Proceedings of the Standing Senate Committee on
National Finance
Issue 43 - Evidence
OTTAWA, Wednesday, June 12, 2002
The Standing Senate Committee on National Finance met this day at 5:45 p.m., to examine the Main Estimates for the fiscal year ending March 31, 2003.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Honourable senators know that we are here to pursue our study of the financing and accountability to Parliament of arm's-length foundations established by the government to pursue various public policy objectives. This is figured in one or two reports that we have already tabled in the House. As you know, this has been the subject of some study by the Auditor General whom we heard here on one or two occasions recently.
We are happy to welcome for the first time to this committee the Secretary of State for International Institutions, the Honourable Maurizio Bevilacqua. He is accompanied by Mr. Kevin Lynch, Deputy Minister of Finance, who we know from previous incarnations, notable as Deputy Minister of Industry. As well, we have before us Mr. Rudin and Mr. DeVries from the Department of Finance.
Honourable senators, I invite the Secretary of State for International Financial Institutions to make his opening statement.
Hon. Maurizio Bevilacqua, Secretary of State, (International Financial Institutions): Honourable senators, I appreciate this opportunity to meet with you to review the purpose and performance of a number of federally funded foundations. Within this broader policy context, I also want to address issues such as accountability, oversight and the booking of funds, recently raised by the Auditor General.
Let me first interject a personal note. While I am new to the portfolio of Secretary of State for International Financial Institutions, I am no stranger to the important role of parliamentary committees. As former Chair of the Finance Committee in the Other Place, I appreciate the important role that you play in dealing with important issues confronting our country. I appreciate your hard work and the valuable insight you bring.
I would like to underscore from the start that the government deeply respects the role of the Auditor General as a vital watchdog of the public purse. We fully share her commitment to the principle of value for money.
However, we do have different views on some issues related to foundations.
The Auditor General has argued that, because of their arm's-length nature, the foundations lack adequate accountability to Canadians through Parliament. As well, in Chapter 1 of her April 2002 report to the House of Commons, there is a suggestion that these transfers to foundations were done to achieve a desired accounting result.
Mr. Chairman, we believe that the facts do not support this view. Rather, we feel that the foundations have been a success story about using alternate approaches to better serve the long-term interests of Canadians and address specific challenges and strategic national needs — and doing so in a way that combines a high standard of accountability and effective, non-partisan governance.
In my presentation I wish to refer to four major issues. The first is the focus on the purpose and rationale behind funding these foundations. Second, I will turn to specifics on the foundations themselves, including their structure and governance. Third, I will touch on some of the results to date delivered by key foundations. Finally, I will look ahead to areas where improvements in foundation reporting and governance can be made.
I will begin with the issue of rationale.
It is worthwhile noting that we have been open and straightforward from the start about the philosophy underlying our support for foundations. For example, in the 1997 budget speech, which launched the Canada Foundation for Innovation, we made it clear that,
The foundation represents an entirely new approach by the government to supporting innovation and research. It will be an independent corporation at arm's length from government and its members will be drawn from the research community and the private sector. They, not the government, will be responsible for spending decisions.
The decision to use this arm's length, expert-driven approach was not a matter of whim. We all recognize that Canadians live in a highly competitive global economy, driven by fast-paced technological change. This is an economy where the attributes of speed, excellence and imagination in areas, such as R&D and learning, are essential for long- term job creation and national prosperity.
This was something we heard clearly and consistently during pre-budget consultations. Canadians expect the federal government to play an active role in creating an environment that promotes this prosperity. Therefore, the question is: How could this best be done?
During a range of consultations, Canadians themselves — academic and business leaders across the country — told us that we had to invest more, and more innovatively, if we wanted Canada to become a research leader.
Yes, sustain the academic granting councils with their broad-based agendas, they said, but they also encouraged us to consider other types of organizations that could apply expert insight to target effectively very specific issues and challenges. That is the reason we opted for the foundation structure.
First, unlike the broadly mandated academic granting councils, each foundation, by definition, focuses on a specific area of opportunity. Second, it harnesses the insight and decision-making ability of independent boards of directors, directly experienced and knowledgeable about the issues at stake. It allows these directors to draw on, in many cases, the process of expert peer review — drawing on some of the finest scientific minds in Canada and around the world — to guide project selection and funding priorities.
There is a third advantage to the foundation approach that strongly distinguishes it from the granting council model, that is, up-front endowment funding. This was something we heard during consultations with the business and academic communities. They said we needed a funding approach that moved beyond annual parliamentary appropriations, with the risk of on-again, off-again financing.
This reflects another basic fact of today's technology-driven environment, that is, effective scientific research and development takes time. That is why leaders in these sectors urged us to apply guaranteed resources that would give the foundations the financial stability needed for comprehensive medium and long-term project planning.
There is another key advantage to this committed long-term endowment funding. It is an essential requirement if a project is to lever additional funds from other levels of government and the private sector. Should these possible contributors worry that the financial tap could be turned off midstream, they may not make commitments of their own.
I will now move to the second area of discussion: the foundations themselves and their structure, governance and controls.
Since 1997, the federal government has provided over $7 billion to a number of research foundations or investment funds. The two largest of these bodies are the Canada Foundation for Innovation, with $3.15 billion in funding, and the Canada Millennium Scholarships Foundation, with $2.5 billion in funding. Both were established by specific acts of Parliament.
As well, we have also provided funding to a number of other bodies established by other public or private sector groups under the Canada Corporations Act. These include: the Aboriginal Healing Foundation, Canada Health Infoway, the Canadian Foundation for Climate and Atmospheric Science, the Green Municipal Enabling Fund, the Green Municipal Investment Fund, and Genome Canada.
There is an important point to recognize here. In the case of the two largest foundations, their objectives, structure and funding — as well as governance arrangements — were openly introduced, debated and ultimately approved by both Houses. This is hardly government by stealth or one that is trying to avoid accountability.
Moreover, for all foundations receiving funding, we have, from the beginning, worked to provide the necessary independence while ensuring that they do remain accountable for the decisions they take. That is why the government has agreements with the foundations specifying their mandates and the conditions under which they operate. The directors are fully responsible for the actions of the foundations. All are subject to annual, independently audited financial statements.
Furthermore, Parliament itself has played an active role in scrutinizing some of these foundations. For example, the president and senior management of the CFI have appeared before various Commons and Senate committees no less than 11 times since 1997.
Let us move from the questions of rationale, structure and process to the bottom-line issue: Are the foundations delivering results for the public dollars invested? To me the facts are clear and concrete. Yes, they are.
For example, the Millennium Scholarship Fund has already delivered more than $280 million in bursaries and scholarships, helping more than 90,000 of Canada's neediest undergraduates. For clarification, perhaps we should go beyond this room and speak to those 90,000 people who have received the benefits of this scholarship fund and ask them whether it is a good fund, if they are happy about the fact that such a fund exists and whether their quality of life and standard of living have been positively impacted by this decision.
Then there is Genome Canada, which has invested more than $290 million in genetics research. Since each genome project requires matching funding from other private and public partners, the total research investment will be $580 million.
Mr. Chairman, you would know that leveraging public-private partnerships in this country is really an important way to generate the type of prosperity that this country requires. To build more partners into the fold speaks to a modern approach toward building the type of economy that will improve Canadians' standard of living. This is a point I believe this committee should not miss.
This funding is garnering international respect. The April 9th issue of Science magazine quotes the director of the U.S. National Human Genome Research Institute, Frank Collins, as saying, ``Until Genome Canada, Canada did not have available the kind of funding capabilities that make it possible to be a player on the big stage.''
Then there is the record of the Canada Foundation for Innovation.
In January of this year, the CFI announced investments of $779 million for projects at 69 Canadian universities, colleges, hospitals and not-for-profit institutions. This includes research into therapies for recovery from spinal cord injury, for sustainable high-quality water supply, for the prevention and cure of cardiovascular disease, and for improved fire safety in residential and commercial buildings.
This brings direct CFI allocations to date to over $1.5 billion. It is an investment that is already delivering bottom- line results.
For example, at the Université de Montréal, the CFI has contributed toward the purchase of state-of-the-art equipment that will allow researchers to collect, store, assess and compare blood and tissue samples from cancer patients. In doing so, the researchers are working toward new therapies and treatment strategies for women with breast and ovarian cancer.
The foundation is also investing in projects that provide the scientific research necessary to improve Canada's economic competitiveness and keep us at the forefront of new high-technology industries.
For instance, a grant from the foundation has enabled the Pacific Centre for Advanced Material and Microstructures to obtain new semiconductor processing and fabrication facilities. In these facilities at the University of British Columbia and Simon Fraser University, among others, researchers have produced, for the first time in Canada, nitride semiconductors. This innovation not only has great potential for the microelectronics industry, but also transforms the centre, like so many other CFI recipients, into a major player in the international research scene.
Mr. Chairman, I have brought these examples to light because far too many times in public life we do not share the successes that we have achieved in this country — the successes of certain policy directions. I think it is fundamental that we bring around the table an attitudinal change to celebrate success in Canada and to also bring to light to not only ourselves here but indeed to Canadians that there are great things being achieved in this country, and they need to be highlighted. Canadians need to know that the funding and the investments that we make as a government — after all, it is their tax money that we have to responsibly invest — makes sense.
I would like to bring to my position as Secretary of State for Financial Institutions an agenda to tell Canadians exactly what this government and all of us together as parliamentarians have been able to achieve for the people of Canada. It will be a constant theme during my term as Secretary of State for Financial Institutions.
Incidentally, I said that CFI direct investment now totals $1.5 billion. Again, this is just part of the story.
Canadians will actually see close to $4 billion in research activity leveraged, because of the contributions to the research projects by other private- and public-sector funding partners. This reinforces the point I made earlier, Mr. Chairman, about how up-front funding can deliver major benefits through the power of leveraging.
Incidentally, this is also an appropriate moment to address another concern raised in the latest report by the Auditor General: the fact that the ``up front grants used to establish the foundations often occur near the end of the government's fiscal year to achieve a so-called desired accounting result.
There is no coincidence here; neither is there any fiscal game-playing. What you are seeing is simply bottom-line proof of the government's commitment to responsible financial stewardship. Even when it comes to important national objectives — such as helping students, or scientific and medical research — our government will not commit funding unless we are certain that we have the resources to do so. This has been part of our prudent approach to budget planning right from the beginning.
Mr. Chairman, I spent five years as Chair of the Finance Committee in the other place, and this is precisely what Canadians called for. Every single pre-budget consultation that I held in those five years, every single report spoke to the reality that Canadians want their government to be fiscally responsible. That is why, in many cases, our foundation grants were made close to the financial year-end, because that is the time when we can be sure that the money is available without jeopardizing our balanced budget.
Mr. Chairman, I know that your committee has questions to raise, but before concluding, let me make one further point, emphasizing that the federal government remains sensitive and open to the Auditor General's concern about the issues of oversight and accountability. We know that improvements can always be made. That is why we are examining ways to address specific issues, including requirements for public corporate plans, annual performance reports and independent evaluation reports.
The government will continue to explore all avenues for improvement, in partnership with the Auditor General, all stakeholders and Parliament. I personally look forward to any recommendations that this committee may have.
At the same time, we feel we should not put at risk the ability of the foundations to make effective, timely and expert decisions on the investments Canada needs for a stronger, more innovative economy. The government's investments in science are an important part of our agenda.
In conclusion, honourable senators, let me summarize some of the key reasons why we feel the foundations we have established or fund warrant your continued support.
The decisions to provide funding to arm's-length organizations was debated and approved by Parliament, which thus agreed that they could serve a vital public service role. Decisions about what projects are to be funded are made by panels of experts in the field. Providing funding upfront ensures stability and allows the directors of the foundations to leverage funds from the private sector and other levels of government.
Most important, public money is not being put at risk. Parliament authorized the use of these funds in areas that virtually all Canadians see as important to our economic and social future. Annual audited reports are prepared by all organizations.
Given these attributes, I hope you will agree that the organizations we have established indeed are truly foundations for our national economic success.
We will be glad to answer your questions.
The Chairman: Thank you, Mr. Bevilacqua, for a very cogent and clear statement of the government's position on these matters.
I should say that the committee has never considered, much less commented in any critical or adverse way, on the particular activities that these foundations are engaged in. I am glad you put something of their good work on the record tonight.
The question for us is, are all these good things possible because these foundations are at arm's length from the government and Parliament? If so, what does that say about government and Parliament?
Mr. Bevilacqua: Honourable senators, it says that government and Parliament have made a wise decision to establish these foundations.
The Chairman: Is it not about our relevance, Mr. Bevilacqua? In the new areas of economic and technological challenge facing the country, are we not equipped to do them in the traditional way, through departments and responsible ministers or agencies that are closer in their responsibility and accountability to Parliament? Must we set up arm's-length foundations, such as you have described here, to do these things competently?
Mr. Bevilacqua: Mr. Chairman, you used an interesting word: ``traditional.'' You are right. We live in an era where government must also review the way we do things.
There is nothing wrong with perhaps departing from traditional ways of doing things. These arm's-length organizations provide us with another avenue by which we can seek expert advice and focus on specific areas. Second, I am attracted to the great potential it provides for leveraging.
We live in an era where change is rapid. One often hears the phrase today that the only constant thing is change. That is so true. Boards of directors and individuals involved in these organizations provide us with their expertise. They do it above and beyond our role as government.
I believe you need to access resources — intellectual, financial, and otherwise — from across society. Government needs to be open to that. We should rid ourselves of the notion that we must be tied to traditional ways of doing things. We should welcome the fact that these foundations have been created. They are doing great work. That is what Canadians care about.
If I went to a Canadian and said, ``For every dollar the federal government is going to spend, we are going to generate an extra two or three'' — I will be parochial for a moment — in my riding they would not applaud that. Canadians think outside the proverbial box. We need to create other avenues to achieve the same end.
I often put myself in the shoes of the ordinary Canadian who looks at government and says, ``What is the government doing? Should the government be involved in every single decision?'' First, we are involved in these decisions because it was an act of Parliament that created at least three of those foundations. We recognize the benefits of moving in that direction.
I set that out clearly in my comments. There is accountability, leveraging and focusing on specific areas and generating results. The generation of results is key.
The Chairman: Departing from the traditional ways is an open and interesting area for debate. Perhaps some senators will take it up.
Senator Bolduc: Mr. Bevilacqua, we are happy that you are here, because you had the interesting experience as the Chairman of the Finance Committee on the other side. I have had occasion to look at your reports often. I believe your appointment is a good one.
In the last 10 or 15 years, we have expanded our delivery mechanism or processes. When I was a young man, in the 1930s, we had the ministers, the departments, a few staff agencies like Treasury Board and the cabinet and that was it. At the end of the 1930s, we began to have a few governmental corporations, but mostly regulatory bodies.
In the 1940s, we had government corporations for the war period. Then we developed departmental corporations, governmental corporations and Crown companies. It continued.
In the 1970s and 1980s, we maintained the postulate of efficiency on one side and responsible government on the other. We delegated much more than in the traditional way. We added new machinery, such as the special agencies and later, the foundations.
Having been in the civil service for nearly 40 years, I have seen that change. I do not disagree with the variety of delivery mechanisms. Those are not the problem. There are many good things in a variety of mechanisms and processes to deliver public services in a more efficient way. We must consider other aspects of responsible administration.
In the report, the Auditor General saw three difficulties.
[Translation]
Communication of information to Parliament and the public must be improved.
[English]
That is to say that there is room for improvement in the communication of information to Parliament and the public. Second, the system of external auditing is insufficient. Third, there is an absence of ministerial oversight.
