PART 2.5 DEPARTMENT OF FISHERIES AND AQUACULTURE FISHERIES TECHNOLOGY AND NEW OPPORTUNITIES PROGRAM

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1 PART 2.5 DEPARTMENT OF FISHERIES AND AQUACULTURE FISHERIES TECHNOLOGY AND NEW OPPORTUNITIES PROGRAM

2 Executive Summary The Department of Fisheries and Aquaculture (the Department) administers the Fisheries Technology and New Opportunities Program (FTNOP). This is a $6 million program over the three fiscal years 2008, 2009 and As at 31 March 2009, a total of $2.60 million had been approved for 63 projects. The primary objective of the FTNOP is to fund eligible activities related to harvesting, processing, and marketing initiatives to diversify and increase the overall viability of the Provincial seafood industry. Its focus is to fund research and development in the harvesting and processing sectors. Our review indicated a number of concerns related to how the Department is administering the FTNOP. We found that project applications were not always assessed and approved in accordance with program criteria, payments were sometimes made without the required documentation and approvals, and projects were not always adequately monitored to determine whether funds were spent as intended. Furthermore, the Department did not establish measurable criteria in order to determine whether the program objectives were achieved. In particular: Approval and Assessment The approval and assessment process is required in order to ensure that only eligible activities relating to the primary objectives of the FTNOP are funded. We reviewed 40 approved projects and found a number of weaknesses in the approval and assessment process as follows: 10 projects totalling $444,248 the required application was not on file to provide the required information necessary for a proper assessment and to support either the approval or rejection of the project. These projects were approved based on proposals; however, the proposals did not contain all the information and declarations as required in the application. 8 projects totalling $400,542 the application on file was incomplete. For 2 of these projects, only the signed declaration on the last page of the application was on file. Without a complete application on file, it is questionable how a proper assessment could be performed to support either the approval or rejection of the project. Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

3 10 projects totalling $416,607 funding for overhead costs totalling $68,416 was approved even though these expenditures were not considered an eligible FTNOP cost as there was no evidence on file to support that the overhead was directly a result of the project. Existing overhead is not an eligible cost. 3 industry-related projects totalling $78,280 funding was approved in excess of the FTNOP limits. The FTNOP has a limit of 60% funding capped at $100,000 for industry-related projects; however, in these cases, the total maximum funding should have been $38,759 while $49,030 was paid, representing 76% funding. 36 projects totalling $2.17 million - Project Summary and Approval Forms (PSAFs) on file were incomplete as follows: 22 projects totalling $1.11 million with 22 PSAFs - there was no information to specify the eligible costs of the project; 15 projects totalling $963,105 with 16 PSAFs - there was no evidence that comments from the Department of Fisheries and Aquaculture, the Department of Fisheries and Oceans and other agencies were obtained as required; 11 projects totalling $772,537 with 11 PSAFs - there was no evidence that comments from the Department of Fisheries and Oceans were obtained as required; 12 projects totalling $879,375 with 12 PSAFs - there was no evidence that comments from other agencies were obtained as required; and 2 projects totalling $104,926 with 2 PSAFs - the required signatures to document the approval were not on file. 16 projects totalling $808,518 - the required supplier quotations, to support the estimated costs of the project, were not provided with the application. 24 projects totalling $1.55 million - these projects were not approved within the 45 days as outlined in the policy. The delay in processing these 24 projects ranged from 1 day to 108 days in excess of the 45 days. 194 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

4 The minutes of the Management Committee meetings did not always document the decisions of the Committee relating to projects. For 7 projects totalling $355,709 there was no evidence in the minutes that the projects were recommended for approval by the Committee. Payments Adequate documentation and support for eligible project costs are required in order to ensure that payments are made in accordance with policies and procedures. Our review indicated that the required documentation to support payments was not always on file as follows: 6 projects with payments totalling $249,476 there were no supplier invoices on file to support that advance payments totalling $212,122 were used within the required six month timeframe. 16 projects with payments totalling $662,232 there were no supplier invoices on file to support actual costs incurred totalling $511,794. As a result, it was not possible to verify whether the costs were accurate, actually incurred or if they were incurred after the application date. 26 projects with payments totalling $1.20 million supplier invoices to support actual costs incurred were not always signed by the Project Officer to indicate that they were eligible costs. 4 projects with payments totalling $201,884 the required payment memos were not always prepared. 30 projects with payments totalling $1.29 million the required payment memos were prepared but incomplete. Our review also identified errors totalling $44,747 in 7 projects as follows: $26,629 relates to payments for an industry-related project, in excess of the 60% of eligible costs capped at $100,000. Although maximum funding should have been 60% of $122,285 or $73,371, the actual funding was $100,000, $26,629 beyond the maximum allowed. $7,518 relates to payments for a project for management and support costs that were not an eligible expense. $1,805 relates to payments for a project for office supplies and communications that were not an eligible expense. Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

