Guide on Grants, Contributions and Other Transfer Payments

Table of Contents

1 Foreword

2 Introduction

3 Selecting the right instrument

4 Creating a transfer program

5 Mandatory plans and frameworks

6 Communications

7 Managing risk

8 Managing agreements

9 Monitoring and auditing programs and agreements

10 Reporting

11 Policy requirements - Annotations

12 Best Practices Annex

• Appendix A ACOA - Goods and Services Tax & Harmonized Sales Tax - grants and contributions
    
• Appendix B WD - Other Government Department Suspense Account
    
• Appendix C WD - Supplementary Estimates process
    
• Appendix D ACOA - Suspected External Fraud
    
• Appendix E WD - Quality Assurance Review (QAR) Step III: G&C Project File Management Tools

1 Foreword

About the Guide

This Guide resulted from an interdepartmental collaborative effort of officials from more than 15 federal departments and agencies who contributed to its design and content. It explains the key attributes that are common to managing transfer payments.

Appendices, references, examples and tools have been provided at the end of a number of sections for further elaboration of a subject and to provide greater clarity to the reader.

• Appendices: an elaboration of specific topics. Appendices are located at the end of each section (e.g., case analysis).
    
• Examples: illustrations of complex issues that are found in the body of each section.
    
• References: external documents that speak to broad management issues (e.g., risk-taking, accountability). They are identified in the body and at the end of some sections.
    
• Tools: documents that help when administering transfer payments (e.g. checklists, decision trees, monitoring guide, pro-forma text such as agreements etc). Tools are located at the end of some sections.
    
• Best Practices Annex : documents provided by departments that include contribution agreement templates, checklists, forms, and procedures. The Annex can be found following Section 11.

Current best practices such as tools and cases will be updated and/or added to the Guide as departments develop them.

2 Introduction

2.1 Purpose of the Guide

This Guide is designed to help managers and staff make informed decisions for creating and managing transfer payment programs within the federal government. While the Guide is primarily aimed at those officials who manage transfer payments daily, it also targets those who must correctly choose between initiating procurement contracts and transfer payments, who design and seek approval for creating transfer payment programs, who ensure existing and new programs are communicated effectively to potential beneficiaries, who manage or ensure accountability for transfer payments, and who report to management and Parliament.

Based on a life-cycle approach developed by the Office of the Auditor General (OAG), the Guide identifies the key attributes for properly managing transfer payments. The life-cycle approach refers to a transfer payment program's normal cycle, from its creation and implementation to its evaluation. These attributes are:

• choosing the right funding instrument;
   
• establishing clear performance expectations;
   
• ensuring there are precise program eligibility and assessment criteria;
   
• ensuring fairness so that every eligible Canadian has the opportunity to apply;
   
• undertaking due diligence;
   
• choosing worthy projects;
   
• paying out funds for the agreed purposes;
   
• resolving project and program performance problems quickly;
   
• reporting to management that demonstrates a good knowledge of program performance; and,
   
• collecting money promptly that is owed to the Crown.
    

2.2 Content related to the Policy on Transfer Payments

This Guide should be read in conjunction with the Treasury Board Policy on Transfer Payments (TP policy). It does not provide new policy directives but does elaborate and interpret policy and procedural requirements.* Where the Guide uses the directive "must," it does not create a new obligation but rather reflects an existing obligation under the policy.

The Guide also draws on the requirements of other policies and TB guides that are relevant to managing transfer payments, including topics such as evaluation, internal audit and financial management accountability.

2.3 Conventions and definitions

2.3.1 Conventions

In this Guide, "transfer payments" and "transfer agreements" are used as generic terms for grants, contributions and other transfers when there is no need to differentiate them.

The term "departments," unless stated otherwise, also refers to agencies delivering federal transfer payments.

This Guide uses the words "transfer programs" to designate programs that are entirely devoted to transfer payments. This term and the Guide also apply to programs containing at least one distinguishable transfer payment component.

2.3.2 Definitions

The following definitions apply to this Guide (although other documents or publications may give these expressions a slightly different meaning).

*In addition to the above definition, the TP policy also refers to a third party as an agent that administers a program on a department's behalf through a procurement contract (e.g., conducts due diligence). The agent does not usually disburse funds, which is the department's responsibility. However, including agents as third parties leads to an inherent conflict of terms, because in this case, both the agent and recipient are deemed to be third parties.

In this Guide, the terminology used to identify the various parties involved in transfer payment agreements varies from the policy. This is due to the discussion of more complex relationships than are treated in the policy. The chart below provides examples of how these terms are used.

3 Selecting the right instrument

This section's objective is to provide guidance on when to use a procurement contract and when to use a transfer agreement.

3.1 Procurement contracts versus transfer agreements

A procurement contract is used to obtain goods or services. It is an agreement between a federal government contracting authority and an outside party to purchase goods, provide a service or lease real property. Most often, the outside party is chosen through a competitive selection process, as described in Government Contract Regulations.

A transfer (payment) arrangement is used to transfer monies or make in-kind contributions from the federal government to individuals, organizations or other levels of government (e.g., provincial governments) to further government policy and the department's objectives. Although transfer payments are primarily used for projects, they are also used extensively to deliver basic ongoing essential services.

Consider the following principles when determining whether to use procurement contracts or transfer agreements:

Principle 1: A department should not benefit directly from the award of a transfer agreement.

To "benefit directly" implies that a department receives or acquires a needed good or service that supports its operations. Any indirect benefits a department may receive should be incidental to, or a by-product, of the main objective.

Principle 2: A core service that departmental staff are mandated to provide directly should not be funded through a transfer payment.

Goods or services are provided to the Canadian public either through departmental operations or through a transfer payment. It is ultimately Parliament that decides what core services or goods a department will deliver directly.

A department mandated to directly deliver goods or services must carry out its responsibilities by using its own staff or issuing procurement contracts for other parties to undertake these duties. In either case, the department must fulfil its obligations. Because the department is mandated to deliver these goods or services directly, transfer payments cannot be used to discharge departmental responsibilities.

Principle 3: An individual or an organization that receives a transfer payment does not act on the government's behalf.

A transfer payment is awarded to a recipient to further the mandate of the department or government. However, the recipient is not acting on the government's behalf.

On the other hand, if the government awards a procurement contract to an organization or an individual to provide a service or deliver a good, then the organization or individual may be construed to be acting on the government's behalf.

Principle 4: A transfer agreement does not allow the awarding of damages in case of non-compliance.

Under a contribution, there is nothing acquired by the Crown. The department is obliged to reimburse the other party's eligible expenditures, as specified in the agreement. If the expenditures are not made or are not eligible, the party has no right to the contribution payment and the department may recover any money already paid. However, in that case, the department would have no right for damages because no harm to the department can follow from a recipient not complying with the agreement. There is then some risk in using the grant and contribution approach if a department is expecting to use the results of a project funded in this manner, notwithstanding that it would be an inappropriate use of transfer payments.

It is important that you consider all of these principles jointly and not in isolation of each other to make informed decisions.

3.2 Appendices and Tools

3.2.1 Case study-contracts versus transfer agreements

A department is considering the best means to organize and carry out a symposium on Canadian research capacity in the area of "memory in normal ageing and dementia." This is a critical issue for the department as the minister plans to make a public policy announcement on the issue very soon.

The symposium will bring together the best Canadian and international scientists to express their views and to report on their research findings in this important area. The department expects to use the information coming out of this symposium as one input among many to arrive at a policy statement and future action plan. It will also greatly benefit the health research community, the pharmaceutical industry and public policy makers, as the information presented at the symposium will bring forward a wide array of current thinking on the issue.

Organizing the symposium will entail tasks such as securing presenters, arranging the facilities, procuring simultaneous translation services, selecting chairs, advertising and promoting, and preparing and publishing proceedings.

There are two possibilities in financing and organizing this symposium:

Service Contract: Professional firms are available to organize conferences and meetings. A contract could be issued to one of these firms rather than overload overworked staff. Sufficient funds are available in the operating budget to support it.

Grant or Contribution: The ABC Society of Canada is interested in this symposium to advance its work in this area. If the society was given a grant or contribution, it could take responsibility to organize the symposium from top to bottom. Through the Health Grants and Contributions Program's existing terms and conditions, the department has the authority to make transfer payments, which the ABC Society is eligible to receive. Since funds are likely to lapse in the grants and contributions budget, this would be a good way of using these funds productively.

What do you think?

Case Analysis

Decision makers must consider the four fundamental principles that distinguish a contract from a transfer payment to adequately determine the right instrument to use.

Depending on the facts and assumptions that are made, there are two possible outcomes. First, if it is determined that the event's intent is to benefit non-governmental organizations and interested parties, and holding a symposium is not the normal means for departmental staff to develop policy, then a transfer payment arrangement could be considered. On the other hand, if the symposium's intent is to develop public policy and sponsoring these types of events is the normal staff practice for developing policy, then a contract would be more appropriate.

Consider Principle 1: A department should not benefit directly from the award of a transfer payment.

The essential questions are, who will benefit from holding the symposium and to what extent will they benefit? That is, will the department receive a direct benefit by acquiring needed information or will the department receive a benefit only as a by-product of the activity?

In this case, the symposium does not appear to be critical to developing the department's public policy. The evidence suggests that the information coming out of this symposium would be used as one input among many to formulate policy. It could be implied, therefore, that the symposium is not essential to develop the department's policy.

A second question is what direct benefit would accrue to other parties and other interests? It is stated that the symposium will be a "great benefit to the health research community, the pharmaceutical industry and public policy makers." In addition, the ABC Society is "interested in this symposium to advance its work in this area." It could be construed that the symposium is to benefit non-governmental organizations, and the information that the department would have access to is only a by-product of providing funding (i.e., incidental to developing policy).

Consider Principle 2: A core service that departmental staff are mandated to provide directly should not be funded through a transfer payment.

We can question whether developing public policy by organizing events such as the symposium is a job requirement of departmental staff or is beyond their responsibility.

The case reveals that "a department is considering the best means of organizing and carrying out a symposium" and is considering an outside party to take on the work "rather than overload overworked staff." These two facts support the proposition that it should be a procurement contract.

On the other hand, such an event may not be a core, ongoing departmental activity. While departmental staff may be competent to undertake this activity, there is no evidence that it is a core service. The department may believe that a symposium is a viable approach to encourage debate and research in the field of dementia and ageing. But staff may not normally organize and run symposia to achieve that end.

Unfortunately, without more information on the department's mandate, this principle cannot be assessed with any degree of confidence.

Consider Principle 3: An individual or an organization that receives a transfer payment does not act on the government's behalf.

From the information above, there is no evidence to suggest that the ABC Society would be acting on the department's behalf if it were given a grant or contribution.

Consider Principle 4: A transfer agreement does not allow the awarding of damages in case of non-compliance.

In the case, no information regarding this point is provided. Let us assume that the option to seek damages is not essential.

Summary

Since the assessment using principle 2 was inconclusive, the decision rests with the information examined under principles 1, 3 and 4.

The facts under principle 1 point to the department holding the symposium to advance public policy-not develop it. The symposium's primary objective is to support the interests and activities of organizations such as the ABC Society and , as such, any benefit to the department would be a by-product. Under principle 3, there is no evidence that the ABC Society would be acting upon or be perceived to be acting upon the department's behalf. Finally, under principle 4, the awarding of damages should the activity not proceed as envisioned is not an issue.

Under these circumstances, the department could legitimately authorize a transfer payment.

3.2.2 Checklist-contracts versus transfer agreements

This checklist is a tool to determine if a procurement contract or transfer payment should be used. A greater number of "yes" answers indicates that a procurement contract is likely more appropriate than a transfer payment.

3.2.3 Table-comparison of contracts and transfer agreements
  

4 Creating a transfer program

Creating a new transfer program is a very complex task that must take into account several internal and external factors. Consultation and communication with and between stakeholders is critical to develop a successful transfer program. Consultation should include operational and functional staff and management with experience managing and delivering similar transfer programs.

4.1 Selecting funding instruments for new transfer payment programs

4.1.1 Types of transfer payments

The various forms of transfer payments include contributions, grants, flexible transfer payments (FTPs), alternative funding arrangement (AFAs) and other transfer payments (OTPs).

Key attributes of transfer payments:

• Contribution-a conditional transfer whereby specific terms and conditions must be met or carried out by a recipient before costs are reimbursed.
    
• Grant-an unconditional transfer payment where eligibility criteria and applications received in advance of payment sufficiently assure that the payment objectives will be met.
    
• Other transfer payment (OTP)-a transfer payment based on legislation or an arrangement that normally includes a formula or schedule as one element used to determine the expenditure amount.
    
• Alternative funding arrangements (AFAs) and flexible transfer payments (FTPs)- transfers specific to Indian and Northern Affairs Canada (INAC). They possess characteristics similar to OTPs and contributions. AFAs and FTPs are like contributions in that there is a written agreement setting out both parties' obligations, including audit provisions. FTPs are conditional transfer payments and may include provisions for the retention of unexpended balances, provided program terms and conditions have been fulfilled.
    

4.1.2 Factors that influence the choice of transfer payment

The choice of funding instrument to achieve a department's policy objectives is an important consideration in program design. The right choice of instrument is a critical factor in meeting the objectives and expectations of program managers, potential recipients and Parliament.

The following factors that impact upon the choice of instrument must be considered:

• Legal-Legislation, regulations and policies
• Financial/Economic-risk management, cost effectiveness
• Social considerations-e.g., natural disaster
    

4.2 Defining objectives of new transfer payment programs

4.2.1 Linkage between transfer payment program objectives and national and departmental objectives and priorities

When creating a new transfer payment program, its purpose and objective(s) must support and advance the department's mandate and strategic objectives. Although a department's mandate does evolve, its core mandate generally remains constant over time. If the link between the program and departmental mandate and/or business line is not obvious, then the program should be rethought.

4.2.2 Beneficiaries

Setting a program's objectives necessarily involves identifying the target group or individuals that will benefit from the transfer program. Beneficiaries may be named (e.g., specific individuals) or identified as a group or class.

4.2.3 Expected benefits and outcomes

Once the key stakeholders (e.g., program managers, sector representatives, potential recipients, Parliament) agree on a program's purpose and objectives, the groundwork is laid for the design of the program.

Most often, program objectives are general statements that provide a focus and scope for stakeholders. However, in order to implement these objectives, departments must proceed to restate them as expected results and outcomes (expected benefits to Canadians). Identifying expected results will allow stakeholders to determine, among other things, what should happen to beneficiaries because of the funding provided and whether a project was successful in contributing to the expected program results and objectives.

By identifying expected results and outcomes, officials can proceed with the subsequent stages of program management. These include the choice of transfer payment (e.g., grant or contribution), establishment of assessment criteria, selection processes, transfer payment agreements, monitoring and payment systems, and reports.

Section 5 is devoted to a full explanation of identifying, assessing, measuring and evaluating a program's expected results.

4.3 Defining delivery framework for transfer payment programs

Departments should consider an appropriate delivery mechanism for all new and revised transfer payment programs.

4.3.1 Centralized versus decentralized program

The degree to which a program meets its objectives may be influenced by the centralized or decentralized nature of its delivery. Programs can be managed centrally, regionally, locally or in combination. Splitting specific management functions between central and regional offices will best meet program objectives. For instance, decision making could be centralized while other functions such as monitoring and payments could be undertaken in a region.

Factors to consider include:

• the degree of control needed,
• the nature and dispersion of the potential beneficiaries,
• the dispersion of departmental human resources,
• cost effectiveness and
• critical or exceptional circumstances (e.g., urgent action needed).
    

4.3.2 Direct delivery versus sub-agreement delivery

Departments may deliver a program through their own human resources or through a sub-agreement. If this second option is considered, a department must decide if a contract or transfer agreement is the most appropriate arrangement.

The factors that a department should consider when choosing direct or third party delivery include:

• expertise within the department,
• program duration,
• cost,
• sensitivities, such as having a federal presence,
• target group needs and expectations and
• dispersion of target group.
    

4.4 Defining terms and conditions of transfer payments

4.4.1 Grants to class of recipients and for contributions

The Treasury Board submission seeking approval for a grants and contribution program must include the terms and conditions in their entirety. They form the basis for subsequent agreements with recipients. This sub-section describes each required component of terms and conditions and explains why each is critical to a program. Managers and advisors with a clear understanding of the reason for a particular component are better positioned to manage within those terms and conditions.

Although the requirements for terms and conditions are not explicit in the policy for "Other Transfer Payments" and "Named Grants," there are a number of requirements that must be considered when approving these transfer payments. See sub-section 4.4.3. for a more details

A prerequisite to renewing terms and conditions is identified in paragraph 7.3.7 of the policy. It states that "Departments must assess the current transfer payment program] through a formal program evaluation or similar review, and report back on the effectiveness of the transfer payments when requesting renewal of terms and conditions."

4.4.2 What is required

The Transfer Payment Policy is explicit about the minimum content of a program's terms and conditions. Where a requirement does not apply for a given program, an explanation is required for that item. For example, stacking does not apply to transfer payments made to provinces and territories.

Comment on an MP's Role Is not Required in the Terms and Conditions (Ts & Cs)

4.4.3 Other transfer payments (OTPs) and named grants

This table has been developed to provide guidance to TBS program analysts and departmental officials who are seeking authority for OTPs and named grants in a TB submission. Named grants are made to persons or other entities that are specifically named in the Estimates as opposed to grants to a class of recipients.

