Proceedings of the Standing Senate Committee on
National Finance
Issue 32 - Evidence
OTTAWA, Wednesday, March 6, 2002
The Standing Senate Committee on National Finance met this day at 5:46 p.m. to examine the Supplementary Estimates (B) for the fiscal year ending March 31, 2002.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, as you know, we will have to report to the Senate on our consideration of these Supplementary Estimates. I remind you also that we will have to submit a final report on the Main Estimates for the fiscal year that ends March 31. We have submitted interim reports.
I also remind you that next Tuesday morning at 9:30, we will begin our consideration of the Main Estimates for the fiscal year beginning April 1, 2002. We will have to submit an interim report on that matter as well.
Supplementary Estimates (B) were referred to the committee by the Senate today, March 6. As you will recall, on November 21 last, Treasury Board officials appeared before the committee to answer questions on Supplementary Estimates (A). We reported on those last December.
Our witnesses, as the saying goes, need no introduction. They are Mr. Richard J. Neville and Mr. David Bickerton.
Mr. Richard J. Neville, Deputy Comptroller General, Comptrollership Branch, Treasury Board Secretariat: Mr. Chairman, it is always a pleasure to be here.
Honourable senators, I am appearing before you today to discuss Supplementary Estimates (B) for the fiscal year 2001-02 that were introduced in Parliament on February 28, 2002. I am pleased that Mr. David Bickerton, who is Executive Director of the Expenditure Operations and Estimates Directorate, is joining me today.
Let me begin by stating that from a fiscal planning perspective, these Supplementary Estimates seek Parliament's approval to spend $2.8 billion on expenditures, voted appropriations, for 2001-02. These were provided for within the $169.7 billion in overall planning for 2001-02, as set out in the December 2001 budget of the Minister of Finance. These Estimates were not included in the 2001-02 Main Estimates.
These Estimates also provide information to Parliament about a net decrease of $573.5 million in changes to projected statutory spending from amounts forecast in the Main Estimates. The two major changes are a reduction in public debt charges of $2.5 billion, and an increase of $1.9 billion in Employment Insurance benefit payments to recipients.
Honourable senators, you should note that the December 10, 2001 budget announced a comprehensive package of initiatives to deal with ongoing public security and anti-terrorism requirements across the federal government at a total cost of $7.7 billion over six years.
A major item in these Supplementary Estimates is $841.6 million in new funding dedicated to public security, combating terrorism and ensuring the economic security of Canadians in the wake of the September 11 terrorist attacks. This means an increased investment in air travel safety, intelligence and policing, emergency preparedness, military support, participation in the international war on terrorism and more efficient screening of immigrants and refugees. Maintaining open borders requires enhancements to border operations and infrastructure.
The 18 separate departments and agencies that will be receiving funding to address these requirements are as follows: National Defence, $481.6 million; Royal Canadian Mounted Police, $110.9 million; Canada Customs and Revenue Agency, $56.6 million; Citizenship and Immigration, $49.8 million; Transport, $44 million; Foreign Affairs, $30.4 million; Health, $18.6 million; Canadian Food Inspection Agency, $10.6 million; Financial Transactions and Report Analysis Centre, $9.9 million; Atomic Energy of Canada, $6.9 million; Solicitor General, $5.5 million; Justice, $3.9 million; Privy Council, $3.4 million; Fisheries and Oceans, $3 million; Immigration and Refugee Board, $2.8 million; Canadian Nuclear Safety Commission, $2.1 million; Environment, $1.2 million; and the National Energy Board, $400,000.
[Translation]
In addition to the public security and anti-terrorism initiatives, some of the most important items affecting more than one organization for which approval is required include: $392 million for compensation for collective agreements; $215 million for increased funding for other international assistance such as: $100 million to Canadian International Development Agency for humanitarian and transition assistance in Afghanistan and surrounding countries; $98.9 million to Canadian International Development Agency for payments to International Multilateral institutions; $16.1 million to Finance for payments to International Monetary Fund's Poverty Reduction and Growth Facility; and $125 million to Environment Canada and Natural Resources Canada for grants to the Canadian Federation of Municipalities.
There are also a number of items affecting single organizations such as: $207.7 million to National Defence for increased funding to cover the provision of health care services and recruitment, retention and training activities for the Canadian Forces; $199.9 million to Social Sciences and Humanities Research Council for indirect costs of University Research; $273.5 million to Department of Industry for additional grand requirements such as: $125 million for the Pierre Elliott Trudeau Foundation; $110 million for CANARIE for CA*net4 Internet Broadband; $25 million for Canada Institute for Advanced Research; $7.5 million for the Canadian Youth Business Foundation; $6 million to Shad International; $95 million to Health Canada for additional Funding for the Canadian Institute of Health Information; $61.6 million to Veterans Affairs for increased requirements for Disability Pensions.
On the non-budgetary side, there is a $20 million increase to the working capital advance account for National Defence.
The above items represent $2.43 billion of the $2.78 billion for which parliamentary approval is sought. The $347.9 million balance is spread among a number of other departments and agencies. The specific details are included in the Supplementary Estimates.
[English]
With respect to changes in projected statutory spending, there is a $573.5 million decrease in spending previously authorized by Parliament. The updates shown in these Supplementary Estimates are provided for information purposes only. The major statutory items to which there are changes in the projected spending amounts are: an increase of $1.9 billion in Employment Insurance benefit payments to recipients; an increase of $127 million to Human Resources Development Canada for Income Security payments; a decrease of $2.5 billion to Finance for a projected decrease in public debt charges; a decrease of $137 million to Human Resources Development Canada for Canada Education Savings Grants; and a decrease of $60 million to Finance for a projected decrease in transfer payments to provincial and territorial governments.
