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2003 November Report of the Auditor General of Canada
November 2003 Report—Chapter 10
Exhibit 10.3—Example of the management of a repayable contribution at Natural Resources Canada
Signed contribution agreements create valid enforceable obligations to pay Canada the sums of money specified, at the rates specified, and for the periods specified. Re-payment of the contribution is triggered by the terms of the contribution agreement.
Background. Under the Industry Energy Research and Development program, Natural Resources Canada manages a portfolio of repayable contributions. It reported potentially repayable amounts of $20.3 million for contributions made over a period of three fiscal years (2000-01, 2001-02, 2002-03). This represents 16 percent of the total amount of potentially recoverable contributions of $146 million at 31 March 2003.
Under the Industry Energy Research and Development program, three officers manage the portfolio of 29 contribution agreements with 26 recipients. At the time of our audit, 4 repayment dates had not yet been triggered, 9 recipients had started repaying their contribution, and 16 recipients had not started paying at all despite the fact that repayment dates had passed.
Depending on the wording in the agreement, recipients are obliged to file a report every 6 or 12 months on either the commercial gross revenue or the gross sales resulting from the contributions received.
Repayment terms in the agreement are stated as a percentage of gross revenue or sales. Repayment is triggered by the terms and conditions in the agreement—usually when gross revenue or sales reach a pre-determined level. The repayment schedule in the agreement is set up to recover the contribution over a period of no more than 10 years. At a minimum, recipients are required to repay one percent of gross revenue or sales annually.
Key terms for repayment not monitored or audited. Officers should be enforcing the reporting requirements set out in the agreements that would provide information to trigger repayment. The officers are not following up on this properly. Some of the recipients are audited to ensure that they comply with the contribution agreement. These audits pay no attention to the key terms for repayment.
Treasury Board policy not adhered to. Receivables should be recorded in accordance with the schedule established by the agreement. However, officers responsible for setting up receivables establish them only when the recipient makes the first payment. The officers allow repayment amounts to be delayed and/or extend the repayment period without interest.
Insufficient support from central departmental level. As there was no departmental procedure or guidance to govern the management of repayment amounts, we were informed that the officers developed their own procedures with the assistance of a private sector contractor. This could result in multiple, inconsistent systems and processes. For example, we found that departmental staff responsible for other contribution programs do not use the one-percent-minimum repayment rule.