Proceedings of the Standing Senate Committee on National Finance
Issue 2 - Evidence
OTTAWA, Tuesday, February 4, 2003
The Standing Senate Committee on National Finance met this day at 9:34 a.m. to examine the Main Estimates for the fiscal year ending March 31, 2003 (Foundations).
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: We have had two meetings on government financing of arm's-length foundations that have been set up by the government. It is not just the financing that concerns us, but also their accountability and reporting relationships to government and to Parliament.
As it happens, four of the foundations that have been set up over the past few years come generally under the wing of the Department of Industry. We have been told, by people who know, that one of those foundations, the Canada Foundation for Innovation, is arguably the best of the lot in terms of its structural and day-to-day relationship with government and Parliament.
With that in mind, we invited Dr. Marshall Moffat, Director of Knowledge Infrastructure in the Innovation Policy Branch of the Department of Industry to come and help us this morning. I believe he will focus, in particular, on the Canada Foundation for Innovation, CFI, but is prepared to take questions about the other foundations that come under the aegis of Industry Canada.
I will invite Dr. Moffat to begin.
Dr. Marshall Moffat, Director, Knowledge Infrastructure, Innovation Policy Branch, Industry Canada: Honourable senators, I want to give you more information about who I am and what my responsibilities are at Industry Canada. I wear two different hats. One hat is as Director of Knowledge Infrastructure. That is in the policy sector of Industry Canada. My responsibilities there relate to federal support for university research and the commercialization of university research.
The second hat is as Executive Director of the Advisory Council on Science and Technology. This is an advisory council chaired by the Minister of Industry that reports to the Prime Minister. It has been asked by the Prime Minister and the Minister of Industry to play a role in the follow-up to the national summit on innovation and learning that took place in November by providing advice to the government.
[Translation]
I would like to begin with a quick overview of the Canada Foundation for Innovation. The Foundation was established by Parliament in 1997 as an arm's length private corporation with a mandate of supporting university and other research institutions through research infrastructure awards. The other establishments include hospitals, colleges and also private non-profit research institutes.
The CFI has received $3.15 billion from the federal government and has awarded over $2 billion to some 2,400 projects in 112 institutions, 10 provinces and 55 municipalities. An additional $3 billion has been contributed by other funders.
I would like to talk about all aspects of the CFI's accountability structure. There are five categories: direct accountability to Parliament, accountability to the government, the internal accountability structure for the Foundation's operations, accountability of award recipients and finally, accountability to the public.
[English]
I will speak first about direct accountability to Parliament. The legislation creating the Canada Foundation for Innovation requires the foundation to submit an annual report to the minister and for the minister to table the report in Parliament. The foundation is also required to make their annual report public.
In the legislation, the annual report is required to include financial statements, the balance sheet, investments of the foundation and an independent auditor's report. However, in practice, the annual report includes much more than that. It includes reporting by the foundation on its results via summaries of its activities, of its performance and of evaluation studies. CFI is currently planning, as well, to add to their annual report a plan for the activities in the coming year.
In addition, senior officers of the foundation have appeared before parliamentary committees 12 times.
With respect to accountability through the Minister of Industry, there is a funding agreement between the government and the foundation. The funding agreement sets out the obligations of the foundation and operational guidelines for its activities. These obligations and guidelines include the investment of the monies that have been granted to the foundation, eligible recipients, the eligible projects and costs, selection criteria for awarding grants, and limitations on funding. In addition, the foundation is required in the funding agreement to carry out periodic third- party evaluations and to provide public annual reporting on its activities and results.
Finally, representatives of the Ministers of Finance and Industry attend all board meetings of the foundation. Generally, it is myself who attends board meetings on behalf of Industry Canada.
The next category I should like to give you some information on is the foundation's internal accountability. I refer to the accountability systems that the foundation puts in place for its internal activities.
All of the proposals that come forward for funding go through a merit review or peer review process with arm's- length external advisers. In carrying out audits of their internal processes and procedures, the foundation carries out risk analyses to identify which areas to concentrate on. In carrying out these risk analyses audits, they look at their own internal processes and their own financial statements, as well as the contributions that have been given to institutions.
They use an external adviser to assist them with their investment funds to ensure compliance with guidelines established by the government.
The foundation has put in place access to information and privacy policies that parallel the federal system.
Finally, the foundation makes it a policy to disclose salary ranges for all of their senior management staff.
The foundation also has an accountability structure with its award recipients. Each institution receiving awards is required to submit, in advance, a strategic research plan. The plan is intended to identify the key research priorities of that institution. Subsequent proposals for research infrastructure sponsored by that institution on behalf of one or more of its researchers must fit into the prioritized research strategy for the institution.
Reports on project implementation are required on an ongoing basis to be provided to the foundation for projects that have received awards. The institution provides reports both on individual projects and across all of the projects undertaken under its administration. There are annual project financial reports required for each project as well and, when a project is completed, a comprehensive report on how it was implemented and the financial transactions that were undertaken.
After an award, the CFI undertakes monitoring activities with the award recipients, including financial review and monitoring visits that are coordinated with visits by the granting councils. They carry out, as I said, these riskbased contribution audits as well onsite at the institutions.
[Translation]
I will now speak about accountability to the public. The annual report is widely distributed and the annual meeting is open to the public. The next meeting will be in Ottawa on February 10. As well, the CFI provides full website disclosure of policies and independent evaluation reports.
From time to time, there are briefing sessions for university, government and private sector representatives. Recipient institutions are also required to report publicly on their use of funding from the foundation.
[English]
I should like to end with a few comments on plans for modifying and improving the accountability framework with the foundation.
