Introduction

Background

1. The Pacific Pilotage Authority is a federal Crown corporation established in 1972. It reports to Parliament through the Minister of Transport and is 1 of 4 pilotage authorities established under the Pilotage Act. This act sets out the corporation’s mandate, which is to establish, operate, maintain, and administer, in the interests of navigation safety, an efficient pilotage service in the Canadian coastal waters in and around British Columbia. This includes the Fraser River.

2. Following the amendments to the Pilotage Act that came into force in 2021, the corporation no longer has the power to make regulations concerning the provision of pilotage services. That responsibility now belongs to the Governor in Council^{Definition 1}. In particular, the Governor in Council may make regulations on

• compulsory pilotage areas
• ships or classes of ships that are subject to compulsory pilotage
• the qualifications (including physical and mental fitness, degree of general and local knowledge, skill, training, and experience) required of an applicant for a licence in a compulsory pilotage area
• the examinations required to determine whether the licence qualifications have been met
• the circumstances and conditions under which compulsory pilotage may be waived in respect of a ship

3. Under the Pilotage Act, the corporation is required to set pilotage charges that are fair and reasonable and that allow it to be financially self‑sufficient.

4. The General Pilotage Regulations establish the compulsory pilotage areas within the corporation’s region (Exhibit 1).

5. The corporation is responsible for providing marine pilotage services. According to the regulations, every ship of more than 350 gross tonnage that is not a pleasure craft and every pleasure craft of more than 500 gross tonnage is subject to compulsory pilotage. Those ships that navigate in the coastal waters of British Columbia, including the Fraser River, must use the services of a Canadian marine pilot (that is, a person who does not belong to a ship and who has the navigation conduct of it).

6. The regulations establish the classes of licences that can be issued and the qualifications that applicants and licence holders must meet for the Pacific region.

7. The corporation has about 80 employees, including 39 launch crew employees who operate pilot launches^{Definition 2} and 8 Fraser River pilots.

8. The corporation’s expenses are funded by pilotage revenues, which come primarily from what the corporation charges its clients for pilotage services (Exhibit 2). Most of the corporation’s expenses are related to pilots’ fees and transportation.

Focus of the audit

9. Our objective for this audit was to determine whether the systems and practices we selected for examination at the Pacific Pilotage Authority were providing the corporation with reasonable assurance that its assets were safeguarded and controlled, its resources were managed economically and efficiently, and its operations were carried out effectively, as required by subsection 138(1) of the Financial Administration Act.

10. Also, section 139 of the Financial Administration Act requires that we state an opinion, with respect to the criteria established in subsection 138(3), on whether there was reasonable assurance that there were no significant deficiencies in the systems and practices we examined. We report significant deficiencies when, in our opinion, the corporation could be prevented from having reasonable assurance that its assets are safeguarded and controlled, its resources are managed economically and efficiently, and its operations are carried out effectively.

11. On the basis of our risk assessment, we selected systems and practices in the following areas:

• Corporate management practices
• Management of pilotage services

The selected systems and practices, and the criteria used to assess them, are listed in the exhibits throughout the report.

12. More details about the audit objective, scope, approach, and sources of criteria are in About the Audit at the end of this report.

Findings, Recommendations, and Responses

Corporate management practices

The corporation had good corporate management practices, but improvements were needed in board independence and oversight and in risk mitigation

13. The corporation’s Board of Directors consists of the Chair and a maximum of 6 other members. All members are appointed from outside the corporation. The Pilotage Act prohibits from board membership anyone who provides pilotage services or is employed by a person providing or using such services. Board members, other than the Chair, are each appointed for a term not exceeding 4 years, which can be renewed. They may continue to serve until a successor is appointed or their term is renewed. The Minister of Transport, with the approval of the Governor in Council, is responsible for appointing board members with the exception of the Chair, who is appointed by the Governor in Council.

14. During the period covered by the audit, the terms of 6 board members had expired, in 5 cases more than a year before. Because the members concerned were still serving, quorum was not at risk. This situation was resolved in April and June 2023, when 3 new members were appointed and the terms of the 3 others were renewed.

15. The corporation’s board is supported by 3 main committees: the Finance and Audit Committee, the Governance and Nominating Committee, and the Human Resources Committee.