On the non-budgetary side, there is a decrease of $217 million to Human Resources Development Canada for loans disbursed under the Canada Student Financial Assistance Act.
The last item I wish to deal with relates to the Speaker's ruling on November 22, 2001 in the other place.
The Speaker in the other place has ruled that no authority had been sought from Parliament for grants totalling $50 million to the Foundation for Sustainable Development Technology in Canada, and that there remained ample time for the government to take corrective action by making the appropriate request of Parliament through the Supplementary Estimates process.
The Speaker's ruling has been fully addressed in the Supplementary Estimates (B) that were introduced in Parliament by the President of the Treasury Board on February 28, 2002. Parliamentary authority for two new grants of $25 million, one for Natural Resources Canada and one for Environment Canada, each to the Foundation for Sustainable Development Technology in Canada, is being sought. These match the payments made in April 2001.
Treasury Board Vote 5 will be reimbursed by listing in the Explanation of Requirements sections for both Natural Resources Canada and Environment Canada the following entries:
Grant to the Foundation for Sustainable Development Technology in Canada
Gross Program Supplement
Less: Funds available...within Vote 10 due to reduced grant and contributions requirements
These entries are accompanied by a footnote that states:
Funds in the amount of $25,000,000 were advanced from the Treasury Board Contingencies Vote to provide temporary funding for this Program. The inclusion of this item is in response to the ruling of the Speaker of the House of Commons on November 22, 2001.
Mr. Chairman, this concludes my preliminary remarks. I would be happy to respond to any questions you may have on the Supplementary Estimates (B) for 2001-02.
Senator Lynch-Staunton: Mr. Neville, it is nice to see you. I find these meetings with representatives of the Treasury Board to be a learning experience. I very much appreciate your openness and the contributions you make to our better understanding of the government's finances.
I want to discuss the last item you brought up, Mr. Neville, the Sustainable Development Technology Fund. I will not go back over the entire history of this item, except to state that it dates back to over a year now. The Energy Committee studied it. The Auditor General has looked at it. The climax came when the Speaker of the House of Commons said that it was included irregularly when Supplementary Estimates (A) were before the other place, and therefore corrections should be made. The indication was that there was ample time to make the corrections in the Supplementary Estimates, by which I understood the Speaker to mean Supplementary Estimates (A).
However, when the legislation to implement the Supplementary Estimates came before the House of Commons, the President of the Treasury Board indicated that the corrections would be made in Supplementary Estimates (B), as you explained, Mr. Neville, in your opening remarks.
However, when the legislation, which I think was Bill C-45,was before the Senate, this question was raised: If a correction has not been made in Supplementary Estimates (A), why do the items still appear?
Under both Environment and Natural Resources, there is an item of $50 million. In each case, there is a note that funds in the amount of $25 million were provided by Treasury Board.
If the Speaker in the House of Commons has ruled that these amounts are not procedurally acceptable, and if the President of the Treasury Board has said that this will be addressed in Supplementary Estimates (B), how is it, then, that they remained in Supplementary Estimates (A)?
Mr. Neville: There are a number of factors to explaining that matter in detail. Let me try to put this into perspective.
Following an examination of the members' concerns, and although there was no question on some of the points previously raised, the Speaker came to the conclusion that since the not-for-profit Foundation for Sustainable Development Technology in Canada and the new Canada Foundation for Sustainable Development Technology, created through Bill C-4,are separate entities, the Supplementary Estimates (A), totalling $100 million, could not be used both to pay the new foundation and to repay Vote 5.
He was saying that the terminology used in Supplementary Estimates (A) did not cover the actual payments that were made in April 2001. It did allow for the Supplementary Estimates (A) to still proceed with the payments to be made to the newly created foundation.
That meant that, somehow in the estimates process, there was still a possibility of making that correction to provide for the payments that were made back in April.
In Supplementary Estimates (B) for 2001-02, you see the correction that would allow for the payments to be repaid to TB Vote 5 and therefore resolve the issue.
Senator Lynch-Staunton: In (A), there is $50 million for each department and in (B) there is $25 million for each department. Does that mean that the fund will be allocated $150 million?
Mr. Neville: In effect, in (A), $150 million is being approved. It is the $100 million, plus the $50 million that was paid through TB Vote 5.
Through Supplementary Estimates (B), based on the Speaker's ruling, we are correcting the anomaly and allowing the two $25-million payments to be refunded to TB Vote 5.
Senator Lynch-Staunton: Those are the two $25-million figures that the Speaker ruled were not properly identified in Supplementary Estimates (A), but which remained there anyway?
Mr. Neville: Yes, but you must understand that the Speaker allowed Supplementary Estimates (A) to continue; hence the funding was approved. However, he wanted the correction to be made through the Supplementary Estimates process.
In Supplementary Estimates (B), we have a $1 vote for both departments. That allows us to make the payment back to TB Vote 5, the contingency vote.
Senator Lynch-Staunton: The way I read it, we have voted the $25 million once, despite the Speaker's ruling, and we are being asked to vote it again; is that not correct?
Mr. Neville: No, that is not correct. In Supplementary Estimates (A), the Speaker deemed that a payment was voted to the new foundation in the correct terminology based on Bill C-4.
Senator Lynch-Staunton: Is that not a figure of $25 million for each department?
Mr. Neville: It is a figure of $100 million.
Senator Lynch-Staunton: That is an amount of $50 million each?
Mr. Neville: That is right, and in addition, the $25 million that had been paid through TB Vote 5.
Refunding the two $25-million payments to the Treasury Board Contingency Vote 5 was not approved. In Supplementary Estimates (B), we are asking for that authority to be granted.
Senator Lynch-Staunton: The Speaker said that no authority had ever been sought from Parliament for grants totalling $50 million and he did not consider that the notes in the Supplementary Estimates concerning the disbursement of these earlier monies were sufficient to be considered as a request for approval.
In other words, the approval being sought in Supplementary Estimates (A) cannot be deemed to include tacit approval for the earlier $50 million grant.
I understand that to mean that the way that you are wording the request for the $50 million is not acceptable. Yet the $50 million remained in the legislation, Bill C-45, and we voted it.
In your notes, you then say that you have made the correction that the Speaker required in Supplementary Estimates (B) for grants totalling $50 million. However, we also voted the same $50 million. I keep coming back to this: It is the same $50 million all over again.
Mr. Neville: I repeat my initial comment. Based on the Speaker's ruling, Natural Resources Canada and Environment Canada have received spending authorities of $100 million in addition to the $50 million from the Treasury Board Contingency Fund. That is the Speaker's ruling. However, there is no authority for the original payments to the Foundation for Sustainable Development Technology in Canada, nor has Treasury Board Vote 5 been reimbursed the total of $50 million used to supplement the department's votes for the payments they made.
Since Treasury Board Vote 5 is a temporary funding mechanism used to meet urgent departmental cash requirements, the vote must be reimbursed from the appropriate departmental appropriation once parliamentary authority has been obtained through the approval of the Supplementary Estimates. Otherwise, the $50-million advance will be regarded as a permanent draw on Treasury Board Vote 5.
We had to find a mechanism to allow us to get that $50 million that was approved through Supplementary Estimates (A) into the Treasury Board Contingency Vote 5. We could not do that through Supplementary Estimates (A), although we tried. We have provided for that in Supplementary Estimates (B). If approved, that will give us the authority to transfer the $50 million, which is in the department at this point, back into the Treasury Board Contingency Vote 5.
Senator Cools: A point that may clarify the matter for Senator Lynch-Staunton is that he read from the first part of the Speaker's ruling of November 22. Perhaps it would assist if I read the next part of the Speaker's ruling.
Senator Lynch-Staunton: There is no need to do that for my benefit, Senator Cools.
I will not prolong this, because I know this committee will be looking into the question of Treasury Board authority to advance funds through various votes.
However, I do wish to know why this was not corrected in Supplementary Estimates (A). That is what I do not understand. The Speaker said it should be corrected and you had ample time to do so. I assumed, as I read his decision, that you had ample time to correct the matter in (A). The correction was not made in (A); it is being made in (B). Therefore, the error continued in (A). Why was it not done in (A)? That would have been much cleaner and more understandable and there would be less discussion on the matter around this table.
Mr. Neville: We thought we had corrected the matter in Supplementary Estimates (A). However, the Speaker's ruling did not permit us to proceed with what we had anticipated would be the outcome.
After reflecting on what the Speaker said, it was deemed appropriate to leave Supplementary Estimates (A) the way they were, which effectively gave the departments $150 million. We froze a portion of that amount. The final correction in Supplementary Estimates (B) will now allow us, if approved, to transfer the $50 million back to the Treasury Board Vote 5.
The Chairman: Mr. Neville, in view of the problems that you had the last time, has any attempt been made to run this new formulation by the Speaker or his advisers to ascertain whether it will pass muster?
Mr. Neville: Mr. Chairman, we have had numerous discussions with a number of concerned parties. Our understanding is that what we have proposed is appropriate, is the recommended course of action, and the right thing to do under the circumstances.
The Chairman: Are you confident that Supplementary Estimates (B) would survive a point of order in the House of Commons?
Mr. Neville: Yes, that is our understanding today.
Senator Tunney: At the bottom of page 1 and the top of page 2 of your presentation, I see that there is a reduction in public debt charges of $2.5 billion. Is this due to a combination of a lower public debt and a lower interest rate?
Mr. Neville: The forecasted decrease in the public debt charges by $2.5 billion, to $39.2 billion from the 2001 Main Estimates level of $41.7 billion, is due specifically to lower interest rates, primarily on short-term debt.
Senator Tunney: It does not relate to a lower total public debt?
Mr. Neville: It is a combination, as we have a lower public debt as well. The gross public debt for the past year is $353.4 billion as opposed to $357.4 billion in the previous year.
I want to make the point that it is not due only to lower interest rates, but also to lower gross public debt.
Senator Tunney: That was my question. You say that it is due to a combination of the two?
Mr. Neville: Yes.
Senator Tunney: That is fine.
With regard to the $1.9 billion in Employment Insurance benefits to recipients, are we anticipating a lower unemployment rate or are we doing this to lower the surplus that has built up in the Employment Insurance account?
Mr. Neville: It is fair to say that the changes reflect several factors. You mentioned one, but there are others. The first is inflation, which was higher than expected and translated into higher benefits. As you know, these benefits are fully indexed to inflation. Another factor is average monthly benefit rates. A higher proportion of pensioners than anticipated received the full OAS. Average monthly benefit rates decreased, reflecting the changes in the levels of recipients' overall income.
Therefore, it is a combination of changes in estimates of recipient populations, an increase in the OAS population estimate and a decrease in the population receiving the allowance.