Honourable senators may have noted that in the legislation there is a clause pertaining to possible wind-up of the foundation that stipulates that if funds are left unspent when the foundation may be wound up, those funds would be redistributed to all of the award recipients. We are considering and planning, with the Department of Finance, an amendment to that clause requiring, on wind-up, that any remaining funds would return to the federal government. This proposal has not yet been presented to the Ministers of Finance and Industry, but we have a plan to do so. It is fair to mention this to you today.
Second, I mentioned that the foundation was planning to include in their annual report a plan for their future activities for the next year. We are also planning, with the Department of Finance and the foundation, to include that as a formal obligation within the funding agreement between the government and the foundation. That is one legislative change and one change to the funding agreement that we are planning to make.
With respect to the funding agreement, we have already made four amendments to the agreement, partly to provide for additional grants flowing to the foundation but partly to introduce new accountability measures, such as annual reporting of results and third party evaluations of performance of programs implemented by the foundation. In other words, the accountability structure is not frozen in time. It is something that evolves over time.
Senator Comeau: Does this foundation and/or the foundations that fall under the jurisdiction of Industry Canada abide by the Official Languages Act?
Mr. Moffat: I am not absolutely certain about the application of the Official Languages Act, but, as foundations, I believe they do not. However, the Canada Foundation for Innovation has a policy of making all of its information available in both official languages.
Senator Comeau: You are not completely sure. Would you mind getting back to us in writing? My interest is not whether the foundation has a policy of trying to abide by the Official Languages Act, but whether it is subject to the act. Perhaps you could get back to us on that.
Why did we go to such foundations initially? What was the problem with letting government departments handle the funding of these agencies, as has been the case historically? What was the problem that led to the creation of arm's- length foundations? What were the downsides of the departments doing it?
Mr. Moffat: This occurred before my time, but I will do my best to answer your question. CFI is a foundation providing research infrastructure grants to universities. There are two major aspects of the thinking in establishing a foundation such as that. The first is the need to have arm's-length decision-making on awards for university research. Second, it is very useful when universities and researchers are planning their research programs to know that there will be money available over a period of time. By making a grant at one moment in time to a foundation, all the universities know that there will be continuity of funding and that they will be able to do their longer-range planning and set the priorities for their research infrastructure as the foundation requires.
Senator Comeau: I am pleased that the chair noted that CFI was the best of all the foundations.
The Chairman: In terms of its accountability in relation to the Main Estimates.
Senator Comeau: What will happen as we look to foundations that are less than stellar in their accountability to parliamentarians? At the end of the day, this is what concerns us. These are taxpayers' dollars. We have a duty and responsibility to taxpayers whether elected or as a second chamber to be mindful that these are taxpayers' dollars. Having created vehicles to remove this accountability from parliamentarians, we can wipe our hands of our responsibilities when we return to our constituencies and say, ``Well, it is out of our hands. Whatever these foundations do, we cannot touch them because they are not our responsibility any more.''
At the time these departments went to foundations, was there any consideration of the impact on the responsibility and accountability of parliamentarians to their constituents?
Mr. Moffat: Again, I was not in my present position in 1997 when the foundation was created. I was not party to those discussions and the rationale for creating them.
Senator Comeau: That is fair. We might want to hear from someone in the future who was part of the initiation to determine the reasoning.
Mr. Moffat: There are things that I could say that are pertinent to the question that is being asked. They are my personal opinions.
First, when public servants decide to work for the Government of Canada, it is more than a job. When public servants take their oath of allegiance to the Queen and the government, it is serious.
The vast majority of us, if not all of us, are very interested in working for the government because we see it as an important aspect of preserving Canada's parliamentary system and the confidence that the public has in the ability of the government to function and the ability of the elected representatives of the people and the senators to interpret correctly and appropriately the will of the people. This is crucial.
That is not a simple thing. It is a very powerful motivation on the part of all public servants. I know because many of the public servants with whom I deal feel exactly the same way as I do.
Second, there is something of a virtuous circle that operates with these foundations that receive one-time funding. The people who are on the board of directors and the management team of these foundations are committed to achieving the objectives that have been set for that foundation. They also realize that the funding that has been provided to them is not an annual appropriation. It is a fixed sum of money, so they are concerned about whether the government will see fit to renew that money and extend the lifetime of the good work that they are doing. There is a natural motivation on the part of people on the boards of directors and in management to want to be seen accomplishing the objectives set for them in the way that they were intended. They want to justify continued investment by the government in their foundation.
I have seen that virtuous circle operate directly during my participation in board meetings of the Canada Foundation for Innovation. It is true. They do their best. There are some very competent people on that board of directors.
It has been mentioned by the Auditor General in her comments on this issue that there is, in a sense, a beneficial impact of one-time funding when the government is in a surplus situation. It relates to fiscal policy more generally. Governments tend to want to avoid placing themselves in a deficit situation in the future. If commitments are made solely for permanent programs that involve ongoing funding over a period of time, it is more difficult to adjust funding by terminating programs when you have a downturn in the economy and the revenues flowing in are less than they otherwise would be. However, if you spend a portion of your expenditures via onetime payments when you are in surplus, then you are reducing somewhat the risk of running deficits in the future. That benefit is not in the same category as what we are discussing today in terms of accountability to Parliament, but it is a reality in terms of government operations.
Senator Comeau: Is there a legislative requirement that the CFI, and I assume you are familiar with other industry foundations, that there be a report to Parliament, or are you doing it out of an obligation? Second, who appoints the directors?
Mr. Moffat: Unfortunately, the answer to the second question is somewhat complex. I will try to keep it straightforward.
First, on the subject of reporting, the legislation requires the foundation to report to Parliament annually. The nature of that report is financial, including a third party audit of the financial activities of the foundation. The reality goes beyond that, but that is all that is in the legislation.
Second, in terms of who appoints, the Government of Canada appoints the chair of the board and appoints six of the board members directly. There are eight additional board members who are not appointed directly by the government. Members of the foundation appoint those eight board members.
