Introduction

Background

1. Telefilm Canada finances Canadian film projects and supports companies that promote and export Canadian content at film festivals, markets, and events. The Telefilm Canada Act gives the corporation the power to

• invest in Canadian audio-visual productions in return for a share in the proceeds from them
• make loans to producers of Canadian audio-visual productions and charge interest on those loans
• make awards for outstanding accomplishments in Canadian audio-visual productions
• make grants to audio-visual industry professionals who reside in Canada to assist them in improving their craft
• advise and assist Canadian audio-visual producers in the distribution of their works and in the administrative functions of audio-visual production

2. Telefilm Canada is a Crown corporation that reports to the Minister of Canadian Heritage.

3. In the 2018–19 fiscal year, the corporation reported that it provided financial support to 134 Canadian feature films, 301 film development projects, and 113 film festivals, markets, and events. It also reported that it provided marketing support to 95 feature films and helped 103 Canadian feature films travel to 24 countries.

4. The corporation generates revenue by recovering some of the money it provides to production and distribution companies, as set out in its financing agreements with them. It also administers financing programs on behalf of the Canada Media Fund, a not-for-profit corporation that supports the Canadian television and digital media industries. The corporation charges management fees to provide this service.

5. In the 2018–19 fiscal year, the corporation employed 190 people, about 60 of whom were dedicated to administering the Canada Media Fund’s financing programs. Funding from Parliament covered approximately 75% of the corporation’s expenses. The remaining expenses were covered by revenues, including investment revenues, recoveries of advances, and management fees from the Canada Media Fund (Exhibit 1).

6. In the 2018–19 fiscal year, the corporation completed a transformation to a new information technology (IT) system called Dialogue. This change allowed applicants, such as production and distribution companies, to electronically access the system to submit funding applications, report on contract requirements, and declare revenues and amounts that they owed the corporation from financed projects.

Focus of the audit

7. Our objective for this audit was to determine whether the systems and practices we selected for examination at Telefilm Canada 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. In addition, section 139 of the Financial Administration Act requires that we state an opinion, with respect to the criteria established, on whether there was reasonable assurance that there were no significant deficiencies in the systems and practices we examined. A significant deficiency is reported when the systems and practices examined do not meet the criteria established, resulting in a finding that the corporation could be prevented from having reasonable assurance that its assets are safeguarded and controlled, its resources are managed economically and efficiently, and its operations are carried out effectively.

9. On the basis of our risk assessment, we selected systems and practices in the following areas:

• corporate management practices
• management of operations

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

10. 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 in some areas but needed improvement in others

11. We found that the corporation had some good corporate management practices in place. However, we found areas for improvement in practices related to board oversight; board independence; performance measurement, monitoring, and reporting; and risk mitigation, monitoring, and reporting.

12. The analysis supporting this finding discusses the following topics:

• Corporate governance
• Strategic planning
• Corporate risk management

13. The corporation is governed by a Board of Directors composed of 6 members appointed by the Governor in Council^{Definition i} and the Government Film Commissioner, who is appointed under the National Film Act.

14. The board is supported by the Audit and Finance Committee, the Strategic Planning and Communications Committee, and the Nominating, Evaluation and Governance Committee.

15. In October 2018, the board had 3 vacant positions, including the Chairperson. In December 2018, a member resigned. The vacant positions were filled with 1 appointment in November 2018, 1 in February 2019, and 2 in May 2019 (including the Chairperson). As a result, for most of the period covered by our audit, the board functioned with less than a full complement of members and with an interim Chairperson.

16. The corporation is headed by an Executive Director appointed by the Governor in Council. A new Executive Director was appointed for a 5-year term beginning on 30 July 2018, one month prior to the start of this special examination. Furthermore, there were numerous changes in the senior management team during the period covered by our audit.

17. The corporation is exempt from certain sections of Part X of the Financial Administration Act. As a result, it does not have to submit an annual corporate plan or an operating and capital budget for government approval. While the corporation is exempt from submitting a corporate plan, it publicly released its 2018–20 strategic plan in March 2018.

18. Our recommendations in this area of examination appear at paragraphs 22, 25, 30, 36, and 39.

19. Analysis. The corporation had good systems and practices for setting strategic direction and for board appointments and competencies. However, we found that aspects of board oversight and board independence needed improvement (Exhibit 2).

20. Weakness—Board oversight. The board did not exercise complete oversight in the following 2 areas:

• Performance indicators and targets related to the corporation’s strategic objectives. The board was responsible for overseeing the implementation of the strategic plan and for monitoring the corporation’s performance. However, there were no performance indicators and targets associated with the objectives of the 2018–20 strategic plan. As a result, the board could not fully assess the corporation’s performance (see paragraph 27).
• Risk mitigation measures. The board was responsible for overseeing risk management. However, we found that during most of the period covered by our audit, management did not provide information to the board on its progress in implementing all of the risk mitigation measures (see paragraph 37).

