Audit of TC-owned and staff-operated airports

From: Transport Canada

Internal audit report outlining results of the assessment of the Audit of TC-Owned and Staffed Airports at Transport Canada.

Executive Summary

Transport Canada conducted an audit of its seven owned and staff-operated airports. The objective of the audit was to provide assurance that the management framework for the airports is effective, and that sound management practices are in place.

Overall, the audit showed that the management framework for the airports is meeting its objective by keeping the airports safe and operational. Service aspects/delivery targets have been set and performance is being measured. Further, it showed that the governance structure is working effectively, and allows management to fulfill its oversight role. However the audit also showed that improvements should be made to financial and human resources (HR) stewardship controls as the existing ones are either not well implemented or not sufficiently monitored at these remote locations and require adjustments to be fully effective. Specific airport issues identified during the site visits were communicated promptly to regional management following the visits so they could address them in a timely manner. Recent follow-up on these matters indicates that either the issues have been addressed or there are plans in place to address them.

This audit recommends that: 1) the departmental governance committee (i.e., Program Business Committee) should develop a comprehensive work plan that includes all the ongoing initiatives for airport operations and their expected date of completion, and implement a process to monitor and report on progress; and 2) the Regional Directors (RDs) of Programs in consultation with the RDs Corporate Services and the Executive Director, Operations and Authorities Stewardship (reporting to the Director General, Air, Marine and Environment Programs) should take steps to strengthen the implementation of financial and HR controls at the airports.

Statement of Conformance

This Audit conforms to the Government of Canada’s Policy on Internal Audit and to the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing, as supported by the results of an external assessment of Internal Audit's Quality Assurance and Improvement Program.

Chantal Roy, Chief Audit and Evaluation Executive

1.0 Introduction

This report provides an assessment of how effective the Department’s management framework is in providing stewardship over the seven small airports that are Transport Canada (TC)-owned and staff-operated. The Victoria Harbour Water Airport was excluded from the scope because it is too dissimilar to the land-based airports for comparison purposes^{Footnote 1}.

The audit focused on the interactions between functional leadership provided by headquarters (HQ) with the operations performed by the regions, along with the corporate services support functions (from HQ and the regions).

1.1 Background

TC owns and operates seven small airports offering local, regional or remote service where TC staff work at the airports and are responsible for their day-to-day operations.

The airports are situated in four different regions: two in Atlantic, one in Québec, one in Prairie and Northern and three in Pacific (refer to Appendix A – Map Indicating TC-Owned & Staffed Airports). Appendix B outlines the number of TC employees (full time equivalents FTEs) and flights per airport.

The regional offices are responsible for financial stewardship and people management as well as airport operations, including regulatory compliance. The TC Airport Managers report to Regional Directors (RDs) Programs and work closely with their respective regional office on all airport operations.

The Director General (DG), Air, Marine and Environmental Programs (AMEP), located at HQ, is functionally responsible for TC-wide airport governance, national policies, and other tools (e.g., systems, guidance, processes, standards, and controls related to operations) to ensure effective, efficient and consistent operations across the country.

1.2 Audit Objective, Scope and Methodology

The audit’s objective was to provide assurance that the airports directly operated by TC have an effective governance framework, sound management practices and controls in place to ensure good stewardship of resources to support the delivery of results.

We reviewed airport operations covering three fiscal years between April 1, 2016, and March 31, 2019.

The audit findings and conclusions are based on comparing existing conditions against pre-established audit criteria in the areas of governance, controls and stakeholder needs. The audit criteria are listed in Appendix C.

The audit methodology included:

visiting regional and airport offices (one airport in each region);
collecting data through interviews and observations to examine processes, procedures and practices;
conducting walkthroughs of key controls and processes to demonstrate the organizational structure, processes and accountability obligations;
reviewing and testing files; and
analyzing financial and non-financial information.

1.3 Report Structure

Audit findings are outlined in two sections: Airport Operations and Stewardship of Resources.

Conclusions and recommendations to address opportunities and gaps described in the Findings section are provided in the Conclusion and Recommendations sections.

The Recommendations and Management Response section details management's response to and the timeline for addressing the audit recommendations.

2.0 Audit Findings

2.1 Airport Operations

Finding #1: The current governance structure enables management to effectively address its operational challenges related to people management, occupational health and safety, and asset management. However, there is no comprehensive work plan to monitor and report on the delivery of key initiatives.

