This Web page has been archived on the Web.

1985 Report of the Auditor General of Canada

Introduction

5.1 In addition to being the sole owner of Crown corporations, the federal government shares in the ownership of a number of corporations with other participants. This study dealt specifically with mixed and joint enterprises. These are corporations with share capital in which the federal government has a direct equity position together with private sector participants or with other governments in order to further common objectives. Our study focused on the adequacy of information available to Parliament with respect to such corporations.

5.2 Where ownership is shared with the private sector (such as in the case of the Canada Development Corporation or the Cooperative Energy Corporation), the corporations are referred to as "mixed" enterprises. "Joint" enterprises are those in which ownership is shared with other governments (for example, the Lower Churchill Development Corporation Limited or Société Inter-Port de Québec).

5.3 The report of the President of the Treasury Board on the government's corporate interests ( Annual Report to Parliament on Crown Corporations and Other Corporate Interests of Canada, 1983-84 ), tabled in June 1985, lists a total of 24 mixed and joint enterprises at 31 December 1984. We identified one additional mixed enterprise (National Sea Products Limited) during the course of the study. However, 12 of the corporations on the Treasury Board's list are corporations in which the Superintendent of Bankruptcy has received shares under the terms of the Bankruptcy Act. They are not corporations where the government's purpose in sharing ownership with other participants is to further common operating objectives. Accordingly, these 12 corporations were excluded from this study. The other 13 corporations, with which this study was concerned (see Exhibit 5.1), had total assets of about $8.7 billion and liabilities of about $7.1 billion in 1984.

(Exhibit not available)

5.4 Previous Auditor General's Reports have raised the topic of mixed and joint enterprise corporations. In 1979, we concluded in view of the investment in such corporations that a government study of their control and accountability was long overdue. Our 1982 Report recommended that "Parliament should give attention to issues surrounding the control and accountability of those mixed and joint enterprises...in which the Crown is a shareholder". In 1984, we commented on the passage of Bill C-24 - an act that amended the Financial Administration Act in relation to the control of Crown corporations. At that time we pointed out that Bill C-24 did not address - and was not intended to address - issues surrounding the control and accountability of mixed and joint enterprises, and that an appropriate accountability framework for them remained to be considered by Parliament.

5.5 Issues relating to the accountability of mixed and joint enterprises have tended to be overshadowed during recent years by the more compelling and immediate concerns with respect to Crown corporations. The amendments to the Financial Administration Act which became effective in September 1984 were designed to address many of those concerns. Therefore, continuing now with a consideration of mixed and joint enterprises would complement the initiatives already taken with respect to Crown corporations.

5.6 A consideration by the government of the full range of issues involved in the accountability of mixed and joint enterprises would be especially timely in light of the government's announced intention to privatize a number of Crown corporations, including, for example, Canadian Arsenals Limited, Teleglobe Canada and Canadair Limited. Experience in other countries and jurisdictions shows that the privatization process can result in governments retaining some ownership interest in privatized corporations either permanently or during a transitional period - thereby creating new mixed or joint enterprises.

Purpose

5.7 Whereas Crown corporations are ultimately accountable to Parliament through the appropriate minister under the Financial Administration Act, there is no legislation defining such a relationship with respect to mixed and joint enterprise corporations. Such corporations act through directors and officers who, under most companies legislation, must act in the best interests of the corporation. As such, they act in the best interests of all shareholders, including the federal government, private sector corporations, private individuals or other governments. Nevertheless, the federal government's equity represents an investment of public money on behalf of taxpayers - and it is Parliament that authorizes that investment. As an investor of the public's money and a shareholder in mixed and joint enterprises, the government is accountable to Parliament for equity investments that total over half a billion dollars at cost, the achievement of related public policy objectives and their continued relevance.

5.8 If Parliament is to exercise fully its roles of scrutinizing and authorizing the commitment and expenditure of public funds in relation to mixed and joint enterprises, and holding the government to account for the achievement of associated public policy objectives, it must be provided with appropriate information. Parliament needs to be informed of the purpose, nature and extent of the government's investments in mixed and joint enterprises, of the government's expenditures and of the ongoing operations, financial position and results of such corporations. As well, Parliament should have access to such other information as is necessary to hold the relevant ministers to account for their exercise of the shareholder's rights and responsibilities.

5.9 One of the functions of this Office is to assess accountability information available to the House of Commons for use in its scrutiny of government programs and financial activities. For this reason, our major focus in the study was on the adequacy of the information available to serve the accountability relationship that exists between the government and Parliament with respect to mixed and joint enterprises. In particular, our purpose was to:

    - identify and describe the nature and extent of the federal government's involvement in mixed and joint enterprises;
    - review and assess the information that is currently available to Parliament with respect to such corporations; and
    - review the means by which Parliament receives this information.

Scope

5.10 We adopted the definition of mixed and joint enterprises set out in the annual report on the government's corporate interests, tabled by the President of the Treasury Board in June 1985. That document defines mixed and joint enterprises as "enterprises with share capital owned jointly with other governments and/or other organizations to further common objectives". We also used the list of corporations included in that publication as our starting point.

