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37th PARLIAMENT, 1st SESSION

Standing Committee on Public Accounts

EVIDENCE

CONTENTS

Tuesday, April 23, 2002

1535

The Chair (Mr. John Williams (St. Albert, Canadian Alliance))

Ms. Sheila Fraser (Auditor General of Canada)

The Chair

Ms. Sheila Fraser

1540

1545

The Chair

Mr. Dennis Wallace (President, Atlantic Canada Opportunities Agency)

1550

The Chair

1555

Mr. Odina Desrochers (Lotbinière--L'Érable, BQ)

The Chair

Mr. Odina Desrochers

Mr. John Bryden (Ancaster--Dundas--Flamborough--Aldershot, Lib.)

Mr. Odina Desrochers

The Chair

Mr. Odina Desrochers

The Chair

Mr. John Bryden

The Chair

Mr. John Bryden

The Chair

Mr. John Bryden

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

1600

Ms. Sheila Fraser

Mr. Brian Fitzpatrick

Ms. Sheila Fraser

Mr. Brian Fitzpatrick

Ms. Sheila Fraser

Mr. Brian Fitzpatrick

Mr. Dennis Wallace

1605

Mr. Paul LeBlanc (Vice-President, Policy and Programs, Atlantic Canada Opportunities Agency)

The Chair

Mr. Odina Desrochers

Mr. Dennis Wallace

1610

Mr. Odina Desrochers

The Chair

Ms. Sheila Fraser

Mr. Odina Desrochers

Ms. Sheila Fraser

Mr. Odina Desrochers

The Chair

Mr. Paul LeBlanc

Mr. Odina Desrochers

Mr. John Bryden

Mr. Dennis Wallace

Mr. John Bryden

Mr. Dennis Wallace

Mr. John Bryden

Mr. Dennis Wallace

1615

Mr. John Bryden

Mr. Dennis Wallace

Mr. Peter Estey (Vice-President, Finance and Corporate Services, Atlantic Canada Opportunities Agency)

Mr. John Bryden

The Chair

Mr. John Bryden

Mr. Peter Estey

Mr. John Bryden

Mr. Dennis Wallace

1620

The Chair

Ms. Val Meredith (South Surrey--White Rock--Langley, Canadian Alliance)

Mr. Dennis Wallace

Mr. Paul LeBlanc

Mr. Dennis Wallace

Mr. John O'Brien (Principal, Office of the Auditor General of Canada)

Mr. Dennis Wallace

Ms. Val Meredith

1625

Mr. Dennis Wallace

Ms. Val Meredith

Mr. Dennis Wallace

The Chair

Mr. Rodger Cuzner (Bras d'Or--Cape Breton, Lib.)

Mr. Dennis Wallace

Mr. Peter Estey

Mr. Dennis Wallace

Mr. Paul LeBlanc

Mr. Peter Estey

Mr. Paul LeBlanc

The Chair

Mr. Rodger Cuzner

The Chair

Mr. Brian Fitzpatrick

Mr. Dennis Wallace

1630

The Chair

Mr. Brian Fitzpatrick

The Chair

Mr. Dennis Wallace

Mr. Brian Fitzpatrick

Mr. Dennis Wallace

The Chair

Mr. Alex Shepherd (Durham, Lib.)

Mr. Dennis Wallace

1635

Mr. Alex Shepherd

Mr. Dennis Wallace

Mr. Paul LeBlanc

The Chair

Ms. Val Meredith

Mr. Paul LeBlanc

1640

Ms. Val Meredith

Mr. Paul LeBlanc

Ms. Val Meredith

Mr. Dennis Wallace

Ms. Val Meredith

Mr. Dennis Wallace

Ms. Val Meredith

Mr. Dennis Wallace

Ms. Sheila Fraser

Ms. Val Meredith

The Chair

Mr. Mac Harb (Ottawa Centre, Lib.)

1645

Mr. Dennis Wallace

Ms. Sheila Fraser

Mr. Mac Harb

Ms. Sheila Fraser

Mr. Mac Harb

Mr. Dennis Wallace

Mr. Mac Harb

The Chair

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

1650

The Chair

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

The Chair

Mr. Peter Estey

The Chair

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

The Chair

1655

Mr. Dennis Wallace

Mr. Paul LeBlanc

The Chair

Ms. Sheila Fraser

Mr. John O'Brien

The Chair

Mr. Paul LeBlanc

The Chair

Mr. Dennis Wallace

The Chair

Mr. John O'Brien

1700

The Chair

Ms. Val Meredith

Mr. Dennis Wallace

Ms. Val Meredith

Mr. Dennis Wallace

Ms. Val Meredith

Mr. Dennis Wallace

Ms. Val Meredith

Mr. Dennis Wallace

Ms. Val Meredith

Mr. Dennis Wallace

Mr. Paul LeBlanc

The Chair

Mr. Brian Fitzpatrick

1705

Mr. Dennis Wallace

Mr. Brian Fitzpatrick

Mr. Dennis Wallace

Mr. Brian Fitzpatrick

Mr. Dennis Wallace

Mr. Brian Fitzpatrick

Mr. Dennis Wallace

The Chair

Mr. Dennis Wallace

1710

The Chair

Mr. John O'Brien

The Chair

Mr. John O'Brien

The Chair

Mr. John O'Brien

The Chair

Mr. Paul LeBlanc

The Chair

Mr. Paul LeBlanc

Mr. John O'Brien

The Chair

Ms. Sheila Fraser

The Chair

CANADA

Standing Committee on Public Accounts

NUMBER 049

1st SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, April 23, 2002

[Recorded by Electronic Apparatus]

¹ (1535)

[English]

The Chair (Mr. John Williams (St. Albert, Canadian Alliance)): Order, everyone.

The orders of today are, first of all, a) adoption of the sixth report, which I'll get to later, and b) pursuant to Standing Order 108(3)(e), consideration of chapter 6, “Atlantic Canada Opportunities Agency--Economic Development”, of the December 2001 report of the Auditor General of Canada.

I'm going to deal with the sixth report of the subcommittee right now. The subcommittee recommended that we deal with chapter 1 of the Auditor General's report, “Placing the Public Money Beyond Parliament's Reach”; chapter 3, “Information Technology Security”; and chapter 8, “Other Audit Observations”, Health Canada and Public Works and Government Services Canada.

Now, in addition to that, we have the CCPAC, Canadian Council of Public Accounts Committees, 2002 conference.

While we don't have quorum at the moment, the chair will be authorized, when we do have quorum, to seek the authority and the necessary funds to permit up to seven members of the Standing Committee on Public Accounts and three staff persons of the committee to travel to St. John's, Newfoundland, to attend the 22nd annual conference of the Canadian Council of Public Accounts Committees from August 24 to August 27, 2002, and that the members attending the conference utilize their air travel points to travel to the conference.

We, of course, are frugal on the public accounts committee. We have the Auditor General sitting in front of us, and I'm sure she would be quite approving of the idea that we use our travel points to get there.

Am I right, Mrs. Fraser?

Ms. Sheila Fraser (Auditor General of Canada): No comment.

Some hon. members: Oh, oh!

The Chair: As well, we recommend that the travel budget in the amount of $17,830--I'll not ask for a comment on that point--to attend the 22nd annual conference of the CCPAC from August 24 to 27 in St. John's, Newfoundland, be adopted.

So when I do have a quorum, which is nine, I'll be asking for that to be adopted. That's basically advance notice.

The other point I wanted to bring to your attention is this. Back on Tuesday, March 19, Ms. Phinney had a motion that was passed that we bring in the chair of the Canadian Human Rights Commission and the Human Rights Tribunal to speak on their report, which Ms. Phinney found inadequate. So we'll be working on that as well.

The clerk will advise me when we have a quorum, and I'll get these motions passed.

So now we will turn to the second point of our agenda, which is, as I just mentioned, dealing with chapter 6, “Atlantic Canada Opportunities Agency--Economic Development”.

We'll turn to the Auditor General for her opening statement.

Ms. Sheila Fraser: Thank you, Mr. Chair. We thank you for this opportunity to discuss the key findings in chapter 6 of our 2001 report. Joining me today are John O'Brien, principal, and, Marilyn Rushton, director from our Halifax regional office, who are both responsible for this audit.

The Atlantic Canada Opportunities Agency is one of several organizations responsible for grant and contribution programs on which we reported this past December. Next week we are scheduled to discuss with your committee chapters 4 and 5, dealing with the management of grants and contributions government-wide.

[Translation]

To begin with, who does the Agency support? The Agency provides assistance to businesses for commercial projects such as business expansion, support for marketing activities and the purchase of capital equipment.

In 2000-2001, ACOA approved assistance totalling $93 million to support commercial projects, usually in the form of repayable contributions.

Not-for-profit organizations usually receive non-repayable contributions from ACOA to support non-commercial projects such as carrying out trade and research studies, planning community-based economic development, holding conferences, workshops and training and lastly, developing local infrastructure. The Agency authorized assistance of about $126 million for these types of projects in 2000-2001.

We found that the management of contributions for commercial projects had improved significantly since our last audit in 1995. However, we are still concerned about the management of contributions for non-commercial projects. Our audit did find weaknesses in the Agency's assistance to both types of projects.

