TORONTO — TICO has been taken to task in a new audit from the Office of the Auditor General of Ontario.

One key takeaway in the ‘value-for-money’ analysis, released yesterday by the Office of the Auditor General of Ontario: “TICO’s cost to administer the Compensation Fund may outweigh the benefits it provides to consumers.”

The report notes that TICO’s estimated annual cost to administer the Comp Fund for 2022/23 of $1 million is nearly three times more than the average of $350,000 in compensation paid from the Fund to consumers on average over the last 10 years.

Also in the report: “As well, using TICO’s own recent estimate for its updated fee model for allocating TICO’s expenses to the Compensation Fund, we calculated that since 1997 TICO used an estimated $31 million from the Fund to cover its own operating costs.”

TICO’s five proposals for its future funding framework, released in October 2023, included a push to recalibrate registrant renewal fees with new fee bands. The recalibration, expected to take effect April 1, 2024, aims to address TICO’s long-standing funding gap that led TICO to use Fund monies for its operating costs, an ongoing concern for TICO and the industry.

The audit, part of a package of several Ontario government audits, took place January 2023 through September 2023, with analysis mostly of the past five fiscal years, but in some cases looking at data going back to TICO’s inception in 1997. In addition, there were discussions with TICO staff, inspectors, current members of TICO’s board of directors and consumer and industry advisory committee and more, as well as with ACTA and CATO, both of which have voiced their frustrations in recent years. The analysis also looked at best practices in B.C. and Quebec (which like Ontario offer protection for travellers) and also in the U.S., Australia and the UK, and looked at the Ministry of Public and Business Service Delivery’s oversight function of TICO.

The OAGO’s report contains 16 recommendations, with 32 action items, to address the audit findings.

“Our audit concluded that TICO did not have processes to consistently administer the Travel Industry Act, 2002 effectively in order to register and regulate travel agents and wholesalers, and to protect consumers when purchasing travel services through a travel agent or wholesaler,” says the OAGO in its overall conclusion.

TICO’S RESPONSE

TICO CEO Richard Smart issued a statement yesterday in the wake of the audit report.

“The purpose of the OAGO value-for-money audit is to find things that aren’t working as well as they should be. At TICO, we are using the recommendations as an opportunity to enhance administrative and procedural items where we can do better, and we are eager to make those enhancements,” said Smart.

Smart added that TICO will provide its implementation plan to the Minister of Public and Business Service Delivery in early 2024. TICO will also report on its progress to address the recommendations through a Public Action Plan, which will be posted on TICO’s website.

“SIGNIFICANT CONCERNS”

The OAGO’s “significant concerns” that emerged from the audit are listed below. The report is also annotated with responses from TICO and the Ministry.

The 51-page audit is extensive and can be accessed by all industry professionals and any other interested parties here.

“TICO could not demonstrate the justification for holding as much as $2 million in security deposits from registrants.” (Audit, page 2)

“Under the Act’s regulation, TICO is required to collect a $10,000 security deposit from each new registrant. Once the registrant has filed two consecutive financial statements with TICO, TICO is obligated to repay the security deposit if the Registrar has no concerns regarding the registrant’s compliance with the Act or its regulation. As of March 31, 2023, we found that 58% of the registrant deposits TICO was holding, which totalled $2 million, were from registrants who had filed at least two consecutive financial statements. On average, these deposits had been held by TICO for approximately seven years. We found that TICO did not have a process to regularly assess whether registrants qualify to have their security deposit returned. In our review of a sample of 20 deposits from active registrants who were eligible to have their deposits returned, we found that in 13, or 65%, of the cases no concerns were documented that would justify continuing to hold the deposits.” (Audit, page 2)

Smart’s statement yesterday included this response: “The report identified that, in some cases, TICO held onto security deposits for more than two years: At the time of registration, all applicants provide TICO with a security deposit of $10,000, which is to be returned if there are no compliance concerns after two years of registration. During the pandemic, TICO made the difficult decision to hold onto all security deposits, in the interest of consumers, should claims occur. Now that the pandemic is in the rearview mirror, and as identified by the OAGO, we are in the process of reviewing security deposits and returning them, where it’s appropriate.”

Smart added in his response: “But the OAGO also identified cases that extend beyond the timeframe of the pandemic. If we were holding on to your security deposit longer than we should have, we apologize. Since Jan. 1, 2023, we have already returned approximately $1 million of eligible security deposits and are in the process of working our way through the remaining deposits.

It’s also important to note that there are times we may hold on to security deposits for longer than two years, for reasons that include late filings and compliance issues. We are making enhancements to our processes to  ensure security deposits that are eligible to be returned are processed in a timelier manner.”