I know what your answer will be to that. I listened carefully to what you said. You made a good case for the foundations. The other side also has good points.
Outside of the annual report of the foundations, what information do we have? We receive reports once a year. That is almost all we have. Do you agree with the weaknesses that the Auditor General found? I know in your presentation you said that you do not agree.
The auditor general said three important things.
[Translation]
External auditing is lacking.
[English]
Financial statement auditing is one thing, but a real auditing, as the Auditor General does with departments and other organizations, is another matter. You will not find that in the report of a private foundation.
I am not the minister supervising those organizations. However, I am certain that you and Mr. Martin both said that your reasoning was, ``We are dealing with matters of research and innovation and we will give that to the scientists. They know the business better than we, and they will do a good job.'' Do you think that you had a real oversight of the business while they were operating over the last two years?
Mr. Bevilacqua: Honourable senators, there again, we need to perform evaluations. Those are available. I do not wish to leave honourable senators with the impression that somehow we think the Auditor General is 100 per cent wrong. The reason I came here this evening was not only to give you my side of the story, but also to listen to what you have to say. It is important for me to hear your views on this issue.
A number of things provide us with an opportunity to analyze exactly what these foundations are doing. First, you can access their business plan and their corporate report. Of course, there is the audit, as you correctly pointed out.
As well, the fact they can come in front of a this committee speaks to the fact that they must meet the standards set for them as well, because I know this committee to be an influential committee and one that does thorough work. If the president of one of the foundations appears in front of you, you will have in your hands various reports and you will ask the questions that will make them responsible for their activities as presidents and members of boards of directors.
I want to also say that the government agreed with the Auditor General that some strengthening of the accountability was beneficial, and have taken some steps to do so in the development of funding agreements. As you know, we have funding agreements with these foundations.
There is the submission of business plans to the responsible minister. There is the minister's ability to undertake compliance audits and program evaluations, as well as the provision for a possible return of funds to the Consolidated Revenue Fund in the event of a windup. I know this is an issue raised in this committee as well. There are things in place.
Mr. Chairman, I would look at this as a great opportunity for your committee to exercise an important role in relation to this particular issue. This committee can take on a role to see if in fact these foundations are working, how well they are working and to also have an opportunity to have them appear and talk about their successes and some of their challenges. Of course, as well, you can access their audited statements for those who want to see the books.
Many opportunities are coming up as a result of these new structures. Always remember though that these foundations are working for Canadians. When I was travelling the country as Chair of the Finance Committee I had the sense that these foundations had a great deal of support from the Canadian public because they were dealing with areas that were of deep concern to them.
Senator Bolduc: In the case of the two that you emphasized, there is legislation establishing those organizations. However, the others were established by the Corporations Act and such things. The only guideline that you gave was the agreement with them.
Mr. Bevilacqua: Yes.
Senator Bolduc: Their constitution is really the agreement. I can understand that at the beginning of those new mechanisms you decided to go one by one and not attempt to make a general framework. You decided to say that Genome Canada will be this way, will have that type of agreement. The Auditor General said in the case of those delegated organizations there is a lot of difference between the agreements in terms of the framework of accountability. That puzzles me a bit.
Is it the time, in your opinion, to modify the Financial Administration Act so that you can put into it some framework of accountability for that general type of organization?
Mr. Bevilacqua: That is an interesting point. We, of course, will take your point into consideration. There is no question that we are always trying to improve agreements. In some cases, it will have to be done through the funding agreements themselves. In the other three we have to do it through legislation.
If I may, Mr. Chairman, I will go back to some of the things I did in my 13 years in public life. The same thing applies to this. When I was Parliamentary Secretary to Minister Axworthy during social security review, we were quite busy redesigning Canada's social security and safety net. There were those who said that the cookie-cutter approach may in fact, apply very well. I was not one of them. I felt that flexibility in an economy like ours or in any kind of relationship — be it government and business, private and not-for-profit sector — must be in there. A cookie-cutter approach cannot be used for all the deals that are made with organizations like this. However, I understand what you are saying.
Senator Bolduc: We did that when we established the Financial Administration Act. From the traditional government administration to what we used to call the ``modern'' one in the 1960s, we decided to have a Financial Administration Act with various annexes. There was an annex for the Parliament Corporation, another one for the government corporation and another one for the Crown companies. It was decided that some administrative regulatory commissions would be considered a department, and things like that. We did make that effort.
Now I know it is much more diversified, but what I think we should concern ourselves with only two or three basic principles of public administration — be it in the department or in a foundation or anywhere. First, there is the competence of the people. To find out who is the most competent to do the job a competition can be conducted. In that way we can build a competent civil service in the Ministry of Finance and in the Ministry of Foreign Affairs in Canada just like that old traditional system. That is why I am convinced that it is good for everyone.
That is one of the basic principles. The second principle involves ethics and impartiality in the public service otherwise it is patronage. If you know the administration of Canada like I do, you have to be sure that the frailty of human nature will be framed in such a way that it will work.
Third, we mush have political supremacy in Canada, and the only way to do it is to have accountability. Some ways of doing accountability have been proposed by the Auditor General. For example, there are 12 recommendations. Would you agree to look at those 12 recommendations? I look at them; I think they are very serious. I would like you to tell me if you are ready to look a the 12 recommendations in 137, 149, 154, 162, 163, 164, 169, 181, 101, 115, 116 and 117.
