Auditor General questions payouts to money-losing businesses

KIRSTEN MURPHY

The government of Nunavut shelled out $3.3 million last year to money-losing businesses administered by the Nunavut Development Corporation, according to a report by the Auditor
General released last week.

The 2001 Report to the Legislative Assembly of Nunavut was tabled in the assembly on Nov. 27. The 29-page document doesn’t say which of the businesses are losing money. Nor does it say how much the businesses are losing.

What the report notes is blatant lack of financial controls governing the businesses, which range from fish processing to arts and crafts.

“[The businesses] could fail if they don’t continue to get subsidies from the government,” the report reads.

Why are taxpayers financing private businesses? Because the function of the crown corporation is to keep them alive, said John Hickes, president and chief executive officer of NDC.

“All of the companies we invest in are exactly that [money-losing ventures]. They are an investment in job creation,” Hickes said.

“These are not businesses, per se. The government is facilitating joint ventures with Inuk entities trying to create job opportunities for the people.”

The Auditor General, however, took a different approach. The report identified several problem areas in NDC’s spending. The report found “serious weaknesses” in collecting and recording money, and paying for expenses without getting invoices. It also found the corporation had inadequate control of its inventory.

According to Hickes, NDC has already addressed these concerns. But because the corporation’s businesses are wholly or partially owned subsidiaries, weaknesses in the businesses reflect on NDC.

In the past 10 years, only one Nunavut company has been deinvested, or has ceased to receive funding after turning a profit: the Chesterfield fish plant, now run by Aqigiq Hunters and Trappers Organization.

Part of the problem is an absence of deinvestment criteria.

There is no timeline stating when a company must become profitable. Instead, NDC’s eight-person board and the territorial government have an “understanding” when a company no longer needs financial assistance, Hickes said.

Hickes receives between 20 and 30 funding requests from businesses across Nunavut each year. Only job-creating businesses marketing natural resources in isolated communities are considered.

“We don’t invest in something the private sector can do. We step in where there are very limited margins of profit,” he said.

Each company receives subsidies ranging from $100,000 to $200,000 a year. As of August, 627 people were employed by the 11 companies — including two new retail outlets in the South.

“Unfortunately our investments are in some of these smaller communities where the jobs are needed and they can’t follow the specific guidelines set up by the Auditor General’s office,” Hickes said.

In many Nunavut communities, such as Whale Cove, there are no bank branches. This makes daily deposits — an Auditor General requirement — impossible.

Instead, cash and receipts are stored each day in safes at places like local co-op stores, then transferred to chartered banks each week.

NDC is a Crown Corporation administered by the Department of Sustainable Development.

It is an offshoot of the Northwest Territories’ Development Corporation, which was set up 10 years ago. After division in 1999, it became the NDC.

Olayuk Akesuk, the Minister of Sustainable Development, could not be reached by press time.

The Auditor General’s report also states that the government must prioritize its spending choices.

“There is not enough money for everything,” it reads.