AUDIT OF THE UNCLOS PROGRAM PROJECT AU1202

Reports 2011


EXECUTIVE SUMMARY

INTRODUCTION

On November 7, 2003 Canada joined 143Footnote 1 other states when it ratified the United Nations (UN) Convention on the Law of the Sea (UNCLOS). Under UNCLOS, coastal states that have a wide continental margin and that have ratified UNCLOS, such as in the case of Canada, have an obligation to make a submission to the Commission on the Limits of the Continental ShelfFootnote 2 (the Commission) to delineate the outer limits of their continental shelfFootnote 3 beyond 200 nautical miles – known as the extended continental shelf. Submissions to the Commission serve to determine with precision where a state may exercise its sovereign rights over the natural resources of the seabed and subsoil of this extended continental shelf.

The determination of the outer limits of Canada’s Arctic and Atlantic continental shelves is based upon scientific data including detailed mapping of the depth and the shape of the seafloor as well as underwater geological formations in both the Arctic and Atlantic Oceans. The Geological Survey of Canada (GSC) of Natural Resources Canada’s Earth Sciences Sector and the Canadian Hydrographic Service (CHS) of Fisheries and Oceans Canada’s Science Sector are responsible for collecting and analysing the data required to determine the size of Canada’s continental shelf. These activities are known as the UNCLOS Program.

DEPARTMENTAL RISKS

An audit of Natural Resources Canada’s (NRCan) activities related to the UNCLOS Program was approved by the Deputy Minister as part of the 2011- 2012 Risk Based Audit Plan.

A detailed risk analysis was completed for the Audit of the UNCLOS Program. UNCLOS Program staff were asked to identify the controls in place to mitigate these risks. The audit team examined these controls and was able to conclude that the residual risk was low after existing controls were considered. In one instance, the audit team determined that a control identified by Program staff had not been established as intended.

INTERNAL AUDIT CONCLUSION

The audit results provide reasonable assurance that the UNCLOS program is compliant with NRCan’s policies and procedures and has the appropriate plans in place to support the achievement of Canada’s ability to make its submission to the Commission by the 2013 deadline. The Program, however, needs to formally establish an approach to knowledge management from NRCan’s perspective, including succession planning.

Note that security of information and assets was reviewed in this audit. References have been removed from the report in accordance with Section 16(2)(c) of the Access to Information Act.Footnote 4

TABLE OF CONTENTS

INTRODUCTION

On November 7, 2003 Canada joined 143Footnote 5 other states when it ratified the United Nations (UN) Convention on the Law of the Sea (UNCLOS). As a result of ratifying UNCLOS Canada has an obligation to make a submission to the Commission on the Limits of the Continental ShelfFootnote 6 (the Commission) to delineate the outer limits of its continental shelf in the Arctic and Atlantic Oceans by December 6, 2013. The Commission is an expert body established under UNCLOS that reviews submissions of costal states and makes recommendations regarding the outer limits of their continental shelves. Limits established by the coastal states on the basis of these recommendations are final and binding.

The determination of the outer limits of Canada’s Arctic and Atlantic continental shelves is based upon scientific data including detailed mapping of the depth and the shape of the seafloor as well as underwater geological formations in both the Arctic and Atlantic Oceans. In order to prepare a thorough submission, the UNCLOS Program was established in 2004 as an interdepartmental program involving Natural Resources Canada, the Department of Fisheries and Oceans Canada (DFO), and the Department of Foreign Affairs and International Trade (DFAIT) as the lead Department.

The Geological Survey of Canada (GSC) of Natural Resources Canada’s Earth Sciences Sector and the Canadian Hydrographic Service (CHS) of Fisheries and Oceans Canada’s Science Sector are responsible for preparing the submission from a scientific and technical standpoint, including collection and analysis of data and supporting engagement with the Commission as it considers the Canadian submission. DFAIT is responsible for ensuring that the submission is legally sound, for undertaking associated diplomatic work, and for overall engagement with the Commission.

The Program is relevant to the priorities of all three departments involved. In the case of NRCan, it was most recently referenced in the Department’s 2011-2012 Report on Plans and Priorities. Under its departmental priority to Advance Sustainable Resource Development in the North, NRCan “is supporting Canada’s submission to the UNCLOS to extend the country’s sovereign rights on the Atlantic and Arctic continental margins by mapping the continental shelf.”Footnote 7

Funding for the Program was first announced in 2004, when Canada committed $69 million starting in 2004-05 and ending in fiscal year 2013-14, the year of Canada’s submission to the Commission. This funding was provided in order to collect and analyse the scientific data necessary to prepare Canada’s submission, with $34.3 million of these funds going to NRCan. In 2008, Canada announced an additional $40 million in funding over four years to support the Program. The majority of these additional funds were committed to NRCan ($19.9 million) and DFO ($13.8 million) but did provide $6.5 million to DFAIT to create a dedicated legal unit to prepare the submission and support diplomatic efforts in this regard. At the time of the audit, the total funding committed to NRCan stood at $54.2 million of the $109 million announced in both the 2004 and 2008 Budgets.

Establishing limits based on recommendations from the Commission facilitates the securing of international recognition for the full extent of Canada’s extended continental shelf where Canada may exercise its sovereign rights over the natural resources of the seabed and subsoil of its continental shelf in the Atlantic and Arctic Oceans.

AUDIT PURPOSE AND OBJECTIVES

The purpose of this audit was to assess the effectiveness of the management of NRCan’s activities related to the UNCLOS Program regarding Canada’s ability to make its submission to the Commission on the limits of its continental shelf by December 2013. Specifically, this assessment was to provide reasonable assurance that:

  • NRCan has developed and implemented appropriate plans, based on the assessment of risks, its capacity, resources, and requirements, aimed at achieving the strategic objective for the UNCLOS Program;
  • NRCan’s UNCLOS resources are being efficiently managed in compliance with NRCan and TB policies and procedures; and,
  • Reporting and monitoring of operational and financial information takes place to ensure the reliability and integrity of financial and operational information.

SCOPE AND METHODOLOGY

The audit approach was based on Treasury Board’s Policy on Internal Audit and the Standards for the Professional Practice of Internal Auditing published by the Institute of Internal Auditors.

The scope of this audit considered the management of NRCan’s UNCLOS Program related activities between April 2008 and the March 2011.

The audit approach included:

  1. review of key documents and relevant background documentation including policies, directives and standards;
  2. interviews with key personnel with respect to UNCLOS and related activities;
  3. physical inspections based on information gathered from 1 & 2 above; and,
  4. examination of expenses and financial management activities.

CRITERIA

The criteria were developed from the key controls set out in TBS’s Core Management Controls for Internal Auditors and relevant policies, procedures and directives. The criteria guided the audit fieldwork and formed the basis for the overall audit conclusion.

FINDINGS AND RECOMMENDATIONS

UNCLOS RESOURCES

Summary Finding

NRCan’s UNCLOS resources are being managed in compliance with NRCan and Treasury Board Secretariat’s (TBS) policies and procedures.

Supporting Findings

Protection of Assets

Note that security of information and assets was reviewed in this audit. References have been removed from the report in accordance with Section 16(2)(c) of the Access to Information Act.Footnote 8

Budgets and Resource Requirements

The audit team found that over the years the Program’s budget was in fact established in advance of the operating period and included a detailed breakdown of planned expenditures. The Program’s budgets are organized in such a way that individuals with budget authority and responsibility are clearly aware of their budget which includes an appropriate level of detail.

Compliance with Financial Management Laws, Policies and Authorities

NRCan’s UNCLOS Program related expenditures over the last two fiscal years totalled $24.8 million. The audit team examined a judgemental sample of 50 of NRCan financial transactions related to the Program and found that expenditures were in compliance with NRCan and TBS policies and procedures.

RECOMMENDATIONS

Note that recommendations 1 and 2 and the associated Management Action Plan have been removed from this audit report in accordance with Section 16(2)(c) of the Access to Information Act.

PLANS AIMED AT ACHIEVING STRATEGIC OBJECTIVES

Summary Finding

Based on the assessment of risks, capacity, resources, and requirements aimed at achieving the strategic objective of the UNCLOS Program, NRCan has developed and implemented appropriate plans. There is a need, however, to formally establish an approach to the UNCLOS Program knowledge management from NRCan’s perspective, including succession planning.

