Policy on Transfer Payments - Implementation Issues and Clarification

If there is a discrepancy between any printed version and the electronic version of this document, the electronic version will be considered offical.

This Information Bulletin has been issued in response to requests from departments for clarification of a number of requirements found in the revised Policy on Transfer Payments. Changes that have been made in this bulletin will be formalized in the Policy and the clarification of issues will be documented in the forthcoming Guide on Transfer Payments.

1. Requirements for Contribution Agreement - Appendix C

2. Level of Funding Changed by Parliament - Clause 7.3.6

3. Declaration of Amounts Owing - Appendix C (1) (xvii)

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 be of the opinion that set-off of a transfer payment would jeopardize the project. Therefore, it would be expected that set-off would not be approved by the responsible Minister.
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 to be 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.

4. Exemptions to Cash Management - "Holdback" Requirement for Contributions - Clauses 7.6.3 and 7.6.4

• 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.

5. Sources of Funds - Clause 7.13 and Appendix C (1) (vi)

   Issue: There is an inconsistency between sub-section 7.13.1 and Appendix C (1) (vi) with respect to the declaration of sources of funding. This inconsistency will eventually be corrected in the Policy.

   Clause 7.13.1 indicates that all sources of funding should be declared prior to approving a contribution in excess of $100,000 or providing a grant in excess of $100,000. However, Appendix C (1) (vi) states that for contributions in excess of $100,000, the declaration may be made before or shortly after the commencement of the agreement, as well as upon completion of the project.

   Instances where the declaration is made shortly after the commencement of the project should be rare and on an exceptional basis. Normally, these unusual circumstances would apply where it is critical to the achievement of program objectives. The rationale must be justified and fully documented in program files.

   Note: When the declaration is to be made "shortly after", program officials should 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.

6. Reports on Plans and Priorities/Departmental Performance Reports (RPP/DPR) - Clause 7.4.7

   Issue: There is some confusion concerning TBS's expectations in relation to the DPR and RPP requirements and the transfer payment program reporting levels.

   In part, clause 7.4.7 states that "Departments must include in the Departmental Performance Report evidence of results achieved, related to results commitments and specific planned results in Reports on Plans and Priorities for each transfer payment program with transfers in excess of five million dollars".

   Departments should refer to the 2001-2002 Part III - Reports on Plans and Priorities (RPP) and the guidelines therein. Table 5.5 clarifies the requirements of clause 7.4.7 (i.e. "by stating that 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"). Therefore, departments are not expected to prepare an annual planning or results report for every (large) transfer.

   The DPR guidelines will be complementary to those of the RPP.

7. Intellectual Property (IP) - Sub-section 7.10

   Issue: Dealing with intellectual property matters.

   Sub-section 7.10 of the Transfer Payment policy states: "Where appropriate, the potential for sharing in intellectual property rights should be defined in program terms and conditions".

   Departments should be aware of the potential risk in the acquisition of IP through transfer payments. It may result in the transformation of a contribution agreement into a procurement contract or a license that may be 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.

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

8. Departmental Representation on Advisory Committees/Boards

   Issue: Caution is to be exercised when departmental or government officials participate on advisory committees or boards of directors.

   Recipients of transfer payments must remain independent of any control exercised by government officials*. 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, in the use of funds. 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.

   *Control may be exercised even in the absence of government participation on committees and boards. Legal advice should be sought to ensure that a partnership relationship with the recipient is not set-up, implicitly or explicitly, in the agreement.

9. Lobbying - Clause 7.5.1

10. In general, the Lobbyist Registration Act, ( http://laws.justice.gc.ca/en/L-12.4/) 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. Appendix M can be referenced at http://www.tbs-sct.gc.ca/pubs_pol/dcgpubs/Contracting/contractingpol_m_e.asp .

    Therefore, where transfer payment project activities might include lobbyists, departments may require a certification by the recipient at the time of application. A risk-based approach is an effective means to monitor this requirement.

11. Official Languages - Sub-section 8.6

    Issue: Inconsistency between English and French wording

    The wording of the English and French versions of sub-section 8.6 of the policy, "Official Languages", has been changed for consistency.

    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. Results-based Accountability and Risk based Audit Frameworks - Clauses 8.1.1 (xv) and (xvi)

    Issue: The requirements for results-based accountability and risk-based audit frameworks have proven to be challenging for some departments.

