Participant Funding Program Audit Report

Prepared by:
Douglas Maloney

March 2006

Table of Contents

Executive Summary

Conclusions

Background

Audit Scope and Methodology

Observations and Recommendations

1. Conformance of Program
2. Contribution Agreements
3. Project Funding Levels
4. Funding Review Committees
5. Application Review Process
6. Contribution Agreement Process
7. General Program Management and Administration
8. Compliance with TBS Guide
   1. Financial and operational pre-check
   2. Segregating duties and conflict of interest
   3. Rationale for recommendations
   4. Agreements
   5. Delegating signing authority
   6. Supervision
   7. File maintenance
   8. Financial controls
   9. Determining advance payments requirements
   10. Section 32 of the FAA (commitment control)
   11. Section 34 of the FAA (spending authority)
   12. Section 33 of the FAA (payment authority)
   13. Authorized budget
   14. Expenses
   15. GST expenses and rebates
   16. Retroactive expenses
   17. Stacking of assistance provisions
   18. Close-off procedures
9. Other

Conclusions

Summary List of Recommendations

Appendix A (Panel Reviews)

Appendix B (Comprehensive Studies)

Appendix C (Funding Review Committee Report Kitmat)

Appendix D (Funding Review Committee Report Deltaport Third Berth Project)

Executive Summary

The Participant Funding Program, a transfer payment program, was established in 1995 through the Canadian Environmental Assessment Act (the Act) to provide financial assistance to members of the public and not-for-profit organizations to prepare for, and participate in, environmental assessment review panels and mediations. Proclamation of Bill C-9 (October 2003) extended the program to facilitate public participation in comprehensive studies.

The Participant Funding Program was identified in the Agency’s September 2003 risk assessment process and was included as a candidate for audit in the Agency’s three year audit plan.

The audit covered the period from October 2003 (proclamation of Bill C-9 extending the program) to December 31, 2005. During this period 151 applications were received of which 103 were approved and 53 of those approved were examined by the auditor.

Conclusions

1. The Participant Funding Program has a sound and well documented framework; processes and procedures are clear, comprehensive, communicated effectively to applicants and the public; and the process to allocate funds is timely, transparent and fair. There is a requirement however, for some administrative improvements in file management.
2. The audit identified weaknesses in the commitment, verification and payment processes carried out under Sections 32, 34 and 33 of the Financial Administration Act. (The Director, Finance and Administration and Manager, Participant Funding Program initiated certain improvements during the course of this audit and additional improvements are recommended in this report).
3. The auditor was not able to assess results achieved and general performance of the program pertaining to recipient participation. This was because survey data included in the applications was not compiled or analyzed by the program officers and surveys to provide an overview of program performance (identified in the Agency’s Integrated Results-based Management and Accountability Framework and Results-based Audit Framework (RMAF/RBAF) dated March 18, 2004) were not yet implemented. The Agency does not interview Comprehensive Study or Panel Review members upon completion of a project as a means of evaluating program performance and such interviews were not within the scope of this audit.
4. The Internal Audit Committee should consider including a recipient audit in its plans for 2006-2007.

Background

The Canadian Environmental Assessment Act (the Act) establishes the Canadian Environmental Assessment (EA) process, directs the Minister of the Environment to establish a participant funding program to facilitate the participation of the public in comprehensive studies, mediations and assessments by review panels (section 58 (1.1)) and establishes the Canadian Environmental Assessment Agency (the Agency) as administrator of the Act (section 61). The Agency, under that authority, provides leadership and serves as a centre of expertise as the administrator of the federal environmental assessment process.

Environmental assessment is a well documented and structured process. The purpose of an EA is to minimize or avoid adverse environmental effects before they occur and to incorporate environmental factors into decision making. Environmental assessments are conducted as early as possible in the planning and proposal stages of a project.

Participant Funding Program

The Participant Funding Program, a transfer payment program, is an important part of the federal environmental assessment process as it provides financial assistance to members of the public and not-for-profit organizations to prepare for, and participate in, comprehensive studies, mediations¹ and assessment review panels. The Participant Funding Program is an important tool for promoting the following benefits of effective public participation;

• Provide all interested persons and organizations with a fair opportunity to contribute to the planning of projects that May affect them;
• Allow project proponents and federal authorities to better understand and address public concerns and priorities;
• Reduce the potential for adverse environmental effects by identifying community knowledge and aboriginal traditional knowledge that May be applied in the environmental assessment; and
• Build greater public trust in the environmental assessment process and in the decisions that come out of that process.

Transfer payments are transfers of money, goods, services, or assets made to an individual, organization or another level of government without the federal government receiving goods or services in return. All transfer payments are subject to Treasury Board Policy on Transfer Payments dated June 2000. Terms and Conditions of Transfer Payments require Treasury Board approval. The current Terms and Conditions of the Participant Funding Program were approved by the Treasury Board in 1999, extended in 2003 by the Minister of the Environment for a one year period ending March 31, 2004 and subsequently renewed by the Treasury Board for another five years ending March 31, 2009. The annual cost of the program is authorized at $1.569M of which 20% is for program management. The terms and conditions note that agreements will be for a maximum of two years and no one agreement will be more than $350K in any given year.

Program Size

The following table depicts the size of the program for the period covered by the audit.

During that period there were no mediations. (C.S. = Comprehensive Studies and P.R. = Panel Reviews). Details are contained in Appendices A and B.

The following table provides the number of contributions with values under $10K, between $10K and $25K and more than $25K together with the total dollar value. The largest contribution was for $65,000 and the smallest was for $600.

Process

During the EA process an environmental scoping document is provided to the Minister of the Environment by the regulatory authority(ies). The Minister reviews the document and decides on the best course of action to proceed with the assessment. If the Minister should decide on a comprehensive study or a panel review, the Agency must establish a Participant Funding Program for this project under review. The availability of participant funding is announced through a public notice issued in local and/or national newspapers and a news release is sent to the Canada Gazette. Both the News Release and Public Notice are posted on the Agency’s Web site. These documents provide; a brief description of the proposed project; announce the total available funds to the public under the Program; applicability of the funding; and instructions on how and where to submit an application.

