Mr. Speaker, as a member of the government I am pleased to say that I welcomed the report of the Auditor General. It is important to point out that the Auditor General looks in a very holistic way at how government does the business of government.
I would ask the House to turn its attention to the Auditor General's report regarding Industry Canada. The Auditor General told CBC's As it Happens program that the improvements made to the small business financing program constituted a good news story. She also said that Industry Canada had made significant improvements in its administration and in the information that it has provided to Parliament since the initial audit in 1997.
In 1999 Parliament addressed many issues raised in the Auditor General's 1997 report. In adopting the Canada Small Business Financing Act, Parliament enhanced the program's ability to recover costs and improve due diligence that lenders apply when making loans. Industry Canada has implemented an audit strategy and has enhanced the information it provides on job creation. It has also reduced the interest paid to lenders. This is all good news.
Canada's small businesses have been responsible for a significant proportion of new jobs created during the past decade. The Canadian small business financing program is the Government of Canada's single most important tool to assist small business.
At this point I think it would be useful to clarify some of the key elements of this new program. The government sets the framework for the program and defines what is an eligible loan. The program, however, is delivered through about 1,700 private sector lenders. The Canada Small Business Financing Act requires these lenders to exercise the same due diligence for loans made under this program as they do for other conventional loans. This means that entrepreneurs apply directly to the Canadian financial institution service provider of their choice for a loan, due diligence is carried out by the institution and the institution then disburses its own funds under the loan.
Industry Canada registers the loans submitted by the lender and is not involved in the administration of the loans. Amazingly, in 92% of cases loans are repaid in full without any involvement by Industry Canada. If a loan goes into default, the lender takes action to realize upon the security and any guarantees involved in the loan and submits a claim for loss to Industry Canada.
Following an audit of claim by Industry Canada staff, the lender is reimbursed for up to 85% of the eligible loss on the loan. The lender then assumes the remaining 15% of the loss.
For an important segment of the Canadian small and medium sized business sector, the Canadian small business financing program plays a crucial role. In fact, over half of the loans made in the program from 1995 to 1999 went to new start-up business. A study done in 1996 indicated that more than half of the loans given would not have been made without this program.
From 1995 to 1999 the program leveraged 117,000 loans worth a total investment of $7.85 billion. Furthermore, a study done in 2002 suggested that 234,000 new jobs were created as a result. Again, this is good news for Canadians.
In the fiscal year 2000-01, 14,000 loans, totalling approximately $1.2 billion, were made under the Canada Small Business Financing Act. We are of course continuing to move forward with further improvements to this program, including the implementation of on site audit plans; a new results based management and accountability framework; and the implementation of updated claims forecasting models.
The Canada Small Business Financing Act requires a five year review of the program. The next review is due in the year 2004-05. Industry Canada will present a complete report on the program at that time.
In the 2002 Auditor General's report, three issues are raised concerning Canada's small business financing program. The first two relate to issues raised during the initial audit, and the Auditor General has raised a third, a new issue for Industry Canada to consider.
The first issue the report noted was that the department has not adjusted its claims forecasting model. Industry Canada has been addressing that issue. Experts have recommended a minimum of three years of data, which is needed to build a reliable model, in order to do this forecasting. I am happy to say that this data is now available. Industry Canada is now developing this model for the program. This model will help determine whether the program is likely to achieve its cost recovery goals.
The second issue raised by the Auditor General concerned the estimate that, on loans that were guaranteed between 1995 and 1999, the former small business loans program could experience losses in the neighbourhood of $200 million. This estimate is in line with Industry Canada's 2000-01 annual report on the small business loans act. While the estimated loss appears to be rather large, we must remember that during this period 117,000 loans, with a value of $7.85 billion, were made in this program. That works out to an average loss of about $1,700 per loan.
To reiterate, the Canada Small Business Financing Act was developed to address issues raised by the Auditor General in 1997. The program has been in operation in the period since those loans were made.
The third issue the Auditor General raised was one that emerged since her predecessor's audit in 1997. This concerns the fact that the value and the number of loans has decreased significantly in recent years.
It is unclear whether such a decline is related to the program or to other general economic conditions. Industry Canada has begun studying the causes of this trend and has come up with the belief that a broader range of financing options has emerged in the market over recent years and this may well be one of the driving factors in creating this trend. In other words, it is not really certain at this point whether such a change in the use of this program is positive or negative.
The Auditor General acknowledged that Industry Canada had made significant progress in improving the program. Her conclusions also reinforced the crucial role that this program plays in supporting the growth of one of the most dynamic segments of our economy. While any program can be improved, it is clear that Industry Canada is taking the steps needed to strengthen the Canada Small Business Financing Act.