Provincial crop insurance agencies may be putting their funds at risk through overly aggressive market investment strategies, Agriculture Canada auditors have concluded.
An audit of the crop insurance system conducted by the department recommended developing a national policy governing crop insurance programs in co-operation with the provinces.
“The agencies routinely invest crop premiums in order to raise additional revenue,” said the audit report.
“The strategies adopted may be overly aggressive and could result in a significant loss of funds.”
However, Agriculture Canada managers said a national investment policy against which provincial crop insurance agency decisions can be judged is unlikely to happen because of provincial priorities.
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“Management agrees in principle with the recommendation,” said the response published in the report.
“However, a sound policy governing investments is unlikely to result in a single strategy as most provincial crop insurance agencies are bound to follow investment strategies dictated by the province.”
The best that could be done is to ask each province for its investment strategy to assess them for loss risks.
The audit for the 2003-04 program year also uncovered a potential conflict of interest.
In two cases, the private audit firm that Agriculture Canada hired to audit a provincial agency was also used by that agency as its auditor.
“Although we recognize this may reduce audit costs, we believe the practice could be construed as a conflict of interest since the same audit firm is retained by both parties,” the report said.
Department managers agreed to end the practice.
These were among the findings in an audit that was conducted to assess whether crop insurance programs were being administered and delivered in accordance with federal financial program rules.
For the most part, it concluded the program structure was sound, but the oversight structure was sometimes inadequate.
The federal auditors concluded that while Ottawa conducts a compliance audit of provincial agencies every five years as required by federal-provincial crop insurance agreements, federal Treasury Board rules on money transferred to the provinces say audits should be conducted according to a risk-based system.
“As a result, the audit coverage may not be sufficient to effectively mitigate significant program risks,” the audit report concluded.
It also suggested that information about the performance of provincial programs is not always received or analyzed in Ottawa quickly enough to “minimize the department’s financial risk.”