Senator Tunney: The government is continually criticized for allowing the Employment Insurance fund to build to astronomical levels and for not lowering the rate. Here we see an increase of $1.9 billion.
Are we not attempting to lower the surplus?
Mr. Neville: The government has lowered the rate every year for the last several years.
Senator Tunney: Yes, I know that.
Mr. Neville: The issue is whether the amount by which the government has decided to lower the rate is sufficient to bring down the surplus in the EI account. We have had numerous discussions with the Department of Finance and the Office of the Auditor General, as you are probably aware, about what the surplus should be. Those discussions are still ongoing and the government is in the midst of reviewing the EI rate structure and how it is being set. I do not believe any decisions have yet been taken or announced.
Senator Tunney: When I get a chance to talk to our Minister of Finance, I accuse him of not being very successful in lowering the surplus. He has told me that that is not a real surplus; that it goes into general revenues. Some of my friends continually bellyache about that.
Mr. Neville: If the Auditor General of Canada were here this evening, I am quite certain that she would agree that the method currently used for accounting for the surplus in the EI account within the Consolidated Revenue Fund is the correct approach. The Office of the Auditor General has stated that on numerous occasions, and it is my understanding that the current Auditor General of Canada agrees.
The Chairman: That is true. If the chief actuary of the fund were here tonight, I think he would say that a surplus in the neighbourhood of $15 billion would be sufficient to guard against any possible downturn in the economy and the need for increased payouts to recipients. The Auditor General would counter that the fund is now heading for $40 billion. That is where the argument lies. It is more an argument on economic and fiscal policy. We all know that it is in the Consolidated Revenue Fund and helps — if I may use a somewhat pejorative term — to pad the Finance Minister's revenue numbers when it comes to balancing the budget. I think we all appreciate that.
Mr. Neville: I do not disagree that the chief actuary for Human Resources Development Canada has stated that. I believe I have seen that in print. However, I also understand that the accounting for the surplus is at stake here and my concern is to ensure that it is done and recorded properly. That is what is shown in the financial statements and we are following due process agreed to by the Office of the Auditor General.
The Chairman: In making those statements, the chief actuary is carrying out his duty according to the law. As I understand it, there is a law governing the fund that relates to the surplus. It says that the managers of the fund will maintain a prudent surplus.
Mr. Neville: To guard against major economic downturn.
The Chairman: That is in the law, is it not?
Mr. Neville: Yes, it is. It is a question of interpretation, though, as to what constitutes a major economic downturn.
The Chairman: We can leave it at that.
Mr. Neville: I did mention that the government is in the midst of looking at the rates, has frozen the powers of the commissioner for EI and taken that responsibility on itself.
The Chairman: Yes. The government has cut the commission out of the rate-fixing process for a while.
Senator Stratton: Welcome again, Mr. Neville and Mr. Bickerton.
I have searched for and cannot find a reference to guns. Where is it?
Mr. David Bickerton, Executive Director, Expenditure Operations & Estimates Directorate, Comptrollership Branch, Treasury Board of Canada: At this point there are no additional monies being requested. They were included in Supplementary Estimates (A), as you will recall.
Senator Stratton: Thank you.
I refer now to Parliament and House of Commons on page 117. It talks about the ``Members of Parliament Retiring Allowances Account and the Members of Parliament Retirement Compensation Arrangements Account,'' beside which there is a total of approximately $8.685 million.
Where is the Senate hidden?
Mr. Bickerton: That is a statutory item and is in there for information. When we were putting the books together, we did not have approval to include the information on the additional adjustments for the salaries and other items for senators.
Senator Stratton: It is not in the Supplementary Estimates?
Mr. Bickerton: No, it is not in the Supplementary Estimates. It is not there to be voted on, in any event.
Senator Stratton: Because it is statutory, you do not require a vote, ergo it does not go into the Supplementary Estimates because we did not approve it in time to be included.
Mr. Neville: It was already approved when it was voted upon initially.
Senator Stratton: That I understand.
Mr. Neville: You will see it at the end of the year in the Public Accounts.
Senator Stratton: Yes, those three books you send us every year.
Mr. Neville: Yes, we do pick it up. I want to assure you of that.
Senator Stratton: You have to report it somewhere. I just wanted to know where.
Mr. Neville: I am sure that, even from the time we receive the numbers from the Department of Finance, and other departments, as to the statutory amounts, there will probably be some changes. We call it a day at a certain point. We print what we have.
Senator Stratton: I appreciate that.
I wish to turn now to the Pierre Elliott Trudeau Foundation, page 87. How will the foundation use those funds?
Mr. Neville: First, I would like to share with you that the Pierre Elliott Trudeau Foundation will encourage and fund advanced studies in the humanities and human sciences. In particular, the foundation will establish fellowships, achievement awards, a mentor program and conferences to support promising Canadian and international students wanting to pursue doctoral and post-doctoral research studies in the areas of public policy, governance, social issues, social justice and the environment.
The fellowships will be worth up to $50,000 each and will be made available both to Canadian students and international students wishing to study in Canada.
Achievement awards will recognize eminent scholars at Canadian universities whose work in the humanities and human sciences is internationally known.
The mentorship program will provide advice and counsel to the fellowship winners.
Fellowship recipients will work with experts and institutions in a province other than that of their home universities. Similarly, international students will be encouraged to study in fields relevant to the future of Canada.
Senator Stratton: If I may, Mr. Neville, we know that. I may have misled you with the way I phrased the question. You have $125 million. It is transferred to what?
Mr. Neville: To a foundation.
Senator Stratton: It is a foundation?
