OGGO Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Government Operations and Estimates

EVIDENCE

CONTENTS

Wednesday, October 8, 2003

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1535

The Chair (Mr. Reg Alcock (Winnipeg South, Lib.))

Mr. Peter Aucoin (Individual Presentation)

The Chair

Mr. John Morgan (Acting Deputy Comptroller General of Canada, Treasury Board of Canada Secretariat)

The Chair

Mr. John Morgan

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1540

¹

1545

The Chair

Ms. Sheila Fraser (Auditor General of Canada, Office of the Auditor General of Canada)

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1550

¹

1555

The Chair

Mr. Peter Aucoin

The Chair

Mr. Peter Aucoin

º

1600

The Chair

Senator Wilfred P. Moore (Stanhope St./Bluenose, Nova Scotia, Lib.)

The Chair

Right Hon. Joe Clark (Calgary Centre, PC)

Senator Wilfred P. Moore

The Chair

Mr. Ken Epp (Elk Island, Canadian Alliance)

Mr. John Morgan

Ms. Sheila Fraser

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1605

Mr. Ken Epp

Mr. Peter Aucoin

Mr. Ken Epp

Ms. Sheila Fraser

Mr. Ken Epp

Ms. Sheila Fraser

Mr. Ken Epp

Ms. Sheila Fraser

Mr. Ken Epp

Ms. Sheila Fraser

Mr. Ken Epp

Ms. Sheila Fraser

Mr. Ken Epp

Ms. Sheila Fraser

Mr. Ken Epp

Ms. Sheila Fraser

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1610

The Chair

Mr. Robert Lanctôt (Châteauguay, BQ)

Mr. Peter Aucoin

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1615

The Chair

Mr. Jeremy Rudin (General Director, Economic and Fiscal Policy Branch, Department of Finance)

Mr. Robert Lanctôt

Mr. Jeremy Rudin

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1620

The Chair

Mr. Jeremy Rudin

The Chair

Right Hon. Joe Clark

Mr. John Morgan

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1625

Right Hon. Joe Clark

Mr. Peter Aucoin

The Chair

Mr. Peter Aucoin

Right Hon. Joe Clark

Mr. Peter Aucoin

The Chair

Ms. Sheila Fraser

The Chair

Mr. Jeremy Rudin

The Chair

Mr. Jeremy Rudin

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1630

The Chair

Right Hon. Joe Clark

Mr. Jeremy Rudin

Right Hon. Joe Clark

Mr. Jeremy Rudin

Right Hon. Joe Clark

The Chair

Mr. John Morgan

The Chair

Ms. Sheila Fraser

º

1635

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Ms. Sheila Fraser

The Chair

Mr. John Morgan

The Chair

Mr. Paul Szabo (Mississauga South, Lib.)

Ms. Sheila Fraser

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1640

Mr. Paul Szabo

Ms. Sheila Fraser

Mr. Paul Szabo

Ms. Sheila Fraser

The Chair

Ms. Carolyn Bennett (St. Paul's, Lib.)

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1645

Ms. Sheila Fraser

Ms. Carolyn Bennett

Mr. Peter Aucoin

The Chair

Mr. John Morgan

º

1650

The Chair

Mr. Leon Benoit (Lakeland, Canadian Alliance)

Ms. Sheila Fraser

Mr. Leon Benoit

Ms. Sheila Fraser

Mr. Leon Benoit

Mr. John Morgan

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1655

Mr. Leon Benoit

Mr. John Morgan

Mr. Leon Benoit

Mr. John Morgan

Mr. Leon Benoit

Mr. John Morgan

Mr. Leon Benoit

Mr. John Morgan

Mr. Leon Benoit

Mr. John Morgan

Mr. Leon Benoit

The Chair

Mr. Leon Benoit

The Chair

Mr. Leon Benoit

The Chair

Mr. Leon Benoit

Ms. Sheila Fraser

Mr. Leon Benoit

Ms. Sheila Fraser

Mr. Leon Benoit

Ms. Sheila Fraser

Mr. Leon Benoit

Mr. John Morgan

Mr. Leon Benoit

The Chair

Mr. Robert Lanctôt

Mr. Jeremy Rudin

»

1700

Mr. Robert Lanctôt

Mr. Jeremy Rudin

Mr. Robert Lanctôt

The Chair

Ms. Sheila Fraser

The Chair

Right Hon. Joe Clark

»

1705

Mr. John Morgan

Right Hon. Joe Clark

Right Hon. Joe Clark

Mr. Peter Aucoin

Right Hon. Joe Clark

Mr. Peter Aucoin

Right Hon. Joe Clark

Mr. John Morgan

Right Hon. Joe Clark

The Chair

Mr. Peter Aucoin

»

1710

Right Hon. Joe Clark

The Chair

Mr. John Morgan

The Chair

Mr. Massimo Pacetti (Saint-Léonard—Saint-Michel, Lib.)

Ms. Sheila Fraser

Mr. Massimo Pacetti

Ms. Sheila Fraser

Mr. Massimo Pacetti

Ms. Sheila Fraser

Mr. Massimo Pacetti

»

1715

Ms. Sheila Fraser

Mr. Massimo Pacetti

Ms. Sheila Fraser

Mr. Massimo Pacetti

Mr. John Morgan

Mr. Massimo Pacetti

Mr. John Morgan

Mr. Massimo Pacetti

Mr. John Morgan

Mr. Massimo Pacetti

Mr. John Morgan

The Chair

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Canadian Alliance)

»

1720

The Chair

Ms. Sheila Fraser

The Chair

Mr. Peter Aucoin

The Chair

Mr. Peter Aucoin

Mr. Peter Aucoin

The Chair

»

1725

Mr. Jeremy Rudin

The Chair

Mr. Jeremy Rudin

The Chair

Mr. Jeremy Rudin

The Chair

Mr. Jeremy Rudin

The Chair

Mr. Jeremy Rudin

The Chair

Mr. Jeremy Rudin

The Chair

Mr. Jeremy Rudin

The Chair

»

1730

Mr. Jeremy Rudin

The Chair

Mr. Peter Aucoin

The Chair

Mr. Leon Benoit

The Chair

Ms. Sheila Fraser

Mr. John Morgan

Mr. Leon Benoit

Mr. John Morgan

Mr. Leon Benoit

The Chair

Right Hon. Joe Clark

The Chair

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CANADA

Standing Committee on Government Operations and Estimates

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NUMBER 063

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Wednesday, October 8, 2003

[Recorded by Electronic Apparatus]

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[English]

    The Chair (Mr. Reg Alcock (Winnipeg South, Lib.)): I'll call this meeting to order. Welcome to the 63rd meeting of the Standing Committee on Government Operations and Estimates.

    For the benefit of everyone around the table, although I think most of you know it, in the mandate of this committee, along with certain departments and activities that are dealt with as they would be by any other committee, we were assigned a basket of issues that are less clearly defined in their relationship with the House of Commons. One of them was this issue of the private foundations.

    There has been, as I'm sure you know, some discussion about this. When the House decided to set up this committee, it put in a line that suggested we begin some work on how this relationship works, where it fits, and whether it needs any attention. Given that there's some uncertainty as to how long we'll be sitting, we thought it would be difficult to undertake a lengthy study of this, but we decided it might make sense to open the discussion.

    This week we've invited a cross-section of people who, we are told, have something to say on the question, so that we could get all the opinions on the table reflecting the government and government machinery opinion that revolves around this question. Then, the second Wednesday after the break we are going to have a cross-section of the larger foundations, just to have a conversation with them. I think informally there's been some discussion with them that suggests they too would like to look at a way to address some of the concerns, given that they are trying to deal responsibly with a relatively large sum of public money.

    I don't know, given that you are not necessarily all speaking with one voice or from the same team, whether you've had the chance to converse among yourselves as to what order you might go in. What I thought would make sense is if each one of the offices.... We have the Auditor General here, with Tom Wileman from her office; Treasury Board Secretariat is here with Gérald Cossette and John Morgan; and Jeremy Rudin is here from the Department of Finance.

    There seems to have been some confusion. We invited somebody from Privy Council Office, but the person we invited called me, and she claims to have no involvement in this policy area at all. So I'm not sure why she was selected; maybe we can talk about that later. In fact, you may be able to indicate to me whether or not Privy Council Office was involved in this and would have something useful to say, although we realize Privy Council always has something useful to say, on most issues.

    Professor Aucoin is here from Dalhousie University, now that the power has been restored out there. Do you have power at home now?

    Mr. Peter Aucoin (Individual Presentation): We got power on Monday night at eleven o'clock.

    The Chair: I was trying to send him e-mails all last week and was cursing because of their lousy server, until I realized the hurricane had had something to do with it.

    Professor Aucoin has written a paper on this subject that has been circulated to members, and I suspect he has a few opinions on this also.

    Absent a decision on your part, perhaps we could just start in the order we have here and ask each one of the various groups to make a brief opening comment on this issue. Essentially, it's the issue of how these private foundations account for the expenditure of public funds. You could tell us a little bit about where the impetus to create them in the fashion they were created came from and, from your various points of view, what you think is lacking or not lacking in the relationship.

    Since none of you are waving to say....

    Yes, Mr. Morgan.

    Mr. John Morgan (Acting Deputy Comptroller General of Canada, Treasury Board of Canada Secretariat): Mr. Chairman, we've prepared consolidated opening remarks from the government that are about ten minutes long, if that would be suitable.

    The Chair: Terrific. Why don't you start, Mr. Morgan? Then why don't we go to Ms. Fraser afterwards? I assume you're not part of the consolidated government opinion? I just guessed at that. Then, Professor Aucoin, we'll go to you, and then we'll open it to members.

    Mr. John Morgan: Mr. Chair and members of the Standing Committee on Government Operations and Estimates, thank you for the opportunity to appear before this committee on the topic of the government's view of certain not-for-profit entities commonly referred to as foundations.

    I am pleased to have with me today Mr. Jeremy Rudin, general director, economic and fiscal policy branch, Department of Finance, and Mr. Gérald Cossette, director, governance unit, expenditure and management strategies sector, Treasury Board Secretariat.

[Translation]

    In determining how the government organizes and structures the delivery of programs and services to Canadians, there are key policy considerations that must be addressed to determine whether any particular organizational arrangement is in the public interest.

    Proposals to use external foundations do not proceed if it is determined that they would not be in the best public interest. The Canada Strategic Infrastructure Foundation and the Canada African Investment Fund announced in the 2001 budget are examples of two such proposals. Upon review of the specific objectives and requirements for these foundations, it was decided to create and operate them inside the government.

    When the Government transfers funds to non-government organizations, it makes a very conscious and considered decision that an organization at arm's length is in the best position to deliver on the public interest. As you know, the government provides transfer payments to many hundreds of not-for-profit and volunteer organizations. It is the government's position that decisions to provide transfers to foundations are based on the merit of these delivery vehicles.

    The revised Policy on Transfer Payments and the new Policy on Alternative Service Delivery, issued in April 2002, provide additional means to improve the use of these arrangements. Departments considering the use of foundations must address the public interest and requirements of these policies.