    Further guidance on the framework requirements will be provided in the forthcoming Guide on Transfer Payments due to be completed in the March/April 2001 time period. Given that this has been a challenge for departments, the draft section of the Guide applicable to the frameworks is attached as Appendix A. Appendix B is also attached as background information to the audit framework. Departments are reminded that these attachments are in draft form.

13. Eligibility of Crown Corporations - Clauses 7.2.2

Enquiries

Enquiries can be directed to the Financial Management Policy Division, Comptrollership Branch, TBS.

Telephone: (613) 957-7233

Facsimile: (613) 952-9613

_________________________

Rod Monette

Assistant Secretary / Assistant Comptroller General

DRAFT

Appendix "A"

Mandatory frameworks and plans

The objective of this Chapter is to clarify TB requirements for new or renewed submissions for transfer payments programs. It is mainly aimed at program managers in departments who develop new transfer programs or manage existing ones and program analysts in Treasury Board who approve these programs.

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

It is expected that most departments 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 have to be developed before the submission is sent to TB for approval.

Result-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 framework should actually 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, through this, make adjustments to improve on an ongoing basis;
• To set out any evaluation work that is expected to be done over the lifecycle; 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 lifecycle 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 with a good chance to succeed.

The results-based management and accountability framework can be applied to programs or initiatives involving transfer payments, whether managed within the boundaries of a single department or involving external partnerships. It includes:

• a clear statement of the roles and responsibilities of the main partners involved in delivering the program or initiative;
• a clear articulation of the resources to be applied and the objectives, activities, outputs and key results to be achieved, along with their linkages;
• an outline of the performance measurement strategy, including costs and performance information (key indicators) that will be tracked;
• the schedule of major evaluation work expected to be done; and
• an outline of the reporting provisions as appropriate for funding recipients and for the department, including parliamentary reporting.

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 the development of results-based management and accountability frameworks will be available shortly through a separate TBS guide produced specifically for that purpose.

Risk-based audit framework and internal audit plan

The content of an audit plan depends on many factors such as management requests, legal obligations, pre-established cycles, needs and expectations of Central Agencies or other partners. But in order to utilise internal audit resources where they are the most needed, risk should be a driving force in the making of the plan. A risk-based audit framework is an effective way of achieving this objective. A risk-based audit framework is a coherent and disciplined approach to detect, assess and deal with risk.

With regard to transfer programs, the auditors will consider the procedures and controls in place to identify and assess risks. They must decide on an audit strategy for this program that will be reflected in the annual audit plan, or in a stand-alone document, if the new or renewed program has been developed after the publication of the annual audit plan. Risk management is discussed in Chapter 7.

It must be remembered that the main role of the audit function is to provide assurance on the proper management and administration of the programs. This applies to both conditional and unconditional transfer programs, new or renewed. It is the role of program management to conduct the audit of recipients in accordance with section 8.5 of the Policy on Transfer Payments.

Under certain circumstances, internal audit can look at individual contribution agreements. This generally occurs at the request of program management when a problem is suspected and the program internal controls, such as financial and operational monitoring have failed or when available program officers lack the capacity or expertise to handle the issue or they themselves may be part of the problem.

Therefore, the internal audit plan included in a TB submission should mainly address how and when internal audit will determine whether or not the transfer program is adequately managed and administered. It may also indicate when and how it will audit individual contribution agreements if it is deemed necessary to supplement or assess the effectiveness of program monitoring.

Internal audit of transfer programs and agreements is covered in chapter 9.

It is important to note that internal audit of agreements does not relieve programs managers of their responsibilities towards the effective monitoring of the contribution agreements under their responsibility.

DRAFT

Appendix "B"

Due diligence in the management and administration of 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 the 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 the fact that due diligence in the management and administration of a transfer program is just as important as obtaining the expected results.

Due diligence in the management and administration of 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 or promote:

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

More specifically, the transfer program should be designed to include following components.

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

Operational indicators

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

Efficiency indicators measure the ratio between the value of an operational output and the cost of the resources used to produce it while economy indicators indicate whether the most economical solution was chosen, when available and appropriate.

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

Examples of indicators:

Date Modified: 2001-04-01