Follow-Up Audit of the Explosives Program

Audit and Evaluation Branch (AEB)
Natural Resources Canada
Presented to the Departmental Audit Committee (DAC)
December 15, 2020

Table of Contents

• Background
  • Objectives
  • Approach
  • Scope
  • Internal Audit Conclusion and Opinion
  • Statement of Assurance
• Status of Initial Audit’s Recommendations
• Summary of Findings on Additional Areas Examined
  • Management of Travel Expenditures
  • Management of Inspection Reports and Application of Service Fees 12
• Additional Areas for Considerations
• APPENDIX A – Audit Criteria

Background

Natural Resources Canada’s Explosives Safety and Security Branch (ESSB) is responsible for administering Canada’s Explosives Act and Regulations. ESSB is comprised of four divisions: the Explosives Regulatory Division (ERD); the Canadian Explosives Research Laboratory (CERL); the Operations Division; and the Impact Assessment Division. The ERD, overseen by a Director with the joint title of Chief Inspector of Explosives (CIE), authorizes and licences the use of explosives and administers a compliance inspection and restoration program, which at times requires its Inspectors to travel up to 13 weeks within a fiscal year (FY). Through licensing and inspection activities, ERD ensures that manufacturers, importers, exporters, and vendors of explosives, as well as those who store explosives, comply with Canada’s Explosives Act and Regulations, and works to keep explosives and precursor chemicals out of the hands of criminals and terrorists. CERL directly supports ERD in the advancement of explosives safety and security technology, through research and the classification of explosives.

The modernized Explosives Regulations, which came into effect on February 1, 2014, are intended to provide both industry and regulators with greater clarity, enhanced safety and address outstanding obligations under the Public Safety Act regarding permits, collection of information, and security screening requirements. The ESSB implemented an electronic License Management System (eLMS) in fall 2017, which provides individuals and organizations online access to their licensing information at any time. The system also allows applicants to apply for/renew applications, make amendments, check the status of submissions and make online payments.

Objectives

The objective of this engagement was to perform a follow-up on the status of implementation of recommendations contained in the Audit of the Explosives Program conducted in FY 2018-19. The engagement also included an assessment of additional areas of risk surrounding the management of overtime, travel expenditures, the management of inspection reports and the application of Service Fees.

Approach

The engagement included the following key tasks:

1. Process reviews related to the management of Overtime (OT), travel and inspection reports;
2. Interviews with staff from ERD and CERL;
3. Documentation review of ESSB processes related to the management of OT, travel and inspection reports that are in place; and
4. Sample testing and analysis of 16 self-managed overtime (SMOT) records; 15 travel requests and associated claims; and the monitoring of compliance to internal service standards of six inspection reports, as well as the corrective actions (CAs) that result from the related inspections

Scope

The engagement examined the supporting documentation and related action taken by ESSB to implement the recommendations resulting from the previous audit which had target implementation dates of November 1, 2018, to June 30, 2019.

The period under examination for the additional areas that were examined as part of this follow-up engagement was April 1, 2018, to March 11, 2020.

When sampling inspection reports, only those pertaining to users, vendors and factories were examined and excluded import permits, relating to the Canada Border Services Agency’s Single Window Initiative.

Internal Audit Conclusion and Opinion

In my opinion, some progress has been made by ESSB to implement the recommendations that resulted from the initial audit of the Explosives Program in FY 2018-19. Additional efforts are required to complete the implementation of these recommendations by the revised target dates.

With respect to this follow-up engagement, opportunities exist to further strengthen ESSB’s operational processes by clarifying and improving management processes surrounding overtime, travel expenditures, inspection reports and the application of Service Fees.

Statement of Assurance

In the professional judgment of the Chief Audit and Evaluation Executive, sufficient and appropriate procedures were performed and evidence gathered to support the accuracy of the follow-up audit conclusion. The follow-up audit findings and conclusion are based on a comparison of the conditions that existed as of the date of the follow-up audit, against established criteria that were agreed upon with management. The evidence was gathered in accordance with the Government of Canada’s Policy on Internal Audit and the International Standards for the Professional Practice of Internal Auditing.

