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Follow-up Audit of Contribution under the Marshall Response Initiative

PROJECT # 60268

September 23, 2003

Table of Contents

  1. EXECUTIVE SUMMARY
     
  2. INTRODUCTION
     
  3. OBSERVATIONSS
     
  4. MANAGEMENT ACTION PLAN

1.0 EXECUTIVE SUMMARY

1.1 Introduction

The Supreme Court of Canada (SCC), in its September 17, 1999 Marshall decision, found a treaty right to hunt, fish and gather in pursuit of a moderate livelihood arising from the local treaties of 1760 and 1761. In addition to affirming a treaty right, the SCC affirmed the Minister of the Department of Fisheries and Oceans (DFO) ability to regulate the exercise of the treaty right subject to the requirement that any infringement of the treaty right be justified.

In response to the SCC decision, DFO implemented the Initial Marshall Response Initiative to secure practical interim fishing arrangements to accommodate First Nations groups. The Fisheries Access Program (FAP) component of the Initial Marshall Response Initiative relied on an approach of voluntary retirement of commercial licenses. The Marshall Response Initiative emphasized the delivery of access to the fishery to First Nations through the retirement and issuance of licences and quotas, and transfer of vessels and equipment to First Nations groups.

During the Initial Marshall Response Initiative, DFO worked with Aboriginal communities to put in place Interim Fisheries Agreements (IFAs) and develop a longer-term Marshall Response Initiative to increase their access to commercial fisheries and to negotiate capacity building, training and other measures to maximize their benefits from that increased access. DFO also worked with non-First Nations commercial fishers who wanted to voluntarily retire their licences, making room for new Aboriginal entrants without putting more pressure on the fishery resource.

Under the longer-term Marshall Response Initiative, a number of First Nations have now signed multi-year agreements with DFO, and others have chosen to sign one-year agreements that provide for additional commercial fisheries access over agreements they signed under the Initial Marshall Response. Currently (October 2002), there are 18 agreements (out of 34 bands) in place for the longer-term Marshall Response Initiative. One First Nation in the Gulf has signed a series of individual agreements relating to the longer-term Marshall Response Initiative. The delivery of the longer-term Marshall Response Initiative ends on March 31, 2006.

In accordance with its 2002-03 annual plan, the Review Directorate conducted a follow-up audit of contributions made under the longer-term Marshall Response Initiative. The purpose of this follow-up audit is to determine the progress made with regard to the recommendations reported in the previous audit conducted in 2000-01 on the Initial Marshall Response Initiative, as they relate to the longer-term Marshall Response Initiative.

1.2 Overall Assessment

At the time the Initial Marshall Response Initiative was introduced, the regions had to react swiftly to meet the requirements set out in the SCC decision. Staff had to respond to establish a program for transferring vessels, equipment and licences to First Nations in a very short period of time. There were few policies and procedures in place to guide staff in delivering the Initial Marshall Response Initiative.

The audit noted that progress has been made since the previous audit and that program staff now have the time and tools available to them to effectively deal with the challenges of the longer-term Marshall Response Initiative.

The follow-up audit found that as staff became more familiar with the program, numerous actions were taken to improve the program delivery. New policies, directives and procedures were established and promulgated to the regions. Communications have improved both between regions and between regions and First Nations. Regions have been in a position to provide guidance to First Nations on reporting and evaluation requirements.

Despite the improvements noted, there are still areas that could be improved upon or require more diligence in the application of existing policies and procedures. Recommendations are offered in the report to strengthen the overall management and control process in areas such as, documentation, risk, recipient audits and amendments.

1.3 Policies, Procedures and Directives

There are numerous policies and procedures, both external and internal to the Department, already in place that provide guidance and direction on how the longer-term Marshall Response Initiative should be administered. These policies provide a framework for effectively managing the contributions made under the longer-term Marshall Response Initiative.

The Department developed policies and procedures handbooks to assist the regions in administering the Marshall Initiative. These handbooks are not yet being fully adhered to by the regions. Senior Management should reiterate the need and benefits of using the tool already available to them in administering the agreements under the longer-term Marshall Response Initiative.