Overall, we found that the Agency has an appropriate framework for controlling grants and contributions. However, 17 of the 108 projects we examined did not describe the results expected from the Agency's contribution. Twenty-six of the projects in our sample required an environmental assessment under the Canadian Environmental Assessment Act. For seven of these projects, the Agency carried out the assessment late in the approval process. In 12 projects the letter of offer did not require the proponent to carry out all of the measures identified by the assessment to mitigate environmental damage. Our findings in this area are particularly troubling, because the Commissioner of the Environment and Sustainable Development criticized the Agency in 1998 also for conducting environmental assessments late in the approval process.

Turning now to ACOA's support for commercial projects, all of the projects we examined met the required terms and conditions for eligibility. In addition, applications were appropriately assessed before ACOA approved them. We attribute at least some of the improvement in managing these types of contributions to the greater discipline imposed when repayment is expected.

Our only significant concern about commercial projects was that the Agency had not publicly disclosed the size and performance of its $400 million portfolio of loans and repayable contributions.

¹ (1540)

[English]

I'd now like to turn to non-commercial projects.

We found that in managing contributions for non-commercial projects, the agency used broad eligibility criteria that most projects would fit or could be made to fit.

I draw your attention to an example of how questionable means were used to make a project appear to fit the eligibility criteria. ACOA is not permitted to fund government services through its business development program. However, on page 11 of chapter 6, we note a case where the agency did so through a non-profit organization it was instrumental in creating. The organization received a contribution from ACOA's business development program to develop exhibits for an interpretation centre for the P.E.I. National Park. Agency officials were the managers of the not-for-profit organization while also acting as project officers for ACOA.

We do not question the value of this project, but we are concerned that the agency circumvented the intent of the business development program's terms and conditions by establishing and managing an organization to support services provided by another government department, Parks Canada.

ACOA is using partnerships more often. It partners with other federal departments, provincial governments, community development groups, educational institutions, and other organizations. We found that the results expected from these partnerships are often vague. In addition, the agency has collected little or no ongoing performance information on most federal-provincial agreements that were important to partnerships for many years.

Mr. Chair, I would like to briefly discuss ACOA's measuring and reporting of performance. The agency generally makes good links between expectations set out in its report on plans and priorities and what it reports in its performance report. Most of the key results are supported by reasonable evidence. One of the indicators that the agency uses to report on its performance is its impact on employment.

We remain concerned about the way the agency measures and reports the impact of assistance to non-commercial projects. The agency reports that it creates one full-time job lasting five years for each $25,000 it spends to support non-commercial projects. We have a lot of trouble accepting that the agency automatically achieves better results the more it spends. We have encouraged the agency to find a more direct means to clearly and realistically report the impact of its contributions to non-commercial projects.

In conclusion, we found that the agency has made a great deal of progress in managing its assistance to commercial projects. While conditions such as repayability have led to this improvement, and may not exist in all programs, the record indicates that management practices can be improved. It is now time for the agency to focus its attention on improving its management of assistance to the non-commercial sector.

We have reviewed the agency's action plan in response to our report. The agency appears committed to dealing with our concerns. It indicates it intends to complete studies and evaluations by March 2003 to address our recommendations. We would encourage the committee to ask the agency for a progress report at that time.

Mr. Chair, that concludes my opening statement. We would be happy to answer any questions the committee might have.

¹ (1545)

The Chair: Thank you, Ms. Fraser.

I apologize, but I forgot to introduce our witnesses this afternoon. Let me do that right now. From the Office of the Auditor General we have Ms. Sheila Fraser, the Auditor General of Canada, Mr. John O'Brien, a principal, and Ms. Marilyn Rushton, a director from the Office of the Auditor General of Canada.

From the Atlantic Canada Opportunities Agency we have Mr. Dennis Wallace, the president, Mr. Paul LeBlanc, vice-president, policy and programs, and Mr. Peter Estey, vice-president, finance and corporate services.

We will now turn to Mr. Wallace for his opening statement. I see you have a fairly long one here, Mr. Wallace. Do you think you can handle this in the five minutes we normally allot?

Mr. Dennis Wallace (President, Atlantic Canada Opportunities Agency): I'm reasonably adroit, Mr. Chairman.

The Chair: Okay, then please proceed.

Mr. Dennis Wallace: Yesterday, Mr. Chairman, I believe my remarks were circulated, as was our response to the Auditor General's report, so I am very pleased to be here today to discuss chapter 6 of the Auditor General's report.

[Translation]

I am pleased to be here today to discuss Chapter 6 of the Auditor General's Report.

[English]

I can say right from the outset that ACOA is in overall agreement with the Auditor General's main recommendations. We've tabled a plan of action to address each observation, which you have.

I was pleased, of course, that the Auditor General's report concluded that ACOA's activity was consistent with its mandate to support and promote new opportunities for economic development in Atlantic Canada.

I was also pleased that the Auditor General remarked on improvements in the way ACOA had managed its commercial portfolio since 1995 and used due diligence in managing repayable contributions. I would add that this improvement has not come about by chance--and it's not a one-off. ACOA is committed to a process of continuous improvement.

A little over a week ago there was an article in the Atlantic media suggesting that ACOA, through “sloppy administration”, was wasting millions of dollars in the overpayment of client claims. The article was based on an erroneous interpretation of a post-payment audit report. The journalist had looked at only one part of the ACOA payment process, and completely ignored the fact that subsequent parts of the process were in place to ensure the majority of payment errors were corrected by subsequent payments. I should add that report is on our website.

I mention this article because it's in such stark contrast with reality. The fact is, the post-payment audit is itself part of the continuous improvement process I just mentioned. The audit report had in fact shown our error rate to be 2.3%, which is already under our threshold of 3% and rapidly approaching our colleagues in the private sector at 2%.

Indeed, we'd even had Dun and Bradstreet consultants help us out by conducting training sessions for our account managers.

[Translation]

The reality is that ACOA is a higher-risk investor; it's in the nature of what we do. But I believe we manage that risk responsibly, right from the assessment of individual projects to the evaluation of our regional and pan-Atlantic portfolios. And we're open about it. We have shared risk management profiles with the media and without recourse to Access to Information.

I give you those examples only to demonstrate that continuous improvement is a reality for the Agency. By the same token, I recognize that the OAG team has observed weaknesses in specific projects and practices in the Agency. I concur with their conclusions and, as mentioned earlier, ACOA has already tabled an action plan.

To give you a sense of the action we have already taken, I would refer you to the Auditor General's recommendation that the Agency report more performance information on our repayable contributions portfolio.

¹ (1550)

[English]

Even before the Auditor General's report was tabled we had reported on the loan portfolio and its revenues in our departmental performance report for fiscal year 2000-01. Further performance information is available in the 2002-03 RPP. Our write-offs have been published annually in Public Accounts, but this information will be further supplemented through our financial information system statements and tables, and their appended notes.

It's also our current practice to report on our loan portfolio on our website, and the site is updated monthly. We will also establish a simple clean performance and reporting structure that parliamentarians can use to hold us to account. It will also allow citizens to understand our objectives and how well we are performing.

I won't address each of the chapter 6 recommendations, but there is one specific project mentioned by the office of the Auditor General that I would like to touch on. I refer here to the Greenwich development initiative, which the report characterizes as “making a project eligible using questionable means”.

I might portray the project somewhat differently from the Auditor General; however, I will acknowledge that the project could have been developed in another manner. I want to assure you there was no deliberate attempt to counter Parliament's wishes, and there never has been any suggestion that public funds were used on anything other than regional economic development.

[Translation]

And in the end, regardless of procedural shortcuts, this is a successful project, which will continue to bring economic benefits to Prince Edward Island for some time.

That said, I acknowledge the need for proper processes in achieving these results and i wish to assure this committee that this particular mistake will not occur again under my watch.

ACOA has worked hard to improve on its results, its efficiency and on the public reporting of its activities. We will work still harder. It is our goal to have a highly trained work force with policies that advance the Atlantic economy while safeguarding government resources.

As I indicated already, this process of accountability is an important one to me and I certainly will be as forthcoming and direct as I can be in answering your questions today.

Thank you.

[English]

The Chair: Thank you, Mr. Wallace.

Before we proceed, we have a quorum, don't we, Madam Clerk? We have a quorum.

You have before you the sixth report of the subcommittee on agenda and procedure. As I mentioned to you, the subcommittee is recommending that we deal with chapters 1, 3, and 8, Health Canada and Public Works and Government Services Canada, of the Auditor General's report that was tabled this past week.

All those in favour of this portion of the sixth report.

Some hon. members: Agreed.

The Chair: Item two is the CCPAC 2002 conference from August 24 to 27. We will be utilizing air travel points--which the Auditor General stayed away from, but that's okay. So seven members and three staff members will be going to the CCPAC conference in St. John's, Newfoundland.

Some hon. members: Agreed.

The Chair: The third part is that the travel budget of $17,830 to do that be adopted and then carried forward.

Some hon. members: Agreed.

The Chair: Is the whole report agreed to?

