12 November 2009

AG report makes up old recommendation, gives no real update on small business program

The section of the recently released auditor general update report that deals with small business fund in the provincial innovation department relies on a recommendation that wasn’t contained in the initial report.

All the same, the report claims that the department has begun complying with the AG recommendations for a 2007 review.

The invented recommendation and supposed compliance are also included – apparently – among the 80% of the recommendations the 2009 AG report claims have been acted on within two years.

According to the 2009 update, the lone recommendation on the small business fund was this:

The Department should ensure all required documentation is on file to
support applications, payments for funding and monitoring.

But the original report – released in early 2008 - contained a total of five recommendations, none of which was the one cited by auditor general John Noseworthy in 2009:AG2007

The third real recommendation – related to security for disbursed funds - is particularly important since one of the companies apparently reviewed by the initial audit has since gone belly up.

There is no reference to the bankruptcy in the 2009 update report nor does the auditor general discuss at all whether or not the public money in the company was secured.

There was also no reference to the first recommendation from 2007. That one suggested there may be no legal basis for the department to operate the fund in the way it had been operated in the first place.

In fact, there’s no reference at all in the 2009 review to how the fund actually operates three years after the period covered by the first review.

Compare that, however, to the significant problems found in the 2007 report:

  • there was “no explicit authority under the Financial Administration Act for the Department to make direct investments in companies” and yet in a single year the department made three investments totalling “$1,050,000 to three companies”;
  • There were “no documented procedures for approving, disbursing and monitoring such unique investments and, as a result, these investments were not subject to the same due diligence required for investments under the SME Fund. “
  • “[N]one of the three companies were required to repay the investment
    contingent on either income earned or a maximum seven year period;”
  • “one company was not required to submit documentation to support
    specific expenditures;”
  • “shareholders for one company (Knowledge-based IT Company A) who received $500,000 were not required to make new equity investments as part of their contribution to the project; instead, previous investments were accepted;”
  • “shareholders for one company (Knowledge-based IT Company B) who received $500,000 were not required to provide personal net worth statements;” and
  • “Department officials were not entitled to attend any company meetings for one company (Knowledge-based IT Company B) even though the company was provided with funding totalling $500,000.”