The Policy on Transfer Payments does not specifically mention terms and conditions for other transfer payments (OTPs) or for named grants when seeking approval for a TB submission. Nevertheless, there are requirements in the policy that should be considered for these types of transfer payments.

*The OAG defines a capital project as a project intended to acquire or improve a capital asset and the acquisition can be done through construction, purchase or lease. Capital assets (under TB Accounting Standard 3.1 - Capital Assets) are those initially costing $10,000 or more.

Note that while there are many other policy requirements that apply to these types of transfer payments, they do not necessarily need to be addressed in a TB submission unless an exemption is being requested.

4.5 TB approval and sign-off

Departments should refer to the document, A Guide to Preparing Treasury Board Submissions, when preparing a TB submission.

The Guide provides a broad overview of the TB submission and examples of different types of submissions, including those related to transfer payments. It can be found on the TBS Publiservice site at http://publiservice.tbs-sct.gc.ca/Pubs_pol/opepubs/TBM_162/gptbs-gppct_e.html.

4.6 Appendices and tools

4.6.1 Factors that influence the choice of transfer payment

Legal - legislation, regulations and policy

• Authority-Departments must have the authority to undertake certain activities. Legislation passed by Parliament determines the authority given to departments to carry out their programs and activities. This may be through departmental Acts or through specific legislation that permits the establishment of a particular program to meet a specific need. In addition, Cabinet often provides general direction for an initiative or program.
    
• Accountability-Grant recipients are not held accountable for the use of funds received. However, they must establish continuing eligibility to keep receiving scheduled instalments. Contributions, on the other hand, require recipients to account for how they used the funds.
    
• Flexibility desired-Parliamentary control usually restricts grants more than contributions. Grant programs cannot be increased or redirected without the authority of Parliament. Treasury Board may authorize new contributions and changes in the amount paid without obtaining further parliamentary approval, within the purpose, dollar limits and restrictions prescribed by Parliament.
    
• Policy requirements

Financial and economic

• Risk management-Choosing between a grant or a contribution depends upon the identification of potential perils, factors and types of risks to which departmental assets, program activities and interests are exposed. On a continuum, as risk increases, the more likely a contribution will be appropriate. Contributions allow departments to exert greater control over the use of transfer payments.
    
• Risks other than financial risk must also be considered. Departments must consider whether there may be an impact on the national interest. For example, is there a realistic opportunity for the loss of reputation, nationally or internationally, if the transfer payment objectives are not met? Perhaps a transfer payment (non-repayable contribution under $100,000) given to numerous companies in an industry to increase their competitive advantage internationally could inadvertently attract countervailing action. In such a case, a repayable contribution would be more appropriate to achieve that objective.
    
• Cost effectiveness-To determine the most cost-effective means to achieve program objectives, departments must consider the additional cost of administering contributions over grants.

Social and other

• Social considerations may also play a part in the choice of instrument. In a regional or national emergency such as the Red River flood, it may be imperative to expedite the relief effort. In such situations, maximum flexibility may be appropriate to meet the flood victims' needs.

4.6.2 Delivery mechanisms for transfer payments

Centralization versus decentralization

Factors to consider:

• Degree of control needed-If consistency of treatment is important to the program, such as identifying eligible projects, then centralized decision-making may be appropriate. For example, it may be important that financial assistance is only provided to companies across Canada that are not in a domestically competitive situation. It would be more difficult, although certainly possible, to maintain consistency in a decentralized structure.
    
• Nature of beneficiaries-It may be beneficial to differentiate among a program's potential beneficiaries so that program management can be centralized and/or decentralized. For example, consider transfer payments targeted at both large and small and medium-sized enterprises (SMEs), where larger firms are more likely to request larger contributions. To maximize control and minimize risk, a centralized delivery scheme may be appropriate for large companies that would generally request larger contributions and a decentralized delivery scheme may be appropriate for SMEs.
    
• Dispersion-The expertise and resources available to manage a program and the location of potential beneficiaries are important factors in assessing if a centralized or decentralized delivery organization is needed. If the resources and expertise are located regionally and the target group is also located in the region, notwithstanding other issues, a decentralized approach is an obvious choice. On the other hand, if technical expertise is located centrally but program officers are located regionally, electronic communication may allow for decentralization.
    
• Administrative costs-Costs associated with administrative activities, such as travel, mail, office maintenance, must also be factored in.
    
• Critical circumstances-In some cases, such as a natural disaster, it will be necessary to centralize operations because of an urgent need to act quickly. Centralizing or decentralizing decision making and delivery may not even be a question in such a case.

Direct delivery versus third party delivery

Factors to consider:

• Expertise-Does the department have personnel with the knowledge and skill sets to deliver the program and apply due diligence in selecting applicants, monitoring, collections and so on? In some cases, skills found within other departments to undertake activities such as technical assessments or financial analysis can be shared to bolster program management. In other cases, it is more effective to seek third party expertise.
    
• Program duration-A department may not have the personnel to deliver a program and there may not be time to hire and train people within a reasonable time period. Implementation time and competitive contracting requirements should be factored into the duration.
    
• Cost-This factor must be considered when there is a material difference between direct or third party delivery.
    
• Sensitivities-There may be a number of situations that may be important to the national interest or to potential beneficiaries that ought to be considered.
    

• Target group needs and expectations-A program may be more effective if it is delivered through a sub-agreement because of its nature. For example, community-based programming across a region may depend on a close relationship between the target group and the delivery agent. If personal knowledge of potential beneficiaries is important to provide assistance, then direct delivery may not be as effective as a local delivery through a sub-agreement.
    
• Dispersion-If the target group is highly dispersed and the department does not have personnel close by, then consider a sub-agreement delivery arrangement.

4.6.3 Due diligence in managing and administering transfer programs

The transfer payment policy states that submissions for program approval of terms and conditions, for grants to a class of recipients or for contributions, should include "assurance that departmental systems, procedures and resources for ensuring due diligence in approving transfer payments and verifying eligibility and entitlement and for the management and administration of the program are in place."

This paragraph stresses that due diligence in managing and administering transfer programs is just as important as obtaining the expected results.

Due diligence in managing and administering a transfer program is supported by having the proper systems, procedures, resources and controls in place. These elements are often integrated into a management and control framework.

Whether in a framework or developed separately, transfer programs should have in place the systems, procedures, resources and controls to ensure and promote:

• compliance to applicable legislation, policies and procedures; 
• efficiency, effectiveness and economy in the use of resources; and 
• financial integrity.

More specifically, the transfer program should include the following components:

• A clear identification of legislation and policies that must be complied with, of procedures that should be followed, of the level of quality, operational efficiency and economy that is required in administering the transfer program and the expected effectiveness in its delivery;
    
• A set of operational indicators covering the above;
    
• Internal controls to achieve administrative compliance and quality objectives, operational efficiency and economy objectives and program effectiveness objectives;
    
• A reporting process that provides program managers with timely, reliable and complete information on the above.

Operational indicators

Compliance indicators show whether mandatory legislative and procedural requirements are complied with. Quality indicators reflect the degree to which operational and administrative quality standards are met.

Operational efficiency indicators measure the ratio between the cost of the resources put into an operation and the value of its output. Economy indicators indicate whether the most economical solution was chosen, when appropriate.

Effectiveness indicators tell whether or not a given process produces the expected operational output.

Several management and control frameworks exist and can be used directly or adapted to meet the needs of departments or agencies that have not yet adopted one.

4.6.4 Stacking and stacking limit

A stacking limit is the cumulative total of all government assistance as a percentage of eligible costs. Total government assistance (TGA) is the total of federal, provincial and municipal assistance. Eligible costs are those described in the program terms and conditions. The stacking limit can be expressed as: Total Government Assistance is ___% of eligible program costs. Anything over the TGA (stacking) limit will be subject to recovery.

The stacking policy reflects that the federal government must determine the appropriate level of total government support for specific projects or initiatives. The guiding principle that departments must follow is "...transfer payment assistance is provided for projects only at the minimum level to further the attainment of the stated transfer payment program objectives and expected results" (paragraph 7.5.1 (i) of the Transfer Payment Policy). Providing assistance at the minimum level allows departments with limited resources to fund a greater number of worthwhile projects.

What is the right financial assistance level that should be provided to a recipient? Theoretically, it should only be large enough to interest a party to undertake the project or initiative and to meet the program objectives. However, total government assistance should never exceed 100%.

In attempting to arrive at a minimum level, departments should consider a number of variables that may include:

• Status of project/initiative: Is this discretionary spending or a statutory obligation?
    
• Available resources: What financial or non-financial assets can potential recipients, such as individuals, profit and not-for-profit organizations, call on to fund a portion of the project?
    
• Nature of activities and costs: Certain types of eligible costs may warrant support at different levels depending on the benefits that may accrue to recipients. For example, assets, if retained by a recipient, may be supported at a lower level because it may have a useful life beyond the project and may be used as collateral to help finance the project.
    
• Risk: What is the risk that the project may not succeed? Programs that encourage recipients to take on greater risk (e.g., develop markets in a third world country versus the U.S.) may justify a higher level of government assistance.

Even though a department establishes a maximum stacking limit(s) in the program terms and conditions, it may not necessarily wish to participate at that level. For instance, where a potential recipient can finance equipment acquisition at a higher level than a second potential recipient, program managers may choose to provide a lower level of support in the former case. Furthermore, a department may establish a "norm" below the stacking limit. Recipients or beneficiaries may seek assistance from other departments or other levels of governments to "top-up" the contribution. This allows departments with limited resources to support a greater number of projects.

Nevertheless, departments should reserve the right to provide support beyond the norm, up to the maximum stacking level determined for the program, for situations where a project is worthy of funding but there are no other government funds available, and the recipient or beneficiary cannot contribute additional resources. Therefore, departments may wish to indicate in their program terms and conditions that while they normally contribute at a particular level, the maximum departmental assistance that can be provided will equal the stacking limit.

A hypothetical example of norms and stacking limits

For a class contribution program (e.g., economic program above), a department might contribute 50% of eligible project costs. However, the department may want to define that total government assistance (the stacking limit) does not exceed 75% of eligible costs, so as to:

• allow the recipient to get some additional assistance from other federal departments or other levels of government and
    
• ensure that the recipient contributes at least 25% of the eligible costs.

The department must ensure that the recipient provides ongoing financial information so as to determine if the stacking limit was exceeded. For any assistance over the stacking limits, the department must define and collect the overpayments.

Wording for stacking of government assistance for program terms and conditions

"The maximum level (stacking limit) of Total Government Assistance (federal, provincial and municipal assistance for the same eligible expenditures) for this program will not exceed _____% of eligible expenditures. *

This stacking limit(s) must be respected when assistance is provided.

In the event that actual Total Government Assistance to a recipient exceeds the stacking limit, it will be necessary for the department to adjust its level of assistance (and seek reimbursement, if necessary) so that the stacking limit is not exceeded.

The Program will require all potential recipients to disclose all sources of funding for a proposed project before the start and at the end of a project. "

* NOTE: The first paragraph and the optional clause above will require modification when departments have established separate stacking levels for different costs and activities.

Refer to the example below for an illustration of stacking and adjustments to program assistance when the stacking limit is exceeded.

Project stacking scenario

Example: Assume that a department has signed an agreement under a TP program.

Remedy #1: This scenario assumes that the unanticipated additional assistance (Other Government Funding) of $100 is not returned or required to be returned, in whole or in part, to the original funding department of those funds.

Remedy #2: Pro-ration of funds will vary with the number of organizations providing assistance and the nature of the funds provided (e.g., entitlement in some cases and subject to recovery in other cases). The example above assumes one source of "other" government funds. (For example, one method of calculation: Department - 75% ¸ 90% @ $100 = $83; then $750 - $83 = $667 or 66.7%; other gov't - 15% ¸ 90% @ $100 = $17; then $250 - $17 = $233 or 23.3%). Other valid methods of pro-ration can be used.

4.6.5 Duration of terms and conditions-multi-year agreements and payments

For any active transfer payment program, there must always be a corresponding set of terms and conditions (Ts & Cs) that are in force when the program's respective business events take place. For multi-year contribution agreements with end dates beyond the current Ts & Cs, the department should make every effort to ensure that Treasury Board approves new Ts & Cs prior to the end date of current Ts & Cs.

A minister may determine the duration of a multi-year contribution agreement but must respect any specific direction provided either by Cabinet or Treasury Board.

If a minister chooses to enter into multi-year contribution agreements, the minister must have Cabinet agreement as to the program's ongoing nature and expect that Treasury Board will extend the program and approve the respective new Ts & Cs. In these situations, the department assumes an element of risk. Risk relates to uncertainty that the program will be extended and that there will be no change to the Ts & Cs. To mitigate this risk, any such agreements must allow for termination without cause so as to comply with subsequent Treasury Board decisions. The termination clause must be distinctly separate from the "subject to parliamentary appropriation" clause. In addition, a department must carefully plan its Ts & Cs renewal.

Regarding payables at year end (PAYE), a contribution expense is recorded and charged to an appropriation in the old year when, as at March 31, the payment is due and owing pursuant to the contribution agreement. If a payment is due and owing and a PAYE is set up during the Ts & Cs' duration, the payment accordingly made in a future fiscal year is then authorized under the Ts & Cs.

5 Mandatory plans and frameworks

This section's objective is to clarify TB requirements for new or renewed submissions for transfer payments programs. It is mainly aimed at program managers who develop new transfer programs or manage existing ones and program analysts in Treasury Board who approve these programs. Because this section provides only a general overview, consult your local evaluation professionals for more detailed guidance.

The Policy on Transfer Payments stipulates that Treasury Board submissions for program approval of terms and conditions for class grants or for contributions must include a results-based management and accountability framework and a risk-based audit framework to cover audit and evaluation plans.

It is expected that most departments already have in place some of the elements required for the above frameworks. Unless it is the first time a department engages in transfer payments, departmental frameworks or plans may already have sections specifically covering existing transfer programs.

In these cases, the relevant framework should be adjusted to the new or modified program and updated to reflect current policy requirements. If such a framework does not exist for the program being considered, it will need to be developed before the submission is sent to TB for approval.

5.1 Results-based management and accountability framework

The Policy on Transfer Payments requires that each Treasury Board submission for programs or initiatives with transfer payments include a Results-based Management and Accountability Framework (RMAF) dealing with accountability, evaluation and reporting requirements. The frameworks should help achieve a number of goals related to the results-based management agenda:

• to set clear roles and responsibilities for the main partners involved in delivering the program or initiative (a sound governance structure);
    
• to ensure clear and logical design that ties resources to expected results (a results-based logic model that shows a logical sequence of resources, activities, outputs and key results for the program or initiative);
    
• to have a sound performance measurement strategy that allows managers to track progress, measure results, support subsequent evaluation work, learn and make ongoing adjustments for improvement;
    
• to set out any evaluation work that is expected to be done over the life cycle of the program; and
    
• to ensure adequate reporting on results.

If successfully developed, the framework should represent:

• an understanding between the partners on what they aim to achieve, how they plan to work together to achieve it, and how they will measure and report on results;
    
• a tool for better management, learning and accountability throughout the life cycle of the program or initiative; and
    
• an early indication that the program or initiative is set up logically, with a strong commitment to results and a good chance to succeed.

A results-based management and accountability framework should convincingly demonstrate a department's intention and capacity to measure performance against key results commitments on an ongoing basis (ongoing performance measurement) and periodically through program evaluation. A sound performance measurement strategy should cover:

• Main activities of the program (what will be done?)
    
• Clients or target populations (who will benefit?)
    
• Expected results (what will be achieved?)
    
• Performance indicators (how will we objectively know?)
    
• Data sources (where will we get the information?)
    
• Methodological considerations (how will we measure and analyse, and at what costs?)

Additional information and guidance on developing results-based management and accountability frameworks is available at http://www.tbs-sct.gc.ca/eval/pubs/rmaf-cgrr/rmafcgrr_e.asp

5.2 Internal audit plan and risk-based audit framework

An audit plan's content depends on many factors such as management requests, legal obligations, pre-established cycles, and needs and expectations of central agencies or other partners. But in order to use internal audit resources where they are most needed, risk should be a driving force in planning. A risk-based audit framework is a coherent and disciplined approach to detect, assess and respond to risk.

For a transfer program, the auditors will consider the procedures and controls in place to identify and assess risks, and decide on an audit strategy. The strategy will be reflected in the annual audit plan, or in a stand-alone document if the new or renewed program is developed after the annual audit plan is published. Risk management is discussed in Section 7.

Remember that the audit function's main role is to provide assurance on proper program management and administration. This applies to both conditional and unconditional transfer programs, new or renewed.

Under certain circumstances, internal audits may involve looking at individual contribution agreements. This can happen when program managers request an internal audit when a problem is suspected, when program internal controls, such as financial and operational monitoring have failed, or when available program officers lack the capacity or expertise to handle the issues or when they themselves appear to be part of the problem.

Therefore, the internal audit plan included in a TB submission should mainly address how and when internal audits will determine that the transfer program is adequately managed and administered. It may also indicate, if it is deemed necessary to supplement or assess the effectiveness of program monitoring, when and how it will audit individual contribution agreements.

Auditing transfer programs and agreements is covered in Section 9.

Note that auditing agreements does not relieve program managers of their responsibilities to ensure effective monitoring of contribution agreements under their responsibility.

6 Communications

A communication strategy outlines the best strategies and communications vehicles that will help target specific audiences (i.e. potential recipients and/or beneficiaries) in the most timely and cost-effective manner.

6.1 Goals of a communication strategy or plan

• To generate a high level of interest and awareness among potential and existing participants in the transfer payment program.
    
• To reach as many potential, eligible participants as possible.

6.2 Principle elements of a communication strategy or plan

Identify and discuss the following elements in your plan:

Public environment - Major issues related to the initiative that have received a high media and public profile: what do the Canadian public, media and key stakeholders think about these issues and related subjects?

Target audiences - Those people or groups to be targeted when developing and delivering the communications messages and activities, e.g., potential payment recipients, industry, interest or lobby groups, etc.

Strategic considerations - Strategic considerations describe how the initiative will likely be received, including any elements expected to draw positive or negative reactions. This section also covers the best ways and times to present the initiative and other major issues that could impact the initiative (i.e., by-election, economic considerations, local challenges, opponents, etc.)

Main/key messages - Three or four succinct speaking points that will be used by designated spokespeople when publicly discussing the initiative. They should capture the initiative's overall goals and highlights.

Links to other departments - Provincial/territorial or regional sensitivities or partnerships and interdepartmental and or third-party/stakeholder partnerships.

6.3 Items impacting on the communication strategy or plan

This sub-section outlines the various elements that impact on the complexity and the level of effort needed to develop an effective communication strategy or plan.

Knowledge of the potential clients: Is there an existing database of possible beneficiaries or is a large amount of research necessary?

Knowledge of the program: Will the target audience greatly anticipate the program or is it relatively unknown?

Is the program new or being renewed: The communication strategy will most likely differ depending on whether the program is new or a renewal (e.g., knowledge of potential clients).

Experience and awareness of beneficiaries: Are target audiences aware of, or experienced with, similar (or past) programs?

Access to information: Are the clients or recipients at a disadvantage and/or what is their ease of access to the program's promotional material?

Resources: What resources have been made available for the program (transfer payments, management costs)? What resources (human and financial) does the department have to promote the program? (For example, a class contribution likely requires significantly greater resources than a transfer to another level of government. As well, there is a difference between national and regional programs. The staff resources available for communication-related activities are likely greater for national programs co-ordinated at HQ).

6.4 Measuring and evaluating communication strategies and plans

Communication strategies and plans should be regularly and consistently evaluated for their effectiveness and efficiency. Departments should set measurable targets and objectives (e.g., "x" applicants aware program exists by "y" date; "x" participants sent promotional material by "y" date, etc.), as well as performance indicators at the program development stage. Ideally, a communications expert internal to the program would satisfy this requirement.

6.5 Communication products and activities

This sub-section outlines the tools and media that will be used to deliver communications messages to target audiences. Products such as news releases and brochures should refer to the following: the program's purpose, terms and conditions of support, how to apply for support and any eligibility and/or monitoring requirements.

Products

• A news release for distribution to newspapers and/or magazines giving details of the specific project and the overall program itself.
     
• A website that gives program information and allows for feedback and questions from target audiences.
    
• Brochures, pamphlets and posters that can be distributed to members of target audiences.

Activities

• Identify spokespeople to deliver public information seminars that can be held at external venues (e.g., public libraries or city halls).
    
• Arrange for live or taped interviews on local television and radio talk shows or public affairs programs.

For more information and assistance on this sub-section, speak to your departmental communications representative.

7 Managing risk

This section applies to the entire cycle of a transfer program and its agreements. Consideration of potential risks at the earlier development stage of a new transfer program ensures that proper controls, checks and balances are built in the design. Risk management should be part of overall program management and administration and influence the design of internal administrative, operational and financial controls.

The entire concept of risk management is presently under review in both the public and private sectors. Management is encouraged to have a proactive approach towards risk and to consider it as being an opportunity. This section restricts itself to the basic element of risk management.

Most activities carry some kind of risk, and this is true, of course, for programs such as transfer payments. In a few cases, risk can be totally suppressed but in general, this option is unachievable or too costly. Risk is here to stay and must be managed. Risk management involves:

• risk detection,
    
• risk assessment and
    
• response to risk.

Risk management should allow a dynamic workforce to take and accept risks while knowing where the risks are, how serious they are, and keep them under control. Risk reduction or suppression may have negative side effects such as loss of program flexibility or diminution of individual creativity and initiative. Risk can also be the flip side of an opportunity. For instance, in the stock market, risk is generally associated with increased return on an investment.

For the purpose of this Guide, only the negative side of risk will be considered-the possibility that something unwanted may happen or that something wanted may not take place. The guide addresses what management can do to get an early warning of problems, to assess the probability of an unwanted event happening or a desired event not happening, its consequences, and how to respond to this situation.

7.1 Risk detection

Risk detection is crucial. Everything else being equal, a known risk is much less threatening than an unknown one. There are several tools and processes to detect risk.

7.1.1 Business process analysis

A business process is an integrated sequence of operations, actions and decisions leading to a desired result. In other words, it's the processing of inputs to produce desired outputs. Examples of business processes are preparing a TB submission for a new transfer program, approving a new agreement or making a field-monitoring visit.

To detect risks in a business process, every key operation, action and decision is examined and for each one of them, the examiners must consider if there is a possibility that something may go wrong, and if so, what would be the consequences on the subsequent steps or on the final output or outcome.

For instance, if the operation is a calculation, the examiner will consider whether it is done automatically or manually. In the first case, is there a possibility that the calculation routine will fail or that the wrong data will be used for the calculation? If the calculation is done manually, then the risk of human error must be considered. How will a calculation error impact the end result or product? At the end, the examiner does a global analysis of all the risks detected and documents their collective or individual potential impact on the success or failure of the process.

7.1.2 Information and data analysis

In many cases, a risk can be detected through existing information and data. Excessive variations in quality or performance indicators may show that control is being lost and there is a risk of process collapse. If performance indicators show a significant increase in productivity without a corresponding increase in resources, then consider the possibility of a rise in the error rate.

7.1.3 Interviews

Group or individual interviews are very effective in detecting risk. In many cases, managers and staff involved in a process have a fair knowledge of the risks they are facing. They may have chosen to live with the risk, but generally, they will at least recognize its existence. To effectively detect risk, the interviewer and participants must know the programs and processes well and the interviewees must be willing to disclose all relevant information even if that may be compromising or embarrassing.

7.2 Risk assessment

Once a risk has been detected, it must be assessed. A risk is characterized by two factors: the probability that it will materialize and the consequences of that happening.

7.2.1 Estimating or measuring the likelihood of materialization

The probability that a risk will not materialize cannot always be measured precisely, but in most cases, it can be estimated objectively. To estimate the likelihood of a risk, one must review the historical or theoretical pattern of occurrence and adjust to all the known factors that may influence this pattern, positively or negatively.

For example, the risk that an ordinary project file will be stolen is very small: who would be interested in fraudulently acquiring such a file? But the risk may be higher if the project is very controversial and used by individuals or groups to promote their position. The probability that a project file will be lost does not depend on the content but on the frequency of such losses in the past, on the adjustments to filing systems, on the project officers' discipline, and on specific events such as changes in the workplace.

In some cases, risk materialization can be calculated using probabilistic and statistical instruments. This would be the case, for instance, for a transfer program that provides financial support to unemployed individuals who accept training as bookkeepers. If labour market statistics indicated at the time the program was created, that three out of four qualified persons in this trade found a job within six months, then there is a 25% probability that an individual who participated in the program will not find a job within six month. This risk may be considered acceptable, but, if at a later date, it becomes obvious that changes in the labour market have brought down the probability of finding a job to one person out of four, then the risk of failure may become unacceptable and the program's continuation may be questioned.

7.2.2 Estimating or measuring the impact

Most managers or employees know intuitively the probable consequences of a negative event occurring. Managers responsible for transfer payments must consider the transfer's size, the program's visibility, and the social, economic and political context for proper risk assessment.

The financial loss related to a risk materializing can generally be estimated with more precision and sometimes accurately measured. For example, a $10,000 grant given to an individual to engage in a new trade, or to an NGO (non-governmental organization) to build a school is a net loss if the individual does not do anything to find a job or if the NGO representatives pocket the money for their own personal use. But if the individual uses the money to relocate in an area where he finds a job in his trade, or if the NGO uses the money to hire new teachers, is the money totally misspent?

7.2.3 Combining probability and consequences to assess risk

A risk is assessed by combining the probability and the consequences of its materialization. A risk with a high probability of occurrence and limited consequences could be considered equivalent, in terms of assessment, to one with a low probability of occurrence and devastating consequences. However, the final assessment would generally depend on the context of the whole project: it is ultimately a judgement call.

The following chart illustrates this concept.

Risk Classification Schedule

The content of the boxes is not prescriptive. The decision as to what measure will be taken belongs to the managers responsible for that program or activity.

7.3 Responding to risk

As discussed above, unwanted risk can seldom be completely avoided. Sometimes it can be transferred, for example by covering it with risk insurance, but then the greater the risk, the higher the premium. Alternatively, the risk can be reduced through operational changes or by introducing new or better controls. Yet, as discussed above, drastic risk reduction may have a negative impact on the workplace. Management can decide, after considering all alternatives, to "live with it" instead of reducing or suppressing it. It may also be decided that the risk is linked to an opportunity that outweighs the possible negative impact of the risk materialization.

Yet, every organization has a tolerance limit to risk; if this limit is exceeded, the risk must be reduced or eventually suppressed. The tolerance level tends to vary with time, changes to the environment, or even a change in management. The following are tools or strategies that can be used to mitigate or reduce risk.

7.3.1 Preventive and corrective controls

Controls are basic tools that managers can use to maintain risks at an appropriate level. Controls are preventive if designed to prevent risk materialization. They are corrective if they are designed to inform after the fact that the risk has materialized, which should lead to measures to redress the situation and prevent its reoccurrence in the future.

7.3.2 Effectiveness, efficiency and economy of controls

Controls come with a cost; they use resources, and generally slow down processes. This can be mitigated by designing controls for maximum efficiency and economy.

A control's effectiveness is the likelihood that it will prevent or detect the materialization of the risk it is designed to cover. A control's effectiveness is optimized by proper design and diligent application.

Generally, there is a trade-off between the effectiveness on the one part, and efficiency and economy on the other part. While a control's efficiency and economy can be imputed from its design and measured thereafter, its effectiveness can generally not be assumed until it has been tested independently.

7.4 Self-assessment

7.4.1 Risk self-assessment

Despite its name, risk self-assessment is a process that generally deals with all aspects of risk management: detection, assessment and response. Its main characteristic is that it is driven by the managers and employees instead of by external resources such as auditors or internal control specialists.

It is generally applied to a program or to one or more of its components rather than to a single agreement. Groups of managers and/or employees work together in a facilitated session to identify and assess risks in their area of responsibility or expertise and are often asked to propose courses of action.

A session is generally composed of one or more brainstorming exercises where the participants share all the risks they are aware of. Following each brainstorming session, the group votes to sort the risks by probability and impact. They may then discuss what actions to take, or vote on various options.

Facilitators can be program officers or managers, specialists from human resources, internal auditors or professionals from the public or private sector hired for that purpose. In some cases, risk self-assessment includes some degree of validating the findings by an independent party, generally the department's internal auditors.

7.4.2 Control self-assessment

The same approach and techniques used in risk self-assessment can be used to identify and assess controls. This control self-assessment exercise can provide useful information on the existence of controls and their design, costs and impacts on operations. However, the exercise has one major limitation: unless its results are validated independently, it will not provide conclusive evidence on the controls' effectiveness.

8 Managing agreements

This section's objective is to support program officers and their supervisors at the operational level who are directly engaged in managing and administering transfer agreements. It provides advice on good management principles and due diligence in day-to-day activities. It is designed to cover most types of transfer payments, conditional or unconditional, but is not intended to supersede departmental guidelines on specific programs.

This section applies to most transfer programs but should be applied with discretion to programs designed to provide maximum flexibility to recipients and minimum direct management by the department. Even for these programs, however, the obligation of due diligence still exists.

8.1 Selecting and approving new agreements

8.1.1 Financial and operational pre-check

During this pre-assessment, the program officer should check the following:

• Is the applicant eligible for the program?
    
• Does the application meet the program's basic terms and conditions?
    
• Are there any outstanding issues, such as unpaid debt or poor delivery record, that must be taken into account during the selection and approval process?
    
• Is the applicant already receiving public funding for the activities for which it is seeking transfer payments? (Stacking of assistance may be considered.)

If the applicant is part of a larger organization, such as a university faculty, the pre-check should also be conducted at the level at which the agreement will be signed, e.g., the faculty or university.

8.1.2 Segregating duties and conflict of interest

Whenever feasible, a single person should not select and approve a new grant or contribution agreement, or renew an existing one. In most cases, the decision to approve a grant or contribution agreement has a judgmental component and often involves disbursing significant sums of money to groups or individuals. There is a potential for bias or conflict of interest. A review committee offers many advantages but it may not be practical beyond a certain volume or within given time constraints. In this case, a peer review may be a good alternative.

Being in a strict arm's length business relationship with potential or actual participants to a grants or contribution agreement is the condition for impartiality and objectivity. Supervisors should be alert to any indication that their officers might not meet this condition. An officer who feels he/she might be in a situation of conflict of interest with an applicant should inform his/her superior of the situation and abstain from influencing the application's outcome.

8.1.3 Internal and external consultation

Some programs require that certain individuals, groups or organizations be consulted during the approval process. In these cases, all mandatory consultations are to be conducted before the selection and approval processes are finalized and the favourable or unfavourable consultation results recorded in the project files.

Even when programs do not include mandatory consultations, they should take place whenever project officers handling selection and approval processes believe that they would help reach more educated or impartial recommendations or decisions. This could be the case if officers have not yet dealt directly with applicants but know that applicants have had previous transfer agreements with the department, or if applications contain technical or legal elements unfamiliar to officers.

8.1.4 Rationale for recommendation

Reference to departmental and program objectives

The rationale for recommending or accepting a transfer agreement is to be stated in the file. The factors that were considered and show how the transfer would promote this specific program's mission and objectives are to be described. For simple, straightforward and relatively low-cost projects, simple but clear statements may suffice, while for large, complex projects, files should contain evidence that all important factors were considered and properly weighted. By doing so, project officers and departments are protecting themselves against subsequent challenges of decisions taken.

Cost-benefit analysis

Assessing the expected costs and benefits of a transfer agreement should be part of the selection and approval process. Such assessments are to be conducted routinely for industry-based agreements. On the other hand, assessing factors such as incrementality and likelihood of success may not be appropriate for some programs, especially those that are clearly social-oriented. However, a cost-benefit analysis should be conducted whenever possible, even on a judgmental basis, to ensure prudent and gainful use of transfer funds.

Incrementality

Although not spelled out in the transfer policy, due consideration for incrementality is good business practice for most programs. When appropriate, the rationale for recommendation should indicate that the program officer has considered the total direct and indirect benefits expected from the transfer payment against the transfer's value. The project officer should also consider whether or not the expected result would likely occur without the transfer.

Likelihood of success

Rather than a matter of policy, the assessment for the likelihood of success is good practice in the selection and the approval of transfer payment applications. It is not always possible to conduct a feasibility analysis for every project, but a reality check should be done before recommending a new project, especially if there are no precedents. The recommendation should state how success will be measured in terms of output and/or outcome, and the odds of that happening.

8.2 Agreements

8.2.1 Grants

The transfer policy stipulates that a written agreement between the department and the recipient or sponsor is required, with one exception: for grants involving lower risk and materiality, the agreement may be in the form of an application and the related correspondence.

The policy does not spell out what a situation of "lower risk and materiality" is, but leaves it to the program officers' judgement. Sub-section 8.5.5 of this section discusses that matter and Section 7 of this Guide deals with risk management.

Whether or not a formal written agreement exists, the file should contain verifiable evidence that the recipient meets the eligibility requirements at the time of the transfer, or maintains this eligibility if the grant is paid by instalments.

8.2.2 Contributions

Contribution payments must be supported by a written agreement between the department and the recipient. Most agreements contain two sections: a generic section that is mainly related to the program's general terms and conditions, and an agreement-specific section, related to that particular agreement's terms and conditions. The agreement-specific section is often in the form of one or more appendices.

8.2.3 Delegating signing authority

The "Delegation of Signing Authorities" is the official document whereby each minister delegates signing authority to departmental officials. It typically consists of a matrix that identifies generic position titles and their matching levels of authority. In the case of grant and contribution agreements, it generally refers to the financial range within which an officer or manager can approve or modify an agreement or authorize a payment. Not only the word but also the spirit of the delegation of authority must always be respected.

8.2.4 Mutual understanding of the agreement's terms and conditions

Before finalizing the agreement's signing, the project officer should review the agreement with the recipient to ensure a common interpretation and understanding of the terms and conditions.

8.2.5 Signature of agreement

All parties should sign a written agreement before the stated start date, and, more importantly, before eligible expenses are incurred. When eligible expenditures are incurred before formal approval of the agreement, both parties, the department and the applicant, must understand the risks and consequences they face.

When eligible expenditures are to be incurred prior to formal approval, it must be made clear to the applicant that the department will not reimburse these expenditures if formal the written agreement is not approved (i.e. signed). Furthermore, should the project officer not inform the applicant of the risk involved, the applicant could argue that a verbal agreement exists since the project officer knew (or gave the impression that it was known) that expenditures were being incurred and that reimbursement was expected. Should this argument be legally up held, the department would be required to reimburse the applicant even though the department never formally approved and signed the agreement.

In addition, the project officer should ensure that the applicant's legal name appears on the agreement and that the applicant himself or his authorized representative signs it.

8.3 Overseeing

8.3.1 Supervision

Supervision provides employees with direction and support. In the context of transfer programs, supervision is also a key element of a good management and control framework. Program officers are engaged in activities that involve disbursing large amounts of money to organizations or individuals. Supervisors should ensure that public funds are used effectively and for their intended purpose within the program's terms and conditions.

8.3.2 File maintenance

A transfer agreement file serves many purposes. It is:

• a working and reference tool for the project officer(s) handling the case;
    
• a supervision and control tool;
    
• a central location where all documents and information related to an agreement are grouped; and
    
• an important element of the audit trail.

For this reason, the file must be well documented and kept current.

For a grant and a contribution, the file must contain:

• the original application,
    
• enough documentation to support the application's approval,
    
• the original agreement (except when the application is considered the agreement, as allowed by the Transfer Policy for low-risk grants) and any subsequent amendments; and
    
• a record of all important communications, written or verbal, that have taken place between the recipient and the program officer.

Contribution agreements files should also contain the following:

• original claims, along with supporting documentation, presented by the recipient (unless the original is held by Finance) and
    
• monitoring and progress reports.

8.3.3 Operational and financial monitoring of contribution agreements

Monitoring of contribution agreements is the cornerstone of an effective management and control framework. Financial monitoring provides ongoing assurance that reimbursements claimed by the recipient are based on legitimate expenses actually incurred for activities specified in the agreement. Operational monitoring verifies that the recipient meets the agreement's terms and conditions. Monitoring is covered in Section 9.

8.4 Disbursements

8.4.1 Financial controls

The size of contribution programs' budgetary allocations vary between departments but they often represent several millions of dollars. These public funds must be adequately protected against errors, misuse, abuse and fraud.

The two universal financial controls of supervisory review and segregation of duties apply to contribution programs. Supervision is an ongoing requirement. Supervisory review should be conducted regularly by a person who has adequate knowledge of the transfer program's financial aspect and has independent access to the information required to determine if disbursements made from transfers accounts are legitimate.

Segregation of duties means that at least two persons work independently in issuing a transfer payment for a grant, an advance, or a reimbursement of contribution expenses or costs.

Various employees require access to financial systems. This access should be restricted to those employees who require it to conduct their legitimate duties and limited to their functional requirements. No single employee should have simultaneous access to financial functions that are intended to be segregated, such as the input and approval of a payment. It is management's responsibility to ensure that employees only have access to the profile they require at any time period. The employee is responsible for protecting the confidentiality of his/her password.

8.4.2 Cash management

Calculating imputed interest cost

Under certain circumstances, an advance paid to a recipient may not be spent immediately for various reasons. In this case, if the recipient is allowed to keep the money, the unused funds should be put in an interest-bearing account. The amount of interest that was or should have been generated is deducted from the amount of the advance paid for the subsequent periods. (The amount of interest revenue should be at least sufficient to cover the cost and efforts to calculate and allocate it.) The policy does not dictate the interest rate to be used in this instance, but the 90-day Treasury Bill rate or some other approximation such as the bank rate may be used.

Scheduling payments

Frequency of payments

Grants may be paid once or in instalments, while contributions are generally paid monthly or quarterly.

When grants are paid in instalments, the minimum number of instalments depends on the grant's total value as shown in Appendix B of the Transfer Payment Policy. The program officer may decide more instalments are in order when risk, materiality, the quality and quantity of financial information and past experience with the recipient support the decision.

The same factors should guide the program officer in deciding at what frequency a contribution recipient should provide progress reports and claim for reimbursement.

It is important to realize that a reporting and payment schedule and an advance schedule are two different things. If it has been agreed that the recipient will produce a claim every quarter, this does not mean that he or she has an automatic right to a three-month advance at the beginning of each quarter.

Determining advance payments requirements

The policy on transfer payments clearly states that advance payments should only be made available when required. Typical contribution payments are by design the reimbursement of expenditures or costs incurred by a recipient who is thus expected to make the disbursement and then claim for reimbursement.

When it is clear that this approach would result in serious cash flow problems for the recipient, then advance payments might be made. It is the applicant's responsibility to demonstrate up-front that advance payments are essential to achieve the objectives of the project. This is generally done by producing a detailed cash flow forecast for the duration of the agreement. Advances are more likely to be required in social transfer programs where the recipient is often a small non-profit organization. In that case, however, the advance amount should be limited to the amount needed to bridge the time gap between expected revenues and expenses. Allocation of advance payments should be justified in the file and be subject to supervisory review.

Accounting for advances at year end

Extra care should be taken when advances result in funds being transferred from one fiscal year to the following year. The strict and basic rule for contributions is that expenditures incurred in one fiscal year should be reimbursed from funds appropriated in the same fiscal year. Under exceptional circumstances, advances paid in one fiscal year may cover expenses incurred in the subsequent year, but the period covered in the new year must not exceed one month.

Advances at year end must not be used as a means to avoid or reduce lapsing transfer funds. Program and financial officers should closely supervise the use of transfer funds in the last months of the fiscal year.

Advances are not made for grants and, therefore, accounting for advances at year end is not an issue. However, grants may be paid in instalments spanning over two fiscal years. In this case, the individual instalments must be allocated to the period to which they pertain.

8.4.3 Payments

Section 34 requirements

Section 34 of the Financial Administration Act (FAA) stipulates that no payment shall be made unless a person with the proper delegated authority certifies that the payee is eligible or entitled to the payment. This applies to transfer payments. For grants, the officer authorizing the payment under section 34 must be satisfied that the right amount is sent to the right person.

In the case of contributions, the authorizing officer must be satisfied that the reimbursement claimed by the recipient is based on eligible expenditures or costs actually incurred within the terms and conditions of valid agreement. To directly obtain such assurances, the officer should review the supporting evidence for the claim. (There is nothing in the transfer policy that prevents a project officer from requesting documentary evidence to support a claim, such as receipts, payrolls and cheques processed by the bank.) To indirectly obtain the assurance related to section 34, periodic monitoring visits or a financial post audits should be conducted.

In the case of advance payments, the authorizing officer should ensure that the amount of the advance is justified and within the limits set in the agreements.

Authorized budget

Recipient payments must not exceed the total budget authorized by the agreement, initial or amended.

Expenses

Eligibility of expenses is a matter of fact based on the agreement's nature and content. As explained above, a contribution agreement should clearly indicate what costs and expenditures can be claimed and to what limit. Therefore, any expense that is not authorized in the agreement, or that is claimed in excess of the maximum authorized, is not eligible for reimbursement. The degree to which budgeted expenses in an agreement are individually detailed (or aggregated to allow for more flexibility) is a matter of risk management. For example, for a high-risk project, specifying a maximum level of support for a specific line item expenditure (e.g., salaries) may be warranted. For a low-risk project, aggregating salaries as part of a larger classification (e.g., research and development that includes salaries, benefits, overhead, supplies) would allow for flexibility among the line items.

Allowed and disallowed expenses

Acceptance of expenses is a matter of credibility and evidence. As a general rule, when costs and expenditures meet the eligibility test described above and the officer is satisfied that they were actually incurred for activities specified in the agreement, reimbursement is allowed. Statistical sampling methodologies based on a risk management approach may be used for claims verification. The degree of verification required may be based on criteria such as the risk profile of recipients, experience of staff administering the program, sensitivity or materiality of the claims. Officers who have responsibility for verifying accounts should refer to the policy on Account Verification.

GST expenses and rebates

Grant and contribution recipients do not render services and provide goods and, therefore do not charge GST/HST to departments.

Where recipients incur GST/HST on the supplies purchased pursuant to grant or contribution agreements, departments can reimburse the amounts if the recipients are not entitled to an input tax credit or GST rebate from the Canada Customs and Revenue Agency (CCRA).

Recipients who are GST registrants may be entitled to input tax credits from the CCRA in respect of tax paid when certain conditions are met. When recipients are not GST registrants, they may still be entitled to a partial rebate of any tax paid. Rebates may be claimed by the following public bodies at the following percentages: Hospitals-83%; Schools-68%; Universities or public colleges-67%; Municipalities-57.14%; Charities or Qualifying Non-profit Organizations-50%.

Cash versus accrual accounting

Many organizations use accrual accounting. This means that a purchase made on a given day will be recorded as an expense on that day even if the payment is made at a later date. In general, advances should cover actual cash requirements and claims for reimbursements should be based on actual cash disbursements. However, if the purchase of goods or services is paid for after the end of the project or in the next fiscal year, then the expense may be claimed before the final payment is made.

Retroactive expenses

Retroactive expenses are costs incurred prior to a project's official start date. Unless authorized, costs incurred before the project start date are not eligible for reimbursement.

On occasion, a case may be made to authorize retroactive expenses.

If retroactive expenses have not been incurred prior to application for assistance, but, for operational reasons, must be incurred prior to the start date (e.g. refer to example below), the applicant must request their inclusion as eligible expenses. Once an application with retroactive expenses is submitted, the applicant should be advised in writing of the risk being assumed. That is, the applicant must understand that the project funding and/or the retroactive expenditures may or may not be approved by authorized departmental officers.

If retroactive expenses have been incurred prior to application for assistance and prior to the start date and the applicant wishes to receive reimbursement for the retroactive expenses, again the applicant must request their inclusion as eligible expenses during the application process. However, for such expenses to be approved by authorized departmental officers, the circumstances surrounding the eligibility of the retroactive expenses would need to be exceptional, and the rationale would need to be very compelling.

Note: Such a practice should not be used as a means to circumvent the year-end spending policy.

Stacking of assistance provisions

It is the applicant's responsibility to disclose in the application all relevant information on other sources of expected funding or in-kind participation, or to inform the project officer if new funding sources for the same project become available during the life of the agreement. The project officer has the right and the duty to ask questions and perform whatever verification deemed necessary to prevent the same costs and expenditures from being claimed and reimbursed under another agreement. For example, if the rent is reimbursed entirely by one program, then it cannot be claimed as an expense from another program. The issue of stacking is discussed in more detail in sub-section 4.6.4.

In-kind contributions

Stacking implications: In-kind contributions involve non-cash asset transactions (e.g., securities, land, buildings, equipment, use of facilities, labour, goods) that are provided by interested parties such as recipients, ultimate recipients, departments or other government bodies, in support of a federally approved transfer payment project or initiative. (The term "asset" here means a future benefit that can contribute directly or indirectly to future net cash flows).

All contributions, whether cash or in-kind, made toward a project's eligible costs must be taken into account when considering the stacking policy and sources and uses of funds. In-kind contributions that are considered ineligible costs but are related to the project should be considered in the sources and uses of funds but not in the stacking calculation.

The policy threshold for stacking is $100,000 (the point at which other sources of government assistance must be considered in determining and monitoring the appropriate level of total government assistance for a project or initiative). It includes all government sources-non-monetary as well as monetary assets.

Eligibility: To be eligible as an in-kind contribution:

• The asset must be essential to a project's or initiative's success, eligible under the program's terms and conditions, and otherwise would be purchased and paid for by the recipient.
    
• It must be supported by a commitment from the applicant (unless it is a departmental contribution) and its valuation confirmed by departmental officials during the project's assessment phase.
    
• Support for in-kind contributions must be justified and documented at the initial approval or amendment stage.
    
• The asset must be recorded in the recipient's contribution agreement and records at fair value. Applicants' in-kind contributions should only be recognized when fair value can be reasonably estimated.
    
• To determine fair value, use either the asset's market value or an appraisal. An appraisal that uses the cost basis as one method of valuation may be required where competitive market forces are weak or absent (e.g., valuation of "use of facilities" in a remote northern settlement where no similar properties exist).
    
• In determining fair value, refer to section 4410 of the CICA Handbook (from the Canadian Institute of Chartered Accountants) regarding non-profit organizations and contributions.

Reimbursing in-kind contributions

As a general rule, reimbursements of in-kind contributions should be addressed during the negotiations of the agreement.

Reimbursable

• In-kind contributions may be claimed for reimbursement if they are eligible project costs incurred by the recipient (they do not form part of the recipient's contribution towards the project). For example, if clerical support is contributed to a project and the cost was approved as an eligible cost towards the project, it would be reimbursable because an expenditure has been incurred by the recipient.
    
• Use of Assets - Assets owned by a recipient and required for the project may be reimbursable. For example, a recipient uses a property it owns to carry out a project activity and claims rent expenses based on fair market value. This cost may be reimbursable if the recipient otherwise incurs a loss of revenue from rental of the space or if there is a cost associated with using the premises for the project. Because there could be a "profit" generated by the recipient from the facility after the cost of taxes, interest, maintenance, etc), a 100% reimbursement of costs is discouraged even if the department has the authority to disburse up to 100% of eligible costs.

Not Reimbursable

There are a number of instances where in-kind contributions may not be reimbursed:

• the related costs are not eligible
    
• the recipient has not incurred an expenditure:

For example: the reimbursement of assets donated by individuals or organizations such as voluntary materials or labour would result in a profit to the recipient because the recipient's cost base is zero.

• The in-kind contribution is the recipient's share of the project.

Non-monetary transfers

The Transfer Payment Policy stipulates that the transfer of non-monetary assets or benefits with an aggregate value of $100,000 or more must be recorded and accounted for as a transfer payment according to the Treasury Board Policy on Accounting for Non-Monetary Transactions and the Treasury Board Accounting Standards.

This should not be interpreted to mean that a non-monetary transfer of less that $100,000 should not be accounted for in the context of the agreement. For instance, assume that a transfer agreement stipulates that in addition to a certain amount in cash, a recipient will receive equipment worth $20,000. This person should be held accountable for the equipment's use and eventually its return or proper disposal if the agreement's conditions are not met, or if the agreement does not stipulate that the recipient will own the equipment at the project's completion. Similarly, if the non-monetary transfer is in the form of labour, it is the recipient's responsibility to account for the work done under that agreement. The agreement should clearly indicate the nature, value and terms and conditions attached to the non-monetary transfer, and at the agreement's termination, the file should contain information as to the disposal of these assets.

8.4.4 Identifying overpayments

It may happen during the life of an agreement that a transfer recipient cannot account for the money he or she has received either as an advance, a reimbursement or a grant instalment. This situation may be detected during on-site monitoring or during the final accounting at close down, or after the agreement has terminated, during an audit. (Most agreements require that the recipient retain all documentation from project-related activities for a number of years and give the department the right to audit the project during that period. Such an audit is often conducted after the department has received a complaint or an allegation that wrongdoing has occurred.)In the case of a grant, it may be found that the beneficiary has obtained his grant under false or misleading representation. In the case of contribution agreements, it generally occurs after it has been found that some of the advance received has not been used or costs and expenditures already claimed and reimbursed were non-eligible or non-allowable.

This situation does not necessarily lead to the creation of an overpayment, the opening of an account receivable or to collection process.

If the agreement has not terminated when the overpayment is determined, you should investigate the circumstances that led to this overpayment. If it resulted from an honest mistake made by either party, such as a calculation error or a claim in excess made in good faith, simply deduct the overpayment amount from future payments. If there is an appearance of fraud, use internal or external auditors to fully investigate the case. Fraud is the false representation of a matter of fact that deceives and is intended to deceive another. It comprises all acts, omissions and concealment involving a breach of a legal or equitable duty and resulting in damage to others. It can involve misappropriation of assets or misrepresentation of financial information either to conceal misappropriation of assets or for other purposes. Attempted fraud is also an offence.

If the agreement has terminated and there is an outstanding balance, management should start the procedures to claim the money back from the recipient.

If negligence or fraud is confirmed, bring the case to the attention of program management who should decide if any action beyond collecting the overpayment is warranted. This action may involve referring the case to the police and/or taking legal action.

8.4.5 Repaying contributions (repayable transfers only)

The policy on transfer payments stipulates that "Where a contribution is made to a business and is intended to allow the business to generate profits or to increase the value of the business, the business is required to repay the contribution or to share the resulting financial benefits with the government commensurate with its share of the risk." A detailed definition of the term "business" for the Transfer Payment Policy is found in Appendix A of the policy document.

The main exceptions to the repayment requirement are when the transfer payment's primary aim is income support and income stabilization for individuals, when the contribution is to a non-profit organization, when the contribution is less than $100,000 or when no quantifiable benefits will accrue to the recipient as a direct result of the contribution.

One of the main challenges in managing repayable transfers is to find the appropriate balance between a program's mandate and the requirement to recover the investments. Program policy design will directly impact on recovery results. However, the more the terms and conditions and/or management controls are tightened to maximize collection results, the greater the risk that measures taken may be counterproductive to the program's original mandate. (For example, an economic development agency may choose a policy of taking security to minimize losses, but this also diminishes the proponent's access to bank financing.)

When introducing repayability in a transfer agreement, consider the following factors:

• When approaching due diligence, place more emphasis on issues relating to viability and debt servicing.
    
• How terms and conditions of repayment are structured will directly impact on collection and recovery results.
    
• Establish a risk management framework to minimize or control losses and to ensure timely recovery of funds. Such a framework would address issues relating to risk assessment, risk rating, and appropriate levels and frequencies for monitoring and reporting.
    
• Develop a collection policy to ensure that officers are consistent in their dealings with clients and that they treat them in a fair and reasonable commercial manner. It should also provide guidance on how to deal with problem accounts.
    
• Establish corporate reporting requirements on portfolio activity and performance to ensure appropriate monitoring of results.
    
• Assess adequacy of resources and training to ensure that risk management and monitoring regimes are effectively implemented.

