GENERAL RESPONSE
The Government welcomes the Committee's recommendations on foundations. The
Government's Response below reflects that, since Budget 2003, the Government has
taken and, with recommendations from the Auditor General and Parliament,
continues to pursue active steps to strengthen overall accountability and
transparency relating to transfer payments to foundations, and do so in a manner
that respects the independence of these organizations. Among the most important
steps taken are the following:
- The Government has set out clear principles it will apply when using a
foundation to deliver public policy;
- Funding agreements have been renegotiated, and in some cases legislation
amended, to improve accountability;
- Reporting to ministers, Parliament and the public has been strengthened;
- Default provisions have been introduced in funding agreements to enable
corrections when things go wrong;
- The Government's Bill C43 has been enacted to authorize the Auditor
General to perform audits;
Further, the Government supports the Committee's recommendation that an
evaluation should be conducted of foundations as tools for the delivery of
public policy. However, the Government also believes that the accountability and
oversight regime for foundations must respect and preserve their independence if
they are to remain effective delivery tools.
RECOMMENDATION 1
That Treasury Board Secretariat review the use of exemptions in its
transfer policy, especially with respect to foundations, and report the findings
of this review to Parliament by 31 December 2005.
Foundations are important tools for implementing policy in areas such as
innovation, research, health, and education, where stable, long-term funding is
important. Up-front funding is necessary to provide foundations the financial
stability they need to plan comprehensively for the medium and long-term, to
allow them to make multi-year commitments, and to attract funds from other
sources.
Up-front funding has meant that transfer payments have been made to
foundations in advance of their cash flow needs, but not in advance of their
program need. The Policy on Transfer Payments explicitly provides for Treasury
Board approval of exemptions when transfer payments are to be made in advance of
cash flow need, and this provision has been appropriately utilized to provide
up-front funding to foundations. The Policy on Transfer Payments, it should be
noted, is currently under review and the issue of exemptions will be considered.
Going forward, the Government is exploring other options to guarantee stable
funding for foundations that preserve their ability to enter into longer-term
commitments. The Government will report to the Committee on the outcome of this
review by
31 March 2006, in conjunction with its review of accounting issues discussed
below.
RECOMMENDATION 2
That the Comptroller General seek parliamentary approval for any new
financial transfer mechanism or policy to foundations.
Treasury Board has authority under Section 7 of the Financial Administration
Act with respect to new financial transfer mechanisms or policy. However, as
noted above, the Government will report to the Committee on other options being
explored to fund foundations, and on any policy changes impacting foundations.
RECOMMENDATION 3
That the Comptroller General, along with the Office of the Auditor
General, review all 15 major foundations and decide which, if any, are
controlled or which, if any, operate at arm's length. The Comptroller General
should report back to the Committee with the results of the study no later than
31 March 2006. In the report, the Comptroller General should indicate to
Parliament whether the Auditor General agrees with its classifications of
foundations as controlled or arm's length.
RECOMMENDATION 4
That Treasury Board Secretariat analyse the impact on the government's
financial statements of any classification changes to the arm's length status of
foundations. It must report the outcome of this analysis to the Public Accounts
Committee no later than 31 March 2006.
The Government holds the view that its accounting treatment of transfers to
foundations has fully respected all objective accounting standards of the
Canadian Institute of Chartered Accountants.
The new Public Sector Accounting Board standard on the Government Reporting
Entity, which takes effect in fiscal year 2005-2006, defines the scope of the
government reporting entity in terms of the organizations whose financial
affairs and resources would be included in a Government's financial statements.
The Government is examining foundations in the context of this standard to reach
a judgment on whether any foundations are controlled by the Government within
the terms of the standard. The Government will share and discuss this analysis
with the Office of the Auditor General.
Should the Government determine that any foundation is to be considered part
of the government reporting entity, the Government's financial statements would
require restatement if the financial impact is material.
The Public Sector Accounting Board is also revising its standard relating to
government transfers. This has not yet been finalized, but it may have
implications for accounting for funds advanced to foundations. The Government
will report back to the Committee on these matters before 31 March 2006.
RECOMMENDATION 5
That Treasury Board Secretariat, in consultation with the Auditor General,
amend foundation funding agreements to include a mechanism that would empower
the Government to align foundation policy with major changes in its policy
objectives.
RECOMMENDATION 6
That the Comptroller General and the Auditor General indicate how such a
policy intervention mechanism might affect the question of whether foundations
operate as controlled or arm's length entities.
The 2003 Budget clarified the circumstances in which foundations are used as
a means of meeting the needs of Canadians. In utilizing foundations, the
Government makes very conscious and considered decisions that organizations at
arms' length from the Government are in the best position to deliver on the
public interest. Transfers of funds to foundations are fully and properly
accounted for in the Estimates and Public Accounts.
While the Government has taken significant steps to improve the
accountability of foundations to ministers and Parliament, it is important to
preserve the independence of foundations and ensure that their directors are
fully responsible for foundation
actions. The funding agreements between foundations and the Government are
contractual and cannot be changed unilaterally. Funding to foundations is
provided to meet objectives with a mid to long-term horizon. However, in the
event that significant changes in circumstances were to arise that led to
misalignment between government policy and the objectives of a funding
agreement, the Government would make every effort to renegotiate the funding
agreement with the foundation. To date the Government has been successful in
negotiating adjustments to meet emerging requirements. For those foundations
established by specific legislation, it is also open to the Government to seek
amendments to the legislation, as the Government has done in the past.
If a clause were to be inserted in funding agreements that would permit the
Government to unilaterally redirect the use of a foundation's funds that had
been provided by the Government, this would be a strong, though not conclusive,
indicator that the Government controls the foundation within the meaning of the
Public Sector Accounting Board Standard on the Government Reporting Entity. It
could also seriously impact the foundation's achievement of its objectives due
to the consequent uncertainty.
RECOMMENDATION 7
That the Government identify each proposed transfer to new and existing
foundations in its Estimates documents.
Transfers to new or existing foundations are considered grants and are
therefore already individually listed in the Estimates documents. Further
details on conditional grants to foundations are now available in Departmental
Reports on Plans and Priorities and Departmental Performance Reports.
RECOMMENDATION 8
That the Government take the necessary steps to require all foundations to
table in Parliament separate annual reports, reports on plans on priorities and
performance reports and that these documents be referred to the appropriate
parliamentary committee.
Federal government departments are required to prepare Departmental Reports
on Plans and Priorities and Departmental Performance Reports. Foundations are
not federal departments and are not subject to this reporting regime. There are,
however, a number of other reports that help to ensure transparency to
Parliament and the ability of committees to review foundation activities.
In the 2003 Budget, the Government committed that summaries of foundations'
corporate plans submitted to ministers will be made public by ministers and
submitted to Parliament. In addition, departments responsible for administering
funding agreements are to incorporate significant expected results to be
achieved by foundations in their Departmental Reports on Plans and Priorities,
which are tabled in Parliament, and situate these within overall departmental
plans and priorities. For the duration of funding agreements, these departments
are also to report on significant results achieved by foundations in their
Departmental Performance Reports and situate these within overall results
achieved.
The annual reports of foundations are presented to ministers responsible for
funding agreements. All reports are made public and ministers are encouraged to
table them in Parliament. The annual reports of those foundations established by
legislation, which represent about 80% of all transfers to foundations, are
tabled.
RECOMMENDATION 9
That the Auditor General be permitted to conduct performance audits of
foundations, recognizing that bills C-43 and C-277 aim to achieve the same
objective.
Bill C-43 has now been enacted and authorizes the Auditor General to
undertake performance audits of foundations that have received a total of $100M
or more in any five consecutive fiscal years. Negotiations with foundations are
underway to amend funding agreements by including clauses that will recognize
the Auditor General's right to perform these audits. Such clauses have already
been included in a number of funding agreements where funding was provided in
the 2005 Budget.
RECOMMENDATION 10
That the Office of the Auditor General conduct an audit of the Canada
Foundation for Innovation as soon as it has the legislative power to do so.
The Government has negotiated an audit clause with the Canada Foundation for
Innovation that will enable the Auditor General to perform an audit.
RECOMMENDATION 11
That the Treasury Board Secretariat evaluate foundations as instruments of
public policy and report the results of its study to Parliament by 31 March
2006.
The Government has already taken active steps to improve accountability and
transparency relating to transfer payments to foundations. The Government will
undertake an evaluation of the use of foundations as tools for the delivery of
public policy, particularly with respect to the use of up-front conditional
grant assistance. Given the complexity of the task, the Committee's deadline is
not feasible; the Government undertakes to report the results to the Committee
no later than 31 March 2007.
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