5 6 projects (2 previous projects and 4 others) HST of $8,795 was funded although this expenditure would not normally be funded. In 11 other projects there was insufficient documentation on file to determine whether HST was funded. Payments were not made in compliance with the terms of the contract. For example: 2 projects final payments totalling $34,637 were made prior to the receipt of the final report; and 1 project final payments totalling $1,908 were made prior to a site visit. Monitoring Project monitoring should be conducted by the Department to ensure compliance with policies and procedures, to ensure that funds were used for the approved purpose, to determine whether the funded projects were successful and whether FTNOP met its overall objectives. Our review identified the following: 40 projects totalling $2.23 million in approved funding the required audit and review process was not conducted for any project. This process is intended to determine whether there was compliance with policies and procedures and to determine whether adequate documentation was available to support payments. 11 projects totalling $434,585 in approved funding no site visits were made. 40 projects totalling $2.23 million in approved funding the Department did not provide a Terms of Reference for a Final Report to any proponent as required. As a result, it is likely that Final Reports from proponents will not be comparable or include all information necessary for the Department to determine whether the project was completed in accordance with the approved project s objectives and costs. 10 projects with payments totalling $459,093 in approved funding a written comprehensive final report was not submitted within 30 days of the project completion date as required. 196 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

6 7 projects totalling $405,719 in approved funding these projects were not completed by the proponent as outlined in their original submission. For example, in one instance the proponent was paid $119,642 for 3 projects that were to undertake a resource assessment of a fish species in certain fishing zones. The Final Report identified a number of areas where the actual project was different from the approved project, including 20 sites done instead of 30 sites, 4 days of data collection instead of 6 days and 34 days for surveying instead of 50 days in one zone, 5 days of data collection instead of 8 days and 8 survey days instead of 50 days in the other zone. In addition, there was no evidence of a required power point presentation, incorporation of other exploratory fisheries, and feasibility of assessment of transmitter implants. The Department did not identify performance indicators for each of its objectives or establish measurable targets for each of the performance indicators. As a result, it could not measure actual results against any targets to determine whether the FTNOP s objectives were being met. Background The Department of Fisheries and Aquaculture (the Department) is responsible for fisheries diversification, fish quality, licensing and regulating fish processing and aquaculture in the Province. The mandate of the Department includes the supervision, control, and direction of all matters relating to the promotion, development, encouragement, protection, conservation and regulation of fisheries and aquaculture. Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

7 Figure 1 Department of Fisheries and Aquaculture Petten Building The Department has four branches: Marketing and Development, Fisheries, Aquaculture, and Policy and Planning. The Fisheries Technology and New Opportunities Program (FTNOP) was established in The Fishing Industry Renewal and Adjustment Division under the Policy and Planning Branch is responsible for the evaluation and audit of the FTNOP; however, the Fisheries Innovation and Development Division under the Marketing and Development Branch, is responsible for the delivery of the FTNOP. Figure 2 shows the organization chart for the Department. 198 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

8 Figure 2 Department of Fisheries and Aquaculture Organizational Chart Minister Deputy Minister Director of Communications Fisheries Marketing and Development Aquaculture Policy and Planning Compliance and Enforcement Fisheries Innovation and Development Aquaculture Development Planning Services Licensing and Quality Assurance Seafood Marketing and Industry Support Services Regional Manager Sustainable Fisheries and Oceans Policy Regional Services (4 Regions) Manager Licensing Fishing Industry Renewal and Adjustment Manager Policy Source: Department of Fisheries and Aquaculture Budget FTNOP is one of the Provincial initiatives announced under the Canada- Newfoundland and Labrador Fishing Industry Renewal Strategy. Under this strategy, Government committed $6 million for the FTNOP over a three year period. Figure 3 shows the FTNOP information for fiscal years 2008, 2009 and Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

9 Figure 3 Fisheries Technology and New Opportunities Program Information Fiscal Years 2008, 2009 and 2010 ($ millions) (Note 1) 2010 Program Budget $2.00 $1.96 $1.96 Funding Approved $0.0 $2.60 $1.39 Projects Approved Note 1: Funding and projects approved for fiscal year 2010 is as at 1 October 2009 Source: Department of Fisheries and Aquaculture Program description The primary objective of the FTNOP is to provide support for harvesting, processing, and marketing initiatives to diversify and increase the overall viability of the Provincial seafood industry. Its focus is research and development work in the harvesting and processing sectors with emphasis on: more efficient use of traditional species; better use of underutilized species; enhanced value-realization of all fisheries resources; recovery of raw material wastage and reduced discard of by-products; and market research, development and promotion in support of these initiatives. Projects may be initiated by the Department, non-profit institutions or associations, community groups or industry. The maximum contribution for any one project is as follows: Projects initiated by the Department may be funded up to 100% of eligible expenses to a maximum of $100,000; Projects initiated by non-profit groups may be funded up to 100% of eligible expenses to a maximum of $100,000; however, these groups should demonstrate commitment to projects by funding from participating partners or in kind contributions. Funding is not intended to replace existing administrative or overhead expenditures of the applicant; or 200 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