8.4.6 Amending transfer agreements

Amendments may affect the maximum allowable amount payable under the agreement, the termination date and the terms and conditions, including the definition of allowable expenses and expected output. Justify any amendment in writing and keep it in the file with the amended agreement. If the amendment is minor, such as a short extension of the project's duration and the reason for it is obvious, the request for amendment signed by the recipient may suffice to justify it, but the amendment should still be acknowledged and signed off by an authorized departmental representative. Do not retroactively amend an agreement that has terminated.

8.4.7 Renewing transfer agreements

Multi-year agreements

Program funds are voted by Parliament on a year-to-year basis. A multi-year agreement is automatically renewed from year to year until the period has expired, provided the required funds have been voted and there are no circumstances that call for its termination. For that reason, multi-year agreements must have a clause that relates their continuation to the availability of funds. Also see the discussion on this topic in sub-section 4.6.4. of this Guide.

One-year agreements

Do not automatically renew agreements. Basically, the same criteria used to select and approve a new agreement should be used to renew an existing one. The fact that an initiative has been achieving its objectives in the past does not necessarily mean that it will achieve them in the future or that the objectives are still valid.

8.4.8 Closing down transfer agreements

At completion of a project or, in the case of a repayable transfer, after repayment obligations have been met

This is the "normal" way for an agreement to terminate. Transfer agreements may last only one day in the case of a grant payment to an individual or span over several years (subject to appropriation). Close-off procedures apply to contribution agreements and should be conducted just before closure date. The Transfer Payment Policy states that "a portion of the contribution should only be paid following the final accounting of the contribution by the recipient." The portion of the contribution held back is a matter of judgement based on risks and projected cash flow, but a good rule of thumb is to hold back an amount corresponding to the expected last claim.

For very small agreements, close-off procedures should include at least a financial monitoring of all expenses claimed since the last time the project was financially monitored and an operational monitoring of deliverables since the last time the project was operationally monitored. For multi-year projects, a process similar to close-up should be conducted once a year or at least at mid-course, depending on risk and materiality. Note: Financial and operational monitoring is defined in sub-section 9.2.2.

In the case of a repayable transfer, the agreement terminates when the sponsor or recipient has met his financial obligations toward Canada, either by reimbursing the full amount specified in the agreement, or by reaching a settlement with the department.

For cause

Defaulting on performance of contractual obligations

A recipient has the contractual obligation to perform in accordance with the contribution agreement's terms and conditions. Failure to do so generally results in a breach of contract, which may lead to the agreement's early termination. In such a case, the department would seek the reimbursement of any funds not accounted for. In the case of a repayable contribution, the full amount of the contribution paid should be immediately demanded and recovered.

False declaration

Any party to a transfer agreement that obtains benefits in money or in kind through a false declaration is no longer eligible to the benefits. The trust is broken and the appropriate action will normally be to terminate the agreement and seek appropriate remedies.

Where illegal acts are suspected, the department must immediately refer the matter to the RCMP for investigation.

By definition, fraud is false representation of a matter of fact that deceives and is intended to deceive another. It comprises all acts, omissions and concealments involving a breach of a legal or equitable duty and resulting in damage to another. It can involve misappropriation of assets or misrepresentations of financial information, either to conceal misappropriation of assets or for other purposes, by such means as:

1. manipulation, falsification or alteration of records or documents;
2. suppression of information, transactions or documents;
3. recording of transactions without substance; and
4. misapplication of accounting principles.

Attempted fraud is also an offence, where the false representation is intended to deceive another. It contains the same elements as set out above for fraud.

For other reasons

Voluntary withdrawal of one party to the agreement

Standard contribution agreements generally spell out the conditions under which one of the parties can voluntary withdraw. Normally, the party that chooses to withdraw notifies the other parties in writing within a certain time, generally three months.

Mutual consent

Standard contribution agreements generally allow for an early termination by mutual consent. Special conditions need not be specified in the agreement since the parties are by definition satisfied of the arrangement.

8.4.9 Delivery of a transfer program by another organization

In a transfer agreement, there are always at least two parties involved: the department, which provides transfer funds and manages the program, and the recipient, which may be an individual, an organization, a business or another level of government. Some agreements may be signed with more than one recipient, who become jointly responsible for delivering the project.

In some cases, the recipient is expected to sign sub-agreements, under the authority of the initial agreement, with other individuals or organizations. In this case, the recipient essentially becomes the program's fund manager and spending department of the sub-agreements. This situation offers many advantages but creates unique challenges in terms of accountability and management and, sometimes, financing. Most of what is said in this section applies to that type of delivery but the following additional factors must be taken into consideration. Special considerations for monitoring and auditing will be discussed in the next sub-section.

Accountability of the parties in a sub-agreement

In the case of a sub-agreement, risk and responsibility can be shared but the federal department's obligation to ensure that Canadian citizens receive value for money from the agreement is not suppressed, nor is its accountability for the expenditure of public funds and responsibility to Parliament.

Managing a sub-agreement

Departments should manage the original agreement with due diligence but they should also put in place controls and reporting mechanisms to demonstrate that the sub-agreement deliverer is managing with good business practices.

Financing a sub-agreement with another federal government department

When a department wants to use another government department (OGD) to administer a program, it may use one of the following two financing arrangements possible:

• the delegation of authority to the other department through an OGD suspense account; and,
    
• the transfer of authority to the department through Supplementary Estimates process.

Under the OGD suspense account arrangement, the funding department delegates to the spending department but the former retains full accountability for delivery of the program.

Under the Supplementary Estimates arrangement, the spending authority is transferred from the funding department to the spending department but the latter assumes full accountability for delivery of the program.

Under both arrangements, the authority delegated or transferred, if not fully utilized, will lapse at the end of each fiscal year.

8.5 Appendix and tools

8.5.1 Checklist-recipients distributing contributions

Additional Provisions to Be Included in Contribution or Contractual Agreements with Third Parties or Recipients Who Further Distribute the Contribution Amounts (Re: Policy on Transfer Payments, Appendix C, Part 2)

• description of the initial recipient accountability and management framework
    
• assurance that the program's public purpose and the need to provide transparent, fair and equitable service are not lost in the desire for efficiency
    
• clear and agreed expectations between the parties
    
• clear roles and responsibilities, including financial roles and responsibilities
    
• clear, transparent and open decision-making process
    
• assurance that departmental requirements for selecting and managing projects by recipients or ultimate recipients are met
    
• provision for ongoing assessment by the department to ensure performance is in line with expectations and that the initial recipient exercises due diligence in selecting and managing projects
    
• provision related to the requirements for the initial recipient's operating plans including annual performance expectations and a description of the process to select and approve projects
    
• departmental right of access to relevant initial recipients, and where warranted, ultimate recipients' documents and premises
    
• clear provision for audits of program performance and recipient
    
• provision for the department to receive periodic (e.g., quarterly and/or annually) financial and performance reports from the initial recipient, certified by a company officer, including, if appropriate, annual audited financial statements with the external auditor's report and opinion, and any completed evaluations funded in whole or in part by the transfer payment program
    
• provision that the department obtains from the initial recipient, or has ready access to, a copy of all signed agreements with recipients
    
• description of the redress provisions for ultimate recipients affected by decisions of the initial recipient
    
• provision for appropriate reviews, program evaluations and audits; and specification of admissible administrative costs that can be applied to the contribution by the initial recipient based on an accounting of expenses

8.5.2 OGD suspense account, MOU template and Supplementary Estimates

An OGD suspense authority is a mechanism introduced in the early 1980s under the authority of section 7c (financial management) of the Financial Administration Act (FAA). Where not feasible or not efficient for a department to administer a program or to make payments itself, it can arrange for such administration to be carried out by other departments. In these cases, the administering department will normally use an other government department (OGD) suspense account.

An OGD suspense account is meant to render more efficient some elements of program delivery. It is intended to improve the decision-making process and resource. The creation of the OGD suspense account, in effect, establishes a "line of credit" that permits the spending department to charge expenditures on behalf of the funding department.

Under a memorandum of understanding (MOU), the funding department delegates its spending authority up to a certain limit to the spending department while the funding department retains full accountability for resource use. The funding department's parliamentary appropriation is charged for the amount advanced to the spending department's suspense account. Over the year, the spending department must charge to the OGD suspense account all expenses related to the program. At year end (or more often, as specified in the MOU), all charges under the MOU must be transferred from the spending department OGD suspense account to the funding department's appropriation.

Several requisites must be in place before an OGD suspense account can be created and used to authorize a payment out of the Consolidated Revenue Fund:

• The funding department must have legislative authority to make payments under the program. (For example, funds are provided in a vote and the funding department has program legislative authority to conduct the activities in question.)
    
• An MOU must be in place between the funding department and the spending department outlining the basis of authority, the responsibilities of each department, the specific activities or programs to be administered, the limit on any expenditures and other relevant conditions. This MOU must provide an explicit delegation of authority to the spending department to manage the program and to make payments on the funding department's behalf up to a specified limit.
    
• The funding and spending departments must ensure that their Departmental Delegation of Financial Signing Authorities, approved by their Ministers, include delegations for signing MOU's relating to the administration of another department's program and for signing under FAA sections 32, 34 and 33 for activities/projects which are funded under the OGD Suspense Accounts. In the absence of these delegations of authority, the funding Minister will be required to sign the MOU delegating the FAA authorities to the spending department.
    
• There must be an appropriate management framework in place in the spending department to undertake the program and make the payments involved (e.g., Treasury Board approved terms and conditions for a contribution program.)
    
• The funding and spending departments must process the appropriate accounting transactions in accordance with FIS Accounting Manual.
    
• The spending department cannot charge expenditures to the OGD suspense account in excess of the delegated limit or the amount credited to the account (i.e., the account cannot have a debit balance).
    
• The spending department must report regularly to the funding department, on an agreed schedule, on the accounting transactions in the OGD suspense account and on results.
    
• The OGD suspense account (i.e., debtor and creditor department) must be cleared at the end of the fiscal year and all expenditures accounted for within the appropriations of the funding department.
    

Alternatively a department (the funding department) that wants another department to administer a program may request a transfer of authority to the spending department through the Supplementary Estimates process. In this case, the authority will be transferred, not delegated. The spending department will have full authority to deliver the program. Note that under this option, the spending department, will bear full responsibility for delivering the program, and will account for all expenditures charged to its appropriation.

This authority will be subject to an MOU signed by both ministers. A separate Treasury Board submission is not normally required, however, a copy of the MOU must be provided to Treasury Board to effect the transfer. The eventual changes are to be reflected in the Supplementary Estimates plates that both ministers will sign on behalf of each department.

8.5.3 Generic agreement

Generic agreements contain elements that appear in every contribution agreement, such as the name of the contribution program, the name of the parties to the agreement, the starting date and intended duration and the name and title of the representatives who will sign the agreement.

Some generic sections contain clauses that apply to most, but not all, agreements. Authority to remove or modify any generic clauses should be obtained prior to the changes.

In the case of third party delivery, the agreement should also specify the nature and level of accountability of both parties vis-à-vis the performance of the third party.

The appendix's agreement-specific section is part of the agreement. It describes in detail the parties' rights and obligations under this specific agreement. For most agreements, the appendix should contain expected deliverables, a budget, milestones, a list of allowable expenses by category, and all applicable terms and conditions that are not specified in the generic section.

8.5.4 Basic provisions to include within contribution agreements

The majority of the requirements below are listed in the policy's Appendix C. A few requirements have been added because they are mandatory under the policy or other government legislation. A few optional requirements have been added to enhance the implementation of contribution projects or initiatives.

This list has been categorized by those requirements that are mandatory, procedural and optional.

• Mandatory-policy and Mandatory-other are those minimum requirements that must be included in an agreement unless TB has approved an exemption to the requirement(s) in the terms and conditions.
    
• Procedural requirements are expected to be included in an agreement but may be modified or deleted for reasons such as its inappropriateness (e.g., declaration of debts owing to the Crown by a province). Any divergence from the procedural requirements must be justified and documented in the program file.
    
• Optional requirements are offered as good practices or where they are appropriate only in specific cases. Their inclusion in an agreement is at the department's discretion.

Mandatory Requirements - Policy

1. An identification of the recipient;
     
2. The contribution's purpose and expected results;

• Make clear that the contribution is to fund a project rather than to pay for the performance of the project, as the latter may be viewed as a procurement contract.

For example, under "Purpose of the contribution" or similar heading, if any, set out that the contribution's purpose is to fund, subject to this agreement's terms and conditions, the project (which you should define) that the recipient will carry out (or cause to be carried out) on its own behalf and not on behalf of Her Majesty. This does not preclude the department to require that, in its terms and conditions, the project shall be carried out in a diligent manner and shall be completed as at a certain date.

Avoid wording such as: "The recipient agrees to perform the project."

• The agreement should include a Description of the Project that is usually prepared as a schedule attached to the agreement. The description should include activities, milestones and eligible costs.

3. The effective date, the date of signing, and the agreement's duration;
     
4. The reporting requirements expected of the recipient;

• References in the policy include paragraphs 7.11.6 and sub-section 8.3.

5. The financial and/or non-financial conditions attached to the contribution and the consequences of failing to adhere to these conditions;
     
6. For contributions exceeding $100,000, a requirement for the recipient to declare any and all proposed funding sources for the project before and/or shortly after the agreement commences, as well as upon completion of the project. A repayment provision should be included should total government assistance exceed the amounts anticipated;

• Clause 7.13.1 indicates that all funding sources should be declared prior to approving a contribution exceeding $100,000 or providing a grant exceeding $100,000. However, Appendix C (1) (vi) states that for contributions exceeding $100,000, the declaration may be made before or shortly after the agreement commences, as well as upon project completion. (This inconsistency will eventually be corrected in the policy).
    
• Instances where the declaration is made shortly after a project starts should be rare and exceptional. Normally, these unusual circumstances would apply where it is critical to achieving program objectives. The rationale must be justified and fully documented in program files.

Note: When the declaration is to be made shortly after a project starts, be prudent in drafting the agreement so that the department is not required to disburse funds before all sources of funds have been declared and verified.

7. The allowable costs or the types or classes of expenditures eligible for reimbursement (profit to the recipient is not a "cost" nor an "expense" and therefore may not be included);
     
8. The conditions to be met before payment is made and the basis or schedule of the payments;
     
9. The maximum amount payable and appropriate provisions for the department to terminate the agreement and withdraw from the project if the original objectives are not being met;

• There are two distinct provisions in this requirement:
    
•  
  • the maximum amount payable to a recipient and
      
  • the provision on termination. Spell out this requirement in more detail (i.e., rather than stating "if the original objectives are not being met...", state "if the conditions are not complied with, termination may be subject to "x" days notification." In keeping with this provision, a department may also wish to include an alternative dispute resolution clause as an optional requirement.

10. A clause to limit the government's liability where the recipient is entering into a loan, a capital lease or other long-term obligation in relation to the project for which the contribution is provided;

• The value of the potential obligation is irrelevant in the application of this clause.

11. The minister's right to conduct an audit of a contribution agreement, even though an audit may not always be undertaken;
      
12. A requirement that any payment by Canada under the agreement is subject to there being an appropriation by Parliament for the fiscal year in which the payment is to be made (required under section 40, FAA); and
      
13. Provisions for cancelling or reducing transfer payments if departmental funding levels are changed by Parliament (required under section 40, FAA);

• A number of departments may experience resistance from potential recipients when attempting to include this condition in a transfer payment agreement.
    
• Although Clause 7.3.6 states that "Terms and conditions, program literature and agreements must include provisions for cancellation or reduction of transfer payments in the event that departmental funding levels are changed by Parliament," section 40 of the Financial Administration Act states that it is a term of every contract that payment is subject to there being an appropriation (i.e., an appropriation must exist for the particular payment). Therefore, in effect, every agreement or contract implicitly includes such a clause.
    
• However, for greater certainty and disclosure, departments must include the "level of funding changed by Parliament" clause in all transfer payment agreements as per section 40. In instances where a recipient has a particular problem with its inclusion in program literature, departmental officials must decide whether or not the opposition is justified and the exclusion of the condition is warranted. In order to exclude this requirement (from program literature but not from the agreement), an exemption from TB is required.

14. An indemnification clause for the Crown's benefit;

• with reference to the activities funded under contribution agreements, Canada should not be liable for any claims for damages from the recipient or third parties related to activities carried out by the recipient or on his/her behalf. The clause aims to reflect the understanding that the recipient is controlling the risk associated with the funded activities and consequently is ready to bear the consequences associated with them.

15. A clause that requires the recipient not to represent itself, including in any agreement with a third party, as a partner or agent of the Crown;
      
16. A requirement for the recipient to repay overpayments, unexpended balances and disallowed expenses and a declaration that such amounts constitute debts due the Crown;
      
17. A requirement that no member of the House of Commons shall be admitted to any share or part of this funding agreement or to any benefit arising there from;

• Refer to section 34 of the Parliament Act, where the wording is broad enough to cover transfer payment agreements.

18. A requirement that it is a term of this funding agreement that no current or former public office holder or public servant who is not in compliance with the Conflict of Interest and Post-employment Code for Public Office Holders or the Conflict of Interest and Post-Employment Code for the Public Service shall derive a direct benefit from this agreement;
      
19. A requirement that any person lobbying on the applicant's behalf is registered pursuant to the Lobbyist Registration Act.

