Audit of the Asia Pacific Gateway and Corridor Initiative

Table of Contents

Executive Summary

INTRODUCTION

Canada has implemented a National Policy Framework for Strategic Gateways and Trade Corridors to provide an integrated system approach to strengthen infrastructure for all modes of transportation that impacts international trade. 

The Asia-Pacific Gateway and Corridor is a network of transportation infrastructure including British Columbia’s Lower Mainland and Prince Rupert ports, their principal road and rail connections stretching across Western Canada and south to the United States, key border crossings, and major Canadian airports.

The Asia-Pacific Gateway and Corridor InitiativeFootnote 1 is a contribution programFootnote 2 launched in 2006 to conduct research to identify potential areas for investment and to fund infrastructure projects to support Asia-Pacific trade.  With an initial funding of $514.6M from the Building Canada Plan and a maturity of FY2013/14, the fund has grown to its current level of $953.7M and the program has been extended to 2018. 

AUDIT OBJECTIVE AND APPROACH

In accordance with the 2013/14-2015/16 Transport Canada Internal Audit Plan, an audit of the Asia-Pacific Gateway and Corridor Initiative was started in June 2013.  This audit was included in the plan since the program is highly visible and has very high materiality.  This report presents the results of the planning phase.

The objective of the audit was to assess the effectiveness and efficiency of the Management Control Framework for the Asia-Pacific Gateway and Corridor Initiative contribution program.

At the outset, there appeared to be similarities between the Asia-Pacific Gateway and Corridor Initiative and the Gateways and Border Crossings Fund, a contribution program that was recently audited by Internal Audit.  Due to these apparent similarities between the two contribution programs, our planning phase first included a validation of what was the same and what was different between the two programs.  The purpose of this validation was to ascertain if there would be any benefit in auditing those areas of the program that were similar. 

The audit team reviewed foundation documentation, conducted interviews, completed a risk assessment based on Internal Audit’s Generic Audit Criteria for Grant and Contribution Programs and carried out a walkthrough of the call-for-proposal project selection process.

AUDIT CONCLUSIONS

At the conclusion of the audit planning phase, Internal Audit concluded that the Asia-Pacific Gateway and Corridor Initiative was a contribution program very similar to the Gateways and Border Crossings Fund contribution program.  Internal Audit recently completed an audit of the Gateways and Border Crossings Fund with the audit results presented to the Departmental Audit Committee at its June 20, 2013 meeting.  That audit found that overall, the Management Control Framework was both effective and efficient.  The audit did identify, however, some practices which are of limited effectiveness and several opportunities to improve efficiency.

Generally, the audit of the Gateways and Border Crossings Fund found that the requirements for a risk-based approach to recipient reporting, project monitoring, and auditing were not being followed.  Management has developed a Management Response and Action Plan that will ultimately move the management and monitoring of infrastructure projects away from a prescriptive, one-size fits all, approach to a more risk-based approach.  

The main similarity between these two contribution programs is that the same people within Transport Canada’s Programs Group use the same set of tools and follow the same set of procedures to negotiate and manage contribution agreements for all infrastructure projects.  As such, any audit examination of the Asia-Pacific Gateway and Corridor Initiative’s Management Control Framework would likely yield the same audit findings as those found in the audit of the Gateways and Border Crossings Fund. 

The main difference between the two contribution programs is with respect to the identification of infrastructure projects through a call-for-proposals process.  This process was not used in the Gateways and Border Crossings Fund.  However, initial audit examination of the Asia-Pacific Gateway and Corridor Initiative process through interviews and a walkthrough did not identify any issues.  The process was found to be rigorous and transparent with proposed projects being equitably and fairly assessed.  In addition, we believe the very openness and stakeholder scrutiny of a call-for-proposals process makes this type of selection process inherently less risky. 

Internal Audit therefore recommends that no further audit examination be conducted on the Asia-Pacific Gateway and Corridor Initiative as any audit findings would likely be the same as those found in the audit of the Gateways and Border Crossings Fund.

Internal Audit is making the same recommendations as were made in the Audit of the Gateways and Border Crossings Fund. 

STATEMENT OF CONFORMANCE

This audit conforms to the Internal Auditing Standards for the Government of Canada, as supported by the results of an external assessment of Internal Audit’s quality assurance and improvement program.