    The government also recognizes that innovative organizational arrangements for service delivery to Canadians must also be balanced with Parliament's, the government's and citizens' needs for openness, transparency, visibility and accountability for the expenditure of public money and the achievement and reporting of results.

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[English]

    The foundations are arm's-length, not-for-profit organizations that receive conditional grant funding from the federal government. The main difference between the funding of foundations and the funding of other not-for-profit organizations is that the funding is upfront.

    The foundations use this funding and independent arm's-length boards of directors made up of experienced and knowledgeable individuals to achieve their objectives. Their arm's-length nature, financial stability, and focused expertise allow them to address specific challenges in a highly effective, non-partisan manner.

    As a result, foundations have become important tools for implementing policy in areas where expert knowledge, third-party partnerships, and stable long-term funding are especially important. They generally operate in areas of strategic importance to Canada, such as innovation, research, environment, health, and education.

    In a number of cases the foundations must lever additional resources of funding to supplement the federal funding provided. It is through the use of foundations that such a leverage is sometimes best made possible.

    In his February 2003 budget speech the Minister of Finance clarified the circumstances under which foundations are to be used by the government. The budget sets out the principles the government would consider in using a foundation to deliver public policy. They are:

Foundations should focus on a specific area of opportunity, in which policy direction is provided generally through legislation and/or a funding agreement.

Foundations should harness the insight and decision-making ability of independent boards of directors with direct experience in and knowledge about the issues at stake.

Decisions by foundations should be made using expert peer review.

Foundations should be provided with guaranteed funding that goes beyond the annual parliamentary appropriations to give the foundations the financial stability needed for the comprehensive medium- and long-term planning that is essential in their specific area of opportunity.

Foundations should have the opportunity and hence the ability to lever additional funds from other levels of government and the private sector.

    It is important to note that the three foundations that account for approximately 80% of the funding identified by the Auditor General in the 2002 public accounts were created directly by Parliament through legislation. These are the Canada Foundation for Innovation, the Canada Millennium Scholarship Foundation, and the Canada Foundation for Sustainable Development Technology.

    Parliament specifically reviewed and approved the accountability and governance arrangements for these foundations as part of their legislation. This included requirements for auditing, evaluation, and reporting to Parliament through the responsible minister.

    Funding agreements for the other foundations were modelled after the arrangements for the legislatively created foundations, and they all require Treasury Board approval. Arrangements entered into subsequent to the 2001 budget have been further strengthened in a response to the recommendations of the Auditor General. These include, for example, provisions for independent compliance audits and evaluations, the submission of plans, default provisions, and the possible return of unused funds.

[Translation]

    While the federal government does not control foundations, the funding agreements ensure that these entities can be held accountable for the use of the funds provided and the results achieved.

    Let me identify the steps the government has taken to improve the transparency and accountability of ministers and foundations to Canadians and Parliament.

    In budget 2003, the government committed to parliamentary approval of purpose and funding, through direct legislation, for those foundations that are significant either from a policy or financial perspective. All grants to foundations are required to be listed in the Estimates. The government also announced it is taking the following steps: foundations are required to provide annually plans to the minister responsible for administering the funding agreement. Such plans will include planned expenditures, objectives and performance expectations relating to the federal funding. Departmental Reports on Plans and Priorities will incorporate the significant expected results to be achieved by the relevant foundations and situate these within the Department's overall plans and priorities.

    As well, the Department responsible for administering the funding agreement will report on the significant results achieved by the foundation in its departmental performance report and situate these within the department's overall results achieved.

    The annual report for each foundation, including relevant performance reporting, audited financial statements and evaluation results, will be presented to the minister responsible for the funding agreement and made public. In addition, the responsible minister will table the annual reports of foundations created explicitly through legislation in Parliament.

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[English]

    The accountability of ministers and foundations is further enhanced through the following measures.

    Foundations are required to conduct independent evaluations, present these to the minister responsible, and make them public. Departments will incorporate any significant findings in their annual departmental performance reports.

    Funding agreements contain provisions for independent audits of compliance with their terms and conditions. There are also provisions for intervention in the event the minister responsible believes there have been significant deviations from the terms of the funding agreement. The provisions also provide for dispute resolution mechanisms.

    Further, in all new funding agreements, provisions are in place so that the responsible minister may, at his or her discretion, recover unspent funds in the event of winding up. Legislation for the three foundations created by Parliament was recently amended to permit this recovery.

    The adoption of these requirements addresses many of the issues about the accountability of foundations raised in the April 2002 report of the Auditor General of Canada. These measures highlight and reinforce ministerial responsibility and accountability to manage these funding arrangements. Ministers are directly accountable to Parliament for the spending and the results achieved. In addition, it is worth noting that representatives of foundations can be, and have been, called before parliamentary committees.

    Finally, I would like to point the committee to the very positive examples of the results achieved by foundations cited by the Secretary of State for International Financial Institutions in his appearance before the Senate Standing Committee on National Finance on June 12, 2002.

    I trust this overview on foundations has been useful to committee members.

    Mr. Chairman, we'd be pleased to answer any questions you or the members of the committee might have.

    Thank you.

    The Chair: Thank you, Mr. Morgan.

    Madam Fraser.

    Ms. Sheila Fraser (Auditor General of Canada, Office of the Auditor General of Canada): Thank you, Mr. Chair.

    We thank you for the opportunity to participate in this round table meeting with the committee to discuss issues related to foundations, and in particular our April 2002 chapter entitled, “Placing the Public's Money Beyond Parliament's Reach”.

    Accompanying me today is Tom Wileman, principal, who participated in that audit.

    Up to March 31, 2002, the federal government had transferred $7.5 billion to several foundations—money provided well in advance of program needs. Much of that amount was still in the foundations' bank accounts and investments at the year end. The funds had yet to be distributed to the ultimate intended recipients or used for the ultimate purposes of this spending announced by the government. The 2003 budget announced $1.2 billion more to foundations.

    I will be commenting further on transfers to foundations in my report and observations on the Public Accounts of Canada for the year ended March 31, 2003, which should be tabled later this year.

    The government's accounting policy recognizes such transfers as expenditures when the money is transferred to the foundations. We question whether this accounting treatment properly reflects the economic substance of these transfers. Would they not be better represented in the government's financial statements if expenditures were recorded in the years when the foundations make grant payments to the ultimate intended recipients, or use the money themselves for the government's ultimate intended purposes?

    The Public Sector Accounting Board, also known as PSAB, of the Canadian Institute of Chartered Accountants has recently issued a revised accounting standard and has a second project under way that could affect how these transfers are recorded. PSAB recently issued a new standard on the government reporting entity. This standard provides guidance to assist governments in determining if an organization is controlled by government, and I have encouraged the federal government to consider the implications of this new accounting standard for each of the foundations.

    Similarly, PSAB has a second project under way, which considers the accounting for government transfer payments, including multi-year funding. Together with government officials, I will be monitoring the progress of this project and considering the possible implications for the way the government accounts for transfers to foundations.

    Beyond the accounting treatment of foundations, my April 2002 report also raised broader, and perhaps more important, concerns about the accountability to Parliament.

    In its 2003 budget plan, the government announced a number of commitments to improve the accountability of foundations. The Standing Committee on Public Accounts reported to the House on this issue in its 14th report, tabled in May of this year. My office is undertaking a follow-up audit on the accountability of foundations in light of these developments, and we plan to report to Parliament on that work in my next status report, scheduled for May 2004.

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[Translation]

    Mr. Chairman, our follow-up audit has just begun, and we will be looking at the progress made in specific foundations. I would like to raise a number of issues that may be of interest to your committee as it plans its hearings on foundations.

    Our main finding in the 2002 audit was that the government's arrangements with the existing foundations did not meet essential requirements for accountability to Parliament, namely credible reporting of results, effective ministerial oversight, and adequate external audit.

    The first issue was credible reporting of results to Parliament and the public. The foundations publish annual reports, but we found in 2002 that few of them were tabled in Parliament. Nor did Parliament receive multi-year plans or evaluation findings. While Parliament did receive some useful information in the Estimates documents of the sponsoring departments or in the foundations' annual reports, the performance information provided there could have been better.

    The 2003 Budget announced requirements for corporate plans, with summaries to be tabled in Parliament. Improvements in reporting are also planned for sponsoring departments' Estimates documents, to present the significant results expected and achieved by foundations as well as evaluation findings. There was also a commitment to include relevant performance reporting in foundations' annual reports. When the sponsoring department's departmental performance reports for the period ended March 31, 2003 are tabled in November, I encourage the committee to examine the information they contain on the performance of foundations. We note that the committee has invited some foundations to appear and we would encourage you to ask them on a regular basis about the programs they are delivering.

    A second major issue from the 2002 audit was ministerial oversight. Sponsoring ministers and their departments did not have effective means to strategically monitor foundations' spending and make adjustments, should things go wrong or government priorities change. Ministers have limited powers to intervene, short of taking legal action if the funding agreement were breached.

    In the 2003 Budget, the government announced that funding agreements would provide for ministerial intervention in the event of significant deviation from the agreement, and for dispute resolution mechanisms. The committee may want to ask how these measures will work. What powers will ministers have? What information will be made available to them, as a basis for possible intervention? Will the funding agreements cover all the important issues? How will matters not covered by the funding agreement be addressed?

[English]

    The third issue was the adequacy of the audit regime. Each of the foundations we examined in 2002 had provisions for financial statements and a financial audit by an external auditor appointed by the foundation's board. However, none of the foundations had adequate provision for independent audits and evaluations made available to Parliament. In particular, there was no provision for value-for-money audit.

    The 2003 budget plan referred to evaluation requirements already in place in many foundations that we examined in 2002. These included requirements to conduct independent evaluations, present them to the minister responsible, and make them public. The budget also announced provisions for independent audits of compliance with funding agreements, and my office would be eligible to undertake those audits.

    As stated in the budget, foundations have become important tools for implementing policy. Sponsoring departments are responsible for policy evaluation and for monitoring how the foundations are meeting policy objectives. The committee may want to ask whether the proposed audit and evaluation measures, both in foundations and sponsoring departments, are enough that Parliament can get good, reliable information on the operations of the foundations and their effectiveness in delivering public policies. I would like to add, Mr. Chair, that we will be assessing the proposed measures in our follow-up audit.

    In April 2002, the Treasury Board adopted a policy on alternative service delivery that we see as a promising step. It means that sponsoring departments can be required to provide information on the governance and accountability of proposed new arrangements, such as foundations, as part of the process of obtaining approval for the arrangements. If the policy is to be effective, however, departments will need better guidance on key governance issues than they were getting at the time of our audit. The Treasury Board Secretariat will need the appropriate resources and skills to monitor departmental compliance with the policy effectively. The committee may want to ask the Treasury Board Secretariat about the implementation of this policy in foundations.

    In conclusion, Mr. Chair, the fundamental question before the committee is whether there are appropriate mechanisms for accountability to Parliament and for oversight of these large foundations. A related question the committee may wish to pursue is why it is necessary to provide such large amounts of public money so far in advance of need.

    That concludes our statement, Mr. Chair. We would be pleased to answer the committee's questions.

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    The Chair: Thank you, Madam Fraser.

    Professor Aucoin, are you all set to go?

    Mr. Peter Aucoin: Yes, I am.

    The Chair: Proceed.

    Mr. Peter Aucoin: I would like to begin by noting that the description of this session that appears on the screen that I'm looking at refers to, in English, federal arm's-length organizations; in French, the title is much better. It refers to autonomous organizations.

    I think it's important to note that in the Canadian history of the machinery of government, we have had arm's-length organizations that are part of our system of ministerial responsibility. In the case of these private or independent foundations, however, they are beyond the pale; they are outside the context of our constitutional system. Let me briefly explain why.

    Our constitutional system requires that ministers be responsible, that they have authority, that they have the powers to direct and correct when things go wrong, even when those organizations are operating with some independence from them, but not complete independence. It's more than a question of oversight; it's a question of having the authority to take the necessary steps to ensure ministerial responsibility as our means for public accountability.

    Second, the House of Commons requires the capacity to review, to audit through its agency, the Auditor General, and to ask questions--in short, to be able to hold government organizations, through ministers, to account. It's not simply enough to have people report to them on a voluntary basis or to have people report to them but not be required to give an account. It's also now an accepted part of our system that the public, including MPs, ought to have access to government information as a matter of right and not simply as a question of receiving information from organizations when they see fit.

    I think it's terribly important that the committee not be misled by the argument that we need these organizations in order to have the appropriate expertise brought to bear or to have peer review. The government for decades has been able to achieve that through various arm's-length organizations, in particular its various granting councils, in the areas of research and development.

    It's also important to note that while the alternative service delivery policy and the changes the government proposed in 2003 may improve the reporting that is done by these organizations, none of that measures up to the basic requirements of ministerial responsibility and the capacity of the House of Commons to hold ministers and their organizations to account.

    Finally, I might say that the public interest test that has been referred to is, in my view, simply too vague to act as a standard for ministerial responsibility. The definition of that public interest test is put in such a way that virtually anything could meet that test, primarily because ministerial responsibility simply gets subsumed under a notion called “accountability”, which is too vague to be precise enough to meet constitutional standards.

    I'll stop there, Mr. Chairman. Those are my initial remarks.

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    The Chair: Thank you very much.

    We'll start a round here now. Just for the benefit of members, we are joined today by...now, I'm not sure, Senator, how I refer to you. As a person from the other place? How are we supposed to acknowledge you?

    Senator Moore is interested in this question and actually has been doing some inquires in the Senate. He sent me some material, so I suggested he may want to sit in and listen also.

    Then I thought you weren't going to come, because you have another committee meeting.

    Senator Wilfred P. Moore (Stanhope St./Bluenose, Nova Scotia, Lib.): We just had a one-hour bell.

    The Chair: So you can sit here for a few more minutes.

    Right Hon. Joe Clark (Calgary Centre, PC): He might want to run for public office.

    Senator Wilfred P. Moore: I've tried that.

    The Chair: Well, Joe, we've been working on that for a while. Didn't you guys kind of mess that up the last time you tried it?

    Mr. Epp.

    Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you.

    I was going to suggest perhaps he should stand for election.

    I presume that members of Parliament from now on will have access to the committees of the Senate as well, because that would be good.

    First, thank you all for your presentations. I would like to ask a general question to start with, and that is on this whole idea of accountability, which is the common theme here. The way this now is administered is the government puts in a budget--for example, we're going to put $3 billion into, say, the scholarship fund for students. They just put it in and then the public accounts show it was spent. But we never do find out the details of how that money was administered, who got it, what the rules are, and so on, although I think we could probably dig that out if we had to.

    How is public accountability enhanced if we keep that directly as a program in one of the departments, and when we ask questions in the House, the minister gives obtuse answers about it anyway?

    I don't know whether I'm specific enough in my question. But you're talking about increasing accountability. How specifically do we do that?

    Mr. John Morgan: Mr. Chair, I think the government has been learning as it has been going along with foundations. The annual reports of the three legislatively created foundations are actually tabled in Parliament as part of their legislative requirement. So those annual reports are available in terms of what the financial results are and what would typically be in an annual report in terms of performance reporting.

    For the other foundations that are not-for-profit entities created by others outside of government, those sorts of annual reports are in fact provided to ministers. As announced in the budget, we will be requiring that for ongoing foundations, as well as submission of plans to the responsible minister.

    Our Treasury Board guidelines have been amended now to include the requirement that departments reference, in their reports on plans and priorities, those significant types of commitments and plans that those foundations are entering into, as well as including at the end of the year in the departmental performance reports the results that have been achieved by the foundations. Through that mechanism, it is to reinforce the responsibility of ministers for the administration of the funding agreements and with the term of those agreements, because these agreements are in effect for a period of time and it's the responsibility of the departments and the ministers to oversee those arrangements.

    Ms. Sheila Fraser: May I add a comment?

    The issue, I think, is that while there may be more information provided, it's the ability of ministers or departments to intervene should something go wrong. In most cases, it's only if there can be shown that there's a breach of the funding agreement. Well, I guess I would ask a very simplistic question. How do they even know if there's a breach of the funding agreement, because they can't get that kind of information?

    It has to be more than information. If you're accountable, you should be able...and the statement quite clearly said ministers are directly accountable to Parliament for the spending and the results achieved. But how can they be, realistically, if they have no measure of intervening in the way these funds are being spent?

    The second point I would like to make is that many of the measures that were announced in the 2003 budget are only applicable going forward. So it would be applicable perhaps to new foundations being created. But the foundations that exist, unless the government has somehow reached an agreement with them, are not subject to many of these things that have been announced.

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    Mr. Ken Epp: Okay.

    Mr. Peter Aucoin: Mr. Chairman, in response to Mr. Epp's question, the point that needs to be emphasized is that these are private organizations; they are not government organizations. The Auditor General has referred to them as private. You can refer to them as independent. In any event, these are not organizations for which ministers are responsible. Ministers do not have authority over these organizations, as the Auditor General has just pointed out. If things go wrong, a minister cannot be held responsible. These do not constitute government organizations in that sense.

    Mr. Epp asked how we are to find out how these organizations are spending the money. On the one hand, they can report to you, but on the other hand, the traditional responsibility of Parliament is to find out how things are being managed. I'm sure this committee is aware recently of how important it is for them to find out how moneys are being spent by officials in the system.

    The capacity of the House to do reviews, to do audits through the Auditor General, to ask questions, to hold to account--all of those things are missing here. Foundations can appear as private individuals, but that's precisely what they are.

    Mr. Ken Epp: Thank you.

    I'd like to ask a follow-up question to the Auditor General. Does she have the authority to walk in, say, to the Heritage Scholarship Foundation and look at their books in detail to see how they administered the money, how much is still left sitting there?

    Ms. Sheila Fraser: No, not at all.

    Mr. Ken Epp: You don't have that authority.

    Ms. Sheila Fraser: I have no authority, no mandate, vis-à-vis any of these foundations.

    Mr. Ken Epp: But under the legislation they have to have an independent audit, don't they?

    Ms. Sheila Fraser: It is an audit selected by the boards of directors and it is a firm from the private sector.

    Mr. Ken Epp: Okay. And is that audit made public?

    Ms. Sheila Fraser: There would be an audit opinion on the financial statements, which are included in their annual report.

    Mr. Ken Epp: Are you telling us that you feel that even though there's an independent audit by an accredited accounting firm, or whatever, their opinion is to be somehow suspect? I don't think you're saying that.

    Ms. Sheila Fraser: No, not at all. What we are saying is that the audit regime in government is much broader than simply an opinion on financial statements. The financial statements would reflect the financial reality of the foundation at the end of the year, and there's an audit for that. But it gives you absolutely no information on the financial management systems, on the practices that are going on in the organization, if it's well run or not.

    The kind of what we call the value-for-money audits that we do are much broader-scoped audits. There is no requirement for that. And even if there were, I would suspect it would only go to the board of directors; it would not come to Parliament.

    Mr. Ken Epp: Right.

    Finally, I'd still like to ask the Auditor General, what evidence do you have, if any, that some of these foundations, of which there are many, have a whole pile of money just sitting around that hasn't been used? Have the taxpayers put a bunch of money into some of these foundations that are not fulfilling their mandate or not distributing the money, which has just accumulated there? And do you have any idea of the magnitude of that?

    Ms. Sheila Fraser: Yes, in fact, Mr. Chair, we looked at that specifically when we did the public accounts of 2002. We are looking at it specifically again. We went through all the annual reports of these foundations, because we have no access to these entities.

    It was very close to the amount of money that had actually been transferred, and we give all the details. But if my memory serves me right, at the end of 2001, $7 billion had been transferred and $6.9 billion was still in the bank accounts.

    Mr. Ken Epp: My goodness. I guess one could jump to the conclusion—value for money, with two question marks, right?

    Ms. Sheila Fraser: Well, one of the questions we raised was, is there a necessity to pre-fund to such a large extent?

    I know we're probably getting into a lesser issue, but some of the accountants around the table might appreciate this: is it correct to recognize these transfers as expenses of the government when in fact the money is sitting in another bank account and has not been used for the program for which it was intended?

º  (1610)  

    The Chair: Thank you.

    Thank you, Mr. Epp.

    Monsieur Lanctôt.

[Translation]

    Mr. Robert Lanctôt (Châteauguay, BQ): Thank you, Mr. Chairman. Good day everyone.

    This situation is somewhat of an aberration. The government has been setting up these foundations for some time now and the problem is this: we have been “led to believe” that these organizations possess the required expertise to do the job they were set up to do. More money is allocated to these foundations than to the entire health care budgetary requirements of Canada's provinces combined. This is by no means a wise use of these huge sums of money. Accountability seems to be almost “voluntary”. No specific standards or requirements are in place. It all seems rather confusing and that suits this government which has racked up surpluses over the course of its recent mandates.

    Among other things, these foundations appear to be vehicles for hiding surpluses. Why not be honest about it? Considering that these foundations have $6 billion in their bank accounts, while the provinces, as we all know, are struggling to... The provinces are not one distinct entity. They are comprised of ordinary citizens like us and they have trouble meeting health and education needs, while foundations are sitting on billions of dollars, $6 billion in fact, according to the Auditor General. That's ludicrous!

    Now we're hearing that the government may have a problem turning over to the provinces the agreed upon $2 billion for health care.

    How can the government justify its actions? How, politically speaking, can we accept such a thing? I'm directing my remarks to all of the members seated at this table. It's not enough merely to consider financing and accountability mechanisms. What is the rationale for setting up foundations like this in the first place?

    I recall that the strategic infrastructure foundation was supposed to be another such foundation, but the opposition rose up against the idea of restarting the negotiations. At the time, the Minister of Transport, not to name anyone, was the person involved in the Highway 30 issue. But at least we had no need for negotiations between a department and foundation administrators. That's important to remember because we live in a free and democratic society. Our representatives are elected, while ministers are responsible for negotiating arrangements with the taxpayers' money. But here, administrators who are unelected and unaccountable are in charge of the funds. Just try and explain that to me!

    I'm sorry if I'm straying somewhat from the issue at hand. We're supposed to be examining the accountability issue, but before we do that, it might be a good idea to determine what purpose these foundations actually serve, aside from being vehicles for hiding surpluses. What do you think? I'd certainly be interested in hearing what Professor Aucoin has to say about the subject.

[English]

    Mr. Peter Aucoin: If I picked up the translation correctly, you suggested that the money was being placed into the hands of administrators, which might be understood to mean public servants. In point of fact, of course, the money is being placed into the hands of private individuals or private foundations.

    One of the major reasons, of course, why we have these organizations, as the government has admitted are not controlled by the government, is precisely so they can have these investment funds the Auditor General was referring to. If these organizations were funded in a different way, then clearly they would have to be under ministerial control, and in this case they are not.

    The opposition that arose with respect to the strategic infrastructure fund and the Africa Fund clearly made the point that elected officials, ministers, and MPs ought to be involved in a process of public accountability here. The point, if you like, is that the organizations set up prior to that time simply did not meet that constitutional test, and, secondly, that the efforts of the government since then, while they are improved measures, still do not reach the bar of ministerial responsibility—and they cannot reach the bar of ministerial responsibility because these organizations cannot be turned into government organizations. If they were government organizations, they would have to be dealt with differently in the context of how their funds are managed.

    It's important, I think, to emphasize here that the money we are talking about is no longer government money; this government money has become private money.

º  (1615)  

    The Chair: Mr. Rudin.

    Mr. Jeremy Rudin (General Director, Economic and Fiscal Policy Branch, Department of Finance): Thank you.

    Maybe I'll continue the discussion.

    The issue of how much money is still on the books of the foundations is an important one, and one that is controversial. One description of this we just heard was “l'argent dort”.

    In our view, this is not the case. These foundations typically are set up with an endowment designed to sustain the foundation's operation over an extended period of time. In a number of cases, the expected duration is spelled out in advance. It's a number of years, and it could be five years or six years, and perhaps even longer. So there is an expectation that these sums of money, some of which are considerable, will be managed wisely to spread them out over a period of time. A good analogy, although not a perfect one to be sure, is that when a private corporation endows a university professorship at a university, they transfer a substantial sum of money, often an amount of money sufficient to continue the funding in perpetuity. In that case, of course, there will always be some money in the account; or if the money is designed to be spent say over 20 years, then in the first few years the majority is still in the hands of the university, but with the idea or requirement that it be dedicated in subsequent years to the maintenance of this university professorship.

    Similarly, there's a difference in the recognition of the timing of these expenses between the foundations and the Government of Canada. Because the Government of Canada, as Professor Aucoin quite correctly points out, essentially releases the detailed control over the funds, when the money is provided to the endowment, the full amount is reported in the year in which the payment is made or, more accurately, the liability is incurred. A number of the foundations report the disbursements of these funds year by year, because they're making conditional rather than unconditional payments. So in many cases, a lot of the money is committed, say research money over a five-year period, but rather than giving the researcher the full five-year money at the beginning of the five-year period, the money is doled out year by year, conditional on sufficient progress. As a result, a lot of money that is apparently in the bank accounts of these foundations is committed and will be spent, conditional on successful completion of the research plans for which it has been engaged.

[Translation]

    Mr. Robert Lanctôt: It's difficult to understand how the minister can decide to shirk this responsibility. Instead of setting up a foundation and hiring all kinds of so-called experts, perhaps the better thing to do would be keep responsibility within the department. Then, in the event of a funding shortfall, a decision could be made to spend the money on health care rather than on all kinds of innovations or foundations, of which I believe there are 17 in total. The public would then have a say in how the funds are used.

    I realize that these are highly political questions. However, if I was assigned certain responsibilities in the private sector, I wouldn't want to delegate them to someone else without first knowing how the money I've invested is going to be spent. Logically, this money should stay in the department where a similar program could be set up, not be doled out to a foundation that is not held accountable for its actions.

    Furthermore, I can't even say...A substantial sum has already been allocated, since we're talking about long-term funding. However, in a society like ours, crises can develop. Witness the SARS outbreak in Toronto, the forest fires in British Columbia, and the ice storm in Quebec. We need this money, especially for health care and education. That's the most important consideration. We need these funds to maintain some control over our budgets.

    How can anyone really think the solution is to throw money at these foundations, without holding them accountable in any way? Who came up with this idea anyway?

    Mr. Jeremy Rudin: Committing funds without having the opportunity to withdraw that funding at a later date is an important point. When the government creates a foundation or gives money to existing foundations that operate at arm's length, as Professor Aucoin notes, this is strictly a voluntary decision on the part of the government, but it doesn't happen by accident. The decision is made after serious study. The fact that the government cannot back down on its funding commitment is viewed as something positive, something that can generate interest and attract persons with expertise in a particular field.

    Based on its experience, the government feels that this approach has worked well. Its commitment to funding has attracted not only skilled administrators, but has also encouraged the financial participation of other partners. This would not have been possible without a 100-per cent commitment on the part of the government to these foundations.

    Nevertheless, you have raised a very important question, namely whether the government...

º  (1620)  

[English]

    The Chair: You can finish your statement. You don't need to stop in midstream, but I want you to wind it up now.

[Translation]

    Mr. Jeremy Rudin: It's very important to maintain some flexibility to deal with unexpected situations that may arise. The government takes a prudent approach in the Estimates to cover any contingencies. It isn't important to be able to overturn every single government decision in order to maintain adequate flexibility in the budget.

[English]

    The Chair: Thank you, Mr. Rudin, and thank you, Mr. Lanctôt.

    Mr. Clark.

    Right Hon. Joe Clark: Thank you very much, and let me thank our witnesses today for coming and helping us begin a discussion that I think is quite important to us all.

    May I make a distinction between formality and reality? I don't want to pick on you, Mr. Morgan, but in your comment you say this is Parliament's fault because we set these things up through legislation. It's true that we did, but that denies the fact that--I think we're all aware and it's not here debated--Parliament's capacity to scrutinize things and indeed the prevalence of party-line voting, whatever government is in office, means that Parliament approves formally all sorts of things that it may not have thought about as seriously as it needs.

    I think as we go through these discussions it's going to be important to make a distinction between what really happens and what the form is. What we're interested in here is what really happens.

    The reason we're interested is because there is, at essence, a fundamental conflict between foundations, organizations, les organismes autonomes, as Professor Aucoin has pointed out, which are supposed to operate independent of government, and a system that requires ministers first to exercise control and Parliament finally to exercise control.

    I don't know how you marry the two, and it seems to me the problem here is that we wanted the absence of control while retaining the appearance of control. I guess what Parliament is saying is we're not prepared to put up with the appearance of control any more when we don't have it--and in these cases we don't have it. Am I wrong in this?

    Mr. John Morgan: The mechanisms used to fund foundations are through grants. All the grants are indeed listed in the estimates, and the supply is voted on and approved by Parliament. So the nature of grants is such that the money is provided to outside parties.

    We have in the order of $95 billion provided in transfer payments for the fiscal year 2001-02. That's all the money provided to outside parties either through grants or contributions or transfers to provinces, and there are a variety of mechanisms used within that in terms of the reporting of results and the accountability and the audit requirements and evaluation.

    I think the foundations, again, are not-for-profit entities that have been provided funding by the government, and it is upfront, but we've tried to ensure that in providing that funding, there's an adequate management regime in place to oversee the results being achieved and ensure that departments and the ministers are providing that oversight and reporting to Parliament on what is indeed being achieved.

    If we assume the fundamental purpose is to achieve certain objectives and there is a requirement for this long-term stability of funding, I think that's a policy requirement.

º  (1625)  

    Right Hon. Joe Clark: But that's the issue, and as I understood the Auditor General to say, that's precisely the issue, that there can be an oversight of a kind to know what's going on--if you can understand it, which is quite another issue--but there's no control. These are set up to avoid control in a system that requires control. So how do we square that, sir?

    Mr. Peter Aucoin: May I speak, Mr. Chairman?

    The Chair: Yes, please go ahead.

    Mr. Peter Aucoin: We are only here today discussing this issue because of the question of the long-term investments that have been placed in these foundations. Had it not been for that issue, the government presumably would have used its own granting councils, such as the National Sciences and Engineering Research Council and the Canadian Institutes of Health Research. These are the organizations that, I have to repeat, are set up with outside experts on the board of their councils. These organizations use peer review, but these are also organizations in which ministerial responsibility still applies. The ministers can take action when things go wrong.

    I think it's also important to emphasize that these granting councils do have long-term projects, multi-year projects. Their funding is not guaranteed in a sense that it must be annually appropriated by Parliament. But all these organizations are able to make those commitments, given the character of the Canadian economy and the long-term funding of these organizations.

    It's also the case, I think, that these organizations have demonstrated that they can partner with the private sector and leverage private funds. There are presumably some advantages if you're an entirely private organization, but that simply emphasizes the point that these are private organizations.

    I don't think there is a way of squaring a circle between ministerial responsibility and autonomous organizations in that sense. They are either part of government or they're not. There are a number of mechanisms that can be used to impose some control over private organizations, but they still remain private organizations. In some cases, it might make sense to use endowments for very particular kinds of projects, but we're not talking here of particular kinds of projects; we're talking of major public policy programs.

    Right Hon. Joe Clark: So you would argue, Professor Aucoin, that we shouldn't have these. We can accomplish these purposes by more traditional, more accountable means without jeopardizing their capacity for long-range planning.

    Mr. Peter Aucoin: We can and we should.

    The Chair: Thank you.

    Ms. Fraser.

    Ms. Sheila Fraser: Just as one point, and I know it is probably a minor one in all this, we should not lose sight of the accounting of these things, because quite frankly, I think the accounting is a major consideration in the way these have been set up, and the government can only record an expense if it is a non-conditional grant to an independent organization.

    If it was a grant in council, if it was a crown corporation, there would be no expense on the summary financial statements. A senior official in government has actually commented that care has to be taken on how much accountability is put into these organizations, because it could sweep them back into the government reporting entity and it means that these transfers would not be recorded as an expenditure.

    The Chair: Mr. Clark, are you done?

    Mr. Rudin, do you want to make a comment?

    Mr. Jeremy Rudin: If I may, and I'll try to be brief, Mr. Chair.

    The Chair: Mr. Clark has an extra minute or two, so you may have full use of it.

    Mr. Jeremy Rudin: Thank you.

    Certainly, the government is well aware of the granting councils and other programs that use outside expertise and other conventional programs the government has that also lever private funds. It is not the position of the government that this is the only way to attract private sector expertise, to demonstrate a commitment, or to lever private sector funds. It is the position of the government that in some particular instances it is the best way of doing so. It is the best way of doing so by providing funding governed by a funding agreement to an independent organization.

