Government Mismanagement: Minister Besieged

Contents Government Mismanagement: Minister Besieged

An audit of the federal job-creation grant program reveals what has been described at best as sloppy bookkeeping. As the current Minister for the Department of Human Resources, Jane Stewart must defend not only her own political reputation but that of the entire Liberal government. This story reveals how ministers of the Crown become especially accountable to the general public, the media, and opposition forces whether or not they personally are responsible for perceived errors or mismanagement. This aspect of political noblesse oblige and the parliamentary tradition of not holding a minister responsible for policy and practices once he or she has left a particular portfolio highlight the degree of responsibility that elected government officials must assume in order that the integrity of the democratic process be protected.

Introduction Allegations and Accountability Her Majestys Loyal Opposition Whos Responsible? The Patronage Issue Ghosts and Skeletons Creating Employment Discussion, Research, and Essay Questions

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Introduction Government Mismanagement: Minister Besieged

In his first public comment on the way the current federal government has managed its money, Auditor General Denis Desautels delivered this message to the House of Commons Committee on Human Resources on March 23, 2000: This is an unacceptable way, in my opinion, to spend public funds. Large amounts of public funds were spent without the appropriate controls, making it difficult to know whether the funds were used as intended, spent wisely, and produced desired results. Desautels was referring to the scandal that erupted four days earlier following the release of an internal audit detailing large- scale mismanagement of money in the Ministry of Human Resources, specifically from a fund called the Transitional Jobs Fund. In the ensuing outcry, Jane Stewart, the minister in charge of this portfolio, was, on behalf of herself, her department, and the government, the target of relentless questioning from media and accusations of incompetence and misconduct by the opposition parties. At the time of this writing, she has thus far withstood the intense public scrutiny and relentless demands for her resignation. The scandal, however, is not going away; an investigation by the Auditor General is expected to be completed by October 2000. The allegations are very embarrassing for the Chrétien government. During their two terms in power, the Liberals have carefully cultivated an image as sound financial managers who eliminated the deficit and returned Canada to fiscal health. The original mandate of the program in question, the Transitional Jobs Fund, was clear and understandable: to assist communities in dealing with the tighter restrictions imposed on Employment Insurance by the Liberals. The $300-million of funding was to be given for worthy projects in ridings with unemployment rates above 10 percent. Made permanent under the name The Canada Jobs Fund in 1999; the fund s annual budget has been set at $110-million. The principal criticism of the funds management is what critics have called sloppy accounting; the majority of the applicants for the jobs grants were private companies, but few checks were made to determine the viability of their business plans. As well, according to critics, the follow-up assessment of the grants was either poorly done or non-existent. The projects ranged from educational programs and the establishment of textile factories to cultural events such as the Groundhog Day festival. Many of the programs, however, are generally considered to be excellent ones that do indeed create jobs. But as the Auditor General noted, Jane Stewart and the Ministry of Human Resources cannot always demonstrate that the programs accomplish what they were intended to. An auditor examines financial records to see if an organization can accurately account for its financial transactions. A minister of the Crown must be accountable to the general public for the operations of his or her department. In light of such serious criticisms, Jane Stewart must, on behalf of her department and the government, speak to the issues of public accountability and political credibility.

Contents Introduction Allegations and Accountability Her Majestys Loyal Opposition Whos Responsible? The Patronage Issue Ghosts and Skeletons Creating Employment Discussion, Research, and Essay Questions

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Allegations and Accountability Government Mismanagement: Minister Besieged

For the Record 1. What is an allegation? What connotation does this word often have? Research the word carefully. 2. What does it mean when we hold someone accountable? Why is accountability so important in a democratic society? The Allegations In this situation, critics allege that government mismanagement occurred. They have pointed to examples of projects partially or fully funded by federal grants that struggle financially and are, in the opinion of the critics, poor financial risks; 51 companies funded have declared bankruptcy. There are suggestions as well that some projects applied for the easily obtained grants when they could have used federal loans or even paid their own way. This is not the image that the deficit-cutting Liberals wish to portray.

