We are currently moving our web services and information to Canada.ca.

The Treasury Board of Canada Secretariat website will remain available until this move is complete.

Guide on Grants, Contributions and Other Transfer Payments

Archived information

Archived information is provided for reference, research or recordkeeping purposes. It is not subject à to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.



Guide on Grants, Contributions and Other Transfer Payments

Table of Contents



1 Foreword

About the Guide

This Guide resulted from an interdepartmental collaborative effort of officials from more than 15 federal departments and agencies who contributed to its design and content. It explains the key attributes that are common to managing transfer payments.

Appendices, references, examples and tools have been provided at the end of a number of sections for further elaboration of a subject and to provide greater clarity to the reader.

Current best practices such as tools and cases will be updated and/or added to the Guide as departments develop them.



2 Introduction

2.1 Purpose of the Guide

This Guide is designed to help managers and staff make informed decisions for creating and managing transfer payment programs within the federal government. While the Guide is primarily aimed at those officials who manage transfer payments daily, it also targets those who must correctly choose between initiating procurement contracts and transfer payments, who design and seek approval for creating transfer payment programs, who ensure existing and new programs are communicated effectively to potential beneficiaries, who manage or ensure accountability for transfer payments, and who report to management and Parliament.

Based on a life-cycle approach developed by the Office of the Auditor General (OAG), the Guide identifies the key attributes for properly managing transfer payments. The life-cycle approach refers to a transfer payment program's normal cycle, from its creation and implementation to its evaluation. These attributes are:

2.2 Content related to the Policy on Transfer Payments

This Guide should be read in conjunction with the Treasury Board Policy on Transfer Payments (TP policy). It does not provide new policy directives but does elaborate and interpret policy and procedural requirements.2 Where the Guide uses the directive "must," it does not create a new obligation but rather reflects an existing obligation under the policy.

The Guide also draws on the requirements of other policies and TB guides that are relevant to managing transfer payments, including topics such as evaluation, internal audit and financial management accountability.

2.3 Conventions and definitions

2.3.1 Conventions

In this Guide, "transfer payments" and "transfer agreements" are used as generic terms for grants, contributions and other transfers when there is no need to differentiate them.

The term "departments," unless stated otherwise, also refers to agencies delivering federal transfer payments.

This Guide uses the words "transfer programs" to designate programs that are entirely devoted to transfer payments. This term and the Guide also apply to programs containing at least one distinguishable transfer payment component.

2.3.2 Definitions

The following definitions apply to this Guide (although other documents or publications may give these expressions a slightly different meaning).

Guide

Definition

Comments and examples

Applicant
(requérant)

An individual or organization that seeks to enter into a transfer agreement with a department.

Example: A not-for-profit organization seeking contribution funding to create a shelter for the homeless.

Audit
(vérification)

A management tool that provides independent, objective assessment linked to results.

A management audit assesses the overall management and activities of a program or part of it.

A financial audit can assess the financial statements' fairness or include all aspects of a specific transfer agreement.

Beneficiary
(bénéficiaire)

An individual or organization that directly benefits from a recipient's activities but is not party to an agreement with the recipient or ultimate recipient.

Example: Jobless workers who have been taught a new trade by an initial recipient under a transfer agreement

Monitoring
(monitoring)

Monitoring refers to the financial and operational control exercised by program officers over contribution recipients during the life of the agreement.

Financial and operational monitoring is covered in Section 9 of this Guide.

Outcome
(issue)

An external consequence attributed to an organization, program, etc. that is considered significant in relation to its commitments. Outcomes may be described as: immediate, intermediate or final, direct or indirect, or intended or unintended.

Examples: lower unemployment rate, health improvement for a targeted group, increased industrial activities or productivity, enhanced foreign trade.

Output
(operational)
(extrant opérationnel)

The result of an operational process.

Examples: the production of a monitoring report, the signing of an agreement, the release of payments.

Output (program)
(extrant programme)

Direct products or services produced through program activities and delivered to a target group or population.

Examples: New jobs created, shelters for homeless, research reports, seminars, direct support to social or economic activities.

Participant
(participant)

A generic term designating any person, group or organization that applies for or receives transfer funds or directly benefits from these funds.

Participants can be applicants, recipients, beneficiaries and third parties (See definitions of these terms in this table).

Recipient
(destinataire)

An individual or organization that has entered into a transfer payment agreement with a department.

Examples:

  1. A company that has a contribution agreement with a department to hire 15 non-qualified jobless workers and teach them a trade. In return, the department reimburses 50% of the wages paid for six months;
  2. A social worker who receives a $10,000 grant to support research on the increase of violence among high school students.

Result
(résultat)

In this Guide, this term includes both output and outcome when it is not necessary to distinguish between them

 

Sub-agreement
(accord auxiliaire)

An agreement between a recipient and an ultimate recipient.

Example: A Tribal Council as recipient agreements with an Indian Band as ultimate recipient to provide services to Band members (beneficiary).

Third Party
(tiers ou tierce partie)

The policy regards a third party as the initial recipient of a transfer payment agreement, which in turn disburses funds to an ultimate recipient.3

However, the legal definition of "third party" in Black's Law Dictionary is "one not a party to an agreement or to a transaction but who may have rights therein."

Ultimate recipient
(destinataire final)

An individual or an organization that has entered into an agreement with a recipient to carry out the objectives of the original transfer payment agreement.

Refer to the example under Sub-agreement.

In this guide, the terminology used to identify the various parties involved in transfer payment agreements varies from the policy. This is due to the discussion of more complex relationships than are treated in the policy. The chart below provides examples of how these terms are used.

Parties Involved Þ

i.e. Department

e.g. University

e.g. Researcher

Terminology used in TP policy Þ

 

third party or initial recipient disburses the funds to an ultimate recipient

ultimate recipient or ultimate beneficiary

Terminology used in Guide Þ

 

recipient

ultimate recipient


Parties Involved

i.e. Department

e.g. University

e.g. Researcher

Terminology used in TP policy Þ

 

ultimate recipient does not disburse the funds to another party

no reference in the policy

Terminology used in Guide Þ

 

Recipient

beneficiary (no funds are received directly but a benefit is attributed to this party)


Parties Involved

i.e. Department

e.g. Company

Terminology used in TP policy Þ⇒

 

initial or ultimate recipient

Terminology used in Guide Þ

 

recipient


Parties Involved

i.e. Department

e.g. Tribal Council

e.g. Indian Band

e.g. Band members

Terminology used in TP policy Þ

 

third party or initial recipient

ultimate recipient or ultimate beneficiary

no reference

Terminology used in Guide Þ

 

recipient

ultimate recipient

beneficiary



3 Selecting the right instrument

This section's objective is to provide guidance on when to use a procurement contract and when to use a transfer agreement.

3.1 Procurement contracts versus transfer agreements

A procurement contract is used to obtain goods or services. It is an agreement between a federal government contracting authority and an outside party to purchase goods, provide a service or lease real property. Most often, the outside party is chosen through a competitive selection process, as described in Government Contract Regulations.

A transfer (payment) arrangement is used to transfer monies or make in-kind contributions from the federal government to individuals, organizations or other levels of government (e.g., provincial governments) to further government policy and the department's objectives. Although transfer payments are primarily used for projects, they are also used extensively to deliver basic ongoing essential services.

Consider the following principles when determining whether to use procurement contracts or transfer agreements:

Principle 1: A department should not benefit directly from the award of a transfer agreement.

To "benefit directly" implies that a department receives or acquires a needed good or service that supports its operations. Any indirect benefits a department may receive should be incidental to, or a by-product, of the main objective.

Principle 2: A core service that departmental staff are mandated to provide directly should not be funded through a transfer payment.

Goods or services are provided to the Canadian public either through departmental operations or through a transfer payment. It is ultimately Parliament that decides what core services or goods a department will deliver directly.

A department mandated to directly deliver goods or services must carry out its responsibilities by using its own staff or issuing procurement contracts for other parties to undertake these duties. In either case, the department must fulfil its obligations. Because the department is mandated to deliver these goods or services directly, transfer payments cannot be used to discharge departmental responsibilities.

Principle 3: An individual or an organization that receives a transfer payment does not act on the government's behalf.

A transfer payment is awarded to a recipient to further the mandate of the department or government. However, the recipient is not acting on the government's behalf.

On the other hand, if the government awards a procurement contract to an organization or an individual to provide a service or deliver a good, then the organization or individual may be construed to be acting on the government's behalf.

Principle 4: A transfer agreement does not allow the awarding of damages in case of non-compliance.

Under a contribution, there is nothing acquired by the Crown. The department is obliged to reimburse the other party's eligible expenditures, as specified in the agreement. If the expenditures are not made or are not eligible, the party has no right to the contribution payment and the department may recover any money already paid. However, in that case, the department would have no right for damages because no harm to the department can follow from a recipient not complying with the agreement. There is then some risk in using the grant and contribution approach if a department is expecting to use the results of a project funded in this manner, notwithstanding that it would be an inappropriate use of transfer payments.

It is important that you consider all of these principles jointly and not in isolation of each other to make informed decisions.

3.2 Appendices and Tools

3.2.1 Case study-contracts versus transfer agreements

A department is considering the best means to organize and carry out a symposium on Canadian research capacity in the area of "memory in normal ageing and dementia." This is a critical issue for the department as the minister plans to make a public policy announcement on the issue very soon.

The symposium will bring together the best Canadian and international scientists to express their views and to report on their research findings in this important area. The department expects to use the information coming out of this symposium as one input among many to arrive at a policy statement and future action plan. It will also greatly benefit the health research community, the pharmaceutical industry and public policy makers, as the information presented at the symposium will bring forward a wide array of current thinking on the issue.

Organizing the symposium will entail tasks such as securing presenters, arranging the facilities, procuring simultaneous translation services, selecting chairs, advertising and promoting, and preparing and publishing proceedings.

There are two possibilities in financing and organizing this symposium:

Service Contract: Professional firms are available to organize conferences and meetings. A contract could be issued to one of these firms rather than overload overworked staff. Sufficient funds are available in the operating budget to support it.

Grant or Contribution: The ABC Society of Canada is interested in this symposium to advance its work in this area. If the society was given a grant or contribution, it could take responsibility to organize the symposium from top to bottom. Through the Health Grants and Contributions Program's existing terms and conditions, the department has the authority to make transfer payments, which the ABC Society is eligible to receive. Since funds are likely to lapse in the grants and contributions budget, this would be a good way of using these funds productively.

What do you think?

Case Analysis

Decision makers must consider the four fundamental principles that distinguish a contract from a transfer payment to adequately determine the right instrument to use.

Depending on the facts and assumptions that are made, there are two possible outcomes. First, if it is determined that the event's intent is to benefit non-governmental organizations and interested parties, and holding a symposium is not the normal means for departmental staff to develop policy, then a transfer payment arrangement could be considered. On the other hand, if the symposium's intent is to develop public policy and sponsoring these types of events is the normal staff practice for developing policy, then a contract would be more appropriate.

Consider Principle 1: A department should not benefit directly from the award of a transfer payment.

The essential questions are, who will benefit from holding the symposium and to what extent will they benefit? That is, will the department receive a direct benefit by acquiring needed information or will the department receive a benefit only as a by-product of the activity?

In this case, the symposium does not appear to be critical to developing the department's public policy. The evidence suggests that the information coming out of this symposium would be used as one input among many to formulate policy. It could be implied, therefore, that the symposium is not essential to develop the department's policy.

A second question is what direct benefit would accrue to other parties and other interests? It is stated that the symposium will be a "great benefit to the health research community, the pharmaceutical industry and public policy makers." In addition, the ABC Society is "interested in this symposium to advance its work in this area." It could be construed that the symposium is to benefit non-governmental organizations, and the information that the department would have access to is only a by-product of providing funding (i.e., incidental to developing policy).

Consider Principle 2: A core service that departmental staff are mandated to provide directly should not be funded through a transfer payment.

We can question whether developing public policy by organizing events such as the symposium is a job requirement of departmental staff or is beyond their responsibility.

The case reveals that "a department is considering the best means of organizing and carrying out a symposium" and is considering an outside party to take on the work "rather than overload overworked staff." These two facts support the proposition that it should be a procurement contract.

On the other hand, such an event may not be a core, ongoing departmental activity. While departmental staff may be competent to undertake this activity, there is no evidence that it is a core service. The department may believe that a symposium is a viable approach to encourage debate and research in the field of dementia and ageing. But staff may not normally organize and run symposia to achieve that end.

Unfortunately, without more information on the department's mandate, this principle cannot be assessed with any degree of confidence.

Consider Principle 3: An individual or an organization that receives a transfer payment does not act on the government's behalf.

From the information above, there is no evidence to suggest that the ABC Society would be acting on the department's behalf if it were given a grant or contribution.

Consider Principle 4: A transfer agreement does not allow the awarding of damages in case of non-compliance.

In the case, no information regarding this point is provided. Let us assume that the option to seek damages is not essential.

Summary

Since the assessment using principle 2 was inconclusive, the decision rests with the information examined under principles 1, 3 and 4.

The facts under principle 1 point to the department holding the symposium to advance public policy-not develop it. The symposium's primary objective is to support the interests and activities of organizations such as the ABC Society and , as such, any benefit to the department would be a by-product. Under principle 3, there is no evidence that the ABC Society would be acting upon or be perceived to be acting upon the department's behalf. Finally, under principle 4, the awarding of damages should the activity not proceed as envisioned is not an issue.

Under these circumstances, the department could legitimately authorize a transfer payment.

3.2.2 Checklist-contracts versus transfer agreements

This checklist is a tool to determine if a procurement contract or transfer payment should be used. A greater number of "yes" answers indicates that a procurement contract is likely more appropriate than a transfer payment.

Principle

YES

NO

1. The department is acquiring a good or service.    
2. The department is directly benefiting in some way from the arrangement.    
3. Departmental staff have been mandated to provide the Good or service directly to the public (e.g., food inspection).    
4. An outside party is acting on the department's behalf (e.g., agent).    
5. The department would consider seeking damages (i.e., recovery of more than the original payment) from a court if the project objectives or initiative were not met.    

3.2.3 Table-comparison of contracts and transfer agreements
 

Choosing Between Contracts and Transfer Payments

ELEMENT

CONTRACTS

TRANSFER AGREEMENTS

Purpose

Acquisition of goods or services by and for the department

Allows the participant to undertake an activity that furthers government policy and departmental objectives

Who benefits?

Government department itself and contractors who will claim for costs and profit

An identified sector, group or individual(s) of the Canadian public who will only claim for the reimbursements of their costs incurred (no profits earned)

Authorities

Subject to the department and minister's legal or legislative authorities and sufficient funds exist under the operating expenditures vote

Also TB Contracting Policy

Subject to the department and minister's legal or legislative authorities and to sufficiency of funds in the vote providing for grants or contributions; in the case of grants, Parliamentary approval is required through the Estimates.

