Guideline on the Directive on Transfer Payments

Transfer payments are one of the government's key instruments in furthering its broad policy objectives and priorities. They are monetary payments, or transfers of goods, services, or assets to third parties, including Crown corporations, made by the Government of Canada on the basis of appropriations. These payments do not result in the acquisition by the Government of Canada of any goods, services, or assets.
Date modified: 2013-04-17

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1. Introduction

Transfer payments are one of the government's key instruments in furthering its broad policy objectives and priorities. They are monetary payments, or transfers of goods, services, or assets to third parties, including Crown corporations, made by the Government of Canada on the basis of appropriations. These payments do not result in the acquisition by the Government of Canada of any goods, services, or assets.

Transfer payments represent a large part of the Government of Canada's spending and support tangible results that touch the lives of Canadians and others every day in all sectors of society.

The Policy on Transfer Payments (Policy) sets out broad roles and responsibilities for Treasury Board, the President of the Treasury Board, the Secretary of the Treasury Board, ministers and deputy heads in the design, delivery, and management of transfer payment programs.

The Directive on Transfer Payments (Directive) supports the objectives of the Policy by establishing mandatory operational requirements for departmental managers who have been assigned responsibilities for the management of transfer payment programs and transfer payments. The distribution of these responsibilities among managers in any department is for departmental management to determine.

Both the Policy and Directive came into effect on October 1, 2008.

This guideline focuses on the Directive on Transfer Payments by providing context, interpretation and more detailed explanation of key requirements and specific topics. It is designed to support departmental managers in their understanding and implementation of the Directive by providing context and explanation of its key requirements.

Where appropriate, the guideline links requirements of the Directive to the Policy to explain their intent. It brings together related requirements to provide easier understanding of particular elements. It highlights areas where careful interpretation is required and, by providing background and context, facilitates comprehension.

Readers will benefit most from the guideline if they have read both the Directive and the Policy and are familiar with the definitions in these documents.

The guideline is one of a number of guidelines that replace the Guide on Grants, Contributions and Other Transfer Payments that accompanied the former Policy on Transfer Payments dated June 1, 2000.

2.  Design of transfer payment programs

The Directive on Transfer Payments requires departmental managers to assess a set of core design elements when they are engaged in the design of a new transfer payment program or the redesign of an existing program (Appendix B of the Directive). Addressing these elements will ensure that strategic design issues are considered, that key aspects of the policy are taken into account at the design stage (harmonization, standardization, engagement of stakeholders, administrative burden on recipients, etc.), and that a sound framework for the management, monitoring, and eventual evaluation of the program is developed.

The Directive requires that departmental managers document evidence of their assessment of the core design elements. This documentation will support the development or amendment of terms and conditions for the transfer payment program and any Treasury Board submission that may be required for the approval of such terms and conditions. While there is no requirement in the Policy or Directive that departments are to provide this documentation to the Treasury Board Secretariat, some parts may be well suited to respond to requests from program analysts reviewing Treasury Board submissions. There are key elements of the core design documentation that are important to maintain evergreen throughout the life of the transfer payment program, e.g., risk analysis and risk management measures at the program level, and the performance measurement strategy. More detailed guidance on the performance measurement strategy is found in the Guideline on Performance Measurement Strategy under the Policy on Transfer Payments.

3.  Terms and conditions

3.1 Approval of terms and conditions

The expression "terms and conditions" is given a specific meaning in the Policy on Transfer Payments and Directive on Transfer Payments. It refers to a document, approved by Treasury Board or a minister, that sets out the parameters under which transfer payments may be made for a given transfer payment program.

Approved terms and conditions are normally a precondition for making a transfer payment. However, when a program of transfer payments is authorized by a statute or statutory instrument that sets out the parameters under which payments are to be made, terms and conditions within the meaning of the policy may not be necessary. Nevertheless, it is not uncommon in such cases for departments to amplify statutory rules with further terms and conditions approved by Treasury Board.

Also where the approved estimates or a statute provide authority for a one-time transfer payment to a named recipient, it may not be necessary to develop terms and conditions within the meaning of the policy. The funding agreement may reflect all appropriate conditions. On the other hand, where it is anticipated that authority will be sought in the estimates on an annual basis to make payments to the same named recipient, then approved terms and conditions would normally be necessary.

The Directive requires that the Treasury Board Secretariat is to be consulted in advance in all cases when it is proposed to make transfer payments without terms and conditions.

Departmental managers are to ensure that terms and conditions address the elements in the appropriate appendices to the Directive (i.e., Appendices Appendix D of the Directive on Transfer Payment, Appendix E of the Directive on Transfer Payment, Appendix I of the Directive on Transfer Payment, Appendix J of the Directive on Transfer Payment, and Appendix K of the Directive on Transfer Payment). These appendices distinguish between elements that are to be addressed in all terms and conditions and those that are to be addressed only where they are relevant. Where these latter elements are relevant, they are to be addressed; they are not discretionary. For example, if Cabinet has set a two-year life for a transfer payment program, the terms and conditions are to reflect this sunset requirement.

3.2 Amendments to elements of terms and conditions

From time to time, terms and conditions may require amendments. Depending on the type of amendment, either Treasury Board or ministerial approval will be required.

3.2.1 Amendments: Treasury Board approval

The Policy articulates that Treasury Board approval is required to amend the following elements of terms and conditions:

  • the program objectives;
  • the repayment of a repayable contribution; and
  • up-front multi-year funding.

3.2.2 Amendments: Ministerial approval following consultation with the Treasury Board Secretariat

Ministers are responsible for approving amendments to the following elements of terms and conditions:

  • the eligible activities, initiatives or projects;
  • the class of eligible recipients;
  • the maximum amount payable to a recipient;
  • the stacking limit; and
  • amendments that give effect to a Cabinet decision or direction.

The following process has been established:

  1. Consulting with the Treasury Board of Canada Secretariat and the Privy Council Office

    The department is required to consult with and obtain concurrence from the Treasury Board of Canada Secretariat that proposed changes constitute an amendment under section 6.3.4 of the Policy prior to the minister's approval of the amendments.

    When necessary, Secretariat officials will consult with officials of the Privy Council Office (PCO) to confirm the validity of policy coverage. On occasion, departments may consult with officials of PCO directly.

  2. Letter to the President of the Treasury Board

    Following approval of the amendments, the minister is required to inform the President of the Treasury Board by way of a letter within 30 days after exercising his or her authority. A hardcopy of the updated terms and conditions is to be attached to the letter.

    The letter to the President of the Treasury Board will require the signature of the minister and the deputy head to attest that the Treasury Board of Canada Secretariat and the Privy Council Office, where necessary, were consulted regarding the proposed amendments to the terms and conditions.

The following is a template of the Letter to Inform.

Date

The Honourable (name of Minister)
President of the Treasury Board
House of Commons
Ottawa, Ontario
K1A 0A6

(Salutation) :

I am writing to inform you that, under Section 6.3.4 of the Policy on Transfer Payments, I have approved the following amendments to the terms and conditions of (insert name of transfer payment program):

(Examples)
The class of eligible recipients has been expanded to include....
The maximum amount payable has been increased to....
The eligible activities, initiatives or projects have been expanded to include....
The stacking limit has been modified to....

Briefly explain the transfer payment program and the situation that has given rise to the need to amend a specific element(s) of the terms and conditions.

In accordance with Section 6.5.4 of the Policy on Transfer Payments, my departmental officials have consulted with the Secretary of the Treasury Board (and with the Privy Council Office, insert when applicable) to ensure that the approval of the amendments to the terms and conditions are within my authority. I confirm that the amendment(s) are consistent with the program's policy coverage and that the terms and conditions are compliant with the Policy on Transfer Payments.

A copy of the updated terms and conditions for the (name of transfer payment program) transfer payment program is attached for your information.

Minister : _________________________________

Deputy Head : _____________________________

c.c.: Secretary of the Treasury Board
Assistant Comptroller General, Financial Management Sector
Assistant Secretary (as appropriate), Program Sector (insert name of Program Sector)

3.2.3 Minor amendments: Ministerial or deputy head approval

Minor amendments, i.e. amendments to any elements of terms and conditions other than those that require Treasury Board approval or consultation and concurrence with the Secretary of the Treasury Board, may be approved by ministers or approval may be delegated to deputy heads at the discretion of the minister.

Minor amendments include amendments that are, in respect of any of the elements listed in paragraphs 3.2.1 and 3.2.2, of a technical nature made solely for the purpose of correcting errors of wording or adding clarity.

3.2.4 The following table summarizes the approvals required for amendments to terms and conditions

Element of Terms and Conditions Deputy Head Minister Treasury Board

A — Authority to approve.

A* — Consultation with the Secretariat required before exercising authority to approve.

A** — Authority to approve when delegated by the minister.

Program objectives N/A N/A See endnote A
Repayment of a repayable contribution N/A N/A See endnote A
Upfront multi-year funding N/A N/A See endnote A
Eligible activities, initiatives or projects N/A See endnote A* See endnote A
Class of eligible recipients N/A See endnote A* See endnote A
Maximum amount payable to a recipient N/A See endnote A* See endnote A
Stacking limit N/A See endnote A* See endnote A
Amendments that give effect to a Cabinet decision or direction N/A See endnote A* See endnote A
Amendments to any other element of terms and conditions other than those listed above See endnote A** See endnote A See endnote A
Amendments, that are, in respect of any of the elements listed above, of a technical nature made solely for the purpose of correcting errors of wording or adding clarity to such elements See endnote A** See endnote A See endnote A

3.2.5 Approval of one-time exemptions and one-time exceptions

One-time exemptions to the Policy on Transfer Payments and one-time exceptions to the Directive on Transfer Payments, excluding those provided for under sections 6.3.7 and 6.3.8 of the Policy, require Treasury Board approval.

4.  Funding levels

The Directive on Transfer Payments establishes a general requirement that the level of funding to be provided by way of a grant or contribution is to be at the minimum level required to further the attainment of the objectives of the transfer payment program and the results expected of the recipient. Key decisions that influence the level of funding are made at the design stage. Terms and conditions for a transfer payment program establish a maximum that may be paid to any applicant; they also set out the method to be used in determining the amount of a grant or the maximum amount of a contribution to an individual recipient (e.g., 60% of eligible expenditures). The stacking limit establishes a maximum level of total Canadian government funding that is to be permitted for any activity, project, or initiative of a recipient. In addition, for some transfer payment programs, the amounts may be influenced by international trade agreements to which Canada has subscribed.

The Directive also requires that the amount of a proposed transfer payment is appropriate when other sources of funding available to the recipient are taken into account. How this is addressed will vary with the nature and design of a transfer payment program. For some programs, such as those that permit a fixed payment to an eligible applicant, other available sources of funding are not relevant (e.g., immigration language training, ecoauto Rebate Program). The general rule, however, is that the level of funding to be provided is to be at the minimum level required to further the attainment of the objectives of the transfer payment program and the results expected of the recipient; for many programs this will mean that consideration of other sources of funding available to the recipient (including a recipient's own resources) is a significant factor in determining the amount of the government's funding commitment.

The determination of the level of funding is an important consideration in designing the information to be requested from applicants seeking transfer payments. For a grant, the application information needs to be sufficient to determine the amount of the grant to be awarded to the recipient; for a contribution, it needs to be at least sufficient to determine the maximum amount that may be paid, with the actual amount subject to accounting for the eligible expenditures eventually incurred by a recipient and funding obtained from other sources.

5.  Funding agreements

The Directive on Transfer Payments requires that a funding agreement is executed with each recipient before any payment is made; this includes any instalment or advance payment. An exception to this is for an assessed contribution to an international organization that may be paid without a funding agreement when due and requested by an international organization, provided it is in compliance with approved terms and conditions.

Departmental managers responsible for preparing funding agreements are to ensure that the provisions of the agreements are consistent with approved terms and conditions of the transfer payment programs and that the elements in the relevant appendix to the Directive (i.e., Appendices Appendix F of the Directive on Transfer Payment, Appendix G of the Directive on Transfer Payment, Appendix H of the Directive on Transfer Payment, Appendix I of the Directive on Transfer Payment, Appendix J of the Directive on Transfer Payment, and Appendix K of the Directive on Transfer Payment) are addressed. Where there is conflict between approved terms and conditions and the requirements of the Directive, the terms and conditions are to prevail.

Appendix F of the Directive on Transfer Payment and Appendix G of the Directive on Transfer Payment, which deal with funding agreements for grants and contributions, stress that these elements are to be addressed in a manner that balances the department's accountability and control requirements with the level of risk specific to the transfer payment program, the value of the funding, and the risk profile of the recipient. This reflects a key principle of the policy, that the administrative requirements on recipients should be proportionate to the risk level. The expectation is that each funding agreement should be tailored to the risk involved in making that transfer payment to the particular recipient. This will require departments to have tools in place to assess these risks in a systematic and consistent manner, and to determine, based on this assessment, the administrative requirements that are appropriate. The transitional considerations of the policy recognize that it may take some time to deliver on this expectation; consequently, the policy requirement will apply only to new and continued transfer payment programs approved after March 31, 2010. Early implementation by departments will be beneficial.

While the appendices identify elements that are to be addressed in funding agreements, the statements of these elements are not meant to be draft or model clauses for agreements. It is important that departmental managers develop the wording of agreements in conjunction with departmental legal advisors: they may also be guided by their legal advisors on whether it is necessary to address particular elements to protect the government's interests, and on whether further elements not identified in the appendices may be required.

5.1 Multi-Year Funding Agreements

Consistent with the objective of reducing the administrative burden on both recipients and the department, the Directive asks that departmental managers look at whether a multi-year agreement would be appropriate when the activities to be undertaken to achieve the objectives of a transfer payment program, or a funding agreement, may involve a relationship with a recipient over a number of years. In such circumstances, a multi-year funding agreement may best reflect the commitment of both the department and the recipient. Similarly, when a recipient is to receive transfer payments from multiple transfer payment programs, the Directive asks departmental managers to look at whether the use of a single agreement might be practical for the department and beneficial to the recipient.

Periodic reassessment of risk, particularly in multi-year agreements, may influence funding agreement terms and conditions, and may enable reduction in recipient administrative activity should risks be re-assessed and subsequently found to have decreased over time. It is important that risk assessment strategies are accurate, appropriate and remain current. To this end, departments should have a strategy in place for periodically reassessing the risk ratings associated with multi-year contribution agreements.