The Chairman: Has the government made any response to those recommendations through the minister, or officials?
Senator Bolduc: Since you are in finance you probably were the author of that budgetary plan. It is a well-structured document. Your answers to the Auditor General sometimes are that you do not agree with her view and that is all. I am not satisfied with that kind of answer, because I used to have some like that, too.
Mr. Bevilacqua: First, I want to thank you for giving us sort of a trip down memory lane of all the changes from the 1930s, 1940s, 1950s, 1970s, and 1980s. I am always ready and willing to learn from people who have been around longer than I have.
On the three issues that you raised about the competence of people as a principle and the issues of ethics and accountability, you will not get disagreement from any of us here. These are principles that we do not need to embrace. They are part of who we are as a department.
In reference to the other question, as you know, I have been on this job for nine days. I will let the deputy minister respond to the issue about our response to the Auditor General's report.
Mr. Kevin G. Lynch, Deputy Minister, Department of Finance: We actually have responded to the AG's report. We are working with the Auditor General and the Auditor General's office. In the last number of years we have consulted with the accounting profession on this issue. It is an evolving area in terms of public-private partnerships, as the secretary of state says. It is an area where all of us are learning and evolving.
If we are going to do new things, we have to find mechanisms to do it. That discussion is ongoing. The Auditor General has made some suggestions. The Accounting Standards Board is looking at that. They are debating it now and are expecting to come forward in a couple of years. We are having discussions with the Auditor General and with the office of the Comptroller General. We are all trying to find ways that keep the essential nature of these foundations, which allows us to do things in a much more innovative flexible way than we were able to do them in the past.
Senator Bolduc: In the budget plan you that you had consulted two large auditing firms and that they agreed with you. They are in a conflict of interest because we have so few of those firms in Canada and they want to have contracts. It is a good thing to have their views but to say that we agree with them is another matter.
Mr. Bevilacqua: I have raised these points already but I will repeat them because you once again asked the question. On the submission of the business plans to the responsible minister and the minister's ability to undertake compliance audits, these two issues speak to a concern you have and with which I agree. Others concerns include the undertaking of program evaluations and the provision for a possible return of funds to the Consolidated Revenue Fund in the event of a windup. We are moving there already. Some of these are issues that you obviously care about.
[Translation]
Senator Ferretti Barth: My question is about transparency. It is often talked about in the papers, even in the national caucus and such places. You mentioned in your presentation that taxpayers need to be informed both about the goals and the performance of these foundations, because they require large public investments. What type of process did you put into place in order to increase the transparency of the workings of the foundations?
If you consider these issues to be important, is it because you found deficiencies in this regard or a lack of information?
[English]
Mr. Bevilacqua: You ask a relevant question in the sense that, in the final analysis, what is government and governing all about? It is about providing the very best we can as parliamentarians to the people of Canada; it is also about letting the people of Canada know that in a collective way that people are benefiting.
I want to share with you a story. When I was Secretary of State for Science, Research and Development, I went to make an announcement with Genome Canada at Toronto's Sick Children's Hospital. Several things struck me when I was there that day. One was the fact that there I was in a world-class Canadian hospital — and I make this point in light of the challenges that we debate daily on the issue of health care. I was impressed by the great expertise in genomics that I saw in those laboratories. I was also struck by the fact that some of the scientists and researchers, not to mention the President of Toronto's Sick Children's Hospital, are Americans.
I highlight this because through foundations such as this and through the great investments we have made in research and development, we are becoming a magnet for the very best in the world. That has to be underlined in Canada. We spend a great deal of time talking about people going elsewhere, but very little time celebrating the fact that the President of Toronto's Sick Children's Hospital — a world-class hospital, is American.
I want to speak about these things, because what we are about. How do we as parliamentarians affect human beings? The President of the University of Toronto was in the United States and came back to Canada. Why is this happening? What benefits are we as parliamentarians bringing to Canadians?
These are just a couple of examples that I wanted to share with you based on my personal experience. When we talk about investment in genome, when we talk about the Canada Foundation for Innovation, let us not just look at the amount of money we are investing, let us look at what is happening to our country as a result of the creation of these foundations.
When you go to the various laboratories and find that the very best in the world are being attracted to Canada, make no mistake about it: we are in genomics because of the investment we made through the foundation. The Canada Foundation for Innovation has also helped us attract individuals. You can go down the list through all the foundations and see that they are having a very positive impact on our country as a whole.
To focus on the foundation debate without viewing it as a larger strategy, without connecting the dots to see what we have been able to do as a government with the support of Canadians, would be a major error. I hope that parliamentarians on both sides of the House will understand that this view of seeing things through a tunnel vision and focusing on one issue at a time is passé. All these issues are very much interconnected.
When I am presenting the case for foundations, I am also talking about why the president of Toronto's Hospital for Sick Children came to Canada, why other scientists throughout the world are coming here, and how we have been able to develop a culture of opportunity and excellence.
While all the points about transparency are dead on — you are 100 per cent correct, senator — we must never lose focus on what exactly has transpired. What has happened as a result of these decisions?