    There is, in some sense, something lost when something is gained, because the independence implies reduced control, very limited in some sense, by the government. It is a decision the government makes to give up that control, as the government and Parliament do in many other situations--to delegate or to restrain itself in return for something. In this case, it's for the advantages.

    It doesn't mean there's no accountability. As Mr. Morgan was saying, the minister is accountable for setting it up--if he or she sets up the foundation, for the funding agreement, for monitoring the funding agreement, etc. But accountability is different. There isn't any question about it.

º  (1630)  

    The Chair: Mr. Clark.

    Right Hon. Joe Clark: You're saying there is very limited control in some cases. Are you agreeing with Professor Aucoin that this is not a circle that can be squared?

    Mr. Jeremy Rudin: It would be better, I guess, if Professor Aucoin answered that.

    Right Hon. Joe Clark: No, no, that's his view, but I'm wondering what--

    Mr. Jeremy Rudin: What I'm saying is that these are, as he clearly points out, independent organizations; therefore, ministerial accountability is different from how it would be if they were not. The minister is accountable for entering into an agreement with the organization, and in some cases accountable for setting up the organization, but he isn't accountable in the same detailed way he would be if it were a program. I think that's true.

    It's not as if there's no accountability, but accountability is different. The government makes that decision. I'm not sure if the government has a position on whether that different accountability is worse or better, but members of the committee may feel it is, in some sense, a cost. But the benefit is that it allows the government to meet its goals working in cooperation with an independent organization when the government feels that's the best way to gain those advantages.

    Right Hon. Joe Clark: The issue here really isn't that the accountability is different. The issue is that at the end of the day the accountability is absent. There is not an ability of the minister to intervene, to change direction. Consequently, there's no ability of Parliament, to whom ministers report but people in these arm's-length organizations do not, to hold someone accountable in the sense that we understand it, in the parliamentary sense.

    I'm not being adversarial here. I think there's a fundamental issue that's been raised, and if we're dealing with principles that can't be reconciled, I guess my starting prejudice would be that the principle that Parliament has to retain control over spending must prevail. Part of the reason we've embarked on this inquiry is to determine whether we have to change our thinking fundamentally, and if not, how we change our procedures.

    The Chair: Mr. Morgan

    Mr. John Morgan: If I could expand a bit, I referred to the use of grants, transfer payments, to other organizations. We've gone a step beyond in terms of foundations and we've actually built in ongoing reporting requirements and requirements for audits and evaluations, which don't exist for other types of grants. The responsibility of the department and the minister, on an ongoing basis, is to monitor this activity. The ministers now have the ability to intervene if things do go wrong. We've built that into many of the funding agreements that have been signed as a result of Budget 2003.

    So for the majority of the foundations now, we have that ability for ministers to intervene. If something does go wrong, we have the default provisions in the agreements. We also have the ability of ministers to undertake compliance audits to ensure the foundations are abiding by the terms and conditions of those agreements. So we have significantly strengthened these arrangements.

    The Chair: Thank you, Mr. Morgan.

    Ms. Fraser, would you like to comment? Before you begin, could you also explain your remark about the impact on the financial balance of the government? What would be the consequence, for example, had they not gone this route?

    Ms. Sheila Fraser: Thank you, Mr. Chair.

    First of all, when we compare these transfers with regular grants, it's very rare for government to prepay such a significant amount of money. In fact, there was a Treasury Board policy against prepayment of funds. I think we're talking about grants of a very different order of magnitude here. The ability of government in the regular process is that you can stop funding for the next year if you find something has gone awry in a program or a grant you've given. You just don't give the next year, if you've given it. It's a very different level we're talking about.

    Also, many of the provisions, I still maintain, are on a go-forward basis. Of the funds that have gone out, in fact, at the end of 2002, there was $7 billion sitting in bank accounts. I'm not aware that the government has gone back retroactively in those funding agreements to put in the provisions Mr. Morgan has referred to.

    I would just point out as well to the committee that the new funding announced in the 2003 budget is for existing foundations, not new foundations. More money is continuing to flow into the same foundations.

    What would have happened if those foundations were not to be considered “independent” from government in accounting terms is that the $7.5 billion would not have been recorded as an expense and would not have reduced the surplus of the government. It would only have been recorded as an expenditure when the money actually flowed to the ultimate recipient.

º  (1635)  

    The Chair: So would the consequence be that in that fiscal year the government would have showed an amount somewhat higher than it actually reported?

    Ms. Sheila Fraser: It would have shown a higher surplus for those years ranging, I think, anywhere from.... There were a couple of years when it was probably around $2 billion.

    The Chair: Would this have caused you pain?

    Ms. Sheila Fraser: Would this have caused me pain? Not at all, no.

    The Chair: But that's the only kind.... There isn't something that is going to happen that would make us all upset if it were to happen, is there?

    Ms. Sheila Fraser: As I mentioned, the Public Sector Accounting Board is studying the whole accounting standard for transfers and grants. Formerly, government was on a cash basis of accounting, so you recorded things as the cash went out the door. I don't think those standards were ever developed considering the government would prepay so significantly. Is it appropriate to record all that as an expense in the year, when the program may last for ten years? There's a very large discussion going on currently on that issue.

    The Chair: Mr. Morgan.

    Mr. John Morgan: May I, Mr. Chairman, just comment on a couple of things?

    Under the default provisions of the agreements we are entering into with even existing foundations, there is the ability to recover funds if there is a default or the entity is wound up. So there is an ability to recover any unspent federal assistance.

    I can confirm that for all the foundations that received funding as a result of the 2003 budget for fiscal year 2002-03, the funding agreements were amended to include many of the accountability measures we've referred to. The President of the Treasury Board submitted to the public accounts committee in the month of April an outline of the various foundations and the types of improved accountability measures that have been taken as a result of the 2003 budget, and we expect to provide an update with the tabling of the public accounts for 2003.

    The Chair: Thank you.

    Mr. Szabo.

    Mr. Paul Szabo (Mississauga South, Lib.): Just on the dimensions of what we're talking about, we have a list of 16 foundations and an aggregate dollar amount of $8.3 billion. All of them require audited financial statements; all of them have boards of directors and are subject to the same directors' liability rules any corporation would be; one half of them are subject to recovery provisions, as was just mentioned.

    The top five—Canada Foundation for Innovation, with $3.65 billion; Millennium Scholarship Foundation, with $2.5 billion; Canada Health Infoway, with $500 million; Aboriginal Healing Foundation, with $350 million; and Genome Canada, with $300 million—involve $7.25 billion, or about 88% of the total. All of those top five, with 88% of the foundation money, are endowments. They are for a long-term plan of strategic activity that requires the underpinning of that capital to discharge their mandate.

    I would ask the Auditor General a question. Let's take, for example, the Millennium Scholarship Foundation, which is an endowment for at least 20 years. An external auditor provides an opinion that the financials fairly represent the financial position but that the auditors are not responsible for fraud or defalcation that may occur. To render that opinion, they have to assess, just as the Auditor General would, the state of controls and the management report dealing with policies and practices and value for money.

    Does the Auditor General not get any comfort level out of the fact that there is an independent audit done on these foundations with regard to the financial position, its internal controls, its financial and money practices, and value for money?

    Ms. Sheila Fraser: Thank you, Mr. Chair.

    I certainly don't want to get into the technicalities of auditing, but I think Mr. Szabo can appreciate that in a financial audit, an opinion can be given on a set of financial statements, and the internal controls can be appalling. The auditors will do supplementary procedures or substantive testing to see that the balances are properly reflected, but I don't think we can say, because there's a clean audit opinion on a set of financial statements, they have looked at value-for-money issues, have looked at public policy or public values, or have even necessarily looked at the state of financial management and internal control.

    So yes, I do take comfort from the fact that there is an audited financial statement. I presume most of them have clean opinions and that this part of it is done--and that is an important part.

    I have no questions about the qualifications or the diligence or professionalism with which that is done; it's just that in the public sector, when we have public funds, we deal with much broader-scope audits, looking at conformity, at public values, and at broader management issues and whether there is value for money. That wouldn't be done.

º  (1640)  

    Mr. Paul Szabo: I agree with you. Internal controls may be weak in some areas, and indeed there may be risk elements, but as far as they've seen, everything still seems to be holding together.

    I think you have touched on something that might be helpful to the committee in terms of making recommendations. If we are to get the comfort level that we want audits on value for money and achieving the stated objectives, why don't we incorporate in the enabling legislation or in the creation documents of foundations the requirements to follow, the same or similar to the provisions within the Financial Administration Act or the Treasury Board guidelines, and say, “If you are going to operate, this is what we want you to do”?

    Let me ask you the question: would it be an undue burden on any of these foundations to emulate the internal controls, the value-for-money reviews, and so on, that the Auditor General's office would require of any department?

    Ms. Sheila Fraser: I doubt that it would be an undue burden. I think the important question then is, to whom do those reviews get reported? If it's a private organization, that would go to their boards of directors; it would not come to Parliament.

    Then, should there be a problem, what capacity does a minister or a department or Parliament have to effect any change?

    Under the current funding agreements, my current understanding, based on our work--and obviously we're updating it and we will see if changes have been made--is that the minister can only intervene if there is a default of the funding agreement. My first question is, how do you know if there's a default, and then, do you really want to have to take that avenue? Should you not be able to have more influence over such large sums of public money?

    Mr. Paul Szabo: Only half of them have those default provisions, where the money could be yanked back. The others do not; the major ones do not. But if your concern would be, how do we know what the results of that audit are, it's certainly not an undue burden on anyone to make that a reporting requirement to the minister.

    Then we have to ask, how do we get at what the minister has? Why don't we table annual reports on these? Then I guess we do, and if we table annual reports on the operation of, say, the Canada Foundation for Innovation, can there not be a page in that report that in fact reflects the opinion, the independent audit opinion and the opinion of the board of directors, with regard to the discharge of its mandate in accordance with the enabling legislation or papers that created the foundation in the first place? It doesn't seem like rocket science to get those assurances.

    Ms. Sheila Fraser: I agree with you. There should be mechanisms to get those kinds of assurances. The important thing is then the ability to act once you get that information.

    The Chair: Thank you.

    Madam Bennett.

    Ms. Carolyn Bennett (St. Paul's, Lib.): With due respect to the government reps, I think what the Auditor General said is what I think all of us believe, that this was a booking issue and everybody knew it when these things were set up. I don't think it was viewed to be the best way to do it. It served the purposes of the government to be able to put some money aside and declare it spent, I think.

    Obviously, we've learned a lot from both Professor Aucoin's article and from the Auditor General's report in terms of how we would go about this in the future, and also from what the Auditor General is asking: whether, if we were to go about this in the future, we as Parliament should condone this as a way of carrying on business.

    I guess my issue with it is this. If either the Auditor General's office or Professor Aucoin were writing our report, with the horse out of the barn already, what could we do to fix the ones that exist? Or do you want them changed such that they don't look at all like this any more? What would you suggest for the future? What can we actually do with the ones that exist now that could meet the criteria? And what would be in our report if we actually were going to try to get back the accountability transparency and no longer have them beyond Parliament's reach?

