Introduction

Background

1. The National Capital Commission (the Corporation) is a federal Crown corporation created in 1959. It reports to Parliament through the Minister of Canadian Heritage. According to its enabling legislation, the National Capital Act, the Corporation’s mandate is to help develop, conserve, and improve the National Capital Region in keeping with its national significance as the seat of the Government of Canada. The Corporation owns and manages land totalling more than 500 square kilometres and more than 1,700 properties, including the official residences of Canada.

2. In the 2015–16 fiscal year, the Corporation had about 400 employees, organized in six branches: Capital Planning; Capital Stewardship; Corporate Services; Public and Corporate Affairs; Audit, Research, Evaluation and Ethics; and Legal Services and Commission Secretariat.

3. The Corporation fulfills its mandate through the following activities:

• setting the long-term urban planning direction for federal lands in Canada’s Capital Region;
• guiding and controlling the use and development of federal lands in Canada’s Capital Region;
• managing, conserving, and protecting the Corporation’s assets (including Gatineau Park, the Greenbelt, real property, and other assets, such as bridges, pathways, and parkways); and
• maintaining heritage sites in Canada’s Capital Region, such as the official residences and commemorative sites.

4. The Corporation owns and manages over 10 percent of the lands in Canada’s Capital Region. The Corporation is responsible for the management of Gatineau Park and the Greenbelt, as well as 13 urban parks, including Confederation Park, Vincent Massey Park, Major’s Hill Park, and Jacques-Cartier Park.

5. The Corporation owns and manages properties leased for residential, agricultural, institutional, recreational, and commercial purposes. Also, the Corporation is responsible for managing Canada’s six official residences in the Capital Region:

• Rideau Hall (residence of the Governor General);
• 24 Sussex Drive and Harrington Lake (residences of the Prime Minister);
• Stornoway (residence of the Leader of the Opposition);
• The Farm (residence of the Speaker of the House of Commons); and
• 7 Rideau Gate (official guest house of the Canadian government).

6. The Corporation’s primary source of funding is the federal government. The Corporation earns revenue from other sources such as rent from its properties and user fees.

Focus of the audit

7. Our objective for this audit was to determine whether the systems and practices we selected for examination at the National Capital Commission were providing it with reasonable assurance that its assets were safeguarded and controlled, its resources were managed economically and efficiently, and its operations were carried out effectively as required by section 138 of the Financial Administration Act.

8. Based on our assessment of risks, we selected systems and practices in the following areas:

• corporate governance;
• strategic planning, risk management, and performance measurement and reporting;
• National Capital long-term planning;
• capital project management;
• asset management and protection; and
• business process transformation.

The selected systems and practices and the criteria used to assess them are found in the exhibits throughout the report.

9. More details about the audit objective, scope, approach, and sources of criteria are in About the Audit at the end of this report.

Findings, Recommendations, and Responses

Corporate management practices

The Corporation had good corporate management practices, but weaknesses in risk management

Overall message

10. Overall, we found that the Corporation had good corporate management practices for governance, strategic planning, and performance measurement and reporting. However, there were weaknesses in its risk management practices. Specifically, the Corporation’s management and its Board of Directors did not receive comprehensive risk information for decision making. In addition, the Board and management did not clearly describe in the annual corporate plan the risk that it might not have sufficient resources to restore, maintain, and preserve its assets. This plan is key to informing the government of the Corporation’s issues.

11. These findings matter because the Corporation relies on sound management practices to operate efficiently and effectively. Comprehensive risk information supports decision making by the Corporation’s Board of Directors and the government. The government, Corporation management, and Board need to receive comprehensive information on the risks the Corporation faces in order to ensure that strategies are implemented to mitigate those risks.

12. Our analysis supporting these findings discusses the following topics:

• Corporate governance
• Strategic planning, risk management, and performance measurement and reporting

13. The Corporation has a Board of Directors (the Board) of 15 members, including the Chairperson as well as the Chief Executive Officer. The other 13 members are appointed from the various regions of Canada. Of these Board members, 5 are from the National Capital Region and 8 are from other regions. In 2016, the Corporation made a key change to its governance structure to provide for the ex officio and non-voting participation of the mayors of Ottawa and Gatineau at Board meetings. The Corporation holds public Board meetings five times a year.