The Agency establishes an independent Funding Review Committee (comprising a senior representative from the Agency and at least one independent member from outside the government) to review the applications and provide recommendations of funding to the president of the Agency. Upon the President’s approval of the FRC’s recommendations, the applicants are notified individually of the funding decisions. A public News Release is issued and the Funding Review Committee Report is posted on the Agency website. Release of funds begins following the signing of a contribution agreement between the Agency and the successful applicants².

The Participant Funding Program was identified in the Agency’s September 2003 risk assessment process and was included as a candidate for audit in the Agency’s three year audit plan. The Audit covered the period from October 2003 (proclamation of Bill C-9 extending the program to facilitate public participation in comprehensive studies) to December 31, 2005.

Audit Scope and Methodology

The objective of the audit was to provide management with assurance that the Agency has exercised due diligence in the delivery of the PFP; has complied with policies and guidelines established for the Program, as well as the Treasury Board Policy on Transfer Payments and any other Acts or Regulations that apply; and that contribution agreements are consistent with the terms and conditions of the program.

A secondary objective was to provide management with recommendations on opportunities for program/process improvement.

Scope and Methodology

Agency systems, procedures, processes, practices, guidelines, and files were examined to assess due diligence in;

• establishing and approving funding level for a project;
• establishing Funding Review Committee (FRC);
• funding application review process and final recommendation to President;
• contribution agreement process;
• financial monitoring; and
• general management and administration of the program including the use of program funds.

Observations and comments were made on the four risk factors outlined in the Program’s risk assessment.

• Financial - appropriate controls and consistent mechanisms for establishing funding levels.
• Operational - having streamlined processes for providing recipient funding to avoid causing delays.
• Reputation - if the fairness and transparency of the process is evident.
• Compliance - with financial policies regarding transfer of funds to outside parties.

The audit included:

• review of the appropriate acts, regulations, policies and guidelines;
• review of a representative sampling of Agency files and documents on successful and unsuccessful applicants;
• review of financial and management systems and controls in place to ensure due diligence; and
• interviews with a selected numbers of managers and staff.

The audit also observed on results achieved and general performance of the program.

Fifty three (53) of the 103 files listed in Appendices A and B were examined and interviews and/or discussions were held with the following people;

Note: As a result of the recent change in responsibility for the program (see Bruce Young and Gerald Aubry above) the author has used the title Director, Advisory and Support Programs throughout the observations and recommendations section of this document. The reader should read Director, Project Assessments instead of Director, Advisory and Support Programs for comments pertaining to periods prior to January 9, 2006.

Criteria

The following documents were used as the basis to conduct the audit.

• Treasury Board Policy on Transfer Payments dated June 2000 and Treasury Board Policies on Account Verification, May 11, 1998; Commitment Control; Payable at Year-End; and Internal Audit.
• Approved Terms and Conditions for the Participant Funding Program.
• The Agency’s Integrated Results-based Management and Accountability Framework and Risk-based Audit Framework (RMAF/RBAF).
• The Agency’s Guide to the Participant Funding Program dated August 2005.
• The Agency’s draft Guide for Agency Staff and Funding Review Committee Members dated October 3, 2003.
• Attributes of a well managed contribution program as defined in the 1998 Auditor General’s Report, Chapter 27, Grants and Contributions.
• Treasury Board Secretariat Guide on Grants, Contributions and Other Transfer Payments.
• The Canadian Environmental Assessment Act.
• The Financial Administration Act.

Observations and Recommendations

A. Conformance of Program

The Terms and Conditions for the Participant Funding Program were assessed against the requirements set out in section 8.1 of the Treasury Board Policy on Transfer Payments dated June 2000.

It is the auditor’s opinion that the terms and conditions of the program satisfy all requirements set out in section 8.1 of the TB policy.

B. Contribution Agreements

The Agency has a generic contribution agreement that is used for all recipients. The terms and conditions of the generic agreement were assessed for consistency with the Agency’s approved Program Terms and Conditions as well as with the Treasury Board Policy on Transfer Payments and the Treasury Board Secretariat’s Guide on Grants, Contributions and other Transfer Payments.

It is the auditor’s opinion that the Agency’s generic contribution agreement satisfies all requirements of the documents against which they were assessed.

C. Project Funding Levels

Project funding level is the total amount of money available for allocation to several eligible applicants for public participation on an individual project. The Director, Advisory and Support Programs, and the Manager, Participant Funding Program, with input from the appropriate Agency regional office recommend project funding levels to the President. Funding levels can vary widely from project to project depending on the extent and timelines of the review. There is no empirical formula that is used to establish funding levels. Instead, recommendations to the President are based on factors that include the potential environmental effects of the project, the size and location of the project, the diversity of issues likely to be involved in the assessment, funding levels established for similar projects in the past and available resources.

The report to the President contains a background of the environmental assessment, including any relevant policy considerations, a recommended level of participant funding, and a brief rationale for the recommendations based on the factors noted above.

It is the auditor’s opinion that the process for establishing and approving funding levels is adequate and effective. Some minor adjustment could be made over time by assessing feedback from recipients and comprehensive study and review panel members.

D. Funding Review Committees

A funding review committee is appointed by the Agency’s President on the recommendation of the Director, Advisory and Support Programs for each comprehensive study, assessment by a review panel or assessment by a joint review panel. The committees are responsible for reviewing all funding applications and recommending funding awards to the Agency President. Committees usually comprise three individuals and include one Agency senior representative and at least one non-federal government expert. The appointment of a funding review committee for each project immediately follows the announcement of funding availability. To facilitate timely establishment of funding review committees the Manager, Participant Funding Program and some Regional Directors have established a roster of individuals from which committee members can be recruited.

It is the auditor’s opinion that the process for establishing and convening the funding review committees is sound and effective.

E. Application Review Process

Time is of the essence in the process to submit and review applications and allocate funds. Generally, (response times documented in the draft guide for Funding Review Committee members and staff dated October 2003) applicants have three weeks (comprehensive study) to four weeks (panel review) from the Agency’s announcement of the funding program to close of the application period. Draft target response times for funding review committees are set at one week to review and announce the award of funds for comprehensive studies and two weeks for reviews by a panel. The Agency has developed and implemented a number of processes, forms, and other materials and aids to expedite the processes. These include online applications and guidelines for applicants, review committee templates and guidelines and fast-tracking the signing of agreements for example by fax or courier. Final recommendations, together with appropriate supporting documentation, are submitted by the Director, Advisory and Support Programs to the President within 2 days of completion of the review committee’s meeting and a news release announcing the recommendations is issued shortly thereafter.

