Public Accounts Committee on April 7th, 2022

[The Vice-Chair, Liberal, Jean Yip]

Welcome to meeting number 14 of the House of Commons Standing Committee on Public Accounts.

Pursuant to Standing Order 108, the committee is meeting today on report 14, “Regional Relief and Recovery Fund”, of the 2021 reports of the Auditor General of Canada.

Today’s meeting is taking place in a hybrid format, pursuant to the House order of November 25, 2021. Members are attending in person in the room and remotely using the Zoom application. Regarding the guidelines from the Board of Internal Economy of March 10, 2022, everyone participating in person must wear a mask, except for members of Parliament when they are seated at their place during the proceedings.

To ensure an orderly meeting, I would like to outline a few rules to follow. Before speaking, please wait until I recognize you by name. If you are on the video conference, please click on the microphone icon to unmute yourself. Please keep your microphone muted when you are not speaking. For interpretation, for those on Zoom, you have the choice at the bottom of your screen of floor, English or French audio. For those in the room, you can use the earpiece and select the desired channel.

I remind you that all comments should be addressed through the chair. For members in the room, please raise your hand if you wish to speak. For members participating via Zoom, please use the “raise hand” function. The committee clerk and I will do the best we can to maintain a consolidated order of speaking for all members, and we thank you for your co-operation.

In accordance with our routine motion, I am informing the committee that all witnesses have completed the required connection tests in advance of the meeting.

I would now like to welcome our witnesses.

Welcome, everyone. It's lovely to see you again. It's the second time this week for the Auditor General.

From the Office of the Auditor General, we have Karen Hogan, Auditor General of Canada; Philippe Le Goff, principal; and Lucie Després, director. From the Federal Economic Development Agency for Northern Ontario, we have Manon Brassard, interim president, and Lucie Perreault, director of programs. From the Federal Economic Development Agency for Southern Ontario, we have Chris Padfield, acting deputy minister, and Linda Cousineau, vice-president, business innovation and community development. From Prairies Economic Development Canada, we have Dylan Jones, interim deputy minister of PrairiesCan and president of PacifiCan; Hicham Aitelmaalem, director general; and Sundeep Cheema, chief financial officer.

Witnesses will have five minutes to make their opening statements.

Ms. Hogan, you have the floor.

[Karen Hogan, Auditor General of Canada, Office of the Auditor General]

Thank you, Madam Chair.

Thank you for this opportunity to discuss our report on the regional relief and recovery fund, which was tabled in the House of Commons on December 9, 2021.

I would like to start by acknowledging that this meeting is taking place on the traditional unceded territory of the Algonquin Anishinabe people.

Joining me today are Philippe Le Goff, who was the principal responsible for the audit, and Lucie Després, who led the audit team.

As part of the response to the COVID‑19 pandemic, the federal government announced the regional relief and recovery fund in April 2020. The fund was managed by the federal government’s regional development agencies across Canada. It was meant to help businesses and organizations that could not access other federal pandemic support programs and emergency funding or that required additional assistance. In total, the government allocated more than $2 billion to the fund.

This audit focused on whether Western Economic Diversification Canada, the Federal Economic Development Agency for Southern Ontario, and the Federal Economic Development Initiative for Northern Ontario designed, delivered, and managed the fund effectively and efficiently, and whether they reported on results.

Overall, the regional relief and recovery fund was successful at providing last-resort assistance to thousands of businesses and organizations affected by the COVID‑19 pandemic. Also, according to data provided by the regional development agencies, the program will likely succeed in reaching the objective of providing at least 25% of its funds to the tourism sector.

However, the management of the program was weakened by a lack of efficiency, consistency, fairness and transparency, which may have resulted from the efforts to administer the program quickly. Applicants from different regions of the country faced different requirements because of the various approaches taken by regional development agencies and the agencies' different interpretations of the eligibility criteria.

We found that, as a result of these differences across regions, funding was awarded in some cases to applicants who did not meet all of the eligibility criteria set out under the national fund, and ineligible expenses were funded.

In addition, in some regions, not-for-profit organizations were directly invited to apply for funding, without an open call to all potential eligible organizations.

