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Guide on Grants, Contributions and Other Transfer Payments


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4 Creating a transfer program

Creating a new transfer program is a very complex task that must take into account several internal and external factors. Consultation and communication with and between stakeholders is critical to develop a successful transfer program. Consultation should include operational and functional staff and management with experience managing and delivering similar transfer programs.

4.1 Selecting funding instruments for new transfer payment programs

4.1.1 Types of transfer payments

The various forms of transfer payments include contributions, grants, flexible transfer payments (FTPs), alternative funding arrangement (AFAs) and other transfer payments (OTPs).

Key attributes of transfer payments:

  • Contribution-a conditional transfer whereby specific terms and conditions must be met or carried out by a recipient before costs are reimbursed.
     
  • Grant-an unconditional transfer payment where eligibility criteria and applications received in advance of payment sufficiently assure that the payment objectives will be met.
     
  • Other transfer payment (OTP)-a transfer payment based on legislation or an arrangement that normally includes a formula or schedule as one element used to determine the expenditure amount.
     
  • Alternative funding arrangements (AFAs) and flexible transfer payments (FTPs)- transfers specific to Indian and Northern Affairs Canada (INAC). They possess characteristics similar to OTPs and contributions. AFAs and FTPs are like contributions in that there is a written agreement setting out both parties' obligations, including audit provisions. FTPs are conditional transfer payments and may include provisions for the retention of unexpended balances, provided program terms and conditions have been fulfilled.4
     

4.1.2 Factors that influence the choice of transfer payment5

The choice of funding instrument to achieve a department's policy objectives is an important consideration in program design. The right choice of instrument is a critical factor in meeting the objectives and expectations of program managers, potential recipients and Parliament.

The following factors that impact upon the choice of instrument must be considered:

  • Legal-Legislation, regulations and policies
  • Financial/Economic-risk management, cost effectiveness
  • Social considerations-e.g., natural disaster
     

4.2 Defining objectives of new transfer payment programs

4.2.1 Linkage between transfer payment program objectives and national and departmental objectives and priorities

When creating a new transfer payment program, its purpose and objective(s) must support and advance the department's mandate and strategic objectives. Although a department's mandate does evolve, its core mandate generally remains constant over time. If the link between the program and departmental mandate and/or business line is not obvious, then the program should be rethought.

For example a department with a mandate to promote Canadians' health could develop a program to encourage eating nutritional food. It is not expected that the same department would have a mandate to encourage Canadian farmers or businesses to produce and/or process those nutritional foods. For this same department to use transfer payments to assist businesses to process food would be questionable.

4.2.2 Beneficiaries

Setting a program's objectives necessarily involves identifying the target group or individuals that will benefit from the transfer program. Beneficiaries may be named (e.g., specific individuals) or identified as a group or class.

In the latter case for example beneficiaries may be identified narrowly such as unmarried First Nations males in northern Saskatchewan or more widely as First Nations people across Canada.

4.2.3 Expected benefits and outcomes

Once the key stakeholders (e.g., program managers, sector representatives, potential recipients, Parliament) agree on a program's purpose and objectives, the groundwork is laid for the design of the program.

Most often, program objectives are general statements that provide a focus and scope for stakeholders. However, in order to implement these objectives, departments must proceed to restate them as expected results and outcomes (expected benefits to Canadians). Identifying expected results will allow stakeholders to determine, among other things, what should happen to beneficiaries because of the funding provided and whether a project was successful in contributing to the expected program results and objectives.

By identifying expected results and outcomes, officials can proceed with the subsequent stages of program management. These include the choice of transfer payment (e.g., grant or contribution), establishment of assessment criteria, selection processes, transfer payment agreements, monitoring and payment systems, and reports.

Section 5 is devoted to a full explanation of identifying, assessing, measuring and evaluating a program's expected results.

4.3 Defining delivery framework for transfer payment programs

Departments should consider an appropriate delivery mechanism for all new and revised transfer payment programs.