Everywhere I go throughout Canada I get great feedback. Our job is to ensure that the transparency and accountability is there. I like the fact that your committee, the House of Commons committees, external auditors and ministers have been given more leeway to deal with this issue. We are moving in the right direction. We can always improve, but let us not just look at the program in isolation.
[Translation]
Senator Ferretti Barth: You talked about informing the public. I would like to know by what means the public is going to be informed? What is the process? I appreciate everything you said and I now have a different perception. But this perception does not allow me to explain to the people I represent everything you just said. The public needs a more accessible discourse, in order for taxpayers to understand that these foundations are necessary because they bring many benefits to Canadians. If we do not explain it, the public will keep wondering. No one had explained the role of the foundations as you just did and I want to thank you for it.
[English]
Mr. Bevilacqua: I think we are singing from the same hymnbook. I do want these organizations to also raise the question of how their achievements are being projected in real terms to the public.
For example, with the Millennium Scholarship Fund, where 90,000 undergraduates have received scholarships and bursaries, their families and friends in their community are very much aware of the benefits drawn from this. However, we as a government, and the foundations themselves, must increase communication with the public. It is one of those issues that can, in fact, be discussed when we are striking agreements. The ones that have already been written can be altered to, perhaps, give a greater role to communication.
These reports should include the obvious benefits that people draw from them, because there is no question that the success of public policy comes down to two things. Are we improving the quality of life for people? Are we improving their standard of living? We have to take whatever measures we can to let them know of the successes.
Senator Stratton: That was a very eloquent presentation in a romanticized way because this committee's responsibility is a financial responsibility. We have to watch the public purse. That is why we are around this table.
I have not heard you address the issue — to my satisfaction at any rate — as to how you are ensuring accountability to the Canadian public. You are in an entirely different era now, this is not post-September 11, this is post-Enron. I have not heard about one item that gives comfort to me that you have addressed this issue.
You say we have auditors. Well, so did Enron. You have not addressed that. What are you doing to address that? I thought that would be a part of your presentation, to accept the fact that we have had Enron, and here is what we are doing to counter that, to ensure that does not happen with these foundations. How can you answer that question?
Mr. Bevilacqua: I am glad to see you feel that one of your responsibilities in this committee is to make sure you protect the public purse.
Senator, out of all people, I know you are a very interested actor and observer of the Government of Canada. You would recognize that we work very hard in making sure the public purse is well managed. I do not want to go back to 1993 when we had a $42 billion deficit.
Senator Stratton: Do not do that, or I will start getting political. Address the question.
Mr. Bevilacqua: I do not want to get political. The only thing I want to do here — and I think I have succeeded somewhat — is to make a case for foundations.
When you look at the audited financial statements by independent auditors, you look at the issue of the business plans, and the fact we have to undertake individual evaluation. The agreements that happened after budget 2001 contain provisions for audits of compliance, program evaluation and independent external auditors. The minister can undertake an audit of the recipient's compliance.
The Chairman: Excuse me, just for the record, because it has come up here, can you or one of the officials state what the objection the government has to letting the Auditor General loose on these foundations.
Mr. Peter DeVries, Director, Economic and Fiscal Policy Branch, Department of Finance: We want to ensure that these foundations are truly independent. The Auditor General is an agent of Parliament, so that would undermine, in part, the independence of the foundations.
Second, the Auditor General is the Auditor General of Parliament. To make the Auditor General also the auditor of an independent agent would seem to put her into a very difficult situation. You do get into a situation whereby you have an independent auditor for the foundation, and you have an independent auditor for Parliament.
As the Secretary of State noted, in the new provisions that were established with the 2001 budget and thereafter, we have made arrangements so the minister responsible can ask the Auditor General to go into these new foundations to ensure they are complying with the funding arrangement.
It is up to the minister, who can request that the Auditor General examine these foundations. We are walking a fine line in ensuring that the foundations are independent, while at the same time ensuring that they are accountable to Parliament.
Senator Stratton: The concern I have is that by the time that happens, the horses are gone; they are out of the stable. Usually that is what happens; the disaster has occurred and suddenly we must do something and the minister sends the AG in, too late.
That is really our concern. What you have done to address that? The potential. Talk about Enron, talk about how you have addressed that issue with respect to Enron. We need to hear that. What conditions have you put in to ensure that there can never be an Enron in any of these foundations? That is what we around this table need to hear.
Mr. Bevilacqua: I believe I went through them already.
Senator Stratton: I do not believe so. I do not accept that what you have done has addressed that particular concern.
Senator Cools: Mr. Chairman, maybe I am not following very well. Perhaps Senator Stratton could explain to us the relationship between Enron and these foundations.
Senator Mahovlich: Because those who ran Enron were thieves does not mean everybody else a thief.
Senator Cools: An assumption is being made.
The Chairman: We will have a chance to debate it in due course.
Senator Cools: This is not a debate. I want to make the point, however, that the minister must not believe for a moment that the view being expressed is the view of the entire committee.
The Chairman: The Secretary of State is an experienced parliamentarian.
Senator Stratton: If you feel you have addressed the question, sir, I will accept that. I do not agree with you, but I will accept it.
Mr. Bevilacqua: Senator, I heard what you said. To look at what happened with Enron from a Canadian perspective is extremely important. There are lessons to be learned from it. What I have given you tonight is a defence of funding foundations. I have also outlined the steps we have taken thus far to address some of the concerns you and others have already raised. Your point, senator, is one that requires reflection. I cannot give you an answer on the entire Enron situation tonight for obvious reasons.
