ARCHIVED - Evaluation of Foundations

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III. Characteristics Of Foundations

A. Use of foundations as instruments of public policy

The introduction of foundations as a tool for the achievement of government policy objectives is generally linked to the creation of the Canada Foundation for Innovation (CFI), which was first announced in Budget Plan 1997 and incorporated under Part 1 of the Budget Implementation Act, 1997 on April 25, 1997. CFI was described, at that time, as an entirely new approach by the government to the support of research and development. From this starting point, involving a once-off investment of $800 million, the federal government went on to create a variety of foundations that either receive conditional grants for disbursement over a finite number of years or to create perpetual endowments that use the income generated by the endowment to fund their disbursement programs and operations. Reports of the Auditor General concerning foundations have focused on sixteen such organizations, which were also used as the focus for our work. More recently, a number of conditional grants providing multi-year funding have also been made to a number of existing organizations to fund major initiatives expected to generate significant public benefits, such as, the Canadian Institute for Advanced Research and Precarn Inc's Phase IV, and at least one newly created foundation, the Canadian Council of Academies.

In Budget 2005, foundations were defined as not-for-profit organizations governed by independent arm's length boards of directors made up of experienced and knowledgeable individuals with expertise in specific areas of research, development and learning.  Their arm's length nature, financial stability and focused expertise allow them to address specific challenges in a highly effective non-partisan manner.^[4] This independent, focused, not-for-profit characteristic is not the only defining feature of a foundation, which may also be attributed to many other corporate interests of the Crown commonly categorized as Shared Governance Corporations.^[5]

Our review of documentation relating to the establishment, funding and operation of these foundations identified six defining characteristics of foundations:

• Independent autonomous organizations established by legislation or as not-for-profit corporations under the Canada Corporations Act or similar legislation.^[6]
• Created with the express purpose of delivering a focused service or range of services to satisfy needs that are not currently addressed by existing government programs or services.
• Funded by up-front payments of conditional grants that provide multi-year funding in the form of either a fixed term or perpetual endowment.
• Mandates and governance structures are established in their legislation or articles of association. Funding agreements between the Government of Canada and individual foundations establish the objectives, governance and accountability requirements, and terms and conditions for the use of the transferred funds.
• Operate, for the most part, by providing funding for third party projects and activities selected on the basis of merit. Selection processes typically involve assessments against comprehensive selection criteria and the use of peer review processes. Most foundations also require beneficiaries to obtain matching funding as a condition for receiving foundation support.
• Governance is provided by boards with members drawn from outside of government with expertise and experience in the fields in which foundations operate. A minority of board members are appointed by the government.

This structure means that foundations are not directly accountable to Ministers nor Parliament, and the government can only intervene in the operation of foundations if they are found to deviate from their formal mandates and the terms and conditions of their funding agreements. Recent changes to the Auditor General Act (2005), revisions to the definition of "control" in the Public Sector Accounting Board (PSAB) standard on the government reporting entity and some provisions of the Federal Accountability Act have resulted in modifications to the reporting and oversight arrangements for some foundations. That is:

• In 2005, the Auditor General obtained the authority to inquire into the use of funds by organizations, such as foundations, that have received $100 million or more under funding agreements in any five consecutive years. The Federal Accountability Act (2006) modified the Auditor General Act by lowering this threshold to $1 million.
• Revenues and expenses of four foundations—Canada Foundation for Innovation, Canada Millennium Scholarship Foundation, Sustainable Development Technology Canada^[7] and Aboriginal Healing Foundation—are now included in the government's annual financial statements, and transfers to these organizations will not be treated as expenses until payments are made to the ultimate recipients. This change has no material bearing on the operations and activities of these foundations.
• Five foundations will be subject to the Access to Information Act and Privacy Act when provisions in the Federal Accountability Act come into force: Asia-Pacific Foundation, Canada Foundation for Innovation, Sustainable Development Technology Canada, Canada Millennium Scholarship Foundation and the Pierre Elliott Trudeau Foundation.

The new federal government also used Budget Plan 2006 to indicate that the use of foundations would continue, to take advantage of their ability to address specific policy challenges in a highly effective manner, drawing on their independence, financial stability and focused expertise. The key characteristics of the foundations that provided the focus for this evaluation study are summarized in Exhibit III-1.

