HUMA Committee Report
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Official Opposition Report on
HRDC Grants and Contributions
Introduction
Since the Liberal government came to power in 1993, $22.5 billion has been dispensed as grants and contributions by the Department of Human Resources Development. Another $3.17 billion will be spent this year. Internal HRDC audits, the Auditor General, and witnesses before committee indicate that those funds have been used ineffectively, inappropriately, and perhaps illegally.
The Canadian Alliance condemns the Liberal majority report of the HRDC Committee, which defends the government’s abuse of public money, endorses the government’s disingenuous reaction to the scandal, and offers no recommendations that address the root causes of the issues raised.
Gross mismanagement of taxpayer funds
The majority report of the HRDC Committee states:
In an overwhelmingly vast majority of cases, HRDC grants and contributions are properly administered and spent.
This rosy view is contradicted by the Program Integrity Audit released on 19 January. Of files reviewed, 15% had no application; 25% had no description of the activities to be supported; 25% had no description of the characteristics of participants; 46% had no estimate of the number of participants; 72% had no cash flow forecast; 80% showed no evidence of financial monitoring; 87% had no evidence of supervision; and 97% showed no evidence that anyone had checked whether the recipient already owed money to HRDC. In an overwhelmingly vast majority of cases, HRDC grants and contributions are in fact not properly administered, so we have no way of knowing if the money was properly spent. The Auditor General told the committee on 23 March:
Large amounts of public funds were spent without the appropriate controls, making it difficult to know whether the funds were used as intended, spent wisely and produced desired results.
The Auditor General has repeatedly pointed out the same problems in the administration of grants and contributions since 1977, including twice during the tenure of the current government, in 1994 and 1998, but there is no political will to change the way HRDC grants and contributions are handled. The current budget ignores the problems at HRDC and increases annual grants and contributions by almost $1.5 billion. The Official Opposition believes that until grants and contributions programs are reformed to ensure accountability and effectiveness, the government should reallocate funds from those programs to areas of greater value to Canadians.
Recommendation 1 That the government forego the budgeted increase in grants and contributions spending in favour of new spending on health care.
The Committee report holds no one responsible for the mismanagement of HRDC, blaming poor technology, staffing levels, and the complexity of the Department for the fiasco. Even if such issues caused the uncontrolled spending at HRDC, they were themselves the result of mismanagement.
Recommendation 2 That according to the principle of ministerial responsibility, the Minister of Human Resources Development resign.
Both the current Deputy Minister and the Clerk of the Privy Council, who was Deputy Minister of HRDC during the audit period, must also take some blame. In his current capacity, Mr. Cappe’s management influence will extend to all federal departments and agencies. The Official Opposition believes that he has been promoted beyond his level of competence.
Recommendation 3 That the Prime Minister transfer the present Clerk of the Privy Council to a more appropriate position.
It is a matter of public record that Treasury Board guidelines were regularly broken at HRDC. The Financial Administration Act may have also been breached when the Department created two trust funds in the PM’s riding to shelter grant money from the requirement that program funds lapse at the end of each fiscal year. Legal officials from HRDC and most Treasury Board officials said that the law was not broken, but we believe that these matters should be referred to an impartial authority.
Recommendation 4 That the RCMP and Auditor General be asked to investigate possible breaches of the Financial Administration Act by HRDC.
Political interference
Even when there is no direct link between grants and political donations, government MPs benefit from every grant announced. The Official Opposition has shown that the number of project approvals and the amounts approved rose sharply at election time. For example, in the month before the last election, then-Minister Pierre Pettigrew announced the largest TJF grant ever and the PM announced a $500,000 grant in his own riding.
Recommendation 5 That the Department issue a standard press release for every grant, contribution or loan prior to announcements by MPs.
The Minister’s riding received $30 million in job-creation grants over three years, three times the amount disbursed in an average riding, although her riding is in a job-rich region of southern Ontario. The Department offered the excuse that the program uses outdated unemployment figures. Moreover, "high unemployment" is defined by HRDC in relation to the actual unemployment figure, so the amount of job grants paid out will be constant.
Recommendation 6 That current unemployment figures be used to determine eligibility for unemployment-relieving grants, contributions and loans, and that those programs not apply in areas where unemployment is low in absolute terms.
The Minister cited "pockets of high unemployment" to justify grants in her riding, although no such criterion existed in the Terms and Conditions of the TJF. The Terms and Conditions of the CJF were changed to account for such "pockets." Virtually any riding can be an area of high unemployment according to artful application of these rules.
Recommendation 7 That HRDC officials meet with officials from Statistics Canada, the Treasury Board and the Auditor General to define clear, standard government-wide criteria for the definition of high unemployment for the purpose of government programs.
The TJF is supposed to attract private sector investment to create new permanent jobs, but studies indicate that half of investment comes from governments, half of the jobs would go ahead without a grant, and many are not new or full-time. In many cases, TJF funding has no impact on job creation. The Official Opposition believes that the government should undertake evaluations of the net impact of job subsidy programs.
Recommendation 8 That the Treasury Board work with the Auditor General and the private sector to standardize ways for all government departments to measure the impacts of job subsidy programs.
