PACC Committee Report

Pursuant to Standing Order 108(3)(e), the Standing Committee on Public Accounts has the honour to present its

THIRD REPORT

The Standing Committee on Public Accounts has considered the December 2001 Report of the Auditor General of Canada (Chapter 13 — Other Audit Observations: Parc Downsview Park Inc. — Parliamentary Control of Programs and Spending), and has agreed to table the following report.

INTRODUCTION AND BACKGROUND

Parc Downsview Park Inc. (Downsview Park) was established following the closure of Canadian Forces Base Toronto at Downsview. In April 1997, the Government issued an Order-in-Council authorizing Canada Lands Company Limited (Canada Lands) to set up a subsidiary Crown corporation to develop an urban park. Canada Lands incorporated Parc Downsview Park Inc. as a wholly owned subsidiary Crown corporation in July 1998, and the Park began operations in April 1999.

In addition to setting up Parc Downsview Park Inc. through an Order-in-Council, the federal government transferred control, responsibility and benefits of the Downsview lands to Canada Lands and subsequently to Parc Downsview Park Inc. under a management agreement with the Department of National Defence (DND), while the Department continued to hold title to the lands. During 1999-2000, DND provided approximately $2 million in initial funding to Parc Downsview Park Inc. The Government then authorized, through an Order-in-Council, the transfer of the first parcel of lands (about 32 acres) to Parc Downsview Park Inc. pursuant to the provisions of the Federal Real Property Act. In 2000-2001, Parc Downsview Park Inc. then sold the parcel of land to a private-sector company and retained the funds, which resulted in an indirect transfer
of $19 million by the Government to fund the program activities at Parc Downsview Park Inc. The Auditor General noted that parliamentary authority had not been sought for the above transactions[1].

Given the concerns about the process by which Parc Downsview Park Inc. was created and funded, the Committee convened on 9 April and reconvened on June 4, 2002[2] to consider the findings of an audit conducted by the Auditor General of Canada. Mrs. Sheila Fraser (Auditor General of Canada), Mr. Shahid Minto (Assistant Auditor General) and Mrs. Louise Bertrand (Director, Audit Operations) were present for the Office of the Auditor General of Canada. The Privy Council Office was represented by Mr. Richard B. Fadden (Deputy Clerk, Counsel and Security and Intelligence Coordinator). Present for Canada Lands Company Limited was Mrs. Kathy Milsom (President and Chief Executive Officer), and Parc Downsview Park Inc. was represented by Mr Tony Genco (Acting President).

OBSERVATIONS AND RECOMMENDATIONS

Based on information found in the 2000 and 2001 financial statements of Canada Lands Company Limited; the Auditor General of Canada has for two consecutive years reported to Parliament its concerns about Parc Downsview Park Inc. A new Crown corporation possessing unique operating characteristics (Like Parc Downsview Park Inc.) is normally set up through legislation as a parent Crown corporation. However, Parc Downsview Park Inc. was created as a subsidiary Crown corporation, requiring only an Order-in-Council. The subsidiary Crown corporation was mandated by Government to redevelop a portion of the former CFB Toronto into urban recreational parkland. Since the Government has decided to establish Parc Downsview Park Inc. through an Order-in-Council instead by legislation, Parliament was effectively excluded from the decision-making process.

Furthermore, when the Parc Downsview Park Inc. decided to sell a portion of surplus properties to a private sector company, contrary to normal practice, the proceeds of the transaction were not deposited in the Consolidated Revenue Fund (CRF), instead they were spent on the development and operational activities of the urban park. Parliamentary authority was not sought to create the corporate entity known as Parc Downsview Park Inc., nor was Parliament explicitly requested to appropriate funds to finance the development of the Park.

With the possible exception of the initial funding payment of $2 million provided by DND, the Auditor General does not dispute that each step in the founding and development of Parc Downsview Park Inc. was completed in accordance with the relevant governing legislation. However, when taken together, each individual step has had the effect of leaving Parliament out of the decision-making process. Also, the federal government may not have fully realized the consequences of its decision to create Parc Downsview Park Inc. as a subsidiary Crown corporation, since the Park’s organisational structure has led to complications that prevent it from carrying out its activities and achieving its stated objectives.

For example, Parc Downsview Park Inc. was intended to be eligible to receive charitable donations to support its activities; but because it is a commercial, for-profit corporation, it is not a “qualified donee” for income tax purposes. The Park’s status as a taxable corporation introduces complications in the acquisition and disposal of properties. Both Canada Lands and Parc Downsview Park Inc. can do little by themselves to resolve these matters; and government action is clearly required if any progress is to be made on this issue. The Auditor General suggested that one possible way of resolving Parc Downsview Park’s Inc. current financial and operational problems is to seek parliamentary approval to convert the Downsview Park corporation from a subsidiary Crown corporation into a parent Crown corporation, with a suitable mandate from Parliament and appropriate means of funding. This prompts the Committee to recommend:

RECOMMENDATION 1

That the Privy Council Office seek to obtain parliamentary approval to make Parc Downsview Park Inc. a parent Crown corporation, prior to March 31, 2003.

The means by which Parc Downsview Park Inc. was funded also raise a number of questions. Specifically, $2 million of expenditures related to the development of the Park were charged against the Department of National Defence (DND) Vote 1, which Parliament had authorized to be used for the Department’s own operating expenditures. According to the Auditor General, the diversion of monies for purposes other than those intended by Parliament is not an appropriate use of public funds. Some Committee members wondered about the Government’s rationale for providing an initial injection of $2 million to the Park by using funds earmarked for DND when the department itself has difficulty in securing enough monies to finance its own operations. Mrs. Fraser indicated that DND was currently engaged in discussions with Treasury Board Secretariat (TBS) on how best to address this issue. Mr. Richard Fadden confirmed that government officials were trying to find a satisfactory solution to the disposal of the $2 million. The Committee welcomes this news and thus recommends:

RECOMMENDATION 2

That the Privy Council Office, in conjunction with Treasury Board Secretariat and the Department of National Defence, correct the issue regarding the $2 million in development expenditures paid out to Parc Downsview Park Inc. and charged against the Department of National Defence Vote 1 of its 1999-2000 Estimates. That the Privy Council inform the Committee when a resolution has been reached and the manner in which it will be resolved.

Although Parc Downsview Park Inc. was established according to all applicable rules and regulations, its creation, by Order-in-Council, as a subsidiary Crown corporation to manage the urban park was a move that effectively excluded Parliament from the decision-making process. Committee members were also interested in the transaction that involved the transfer of 32 acres of land from DND to Parc Downsview Park Inc. and the subsequent sale of these lands to a private sector company in 2000-2001. This transaction amounted to an indirect government transfer to Parc Downsview Park Inc. of $19 million, since the subsidiary Crown corporation kept the proceeds of the sale. These transactions, while all seemingly legal, when taken together meant that the transfer of funds was made with no formal approval by Parliament. If public funds are to be used, the Government should seek clear and explicit approval beforehand from Parliament.

Had the Government sought parliamentary authorization for the creation and financing of a Crown corporation whose mandate is the management of an urban park, the resulting debate and review would have allowed parliamentarians the opportunity to properly examine the mandate and organizational structure of Parc Downsview Park Inc. and could have identified and corrected potential problems before the establishment of the Crown corporation. Furthermore, parliamentary scrutiny would have provided the initiative with greater transparency and legitimacy. The Committee trusts that in the future, when the federal government is planning new spending initiatives that entail the setting up of special organizations and entities, that it will submit the proposals in Parliament. Thus the Committee recommends:

RECOMMENDATION 3

That henceforth, when the Government decides to implement special initiatives (such as the creation of Crown corporations) that involve the spending of substantial sums of public monies, that it ensures these proposals obtain clear and explicit Parliamentary approval prior to the execution of the initiative.

There were still some questions as to the amounts of monies that the Department of National Defence had already contributed to Parc Downsview Park Inc. Mr. Tony Genco indicated that DND still had some ongoing activities in the Park and that it was in the process of consolidating its operational requirements on the site. Parc Downsview Park Inc. manages the site through an agreement with DND, and Mr. Genco added that there were ongoing discussions about certain costs related to the management of the site and other decommissioning expenses. The Committee requested the witness to provide it with written information about these costs, which prompts the following recommendation:

RECOMMENDATION 4

That Parc Downsview Park Inc. disclose the total cost related to ongoing DND activities in Downsview Park, including its site management activities, decommissioning activities and other related costs. That Parc Downsview Park Inc. table the document with Parliament and the Public Accounts Committee no later than March 31, 2003.

Finally, the Auditor General requested direction from the Committee regarding the continued monitoring of, and reporting on, Parc Downsview Park Inc. by her Office. This matter has been reported on twice now, and the Auditor General wondered whether she should continue reporting to Parliament on the matter until its resolution or until Parliament indicates that no further action is required. In response, the Committee adopted a motion requesting that the Auditor General continue advising Parliament and the Committee with regard to Parc Downsview Park Inc. or any other program, as she sees fit. Thus, the Committee presents the following motion:

RECOMMENDATION 5

That the Auditor General of Canada continue to advise Parliament and the Public Accounts Committee on Parc Downsview Park Inc. or any other similar programs at the discretion of the Auditor General.

CONCLUSION

There are concerns about the erosion of parliamentary scrutiny and control of public spending. With the exception of the initial funding of $2 million charged against DND’s operating expenditures, the Auditor General determined that the establishment and financing of Parc Downsview Park Inc. was “completed in accordance with the relevant legislation.” However, the process by which the urban park was created and funded effectively excluded Parliament from the decision-making process. If public monies are to fund government programs, it is preferable that, in the interest of transparency and accountability, the Government seek formal parliamentary approval. Otherwise, if it decides to continue to create other organizations in a fashion similar to Parc Downsview Park Inc., the capacity of parliamentarians to hold the Government to account will be seriously compromised.

Pursuant to Standing Order 109, the Committee requests that the Government table a comprehensive response to this Report.

A copy of the relevant Minutes of Proceedings (Meetings No. 46, 47, 50 and 58 of the 1st Session of the 37th Parliament and Meetings No. 5 of the 2nd Session of the 37th Parliament) is tabled.

Respectfully submitted,

JOHN WILLIAMS, M.P.

Chair