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1 Introduction During the fiscal years ended 31 March 1998 and 1999, Cabinet approved funding of $18.1 million for a special employment initiative known as the Job Creation Program. The purpose of this Program was to create shortterm employment throughout the Province. The Program was administered by the following four departments: Municipal and Provincial Affairs, Works, Services and Transportation, Forest Resources and Agrifoods, and Human Resources and Employment. Figure 1 provides information on the approved funding allocated to each of these departments. Funding for the Job Creation Program was not part of the original approved budget for these departments. Instead, as shown in Figure 2, $9 million was provided from the Province s Contingency Fund, $2.6 million was provided through a Special Warrant, and $6.5 million was transferred from other Government programs. Figure 1 Total Approved Job Creation Funding 31 March ($Millions) Department Total Municipal and Provincial Affairs $6.1 $5.0 $11.1 Forest Resources and Agrifoods Works, Services and Transportation Human Resources and Employment Total $10.6 $7.5 $18.1 Source: Government s accounting records 448 Auditor General of Newfoundland

2 Figure 2 Sources of Funding Job Creation Program 31 March ($Millions) Fiscal Year Source of Funding 1998 Contingency Fund Special Warrant Transfers From Other Programs Municipal and Provincial Affairs Forest Resources and Agrifoods Works, Services and Transportation Human Resources and Employment Total Sub-Total Contingency Fund Transfers From Other Programs Sub-Total Total Source: Government s accounting records To coordinate the implementation of the Job Creation Program, Cabinet established a Review Committee. This Committee consisted of the Minister of Municipal and Provincial Affairs, the Minister of Forest Resources and Agrifoods, the Minister of Works, Services and Transportation, a Member of the House of Assembly, and officials of the Department of Municipal and Provincial Affairs. The Committee was responsible for coordinating the implementation of the Job Creation Program, including all project approvals. Auditor General of Newfoundland 449

3 As the Department of Municipal and Provincial Affairs was allocated $11.1 million or 61% of the total approved funding of $18.1 million, we limited our review of the Job Creation Program to this Department. Total funding of $11.1 million allocated to this Department was approved by Cabinet under five separate Job Creation programs throughout the years ended 31 March 1998 and Figure 3 provides information on available funding, actual expenditures and the number of applications approved for each of these five programs. The Review Committee at the Department of Municipal and Provincial Affairs consisted of the Minister of Municipal and Provincial Affairs and three Members of the House of Assembly. In addition, the Department assigned one of its staff as Job Creation Coordinator. Figure 3 Department of Municipal and Provincial Affairs Summary of Funding, Expenditure and Applications Job Creation Program 31 March Fiscal Year Program Amount Authorized Total Approved Projects Total Project Expenditures Number of Applications Deadline for Applications 1 $1,000,000 $999,080 $999, July ,000,000 1,000,907 1,000, December ,100,000 4,092,752 4,092, January 1998 Subtotal $6,100,000 $6,092,739 $6,092, $500,000 $346,129 $346, December ,500,000 4,550,043 4,550, January 1999 Subtotal $5,000,000 $4,896,172 $4,896, TOTAL $11,100,000 $10,988,911 $10,988,881 1,454 Source: Department of Municipal and Provincial Affairs 450 Auditor General of Newfoundland

4 Departmental officials informed us that the Departmental Review Committee established the following program objectives: to provide a short term employment response program; to support labour intensive job creation initiatives; to address the most pressing needs for families and others with no source of employment income; to focus on areas of high unemployment where needs are most warranted; and to leverage and combine with other programs and fundraising initiatives to supply materials and other non-labour related project components. Departmental officials also informed us that: of the total approved funding of $11 million, this Review Committee allocated $10.5 million to the 48 electoral districts as indicated in Figure 4; the Job Creation Program was not publicly advertised; it was incumbent upon each Member of the House of Assembly to advise interested project sponsors of available program funding; and all applications for funding within an electoral district are reviewed and approved by that district s Member of the House of Assembly. These applications are then forwarded to the Departmental Review Committee to ensure projects meet Program eligibility criteria. At the time of our audit in October 1999, Cabinet had approved an additional $5 million in funding for another Job Creation Program of which $3.5 million and $1.5 million is to be administered by the Department of Municipal and Provincial Affairs and the Department of Works, Services and Transportation respectively. The deadline for applications for this additional funding is scheduled for 10 December Scope and Objectives In October 1999, we commenced a review of the Job Creation Program in the Department of Municipal and Provincial Affairs. The objective of this review was to determine whether adequate policies and procedures exist to ensure the Department properly administered the Program. Auditor General of Newfoundland 451

