Archived – Audit of the Ice Compensation Program for East Coast Commercial Fishers

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Project Number 6B085
Final Advisory Report
March 18, 2008

Table of Contents


1.0 EXECUTIVE SUMMARY

1.1 Introduction

1.2 Objectives and Scope

1.3 Statement of Assurance

1.4 Summary of Observations and Recommendations

2.0 Introduction

2.1 Background

2.2 Objectives and Scope

2.3 Methodology

3.0 observations and recommendations

3.1 Statement of Assurance

3.2 Overview

3.3 Applicant Eligibility

3.4 Payment Accuracy

3.5 Certification of Section 34 of the Financial Administration Act, (FAA)

3.6 Transfer of Program Funds to Service Canada, (SC)

3.7 Best Practices

3.8 Conclusion

4.0 Management action plan


1.0 EXECUTIVE SUMMARY

1.1 Introduction

In June of 2007, the Minister of Fisheries and Oceans Canada announced the Ice Compensation for East Coast Commercial Fishers Program. The Ice Compensation Program (ICP) was designed to provide short-term financial emergency assistance to approximately 5,100 commercial fishers in Northern Newfoundland and Labrador and Northeastern Quebec who were prevented or delayed from fishing because of worse than normal ice conditions occurring mid May to early July 2007.

The ICP was to be delivered as a Class Grant under the Departmental Class Authority. Funding for the ICP was estimated at $8.9 million for the fiscal year 2007-2008. This amount included up to $1 million for Operating expenditures and up to $7.9 million in Grant funds for potentially 5,100 applicants. The actual expenditures were $678,580 in Operating expenditures (this amount includes $660,800 for Service Canada (SC) which has yet to be finalized) and $1,650,418 in Grant funds and the actual number of applicants was 1,622.

On June 22, 2007, Fisheries and Oceans Canada (DFO) signed a Memorandum of Understanding (MOU) with SC to deliver the ICP. SC assisted DFO in the design and delivery of the program. Although delivered by SC, DFO was responsible for making final decisions as to the eligibility of applicants.

The ICP was an applicant driven program in which fishers could submit an application to be considered for Program funding. DFO had established criteria in which applicants had to demonstrate they fished out of an ice affected area, had been prevented from fishing, had a Fishing Employment Insurance (EI) claim in 2005 and 2006, and had exhausted their 2007 Fishing EI claim.

1.2 Objectives and Scope

The objective of the Audit is to provide assurance that:

  • Applicants were eligible for payment based on the Program Terms and Conditions;
  • Payments were accurately calculated;
  • Payments were properly certified under Section 34 of the Financial Administration Act (FAA); and
  • The amount transferred to SC to be distributed to applicants was accurately calculated.

The ICP was a DFO program delivered by SC. DFO was responsible for identifying areas that were affected by severe ice conditions and eligible for assistance. SC was responsible for identifying applicants who had a fishing Employment Insurance (EI) claim in 2005 and 2006 (and a fishing claim that exhausted in 2007). SC also calculated the payment amounts. SC recommended eligibility of applicants and payment amounts; however DFO was responsible for making the final decision as to the eligibility of the applicants.

The scope of the audit included a review of the processes employed by DFO officials to verify applicant eligibility and to certify under Section 34 of the FAA. It also included the accuracy of payments. Processes related to the certification of Section 33 of the FAA excluded from the scope of the audit as Section 33 of the FAA was exercised by SC. The audit included an examination of relevant Program documentation, interviews with DFO representatives in the National Headquarters (HQ) as well as DFO and SC representatives in the Newfoundland and Labrador Region, and a detailed review of files selected using statistical sampling methodology.

1.3 Statement of Assurance

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

1.4 Summary of Observations and Recommendations

To provide a Confidence Level of 95%, and an Expected Error Rate of 5%, the audit team conducted a detailed file review of 130 out of the 1622 applications that were received. The file review revealed no problems related to applicant eligibility or the calculation of payments for applicants. The processes put in place surrounding the certification of Section 34 of the FAA were applied as intended and applications were appropriately certified.

The MOU signed by DFO and SC identified the process by which funds would be transferred from DFO to SC. Other Government Department (OGD) Suspense Accounts were established for both Grant and Operating funds and SC was required to provide reports detailing expenses prior to charging these Accounts. As per the MOU, SC provided DFO with reports detailing Grant payments to applicants. To finalize the OGD Suspense Account for the Grant funds, it is recommended that the ADM, HRCS request a final report from SC detailing the Grant payments.

Subsequent to the signing of the MOU, SC requested a ruling from the Office of the Comptroller General (OCG) related to the procedures by which they should account for the Operating expenditures and how to recover them. As such, SC has not yet requisitioned any Operating expenditures. It is recommended that the ADM, HRCS monitor the status of discussion between SC and the OCG and process the payment as per the ruling ensuring sufficient documentation is provided to account for the payment.

2.0 Introduction

2.1 Background

In June of 2007, the Minister of Fisheries and Oceans Canada announced the Ice Compensation for East Coast Commercial Fishers Program. The Ice Compensation Program (ICP) was designed to provide short-term financial emergency assistance to approximately 5,100 commercial fishers in Northern Newfoundland and Labrador and Northeastern Quebec who were prevented or delayed from fishing because of worse than normal ice conditions occurring mid May to early July 2007.

The ICP was to be delivered as a Class Grant under the Departmental Class Authority. Funding for the ICP was estimated at $8.9 million for the fiscal year 2007-2008. This amount included up to $1 million for Operating expenditures, (including salaries, employee benefits and Operations and Maintenance (O&M)) and up to $7.9 million in Grant funds for potentially 5,100 applicants. The actual costs were $678,580 in Operating expenditures (this amount includes $660,800 for SC which has yet to be finalized) and $1,650,418 in Grant funds and the actual number of applicants was 1622.

Though ice is a common occurrence in the Region, it does not normally impede fishers. However, worse-than-normal ice conditions off the East Coast of Labrador and Northern Newfoundland had prevented many fishers from starting their 2007 fishing season (i.e., crab, lobster). The inshore (<65’) fleet in North Atlantic Fisheries Organization (NAFO) divisions 3K, 3L (in parts of Bonavista Bay and Trinity Bay) and 4R (north of Ferolle Point), was particularly affected. As well, there were fishers on the Lower North Shore of Quebec who had been prevented from fishing due to severe ice conditions that had persisted in that particular area.

Ice had been retreating from Bonavista Bay and area 4R. In area 3K, ice coverage had been dissipating but remained extensive with heavy concentrations, including "old" hard ice, in the inshore and mid-shore area. Conditions were particularly severe in the Baie Verte Peninsula.

About 2,500 affected fishers had exhausted their Employment Insurance (EI) benefits in April and another 700 fishers had exhausted their benefits in May, resulting in a prolonged period without any source of income until such time that they could commence fishing. An additional 1,800 fishers were expected to exhaust their benefits in June. As well there were 74 fishers in Quebec who were without any source of income as a result of the delay in fishing caused by these severe ice conditions.

Many of those affected by severe ice conditions were suffering serious hardship. Their Fishers’ EI had run out, savings were minimal and there were few economic alternatives to earn non-fishing income. The crab fishery was the most sensitive to the delays caused by current ice conditions, due to early closure of the season necessitated by soft-shell crab (crab that have moulted in their shell). When the incidence of soft-shell crab reaches a threshold based on the soft-shell protocol, Fisheries and Oceans Canada (DFO) closes the fishery to ensure conservation. Hence, the relatively short crab fishing seasons are related to fish conservation objectives.

While bays were impacted by ice, a number of fishers were living without any income. To address this, DFO designed this emergency response program that would provide compensation in the form of a grant to affected fishers. On June 22, 2007, DFO signed a Memorandum of Understanding (MOU) with Service Canada (SC) to deliver the 2007 ICP. SC assisted DFO in the design and delivery of the program.

Providing compensation to fishers affected by severe ice conditions is consistent with other relief programs provided to Canadians whose livelihoods have been significantly affected by extreme environmental conditions (such as drought and flooding).

2.2 Objectives and Scope

The objective of the Audit is to provide assurance that:

  • Applicants were eligible for payment based on the Program Terms and Conditions;
  • Payments were accurately calculated;
  • Payments were properly certified under Section 34 of the Financial Administration Act (FAA); and
  • The amount transferred to SC to be distributed to applicants was accurately calculated.

The ICP was a DFO program delivered by SC. DFO was responsible for identifying areas that were affected by severe ice conditions and eligible for assistance. SC was responsible for identifying applicants who had a fishing Employment Insurance (EI) claim in 2005 and 2006 (and a fishing claim that exhausted in 2007). SC also calculated the payment amounts. SC recommended eligibility of applicants and payment amounts; however DFO was responsible for making the final decision as to the eligibility of the applicants.

The scope of the audit included a review of the processes employed by DFO officials to verify applicant eligibility and to certify under Section 34 of the FAA. It also included the accuracy of payments. Processes related to the certification of Section 33 of the FAA excluded from the scope of the audit as Section 33 of the FAA was exercised by SC. The audit included an examination of relevant Program documentation, interviews with DFO representatives in the National Headquarters (HQ) as well as DFO and SC representatives in the Newfoundland and Labrador Region, and a detailed review of files selected using statistical sampling methodology.