I will explain how the members are appointed. The government appoints six of the members of the foundation. There are a total of 15 members. Those six members then appoint the remaining nine. The totality of 15 members vote in the remaining members of the board not appointed directly by the government. In a sense, these are not federal government appointments. The majority of the people on the board are not appointed directly by the Government of Canada but, rather, indirectly by the members.
Senator Furey: Mr. Moffat, I realize in response to your questions to Senator Comeau that there is a direct accountability to Parliament. In your opinion, why was it decided that CFI would not be subject to compliance audits and program evaluations?
Mr. Moffat: Do you mean in terms of the Auditor General?
Senator Furey: Yes.
Mr. Moffat: Again, I cannot give you an accurate answer to that because I was not present at the time the foundation was created. I would have to ask people who are a little more versed in the law than I am why it is that the Auditor General is not mandated to audit foundations, such as the Canada Foundation for Innovation. I understand that it is not understood to be within the purview of the Auditor General.
Senator Furey: If, right now, the minister were to have concerns about compliance, for example, is there any mechanism whereby the minister can step in? Prior to a report to Parliament and if, during the course of a reporting period, a minister had some red lights go off and he wanted to do some sort of compliance check, is there any mechanism whereby he or she can step in?
Mr. Moffat: Yes, there definitely is. In fact, Treasury Board requires the minister to undertake audits of the Canada Foundation for Innovation. The way that operates in practice is that we decide whether we need to carry out an evaluation of the Canada Foundation for Innovation. In fact, we are making the decision this year as to whether we will carry out an evaluation at the present time. Of course, the foundation itself carries out third-party evaluations on a regular basis. They have already carried out four evaluations of different aspects of their programs over the past several years.
In effect, we are in the process of evaluating those various third-party evaluation reports that have already been undertaken to see whether they fulfil all the objectives that we would want to see covered in carrying out a review of the foundation's operations. Thus, when we complete that assessment of all the reports that have been completed already, we will decide whether we need to do a supplementary evaluation or whether the sum of all the evaluations and any evaluation plan for the future meets our obligation to Treasury Board ministers.
Senator Furey: Is the attempted involvement of a minister subject to any kind of appeal or arbitration process?
Mr. Moffat: There is an arbitration process set out in the funding agreement between the government and the foundation in cases where there are disagreements.
[Translation]
Senator Ferretti Barth: Mr. Moffat, you said that at the end of the year, the foundation distributes the surplus funds among certain organizations. Given that the Foundation has existed since 1997, I would like to know what organizations have been helped by the foundation in addition to its principal mandate. Why is it that some organizations complain that they have not received funding and do not know whom to ask?
I would also like to know what the foundation's operating budget is for annual innovation. Does the CFI have such funding for management? What is the average annual salary of the CFI's members?
Mr. Moffat: The recipient organizations are universities, colleges, hospitals, and private non-profit institutions. The names of the individual institutions and the amount of all the awards are posted on the foundation's website. You can see each project, the name of the researchers and the name of the institutions. This makes the foundations's decisions very transparent.
With respect to the foundation's budget, I do not have all the information with me, but I would think that administrative costs would be in the general order of less than 3 per cent of annual awards. I will provide you with this information in writing.
Senator Ferretti Barth: And what about the average salary?
Mr. Moffat: I do not remember the exact amount but salaries are also posted on the Internet site. I believe that salaries are comparable to those in the federal public service. I will also provide you with all the pay scales in writing.
Senator Ferretti Barth: Is there a general rule which each foundation must follow or does each foundation operate in its own way?
Mr. Moffat: I do not know if there is a rule for all the foundations. Probably Treasury Board officials would know. I am not sure that such a rule exists.
Senator Ferretti Barth: I note that many foundations invest in research and there are always universities and hospitals short of funding to carry through on their research. What happens if a university is not able to do research because it does not have adequate infrastructure? How can we help these universities which are deteriorating? I think that the first thing to do would be to improve the building's infrastructure. Am I correct in assuming that only then funds could be awarded for research?
Mr. Moffat: Yes.
Senator Ferretti Barth: I find there is a difference in the way research funds and infrastructure funds are distributed. A colleague from Nova Scotia spoke to us about a university which is deteriorating, where water is running throughout the building. The university in question has funding for research, but not for developing this research. The researchers went elsewhere and the students were not interested.
We have universities and funds for research. I think we need to do something about the physical infrastructure of institutions. Something has to be done, because at the present time there are too many researchers and not enough research for them to do.
This really is a problem for Canadian universities. The Canadian Foundation for Innovation provides funding for buildings, but only the money necessary for research infrastructure.
For example, if research infrastructure is required and the structure of the building needs to be changed, the funds would be used only for that purpose. It is the subject of the research which will determine the total amount required.
We are also encountering another serious problem. Federal government funding distributed annually to the provinces is generally reserved for health, welfare and college and university education. The provinces, however, often use these transfers only for health and not for education. The provinces determine their priorities and decide to use these funds for health and not for education. That is not an excuse, that is a fact.
This problem definitely exists for all institutions. At the present time the federal government is considering offering other types of funding to universities. These would be for expenses indirectly related to research. One of the categories for this type of funding would be buildings. If the federal government goes ahead with this decision, it would improve the situation a bit.
[English]
Senator Mahovlich: Mr. Moffat, I notice that you have received about $3.15 billion in grants from the federal government and an additional $3 billion from other funders. When you make your report to Parliament, is that other $3 billion included in that report?
Mr. Moffat: I think it is referred to in the financial statements of the foundation.
Senator Mahovlich: But it is not necessary to report.
