Public Accounts Committee on June 13th, 2024

[Blake Desjarlais, NDP, Edmonton Griesbach, AB]

In your mind, where do you think the biggest error in governance comes from? I want to summarize, with that question, a feeling I get about a pattern. I've been on public accounts for almost three years, Ms. Hogan, and you've presented us with many reports. I thank you for that, but in your own mind, you might see a troubling pattern that continues to persist, one of ministries, departments and partners skirting the line of accountability or responsibility just enough so that there isn't one person, one department or one ministry we can hold accountable. That issue leads me to think we have issues in coordination, oversight or accountability.

Can you please spend a bit of time describing who is most accountable for this work?

[Karen Hogan]

The biggest share of accountability rests, in my mind, with the board of directors of the foundation. They had a fiduciary responsibility to the foundation. In my view, they failed to ensure that conflicts of interest were well managed and to comply with legal requirements. Most concerning is that this group of members was allowed to dwindle to two individuals instead of 15, and they then appointed five members to the board of directors. That, to me, was a huge gap in governance at the foundation and in compliance with its enabling legislation.

The department plays some role in oversight. However, I think, ultimately, this failure rests with the board of directors of the foundation.

[The Chair, Conservative, John Williamson]

Thank you very much.

We're beginning our second round.

Mr. Barrett, I understand you're going to begin and then will turn things over to one of your colleagues. You have the floor for five minutes.

[Michael Barrett, Conservative, Leeds—Grenville—Thousand Islands and Rideau Lakes, ON]

I want to take a second to circle back to one of the questions from the previous round, Madam Auditor General. It's with respect to files that have been ordered by the House, to be transmitted by the law clerk to the Royal Canadian Mounted Police.

That function, first of all, is important to highlight. The law clerk's role here is to serve as the conduit for those files and to make them travel. This isn't a direction to the Auditor General on what to audit. It's like any bill that comes through the House that receives majority support. The documents and data that were used by you to reach the conclusions you did with respect to the millions of dollars.... I think you said $319 million was involved in cases of conflict of interest. Some were declared and some were undeclared, but all of that money went to appointees' interests, to those involved with SDTC.

The only reason this step is necessary is that after nine years of the NDP-Liberal government, we have a complete absence of transparency—a refusal to be transparent with Canadians. It's not just files from the Auditor General. We need files from Sustainable Development Technology Canada and ISED. While we know the record-keeping at the Auditor General's office is excellent, we haven't seen that evidenced by the departments you've audited.

My question, Mr. Kennedy, is this: Are you collecting documents and preparing to transmit them to the Royal Canadian Mounted Police?

[Simon Kennedy]

I can confirm that we are moving expeditiously to do that.

[The Chair, Conservative, John Williamson]

Mr. Perkins, you have just over three minutes.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you, Mr. Chair.

I have a couple of questions for the Auditor General.

Thank you for your report on Sustainable Development Technology Canada, which was released last week. To those watching, it's better known colloquially as the “Liberal green slush fund”.

There were 186 transactions approved by the board or by directors who had a conflict of some sort, declared or undeclared. They didn't follow the conflict of interest guidelines. Is that correct?

[Karen Hogan]

I wouldn't say it's 186 transactions. Sometimes there may have been many conflicts in one transaction. That's why we said it was 96 cases and 90 cases. It doesn't mean 90 different projects.

I don't know if that helps you understand.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

It's not 186 out of 420 projects you reviewed.

[Karen Hogan]

No. There could be many conflicts of interest in one project.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

I can see why Canadians are confused about this. It appears that even the department, which had an ADM in the meeting every time, didn't clearly understand.

That totals, as you said, $319 million out of $856 million, which means that somewhere around 40% of the money allocated in the period you audited was conflicted in some way.

[Karen Hogan]

Yes, there was a conflict of interest, either well managed or not well managed, linked to the funding decision.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

In addition to that, there was another $58 million—maybe there was overlap—in funds that did not meet the contribution agreement, which included, I believe, the COVID payments.

[Karen Hogan]

That $58 million in funding didn't follow the process outlined in the contribution agreement. It should have been done project by project based on merit. These were, really, batch approvals that should not—

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

These Liberal appointees only got the billion dollars in order to follow the contribution agreement. They didn't have freedom to go outside the contribution agreement.

[Karen Hogan]

The contribution agreement was supposed to dictate how funding decisions were made and where the money went.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

They went outside of that. The $319 million was conflicted, and another $58 million went outside the contribution agreement. That's almost $400 million of the $859 million, with this board's approval. These Liberal appointees either were not complying generally with normal governance practices, which means not doing business with the company you are governing, or were going outside of the rules that Parliament and ISED set up for the organization when allocating the billion dollars for them to invest.

[Karen Hogan]

For the funds, there will be some overlap. Some of the $58 million is already included in those conflicts of interest.

I can ask the team to try to narrow it down for you. We may not get to it during the meeting, but if we can, we'll give you the right number.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you.

[The Chair, Conservative, John Williamson]

Thank you very much.

Up next and joining us virtually is Mr. Weiler.

You have the floor for five minutes.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you, Chair.

I want to thank the witnesses for being here today, and the Auditor General and her office for their important work on this file and for attending our committee in back-to-back weeks.

Today, I would like to direct my questions to Mr. Kennedy.

As mentioned earlier, the AG has found many instances where projects didn't meet eligibility criteria or where conflict of interest guidelines weren't followed. Can you please explain to this committee why SDTC is being brought under the wing of the NRC? What assurances can you give us about accountability and transparency, with SDTC being under NRC, to prevent ineligible projects from being funded or prevent conflict of interest guidelines from not being followed?

[Simon Kennedy]

Maybe I could speak briefly to the issue of the conflicts of interest.

It is abundantly clear that processes and procedures were not followed in the diligent way they needed to be by the board in exercising its responsibilities. The statute itself, a statute passed by Parliament 20-something years ago, mandates that the board of directors be composed of people—this is my layperson's explanation—with expertise in the clean-tech industry. It mandates that the people brought under the board must have a background in the industry.

By the very structure set out on the legislation, you have the inherent potential for conflict. I haven't looked, but my suspicion is that this inherent risk has been there from day one, throughout changes in government, because the board has to be composed of people from industry. That makes management of conflicts a lot more important than it might otherwise be, because the risk of conflicts is much more present if you're bringing people in with industry experience.

By bringing this organization under the ambit of the NRC, you largely eliminate that problem. It's not that there's not going to be the possibility that a civil servant working at the National Research Council, or someone in the chain of command, will have a conflict. In fact, there are pretty serious rules that public servants, like me, have to follow to manage conflict. However, you're not going to have the magnified risk of having a board involved in decision-making whose very background is in the industry on which they're being asked to make funding decisions.

Right out of the gate, that is a really vivid example of where we think the risks of conflicts of interest would go down quite substantially. I'm happy to elaborate further. I could do that if you wish, but hopefully that gives you a sense of one of the big changes that would happen by bringing it in-house under the National Research Council.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

That's very helpful.

Will there be the current NRC ethics guidelines, or will new or enhanced guidelines need to be followed?

[Simon Kennedy]

I suggest directing that question more specifically to the president of the NRC. I know he's been asked to testify.

In our discussions with the government about how to get trust restored in clean-tech funding, part of the rationale for selecting the NRC is its very solid business processes. I hope all members agree that IRAP is generally regarded as a very well-run program and is very strongly supported by the business sector.

For the reasons I enumerated in my opening remarks, the NRC is a Crown agency. The individuals are subject to the public service code of ethics. They're subject to postemployment rules. The organization is governed by a council selected directly by the government.

There was a discussion earlier about the member council of SDTC. I will give you this by way of illustration. I completely agree with the Auditor General about the necessity of ISED having stronger oversight of its contribution agreement—there's no quarrel there—but from a legal point of view, ISED and the government have no ability to appoint members to the member council of SDTC. When this organization was set up, there was an initial round of appointments for members of the organization. That was meant to be self-perpetuating: The members appoint new members. The membership was allowed to erode, and there's no legal way for a minister of the Crown to directly remedy that. That is totally different from, for example, the NRC, where if the number of members is allowed to decline, it is directly on the minister responsible. It's the minister's and the governor in council's job to be appointing people to the NRC.

Again, I fully agree with the Auditor General about the necessity of ISED strengthening its oversight. However, from a legal point of view, SDTC is actually quite far removed from the government. Many of the day-to-day decisions and many of the elements of governance are in the hands of the board of directors. That doesn't remove our responsibility, to be perfectly clear, but it creates certain limits and practical issues. Many of those go away by moving the organization under the National Research Council.

[The Chair, Conservative, John Williamson]

Thank you very much.

Ms. Sinclair‑Desgagné, the floor is now yours for two and a half minutes.