• Clause 7.5.1 of the policy requires that departments establish policies and procedures to ensure that any person lobbying on an applicant's behalf be registered pursuant to the Lobbyist Registration Act. Departments should be familiar with the exemption provisions of this Act. Questions can be directed to the Office of the Ethics Counsellor at http://www.parl.gc.ca/oec/en/.
• In general, the Lobbyist Registration Act, (http://laws.justice.gc.ca/en/l-12.4/248568.html) adopted in 1985, requires people who are paid by their clients to influence federal politicians or government officials for financial benefits or legislative changes, to file a detailed report with Industry Canada in which they disclose their lobbying activities and clients. In addition, Appendix M of the Contracting policy, entitled Lobbyists and Contracting, states that fees paid to a lobbyist should not be commensurate with the amount of the grant or contribution raised. Refer to Appendix M at http://www.tbs-sct.gc.ca/pubs_pol/dcgpubs/contracting/contractingpol_m_e.html
    
• Therefore, where transfer payment project activities might include lobbyists, departments may require a certification by the recipient at the application time. A risk-based approach is an effective means to monitor this requirement.

20. A clause specifying the date on which interest charges on overpayments will commence.

• Paragraph 7.12. states in part that interest must be charged on overpayments and that "where a refund of overpayment is required, the due date is to be no later than the date that the recipient is required to report back to the department on the results achieved or expenditures incurred."

Mandatory Requirements - Other

21. A requirement that the agreement constitute the entire agreement;

• This would preclude the recipients from raising any declaration-e.g., a false representation made by Canada-before or after the agreement is signed.

22. A requirement to specify the applicable provincial law where the project is implemented or the name of a province.

• If the applicable provincial law is not specified, there could be a debate should a legal challenge be made; for example, if one party signed in one province and the other party in another.

23. A provision for non-assignment of payments (debt);

• Section 67 of the FAA prohibits the assignment of the amounts payable by Canada. This clause prevents payments from being assigned to other parties.

Procedural Requirements

24. Procedures to be followed to recover payments should the recipient be in default of the contribution agreement's provisions;
      
25. A clause outlining the disposal of assets acquired with contribution funds;

• A provision for disposing assets is not a legal requirement but assets should not be returned to the Crown; otherwise, the contribution would end up being a contract for acquiring goods.

Suggested Wording

• "The Recipient" shall preserve any assets acquired with the Contribution and with the Contribution under the Original Agreement, and use them for the purposes of the Project during the Project Period unless:

1. CANADA authorizes their disposition;
     
2. replacement of assets subject to wear is necessary;
     
3. assets that have become outdated require replacement.

• "The Recipient" agrees that, at the end of the Project Period, or upon termination of this agreement, if earlier, and if directed to do so by CANADA, the assets shall be

1. sold at fair market value and that the funds realized from such sale be applied to the eligible costs of the Project to offset Canada's Contribution to the Eligible Costs of the Project;
     
2. turned over to another person or organization designated or approved by CANADA; or
     
3. disposed of in such other manner as may be determined by CANADA.

26. a requirement for the recipient to declare any amounts owing to the federal government under legislation or contribution agreements and recognition that amounts due to the recipient may be set off against amounts owing to the government;

• The policy directs that contribution agreements should include a clause that requires recipients to declare amounts owing to the federal government and to recognize that amounts due to the recipient may be subject to set-off. * "Amounts owing" and "amounts due" refer to debts that are overdue and not to debts in good standing.
    
• The rationale for this requirement is based on the premise that debts owing to the Crown ought to be settled before transfer payments (which usually represents discretionary funds) are authorized and disbursed to potential recipients.
    
• Nevertheless, departmental officials can use their discretion in choosing an appropriate course of action. These are the most probable outcomes:

1. The applicant is not requested to declare any amount owing to the Crown. In this scenario, a department would conclude that the greater public good would be served by authorizing a transfer payment despite an applicant's potential indebtedness to the Crown. In addition, program officials would feel that setting off a transfer payment would jeopardize the project. Therefore, it would be expected that the responsible minister would not approve set-off.
     
2. The applicant is informed that if the transfer payment(s) is authorized, the amount owing may be set off. In this case, the applicant is deemed worthy of support even with a debt outstanding to the Crown. But unlike the former scenario, the responsible minister would approve set-off of the transfer payment if requested by another department. It is assumed in this case that the project or initiative would not be put into jeopardy if the debt were set off.
     
3. The applicant is informed that the debt has to be settled before an application can be approved. In this scenario, the department cannot justify providing assistance until the debt is settled.

*Set-off is the act of taking a government refund or payment due to a person or corporation and applying the payment against a debt due to the Crown by that same person or corporation. A set-off can occur intradepartmentally as well as interdepartmentally.

Process:

1. Where applicants are not asked for a declaration of amounts owing and/or the program has been deemed by the responsible minister not to be subject to set-off, the department must thoroughly justify the decision and document it in the program file.
     
2. To arrive at one of the other two decisions (options B or C) the department should follow the process below:

• Determine that the transfer payment program is eligible for set-off (i.e., responsible minister would likely approve set-off).
    
• Request applicants to declare all debts that are in arrears to the government, the nature of the debt and the name of the department(s) to which it is owed.
    
• Request applicants for permission to share this information with the department(s) in question.
    
• Inform applicants of the consequences of failure to provide the requested information (e.g., the application will be denied).
    
• Inform applicants of the potential consequences if a debt is outstanding (i.e., transfer payments may be set off and/or the application may be denied).
    
• Inform applicants that the provision of misleading or incorrect information after a contribution has been authorized is an act of default that will lead to the recovery of the transfer payment.

Note: If the applicant is an individual, all requests by the department for personal information must comply with the Privacy Act and TB policies on privacy.

27. A clause respecting the Official Languages requirement;

• Refer to sub-section 11.6 of this Guide and sub-section of 8.6 of the policy to determine applicability for inclusion in an agreement.

Optional Requirements

28. a provision that requires best value in performing a project;

• In some cases, it may be prudent to require that a competitive process be followed to achieve best value and to avoid situations where there may be a bias toward awarding a contract (e.g., purchase of capital) to a specific person or entity. This is probably more relevant where government support is relatively high compared with the recipient's contribution.

29. a provision where funding provided by Canada should be maintained in a separate bank account exclusively dedicated to the contribution;

• A separate bank account allows for easier project monitoring and, if necessary, auditing. In some cases, large institutions, such as universities, with a centralized accounting and banking system may not be able to comply with this requirement.

30. a termination clause wherein a department can, upon due notice, terminate the agreement unilaterally;

• In cases where recipients enter into multi-year agreements that extend beyond the program's approved terms and conditions, a termination clause is required.

8.5.5 Risk-written agreement for grants

One rule of thumb may be that if the total cost of creating a written agreement is equal to or exceeds the grant's value, then the grant should be regarded as having a "low materiality."

Risk, on the other hand, can generally be measured, at least intuitively on a scale of 0 (it will never happen) to 100 (it will certainly happen in a foreseeable future). One way to approach the problem is to evaluate the risk first. If it is high, a written agreement is required. If the risk is low, then the next question would be is the cost (in terms of time and money) of developing a written agreement higher than the grants' value? If the answer is yes, then the program should be designed to allow for an application in lieu of a written agreement. More about risk management is found in Section 7.

8.5.6 Table-summary of accountability and management and control frameworks
  

8.5.7 Manager's Program Guide and Examples of Grant and Contributions Agreements

This document is a good, concise guide prepared by Environment Canada (EC) that integrates program terms and conditions with agreements. This document is presently being updated by EC and will be available at a later date and attached to the Best Practices Annex.

9 Monitoring and auditing programs and agreements

This section is a general overview designed to provide support and guidance to program officers and their supervisors on an essential control: monitoring. It is aims to clarify when and how the audit function can support the proper management and administration of transfer programs. Consult with your local audit professionals to obtain more detailed guidance related to this section.

Most of what is said about risk management in Section 7 applies to this section.

A transfer agreement implies that public funds will go to individuals, groups or organizations. Departments are accountable for the proper handling of these funds by their employees and their proper use by the recipient. Effective monitoring by program officers can cover the latter. Audits can provide assurance on both.

9.1 Internal audit

Although all audits must follow basic standards, there are two basic levels of assurance that auditors can provide in their reports and the depth and scope of their investigations may vary from engagement to engagement.

• A higher, although not absolute, level of assurance is provided by designing procedures so that in the internal auditor's professional judgment, the risk of inappropriate conclusion is reduced to a lower level through procedures such as inspection, observation, enquiry, confirmation, computation, analysis and discussions. This translates into higher costs and more time required to complete an audit.
    
• A more moderate level of assurance is provided by designing procedures so that, in the internal auditor's professional judgement, the risk of an inappropriate conclusion is reduced to a more moderate level through procedures that are normally limited to enquiry, analysis and discussion.

9.1.1 Assessing program management

With regards to grants, contributions or other types of transfer programs, the main role of audits is to provide an opinion on the program's management and, eventually, make recommendations for improvement. This is done by objectively examining evidence and independently assessing management control framework and practices. Auditors can also assess risk management and practices, information used for decision making, and reporting practices.

With unconditional transfers, such as grants, audit is limited to the recipient's selection, approval process and eligibility. With conditional transfers such as contributions, the audit should also examine the recipient's respect of the agreement's terms and conditions and of the milestones as specified in the agreement.

Although audits can be conducted on individual contribution projects and recipients under certain circumstances, they should not replace regular financial and operational monitoring. Both, the audit of recipients as well as financial and operational monitoring, are responsibilities of program management.

Essentially, the audit of a conditional or unconditional transfer program systematically assesses the program's management and control framework. More specifically, the auditors will determine whether:

• the essential policies and guidelines that must be complied with, the procedures that must be followed, the quality of work, operational efficiency and effectiveness, and the expected output and program outcome have been clearly defined and communicated;
    
• the indicators covering the above, such as error rates, cost per unit and speed of processing, are in place;
    
• management and staff have proper knowledge and skills to perform their duties;
    
• essential administrative, financial and operational controls are in place and are effective; and
    
• program managers receive timely, reliable and complete information on program management and administration.

9.2 Monitoring and auditing individual contribution agreements

9.2.1 General

Strictly from a process point of view, the monitoring and the auditing of individual contribution agreements have a lot in common. In both cases, the objective is to ensure that the agreement's terms and conditions are respected and the expenses claimed are eligible and allowable.

The main differences are the depth, coverage, impartiality and the adherence by auditors to strict professional standards. For that reason, the word "audit" should be reserved for engagements conducted by auditors.

Monitoring is generally conducted by the program officer responsible for the project; consequently, it only covers the recipient's activities. In contrast, an audit will generally review the activities of both the project officer and the recipient. When the monitoring is conducted by the officer responsible for the project, this person may not have the same degree of impartiality as an independent auditor. Finally, whether auditors are providing a higher or more moderate level of assurance, they must adhere to strict audit standards that may not be justified in an operational or financial monitoring exercise.

9.2.2 Monitoring by program officers

Program officers are expected to monitor regularly the progress and activities of recipients of contributions or other conditional transfers. Monitoring is a crucial element of a transfer program control framework.

Monitoring can be operational and/or financial. In the first case, it involves conducting interviews and reviewing documents to ensure that the recipient meets and continues to meet the terms and conditions and reaches the milestones specified in the contribution agreement. In the second case, the monitoring officer will examine claims to ensure that costs and expenses claimed for reimbursement correspond to the eligible costs and expenditures listed in the agreement and do not exceed the maximum authorized for each category. The officer will examine supporting evidence of cost and spending, such as invoices and payrolls, to ensure that they have actually been incurred during the period for which the claim is made and are directly related to the agreement. If the applicant has an obligation to contribute in kind or financially to the project, this should be monitored as well.

9.2.3 Audit of individual transfer agreements

Audits for individual transfer agreements can be conducted at the two levels discussed above: higher and more moderate. In the first case, the auditors will generally spend several days on-site reviewing and analysing the beneficiary's financial and operational records to determine if all the agreement's terms and conditions have been met. In the second case, the auditors may limit their review to one or two areas, such as quality of service or purchase of equipment, or to a few selected financial claims presented by the recipient.

• Attest audits are a particular type of audit that usually fall into the high level of assurance category. They are generally conducted by "external" auditors who apply strict financial audit criteria to provide an opinion on the financial statements related to the agreement. This opinion, when favourable, is generally summarized in a sentence such as "the financial statements present fairly, in all material respects, the financial position of ...(the recipient)...at...(date)." In general, these audits will not cover the appropriateness of expenses or their compliance with the agreement's terms and conditions.
    
• Forensic audits are essentially high-assurance audits that follow specific rules and criteria to gather facts and evidence to ensure the findings and conclusions would meet the requirements of a court of justice in case of judicial proceedings. Forensic audits are generally restricted to situations where fraud is suspected.

9.3 Monitoring and auditing unconditional transfer agreements

Unconditional transfer agreements such as grants do not require monitoring since there are no conditions to be met after the payment, but managers should ensure adequate control over the selection, approval and payment process. Grant agreements can be audited mainly to ensure the recipients meet the applicable eligibility criteria.

9.4 Monitoring and auditing transfer agreements by non-governmental organizations (third parties)

A transfer agreement may stipulate that the recipient will in turn sign sub-agreements with one or more non-governmental organizations to deliver the funds and reach the milestones stipulated in the first agreement, called the master agreement. In master agreements, the department must have the right to monitor and audit the recipient. The right to audit the ultimate recipient should also be included in the sub-agreements whenever practical.

Even though the department retains the right to monitor and audit the ultimate recipient, it should not necessarily engage in these activities unless there are compelling reasons to do so, such as an increase in the risk level or the recipient's failure to exercise due diligence. Whenever possible, the responsibility for monitoring and auditing the ultimate recipient should be left with the recipient who remains accountable for the sub-agreement's terms and conditions.

The recipient should demonstrate to the departmental project officer's satisfaction that a management and control framework has been put in place to ensure the ultimate recipient respects the sub-agreement's terms and conditions. The recipient should manage sub-agreements with the same diligence and responsibility that the department expects for its agreement.

However, the department's internal audit group may be asked to audit the recipient to provide assurance that this is the case. That would require access to the books, records and/or premises of the ultimate recipient and/or the beneficiaries.

10 Reporting

This Section briefly covers the basic requirements for management reporting within departments and to TB.

10.1 Management information

10.1.1 Financial

Timely and reliable information on cash flow is essential for proper administration and management of transfer payment programs. During the course of the fiscal year, program managers and officers must know whether or not there are enough funds in the transfer program account to sign new agreements. Since many agreements last one year or longer, managers and officers must commit the entire amount they expect disburse during the fiscal year. In many cases, several project officers work from the same budget, and each one must know in real time the program balance available before recommending the approval of new agreements. Failure to produce reliable and timely cash flow projections may result in lapsing or over-committed funds.

Cash flow information may be directly available from corporate financial systems but if it is not, responsibility centres should develop their own cash flow forecaster.

10.1.2 Non-financial

The policy stresses the importance of good management and administration of transfer programs. To do so, program managers need to have reliable and timely information on key parameters of their programs. Some of this information should be regularly gathered and reported. For instance, a program's management and control framework may include compliance, quality and internal performance indicators that provide monthly or quarterly information to various levels of management. Similarly, results-based management and accountability frameworks measure and report on a transfer program's output and, eventually, its outcome.

Non-financial information can be gathered on an ad-hoc basis to respond to queries or to address specific concerns. New transfer programs should have a built-in capacity to produce, on demand, the type of information that is not captured through regular indicators but is likely to be needed during their life cycle.

10.2 Reporting to Treasury Board

The policy requires that "Departments must account for transfer payments in the Public Accounts as required by the annual Receiver General Public Accounts Instructions Manual. For each transfer payment program in excess of five million dollars, departments must include in the Departmental Performance Report [DPR] evidence that the results achieved relate to the results committed and the specific planned results in the Reports on Plans and Priorities".

Additional information on grants, contributions, and other transfers payments is required only when the aggregate value within a business line is in excess of $5 million". Departments should refer to the 2001-2002 Part III-Reports on Plans and Priorities (RPP) and the guidelines therein. Table 5.5 of the RPP clarifies the requirements of clause 7.4.7of the TP policy. Therefore, departments are not expected to prepare an annual plan or a results report for every (large) transfer.

The DPR guidelines complement those of the RPP.

Pages 27 and 28 of the RPP Guidelines describe the requirement and also provide an example.

Reference: available at http://www.tbs-sct.gc.ca/est-pre/p3a0102E.asp; then click on Guidelines

11 Policy requirements - Annotations

This section deals with policy requirements or specific elements of a policy requirement that requires further elaboration or correction. This section does not discuss all policy requirements since the majority of them are straightforward and do not need annotation.

11.1 Eligibility of Crown corporations-paragraph 7.2.2 of the TP policy

In part, this paragraph reads "Where a department is considering a grant or a contribution to a Crown corporation listed in Section 85 and Part I of Schedule III to the Financial Administration Act, it must consult with the Treasury Board Secretariat to determine whether specific Treasury Board approval is required."

The conjunction "and" should read "or" as there are no corporations mentioned in section 85 of the FAA that are listed in Part 1 of Schedule III.

11.2 Approving terms and conditions-paragraph 7.3.7 of the TP policy

In part, this paragraph states that "departments must assess, through a formal program evaluation or similar review, and report back on the effectiveness of the transfer payments when requesting renewal of terms and conditions."

This requirement, although not new, is mandatory and should be noted by departments. The onus falls on departments to show that lessons learned from sound program evaluation have been taken into consideration.

Where there are extenuating circumstances, departments may seek an exemption from TB to defer the requirement. However, because this obligation is fundamental to achieving expected results and outcomes and creating appropriate controls, any deferral runs counter to good program design.

