ARCHIVED - Evaluation of Foundations

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VII. Conclusions And Recommendations

A. Appropriateness

Federally funded foundations were created as tools to enable the achievement of public policy goals in a number of narrowly defined areas. The guiding principles for assessing potential foundation opportunities issued in Budget Plan 2003 identified a set of five factors that, in combination, define situations where the foundation approach has advantages over the use of normal government approaches to program delivery.

The sixteen foundations examined in this evaluation exhibited generally strong degrees of alignment with the guiding principles, in that they:

• Respond to, and focus on, specific and actionable needs. These needs are often in areas where an independent organisation can enter into agreements with provincial/territorial governments without having to deal with the same range of jurisdictional factors that a federal department would be subject to and ensure funding reaches the intended beneficiaries in a timely and flexible manner. We identified five distinct categories of need that are being addressed by foundations:
  • Establishment of specialised world class infrastructure.
  • Conduct of targeted research and development.
  • Support for education.
  • Community-based initiatives to improve community and environment health.
  • International knowledge brokering and supporting research.
• Operate in areas where there is a capacity for independent, non-partisan decision making, and where such decision making processes have a long tradition of use. Most foundations use decision-making processes based on the use of expert peer reviews of proposals with final decision making on the selection of projects being made by boards that bring together relevant combinations of knowledge and experience.
• Require multi-year funding to support the planning and implementation of longer-term projects or operate in areas where a long-term approach to planning is necessary for optimal delivery of short-term projects.
• May require multi-year funding to enable the generation of leverage from other levels of government, the private sector and non-government stakeholder organisations. (Requirements to secure matching funding vary, with some foundations having specific quantitative targets, others are encouraged to secure additional support, and two have no leverage requirements in their funding agreements due to the nature of the areas they operate in (Canada Millennium Scholarship Foundation and Aboriginal Healing Foundation).)

Our review of the characteristics of these foundations and their effectiveness in meeting their objectives indicates that the foundation approach is appropriate in situations when there is a combination of specific multi-year needs, capacity for independent non-partisan decision making, flexible multi-year funding of supported activities and, ideally, opportunities to obtain additional funding for activities from third parties. Unlike foundations, departmental programs are constrained by the annual appropriation process and related financial administration issues, have less flexibility to respond to federal-provincial-territorial jurisdictional considerations in a timely manner, and less flexibility to make project selection decisions on the basis of single-focus criteria such as scientific excellence.

The government's guiding principles provide general guidance for determining if a foundation approach may provide an appropriate means of responding to a particular policy goal. Beyond this, they lack supporting criteria to provide a rigorous and consistent basis for assessing foundation proposals versus the use of other policy instruments, positioning vis-à-vis any related programs, and the basis on which extension, renewal or revision and renewal of funding agreements at the end of funding terms would be made.

B. Effectiveness

1. Progress against objectives

The findings from evaluations of foundation activities and results, results reported in foundations' annual reports and comments from key informants indicated or concluded that foundations are generally achieving intended results and justified the use of foundations as a policy instrument in these instances. Projects supported by most foundations have long life cycles so information on outcomes and impacts is only now starting to become available, but initial results appear encouraging. Common themes in the findings of these evaluation studies suggest that foundations:

• Are responsive, flexible organizations.
• Have introduced innovative business models and approaches to the selection and monitoring of projects.
• Are results oriented. Many have implemented performance measurement systems that provide detailed information on project implementation, progress and results. The narrow focus of foundations means that they are often able to implement performance measurement and reporting systems that are superior to the systems in place for many departmental programs.
• Have established effective working relationships with their partners and stakeholders.
• Have made good progress against their objectives set in their funding agreements.
• Are contributing to the achievement of related government policy goals, based on the initial limited evidence of impacts.

2. Coordination with related government programs

Most foundations operate in fields where their activities link to or complement the activities of related government programs. This is particularly true with regard to foundations with mandates to support public research and development, the establishment of specialised infrastructure, and education. We found that the boards and management of foundations are aware of the need to avoid duplication and have taken steps to ensure that areas of potential overlap and opportunities for cooperation with government programs are identified and factored into their business plans. Having said this, many key informants from departments, foundations and granting councils noted that the information sharing and coordination is generally effective but is an area that requires ongoing attention as policies and programs evolve, and management turnover occurs within these various organizations..

While some degree of coordination or integration of foundation activities with the program of other public complementary programs is likely, a high degree of coordination would suggest that a foundation is not addressing a need that was as specific and separable as anticipated at the time it was created. Generally, the evaluations of foundations that we reviewed did not identify any significant issues of overlap or duplication among the foundations studied.

3. Alignment with government policy goals 

Many of the key informants interviewed felt that policy goals applicable to foundations are unlikely to change so much that a foundation may have divergent or contrary objectives and, as such, concerns about continued alignment are valid but largely hypothetical. Mechanisms to modify or refine the alignment of foundation objectives with policy goals do exist and are applied. On the government side, new funding tied to modified policy goals or priorities can be offered to foundations, and the objectives set in funding agreements jointly re-negotiated as part of this process. On the foundation side, boards and senior managers of foundations use their contacts with funding departments and Ministers' offices to keep informed about the evolution of policy priorities and to use the knowledge gained to refine their priorities and resource allocations within the overall structure of their mandates. Foundations also have the opportunity to use their periodic evaluations of results to assess the degree to which policy goals are being met and to draw on these findings in their corporate planning. Foundations with perpetual endowments have a greater degree of freedom, by virtue of their open-ended terms, to set a course that may potentially diverge from government policy goals, and the Minister can only intervene if the terms of the funding agreement are not satisfied. (Note that this is not to say that any of these foundations appear to have objectives that diverge from current public policy goals.)

4. Functioning of accountability mechanisms

Various steps have been taken by the government to strengthen the accountability of foundations since their first use in 1997-98. These actions include introducing consistent expectations regarding the preparation of annual corporate plans and performance reports, the conduct of independent audit and evaluation studies, submission of these reports to the responsible ministers and their public disclosure, and discretion for responsible Ministers to commission their own independent evaluation and performance audit studies. Most of the sixteen foundations studied now have funding agreements that include these provisions as well as consistent conditions under which the Crown may intervene in the event of non-compliance with the requirements of funding agreements.^[25]

In addition, the Auditor General now has increased authority to inquire into the use of funds by foundations and data on annual disbursements for four foundations—Canada Foundation for Innovation, Canada Millennium Scholarship Foundation, Sustainable Development Technology Canada and Aboriginal Healing Foundation—are now included in the government's annual financial statements. These changes to the accountability and transparency requirements for foundations were made in response to concerns expressed in the Auditor General's 1999 and 2002 reports as well as the experience gained with the establishment of foundations and administration of these arrangements.

Participants in our interviews felt that, in general, the current accountability requirements added a layer of public transparency and accountability to practises that were already in place to support internal management and board oversight of foundation activities.

C. Costs

Differences in the mandates, scales of operation, business models and ranges of activities undertaken by foundations mean that it is difficult to directly compare their operating and administration costs, or to compare them to the cost structures of departmental programs operating in somewhat similar fields.

Our analysis of the operating and administration cost structures of the six case study foundations found that these foundations work with very lean structures focused on structured and transparent processes for reviewing and selecting projects to support, and supporting systems for project tracking and financial management. Their operating and administration costs are driven by needs to efficiently manage project workloads and to provide timely support for governance and accountability requirements. Foundations' resource levels, and costs, appear to be closely matched to, or follow, the trends in the project workloads.

More broadly, and excluding the cost performance during initial start-up periods, the shares of operating and administration costs in total expenses of foundations with high average annual rates of disbursements (i.e., greater than $100 million per year) range from 3% to 4%. These rates are not dissimilar to the 5% to 6% level achieved by granting councils and Infrastructure Canada, which share similarities to some of the foundations but have significantly higher numbers of projects (in the case of the councils), and annual disbursements. For medium-sized foundations (~ $40 - $80 million per year), the share is of the order of 7% to 11% (plus one foundation with a share of 24%). This compares to shares of 12% and 14% at the Alberta Heritage Foundations for Medical Research, and Science and Engineering Research, which have average annual disbursements of the order of $49 million and almost $11 million, respectively.

Foundations with low annual rates of project disbursements (below $40 million per year) do not have the same opportunities to achieve economies of scale as the foundations with higher disbursement rates, and many also undertake other activities in addition to selecting and funding projects, such as, knowledge transfer, capacity building and outreach. The share of operating and administrative costs in their total expenses ranges from about 29% to 51% for these foundations, except for one very lean foundation where the share averaged 6%. In some cases, the relatively high share of operating and administrative expenses in total expenditures may be due to the fact that annual disbursements are still ramping up to planned levels. This appears to be the case with Sustainable Development Technology Canada and Canada Health Infoway where both the elapsed times from project selection to commencement and the time periods over which funds for each project are disbursed are quite long.

The issue of scale is particularly relevant to foundations with perpetual endowments where the level of funding available for projects and administration is a function of the income generated from their endowments. Achievement of a reasonable scale of operations thus depends upon the foundation receiving (or building) a very large endowment.