4.3.1 Centralized versus decentralized program

The degree to which a program meets its objectives may be influenced by the centralized or decentralized nature of its delivery. Programs can be managed centrally, regionally, locally or in combination. Splitting specific management functions between central and regional offices will best meet program objectives. For instance, decision making could be centralized while other functions such as monitoring and payments could be undertaken in a region.

Factors to consider include:

  • the degree of control needed,
  • the nature and dispersion of the potential beneficiaries,
  • the dispersion of departmental human resources,
  • cost effectiveness and
  • critical or exceptional circumstances (e.g., urgent action needed).6

4.3.2 Direct delivery versus sub-agreement delivery7

Departments may deliver a program through their own human resources or through a sub-agreement. If this second option is considered, a department must decide if a contract or transfer agreement is the most appropriate arrangement.

The factors that a department should consider when choosing direct or third party delivery include:

  • expertise within the department,
  • program duration,
  • cost,
  • sensitivities, such as having a federal presence,
  • target group needs and expectations and
  • dispersion of target group.

4.4 Defining terms and conditions of transfer payments

4.4.1 Grants to class of recipients and for contributions

The Treasury Board submission seeking approval for a grants and contribution program must include the terms and conditions in their entirety. They form the basis for subsequent agreements with recipients. This sub-section describes each required component of terms and conditions and explains why each is critical to a program. Managers and advisors with a clear understanding of the reason for a particular component are better positioned to manage within those terms and conditions.

Although the requirements for terms and conditions are not explicit in the policy for "Other Transfer Payments" and "Named Grants," there are a number of requirements that must be considered when approving these transfer payments. See sub-section 4.4.3. for a more details

A prerequisite to renewing terms and conditions is identified in paragraph 7.3.7 of the policy. It states that "Departments must assess the current transfer payment program] through a formal program evaluation or similar review, and report back on the effectiveness of the transfer payments when requesting renewal of terms and conditions."

4.4.2 What is required

The Transfer Payment Policy is explicit about the minimum content of a program's terms and conditions. Where a requirement does not apply for a given program, an explanation is required for that item. For example, stacking does not apply to transfer payments made to provinces and territories.

Table – The content of a program's terms and conditions

Policy requirements
(section 8.1 of the TP policy)

Comments

Summary

  • A short summary of the program or initiative.

The terms and conditions will become a stand-alone document for use by departmental staff. It will be helpful to them in negotiating with potential recipients and in drafting agreements to place the program in the proper context.

Objectives and Results

  • A clear statement of the transfer payment program's objectives;
     
  • A clear statement of how the transfer payments further approved program objectives, including identification of expected results and outcomes.

A manager must justify how a particular transfer agreement is linked to and furthers the objectives set out in the transfer program's terms and conditions.

This statement should relate to the results-based accountability framework discussed in sub-section 5.1.

The program or legislative authority to develop or renew a transfer payment program should also be identified in this section to verify that it is in keeping with the departmental mandate.

Eligible Recipients

  • A clear identification of the recipient or definition of the class of eligible recipients. If the intention is to include Crown corporations as qualified recipients, include specific reference to their eligibility.

This component requires special consideration if a class or classes of eligible recipients are being considered. A class may include individuals, for-profit and non-profit organizations.

Transfer payments may not be made to other government departments because it would circumvent Parliament and the Estimates process.

Stacking provisions

  • The proposed stacking limits, i.e., specific limits to the total government assistance (e.g., 50% of eligible project costs), and;

The terms and conditions should demonstrate that due consideration has been given to stacking. Managers should expect that other government entities may be interested in participating in the funding of a particular project.

The percentage of total government assistance (TGA) must be stated explicitly in the terms and conditions. See definition of TGA in the Transfer Payment Policy, Appendix A.

To ensure that a department is only providing the necessary amount to undertake the project successfully, consider the funding amount the recipient is receiving from:

  • other federal government departments,
  • other government sources (provincial, municipal) and
  • the recipient is itself contributing to the project.
  • The method used for determining repayments by the recipient for cases where such assistance exceeds the anticipated funding level.

Refer to sub-section 4.6.4 for an explanation of stacking and an example of wording for terms and conditions.

  • Departments should briefly indicate that they have a monitoring process in place to recover payments made beyond the stacking limit. At a minimum, they should refer by name to their internal process or system.