1.4 Documentation

The audit noted improvement in the level of documentation maintained on file since the previous audit, although some deficiencies were still evident. For example, the handbooks outline documentation requirements for processing payments and should be adhered to.

1.5 Construction of Vessels and Equipment

The audit team observed weaknesses in the process for the construction of vessels and equipment. There was no consistent evidence that more than one quotation was received for the construction of vessels and equipment by First Nations to ensure value for money. As well, there was not always evidence that the First Nations had provided assurance that the proposed purchase price did not exceed fair market value. The Department should consider having independent evaluations carried out on selected vessels/equipment construction projects on a sample basis.

1.6 Amendments

The process for amending agreements should be clarified as to what constitutes an amendment and the level of authority and flexibility the regions have in the amendment process.

1.7 Marshall/AFS Funds

The audit team noted that some payments relating the Aboriginal Fisheries Strategy (AFS) were being paid out of Marshall funds and that there is an indication that AFS funds will be transferred to Marshall. Headquarters and the regions must be vigilant to respect the authorities given to the Department by Treasury Board and to ensure the accuracy of reporting of the funds.

1.8 Risk-Based Audit Framework

Risk-Based Audit Frameworks (RBAF) should be included with Treasury Board Submissions for program approval of terms and conditions for contributions. An RBAF provides a description of specific risks as well as existing and planned mitigating strategies in delivering a program. It also includes a program monitoring and recipient auditing component.

1.9 Cheque Issue

Some payments in the regions are being processed on a priority basis and the cheques are being returned from Public Works and Government Services Canada (PWGSC) to individuals who had been involved in requisitioning the payments. This practice is contrary to the Treasury Board's Policy on Control of Receiver General Cheques.

Cheques should be sent directly to the recipients by PWGSC. In those instances where a cheque must be returned to the Department, policies and procedures should be established to ensure sound internal control over the cheques to ensure that individuals involved in the payment process do not receive the cheques.

2.0. INTRODUCTION

2.1. Background

The Supreme Court of Canada (SCC), in its September 17, 1999 Marshall decision, found a treaty right to hunt, fish and gather in pursuit of a moderate livelihood arising from the local treaties of 1760 and 1761. In addition to affirming a treaty right, the SCC affirmed the Minister of DFO's ability to regulate the exercise of the treaty right subject to the requirement that any infringement of the treaty right be justified.

In response to the SCC decision, DFO implemented the Initial Marshall Response Initiative to secure practical interim fishing arrangements to accommodate First Nations groups. The FAP component of the Initial Marshall Response Initiative relied on an approach of voluntary retirement of commercial licenses. The Marshall Response Initiative emphasized the delivery of access to the fishery to First Nations through the retirement and issuance of licences and quotas, and transfer of vessels and equipment to First Nations.

During the Initial Marshall Response Initiative, DFO worked with Aboriginal communities to establish IFAs and develop a longer-term Marshall Response Initiative to increase their access to commercial fisheries and to negotiate capacity building, training and other measures to maximize their benefits from that increased access. DFO also worked with non-First Nations commercial fishers who wanted to voluntarily retire their licences, making room for new Aboriginal entrants without putting more pressure on the fishery resource.

Under the longer-term Marshall Response Initiative, a number of First Nations have now signed multi-year agreements with DFO, and others have chosen to sign one-year agreements that provide for additional commercial fisheries access over and above agreements they signed under the Initial Marshall Response Initiative. The longer-term Marshall Response Initiative ends on March 31, 2006.

In 2000-01, the Review Directorate conducted a review of Contributions under the FAP and IFAs. The objective of the review was to provide an independent assessment of the management of the Terms and Conditions stipulated in the arrangements between DFO and recipients of existing FAP and IFAs contributions.

Given that the DFO had to quickly develop and establish two programs to respond to the Marshall decision, the programs met a number of key implementation objectives. In almost all cases, FAP Regional Aboriginal Fisheries staff was able to meet the demand for transferring licences, vessels and equipment in a short period of time. Moreover, both the FAP and the IFAs were delivered well within budget; however, the audit did observe that there were a number of areas for improvement in the delivery of the program.