Recommendation: The departmental Program Business Committee (PBC) should develop a comprehensive work plan that includes all the ongoing initiatives for airport operations and their expected date of completion, and implement a process to monitor and report on progress.

Governance

TC has set up a management structure that is effective in separating the Department’s responsibilities as airport regulator and airport operator, with the division of accountabilities between two distinct Assistant Deputy Ministers (ADMs): the ADM, Safety and Security (regulatory) and the ADM, Programs (operations).

The RDs of Programs are responsible for the operations and activities authorized under an airport operating certificate to operate the airport, and are accountable on behalf of the certificate holder (TC) for meeting the requirements of the regulations.

They are responsible for all the airports in their respective region reporting functionally to the DG AMEP. Administratively they report to the Executive Regional Directors (ERDs), Issues and Program Management, and ultimately to the Regional Directors General (RDGs). The ADM, Safety and Security is responsible for oversight of regulations. The RDs Aviation Safety deliver the safety oversight program and report functionally to the DG Aviation Safety, and administratively to the RDGs.

We found that the roles and responsibilities with respect to national functional authority (DG AMEP) versus regional offices’ airport operations (RDs Programs) are clearly documented and communicated.

As the program official for the Transportation Infrastructure Program and the functional authority for airport operations, the DG AMEP is responsible for overseeing and approving the national allocation of resources for airport operations, and for monitoring the achievement of overall program outcomes. In this context, the DG AMEP also works closely with regional programs and with regional and HQ financial management executives and staff to address any unexpected funding pressures in year.

The management of allocated budgets and Human Resources (HR) decisions remains the responsibility of the regional directors who report to and are accountable to their Executive Directors/RDGs for adherence to established departmental policies and controls. The oversight and management of airport operations rests with regional Programs staff reporting up to ERD and ultimately to the RDG, with the RD Programs designated as the accountable executive for the Civil Aviation Regulations.

In this context, the DG AMEP and the HQ airport operations team provide guidance on general operational issues from a central perspective to promote national consistency and ensure alignment with departmental priorities. They can also lead and coordinate work to develop national standards and policies where required – but success in this regard (including in the area of issue/problem definition) is heavily reliant on the contributions of RDs Programs and relevant regional staff including airport managers.

We found that the governance committee (i.e., PBC), which is the governance body by which the functional authority (DG AMEP) exercises its accountability with regards to the RDs Programs, is working effectively. The PBC was addressing issues of strategic importance to airport operations such as developing business priorities. Any significant airport operational decisions can be brought to this committee. We also saw evidence that the PBC has taken steps to improve the awareness and understanding of airport issues by introducing new working groups and including important standing items on the PBC agenda.

Although we saw various action plans to address issues, we were not provided with an overall work plan outlining all the action items to allow the PBC to monitor progress to ensure that issues are being addressed in a timely fashion.

People Management

According to the PBC’s documented Terms of Reference, the committee is responsible for developing national plans to address program-level HR capacity and capability gaps.

During our site visits, these issues were commonly reported as challenges and reflective of the remote work locations and seasonal nature of the local industries (e.g. mining and forestry). For example, in a boom period, government salaries were noted as non-competitive for skilled tradespersons.

The PBC acknowledged this challenge and recognized that there was a need for national leadership and oversight. In response, a national staffing competition was put in place. In addition, standardized training requirements, most notably those centered on equipment operators and the different types of equipment they operated, were established.

Also, the PBC meeting materials we reviewed identified national work being undertaken to review work descriptions, in particular for the airport managers. During site visits the requirements for this position were consistently being reported as needing to be reviewed.

Occupational Health and Safety (OHS) Practices

Staff from regional HQ offices expressed challenges, irrespective of the airports, with maintaining robust OHS oversight. Issues included the high cost of traveling to the remote airports to provide training and undertake inspections, and lack of resources at the airport to correct gaps. Regional representatives also noted issues with high turnover in OHS specialists and a lack of departmental guidance as contributing factors.

Overall, regional and airport staff reported that OHS inspections and mitigation measures are not well adapted to the reality of airport and airfield operations. For example, garage safety, sanitation centers, and maintenance holes are not addressed in TC’s OHS oversight. Each regional airport manager must determine the OHS risks individually. As such, at the time of our site visits, early in the audit, we noted a few hazards at some airport buildings. Also, remediation work of some identified hazards was not being prioritized.

