administration Act and the Public Tender Act.
3. Board Deficits
As in previous years, my Office continues to monitor the financial position and operating results of the Province’s eight hospital boards, four community health care boards and eleven school boards. The financial position and operating results of these boards continues to deteriorate although funding to these boards has increased. The annual deficit shows the extent to which these boards spend more than the revenue they receive from Government and other sources in one fiscal year – it shows that these boards are not living within their means. I believe that spending within its means should be a priority for Government.
Chapter 2
Comments on Audits and Additional Examinations
2.1 Framework of Accountability
In previous Reports to the House of Assembly, my Office has expressed concern over the lack of information being provided to the House of Assembly by Government departments, Crown agencies and Memorial University of Newfoundland, all of which are funded primarily by the public purse.
We have also recommended the implementation of a legislated accountability framework. This framework should 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.
Our review this year indicated that, with the exception of the Public Service Commission, no departments and only 9 of 83 Crown agencies prepared and tabled annual reports for 2001 in the House of Assembly. As a result, reports on only $6.4 million of the $4 billion provided by the Legislature were tabled in the House of Assembly.
While other jurisdictions have been developing and implementing ways to modernize and improve their performance reporting, as far as reporting information to the House of Assembly is concerned, this Province is now further behind than it was in the 1980’s and early 1990’s, when some departments were preparing and tabling some form of annual report in the House of Assembly.
In my opinion, the only way that this situation will ever be resolved is through legislation which specifically requires that Government departments, all Crown agencies and Memorial University of Newfoundland prepare and publish annual performance plans and performance reports and have them tabled in the House of Assembly.
We have also commented in past Reports on the creation of Crown agencies without enabling legislation. At the time of our review, 17 Crown agencies had been created in this manner.
In my opinion, all Crown agencies should be created under the authority of the Legislature through separate specific legislation. This legislation should authorize the creation of these entities, and establish their mandate, powers, duties, responsibilities and reporting requirements to the House of Assembly.
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 debate and approval of the Members of the House of Assembly, spend public money.
Government’s use of special warrants remains at a significant level. In previous reports, our Office has expressed concern that many of these special warrants did not meet the requirements of the Financial Administration Act. We have also indicated that Government often uses special warrants, especially during the last month of each fiscal year, to reduce the cash surplus of Central Government and produce whatever financial results the Government desires.
Four special warrants totaling $33.1 million were issued in March 2002 in contravention of the Financial Administration Act, in that, in our opinion, there was no urgent requirement.
These special warrants were not presented at that time to the House of Assembly as either a Supplementary Supply Bill or included in the 2002-03 budget, both of which would have resulted in debate and approval. The opportunity for presentation to the House of Assembly for debate and approval was available.
2.3 Borrowing without Authority
The most recent financial statements of the 17 Crown agencies created under the Corporations Act disclosed that 4 of these entities had a total of $43.8 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.
2.4 Monitoring Expenditures of the Consolidated Revenue Fund
As part of our audit of the financial statements of the Consolidated Revenue Fund (CRF), we perform tests and reviews of the expenditures made by the various departments.
During the past year, we obtained expenditure information from Government’s accounting system relating to 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.
The results of our review are presented in Part 2.4 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 2002.
2.5 Monitoring Agencies of the Crown
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.
As at 31 March 2002 there were approximately 154 (2001 – 151) agencies of the Crown in the Province. Of these, 87 (2001 – 85) were required to prepare annual financial statements, while the remaining 67 (2001 – 66) were considered non-financial and did not prepare financial statements. Any expenditures related to the operation of these 67 non-financial 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.
Information contained in the audited financial statements and management letters of Crown agencies is maintained in our computerized system and provides the basis for our monitoring of all Crown agencies.
Of the 87 entities required to prepare annual financial statements, 32 ( 2001 – 31) were audited by our Office while 53 (2001 – 52) were audited by private sector auditors. Contrary to their governing legislation, the remaining 2 entities, the Memorial University Foundation and the Newfoundland and Labrador Occupational Therapy Board have never submitted audited financial statements.
As of 9 December 2002, the required audited financial statements had not been received from the private sector auditors for 4 of the 53 entities and the required management letters had not been received for 5 of the 53 entities.