Some hon. members: Agreed.

The Chair: As I mentioned earlier, the motion by Ms. Phinney on Tuesday, March 19, to bring back the Canadian Human Rights Commission has not been forgotten. It's right here; it will happen.

Now we will turn to Mr. Desrochers.

¹ (1555)

[Translation]

Mr. Odina Desrochers (Lotbinière--L'Érable, BQ): Mr. Chairman, I don't know if this is the appropriate time to ask this question, but have we discussed the report which is supposed to be the focus of an in camera meeting this coming Thursday? I think you're going to have some problems getting a quorum. Could the tabling of the report, which is scheduled for 5 p.m. on Thursday, be postponed since the vast majority of parliamentarians will be unavailable for the meeting?

[English]

The Chair: It is news to me that the vast majority of parliamentarians will be unavailable.

[Translation]

Mr. Odina Desrochers: I'm sorry, I was talking about members of my party.

Mr. John Bryden (Ancaster--Dundas--Flamborough--Aldershot, Lib.): That's not the vast majority of members.

Mr. Odina Desrochers: For once, Mr. Bryden, you understood the French correctly. I'm delighted to see that.

[English]

The Chair: So we're actually not concerned about the vast majority of your party, only about you.

I will take that into consideration, if we have quorum, and see what happens on Thursday afternoon. I'm not going to make a presumptive ruling at this time. It's on the agenda and we'll see what happens on Thursday.

As I have said, because of the special circumstances regarding that particular meeting, if any one member of the committee has a problem with the report, I will declare the whole report null and void and refer it to the steering committee to decide if they want to rehear the issue of where they want to go from there.

[Translation]

Mr. Odina Desrochers: I'd like to make a comment, Mr. Chairman.

One item on the meeting agenda will be Downsview Park. Two of my colleagues who attended the original meeting, namely Mr. Perron and Mr. Lebel, won't be able to attend this time around. Therefore, I think we'll have a problem trying to gather together all of the facts that were lost as a result of the technical problems we experienced.

[English]

The Chair: As I said, Mr. Desrochers, I will take your point under advisement. I'm cognizant of your concerns, but I'd rather--

Mr. John Bryden: Will it be possible for the members of the committee to see the report before that meeting?

The Chair: I have just issued instructions for it to be distributed right away.

Mr. John Bryden: That might resolve the difficulty of Mr. Desrochers. Some of us might feel, on seeing that report, we should render it null and void, and there won't be a need for that meeting on Thursday.

The Chair: We'll be dealing with the estimates of the Auditor General, so there will be a meeting, but whether we deal with the report is a different issue.

Mr. John Bryden: Then naturally, Mr. Chairman, I will make every effort to attend.

The Chair: Well, of course.

So as I say, Mr. Desrochers, I don't want to be presumptuous and make a ruling in anticipation, but we'll see what happens on Thursday. I'm aware of your concern.

Okay, turning now to the issues before us, Mr. Fitzpatrick, we're on a first round, eight minutes.

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance): Thank you very much for finding the time to speak with us today.

I've read some reports from ACOA about their programs. It seems to me it's some argument in favour of some super-efficient market theory, that the government has somehow found a way to be far more efficient in utilizing capital and tax dollars and so on than the private sector. I'm confused on that point, because my own experience is that consumers are very difficult people to deal with. They like to put their money in services and goods that provide value, and they don't come back and reward these people if they don't get it. It's a very efficient system; it works very well. We have a country south of the border that at 5% of the world's population creates 40% of the world's GDP using that system.

I get the impression that ACOA is talking as if the money is free money. The government has just found this money growing on trees--it's free money they've created--and they're much better at creating employment by utilizing this money than the private market system. And they seem to get reports that support their point of view.

I'm just curious, have you any idea, Ms. Fraser, what the real cost is of turning this money through the government system, the tax-collection system into the government, and then passing it through the bureaucracy? I think in business you include the total cost of your whole operation, not just selective bits and pieces. Have you any idea of what is the real cost of this money that's being churned through this agency?

º (1600)

Ms. Sheila Fraser: Mr. Chair, I think the question is fundamentally on regional economic development, and that, I believe, is really a policy decision. We obviously haven't looked at the costs of all of this through the system, but there is a basic policy decision to do regional economic development. The mandate of ACOA is to carry that out, and I cannot comment on that policy.

We look at how the administration is conducted. As we mentioned in this audit, we have seen improvements in the administration of the commercial projects. We do have some issues with the way the performance is being reported or estimated--the number of jobs, the way the job-creation figures are being developed--but I'm afraid we haven't looked at the kind of information that you are asking for.

Mr. Brian Fitzpatrick: So you wouldn't have any ability to make an estimate of what is the cost of every dollar invested under this program.

Ms. Sheila Fraser: No.

Mr. Brian Fitzpatrick: Another question I was going to ask you is whether you've had a chance to examine or question the fact that the mandate of some other government branches seems to be fairly similar. The federal Business Development Bank talks about filling the gaps. If I read the mandate for ACOA, they talk about filling the gaps, and they talk about venture capital and small and medium-sized businesses. Farm Credit Corporation, I understand, is getting into some of this stuff in rural Canada, and I think HRDC has been involved in issuing grants and support payments for businesses, and so on. I presume they're trying to fill the gaps, too.

In your view, is there some coordinated action on this front, or are these agencies possibly stepping on one another's feet?

Ms. Sheila Fraser: I'm afraid, Mr. Chair, I am not able to sufficiently respond to that. I do know that some of them...for instance, Farm Credit Corporation specifically deals with the agriculture sector. Perhaps Mr. Wallace and his people could talk more about what their specific mandate is. But to my knowledge, in the office we have not looked at the overall question of how the mandates would interrelate.

Mr. Brian Fitzpatrick: Well, maybe I'm directing it to the wrong person. Maybe Mr. Wallace could respond to some of those questions.

Mr. Dennis Wallace: Thank you. I'd be pleased to respond, and I'll ask my team to join me as I complete my remarks.

Obviously, regional development agencies are put in place to provide a specific purpose. They are different across the country because the economic circumstances differ across Canada. Treatment would vary depending on the region.

In the case of Atlantic Canada, it is very clear that debt financing, in particular venture capital, is not as available as it would be in other regions of the country. We also find that because we tend to come in at the latter end of an entrepreneur's decision to go ahead on a project, that individual has already sought other sources of capital, whether it's venture or bank lending, whatever measures would be available. So we come in at the far end of that transaction. That's point one: there's a shortfall in the Atlantic, which we respond to.

The second point I would make is that some of our project--much of it now, in fact--tends to be in areas that are deemed to be of higher risk. That might be in software development, that might be in research and development, that might be in a new product line. Again, our experience is that conventional lenders are not quite as willing as they might be to participate. So let me let those points stand where they will.

You make reference to the United States. What's interesting about that comment is that there's a very robust system of regional development right across the United States as well, both federal and, more particularly, at the state and municipal level: tax relief, small business loans, support for training and development. Effectively, every country in the western world--the Irish Development Authority, support in Wales and Scotland, every country--has support for its regions where there may be disparity. I think it's important to make that point as well.

The other observation I'd make is that ACOA does not provide venture capital. Rather, in our case, the instrument we use is the business development program. We provide a non-interest-bearing loan and we don't take security. That tends to encourage other lenders to participate by diminishing the risk. We're finding that as a result of that fact, the level of economic activity in Atlantic Canada is stimulated by our work.

If I may, Mr. Chairman, I'd ask if Paul might have an additional comment.

º (1605)

Mr. Paul LeBlanc (Vice-President, Policy and Programs, Atlantic Canada Opportunities Agency): I'd only add one or two points, very briefly.

On the point of any possibility of overlap, we're confident that there is not overlap and duplication by these players in the marketplace that were mentioned. One way in which that's assured is by sectoral exclusivity. For example, we do not do support beyond the farm gate. Business Development Canada does a lot of retail sector investment. We do not do that. We tend to have specific sectoral priority, sectoral targets, which assures us a certain exclusivity in relation to these other lenders.

As well, as Mr. Wallace mentioned, we don't want to push out the private sector--quite the contrary. We want our loans to entice commercial lenders to get into projects they would otherwise find just a little too risky. So we bring that risk down, we bring the banks in. We may do that at start-up, we may do it on the first expansion, but then we want to get out and we want the bank and the entrepreneur to go on without us. That's our objective.

The Chair: Thank you, Mr. Fitzpatrick.

[Translation]

You have eight minutes, Mr. Desrochers.

Mr. Odina Desrochers: Thank you very much, Mr. Chairman. I'd also like to thank the Auditor General and the representative of the Atlantic Canada Opportunities Agency.

I have a few questions for Mr. Wallace concerning the workings of ACOA. The Auditor General talked a bit about the Agency and commented briefly on its performance. I'd like to focus on how ACOA was initially set up. Is ACOA accountable to the country's elected representatives for its spending? We discussed this issue last week, and I'm raising it again today because I don't think elected officials should cede any of their powers over such matters.

How was ACOA set up? By what process were the members of your Board of Directors appointed? Is ACOA accountable to Parliament for its spending?