5 There were 1,454 applications totalling $11 million approved for the Job Creation Program of the Department of Municipal and Provincial Affairs in and We examined files for 56 approved applications with total approved funding of $833,416. We also selected a sample of 14 applications that had been rejected for funding to determine whether there was adequate documentation to support the reasons for rejection. Our review covered the period of 1 April 1997 to 31 March Conclusions The Department s administration of the Job Creation Program is not adequate. In particular: Project files lacked adequate documentation to support funding decisions and we were often unable to determine if approved applications met established eligibility and selection criteria. Additional funding was advanced to project sponsors without project applications being completed and without adequate documentation on how previously approved funds had been spent and how the additional funding is intended to be spent. In contravention of the Financial Administration Act, the Department made payments for the Job Creation Program from funds approved by the House of Assembly for Special Assistance to municipalities. Although project sponsors are required to submit a financial report supporting total project expenditures before the final 25% funding installment is paid by the Department, these funds have often been paid to the sponsor groups prior to the receipt of any financial reports. In general, financial reports were not received by the Department on a timely basis. The Department is not receiving adequate information from project sponsors to ensure that program guidelines were followed and that project funding was used for its intended purpose. For example, documentation to adequately support project expenditures in the form of invoices for materials and payroll records for salaries are generally not provided to the Department. 452 Auditor General of Newfoundland

6 Ministers of the Crown are responsible for policy development and it is the responsibility of public servants to implement these policies and deliver the Government programs which reflect these policies. I am concerned about the manner in which the Job Creation Program is being delivered. For example, the Program was not publicly advertised and made available to all residents of the Province, funding for the Program has been allocated based on electoral district rather than the merit of applications or other objective assessment, and applications are not subjected to a consistent and rigorous review and evaluation prior to being approved. Findings and Recommendations Review and Approval of Applications Adequate policies and procedures are necessary to ensure that approved applications are those most likely to achieve program objectives. This would include reviewing the applications to ensure established eligibility and selection criteria are met and adequately documenting the resulting assessment decisions. Job Creation Program guidelines indicate that eligible sponsors who receive program funding are to include non-profit organizations, community based agencies, service groups, churches, municipal councils, local service district committees and development agencies. The types of projects funded under the Job Creation Program are required to meet the following criteria: relatively short term; small-scale; capable of immediate start-up once funding has been approved; and labour intensive with a labour component of at least 70% ie overhead/materials cannot exceed 30% of the total project cost. Program Guidelines indicated that projects with the highest labour content were to be given preference under this program. We were informed that sponsor groups seeking funding under the Job Creation program were required to submit an application which was usually reviewed by the applicable Member of the House of Assembly, the Job Creation Coordinator and the Review Committee. Figure 4 indicates allocation of $10.5 of the $11.0 million approved funding to the 48 electoral districts. Auditor General of Newfoundland 453

7 Figure 4 Funding by Electoral District Electoral District Approved Funding Amount Cartw right-l anse au Clair $ 387,045 Carbonear-Harbour Grace 378,250 Placentia & St. Mary s 335,388 Twillingate & Fogo 298,084 The Straits & White Bay North 294,986 St. Barbe 290,107 Port De Grave 285,000 Bonavista North 284,827 Humber West 265,205 Port Au Port 264,153 Exploits 262,220 Grand Bank 258,748 FortuneBay-CapeLaHune 244,637 Burgeo & Lapoile 242,802 Humber East 241,871 Bay of Islands 241,237 Burin-Placentia West 240,360 Bellevue 239,304 Ferryland 239,033 Grand Falls-Buchans 238,238 Bonavista South 227, Auditor General of Newfoundland

8 Figure 4 (cont.) Electoral District Approved Funding Amount Humber Valley 223,473 St. John s Centre 223,344 Harbour Main-Whitbourne 218,028 Gander 216,618 Terra Nova 214,331 Trinity-Bay De Verde 210,406 Torngat Mountains 208,705 Labrador West 204,705 Lake Melville 202,057 Topsail 201,860 Lewisporte 199,236 Trinity North 198,145 St. George s-stephenville East 190,023 Conception Bay East & Bell Island 189,223 Baie Verte 173,189 St. John s North 170,517 Windsor-Springdale 159,553 Cape St. Francis 151,002 K ilbride 140,428 Mount Pearl 139,964 Conception Bay South 134,751 Signal H ill-quidi Vidi 127,619 Auditor General of Newfoundland 455

