Archived - Audit of Environmental and Contaminated Sites Management (South of 60º)

Background

An Audit of Environmental Management and Contaminated Sites was included in the 2011-2012 to 2013-2014 Risk-based Audit Plan, recommended for approval by the Departmental Audit Committee on February 22, 2011, on the basis that the environmental management and contaminated sites programs are highly visible and are inherently high risk due to their complexity, magnitude of potential impacts, liability issues, and degree of recent change.

Audit Objective, Scope and Approach

The objective of this audit was to provide assurance over the adequacy and effectiveness of the management controls established in relation to the objectives of the Department in regard to environmental management and contaminated sites (south of the 60th parallel).

The audit objective was linked to audit criteria developed to address core controls associated with the management of the primary environmental and contaminated sites-related risks to the Department, as well as the recommendations of previous audit reports by the Audit and Assurance Services Branch (AASB) and the Office of the Auditor General (OAG).

The scope of this audit covered April 1, 2008 to March 31, 2011. The audit assessed the following:

• Management practices and controls designed and implemented to ensure compliance with relevant legislation, regulations, guidelines and policies;
• Progress made in addressing the Auditor General's 2009 report recommendations, with particular focus on governance and program reforms; and,
• Management controls for identifying and assessing contaminated sites on First Nation lands south of the 60th parallel.

Audit work was conducted at Headquarters (HQ) in Gatineau, Quebec and in the following regional offices: Ontario (Toronto) and British Columbia (Vancouver).

Observed Strengths

Through the audit fieldwork, the audit team observed examples of how controls are properly designed and are being applied effectively. This resulted in the following positive findings listed below:

Conclusion

Based on the results of the audit, AASB cannot provide assurance that the Department's internal controls over the adequacy and effectiveness of environmental and contaminated sites management were operating effectively. Taken together, the audit findings suggest there remain considerable gaps for management to address in order to provide assurance that governance and policy, stewardship, compliance and people frameworks are adequate and functioning appropriately.

Recommendations

The audit team identified weaknesses in the design and operation of internal controls, resulting in six recommendations in the areas of governance and policy, stewardship, compliance, and people.

The Audit and Evaluation Sector recommends the Assistant Deputy Minister, Lands and Economic Development should:

1. Establish a more rigorous and comprehensive governance and accountability framework that supports an integrated approach to environmental strategy, planning, budgeting, communication, performance measurement, and reporting. The framework should include a horizontal environmental oversight committee at the DG level to regularly review and discussing environmental objectives and performance – Sub-working groups should be established to address key issues – as well as a defined position on the roles, responsibilities/accountabilities for the clean-up of uncapped oil and gas wells on reserves.
2. Establish a regulatory gap management strategy that includes a single point of responsibility; policy and associated guidance/procedures, including those for Department owned assets; and identifies the internal resources required to implement the strategy, based on a needs assessment. In developing the strategy, the ADM, LED should work with Environment Canada to identify areas where new regulations may be developed to close gaps.
3. Develop a Contaminated Sites Management Program Liability Estimation Guide/Standard that is consistent with public sector accounting standards and TBS requirements and implement a communications and training strategy to ensure regional environmental officers under the distinction between cost estimates and liability estimates and have the skills and capacity to correctly calculate these figures.
4. Develop a requirement within FNITP for a First Nation to submit an environmental mitigation status report at project close-out in order to receive current and future project funding, similar to hold-backs on reports for financial statements.
5. Define a departmental position on the enforcement of lease, permit and other environmental regulatory requirements, identify mechanisms to enforce these requirements, and provide adequate levels of training and staffing to enable the Department to fulfill its enforcement roles and responsibilities.
6. Conduct a needs assessment exercise to determine the environmental management training needs of First Nations (inclusive of FNLMA and non-FNLMA First Nations) and align budget to identified needs.

2.1 Audit Objective

The objective of this audit was to provide assurance over the adequacy and effectiveness of the management controls established in relation to the objectives of the Department in regard to environmental management and contaminated sites (south of the 60th parallel).

The audit objective was linked to audit criteria developed to address core controls associated with the management of the primary risks regarding environmental and contaminated sites to the Department, as well as the recommendations of previous audit reports by the Audit and Assurance Services Branch (AASB) and the Office of the Auditor General (OAG).

2.2 Audit Scope

The scope of this audit covered April 1, 2008 to March 31, 2011. It included the areas of:

• Management practices and controls designed and implemented to ensure compliance with relevant legislation, regulations, guidelines and policies;
• Progress made in addressing the Auditor General's 2009 report recommendations, with particular focus on governance and program reforms; and,
• Management controls for identifying and assessing contaminated sites on First Nation lands south of the 60th parallel.

