Public Accounts Committee on June 13th, 2024

[Karen Hogan]

That's a complex question to answer. I think it depends on many factors. If I look at a government department, ultimately the deputy head is the accounting officer and is accountable for decisions that are made by the department. That being said, authorities are delegated in the public service, and every public servant who holds a delegated authority should appreciate what exercising that authority means. It comes with accountabilities and responsibilities.

If I turn to a Crown organization or the foundation, which are at arm's length from the government, then the board of directors kicks in, and it is really the responsibility of the board of directors to ensure the good stewardship of funds and to carry out the mandate of the organization.

[Iqra Khalid, Liberal, Mississauga—Erin Mills, ON]

I appreciate that.

Mr. Kennedy, do you have anything to add to that?

[Simon Kennedy]

No. I agree with that.

[Iqra Khalid, Liberal, Mississauga—Erin Mills, ON]

Thank you.

Ms. Hogan, over these past number of years, we've seen increasing polarization, and I am not sure what kind of role social media plays in it. Has your office been impacted in the work you do by the very hyperpartisan politics being played with certain political parties in relation to your work?

[Karen Hogan]

I think social media impacts every organization with the misinformation or disinformation that might be out there. I hope that Canadians turn to the information my office provides knowing that we are a trusted source of information, that the information we provide is based on sound audit methodology and that it includes evidence to support the statements we make. I'm always concerned about whether our organization is seen as just another opinion out there, when we should be a trusted opinion that Canadians and parliamentarians should rely on.

[Iqra Khalid, Liberal, Mississauga—Erin Mills, ON]

You're absolutely right. I give a lot of regard to all of your reports. I read them cover to cover and take a lot of positive feedback from what you have to say. I find you, as an independent person overseeing what Parliament and government are doing, to be very credible, but we are seeing a lot of manipulation of facts and a lot of disinformation being spread, especially by some parliamentarians, about the work you do. What can we do as a committee to prevent that? How do we combat that level of disinformation? Ultimately, it really corrodes our democratic institutions.

[Karen Hogan]

One thing that specifically the public accounts committee can do when you want to study some of my work is bring the entities that we audit to the table with us. It's important. When we're here together, you can hear all sides of the story. It allows us to ensure that our work is properly understood and interpreted. We're here, ultimately, to support parliamentarians in holding the government to account, and we should be doing that with them by our side.

[The Chair, Conservative, John Williamson]

Thank you very much. That is the time.

We are beginning our third round.

Mr. Cooper, you have the floor for five minutes.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Thank you very much, Mr. Chair.

Ms. Hogan, you found in your report 186 cases of conflict. In 96 cases, declarations of conflict were made, and in 90 cases they were not made—in almost all cases by board members. Would you agree that in all cases where monies were funnelled to companies and board members—that's the case for almost all of those conflicts, totalling nearly $319 million—it was in contravention to the Canada Foundation for Sustainable Development Technology Act?

[Karen Hogan]

We found that the 90 cases that were not well managed didn't follow their own conflict of interest policies.

What didn't follow the Canada Foundation for Sustainable Development Technology Act was that the member council dwindled down to two members, and those two were able to appoint five board members. That is where the act was contravened. The rest was about not respecting the contribution agreement with the government.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Subsection 12(2) of the act says that directors are not to profit:

no director shall profit or gain any income or acquire any property from the Foundation or its activities

However, $319 million was funnelled into the companies in which board members had an interest. That would seem to me, on the face of reading the act, to be a violation of the act.

[Karen Hogan]

The member highlights an area where, as we noted in our report, the conflict of interest policy established by the board of directors of the foundation did not comply with the act. Absolutely the act is clear that an individual should not personally benefit, yet their policies just provided for a blackout period. They were much less restrictive on board members than they were on the employees of the foundation.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Precisely. They had a conflict policy that was inadequate insofar as it didn't necessarily meet up with the law and comply with the law.

[Karen Hogan]

Yes, you're correct in that instance.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Thank you for that.

Mr. Kennedy, the Auditor General's report is a scathing indictment of ISED, the department that you help oversee as the deputy minister. Your department has a duty to oversee the billion taxpayer dollars that was sent to SDTC. We now know that taxpayers were ripped off by nearly $400 million out of $850 million, which was improperly spent by SDTC. It was $319 million in cases of conflicts of interest, and $59 million in which there was non-compliance with contribution agreements.

Canadian taxpayers deserve a refund. They deserve a refund now. What instructions has the minister provided to you to get taxpayers their money back?

[Simon Kennedy]

We have been working with the organization, partly through the management response and action plan, to look at all of the organizations receiving funding now and—this is my layperson's language—to effectively rescreen them and put them back through some sort of process to examine whether there are problems, like whether some of the issues identified by the Auditor General remain present.