2.2. Objectives and Scope

OBJECTIVES

The objectives of this follow-up audit were to:

  • assess the extent of compliance with departmental policies and procedures, as well as the Treasury Board's Policy on Transfer Payments regarding the Fisheries Access and co-management expenditures made under the Fisheries Agreements;
  • ensure that payments are made in accordance with the Fisheries Agreements with First Nations; and
  • assess the accuracy and timeliness of the reporting of payments made in the Departmental financial system (ABACUS).

SCOPE

The scope of the audit included the Maritimes, Gulf and Quebec Regions and National Headquarters and covered the 2001-02 and 2002-03 fiscal years.

2.3. Methodology

The following methodology was used by the audit team:

  • interviewed DFO Fisheries Management staff and stakeholders in other Sectors at DFO headquarters and the regions;
  • examined the organizational structure, the responsibility and accountability framework, implementation procedures and controls in place for the regions;
  • examined DFO's procedures for budgeting, planning, issuing and monitoring contributions;
  • examined DFO's headquarters and regional management control framework in support of FAP (as established by the Sector); and
  • tested selected transactions made under FAP during the 2001-02 and 2002-03 fiscal years with respect to adherence to internal policies and external agreements.

3. OBSERVATIONS

3.1. Progress

In response to the audit findings and recommendations during the previous audit, the Aboriginal Policy and Governance Directorate, in cooperation with Regional Aboriginal Fisheries Management staff, have initiated a number of proactive measures:

  • the development and implementation of policies, directives and procedures to enhance the management of the longer-term Marshall Response Initiative. Two policy and procedures handbooks were developed:
    • the License Retirement Handbook; and
    • the Fisheries Agreement Handbook.
  • the implementation of a Management Control Framework to ensure the proper management accountability;
  • improved communications, cooperation and sharing of information between regions;
  • regular visits to First Nation communities by regional Aboriginal Program managers and officers;
  • the preparation of a Reporting Guide Handbook dedicated to First Nation Administrators to clarify agreement reporting requirements;
  • the publication of a regional annual report outlining progress, success, achievements and areas requiring improvements under the 2000-2001 IFAs and 2001-2002 longer-term Marshall Response Initiative; and
  • the conduct of readiness assessments (on-site monitoring). These site visits helped ensure that funds entrusted to First Nations were managed well and spent for the intended purposes. Visits were also useful to assess the progress of projects and collect selected information on the results of the program.

3.2. Policies, Procedures and Directives

There are numerous policies and procedures, both internal and external to the Department, already in place that provide guidance and direction on how the longer-term Marshall Response Initiative should be administered.

Treasury Board Secretariat has issued a number of policies that are applicable to the management of transfer payments in particular and overall management practices in general. These policies provide a framework for effectively managing the contributions made under the longer-term Marshall Response Initiative. These policies include:

  • Policy on Transfer Payments;
  • Policy on Active Monitoring; and
  • Policy on Control of Receiver General Cheques.

In addition, the Department has put in place policies and procedures to strengthen the management of the payments under Marshall. In response to the recommendations of the previous audit report, the Aboriginal Policy and Governance Directorate, in consultation with Regional Aboriginal Fisheries Management, developed two handbooks that provide policies and procedures for the implementation of the Marshall Decision. These policies and procedures covered most situations one may encounter in administering the longer-term Marshall Response Initiative. This includes purchasing of licences, vessels and equipment as well as, payments to First Nations and/or their representatives for co-management arrangements.

The policies and procedures were intended to ensure consistency and due diligence in the administration of the agreements. However, the policies and procedures established are not yet being fully adhered to in the regions. A number of reasons were given as to why they are not being used, such as limited time to use them or the policies and procedures were not finalized.

The audit team found these handbooks to be very useful working tools to assist program staff in administering the fisheries agreements. Failure to use the tools provided not only negates the proactive approach taken in responding to the prior audit findings, it puts the Department at risk of authorizing improper payments.