Mr. Neville: Right.
Senator Stratton: How does the foundation use the money? Does it put it in a bank account and live off the interest? How is that foundation held responsible?
Mr. Neville: Any payment to a foundation is accompanied by a funding agreement. That agreement has a number of components that are approved by the Treasury Board. In this case, it will be approved prior to March 31.
The contributions that we make to individual foundations are done somewhat differently, based on the arrangements as to how the foundation has been created, the terms and conditions and its objectives.
This is a somewhat new foundation governed by a small number of individuals. The terms and conditions on how we transfer the funds will be quite specific. The Department of Industry is still negotiating the actual terms and conditions in preparation to going to the Treasury Board in the next two weeks.
Senator Stratton: With whom are you negotiating?
Mr. Neville: With the actual governors of the foundation.
Senator Stratton: Have they been appointed already?
Mr. Neville: They were appointed some time ago.
Senator Stratton: Do they report to Parliament?
Mr. Neville: No. This is a private-sector foundation.
Senator Stratton: You give them $125 million and yet you do not check on them. Are there no checks and balances on it?
Mr. Neville: We are back to the terms and conditions of the agreement, which we are still negotiating, and which will be approved by the Treasury Board in the next couple of weeks.
Senator Stratton: Once the approval is given, is it goodbye?
Mr. Neville: That is the way in which you transact business when you are dealing with a foundation. You give the money to the foundation. You would not give it if you did not think that there was a good reason to do so and good fiscal management.
Senator Stratton: Understood.
Mr. Neville: May I finish my original statement, because I think I may be able to partly answer your question?
Senator Stratton: Yes, please.
Mr. Neville: In this case, the foundation will make an annual report to the Minister of Industry that will detail, for example, its investment activities for the year, the number of applications or nominations for funding, actual funding activities and its financial statements. I am stating those particular components. I know that we are in the process of negotiating a very detailed funding agreement with this particular foundation.
Each foundation has a different funding agreement, although there are some common components. In this case, as I stated, there are these specific, identified requirements. We understand there will be more by the time we complete the actual agreement.
Senator Stratton: What about the Auditor General, does she play a role?
Mr. Neville: The Auditor General has played a role in a number of foundations in terms of the way we fund them. She has set forth her criteria as to what she expects. We are trying to respect those to the letter.
Senator Stratton: But she has no further role?
Mr. Neville: No. It is an unconditional grant being made to a foundation.
Senator Banks: Thank you very much for being here, gentlemen. As usual, it is always nice to hear from you.
My first question is supplementary to the one that Senator Stratton has just asked. Treasury Board is now negotiating with the directors of the foundation, who were appointed, I presume, by an Order in Council.
Mr. Neville: No. This is a private-sector foundation. It was set up under the Canada Corporations Act.
Senator Banks: Treasury Board is now negotiating the terms under which $125 million will be transferred to the foundation for the good purpose that you have described?
Mr. Neville: That is correct. Negotiations are being carried out in consultation with Treasury Board Secretariat. They will be coming to Treasury Board with a funding arrangement for approval.
Senator Banks: Can you tell us, to the extent that you are able without messing up the negotiations, whether the following is being asked for: first, that the foundation be subject to the Financial Administration Act; second, that the Auditor General of Canada might be the auditor of the foundation; and third, if not, will the foundation be subject to what the Auditor General calls a ``special investigation,'' which is something she does on occasion to quasi-agencies of government?
I recognize that this is a private, not-for-profit corporation, but are those among the things that you are considering? When those negotiations are complete, are you able to undertake to let the committee clerk know what those conditions of transfer are?
Mr. Neville: With respect to the first part of the question, I am familiar with the process. It does come under my responsibility.
They will not be subject to the Financial Administration Act, since this is a private sector entity. I cannot confirm it, but I do not expect that the Auditor General will be the auditor of record for that particular foundation. That is a decision for the governors and the board of directors of that foundation.
Third, there may be a possibility of ``subject to special investigation.'' That is something we have included in some foundations. It is a question of looking at the overall financial management framework of the foundation. If we feel it appropriate, we would include such a clause. If we do not feel that such a clause is required, we would not. On that matter, I would say that we have not finalized which way we will be leaning.
As to your second question, concerning the funding agreement, I am not certain that we are at liberty to disclose that, even after Treasury Board has approved it. I believe that is still the confidence of the Crown. I am not sure that we could release that information.
Senator Banks: First, I understand that the foundation's position would be that their auditor of record is a question for them. However, it is among the questions that are being presently negotiated before the transfer. It is not a done deal yet?
Mr. Neville: That is correct.
Senator Banks: I do appreciate the necessity of an arm's-length position from time to time. However, I do hope that when those conditions have been nailed down and agreed to, and given that we are talking about $125 million, you will be able to let us know, on some basis, about the conditions for transferring public money to a private foundation.
Mr. Neville: I will be pleased to share what I can once the deal has been finalized and agreed to by Treasury Board.
Senator Banks: We read in today's headlines about illegal money pouring across the border. The U.S. accuses Canada of being a big money-laundering haven. I am not asking you how we will solve that. However, in the Department of Finance Estimates, on page 68, there is some money to augment the business of the Superintendent of Financial Institutions.
Does the Superintendent of Financial Institutions deal with questions that might relate to illegal money pouring across the border? Will some of this money go toward addressing that question?
