PACP Committee Report

PERFORMANCE AUDITS

The Office of the Auditor General conducts performance audits to look at the effectiveness and efficiency of management practices used to achieve an outcome. Performance audits are also used to analyze whether a policy is being implemented in a consistent fashion across government departments and agencies ^[7]. As Auditor General Sheila Fraser noted, “… there is no auditor other than, quite frankly, Parliament’s auditor, who can see how these foundations, the activities of these foundations, are being coordinated with other departments and other agencies … .”

Since its first discussion about foundations in 1999, the Office of the Auditor General has insisted on the need for performance audits of foundations. Furthermore, the Office has argued that performance audits have no bearing on the strictly accounting question of whether foundations operate as controlled or arm’s length entities.

Until recently, the federal government rejected this argument, saying that performance audits could in fact “undermine the independence of the foundations, reduce their operational flexibility and organizational effectiveness and thereby reduce their usefulness in achieving the government’s policy objectives … ^[8].”

On 24 March 2005, the federal government introduced Bill C-43, a budget implementation bill (for Budget 2005) that also included provisions to expand the Auditor General’s powers to conduct performance audits of some, but not all, Crown corporations as well as all foundations that had received more than $100 million in transfers in any five consecutive fiscal years. The Auditor General told the Committee that the government has also promised to amend funding agreements to ensure that she can conduct performance audits of any foundations receiving funding via Budget 2005.

The proposed changes in Bill C-43 are in many respects similar to those in a private member’s bill (Bill C-277) first introduced in November 2004 by Benoît Sauvageau, a member of this committee. Bill C-277 would extend the Auditor General’s reach to foundations that had received more than $100 million in any period of 12 consecutive months. C-277 received second reading on 21 March 2005.

The Committee is pleased the government has agreed to implement a key recommendation from the Committee’s Sixth Report (of the 38th Parliament, 1st Session), and its Fourteenth Report (of the 37th Parliament, 2nd Session). The Committee notes that neither is guaranteed to become law. It therefore recommends:

RECOMMENDATION 9

That the Auditor General be permitted to conduct performance audits of foundations, recognizing that bills C-43 and C-277 aim to achieve the same objective.

The Committee looks forward to the Auditor General’s performance audits of foundations and believes the best place to start is with the Canada Foundation for Innovation (CFI), which is both the oldest foundation and the biggest recipient of foundation transfers from the federal government. Moreover, the CFI’s funding agreement requires the foundation to commit all of its funds by 31 December 2010. Between 1996 97, the year in which the CFI was created, and 2003 04, the foundation received some $3.65 billion and paid out $1.23 billion in grants. In the interim, it accumulated some $740 million in interest. As of 31 March 2004, there was $3.1 billion still sitting in CFI’s bank account. The Committee therefore recommends:

RECOMMENDATION 10

That the Office of the Auditor General conduct an audit of the Canada Foundation for Innovation as soon as it has the legislative power to do so.

FOUNDATIONS AS AN INSTRUMENT OF PUBLIC POLICY

The foundation mechanism has been around for almost 10 years now and the government has yet to study its advantages and disadvantages compared with other more traditional delivery vehicles such as departments, agencies and granting councils.

The Auditor General recommended this type of study in her April 2002 report and again in her recent testimony before the Committee where she said that “(o)ne of the things we have been raising for several years is the need for government to do an evaluation and see what is working and what is not working. What are the advantages to this and what may be some of the disadvantages?”. The Committee believes it is time for such an evaluation to take place. It therefore recommends:

RECOMMENDATION 11

That the Treasury Board Secretariat evaluate foundations as instruments of public policy and report the results of its study to Parliament by 31 March 2006.

CONCLUSION

While the Committee is pleased that the government is acting on its long standing recommendation with respect to foundation performance audits, it remains concerned about the ongoing uncertainty over accounting issues and about the lack of a clear mechanism by which the federal government can intervene in foundations in the event of a major policy shift. As the Committee often reminds its witnesses, one of Parliament’s most important roles is to ensure the accountability of the government’s institutions. The Committee will continue to monitor this issue, especially to the extent that foundation structures continue to limit Parliament’s oversight role while keeping money outside of the reach of the nation’s democratically elected representatives.