Mr. Dennis Wallace: Thank you very much for the question. I will respond in both French and English, for the sake of clarity. ACOA was created in 1987 pursuant to an Act of Parliament. Obviously, our Agency has evolved since 1987.

[English]

We've changed a great deal since that time. For example, at the outset, for the most part, ACOA was using non-repayable contributions in its support of small business and in industry generally. Since 1995, our support through the business development program for commercial projects has been repayable.

We were created in 1987. We have changed with the times since that point. We've tightened up on our procedures quite significantly.

As you may note, if you have occasion to look at our website, we do risk profiles by each region in Nova Scotia, New Brunswick, Newfoundland and Labrador, Cape Breton, and Prince Edward Island. We do risk assessments so, in going into support to business, we understand the differences in each region and consciously accept the risk profile.

We do report on our results now, as I indicated in my remarks. Our report on plans and priorities goes to Parliament. Our most recent documents have now been tabled. We have a copy on our website. We have accounts receivable and, I would imagine, other information that any member of the public might wish to find to indicate that we are in fact performing.

I should say, too, at the time the agency was formed, in addition to the business development program we used another instrument of federal-provincial agreements. They are still in place. In fact, they are now coming to an end. We have moved into what is called the Atlantic Investment Partnership.

Again, we are changing our instruments. We are changing our reporting so the average citizen understands what our objectives are and in fact what the outcomes are. They are employment, job creation, as well as economic development across the region.

º (1610)

[Translation]

Mr. Odina Desrochers: That's fine then...

The Chair: Go ahead, Ms. Fraser.

Ms. Sheila Fraser: Mr. Chairman, I'd just like to comment further on Mr. Desrochers's questions.

Although it's called an agency, ACOA more closely resembles a department. It doesn't have a board of directors as such. I believe it has an advisory council, although it does have the same accountability mechanisms as other departments, that is it produces a plans and priorities report as well as performance report.

Mr. Odina Desrochers: You have the authority to monitor the Agency's activities.

Ms. Sheila Fraser: We do indeed audit the Agency's operations, as you can see from our report.

Mr. Odina Desrochers: Indeed.

The Chair: Go ahead, Mr. Leblanc.

Mr. Paul LeBlanc: Moreover, there's a fairly important component of your question that needs to be addressed. In addition to all of the conventional reports ACOA presents to Parliament, to Treasury Board and so on pursuant to the 1987 legislation, ACOA is also required to report every five years on its activities and specifically, on its overall performance.

Mr. Odina Desrochers: It's very reassuring, Mr. Chairman, to know that the word “agency” can still mean “democracy”. That's all for the moment.

The Chair:Fine then. Thank you very much.

[English]

Mr. Bryden, please, you have eight minutes.

Mr. John Bryden: While examining the material before me, I was struck by the fact that you seem to be making quite an effort towards transparency. You mentioned in your remarks that your risk management profiles, for example, are available without recourse to the Access to Information Act.

You are not covered by the Access to Information Act now, are you?

Mr. Dennis Wallace: Yes, we are.

Mr. John Bryden: You are. Is there any problem, or are you able to live with the Access to Information Act in terms of your relationship with your clients?

Mr. Dennis Wallace: We are, sir.

My personal preference in moving forward is to put together documents in a business-like way that the average Canadian can read and understand. It will tell them what we are doing, how we are investing the money, and in fact the results that are achieved. It applies whether it has to do with our risk profile or our collection statistics.

All documents are available to the average Canadian, to a journalist, or to a parliamentarian, in paper format or over the Internet, where we post all of our audits and other information. We would prefer that the Access to Information Act not be necessary and the information be readily available.

Mr. John Bryden: How about the Privacy Act? Does the Privacy Act cause any difficulties in your relationship with your clients?

Mr. Dennis Wallace: In the case of commercial projects we do maintain commercial confidentiality, but what we do is aggregate our information so that we can speak about, under the business development program, for example, how many loans have been issued and for what general purposes they've been provided. In fact, we'll provide a press release once the loan is approved so the general public will know who our clients are and what kind of support they've received. But we won't get into the details of the financial activities of the firm, because we would deem that commercial confidential. Other than that, it's available.

º (1615)

Mr. John Bryden: Have you done any internal report or examination of the relationship of your organization with the Access to Information Act and the Privacy Act?

I ask that because there's a lot of controversy and debate about how these two pieces of legislation make it difficult to maintain the type of commercial relationship that is the core of your operation.

Do you have anything you could give to this committee that might give us some insight into how you manage the two pieces of legislation?

Mr. Dennis Wallace: That's a good question, sir. I'd turn it over to Peter Estey, who in fact manages the access to information program.

Mr. Peter Estey (Vice-President, Finance and Corporate Services, Atlantic Canada Opportunities Agency): By and large, sir, the answer to your question is, no, we do not have a problem with this. We're very popular with the media, the business community, and the public at large with respect to access to information. Over each of the last three years we've released in excess of 100,000 records. We apply both the Access to Information Act...and take advantage of the exemptions there. As I recall, our record in the last year is that we have not received a complaint from a requester or from any of our clients.

So it is a labour-intensive process, and it takes professional application of the law, but in the final analysis, the application of the law in a professional way does protect both the client and the public.

Mr. John Bryden: If I may say so, Mr. Chairman, I will remember them for the future.

Some hon. members: Oh, oh!

The Chair: I think you're going to get more work, Mr. Estey.

Mr. John Bryden: Well, I will be very candid. There is a lot of controversy. Some organizations that engage in commercial activity say they cannot live with the Access to Information Act. It would appear you are a good example to the contrary. I hope we will hear from you in another formal context in the not-too-distant future.

Mr. Peter Estey: I would certainly agree to that.

I might point out our website as an example; it lists pertinent details associated with 100% of our five years' worth of projects. As the president suggested, the more we put out in the public forum and operate in a transparent fashion, the easier it is for all concerned, be they in a government department looking at one side of access to information and privacy, or on the outside wanting to avail themselves of this access. I would just assume that as little as possible should go through the acts, either access to information or privacy, and we're moving in this direction.

Mr. John Bryden: It's music to my ears, Mr. Chairman.

If I may change topics a little bit here, you also fund a number of not-for-profit programs. If I understand correctly, you try to keep your funding within a three-year limit; yet I understand that you have quite a number of not-for-profit programs that have gone well beyond the three years and may indeed be entirely dependent on your funding.

Can you comment on this?

Mr. Dennis Wallace: The Auditor General observed that, on our non-repayable contributions, we should be clearer at the outset what the deliverables would be on any support we would undertake for a given project. I will give you one or two examples.

We agree with this observation. In fact, our preference now when each of our regions does a business plan, or a plan to support a group or an entity for a time, is that the support be linked to specific project deliverables referenced against a period of time. If that period exceeds three years and there is merit in it going beyond that, it would have to come to the president--me.

You can sometimes see the merits of going beyond three years where the project involves developmental activities. It may be that the project has reached the stage where the entity is nearly self-supporting and we would like to see it take wings and fly, so to speak.

We're working, for example, with the black business initiative in Halifax. They joined our minister on a trade initiative to Atlanta in the United States and signed a memorandum of understanding with two African-American organizations in Georgia. In fact, they will be coming back to Canada to join us here.

To us, then, there's an example of a group we're working with to help them move along over a period of time. And while in this case we're not necessarily looking at an extension, the Association of Atlantic Women Business Owners...the same kind of principle.

º (1620)

The Chair: Okay, thank you very much.

We're now into our four-minute round.

Ms. Meredith, four minutes, please.

Ms. Val Meredith (South Surrey--White Rock--Langley, Canadian Alliance): I hope I'll get another full round, because I think I'll need more than four minutes.

The Chair: We'll see what we can do.

Ms. Val Meredith: I want to follow up on what Mr. Bryden was getting into, which was the non-commercial projects that you are sponsoring and supporting. I want to know a couple of things.

One, what percentage of your business is that? What percentage do the non-commercial who are not going to be paying back the money... how much are they taking out of the pot?

My understanding is this is all about creating long-term jobs, viable jobs, and the two examples you used I'm a little confused about, because I don't see them as creating long-term jobs--other than maybe an administrative job for that particular group. I don't see them as creating a business that will create long-term, sustainable jobs.

So number one, what's the percentage of these non-commercial projects? Number two, what's the goal, the intent, and are you able to measure whether or not these non-commercial projects are measuring up to what the intent is?

Mr. Dennis Wallace: The percentage of non-repayable contributions varies by region and has to do with the economic activity and other factors.

My estimate, and I'll turn to Peter to correct me if I'm wrong, would be that in the area of 35% would be non-repayable. It also depends on the level of business activity in a fiscal year. Maybe that business is very active and we'll find the percentage, relatively speaking, will be less, but I think it's fair to say in the range of 35% approximately--

Mr. Paul LeBlanc: Of the business development program.

Mr. Dennis Wallace: That is correct.

Mr. Paul LeBlanc: The mainline program.

Mr. Dennis Wallace: So that perhaps illustrates that point.