Also TB Transfer Payment Policy

Risk Assessment

Little to no risk that the service will not be performed or the good not received because of the agreement's legal nature

Influences the type of instrument chosen (e.g., grant versus contribution) and program terms and conditions including the nature of the beneficiaries

Accountability

Results monitored within the scope of each specific agreement only

Results monitored on a project-specific basis and through program evaluation



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:

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:

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:

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:

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
  • 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
Social and other

4.6.2 Delivery mechanisms for transfer payments

Centralization versus decentralization

Factors to consider:

Direct delivery versus third party delivery

Factors to consider:

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.


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:

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

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

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:

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:

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.



5 Mandatory plans and frameworks

This section's objective is to clarify TB requirements for new or renewed submissions for transfer payments programs. It is mainly aimed at program managers who develop new transfer programs or manage existing ones and program analysts in Treasury Board who approve these programs. Because this section provides only a general overview, consult your local evaluation professionals for more detailed guidance.

The Policy on Transfer Payments stipulates that Treasury Board submissions for program approval of terms and conditions for class grants or for contributions must include a results-based management and accountability framework and a risk-based audit framework to cover audit and evaluation plans.

It is expected that most departments already have in place some of the elements required for the above frameworks. Unless it is the first time a department engages in transfer payments, departmental frameworks or plans may already have sections specifically covering existing transfer programs.

In these cases, the relevant framework should be adjusted to the new or modified program and updated to reflect current policy requirements. If such a framework does not exist for the program being considered, it will need to be developed before the submission is sent to TB for approval.

5.1 Results-based management and accountability framework

The Policy on Transfer Payments requires that each Treasury Board submission for programs or initiatives with transfer payments include a Results-based Management and Accountability Framework (RMAF) dealing with accountability, evaluation and reporting requirements. The frameworks should help achieve a number of goals related to the results-based management agenda:

If successfully developed, the framework should represent:

A results-based management and accountability framework should convincingly demonstrate a department's intention and capacity to measure performance against key results commitments on an ongoing basis (ongoing performance measurement) and periodically through program evaluation. A sound performance measurement strategy should cover:

Additional information and guidance on developing results-based management and accountability frameworks is available at Centre of Excellence for Evaluation (CEE) website.

5.2 Internal audit plan and risk-based audit framework

An audit plan's content depends on many factors such as management requests, legal obligations, pre-established cycles, and needs and expectations of central agencies or other partners. But in order to use internal audit resources where they are most needed, risk should be a driving force in planning. A risk-based audit framework is a coherent and disciplined approach to detect, assess and respond to risk.

For a transfer program, the auditors will consider the procedures and controls in place to identify and assess risks, and decide on an audit strategy. The strategy will be reflected in the annual audit plan, or in a stand-alone document if the new or renewed program is developed after the annual audit plan is published. Risk management is discussed in Section 7.

Remember that the audit function's main role is to provide assurance on proper program management and administration. This applies to both conditional and unconditional transfer programs, new or renewed.

Under certain circumstances, internal audits may involve looking at individual contribution agreements. This can happen when program managers request an internal audit when a problem is suspected, when program internal controls, such as financial and operational monitoring have failed, or when available program officers lack the capacity or expertise to handle the issues or when they themselves appear to be part of the problem.

Therefore, the internal audit plan included in a TB submission should mainly address how and when internal audits will determine that the transfer program is adequately managed and administered. It may also indicate, if it is deemed necessary to supplement or assess the effectiveness of program monitoring, when and how it will audit individual contribution agreements.

Auditing transfer programs and agreements is covered in Section 9.

Note that auditing agreements does not relieve program managers of their responsibilities to ensure effective monitoring of contribution agreements under their responsibility.



6 Communications

A communication strategy outlines the best strategies and communications vehicles that will help target specific audiences (i.e. potential recipients and/or beneficiaries) in the most timely and cost-effective manner.

6.1 Goals of a communication strategy or plan

6.2 Principle elements of a communication strategy or plan

Identify and discuss the following elements in your plan:

Public environment - Major issues related to the initiative that have received a high media and public profile: what do the Canadian public, media and key stakeholders think about these issues and related subjects?

Target audiences - Those people or groups to be targeted when developing and delivering the communications messages and activities, e.g., potential payment recipients, industry, interest or lobby groups, etc.

Strategic considerations - Strategic considerations describe how the initiative will likely be received, including any elements expected to draw positive or negative reactions. This section also covers the best ways and times to present the initiative and other major issues that could impact the initiative (i.e., by-election, economic considerations, local challenges, opponents, etc.)

Main/key messages - Three or four succinct speaking points that will be used by designated spokespeople when publicly discussing the initiative. They should capture the initiative's overall goals and highlights.

Links to other departments - Provincial/territorial or regional sensitivities or partnerships and interdepartmental and or third-party/stakeholder partnerships.

6.3 Items impacting on the communication strategy or plan

This sub-section outlines the various elements that impact on the complexity and the level of effort needed to develop an effective communication strategy or plan.

Knowledge of the potential clients: Is there an existing database of possible beneficiaries or is a large amount of research necessary?

Knowledge of the program: Will the target audience greatly anticipate the program or is it relatively unknown?

Is the program new or being renewed: The communication strategy will most likely differ depending on whether the program is new or a renewal (e.g., knowledge of potential clients).

Experience and awareness of beneficiaries: Are target audiences aware of, or experienced with, similar (or past) programs?

Access to information: Are the clients or recipients at a disadvantage and/or what is their ease of access to the program's promotional material?

Resources: What resources have been made available for the program (transfer payments, management costs)? What resources (human and financial) does the department have to promote the program? (For example, a class contribution likely requires significantly greater resources than a transfer to another level of government. As well, there is a difference between national and regional programs. The staff resources available for communication-related activities are likely greater for national programs co-ordinated at HQ).

6.4 Measuring and evaluating communication strategies and plans

Communication strategies and plans should be regularly and consistently evaluated for their effectiveness and efficiency. Departments should set measurable targets and objectives (e.g., "x" applicants aware program exists by "y" date; "x" participants sent promotional material by "y" date, etc.), as well as performance indicators at the program development stage. Ideally, a communications expert internal to the program would satisfy this requirement.

6.5 Communication products and activities

This sub-section outlines the tools and media that will be used to deliver communications messages to target audiences. Products such as news releases and brochures should refer to the following: the program's purpose, terms and conditions of support, how to apply for support and any eligibility and/or monitoring requirements.

Products

Activities

For more information and assistance on this sub-section, speak to your departmental communications representative.



7 Managing risk

This section applies to the entire cycle of a transfer program and its agreements. Consideration of potential risks at the earlier development stage of a new transfer program ensures that proper controls, checks and balances are built in the design. Risk management should be part of overall program management and administration and influence the design of internal administrative, operational and financial controls.

The entire concept of risk management is presently under review in both the public and private sectors. Management is encouraged to have a proactive approach towards risk and to consider it as being an opportunity. This section restricts itself to the basic element of risk management.12

Most activities carry some kind of risk, and this is true, of course, for programs such as transfer payments. In a few cases, risk can be totally suppressed but in general, this option is unachievable or too costly. Risk is here to stay and must be managed. Risk management involves:

Risk management should allow a dynamic workforce to take and accept risks while knowing where the risks are, how serious they are, and keep them under control. Risk reduction or suppression may have negative side effects such as loss of program flexibility or diminution of individual creativity and initiative. Risk can also be the flip side of an opportunity. For instance, in the stock market, risk is generally associated with increased return on an investment.

For the purpose of this Guide, only the negative side of risk will be considered-the possibility that something unwanted may happen or that something wanted may not take place. The guide addresses what management can do to get an early warning of problems, to assess the probability of an unwanted event happening or a desired event not happening, its consequences, and how to respond to this situation.

7.1 Risk detection

Risk detection is crucial. Everything else being equal, a known risk is much less threatening than an unknown one. There are several tools and processes to detect risk.

7.1.1 Business process analysis

A business process is an integrated sequence of operations, actions and decisions leading to a desired result. In other words, it's the processing of inputs to produce desired outputs. Examples of business processes are preparing a TB submission for a new transfer program, approving a new agreement or making a field-monitoring visit.

To detect risks in a business process, every key operation, action and decision is examined and for each one of them, the examiners must consider if there is a possibility that something may go wrong, and if so, what would be the consequences on the subsequent steps or on the final output or outcome.

For instance, if the operation is a calculation, the examiner will consider whether it is done automatically or manually. In the first case, is there a possibility that the calculation routine will fail or that the wrong data will be used for the calculation? If the calculation is done manually, then the risk of human error must be considered. How will a calculation error impact the end result or product? At the end, the examiner does a global analysis of all the risks detected and documents their collective or individual potential impact on the success or failure of the process.

7.1.2 Information and data analysis

In many cases, a risk can be detected through existing information and data. Excessive variations in quality or performance indicators may show that control is being lost and there is a risk of process collapse. If performance indicators show a significant increase in productivity without a corresponding increase in resources, then consider the possibility of a rise in the error rate.

7.1.3 Interviews

Group or individual interviews are very effective in detecting risk. In many cases, managers and staff involved in a process have a fair knowledge of the risks they are facing. They may have chosen to live with the risk, but generally, they will at least recognize its existence. To effectively detect risk, the interviewer and participants must know the programs and processes well and the interviewees must be willing to disclose all relevant information even if that may be compromising or embarrassing.

7.2 Risk assessment

Once a risk has been detected, it must be assessed. A risk is characterized by two factors: the probability that it will materialize and the consequences of that happening.

7.2.1 Estimating or measuring the likelihood of materialization

The probability that a risk will not materialize cannot always be measured precisely, but in most cases, it can be estimated objectively. To estimate the likelihood of a risk, one must review the historical or theoretical pattern of occurrence and adjust to all the known factors that may influence this pattern, positively or negatively.

For example, the risk that an ordinary project file will be stolen is very small: who would be interested in fraudulently acquiring such a file? But the risk may be higher if the project is very controversial and used by individuals or groups to promote their position. The probability that a project file will be lost does not depend on the content but on the frequency of such losses in the past, on the adjustments to filing systems, on the project officers' discipline, and on specific events such as changes in the workplace.

In some cases, risk materialization can be calculated using probabilistic and statistical instruments. This would be the case, for instance, for a transfer program that provides financial support to unemployed individuals who accept training as bookkeepers. If labour market statistics indicated at the time the program was created, that three out of four qualified persons in this trade found a job within six months, then there is a 25% probability that an individual who participated in the program will not find a job within six month. This risk may be considered acceptable, but, if at a later date, it becomes obvious that changes in the labour market have brought down the probability of finding a job to one person out of four, then the risk of failure may become unacceptable and the program's continuation may be questioned.

7.2.2 Estimating or measuring the impact

Most managers or employees know intuitively the probable consequences of a negative event occurring. Managers responsible for transfer payments must consider the transfer's size, the program's visibility, and the social, economic and political context for proper risk assessment.

The financial loss related to a risk materializing can generally be estimated with more precision and sometimes accurately measured. For example, a $10,000 grant given to an individual to engage in a new trade, or to an NGO (non-governmental organization) to build a school is a net loss if the individual does not do anything to find a job or if the NGO representatives pocket the money for their own personal use. But if the individual uses the money to relocate in an area where he finds a job in his trade, or if the NGO uses the money to hire new teachers, is the money totally misspent?

7.2.3 Combining probability and consequences to assess risk

A risk is assessed by combining the probability and the consequences of its materialization. A risk with a high probability of occurrence and limited consequences could be considered equivalent, in terms of assessment, to one with a low probability of occurrence and devastating consequences. However, the final assessment would generally depend on the context of the whole project: it is ultimately a judgement call.

The following chart illustrates this concept.

The content of this table is not prescriptive. The decision as to what measure will be taken belongs to the managers responsible for that program or activity.

Table – Example of a Risk Classification Schedule
Repercussion Risk
Low (1) Medium (2) High (3)
Major (3) Risk must be followed and managed Risk must be closely followed and managed Risk must be closely followed and managed
Moderate (2) Risk can be accepted if there is a follow-up Risk must be followed and managed Risk must be closely followed and managed
Minor (1) Risk can be accepted if there is a follow-up Risk can be accepted if there is a follow-up Risk must be followed and managed

7.3 Responding to risk

As discussed above, unwanted risk can seldom be completely avoided. Sometimes it can be transferred, for example by covering it with risk insurance, but then the greater the risk, the higher the premium. Alternatively, the risk can be reduced through operational changes or by introducing new or better controls. Yet, as discussed above, drastic risk reduction may have a negative impact on the workplace. Management can decide, after considering all alternatives, to "live with it" instead of reducing or suppressing it. It may also be decided that the risk is linked to an opportunity that outweighs the possible negative impact of the risk materialization.

Yet, every organization has a tolerance limit to risk; if this limit is exceeded, the risk must be reduced or eventually suppressed. The tolerance level tends to vary with time, changes to the environment, or even a change in management. The following are tools or strategies that can be used to mitigate or reduce risk.

7.3.1 Preventive and corrective controls

Controls are basic tools that managers can use to maintain risks at an appropriate level. Controls are preventive if designed to prevent risk materialization. They are corrective if they are designed to inform after the fact that the risk has materialized, which should lead to measures to redress the situation and prevent its reoccurrence in the future.

Examples of preventive controls in the area of transfer payments are supervisory review of new agreements before finalization verification of expenses and costs claimed under agreements before payments are made or use of a checklists to ensure that no important steps are missed in processes. Examples of corrective controls are monitoring visits to review operational outputs and validity of paid financial claims and to evaluate transfer program outcome.

7.3.2 Effectiveness, efficiency and economy of controls

Controls come with a cost; they use resources, and generally slow down processes. This can be mitigated by designing controls for maximum efficiency and economy.

A control's effectiveness is the likelihood that it will prevent or detect the materialization of the risk it is designed to cover. A control's effectiveness is optimized by proper design and diligent application.

Generally, there is a trade-off between the effectiveness on the one part, and efficiency and economy on the other part. While a control's efficiency and economy can be imputed from its design and measured thereafter, its effectiveness can generally not be assumed until it has been tested independently.

Example: A control may be the conduct of an on site monitoring visit to a sponsor. Economy can be made by using the most economical means of transportation to get there and by combining the visit with others to further minimize travel costs. Efficiency can be achieved by ensuring that the sponsor has been informed before the visit and has all the documentation ready and the required staff on hand. One condition for effective monitoring is to have properly trained staff that possess adequate monitoring tools. Other important factors are the officer's due diligence and impartiality.

7.4 Self-assessment

7.4.1 Risk self-assessment

Despite its name, risk self-assessment is a process that generally deals with all aspects of risk management: detection, assessment and response. Its main characteristic is that it is driven by the managers and employees instead of by external resources such as auditors or internal control specialists.

It is generally applied to a program or to one or more of its components rather than to a single agreement. Groups of managers and/or employees work together in a facilitated session to identify and assess risks in their area of responsibility or expertise and are often asked to propose courses of action.

A session is generally composed of one or more brainstorming exercises where the participants share all the risks they are aware of. Following each brainstorming session, the group votes to sort the risks by probability and impact. They may then discuss what actions to take, or vote on various options.

