Auditor General report shines spotlight on accountability of research foundations

Genome Canada, CFI respond

By Debbie Lawes

Genome Canada’s president says his foundation would agree to a review by Auditor General (AG) Sheila Fraser if one was requested by Industry Canada. Responding to the AG’s latest report, released February 15, Dr Martin Godbout also stressed that his organization is “fully transparent and accountable” to government. The AG’s concern, he suggests, is that government departments need to be more forthcoming with Parliament.

“The Auditor General refers, not to the foundations not reporting, but to the departments not reporting (this information) to the Parliament,” says Godbout, whose foundation has received $375 million in federal funds since 2000. “Foundations submit their annual report to the minister responsible, but the minister has to communicate that to the Parliament. She said that five out of twelve (foundation reports) were received at the Parliament level. We know Genome Canada was one of them.”

Is there more Genome Canada should be doing to be more accountable? According to Godbout, the answer is no. “We provide annual reports, corporate plans, strategic plans, evaluations, and appear before Parliamentary committees. Industry Canada says they are very satisfied.”

The president/CEO of Canada’s first and largest beneficiary of federal funds – the Canada Foundation for Innovation (CFI) – says his organization is also complying with all auditing, reporting and accountability requirements. Dr Eliot Phillipson says if the government wants more, it can order an independent audit or change the legislation governing CFI.

“From the standpoint of a financial audit and a performance audit, we do it in a major way,” says Phillipson. “Those reports not only report to Parliament (through the minister), but in terms of accountability, every cent we have spent is on our public website.” Starting this year, CFI will also begin scientific audits.

Foundations are one of the government’s preferred mechanisms for dispersing research dollars, particularly for large scale programs that could be susceptible to political influence. As such, they operate at arm’s length and deliver policy and programs outside of the direct scrutiny of Parliament. This is the AG’s main concern.

In her report— a follow-up to previous audits of foundations — Fraser acknowledges that progress has been made in improving accountability of foundations. She cites last November’s tabling of Bill C-21 to modernize the governance framework for federal not-for-profit corporations. But Fraser adds the government has not adequately addressed her office’s concerns about the lack of performance audits, appropriate ministerial oversight or inconsistencies in the governance regime for foundations. She says foundations should be subject to AG reviews. The government disagrees.

Of the nearly $9.1 billion allocated to the 15 foundations cited in her report, more than half of this amount has gone to research-related organizations: CFI, Genome Canada, Sustainable Development Technology Canada, Canadian Health Services Research Foundation, Foundation for Climate and Atmospheric Sciences, Precarn and Canadian Institute for Advanced Research.

Also included in the total is $375 million for six endowment funds, such as the Pierre Elliott Trudeau Foundation (social sciences/humanities research), the Clayoquot Biosphere Trust Society (local research, education and training) and the Canadian Institute for Research on Linguistic Minorities (research and data collection).

The AG stated that she does not question the merits of foundations as a vehicle to achieve government policy objectives, nor does she criticize the operations of the foundations. But from an accounting and accountability perspective, there are gaps the AG wants addressed.

One concern is with how foundations are funded: money is awarded upfront and then dispersed over several years. The AG says this skews actual federal expenditures and surpluses in a given fiscal year, and continues to place public money beyond the reach of effective scrutiny by Parliament.

“At 31 March 2004, nearly $7.7 billion of these funds were still in the foundations’ bank accounts and investments, earning interest. This accounting treatment has resulted in a reduction of the reported annual surplus,” she writes.

The Public Sector Accounting Board is currently reviewing guidelines for transfer payments, including multi-year funding of the kind used for foundations.

Phillipson says appropriating funding on an annual basis wouldn’t work for CFI. Applications usually take 18-24 months to process, and because the awards can be in the tens of millions, he says money is paid out as milestones are reached. The granting councils, in comparison, have one year to spend their budgets. Anything left over is returned to government.

Genome Canada also supports the current funding model. “The reason (government) provided upfront money to Genome Canada for the past five years is because, by contract with Industry Canada, we have to raise co-funding,” says Godbout, adding that Genome Canada has raised $455 million from other sources, more than doubling the government’s initial $375 million investment.

CFI is also structured to leverage funds from other sources. It contributes 40% towards the cost of research infrastructure. Provinces, research institutions and companies make up the balance. “By the time we have dispersed the $3.65 billion that’s been allocated to us in total, with the leveraging it will be over $10 billion,” says Phillipson.

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