Michel Gould, MBA, CPA, CIA
Chief Audit and Evaluation Executive
December 15, 2020

Status of Initial Audit’s Recommendations

The follow-up audit assessed the implementation of the four recommendations that resulted from the previous Audit of the Explosives Program, which was conducted in FY 2018-19. The result of this assessment includes the status as of March 11, 2020, and an updated management response, including revised target dates. Implementation levels range from Level 1: No progress to Level 5: Full implementation.

Recommendation #1: Document and make available a comprehensive description of the interdependencies between NRCan and key partners.
Status: Preparation for implementation (Level 3) – In addition to the steps taken to-date, to obtain full implementation status (Level 5), ESSB should:

• Finalize two pending memoranda of understanding (MoUs) with key partners, as end dates for these MoUs are missing; and
• Ensure to include a ‘revision history’ table within the registry of key partners that is maintained, so that staff are aware of the most recent date this registry was updated to ensure that all ESSB partners are identified, in supporting the administration of the Explosives Program.

Management Response Update

ESSB will create and maintain stakeholder table and a Collaborative Instruments Tracking Sheet which will be reviewed on a quarterly basis. The tracking sheet will track the status / stage of development of the MOU and once finalized will note their end date.

Position responsible: Manager, Operations Division, ESSB.
Original target date: June 30, 2019.
Revised target date: March 31, 2021.

Recommendation #2: Define performance reporting requirements used in the annual reporting of ESSB regulatory activities, including timelines, as well as implement measures to ensure the quality and accuracy of data used, in the annual and quarterly reporting processes. 
Status: Level 3 – In addition to the steps taken to-date, to obtain full implementation status, ESSB should:

• Produce an approved version of ESSB’s FY 2019/20 Annual Report that lists its regulatory activities, including timelines for its performance reporting requirements; and
• Indicate the measures taken to ensure the quality and data integrity of information that is used for ESSB’s annual and quarterly reporting purposes, e.g. implementation of a quality assurance (QA) function prior to the approval and finalization of ESSB reports.

Management Response Update

ESSB will produce a FY19/20 Annual Report and a copy will be provided to AEB on or before the target date of September 1, 2020. ESSB will provide to the AEB a detailed analysis of QA steps taken to address issues with quarterly reporting.

Positions responsible: Manager, Operations Division, ESSB (accompanied by evidence of Director General, ESSB sign-off).
Original target date: June 30, 2019.
Revised target date: September 1, 2020.

Recommendation #3: Review the intended role of the Explosives Regulatory Division (ERD) policy committee to determine whether it remains a relevant component of the ERD governance process.
Status: Level 3 – In addition to the steps taken- to-date, to obtain full implementation status, ESSB should:

• Maintain Branch Management Committee (BMC) meeting minutes and related records of decisions dating back to November 2018, indicating key ESSB governance and policy related decisions since the ERD policy committee has been decommissioned. Examples of these decisions should include: accepted approach to implementing a risk-based inspection plan (RBIP) for future plans; decision to revoke blanket travel authority (BTA) for ERD’s Inspector staff; non-endorsement of the SMOT arrangement; and the related decision(s) in continuing to not endorse an OT policy, indefinitely.

Management Response Update

ESSB will generate, approve and load BMC minutes into GCDocs within 1 week of meeting. ESSB will provide additional supporting documentation to AEB, at request.

Position responsible: Manager, Operations Division, ESSB (as BMC Secretariat).
Original target date: November 1, 2018.
Revised target date: December 15, 2020.

Recommendation #4 – (a) Formalize the development and implementation of an annual risk-based inspection plan; (b) Formalize the inspection guidelines and close-out process for inspections, including formally tracking critical and major issues identified during the inspection; and (c) Formalize processes for documenting and retaining evidence of periodic inspection reviews to ensure quality and consistency among inspection regions.
Status: (overall, Level 3) –

