Auditor-General to probe conflict-of-interest, governance breach allegations at Sustainable Development Technology Canada

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The Office of Auditor-General Karen Logan said it made the decision to delve into SDTC in response to recent discussions with the ministry in charge of the agency, Innovation, Science and Economic Development Canada, and information it received on its own.Sean Kilpatrick/The Canadian Press

Federal Auditor-General Karen Hogan is launching a probe into Ottawa’s main funding agency for green technology after a third-party report detailed evidence of conflict-of-interest breaches and lax governance.

The Office of the Auditor-General said Wednesday that it made the decision to delve into Sustainable Development Technology Canada in response to recent discussions with the ministry in charge of the agency, Innovation, Science and Economic Development Canada, and information that it received on its own.

Early last month, Industry Minister François-Philippe Champagne suspended SDTC’s ability to grant money to cleantech startups until its board completes a series of corrective management, governance and human-resources measures he imposed.

A five-month third-party investigation ordered by the ministry found evidence of inappropriate funding and breaches of conflict-of-interest rules by management and board members as well as deficient human-resources practices.

The probe was triggered by allegations made by a whistle-blower group consisting of former and current employees of the organization.

SDTC, a federally funded non-profit, is the country’s largest financial supporter of early-stage environmental technology. It has granted $1.6-billion to the sector since 2001. Cleantech executives have warned that an extended freeze on SDTC grants could be detrimental to the many startups lining up financing.

After the investigators released their report, SDTC issued a statement saying the probe had identified “no clear evidence of wrongdoing or misconduct.”

On Wednesday, Mr. Champagne said his department had been working with the Auditor-General’s office for a number of weeks and that he welcomed its decision to launch its own audit.

Meanwhile, the whistle-blower group released recordings of a series of conversations between one of its members and a senior ministry official that appear to show the department was considering ousting the board and management about a month before the final third-party report was released.

In one discussion on Aug. 25, Doug McConnachie, assistant deputy minister, described the situation at SDTC as “untenable.” He said it appeared unlikely that the top executives, and some members of the board, could continue, because they had “lost the confidence” of the ministry based on what investigators found.

Mr. McConnachie said on the recording, which was first reported by the CBC, that he believed the minister would “flip out” when he would later hear the details.

Reached by e-mail on Wednesday, Mr. McConnachie referred queries about the recordings to the ministry’s media-relations staff.

The Globe and Mail is not disclosing the identity of the whistle-blower on the tape, as they are not authorized to speak publicly on the matter. They said they had recorded conversations over several months to ensure the government lived up to what it said it would do if the process found evidence that supported the allegations.

One possibility at the time, it was revealed on the tape, was that the ministry could bring in “caretaker management” to operate SDTC on an interim basis.

“The board does not have our confidence, and the board – the current board anyway – is not going to be in a position, and the management for that matter, to remediate the problems that have been identified,” Mr. McConnachie said during a conversation in early September. “There has to be a cleaning of house. The operative question is how does that get done and how quickly can it be done?”

However, when the government released the report from Ottawa accounting firm Raymond Chabot Grant Thornton in early October, Mr. Champagne kept SDTC’s leadership, led by chief executive officer Leah Lawrence and board chair Annette Verschuren, in place and ordered them to complete a series of directives to improve governance and human-resources practices. He put the agency’s ability to fund cleantech projects on hold until the corrective measures are completed.

A senior government official declined to speculate on Mr. McConnachie’s comments, which were recorded without the assistant deputy minister’s knowledge. But the official said the third-party probe, which played out over months, revealed instances of deficient governance, management and controls based on investigators’ examination of the specific allegations. The Globe is not naming the official because they were not authorized to publicly speak on the matter.

The investigation did not uncover serious ethical or legal violations, such as deliberate efforts to direct money to enrich insiders, that would lead to immediate firings, the official said. The senior official did not rule out the possibility that other infractions could yet be discovered.

The complainants have described what they allege is a volatile workplace, marked by unusually high staff turnover. Mr. Champagne said Wednesday that SDTC has agreed to undertake a review of its human-resources practices.

“This review will be led by an independent, third-party law firm that will report its findings to me. SDTC will allow current and former employees to freely speak to the law firm without violating any applicable settlement agreements or non-disclosure agreements,” he said.

SDTC said it welcomed the Auditor-General’s investigation and the human-resources review, and pledged to fully co-operate. It said it was on track to complete the minister’s directives by Dec. 31.

“We categorically reject the continued allegations by disgruntled former employees. SDTC is a responsible steward of taxpayers’ money with a proven track record of helping cleantech entrepreneurs grow successful companies, creating jobs, lowering GHG emissions and setting Canada up for the green transition,” agency spokesperson Janemary Banigan said in a statement.

Mr. McConnachie, Mr. Champagne, as well as Ms. Lawrence and Ms. Verschuren, are expected to give testimony before the House of Commons ethics committee on Monday.

Committee member Michael Barrett, a Conservative MP from Ontario, said he has been calling for the Auditor-General to investigate SDTC as the third-party report “doesn’t address the full scope of the issues that are there.”

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