Chapter 10
Department of Agriculture and Food

Table of Contents

Provincial Auditor Saskatchewan
1996 Fall Report

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Introduction Crown agencies

.01 .02 .03 .04

The Department is to foster a commercially viable, self-sufficient, sustainable agriculture and food industry. The Department carries out some of its activities through Crown agencies. The Department is responsible for the operation of several Crown agencies. This Chapter contains our audit findings for the following Crown agencies with fiscal years ending on or before December 31, 1995. Agricultural and Food Products Development and Marketing Council, including: Saskatchewan Broiler Hatching Egg Producers' Marketing Board Saskatchewan Canola Development Commission Saskatchewan Chicken Marketing Board Saskatchewan Commercial Egg Producers Marketing Board Saskatchewan Pulse Crop Development Board Saskatchewan Sheep Development Board Saskatchewan Turkey Producers' Marketing Board Saskatchewan Vegetable Marketing and Development Board SPI Marketing Group Saskatchewan Grain Car Corporation South Saskatchewan River Irrigation District #1 Milk Control Board Our 1996 Spring Report includes our audit findings for funds and agencies with fiscal years ending on or before March 31, 1995, except the Conservation and Development Revolving Fund. We include it in this report.

Our audit conclusions and findings

.05 In our opinion:

• the financial statements for the fund and agencies listed above are reliable except where we report otherwise in this Chapter;

• the fund and agencies had adequate rules and procedures to safeguard and control their assets except where we report otherwise in this Chapter; and

• the fund and agencies complied with the authorities governing their activities relating to financial reporting, safeguarding assets, revenue raising, spending, borrowing, and investing except where we report otherwise in this Chapter.

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.06 Due to established priorities, we have not completed our audit work on the Agricultural and Food Products Development and Marketing Council. We will report our conclusions and findings in our 1997 Spring Report.

.07 Also, we have not audited several of the Crown agencies listed in paragraph .03. We are deciding the best approach to auditing the following smaller producer-elected boards:

Saskatchewan Broiler Hatching Egg Producers' Marketing Board
Saskatchewan Commercial Egg Producers' Marketing Board
Saskatchewan Chicken Marketing Board
Saskatchewan Pulse Crop Development Board
Saskatchewan Sheep Development Board
Saskatchewan Turkey Producers' Marketing Board
Saskatchewan Vegetable Marketing and Development Board

Our audit conclusions and findings

.10 In our opinion:

• the financial statements are reliable, except for the matter reported in paragraphs .37 to .38;

• the Department's rules and procedures to safeguard and control the Fund's assets were adequate, except for the matters reported in paragraphs .11 to .36.

• the Department complied with the authorities governing the activities of the Fund relating to financial reporting, safeguarding assets, revenue raising, spending, borrowing, and investing except for the matter reported in paragraphs .33 to .36.

 

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1996 Fall Report

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Written policies and procedures needed

.11 The Department's policies and procedures for the Fund should be complete and up-to-date. Management should communicate these policies and procedures to all employees.

.12 Written policies and procedures are important since they can be used by staff as they carry out their duties. Also, they will help in the orderly and efficient conduct of business.

.13 The Department's written policies and procedures for the Fund are incomplete. For example, there are no written procedures on monthly processing and balancing routines, quarterly fiscal forecasting, inventory counting, inventory and capital asset control, or accounting policies. Also, there is no guidance as to what type of statistical analysis would be useful to monitor the operations and financial results of pastures. As a result, very little statistical analysis is done.

.14 In addition, the Pasture Manager's Manual, outlining policies and procedures for use by pasture managers, has not been updated for several years.

We recommend

.15 The Department should ensure its written policies and procedures for the Fund are complete and up-to-date and communicated to all employees.

Internal financial reporting needs improvement

.16 The Department needs to improve its internal financial reports.

.17 Current financial reports are not timely. The reports do not show revenue and expenses using proper accounting principles. Also, the reports do not compare actual amounts to budgeted amounts for the same period and explain significant variances.

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1996 Fall Report

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.18 In addition, the financial reports do not show financial information on each pasture and each region.