1. Level 5– ESSB has developed a RBIP for FY 2019/20 and it is currently being enforced for completion by March 15, 2020.
2. Level 3 – The ESSB hired an Audit Officer in September 2019, to perform QA on ERD’s inspection reports that are uploaded onto the eLMS. The intent is to ensure that CAs are addressed and respect target dates, as initially identified by the Inspectors after a site visit has been performed for a user, vendor or factory containing explosives. To obtain full implementation status for this recommendation, ESSB should:
   • Create clear (functional) reporting lines with the Audit Officer, so that oversight is provided at an appropriate (subject matter expertise [SME]) managerial level;
   • Formalize its QA functionality by incorporating it as part of the ERD’s inspection guidelines or a standard operating procedures (SOP) document;
   • Develop an additional work objective as part of the managerial position overseeing the QA function and duly assess the incumbent’s performance during the mid- and year-end performance appraisal sessions, as part of the Treasury Board Secretariat’s (TBS) Public Service Performance Management (PSPM) tool;
   • Maintain the results of the QA performed (e.g., via eLMS, or) byway of a tracking mechanism; whereby, this information is readily accessible to all Inspector staff, should another inspection be planned with the same client (i.e., vendor, user and/or factory).

Management Response Update

ESSB will work to implement this QA function as part of existing roles within ERD and within the Operations Division. A full-time employee (FTE) will be assigned to review inspection reports and provide coaching to staff to ensure a consistent approach. That FTE will report monthly to the Director of ERD, on what inconsistencies were found and how staff were coached to address them. This function will be incorporated into the National Managers work objectives and be part of their annual PSPM evaluation. Current FTEs will be assigned to monitor inspection reports and the issuance and follow up of corrective actions noted during inspections.

Positions responsible: Director, ERD, ESSB; and, Manager, Operations Division, ESSB.
Original target date: June 30, 2019.
Revised target date: April 30, 2021.

3. Level 3 - Since August 2019, ESSB has actively been revising its GCDocs link that houses ERD’s Operations Manual, Inspection Guidelines and a Rating Guideline accompanied by a standardized (inspection) form, to ensure that its Inspector staff have access to the same type of reference material, across all regions. A training checklist is also used for new Inspectors to ensure that they receive the necessary training, prior to conducting an inspection by themselves. To obtain full implementation status for this recommendation, ESSB should:
   • Provide clarity around the prerequisites for inspections, prior to assigning work to Inspectors. Should a combination of training, experience and/or knowledge be required to perform an inspection, this should be clearly indicated in the ERD’s Operations Manual.
   • Ensure mandatory training takes place and that both the identification and completion of training requirements are maintained within the TBS’ PSPM tool, so that both the Inspector and their reporting manager are aware of the Inspector’s training history.
   • Perform periodic reviews of the inspection reports to ensure that accepted internal (ERD) service standards are met, similar to the QA function, mentioned above. This information should also be maintained within a tracking system like eLMS.

Management Response Update

A FTE will be assigned to create a comprehensive training program for ESSB Inspectors and ensure those training requirements are placed in the TBS PSPM tool to track each individual Inspector. These requirements will correlate with the ERD’s Operations Manual for the assigning of tasks. This training program will be approved by the Director of ERD and then by ESSB BMC, before implementation.

ESSB will implement a QA function for inspection reports and include this in the existing FTE work objectives / job description.

Position responsible: Director of ERD, ESSB.
Original target date: June 30, 2019.
Revised target date: March 31, 2021.

Summary of Findings on Additional Areas Examined

In addition to the follow-up on previous recommendations the audit included a review of the processes surrounding ESSB’s management of OT, travel expenditures, inspection reports and the application of Service Fees.

Management of Overtime

ESSB had a ‘no overtime’ policy since FY 2010-11. An informal process in the form of SMOT existed within ERD, to compensate Inspectors with accumulated OT while on travel status; given that, extenuating circumstances may arise where an Inspector is expected to incur OT, especially since they travel up to 13 weeks in a FY.

Based on a review of OT records that were reviewed (i.e. of Inspectors) that followed the SMOT process, the review found that 10 of the 16 records accumulated OT during the period of September 2019 to January 2020, while on travel status. All requests were approved by the Inspectors’ reporting managers. This was further validated by interviews with four of the 10 Inspectors.

Effective January 2020, ERD had taken steps to enforce a more formalized approach to OT, by advising its staff to fill-out an Extra Duty Pay/Shift Work Report and Authorization form, per the guidance provided on NRCan’s The Source, and capture the approved OT in either PeopleSoft or cash-out the accumulated OT, after obtaining Section 34 (S.34) approval.

CERL follows a ‘Working After Hours’ and ‘Hours of Work’ policy that is embedded into its Standard Operating Policy document, which has been formally communicated to its staff and approved since February 2002 and May 2015, respectively. All CERL services are cost recovered from its clients since CERL is a Vote Net Revenue program which results in the total hours expended on a project being billed directly to the client.