16. The corporation is subject to Part X of the Financial Administration Act, which requires it to prepare an annual corporate plan. The corporate plan sets out a Crown corporation’s strategic objectives, activities, and operational and financial performance indicators and targets. It also includes operating and capital budgets. The plan is submitted to the responsible minister for approval by the Government of Canada.

17. The corporation’s Corporate Plan Summary (2023–2027) lists the following strategic objectives:

• Provide safe, reliable, and efficient marine pilotage.
• Ensure financial self‑sufficiency.
• Promote organizational and environmental sustainability.
• Demonstrate leadership.
• Manage risk.
• Focus on the future.

18. In accordance with Part X of the Financial Administration Act, within 3 months after the end of each fiscal year, the corporation is required to report on its operations, including the achievement of its objectives for the financial year.

19. Findings. We found that the corporation had good corporate management practices for board appointments and competencies and for providing strategic direction. However, certain aspects of board independence and oversight needed improvement (Exhibit 3).

20. Weakness—Board independence. Board members were required to declare annually any real or perceived and any direct or indirect conflicts of interest. We found that some board members declared conflicts of interest and that measures were taken for some of them, including a recusal of such members from discussions. However, for the other conflicts declared, we found that no measures had been taken and that the rationale for not taking any measures had not been documented. This weakness matters because acting on declared conflicts is important for establishing the corporation’s credibility and fostering sound governance and accountability.

21. Recommendation. The corporation should document actions to be taken or the rationale for not taking any actions in relation to conflicts of interest declared by board members.

The corporation’s response. Agreed. Starting in May 2024, the corporation will document actions to be taken or the rationale for not taking actions in relation to conflicts of interest declared by board members.

22. Weakness—Board oversight. We found that management had not provided the board with information on the corporation’s ethical performance related to employees’ compliance with the code of conduct and any matters related to conflicts of interest. While the corporation had a code of conduct covering expected behaviour for all employees, we found that not all employees signed their commitments to comply with the code upon hiring and that the corporation’s requirement for employees to sign their commitments at least once every 3 years thereafter had not been met. We also found that there was no conflict‑of‑interest disclosure and reporting process for any of the corporation’s employees. This weakness matters because without comprehensive ethical measures in place and complete information on ethical performance, the board was unable to fully perform its oversight role.

23. Recommendation. The corporation should put in place a conflict‑of‑interest disclosure process for all employees, including a declaration of their compliance with the code of conduct, and should report on this to the Board of Directors.

The corporation’s response. Agreed. The corporation will put in place a conflict‑of‑interest disclosure process for all employees, including a declaration of their compliance with the code of conduct, by fall 2024. The corporation will then report on results to the board.

24. Findings. We found that the corporation had good systems and practices for strategic planning (Exhibit 4).

25. Findings. We found that the corporation had good systems and practices for identifying and assessing risks and for risk monitoring and reporting. However, improvements were needed in risk mitigation (Exhibit 5).

26. Weaknesses—Risk mitigation. The corporation had a register in which it documented organizational and operational risks, along with its assessment of the residual risk and tolerance level for each. In addition, the corporation identified mitigation measures for each risk. We found that the corporation did not compare its residual risks with its tolerance levels to determine whether additional mitigation measures should be put in place.

27. We also found that mitigation measures were not fully in place for risks related to pilot training, pilot boarding, and pilotage waivers (see weaknesses in paragraphs 44 and 47 and a significant deficiency in paragraphs 49 and 50). In addition, to mitigate the key risk related to disaster and emergency response and business continuity, the corporation had established an emergency plan and associated procedures. However, it had not updated these for the new pilot dispatching system. Furthermore, it had not tested the plan since 2020 despite the corporation’s requirement to conduct testing every 2 years.

28. Recommendation. The corporation should compare its residual risks with its tolerance levels to determine whether additional mitigation measures should be put in place.

The corporation’s response. Agreed. The corporation will assess the residual risks against tolerance levels during the annual risk review process to determine whether additional mitigation measures are needed and will report results for key risks to the Board of Directors. This will be completed by the end of 2024.

29. Recommendation. The corporation should update its emergency plan and associated procedures for the new pilot dispatching system and should test the plan.

The corporation’s response. Agreed. The corporation will update the emergency plan and associated procedures by the end of 2024 for the new pilot dispatching system. Once completed, the corporation will conduct a drill within 6 months to test its emergency preparedness.

30. Recommendation. The corporation should ensure that risk mitigation measures are implemented as intended, take the necessary actions should such measures not be in place, and report on progress to the Board of Directors.