Most funding agreements will be in the form of a single document. However, the Directive recognizes that, for grants involving low risks or low materiality, the use of application forms and exchanges of correspondence with recipients may be sufficient, so long as this documentation, taken together, reflects the necessary agreement elements.

6.  Cash management

The Directive on Transfer Payments provides departmental managers with considerable discretion in their cash management practices. This discretion is necessary to allow managers to tailor cash management arrangements to the assessed level of risks of individual transfer payments.

A general requirement of the Directive is that payments to recipients are to be made in a timely, prudent, and efficient manner that supports the achievement of objectives and recognizes the risks involved. The timeliness of payments is likely to be addressed in service standards that the policy requires to be in place by March 2010. Prudence in making payments requires that departmental managers have sufficient basis for making payments and that generally payments are not made in advance of need. Efficiency requires that payment requests can be processed quickly and that the documentation sought in support of payments is only that which is necessary and sufficient.

Within this general requirement, the Directive provides departmental managers with considerable latitude in making payments. The rules for grants are simple. For a grant up to $250,000, departmental managers have full discretion on whether to pay the grant in a lump sum or to pay it in instalments. A grant over $250,000 is to be paid in instalments unless the full amount is required in a single payment to meet the objectives of the grant. When any grant is to be paid in instalments, departmental managers have the discretion to determine the amounts and timing of the instalment payments, which could be based on cash flow projections obtained from the recipient.

The rules for contribution payments are a little more complex. First, it is necessary to distinguish between progress payments and final payments on the one hand and advance payments on the other. Progress payments and final payments are made after the performance of part or all of the obligations of the contribution agreement. Advance payments are made before those performance obligations of the funding agreement that would justify payment of the contribution have been met.

Before progress payments or final payments of a contribution can be made, evidence is required that the obligations of the funding agreement have been partially or fully met. The most common basis for such payments is the reimbursement of eligible expenditures. However, the Directive clearly indicates that such payments may be based on one or a combination of the following, specified in the funding agreement:

  • achievement of predetermined performance expectations or milestones;
  • reimbursement of eligible expenditures; or
  • a costing formula.

Progress payments based on specified performance expectations or milestones, or on a costing formula, do not necessarily need to be supported by evidence of eligible expenditures to that time. That said, a final accounting of eligible expenditures is always required; whatever basis is adopted for making progress payments, the total amount of contribution funding paid to a recipient under a funding agreement is not to exceed the eligible expenditures actually incurred by the recipient or such portion of these expenditures as was to be funded under the agreement.

Advance payments are made to provide cash flow to a recipient where this is necessary and are to be provided only when they are essential to the achievement of objectives. The decision on whether advance payments are to be provided to any recipient will be based on an assessment made at the time of entering into the funding agreement.

Departments have the discretion to determine the frequency and amounts of advance payments subject to the following:

  • the funding agreement should clearly indicate that advance payments may be made;
  • advance payments are to be made based on a recipient's cash flow requirements. Consequently, a funding agreement should not normally specify that fixed sums will be advanced on an established schedule. Further, advance payments should not be made to a recipient while the recipient has an unexpended balance of earlier advance payments in hand that is sufficient to meet cash flow requirements;
  • the total advance payments made in a fiscal year are not to exceed a recipient's estimated cash flow requirements with respect to the federal government's share of eligible expenditures for that fiscal year; departments are not to pay more than the recipient needs for a fiscal year, nor are advance payments to be used to provide interim financing for funding due from other sources;
  • notwithstanding the above limit on advance payments in a fiscal year, an additional advance payment may be made in a fiscal year to cover the federal government's share of expected eligible expenditures to be incurred by the recipient during April of the following fiscal year. Such a payment should be made only in circumstances where a department deems it essential to meet the objectives of a funding agreement.

The Directive requires departmental managers to monitor the use of advance payments and to obtain timely accounting from recipients to ensure that they are being spent for authorized purposes and that unexpended balances in the hands of recipients are reasonable. The determination of what is a reasonable unexpended balance is left to departmental discretion; however, it should be judged in relation to the recipient's near-term cash flow requirements for the project or initiative.

The Directive also provides discretion to departmental managers to assess, based on the risk of non-performance or overpayment, when to retain a holdback of a portion of any payment to be made to a recipient.

Departmental managers are to ensure that any amounts repayable by or recoverable from recipients are recognized as debts due to the Crown and that appropriate action is taken for recovery. Funding agreements should specify that interest is to be charged on overdue repayments in accordance with the Interest and Administrative Charges Regulations.[i] However, reasonable unexpended balances of advance payments held by a recipient at the end of any fiscal year within the term of a multi-year funding agreement are not to be considered as repayable at that time.

7.  Reporting, monitoring, and auditing

Reflecting again one of the key principles of the Policy on Transfer Payments, the Directive on Transfer Payments requires that departmental managers ensure that the level of monitoring of recipients, and the reporting required from them, reflects an assessment of the risks specific to the program, the value of the funding in relation to administrative costs, and the risk profile of the recipients.

Since, by definition, grants are not subject to being accounted for by recipients, reporting required on grants is often confined to the collection of information that may be necessary to meet the department's performance measurement requirements and, where appropriate, provide assurance on the ongoing eligibility of the recipient.

Reporting required on contributions, on the other hand, should be sufficient to:

  • account for the use of the funding and provide adequate documentation and support for making contribution payments;
  • demonstrate whether the obligations and objectives set out in the funding agreement are met; and
  • support the department's accountability and performance measurement requirements.

With respect to the reporting required from a recipient, departmental managers should also determine if any specific assurances on the validity of the information provided are necessary. Such assurances can take a wide variety of forms; they may include, for example:

  • a certification by a senior official in the recipient organization as to the correctness and completeness of information provided (e.g., chief financial officer, executive director);
  • a certification or statement from the recipient's independent external auditor attesting to the correctness and completeness of information provided; or
  • independently audited annual financial statements.

In requiring assurances from external auditors, departmental managers should be clear as to the value they add and be cognizant of the cost of providing such assurances.

The Directive requires departmental managers to monitor contribution funding agreements to ensure that recipients comply with the obligations and performance objectives of the agreements. This will include the timely assessment of reports from recipients and other monitoring activities that are appropriate to ensure compliance.

For any particular funding agreement, the level of monitoring and the approach to monitoring should reflect the level of risk. But the overall monitoring activities for any transfer payment program are to be sufficient to allow managers to assess and report on the progress and performance of the program.

One monitoring tool at the level of the individual recipient is a recipient audit. A recipient audit is an independent assessment to provide assurance on a recipient's compliance with a funding agreement, conducted on behalf of departmental managers by a suitably qualified agent. When departmental managers determine that recipient audits are a necessary part of their monitoring regime to complement their other monitoring activities, the Directive requires that a risk-based plan for such audits is to be prepared and executed. The scope of individual recipient audits may address any or all financial and non-financial aspects of a funding agreement; the guiding principles in selecting which aspects are to be addressed in a recipient audit should be the risks involved and the manager's need for assurance or additional information on those aspects of the funding agreement. More detailed guidance on recipient audits is found in the Guideline on Recipient Audits under the Policy on Transfer Payments.

