Audit of Financial Guarantees - Office of Audit and Ethics - July 2018

Executive summary

Background

The Audit of Financial Guarantees is under CNSC authority and is included in the Canadian Nuclear Safety Commission (CNSC) Risk-Based Audit Plan for 2017-18 to 2019-20.

According to subsection 24(5) of the Nuclear Safety and Control Act (NSCA), a licence requirement to have a financial guarantee may be imposed by the Commission on any licensee to ensure that funds are available in a form that is acceptable to the Commission. The financial guarantee must be sufficient to cover the cost of a licensee’s decommissioning activities. Since the NSCA came into force in 2000, the CNSC has required decommissioning financial guarantees in respect of all major nuclear facilities across Canada.

Audit objective, scope and approach

The objective of the audit was to provide reasonable assurance to the CNSC’s president, Departmental Audit Committee (DAC) members and CNSC management that internal controls and ongoing monitoring processes with respect to financial guarantees are designed, communicated and implemented.

The scope of the audit focused on internal controls and monitoring of financial guarantees in place for the period up to July 2017.

The scope was determined at the November 2017 DAC meeting, at which a decision was taken to limit the scope and address other Financial Guarantee Program considerations (e.g., governance and policy development) at a later time.

The scope did not include:

  • financial-guarantee-related controls and activities undertaken by CNSC staff prior to a Commission or designated officer decision as to the acceptability of financial guarantee instruments
  • the Financial Guarantee Program for nuclear substances and radiation devices, Class II nuclear facilities and prescribed equipment, which is covered through the CNSC financial guarantee insurance program

The audit fieldwork was undertaken between November 2017 and February 2018, and included:

  • interviews with CNSC key personnel involved in the review, tracking and monitoring of financial guarantees
  • review of relevant guidance documentation, process documentation and systems used to support the tracking and monitoring of financial guarantees
  • detailed testing of the financial guarantees associated with a selected sample of CNSC licensees

The audit planning assessment resulted in the following line of enquiry:

  • Line of enquiry 1 - Adequate internal controls and ongoing monitoring processes with respect to financial guarantees are designed, communicated and implemented.

Summary of observations

All audit observations relate to the financial guarantee instruments in the scope of the audit for the period up to July 2017.

Internal controls

The audit found, through the testing of sample financial guarantees, that the value of the financial guarantees was adequate in relation to Commission decisions for the estimated decommissioning costs and that the financial guarantees were continuous (i.e., not expired). The audit found that the CNSC has neither defined nor implemented adequate internal controls related to:

  • the maintenance of a consolidated detailed “system of record” for tracking the financial guarantee instruments
  • the receipt of the original financial guarantee instruments (e.g., letters of credit, trust agreements and security access agreements, and surety bonds) from licensees
  • the validation of financial guarantee instruments against the direction/decision of the Commission or designated officer
  • the recording of financial guarantee instrument details (e.g., instrument amounts, key terms, expiry dates, ongoing licensee reporting obligations)
  • the storage and safekeeping of original (and signed, in some cases) financial guarantee instruments and agreements

Monitoring

The audit found that the requirements, process, procedures, roles or responsibilities for CNSC staff in the ongoing monitoring of financial guarantees have not been clearly defined.

The absence of monitoring processes could result in the CNSC not being able to consistently and accurately monitor the ongoing validity of licensee financial guarantees to maintain assurance that financial resources will continue to be available to fund the cost of licensee decommissioning activities.

Conclusion

The audit observed that the value of the financial guarantees was adequate in relation to Commission decisions for the estimated decommissioning costs, and that the expiry date of the financial guarantees aligns with the expiry date for the license.

However, the audit found that the CNSC has not established a clear definition of the internal controls or CNSC staff roles and responsibilities related to receipt, validation, recording and safeguarding of the financial guarantee instruments. As well, the CNSC does not have a consolidated detailed system of record for tracking the financial guarantees that would support the CNSC in clearly defining the requirements, process, procedures, roles or responsibilities for CNSC staff in the ongoing monitoring of financial guarantees.

The audit findings have been communicated to Regulatory Operations Branch (ROB) management and, when addressed, will provide reasonable assurance that the internal control activities and ongoing monitoring for the activities subsequent to the Commission hearing are designed and implemented.

