Auditor general says N.S. gave up control of $193M for internet projects too soon

Nova Scotia's auditor general says the province relinquished control of $193 million meant for high-speed internet projects long before projects were costed or any of the work was done, and millions of dollars could be lost as a result.

In a report released Tuesday, Auditor General Kim Adair said she was concerned by a "lack of comprehensive analysis" to decide to use an external trust for the money dedicated in 2018 to improving internet connectivity for Nova Scotians.

"With a project this large, we would expect to see documentation on the various options considered to fund the Initiative," she said in the report.

The previous Liberal government established the Nova Scotia Internet Funding Trust in 2018 and appointed a chairperson, who then appointed two additional trustees. 

$2.6M paid in taxes

The $193 million, taken from a settlement related to offshore petroleum royalties, went into the trust and then stayed there, under the legal control of the trustees. It was almost two full years before the first high-speed internet projects were announced and in that time, the trust shrank by $2.6 million in income tax payments.

"Had the province not relinquished control over the full $193 million to the trust in 2018, the funds could have remained within government until needed," Adair said in the report.

Many more millions could be on the line because the projects weren't properly costed before putting money into the trust.

Through her audit, Adair could not find any documentation to show how the province arrived at the $193-million figure.

"Before obligating taxpayers to the project for $193 million, we would have expected that the province would have determined a reliable cost estimate," the report said.

Adair said reliable costing is especially important when public money is being managed outside government. With this external trust, leftover money doesn't flow back to the province.

If any money remains in the trust on March 31, 2028, it will be distributed to municipalities that still have areas with poor internet service, then to the internet service providers who won the bids for the trust's projects.

Adair said there was $29 million in the trust that was unallocated for future projects, as of August 2021.

'You need to do your due diligence on the front end'

She told reporters Tuesday that Develop Nova Scotia, the project manager for the internet initiative, expects to spend all the money in the trust by 2023. Still, Adair said the financial setup is "not the best use of public funds."

"You need to do your due diligence on the front end and should only dole [money] out as you know that it's needed," Adair said.

Adair recommended the province develop guidance on the use of trusts with specific direction on analyzing alternative options, determining how much money is needed for the trust's designated purpose prior to committing the money and assessing the government's level of control over the trust.

The auditor general report said the province has indicated it will act on that recommendation.

The government's justification for using an external trust, according to Adair, was to protect the money against being reallocated in the course of annual budget exercises and ensure it would go to improving internet access. 

Adair dismissed that justification Tuesday.

"There are many multi-year initiatives the government carries out, and they manage to do it," she said.

Adair also had some positive findings from her audit of the province's high-speed internet initiative. She wrote in her report that the initiative had clearly defined goals and objectives that were based on a "reasonable and thorough" study of the province's internet needs.

Adair said Develop Nova Scotia has generally been successful in administering the internet projects, although she said it doesn't appear to be adequately reviewing progress of the work done by companies it has hired.  

In 2018, about 70 per cent of Nova Scotians had access to high-speed internet. That number is now up to 85 per cent and the province aims to have 99 per cent of Nova Scotians connected to high-speed internet access by 2023.

Similar issues with COVID relief spending

Adair also released a report Tuesday on the early days of COVID-19 relief spending. The province gave $100 million to Dalhousie University to administer relief programs and Adair found that nearly $60 million remains unspent. 

She said there are common concerning themes in the two reports.

"It's the fact that the money was set aside and put outside of government in the hands of external parties before the full costs were known. And the other common aspect to both of these is that any residual funds will not come back to the province," Adair said.

By 2027, if any COVID-19 relief money is left in the hands of Dalhousie, including money accrued through interest, it will be transferred to Research Nova Scotia to be used for public health research.