Risk and Impact

The absence of a clear OT process can create a lack of understanding in the use and administration of OT within ESSB.

Recommendation #1
ESSB should ensure that ERD continues its newly adopted practice since January 2020, to record all OT, including those accumulated while on travel status, using the departmentally accepted OT form. This practice should be communicated to all ERD staff, including its regions, as soon as possible (e.g., either in the existing inspection guidelines or a SOP document).

Management Response and Action Plan

Management agrees with R1.

ESSB Management through its BMC, will develop a SOP that reiterates the proper procedures for the management of OT - including the expectations placed on staff and management in the approval process and communicate this to all ERD staff.

Positions responsible: Director, ERD, ESSB, with the Director, CERL, ESSB, then for BMC approval.
Target date: December 15, 2020.

Management of Travel Expenditures

ERD Inspectors previously had BTAs, whereby, there was no need for S.32 approval prior to booking any planned travel on the HRG portal.

Effective January 2020, ESSB revoked the BTA for Inspectors. Travel requests will now have to be approved by the DG-ESSB. With the introduction of an approved RBIP for FY 2019/20, this allowed the ERD to adequately make travel arrangements and send these requests for DG-ESSB approval, two weeks ahead of time. This new travel policy has been communicated by ESSB to all staff, following the revocation of the BTA.

Based on a sample of 15 travel expenditures, 14 were chosen prior to the revocation of the BTA, to be reviewed. The results indicated the following:

1. All travel requests were approved ahead of time by a reporting manager and the associated claims were approved by a person with S.34 authority.
2. Seven of the 15 travel claims identified deviations from the National Joint Council (NJC) travel policy; whereby, most of the claims were not adequately scrutinized by the S.34 approver, e.g. per diems were improperly claimed, hotel rooms booked in excess of the allowable (city) rate, and/or vehicles rented were above the permitted type.
3. Interviews revealed that due to frequent travel and changing schedules in accessing remote explosive sites, the Inspectors had to make alternate arrangements, which were all approved by the reporting manager.

Similar to the OT process, CERL does not accumulate any travel expenditures, as these types of expenses are covered as part of its cost recovery funding model.

Risk and Impact

The reduced oversight of travel expenditures within ESSB, can lead to additional risk of non-compliance with departmental policies and directives.

Recommendation #2 – The ESSB should:

1. Continue to enforce the new travel policy for ERD staff and these requirements should be incorporated as part of the inspection guidelines and/or SOP document, moving forward; and
2. Ensure that individuals with S.34 financial delegated authority, take refresher training to reinstate the responsibilities conferred upon them, per the Financial Administration Act. This will help alleviate any inappropriate approvals that deviate from the NJC travel policy.

Management Response and Action Plan

Management agrees with R2.

ESSB Management will incorporate the standard Government of Canada Travel Policy into the above mentioned overtime SOP, due to their interrelated nature.

Position(s) responsible: Director of ERD, with BMC approval.
Target date: December 15, 2020.

1. The Director General of ESSB will ensure all S.34 Managers complete bi-yearly refreshers for S.34 Financial Delegation.

Position responsible: Director General, ESSB.
Target date: October 30, 2020.

Management of Inspection Reports and Application of Service Fees

An internally developed policy document exists titled ‘Explosives Regulatory Division Regulatory Background Information Part 19’. This document sets out exceptions to Service Fees to be applied by the Inspector; however, it was unclear if these regulations allow for the annual indexing of Service Fees to keep pace with the inflation rate for a given calendar year.

As recently as March 2020, ESSB provided guidance to ERD staff regarding exceptions to Service Fees via email correspondence. It stated that effective April 1, 2020, Inspectors are to apply fees in accordance with Part 19 of the 2013 Explosives Regulations without deviation and all fees are subject to yearly indexing.

When licensing requests are received via eLMS from vendors and users of explosives, the risk of human error is negligible when calculating Service Fees, as this is automatically calculated by eLMS. However, the practice is not the same for factory licences.