On reviewing the documentation and processes available to and used by the public, the review committee, the Director, Advisory and Support Programs and interviews with a few committee members it is the auditor’s opinion that, with the exception of the first step in the process (initial screening of the applications), the application review process and final recommendation to the President is complete, effective, transparent and fair.

The first step in the review process should be performed by the Manager, Participant Funding Program and is critical for an effective and timely review. It is the manger’s responsibility to review each application to ensure that prior to the review committee convening all required information has been submitted and that there has been an accounting for advances provided in previous phases of the project or for other projects that have been completed. None of the files examined contained evidence that this function was being done adequately and one committee member interviewed suggested that improvements needed to be made in this step of the process.

It is recommended that;

1. The Business Improvement Unit, in consultation with the Manager, Participant Funding Program, develops a process to provide evidence to the Funding Review Committee that applications have received an initial review by the Manager, Participant Funding Program or some other responsible officer.
2. The evidence noted in 1 above should also include an indication as to the status of advance payments provided to the recipients for other projects or for previous phases of the project for which funds are being requested.
3. A project to improve general file management for the Participant Funding Program should be included in this year’s priorities of the Business Improvement Unit.

F. Contribution Agreement Process

The Participant Funding Program uses a generic contribution agreement for all recipients. The agreement is consistent with TB policies and guidelines and with the terms and conditions of the program. The only change from one agreement to the other is the tombstone data such as name of the recipient, the name of the project, the amount of the contribution and the budget. Therefore, agreements can be and usually are prepared and signed quickly.

Section 8.2.4 of the TBS Guide on Grants and Contributions states the following;

“Before finalizing the agreement’s signing the project officer should review the agreement with the recipient to ensure a common interpretation and understanding of the terms and conditions”.

There was no evidence in the files reviewed that prior to finalizing the agreement’s signing, the Manager, PFP reviewed the agreement with the recipient to ensure a common interpretation and understanding of the terms and conditions. Many of the files reviewed provided evidence that the applicants either did not completely understand the terms and conditions or ignored them. Evidence of this included requesting reimbursement of ineligible expenses such as legal fees and GST, little or no details provided on invoices and no final report or accounting for advances.

4. It is recommended that before finalizing the agreement’s signing, the Manager, Participant Funding Program should review the agreement with the recipient to ensure a common interpretation and understanding of the terms and conditions, particularly the obligations of the recipient.
5. For second time recipients, the discussions noted in 4 above should include the recipients’ past performance and expected improvements.

G. General Program Management and Administration

For the purposes of this audit, management and administration of the program is separated into three distinct components. The first component (program) deals with the functions and activities related to program development, processing applications and signing contribution agreements. The second (file management) are those functions undertaken to manage a file from signing the agreement until final payment. The third component deals with performance.

i) Program (including the use of funds)

Documentation on the Agency’s Participant Funding Program is comprehensive, well structured, informative, and is contained on its current website.

The auditor examined a number of significant tools available to the public, potential applicants and the review committees such as; communication processes and procedures to inform the public and potential applicants of the availability of funds and to inform them of the results of reviews by the funding committee; information, guidelines and simplified forms provided to applicants to facilitate and expedite completion of applications; templates and guidelines for use by review committees for processing applications and forwarding recommendations to the President; and the use of generic agreements.

It is the opinion of the auditor that from this perspective the program has sufficient and effective tools and processes for a well managed program. However, there is one recommendation.

It is recommended that;

6. The draft Guide for Agency Staff and Funding Review Committee Members dated October 3, 2003 to be updated, finalized and distributed.

The total annual funds authorized for the program by the Treasury Board is $1.569M. As per the TB submission approving the terms and conditions 80% of the funds is set aside for allocation to participants and 20% ($313.8K) is available to fund Agency direct costs of delivering the program. Direct costs include the salary of the Manager, Participant Funding Program, translation, funding review committee reports, communication products, news releases, public notices, travel and honoraria for independent members of funding review committees. Over the audit period the program has not made full use of the 20% for direct costs.

It is the auditor’s opinion that funds are being used consistent with the approved authority, ie 80% for contributions and 20% for managing the program, however, the program is not making full use of the available 20% funds to ensure due diligence.

7. In view of the significant shortfalls in file management and due diligence noted in this report, it is recommended that the Director, Advisory and Support Programs, in consultation with the Director, Finance and Administration review the requirement for additional staff and if any are required those costs should be recovered from the program as part of the 20 per cent.

ii) File Management

File management is the weakest part of the program. Detailed observations and recommendations on this aspect are provided in section H below.

iii) Performance

Performance of the Funding Review Committees was measured against three criteria; a) eligibility of recipients, b) assessment and allocation of funding against established guidelines and c) response times indicated in the draft Guide for Agency Staff and Funding Review Committee Members.

It is the auditor’s opinion that the funding review committees’ performance in the files examined met the criteria noted above.

The auditor was not able to provide an opinion on performance of the program or recipients because important survey tools identified for this purpose in the RMAF/RBAF were not yet implemented. Further, it was not within the scope of this audit to interview members of review panel or comprehensive studies for this purpose.

It is recommended that;

8. The Director, Advisory and Support Programs assess the survey data provided by the applicants and provide a report to the President.
9. The Director, Advisory and Support Programs in consultation with the Director, Finance and Administration review the survey tools identified in the program’s RMAF/RBAF to ensure that they are meaningful, revised if necessary and implemented as soon as possible.
10. The Director, Advisory and Support Programs implement structured post panel/comprehensive study interviews with a few review panel and comprehensive study members to assess broader program performance.

