Federal Economic Development
Initiative in Northern Ontario (FedNor)
April 25, 2001
Consulting and Audit Canada was contracted to undertake the work on behalf of the Audit and Evaluation Branch (AEB).
Executive Summary
This report represents the results of the detailed examination phase for Industry Canada's internal audit of the Federal Economic Development Initiative in Northern Ontario (FedNor) following the results of the preliminary survey, issued in May 1999. This audit was undertaken pursuant to the Industry Canada's approved annual audit plan for 1999/2000. Consistent with the agreed scope and objectives for the internal audit, this report presents the audit results on:
- FedNor's management of its contribution programs.
- FedNor's progress in implementing its change agenda.
The orientation of our work was forward looking, focusing on current and proposed management practices, as they relate to contribution agreements. Accordingly, we examined contribution agreements, which were initiated during or subsequent to the 1998-1999 fiscal year. Our emphasis was on systems and practices in place as at the time of the audit with a view to ensure that current practices complied with good management practices and policies requirements for grants and contributions.
Our audit of FedNor's management of its contribution programs is based on a review of project files. We concluded that:
- Sufficient information on file to assess the merits of a project proposal and reasonable rationale had been provided by FedNor officers, when recommending a project for approval.
- Project approvals were duly documented and in accordance with relevant signing authorities.
- Signed letters of offer and amendments were on file. Amendments were appropriately justified.
- All claims reviewed were well supported.
- There is evidence of good financial stewardship being exercised by FedNor in the administration of its contribution programs.
Minor exceptions were observed and have been discussed with management for its follow-up.
Based on our review of files, we concluded that the reasons for an environmental assessment, as part of the project approval process, need to be better documented. We also concluded that opportunities exist to improve FedNor's administration of claims and its monitoring of projects. Both areas would benefit from better use of risk management techniques. The claims settlement process appears to be burdened by too much paper and poses requirements on recipients, which do not adequately consider the recipient's risk profile. Project monitoring is acknowledged as an area of exposure, especially as it relates to more recent projects. The current reorganization by FedNor involves a re-examination of organizational arrangements and operating practices in order to improve client service and the effectiveness of project monitoring.
FedNor has made significant progress in its implementation of its change agenda. Specifically:
- It is implementing a revised organizational structure, which will provide FedNor with three offices capable of delivering the full complement of FedNor's programs.
- Conceptual work has continued in the development of performance measurement and reporting practices, as it relates to outcomes and benefits derived from contribution projects.
- General management practices continue to evolve in a positive manner, including business planning, reporting of achievements and financial management.
- The Communications function is staffed and has aligned its services in support of FedNor's management.
- FedNor has developed a Memorandum of Understanding (MOU) with the Department's Ontario Regional Office.
There are no specific recommendations regarding FedNor's progress as it relates to its reorganization and organizational evolution. We have made a number of suggestions for management's consideration, as FedNor moves forward.
Management Action Taken (November 2000)
Project budgets were provided by the applicant for all cases. Cashflow statements were also provided, except when the project was too small to warrant it, with four exceptions.
Recommendation 1 – Cashflow information, in addition to project budget information, should be obtained for all major project-related contribution agreements.
Cash flow information is monitored to ensure inclusion in all contribution agreements.
Environmental Screening Reports were completed in all cases, except for one small contribution of $2,400.
Recommendation 2 – Project files should contain support for screening decisions, specifically, why a proposal is or is not a "project" under CEAA.
FedNor Officers may require that an environmental assessment be completed as part of a project such as a feasibility study, where an assessment would not be required by the Canadian Environmental Assessment Act, if the Officer, on the basis of his or her knowledge, feels that adverse environmental effects are possible (if the study were to be followed by implementation) and that the application must be analyzed as if it were a project under CEAA, or if they view the assessment as necessary to effectively determine project viability.
FedNor continues to provide on-going training for staff on environmental assessments and to work with Departmental officials and other partners to improve assessment tools and procedures related to environmental assessments.