Furthermore, the majority of audited financial statements and management letters that were received from the private sector auditors were not received on a timely basis. On average, audits are completed and the auditors’ reports signed within three months after the year end. However, in most cases the financial statements and related management letters are not sent to our Office until another four months after the audit report date, and often as a result of follow-up by our Office.
As part of our monitoring of Crown agencies, we review audited financial statements and management letters resulting from audits completed by either private sector auditors or by our Office.
The highlights from our review of audited financial statements and management letters of Crown agencies are presented in Part 2.5 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 2002.
2.6 Accounts and Loans Receivable in Government
At 31 March 2002 Government was owed $488 million of which $260 million is considered to be uncollectible. In addition, since 1992, Government has written off a total of $235 million.
Our review disclosed that Government has written off $235 million owed to it during the past 11 years. In addition, Government was owed $488 million as of 31 March 2002 of which $260 million was considered doubtful of collection. In my opinion, Government does not do a good job of collecting amounts owed to it. As a result, a significant portion of these amounts have been written off or are considered doubtful of collection.
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. Prior to the dissolution of the 27 school boards, there were approximately 445 schools in the Province with a total enrolment of 110,450 students. As at 30 September 2001, there were 326 schools with a student enrolment of 86,898. The number of schools and student enrolment have declined by 27% and 21% respectively, in the past six years.
Our review of school boards in 2002 included an assessment and comparison of the financial position and operating results of each of the 11 boards.
The 11 school boards had accumulated deficits totalling $100.971 million for the year ended 30 June 2002. This is comprised of $99.071million in accrued severance pay and leave and a net accumulated operating deficit of $1.900 million.
The Department of Environment is responsible for protecting, conserving and enhancing the Province’s environment including controlling and managing substances and activities that may pollute the environment. A key function of controlling and managing pollution is the management of contaminated sites.
There is no central inventory for contaminated sites that are the responsibility of the Province or those that are the responsibility of private owners. The lack of a central inventory makes it more difficult for Government to determine the nature and extent of contaminated sites in the Province, the extent of progress of remediation efforts, and estimated future remediation costs to be incurred by Government.
As of the date of our audit, Government had identified future remediation costs of $37.4 million; however, with the exception of the former Hope Brook Gold Mine property, this estimate does not include any amount that may be required to rehabilitate an estimated 10 other sites which are anticipated to have remediation costs but for which no formal site assessments have been performed. In addition, Government officials could not provide estimates for the remediation of the former U.S. Military bases located at West Bay and Jerry’s Nose, or for fuel storage tanks and various Government-owned buildings throughout the Province.
2.9 Multi-Materials Stewardship Board
On 15 January 1997, Government implemented a Beverage Container Control Program in the Province. Under this Program, the consumer pays a deposit on specified beverage containers. Upon returning a beverage container to one of the 37 established depots in the Province, consumers receive a refund of a portion of the deposit. These containers are then transported from the depots to centres for processing.
In addition to paying refunds to consumers, deposits, along with proceeds from the sale of collected containers, are used to support the operating costs of the Beverage Container Control Program. All excess monies are to be paid into the Newfoundland and Labrador Waste Management Trust Fund as directed by Government. This Trust Fund was established for the purpose of providing funds for Government approved waste management initiatives and is administered under the Waste Management Act.
To manage the Beverage Container Control Program and the Waste Management Trust Fund, Government established the Multi-Materials Stewardship Board on 18 June 1996.
In 1996, Government established target recovery rates for beverage containers sold at 50% for 1997, 60% for 1998, 70% for 1999, and 80% for 2000. During the early years of the Beverage Container Control Program, the rate of container returns stagnated at less than 50%. Despite initiatives by Government, including increased marketing and increased deposit refund rates to consumers, the actual recovery rate for beverage containers for 2002 of 61% is still well below the targeted recovery rate of 80%.
In delivering the Beverage Container Control Program, the Board has entered into several contracts. The Board did not always comply with the Public Tender Act in awarding these contracts.
In 2002, the Board developed a Used Tire Recycling Program. The initial proposal call for this Program indicated that prior to the award of the contract in February 2002, the Board did not have current legal information related to the successful bidder. The successful bidder later withdrew from the contract on 15 May 2002 citing difficulties in establishing their planned collection system.