The use of these policies and procedures is of particular importance as a training tool where there are some relatively new staff members who may not yet be fully familiar with the Marshall Response Initiative and the unique situations it occasionally presents.

Even though these handbooks are considered to be useful tools to regional staff, there are some areas that could be improved and strengthened. Clarification should be provided regarding some areas in the handbooks (e.g. amendments, documentation for vessel acquisitions, documentation from program managers).

Near the end of the audit process, the audit team members participated with both headquarters and regional officials from Aboriginal Fisheries and Finance in a workshop to identify weaknesses in the policies and procedures or any areas that required clarification. This was a useful exercise for all involved and commitments were made to revise the handbooks, where considered necessary.

Recommendations

  • Senior Management in the regions should reiterate to their staff the need for and benefits of using the tools already available to them in administering the agreements under the Longer Term Marshall Response Initiative; and
  • Aboriginal Policy and Governance Directorate should ensure that agreed upon revisions to the handbooks are made and distributed to the regions.

3.3. Documentation

Payments to fishers and First Nations must be made based on receipt of proper documents such as contracts, cash flow projections or supporting invoices, as required by the contribution agreements. The audit team observed that there had been some improvements since the previous audit in the level of documentation on file supporting payment transactions. For example, cash flow documents are more realistic and prepared with more rigour than they were at the time of the previous audit. However, in some instances, the audit team found that payments were made without adequate supporting documents.

The handbooks and the contribution agreements lay out the requirements for the supporting documentation that must be on file prior to a payment being made.

Further, there is little evidence of any substantive verification (certification) that work had been completed or was at a certain stage of completion regarding items such as buildings or vessels.

Evidence is required to satisfy the person authorizing a payment under Section 34 of the Financial Administration Act (certification of receipt of goods and services) that the recipient of the money is eligible for or entitled to payment as required. This review process is crucial since we also noted that Finance and Administration Branch relies on the certification by program staff to sign under Section 33 of the Financial Administration Act.

Before any payments are made, the recipient has to provide certain documentation that is specified in the Fisheries Agreement to DFO. The documentation required varies depending on the nature of the contribution. For example, regarding a contribution relating to training and mentoring, the agreement states:

"Before DFO pays the monies provided for in subsection 4(1) (of the Contribution Agreement), the Band shall provide DFO with copies of training plans, proposed contracts and work plans for its approval, to ensure that the proposed prices do not exceed their fair market value."

Similar clauses appear in the agreement asking for documentation such as proposed contracts for construction of fisheries complexes and work plans for wharf enhancement. In some cases, the initial payment to the recipient would not be an advance payment but would be based on the proposed payment schedule for a contract.

In some instances, the regions rely on the First Nation's audited financial statements as the supporting documentation for the payments they process instead of actual invoices. While the First Nation's auditor states that the financial statements have been prepared in accordance with generally accepted accounting principles and the statements present fairly the financial position of the First Nation, he does not provide assurance to DFO that all terms and conditions of the contribution agreements have been met.

Most of the documentation requirements are outlined in the policies and procedures handbooks. These deficiencies were discussed at a workshop with regional and headquarters staff near the completion of the audit process and clarifications were provided, where required.

3.4. Acquisition and Transfer of Vessel and Equipment

The purchase of vessels and equipment is facilitated by a third party under contract to DFO. The regions must be satisfied that the third party is knowledgeable and independent from the person selling the vessel to DFO. A significant amount of control and trust in placed is the hands of this third party in carrying out the transaction. Consequently the regions must still maintain a monitoring role in the process.

The third party is responsible for securing the necessary sign-offs and obtaining the supporting documentation to obtain the vessel from the owner and transfer it to a First Nation. The documents that should be obtained and placed on file to support the acquisition transaction are as follows:

  • A true copy of the Certificate of Registry from Transport Canada for the vessel;
  • Copies of all documentation attesting to the fact that the vessels, equipment and gear are free and clear of all encumbrances;
  • A registered duplicate of the Bill of Sale for the vessel from the Port Registrar;
  • Evidence of the delivery of the vessel and equipment to DFO's Nominee;
  • A certified copy of the ship's registry, showing DFO's Nominee as the registered owner.