5.11 Some partially-owned corporations that are not directly held by the federal government were excluded from our study. Partially-owned subsidiaries (over 50 per cent and less than 100 per cent owned) or associates (less than 50 per cent owned) of Crown corporations were excluded because these corporations are accountable primarily to their parent corporations. Under the Financial Administration Act, parent Crown corporations are accountable through the appropriate minister to Parliament for, among other things, their investments in subsidiaries and associates. Accordingly, for the purposes of this study we concluded that arrangements made for the accountability of partially-owned subsidiaries and associates have the potential to address this issue.

5.12 Also excluded was a group of organizations classified as "other entities" in the annual report of the President of the Treasury Board. Although these are organizations for which the Government of Canada has a right to appoint one or more members to the board of directors or similar governing body, the entities have no share capital and thus fell outside the scope of this study.

5.13 Exhibit 5.2 summarizes the structure of the government's corporate interests at 31 December 1984, and identifies in bold print the specific subset to which this study refers.

(Exhibit not available)

5.14 We did not attempt to address the issue of the government's management of investments in mixed and joint enterprises. Neither did we address the effectiveness of using the mixed and joint enterprise form in carrying out government policies. Finally, we did not examine the internal operations or procedures of individual corporations.

5.15 Because our focus was on the adequacy of information available to Parliament rather than on entity-specific issues, we based our study on information that is in the public domain, including:

    - the June 1985 annual report of the President of the Treasury Board, Annual Report to Parliament on Crown Corporations and Other Corporate Interests of Canada, 1983-84 , as well as previous reports on the government's corporate interests published by Treasury Board Secretariat;
    - the annual reports of mixed and joint enterprise corporations;
    - the Public Accounts;
    - the Estimates;
    - legal authorities, such as enabling legislation;
    - reports of previous studies dealing in whole or in part with mixed and joint enterprises; and
    - available literature related to the subject.
5.16 As well, we reviewed the ways in which some other countries deal with the accountability of mixed and joint enterprises, with particular regard to the information available to legislative bodies. This was done through literature search and correspondence with the legislative auditors in those countries.

Background

General

5.17 From the perspective of the government, mixed and joint enterprises appear to offer both advantages and disadvantages in comparison with other forms of government participation in the economy. The following table summarizes the more important of these.

Mixed Enterprises

Joint Enterprises

Advantages:
Advantages:
  • less public capital required to achieve public purposes
  • makes possible enhanced inter-governmental co-operation
  • access to private sector entrepreneurial skills
  • spread of fiscal responsibility among governments
  • participation by private sector in major economic decisions

  • avoidance of constitutional and jurisdictional problems

    • Disadvantages:

    Disadvantages:

  • difficulty of limiting government's perceived "moral" liability in the event of default, failure or the need for more capital
  • in practice, may be full federal government financial responsibility without full control
  • 1 potential for divergence of direction among government and private sector shareholders
  • 2 potential for divergence of direction among government shareholders

    • 5.18 The federal government has participated in enterprises with the private sector and other governments since the second decade of this century. The Canadian Farm Loan Board (now the Farm Credit Corporation, a scheduled Crown corporation) was established in 1927 as a mixed enterprise, and the Bank of Canada (now a Crown corporation) was a mixed enterprise between 1936 and 1938. The federal government was involved with the government of Nova Scotia in the Halifax Relief Commission (1917), with the Alberta government in the Eastern Rockies Forest Conservation Board (1948), with the government of British Columbia in the Fraser Valley Dyking Board (1948) and with the Manitoba government in the Greater Winnipeg Dyking Board (1950).

    5.19 In the 1960s and early 1970s the federal government set up several mixed enterprises. The largest and best known of these were Panarctic Oils Limited (now a subsidiary of Petro-Canada), Telesat Canada and the Canada Development Corporation. Panarctic Oils Limited was established in 1966 to explore for oil and gas in the Canadian Arctic Islands. Telesat Canada was created in 1969 to provide telecommunications services between locations in Canada. The Canada Development Corporation was established in 1971 to encourage and maintain the development of Canadian controlled and managed corporations in the private sector and to provide Canadians with new opportunities to invest in the economic development of Canada.

    5.20 Between 1972 and 1982, no major mixed enterprises were established by the government. In 1982, the Cooperative Energy Corporation was created to provide the opportunity for a number of co-operatives to participate directly in the Canadian oil and gas industry and thereby to further the government's policy goal of increased Canadian ownership in that industry. In 1983, two holding companies, 125457 Canada Limited (now NSHOLDCO Limited) and 125459 Canada Limited, were set up in the context of restructuring certain fishery enterprises in Atlantic Canada. In particular, this involved National Sea Products Limited in Nova Scotia and Fishery Products International Limited in Newfoundland.

    5.21 In so far as the future is concerned, the government has declared its intention of selling all its interest in the Canada Development Corporation. However, there is also the possibility (as noted earlier in this chapter) that new mixed or joint enterprises may be created, either permanently or temporarily, as a result of privatization involving corporations now owned wholly by the government.

    Previous Reviews

    5.22 In addition to our annual Reports, some other major reviews focusing on Crown corporations during the last eight years have also touched on the accountability of mixed and joint enterprises.