Mr. Neville: There is an item specifically noted for $341,500. This represents a significant increase of 20.6 per cent in the program expenditures over the previous estimate of $1.7 million. Most of the funds are slated for subsidies and payments. In effect, these funds relate primarily to the settlement of a suit with a former employee. The parties to the suit have a non-disclosure agreement. We can say that the funds include legal costs for both parties in this situation.
Senator Banks: Can you tell us whether the business of the Superintendent of Financial Institutions includes the question of money laundering?
Mr. Neville: That office is responsible for regulating and supervising all banks and insurance companies, trust, loan and cooperative credit societies that are licensed or registered by the federal government and for supervising federally regulated, private-sector pension plans.
Senator Banks: If we had a question about illegal torrents of money, could we ask the Superintendent of Financial Institutions?
Mr. Neville: You could make that inquiry. That office also has specific responsibility under various other acts to provide actuarial and other services to the Government of Canada. I want to ensure that you have a complete picture.
Senator Banks: Turning to page 96 and the subject of SSHRC, I want to ensure that I understand what the indirect costs are. We have heard much over the past few years about the Government of Canada running around admirably giving money to people in all areas of science, medicine, et cetera, for research and development projects. We give them money to pay the people who directly operate the research and development and to buy the necessary materials. However, we do not give them enough money for indirect items such as rent and so forth. Is that what this is about? Have we finally undertaken to allot $100,000 for the research and another $20,000 towards paying the inescapable costs of doing that research?
Mr. Neville: The answer is, ``yes, in part.'' We had this discussion this morning with a governor of one of the universities. The case was made that it is fine to receive the grants and chairs, but there does not seem to be money for the infrastructure or indirect costs to house these new individuals or the research labs to accommodate the new chairs.
If you are asking how the indirect costs are determined, it is fair to say that the grants are meant to cover only a portion of the total costs incurred.
Senator Banks: By ``indirect costs,'' do we mean those that would normally be called ``overhead'' as opposed to capital acquisition or salaries?
Mr. Neville: Let me give you a listing of the indirect costs that are included. There are the costs for assisting researchers in the preparation of research proposals for the three federal granting agencies and to meet the conditions of such awards such as animal care, safety and ethical standards. There are the costs to manage intellectual property and to promote the application or commercialization of research discoveries. There are the costs to provide service and maintain the library, office and laboratory space and the equipment required by researchers. I believe that is the item you are speaking about specifically.
Senator Banks: Yes, that is correct.
Mr. Neville: Again, to complete the answer, there are also central and departmental general administrative costs of the university that can be attributed to federally sponsored research. What you would call ``infrastructure,'' they call ``indirect costs.''
The Chairman: Mr. Neville and Mr. Bickerton, I hope I understood you correctly. Senator Banks spoke about the problem of money laundering in Canada and so on. He then referred to the increased estimate for the Office of the Superintendent of Financial Institutions.
I would have thought that the Financial Transactions and Report Analysis Centre of Canada was the relevant vote there, or am I wrong? Are they not the people who look into matters such as money laundering?
Mr. Bickerton: Mr. Chairman, you are correct.
In the opening remarks, we indicated that there was some additional money provided through the budget. One of the organizations receiving that funding was the Financial Transactions and Report Analysis Centre.
The Chairman: They do not come under OSFI, do they?
Mr. Bickerton: No, they come under the Department of Finance. That is a separate organization.
The Chairman: They are getting $34.4 million more. That is probably peanuts in Washington, but it is evidence of some good faith or good intentions on our part, I presume.
Mr. Neville: I thought the senator was specifically referring to OSFI.
The Chairman: I know that, but I thought it was in the context of the problem of money laundering.
Mr. Neville: That would be under the Financial Transactions and Report Analysis Centre, correct, of which the additional amount is $9.9 million.
The Chairman: I'm sorry, the new appropriation is $9.9 million, bringing their current estimates up to $34.4 million.
Mr. Neville: I wanted to make that correction. The amount included in the Supplementary Estimates (B) is $9.9 million.
The Chairman: They will be able to make some headway with that, I suppose.
Senator Mahovlich: I have a question about the Pierre Elliott Trudeau Foundation. Does the foundation accept other donors besides the government?
Mr. Neville: Yes, it does.
[Translation]
Senator De Bané: Does the Auditor General of Canada look at organizations other than Crown corporations?
Mr. Neville: Yes. IATA, an international organization, is one of them. The Auditor General audits that organization which does not come under federal authority. And there are at least two more, and perhaps others, but I don't remember the names.
Senator De Bané: There is no objection in principle to the Auditor General of Canada auditing that Foundation, then, if you are going to provide it with a substantial amount?
Mr. Neville: There is no objection in principle but that would probably require some legislation. The Auditor General cannot audit an organization outside government or a Crown corporation unless an amendment is made to the Act on the Auditor General. It could be done.
Senator De Bané: Absent an amendment to the Act, could you say in your negotiations that the audit firm should be selected jointly by the Foundation and Treasury Board?
Mr. Neville: It would be possible. We have discussed it but we decided not to do so. However, it remains a possibility. The directors of the Foundation always have the possibility to ask, on their own, that the Auditor General of Canada be their auditor.
We would have to look at the legislative requirements, to see if it is possible. From what I understand, it would be possible but I am not a lawyer.
Senator De Bané: Will Industry Canada have to make public the annual report provided by the Foundation to the Minister of Industry?
Mr. Neville: This is still a matter of negotiation. For each Foundation, we have to look at the environment, the financial management framework and then, based on the specific circumstances, we can decide if the report should be provided to Parliament or only to the minister. No decision has yet been made about this Foundation.
