Too many tax dollars at stake and too little tangible activity to show for the dollars already granted to them.

Federal Foundations: More Accountability and Public Oversight Needed

7 Apr 2006

• The Board of Directors of the London Chamber of Commerce, As Submitted by the Federal/Provincial Affairs Committee of the London Chamber of Commerce

Policy Area: GOVERNMENT OPERATIONS

The Issue:

Where Federal Foundations are concerned, the necessary mechanisms to ensure accountability and responsible behavior with public money are absent. The government has made some effort to move in the direction indicated by the Auditor-General, but too little has been done. There are

Background

In 1997, the federal government created a new instrument of public policy – the Foundation. The Foundations, of which there are currently 15, were designed to promote science, education, technology and research. Each foundation was established as an independent, not-for-profit corporation with its board of directors populated by individuals with expertise in those areas particular to the foundation's mandate.

Operating at arm's-length from the government, the foundations were to function independently of the partisanship and bureaucracy that were believed to impede the focused and flexible response necessary to address the specific challenges facing knowledge growth.

To further enhance their independence from government, each Foundation was given an endowment by the federal government, with annual contributions to ensure their continued functioning. Since their establishment, the foundations have been endowed with more than $9 billion by the federal government.

A Failure of Accountability

While government's intent may have been laudable, its execution has been flawed. The freedom that was intended to permit the foundations to be dynamic has become the very element that should be of considerable concern to Canadians.

A principle concern has been the failure of the Foundations to spend the money endowed by the Federal Government. The Canada Foundation for Innovation, mandated to make grants to universities, colleges, hospitals and other non-profit institutions, has received $3.651 billion from the federal government since 1997 but has spent only $1.23 billion. With interest and after expenses, CFI's endowment was $3.122 billion at March 31 2004.

Canada Health Infoway Inc., intended to accelerate the development and adoption of information and communication technology in the health sector, has received $1.2 billion but has granted only $51 million. In fact, CHI has earned more in interest from its endowment - $83 million – than it has expended in grants. The same is true for Sustainability Development Technology Canada: $350 million from the federal government, $6 million in grants given, and $10 million in interest earned.

In total, the Foundations have received $9.087 billion in funding, have earned $1.736 billion in interest, and have spent $207 million in administrative expenses; they have given grants totaling only $2.954 billion. As of March 31 2004, the foundations unspent endowments totaled $7.662 billion.

Not surprisingly, the Auditor-General of Canada has repeatedly identified the foundations as problematic entities. In her most recent report to Parliament (March 2005) the Auditor-General highlights the following:

• Though endowed with significant public funds, the foundations are not auditable by the Auditor-General
• Foundations function with only limited ministerial oversight, increasing the likelihood that government departments and foundations may work at cross-purposes
• Ministers, in turn, are not required to report on foundation activities or finances to Parliament
• Foundations are not subject to performance audits to ensure that they are properly executing their business plans and complying with their charters
• There currently exists no means of guaranteeing the return of public funds in the event that a foundation is dissolved or otherwise ceases operation

Recommendations:

It is obvious that this matter must be resolved quickly and effectively. Accountability must be imposed upon the foundations if the taxpayer is to entrust them with his/her money. The foundations were created as a means to streamline decision-making and to ensure investment in areas vital to the public interest.

Unfortunately, they appear to be operating without sufficient public oversight. It is entirely possible that the foundations have plans that will withstand the scrutiny of the public eye. But without adequate review mechanisms there is no way to be sure.

In today's globally competitive economy - learning, research and investment in knowledge is vitally important. The foundations can undoubtedly play a key role in ensuring that Canada leads the way. But it is absolutely essential that the foundations account for the money they receive and invest in areas that advance the public interest. We urge the federal government to adopt the following measures:

1. Adopt immediately all the recommendations of the Auditor-General regarding foundations and place before Parliament the necessary legislation to enact those recommendations.
2. Establish no new foundations and suspend funding to existing foundations until such time as the previous recommendation has been implemented.

Contact: Gerry Macartney, General Manager and C.E.O.

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