21. This weakness matters because without this information, the board could not fully perform its oversight role.

22. Recommendation. The corporation should ensure that it develops and monitors performance indicators and targets for its strategic objectives, and that it reports on progress regularly to the Board of Directors. It should also continue to provide information to the board on its progress in implementing risk mitigation measures.

The corporation’s response. Agreed. Although the corporation reported to the board on progress against activities established in support of strategic objectives, the corporation is currently developing performance measures to monitor the achievement of objectives stemming from its 2020–22 strategic plan. The corporation will complete this matter by the end of the 2020–21 fiscal year. Progress on the achievement of those objectives will be regularly reported to the Board of Directors. The corporation will also continue to carry on with providing the board with updates on its progress in implementing risk mitigation measures.

23. Weakness—Board independence. The corporation informed board members about legislative and policy requirements that covered the values, ethics, behaviours, and conflicts of interest that they were subject to. Board members also declared conflicts of interest at the beginning of their meetings and annually declared whether they had any financial interests in the audio-visual industry. However, we found that the corporation did not have a code of conduct for its board members that was supported by a process to ensure that they complied with all requirements they were subject to.

24. This weakness matters because a code of conduct for board members contributes to ensuring that they carry out their role in a manner that is consistent with the legislative and policy requirements they are subject to.

25. Recommendation. The corporation should develop a code of conduct for members of the Board of Directors and ensure that it is followed.

The corporation’s response. Agreed. The corporation will develop a code of conduct for its board members and put in place an annual process for members to declare their adherence to the code. The corporation will have this process in place by the end of the 2020–21 fiscal year.

26. Analysis. We found that the corporation had good systems and practices for strategic planning. However, performance measurement and performance monitoring and reporting needed improvement (Exhibit 3).

27. Weaknesses—Performance measurement, monitoring, and reporting. We found that the objectives in the 2018–20 strategic plan did not contain performance indicators with associated targets. As a result, the corporation could not regularly monitor and report to senior management and the board on its achievement of strategic objectives. The following are examples:

• For the strategic objective related to exporting, the corporation aimed to promote the Canadian brand and talent. No performance indicator had been set to measure whether this goal would be achieved.
• For the strategic objective related to innovation, the corporation aimed to improve the discoverability of and access to Canadian content on all platforms. No performance indicator had been set to measure whether this goal would be achieved.

28. We also found that the corporation established a limited number of performance indicators with associated targets to monitor its operations. In some cases, performance indicators existed, but associated targets were under revision. For example, the target associated with the response time for production financing decisions was being redefined. In other cases, performance indicators were in development, such as the measure associated with the level of financing for each region.

29. These weaknesses matter because setting and monitoring performance indicators and targets would allow the corporation to take timely action should it be at risk of not achieving its objectives.

30. Recommendation. The corporation should ensure that its strategic and operational objectives are supported by performance indicators and targets that are specific, time bound, and measurable, and that it regularly monitors and reports on its performance.

The corporation’s response. Agreed. In support of its 2020–22 strategic plan, the corporation is currently developing performance measures to monitor the achievement of its strategic objectives. The corporation is also in the process of reviewing and improving its current performance measurement for monitoring its operations. The corporation will complete these matters by the end of the 2020–21 fiscal year.

31. Analysis. We found that the corporation had good practices for identifying and assessing risk, but risk mitigation, monitoring, and reporting needed improvement (Exhibit 4).

32. Weaknesses—Risk mitigation. The corporation had a risk register that described its risks and identified mitigation measures for each of them. However, we found that during most of the period covered by our audit, the corporation did not assign timelines to the risk mitigation measures that were not yet implemented. Assigning timelines would have allowed senior management and the board to better monitor whether these measures were being implemented.

33. We also found that the corporation did not set its risk appetite and tolerance levels. The risk appetite level is the degree of risk that the corporation is prepared to accept in pursuing its objectives. The risk tolerance level is the corporation’s readiness to bear a particular risk after mitigation is implemented. Because the corporation did not establish these risk parameters, management was left to make decisions without guidance on how much risk the corporation would accept before responding with mitigation measures.

34. In addition, we found that the following risk mitigation measures were not implemented:

• Fraud risk. The corporation identified a risk of internal and external fraud in its risk register. However, we found that it had not completed an assessment of fraud-related risks since 2014, which was prior to the implementation of the Dialogue IT system. While an assessment had been planned for the 2019–20 fiscal year, it had not been started by the end of the period covered by our audit. Therefore, the corporation could not define and implement measures to address the potential new risks that would be identified through that fraud-risk assessment.
• Business continuity risk. The corporation identified risks of business interruption and to information security. However, we found that it had not completed a threat and risk assessment of all components of its Dialogue IT system. Thus, the corporation could not define and implement measures to address the potential new risks that would be identified through that exercise.
• Strategic plan risk. The corporation identified a risk of not achieving its 2018–20 strategic objectives. However, it had not developed a performance measurement framework to assess whether it would achieve these objectives.