Application Requirements

  • A description of the supporting material required in an application from a prospective recipient, including a requirement to disclose the involvement of former public servants who are subject to the Conflict of Interest and Post-employment Guidelines.

These details are necessary for departmental officials to apply due diligence: e.g. for determining eligibility, assessing the merit of the project, reviewing the description of the work to be undertaken.

Eligible Expenditures

  • Identification of the type and nature of expenditures considered eligible costs under the contribution program for reimbursements.

The identification of eligible costs provides essential guidance to managers and staff in developing and authorizing projects and agreements.

Sub-section 8.4.3. distinguishes between eligible and allowable expenditures.

Maximum Amount Payable

  • The maximum amount payable to each recipient. Justify if not able to identify the maximum.

The maximum amount payable will limit the amount a department can approve to a recipient under the program. Anything greater will require TB approval by separate submission.

Authority to approve, sign and amend

  • The organizational positions, if any, that the minister will delegate authority to approve, sign or amend contribution agreements and the parameters within which this authority may be exercised.

Departments can reference a delegation instrument that is or will be used for the program. These delegation instruments do not need to be submitted with the submission but must be in force at the time of the submission.

Do not overlook the need to balance control with efficiency when delegating authorities. Even a one-time only agreement signed by the minister may need an amendment.

Authority to approve payments

  • Where not otherwise specified in the delegation of financial signing authorities, the identification of the organizational positions to which the minister will delegate authority to approve payment.

Delegation of authority to make payments must be stated in the terms and conditions in addition to the delegation for approvals and amendments discussed above. Departments can reference a delegation instrument that is or will be used for the program.

Basis and Timing of Payment

  • The basis and timing of payment (including such details as a schedule of advance and progress payments and applicable holdback provisions)
     
  • Where advance payments deviate from the TP policy's requirements, the justification and the associated cost to the government of imputed interest (to calculate imputed interest, take into account the number and amount of advances paid earlier than indicated in the guidelines, the length of time the payment is advances and an interest rate equal to the 90 day Treasury Bill rate).

If advance payments are to be made, departments need to indicate that they will be following the Cash Management Policy (see sub-section 7.6 and Appendix B of the Transfer Payment Policy.) If this is the case, no further discussion is needed.

The approval of TB ministers must be obtained, through a Treasury Board submission, for any advance payments that fall outside the policy provisions. Departments must indicate the proposed cash flow schedule, calculate imputed interest and indicate if the department is also seeking Treasury Board approval to retain the imputed interest in the allotted program funds.

Refer to sub-section 11.3 for further discussion of the Cash Management Policy.

Repayable Contributions

  • In the case of a repayable contribution, the conditions or events under which all or part of the contribution is repayable, a description of the process to be used to monitor potential repayments and collect amounts due and the application of interest charges on overdue repayments.

This section deals with contributions that are expected to be repaid, and not for contribution overpayments. See sub-section 7.8 of the Transfer Payment Policy for possible considerations.

A key element of this requirement is addressing the conditions or events under which repayment would occur as well as briefly describing the process to be used to monitor accounts

Duration

  • The number of years over which it is expected that the terms and conditions will apply and payments will be made, as well as the nature of any program review to be undertaken to assess the transfer payment program's effectiveness prior to any proposed program renewal.

Terms and Conditions do not extend beyond the program's life. They are not required to cover the reporting/audit period that follows a project's termination. For example, if the duration for funding projects ends on March 31, 2003 but project audit reports are required for the next five years, the duration of the terms and conditions is March 31, 2003 and not March 31, 2008.

For more on the duration of terms and conditions and their correlation to multi-year agreements and payments, see "Duration of Terms and Conditions-Multi-Year Agreements and Payments" in the Best Practices Annex.

The expected time frame for payments must be identified in the terms and conditions. If claims for payment are to be accepted "x" months after the program ends, (excluding Payables at Year End - PAYEs), discuss this with the department's TBS program analyst. Normally, payments outside of PAYE would be made within the time frame of the program terms and conditions.