In June 2002, a second proposal call was issued. Of the three proposals that had been received, only one included all the required information and was further assessed by an evaluation committee of the Board. This Committee advised the Minister not to accept this proposal and further recommended that the tender should be reissued. In August 2002, the Deputy Minister of Environment informed the Board of the Department’s decision to award the contract to the only bidder. Board officials indicate that although they were informed that the decision had been approved by the Minister and Cabinet, they were not provided with any explanation as to how the Board’s concerns with the proposal had been addressed.
Although the Board and the Department have established guidelines to determine eligibility for project funding, we found instances where projects were approved directly by the Minister without any assessment being completed by the Board to determine whether the project met these project guidelines.
The forest sector is one of the Province’s largest resource industries. The forest sector consists of two main industries, newsprint and lumber. During the 2000-01 fiscal year newsprint shipments were $675 million and lumber sales exceeded $40 million. The main commercial users of the Province’s forests are Corner Brook Pulp and Paper Company Limited and Abitibi Consolidated Company of Canada and approximately 800 commercial sawmills.
The Province manages the forests by maintaining forest inventories, establishing an annual allowable cut (AAC) and carrying out a silviculture program. Silviculture activities are designed to ensure the proper regeneration and enhancement of the forest after harvesting or destruction through fires or insect infestations.
The Department has established objectives for the long-term development and sustainability of the Province’s forest and has implemented a structured planning process to support its objectives. However, a review of actions taken to meet the objectives indicated that the Department has not been successful in alleviating the wood supply deficit. Since the first plan was developed in 1985, the approved AAC has declined more than 27%. This indicates that the forests cannot sustain the cutting levels that were attainable in the mid-eighties.
The Department did not achieve the planned results from its silviculture expenditures for the period 1996 to 2000. The Department received 80% of the planned funding; however, only 69% of the planned silviculture activity was undertaken. The Department planned to treat 98,408 hectares at a cost of $75 million ($762 per hectare); however, only 67,704 hectares were treated at a cost of $60.1 million ($888 per hectare).
Forest management program activities are not adequately monitored and reported. Specifically, the Department does not verify harvest levels reported by the companies, there is no reconciliation between what sawmill operators produce to amounts reported as harvested, there is minimal enforcement of harvesting on company land, field inspections are not always completed as required by policy, and the Department has not prepared an annual report since 1999-00 nor has it provided an annual report on program activities to the House of Assembly.
There were also instances of non-compliance with legislation and Departmental policy. Although legislation requires the development of 20 year management plan reports, five year operating plans and annual operating plans, we found that 11 of the 24 districts did not have a 20 year management plan report, 11 of 36 five year operating plans were not prepared and 5 of 16 Crown districts did not have an annual operating plan for 2001-02.
2.11 Newfoundland and Labrador Farm Products Corporation
Newfoundland and Labrador Farm Products Corporation (the Corporation) was established in 1963 under the Farm Products Corporation Act. In 1996, a new Board of Directors was appointed and given the mandate to pursue privatization. In April 1997, the Corporation closed its Corner Brook plant. In October 1997, the Corporation sold the assets of its St. John’s plant to Integrated Poultry Limited. At that point, Government entered into a number of agreements with Integrated Poultry Limited for the operation of the St. John’s plant. In February 2000, Integrated Poultry Limited was placed in receivership and in March 2000, the assets were sold to 10874 Newfoundland Inc. (now known as Country Ribbon Inc.). As part of this sale, and in accordance with previous agreements in place, Government entered into an agreement with 10874 Newfoundland Inc. (now known as Country Ribbon Inc.).
The Corporation could not determine whether Country Ribbon Inc. had complied with the requirements contained in the Agreement as the information provided by the Company was not independently verified.
During 2001-02 Government wrote off amounts totaling $928,597 owed by Integrated Poultry Limited and Newfoundland and Labrador Farm Products Corporation. In March 2002, Cabinet directed the Department of Finance to provide funding of $200,000 to Farm Products Corporation to pay expenses related to the Corner Brook facilities up to 30 September 2003.
