25.8 Federal expenditures under Transport Canada's highway investment programs have averaged more than $200 million annually over the last five years. Spending is expected to continue at an average of at least $150 million a year until 2001, and at roughly $60 million a year thereafter until 2003. It is noteworthy that in 1997-98 the Department's spending on highways represented a sizable portionr - roughly 30 percent - of its annual net program and operating expenditures.
25.9 By March 1998, the Department had spent most of the more than $1 billion of approved funding under programs in effect since the early 1990s. The government recently provided over $150 million in additional funding under one program for two provinces, extending it for three more years; two other programs will be in effect until 2003.
25.10 Transport Canada and the federal government are at a crossroads. The provinces have been exerting pressure on the federal government to renew or confirm its position on financing provincial/territorial highway projects. Notwithstanding the recent extension of one program, the federal government's ultimate intent in this area remains unclear.
25.12 Our audit concentrated on Transport Canada's highway investments, including a random sample of 96 projects approved from 1992-93 to 1997-98. The projects in our sample represented over 40 percent of the overall value of the projects funded in that period under the Department's highway programs that we reviewed.
25.13 Further details of the audit objectives, scope and criteria are presented at the end of the chapter, in the section entitled About the Audit .
25.16 In a recent presentation to the Standing Committee on Transport and the Canadian Council for Public-Private Partnerships, the Minister of Transport acknowledged that a national policy on highways had existed in some form since 1919. However, he questioned the merits of the current ad hoc approach to the federal-provincial highway investments. He favoured a more integrated national highway policy, with clear expectations and objectives for both federal and provincial governments. The Minister also indicated that the provinces and territories had recently reiterated the need for a comprehensive policy on highways that would include a long-term federal commitment to funding.
25.17 Moreover, since 1974 there have been a number of substantive events in highway transportation that have had implications for decision making about federal highway investments.
25.18 The 1974 highway policy has never been amended to reflect the concept of a national highway system (Exhibit 25.3) , defined in 1988 as part of a study. Thus, there is no clear policy on how the concept should guide the management of the Department's highway investment programs. We noted that in some of the programs, projects have to be on the National Highway System to be funded. However, this was not a stipulation in all negotiated agreements we examined.
25.19 The highway policy also fails to reflect many other, more recent events in highway transportation, such as the devolution of federally owned highways to provinces and territories, Transport Canada's objective to eliminate transportation subsidies (as stated in its 1996-97 Report on Plans and Priorities), and the emergence of alternative financing arrangements.
25.20 At the same time, the government has also created new highway investment programs for Transport Canada to administer, and has extended existing ones. In the absence of a clear policy, in our view all of these events, some with apparently conflicting objectives, increase the risk of fragmented, disconnected and inconsistent decision making by the Department. In fact, as we discuss later in the chapter, our observations on the way the Department has managed these programs and administered the agreements indicate a number of weaknesses. The absence of clear policy direction may be a contributing factor. Given the hundreds of millions of dollars spent by Transport Canada on highways over the past few years and its commitment to hundreds of millions more under programs that remain in effect until 2003, this is clearly a matter of concern from the standpoint of effective management of public resources. Without an up-to-date policy, in our view there is a lack of relevant, adequate guidance for establishing and managing Transport Canada's highway investment programs.
25.21 In light of changing needs and recent developments, Transport Canada should re-examine the 1974 National Highway Transportation Policy and make recommendations to the government as appropriate.
Department's response: The Department recognizes that any federal involvement in future highway programs needs to be pursued within the context of a more up-to-date and strategic transportation policy framework. Transport Canada is currently reviewing this framework. If and when new highway funding programs are deemed necessary by the government, the Department will seek to ensure that these are designed to reflect clear federal transportation policy goals and program objectives. In the interim, action will be initiated to address many of the observations made in this chapter.
25.23 Despite the number of players and the substantial amount of federal funds invested in highways, activities at the federal level are not co-ordinated in any systematic and formalized way. We note that the 1974 policy directed Transport Canada to play a lead role in co-ordinating information on highway investments at the federal level for the government's consideration, and to chair an interdepartmental committee to facilitate the process. The committee was required to prepare a comprehensive annual report on federal spending, as well as plans for potential future involvement in highway projects.
25.24 Although this direction has never been amended, the Department informed us that the committee remained active only until 1985, and that the comprehensive annual report was last published in 1990-91 due to a lack of resources. Given the sheer size of the federal highway investment, in our view the need for strategic co-ordination remains.