Facilitators can be program officers or managers, specialists from human resources, internal auditors or professionals from the public or private sector hired for that purpose. In some cases, risk self-assessment includes some degree of validating the findings by an independent party, generally the department's internal auditors.

7.4.2 Control self-assessment

The same approach and techniques used in risk self-assessment can be used to identify and assess controls. This control self-assessment exercise can provide useful information on the existence of controls and their design, costs and impacts on operations. However, the exercise has one major limitation: unless its results are validated independently, it will not provide conclusive evidence on the controls' effectiveness.



8 Managing agreements

This section's objective is to support program officers and their supervisors at the operational level who are directly engaged in managing and administering transfer agreements. It provides advice on good management principles and due diligence in day-to-day activities. It is designed to cover most types of transfer payments, conditional or unconditional, but is not intended to supersede departmental guidelines on specific programs.

This section applies to most transfer programs but should be applied with discretion to programs designed to provide maximum flexibility to recipients and minimum direct management by the department. Even for these programs, however, the obligation of due diligence still exists.

Best Practices Annex: Western Economic Diversification (WD) has developed processes to undertake due diligence of projects including the development of a checklist.

8.1 Selecting and approving new agreements

8.1.1 Financial and operational pre-check

During this pre-assessment, the program officer should check the following:

If the applicant is part of a larger organization, such as a university faculty, the pre-check should also be conducted at the level at which the agreement will be signed, e.g., the faculty or university.

8.1.2 Segregating duties and conflict of interest

Whenever feasible, a single person should not select and approve a new grant or contribution agreement, or renew an existing one. In most cases, the decision to approve a grant or contribution agreement has a judgmental component and often involves disbursing significant sums of money to groups or individuals. There is a potential for bias or conflict of interest. A review committee offers many advantages but it may not be practical beyond a certain volume or within given time constraints. In this case, a peer review may be a good alternative.

Being in a strict arm's length business relationship with potential or actual participants to a grants or contribution agreement is the condition for impartiality and objectivity. Supervisors should be alert to any indication that their officers might not meet this condition. An officer who feels he/she might be in a situation of conflict of interest with an applicant should inform his/her superior of the situation and abstain from influencing the application's outcome.

8.1.3 Internal and external consultation

Some programs require that certain individuals, groups or organizations be consulted during the approval process. In these cases, all mandatory consultations are to be conducted before the selection and approval processes are finalized and the favourable or unfavourable consultation results recorded in the project files.

Even when programs do not include mandatory consultations, they should take place whenever project officers handling selection and approval processes believe that they would help reach more educated or impartial recommendations or decisions. This could be the case if officers have not yet dealt directly with applicants but know that applicants have had previous transfer agreements with the department, or if applications contain technical or legal elements unfamiliar to officers.

8.1.4 Rationale for recommendation

Reference to departmental and program objectives

The rationale for recommending or accepting a transfer agreement is to be stated in the file. The factors that were considered and show how the transfer would promote this specific program's mission and objectives are to be described. For simple, straightforward and relatively low-cost projects, simple but clear statements may suffice, while for large, complex projects, files should contain evidence that all important factors were considered and properly weighted. By doing so, project officers and departments are protecting themselves against subsequent challenges of decisions taken.

Example of a rationale for a contribution agreement: The applicant has presented a comprehensive business plan and has several years’ experience in homeless shelter management. The project, if approved, will create a homeless shelter in an area without one. This service will greatly benefit the targeted beneficiaries. The need has been established through a survey among potential clients and the operational budget presented in the application will allow the hiring of four core professionals, supplemented by volunteers. The municipality will supply accommodations free of charge.

Cost-benefit analysis

Assessing the expected costs and benefits of a transfer agreement should be part of the selection and approval process. Such assessments are to be conducted routinely for industry-based agreements. On the other hand, assessing factors such as incrementality and likelihood of success may not be appropriate for some programs, especially those that are clearly social-oriented. However, a cost-benefit analysis should be conducted whenever possible, even on a judgmental basis, to ensure prudent and gainful use of transfer funds.

Incrementality

Although not spelled out in the transfer policy, due consideration for incrementality is good business practice for most programs. When appropriate, the rationale for recommendation should indicate that the program officer has considered the total direct and indirect benefits expected from the transfer payment against the transfer's value. The project officer should also consider whether or not the expected result would likely occur without the transfer.

Examples of questions to ask about incrementality

  • Should we spend $50,000 in transfer payments to create jobs that will likely not generate more than $40,000 in wages and disappear after the funding has ceased?
  • Could helping a business owner expand in a competitive and closed market result in job losses among other similar businesses?
  • Would a successful, rapidly growing company still create new jobs without a transfer agreement?
Likelihood of success

Rather than a matter of policy, the assessment for the likelihood of success is good practice in the selection and the approval of transfer payment applications. It is not always possible to conduct a feasibility analysis for every project, but a reality check should be done before recommending a new project, especially if there are no precedents. The recommendation should state how success will be measured in terms of output and/or outcome, and the odds of that happening.

Examples of questions to ask about chances of success:

  • If grants are used to promote book reading among a targeted group, how are we going to measure success? Quantitatively, by counting the number of books read? Qualitatively, by measuring progress in school?
  • How will this information be captured, and by whom?
  • How much progress is called a success?
  • Is it attainable in the project's time span?

8.2 Agreements

8.2.1 Grants

The transfer policy stipulates that a written agreement between the department and the recipient or sponsor is required, with one exception: for grants involving lower risk and materiality, the agreement may be in the form of an application and the related correspondence.

The policy does not spell out what a situation of "lower risk and materiality" is, but leaves it to the program officers' judgement. Sub-section 8.5.5 of this section discusses that matter and Section 7 of this Guide deals with risk management.

Whether or not a formal written agreement exists, the file should contain verifiable evidence that the recipient meets the eligibility requirements at the time of the transfer, or maintains this eligibility if the grant is paid by instalments.

8.2.2 Contributions

Contribution payments must be supported by a written agreement between the department and the recipient. Most agreements contain two sections: a generic section that is mainly related to the program's general terms and conditions, and an agreement-specific section, related to that particular agreement's terms and conditions. The agreement-specific section is often in the form of one or more appendices.

8.2.3 Delegating signing authority

The "Delegation of Signing Authorities" is the official document whereby each minister delegates signing authority to departmental officials. It typically consists of a matrix that identifies generic position titles and their matching levels of authority. In the case of grant and contribution agreements, it generally refers to the financial range within which an officer or manager can approve or modify an agreement or authorize a payment. Not only the word but also the spirit of the delegation of authority must always be respected.

Examples of unacceptable signing practices:

  • A manager with a $50,000 maximum signing authority signs a $49,000 agreement, and later modifies the agreement to allow the sponsor to claim an extra $10,000.
  • A project officer with a $20,000 signing authority signs two $20,000 agreements with a single sponsor to deliver similar services during the same time period.

8.2.4 Mutual understanding of the agreement's terms and conditions

Before finalizing the agreement's signing, the project officer should review the agreement with the recipient to ensure a common interpretation and understanding of the terms and conditions.

8.2.5 Signature of agreement

All parties should sign a written agreement before the stated start date, and, more importantly, before eligible expenses are incurred. When eligible expenditures are incurred before formal approval of the agreement, both parties, the department and the applicant, must understand the risks and consequences they face.

When eligible expenditures are to be incurred prior to formal approval, it must be made clear to the applicant that the department will not reimburse these expenditures if formal the written agreement is not approved (i.e. signed). Furthermore, should the project officer not inform the applicant of the risk involved, the applicant could argue that a verbal agreement exists since the project officer knew (or gave the impression that it was known) that expenditures were being incurred and that reimbursement was expected. Should this argument be legally up held, the department would be required to reimburse the applicant even though the department never formally approved and signed the agreement.

In addition, the project officer should ensure that the applicant's legal name appears on the agreement and that the applicant himself or his authorized representative signs it.

8.3 Overseeing

8.3.1 Supervision

Supervision provides employees with direction and support. In the context of transfer programs, supervision is also a key element of a good management and control framework. Program officers are engaged in activities that involve disbursing large amounts of money to organizations or individuals. Supervisors should ensure that public funds are used effectively and for their intended purpose within the program's terms and conditions.

8.3.2 File maintenance

A transfer agreement file serves many purposes. It is:

For this reason, the file must be well documented and kept current.

For a grant and a contribution, the file must contain:

Contribution agreements files should also contain the following:

8.3.3 Operational and financial monitoring of contribution agreements

Monitoring of contribution agreements is the cornerstone of an effective management and control framework. Financial monitoring provides ongoing assurance that reimbursements claimed by the recipient are based on legitimate expenses actually incurred for activities specified in the agreement. Operational monitoring verifies that the recipient meets the agreement's terms and conditions. Monitoring is covered in Section 9.

8.4 Disbursements

8.4.1 Financial controls

The size of contribution programs' budgetary allocations vary between departments but they often represent several millions of dollars. These public funds must be adequately protected against errors, misuse, abuse and fraud.

The two universal financial controls of supervisory review and segregation of duties apply to contribution programs. Supervision is an ongoing requirement. Supervisory review should be conducted regularly by a person who has adequate knowledge of the transfer program's financial aspect and has independent access to the information required to determine if disbursements made from transfers accounts are legitimate.

Segregation of duties means that at least two persons work independently in issuing a transfer payment for a grant, an advance, or a reimbursement of contribution expenses or costs.

Various employees require access to financial systems. This access should be restricted to those employees who require it to conduct their legitimate duties and limited to their functional requirements. No single employee should have simultaneous access to financial functions that are intended to be segregated, such as the input and approval of a payment. It is management's responsibility to ensure that employees only have access to the profile they require at any time period. The employee is responsible for protecting the confidentiality of his/her password.

8.4.2 Cash management

Calculating imputed interest cost

Under certain circumstances, an advance paid to a recipient may not be spent immediately for various reasons. In this case, if the recipient is allowed to keep the money, the unused funds should be put in an interest-bearing account. The amount of interest that was or should have been generated is deducted from the amount of the advance paid for the subsequent periods. (The amount of interest revenue should be at least sufficient to cover the cost and efforts to calculate and allocate it.) The policy does not dictate the interest rate to be used in this instance, but the 90-day Treasury Bill rate or some other approximation such as the bank rate may be used.

Scheduling payments
Frequency of payments

Grants may be paid once or in instalments, while contributions are generally paid monthly or quarterly.

When grants are paid in instalments, the minimum number of instalments depends on the grant's total value as shown in Appendix B of the Transfer Payment Policy. The program officer may decide more instalments are in order when risk, materiality, the quality and quantity of financial information and past experience with the recipient support the decision.

The same factors should guide the program officer in deciding at what frequency a contribution recipient should provide progress reports and claim for reimbursement.

It is important to realize that a reporting and payment schedule and an advance schedule are two different things. If it has been agreed that the recipient will produce a claim every quarter, this does not mean that he or she has an automatic right to a three-month advance at the beginning of each quarter.

Determining advance payments requirements

The policy on transfer payments clearly states that advance payments should only be made available when required. Typical contribution payments are by design the reimbursement of expenditures or costs incurred by a recipient who is thus expected to make the disbursement and then claim for reimbursement.

When it is clear that this approach would result in serious cash flow problems for the recipient, then advance payments might be made. It is the applicant's responsibility to demonstrate up-front that advance payments are essential to achieve the objectives of the project. This is generally done by producing a detailed cash flow forecast for the duration of the agreement. Advances are more likely to be required in social transfer programs where the recipient is often a small non-profit organization. In that case, however, the advance amount should be limited to the amount needed to bridge the time gap between expected revenues and expenses. Allocation of advance payments should be justified in the file and be subject to supervisory review.

Examples of justified advances:

The recipient, a non-profit organization with no cash reserve and no other income source, needs to rent an office to start the activities stipulated in the agreement. The first and the last months' rent must be paid in advance. An advance to pay the two months would likely be justified. Other expenses such as salary payable during the period may also be advanced; on the other hand, invoices payable in the next period should not be.

Accounting for advances at year end

Extra care should be taken when advances result in funds being transferred from one fiscal year to the following year. The strict and basic rule for contributions is that expenditures incurred in one fiscal year should be reimbursed from funds appropriated in the same fiscal year. Under exceptional circumstances, advances paid in one fiscal year may cover expenses incurred in the subsequent year, but the period covered in the new year must not exceed one month.

Advances at year end must not be used as a means to avoid or reduce lapsing transfer funds. Program and financial officers should closely supervise the use of transfer funds in the last months of the fiscal year.

Examples of valid reasons for fiscal year cross-over:

A project starts near the end of a departmental fiscal year (this situation should be avoided when possible) and requires an advance for expenses to be incurred before and after March 31. It would not be practical to split the advance in two portions-one for the period before April 1 (charged to the previous year), and one for the remaining period (charged to the new year)-so the advance covers expenses incurred in March and April.

An advance payment was made to cover expenses incurred at the end of a fiscal year. The project spans two fiscal years and the advance is not completely used by March 31. Instead of the department asking to be reimbursed the unused portion of the advance and issuing a new advance for the new year, it is acceptable for the recipient to keep the money and apply it against new year expenditures as long as the money is spent by April 30.

Advances are not made for grants and, therefore, accounting for advances at year end is not an issue. However, grants may be paid in instalments spanning over two fiscal years. In this case, the individual instalments must be allocated to the period to which they pertain.

8.4.3 Payments

Section 34 requirements

Section 34 of the Financial Administration Act (FAA) stipulates that no payment shall be made unless a person with the proper delegated authority certifies that the payee is eligible or entitled to the payment. This applies to transfer payments. For grants, the officer authorizing the payment under section 34 must be satisfied that the right amount is sent to the right person.

In the case of contributions, the authorizing officer must be satisfied that the reimbursement claimed by the recipient is based on eligible expenditures or costs actually incurred within the terms and conditions of valid agreement. To directly obtain such assurances, the officer should review the supporting evidence for the claim. (There is nothing in the transfer policy that prevents a project officer from requesting documentary evidence to support a claim, such as receipts, payrolls and cheques processed by the bank.) To indirectly obtain the assurance related to section 34, periodic monitoring visits or a financial post audits should be conducted.

In the case of advance payments, the authorizing officer should ensure that the amount of the advance is justified and within the limits set in the agreements.

Authorized budget

Recipient payments must not exceed the total budget authorized by the agreement, initial or amended.

Expenses

Eligibility of expenses is a matter of fact based on the agreement's nature and content. As explained above, a contribution agreement should clearly indicate what costs and expenditures can be claimed and to what limit. Therefore, any expense that is not authorized in the agreement, or that is claimed in excess of the maximum authorized, is not eligible for reimbursement. The degree to which budgeted expenses in an agreement are individually detailed (or aggregated to allow for more flexibility) is a matter of risk management. For example, for a high-risk project, specifying a maximum level of support for a specific line item expenditure (e.g., salaries) may be warranted. For a low-risk project, aggregating salaries as part of a larger classification (e.g., research and development that includes salaries, benefits, overhead, supplies) would allow for flexibility among the line items.

