CONTENTS
Thursday 12 May 1994
Audit Act amendments
Housing audits
STANDING COMMITTEE ON PUBLIC ACCOUNTS
*Chair / Président: Cordiano, Joseph (Lawrence L)
*Vice-Chair / Vice-Présidente: Poole, Dianne (Eglinton L)
*Bisson, Gilles (Cochrane South/-Sud ND)
Callahan, Robert V. (Brampton South/-Sud L)
*Crozier, Bruce (Essex South)
*Frankford, Robert (Scarborough East/-Est ND)
*Marchese, Rosario (Fort York ND)
*Marland, Margaret (Mississauga South/-Sud PC)
*O'Connor, Larry (Durham-York ND)
Owens, Stephen (Scarborough Centre ND)
*Perruzza, Anthony (Downsview ND)
*Tilson, David (Dufferin-Peel PC)
*In attendance / présents
Substitutions present / Membres remplaçants présents:
Wilson, Gary, (Kingston and The Islands/Kingston et Les Iles ND) for Mr Owens
Also taking part / Autres participants et participantes:
Amin, Karim, former director of audit, Ministry of Health
Ministry of Housing:
Glendenning, Andy, director, audit services branch
Singh, Brad, former director, audit services branch
Peters, Erik, Provincial Auditor
Clerk / Greffier: Decker, Todd
Staff / Personnel: Anderson, Anne, research officer, Legislative Research Service
The committee met at 0924 in room 151.
AUDIT ACT AMENDMENTS
The Chair (Mr Joseph Cordiano): Members of the public accounts committee, we're now 10 minutes behind schedule. I see that all members who wanted to start at 9:15 were here at 9:15, I think, and if they weren't, we're going to start now anyway.
We have as the first order of business a motion by Ms Poole. Perhaps we should read that into the record; I think we did already, but just to recap. Perhaps I could do it. The motion reads:
"That the standing committee on public accounts recommends to the Minister of Finance that the Audit Act be amended without delay to ensure that when conducting an inspection audit, the Provincial Auditor has full access to all information necessary to perform the duties under the Audit Act;
"And that a representative from each caucus discuss the matter with his or her House leader to ensure that this amendment to the Audit Act be given speedy passage in the Legislature."
Any discussion on Ms Poole's motion?
Ms Dianne Poole (Eglinton): I'm quite anxious, of course, to hear from the government members, since they had requested a one-week adjournment to elicit opinion from the Finance ministry as to a proposed timetable and as to the ability to get this legislation through fairly quickly.
What I would really like to see happen is for our committee to recommend this and then that we furthermore meet with our respective House leaders to urge them to consider speedy passage so that in fact we could have second reading and that it then be referred to the Finance committee over the summer for public hearings.
I think it's very important we move quickly. We don't know the life expectancy of this particular Parliament, whether it be a matter of months or whether it be a matter of a year or a bit more, but this has been something that has been suggested for some time. In fact, it's gone into the last Parliament and now has been carried over.
I'm concerned that if we don't get this legislation passed within this Parliament, we will again delay it and we'll probably then be looking at a 10-year hiatus over which this has been discussed. I would be very appreciative if the government members could tell us what they would feel about a proper timetable and the likelihood of all-party consensus on this issue.
The Chair: Before we move on with the next caucus, can I just suggest that I was supposed to allow the auditor to have an introductory comment.
Mrs Margaret Marland (Mississauga South): That would be a good idea.
The Chair: Would that be permissible at this point? Thank you.
Mr Erik Peters: Discussions about amendments to the Audit Act have taken place since 1990. Out of these discussions involving the public accounts committee, the staff of the Management Board, staff of the Ministry of Finance and staff of my own office, one issue has clearly emerged as requiring an amendment to the Audit Act.
That issue is the expansion of the audit scope by the Provincial Auditor for audits of records of grant recipients, principally to assess if grants were used for the intended purpose and if the grant moneys were expended with due regard for economy, efficiency and operational effectiveness, including if value for money was obtained.
As a result of the support that we have received from the public accounts committee since 1990 and to obviate the objections raised by grant recipients against audits of any records other than accounting records, that is, objections which severely limited the scope of the inspection audits and the scope of special assignments which can be given to my office by the Legislative Assembly, by this committee or by a minister, on May 2 I sent a letter to Mr Cordiano, the Chair of the public accounts committee, and I just want to highlight for you three paragraphs out of that letter because they are fairly important, as they refer to recent history in this committee.
"On June 17, 1993," -- less than a year ago -- "the public accounts committee gave me approval in principle to pursue with the central agencies the establishment of a workable legislated accountability framework before any amendments are made to the Audit Act. My representatives and I have been meeting with representatives of the respective central agencies to pursue this initiative; however, progress has been slow and there is no short-term prospect of putting the government into a position to ensure through legislation that more appropriate accountability, including value for money, is obtained for government expenditures in the form of transfer payments. While this proposed amendment to the act deals with grants, it could also serve to accelerate the establishment of a legislated accountability framework, which I have been advocating.
0930
"As you know, subsection 13(1) of the Audit Act permits the auditor to perform an inspection audit of a recipient of a grant from the consolidated revenue fund or an agency of the crown; however, the definition of an inspection audit in subsection 1(g) of the act is narrowly defined as `an examination of accounting records' and from our experiences has a scope-limiting financial audit connotation. The proposed amendment should therefore expand on the current discretionary inspection audit provision to permit the Provincial Auditor to perform a full-scope audit, including value for money, of a grant recipient.
"Many large grant recipients receive funding from various public and private sources. From our past inspection audit experiences, grants from the consolidated revenue fund and their related expenditure were often not segregated in the accounts of the recipient. Therefore, because of this commingling of funds and in the absence of a separate accounting of the related expenditure, the auditor's right of access should extend to all applicable records of the grant recipient.
"Accordingly, one approach would be to broaden the definition of subsection 1(g) of the Audit Act to read:
"`inspection audit' means the audit of such records and information as the auditor deems necessary to perform the duties under this act."
In the past there has been quite a bit of discussion on this. It's certainly up to the committee as to whether you want to go into additional public hearing on this, because it has been a widely discussed matter.
The other matters discussed for potential amendments in the past have either been overtaken by events or can be remedied by judicious use of section 16 or 17 of the Audit Act.
With that, Mr Chair, I'd like to conclude my opening statement.
The Chair: Thank you. I believe Mrs Marland or Mr Tilson.
Mrs Marland: I couldn't support this more strongly and I don't think there is probably much need to debate the motion. We have discussed this a number of times. I haven't been a member of this committee as long as my colleague, so I would leave it to Mr Tilson to make any other comments, but it's absolutely something for which the time has long since passed.
Mr David Tilson (Dufferin-Peel): Just to conclude on that, I can't understand why we even delayed it to today. I think Mr Marchese had requested that it be put over to today, and I'm sure he'll have something enlightening to tell us as to why he did that.
The Chair: I have Mr O'Connor and then Mr Marchese.
Mr Larry O'Connor (Durham-York): I appreciate the opportunity to speak on this motion. One thing I had suggested at the subcommittee was that we may want to suggest public hearings, not to another committee but to this committee, and try to build on a consensus we've had in this committee over longer periods of time and to bring forward some of the people and have some of their thoughts.
We've had public hearings in the past from audits done by the Provincial Auditor, such as some universities and school boards and what not. Considering that that's where this committee had felt that at times we never got a full accounting that we would like to have had, I thought that perhaps we may want to move in that sort of direction and bring some of those people forward for a discussion to take place here, given that we would know more the intentions we had as members of the public accounts committee.
I guess while I was in the Legislature with my own resolution, you had some debate on this last week and you had talked about sending it to hearings, not with this committee but through the finance committee. I think, given that we've got some ownership in this committee, maybe it would be more prudent use of our time for us to do some pre-legislation consultations.
The Chair: Mr Marchese is next.
Mr Rosario Marchese (Fort York): I just want to continue with what Mr O'Connor was saying. I know there's been a great deal of correspondence between different people on this, and I was reading the letter Floyd Laughren had written to Remo Mancini, the then Chair, in 1992. I know that discussion has been had, but not necessarily with some of the parties from whom I would like to hear. It's not necessarily because I might agree with them that I want to hear from them, but it's to have the discussion with people who are affected. It makes sense to know from them what it is they're concerned about, and then, according to that, draft proposed amendments to the act if necessary.
