P.E.I. auditor general says provincial loan agencies need better monitoring

P.E.I.'s Auditor General Jane MacAdam says the province's two main lending agencies — Finance PEI and Island Investment Development Inc. — have granted millions in loans to businesses, without proper risk assessments or measures of success.  

The examination of the two agencies is part of the 2016 Auditor General's report, released Wednesday.

In it, MacAdam points out loans handed out and still owed to the province through Finance PEI's Developmental Lending Division and IIDI have more than doubled in the last decade from $70 million in 2005 to $191 million as of March 31, 2015. 

"Given the size of the loan portfolio, it is important that FPEI and IIDI have processes to both effectively manage the risk of loss to government and measure and report on the benefits realized," wrote MacAdam. 

In her audit MacAdam found there is room for improvement on those fronts.

She said overall, the agencies are following an "adequate" process of approving and monitoring loans, but still pointed to shortfalls. 

There is "no systematic risk assessment to formally quantify the level of risk for loans at the application stage," she said.

She added the agencies should be providing better guidance to staff on proper security requirements that need to be met before granting loans. 

"Providing financing with public funds warrants a high level of due diligence," she wrote.

MacAdam is also critical of the "limited monitoring and reporting" on the agency's loan portfolios.

She said funds loaned by Finance PEI and IIDI are supposed to stimulate and grow P.E.I.'s economy, but that "the lack of reporting makes it difficult to determine" whether that's been achieved.  She adds neither agency has clear measures of success. 

In a written statement, the province said it values the work of the auditor general.

"We agree with all of the Auditor General's recommendations, 80% are complete, and the remaining two are well underway and/or nearing completion," reads the statement.

"Small and medium sized businesses are the key generators that drive Prince Edward Island's economy, and access to financial capital is critical for those businesses to prosper and grow to their full potential," said the email. 

"Island businesses supported by Finance PEI and IIDI generated in excess of $1.3 billion in revenues and had direct wage impacts on the Island of approximately $221 million in 2014. These results reflect a 4.02% and 5.12% increase over the previous year, respectively."

The Opposition sent out a statement calling the report "a scathing indictment of fiscal mismanagement."

"This report should send a clear message to Premier MacLauchlan that his government has lax controls around the spending of public money and is often ignoring its own rules that are there to protect taxpayers," said Opposition Leader Jamie Fox in the statement.