11.3 Cash management policy-sub-section 7.6 of the TP policy

11.3.1 Advances on small contributions

Can an advance payment be made for a contribution's full amount when that value is small?

A contribution's key attribute is that normally, payment is in the form of a reimbursement of prescribed costs (i.e., only eligible expenditures agreed to are reimbursed). Since advances should be given on an exceptional basis, a holdback provision will:

• minimize the risk associated with the recipient not using the money for the purpose contributed; and
    
• act as an incentive for the recipient to fully account for all expenditures incurred, resulting in a reduction in departmental workload.

If officials managing transfer payment programs feel that an exemption to the hold-back provision is warranted, they must seek a special exemption within their transfer payment program terms and conditions at the time their approval or renewal is sought from Treasury Board.

11.3.2 Instalments of grants and advance payments of contributions-sub-section 7.6 of the TP policy

• Clause 7.6.4 states that departments must be "guided" by the provisions of Appendix B regarding instalment and advance payments. The interpretation of "guided" is that departments must follow the schedule.
    
• Clause 7.6.1 states that transfer payments "should" not be paid to recipients in advance of need. This clause should instead be read as "transfer payments must not be paid."
    
• In clauses 7.6.1 and 7.6.3, reference is made to departments timing advance payments to a recipient's cash flow requirement. A cash flow forecast, whether obtained at the time of application for short projects or received monthly for longer-term projects, is required for issuing an advance.
    
• Appendix B states that:

11.4 Intellectual property (IP)-sub-section 7.10 of the TP policy

The policy states that "where appropriate, the potential for sharing in intellectual property rights should be defined in the program terms and conditions."

Departments should be aware of the potential risk in acquiring IP through transfer payments. It may result in transforming a contribution agreement into a procurement contract or a licence agreement that is subject to the Government Contracts Regulations and trade agreements. For example, licensing issues can arise in situations where departments stipulate, in transfer agreements, that they can use the IP developed by the recipient for their own purposes.

To ensure that agreements remain transfer payment agreements, rather than becoming procurement contracts or licence agreements, departments should seek legal advice when IP is acquired or covered in transfer agreements.

11.5 Departmental representation on advisory committees and boards-paragraph 7.11.4 of the TP policy

Exercise caution when departmental or government officials participate on advisory committees or boards of directors.

Transfer payment recipients must remain independent of any control exercised by government officials. (For example, control may be exercised even in the absence of government participation on committees and boards. Departments should seek legal advice to ensure that a partnership relationships with recipients are not set up, implicitly or explicitly, in the agreements.) Involvement of departmental or government officials on advisory committees or boards of directors must not result in them exercising control, or be seen to be exercising control. Undue influence or control over advisory committees or boards of directors may result in financial or legal liabilities on the part of the Crown.

When participating on such advisory committees or boards of directors, departments should contact their legal personnel when potential control issues exist.

11.6 Official languages-Sub-section 8.6 of the TP policy

Departments should be aware of the contents of the official languages policy entitled "Grants and Contributions." The policy can be accessed at: http://www.tbs-sct.gc.ca/pubs_pol/hrpubs/offlang/chap1_4_e.asp.

12 Best Practices Annex

This Annex contains documents nominated by various departments in support of the Guide. The content of these documents may have been re-formatted for the Guide. They remain the property of the respective departments.

Index

• Appendix A ACOA - Goods and Services Tax & Harmonized Sales Tax - grants and contributions
    
• Appendix B WD - Other Government Department Suspense Account
    
• Appendix C WD - Supplementary Estimates process
    
• Appendix D ACOA - Suspected External Fraud
    
• Appendix E WD - Quality Assurance Review (QAR) Step III: G&C Project File Management Tools

Appendix A

Atlantic Canada Opportunities Agency (ACOA)-Goods and Services Tax and Harmonized Sales Tax-grants and contributions

2031 (C) GST/HST - Grants and Contributions

Table of Contents

OVERVIEW

POLICY AND GUIDELINES

GOODS AND SERVICES TAX & HARMONIZED SALES TAX - ON GRANTS AND CONTRIBUTIONS

OVERVIEW

The Goods and Services Tax (GST) took effect on January 1, 1991 and is a multi-stage tax. Businesses throughout the production and distribution chain charge GST on their domestic sales. These businesses were to claim a credit for any GST paid on purchases of goods and services used in the course of doing business and were to remit, to Canada Customs and Revenue Agency (CCRA), the difference between GST charged on sales and GST paid on purchases. Provincial Sales Tax (PST) was to be applied at the point of sale to a retail customer (any purchaser who did not have a provincial PST Number) and was collected by a provincial organization.

The Harmonized Sales Tax (HST) became effective on April 1, 1997 for transactions, which take place in the provinces of New Brunswick, Nova Scotia and Newfoundland. It has two parts - a 7% federal GST component and an 8% provincial PST component. It is administered by the CCRA and operates very much the same as the earlier GST system, which continues to apply in Prince Edward Island and elsewhere in Canada.

As a matter of policy, when a recipient of a grant or contribution pays a non-refundable tax in the process of acquiring an eligible asset, that tax may be included as part of the eligible project costs. However, in circumstances where the recipient is entitled to claim an input tax credit or a partial rebate of tax from the CCRA, the Agency would disallow that tax as part of the eligible costs. This principle governs both the treatment of GST in Prince Edward Island and the HST in the remainder of Atlantic Canada.

POLICY AND GUIDELINES

A)    Authorities

• Excise Tax Act and Regulations
    
• Financial Administration Policy and Guidelines for the Application of the Goods and Services Tax in Departments and Agencies-OCG 4001-029 (Various documents and drafts)
  
• Various CCRA publications
    
• Financial Administration Act.

B)   Policy

1. GST/HST on Grants and Contributions

2. Generally, program payments which are made for a public purpose and for which no good or service is provided to the grantor are considered grants for GST/HST purposes and are not subject to tax. Therefore, the grants and contributions provided by ACOA will not normally be liable to the GST/HST. However, a review of the contribution agreement and the Technical Information Bulletin B067-GST (Treatment of Grants and Subsidies by the CCRA Aug 24, 1992) may be necessary in some isolated cases. The CCRA is able to provide GST/HST rulings on the application of B-067 to any specific contribution agreement.

   Similarly a contribution repayment, including interest (where applicable), will not be subject to GST/HST.

3. GST/HST as an Eligible Project Cost

4. Applicants will normally pay GST/HST on purchases of goods and services that are part of the eligible costs under a contribution agreement.

   ACOA will approve, as part of the eligible costs, the GST/HST paid on goods and services that are eligible costs when the amount of tax will not, or will likely not, be refunded or credited to the recipient by the CCRA.

   Furthermore, recipients who are only entitled to a CCRA refund or credit on a portion of the GST/HST paid on goods and services that are eligible will be allowed to claim only the portion of tax not refunded by the CCRA.

5. Responsibilities

C) General Information

1. General

2. In order to guide ACOA personnel on the general application of GST/HST to the various types of businesses or organizations that receive financial assistance from ACOA the following is intended to provide general information.

3. ACOA Recipients

4. Normally, the GST/HST will not be an eligible cost when verifying contribution claims because the large majority of commercial operations (including Crown corporations, partnerships and individuals in business) will be able to claim an input tax credit from the CCRA for all GST/HST paid on purchases used in the course of doing business. In those cases the GST/HST will not be allowed as part of the eligible costs.

5. Exception

6. There are some exceptions to the foregoing and the most common exception is the enterprise with gross sales of $30,000 or less in any consecutive four quarters ($50,000 or less for public service bodies) which is not registered with the CCRA. Businesses in this sales category have the option of registering for the GST/HST and if they choose not to register they may not charge GST/HST on their sales and they receive no input tax credits. In those cases the GST/HST will be allowed as part of the eligible costs.

7. Zero-Rated Supplies

5. Exempt Supplies

6. Public Service Bodies (Municipalities, Universities, Schools, Hospitals, Non Profit Organizations and Charities)

7. These Public Service Bodies, like all other enterprises and consumers, will pay GST/HST on most of their purchases. If they are engaged in activities that compete with or are similar to private sector enterprises, their sales will be subject to GST/HST as applicable.

   These organizations which are resident in the participating provinces and are eligible to claim public service body rebates, will usually be able to claim a predetermined portion of the 7% federal part of the HST. That predetermined portion is:

6. Some may also be able to claim partial rebates for the 8% provincial part of the HST but that eligibility is complicated and varies with the type of organization and the province.

   If any of these organizations undertake commercial activities and are registered for GST/HST, they will receive full tax credit for the amount of HST paid on purchases of goods and services used in the course of doing this business.

   The account manager should question any applicant in this category regarding any GST/HST included in the eligible costs but will normally accept any reasonable assurances that the tax will not be credited or refunded to the applicant.

7. Disclaimer

D)   Special Programs

1. Indians and Indian Bands

E)   Enquiries

Appendix B

WD - Other Government Department Suspense Account

MEMORANDUM OF UNDERSTANDING (MOU)

BETWEEN

DEPARTMENT F, the Funding department,

AND

DEPARTMENT S, the Spending department,

FOR THE ADMINISTRATION OF xxx (name of the program)

(To be used when Department S is requested to administer a program for which Department F has a mandate).

Section 1, Purpose:

Department F is delegating to Department S the required authority for the implementation of XXX (for example, the XXX program of Department F in Yukon) in accordance with the administrative processes and procedures set out in this MOU and with the FIS Accounting requirements.

Section 2, Mandate:

Department F certifies that it has the legislative authority by virtue of the XX Act to carry out the activities required by this MOU and to delegate to Department S the delegated activities described in the Annex. Department F remains accountable for the overall implementation of the program while Department S will carry out the activities in accordance with the terms and conditions of this MOU.

Department S is authorized to sign on behalf of Department F any contracts or agreements entered into with a third party to implement the delegated activities subject to the terms and conditions of the MOU. Any contract or arrangement should identify the government party as Her Majesty in Right of Canada as represented by the Minister of Department F represented by himself/herself by the Director General (or some other position) of Department S.

Section 3, Delegated Financial Authority:

Department S is authorized, according to its own Financial Signing Authority delegation instrument to charge the expenses incurred for the delegated activities to vote X Operating Expenditures and vote X Grants and Contributions of Department F as advanced by F to S.

Section 4, Funds:

Department F will advance the funds through an Interdepartmental Settlement to Department S for the delegated activities on an annual basis as follows:

Department S cannot expend more than the annual amount provided by Department F.

Section 5, Administration:

Department S will initiate, commit, and certify performance and make payments in accordance with the delegated financial signing authorities.

Section 6, Accounting & Reporting:

Department S agrees to provide Department F with an accounting of the use of the authority on, or before, the following dates:

For 2000-2001, on or before January 31, 2001 for the period April 1 to December 31, 2000; and, on, or before, April 15, 2001 for the period January 1 to March 31, 2001.

For 2001-2002 and subsequent fiscal years, on, or before:

The report will provide details on the Payee, the amount, and the financial reporting code i.e. Expense and also the economic object.

Section 7, Cash Flow Forecasting:

Department S agrees to provide with each accounting a forecast of the expected requirements for the remainder of the fiscal year. Any expected non-utilization of the authority needs to be communicated to Department F as soon as possible, and normally on or before September 15th of the current fiscal year (Note: for purposes of the Annual Reference Level Update for grants and contributions).

Section 8, Performance Reporting:

No less frequently than twice annually, Department S agrees to submit a report detailing the work conducted and the results accomplished, in such detail as may be established by Department F.

Section 9, Period of the MOU:

The period covered by this MOU is April 1, 2000 to March 31, 2004.

Section 10, Amendment:

This MOU may be amended, during the period of the MOU, with the mutual consent of both parties.

Section 11, Signatures:

IN WITNESS WHEREOF, this MOU has been executed:

On behalf of F:

Signature: _________________________________ Date: _____________

On behalf of S:

Signature: ______________________________ Date: _____________

Title:

1.2

Appendix C

Western Economic Diversification (WD) - Supplementary Estimates process

Supplementary Estimates process
January 21, 2000

LETTER OF AGREEMENT

BETWEEN:

Department W

and

Department H

WHEREAS the Department W has as its objective to promote the economic diversification of Canada with a focus upon the development of small and medium sized business; and

WHEREAS the Department H has as its objective to strengthen the economy and to provide Canadians with increased products and activities; and

WHEREAS the two departments are interested in implementing projects in Canadian communities to undertake activities such as new technology applications, improved management practices, promotion, marketing and audience development, increased revenue, generation and self-sufficiency; and job creation;

THEREFORE it is agreed that:

1. W funding in the amount of $ X,XXX,XXX will be transferred from the 1999-00 resource levels (vote 999) of the Department W to the 1999-00 resource levels of the Department H. The funds will be transferred through the inclusion of an item in the 1999-00 supplementary estimates of the Department H and the establishment of a frozen allotment within the Department W resource levels (vote 999).
     
2. The funds will be used to support projects of mutual interest to the two departments and the Department H will make best efforts to supplement the program funding.
     
3. All applications submitted under this program will be reviewed, and all projects to be supported with the use of these funds will be approved, by representatives of both the Department W and the Department H.
     
4. The funds for these programs will be administered under the existing terms and conditions of the relevant programs of the Department H.
     
5. The approval letters informing the successful candidates of their funding will be signed on behalf of both the Minister of H and Minister of W. Both will also be consulted and involved in public announcements of funding.

Appendix D

Atlantic Canada Opportunities Agency (ACOA) - Suspected External Fraud

2031 (g) Suspected Fraud Procedures

Table of Contents

OVERVIEW

POLICY [P]

APPENDIX A

APPENDIX B

OVERVIEW

The Agency manages more than 39,000 approved projects, and only 0.15% have had fraud related difficulties. Nevertheless, it is ACOA's position is that where illegal acts are suspected, the matter will be immediately referred to the RCMP for investigation.

By definition, fraud is false representation of a matter of fact which is intended to create a deception for purposes of unlawful gain. It comprises all acts, omissions and concealments involving a breach of a legal or equitable duty and resulting in damage to another. It can involve misappropriation of assets or misrepresentations of financial information either to conceal misappropriation of assets or for other purposes, by such means as:

• manipulation, falsification or alteration of records or documents,
• suppression of information, transactions or documents,
• recording of transactions without substance, or
• misapplication of accounting principles.

Attempted fraud is also an offence; it contains the same elements as set out above for fraud.

POLICY [P]

At no point during the course of an investigation should any representative of the Agency infer or convey to the client or any third party, that a criminal offence has been committed. As is the case in any criminal matter, individuals are presumed innocent until proven guilty. The Account Manager's role is simply to provide an objective and unbiased assessment of the circumstances surrounding the activity or concern and then forwarding this information to the relevant authorities for determination of the next appropriate course of action.

Regional offices may have additional procedures for investigating suspected irregularities collecting evidence and the documentation and reporting thereof. Appendix A provides the essential steps which are to be followed when fraud is suspected. These steps will undoubtedly be expandedin accordance with Regional requirements.

Also as a minimum requirement, all suspected fraud cases forwarded to the RCMP shall contain the following information:

• Client name and address,
• Project Number(s),
• Project Description,
• Principal Outstanding,
• Background of how fraud was suspected, and
• Who initiated the investigation (ACOA or other outside party).

The Chief, Corporate Accounting will complete a monthly review of all active cases at the end of each month and will use the formats established in Appendix B.

APPENDIX A

A) Suspected External Fraud Checklist

• Account Manager advises his/her supervisor.
    
• Regional Vice President forwards a memo to the ACOA Legal Services Branch outlining the concern, providing a precis of the facts, and requesting advice regarding referral for formal investigation.
    
• Legal Services Branch advises the Regional Vice-President regarding referral to the RCMP and provides a copy to the Chief, Corporate Accounting).
    
• The Chief, Corporate Accounting forwards a letter to the RCMP requesting an investigation (See Pages 3 and 4 of this Appendix for a sample format). A copy of the correspondence is also provided to the Regional Vice-President and the Legal Services Branch.
    
• When a case is forwarded to the RCMP, the Legal Services Branch informs the President of the action taken (for information purposes only).
    
• RCMP will inform the Chief, Corporate Accounting as to the identity of the RCMP Investigation Officer assigned to the case.
    
• RCMP advises Chief, Corporate Accounting of the outcome/progress of the investigation.
    
• Chief, Corporate Accounting maintains and follows up on all active cases.

B) Royal Canadian Mounted Police

Commercial Crime Units in Atlantic Canada

Economic Crime Directorate

C) Atlantic Canada Opportunities Agency Suspected Illegal Activities Synopsis Of Events

D) Active Cases Where ACOA Initiated Investigation

PROTECTED A

E) Active Cases Where Investigation Initiated By Other Parties

PROTECTED "A"

APPENDIX B

A) Active Cases Where RCMP Initiated Investigation

PROTECTED "A"

Appendix E

Western Economic Diversification (WD)-Quality Assurance Review (QAR) Step III: G & C Project File Management Tools

Audit and Evaluation

DRAFT DOCUMENT FOR DISCUSSION ONLY

Quality Assurance Review
Step III:

G&C Project File Management Tools

Tuesday, October 24, 2000

Table of Contents

Background to the QAR Initiative

Objective and Scope of the QAR Initiative

QAR Issues and Methodology

QAR Step III

Next Steps

Appendix One - General Approach to the QAR Initiative

Appendix Two - QAR Checklist Issues

Appendix Three - Guidance for File Contents

Appendix Four - Final QAR Checklists

Background to the QAR Initiative

As a result of discussions with the Special Advisor to the Deputy Minister regarding issues raised by the Office of the Auditor General (OAG) in Chapter 27 of their December, 1998 Report; Audit and Evaluation, in consultation with all stakeholders, has undertaken a Quality Assurance Review (QAR) of grants and contributions (Gs&Cs) at Western Economic Diversification Canada (WD).

In 1994 and 1995, the OAG audited a number of contribution programs delivered by Industry Canada and by federal regional development agencies (including WD). At that time they noted opportunities for improvement in different aspects of program delivery, including concerns about due diligence in project assessment. Their recommendations included the need for:

• More persuasive assessments to support funding decisions, and documentation that reflects all the major factors supporting decisions to approve assistance;
    
• The streamlining of guidelines and criteria for assessing applications, differentiated by size and risk, and simplification of application documentation for small projects;
    
• Better co-ordination with other federal and provincial departments in view of the potential for duplication of effort and funding; and
    
• Greater attention to collecting repayable contributions.

The QAR initiative represents a proactive effort to move WD's grant and contribution efforts further along a continuum to having all of the characteristics that the OAG describes in Chapter 27 of the December, 1998 Report as, Qualities of a Well-Managed Grant or Contribution Program:

• The choice of funding instrument - grant or contribution - respects accountability to Parliament and achieves a balance among principles of cost-benefit, risk management, and reasonable treatment of program recipients.
    
• Management can explain how recipients are expected to benefit from funding and to what end.
    
• Program officers understand who and what is eligible for funding, under what conditions funding can be provided, for what purposes, and in what amounts.
    
• Potential applicants are aware of the program.
    
• Eligible projects represent value for money to both the applicant and the program.
    
• More deserving recipients are funded and at an appropriate level.
    
• Funding is used for the purposes agreed.
    
• Problems with project and program performance are resolved quickly.
    
• Management reporting demonstrates a good knowledge of program performance.
    
• Money owed to the Crown is collected promptly (in the case of repayable contributions).

The QAR Initiative has provided an opportunity for WD to be proactive and move to the forefront of government departments in providing grants and contributions that are administered in a manner which ensures due diligence and provides performance information in keeping with government policy and central agency expectations. And, in line with the Mid-Term Strategy, this initiative shows WD in a leadership position that emphasizes a move to being a Department that sets an example for others. Finally, the QAR Initiative has allowed WD to move quickly and with better knowledge and assurance than it would have with regard to the new TB Policy on Transfer Payments.

Objective and Scope of the QAR Initiative

Objective

When complete, the QAR initiative will result in a consistent approach for the grants and contributions handled by WD. Once implemented, practices suggested as a result of QAR will help to ensure that due diligence is addressed, and that the statement and assessment of clear and measurable results is provided for WD's grants and contributions portfolio. In doing so, WD will meet the expectations of the OAG and enhance the accountabilities which currently exist in the Department.

Scope

The QAR initiative is focused on existing, ongoing, and future initiatives and programs for which WD is directly responsible (e.g.: ITPP, FJST), or that WD delivers through arrangements with third parties (e.g.: CFDCs). Files from FY 1997-98 to FY 1998-99 were looked at in conducting the fieldwork related to Step Two of the QAR initiative.

The QAR effort thus far has not covered funding through the Department's O&M budget (e.g.: CBSCs), nor has it addressed grants and contributions that have recently been covered by other distinct accountability mechanisms. Both the Infrastructure Works Program (IWP) and the Manitoba flood-related Jobs and Economic Recovery Initiative (JERI) are examples of the types of programs not covered by the QAR initiative. These two initiatives have recently been covered by OAG audits or other evaluations.

QAR Issues and Methodology

The QAR Initiative consisted of four steps:

The issues considered during the Step Two fieldwork were drawn in large part from Chapter 27 of the 1998 OAG Report, many of which were re-emphasized in their November 1999 Report. The broad issues considered by the fieldwork were as follows:

• Due diligence: Demonstrated by reviewing and approving applications in a complete and appropriate manner and providing persuasive assessments based on relevant documentation to support decisions to approve assistance.
    
• Clear, attainable objectives: That allow management to explain how recipients are expected to benefit from funding and to what end.
    
• Performance against objectives is measured and reported: Ensure control, monitoring and evaluation of the funding effort and that funding is used for the purposes agreed.
    
• Funds are managed in a responsible manner: Ensure that resources are used efficiently and that payments and repayments occur in a timely manner.

QAR deals with issues at the project, not program, level. In making that distinction, QAR does not consider program-level issues such as choice of funding instrument, compliance with government or departmental priorities or overall program reporting (e.g. Annual Report, Performance Report, etc.). The QAR Step II: Best Practices Report provides a schematic to help put the QAR initiative in perspective, and place the issues covered by QAR relative to an overall program and project life cycle.

QAR Step III

Where Are We Now?

QAR Step III is now complete, and has followed from the work reported under Step II in The Best Practices Report. In that document, we recognized that best practices are not only documents; but rather the activities around ensuring that appropriate file documentation exists:

• Information gathering;
    
• Information preparation;
    
• Information entry;
    
• Information verification; and
    
• Information analysis.

We make this distinction to emphasize that although documents may be on file, if they are not supported by best practices, there is a possibility that the need to ensure due diligence, have clear objectives, measure and report on performance and manage funds responsibly has not been accomplished.

Step III has included:

• development of practical project file management tools for all levels of management and staff who handle WD grants and contributions;
    
• development of a training package in the train-the-trainer mode to share the knowledge gained;
    
• delivery of that training;
    
• redrafting of the project file management tools based on feedback during training;
    
• sharing and consultation on the re-worked tools; and
    
• a final edit of the tools (included for use as Appendix Four).

This report on Step III brings this stage of the QAR Initiative to a close in terms of A&E's developmental efforts. As noted, we have received valuable feedback from the Regions, and via this report, will clarify where the contents of the QAR checklists come from, and how they might be adjusted for the project file types to reflect the best practices and documentation identified.

A&E is now looking to the program areas to make any further adjustments to these tools to meet local and program/project considerations - bearing in mind the content of this report. In addition to this Report A&E has prepared a guidance document (Appendix Three) that is an essential part of considering the QAR Checklists.

The QAR Checklists

The checklists have been adjusted to take into account key suggestions from the latest feedback on the instruments. Each has been changed to remove the word "Form" from "Client Application Form" and substitute "Information". There is a sense that if the information is completed as suggested in the guidance document (Appendix Three), it will indeed meet the intent of TB without compromising the informal way that WD wants to interact with our clients.

For all of the QAR Checklists, including the WDP Checklist; the best practices work suggests very strongly that a T&C (Terms and Conditions) Checklist, a PAS (the Project Assessment Summary) and a PAN (Project Approval Note) should all be completed and on file. Discussions have made it clear that the PAS is seen as a document that supports the PAN; but does not replace it as an essential element of ensuring that due diligence has taken place. With that said, some discretion must be used. And that discretion should correspond directly to an on-file assessment of the risk presented by each project. It is clear that unduly complex files, and exhaustive file contents are not the best use of effort where risk is assessed to be low. Nonetheless, certain critical elements must exist in all files, and certain critical best practices must be undertaken. These include a T&C Checklist, a PAS, and a PAN.

In terms of the Loan Funds Checklist, some modification of specific wording may be in order for specific projects given regional preferences in terms of program and project-level accountability. The guidance provided by WD on our web site [http://www.wd.gc.ca/finance/programs/appsum_e.asp] is also helpful in that it clearly defines the information that is expected from each applicant. Also worth considering is the direction provided in the TB submission for LIFP that states that the application process will include the documentation of the technology review and a business plan. One specific suggestion in refining the QAR Checklist may be to replace the "Terms and Conditions Checklist" with a document (or checklist) that will help to demonstrate that basic eligibility criteria had been checked and met. In addition, some type of formal signed-off approval note is advisable. The eligibility letter to the bank is a clear file content requirement, as would be a copy of the loan approval letter from the financial institution. Undertaking these best practices will reflect the notions included in WD's TB submission suggesting that applicant screening, due diligence and loan/investment application approval is be based on an integrated and transparent process.

It is apparent that the intent of the Loan investment Funds is to bridge access to financing gaps in particular industries that represent opportunities for the diversification of the western economy. While efforts to assess program performance have focused on statistics regarding take-up and funding issues, the intent of monitoring and evaluating the effort should include whether or not the loans help achieve that broader objective. And for that reason, progress and final reports from the individual loan recipients is seen as a key component of the files.

Our QAR File Contents and Best Practices Checklist for Projects Delivered by WD's Service Partnership Network, are also finalized. Our discussions indicate that program staff view the agreements (and resulting file contents) that cover the relationship between service partners and WD as a strong point. Recent developments - most particularly Treasury Board's new Policy on Transfer Payments - have strengthened expectations in this regard. In this light, WD should continue to ensure that we meet the expectations of central agencies (e.g.: the OAG) that may be looking for comprehensive documented knowledge of individual projects funded by our service partners who deliver either WD-core, or one-time programs.

One way to meet the expectations of central agencies is for service partners to have the QAR checklist on file, and to have the necessary supporting documentation there as well. WD can contribute by undertaking activities that ensure our identified "Best Practices" are taking place on a project-by-project basis. This could be accomplished in a comprehensive manner by having critical service partner project-specific information on our files, and undertaking a planned and regular risk-based review of files. Doing so will help to ensure that due diligence is exercised, objectives are clear, performance is measured and reported, and funds are managed responsibly.

Next Steps

Attached are the three final checklists as prepared by A&E. As we have mentioned, it is now up to WD staff associated with project management to adjust the checklists to reflect wording peculiarities as they reflect operational conditions, and considering the comments above. With our role in Step 3 complete, Step 4 of the QAR Initiative is a review of files which is expected to start late in the final quarter of FY 2000-2001. In the interim, there remains the clear probability that the OAG will exercise its prerogative to audit our files as well, either as part of a government-wide G&C audit or an audit of WD alone.

A wealth of effort exists to demonstrate WD's strong approach to managing the department's grant and contribution portfolio. Through QAR, these best and promising practices have now been shared; allowing WD to build on the existing grant and contribution management efforts and promote the consistent application of the best and promising practices identified. By doing so, we are assuring that grant and contribution funds at WD are providing the maximum intended benefits to Canadians, and that scrutiny of our practices would result in consistently positive observations. Through the QAR initiative, WD is acting in a positive manner and has assumed a leadership role for all government departments that provide grants and contributions to Canadians.

Appendix One - General Approach to the QAR Initiative
  

Appendix Two - QAR Checklist Issues

Due diligence is demonstrated by reviewing and approving applications in a complete and appropriate manner. Persuasive assessments exist to support the funding decisions, and documentation is on file that reflects all the major factors supporting decisions to approve assistance.

• It is demonstrated that other methods of funding have been exhausted.
    
• An assessment has been made to ensure that funding will not have a negative impact on privately funded enterprises.
    
• An assessment has been made of the ability (e.g.: managerial, financial, etc.) of the recipient entity to ensure they are capable of delivering the project.
    
• Other federal and provincial departments have been consulted to ensure that funding is not duplicated.
    
• Recipients are funded and at an appropriate level.
    
• A comparative assessment of the value for money to both the applicant and the program has been completed (e.g.: cost-benefit, cost-effectiveness).
    
• A rigorous assessment, based on clear criteria, has been made regarding the risk inherent in the project.
    
• Alternative methods of delivery have been identified and assessed.
    
• Environmental concerns have been identified and assessed.
    
• Human rights concerns have been identified and assessed.

Clear, attainable objectives are set, allowing management to explain how recipients are expected to benefit from funding and to what end.

• Objectives are clearly stated.
    
• Objectives relate to results as well as activities.
    
• Objectives contain essential elements; stated condition, expected quantitative measure, and time frame.
    
• Objectives are plausible and realistic reflecting strength in program design.
    
• Achievement of objectives is clearly attributable to the program effort.
    
• Achievement of objectives will clearly provide incremental results.
    
• Objectives are related to the statement of overall program goals and objectives.
    
• Objectives as stated comply with overall program authorities.

Performance against objectives is measured and reported to ensure control, monitoring and evaluation of the funding effort and that funding is used for the purposes agreed.

• The terms and conditions set in the agreement are clear and unambiguous.
    
• Monitoring and evaluation requirements are clearly set out.
    
• There are measures in place that clearly reflect objectives.
    
• Monitoring occurs on a regular and timely basis, appropriate to risk.
    
• Evaluation occurs as per the agreement and in accordance with TB guidelines in a timely manner.
    
• There is a mechanism for resolving problems, and problems with performance are resolved quickly.
    
• Reporting demonstrates a good knowledge of program performance.

Funds are managed in a responsible manner.

• An ongoing assessment of the efficient use of the funds exists.
    
• Payments are based on verified evidence of appropriate expenditures.
    
• Payments are made properly in accordance with the agreement (in the case of repayable contributions, money owed to the Crown is collected promptly).
    
• Projects are processed and managed in a timely manner.

Appendix Three - Guidance for File Contents

Program Officers are expected to ensure that the Best Practices of Information Gathering, Preparation and Entry, Verification and/or Information Analysis are undertaken; and that the Core and Supporting Documents are on file.

Covered by WDP T&Cs:

1. Agri-Food Initiative [SK only]
2. Canada Foundation for Innovation Support Program
3. First Jobs in Science and Technology Program
4. International Trade Personnel Program
5. Sponsorships-Contribution Payments
6. Strategic Initiatives Program
7. Western Cooperation on S&T [AB only]
8. Western Economic Diversification Program - 807005 / 809563

Covered by Separate T&Cs [and agreements]:

1. Investment Loan Funds - 823561
2. Agriculture Value-Added Loan Program - 823272
3. Knowledge-Based Industries Loan Fund - 823182
4. Western Economic Partnership Agreements - 825994
5. Western Urban Development Agreements - 822310

Covered by Separate T&Cs for Operational Funding, and responsible for Third-Party Delivery of Programs:

1. Canada Business Service Centre Agreement - 824991
2. Community Futures Program - 826075
3. Service Delivery Network - 825101
4. Women's Enterprise Centres - 822141

The Tables below offer guidance with regard to the documents one might expect to find on file for current, on-going WD programs. The x symbol represents a required item based on established WD policy, or more importantly, Treasury Board Decision. A y denotes a document that been suggested through our QAR Best Practices exercise.

Appendix Four - Final QAR Checklists
  

Guidance Document Notes:

(i) Covered by WDP Ts&Cs - Required information is based on the content of the WDP Operations Handbook.  [Return]

1. the name of the applicant and distribution of ownership;
2. the purpose or objective of the project;
3. a statement of the work to be done;
4. the project commencement and completion dates, including critical factors in the proposed scheduling;
5. the benefits expected and, depending on the nature of the project, this may be elaborated to include projections of the net jobs to be created, increased sales, cost reductions, ancillary business/activities affected, etc.;
6. a business and financial plan, including a budget and the shares to be borne by each of the applicant, WDP, and any other contributors;
7. the ownership and responsibility for the operation and maintenance of the project after completion, if other than the applicant;
8. all other sources of funds to which this project, or a substantially similar project, has previously been submitted or is currently under consideration;
9. where applicable, environmental impacts."

(iii) WD Project Screening Information - All elements well described in WD's Operations Handbook.  [Return]

(iv) Client Project Proposal - May be included as part of the client's Business Plan.  [Return]

(v) Client Business Plan - May consist of some or all [officer's discretion and as applicable] of the following components depending on the project:

• past financial and operating performance and capabilities [required];
• current financial and operating performance and capabilities [required];
• details of ownership and incorporation [required];
• description of the purpose and objectives of the project [required];
• consideration of the operating environment;
• statement of work [required];
• marketing plan;
• location strategy;
• production plan;
• technological assessment;
• human resourcing details;
• R&D Plan; and
• Financial Plan [required]
• [Return]

(vi) WD Terms and Conditions Checklist - To be developed by program staff - will include all relevant requirements from the Terms and Conditions as accepted or demanded by TB.  [Return]

(vii) WD Project Assessment Summary - All projects covered by WDP Terms and Conditions must have a fully completed Project Assessment Summary.  [Return]

(viii) WD Letter of Offer - WDP Ts&Cs [807005] stipulates that, "The Letter of Offer will constitute the only legally binding confirmation of assistance under WDP. Letters of Offer, which may vary in contents according to the nature of the project, time to completion, etc.) will set out specific Terms and Conditions for the financial support that WD is offering to the applicant." [Return]

(ix) WD Client Contact Notes - Formalization on-file of informal contact information from phone calls, meetings, non-audit related site visits, etc.  [Return]

(x) WD/Client Signed Agreement - The parties to the agreements may vary depending on the program. For those covered by the WDP Terms and Conditions, the agreement is indeed between WD and the applicant. For the Loan Funds programs the parties to the agreement are WD and the financial institution. For SDN, WEPA and WUDA agreements may include several parties. CFDC and WEC delivered programs may involve agreements between WD and another department as well as the CFDC or WEC and the applicant.  [Return]

(xi) TB Approvals - For all projects with a WD assistance level of $10 million or more. [Section 7, WDP Ts&Cs]  [Return]

(xii) Client Progress Reports - Under WDP, required on a quarterly basis.  [Return]

(xiii) Client Final Project Report - As set out in the Letter of Offer indicating the results, actual and expected benefits, and any follow-up activity planned. [see Section 13 v) of the WDP Ts&Cs]  [Return]

Date Modified: 2002-07-01