º  (1645)  

    Ms. Sheila Fraser: I would suggest that as money is going into these foundations, that's obviously the opportunity to review the whole structure. As new funds are transferred in—and Mr. Morgan would seem to imply that this is what has occurred—that would be the time to strengthen some of these accountability provisions: the provision of information, the broad-scoped audit we talked about, and as well the ability of ministers to intervene should things be going off track. I think it's fairly clear now that it's a question of how much ability the government has to change the existing funding agreements. I think it would have to be done on a case-by-case basis.

    Perhaps Professor Aucoin would like to add something.

    Ms. Carolyn Bennett: I noticed Professor Aucoin's article says that unlike boards, commissions and crown corporations, “they are not required”, and then it says “and cannot be required” to be accountable to Parliament. So the way they exist right now, there doesn't seem to be anything we can do to make them accountable to Parliament unless they agree to send the independent auditor's statement every year to your office. We can't compel them to do this, unless we change it.

    Maybe Professor Aucoin can help with this. If we wanted to change it, what would we do?

    Mr. Peter Aucoin: I think you've put it well. The horse in a way is out of the barn.

    There are some measures that can be taken perhaps with respect to future organizations of this sort to make them into government granting councils rather than foundations. Here I think the issue comes back to whether or not it is in the public interest to have private foundations manage major programs over time. The reference that was used to deliver a program, I think, was quite appropriate. It's one thing for government to enter into a long-term contract, or grant, or financial arrangement with a partner on a very specific project, but to pass over that money for the management of an ongoing kind of program I think is quite different.

    The issue you're faced with—what to do now—is a question that you're dealing now with a private organization. Presumably, these organizations have sufficient public integrity that if the government asked for all of the money back, it could be returned to the treasury. Then it would be a question of how you would establish organizations to pursue their purposes so that ministers are in control, which would then make them government organizations, but yet overcome the problem of accounting for the money for these long-term investments.

    For example, mention was made of the Scholarship Fund. This is an endowment that allows for long-term investment. Scholarships are managed by a wide variety of federal government organizations and don't have to be put into endowments. They can be granted on an annual basis.

    It's both a question of designing the programs and achieving the accounting requirements that are there, but at the same time ensuring that, as the Auditor General has put it, there is someone in control who is able to act when things go wrong.

    The Chair: Mr. Morgan, do you wish to comment?

    Mr. John Morgan: In terms of the comment about the default provisions of the agreements, we have incorporated default provisions in most of the foundations, with the exception of the millennium scholarship. That has not been renewed yet, but we would undertake to renew that with the foundation. For all the other foundations we have included a default provision that provides the ability to the minister to rescind the agreement and recover unspent funds.

    As I indicated as well, we did table with the public accounts committee a comprehensive report as to the accountability criteria, such as compliance agreements, compliance audits, and evaluations. If you like, I can table that with this committee as well. It outlines the steps the government has taken now to address the recommendations or the statements made in Budget 2003 for better reporting and accountability.

º  (1650)  

    The Chair: Thank you, Mr. Morgan and Madam Bennett.

    Mr. Benoit.

    Mr. Leon Benoit (Lakeland, Canadian Alliance): Thank you very much, Mr. Chair, and thank you all for being here today.

    Professor Aucoin and Ms. Fraser, in your comments I think you said the fact that these programs are set up at arm's length from the minister creates an accountability problem. It seems to me that the exact reason these may have been set up at arm's length from the minister is to protect these funds from ministerial interference, because the government feels that too often ministers interfere in programs in ways they shouldn't. I'm wondering if that isn't one of the reasons these have been set up as they are.

    Ms. Sheila Fraser: Thank you, Mr. Chair.

    The government would certainly have to answer if that is one of the reasons, but I guess I would ask the question on the reverse side: is it not better to have someone who can be held to account for their actions than a board of directors that has not been elected, that has been appointed by a mechanism outside government, that is not accountable to Parliament for such significant sums of public money? We're talking about $7 billion here.

    Mr. Leon Benoit: If that's the case, of course, the argument I've heard from Mr. Morgan and others is, well, these audits are done and in fact there is accountability.

    I'd like to ask you, then, Ms. Fraser, whether these audits that are done in fact provide a benefit in terms of public accountability, if there are no audits done for value for money and that type of thing. Are these really providing accountability as you'd expect taxpayers to receive from taxpayers' money being spent?

    Ms. Sheila Fraser: The audit of financial statements is an important element. It is important that there be that rigour in the financial statements and in the financial presentation, but that is no guarantee, as I mentioned earlier about systems and practices, that public values are being respected, and it is certainly no guarantee that there is value for money.

    What those statements present is that the money was spent, but there is nothing to say that money was spent efficiently, economically, and effectively. So it's simply a validation, if you will, of the financial transactions of the organization, but it would not get into broader issues typical of a value-for-money audit.

    Mr. Leon Benoit: You suggested, Ms. Fraser, I believe in your 2002 report, that the way to deal with this would be to have the Auditor General's office made responsible for external audits of foundations so that Parliament can be provided with an assessment of matters that go beyond financial statements, including compliance with authorities of propriety and value for money.

    I'd like to ask you, Mr. Morgan, what resistance you have to that--you personally, but others who are responsible for these as well.

    Mr. John Morgan: The government has implemented additional accountability and oversight measures with these arrangements. You must keep in mind that these are not-for-profit entities that are comprised of independent individuals. Yes, they do have significant sums of money provided upfront. The question then is, how do you provide an adequate regime for appropriate accountability and reporting?

    As I indicated earlier, we do have the ability for ministers to undertake compliance audits. We do have a requirement for independent evaluations and results. We do have a requirement for the submission of plans and annual reporting of results and performance to ministers, and ministers then report to Parliament.

    I guess the question then is, how far do you go in terms of the oversight of government and Parliament for entities that are deemed to be at arm's length, other not-for-profit entities, volunteer organizations that receive funding from the federal government?

º  (1655)  

    Mr. Leon Benoit: Again, my question was a direct question. What resistance do you have to the Auditor General performing that function?

    Mr. John Morgan: The Auditor General could be appointed auditor of a foundation. It would be up to the members of the foundation to appoint the Auditor General. It would be up to the Auditor General to determine whether she could undertake that audit under her legislative mandate.

    Mr. Leon Benoit: But could the government not require that the Auditor General be given access and in fact do those audits?

    Mr. John Morgan: That is correct. The government could, through the minister, request the Auditor General to undertake a compliance audit of a foundation.

    Mr. Leon Benoit: So why might there be resistance to that then? I just don't understand.

    Mr. John Morgan: No, Budget 2003 did indeed specifically say that the Auditor General could undertake these audits.

    Mr. Leon Benoit: It says “could”, but it doesn't say that the Auditor General will be given access. What resistance could there be to that, is my question. It seems odd.

    Mr. John Morgan: I don't believe there is resistance to engaging the Auditor General to undertake those audits. There is a legislative mandate for the Auditor General to undertake audits at the request of ministers.

    Mr. Leon Benoit: Then why wouldn't the government just make it a policy that the Auditor General be given access as a requirement--not “may be” or “could be”?

    Mr. John Morgan: The Auditor General is an agent of Parliament, so it's up to Parliament to determine what the overall legislative mandate is for the Auditor General.

    Mr. Leon Benoit: Okay, I'd like to ask a specific--

    The Chair: Mr. Benoit.

    Mr. Leon Benoit: Yes?

    The Chair: You are running out of time, sir.

    Mr. Leon Benoit: May I have a short question?

    The Chair: I'll give you one more very short, well-focused question.

    Mr. Leon Benoit: In terms of this $6 billion or more that's sitting in the funds, has that been invested, and how are the investments doing? Have any of the investments actually lost money?

    Ms. Fraser.

    Ms. Sheila Fraser: I have no way of knowing.

    Mr. Leon Benoit: You have no way of knowing from--

    Ms. Sheila Fraser: I am not able to respond to that question.

    Mr. Leon Benoit: But you have access to the financial statements that are given to you by the auditor. You have the auditor's statement.

    Ms. Sheila Fraser: No, actually, we go to their website. They do not send these things to me, necessarily.

    I am not able to answer that question.

    Mr. Leon Benoit: Mr. Morgan, the Auditor General can't even get enough information to answer that basic question about how much money is invested and how the investments are doing. Do you feel that's an acceptable level of accountability to taxpayers for the spending of taxpayers' money?

    Mr. John Morgan: As required by legislation, the audited financial statements for three of the foundations, which comprise over $4 billion--the majority, in fact almost 80%, of all the funding--are audited statements that are tabled in Parliament, so they're open to Parliament and the Auditor General to scrutinize.

    Mr. Leon Benoit: What resistance is there to the rest...? I know I'm asking a question you can't really answer; it's the government that has to answer that. I understand that.

    But thank you very much.

    The Chair: Thank you, and thank you, Mr. Morgan. That's fine.

    I'm going to go to Mr. Lanctôt, Mr. Clark, Mr. Pacetti, and back to Mr. Forseth.

    For a five-minute round, Mr. Lanctôt.

[Translation]

    Mr. Robert Lanctôt: Thank you.

    In light of everything we've heard, why defend these independent foundations when departments are certainly capable of doing the job themselves, given the experts they have on staff? Mr. Morgan and Mr. Rudin seem to be defending these foundations, whereas I sense just the opposite from Professor Aucoin and the Auditor General.

    Why insist on this delivery vehicle, if I can use that expression, when we could achieve the same results, but in way that would make everyone happy? Specifically, we could have ministerial accountability. The money available that is being allocated to foundations could be redirected to departmental programs.

    Why give a board of directors all of this money and delegate this spending authority? It brings me back to the question I asked earlier, but to which I received no response. I want to know why it's so important for the government to delegate this responsibility, aside of course from the fact it wants to hide its surpluses.

    Mr. Jeremy Rudin: I don't have a great deal more to say on the subject. Clearly, the government's approach is designed to generate interest from experts and to encourage the participation of other agencies.

»  (1700)  

    Mr. Robert Lanctôt: Yes, but all this could be done internally.

    Mr. Jeremy Rudin: The government can encourage financial participation through a conventional departmental program. Occasionally, however, an opportunity arises where, in the government's view, the best way of generating interest and attracting skilled experts is by setting up or funding an independent foundation. It comes down to a judgment call.

    In some specific cases, it's far more interesting for experts to work within an agency where funding is more or less secure. For example, the Canadian Foundation for Climate and Atmospheric Sciences, a government-funded agency, was founded by a group of scientists. The foundation is administered by these scientists and by others who are recommended, if not exactly appointed, by the government. The government felt that this was the best way to generate interest and attract these scientists, instead of opting for a standard program. It's a judgment call on the government's part.

    Mr. Robert Lanctôt: I'm sorry, but it's a question of responsibility, not judgment. A certain sum of money has been allocated for a period of several years for research purposes. I think the government would have shown better judgment by setting up a program, by giving a contract to the private sector and by giving money to the people doing the work. That would be the right call. Don't tell me that the government is showing clear judgment when it can't say what kind of research will be done down the road or where the money is going to be invested or how it will be used. If the project is sound, then a contract should be awarded to the private sector. We're not against awarding contracts. Quite the contrary, in fact.

