PACC Committee Report

GOVERNMENT RESPONSE TO THE FOURTEENTH REPORT OF
THE STANDING COMMITTEE ON PUBLIC ACCOUNTS

Recommendation 1

 

That appropriate officials from both the Office of the Auditor General and the Office of the Comptroller General participate in the Public Sector Accounting Board (PSAB) project on clarifying the interpretation and application of the financial reporting requirements of government reporting entities and government transfers, in order to ensure a clearer and more consistent interpretation of the intent and requirements of the PSAB guidelines.

 

In August 2003, the PSAB issued revisions that clarify the definition of government reporting entities. The Office of the Auditor General of Canada and the Treasury Board Secretariat participated in the PSAB project.

 

The Office of the Auditor General of Canada and the Treasury Board Secretariat are also participating in the PSAB project clarifying the interpretation and application of the financial reporting requirements for government transfers. 

 

That being said, it might be useful to provide a brief outline of the standard-setting process followed by the PSAB. 

 

The Public Sector Accounting Board is authorized by the Board of Directors of the Canadian Institute of Chartered Accountants (CICA) to issue Recommendations and guidance with respect to matters of accounting for federal, provincial, territorial and local governments.  The PSAB issues such Recommendations and guidance to serve the public interest by strengthening accountability in the public sector through developing, recommending and gaining acceptance of accounting and financial reporting standards of good practice.

 

Officials from the Office of the Auditor General and Treasury Board Secretariat have the opportunity to participate in the development of PSAB’s accounting standards.  Governments do not appoint members of the PSAB or its task forces; the PSAB recruits individuals.  Furthermore, all the PSAB Board and task force volunteers serve as individuals and not as representatives of their governments or organizations - a policy which allows for a full and open debate on issues.

 

The PSAB has a network of associates who provide their views at each main stage in the development of its accounting standards.  The network is representative of all regions of the country and of the views of users, preparers and auditors of government financial statements, reports and information.  Generally, representatives from both the Office of the Auditor General and Treasury Board Secretariat participate as associates.  However, as with members of the task force developing any standard, associates provide their views as individual professionals and not as the official representatives of the government, firm or organization with which they are associated. 

 

As the last step before a standard is finalized, a public Exposure Draft reflects consideration of the research conducted by the staff and outside consultants, input from the PSAB and its task force, and any previous due process feedback.  It is at this stage that officials from Treasury Board Secretariat and the Office of the Auditor General can offer opinions as representatives of their organizations.  Exposure Draft proposals will usually become the final standard unless consensus on them cannot be reached.

 

Recommendation 2

 

That both the Office of the Auditor General and the Office of the Comptroller General prepare an Annual Report detailing the progress achieved in clarifying the PSAB guidelines regarding the appropriate accounting treatment for foundations. That the first report be tabled in Parliament no later than 30 September 2003.

 

The standard-setting process of the PSAB, and the government’s consideration of the standards in developing its own accounting policies, is an on-going process.  As new standards are issued, they will be considered by the government and opportunities for the engagement of parliamentarians and of the public will be provided through such means as the Budget and the tabling of the Public Accounts of Canada.  The Office of the Auditor General provides periodic reports on these matters through its Observations on the Public Accounts of Canada and its regular reporting to Parliament. The government does not believe additional reports will be needed.

 

Recommendation  3

 

That the government seek every opportunity to persuade all existing foundations to incorporate into their existing accountability and governance framework, new provisions that will strengthen the ministerial oversight function, including strategic monitoring, redress procedures in case of non-performance, clearly defined provisions enabling departmental audit and evaluation of foundation activities, and mechanisms to recover unspent federal funds in case of the winding up or termination of the foundations.

 

Recommendation  5

 

That the government seek every opportunity to persuade existing foundations to incorporate amendments to their accountability and reporting framework that will strengthen the reporting to Parliament and to the public, including the reporting of performance expectations, performance results achieved, and disclosure of audited financial statements and evaluation reports.

 

Accountability is exercised through Ministers administering the funding agreements with foundations.  The federal government ensures that foundations are held accountable for administering the funds according to the terms and conditions of the funding agreements.  Summaries of plans and significant results achieved, as well as noteworthy findings in evaluations performed by foundations are to be provided to Parliament through the department’s ongoing reporting mechanisms such as the Report on Plans and Priorities and the Departmental Performance Reports.  In addition, the Annual Reports of those foundations established by legislation are tabled in Parliament.

 

The government is committed to further strengthen accountability requirements and, as a result, when providing additional funding to prior recipients, additional requirements have been incorporated into their funding agreements.  These requirements include: the submission of plans and Annual Reports to the responsible Minister; the ability to undertake compliance audits; the ability to undertake program evaluations; dispute resolution procedures; and, the provision for the possible return of funds in the event of dissolution or wind-up.  These changes respect the arm’s length nature of these organizations.

 

As a result of implementing Budget 2001 and Budget 2003, the funding agreements of most of the major foundations identified by the Auditor General in the 2002 Public Accounts now contain stronger provisions.

 

As a further step, the Treasury Board Secretariat will be requesting departments to approach foundations whose agreements have not yet been strengthened, with a view to incorporating these new requirements in their funding agreements.

 

Recommendation 4

 

That the government prepare a consolidated report on its progress in strengthening the ministerial oversight with all existing foundations. That the report contain the list of all relevant foundations involved in the negotiations and a summary of the improvements to strategic monitoring. That the report be tabled in Parliament no later than 31 March 2004.

 

Recommendation 6

 

That the government prepare an annual report on its progress in improving existing accountability and reporting framework of foundations. That the report contain the list of relevant foundations and a summary of the public reporting enhancements to be incorporated. That the report be tabled in Parliament no later than 31 March 2004.