H. Compliance with TBS Guide

i) Financial and operational pre-check

All files contained evidence of an adequate operational pre-check (eligibility, and applicant meets terms and conditions), there was no evidence that the other pre-checks such as “are there any outstanding issues, for example unpaid debt or poor delivery record” were adequately undertaken. A number of applicants were provided funds for phase 2 of a project when they had not accounted for advances or provided a final report for phase 1. This criterion is dealt with in recommendations 1, 2, 3, and 5 above.

ii) Segregating duties and conflict of interest

Whenever feasible, a single person should not select and approve a contribution agreement. The Agency’s Funding Review Committees usually comprise three people of which one is an Agency senior officer and at least one is a non-federal government expert who is not linked or associated to a project proponent. Once funding levels have been approved agreements are drafted and signed by the Director, Advisory and Support Programs.

The Agency’s process to review and approve contribution agreements meets the requirement of segregation of duties and conflict of interest.

iii) Rationale for recommendations

Section 8.1.4 of the TBS Guide states the following;

“The rationale for recommending or accepting a transfer agreement is to be stated in the file. The factors that were considered and show how the transfer would promote this specific program’s mission and objectives are to be described.”

Appropriate rationale is contained in the Funding Review Committee reports which are provided to the Director, Advisory and Support Programs for his/her review and transmittal to the President with recommendations for approval. The rationale is also provided to recipients and is included on the Agency’s internet site for communication to the public.

It was noted that some Funding Review Committee Reports contain a general statement on rationale (Appendix C) while others contained more detail on each applicant (Appendix D).

11. It is recommended that Funding Review Committee Reports be consistent and follow the structure contained in the example in the attached Appendix D.

iv) Agreements

Contribution agreements must be supported by a written agreement between the department and the recipient.

All files reviewed contained a written signed agreement.

In was observed that the words “incorporated under the laws of…” were included on the first page of some agreements made out to individuals. This wording is part of the generic agreement and applies to incorporated entities.

12. It is recommended that the words “incorporated under the laws of…” be removed from agreements between the Agency and individual persons.

v) Delegating signing authority

Persons signing applications and/or agreements on behalf of others must provide proof of having been delegated signing authority. To meet this criterion the Agency has included in its application form the following statement.

“If you represent an entity (incorporated or otherwise) supporting documentation, endorsing you as the entity’s representative must be attached to this application”.

Few of the files reviewed contained the necessary supporting documentation.

13. It is recommended that evidence should be included in the files confirming that the person signing an application or agreement has received signing authority from the person or organization on whose behalf he/she is signing.

vi) Supervision

Supervision provides employees with direction and support. In the context of transfer programs, supervision is also a key element of a good management and control framework. Supervisory review should be conducted regularly by a person who has adequate knowledge of the transfer program’s financial aspect and has independent access to the information required to determine if disbursements made from transfer accounts are legitimate.

The Director, Advisory and Support Programs is the supervisor of the Manager, Participant Funding Program and the Director, Finance and Administration is the supervisor for the finance officer responsible for section 33 of the FAA.

The Director, Advisory and Support Programs reviews the files after applications have been processed and funding reports and recommended submitted by the Funding Review Committees. He then submits the documents to the President for his approval. The purpose of this review is to ensure the Funding Review Committee recommendations are supported and that documentation is complete. There was no evidence that the supervisor reviews files subsequent to this step in the process.

There was no evidence that the Director, Finance and Administration reviews files to ensure that sections 34 and 33 have been properly carried out.

14. It is recommended that the Director, Advisory and Support Programs and the Director, Finance and Administration, implement quality assurance programs for sections 34 and 33 of the FAA as outlined in the draft Treasury Board Directive on Account Verification that will replace the May 11, 1998 TB policy.

vii) File maintenance

The contribution agreement “program” files are organized by individual project. The main project files contain documentation pertaining to the overall project and usually contain the Funding Review Committee reports and recommendations. Sub-files are created for each applicant. The sub-files contain the original application, the original signed agreement, record of communication with the applicant, invoices, copies of requests for payments and final reports if they are provided by the recipient.

It was observed that although the Director, Advisory and Support Programs has a file on each project that contains the Funding Review Committee report and recommendations a few of the Manager, Participant Funding Program main files did not contain the entire report from the Funding Review Committee. The missing component was usually the Committee’s rationale for awarding funding.

15. It is recommended that the entire Funding Review Committee report and recommendations be placed in the project’s main files maintained by the Manager, Participant Funding Program.

Finance files are not organized by project; instead they are organized by vendor or recipient and by year in which the payment was made.

There were two occasions where the program files contain request for payment and finance could not find the corresponding finance files to provide evidence that payment was made. The amount in both cases was less that $3,000.

viii) Financial controls

The two universal financial controls of supervisory review and segregation of duties apply to contribution programs.

In all files reviewed there was evidence that the duties under sections 34 and 33 of the FAA were segregated as required, persons had delegated authority and signature cards were up to date.

The files, however, did not contain any evidence that they were reviewed by either the program or the finance supervisor.

16. It is recommended that the Director, Advisory and Support Programs and the Director, Finance and Administration implement a file quality control process per recommendation 14 above.

ix) Determining advance payments requirements

The policy on transfer payments clearly states that

“advance payments should only be made available when required. It is the applicant’s responsibility to demonstrate up-front that advance payments are essential to achieve the objectives of the project”.

It is the auditor’s opinion that in many of the files examined the applicant was granted an advance in the amount of 75% of the value of the contribution agreement without sufficient justification.

There were times when adequate justification for an advance was made in the application but not in the separate letter requesting the advance. The finance officer receives a copy of the letter requesting the advance but not the application that contains the justification.

It was also noted that all requests for advances were for 75% of the total funds provided for in the agreement and there was no evidence in any file that the 75% was evaluated for reasonableness.

In two of the project files reviewed, advance payments were made in June- July 2004, one project was completed in August 2004 and the other in June 2005. The files (as of January 2006) contained no evidence that progress reports or final accounting were requested from the recipients.

In another file, (Orphan Basin) advance payments were made and a few months later (November 2005) the project was cancelled. The Agency advised the recipients shortly thereafter and requested a final accounting. As of February 2006 no accounting has been received and there is no indication in the file that further follow-up action was taken or is scheduled.