The Department of Government Services and Lands is responsible for a number of Government’s services to the public, including protection of consumers. The Department’s Trade Practices and Licencing Division is responsible for the administration of the prepaid funeral services program. This includes the licensing and regulating of funeral homes to sell prepaid funerals.
The Prepaid Funeral Services Act was assented to on 12 May 2000 and came into force on 22 December 2000. One of the main purposes of the legislation is to protect consumers who have entered into prepaid funeral contracts from financial loss, in the event of the failure of a funeral home.
Over the past five years, there were an average of 4,340 deaths per year in the Province. Documentation on file at the Department indicates that there are currently 91 funeral homes in operation in the Province which have approximately 6,250 prepaid funeral service contracts outstanding.
At the time of our review in March 2002, the Department had made very little progress with the implementation and administration of the prepaid funeral services program. Only 28 of the 91 funeral homes in the Province had submitted licence applications. Of these 28, 27 were licensed although only 4 of these homes had fully complied with all requirements of the Prepaid Funeral Services Act and Regulations. Furthermore, while all of the 27 licensed funeral homes have paid their required licence fee, 13 have not paid the required Assurance Fund assessment.
A total of $137,830 was paid from the Assurance Fund bank account from 6 April 2001, the date the account was established, to 31 March 2002. These payments were for claims arising from prepaid funeral contracts resulting from the failure of a funeral home in Port aux Basques in November 2000. At that time 88 consumers had purchased prepaid funerals from the funeral home valued at a total of $492,790. The $137,830 paid from the Fund related to 23 of the 88 contracts. Although the Act did not come into effect until December 2000, an amendment was made in May 2001 to retroactively honour claims against licensed funeral homes as though the Act had come into effect on 1 November 2000. However, the failed Port aux Basques funeral home was never licensed under the Act. Therefore, there was no authority under the Act for payments to be made based on claims arising from the failure of the funeral home.
2.13 Eastern Residential Support Board
There are currently five entities throughout the Province which provide co-operative apartment programs for persons with developmental disabilities. The co-operative apartment program provides for a private residential setting operated by an incorporated community board and staffed by a live-in supervisor and relief staff. The program is not meant to provide permanent homes and the main emphasis is on skill teaching and support to enable more independent living. One of the five entities, the Eastern Residential Support Board Inc., received $9.2 million in Government funding for the year ended 31 March 2002.
At March 2002 the Board was providing a co-operative apartment program for 43 residents housed in 18 units.
Expenditures at the Eastern Residential Support Board Inc. have increased from $5.7 million in 1999 to $9.2 million in 2002, an increase of 61%. However, during this period the number of residents remained relatively constant. Average expenditures per resident have also increased from $143,000 in 1999 to $213,000 in 2002, an increase of 49%.
The Board is not operating in accordance with the objectives of the co-operative apartment program under which it is being funded. For example, while the program is not meant to provide permanent homes to residents, no resident of the Board has left the co-operative apartment program to move to a more independent living arrangement. Furthermore, the program is not intended to provide 24 hour a day supervision; however, 40 of the 43 residents are receiving 24 hour a day supervision.
The Department of Health and Community Services is not adequately monitoring activities of the Board as it does not receive financial and performance information from the Board on a timely basis. Furthermore, there is no service agreement between the Board and the Department to outline the roles and responsibilities of each party and to provide guidance for the delivery of the co-operative apartment program.
2.14 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, respectively.
The financial position and operating results of the four health and community services boards is continuing to deteriorate even though funding has increased substantially. The total net liabilities of the four boards increased from $19.8 million at 31 March 2001 to $22.2 million at 31 March 2002. These net liabilities will eventually have to be funded by Government.
Government funding provided to the boards increased from $165.3 million in 2000-01 to $183.8 in 2001-02. Although additional funding of $18.5 million was provided over the previous year’s amount, these boards still incurred operating deficits totaling $3.1 million for the year ended 31 March 2002.
2.15 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 is continuing to deteriorate even though funding has increased substantially. The total net liabilities of the eight boards has increased from $366.1 million at 31 March 2001 to $391.3 million at 31 March 2002. These net liabilities will eventually have to be funded by Government.
Government funding provided to the boards increased from $692.7 million in 2000-01 to $784.9 million in 2001-02. Although additional funding of $92.2 million was provided over the previous year’s amount, these boards still incurred operating deficits totaling $16.5 million for the year ended 31 March 2002.