Allegations of reckless spending aside, the greater focus has been upon the alleged use of the grants program as a slush fund to channel money to projects in Liberal ridings. Many costly projects have apparently been created with grant money in primarily Liberal regions. Stewart contends that programs have been funded in all ridings right across Canada. The Auditor General himself noted, however, that federal MPs have been involved too much in the decision-making process, blurring the lines of accountability. The police as well are currently investigating 10 of the job grant projects, three of them in Prime Minister Jean Chrétiens riding.

The Burden of Accountability The question of accountability is at the centre of this scandal. Will Jane Stewart become the scapegoat for this situation or will other ministers, party members, or civil servants be forced to share the responsibility?

There is nothing like the hint of a scandal to start the slang words flowing. The parties sitting in opposition to the Liberals used terms like billion-dollar boondoggle (a wasteful or impractical project or activity involving graft; the dishonest acquisition of gain) and Liberal slush fund. Slush fund refers to government projects or appropriations yielding rich patronage benefits. In response, the government accused its critics of implementing a witch-hunt. The Liberals, specifically the Ministry of Human Resources, stands accused of mismanaging hundreds of millions of dollars. The Liberals, for their part, maintain that their critics have falsely accused them, much as innocent people were accused of witchcraft hundreds of years ago.

Jane Stewart is the cabinet minister responsible for Human Resources Development Canada, a portfolio created in 1993. It is responsible for administering more money than any other ministry, approximately $60-billion. Human Resources has the enormous mandate of administering programs such as welfare, employment insurance, the Canada Pension Plan payments and the Millennium student scholarships. It is also accountable for the broadly termed Human Resources Investment, the focus of the current scandal. Jane Stewarts vast ministry allocates money to create jobs and spur investment across Canada. While reducing unemployment is a laudable goal, critics have charged that the Human Resources bureaucracy was slipshod, allowing millions of dollars to be paid out with little idea of where it went or whether the project was valid in the first place. They also maintain that much of the money from Human Resources has been funnelled toward Liberal ridings, including Prime Minister Chrétiens.

Seeing For Yourself The people involved in this issue all have specific political roles to fulfill. As you watch this New In Review, note what each of the following individuals has to say about the mismanagement crisis, be prepared to suggest why and how each is involved, and formulate your overall assessment of this news event.

Jane Stewart, Minister of Human Resources Diane Ablonczy, Alberta Reform MP Maria Barrados, Assistant Auditor General Jean Chrétien, Prime Minister Pierre Pettigrew, International Trade Minister Preston Manning, Leader of the Opposition (at the time)

Follow-up Discussion The furor surrounding the mismanagement scandal was intense for weeks, longer than the Liberal government expected or wanted. Calls for the resignations of Jane Stewart, Pierre Pettigrew, and Human Resources managers were repeatedly made. However, following intense media coverage, the issue slowly began to diminish in priority in the coverage. What does this suggest to you? Was this scandal a tempest in a teapot? Was it an administrative error blown out of proportion or exploited by the Opposition? Did the government weather the storm and manage to hide the worst details behind bureaucratic barriers? Does the general public have a limited attention span for this kind of political crisis?

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Her Majestys Loyal Opposition Government Mismanagement: Minister Besieged

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Whos Responsible? Government Mismanagement: Minister Besieged

While there is an immediate circle of high-profile individuals implicated in this political scandal, the web of responsibility goes beyond the members of the Human Resources ministry. Jane Stewart, the Minister for Human Resources, has borne the brunt of the pressure thus far. According to former Speaker of the House, John Fraser, this is as it should be. In his book, The House of Commons At Work, he writes:

Each Minister with a portfolio is the political head of a department and is responsible for its activities. (S)he must be willing to answer for any shortcomings of subordinates, and to have the final word in all important decisions. If necessary, the Minister must resign in the event of a serious failing: this what we call ministerial responsibility.

