PACC Committee Report

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

SIXTH REPORT

The Standing Committee on Public Accounts has considered Chapter 6 of the December 2001 Report of the Auditor General of Canada (Atlantic Development Agency — Economic Development) and has agreed to report the following:

INTRODUCTION

The Atlantic Canada Opportunities Agency (ACOA, the Agency) is now in its fifteenth year of operation and is the only one of Canada’s regional economic development agencies to have its own legislation. Part I of the Government Organization Act, Atlantic Canada 1987 states that the Agency’s mandate is to:

increase opportunity for economic development in Atlantic Canada and, more particularly, to enhance the growth of earned incomes and employment opportunities in that region.[1]

ACOA provides assistance to both commercial and not-for-profit endeavours. The Agency helps businesses to expand, purchase capital equipment and conduct marketing. It also supports a variety of non-commercial activities that provide a base for community development. During fiscal year 2002-03, the Agency plans to spend a total of $446.7 million to fund these activities and fulfil its mandate.[2] According to Hon. Robert Thibault, former Minister of State responsible for ACOA, the Agency’s programs “helped create and maintain thousands of jobs, and helped small- and medium-sized businesses throughout the [Atlantic] region start-up, survive and prosper”[3] during the previous fiscal year.

In summary, the Agency has a broad and important mandate, is widely and actively involved in the economy and communities of Atlantic Canada, and makes very significant expenditures. For all of these reasons, the Committee decided to examine the results of an audit that paid particular attention to how well the Agency’s programs reflect its mandate, objectives, and priorities.

To assist with its review, the Committee met on 23 April 2002 with the Auditor General of Canada, Sheila Fraser, and Dennis Wallace, President of the Atlantic Canada Opportunities Agency. John O’Brien, Principal, and Marilyn Rushton, Director, both of the Office of the Auditor General of Canada, accompanied Mrs. Fraser. Paul J. LeBlanc (Vice-President, Policy and Programs) and Peter Estey (Vice President, Finance and Corporate Services) from ACOA appeared with Mr. Wallace.

OBSERVATIONS AND RECOMMENDATIONS

The audit found that ACOA has made progress in several areas since last audited by the Auditor General in 1995. Much of this improvement has been made in the Agency’s management of commercial projects and can be credited in part to a decision, implemented in 1995, to make contributions under the Business Development Program repayable. A review of a sample of 40 commercial project files found that appropriate policies for assessing project proposals were in place, all of which had been met. In particular, the audit found that, for each project in the sample, terms and conditions were fulfilled, the need for government assistance had been demonstrated, evidence was available showing that the projects would be commercially viable once funding ended and that the projects would benefit Atlantic Canada economically. Applicants (with one exception) had made the required investments in their projects. Risk assessments had been performed for those projects with repayable contributions, and in all but one case, Treasury Board’s repayment terms were met.

The only significant shortcoming concerning management of commercial projects involved the information reported to Parliament by the Agency on its repayable contributions portfolio. The Committee is pleased that ACOA has agreed with the Auditor General’s recommendation on how to improve reporting on the portfolio, but would like to see a more detailed commitment from the Agency. The Committee therefore recommends:

RECOMMENDATION 1

That the Atlantic Canada Opportunities Agency establish performance targets for its repayable contributions portfolio that include targets for collections, accounts defaulted, write-offs, and the mix of risk in the balance of the portfolio, and provide those targets in its Report on Plans and Priorities, beginning with the Report for 2004.

RECOMMENDATION 2

That the Atlantic Canada Opportunities Agency report performance against the targets set for its repayable contributions portfolio in its annual departmental performance reports, beginning with the Report for the period ending 31 March 2004.

In spite of improvements, however, audit results regarding ACOA’s management of contributions for non-commercial projects and its assistance to both commercial and non-commercial projects are reason for concern.