The Office of Audit and Ethics (OAE) would like to acknowledge and thank management and staff for their support throughout the conduct of this audit.

The audit approach was conducted in conformance with the Internal Auditing Standards for the Government of Canada and was supported by the OAE Quality Assurance and Improvement Program.

Introduction

Background

According to subsection 24(5) of the NSCA, a licence requirement to have a financial guarantee may be imposed by the Commission on any licensee to ensure that funds are available in a form that is acceptable to the Commission. The financial guarantee must be sufficient to cover the cost of a licensee’s decommissioning activities. Since the NSCA came into force in 2000, the CNSC has required decommissioning financial guarantees in respect of all major nuclear facilities across Canada.

Licensees of major facilities must develop and submit to the CNSC for its consideration an acceptable plan for decommissioning, including credible estimates of the costs of implementing the licensee’s decommissioning activities, and proposed financial guarantees to fund the cost of decommissioning activities.

Prior to the Commission accepting the financial guarantee, CNSC staff conduct technical assessments to ensure that the licensee’s proposed financial guarantee satisfies the following criteria:

  • Liquidity – Can the financial guarantee be drawn upon on a timely basis?
  • Certainty of value – Is the value of the financial guarantee assured?
  • Adequacy of value – Is the value of the financial guarantee sufficient to address decommissioning costs?
  • Continuity – Does the financial guarantee remain in place on a continuous basis until it is required to address decommissioning costs?

(Appendix A provides a detailed definition of these criteria.)

The results of these CNSC staff technical assessments are reported to the Commission or a designated officer for consideration in licence decisions.

Upon a Commission or designated officer decision to accept a proposed financial guarantee, licensees are required to provide the CNSC with the financial instruments (i.e., legally binding documents) that comprise the financial guarantee. Examples of these financial instruments include letters of credit, trust agreements, surety bonds and licensee organization guarantees. These financial guarantee instruments are provided to and maintained by CNSC staff.

Authority

The Audit of Financial Guarantees is under CNSC authority and is included in the CNSC Risk-Based Audit Plan for 2017-18 to 2019-20.

Audit objective, scope and approach

The objective of the audit was to provide reasonable assurance to the CNSC’s president, Departmental Audit Committee members and CNSC management that internal controls and ongoing monitoring processes with respect to financial guarantees are designed, communicated and implemented.

The scope of the audit focused on internal controls and monitoring of financial guarantees in place for the period up to July 2017.

The scope was determined at the November 2017 Departmental Audit Committee (DAC) meeting, where a decision was taken to limit the scope and address other Financial Guarantee Program considerations (e.g., governance and policy development) at a later time.

The scope did not include:

  • financial-guarantee-related controls and activities undertaken by CNSC staff prior to a Commission or designated officer decision as to the acceptability of a financial guarantee instruments
  • the Financial Guarantee Program for nuclear substances and radiation devices, Class II nuclear facilities and prescribed equipment, which is covered through the CNSC financial guarantee insurance program

The audit fieldwork was undertaken between November 2017 and February 2018, and included:

  • interviews with CNSC key personnel involved in the review, tracking and monitoring of financial guarantees
  • review of relevant guidance documentation, process documentation and systems used to support the tracking and monitoring of financial guarantees
  • detailed testing of the financial guarantees associated with a selected sample of CNSC licensees

Sampling size and methodology

The OAE tested 51 financial guarantee instruments including all the available population of letters of credit (39) that was provided to the audit team. As well, the OAE sampled other financial guarantee instruments (12) including surety bonds and trust agreements. The audit sample approach focused on testing or establishing the following attributes for selected financial guarantees:

  • Adequacy of value – Is the value of the financial guarantee sufficient to address decommissioning costs, as per the Commission hearing?
  • Continuity – Does the expiry date of the financial guarantee align with the expiry date of the licence?
  • Recordkeeping – Who keeps track of the financial guarantees and in what system are financial guarantee details recorded?
  • Safeguarding – Where are the financial guarantees (supporting instruments, agreements and documentation) safeguarded?