25.25 The government reinforced Transport Canada's lead role. In 1992 the government reiterated the need for integrated information on the condition of federal roads and the level of federal spending when it approved Transport Canada's $500 million Strategic Capital Investment Initiative (SCII). The initiative provided funding for works on provincial highways as well as on federally owned infrastructure, such as highways in national parks. Transport Canada was directed to report to the Treasury Board Secretariat annually on the overall status of the initiative. Funds allocated under the SCII for works in national parks were exhausted by spring 1998, as were most of the funds for works on provincial highways. Although the initiative has been in place for five years, Transport Canada has never reported on its overall status and does not have plans to do so. By March 1999, all remaining agreements under the initiative will have expired.
25.26 Since 1993, the Transport Canada initiative has been Parks Canada's major source of funding for capital works on highways in national parks. Our review of the capital component of Parks Canada's business plan for 1996-97 to 2000-01 and our discussions with Parks officials indicate that in the course of its normal multi-year process of dealing with capital works, Parks Canada had made it known that more funding would be needed when SCII money ran out in order to upgrade roads to minimum national and/or provincial engineering standards.
25.27 This is the kind of information that Transport Canada could have been expected to provide in a report on the overall status of the initiative. In our view, the availability of co-ordinated information as envisaged in the 1974 policy would significantly enhance the government's ability to examine various options and to make timely decisions on highway investment, based on a full set of relevant facts.
25.28 We are concerned that the Department has not fulfilled its lead role of co-ordinating and reporting comprehensive information on federal involvement in highways.
25.29 Transport Canada should develop a strategy to enable it to fulfil its lead role, as directed by the government, of co-ordinating information on overall federal involvement in highways. It should also periodically review whether its responsibilities under this role reflect current circumstances, and make recommendations to the government as appropriate.
Department's response: Transport Canada will form and chair an interdepartmental highway committee to co-ordinate information on federal government highway expenditures.
25.31 During the course of our examination, we reviewed three cases in which we found that some of the information supplied to decision makers had been inaccurate. We also identified other weaknesses, as described in the following observations.
25.32 Information on condition of roads. We identified deficiencies in the information the Department had supplied for the government's use in deciding on the $200 million in additional funding for the three most recent extensions of the Highway Improvement Program (in 1995, 1997 and 1998). In particular, we found that inaccuracies in the information on the condition of roads could leave the impression that the roads in question were well below minimum national standards, and that billions of dollars would be needed to bring them up to those standards. We note that the cost estimates supplied by the Department did not represent the cost of bringing the roads to minimum national standards but to proposed design and level-of-service features defined as part of a study on the National Highway System. The Department informed us that in the past, when seeking funding for the National Highway System, it had used the term ``minimum national standards" whether it was referring to minimum national standards or to the proposed design and level-of-service features. We are concerned about this, as the cost of upgrading roads to a proposed design and level of service can be substantially and materially different from the cost of ensuring that existing roads meet minimum national standards.
25.33 Moreover, when Transport Canada requested the additional funding in 1997 and 1998, it had conducted a study on the ride quality of the roads on the National Highway System. Although that study had not estimated the cost of upgrading roads to minimum national standards, it had concluded that the pavement surfaces over which much of the traffic moved were acceptably smooth. We further note that according to the same study, the highways proposed for funding were well above the commonly accepted engineering threshold for acceptable surface roughness. Our review of the available documents leads us to conclude that none of this information was disclosed to decision makers when they were considering the two most recent extensions to the Highway Improvement Program.
25.34 We observed other cases in which the Department had supplied inaccurate information on the condition of our nation's highways. In its 1997 Annual Report to Parliament on the State of Transportation in Canada, the Department included the information noted above, with an updated estimated cost ($17 billion) of upgrading the National Highway System to meet what it described in that report as "minimum national engineering standards". It also noted that the overall condition of the National Highway System had not improved in 10 years. As we have mentioned, the $17 billion was actually the estimated cost of meeting a proposed design and service level. It did not represent the cost of upgrading the condition of existing roads to minimum national engineering standards.
25.35 Information on projects. The information provided to the government in 1995 in support of a proposed $49 million extension of a highway improvement program indicated that the funding was being sought for additional projects. We found, to the contrary, that some of the funding was for stretches of road for which funds had previously been approved under the same program. We are concerned that without sufficient and relevant knowledge of a project's particulars and funding history, the government runs the risk of unknowingly approving project funds to meet cost overruns rather than specific program objectives.