.19 As a result, the Department is unable to compare profitability of pastures, control the Fund's operations, or provide meaningful information to stakeholders.

We recommend

.20 The Department should prepare timely periodic financial information on each pasture, each region and the program as a whole.

.21 Management told us it now prepares and submits timely periodic financial information on each pasture, each region and the program as a whole.

External financial reporting needs improvement

.22 The Department needs to improve its system to prepare accurate financial statements for the Fund.

.23 The Fund's statements presented for audit contained several significant errors. For example, the statements overstated capital assets by $4.5 million and accumulated net expenditure by $3.9 million. We advised the Department of these errors. The Department corrected the statements.

We recommend

.24 The Department should establish a system to prepare accurate financial statements for the Fund using the accrual basis of accounting.

Policies should be followed

.25 Department staff should follow policies established to safeguard inventory held at pastures.

.26 Segregation of duties is inadequate when one person can conceal an error or fraud. The pasture managers order and receive inventory as well as perform the year end inventory count that determines the inventory recorded in the financial statements.

.27 The Department has policies and procedures to reduce the risk that one person could conceal errors and fraud. The Department requires regional managers to approve all purchases and monitor performance through statistical analysis. However, there is not always evidence that regional managers are doing these procedures.

 

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We recommend

.28 Department staff should follow the policies established for the Fund.

Control over inventory needed

.29 The Department should have a system to keep track of the Fund's inventory and to determine its value.

.30 Management relies on the year end inventory count to determine the inventory held. They do not have a system to keep track of inventory purchased and used during the year and therefore cannot assess if the amounts reported at year end are reasonable.

.31 The Fund's accounting policy is to record inventory at the lower of cost and net realizable value. Staff have difficulty gathering this information as they do not keep track of inventory purchases during the year. Also, staff did not support the inventory values with suppliers' invoices.

We recommend

.32 The Department should develop a system to record and control inventory purchases and use. Management should review reported amounts to ensure they are reasonable.

Control over cash receipts needed

.33 The Department should strengthen control over money it collects for the Fund.

.34 The Financial Administration Manual, issued by the Provincial Comptroller, sets out procedures the Department should use to control public money. The Manual requires the Department staff to make deposits daily if money on hand exceeds $500. We observed three instances where staff did not deposit money in excess of $500 for several days.

.35 The Manual also requires the Department to control access to money until staff make bank deposits. We observed staff leaving money unattended and openly accessible.

We recommend

.36 The Department should control and safeguard the money it collects for the Fund.

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1996 Fall Report

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Auditor's report on the financial statements

.37 Our auditor's report on the Fund's financial statements contains a reservation of opinion. We reserved our opinion because we were not able to observe the counting of physical inventories at the beginning of the year or verify the inventory quantities by other means.

.38 Our opinion on the Fund's financial statements for the year ended March 31, 1995 reads in part:

Because I was not notified of the reactivation of Fund on April 1, 1994, I was not able to observe the counting of physical inventories at the beginning of the year nor satisfy myself concerning those inventory quantities by alternative means. Since inventory enters into the determination of the results of operations and changes in financial position, I was unable to determine whether adjustments to expenses, net income from operations, assets transferred to the Fund and accumulated operating surplus might be necessary.

Saskatchewan Canola Development Commission Canodev Research Inc.

.39 .40 .41 .42

The Commission investigates new uses for canola oil and meal, promotes the value of canola oil and its products, and develops market opportunities for canola. The Commission does this by funding approved research and development projects, providing grants and by directly promoting canola. The Commission had revenues of $1.4 million in 1995 and held assets of $1.7 million at July 31, 1995. Canodev is a wholly-owned subsidiary of the Commission. Canodev administers research and development projects designed to investigate new uses for canola oil and meal, and promote canola and its by-products. Canodev held assets of $95 thousand at July 31, 1995.