Due Diligence in Managing and Administering the Transfer Program

  • Assurance that the departmental systems, procedures and resources are in place for ensuring due diligence in approving transfer payments and verifying eligibility and entitlement, and for managing and administering the programs.

Departments must exercise due diligence that will stand up to public scrutiny.

A description of the essential elements to ensure due diligence in managing and administering transfer programs is found in sub-section 4.6.3. These elements are essential to apply the risk-based audit framework discussed below, and to represent the main elements that will be included in a typical audit.

In the case of a renewal, Treasury Board analysts may ask for previous internal audit reports to demonstrate that the department has met its due diligence requirements. If a department's prior audit reports point to weaknesses, the TB program analyst may require evidence that remedial action has been taken.

Refer to the policy's definitions section for a definition of due diligence and to sub-section 5.2 of this Guide for a discussion on the risk-based audit framework.

Accountability Framework and Evaluation

  • A results-based management and accountability framework (RMAF) including: performance indicators, expected results and outcomes, methods for reporting on performance, and evaluation criteria to assess the transfer payments' effectiveness.

Details on RMAF can be found in sub-section 5.1.

The department must demonstrate how it will measure the effectiveness of the transfer payment program. All government spending is subject to evaluation. However, the effectiveness of transfer payments, since they usually do not involve receipt of specific goods or services, can be, or can appear to be, more difficult to substantiate. Design the accountability framework so that the program manager can fully access and analyse the performance indicators, and measure the program's effectiveness in meeting the result commitments.

Audit Framework

  • A risk-based framework for auditing contribution recipients, an internal audit plan, and a plan to evaluate the transfer payment program, including expected funds to be budgeted for costs related to these requirements.

Every program must be considered for audit, though that does not necessarily mean each program will be audited. A risk-based audit framework provides a coherent and disciplined approach to establish an audit strategy that will be reflected in an audit plan.

Refer to Section 5 for guidance on a risk-based audit framework, internal audit plan and program evaluation plan.

Other Terms and Conditions

  • The additional cost of managing and administering the program as well as the source of such funds.

A department must acknowledge that it has the capacity to deliver the program under existing reference levels.

In addition to calculating the total value of the annual transfer payments to be made under this program, ensure that the funds required to manage and administer the transfer payment program are considered and disclosed. Some programs require much more resources to manage than others, e.g., high dollar value programs that require a high degree of monitoring or programs that must receive and screen a large number of proposals.

  • When legislation provides that terms and conditions be approved by the Governor in Council, a draft of the appropriate Order in Council.
     
  • An explanation of any proposed deviation, if any, from the requirements of the transfer payment policy.
     
  • Any other factors considered appropriate under the circumstances.

Verify with legal counsel whether your department's legislation requires an Order in Council (Special Committee of Council) for the type of activities that may be carried out within the transfer payment program.


Comment on an MP's Role Is not Required in the Terms and Conditions (Ts & Cs)

Policy requirements
(section 8.1 of the TP policy)

Comments

  • Any formal role a Member of Parliament will have delivering and administering the transfer payment program.

MPs should not have a role in delivering or administering a transfer payment; therefore, no comment is required.

If this is not the case, the member's role is to be brought to the TBS program analyst's attention.

The authority for a minister to sign agreements and approve payments is understood and does not need to be addressed here. The delegation by a minister for signing and amending agreements and authorizing payments is captured in another section of the Ts & Cs.

4.4.3 Other transfer payments (OTPs) and named grants

This table has been developed to provide guidance to TBS program analysts and departmental officials who are seeking authority for OTPs and named grants in a TB submission. Named grants are made to persons or other entities that are specifically named in the Estimates as opposed to grants to a class of recipients.

The Policy on Transfer Payments does not specifically mention terms and conditions for other transfer payments (OTPs) or for named grants when seeking approval for a TB submission. Nevertheless, there are requirements in the policy that should be considered for these types of transfer payments.

Table – Policy requirements to consider for other transfer payments and named grants

Policy Reference

Policy Requirement

OTP-
Inclusion

Named Grants-
Inclusion

7.1

Preparation of a results-based management and accountability framework that provides for appropriate measuring and reporting of results.