Exhibit III-1

Summary characteristics of foundations

Foundation (Year Established)	Type of Funding Agreement	Funding1 ($m.)	Resp. Dept.	Mandate	How Created	Primary Mode of Operation	Foundation Contribution (Leverage)
Canada Foundation for Innovation (CFI) (1996/97)	Fixed Term	96/97: $800 98/99: 200 99/00: 900 00/01: 1,250 02/03:      500   $3,650	Industry Canada	Strengthen the capacity of Canadian universities, colleges, research hospitals, and non-profit research institutions to carry out world-class research and technology development	Legislation	Project Grants	Up to 40% (More in exceptional circumstances)
Canadian Health Services Research Foundation (CHSRF) (1996/97)	Fixed Term	96/97: $13.3 97/98: 13.3 98/99: 13.3 99/00: 13.3 02/03     25.0   $151.5	Health Canada	Support evidence-based decision-making in the organization, management and delivery of health services through funding research, building capacity and transferring knowledge.	CCA	Research grants and knowledge transfer	No maximum
Canada Millennium Scholarship Foundation (1997/98)	Fixed Term	97/98: $2,500	HRSDC	Grant bursaries to students who are in financial need and who demonstrate merit, as well as grant excellence awards, in order to improve access to post-secondary education	Legislation	Bursaries, scholar-ships	100% (May accept donations)
Aboriginal Healing Foundation (AHF) (1997/98)	Fixed Term	97/98: $350 04/05        40   $390	IRSRC	Encourage and support Aboriginal people in building and reinforcing sustainable healing processes that address the legacy of physical abuse and sexual abuse in the residential school system, including intergenerational impacts.	CCA	Project Grants	100%
Genome Canada (1999/00)	Fixed Term	99/00: $160 00/01: 140 02/03: 75 04/05:      225   $600	Industry Canada	Develop and implement a national strategy in genomics and proteomics research	CCA	Research Grants	50%
Green Municipal Fund (GMF) (1999/00)	Perpetual Endowment2	99/00: $125 01/02: 125 04/05:      300   $550	NRCan, Env Can	Stimulate investment in innovative municipal projects and practices to improve the environmental performance of Canadian municipalities.	CCA	Project grants and loans	Grant/loan combinations of up to 80% for capital projects; up to 50% for feasibility studies
Canadian Foundation for Climate and Atmospheric Sciences (CFCAS) (1999/00)	Fixed Term	99/00: $60 04/05:        50   $110	Env Can	Fund research and modeling in the climate system and atmospheric sciences, including extreme weather and air quality	CCA	Research Grants	No maximum (Lever additional funds)
Clayoquot Biosphere Trust Society (2000/01)	Perpetual Endowment	00/01:      $12	Env Can	Endowment fund income is to be used for local research, education, and training which supports conservation and sustainable development in the Biosphere Reserve Region.	Provincially incorporated: B.C. Society Act	Research, education & training grants	No maximum (Lever in-kind and financial support)
Canada Health Infoway (CHI) (2000/01)	Fixed Term	00/01: $500 02/03: 600 04/05:      100   $1,200	Health Canada	Foster& accelerate the development & adoption of electronic health information systems with compatible standards and communications technologies on a pan-Canadian basis, with tangible benefits to Canadians.	CCA	Project Grants	25% from partners (50% prior to 05/06)
Sustainable Development Technology Canada (SDTC) (2000/01)	Fixed Term	00/01: $100 03/04: 250 04/05:      200   $550	NRCan, Env Can	Develop and demonstrate new technologies that have the potential to advance sustainable development, including technologies to address climate change, clean air and water and soil quality issues.	Legislation	Technology Development & Demonstration Grants	Up to 50% on any single project; average over all projects of less than 33%
Pacific Salmon Endowment Fund Society (2000/01)	Perpetual Endowment	00/01:      $30	DFO	Support, conservation and sustainable use of Canadian Pacific salmon stocks.	Provincially incorporated: B.C. Society Act	Project grants	No maximum (Increase the endowment returns)
Frontier College Foundation (1999) (Frontier College established in 1899)	Perpetual Endowment	00/01:      $15	HRSDC	Promotes literacy in Canada by recruiting and training volunteers across Canada as literacy tutors to teach people to read and write and by carrying out programs to mobilize the resources of the community in support of literacy	CCA	Funds Frontier College Literacy programs	No specific requirement (Has extensive fundraising)
Forum of Federations (1998/99)	Fixed Term	00/01: $10 04/05:      $20   $30	Foreign Affairs	The Forum offers to policy-makers and practitioners of federalism an arena in which to exchange information and compare experiences in managing federal systems.	CCA	Forum programs	No specific requirement (O5/06 - ~25% from partners)
Pierre Elliott Trudeau Foundation (2001/02)	Perpetual Endowment	01/02:    $120	Industry Canada	Promote outstanding research in the social sciences and humanities, and to foster a fruitful dialogue between scholars and policymakers in government, business, the voluntary sector, the professions and the arts community	CCA	Scholarships and prizes	No specific requirement
Canadian Institute for Research on Linguistic Minorities (2001/02)	Perpetual Endowment	01/02:      $10	Heritage Canada	Promote research and data collection on issues that are vital to Canada's official language communities.	CCA	Research grants	No maximum (Do lever additional funds)
Asia-Pacific Foundation (1984)	Perpetual Endowment	04/05:      $50	Foreign Affairs	Developing the skills and networks, and disseminating the information, that Canadians need to become more successful in the Asia Pacific region.	Legislation	Internal operations and research	May accept grants, contributions & donations

