Public Accounts Committee on Oct. 7th, 2024

[Marta Morgan]

We are hoping, within a number of weeks or maybe by the end of the month, to have funds restarted for those projects. Our first priority is projects for which the Auditor General did not find any concerns about eligibility. Then, following that, are projects for which project milestones have been completed by the recipient but funding was paused.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

Last week we asked Ms. Doyle to comment on the legal risks associated with recouping funds from companies when there may not have been any wrongdoing—or there may have—and the legal risks that this could place SDTC and the government in if we were to do this haphazardly, as the Conservatives suggested. I'm wondering whether you could speak to the legal advice received on the question of recovery.

[Marta Morgan]

On the question of recoveries, from our perspective as a board the main consideration is that we pursue these issues, really, in a fair and transparent way that's based on a fair and transparent process. That's why we went to external reviewers and are ensuring that the board reviews every project before we consider.... Then, if we determine fraud and wrongdoing, we'll consider the appropriate action and, of course, legal advice will need to be taken into account in those situations, based on the contribution agreement, the agreements that were signed between SDTC and the recipients, etc. I think that as we move forward, an important element will be ensuring that the process is fair and transparent.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

Ms. Doyle further explained that project agreements you enter into with the recipient companies are legally binding documents and there needs to be a violation of that document for there to be a justification for recouping funds. Have you received any written advice and, if so, would you be able to submit that to this committee?

[Marta Morgan]

I will have to take that under consideration vis-à-vis legal advice, but let me assure the committee that we are moving forward with this in the most fair and transparent way possible, taking into account the legal parameters, the contribution agreement and the agreements that have been signed. Should there be evidence of fraud or wrongdoing on the part of recipients, then of course the board will take appropriate action, but these things really do need to be assessed on a case-by-case basis, as the Auditor General recommended.

[The Chair, Conservative, John Williamson]

Thank you, and I appreciate that response to Ms. Bradford's question about getting back to us. Of course, we hope witnesses will be as forthcoming as possible. I recognize there might be some limitations. If that is the case, you could spell that out in your response, and the committee will take it up at that point. Thank you very much for that offer.

We are now beginning our third round. Again, Mr. Perkins, you have the floor for five minutes, please.

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

Thank you, Mr. Chair.

I know MP Erskine-Smith is new to this file. He's had a whole three meetings on it where most of us have been working on it for years, so I will just bring him a little up to speed on this.

First of all, the Ethics Commissioner's report comes from a letter a year ago from Conservatives asking to look into one person of the nine that the Auditor General in the spring found out had conflicts of interest. The Ethics Commissioner reported that there are actually 24 conflicts of interest by that single individual. There are 186 conflicts of interest, or 82% of the transactions, MP Erskine-Smith, representing almost $400 million dollars. Apparently that's something you're dismissing, but it's a clear issue to the point where the RCMP announced last week they're doing a criminal investigation, just for the record.

I'd like to go back to the issue if I could, Ms. Morgan. You said you would act if the companies have been found to do something criminal. I suspect you're not going to find that the companies did anything criminal. The issue is the directors. Are you and is the acting board doing an investigation into the culture of conflict of interest that resulted in 82% of the transactions being conflictual? That's the issue. The issue isn't that some of the companies may have been reasonable companies. It's just that they got preferred access to the funding because of that....

I'll share with you, as an example, the Verschuren Centre. The chair sought $6.8 million for her own Verschuren Centre at Cape Breton University. It did get rejected eventually, after being fast-tracked by the VP of investments. The VP of investments at SDTC fast-tracked that application. By the way, that person now is the acting president of SDTC. He fast-tracked it, but when it got rejected by the investment committee for conflict of interest, that same person wrote to staff to tell them that they would help find funding for the Verschuren Centre in other parts of government. Then the Verschuren Centre went on—obviously based on the employees' work—to get $10 million from ISED and ACOA.

The issue is how board members in their little cabal approved each other's projects. They declared at the beginning of each board meeting, “Larry has a conflict on this,” and, “Rick has a conflict on that,” and, “These are all the conflicts. Now, Larry will leave when his conflict happens, but we'll then approve it, and then I'll leave when my conflict is up.”

That's how it works when 82% of the transactions are conflicted. They must have had trouble getting quorum because they were so conflicted.

Are you, as an acting board member brought in by Minister Champagne, who said he was going to clean the place up, not engaging anyone to examine—since you've already said that the Auditor General is not in again—that culture of conflict of interest within the board that led to $330 million being given to companies these people had an interest in?

[Marta Morgan]

The current board does not have any conflicts of interest with sustainable—

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

I'm sorry. This is why we're having these issues with your answers. I didn't ask about the current board. I asked about the past board. How can you do an analysis of whether or not a company is eligible in the restart of this if you haven't done an investigation into the governance conflicts of interest in this organization?

[Marta Morgan]

In terms of the organization, the Auditor General made a number of recommendations about exactly the issue that the member is referring to, which is the culture and processes around conflict of interest. Those elements of the Auditor General's report, which were aimed at strengthening reporting and disclosure, have been implemented.

