Opening Statement to the Standing Committee on Public Accounts

Chapter 1 of the April 2002 Report - Placing the Public's Money Beyond Parliament's Reach

12 February 2003

Mr. Chairman, thank you for the opportunity to meet with the Committee to discuss our April 2002 Chapter, "Placing the Public's Money Beyond Parliament's Reach." With me today is Maria Barrados, Assistant Auditor General.

The federal government has "delegated" program responsibilities to certain foundations without making them appropriately accountable. Since 1996-97, it has transferred more than $7.4 billion to10 foundations, money provided well in advance of program needs. Prominent examples are the Canada Foundation for Innovation, with $3.15 billion in federal funds; the Canada Millennium Scholarship Fund, with $2.5 billion; and Canada Health Infoway Inc., with $500 million. At March 31, 2002, almost the entire amount that had been provided to the foundations was still in their bank accounts and investments. It will be years before the ultimate intended recipients-students, health care providers, and others-receive the money.

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 two projects under way that could affect how these transactions are recorded. First, PSAB has issued draft revised standards for determining whether organizations such as the foundations should be included in the government reporting entity-focussing on whether the government "controls" the entity. Second, PSAB is developing revised standards on when transfers should be recorded as expenditures.

In 2001-02, the government announced its intention to create two new foundations. Later, it found that it could meet the same objectives through normal departmental programs and appropriations and subject to the usual accountability to Parliament. As a result, transfers to foundations declined from $2 billion in 2000-01 to $235 million in 2001-02.

The arrangements with the existing foundations do not meet the essential requirements for accountability to Parliament credible reporting of results, effective ministerial oversight, and adequate external audit. In addition, they are weak in key aspects of an adequate governing framework, notably transparency and protection of public sector values and ethics. Sponsoring government departments need to ensure that taxpayer-funded foundations spend the public's money with fairness, propriety, and good stewardship.

In our view, sponsoring ministers must have effective means to strategically monitor foundation spending and make adjustments, should things go wrong or government priorities change. Ministers now have almost no power to intervene, short of taking legal action if the funding agreement is breached.

Each of the foundations we examined has provisions for financial statements and a financial audit by an external auditor appointed by the foundations board. However, none of the foundations have independent, broad-scope audits that go beyond auditing the financial statements. None are required to undergo audits that cover propriety compliance with authorities, or value for money in the use of federal funds. This is the assurance and information that Parliament traditionally seeks through broad-scope audits conducted by its Auditor General. Mr. Chairman, in my view, Parliament's auditor should be appointed in most cases as external auditor of the foundations.

Reporting to Parliament and the public on these foundations needs to improve. The foundations publish annual reports, but few of them make provision for tabling these reports in Parliament. Nor does Parliament receive multi-year plans or evaluation findings. While Parliament does receive some useful information in the Estimates documents of the sponsoring departments or in the foundations' annual reports, the performance information they provide could be better.

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 approval process. 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.

In conclusion, Mr. Chairman, it is our view that the government should re-examine the accountability and governance of foundations and other delegated arrangements. Concrete improvements are urgently needed. For example, recent Budgets gave some foundations additional funding. The government should use such occasions to strengthen the provisions for governance and accountability in funding agreements. Until the many gaps in the foundations' governing frameworks are tightened, their accountability to Parliament will continue to be unnecessarily at risk, and the public money they receive will remain beyond Parliament's reach.

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