It is recommended that;

17. Advance payments be provided based on adequate justification of need by recipients in addition to the production of a cash flow statement and a work plan as required in section 4.02 of the contribution agreement.
18. The Manager, Participant Funding Program and Director, Finance and Administration implement a process to monitor and report on advance payments.

x) Section 32 of the FAA (commitment control)

Section 32 of the Financial Administration Act and section 4 of the TB policy on commitment control state that

“departments must ensure that sufficient balances are available in their appropriations, items in the Estimates, or Treasury Board approved allotment ceilings to discharge any debt incurred under any contractual or other arrangement”.

The Treasury Board policy on commitment control states that

“commitments must be made at the time of expenditure initiation before entering into a contract or other financial arrangement’.

The policy goes on to explain that authority to initiate expenditures is exercised when decisions are made to obtain a good or a service or approve a transfer.

In the Participant Funding Program these decisions are made at the time the president approves the recommendations of the Funding Review committee.

Financial commitment control at the Agency is exercised by the finance office using the Environment Canada automated i-procurement module of its material management system. Commitments are input to the system when the finance officer receives a copy of the signed agreement, a request for an advance, or a request for final payment. The Manager, Participant Funding Program does not normally forward copies of the Funding Review committee report or the signed agreement unless there is a request for an advance or for final payment.

19. It is recommended that as soon as the President approves the recommendations of the Funding Review Committee, a copy of that report be forwarded to finance for commitment.

xi) Section 34 of the FAA (spending authority)

Section 34 of the Financial Administration Act and the Treasury Board policy on Account Verification state that

“before payment is made departments are to certify that;

• the work has been performed, the goods supplied or the services or in the case of other payments, the payee is entitled to or is eligible for the payment,
• relevant contract or agreement terms and conditions have been met including price, quantity and quality. If in exceptional circumstances, the price is not specified by the contract, that it is reasonable,
• where the payment is made before the completion of work, delivery of goods or services rendered, as the case May be, that such advance payment is required by the contractual terms of the contract,
• the transaction is accurate and the financial coding provided; and
• all relevant statutes, regulations, orders in council and Treasury Board policies have been complied with.

Sections 2.02, 2.03, and 4.07 of the Agency’s contribution agreement also spell out the recipients’ obligations for providing appropriate documentation in support of their request for payment.

Section 2.02 states that

“the recipient shall ensure that the monies received pursuant to this Agreement are spent entirely on Eligible Costs”.

Section 2.03 states

“The Recipient shall ensure that information gathered pursuant to this Agreement or a summary thereof, is submitted to (the manager (for comprehensive studies) or the Panel and to the Manager (for Review Process))”

Section 4.07 states

“The invoices referred to in sections 4.01 and 4.02 and those that form a portion of the Final Accounting shall be sufficiently detailed to allow the determination of the type of services rendered for, or the assets purchased or leased by the Recipient. The Recipient shall certify in writing that these invoices and receipts reflect the true costs of the expenditures incurred.”

The Financial Administration Act and the Treasury Board policy require that the person signing under section 34 must have delegated authority to do so and an up to date signature card must be on file.

The Manager, Participant Funding Program has been delegated signing authority for section 34 as it applies to the Participant Funding Program and his signature card is up to date.

When the Manager, Participant Funding Program receives a request for an advance or for a payment he prepares a short note to finance requesting the payment, stamps the note with the Agency’s section 34 stamp and signs in the appropriate space.

Many of the files examined did not contain evidence that account verification had been undertaken to adequately ensure due diligence. Often there was no report or summary of a report in the file as required by section 4.07 of the agreement and section 34 of the FAA. In many files invoices lacked sufficient information to determine if the funds were expended for the purpose of the agreement, yet they were recommended for payment. One particular file contained a request for payment of $45K for legal fees. The file contained no evidence that the fees were eligible expenses and the documentation supporting the request simply stated “retainer for legal services”. In the same file there was an invoice for $2,500 that stated “financial services”, it was also paid. There was no evidence in the file that this was an eligible expense.

It is the auditor’s opinion that there are unacceptable weaknesses in carrying out account verification as required by section 34 of the FAA, the Treasury Board policy on account verification and as provided for in the terms and conditions of the agreements. Recommendation 20 following addresses this issue as well as the FAA section 33 issue noted below.

xii) Section 33 of the FAA (payment authority)

The Agency uses Environment Canada’s financial management system which has an automated section 33 verification process.

The Agency finance officer with delegated authority exercises payment authority under section 33 of the Financial Administration Act. When a request for an advance or final payment is received from the recipient by the Manager, Participant Funding Program the file is sent to the Agency finance clerk. The clerk examines the documentation to ensure that coding is correct, that the amounts are consistent with the agreement and that section 34 has been signed off by an authorized person. She then inputs the request for payment in Environment Canada’s financial management system per the procedures in place. The finance clerk also initials the request for payment stating that the information has been input to the system. Once a day, in accordance with Environment Canada procedures, the Agency’s section 33 finance officer accesses the system and certifies section 33 for each transaction.

One of the requirements of the Treasury Board’s policy on account verification (section 4) is that

“financial officers with payment authority (section 33), must provide assurance of the adequacy of the section 34 account verification and be in a position to state that the process is in place and is being properly and conscientiously followed.”

There is no evidence in the files examined that this assurance was or is being provided nor does the agency have written procedures that address this requirement.

20. It is recommended that the Director, Advisory and Support Programs and Director, Finance and Administration, implement procedures to ensure that account verification is conducted consistent with the requirements of the Financial Administration Act and with Treasury Board policy and procedures (see recommendation number 14 above).

xiii) Authorized budget

Recipient payments must not exceed the total budget authorized by the agreement, initial or amended.

The audit finding is that no payments were made that were in excess of the total authorized budget. However, in a number of instances payments were made which were in excess of the individual eligible expense per the detailed budget. (See item below)

xiv) Expenses

Eligibility of expenses is a matter of fact based on the agreement’s nature and content. Appendix A (Eligible Expenses) of the Agency’s contribution agreements clearly indicates what costs and expenditures can be claimed and to what limit. Any expense that is not authorized in the agreement, or that is claimed in excess of the maximum authorized, is not (in the opinion of the auditor) eligible for reimbursement.

Many of the files examined contained evidence that payments were made to recipients based on the total expenditures rather than on the specific budget expenses individually detailed in Appendix A of the agreement.

