Non-Public Property Audit of Specialty Interest Activities—Part 1: Financial Sustainability

Caveat

Acronyms and Abbreviations

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2.0 Findings and Recommendations

2.1 Planning and Risk Management

Planning and risk management activities are occurring formally and informally at both the local and Canadian Forces Morale and Welfare Services (CFMWS) division head level. At the local level, SIA business plans are completed by SIA managers and approved by Senior Managers PSP, with approval from B/W/U Commanders. CFMWS has developed an SIA entity plan template to support local managers in the development of business plans. In addition, budgeting and financial expectations are included in the business plan to complement risk management and planning activities. Proposed budgets are reviewed by local accounting staff, the Regional Accounting Managers (RAM) and the Senior Managers PSP to ensure programming, financial and delivery objectives are addressed.

Notwithstanding these stated practices, planning and risk management activities can be further complemented by gathering community feedback with respect to SIAs. The Community Needs Assessment (CNA) Survey is an existing market research tool used to advise, inform and justify programming decisions and funding for NPP activities on B/W/Us. Specialty Interest Activities policies and directives promote using the CNA as a primary tool for advising SIA decisions; however, CNAs are not being used in this capacity at the moment. An opportunity exists to leverage the CNA process to further inform decisions with respect to the creation and continuity of SIAs.

The CNA should include an environmental scan to determine whether the existence of an SIA is warranted. For example, if the activity is already offered by the local business community, there is a risk that an SIA may inadvertently compete with local privately run businesses. In FY 2017/18, sampled golf courses had, on average, eight or more private sector competitors in their local area. Although the CNA can show demand for a particular SIA, if the local business community can offer the service, CFMWS may wish to consider leveraging the existing services to fill a defined SIA need for B/W/U communities.

2.2 Policies, Procedures and Guidelines

CFMWS has developed SIA policies, directives and manuals to govern the operation and implementation of SIA programming on B/W/Us. The governance framework provides guidance on the operation and delivery of SIA activities. The framework allows some flexibility to deviate from the policy when deemed necessary, with the approval from CFMWS division heads, based on an appropriate rationale. An example of a deviation is that policy dictates that the combined non-military membership at an SIA shall not exceed 50 percent of the total membership. Several SIAs have requested exceptions to this, citing financial sustainability as a rationale. Another example of deviation from the policy is the requirement for an SIA to have a membership committee, a constitution and by-laws. Some SIAs do not operate with a committee, which may expose risks such as:

• The control activities performed by the committee may be omitted.
• Projects, changes and management decisions might be made without consulting the membership base, which can cause conflict and/or dissatisfaction with SIA operations.

2.2.1 Financial Sustainability of Specialty Interest Activities

Policies require SIAs to operate as businesses with the goal of being financially sustainable. Differing interpretations across B/W/Us demonstrate a need to ensure the expectations with respect to the financial sustainability of SIAs are clearly defined. For example, some SIAs interpret sustainability as a positive net income where others interpret a net loss as acceptable as long as it is manageable by the B/W/U Fund. In addition, the acceptable amount of Public/Non-Public support that an SIA can accept in support of operations is not clearly defined within the policy.

From FY 2015/16 to FY 2017/18, 33 percent of year-end SIA income statements reported a negative net income.^{Footnote 2}  This demonstrates the need for clarity with respect to expectations of sustainability to help ensure that B/W/U Fund health is not at risk due to SIA operations.

The varied interpretations and levels of Public/Non-Public support, create difficulties in assessing and evaluating the financial performance of SIAs in a consistent manner.