2.16 Residents’ Trust Accounts
The Provincial Health Care Institutions and the Department of Health and Community Services administer a number of trust funds on behalf of residents in nursing homes or other health care facilities. Trust funds are not owned by the Institution or the Department but are the property of these residents and have been assigned to the Institutions and the Department as “trustee” for administration under an agreement or policy. As a result, the Institutions and the Department are accountable to these residents for the use and disposition of the trust assets and any funds derived from trust activities. The Provincial Health Care Institutions and the Department of Health and Community Services held $3.5 million in residents’ trust accounts at 31 March 2002 ($3.6 million 31 March 2001).
The procedures and systems in place to manage and control residents’ trust accounts require improvement.
2.17 Enterprise Newfoundland and Labrador Portfolio Review
The Annual Report of the Auditor General to the House of Assembly for the year ended 31 March 1999 included a report on Enterprise Newfoundland and Labrador’s loan portfolio funded through the former Department of Development and Rural Renewal’s Strategic Enterprise Development Fund. Since 1999, my Office has completed reviews of several investments made through ENL’s loan portfolio. In the current year, we performed a review of two additional investments. Our review indicated the following:
Company A
In October 1992, Enterprise Newfoundland and Labrador (ENL) made its first loan of $500,000 to the Company to purchase equipment.
Since the initial loan of $500,000 in 1992, ENL has advanced five additional loans totaling $949,365. In addition to this $1,449,365 in loans, ENL also paid professional fees of $29,343 on behalf of the Company. In addition, interest charges of $976,849 have been added to these loans. As at 31 March 2002, ENL had recovered only $233,300 of its investment resulting in a balance owing of $2.22 million comprised of $1.32 million in principal and $0.9 million in interest. The Company has not made any payments since October 1998 and the entire outstanding balance is considered by ENL to be doubtful of collection.
Our review indicated that ENL decided to provide additional loans to the Company after the Company failed to comply with repayment terms of its previous loans. In addition, although the Company failed to comply with the terms of the loan agreements regarding loan repayments, submission of financial information, and insurance on secured property, ENL has decided not to take action to recover its investment through its claim on the Company’s assets.
Company B
Enterprise Newfoundland and Labrador Corporation (ENL) initially became involved in the Company in 1990 when the former Newfoundland and Labrador Development Corporation, a predecessor company of ENL, approved a $500,000 loan to assist with the acquisition of assets and to provide operating funds.
In March 1993, ENL provided an additional $300,000 loan for the purchase of equipment. ENL also paid legal fees of $4,766 on behalf of the Company. In addition, interest charges of $830,784 have been added to these loans.
In May 1999, ENL wrote off $548,388 in amounts owing from the Company and converted the remaining debt of $730,689 into an equity investment in the Company. As at 31 March 2002, ENL had recovered $396,072 of its investment resulting in a balance owing of $691,090.
Additional loans were made to the Company although the Company failed to comply with repayment terms of previous loans. In addition, although the Company failed to comply with repayment terms, ENL decided not to take action to recover its investment through its claim on the Company’s assets and subsequently relinquished its security in favour of other creditors.
2.18 Sale of Marystown Shipyard Facilities
Government’s involvement with the Marystown shipyard facilities began in 1966 with the construction of the shipyard. The shipyard became operational in 1968, with the fabrication/offshore service facilities being added in 1993 at Cow Head. All significant capital assets at the facilities were owned directly by a Government Crown agency, Newfoundland and Labrador Ocean Enterprises Limited.
Since 1966 Government has provided the Marystown facilities with $185.9 million in assistance. In 1997, Government sold the facilities to Friede Goldman for $1. The sale agreements contained provisions with respect to minimum man hour requirements, payment of net after tax profit of the facilities relating to the year ended March 1998, completion of specified upgrades and repairs and investment in capital improvements, and provision to Government of at least 90 days notice of any intended cessation of operations. Although at that time, assets with a cost of $86 million were transferred to the Company, there was no provision for the assets to be returned to the Province in the event the Company did not comply with the agreements or if the Company decided to sell the facilities.
