Audit of the Broadband Rural and Northern Development Pilot Program — 3.0 Background

3.0 Background

3.1 Program

The Broadband Program operates under Industry Canada's Spectrum, Information Technologies and Telecommunications (SITT) Sector within the Information Highway Applications Branch (IHAB). The Program's objectives directly support Industry Canada's SITT sector objectives of accelerating Canada's transition to the network economy through the development and use of information and communications technologies (ICTs) for the economic, social, cultural and civic benefit of all Canadians.

Launched in September 2002 as a three-year, $105 million pilot program, the Broadband Program's mission is to "support the deployment of broadband to un-served communities in order to demonstrate the economic, social and cultural benefits of broadband and to improve their participation in the national and global economy". The Program had an aim of servicing approximately 400 communities or 10% of un-served Canadian communities. In 2004, Treasury Board Secretariat extended the Program's mandate to 2007 to allow for the completion of funded projects. The Broadband Program was delivered through two funding phases:

• Phase I funding provided the lesser of $30,000 or 50 percent of eligible costs to eligible recipients for the development of business plans. A total of $4 million in funding was provided for 154 projects under this Phase, all of which have been completed.
• Phase II funding provided up to 50% of eligible costs to recipients for the implementation of networks to build broadband infrastructure in un-served communities. Over $80 million in funding was provided for 63 projects under this Phase, of which 55 have been completed as of June 2007. Of the 63 approved projects in this Phase, three did not proceed with full implementation as planned due to the following: one project was merged with another project; and two projects were terminated prior to full implementation as the Community Champions were unable to complete the projects. The average contribution agreement for Phase II projects was $1,267,125, ranging from the highest contribution agreement of $6,194,923 to the lowest contribution of $40,272.

The table below summarizes the total number of projects and total contributions funded by region for Phase II projects:

Table 1

Region	Total Contribution Funded ($)	# of Projects Funded	% of Total Contribution Funded
Pacific	9,499,992	11	12%
Prairie & Northern	23,757,866	12	29%
Ontario	7,561,699	9	9%
Quebec	18,106,244	8	23%
Atlantic	21,282,380	23	27%
Total	$80,208,171	63	100%

Eligible recipients under the Broadband program are defined as Community Champions. Community Champions are mainly not-for-profit organizations acting as sponsors to organize and develop a business plan or manage the project's implementation on behalf of un-served eligible communities. All applications for funding required matching funds commitments from community businesses, residents, public institutions, and other community stakeholders. Community Champions were responsible for managing stakeholder relationships and funding.

The program is currently being wound down and is expected to be fully completed by the end of March 2008.

3.2 Audit Objectives

The objectives of the audit were to provide assurance that:

1. a management control framework ("MCF") and related management, operational, and risk management practices were in place and operating as intended; and
2. the transfer payments under the Program were managed in accordance with the Policy on Transfer Payments.

In support of the requirements under Treasury Board's Policy on Internal Audit, the audit criteria were linked to each audit objective and were categorized by internal controls, governance and risk management (please see Appendix A for the specific criteria).

3.3 Audit Scope

The scope of the audit covered the Broadband Program's operations from its inception in 2002 to May 2007 and all five regions from which the Program is delivered across Canada. The specific criteria to be examined and the approach and procedures to be performed under the audit were focused on the areas of highest risk facing the achievement of the Program's objectives.

Projects under the National Satellite Initiative (NSI) and broadband projects approved under the Canadian Strategic Infrastructure Fund (CSIF) were outside the scope of this audit.

3.4 Audit Methodology

The audit was conducted in accordance with Treasury Board Secretariat's Guide to the Planning, Conducting, and Reporting of the Internal Audit Assurance Engagements in the Federal Government of Canada and the Institute of Internal Auditors' International Standards of the Professional Practice of Internal Auditing.

The approach to the audit was detailed in the Final Audit Plan dated March 9, 2007 and consisted of the following:

• Relevant documentation was examined to obtain an understanding of the current risks, risk management processes, management control frameworks, information used for decision making, and internal controls with respect to the Program;
• A sample of Phase I and Phase II files was selected and examined for compliance with Program policies and procedures. Projects from each phase were selected on a judgmental basis, resulting in a sample with the highest dollar value contribution agreements, coverage across each geographical region, and a mix of both closed and open projects. Five project files were selected from Phase I for a total of $148,322 or 4% of total Phase I funding. Ten project files were selected from Phase II representing $29.8 million or 37.3% of the total Phase II funding. A greater proportion of Phase II projects were selected in our sample based on the risk assessment process conducted through the audit planning phase through which Phase I funding was perceived to be of lower risk in comparison to Phase II funding, primarily due to the nature of the projects funded.
• Phase I funding was provided at a maximum of $30,000 for the development of business plans and were short term in nature; in contrast, Phase II funding was provided to fund the actual implementation of broadband access in remote communities and involved multi-year projects of much greater complexity, many of which were individually of higher dollar value. While the audit involved an examination of the management practices and program delivery associated with both Phases, a greater proportion of our file examination process was focused on the Phase II funding period given the higher inherent risk associated with this Phase. The table below summarizes by region: the total number of projects; the total contribution funded; and coverage of total contributions from Phase II files reviewed by the audit team.

Table 2

Region	# of Projects Selected	Total Sample Project Contribution Funding ($)	% of Total Phase II Contribution Funding ($80M)
Pacific	1	$3,800,000	4.8%
Prairie & Northern	4	$14,177,860	17.7%
Ontario	1	$1,900,000	2.4%
Quebec	2	$5,821,867	7.3%
Atlantic	2	$4,137,558	5.2%
Total	10	$29,837,285	37.3%

• Fifteen interviews with representatives from across the Broadband Program and selected Community Champions were conducted; and
• The information gathered through the above procedures was analyzed against each of the audit criteria.