10 Projects initiated by industry may be funded up to a maximum of 60% of eligible expenses to a maximum of $100,000, with the level of funding depending on the level of risk, the potential for industry application and the nature of the contribution. Department officials indicated that priority is placed on opportunity identification and quantification, as well as the development of innovative methodologies to improve final product quality. Figure 4 provides details on eligibility requirements, evaluation criteria, eligible activities and ineligible activities for the FTNOP. Figure 4 Fisheries Technology and New Opportunities Program Program Requirements Criteria Eligibility requirements Evaluation criteria Eligible activities Ineligible activities licensed Newfoundland and Labrador fishers licensed fish processing establishments research and development institutions fisheries organizations community groups development associations corporate entities involved in harvesting, processing or marketing of fish products in Newfoundland and Labrador eligibility contribution to program objectives technical feasibility project viability proponents contribution economic impact level of risk relative merit and program balance recovery of discards alternate harvesting and processing technology pilot projects test fisheries resource surveys working capital commonly used or traditional fish harvesting gear commonly used or traditional processing technology Description research and development enterprises consultants engineering companies naval architects fishing vessel designers and fabricators enterprises involved in harvesting technology enterprises involved in processing machinery fabrication and design incremental to fishing industry sustainability competitive impacts commercial potential industry trends and markets regulatory impact and compliance with policy guidelines, government regulations and management plans cost gear demonstrations product development market research, development, and promotion quality assurance initiatives initiatives to improve safety traditional aquaculture activities defined as the culture of commercial species such as salmon, steelhead trout, mussels and scallops Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

11 Criteria normal maintenance expenditures and repairs renovation or replacement expenditures construction of buildings and related works projects by applicants or related entities that are in default of debts to Government of Newfoundland and Labrador Source: Department of Fisheries and Aquaculture Description new technology which may increase plant capacity projects directed at increasing primary harvesting capacity site improvements purchase of normal operating equipment such as forklifts, pallets and wharf boxes undertakings more suitable for funding elsewhere debt refinancing combining of enterprises Audit Objectives and Scope Audit objectives The objectives of our review were to determine whether the Department: assessed and approved project applications in accordance with FTNOP criteria; made payments only when supported by required documentation and properly approved; and monitored approved projects to determine if funds were spent as intended and program objectives were achieved. Audit scope Our review was completed in November It included an examination of projects approved under the FTNOP from its inception in October 2007 to 31 March 2009 and funds disbursed to October 2009 for these projects. Our review included an examination of policies and procedures, committee minutes, interviews with staff, and a sample of project files. Sample selected As at 31 March 2009, the FTNOP had received 113 requests for funding. Our sample included an examination of 45 projects, 40 of which were approved for funding totalling $2.23 million and 5 of which were rejected. 202 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

12 Detailed Observations This report provides detailed audit findings and recommendations in the following sections: 1. Approval and Assessment 2. Payments 3. Program Monitoring and Assessment 1. Approval and Assessment Application process Requests for funding under FTNOP are made by completing and submitting an application to the Department along with attachments such as the project proposal, detailed costs, terms of reference and consultancy proposals. Information in the application should include: applicant information; type of operation (harvesting, processing, marketing, other); description and location of project; employment levels expected from the project; applicant references (financial, accountant, consultant); summary and financing of project costs; arrears with any government agency; funding received for other projects; a signed declaration by the applicant indicating: the information is complete, true, and correct; financial assistance from FTNOP is a significant factor in proceeding with the project; Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