The audit fieldwork was carried out July 19, 2011 to December 16, 2011 and included onsite visits to the Ontario (Toronto) and British Columbia (Vancouver) regional headquarters during the period of September 13-15, 2011 and September 19-22, 2011, respectively.

The audit scope did not include an assessment of the contaminated sites activities north of 60º nor did it include an assessment of contingent environmental liabilities.

4.1 Governance and Policy

4.1.1 Authority, Accountability, Responsibility and Effective Oversight of Environmental Management

To ensure that environmental requirements and obligations are well managed, it is important that authorities, accountabilities and responsibilities for environmental management across the Department are defined and well-understood. As well, within the federal government context, it is expected that effective oversight bodies for environmental and contaminated sites management are established and integrated into the strategic decision-making of the organization.

The audit found that an organizational structure is in place with defined environmental functions, accountabilities and responsibilities within the Lands and Economic Development (LED) Sector at HQ and at the regional level. During the audit scope period (September 2008), an organizational realignment at the Department created the LED Sector. The objective of the re-organization was to integrate AANDC's Land and Economy strategic outcome priorities to facilitate a more co-ordinated and strategic approach to promoting economic opportunities.

Indian and Inuit Affairs Business Line (IIABL) Assistant Deputy Ministers (ADM's) and Regional Directors General (RDG's) are responsible and accountable for any environmental implications resulting from decisions made within their respective mandates. Regional Operations is also responsible for environmental management during capital projects (such as environmental assessments that are undertaken prior to construction) and jointly manage the CSM Program within the regions. Additional environmental functions reside with the Material and Assets Management Division of the CFO Sector which assumes accountability and responsibility for environmental management of AANDC-owned real assets.

Within AANDC, the departmental environmental policy framework defines the approach to decision-making on environmental issues. The ADM LED Sector and the DG LEM have overall responsibility for the development of plans and strategies in this area. Environmental plans are developed at the Director level, and integrated into the LED Strategic Plan and the Department's Report on Plans and Priorities (RPP) Monthly senior HQ/LED management meetings and regular monthly and quarterly administrative reports are issued to senior management to report progress against plans.

Through interviews with HQ and regional staff in Ontario and British Columbia, it was found that authorities, accountabilities and responsibilities for environmental management across the Department are defined; however, given the complexity of the AANDC's environmental management activities and the number of internal stakeholders, interviewees viewed the current structure to be suboptimal with 'mandate silos^{Footnote 3}' affecting the Department's ability to manage environmental issues horizontally. In addition, while environmental considerations are integrated into the existing planning process, no horizontal body exists to provide strategic oversight of environmental management issues across the Department.

Despite the existence of administrative reporting as noted above, the audit team found that south of 60° environmental issues are not a standing item for senior management discussions, and there is no formal process to regularly report on the status of environmental issues to senior management. It is important to note that north of 60° contaminated sites, which are substantially larger and a more complex and costly to remediate, are regularly discussed at the senior management level.

Region-specific approaches to address environmental policy gaps are used where HQ policy leadership is not provided. A review of various documents including the Deputy Minister's Memorandum on Environmental Stewardship (2003) and the 2009-10 Report on Plans and Priorities revealed that departmental plans and priorities for environmental management are focused on contaminated sites remediation, water/wastewater and the strengthening of First Nations abilities to manage environmental responsibilities on reserve; however, departmental performance indicators have only been developed for a few of these priorities.

Through interviews with Indian Oil and Gas Canada (IOGC)^{Footnote 4} and Contaminated Sites Management Program (CSMP)^{Footnote 5} staff and IOGC's 2011-12 to 2016-17 Performance Management Strategy, it was found that AANDC has not defined a position on the IOGC's clean-up responsibilities and budget for uncapped oil and gas well remediation on reserve. While it was noted that uncapped oil and gas well remediation on reserve was being conducted by provincial authorities in provinces with considerable oil and gas exploration activities, this is not the case for all areas south of 60°.

Undefined authorities, accountabilities and responsibilities for environmental management across the Department could result in inefficiencies or gaps in addressing contaminated sites, impairment of First Nations and other community member health, and pose risks to the department's reputation for environmental stewardship.