Allowed and disallowed expenses

Acceptance of expenses is a matter of credibility and evidence. As a general rule, when costs and expenditures meet the eligibility test described above and the officer is satisfied that they were actually incurred for activities specified in the agreement, reimbursement is allowed. Statistical sampling methodologies based on a risk management approach may be used for claims verification. The degree of verification required may be based on criteria such as the risk profile of recipients, experience of staff administering the program, sensitivity or materiality of the claims. Officers who have responsibility for verifying accounts should refer to the policy on Account Verification.

GST expenses and rebates

Grant and contribution recipients do not render services and provide goods and, therefore do not charge GST/HST to departments.

Where recipients incur GST/HST on the supplies purchased pursuant to grant or contribution agreements, departments can reimburse the amounts if the recipients are not entitled to an input tax credit or GST rebate from the Canada Customs and Revenue Agency (CCRA).

Recipients who are GST registrants may be entitled to input tax credits from the CCRA in respect of tax paid when certain conditions are met. When recipients are not GST registrants, they may still be entitled to a partial rebate of any tax paid. Rebates may be claimed by the following public bodies at the following percentages: Hospitals-83%; Schools-68%; Universities or public colleges-67%; Municipalities-57.14%; Charities or Qualifying Non-profit Organizations-50%.

Best Practices Annex: A comprehensive discussion of GST respecting grants and contributions has been developed by Atlantic Canada Opportunities Agency (ACOA).

Cash versus accrual accounting

Many organizations use accrual accounting. This means that a purchase made on a given day will be recorded as an expense on that day even if the payment is made at a later date. In general, advances should cover actual cash requirements and claims for reimbursements should be based on actual cash disbursements. However, if the purchase of goods or services is paid for after the end of the project or in the next fiscal year, then the expense may be claimed before the final payment is made.

Retroactive expenses

Retroactive expenses are costs incurred prior to a project's official start date. Unless authorized, costs incurred before the project start date are not eligible for reimbursement.

On occasion, a case may be made to authorize retroactive expenses.

If retroactive expenses have not been incurred prior to application for assistance, but, for operational reasons, must be incurred prior to the start date (e.g. refer to example below), the applicant must request their inclusion as eligible expenses. Once an application with retroactive expenses is submitted, the applicant should be advised in writing of the risk being assumed. That is, the applicant must understand that the project funding and/or the retroactive expenditures may or may not be approved by authorized departmental officers.

If retroactive expenses have been incurred prior to application for assistance and prior to the start date and the applicant wishes to receive reimbursement for the retroactive expenses, again the applicant must request their inclusion as eligible expenses during the application process. However, for such expenses to be approved by authorized departmental officers, the circumstances surrounding the eligibility of the retroactive expenses would need to be exceptional, and the rationale would need to be very compelling.

Example: A building permit issued by the municipal government is required "prior" to proceeding with construction activity.

Note: Such a practice should not be used as a means to circumvent the year-end spending policy.

Stacking of assistance provisions

It is the applicant's responsibility to disclose in the application all relevant information on other sources of expected funding or in-kind participation, or to inform the project officer if new funding sources for the same project become available during the life of the agreement. The project officer has the right and the duty to ask questions and perform whatever verification deemed necessary to prevent the same costs and expenditures from being claimed and reimbursed under another agreement. For example, if the rent is reimbursed entirely by one program, then it cannot be claimed as an expense from another program. The issue of stacking is discussed in more detail in sub-section 4.6.4.

In-kind contributions

Stacking implications: In-kind contributions involve non-cash asset transactions (e.g., securities, land, buildings, equipment, use of facilities, labour, goods) that are provided by interested parties such as recipients, ultimate recipients, departments or other government bodies, in support of a federally approved transfer payment project or initiative. (The term "asset" here means a future benefit that can contribute directly or indirectly to future net cash flows).

All contributions, whether cash or in-kind, made toward a project's eligible costs must be taken into account when considering the stacking policy and sources and uses of funds. In-kind contributions that are considered ineligible costs but are related to the project should be considered in the sources and uses of funds but not in the stacking calculation.

The policy threshold for stacking is $100,000 (the point at which other sources of government assistance must be considered in determining and monitoring the appropriate level of total government assistance for a project or initiative). It includes all government sources-non-monetary as well as monetary assets.

Eligibility: To be eligible as an in-kind contribution:

Reimbursing in-kind contributions

As a general rule, reimbursements of in-kind contributions should be addressed during the negotiations of the agreement.

Reimbursable
Not Reimbursable

There are a number of instances where in-kind contributions may not be reimbursed:

For example: the reimbursement of assets donated by individuals or organizations such as voluntary materials or labour would result in a profit to the recipient because the recipient's cost base is zero.

For an illustration of in-kind contributions, assume a project where office space light and heat as well as supervision are needed by a recipient to undertake activities in helping students get on-the-job training. Assume program terms and conditions allow for these types of costs and activities with a stacking limit of 50%. Further assume that the department can provide the office space light and heat (valued at $100,000) as an in-kind contribution. The recipient can only contribute supervisory costs (it retains employees whose contribution is valued at $100,000) as an in-kind contribution. While only one employee may be required at any one time for supervision different employees are used based on the expertise needed.

In this hypothetical case if both the department's and recipient's in-kind contributions were not recognized as eligible costs there could be no project. But because in-kind contributions can be recognized as eligible costs the valuation of the contributions at $100,000 from each party results in a project that meets the 50% stacking limit.

If the stacking limit had been set at a higher level-say 75%-a portion of the recipient's eligible costs could have been reimbursed (assuming it was initially approved to be reimbursable) because the recipient incurred the cost. On the other hand if voluntary labour valued at $100,000 was donated to the project instead of using current employees the stacking limit of either 50% or 75% would be still honoured but the donated labour would not be reimbursable.

Non-monetary transfers

The Transfer Payment Policy stipulates that the transfer of non-monetary assets or benefits with an aggregate value of $100,000 or more must be recorded and accounted for as a transfer payment according to the Treasury Board Policy on Accounting for Non-Monetary Transactions and the Treasury Board Accounting Standards.

This should not be interpreted to mean that a non-monetary transfer of less that $100,000 should not be accounted for in the context of the agreement. For instance, assume that a transfer agreement stipulates that in addition to a certain amount in cash, a recipient will receive equipment worth $20,000. This person should be held accountable for the equipment's use and eventually its return or proper disposal if the agreement's conditions are not met, or if the agreement does not stipulate that the recipient will own the equipment at the project's completion. Similarly, if the non-monetary transfer is in the form of labour, it is the recipient's responsibility to account for the work done under that agreement. The agreement should clearly indicate the nature, value and terms and conditions attached to the non-monetary transfer, and at the agreement's termination, the file should contain information as to the disposal of these assets.

8.4.4 Identifying overpayments

It may happen during the life of an agreement that a transfer recipient cannot account for the money he or she has received either as an advance, a reimbursement or a grant instalment. This situation may be detected during on-site monitoring or during the final accounting at close down, or after the agreement has terminated, during an audit. (Most agreements require that the recipient retain all documentation from project-related activities for a number of years and give the department the right to audit the project during that period. Such an audit is often conducted after the department has received a complaint or an allegation that wrongdoing has occurred.)In the case of a grant, it may be found that the beneficiary has obtained his grant under false or misleading representation. In the case of contribution agreements, it generally occurs after it has been found that some of the advance received has not been used or costs and expenditures already claimed and reimbursed were non-eligible or non-allowable.

This situation does not necessarily lead to the creation of an overpayment, the opening of an account receivable or to collection process.

If the agreement has not terminated when the overpayment is determined, you should investigate the circumstances that led to this overpayment. If it resulted from an honest mistake made by either party, such as a calculation error or a claim in excess made in good faith, simply deduct the overpayment amount from future payments. If there is an appearance of fraud, use internal or external auditors to fully investigate the case. Fraud is the false representation of a matter of fact that deceives and is intended to deceive another. It comprises all acts, omissions and concealment involving a breach of a legal or equitable duty and resulting in damage to others. It can involve misappropriation of assets or misrepresentation of financial information either to conceal misappropriation of assets or for other purposes. Attempted fraud is also an offence.

If the agreement has terminated and there is an outstanding balance, management should start the procedures to claim the money back from the recipient.

If negligence or fraud is confirmed, bring the case to the attention of program management who should decide if any action beyond collecting the overpayment is warranted. This action may involve referring the case to the police and/or taking legal action.

8.4.5 Repaying contributions (repayable transfers only)

The policy on transfer payments stipulates that "Where a contribution is made to a business and is intended to allow the business to generate profits or to increase the value of the business, the business is required to repay the contribution or to share the resulting financial benefits with the government commensurate with its share of the risk." A detailed definition of the term "business" for the Transfer Payment Policy is found in Appendix A of the policy document.

The main exceptions to the repayment requirement are when the transfer payment's primary aim is income support and income stabilization for individuals, when the contribution is to a non-profit organization, when the contribution is less than $100,000 or when no quantifiable benefits will accrue to the recipient as a direct result of the contribution.

One of the main challenges in managing repayable transfers is to find the appropriate balance between a program's mandate and the requirement to recover the investments. Program policy design will directly impact on recovery results. However, the more the terms and conditions and/or management controls are tightened to maximize collection results, the greater the risk that measures taken may be counterproductive to the program's original mandate. (For example, an economic development agency may choose a policy of taking security to minimize losses, but this also diminishes the proponent's access to bank financing.)

When introducing repayability in a transfer agreement, consider the following factors:

8.4.6 Amending transfer agreements

Amendments may affect the maximum allowable amount payable under the agreement, the termination date and the terms and conditions, including the definition of allowable expenses and expected output. Justify any amendment in writing and keep it in the file with the amended agreement. If the amendment is minor, such as a short extension of the project's duration and the reason for it is obvious, the request for amendment signed by the recipient may suffice to justify it, but the amendment should still be acknowledged and signed off by an authorized departmental representative. Do not retroactively amend an agreement that has terminated.

8.4.7 Renewing transfer agreements

Multi-year agreements

Program funds are voted by Parliament on a year-to-year basis. A multi-year agreement is automatically renewed from year to year until the period has expired, provided the required funds have been voted and there are no circumstances that call for its termination. For that reason, multi-year agreements must have a clause that relates their continuation to the availability of funds. Also see the discussion on this topic in sub-section 4.6.4. of this Guide.

One-year agreements

Do not automatically renew agreements. Basically, the same criteria used to select and approve a new agreement should be used to renew an existing one. The fact that an initiative has been achieving its objectives in the past does not necessarily mean that it will achieve them in the future or that the objectives are still valid.

8.4.8 Closing down transfer agreements

At completion of a project or, in the case of a repayable transfer, after repayment obligations have been met

This is the "normal" way for an agreement to terminate. Transfer agreements may last only one day in the case of a grant payment to an individual or span over several years (subject to appropriation). Close-off procedures apply to contribution agreements and should be conducted just before closure date. The Transfer Payment Policy states that "a portion of the contribution should only be paid following the final accounting of the contribution by the recipient." The portion of the contribution held back is a matter of judgement based on risks and projected cash flow, but a good rule of thumb is to hold back an amount corresponding to the expected last claim.

For very small agreements, close-off procedures should include at least a financial monitoring of all expenses claimed since the last time the project was financially monitored and an operational monitoring of deliverables since the last time the project was operationally monitored. For multi-year projects, a process similar to close-up should be conducted once a year or at least at mid-course, depending on risk and materiality. Note: Financial and operational monitoring is defined in sub-section 9.2.2.

In the case of a repayable transfer, the agreement terminates when the sponsor or recipient has met his financial obligations toward Canada, either by reimbursing the full amount specified in the agreement, or by reaching a settlement with the department.

For cause
Defaulting on performance of contractual obligations

A recipient has the contractual obligation to perform in accordance with the contribution agreement's terms and conditions. Failure to do so generally results in a breach of contract, which may lead to the agreement's early termination. In such a case, the department would seek the reimbursement of any funds not accounted for. In the case of a repayable contribution, the full amount of the contribution paid should be immediately demanded and recovered.

False declaration

Any party to a transfer agreement that obtains benefits in money or in kind through a false declaration is no longer eligible to the benefits. The trust is broken and the appropriate action will normally be to terminate the agreement and seek appropriate remedies.

Where illegal acts are suspected, the department must immediately refer the matter to the RCMP for investigation.

By definition, fraud is false representation of a matter of fact that deceives and is intended to deceive another. It comprises all acts, omissions and concealments involving a breach of a legal or equitable duty and resulting in damage to another. It can involve misappropriation of assets or misrepresentations of financial information, either to conceal misappropriation of assets or for other purposes, by such means as:

  1. manipulation, falsification or alteration of records or documents;
  2. suppression of information, transactions or documents;
  3. recording of transactions without substance; and
  4. misapplication of accounting principles.

Attempted fraud is also an offence, where the false representation is intended to deceive another. It contains the same elements as set out above for fraud.

Tools: Refer to the checklists developed by ACOA in the Best Practises Annex these provide the steps to follow when suspected fraud of the above nature occurs.

For other reasons
Voluntary withdrawal of one party to the agreement

Standard contribution agreements generally spell out the conditions under which one of the parties can voluntary withdraw. Normally, the party that chooses to withdraw notifies the other parties in writing within a certain time, generally three months.

Mutual consent

Standard contribution agreements generally allow for an early termination by mutual consent. Special conditions need not be specified in the agreement since the parties are by definition satisfied of the arrangement.

8.4.9 Delivery of a transfer program by another organization

In a transfer agreement, there are always at least two parties involved: the department, which provides transfer funds and manages the program, and the recipient, which may be an individual, an organization, a business or another level of government. Some agreements may be signed with more than one recipient, who become jointly responsible for delivering the project.

In some cases, the recipient is expected to sign sub-agreements, under the authority of the initial agreement, with other individuals or organizations. In this case, the recipient essentially becomes the program's fund manager and spending department of the sub-agreements. This situation offers many advantages but creates unique challenges in terms of accountability and management and, sometimes, financing. Most of what is said in this section applies to that type of delivery but the following additional factors must be taken into consideration. Special considerations for monitoring and auditing will be discussed in the next sub-section.

Accountability of the parties in a sub-agreement

In the case of a sub-agreement, risk and responsibility can be shared but the federal department's obligation to ensure that Canadian citizens receive value for money from the agreement is not suppressed, nor is its accountability for the expenditure of public funds and responsibility to Parliament.13

Managing a sub-agreement

Departments should manage the original agreement with due diligence but they should also put in place controls and reporting mechanisms to demonstrate that the sub-agreement deliverer is managing with good business practices.

Financing a sub-agreement with another federal government department

When a department wants to use another government department (OGD) to administer a program, it may use one of the following two financing arrangements possible:

Under the OGD suspense account arrangement, the funding department delegates to the spending department but the former retains full accountability for delivery of the program.

Under the Supplementary Estimates arrangement, the spending authority is transferred from the funding department to the spending department but the latter assumes full accountability for delivery of the program.

Under both arrangements, the authority delegated or transferred, if not fully utilized, will lapse at the end of each fiscal year.

A full discussion of the use of OGD suspense account and a typical transfer payment MOU between two government departments using the Supplementary Estimates process is illustrated in sub section 8.5.2 below.