13 authorization for the Department to make enquiries of outside entities in order to reach a decision; failure to provide information requested will result in rejection; and the applicant is not in default of debt to the Government of Newfoundland and Labrador. The applications are directed to the Program Coordinator, who assigns a file number, sends an acknowledgement letter to the applicant, and forwards the application to the Director of Fisheries Innovation and Development, along with any comments for general eligibility. Assessment and approval process The Director of Fisheries Innovation and Development will review the application for eligibility, and if deemed ineligible before assessment, will send a letter of ineligibility to the applicant. If the Director deems the project eligible for assessment, they will assign a Project Officer and the Program Coordinator will forward the file to the Project Officer. The Project Officer will complete an assessment of the project in consultation with the appropriate Fisheries Supervisor and complete a Project Summary and Approval Form (PSAF). The PSAF must be completed for all eligible applications. The Project Officer will recommend accepting or rejecting the application for funding and provide key considerations that support the recommendation. The Project Officer forwards the PSAF to the Fisheries Supervisor who will incorporate any comments deemed necessary and then forward the PSAF and applicable documents to the Director for review and signature. The PSAF will then be forwarded to the Program Coordinator who will add the project to the agenda for discussion at the next meeting of the Management Committee. The Management Committee normally consists of 7 members - the Chair, the Director of Fisheries Innovation and Development, the Director of Planning, the Director of Fishing Industry Renewal and Adjustment, the Director of Marketing and Support Services, a Regional Director (rotated on a 6-month basis) and a Fisheries Development Officer (rotated on a 6-month basis). The Committee oversees the project approval process and makes recommendations to the Minister for approval. 204 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

14 All projects are recommended as approved or rejected by the Committee; however, the Minister has final approval. If a project is approved, a Letter of Approval is prepared and signed by the Minister. If the project is rejected, a letter of rejection is prepared and signed by the Deputy Minister. All signatures (the Project Officer, the Fisheries Supervisor, the Director of Fisheries Innovation and Development, Committee Chair and the Deputy Minister) are required on the PSAF whether a project is accepted or rejected. The project assessment and approval process should not take more than 45 calendar days. Figure 5 provides a flowchart of the application assessment and approval process. Figure 5 Fisheries Technology and New Opportunities Program Application Assessment and Approval process Application Received Director of I & D/Program Coordinator Assign File Number Program Coordinator Acknowledgement Letter Program Coordinator Review for Eligibility Coordinator/Director of I & D Eligible Ineligible Assign to Project Officer Director of I & D/Fisheries Planning Supervisor Standard Letter Prepared and File Closed Director of I & D Assess Project/Make Recommendation Project Officer /Development Officer Recommendation Reviewed Management Committee Approved Final Sign-off of PSAF by DM & Letter of Approval Prepared for Minister s Signature Project Officer/Director of I & D/Program Coordinator Rejected Letter Prepared for DM s Signature and File Closed Project Officer/Director of I & D Source: Department of Fisheries and Aquaculture Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

15 Our review of 40 approved projects and 5 rejected projects for the 113 requests for funding identified the following issues: Applications not submitted or incomplete 10 projects totalling $444,248 the required application was not on file to provide the required information necessary for a proper assessment and to support either the approval or rejection of the project. These projects were approved based on proposals; however, the proposals did not contain all the information and declarations as required in the application. Furthermore, 7 of the 10 projects totalling $287,894 did not have the standard acknowledgement letter prepared stating the date that a funding request was made. 8 projects totalling $400,542 the application on file was incomplete. For 2 of these projects, only the signed declaration on the last page of the application was on file. For 6 applications either some questions on the application were left blank such as whether other government assistance was expected for the project, whether the applicant was in arrears with any government agency, whether any funding was received for projects not yet completed, or references were not provided. Without a complete application on file, it is questionable how a proper assessment could be performed to support either the approval or rejection of the project. Ineligible costs approved for funding 10 projects totalling $416,607 funding for overhead costs totalling $68,416 was approved even though these expenditures were not considered an eligible FTNOP cost as there was no evidence on file to support that the overhead was directly a result of the project. Existing overhead is not an eligible cost. The FTNOP Policy and Procedures Manual indicates that eligible project costs are incremental capital or operating costs, determined in accordance with accepted accounting principles, linked directly to a project and without which the project could not proceed. Program funding is not to replace existing administrative and overhead expenditures of the applicant. 206 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

16 Funding in excess of maximum limits Figure 6 3 industry-related projects totalling $78,280 funding was approved in excess of the FTNOP limits. The FTNOP has a limit of 60% funding capped at $100,000 for industry-related projects; however, in these cases, the total maximum funding should have been $38,759 while $49,030 was paid, representing 76% funding. Figure 6 shows the details of the excess funding. Fisheries Technology and New Opportunities Program Excess Funding Budgeted Eligible Costs Approved Funding % Approved Actual Eligible Costs Amount Paid % Funded 60% of Eligible Costs Proponent 1 $ 30,800 $21,500 70% $ 7,711 $ 7,377 96% $ 4,627 Proponent 2 27,000 21,780 81% 6,786 6,653 98% 4,072 Proponent 3 104,100 35,000 34% 50,100 35,000 70% 30,060 Total $161,900 $78,280 $64,597 $49,030 76% $38,759 Source: FTNOP project files For Proponent 1 and 2, funding in excess of 60% was approved at the approval stage. For Proponent 3, total budgeted costs of $104,100 included indirect costs for lost productivity of $54,000. Funding was approved for $35,000 or 34% of total budgeted costs. However, in our opinion, the indirect cost of lost productivity is not an eligible cost as the costs are not linked directly to a project. As such, the total project eligible costs were $50,100, and the Department funded the project at 70% ($35,000) which exceeds the normal 60% limit ($30,060). PSAF incomplete 36 projects totalling $2.17 million - PSAFs on file were incomplete as follows: 22 projects totalling $1.11 million with 22 PSAFs - there was no information to specify the eligible costs of the project; 15 projects totalling $963,105 with 16 PSAFs - there was no evidence on the PSAF that comments from the Department of Fisheries and Aquaculture, the Department of Fisheries and Oceans and other agencies were obtained as required; Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