We also found that the system put in place to report on the fund's performance relied on inaccurate information for key indicators. For example, the number of jobs maintained was based mainly on information provided by applicants, without further verification. In our view, the number of jobs saved was often overstated.

The three regional development agencies that were covered by our audit expected that between 25% and 42% of the total amount of repayable contributions granted would not be repaid. This is due to the fact that the regional relief and recovery fund was designed as a last-resort funding program and therefore carried increased risks.

We made three recommendations to the regional development agencies, including one recommendation that we also addressed to Innovation, Science and Economic Development Canada. The regional development agencies only partially agreed with our recommendations.

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

Thank you.

[The Vice-Chair, Liberal, Jean Yip]

Thank you, Ms. Hogan.

I now call on Mr. Jones to make his opening statement.

Thank you.

[Dylan Jones, Interim Deputy Minister, Prairies Economic Development Canada; President, Pacific Economic Development Canada]

Good morning, Honourable Chair and members. Happy spring, everyone.

My name is Dylan Jones. I'm joining you from Edmonton, which is Treaty 6 territory within the Métis homelands.

I am the president of PacifiCan and the interim president of PrairiesCan. These are the successors to WD, Western Economic Diversification Canada, which delivered the RRRF in the four western provinces.

The RRRF was, as the Auditor General has noted, an urgent relief program that targeted businesses and organizations that did not qualify for other pandemic support programs. It was a backstop program. It launched with almost $1 billion for regions across the country and was recapitalized twice, to a total value of over $2 billion, to deal with unprecedented need.

This was emergency funding to help eligible businesses to pay their bills and pay their employees at a time when their revenues were significantly reduced. The program created certainty for thousands of families and hope for the future. From conception to delivery, the RRRF took less than seven weeks to stand up.

In western Canada, the pandemic arrived just as key sectors of the economy were reeling from depressed energy prices and international trade shocks to our exporters. It wasn't just oil and gas. We had problems in global sales across a broad range of commodities. Businesses were very vulnerable in western Canada at the outset of this. That's why demand for the RRRF in the west exceeded all other regions of the country combined.

WD took swift action to provide more than $700 million to 10,000 businesses and organizations. To give you some examples, we supported individual businesses like Rocky Mountain Flatbread, a family pizza and pasta restaurant with locations in Alberta and B.C. They used RRRF funds to develop a home pizza kit and started growing their own salad sprouts, which they now sell to other restaurants.

As you know, a portion of the funds was set aside for tourism businesses. We were able to help the Tunnels of Moose Jaw to retain staff, renovate and prepare for when the attraction could reopen. The reduced risk of permanent closure kept key employees of this year-round tourist attraction working, but also hopeful. I have to say, I really felt like we were in the hope business throughout this crisis.

I would like to note that in western Canada, many under-represented groups were funded at a rate that was significantly higher than their representation in the western market. Rural RRRF approvals accounted for more than double the percentage of rural small and medium-sized enterprises. Women-owned businesses were approved for RRRF funding at a rate that was one and a half times the percentage of women-owned businesses in the population. On the indigenous front, it was a similar story, with twice the baseline percentage.

Altogether, the RRRF in the west supported over 2,700 women-owned businesses, 349 indigenous-owned businesses, at least 97 official language minority community businesses and at least 74 LGBTQ+ owned businesses.

That's a snapshot of how the program was implemented in the west. The picture looks different in other regions of the country and for good reason. Canada is a big country, and it's not the same everywhere. RDAs designed their rollouts of RRRFs to maximize speed and local accessibility. Given the urgent need to quickly deliver this funding, it made sense to use existing application processes that were already available and with which customers and clients were already familiar.

The Auditor General has made some recommendations that we will act on, such as improving the consistency of measurement reporting. Lessons learned will inform the design of performance measurement strategies for future initiatives of this urgent nature. We appreciate the work of the Auditor General. We're always happy to learn and improve.

I will close by noting that the Auditor General found that the regional relief and recovery fund was successful at providing last-resort assistance to thousands of businesses and organizations affected by COVID. Indeed, the RRRF largely did the job it was designed to do, and it did so under pressing circumstances and quickly. Businesses continued operating, and Canadians kept their jobs in a volatile time.