Mr. Moffat: I do not think that it is necessary to report. However, because the foundation is only permitted in most cases to provide a minority of the total funding required for that piece of research infrastructure, the university must find alternative sources of funding for the total cost. In a sense, the money that the Canada Foundation for Innovation is providing to an institution leverages funding from other sources. The total amount of funding that is leveraged is 60 per cent of the total cost of the research infrastructure for most of the awards that take place. Therefore, CFI pays 40 per cent of the total cost and 60 per cent must come from other sources. Averaged across the country for all institutions, that other 60 per cent is about half-and-half sourced from the provinces and from all other sources, including the university's resources and from the private sector.
Nationally, these numbers change slightly year to year, but on average you are looking at 40 per cent of the cost of this infrastructure coming from CFI, 30 per cent from the provinces on average, and 30 per cent from other sources. That is the structure of the agreement.
Most provinces have put in place funding programs that mirror the Canada Foundation for Innovation. When a proposal is going forward from a university in that province, they speak to the province first and get a commitment from the province to follow on with their funding if the foundation provides federal funding.
In a sense, it is cost-shared, but it is not directly cost-shared. It is the institution that finds other sources of funding for it. The CFI does not enter into specific agreements with the provinces or with the private sector for funding research infrastructure. They only enter into an agreement with the recipient institution.
Senator Mahovlich: It is directed by the board.
Mr. Moffat: The board must approve all awards made by the foundation.
Senator Mahovlich: You also mentioned that this foundation is changing as we go along every year. Do you have a vision of this foundation in the future? Will it continue as now?
Mr. Moffat: In terms of accountability?
Senator Mahovlich: Yes.
Mr. Moffat: This funding agreement with the Canada Foundation for Innovation was developed in 1997. That is six years ago, and there have been some policy changes implemented by Treasury Board for these types of foundations, both in the transfer payments policy and in terms of alternative service delivery. The Departments of Finance and Industry, with the foundation, have been trying to keep the funding agreement the three parties agreed to up to date in terms of improvements that Treasury Board are putting in place in the policies that the departments have to follow for these foundations. As Treasury Board changes the policy and implements some of the recommendations of the Auditor General, then we try to incorporate those improvements into the agreement that we have with the foundation.
The vision for the future on accountability is to ensure that the Canada Foundation for Innovation is right up to date in terms of improvements that Treasury Board has put in place for the departments to follow.
Senator Doody: Dr. Moffat, do you have any information on the Canada Millennium Scholarship Foundation? Are you familiar with it?
Mr. Moffat: No, unfortunately I have very little information on the scholarship foundation. It provides us with reports from time to time on what it is doing. We are on its distribution list, but I am not an expert at all in terms of how it functions.
Senator Doody: You have no information as to how many applications there have been?
Mr. Moffat: No. I know that they are very active in distributing scholarships to university students, but I do not have figures on that.
Senator Doody: Could you tell me how the undistributed balances are managed? There is $3 billion, and obviously there is a healthy balance in some account. Is that managed directly by the foundation?
Mr. Moffat: It is managed the following way: The board of directors have a subcommittee on finances and auditing, and that audit and finance committee oversees the management of the investments. They have retained a financial advisor who prepares a plan for those investments. A set of stringent guidelines has been specified by the Department of Finance in the funding agreement that the foundation must follow. That set of requirements is really meant to ensure that the money that is in the control of the foundation is never at risk financially. Most of the investments that are made are double A at least, and a fair amount of investment in government financial instruments is required at different levels.
The system of management, then, of the investments occurs as follows: First, there are guidelines from the Minister of Finance in the funding agreement between the foundation and the government to which they must adhere. Second, there is a subcommittee of the board of directors that manages the financial and accounts obligations of the foundation. Finally, they retain an outside adviser to advise them on ensuring that the investments undertaken are in accord with the funding agreement.
That is the accountability structure on the investments. Reports on that are presented at every board meeting: what the investments are, specifically which instruments have been purchased, and how they have met the stringent guidelines set by the Department of Finance.
Senator Doody: Would it be fair to say that the Canada Foundation for Innovation does not feel pressured to invest in high-tech stocks?
Mr. Moffat: No. They are not permitted. Investing in the stock market is just not something they are permitted to do.
Senator Doody: Would it be fair to assume that the other foundations are managed much the same way?
Mr. Moffat: Yes. An official from the Department of Finance could probably give you a better answer than I, but I believe that the schedule of guidelines for investments for the Canada Foundation for Innovation is a fairly standard set of guidelines that all foundations must follow.
Senator Doody: I noticed that the chart before me shows the Canada Foundation for Innovation as having no business plan. That does not sound to be quite true.
Mr. Moffat: No. Not only do they have a business plan for each year, they have a business plan out to 2010. A summarized annual plan will be made public in the future. The intention of the board of directors, I understand, will be to start including the plan for one year hence in their annual report so that the public sees the plan for the next year. That is a plan that will take place, and the Department of Finance and we and the foundation executives want to include that formally in the funding agreement. That one-year advance plan is something that we see being made public and being available to parliamentarians in the annual report.
Senator Doody: Is it available to the auditor?
Mr. Moffat: Yes. The Auditor General is a member of the public, so the auditor gets full access. These reports are made public to anyone who wants them. The annual report and everything in it is available to all Canadians, including, of course, the Auditor General.
The board of directors, in managing the operations of the foundation, does not just consider the financial accounting requirements and how to adhere to the funding agreement and the approval of grants. They carry out strategic planning. The members of the board of directors want to ensure that the manner in which the foundation carries out its mandate is the best possible approach, given the situation that occurs in research hospitals and colleges and universities across the country.
I will give an example of something that they put in place fairly early on. The board recognized that a number of smaller universities and colleges in Canada were not at the same scale of research activity as some of the larger universities. They felt this was a problem in the program, so they put in place two special funds early on in the program. The purpose of those funds was to target money to smaller universities that were not as research intensive as some of the large universities we are all familiar with, and for those colleges that are carrying out research, as the legislation stipulates, significant amounts of research. These two funds operated the following way, which is not the usual way: Each of those institutions got an earmarked amount of money. It was generally between $300,000 and $500,000. Only they could access that money. They had to pass peer review. It had to be an excellent research proposal for that research infrastructure, but they did not need to compete directly against the big universities.
That program ran for about three years or two and one-half years, and all of the universities and colleges used up all their money over that time frame.
The Chairman: What was the size of that fund?
Mr. Moffat: We do not have that. I forgot to introduce David Hidson, who is joining me here today.
The Chairman: Have him come to the table.
Mr. Moffat: I do not think we have that information. We can get that readily for you. I am sorry for not having it with me.
Senator Furey: Dr. Moffat, was this particular fund you are talking about tied in any way to matching funds for the particular universities, or was it just a straightout grant once the criteria were met?
Mr. Moffat: The funding agreement stipulates that the foundation is only to provide 40 per cent of the cost and that the university must source the remaining 60 per cent. The leveraging requirement is in the funding agreement between the government and the foundation.
Senator Furey: That is still not much help to the smaller universities. It is much easier to leverage money in Toronto than St. John's, Newfoundland.
Mr. Moffat: That is absolutely correct and a very important point to raise. It is a point that the board worries about quite a lot in their forward planning for the foundation's activities. It is an issue that they have raised with us at Industry Canada and with the Department of Finance.
You may recall the initiative that ACOA, the Atlantic Canada Opportunities Agency, is implementing, which makes funds available to Atlantic universities to carry out research. It also is intended to help fulfil this problem of raising money to twin with the money from CFI grants. That program is still underway, but we in my branch are looking closely at that program to see how successful it is in helping smaller universities in Atlantic Canada get increased access to the programs of the Canada Foundation for Innovation.
The Chairman: The 40 per cent rule applies only to the foundation. There could be other public, indeed federal, money from other sources. What about NSERC?
Mr. Moffat: There can be money from other federal sources. I am just distinguishing two different issues. One issue is who can receive grants from the Canada Foundation for Innovation. Any federal or provincial government department or agency or corporation is ineligible to receive any grants from the foundation. However, other federal and provincial organizations can cofund.
The Chairman: The public funding of a given research infrastructure project could be well over 40 per cent.
Mr. Moffat: It could be over 40 per cent.
Senator Doody: Are the names, qualifications and backgrounds of these directors public knowledge?
Mr. Moffat: Yes, the names of all the directors of the foundation are on the Web site.
The Chairman: Dr. Moffat, it says in the documents that the CFI has received $3.15 billion from the federal government. Was that in one tranche or several?
Mr. Moffat: It was in several tranches over the period 1997 and the present year.
The Chairman: That $3.15 billion is to cover the period from 1996-97 to 2002-03, the fiscal year that is ending next month. We will be looking at the Main Estimates shortly. Will there be an item there for the CFI coming to Parliament for an appropriation?
Mr. Moffat: I do not know the answer to that.
The Chairman: What is the alternative?
Mr. Moffat: They have enough money now to continue operating to 2010.
The Chairman: The money you give out is in grants, is it not?
Mr. Moffat: That is correct.
The Chairman: You have enough money to last until 2010. You had $3.15 billion and you have awarded $2 billion. You believe that subtracting $2 billion from $3.15 billion would be enough to continue your operation until that time?
Mr. Moffat: They do receive an income from their investments that is not reflected in those numbers. That adds to their ability to finance grants.
I must stipulate one thing: In the period between 2005 and 2010, the amount of money that they would be able to award per year would be less than the amount that they had been awarding in the period prior to 2005. The awards would be almost as much as 50 per cent lower, but they could still function. It is just that the total amount of awards would be lower in that period.
Naturally, if you were to ask someone on the board of directors of the foundation what they would like for Christmas, they would say, ``Increase the amount of money that you give us so that we can maintain our existing level of granting through 2010.''
The Chairman: The foundation was set up, I am told, through a budget implementation bill.
Mr. Moffat: Yes.
The Chairman: If and when more money is needed, the foundation will be coming before Parliament through your minister for an appropriation, is that right?
Mr. Moffat: That is correct.
The Chairman: If the foundation were set up by a budget implementation bill, what would it take to dissolve it? Would it take an act of Parliament.
Mr. Moffat: I would think so. I am not a qualified lawyer, but I would assume so.
The Chairman: That is not the case with all of the foundations.
Senator Cools: Is that what you are proposing, Mr. Chairman?
The Chairman: We have been through this with several foundations, senator.
Tell us about the members. There were six members to start with and they appoint another nine. The 15 appoint eight of the 15 directors.
Mr. Moffat: There are 15 including the chair.
The Chairman: The original six are appointed by the government. Who are they; what are they?
Mr. Moffat: Who are they?
The Chairman: What are they?
Mr. Moffat: You mean the members?
The Chairman: Yes.
Mr. Moffat: The members' role is crucial. The first is to appoint directors.
The Chairman: Are they like shareholders?
Mr. Moffat: They are like shareholders in that sense. The second role is that they must approve all the bylaws of the foundation. There is an accountability relationship between the board of directors as the executive arm of the foundation and the members.
The accountability structure is interesting to see in action. When there is a competition for funds, and you have researchers sponsored by their institutions requesting grants, there is a peer- review process with an international panel — sometimes there are Canadians on it as well — who are experts in research. They evaluate all of these proposals and submit their recommendation on what should take place. It is actually a threestage process. I will not get into the complexity of it. They are arm's-length peer- review experts drawn generally from the academic, business and other sectors. These people give advice to the board of directors on the rating of the various proposals. They rank them.
The board of directors then makes a decision on how far down that list they can go with the funds available for that competition and the financial plan for the foundation. They make their decision in their board meeting. After the board meeting takes place, there is a meeting, generally by telephone conference call, of all of the members and generally two members who attended the board meeting.
