ARCHIVED - Government Response to the Eleventh Report of the Standing Senate Committee on National Finance

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General Response

The Government welcomes the Committee's recommendations on foundations. The Government's Response below reflects that, since Budget 2003, the Government has taken and, with recommendations from the Auditor General and Parliament, continues to pursue active steps to strengthen overall accountability and transparency relating to transfer payments to foundations, and do so in a manner that respects the independence of these organizations.  Among the most important steps taken are the following:

• The Government has set out clear principles it will apply when using a foundation to deliver public policy;
• Funding agreements have been renegotiated, and in some cases legislation amended, to improve accountability;
• Reporting to ministers, Parliament, and the public has been strengthened;
• Default provisions have been introduced in funding agreements to enable corrections when things go wrong;
• The Government's Bill C43 has been enacted to authorize the Auditor General to perform audits.

Further, the Government supports the Committee's recommendation that an evaluation should be conducted of foundations as tools for the delivery of public policy. However, the Government also believes that the accountability and oversight regime for foundations must respect and preserve their independence if they are to remain effective delivery tools.

Recommendation 1

Sponsoring ministers should table in Parliament the corporate plans or summaries and the annual reports of foundations in a timely manner.  In consultation with the foundations, the sponsoring departments should encourage them to include meaningful information on results in their plans and reports.

There are a number of reports that help to ensure transparency to Parliament and the ability of committees to review foundation activities, and departments are working with foundations on an ongoing basis to improve the information they provide.

In Budget 2003, the Government committed that summaries of foundations' corporate plans will be made public by ministers and submitted to Parliament.  In addition, departments responsible for administering funding agreements are to incorporate significant expected results to be achieved by foundations in their Departmental Reports on Plans and Priorities, which are tabled in Parliament, and situate these within overall departmental plans and priorities.  For the duration of funding agreements, these departments are also to report on significant results achieved by foundations in their Departmental Performance Reports and situate these within overall results achieved.

Annual reports of foundations are presented to ministers responsible for funding agreements. All reports are made public and ministers are encouraged to table them in Parliament. The annual reports of foundations established by legislation, which represent about 80% of all transfers to foundations, are tabled.

Recommendation 2

The federal government seek every opportunity to persuade all existing foundations to incorporate into their evaluation framework the standards set out in the Treasury Board Evaluation Policy when commissioning independent evaluations.

The Government agrees that foundations should use recognized evaluation standards. While the independent evaluators appointed by foundations likely use appropriate evaluation standards, to provide further assurance, clauses to address this have already been negotiated in a number of funding agreements where funding was provided in the 2005 Budget. Opportunities will be taken to negotiate similar clauses with other foundations.

It is important to note that departments are already obliged to follow the Treasury Board Evaluation Policy in the conduct of their evaluations relating to foundations.

Recommendation 3

The federal government ensure that an adjustment mechanism is in place that allows sponsoring ministers to intervene in cases where circumstances have changed considerably since the creation of foundations for which they have responsibility.

The 2003 Budget clarified the circumstances in which foundations are used as a means of meeting the needs of Canadians.  In utilizing foundations, the Government makes very conscious and considered decisions that organizations at arms-length from the Government are in the best position to deliver on the public interest. Transfers of funds to foundations are fully and properly accounted for in the Estimates and Public Accounts.

While the Government has taken significant steps to improve the accountability of foundations to Ministers and Parliament, it is important to preserve the independence of foundations from the Government and ensure that their directors are fully responsible for foundation actions.  The funding agreements between foundations and the Government are contractual and cannot be changed unilaterally. Funding to foundations is provided to meet objectives with a mid to long-term horizon.  However, in the event that significant changes in circumstances were to arise that led to misalignment between Government policy and the objectives of a funding agreement, the Government would make every effort to renegotiate the funding agreement with the foundation. To date, the Government has been successful in negotiating adjustments to meet emerging requirements. For those foundations established by specific legislation, it is also open to the Government to seek amendments to the legislation, as the Government has done in the past.