The people of PacifiCan and PrairiesCan, the public servants who delivered this program, were incredibly thankful and humbled by the opportunity to help others.

Thank you.

Thank you.

[The Vice-Chair, Liberal, Jean Yip]

Thank you.

We now move on to Manon Brassard.

[Manon Brassard, Interim President, Federal Economic Development Agency for Northern Ontario]

Good morning. It is my privilege to appear before this committee today.

I will start by saying that I am joining you from Gatineau, which is located on the unceded territory of the Algonquin and Anishinabe peoples.

I'm here in my capacity as FedNor's interim president. As noted in the Auditor General's report, FedNor was previously an initiative under the Department of Industry. FedNor was established as a stand-alone regional development agency on August 12, 2021, and I joined FedNor on that date.

I am pleased to talk to you about FedNor's experience in delivering the regional relief and recovery fund—the RRRF—in northern Ontario, and the agency's response to the Auditor General's audit. The audit has provided input that will help us better serve Canadians when implementing national programming.

FedNor was able to deliver the RRRF quickly and effectively, thanks to the proven and established processes and mechanisms built into its system and the dedication of its employees.

In northern Ontario, the COVID‑19 pandemic has had wide-ranging impacts on local economies, affecting businesses and communities that, in many cases, depend on single industries.

The RRRF has been vital for one of the hardest-hit sectors in northern Ontario, the tourism industry. The region's tourism products are primarily geared towards the American market and tend to attract tourists who are seeking to experience the great outdoors. With the extended closure of the United States border, the industry found itself in a precarious situation and its very survival was at stake.

While the tourism industry was perhaps the most hard-hit sector, it was not the only one. As a result, there was significant demand for support through the RRRF from the manufacturing sector and businesses engaged in agriculture, forestry, hunting and fishing, all of which were significantly impacted.

Funding offered through the region's community futures organizations supported rural, main street businesses and small and micro enterprises located in communities across northern Ontario, including in indigenous, rural and remote communities.

FedNor took swift action and, with the 24 community futures organizations, delivered more than $100 million across the region, effectively providing support to key sectors like tourism, agri-food and manufacturing, and contributing to the economic stability and well-being of the region.

In total, more than 1,200 businesses and organizations benefited from RRRF in the region. More than 30% of our total funding went to support tourism. Approval for businesses led or majority owned by women has almost doubled the percentage of women-led or majority-owned SMEs in the business population. Approvals for indigenous-owned or indigenous-majority-owned applicants were over one and a half times the percentage of approvals for indigenous-owned or indigenous-majority-owned SMEs in the general business population.

The audit process, which took place as FedNor and its partner RDAs were still delivering the RRRF, enabled FedNor to work with other audited RDAs to quickly respond to concerns. It also provided valuable recommendations to help us better serve Canadians.

The agency immediately sought to improve its practices and has already taken action to address the recommendations of the audit report. In fact, lessons learned from the delivery of the program and the audit process have been applied to budget 2021 programs.

As we work together to better serve Canadians, FedNor and the audited RDAs will continue to move forward on our action plan.

I'd be pleased to answer any questions you may have. Thank you.

[The Vice-Chair, Liberal, Jean Yip]

Thank you, Ms. Brassard.

We now turn to Chris Padfield.

[Chris Padfield, Acting Deputy Minister, Federal Economic Development Agency for Southern Ontario]

Thank you very much, Madam Chair.

Good morning, committee members, and Ms. Hogan, Mr. Jones and Madam Brassard.

Thank you to the committee for the invitation.

Before I begin, I'd like to acknowledge that I'm participating today from Ottawa, the traditional territory of the Anishinabe and Algonquin nations.

I am pleased to be here on behalf of Ms. Nancy Gardiner, as the acting president of the Federal Economic Development Agency for Southern Ontario—or FEDAV Ontario, as it's known—to participate in your study on report 14, “Regional Relief and Recovery Fund”.