Signatures

Signed

Dave Leach (CIA) Director, Audit and Advisory Services

October 8, 2013

Date

Signed

Laura Ruzzier, Chief Audit Executive

October 8, 2013

Date

1. INTRODUCTION

1.1.  PURPOSE

In accordance with the 2013/14-2015/16 Transport Canada Internal Audit Plan, an audit of the Asia-Pacific Gateway and Corridor Initiative was started in June 2013.  This audit was included in the plan since the program is highly visible and has very high materiality.  This report presents the results of the planning phase.

1.2.  BACKGROUND

Gateway Strategy in Canada

Gateways and trade corridors are major systems of marine, road, rail and air transportation infrastructure of national significance for international commerce, within a defined geographic zone.

Gateway: a multi-modal entry/exit point through which goods and international passengers move beyond local, and even regional, markets. 

Trade Corridor: a linear, multi-modal orientation of international passenger and freight flows that connect gateways to major markets. 

Gateway and corridor strategies are integrated packages of long-term investment and policy measures that advance the development and exploitation of gateways and corridors for national benefit.Footnote 3

Asia-Pacific Gateway and Corridor Initiative - Overview

The Asia-Pacific Gateway and Corridor is a network of transportation infrastructure including British Columbia’s Lower Mainland and Prince Rupert ports, their principal road and rail connections stretching across Western Canada and south to the United States, key border crossings, and major Canadian airports.

Launched in 2006 and based on an initial funding of $514.6M from the Building Canada Plan, the Asia-Pacific Gateway and Corridor InitiativeFootnote 4 is a contribution programFootnote 5 that was launched to conduct research to identify potential areas for investment and to fund infrastructure projects to support Asia-Pacific trade. 

The program was initially designed as an eight year program to mature in 2013/14.  However, the program has since been extended to expire in 2018.  In addition, the program has grown to a total of $953.7M and is made up as follows:

Asia-Pacific Gateway and Corridor Initiative

Table #1 Program costs for Infrastructure and Non-Infrastructure projects.

  Infrastructure Projects Non-Infrastructure Projects TOTALS
Vote 1 - Operating 25,466,554 8,086,039 33,552,593
Vote 10 - G&C 910,650,001 4,334,000 914,984,001
EBP 3,349,924 196,341 3,546,265
Accommodation 1,489,064 127,620 1,616,684
Total Contribution Program 940,955,543 12,744,000 953,699,543

Of the $953.7M for the total project, $910.65M or 95.5% of the total funding is for infrastructure projects. 

To qualify for funding, projects must be located on an international gateway or trade corridor with 80% of the funding in or benefitting the province of British Columbia.  The projects must also support the Asia-Pacific Gateway and Corridor Initiative and meet one or more of the following criteria:

  • Demonstrated need to address capacity constraints and bottlenecks in support of international trade flows;
  • Demonstrated benefits, such as economic/social impacts, congestion reduction and a greater than one benefit-cost analysis;
  • Consistent with provincial/regional priorities and/or corresponding initiative by other levels of government, including U.S. governments;
  • Improve safety, security and reliability;
  • Advance knowledge and understanding of the multimodal transportation system that contribute to the movement of international trade (e.g. data collection, feasibility studies);
  • Foster local support for important transportation corridors/infrastructure;
  • Promote sustainable transportation principles by reducing environmental impacts including air emissions and greenhouse gas emissions; and
  • Leverage public and private funding, where appropriate, including alternative financing mechanisms.

Funding for any single project may not exceed $400M and no recipient may receive in excess of $750M. 

Of the $910.65M for infrastructure projects, $44M represents funds transferred in from the Mountain Pine Beetle Infestation Program.  The use of these funds must meet all of the conditions of the Asia-Pacific Gateway and Corridor Initiative and a proposed project must also be located in those areas designated as being impacted by the mountain pine beetle infestation.  These funds have been applied towards seven projects in the mountain pine beetle infestation area.

The following table summarizes the results of each project selection process.