During the peer review, there is an evaluation done by these arm's-length experts of the proposals that are submitted. Their recommendations then go to the board. The board scrutinizes that by speaking to the chair of the external review committee. They put them through their paces. The board wants to ensure that the procedures were followed appropriately and that appropriate decisions were made. They do not second-guess the experts, but they challenge.
The challenge function also occurs between the members and the board. Did the board carry out its function appropriately in challenging the peer review?
The Chairman: Are any of the members a director?
Mr. Moffat: None of the members is a director.
The Chairman: I presume those members have names and addresses and that information is available. I am not so much interested in their personal qualifications. I am trying determine whether they are appointed as being delegates or representatives of a certain discipline, of certain institutions or of certain regions.
Mr. Moffat: There is a policy of ensuring ``representability.'' I would have to look into that to see exactly how that works.
The Chairman: The provision is not that certain disciplines, the university community or other research institutions would have an automatic right to membership.
Mr. Moffat: That is correct.
The Chairman: These people are appointed for their personal qualifications.
Mr. Moffat: Personal qualifications with a view to ensuring regional representation, as is normal.
The Chairman: Those 15 appoint eight of the 15 directors.
Mr. Moffat: Yes.
The Chairman: On another subject, you were not present, as you told us, when the decision was made and I presume it was a conscious decision not to have the Auditor General audit the books. Could you speculate as to what the advantage is to a foundation of this kind of not having the Auditor General audit the books?
Mr. Moffat: That is a difficult question for me to answer. I do not know that there is any advantage or disadvantage associated with having the Auditor General evaluate the transactions of the foundation. It is a matter of interpretation of law, which I am not qualified to do for you.
I know that Industry Canada is fully available to the Auditor General. I know that the Auditor General does ask us for information pertaining to the foundation. We provide all information to the Auditor General to assist her in her work. However, I honestly I find it difficult to find a sensible answer to your question.
The Chairman: Mr. Moffat, there is no doubt, from what you have told us and from what we know already, that the accountability relationships between this foundation, CFI, and Parliament and the internal accountability are quite strong. I grant you that.
Taking the other three foundations that come under the wing of Industry Canada, why, for example, is there no provision to have CANARIE's annual report tabled in Parliament? Likewise Genome Canada and the Pierre Elliott Trudeau foundation.
While I am on the subject, if CFI were set up by legislation, why were these other three set up under the Canada Corporations Act? Why would they not have been set up by legislation, therefore, increasing the accountability factor in terms of Parliament?
Mr. Moffat: I am not sure what the answer is in terms of CANARIE, but the Genome Canada and the Trudeau foundation existed at the time that funding proposals were made to the Government of Canada. They were already incorporated as nonprofit corporations under the Canada Corporations Act at the time that they requested funding from the federal government.
The Chairman: We may pursue some day that in the case of CANARIE and the Trudeau foundation the government was a stranger to the act of incorporation. The initiative to incorporate those two did not come from the government; is that what you are suggesting?
Mr. Moffat: That is my understanding. I do not know about the history of the creation of CANARIE. However, in the case of Genome Canada and the Trudeau foundation, my understanding is that they were formed as foundations before the federal government proposed, in appropriations, to give grants to them.
The Chairman: Did either of those foundations have any money before they came to the government for money?
Mr. Moffat: I do not know the timing. I am not as familiar with Genome Canada. In the case of the Trudeau foundation, as well —
The Chairman: CANARIE?
Mr. Moffat: I am sorry, but I do not know whether they had private or provincial sources of funding before the federal government made grants to them. I can tell you that Genome Canada has funding from a number of sources, including the private sector, provincial and federal governments now, but I am not sure about the sequencing of timing.
Senator Cools: I have been listening with some interest to the witness, and I have followed this particular subject matter for a considerable length of time now. I do not share the opinions of many around this table in respect of the position of the Auditor General. I belong to that group of people who believes that the Auditor General is very wrong on this issue and that the Auditor General has left the area of accounting and audit and has wandered into the area of policy. I have said that repeatedly during these particular hearings and at this particular table.
This issue concerns me deeply and I have struggled with this in many ways. Treasury Board has many accomplished accountants and so does the Auditor General. As a matter of fact, I believe the Auditor General's department has even more. How is it that the Treasury Board, all fully accredited prudential professionals, could arrive at such a difference of opinion?
My concern is that this committee is being asked time and time again to resolve that difference of opinion by coming down essentially on the side of the Auditor General. I have some concerns about this.
The difference is well recorded. The Auditor General has been very public in her declarations on the subject matter. Her predecessor, Auditor General Desautels, was as well. I believe that the Auditor General's powers need no expansion. I may be of the minority view. I frequently am.
I understand that the Auditor General's department has more executives than just about any other department around. It causes me a bit of angst.
I see the government's position as very difficult and extremely problematic. From my reading of the facts and of the history of the situation, I gathered that government at the time was looking for some innovative I think the language they used was ``alternative service delivery mechanisms.'' They chose this concept of the foundation.
It may well be that that was a bad policy decision, and perhaps they should not have utilized the concept of foundations, but it remains a bad policy decision to my mind, not a set of ``misaccounting'' or inappropriate or improper practices. That has been my concern.
My question follows on Senator Murray's point that would have the effect of this committee's report including a recommendation that the Auditor General be mandated in statute to audit any or all of these foundations. I belong, again, to that small group of people who does not believe that government needs to be expanded any more. We have sufficient government. I would not like to see a recommendation come forward from this committee that the Auditor General be authorized to audit most of these foundations. These decisions should be individual decisions made at the appropriate time.
I am also mindful that such a gesture might necessitate an amendment to the Auditor General's Act. I belong to that group of people who would not want to see the Auditor General's Act amended to expand those powers.