Friede Goldman did not meet the employment targets for 1999 and 2000 and was required by the agreements to pay the Province $10 million. In March 2002, Friede Goldman sold the Marystown facilities to Peter Kiewit Sons Co. Ltd. To facilitate the sale, Government released Friede Goldman from its $10 million liability. As well, as at 31 March 2002, Government has provided Newfoundland and Labrador Ocean Enterprises Limited with a performance guarantee of $7 million and a loan guarantee of $4.85 million.
As a result of these transactions, at 31 March 2002, the Province has no claim on the Marystown facilities and has no employment or investment guarantees from the current operator.
2.19 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 201,000 (2001 census). In providing these services, the Royal Newfoundland Constabulary currently employs 305 police members, 9 temporary recruits and 81 civilian staff.
In 1998, members of 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 fourth annual firearms audit.
In our three previous audits we reviewed the firearms policy of the Royal Newfoundland Constabulary and reported a number of issues which had to be addressed. Although the Royal Newfoundland Constabulary has adequate systems in place to record, monitor and secure its firearms, we continue to identify instances of non-compliance with policy. Given the serious repercussions that could result from the use of firearms, it is critical that the Royal Newfoundland Constabulary continue efforts to improve compliance with established policies and procedures.
2.20 Workplace Health and Safety Inspections
The Department of Labour is responsible for monitoring and improving conditions in the workplace through the development and application of various health and safety codes, practices and standards. The Department pursues this responsibility through the administration and enforcement of the Occupational Health and Safety Act and Regulations and other related legislation.
The Occupational Health and Safety Act and Regulations outline rights and responsibilities of both employers and workers, as well as the responsibilities of the Department through its Workplace Health and Safety Inspection Division. Division activities provide for development and implementation of policies and plans associated with workplace health and safety, and monitoring and improving safety conditions through inspections of worksites to ensure compliance with applicable legislation.
Our review indicated that activities at the Workplace Health and Safety Inspection Division require improvement to meet the Department’s responsibilities for monitoring and improving conditions in the workplace. In particular, information on employer workplaces in the Province maintained by the Division is neither complete nor current, the required inspection activity identified by the Division as a priority was not performed, regular inspections are not based on any comprehensive risk analysis, significant delays were identified in documenting inspection activity, and information in the Division’s information system is neither accurate nor updated on a current basis. As well, the Division cannot demonstrate whether employers are complying with the Occupational Health and Safety Act and Regulations as inspection reports are not always fully completed by the occupational health and safety officers and the inspection report does not provide a listing of the main areas for inspection under the Act and Regulations to ensure these areas have been covered during the inspection.
In addition, the Division is not providing adequate and appropriate information to the Department on workplace health and safety inspection activity and there are no reports on Division activities provided to the House of Assembly.
2.21 Workplace Health, Safety and Compensation Commission
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.
The Commission is funded through employer assessments and income earned on investments maintained in an investment portfolio.
In the early 1990s, 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 Commission developed a strategy to address its unfunded liability, which at that time was $176 million. Although the Commission made progress in reducing its unfunded liability to $92 million by 1997, by 2001 the unfunded liability had increased to $200 million.
The Commission concluded that the strategy developed in 1991 to eliminate the unfunded liability was no longer attainable. A Task Force was established in 2000 to address the overall workers’ compensation system, including the unfunded liability. To complement the findings of the Task Force, the Commission developed a five year strategic plan for 2002-06. The strategic plan outlines various goals which, if achieved, will reduce the unfunded liability. Although the plan does not quantify the reduction in the unfunded liability or the time frame over which this reduction will be achieved, Commission officials indicated that its strategy is to eliminate the unfunded liability by 2020.
The unfunded liability of the Commission has to be closely monitored, on a priority basis, by the Commission and Government to ensure the continued viability of the workers’ compensation system.
2.22 Expenditures Related to September 11th
On the morning of September 11, 2001 the world became aware of a series of plane crashes into the World Trade Center and the Pentagon in the United States. Shortly afterward, officials of this Province were notified that US airspace had been closed and that all US bound flights had been redirected. Officials were informed that a large number of aircraft could be expected to be diverted to Newfoundland and Labrador.