I'm joined today by my colleague, Linda Cousineau, vice-president, business innovation and community development.

FedDev Ontario is the regional development agency responsible for managing the RRRF in southern Ontario.

At the outset of the pandemic, when it became clear how badly Canadian businesses and communities would be impacted by restrictions to keep Canadians safe, Canada’s regional development agencies, or RDAs, quickly pivoted to design and deliver the RRRF.

This fund was a critical federal tool to help businesses and organizations mitigate pandemic-related financial pressures. It also provided an important backstop to other federal business supports, such as the wage and rent subsidies and the Canada emergency business account.

We thank the Auditor General for her work and the work of her team. We are pleased to see the recognition that the RRRF's design aligned with the government's objectives for helping businesses and organizations deal with the impact of the pandemic and addressed gaps not covered by other COVID-related programs.

The report also acknowledged that leveraging existing experience and systems, as well as the direction to accept greater risks, allowed the RDAs to design and deploy the program within weeks of the onset of the pandemic.

Southern Ontario is a key driver of Canada's economic growth, representing more than 39% of the country's GDP and employment. However, the region was hard hit by the pandemic. More than a million jobs were lost in southern Ontario by April 2020. To provide critical support to small businesses and their employees when it was needed most, FedDev Ontario was allocated more than $500 million to deliver the RRRF in southern Ontario.

FedDev Ontario’s direct delivery of RRRF provided relief to more than 1,300 businesses across the region.

We also worked with Community Futures Development Corporations, or CFDCs, to provide targeted relief to more than 1,950 rural small businesses.

In addition, to maximize the program’s reach and impact, we worked with regional partners to provide targeted support that reached more than 39,000 small businesses, including sectors hardest hit by the pandemic, as well as under-represented groups that were disproportionately affected.

Overall results for the RRRF in southern Ontario show that funding was provided to businesses that needed it most, with almost $160 million supporting southern Ontario's tourism businesses, surpassing the commitment to provide at least 25% of RRRF funds to the hardest-hit tourism sector; more than $150 million supporting women-owned or women-operated businesses; $10 million supporting indigenous businesses; and more than $140 million supporting rural areas.

The Auditor General's report noted that overall, the RRRF was successful at providing last-resort assistance to thousands of businesses and organizations affected by the COVID-19 pandemic.

Work is under way to address each of the recommendations, and the audited RDAs have developed a detailed response and action plan.

We have taken steps to continue to look for ways to better support under-represented groups. For example, based on a GBA+ analysis, dedicated funding was set aside for indigenous businesses under the tourism relief fund. Activities that foster inclusive recovery are also being prioritized in the delivery of the jobs and growth fund.

We agree that it would be helpful to examine practical ways to improve transparency in the future and, when appropriate, leverage common regional development agency approaches to program delivery, assessment and approval.

RDAs were established to be place-based and reflective of the regions they serve. Delivery of national programs by RDAs should of course be coordinated, but also delivered in a way that reflects each regions’ unique needs and circumstances.

Harmonizing processes to accurately report on program outcomes is an area for further improvement. Lessons learned from the RRRF will inform the design of performance measurement strategies for future initiatives.

Since spring 2021, all new initiatives delivered by multiple RDAs have been developed to foster harmonization of program indicators and the collection of data.

Under the leadership of Minister Jaczek, FedDev Ontario will work with its RDA colleagues to take the lessons from the delivery of the RRRF during this unprecedented time to refine and improve its approaches to supporting businesses and organizations in the regions.

In closing, Madam Chair, I'd like to acknowledge the efforts of the public servants within our organization to quickly design and deliver this program while themselves navigating a once-in-a-generation pandemic. During an extraordinary and uncertain period, they successfully worked together to provide timely support that helped to make sure that businesses could keep operating and employing Canadians.

Thank you.

[The Vice-Chair, Liberal, Jean Yip]

Thank you, Mr. Padfield.

I too hope that this will be only a once-in-a-generation pandemic.

I would like to acknowledge the efforts of the public servants during this challenging time and also the work of the Office of the Auditor General in the delivery of this report.

We will now proceed to the first round of questioning, for six minutes.