Some deficiencies in the documentation on the files were noted:

  • the documentation on some files did not comply with the departmental policy directives. Copies kept in DFO's files are transcripts from the Maritimes Fisheries Information system and the Transport Canada's Vessel Registration Query System rather than supporting documentation or actual certificates of registration;
  • in some instances, the vessel purchase documentation maintained by the region was incomplete and did not indicate that the transactions had been concluded. In the other instances, a check list completed by the vessel broker, confirmed that the legal documents were obtained. However, these documents were not forwarded to the regional office prior to the closing date of the vessel transfer;
  • some files were not always complete and therefore failed to indicate that transactions had been concluded;
  • the transferring of some vessels to First Nations (all documentation and sign-offs not always received) was not always timely; and
  • there was not always evidence of an independent appraisal of vessels at the time they were being transferred to a First Nation (a great deal of authority is granted to brokers).

In the policies and procedures handbook, there are checklists that indicate the documentation requirements for the acquisition of vessels and equipment. The checklist is a useful tool and should be completed and placed on the file to indicate that due diligence has been carried out in processing these transactions. There was some uncertainty with some regional staff as to the intent for following some steps on the checklist. At the workshop attended by regional and HQ Aboriginal Fisheries and Finance and Administration staff, as well as Review Directorate representatives, these items were discussed and clarifications provided. As well, it was noted that one region has developed its own checklist that could be used to supplement what was already in the handbook. This was to be shared with the other regions for their consideration and possible use.

Recommendations

  • Regions complete the checklist provided to them in the FAP handbook outlining the documentation requirements for the acquisition and transfer of vessels and equipment.
  • Where regions have developed supplementary items to the current checklist, they should be reflected in a revised checklist.

3.5. Construction of Vessels and Equipment

In accordance with the terms of some Fisheries Agreements, vessels and equipment are constructed for a First Nation. Depending on the arrangement, DFO may pay directly to a vessel/equipment supplier or to a lawyer/notary when a First Nation is having the vessel or equipment constructed itself. Prior to making payments the region must ensure that all appropriate documentation must be obtained and that DFO Policy Directive 009 (Acquisition of New Vessels, Equipment and/or gear) is complied with. The audit team found some instances where the required documentation was not on file. For example, there was no consistent evidence that First Nations provided DFO with a signed certificate of final acceptance for vessels and equipment; or that Documentation was received from the First Nations assuring that the vessel conforms to what had been specified in the contract. Failing to have this documentation from the First Nation could leave the Department in a vulnerable position should there be subsequent deficiencies with the vessel or equipment.

For the construction of a vessel/equipment, the contract must be awarded on a competitive basis. There was not always evidence that more than one quotation was received for vessel/equipment construction contracts. If more than one quotation cannot be obtained, then this should be documented on file.

The First Nation must provide satisfactory proof to DFO that the proposed purchase price does not exceed fair market value. While the onus rests with the First Nation to provide this proof, DFO has an obligation to ensure that this assurance has been received. DFO has the right to conduct an independent evaluation of the vessels/equipment. There is no consistent evidence that the First Nation had provided the proof of fair market value or that DFO had conducted an independent evaluation of the vessel/equipment to assure itself of the fair market value.

It was stated by one region that it is very expensive to do proper evaluations of every construction project. To alleviate the need for an evaluation on every project, the regions could assure themselves that fair market value is being obtained by selecting a sample of projects on which to conduct an evaluation. For example, regions could decide that one project in five or one in ten could be subjected to evaluation. These projects could be selected based on risk areas such as, dollar value, history of contractor or on a random basis.

Recommendations

  • Contracts for construction of vessel/equipment should be awarded on a competitive basis. If more than one quotation cannot be received, then the reasons should be documented on file;
  • Prior to any payments being made, the program officer should ensure that there is evidence that fair market value had been obtained from the First Nation; and
  • The Department should conduct independent evaluations, on a sample basis, on vessel/equipment construction projects.