8.5 Appendix and tools

8.5.1 Checklist-recipients distributing contributions

Additional Provisions to Be Included in Contribution or Contractual Agreements with Third Parties or Recipients Who Further Distribute the Contribution Amounts (Re: Policy on Transfer Payments, Appendix C, Part 2)

8.5.2 OGD suspense account, MOU template and Supplementary Estimates

An OGD suspense authority is a mechanism introduced in the early 1980s under the authority of section 7c (financial management) of the Financial Administration Act (FAA). Where not feasible or not efficient for a department to administer a program or to make payments itself, it can arrange for such administration to be carried out by other departments. In these cases, the administering department will normally use an other government department (OGD) suspense account.

An OGD suspense account is meant to render more efficient some elements of program delivery. It is intended to improve the decision-making process and resource. The creation of the OGD suspense account, in effect, establishes a "line of credit" that permits the spending department to charge expenditures on behalf of the funding department.

Under a memorandum of understanding (MOU), the funding department delegates its spending authority up to a certain limit to the spending department while the funding department retains full accountability for resource use. The funding department's parliamentary appropriation is charged for the amount advanced to the spending department's suspense account. Over the year, the spending department must charge to the OGD suspense account all expenses related to the program. At year end (or more often, as specified in the MOU), all charges under the MOU must be transferred from the spending department OGD suspense account to the funding department's appropriation.

Several requisites must be in place before an OGD suspense account can be created and used to authorize a payment out of the Consolidated Revenue Fund:

Best Practices Annex: Appendix A developed by Western Economique Diversification (WD) illustrates a typical transfer payment MOU between two government departments using the OGD suspense account method.

Alternatively a department (the funding department) that wants another department to administer a program may request a transfer of authority to the spending department through the Supplementary Estimates process. In this case, the authority will be transferred, not delegated. The spending department will have full authority to deliver the program. Note that under this option, the spending department, will bear full responsibility for delivering the program, and will account for all expenditures charged to its appropriation.

This authority will be subject to an MOU signed by both ministers. A separate Treasury Board submission is not normally required, however, a copy of the MOU must be provided to Treasury Board to effect the transfer. The eventual changes are to be reflected in the Supplementary Estimates plates that both ministers will sign on behalf of each department.

Best Practices Annex Appendix B developed by Western Economic Diversification (WD) provides a template of a Letter of Agreement for the Estimates process.

8.5.3 Generic agreement

Generic agreements contain elements that appear in every contribution agreement, such as the name of the contribution program, the name of the parties to the agreement, the starting date and intended duration and the name and title of the representatives who will sign the agreement.

Some generic sections contain clauses that apply to most, but not all, agreements. Authority to remove or modify any generic clauses should be obtained prior to the changes.

In the case of third party delivery, the agreement should also specify the nature and level of accountability of both parties vis-à-vis the performance of the third party.

The appendix's agreement-specific section is part of the agreement. It describes in detail the parties' rights and obligations under this specific agreement. For most agreements, the appendix should contain expected deliverables, a budget, milestones, a list of allowable expenses by category, and all applicable terms and conditions that are not specified in the generic section.

8.5.4 Basic provisions to include within contribution agreements

The majority of the requirements below are listed in the policy's Appendix C. A few requirements have been added because they are mandatory under the policy or other government legislation. A few optional requirements have been added to enhance the implementation of contribution projects or initiatives.

This list has been categorized by those requirements that are mandatory, procedural and optional.

Mandatory Requirements - Policy
Mandatory Requirements - Other
Procedural Requirements
Suggested Wording
Optional Requirements

8.5.5 Risk-written agreement for grants

One rule of thumb may be that if the total cost of creating a written agreement is equal to or exceeds the grant's value, then the grant should be regarded as having a "low materiality."

Risk, on the other hand, can generally be measured, at least intuitively on a scale of 0 (it will never happen) to 100 (it will certainly happen in a foreseeable future). One way to approach the problem is to evaluate the risk first. If it is high, a written agreement is required. If the risk is low, then the next question would be is the cost (in terms of time and money) of developing a written agreement higher than the grants' value? If the answer is yes, then the program should be designed to allow for an application in lieu of a written agreement. More about risk management is found in Section 7.

8.5.6 Table—summary of accountability and management and control frameworks


To manage transfers, one should have:

Results-based management and accountability

Management and control framework

at the department or business line level

an approved results-based PRAS; a departmental evaluation plan

a department-wide risk assessment; departmental internal audit plan; possible generic control framework

at the policy, program or initiative level

a framework describing: roles and responsibilities; resources and objectives; a results-based logic model, a performance measurement strategy (performance indicators, data sources and methodologies and costs); evaluation arrangements (evaluation schedule, ongoing data collection); and reporting provisions

program risk assessment; controls on process and finances; monitoring of controls; audit arrangements (specify in audit plan and identify resources)

at the transfer level

terms and conditions that ensure adequate information for accountability (results information)

terms and conditions that ensure adequate information to assess compliance and maintain control (records, right to audit)

8.5.7 Manager's Program Guide and Examples of Grant and Contributions Agreements

This document is a good, concise guide prepared by Environment Canada (EC) that integrates program terms and conditions with agreements. This document is presently being updated by EC and will be available at a later date and attached to the Best Practices Annex.



9 Monitoring and auditing programs and agreements

This section is a general overview designed to provide support and guidance to program officers and their supervisors on an essential control: monitoring. It is aims to clarify when and how the audit function can support the proper management and administration of transfer programs. Consult with your local audit professionals to obtain more detailed guidance related to this section.

Most of what is said about risk management in Section 7 applies to this section.

A transfer agreement implies that public funds will go to individuals, groups or organizations. Departments are accountable for the proper handling of these funds by their employees and their proper use by the recipient. Effective monitoring by program officers can cover the latter. Audits can provide assurance on both.

9.1 Internal audit

Although all audits must follow basic standards, there are two basic levels of assurance that auditors can provide in their reports and the depth and scope of their investigations may vary from engagement to engagement.

9.1.1 Assessing program management

With regards to grants, contributions or other types of transfer programs, the main role of audits is to provide an opinion on the program's management and, eventually, make recommendations for improvement. This is done by objectively examining evidence and independently assessing management control framework and practices. Auditors can also assess risk management and practices, information used for decision making, and reporting practices.

With unconditional transfers, such as grants, audit is limited to the recipient's selection, approval process and eligibility. With conditional transfers such as contributions, the audit should also examine the recipient's respect of the agreement's terms and conditions and of the milestones as specified in the agreement.

Although audits can be conducted on individual contribution projects and recipients under certain circumstances, they should not replace regular financial and operational monitoring. Both, the audit of recipients as well as financial and operational monitoring, are responsibilities of program management.

Essentially, the audit of a conditional or unconditional transfer program systematically assesses the program's management and control framework. More specifically, the auditors will determine whether:

9.2 Monitoring and auditing individual contribution agreements

9.2.1 General

Strictly from a process point of view, the monitoring and the auditing of individual contribution agreements have a lot in common. In both cases, the objective is to ensure that the agreement's terms and conditions are respected and the expenses claimed are eligible and allowable.

The main differences are the depth, coverage, impartiality and the adherence by auditors to strict professional standards. For that reason, the word "audit" should be reserved for engagements conducted by auditors.

Monitoring is generally conducted by the program officer responsible for the project; consequently, it only covers the recipient's activities. In contrast, an audit will generally review the activities of both the project officer and the recipient. When the monitoring is conducted by the officer responsible for the project, this person may not have the same degree of impartiality as an independent auditor. Finally, whether auditors are providing a higher or more moderate level of assurance, they must adhere to strict audit standards that may not be justified in an operational or financial monitoring exercise.

9.2.2 Monitoring by program officers

Program officers are expected to monitor regularly the progress and activities of recipients of contributions or other conditional transfers. Monitoring is a crucial element of a transfer program control framework.

Monitoring can be operational and/or financial. In the first case, it involves conducting interviews and reviewing documents to ensure that the recipient meets and continues to meet the terms and conditions and reaches the milestones specified in the contribution agreement. In the second case, the monitoring officer will examine claims to ensure that costs and expenses claimed for reimbursement correspond to the eligible costs and expenditures listed in the agreement and do not exceed the maximum authorized for each category. The officer will examine supporting evidence of cost and spending, such as invoices and payrolls, to ensure that they have actually been incurred during the period for which the claim is made and are directly related to the agreement. If the applicant has an obligation to contribute in kind or financially to the project, this should be monitored as well.

9.2.3 Audit of individual transfer agreements

Audits for individual transfer agreements can be conducted at the two levels discussed above: higher and more moderate. In the first case, the auditors will generally spend several days on-site reviewing and analysing the beneficiary's financial and operational records to determine if all the agreement's terms and conditions have been met. In the second case, the auditors may limit their review to one or two areas, such as quality of service or purchase of equipment, or to a few selected financial claims presented by the recipient.

9.3 Monitoring and auditing unconditional transfer agreements

Unconditional transfer agreements such as grants do not require monitoring since there are no conditions to be met after the payment, but managers should ensure adequate control over the selection, approval and payment process. Grant agreements can be audited mainly to ensure the recipients meet the applicable eligibility criteria.

9.4 Monitoring and auditing transfer agreements by non-governmental organizations (third parties)

A transfer agreement may stipulate that the recipient will in turn sign sub-agreements with one or more non-governmental organizations to deliver the funds and reach the milestones stipulated in the first agreement, called the master agreement. In master agreements, the department must have the right to monitor and audit the recipient. The right to audit the ultimate recipient should also be included in the sub-agreements whenever practical.

Even though the department retains the right to monitor and audit the ultimate recipient, it should not necessarily engage in these activities unless there are compelling reasons to do so, such as an increase in the risk level or the recipient's failure to exercise due diligence. Whenever possible, the responsibility for monitoring and auditing the ultimate recipient should be left with the recipient who remains accountable for the sub-agreement's terms and conditions.

The recipient should demonstrate to the departmental project officer's satisfaction that a management and control framework has been put in place to ensure the ultimate recipient respects the sub-agreement's terms and conditions. The recipient should manage sub-agreements with the same diligence and responsibility that the department expects for its agreement.

However, the department's internal audit group may be asked to audit the recipient to provide assurance that this is the case. That would require access to the books, records and/or premises of the ultimate recipient and/or the beneficiaries.

Best Practices Annex-A checklist has been developed by Western Economique Diversification (WD) for audit and evaluation file review.



10 Reporting

This Section briefly covers the basic requirements for management reporting within departments and to TB.

10.1 Management information

10.1.1 Financial

Timely and reliable information on cash flow is essential for proper administration and management of transfer payment programs. During the course of the fiscal year, program managers and officers must know whether or not there are enough funds in the transfer program account to sign new agreements. Since many agreements last one year or longer, managers and officers must commit the entire amount they expect disburse during the fiscal year. In many cases, several project officers work from the same budget, and each one must know in real time the program balance available before recommending the approval of new agreements. Failure to produce reliable and timely cash flow projections may result in lapsing or over-committed funds.

Cash flow information may be directly available from corporate financial systems but if it is not, responsibility centres should develop their own cash flow forecaster.

10.1.2 Non-financial

The policy stresses the importance of good management and administration of transfer programs. To do so, program managers need to have reliable and timely information on key parameters of their programs. Some of this information should be regularly gathered and reported. For instance, a program's management and control framework may include compliance, quality and internal performance indicators that provide monthly or quarterly information to various levels of management. Similarly, results-based management and accountability frameworks measure and report on a transfer program's output and, eventually, its outcome.

Non-financial information can be gathered on an ad-hoc basis to respond to queries or to address specific concerns. New transfer programs should have a built-in capacity to produce, on demand, the type of information that is not captured through regular indicators but is likely to be needed during their life cycle.

10.2 Reporting to Treasury Board

The policy requires that "Departments must account for transfer payments in the Public Accounts as required by the annual Receiver General Public Accounts Instructions Manual. For each transfer payment program in excess of five million dollars, departments must include in the Departmental Performance Report [DPR] evidence that the results achieved relate to the results committed and the specific planned results in the Reports on Plans and Priorities".

Additional information on grants, contributions, and other transfers payments is required only when the aggregate value within a business line is in excess of $5 million". Departments should refer to the 2001-2002 Part III-Reports on Plans and Priorities (RPP) and the guidelines therein. Table 5.5 of the RPP clarifies the requirements of clause 7.4.7of the TP policy. Therefore, departments are not expected to prepare an annual plan or a results report for every (large) transfer.

The DPR guidelines complement those of the RPP.

Pages 27 and 28 of the RPP Guidelines describe the requirement and also provide an example.14



11 Policy requirements - Annotations

This section deals with policy requirements or specific elements of a policy requirement that requires further elaboration or correction. This section does not discuss all policy requirements since the majority of them are straightforward and do not need annotation.

11.1 Eligibility of Crown corporations-paragraph 7.2.2 of the TP policy

In part, this paragraph reads "Where a department is considering a grant or a contribution to a Crown corporation listed in Section 85 and Part I of Schedule III to the Financial Administration Act, it must consult with the Treasury Board Secretariat to determine whether specific Treasury Board approval is required."

The conjunction "and" should read "or" as there are no corporations mentioned in section 85 of the FAA that are listed in Part 1 of Schedule III.

11.2 Approving terms and conditions-paragraph 7.3.7 of the TP policy

In part, this paragraph states that "departments must assess, 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."

This requirement, although not new, is mandatory and should be noted by departments. The onus falls on departments to show that lessons learned from sound program evaluation have been taken into consideration.

Where there are extenuating circumstances, departments may seek an exemption from TB to defer the requirement. However, because this obligation is fundamental to achieving expected results and outcomes and creating appropriate controls, any deferral runs counter to good program design.

11.3 Cash management policy-sub-section 7.6 of the TP policy

11.3.1 Advances on small contributions

Can an advance payment be made for a contribution's full amount when that value is small?

A contribution's key attribute is that normally, payment is in the form of a reimbursement of prescribed costs (i.e., only eligible expenditures agreed to are reimbursed). Since advances should be given on an exceptional basis, a holdback provision will:

If officials managing transfer payment programs feel that an exemption to the hold-back provision is warranted, they must seek a special exemption within their transfer payment program terms and conditions at the time their approval or renewal is sought from Treasury Board.

11.3.2 Instalments of grants and advance payments of contributions-sub-section 7.6 of the TP policy

  • "advance payments...should...not exceed the following payment frequency." (This sentence refers to the schedule in the appendix). The term "not exceeds" may be interpreted by departments as being acceptable to advance payments less frequently; that is, instead of making monthly payments, a department could make quarterly payments. This is not a correct interpretation. Advances made quarterly cost the Crown more in interest charges than if monthly advances are made and accounted for. The phrase "not exceed the following payment frequency" should be interpreted as "not less frequently than the following payment frequency."
      
  • "for (contributions) agreements of less than 4 months, the schedule represents the maximum percentage that may be paid out initially." This phrase may cause confusion. The sentence should be read as "can or shall be paid out" and does not provide any discretion as to whether or not the schedule should be followed.

11.4 Intellectual property (IP)-sub-section 7.10 of the TP policy

The policy states that "where appropriate, the potential for sharing in intellectual property rights should be defined in the program terms and conditions."

Departments should be aware of the potential risk in acquiring IP through transfer payments. It may result in transforming a contribution agreement into a procurement contract or a licence agreement that is subject to the Government Contracts Regulations and trade agreements. For example, licensing issues can arise in situations where departments stipulate, in transfer agreements, that they can use the IP developed by the recipient for their own purposes.

To ensure that agreements remain transfer payment agreements, rather than becoming procurement contracts or licence agreements, departments should seek legal advice when IP is acquired or covered in transfer agreements.

11.5 Departmental representation on advisory committees and boards-paragraph 7.11.4 of the TP policy

Exercise caution when departmental or government officials participate on advisory committees or boards of directors.

Transfer payment recipients must remain independent of any control exercised by government officials. (For example, control may be exercised even in the absence of government participation on committees and boards. Departments should seek legal advice to ensure that a partnership relationships with recipients are not set up, implicitly or explicitly, in the agreements.) Involvement of departmental or government officials on advisory committees or boards of directors must not result in them exercising control, or be seen to be exercising control. Undue influence or control over advisory committees or boards of directors may result in financial or legal liabilities on the part of the Crown.

When participating on such advisory committees or boards of directors, departments should contact their legal personnel when potential control issues exist.

11.6 Official languages-Sub-section 8.6 of the TP policy

Departments should be aware of the contents of the official languages policy entitled "Grants and Contributions."



12 Best Practices Annex

This Annex contains documents nominated by various departments in support of the Guide. The content of these documents may have been re-formatted for the Guide. They remain the property of the respective departments.

Index



Appendix A

Atlantic Canada Opportunities Agency (ACOA)-Goods and Services Tax and Harmonized Sales Tax-grants and contributions

2031 (C) GST/HST - Grants and Contributions

Table of Contents


GOODS AND SERVICES TAX & HARMONIZED SALES TAX - ON GRANTS AND CONTRIBUTIONS

OVERVIEW

The Goods and Services Tax (GST) took effect on January 1, 1991 and is a multi-stage tax. Businesses throughout the production and distribution chain charge GST on their domestic sales. These businesses were to claim a credit for any GST paid on purchases of goods and services used in the course of doing business and were to remit, to Canada Customs and Revenue Agency (CCRA), the difference between GST charged on sales and GST paid on purchases. Provincial Sales Tax (PST) was to be applied at the point of sale to a retail customer (any purchaser who did not have a provincial PST Number) and was collected by a provincial organization.

The Harmonized Sales Tax (HST) became effective on April 1, 1997 for transactions, which take place in the provinces of New Brunswick, Nova Scotia and Newfoundland. It has two parts - a 7% federal GST component and an 8% provincial PST component. It is administered by the CCRA and operates very much the same as the earlier GST system, which continues to apply in Prince Edward Island and elsewhere in Canada.

As a matter of policy, when a recipient of a grant or contribution pays a non-refundable tax in the process of acquiring an eligible asset, that tax may be included as part of the eligible project costs. However, in circumstances where the recipient is entitled to claim an input tax credit or a partial rebate of tax from the CCRA, the Agency would disallow that tax as part of the eligible costs. This principle governs both the treatment of GST in Prince Edward Island and the HST in the remainder of Atlantic Canada.


POLICY AND GUIDELINES

A) Authorities

B) Policy

1) GST/HST on Grants and Contributions

Generally, program payments which are made for a public purpose and for which no good or service is provided to the grantor are considered grants for GST/HST purposes and are not subject to tax. Therefore, the grants and contributions provided by ACOA will not normally be liable to the GST/HST. However, a review of the contribution agreement and the Technical Information Bulletin B067-GST (Treatment of Grants and Subsidies by the CCRA Aug 24, 1992) may be necessary in some isolated cases. The CCRA is able to provide GST/HST rulings on the application of B-067 to any specific contribution agreement.

Similarly a contribution repayment, including interest (where applicable), will not be subject to GST/HST.

2) GST/HST as an Eligible Project Cost

Applicants will normally pay GST/HST on purchases of goods and services that are part of the eligible costs under a contribution agreement.

ACOA will approve, as part of the eligible costs, the GST/HST paid on goods and services that are eligible costs when the amount of tax will not, or will likely not, be refunded or credited to the recipient by the CCRA.

Furthermore, recipients who are only entitled to a CCRA refund or credit on a portion of the GST/HST paid on goods and services that are eligible will be allowed to claim only the portion of tax not refunded by the CCRA.

3) Responsibilities

Account managers are responsible to ensure, as for all eligible costs claimed, that the GST/HST claimed by recipients is a valid eligible cost.

Account managers should inform applicants about the non-admissibility of GST/HST, where applicable, as an eligible cost and advise them that:

Applicants may obtain further information about their eligibility for input tax credits or rebates from their nearest CCRA Tax Services Office - TIS Section.

C) General Information

1) General

In order to guide ACOA personnel on the general application of GST/HST to the various types of businesses or organizations that receive financial assistance from ACOA the following is intended to provide general information.

2) ACOA Recipients

Normally, the GST/HST will not be an eligible cost when verifying contribution claims because the large majority of commercial operations (including Crown corporations, partnerships and individuals in business) will be able to claim an input tax credit from the CCRA for all GST/HST paid on purchases used in the course of doing business. In those cases the GST/HST will not be allowed as part of the eligible costs.

3) Exception

There are some exceptions to the foregoing and the most common exception is the enterprise with gross sales of $30,000 or less in any consecutive four quarters ($50,000 or less for public service bodies) which is not registered with the CCRA. Businesses in this sales category have the option of registering for the GST/HST and if they choose not to register they may not charge GST/HST on their sales and they receive no input tax credits. In those cases the GST/HST will be allowed as part of the eligible costs.

4) Zero-Rated Supplies

There will be businesses that have sales which are taxable at 0% known as "zero-rated supplies." These businesses charge no tax on the zero rated supplies which they provide but will pay GST/HST on all their purchases of goods and services and will obtain a full refund for the 7% GST or 15% HST paid on goods and services used in the course of providing the zero-rated supplies.

Examples of zero-rated supplies include:

Normally, an applicant which is in the business of providing zero-rated supplies would not be permitted to include the GST/HST in the eligible costs.

5) Exempt Supplies

Exempt supplies are not subject to GST/HST. However, the business which provides an exempt supply is not eligible to claim an input tax credit. Normally an applicant which provides exempt supplies will be entitled to include the GST/HST in the eligible costs. However, public service bodies may be entitled to claim the rebates as discussed below.

Some examples of exempt supplies include:

6) Public Service Bodies (Municipalities, Universities, Schools, Hospitals, Non Profit Organizations and Charities)

These Public Service Bodies, like all other enterprises and consumers, will pay GST/HST on most of their purchases. If they are engaged in activities that compete with or are similar to private sector enterprises, their sales will be subject to GST/HST as applicable.

These organizations which are resident in the participating provinces and are eligible to claim public service body rebates, will usually be able to claim a predetermined portion of the 7% federal part of the HST. That predetermined portion is:

Some may also be able to claim partial rebates for the 8% provincial part of the HST but that eligibility is complicated and varies with the type of organization and the province.

If any of these organizations undertake commercial activities and are registered for GST/HST, they will receive full tax credit for the amount of HST paid on purchases of goods and services used in the course of doing this business.

The account manager should question any applicant in this category regarding any GST/HST included in the eligible costs but will normally accept any reasonable assurances that the tax will not be credited or refunded to the applicant.

7) Disclaimer

The treatment of the GST and the 7% federal portion of the HST is fairly consistent. However, there are subtle differences in the treatment and conditions relating to the 8% provincial component. Account Managers should be prepared to discuss any GST or HST included in applicant's claims and where satisfied that the tax will not be refunded, it should be allowed as a part of the eligible costs.

D) Special Programs

1) Indians and Indian Bands

Goods acquired by Indian individuals and Indian bands are relieved of GST/HST if those goods are sold on reserve or delivered to a reserve by the vender or the vender's agent. A service acquired by an Indian individual is relieved of tax if the service is performed totally on reserve. A band may acquire services, on or off reserve, relieved of tax where those services are acquired for band management activities or for real property on reserve.

Incorporated business, whether on or off reserve, will pay GST/HST. All businesses may register or be required to register for GST/HST and may be eligible to claim back tax paid as input tax credits.

Indian bands will pay GST/HST on the off reserve acquisition of transportation, short term accommodations, meals and entertainment. However, where these supplies are acquired by the band for band management activities or for real property on reserve, the band will be eligible for 100% rebate of the GST/HST paid. Note that Indian bands may also qualify for other rebates such as those available to non-profit organizations and municipalities.

The policy guidelines are found in the Technical Information Bulletin B-039R, GST Administrative Policy, Application of GST to Indians, issued by the CCRA and dated November 1993

E) Enquiries

Several booklets and bulletins which cover specific provisions of the tax are available and can be obtained from the local CCRA office.

Particularly where the contribution is repayable, the eligibility of the GST/HST is not of sufficient material importance to warrant an in-depth study of the applicable rules. The judgement of the Account Manager based on the explanations of the applicant will be considered sufficient.

For further information on this subject you may contact:

Stephane Lagacé
A/Chief, Corporate Accounting
Atlantic Canada Opportunities Agency
Head Office
P. O. Box 6051,
Moncton, New Brunswick
E1C 9J8 Phone: (506) 851-2270



Appendix B

WD - Other Government Department Suspense Account

MEMORANDUM OF UNDERSTANDING (MOU)

BETWEEN

DEPARTMENT F, the Funding department,

AND

DEPARTMENT S, the Spending department,

FOR THE ADMINISTRATION OF xxx (name of the program)

(To be used when Department S is requested to administer a program for which Department F has a mandate).

Section 1, Purpose:

Department F is delegating to Department S the required authority for the implementation of XXX (for example, the XXX program of Department F in Yukon) in accordance with the administrative processes and procedures set out in this MOU and with the FIS Accounting requirements.

Section 2, Mandate:

Department F certifies that it has the legislative authority by virtue of the XX Act to carry out the activities required by this MOU and to delegate to Department S the delegated activities described in the Annex. Department F remains accountable for the overall implementation of the program while Department S will carry out the activities in accordance with the terms and conditions of this MOU.

Department S is authorized to sign on behalf of Department F any contracts or agreements entered into with a third party to implement the delegated activities subject to the terms and conditions of the MOU. Any contract or arrangement should identify the government party as Her Majesty in Right of Canada as represented by the Minister of Department F represented by himself/herself by the Director General (or some other position) of Department S.

Section 3, Delegated Financial Authority:

Department S is authorized, according to its own Financial Signing Authority delegation instrument to charge the expenses incurred for the delegated activities to vote X Operating Expenditures and vote X Grants and Contributions of Department F as advanced by F to S.

Section 4, Funds:

Department F will advance the funds through an Interdepartmental Settlement to Department S for the delegated activities on an annual basis as follows:

Funds

Fiscal Year

Administrative
Costs

Contribution

2000-2001

$ 350 000

$ 1 500 000

2001-2002

$ 350 000

$ 1 500 000

2002-2003

$ 150 000

$ 1 500 000

2003-2004

$ 150 000

$ 1 500 000

Total

$ 1 000 000

$ 6 000 000

Department S cannot expend more than the annual amount provided by Department F.

Section 5, Administration:

Department S will initiate, commit, and certify performance and make payments in accordance with the delegated financial signing authorities.

Section 6, Accounting & Reporting:

Department S agrees to provide Department F with an accounting of the use of the authority on, or before, the following dates:

For 2000-2001, on or before January 31, 2001 for the period April 1 to December 31, 2000; and, on, or before, April 15, 2001 for the period January 1 to March 31, 2001.

For 2001-2002 and subsequent fiscal years, on, or before:

Due Date Report Period
September 15 April 1 to August 31
January 15 September 1 to December 31
April 15 January 1 to March 31

The report will provide details on the Payee, the amount, and the financial reporting code i.e. Expense and also the economic object.

Section 7, Cash Flow Forecasting:

Department S agrees to provide with each accounting a forecast of the expected requirements for the remainder of the fiscal year. Any expected non-utilization of the authority needs to be communicated to Department F as soon as possible, and normally on or before September 15th of the current fiscal year (Note: for purposes of the Annual Reference Level Update for grants and contributions).

Section 8, Performance Reporting:

No less frequently than twice annually, Department S agrees to submit a report detailing the work conducted and the results accomplished, in such detail as may be established by Department F.

Section 9, Period of the MOU:

The period covered by this MOU is April 1, 2000 to March 31, 2004.

Section 10, Amendment:

This MOU may be amended, during the period of the MOU, with the mutual consent of both parties.

Section 11, Signatures:

IN WITNESS WHEREOF, this MOU has been executed:

On behalf of F:

Signature: _________________________________ Date: _____________

 

On behalf of S:

Signature: ______________________________ Date: _____________

Title:

1.2



Appendix C

Western Economic Diversification (WD) - Supplementary Estimates process

Supplementary Estimates process
January 21, 2000

LETTER OF AGREEMENT

BETWEEN:

Department W

and

Department H

WHEREAS the Department W has as its objective to promote the economic diversification of Canada with a focus upon the development of small and medium sized business; and

WHEREAS the Department H has as its objective to strengthen the economy and to provide Canadians with increased products and activities; and

WHEREAS the two departments are interested in implementing projects in Canadian communities to undertake activities such as new technology applications, improved management practices, promotion, marketing and audience development, increased revenue, generation and self-sufficiency; and job creation;

THEREFORE it is agreed that:

  1. W funding in the amount of $ X,XXX,XXX will be transferred from the 1999-00 resource levels (vote 999) of the Department W to the 1999-00 resource levels of the Department H. The funds will be transferred through the inclusion of an item in the 1999-00 supplementary estimates of the Department H and the establishment of a frozen allotment within the Department W resource levels (vote 999).
     
  2. The funds will be used to support projects of mutual interest to the two departments and the Department H will make best efforts to supplement the program funding.
     
  3. All applications submitted under this program will be reviewed, and all projects to be supported with the use of these funds will be approved, by representatives of both the Department W and the Department H.
     
  4. The funds for these programs will be administered under the existing terms and conditions of the relevant programs of the Department H.
     
  5. The approval letters informing the successful candidates of their funding will be signed on behalf of both the Minister of H and Minister of W. Both will also be consulted and involved in public announcements of funding.

I agree:

________________________________
Minister
Department W

________________________________
Date

I agree:

________________________________
Minister
Department H

________________________________
Date



Appendix D

Atlantic Canada Opportunities Agency (ACOA) - Suspected External Fraud

2031 (g) Suspected Fraud Procedures

Table of Contents


OVERVIEW

The Agency manages more than 39,000 approved projects, and only 0.15% have had fraud related difficulties. Nevertheless, it is ACOA's position is that where illegal acts are suspected, the matter will be immediately referred to the RCMP for investigation.