Our audit conclusions and findings

.43 In our opinion:

• the Commission's consolidated financial statements and Canodev's financial statements are reliable;

• the rules and procedures to safeguard and control the Commission's and Canodev's assets were adequate, except for the matters referred in paragraphs .45 to .65;

• the Commission and Canodev complied with the governing authorities referred to above, except for the matters described in paragraphs .66 to .74.

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1996 Fall Report

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.44 We also note two other matters for the Assembly's attention in paragraphs .75 to .84.

Written agreements needed

.45 The Commission and Canodev Research Inc. (Commission) do not have written agreements with many grant recipients.

.46 The Commission needs to have written agreements with recipients stating the conditions of the grants. Written agreements help to ensure each party understands the other party's expectations and responsibilities.

We recommend

.47 The Commission should have written agreements for all grants. These agreements should set out all terms and conditions of the grants.

Commission must ensure grant recipients meet terms and conditions

.48 The Commission pays grants without ensuring the recipients meet the terms and conditions of the grants.

.49 The Canola Council of Canada (CCC) administers many projects for the Commission. For these projects, grant recipients submit interim and final reports to CCC rather than to the Commission. CCC reviews the reports and asks the Commission to pay interim and final instalments.

.50 For projects administered by CCC, the Commission must ensure grant recipients have met the terms and conditions of the grants before it pays instalments. If the Commission chooses to rely on CCC's evaluation of the reports, the Commission must ensure CCC uses the same criteria the Commission would use to evaluate the reports. It also must ensure CCC applies those criteria properly.

 

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1996 Fall Report

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.51 For projects administered by the CCC, the Commission chose to rely on CCC's report evaluations. However, the Commission has not given CCC its criteria for evaluating reports. Therefore, the Commission does not know whether CCC properly evaluated the reports or whether the recipients have met the terms and conditions of the grants.

We recommend

.52 The Commission should ensure all grant recipients meet the terms and conditions of the grants.

Board decisions not clearly documented

.53 The Board of Directors' decisions are not clearly documented in the minutes.

.54 Without clearly documented Board decisions, management may interpret the decisions differently than the Board intended. This could result in management not carrying out the Board's intentions.

.55 The Board meets periodically to administer the plan. The Board documents its decisions with minutes for each meeting. The minutes did not always clearly document the Board's decisions. For example, the minutes did not clearly:

• document conditions placed on grant recipients;

• differentiate between real and potential grant commitments;

• describe the terms of transactions with its subsidiary; or

• document whether registered producers approved the Commission's budget at the Annual General Meeting.

.56 From these minutes, we could not determine if management recorded grants, commitments, and related party transactions correctly. Management's interpretations of the Board's decisions were inconsistent. Therefore, to complete the audit we needed clarification of the Board's decisions from the Board Chair.

We recommend

.57 The Board of Directors should clearly document their decisions in the minutes.

Provincial Auditor Saskatchewan
1996 Fall Report

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Manual needed

.58 The Commission needs to update its accounting policies and procedures manual.

.59 The Commission's written policies and procedures manual forms part of its system of internal control. The Commission's manual is not current. The lack of a current manual increases the risk of a breakdown in controls.

.60 A current written policies and procedures manual, approved by the Board, would guide staff in the orderly and efficient conduct of business. The manual should include:

• a chart of accounts;

• significant accounting policies; and

• administrative control procedures for all accounting systems.

.61 During the audit, we found the following errors in the Commission's accounting records.

• the Commission did not record all of its capital assets in the accounts.

• the Commission did not know its material financial commitments.

Staff may have not made these errors if they had proper written guidance.

We recommend

.62 The Commission should update its accounting policies and procedures manual.

Contingency plan needed

.63 The Commission does not have a written and tested contingency plan to ensure it can operate effectively if a major loss or destruction of records occurs.

.64 The Commission depends on computer systems to keep most of its producer records and to monitor and control its business. The Commission needs a written and tested contingency plan because its operations depend on the reliability of its computer systems.

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1996 Fall Report

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We recommend

.65 The Commission should evaluate its computer systems, prepare a written contingency plan and test the plan.

Subsidiary created without authority

.66 The Commission created a subsidiary without Lieutenant Governor in Council approval.

