Audit of the Northern Contaminated Sites Program (excluding Giant and Faro mines)

Background

An Audit of the Northern Contaminated Sites Program (NCSP) was included in Aboriginal Affairs and Northern Development Canada's ("AANDC's" or "the Department's") 2014-2015 to 2016-2017 Risk-Based Audit Plan, approved by the Deputy Minister on February 6, 2014. The audit was identified as a high priority because of the significant environmental impact and health hazards that contaminated sites pose, and because of the significant amount of funding required by the government to implement the Northern Contaminated Sites Program.

Through its policies and programs, the Government of Canada aims to reduce environmental and human health risks from known federal contaminated sites and reduce associated federal financial liabilities. For all such sites, the Crown has identified departments, agencies and consolidated Crown corporations as custodians with responsibility to manage the sites on behalf of the Crown.

Many contaminated sites exist north of the 60th parallel, where the contamination was often the result of private sector mining and oil and gas activities, or government military activity that occurred over a half a century ago, when environmental impacts were not fully understood. AANDC is the federal department with custodial responsibility for these sites in Canada's North. The Department also has responsibility under the Indian Act for land and environmental management, which includes management of contaminated sites, on reserve south of the 60^th parallel.

In 2005, to support the activities of departments responsible for the management and remediation of contaminated sites, the Government of Canada established the Federal Contaminated Sites Action Plan (FCSAP). The FCSAP fiscal framework is jointly administered by Environment Canada through the FCSAP Secretariat and the Treasury Board Secretariat.

Audit Objective and Scope

The overall objective of this audit was to assess management's controls, risk management and governance processes established in relation to the objectives of the Department in regard to northern contaminated sites.

Specifically, the objectives of the audit were to assess the northern contaminated sites portfolio^{Footnote 1}, in relation to:

1. The design and operating effectiveness of program governance reporting structures and practices to support risk-based planning/decision-making and oversight;
2. The design of program controls for supporting the alignment of resource capacity and capability, both internal and contracted, with program objectives; and,
3. The design and operating effectiveness of program controls to support effective and efficient identification, assessment, remediation, tracking and reporting of contaminated sites in a manner that supports compliance with legislation, regulations, guidelines and policies.

The design of program controls, risk management and governance was assessed as of the conduct phase of this audit (August to October 2014), while testing covered the period of April 1, 2013 through to March 31, 2014. In addressing each of the audit objectives, the scope included an assessment of the following:

• Program objectives – including considerations for stakeholder engagement (internal and contracted) and socio-economic objectives, including adherence with land claim agreement requirements;
• Financial management – including planning an budgeting practices, information for decision making, monitoring and reporting; and,
• Compliance – including relevant legislation, regulations, guidelines and policies.

The following assessments were specifically excluded from the scope of this audit:

• The appropriateness of decisions relating to specific contaminated sites;
• Controls, risk management or governance specifically related to Giant or Faro Mines;
• The appropriateness, reliability or accuracy of financial reporting practices and calculations pertaining to the Department's financial liability for northern contaminated sites; and,
• Controls, risk management or governance related to Environment, Health and Safety^{Footnote 2} objectives.

Statement of Conformance

This audit conforms with the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program.

Conclusion

Overall, the audit found management's control, risk management and governance processes in place to support the objectives of the Department in regard to northern contaminated sites to be adequate and operating effectively. The audit did, however, identify opportunities for improvement in the following areas: strategic planning, specifically improving senior level oversight and addressing the linkage with Human Resource planning; and, documentation of a Departmental Control Framework for the management of contaminated sites.

Recommendations

The audit team identified areas where management control practices and processes could be improved, resulting in the following three recommendations:

1. The Assistant Deputy Minister, Northern Affairs Organization should address the need for a senior-level oversight body with a mandate that includes a role in the development, oversight and monitoring of the Program's new Strategic Plan. This new Plan should include the establishment of timelines, and a clearly established strategic direction and related objectives, including those following the expiry of FCSAP. It should also support linkages among regional and project-level plans, performance measurement strategies and risk management plans.
2. The Assistant Deputy Minister, Northern Affairs Organization should review the current status of the Program's Human Resources (HR) Plan with a view to assessing the strategic implications of staffing scenarios and options. Further, as part of the update of the Program's Strategic Plan, she should take steps to ensure the Program's HR Plan remains appropriate, achievable and aligned with the strategic direction and related objectives.
3. The Assistant Deputy Minister, Northern Affairs Organization should take steps to review, update and organize the policies and procedures associated with the management of contaminated sites, including related procurement practices, into a Control Framework for the management of contaminated sites. This initiative should be undertaken with input from the South of 60° Program and would serve to address identified gaps, streamline content, and support better alignment with current practices and requirements. It will also establish a foundation for the development of a Department-wide control framework for the management of contaminated sites.

