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Speaking to MLAs in Iqaluit on Tuesday, Auditor General Sheila Fraser said high staff turnover has left the NBCC in a vulnerable position. ((CBC))

Auditor General Sheila Fraser said the Nunavut government should ask itself serious questions about the future of the Nunavut Business Credit Corp., which was the subject of a scathing audit by her office.

Fraser, who was in Iqaluit on Tuesday and Wednesday to discuss her audit with Nunavut's standing committee on government operations and accountability, said she questions whether the beleaguered Crown corporation should remain an independent entity or whether it should become part of a government department.

She also questioned the Nunavut government's strategy of locating some of its Crown corporations in small communities. The credit corporation, which handles millions of dollars in loans to Nunavut business ventures, is based in Cape Dorset.

"Will that community be able to support that corporation with the kinds of skills and competencies that you need?" Fraserasked Tuesday.

"Will you have the board members, as well, that are able to provide proper oversight?"

Fraser's NBCC audit report, tabled Nov. 5 in the Nunavut legislature, revealed the mismanagement of millions of dollars in loans, with many of them issued without proper approvals or controls. Numerous transactions went against the rules and laws it was bound by, she found.

The report, considered to be the harshest the young territory has received, has left MLAs on the standing committee searching for solutions to avoid any similar problems.

"It gives all of us a black eye, maybe two black eyes, and a couple [of] broken teeth," Cambridge Bay MLA Keith Peterson said. "That's how serious I say this report is."

MLAs question unusual reporting relationship

The standing committee plans to call upon staff, board members and deputy economic development ministers to testify about what happened at the credit corporation.

Among the questions MLAs plan to ask is why the NBCC's chief executive officer was ordered to report to the deputy minister of economic development, as opposed to the corporation's board of directors.

Peterson asked Fraser if she had been aware of other situations in the federal government, or in the Northwest Territories and Yukon, in which the CEO of a Crown agency reported to a deputy minister in government.

Fraser said her short answer was "no," but said the audit found two letters of instruction from the economic development minister that changed the standard practice.

"There was clearly instructions given that the CEO was to have a reporting relationship with the deputy minister," she said. "In one case, they said it was a, I quote, 'a dotted line.'"

The audit found that the situation at the NBCC started to break down when a comptroller left in 2005, but the corporation was long plagued with high rates of staff turnover.

The credit corporation is dependent on its handful of employees, Fraser said, adding that it is left vulnerable when key staff leave.

The audit also found evidence that former board chairman Bob Hanson was involved almost on a daily basis in the operations of the corporation.

"We have seen indications where the chair of the board provided approval on overtime, on what files the individuals were to work on, how the filing system should be put in place," said Julie Charron, the principal investigator in the NBCC case.

Hanson and two other directors resigned from the board the day after Fraser's report was tabled in the Nunavut legislature.