Table #2 Project costs by project selection process

Project Selection Process
Call-for-proposals
Project Selection Sub-Process Project Count Project Count as a % of Total Projects Total Federal Contribution Total Federal Contribution as a % of Total Contributions
First Open Call 11 22.0% 507,795,261 55.8%
Second Open Call 6 12.0% 24,468,411 2.7%
Third Open Call 12 24.0% 51,625,402 5.7%
Targeted
Project Selection Sub-Process Project Count Project Count as a % of Total Projects Total Federal Contribution Total Federal Contribution as a % of Total Contributions
Original Program Approval 2 4.0% 92,000,000 10.1%
Robert Banks Rail Corridor 9 18.0% 72,712,238 8.0%
South Shore Trade Area 2 4.0% 49,700,000 5.5%
North Shore Trade Area 4 8.0% 72,900,000 8.0%
Mountain Pine Beetle 4 8.0% 31,250,000 3.4%
Unallocated
Project Selection Sub-Process Project Count Project Count as a % of Total Projects Total Federal Contribution Total Federal Contribution as a % of Total Contributions
Unallocated     8,198,688 0.9%
Grand Total
Project Selection Sub-Process Project Count Project Count as a % of Total Projects Total Federal Contribution Total Federal Contribution as a % of Total Contributions
Grand Total  50 100.0% 910,650,000 100.0%

As of September 2013, the program is well advanced.  Of the $910.65M for infrastructure projects, $902.5M (99%) has been either spent or identified to fund 50 projects.  There is currently an unallocated balance of $8.2M. 

1.3.  AUDIT OBJECTIVE AND APPROACH

Audit Objective

The objective of the audit was to assess the effectiveness and efficiency of the Management Control Framework for the Asia-Pacific Gateway and Corridor Initiative contribution program.

Audit Approach

At the outset, the audit team identified that there appeared to be similarities between the Asia-Pacific Gateway and Corridor Initiative and the Gateways and Border Crossings Fund, a contribution program that was recently audited by Internal AuditFootnote 6.  Due to these apparent similarities between the two contribution programs, our planning phase first included a validation of what was the same and what was different between the two programs.  The purpose of this validation was to ascertain if there would be any benefit in auditing those areas of the program that were similar. The audit team reviewed foundation documentation, conducted interviews, completed a risk assessment based on Internal Audit’s Generic Audit Criteria for Grant and Contribution Programs and carried out a walkthrough of the call-for-proposal project selection process.

2. ANALYSIS AND FINDINGS

Both the Asia-Pacific Gateway and Corridor Initiative and the Gateways and Border Crossings Fund are contribution programs to fund infrastructure projects that facilitate the effective and efficient movement of international trade.  While the Gateways and Border Crossings Fund supports all of Canada’s Borders and Gateways, the Asia-Pacific Gateway and Corridor Initiative specifically targets the transportation network focused on supporting international trade with the Asia-Pacific region.

Both programs are major Transport Canada contribution programs with the Gateways and Border Crossings Fund being roughly twice the size of the Asia-Pacific Gateway and Corridor Initiative.  The following table highlights key statistics comparing the two programs. 

Table #3 Comparison of costs and number of projects between Asia-Pacific Gateway and Corridor Initiative program and the Gateways and Border Crossings Fund program.

  Asia-Pacific Gateway and Corridor Initiative Gateways and Border Crossings FundFootnote 7
Total Program 953,699,543 1,822,494,305
Total Infrastructure Funding 910,650,001 1,745,426,804
Percentage of Infrastructure to Total Funding 95.49% 95.77%
Number of Infrastructure Projects Identified 50 35
Total Value of Infrastructure Projects Identified 902,451,312 1,511,491,263
Average Funding per Infrastructure Project 18,049,026 43,185,465
Residual Funding to be Allocated 8,198,688 243,257,396
Percentage Residual  Infrastructure Funding to be Allocated 0.86% 13.35%

Both programs are managed jointly by Transport Canada’s Programs Group and Policy Group.  The Policy Group has overall responsibility for the selection process to identify and recommend infrastructure projects for funding.  Once an infrastructure project is approved, the Programs Group negotiates and ultimately manages the contribution agreement with a project’s recipient. 