The results of the sample testing are presented in appendix B, where it is noted that each licensee financial guarantee might be composed of multiple instruments for a licence.

Line of enquiry and audit criteria

The audit focused on the following line of enquiry and criteria:

Line of enquiry 1 - Adequate internal controls and ongoing monitoring processes with respect to financial guarantees are designed, communicated and implemented.

Criteria 1.1 - Adequate internal controls including systems and validation are designed and implemented.

Criteria 1.2 - Monitoring processes are in place, well documented and functioning properly to mitigate risks.

Statement of conformance

The audit approach was conducted in conformance with the Internal Auditing Standards for the Government of Canada and was supported by the OAE quality assurance and improvement program.

Observations and recommendations

All audit observations relate to the financial guarantee instruments in the scope of the audit for the period up to July 2017.

Line of enquiry 1 – Internal controls and monitoring

This line of enquiry is focused on the extent to which the CNSC has defined and implemented internal controls for the tracking and monitoring of financial guarantees to ensure that CNSC financial guarantee acceptance criteria are satisfied on an ongoing basis.

Criteria 1.1 - Adequate internal controls including systems and validation are designed and implemented

The audit assessed the extent to which internal controls have been designed and implemented to ensure that once the Commission or a designated officer has accepted a licensee financial guarantee proposal, the CNSC is able to maintain assurance that a licensee financial guarantee continues to meet the acceptance criteria (e.g., adequacy
of value) defined in appendix A.

Types of financial guarantees

There is broad variety in the types of financial guarantee instruments accepted by the CNSC. Some licensee financial guarantees are supported by a single financial guarantee instrument (e.g., letter of credit), while other licensee financial guarantees are supported by multiple financial guarantee instruments of the same type (e.g., two or more letters of credit) or multiple types of financial guarantee instruments (e.g., a letter of credit, plus a trust agreement, plus a licensee guarantee) for the same licensee.

Provided below is an illustration of the potential variety of elements comprising a single licensee financial guarantee. This includes the various agreements and supporting
documentation to be collected, maintained and monitored by the CNSC. In this illustration the amount of the financial guarantee is $100M to address future decommissioning costs.

In administering the range and complexity of financial guarantee instruments and supporting documents, it was found that the CNSC does not maintain a consolidated or detailed “system of record” for tracking the financial guarantees.

Financial guarantees are currently tracked via separate and inconsistently maintained spreadsheets by the Regulatory Operations Branch (ROB) and the Corporate Services Branch (CSB).

The lack of a centralized system to enter/record/track and maintain the financial guarantee instruments does not provide assurance that there is a complete and accurate report on elements such as the status, amount and expiry date of the instruments.

Financial Guarantee Instrument Financial Guarantee Instrument Details Financial Guarantee Amount Documentation Supporting the Financial Guarantee
Letter of Credit #1 Initial LOC
Amendment 1=$5M
Amendment 2=$5M
$20 M Original version of the initial LOC
Original version of amendment 1
Original version of amendment 2
Letter of Credit #2 Initial LOC=$40M $40 M Original version of LOC
Trust Account Trust Agreement and Contribution Schedule $30 M Original signed Trust Agreement
Trust Agreement Deposit Statement
Original SIgned Financial Security and Access Agreement
Organization Guarantee Organization Commitment to fund ny gap between decommissioning cost and the other elements of the financial guarantee $10M Original Signed guarantee agreement

Internal controls with respect to financial guarantees

It was observed that in 2000, the CNSC developed regulatory guidance document G-206, Financial Guarantees for the Decommissioning of Licensed Activities, which provides licensees with guidance as to CNSC requirements for financial guarantees. Among other items, the guide sets out:

  • CNSC financial guarantee acceptance criteria and requirements
  • examples of the types of financial guarantees that may be considered acceptable (e.g., letters of credit, surety bonds, insurance)
  • a provision for the CNSC to periodically review the financial guarantees

The CNSC has also developed an internal work instruction document titled “How to: Review and Track Financial Guarantees”, which describes the process, acceptance criteria and CNSC roles (e.g., ROB, CSB, Legal) relating to the review of financial guarantee proposals provided by licensees.

This work instruction also describes the process for generating a summary review memo and report with conclusions and recommendations, for the Commission’s consideration.

