Opening Statement to the Committee on Public Accounts

Grants and Contributions: Selected Programs in Industry Canada and Department of Canadian Heritage (Chapter 27 - December 1998 Report)

11 February 1999

L. Denis Desautels, FCA
Auditor General of Canada

Mr. Chairman, thank you for this opportunity to present the results of our audit of selected grants and contributions programs in Industry Canada and the Department of Canadian Heritage.

There are three main messages in our report. First, the chapter notes how our audits of grant or contribution programs over the past 21 years have produced a long series of consistent and disappointing observations. Second, our most recent audit showed that there are significant opportunities to improve the management of Multiculturalism Program of the Department of Canadian Heritage and the Ontario Base Closure Adjustment Program (OBCAP) delivered by Industry Canada. Finally, we found that Industry Canada could strengthen accountability for performance under its contribution agreements with CANARIE Inc. (Canadian Network for the Advancement of Research, Industry and Education) and PRECARN Associates Inc. (Pre-Competitive Advanced Research Network). I will elaborate briefly on these issues.

For many years, we have reported to Parliament on the results of audits of various grant and contribution programs. In 1977, we found problems in compliance with program authorities, weaknesses in program design, instances of poor controls, and insufficient performance measurement and reporting. In subsequent audits, we have made similar observations. Although we have found specific improvements in some areas in our follow-up review overall we continue to find the same problems each time we audit these programs.

Why have these problems persisted? The answers range from decision makers not following the government’s rules for grants and contributions to poor management and weak management practices. To address this latter problem, our Office is developing a performance management framework. The framework will set out our expectations of management and it will help managers think critically about their programs. We are working on the framework now with the help of some departments, and we expect to publish it in a future report.

This audit brings attention to a critical management issue; that is, what constitutes due diligence in assessing applications for grants or contributions. Due diligence does not imply exhaustive analyses in all cases; obviously the extent of analysis is related to the amount of the grant or contribution. At a minimum, due diligence simply means ensuring that decisions take into account the funding criteria set by the Treasury Board and that they are based on reliable information.

Let me now briefly review our findings.

For OBCAP, which has a budget of $11.7 million over seven years, we found that there was little evidence that Industry Canada exercised due diligence in approving many projects. We found little information on file to indicate that the criteria approved by the Treasury Board had been considered.

In Canadian Heritage, we found significant opportunities to improve the management of the Multiculturalism Program. In 1997-98, the Department made grants or contributions totalling $19 million to 1,000 projects under the Program. The Department needs to ensure that due diligence is exercised in the approval of grants and contributions and that recipients provide performance information. In about 30 percent of the files we audited, we could not assure ourselves that departmental officials had exercised due diligence in assessing the project.

We are also concerned that the Program’s performance expectations are ambiguous. The Department has not supported the general program objectives with more clearly stated and focussed goals and expected results. We found that with only such broad objectives to guide decision making, the Program is funding projects that also fall within the mandates of other departments or of provincial agencies.

We also found that Industry Canada could strengthen accountability for performance under its contribution agreements with CANARIE Inc. and PRECARN Associates Inc.

CANARIE activities are proceeding in three phases. The federal government contributed a total of $107 million through Industry Canada for Phases 1 and 2. Phase 3 is in the planning stage at this time.

CANARIE’s business plan and operating plan do not include annual performance expectations against which the department could monitor performance of CANARIE activities. We noted that there was no requirement for annual updates to these plans or for annual performance reports by CANARIE. Industry Canada does not monitor results achieved annually by CANARIE in a structured way. We also found that Industry Canada was not doing enough to assure itself that the practices followed by CANARIE in selecting and managing projects meet departmental requirements.

As for PRECARN, the Treasury Board approved the provision of financial assistance of up to $35.4 million over a six-year period for Phases 1 and 2.

As required by the agreement, PRECARN submits an annual business plan, setting out clear performance expectations. However, we saw no evidence that Industry Canada reviews the plan to ensure that it is in line with departmental expectations; nor does Industry Canada formally approve the plan, although it is required to by the agreement. We also found that the Department does not monitor, in an independent way, the results achieved annually.

In summary, there are several issues the Committee may wish to pursue with the departments. First, the Committee could ask the two departments to report to it on the specific results expected from each of the grant or contribution programs presented in Part III of the Estimates, Report on Plans and Priorities. This would accomplish two things: First, it would clarify and supplement information already in the Part III by explaining the link between annual expenditures on individual grant and contribution programs and the broad objectives of each department. Second, it would greatly assist with future audit work by our Office on grants and contributions.

Second, even the best designed program will fail if due diligence is not exercised. The Committee may wish to ask the departments to review their decision-making processes for all grant and contribution programs to ensure that all funded projects represent value for money to both the applicant and the program. In particular, the departments should ensure that all eligible applications for funding are assessed against the criteria approved by the Treasury Board, and that there are periodic audits of all grant and contribution programs.

The Committee may also wish to ask Industry Canada to ensure that it reviews the accountability arrangements and performance expectations for all of its indirect program delivery arrangements, and to assess performance annually.

Mr. Chairman, that concludes my opening statement. We would be pleased to answer your Committee’s questions. Thank you.