Atlantic Canada's auditors general release joint report on the Atlantic Lottery Corporation26 October 2016
FREDERICTON (GNB) – The auditors general of New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador today tabled a report at their respective legislative assemblies on the results of their joint audit of the Atlantic Lottery Corporation (ALC). The auditor general of Newfoundland and Labrador did not participate in the audit of the governance section of the report. The last performance audit of ALC by auditors general was in 1996.
Atlantic Lottery Corporation is an example of the four Atlantic provinces working together. Over its 40-year history, ALC has delivered significant profits to shareholder governments. In 2016, the corporation dispersed $432 million of profits to the four governments.
The audit found ALC's governance framework is insufficient to deal with its strategic challenges. Weaknesses discovered in oversight increase the risk of the corporation losing relevance in a rapidly evolving gambling market and jeopardizing important revenue for the governments.
Although the ALC board of directors follows many governance best practices, the audit found not all governments are providing the required direction expected for a provincially owned corporation. Some governments have not clearly defined their expectations of ALC's performance and the roles and responsibilities of governments and responsible ministers who oversee the corporation.
The report also found that, while the governments did not provide appropriate mandate direction, they did intervene at times in a way that impacted the corporation’s autonomy. The report noted an example in which the corporation spent $640,000 on board-approved Internet gaming, but shareholders eventually stopped participation in the initiative. In another example, the Nova Scotia government directed ALC to pay a private company (Techlink) $1.26 million even though ALC's management and board had serious concerns with this.
Also, the audit found that not all the risks related to an $8 million investment in Geonomics were considered. The venture failed and ALC had to write off the entire amount. The auditors general indicate that "the Board did not conduct a robust review and management failed to give the Board all of the available information on an $8 million investment."
The report also includes findings related to general operational matters such as compensation, travel and contract management and procurement. Atlantic Lottery Corporation was found to procure services in an efficient and economical manner; monitor delivery and effectiveness of contracts; and manage compensation and benefits in accordance with its policies.
However, ALC significantly increased its executive compensation without shareholder consultation. For example, in some cases, an overall 56 per cent annual compensation increase was possible after salary increases and potential bonuses. When combining salary, bonuses and benefits, top ALC executives have the opportunity to earn about $390,000 per year.
Over the audit period, ALC spent about $4 million on travel, hospitality and board expenses. The auditors general concluded that, in some cases, amounts were expended without due regard for economy and lacked supporting documentation for the business purpose or validity.
The auditors general indicate, "ALC could not demonstrate the value in buying $73,000 of concert and event tickets, many of which were given to politicians, political staffers, senior bureaucrats and others. In addition, the corporation was not able to show if the recipients actually used the tickets they were given."
Other examples of questionable spending noted in the report include the corporation's spending on alcohol, recognition events and other non-receipted items. Of significance, ALC spent $111,000 on Christmas-related events, including parties for staff; these types of expenditures are outside of typical public sector expectations.
Overall, the auditors general made nine recommendations to the four shareholder governments to improve their oversight and governance, and 16 to the board and management of the Atlantic Lottery Corporation to improve management, accountability and transparency. In general, the shareholders, board and management accepted the recommendations and indicated their intent to implement them.
The report is available at each auditor general's website: