Proceedings of the Standing Senate Committee on
National Finance

Issue 10 - Evidence

OTTAWA, Tuesday, February 22, 2005

The Standing Senate Committee on National Finance met this day at 9:22 a.m. to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 2005.

Senator Donald H. Oliver ( Chairman ) in the chair.

[ English ]

The Chairman: Honourable senators, I call to order the 14th meeting of the Standing Senate Committee on National Finance. I remind senators that this committee's field of interest is government spending, either directly through the Main Estimates or indirectly through bills.

[ Translation ]

On Wednesday October 20, 2004, the committee was mandated to examine and report upon the expenditures set out in the Estimates for the fiscal year ending March 31, 2005.

[ English ]

Other than our general interest in the Main Estimates and in the Office of the Auditor General, this committee is interested in examining the federal government's practice of creating foundations and endowment funds to achieve specific public policy objectives.

[ Translation ]

On December 1, 2004, the committee heard testimony from Auditor General Sheila Fraser with regard to foundations.

[ English ]

On February 3, we heard from three foundations: The Green Municipal Investment Fund, the Canada Foundation for Innovation, and Canada Health Infoway.

Our witness this morning is becoming a welcomed regular to this committee. Ms. Sheila Fraser joined the Office of the Auditor General as Deputy Auditor General, Audit Operations, in January 1999. On May 31, 2001, she was appointed Auditor General of Canada. Last week, the Auditor General released her report that included, among others, a chapter entitled ``Accountability of Foundations.'' Of course, we are interested in having Ms. Fraser outline her findings. Following that, honourable senators will have questions to put to you. Welcome, Ms. Fraser. Please proceed.

Ms Sheila Fraser, Auditor General, Office of the Auditor General of Canada: Thank you, chair. Honourable senators, we thank you for the opportunity to meet with you today to discuss chapter 4 of our February 4, 2005, Status Report on the Accountability of Foundations. With me today are Mr. John Wiersema, Deputy Auditor General, and Mr. Tom Wileman, Principal responsible for this chapter.

[ Translation ]

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.

[ English ]

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 to our findings in each area. 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. Chair, 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 relating 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.

[ Translation ]

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 windup. 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.

[ English ]

We also found weaknesses in Treasury Board policies, and some recommendations that 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 but 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 are 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, Mr. Chairman. We would be pleased to answer any questions that the committee members may have.

The Chairman: Thank you for that introduction. I have read a number of letters to the editor, and I have read some editorials following the release of your most recent report. I, for one, do not understand why the Department of Finance is so reluctant to go along with the three main concerns that you have, particularly opening up these foundations to some more detailed parliamentary scrutiny. After all, $9.1 billion is a lot of taxpayers' dollars that we as a committee, and you as the auditor, should have a lot of oversight over. I am quite confused about that.

When I read letters to the editor, I find that a number of Canadians are also confused about just how far the Auditor General can and should go. I would like to throw some words out to you and ask you to explain some of them, and where your mandate comes from.

Normally, when one hears about an auditor doing an audit, the thought is that they will be looking at the financial statements and making sure that the revenues and expenses match, but not going into how the company or the department is performing. Some of these words are ``compliance'' audit, a ``broad scope'' audit, a ``value-for-money'' audit, a ``verification of performance,'' and an ``independent evaluation.'' The question I would like to ask you is for the benefit of Canadians generally. Do you have the power to do such things as value-for-money audits, broad scope audits, compliance audits and so on? If so, from where does that authority come?

Ms Fraser: Thank you, Mr. Chairman. We derive our authority to do audits — and I will go into the differences between the various types of audits — either from the Auditor General Act or from specific acts related to Crown corporations, for example.

Under the Auditor General Act, we have a mandate to conduct the financial audit of the public accounts of Canada. We also have a mandate to conduct other audits that we call performance audits — we used to call them value-for- money audits — on areas of significance, and to report those findings to Parliament. We would look at a wide variety of issues that are not strictly financial. For example, in our last report, we looked at areas around the security of information technology. We have looked at human resources issues in the past. We have looked at grants and contributions, which tend to be more financial. We look at the wide variety of programs, subject matters or functional areas.

When we talk about the different kinds of audits, there is, of course, the audit of the financial statements, with which I think most people would be familiar. That is very similar to the financial statement audits that are done in the private sector.

A compliance audit can also be done in the private sector. It is simply an audit to ensure that the conditions of an agreement — it could be a lease agreement, it could be a financing agreement — have been respected. In the case of foundations, it would be looking at the funding agreements to see if those conditions been met under that agreement.

When we talk about the value for money or performance audit, it goes beyond that. One of the things that the Office of the Auditor General can do is to look at government-wide issues, not strictly related to one department or one agency. For example, when we looked at IT security, we looked at IT security across government horizontally, not within a department.

We do not have a mandate to do evaluation. It is quite clear in the Auditor General Act that we can only look to the procedures and the information that departments do, what evaluation processes do departments have in place to provide evaluation results. Evaluation results really get to the impacts and the effects of government programs. We will only look to see what they have put in place. We do not conduct evaluation audits ourselves.

The Chairman: Thank you. I think I heard you correctly when you were making your presentation today, that you do not audit now any of the 15 foundations or endowment funds. My question is: Have any of them written or approached you, directly or indirectly, to say they would like to have you audit their accounts?

Ms Fraser: To my knowledge, we have had a couple of foundations that have indicated, at least publicly, that they would be open to having the Auditor General conduct an audit. However, even if they asked us, we have no authority to do that. We would have to obtain authority, either through an Order-in-Council or an amendment to our act, to be able to conduct those kinds of audits.

I will give you another example. We do certain audits of agencies of the United Nations. We do two of those. Those are not part of our normal work for the federal government, and we obtain Orders in Council that will give us the authority to do that work.

Senator Comeau: I want to ask one question as an aside, and then I will come back to foundations. We have now before us Bill C-38, which has just arrived at the Senate. It is a bill to park $4.25 billion — this is the arrangement with the provinces to reduce health care waiting lists. As I understand it, this is some kind of a trust fund, where the trust money will be placed in an account or invested in a bank or something, under the control, I assume, of a trustee. In recent weeks, there have been rumours that billions may go into an environmental trust, as well as a childcare trust. If it is unfair or if you have not had a chance to look at this matter again, please say so and we will go on to other questions.

However, in order to help us, because this bill is now before the Senate, have you had a chance to review these trust funds? If so, what areas should we, as parliamentarians, look at? What kind of questions should we be asking? What would be a checklist for us to consider as we look at these trust funds?

Ms Fraser: We have not specifically looked at this trust fund that is being proposed. However, this kind of arrangement has been used now for several years — I would say three or four years, anyway — to provide money to the provinces.

It is my understanding that the trust funds are set up, but they are controlled by — or the beneficiaries are — the provinces. They are under the control of the provinces. The funds were used for increases to the CHST supplements in the past few years.

The same accounting applies when the federal government transfers the money to the trust funds. It is recorded as an expense in the public accounts each year. Note has been made of that in our observations, that these transfers have occurred, but we have not looked at the specific mechanisms, other than to ensure that, in fact, those trust funds are controlled by the provinces. We have not done anything further than that; but if the committee is interested, we could certainly try to find out more information about them.

Senator Comeau: Given that the accounting aspect gets involved in this — your point 12, which you raised in your presentation — the accounting of these trust funds would certainly have to be looked at because,if the dollars are not spent right away, obviously there is an accounting issue.

Ms Fraser: There has been an accounting issue. In fact, the accounting issue has been largely on the part of the provinces. Many of the provinces record their revenues, as the federal government did, on when they received the cash; and they were the ones that controlled how they drew the money out of the trust funds. There has been a lot of discussion, certainly in the legislative audit community, about how these transfers should be recorded. Some provinces have recorded the whole amount in the year; others have recorded it as they drew funds out. There is a lot of debate currently going on about what is the proper accounting for these funds, largely from the point of view of the provinces.

For the federal government, we are fairly comfortable that once they have ceded the control over those funds and the trusts are in the control of the provinces, that it is an expense of the federal government.

Senator Comeau: It might be worth our while as parliamentarians to try to determine what the terms are of these trust agreements, who appoints the trustees and what the parameters are of the trustees' investments. It is still taxpayers' money.

Ms Fraser: That is right.

Senator Comeau: In your view, would that be worth our while, and possibly yours?

Ms Fraser: We would be glad to find out how much control the federal government has over these trust funds. I am not sure that they have a lot at this point, but we would be glad to do that, and we could provide the information directly to the committee.

Senator Comeau: Thank you. Getting back to the question of foundations, and as a follow-up to the question asked by the chair, if you were to be given the mandate to respond to the request from the foundations to do an audit, who would pay for the audit? Would it be paid for by government revenues?

Ms Fraser: Any audits that we conduct would come out of our parliamentary appropriations. Obviously, if we got a lot of requests to do more audits, we would have to request more funds. However, I do not see that as an issue, currently. I think it would come out of our funding.

Senator Comeau: Might it require further funding from Parliament to your office?

Ms Fraser: It probably would. Obviously, if we did some work on foundations, that would replace other work. We only have the capacity to do about 30 of these audits per year. If we were to do work in foundations, we would obviously have to move other work.

I see our work in foundations as being part of a broader, government-wide, horizontal issue. For example, if we were to do innovation, we would look at the role of the foundations within that. If we were to look at health research with regard to how the foundations coordinate their activities and whether there is consistency and coherence, it would be a broader scope audit.

Senator Comeau: In fact, your mandate is to do it on behalf of Parliament, anyway.

Ms Fraser: Yes.

Senator Comeau: This is as it should be. There has been resistance, of course, over the years by the government to having you become the auditor of record, or to do certain kinds of audits, be it financial, compliance or what have you. Do you see any hope of the government warming up to that idea?

Ms Fraser: I think there is some understanding of the issue, and I remain optimistic that we will resolve this.

Senator Comeau: Could you tell the committee how value-for-money audits of foundations done by your office would compare to, or differ from, what might be called an external audit?

Ms Fraser: The external audit that is now being conducted is, to a large extent, the audit of the financial statements of the foundations, and we have no issues with those audits. They are done by reputable firms in the private sector. That is not really our concern.

There is also provision that compliance audits could be done, that is, in respect of the conditions within the funding agreements. Our concern is more the broader scoped audit to see how the work of the foundation is attaining the objectives Parliament set for it when it gave it all this money and how it is being coordinated with other government departments and agencies, because very large sums of public money are allocated to deliver public policy. That is the kind of audit that we would want to do, rather than necessarily a financial audit. Obviously, if we were asked to do it, we would do it, but it is really the performance audit that is of concern to us.

The Chairman: The 15 foundations and endowments are not uniform entities. They are all different, and were created differently. You indicate in Chapter 4 of your report that the reporting requirements under these various funding agreements are different. You say that some are established by legislation and others are not. For example, nine of the 11 foundations subject to the audit are required by their funding agreements to provide corporate plans for each year to a sponsoring minister. However, only the sponsoring minister of the Canadian Foundation for Innovation, the Minister of Industry, is required to table the corporate plan summary to Parliament. All of the foundations in the sample submitted their annual reports to sponsoring ministers and made them public. Only three foundations are required to table their annual reports to Parliament, but a total of five do so.

Should there be some uniformity? What would be wrong with every one of the foundations tabling their report with Parliament so that we could have some parliamentary oversight, with the ability to call them before us to speak to them about those reports?

Ms Fraser: I agree that they should be tabling their reports, given that public money has been put into the foundations. We must recognize, though, that the foundations are very different, one from the other. Some involve provincial governments, so there is a federal-provincial dynamic in those. Others involve Aboriginal groups. Others are endowment funds. There is a wide variety. We must be careful, when we talk about foundations, not to presume that they are all the same. Some are clearly more independent from government than others, but there should be some mechanism for Parliament to get an appropriate degree of information about how the funds are being used and whether they are accomplishing the objectives for which they were voted.

Senator Harb: Thank you very much, Ms. Fraser, for appearing before us.

I was in the other place and heard what the government had to say when these foundations were established. We heard the words ``self-sufficiency,'' ``independence'' and ``flexibility'' with regard to these foundations. Those are very laudable objectives, but your concern is that, notwithstanding this, somehow these organizations should be accountable to Parliament and, therefore, you should have access to their books to see whether they are meeting the objectives that Parliament set out for them.

While respecting those three objectives, would it be worthwhile to consider the establishment of an officer of Parliament to which these foundations would report, with the officer, in turn, reporting to Parliament? In that way we would obviate the need for the foundations to report to a minister, therefore defeating the goals of self-sufficiency, independence and flexibility.

Ms Fraser: I would like to make it clear that the criticisms in our report are in no way intended to be criticisms of the foundations, the people within them or the work that they are doing. It is important to say that.

Our concerns are about accountability to Parliament, the information that Parliament receives and the mechanisms that are available. In our system, it is ministers who are ultimately responsible for how funds are used. These foundations all have what we call a sponsoring minister. I would prefer that we use the existing system and make the improvements that are possible and not very difficult to do to address the concern we have raised in the audit.

While the government does talk about the independence of these foundations in determining what grants or projects will be funded, we believe that there should be a mechanism in place so that, if there are significant changes in policy, or significant changes in circumstance, Parliament, through a minister, will be able to alter the course, because the funding agreements are very specific as to what kinds of projects can be funded. They talk about the eligibility criteria and the kinds of documents that have to be filed.

If you change, for example, the government's plan on climate change, how will the funding agreement that was established years ago coordinate with what may be a new plan? I am really talking about exceptional circumstances, not the day-to-day management, but there should be some mechanism to intervene and redirect the objectives of the foundation.

Senator Harb: You talked about the possibility of an amendment of the act that regulates the foundations. Perhaps the government will go straight to an Order-in-Council to do that; or perhaps the foundations themselves will voluntarily decide that this is what they want to do, in the meantime, and they will come to a conclusion in terms of what is the best route. The question I want to ask you is whether or not there is a preferred option here.

While I am saying this, I wanted to ask if you have prepared a wish list to the government, and ultimately to Parliament, of what are some of the things that you would like the government to do, in terms of amendments to your act, to bring you up to speed and to broaden your mandate so that you do not have to ever complain about whether or not you have access to a foundation, or to any agency that is registered federally and is part of government? Have you thought of this?

Also, now that Elections Canada, the Chief Electoral Officer is an officer of Parliament — like the Privacy Commissioner, Information Commissioner and others — do you audit those organizations? Are they subject to your act? If they are not, should they also fall under the same type of an umbrella, where you would be able to do the kinds of things that Parliament has asked you to do without going through those kinds of situations?

I was a member of the Public Accounts Committee on the other side for a number of years, and for as long as I had been there, I remember you continuously coming back with the same type of argument, and frankly, we were not listening. If we are, we are not doing anything about it. If we are doing something about it, it is not what you want us to do.

I would say perhaps we have come to a point where you are shaking the tree. Maybe there is a little bit of a possibility now, in the type of setting that we have, that we may be able to make some inroads.

The Chairman: Before you go on, perhaps Ms. Fraser could answer that. It is one of these questions with six arms.

Ms. Fraser: Thank you, Mr. Chairman. I am pleased to see that Senator Harb recognizes our persistence on certain issues. As he well knows, we have been discussing this issue for several years.

First, on the question of access, we have raised the issue about foundations. However, just recently the Public Accounts Committee in the other place has asked us about access to other agencies or organizations — for example, airport authorities — so we are currently developing what we believe is a position. I would be glad to provide that to the committee, too. We hope to have that done this week, and we will certainly be glad to give it to you, as to what our access should be.

We have not really thought about the mechanisms to do it. As the senator mentioned, there are several ways to do it. Probably the preferable one would be through an amendment to the act, but that could be long and more difficult than other ways. Therefore, we are quite open to whatever government may want to propose.

On the question of officers of Parliament, they are covered by the Auditor General. We began last year in response to certain questions about accountability and a certain audit we did in the office of the Privacy Commissioner, which had been requested by a committee. Officers of Parliament voluntarily proposed that they should all be subject to a financial audit; and audits of all of the financial statements of the officers of Parliament were conducted last year by us, and were included in their performance reports. We are also doing a performance audit of Elections Canada, which will be tabled this fall, and we are looking at the process and the management of the last election.

I would expect, over time, that we will be looking at performance audits of other officers of Parliament, as well as part of the accountability and the desire of the officers of Parliament to provide as much information as possible to Parliament about their operations.

Senator Harb: Is there a wish list that you may be interested in sharing with public accounts in the other House, as well as with this committee?

Ms. Fraser: We are preparing that text this week, and I will be glad to send it to you, concurrently with the other committee.

Senator Harb: I am sure it is not your intention at all to make those foundations reporting to a minister whereby — I will give you an example of the infrastructure project. One of the things we were looking at, as parliamentarians, was to set up a foundation similar to the other foundations, so we can completely remove the handing out of money for cities, roads, bridges, et cetera, away from the political sphere. We would have a complete disconnect, and then put on the board people from municipalities, provincial governments, and the private and federal sectors.

I wanted to assure you, as a result of your representation to the Public Accounts Committee, and in public, many in the parliamentary sphere saw that as an excellent opportunity not to do it, but rather to keep it at arm's length with the government. Therefore, if I wanted something for my old constituency, I could lobby the minister and push as hard as I could in order to get money for a project in my neighbourhood, at the expense of a project in, say, Prince Edward Island sponsored by one of my colleagues who is not as good a lobbyist as I might be. It could have created a situation whereby there is accountability in the ministerial oversight, but at the same time what we end up with as a by-product of this situation is to bring it back to the political influence of Parliament. That, I think, is what the government did not want to do when they established, in particular, the foundation for innovation, as well as the CHIR and other groups like these. The intent was good, and the public servants at the time were very supportive of that. However, I hope somehow we will be able to differentiate between the two — that while we want that accountability to take place, what we do not want it to do is enable the political influence to continue.

The Chairman: If the Auditor General does an audit, that is not political influence.

Senator Harb: Of course not.

The Chairman: The two must be kept very separate and distinct. Having a value-for-money audit done is, I think, something that is required for this $9-billion worth of taxpayers' dollars.

Senator Harb: If those foundations were to report to Parliament, to a minister, therefore ministers would become the boss of those foundations, such as is the case with the other Crown corporations, other agencies that exist. It may defeat the purpose and be counter-productive, and I am sure that is not what the auditor wanted.

Ms. Fraser: The senator raises an interesting question, and one that could be the subject of a lot of discussion about the principles of ministerial accountability and the accountability of Parliament. Do we not elect people to Parliament to decide where money is to be spent, and to be accountable for how it is to be spent? Is it not ministers who, at the end of the day, are accountable?

Obviously, we would hope that decisions are made on more than lobbying, and that there would be a framework and criteria in place, but even the senator mentions the Canadian Institutes for Health Research. They are accountable to a minister; they are part of a government entity. We audit them; they have a rigorous framework, which we have looked at in the past, for how they determine who is to receive funding. There are peer reviews and expert panels who make those decisions.

They are very different from the foundations, which are completely outside the government. The argument is that they are completely outside the government entity and not accountable to a minister. We obviously cannot discuss the effectiveness of foundations versus others, but we have been encouraging government to do some sort of study to see what are the advantages and disadvantages of foundations vis-à-vis other granting councils. Why do they work better? What are some of the limitations in that? It is a new model for delivering public policy. It has been several years now that this has been in place, and we think there should be some analysis done of their effectiveness, as a model.

[ Translation ]

Senator Ringuette: It is always a pleasure to welcome you here because we always have some very interesting discussions. My first question ties in somewhat with the question put by Senator Comeau regarding the funding that the provinces receive to set up certain programs or activities.

When you last appeared before our committee, I alluded to a program established under federal-provincial agreements respecting employment development and to how your Office may audit this program.

You replied that you relied on your provincial counterparts to conduct such audits. In the case of a specific program such as the Employment Development Program under which funds are transferred to the province of New Brunswick, I verified the province's public accounts. I found that indeed only half of the funds transferred had been used for public purposes. As you can well understand, this gave me a different perspective on the situation. Our committee is taking a very close look at the whole question of foundations.

At the outset of this meeting, Senator Comeau raised the issue of provincial trust accounts. Increasingly, substantial sums of money are transferred to provincial governments, which may not necessarily have in place stringent requirements or performance measurement mechanisms. Since federal-provincial agreements do not provide you, or apparently the provinces, for that matter, access to audit, do you think it might be advisable to adopt some provision for auditing foundations? This is a kind of grey area. Would you care to make a recommendation to the committee? Do you not think all of these mechanisms and federal-provincial agreements should be reviewed? Foundations receive upwards of $9 billion. However, in terms of federal transfer payments to the provinces, notwithstanding equalization payments authorized by the Constitution, do you not think it is time to have in place a mechanism to carry out performance audits in the case of these agreements?

Ms. Fraser: That is an excellent question because increasingly large sums of money are being transferred to the provinces, and more joint programs are being set up. As noted, at least in the cases we examined, there are very few requirements for the transfer of funds. We pointed this out either last year or two years ago when we audited the public accounts. We observed that there were no conditions set in the case of transfers for medical equipment.

Senator Ringuette: I recall that the New Brunswick government had used some of the funds transferred to purchase not only medical equipment, but a lawn mower as well.

Ms. Fraser: There are statements of intent, but no conditions as such. I do not want to venture into the territory of federal-provincial discussions, but at least we can reflect upon — and I think we will do that in the public accounts — the nature of transfers to the provinces and on whether conditions should be set. That would be an interesting thing to do. We can look at whether some more formal conditions should be in place and we could even examine with our provincial counterparts the whole question of accountability in the case of these transfer payments.

Senator Ringuette: It is obvious right now that these transfer payments fall into a kind of grey area. No one is stepping up to audit these accounts or to see if the funds are being used for the purpose stated in these agreements.

My second question pertains to Chapter 1 of your report. I agree with your findings that security in this area could be vastly improved. Can you tell us how much it cost your Office to carry out an information system audit of this nature?

Ms. Fraser: I do not have the figures with me, but the cost was probably between $500,000 and $1 million. That is just an approximation. The figure includes the time spent by the staff in our Office on this task.

[ English ]

Senator Ringuette: Last week we heard a presentation by the Privacy Commissioner of Canada, Jennifer Stoddart, who said that, as an ombudsman, her office works independently to investigate complaints, to make recommendations based on findings and to conduct audits under the two federal privacy laws, one for the public service and the other for the private sector.

Ms. Fraser, you had just reported on your information technology security findings. Ms. Stoddart is responsible for conducting audits so I wonder who is truly responsible for auditing the security and privacy systems of public information of the government? It seems to be a grey area. I read your report and I heard the declaration from the Privacy Commissioner. She has a mandate to conduct audits in respect of security and privacy, which are interrelated. Those two cannot be disassociated. Who is responsible for what? Could you clarify this, Ms. Fraser?