What exactly is the impact, if you know, of having these foundations treated as government agencies or departments in respect of the relationship that would have to be developed between them and the Auditor General, because the Auditor General has a particular relationship to government departments? I tend to see the expansion of that relationship as negative, forever creeping more and more into sectors of life that are better handled by people who are of the non-government world. Do you have any idea of the impact of such an initiative?
Mr. Moffat: That is another difficult question.
Senator Cools: Why is it so important, for example, to have the Auditor General audit these foundations? Every decent foundation and every corporation in the country has its own auditors. Traditionally, at the commencement of every annual meeting of a corporation, one of the first acts is to appoint the auditors. That seems to work reasonably well in the corporate world. Why do we want to tamper with that? The internal functioning and integrity of an organization is supposed to be guaranteed from those who are responsible for its execution and for its management. If those people were to falter, then the heavy hand of government should be allowed to come in.
The Chairman: The shareholders appoint the auditors.
Senator Cools: That is what happens at the annual meeting.
The Chairman: Yes. The short answer is that the Auditor General is Parliament's auditor and, taken as a whole, Parliament is the shareholder.
Senator Cools: No.
Senator Comeau: This is a philosophical question.
Senator Cools: I am concerned because I sincerely believe that the Auditor General's plate is already full and that her purview need not be expanded any more.
Senator Day: I have a number of points of clarification. The first flows from Senator Cools' comments. She is not always in a minority of one. There are a number of us who share a number of her views.
This question, in part, is prompted by the chairman's rather unfortunate choice of words when he asked you: What advantage was there in not having the Auditor General audit? I appreciate your difficulty in not being able to answer that question. I wanted to go on the record as understanding why you may have some difficulty in answering that question.
Prompted as well from the chairman's question, will you reiterate that the CFI is audited on an annual basis by an accredited, independent public auditor?
Mr. Moffat: Yes, it is.
Senator Day: Could you tell me, please, does CFI have within its mandate the authority to own any of the intellectual property that is developed from its investments?
Mr. Moffat: No.
Senator Day: If an independent, not-for-profit college or research establishment receives a grant, then are the intellectual property, the patents, the copyrights and whatever is developed from that investment the property of the institution?
Mr. Moffat: That is correct. That is the policy of the Government of Canada on intellectual property. In virtually all cases, federal government organizations, whether they are arm's length or a ministry, do not retain intellectual property. There are some exceptions, for example, related to national defence, where that is not the case. However, those are specific exceptions for specific reasons.
The general rule is that the federal government allows the intellectual property from research to reside with the research institution and the researchers.
Senator Day: Concerning policy-type issues with respect to sectoral investment, if the federal government were interested in biotechnology, for example, would it have a way of influencing the investments in a particular sector, or is it left entirely to the board of directors and the members to make that decision?
Mr. Moffat: That is a good question. The funding agreement between the government and the foundation stipulates very broad criteria related to the granting process for research infrastructure on what types can be encouraged. First, there is a stipulation that the research must advance a science, engineering, environment or health perspective. That is an overview of the types of research.
In addition, the criteria include a requirement that the investment in research infrastructure will advance innovation in Canada, innovation broadly defined, including research. These are broad criteria. There is not a stipulation of a top- down instruction from the government as to what particular sector will be invested in. It is rather that the foundation asks the universities, colleges and hospitals to stipulate their research priorities. When the arm's-length peer review teams evaluate individual proposals endorsed by that institution, they determine whether it is consistent with those research priorities. In other words, if an institution says, ``As an institution, our research priority will be in the following four broad fields,'' then it is expected that proposals for research infrastructure will be in one of those four broad fields specified by that institution.
In that sense, there is an encouragement to individual research institutions to try to identify those particular areas of research where they are strongest and where they want to build world-class excellence themselves.
That decision is not made by the board of directors of the foundation or by the government. It is really made by the institution itself.
Senator Day: In looking for matching funds, if a province decided that it only wants to support a particular sector, then the matching funds would only be available for the applicant in those particular sectors. Would that control it from a provincial or regional point of view?
Mr. Moffat: Yes, it would. Hypothetically, that is absolutely correct. However, in practice what we think we find is that the provinces have the same kind of approach as the federal government. It is a broader source of support.
In the case of Quebec, the Government of Quebec does carry out an evaluation of all of the proposals that are heading to Canada Foundation for Innovation before those proposals are received by the foundation. This is a result of an agreement reached between the Government of Quebec and the foundation on the process for reviewing applications from Quebec. The applications are reviewed by a Quebec panel of experts. The results of that review are made available to the foundation and to the arm's-length peer review process. Thus, the views and opinions of the Quebec government are known. However, there is no compulsion to narrow the decision-making authority of these arm's-length peer review panels. It is just for information that they are provided with the information.
The result of the advance review process that takes place within Quebec before proposals are presented to the Canada Foundation for Innovation is that the Quebec success rate is higher than other provinces because the prereview takes place for their component of the funding. It is a very interesting relationship in funding university research.
Senator Day: Dr. Moffat, would you clarify for me the role that you indicated Treasury Board directed to the Auditor General to evaluate versus to audit? Is evaluation so detailed that the Auditor General would evaluate whether the investment committee had invested in the right types of investments, or is it only looking to ensure that the foundation is following the guidelines established by Treasury Board?
Mr. Moffat: The guidelines on investments are actually established by the Minister of Finance.
Senator Day: I understand that. Can the Auditor General evaluate things other than Treasury Board guidelines?
Mr. Moffat: No. The Auditor General has no authority to audit the Canada Foundation for Innovation, but of course the public information that is made available, the financial reporting in the annual report and the results of the audit by an independent auditor is all available to the Auditor General, but not the other areas of audit and evaluation such as whether there are policies and procedures in place, whether they have been followed, and so on. Those types of audits are carried out but are not formally included in the annual report. There may be some information on that in annual reports, but it is not required under the legislation.