They're worried about the fact that the auditor would audit management policies. Others are concerned that since some organizations receiving payments are accountable not only to the Ontario government but to other parties as well -- municipalities and school boards are accountable as well to their local electorates -- the impact of the proposed changes to the act on these existing accountability relationships needs to be reviewed to ensure that these relationships are not adversely affected. I understand that and I get the sense that everybody else would as well.
Before we proceed with making changes to the act, I would personally be very interested in hearing from universities, colleges, school boards, municipalities, professional accounting associations, professional auditing associations, the Ontario Hospital Association and possibly other members of the public, but I wouldn't want hearings to go on indefinitely. I would even suggest that we have two days of hearings where we'd schedule a half an hour for each of these groups and be done with it. I don't want to go on for ever, but rather to listen to those groups.
I would propose that we have two days of hearings to hear from these people with respect to possible changes in the act, and from there decide what we can do. That would be the direction I would propose.
The Chair: I have Ms Poole, then Mrs Marland and then Mr Tilson. We have approximately 15 minutes left.
Ms Poole: Quite frankly, if I'd known this was the direction the government was headed in this week, I wouldn't have agreed to the postponement of the vote last week. Mr Owens made it quite clear that there was considerable support for this amendment, for this motion.
As far as hearing witnesses, I believe that is quite appropriate. The only reason I made reference to the finance committee is that traditionally the public accounts committee has not held public hearings. We have held hearings by invitation where primarily they are people from but not restricted to the ministry. In certain instances we have called forward experts for their testimony and for their assistance. If you are going to engage in full public hearings, it would probably be more appropriate to take it to the finance committee.
I'm not concerned whether it goes here or to the finance committee; I'm concerned about the timing. If we do as Mr Marchese and Mr O'Connor have suggested and hold hearings before introducing any legislation, that is going to delay the whole impact by some time. The whole purpose of having committee hearings after second reading is so that we can solicit input, so that we can at that time make any appropriate amendments and so that the committee can have an opportunity to ensure that the legislation meets the requirements we set out and does in this case what the auditor requires and also is sensitive to what the transfer partners and other partners are saying.
I do have concern about having the hearings before an amendment is introduced to the Audit Act. I think this will slow the process down and I think it will guarantee that we do not have this legislation passed by the time this Parliament ends. That is one of my major concerns.
Mrs Marland: I would like Mr Marchese and Mr O'Connor to look at the wording of this resolution. For the sake of the record, I'm going to read it:
"That the standing committee on public accounts recommends to the Minister of Finance that the Audit Act be amended" -- I think everyone in this rooms knows and understands that this requires legislation, a bill coming into the House -- "without delay to ensure that when conducting an inspection audit, the Provincial Auditor has full access to all information necessary to perform the duties under the Audit Act."
I could not believe that there is one member of this committee or of this Legislature, of all three parties, who wouldn't want to require the auditor to be able to do his job. If you want to defend anything that interferes with the auditor doing his job, then I would say shame on you, because when we're asking the auditor to do a job, obviously he has to have full access to all the information necessary to perform those duties under the Audit Act. We're not giving him new powers outside of the Audit Act. That's not what is being suggested here. What is being suggested is that he has access to information.
0940
Mr Marchese says he wants to hear from members of the public. I'll tell you now what the public of Ontario want. They want accountability, they want money being spent for value and they want to know that their tax money is not being misused by anyone who has access to it.
So all this motion is saying is, let the auditor and his staff have access to information so that any government, whether it's yours, ours or theirs, will be able to turn around to the public on a public platform anywhere in this province and defend the spending, because the auditor has the power to investigate where that money is spent and how it is spent and report it back. The auditor isn't going to say whether or not it should be spent. He's just doing an audit report.
If you want to delay it, exactly what you're talking about this morning will succeed and you've got the votes on this committee to delay it. But if you're really sincere about wanting to hear from people, why don't you let them introduce the bill? Let us go through the normal process of legislation, which will involve public hearings, as every one of you knows. If you want to stall it now, what you're saying is that what the auditor said last year about the bookkeeping of the Bob Rae-NDP government -- unfortunately I don't have the auditor's report in front of me, but we all know it was very critical.
