The Contribution Program, hereafter known as the "Program," with the Canadian Coast Guard Auxiliary (CCGA) includes a separate Contribution Agreement (CA) with the CCGA National Association, an administrative coordinating entity, and five independent operational CCGA Regional Associations. The primary objective of the Program is to facilitate the provision of voluntary Search and Rescue (SAR) and boating safety activities by the CCGA across Canada. The Program is due for renewal on April 1, 2007; therefore, this audit was conducted to support the renewal/extension process.

The objective of the audit was to provide assurance on the reliability of the control framework for administering the Contribution Program as well as assurance that it complies with Treasury Board Policies, the approved terms and conditions of the Program and the agreements in place.

Documents, supporting controls, and processes pertaining to the management and administration of the Program were examined. Interviews were held at Headquarters (HQ) and in the Regions, and a statistical sample of financial transactions representing all six CAs was examined for three fiscal years ending in 2005/06. The field work was carried out during the period August to November 2006.

1.2 Statement of Assurance

In our judgement, sufficient and appropriate audit procedures have been applied and sufficient evidence gathered to support conclusions contained in this report. The conclusions are based on a comparison of the situation against the audit objectives as they existed at the time of the audit.

1.3 Summary of Findings

The audit observed a unique working and cooperative relationship between the CCG, the CCGA and Joint Rescue Coordination Centres in their collaborative effort to enhance maritime safety. A dedicated cadre of CCG professionals and CCGA volunteers make a substantive contribution to maritime safety and SAR.

The Management Control Framework provides sufficient general controls to support the CCGA in operations and training but shows weaknesses in financial controls and procedural direction to responsible managers. The Boating Safety function performed by the CCGA is no longer a CCG mandate and support should be withdrawn in a renewed agreement.

Roles and responsibilities are generally clear but Program documents do not include a role for CCG managers other than Manager SAR/Regional counterparts nor provide sufficient guidance to CCG Managers administering the agreements. The CCGA National Guidelines outline an operating concept for the CCGA but there is no complementary CCG HQ direction to guide the CCG Managers administering the Program. As a result procedures are inconsistent across Regions and inefficiencies are evident due to lacking clarity of requirements and expectations of the National HQ.

We found the monitoring procedures in place provide a general ability to detect material errors related to individual transactions but do not provide a sufficient framework to comply with the requirements of the Treasury Board Secretariat (TBS) Account Verification Policy. Monitoring methods are different in each Region and range from one validating a single substantial invoice to another checking all submitted invoices and receipts in detail. Specifically, the advance payments to the CCGA are not verified prior to issuing the next advance or at year end. These weaknesses precluded the accurate recognition and recovery of overpayments attributable to year end surpluses and the recovery of Goods and Services Tax (GST) by recipients.

Identified risks are not sufficiently clear and tend to be examined on a case-by-case basis rather looking at the Program as a whole. Program staff is sensitive to risks related to safety and potential liability and employ various strategies such as safety audits/validation exercises to mitigate what they perceive as the greatest risks. These activities may be seen as going beyond knowledge transfer and assuming a greater degree of responsibility and liability than intended. Additionally, in-kind assistance such as the loan of office space or access to the Departmental intranet services create additional potential risks that should be mitigated through no-cost lease and the introduction of strictly enforced security protocols.

1.4 Summary of Recommendations

Detailed recommendations and a Management Action Plan are presented in this report under Section 4.0 but for convenience the recommendations are summarized below.

Program Delivery

Clarify the role and authority of CCG managers for Program management and coordination with CCGA officials at the National and Regional levels.
Only activities relating to the CCG mandate should be included in the CCGA Program. In the absence of a mandate change, the renewed Program should not include boating safety.
The responsibilities of the CCGA National Association should be clearly stated in its CA in a manner that is respectful of other recipients and their relationship with CCG Regions.
Consult with CCG Regional authorities to identify issues needing further clarification and promulgate direction to facilitate improved consistency, effectiveness and efficiency.
Initiate a Program liability assessment to facilitate the implementation of a delivery methodology that minimizes potential liability of the Crown and places appropriate accountability on the contribution recipients.

Terms and Conditions

Establish a clear process to allocate funds to recipients that is understood by all parties.
Implement appropriate control measures to ensure recipients comply with the T&C, particularly concerning claims for GST/HST and repayment of debts to the Crown.
Provide guidance to Program Managers pertaining to the minimum requirements for verification of CCGA advances/payments including application of the cash management policy specified in the TBS Policy on Transfer Payments.

2.0 INTRODUCTION

2.1 Background

The Contribution Program, hereafter known as the "Program," with the Canadian Coast Guard Auxiliary (CCGA) includes a separate Contribution Agreement (CA) with the CCGA National Association, an administrative coordinating entity, and five independent operational Regional Associations: Newfoundland, Maritimes, Quebec, Central and Arctic and Pacific. The primary objective of the Program is to facilitate the provision of voluntary Search and Rescue (SAR) and boating safety activities by the CCGA across Canada.

The Program was initiated in 1978/79 in response to a Cabinet Directive resulting from an interdepartmental review of Marine Search and Rescue and the CCGA has since contributed to the Canadian Coast Guard (CCG) Search and Rescue (SAR) mission: “to save and protect lives in the marine environment.” A 2002 Department of Fisheries and Oceans (DFO) Evaluation of the Program clearly recognized the value of the Program [Cabinet Confidence]or extension. An evaluation conducted in parallel to this audit recommends some improvement measures but does conclude the Program does add value to the SAR mission.