Preliminary Discussion 1. Jane Stewart did not become Minister of Human Resources until August 3, 1999, two years after the first allegations of mismanagement of grants first emerged. Is it fair to have the mantle of responsibility as outlined by John Fraser placed on her shoulders? Why or why not? 2. List other jobs or roles in our society where individuals must assume responsibility for the actions of others even if they personally have not done anything wrong. Discuss your examples and suggest why the concept of the buck stops here is essential in political circles as well as others such as the corporate sector. Who, likewise, must ultimately accept responsibility for everything that happens in your school? Pointing Fingers Or Demanding Answers? Any time there is a scandal in government, the biggest challenge for ordinary citizens is determining who did what and who is responsible for what. Below is a list of some incidents that occurred or allegedly occurred with regard to this scandal. How might each be linked to the scandal? What key individuals are implicated, and what is the nature or extent of that persons involvement? What questions could you ask of each to clarify or explain the incident or the individuals role in it?

Prime Minister Jean Chrétien created the Transitional Jobs Fund in 1996 with a $300-million cache of funds to give to ridings with high unemployment. The result was that civil servants had to administer funds that at the very least were highly politicized. At worst, as critics assert, it represents a slush fund. In October 1997, the RCMP charged former Liberal fundraiser Pierre Corbeil with seeking party contributions in exchange for grants from the Jobs Fund. From February to March 1999, allegations of inappropriate use of the grants were levelled against Jean Chrétien for projects created in his Saint-Maurice constituency. An interim report from auditors outlining mismanagement went to the Human Resources audit committee. Top officials were made aware of its findings in July 1999. The internal audit of a small fraction of the grants programs revealed that in the 459 projects reviewed, 80 per cent of the time there was insufficient monitoring to know if the programs goals were achieved or not. This represents about $200-million in spending. According to the report, in 37 of these projects, there were serious enough concerns about their eligibility that Ottawa might request a return of the grant. Eighty per cent of the grants had not been financially monitored in any way. According to the audit, 15 per cent of the projects reviewed received approval even though the recipient of the Liberal largesse did not submit an application. Other organizations had grants approved despite failing to hand in budget proposals or even a description of exactly what it was they planned to do with the money. Some grant requests were topped up without the applicant even asking for it. It is estimated that in 80 per cent of the cases, government officials didnt bother to check to see if the money was being properly spent. Jane Stewart admitted she was briefed in general about the audit when she took office in August 1999. She maintains that she was not aware of the full implications until she received the full audit on November 17, 1999. However, she continued to tell Parliament as late as December 1 that the programs were being managed appropriately. Prime Minister Chrétien was told of the audit report on January 11, 2000. The audit report was released on January 19 (the same day as the controversial NHL subsidy proposal). Coincidentally, this was the same day the Reform Party filed access to information requests for files from the audit. The current Minister for International Affairs, Pierre Pettigrew, was responsible for Human Resources for the period when the money was handed out. According to parliamentary procedure, he is not required to answer questions in the House about his former portfolio. Fingers have also been pointed at former deputy minister of Human Resources, Jean-Jacques Noreau, who held the position from 1993 to 1996. Under his management, it has been alleged that he encouraged a fast-track approach to grants, even if that meant sometimes breaking bureaucratic rules. Noreau himself concedes that regional managers were given wider discretion to decide on local program spending with less red tape from Ottawa. This occurred with the blessings of many Liberal MPs. Noreau now works with the Organization for Economic Co- operation and Development in Paris. The present deputy minister of Human Resources is Mel Cappe, who led the department during the alleged mismanagement period. Deputy ministers are career civil servants who are responsible for administering the bureaucracy and answering to the minister. They do not leave if the minister or the government changes. While he ordered the audit that uncovered the problems, the poor accounting also occurred during his mandate.

Pointed Questions and Activities 1. The Financial Administration Act outlaws reckless spending of federal funds. Why would this be stipulated in legal terms? 2. Some observers say that the extent of the problem has still not emerged. If you were the Prime Minister or Jane Stewart what would you be doing in the meantime to manage this crisis? 3. In your opinion, what degree of responsibility must each of the individuals mentioned above assume? Suggest the nature of that responsibility. 4. Based on the above information, what evidence is there that inappropriate actions occurred? What evidence is there that the democratic process worked? 5. Working in small groups devise a list of safeguards or guidelines for a department like Human Resources that would assure that mismanagement such as that which was alleged to have occurred does not happen. 6. Working with a partner, write a memo (in the role of a key advisor) to the Minister of Human Resources in which you outline some basic strategies for dealing publicly with the scandal. 7. Assume the role of the president of a local riding association for the Liberal Party. Write a letter to Jane Stewart, with a copy to the Prime Minister, in which you express your views on this situation.

