Audit blasts shoddy funding controls

The Yukon government fails to track the money it doles out to individuals and organizations, according to a highly critical internal audit.

The Yukon government fails to track the money it doles out to individuals and organizations, according to a highly critical internal audit.

That lack of oversight could lead to conficts of interest, overfunding and wasteful government spending, concluded the report by the Yukon’s audit services branch.

Specifically, all government departments lack oversight and accountability in their contribution programs.

“We found there were wide-ranging deficiencies in the management practices and controls governing contributions,” says the 88-page report.

If problems persist, the government risks wasting money.

The government runs the risk of “conflicting initiatives, the possibility of over-funding and ongoing risk or using public funds inefficiently and ineffectively,” says the report.

Contributions are payments to organizations or individuals in areas where the government does not operate, such as arts and sports.

The money comes with conditions. But, according to the audit branch, the government is not following through to ensure those conditions are met.

About 15 per cent of government spending consists of these transfer payments.

In 2004-05, the government handed out $103 million in contributions, up from $75 million the previous year.

Few changes have been made to the contributions policy since 1992 and a Finance department request to review the procedures was accepted by the audit committee in 2004.

“The lack of an audit in this area posed considerable risk given the discretionary nature of contributions and their financial significance,” says the report.

Auditors reviewed 24 projects and 67 single-recipient contributions totaling $21.5 million.

Programs include FireSmart, the Sports and Recreation Program, Community Development Fund and Arts Fund.

The financial files were pulled from five departments, including Tourism and Culture, Economic Development, Education, Community Resources, and Energy, Mines and Resources.

Each department received a ‘D’ grade — a “seriously deficient” rating — for failing to ensure due diligence in spending or provide accountability for public funds.

Contributions are being used for their intended purposes, but it’s the lack of oversight that’s cause for concern, says the Yukon’s auditor.

While five departments were reviewed, the report notes the other seven are probably facing similar problems.

The report was finished in January, but was not made public until sometime this month.

That’s unacceptable, said Opposition leader Arthur Mitchell.

“This report was so damning, the government didn’t want to make it public — they wanted to spend as much time before releasing it to come up with excuses,” said Mitchell.

“This report was posted, I guess, when it reached a point where the government no longer in good conscience could hide it.”

The report is a condemnation of the government’s financial performance of the last five years, said NDP leader Todd Hardy.

“This government does not have control over spending,” he said.

There’s no use hiding behind positive auditor general reports when internal audits show recluse government spending, said Hardy.

“It’s easy to be in government when you have lots of money,” he added.

“The true measure of a government is meeting the needs of the public when under financial constraints.”

Governments will never find an internal audit without severe rebukes, said David Hrycan, deputy finance minister.

“We don’t do these audits to pat ourselves on the back,” he said.

“We asked for this because there were things (in the contribution policy) we knew need improvement.”

Recommendations from the report are implemented by the finance department. It has been working on improving the policy since the report came out 11 months ago, said Hrycan.

A new monitoring policy and improvements to clarity on the definition of “contribution” should be in place for the new fiscal year this spring, he added.

The current policy does not provide enough direction to assess for risk, execute and evaluate contributions, says the report.

When compiling department budgets, the government also misclassified some contributions as operations expenditures while others are capital expenditures.

Misreporting the funding could be “misleading the public into thinking that it is spending more on new capital initiatives and acquiring assets when the exact opposite may be true,” says the report.

In Education, groups received funding that should have been contracts, such as $362,000 given to the Yukon Teacher’s Federation to meet collective agreement obligations.

In Community Services, auditors faulted the department for not including basic contract clauses for conflict of interest, financial reporting and basic accounting practices.

“(There are) no effective remedies to deal with potential cases of impropriety, integrity violations or issues of potential conflict with organizations or individuals applying for funds,” says the report.

One hurdle to constant oversight is the lack of training and high turnover of employees responsible for contribution programs, said the audit branch.

“There’s no doubt the (contribution) policy works, but we’re being told it needs some tweaking,” said Hrycan.

In the report, the Finance department agrees with most of the auditor’s recommendations, including the part about tailoring reporting requirements to the size of funding received.

A new policy should tailor contribution agreements to the size of funding received — one size does not fit all, says the report.

“An agreement for $400 does not need to be designed at the same level of complexity as one for $40,000,” it says.

Each agreement should be based on the risk and size of the funding.

Conducting annual performance reviews of contributions and creating a central “watchdog” in the Finance department should improve accountability, says the report.

Department officials responsible for contributions are not to blame for the poor performance, said Mitchell.

“It’s the captain of the ship that’s held accountable,” said Mitchell.

“Nobody talks about what the Titanic’s third mate did that might have caused hitting an iceberg — it’s the captain and we know who the captain of this ship is.”

Acting Finance Minister Elaine Taylor declined comment for this story.