.67 On July 25, 1994, the Commission incorporated Canodev Research Inc. (Canodev) to administer research and development projects. The Commission is the sole owner of Canodev.

.68 The Lieutenant Governor in Council established the Commission by Order in Council 95/91. The Order gave the Commission specific powers. The Commission was not given the power to create a subsidiary. Therefore, the Commission went beyond its powers when it incorporated Canodev.

We recommend

.69 The Commission should obtain Lieutenant Governor in Council approval before creating subsidiaries.

.70 The Commission told us its legal counsel advised that the Commission had authority to create a subsidiary.

Annual report needs to be timely

.71 The Commission submitted its 1994 and 1995 annual reports to the Agricultural and Food Products Development and Marketing Council (Council) late.

.72 The Commission's fiscal year end is July 31. Section 8(4) of The Saskatchewan Canola Development Plan Regulations requires the Commission to submit annual reports to the Council before the end of September (within sixty days of year end). The Commission did not submit its 1994 and 1995 annual reports until December 1994 and March 1996 respectively.

We recommend

.73 The Commission should submit its annual reports to the Agricultural and Food Products Development and Marketing Council by the date required by law.

.74 The Commission told us they cannot comply with the Regulation because Board Order No. 8/93 allows canola buyers fifty-five days to pay "check-off" fees collected each month to the Commission. The Commission feels this does not allow sufficient time to prepare an annual report that includes audited financial statements. The Commission asked the Department of Agriculture and Food to change the Regulation to require the Commission to submit its annual report within 150 days after the Commission's year end. The Department denied the request.

 

Provincial Auditor Saskatchewan
1996 Fall Report

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Government should table Commission's financial statements

.75 The Government did not comply with The Standing Committee on Public Accounts' recommendation to table the Commission's annual financial statements.

.76 In March 1993, the Standing Committee on Public Accounts recommended all Government corporations should table annual financial statements in the Assembly.

.77 The Commission is a body corporate. The Government controls the Commission through the Agricultural and Food Products Development and Marketing Council.

.78 The Government did not table the Commission's financial statements for the year ended July 31, 1994 and 1995 in the Assembly.

We recommend

.79 The Government should table the Commission's financial statements in the Legislative Assembly.

.80 The Commission feels that the fully refundable levy from its members is not public money.

List of persons who received money from the Board

.81 For 1993-94 and 1994-95, the Commission did not publicly report a list of persons who received money from the Board.

.82 It is usual practice for government organizations to publicly report a list of persons who have received public money.

We recommend

.83 The Board should publicly report a list of persons who received money from the Board.

.84 The Commission feels that the fully refundable levy from its members is not public money.

 

Provincial Auditor Saskatchewan
1996 Fall Report

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Our audit conclusions and findings

.91 We audited SPI, KROP Transport Ltd., and SPI Producers' Trust Fund directly. Our Office worked with Garth H. Hetterly, Chartered Accountant, Moose Jaw Packers (1974) Ltd.'s appointed auditor, using the framework recommended by the Task Force on the Roles, Responsibilities and Duties of Auditors. Our Office and Garth H. Hetterly formed the opinions referred to in paragraph .92.

Provincial Auditor Saskatchewan
1996 Fall Report

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.92 In our opinion:

• SPI's consolidated financial statements and the financial statements of its subsidiaries are reliable except for the matter reported in paragraphs .125 to .126;

• SPI and its subsidiaries had adequate rules and procedures to safeguard and control their and the Trust Fund's assets except for the matters reported in paragraphs .96 to .111; and

• SPI and its subsidiaries complied with the authorities governing their activities relating to financial reporting, safeguarding assets, revenue raising, spending, borrowing, and investing except for the matter reported in paragraphs .112 to .116.

.93 We also report other matters for the Assembly's attention in paragraphs .117 to .124.

.94 We organized our audit findings and recommendations into three groupings. These groupings reflect important responsibilities of the directors in their role of overseeing management. These are:

• safeguarding assets;

• monitoring senior management performance; and

• ensuring adequate accountability to the producers, the Minister of Agriculture and Food, and the Legislative Assembly.