The corporation’s response. Agreed. By the end of 2024, the corporation will add a control effectiveness rating to its risk register. The effectiveness of risk mitigation measures will be assessed during the corporation’s ongoing risk review process. The effectiveness of mitigation measures for key risks will be reported to the Board of Directors.

Management of pilotage services

There was a significant deficiency in the pilotage waiver process, and improvements were needed in some other areas

31. According to a 2021 economic impact study report on marine terminals in British Columbia (available on the British ColumbiaBC Marine Terminal Operators Association website), Canada’s West Coast ports are involved in moving more than $290 billion worth of cargo annually.

32. The corporation has a service contract with British Columbia Coast Pilots LimitedLtd. for approximately 120 pilots to provide pilotage services on the Pacific Coast. Excluded from this arrangement is the Fraser River, where 8 pilots who are employees of the corporation provide pilotage services.

33. The pilots are assigned to ships by the corporation through central dispatch offices in Vancouver and Victoria. In 2023, the corporation reported that 13,424 assignments were completed (92% for the coast and 8% for the Fraser River). The main categories of ships requiring pilotage included container ships, grain carriers, cruise ships, and coal transports.

34. The corporation provides water transportation for pilots to and from the ships to which they are assigned (Exhibit 6). For this purpose, the corporation operates 6 pilot launches based at boarding stations in Victoria, Prince Rupert, and Steveston. A total of 39 crew employees operate these launches. The corporation also contracts launch operations from third parties at 2 smaller, less active locations: Pine Island (on the northern tip of Vancouver Island) and Snake Island (in the Nanaimo area).

35. The General Pilotage Regulations establish the requirements that an applicant must meet to obtain a pilotage licence. To enhance these requirements, the corporation developed quality assurance programs that dispatch licensed pilots to categories of ships (defined by length and type) based on their experience. It takes at least 6 years for coast pilots and 4 years for Fraser River pilots to become eligible for assignment to any category of ship.

36. In partnership with British Columbia Coast Pilots LimitedLtd., the corporation invested in a simulator to train pilots and apprentice pilots in ship manoeuvring.

37. According to the General Pilotage Regulations, the corporation may waive compulsory pilotage for specific areas in respect of a ship of less than 10,000 gross tonnage if certain conditions are met by every person in charge of the deck watch^{Definition 3}. These conditions include accumulated navigation experience in the Pacific Coast region and in the specific pilotage areas for which the waiver is sought. Requesting a waiver involves submitting an application to the corporation with the necessary documentation.

38. The corporation informed us that in 2023, it issued 82 waivers to companies, which covered 926 ships and 1,208 people (including 120 new people).

39. The corporation reported 1 incident involving a ship under the conduct of a pilot in 2023, but this incident was not qualified as major by the corporation. The corporation reported no incidents involving pilot launches.

40. Findings. We found that the corporation had good systems and practices for the planning of pilotage services and for managing its relations with industry, the responsible department, and other stakeholders (Exhibit 7).

41. Findings. We found that the corporation had good systems and practices for apprentice pilot recruitment and training. However, improvements were needed in assessing the performance of launch crew employees and in monitoring pilot training (Exhibit 8).

42. Weakness—Launch crew training and development. The corporation had processes in place to ensure that launch crew employees were trained and that they performed weekly recovery drills to remain familiar with their duties and the safety equipment aboard pilot launches. However, we found that the corporation did not conduct performance assessments of its launch crew employees. Performance assessments would enable the corporation to determine whether adjustments to its training and recovery drills are required in order for its launch crew employees to develop and maintain their skills and competencies. This is important for the safety of pilot boarding operations.

43. Recommendation. The corporation should conduct regular performance assessments of its launch crew employees.

The corporation’s response. Agreed. By the end of 2024, the corporation will formalize regular performance assessments of its launch crew employees.

44. Weakness—Pilot training, qualifications, and competencies. The corporation had quality assurance programs aimed at ensuring that pilots had the proper skills, competencies, and experience. We found that the corporation did not conduct ongoing monitoring to ensure that pilots met all requirements of its quality assurance programs. We selected 20 pilots and found that the following requirements were not met:

• Twelve pilots had not taken at least 1 refresher course as required for the purpose of ongoing professional development to ensure that pilots maintained their competencies and mastered the skills needed to perform their duties.
• One pilot had not performed all of the required familiarization trips on ships or any training sessions in the simulator for the purpose of acquiring experience in the conduct of different types and sizes of ships in various conditions.