    Researchers do important work, but so too do other people. There's no denying that all of these foundations and researchers do important, necessary work. However, what I fail to understand is how a department can commit to something like this for the future...The work may well be important, but what about the state of our health care and education sectors today and their need for more funding? Why make a commitment to uncertain programs that may be part of a plan that might become clear to us in eight or more years from now...? That's the question I want answered. You'll achieve the same results. Researchers will be happy, and so too will the students. You receive x number of dollars and next year, if there's another program, the private sector gets the funding. Nothing will change. You will still do business with the private sector, but the main difference is that you will be controlling all of the funds and the accountability process will be made simpler. The Auditor General would have access to the department's books. The end result would be the same.

[English]

    The Chair: Do I see anybody dying to make a response?

    Madam Fraser.

    Ms. Sheila Fraser: Well, Mr. Chair, I was just going to perhaps suggest,

[Translation]

    partly in response to Mr. Lanctôt's question, that these foundations have been in existence for five or six years. To my knowledge, no actual evaluation has been done to determine the advantages and disadvantages of these agencies. Maybe it's time to review these delivery vehicles, to consider if this model is working and to assess in an objective manner both the shortcomings and potential benefits of these mechanisms.

[English]

    The Chair: Thank you, Madam Fraser.

    Mr. Clark.

    Right Hon. Joe Clark: I think that's what we're looking to here. I hope there's a willingness on the part of the government and the foundations to have those basic questions asked.

    I don't know if there's anyone among the witnesses who can go back to the beginning as to how we got here. I'd be interested in a couple of specific matters: one is why the auditing responsibility was not vested in the Auditor General; and two, why these organizations are exempt from the access to information law. What was the rationale in either case? Does anyone know?

»  (1705)  

    Mr. John Morgan: Mr. Chair, I can't really comment on what went on in the creation of the Foundation for Innovation and the Millennium Scholarship Foundation through legislation. I do know in the legislation that it was clear that these were not to be an agent of the crown and that the audit was to be appointed by the members of the foundations. Presumably this was to reflect the fact that they were not-for-profit organizations outside of government, with their own responsible boards.

    Right Hon. Joe Clark: I'd be interested in Professor Aucoin's view on this, because he would have an historical perspective. He's made the point that we've had a number of organizations that were accountable to Parliament and....

    Do you audit the National Research Council?

    A voice: [Inaudible—Editor]

    Right Hon. Joe Clark: A number of organizations were audited by the Auditor General that have had to deal with the issue of dealing with experts and with some of these issues.

    I'm not suggesting that there's not a new dimension to them now; there may well be. There must have been specific reasons for those two exemptions. Professor Aucoin, do you know why this occurred?

    Mr. Peter Aucoin: The primary reason is that they're private organizations and not government organizations. In order to make certain there were private organizations that could receive the endowments, it was imperative that there not be indications of government control. Imposing the requirement that the Auditor General be the auditor of these foundations would be to take away an important prerogative of the board of directors of these foundations to select their own auditor.

    Secondly, to impose on them the access-to-government-information regime would be to treat them as government organizations and not as private organizations.

    I think if you go back and read the debates on the establishment of the first of these organizations, it's quite clear that they're perceived as private organizations outside the realm of government.

    Right Hon. Joe Clark: Are they bound by the Official Languages Act? Does anyone know?

    Mr. Peter Aucoin: No, they are not.

    Right Hon. Joe Clark: They're not.

    I want to quote from Professor Aucoin's article. He says at one point:

...changes to the Financial Administration Act could make provision for funding guarantees beyond a single fiscal year that would be as firm as any guarantees provided by the private sector for specific projects.

    Is he incorrect? I'm sorry to pull this out of the air. It's in his article. Was the quotation clear?

    Mr. John Morgan: Mr. Chairman, if the Financial Administration Act were amended to provide for multi-year appropriations, it's certainly the right of Parliament to determine how it will govern the expenditures of government. Multi-year appropriations right now are not something provided for within the FAA. I understand that for a couple of agencies there may be some provision for a carryover into a subsequent year of appropriations, but for the most part, appropriations are an annual—

    Right Hon. Joe Clark: What we heard was to change traditional practice to put these very important—it's not just the money they spend, it's the work they do—organizations beyond the normal reach of either ministers or Parliament, but we didn't change the Financial Administration Act instead. That seems an odd choice, and a choice that must have been made deliberately.

    I wonder if Professor Aucoin has—he wrote this, so I presume he agrees with it—some elaboration on whether it is really as simple as changing the Financial Administration Act.

    The Chair: Do you agree with your article?

    Mr. Peter Aucoin: I'm not sure changing the Financial Administration Act is ever simple, but there is an important sense in which the.... There are several governments around the world that either use or are very interested in moving to multi-year appropriations. This wouldn't necessarily be 20-year endowments, but it would be long enough to secure the kinds of agreements that are referred to, having governments enter into partnership with private sector agents who will commit to the long term as well.

    I think moving in that direction is part of what is necessary in order to be able to have governments that can be more innovative. The point has to be made very clearly that the debate we're having here has certainly nothing to do with either the objectives of the foundations themselves as matters of public policy or anyone who's involved with those foundations. It's more a question of whether or not these foundations have been put outside the pale. They're beyond the reach of Parliament. They're beyond the reach of ministers.

»  (1710)  

    Right Hon. Joe Clark: I'd like, certainly on my behalf and I think the committee's, to underscore what Professor Aucoin has said about our purposes here. I think we all recognize that there is a new dimension.

    The last thing I want to mention in this round, Mr. Chair, is the problem of information. If you are a poor minister and you have the responsibility for looking at one of these things—let's say you have to try to understand what Genome Canada is doing, which is beyond the reach of most of us; it's a very complex issue, but at least a minister has a whole bunch of officials who can come and say, “This is what this is all about.”

    If the power were conferred on a minister—if it were, and it isn't now—to intervene, that minister could only be held accountable to Parliament in our system if Parliament also had that sophistication of information. Otherwise, we're back to accountability as a form and not as a reality. We can't judge or control things we don't understand.

    Is simply requiring more availability of the information that is within these organizations a response to that, or does something else have to be done?

    Here's what I'm getting at. We created these for a couple of reasons. One was the requirement for multi-year funding. There may be other ways to get at that. Secondly, they are complex, they are new—by definition, “innovation” is on the edge of the known—and so there has to be a modification of normal constraints. In a system like ours, there nonetheless have to be constraints. If there's an abnormal situation, if there's a new problem in controlling something, there has to be some new approach to controlling it, rather than simply saying, “There shall be no control”, which is what we appear to have ended up with.

    The Chair: Do we have a response from that end of the table?

    Mr. Morgan.

    Mr. John Morgan: Mr. Chairman, in terms of the first item—the information for Parliament to understand—I believe, through requiring the departments who are administering these arrangements to report on them in their report on plans and priorities as well as in the departmental performance reports, the opportunity is there for parliamentarians to engage departmental officials on the context of these organizations, the results they're achieving, and, in my view, even more importantly, how those can be coordinated with those of the overall departmental mandate. Obviously, the department funded these with a certain objective in mind underneath the overall department's mandate.

    On the item concerning the creation of the entities, Parliament created the three large entities through legislation. The other entities are other not-for-profits. In some cases—as an example, the Federation of Canadian Municipalities—clearly there's a different kind of arrangement. So what we have out there is a variety of different structures. Some of them, obviously, are quite a bit different from what you would have as a typical granting council.

    The Chair: Thank you very much.

    Mr. Pacetti.

    Mr. Massimo Pacetti (Saint-Léonard—Saint-Michel, Lib.): Thank you, Mr. Chair. Witnesses, thank you for appearing.

    I think I forgot my question. Some of these questions were asked, but from the audit point of view, has the Auditor General ever audited any of the foundations, even in the past—any foundation?

    Ms. Sheila Fraser: I have no mandate in any way concerning the foundations.

    Mr. Massimo Pacetti: But even in the past, have we never looked at it?

    Ms. Sheila Fraser: No, never.

    Mr. Massimo Pacetti: Do we not account for it in any way in the government's books? We don't consolidate, or we don't...?

    Ms. Sheila Fraser: The only thing that is recorded in the government's books is that when the commitment is made and there's a contractual obligation to put funding into these organizations, there is a liability recorded in expense—or when the cheque is actually sent. So the transfer is recorded in the government's books; after that nothing is recorded.

    Mr. Massimo Pacetti: These are material items, so the commitment would be a material item on our books. Whether the money hasn't been dispersed or the money has been dispersed I don't think really matters; the commitment is on the books. Don't we audit a part of that transaction?

»  (1715)  

    Ms. Sheila Fraser: Well, I would audit the transfer of the money out to the foundation, so I will ensure that there is an obligation and that it respects the current accounting policies of government.

    Mr. Massimo Pacetti: Wouldn't that fall into a value-for-money audit subsequently?

    Ms. Sheila Fraser: All I can look at, basically, is the cheque going out the door. I cannot go and see what that money is being used for and how it is being spent and managed after that.

    Mr. Massimo Pacetti: My next question is for the guys at Treasury Board.

    When does the break happen between the government and the foundations? Where does the accountability stop? The contract is signed, and then....

    Mr. John Morgan: If I understand the question correctly, funding is provided to the foundation. A funding agreement is approved by Treasury Board and subsequently executed between the minister and the foundation.

    There are terms and conditions in that funding agreement. As an example, where there are significant sums of money involved, we would provide investment guidelines to ensure this was prudently managed by the foundation over the term of the agreement.

    It would then be the responsibility of the department to ensure that the ongoing reporting is taking place. As I indicated earlier, there are provisions for compliance audits and for evaluations, and the results of these sorts of things should be incorporated in performance reporting by the department too.

    Mr. Massimo Pacetti: But how often is that done?

    Mr. John Morgan: There is the annual report on plans and priorities of the department, as well as the departmental performance report at the end of the year. You have also, in some cases, the individual annual reports of the foundations being tabled in Parliament through ministers.

    Mr. Massimo Pacetti: But nobody from the Treasury Board actually goes in there to take a look at whether what the foundation has reported is accurate or in any way reflects what the contracts--

    Mr. John Morgan: That is the responsibility of the individual departments. The Treasury Board Secretariat would oversee and provide general guidelines for departments to manage these arrangements, but we don't get involved directly in reviewing individual foundations.

    Mr. Massimo Pacetti: Have any of the departments ever gone in to do their own...?

    Mr. John Morgan: I'm sorry, I don't know.

    The Chair: Mr. Forseth.

    Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Canadian Alliance): Thank you. At the end of the Auditor General's report she says: “A related question the committee may wish to pursue is why it is necessary to provide such large amounts of public money so far in advance of need.” But the answer is obvious: certainly it's to have the ability to better manage the taxpayers' money, the ability to make long-term commitments free of politics, the ability to private-market invest in the holding accounts, to leverage more money for the projected funding service delivery, the ability to make partnerships with other people to get more money, to provide ongoing better management and better service delivery.