While these work instruction documents describe internal controls related to the CNSC’s administration of financial guarantees, their focus is primarily on internal control activities that take place prior to, and in support of, the Commission’s (or designated officer’s) consideration and decision on the acceptability of a licensee financial guarantee proposal.

Regarding internal control activities that occur after the Commission (or designated officer) decision on a financial guarantee proposal, it was observed that the CNSC has not established clear definitions of the internal controls or CNSC staff roles and responsibilities related to:

  • the physical receipt of the original financial guarantee instruments and agreements (e.g., letters of credit, trust agreements and security access agreements, surety bonds) that make up a licensee’s financial guarantee
  • the validation of financial guarantee instruments against the direction/decision of the Commission (or designated officer)
  • the recording of financial guarantee instrument details (e.g., instrument amounts, key terms, expiry dates, ongoing licensee reporting obligations)
  • the storage and safekeeping of original (and signed, in some cases) financial guarantee instruments and agreements

Evidence was gathered from interviews, process walkthroughs, document reviews and testing of a sample of financial guarantees. The audit sample approach focused on testing the following attributes for selected financial guarantees:

  • adequacy of value
  • continuity
  • recordkeeping
  • safeguarding

The following are observations regarding the attributes for the selected instruments. Further details are presented in appendix B - Summary of audit sample testing results.

Adequacy of value

For all sampled financial guarantees (24 out of 24; 100%) the value of the financial guarantees was assessed as sufficient to address the decommissioning costs, as accepted by the Commission.

Continuity

For all sampled financial guarantees (24 out of 24; 100%) the expiry date of the financial guarantee aligns with the expiry date of the licence.

Recordkeeping

It was observed that internal controls to ensure the complete and accurate data capture of information required to track financial guarantees were lacking. Financial guarantee details for the majority of the selected sample were either not completely captured or not captured with enough details (e.g., detailed record of all of the instruments and supporting agreements that comprise a financial guarantee) to enable the tracking and monitoring of financial guarantees over the life of the financial guarantee.

The lack of detailed recordkeeping of financial guarantees does not provide assurance to management that the CNSC will be able to adequately monitor the status of financial guarantees over time to ensure that licensee financial guarantees continue to satisfy the criteria of liquidity, certainty of value, adequacy of value and continuity to ensure that financial resources will be available to fund the cost of licensee decommissioning activities.

Safeguarding

Further, it was observed that there is a lack of control over the physical storage and safeguarding of financial guarantee instruments and supporting documentation. Audit interviews with ROB, CSB and Legal representatives and our attempts to review the actual financial guarantee instruments for a sample of licences confirms that the CNSC lacks adequate physical storage and safeguarding controls to ensure that the CNSC has in its possession a current and complete set of financial guarantee instruments relating to each licensee financial guarantee.

It was also found that practices were inconsistent with regard to the maintenance of original versus scanned versions of financial guarantee instruments.

The lack of safeguarding controls for financial guarantee documentation increases the risk that the CNSC would not be able to draw upon financial guarantees to fund decommissioning costs if and when required, particularly in cases where the CNSC is required to present originals of financial guarantee documentation (e.g., original letter of credit) in order to invoke or draw upon financial guarantee funds.

Conclusion - Criteria 1.1

The audit observed, through the testing of sample financial guarantees, that the value of the financial guarantees was adequate in relation to Commission decisions for the estimated decommissioning costs, and that the financial guarantees were continuous (i.e., not expired).

The audit found that the CNSC has not defined or implemented adequate internal controls related to:

  • the maintenance of a consolidated detailed “system of record” for tracking the financial guarantees
  • the receipt of the original financial guarantee instruments (e.g., letters of credit, trust agreements and security access agreements, surety bonds) from licensees
  • the validation of financial guarantee instruments against the direction/decision of the Commission or designated officer
  • the recording of financial guarantee instrument details (e.g., instrument amounts, key terms, expiry dates, ongoing licensee reporting obligations)
  • the storage and safekeeping of original (and signed, in some cases) financial guarantee instruments and agreements

The internal control deficiencies related to recordkeeping do not provide assurance that the CNSC is able to monitor the status of financial guarantees over time to ensure that licensee financial guarantees continue to satisfy the criteria of liquidity, certainty of value, adequacy of value and continuity to ensure that financial resources will be available to fund the cost of licensee decommissioning activities.