During the course of the audit, senior management at the PBC recognized there was a need for more to be done. To this end, the committee is reviewing safe working procedures and task hazard analyses. It also established an equipment and training working group, and it is working with the regions to identify training gaps.

HQ is also now doing annual airport site visits (before COVID), typically, three sites per year, which enable staff to better understand the operating environment as well as provide the airport manager and staff with the opportunity to discuss site-specific issues in depth.

Asset Management

The budget planning and monitoring process for the airports is discussed at the senior management level (PBC), and at monthly budget meetings at both the senior management and staff levels.

In terms of capital investments, the audit confirmed there is a framework in place to manage major capital projects. The capital prioritization process and approval of each project with respect to major capital project planning is aligned with Treasury Board requirements under the Policy on the Planning and Management of Investments.

That said, those interviewed at the start of the audit agreed that there were timing issues with the allocations of budgets after April each year. They said that once the request for proposal process was complete, there was little time left for the actual work to be done within the restricted period of summer or early fall before inclement weather can impact work or deliveries.

As part of the audit procedures, we reviewed capital asset financial records to verify budgeting processes. We noted that for the three fiscal years from 2016-17 to 2018-19, the program spent an average of 62% of its allocated budget.

At the time of our audit, the department’s Resource Management Committee - Investment Board (RMC-IB) was established to increase oversight with the goal of improving budgeting and forecasting. This Senior Management Committee is responsible for assessing project implementation, comparing year-to-date expenditures to forecast, and re-allocating in-year surpluses to projects requiring additional funding.

Changes were established concurrently at the Program and regional levels to provide a more defined and consistent monthly monitoring process that includes a consolidated variance process and scheduled meetings with the responsible project manager.

In terms of oversight, these processes are required to help support airport managers in project management and implementation.

The audit also found progress was being made to correct other deficiencies related to real property assets identified early on in the conduct of the audit. These improvements included work to standardize lease templates, the implementation of more rigorous market-value lease evaluations, and the inclusion of a national review of leases to help promote consistent practices.

Further, work was done to increase national oversight over the condition and lifecycle of capital assets, taking into account the development of a national dashboard for consolidating records rather than having them retained regionally.

In line with the implementation of the RMC-IB, there is now more oversight of operating expenditures, with RMC reviewing planned and actual expenditures quarterly.

In addition, a national database to track the airports’ operational and financial data has been developed and implemented. This database provides a centralized view of airports’ invoicing, accounts receivable and operational metrics. The Programs team’s success in creating this national database is an example of their commitment to continuous improvement.

Stakeholders’ Needs

TC has also setup service standards for these airports to meet stakeholders/community needs. The service standards are posted on TC’s external website and state the level of performance that clients can reasonably expect to encounter under normal circumstances. Service standards include those for aircraft landing, aircraft parking, mobile equipment registration, terminals and vehicle parking.

TC has posted on its external website a range of opportunities for feedback on these standards including annual meetings, comment cards and web feedback, and clients are also encouraged to provide comments, concerns, or complaints directly to the airport manager. Nav Canada’s Canada Flight Supplement identifies contact information for each airport as does TC’s website. Regular users and commercially scheduled carriers also are encouraged to communicate regularly through established channels with the airport representative.

We observed that TC is tracking and reporting service standard performance results, including the number of times the service standards were met/not met, and it is using its Civil Aviation Daily Reporting System (CADORS) to track airport / runway closures. Also, more recently, it is doing an audit of closures to ensure no invoices for services were issued during the time of closure.

In addition, we saw evidence that the PBC has projects underway and others soon to be started, which will further support the delivery of results (e.g., reviews of requirements for key positions at all airports such as airport electricians and safety management system officers).

2.2 Stewardship of Resources

Finding #2: There are opportunities to improve financial and HR stewardship controls. Existing controls are either not well implemented or not sufficiently monitored at these remote locations and require adjustments to be fully effective.

Recommendation: The RDs of Programs, in consultation with the RDs Corporate Services and the Executive Director, Operations and Authorities Stewardship (reporting to DG AMEP) should take steps to strengthen the implementation of financial and HR controls at the airports.

Financial Management

The responsibility for implementing financial controls and administrative protocols, necessary to ensure that departmental functions are performed efficiently and cost-effectively, lies with TC’s Finance and Administrative Program (F&A) within Corporate Services.

The RDs, F&A oversee their offices in each of their respective regions and report to the RDs Corporate Services, who in turn report to the RDGs. Functional authority rests with the DG, Financial Operations, Administration Services and Chief Procurement Officer, who reports to the ADM, Corporate Services and Chief Financial Officer.