By definition, fraud is false representation of a matter of fact which is intended to create a deception for purposes of unlawful gain. It comprises all acts, omissions and concealments involving a breach of a legal or equitable duty and resulting in damage to another. It can involve misappropriation of assets or misrepresentations of financial information either to conceal misappropriation of assets or for other purposes, by such means as:

Attempted fraud is also an offence; it contains the same elements as set out above for fraud.


POLICY [P]

At no point during the course of an investigation should any representative of the Agency infer or convey to the client or any third party, that a criminal offence has been committed. As is the case in any criminal matter, individuals are presumed innocent until proven guilty. The Account Manager's role is simply to provide an objective and unbiased assessment of the circumstances surrounding the activity or concern and then forwarding this information to the relevant authorities for determination of the next appropriate course of action.

Regional offices may have additional procedures for investigating suspected irregularities collecting evidence and the documentation and reporting thereof. Appendix A provides the essential steps which are to be followed when fraud is suspected. These steps will undoubtedly be expandedin accordance with Regional requirements.

Also as a minimum requirement, all suspected fraud cases forwarded to the RCMP shall contain the following information:

The Chief, Corporate Accounting will complete a monthly review of all active cases at the end of each month and will use the formats established in Appendix B.


APPENDIX A

A) Suspected External Fraud Checklist

B) Royal Canadian Mounted Police


Commercial Crime Units in Atlantic Canada

Province

Address

Phone / Fax Numbers

Newfoundland

Postal Station B
P.O. Box 9700
St. John's, Newfoundland
A1A 3T5

Telephone: (709) 772-5452

Facsimile: (709) 772-6401

New Brunswick

1445 Regent Street
P.O. Box 3900
Fredericton, New Brunswick
E3B 4Z8

Telephone: (506) 452-3475

Facsimile: (506) 452-4208

Nova Scotia

3139 Oxford Street
P.O. Box 2286
Halifax, Nova Scotia
B3J 3E1

Telephone: (902) 426-8686

Facsimile: (902) 426-8154

Sydney, Nova Scotia

P.O. Box 1280
Sydney, Nova Scotia
B1P 6J9

Telephone: (902) 564-7199

Facsimile: (902) 564-3562

Prince Edward Island

"L" Division
P.O. Box 1360
Charlottetown, PEI
C1A 7N1

Telephone: (902) 566-7121

Facsimile: (902) 566-7428


Economic Crime Directorate

Province

Address

Phone / Fax Numbers

Economic Crimes

1200 Vanier Parkway
Ottawa, Ontario
K1A 0R2

Telephone: (613) 993-2896

Facsimile: (613) 993-4299

(This is printed on Letterhead)

PROTECTED

Date

Royal Canadian Mounted Police

Attention: Corporal ???, NCO Commercial Crime

Suspected Offences and Other Illegal Acts
Against the Crown Involving Loss of Money or Property

We are referring to your division, the following case where we suspect that offences/illegal acts were committed.

-###           Company XYZ.

Attached is a copy of a memorandum dated ??? which summarizes the discrepancies to be investigated.

Case files are kept at the following location:

Regional Address

Please forward a confirmation of receipt to:

Chief, Corporate Accounting
644 Main Street
P.O. Box 6051
Moncton, NB
E1C 9J8

We would appreciate being advised of the results of your investigation as expeditiously as possible. Please contact me at (XXX) XXX-XXXX should you require further assistance.

Yours truly,

Chief, Corporate Accounting

cc. Thomas Khattar, Director, Legal Services
Account Manager

C) Atlantic Canada Opportunities Agency Suspected Illegal Activities Synopsis Of Events

PROTECTED "A"

Client Name:

Address:

Project Description:

Payments to Date:

Details:

Chronology:

Application Received:

Contract Approved:

Claims:

Receivership:

Forensic Audit:

Bankruptcy:

D) Active Cases Where ACOA Initiated Investigation

PROTECTED A

Client

Region

Case
#

Date
Referred
to RCMP

ACOA
Principal
Outstanding

ACOA Approval
Date
(Authorized
Assistance)

Third Party Funding ($)

Client
Investment

Comments

Federal

Provincial

Chartered
Banks

                     

E) Active Cases Where Investigation Initiated By Other Parties

PROTECTED "A"

Client

Region

Case
#

Initiating
Party

Date
Referred
to RCMP

ACOA
Principal
Outstanding

ACOA
Approval
Date
(Auth.
Assist)

Third Party Funding ($)

Client
Invest.
($)

Comments

Fed.

Prov.

Chart.
Banks

                       

APPENDIX B

A) Active Cases Where RCMP Initiated Investigation

PROTECTED "A"

Client

Region

Case
#

Date
RCMP
Informed
ACOA of
Action

ACOA
Principal
Outstanding

ACOA Approval
Date
(Authorized
Assistance)

Third Party Funding ($)

Client
Investment

Comments

Federal

Provincial

Chartered
Banks

                     


Appendix E

Western Economic Diversification (WD)-Quality Assurance Review (QAR) Step III: G & C Project File Management Tools

Audit and Evaluation

DRAFT DOCUMENT FOR DISCUSSION ONLY

Quality Assurance Review
Step III:

G&C Project File Management Tools

Tuesday, October 24, 2000


Table of Contents


Background to the QAR Initiative

As a result of discussions with the Special Advisor to the Deputy Minister regarding issues raised by the Office of the Auditor General (OAG) in Chapter 27 of their December, 1998 Report; Audit and Evaluation, in consultation with all stakeholders, has undertaken a Quality Assurance Review (QAR) of grants and contributions (Gs&Cs) at Western Economic Diversification Canada (WD).

In 1994 and 1995, the OAG audited a number of contribution programs delivered by Industry Canada and by federal regional development agencies (including WD). At that time they noted opportunities for improvement in different aspects of program delivery, including concerns about due diligence in project assessment. Their recommendations included the need for:

The QAR initiative represents a proactive effort to move WD's grant and contribution efforts further along a continuum to having all of the characteristics that the OAG describes in Chapter 27 of the December, 1998 Report as, Qualities of a Well-Managed Grant or Contribution Program:

The QAR Initiative has provided an opportunity for WD to be proactive and move to the forefront of government departments in providing grants and contributions that are administered in a manner which ensures due diligence and provides performance information in keeping with government policy and central agency expectations. And, in line with the Mid-Term Strategy, this initiative shows WD in a leadership position that emphasizes a move to being a Department that sets an example for others. Finally, the QAR Initiative has allowed WD to move quickly and with better knowledge and assurance than it would have with regard to the new TB Policy on Transfer Payments.


Objective and Scope of the QAR Initiative

Objective

When complete, the QAR initiative will result in a consistent approach for the grants and contributions handled by WD. Once implemented, practices suggested as a result of QAR will help to ensure that due diligence is addressed, and that the statement and assessment of clear and measurable results is provided for WD's grants and contributions portfolio. In doing so, WD will meet the expectations of the OAG and enhance the accountabilities which currently exist in the Department.

Scope

The QAR initiative is focused on existing, ongoing, and future initiatives and programs for which WD is directly responsible (e.g.: ITPP, FJST), or that WD delivers through arrangements with third parties (e.g.: CFDCs). Files from FY 1997-98 to FY 1998-99 were looked at in conducting the fieldwork related to Step Two of the QAR initiative.

The QAR effort thus far has not covered funding through the Department's O&M budget (e.g.: CBSCs), nor has it addressed grants and contributions that have recently been covered by other distinct accountability mechanisms. Both the Infrastructure Works Program (IWP) and the Manitoba flood-related Jobs and Economic Recovery Initiative (JERI) are examples of the types of programs not covered by the QAR initiative. These two initiatives have recently been covered by OAG audits or other evaluations.


QAR Issues and Methodology

The QAR Initiative consisted of four steps:

The issues considered during the Step Two fieldwork were drawn in large part from Chapter 27 of the 1998 OAG Report, many of which were re-emphasized in their November 1999 Report. The broad issues considered by the fieldwork were as follows:

QAR deals with issues at the project, not program, level. In making that distinction, QAR does not consider program-level issues such as choice of funding instrument, compliance with government or departmental priorities or overall program reporting (e.g. Annual Report, Performance Report, etc.). The QAR Step II: Best Practices Report provides a schematic to help put the QAR initiative in perspective, and place the issues covered by QAR relative to an overall program and project life cycle.


QAR Step III

Where Are We Now?

QAR Step III is now complete, and has followed from the work reported under Step II in The Best Practices Report. In that document, we recognized that best practices are not only documents; but rather the activities around ensuring that appropriate file documentation exists:

We make this distinction to emphasize that although documents may be on file, if they are not supported by best practices, there is a possibility that the need to ensure due diligence, have clear objectives, measure and report on performance and manage funds responsibly has not been accomplished.

Step III has included:

This report on Step III brings this stage of the QAR Initiative to a close in terms of A&E's developmental efforts. As noted, we have received valuable feedback from the Regions, and via this report, will clarify where the contents of the QAR checklists come from, and how they might be adjusted for the project file types to reflect the best practices and documentation identified.

A&E is now looking to the program areas to make any further adjustments to these tools to meet local and program/project considerations - bearing in mind the content of this report. In addition to this Report A&E has prepared a guidance document (Appendix Three) that is an essential part of considering the QAR Checklists.

The QAR Checklists

The checklists have been adjusted to take into account key suggestions from the latest feedback on the instruments. Each has been changed to remove the word "Form" from "Client Application Form" and substitute "Information". There is a sense that if the information is completed as suggested in the guidance document (Appendix Three), it will indeed meet the intent of TB without compromising the informal way that WD wants to interact with our clients.

For all of the QAR Checklists, including the WDP Checklist; the best practices work suggests very strongly that a T&C (Terms and Conditions) Checklist, a PAS (the Project Assessment Summary) and a PAN (Project Approval Note) should all be completed and on file. Discussions have made it clear that the PAS is seen as a document that supports the PAN; but does not replace it as an essential element of ensuring that due diligence has taken place. With that said, some discretion must be used. And that discretion should correspond directly to an on-file assessment of the risk presented by each project. It is clear that unduly complex files, and exhaustive file contents are not the best use of effort where risk is assessed to be low. Nonetheless, certain critical elements must exist in all files, and certain critical best practices must be undertaken. These include a T&C Checklist, a PAS, and a PAN.

In terms of the Loan Funds Checklist, some modification of specific wording may be in order for specific projects given regional preferences in terms of program and project-level accountability. Also worth considering is the direction provided in the TB submission for LIFP that states that the application process will include the documentation of the technology review and a business plan. One specific suggestion in refining the QAR Checklist may be to replace the "Terms and Conditions Checklist" with a document (or checklist) that will help to demonstrate that basic eligibility criteria had been checked and met. In addition, some type of formal signed-off approval note is advisable. The eligibility letter to the bank is a clear file content requirement, as would be a copy of the loan approval letter from the financial institution. Undertaking these best practices will reflect the notions included in WD's TB submission suggesting that applicant screening, due diligence and loan/investment application approval is be based on an integrated and transparent process.

It is apparent that the intent of the Loan investment Funds is to bridge access to financing gaps in particular industries that represent opportunities for the diversification of the western economy. While efforts to assess program performance have focused on statistics regarding take-up and funding issues, the intent of monitoring and evaluating the effort should include whether or not the loans help achieve that broader objective. And for that reason, progress and final reports from the individual loan recipients is seen as a key component of the files.

Our QAR File Contents and Best Practices Checklist for Projects Delivered by WD's Service Partnership Network, are also finalized. Our discussions indicate that program staff view the agreements (and resulting file contents) that cover the relationship between service partners and WD as a strong point. Recent developments - most particularly Treasury Board's new Policy on Transfer Payments - have strengthened expectations in this regard. In this light, WD should continue to ensure that we meet the expectations of central agencies (e.g.: the OAG) that may be looking for comprehensive documented knowledge of individual projects funded by our service partners who deliver either WD-core, or one-time programs.

One way to meet the expectations of central agencies is for service partners to have the QAR checklist on file, and to have the necessary supporting documentation there as well. WD can contribute by undertaking activities that ensure our identified "Best Practices" are taking place on a project-by-project basis. This could be accomplished in a comprehensive manner by having critical service partner project-specific information on our files, and undertaking a planned and regular risk-based review of files. Doing so will help to ensure that due diligence is exercised, objectives are clear, performance is measured and reported, and funds are managed responsibly.


Next Steps

Attached are the three final checklists as prepared by A&E. As we have mentioned, it is now up to WD staff associated with project management to adjust the checklists to reflect wording peculiarities as they reflect operational conditions, and considering the comments above. With our role in Step 3 complete, Step 4 of the QAR Initiative is a review of files which is expected to start late in the final quarter of FY 2000-2001. In the interim, there remains the clear probability that the OAG will exercise its prerogative to audit our files as well, either as part of a government-wide G&C audit or an audit of WD alone.

A wealth of effort exists to demonstrate WD's strong approach to managing the department's grant and contribution portfolio. Through QAR, these best and promising practices have now been shared; allowing WD to build on the existing grant and contribution management efforts and promote the consistent application of the best and promising practices identified. By doing so, we are assuring that grant and contribution funds at WD are providing the maximum intended benefits to Canadians, and that scrutiny of our practices would result in consistently positive observations. Through the QAR initiative, WD is acting in a positive manner and has assumed a leadership role for all government departments that provide grants and contributions to Canadians.


Appendix One - General Approach to the QAR Initiative

STEP

Description

Step One
(complete)

Issue identification, planning, and analysis.

  • Document review (OAG chapters - current and past), current TB policies, selected WD files;

  • Selected interviews;

  • Development and use of a Preliminary Quality Assurance Review Approach, and

  • Production of a Planning Report, which contains preliminary findings and provides a recommendation and course for further action, as well as the Draft Quality Assurance Review Approach;

  • Consultation on the document.

Step Two
(complete)

Quality Assurance Review.

  • Execute a full Quality Assurance Review using the approved QAR Approach to examine a statistically representative sample of G&C files from the past two years; and

  • Prepare a Final Report on the Quality Assurance Review (this report).

  • Consultation on the document.

Step Three
(complete)

Develop and provide tools.

  • Develop practical tools (tailored to WD) for all levels of management and staff who handle WD grants and contributions; giving full reference to the requirements laid out in the OAG's performance framework, once it is developed.

  • Develop training packages in the train-the-trainer mode to share the knowledge gained; and

  • Deliver training packages.

Step Four
(planned)

Quality Assurance
Follow-up.

  • To take place 9-12 months after completed training, and in reference to the OAG's Performance Framework;

  • Assessment of training effectiveness (which may include a review of files against criteria provided) to determine if the initiative has attained stated objectives;

  • Prepare a Follow-up Report based on the findings.


Appendix Two - QAR Checklist Issues

Due diligence is demonstrated by reviewing and approving applications in a complete and appropriate manner. Persuasive assessments exist to support the funding decisions, and documentation is on file that reflects all the major factors supporting decisions to approve assistance.

Clear, attainable objectives are set, allowing management to explain how recipients are expected to benefit from funding and to what end.