Evaluation is a different case. In the case of evaluation, there is a hierarchy of things being evaluated, including the appropriateness of the policies and procedures that are in place for a given program. Usually an evaluation is for a specific fund or a specific subprogram of the foundation, and when that evaluation takes place it covers a number of areas. The evaluation framework usually covers whether the program is designed in an appropriate way given the mandate of foundation, whether there are policies and procedures in place and whether they were followed, what the impact is of the funding granted to recipients, what kind of impact that had, and whether those impacts were appropriate, given the mandate and the objectives of the foundation. Therefore, the evaluation covers a lot of areas.
Senator Day: The Auditor General is doing that?
Mr. Moffat: The Auditor General is not doing the evaluations; they are carried out by an arm's-length third party. The evaluation reports are made public on the Web site of CFI, so the Auditor General gets all those evaluation reports.
Senator Day: Did I mishear you when you indicated that the Auditor General was asked by Treasury Board to perform an evaluation?
Mr. Moffat: No.
Senator Day: That is a different kind of evaluation.
Mr. Moffat: Treasury Board stipulated that Industry Canada must carry out an evaluation of the Canada Foundation for Innovation. That is an obligation that Treasury Board ministers gave to our minister. We ourselves are interpreting, with the Department of Finance and with Treasury Board, what exactly that will entail and whether we need to carry out a ``super-evaluation'' of the evaluations that have already been carried out by third parties for the board of directors of CFI.
We have not yet reached a conclusion on whether we need to do yet another evaluation of CFI, but we are in the process of deciding whether we will carry out such an evaluation this year. There is an obligation by the Minister of Industry and Treasury Board to carry out an evaluation of CFI.
Senator Day: I did misunderstand, then. The Auditor General is not involved in any of that evaluation.
Mr. Moffat: Although I must say there is an example of good practice when we are planning to make a change to the funding agreement to increase the accountability of the foundation. When we were adding an amendment that would require the foundation to present to the minister periodic third-party evaluations of its programs, we consulted with the Auditor General's office on precisely what they thought we should include in order to meet their concerns. We also conferred with Treasury Board, and those discussions with the Auditor General continued down the road of refining what that amendment would say, to a certain point. The Auditor General's officials then withdrew. They did not want to participate in actually drafting the amendments because they want to be able to review them and decide whether appropriate procedures were put in place.
That consultation took place, and it was very amicable, as it always is in our relationship with the Auditor General. A consensus was reached between all the parties on how that evaluation amendment should be worded.
That is an example of good practice. It is in our interest, if we are going to change the funding agreement to introduce a new level of accountability, to ensure that the Auditor General and Treasury Board think that that has been done in the best possible way.
Senator Day: Thank you. That was helpful.
Senator Comeau: I hope that Dr. Moffat will remember to respond to Senator Murray's question regarding prior funding to the various agencies.
As well, could he check to see whether the CANARIE, Genome and Trudeau foundations are all subject to the Official Languages Act?
Mr. Moffat: Yes.
Senator Comeau: What has been the impact of the CFI? We now have a new funding agency for research. What has been the impact of this on prior funding agencies such as the science and arts agencies? Were they not doing a good job? Why was the CFI instituted rather than continuing with the existing funding agencies?
Senator Day: Surely that is a political question.
Senator Comeau: No, not necessarily.
Mr. Moffat: To help clarify, I could let you know the types of grants that are made by the different agencies. The Canada Foundation for Innovation is restricted to funding ``research infrastructure'' as defined in the act. The granting councils have a much more flexible mandate. They can fund the operating costs of carrying out research projects, which can include material costs and the cost of hiring graduate students to work with a professor on a research project, as well as attending conferences and publication costs. All such things are paid for by a granting council.
The granting councils also have had and continue to have programs that fund research infrastructure, but the scale of what was contemplated by the government for research infrastructure was quite large in relation to the historical involvement of granting councils in funding research infrastructure, which may be partly why a new approach was decided on.
As I said, the granting councils do continue to provide grants for research infrastructure. They tend to be smaller projects, so there is a complementarity. NSERC, for example, has a program that funds research infrastructure, but the average grant level is about $70,000 per grant. While some CFI grants are small, such as the new Opportunities Program for new researchers, they can be as large as tens of millions of dollars. The intended scale was very much larger, and that may be part of the thinking.
There is a complementarity between what the granting councils fund and what CFI funds. The three granting councils and CFI tend to coordinate with each other. They are each motivated to do that because CFI wants to ensure that if they grant a piece of research equipment there is enough funding for research projects so that the equipment will be used. On the other hand, the granting councils are interested in ensuring that their researchers have the latest research equipment available to them so that they can carry on world-class experimental research. There is a natural objective between the granting councils and CFI to coordinate what they are doing for the benefit of the researcher. In some cases, there is a tight collaboration where it is almost a joint funding project.
There is one program where it is formal, and that is the Canada Research Chairs, which involve making awards for 2,000 research chairs at universities. These are professors at universities getting either $200,000 or $100,000 per year over a period of time. That program is actually managed by a steering committee composed of representatives of the three granting councils, Industry Canada and the Canada Foundation for Innovation. Each recipient receives a number of years of research grants from the program and an infrastructure award from the Canada Foundation for Innovation. That is an example of how the collaboration occurs between the agencies.
The Chairman: Mr. Moffat, of the $2 billion that the CFI has received from universities and other partners, is all of that in cash or is some in kind?
Mr. Moffat: Some is in kind.
The Chairman: Do you know proportion?
Mr. Moffat: I would have to ask the foundation. I do not know how much is in kind and how much is in cash.
Senator Day: When you are checking that, I was wondering about the same question. I was wondering if the universities, for example, accounted for overhead, their offices and their infrastructure, as part of the ``in kind'' portion.
The Chairman: Thank you, Dr. Moffat. Your testimony has been very helpful.
The committee adjourned.