    5.23 The Lambert Commission. The Lambert Royal Commission on Financial Management and Accountability conducted a broad inquiry into the best means of providing effective financial management and accountability in the federal administration, including departments, Crown corporations, mixed and joint enterprises (referred to by the Commission as "shared" enterprises) and quasi-public entities.

    5.24 The Commission's Final Report in 1979 included the observation that the links between such corporations and the government and Parliament were subject to the various provisions of specific constituent acts or federal or provincial corporate law, and concluded that the situation was unsatisfactory. In particular, the Report noted that the limits of government activity were not clearly defined and no means existed for ensuring that all corporations in which the government was a direct participant were accountable, in some appropriate way, to the government and Parliament.

    5.25 As far as information to Parliament was concerned, the Commission recommended that provision be made for appropriate reporting and disclosure. In this regard, the Commission concluded that:

      - Shared enterprises, together with their subsidiaries, should be listed for identification purposes in the schedules of the Financial Administration Act.
      - The designated minister should be the accountability link between a shared enterprise and Parliament.
      - The designated minister should lay the annual report of the corporation before Parliament and, in addition, report to Parliament on any other significant matters on which information would normally be available to shareholders.
    5.26 Public Accounts Committee. The Standing Committee on Public Accounts has issued a series of reports in recent years that have included recommendations relating to the control, direction and accountability of "government-controlled" corporations. The Committee's Second Report to the House of Commons of 11 April 1978 defined government-controlled corporations as those "in which the Government of Canada either directly or indirectly holds shares, membership interests or other evidence of interest to which are attached more than 50 per cent of the votes that may be cast to elect directors".

    5.27 However, as the large majority of the corporations included in our study are not government-controlled in accordance with the Committee's definition, the Committee's observations and recommendations have limited application to the current set of mixed and joint enterprises.

    5.28 Government initiatives. In 1984, Bill C-24 amended the Financial Administration Act in respect to provisions governing the control and accountability of Crown corporations. Although the main purpose of the amendments was to introduce a new accountability framework for parent Crown corporations and their wholly-owned subsidiaries, some provisions have a potential bearing on the creation or acquisition of directly held mixed and joint enterprises and on information available to Parliament about them. In particular:

      - An Act of Parliament is required to authorize the incorporation of a corporation of which any shares would be held by, on behalf of, or in trust for the Crown.
      - An Act of Parliament is required to authorize the acquisition of shares in a corporation that, on acquisition, would be held by, on behalf of, or in trust for the Crown.
      - The President of the Treasury Board is required to table in Parliament an annual consolidated report which, among other information, is to include a list naming, as of a specified date, all corporations of which any shares are held by, on behalf of, or in trust for the Crown or any Crown corporation.
    5.29 A formal government review of mixed and joint enterprises remains to be carried out. In a Green Paper ( Crown Corporations: Direction, Control, Accountability; Government of Canada's Proposals ) produced in 1977, the Government indicated that it was studying the appropriate degree of government control and direction and parliamentary scrutiny over mixed enterprises. It further indicated that legislative proposals might be made at an early stage. The study was not completed, and no legislation dealing specifically with mixed and joint enterprises has been proposed to Parliament.

    Profile and Characteristics

    Number of Corporations

    5.30 Thirteen mixed and joint enterprises held directly by the government were included in our study. Among them, these enterprises have some 80 subsidiaries or associates - most are directly and indirectly held subsidiaries or associates of the Canada Development Corporation.

    5.31 Although the number of corporations currently classified as mixed and joint enterprises is relatively small, the list is not static. A corporation's status may change over time and result in its being added to or removed from the list of mixed and joint enterprises. Whereas some corporations were specifically created as mixed or joint enterprises, others existed previously as private sector corporations or were wholly-owned by the government. Similarly, corporations that at one time have been mixed and joint enterprises have subsequently been reclassified, sold or dissolved. Exhibit 5.3 shows this dynamic process.

    (Exhibit not available)

    5.32 The government has become involved in mixed and joint enterprises both by setting them up (e.g., Telesat Canada) and by acquiring shares in ongoing corporations through a variety of means such as purchase (e.g., Canarctic Shipping Company, Limited), in return for services provided (e.g., Nanisivik Mines Ltd.), and through loan defaults (e.g., Consolidated Computer Incorporated which was at one time classified as a mixed enterprise and was subsequently sold to a private firm).

    5.33 A further means for the government to become a part owner of a corporation arises from privatization of wholly-owned corporations when part of the equity is retained by the government either permanently or during a transition period. Recent privatization of nationalized industries in the United Kingdom has resulted in the creation of several mixed enterprises in this fashion.

    5.34 Experience with the Canada Development Corporation illustrates a similar process in Canada. The Canada Development Corporation was created during the 1971-72 fiscal year and Canada held all the shares until the first public offering of its stock in 1975. Since that time, Canada's participation has decreased to about 47 per cent of the voting power and some 83 per cent of the common shares. In May 1985, the government announced its intention to reduce its participation in the corporation significantly and, ultimately, to dispose of all the shares it holds. By 6 September 1985, the government had placed 23 million of its 30.7 million common shares in the Canada Development Corporation by the sale of instalment receipts. Each receipt entitles the holder to acquire one share by making a final payment in a year's time. The government will retain the shares until payment is made. When the sale is completed, the government's participation will have decreased to about 11 per cent of the voting power.