9 Figure 4 (cont.) Electoral District Approved Funding Amount Virginia Waters 121,258 St. John s South 110,549 St. John s West 110,000 Waterford Valley 106,000 St. John s East 105,089 St. John s MHA s 80,153 Sub-Total - Allocated to electoral districts 10,488,911 Allocated to the Department of Works, Services and Transportation for brush cutting projects 500,000 TOTAL $10,988,911 Source: Department of Municipal and Provincial Affairs Our review of this area indicated the following: Although a formal letter is sent to all successful applicants by the Minister of Municipal and Provincial Affairs indicating approval of funding, decisions of the Departmental Review Committee are not formally documented. Discussions with the Program Coordinator indicate that the project approval process is very informal. There are no formal meetings of the Departmental Review Committee, rather the Coordinator obtains verbal approval from one or more of the Committee members to fund the project. As a result of inadequate documentation, we were unable to determine rationale for funding decisions and whether the Departmental Review Committee had approved projects for program funding. 456 Auditor General of Newfoundland

10 Application guidelines indicate that projects that have the highest labour content will be given preference under this Program. The Departmental Review Committee does not, however, wait until the application deadline to assess all applications together but allocates funding as applications are received. This process does not facilitate a comparison of all applications to each other for the purposes of determining which projects have the highest labour content and thus would contribute more to the program objective of creating short-term employment. In addition, a review of a sample of rejected applications indicated that this process has resulted in certain sponsor groups not receiving funding because available funding had already been committed; however, these sponsor groups had submitted applications prior to the required application deadline. For the 56 projects reviewed, 4 sponsor groups who had already received funding of $54,775 under the program, received additional funding of $26,000 without completing new applications. In these cases, the sponsor group submitted a letter requesting additional funds but the letters did not contain sufficient information to determine how the additional funding was intended to be spent. In addition, at the time of the request for additional funding, the Department had not received any support for project expenditures already incurred through previous approved funding. For another project reviewed which was originally approved on 27 January 1998 for $75,000, additional funding of $150,000 was advanced on six separate occasions over a period of a year and a half without applications always being submitted. When applications were not completed, the sponsor group had submitted a letter to the Department requesting additional funding; however, again these letters did not provide sufficient information to determine how this additional funding was going to be spent nor had the Department received any support for project expenditures already incurred. A financial report to support the $225,000 was not received until 24 November 1998 and identified a funding deficit of $12,300. The Department paid an additional $15,000 to this group in November Additional funding totalling $103,000 was advanced to this sponsor group on four separate occasions between January and March 1999 without any applications being completed. Again, although letters from the sponsor groups requesting the funding were on file, the letters did not contain sufficient information to determine how the additional funding was intended to be spent. The financial report containing information on expenditures Auditor General of Newfoundland 457

11 totalling $103,000 incurred by the sponsor group was not received by the Department until 31 August 1999 and identified a funding deficit of $2,700. In addition, as this sponsor group received additional funding for project continuation over a two year period it did not meet the Program guidelines of being relatively shortterm. Application files often did not contain sufficient information to determine if the project met the selection criteria with respect to being short-term, small-scale, capable of immediate start -up and labour intensive (i.e. greater than 70%). For example, the project descriptions were either not provided or were very vague indicating that it was for work around the community or maintenance to Town infrastructure. As Members of the House of Assembly approve applications, there may be instances where applications are not forwarded to the Department. A review of rejected applications which were available indicated that, in general, application content and scope were of a similar nature to those projects approved for funding; however, reasons for funding rejection were not well documented. When reasons were documented it was usually attributed to available funding having already been committed. Payments Without Authority Of the projects selected for review, we found four cheques totalling $67,500 which were paid to two sponsor groups prior to the approval of the Program by Cabinet. Cabinet approved funding of $500,000 on 17 November 1998 and $4.5 million on 25 January 1999 for the Job Creation Program. Our review of selected projects determined that for two projects a total of $67,500 had been paid to the project sponsors between 4 August and 10 November 1998, before the Program and its funding was approved by Cabinet. The payments were made from the Department s Special Assistance Program which is supposed to be used for special funding to municipalities. There was no authority to make payments for the Job Creation Program from funds approved by the House of Assembly for Special Assistance to municipalities. As a result, the payments totalling $67,500 were made in contravention of the Financial Administration Act. 458 Auditor General of Newfoundland