The nature of a results-based management and accountability framework (RMAF) will be determined on a case-by-case basis through consultation with TBS -RMR division.

Same as OTPs

7.3.7

Address the need to renew Ts & Cs: departments must assess through a formal evaluation or similar review and report back the transfer payments' effectiveness.

An evaluation would be required if an RMAF had been developed. For current programs or projects without an RMAF, departments should contact TBS at least one year before potential renewal to determine requirements.

Same as OTPs

7.13

Stacking limits

Yes, but since OTPs are generally transfers to provinces and territories, other funding sources are usually not applicable.

Yes

7.6.4

Where instalment payments and advance payments are necessary to meet program objectives, departments must follow the provisions of Appendix B.

No - advances apply to contributions.

Yes - Instalment payments apply.

7.7

Assistance to a recipient's capital project8

Yes

No - neither named grants nor grants to a class of recipients are to be used for capital projects.

7.11.1

Written agreement

Yes, to be approved in full or in principle by TB.

Same as OTPs

7.11.3 and 7.12

  • Recovery of overpayment clause; and
     
  • an interest clause

in the agreement

Yes

No; however, amounts that are paid after expiry of eligibility or paid based on fraudulent or inaccurate application or in error are subject to recovery action.

8.6

Apply official languages policy

No

Yes, if a grant is provided to non-governmental organizations serving members of both official languages

Note that while there are many other policy requirements that apply to these types of transfer payments, they do not necessarily need to be addressed in a TB submission unless an exemption is being requested.

4.5 TB approval and sign-off

Departments should refer to the document, A Guide to Preparing Treasury Board Submissions, when preparing a TB submission.

The Guide provides a broad overview of the TB submission and examples of different types of submissions, including those related to transfer payments.

4.6 Appendices and tools

4.6.1 Factors that influence the choice of transfer payment

Legal - legislation, regulations and policy
  • Authority-Departments must have the authority to undertake certain activities. Legislation passed by Parliament determines the authority given to departments to carry out their programs and activities. This may be through departmental Acts or through specific legislation that permits the establishment of a particular program to meet a specific need. In addition, Cabinet often provides general direction for an initiative or program.
     
  • Accountability-Grant recipients are not held accountable for the use of funds received. However, they must establish continuing eligibility to keep receiving scheduled instalments. Contributions, on the other hand, require recipients to account for how they used the funds.
     
  • Flexibility desired-Parliamentary control usually restricts grants more than contributions. Grant programs cannot be increased or redirected without the authority of Parliament. Treasury Board may authorize new contributions and changes in the amount paid without obtaining further parliamentary approval, within the purpose, dollar limits and restrictions prescribed by Parliament.
     
  • Policy requirements
  • Departments must choose repayable contributions as the funding instrument if transfers are made to a business to generate profits or to increase its value. Exemptions may be sought where the benefits accrue systemically.
     
  • Where funding is intended to assist a recipients capital project, departments must use contributions to assist a recipient's capital project. Grants cannot be used.
Financial and economic
  • Risk management-Choosing between a grant or a contribution depends upon the identification of potential perils, factors and types of risks to which departmental assets, program activities and interests are exposed. On a continuum, as risk increases, the more likely a contribution will be appropriate. Contributions allow departments to exert greater control over the use of transfer payments.
     
  • Risks other than financial risk must also be considered. Departments must consider whether there may be an impact on the national interest. For example, is there a realistic opportunity for the loss of reputation, nationally or internationally, if the transfer payment objectives are not met? Perhaps a transfer payment (non-repayable contribution under $100,000) given to numerous companies in an industry to increase their competitive advantage internationally could inadvertently attract countervailing action. In such a case, a repayable contribution would be more appropriate to achieve that objective.
     
  • Cost effectiveness-To determine the most cost-effective means to achieve program objectives, departments must consider the additional cost of administering contributions over grants.
Social and other
  • Social considerations may also play a part in the choice of instrument. In a regional or national emergency such as the Red River flood, it may be imperative to expedite the relief effort. In such situations, maximum flexibility may be appropriate to meet the flood victims' needs.