Senator Stratton: I appreciate that. My last question is: When will you be able to address that?
Mr. Bevilacqua: That is a very good question.
Senator Cools: Soon, very soon.
Mr. Bevilacqua: As soon as humanly possible.
Senator Banks: I took Senator Stratton's point to be not that the foundations are crooks but that Enron's auditors were notoriously unreliable, and that private auditors now have interests that go beyond auditing by a very long way. In some business applications, this tends to make them less than reliable.
The basis of Senator Stratton's question is what the Chairman set out when we sat down, which was that the concept of having foundations, which are focused, as you have suggested, is not being questioned by anyone. The question is, however, their accountability.
I am in favour of arm's-length government-funded undertakings. The question is which of the foundations ought not to be subject to sections 1 to 5 of the Financial Administration Act and not subject to special examinations by the Auditor General every four or five years, and why that is so. I know the answer in each case would be different.
You said improvements can be made. That is sometimes true. It is also true that in the case of some of the foundations improvements cannot be made. An extreme example is the Pierre Trudeau Foundation to which the government has given $125 million. It is not a creation of government. It is a private foundation to which the Government of Canada has, no doubt properly and with the best intentions, given $125 million. Clearly, we cannot impose any better accounting or transparency on that foundation than already exists because it is not in any sense a creation of government.
Is that not also true to a large degree, with respect to the foundations that were established before you started to suggest that the Auditor General can, in some circumstances, come in? I am asking that question from the standpoint of, say, CFI, which has a board of directors and an agreement in place that says, ``Here is the money. Here is how you must spend it. There are responsibilities of the directors to spend it in that way.'' On the other hand, I know from personal experience that if the government comes later to that board and says, ``We want to change the rules of the game. We want to add another layer of scrutiny, or we want to open up a door that was previously closed,'' the board of directors is simply going to say, ``No.'' If they are properly at arm's-length, that is the end of the discussion.
I want to make sure that I understood correctly that there are some foundations — in particular those which existed before 2001 — which, except in the most extraordinary set of circumstances, cannot be changed in terms of their transparency and accountability from what the present situation is. I am not suggesting that the present situation is wrong. They are in cement now, are they not?
Mr. Lynch: The Canada Foundation for Innovation is a good example. While there is legislation that set it up, there is also a funding agreement in place between the government and the foundation. Clearly, because the foundation is independent, the government cannot unilaterally change that funding agreement. However, with the agreement of both parties, the funding agreement could be changed.
In response to your question: Is it impossible to change it? Not at all. If both parties agree on a change, then it could be made. As I said before, if you looked at some of the changes we made in the foundations that we either set up or refunded in the 2001 budget, we did add some different features because of the ongoing evolution and discussions with both entities involved and the Auditor General. I think this is a process that will evolve. There is some capacity to revise ones that have already been there, if there is mutual consent.
Senator Banks: By definition, arm's-length foundations will hit the barricades when someone says, ``We want to add another degree of scrutiny.'' That was just an observation and not a question, Mr. Chairman.
The Chairman: Mr. Bevilacqua, would you get something for us? I do not expect an answer tonight. As you know, yesterday, the Prime Minister tabled what is colloquially referred to as an ``ethics package.'' Included in it are instructions to ministers and secretaries of state concerning Crown corporations, quasi-judicial boards, commissions and the like. In particular, he is telling them whether, how and under what circumstances they may make representations to those boards, commissions, et cetera.
In respect of each of these foundations we are talking about tonight, could you let us know where they fit with regard to representations from ministers and secretaries of state? I know you would have to get that in writing from some source, but I would appreciate having it.
Mr. Bevilacqua: We will get back to you as soon as possible.
Senator Kinsella: I have two areas to explore with the Secretary of State. One is the area of program evaluation. The second is the area of what I will describe as ``interest definition.''
Concerning program evaluation, would you explain to the committee the benchmarks that are established in the machinery that is in place for the evaluation of foundations' programs? Does the foundation establish the benchmarks for the internal program evaluation, or does the responsible minister do that?
I am speaking of program evaluation and whether they are achieving the objectives laid down in the statute and the expectation of government in terms of how well the foundation is achieving the objectives set by government as distinct from the auditing of the finances.
Mr. Lynch: I think we should get back to you with a comprehensive answer.
Certainly, in a number of them that I know well, the evaluation is done both against the legislation, if there is legislation, and against the terms and conditions of the funding agreement, which is there in all cases. The boards require that as a starting point because that is the mandate and it was the objective that was established. They may add other things, but certainly those that I have known directly have started with that as a minimum against which to do the evaluation.
Senator Kinsella: Are the foundations required to have a program evaluation unit in their foundation? It has been more than 10 years since I was a federal deputy minister. We would have a program evaluation unit in the ministry.
Do you still have one in the departments across the board? Will the program evaluation that is done by these foundations be the same as is done on the programs in the various ministries?
Mr. DeVries: As Mr. Lynch indicated, they are all different. They are dependent on the funding arrangements that the government has signed with the foundations. They would undertake the evaluations themselves.
Senator Kinsella: Who sets the benchmarks? Who will set the objectives against which the program is being evaluated? Will they themselves do that?
Mr. DeVries: Those were set in the funding agreements.