Most of ACOA’s funding is directed towards not-for-profit organizations or governments in the form of non-repayable contributions. This funding is intended to support a variety of projects and activities such as community infrastructure; holding conferences, workshops, and training; and, carrying out trade and research studies. In fiscal year 2000-01, the Agency provided approximately $126 million for these types of projects. The audit found problems with the eligibility criteria used to select projects and the way in which expected results of projects delivered with partners were defined, measured, and reported. These are serious matters that could significantly lessen the desired impacts of non-commercial assistance, complicate efforts to measure and report performance, and make it impossible to judge whether or not value for money is being achieved.

Clear eligibility criteria are needed to guide the selection of proposals that ACOA will fund. However, criteria used for non-commercial projects were so broad that they offered little guidance during the approval process. As a consequence, a wide range of activities could “be made to fit the Agency’s terms and conditions, guidelines, agreement objectives, and strategic priorities.” This creates a situation in which project proposals can be made eligible for a contribution, sometimes through the use of “questionable means.”

In one instance reported by the Auditor General, Agency staff had helped create a non-profit organization and then acted as its managers at the same time that they were also acting as project officers. In her view, the actions of those involved “circumvented the intent of the terms and conditions of the Business Development Program.” From the perspective of those not associated with the Agency, or the project concerned, actions such as these create the impression that ACOA suffers from an ethical deficit.

Although it was reassuring to hear Mr. Wallace assert that Agency staff “will not do that again,” it is reasonable to ask what would prevent them from doing so. While Mr. Wallace’s commitment, professional ability, and personal integrity are beyond doubt, formal institutional action is required. The Committee therefore recommends:

RECOMMENDATION 3

That the Atlantic Canada Opportunities Agency develop, in close consultation with the Office of Values and Ethics at Treasury Board Secretariat, a code of ethics to guide the decision-making of its managers and staff and an ethics training program to accompany it. The code and training program must be completed and implemented no later than 30 June 2003.

RECOMMENDATION 4

That the Atlantic Canada Opportunities Agency prominently display its code of ethics in all of its offices where public business is transacted and that it inform all clients and applicants for funding of its ethical standards.

RECOMMENDATION 5

That the Atlantic Canada Opportunities Agency develop sanctions to be imposed when its managers and employees are found to be in contravention of its code of ethics or the intent and terms of the programs that it delivers.

The Auditor General recommended that the Agency clarify its expectations for non-commercial projects as one way of tightening the edibility criteria that guide project selection. Action taken in this regard would also facilitate performance measurement, program evaluation, and reporting. The Agency responded that it “will continue to refine its statements of expected outcomes for non-commercial activities.” ACOA proposes to do this through an evaluation of the Business Development Program, due for completion in September 2002, and an evaluation of Community Business Development Corporations, expected to finish in December 2002. The Committee would like to review the content of these evaluations, the actions taken in response to them, and the outcomes achieved as a result. The Committee accordingly recommends:

RECOMMENDATION 6

That the Atlantic Canada Opportunities Agency submit copies of the evaluations of the Business Development Program and the Community Business Development Corporations to the House of Commons Standing Committee on Public Accounts following their completion.

RECOMMENDATION 7

That the Atlantic Canada Opportunities Agency provide details of the actions it intends to take in response to the evaluations of the Business Development Program and the Community Business Development Corporations in its Report on Plans and Priorities for 2004.

RECOMMENDATION 8

That the Atlantic Canada Opportunities Agency include a discussion of the outcomes produced as a result of changes it has made to the design and delivery of the Business Development Program and its agreements and relations with Community Business Development Corporations in its performance reports, beginning with the Report for the period ending 31 March 2004.

Mr. Wallace informed the Committee that ACOA is “in overall agreement with the Auditor General’s main recommendations,” implying that this agreement did not extend to all elements of what had been called for. This implication is borne out by the Agency’s action plan, which is lacking precision in a number of areas. One of these is important. At paragraph 6.72, the Auditor General recommends that ACOA:

Should develop clear guidance on reporting, accountability, transparency, and protecting the public interest for improved management of relationships with partners.