4.6.2 Delivery mechanisms for transfer payments

Centralization versus decentralization

Factors to consider:

  • Degree of control needed-If consistency of treatment is important to the program, such as identifying eligible projects, then centralized decision-making may be appropriate. For example, it may be important that financial assistance is only provided to companies across Canada that are not in a domestically competitive situation. It would be more difficult, although certainly possible, to maintain consistency in a decentralized structure.
     
  • Nature of beneficiaries-It may be beneficial to differentiate among a program's potential beneficiaries so that program management can be centralized and/or decentralized. For example, consider transfer payments targeted at both large and small and medium-sized enterprises (SMEs), where larger firms are more likely to request larger contributions. To maximize control and minimize risk, a centralized delivery scheme may be appropriate for large companies that would generally request larger contributions and a decentralized delivery scheme may be appropriate for SMEs.
     
  • Dispersion-The expertise and resources available to manage a program and the location of potential beneficiaries are important factors in assessing if a centralized or decentralized delivery organization is needed. If the resources and expertise are located regionally and the target group is also located in the region, notwithstanding other issues, a decentralized approach is an obvious choice. On the other hand, if technical expertise is located centrally but program officers are located regionally, electronic communication may allow for decentralization.
     
  • Administrative costs-Costs associated with administrative activities, such as travel, mail, office maintenance, must also be factored in.
     
  • Critical circumstances-In some cases, such as a natural disaster, it will be necessary to centralize operations because of an urgent need to act quickly. Centralizing or decentralizing decision making and delivery may not even be a question in such a case.
Direct delivery versus third party delivery

Factors to consider:

  • Expertise-Does the department have personnel with the knowledge and skill sets to deliver the program and apply due diligence in selecting applicants, monitoring, collections and so on? In some cases, skills found within other departments to undertake activities such as technical assessments or financial analysis can be shared to bolster program management. In other cases, it is more effective to seek third party expertise.
     
  • Program duration-A department may not have the personnel to deliver a program and there may not be time to hire and train people within a reasonable time period. Implementation time and competitive contracting requirements should be factored into the duration.
     
  • Cost-This factor must be considered when there is a material difference between direct or third party delivery.
     
  • Sensitivities-There may be a number of situations that may be important to the national interest or to potential beneficiaries that ought to be considered.
     

For example if it was important for a particular department or program to have a federal presence to meet a program's objectives then direct delivery may be preferable. For instance in promoting an important initiative it may be important that federal presence be visible.


  • Target group needs and expectations-A program may be more effective if it is delivered through a sub-agreement because of its nature. For example, community-based programming across a region may depend on a close relationship between the target group and the delivery agent. If personal knowledge of potential beneficiaries is important to provide assistance, then direct delivery may not be as effective as a local delivery through a sub-agreement.
     
  • Dispersion-If the target group is highly dispersed and the department does not have personnel close by, then consider a sub-agreement delivery arrangement.

4.6.3 Due diligence in managing and administering transfer programs

The transfer payment policy states that submissions for program approval of terms and conditions, for grants to a class of recipients or for contributions, should include "assurance that departmental systems, procedures and resources for ensuring due diligence in approving transfer payments and verifying eligibility and entitlement and for the management and administration of the program are in place."

This paragraph stresses that due diligence in managing and administering transfer programs is just as important as obtaining the expected results.

Due diligence in managing and administering a transfer program is supported by having the proper systems, procedures, resources and controls in place. These elements are often integrated into a management and control framework.

Whether in a framework or developed separately, transfer programs should have in place the systems, procedures, resources and controls to ensure and promote:

  • compliance to applicable legislation, policies and procedures;
  • efficiency, effectiveness and economy in the use of resources; and
  • financial integrity.

More specifically, the transfer program should include the following components:

  • A clear identification of legislation and policies that must be complied with, of procedures that should be followed, of the level of quality, operational efficiency and economy that is required in administering the transfer program and the expected effectiveness in its delivery;
     
  • A set of operational indicators covering the above;
     
  • Internal controls to achieve administrative compliance and quality objectives, operational efficiency and economy objectives and program effectiveness objectives;
     
  • A reporting process that provides program managers with timely, reliable and complete information on the above.
Operational indicators

Compliance indicators show whether mandatory legislative and procedural requirements are complied with. Quality indicators reflect the degree to which operational and administrative quality standards are met.

