SAVING Ms. Stewart

Ottawa explodes in a funding scandal that threatens one of the Prime Minister's rising stars

John Geddes February 14 2000

SAVING Ms. Stewart

Ottawa explodes in a funding scandal that threatens one of the Prime Minister's rising stars

John Geddes February 14 2000

It was the last good day of politics that Jane Stewart would enjoy for a long time. On Jan. 17, a routine Monday, the federal human resources development minister toured Cochrane, Iroquois Falls and Kirkland Lake in northeastern Ontario, soaking up the gratitude of workers who owed their jobs to money poured in by her department. Benoit Serré, the local Liberal MP, proud to have the rising-star cabinet minister and personal favourite of the Prime Minister on his home turf, took her to see Cochranes brand-new call centre. A $600,000 grant from one of the many hands Stewart’s sprawling bureaucracy oversees had recently helped create 66 telemarketing jobs at the centre—much appreciated in a region hit hard last year by the closures of a mine and a pulp mill.But back in Ottawa, events were unfolding that would soon make just that sort of good-news, job-creation spending the subject of a political maelstrom. Two months earlier, Stewart had been briefed about an internal audit that uncovered disturbing management lapses in many of her department’s grant programs. Now, the Reform party was on the trail of the damning audit, through the access to information process. As well, the federal financial watchdog, Auditor General Denis Desautels, was probing Human Resources for his own report, slated to be made public this fall. Stewart’s officials decided that was the week to make a pre-emptive strike.

They booked Ottawa’s National Press Theatre for an unusual news conference. And so, on Jan. 19, just two days after her pleasant trip up north, Stewart stepped into the television lights to disclose the audit’s findings: gaping holes in the way her department doled out and kept track of $200 million in taxpayers’ money.

After that, she never seemed to know what hit her. The low point came last week when, as she struggled to answer reporters’ questions on live TV after a cabinet meeting, Prime Minister Jean Chrétien walked up and took over at the microphone. Still, through more than two weeks of searing attacks, Stewart refused to be shaken from her insistence that the whole uproar is based on a terrible misunderstanding of what the audit discovered. At the end of last week, she told Maclean’s flatly: “This is not about wasted money.” Her steadfast position, and Chrétien’s, is that nothing more is at issue than some sloppy administration. “What we probably haven’t got is the system that allows us to say to taxpayers, ‘Here’s the paper that proves the logic of this decision,’ ” Stewart said. “I’ve got to get the plumbing in place.”

While she fixes the pipes, though, a flood of criticism is rising around the entire government. After all, under Chrétien, the Liberals have built their reputation not on grand vision, but on managerial competence and fiscal rectitude. The audit was a torpedo that put a huge hole in that carefully constructed image—suggesting, instead, endemic carelessness with taxpayers’ money. In the 459 projects reviewed—a sample representing $200 million in spending from programs that dole out a total of $ 1 billion—the audit found that 80 per cent of the time there was “insufficient monitoring” to know if the goals were achieved or not. Worse still, in 37 projects that received $30 million, questions were serious enough to prompt follow-up investigations to find out if Ottawa might even have to demand some money back.

Yet the governments reaction, from the Prime Minister to anonymous backbench MPs, was more combative than contrite. Chrétien dismissed the findings as no worse than what the auditor general discovers “every year, four times a year” in his regular critiques of federal spending. One reason for downplaying the whole affair is that admitting a deeper malaise might weaken, or even sacrifice, powerful government figures besides Stewart. Pierre Pettigrew, now international trade minister, held the human resources portfolio during the period studied by the audit. And Mel Cappe, now the top federal bureaucrat as clerk of the Privy Council, was the departments deputy minister when the questionable grants were handed out.

Beyond preserving important players, there is the matter of safeguarding a time-honoured Liberal concept of what government is all about. Serré—stunned that Stewart was coming under withering attack just days after he hosted her in his riding—lashed back at what he views as an ideologically motivated campaign. “This is being driven by the extreme right wing,” Serré said, “who want us to get away from anything that has to do with economic development so they can have a few extra billions to do tax breaks for the rich and the big corporations.” Chrétien also tried to shift the discussion away from how the government lost track of millions to the underlying aims of the grants (page 20). “I urge you to read what is in the programs,” he said in one heated exchange with reporters. “If you’re opposed to that type of program, we can have a debate on that.”

The government’s reaction, from the Prime Minister down to anonymous backbench MPs, has been more combative than contrite

His bid to engage his opponents only on his own terms shows the Prime Minister functioning in top form as a political tactician. In fact, the objectives of the 28 programs audited sound eminently defensible—from creating jobs in areas with high unemployment under the Canada Jobs Fund, to helping alleviate crushing native poverty under the Aboriginal Human Resource Development Strategy, to supporting literacy and basic skills training. Still, asserting that these schemes were set up to do good hardly invalidates the serious questions now raised about how much they actually achieve. While Chrétien insists that the only real concerns surround the $30 million spent on those 37 projects now being scrutinized in follow-up investigations, the audit left little doubt that lax oversight is much more widespread.

Some troubling details have yet to receive much close attention. Two-thirds of the files reviewed did not even include an explanation of why the project was approved in the first place. Most of the projects involve private companies, yet in 97 per cent of those audited, there was no evidence the department looked into how much debt the project sponsors were carrying—a key factor in assessing whether the firm was financially capable of fulfilling, say, a job-creation or training pledge. And, contrary to the government’s own guidelines, the review found that across all 1998-1999 programs examined, more than one quarter of all project expenses were paid out in March, the last month of the federal fiscal year, in an apparent rush to avoid having unused funds revert to the federal treasury.

All this and more had opposition politicians crowing that their worst suspicions—and harshest allegations—about the way the Chrétien government spends were being confirmed. “The Liberal attitude towards public money is that it is their own private treasure trove,” said Calgary MP Diane Ablonczy, who, as Reform’s human resources critic, is leading her party’s bombardment of Stewart. And as Ablonczy’s remark suggests, Reform’s line of attack is not limited to the audit’s revelations about slack administration. The more potentially damaging implication is that where bureaucrats have cut corners, their motivation may have been to satisfy political masters. MPs are routinely involved in the decision-making process on grants that flow into their riding's. “Most of the problem is political interference,” Nycole Turmel, executive vice-president of the Public Service Alliance of Canada, the biggest federal government union, told Macleans.

Opposition politicians crowed that their worst suspicions about the Chretien government’s spending had been confirmed

Political pressure in the Human Resources granting process was flagged as a problem in a 1998 report by Ekos Research Associates Inc., a polling and consulting firm hired to look into the Transitional Jobs Fund, a $ 100-million-a-year program that ran from 1996 to 1998. (In April, 1998, Pierre Corbeil, a federal Liberal party organizer, was fined $34,500 for influence-peddling by a Quebec Court judge after he pleaded guilty to pressuring TJF recipients to donate money to the party.) Ekos surveyed 301 project sponsors, mostly business people, and conducted detailed interviews with 30 “key informants,” a group that included public servants closely involved with approving grants. “While a certain amount of political involvement is expected,” the report, obtained by the Reform party, concluded, “there was nevertheless some uneasiness among some respondents regarding projects that may have been approved for political reasons rather than based on the strength of the business plan.”

Many Liberal MPs recoil at any suggestion that their input undermines the grant application system. “The reality is that MPs are in place to be able to assess what is in the riding and where the needs are,” says Liberal MP Brenda Chamberlain, who chairs the government’s Ontario caucus. “That’s a very real part that an MP must continue to play.”

Chrétien clearly hopes to avoid an explosive debate on the shadowy politics of federal largess by focusing on job creation. But whether even well-managed grants to business are the right way to stimulate employment is itself a hody disputed notion. The Ekos study asked the people running projects supported by the Transitional Jobs Fund if they would have gone ahead with their proposal if they were denied a federal grant. Remarkably, 42 per cent said their projects would have proceeded even without Ottawa’s support, although many added that getting TJF money allowed them to move more quickly or hire more workers than they might have otherwise. As well, the report raised nagging questions about the way government agencies’ aims overlap—allowing those seeking support to shop around. Ekos said a “commonly reported weakness” was that because TJF grants do not have to be repaid, companies tend to pursue funding under that program rather than accept repayable contributions from federal regional development agencies and the provinces.

In their heady early days of deficit-cutting, the Liberals seemed to be backing away from all the pitfalls long associated with job-creation subsidies. In his landmark 1995 budget, Finance Minister Paul Martin quoted approvingly from an Organization for Economic Co-operation and Development report: “Subsidiesend to operate in exactly the opposite way from what is needed: they slow rather than stimulate adjustment; they discourage rather than encourage innovation; and they tend to become permanent.” That last point, at least, seems to have been borne out. TJF was created in 1996 as a threeyear cushion to help communities struggling to adjust to tighter Employment Insurance rules brought in by the Liberals. But instead of disappearing after the “transition,” the fund was renamed last year and made permanent as the Canada Jobs Fund—with its annual budget boosted to $110 million.

Stewart is making no apologies for entrenching that program—or for any other grant funds. “When you go into a community like Cochrane,” she said, “where they have been struggling with high unemployment, we make a difference— diversify the economy, give them a new experience, hopefully be a catalyst for something else.” For Stewart, the strategy for what promises to be a tough grilling when the House resumes sitting this week is clear: the spending is worthy, it’s just the accounting that needs fixing. But not everyone, even among government supporters, is taking comfort from that stance. As Martin prepares to table his year 2000 budget on Feb. 28, his officials are now bracing for every spending item to come under tougher scrutiny than ever. Their strategy, too, is clear. “Let’s face it,” one Martin adviser said last week, “the message has got to be tax cuts.” Until that message gets delivered, though, it seems the government will be forced to defend the way it spends—as never before.

Countdown to a Liberal scandal

October, 1997 After a seven-month investigation, the RCMP charge former Liberal fundraiser Pierre Corbeil with four counts of influence-peddling for seeking party contributions in exchange for grants from Human Resources Development Canada’s Transitional Jobs Fund. Corbeil eventually pleads guilty.

February, 1998 HRDC’s audit committee proposes an internal TJF audit. It is approved six months later.

Jan. 18, 1999 Mel Cappe, deputy minister at HRDC, is promoted to clerk of the Privy Council, the top civil servant.

February-March, 1999 Renewed controversy erupts over TJF grants in the Prime Minister’s Saint-Maurice constituency.

May, 1999 An interim report from auditors outlining mismanagement goes to the department’s audit committee.

July, 1999 Cappe and top officials in the Privy Council Office are told of the interim report and its contents.

Aug. 3, 1999 Jane Stewart becomes HRDC minister, replacing Pierre Pettigrew; briefing notes warn her of administrative problems but contain no mention of an audit.

Oct. 5, 1999 The completed audit, delivered to HRDC management, says $1 billion in grants may be compromised.

Nov. 3, 1999 Stewart tells Parliament that the programs “were being managed appropriately.”

Nov. 17, 1999 Stewart is apprised of the audit.

Dec. 1, 1999 Stewart again extols the job program in the House.

Jan. 11, 2000 The Prime Minister is told of the audit report.

Jan. 19, 2000 Stewart releases the audit report on the same day that the government announces its short-lived NHL subsidy.