In addition, the internal control deficiencies related to the safekeeping of financial guarantee documentation do not provide assurance that the CNSC could draw upon financial guarantees to fund decommissioning costs if and when required, particularly in cases where the CNSC is required to present originals of financial guarantee documentation (e.g., original letter of credit) in order to invoke or draw upon financial guarantee funds.

Recommendation 1 – Criteria 1.1

It is recommended that the director general of the Directorate of Nuclear Cycle and Facilities Regulation (DNCFR) of the Regulatory Operations Branch (ROB) take the appropriate action to develop and maintain a current and comprehensive inventory of the financial guarantee instruments supporting current licensee financial guarantees.

Recommendation 2 – Criteria 1.1

It is recommended that the director general of the Directorate of Nuclear Cycle and Facilities Regulation (DNCFR) of the Regulatory Operations Branch (ROB) take the appropriate action to define and implement internal controls, including defined roles and responsibilities, and a system of record, to support completeness and consistency in:

  • the receipt of original financial guarantee instruments from licensees
  • the validation of financial guarantee instruments against the direction/decision of the Commission or designated officer
  • the recording of financial guarantee instrument details (e.g., instrument amounts, key terms, expiry dates, ongoing licensee reporting obligations)
  • the storage and safekeeping of original financial guarantee instruments and agreements

Criteria 1.2 - Monitoring processes are in place, well documented, and functioning properly to mitigate risks

The audit assessed the extent to which financial guarantee monitoring processes have been defined and implemented. Monitoring processes are considered to include:

  • ongoing maintenance of a complete and accurate record of financial guarantee instrument details
  • monitoring of licensee compliance with financial guarantee instrument reporting obligations (e.g., annual reporting of a trust account balance to the CNSC)
  • recording of the details of and retention of financial guarantee instrument compliance reports
  • periodic monitoring of the validity of licensee financial guarantee instruments

As noted under criteria 1.1, the CNSC does not maintain a consolidated “system of record” for tracking financial guarantee instruments. Financial guarantee instrument details are currently tracked via separate and inconsistent spreadsheets maintained by the Regulatory Operations Branch (ROB) and the Corporate Services Branch (CSB).

Further, within its current financial guarantee tracking spreadsheets, the CNSC does not record the licensee reporting obligations related to financial guarantee instruments, and accordingly does not have a consolidated view of licensee periodic reporting obligations. For financial guarantee instruments such as trust accounts or escrow accounts where licensees are expected to periodically contribute additional funds, this is an important detail to be captured to enable ongoing assessment of whether the underlying trust fund or escrow account is growing to a financial level that is commensurate with CNSC expectations.

Interviews and process walkthroughs conducted with ROB and CSB representatives confirmed that monitoring of licensee compliance with financial guarantee reporting obligations and the periodic monitoring of the ongoing validity of financial guarantees is typically performed by assigned ROB project officers. However, required monitoring processes and procedures are not documented. Further, the results of any monitoring activity (e.g., review of a licensee’s annual trust account statement) are not captured in any type of system of record to enable broader CNSC oversight of financial guarantee monitoring activities.

The lack of consistent monitoring of the ongoing validity of licensee financial guarantees does not provide assurance that financial resources are available to fund the cost of
licensee decommissioning activities. As well there is a potential risk that the necessary information may not be available regarding the instruments to support timely decision making in order to collect on any given financial guarantee instruments.

Conclusion – Criteria 1.2

The audit found that the requirements, process, procedures, roles or responsibilities for CNSC staff in the ongoing monitoring of financial guarantees have not been clearly defined.

The absence of monitoring processes could result in the CNSC not being able to consistently and accurately monitor the ongoing validity of licensee financial guarantees to maintain assurance that financial resources will continue to be available to fund the cost of licensee decommissioning activities.