2.3 Methodology

The engagement complied with Treasury Board of Canada Secretariat Policy on Internal Audit. The work included interviews with departmental and Service Canada officials responsible for the development and implementation of the Program as well as an examination of Program documentation. Detailed file review were conducted on a statistical basis to provide assurance related to the processes utilized to certify payments and the compliance with applicable policies and the Program Terms and Conditions.

Due to the experience of SC in delivering such programs, the short duration and targeted nature of the Program and the fact that DFO were collocated in SC offices and retained final decision making authority as to applicant eligibility, the Program was rated as low risk. As such applications were reviewed on a statistical basis to provide a Confidence Level of 95%, and an Expected Error Rate of 5%.

3.0 Observations and Recommendations

3.1 Statement of Assurance

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

3.2 Overview

To provide a Confidence Level of 95%, and an Expected Error Rate of 5%, the audit team conducted a detailed file review of 130 out of the 1622 applications that were received. Prior to conducting the file review a detailed checklist was prepared to provide assurance related to applicant eligibility, payment accuracy and certification Section 34 of the FAA processes. The checklist was applied as intended and the results of the file review are outlined below.

3.3 Applicant Eligibility

Program Terms and Conditions stipulated that to be eligible for payment, fishers had to fish out of a port that was affected by severe ice conditions, have received fishing Employment Insurance (EI) benefits in 2005 and 2006, and had to have exhausted their fishing EI claim for 2007. The deadline for submitting an application was August 4, 2007. If the applications were deemed ineligible by DFO, who had the final program approval, an appeal of the decision could be registered by applicants with the Eligibility Review Committee established by DFO.

As part of the file review conducted, the audit team verified applicant eligibility. To verify eligibility of the applicants, we confirmed the postal code listed on the application to a list of eligible postal codes by affected area. For applicants who were not the skipper or owner of a vessel, applications were verified to ensure the Commercial Fishing Vessel number and name of the vessel owner were identified. Confirmation that the applicant had received fishing EI benefits in 2005 and 2006 and their benefits had expired in 2007 was completed by verifying the EI history of applicants prepared by SC that was attached to the application. The date stamp by SC on the application was verified to make sure it was submitted on or before the August 4, 2007 Program deadline. If applicant was accepted based on initial screening, the application was dated and sent to DFO officials for certification of Section 34 of the FAA. If rejected based on the initial screening completed by SC, applications were subject to further screening by DFO who had the final decision on applicant eligibility.

As part of the screening procedures employed by SC, they were required to reject all applications in which the applicant indicated they fished out of an ice-affected port, but did not reside in the area. These applications had to be verified by DFO to determine if the applicant was associated with a vessel that fished out of an ice affected port. Utilizing license and vessel registration system information, DFO officials were able to verify if an applicant did fish on a vessel that fished out of an ice affected port. If so, the applicant was accepted.

The file review revealed no issues related to the processes employed to verify applicant eligibility.

3.4 Payment Accuracy

Program Terms and Conditions stated that applicants were eligible for a grant payment of up to $377 per week. The maximum number of weeks payable was based on the postal code of the applicant. Applicants were eligible to receive payments two weeks following the final 2006/2007 fishing EI benefits payment, or the start date of the program for their specific area, whichever was later. Fishing earning (including sealing), but not other income would be deducted from ICP payments from the week they are earned and from subsequent weeks of the Program.

As part of the file review, the audit team verified accuracy of the payment calculations. The audit team verified the period of eligibility and the number of eligible weeks for the applicant based on their postal code. In addition, the fishing EI benefits reports prepared by SC were verified to ensure the applicants had served the required waiting period prior to receiving payment. When fishing earnings were reported by the applicant, the audit team verified that these amounts were correctly applied in calculating the grant payment amount.

The file review revealed no issues related to calculation of grant payments.

3.5 Certification of Section 34 of the Financial Administration Act, (FAA)

Section 34 of the FAA stipulates that no payment shall be made unless a person with the proper delegated authority certifies that the payee is eligible or entitled to the payment. This applies to transfer payments. For grants, the officer authorizing the payment under Section 34 must be satisfied that the right amount is sent to the right person.

The audit team reviewed the Program approval documentation to determine who was accountable for certifying Section 34 of the FAA. As part of the file review conducted, files were examined to determine who signed Section 34 of the FAA; the signature cards for these employees were then verified to determine if they in fact had the required authority. In addition, the audit team determined what processes were employed by those certifying Section 34 of the FAA and as part of the file review, verified that those processes were followed.

The Program approval documentation for the Ice Compensation for East Coast Commercial Fishers indicated this Program was a Class Grant and was being delivered under the Departmental Class Authority. As such, the authority to approve payments is as per the DFO Departmental Delegated Authorities Chart. As part of the file review, files were verified and all the files examined contained a Section 34 signature recommending payment. The specimen signature cards for each of the employees who certified Section 34 of the FAA were reviewed and the employees had the authority to certify Section 34 of the FAA.