4.1.2 Strategy or Action Plan to Address the "Regulatory Gap"

In 2009, the OAG performed an audit on Land Management and Environmental Protection on Reserves (Fall 2009, Chapter 6) within AANDC and Environment Canada. The objectives of the audit were to determine whether AANDC and Environment Canada: (i) developed legislative options, programs and policies in support of First Nations land management and environmental protection; and, (ii) met key responsibilities for implementing federal acts, regulations, programs, and/or policies in support of First Nations land management and provided essential environmental protection of First Nations reserves. One of the key recommendations from the report was for AANDC to collaborate with Environment Canada and First Nations to develop and implement a strategy to identify and address residual environmental regulatory gaps on reserves.

Through interviews with HQ and regional staff, it was found that there is no overall departmental strategy and policy response, and that there is no single point of responsibility or accountability within the Department for addressing the regulatory gap identified by the OAG. The audit noted that AANDC is reliant on Environment Canada for developing and implementing regulations to address regulatory gaps, under the Canadian Environmental Protection Act, which defines the environmental lawmaking authority on reserve. In the 2011-2012 fiscal year, the Land and Environment Operational Policy Unit of the Lands and Environment Management Branch has been tasked with developing a strategy to address the regulatory gap.

The audit also noted that the regulatory gap has expanded over the years through additions to reserve lands^{Footnote 6} and as the intended use of reserve lands has shifted to new forms of economic activity. Through discussion with HQ and regional staff, and a review of documentation, the audit found that various policy efforts are underway to address particular dimensions of the regulatory gap as they pertain to specific issues, such as solid waste/landfills and abandoned oil and gas wells on reserves; however, these policy efforts do not provide a regulatory solution to the regulatory gap on reserve.

Additionally, there are gaps which continue to exist in the Department's environmental policy framework, with specific reference to the monitoring and enforcement of environmental compliance and tracking the environmental condition of AANDC-owned real property, which, if in place, would allow the Department to develop a more comprehensive understanding of the assets and liabilities for which it is responsible.

The management of AANDC-owned sites is governed by the AANDC Real Property Management Policy. A review of the policy confirmed that it does not address the issue of contaminated sites. It is also unclear as to whether AANDC owned sites could be addressed through the Contaminates Sites Management Policy.

Through discussion with the Assets and Environmental Management Section (AEMS) of the CFO Sector, it was noted that AANDC HQ serves as the Department's corporate authority on Department-owned real property. As the corporate authority, AEMS liaises with the Treasury Board of Canada Secretariat (TBS), reports to central agencies on behalf of AANDC, and maintains AANDC's real property information management system.

Through discussions with CFO staff and review of the Real Property Information Management System (RPIMS) tracking sheet, the audit found that the Department's real property information management system does not identify and allocate responsibility for potential contamination within AANDC-owned capital assets nor does it track the status of clean-up activities.

Informal processes exist to track the environmental condition of known AANDC-owned real property. Through review of the Real Property Portfolio in RPIMS, the audit noted that the environmental condition of AANDC-owned assets is recorded within a 'Comments' column, but that there is no formal space for capturing environmental site information. As noted above, current monitoring and reporting processes do not provide a complete understanding of the environmental condition of real assets.

Without a full understanding of the assets and liabilities for which it is responsible and with regulatory and policy framework gaps, there is an increased risk to First Nations and the Department in the form of increased clean-up costs, continued environmental impairment and negative impacts to First Nations and other communities' health and safety.

4.2.1 Contaminated Sites Liabilities Estimates

4.2.2 Transfer and Control of Payments to First Nations

Guidelines and procedures for the transfer and control of payments to First Nations for contaminated site and other environmental projects should be in place and followed consistently by all AANDC regional staff.

It was found that project governance and management practices are used by AANDC regional staff to exert control over the execution of contaminated site remediation projects. However, as national guidance does not exist, regional offices were observed to be providing their own guidance and templates to First Nations to ensure federally-funded projects are well-managed and are in compliance with the Canadian Environmental Assessment Act (CEAA). A lack of national guidelines and procedures for the governance and management of contaminated sites remediation projects increases the risk that appropriate controls will not be in place when transferring payments to First Nations.

Through discussions with regional staff in Ontario and British Columbia, it was found that processes are in place through the First Nations and Inuit Transfer Payment (FNITP) System to control funding so that it is not provided until the remediation proposal has been reviewed by Technical Services to ensure the option is appropriate and reasonably priced, and that an environmental assessment (EA) has been performed. The audit noted, however, that once funds have been provided to a First Nation, AANDC has no control over how the funds are spent. The only recourse is to cease any further payments for the remediation project. In order to exercise control over the progress of the remediation, the next phase of funding will typically be withheld until a progress report or equivalent confirmation of milestone achievement has been reviewed by AANDC. Through discussion with regional staff, it was confirmed that due to project challenges and the short field season, there have been instances of funds being advanced before a report has been received.