17 11 projects totalling $772,537 with 11 PSAFs - there was no evidence on the PSAF that comments from the Department of Fisheries and Oceans were obtained as required; 12 projects totalling $879,375 with 12 PSAFs - there was no evidence on the PSAF that comments from other agencies were obtained as required; and 2 projects totalling $104,926 with 2 PSAFs - the required signatures to document the approval were not on file. No supplier quotations 16 projects totalling $808,518 the required supplier quotations, to support the estimated costs of the project, were not provided with the application. Approval process in excess of suggested 45 days 24 projects totalling $1.55 million these projects were not approved within the 45 days as outlined in the policy. The delay in processing these 25 projects ranged from 1 day to 108 days in excess of the 45 days. In addition, one application received on 3 December 2008 still had no official letter of rejection as of October 2009 (processing time will be at least 306 days). Staff indicated that this applicant had been informed verbally of the rejection. Projects not approved in minutes The minutes of the Management Committee meetings did not always document the decisions of the Committee relating to projects. Our review identified 7 projects totalling $355,709 where there was no evidence in the minutes that the projects were recommended for approval by the Committee. Furthermore, meeting #2 was scheduled for 30 April 2008; however, no minutes or other documentation could be found to determine whether the meeting was held. 208 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

18 Recommendations The Department should ensure applications are assessed and approved in accordance with the FTNOP Policy and Procedures Manual by ensuring: applications are complete and supported; approvals are documented by the Committee; approvals are within contribution limits; PSAFs are completed as required for all projects: and applications are assessed and approved within the prescribed 45 days. 2. Payments Overview Project payments are disbursed in accordance with signed contracts with claims based upon eligible costs from the date the application is received and noted in the acknowledgement letter. FTNOP also has provisions for advance payments, progress payments, and final payments as follows: Advance payments may be made and should not exceed 75% of the total approved amount. Except where there is specific permission to the contrary, the proponent must demonstrate that the advance was applied exclusively to the payment of eligible costs within 6 months after the date of disbursement. Progress payments may be made to the proponent based on claims for eligible costs which have been incurred. Final payments are project holdbacks that represent 10% of the approved amount. This payment is made based on a claim and a comprehensive written report. The proponent is required to keep copies of invoices and proof of payment for all claimed costs for the examination or audit for 36 months following the completion of the project. The Minister or delegate may refuse to pay any installment if the proponent fails to carry out the project in accordance with the contract or to his/her satisfaction. Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

19 Payments Process Once a project is approved, a contract is prepared by the Project Officer and forwarded to the Director of Fisheries Innovation and Development. The Director will review the contract and forward it to the Program Coordinator who will ensure all policies and procedures are adhered to and will coordinate the signatures of the proponent and Deputy Minister or delegate. The Program Coordinator will forward signed copies of the contracts to the responsible Project Officer, the proponent, and to the proponent s file. The Project Officer will review invoices submitted by the proponent to ensure compliance with the terms and conditions of the contract. Invoices will be signed as verified by the Project Officer and submitted to the Program Coordinator, along with a covering memo that clearly indicates: the total amount of the invoice; the amount eligible for payment in accordance with the contract; and the amount of HST included, if applicable. When the memo and the invoices are received by the Program Coordinator, the invoices will again be reviewed for accuracy to ensure adherence to the contract. Once reviewed, the Program Coordinator will have the invoices certified as payable by the Director of Fisheries Innovation and Development. The invoices will be submitted to financial staff along with a copy of the signed contract and covering memo from the Project Officer for payment. The Program Coordinator will indicate the financial tracking code and the account centre on the payment request to financial staff. The proponent is required to submit a comprehensive written report detailing the progress and the results of the project normally within 30 days of project completion date, and after all eligible costs have been incurred. Once reviewed, a final payment is made. Figure 7 provides a flowchart of the payments process. 210 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