25.37 Exception noted in negotiated agreements. We also wanted to review Transport Canada's compliance with government directives on the parameters of the federal-provincial agreements under these programs - namely, program objectives, funding levels and cost-sharing ratios. Along with the Department's submissions, we reviewed the government's decisions on them and the agreements subsequently negotiated by Transport Canada with individual provinces or territories. We found in all the negotiated agreements that the program objectives, funding levels and cost-sharing ratios to be maintained throughout the life of the agreements reflected the government's directives.
25.38 In approving the most recent extension, however, the government added a requirement that all projects be subject to cost/benefit analysis. This requirement was not included in the agreement subsequently negotiated, and the Department did not inform decision makers of that fact. At the conclusion of our audit, none of the projects approved for funding under the latest extension program had been subjected to any cost/benefit analysis.
25.39 Transport Canada should ensure that any information on the condition of roads that it provides to decision makers in support of new program funding has been checked for accuracy and assessed for reasonableness. In the event that no such information is available, it should inform decision makers of that fact.
Department's response: Transport Canada will continue to provide decision makers with the most current and relevant information available on the condition of highways, as well as on the economic, social and environmental requirements for highway maintenance and upgrading. It will also include a statement about the completeness and quality of information, where applicable.
25.40 Transport Canada should comply with all government directives, including the requirement to conduct environmental impact assessments of proposed new programs as well as existing programs for which new funding is sought, and should inform decision makers if it is unable to do so.
Department's response: Transport Canada, in conjunction with the Canadian Environmental Assessment Agency, is currently updating its departmental procedures to ensure that Strategic Environmental Assessments (SEA) of departmental policies and programs are conducted. The Department has also committed, in its Sustainable Development Strategy, to fully implement the SEA process for any new program proposal involving direct budgetary transfers.
25.42 Since the governments paid all the costs, principles of cost sharing focussed on spending limits and the share of the costs that each was prepared to fund, often matched dollar for dollar. The highways would be freeways, and ownership would stay indefinitely with the provincial/territorial governments.
25.43 But given their budget constraints, since the early 1990s some provinces have been exploring and implementing alternative financing arrangements in an effort to undertake highway construction, improvement and maintenance more quickly and at a lower cost to taxpayers. These arrangements include a wide range of features. They often involve direct user fees or tolls, but could also entail the transfer of public assets to the private sector. During our audit, we reviewed the three cases that came to our attention in which Transport Canada had invested a total of $76 million in provincial highways identified either previously or subsequently as subject to some concept of user pay, such as tolls.
25.44 Given the absence until 1998 of any government direction on alternative financing arrangements, we were interested in how Transport Canada had addressed the issue in general and, more specifically, in the three cases at hand. We found its performance lacking in several key respects.
25.45 Failure to analyze and obtain clarification from government. We requested the Department's analysis of the potential impact of alternative financing arrangements on the federal government's traditional position on highway investments. As a minimum, we would have expected timely analysis of their implications for such things as:
25.47 The Department did not seek clarification from the government on how to deal with alternative financing arrangements before entering into federal-provincial agreements under highway programs. The failure of the Department to respond to this emerging issue in a timely manner is particularly worrisome because the government has approved funding under several new highway investment programs since 1992, involving over a billion dollars in federal commitments. We note that none of the agreements predating 1998 addressed the issue of alternative financing arrangements, even in cases where the provision of additional funding had presented opportunities to amend these agreements.
25.48 Poor implementation of Minister's direction. Provinces have also expressed the need for clarification of the treatment of tolls under federal-provincial programs. In late 1994 and early 1995, two provinces requested that the federal government clarify its position on its funding of toll highways in cost-sharing agreements under the Strategic Highway Improvement Program and the Strategic Transportation Improvement Program.
25.49 In both instances, the Minister of Transport responded that he was not opposed to tolls so long as the cost-sharing ratio in negotiated agreements was not modified as a result. Referring to the case under the Strategic Highway Improvement Program, the Minister added that any revenue from tolls would be considered funds from an additional source, to be dedicated to the particular project.
25.50 Also in that case, the Minister directed the departmental official on the management committee to review the alternative financing arrangement between the provincial government and a third party and ensure that it met federal terms and conditions. However, this was not done. The Department told us that the province had not made the agreement available for review by the departmental official before it was signed.
25.51 Although unable to implement the Minister's direction, the departmental representative did not so inform the Minister and signed the contract authorizations allowing the province to claim funding for project costs.
25.52 Consequently, the federal government may not have leverage to ensure that the province invests all proceeds from tolls into the project. We note that subsequent agreements signed by the Department also did not reflect the Minister's direction on the use of toll revenues from highways in which the federal government has an investment.