 

In April 2003, the President of the Treasury Board provided the Chair of the Public Accounts Committee with a summary of accountability criteria that facilitate ministerial oversight and provide the basis for Ministerial reporting to Parliament for the major foundations identified by the Auditor General in the 2002 Public Accounts.  The government will update that information periodically for the Committee.

 

Recommendation 7

 

That the government seek amendments to the funding agreements of existing foundations, either created through legislation, or receiving significant funding (at least $500 million) from the federal government, that would require them to table in Parliament separate annual reports, reports on plans and priorities, and departmental performance reports.

 

The responsible Minister will table in Parliament the Annual Reports of foundations created explicitly through legislation.  For others, the government made a commitment, through Budget 2003, that corporate plans, Annual Reports, including relevant performance reporting and audited financial statements, and evaluation results for each foundation will be presented to the Minister responsible for the funding agreement and be made public.

 

These items will form the basis for the information contained in the department’s reports on its plans and priorities and in its performance reports that are tabled annually in Parliament.

 

Recommendation 8

 

That for those foundations either created through legislation, or receiving significant federal funding (at least $500 million), the federal government seek amendments to the funding agreements that provide for periodic program evaluation, value-for-money audits, and independent assessment of the fairness and reliability of the performance information, the results of which are to be reported through ministers to Parliament.

Recommendation 9

 

That for those foundations either created through legislation, or receiving significant federal funding (at least $500 million), the federal government appoint the Auditor General of Canada as external auditor of these foundations.

 

Recommendation 10

 

That for those foundations either created through legislation, or receiving significant federal funding (at least $500 million), the government seek amendments to existing funding agreements allowing for enhanced transparency provisions, including reasonable standards of disclosure in areas involving federal public purpose, and that the standards reflect public sector standards of access to information, with appropriate provisions made for legitimate concerns relating to personal privacy and commercial confidence.

 

Recommendation 11

 

That for those foundations either created through legislation, or receiving significant federal funding (at least $500 million), the government seek amendments to existing funding agreements that would require a foundation’s board of directors that exercises federal authority, or dispenses federal funds, to make minutes of board meetings available to the public, with appropriate provisions made for legitimate concerns relating to personal privacy and commercial confidence.

 

Recommendation 12

 

That the government, through sponsoring departments, ensure that provisions are made for the responsible parties in foundations to be made aware of their responsibilities to foster and maintain public sector values and ethics.

 

Recommendation 13

 

That these responsibilities include providing clarifications of the roles and responsibilities of federal representatives on boards of directors, developing mechanisms to facilitate public consultations, and establishing appropriate mechanisms to redress citizens’ complaints.

 

The government recognizes that innovative organizational arrangements for service delivery to Canadians must address 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.

 

When the government transfers funds to non-government organizations, such as foundations, it makes a very conscious and considered decision that an organization at arm's length from government is in the best position to deliver on the public interest.

 

These are public decisions, which are fully and properly accounted for in the Estimates and Public Accounts.  In addition, some of these arrangements are introduced through legislation and, hence, again subject to parliamentary debate and scrutiny.

 

The government needs the flexibility to determine, on a case-by-case basis,

 

·        how to best deliver programs or services in the public interest,

·        the most appropriate means of ensuring accountability for results, and

·        the role of individual ministers and the government in relation to an organization that is at arm's length from government.

 

The government is committed to transparency and accountability of foundations to the public through departmental reporting of significant results, including the results of independent evaluations, and requiring foundations to make public their Annual Reports, including their audited financial statements.

 

However, requiring foundations to accept the public sector type standards and operations as well as establishing the Auditor General of Canada as their auditor as identified in Recommendations eight through thirteen, could undermine the independence of foundations, reduce their operational flexibility and organizational effectiveness and thereby reduce their usefulness in achieving the government’s policy objectives.

 

Foundations are independent, not-for-profit organizations that have their own governance structures and members and control their own operations.

 

With respect to Recommendations 8 and 9, it is the responsibility of foundation members to appoint their external auditor and to whom the external auditor reports.  It should be left to foundations to determine whether to establish such measures as value for money audits, independent assessments of the “fairness” of the information presented in reports or the selection of the Auditor General of Canada as their auditor.

 

In regard to Recommendations 10 and 11, establishing the obligation that foundations adopt public sector standards of disclosure, access to information and a requirement to make the minutes of board meetings public, should also be left to the foundations.  Nevertheless, funding agreements normally contain provisions for making information available to the public at appropriate times and events such as annual meetings.  Many of the foundations maintain Internet sites that provide their Annual Reports, plans and other information of interest to the public.

 

As to Recommendation 12, public sector values and ethics, funding agreements with foundations incorporate requirements that foundation boards establish conflict of interest as well as code of conduct guidelines for their entities.

 

On the matter of Recommendation 13, roles and responsibilities of federal appointees to boards of directors, such appointees do not represent the department or the government.  Instead, they have a responsibility to their boards and therefore their actions would be governed by the foundation’s by-laws, the Acts they are established under, as well as the policies and guidelines issued by the boards.  Board directors also have a fiduciary responsibility to act in the best interest of the foundations.  Guidance to federal appointees regarding their responsibilities as board directors should therefore come from the Foundations themselves.

 

Recommendation 14

 

That the federal government work with the Office of the Auditor General of Canada to address and resolve all the outstanding issues regarding the accountability and governance framework of these foundations.

 

The government is implementing measures to strengthen the accountability frameworks of foundations.  In developing its position, the government held discussions and gave consideration to the views of the Office of the Auditor General and others.  It will continue to work cooperatively with the Office of Auditor General.