Alberta’s auditor general says two of the province’s key innovation bodies have failed to detail how their spending will benefit taxpayers economically, clouding the government’s broader plans to diversify its oil-dependent economy and provide venture capital to tech startups.
On Thursday, Auditor General Doug Wylie released separate studies on Alberta Enterprise Corporation (AEC), a Crown company, and Alberta Innovates, a government agency established in 2016. In both cases, Wylie found that the government bodies did not “fully demonstrate” how they were generating wealth, nor did they provide comprehensive cost-benefit analyses for their investments.
Talking Point
Alberta’s UCP government has put a lot of stock in its innovation agenda as a way to diversify its economy. But those efforts could be stifled if its innovation programs fail to set clear, measurable targets for success.
The United Conservative Party government under Premier Jason Kenney is trying to diversify Alberta’s economy as it recovers from the COVID-19 pandemic, with a host of investment programs and supports for entrepreneurs, and incentives for innovative businesses to set up shop in the province. Both Alberta Innovates and AEC received nine figures worth of new funding in February’s provincial budget.
Wylie found that AEC and Alberta Innovates both had processes in place to monitor performance, but said many of them lacked crucial context. The government bodies provided numbers on how many jobs were created by a given investment, for example, but did not provide further information about how it compared to prior goals.
AEC did not set specific targets for each of its investments, the auditor general said, and “lacked a documented analysis of fund performance” during periods of due diligence that would have allowed the company to assess its own track record.
The Alberta Enterprise Corporation was established in 2008 in an effort to help so-called “knowledge-based” companies secure venture financing. As of August the corporation had invested $234 million in venture capital funds out of its total budget of $350 million over six years. Alberta Innovates was established in 2016 and has so far allocated $1.3 billion in public funds.
AEC claims four private dollars are invested for every one dollar the government body invests in a given company. But the auditor general found that metric lacked detail and context on whether its return ratio was acceptable.
“It is unclear from the annual report how this ratio has met, or not met, AEC’s management, board and external stakeholder expectations,” the report said.
Kristina Williams, chief executive of AEC, pointed out that the auditor general’s multi-year study ended in 2020, and said that the company has already implemented the “vast majority” of changes Wylie recommended. Those include the introduction of 15 key performance measures (KPIs) to track, among other things, how AEC’s investments in venture capital firms are being passed along to private companies further down the line, she said.
“We’re stewards of capital that is taxpayer dollars,” Williams said in an interview with The Logic. “We have to make sure that we have prudent accounting of our results, and the costs associated with delivering on our mandate.”
Meanwhile, Wylie said Alberta Innovates had declined to establish a cost analysis that would determine whether its expenditures generated returns.
“We found no examination by management of the cost of results generated from projects during project gating or at the end of the project,” the report said.
Alberta Innovates, like AEC, said the reporting period ended in 2020 and did not account for more recent updates to its monitoring processes. The report itself noted that Alberta Innovates had “started to make adjustments to its processes prior to us completing our audit.”
Assistant Auditor General Rob Driesen said both government bodies need to establish common metrics for measuring performance, particularly as Alberta seeks to diversify its economy through the tech sector.
“They need to improve the setting of targets, and doing that on a consistent basis,” he said in an interview with The Logic.
“You want to make sure that there’s some consistency and some alignment between the organizations … to make sure that everybody’s pulling in the same direction,” he said.
Bronte Valk, who represents the Council of Canadian Innovators in Alberta, said the report underscores the need for the province to streamline its various innovation programs and refocus its spending efforts. That would often involve selecting the most promising companies and injecting meaningful sums of cash into them, she said, rather than spreading investment thinly across numerous companies.
“Having a clearly articulated public investing strategy, with KPIs and targets is a good thing,” she said in an email to The Logic. “However, we hear from our members that some government funding programs are simply too cumbersome and costly in terms of application and reporting requirements, and measuring outcomes should not lead to excessive, costly bureaucracy.”
Alberta Innovates and AEC are central to the government’s bid to spur innovation, particularly in the cleantech space, and to encourage venture capital investments in the region.
Earlier this week, Innovation Minister Doug Schweitzer announced another $50 million in funding for Alberta Innovates, which will be funnelled toward 23 cleantech projects. The Crown corporation claimed the spending would translate into $169 million in economic growth.