The second point would be the purpose for which we do it, and does it only pay administration. Well, we're providing support in the cultural industries that may yield things like a group that might perform in Europe, and perhaps would sign a contract with Virgin Records to distribute their products across Europe. So the entity we support helps that performer to carry out its work. It might be in the form of advice to access contract opportunities; it might be in training and development, which is the black business initiative; it might be referrals to sources for financing, which is again black business initiative.

So each, in our view, has any number of other benefits that would be derived, so the entity itself becomes another way of helping a group.

The Chair: Mr. O'Brien has something to add to that.

Mr. John O'Brien (Principal, Office of the Auditor General of Canada): Just a brief clarification. Mr. Wallace is referring to the business development program, but if you look overall at the agency's assistance, in fact the majority of the assistance goes for non-commercial projects. If you look at exhibit 6.1, in the upper righthand corner we have a little exhibit that shows the overall breakdown of the assistance that the agency approved during the year 2000-01. In fact, about 57.5% was approved to be non-repayable. So while it's true the BDP...there are other programs that the agency runs. If you look at them overall, the majority goes to non-repayable.

Mr. Dennis Wallace: Mr. Chairman, I'd like to thank Mr. O'Brien for that observation, because he is quite right. Let me illustrate with one or two more points that--

Ms. Val Meredith: Well, you're taking up my time--

The Chair: We won't count that.

Ms. Val Meredith: Thank you.

But that's my point, because I sat on human resources and did the unemployment issue, and it's quite clear to me that a lot of businesses in Atlantic Canada use whatever resources they have to create employment on almost a short-term basis to put a number of people through their business.

Now, what I want to know is, are your goals to create full-time employment for one individual? Are we talking about a full-time position for two or three people over a period of time in order to qualify them for employment insurance? Are you clear in what the objectives of your program are, and can they be measured in a precise way? Is it one person who gets a full-time position that will last for 10 years? Or is it three or four people a year who fill a full-time position?

º (1625)

Mr. Dennis Wallace: It's crystal clear. Our objective is to provide full-time employment. That's referring to the business development program. We also have the federal-provincial agreements that we work with. In those there would be projects that might, for example, do a tourism trail. The work might not be permanent but it will yield attraction for tourists to come to that region, which in turn creates other jobs.

So in the business development program, permanent jobs, absolutely.

Ms. Val Meredith: But can it be measured?

Mr. Dennis Wallace: Yes, it can.

The Chair: There's the answer.

Mr. Cuzner, please, for four minutes.

Mr. Rodger Cuzner (Bras d'Or--Cape Breton, Lib.): First, let me put a human face on this. I'm from Cape Breton Island. Through ACOA and the Cape Breton Growth Fund, in the last two years 4,000 private sector jobs have been created. The unemployment rate on Cape Breton Island has gone from 20% to just below 15%. Real progress has been made, and $300 million from the private sector has been leveraged through ACOA and the Cape Breton Growth Fund.

Ms. Meredith asked about some of the jobs that have been created. Some of those were in seasonal employment and value-added in fishery, forestry, and tourism as well. On the commercial files, we've had tremendous success in the last number of years.

Regional economic development was not an exact science at its inception. How are we doing now with regard to the repayable loans?

Mr. Dennis Wallace: Under the business development program, $503 million was outstanding in 1995. We've had a number of collections since that time. We have collected $109 million, and there was $35.4 million in defaulting and $20.9 million in write-offs. Perhaps that would help at least situate it.

I might ask Peter if he'd like to add some precision.

Mr. Peter Estey: That's precise.

Mr. Dennis Wallace: That's also on our website for anyone to see.

Mr. Paul LeBlanc: Before 1995 these were non-repayable contributions. The switch to repayability was obviously a very big one. One of the benefits, as the Auditor General points out, was the rigour in managing these contributions that repayability brought. It's interesting that just since 1995, we've been paid back $100 million, which we've put back into development in Atlantic Canada.

I think, Peter, if I'm not mistaken, that for the year just completed we hit about $50 million

Mr. Peter Estey: That's correct.

Mr. Paul LeBlanc: So repayability is working.

The Chair: Mr. Cuzner.

Mr. Rodger Cuzner: That will suffice.

The Chair: Thank you very much.

Mr. Fitzpatrick, please, for four minutes.

Mr. Brian Fitzpatrick: I have three questions that would crop up here.

The Chair: Ask them one at a time.

Mr. Brian Fitzpatrick: Okay. I'll start with the middle one, then.

You indicated that the government moves into areas where risk is high and the private sector stays out. You mentioned software as an example. In the paper this morning it said that something like 500,000 jobs have been lost in the information technology sector in the last couple of years. Anybody who has invested in that sector knows full well there's risk in that area. I question the wisdom of the government in venturing into this area when the private sector and the market are sending clear signals that this is an area with a whole lot of overcapacity and there have been a lot of job losses. The bubble has broken. But the government is in there feeding money to start-ups or small businesses to get into a sector that definitely has troubles right now.

What kind of rationale can you give me for the government venturing into this thing when there are clear signals going the other way saying that we have a fire here?

Mr. Dennis Wallace: In doing the analysis of any proposal we have before us, we would use the same due diligence that a bank or a venture capital firm would apply. More often than not, a bank is with us at the time of doing the due diligence. In fact, our information may be shared if the client agrees. We've built up a certain knowledge in information technology, but we also have available to us those we can refer to. It might be one of the other federal agencies that has expertise in software or the private sector. Various groups in Atlantic Canada perform that function. So we would go to any number of bodies seeking advice before we would proceed.

Referring to Mr. Cuzner again, I should say that some of the new work in Cape Breton is very much in that area of software development. In fact, if carefully done, large firms can create opportunities for small firms to work around them.

º (1630)

The Chair: The next question, Mr. Fitzpatrick.

Mr. Brian Fitzpatrick: I'm wondering what systematic structures are in place that isolate your agency from what I would call political interference in your granting of investments and so on. Maybe you could elaborate on what you have in place. I presume there are codes and standards in place to prevent this from happening.

The Chair: Make it a brief answer, please, because you have another question coming after this.

Mr. Dennis Wallace: In the time I've been with ACOA, I've worked with two ministers now, and both ministers categorically, at the time they've come in, have indicated that they would want the commercial business development program to be independent of their interest. We have certain authority levels, though, where, depending on the size of the project, it would require the minister's approval. But to my knowledge, and in any of the records I've looked at, there has been no ministerial involvement in the project, in our repayable project's analysis of due diligence.

The Chair: Mr. Fitzpatrick, your last question, briefly.

Mr. Brian Fitzpatrick: I am concerned about the viability of small and mid-sized businesses. You invest money in these ventures and so on. I'd like to think that they're here for the long term and they're not something that as soon as the government money runs out or whatever go down the tubes, and we really don't get the long-term employment and rosy projections. I've seen too much of this in my time, so I'm a skeptic in this area.

What do you people have in place to monitor this situation and make sure that we are getting a high level of success with your assuming risk in the marketplace?

The Chair: Mr. Wallace.

Mr. Dennis Wallace: Businesses supported by ACOA on average are two and a half times more successful in terms of survival, over a five-year period, than other businesses in Atlantic Canada. Statistics Canada data shows that the five-year survival rate of ACOA-assisted start-ups is two and a half times better than that of all new businesses in the Atlantic region.

Just to confirm my point, we have used Dun and Bradstreet, the Conference Board of Canada, and Statistics Canada to help us in our analysis.

The Chair: Thank you very much.

Mr. Shepherd, please, four minutes.

Mr. Alex Shepherd (Durham, Lib.): Thank you.

I have some familiarity with Cape Breton as well. I understand that you're dealing with some deep structural problems there with the closure of the coal mines and so forth. I am cognizant also of the graph that pointed out that 58.8% of what you do is non-repayable.

I'm looking specifically at the Auditor General's comments that said.... You talk about how the agency believes there should be a three-year window in which something turns around. On the other hand, she audited 28 non-commercial business development plans, and three basically required funding beyond three years, and six projects more than likely will be financially sustainable in the future. She also made the comment that another nine had a long-term history of constantly requiring funding. In other words, it would appear that they were never going to be sustainable.

Is there a point at which you stop funding these things, or do you have a strategy or rationalization for why you continue to expend money in these areas?

Mr. Dennis Wallace: Yes, sir, we do. In fact, as I mentioned before, we have a policy inside the agency now that our target is not to provide more than three years' support in a non-repayable contribution, based on the achievable results we see in their plan, call it, or their business plan. If it extends beyond that, then there has to be justification to the president of ACOA for that to occur. In fact, we have stopped funding some of the groups that you refer to and some of those groups are no longer in existence. I can't comment on the totality, but in fact we are doing exactly what you are questioning us about. That is, we are doing an assessment of the support we are providing. We're expecting results. We are not interested in doing core funding over time.

º (1635)

Mr. Alex Shepherd: Do you do an analysis of, say, the average years you have funded the total number of these groups you fund? I know your objective is three, but on average it must be out a lot further than three. Do you do something like that?

Mr. Dennis Wallace: I don't have that information before me. I might ask if either Paul or Peter could comment.

Mr. Paul LeBlanc: The simple answer is, no, we don't have a report that would address that specifically.