We all know there's a shell game going on in how the NDP does its bookkeeping. We know that even your acts that hand off debt to new crown corporations so you don't have to report it as the provincial debt any more -- we all know this is all going on. I'm simply saying that if you can't support this motion today because you're frightened of being told how to keep the books of this province clean, clear and open, then you be accountable to your constituents, because I think it would be disgusting -- there's no reason to delay it. There's a full public process that will come as a result of legislation to amend the act, and if you don't understand that by now, we're in worse trouble than I thought.
The Chair: I have a lot of speakers on this matter. By agreement, we decided last week that we would commence the next order of business on the agenda at 9:45. If it is the desire and the wish of the committee to continue with this debate past that point, so be it; I will abide by the committee's wishes. Otherwise, by previous agreement, we will proceed and commence with the next set of matters before us. You do have a couple of minutes left on this side. I have Mr O'Connor, Mr Marchese, Mr Bisson. I don't know how you wish to divide that two minutes, but I leave that in your hands, gentlemen.
Mr Tilson: On a point of order, Mr Chair: With regard to speaking order, I don't think there was a discussion about rotation and I think I was next.
The Chair: I was trying to divide the time that remained evenly. What I was trying to do was give each party three minutes at a time, and Mrs Marland spoke for almost four.
Mrs Marland: You didn't say that, in fairness.
The Chair: I did say that to the clerk, did I not?
Interjections.
The Chair: Order, please. We can continue with this if you wish. It's just a matter --
Ms Poole: On a point of order, Mr Chair: I know we had unanimous agreement last time to start at a quarter to 10, but a number of members were not here at 9:15, as agreed, so we were 10 minutes late. May I propose that we continue this discussion for 10 minutes, and that at five to 10 we begin with the Houselink information?
The Chair: Okay. That's fine if that's the committee's wish. Ten minutes. We will continue then till five to 10. I have Mr Tilson on the list and then I have a continuing speaking order. Mr Tilson, you're next, and what I will do is try to divide the time between all three parties to continue with some fairness. There were a couple of minutes left before you start, Mr Tilson.
Mr Tilson: We had unanimous consent last week to start the next topic at 9:45.
Mr Gary Wilson (Kingston and The Islands): That was last week.
Mr Tilson: I know. That was then, this is now. I hear that all the time from you people.
Interjections.
The Chair: Order, ladies and gentlemen.
Mr Anthony Perruzza (Downsview): Are you asking for a vote or unanimous consent?
The Chair: I was asking for unanimous consent, as is always the case on this committee. If we do not have unanimous consent, then we will proceed with the next order of business on the agenda. It's as simple as that. Fine. We will commence the next order of business on the agenda.
Ms Poole: Let's take a vote.
The Chair: We will take a vote at some point this morning. We can do it now or we can do it later.
Mr Marchese: Mr Chair, we don't need unanimous consent, if someone moves that we extend this matter for another 10 minutes, and I propose that as a motion.
The Chair: If you move that as a motion --
Mr Marchese: I move that we extend this discussion for another 10 minutes.
The Chair: Mr Marchese moves that we extend the discussions for 10 minutes. All in favour? All opposed?
Mr Marchese: It carries. Okay, move on.
The Chair: It carries. What I will do at this point is have an evenly divided rotation, and I'll start with Ms Poole --
Interjections.
The Chair: I am trying to abide by the wishes of the committee, and the Chair has to do that. So I will carry on with Ms Poole first on the list, and you have three minutes approximately. I'll try to keep the time divided evenly.
Ms Poole: My colleague Mr Crozier also wants to speak, so I'll keep my comments very brief. I think it's unfortunate sometimes that we get into partisan wrangling when we're all trying to accomplish the same thing. I do not doubt the sincerity of government members who say that this is something they'd like to accomplish in support of the auditor, to ensure that in fact he has the information he needs to do a proper job of auditing the provincial funding.
But I am concerned with delay and I really do urge government members to support the motion. It does not say in fact what the amendment will be; it just talks about recommending to the Finance minister. We would be more than happy to support public hearings, but let's get the process moving. Let's get the legislation introduced and let's just not delay. I think that's something we all want, not to delay this further.
Mr Bruce Crozier (Essex South): I just wanted to say that, being a relatively new member of this committee, I'm surprised in fact that the auditor has not had this authority in the past. I think any delay at all would be unjust. I would expect that we would get 100% agreement from anybody we might bring to a public meeting and I would suspect any group or partner that would not want the auditor to have access to any and all information that he needs. So I would urge each of us to support this motion.