CEAA requires that projects have an EA performed and that mitigation measures identified in the EA are implemented. Through discussions with regional staff in Ontario and British Columbia and document review, it was noted that while EAs are reviewed by AANDC prior to the approval/commencement of any project (e.g. a remediation plan or the issuance of a lease/permit) as required by CEAA, the Department's ability to ensure that mitigation measures are implemented by the First Nation while carrying out the project, is limited. No tracking or invoice approval mechanisms are currently in place to ensure projects are implementing approved mitigation measures.

Given AANDC's limited control over how First Nations use funds or manage contaminated sites remediation projects and the lack of mechanisms available to the Department to ensure that funds are used to implement environmental mitigation measures as required by Terms and Conditions of funding agreements, there is no guarantee that funding provided to First Nations will be spent for the purpose provided.

4.3.1 Compliance Framework

A policy framework should be in place to ensure that a department is in compliance with the regulations and policy requirements that govern their activities.

Through discussions with HQ and regional staff, we noted that while a policy framework has been established, there are gaps with reference to the Department's position on the monitoring and enforcing of environmental clauses in leases, permits and funding agreements.

The Minister of Aboriginal Affairs and Northern Development is responsible for the issuance of permits and leases on reserve land under the Indian Act. First Nations that operate under the First Nations Land Management Act (FNLMA) have their own land management regime and may issue permits and leases on their own accord.

A permit, which must be approved by the First Nation (before it is issued by the Minister), gives the holder the right to use reserve lands in a limited, specified way for a defined period of time (e.g. to remove gravel from a parcel of land). Leases are issued to non-band members on behalf of the First Nation or individual holding Certificates of Possession and must comply with all federal laws and First Nation by-laws. Unlike a permit, which may be issued over the same parcel of land provided that the uses are compatible, a lease grants exclusive possession of the land.

Before the issuance of a lease or a permit, an environmental assessment must be conducted according to the requirements of the CEAA. Once completed, the environmental assessment will be used to prepare the environmental provisions of the lease or permit, including any required mitigation measures. S20(1) of CEAA requires the Department, as a Responsible Authority (for the provision of project funding, the issuance of Indian Act permits or land tenure [i.e. leases]) to ensure that mitigation measures are appropriate and considered during the screening process; S20(2) of the CEAA requires the Department to be satisfied that mitigation measures identified during an Environmental Assessment are implemented.

Consequently, assessment, monitoring, reporting and enforcement processes should be in place to ensure departmentally-funded projects as well as permits and leases that have the potential to impair the environmental condition of reserve lands are monitored for compliance with clauses related to environmental management. This is especially important to ensure reserve lands continue to remain productive for communities pursuing economic development opportunities and for individuals who depend on the land for a living.

Through discussions with HQ and regional staff in Ontario and British Columbia, it was found that a consistent and effective mechanism for ensuring that environmental conditions associated with leases and permits are being implemented does not exist. There is no departmental policy or position on enforcement of environmental requirements, no associated training of regional staff, and insufficient staffing levels to take on enforcement functions and responsibilities.

4.4.1 External Training

To promote the achievement of the Department's environmental objectives, HQ and regional budgets should reflect the training and capacity building needs of First Nations and provide funding to enable the training of First Nations in the skills required to effectively undertake land and environmental management responsibilities.

The Land Environmental Action Fund (LEAF) provides funding to support environmental management and compliance activities both internally and to First Nations. Some LEAF funds are used for awareness building activities with First Nations. Through discussion with regional staff, the audit found that a needs assessment is not performed to determine the level or extent of First Nation capacity needs. There is also no systematic process for aligning the LEAF budget with the capacity building needs of First Nations.

The audit noted that while the RLEMP is intended to give First Nations the tools to manage the broadening scope and complexity of land and environmental management, it does not contain modules related to environmental management. The audit also found no evidence that the Department has addressed the OAG's findings with respect to First Nations environmental management capacity.

Further, funding levels for external training are perceived by AANDC staff to be insufficient to meet the environmental management training requirements of First Nations. By not meeting these needs, there is an increased risk that First Nations will not have the capacity required to effectively discharge land and environmental management responsibilities.

Audit Criteria