To this recommendation, the Agency indicates simply that it “will ensure that objectives and expected results for non-commercial activities are more clearly defined.” Although this is a positive sentiment, it does not rise above the level of good intent. The measures that are called for are at the core of the relationship between the Agency and its staff, and its clients, Canadian taxpayers, and Parliament. Therefore, the Committee recommends:

RECOMMENDATION 9

That the Atlantic Canada Opportunities Agency develop clear guidance on reporting, accountability, transparency, and protecting the public interest with regard to all of its programs, include these guidelines in its Report on Plans and Priorities for 2004, and begin discussing adherence to this guidance in its performance reports, beginning with its Performance Report for the period ending 31 March 2004.

The Committee has some concerns about the methodologies used by ACOA to determine the number of jobs created by its programs. Although job creation is only one means of assessing the success of the Agency’s efforts, it is the one that is most readily understood by many.

With respect to its commercial projects, the Auditor General reports that ACOA’s reported impact on unemployment “is based on the number of jobs that it estimated the projects would create or maintain when it approved them.” While ACOA claims that these impacts are validated by external reviews, the last time this happened was in 1989. When measuring the employment impact of its non-commercial projects, ACOA “assumes that each $25,000 of assistance creates or maintains one full-time equivalent job for five years.”

The Auditor General’s reservations about these methodologies are shared by the Committee. In particular, the Committee firmly supports her assertion that it is inappropriate to directly link the number of jobs created with the amount of expenditure made. The Committee also agrees with her argument that “employment impact is usually an indirect rather than a direct impact of non-commercial projects,” and that the use of jobs created as a measure of success of these projects is “questionable.”

ACOA witnesses defended the methodologies used but the Agency agreed, in its written response to the Auditor General’s recommendations, that more refined ways of measuring economic impacts of non-commercial projects are needed. In its action plan, ACOA indicates that efforts to do this will be included in the evaluation of the Business Development Program (to be completed in September 2002), an assurance audit of Results Monitoring (with a completion date of December 2002) and a formative evaluation of the Strategic Community Investment Fund (SCIF) in financial year 2003-04. Although these initiatives are welcome, interim measures are needed while the Agency assesses and then modifies its approach to measuring economic impacts. The Committee recommends therefore:

RECOMMENDATION 10

That the Atlantic Canada Opportunities Agency specify the methodology used whenever citing job creation numbers in any of its reports and accountability documents, indicating any drawbacks associated with its use, and include, when appropriate, a caveat that the numbers are estimates only.

CONCLUSION

As noted, the Agency has made good progress in several areas and its response to audit results and recommendations is largely positive. The Committee welcomes ACOA’s efforts to develop an action plan and is particularly pleased to see that the Agency has put this plan, along with the Auditor General’s report, on its Web site. A firmer commitment to carry out some recommendations along with greater specificity regarding implementation is needed, however, to provide the Committee with the full assurance it is seeking.

ACOA plans to complete a series of studies and evaluations by March 2003 that relate to the concerns raised by the Auditor General. The Committee intends to monitor the Agency’s progress and is hopeful that its own concerns will also be taken into account. Accordingly, the Committee recommends:

RECOMMENDATION 11

That in addition to any studies already requested, the Atlantic Canada Development Agency submit upon completion, to the House of Commons Standing Committee on Public Accounts, all evaluations, reports, and studies related to issues raised by the Auditor General of Canada in Chapter 6 of her December 2001 Report.

The outcome of ACOA’s work must be carefully and accurately measured and then reported to Parliament. The Agency’s mandate is far too important and the sums of money far to great to leave any imprecision about what its programs are expected to deliver — and have delivered. The Agency must equally demonstrate greater diligence in selecting which non-commercial projects it will fund and how it manages them. It must also adhere to the highest ethical standards and clearly demonstrate to Canadian taxpayers that it can manage public funds wisely, prudently, and effectively. The Committee expects that its recommendation, as well as those of the Auditor General of Canada, will help ACOA accomplish these goals.

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

A copy of the relevant Minutes of Proceedings (Meeting No. 49 of the 1st Session 37th Parliament and Meeting No. 7 of the 2nd Session 37th Parliament) is tabled.

Respectfully submitted,

JOHN WILLIAMS, M.P.

Chair