Recommendation 3 – Criteria 1.2

It is recommended that the director general of the Directorate of Nuclear Cycle and Facilities Regulation (DNCFR) of the Regulatory Operations Branch (ROB) take the appropriate action to define and implement required processes and systems to support:

  • the monitoring of licensee compliance with financial guarantee instrument reporting obligations
  • the recording of the details of, and retention of, financial guarantee instrument compliance reports
  • the periodic monitoring of the validity of licensee financial guarantee instruments

Overall conclusion

The audit observed that the value of the financial guarantees was adequate in relation to Commission decisions for the estimated decommissioning costs and that the expiry date of the financial guarantees aligns with the expiry date for the license.

However, the audit found that the CNSC has not established a clear definition of the internal controls or CNSC staff roles and responsibilities related to the receipt, validation, recording and safeguarding of the financial guarantees. As well, the CNSC does not have a consolidated detailed system of record for tracking the financial guarantees that would support the CNSC in clearly defining the requirements, process, procedures, roles or responsibilities for CNSC staff in the ongoing monitoring of financial guarantees.

The audit findings have been communicated to ROB management and, when addressed, will provide reasonable assurance that the internal control activities and ongoing monitoring for the activities subsequent to a Commission decision are designed and implemented.

The OAE would like to acknowledge and thank management and staff for their support throughout the conduct of this audit.

Appendix A -- CNSC financial guarantee acceptance criteria

The CNSC must be assured that it or its agents can, upon demand, access or direct adequate funds if a licensee is not available to fulfill its obligations for decommissioning.
Measures to fund decommissioning may involve various types of financial security. The acceptability of any of these measures will be determined by the CNSC on the basis of the general criteria of liquidity, certainty of value, adequacy of value and continuity.

Liquidity

The proposed financial guarantees should be such that the vehicle can be drawn upon only with the prior acceptance of the CNSC, and such that payout for decommissioning purposes is not prevented, unduly delayed or compromised for any reason.

Certainty of value

Licensees should select funding or security instruments or arrangements that provide full assurance of their value.

Adequacy of value

Financial guarantees should be linked to the plans for decommissioning the licensed activity and should be sufficient to fund the decommissioning plans for which they are intended.

Continuity

The required financial guarantees for decommissioning should be maintained on a continuing basis. This may require periodic renewals, revisions or replacements of securities provided or issued for fixed terms. Where necessary to ensure continuity of coverage, financial guarantees should include provisions for advance notice of termination or intent to not renew.

Appendix B – Summary of audit sample testing results

The audit approach included detailed testing of a sample of financial guarantees. For each of the sampled financial guarantees, the OAE confirmed the form of the financial guarantee (i.e., the specific types of financial instruments comprising the financial guarantee). These details are summarized for each financial guarantee (below) in the “Financial Guarantee Summary” columns.

The sampling approach also included testing of the following attributes for selected financial guarantees:

  • Adequacy of value – Is the value of the financial guarantee sufficient to address decommissioning costs, as per the Commission hearing?
  • Continuity – Does the expiry date of the financial guarantee align with the expiry date of the licence?
  • Recordkeeping – Are key details of the financial guarantee summarized in a system of record?
  • Safeguarding – Are original versions of the financial guarantee instruments (supporting agreements and documentation) safeguarded?

The results of this testing are summarized under the “Audit Observations” columns (below):

