Business fund scrapped after AG blasts lack of oversight

Nova Scotia Premier Darrell Dexter has scrapped a cabinet-controlled business development fund long derided as a political slush fund.

The decision came Wednesday, about an hour after auditor general Jacques Lapointe issued a report that revealed the 50-year-old Industrial Expansion Fund had no application system, no documented approval process and relied too heavily on inadequate, secret reports to cabinet.

"These inadequate policies … and documentation for the [fund] activities represent an inappropriate way to manage public funds," Lapointe wrote in his report.

For too long, the government has been making "poorly informed decisions" based on inaccurate or incomplete information and little oversight, the report concluded.

Lapointe also found that some fund files were kept in personal email accounts — a move he described as "risky" — and there was no list of rejected applications.

In 2006-07, the fund was used to offer $14.8 million in loans and other assistance. By 2010-11, that figure had grown to $38.6 million under the New Democrats, who were elected to govern in June 2009.

The government should consider shifting responsibility for the fund from the Department of Rural and Economic Development to a Crown agency known as Nova Scotia Business Inc., Lapointe recommended. He said the agency is well managed and has adequate controls.

When they were on the opposition benches, Premier Darrell Dexter's New Democrats accused successive governments of abusing the fund. Now, almost two years after they formed a majority government, the NDP faced opposition fire for enlarging the fund and failing to implement controls.

Dexter promises to replace fund

On Wednesday, Dexter said he would wind down the fund, but he quickly followed up by promising to replace it with a new one by next March.

Despite Lapointe's dissection of the Industrial Expansion Fund, the premier said it was a "critical economic development tool" that was used to maintain and create jobs for tens of thousands of Nova Scotians.

He went even further, saying the fund had "a very strong track record," even though Lapointe said there was no way to measure that.

Still, Dexter also recognized the weight of Lapointe's criticism.

"For years, I've said that the [fund] lacks serious oversight controls," the premier told a news conference at the legislature.

"It's clear that a 1950s model for economic development is no longer acceptable."

He said the new fund will be accountable under the law, but it will continue to be overseen by a cabinet committee, as well as a shared advisory board with Nova Scotia Business Inc.

As well, it will have a formal application process, documented policies and ongoing monitoring of investments, he added.

"Over time, a particular investment vehicle will have its share of difficulties and will attract some negative connotations," Dexter said. "But it's much harder to list all of the successes … which have outweighed the difficulties."

He said the fund would not be rolled into Nova Scotia Business Inc. because it was a completely different economic tool, suggesting the Crown agency can't do certain things, such as lending money for expensive, single-use equipment that could keep a shaky business afloat.

Opposition calls for arm's length body

He also confirmed that the cabinet will have the final say on how the new fund is used.

"Cabinet is the appropriate vehicle to do that," he said.

"Cabinet is elected by the people to administer the public service and public money."

He also said the public will not have access to the documentation that provides the justification for approved loans and other assistance.

"The information submitted by businesses contain confidential information with respect to their business practices," Dexter said.

Liberal Leader Stephen McNeil said the fund should be controlled by Nova Scotia Business Inc., which handed out $48 million in loans and other assistance in 2010-11. He said the new fund should not be overseen by cabinet — as it was since the 1950s.

"We need an arm's length body — a business branch looking at a business model, not a political model," McNeil said.

Conservative Leader Jamie Baillie said Dexter didn't go far enough.

"Millions and millions of dollars has been spent without any rules, without any guidelines, without any controls and that is wrong," he said.

"Changing the name of the fund and moving it to a different committee doesn't address the problem."