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Opening Statement to the Standing Senate Committee on Energy, the Environment and Natural Resources

Bill C-4, an Act to establish a foundation to fund sustainable development technology

29 May 2001

Sheila Fraser, FCA
Interim Auditor General of Canada

Mr. Chairman, we would like to thank you for inviting us to discuss Bill C-4, an Act to establish a foundation to fund sustainable development technology. I have with me today Maria Barrados and John Wiersema, Assistant Auditors General.

I would like to raise several issues today about the accounting, governance, and accountability of the Canada Foundation for Sustainable Development Technology. I will begin with the accounting issues.

I am concerned about the transfer of large amounts of public money to foundations long before it will be spent on delivering services. In addition, I am also concerned that the government records these transfers as expenditures in the Public Accounts, even though the money may still be in the bank accounts of the foundations. We have not yet audited the transfer to the Canada Foundation for Sustainable Development Technology. When we do, we will assess:

  • whether there is appropriate authority in place for this transfer at the time it was made; and
  • whether it has been appropriately accounted for.

When we audit the 2001 Public Accounts later this summer, we will pay particular attention to these issues in the transfer to the Sustainable Development Foundation as well as similar transfers to other organizations. Any significant concerns will be reported this fall with the auditor’s report or the observations on the 2001 financial statements of the government, or as an audit note in our December 2001 Report to Parliament.

I will now turn to the issues of governance and accountability. Chapter 23 of the Auditor General’s November 1999 Report included a government-wide audit of accountability in new types of governance arrangements in which organizations outside the federal government deliver federal programs. In that audit, we recognized that such new arrangements can be appropriate forms of program delivery.

We are currently following up on our November 1999 audit and plan to report our findings to Parliament in April 2002. As part of that audit, we will examine the new arrangements announced in the 2000 Budget, including the Canada Foundation for Sustainable Development Technology.

The proposed Foundation will engage in the exercise of a public trust. Canadians expect entities that use discretion in redistributing public resources or exercising public authority to operate in a way that is non-partisan, impartial, fair, equitable, prudent, honest, and professional. They also expect that Parliament will be able to effectively scrutinize the way tax dollars are spent.

In our 1999 audit, we recommended a governing framework for such arrangements that would provide for:

  • appropriate reporting to Parliament and the public;
  • effective accountability mechanisms;
  • adequate transparency; and
  • protection of the public interest.

That governing framework is based on the following two fundamental principles of parliamentary democracy:

  • Parliamentary sovereignty over federal policy. Whoever holds discretionary authority to spend federal taxpayers’ money or to exercise federal authority must not be exempt from potential scrutiny by Parliament.
  • Stewardship of the public trust. Any arrangement delivering federal programs and services must respect the public trust and observe the public sector values of prudence, propriety, fairness, impartiality, and equity.

Bill C-4 contains provisions that relate to the governing framework we recommended in our 1999 audit. For example, the Foundation will prepare an annual report to be made public and tabled in Parliament. It will include audited financial statements, statements of investment, and funding policies and activities. The annual report will also include a statement of plans for the next year and an assessment of the overall results achieved by projects both during the year in review and since the inception of the Foundation.

As to its governing structure, the Foundation will have 15 members and operate with a board of directors. The Minister of Natural Resources has indicated that the members of the Foundation would represent its stakeholders and potential clients, in a manner analogous to the shareholders of a corporation. We are concerned that adequate mechanisms be put in place to:

  • protect the broader public interest, including complaint and redress mechanisms and measures to ensure that public sector values are embedded in the corporate culture;
  • ensure adequate access by the public to corporate information;
  • resolve disputes between the Minister and the Foundation; and
  • allow the Minister, on an exceptional basis, to intervene with appropriate corrective measures where the fulfillment of the Foundation’s federal public purpose is at risk.

The access to information issue has been raised in your Committee. We think that in bodies like the Foundation, adequate transparency is important. Provision needs to be made for access to corporate information that is relevant to the delivery of federal public policy functions. Legitimate concerns about personal privacy and commercial confidentiality must, of course, be respected.

Finally, we are concerned that there be adequate audit provisions, another subject that this Committee and the House have raised.

Mr. Chairman, this Foundation will be fulfilling a public policy purpose. Auditors' reports on a corporation’s financial statements attest to whether the financial statements present fairly the financial position and operating results of the corporation. In our 1999 audit, we suggested that in cases like this, Parliament also needs to receive independent audit assurance that taxpayers are getting value for their tax dollars. Were this public purpose to be carried out by a granting council or a government department, there would be provision for value-for-money audit, or special examination in the case of a Crown corporation.

The funding agreement between the government and the Foundation will be subject to scrutiny by the Auditor General. However, we would have authority to look at only the departmental role and responsibilities, including due diligence by the department in making upfront arrangements with the Foundation for the payment of public money through the funding agreement. We would have no authority to look at the operations of the Foundation, unless we were appointed as external auditors under the Act. Therefore, we would be unable to provide any assurance to Parliament and the public about the prudence and probity of the Foundation’s use of public funds and authorities or its performance in achieving public policy objectives.

Mr. Chairman, as new bodies like the Canada Foundation for Sustainable Development Technology are being created and Parliament’s auditor is not the appointed auditor, the question of what role the Auditor General should play needs to be addressed. In order that Parliament can get an independent assessment of the management of taxpayers’ dollars, to what extent should the Auditor General be able to follow the dollar? When the need arises, should the Auditor General be able to audit the organization directly, or carry out an audit of the fairness and reliability of the performance information reported to Parliament? We encourage Parliament to review this question and resolve the level of access for its auditor.

In conclusion, we are raising a number of concerns about how transfers to the Canada Foundation for Sustainable Development Technology are recorded in the Public Accounts of Canada. We are also concerned about the provisions for governance and accountability. The proposed legislation appears to contain some features that we called for in our 1999 audit but not others, notably mechanisms that would ensure protection of the broader public interest.

Fiscal and technological forces are pushing governments to use innovative, non-traditional ways of delivering programs and services. As we move to these new forms of delivery, we must be careful not to weaken fundamental principles of parliamentary democracy along the way.

Mr. Chairman, we would be pleased to answer any questions that the members of the Committee may have.