Ms. Fraser: I would be pleased to. We have very different responsibilities. The Privacy Commissioner of Canada will look to the respect of the laws around privacy. I presume, although I do not know exactly how she works, that she will look to see if certain systems within government respect the Privacy Act. My office looks at government as a whole and the security around information technology systems. We did not conduct an audit of privacy. We look at issues of access and whether people can hack into government systems. We do mention sensitive information, which could be personal or far beyond personal, such as issues of security that you would not want to be made public.

We audited the government's security policy, how it was being applied and whether departments were doing the minimum. Levels of security have been established in the policy and we looked to determine whether departments were meeting those requirements. It was a much broader audit in that we did not look at privacy, which is the jurisdiction of Privacy Commissioner Stoddart.

The Chairman: Was there no overlap of the two?

Ms. Fraser: No. Theoretically, there could be a small overlap if the access controls and all the rest of it were inadequate. That could potentially make certain private or personal information accessible to a hacker. However, we would not get into issues of private information and how it being used by the government. That is the domain of the Privacy Commissioner of Canada. Our roles are very different and we did not address privacy issues in our audit.

Senator Ringuette: I understand. but I do find that there is a continuum.

Ms. Fraser: For example, when we do a financial audit, we have to ensure that the security around financial systems is good if we want to rely on those systems for the information that they produce.

Senator Ringuette: You have professional hackers within your audit group.

Ms. Fraser: We often use contractors to work for the office but we have a group of IT professionals within our offices.

[ Translation ]

Senator Ferretti Barth: I find it truly disheartening to see the same problems and the same questions arise time after time. We never seem to be able to resolve the dilemma of foundations. As someone who works for the disadvantaged, I know that every penny is important. It has always been my hope that the government would take that fact into consideration. The government must be accountable for how public funds are expended.

I do not know where to begin, what with these billions of dollars. You stated that in 1987, nine foundations were created and that three of them received higher levels of funding, specifically, Genome Canada, the Aboriginal Healing Foundation and Sustainable Development and Technology Canada.

The third entity received $350 million, of which only $6 million was disbursed over four years. The remaining millions are sitting in a bank account earning interest. Does the interest earned remain in the foundation's bank account or does it flow back to the government?

Ms. Fraser: Interest income belongs to the foundations and can be used by the foundations to carry out other initiatives.

Senator Ferretti Barth: It is a very simple question. Foundations receive these funds and spend them to carry out initiatives that benefit society in general. If a foundation receives $350 million over four years and spends only $6 million of that amount, the remaining millions sit in that foundation's bank account. That should not be allowed to happen. It would be better to allocate these funds for five years, after which time they would either go to corporations or institutions, or flow back into the government's coffers.

The money is just sitting there doing nothing. These foundations employ thousands of auditors, accountants and lawyers and have many board members. But what exactly do all of these people do?

Ms. Fraser: That is an excellent question because the money is paid to the foundations in advance of need. Some of the funds transferred serve to cover operations for several years, and sometimes even for ten or more years. Some foundations end up with almost as much money in their bank accounts after five or six years as they initially received from the government because they are not spending any of it. They earn more in interest than actual disbursements.

We need to look at how long the program lasts. Does it have an end date or does it continue indefinitely. These are questions that I cannot answer.

Senator Ferretti Barth: As you know, a number of provinces have very specific needs. The government always claims that it does not have enough money and that it cannot make transfer payments such as equalization payments. Why not use the money sitting in these bank accounts to carry out social development initiatives? Recommendations to that effect are needed.

You also stated that some foundations have a strange way of managing their money. Why do you say that?

Ms. Fraser: I would not want my comments to be construed as a criticism of the way foundations operated. I am concerned about accountability to Parliament because substantial sums of money are involved. I cannot comment on the way in which foundations are managed or on their goals. We will comment on these matters once we have conducted an audit.

As for why the government chooses to put money in a foundation rather than in something else, it really comes down to a policy decision and I cannot comment on that.

Senator Ferretti Barth: You can make recommendations.

Ms. Fraser: I can make recommendations about accountability to Parliament, but if the government decides to invest in a foundation rather than in other initiatives, I cannot comment on that decision.

Senator Ferretti Barth: Even if you feel that foundations do not spend the funds they receive as they should?

Ms. Fraser: I only comment within the context of an audit. I have not audited foundations because I do not have access to these entities. I am not commenting as such on the way in which foundations are managed, but rather on accountability to Parliament for very large sums of money.

Senator Ferretti Barth: If a foundation winds up its operations, what happens to unspent funds in its bank account?

Ms. Fraser: I believe we raised that same question in 2000. Back then, the money was not returned to the government on windup. The government has since amended the legislation and made changes to financial agreements. Now, in all cases, the money is returned to the government.

Mr. Tom Wileman, Principal, Office of the Auditor General of Canada: Only in cases where a foundation winds up its operations.

[ English ]

The Chairman: Senator Ferretti Barth's questions are extremely important because they speak to the public policy behind some of the advances to foundations. If money is advanced prior to the need, and Ms. Fraser has indicated some of them might not need it for up to ten years, that raises a major question on public policy.

Before we go to Senator Downe, I have a question for Ms. Fraser. Shortly after your report came out, the Department of Finance produced a paper that is now on their website called ``Accountability of Foundations,'' which is a response to your report. Have you had the opportunity to read and study that report?

Ms. Fraser: I have not read the report but Mr. Tom Wileman indicates that he is well aware of it.

The Chairman: After Senator Downe, I would like to ask some questions about some of the responses that the Department of Finance has made to some of the statements and comments you have in your report.

Senator Downe: I will follow up on the questions about foundations and the money applied to them. Prior to that, I will make an aside comment. I am pleased that your office is monitoring the last federal election campaign. It seems to me that since we eliminated door-to-door enumerations, we had a tremendous drop in voter participation. I think there may be a linkage between the two. I know you are independent and you decide what you are going to audit, but having —

Ms. Fraser: Let me ask you a few questions on what we are doing on that issue.

Senator Downe: Back to the issue at hand — these foundations — I share your concern that you expressed earlier that they are taking away the responsibility from parliamentarians, following up on Senator Harb's comment. When the funds are transferred to the foundation, it removes the responsibility from parliamentarians for accountability of what happens. The second problem I have with foundations is that there has long been a principle that current governments do not bind future governments. These foundations remove that principle.

The final concern I have is with regard to the point my colleague raised a few moments ago, that there is a basic flaw in these foundations in that none of them, or very few, want to wind up what they are doing. There is no incentive for foundations — and we can see this by the money they are spending — to wrap up their affairs. They can go on, in some cases, until the money runs out; and at the rate they are spending it, it may never run out.

Those are my concerns with the foundations. My question — and feel free to comment on any of those issues — pertains to the budget surplus, which has been grossly underestimated by the Department of Finance for years. Everyone knows that; it is a charade now. If you want to audit a department, that is one thing that you can look at, as to how they come up with a surplus. What we have here, really, is a situation where the surplus has been transferred, and is now out of the control — in most cases, if not all cases — of parliamentarians.

Ms Fraser: Thank you, Mr. Chairman. The senator's concerns that he raised are certainly valid ones, and ones that should be considered. That is why we would push that there be some kind of evaluation of the mechanism of foundations: What are the advantages, disadvantages, what are some of the issues? It goes beyond what we can do in an audit. However, I would certainly think that there should be some review by government of this mechanism, and some of the points that the senator raised are certainly very valid concerns.

As to the budget surplus, first on the question of auditing the Department of Finance, we are considering an audit of what we call the expenditure management system — how funds are allocated to departments — not on the policy issue, but on how the mechanism of all that works and the rigour that goes into those analysis. If the senator has any suggestions for us, I would be glad to take them under consideration.

It is a fact that these transfers have reduced the surpluses in the year in which the transfers have been made. There have been years where there were significant transfers made, and it did reduce the surplus for that year.

