PACP Committee Report

Government Response to the Eighth Report of the Standing Committee on Public Accounts

The Government of Canada is pleased to table its response to the Eighth Report of the Standing Committee on Public Accounts (the Committee), entitled: Chapter 6, “Selected Contribution Agreements – Natural Resources Canada,” of the Spring 2009, Report of the Auditor General of Canada.  The report was tabled by the Committee in the House of Commons on April 19, 2010.

The Government is committed to continuously strengthening its management practices and, in particular, to prevent conflict of interest and ensure that the management of contribution agreements is supported by effective oversight and control systems at both the departmental and government-wide levels. Recommendations from the Committee are instrumental in supporting such a commitment and the Government is committed to an on-going review of practices and policies to ensure that they remain up-to-date and relevant.

BACKGROUND

NRCan Audit of Contribution Agreements

In April 2005, NRCan conducted an audit of payments to recipients of contribution agreements after concerns were raised by NRCan staff about invoice shortcomings.  In 2006, the results of the audit revealed that a recipient had not met all terms and conditions of the agreement.  The agreement was terminated by NRCan in 2006.  

The Department promptly implemented a series of remedial actions in 2006 upon the advice of its internal auditors. These measures were implemented to improve the management and controls surrounding contribution agreements.  New financial controls and tools were implemented for use by program managers across NRCan. For example, the Department established a Centre of Expertise on grants and contributions and the Transfer Payment Review Committee.

Auditor General’s Report

In the Spring of 2009, the Auditor General of Canada tabled a report to the House of Commons entitled: Chapter 6, “Selected Contribution Agreements – Natural Resources Canada”.  The report highlighted two remaining deficiencies related to the management and oversight of contribution agreements at NRCan and raised the following concerns:

• The Department did not recognize and mitigate the risk of the potential for conflict of interest involving a contractor; and,
• The Department does not have independent mechanisms to ensure adequate compliance and management of contribution agreements.

Based on the results of both audits, NRCan took a number of actions to strengthen the management of contribution agreements and to prevent conflict of interest situations.

Consideration by the Standing Committee on Public Accounts

On October 28, 2009, the Standing Committee on Public Accounts held a meeting to consider whether NRCan’s response to the Auditor General audit was satisfactory. During the meeting, NRCan tabled its Summary of Actions Taken in response to the Auditor General’s recommendations.

On April 19, 2010, the Committee tabled its report entitled: Chapter 6, “Selected Contribution Agreements - Natural Resources Canada” of the Spring 2009, Report of the Auditor General of Canada”, which includes four recommendations based on findings of the October 28, 2009 meeting. Context surrounding the recommendations as well as the Government’s Response to these recommendations are outlined below.

Recommendation 1

That “NRCan review its response to the audits to determine whether it has the right mix of policies, procedures, and practices in place to appropriately manage grants and contributions programs and to ensure that this type of problem does not recur.”

In support of the Committee’s recommendation, NRCan has reviewed the actions taken and its mix of policies, procedures and practices to ensure that grants and contributions programming is appropriately managed.

Through its review, NRCan confirms that the actions taken are consistent with the government’s Federal Accountability Act and Action Plan and are appropriate to prevent recurrence of conflict of interest from all perspectives. These actions include:

• the addition of clauses to its contribution agreements to clearly inform proponents of their responsibility and obligation to take reasonable steps to identify, avoid, prevent, and resolve real, potential or perceived conflict of interest situations;
• the introduction of ongoing employee engagement sessions to increase Departmental awareness of conflict of interest; and
• the implementation of a mandatory employee conflict of interest sign-off and declaration for each contribution agreement to assist managers in preventing conflict of interest situations, and to encourage awareness and discussion.

The Department is confident that the measures implemented to prevent the recurrence of conflict of interest situations represent a substantive suite of actions taken and that NRCan has a robust system of financial controls in place to ensure that tax dollars are well used and are spent for their intended purpose.

It is important to note that NRCan has completed its review of the separate perceived conflict of interest situation which was raised by NRCan and the Public Accounts Committee and found that it had occurred in 2003, prior to the implementation of the Department’s new monitoring and control mechanisms.  In addition, this separate conflict of interest situation was not related to a grant and contribution, but rather to a Science and Technology Collaborative Agreement. 

In order to prevent future conflict of interest issues within Science and Technology Collaborative arrangements, NRCan has established an internal advisory working group to provide guidance and monitor future arrangements. In addition, the Department is a member of a Science-Based Departments and Agencies and Technology Working Group led by TBS, which discusses and exchanges best practices on conflict of interest matters.

It should also be noted that the grants and contributions conflict of interest situation arose between 2003 and 2004 and that the Department’s Centre of Expertise on Grants and Contributions and Transfer Payment Review Committee were established in 2006. Also, the Auditor General report only highlighted two remaining deficiencies related to the management and oversight of contribution agreements at NRCan which were addressed by NRCan’s Summary of Actions Taken.

Nevertheless, NRCan is of the view that the principles underlying effective management involve the act of continuous improvement. For this reason, NRCan will continue to deepen the actions through:

• strengthened compliance monitoring on grants and contributions;
• reminding employees annually of their responsibilities to submit a confidentiality report;  and
• tailoring the conflict of interest engagement sessions based upon the results of a planned departmental risk assessment.

Recommendation 2

That “NRCan establish a sub-section on the proactive disclosure section of its website to disclose any and all cases of wrongdoing.”