The passengers and crew required food, medical care, clothing, accommodations, transportation and access to communications during their stay in the Province, which lasted approximately one week. These services were provided by Government, through its emergency response organization and departments, and by municipalities, volunteer groups and citizens.
We recognize that the diversion of aircraft to Newfoundland and Labrador on September 11, 2001, presented unique challenges to Government officials and others involved in responding to the provision of emergency services to the thousands of stranded passengers and crew. While the emergency situation resulted in instances where the acquisition of certain goods and services had to be made as emergency purchases, there was adequate time for officials to have controls in place to ensure that all payments were adequately supported and approved prior to payment.
Our review of the payments made in relation to the September 11 emergency indicated that, in certain instances, documentation used as support for payments was inadequate. The documentation was considered inadequate in that it did not have sufficient information or detail in support of the amount claimed. We also noted instances where duplicate payments were made to suppliers.
The Department of Municipal and Provincial Affairs administers a Special Assistance Fund under the Municipal Financial Assistance Program. Funding for this Program is authorized by the Legislature through the annual Estimates process. The Special Assistance Fund is intended to provide grants to municipalities to assist them in dealing with emergencies of a health and/or life safety nature, general emergencies, and other initiatives as well as to assist municipalities which are experiencing financial difficulties.
Our review indicated that the Department is providing funding to groups other than municipalities. The percentage of total funding allocated to these non-municipality groups has increased from 21% in 1999 to 56% in 2002. Although the Special Assistance Fund is budgeted under the Municipal Financial Assistance Program, in 2002, less than one half of the funding was paid to municipalities. As the funds provided for in this account were not used for the purposes authorized by the Legislature, the Department contravened the Financial Administration Act.
The Department is not complying with the Program Guidelines in the assessment, approval, and monitoring of projects. As well, the Department was not consistent in the approval of applications.
2.24 Marble Mountain Development Corporation
The Marble Mountain Development Corporation (the Corporation) was incorporated in April 1988 and is a 100% provincially owned Crown corporation. The principal activity of the Corporation at that time was to develop the infrastructure of the Marble Mountain resort. In May 1993, the ski and retail operations of the resort area were assumed by the Corporation from a local ski club.
Since it began operations in 1988, Marble Mountain has received financial assistance totaling $37.1 million from the Provincial and Federal governments. In addition, a Provincial Crown agency performed infrastructure work at the condominium site at an estimated cost of $1.7 million. Government also provided a $300,000 loan to the Corporation to purchase equipment and has guaranteed the Corporation’s line of credit which has increased from $300,000 in 1999 to $1.7 million in 2002.
Although the Province continues to provide significant operating funding to the Corporation, the Corporation continues to incur operating deficits.
The Corporation is not complying with the Public Tender Act as not all goods and services over $10,000 are being publicly tendered and the Corporation is not always informing the House of Assembly of exceptions.
2.25 The Straits of Belle Isle Marine Services
In April of 1997, the Federal and Provincial governments announced an agreement that transferred responsibility for Coastal Labrador Marine Service to the Province. As part of this agreement, the Province assumed responsibility for the passenger ferry service between St. Barbe, Newfoundland and Labrador and Blanc Sablon, Quebec. At the time this service was contracted to a private contractor. This service is seasonal and runs from 1 May, or as soon as ice conditions permit, to 3 January, or as long as ice conditions permit. The Department has the option to request service to commence as early as 15 April but to cease no later than 20 January.
The Province did not comply with the Public Tender Act in awarding the $17.8 million contract for the Strait of Belle Isle ferry service. The tender specifications indicated that the vessel could exceed 85 meters in length if it was capable of docking at the ramp in Blanc Sablon in the normal position for loading and offloading without the need to angle the vessel or compensate in other ways to enable effective ramp transfer. However, the tender was awarded to a contractor who indicated the vessel would be angled when docked at the wharf in Blanc Sablon.
The Department is not adequately monitoring the service to ensure payments are made only for services provided. Our review identified overpayments totaling $18,000.
The Contractor was paid $30,773 for wharf repairs at St. Barbe. These expenditures were not tendered as required by the Public Tender Act.
Chapter 3
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 2000 and prior Reports of the Auditor General to the House of Assembly on Reviews of Departments and Crown Agencies.