Ottawa — A decision to contract out its bait service for Newfoundland fishermen has cost the federal Fisheries Department millions over the last decade because of an obscure federal rule, says a newly released report.

The finding shows how Ottawa's arcane bookkeeping can sometimes undermine the best efforts of civil servants to cut program costs.

In 1995, the department was required to turn over $651,000 in annual sales revenues from its bait program to the central treasury, to help fight the national deficit.

If the program fell short of that fixed amount, according to the deal imposed by the Treasury Board, the department would have to make up the difference by forfeiting the money from its base budget.

After losing $2 million or more each year on the bait program through the early 1990s, the Fisheries Department decided to contract it out to a private firm in 1997. The company was paid $500,000 annually to run it, and was allowed to keep all the revenues from selling bait to fishermen.

But a newly released report found that Treasury Board has repeatedly invoked the 1995 deal requiring the department to forfeit $651,000 from its base budget each year, since the treasury is no longer receiving any bait revenues.

The fact the work has been contracted out, and the national deficit has disappeared, has not changed Treasury Board's tough position.

"Because the $651k target for bait sales remains on the books, it contributes to DFO's (Department of Fisheries and Oceans) overall deficit . . . in revenues, and this amount is lost from DFO's budget each year," says a draft study obtained under the Access to Information Act.

The report, dated Feb. 22 this year, is part of larger review of the way the Fisheries Department charges user fees for its services, such as icebreaking and fishing licences.

In the years since 1997, the Treasury Board clawback rule has cost the hard-pressed department more than $5 million from its base budget.

A department spokesman said Treasury Board does not want to change the rule, which is also imposed on other Fisheries Department revenues, without a wholesale re-examination of all fisheries programs that produce income.

Cal Hegge said a new internal plan for user fees is being developed and should be ready for next summer.

The Newfoundland bait program was begun in 1949, as part of the Terms of Union, when the province negotiated its entry into Canada. As such, it has become part of the Constitution and cannot be cancelled without a constitutional amendment.

The program was established at a time when refrigeration facilities and transportation links were far less developed. Internal government reports have suggested it serves little purpose today, but Hegge said there are no discussions underway with the province to end it.

Bait under the program is currently provided to fishermen in the province at market rates, but it supplies only about a quarter of the need. Private-sector suppliers provide the rest.

Hegge noted that even with the revenue clawback to Treasury Board, the department is still saving hundreds of thousands of dollars by contracting out the bait service.