We have raised the accounting issues for several years now. Projects are under way by the public sector accounting board, which sets the standards for public sector. One is on what we call the government entity — what organizations do you include in the financial statements of the Government of Canada?

For example, Crown corporations are included with the Government of Canada, and certain agencies. Are some of these foundations, in fact, really part of government and not truly independent, from an accounting point of view? There was a new standard that came out, and we will be applying and looking at it. We have not done all of the analysis, we have not had all the discussions with government, but I suspect some of the foundations, we may be arguing, are really part of government. If that were to be the case then those transfers to those organizations would not reduce the surplus in the year because they would be included in the entity.

Another project that is under way now is the whole accounting for transfers. In the past, the accounting was largely cash-based. When a payment was made, you recorded it as an expense. Within those years, you did not see large payments made for several years of expenses in advance of need. In fact, as I mentioned, the Treasury Board's own policy indicates that those kinds of payments should not be made.

The accounting was designed around when you paid. It was for a service that you received, either in the year or shortly thereafter. Now, when we see these large transfers of money for payment of services that will not be made for several years — in fact, even transfers between the federal government and the provinces, in some cases, or to foundations — the accounting profession is starting to question: is the accounting around these transfers appropriate?

There is a project under way, which we hope will be resolved within the coming year, and a new standard will come out on transfers that will reflect the new reality of what is happening there. We will have to see how that evolves by the standard setter, but it could possibly have implications for transfers to foundations.

Senator Downe: My concern with the Department of Finance is that we have to be cautious and conservative in our fiscal projections. However, all parliamentarians have to be conscious of the fact that we are hearing over and over again that for the next two years it will be tight, and then we will have massive surpluses down the road. It is the carrot and stick approach. However, when you look back at the projections and the reality, we have already had massive surpluses.

When you redirect some of the money into foundations, you are setting a very dangerous precedent. Parliamentarians, on the one hand, do not believe there are any funds for priorities that Canadians are telling them about, and on the other hand you have this money that is out of their control, and they cannot talk about the priorities of Canadians.

We have to be careful. I know the current Prime Minister is a big fan of foundations, but parliamentarians have to be very cautious in case a future government could be able to decide to take the whole surplus, $11 billion, put it in a foundation for, to pick a topic, military purchases, and then, for the next 30 years, the government of the day has no control over what the military is doing. This is an extension of what is happening, and we have to be very careful.

Ms Fraser: That is why we believe that there should be some mechanism for ministers to be able to intervene and modify the direction of foundations if public policy changes, or if there were other significant events that occurred.

The Chairman: That was an excellent question. In response to one of Senator Downe's questions, you said that you would be doing an expenditure management system audit. There is an expenditure review committee, which is a new committee established out of the Privy Council Office. Will this new audit work in conjunction with the expenditure review committee to see how they operate?

Ms Fraser: No. What we were planning is very different from that. The expenditure review committee is really looking at where funds can be reallocated within programs. That is not the scope of this audit.

This audit is more about how government departments deal with Main Estimates and Supplementary Estimates. We will have to see how far we can go. We may not have access to some of the documents, but we want to look at the kind of analysis done by the Treasury Board secretariat, the recommendations that are made there, the management of how departmental budgets are given, how much is short term versus longer term — those sorts of questions.

Mr. John Wiersema, Deputy Auditor General, Office of the Auditor General of Canada: The only thing I would add is the going-in question we are asking ourselves in this audit is: Does the current government expenditure management system meet today's needs? The system was designed quite some time ago. We are now in quite a different environment in terms of public management, and in terms of the government's fiscal and economic situation. Does the way the government oversees the deployment, use and reallocation of resources meet today's needs of the present government and of Parliament? Does it provide for adequate involvement of Parliament and adequate information to Parliament?

It is very early days for this audit. The audit will not be reported until well into 2006, so we are still very much at the planning stages. I believe that is the reason for the Auditor General's invitation for any input as to specific questions of interest to senators that we should consider in that audit. We would be more than interested in receiving those suggestions.

Ms Fraser: If I could just add, one of the issues that we are looking at is the whole information to Parliament, the kinds of information that is given to Parliament on Main Estimates and Supplementary Estimates. I do not know if this committee follow all of it, but I can tell you that sometimes I find it hard to figure out. If the committee would be interested in assisting us in that, we would certainly welcome it.

The Chairman: On the last two occasions that the President of the Treasury Board has been before this committee, he has told us that he is concerned about that and is working on ways to make the reports to this committee more readable and understandable, not just for this committee but for Canadians generally. That is one of his concerns.

Ms. Fraser: We have had very preliminary discussions with the secretariat. I would hope we would be able to work with them on this. As we conduct our audit, they are also doing a project, much as you may have seen when we did an audit on Crown corporations and they came out with their review at about the same time. We had many consultations with each other on that subject. We would hope we could have that kind of approach as well in doing this work.

The Chairman: One of the things that we as a committee have looked at very briefly as well is the relationship between the numbers, the figures and the projections in the budget, and then the projections and the numbers in the Main Estimates that come down shortly thereafter, and where there is a discrepancy. There may be some things that this committee might want to look at as a way of streamlining the system, to perhaps cut down the amount that would have to be in Supplementary Estimates.

Ms. Fraser: That is one of my concerns as well. Another of my concerns, too, is with Supplementary Estimates and temporary funding. Many programs are funded for a very short period of time.

The Chairman: The reason for that is that they were not in the Main Estimates.

Ms. Fraser: My suspicion, too, is that it drives some of the behaviour we see, such as term employment. It is because the funds are there for a very short period of time. We want to look at all of that and see if some of our concerns are valid or not. We want to look, as well, at the horizontal management across some of these departments.

The Chairman: I would like to ask several questions of Mr. Wileman about this report that came out yesterday. It is a response to the Auditor General's report on foundations. It is on their website. It purports to respond to every one of the allegations made in the Auditor General's report about foundations.

Because it came down so quickly, perhaps it was done in a hurry, but I would like you to comment on some of the language that is used, for instance, on page 8 of 10.

Mr. Wileman: Mr. Chairman, I must apologize. I am familiar with the document but I did not bring it with me.

The Chairman: Let me refer you to one sentence on page 8 of 10. It makes reference to the government, in the budget of 2003, committing to undertake a number of measures to improve the provision of information to Parliament on the plans and the results of foundations. Near the end of that paragraph it indicates that ministers have tabled in Parliament the annual reports of foundations representing 80 per cent of all transfers to foundations. To the extent that there are other significant foundations whose reports are not tabled in Parliament, the Treasury Board Secretariat will encourage departments to do so.

What confidence does the word ``encourage'' give Canadians that there will be some parliamentary oversight?

Mr. Wileman: The 80 per cent figure is, in fact, obtained by adding up the total that has been paid as a proportion to the three foundations that are, in fact, legislated foundations. The Canada Foundation for Innovation, the Canada Millennium Scholarship Foundation and Sustainable Development Technology Canada have been set up through statute. If the funds paid to those three are added up and then taken as a proportion of the total, the figure of 80 per cent is arrived at. The Canada Foundation for Innovation has received $3.6 billion and the Canada Millennium Scholarship Foundation has received $2.5 billion. This enables there to be such a high percentage.

In terms of the broader question of tabling and the extent to which there is provision for tabling in Parliament, our concern is that, with the exception of where it is mandated, for example, in legislation, documents are from time to time provided to ministers but that it is at the ministers' discretion whether they are in fact tabled. Should a minister choose not to table a document, there really is no means whereby the document would then be tabled.

I should say that these documents, if we are referring to annual reports, are all made public. However, they should really come to the attention of Parliament in a systematic way through tabling. What has happened is that the three statutory ones do table — they are required to table — and two others in our sample of 11 in fact have had their reports tabled because the minister has decided to do so. In other cases, if a minister receives a document, there is no requirement that it be tabled.