    5.35 A number of corporations, listed at some point since 1977 as mixed or joint enterprises by the government, are no longer on the list. The classification of some has been changed. In other cases, shares have been sold or transferred or corporations have been dissolved. For example, in the June 1985 annual report of the President of the Treasury Board, a new classification of corporate interests was created to include international organizations. Five of the entities included in that group had been classified as joint enterprises in the Treasury Board Secretariat's publication, Crown Corporations and Other Canadian Government Corporate Interests , issued in March, 1984. Other examples include the sale of shares in La Société du parc industriel et commercial aéroportuaire de Mirabel in 1982-83, the transfer of the government's shares of Canadian Arctic Producers Limited to that corporation in the same year and the winding up of the inactive mixed enterprise, Shong Way Shi Corporation Limited, in 1982.

    Types of Corporations

    5.36 Four of the 13 corporations - Lower Churchill Development Corporation Limited, Newfoundland and Labrador Development Corporation Limited, North Portage Development Corporation and Société Inter-Port de Québec - are joint enterprises. The remaining nine corporations are mixed enterprises. Three of the mixed enterprises are hybrids, involving the participation of other governments and private sector interests. We have classified these three (Telesat Canada, 125459 Canada Limited, and National Sea Products Limited) as mixed enterprises because of the participation of the private sector in each.

    5.37 The corporations operate in a variety of sectors, including mining, shipping, telecommunications, energy, fisheries, and regional and community development. They include holding companies as well as operating companies. One corporation (Mohawk St. Régis Lacrosse Ltd.) is inactive.

    Ownership

    5.38 The proportion of federal ownership of paid-up equity in 1984 ranged from a low of 18 per cent in the case of Nanisivik Mines Ltd. to a high of over 60 per cent in the case of 125459 Canada Limited. The federal government has more than 50 per cent of the voting shares (and therefore a majority interest) in two of the corporations - Canarctic Shipping Company, Limited, and 125459 Canada Limited. In the largest of the mixed and joint enterprises - the Canada Development Corporation - the government has less than 50 per cent of the voting power.

    5.39 Many others participate in the ownership of mixed and joint enterprises, including private individuals, corporations, co-operatives, provincial and municipal governments, and others. For example, some 35,000 Canadians share in the ownership of the Canada Development Corporation; Mineral Resources International Limited, a private sector corporation, has a majority interest in Nanisivik Mines Ltd.; the Cooperative Energy Corporation is part owned by a number of co-operative financial, agricultural, service and marketing institutions; and the North Portage Development Corporation is owned equally by the City of Winnipeg, the Province of Manitoba and the Government of Canada.

    Financial Profile

    5.40 The most recent information available (see Exhibit 5.4) indicates that, in 1984, the active mixed and joint enterprises had total assets and liabilities of $8.7 billion and $7.1 billion respectively. By way of comparison, the assets and liabilities of Crown corporations scheduled under the Financial Administration Act amounted to $49 billion and $37.6 billion respectively for their financial years ending on or before 31 July 1984. The total assets and liabilities of the mixed and joint enterprises are dominated by the consolidated assets ($7.6 billion) and liabilities ($6.5 billion) of the Canada Development Corporation.

    (Exhibit not available)

    5.41 At cost, Canada's equity in the corporations was over half a billion dollars in 1984. Loans outstanding from the federal government to mixed and joint enterprises at the end of 1983-84 totalled $53 million.

    5.42 Mixed and joint enterprises may receive grants and contributions under a variety of government programs in the same way as other eligible corporations. Grants and contributions to mixed and joint enterprises from the federal government during the 1983-84 fiscal year totalled $6.7 million dollars.

    Audit

    5.43 Mixed and joint enterprises are subject to financial attest audit in the same manner as are private sector corporations. Legislative audits, which may include audits both of compliance with authorities and due regard for value for money, are not undertaken.

    5.44 Most of the mixed and joint enterprises are either incorporated or have been continued under federal or provincial companies law. As such, they are subject to audit provisions that require attest audits of their financial statements. In addition, both the Canada Development Corporation Act and the Telesat Canada Act require those respective corporations to be audited in accordance with the provisions of federal companies legislation. The provincial special act incorporating Société Inter-Port de Québec is not specific with respect to the type of audit, but provides that the accounts of the corporation may be audited by the Office of the Auditor General of Quebec. However, a private sector firm is the appointed auditor, and auditors' reports for the corporation indicate that financial attest audits have been undertaken in that corporation.

    Information Available to Parliament

    5.45 A number of sources of information on mixed and joint enterprises are available, or potentially available, to Parliament. The main ones are:

      - the annual consolidated report of the President of the Treasury Board, which is required to be tabled in Parliament pursuant to section 153 of the Financial Administration Act;
      - other reports, including the annual reports of the corporations and/or the departments in the portfolios of the responsible ministers;
      - the Main and Supplementary Estimates, which provide Parliament with the opportunity to scrutinize the expenditure proposals of the government;
      - the Public Accounts, which summarize the financial operations of the government during the preceding year - including the operations of Crown corporations and certain other bodies whose accounts are maintained separately from the accounts of Canada; and
      - enabling instruments, including incorporating documents, shareholder's agreements and legislation providing statutory authority for the incorporation or acquisition of corporations.
    5.46 Further, in the course of exercising their responsibilities with respect to control of the public purse and ensuring accountability for the expenditure of public funds, parliamentarians have the opportunity to request additional information from the responsible ministers.