NRCan is committed to promoting the integrity of the federal public service and views
transparency as a key factor in ensuring public trust. For this reason, the Government supports this recommendation. In fact, in November 2001, under the Policy on the Internal Disclosure of Information Concerning Wrongdoing in the Workplace (effective November 30th, 2001), NRCan identified a Senior Internal Disclosure Officer and vested him with the responsibility of dealing with wrongdoing. 

In support of the Public Servants Disclosure Protection Act (PSDPA), effective April 2007, NRCan established a process to ensure that any founded wrongdoing is disclosed. Moreover, in the spirit of full transparency, effective May 20, 2010, NRCan began posting the first of its quarterly proactive disclosure reports on founded wrongdoing. These reports will continue to be published regardless of there being no cases of founded wrongdoing.

To date, there are no cases of founded wrongdoing pursuant to the PSDPA.

Recommendation 3

That the “Treasury Board Secretariat provide clear rules and guidance, including draft contractual provisions, to departments and agencies to assist them in identifying and avoiding conflict of interest by contractors and the recipients of transfer payments”.

In support of this recommendation, Treasury Board Secretariat (TBS) will consider whether further direction on the conflict of interest by recipients of transfer payments is required.  The Government supports this recommendation.  The Government notes that as the event in question took place before the renewal of its policy instruments, it will monitor the situation and determine the need for additional policy guidance as part of its regular cycle of policy instrument review which requires that policies be reviewed every five years.

The prevention of situations of conflict of interest is fundamental to maintaining the public’s trust in public institutions, and the Government is committed to ensuring that requirements are as clear as possible. 

For background purposes, the Government would like to note that over the past few years, significant measures have been taken, and continue to be taken, to equip the federal government and its public servants in order to identify and avoid conflict of interest.

The Federal Accountability Act, in particular, has introduced significant measures to mitigate such risks, including a strengthened PSDPA, which created the Public Sector Integrity Commissioner, as well as a series of new requirements for the procurement of government contractssuch asthe power to include integrity provisions in all contracts, the introduction of a Code of Conduct for Procurement that applies to both suppliers and public servants, as well as the establishment of an independent Procurement Ombudsman to review the government’s procurement practices on an on-going basis.

In addition, the Government has been working over the last few years on renewing the entire suite of Treasury Board policies to clarify the management responsibilities and accountabilities of deputy heads and functional experts, including clear compliance requirements and consequences.

With respect to contractual provisions relevant to the identification and avoidance of conflict of interest by contractors and the recipients of transfer payments, the main Treasury Board policy instruments are the Contracting Policy and the Policy on Transfer Payments.

The Contracting Policy already addresses situations where a consultant or professional, by virtue of the kind of service provided, may be in a favored position for future business with the Crown and provides guidance on avoiding such situations.  This includes a requirement that consultants sign a declaration stating that they have no conflict of interest in carrying out the contract.  

The Policy on Transfer Payments, which was renewed in 2008, sets out requirements to ensure terms and conditions and funding agreements are managed with integrity, transparency and accountability.  These requirements already include a provision that no current or former public servant will benefit from funding agreements. With respect to the Public Service Values and Ethics Code, TBS would like to note that it is currently developing a new Values and Ethics Code for the Public Sector in accordance with the PSDPA.  This new Code will apply to Crown corporations, separate agencies, and the core public administration.  In addition, each organization is required under the PSDPA to establish a code of conduct tailored to their organizational risks, and consistent with the new Code established by Treasury Board.  In complement to the new Code, TBS is also developing a new Policy on Conflict of Interest and Post-Employment applicable to the core public administration to replace Chapters 2 and 3 of the current Values and Ethics Code for the Public Service.  The introduction of the new Values and Ethics Code for the Public Sector is expected by late 2010, and the introduction of organizational codes of conduct is expected by March 31, 2011.

Finally, it should be noted that while TBS is responsible for supporting departments in implementing Treasury Board’s policies and providing appropriate guidance, deputy heads as accounting officers are accountable for effective management, including of contracts and funding agreements with recipients, within their areas of responsibility.

Recommendation 4

That “the Comptroller General of Canada examine whether departments need more guidance on how to reconcile possible conflicting contractual obligations arising from contribution agreements and statutory requirements outlined in the Financial Administration Act”.

The Committee noted that it is not clear whether this was a unique circumstance faced by NRCan or whether this type of difficulty occurs from time to time within the federal government.

The Government is of the view that the situation at issue is unusual and results from a series of unique circumstances, and that no further action is required.  There are no conflicting contractual obligations arising from contribution agreements and statutory requirements.

For background purposes, the Government would like to note that it has recently renewed relevant Treasury Board’s policies with the objective to clarify management responsibilities and accountabilities for the management of contribution agreements, including payment verifications.

The new Treasury Board Policy on Transfer Payments, which was renewed in 2008, requires departments to identify the basis on which payments are to be made as well as to ensure that contributions are paid in a manner consistent with the terms and conditions. As per this Policy, departments must ensure that contribution payments are paid based on achievement of pre-determined performance objectives, a reimbursement of eligible expenditures and/or a costing formula.

The new Treasury Board Directive on Account Verification, which was renewed in 2009, sets out specific requirements for ensuring that payments are properly authorized, accurate and fulfill legitimate obligations. In support of the Financial Administration Act, this Directive provides further clarity to departments with respect to ensuring that the payee is entitled to or eligible for the payment.