INTRODUCTION

According to the Office of the Auditor General (OAG), Canada’s North faces many challenges to reach its full economic potential:

The Northwest Territories, Yukon, and Nunavut are far from other markets. Physical infrastructure such as roads, harbours, and airports is limited, and volatile commodity prices influence non-renewable resource development. Territorial governments, communities, Aboriginal organizations, and the private sector all face human resources and organizational challenges that affect their ability to participate in economic development. Finally, socio-economic conditions – low levels of educational attainment, lack of housing, and limited health and social services – have an impact on residents’ ability to participate in the economy.[1]

In August 2009, the federal government responded to these challenges by creating, for the first time ever, a stand-alone agency dedicated to northern economic development, the Canadian Northern Economic Development Agency (CanNor) “to help develop a diversified, sustainable, and dynamic economy across Canada’s three territories, while at the same time contributing to Canada’s prosperity.”[2]

In its Spring 2014 Report, the OAG released a performance audit that examined whether CanNor managed and delivered the economic development transfer payments associated with its three key programs in accordance with the requirements of the Treasury Board Policy on Transfer Payments and the Financial Administration Act. The audit also examined whether CanNor was established and had aligned its resources to carry out its overall mandate. The audit covered the period from the date the agency was first established, 1 August 2009 to 15 August 2013.[3] As with the establishment of any new agency, there were initial challenges, with problems identified early in the organization’s life being solved over time.

The three key programs of CanNor that were examined in the OAG’s audit were the Targeted Investment Program (TIP), the Community Economic Development Program (CEDP) and the Northern Adult Basic Education Program (NABEP):

• TIP provides funding to support investment plans that were developed for each territory with input from stakeholders;
• CEDP provides core funding for First Nation and Inuit community organizations for economic development activities; and
• NABEP helps working-age adult northerners acquire basic education skills needed to participate in the labour market.[4]

The House of Commons Standing Committee on Public Accounts (the Committee) held a hearing on this audit on 4 December 2014.[5] From the OAG, the Committee met with Michael Ferguson, Auditor General of Canada, and Glenn Wheeler, Principal. CanNor was represented by Janet King, President; Mitch Bloom, Vice President, Policy, Planning, Communications and Northern Projects Management Office (NPMO); Yves Robineau, Chief Financial Officer, Director, Corporate Services; and Michael Bloor, Regional Director, Yukon Region.

DELIVERY OF CONTRIBUTIONS AGREEMENTS

In order to conform with the requirements of the Treasury Board Policy on Transfer Payments and the requirements of the Financial Administration Act, CanNor is required to:

• fund only eligible recipients and activities;
• include in its contribution agreements monitoring and reporting requirements that are proportionate to risk;
• monitor reporting requirements and other obligations set out in contribution agreements; and
• collect performance information on individual projects, and use this information to demonstrate and report on whether transfer payment programs are achieving their intended objectives.[6]

Michael Ferguson, Auditor General of Canada, told the Committee that, as of 31 March 2013, CanNor had signed 345 contribution agreements with recipients under its three key programs, allocating approximately $100 million to various economic development projects.[7] In its audit, the OAG examined a random sample of 25 projects approved for funding under TIP, a random sample of 11 projects approved for funding under CEDP and all six projects approved for funding under NABEP.[8]

A. Assessment of Project Eligibility

The OAG examined whether CanNor had conducted sufficient analysis to determine the eligibility of projects before signing contribution agreements with recipients.[9] Mr. Ferguson noted that CanNor adequately assessed project eligibility in two of the three programs examined: TIP and NABEP.[10] However, the OAG found that the Agency did not adequately assess project eligibility in CEDP for 8 out of the 11 projects examined.[11] For example, one application for a project did not specify the activities to be carried out or the expected results, while another project received CanNor’s approval for funding before an application had been submitted.[12]

The OAG recommended that CanNor ensure that assessments of eligibility for assistance under its economic development programs are completed and documented as required by the Treasury Board Policy on Transfer Payments. In cases where applications are incomplete, CanNor should work with applicants to ensure that they provide all information required to complete assessments.[13]

Questioned about CanNor’s response to this recommendation, Janet King, President, CanNor, responded that CanNor has developed and posted on its website detailed program information for its two new main programs that were launched on 1 April 2014: the Northern Aboriginal Economic Opportunities Program (NAEOP) and the Strategic Investments in Northern Economic Development (SINED).[14] CanNor has developed very detailed program application forms that are aligned with the guidelines of these two programs.[15]

In response to questions about the approval process of a contribution application, Michael Bloor, Regional Director, Yukon Region, CanNor, explained the process as follows:

[T]he applications come to my office for the initial assessments. We do due diligence on each one. Then the decision process begins with me as the regional director. I'll make a recommendation based on the assessment, and that moves on to three more levels. Those would be the director general for operations for all of the north, then it would go to the deputy minister's office for review and recommendation to either move it up or to reject it, and then from there it goes to the minister's office for a decision.[16]

Mr. Bloor indicated that the majority of the applications for funding submitted to CanNor were generally approved after going through each of the steps of this process.[17]

For the targeted investment program, the agency worked with each of the territories and collaborated with territorial stakeholders to identify priorities for each territory, ensuring that projects funded would be of most assistance to each territory. The agency was then able to fund projects that were consistent with those priorities.

B. Administration of Contribution Agreements

The OAG examined whether contribution agreements specified the objective of the contribution, the activities being funded and the results that the recipient is expected to achieve. As well, the OAG looked at CanNor’s processes to assess and approve applications.[18] Mr. Ferguson said that CanNor’s “administration of [contribution] agreements was weak”.[19] For example, he explained that it took on average over nine months after an application was received for a contribution agreement to be signed, with the result that some of the contribution agreements were signed late in the fiscal year they covered, and some recipients had only a short period of time to spend funds. Of the 42 agreements that the OAG examined, 23 had been signed in the last quarter of the year.[20] The OAG recommended that CanNor examine its processes for review and approval of projects so that funding decisions are made in a timely manner.[21]

In response, Ms. King explained that CanNor has reviewed its business processes and service standards with the view to shortening the process to complete a contribution agreement. According to Ms. King, CanNor is now consistently meeting its 90-day completion standard, which starts when a complete application for funding is received.[22] She said the Agency has “the tools and the mechanisms to work with every interaction to make sure that it’s moving along in as timely a way as possible.”[23]

Regarding CanNor’s quality assurance process for contribution agreements, the OAG reported that 38 of the 42 contribution agreements examined included some inconsistencies, including dates specified for recipient reports to be submitted and payments to be made in advance of the dates the agreements were signed and contradictory statements in the agreements about the basis on which payments were to be made.[24] The OAG recommended that CanNor review its quality assurance processes to ensure that contribution agreements do not contain inconsistencies.[25]

Ms. King told the Committee that CanNor had developed a quality assurance tool, which is a checklist of what is expected in the files and in the records pertaining to the projects.[26] The Chief Financial Officer does spot checks to make sure that the records are correct, complete and accurate. Ms. King commented that in order to improve the overall administration of its contribution agreements, CanNor had posted detailed information and applications forms for its two new main contribution programs (NAEOP and SINED), and CanNor had developed program guidelines, project assessment forms as well as service standards for both of these programs.[27]

In addition, Ms. King informed the Committee that CanNor has developed an economic development officer toolkit to better inform its officers and help them better manage the Agency’s contribution agreements. It conducted comprehensive regional training sessions for its officers between March and May 2014. These training sessions will be offered regularly going forward.[28]

C. Monitoring and Reporting Requirements in Contribution Agreements

The OAG examined whether CanNor had incorporated a risk-based approach into its monitoring and reporting requirements.[29] In its audit, the OAG found that CanNor used risk assessments, but it had not yet defined appropriate levels of monitoring and reporting requirements in individual contribution agreements.[30] The OAG recommended that CanNor document its recipient and project risk assessments and define appropriate levels of monitoring and reporting to be specified in contribution agreements, proportionate to recipient and project risks.[31]

Ms. King responded that CanNor has completed the development of a risk assessment tool for SINED and NAEOP and an internal policy on monitoring grants and contributions.[32]

D. Monitoring Compliance with Contribution Agreements

CanNor is responsible for ensuring that recipients comply with the obligations set out in contribution agreements. The OAG examined whether CanNor had obtained the required reports from recipients and had reviewed them to monitor compliance.[33] Mr. Ferguson told the Committee that:

[T]he agency was not adequately monitoring the contributions it paid out. It was not collecting enough information from recipients to know whether they were complying with the requirements set out in their contribution agreements.[34]

Mr. Ferguson added that CanNor had not received all the required reports for the 42 contribution agreements examined. For example, “about 15% of the reports due for the 2010-2011 and 2011-2012 fiscal years had not been received. Of those received, about 80% were late, most by several months”.[35] According to Mr. Ferguson, the project files showed little evidence that CanNor had contacted recipients to obtain reports or did other monitoring such as phone calls or site visits.[36] The OAG recommended that CanNor review recipient reports and follow up on cases where information is incomplete. CanNor should also document its follow-up and monitoring activities.[37]

Ms. King reported that CanNor has developed a correspondence and project monitoring tool for its economic development officers to reduce inconsistencies in funding agreements.[38] Ms. King described the positive impact of CanNor’s new monitoring tools as follows:

The new tracking tool for proponent reporting requirements has helped us monitor receipt of reports as well as the often considerable back and forth it takes to receive these reports. Using the new monitoring tool has shown that we are now consistently applying payment terms and withholding final payment as needed should final reports not be received in a timely manner.[39]

E. Performance Measurement Strategies for Economic Development Programs

The OAG examined whether CanNor had implemented performance measurement strategies and reported on the achievement of program objectives.[40] The OAG found that CanNor had not implemented performance measurement strategies for either TIP or CEDP, but CanNor had established a strategy for NABEP.[41] Additionally, CanNor’s performance reports did not contain adequate information on the achievement of objectives for economic development.[42] Mr. Ferguson stressed that one key consequence of CanNor’s gaps in monitoring compliance with its contribution agreements and collecting the required reports was that CanNor did not know whether its economic development programs achieved their objectives.[43] The OAG recommended that CanNor fully implement performance measurement strategies and incorporate performance information requirements into contribution agreements.[44]

Ms. King responded that all the performance measurement strategies had been reviewed and updated to be measurable, relevant and reflect the operational and reporting needs of CanNor.[45] Ms. King also informed the Committee that, on 1 April 2014, CanNor had implemented a tracking tool called OpSTART to start collecting information on each project from its three regional offices. The information collected will be used to measure the performance of CanNor’s programs.[46]

Questioned about the performance indicators that CanNor uses to measure the impact of its economic development programs, Mitch Bloom, Vice President, Planning, Communication and NPMO, CanNor, responded that measuring economic outcomes is one of the toughest things to do. Mr. Bloom explained that, at the macro level, CanNor monitors a number of indexes (e.g., the Northern Economic Index and the Community Well-Being Index) that it has built in order to follow different aspects of the northern economy. These indexes are made of various data, such as the gross domestic product, job creation, households’ earnings, household creation and housing creation. At the micro level, CanNor measures the performance of all its programs based on specific indicators. Mr. Bloom also noted that the most up-to-date information on the performance of CanNor’s programs could be found in its most recent departmental performance report.[47]

CANNOR’S MANAGEMENT FRAMEWORK

The OAG examined whether CanNor had put in place a management framework for transfer payments that would ensure that its programs are accessible for applications and incorporated multi-year agreements and alternative funding approaches where appropriate.[48] The OAG found that CanNor has made efforts to standardize its management practices, but it had not implemented many of the requirements of its management control framework and its manuals and tools did not reflect the current operational environment.[49] CanNor’s communication of information did not ensure that programs were accessible and it had not yet formally considered alternative funding approaches or multi-year agreements.[50] The OAG recommended that CanNor finalize the implementation of its management control framework, follow through on its commitments to update its manuals and tools used to manage contribution agreements, and assess whether alternative funding approaches should be considered.[51]

Ms. King told the Committee that, “In August we completed the development of a financial control process, and implementation is well under way.”[52] Additionally, CanNor has updated all of its supporting program documentation.

In its audit, the OAG also underscored the importance of a strong values and ethics code of conduct for an organization that provides grants and contributions in small northern communities. In these circumstances, “there is a higher risk that an employee, family member, or friend of the employee may be able to benefit directly or indirectly from the funding provided”.[53] The OAG found that CanNor’s values and ethics code of conduct issued in 2013 was consistent with federal government requirements.[54]

Questioned about the existence of evidence of wrongdoing in any of the contribution agreements examined, Mr. Ferguson responded that while the OAG did not specifically audit CanNor’s compliance with its value and ethics code of conduct, the OAG did not see any evidence that there had been wrongdoing in any of the contribution agreements examined during the audit.[55] He also observed, “Certainly we would expect the agency to follow the code of conduct and the rules on contracting. It’s important to recognize as well that this audit was not an audit about the contracts that the organization put in place; it was an audit of the grants and contributions programs.”[56] Ms. King told the Committee that “all contracts given by CanNor certainly follow the rules and procedures of contract implementation.”[57]

ESTABLISHMENT OF CANNOR

With respect to the establishment of CanNor, the OAG pointed out in its audit that:

When the Canadian Northern Economic Development Agency (the Agency) was created, the government determined that the headquarters would be located in the North, as part of the federal government’s Northern Strategy. This was consistent with stakeholders’ identification of the need to have the Agency located in the North, and for decisions regarding programs and policies affecting the North to be made in the territories. The government selected Iqaluit as the location for the Agency headquarters. Consistent with other federal economic development agencies, it was also to have a liaison office in Ottawa.[58]

A. Key Corporate Functions and Senior Management Positions

The OAG examined CanNor’s progress in establishing its organization. Mr. Ferguson observed that CanNor has not yet been able to fill some corporate positions in Iqaluit, and some key senior management positions are still located in Ottawa. In its audit, the OAG recommended that CanNor update its human resources plan and establish an Inuit employment plan as required under the Nunavut Land Claims Agreement Act[59] and that CanNor review its staff complement with a view to fulfilling its mandate of having an organization based in the North.[60]

Ms. King replied that CanNor had completed a human resources plan which includes an Inuit employment plan and a strategic staffing plan. Ms. King then underscored that these plans set the Agency’s overall strategy to recruit and retain a skilled, professional and diverse workforce with an emphasis on the needs of the Iqaluit office.[61] Ms. King also spoke about one initiative of CanNor’s human resources plan called the Inuit learning and development pilot project in these terms:

Working with other federal departments in Nunavut and with Nunavut Tunngavik Inc. and the Government of Nunavut we provided work experience and learning activities for 12 Inuit participants over a 16-month period. Already we are seeing the benefits of this project and are in the process of hiring some of its graduates.[62]

Ms. King reported that CanNor had recently hired a new director general of operations who is based permanently in Nunavut. Ms. King also told the Committee that the total number of employees working in CanNor had increased from 72 to 95 since July 2014 and that CanNor had made a commitment to increase by nine the number of employees working in the Iqaluit office over the coming years.[63] However, Ms. King observed that staffing in the North is a challenge because there is a limited labour market and certain positions require specific skills, so CanNor has to work with each position to ensure that it can recruit for the North the expertise needed.[64]

When asked whether CanNor had sufficient staff, Ms. King replied, “Not yet. … There are still gaps in certain areas for certain shortcomings. We are making staffing a priority.”[65] As staffing remains an area of improvement for CanNor, especially in the north, the Committee would like to monitor CanNor’s progress in this regard and recommends:

RECOMMENDATION 1

That, by 30 June 2015, the Canadian Northern Economic Development Agency report to the Standing Committee on Public Accounts on the number of positions added to its Iqaluit office and on the proportion employees working in its headquarters in Iqaluit, Ottawa liaison office and regional offices in Yellowknife and Whitehorse and update the Committee on its Inuit employment plan.

B. Harmonization of CanNor’s Economic Development Programs

In 2010, the OAG recommended that CanNor clarify the objectives of its economic development programs and develop a strategic approach to delivering them. The OAG observed that CanNor had not yet finalized its work to clarify objectives and to harmonize its economic development programs. The OAG recommended that CanNor finalize the harmonization of its transfer payment programs as soon as possible.[66]

Ms. King informed the Committee that CanNor had recently harmonized its suite of four aboriginal economic development programs into a single program called the Northern Aboriginal Economic Opportunities Program. Ms. King summarized the main features of the program as follows:

[O]pportunity-driven, focused on results and geared toward maximizing economic opportunities for aboriginal communities and businesses in the north. It is also simpler to apply for funding under NAEOP and is easier to administer as the program operates with one set of terms and conditions instead of four.[67]

ASSESSMENT OF ADMINISTRATIVE IMPROVEMENTS

The audit identified weaknesses in CanNor’s administrative processes. In response, CanNor developed an action plan to address the OAG’s recommendations and, with the exception of ongoing items, CanNor has completed a number of steps to improve its administrative processes. In order to ensure that the steps taken by CanNor have indeed made lasting improvements to the implementation of its action plan to address the OAG’s recommendations, the Committee recommends:

RECOMMENDATION 2

That, by 30 June 2015, the Canadian Northern Economic Development Agency assess the administration of its economic development contribution programs and report to the Standing Committee on Public Accounts on the results of its assessment.

CONCLUSION

CanNor has an important mandate to promote economic development in Canada’s three territories, which face a number of challenges in realizing economic development opportunities. In addition to managing transfer payment programs to promote economic development, CanNor provides research and analysis to assist policy decision-making on issues facing the north, and it set up the Northern Projects Management Office, which facilitates the passage of major resource projects through the regulatory system.[68]

Having been established in 2009, CanNor is a relatively new agency. Since its inception, it has faced challenges with recruitment and retention, and it inherited a number of programs previously delivered by Aboriginal Affairs and Northern Development Canada that had deficiencies identified in past evaluations and audits. While attempting to address these issues, CanNor also had to develop and deliver new programs.

In its audit, the OAG concluded that CanNor has not managed and delivered selected economic development transfer payment programs in accordance with key requirements of the Treasury Board Policy on Transfer Payments.[69] CanNor has also been unable to fill some positions in its Iqaluit office.[70]

As the Committee heard at its hearing and as is demonstrated by the agency’s action plan, CanNor has committed to make improvements in response to the OAG’s recommendations, and in fact, it has completed most of the steps outlined in the action plan. The Committee expects that CanNor will ensure that these actions lead to improvements in its administrative processes, as well as more staff located at its headquarters in Iqaluit.