14. Strategic planning and risk management are essential for the Corporation to set short- and long-term objectives, and to allocate resources to achieve them. Risk management helps the Board and management identify factors that may affect the Corporation’s ability to achieve its objectives and to develop strategies to mitigate them. Performance measurement and reporting enable the Board and management to demonstrate the extent to which the Corporation has achieved its objectives and fulfilled its mandate.

15. Our recommendations in these areas of examination appear at paragraphs 25 and 39.

16. Corporate governance. We found that the Corporation had in place good corporate governance practices (Exhibit 1).

17. Strategic planning, risk management, and performance measurement and reporting. We found that the Corporation had adequate systems and practices in place for strategic planning and performance measurement and reporting. However, we found weaknesses in risk management (Exhibit 2).

18. Weaknesses—Risk identification, assessment, and mitigation. In our last special examination of the Corporation, in 2007, we found that projects required to restore the Corporation’s assets were not always completed within the planned time frames, partly because of a lack of funding. As discussed in our findings on asset maintenance later in this report (paragraphs 36–38), we found that the Corporation continued to have a risk of insufficient resources to restore, maintain, and preserve its assets at an acceptable level. However, in its annual five-year corporate plans, the Board and management did not clearly describe this significant risk or the mitigation strategy and its related financial impact. The corporate plan is a key vehicle for the Corporation to inform the government every year on its activities, strategic issues, and key risks.

19. The Corporation’s main strategy to mitigate the risk of insufficient financial resources was to delay the required maintenance on some assets, in order to use the available funds to complete the highest-priority work. The Corporation also implemented some revenue-generating and cost-reduction initiatives, such as sharing costs with other levels of government, launching a snowshoeing program in Gatineau Park, and automating systems like parking fee collection. However, these activities have not yet had a significant financial impact.

20. These weaknesses matter because the government did not receive clear and complete information about this key risk and mitigation strategy in the corporate plan for decision making.

21. Our recommendation regarding these weaknesses appears at paragraph 39.

22. Weaknesses—Information for decision making and monitoring risks. In our last special examination report of the Corporation, in 2007, we noted that the Corporation did not have an integrated risk management framework. Management developed an enterprise risk management framework, which was approved in 2008, and also drafted a corporate policy.

23. During the period covered by the audit, we found that the Board and management completed annual strategic risk assessment exercises. These exercises included identifying risks to achieving the Corporation’s strategic objectives and developing strategies to mitigate those risks. However, there was no consistent and integrated process to identify and evaluate risks across the organization. As a result, the Board and management did not prepare a comprehensive inventory of all the risks it faced. Also, management did not establish its risk tolerance levels; therefore, it did not clearly define the level of risk that the Corporation was willing to accept when making decisions.

24. These weaknesses matter because an integrated risk management process and a comprehensive inventory of risks are needed to manage risk. Without them, it is difficult for management and the Board to get the assurance that all significant operational risks have been identified, analyzed, and managed in terms of their potential effects on the Corporation’s activities and ability to meet its mandate. These elements would also support decision making by management and the Board.

25. Recommendation. The Corporation should establish and approve a comprehensive enterprise risk management framework that

• sets risk tolerances,
• assesses strategic and operational risks through a consistent and integrated process, and
• provides comprehensive risk information for decision making.

The Corporation’s response. Agreed. The Corporation will continue to advance a comprehensive and integrated enterprise risk management framework that will set risk tolerances, assess strategic and operational risks, and provide comprehensive risk information for decision making. The framework will be completed by 31 March 2018, based on a thorough strategic risk assessment completed in the 2016–17 fiscal year.

Management of National Capital Region operations

There was a significant deficiency in asset maintenance, although the Corporation had good management practices in its operations

Overall message

26. Overall, we found a significant deficiency in the Corporation’s asset maintenance. More than one quarter of its assets were in fair, poor, or critical condition, and there was an estimated shortfall in the resources required to restore them and maintain all of its assets. This would put the Corporation at risk of not safeguarding its assets and of not meeting its mandate. However, we found that the Corporation had good systems and practices in the other operational areas. The Corporation developed long-term plans for the National Capital Region, managed capital projects required to support the achievement of these plans, and completed regular assessments on the condition of its assets. The Corporation also had good systems and practices to complete its business process transformation, which included improving its management information system.

27. This finding matters because without adequate resources, the Corporation might not be able to meet an important part of its mandate, which is to maintain and preserve its assets and historic places in the National Capital Region. It might also not be able to meet its obligation under the Financial Administration Act to safeguard its assets.