The Chairman: The standard of accountability that the Auditor General's office would like to see is not being met by that procedure, I presume?

Mr. Wileman: Indeed, Mr. Chairman, we have made a recommendation that not only the annual reports but also corporate plans be tabled so that, just as for a government department, when you receive the reports on plans and priorities before the fact, and then the departmental performance report after the fact, you can see the planned expenditures and then how the expenditures actually transpired, and an explanation of the results achieved; so the results planned and the results achieved. That is indeed what we have recommended, Mr. Chairman.

The Chairman: Page 9 of the Department of Finance's response to the Auditor General's report deals with the subject of performance audits. It says that they really have not done that, but nevertheless the government will undertake to encourage — here is that word ``encourage'' again — foundations to implement performance value-for- money audit regimes where appropriate. The language is ``where appropriate.''

Ms. Fraser: Let me respond to that comment. The foundations could do performance audits of their operations but it would only be of their operations. It would not be part of a broader, horizontal issue. As well, any auditor who is engaged by a foundation will report to the board of that foundation and will not report to Parliament.

Our point is that there should be performance audits done. We would even go further to ask how these foundations are coordinating their activities with government departments, and that those reports should go to Parliament and not just to the boards of the foundations.

The Chairman: I have read the Department of Finance's response. Much of the language is loose and does not meet some of the standards that the Auditor General's office is trying to establish. I know that you have not had a chance to read it. I was wondering if you and your officers could look at it and send a report to this committee so that, in our ongoing study on foundations, we could have your response to the Department of Finance's response to your report.

Ms. Fraser: I would be pleased to do so, senator.

Senator Downe: Just on that question that you raised, you are absolutely right. The response from Treasury Board is an acknowledgement that these foundations are out of their control. They are trying to say best efforts, but the responsibility and the money has shifted. That was the point that we discussed earlier.

The Chairman: In the 2005 status report of the Auditor General of Canada to the House of Commons, on chapter 4, page 5, there is a list of the number of times that the Auditor General has appeared. The number of appearances before this Senate committee is not included in that schedule. June 4, 2002, June 12, 2002, February 4, 2003, plus November and December, 2004 are not included in that report and perhaps, to make it complete, they should be there.

Ms. Fraser: I offer my apologies to the committee and to the Senate. I think we included the June 2002 one, but you are correct that there are several other hearings that are not included. We will be doing another audit, I am sure. I hope that we can report more progress in the next audit, and we will certainly include Senate committee hearings.

Senator Day: I am still trying to follow all of these documents that you are referring to here and the various appearances.

Ms. Fraser, I am glad to see you here. You have been here many times, but not nearly often enough. Every time you come before us, I seem to have more and more questions. I thank you for the work that you and your group are doing as officers of Parliament and, therefore, officers of the Senate. It is very helpful to us in our work.

Could you refresh my memory on what your total appropriation per year is for the office?

Ms. Fraser: Senator, thank you for your kind words. It is always a pleasure to appear before the committee. Our appropriation is about $75 million, somewhere in that order of magnitude now.

Senator Day: Senator Ferretti Barth is gone. She was having trouble with those extra three zeros. My recollection is that there are about 530 employees.

Ms. Fraser: We are closer to about 600 employees.

Senator Day: It is a big job that you do. It is a long way from the concept that the public has of you doing financial audits only. We have discussed that in the past. You indicated earlier today that you have a group that is involved with information technology. Your mandate is becoming very specialized and broad.

Are you in a position to generate funds from audits that you do with your current terms of reference under the legislation, or do you need an Order-in-Council to do that?

Ms. Fraser: The senator is correct that we do have a very broad mandate. That was, in fact, given to the Auditor General back in 1977 when the mandate was expanded to include performance or value-for-money audits, so it has been in place for a very long period of time.

You are right, we do have a wide variety of issues. In fact, in 1995, Parliament created the position of the Commissioner of the Environment as part of the Office of the Auditor General. That is another specialized area where we conduct audit work.

We only charge or produce fees for two audits that we do, and those are audits of agencies of the United Nations. We are the auditors for UNESCO and for the International Civil Aviation Authority. We charge for those two. We recover our direct costs. Those funds, of course, go into the Consolidated Revenue Fund and then are re-appropriated back to us. We do those audits under Order-in-Council mandates.

Senator Day: My question was: Do you have the authority under current legislation? The answer is: You need an Order-in-Council to perform that type of activity?

Ms. Fraser: That is right. If we go beyond the mandate that is expressed in the Auditor General Act or through certain acts regarding Crown corporations or the territories, for example — we audit the three territories — all of that work comes out of our parliamentary appropriation.

Senator Day: If the mandate was expanded to allow you to perform your comprehensive audit of a foundation, would you be able to charge for that service or would you need a change in the legislation to allow you to do that?

Ms. Fraser: We cannot currently charge because we do not have what is called re-spending authority. If we charge, the money would go into the Consolidated Revenue Fund.

There is an inherent question about who we work for and who provides our funding. I am much more comfortable in a system where Parliament gives us a certain envelope of funds and then we decide the scope of the audits. I have often said that I spent almost all my career in the private sector, where I had to negotiate fees. I hope I do not have to do that again.

Senator Day: I remember that comment you made once before so it obviously looms large in your mind. A couple of us were in private practice in other professions, so we understand the hourly rate issue.

The report that my colleague and the chair, Senator Oliver, was referring to and the government's response to your report has a very helpful table attached to it that gives a listing and an analysis of several major foundations and the accountability criteria of what they are doing: Do they report to Parliament? Do they have an independent evaluation? And so on.

I appreciate that this is newly out and you may not have seen this report before today, but could you review it and let us know if you agree with the various entries here, such as compliance audit, et cetera, then we would know that we could rely on this report as giving us a picture for these foundations. Do you have something like this for all foundations?

We talk about so many different issues. You think it is important for us — and we believe it is — to understand the areas of reporting to Parliament and the public, and which foundation does and which does not. There are many other areas that we are interested in, such as provision for an independent audit, tabling of annual reports, reporting on the foundation's performance, et cetera. If we could draw all of the foundations together and have that information, then we would know where the problems are.

Ms. Fraser: We have certainly covered most of this in our audit, so we would be glad to review this specific table and give you comments on it. We can look to see if we can provide you with more information. I am not sure if we have all of that information for all of the foundations. We looked at 11 in our audit. Mr. Wileman may be able to provide more details.

Mr. Wileman: Some of the foundations that are on the list, Mr. Chairman, were not examined by us in the current follow-up audit, although some of them were examined in the 2002 audit. For example, we did not examine the Canadian Foundation for Climate and Atmospheric Sciences in the follow-up that is currently before Parliament, the 2005 report, but we did examine it in the audit on which we are following up, which is the April 2002 audit.

Most of the others that I can see here were covered in the audit. The Canadian Foundation for Climate and Atmospheric Sciences is indeed the only one on the list that we did not audit in the current follow-up audit.

Senator Day: Any information you can give us to try and draw this together into an understandable picture would be helpful. If there are any other categories that you feel should be listed here on which you have information, that would be helpful to us as well.

Ms. Fraser: We would be pleased to do that, senator.

Senator Day: When you looked at the various foundations, Mr. Wileman, did you have an opportunity to interview the directors of those various foundations?

Mr. Wileman: No, we did not, Mr. Chairman. We do not have access to the foundations. Therefore, through the work that we do in the public accounts, we have a procedure whereby information is obtained through the sponsoring departments, who deal, in turn, with the foundations. We basically use that route in dealing with the foundations.

There were a couple of exceptions where we were approached by senior officials in some foundations who wished to meet with us. At their request, we did meet with a couple of the senior officials in particular foundations. However, as a general rule, since we did not have access, we did not approach the foundations directly.