RISK AND IMPACT
Risk Type Audit Risk RatingFootnote 9 Impact
Strategic Moderate Unless NRCan formalizes its knowledge management, including succession planning, there could be an adverse impact on the overall success of the Program if NRCan loses the necessary expertise to support Canada’s submission at the time that the Commission reviews Canada's submission (potentially many years from now).

Supporting Findings

Authorities, Accountabilities, Roles, and Responsibilities

The UNCLOS Program’s strategic objective is to prepare a technically, scientifically, and legally sound submission for the Commission defining the outer limits of Canada’s Arctic and Atlantic continental shelves by December 6, 2013.

In order to determine whether NRCan has developed and implemented appropriate plans, based on the assessment of risks, its capacity, its resources, and its requirements aimed at achieving this strategic objective, the audit team first examined whether a governance structure had been established. Authority, accountability, and responsibility for the UNCLOS Program is shared among NRCan, DFO, and DFAIT and a governance structure with clearly defined authorities, accountabilities, roles and responsibilities is in place and is functioning as intended. Please refer to Appendix C for the details related to the UNCLOS Program’s governance structure along with authorities, accountabilities, roles and responsibilities.

Operational Plans and Objectives

The determination of the outer limits of Canada’s Arctic and Atlantic continental shelves is based upon scientific data including detailed mapping of the depth and the shape of the seafloor as well as underwater geological formations in both the Arctic and Atlantic Oceans. The audit team found that NRCan has put in place operational plans designed to achieve the Program’s strategic objective. These consist mainly of data collection plans, for both the Atlantic and Arctic Oceans based on their geological characteristics.

Through document review and interviews, the audit team found that the required data collection in the Atlantic Ocean had been completed in 2009.Footnote 10 Required data collection for the Arctic had also been completed.

The audit team concluded that NRCan does have comprehensive operational plans designed to achieve the strategic objectives and priorities of the Program. These plans have been documented.

Performance Measures

The Program has developed and documented performance measures (i.e. indicative milestones) and steps required for the completion of submission preparation. These performance measures are captured within NRCan’s Earth Sciences Sector Project Tracking System which is used for project and program monitoring and reporting purposes. The system has been updated with the UNCLOS Program’s challenges, expected outcomes, outputs, and performance indicators against which Mid-Year and Year End reports are generated. In addition, the Program Management Board generates annual performance reports, which not only report on accomplishments but also on next steps and performance measures. These reports have been reviewed and approved by the ADM Steering Committee.

Planning and Resource Allocation

Risk management is a key component of decision-making, business planning, resource allocation and operational management. The audit team found that NRCan had identified and assessed the risks that could impede the successful achievement of the Program’s strategic objectives, and had developed appropriate mitigation strategies. Risks and mitigation strategies were reviewed and adjusted periodically against past performance by Program Management. For example, in 2010 a major spring survey was organized in the eastern Arctic. The survey was hampered by bad weather and data collection was well below the planned level (at about 25-30%). In addition, during the Program’s fall icebreaker expedition, data collection was again attempted but was only achieved in part due to an emergency evacuation, which required the ship to leave the area and go to the nearest port. The Program Management Board had taken these past experiences into consideration when planning for resource allocation in the following year.

Risk information was used to seek additional funding from the 2008 Budget and was a main driver for acquiring, in collaboration with Defence Research and Development Canada, two Autonomous Underwater Vehicles (AUVs) outfitted with the equipment necessary to undertake under-Arctic-ice surveys which would further help to ensure the Program’s objectives were met.

Knowledge and Talent Management

Funding for the UNCLOS Program extends until the end of fiscal year 2013-14, by which time Canada will have made its submission to the Commission.

The Commission is made up of experts on mission for the United NationsFootnote 11 and is the body that has been established under UNCLOSFootnote 12 to review the submissions by coastal states and make recommendations regarding the outer limits of their continental shelvesFootnote 13. Limits established by the coastal states on the basis of these recommendations are final and binding. The Commission ordinarily meets twice a year, in the spring and fall, at United Nations Headquarters in New York. With the number of submissions expected from states and the number of times the Commission actually convenes, concerns have prompted state parties to the Convention to establish an informal working group to consider the Commission’s workload. This working group is in the process of assessing measures to accelerate the work of the Commission.Footnote 14 If the Commission’s current arrangements are retained, there will be a lengthy delay (many years) between the filing of Canada’s submission and its consideration by the Commission.Footnote 15

There have been efforts made to ensure that the knowledge acquired over the years by NRCan scientists through the UNCLOS Program is not lost over time. In keeping with its overall organizational objectives, ESS has put forward scenarios and possible strategies on how best to sustain and capitalize on the acquired knowledge over a prolonged period of time. However, at the time of the audit, these efforts were still ongoing and no final decision had been made on how best to proceed. UNCLOS succession planning and knowledge management had not yet been formally established.

Unless NRCan formalizes UNCLOS knowledge management and succession, the overall success of the UNCLOS Program could be compromised. If NRCan loses the knowledge along with the necessary expertise to support Canada’s submission at the time that the Commission actually reviews Canada's submission, there could be an important negative impact on all of the efforts Canada has made to secure international recognition regarding where it may exercise its sovereign rights on the Atlantic and Arctic continental shelves.

RECOMMENDATION

3. The Program should initiate a well-defined knowledge management and comprehensive succession planning process to ensure that NRCan does not lack the necessary expertise to support Canada’s submission at the time that the Commission reviews Canada's submission and to ensure the overall success of the Program.

Management Action Plan and Time Frame

NRCan (GSC) is developing and will put in place a draft succession plan by December 2011 and will finalize by April 2012. This will include the staffing or re-allocation of key positions thereby enabling the orderly transition and transfer of knowledge to ensure the overall success of the Program.

HR PLAN APPROVED BY GSC DG ATLANTIC AND WESTERN CANADA BRANCH DECEMBER 2011

This includes addressing the issue of a backup for a science manager with an in depth knowledge of the interpretation of the scientific data. This role also includes working with the legal component in DFAIT to ensure that the submission is both scientifically and legally sound and well constructed. It is recommended that a REM-02 be hired so that that person can be trained to take over the project by 2014 and guide it through the next number of phases.

TO BE COMPLETED APRIL 2012

In addition the GSC will maintain sufficient expertise in marine and energy geoscience capacity, specifically in the development of continental margins. This expertise can be drawn upon by the Program during the next phases of the submission process.

The Knowledge Management Strategy will include the publication of scientific information in peer-reviewed scientific journals. A number of publications have already occurred and this process will actively continue so that scientific information is published before the December 2013 submission deadline.

APRIL 2012 AND ONGOING

REPORTING AND MONITORING

Summary Finding

Reporting and monitoring of operational and financial information takes place to ensure the reliability and integrity of financial and operational information.

Supporting Findings

Management Monitors Actual Performance against Planned Results

The UNCLOS Program produces Mid-Year and Year End Reports. These are captured within the Earth Sciences Sector Project Tracking System which is used for project/program monitoring and reporting purposes. The system has been populated with the UNCLOS Program's challenges, expected outcomes, outputs, and performance indicators against which these Mid-Year and Year End reports are generated. Annual performance reports are being prepared by the Program Management Board and approved by the ADM Steering Committee. In addition, weekly project update reports are produced in e-mail format and are generated for Senior Management (DG and ADM) as well as communications staff. All of these reports are being used to make decisions.

Management uses these reports to compare results achieved against expectations, on a periodic basis and reallocates resources to facilitate the achievement of objectives as required. For example, the UNCLOS program requested that $2.5M be re-profiled from 2010-11 to 2011-12 to ensure the safety and security of staff working in the North collecting scientific data. ADMs agreed that the re-profiling appeared justifiable based on the significant risk of proceeding with an ice camp based on past experience and approved the action.

Financial and Operational Information

The audit team found evidence of on-going and timely review of both operational and financial information. The Financial Management Branch prepares quarterly and monthly forecast reports that are e-mailed out to senior management. These reports require management to review their assigned responsibility sectors for variances in a report and explain any surplus or deficits on a timely basis. These requirements were being met. It was also determined that financial and operational information is reliable and used in reporting, monitoring, planning and decision making.