25.53 In the case of the Strategic Transportation Improvement Program, the province that in 1995 asked for clarification of the treatment of tolls opted not to introduce tolls on the highways in question.
25.54 Change of status following funding. In the third case we examined, we found that at the time the federal investment was approved, the provincial government had not announced specifically that it intended to toll those sections of highway. However, when the province decided to incorporate into a larger toll highway the sections of highway built with federal assistance, it became apparent that the current form of the agreements provided no legal leverage to the federal government over the treatment of its investment throughout the life of the highway.
25.55 Another province has recently announced that it intends to explore the possibility of transferring to the private sector a major toll highway that has received federal funding. It appears that nothing in the current agreements protects the public interest if assets are transferred to the private sector.
25.56 Recent improvements. In the two most recent funding extensions of the Highway Improvement Program, the federal government has precluded the imposition of tolls for 30 years unless it reaches an agreement with the provincial government on the treatment of the federal contribution. At the conclusion of our audit, one of the two federal-provincial agreements negotiated to cover these extensions reflected this prohibition. The other had not been finalized.
25.57 However, the Department has yet to clarify its position on the treatment of its investments under the Highway Improvement Program or to provide any related guidance to the federal officials on the management committees. While it is encouraging that some action has been taken on this matter, we are concerned that the one finalized agreement may not be workable as currently worded: it does not provide for monitoring over the 30-year prohibition period. Under the agreement, the management committee will continue to be in effect for only 18 months after the program ends. Furthermore, this agreement provides funding to projects previously funded under other agreements that do not contain such a prohibition. Which agreement takes precedence is something that needs clarification.
25.58 We do wish to acknowledge that in 1997, following a recommendation of the Standing Committee on Transport, the Department initiated a study by a federal-provincial/territorial working group on the applicability of public-private partnerships in a Canadian context. Public-private partnerships are a form of alternative financing arrangement that generally involves some concept of user pay. Among other things, the working group has been tasked to gather information on experience worldwide with public-private partnerships. It is to develop a primer and analytic tools for reviewing whether and how public-private partnerships can be implemented in specific situations. At the conclusion of our audit, this study was still under way.
25.59 The government is on the threshold of deciding on new investments; Transport Canada needs to clarify the federal position on alternative financing arrangements. We are concerned that without proper clarification, it will be difficult for the federal officials on management committees to administer appropriately the projects under the various agreements. Moreover, whatever decision is made on the federal treatment of alternative financing arrangements, the Department needs to provide the necessary structures and procedures to enable a proper implementation of the federal position over the long term.
25.60 Transport Canada should seek clarification of the federal position on the treatment of alternative financing arrangements for its highway investment programs and its application not only to tolls but to such arrangements in general. It should assess the need for entrenching that position in all new federal-provincial highway agreements, and take action as appropriate.
Department's response: The Federal/Provincial/Territorial Working Group on Public-Private Partnerships, which is chaired by Transport Canada, is completing its final report, along with background studies. The report describes an approach to how federal contributions under cost-shared agreements could be considered in the case of highway projects involving toll revenues. The report also describes possible new instruments, other than cost-shared agreements, of federal-provincial/territorial co-operation in support of the National Highway System. While these approaches have been discussed within the Working Group, further discussion and negotiations with provinces and territories will be required before these can be reflected in future federal-provincial/territorial highway agreements.
25.61 Transport Canada should provide departmental representatives with guidelines for managing projects under federal-provincial agreements that involve alternative financing arrangements. It should back those guidelines with appropriate monitoring practices to verify that they are being followed.
Department's response: Agreements on future projects involving alternative financing arrangements will contain specific clauses addressing how federal expenditures are to be treated under alternative financing arrangements.
25.64 In addition to these four federal officials, only five other Transport Canada staff are directly involved in the day-to-day management of the Department's highway investment programs. Outside the function of the management committees, program delivery responsibilities include preparing submissions to the government for approval of new programs and extensions of existing ones; developing and designing federal-provincial agreements; instituting program financial controls; managing the divestitures of federal infrastructure; and reporting on the overall performance of the programs. The Surface Programs and Divestiture Branch is one of three lines of business in the Department that deal with highways, but the other two - Policy and Road Safety - have, at best, very limited involvement in the management of highway investment programs or the administration of the related agreements.