Mr. Lawrence, please go ahead.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

That's perfect.

Thank you to the witnesses for appearing today and for your work throughout the pandemic. All your efforts are much appreciated.

Thank you to the chair for filling in today for Mr. Williamson. It's much appreciated.

I just want to start out with a brief statement, and then I'll get into my question.

I believe that a robust economic development department is absolutely critical to a prosperous economy, because it spurs innovation in both the public and private sectors. Throughout the world we've seen numerous examples—in Europe, in Asia and even in some of the states in America—of how they've worked through impressive public-private collaboration and an unrelenting commitment to results, and economies have been materially lifted by competent, agile economic development departments.

Unfortunately for Canada, I fear we're not there yet. We appear to be a laggard in both innovation and economic development. As a starting point for reform and improvement, having accurate information will be required as the foundation for critical decisions that will need to be made in the coming years to reform Canada's economic development investments.

Therefore, I'm deeply troubled by the inaccurate information that was revealed in the Auditor General's report. One of the key metrics in determining the success of taxpayers' investments is jobs maintained or created.

Could the Auditor General please enlighten this committee with her thoughts and maybe expand on her earlier comments with respect to how accurate the reporting of jobs maintained and created by the CFDCs was?

[Karen Hogan]

You're absolutely right that having accurate information is always needed to make well-informed decisions, and in this case it's needed in order to demonstrate that the outcomes of the program were properly achieved.

What we noted in the audit was that the information being gathered when it came to demonstrating what jobs would be maintained as a result of receiving the funding was often overstated. The applications were just taken at face value. There was very little challenge function.

We noted a few examples. In one case, an agency indicated that 200 jobs would be maintained when the recipient received only $60,000. At times, forms indicated that more jobs would be maintained than the number of employees the applicant had indicated they had. That led us to believe that the number of jobs being maintained through the funding deployed was often being overstated, so it was really evident that a challenge function was needed.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

I'll ask the same question to the representatives of the federal development agencies. I'll maybe start with Mr. Padfield, but any one of you is welcome to comment.

How would it be that you would have more jobs maintained than actually existed at a given time? There were a number of glaring inaccuracies, or at least what appeared to be glaring inaccuracies. How did that happen, and were you as disappointed as I was at the reporting of such documented numbers?

[Chris Padfield]

I can start.

I think there were a few one-off discrepancies in that regard, but I think there's a multi-stage process for reassessing those job numbers, and it's important to understand that within the program, the job numbers weren't actually an indicator used to choose which projects were or were not funded. They were indicators of the outcome afterwards.

There are two stages to calculating the number of jobs. There are initial assessments from the companies, and then, as we close out files, they're further evaluated. With respect to the core information used in evaluation of the projects—their costs and the detailed analysis in terms of whether they were eligible and whether or not they'd received funding from other things—I think we had a fair degree of accuracy in terms of those discussions.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I'm sorry, but my time is short here.

My challenge, Mr. Padfield, is that I want to use these numbers going forward. I can only think that you all can have a huge role in the economy going forward and in being extremely beneficial, but it is very hard to make those decisions when numbers aren't solid.

You'd have to agree that even if they're one-offs—and the auditor didn't review every transaction—regardless of where they are used, when the ministers and the government are looking at this and they're trying to make decisions and they see these claims about jobs that clearly can't be true—for example, with the agency that indicated that over 200 jobs would be maintained for a recipient receiving less than $60,000, or when an agency simply reported the number of jobs as the total number of employees, meaning that they said, “Okay, because you got the money, you would have gone bankrupt without it, and therefore we're going to report all your jobs”—this is troubling. As I said, I want the government to have accurate information so that it can make the best decisions possible, so to just say that these are one-offs is troubling and challenging.

Would you also please table the formulas for the calculation of jobs? Would you be good to do that for us?

[The Vice-Chair, Liberal, Jean Yip]

Give a very short answer, please. You have 15 seconds.

[Chris Padfield]

We didn't use a formula. The job numbers were provided by the individual organizations on the first go-around with their application estimates, and then they were further reviewed after.

[The Vice-Chair, Liberal, Jean Yip]

Thank you.