28. Our analysis supporting this finding discusses the following topics:

• National Capital long-term planning
• Capital project management
• Asset management and protection
• Business process transformation

29. As one of the largest owners and managers of property in Canada’s Capital Region, the Corporation collaborates with the cities of Ottawa and Gatineau as well as several other municipalities on many initiatives, including public programming, planning, and property and land stewardship.

30. As a key part of its mandate, the Corporation develops and implements long-term plans for the National Capital Region. The Corporation collaborates with provincial and municipal partners, and with local Indigenous communities, to harmonize these various plans in the Capital Region. The Corporation also seeks public and stakeholder feedback. The most recent example is the Plan for Canada’s Capital, on which the Corporation sought comments from Canadians in the summer of 2016.

31. To increase operational efficiency, the Corporation implemented a business optimization project, which made improvements in its internal processes, service delivery, and information systems. As part of this project, the Corporation replaced its financial system with a broader management information system.

32. Our recommendation in this area of examination appears at paragraph 39.

33. National Capital long-term planning. We found that the Corporation had established a framework and completed consultations at various levels in the development of its plans for the National Capital Region (Exhibit 3).

34. Capital project management. We found that the Corporation had good systems and practices in place to manage its capital projects (Exhibit 4).

35. Asset management and protection. We found a significant deficiency in asset maintenance. We also found that the Corporation had appropriate systems and practices in place for the life cycle maintenance program for its assets, the oversight of its rental portfolio, and the management of its environmental risks (Exhibit 5).

36. Significant deficiency—Asset maintenance. Management carried out its identified priority asset maintenance work on the basis of the available resources. Because its resources were limited, the Corporation had to delay maintenance on other assets. The Corporation’s recent data on asset conditions indicated that 10 percent of its assets were in poor or critical condition and 17 percent were in fair condition. These assets included some official residences, such as 24 Sussex Drive, other heritage buildings, bridges, parkways, and shorelines that are core to the Corporation’s activities. Many of these assets generated revenue to support the achievement of the Corporation’s mandate.

37. Through various initiatives over the last few years, the Board and management identified and took steps to mitigate the risk that the resources were not sufficient to restore and maintain the Corporation’s assets and that the Corporation might not be able to safeguard its assets or meet its mandate in the future. However, as described in paragraph 18, the Board and management did not clearly describe this strategic risk in the annual corporate plan to inform the government of this issue, or describe the mitigation strategy and its related financial impact. By the end of the period covered by the audit, management was finalizing a detailed asset-by-asset analysis to quantify the resources required to restore its deteriorating assets to a good condition and to identify the annual level of resources needed to maintain and preserve all its assets.

38. This significant deficiency matters because if the Corporation’s assets continue to deteriorate, it might not meet its mandate, and the assets could cause health and safety issues.

39. Recommendation. The Corporation should develop a full range of options to address its strategic risk related to asset maintenance, based on a complete analysis of the resources needed to restore and maintain its assets. The Corporation should work with appropriate government entities, through the corporate planning process and other means, so that steps are taken to address this strategic risk.

The Corporation’s response. Agreed. The Corporation has been actively working with other government entities to secure additional government funding to allow the Corporation to restore and maintain its assets. Since the 2009–10 fiscal year, the Corporation has not received any increases in funding other than for specific purposes, mostly of a temporary nature. To reduce the impact of the financial pressures, the Corporation implemented strategies to generate revenues and contain costs, and identified opportunities for partnerships and collaborations. This was in addition to ongoing efforts to catalogue and understand the nature and extent of deferred maintenance. These efforts culminated in identifying this risk in the 2017–2018 to 2021–2022 Corporate Plan approved by the Board in January 2017 and submitted to the government for its approval. The Corporation will finalize its analysis of the level of resources necessary to restore and maintain its assets, develop a range of options to address those needs, and take steps to request the necessary approvals by 30 June 2017.

40. Business process transformation. We found that the Corporation had good systems and practices for acquiring, developing, and implementing its business optimization project, which replaced the Corporation’s existing financial system with a broader management information system (Exhibit 6).

Conclusion

41. In our opinion, based on the criteria established, with the exception of the significant deficiency we found in asset maintenance, there were no significant deficiencies in the National Capital Commission’s systems and practices that we examined for corporate management and the management of National Capital Region operations. We concluded that the Corporation has maintained these systems and practices during the period covered by the audit in a manner that provided the reasonable assurance required under section 138 of the Financial Administration Act.