Senator Kinsella: Does the committee have copies of the funding agreements?
The Chairman: I do not know that we do and I do not know whether we can get them. We can try. I have already made the point, senator, at an earlier meeting, that now that we have the policy pretty well spelled out and a fairly robust defence of the policy from ministers and officials, our next step, if the committee wants to pursue the issue, is to have the foundations in one by one and/or the ministers who are involved.
Are those funding agreements public documents?
Mr. DeVries: We will check on that for you, Mr. Chairman. I am not sure they are all public documents. Some of them would be.
The Chairman: There you go. It varies from one to the next, and we will want to look into that.
Senator Kinsella: On the area of interest definition, what is the Government of Canada's policy regarding whom, at the end of the day, has the responsibility for defining the public interest? Does the government believe — there is a need to be careful here — that the foundation and the community of the participants in the given areas the foundation addresses might be making judgments or defining an area interest, whereas the government is always making judgments in terms of the national interest or the public interest?
Where do you see the reconciliation occurring between what would be judged to be in the public interest of Canada as opposed to the kinds of decisions that an arm's-length foundation is making in a given area of research or innovation?
Corollary to that last part, is there not a danger of a certain in-group mentality in the research community where the experts are coming from the same community as the directors? There is a danger of it being somewhat intellectually incestuous.
Mr. Bevilacqua: You said there is a danger. It will not necessarily happen. Judging from the progress these foundations have made so far, I would say that although government is responsible for the public interest, that is not to say that the goals and objectives of these foundations and our objectives are mutually exclusive.
The fact that one day, because of the investments we have made in various areas in research and development, we may come up with the cure for cancer, I do not think is inconsistent with the fact that it is both in the public interest and in that case the group's interest, the researchers, to find a cure.
There is no question in my mind that these foundations are serving the public interest.
Senator Kinsella: When it is the same community that is managing the money, identifying the research projects that shall be funded and peer-reviewing the applications, is there not a serious danger that its judgment will be made within the mindset of that area of research and interest?
Mr. Bevilacqua: That would assume, though, that nobody in the various committees of the House reads the reports and that everybody in the community has fallen asleep. That is not the case at all. I think that responsible parliamentarians, such as the ones around this table, and members of the community will soon find out if a group is acting in its own self-interest, inconsistent with the public interest. There is no question. There are far too many reports that give access to that type of information. However, I understand your concern.
Mr. Lynch: For example, the Canada Foundation for Innovation and Genome Canada — two foundations that invest heavily in research — both use peer-review panels. Those panels also have a substantial component of experts from around the world — not just in Canada — to make sure that they have an independent and expert and global a view of what excellence is. That view goes to the board, and the board is drawn from not only the academic community but from other communities as well. There are many layers trying to put as much peer-reviewed excellence in the process that can possibly be built in.
The Chairman: Senator Tunney is retiring from the Senate, is it on Saturday?
Senator Tunney: Sunday would do.
The Chairman: This is your last shot, senator. Go for it.
Senator Tunney: I will give you a hint. I just celebrated our 30th wedding anniversary, my 75th birthday, and my 44th year as a farmer. I do not know what that qualifies me for.
The Chairman: The Senate.
Senator Stratton: Not anymore.
Senator Tunney: I will draw an analogy. It will be more or less the philosophy of what we are doing here. This is not unique to foundations or the federal government. It speaks to the whole range of our economy and our country.
A senator was talking quite properly about the practices from the 1930s to 1990s. I am embarrassed to say, by my age, that I remember all of those times. I also remember times when we were not doing research or development. We were in the throes of the Great Depression, when there was no money to do any of these things. If we had to live in that kind of an economy now, we would not be here in this city drawing the salaries that we draw, and seeing the kind of increased government and industrial surpluses and profits that we are seeing.
However, if we have a negative attitude towards research and development, we might better not spend a dime on it. If you think it will not work, it probably will not. If you are positive enough to be determined to do it right, the returns are phenomenal.
I will use an analogy. In the dairy industry, where I come from, we are making our industry and its members wealthy only because of the research that brought about development and improvement in genetics and biotechnology. We always had a few dairy farmers, and I represented them, but I represented hundreds who were positive about it for every one who was negative. The negative ones benefited equally with the positive ones, because they were becoming beneficiaries when they did not know they were.
Our dairy cows give four times as much milk as they were back in the early 1970s, when we were investing producers' money and government funds on research and development with what was then Guelph College. It has grown along with everything else.
I am concerned, as is everyone around this table, about the proper use of public funds. However, I do not want anybody to be fearful of doing something because it might not turn out right. If it does not turn out right, it is perhaps a weakness in how you do it. I say, keep on doing it.
I hope that you will come back again. I will not be here. Perhaps when you are a little more seasoned you will answer some of these questions that are properly put, but are perhaps somewhat misplaced.
The Chairman: With those supportive sentiments ringing in your ears, the Minister and the officials can go home and sleep well tonight. If the committee wishes to pursue this matter, we will certainly have the individual foundations and ministers in at a later date.
Thank you very much. You have stated the policy of the government clearly and put it on the record. We will decide where we go from there.
Senator Bolduc: Mr. DeVries said they must be independent. They must be independent from government, but not from Parliament.
The Chairman: That is something we will debate another day.
The committee continued in camera.