20 Figure 7 Fisheries Technology and New Opportunities Program Payments Process Contract Prepared Project Officer Contract Forwarded for Signatures Program Coordinator Project Liaison/Monitoring Officer Project Officer/Director of I & D/Financial Officer Invoice Approval Project Officer/Director of I & D Invoice Processing and Tracking Program Coordinator/Financial Officer Reports Project Officer Our review identified issues in the following areas: A. Non-compliance with policies and procedures B. Errors in payments C. Payments not in accordance with contracts D. Inconsistent funding methods 2A. Non-compliance with Policies and Procedures A policies and procedures manual was completed in October Our review for compliance with these policies and procedures indicated the following issues with payment processing: Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

21 Contract date before application received 3 projects with payments totalling $134,314 the effective date of the contract was dated before the application was received. The differences were 57 days, 14 days and 2 days. FTNOP policy states that eligible costs will be calculated from the date the application is received as noted in the acknowledgement letter. Furthermore, the Department would not provide funding for any costs incurred prior to the date of the application. For 2 of the 3 projects it could not be determined whether funding was actually provided for dates prior to the application date since there were no invoices on file to support the payments. The other project had no payments processed up to the time of our review. Advance payments not used within 6 months 6 projects with payments totalling $249,476 there were no supplier invoices on file to support that advance payments totalling $212,122 were used within the required six month timeframe. For example, one advance payment for $46,814 was made on 2 July 2008 and was to be used as a down payment on equipment. There was no evidence on file that the amount funded was actually paid to the supplier for the equipment. In fact, this equipment was still located at the manufacturers plant for modifications at the time of our enquiry in November 2009 and had yet to be installed at the proponent s plant, approximately 16 months after the advance payment was made. No invoices on file 16 projects with payments totalling $662,232 there were no supplier invoices on file to support actual costs incurred totalling $511,794. As a result, it was not possible to verify whether the costs were accurate, actually incurred or if they were incurred after the application date. In particular: 10 projects with payments totalling $333,779 had an invoice submitted by the proponent; however, the invoice was based on a budget amount submitted with the application/proposal. For these 10 projects, no supplier invoices of actual costs were submitted and the total actual cost of the project was not known. Therefore, it is not known if funding may have been provided in excess of actual cost. For 1 project with funding of $18,350, a revised proposal on file showed an estimated cost of $17,826; however, $18,350 was funded based on the original proposal; 212 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

22 2 projects with funding to date totalling $80,951 had some supplier invoices and a summary of actual costs on file; however, there were no supplier invoices to verify actual costs for $13,495 in expenditures; 1 project had no supplier invoices for actual costs on file; however, there was a financial report that showed the actual costs of the project were $81,042. However, $82,715 was still funded by the FTNOP, $1,673 more than the actual cost; 1 project with funding totalling $45,000 had an invoice from the proponent based on the budgeted amount submitted with the application/proposal. A statement of cost was on file but the actual cost for the amount funded by FTNOP could not be determined as there were no supplier invoices to accompany the statement; 1 project with funding totalling $84,787 had invoices for the actual cost for some expenses; however, $1,805 was based on a budget amount, and therefore, it is not known if funding was provided in excess of actual cost for this item; and 1 project with funding totalling $35,000 had a summary of costs on file; however, there were no supplier invoices to verify that the costs were incurred or incurred after the application date. Invoice and payment memos not adequately verified For each payment, a project officer has to sign the applicant invoices as being verified and prepare a memo to indicate the total amount of the applicant invoice, the amount eligible for payment and the amount of HST included in the amount. The memo and supporting invoices must be submitted to the Program Coordinator who will indicate the financial tracking code and the account centre on the documentation. Our review identified the following issues: 26 projects with payments totalling $1.20 million - supplier invoices to support actual costs incurred were not always signed by the Project Officer to evidence that they were eligible costs; 4 projects with payments totalling $201,884 - the required payment memos were not always prepared; and Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

23 30 projects with payments totalling $1.29 million - the required payment memos were prepared but incomplete. Instances were identified where either the eligible amount, the HST, or the codes were not included on the memo. 2B. Errors in Payments Our review of 36 files with payments identified 10 errors totalling $44,747 in 7 projects as follows: Overpayment of $26,629 $26,629 related to payments for an industry-related project, in excess of the 60% of eligible costs capped at $100,000. Although maximum funding should have been 60% of $122,285 or $73,371, the actual funding was $100,000, approximately 82% of eligible costs for the project. Ineligible costs of $7,518 funded $7,518 related to payments for a project for management and support costs that were not an eligible expense. The PSAF approved by the Management Committee included $7,400 in management and support costs that were to be funded directly by the proponent because the costs were not considered an eligible expense. However, the proponent submitted an invoice with $7,232 in support costs and these were funded by the FTNOP. In addition, the minutes of the Management Committee meeting stated that any mandatory employment deductions such as worker s compensation were to be included in vessel lease costs and not itemized as separate costs. However, the invoice submitted by the proponent included $286 for worker s compensation, in addition to the lease vessel costs, and this amount was funded by the FTNOP. Ineligible cost of $1,805 funded $1,805 related to payments for a project for office supplies and communications that were not an eligible expense. Our review indicated that the $1,805 was paid to the proponent even though this expense was deemed ineligible as it would already be in place with or without the project. 214 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