The organization has engaged a third party. They have a third party audit firm helping with that. This will be something the new management team, the new board at SDTC, will—

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

How much of the $400 million of taxpayers' money that was improperly spent is going to be recouped and when?

[Simon Kennedy]

It is important to keep in mind what we're talking about here, because there are multiple levels of issues that have surfaced from the various reviews and audits that have been undertaken.

There are going to be cases, potentially, where funding was provided and it needs to be recovered. There are going to be other cases where organizations and private sector companies in good faith engaged in a contractual relationship with SDTC, presuming that what they were doing was in accordance with the rules, and may find themselves in a situation where—

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Sir, the Auditor General found that for $6.2 million—just a small portion of the $400 million in projects that were cancelled by SDTC—your department had a responsibility to recover the funds. Your department didn't even do that.

[Simon Kennedy]

The issue of recovery is a separate issue. We will be taking action to offset funds owed in cases of recovery.

It is absolutely the case that where an organization has not spent the money or it's been spent improperly, there needs to be a recovery. That money should be returned to the Crown. I would agree entirely with the member on that point.

[The Chair, Conservative, John Williamson]

Thank you very much.

Up next we have Ms. Yip.

You have the floor for five minutes, please.

[Jean Yip, Liberal, Scarborough—Agincourt, ON]

Thank you, Chair.

Thank you to the witnesses for coming and answering our questions.

Mr. Kennedy, in the beginning, the department initiated two separate independent reviews and invited the Auditor General to conduct an audit. Why were there two separate independent reviews? How are each of those two reviews different?

[Simon Kennedy]

Mr. Chair, I should make sure that the record is clear. I wouldn't want to speak for the Auditor General, but the Auditor General made an independent decision to conduct an audit. As much as we enjoy working with the Auditor General, it was not at our invitation. I just want to make sure that nobody thinks that it was somehow at our behest that this was done.

The reason for these two reviews are as follows: Under the legal structure that is SDTC and the kinds of legal responsibilities that it has and that the Crown has, it is very easy for us to ask for, and indeed to follow up with, audit work with regard to the contribution agreement. This is the kind of contract we have with SDTC, which is legally at arm's length. It's not a government organization; it's a private organization at arm's length. The Raymond Chabot report looked at all of those issues related to whether they were following the contribution agreement, applying conflict of interest and doing the sorts of things that would be required by virtue of the contribution agreement.

The Raymond Chabot report also made some observations about human resources. You will note that in our management response and action plan, the character of what we have to say about HR is different from the other elements. The reason is that human resources are legally the responsibility of the organization. It's legally the responsibility of the board. These are not Crown employees; these are private sector employees working for a foundation. We had to get agreement from the SDTC board to waive their rights to allow the Attorney General to hire an agent to go and do a review of HR.

Obviously, given all of the allegations and given the pressure, the board was very co-operative. They were certainly eager to allow the government to go in, but that was a separate process, because unlike with the contribution agreement, where we have full legal rights to march in there, look around and demand documents, on the HR front, for the Crown to take action without the consent of the board and without having all of its legal bases covered would have been ultra vires.

I'm not a lawyer, but there are no legal grounds for the government to do that. In fact, it could attract quite a bit of liability from employees, managers and others, so we needed the board's assent to do that. That was a separate process run by McCarthy Tétrault on behalf of the Attorney General.

[Jean Yip, Liberal, Scarborough—Agincourt, ON]

I am curious to find out what happens to the funding for the companies with SDTC. We know that a lot of companies were affected by the funding freeze. Is there a plan for resuming funding for these affected companies?

[Simon Kennedy]

Mr. Chair, I will note that when the minister made his announcement in response to the Auditor General's findings, he did note that the plan is to get funding flowing again very quickly out to the clean-tech ecosystem. Minister Champagne has been on record indicating his profound concern that clean-tech companies have been caught in the crossfire as a result of this issue.

That is a top priority for the new board that has been asked to take on responsibilities. In effect, there are two main responsibilities of the new board. One is to get funding flowing again, but with all the appropriate controls in place. ISED, as the continued holder of the contribution agreement until such time as the NRC takes over, will be applying all the enhanced controls, the management response and the action plans. Effectively, until there's a new structure, the old structure prevails.

There's a new board that's been given very explicit instructions to up their game on oversight. The department has significantly upped its oversight of the organization. Ultimately, this will be transferred to the NRC, and then it will be the NRC's job to administer the funding. In the short term, we do want to get funding restarted, but with a much greater level of probity and accountability as per the recommendations of Ms. Hogan and the various reviews that have been done.