    5.47 Exhibit 5.5 provides some examples of information available to legislatures in selected other countries.

    (Exhibit not available)

    The Annual Consolidated Report of the President of the Treasury Board

    5.48 Section 153 of the Financial Administration Act requires the President of the Treasury Board to cause an annual consolidated report on the businesses and activities of all parent Crown corporations to be laid before each House of Parliament. Among other things, the report is required to include a list naming, as of a specified date, all corporations of which any shares are held by, on behalf of, or in trust for the Crown. The first annual report, Annual Report to Parliament on Crown Corporations and Other Corporate Interests of Canada, 1983-84 , was tabled in June 1985 and in future will stand referred to the Public Accounts Committee. The report represents the status of mixed and joint enterprises as of 31 December 1984.

    5.49 Part II of the report provides the single most complete listing of mixed and joint enterprises. It replaces the Treasury Board Secretariat's Crown Corporations and Other Canadian Government Corporate Interests , last published in March 1984. In addition to listing the mixed and joint enterprises, for corporations other than those in which shares are held under the terms of the Bankruptcy Act, the report gives the corporation's name, head office, responsible minister, year incorporated and the legislation under which the enterprise has been incorporated, fiscal year end, auditor and a description of the corporation's mandate.

    5.50 Under the wording of sub-section 153(3) of the Financial Administration Act, nothing more than a list of the names of mixed and joint enterprises would be required. However, our understanding is that the Crown Corporations Directorate of Treasury Board/Finance (which compiles the information) intends the report to provide at least as much information as was available in the past while providing more assurance that all relevant corporations are identified.

    5.51 A comparison of the information in this first annual report with information in previous reports relating to the government's corporate interests indicates that several improvements have been made. These include correcting previous misclassifications of corporations, listing some corporations not previously identified and including information which had previously been missing.

    5.52 The relatively informal data gathering and verification methods of the past were strengthened in 1985 by requesting deputy ministers to confirm and update existing data for mixed and joint enterprises for which their ministers were responsible. Nevertheless, the acquisition of consistent data of high quality presented some difficulties for the Crown Corporations Directorate because the centres of responsibility within departments were not always clearly defined. In the case of the two fishery holding companies, uncertainty as to the federal focus of accountability for these corporations at the time the data were being gathered contributed to the difficulty of acquiring authoritative data.

    5.53 The information provided on NSHOLDCO Limited and 125459 Canada Limited indicates that both these companies were incorporated in 1983 under the Nova Scotia Companies Act and the Newfoundland Companies Act respectively. Each was actually incorporated under the Canada Business Corporations Act (CBCA) in 1983. NSHOLDCO Limited was initially incorporated federally under the name 125457 Canada Limited; it was discontinued under the CBCA in June 1984 and subsequently continued under the Nova Scotia Companies Act. Its name was changed to NSHOLDCO Limited in July 1984. 125459 Canada Limited is still a federally incorporated company, although it was registered in the province of Newfoundland in 1984. Also, as the name of the auditor is not provided for either NSHOLDCO Limited or 125459 Canada Limited, it cannot be determined from the report whether auditors have been appointed.

    5.54 In addition, during our study we found that National Sea Products Limited is a mixed enterprise, because the Government of Canada is the registered holder of 1,527,043 common shares of that corporation. However, National Sea Products Limited is not included in the list of mixed and joint enterprises.

    5.55 Previous lists of the government's corporate interests provided by Treasury Board Secretariat since 1977 used two principles to categorize the information presented: degree of ownership and nature of ownership. Thus, wholly-owned corporations were distinguished from partially-owned corporations, and corporations with share capital were distinguished from those without share capital.

    5.56 The June 1985 report establishes a new classification of entities -international organizations. This new grouping includes organizations with share capital (previously classified as mixed and joint enterprises) as well as those without share capital (previously classified as "other entities") without distinguishing between them. We recognize that international organizations have unique characteristics that may justify separate identification. For example, they are not Canadian corporations - they serve an international development function and have special status, immunities and privileges. Nevertheless, the result of the present treatment is that a reader of the report is not informed that some of the international organizations are enterprises with share capital owned jointly with other governments and/or organizations to further common objectives.

    5.57 These international organizations are significant entities. According to the 1983-84 Public Accounts, Canada subscribes to the capital of seven such organizations and the subscriptions totalled $1.6 billion as of 31 March 1984.

    5.58 Finally, much potentially useful information on mixed and joint enterprises is not provided in the report:

      - There is no information on such matters as the nature and extent of government participation, financial profiles of the corporations and the federal government's objectives.
      - The report does not indicate whether a corporation is a mixed or joint enterprise or who the other owners are.
      - There is no information on the subsidiaries or associates of the mixed and joint enterprises. In comparable reports produced in the past, the subsidiaries of mixed and joint enterprises (with the exception of those of the Canada Development Corporation) have been listed.
    5.59 In this regard it should be noted that section 153 of the Financial Administration Act does not require the President of the Treasury Board to publish such information. As a result, the Crown Corporations Directorate of Treasury Board/Finance has not been formally charged with the mandate or provided with the authority required to accumulate any information on mixed and joint enterprises other than that required to compile a list of their names.

