Auditor General Wants to Roll Up Tobacco Buyout Loopholes

Source from:  Times Colonist 11/24/2011

OTTAWA - A $284-million federal program to help farmers get out of a shrinking tobacco industry had giant loopholes that allowed them to collect buyout money while still growing the crop, the interim auditor general said Tuesday. "Design of the Tobacco Transition Program was rushed, making its delivery challenging," John Wiersema said. "This underscores the importance of sound program design, including considering what could go wrong, and how to prevent it." The Canadian government launched the Tobacco Transition Program in August, 2008. It was a one-time payment program offering farmers lucrative buyouts to get out of the challenged flue-cured tobacco industry and ease them into other crops, or another line of work altogether. But allegations soon emerged of tobacco farmers abusing the system, which the auditor general's report confirmed on Tuesday. Many farmers were caught transferring their quota to relatives or acquaintances - anyone who is not their spouse or dependent child - and then applying for a new tobacco-growing licence. Doing so did not break the rules of the agreement. The abuse of the system was a result of the department developing the program too quickly without first conducting a thorough risk analysis, the audit found. Failing to set up key safeguards allowed buyout recipients to exploit the program, the audit found. "The department did not anticipate this risk or the extent to which it could occur," the report read. New Democrat MP and agriculture critic Malcolm Allen said the department should have known the risks of the tobacco buyout program before it launched it. "It's a mess," he said. "This was all about taking folks out of (tobacco farming) and we have folks who, the auditor general has quite accurately identified, got paid to get out and they're still in." The buyouts were funded through hefty fines paid by tobacco giants Imperial Tobacco Canada Ltd. and Rothmans, Benson & Hedges Inc., both of which were charged with offences related to cross-border cigarette smuggling in the 1980s and 1990s. About 1,000 tobacco growers took the payments, receiving on average, more than $270,000 each. Most of the farmers were from the so-called "tobacco belt" in southwestern Ontario, the primary region in Canada where flue-cured tobacco is produced. There was also confusion within the department about the buyout agreement's terms - resulting in confused farmers - the auditor general wrote. The auditor general recommended Agriculture and Agri-Food Canada conduct a thorough risk assessment when developing future one-time payment programs - on which the department agreed. The department said it currently is adopting a new approach to risk management, to be completed in December 2012. Agriculture Minister Gerry Ritz said on Tuesday that Agriculture and Agri-Food Canada "has carried out an audit of all business arrangements under the Tobacco Transition Program … and found the program met its objectives." The Tobacco Transition Program isn't the Agriculture Department's first buyout strategy, said Allen, and the department should have known what the potential shortfalls could have been. "It's a standard response: 'We'll do better next time,'" said Allen. "One would have thought a verification system would have been top of mind for them to make sure once (tobacco growers) are out, they're out." The department's response is too little too late, agreed Neil Collishaw, research director for Physicians for a Smoke-Free Canada. "This was a one-time program," he said. "The money is already gone, the people have got it." Collishaw said there are still important policy questions that need to be answered. An example, he said, is why the Agriculture Department did not look to Health Canada's policies on tobacco before developing its buyout plan. "Surely, the most serious problem with tobacco is that it kills people," said Collishaw. "Agriculture policy on tobacco ideally should be a function of our health policy. This was not the case." The auditor general also looked at two income-support programs for farmers, AgriInvest and AgriStability, which receive $600 million a year in federal funds. The audit found AgriInvest is a simpler and more predictable system than the previous CAIS program, which it replaced. Although the department has fixed some aspects, the audit found the programs - intended to protect farmers from minor and major drops in income - still have design flaws that cause delays of up to two years in payments. Liberal government operations critic John McCallum said it's unreasonable to expect farmers to wait months and years to see payments in a time of economic uncertainty. "In many sectors of agriculture, times are very tough, so if farmers have to wait for two years and the amount of that payment is uncertain, then that is a pretty bad situation for the agricultural sector," said McCallum. Enditem