There were basically two processes used to select projects for the Asia-Pacific Gateway and Corridor Initiative.  Over 60% of project funding was identified through a series of calls-for-proposals.  The remaining projects were identified based either on studies that identified potential projects or existing knowledge within Transport Canada of the transportation systems and their requirements.  By comparison, all projects in Gateways and Border Crossings Fund were selected based on studies or existing knowledge within Transport Canada of the transportation systems and their requirements.

In the Gateways and Border Crossings Fund audit, no issues were found regarding how projects were selected.  Where the same process was used to identify and negotiate projects within the Asia-Pacific Gateway and Corridor Initiative, we would expect to find the same results.  

For those projects identified through a call-for-proposals process, we did a walk-through of the process and found it to be a rigorous and transparent process that ensured all proposed projects were equitably and fairly judged against a set of predetermined selection criteria.  In addition, we believe the transparency of the process and the stakeholder scrutiny of a call-for-proposals process makes this type of selection process inherently less risky. 

As mentioned above, responsibility for negotiating and managing the contribution agreement rests with the Programs Group.  The Programs Group has developed a single approach whereby the same people use the same set of tools and follow the same set of procedures to manage all infrastructure projects, regardless of which program the projects belong to.  Therefore, any issues identified in the audit of the Gateways and Border Crossings Fund would be equally identified in this audit.  In addition, the Management Response and Action Plan that is currently being implemented in the Gateways and Border Crossings Fund would have the same impact if applied to the management of Asia-Pacific Gateway and Corridor Initiative infrastructure projects. 

The management of infrastructure project budgets was different between the two programs.  For the Asia-Pacific Gateway and Corridor Initiative, infrastructure funds were initially given to the Policy Group and then transferred in total to the Programs Group for administration.  In the Gateways and Border Crossings Fund however, the infrastructure budget was given to and held by the Policy Group and only transferred to the Programs Group for administration on a project by project basis.  We could not ascertain why these two contribution programs were designed differently in this regard.  Notwithstanding this difference, all funds ultimately end up with the Programs group for administration.  As such, the ultimate administration and processes are the same between the two programs.

Another difference between the two programs was how non-infrastructure projects (e.g., studies) were selected.  In the Gateways and Border Crossings Fund, an annual call-for-proposals was made within the Policy Group to identify possible non-infrastructure projects to fund.  Projects were then reviewed and assessed and recommended for approval by the ADM Policy.  For Asia-Pacific Gateway and Corridor Initiative, studies were identified, included, and approved in foundation documents.  The risks related to funding studies in the Asia-Pacific Gateway and Corridor Initiative are therefore considered low because the studies were defined in foundation documents which go through a thorough review and approval process.

Finally, the audit of the Gateways and Border Crossings Fund found that overall, the Management Control Framework was both effective and efficient.  The audit did identify, however, some practices which are of limited effectiveness and several opportunities to improve efficiency.

Generally, the Gateways and Border Crossings Fund audit found that the requirements for a risk-based approach to recipient reporting, project monitoring, and auditing, which stems from the 2008 Policy and Directive on Transfer Payments, were not being followed.  The audit identified the need to ensure that there is a clear understanding of and delineation of responsibilities of the Agreement Management Committee versus the recipient versus Transport Canada.  The audit found that work instruments intended for Gateways and Border Crossings Fund application (e.g. Standard Operating Procedures, Project Management Guide, templates) were not always effective, relevant and current.  The audit also suggested that the Performance Measurement Strategy requiring medium and long term performance data to be collected via the contribution agreements was perhaps not the most cost effective method to collect data.

The audit recommended that management review its monitoring activities in the current management control framework to ensure they all efficiently address those risks that Transport Canada can realistically mitigate.  This would include the notion of different levels of monitoring activity for different levels of risk as well as a risk-based approach to recipient auditing.  There was also a recommendation to clarify the role of the Agreement Management Committee and to look for opportunities to simplify and clarify the contribution agreement language.  There was a recommendation to ensure work instruments were effective, relevant and current.  Finally, there was the recommendation to review the Performance Management Strategy to ensure appropriate performance data is collected in a cost effective manner.