D. Recommendations

Recommendation #1 – more structured criteria for assessing foundation proposals

The findings presented in the previous section, and in more detail in the body of our report, suggest that foundations provide an appropriate means of addressing public policy goals in situations where organizational independence, financial stability and special expertise enables more effective program delivery than would otherwise be the case. Currently, the only formal guidance for determining if the foundation approach is appropriate is provided by five guiding principles first published in Budget Plan 2003. While these principles provide useful general guidance for the use of foundations we believe that decision-making regarding the future selection and use of foundations could benefit from the development and application of a set of supporting criteria drawn from the experience with current foundations. These criteria should complement and extend the existing guiding principles and provide a consistent, more rigorous basis to assess proposals to use the foundation approach or to renew and/or revise existing funding agreements.

We recommend that the government formulate a more structured framework that provides guidance for the assessment of proposals to use a foundation to contribute to the achievement of policy goals, or extend or renew multi-year funding for existing foundations. This framework would extend the existing guiding principles by defining criteria to inform decision-making regarding the use of foundations and assessment of supporting business cases for their funding. Such criteria as the following should be considered in developing this policy:

1. Specific area of need or opportunity:

• Is there a specific national or regional need or opportunity that is not addressed by current government policy instruments or levers, or can be better addressed using a foundation?
• Is this an appropriate area for intervention or support by the federal government?
• Can the applicable policy direction and goals be defined in legislation and/or a funding agreement?
• Are there potential issues or concerns from other levels of government concerning the federal role or jurisdiction? If so, will the use of a foundation approach be acceptable to and supported by these other levels of government?
• Will the proposed activities have a high degree of overlap with existing government programs or require a high degree of coordination with complementary programs? Could the proposed activities be delivered by an existing program delivery organization instead of a separate foundation?
• Are there mechanisms in place, or will mechanisms be required, to coordinate or integrate proposed activities with these existing programs to avoid overlap or duplication? Can this coordination be accomplished efficiently?

2. Capacity to establish an independent board with directly relevant knowledge and experience:

• Is there an appropriate capacity in place (or capable of development) to provide independent, non-partisan decision-making?
• Is there a willingness amongst the potential pool of directors to assume the anticipated role to be played by the board?

3. Need for funding beyond annual parliamentary appropriations:

• How will the availability of multi-year funding enable a more timely or cost-effective approach to the specific area of need or opportunity?
• Is guaranteed funding over the life of the envisaged multi-year projects necessary for efficient project and financial management?

4. Capacity for decision making using expert peer review:

• Is the peer review method and selection on the basis of merit accepted as the common basis for selecting projects for support?
• Is there an appropriate capacity in place (or capable of development) to enable the application of a peer review process?

5. Evidence that leveraged funding can be secured:

• Are there potential funding partners for the envisaged projects?
• What evidence is there that potential partners are willing to provide matching funding?

6. Timeframe to achieve intended results:

• What time period will be necessary to achieve the desired immediate and/or final outcome(s)?
• What is the government's exit strategy?

In applying these criteria, all proposed applications of the foundation approach would be expected to satisfy criteria 1, 2 and 3, which are linked to the fundamental rationale for using the foundation approach. The application or importance of the remaining three criteria may vary in response to the particular context in which the foundation is to operate. This variability is also present in the current mix of foundations.

Recommendation #2 – use of fixed term versus perpetual foundations

Any decisions to use a perpetual endowment to fund a foundation should carefully assess the extent to which the characteristics of the need to be addressed differ from those addressed using fixed term funding agreements.

Seven of the sixteen foundations examined in our work operate with perpetual endowments, using investment income from their endowments to fund both program delivery and administrative activities. Approximately 7% of the funding transferred to the foundations studied was in this form. Foundations with perpetual endowments represent the most independent form of the foundation approach, in that the government has more limited opportunity to re-negotiate the terms and conditions of their funding agreements and, potentially, to ensure continued alignment with relevant government policy goals. (This is not to say that any are out of alignment at present, however.) Their reliance on investment income alone also means they are more exposed to interest rate risks and require a significant endowment if they are to maintain high rates of project funding. Based on the information reviewed, it was not apparent that the needs being addressed by foundations with perpetual endowments required noticeably different time frames to achieve results than the needs being addressed by foundations with fixed term funding.

Recommendation #3 – Consider the significance of administrative and operating costs into assessments of potential new foundations

The relative cost-effectiveness of foundations is determined by the scale of operations relative to the cost of operations and administration, and the extent to which supporting activities are performed, such as outreach to and capacity building among targeted beneficiaries. In situations where these operations and administrative costs are expected to consume a significant proportion of the total funding available it may be more economical to use an alternative instrument to achieve the desired policy outcomes. 

We recommend that the assessment process for proposed new foundations consider the expected scale of operations of proposed foundations and the relative significance of their administrative and operating costs in addition to the factors considered under the guiding principles and criteria proposed under Recommendation #1, above. Incorporation of criteria relating to the expected significance of these costs should mean that not only would proposed foundations address currently unmet needs; they would do so at a reasonable cost.

 

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