Performance against objectives is measured and reported to ensure control, monitoring and evaluation of the funding effort and that funding is used for the purposes agreed.

Funds are managed in a responsible manner.


Appendix Three - Guidance for File Contents

Program Officers are expected to ensure that the Best Practices of Information Gathering, Preparation and Entry, Verification and/or Information Analysis are undertaken; and that the Core and Supporting Documents are on file.

Covered by WDP T&Cs:

  1. Agri-Food Initiative [SK only]
  2. Canada Foundation for Innovation Support Program
  3. First Jobs in Science and Technology Program
  4. International Trade Personnel Program
  5. Sponsorships-Contribution Payments
  6. Strategic Initiatives Program
  7. Western Cooperation on S&T [AB only]
  8. Western Economic Diversification Program - 807005 / 809563

Covered by Separate T&Cs [and agreements]:

  1. Investment Loan Funds - 823561
  2. Agriculture Value-Added Loan Program - 823272
  3. Knowledge-Based Industries Loan Fund - 823182
  4. Western Economic Partnership Agreements - 825994
  5. Western Urban Development Agreements - 822310

Covered by Separate T&Cs for Operational Funding, and responsible for Third-Party Delivery of Programs:

  1. Canada Business Service Centre Agreement - 824991
  2. Community Futures Program - 826075
  3. Service Delivery Network - 825101
  4. Women's Enterprise Centres - 822141

The Tables below offer guidance with regard to the documents one might expect to find on file for current, on-going WD programs. The "required" represents a required item based on established WD policy, or more importantly, Treasury Board Decision. A "suggested" denotes a document that been suggested through our QAR Best Practices exercise.


 

Covered by WDP T&Cs:(i)

Covered by Separate T&Cs:

Agri-Food Initiative

Canada Foundation for Innovation Support

First Jobs in Science and Technology

International Trade Personnel

Sponsorships - Contributions

Strategic Initiatives

Western Cooperation on S&T

Western Economic Diversification Program

All Investment Loan Funds

Service Delivery Network

Western Economic Partnership Agreements

Western Urban Development Agreements

Programs Delivered by CFDCs for WD

Programs Delivered by WECs for WD

To Ensure Due Diligence - Review and approve applications in a complete and appropriate manner and provide persuasive assessments based on relevant documentation to support decisions to approve assistance.

Client Project Application (ii)

required

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

WD Project Screening Information: (iii)

  • Basic screening Information;

required

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

  • Assessment of the nature of the project;

required

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

  • Assessment of eligibility;

required

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

  • Pathfinding documents;

required

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

  • Information Release Letter;

required

required

required

required

required

required

required

required

N/A

N/A

N/A

N/A

N/A

N/A

  • Assessment of fit to WD priorities.

required

required

required

required

required

required

required

required

N/A

N/A

N/A

N/A

N/A

N/A

To Ensure Due Diligence - Review and approve applications in a complete and appropriate manner and provide persuasive assessments based on relevant documentation to support decisions to approve assistance.

Client Project Proposal (iv)

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

suggested

Client Business Plan (v)

required

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

WD Technology Review

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

WD Terms and Conditions Checklist (vi)

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

suggested

WD Project Assessment Summary (vii)

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

suggested

WD Project Approval Note

suggested

suggested

suggested

suggested

suggested

suggested

suggested

suggested

suggested

suggested

suggested

suggested

suggested

suggested

WD Letter of Offer (viii)

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

suggested

WD Client Contact Notes (ix)

required

required

required

required

required

required

required

required

required

required

required

required

required

required

WD/Client Signed Agreement (x)

required

required

required

required

required

required

required

required

required

required

required

required

required

required

TB Approvals (xi)

required

required

required

required

required

required

required

required

N/A

N/A

N/A

N/A

N/A

N/A

To Measure and Report on Performance - Ensure control, monitoring and evaluation of the funding effort and that funding is used for the purposes agreed.

WD Monitoring Plan

required

required

required

required

required

required

required

required

N/A

suggested

suggested

suggested

suggested

suggested

Client Progress Reports (xii)

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

suggested

WD Project Monitoring Report

required

required

required

required

required

required

required

required

N/A

suggested

suggested

suggested

suggested

suggested

WD Project Audit Reports

required

required

required

required

required

required

required

required

N/A

suggested

suggested

suggested

suggested

suggested

Client Final Project Report (xiii)

required

required

required

required

required

required

required

required

suggested

suggested

suggested

suggested

suggested

suggested

To Ensure Responsible Fund Management - Ensure that resources are used efficiently and that payments and repayments occur in a timely manner.

Client Claim for Reimbursement

required

required

required

required

required

required

required

required

N/A

suggested

suggested

suggested

suggested

suggested

WD Risk Assessment for Claim Verification

required

required

required

required

required

required

required

required

N/A

suggested

suggested

suggested

suggested

suggested

WD Record of Claim Review

required

required

required

required

required

required

required

required

N/A

suggested

suggested

suggested

suggested

suggested

WD Record of Payment

required

required

required

required

required

required

required

required

N/A

suggested

suggested

suggested

suggested

suggested


Appendix Four - Final QAR Checklists


Required to Ensure Due Diligence - Review and approve applications in a complete and appropriate manner and provide persuasive assessments based on relevant documentation to support decisions to approve assistance.

QAR File Contents and Best Practices Checklist:

For Projects Covered by WDP Terms & Conditions

Best Practices

Information Gathering, Preparation and Entry

Information Verification

Information Analysis

On File? Ref. Sig. On File? Ref. Sig. On File? Ref. Sig.
Yes No N/A Yes No N/A Yes No N/A
Client Application Information                              
WD Project Screening Information                              
Client Project Proposal                              
Client Business Plan                              
WD Terms & Conditions Checklist                              
WD Project Assessment Summary                              
WD Project Approval Note                              
WD Letter of Offer                              
WD/Client Signed Agreement                              
TB Approvals                              

Required to Measure and Report on Performance - To ensure control, monitoring and evaluation of the funding effort and that funding is used for the purposes agreed.

QAR File Contents and Best Practices Checklist:

For Projects Covered by WDP Terms & Conditions

Best Practices

Information Gathering, Preparation and Entry

Information Verification

Information Analysis

On File? Ref. Sig. On File? Ref. Sig. On File? Ref. Sig.
Yes No N/A Yes No N/A Yes No N/A
WD Monitoring Plan                              
Client Progress Reports                              
WD Project Monitoring Report                              
WD Project Audit Reports                              
Client Final Project Report                              

Required to Ensure Responsible Fund Management - To ensure that resources are used efficiently and that payments and repayments occur in a timely manner.

QAR File Contents and Best Practices Checklist:

For Projects Covered by WDP Terms & Conditions

Best Practices

Information Gathering, Preparation and Entry

Information Verification

Information Analysis

On File? Ref. Sig. On File? Ref. Sig. On File? Ref. Sig.
Yes No N/A Yes No N/A Yes No N/A
Client Claim for Reimbursement                              
WD Risk Assessment for Claim Verification                              
WD Record of Claim Review                              
WD Record of Payment                              

Required to Ensure Due Diligence - Review and approve applications in a complete and appropriate manner and provide persuasive assessments based on relevant documentation to support decisions to approve assistance.

QAR File Contents and Best Practices Checklist:

For Each Individual Loan Fund Application

Best Practices

Information Gathering, Preparation and Entry

Information Verification

Information Analysis

On File? Ref. Sig. On File? Ref. Sig. On File? Ref. Sig.
Yes No N/A Yes No N/A Yes No N/A
Client Application Information                              
WD Project Screening Information                              
Client Project Proposal                              
Client Business Plan                              
WD Technological Review                              
WD Terms & Conditions Checklist                              
WD Project Approval Note                              
Client/Bank Signed Agreement                              

Required to Measure and Report on Performance - To ensure control, monitoring and evaluation of the funding effort and that funding is used for the purposes agreed.

QAR File Contents and Best Practices Checklist:

For Each Individual Loan Fund Application

Best Practices

Information Gathering, Preparation and Entry

Information Verification

Information Analysis

On File? Ref. Sig. On File? Ref. Sig. On File? Ref. Sig.
Yes No N/A Yes No N/A Yes No N/A
Client Progress Reports                              
Client Final Project Report                              

Required to Ensure Due Diligence - Review and approve applications in a complete and appropriate manner and provide persuasive assessments based on relevant documentation to support decisions to approve assistance.

QAR File Contents and Best Practices Checklist:

For Projects Delivered by WD's Service Partners

Best Practices

Information Gathering, Preparation and Entry

Information Verification

Information Analysis

On File? Ref. Sig. On File? Ref. Sig. On File? Ref. Sig.
Yes No N/A Yes No N/A Yes No N/A
Client Application Information                              
WD Project Screening Information                              
Client Project Proposal                              
Client Business Plan                              
Terms & Conditions Checklist                              
Project Assessment Summary                              
Project Approval Note                              
Letter of Offer                              
Signed Agreement                              

Required to Measure and Report on Performance - To ensure control, monitoring and evaluation of the funding effort and that funding is used for the purposes agreed.

QAR File Contents and Best Practices Checklist:

For Projects Delivered by WD's Service Partners

Best Practices

Information Gathering, Preparation and Entry

Information Verification

Information Analysis

On File? Ref. Sig. On File? Ref. Sig. On File? Ref. Sig.
Yes No N/A Yes No N/A Yes No N/A
Monitoring Plan                              
Client Progress Reports                              
Project Monitoring Report                              
Project Audit Reports                              
Client Final Project Report                              

Required to Ensure Responsible Fund Management - To ensure that resources are used efficiently and that payments and repayments occur in a timely manner.

QAR File Contents and Best Practices Checklist:

For Projects Delivered by WD's Service Partners

Best Practices

Information Gathering, Preparation and Entry

Information Verification

Information Analysis

On File? Ref. Sig. On File? Ref. Sig. On File? Ref. Sig.
Yes No N/A Yes No N/A Yes No N/A
Client Claim for Reimbursement                              
WD Risk Assessment for Claim Verification                              
WD Record of Claim Review                              
WD Record of Payment                              

Guidance Document Notes:

(i) Covered by WDP Ts&Cs - Required information is based on the content of the WDP Operations Handbook.  [Return]

(ii) Client Project Application - WDP Ts&Cs [807005] stipulate that, "All project applications must be in writing and must be received at a designated office of WD or at such other location or by such other means as may be determined by WD." [section 8. I]. In addition the WDP Ts&Cs define "application" as, "a written request by an applicant to the Minister for assistance under the WDP. It should describe:
  1. the name of the applicant and distribution of ownership;
  2. the purpose or objective of the project;
  3. a statement of the work to be done;
  4. the project commencement and completion dates, including critical factors in the proposed scheduling;
  5. the benefits expected and, depending on the nature of the project, this may be elaborated to include projections of the net jobs to be created, increased sales, cost reductions, ancillary business/activities affected, etc.;
  6. a business and financial plan, including a budget and the shares to be borne by each of the applicant, WDP, and any other contributors;
  7. the ownership and responsibility for the operation and maintenance of the project after completion, if other than the applicant;
  8. all other sources of funds to which this project, or a substantially similar project, has previously been submitted or is currently under consideration;
  9. where applicable, environmental impacts."

For WD Loan Programs applicants are asked to submit a two-page summary of your project. This is used to help determine if the project meets the basic criteria of the loan program. The summary should include the following information:

(iii) WD Project Screening Information - All elements well described in WD's Operations Handbook.  [Return]

(iv) Client Project Proposal - May be included as part of the client's Business Plan.  [Return]

(v) Client Business Plan - May consist of some or all [officer's discretion and as applicable] of the following components depending on the project:

(vi) WD Terms and Conditions Checklist - To be developed by program staff - will include all relevant requirements from the Terms and Conditions as accepted or demanded by TB.  [Return]

(vii) WD Project Assessment Summary - All projects covered by WDP Terms and Conditions must have a fully completed Project Assessment Summary.  [Return]

(viii) WD Letter of Offer - WDP Ts&Cs [807005] stipulates that, "The Letter of Offer will constitute the only legally binding confirmation of assistance under WDP. Letters of Offer, which may vary in contents according to the nature of the project, time to completion, etc.) will set out specific Terms and Conditions for the financial support that WD is offering to the applicant." [Return]

(ix) WD Client Contact Notes - Formalization on-file of informal contact information from phone calls, meetings, non-audit related site visits, etc.  [Return]

(x) WD/Client Signed Agreement - The parties to the agreements may vary depending on the program. For those covered by the WDP Terms and Conditions, the agreement is indeed between WD and the applicant. For the Loan Funds programs the parties to the agreement are WD and the financial institution. For SDN, WEPA and WUDA agreements may include several parties. CFDC and WEC delivered programs may involve agreements between WD and another department as well as the CFDC or WEC and the applicant.  [Return]

(xi) TB Approvals - For all projects with a WD assistance level of $10 million or more. [Section 7, WDP Ts&Cs]  [Return]

(xii) Client Progress Reports - Under WDP, required on a quarterly basis.  [Return]

(xiii) Client Final Project Report - As set out in the Letter of Offer indicating the results, actual and expected benefits, and any follow-up activity planned. [see Section 13 v) of the WDP Ts&Cs]  [Return]

 



Footnotes

1 Framework for Identifying Risk in Grant and Contribution Programs (PDF document on the OAG website)

2 The exceptions are Section 11 and sub-section 8.5.4, which, in the latter case, adds a number of new provisions to be included in a contribution agreement.

3 In addition to the above definition, the TP policy also refers to a third party as an agent that administers a program on a department's behalf through a procurement contract (e.g., conducts due diligence). The agent does not usually disburse funds, which is the department's responsibility. However, including agents as third parties leads to an inherent conflict of terms, because in this case, both the agent and recipient are deemed to be third parties.

4 The Guide on Financial Arrangements and Funding Options discusses various types of transfer payments in detail.

5 See Sub section 4.6.2 for a more detailed discussion of factors that influence choice of transfer payment.

6 See sub section 4.6.2. for a more detailed discussion of factors on centralization and decentralization.

7 See sub-section 4.6.2. for a more detailed discussion of factors on direct and third party delivery.

8 The OAG defines a capital project as a project intended to acquire or improve a capital asset and the acquisition can be done through construction, purchase or lease. Capital assets (under TB Accounting Standard 3.1 - Capital Assets) are those initially costing $10,000 or more.

9 Appendix A of the TP policy describes various forms of government assistance such as forgivable loans implicit subsidies and loan guarantees. Including the following clause is optional and incremental to the wording above: "The normal or targeted level of assistance by the department for the program is ______% of eligible expenditures.*"

10 Including the following clause is optional and incremental to the wording above: "The normal or targeted level of assistance by the department for the program is ______% of eligible expenditures.*"

11 SUFA Accountability Template 2000

12 The publication Integrated Risk Management Framework has been developed by TBS.

13 See a checklist in for requirements found in Appendix C of the policy in cases where the project is delivered by a recipient or ultimate recipient.

14 Reference: available at http://www.tbs-sct.gc.ca/estsd-bddc/index-eng.asp; then click on Guidelines


Date modified: