Public Accounts Committee on Dec. 4th, 2012

[The Chair, NDP, David Christopherson]

I call this 69th meeting of the Standing Committee on Public Accounts to order.

Colleagues, you will recall that we had agreed today to have a one-hour hearing on chapter 6, Special Examination of Crown Corporations—2011, from the 2012 Spring Report of the Auditor General of Canada. The Auditor General, Mr. Ferguson, is with us today. From the Canadian Race Relations Foundation, we have Mr. Friedman, who is a member of the board of directors and the principal operating officer. Welcome, gentlemen.

Mr. Ferguson, we'll start with you. You can introduce your delegation and then Mr. Friedman will have an opportunity for opening remarks. After that, we'll go in rotation. Colleagues, following this one-hour hearing, we will move in camera and continue the report writing we began at the last meeting. Is everybody in agreement on how we're proceeding? Very good.

Mr. Ferguson, you have the floor.

[Michael Ferguson, Auditor General of Canada, Office of the Auditor General of Canada]

I'm happy to be here to day to highlight the findings of our special examination of the Canadian Race Relations Foundation presented in chapter 6 of our 2012 spring report. I'm accompanied by Nicholas Swales, the principal who led the work.

Our audit covered the period from November 2010 to April 2011. We issued the report to the foundation's board in September 2011. This was the first special examination conducted on the foundation.

The examination focused on the Foundation's governance, investment management, strategic planning, risk management and operations. We are pleased to report that we found no significant deficiencies in the foundation's systems and practices during the period covered by the examination.

We made three recommendations in the report. Each recommendation addressed an area where the foundation had several good practices but others that could be improved.

The first area where we made a recommendation was governance. The foundations's board of directors had most of the elements necessary for effective governance. Roles and responsibilities were defined and the independence of the board safeguarded. The board also provided management with strategic direction and oversight. However, the board's competency profile did not identify the extent of investment management expertise needed to oversee the foundation's investment portfolio. We recommended that the competency profile be updated to include all skills needed, including financial and investment management expertise.

Investment management was also the subject of our second recommendation. The foundation adopted an investment policy in 2009 that included all the key elements necessary for managing the foundation's portfolio. This included a new set of performance measures. However, management and the board had not received information on how fund managers were meeting these new performance measures. We recommended that the foundation establish a process for obtaining better information on these measures.

Finally, the foundation had strategic and business planning processes that set clear direction and permitted monitoring by the board and management. It had identified its major risks and developed mitigating action plans. We recommended that the foundation periodically review the effectiveness of these risk mitigation plans.

We are pleased to note that the foundation agreed with all of our recommendations. We have not conducted any follow-up work, therefore I cannot comment on any measures the foundation has taken since we completed the special examination.

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions that the committee members may have.

Thank you.

[The Chair, NDP, David Christopherson]

Thank you, Mr. Ferguson.

Mr. Friedman, you may make your opening remarks.

[Rubin Friedman, Member of the Board of Directors and Principal Operating Officer, Canadian Race Relations Foundation]

Good morning.

Thank you for inviting us to take part in this discussion of the Auditor General’s report on the special examination of the Canada Race Relations Foundation.

With your permission, I am going to try to shorten some parts of what I am going to read because I have added two more points. It will not last too long.

First of all, I wanted to give you a brief background on the foundation relevant to an examination of its functioning.

The Canadian Race Relations Foundation is a crown corporation that reports to Parliament through the Minister of Citizenship, Immigration and Multiculturalism. Its creation was an integral element of the Japanese Canadian Redress Agreement between the Government of Canada and the National Association of Japanese Canadians, NAJC, concluded in 1988. Under that agreement, the NAJC negotiated a total one-time contribution of $24 million to create an endowment fund to establish the foundation. A representative of NAJC still attends our board meetings, but does not vote. It was intended that the foundation would help ensure that no other groups in Canada would be subject to the unjust treatment of Japanese Canadians during World War II.

When the foundation came into existence, it was planned that it would fund its operation primarily out of interest earned on its endowment. It was also designated as a registered charity. Here's the supplementary point: the foundation does not receive an annual appropriation from Parliament, and until 2010, I believe, it was not allowed to receive any moneys from an appropriation by the Government of Canada.

A significant portion of the endowment fund that we received, however, was invested in the stock market and suffered major losses during the 2008 global financial crisis. Expenditures were reduced by almost 40%. The number of staff was reduced. In a further cost-cutting move, the number of board members was reduced from 20 to 12. This was not our doing; it was the initiative of the Government of Canada. All the board members are now geographically closer to foundation headquarters in Toronto, and a number of board meetings are held by teleconference. All of these measures help us control our expenditures. The fund is now back to about its original level; it's hovering around the $24-million mark.

I would refer you to the Auditor General's report for further information on the foundation and the structure and composition of the board. There's a lot of information on the foundation in the Auditor General's report.

We currently have a finance and audit committee, which acts as the principal part of the investment committee for the review and oversight of investments. We currently operate with six full-time positions and one part-time position, in addition to the position of executive director.

I have given a list of key activities that the foundation is involved in, and it is part of my opening remarks. I would like to point out that because we are now allowed to receive moneys through government, that have gone through government appropriations, we have a contribution agreement with the Department of Citizenship, Immigration and Multiculturalism. With that money, we are undertaking an interfaith and belonging project as well as a civic education and engagement initiative. This is in partnership with others across the country.

I have given the clerk 15 copies in both official languages describing one of the elements of this initiative. It's a video competition across Canada for young people to present how they see themselves as Canadians.

I will respond to the three recommendations.

The first is that CRRF's board of directors should update its competency profile to ensure that it includes all skills needed, including financial and investment oversight. That's paragraph 32. Our comment is that the profile of competencies required has been completed, and we continue to search for a potential board member who has the qualifications to assist us in looking at our investments. That remains both a priority and a challenge.

Second, it was recommended that we should establish a process for obtaining information on how the performance measures added in 2009 are being met for our investment portfolio, and that we should access the results and act on its conclusions in a timely manner. Our comment is that following that report, our fund managers and the investment consultant we had at the time continued to perform under the benchmarks and were not able to meet expected performance measures. After a thorough RFP process, followed by further negotiations, on April 1, 2012, CRRF signed an agreement with RBC to manage its portfolio based on the measures and guidelines stated in the CRRF 2009 investment policies and goals statement, IPGS. We have received two quarterly reports and we plan to review the RBC's one-year performance in April 2013, along with the performance measurement criteria stated in the IPGS. Finding a prospective board member continues to be a priority.

Third, it was recommended that to fully implement our risk management process, the CRRF should periodically review its risk mitigation action plans and report on them to the board of directors. This is found in paragraph 56 of the report. Our comment is that in November 2011 the foundation engaged Grant Thornton chartered accountants to conduct an internal audit review of the foundation's financial operations. The objective of the audit was to corroborate our risk management through the internal controls in place in the areas of payroll, internal financial reporting, information technology, general controls, and investment management. Grant Thornton's report to the board of directors did not identify any material weaknesses. They reported one significant and six minor findings, none with respect to investment management. CRRF has acted on the points raised in the internal audit and continues to ensure that proper procedures are followed. We are committed to maintaining and enhancing governance and organizational structure and capabilities, as well as ensuring our long-term sustainability and development.

These constitute our opening comments. I would be pleased to answer further questions from the committee.

[The Chair, NDP, David Christopherson]

Thank you, Mr. Friedman.

Mr. Saxton, you have the floor.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Chair, and my thanks to our witnesses for being here today.

Mr. Friedman, this year the CRRF celebrated 15 years since its doors opened. Can you share with us some of the things that went well over the last 15 years and some of the things you might focus on differently over the next 15 years?

[Rubin Friedman]

First, that the CRRF was established in itself is a major achievement. When you understand that our organization is actually a result of a partnership between a community and the government, this is very unusual, so even that is an achievement.

Second, we've managed to create a profile for ourselves in the communities across the country. We have built up an information centre, a resource centre, that's probably unique in the country. We hope to be able to find the funds necessary to continue to build on what we've achieved so far in that resource centre and to share it broadly with all those in Canada.

What we'd like to do a little better, of course, is to continue to manage our resources carefully, to find ways of raising funds, either through fundraising, because we are a registered charity, or by applying to receive contributions from various governments. Indeed, we already have an agreement with the Ontario government to deliver their training for boards of education, administrators, and teachers, which will end on March 31, 2013. We have the project with multiculturalism, which I mentioned before. We're looking to build on those ways of proceeding, and continue to ensure that we are managing our money appropriately.

[Andrew Saxton, Conservative, North Vancouver, BC]

I understand that you held three round table consultations this year. Can you share with us the outcomes of those consultations?

[Rubin Friedman]

This is one of the areas where I'm not totally familiar with what we've done in the past year. We have held round table consultations, and in general we do that not to achieve a specific concrete result other than to raise awareness of the issues and engage people in the discussion of how to eliminate racism in Canadian society. I would say that we have certainly succeeded in engaging the participants in that activity. I know this because we recently held our award of excellence dinner and symposium in Halifax, and there were 250 participants from across Canada representing 130 organizations. That gives you an idea of the breadth of our reach at the current time.

[Andrew Saxton, Conservative, North Vancouver, BC]

Can you share with us some of the initiatives the foundation has undertaken to combat racism in Canada?

[Rubin Friedman]

The initiatives that we take relate to our mandate. Our mandate is one of research, sharing of information, running education initiatives, stimulating discussion and action across Canada to deal with racism on a daily basis.

It is our view that the best way to fight racism is to ensure that people treat each other with respect every day. We have rights, but we also have the responsibility to meet those rights. We have the responsibility to ensure that we are not treading on other people's rights. That is the approach we are taking, and that's the approach we think will have the greatest positive effect.

