Auditor General Sheila Fraser told Nunavut MLAs in Iqaluit Tuesday that she found mismanaged loans and otherproblems leading to a "serious breakdown" at the Nunavut Business Credit Corp., in her audit of the troubled Crown corporation.

Appearing before members of Nunavut's standing committee on government operations and accountabilityTuesday afternoon, Fraser said the credit corporation — which handles millions of dollars in loans to Nunavut business ventures —carried out numerous transactions that went against the laws and regulations it is bound by.

"Overall, we observed a serious breakdown at the corporation of basic financial controls, such as approving transactions, authorizing payments, and confirming that funds are used for the approved purposes," Fraser said in her opening remarks to the committee.

Fraser's audit report on the NBCC, tabled Nov. 5 in the Nunavut legislature, is considered to be the most damning report yet for the eight-year-old territory.

Since the audit was released, the territorial government has been scrambling to clean up the corporation andact on the report's recommendations. The RCMP haveeven been asked to investigate whether any fraud or theft took place.

On Tuesday, Fraser suggested the Nunavut government should rethink whether it wants to keep delivering business loan programs through a separate corporation like the NBCC.

"Having the programs operate as part of a larger organization might enable the corporation to draw upon other resources and expertise needed," she said.

Auditor refuses opinion on 2006-07 statements

Fraser ordered the audit when she found that the NBCC's account books had been so poorly kept that she made the rare move of refusing to approve its financial statements for the 2005-2006 fiscal year.

She told the committee she will also deny opinion on the corporation's statements for the 2006-2007 fiscal year.

But given the government's move to resolve problems at the NBCC, she said she hopes she will be able to audit itin 2008.

In her remarks to the committee, Fraser said terms and conditions of some NBCC loans were changed without receiving proper authority, and changes were not reflected in loan files.

"As we noted in our report, we observed numerous other corporation transactions that contravened the laws and regulations it is subject to," she said.

Those laws include the Nunavut Business Credit Corporation Act,as well as regulations and relevant parts of the Financial Administration Act, she said.

Furthermore, Fraser said data had been erased from the NBCC's network and its backup data systems did not work.

Finally, she singled out the corporation's board of directors, saying they did not do a good job in overseeing the corporation's operations.

Three NBCC board members, including the chair,resigned the day after Fraser's report was released.They have since been replaced with government appointees.

Committee to call staff, deputy ministers to testify

The standing committee hopesinput from Fraser and former staff at the NBCC will help them determine what went wrong at the troubled Crown corporation.

"I'm going to assess all their information and make a decision based on that," Iqaluit Centre MLA Hunter Tootoo, the committee's chairman, said Monday.

Tootoo said the committee will call upon a long list of witnesses to testify, including former employees and board members, as well as past and current deputy ministers with the Department of Economic Development.

"I truly believe the government has failed completely to monitor that Crown corporation," said Rankin Inlet North MLATagak Curley, who also sits on the standing committee.

The NBCC is supposed to provide last-resort funding, micro-financing support and other financial help to businesses in an effortto boost Nunavut's struggling economy.

Fraser is scheduled to appear before the committee again Wednesday morning.