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The Patronage Issue Government Mismanagement: Minister Besieged

When former U.S. president Andrew Jackson declared in 1828, To the victor go the spoils, he was referring to the practice of rewarding politicians and their respective districts for supporting him during the election that put his party in office. Some might view this as a medieval system in which a monarch at war would reward the nobles that fought on his or her side with land or money and imprison or evict those who did not. Today such a practice is often referred to as pork-barrel politics. Pork-barrelling is a form of political patronage in which jobs, contracts, or other financial benefits are granted to entire communities or particular regions as a reward for supporting a particular candidate or the candidates party. The term originates from the American Civil War. It was the practice on plantations to distribute rations of salt pork from wooden barrels to slaves. Pork barrelling is usually not a criminal activity and is usually not done for personal gain at the expense of the public purse. It is, however, a pejorative term when applied to a politician or a political party. It is also difficult to prove.

Every political party in power has been accused by its opponents of patronage. As a November 16, 1999, editorial in the Halifax Daily News noted, Andrew Jacksons pork-barreling was unique only because he was so open about doing it. Prime Minister Chrétien, while not as frank as President Jackson, has adamantly defended the grants that his government has allocated and denied that they represent this form of patronage. He has maintained that they are not partisan handouts and that everything has been done properly. From his perspective, succeeding in having money and projects distributed within his riding is simply fulfilling his job as a member of Parliament, serving his constituents well. Members of Parliament are expected to represent their constituents interests. If, for example, candidates in an election promise to reduce unemployment, then how can they be faulted for steering building projects or federal money into their ridings once in office? The difference between pork-barreling and providing legitimate and effective valid economic programs can be a fine line, can become blurred, or can involve an inaccurate judgment on the part of the accuser.

When the prime minister of Canada appoints new senators or heads of Crown corporations or project leaders, critics often make accusations of patronage. The implication, as with pork- barrel spending, is that party loyalists or major contributors of campaign funds are being rewarded with choice government positions. Whether this is true or not is also difficult to determine since it makes sense to appoint people who have demonstrated their abilities. One could argue that the prime minister is likely to select more people affiliated with his or her party because it is in that context that the individuals have become known to the prime minister and have demonstrated their abilities.

The issue with both pork-barrel spending and patronage appointments is not whether they can be justified, but whether, because of their connections to the party in power, the region or individual has an unfair advantage over others. And because government positions or projects are financed by revenue generated from all taxpayers, including those who did not elect members to the government side of the House of Commons, it is assumed that such appointments or grants should be distributed in an equitable fashion, which of course is much easier said than done. It is easy to understand why some would see inequity at work if ridings that voted for the government obtain infrastructure projects, more grants, or receive their money first. For example, a July 6, 1999, article in the Vancouver Province, observed that federal highway money seems to dry up west of Winnipeg. In 1998-99, where Ontario received $170.4-million in federal highway grants, British Columbia, with 22 per cent of the nations highways (and very few Liberal MPs) received only $190 000. Since 1988, B.C. has obtained $30-million for roads in grants. By contrast, Quebec and Newfoundland will have received over $400-million by the year 2003. Such relationships between fund allocations and Liberal election results have created skepticism and cynicism about politicians in the minds of many Canadians. As with all issues of fairness, this can be often a question of perception. Proving patronage and pork-barrelling, as opposed to making the allegation, requires clear evidence. As is the case in a court of law, a government so accused is innocent until proven guilty. The burden of proof is on the accuser.

Discussion 1. Should members of Parliament or cabinet members have the power to direct money to geographical areas of their choice? If so, should there be limits? Would Canadians be better served by a neutral group that would allocate projects and resources independent of political influence? 2. An editorial in the Halifax Daily News, suggested that the only way to control pork-barrel spending in the Canadian system of government was to utilize the Dracula effect. According to legend, vampires, who are creatures of the night, are destroyed by the exposure to sunlight. This analogy suggests that only public scrutiny of government spending habits can determine whether government projects and appointments are valid or not. The improper allocations and their perpetrators would then be removed. Is the Dracula effect an accurate analogy for how our system works? If so, who would the vampire slayers be in our system? What groups or institutions might serve as watchdogs to ensure that the government behaves properly?

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Ghosts and Skeletons Government Mismanagement: Minister Besieged

Some critics of Jean Chrétien, and other political observers, have referred to him as the teflon man because in the past allegations of questionable activities directed toward him have not stuck. The allegations and the issues were just not provocative enough to captivate Canadians to the point where a public reaction or outcry led to a full-blown scandal. Because of their public mandate and the public trust that they represent, elected officials may be held up to a higher standard than might an ordinary citizen. Examine each of the situations below and consider why each provoked criticism of the Chrétien government. Suggest also why each did not stick.

The worst problems in terms of allegations experienced by the Liberals seemed to have fallen on the Prime Ministers cabinet ministers instead of on Chrétien himself. Minister of Canadian Heritage Sheila Copps was forced to resign over her broken pre- election promise to scrap the GST. Solicitor General Andy Scott resigned for talking too freely in public over confidential matters. The resignation of these hand-picked, top officials who were close to Chrétien did not detract from his popularity and credibility. All in all, his terms as prime minister have been relatively smooth sailing, compared with those of other prime ministers such as Brian Mulroney.

The current crisis over alleged mismanagement in the Human Resources ministry has ties to controversial grants made in Chrétiens riding of Saint-Maurice. As far back as 1997, allegations were raised that the Transitional Jobs Fund of the Human Resources ministry was being used to solicit favour from voters, reward Liberal constituencies, and encourage campaign donations from grateful companies. For example, in October 1997, Aerospatial Globax of Shawinigan (in Chrétiens own riding) received $2.04-million, and Megatech Electro of Grand- Mère received $1.3-million. Both made small contributions to the Liberal Party.

In February 1999, conflict-of-interest allegations were raised by the Opposition over grants and loans made to a Shawinigan businessman. Yvon Duhaime purchased a hotel in 1993 from a company of which 25 per cent was owned by the Chrétien family. The man has subsequently received $188 799 worth of federal job-creation grants from the Human Resources ministry, and a further $665 000 in federal loans. Prime Minister Chrétien defended his actions in Parliament, and in a letter to The National Post he noted that he had sold his interests in the company in question before taking office. He also noted that the grants were made as part of a legitimate program and his contact with parties involved was as an MP representing his constituents. In his letter, Chrétien wrote:

One of the strengths of the program [the Transitional Jobs Fund] is that before any project is approved, consultation must be held with a wide range of individuals, including the local member of Parliament, regardless of his or her political stripe. The fact that a member of my constituency office attended a meeting to discuss a project is, therefore, entirely appropriate. In fact, over 1000 projects helping to create over 35 000 jobs have been approved in Liberal, Reform, Bloc, NDP, and PC ridings. In terms of the court of public opinion, the Prime Ministers rationale held up, and the storm blew over once again. However, with the emergence of the current scandal, the grant allocations to Chrétiens riding and to all Liberal ridings have undergone increased scrutiny. Using Access to Information legislation, the Reform Party uncovered documents indicating that the Prime Ministers office co-ordinated public relations efforts to take credit for grants handed out in their ridings. While the official position is that all monies were used for job creation, the suggestions that the Prime Minister and the Liberal MPs controlled the movement of grant funds has been a criticism that has been harder to shake.

Activities 1. Working in groups, devise an anti-patronage policy for any political party that might be elected. Your policy should give specific directions and instructions as to what an elected party should or should not do. Your job is to create clear, workable guidelines that can be referred to by a government when awarding grants, job programs, or other appointments that might be construed as patronage. 2. As a class discuss why patronage is such an important but tricky issue in politics. How does it relate to ethics, power, responsibility to the electorate, perception, appearance, and the ability to deflect, refute, or disprove such allegations? 3. Suggest why Jane Stewart is described as being besieged. In your opinion, has she been treated fairly? Has she responded appropriately or effectively to the siege? 4. The expression noblesse oblige refers to the moral obligation of rich or noble people to behave in a generous and honourable fashion. How might this term apply to this news story?