12 Project Monitoring Effective monitoring of projects is essential to ensure that program objectives are being achieved, program guidelines are being adhered to and funds are being spent for their intended purpose. Our review of this area indicated that, in general, the Department is not receiving adequate information from the project sponsor to determine whether program guidelines are being followed and funds are being spent as approved. In particular: Program guidelines require that to qualify for employment under this program, a person must have an attachment to the labour force, is unemployed and is not in receipt of benefits under the Atlantic Groundfish Strategy or is retired on an old age, CPP or other public or private pension plan. Although the Department receives a list of names and social insurance numbers of individuals hired for a project from the sponsor group, the Department does not perform any verification procedures to ensure that these individuals actually qualified for employment as specified in the guidelines. Funding for approved projects occur in two installments: 75% upon approval of the application and 25% upon completion of the project and receipt by the Department of a financial report together with all invoices for materials and payroll information. This process helps ensure that financial and other project information is received by the Department on a timely basis and also allows the Department to withhold the remaining 25% if the project funding was not spent as intended. In one project reviewed, 100% of the funding in the amount of $15,000 was advanced upon approval of the application. In the majority of other projects reviewed, the final 25% installment was paid to the sponsor group prior to the receipt of the financial reports by the Department. In general, financial reports were not received by the Department on a timely basis. At the end of our review in October of 1999, there were three projects for which the financial report was not submitted even though 100% of the approved funding had been disbursed. These reports were all required to be submitted prior to 31 March As a result, the Department has not been able to substantiate the validity of project expenditures for these three projects. For all other projects reviewed, although financial reports had been submitted by the sponsor groups, the reports often lacked adequate information to verify project expenditures. For example: Auditor General of Newfoundland 459

13 in some cases invoices for materials were provided but the invoices did not indicate the nature of the item purchased; in some cases a listing of the nature of the materials was provided but supporting invoices were not included; and in one project, although a listing of employees and the amount they were paid was provided, there was no support provided in the form of payroll journals, record of employment or cancelled cheques to substantiate the payroll amounts. Program guidelines require that the labour rate paid by project sponsors be limited to the Province s minimum wage, unless a different rate is approved by the Review Committee. In reviewing the financial reports submitted by the project sponsors, a number of instances were noted where the sponsor paid employees in excess of the Province s minimum wage and no documentation was on file to indicate that the Review Committee had approved this increased wage rate. For all other financial reports reviewed where payroll was applicable (payroll component for some projects was funded by the Federal government), files did not contain sufficient information to determine if the labour rate paid was limited to the Province s minimum wage. Project guidelines require that projects be completed by 31 March of the year in which the project was approved. The guidelines also indicate that no payment will occur after that date and that failure to complete projects by this deadline will result in the balance of funding (25%) being cancelled. Our review indicated that five projects that received funding of $238,940 were not completed by 31 March in the year in which they were approved but the balance of funding was issued to the project sponsor. Recommendations Decisions relating to project approvals and rationale for funding decisions should be formally documented. To facilitate selecting projects that have the highest labour component, the Department should review the process of allocating funding before all applications have been received. 460 Auditor General of Newfoundland

14 The Department should ensure that all projects approved for funding have a completed application on file that contains sufficient information to indicate that projects meet the established selection criteria. The Department should ensure that payments to sponsor groups are paid out of approved program funding. Prior to issuing the final 25% instalment of funding, the Department should ensure that the project sponsor submits a financial report. This report should be reviewed to ensure that it contains adequate support for project expenditures and that the project sponsor has complied with all program guidelines. Department s Response As recommended by the Auditor General, the Department will, in the future, endeavour to document decisions relating to project approvals as well as the rationale for these funding decisions. The Job Creation Programs which the Department has administered since 1996 have been announced and funded during the fiscal year. Given the nature of this Program, it would not be practical to predetermine and rank applications. This would result in excessive administrative burden and delays in project approvals. The Department will, however, review its approval/evaluation process with a view to potential improvements in approval of priority projects. In future, the Department will endeavour to ensure that all approved projects have a properly completed application on file. In those instances where the Auditor General has noted that payments from other funding areas occurred early in the initial program while waiting for the processing of funding allocations for the Job Creation Programs, it was deemed that this action was necessary in order to get several projects started as early as possible. The only option available at the time in order to get these projects started was to use funding from within existing allocations. The plan was to then replenish the other fund from Job Creation dollars. Such occurrences did not happen subsequent to funding being allocated for the Program. The instances noted would have been exceptions. Auditor General of Newfoundland 461

15 Based on final results from the projects, the Department may need to review and revise the guidelines as they refer to advancing the funds. The guidelines presently state that the final 25% of the project cost will only be paid on the basis of a final report. From a practical perspective, this often results in a chicken or egg situation, with the 25% funding being required to complete the project and finish the final report. The Department will review the accountability section of its guidelines and make recommendations for changes. 462 Auditor General of Newfoundland