The federal government is axing a $1 billion green fund in response to a report by the auditor general that pointed to "significant lapses" in its handling of federal funding.

According to Auditor General Karen Hogan, Sustainable Development Technology Canada (SDTC) violated its conflict of interest policies 90 times, awarded $59 million to 10 projects that were not eligible and frequently overstated the environmental benefits of its projects.

Created in 2001, SDTC is a federal foundation that supports small and medium-sized businesses in the clean-tech sector. It entered into a five-year, $1-billion agreement with the department of Innovation, Science and Economic Development (ISED) in 2021.

Shortly after Hogan's report was made public, Innovation Minister François-Philippe Champagne announced that SDTC funds would be transferred to the National Research Council of Canada.

While SDTC operates at arm's length, the NRC reports directly to the minister of innovation.

"As a Government of Canada organization, the NRC is subject to rigorous and stringent oversight of its personnel and finances. This structure will help rebuild public trust while increasing accountability, transparency and integrity," Champagne said in a news release.

He added that SDTC employees will have access to jobs at NRC.

The government also announced it was lifting its funding freeze on SDTC, which was imposed last fall.

Over the past six years, SDTC has approved 226 projects worth a total of $836 million under its various programs. 

Analyzing a sample of these projects, Hogan reported that eight projects worth $51 million "did not support the development or demonstration of a new technology, or the projected environmental benefits were unreasonable."

Auditor General of Canada Karen Hogan speaks during a press conference at the National Press Theatre in Ottawa on Tuesday, March 19, 2024. (Spencer Colby/The Canadian Press)

According to the report tabled in the House on Tuesday, the auditor general concluded that many projects overestimated their environmental impacts when they were evaluated by SDTC.

"We found that in 12 out of 18 completed projects in our sample, the projected reduction of greenhouse gas emissions were, on average, half of what was presented at the time the project proposals were assessed," the report said. 

Hogan reported that conflict of interest policies were not respected with 90 files — representing nearly $76 million in project funding — that were approved by the SDTC board of directors.

"Not managing conflicts of interest — whether real, perceived, or potential — increases the risk that an individual's duty to act in the best interests of the foundation is affected, particularly when making decisions to award funding," the report concludes.

The blame lies largely with Champagne's ministry, which did not sufficiently monitor the contribution agreements with SDTC, Hogan wrote.

In a news release, SDTC said it has already put in place a series of measures to better manage public funds and ensure compliance with conflict of interest policies.

"With respect to stewardship of public funds, SDTC has strong monitoring processes in place to ensure that every project payment — every dollar — is accounted for and has been correctly disbursed to the innovative clean tech projects and technologies that Canada needs to succeed in the new economy," said spokesperson Janemary Banigan.