24 HST funded $8,795 related to payments for HST on 6 projects (2 previous and 4 additional projects) which would not normally be funded. Furthermore, $3,179 of this amount was funded to an organization for HST on salaries; however, there is no HST charged on salaries. In 11 other projects there was insufficient documentation on file to determine whether HST was funded. Since most organizations qualify for a rebate or an input tax credit of the HST amount, the amount is recoverable; therefore, this amount should not have been paid by the Department. 2C. Payments Not in Accordance with Contract Once a project has been approved a contract is signed detailing effective dates, project deliverables, project funding, and payment term. Our review of 40 approved projects identified payments being made that were not in compliance with the conditions of the contract as follows: Final payment made prior to receipt of final report 2 projects final payments totalling $34,637 were made prior to the receipt of the final report as follows: For 1 project, a final payment of $18,262 was made on 31 March 2009; however, the final report was not received until July Although an interim report was received 9 April 2009, this did not constitute a final report as stipulated in the contract. For 1 project, a final payment of $16,375 was made on 5 October Although a report was submitted before this payment, it only covered testing for 1 of the 3 species planned in the proposal. A supplement to this report was to be submitted later in 2009 for the 2 other species; therefore, payment was made before submission of a final report. Final payment made prior to site visit 1 project a final payment totalling $1,908 was made on 16 July 2008 prior to a site visit. The contract indicated 50% would be paid upon delivery and 50% would be paid following an onsite inspection. The site visit report indicated the inspection of the equipment took place on 30 July 2008, 14 days after the payment was made. Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

25 10% holdback not applied to payment 1 project the 10% holdback of $105 was not withheld from the payment as required. The contract stated that a 10% holdback would apply to all payments until the final report was received; however, no holdback was applied for the payment of $1,051 on 20 June Therefore, the payment was not in accordance with the contract. 2D. Inconsistent Funding Methods Inconsistent funding methods used For 1 project, funding was approved in the amount of $100,000 based on budgeted total eligible costs of $202,465. However, the proponent was only funded $95,631 even though the total actual eligible projects costs were $206,844. This occurred because the project costs were broken down by component and funding percentages were applied to each component. By using this funding method, the proponent was under-funded by $4,369. Of the 40 approved projects reviewed this was the only project that was paid out in this manner. Department officials indicated that it was thought this would be the best way to manage the components of the project. Recommendations The Department should: comply with its policies and procedures in making payments for approved projects; establish procedures to detect and correct errors in payments; ensure payments are made in accordance with the terms of the signed contracts; obtain supporting documentation to support all costs funded; ensure projects are not funded in excess of actual costs and funding limits; and establish procedures to ensure funding methods are consistent among approved projects. 216 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

26 3. Program Monitoring and Assessment Overview The Department has a FTNOP Policy and Procedures Manual that provides for the monitoring and assessment of the FTNOP. In addition, the Department maintains a database - a Project Management System, which records general and financial information on each project such as the file number, project officer, applicant name and address, region, applicant type, project description, species, project type, project cost, approved amount, amount paid, balance remaining and the status of file. Our review identified issues in the following areas: A. Monitoring of Projects B. Monitoring of Program Costs and Objectives 3A. Monitoring of Projects Introduction The FTNOP Policy and Procedures Manual requires that audits and reviews are to be performed by a Financial Officer on an ongoing basis. Audits are to be conducted to ensure compliance with applicable legislation and Government policies and procedures. Reviews are to be conducted to determine if adequate documentation to support the project was examined and appropriate field inspections were performed by Project Officers. In addition, reviews of Final Reports, which are prepared by proponents after a project has been completed, are to be performed. Our review identified the following issues: Projects audits not conducted 40 projects totalling $2.23 million the required audit and review process was not conducted for any project. This process is intended to determine whether there was compliance with policies and procedures and to determine whether adequate documentation was available to support payments. Discussions with Department officials indicated that audits have not been conducted on any FTNOP projects since the FTNOP was introduced in October Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