The CCGA is not a single business entity but rather six separately incorporated non-profit associations with similar goals and objectives. Each operational CCGA has its own President, governance board and related processes and the National Association includes an elected Chairman and Directors appointed from each of the five operational regions. Essentially, the National Association provides a coordinating role for matters of cross region interest such as uniforms, insurance and liaison with CCG HQ while the CCGA Regional Associations perform maritime SAR operations, maritime SAR prevention and other activities defined in their CA.

The 2002 Program approval permitted contributions to the designated recipients to a collective sum of $4.5 million but with the authority to increase to $6.5 million annually if additional funds became available. Table 1 provides a comparative presentation of Program contributions by individual CA for the last three fiscal years (FY).

Table 1. Contribution Fund Expenditures

Recipient	FY 05/06	FY 04/05	FY 03/04
CCGA-National	1,571,000	1,711,000	1,395,000
CCGA-Newfoundland	616,590	597,656	583,273
CCGA-Maritimes	600,000	570,000	546,000
CCGA-Quebec	619,000	575,000	590,000
CCGA-Central and Arctic	588,000	545,000	522,000
CCGA Pacific	903,000	900,000	863,000
Total Contributions	$4,897,590	$4,898,655	$4,499,272
Note: The above values have been rounded to the nearest dollar.

[Cabinet Confidence] The engagement was conducted during the fall of 2006 to allow time for the CCGA to provide the CCG with the required annual reports and to provide any finding prior to the potential Program renewal on April 1, 2007.

2.2 Objective and Scope

The audit examined the CCGA Program as a national activity and the actual implementation of the six CAs at CCG Regional level. Relevant documents, controls, and processes pertaining to the management and administration of the Contribution Program were examined. Interviews were held with selected CCG/DFO employees at HQ and in the Regions, and a statistical sample of financial transactions representing all six agreements was examined for the three fiscal years ending in 2005/06.

2.3 Methodology

Planning Phase. The majority of DFO planning and audit program development occurred from August to September 2006 and included: document collection and review; and preliminary information meetings with key DFO/CCG employees.

Conduct Phase. The specifics of the audit program were implemented October-November 2006. The conduct phase included: analysis of the gathered documentation; interviews with CCG Program staff at the HQ and the five regions; consultation and interview of DFO financial personnel; and analysis of a sample of financial transaction representing the three FYs ending in 2005-06. Lines of inquiry were identified and assessed based on risk to the Program. As a result, the following lines of inquiry were retained for further work: Program Delivery; Risk Management; and Compliance with Policies, and the Terms and Conditions of the Agreements.

The statistical sample was based on a total population of 937 financial transactions spanning the three FYs at a 95% confidence level and 5% error margin. This resulted in the selection of 68 financial transactions which were further weighted by Regional proportion of transactions per year to derive a representative number of transactions by Region for examination each year.

Report Phase. The report phased entailed: formulation of an opinion based on the information obtained from CCG and DFO for inclusion in the audit report; coordination for the development of a management action plan; and finally, presentation of the audit report to the Departmental Internal Audit Committee (DIAC) for approval.

3.0 OBSERVATIONS AND RECOMMENDATIONS

3.1 Statement of Assurance

In our professional opinion, sufficient and appropriate audit procedures have been completed and sufficient evidence gathered to support conclusions contained in this report. The conclusions are based on a comparison of the situation against the audit objectives as they existed at the time of the audit.

3.2 Program Delivery

3.2.1 General

The auditors conducting the engagement gained a good appreciation for the unique working and cooperative relationship between the CCG, the CCGA and Joint Rescue Coordination Centres in their collaborative effort to enhance maritime safety. Conversely, the close association between the CCG and the CCGA can also make it difficult for the CCG to maintain a distinct arms-length relationship while supporting the CCGA and administering the Program. Notwithstanding, CCG Program staff interviewed demonstrated enthusiasm and support for the Program and spoke highly of the CCGA volunteers and the contribution of the CCGA to maritime safety.

3.2.2 Roles and Responsibilities

The Program was centrally developed and is coordinated by CCG HQ/Director General Maritime Services through Manager SAR, the designated National Functional Authority. Implementation is managed regionally by the Assistant Commissioners (AC) through their Directors Maritime Services/Superintendents SAR and routine coordination with their affiliated CCGAs is provided by their subordinate level Program staff. The Program design generally relates to organizational structures of the CCG and the CCGA but roles, responsibilities and expectations are not clear in all respects.

The CCG accountability at HQ and Region level is not appropriately reflected in Program documents thereby creating some confusion as to the extent of authority delegated to Regional managers and how their chain of command should be involved.
CCG Regions are committed to the Program but may not be engaged to their full potential due to general uncertainty about authorities and national expectations. Two CCG Regions felt they should have a greater role in general decision processes. Concern was expressed that Regional interaction between the CCG and the CCGA occurring at only the operational-tactical levels impedes strategic planning and that CCG higher levels of authority should also become engaged. Making a clear distinction between the activity levels across the Program may facilitate improved accountability within both organizations and also promote more effective strategic planning by the CCGA.

Unclear authorities and responsibilities within the CCG for Program management compromises effectiveness/efficiency and increases the likelihood of appropriate management levels not being engaged where required and risk of less desirable decisions and agreements evolving. Moreover, the current focus on operational level management does not facilitate CCGA strategic level coordination with CCG officials.

Recommendation

1. The Director General Maritime Services should clarify the role and authority of CCG managers for Program management and coordination with CCGA officials at both national and regional levels.

3.2.3 Boating Safety

The boating safety function of the Program was a CCG mandate at the time of the 2002 renewal but the function was later transferred to Transport Canada (TC) along with the Office of Boating Safety (OBS). While the activity is compatible with the general objectives of the CCG it is no longer a departmental function. The CCG initially responded to the change by endorsing a 2002 Memorandum of Understanding (MOU) with TC and the CCGA to reserve $200K of existing departmental contribution funds annually for allocation at the discretion of the OBS thereby enabling the CCGA to continue its role in support of the boating supporting under the existing Program.