    5.60 Nevertheless, in view of the potential importance of this report as a central repository of information on the government's involvement in mixed and joint enterprises, we believe that improvements would allow parliamentarians to understand better the nature, extent and purpose of the government's participation. To provide a more complete framework for reporting to Parliament, the report could usefully include information such as:

      - the government's objectives in participating in ownership;
      - the percentage ownership by the government;
      - financial profile of the corporation;
      - the nature and extent of the government's investment;
      - whether a corporation is a mixed or joint enterprise;
      - other major shareholders in the corporation; and
      - explanations where corporations are added to or dropped from the list.
    Subsequent to the publication of the first report, several changes have been made by the Crown Corporations Directorate to improve the questionnaire used in gathering data on mixed and joint enterprises. In addition, we were informed that the second annual report will contain new information, such as the government's percentage ownership, and how equity participation in an enterprise serves the government's objectives.

    Other Reports

    5.61 Parliament formally receives other annual reports relating, in whole or in part, to specific mixed and joint enterprises. These are:

      - an annual report on the administration of the Atlantic Fisheries Restructuring Act;
      - the annual report of Telesat Canada; and
      - annual reports of departments.
    5.62 Annual report on Atlantic Fisheries Restructuring Act. On 30 November 1983, the Atlantic Fisheries Restructuring Act received Royal Assent. Among other things, the Act authorizes the acquisition, holding or disposal of shares in fishery enterprises. The Act also requires the Minister of Fisheries and Oceans to table an annual report in each House of Parliament with respect to the administration of the Act. The report is to be tabled no later than the fifth sitting day after the first day of June next following the end of the fiscal year to which the report refers. Therefore, the first such report, relating to 1983-84, was due to be tabled in June 1984. It was not tabled until 6 May 1985.

    5.63 The Act does not specify either the form or the content of the annual report. However, in preparing the report, the Minister is required to take into account any recommendations made by the Parliamentary Committee on Fisheries and Forestry. Although this Committee has not made any recommendations in this regard, the 1983-84 annual report was consistent with a model of such a report that had been presented to the Committee during the parliamentary hearings on the Atlantic Fisheries Restructuring Act.

    5.64 The only information relating to mixed enterprises in the 1983-84 report was that Canada had acquired 10,000 non-voting shares in NSHOLDCO Limited at a cost of $10 million. Among the powers listed in the Atlantic Fisheries Restructuring Act is the power to enter into any agreements or arrangements necessary or incidental to any activities relating to dealings in shares, debentures or other securities of, or any security interests in, any fishery enterprise. The report makes no reference to any agreements or arrangements although, during the period 30 November 1983 to 31 March 1984, there was a series of agreements between Canada and other parties in relation to the restructuring of the Nova Scotia fishery.

    5.65 Corporate annual reports. Most of the mixed and joint enterprises publish annual reports. In general, these annual reports are not tabled in Parliament and thus cannot be permanently referred to committees. The one exception is the annual report of Telesat Canada, which is tabled pursuant to the Telesat Canada Act. In addition, the Canada Development Corporation, although not required by legislation to do so, has made it a practice to send a copy of its annual report to each Member of Parliament and to each Senator.

    5.66 Departmental annual reports. In some cases, the annual reports of departments provide corporation-specific information on the mixed and joint enterprises that have been established or acquired in the course of implementing the program responsibilities of the departments concerned. In other cases the relevant corporations are not mentioned. Even where information is included, it is presented in the context of a department's entire operations and, inevitably, the amount of detail that can be presented on a corporation is limited. As a result, even summary information on such matters as the government's objectives in making and maintaining the investment, the achievement of objectives in relation to costs over time and so on is not consistently included.

    Estimates

    5.67 All spending by the federal government requires the approval of Parliament. That approval is granted in the form of appropriations. Requests for appropriations relating to mixed and joint enterprises generally appear as one-line items in the Main and Supplementary Estimates. The types of supporting information now provided in the Estimates for some Crown corporations (objectives and description of activities) are not provided.

    5.68 Some planned payments are not identified or described in the Estimates in such a way that Parliament is fully informed of the financial relationships between the corporation and the government. As an example, the purchase of 51 per cent of the shares of Canarctic Shipping Company, Limited in 1978 was not identifiable in the wording of 1977-78 Marine Vote 10 - Operating Expenditures. Furthermore, in subsequent years it has not been clear under vote descriptions that the payments made to subsidize fully the deficits of this corporation were being made to a corporation only 51 per cent owned by the government. For the six-year period ended 31 March 1984, these payments amounted to $19.9 million.

    5.69 Part III of the Estimates provides the opportunity to give Parliament additional information on each department and its programs, primarily in terms of the results expected for the money spent. Up to now, little information has been included in the Part IIIs that would allow parliamentarians to assess the nature of the results expected (or previously achieved) for the investments made with respect to those mixed and joint enterprises established, acquired or supported with program funding.