Contribution funding agreements are to include provisions that will enable departmental managers to initiate recipient audits when they determine that audits are necessary or appropriate, and provisions that recipients are to retain records and make them available for this purpose. Note that recipient audit provisions in contribution agreements with other orders of government or with foreign recipients are not always required; departmental managers have the discretion to determine when such provisions are appropriate and necessary. Funding agreements for grants normally do not have recipient audit provisions, but they may be included where departmental managers deem them appropriate.

8. Special topics

8.1 Requirements related to specific recipient groups

The Directive on Transfer Payments provides for tailoring general requirements to reflect relationships with three specific groups of recipients: other orders of government, foreign recipients, and Aboriginal recipients.

8.1.1  Other orders of government

For the purposes of the Directive, other orders of government are Canada's provincial and territorial governments and provincial and territorial government entities. Other orders of government do not include municipal governments.

The Government of Canada provides significant financial support to provincial and territorial governments through four major transfer programs: equalization, territorial formula financing, the Canada Health Transfer, and the Canada Social Transfer. The equalization and territorial formula financing programs provide unconditional transfers to the provinces and territories. Equalization enables less prosperous provincial governments to provide their residents with public services that are reasonably comparable to those in other provinces, at reasonably comparable levels of taxation. Territorial formula financing provides territorial governments with funding to support public services, in recognition of the higher cost of providing programs and services in the North. The Canada Health Transfer and Canada Social Transfer are federal transfers that support specific policy areas such as health care, post-secondary education, social assistance and social services, early childhood development, and child care.

In addition to these four major programs, there are many other transfer payment programs under which payments are made to other orders of government to support specific objectives.

The Directive reflects the federal government's position of due recognition of the jurisdiction of provinces and territories. As a guiding principle, therefore, the Directive requires that arrangements for a transfer payment to a province or territory should be based on respect for the jurisdiction and responsibilities of that government. Moreover, these arrangements are to take into account the accountability mechanisms to its citizens that a province or territory may have in place.

The Directive recognizes that, given the wide range of transfer payments to other orders of government, there is a need for considerable flexibility in constructing appropriate accountability mechanisms for these payments. The Directive provides this flexibility in a number of areas:

  • First, with respect to terms and conditions, it recognizes that there are circumstances where terms and conditions may not be appropriate or required. This may occur, for example, with statutory transfer payments or transfer payments arising out of a federal-provincial-territorial agreement. Further, where terms and conditions are appropriate, the Directive sets out a reduced set of mandatory elements, with other elements to be tailored to the circumstances of the proposed transfers.[ii]
  • Similarly, with respect to funding agreements, the Directive recognizes that both the federal government and a provincial or territorial recipient may not always contemplate or intend that a particular funding agreement should constitute a document that would be an enforceable contract. Consequently, the Directive allows an agreement to be couched in terms that express the degree of enforceability deemed appropriate in the circumstances, and that provide sufficient commitment or obligation to ensure that the funding is used for the intended purposes and that objectives are achieved.
  • The Directive also provides considerable flexibility to tailor the elements included in a funding agreement with a province or territory to the circumstances of the transfer payment.
  • The Directive also allows departmental managers to determine the extent to which the general requirements of the Directive relating to determining the level of funding, cash management, and recipient reporting, monitoring, and auditing can be applied in managing transfer payments to other orders of government. If managers determine that any of these requirements are not appropriate in dealing with a transfer payment to an other order of government, they do not have to apply these requirements nor do they have to seek an exemption from the President of the Treasury Board to do this.
  • Finally, the Directive recognizes that, when transfer payments to provinces and territories are unconditional, accountability mechanisms are to be appropriately limited.

Given the flexibility permitted by the Directive, the accountability mechanisms put in place are to:

  • Identify the intended purposes, the expected outcomes, whether leveraging or cost sharing applies, and the responsibilities of the parties involved;
  • Take into account and, to the greatest extent possible, rely on the accountability regimes of these governments, including audit, evaluation, and direct reporting to citizens;
  • Identify the monitoring and reporting for the transfer payment within the recipient government;
  • Where direct reporting to the federal government is required, provide for specific audit assurance from the recipient government only where necessary; and
  • Enable appropriate and timely monitoring and reporting by the federal department on the use of the funds provided and the results achieved.[iii]

In the development of terms and conditions or other accountability mechanisms relating to proposed transfer payments to other orders of government, departmental managers are to consult on strategic matters with the Intergovernmental Affairs Secretariat of the Privy Council Office and with the Department of Finance.

8.1.2  Foreign recipients

For the purposes of the Directive, foreign recipients are foreign states and intergovernmental organizations of which two or more states are members. International organizations that do not have states as members are not foreign recipients for the purposes of the Directive.

The Directive distinguishes between assessed contributions payable to international organizations and all other grants and contributions to foreign recipients.

An assessed contribution is a transfer payment to fund Canada's assessed share of the costs of operations of an international organization of which Canada is a member as a result of an act of Parliament, a Cabinet decision, an Order in Council, or an international treaty. The Directive requires that departmental managers consult with both the Treasury Board Secretariat and the Department of Foreign Affairs and International Trade when developing any Memorandum to Cabinet, Treasury Board submission, or terms and conditions related to assessed contributions. Part 1 of Appendix J of the Directive sets out mandatory requirements for terms and conditions for assessed contributions.

As an assessed contribution is essentially a payment that results directly from Canada's membership in an international organization, the Directive allows payment to be made without the need to have a funding agreement, provided the payment is due and has been requested by the international organization and is in compliance with the approved terms and conditions. Moreover, the cash management and the recipient reporting, monitoring, and auditing requirements of the Directive do not apply in dealing with assessed contributions.

Part 2 of Appendix J of the Directive on Transfer Payment deals with transfer payments to foreign recipients other than assessed contributions, setting out the elements to be addressed in terms and conditions for such transfer payments programs and in funding agreements with foreign recipients.

The Directive recognizes that, in making a transfer payment to a foreign recipient, the funding agreement may not be intended to constitute an enforceable contract but rather may be intended as a statement of the agreed intentions and commitments of both participants.

The Directive also allows departmental managers to determine the extent to which the general requirements of the Directive relating to cash management and recipient reporting, monitoring, and auditing can be applied in managing transfer payments to foreign recipients. If managers determine that any of these requirements are not appropriate in dealing with a transfer payment to a foreign recipient, they do not have to apply these requirements, nor do they have to seek an exemption from the President of the Treasury Board to do this.

8.1.3  Aboriginal people and Aboriginal recipients

The Directive introduces specific sets of requirements related to transfer payments to Aboriginal people.

First, in recognition of the very wide range of transfer payment programs targeted to Aboriginal people, the number of departments involved in delivering these programs, and the ongoing nature of the relationships involved, the Directive requires departmental managers involved in the management of these programs to ensure that there is focused and sustained leadership in working toward consistent approaches that are more reflective of the needs of Aboriginal people. These efforts are to emphasize strategies for engagement, the standardization of administrative processes, the coordination of recipient audits, the reduction of administrative requirements, the use of single funding agreements to cover transfer payments from multiple programs, the use of multi-year funding agreements and the harmonization of transfer payment programs targeted to Aboriginal people. When applicable, the Treasury Board Secretariat is to be consulted to facilitate collaboration among departments on these issues.