But I notice there's a tendency to talk about the non-commercial support in x million dollars in reference to these groups. The groups are covered through this flow of money, the non-repayable moneys, but it is not the lion's share of what we spend that money on or what we invest that money in. That is one of the items--support to some groups, what we call core funding. In that core funding there is the issue of creating dependencies, and the policy is to try to control that dependency phenomenon by having this three-year control period and extending beyond it only when there are compelling reasons.

We recognize that there are some groups we don't see as attaining self-sufficiency, and we don't maintain the objective of self-sufficiency. But as long as they're doing something that we think is very compelling, fundamentally good for the region, and it's cost-effective for the Crown, we could justify continuing investments, but only based on the results of ongoing assessment.

Now, 35% of the BDB program, or 50% or so of all our funding, does not go to support core groups but does go to support very specific initiatives. We may do training for SMEs for export development. We may support trade missions. That's part of the non-repayable support. We finance an entrepreneurship curriculum for grade-school children. We have 250,000 grade-school children undertaking a curriculum in entrepreneurship that we helped develop with the provinces. There's no dependency created with that. It's all part of this non-repayable investment that tries to systematically enhance the environment for economic growth.

The Chair: Thank you very much.

Ms. Meredith, for four minutes, please.

Ms. Val Meredith: Is it working? These programs that you're investing the money in, Mr. LeBlanc, that you've just talked about, are they working?

The money that you've invested in these school programs, in the trade missions, and in all of these other things, is there any measurable benefit from spending taxpayers' money in that area? Can you measure that this is, as you put it, cost-effective for the government?

Mr. Paul LeBlanc: We seek to measure all of them. Some of them we measure quite effectively with fairly precise measurements. The Auditor General, I think, acknowledges some of those, and goes on to say that in some areas the measurements are weak and should be improved. We accept that and we continue to work on those measurements.

We do a lot of investment in providing training for SMEs to qualify them for export. We do export-readiness training. When we do that, we track the results very precisely. Do they export? We take them into Boston. We take them into missions. We do surveys with them--how much are they exporting? How successful are they? Things like that we can measure very precisely, and we do.

We think there's a very compelling argument to help the school systems inculcate a kind of entrepreneurship spirit among young people in Atlantic Canada. That was absent when we started to do it. The provinces had a hard time investing to catch up. So we matched funds with the provinces to cause it to happen. We think there's compelling logic to doing that.

Now, we can't measure jobs by that investment.

º (1640)

Ms. Val Meredith: No, but you can measure a change of attitude. Have you done anything--

Mr. Paul LeBlanc: Yes, and we do.

We do surveys with the young people. We do track attitude change, and we track very precise things like the intention of junior high and high school children to start their own businesses. We've been measuring it for several years and we see it increasing. We think it's related, at least somewhat, to these investments.

Ms. Val Meredith: You said your programs are two and a half times more successful than all new businesses in Atlantic Canada. That doesn't say a lot if 90% of the new businesses fail. In real terms, what is the failure rate of the businesses you help out? What percentage of them cannot sustain themselves once you withdraw your funds?

Mr. Dennis Wallace: There are two or three points in your comment.

I'm not sure that 90% of businesses fail. It would depend on the--

Ms. Val Meredith: I'm not saying that. I'm saying if that is the rate, then two and a half times better isn't that good.

Mr. Dennis Wallace: We don't work with the retail trade, for example, or with restaurants or other types of businesses that are more susceptible to failure. What I can say is that from the analysis we receive from Statistics Canada, their work shows that firms supported by ACOA are two and a half times more likely to survive a five-year period than are other firms in Atlantic Canada. That measure would suggest that we're achieving success in the support we're providing to those firms.

Are they abler than other companies because they've made decisions like searching out what their sources of support are? I can't comment on that, but I can provide the raw statistic.

Ms. Val Meredith: But you're still not really answering my question. I notice in the Auditor General's report that $60 million in that portfolio is in substantial arrears, owed by insolvent businesses or businesses in other forms of non-compliance. As I understand the report, the concern is that there isn't monitoring of that portfolio, that file of $60 million, that it's not adequate. My concern is that it seems like a lot of money. You're telling me that you're two and a half times more successful than all other new businesses, yet you're still recording $60 million in money you cannot collect.

My supplemental to that is this. Are you rigorous--as rigorous as the banks of Canada--in trying to get back that $60 million?

Mr. Dennis Wallace: Let me start with your last question, Madam, and work backward.

I would say, after month seven in ACOA, that this organization is as rigorous as any bank in the country. We have trained teams that are working in collections. I've met with them. Many of our staff hold master's degrees in business. Many have come from the banking sector.

We have formed teams and trained them well, and we do follow up. It goes back to my point earlier about risk. In our portfolio, as was pointed out earlier by Paul and Peter, we did collect $50 million this year, which is now appearing in our revenue statement, our statement of operating expenses for operations for the current fiscal year.

So I would say that we are.

Ms. Sheila Fraser: I'd just like to add something, Mr. Chair, on both of the comments Ms. Meredith made. First of all, on the performance reporting, we believe more robust performance measures are necessary, rather than just a calculation based on expenditures. It is true that many of the initiatives of ACOA do not immediately transfer into jobs and there are probably other, better ways of measuring impacts than trying to search out some employment number.

On the question of the non-repayability or the write-offs, our issue there was on the transparency and that there should be more information given on the performance of that loan portfolio. We were not necessarily making a comment as to whether the level of write-offs was appropriate or inappropriate, but rather that the agency should be giving more information.

Ms. Val Meredith: Just as a follow-up to that--

The Chair: We'll come back. You're well over your four minutes, Ms. Meredith.

Mr. Harb.

Mr. Mac Harb (Ottawa Centre, Lib.): First I want to thank you very much for your comments. I was really very pleased to see your response to the Auditor General. You pretty well agreed or concurred with the recommendations. It seemed that on pretty well every one of the Auditor General's recommendations, you are either in the process of completing your action or just about to complete it, or you have completed it.

My interest here is in the financial area, in terms of your financial statement. You are adopting the FIS program. In your statement, would they be audited statements or auditable statements at the end of every year?

º (1645)

Mr. Dennis Wallace: Under the financial information system, those statements we're preparing would be part of audits that would be performed by the Auditor General.

I should stop there and....

The Chair: Ms. Fraser, are you the auditor for ACOA?

Ms. Sheila Fraser: Yes, we're the auditor for ACOA. The statements would be auditable financial statements.

Mr. Mac Harb: But not necessarily audited.

Ms. Sheila Fraser: That's a decision for government and parliamentarians to make.

Mr. Mac Harb: Secondly, I was quite interested when my colleague, Mr. Fitzpatrick, was talking about software. I hope you don't take that as a position of this committee, because I'm one of those people who think it's exceptionally important for you to continue to be involved in that specific sector, the high-technology sector. If there's any hope at all for us to continue to be ahead and on the leading edge, it is to be involved during this particular time in supporting organizations for the next wave. We continue to plan a leading role here.

What do you do with this whole element when it comes to measuring your success as it relates to your client? Do you do surveys with your client, that is, the customer, to find out the level of satisfaction? Do you do those kinds of surveys to find out, for example, notwithstanding if somebody has paid you back the loan, how many of those businesses over the past 10 years that were involved with ACOA are still around now, and whether they are doing well and continue to do well?

Mr. Dennis Wallace: Yes, we do surveys, Mr. Harb. On our website you'll find there are two surveys that have been done, which anyone can access at their leisure. It's fair to say that we're finding that the level of satisfaction is quite high, over 80%, even with clients who have not received assistance from ACOA. The experience has been professional and appropriate.

Mr. Mac Harb: I think you play a role that is exceptionally important, and that's to stop the drain from rural to urban, to a large extent. As well, on the migration from regions of Canada, without the existence of an agency such as yours they probably would migrate to major urban centres in central Canada.

As my colleagues from the area have mentioned, that is very commendable, frankly. I'm very pleased with this agency's cooperation with the Auditor General. I'm quite happy.

The Chair: Well, thank you, Mr. Harb. I can't say I'm quite so effusive with my praise.

As Mr. Wallace mentioned earlier today, they've tightened up on their procedures significantly, but there was an article in the Edmonton Journal a week or so ago, on April 13, where it says that at least $12 million was paid out in error in the last four years.

Are you familiar with this, Mr. Wallace?

Mr. Dennis Wallace: Yes, sir, I am.

The Chair: So what's going on?

Mr. Dennis Wallace: The document that was available to the reporter I don't think was fully read.

The Chair: It does say here that:

The Atlantic Canada Opportunities Agency estimates that most of the improper cheques were issued because of clerical mistakes by employees or erroneous claims by businesses.

Mr. Dennis Wallace: The writer failed to page down further into that document, where you'd find that our actual error rate is running at about 2.3%. The industry standard is 2%.

We have not lost $12 million.

The Chair: But you paid out $12 million that wasn't asked for.

Mr. Dennis Wallace: No, we would make payments to a client that, in some cases, would be somewhat different from the cashflow forecast that was provided as part of the approval. That might be partly on the discretion of the officer.

º (1650)

The Chair: Don't you have a loan application saying, I want x, and you paid out x plus y?

Mr. Dennis Wallace: No, you would schedule a payment based on the acquisition of equipment, the requirement for a marketing study. You would not pay out a lump sum. It would be paid out in several instalments. After each instalment there would be a review to assure ourselves that, in fact, the payment was appropriate.

That's what the individual is referring to. Had that individual read further in the audit, they would have found that those errors, where they did exist, were corrected later in the process.

The Chair: Well, we're glad they were corrected, but we wonder why--

Mr. Dennis Wallace: There is no $12 million missing.

The Chair: I didn't say there was $12 million missing.

Going back to the December 1999 Auditor General's report, you were talking about that infamous situation of leasing some property in Sydney, Nova Scotia. It finished off by saying that “ACOA is still responsible for the lease and continues to pay for shortfalls in the rent collected” on that problem in the Canada Business Service in Sydney, Nova Scotia.

Are you still paying the rent on that one? Does anybody know?

A witness: No.

Mr. Peter Estey: Not since September 2001, I believe, Mr. Chairman.

The Chair: Okay. I'm glad we're off the hook on that one.

In the Auditor General's opening statement, point 5, it talks about the fact that “17 of the 108 projects we examined did not describe the results expected from the Agency's contribution”. That is, approximately 15% did not describe the results expected.

How do you evaluate your programs when you don't know what you expect?

Mr. Dennis Wallace: In part, that goes back to my earlier comment that I believe it refers to non-repayable contributions. We are ensuring we have measures in place so there are achievable results. In other words, prior to providing a contribution of the nature that was brought to question, we ensure that the plan shows specifically what is to be attained in what period of time. Therefore, we will have results at the end of the effort. We will not get into long-term core funding, which is part of that problem, too.

The Chair: We'll move on to the Auditor General's item 10. This deals with the issue where some staff members of ACOA set up an organization to ask for a loan. It's what you might call an ethical deficit in ACOA.

How did that happen? How did it come about? I notice in your remarks you say it won't happen again, but how did it happen in the first place?

Mr. Dennis Wallace: This pertains to the development of a federal park in Prince Edward Island.

The Chair: But I'm talking about the ethics of your staff saying, “We don't have a process to get this money out there, so why don't we just go out and form a non-profit organization ourselves? Then we'll send the application to ourselves, stamp it approved, send a cheque to ourselves, and pass it on to whomever we're going to give the money to.”

Ethical deficit is what I said, Mr. Wallace. I'm not worried about where the money ended up. I think in the end it was not a bad deal, but the ethics were atrocious.

Mr. Dennis Wallace: We will not do that again.

The Chair: Good.

Next is the issue of the Canadian Environmental Assessment Act and so on. I'm looking at item 6 of the Auditor General's statement where she says:

Our findings in this area are particularly troubling, because the Commissioner of the Environment and Sustainable Development criticized the agency in 1998 also for conducting environmental assessments late in the approval process.

What's the scoop on ensuring we protect our environment? Are you up to speed on that now?

Mr. Dennis Wallace: In going forward on projects, sometimes we work with a partner. It might be a provincial government, and their agency might undertake the environmental assessment. It has often happened, in partnered agreements, that the project gets started before the environmental assessment is completed and in our hands.

The Chair: Yes, but you have some legal responsibilities regarding the timing of these environmental impact assessments. You can't just say it's not quite appropriate and you'll do it later.

Mr. Dennis Wallace: We do have legal responsibilities. In this particular instance it was with respect to a golf course. I understand the project was endeavouring to meet the construction season.

We've put in place procedures now where we ensure we will have environmental assessments in place before we flow funds. No funds were flowed in this project until we saw the assessment was done, but the project shouldn't have proceeded until all documentation was complete.

The Chair: So you're saying the Commissioner of the Environment and Sustainable Development can rest easy from here on in.

Mr. Dennis Wallace: We are going to endeavour to live up to the feedback to the Auditor General's report, with respect to environmental assessments and--

The Chair: That's a little vague. Are you going to live within the act?

Mr. Dennis Wallace: Yes, we are.

The Chair: Okay. That's good.

Item 11 of the Auditor General's opening statement says,

In addition, the agency has collected little or no ongoing performance information on most federal-provincial agreements, which were important partnerships for many years.

What's going on? Again, we're back to lending the money, giving it away, handing it out interest-free, and hoping some of it comes back, but we're not doing the information side of the assessment process. It seems the Auditor General's quite critical of these aspects of it.

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Mr. Dennis Wallace: I think an exchange needs to occur, but we do assessments of federal-provincial agreements. Again if you look at our website, you'll find that one is in place there.

I will turn to Paul, who manages extensively the overall scrutiny of our federal-provincial agreements, for a comment.

Mr. Paul LeBlanc: I'll only add that for all the agreements, the evaluation framework is built in and the evaluations are conducted. But the federal-provincial agreements do invest in the areas of general business support and non-commercial, non-repayable areas. We've talked about a number of examples there.

The measurement mechanisms for those are not as crisp, sharp, and well defined--as I understand the Auditor General is reminding us--as what you're able to see in commercial projects, with the bottom lines, profits, exports, etc.

The Chair: I think lack of crispness is not quite the same as little or no ongoing performance information.

Do you have any comment on this, Ms. Fraser?

Ms. Sheila Fraser: Yes, Mr. Chair.

In our report, the major issue is there isn't enough information. In fact, we note that some of the provincial websites present more information than ACOA does.

So I don't think it's a fair comparison to say we should be compared to commercial projects only. We think the performance measurement can be much improved in these things.

Perhaps Mr. O'Brien would like to add to this.

Mr. John O'Brien: The only comment I'd like to add, Mr. Chairman, is we recognize that the federal-provincial agreements are winding down. The real issue here is the lessons to be learned as the new Atlantic investment fund, the innovation fund, comes up and runs. In terms of that, it's going to be primarily non-commercial types of projects and the need to make sure the information is collected and reported on how well that rather large fund is being managed. So it's really a lessons learned thing, I think, that's really important to focus on in this topic.

We look forward to the agency collecting and reporting information that's relevant to the objectives of the program, not comparing it to commercial projects but in terms of what you're actually achieving for economic development in Atlantic Canada from those types of projects.

The Chair: Okay.

Mr. Paul LeBlanc: We have built those models for evaluation regimes for each of the components of the Atlantic Investment Partnership.

The Chair: My last questions deals with the assessment of how many jobs you create. It seems to me, for every $25,000, you equate it to one job for five years.

Again, according to the Auditor General, in paragraph 12, we have a lot of trouble accepting that the agency automatically achieves better results the more it spends. It sounds like government in its total here. As well, you say it reports that it creates one full-time job, lasting five years, for each $25,000 it spends to support non-commercial projects.

That's a fairly simplistic statistic. You're making a broad assumption there. Can't you be more precise?

Mr. Dennis Wallace: Mr. Chair, we've had three studies done by Statistics Canada, Coopers and Lybrand, and the Conference Board of Canada. In each instance, their analysis would bear out that, broadly, the statistic we're using does hold.

Now, in a specific project--we'll use one here--through a federal-provincial agreement, they report there are 90 part-time jobs. How many full-time jobs are there at the end of it for the expenditure? It will not be one job for every $25,000. In aggregate, though, with the overall expenditures we believe our statistics hold.

The Chair: Okay.

Ms. Fraser or Mr. O'Brien.

Mr. John O'Brien: Mr. Chairman, our concerns with the use of this information go back to 1995, when we last reported on the agency. We had a number of specific concerns. Some of the studies Mr. Wallace refers to, we raised issues that long ago.

At the end of the day, many changes have taken place. There are many studies and they show lots of information. But I think the basic concern we have is that it's difficult to comprehend how the automatic expenditure funds will in fact generate a job. We are definitely encouraging the agency to have more direct measures of what it's achieving as opposed to basing it upon expenditures.

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The Chair: It sounds good to me.

Ms. Meredith, please, you have four minutes.

Ms. Val Meredith: I think you get right back to my concern.

Are you making short-term work for a whole bunch of people, when in the long-term picture the economic well-being of the Atlantic region is no better, really, than what it has been in the past?

I want to follow up on where the conversation has gone. I understood 57.5% of the dollars goes into the non-commercial or non-payable funds. It's a substantial amount of money. I can see where there might be an issue. If you're lending money to a business, the business isn't going to want you in their space every month auditing and monitoring. I would certainly think, for the 57.5% of non-commercial funds, there should be more of an ongoing dialogue.

How are you doing? Where are you going? Are you achieving the goal you have established? Is there a reasonable result from the financial assistance we're giving you? Can you survive without it?' My experience in other government programs is there's dependency written into it. They get it the first year and then get it the second year.

Is there an ongoing monitoring of the 57.5%?

Mr. Dennis Wallace: There is, but to your point that we need to improve some of our reporting and evaluation on the non-repayable contributions to groups of the kind that I think you have in mind, yes, and that's why, as I've mentioned, there is the three-year horizon, specific deliverables, and a plan that would go with it, against which we would then measure success. That's what we're doing. I won't say it's new, but it's newer, and we're applying a discipline to it.

Ms. Val Meredith: Is there a constant reminder to these groups that this isn't going to be supported forever? Have you ever considered a one-year timeframe in that if you perform and meet certain parameters, maybe you'll get it a second year?

Mr. Dennis Wallace: Yes.

Ms. Val Meredith: So that's how you dole out the funds?

Mr. Dennis Wallace: Each project is different, but there are clear milestones. At the end of a year, we would expect against the plan that's been established that there will be results that show that they've carried out what they intended to do and what we've agreed would be supportable. That is correct.

Ms. Val Meredith: And if they don't, they're let loose. You'd say sorry, we don't think this is working out. It's been fun, but we don't feel that your project is sustainable and is meeting its objectives, and therefore we're not prepared to support you any longer.

Mr. Dennis Wallace: That is my expectation.

Ms. Val Meredith: Is it happening?

Mr. Dennis Wallace: Well, I can't say that it's after the first year, but I can tell you there have been several ventures that have been supported by ACOA where we thought it was no longer appropriate. Some of those ventures are now no longer in existence, because in fact they could not sustain themselves over time.

Mr. Paul LeBlanc: I might add that many of the groups who come to us for this kind of investment from us don't depend on us. Most of them don't depend--certainly not exclusively--on us. More and more we want a results-based relationship. Our interest is not to support your establishment but to purchase these results. You give us the results, that's the end of the contract. Next year they may be more preoccupied with someone else than us. If we've had a successful relationship, they may seek to renew. We may be very interested in renewing. But they're not all relationships of exclusive dependency.

For example, tourism associations: they exist, the provinces support them, their membership primarily supports them. They may have an agenda to improve the quality of their membership for supplying services in restaurants or as information providers, etc. We think it's a good idea. There's a good rationale for it. We may invest.

Ms. Val Meredith: Thank you.

The Chair: Mr. Fitzpatrick.

Mr. Brian Fitzpatrick: The only point I would make on the software issue is if you have a business that's struggling to stay in business producing that software in a down market, to have government handing out money to a competitor to get into the same type of business is a bit disturbing, especially if they half fund your organization through tax dollars. That's my only comment on that point.

The second point is I'm a little bit skeptical of your employment analysis. If it's accurate, you people have found the silver bullet for all employment problems in the world with your approach. I'm doubtful on that. I'll just mention Arthur Andersen when we come to consulting reports and so on, and I'll leave it at that.

The question I have at this point is I sometimes think that one of the biggest obstacles for small and medium-sized business to get going is government itself. I find it interesting that you mentioned that some of the people didn't do the environmental start-ups. There are government regulations, and apparently your department didn't even understand that they had to do these things. I know for a lot of businesses they're very expensive. I'm curious as to whether there is assistance from your department to help a new business pay for environmental assessments.

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Mr. Dennis Wallace: It could be that the project a business brings forward to us will have a series of costs associated with it--a new business dimension, manufacturing a new product--which means putting up a building, disturbing the land, and an environmental assessment is appropriate. It could be that environmental assessments might be part of the total overall costs for consideration.

Mr. Brian Fitzpatrick: So there's a whole slew of businesses in Canada that would like to get government funding to help pay for government-created environmental assessments; that's interesting.

Mr. Dennis Wallace: You've captured something very important, though--it's the small to medium enterprise.

Mr. Brian Fitzpatrick: But to get down to a very specific thing, I think you mentioned that your assistance to the commercial area is small and medium-sized business, and it's repayable loan commitments and so on. To put it in the context of a commercial banking arrangement, I'd like you to describe a typical, average-type investment that you'd make, the interest rate that you'd charge on that, the security you would take, and the terms of repayment--especially the terms of repayment. I'm very interested in that.

Mr. Dennis Wallace: There are two aspects to your question. The first one is the nature of the instrument we use. We use a repayable contribution. We do not take a security position, so we will not hypothecate, we will not get a charge against the assets. So if that business winds up, we'll generally be at the end of the line insofar as the list of creditors is concerned. So that would be point number one--no interest, no security position taken. That's done with a reason. The reason is that we will lower the risk profile of that business to other financial participants.

I'm sorry, sir, there was another aspect to your question I have not captured.

Mr. Brian Fitzpatrick: I presume it's the loan to a company. There are shareholders involved. Would they give personal guarantees? And the terms of repayment, are they on demand, are they on a term repayment scheme, what are we talking about here?

Mr. Dennis Wallace: I'm sorry, that was the second part. There are two; there's one that is sort of firm repayment. In other words, this would be for a business that's going to manufacture a product and needs a new facility. We might fund a certain percentage of the total cost of that initiative. We would want all of that money back but it would be non-interest bearing; we won't take a security position.

We might also, though, invest in research and development with a company. In that case, we might choose to make that repayment conditionally repayable. In other words, in addition to it being non-interest bearing and we won't take a security position, we may say you will repay the funds to us if this technology proves out and achieves a revenue level of x; in other words, if the project will bear out and generate revenue sufficient to repay the debt due and owing to us.

The Chair: Thank you very much, Mr. Fitzpatrick.

I expect the bells to ring at 15 minutes after the hour so we'll try to wind this up a little early. However, I've one final question, Mr. Wallace.

I'm looking at exhibit 6.9 of the Auditor General's report where the agency reported on 13 key results in 1999-2000. In two cases, the Auditor General says the key result was not supported by reasonable documentary evidence, and in one case, while it's stated as target achieved, the Auditor General says it was not achieved . Then in one situation where the target was stated to have been achieved, the Auditor General says there was no target for this key result. It seems to me there's some credibility factor here on the information you're providing to Parliament.

Mr. Dennis Wallace: Mr. Chairman, I would have to go into the details, because there are several categories listed in the page you referred to. We would have information that we believe sustains the reporting that we projected in our report. It could be that with the Auditor General there might be a debate between us as to whether the measurements we're using are ones that are acceptable to the Auditor General.

So I would say it would be more on that level than it would be...that in fact we're doing testing or measuring what we believe asserts that we've carried out what we said would occur.

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The Chair: Mr. O'Brien, do you have a comment?

Mr. John O'Brien: Mr. Chairman, I don't want to disagree with Mr. Wallace, but I will.

The Chair: You can; you can disagree.

Mr. John O'Brien: In terms of the... we do provide some further information in the report on this. If you look, for example--

The Chair: I see the references to paragraphs 6.99, 6.98 and 6.96, but the point is, you are making specific allegations not supported by reasonable documentary evidence on two cases, targets not achieved on one case, and no target to be achieved on the third case.

Mr. John O'Brien: Mr. Chairman, I guess the only comment I would make is that I don't view them as allegations. We've actually looked at the information and... For example, if you look at the claim that 1,000 small and medium-sized enterprises were assisted, we deal with that in some detail in paragraph 6.99, in which we point out that, in fact, the number is about 30% less than that, based upon the data that ACOA provided to us as a support for that.

So there were some issues. I guess to be fair, the vast majority of the information reported was in fact reasonable and accurate and was tied in to the report on plans and priorities. But to be accurate, there were some issues that were not fully supported, and that is, obviously, one example.

The Chair: Monsieur LeBlanc, you have something to say here. We have this credibility gap that we're trying to close.

Mr. Paul LeBlanc: No, no, we can't ignore such an important topic, absolutely.

Mr. O'Brien mentions the vast majority of these reporting elements are indeed accurate and comprehensive. ACOA has enjoyed a fair amount of credit for the quality of its reporting to Parliament. In fact, it's been commended on more than one occasion for that. It has received a distinguished award for the quality of its results measurement.

Now, if we've been able to sustain those kinds of results, it's because of a lot of effort, but also because we've had the benefit of ongoing and careful observation and thoughtful suggestions from the Auditor General, as we see here, saying, “Look, by and large it's a good job, but you can make it a bit better, and here are some examples.” And we welcome that advice.

A voice: Hear, hear!

Mr. Paul LeBlanc: Next time I think we'll be able to show an even stronger record, Mr. Chairman.

The Chair: Would you go as far as saying it is a good job, Mr. O'Brien?

Mr. Paul LeBlanc: I thought I heard him say that just a moment ago.

Mr. John O'Brien: Mr. Chairman, you may be able to tell that Mr. LeBlanc and I have a long relationship and have had a long series of discussions over many years on this particular topic.

The Chair: So we'll leave that one alone.

We'll have some closing comments by the Auditor General.

Ms. Sheila Fraser: Thank you, Mr. Chair.

I'd just like to resume our audit by saying that we are pleased to see the improvements that the agency has made since the 1995 audit in the commercial sector. We would encourage the same kind of improvement to be made in the non-commercial sector, particularly as regards clear objectives and better reporting of results.

We are also very pleased to see the reaction of the agency to our report, where they agree with our recommendations. Their action plan would appear to address most of our concerns. I would encourage the committee to perhaps ask for an update in 2003, when the agency will have completed its action plan.

The Chair: Thank you very much, Ms. Fraser.

We're going to adjourn until Thursday, April 25, at which time we will be dealing with the Auditor General's estimates and also with the issue of the Downsview Park minutes, and if time permits, then we'll move on to some other draft reports.

The meeting stands adjourned.