Management has developed a Management Response and Action Plan that will continue to move the management and monitoring of infrastructure projects away from a prescriptive, one-size fits all, approach to a more risk-based approach.  They have committed to reviewing the Department’s risk tools and mitigation strategies, including a risk-based approach to recipient auditing.  The contribution agreement templates will be reviewed with a view to having templates that allow the Department to simplify and streamline agreements based on risk.  In addition, the role of the Agreement Management Committee will also be clarified during this review.  Essential working instruments will be reviewed and updated and the Performance Management Strategy will be reviewed to ascertain the best method to collect necessary performance data.

Our expectation is that the changes resulting from the implementation of the Gateways and Border Crossings Fund Management Action Plan will have the same impact if they are applied to managing the Asia-Pacific Gateway and Corridor Initiative projects. 

It should also be noted that the Audit Committee, with the support of Internal Audit, will be monitoring the implementation of the Management Action Plan through its regular semi-annual monitoring activities. 

3. CONCLUSIONS

At the conclusion of the planning phase, it was determined that overall, the Asia-Pacific Gateway and Corridor Initiative is a contribution program that is very similar to the Gateways and Border Crossings Fund contribution program which was recently audited. 

The main similarity is that the same people within Transport Canada’s Programs Group use the same set of tools and follow the same set of procedures to negotiate and manage contribution agreements for all infrastructure projects.  As such, any audit examination of the Management Control Framework would yield the same audit findings as those found in the audit of the Gateways and Border Crossings Fund.  That audit found that overall, the Management Control Framework for the Gateways and Border Crossings Fund is both effective and efficient.  The audit found however that the requirements for a risk-based approach to recipient reporting, project monitoring, and auditing were not being followed.

The main difference between the two programs is with respect to the identification of infrastructure projects through a call-for-proposals process.  This process was not used in the Gateways and Border Crossings Fund.  However, initial audit examination of the Asia-Pacific Gateway and Corridor Initiative process through interviews and a walkthrough did not identify any issues.  The process was found to be rigorous and transparent with proposed projects being equitably and fairly assessed.  In addition, we believe the very openness and stakeholder scrutiny of a call-for-proposals process makes this type of selection process inherently less risky. 

Internal Audit therefore recommends that no further audit examination be conducted as any audit findings would likely be the same as those found in the audit of the Gateways and Border Crossings Fund.

Our expectation is that the changes resulting from the implementation of the Gateways and Border Crossings Fund Management Action Plan will have the same impact if they are applied to managing the Asia-Pacific Gateway and Corridor Initiative projects.

Internal Audit is therefore making the same recommendations as were made in the Audit of the Gateways and Border Crossings Fund. 

4. RECOMMENDATIONS AND MANAGEMENT ACTION PLAN

It is recommended that the ADMs Programs and Policy:

Recommendation #1

Review the various monitoring activities in the current management control framework to ensure they all efficiently address those risks that Transport Canada can realistically mitigate.

Develop a risk mitigation model that will ensure different levels of monitoring activities are applied to projects with different levels of assessed project/recipient risks.

Detailed Management Action Plan Completion Date (for each action) OPI direct report for each specific action
In consultation with other groups such as program management and Internal Audit, Transport Canada’s Centre of Expertise on Transfer Payments will review the various monitoring activities in the current management control framework to determine whether the risks and risk factors that our tools currently focus on are appropriate. Once those risks have been confirmed, mitigating activities will be reviewed to ensure that the level of monitoring is scaled appropriately and that any overlap is avoided or minimized for any combination of mitigating activity used. March 31, 2014 Transport Canada’s Centre of Expertise on Transfer Payments
Concurrently, for future programs, Transport Canada and Infrastructure Canada will work together towards the implementation of best practices that responds effectively to the risks specific to the program, the value of funding and the risk profile of the recipient. This will build on the existing Program Operations Risk Tool approach used by Infrastructure Canada and Transport Canada in respect of similar transfer payment programs such as the Canada Strategic Infrastructure Fund and the Border Infrastructure Fund, which has been strongly endorsed in audits of Infrastructure Canada programming. March 31, 2014 Transportation Infrastructure Programs together with Transport Canada’s Centre of Expertise on Transfer Payments.

Recommendation #2

Implement a Treasury Board Transfer Payment Directive compliant, risk-based approach to recipient auditing to determine which recipients will be subject to which type of audit and at which point(s) in time during the project’s lifecycle.