Senator Day: Then you have no information for us as to whether the directors of these various foundations meet the government's stated criteria that they be independent, arm's length and knowledgeable in the particular work of that foundation and the mandate of that foundation?

Mr. Wileman: No, Mr. Chairman, we did not examine that question.

Senator Day: I will investigate that in another manner, then.

The thrust of your presentation today, Ms. Fraser, seems to be that you feel the sponsoring minister and the government should be more involved in what this foundation is doing, and provide more direct oversight and at times intervention, if necessary. Is that fair?

Ms Fraser: We are talking about an intervention in exceptional circumstances. We understand that the government wishes to have these foundations set up in such a way that they have independent experts who will do the actual day-to- day operations, if I may put it that way, and make the decisions about which projects to fund.

We are concerned, when there is a major change in policy or in circumstances, whether with federal-provincial issues or others, that there be an ability to intervene and to modify or alter how that foundation is operating. Currently that does not exist in those agreements. The foundations have funding agreements that dictate how the funds are to be distributed, and they will continue to do that, I presume, until their funds are used. Over time, because there is such large pre-funding, they are actually dictating operations for a long period of time and there should be an ability to intervene. We are not proposing or advocating that the minister should have influence or control over day-to-day operations. That is not the point we are making.

Senator Day: However, if there is a change or new direction in public policy, are you suggesting that the government, in that instance, should be able to intervene and say that it no longer needs a particular foundation because it is not going in the direction that government thought it should ten years ago?

Ms. Fraser: I would say, yes. If there were a clear indication that the objectives for which the foundation was established were not being met, or if there were a significant change in public policy or public policy delivery, then there should be an ability for the government to intervene. I think that goes back to Senator Downe's remarks about one government committing future governments to a certain course of action.

Senator Day: I agree with you, and most of us would agree with you if the stated objectives are not being met. The government's position, as I understand it, is that the more they become involved with an ability to intervene, the less independence there is, and that independence is important.

If all of the controls that you have suggested were implemented, would that not lead us automatically to the accounting issue and the different way of accounting that you have suggested? You said that you do not know whether this accounting is being followed properly such that now, when the funds are transferred, the government expenses all of that, and then says that it will not expense it further and, therefore, not carry it on the government books, as the money is disbursed. The foundations are independent and want to retain that independence, and so the money is expensed once and no longer appears on the books. Am I reading this correctly?

Ms. Fraser: The government argues that these organizations are independent of government and that is why the expense is recorded in that way. Government has actually given up control over those funds.

I mentioned earlier that there is a wide range of foundations and a wide variety in the governance of those foundations. Clearly, some are independent from the federal government. When we see indications of federal- provincial control over a foundation or the naming of people to boards, we would probably say that those are independent, strictly, from the federal government.

However, we see foundations that, in essence, are delivering a government program. In cases like that, the government has set up a funding agreement in such a way that there is little latitude for the foundation to do anything but what the federal government has said it should do. Such an agreement details who is eligible for projects, the kinds of forms they have to fill out, and might even specify that the foundation cannot borrow money. That is when I begin to think that such a foundation is probably controlled by the federal government, and that this is simply a mechanism for having an independent selection of projects. That independent selection of projects goes on in granting councils, which are part of the federal government entity.

That is where we will have many discussions, I suspect, and probably many arguments with the Treasury Board Secretariat and the Comptroller General about the accounting around this issue. The fact that a minister would be able to intervene in very exceptional circumstances, or that the Auditor General have access to conduct performance audits, do not make those foundations non-independent, in my mind. There are many other criteria. I do not think we would even take that into account necessarily. The fact that we can audit something does not mean that it is not independent. The fact that a minister can intervene in very exceptional circumstances does not necessarily tip the scale, in my view. We will be looking at many of the conditions in the existing funding agreements to make the decision.

Senator Day: If the audit could be done by an independent, outside-of-government auditor, would that not ensure the continued independence of that foundation, rather than the Auditor General for Parliament staying involved so that Parliament wants to stay involved in this organization? It is not just a financial audit but it is a performance audit and a value-for-money audit on a continuous basis. Does that not bring that foundation in closer to an agency of government?

Ms. Fraser: I would hope that Parliament would want to be interested in these foundations, given the sums of public money involved.

The Chairman: It is taxpayers dollars that have gone to the foundations.

Ms. Fraser: It has been $9 billion dollars of taxpayers' money and there should be proper accountability to Parliament for that.

Senator Day: We agree on the accountability issue in terms of filing audits and reports on an annual basis. The question in my mind is one of setting up the proper mechanism that has all the built-in tests and cautionary steps at the front end. You have suggested that some of those things should be done. I believe that you referred to some of the audits making a change in some of the existing terms of reference of some foundations. It seems that perhaps at one time there were no clawbacks. If a foundation were to go out of business, the money would come back, and now that has been implemented. How is that done? Is that done through a change in the overall agreement with the foundation or is that done through legislation? How is that achieved?

Ms. Fraser: If I could make one further comment on the audit and then I will let Mr. Tom Wileman answer the specific question, senator. It is important, should performance audits be done, that they be done in the larger context of the objectives of the foundations, which are integrated with the objectives of departments and other granting councils. For example, several granting councils or foundations are doing medical research. We mentioned innovation; the Department of Industry and Technology Partnerships Canada is trying to do that as well. How do these foundations coordinate their activities with others in the federal government? An outside auditor would not have access to all of these other things. They could do an audit of the foundation but would not be able to look at that broader, horizontal issue.

Mr. Wiersema: In addition, audit by the Auditor General might somehow indicate further government influence or control over the organization. The Auditor General has referred to the new accounting standard that came out recently on the government reporting entity. It speaks to how organizations can be accounted for based on whether the government controls those organizations. It identifies various indicators of control. I can assure this committee that nowhere in those indicators is the question of who the auditor is. The question of who audits the organization does not indicate government control.

Senator Day: Are you talking about financial audit or performance, value-for-money audit?

Mr. Wiersema: Yes, all of those.

Ms. Fraser: Several legislative auditors, provincial and international, have a follow-the-dollar mandate. When there is funding to any organization, be it public or private, the legislative auditor can look to determine how those funds have been used. At the federal level we do not have that, but some provincial auditors do have that.

Senator Day: In such cases, would those jurisdictions have this alternate form of providing public policy through foundations, trusts, et cetera? Would there be a follow-the-money system?

Ms. Fraser: They would do it. I will give you one interesting example. The Auditor General of British Columbia has a mandate to do what we call follow the dollar; and all of the legislative auditors were asked to audit the health statistics reports of the federal government in all provinces and territories. In order to do that we had to rely upon information that was prepared by CIHI, Canadian Institutes for Health Information. We do not have a mandate to audit that body, but the Auditor General of British Columbia used his mandate — because there was financing funding from the Province of British Columbia — to go into CIHI to be able to assess the quality of their information, which all of the legislative auditors then were able to use to produce their reports. No one will ever say that CIHI is controlled by the Government of British Columbia. Therefore, it is a different kind of mandate, when you can go beyond strictly the government for which you are the legislative auditor and follow the dollar.

Senator Day: Do you know if, in that particular instance, during the granting process — as part of the granting documentation, before they could receive it — they had to agree to allow the auditor from British Columbia to do it?

Ms. Fraser: No, it is a legislative mandate that he has, that if there is any funding by the government, he is able to go and see how those funds were used.

Senator Day: Irrespective of where that organization might be located?

Ms. Fraser: My understanding is yes.

Senator Day: That surprises me.

Ms. Fraser: Actually, several legislative auditors have that kind of mandate.

Senator Day: Without any contractual obligation?

Ms. Fraser: Without necessarily having a contractual obligation between them. I will ask Mr. Tom Wileman to comment on that point.