Second, the Directive makes available for use by any department three additional contribution funding approaches for Aboriginal recipients that were originally developed and approved for use by specific departments. These are the fixed, flexible, and block contribution funding approaches, described in Appendix K of the Directive. The Directive requires that departmental managers promote and support the use of these additional contribution funding approaches where deemed appropriate. The flexible and block funding approaches involve multi-year funding agreements designed to support and reflect stable ongoing relationships and provide additional flexibilities to Aboriginal recipients in the use of funding.

These additional funding approaches are for Aboriginal recipients only; for the purposes of the Directive, an Aboriginal recipient is an Aboriginal individual or entity that has received a transfer payment, or has been authorized to receive a transfer payment, under a transfer payment program that is specifically targeted to Aboriginal people or has a component specifically targeted to Aboriginal people. Terms and conditions for a transfer payment program are to indicate whether the additional funding approaches may be used for that program.

Finally, the Directive specifically recognizes that the terms and conditions for a transfer payment program that permits transfer payments to Aboriginal recipients may include an element that would authorize advance payments to be made throughout the fiscal year to accommodate financial reporting by a recipient on an annual basis only.

More detailed information on the requirements of the Directive related to Aboriginal people and Aboriginal recipients is included in the appendix to this document, "Specific provisions with respect to Aboriginal recipients."

8.2 Up-front multi-year funding

Up-front multi-year funding is defined in the Directive as funding approved and payable to a recipient to meet expenditures for more than one year and where an appropriation for the full amount has been obtained.

8.2.1  Up-front multi-year funding specifically authorized by statute

Normally, up-front multi-year funding is provided to a named recipient under authority provided in an act of Parliament—a budget implementation act, appropriation act, or other statute. Where this is so, terms and conditions are usually not necessary, but the funding agreement is to be approved by Treasury Board before it is executed. Funding agreements for up-front multi-year funding are to follow the requirements of Appendix H of the Directive.

When the funding agreement is executed, the recipient is entitled to the full amount of the funding, subject to the provisions of the funding agreement. The Directive requires, however, that when the total amount provided is $50 million or more, the amount is to be paid in annual payments, based on the recipient's cash flow requirements. The provision for annual payments is to be included in the funding agreement, which would also establish the documentation to be provided by the recipient to support its requisitions for payments.

Named recipients of up-front multi-year funding are usually not-for profit corporations. It is usually appropriate to provide up-front multi-year funding only where the recipient needs to be able to demonstrate its financial stability in order to meet objectives involving the implementation of longer-term plans, undertaking multi-year commitments, or matching leveraged funding from the public and private sectors.

8.2.2  Up-front multi-year funding authorized in terms and conditions

As noted above, most up-front multi-year funding is provided to a named recipient under the specific authority of an act of Parliament. The Directive, however, provides a second route for providing up-front multi-year funding. Treasury Board may approve terms and conditions that specifically permit up-front multi-year funding to a recipient or category of recipients where the maximum amount payable to any recipient is limited to $10 million. Under these circumstances, where Treasury Board has approved terms and conditions, Treasury Board approval of individual funding agreements is not required. However, an appropriation needs to be in place in order for the full amount of the up-front multi-year funding to be provided to a recipient.

8.2.3  Endowment funding

Endowment funding is a particular type of up-front multi-year funding where a transfer payment is provided to a recipient for the restricted purpose of being invested by the recipient to produce an ongoing source of income to be used for purposes specified in a funding agreement. Endowment funding may be appropriate when there is an intention or requirement to fund a recipient on a long-term basis and the recipient has the capacity to manage invested funds.

When a decision has been made to provide endowment funding, the choice of the transfer payment instrument to make the payment is important. A grant may be most appropriate where sufficient assurance is available at the time of providing the endowment that the funding will be used for the purposes for which it is provided and where no ongoing accounting for the use of the funding is deemed necessary. Where ongoing monitoring and reporting on the use of the funds provided is required, endowment funding should be provided on the same basis as other up-front multi-year funding.

When a grant is to be used to provide endowment funding, the funding agreement provisions of Appendix H of the Directive on Transfer Payment should be adapted as necessary; the recipient reporting and accounting requirements are not appropriate to a funding agreement for a grant.

In cases where endowment funding is provided other than by way of a grant, the Directive requires that funding is not to be provided as endowment funding in perpetuity, which would create perpetual monitoring obligations for the funding department and perpetual reporting obligations for the recipient. Rather, funding agreements are to contain provisions for a review of the restrictions on the use of the endowment funding within a period of 20 years and a subsequent determination by the minister if such restrictions are to continue, be removed, or, with the agreement of the recipient, amended. Where the minister decides that the restrictions are to be continued for a further period, a date for a future review is to be established.

Again, in cases where endowment funding is provided other than by way of a grant, funding agreements are to be specific about what happens when investment losses occur. In particular, funding agreements are to specify whether income from investment is to be used first to maintain the capital amount of the endowment funding in the event of realized or unrealized investment losses.

8.3 Contributions that are repayable

The terms and conditions of a transfer payment program may provide that contributions made under the program are to be repayable. A recipient's obligation to repay may be conditional or unconditional, and the amount to be repaid may be the full amount[iv] of the contribution or part of it. Whether contributions are to be repayable and what factors influence repayment are key issues to be addressed at the design stage of a transfer payment program. These decisions are clearly related to the objectives of the program. It should be noted that there is nothing in the Policy or the Directive that limits the use of repayable contributions to for-profit recipients or that requires that all contributions to for-profit recipients are to be fully or partially repayable.

Where contributions are to be repayable, the Directive requires that the terms and conditions of the transfer payment program set out:

  • The factors that determine whether repayment is to be made. If the contributions are to be unconditionally repayable, this should be clear. If repayment is to be conditional, the terms and conditions are to describe the events or circumstances that will trigger repayment obligations;
  • The factors that will determine the amount of the repayment if repayment in full[v] is not always required; and
  • The terms of repayment. These should address the timing of repayments and any interest charges that apply to overdue payments.

There is one set of circumstances where, as a general rule, terms and conditions are to indicate that contributions are to be repayable. This is where contributions are made to for-profit businesses, and these contributions are intended to allow the businesses to generate profits or increase the value of the businesses. However, even where these circumstances apply, terms and conditions for the program may permit non-repayable contributions when one or more of the following apply:

  • The contribution is less than $100,000 and the administrative burden of repayable contributions is not justified;
  • The benefits from the contribution accrue broadly rather than to the recipient;
  • The primary aim is income support and income stabilization for individuals;
  • The recipient is a Canadian business under the terms of the Defence Production Sharing Agreement and the Defence Development Sharing Agreement and governments are the sole financing bodies;
  • The contribution is made with the primary aim of furthering basic research and development, including a payment made through a granting council or other government entity whose mandate is to promote research and development;
  • The recipient is an Aboriginal-controlled business whose articles of incorporation do not permit dividends to be paid or distributed to shareholders; and
  • The contribution is in support of a project funded under an international agreement that is restrictive for recoveries.

When terms and conditions are silent and do not specifically provide for non-repayable contributions in any of these situations, there is no discretion to permit non-repayable contributions when the contributions are made to for-profit businesses and are intended to allow the businesses to generate profits or increase the value of the businesses (other than the case-by-case ministerial exception noted below).