Service Fees for factories are calculated by Inspectors on-site, when processing a given factory application, amendment and/or renewal, during the inspections. As a reference tool, the Inspectors rely on their comprehension of the 2013 Explosives Regulations, which is a 275-page document produced by the Department of Justice. This can lead to misinterpretation by Inspectors and inconsistent calculation of fees, depending on the individual performing the inspection.

Inspection reports are required to satisfy the following internal service standards upon receiving receipt of payment from a client (i.e. user/vendor) via eLMS: (i) an Inspector does not perform an inspection on a given site, two consecutive years in a row; (ii) licences are renewed within 30 days of acknowledging receipt; (iii) inspection reports are uploaded onto eLMS within 14 days of returning from an inspection trip; and (iv) all CAs resulting from the inspection reports are monitored to ensure that the target dates are met and the related supporting documentation is maintained within eLMS, for proper retention purposes. Although, these standards have been established, there is no QA function to monitor compliance to all these standards, with the exception of (iv), above.

Effective January 2020, ESSB introduced a QA function to monitor one of its four internal service standards - i.e. tracking the CAs to ensure its completion by the stated target dates, per inspection reports. Sample testing of six inspection reports confirmed that the QA function correctly identified five reports, where the target dates had passed and reported it to the ESSB-DGO. The review noted that the ESSB-DGO then follows-up with the responsible Inspector to obtain confirmation of the client having addressed the CAs.

The ERD can issue derogations with target dates, where deviations from the 2013 Explosives Regulations arise; whereby, the clients are expected to take temporary measures to mitigate any perceived risk posed by the explosive sites to its surrounding area. As such, by the stated target date, clients are required to put permanent measures in place to ensure the safety and security of nearby amenities that recently commenced operations, after the inception of an explosive site to avoid any foreseeable threats.

To provide direction around issuance, a draft derogation framework was introduced by ESSB in fall 2019. This draft framework proposes that derogations must be flagged by Inspectors and brought to the attention of the National Manager, Licensing and Inspections Unit, who in-turn will review the derogation with the CIE. The CIE will then recommend the derogation for approval by the DG-ESSB, who is the ultimate authority for the program.

The ESSB maintains a derogation registry, which identifies target dates for each of the derogations that are issued. Since January 2007, 52 derogations were found to be issued; whereby, 22 of which were tracked during this engagement’s scope period. The examination found that derogations were not consistently tracked in the derogation registry and there was no evidence whether these derogations were being properly monitored to ensure the implementation of permanent measures by clients in safeguarding the safety and security of the Canadian public and demonstrate compliance to the 2013 Explosives Regulations.

Risk and Impact

Insufficient monitoring, tracking and follow-up of the inspection reporting process and the improper application of Service Fees can result in the inconsistent enforcement of the Act. Monitoring, tracking and follow-up on derogations is essential to ensure that license permit and certificate holders comply with the Act and its Regulations in the interest of public safety.

Recommendation #3 – The ESSB should:

1. Task the existing QA function to also monitor compliance to other established internal service standards, in addition to tracking corrective actions, prior to initiating an inspection and fully closing-out an inspection report on eLMS, i.e.: (i) an Inspector is not assigned to the same site, two consecutive years in a row; (ii) licences are renewed within 30 days of a vendor and/or user’s request; and, (iii) inspection reports are uploaded onto eLMS within 14 days of an Inspector returning from a trip;
2. Monitor and track the issuance of Service Fees on factory licences, once the revived guidance on Part 19 of the 2013 Explosives Regulations comes into effect on April 1, 2020. This will help determine whether Service Fees are being applied accurately and consistently, and trigger remedial measures where deviations occur;
3. Prior to finalizing the draft derogation framework for adoption: (i) include a statement about the ‘risk and impact’ of its issuance within the derogation form, and provide training to Inspectors on this change in practice; as well, (ii) include reference to the derogations registry and the position responsible for upholding its use. Once completed, the framework should be recommended for approval by the BMC, prior to obtaining final approval by the DG-ESSB; and
4. Perform an assessment on all outstanding, undocumented and/or untracked derogations that were issued prior to fall 2019, to determine the risk to public safety surrounding these derogations. As licences come up for renewal, each licence should be placed under additional scrutiny to identify and raise outstanding derogations and be subject to a review and approved at the appropriate level(s) (i.e. as per an approved derogation framework).

Management Response and Action Plan

Management agrees with R3.