[Andrew Saxton, Conservative, North Vancouver, BC]

Specifically I'm interested in knowing what initiatives you've taken. I understand your mandate and I understand what you're going for, but how are you implementing that?

[Rubin Friedman]

For instance, the project I just mentioned on interfaith and belonging will engage Canadians across the country on the emerging issue of discrimination based on religion. This is an issue that has started to come to the fore, so in that sense we are ahead of the game. We continue to maintain our contacts and to highlight how people fight racism locally in dealing with all manner of issues, the way the black community in Nova Scotia is dealing with racism in Nova Scotia, the way aboriginal communities come at the whole question of participation in Canadian society. We continue to do that.

As part of our initiative, we are going to be holding consultation discussions with groups across the country about how people of different faiths and how people of no faith can build a society together in a way that reduces and eliminates discrimination.

[The Chair, NDP, David Christopherson]

Thank you. Time has expired.

We're moving in rotation. Monsieur Giguère, you have the floor, sir.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

Ma question if for Mr. Friedman.

Thank you for appearing before us. I congratulate you on working in such an important area for Canada with so few resources. I wonder about the few resources you have available.

Your mandate is extremely broad. It affects important aspects of the development of our society. When one looks at the resources you have available to carry out this mandate, one wonders about your ability to fulfil all aspects of it.

Are you not afraid that a lack of financial resources is problematic when it comes to achieving your objectives and particularly the very long-term survival of your mission?

[Rubin Friedman]

That is a very good question. Obviously we are always looking for additional sources of funding besides those we already have. We are discussing the possibility of doing some fund-raising to add to the resources we already have. We will continue to seek information about the various government programs to find out which ones we could apply to for funding. We are going to do everything we can to restore our funding. We want to be sure that interest on investments is going to increase.

That being said, at present, you are right. We are putting our efforts into creating partnerships. We are putting them where we can work in collaboration with institutions in the regions, with national agencies, even local agencies. This is how we can broaden our scope of action. It is a matter of working with others. To some extent, this would be a very good approach even if we had all the resources in the world.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

This is true to the extent that your budget is relatively limited and that, out of this budget, you have to manage your investments.

My next question concerns the allocation of resources and the administration of funds per se. Does the money you dedicate to purely administrative duties not restrict your basic mission?

[Rubin Friedman]

If you are asking me whether the time spent managing money takes time and resources that we cannot allocate to measures that are more active and direct pertaining to race relations, I can only agree with you. The answer is yes.

Still, we must pay attention to the spending of public money. All those who receive public funds must respect their management and ensure they are properly spent. I think that the measures we have put in place do so.

Meanwhile, as I said, we are focusing our actions on ensuring that the little we have has a bigger impact.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

So, briefly, if I understand correctly, respecting the Auditor General’s recommendations concerning the foundation’s investments, the process for getting additional information on performance measures will get under way soon, if it has not already done so.

[Rubin Friedman]

Given that we have changed our fund manager, we have not reviewed all the criteria at this time. However, after one year’s operation, we are going to review both the extent to which the current manager’s objectives have been met and the criteria themselves.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you very much, sir, for your information and I wish you success in fulfilling your projects.

[The Chair, NDP, David Christopherson]

Very good. Thank you, gentlemen.

We'll move over to Mr. Kramp. You have the floor, sir.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair.

I have a couple of questions for Mr. Friedman.

I am a little concerned with the investment side of the agency. Hindsight being 20/20, we went through a downturn, but as you are a charitable organization, I am a little concerned there is a 40% drop in income. I would question seriously the investment strategy that was in process within your organization. If I were to take a look at, let's say, even my own portfolio, if it went through a 40% downturn, obviously, it wouldn't be a portfolio that has the balance necessary to protect government funds and/or even those of the private sector.

However, if you've turned that corner now—you went to RBC or somewhere similar—I'm still concerned with your statement. Finding a prospective board member with investment expertise remains a priority, yet we have thousands of people in this country with serious investment experience. Why are you still experiencing a problem bringing someone on board that's going to deal with this situation and give you professional advice?

[Rubin Friedman]

First of all, I don't know all the thousands, but I'm sure there are many. The ones who and other board members have approached are concerned by the amount of time they have to invest in the activity compared to the amount of remuneration that they usually get for doing the same activity elsewhere. When it comes to a competition, with regard to that question, I'm afraid we don't compete very well because we're a voluntary organization.

In addition, it has to be someone who is a team member, someone who will be part of the board, someone who will share our vision and our goals. It's not simply the investment expertise, although that is a major part of it.

I would like to finish by inviting everyone in the room who knows some of these thousands of people to send us some names, so that we can contact and hold discussions with them.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Have you made it known to the general public that you have a need that's not being fulfilled? People don't automatically walk up to an organization and say they'd like to be a board member. How are you messaging this?