35. These weaknesses matter because complete risk information would support decision making and help ensure that the corporation’s operations and reputation are not at risk. Also, mitigation measures are important to address identified risks that need to be managed.

36. Recommendation. The corporation should set risk tolerance and appetite levels and ensure that all risk mitigation measures have a timeline for implementation. It should also implement mitigation measures according to set timelines.

The corporation’s response. Agreed. The corporation, in consultation with the Board of Directors, will set risk tolerance and appetite levels. The corporation will complete this matter by the end of the 2020–21 fiscal year. Starting in June 2019, the corporation set timelines for all mitigation measures to be implemented that were included in its 2018–19 risk register. The corporation will ensure that it implements those mitigation measures against set timelines. Furthermore, following the conclusion of the Dialogue IT system project, the corporation completed in December 2019 a fraud risk assessment, and in February 2020, a threat and risk assessment of all components of this system.

37. Weaknesses—Risk monitoring and reporting. We found that for most of the period covered by our audit, senior management did not monitor the implementation of all mitigation measures included in the risk register. For most of this period, it also did not report to the board its progress on the mitigation measures that were not yet implemented.

38. These weaknesses matter because monitoring the implementation of risk mitigation measures would help the corporation to assess whether the measures are effective and to act when they are not. Furthermore, reporting on the progress of implementing risk mitigation measures informs decision making and helps the board to perform its oversight role.

39. Recommendation. The corporation should regularly monitor and report to the Board of Directors on its progress in implementing all risk mitigation measures.

The corporation’s response. Agreed. Since June 2019, senior management has been monitoring the implementation of all mitigation measures included in its 2018–19 risk register. Also since June 2019, the corporation has been providing the Board of Directors with its progress in implementing all risk mitigation measures included in its 2018–19 risk register.

Management of operations

The corporation had good practices for managing its operations, but some practices for managing its financing programs needed improvement

40. We found that the corporation had good operations management practices in place. However, we found that the management of financing programs needed improvement.

41. The analysis supporting this finding discusses the following topic:

• Operations management

42. The corporation established various programs for applicants to obtain financing if they met eligibility requirements. Applicants included film production and distribution companies, commercial theatre operators, sales agents, and Canadian film festival organizations.

43. Through these financing programs, the corporation supported the following:

• development, production, and post-production of feature films, documentaries, co-productions, and web content
• marketing and distribution of Canadian films in theatres across Canada and on multiple viewing platforms
• activities held in Canada and internationally that promote Canadian content and audio-visual work, such as film festivals and national awards ceremonies
• participation in international festivals and events, including travel, press, and promotion expenses
• international distribution of Canadian feature films

44. To manage its financing programs, the corporation set guidelines and procedures to assess the eligibility of applicants, evaluate applications, and issue contracts and payments.

45. The corporation also had a services agreement with the Canada Media Fund, which was renewed annually. The agreement allowed the corporation to administer the Canada Media Fund financing programs to fund eligible projects.

46. Our recommendation in this area of examination appears at paragraph 51.

47. Analysis. We found that the corporation had good systems and practices in place for operational planning, administering the Canada Media Fund Services Agreement, and performance monitoring and reporting. However, we found that the management of financing programs needed improvement (Exhibit 5).

48. Weaknesses—Management of financing programs. We examined 24 applications for which the decision to finance the projects was made during the period covered by our audit. (More details about the selection of the applications is in About the Audit at the end of this report.) For 3 of these applications, we found that the corporation did not fully follow its procedures. For example, for 2 of the applications examined, a document required from the applicant to support eligibility was not on file, and no rationale had been documented for not following this procedure.

49. For the financing program that supported film production, once a submitted project had been approved, the corporation set a closing date for producers to meet the required conditions to access financing. For 2 of the 24 applications we examined that related to the production financing program, the producers had not met the conditions by the set date, and the corporation did not set a new date or document a rationale for extending the deadline. Furthermore, for these applications, the financing contracts were signed after the projects were completed. This does not align with a financing program’s objective to provide timely financing to producers. We found that the procedures did not clearly address these situations.

50. These weaknesses matter because establishing and following clear and complete procedures would ensure objective, fair, and transparent decision making.

51. Recommendation. The corporation should ensure that procedures are clearly established and that it applies them effectively and consistently.

The corporation’s response. Agreed. The corporation is currently improving its procedures to clearly address situations where a producer does not meet the conditions to access financing by the set date. Also, the corporation will establish clear procedures to address situations where a financing contract is signed after the project is completed. The corporation will also ensure that staff applies procedures effectively and consistently. The corporation will complete these matters by the end of the 2020–21 fiscal year.

Conclusion

52. In our opinion, on the basis of the criteria established, there was reasonable assurance that there were no significant deficiencies in the corporation’s systems and practices we examined. We concluded that Telefilm Canada maintained its 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.