This Web page has been archived on the Web.

Opening Statement to the Standing Senate Committee on National Finance

Accountability of Foundations

(Chapter 4 - February 2005 Status Report of the Auditor General)

22 February 2005

Sheila Fraser, FCA
Auditor General of Canada

Honourable senators, we thank you for the opportunity to meet with your Committee today to discuss Chapter 4 of my February 2005 Status Report on the Accountability of Foundations. With me today are John Wiersema, Deputy Auditor General, and Tom Wileman, the Principal responsible for the chapter.

Since 1997, foundations have received more than $9 billion from the federal government. The foundations carry out government programs, but are independent corporations, not accountable to Parliament through a minister. The money is paid in advance of need and in fact most of it, $7.7 billion, is still sitting in the foundations’ bank accounts and investments. All of these factors lead to my concerns about accountability to Parliament for taxpayers’ money.

This chapter examines the progress that the government has made in improving the accountability of foundations since our last audit in April 2002. We focussed on the essential requirements for accountability to Parliament. In our view, these fall into three areas: reporting to Parliament and the public; the external audit and evaluation regime; and ministerial oversight. I will speak about our findings in each one. Overall we were not satisfied with the government’s progress.

We did find a number of improvements, however, most notably in the area of reporting. The government announced a number of measures to improve foundation accountability in the 2003 Budget Plan. These commitments were repeated in the 2004 Budget, and a number of them have since been implemented.

Mr. Chairman, we are concerned that no provision has been made for performance audit in foundations that would be reported to Parliament. The government has stated that existing provisions for evaluation, performance reporting and compliance audits cover most of the expectations related to performance audit. They also indicated that performance audits could be undertaken by expanding audits of compliance with funding agreements. We disagree. Performance audits carried out by Parliament’s auditor and reported to Parliament are needed.

At present, my Office does not have access to audit any foundation. Yet many foundations are active in areas also covered by government programs. For example, both the Canada Foundation for Innovation and Technology Partnerships Canada, a special operating agency within Industry Canada, distribute public funding to improve Canada’s innovation performance.

A second area of concern is ministerial oversight. In 2002, we recommended that the government ensure that an adjustment mechanism was in place to allow sponsoring ministers to intervene in the exceptional case where the foundation is clearly not meeting its public purpose or where circumstances have changed considerably since its creation.

We found that in most cases the government has put in place provisions for extreme situations, such as default, or the foundation breaking the funding agreement, and the recovery of unspent funds on wind-up. However, no action has been taken with respect to the need for ministers to make adjustments where circumstances have changed considerably.

In our view, an adjustment mechanism is needed to ensure that sponsoring departments and foundations do not work at cross purposes. There are many reasons why government could want adjustments to be made, including major policy shifts and federal-provincial agreements directly affecting foundations.

We also found weaknesses in Treasury Board policies, and some recommendations we made in 2002 have not been acted upon. For example, the policy on transfer payments allows exemptions to the requirement that payments not be made in advance of need, and these have been freely given for transfers to foundations. We recommended that the Treasury Board Secretariat review the use of these exemptions. The Secretariat has planned a review of the overall policy. However, it is not clear whether this review will also deal with the use of exemptions.

As in earlier years, my observations on the government’s financial statements in the 2004 Public Accounts raise concerns about the accounting for transfers to foundations. These concerns are summarized in the chapter. The government has recorded these transfers as expenses although most of the funds remain in the foundations’ bank accounts and investments accumulating interest.

I note that the accounting and accountability issues are linked. At issue is whether the foundations are controlled by the government. If they are, then payments to them could not be recorded as expenses, since the foundations would be within the accounting entity. Accountability improvements that increase government control may raise the question of consolidation within the accounting entity, under the accounting standards set by the Public Sector Accounting Board.

That concludes our opening statement. We would be pleased to answer any questions that the Committee may have.