25.65 In view of the responsibilities assigned to Transport Canada and its representatives, the low level of resources the Department allocates to the delivery of highway investment programs is a matter of concern. In 1995, for example, it introduced the Atlantic Freight Transition Program; this added five new federal-provincial agreements for the Department to manage, including 300 new projects and many more contracts. Yet the level of resources allocated to the administration of highway investment programs remained at relatively the same level. We inquired about the impact of administering this transitional funding on Transport Canada's ability to deliver its various investment programs, but the Department was unable to provide any documentation.
25.66 Transport Canada should study its resource and financial management information requirements to support an effective management regime for its highway investments and institute measures as necessary to fill those requirements.
Department's response: Transport Canada will examine its resources and financial management information requirements and ensure that the appropriate measures are in place to meet its obligations.
25.67 We reviewed Transport Canada's performance in providing the necessary operational guidance and technical and administrative support for the management of the programs and for the federal representatives on the management committees. Specifically, we looked at how it selected and monitored projects under the various federal-provincial agreements and how it reported on their results. We selected a random sample of 96 projects, 86 of which were construction works.
25.68 As we indicate in the paragraphs that follow, although a number of financial management controls are embedded in the agreements to safeguard the Crown's interest, we found that the federal representatives on the management committees had not fulfilled their responsibilities to implement them properly. We also found weak performance by Transport Canada in its responsibility to institute the appropriate financial management regime for contribution programs, which highway investment programs represent. Exhibit 25.7 summarizes the major elements of an effective financial management regime.
25.70 Most federal-provincial agreements on the funding of highway projects are similar in design. Each has three key sections, setting out the amount of money to be expended over a specified number of years and the program's control framework for such things as project and contract approvals, payment verification, project evaluations and reporting; the program's broad objectives (Exhibit 25.2) as approved by the government; and a list of the projects to be completed under the agreement. The list specifies the locations of the projects, a general description of the work to be done, the estimated total costs and the planned expenditures for the current year.
25.71 A project is defined in the agreements as a set of undertakings, listed in Schedule B of the agreements. We expected to find clear, concise and complete descriptions of those undertakings. Instead, we found that many project descriptions were vague or incomplete. Where projects had received previous funding under different programs this was not indicated and, in one recent case, there was no description at all of the nature and extent of works to be funded.
25.72 We expected that Transport Canada would have done sufficient analysis to support the estimates of project expenditures presented to ministers for approval under the agreements. These expenditures represent the total amount eligible for cost sharing by the federal government and the province to complete a project. They range from a few million dollars to $80 million for some projects - for example, to "twin" a highway section between two cities. The Department could not provide supporting documentation for the estimates.
25.73 There is thus a risk that additional funding will be needed to complete the projects or that the Department will not be able to fund its share of all the projects approved under the agreements. Further, despite the stipulation in some federal-provincial agreements that any excess project costs (cost overruns) over the total amount approved in an agreement were not to be funded, we found that in some cases the same stretch of highway had been funded sequentially under different programs. We note that the Department did not share this information with the government when seeking approval for the additional funding.
25.74 Because of the condition of departmental records, we could not estimate with any precision the total cost of these stretches of highway. However, millions of dollars were approved for those projects.
25.75 Funding the same projects under different programs is not a new phenomenon. Our review of departmental information found that this situation was known to Transport Canada as far back as 1987.
25.76 Transport Canada should ensure that:
25.78 However, we found that Transport Canada's financial management information system has many weaknesses. Not only is it not integrated, but we found that critical documents such as minutes of meetings, project approval analyses, ministerial decisions, monitoring reports, payment decisions, and environmental screening results were dispersed in various places throughout the Department. In many cases, the documents could not be found. The Department's process to retrieve this information is labour-intensive.
25.79 Management trail is inadequate. As part of our review of the controls embedded in the agreements, we attempted to review the Department's promptness in making payments to the provinces. We were unable to complete our work because the Department could not trace payment approvals for a large number of projects in our sample. The Department's financial management information systems were unable to identify the dates when funding was approved and when payments were begun.
25.80 Moreover, basic information - such as the nature and scope of the project and the dates on which construction began and was completed - was not readily available and often was unavailable. In view of the hundreds of projects and contracts being funded, we believe that this type of information needs to be available to facilitate timely monitoring and reporting.
25.81 Transport Canada should ensure that its financial management information systems provide an effective management trail to enable the Department to administer federal-provincial agreements adequately and to demonstrate sound management practices in the process.