When a contribution is made to a for-profit business and is intended to allow the business to generate profits or increase the value of the business, then the expectation is that the contribution will be unconditionally repayable in full.[vi]

Where a repayable contribution is to be made, the Directive requires that the funding agreement address the conditions that determine whether repayment is to be made and the amount to be repaid, the timing of repayments, and interest charges.

It should be noted that, where terms and conditions require that recipients repay contributions, a minister has authority under the Policy on Transfer Payments (Section 6.3.7) to approve an exception when the proposed funding to a particular recipient is less than $200,000. This authority to allow an exception to the terms and conditions is to be applied on a case-specific basis; there is no authority for the minister to give a blanket exception for all contributions under $200,000. The exception is to be approved by the minister prior to execution of the funding agreement and the provision of the funding. The deputy head is required to ensure that a minister's exercise of this authority is publicly disclosed on the department's website within 30 days of the approval of the exemption. Note that this policy authority to approve an exception to terms and conditions does not authorize a minister to forgive or write off any amount that is repayable under a funding agreement (see sections 23, 24, and 25 of the Financial Administration Act and the Debt Write-off Regulations 1994).

Information on the accounting treatment of contributions made that are conditionally or unconditionally repayable, and on the accounting recognition of repayments due from the recipients, can be found in Accounting Standard 3.2 - Treasury Board - Transfer Payments (Grants and Contributions).

8.4 Stacking limits

In the Directive, "stacking limit" means the maximum limit on the level of total Canadian government funding that is permitted under a transfer payment program for any one activity, initiative or project of a recipient. Total Canadian government funding is funding available to a recipient from federal, provincial, territorial, and municipal governments for that activity, initiative or project. The amount that may be paid to a recipient who is receiving funding from provincial, municipal, or other federal sources toward an activity, project, or initiative is limited to an amount that would bring the total of all such government funding to the established stacking limit.

Departmental managers are responsible for establishing a stacking limit in the terms and conditions for a transfer payment program. The stacking limit is to be expressed either as a percentage of the total eligible expenditures or alternatively as a percentage of total expenditures of an activity, initiative or project to be funded under the terms and conditions, whichever is most appropriate for the transfer payment program design. Setting a stacking limit of less than 100% means that a recipient's activity, initiative or project will not be funded completely by Canadian governments; some portion will have to be funded by the recipient or non-government sources. When a stacking limit is set at 100%, there is no stacking restriction on funding from Canadian government sources.

The stacking limit is one of the factors[vii] that may establish the maximum amount that may be paid to a recipient by way of grant or contribution.

Maximum amount of transfer payment Equals Total eligible expenditures
or
total expenditures
Multiplied by Stacking limit Subtracted by Funding from other Canadian government sources

Text description of above table: Total eligible expenditures or total expenditures multiplied by the stacking limit then subtracting the funds from the other Canadian government sources will equal the maximum amount of transfer payment.

This calculation requires that departmental managers collect information at the time an application is made on funding received or to be received from other Canadian governments (including funding from other federal government departments) for an applicant's activity, initiative or project. The types of funding to be taken into account are set out in Appendix C of the Directive. All funding from Canadian governments for the particular activity, initiative or project is to be taken into account, not just funding for expenditures deemed eligible in the terms and conditions. Since all funding from Canadian government sources is to be taken into account, it is not necessary to establish whether funding from other governments is meant to support eligible or ineligible expenditures as defined by terms and conditions.

Where the amount of a contribution made is in excess of $100,000, the Directive requires an end-of-project check on a recipient's actual funding; the funding agreement is to require that, upon completion of the funded initiative, the recipient is to provide a statement of the total funding that has been provided from all sources, including total government funding received for the initiative. The funding agreement is also to set out the basis of repayment of funding where the stacking limit has been exceeded (see Appendix G of the Directive on Transfer Payment).

8.5 Official languages

The Policy and Directive both underline the government's and departments' obligations under the Official Languages Act.

The Policy requires deputy heads to ensure that, when a transfer payment program supports activities that benefit members of both official language communities, the design and delivery of the program respect the obligations of the Government of Canada as set out in Part VII of the Act in relation to the promotion of linguistic duality and the development of official-language minority communities, in addition to ensuring that services and benefits are made available in both official languages in compliance with the Act.

The Directive specifically creates the expectation that departmental managers who have responsibility for the design or redesign of a transfer payment program are to assess and document the manner in which the obligations of the Government of Canada set out in the Act are to be taken into account and, where relevant, how they are to be applied in designing the transfer payment program. In cases where it is determined that the program supports activities that may have an impact on members of either official language community, the terms and conditions for the program are to describe how these obligations are to be met. The Directive also highlights that, where performance expectations with respect to official languages are to be placed on a recipient, these have to be incorporated in the funding agreement.

The Official Languages Act gives to the Department of Canadian Heritage the mandate to promote a coordinated approach by federal institutions. Building on its experience and expertise, the department has prepared A Guide to establish Official Language Requirements (OLR) in PCH programs on the application of official languages in the design and delivery of transfer payment programs. Departments may find this document a useful resource.

Acknowledgment

The Office of the Comptroller General and the Treasury Board Secretariat would like to acknowledge the contributions of the Technical Committee formed to provide advice to the Office of the Comptroller General and the Secretariat during the development of the Policy and the Directive on matters relating to transfer payments to Aboriginal recipients.

This guidance will be updated periodically as required. Suggestions are welcome.

Enquiries concerning this guideline should be directed to:

Assistant Comptroller General
Financial Management and Analysis Sector
Office of the Comptroller General
Treasury Board of Canada Secretariat
Ottawa, Ontario
K1A 0R5

Email: Financial Management office
Telephone: 613-957-7233
Fax: 613-952-9613


Specific provisions with respect to Aboriginal recipients

About this appendix

This appendix is designed to explain in more detail the specific requirements in the Directive on Transfer Payments (the Directive) that deal with transfer payments to Aboriginal recipients.

About transfer payments to Aboriginal recipients

The Government of Canada provides a wide range of transfer payment programs specifically targeted to Aboriginal people. Many departments are involved in managing these programs. Very often, funding relationships are long-term in nature and provide support for important community programming.

Responding to these unique circumstances, the directive introduces specific provisions related to transfer payments to Aboriginal recipients and transfer payment programs that are specifically targeted to Aboriginal people.

Leadership responsibilities

The Directive requires that departmental managers involved in the management of these programs are to ensure that there is focused and sustained leadership in working toward consistent approaches that are more reflective of the needs of Aboriginal people. These leadership efforts are to place emphasis on a number of issues where general responsibilities have been assigned by the policy and directive but where particular focus with respect to Aboriginal recipients is essential. The issues are described below.

Recipient engagement

The policy recognizes the importance of engaging stakeholders in the design and delivery of transfer payment programs as a means of creating innovative, cost-effective, and citizen- and recipient-focused transfer payment programs and ensuring that such programs are accessible, understandable and usable. Deputy heads have a general responsibility to engage applicants and recipients, when appropriate.[viii] Engagement is particularly important with respect to Aboriginal programs. Many Aboriginal recipients administer funding agreements on behalf of Aboriginal people and are knowledgeable and well positioned to contribute effectively toward the design and delivery of these programs—to make them more reflective of the needs of Aboriginal people and to help identify improvements that can be made. Frequently, Aboriginal recipients receive funding under more than one transfer payment program; in these cases, recipients can potentially provide insight and information on any duplication that occurs and on opportunities for harmonization of programs and standardization of administrative requirements and processes. It is for these reasons that the Directive requires departmental managers to ensure that there is focused and sustained leadership with regard to the recipient engagement strategy.