.95 We think the directors need to improve how they oversee management.

.96 The directors need to ensure management provides staff adequate direction for safeguarding and controlling SPI's assets. The directors also need to know that senior management discharge their responsibilities according to the directors' policies.

 

Provincial Auditor Saskatchewan
1996 Fall Report

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.97 We note the following instance where SPI needs to improve its rules and procedures for safeguarding and controlling its assets.

Written governance policies needed

.98 The directors need written governance policies setting out what they expect from management.

.99 The directors are responsible for the financial affairs of SPI, its subsidiaries, and the Trust Fund. To fulfill this responsibility, the directors need to establish and communicate policies. Policies should prescribe how activities should be managed and should prohibit inappropriate action.

.100 To govern the operations of SPI effectively the directors should have policies:

• setting out the services the directors want delivered at what cost and the performance the directors expect of senior management;

• setting out the information the directors need to monitor management's performance. (e.g., reports and assurance that assets are safeguarded);

• setting out delegated authority to management; and

• ensuring adequate accountability to producers, the Minister of Agriculture and Food, and the Legislative Assembly.

.101 Written policies provide for the orderly and efficient conduct of business. Written policies also reinforce the Board's delegation of authority and responsibility for all employees.

We recommend

.102 The directors should establish written governance policies.

 

 

Provincial Auditor Saskatchewan
1996 Fall Report

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.103 The directors have many important stewardship responsibilities. One key responsibility is to monitor the performance of senior management. The directors must ensure their senior management performs as directed.

.104 In our opinion, the directors need better information for monitoring senior management's performance.

Corporate planning and internal reporting needs improvement

.105 The directors need better information to manage SPI's activities. The directors did not receive a budget and business plan for SPI's activities as a whole, its subsidiaries or the Trust Fund.

.106 To govern the operations of SPI properly, the directors need to set performance indicators and targets for SPI's activities as a whole before they approve the budgets and business plans of its subsidiaries and Trust Fund. The directors need this information to assess how each of SPI's subsidiaries and Trust Fund contribute toward SPI's overall goals. In addition, the directors need this information to coordinate the direction of SPI's subsidiaries and Trust Fund.

.107 The directors also require internal reports that compare actual performance against these targets and indicators.

.108 Management did not present the directors a business plan for, SPI activities on a total basis or the Trust Fund. Management did present the directors a budget for SPI's activities on a non-consolidated basis and an inadequate budget for each of its subsidiaries. The budgets presented for the subsidiaries showed only the net profit for each subsidiary. Budgets should contain sufficient information to understand and assess the revenues, expenses and planning assumptions.

.109 We reported this matter previously in our 1995 Fall Report to the Legislative Assembly.

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We recommend

.110 The directors should approve a budget and business plan for, SPI's activities as a whole, its subsidiaries and Trust Fund.

.111 The directors should monitor performance against targets and indicators set out in the budget and business plan.

.112 The directors are accountable to the producers, the Minister of Agriculture and Food, and the Legislative Assembly for SPI's performance. To be fully accountable, the directors need to provide the producers, the Minister, and the Assembly information necessary to understand and assess SPI's performance.

.113 We think the directors need to provide better and more timely information on SPI's performance.

Annual reports need to be timely

.114 SPI did not forward its annual report to the Agricultural and Food Products Development and Marketing Council on time.

.115 Section 20(1)(a) of The Agri-Food Act requires SPI to forward its annual report to the Council within two months after the end of the fiscal year. SPI did not forward its 1994 and 1995 financial statements to the Council within two months of SPI's year end.

We recommend

.116 SPI should submit its annual report to the Agricultural and Food Products Development and Marketing Council by the date required by law.

List of persons who received money

.117 For 1994 and 1995, SPI did not publicly report a list of persons who received money from SPI.

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.118 It is usual practice for government organizations to publicly report a list of persons who received money from them.

We recommend

.119 The directors should publicly report a list of persons who received money from SPI.

SPI should table annual financial statements

.120 SPI did not comply with The Standing Committee on Public Account's recommendation to table financial statements.