If a clause were to be inserted in a funding agreement that would permit the Government to unilaterally redirect the use of a foundation's funds that had been provided by the Government, this would be a strong, though not conclusive, indicator that the Government controls the foundation within the meaning of the Public Sector Accounting Board standard on the Government Reporting Entity.  It could also seriously impact the foundations achievement of its objectives due to the consequent uncertainty.

Recommendation 4

The Office of the Comptroller General of Canada and the Office of the Auditor General of Canada pursue their discussions and prepare a report detailing the progress achieved in clarifying the guidance of the Public Sector Accounting Board concerning the accounting treatment of federal transfers to foundations.  This report should be tabled to Parliament.

The Government holds the view that its accounting treatment of transfers to foundations has fully respected all objective accounting standards of the Canadian Institute of Chartered Accountants.

The new Public Sector Accounting Board standard on the Government Reporting Entity, which takes effect in fiscal year 2005-2006, defines the scope of the Government reporting entity in terms of the organizations whose financial affairs and resources would be included in a Government's financial statements. The Government is examining foundations in the context of this standard to reach a judgment on whether any foundations are controlled by the Government in accordance with the terms of the standard. The Government will share and discuss this analysis with the Office of the Auditor General.   Should the Government determine that any foundation is to be considered part of the Government reporting entity, the Government's financial statements would require restatement if the financial impact is material.

The Public Sector Accounting Board is also revising its standard relating to government transfers. This has not yet been finalized, but it may have implications for accounting for funds advanced to foundations. The Government will report back to the Committee on these matters by 31 March 2006.

Recommendation 5

The Treasury Board Secretariat reviews the use of exemptions to the transfer payments policy that allow payments to be made to foundations in advance of need.  The findings of this review should be reported to Parliament.

Foundations are important tools for implementing policy in areas such as innovation, research, health and education, where stable, long-term funding is important. Up-front funding is necessary to provide foundations the financial stability they need to plan comprehensively for the medium and long-term, to allow them to make multi-year commitments, and to attract funds from other sources.

Up-front funding has meant that transfer payments have been made to foundations in advance of their cash flow needs, but not in advance of their program need. The Policy on Transfer Payments explicitly provides for Treasury Board approval of exemptions when transfer payments are to be made in advance of cash flow need, and this provision has been appropriately utilized to provide up-front funding to foundations. The Policy on Transfer Payments, it should be noted, is currently under review and the issue of exemptions will be considered.

Going forward, the Government is exploring other options to guarantee stable funding for foundations that preserves their ability to enter into longer-term commitments. The Government will report to the Committee on the outcome of this review by 31 March 2006, in conjunction with its review of accounting issues discussed above.

Recommendation 6

The Treasury Board Secretariat develops an evaluation framework and undertakes a government-wide evaluation of the use of foundations as instruments of public policy.  This evaluation should include the appropriateness of the use of foundations, what they cost, and how effective they have been.  The results of the evaluation should be reported to Parliament.

The Government has already taken active steps to improve accountability and transparency relating to transfer payments to foundations. The Government will undertake an evaluation of the use of foundations as tools for the delivery of public policy, particularly with respect to the use of up-front conditional grant assistance. The Government undertakes to report the results to the Committee no later than 31 March 2007.  It should be noted that there is a robust framework in place for the evaluation of foundation results. Funding agreements with foundations generally provide that they are to carry out evaluations within specified timeframes. These evaluations are being done. Evaluation results are reviewed by departments, which incorporate significant findings in their Departmental Performance Reports tabled in Parliament. Funding agreements also provide that departments may undertake evaluations, and would generally do so in the context of the department's broader program objectives.

Recommendation 7

The federal government seek parliamentary review of any proposed funding agreement for new foundations or proposals for changes to existing foundations.

Going forward, the Government is committed to seeking parliamentary approval, through direct legislation, of purpose and funding for foundations that are significant either from a policy or financial perspective. In all cases, Parliament approves the funding for foundations.