Focus group discussions with stakeholders from departments and Aboriginal communities and organizations identified the following factors as important in achieving effective engagement with Aboriginal recipients:

  • Be up front on the purpose of the engagement and what it can influence;
  • Develop a protocol with clear parameters;
  • Consider policy forums and technical groups that report to advisory groups;
  • Respect recipients' position—engagement should not be viewed as simply getting stakeholders on board;
  • Accommodate interests of specific groups as appropriate—First Nation, Inuit and Métis; and
  • Provide feedback on the outcome of the engagement to those involved.

Reduction of administrative requirements

The policy requires deputy heads to ensure that the administrative requirements on recipients are proportionate to the risk level involved in making a particular transfer payment. The Directive goes further with respect to transfer payments to Aboriginal recipients. Here, departmental managers are to ensure that there is focused and sustained leadership in reducing administrative requirements. This requirement recognizes that, given the wide range of programs targeted to Aboriginal people offered by many departments, administrative requirements under multiple funding agreements can become a significant burden for Aboriginal recipients, and efforts to reduce this burden are necessary.

Standardization of administrative processes

Standardization is about the establishment of common processes, systems, or procedures for the management and delivery of transfer payments. Where an individual recipient receives funding under a number of transfer payment programs, there is clearly an increased administrative burden if the administrative processes for each of these programs are significantly different, e.g., application processes, reporting processes, or payment processes. To the extent that such processes can be standardized, there is potential for the reduction in administrative burden on both recipients and departments. Moreover, standardization may reduce the repetitive collection of the same base data from applicants. The policy requires deputy heads to pursue opportunities to standardize the administration of transfer payment processes, procedures, and requirements within their departments and, to the extent possible, with other departments, to achieve efficiencies in the administration of transfer payment programs for applicants, recipients, and departments.

Many Aboriginal recipients receive funding under a number of transfer payment programs. Leadership by departmental managers on standardization of administrative processes for these programs, where standardization is possible, is a necessary step to address the reduction of administrative burden.

Coordination of recipient audits

Departmental managers are responsible for ensuring that recipients comply with the financial and performance obligations of funding agreements. They do this through appropriate reporting and monitoring. One tool that may be used to complement other monitoring activities is a recipient audit. A recipient audit is an independent assessment directed by departmental managers, and conducted by an independent auditor, to provide assurance to departmental managers on a recipient's compliance with a funding agreement. Funding agreements for contributions normally contain provisions establishing the minister's right to undertake a recipient audit. Funding agreements for grants do not normally contain such provisions, but these may be included where departmental managers deem them necessary.

When recipients receive funding under a number of transfer payment programs, they are potentially subject to a recipient audit under each funding agreement, particularly where funding is provided by way of contributions. The Directive makes departmental managers responsible for ensuring that recipient audits of a single recipient are to be coordinated within the department and, to the extent possible, with other departments, and a single recipient audit is to be organized whenever feasible.

Given that many Aboriginal recipients receive transfer payments for various programs under funding agreements, the importance of leadership by departmental managers in coordinating any recipient audits is significant. Multiple, uncoordinated recipient audits are to be avoided. Coordination of audit planning to keep the number of separate recipient audits for a recipient to a minimum will demand organization within a department and, to some extent, with other departments that have funding agreements with the same recipient.

Use of single funding agreements to cover transfer payments from multiple programs

When a recipient is to receive transfer payments from multiple transfer payment programs, the Directive requires departmental managers to determine whether the use of a single agreement is practical for the department and beneficial to the recipient. Again, given that many Aboriginal recipients receive transfer payments for various programs, it is important to consider whether a single funding agreement is appropriate. A single agreement for a number of transfer payments offers the potential of reduced administrative requirements for the recipient, inherent standardization of processes, and easier coordination of any recipient audits.

Some departments (e.g., the Department of Indian and Northern Development and the Department of Health) have been using single funding agreements with Aboriginal recipients for a number of years. These funding agreements are functioning well. Some of these single funding agreements involve transfer payments from more than one department. From time to time, other departments, such as the Department of Fisheries and Oceans and the Department of Public Safety and Emergency Preparedness, have made transfer payments to Aboriginal recipients under these funding agreements. Departmental managers may wish to contact these departments for purposes of sharing a best practice on the use of a single funding agreement to cover transfer payments from multiple programs within a department and with other departments.

Use of multi-year funding agreements

When the achievement of the objectives of a transfer payment program or a funding agreement may involve a relationship with a recipient over a number of years, the Directive requires departmental managers to determine whether multi-year funding agreements are appropriate. Many transfer payment programs provide funding to Aboriginal recipients on an ongoing basis. In these circumstances, it is clearly appropriate to give consideration to the use of multi-year funding agreements. The block and flexible contribution funding approaches discussed below are multi-year funding approaches developed specifically for Aboriginal recipients. These can be used only when certain preconditions are met. When these preconditions are not met, a multi-year funding agreement may still be appropriate, albeit without the additional flexibilities that the block and flexible contribution approaches provide.

Leadership in consistently examining when multi-year funding agreements are appropriate offers the potential to reduce the administrative burden on recipients and departments and better reflect and strengthen ongoing relationships.

Harmonization of transfer payment programs

Harmonization of transfer payment programs is the alignment or integration of two or more transfer payment programs that contribute to similar objectives or serve the same recipients. Harmonization is another approach to the reduction of administrative requirements on recipients. It is also a means of addressing overlap and duplication among transfer payment programs. The policy makes deputy heads responsible for ensuring, when appropriate, the harmonization of transfer payment programs within their departments and ensuring collaboration with other departments.

At the time of writing, there are over 300 transfer payment programs that are either specifically targeted to Aboriginal people or have a component targeted to Aboriginal people. Leadership by departmental managers on harmonization should examine whether programs could be combined, or eliminated with adjustments made to other existing programs, with the intention of reducing administrative burden on both recipients and departments.

Treasury Board Secretariat support

The Directive requires departmental managers, when appropriate, to consult with the Treasury Board Secretariat to facilitate collaboration among departments on the issues described above. This requirement is consistent with the obligation placed on the Secretary of the Treasury Board by the policy to provide leadership and support in promoting and facilitating collaboration among departments for government-wide harmonization of transfer payment programs, the standardization of administrative processes, procedures, and requirements, and the sharing of best practices.

Additional contribution funding approaches

The Directive makes available for use by any department three contribution funding approaches for Aboriginal recipients that had been developed and approved for use by specific departments. These are the fixed, flexible, and block contribution funding approaches. These additional funding approaches are for Aboriginal recipients only; it should be noted that, for the purposes of the Directive, an Aboriginal recipient is an Aboriginal individual or entity that has received a transfer payment, or has been authorized to receive a transfer payment, under a transfer payment program that is specifically targeted to Aboriginal people or has a component specifically targeted to Aboriginal people.