21. It is recommended that the Director, Advisory and Support Programs in consultation with the Director, Finance and Administration review Appendix A of the generic contribution agreement and re-assess the requirement to include budgeted expenses that are individually detailed as opposed to a more aggregated budget to allow more flexibility if that is the intent of the program design.

Alternatively if it is decided to continue the practice of detailing budget expenses then it is recommended that;

22. Section 34 and 33 officers ensure that payments are authorized only if they are consistent with the detailed budgets.

xv) GST expenses and rebates

Not all GST payments by recipients are valid eligible expenses. The TBS Guide on Grants and Contributions and other Transfer Payments is clear on the subject that GST costs that are claimed by the recipient as an input tax credit from the Canada Customs Revenue Agency are not to be reimbursed as eligible expenses.

Section 3.04 of the Agency’s contribution agreement states

“The contribution provided for in section 3.01 includes the cost of goods and services tax (GST) net of any input tax credits or rebates that May be claimed by the Recipient from the Canada Customs and Revenue Agency.”

In a number of files there is evidence that recipients deducted from invoices the amount of GST input tax credit due them. In other files, reimbursement of GST was requested and approved because the recipient did not qualify for an input tax credit. However, in a number of other files, there is evidence that the recipient was entitled to a GST input tax credit from the Canada Customs and Revenue Agency but nevertheless included the amount in the invoice to the Agency and that amount was paid. This is further evidence of the weakness of the section 34 process for the Participant Funding Program.

23. It is recommended that the section 34 officer verify that invoices are adjusted to ensure payment of only GST charges for which no input tax credit or other rebate is provided to the recipient.

xvi) Retroactive expenses

Retroactive expenses are eligible costs incurred prior to the signing of an agreement.

Section 3.02 of the Agency’s contribution agreement states the following;

“the Agency shall not contribute to any cost incurred by the Recipient prior to the effective date of this agreement.”

The effective date of agreements is the date on which the agreement was signed by both parties.

There was no evidence in any of the files examined that retroactive costs were requested or reimbursed.

xvii) Stacking of assistance provisions

The policy threshold for stacking is $100,000 (the point at which other sources of government assistance must be considered in determining and monitoring the appropriate level of total government assistance for an agreement). It includes all government sources -- non-monetary as well as monetary assets.

Although the Agency’s contribution agreement contains appropriated clauses on stacking none of the files examined met the policy threshold noted above.

xviii) Close-off procedures

Section 8.4.8 of the Treasury Board Secretariat Guide on Grants and Contributions and Other Transfer Payments states that

“for agreements of small value, close-off procedures should include at least a financial monitoring of all expenses and an operational monitoring of deliverables”.

As noted previously, detailed financial and operational monitoring in accordance with section 34 of the FAA is weak.

There is however, a manual and an automated control process to ensure that the total amount reimbursed does not exceed the total budget. This is accomplished by the clerk checking that the total payment (advance and final accounting) does not exceed the total budget as specified in the contribution and also through the commitment control system (if the amounts were committed prior to final accounting).

Operational monitoring to the extent of verifying that the deliverable was received and included in the file was not evident in any of the files examined. Evidence in the files examined and interviews with finance and program staff indicated that if a deliverable was provided it was included in the file. However, if none was provided, payment was still made and no follow-up was undertaken to ensure that a deliverable would be provided. The Manager, Participant Funding Program mentioned that he did not request deliverables from participants if none were provided in the final accounting. He also noted that he did not access the Canadian Environmental Assessment Registry where all reports provided by participants are required to be kept (sections 55.4 (1) and 55.5 (1) of the Canadian Environmental Assessment Act).

It was also noted that no Participant Funding Program close-off procedures existed on the completion of comprehensive study or panel review projects. In a number of files examined the comprehensive study or panel review completed their work in 2004 and as of February 2006 no final accounting had been received from certain recipients. There could be a number of reasons for this, one being that the recipient did not perform the work and did not need the funds, another being (evidence of this found in a number of files) the recipient received 75% of the total cost as an advance and just did not request a final accounting. Where, during this audit the latter was found to be the case, the Manager, Participant Funding Program took action and requested a final accounting from the recipients.

24. It is recommended that the Director, Advisory and Support Programs in consultation with the Director, Finance and Administration develop and implement project and individual recipient file close-off procedures. (See also recommendation 3 above).

I. Other

In consideration of the observations noted in this report especially as they pertain to the information provided by recipients in support of their requests for advance payments and final accounting it is recommended that;

25. The Internal Audit Committee consider including a recipient audit in its plans for 2006-2007.

Conclusions

The Participant Funding Program has a sound and well documented framework; processes and procedures are clear, comprehensive, communicated effectively to applicants and the public; and the process to allocate funds is timely, transparent and fair.

There are weaknesses in the commitment, verification and payment processes carried out under Sections 32, 34 and 33 of the Financial Administration Act. Corrective action on some deficiencies was undertaken during the course of the audit and projects will be implemented to document suitable processes to ensure due diligence.

The auditor was not able to assess results achieved and general performance of the program pertaining to recipient participation. This was because survey data included in the applications was not compiled or analyzed by the program officers and surveys to provide an overview of program performance (identified in the Agency’s Integrated Results-based Management and Accountability Framework and Results-based Audit Framework (RMAF/RBAF) dated March 18, 2004) were not yet implemented. The Agency does not interview Comprehensive Study or Panel Review members upon completion of a project as a means of evaluating program performance and such interviews were not within the scope of this audit.