We move now to Mr. Fragiskatos, for six minutes.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thanks very much, Chair. It's great to be with colleagues again and to hear the presentations this morning.

My first question will go to FedDev. It could go to any of the respective agencies, but FedDev is the one that has supported my region through this particular fund and in other ways over the years.

I look at a press release that came out around the time the regional relief and recovery fund was really being implemented. I'll point to two businesses. One is in London and one is down the road, in Ingersoll, Ontario.

This is for URSA Manufacturing. The release reads, “The RRRF”—the regional relief and recovery fund—“has helped URSA cover its short-term fixed operating costs and diversify into non-auto markets—keeping the company in business.”

The other business, in Ingersoll, is Chocolatea, and is described as an artisan chocolate and premium tea retail shop. Here, the funding was delivered in partnership with Community Futures Oxford. It “provided working capital to help the company with its cash flow needs”.

We've heard the phrase “last-resort assistance” mentioned a few times here today.

This is for Mr. Padfield. If this fund did not exist, is it reasonable to assume that these businesses simply would not have been able to survive? Let me just be that blunt about it.

[Chris Padfield]

I think they would have been challenged in a lot of circumstances.

You have to understand that to get to our program, they had to have gone through and either exhausted or been ineligible for all the other relief programming that was available. In many of the circumstances for the companies, we were the lender of last resort within the federal frame of supports. They'd exhausted the HASCAP, the BCAP, the CEBA, the wage subsidy and the rent subsidy. They were either ineligible for those for one reason or another, or they had costs in excess of that.

We were able to provide funding tailored to specific needs and circumstances where a company may have been more impacted than another.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much for that.

I'll stick with Mr. Padfield.

The digital main street program supported businesses in my community and in many other communities as well. Could you expand on how that program worked and the support it offered to businesses in need?

[Chris Padfield]

We were really excited to be able to partner with the Ontario Business Improvement Area Association, the Toronto business improvement area association, Communitech and Invest Ottawa to provide multi-layer support.

I think it's important to realize that the regional relief and recovery program was about relief on one side, but also about recovery and being able to prepare for when the pandemic ended.

A number of companies did not have digital presence. The digital main street program worked directly with communities and with main street businesses to help get them online with small grants of $2,500. We were able to support 30,000 different businesses across southern Ontario through this program.

There is a really interesting company here in Ottawa that was a great example of this. It's called Hippie Mylk. It's a non-dairy, plant-based milk company. It was able to go from being a farmers' market-based company—of course, all the farmers' markets were closed during the pandemic—to being an online business. It is now an online/delivery business. It actually increased its revenues, thanks to the digital main street program that we were able to develop with our partnerships across the region.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much.

This is probably the final question, if I'm looking at the chair and mindful of time. It will go to all three of you, Mr. Jones, Mr. Padfield and Ms. Brassard.

In terms of lessons learned, can we expect regional economic development agencies to better coordinate going forward? I'm not just talking about during the pandemic, which we're still in, but on a go-forward basis to ensure consistency of outcome? Are there lessons learned here in terms of the need for the agencies to coordinate as far as having consistent eligibility criteria and driving for consistent outcomes overall?

One thing that comes out in the report, as we heard in the presentation this morning from the Auditor General, is that there does not appear to have been much coordination among agencies. I realize that probably has a lot, if not everything, to do with the fact that this program was introduced at lightning speed to deal with something that had been completely unseen before. That's understandable from one perspective, but I would hope that there would be a lesson learned as far as coordination among agencies and bureaucracy.

We'll start with Mr. Padfield and go to the others, too.

[Chris Padfield]

Since we launched the RRRF, we've moved on and have been delivering a host of recovery projects. Across the regional development agencies we've established tiger teams to work together on the implementation of these, ensuring that we have a common look and feel, and that we're looking at and tracking data in a consistent way across the agencies.

There's a lot of back-office work going on across the regional development agencies to make sure we are collecting similar information around the programs, and doing so in a joint manner.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much.

Ms. Brassard.

[The Vice-Chair, Liberal, Jean Yip]

Please give a very short answer.