    5.70 In light of the small number and low materiality of transactions relating to mixed and joint enterprises that have gone through the Estimates in recent years, we have concluded that current practice is not inappropriate. However, should the number and significance of such transactions increase in the future, it may be necessary to review the need for a fuller display of information supporting the need for proposed expenditures and describing the results expected to be achieved.

    Public Accounts

    5.71 Content and presentation. Volume I of the Public Accounts presents the summary financial statements of the Government of Canada and some detail in relation to the statements. Volume II presents the financial operations of individual departments and their associated agencies, together with additional information and analysis. Both Volume I and Volume II provide some information on mixed and joint enterprises.

    5.72 Volume I presents information in four separate schedules. Section 7 provides details of government's loans, investments and advances to corporations and organizations (including mixed and joint enterprises) with current year transactions and balances. For the 1983-84 Public Accounts and earlier years, these schedules were identified as relating to:

      - Government-controlled corporations - defined as those "in which the Government of Canada has a controlling interest"; and
      - Private sector enterprises - defined as "industrial or commercial organizations controlled by private owners".
    5.73 There have been some anomalies in referring to specific mixed and joint enterprises within these schedules in the past. For example, information on joint enterprises has been included in the latter of the two schedules, although the other shareholders of such corporations are other levels of government rather than private owners. However, our understanding is that the government will address these matters by a more appropriate identification of the relevant schedules in the 1984-85 Public Accounts.

    5.74 The two schedules in Section 7 present the following for each corporation:

      - the total investment (loans, investments and advances) by Canada at the beginning of the government's fiscal year (April 1);
      - total receipts and other credits during the year;
      - total payments and other charges during the year;
      - the resulting total investment (loans, investments and advances) at the end of the government's fiscal year (March 31); and
      - the net change (if any) in the government's investment.
    5.75 Because Volume I of the Public Accounts presents the summary financial statements of the Government of Canada as a whole, the level of detail that can be accommodated with respect to any sub-set of transactions is limited by materiality considerations. Thus, although the schedules provide a reconciliation of the government's opening and closing investment in a corporation, they do not distinguish among loans, investments and advances. One consequence of this is that the schedule for private sector enterprises does not distinguish between entities in which Canada has equity involvement from those in which Canada has loan involvement only.

    5.76 The schedules in Section 7 include brief narratives on each corporation. The extent of detail provided in these narratives varies considerably among the corporations concerned. Whereas excellent narratives are provided for some corporations, only sparse information is available for others. The narratives may, but do not necessarily, include reference to:

      - incorporating act;
      - purpose and function of the corporation;
      - history of the government's involvement;
      - detailed components of the government's total investment;
      - statutory authority for the government's investment;
      - the government's share of the corporation's capital;
      - interest rates on loans to the corporation;
      - basis on which further amounts are advanced;
      - terms of repayment of loans and advances; and
      - names of other shareholders.
    5.77 In the 1983-84 Public Accounts, the total assets, liabilities, long-term debt, shareholders' equity and the portion of shareholders' equity attributable to common shareholders were included in the narrative relating to the Canada Development Corporation.

    5.78 Section 12 of Volume I sets out the government's contingent liabilities, some of which are represented by guarantees of the debts of mixed and joint enterprises. Section 14 sets out the return on the government's investments, including investments in mixed and joint enterprises.

    5.79 Volume II of the Public Accounts shows appropriations and contributions to mixed and joint enterprises generally as one-line items and, for the Canada Development Corporation, the "program objective". Current budgetary appropriations and contributions made to mixed and joint enterprises are disclosed in the various departmental sections.

    5.80 Until 1983-84, Volume III of the Public Accounts included the audited financial statements of Crown corporations permitted by legislation to keep their own accounts. The Public Accounts Committee, in its Twenty-second Report (the Canadair Report) of 17 November 1983, recommended that "all government-controlled corporations, including their subsidiaries, ...(have) their financial statements reproduced in Volume III of the Public Accounts". However, the government has decided to discontinue Volume III in view of the duplication between information in that document and information on Crown corporations now provided in the annual consolidated report of the President of the Treasury Board pursuant to the September 1984 amendments to the Financial Administration Act.

    5.81 Accounting for investments in mixed and joint enterprises. The manner in which the government accounts for its investments in mixed and joint enterprises may have a significant bearing on the nature of the financial information available to Parliament.

    5.82 The government's accounting policies require that investments in and advances to mixed and joint enterprises be recorded at cost and be subject to annual valuation to reflect reductions from the recorded value to the estimated realizable value. Earnings from investments are recognized as revenue only to the extent that they are received.

    5.83 This accounting treatment may be appropriate from the perspective of reporting the Government of Canada's overall financial position and results of operations, given the relative significance of mixed and joint enterprises at this time. However, if the significance of such corporations increases, a more appropriate method of summarizing their transactions in the government's financial statements may well be required.

    5.84 Specifically, we believe that study is needed of the extent to which it may be appropriate to consolidate the activities of certain mixed and joint enterprises with the financial statements of the government, and of alternative presentations where consolidation is inappropriate. This is consistent with our report on the government's 1984 financial statements where we recommended such a study for all Crown-owned corporations and agencies.