Current interdepartmental coordination and control measures are inadequate for effective joint monitoring to ensure boating safety activities are conducted as desired by the OBS and that total expenditures remain within $200K nationally.

Boating safety activities are planned and coordinated between the CCGA and OBS often with the CCG left out of the process until payment certification is required. CGG Program staff responsible to certify payments pursuant to Financial Administration Act (FAA) Section 34 is not comfortable with the current monitoring processes which often fail to provide sufficient information from OBS to confirm the satisfactory performance of approved activities.

All CCG Regions use a common ABACUS line object to record boating safety costs but not all use the same cost allocation methods thereby diminishing the accuracy of departmental financial records. Table 2 demonstrates reporting differences between the CCG and the CCGA for boating safety expenditures. The source documents for these figures are not sufficiently detailed to facilitate a statement with confidence as to whether or not the boating safety allocation was exceeded.

Table 2. Comparison of Reported Boating Safety Expenditures

Reporting Source	FY 05/06	FY 04/05	FY 03/04	Sum all FYs
CCGA Audited Financial Statements	$228,322.00	$270,566.00	$263,239.00	$762,127.00 (note 1)
Departmental records (ABACUS/MRS – note 2)	$366,099.38	$184,827.19	$114,695.47	$665,622.04 (note 1)
Note: In accordance with the 2002 MOU the fixed annual allocation is $200K

When the CCG originally agreed $200K would be protected for boating safety, some less obvious fixed and variable costs such as insurance, administration and in-kind assistance were not considered; therefore, if the appropriate portion of these costs are attributed to CCGA boating safety activities, the true value of the contribution would exceed $200K. The CCG National Program staff are sensitive to the need to assess these costs but could not provide an estimated value at the time of the audit.

The Evaluators who conducted the evaluation of the Program in parallel to this audit concluded the CCG should only include activities in a renewed Contribution Program that are specific to the DFO and CCG mandate.

Recommendation

2. The Commissioner of the CCG should ensure that only activities relating to the CCG mandate are included in the renewed CCGA Contribution Program. In the absence of a mandate change, the renewed Program should not include the boating safety function.

3.2.4 Contribution Agreements

The six CCGA CAs are identical except where reference is made to the recipients’ area of operations. This is a reasonable approach for operational CCGA Regions all of which have the same mandate and may be reimbursed the same type of expenditures; however, this common template is less relevant to the CCGA National which provides mainly a coordinating and/or administrative function with no direct SAR, training or boating safety role.

The CA for the National Association does not reflect the recipient’s responsibilities [Cabinet Confidence] nor specify expected performance. A review of past practices shows the Association has operated within the greater operational mandate of the CCGA, but not necessarily within its own limited mandate reflected in Program documents.

CCG HQ Program staff use CCGA National’s annual budget submissions and periodic meetings to ensure funded activities are consistent with the CA and Program expectations. However, since its CA is not mission specific, the recipient has consistently received contribution funds [Cabinet Confidence] This is not to suggest funds were used inappropriately but rather to demonstrate a control weakness that needs to be addressed. [solicitor-client privilege]

Section 8.4.3 of the Policy on Transfer Payments permits the use of one recipient to further disperse funds to other recipients as done by the National Association dispersing reserve and competition funds to Region CCGAs. However, the provisions of Annex C of the TBS policy states additional provisions to be included in CAs with recipients who further distribute the contribution amounts; in this instance the requirements have not been satisfied but should if Program renewal envisions such a role for the National Association.

CAs for the operational CCGA regions do relate their roles and activities [Cabinet Confidence] but there is potential to provide additional clarity in areas such as administration; this issue is addressed further in Section 3.2.5. Similarly, if boating safety is removed from the Program as discussed in Section 3.2.3, all CAs and related documents must change accordingly.

Recommendation

3. The Director General Maritime Services should ensure that the responsibility of the CCGA National Association is clearly stated in its CA in a manner that is respectful of other Program recipients and their unique relationships with affiliated CCG Regions.

3.2.5 Practices and Procedures

The primary guidance documents to implement the Program are the CAs specific to each CCGA Region’s area of responsibility, the CCGA NG promulgated by the CCG and the co-authored CCGA Training Standards. Program managers make extensive use of the latter two publications but rely primarily on the NG to manage the Program. It should be noted that the only documents actually signed by both parties to the Program is the CA for each individual recipient; acceptance of the other documents by both parties is implied.

Each CCG Region has a slightly different working relationship with their affiliated CCGA association due in part to geography, demographics and the operating approach employed by each association. Generally all CCG Regions enjoy a cooperative working relationship with their affiliated CCGA but where the two parties have differing views on issues, interaction for change management is more awkward. CCG managers in two Regions felt clearer guidance from the CCG HQ concerning expectations and standards is needed; this position is supported by audit observations that indicate additional clarity would likely facilitate improved effectiveness and efficiency across the Program.

Neither the CAs nor NG specify limitations or restrictions concerning the use of contribution funds for less clearly defined activities such as those reflected in Schedule A, Administration and Organization of each CA. Accordingly it is often difficult for managing CCG Regions to impose change locally to maximize Program effectiveness and efficiency. Table 3 provides an overview of administrative costs as reported over a three year period. Due to Management Reporting System (MRS) coding errors, the CCGA’s audited financial statements provide the most detailed expenditure picture; however, the accounting and presentation methods differ by Region, therefore, the values presented are a best estimate and may not be precise in all respects. To present regional data consistently in the table, the administrative costs shown represent all reported expenditures that could not be attributed to the common reporting categories of SAR Operations, Prevention (boating safety) or training. In viewing the data, one may conclude that a relatively high proportion of contribution expenditures can be attributed to administration.