Mr. Wileman: In terms of the provision, which is a right for the minister to recover unspent public funds in the event that a foundation is wound up, in our audit we found that seven of the 11 funding agreements of foundations in our sample have that provision. I might mention that some of them have it in legislation as well. In other words, for the three that have legislation — Sustainable Development Technology Canada, Canada Foundation for Innovation and the Canada Millennium Scholarship Foundation — the budget implementation in the case of two of these were budget implementation acts. In the case of the third, it is an ordinary act of Parliament. The acts were amended to put in this provision, for the right of the minister to recover the funds.

Senator Day: Was that as a result of your recommendations in 2002?

Mr. Wileman: We did make that recommendation.

Senator Day: We picked it up and moved it along, and I think the system works in that regard.

My final point is with reference to Mr. Wiersema. You had indicated, in terms of independence and government control, that there is some documentation that has been developed. Do you have a copy of that?

Mr. Wiersema: A new standard was recently issued by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants, dealing with the government reporting entity. I think the Auditor General has referred to that. That standard was issued, I believe, during 2004. It takes effect —

The Chairman: It was referred to in the Department of Finance response as well.

Senator Day: Do we have a copy of that standard? If you can easily get it for us, that would be very helpful; a little more paper would be good.

Mr. Wileman: That is the standard that the Auditor General has talked about, that we will be having discussions with the government on how that standard should be applied in the case of foundations.

Senator Day: I suspect that will be the nub of the debate over the next little while.

Mr. Wiersema: I expect you are right.

The Chairman: When Senator Ferretti Barth was here, she was asking questions about the Sustainable Development Technology Canada Foundation, and there was some question about the amount advanced. In your report, on page 4 of chapter 4, you say the amount advanced was $350 million. I just wanted to make sure that the record is clear — that the senator was referring to $350 million for that foundation.

Senator Harb: Ms. Fraser, you raised a very interesting point about looking at the pros and cons of a foundation. I think that makes a lot of sense. This is a philosophical question, delivering services to Canadians through a third party such as foundations, or doing it directly through what we already know, some other agencies. The chair raised a key word — that the Department of Finance would ``encourage''; and I jumped in and said ``ask'' — the foundation to do so. I think that, to a large extent, probably provides an opening to come up with what I call a win-win situation, where everyone wins. The government wins by saying, ``Well now, Ms. Fraser, through your office, we want you to look at the pros and cons of foundations and how, if we are to continue with that type of mechanism for service delivery, we could do it; but in the meantime, we wanted all of the foundation to fall under your jurisdiction, and you will have access to their books.''

I wanted to find out, what do we need to do in order for you to do that? Does this committee need to make a report, go to the ministers, or can we ask you, as a committee, to say, ``Could you please look at the pros and cons of foundations, look at best practices, and look at the models elsewhere?'' What do we do?

Ms. Fraser: I am really not sure, senator, that this is the kind of work we can do. That really is an evaluation of that instrument. It is quite clear in our act that we are precluded from doing evaluations ourselves. It would really be up to a department — I might suggest the Department of Finance, or some of the sponsoring departments — to do that analysis and then to make a recommendation. It would be inappropriate for us to be doing that kind of work.

Senator Harb: The second point is the financial statement of the government, when we do accounting. Did I hear Mr. Wiersema or yourself correctly stating that the money that is in the funds of those foundations does not show up on the financial statements of the government?

Ms. Fraser: That is correct.

Senator Harb: That is crazy.

Ms. Fraser: Senator Harb, I cannot believe that the penny has just dropped on this one.

Senator Harb: After we had gone through the new method of doing accrued accounting transparency and everything else, we were coming to the realization that we would include everything that is possibly on the books.

Ms. Fraser: These are independent, and not part of government, so those funds are not on the government's financial statements.

Senator Harb: I thought that that would add up the books positively and make us look that much better.

My next question is in regard to Canada as a nation. We are a member of a lot of international organizations such as the G8, the OECD, the G20, APEC, NATO, OAS, United Nations, the World Trade Organization and others — probably over 50 different organizations on the international scene. Looking at the notion of value for money, when everyone knows that there is quite a bit of duplication that comes as a result of those types of memberships, I wanted to find out whether or not you have ever had a chance to look at that whole element in terms of the benefits that come out of those memberships? There is a component of value for money. If not, is that something that you might be interested in looking at in the future?

Ms. Fraser: To my knowledge, we have never looked at Canada's participation in these types of organizations. It could be an interesting piece of work to do.

My concern in that is that much of this is not quantifiable. There are some places where you have to be at the table. I am not sure that auditors are able to assess the value of that very well, quite honestly. It would be up to the departments to be able to show to us what benefits they see from memberships in those organizations, and I would suspect that that kind of work has not been done. It is almost an obligation to be part of these organizations. However, it is an interesting thing even to do just a piece on what are we members of, what is the government a member of, and how much is spent on all of this.

Senator Harb: Looking at it from the inside —

The Chairman: Senator Harb, this will be your fourth question. We have to close early because the steering committee has to meet.

Senator Day: I understand his enthusiasm.

Senator Ringuette: The Privacy Commissioner is an Officer of Parliament. Do you have the authority to do audits and value-for-money auditing on that type of organization that is your equivalent?

Ms. Fraser: Yes, we do. They are subject to audit by the Office of the Auditor General. We have done one financial audit; we did the first one for all of the Officers of Parliament last year. You may recall we did an audit of the Office of the Privacy Commissioner that had been requested by the Government Operations Committee of the House of Commons when the previous two commissioners were in place.

Senator Ringuette: Does that happen only on request?

Ms. Fraser: No, I think that the Officers of Parliament are trying — coupled with the whole discussion around funding mechanisms — to ensure that there is proper accountability. We will certainly be discussing with them the conducting of performance audits at periodic intervals. They are relatively small organizations, compared to some of the departments, so we will not be doing performance audits on a regular basis but we will be doing the financial audit every year.

Senator Ringuette: For instance, from discussion last week, the Office of the Privacy Commissioner has a budget of anything between $7 and $8 million. It is very tiny. Would you do an audit every five years, every four years or every three years?

Ms. Fraser: It certainly would not be any more frequent than every five years. There are many departments that we do not even do once every five years. Some departments we do not even get to once every 10 years. I would suspect that they would probably be in the once every 10-year model.

Senator Ringuette: Did we do an audit of the Somalia commission?

Ms. Fraser: No.

Senator Ringuette: Because of the concerns from the public and from the media in the last month — more intense on a daily basis — will you be doing a value-for-money auditing of the Gomery commission?

Ms. Fraser: We have not made any decision about auditing the cost of the Gomery commission.

Senator Ringuette: Do you need a formal request by Parliament to do so?

Ms. Fraser: I would not require a formal request to do so. I could decide to do one, if I felt that it was necessary.

Senator Ringuette: If you have a formal request, will do you it?

Ms. Fraser: I would certainly consider it very seriously.

The Chairman: Ms. Fraser, on behalf of our committee, I would like to thank you very much for coming here and appearing before us this morning. I think you can tell by the nature and the number of our questions that this is a subject that is of great interest to this committee. We have been studying foundations on our own. It is something that we will continue to study. We thank you, once again, for your invaluable assistance in our understanding.

In terms of future legislation, there is a possibility that our committee will receive Bill C-24, to amend the Federal- Provincial Fiscal Arrangements Act and to make consequential amendments to other acts, regarding fiscal equalization payments to the provinces and funding to the territories. Meetings may be scheduled as early as tomorrow, Wednesday, to hear officials. The steering committee is also considering hearing provincial representation, and is also considering meetings outside of our regular time slot to accommodate the very tight schedule. We may have hearings and meetings on Monday, March 7.

I also want to remind honourable senators that the estimated schedule is that Supplementary Estimates (B) for 2004- 05, and the Main Estimates for 2005-06, will be tabled in Parliament this week. Meetings of the committee will likely follow on March 8 and 9.

The committee adjourned.