Detailed Management Action Plan Completion Date (for each action) OPI direct report for each specific action

Transport Canada will review the transition plan developed for the administration of Asia-Pacific Gateway and Corridor Initiative infrastructure projects to consider the findings of this audit and adjust the current reporting and audit mechanisms to implement a risk based approach to recipient audits.

Transport Canada and Infrastructure Canada will work together towards the implementation of best practices for a common, risk-based approach to recipient audits which includes policy guidance and tools, to assist in the planning and decision-making for recipient audits for infrastructure programs.  Pilot recipient audits, currently underway, will inform the approach.  Appropriate internal stakeholders, including the internal audit function, will be consulted to ensure the approach is relevant, compliant and considers the expertise of these functional areas.

The Programs Group has no dedicated resources for conducting contracted recipient audits.  Future programs will include financial requirements for contracted recipient audits to ensure they can be carried out by the responsible program management, based on risk.

December 31, 2013 Transportation Infrastructure Programs in conjunction with the Centre of Expertise on Transfer Payments.

Recommendation #3

Ensure that there is a clear understanding of and delineation of responsibilities of the Agreement Management Committee (AMC) versus the recipient versus Transport Canada. 

Detailed Management Action Plan Completion Date (for each action) OPI direct report for each specific action

Transport Canada has revised and clarified the role of the AMC.  The revised Agreement Monitoring Committee in the new departmental contribution agreement templates is a tool to monitor the administration of the agreement.   New agreements are modified to reflect the new clarified role as agreements are executed.

Future programs will reflect a clear understanding and delineation of AMC responsibilities between the department and the recipient.

December 31, 2013 Transport Canada’s Centre of Expertise on Transfer Payments in collaboration with Legal services and Programs Group.

Recommendation #4

Identify opportunities to simplify and clarify contribution agreements.

Detailed Management Action Plan Completion Date (for each action) OPI direct report for each specific action

Transport Canada has developed a new departmental contribution agreement template that allows the department to simplify and streamline agreements based on risk. 

The modified template is now used to manage funding for new projects and will also be considered for future infrastructure programs. A risk-based template has also been developed for non-capital projects. 

March 31, 2014 Transport Canada’s Centre of Expertise on Transfer Payments in collaboration with Legal services and Programs Group.
Transport Canada is also leading an interdepartmental pilot initiative to develop a common, streamlined contribution agreement for funding for provincial/territorial projects.  Should this agreement be approved it will be used for all future transfer payment programs. March 31, 2014

Transport Canada’s Centre of Expertise on Transfer Payments in collaboration with Legal services, Programs Group and Policy Group.

Recommendation #5

Ensure that work instruments intended for the administration of infrastructure projects (e.g. Standard Operating Procedures, Project Management Guide, templates) are effective, relevant and current.

Detailed Management Action Plan Completion Date (for each action) OPI direct report for each specific action

Transport Canada will update the essential work instruments intended for the administration of Asia-Pacific Gateway and Corridor Initiative infrastructure projects to ensure they are effective, relevant, and current in order to comply with current Treasury Board Policy and Directive on Transfer Payments and to be consistent with departmental standards for infrastructure programs.  

December 31, 2013 Transport Canada Programs Group and Policy Group.

Recommendation #6

Review the Asia-Pacific Gateway and Corridor Initiative Performance Measurement Strategy to determine whether attempting to collect medium and longer term data through contribution agreements is cost effective.

Ensure that requirements for retrospective analyses (and other performance type reports) in contribution agreements efficiently obtain the information by having a specific linkage to the project proposal, the project assessment and the contribution agreement 

Detailed Management Action Plan Completion Date (for each action) OPI direct report for each specific action

Transport Canada will review the Asia-Pacific Gateway and Corridor Initiative Performance Measurement Strategy and take into consideration the recommendations that may result from the program evaluation for the Asia-Pacific Gateway and Corridor Initiative.

For future infrastructure programs, Transport Canada and Infrastructure Canada will work together to implement best practises to performance measurement, including a review of performance reporting requirements in funding agreements that consider whether collection of project-specific retrospective analysis information is appropriate, sufficient and effective in supporting program evaluation. 

March 31, 2014 Transport Canada Programs Group and Policy Group
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