Management Response

Management is in agreement with the findings, has accepted the recommendations included in the report, and has developed a management action plan to address them. The management action plan has been integrated in this report.

Program Overview

Contaminated sites are properties where introduced substances occur at concentrations that are likely to pose an immediate or long-term hazard to human health or the environment. They also include properties where such concentrations exceed levels specified in policies and regulations. Contaminated sites exist throughout Canada, including on land for which the Crown in responsible.

Through its policies and programs, the Government of Canada aims to reduce environmental and human health risks from known federal contaminated sites and reduce associated federal financial liabilities. For all such sites, the Crown has identified departments, agencies and consolidated Crown corporations as custodians with responsibility to manage the sites on behalf of the Crown.

Many contaminated sites exist north of the 60^th parallel, where the contamination was often the result of private sector mining and oil and gas activities, or government military activity that occurred over a half a century ago, when environmental impacts were not fully understood. AANDC is the federal department with custodial responsibility for the majority of these sites in Canada's North. The Department also has responsibility under the Indian Act for land and environmental management, which includes management of contaminated sites, on reserve south of the 60^th parallel. The management of northern contaminated sites is more complex and involves longer time frames than what is required for the sites in the south, where sites are mostly related to abandoned dump sites and fuel spills. To support the discharge of its responsibilities for contaminated sites, the Department has developed a Contaminated Sites Management Policy to provide guidance for the management of contaminated sites located on reserve lands, on federal lands in the North, and on any other lands under the Department's custodial responsibility.

The information in the table below was taken from the Federal Contaminated Sites Inventory (FCSI), which is a listing of all known Federal Contaminated Sites under the custodianship of departments, agencies and consolidated Crown corporations. Per the FCSI, a breakdown of the number of contaminated sites as at March 31, 2014 that are North of 60° and South of 60° for which AANDC is the custodian is as follows:

The number of North of 60° sites in the inventory, by classification type, was as follows as at March 31, 2014:

Within AANDC, the Northern Affairs Organization (NAO) is responsible for the programs and activities that comprise the Department's northern strategic outcome. One of NAO's key responsibilities is the management of contaminated sites located north of the 60^th parallel through the Northern Contaminated Sites Program (NCSP or "the Program). The objective of the NCSP is to effectively manage and remediate northern (i.e. north of the 60^th parallel) contaminated sites which fall under AANDC custodial responsibility. In line with Government of Canada objectives, the NCSP aims to reduce and eliminate, where possible, risks to human and environmental health, and liability associated with contaminated sites in the North. It is also important for the Program that contaminated sites are managed in a manner that is cost-effective and consistent throughout the North.

The NCSP has recently undergone organizational change and is its own branch within NAO since April 1, 2014. The Branch consists of four directorates including: Major Projects Office, Contaminated Sites Program Management, Faro Mine and Giant Mine. Giant Mine, considered a mega project, is managed at AANDC Headquarters (HQ), where the majority of staff dedicated to its management are located. Faro Mine, due to devolution, is managed by the Yukon Government but is still funded by AANDC. The Faro Mine directorate is responsible for ensuring all work plans are assessed, independent reviews are conducted and that the appropriate funds are allocated to the Yukon Government for managing the Faro Mine. The Major Project Office is responsible for the development of AANDC policies and procedures and the independent reviews associated with major projects; it provides a quality assurance role within the Branch. The Contaminated Sites Program Management directorate supports all activities that are not covered by the other directorates. They are responsible for program guidance, performance reporting, Treasury Board Submissions and any corporate level tasks.

Devolution of federal responsibilities to territorial governments has impacted both the organizational structure and responsibilities of the NCSP. Since the enactment of the Yukon Devolution Transfer Agreement in 2003, AANDC has retained financial responsibility but has devolved the management of the contaminated sites to the Yukon Government. Over time, the Department has identified some challenges when financial responsibility is not connected to management authority. Leveraging lessons learned in the Yukon, the 2014 Northwest Territories Devolution Agreement had AANDC retain control (financial and operational) over all contaminated sites recorded prior to April 1, 2014. Once these sites have been remediated, land management responsibilities will be transferred to the Government of the Northwest Territories. As devolution discussions with Nunavut continue, the program expects to leverage lessons learned and best practices from the Yukon and Northwest Territories experience to help facilitate an effective and efficient outcome.