The audit identified that information needed for operational decision making is generally available for centrally managed capital assets, real property and fleet.

In terms of optimizing management practices, with the recent work to increase national oversight over the condition and lifecycle of capital assets along with the introduction of a national dashboard to monitor key indicators, more effective oversight and better decision making is expected.

With respect to non-capital assets, the audit identified areas for financial management improvement with regards to monitoring the implementation and effectiveness of existing controls.

For instance, we observed during the audit:

In some cases, the controls for government acquisition cards for the airports needed to be better implemented or monitored. Examples included: one card used by employees other than the cardholder; purchases made with local suppliers who had relationships with employees without quotes or other documentation on file demonstrating search for best value for money; and, bulk purchases of items that fell below TC’s threshold for inventory record keeping (e.g. fridges, stoves, couches, building materials and spare tires) with no alignment to an approved business plan/purpose. Such controls are particularly important given the high limits of some of the cards used in those small, remote airports.
Only one region was tracking assets that are durable in form and valued between $1,000 and $10,000 (under the capital threshold) for custodial purposes, as ‘expensed assets’. However, during our site visit, the audit team was unable to verify inventory because there were no asset tags for these items and there was no tracking of inventory usage.
A computer system that records fuel tank usage by user was not functioning or there was no such system in place. Also, TC’s fleet management information system, or its companion credit card (ARI Canada) were not used to monitor the cost of maintaining, repairing and operating vehicles as part of a life cycle management approach to fleet management. The airport vehicles have been determined to be outside of TC’s fleet management and requirements and are managed by the RDG.
There was also a lack of segregation of duties such that one person could process a transaction from initiation to completion. For example, the same employee can order and receive materials, and there are no inventory record requirements.

The audit team noted that, generally, the financial controls and administrative protocols in place varied at both the regional and airport levels and that some ad hoc procedures implemented in one airport or another were not present elsewhere (e.g. an inventory system created by a supervisor; a monetary threshold for transactions requiring regional approval; or, a designated employee to receive purchases for segregation of duties purposes). Furthermore, it was clear from those interviewed that budgetary and staff reductions had an impact on the mix and inconsistencies of oversight processes the audit team observed.

Program management, working together with corporate finance, needs to assess the risks presented by these small and often remote work locations to ensure that controls, including the level of monitoring, are commensurate with the level of risk. The specific operating circumstances need to be taken into account to strike the right balance between risk, control, efficiency and cost, to minimize the burden on airport operations while ensuring effective stewardship.

Specific airport issues identified during the audit site visits were communicated promptly to regional management so they could be addressed in a timely manner. Recent follow-up on these matters indicates that either the issues have been addressed or plans are in place to address them.

Human Resources

Similar to the F&A function, the responsibility for effectively implementing HR policies is within HR of Corporate Services.

The Directors of Client Services oversee their offices in each of their respective regions and report to the RDs Corporate Services who report to the RDGs. Functional authority rests with the DG, HR, who in turn reports to the ADM, Corporate Services and Chief Financial Officer.

During the course of the audit, inconsistencies were noted with overtime and extra duty usage, and declarations of conflict of interest.

We found that the use of overtime and extra duty as well as the overtime codes themselves varied between the airports. There were no documented rationales to support the differences.

The PBC meeting materials identified work was underway to provide national guidance on airport hours of operation and staffing resource levels. The expectation is that this national guidance and oversight will help to ensure the right alignment of overtime with departmental objectives and management expectations.

As to the risk of perceived or real conflicts of interest, the audit team acknowledges that personal relationships in these remote communities can be ubiquitous and inevitable. For example, employees have side jobs, family relations work together, and business partners are friends. Once a connection between personal interests and public decisions is made, it can be difficult to demonstrate that a decision was not influenced by personal interest. Given inherent risk exposure, the audit concluded that oversight and monitoring of conflict of interest declarations was not as robust as needed. Based on interviews, it was apparent that there were instances of potential conflicts of interest, some of which were not being reported.

3.0 Conclusion

The management framework is meeting its objective by keeping the airports safe and operational, service aspects/delivery targets have been set and performance is being measured. However, the governing body did not have a comprehensive work plan to track and monitor the extent to which its objectives are being met. Also, improvements can be made to increase the effectiveness of stewardship of resources, with a focus on providing better support services to airport managers.

4.0 Recommendations and Management Response

The following summarizes the audit recommendations and Management Action Plan (MAP) to address them.

No.	Recommendation	Management Action Plan	OPI and Completion date
1.	The departmental Program Business Committee (PBC) should develop a comprehensive work plan that includes all the ongoing initiatives for airport operations and their expected date of completion, and implement a process to monitor and report on progress.	Management agrees with the recommendation to develop a comprehensive work plan to monitor and track all airport operations’ initiatives. Regional Directors (RDs) of Programs each have an existing work plan that identifies the detailed priorities for their respective region in the area of airport operations. In addition, the Airport Operations team in headquarters (HQ) had already developed a forward-looking work plan that sets out the broader national priorities for the year. On the basis of the audit recommendation, HQ will develop/adopt a formal work plan, which integrates the elements of the above-noted regional and national work plan. Initiatives in the work plan will be specific, with measurable outcomes and timelines identified for completion. The Airport Operations team in HQ will report quarterly to the PBC on progress and/or challenges.	Assistant Deputy Minister, Programs / September 2021
2.	RDs of Programs in consultation with the RDs Corporate Services and the Executive Director, Operations and Authorities Stewardship, should take steps to strengthen the implementation of financial and human resources (HR) controls at the airports.	Management agrees that steps should be taken to strengthen financial and HR controls in relation to TC staff working at airport sites. Implicated RDs of Programs, with the support of Regional Corporate Services, will ensure all financial and HR controls are considered within the various local/remote contexts and that clear guidance, tools and training is provided to employees in these areas to ensure compliance with all existing departmental financial and HR controls. The following specific action items are proposed to achieve this objective:	Regional Director Generals /
		RDs of Programs will work with Regional Corporate Services to identify appropriate and applicable tools and training for affected regional and local staff to ensure that there is an adequate and specific understanding of relevant financial and HR control procedures and associated expectations from management.	December 2021
		RDs of Programs will ensure there are at least quarterly follow-ups with Airport Managers on areas of noted deficiencies identified in the Audit report.	September 2021
		RDs of Programs, with the support of Regional Corporate Services and the Airport Operations team in HQ, will implement and document the results of regular risk-based spot checks at airport sites to confirm the effectiveness of the measures implemented and to re-focus efforts in areas that may remain deficient. The results of these spot checks will feed into decisions by the PBC on future requirements on staffing resources, tools and training, and support other targeted measures.	September 2021
		RDs of Programs, supported by the Airport Operations Team in HQ, will report quarterly to the PBC on progress and/or challenges.	September 2021

Appendix A – Map Indicating TC-Owned & Staffed Airports

Alternate text

This is a map of Canada that illustrates the location of the seven TC owned and staff-operated airports: Port Hardy, Penticton and Sandspit Airports (British Columbia); Churchill Airport (Manitoba); Sept-Îles Airport (Québec); and Wabush and St. Anthony Airports (Newfoundland and Labrador).

Appendix B – Number of Employees and Flights

Province	Airport	Average Annual Full Time Equivalent Employees*	Average Annual Number of Flights*
British Columbia	Port Hardy	6	12,639
	Penticton	6.5	20,421
	Sandspit	6	5,055
Manitoba	Churchill	7.5	8,434
Québec	Sept-Îles	15	28,084
Newfoundland and Labrador	Wabush	13	15,332
Newfoundland and Labrador	St. Anthony	6.5	3,501

*Numbers are based on three fiscal year average (April 1, 2016 and March 31, 2019).

Appendix C – Audit Criteria

Criteria 1: The airports has an effective management/governance framework that supports the delivery of results.

It is expected that the airports’ strategic objectives, priorities and activities are aligned with TC objectives. The roles and responsibilities, and accountabilities at both the departmental and the regional/airport level are clearly defined, communicated and fulfilled. As well, the governance and oversight of airport management is effective.

Criteria 2: Sound management practices and controls are in place.

It is expected that the budgeting, contracting, inventory, staffing and financial management practices are compliant with government policies. The airports’ organizational structure and resourcing is commensurate with its mandate. Furthermore, the airports’ management and staff have the necessary training, tools and guidelines, and the Airports’ management reinforces and complies with the Value and Ethics Code and the Policy on Conflict of Interest and Post-Employment.

Criteria 3: Internal and external stakeholder needs are identified and met.

It is expected the stakeholder needs are documented and there is clear lines of communication. As well, a mechanism is in place to measure stakeholder satisfaction.

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