    Enabling Instruments

    5.85 Parliamentarians may rely on various types of enabling instruments, to the extent they are available, for information on mixed and joint enterprises. In general, two types of enabling documents are involved - those associated with the authorization of equity involvement in mixed and joint enterprises and those associated with the incorporation of such enterprises.

    5.86 General or specific parliamentary authorization for equity involvement in mixed and joint enterprises generally takes the form of special federal acts, departmental enabling legislation and appropriation acts.

      - The Canada Development Corporation Act and the Telesat Canada Act provided the required authority, and were the incorporating instruments, for establishing those two corporations. Similarly, the Cooperative Energy Act gave Parliament's authority, and was the instrument, for the incorporation of the Cooperative Energy Corporation and its wholly-owned subsidiary, the Cooperative Energy Development Corporation; both these latter corporations were subsequently continued under federal corporations legislation.
      - The shares of Canarctic Shipping Company, Limited were acquired by the Department of Transport in 1978 under the authority of a budgetary vote, and a Treasury Board contingency vote was used to acquire shares in the Newfoundland and Labrador Development Corporation Limited.
      - Several pieces of federal legislation provide general authority to incorporate or acquire equity. These include the Special Areas Act, the Atlantic Fisheries Restructuring Act and the Indian Act.
      - In another case, the nature of parliamentary authorization for share acquisition is unclear. In return for infrastructure facilities provided by the Department of Indian Affairs and Northern Development at a cost of $24.4 million, and in accordance with an agreement with the government, Nanisivik Mines Ltd. issued 18 per cent of its common shares to the government.
    5.87 As noted earlier, the recently amended Financial Administration Act includes some clauses that preclude the incorporation of a company or the acquisition of shares that would be held by, on behalf of, or in trust for the Crown, unless authorized by an Act of Parliament. However, the effects of this new legislation have yet to become apparent. There may already be a number of pieces of legislation that provide the general authority required to incorporate or acquire shares in a mixed or joint enterprise without new, explicit parliamentary authority being required. For example, the Atlantic Fisheries Restructuring Act, which provides such authority, was excluded from the acts amended as a consequence of the changes effected through Bill C-24.

    5.88 Mixed and joint enterprises have been incorporated under federal or provincial companies legislation and special acts of federal and provincial jurisdictions.

      - Where incorporation is under the Canada Business Corporations Act or equivalent provincial legislation, the government has the same rights and privileges as any other shareholder, although those rights and privileges differ among the various pieces of legislation. In such cases there is no explicit recognition of the relationship between the government as a shareholder and Parliament.
      - Where special federal acts have been used (for example, Canada Development Corporation, Telesat Canada), the government has defined rights and powers for itself that differ in some respects from those of other shareholders. The acts of both these corporations also take some account of Parliament's role. For example, Telesat Canada's annual report and its letters patent must be tabled in Parliament, and Parliament's approval is required to wind up either Telesat Canada or the Canada Development Corporation.
      - The special act of the Government of Quebec that was used to establish Société Inter-Port de Québec, in addition to defining the rights and privileges of the respective shareholders, requires the annual report of the corporation to be tabled before the National Assembly but not also before the Canadian Parliament. The act does not address potential information requirements of the Parliament of Canada despite the federal government's 40 per cent ownership of the corporation.
    Thus, there is no consistency in the information available to Parliament either from authorization documents or documents associated with the incorporation and charters of mixed or joint enterprises; neither are such documents regularly available to parliamentarians.

    Conclusion

    5.89 We reviewed the extent and quality of information available to Parliament from the sources outlined above in light of the present materiality of mixed and joint enterprises, the potential impact of current and future privatization initiatives and the concerns expressed by the Lambert Commission about appropriate reporting and disclosure. Our review shows that financial and other information available to Parliament is fragmented and incomplete.

    5.90 There is no regular flow of information to Parliament, through the Public Accounts or through any other reports, concerning the financial position or results of operations of each mixed and joint enterprise. As a result, Parliament is not regularly informed of the magnitude of these corporations or of potential situations where erosion of the financial positions of corporations could put the government's investment in jeopardy or place demands on the public purse beyond the government's initial investment.

    5.91 We concluded that there is both a need and an opportunity to improve the flow of information to Parliament on the nature, extent and results of the government's involvement in mixed and joint enterprises.

    5.92 The government should improve the quantity and quality of information available to Parliament on the purpose, nature and extent of the government's participation in mixed and joint enterprises, as well as on the government's expenditures on, and the ongoing operations, financial position and results of such corporations.

    5.93 In determining how improvements can best be implemented, the government should give consideration to:

      - presenting, in schedule form, the summarized financial position and results of operations, including budgetary and non-budgetary appropriations from Canada;
      - presenting the audited financial statements of government-controlled mixed and joint enterprises;
      - tabling annual reports produced by mixed and joint enterprises; and
      - tabling any enabling instruments, including articles and memoranda of incorporation (by whatever name called), shareholders' agreements and related documents whenever mixed or joint enterprises are incorporated, equity interests in them are acquired, or changes in the documents are executed, except where such tabling would breach commercial confidentiality.