Summary List of Recommendations

1. The Business Improvement Unit, in consultation with the Manager, Participant Funding Program, develops a process to provide evidence to the Funding Review Committee that applications have received an initial review by the Manager, Participant Funding Program or some other responsible officer.
2. The evidence noted in 1 above should also include an indication as to the status of advance payments provided to the recipients for other projects or for previous phases of the project for which funds are being requested.
3. A project to improve general file management for the Participant Funding Program should be included in this year’s priorities of the Business Improvement Unit.
4. It is recommended that before finalizing the agreement’s signing, the Manger Participant Funding Program should review the agreement with the recipient to ensure a common interpretation and understanding of the terms and conditions, particularly the obligations of the recipient.
5. For second time recipients, the discussions noted in 4 above should include the recipients’ past performance and expected improvements.
6. The draft Guide for Agency Staff and Funding Review Committee Members dated October 3, 2003 to be updated, finalized and distributed.
7. In view of the shortfalls in file management and due diligence noted in this report, it is recommended that the Director, Advisory and Support Programs, in consultation with the Director, Finance and Administration review the requirement for additional staff and if any are required those costs should be recovered from the program as part of the 20 per cent.
8. The Director, Advisory and Support Programs assess the survey data provided by the applicants and provide a report to the President.
9. The Director, Advisory and Support Programs in consultation with the Director, Finance and Administration review the survey tools identified in the program’s RMAF/RBAF to ensure that they are meaningful, revised if necessary and implemented as soon as possible.
10. The Director, Advisory and Support Programs implement structured post panel/comprehensive study interviews with a few review panel and comprehensive study members to assess broader program performance.
11. It is recommended that Funding Review Committee Reports be consistent and follow the structure contained in the example in the attached Appendix D.
12. It is recommended that the words “incorporated under the laws of…” be removed from agreements between the Agency and individual persons.
13. It is recommended that evidence should be included in the files confirming that the person signing an application or agreement has received signing authority from the person or organization on whose behalf he/she is signing.
14. It is recommended that the program and finance supervisors implement quality assurance programs for sections 34 and 33 of the FAA as outlined in the draft Treasury Board Directive on Account Verification that will replace the May 11, 1998 TB policy.
15. It is recommended that the entire Funding Review Committee report and recommendations be placed in the project’s main files maintained by the Manager, Participant Funding Program.
16. It is recommended that the Director, Advisory and Support Programs and the Director, Finance and Administration, implement a file quality control process as outlined in the recommendation 14 above.
17. Advance payments be provided based on adequate justification of need by recipients in addition to the production of a cash flow statement and a work plan as required in section 4.02 of the contribution agreement.
18. The Manager, Participant Funding Program and Director, Finance and Administration implement a process to monitor and report on advance payments.
19. It is recommended that as soon as the President approves the recommendations of the Funding Review Committee a copy of that report be forwarded to finance for commitment.
20. It is recommended that the Director, Advisory and Support Programs and Director, Finance and Administration implement procedures to ensure that account verification is conducted consistent with the requirements of the Financial Administration Act and with Treasury Board policy and procedures (see recommendation number 14 above).
21. It is recommended that the Director, Advisory and Support Programs in consultation with the Director, Finance and Administration review Appendix A of the generic contribution agreement and re-assess the requirement to include budgeted expenses that are individually detailed as opposed to more a aggregated budget to allow more flexibility (if that is the intent of the program design).

Alternatively if it is decided to continue the practice of detailing budget expenses then it is recommended that;

22. Section 34 and 33 officers ensure that payments are authorized only if they are consistent with the detailed budgets.
23. It is recommended that the section 34 officer verify that invoices are adjusted to ensure payment of only GST charges for which no input tax credit or other rebate is provided to the recipient.
24. It is recommended that the Director, Advisory and Support Programs in consultation with the Director, Finance and Administration develop and implement project and individual recipient file close-off procedures. (See also recommendation 3 above).
25. The Internal Audit Committee consider including a recipient audit in its plans for 2006-2007.

Appendix A (Panel Reviews)

1. Cacouna Energy Project (Quebec)

2. Kemess North Copper-Gold Mine Project (British Columbia)

3. Mackenzie Gas Project (Northwest Territories) Phase 1

4. Mackenzie Gas Project (Northwest Territories) Phase 2

5. Rabaska LNG Terminal Project (Quebec)

6. Romaine Hydroelectric Complex Project (Quebec)

7. Sydney Tar Ponds and Coke Ovens Sites Remediation Project (NS) Phase 1

8. Sydney Tar Ponds and Coke Ovens Sites Remediation Project (NS) Phase 2

9. Whites Point Quarry and Marine Terminal Project (Nova Scotia) Phase 1

10. Whites Point Quarry and Marine Terminal Project (Nova Scotia) Phase 2

Appendix B (Comprehensive Studies)

1. BEPCo Canada Company Exploratory Drilling Project (Nova Scotia)

2. Deltaport Third Berth Project (British Columbia)

3. Kitimat Liquified Natural Gas Project (British Columbia)

4. Orphan Basin Exploration Drilling Program (Newfoundland and Labrador)

Appendix C (Funding Review Committee Report Kitmat)

The Participant Funding Program (PFP) is designed to assist the public to participate in the environmental assessment (EA) of proposed projects. Legislative direction for a PFP is contained in subsection 58(1.1) of the Canadian Environmental Assessment Act (the Act), which states:

“For the purposes of this Act, the Minister shall establish a PFP to facilitate the participation of the public in comprehensive studies, mediations and assessments by review panels”.

A Participant Funding Review Committee (FRC), which is independent of the regulatory authorities, has been established for the Kitimat LNG Terminal Project and has examined the requests for funding received in connection with this project. The FRC members were Mr. John Mathers, and Mr. Paul Scott, Director of the Pacific and Yukon Regional Office, Canadian Environmental Assessment Agency (the Agency).

This report provides applicants, as well as the Canadian public, with the rationale behind the FRC’s recommended allocation of federal funds. The FRC reviewed three applications requesting a total of $67,500.

Background

On May 9, 2005, the Agency announced the establishment of a $40,000 PFP to assist groups and/or individuals to take part in the EA of the proposed Kitimat LNG Terminal Project.

The project is subject to the comprehensive study provisions under the Act. Pursuant to subsection 21(1) of the Act, Transport Canada and Environment Canada, as the federal responsible authorities for the project assessment, invited the public to comment on the proposed scope of the project, factors proposed to be considered, proposed scope of those factors and the ability of the comprehensive study to address issues relating to the project.

Rationale

To allocate the available funds in a fair, consistent and transparent manner, the FRC agreed to the following principles:

• Applicants must demonstrate an interest in the project’s environmental effects;
• Applicants must show that a representation of their interest will contribute to the investigation of potential environmental effects of the proposed project; and
• The available funds must be allocated to ensure, to the extent possible, that those concerned with the environmental effects of the project are fairly represented.

Recommendations

The FRC recommends awarding the total amount of $40,000 to be shared among the three applicants (see attached list).