# Licensee Financial Guarantee Summary Audit Observations
Total Financial Guarantee Amount($M) Supporting Financial Guarantee Instruments*
Letter of Credit (CDN Bank) Letter of Credit (Non-CDN Bank) Trust Fund/Escrow Account Surety Bond Organization Guarantee Adequacy of Value Continuity (expiry date) Record Keeping (of key terms & conditions of FG instruments) Safe Guarding (of original versions of FG instruments)
1 NB Power $ 673.1 $ – $ – 673.1 $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)
2 $ CAMECO Corp - Key Lake Operation $ 218.3 $ 218.3 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
3 CAMECO Corp - Rabbit Lake Operation $ 202.7 $ 202.7 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)
4 CAMECO Corp - Port Hope Conversion Facility $ 128.6 $ 128.6 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
5 GE-Hitachi Nuclear Energy Canada Inc $ 52.3 $ 52.3 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
6 CAMECO Corp - Cigar Lake Project $ 49.2 $ 41.3 $ 7.9 $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)
7 CAMECO Corp - McArthur River Operation $ 48.5 $ 42.6 $ 5.9 $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)
8 AREVA Resources Canada Inc. $ 47.6 $ 27.6 $ 20.0 $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)
9 Nordion Canada Inc. $ 45.1 $ – 25.1 $ – 20.0 $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
10 TRIUMF Accelerators Inc $ 44.2 $ – $ – 10.1 $ – 34.1 Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)
11 CAMECO Corp - Blind River Refinery $ 38.6 $ 38.6 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)
12 RIO ALGOM Ltd $ 32.7 $ 32.7 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
13 CAMECO FUEL Manufacturing Inc (OR Zircatec Precision Industries Inc) $ 19.5 $ 19.5 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
14 McMaster University $ 14.3 $ – $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)
15 Candu Energy Inc. $ 10.8 $ – $ – $ – 10.8 $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted. Positive audit observation, no issues noted. Positive audit observation, no issues noted.
16 Saskatchewan Research Council $ 8.7 $ – $ – $ 8.7 $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
17 Canadian Light Source Inc $ 7.5 $ 7.5 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
18 University of Alberta $ 5.8 $ – $ – 5.8 $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)
19 École Polytechnique de Montréal $ 2.8 $ 1.4 $ – 1.2 $ – $ 0.2 Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Significant issue identified (e.g. FG instruments not available to auditors)
20 EWL Management LTD $ 2.8 $ 2.8 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
21 BEST THERATRONICS $ 1.8 $ 0.2 $ 1.6 $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
22 Barrick Gold Corp $ 1.8 $ 1.8 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
23 Energy Solutions Canada Corp $ 1.0 $ – $ – $ – $ 1.0 $ –  Information not available to enable assessment  Information not available to enable assessment  Information not available to enable assessment  Information not available to enable assessment
24 SRB Technologies (Canada) Inc. $ 0.7 $ – $ – $ 0.7 $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original) Positive audit observation, no issues noted.
25 Mississauga Metals & Alloys $ 0.0 $ 0.0 $ – $ – $ – $ – Positive audit observation, no issues noted. Positive audit observation, no issues noted.  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)  Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)
  Total $ 1,658.4 $ 817.9 $ 60.5 $ 710.5 $ 31.8 $ 37.7        
  % Distribution 100% 49% 49% 43% 2% 2%        
   

Legend

Positive audit observation, no issues noted

Minor issue identified (e.g. key details not maintained in a system of record; scan of document maintained instead of original)

Significant issue identified (e.g. FG instruments not available to auditors)

Information not available to enable assessment

Audit sample results

The audit tested 51 financial guarantee instruments that included:

  • all of the letters of credit (39) made available to the audit team
  • other selected instruments (12) including surety bonds and trust agreements

The sample results were summarized by the licenseeFootnote 1 (25), and each licence may have included multiple instruments.

The audit team was unable to assess one licensee (Energy Solutions Canada Corp.), as the approval of the financial guarantee instrument(s) regarding this licence was still in progress at the time of the audit, which reduced the sample size to 24.

Adequacy of value ‒ For all sampled financial guarantees (24 out of 24; 100%), the value of the financial guarantee was assessed as sufficient to address the decommissioning costs, as accepted by the Commission.

Continuity – For all sampled financial guarantees (24 out of 24; 100%), the expiry date of the financial guarantee aligns with the expiry date of the licence.

Recordkeeping – In the majority of cases sampled (23 out of 24; 96%), key details of the sampled financial guarantees were not recorded or maintained in the CNSC’s current spreadsheet-based inventory of financial guarantees. Recordkeeping deficiencies included:

  • lack of an itemized record of the specific agreements and documents that comprise the financial guarantee (e.g., itemized listing of all letters of credit and amendments)
  • lack of recording of licensee reporting obligations (e.g., licensee obligation to provide an annual statement of a trust account balance)

Safeguarding – For approximately 40% of the financial guarantees sampled (10 out of 24; 42%), the OAE was not provided access to a complete record of original documents supporting the financial guarantee. In those cases where the OAE was provided access to original versions of the documents, these records were maintained in various places including the CNSC records office or filing cabinets maintained by CSB or ROB.

In one sample case (1 out of 24; 0.05%), the OAE could not locate any version (neither scanned nor original version) of an amendment to a letter of credit supporting a financial guarantee. This observation is highlighted in the table above.

Appendix C – Audit recommendations and management action plans

Recommendations

Office of primary responsibility (OPR) Management response and action plan Target completion date

1. It is recommended that the director general of the Directorate of Nuclear Cycle and Facilities Regulation (DNCFR) of the Regulatory Operations Branch (ROB) take the appropriate action to develop and maintain a current and comprehensive inventory of the financial guarantee instruments supporting current licensee financial guarantees.

Director WDD

Management accepts this recommendation.
CSB and ROB staff initiated work in 2016 to compile a comprehensive inventory (Excel spreadsheet) of all financial guarantees in effect. Information in this list includes the amount of the financial guarantee, the instruments used (with e-Doc numbers) and the expiry date of the instrument.
Responsibility for the maintenance of the inventory will rest with the director of the Wastes and Decommissioning Division (WDD) as specified in the process document for the review and monitoring of financial guarantees.

Completed
(process document approved March 2018)

2. It is recommended that the Director General of the Directorate of Nuclear Cycle and Facilities Regulation (DNCFR) of the Regulatory Operations Branch (ROB) take the appropriate action to define and implement internal controls, including defined roles and responsibilities, and a system of record, to support completeness and consistency in:

Director general DNCFR

Management accepts this recommendation, much of which has been completed.

 
a) the receipt of original financial guarantee instruments from licensees

.

a) Receipt of original financial guarantee instruments from licensees will be tracked in the Regulatory Information Bank (RIB) by ROB staff as documented in the process document for the review and monitoring of financial guarantees.

a) Completed
(process
document
approved
March 2018)

b) the validation of financial guarantee instruments against the direction/decision of the Commission or designated officer b) Validation of financial guarantee instruments against the direction/decision of the Commission or designated officer will be tracked in RIB by licensing staff as documented in the process document for the review and monitoring of financial guarantees. b) Completed

(process document approved March 2018)

c) the recording of financial guarantee instrument details (e.g., instrument amounts, key terms, expiry dates, ongoing licensee reporting obligations) c) The existing inventory list (Excel spreadsheet) of all financial guarantees in effect includes the amount of the financial guarantee, the instruments used (with e-Doc numbers) and the expiry date of the instrument. Reporting obligations are captured in licence condition handbooks (LCHs) and in REGDOC-3.1.2, Reporting Requirements for non-NPP facilities; tracking of all reporting requirements is the responsibility of the licensing project officers and is accomplished using RIB. c) December 31, 2018, which is the implementation date of REGDOC-3.1.2
d) the storage and safekeeping of original financial guarantee instruments and agreements

d) ROB and CSB staff will meet with staff from the Records Office to establish a centralized consolidated storage solution for the safekeeping of original financial guarantee instruments and agreements. The process document will be updated to reflect that financial guarantee instrument originals are to be sent to the centralized consolidated storage area.

d) September 30, 2018

3. It is recommended
that the director
general of the
Directorate of Nuclear
Cycle and Facilities
Regulation (DNCFR)
of the Regulatory
Operations Branch
(ROB) take the
appropriate action to
define and implement
required processes
and systems to
support:
• monitoring of
licensee
compliance with
financial guarantee
instrument
reporting
obligations
• the recording of
the details of, and
retention of,
financial guarantee
instrument
compliance reports
• the periodic
monitoring of the
validity of licensee
financial guarantee
instruments
Director
general
DNCFR
Management accepts this
recommendation.
Part of this recommendation
has been addressed by the
financial guarantee process
document. The periodic
monitoring of financial
guarantee instruments will be
addressed through the
implementation of REGDOC-
3.1.2.
Through the LCH and
REGDOC-3.1.2, licensees
must report annually on the
validity of their financial
guarantees.
Tracking of all reporting
requirements is the
responsibility of the licensing
project officers and is
accomplished using RIB as
per the process document.
Results of all compliance are
reported periodically through
regulatory oversight
Dec 31, 2018, which is the implementatio n date of REGDOC- 3.1.2
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