Table 3. CCGA Administrative Costs

Line Object 1017			CCG MRS Reports				CCGA Audited Financial Statements
Administration			FY 05/06	FY 04/05	FY 03/04	Total	FY 05/06	FY 04/05	FY 03/04	Total
National			1,571,000	1,711,000	1,395,000	4,677,000	1,499,921	1,519,499	1,302,084	4,321,504
Newfoundland			0	502	520	1,022	238,994	244,500	215,280	698,774
Maritimes			120,000	160,000	150,000	430,000	342,849	351,656	346,312	1,040,817
Quebec			422,731	0	0	422,731	331,957	371,615	335,224	1,038,796
Central & Arctic			108,041	134,746	125,625	368,412	209,660	219,357	211,130	640,147
Pacific			225,000	270,000	0	495,000	309,843	389,280	594,242	1,293,365
Totals			2,446,772	2,276,248	1,671,145	6,394,166	2,933,224	3,095,907	3,004,272	9,033,403
% of Total year			50%	46%	37%	45%	60%	63%	67%	63%
% Total Administrative Costs without National Association Insurance Premiums included.							46%	50%	46%	47%
Notes:	1.	MRS allocations against line object 1017 administration are inconsistent and not a true representation.
	2.	CCGA Financial Statements values include expenditures annotated as administration and all others that are not directly attributable to SAR operations, training or boating safety; additionally, capital equipment costs are not included. CCGA Quebec capital equipment costs were not clear, therefore, communication and supply figures were deducted from administrative totals as an estimated value.

All Regions provide the CCGA in-kind assistance but there is no direction concerning the type and extent or if/how the value of such assistance should be recorded and factored into the overall cost of the Program. Regions vary in the extent of in-kind assistance they provide but none accurately capture or report the total value; therefore, the true cost of the Program is not known. One region estimated they provide approximately $48K with a large portion being HR costs. Currently CCG managers have much latitude and flexibility in managing their Program with the use of in-kind assistance but this also affords a greater funding advantage to some associations thereby unintentionally creating potential inequity across the Program.

The National Association pays all honorariums while employee salaries and benefits are paid from Regional funding allocations. There is no consistency across regions concerning the number and type of employees that may be paid from contribution funds. In recent years, the CCG has sought to impose a cap of $130K per region but this has not been respected by all as shown in Table 4 below. Essentially, the salaries and benefits paid account for approximately 17% of all contribution costs, and this value increases marginally if honorariums are included.

Table 4. Two Year Comparison of CCGA Employee Costs

Recipient/Item	Salaries, Benefits and Honorariums
Recipient/Item	FY 2004-05	FY 2005-06	#Employees
CCGA National	$108,322.00	$155,151.00	Unclear
CCGA Central and Arctic	$72,677.00	$68,158.00	Two
CCGA Newfoundland	$101,920.00	$87,857.00	Three
CCGA Pacific	$194,000.00	$263,670.00	Five
CCGA Maritimes	$137,191.46	$139,632.55	Three
CCGA Quebec	$197,918.00	$127,000.00	Three
Honorariums	$35,000.00	$35,000.00	-
Totals	$847,028.46	$876,468.55
Percentage of Annual Contribution	17%	18%	-

Lacking clear central guidance facilitates inconsistency and increased risk. The cost of inefficiencies resulting from current practices cannot be accurately measured due to differing expectation interpretations across the country. The data collected from departmental systems is not sufficiently accurate to reliably demonstrate this issue.

Recommendation

4. The Director General Maritime Services should consult with CCG Regional authorities to identify issues needing clarification and promulgate the appropriate direction to facilitate improved Program consistency, effectiveness and efficiency.

3.2.6 Risk Management

Risk Based Audit Framework (RBAF)

The 2002 RBAF developed for the Program is not well known or understood at Regional level. The Risk Assessment is of limited value to Program delivery as the document fails to clearly identify risks or mitigation strategies relevant at Regional level. The existing document is currently under revision as a part of the Program renewal process.

CCG Regions are cognizant of potential risks and employ various mitigation strategies based on their own informal assessments. Issues such as safety, legal/liability, and financial risks are key considerations but the extent of required risk mitigation measures lacks clarity. This situation may be improved through the identification of Program liability as discussed later in this section and engaging CCG Regional staff in developing and maintaining the Program risk management framework and mitigation strategies.

Liability and Control

Liability Identification

The CCG implemented various activities to periodically assess the operational effectiveness and activities of the CCGA as a means to transfer knowledge and contribute to the maintenance of a strong and effective SAR capability. In other instances we consider that aspects of the CCG’s activities are undertaken as a means to control and monitor the activities and operations of the CCGA. Some of these activities are not sufficiently comprehensive or consistent to constitute a complete assessment. In our opinion, this can drive the perception that the CCG is accepting more responsibility than intended.

Departmental legal staff has been working with the CCG in recent years to identify potential liability issues pertaining to the Program but liability issues are generally examined on a case by case basis rather than examining the Program as a whole to determine whether the current or other delivery methods present less risk.

Evaluation versus Control

Regions are cognizant of potential risks for the Program delivery concept and employ various mitigation strategies based on their own informal risk assessments. Potential liability related to safety, financial and legal issues are key considerations but the extent of required risk mitigation measures lacks clarity and as a result each Region implements different strategies to monitor CCGA capabilities and standards. For example:

Program staff in one region attempt to conduct an evaluation exercise for the CCGA on a five year cycle to assess vessel and crew standards. They recognize this only examines a small portion of the CCGA in the region and specifically only those vessels and individuals that chose to participate. Moreover, CCG resource limitations and other higher priorities make it difficult to regularly and effectively assess CCGA capabilities.
CCG Pacific is developing a "Safety Audit" as a mitigation strategy for locally identified risk in the areas of safety, individual/collective qualification, operational readiness and liability. If the "Safety Audit" approach is consistent with the national HQ’s vision for risk mitigation and monitoring, the concept may be worth consideration for broader application; this may be a reasonable risk mitigation strategy but it should not conflict with the TC inspection and safety mandate.

The current delivery concept places emphasis on the CCG confirming and/or assessing the recipients’ capabilities, readiness and safety under the assumption this presents the least risk to the Crown. However, in so doing, the CCG may inadvertently accept more responsibility then intended and not hold the recipients fully accountable as independent Corporations with Program obligations to satisfy.

Safety audits and training evaluations may be a suitable means of facilitating knowledge transfer but can be resource intensive. Moreover, it is unclear if greater CCG involvement in what may be viewed as CCGA accountability and management functions increases potential liability of the Crown. If safety audits/training evaluations are performed, they should be consistent in application and supportive of the CCGA as a separate entity rather than creating a situation whereby the CCG in actuality or perception, assumes greater control or oversight of CCGA.

The CCG routinely provides office and building space to the CCGA through in-kind assistance but the audit did not observe any evidence of no-cost leases or other instruments to mitigate risk to the Crown. Similarly, the majority of equipment loans are not adequately documented. It is unclear if CCG Regional loans are managed in accordance with the Public Property Loan Regulations and DFO policies.

It may be prudent to clearly separate knowledge transfer and management functions by making the CCGA associations fully accountable for their own operations and training, and to ensure only appropriately qualified personnel are available for SAR response. This approach should eliminate or reduce the need for the CCG Regional staff to perform extensive resource intensive validation/certification exercises of the CCGA as currently done. Under such an approach:

The CCG should establish the maritime SAR training and operational standards that must be met by the CCGA for participation in maritime SAR operations and related activities.
To clearly delineate responsibilities for the delivery of training, the CCG should specify what may be provided or supported by the CCG versus that which is the responsibility of the CCGA. Similarly, training beyond the minimum SAR capability established by the CCG is the responsibility of the CCGA.
The CCGA associations as independent entities should be exclusively accountable for the management and operation of their organizations’ in all respects. This should include but not be limited to monitoring their own capabilities, training and operational readiness to ensure only safe and appropriately qualified members, crews and vessels participate in SAR and related operations.
The loan of government equipment, office/building space or grounds should be recorded and monitored in accordance with the loan regulations and related policies, including the use of appropriate lease/liability waivers.

All operational CCG regions commit human and other resources to CCGA training to monitor CCGA standards annually yet it remains unclear if such an effort is actually needed and how it relates to liability. [solicitor-client privilege]

Lacking clarity with respect to potential liability in administering the Program creates different interpretations across Regions and does not facilitate consistent and prudent mitigation strategies across Regions, and limits management’s ability to enact effective Program change.

Recommendation

5. The Director General Maritime Services should initiate a Program liability assessment to facilitate the implementation of a delivery methodology that minimizes potential liability of the Crown and places appropriate accountability on the contribution recipients.

Departmental Information Systems

Selected CCGA personnel have access to Departmental Intranet, email and helpdesk support but the extent of access afforded to online Government information is not known. The audit did not seek to identify all persons with access or to confirm if all were properly security screened. The names of three CCGA personnel were checked against the Government Electronic Directory Services (GEDS); all are listed in the system under the CCG, generally in a manner that would cause one to conclude these persons are Government employees. Transaction testing revealed that CCGA personnel presented themselves as CCG/DFO employees on more than one occasion to benefit from reduced Government hotel rates.

If selected access to CCG information is substantiated and supported by Government and Departmental Security Policies, strict access protocols should be established that prevent access to any internal Government secure sites (i.e. GEDs) except for the specific CCG information as substantiated. General site access should be prohibited and no CCGA member/employee should be provided a Government email address.

Recommendation

6. Director General Maritime Services should seek guidance from the Director General Information Management and Technology Services and the Director General Real Property Safety and Security to confirm requirements and develop protocols for CCGA access to Departmental Information Systems and facilities. These protocols should specify CCGA access requirements/limitations, security requirements and user obligations.

3.3 Terms and Conditions

3.3.1 Allocation of Funds

CCGA Associations submit their annual business plans to the CCG in lieu of a separate request for contribution funding. The available contribution funding is subsequently allocated to Regions by the CCG HQ based on the provided business plans and discussions during a decision meeting involving the CCG personnel and members of the CCGA National.

Business plans examined for the audit period did not demonstrate sufficient detail for decision making and lacked detailed information about the intended use of the funds by category and timeframe. Accordingly the business plans were less useful than desirable and required decision makers to fill any information gaps with their personal knowledge/perception of past recipient performance and future intent. However, recent process change requires the business plans to be coordinated between the applicant (CCGA Region) and the affiliated CCG Region. The plans are examined by CCG Program staff for compliance with Program and SAR operational objectives; and once agreeable to both parties, the plan is forwarded to CCG HQ through the Assistant Commissioner for funding consideration.

There are no established criteria to allocate Program funds at the National level. Funding decisions should be made exclusively by the CCG based on individual recipient applications and CCG operational priorities. The inclusion of only one recipient in the allocation meeting may be viewed as affording an unfair advantage since only one of the six recipients is able to directly present their case with the decision makers. Accordingly, one may conclude that not all recipients have equal access to contribution funds.

The independence and equal status of the six recipients may not be truly recognized by the CCG in all respects as the CCGA National is afforded greater access to HQ decision authorities than the other recipients and thereby has greater influence in funding and management decisions. The perception of a highly centralized management and control structure may preclude exploiting the full potential of CCG and CCGA planning and Program enhancement.

Recommendation

7. The Director General Maritime Services should establish a clear process to allocate funds to recipients that is understood by all parties.

3.3.2 Contribution Payments

Advance payments to the CCGA are the norm in all Regions because recipients do not have sufficient alternate resources to conduct business without contribution assistance. However, all but Central and Arctic advance funds four to six times annually rather than monthly as specified in the T&C and the Treasury Board Secretariat (TBS) Policy on Transfer Payments.

No CCG Regions are compliant with the specifics of the cash management policy as specified in Section 7.6 of the TBS Policy on Transfer Payments either in terms of payment frequency or fully accounting for previous advances prior to issuing the next.

Advances are not based on CCGA cash flow requirement forecasts. Generally the CCG Regions determine the amount of funds to be advanced by dividing the approved annual allocation by the anticipated number of payments.
CCGA regions occasionally complained they did not have sufficient funds at the start of a new FY. This may in part be attributable to a failure to submit accurate cash flow forecasts specifying their actual requirements to those who are empowered to authorize advances.
Central and Arctic is the only Region that matches CCGA expenditures to the advances issued in attempt to respect the spirit of the cash management policy. Despite significant quality work by Program personnel the expenditures are often matched up to three months in arrears thereby diminishing the value of effort because the work does not demonstrate the current status of funds advanced to identify surpluses or interest due to the Crown.
One region does not monitor advanced funds other than viewing one substantial invoice and occasional discussions with the affiliated CCGA staff.

Although the Policy on Transfer Payments and the T&C specify monthly payments, there may be scope to seek an exemption under Section 7.6.8 of the Policy. Given that the CCGA Contribution Program has shown stability over several years the overall financial risk may be seen as low if the CCG employs sufficient monitoring and verification controls. A quarterly advance payment approach may be suitable but it is important that the specifics of the cash management policy be employed. Specifically:

Advances should be based on reasonably accurate cash flow forecasts and not generic division of the annual allocation in similarly sized portions to match the desired payment frequency.
Recipients should fully account for previously advanced funds prior to receiving subsequent advances based on cash flow requirements.
Outstanding and/or unaccounted amounts from the previous advance should be deducted from the next; thereby ensuring recipients are not overpaid or retain a surplus.
If Treasury Board approves an exemption to the cash management policy that allows the payment of advances less frequent than monthly, the recipient is obliged to pay interest on the advanced amounts. Section 7.6.9 of the Transfer Policy states in part:

"Where exception to this cash management policy has been approved by Treasury Board, departments must, in arriving at the amount of the transfer payment, deduct the amount of interest cost reasonably expected to be incurred by the government for such an exception, unless otherwise approved by the Treasury Board."

Failure to respect the cash management policy complicates effective monitoring by the CCG and increases financial risk as recipients may be over or under advanced, and funds due to the Crown may not be correctly identified. The failure to effectively cash manage the Program has allowed surpluses due to GST rebates/overpayment due to the Crown to go unnoticed and/or not recovered as further discussed in Section 3.3.3 below.

3.3.3 Account Verification and Monitoring

Our audit included an examination of the payment requisitions and supporting evidence to determine whether the controls are appropriate prior to exercising FAA Sections 33 and 34. We also examined the recipient audit process and the audited financial statements to determine their appropriateness as a means available to the CCG for monitoring purposes, and whether if any audit observations, conclusions and notes presented would be of interest for the current audit.

Regions employ some form of monitoring but the extent and quality is inconsistent. One CCG Region checked only one significant payment invoice while another checked all individual items claimed. However, it is important to note that Program managers seldom change and are familiar with the recipients’ requirements and activities, and are able to complement financial monitoring with this knowledge to provide a greater level of assurance on the propriety of expenditures.

Section 34 monitoring primarily focused on expense summary printouts of CCGA financial management software with further checks of claims/receipts where deemed appropriate. Central and Arctic retained copies of the CCGA claims/receipts; they were submitted to DFO finance after signing a Section 34 certification. Other Regions viewed and returned the expense records provided. The CCGA must retain their records for five years and to make them available to the CCG upon request. CCGA Regions have been cooperative with their affiliated CCG Regions in this regard. Only one Region documented the verification steps taken by Program staff.

FAA Section 33 is approved by DFO finance for all Regions and all produced valid specimen signature cards to demonstrate those who endorsed Section 34 were authorized to do so. Each Region applies unique account verification procedures. However, the transaction files examined did not clearly demonstrate if verification was done and if so to what extent.

Recipient audits are conducted every three years by a firm contracted by the CCG HQ. Audit reports generally provided useful information that could assist managers in identifying overpayment and/or non-compliance with the T&C. The viewed reports are indicative of quality work, but some implied a financial audit was performed while others suggested a broader scope. Notwithstanding, expenditure compliance with terms of the CA was a consideration in all audit reports.

One recipient audit report was available for five Regions for the audited period of FY 02/03 to FY 05/06. National was scheduled for 2006 and the report was not available at the time of the audit; however, a recipient report for from the previous audit cycle was examined. Additionally, where provided, these earlier audit reports for other regions were also considered for comparative purposes.

Our examination of the recipient audit reports did not reveal any significant errors except for the overpayment of taxes and year end surpluses. The CCG elected not to undertake recovery in favour of the CCGA retaining the funds for Program costs in subsequent years.

Audited financial statements are provided annually by all recipients as required by the T&C but submissions are often late. The presentation format differs across Regions and the information provided is not specific to the contribution, therefore, it is not clearly evident which expenditures are attributed to the contribution funds versus those from other sources of income. Moreover, not all indicate tax reimbursements and half the recipients showed year end surpluses. There is no evidence to indicate these surpluses were confirmed and treated as overpayments.

Reimbursement claims were not always net of GST/Harmonized Sales Tax (HST) as specified in the T&C. CCGA Associations that were reimbursed taxes from contribution funds also claimed tax rebates at year end. This double claim constitutes an overpayment and there is no evidence of recovery action. Several recipient audit reports observed on this issue for specific years but it is unclear if overpayments occurred in all Regions. Table 5 shows tax rebates received as reported in CCGA Audited Financial Statements. Figures shown in bold were identified through audit work as representing tax amounts that were reimbursed through the contribution and for which the recipient also claimed a tax rebate at year end.

Table 5. CCGA Tax Rebate Summary

CCGA			Estimated Tax Rebates (Potentially Due to Crown)
Region			FY 05/06	FY 04/05	FY 03/04	Totals
National			Unknown	Unknown	Unknown	Unknown
Newfoundland			10,448.00	13,445.00	12,038.00	35,931.00
Maritimes (HST)			14,964.00	12,244.00	12,502.00	39,710.00
Quebec (PST/GST)			34,298.00	29,945.00	37,538.00	101,781.00
Central & Arctic (GST)			10,536.00	8,891.00	9,771.00	29,198.00
Pacific			24,917.00	Unknown	Unknown	24,917.00
Totals			95,163.00	64,525.00	71,849.00	231,537.00
Notes:	1.	Source for above data is CCGA audited financial statements. Not all statements provided a clear/complete disclosure of GST rebates.
	2.	Figures shown in bold were identified through audit work as representing tax amounts that were reimbursed through the contribution and for which the recipient also claimed a 50% rebate at year end.

The recipient audit reports and CCGA audited financial statements are seldom analyzed by CCG HQ or Regional Program staff to determine any trends that may need to be addressed or to take remedial action if required.

The CCG HQ is preparing guidance to the CCG Regions to facilitate the proper accounting of GST/HST payments under the Program.

Recommendation

8. The Director General Maritime Services should in collaboration with the Director General Finance provide guidance to Program Managers concerning minimum requirements for the verification of CCGA advances/payments and application of the cash management policy specified in the TBS Policy on Transfer Payments .

4.0 MANAGEMENT ACTION PLAN

Recommendations	Management Action Plan	Office of Primary Interest	Initial Target date
1. The Director General Maritime Services should clarify the role and authority of CCG managers for Program management and coordination with CCGA officials at both national and regional levels.	CCG will clarify the role and authority of CCG managers for Program management and coordination and insert the roles in the 2007 edition of the CCGA National Directives.	Director General, Maritime Services	May – June 2007
2. The Commissioner of the CCG should ensure that only activities relating to the CCG mandate are included in the renewed CCGA Contribution Program. In the absence of a mandate change, the renewed Program should not include the boating safety function.	The CCG has ensured that the new CCGA Contribution Agreements only provide funding for SAR Operations and SAR Prevention activities with no reference to Transport Canada’s boating safety mandate.	Commissioner	Completed.
3. The Director General Maritime Services should ensure that the responsibility of the CCGA National Association is clearly stated in its CA in a manner that is respectful of other Program recipients and their unique relationships with affiliated CCG Regions.	CCG will ensure that the responsibility of CCGA National will be included in the new Contribution Agreement.	Director General, Maritime Services	June 2007
4. The Director General Maritime Services should consult with CCG Regional authorities to identify issues needing clarification and promulgate the appropriate direction to facilitate improved Program consistency, effectiveness and efficiency.	The DG Maritime Services will identify the amount of in-kind services and other sources of assistance being provided by Coast Guard to the CCGA.	Director General, Maritime Services	May – June2007
5. The Director General Maritime Services should initiate a Program liability assessment to facilitate the implementation of a delivery methodology that minimizes potential liability of the Crown and places appropriate accountability on the contribution recipients.	CCG will conduct a program liability assessment of the CCGA Program.	Director General, Maritime Services	September 2007
6. Director General Maritime Services should seek guidance from the Director General Information Management and Technology Services and the Director General Real Property Safety and Security to confirm requirements and develop protocols for CCGA access to Departmental Information Systems and facilities. These protocols should specify CCGA access requirements/limitations, security requirements and user obligations.	CCG will seek guidance from the Director General Information Management and Technology Services and the Director General Real Property Safety and Security to confirm requirements and develop protocols for CCGA access to Departmental Information Systems and facilities.	Director General, Maritime Services	December 2007
7. The Director General Maritime Services should establish a clear process to allocate funds to recipients that is understood by all parties.	The DG Maritimes Services has established an interim annual allocation process for 2007/2008.	Director General, Maritime Services	Completed.
	The DG Maritimes Services will develop a standardized business planning template for subsequent years.		December 2007
8. The Director General Maritime Services should in collaboration with the Director General Finance provide guidance to Program Managers concerning minimum requirements for the verification of CCGA advances/payments and application of the cash management policy specified in the TBS Policy on Transfer Payments .	The CCG in collaboration with the Director General, Finance will develop guidelines for CCGA Program Managers concerning the minimum requirements for the verification of CCGA advances/payments.	Director General, Maritime Services	May – June 2007

APPENDIX A – PROGRAM COMPLIANCE SUMMARY

Step	Compliant Yes │ No		Observations
Compliance with Section 34 of the FAA:
Signed agreement exists	x		Signatories are not identified by name/appointment.
Funds are available	x
Specimen Signatures with Finance comply with delegated signing authorities.	x
Recipients are eligible under the terms and conditions of the Program.	x
Payments are made in accordance with the terms and conditions of the Program.		x	Only two Regions pay advances monthly and none conform to the cash management policy specified in Treasury Board Secretariat (TBS) Policy on Transfer Payments.
Person verifying compliance with the terms and conditions is authorized to do so.	x		One error was observed in transaction testing due to a change of authorities within the Region.
At least two persons work independently in issuing a transfer payment advance, or for reimbursement of contribution expenses or costs (segregation of duties)	x		Generally Directors sign for Superintendents and Superintendents sign for CCGA Coordinators.
Compliance with Section 33 of the FAA:
Documentation necessary to approve the payment is received and retained		x	Appropriate records are not maintained within the Department/CCG to demonstrate verification action taken. Only one Region maintained reasonably detailed records; records kept by DFO Finance.
Person authorizing Section 33 provides assurance on the adequacy of the Section 34 verification.		x	Terms and conditions relative to the Program and administering the cash management policy are not well understood. Regions report various sample test methodologies but this was not demonstrated in any of the samples examined during the conduct of the audit.
Advances/payments are entered in a timely and accurate manner in the financial system.		x	Payments entered based on information provided by CCG but accounting methods are not consistent across regions. Line object 1000 CCGA Advances, is not used by all regions; all but one use the same Line Objects (1016-1019) to track CCGA expense categories. For the Program as a whole, the values shown against the four line objects are not a true reflection of actual expenditures by category.
Specific to Program/Agreements:
Contribution has not exceeded maximum authorized amount.	x		The provision of in-kind assistance/support is not monitored.
There is a process to monitor if the CCGA has reported to the Minister on Stacking of Assistance		x	Not monitored; limited information may be gleaned from audited financial statements.
There is a process to monitor if any person lobbying on behalf of CCGA is registered pursuant to the Lobbyist Registration Act		x	Not monitored.
A process exists for CCGA Associations in declaring Debts Owing to the Crown		x	No year end overages were reported and there is no established process to declare debts owing to the Crown.
Advances are paid monthly and handled in accordance with the cash management policy.		x	The frequency of advance payments varies by Region but in general terms only two comply with the payment frequency. The cash management policy is not followed in any Region thereby making monitoring more difficult and less accurate.
RC managers have appropriate signing authority for providing advances?	x		Authorities are in accordance with Financial Delegations; however, specimen signature card formats are not consistent across Regions.
Progress reports are requested by Program managers from time to time on the activities funded.	x		There are no established standards but monthly printouts of CCGA financial management software is the typical monitoring tool
Rates of reimbursement are amended to reflect costs associated with the provision of voluntary services by CCGA (i.e. cost of operating vessels).	x		Well communicated to Regions by CCG HQ
Reimbursed costs are net of GST or HST		x	Sufficiently detailed records were only available in one Region to determine the method employed. In this instance the tested sample showed invoices submitted to the CCG were not net of GST and that the entire amount was reimbursed. Moreover, the CCGA claimed a GST rebate at year end and there is no record of the Program paid portion being reimbursed to the Crown. This issue was previously reported to the CCG in recipient audit reports for FY 99/00 and FY 03/04.
Auxiliary provided CCG with a satisfactory report on the previous year’s projects and activities within 90 days of end fiscal year.	x		Recipient reports are rolled up into a single document by CCGA-National. No CCG Program staff expressed dissatisfaction with the format or content of the report.
Auxiliary provided CCG with audited financial statement within 180 days of end of fiscal year.	x		Reports are not always submitted within the required timeline.
Recipient Audits have been done to ensure compliance with the Terms and Conditions and the TBS Policy on Transfer Payments.	x		Audits conducted of recipients under contract in accordance with the three year cycle. However, the statement of work in the contract engaging the audit firm does not specify compliance with the Terms and Conditions/TBS Policy on Transfer Payments. Audit reports show a strong financial basis with limited comment on general compliance issues.
Systems, procedures and resources are in place to ensure due diligence in approving transfer payments, verifying eligibility and entitlement, and for the management and administration of the Program.		x	There are no criteria to determine recipient annual funding allocations. Moreover, one recipient (CCGA-National) has an unfair advantage over other recipients by being directly engaged in the decision process. There are inconsistent and incomplete monitoring controls in place to effectively cash manage the Program as required by Policy.

APPENDIX B – LIST OF ACRONYMS

CA Contribution Agreement

CCG Canadian Coast Guard

CCGA Canadian Coast Guard Auxiliary

DFO Department of Fisheries and Oceans

FAA Financial Administration Act

FY Fiscal Year

GEDS Government Electronic Directory Services

GST Goods and Services Tax

HST Harmonized Sales Tax

HQ Headquarters

MOU Memorandum of Understanding

MRS Management Reporting System

NG National Guidelines

OBS Office of Boating Safety

OPI Office of Primary Interest

T&C Terms and Conditions

TBS Treasury Board Secretariat

TC Transport Canada

SAR Search and Rescue

Common menu bar links

Institutional links

Reports

Resources

Proactive Disclosure

Audit of the Contribution Agreements with the Canadian Coast Guard Auxiliary

Table of Contents

1.0 EXECUTIVE SUMMARY

1.1 Introduction

1.2 Statement of Assurance

1.3 Summary of Findings

1.4 Summary of Recommendations

2.0 INTRODUCTION

2.1 Background

2.2 Objective and Scope

2.3 Methodology

3.0 OBSERVATIONS AND RECOMMENDATIONS

3.1 Statement of Assurance

3.2 Program Delivery

3.3 Terms and Conditions

4.0 MANAGEMENT ACTION PLAN

APPENDIX A – PROGRAM COMPLIANCE SUMMARY

APPENDIX B – LIST OF ACRONYMS