45. Recommendation. The corporation should ensure that all pilots take the required training, and it should conduct ongoing monitoring to ensure that pilots meet all requirements of its quality assurance programs.

The corporation’s response. Agreed. By the end of 2024, the corporation will ensure that all pilots take the required training, and it will implement a protocol to regularly monitor training records to ensure that pilot training is delivered within required timelines.

46. Findings. We found that there was a significant deficiency in the pilotage waiver process and that improvements were needed in pilot boarding. However, we found that the corporation had good systems and practices for pilot dispatching (Exhibit 9).

47. Weakness—Pilot boarding. In relation to pilot boarding operations, the corporation established safety measures that included inspections and maintenance of safety equipment and pilot launches, person overboard recovery drills, and an annual recovery drill. These measures are important, as they contribute to mitigating the risk related to the pilot’s safety while boarding ships to which the pilot has been dispatched. We found that the following measures were not performed as prescribed:

• Annual recovery drill. Eleven of 18 launch crew members that we examined did not participate in the annual board-mandated recovery drill and did not perform such a drill at a later date as required. This exercise is a means for the corporation to examine the crew members’ familiarity with the launch safety equipment, pilot boarding operations, and the established procedures.
• Inspections. We examined 19 completed monthly inspections of safety equipment. The crew member responsible for the safe operation of the pilot launch is required to document the inspections. We found that someone else documented 6 of the 19 inspections. In addition, routine inspections are done daily, but for 1 pilot launch during the period covered by the audit, none of the Saturday inspections were completed. These inspections are a means for the corporation to ensure that emergency, firefighting, and life‑saving equipment is properly functioning and available to use in the case of an emergency.

48. Recommendation. The corporation should ensure that its established safety measures related to the annual board-mandated recovery drill and inspections of safety equipment and of pilot launches are followed.

The corporation’s response. Agreed. For the annual board-mandated recovery drill scheduled in May 2024, the corporation will ensure that all launch crew members participate and, if not, that they perform such a drill at a later date as required. For inspections, starting in April 2024, the corporation will either follow or amend documented procedures to reflect current practices.

49. Significant deficiency—Pilotage waiver process. The corporation had a process in place for granting waivers to ships, which was permitted under the General Pilotage Regulations. One condition for granting a waiver was recent accumulated navigation experience in the Pacific region as a person in charge of the deck watch. We found that the corporation granted waivers to ships for people who did not meet this condition. Of the 120 new people included in waivers granted to ships in 2023, the corporation informed us that it had approved 8 who did not have the required navigation experience. For them, the corporation considered navigation experience other than as a person in charge of the deck watch and requested companies to provide specific risk mitigation measures, such as training.

50. We also found that the corporation did not perform ongoing monitoring of ships that operate under a pilotage waiver to ensure that they continue to comply with the waiver conditions, including having the appropriate persons in charge of the deck watch on board the ships. This significant deficiency matters because monitoring would mitigate the navigation safety risk in the Pacific region.

51. Recommendation. The corporation should ensure that the navigation condition of the General Pilotage Regulations is met when granting waivers.

The corporation’s response. Agreed. Since January 2024, the corporation is ensuring that the navigation condition of the General Pilotage Regulations is met when granting waivers. The corporation will work with Transport Canada Marine Safety and Security to review the assessment of navigation experience and sea time applicable to waiver applications. The corporation will also work to support Transport Canada’s work in modernizing the Pilotage Act regulations to reflect advances in technology and training and to better incorporate current safety considerations and contemporary operations in the maritime industry.

52. Recommendation. The corporation should perform ongoing monitoring of ships that operate under a pilotage waiver to ensure that they continue to comply with the waiver conditions.

The corporation’s response. Agreed. By the end of 2024, the corporation will implement sample-based audits of vessels operating under pilotage waivers to monitor ongoing compliance with waiver conditions.

Conclusion

53. In our opinion, on the basis of the criteria established, there was a significant deficiency in the corporation’s pilotage waiver process, but there was reasonable assurance that there were no significant deficiencies in the other systems and practices we examined. We concluded that except for this significant deficiency, the Pacific Pilotage Authority maintained its systems and practices during the period covered by the audit in a manner that provided the reasonable assurance required under subsection 138(1) of the Financial Administration Act.