The Directive requires that departmental managers promote and support the use of these additional contribution funding approaches where deemed appropriate. In designing or redesigning transfer payment programs, they are to specifically look at opportunities to use these approaches. Terms and conditions for transfer payment programs that permit transfer payment programs to Aboriginal recipients are to specifically address whether these approaches will be used.

These funding approaches provide additional flexibilities in transfer payments to Aboriginal recipients, and the flexible and block funding approaches involve multi-year funding agreements designed to support and reflect stable, ongoing relationships.

Fixed contribution funding

Fixed contribution funding is an option for providing transfer payments to Aboriginal recipients where a contribution can be based on a predetermined annual estimate of the funding required by the recipient to achieve the objectives of a transfer payment program.

Under fixed contribution funding, the recipient may retain any unexpended funding remaining at the expiry of the funding agreement, provided that the obligations and objectives set out in the funding agreement are met and the recipient agrees to use the unexpended funding for purposes consistent with the program objectives or any other purpose agreed to by the funding department. Reporting requirements for a funding agreement for fixed contribution should enable identification of the amount of unexpended funding at the expiry of the agreement.

Given that unexpended funding may be retained, there has to be a basis for establishing a reliable estimate of the amount of funding required by the recipient. The Directive requires that, where fixed contribution funding is to be used under a transfer payment program, the basis for establishing the amounts of funding is one of the core design elements that are to be considered and documented when the program is being designed or redesigned.

When the fixed contribution funding approach is used, the funding agreement is to make it clear that the recipient is responsible for assuming any costs in excess of the funding provided to meet the obligations and objectives set out in the funding agreement.

Flexible contribution funding

Flexible contribution funding is an option for providing transfer payments to Aboriginal recipients where the recipient has met certain assessment criteria and where a transfer payment program that requires a relationship of two or more years with a recipient to achieve objectives can be funded under a multi-year funding agreement.

The flexible funding approach reflects and strengthens stable relationships with recipients. It is to be used only where the recipient has an established track record in the management of transfer payments as evidenced by having met the assessment criteria described below.

The flexible funding approach is suitable where it is expected that a relationship of two or more years with a recipient will be required to achieve the objectives of the transfer payment program and a commensurate multi-year funding agreement is appropriate. The approach recognizes that, during the period of the agreement, providing the recipient flexibility in the use of funding is likely to be positive in attaining the overall objectives of the funding agreement.

Under the flexible contribution funding approach, a recipient may redirect funding among cost categories established in the funding agreement (also referred to in some departments as budget or service codes). In addition, during the period of the funding agreement, unexpended funding remaining at the end of each fiscal year may be carried forward for use in the next fiscal year to further achieve results toward the program objectives. However, at the expiry of the funding agreement, any unexpended funding remaining is to be repaid; it becomes a debt due to the Crown.

Block contribution funding

Block contribution funding is an option for providing transfer payments to Aboriginal recipients where the recipient has met certain assessment criteria and where a number of transfer payment programs that require a relationship of five or more years with the recipient to achieve objectives can be funded under a single multi-year funding agreement.

The block contribution funding approach is designed to facilitate and support long-term, trusted relationships with recipients who are receiving transfer payments from a number of programs. Again, as with the flexible funding approach, it is to be used only where the recipient has an established track record in the management of transfer payments as evidenced by having met the assessment criteria described below.

Under the block contribution funding approach, a single multi-year funding agreement is used to provide funding for a block of programs, where it is recognized that it will require a relationship of five or more years with the recipient to achieve the objectives of the various programs. It is a prerequisite that the funding for each program in the block can be determined on an annual basis, and the basis for establishing the amounts of funding is one of the core design elements that are to be considered and documented when the program is being designed or redesigned. However, this approach allows the recipient to adjust the relative priority of programs within the block and redirect funding among the programs to address changing circumstances and the recipient's evolving priorities, so long as progress toward all of the objectives is being maintained. Moreover, the recipient may retain any unexpended funding, during the term and at the expiry of the funding agreement, provided that the obligations and objectives set out in the funding agreement are met and that the recipient agrees to use the unexpended funding for purposes consistent with the multi-program objectives or any other purpose reflecting the priorities of the recipient agreed to by the department. It is also recognized that, with the block funding approach, annual reporting on costs incurred and results achieved is sufficient.

When the block contribution funding approach is used, the funding agreement is to make it clear that the recipient is responsible for assuming any costs in excess of the funding provided to meet the obligations and objectives set out in the funding agreement.

Assessment criteria

The use of flexible and block contribution funding is consistent with demonstrated capacity of the recipients to manage transfer payments. The Directive requires departmental managers to assess this capacity before using these approaches. In the assessment, departmental managers are to take into account the recipient's:

  • governance structure;
  • organization for purposes of program management, financial and administrative experience, and capacity to deliver programs;
  • processes and procedures for program management and financial control;
  • accountability mechanisms for transparency, disclosure, responsibility, and redress; and
  • financial position.

More generally, under the Policy and Directive, it is necessary to ensure that administrative requirements on recipients are tailored to the risks involved in making a particular transfer payment to that recipient. This will require that a department has the means to be able to identify and assess not only risks specific to the program and materiality of funding, but also the risk profile of the recipient. The particular assessment required in relation to flexible and block contribution funding may be part of the process of defining a risk profile for an Aboriginal recipient.

Contribution payments and advance payments

There are two additional elements that may be addressed in terms and conditions of transfer payment programs that permit transfer payments to Aboriginal recipients.

The first concerns how contribution payments may be made. The general requirement is that terms and conditions are to identify one or a combination of three bases on which contribution final payments and any progress payments are to be made: achievement of predetermined performance expectations or milestones, reimbursement of eligible expenditures, or a costing formula. For terms and conditions that permit transfer payments to Aboriginal recipients, a fourth element is added: payments may be based on a predetermined amount.

While contribution payments to a recipient may be made on any or a combination of these bases, the Directive requires that the total amount of contribution funding paid to a recipient under a funding agreement is not to exceed the eligible expenditures actually incurred by the recipient in completing the recipient's initiative or project, or such portion of these expenditures as was to be funded under the agreement. The only exceptions to this general rule are when funding is provided to an Aboriginal recipient under the fixed or block funding approaches described above, where a recipient may be permitted to retain unexpended funding at the expiry of a funding agreement to be used as specified in the agreement.

The second element has to do with advance payments and their relationship to annual reporting by recipients. Where advance payments are made, the general requirement of the Directive is that departmental managers are to obtain timely accounting from recipients to ensure that advance payments are being spent for authorized purposes and that unexpended balances in the hands of recipients are reasonable, having regard to the recipient's cash flow requirements. However, many funding agreements with Aboriginal recipients ask for financial reporting on an annual basis only. Where a department has determined that annual financial reporting is appropriate and is sufficient to support control and accountability requirements, it is to be encouraged as a means of reducing the administrative burden on recipients and departments. Annual financial reporting, however, does not support ongoing monitoring of unexpended balances of advance payments, as required by the Directive. Consequently, the Directive provides that terms and conditions that permit transfer payments to Aboriginal recipients may include an element that would specifically allow advance payments to be made throughout a fiscal year to accommodate financial reporting by a recipient on an annual basis only.

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