Sources:
Current funding agreements, annual reports of foundations, information on websites of individual organizations, and the Public Accounts of Canada: Volume 1 (various years).

Notes:
1. Years shown are those in which funding was formally transferred.
2. Prior to March, 2005, consisted of the Green Municipal Enabling Fund (with $50 million fixed term funding) and the separate Green

Municipal Investment Fund (with a $500 million perpetual endowment). When the $50 million allocated to the GMEF is exhausted all operations will be funded by income from the perpetual endowment.

B. Policy guidelines regarding the use of foundations

Decisions regarding the selection and use of foundations as instruments of public policy were made by Cabinet as part of the government's budget processes and, as such, there is no public information on the rationale for their selection. Similarly, there is no information on proposals that were rejected, except for that relating to two foundations announced in Budget 2001 that did not subsequently proceed.^[8]

Budget Plan 2003 established, albeit retrospectively, a set of guidelines for the selection and assessment of candidates for "foundation-based funding":

1. Foundations should focus on a specific area of opportunity, in which policy direction is provided generally through legislation and/or a funding agreement.
2. Foundations should harness the insight and decision-making ability of independent boards of directors with direct experience in and knowledge about the issues at stake.
3. Decisions by foundations should be made using expert peer review.
4. Foundations should be provided with guaranteed funding that goes beyond the annual parliamentary appropriations to give the foundations the financial stability needed for the comprehensive medium- and long-term planning that is essential in their specific area of opportunity.
5. Foundations should have the opportunity and hence the ability to lever additional funds from other levels of government and the private sector.^[9]

Budget Plan 2003 also included new commitments to improve the transparency and accountability of foundations to Ministers, Parliament and the Canadian public. These new obligations, which were implemented when changes to funding agreements with individual foundations were necessary, required foundations to:

• Submit copies of their corporate plans for the periods covered by their funding agreements to responsible Ministers. Summaries of these plans were to be made public by the responsible Minister and provided to Parliament.
• Provide information on significant results to relevant departments for inclusion in the departmental performance reports of their funding departments.
• Present annual reports to their applicable Ministers and, in the case of foundations created by specific acts of legislation, to Parliament. Annual reports were also to be made publicly available.
• Conduct independent evaluations of their program activities, with any significant findings to be incorporated into the performance reporting of the relevant departments.
• Conduct independent audits of compliance with funding agreements.

In addition, the government committed to:

• Seeking Parliamentary approval of purpose and funding through direct legislation for those foundations that are significant from either a policy or financial perspective, and in all cases, Parliament would approve funding for foundations.
• Introducing provisions in all new and re-negotiated funding agreements for intervention in the event that a foundation was judged to have significantly deviated from the terms of its funding agreement, including a dispute resolution mechanism and powers to recover any unspent funds in the event that a foundation is wound-up.