Applications were submitted to Services Canada, (SC) who completed an initial screening of applicant eligibility and calculated the payment amount based on the Program Terms and Conditions. Applications were then transferred to DFO for certification of Section 34 of the FAA. DFO Policy and Economics Branch staff from the Newfoundland and Labrador Region were collocated in the SC offices for the duration of the program and reviewed applications to certify Section 34 of the FAA. To facilitate the certification of Section 34 of the FAA, the Newfoundland and Labrador Regional Finance and Administrative Services Branch developed a pre-audit checklist that was used prior to signing Section 34 of the FAA.

The Program was designed to provide short-term financial emergency assistance to approximately 5,100 commercial fishers. Given the expected number of applicants the Finance checklist was intended to be used on a sample basis. Since a limited number of applications was received, the checklist was used on all applications for the purposes of certifying Section 34 of the FAA. The file review showed that the checklist was used and provided the employees certifying Section 34 of the FAA sufficient evidence that the correct payment amount was provided to eligible recipients.

3.6 Transfer of Program Funds to Service Canada, (SC)

OGD Suspense Accounts were established by DFO for both the Operating and Grant expenditures from which SC would requisition payments. In the DFO/SC Memorandum of Understanding (MOU) for the delivery of the 2007 Ice Compensation Program for East Coast Commercial Fishers, SC was to provide DFO with financial reports on all expenditures prior to charging the OGD Suspense Accounts.

As per the MOU, SC provided DFO with reports that included the names, addresses and amounts paid to applicants on a weekly basis. There is currently one applicant awaiting the results of the appeal process. Once this appeal process is finalized, the OGD Suspense Account for the Grant funds can be finalized. To complete this process, DFO will require a final report from SC detailing payments to applicants.

Recommendation:

It is recommended that the ADM, HRCS request a final report from SC detailing the Grant Expenditures. As per the MOU, this report should include at a minimum the names, addresses and amounts paid to applicants.

SC has not yet requisitioned any payments for Operating expenditures and has therefore not yet provided any reports providing details related to this expenditure. Subsequent to the signing of the MOU, SC requested a ruling from the OCG related to the procedures by which their department should account for these Operating expenditures and how to recover them.

Recommendation:

It is recommended that the ADM, HRCS monitor the status of discussion between SC and the OCG and process the payment as per the ruling ensuring sufficient documentation is provided to account for the payment.

3.7 Best Practices

A key element in the successful administration and delivery of the ICP was the collocation of DFO and SC staff in the Gander SC office. By having DFO staff on-site, it allowed for immediate responses to questions from SC staff related to the interpretation of elements on the application during processing. In addition, having DFO staff on-site to certify Section 34 of the FAA eliminated the requirement to transfer documentation between SC and DFO offices for signature thus payments could be issued without additional delays.

The involvement of the Newfoundland and Labrador Regional Finance and Administrative Services Branch in designing a file review checklist also served as a best practice. The checklist provided guidance for the staff certifying Section 34 of the FAA on the elements that need to be verified prior to signature. The availability on file of the SC information related to Fishing EI history also facilitated the certification processes.

The ICP was an emergency program designed to provide short term assistance to fishers who were experiencing immediate financial hardships, therefore it was essential that the Program delivery commence as quickly as possible. To facilitate the delivery of the Program, a MOU between DFO and SC was required. One component of the MOU was the Information Sharing Agreement (ISA) which addressed the interdepartmental collection, use, retention, disclosure, and disposal of personal information that was necessary to effectively administer and enforce the Program.

To facilitate the delivery of the Program, the ISA was completed after the MOU was signed. The MOU was signed on June 22, 2007; the ISA was not signed until January 14, 2008, well after the delivery of the Program was completed. Given the importance of the subject matter covered by the ISA, it would be a best practice to ensure these agreements are completed in a timelier manner.

3.8 Conclusion

The audit examined 130 out of 1622 files and found the processes put in place to assess applicant eligibility, to calculate the grant payments and to certify Section 34 of the FAA functioned as intended.

The processes related to the transfer of funds between DFO and SC functioned as per the MOU with respect to the Grant expenditures. The process related to the transfer of Operating expenditures is still outstanding.

Overall, the program delivery and administration functioned in and effective and efficient manner.

4.0 Management action plan

Recommendations Management Action Plan Officer of Prime Interest Initial Target Date

1.It is recommended that the ADM, HRCS request a final report from SC detailing the Grant Expenditures. As per the MOU, this report should include at a minimum the names, addresses and amounts paid to applicants.

Request sent ADM, HRCS February 14, 2008

2.It is recommended that the ADM, HRCS monitor the status of discussion between SC and the OCG and process the payment as per the ruling ensuring sufficient documentation is provided to account for the payment.

DFO Monitoring ADM, HRCS Appropriate action will be taken