Operational efficiency indicators measure the ratio between the cost of the resources put into an operation and the value of its output. Economy indicators indicate whether the most economical solution was chosen, when appropriate.

Effectiveness indicators tell whether or not a given process produces the expected operational output.

Examples of indicators

  • Compliance: Claims for reimbursement are approved by an authorized officer.
  • Quality: Rationale for project approval is well documented.
  • Performance (effectiveness): Significant agreement problems are detected during monitoring visits.
  • Performance (efficiency): Unnecessary administrative steps have all been removed.
  • Performance (economy): Conference calls are used by program officers whenever possible to avoid costly travel.

Several management and control frameworks exist and can be used directly or adapted to meet the needs of departments or agencies that have not yet adopted one.

Best Practices Annex – Western Economique Diversification (WD) has developed a comprehensive tool (Quality Assurance Review-G & C Project File Management Tools) to assist with ensuring due diligence in managing and administering grants and contributions.

4.6.4 Stacking and stacking limit

A stacking limit is the cumulative total of all government assistance as a percentage of eligible costs. Total government assistance (TGA) is the total of federal, provincial and municipal assistance. Eligible costs are those described in the program terms and conditions. The stacking limit can be expressed as: Total Government Assistance is ___% of eligible program costs. Anything over the TGA (stacking) limit will be subject to recovery.

The stacking policy reflects that the federal government must determine the appropriate level of total government support for specific projects or initiatives. The guiding principle that departments must follow is "...transfer payment assistance is provided for projects only at the minimum level to further the attainment of the stated transfer payment program objectives and expected results" (paragraph 7.5.1 (i) of the Transfer Payment Policy). Providing assistance at the minimum level allows departments with limited resources to fund a greater number of worthwhile projects.9

What is the right financial assistance level that should be provided to a recipient? Theoretically, it should only be large enough to interest a party to undertake the project or initiative and to meet the program objectives. However, total government assistance should never exceed 100%.

In attempting to arrive at a minimum level, departments should consider a number of variables that may include:

  • Status of project/initiative: Is this discretionary spending or a statutory obligation?
     
  • Available resources: What financial or non-financial assets can potential recipients, such as individuals, profit and not-for-profit organizations, call on to fund a portion of the project?
     
  • Nature of activities and costs: Certain types of eligible costs may warrant support at different levels depending on the benefits that may accrue to recipients. For example, assets, if retained by a recipient, may be supported at a lower level because it may have a useful life beyond the project and may be used as collateral to help finance the project.
     
  • Risk: What is the risk that the project may not succeed? Programs that encourage recipients to take on greater risk (e.g., develop markets in a third world country versus the U.S.) may justify a higher level of government assistance.

Even though a department establishes a maximum stacking limit(s) in the program terms and conditions, it may not necessarily wish to participate at that level. For instance, where a potential recipient can finance equipment acquisition at a higher level than a second potential recipient, program managers may choose to provide a lower level of support in the former case. Furthermore, a department may establish a "norm" below the stacking limit. Recipients or beneficiaries may seek assistance from other departments or other levels of governments to "top-up" the contribution. This allows departments with limited resources to support a greater number of projects.

Nevertheless, departments should reserve the right to provide support beyond the norm, up to the maximum stacking level determined for the program, for situations where a project is worthy of funding but there are no other government funds available, and the recipient or beneficiary cannot contribute additional resources. Therefore, departments may wish to indicate in their program terms and conditions that while they normally contribute at a particular level, the maximum departmental assistance that can be provided will equal the stacking limit.