.121 In March 1993, the Standing Committee on Public Accounts recommended all Government corporations should table annual financial statements in the Assembly.

.122 SPI is a body corporate. SPI is a government organization since the Government controls SPI through the Agricultural and Food Products Development and Marketing Council.

.123 SPI did not table financial statements for the years ended December 31, 1994 and 1995 in the Assembly.

We recommend

.124 SPI should table its financial statements in the Legislative Assembly.

Auditor's report on the financial statements

.125 Our auditor's report on SPI's consolidated financial statements contains a reservation of opinion. We reserved our opinion because we could not verify a $1.9 million refund of a countervail duty SPI thinks it will receive from the U. S. Government.

.126 Our opinion on the SPI's consolidated financial statements for the year ended December 31, 1995 reads in part:

As disclosed in Note 5, SPI Marketing Group paid producers for an anticipated refund of U. S. Countervail Duty totalling $1.9 million. The Group shows amounts paid to the producers as due from the Producers' Trust Fund. The Countervail Duty was paid to the U. S. Government between April 1991 and December 1995. The refund of this duty is subject to review by the U. S. Government and depends on its interpretation of the level of subsidies received by Canadian hog producers. Because the refund of Countervail Duty is subject to the U. S. Government's interpretation and review, I was unable to verify what, if any, refund of Countervail Duty the Group will receive. Accordingly, I was unable to determine whether any adjustment might be necessary to the due from Producer's Trust Fund, net income, and unappropriated equity.

 

Provincial Auditor Saskatchewan
1996 Fall Report

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Our audit conclusions and findings

.129 In our opinion:

• the financial statements are reliable;

• the Board's rules and procedures to safeguard and control its assets were adequate, except for the matter described in paragraphs .131 to .135;

• the Board complied with the authorities governing its activities relating to financial reporting, safeguarding assets, revenue raising, spending, borrowing, and investing except for the matters described in paragraphs .136 to .140.

.130 We also note another matter for the Assembly's attention in paragraphs .141 to .143.

Budgets need timely approval

.131 The directors did not approve a timely budget.

.132 The directors need to safeguard and control the assets of the Board. To do so, the directors need to set a budget and evaluate management's performance in achieving the budget. Budgets are key because they approve a whole year's transactions in terms of the results the directors expect before the fiscal year starts.

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.133 Financial reports comparing expected results with actual results will help the directors assess management's performance.

.134 The directors did not approve the budget for the year ended December 31, 1995 until October 1995. As a result, the directors lacked reports for most of the year to assess management's performance.

We recommend

.135 The Board of Directors should approve a budget before the year begins.

Quota transfers did not comply with the law

.136 The Board approved quota transfers in 1995 that did not comply with The Milk Control Regulations.

.137 Subsection 8.3 of the Regulations state:

(1) Subject to subsection (2), the board shall not approve the transfer of only part of a producer's total production quota.

(2) The board may approve, subject to any terms and conditions that it considers appropriate:

(a) a transfer of part of a producer's total production quota to an immediate family member of the producer;

(b) the transfer of part of a producer's total production quota to another producer and the remainder of a producer's total production quota to another producer, if the result is to split all of the producer's total production quota amongst other producers.

.138 Subsection 8.3 of the Regulations limits the Board's authority for approving partial transfers of quotas. The Board can only approve partial transfers if the transfer is to immediate family members or as part of the transfer of all of a producer's quota to more than one other producer.

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.139 In the year, the Board approved 93 partial transfers that were not to immediate family members or part of the transfer of all of a producer's quota to more than one other producer.

We recommend

.140 The Board should ensure all quota transfers comply with the law.

List of persons who received money from the Board

.141 For 1995, the Board did not publicly report a list of all persons who received money from the Board.

.142 It is usual practice for government organizations to publicly report a list of persons who have received public money. In 1995, the Board provided a partial list of persons who received money from the Board. This list did not include payments made to producers.

We recommend

.143 The Board should provide the Assembly a complete list of persons who received money from the Board.

 

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