Senator De Bané: Would the Minister of Industry in ten or twenty years have the right to ask for a specific report on a specific issue?
Mr. Neville: This is a type of clause that is found in some funding agreements. One would have to look at the whole agreement and at the requirements to be able to decide on a specific issue.
Senator De Bané: Since you are the ones providing the money, you have lots of bargaining power. So, the only things that you should not ask should be things that, according to you, seem unreasonable. But you should not say that you will not ask for such or such requirement because the foundation does not like it. Since you are putting up the money, your only concern should be if your requirements make sense or not. For example, would it be unreasonable for you to say that the scholarships should be provided by a highly recognized jury whose competence is without reproach. It would not seem unreasonable for you to ask that question. It is a requirement in many other federal organizations providing grants. In those cases, we make sure that the juries are made up of people from the field who have an excellent reputation. So, would it be unreasonable for you to say that scholarships shouldn't be granted except on the basis of criteria that guarantee excellence, non-partisanship, etc.? I don't think it would be unreasonable for you to ask that.
Mr. Neville: I could discuss this issue with you for hours because I find this very important. If you want, I can give you more information on the accounting constraints. There will be ten governors of the Foundation and we could, for example, ask for the power to appoint seven of them. However, that would be seen by the Office of the Auditor General and by my accounting colleagues as a tool to control the Foundation. In that case, the amount could not be accounted for as a grant or as a specific amount and we would have to include that organization in the government. The issue here is one of control. We have to make sure that we never have control of the Foundation in order to be able to make the payment and to register it as an expenditure. One criterion about that is linked to the power to appoint the governors. There are several other methods to establish control and we could discuss that for hours. In this case, we have to make sure that we do not have control of the Foundation.
The second criterion is accountability. We should not have accountability principles that would allow the Office of the Auditor General or my accounting colleagues to conclude that control is exercised by the federal government. There are several criteria about that, one of them being the one you have mentioned, that is to say having the scholarships granted by a jury. If we had that, it would be possible to start thinking that we exercise more accountability than what is acceptable for us to continue to account for the money as a government expenditure.
Those two aspects have been considered. Do we exercise control and do we have accountability? If we have both, of course, we cannot consider the amount as a payment or as an expenditure of the government and we have to consider that the organization is part of the government. That is why I say that one has to be careful when making a recommendation that seems in itself to be quite proper but that would lead us to exercise either control or accountability.
[English]
Senator De Bané: One of the criteria is not well thought out, namely, that the applicants must limit their choices to Canadian universities. Science has no boundaries. Trudeau was an internationalist. Some of our best and brightest students are studying at Harvard, Stanford, Cambridge and Paris, to name a few. Trudeau studied in England, the United States and France. To say to our brightest students, ``You can apply for Canadian funds under the condition that you study in Canada'' is not right.
I have a friend who is doing his Ph.D. at Harvard. There are four people from all over the world in that class at the Ph.D. level. He was accepted at Harvard because he was among the best in the world.
When he told me about his scholarship, which is U.S. $50,000, I said, ``Not only were you accepted, but you also have a scholarship?'' He replied, ``The moment we are accepted, each of us receives a scholarship. It is automatic.'' I am not sure it is well thought out to say, ``In order to apply, you must limit yourself to Canada.'' I hope, Mr. Deputy Minister, you will think about telling them so. If the students are smart enough, we should let them choose where they want to go. They will have to present a budget and it will be studied to see if it makes sense. To tell the students that they must stay in this country if they want to apply is no way to honour Mr. Trudeau, nor does it make any sense, in my humble opinion.
Mr. Neville: As you are aware, this is a private sector foundation. The Department of Industry is responsible for this particular grant, and I trust that it will take all of the comments being voiced across the country into consideration in arriving at its final conclusions.
The Chairman: It would have been a cabinet decision to fund the foundation, one assumes.
Mr. Neville: I would expect.
The Chairman: I would not have thought that even the minister would have had $125 million in his jeans.
Mr. Neville: The more I reflect upon it, Mr. Chairman, the more I am sure that it was a cabinet decision.
Senator Lynch-Staunton: Yes, it was a cabinet decision, but I wish it had been a decision to make a recommendation to Parliament. This is just the latest example of the government announcing a huge grant. The recipient is there to thank the government, negotiations go on between Treasury Board and the foundation as to the terms, and Parliament has absolutely no say over it. ``Please rubber-stamp this $125 million.''
My comments are not addressed to you. It is to get it off my chest. I have spoken about this before. I think that the government is going beyond even the Auditor General's concerns about $7 billion of taxpayers' money to non-profit organizations over which Parliament has absolutely no authority whatsoever, no oversight, except to receive a bland annual report. I have read some of those annual reports; they are all self-extolling and self-congratulatory.
That being said, I thank you for your patience in hearing me out again.
Mr. Neville: The negotiations are not between the Treasury Board specifically and the foundation. Industry Canada is carrying out the negotiations and will be coming to Treasury Board with a funding agreement. We are involved in the discussions.
Senator Lynch-Staunton: Thank you.
Mr. Neville: Second, in a scenario where control and accountability are deemed to be in the hands of the government, then you are not in a position to make a payment to a foundation that will be deemed to be an expense. It will be deemed to be an investment in an entity. We must include the foundation as part of the Government of Canada. That is where we have to be careful. It is a difficult situation to manage so that we do not move too far along the control and accountability spectrum. On the other hand, we must ensure sound financial management through the funding agreement.
Senator Lynch-Staunton: I would have been happier if the government had decided to introduce an act of Parliament to create a Pierre Elliott Trudeau Foundation. Parliament would then have to decide whether or not to continue with the government's suggestion.
On page 93, under ``Industry Canada,'' there is an amount of $5 million for the establishment of the National Institute of Nanotechnology. What is that? Is it something that Parliament has approved?
Mr. Neville: I have heard this term on many occasions.
Senator Lynch-Staunton: I do not want to know what they do. Again, $5 million will be assigned to this brand-new institute. Am I being too old-fashioned in thinking that major expenditures should go before Parliament before being printed as a fait accompli?
Mr. Neville: This was confirmed in the budget 2001. I would like to share with you some of the comments.
Senator Lynch-Staunton: We have not passed the budget implementation bill yet.
Mr. Neville: It was in the budget. In August 2001, the Prime Minister and the Premier of Alberta jointly announced the establishment of the National Institute for Nanotechnology, NINT, at the University of Alberta. The National Research Council, NRC, has begun working this fiscal year on the NINT to establish an implementation team and ensure it proceeds in accordance with the spirit of the federal-provincial memorandum of understanding. The activities of the implementation team will include communications, human resource planning, research, et cetera.
Senator Lynch-Staunton: You do not have to go into that. The Prime Minister and the Premier of Alberta announce an expenditure and Parliament just has to rubber-stamp it. I am glad I am not a member of the House of Commons, watching my authority being dissipated and being a willing witness to this erosion of a major role of the House of Commons, the power over the purse.
Mr. Neville: Mr. Chairman, by way of the Supplementary Estimates (B), we are asking Parliament to approve it.
Senator Lynch-Staunton: Yes, approve what has already been decided. I would have preferred the government announce to Parliament, ``We have this idea. What do you think? If we are in agreement, then let us release the funds.'' We do things in reverse.
Mr. Neville: There will be an opportunity to debate this in the other place.
Senator Lynch-Staunton: We will.
The Chairman: The payment is being made under the aegis of some existing program?
Mr. Neville: Yes, the National Research Council has the authority.
Senator Lynch-Staunton: Votes 75 and 80.
The Chairman: Those votes are under some existing granting authority?
Mr. Neville: Yes.
The Chairman: The question that Senator Lynch-Staunton raises is, whether in the estimates or some other process, we get an opportunity to say that this is or is not a great idea and make a considered comment on that particular grant.
Senator Lynch-Staunton: This is just the latest one.
Senator Stratton: I should like to go to page 125, ``Public Works and Government Services.'' Could you give me an overview of this? There are revolving funds all the way through.
Senator Banks: For $1.
Senator Stratton: Except the amounts are $35 million and $450 million. I would like you to explain what a revolving fund is. How do you use it? I understand if you do not spend the money, you will reduce it. This happens in Supplementary Estimates because you have not spent the money, and I can see that. When we get the Main Estimates, will these same revolving funds be included?
Mr. Neville: Let me start at the beginning. In the traditional sense, a typical department would have an appropriation. You would record expenditures during the year, and at the end, you would match up the amount voted by Parliament against the actual expenditures. That is the typical department providing services to Canadians across the country.
There are also specific types of operations. They could be within a department servicing Canadians or they could be within a department servicing other departments. I will give you two examples. First, the Passport Office is within the Department of Foreign Affairs and International Trade, and it is almost like a little business. It issues passports, for which it collects a fee, and at the same time, incurs some costs. To give it a businesslike environment, we have created a revolving fund. In this case, it is called the ``passport revolving fund.'' We are trying to put some discipline into the way in which the management of that particular office operates.
You then have departments like Public Works and Government Services Canada, which is what we call a ``common service agency.'' It services other departments. It has a number of internal revolving funds — for example, for translation or real property. There are currently six of them. There were nine originally. These revolving funds are set up through Parliament and departments have a maximum amount they can draw down. Think of a loan from a bank. It is the same as going to a bank and getting a line of credit. We call it the ``draw-down amount.'' They can start paying their employees to do work for another government department, even though they are only paid after 30 days or 60 days, or however many, by that other department. They need the funding upfront.
Several things have been happening over the years. Some have had surpluses; some have had losses. In some cases, they do not need the amount of draw-down authority that has been granted by Parliament. If they have the authority for $100 million but they are always running at $20 million or $30 million, that is tying up money in fiscal framework that the Department of Finance could use for other purposes. We have done a review of all the revolving funds in government, and in certain cases we have reduced them. In other cases, we have proposed the write-off of the accumulated deficit over the years. Think of it as a small company or businesslike environment within the government that adds discipline to the way transactions are carried out, allows for a matching of expenditures with revenues, and puts it on a more fiscal management basis. We did a review in the last 15 months and deemed that some of the draw- down amounts previously approved by Parliament need not be so high, and so we are reducing them. Does that help you a little?
Senator Stratton: Yes. That is what I thought it was.
Senator Tunney: I handled a couple of passports for neighbours of mine. People pay $85 for the issuance of a passport, which I suppose would make the office almost self-sustaining.
Mr. Neville: Over time, a revolving fund is supposed to balance out. We give them a limit so that they can draw down until the revenues come in. Over time, it is supposed to break even.
The Chairman: On page 127, ``Public Works and Government Services, New Major Capital Projects,'' with respect to some renovations to the ``Arthur Meighan'' Building in Toronto, they have misspelled the name of our ninth Prime Minister. His grandson is a member of this chamber and will be indignant when he finds this.
Thank you very much. We will see you on Tuesday morning at 9:30 to discuss the Main Estimates for the fiscal year 2002-03.
The committee adjourned.