Department's response: Transport Canada will undertake measures to change its current information systems with a view to adequately administer federal-provincial agreements and to apply sound management practices in the process. This entails making file information more readily accessible through the subdividing of its Highway Agreement Central Records files, as well as amending its agreements and its computerized Financial Management System to ensure that provinces provide more detailed technical and financial information on the projects.
25.83 Considering that Transport Canada has overall responsibility for highway investment programs, we asked it to provide us with any specific terms of reference to guide the work of its representatives who serve as the federal officials on the management committees. However, the Department has not developed any criteria to guide their work. Although Transport Canada issued a procedures manual in the late 1980s, it has become outdated and departmental officials no longer use it . Accordingly, decisions in all of these broad areas are left to the judgment of the individual federal official, presenting the risk that projects are not monitored as rigorously and consistently as the Department may believe and that decisions are made without due consideration to the Department's policies and the federal interest.
25.84 Transport Canada should develop up-to-date guidance for the work of the federal officials on the management committees and help to ensure that the federal interest and the Department's policies are considered fully as the committees fulfil their responsibilities.
Department's response: It is Transport Canada's view that existing agreements provide suitable guidance on the roles and responsibilities of the management committee representative. However, the Department is committed to provide greater clarity to the committee in future agreements.
25.86 As discussed in paragraph 25.38 , the government recently directed Transport Canada to subject all projects under the Highway Improvement Program to cost/benefit analysis. We support this move; we believe that such analysis would be useful in prioritizing projects and maximizing value for scarce investment dollars. We asked the Department to provide us with the results of the cost/benefit analyses for any of the projects recently approved under the Highway Improvement Program. However, at the completion of our audit, no such analysis had been done.
25.87 Despite the hundreds of millions of dollars invested in highways, neither Transport Canada nor the federal officials on management committees gather any information on the economic sustainability of the investments. This information could provide, for example, some details on what it would cost to maintain and replace the completed infrastructure and on the capacity of regional economies to fund such costs in the future, as is required by federal-provincial agreements. This is information that could be used by the management committees to prioritize projects; it could also be submitted for the government's consideration in decisions on funding.
25.88 Transport Canada should ensure that the approval of projects follows a process of prioritization to identify the most cost-effective choices. The process of prioritizing proposed projects should take into account a number of relevant factors, including but not limited to cost/benefit analysis.
Department's response: Measures will be taken to ensure that management committee meetings reflect the details of the discussions that evolve around the project selection process.
25.90 We found that the Department often had no information on the expected safety impact of proposed projects at the time they were approved.
25.91 Although one objective of each cost-sharing agreement is to improve safety, at the federal level there is a serious lack of related information to guide the federal officials on the management committees.
25.92 We asked the Department and the federal official of each applicable management committee for a report on dangerous segments of federally funded highways. We were informed that this information was not available. We noted that under each of the federal-provincial agreements, there was money available for research to assist in the management of the program. To date, no safety research of national scope has been funded under these programs.
25.93 Currently, Transport Canada has no plan in place to gather information on numbers of accidents and fatalities by location, which would at least identify the most dangerous sections of Canada's highways.
25.94 Transport Canada collects information from the provinces on road accidents and incidents, but generally uses it to compile statistics on vehicle safety and to summarize key statistics on incidents for its annual reporting. To date, the Department has made no attempt to compile information on "hot spots" or dangerous segments of highways. It believes that in its present form, the information that is available could not be used to identify dangerous stretches of road and it would not be cost-beneficial to do so. However, we have been informed that information on hot spots exists and is used by other levels of government and other federal departments to make road investment decisions.
25.95 We note that a 1993 Transport Canada study identified the need to improve data on the safety of the National Highway System; this would make better information available for decision making. To date, no safety data on the National Highway System have been collected by Transport Canada.
25.96 Transport Canada should define its data reporting requirements for the collection of information on dangerous stretches of road and, where appropriate, use the collected information in its investment decisions, prioritization and approval of projects and assessments of program results. To the extent that it derives information from the provinces or other sources, the Department should clearly specify to those sources the parameters of its data requirements.
Department's response: Transport Canada will design data reporting requirements for collecting information on dangerous stretches of roads comprising the National Highway System. The Department will undertake a feasibility study to validate the data reporting requirements and to develop a costed action plan for data base development, data collection, storage and analysis.
25.98 We do note, however, that the management committees have obtained some assurance by requiring provinces to submit affidavits by a professional engineer, certifying that the projects have met certain specified standards - usually those of the province. Despite this measure, though, we found that the federal officials on the management committees had not implemented this practice systematically. Affidavits had been received for only 31 of the 86 construction projects we reviewed. In many cases, the province had not provided the affidavit, or had been unable to because funding had run out before the completion of construction. As discussed in paragraph 25.73 , these projects are often funded under different programs and agreements, making it difficult to implement this control.