    The Auditor General talks about the tragedy—not those words, but the inability of ministers to intervene. I think: thank God ministers can't intervene. The history of Liberal and Conservative governments—and that's all we've ever had—the story known to any high school student reading Canadian history, is that when we look at the problems of procurement and how we spend the taxpayers' money, there was always politics involved in it that really messed it up.

    Yesterday we had a tragedy of soldiers who are dead. Well, we recall the Iltis vehicle was one of those terribly politically interfered with messes. We can go on. We don't have helicopters. Well, that's another one.

    The issue comes down, first of all, to comprehensive reporting. Do we have it? If we don't have comprehensive reporting, that's a structural thing that can be fixed. We can fix it.

    The other thing is transparency. Do we really know what's going on? I have to quote the Auditor General on that, because we were talking about what goes on in government here—that we don't have transparency. The Auditor General said about government operations that we don't need more rules and we don't need more guidelines; what we need is plain transparency. That is true, and if we don't have it with these organizations, we can fix that in a structural sense.

    I understand the largest organization, the Foundation for Innovation, is fairly transparent and publishes everything. If we know they're not being sufficiently transparent, then that can be fixed. We may not have to write a rule; we might simply have to ask them: “The public is not seeing this or that. Would you just simply do it?” And they probably will.

    I'm trying to summarize this conversation, looking at the article of Mr. Aucoin. He keeps talking about it being a bad thing that those things are private. I'm really wondering if it's a philosophical thing, that he's the dying socialist and he wants all of this stuff still under government control.

    What I've tried to say is that the history of so-called government control is really bad. I can't even get a minister in the House to take responsibility for anything whenever I can get a question on. It's terrible.

    From the point of view of a taxpayer who doesn't understand all this stuff—“Okay, you've taken some money from me, but am I getting real value for it on the ground?”—what is the most efficient way of using that $100 you took from me? That's the thing I think we should concern ourselves about: are we getting real value for money?

    In any structure you should build in feedback mechanisms and value mechanisms. If you run an experiment in an academic environment, you build in the evaluation to test and to see whether the hypothesis worked. In the private sector, of course, companies are getting that all the time—whether their shares are going up or down, and all the other market measures; whether they're being successful or they're going to go bankrupt. Certainly those kinds of measures and the feedback measures can be built in to provide this transparency. More importantly, beyond that, is there real efficiency at the ground level where a service is delivered or a value is delivered? Are we getting good value for our money? That's what the taxpayer wants, that his money is spent honestly and openly and that there's real value at the end of it.

    I don't buy into this philosophical argument that just because it's private it's bad. I want to hear comments about how we can make sure the efficiency at the ground level, where the final end product is delivered, is the most efficient way of doing it and is better than some other structure.

»  (1720)  

    The Chair: And in the absence of information you can determine that by...?

    Madam Fraser.

    Ms. Sheila Fraser: I'd like to just perhaps continue the discussion of Mr. Forseth. The idea is that these should be accountable to Parliament. This is public money. There is little or no accountability to Parliament over significant sums of public money, and while you could say we'll change this, these organizations are private organizations. They're under absolutely no obligation to change anything. The Parliament of Canada could say tomorrow it would like them to introduce access to information or to adopt these policies. They can say thank you very much, but we're not going to do it.

    That's the question I have. These are significant sums of public money. What if something goes wrong? What if they steer off and are going on a course that is not in line with government policy? How would you ever be able to correct it? There is no mechanism now.

    The other point I would like to make is we talk a lot about the funding agreement, but accountability is much broader and much more than strictly a funding agreement. A funding agreement could never cover all of the aspects. It's the whole ability to receive comprehensive, relevant, pertinent information, and then the ability to act upon it. That's what's missing in this case.

    The Chair: Thank you, Mr. Forseth.

    Mr. Peter Aucoin: Mr. Chairman, may I respond to that?

    The Chair: Yes, please do, Professor Aucoin.

    Mr. Peter Aucoin: I'm neither dying nor am I a socialist.

    Some hon. members: Oh, oh!

    Mr. Peter Aucoin: If there is a bottom line here, I think the point to be made is that if there were a change in government, the new government of a different partisan stripe would find itself faced with public or private organizations with bundles of public money, which, as the Auditor General has just pointed out, they could do nothing about.

    The need for comprehensive reporting and transparency in this context is important, but if you want to get to the bottom line of what's happening in terms of real value for money for taxpayers, simply asking private organizations to report to you is insufficient. As the Auditor General has put it before, who knows?

    Secondly, if you're having feedback, but the feedback is connected to nothing, then the feedback mechanism doesn't work. The need for a feedback mechanism here is the need for feedback to a responsible minister who can be held accountable in Parliament and who has the authority to take action. It's not a matter at all of being against the use of private organizations. They can be used, and are used extensively, by government. The question is whether or not there is ultimate democratic control.

    The Chair: Thank you, Professor Aucoin.

    Given that we are five minutes away from the conclusion of this session, I would also like to ask a question.

    I'd like to put it in a slightly different context, because I can see uses for this, which may be quite a useful way to deal with an important public policy problem. However, I'm going to use the example of the Canadian Foundation for Innovation, which I am told arose from a discussion between, I believe, three university presidents, the now Deputy Minister of Finance, and an official in the Prime Minister's Office who thought it would be an interesting idea. They also had a bunch of value judgments they made about the nature of university research, including things like it was time to have a two-tier system, and that there were really only five universities in the country that could do research, and that they really had to move the system in that direction.

    Yet in the paper that comes out on this, the objects of it make no mention of that policy choice. The speech that was read in the House contains three short paragraphs, and the bill was buried within the budget implementation bill. This wasn't a clear and open discussion about the future of funding. So not only do we have the problem of not knowing what is actually going on with it, but we also have a policy direction established that is entirely independent of any oversight or discussion with the House.

    Now, I frankly find that very difficult, so it's a little hard for me to understand the purpose in setting that up. Do I think we should be putting money into research? Absolutely. Do I think we need to make long-term commitments? Absolutely.

    I guess I'll ask this question to you, Mr. Rudin. What I'm unclear about in hearing this conversation was whether the purpose in setting this up was to deal with the balance sheet of the government or to deal with supporting innovation? What was the motivation—or is that a fair question for you?

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    Mr. Jeremy Rudin: I think it's a fair question, Mr. Chairman, but I don't think you're going to be surprised by my answer.

    The stated purpose of the Foundation for Innovation is to provide research infrastructure to Canadian universities and research hospitals. As we've been discussing, the decision to use a private or independent organization or foundation, set on its feet by the government but independent of the government, was to attract the commitment and engagement of individuals with the appropriate expertise and to let them make the decisions within broad parameters set by the government through the funding agreement.

    In the government's view, this is a very successful organization. It's certainly not the case that the government attempts to conceal the activities of the CFI; in fact, the government draws attention to the activities of the CFI ad nauseam.

    The Chair: But the statement that the CFI makes that there are only five universities in Canada capable of doing real research, that we need to have a two-tier system of universities, that there are none in the Maritimes and none on the prairies, with the exception of the U of A--is that a policy statement of the government?

    Mr. Jeremy Rudin: This is not the stated policy of the government.

    The Chair: But it is the stated policy of the organization.

    Mr. Jeremy Rudin: It is not the stated policy of the organization. I haven't read everything they've done, but it is not the stated policy of the organization to contribute exclusively to five universities. I don't have their record in front of me, but they have funded, I'm sure—

    The Chair: No, no. They fund a great many universities across the country; they disproportionately fund the five. And they will tell you that, as the president told me.

    Mr. Jeremy Rudin: Well, when funding is provided there are a number of considerations, and one, of course, is the research capacity of the university. Some universities are much more research oriented than others, and those more research-oriented universities get more funding. Furthermore, some funding is more expensive than others.

    The Chair: The point is, I don't see anything in here, in what you said to the House, about why these things were being set up and funded, consistent with what they say their purpose, beliefs, or values are, or with the direction they want to take their organizations.

    What I'm hearing from Madam Fraser is that we have no way of really assessing what they're doing internally because we have no effective way to go and look in depth at these organizations and find out whether they in fact are doing what we said they should do.

    Mr. Jeremy Rudin: I'm not sure what you're getting at, Mr. Chairman. You make mention of a rumoured conversation—

    The Chair: Rumoured? It was—

    Mr. Jeremy Rudin: Obviously, I wasn't one of the people who was there, so I can't comment on it.

    The Chair: That's true.

    Mr. Jeremy Rudin: But as we were discussing, the investment record of the CFI is very public. I think it is not difficult for the members of this committee to ascertain what proportion of the funds go where.

    The Chair: Yes, and when you do that, you'll find out it supports exactly the argument I just made.

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    Mr. Jeremy Rudin: I suppose that would be a discussion you should have if and when you have the head of the CFI here.

    The Chair: We will have that with the CFI.

    My point was, though, that if they are off in a different policy direction than is contained within this, which you put before the House.... I mean, it does strike me that for a $3 billion investment, to have three paragraphs hidden within a budget implementation bill and a one-line statement of objectives is pretty thin gruel. Anyway, I wasn't really asking a question; I was just stating an opinion.

    I would like to thank all of you.

    Professor Aucoin, I appreciate your coming in.

    Mr. Peter Aucoin: Thank you very much for having me.

    The Chair: I trust the hurricane damage has been resolved.

    Actually, I think we have time for Mr. Benoit, who says he has one extremely thin and rapid question.

    Mr. Leon Benoit: I think we've already established that these organizations don't have appropriate scrutiny by Parliament. But in a private corporation, the board of directors is held accountable by shareholders. How are the boards of these organizations held accountable? Who are they accountable to?

    A voice: They're not accountable to anyone.

    The Chair: Ms. Fraser.

    Ms. Sheila Fraser: Mr. Chair, that is a good question.

    Mr. John Morgan: Mr. Chair, they're accountable to their members.

    Mr. Leon Benoit: And their members are?

    Mr. John Morgan: It varies, depending on the foundation. Some of them are broad-based, some are appointed by provincial governments, some are appointed by the federal government. It does vary, depending on the foundation.

    As I said, the Federation of Canadian Municipalities has its governance structure in place as well.

    Mr. Leon Benoit: We'll pursue that more.

    The Chair: Mr. Clark.

    Right Hon. Joe Clark: Mr. Benoit's point is very important.

    I again underline something Professor Aucoin had in his article, which is that while they are private, they are not at all competitive; they're monopolies. I'm sounding more contrary to their purposes than I intend, but they are private sector when it serves them and public sector when it serves them. They are accountable to nobody.

    The Chair: And they're the sole federal source of capital support to universities in this country, and they do exercise a monopoly that functions only in a manner consistent with the values of a very small number of people.

    Anyway, that's enough for today.

    I appreciate everyone being here. We will have the foundations before us in a couple of weeks and we can ask them the questions. Thank you so much.

    Until our meeting with the subcommittee the first Monday after Thanksgiving, we are now adjourned.