Opening Statement to the Standing Committee on Government Operations and Estimates

Placing the Public's Money Beyond Parliament's Reach
(Chapter 1 - April 2002 Report of the Auditor General of Canada)

8 October 2003

Sheila Fraser, FCA
Auditor General of Canada

Mr. Chairman, thank you for the opportunity to participate in this roundtable meeting with the Committee to discuss issues related to foundations and our April 2002 Chapter, "Placing the Public's Money Beyond Parliament's Reach." With me today is Tom Wileman, Principal.

Up to 31 March 2002, the federal government had transferred $7.5 billion to several foundations, money provided well in advance of program needs. Much of that amount was still in the foundations' bank accounts and investments. The funds had yet to be distributed to the ultimate intended recipients or used for the ultimate purposes announced by the government for this spending. The 2003 Budget announced $1.2 billion more to foundations. I will be commenting further on transfers to foundations in my Report and Observations on the Public Accounts of Canada for the year ended 31 March 2003, which should be tabled later this year.

The government's accounting policy recognizes such transfers as expenditures when the money is transferred to the foundations. We question whether this accounting treatment properly reflects the economic substance of these transfers. Would it not be better represented in the government's financial statements if expenditures were recorded in the years when the foundations make grant payments to the ultimate intended recipients or use the money themselves for the government's ultimate intended purposes? The Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants has recently issued a revised accounting standard and has a second project underway that could affect how these transactions are recorded.

PSAB recently issued a new standard on the government reporting entity. The standard provides guidance to assist governments in determining if an organization is controlled by government. I have encouraged the federal government to consider the implications of this new accounting standard for each of the foundations. Similarly, PSAB has a second project underway that considers the accounting for government transfer payments, including multi-year funding. Together with government officials, I will be monitoring the progress of this project and considering the possible implications for the way the government accounts for transfers to foundations.

Beyond the accounting treatment of foundations, my April 2002 Report also raised broader and perhaps more important concerns about the accountability to Parliament.

In its 2003 Budget Plan, the government announced a number of commitments to improve the accountability of foundations. The Standing Committee on Public Accounts reported to the House on this issue in its 14^th Report, tabled in May of this year. My Office is undertaking a follow-up audit on the accountability of foundations in light of these developments. We plan to report to Parliament on that work in my next Status Report, May 2004.

Mr. Chairman, our follow-up audit has just begun, and we will be looking at the progress made in specific foundations. I would like to raise a number of issues that may be of interest to your Committee as it plans its hearings on foundations.

Our main finding in the 2002 audit was that the government's arrangements with the existing foundations did not meet essential requirements for accountability to Parliament—credible reporting of results, effective ministerial oversight, and adequate external audit.

The first issue was credible reporting of results to Parliament and the public. The foundations publish annual reports, but we found in 2002 that few of them were tabled in Parliament. Nor did Parliament receive multi-year plans or evaluation findings. While Parliament did receive some useful information in the Estimates documents of the sponsoring departments or in the foundations' annual reports, the performance information provided there could have been better.

The 2003 Budget announced requirements for corporate plans, with summaries to be tabled in Parliament. Improvements in reporting are also planned for sponsoring departments' Estimates documents, to present the significant results expected and achieved by foundations as well as evaluation findings. There was also a commitment to include relevant performance reporting in foundations' annual reports. When the sponsoring departments' departmental performance reports for the period ended March 31, 2003, are tabled in November, I encourage the Committee to examine the information they contain on the performance of foundations. We note that the Committee has invited some foundations to appear and we would encourage you to ask them on a regular basis about the programs they are delivering.

A second major issue from the 2002 audit was ministerial oversight. Sponsoring ministers and their departments did not have effective means to strategically monitor foundations' spending and make adjustments, should things go wrong or government priorities change. Ministers had limited powers to intervene, short of taking legal action if the funding agreement were breached.

In the 2003 Budget, the government announced that funding agreements would provide for ministerial intervention in the event of significant deviation from the agreement, and for dispute resolution mechanisms. The Committee may want to ask how these measures will work. What powers will ministers have? What information will be made available to them, as a basis for possible intervention? Will the funding agreements cover all the important issues? How will matters not covered by the funding agreement be addressed?

The third issue was the adequacy of the audit regime. Each of the foundations we examined in 2002 had provisions for financial statements and a financial audit by an external auditor appointed by the foundation's board. However, none of the foundations had adequate provision for independent audits and evaluations made available to Parliament. In particular, there was no provision for value-for-money audit.

The 2003 Budget Plan referred to evaluation requirements already in place in many foundations that we examined in 2002. These included requirements to conduct independent evaluations, present them to the minister responsible, and make them public. The Budget also announced provisions for independent audits of compliance with funding agreements, and my Office would be eligible to undertake those audits.

As stated in the Budget, foundations have become important tools for implementing policy. Sponsoring departments are responsible for policy evaluation and for monitoring how the foundations are meeting policy objectives. The Committee may want to ask whether the proposed audit and evaluation measures, both in foundations and sponsoring departments, are enough that Parliament can get good, reliable information on the operations of the foundations and their effectiveness in delivering public policies. I would like to add, Mr. Chairman, that we will be assessing the proposed measures in our follow-up audit.

In April 2002, the Treasury Board adopted a policy on alternative service delivery that we see as a promising step. It means that sponsoring departments can be required to provide information on the governance and accountability of proposed new arrangements such as foundations, as part of the process of obtaining approval for the arrangements. If the policy is to be effective, however, departments will need better guidance on key governance issues than they were getting at the time of our audit. And the Treasury Board Secretariat will need the appropriate resources and skills to monitor departmental compliance with the policy effectively. The Committee may want to ask the Treasury Board Secretariat about the implementation of this policy in foundations.

Mr. Chairman, in conclusion, the fundamental question before the Committee is whether there are appropriate mechanisms for accountability to Parliament and for oversight of these large foundations. A related question the Committee may wish to pursue is why it is necessary to provide such large amounts of public money so far in advance of need.

Mr. Chairman, we would be pleased to answer the Committee's questions.