27 Site visits not always conducted If applicable, site visits are required to be completed as part of the Department s monitoring process. After each site visit, the project officer should prepare a report which sets out the general conditions of the project, both physical and financial, and states their opinion of the overall project at the time of the visit. Our review identified the following issues: 11 projects totalling $434,585 that required a site visit did not have site visits completed. During a site visit, the project officer is to report on the financial condition of the project; however, the site visit report does not provide a section for the reporting of this information. Terms of Reference not established for Final Reports 40 projects totalling $2.23 million the Department did not provide a Terms of Reference for a Final Report to any proponent. As a result, it is likely that final reports from proponents will not be comparable or include all information necessary for the Department to determine whether the project was completed in accordance with the approved project s objectives and costs. The Terms of Reference would assist the proponent in preparing the required Final Report and provide assistance with reporting the project s description, project s objectives, methodology, project s impact/outcomes, project s expenditures, and potential use for the industry. Delays in the submission of the final report 10 projects with payments totalling $459,093 a written comprehensive final report was not submitted within 30 days of the project completion date as required. The longest delay was 223 days from the time the project was complete to the submission of the final report. In addition, 1 project had only a verbal final report during a debriefing with the project officer. Furthermore, for 5 projects totalling $246,579 we could not determine if the report was submitted within 30 days as there was no information in the file to determine the date the project was completed. Actual project not in accordance with approved project 7 projects totalling $405,719 these projects were not completed by the proponent as outlined in their original submission. If projects are not completed in accordance with the approved projects, it is difficult for the Department to determine if the project s objectives were met or if actual project costs (and ultimately funding amounts) were in line with approved amounts. Specifically: 218 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador

28 One project was approved for $64,260 in 2 phases (phase 1 sample production of 10,000 lbs of raw material - $17,190 and phase 2 larger-scale production of 150,000 lbs of raw material- $47,070.) Phase 2 was not to proceed until Phase 1 was completed, and an interim report was received showing the viability of the sample production phase. The Department received a verbal report from the proponent that due to poor fish landings and quality control issues, both phases were conducted in a modified and scaled-down manner and the proponent received $21,540 for the production of 24,000 lbs. If the project was conducted as approved the total payment should not have exceeded $17,190 - the phase 1 funding. One project was approved for $100,000 for the purchase and use of equipment on 3 species of fish. However, the Final Report identified that tests and results were based on 1 species of fish; that only preliminary trials were done on the other two species; that further testing would be done in the coming season; and a that separate report would be provided. One project (3 combined projects) was approved and paid $119,642 for a resource assessment of a fish species in certain fishing zones. Our review of the Final Report identified a number of areas where the actual project was different from the approved project, including 20 sites done instead of 30 sites, 4 days of data collection instead of 6 days and 34 days for surveying instead of 50 days in one zone; and 5 days of data collection instead of 8 days and 8 survey days instead of 50 days in the other zone. In addition, there was no evidence of a required power point presentation, incorporation of other exploratory fisheries, and feasibility of assessment of transmitter implants. One project was approved and paid $99,031 for a review of energy efficiencies in the harvesting sector. A review of the Final Report identified a number of deliverables that were not reported including a cost-benefit analysis of using a trawl monitoring package, a report on regional meetings and telephone surveys conducted, a summary report on workshops held, and whether a follow up was done on whether the goal of a 20% energy reduction was reached. Auditor General of Newfoundland and Labrador Annual Report, Part 2.5, January

29 One project was approved at $22,786 and paid $22,622 for the analysis of the effects of a later season start and depth ranges on the amount of by-catch fish. Our review of the Final Report identified a number of inconsistent data collection and analysis techniques from the proposed projects. Specifically, the project was to begin in early August but the test fishery was performed from 13 September to 13 October. Furthermore, log sheets used to record fish landings did not record specific depths for each of the vessels three fleet depths, instead an average depth per test trip was used. In addition, by-catches were recorded for both commercial and under-sized species, whereas allowable limits were based upon commercial size fish only. 3B. Monitoring of Program Costs and Objectives Introduction Our review of the Department s monitoring identified the following issues with the monitoring and assessment of the FTNOP s costs and objectives: Financial database not reconciled to FMS The FTNOP s Program Coordinator is responsible for maintaining the Project Management System database. In addition to capturing general project information, the database tracks payments made for each approved project and records the payment date, payment amount and payee. Our review of the Department s monitoring of program costs indicated that the amount paid in the Project Management System was not reconciled to the Province s financial management system (FMS). As at 31 March 2009 the Project Management System recorded $1,748,921 in payments; however, the FMS recorded FTNOP expenses of $1,765,360, a difference of $16,439. Our review identified that some of the difference was due to FTNOP expenses not being posted to the correct FMS account and FTNOP expenses not being reported in the database. Without reconciling the database to FMS on a regular basis, the Department cannot determine if the database and FMS are complete and accurate. Program Annual Report not prepared The FTNOP s Policy and Procedures Manual requires an Annual Report to be completed at the end of each year that evaluates the program; however, our review identified that an Annual Report was not prepared for the fiscal year. 220 Annual Report, Part 2.5, January 2010 Auditor General of Newfoundland and Labrador