“TICO’s registrant risk rating system was not used to effectively oversee registrants.” (Audit, page 2)

“We identified several issues with how TICO assigns, calculates and utilizes its risk rating system to inform registrant oversight activities. For instance, as of March 2023, TICO had not assigned a risk rating to 37% of registrants. In addition, TICO’s compliance policy had no established guidelines for how the risk rating should be used to drive compliance and enforcement activities.” (Audit, page 2)

“30% of TICO registrants had not received a compliance inspection in the last 10 years.” (Audit, page 2)

“As of March 2023, 30% of the 1,684 registered travel agencies and wholesalers had not been inspected by TICO to assess their compliance with requirements in the last 10 years, including 44 registrants who had not received a compliance inspection for more than 20 years. We also found that TICO has not established how frequently registrants should be inspected based on their assigned level of risk. TICO’s inspections of registrants often identify non-compliance. Over the last five years, 32% of compliance inspections conducted by TICO identified instances of non-compliance with the Act and its regulation.” (Audit, page 2)

“The Ministry and TICO have not established a disciplinary process for registrants.” (Audit, page 2)

“We found that TICO and the Ministry have not developed a mandatory code of ethics for registrants and a corresponding discipline committee that could impose fines and require registrants to fund educational courses for employees in response to violations of such a code. We reviewed a sample of complaints and found that many related to issues that were not covered under the Act but could be covered under a code of ethics, including for example failing to demonstrate reasonable knowledge of the travel services being sold, and failing to protect the best interests of clients. In contrast to TICO, we noted that both the Ontario Motor Vehicle Industry Council and the Real Estate Council of Ontario, which are also delegated administrative authorities, have discipline committees that enforce a code of ethics.” (Audit, page 2)

“TICO did not know whether complaints involving violations of the Act were referred for enforcement action.” (Audit, page 2)

“We found that TICO did not track the outcomes of the complaints it handles in its information system, including whether they were resolved, whether they potentially violated the Act and its regulation, or whether they were referred for further investigation or enforcement action. We reviewed a sample of 40 complaint files relating to 15 registrants against whom TICO had received the highest number of complaints over the five years from 2017/18 to 2021/22, and found that 13, or 33%, of the 40 complaints involved potential violations of the Act and its regulation by registrants that were not referred for investigation or enforcement action as required by TICO’s com-plaint-handling policy when potential violations are identified.” (Audit, page 2-3)

“TICO has used an estimated $31.3 million from the Compensation Fund since 1997 to cover its own operating costs.” (Audit, page 3)

“TICO has routinely used the Compensation Fund to cover its own operating costs, even though legislative requirements allow only reasonable expenses related to the Fund to be paid from the Fund. We analyzed the Fund’s balance, and calculated that from 1997/98 to 2022/23, TICO would have charged the Fund approximately $19.4 million to cover its costs of administering the Fund. Instead, we found that TICO charged the Fund an additional $31.3 million that it used to cover TICO’s operating expenses.” (Audit, page 3)

“The cost to administer the Compensation Fund may outweigh the benefits it provides consumers.” (Audit, page 3)

“Over the 10 years from 2013/14 to 2022/23, TICO’s registrants booked over $133 billion in travel services for consumers. Over this same period, we found that, on average, the Fund paid approximately $350,000 in compensation to consumers annually, or less than 0.003% of annual travel services booked by TICO’s registrants. TICO’s estimated annual cost for 2022/23 to administer the Fund of $1 million is nearly three times more than the $350,000 in compensation paid from the Fund to consumers on average over the last 10 years.” (Audit, page 3)

“TICO had been unable to address gaps in key competencies among Board members.” (Audit, page 3)

“We noted that TICO developed a Board competency matrix in 2018 consisting of 15 competencies that TICO considers critical to achieving its mandate. TICO has also assessed Board member competencies each year since 2018 to identify areas of weakness. We found that even though the vast majority of TICO’s Board members had been replaced since 2018, TICO had been unable to close gaps in four of the 15 key competencies on its matrix: legal, risk management, technology, and human resources.” (Audit, page 3)

“Almost half of Ontarians surveyed who were involved in travel planning for their house-hold were unaware of TICO.” (Audit, page 3)

“Over the last five years, only 51% of Ontarians that were involved in travel planning indicated that they were either “definitely” or “somewhat” aware of TICO. In addition, only 31% of respondents indicated they were aware of the Compensation Fund. To increase consumer awareness, TICO developed a brochure for consumers with information regarding its regulatory role, registrant requirements, protections available under the Act, and Compensation Fund coverage. However, there is no requirement for registrants to distribute the brochure to consumers. In a survey of registrants conducted by TICO in 2023, only 7% of registrants said they were providing the brochure to all of their customers, and only 13% indicated they were providing the brochure to most customers.” (Audit, page 3)

“The Ministry did not collect sufficient information to monitor and assess TICO’s performance in meeting its mandate.” (Audit, page 3)

“For example, TICO did not have performance indica-tors and targets that it reported to the Ministry to assess the degree to which it operates on a cost-recovery basis, a requirement under its Administrative Agreement with the Minister. We also found that performance indicators had not been established, or were insufficient, to monitor TICO’s operational performance in several key areas where our audit identified operational issues, including in the areas of inspections, security deposits, and complaint-handling.” (Audit, page 3)

ACTA’S RESPONSE

ACTA released its own response to the OAGO report, saying that the 51-page report “is comprehensive and clearly reflects the fact that the Travel Industry Act and current oversight of the industry do not properly reflect the environment of today’s travel industry. ACTA has been advocating for a thorough review and rewrite of the Travel Industry Act and that consumers and industry deserve much more than band aids on a broken system.”

ACTA goes on to say: “ACTA and our Ontario Travel Agency Advocacy Committee is pleased that many of our concerns and recommendations were listened to, and we will be reviewing the report in more detail and will have more to say following its analysis.”