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

I'm sorry. You're not listening to my question. My question is about the restart of funding to these organizations, many of whom, 82%, got preferential treatment. How can you do a legitimate analysis of whether or not their funding should be restarted if the new board is not examining the fact that they got sped up in the line and fast-tracked for funding? It's in emails. They got fast-tracked for funding over other companies. How can you restart that? That's the essence of the problem here. Is the new board not doing any investigation into that?

[Marta Morgan]

As we consider our process to restart funding, we will address issues of both eligibility and conflict of interest for previously approved projects.

[The Chair, Conservative, John Williamson]

Thank you very much.

You may go ahead, Mr. Drouin. You have five minutes.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair.

I'm going to continue along the same lines as my fellow member Mr. Erskine‑Smith. I agree that we should be looking into these issues, but we're going in circles. We're getting to a point where members are asking witnesses who advised them in preparation for their appearance before the committee.

Thanks to Ms. Bradford, we now know that the law firm McCarthy Tétrault raised issues relating to the privacy of those working for SDTC.

Obviously, we're talking about recuperating funds. I want to make sure we understand what's at stake here.

I asked the last board member who appeared before us some questions about legal analysis, which is one risk. Eligibility criteria is one risk.

If you're trying to recoup $15,000, but it's going to cost you $50,000 in legal fees, I'm assuming the board will take that into account at some point. The Auditor General recommended that SDTC do a full-blown review of all existing contribution agreements with current businesses, but I'm assuming the board will have to make a decision as to whether or not the amount is fully worth going after, because it may cost you more in legal fees.

[Marta Morgan]

Yes. All of those issues would need to be taken into account.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

There were various conflicts of interest over which board members were recusing themselves. There were real conflicts of interest, or direct interests within a particular business. However, there were also others that were perceived or potential.

I'm assuming the board will look at those three criteria to ensure that a potential conflict of interest, while it's.... I may or may not work at a company in the future. I may have a potential conflict of interest in the future, therefore I will recuse myself out of precaution. That, obviously, in today's conversation, causes more serious concern than we're trying to address.

I'm assuming the board will have to assess those three different categories of conflicts of interest.

[Marta Morgan]

Yes. The findings of the Auditor General focused on the process around conflict of interest reporting, so there were a whole range of issues identified in that report. That's what's guiding us as we move forward.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Obviously, if I have a real conflict of interest.... You're walking on a grey line with a perceived one, but a potential one is very “out there”.

My other question is this: We're trying to predetermine what may or may not show up in that review. Knowing that the Auditor General has looked at.... Four out of 42 contribution agreements were revised. Four of them were deemed by us to be ineligible.

I'm assuming those four companies are currently being reviewed by the third party.

[Marta Morgan]

One category of projects deemed ineligible was ecosystem projects. The board immediately ceased funding ecosystem projects and will not take any further applications for those.

There were also issues vis-à-vis the governance or decision-making around seed projects. The board also decided, early in our mandate, that we won't be taking any more applications for those.

As for start-up projects, each one will be reviewed. Our early priority is for companies that have met the requirements of their agreements with SDTC. Funding has been paused, but they have met the key milestones of the project.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

The seed stream was cancelled. That represented $1.2 million. The ecosystem stream was $5 million, and now we're talking about the start-up stream or the scale-up stream.

Obviously, on the question of COVID-19 relief payments.... Well, that's over. Is that also being reviewed by the team and the third party?

[Marta Morgan]

Every individual project will be looked at on its own, based on the independent eligibility review. Of course, as conflict of interest is considered, those issues will be considered as well.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

We know there are three board members serving who are managing the transition. The previous member, or it may have been you, said that you're developing eligibility criteria to recoup dollars if you're able to.

Is that being done as a board? Not as an individual board member, but as a board are you looking at this?

[Marta Morgan]

The board is assessing every individual project. The board will take the appropriate action should we discover cases, such as fraud or wrongdoing, where recovery is appropriate.

[The Chair, Conservative, John Williamson]

Thank you very much.

That is your time, Mr. Drouin.

Ms. Sinclair‑Desgagné, you may go ahead for two and a half minutes.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

My fellow member asked you a question about Osler, and you're probably going to get back to the committee later with an answer. In that answer, I'd like you to be very specific regarding the type of legal advice Osler provides to SDTC. I would like you to include the list of topics on which Osler gives SDTC legal advice.

The reason is quite simple. Osler is very involved in a fund called Active Impact Investments, whose portfolio includes a good few of the same companies in SDTC's portfolio. It would seem that Osler is advising SDTC on the funding eligibility of companies, on one hand, and investing in companies, on the other. One of the companies that was part of SDTC's portfolio—but oddly enough, no longer appears on the website—is Empowered Startups. It was found to have a conflict of interest. That company also receives funding from Active Impact Investments, a fund with close ties to Osler.

Do you think that's normal?