Generally, risk assessments for claims verification purposes were performed, as contribution claims were submitted.
Recommendation 3 – Risk assessment should be performed prior to the approval of a project and should be a factor in decisions to accept a project proposal. The assessment should be used to determine the claims verification strategy in discussion with the client. Once the risk is assessed, implications of the risks should be explained and a mitigation strategy proposed.
FedNor is implementing the use of risk assessment tools recommended by the auditor. Assessments will be completed prior to project approval and will be a factor in determining the claims verification strategy. Once the risk is assessed, it will be discussed with the client and steps will be taken to mitigate the risk.
FedNor will consult with the department in implementing this recommendation. Full implementation planned for June 2001.
The use of in-kind contributions was raised as a suggestion in FedNor's PAIT initiative.
Recommendation 4 – In-kind contributions should be subject to further discussion and consideration by the Department, given FedNor's program objectives and clientele.
FedNor agrees and will continue discussions with the department to encourage the inclusion of in-kind contributions as eligible costs.
FedNor's recently adopted practice of attaching a covering letter of appreciation from the Department has served to delay the start of projects.
Recommendation 5 – Fednor should take necessary steps to avoid delays.
FedNor agrees with the recommendation.
In promotion of FedNor's contribution programs, the Communications Group currently prepares a draft press release for every agreement.
Recommendation 6 – Steps should be taken to ensure press releases are prepared, only as needed, and that alternative approaches, such as offered by the Internet to keep the public informed of FedNor's work should continue to be pursued.
FedNor's Communication Plan for 2000-01 includes new procedures for streamlining the criteria under which press release would be prepared.
FedNor will continue to use the Internet to keep the public informed and to develop on-line services.
Ambiguity exists regarding whether FedNor contributions are toward events or specific expenditures made within a specific time frame.
Recommendation 7 – FedNor's standard letter of offer and claims verification practices should be reviewed and amended, if necessary, to avoid the unintended rejection of project-related expenses.
FedNor is currently reviewing standard letters of offer and will have them reviewed by the department before June 30, 2001.
FedNor will continue to allow project related expenses from the date of application on all approved projects.
While advances were made consistent with policy guidelines, we are concerned that for new clients, full advances may not be prudent.
Recommendation 8 – The decision to advance funds and the amount to be advanced should be based on an assessment of the risk of non-performance or default.
Implementation of risk assessment at the project evaluation stage, by June 2001, will ensure the appraisal of increased risk due to up-front cash flow and that alternative contract arrangements are considered.
Project assessments are prepared before closing a file.
Recommendation 9 – Project monitoring practices should ensure on-site visits occur, as required, and assess outcomes resulting from contributions, in addition to outputs or deliverables.
An evaluation framework, which includes assessment of project outcomes, has been developed and is being implemented for completion by March 2002. FedNor has contracted for an independent review of current and recently completed projects. This review will be completed by the end of August 2001.
Monitoring & Payment Officers will perform future on-site visits as part of effective monitoring practices.
FedNor's Contribution to an Equity Fund
Recommendation 10 – Because this is a pilot project, and represents a different approach to promote economic development, we recommend that FedNor take a more proactive role in the administration of this project. In addition, given the potential application elsewhere, as an alternative to other community-based funding activities, this project should be subject to a formal review.
The project referred to in this recommendation is a joint project with Aboriginal Business Canada. FedNor will perform a detailed review, as suggested by the auditors, subsequent to receipt of the audited financial statements. FedNor will continue to monitor this project to ensure all conditions of the agreement are met and will conduct a formal evaluation by September 2001 after completion of the project in March 2001.
On Feburary 8, 2005, Industry Canada's Departmental Audit and Evaluation Committee approved the follow-up of the Audit of FedNor. Audit and Evaluation Branch is satisfied that all recommmendations have been addressed by responsible program management. Therefore, this audit is now considered as final.
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Date Created: 2001-04-02
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