3.6. Amendment Process

The Fisheries Agreement Handbook sets out detailed procedures for processing amendments to Fisheries Agreements. Since the previous audit, the process for amending agreements has been modified and controls have been enhanced over the processing of amendments. Amendments must be reviewed by Legal Services and Finance, tracked and approved by the appropriate headquarters authority.

While the process has been improved, with various control over the approval and tracking of amendments, there remains some uncertainty or ambiguity as to what constitutes an actual amendment to an agreement, thereby having to go through the formal approval process. Some situations occur where changes or interpretations are made to agreements informally through verbal arrangements. This decision is often left with the Program officers. This can lead to inconsistencies and misinterpretation of policies and regulations.

The subject of amendments was a topic of much discussion in each of the regions and at headquarters during the audit. There was much discussion regarding what exactly constitutes an amendment, what flexibility the regions have in determining when a change to an agreement requires an amendment and who should have delegated authority to approve amendments.

Recommendation

  • The Aboriginal Policy and Governance Directorate should provide clarification to the regions on the handling of amendments.

3.7. Inventory

In the previous audit, it was noted that vessels, equipment and licences which had been purchased were not yet allocated to First Nations. During this audit, the situation had improved from the previous audit but some inventory remains on hand. In addition to the cost of purchasing these assets, there is a cost of keeping them in inventory, as well as an opportunity cost lost to the Department since no fees are paid to the Department for these unused licences.

It was explained to the audit team, that in some instances, the regions felt they had no choice but to purchase vessels and licences for which they had no immediate need. This occurred in situations where the regions had to buy a vessel or low value licences in order to obtain a more lucrative licence that a First Nation specifically wanted. As well, it makes sense from an economic standpoint to purchase some licences in advance and have them available for future negotiations.

3.8. Marshall/AFS Funds

The Treasury Board Submission for the Longer Term Marshall Response Initiative, approved in 2001, gave authority to the Department to make payments to eligible recipients to fulfill its obligation under the Marshall Decision to assist Mi'kmaq and Maliseet First Nations "to fish, hunt and gather in pursuit of a moderate livelihood". This decision affects 34 First Nations in the Gaspé Area of Quebec, Prince Edward Island, New Brunswick and Nova Scotia.

In 1992, DFO introduced the Aboriginal Fisheries Strategy (AFS). The AFS provides for the effective management of the aboriginal fishery in a manner consistent with the 1990 Supreme Court of Canada decision in the Sparrow case. This decision defined Aboriginal peoples' right to fish for food, social and ceremonial purposes.

During the audit, it was observed that payments relating to AFS activities were being paid out of Marshall funds. In many cases, the payments had been subsequently reallocated to the proper accounts. It was not, however, clear if the charges had been simply miscoded and then corrected or if there had been a cash delay and Marshall funds had to be used to cover the AFS expenditures for a period of time.

Some program people have expressed the view that, since the Terms and Conditions for both programs are similar, the expenditure of funds from both programs is achieving the same objectives. For the most part, this holds true.  Nevertheless, the Marshall and AFS funds are allocated to the Department by Treasury Board, under separate authorities, for two distinct programs and must be accounted for separately.

The audit team was told that there will be funds transferred to Marshall from AFS funding during 2003-04. Due diligence must be taken to ensure that authorities granted to the Department by Treasury Board are respected.

Recommendations

  • Payments out of Marshall funding in respect of AFS activities and, out of AFS funds in respect of Marshall, should be properly accounted for and the authorities provided by Treasury Board for these programs be respected.

3.9. Risk-Based Audit Framework

Effective June 1, 2000, Treasury Board put in place the Policy on Transfer Payments. The purpose of this policy is to ensure sound management of, control over and accountability for transfer payments. The Policy sets out requirements for managing transfer payments. The Policy states that Treasury Board Submissions for program approval of terms and conditions for contributions should include a risk-based framework for audit of recipients and contributions, an internal audit plan and a program evaluation plan for transfer payment program.