1. The QA function:
   • Will be refined to oversee the renewal of licences within the 30 day timeframe;
   • With the assistance of the Program Support Officer in the Operations Division will continue to ensure that all inspection reports are uploaded onto eLMS within the 14 days of an Inspector returning from an inspection;
   • Under the direction of the Director of ERD will be tasked with overseeing the proper implementation of corrective actions and report these to the Director of ERD; and
   • Will ensure that the SOP is adjusted to ensure it is clearly stated that an Inspector is not assigned the same site two consecutive years in a row. Should this happen due to resourcing in a region, a SOP will be developed to ensure secondary review and oversight.

Position(s) responsible: Director, ERD, ESSB; and, Manager, Operations Division, ESSB, with BMC approval.
Target date: April 30, 2021.

2. The QA function will be developed by the Director of ERD and the Operations Division Manager, to review and track the issuance of Service Fees by Inspectors.

Position responsible: Director, ERD, ESSB.
Target date: April 30, 2021.

3. As it pertains to the derogation framework:
   • The Director of ERD will draft and develop for BMC approval, a statement about the ‘risk and impact’ of the issuance of a derogation and incorporate this into the derogation framework. The Director of ERD will oversee the development and implementation of training for all Inspectors on the new standard for the issuance of derogations, which will include references and proper use of the derogation framework.
   • Use of the derogation framework will be tied to each Inspectors PSPM to ensure compliance.

Positions responsible: Director, ERD, ESSB, with BMC approval.
Target date: April 30, 2021 for full implementation including training.

4. As it pertains to tracking derogations:
   • ERD will develop an SOP to assess all outstanding derogations;
   • ERD will develop and provide for DG approval a derogation framework;
   • ERD will systematically review all licences to ensure all derogations are captured to properly quantify the current risks to public safety; and
   • The Director of ERD will quarterly bring to BMC for information, an update of ongoing monitoring of derogations for ESSB management’s knowledge.

Positions responsible: Director of ERD, ESSB, indicating CIE DG sign-off.
Target date: Derogation Framework and SOP: April 30, 2021; and, systematic review of outstanding derogations: On-going.

Additional Areas for Considerations

In addition to the formal recommendations, the audit identified additional process improvements that may be beneficial for ESSB, should management wish to implement them:

1. Consider having the RBIP formally approved by the Assistant Deputy Minister (ADM), LMS, to allow for appropriate oversight. Additionally, periodic status updates could be provided to the ADM throughout the FY, on the implementation of all future RBIPs;
2. Consider transferring the Chief Inspector of Explosives title and its associated strategic role to the DG-ESSB to provide more functional oversight into ESSB’s operations. In the absence of an incumbent in this position, this role could be delegated upwards to the ADM-LMS; and
3. Consider the formal adoption of the TBS’ PSPM tool as a central repository, to track the completion of all mandatory inspector training and to document the results of mid and year-end reviews in order to address any performance issues in an open and transparent manner, where applicable.

APPENDIX A – Audit Criteria

The audit objectives and criteria were developed based on the key controls set out in the Treasury Board (TB) of Canada’s Core Management Controls, as well as in-depth consultations with ESSB’s program management. The criteria guided the fieldwork and formed the basis for the overall audit conclusion.

Audit Sub-objectives	Audit Criteria
1. Management of Overtime (OT) – To determine whether ESSB has established adequate processes to manage its OT process	1.1 Adequate controls exist to ensure that OT is approved in accordance with the relevant collective bargaining agreements and (TB) policies.
2. Management of Travel Expenditures - To determine whether ESSB has established adequate processes to manage its travel expenditures process.	2.1 Adequate controls are in place to ensure that travel expenditures incurred by Inspectors are in accordance with established branch / departmental / Government of Canada (e.g. TB) travel policies and directives.
3. Management of Inspection Reports (via eLMS) and the Application of Service Fees, per the Service Fees Act – To determine whether ESSB has established adequate processes for inspection reporting and application of Service Fees.	3.1 Adequate oversight exists to ensure planned inspections are developed using a risk-based approach.
	3.2 Quality assurance measures are in place to ensure inspections are completed as per established ESSB Inspection Guidelines.
	3.3 Quality assurance measures are in place to ensure consistent application of Service Fees.