25.99 In every case, the federal official on the management committee has yet to agree to the standard to which the province will maintain the federally funded segment of the highway.
25.100 Transport Canada should ensure that the federal officials on the management committees implement all of the controls provided for in the federal-provincial agreements, and agree on minimum standards of construction and maintenance to be met in funded projects.
Department's response: Transport Canada will ensure that the obligations under each agreement are fully met and that identified ambiguous items are corrected.
25.102 In the late 1980s, the Department engaged engineers of the Department of Public Works to perform systematic reviews of the provinces' contracting procedures. This practice was later terminated, but the requirement to approve the competitive bidding process continues to be included in federal-provincial agreements.
25.103 The current process for approving contracts and contract amendments is largely limited to a financial exercise: the figures in Schedule B of the agreement are adjusted to reflect the amount of each contract and amendment, so that funding remains within the total amount approved for the agreement under the program. In our view, the Department's management and/or administration of contracts does not constitute an appropriate regime for controlling the programs and monitoring projects.
25.104 In addition to reviewing the approval of contract bidding procedures, we also reviewed the Department's process of assessing supporting documentation for provincial claims.
25.105 Federal review of support for provincial claims began only recently. The agreements are designed to allow the management committees to obtain independent assurance annually that the costs claimed by provinces are eligible for payment. Although most agreements stipulate that this work is to be conducted by an independent auditor, they do not define the nature and extent of the audit work.
25.106 We found that in all but two of our 96 sample items, the Department had received an audit opinion from provinces on the eligibility of costs. Each opinion is reviewed by Transport Canada's internal audit group to determine the extent to which it meets the intent of the agreement. In 1997, internal audit concluded that the audit opinions received from the provinces did not disclose the scope of the audit work, the definition of materiality used or the nature of the audit results, and that only a site review could attest to the adequacy of the audit. We were surprised to note that the federal representatives had not been involved in determining the nature and extent of the work to be carried out on their behalf by the provinces' auditors.
25.107 Late in 1996, Transport Canada's internal audit group undertook a review of highway investment programs. Generally, the review was to determine the extent of compliance with the financial requirements stipulated in the agreements and to verify that the claimed expenditures pertained to approved projects. The review was to cover the period from 1993, when most of the programs started, to 1998. The Department is currently in the reporting phase of its work; the internal audit group has presented a draft report to program management but the results had not been finalized at the end of our audit.
25.109 We found that these performance reports are not always prepared. Further, when the provinces prepare them, the federal officials on the management committees rarely approve them. One of the federal officials told us that this is because resources are insufficient to be able to corroborate the information in the reports prepared by provinces.
25.111 While the environmental legislation dictates the factors that are to be considered in the environmental assessment of a project, the scope of the assessment is determined by the responsible authority. We expected the Department to have terms of reference for environmental scoping of highway projects, but we found that it did not. Moreover, the completed environmental assessment (screening) reports lacked documentation to demonstrate the nature and extent of consultation with external parties and the basis for Transport Canada's assessment of potential environmental impacts. We are concerned that in the absence of standard terms of reference, adequate documentation and clear project descriptions, environmental assessments (screenings) could be inconsistent. Furthermore, it may not be possible to determine whether they have included all potentially significant environmental effects.
25.112 Transport Canada performs no systematic monitoring or follow-up to ensure that appropriate measures are taken to comply with legislative requirements. Furthermore, the limited monitoring conducted during project construction restricts Transport Canada's ability to ensure that mitigation measures are being implemented. Moreover, without a systematic process of follow-up on environmental matters after construction, Transport Canada is unable to identify any unanticipated environmental damage and to collect the data it needs to ensure that future assessments keep pace with trends in this evolving area.
25.113 In several cases, we found that Transport Canada had not adhered to the requirement to complete environmental screenings before issuing any payments for individual projects. Of the 28 projects for which Transport Canada could locate both the environmental screening report and the first approved claim for payment, we found nine to which payments had been made before completion of the environmental screening.
25.114 Given the lack of proper documentation and reports on environmental screenings, we cannot conclude whether or to what extent Transport Canada has fulfilled its environmental screening responsibilities for the projects we reviewed.