At the time the Policy was issued, there was little guidance as to what should be included in a risk-based audit framework (RBAF). In July 2002, a Risk-Based Audit Framework Guide was issued by Treasury Board to assist departments in meeting their requirements for a RBAF.

These key elements include a risk assessment and management summary component within the RBAF for the program. This provides a description of specific risks as well as existing and planned risk-mitigating strategies in delivering the program. There is also now a requirement to include a program monitoring and recipient auditing component in the RBAF. This component describes the ongoing monitoring and recipient auditing plans that will be undertaken by management. This section should provide a complete and concise explanation of existing and planned monitoring activities and a summary of the methodology used and decisions taken in selecting and planning the recipient audits.

The delivery of the longer-term Marshall Response Initiative was extended to March 2006 instead of March 31, 2004, as previously planned. It would be appropriate and demonstrate good management practices to complete the key elements of the RBAF that had not been developed in 2001 to coincide with the delivery date extension for Marshall.

3.10. Recipient Audits

The Treasury Board Policy on Transfer Payments states that "Departments are responsible for determining whether recipients have complied with the terms and conditions applicable to the contributions. This responsibility includes the audit of recipients when deemed necessary."

The regions currently place reliance on the external auditors of the First Nation's financial statements as evidence that they are in compliance with the terms and conditions of the contribution agreements. In accordance with the Policy on Transfer Payments, the regions can rely on these audited statements from the First Nations' auditors. However, the Policy also states that in order to rely on these audited statements, the Department should obtain agreement from audit agents that contribution audits will be conducted according to generally accepted auditing standards and in conformity with the provision of the Policy. As well, audits of recipients should be based on the suggested procedures for the audit of contributions contained within the Treasury Board Guide on the Audit of Federal Contributions. There is little evidence that these stipulations for accepting the First Nations' external audited financial statements were met.

The regions must determine, based on risk, which recipients should be subjected to audit. If a region chooses to accept the First Nations' auditors, then the First Nation should provide assurance that the audits being conducted conform to the Policy on Transfer Payments.

Recommendations

  • The Aboriginal Policy and Governance Directorate should take the lead in developing the key elements of an RBAF;
  • Regions should develop a risk-based plan for conducting audits of recipients; and
  • Where reliance is placed on the First Nation's auditor, the regions should obtain agreement from the auditors that contribution audits are conducted according to generally accepted auditing standards and in conformity with the provisions of the Policy on Transfer Payments.

3.11 Cheque Issue

In the regions, some cheques are being returned from Public Works and Government Services Canada (PWGSC) to individuals who had been involved in requisitioning the payments. This practice is contrary to the Treasury Board's Policy on Control of Receiver General Cheques.

The Policy states:

"(4) Departments must establish appropriate policies and procedures to ensure sound internal control over cheques returned to the department for distribution, including:

  1. cheque must never be placed in the hands of a person who has participated in either spending or payment authority with respect to the payment".

The Policy permits certain classes of payments to be returned to Departments. One such class of payments is to native peoples for recurring payments. In the case of contribution payments to First Nations, these are not recurring payments.

Management explained to the audit team that, at times, First Nations will request that their cheque be returned to the Department by PWGSC. This should only occur on an exception basis and controls should be put in place to safeguard the returned cheques.

Recommendations

  • Cheques be sent directly to the recipients and the practice of having cheques returned to the Department by PWGSC be stopped as per the Treasury Board Policy on Control of Receiver General cheques; and
  • If cheques are returned to the Department, then appropriate policies and procedures should be established to ensure sound internal control over the cheques.

3.12. Reporting

To properly manage agreements, project officers and managers require timely and accurate information regarding the details of activities against the requirements established in the various contribution agreements. They also need to be able to match data on contribution spending with other output data provided by DFO and First Nations (i.e., the number of licences, vessels and gears transferred to First Nations and the number of Band members trained, native fishers, season catches, etc.)

The Licence Retirement Application program (LRA) is not yet fully developed or implemented. The integration of financial, contribution and performance data at the project management level has not yet been achieved. As reported in the previous audit report, the main objectives for the Longer-Term Marshall Response Initiative application are to:

  • provide timely reporting;
  • ensure financial accuracy;
  • provide integrated tracking of access and capacity data;
  • improve efficiency of implementation;
  • ensure accountability for program delivery; and
  • build in enough flexibility to support other licence retirement programs in the future.

Also, if the regions are going to adequately measure the results of the contributions made under Marshall, they are going to have to ensure that mechanisms are in place to gather the necessary information to track progress. Headquarters has provided the regions with reporting and evaluation guides for First Nations that identify the data requirements needed to assist in measuring the results of the Marshall Initiative. It is important for the regions to explain to the First Nations the reasons for collecting this information so that they become active participants in measuring the results of the initiative.

4.0. MANAGEMENT ACTION PLAN

RECOMMENDATIONS MANAGEMENT ACTION PLAN OFFICER OF PRIME INTEREST INITIAL TARGET DATE
a) Senior Management in the regions should reiterate to their staff the need for and benefits of using the tools already available to them in administering the agreements under the Longer Term Marshall Response Initiative; and Briefing note to Senior Managers in the Region ; and

Review of the tools available to program officers from senior management in the regions.

 Regional Program Manager and/or Officer 2003-06-25
b)  Aboriginal Policy and Governance Directorate should ensure that agreed upon revisions to the handbooks are made and distributed to the regions. Senior managers in regions to be notified via a memorandum distributed by NHQ. Regional Program Manager and/or Officer 2003-06-25
c)  Regions complete the checklist provided to them in the FAP handbook outlining the documentation requirements for the acquisition and transfer of vessels and equipment. Checklist to be updated and sent to the regions. Regional Program Manager and/or Officer 2003-06-15
d)  Contracts for construction of vessel/equipment should be awarded on a competitive basis. If more than one quotation cannot be received, then the reasons should be documented on file; Policy 009 of the Fisheries Access Program Handbook on the Acquisition of new vessels, equipment and/or gear has been amended. Regional Program Manager and/or Officer  
e)  Prior to any payments being made, the program officer should ensure that there is evidence that fair market value had been obtained from the First Nation; and Program officers should be informed of the market value by First Nations;

Payment made once there is evidence that fair market value has been obtained.

 Regional Program Manager and/or Officer  
f)  The Department should conduct independent evaluations, on a sample basis, on vessel/equipment construction projects. Regions should conduct evaluations in accordance with their risk management plan. Regional Program Manager and/or Officer 2003-06-30
g)  The Aboriginal Policy and Governance Directorate should provide clarification to the regions on the handling of amendments. New policy to be added to the Fisheries Agreement Handbook.. Regional Program Manager and/or Officer 2003-06-30
h)  Payments out of Marshall funding in respect of AFS activities and, out of AFS funds in respect of Marshall, should be properly accounted for and the authorities provided by Treasury Board for these programs be respected. Due diligence will ensure that authorities granted to the department by the TBS are respected. Regional Program Manager and/or Officer 2003-06-30
i)  The Aboriginal Policy and Governance Directorate should take the lead in developing the key elements of an RBAF; RBAF will be submitted to the Treasury Board. Regional Program Manager and/or Officer à être déterminé
j) Regions should develop a risk-based plan for conducting audits of recipients; and where reliance is placed on the First Nation's auditor, the regions should obtain agreement from the auditors that contribution audits are conducted according to generally accepted auditing standards and in conformity with the provisions of the Policy on Transfer Payments. New policy will be added to the Fisheries Agreement Handbook, including a letter to the band auditor. Regional Program Manager and/or Officer 2003-06-30
k) Cheques be sent directly to the recipients and the practice of having cheques returned to the Department by PWGSC be stopped as per the Treasury Board Policy on Control of Receiver General cheques.  If cheques are returned to the Department, then appropriate policies and procedures should be established to ensure sound internal control over the cheques. New policy will be added to the Fisheries Agreement Handbook, including a letter to the band auditor. Regional Program Manager and/or Officer 2003-06-30
Date Modified:2008-11-28

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Important Notices