These changes to the accountability and transparency requirements for foundations were made in response to concerns expressed in the Auditor General's 1999 and 2002 reports as well as the experience gained with the establishment of foundations and administration of these arrangements. Writing in the 2005 Summary Report and Financial Statements for the Public Accounts of Canada, the Auditor General noted that improvements had been made in the accountability regimes of foundations but the government continues to be limited in its ability to make changes to foundations' mandates and objectives in the event of major changes to policy goals and priorities.

C. Experience with the use of analogous models in other jurisdictions

The use of new organizational and legal forms for the delivery of government services is a phenomenon of the late 20^th and early 21^st century in which a wide variety of new structures have been established with varying degrees of autonomy, accountability and financial independence. In the case of other Commonwealth countries, notably the U.K. and New Zealand, the approaches taken tend to fall into two loose groupings:

• Agencies—organizations that are separated from core departments, have a degree of autonomy, are directly accountable to ministers and have budgets set and controlled by their parent departments. A notable example of this type of semi-autonomous or delegated governance organization is the U.K.'s Executive Agencies.
• More autonomous organizations that operate at arm's length from Ministers and departments and implement policies through the application of specialized knowledge and skills, but are still accountable to Ministers and Parliament for their performance and expenditures. Examples of these organizations include the U.K.'s Non-Departmental Public Bodies (NDPBs) and New Zealand's Crown entities.

Typical reasons for using agencies and other forms of delegated governance identified in international research include:

• Lessen political interference in order to let managers manage in a more efficient manner.
• Allow for impartial regulatory or quasi-judicial decision-making.
• Strengthen political oversight by creating separate, transparent organisations that can be given clear targets.
• Put public services closer to their users and thereby improve responsiveness.
• Enhance expertise by allowing specialization and thereby improving effectiveness and/or efficiency.
• Enhance flexibility and thereby improve the quality and efficiency of services.
• Facilitate the establishment of partnerships with other levels of government, NGOs and/or private enterprise.^[10]

At a more abstract level, the rationale for using these various alternative service delivery forms is grounded in what has become known as the New Public Management (NPM), which is based on the premise that the performance of public organizations will be strengthened if managers have operational discretion ("freedom to manage") and are held accountable for achieving results. For example, Schick noted that: This quid pro quo – giving managers discretion in exchange for strict accountability – is promoted by carving out a specific area of responsibility for each agency and empowering its managers to operate as they deem appropriate. But having been given discretion, managers must openly account for what they have done and accomplished.^[11]

From this perspective, the use of delegated governance arrangements is justified on the basis that they provide a more efficient means of delivering services by providing a focused approach to policy implementation, with policy making separated from policy delivery. The limited amount of published research on the efficiency of these arrangements is somewhat mixed. An OECD study on "distributed public governance" reported that government reviews of these approaches reported increased efficiency and innovation, and more effective partnerships between different levels of government, amongst others. However, Pollitt et al suggests in another review that systematic, hard evidence for the increased efficiency of the agency form – in general – is not available. ... On the other hand, there seems to be plenty of practitioner evidence that, if a ministry is able to set attainable but demanding targets, agency performance often (though by no means always) responds.^[12]

One of the apparent lessons from the international experience is the importance of having clear criteria on which to base decisions to establish delegated governance organizations, and thereby ensure an adequate balance between independence and accountability in the design and management of the organization. Another consideration is the question of when and on what basis should the organization be wound up or its life extended, that is, the basis for determining if the policy goals applicable to the organization have been satisfied. Equally important in this is the role of the funding department in liaising with and monitoring the performance of the new organizations.

What is clear from the approaches to delegated governance in other countries and associated research is that the foundation model applied in Canada is unique. Foundations created and funded to undertake activities in support of government policy goals, unlike such government agencies as the Canadian Food Inspection Agency, are totally independent of government, with direction and oversight provided by their own boards and their budgets determined independently of the annual appropriation process. Ministerial accountability is limited to decision-making regarding the use of, and public policy rationale for, foundations, their funding, and the accountability of a foundation to the minister and Parliament is defined by the terms and conditions of funding agreements and legislation, where applicable. In addition, the Auditor General now has the authority to inquire into the use of public funds by foundations that receive $100 million or more under funding agreements in any five consecutive years, and to report the findings of such audits to Parliament.

 

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