The FRC based its recommendations on the following:

1. Applications were evaluated by applying sequentially, the following considerations:
• eligibility of the applicant to receive funding;
• the contribution that the applicant makes to the completion of the comprehensive study under the Act and the review of the Comprehensive Study Report; and
• specific funding requests contained in each proposal.
2. Funding was provided for eligible incremental costs incurred by the applicant to allow for effective participation.

General Comments

The FRC took into consideration only the activities which clearly met with the specific goals of the comprehensive study review, and it allocated amounts deemed reasonable based on the information provided in the applications.

The FRC made its determinations based on the information provided in the applications.

Please forward your comments or questions to:

Mr. Peter Bedrossian
Manager, Participant Funding Program
Canadian Environmental Assessment Agency
22^nd Floor, Place Bell
160 Elgin Street
Ottawa, Ontario K1A 0H3
Telephone: (613) 957-0254
e-mail: peter.bedrossian@ceaa-acee.gc.ca

Dated: August 12, 2005

Funding Review Committee:

_________________________
Mr. Paul Scott
Director
Pacific and Yukon Region
Canadian Environmental Assessment Agency

_________________________
Mr. John Mathers

Participant Funding Allocations Kitimat Liquefied Natural Gas Terminal Project

Appendix D (Funding Review Committee Report Deltaport Third Berth Project)

The Participant Funding Program (PFP) is designed to assist the public to participate in the review of projects by environmental assessment (EA). Legislative direction for a PFP is contained in subsection 58(1.1) of the Canadian Environmental Assessment Act (the Act), which states:

"For the purposes of this Act, the Minister shall establish a PFP to facilitate the participation of the public in comprehensive studies, mediations and assessments by review panels".

A Participant Funding Review Committee (FRC), which is independent of the regulatory authorities, has been established for the Deltaport Third Berth project and has examined the requests for funding received in connection with this project. The FRC members were Dr. Patrick J. B. Duffy, Mr. John Mathers and Mr. Paul Scott, Director, Pacific and Yukon Region, Canadian Environmental Assessment Agency.

This report provides applicants, as well as the Canadian public, with the rationale behind the FRC's recommended allocation of federal funds. The FRC reviewed three applications requesting a total of $45,520.

Background

On December 20, 2004, the Agency announced that the Government of Canada would allocate up to $25,000 to assist individuals and organizations to take part in the EA of the proposed Deltaport Third Berth Project.

The project is subject to a comprehensive study assessment under the Act. Pursuant to subsection 21(1) of the Act, Fisheries and Oceans Canada and Environment Canada, the federal responsible authorities (RAs) for the project assessment, invited the public to comment on the proposed scope of the project, factors proposed to be considered in the assessment, proposed scope of those factors and the ability of the comprehensive study process to address issues relating to the project. Following this public review, the RAs reported to the Minister of the Environment in accordance with subsection 21(2) of the Act. On December 17, 2004, the Minister announced that the Deltaport review would continue as a comprehensive study.

Rationale

To allocate the available funds in a fair, consistent and transparent manner, the FRC agreed to the following principles:

• Applicants must demonstrate an interest in the project's environmental effects;
• Applicants must show that a representation of their interest will contribute to the investigation of potential environmental effects of the proposed project; and
• The available funds must be allocated to ensure, to the extent possible, that those affected by the project are fairly represented.

Recommendations

The FRC based its recommendations on the following:

1. The eligibility criteria were applied consistently across all applications.
2. Applications were evaluated by applying sequentially, the following considerations:
   • eligibility of the applicant to receive funding;
   • the contribution that the applicant makes to the review of Environmental Impact Statement and/or completed Comprehensive Study Report (CSR); and
   • specific funding requests contained in each proposal.
3. Funding was provided for incremental costs incurred by the applicant to allow for effective participation.

The FRC recommends awarding $24,850 of the total amount available of $25,000 to the three applicants (see attached list).

The Tsawwassen First Nation

In making its recommendations on this proposal the FRC considered the following:

1. The Application Terms of Reference and the Scoping Document require the proponent to consider Aboriginal traditional knowledge in the EA. Therefore, the FRC believes that it is the proponent's role to develop the methodology to integrate traditional knowledge into the assessment.
2. The proponent has provided the Tsawwassen First Nation with funds to complete a Traditional Knowledge Study.
3. The Tsawwassen First Nation will not be able to judge whether the EA has adequately considered their traditional knowledge until it is submitted. The FRC, therefore, awarded funds for the evaluation of the EA and, if necessary, to work with the proponent to integrate their traditional knowledge.

Boundary Bay Conservation Committee

In making its recommendations on this proposal the FRC considered the following:

1. The FRC generally believes that the proposed activities of the Boundary Bay Conservation Committee (BBCC) are valid but the BBCC did not provide information on which aspects of the EA it would evaluate and which aspects it would assign to consultants.
2. The BBCC did not explain how the use of an economic consultant would contribute to overall evaluation of the EA.
3. The FRC notes that considerable detail on what topics will be assessed is available in the Scoping Document and the Application Terms of Reference.

William Liaskas

In making its recommendations on this proposal the FRC considered the following:

1. The FRC notes that the proponent will prepare a lighting study as per Appendix J of the Application Terms of Reference.
2. There will not be hearings for this project and any public meetings will likely be held nearby.
3. The FRC believes that funding to review studies prepared by the proponent, to provide a second opinion and to integrate local concerns is appropriate.

General Comments

The FRC made its determinations based on the information provided in the applications.

Please forward your comments or questions to:

Mr. Peter Bedrossian
Manager, Participant Funding Program
Canadian Environmental Assessment Agency
22^nd Floor, Place Bell
160 Elgin Street
Ottawa, Ontario K1A 0H3
Telephone: (613) 957-0254
e-mail: peter.bedrossian@ceaa-acee.gc.ca

Dated: February 7, 2005

Funding Review Committee:

____________________
Mr. Paul Scott
Director
Pacific and Yukon Region
Canadian Environmental Assessment Agency

____________________
Dr. Patrick J. B. Duffy

____________________
Mr. John Mathers

Participant Funding Allocations Deltaport Third Berth Project

¹ The audit did not include mediations as there were none during the period covered.

² Successful applicants who sign agreements are referred to as recipients in this report.