RECOMMENDATION

None

APPENDIX A – AUDIT CRITERIA

Objectives Audit Criteria
1. NRCan has developed and implemented appropriate plans, based on the assessment of risks, its capacity, resources, and requirements, aimed at achieving the strategic objective for the UNCLOS Program. Authorities, accountabilities, roles, and responsibilities are clearly defined and understood.

Operational plans and objectives aimed at achieving strategic objectives are in place.

Management has identified appropriate performance measures linked to planned results.

Planning and resource allocation consider risk information.

An approach to knowledge and talent management has been established.
2. NRCan’s UNCLOS resources are being efficiently managed in compliance with NRCan and TB policies and procedures. Assets are protected.

Budgets reflect resource requirements.

Compliance with financial management laws, policies, and authorities is monitored regularly.
3. Reporting and monitoring of operational and financial information takes place to ensure the reliability and integrity of financial and operational information. Management monitors actual performance against planned results and adjusts course as needed.

Financial and operational information is reliable and is used in reporting, monitoring, planning and decision making.

APPENDIX B – STANDARD AUDIT RISK RATING

Standard Risk Types

Our standard risk types are classified based on the COSOFootnote 16 Internal Control-Integrated Framework as follows:

Strategy – High-level goals, aligned with and supporting the Department's mission.
Operations – Effective and efficient use of resources.
Monitoring – Accurate assessments or evaluation of activities.
Reporting – Reliability of operational and financial reporting.
Compliance – Compliance with applicable laws, regulations, policies and procedures.

Standard Audit Risk Ratings

Audit findings are rated as follows:

Major: A key control does not exist, is poorly designed or is not operating as intended and the related risk is potentially significant. The objective to which the control relates is unlikely to be achieved. Corrective action is needed to ensure controls are cost effective and/or objectives are achieved.

Moderate: A key control does not exist, is poorly designed or is not operating as intended and the related risk is more than inconsequential. However, a compensating control exists. Corrective action is needed to avoid sole reliance on compensating controls and/or ensure controls are cost effective.

Minor: A weakness in the design and/or operation of a non-key process control. Ability to achieve process objectives is unlikely to be impacted. Corrective action is suggested to ensure controls are cost effective.

APPENDIX C – UNCLOS PROGRAM GOVERNANCE STRUCTURE

  • The Assistant Deputy Minister (ADM) Steering Committee: The Assistant Deputy Minister (ADM) Steering Committee consisting of the ADM Earth Sciences Sector (NRCan), The Legal Adviser (DFAIT), and the ADM Science (DFO) has been established. This committee is responsible for providing strategic direction and oversight to the Program. This committee convenes a minimum of twice a year.
  • The UNCLOS Program Management Board: The Board consists of the Director of the UNCLOS Program at NRCan and the Director of the Law of the Sea Project at DFO, and the Director of the Continental Shelf Division at DFAIT, and reports to the ADM Steering Committee. The UNCLOS Program Management Board is responsible for developing the Program’s plans and priorities and for the delivery of the Program, including legal issues, Commission issues, diplomatic advice, collection of information, and preparation of the necessary information needed to support the submission.
  • Federal Advisory Committee: The Federal Advisory Committee consists of the Director General (DG) from the Canadian Hydrographic Service (DFO), the DGs of DFO Policy, DFO’s Canadian Coast Guard Fleet, NRCan’s Policy and Coordination Branch, NRCan’s Geological Survey, DFAIT’s Legal Bureau, INAC’s Northern Strategic Policy Branch, and Defence Research Development Canada. It has been established to provide advice to the ADM Steering Committee and the Management Board.
  • Operations Office: An Operations Office was established during the 2004-2005 fiscal year at the Bedford Institute of Oceanography to support the day-to-day management of the Program. It is managed by Directors of NRCan and DFO who sit on the Program Management Board. The Operations office is responsible for the coordination of scientific data collection, the collection of information, and the preparation of the submission, including any supporting databases, maps and report.