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Creating Employment Government Mismanagement: Minister Besieged

When defending the largesse of the grants his government bestowed on projects and companies across Canada, Prime Minister Chrétien maintained that job creation was paramount. In April 1999 he wrote, For my region, as for so many others in Canada, alleviating high unemployment remains the primary challenge. At the fundamental level of economic theory, funding a project or company in an area of high unemployment represents an injection of cash. The people employed by the project will purchase materials and services for their jobs and spend their wages in the community. The injection not only creates jobs directly, but creates spin-off jobs as well. The net result is lower unemployment and an improved economy.

Examine the information below and then respond to the criticisms that are implied or overt. Respond in the role of a member of the Liberal cabinet or as a member of the Opposition. (Students may choose their role or have it assigned by drawing lots.)

Critics of the Transitional Jobs Fund approach argue that, politics aside, the process is inefficient and wasteful. The jobs are temporary and/or artificial. When the grants end, typically the jobs do as well. Several of the companies identified in the mismanagement scandal either did not really need the money or were poorly run. Although it is hard to imagine, the American retailing giant, Wal-Mart, was a recipient of a grant. So too, was a textile company that moved from Montreal to Chrétiens riding of St. Maurice with a $166 000 grant. As reported in The London Free Press on February 25, 2000, the money has disappeared, and no jobs were created. More troubling, $9.17-million was paid out last year to 51 companies that went bankrupt. It had been hoped by the government that 2840 long-term sustainable jobs would have been created. According to The Toronto Star (February 22, 2000) only about half that number were realized.

The February 14, 2000, issue of Macleans magazine reported that the audits revealed that many of the grants were a misapplication of taxpayer dollars. The company that analyzed the Transitional Jobs Fund, Ekos Research Associates, found that 42 per cent of the projects they contacted said they would have gone ahead with their proposal if they were denied a federal grant. An overlap between federal programs was also pointed out, and it was reported that companies learned to shop around for grants that do not need to be repaid, as opposed to loans from other federal agencies. Critics note that it is ironic that federal money was given away so easily during the years when spending was cut in other areas to fight the deficit.

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Discussion, Research, and Essay Questions Government Mismanagement: Minister Besieged

1. While the alleged mismanagement of the Transitional Jobs Fund likely began as early as 1996, opposition members of Parliament only began to suspect in 1999 that a problem of significant proportions existed. The internal audit had been conducted, but its results had not been released. When Reform Party members sitting on the Human Resources Committee became frustrated with the lack of information forthcoming, they applied for the release of ministry documents through the Access to Information Act. Realizing that she could no longer conceal the audits findings, Jane Stewart released it in January 2000. Research the history of the Access to Information legislation and how the process works. Identify how Canadians can utilize this resource. List other examples where this act has been utilized. A good place to begin is the Web site http://canada2.justice.gc.ca/ en/ps/atip/index.html. 2. The Prime Ministers cabinet reflects the nature of the government in charge and the personality of the Prime Minister. Its size and composition can vary from one administration to another. Research the role of the cabinet within the parliamentary process. What responsibilities does it have? What rationale is there for the creation of new ministries, the maintenance of some, and the amalgamation of others? 3. There are currently 22 cabinet portfolios in the Chrétien government. Choose several of the current cabinet ministers and create a profile of their portfolios and their personalities. Which ministers appear to have the stellar or choice ministries? Why do you believe this? Which appear to be the rising stars? If someone hoped to become prime minister in the future, which

cabinet posts would give him or her the best experience and the best public exposure? 4. There have been several references in this News in Review report to pork-barrel politics. While this current scandal suggests that it exists in Canada, the term enjoys much wider usage in American politics. Using a search engine, research the term pork barrel. Identify the scope and nature of this issue in the United States. Compare U.S. perspectives on pork barrelling to Canadian views. 5. With an annual budget of $110-million, the Canada Jobs Fund has a lot of money available for worthy projects. What, however, are the criteria for these grants and how do you apply? Research the activities of the Ministry of Human Resources and in particular the Jobs Fund. Consult the Web site http://hrdc-drhc. gc.ca. Find examples of projects that already exist. What made them successful? Devise your own business project as a job- creating initiative in your community that you think would merit such a grant.

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