25.115
Our observations on the issue of compliance with legislative
requirements are consistent with those reported in Chapter 6 of the 1998
Report of the Commissioner of the Environment and Sustainable
Development. That chapter focussed on the
Canadian Environmental
Assessment Act
, the role of the Canadian Environmental Assessment
Agency and the practices of federal organizations in conducting screenings
under the law.
25.116
Department's response: It is Transport Canada's view that the Department has fully complied with the Canadian Environmental Assessment Act (CEAA) for all projects undertaken in its highway agreements. The Department is committed to developing a centrally located management system that fully documents its compliance with the CEAA.
25.119 Failure to conduct timely evaluations contributes to the lack of information on outcomes achieved with the hundreds of millions of dollars spent each year under highway programs. It also means that the Department has missed opportunities to learn from experience and, where applicable, to use information on results to improve the design of existing highway investment programs or new programs.
25.120 The importance of program evaluation was emphasized in 1994 by the Deputy Minister at the time, who strongly suggested the need to perform such evaluations before committing to further federal investment in highways.
25.121 Further, we were informed that the more recent programs funded through the Strategic Capital Investment Initiative will not be evaluated until two to three years after they end. The Department has yet to develop a framework for evaluation. This means there is a risk that it may lack the data it will need to carry out the evaluation.
25.122 Transport Canada should define the parameters for evaluating the most recent highway investment initiatives, and establish procedures to ensure that it has the information it will need when it decides to conduct a formal evaluation. It should conduct evaluations on a timely basis, to serve as input into the decision-making process when new investment initiatives are proposed.
Department's response: Transport Canada will prepare an evaluation framework for any new highway program so that its performance can be monitored and data will be available for a future policy evaluation.
25.124 We are encouraged by the Department's effort to provide aggregate spending information on the state of transportation. With respect to road surface transportation, however, we found that the quality and reliability of the information could vary significantly depending on its source. In some instances, we found information to be incorrect and incomplete and, in one case, the conclusion to be unsubstantiated (see paragraph 25.34) . During our audit we asked the Department for any terms of reference or guidelines that it had in place to ensure that information gathered from various sources, analysis of that information and the resulting observations in the annual report would meet a minimum standard of quality. We found that the Department had no such guidelines. Nor has it attempted to obtain assurance about the reliability of the information it gathers. The annual report does not make this limitation known to the reader.
25.125 We also noted, in the first two annual reports, differences in the kind of information the Department provides on the state of road surface transportation. We observed that the Department has not established a framework for annually reporting the information required under the Act, to permit at least a year-over-year assessment of the state of this mode of transportation. Nor has it defined what other information it still needs to gather to meet all of the Act's reporting requirements. Still, given that the Act is relatively recent, we think the Department has taken some first good steps to tackle these new reporting requirements.
25.126 We also reviewed Transport Canada's 1997 Performance Report for specific information on its performance in administering highway investment programs. However, we found that the information presented was limited to statistics on spending under the programs.
25.127 Transport Canada should establish terms of reference for ensuring that information it incorporates in the Annual Report on the State of Transportation in Canada meets a minimum standard of quality. It should identify the specific year-over-year information required to permit a proper assessment of the state of transportation. Further, the Department should ensure that it provides Parliament with information on its administrative performance in managing highway investment programs.
Department's response: Transport Canada is continually improving the quality of the Annual Report and an evaluation, which is currently under way, includes a survey of the report's clients. Results will be used to improve the report's usefulness. (Where applicable, the report will clarify that the information being provided is ``preliminary" or ``estimated".)
25.129 Our audit of the Department's management and administration of programs revealed many weaknesses that, in our view, need attention to ensure that the interests of the public are protected if existing programs continue, and in the event that new programs are established.
25.130 Overall, we found that Transport Canada has managed and administered its highway investment programs more as grant programs than the contribution programs they are. That is, among other things, it has failed to exercise the controls entrenched in the agreements under which these investments were made. We also found that the Department has provided very few resources to manage and administer the programs, and little or no support to guide and facilitate the work.
25.131 Although the Department has improved its accountability reporting on the level of highway spending, we found it has failed to discharge its leadership responsibility to co-ordinate information for the government on federal highway spending overall.
We did not audit the role of the provincial representatives on the federal-provincial management committees; nor did we assess the work of other federal and provincial entities that might be involved in environmental assessments and screening of highway projects. Further, considering that funding and cost-sharing proportions are directed by the government, we excluded those areas from our audit.
Jacques C�t�
Jean-Luc T�treault
Casey Thomas
Eimer Quinn
Peter Skawinski
Eliana Maiorano
Christiane Dery
For information, please contact Basia Gadomski Ruta.