There is also strong evidence of political pressure on public servants. An Ekos study of the TJF commissioned by the government cited:
…uneasiness among some respondents regarding projects which may have been approved for political reasons…
Some HRDC officials have said they "had no choice" but to approve grants against regional guidelines. Some told the Committee that whistle-blower legislation would reduce political pressure on public servants, and help inform the public of wrongdoing.
Recommendation 9 That the government pass whistle-blower legislation to reconcile the public service oath of confidentiality with the need for government accountability to the public.
The greatest abuses of the TJF have occurred in the PM’s riding. His office consistently lobbied the Minister’s office and HRDC for funds for political supporters. A third of the PM’s 1997 campaign donations were from companies that received federal grants or contracts. There are three ongoing police investigations into grants in the Prime Minister’s riding. Other government MPs also received political favours from grant recipients on whose behalf they had lobbied. The Official Opposition believes that to allow Members of Parliament, who are responsible for allocation of public funds, to lobby on behalf of grant applicants, and also to receive political contributions from grant recipients, puts them in a conflict of interest. MP’s also lack the expertise to judge the viability of grant applications and determine whether they meet program criteria.
Recommendation 10 That Members of Parliament be removed entirely from the grant approval process.
The CJF is the HRDC program most abused by politicians. It was the subject of one criminal conviction and is now the object of a number of police investigations. We believe this program to be corrupt.
Recommendation 11 That the Canada Jobs Fund be immediately terminated.
Lack of Transparency
The Minister’s officials recommended that she not release the Program Integrity Audit until it was requested under Access to Information. The Official Opposition filed an ATI request for the audit on 17 January, and the Minister released it on 19 January. The Minister then said she did not know about the audit until 17 November 1999, but many officials knew about it before the Minister took office in August. Memoranda to officials in response to the audit were dated in September. When an Opposition MP received a copy of the audit dated 5 October 1999, he was asked to destroy it and accept a copy dated in January 2000. When Opposition MPs asked for details of HRDC grants by riding, they were told they did not exist, even as the Prime Minister read those details, given to him by the Government House Leader. MPs asking simple questions in the House are forced to use ATI or the Order Paper to obtain answers. The Information Commissioner told the committee that HRDC’s previously good record of responding to ATI requests deteriorated after the release of the Program Integrity Audit. Senior managers now see all ATI requests before they are answered. The ATI process has slowed government wide, as the Privy Council Office and Treasury Board try to control the release of information to the public.
Recommendation 12 That no federal public relations process be allowed to hinder departmental adherence to legal time limits prescribed in the Access to Information Act.
The Minister has covered up mismanagement in several ways. The Committee heard testimony that an HRDC employee was directed to complete and backdate missing documents. The Minister consistently provided answers to questions in the House after learning of the audit that implied all was well in her Department. Before the Committee on 18 May, the Minister released a "progress report" that had been leaked to the media the previous day, but had not been shown to opposition members of the Committee. She claimed that only $6,500 remains unaccounted for, but that figure refers to only 37 files investigated as a result of the audit, and she mentioned neither the $226,575 that had been recovered, nor the ongoing criminal investigations. In light of the lack of candour on the part of the government, appropriate outside authorities should investigate HRDC mismanagement.
Recommendation 13 That an independent inquiry be undertaken into the web of spending scandals at HRDC.
No Valid Solutions
The failure of the Liberal majority report to admit the nature and scope of the problems at HRDC precludes useful recommendations. The Committee recommends that more staff be hired for project administration and financial management, as one of HRDC’s "highest priorities," yet according to the Auditor General, the problems at HRDC pre-dated the 1995 manpower reductions by about 18 years, so the staff cuts did not cause the problems. The Committee then argues that HRDC is so unwieldy that it would be unfair to hold the Minister accountable for its management, and suggests that the Department be broken down into several more specialised ministries. The Committee heard scant evidence to support such a recommendation, but nevertheless dedicates a third of the report to it! This issue, like the Committee’s recommendation for staff increases, is nothing more than a red herring to divert attention from evidence of political interference, poor management, and lack of political will.
The Minister’s six-point "Action Plan", barely mentioned in the Committee report, will not solve the problems in HRDC. It is no more than a list of fundamental managerial principles that should have been observed all along. In presenting such a list as an "Action Plan", the Minister finally admits that in the past those basic managerial principles have not been observed, but her plan does not identify the root causes of that negligence. In a report commissioned by the Minister, consultants Deloitte-Touche said that the draft six-point Plan lacked a statement of objectives, and did not address underlying causes of the audit findings, describe the resources implicated, explain how the commitment of senior management is to be obtained, or identify long-term issues. A comparison of the Minister’s draft plan with her final plan shows that those concerns still have not been addressed. The "Action Plan" is designed to create merely the impression of action.
Recommendation 14 That the Minister ask Deloitte-Touche to assess the six-point "Action Plan" in its final form.
Conclusion
The Program Integrity Audit, which revealed a reckless disregard for the most elementary aspects of financial control, is an indictment of all government Members. The Parliament of Canada is responsible to the people of Canada. Just as deputies and ministers must be held responsible to Parliament for the conduct of their departments, so the government must be responsible to the people of Canada. The current government has failed in this regard. For an elaboration of the issues herein, see our full report on our Web site, www.canadianalliance.ca.