Federal Contaminated Sites Action Plan

In 2005, to support the activities of departments responsible for the management and remediation of contaminated sites, the Government of Canada established the Federal Contaminated Sites Action Plan (FCSAP). The FCSAP fiscal framework, which committed $3.5 billion over a 15-year period, is jointly administered by Environment Canada through the FCSAP Secretariat and the Treasury Board Secretariat (TBS), and has the primary objective of addressing the risks that contaminated sites pose to human health and the environment, and to reduce the associated financial liability. The FCSAP uses a cost-share model under which 85% of the costs to assess, manage and remediate sites are funded by the FCSAP, while the remaining 15% of the costs are covered by the custodial department. Under Canada's Economic Action Plan, and for the largest and most complex sites in the federal inventory, such as Faro, United Keno Hill, and Giant Mines, the FCSAP covers 100% of costs.

FCSAP is currently nearing the end of Phase II^{Footnote 4}, will be entering into Phase III^{Footnote 5} on April 1, -2016, and ending in the year 2020. It is the responsibility of FCSAP Secretariat, with agreement from the FSCAP ADM Steering Committee, to determine how much funding will be provided to each department. AANDC's involvement with FCSAP is comprised of two representatives (one for the NCSP and one for the South of 60 Contaminated Sites Program) that attend committee meetings and provide input; however, the authority for funding decisions remains with Environment Canada and TBS.

Financial Considerations

Contaminated sites in the North account for a total estimated environmental liability of $2.369 billion as of fiscal year-end 2013-2014. The two most significant sites contributing to this liability are Giant Mine and Faro Mine (excluded from the scope of this audit). Based on the 2013-2014 Year-end Liability Report, the breakdown of liabilities across the North, by region, is as follows:

Key Challenges Faced by the Program

1. FCSAP Renewal and Expiry
   
   As noted above, FCSAP is nearing the end of Phase II and will be entering into its final phase, Phase III, at April 1, 2016. The FCSAP fiscal framework is scheduled to expire in 2020.
   
   The Department is responsible for managing the full liability associated with the contaminated sites under their custodial responsibility beyond the expiry of FCSAP program funding. The NCSP has developed plans to reduce the liability as much as possible while FCSAP funding is available. If the federal government continues to be responsible for the program beyond 2020, a stable source of funding that does not require renewal should be sought.
2. Human and Financial Resources Planning
   
   The scale of the contaminated sites liability and the complexity of the projects within the North of 60° portfolio represent longstanding risks facing the Department in its management of the NCSP. More specifically, there is a range of inherent risks associated with the management of contaminated sites, some of which are unique to the context of delivering programs in Canada's North. One of the more significant risks is the Program's ability to recruit and retain qualified and skilled workers. The NCSP program requires a specialized skill set and technical experience to manage and remediate their contaminated sites. Combined with the unique challenges of recruiting and retaining personnel in the North, the overall market for highly skilled and experienced engineers, geologists and project managers is relatively small and highly competitive.
   
   From a financial planning perspective, the Program is impacted by its significant reliance on contracted service providers. Unlike the South of 60° Program, with Grant and Contribution based funding, NCSP objectives are funded with Operations and Maintenance funding. As such, the Program relies on Public Works and Government Services Canada (PWGSC) to contract the vast majority of its activities. Program Management must work closely with PWGSC to ensure that contracts are processed in a timely and efficient manner to meet the needs of the Program during the short field season in the North, or face significant cost and time delays as a result. This context and risk is relatively unique within AANDC, and the Program has had to develop internal capacity and capabilities to mitigate the related risks where possible.

2.1 Audit Objective

The overall objective of this audit was to assess management's controls, risk management and governance processes established in relation to the objectives of the Department in regard to northern contaminated sites.

Specifically, the objectives of the audit were to assess the northern contaminated sites portfolio^{Footnote 6}, in relation to:

1. The design and operating effectiveness of program governance reporting structures and practices to support risk-based planning/decision-making and oversight;
2. The design of program controls for supporting the alignment of resource capacity and capability, both internal and contracted, with program objectives; and,
3. The design and operating effectiveness of program controls to support effective and efficient identification, assessment, remediation, tracking and reporting of contaminated sites in a manner that supports compliance with legislation, regulations, guidelines and policies.

2.2 Audit Scope

The design of program controls, risk management and governance was assessed as of the conduct phase of this audit (August to October 2014), while testing covered the period of April 1, 2013 through to March 31, 2014. In addressing each of the audit objectives, the scope included an assessment of the following:

• Program objectives – including considerations for stakeholder engagement (internal^{Footnote 7} and contracted) and socio-economic objectives, including adherence with land claim agreement requirements;
• Financial management – including planning and budgeting practices, information for decision making, monitoring and reporting; and,
• Compliance – including relevant legislation, regulations, guidelines and policies.

The following assessments were specifically excluded from the scope of this audit:

• The appropriateness of decisions relating to specific contaminated sites;
• Controls, risk management or governance specifically related to Giant or Faro Mines;
• The appropriateness, reliability or accuracy of financial reporting practices and calculations pertaining to the Department's financial liability for northern contaminated sites; and,
• Controls, risk management or governance related to Environment, Health and Safety^{Footnote 8} objectives.

5.1 Program Governance, Planning, Decision-Making and Monitoring

To help ensure the effective oversight, support, and integration of risk-based planning as well as strategic and operational decision making, the audit team expected the NCSP to have a clearly defined and effective governance infrastructure including formal bodies with aligned and appropriate mandates. There was also an expectation that the Program demonstrate the existence of practices that effectively support the flow of appropriate financial and non-financial information pertaining to Program operations, risk management, and planning. Further, the audit team expected to find evidence whereby analysis and monitoring activities generated the routine reporting to effectively support the timely monitoring of Program compliance, financial status and progress against priorities.

Overview of the Program's Governance Structure, Authorities and Responsibilities

Since becoming a separate Branch within the Northern Affairs Organization on April 1, 2014, the Executive Director of the Northern Contaminated Sites Program Branch has reported directly to the Assistant Deputy Minister ("the ADM") of the Northern Affairs Organization within AANDC.

NCSP is a decentralized program with HQ focusing on communications, strategic planning, policymaking, securing resources and oversight. While HQ also takes the lead in directing major projects, such as the Giant Mine Remediation Project, the three (3) northern regions are responsible for direct implementation of the Program at contaminated sites under their jurisdiction. At the project level, the governance structure includes two (2) formal committees as well as representation from PWGSC as depicted in Figure 1 below.

Description of Figure 1: Typical Contaminated Site Project Organization

Figure 1 depicts a typical contaminated site project organization structure. At the top of the organizational hierarchy is the Assistant Deputy Minister of the Northern Affairs Organization (ADM NAO). Below the ADM NAO box are those of the Regional Directors General and the Executive Director NCSP. The next level of the hierarchy includes all parties involved in the Director’s Committee. They are as follows: Regional Directors; the Program Director NCSP; and, the Major Project Directors NCSP. The final level of the hierarchy includes all parties involved in the Project Management & Technical Advisory Committee. They are as follows: Project Managers; NCSP staff; and, Major Projects Staff.

 

The figure above includes reference to the Director's Committee. The audit identified that, while the Project Management and Technical Advisory Committee is currently convened on an ad hoc basis, the Director's Committee serves as the primary governance body supporting the management^{Footnote 10} of northern contaminated sites. This Committee is comprised of representatives from HQ, each of the three northern regions, as well as a representative of PWGSC's Northern Contaminated Sites Directorate. The mandate of this Committee was found to be clearly defined and comprising of the responsibility to facilitate communication and coordination within the program and to provide proactive oversight and management attention to the program.

The Director's Committee is chaired by the Program Director for NCSP and meets on a monthly basis by teleconference and periodically in-person. Interviews and analysis of meeting agendas and records of decision support the assertion that the Director's Committee provides an effective and clearly understood forum in the establishment of policies and procedures to guide the management of projects, and the timely review of program performance. Information requirements, both financial and non-financial, were found to be well-established and supportive of the timely monitoring of Program compliance (including legislative requirements), financial status and progress against priorities. Reporting to senior management and oversight bodies including the Director's Committee, was found to be in place.

5.2 Program Capacity and Capability

The scale, scope, complexity and geography of the Program's inventory of contaminated sites pose some unique challenges. As such, achievement of program objectives requires access to specialized capabilities and competencies in disciplines related to project management, financial and cost accounting and procurement as well as engineering and environmental science. As such, the audit team expected effective planning, implementation and monitoring of capacity, whether delivered via Program personnel or via contracted third-party service providers. The expectation is that plans and processes would support effective management of program capacity and capability as well as their alignment with Program objectives, and finally, that policies and procedures governing the management of agreements with service providers would reflect relevant requirements and organizational values.

5.3 Management of Contaminated Sites

At the foundation of the Program's raison d'être are objectives which are dependent on the effective and efficient management of contaminated sites. This results in a very high expectation for management controls that support the effective and efficient identification, assessment, remediation, tracking and reporting of contaminated sites. In addition, these controls are expected to not only support compliance with a myriad of requirements but also demonstrate prudent and effective financial management.

Audit Criteria