2.3 Accountabilities, Roles and Responsibilities

Roles and responsibilities are well defined within the policies, which is essential in a decentralized environment: 

• At the local level, SIA managers are responsible for planning, coordinating and managing the businesses.
• The SIA managers report to the Senior/Deputy PSP Managers, who direct and control SIA operations to ensure financial and operational objectives are met. 
• Accountability for SIA sustainability rests with the SIA managers, the Senior/Deputy PSP Managers and B/W/U Commanders.
• As custodian of NPP, the B/W/U Commander is responsible and accountable for financial performance and ensuring that morale and welfare activities are delivered on base.
• The B/W/U Commanders are also responsible for ensuring that Public/Non-Public spending on SIAs are in accordance with applicable policies.
  • The B/W/U Commander has the discretion to commit additional non-public financial support to an SIA in the interest of ensuring the SIA remains sustainable and available for the base.
• National oversight is provided by CFMWS, Sr VP PSP and the Director of PSP Operations.

2.4 Monitoring and Reporting

Per SIA policy, Sr VP PSP is to conduct an annual financial review of SIAs with recommendations for the improvement of operations. More frequent SIA monitoring and reporting activities are occurring at the B/W/U level by SIA Managers, Senior Managers PSP and Regional/Local NPP Accounting Managers. They include:

• Real-time financial reporting: provides managers and staff the ability to track actual numbers versus the planned budget, to inform decisions to increase the likelihood of remaining on budget.
• B/W/U fund meetings: provide SIA oversight, communication and collaboration between the Public and non-Public SIA stakeholders. In B/W/U Fund minutes, records of decision for financial and operational goals are recorded and available. The B/W/U committees and B/W/U Commanders are given a performance report at the B/W/U Fund meetings, where they may also comment on performance and offer their input. 
• Local NPP Accounting staff: monitors entity financial statements to ensure reporting compliance and alerts Senior Managers PSP of any irregularities that may present themselves.

In spite of the oversight noted previously, situations arise where the financial situation of SIAs are not positive, which can put base fund sustainability at risk. An opportunity exists to further supplement monitoring activities by CFMWS division heads. This would increase awareness of any operational challenges and permit the development of timely risk response strategies prior to an entity needing to be placed on probation.^{Footnote 3} 

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3.0 General Conclusion

The CFMWS has developed SIA policies, directives and manuals to govern the operation and implementation of SIA activities, operations or programs on B/W/Us. The governance framework provides guidance on the operation and delivery of SIA activities. However, it also allows managers/supervisors some flexibility to deviate from the policy when deemed necessary, with appropriate NPP approvals. In addition, B/W/U fund financial support to SIAs varied significantly.

The CNA is an existing market research tool used to advise, inform and justify programming decisions and funding for NPP on B/W/Us. SIA policies and directives promote using the CNA as a primary tool for advising SIA decisions. However, CNAs are not being used in this capacity at the moment.

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Annex A—Management Action Plan

Planning and Risk Management

Management Action

CFMWS will continue to include SIAs within the CFMWS CNA. This includes exploring options to use sections of the tool differently (redesign/restyle). The CNAs ensure CFMWS & B/W/U Commanders have the relevant data to make informed decisions on the CAF community needs to develop/redesign local and national programs and where applicable objectives/priorities.

OPI: Sr VP PSP
Target Date: December 2021

Financial Sustainability of Specialty Interest Activities

Management Action

CFMWS will revise and amend the SIA policy to include the definition of “financially sustainable.”

OPI: Sr VP PSP
Target Date: March 2021

Monitoring and Reporting

Management Action

CFMWS will modify the annual consolidated base fund evaluation process to assist and support B/W/U Commanders (normally through local PSP/Chief Financial Officer (CFO) management) in their responsibility to deliver sustainable Morale and Welfare programs/services by end of FY 2020/21.

OPI: Sr VP PSP/CFO
Target Date: March 2021

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Annex B—Audit Criteria

A robust governance framework is in place to ensure the effective operation of specialty interest activities.

1. Policies, procedures and guidelines are in place and are complete, current and communicated.
2. Accountability, roles and responsibilities are clearly defined, formally approved and communicated.
3. Planning and risk management are undertaken on a regular basis and action is taken to address / control identified risks.
4. An effective monitoring and reporting mechanism is in place.

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