Table - A hypothetical example of norms and stacking limits

Activity

Departmental Norm

Other Government Assistance

Stacking Limit

Social program
(e.g., core funding)

90%

10%

100%

Social program
(e.g., training)

75%

15%

90%

Economic program
(e.g., R & D)

50%

25%

75%

For a class contribution program (e.g., economic program above), a department might contribute 50% of eligible project costs. However, the department may want to define that total government assistance (the stacking limit) does not exceed 75% of eligible costs, so as to:

  • allow the recipient to get some additional assistance from other federal departments or other levels of government and
     
  • ensure that the recipient contributes at least 25% of the eligible costs.

The department must ensure that the recipient provides ongoing financial information so as to determine if the stacking limit was exceeded. For any assistance over the stacking limits, the department must define and collect the overpayments.

Wording for stacking of government assistance for program terms and conditions

"The maximum level (stacking limit) of Total Government Assistance (federal, provincial and municipal assistance for the same eligible expenditures) for this program will not exceed _____% of eligible expenditures.10

This stacking limit(s) must be respected when assistance is provided.

In the event that actual Total Government Assistance to a recipient exceeds the stacking limit, it will be necessary for the department to adjust its level of assistance (and seek reimbursement, if necessary) so that the stacking limit is not exceeded.

The Program will require all potential recipients to disclose all sources of funding for a proposed project before the start and at the end of a project."

NOTE: The first paragraph and the optional clause above will require modification when departments have established separate stacking levels for different costs and activities.

Refer to the example below for an illustration of stacking and adjustments to program assistance when the stacking limit is exceeded.

Project stacking scenario

Example: Assume that a department has signed an agreement under a TP program.

Sources of all funds (gov't and non-gov't): $1,000

(1)
Other Government Sources

(2)
Department's share

(3)
(1 + 2)
Stacking

(4)
Recipient's share

As approved in a written agreement

15%
($150)

75%
($750)

90%
($900)

10%
($100)

Actual, as determined during the project or after its completion

25%
($250)

75%
($750)

100 %
($1000)

0%
($0)

Remedy #1:
Adjust by reducing department's share

25%
($250)

65%
($650)

90%
($900)

10%
($100)

Remedy #2:
Adjust by pro-rating between the two government sources

23.3%
($233)

66.7%
($667)

90%
($900)

10%
($100)

Remedy #1: This scenario assumes that the unanticipated additional assistance (Other Government Funding) of $100 is not returned or required to be returned, in whole or in part, to the original funding department of those funds.

Remedy #2: Pro-ration of funds will vary with the number of organizations providing assistance and the nature of the funds provided (e.g., entitlement in some cases and subject to recovery in other cases). The example above assumes one source of "other" government funds. (For example, one method of calculation: Department - 75% ¸ 90% @ $100 = $83; then $750 - $83 = $667 or 66.7%; other gov't - 15% ¸ 90% @ $100 = $17; then $250 - $17 = $233 or 23.3%). Other valid methods of pro-ration can be used.

4.6.5 Duration of terms and conditions-multi-year agreements and payments

For any active transfer payment program, there must always be a corresponding set of terms and conditions (Ts & Cs) that are in force when the program's respective business events take place. For multi-year contribution agreements with end dates beyond the current Ts & Cs, the department should make every effort to ensure that Treasury Board approves new Ts & Cs prior to the end date of current Ts & Cs.

A minister may determine the duration of a multi-year contribution agreement but must respect any specific direction provided either by Cabinet or Treasury Board.

If a minister chooses to enter into multi-year contribution agreements, the minister must have Cabinet agreement as to the program's ongoing nature and expect that Treasury Board will extend the program and approve the respective new Ts & Cs. In these situations, the department assumes an element of risk. Risk relates to uncertainty that the program will be extended and that there will be no change to the Ts & Cs. To mitigate this risk, any such agreements must allow for termination without cause so as to comply with subsequent Treasury Board decisions. The termination clause must be distinctly separate from the "subject to parliamentary appropriation" clause. In addition, a department must carefully plan its Ts & Cs renewal.

Regarding payables at year end (PAYE), a contribution expense is recorded and charged to an appropriation in the old year when, as at March 31, the payment is due and owing pursuant to the contribution agreement. If a payment is due and owing and a PAYE is set up during the Ts & Cs' duration, the payment accordingly made in a future fiscal year is then authorized under the Ts & Cs.



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