Mr Tilson: This topic has surfaced many times since 1990 and perhaps before, but since I've been on this committee since 1990.
Ms Poole: Since 1988.
Mr Tilson: It may well have, but I'm just telling you what my experience is. We've had audits of school boards and universities. This committee discovered that the Provincial Auditor was hampered in completing his duties. This topic has been discussed over and over and over during that time. It became quite apparent in interviewing -- and I'm really providing a response to Messrs O'Connor and Marchese's comments to delay this matter even further, because I can tell you that we discussed this topic with hospital boards, with school boards. I think you've been on the committee. We discovered that we simply couldn't get at certain things.
That was the purpose of the previous auditor, prior to Mr Peters, making requests that this committee pressure the government to have amendments to the Audit Act. It became quite apparent, by dealing with members of the public, with members of the civil service, that he wasn't able to perform his job in the way that not only he but -- Mr Peters has said the same thing. So that is the purpose of the motion.
We have had public hearings and we have spoken to the very people -- Mr Marchese may well be reading letters that he received when he was on the finance committee, but I can tell you that we've been talking about this for at least three years and we don't need preliminary public hearings leading up to a resolution or to a bill.
0950
The purpose of this resolution is to forthwith bring the matter to the House in the form of a government bill with unanimous consent and then have public hearings. I think it would be most useful. But to have public hearings prior to the bill and then more public hearings is a complete waste of time.
We've had two auditors tell us that they can't do their jobs, and now you're telling us, "Delay." I don't blame you, with some of the things that are starting to surface, particularly in Housing, that you do want to delay.
The Chair: Thank you, Mr Tilson. I have Mr O'Connor and then Mr Marchese, and if there's any time remaining --
Mr O'Connor: Mr Chair, I find it unfortunate, because this committee itself can be very non-partisan at times, that when committee members walk into this room, sometimes they forget that. We have committee members who haven't been on the committee as long as Mr Tilson and I have been in this Parliament. When Ms Poole raises the issue that this has been brought to the committee time and time again, I agree with her. The unfortunate part is that there doesn't seem to be a lot of consensus among people working within the bureaucracy that this is a good move.
Mrs Marland: Of course not.
Mr O'Connor: The unfortunate part of this is that we all, as committee members, agree.
Interjection.
Mr O'Connor: Mr Chair, as soon as Mrs Marland is finished, I'd like to continue.
This committee has an opportunity here to help move it along, not to just demand that the Minister of Finance move forward with this but to actually be part of the process that's going to help. This committee has heard from, yes, the auditor and the previous auditor about problems. What I am suggesting is not to put off the problem and let someone else deal with it, but for us as committee members to deal with it, to start to develop the consensus that will allow us to bring the legislation forward. We've done that before in the past, in other areas. It's not an uncommon practice.
I use Bill 119, the tobacco act, that I'd been involved with. We went out there with draft legislation, had extensive consultations, brought forward legislation and further extensive consultations. If this committee feels so strongly about moving this act forward, then I think we ourselves should be trying to bring in some of the people who have concerns about it and have some discussions ourselves. I don't think that's beyond the scope of this committee to deal with that.
For us to have legislation introduced and have the finance committee not come through with the wishes that we, as committee members, would like to deal with, then I think we're wasting a terrific opportunity to actually accomplish what exactly Ms Poole is trying to accomplish here. Instead, we're going to have it maybe not be accomplished at all.
The Chair: Mr Marchese, one minute remaining.
Mr Marchese: You have two ways of dealing with it, obviously. If we don't pursue the motion as it is worded, the impression that you want to leave the public with is that we don't support having the auditor do what you feel he should do. What we're proposing is, do the consultation first to get to the same matter. I'm not quite sure you've had public consultations on this specific issue at all.
What I would like to recommend is that the standing committee on public accounts recommends to the Minister of Finance that they proceed with public hearings or consultations immediately to consider amendments to the Audit Act, including increasing the Provincial Auditor's scope of value-for-money audits to include payments to transfer recipients.
I think we could move such a motion that has the support of all three parties, that it be done immediately and not be done in 1995 and that if you have public hearings, not that they should last months and months but rather put a scope or time limitation to that so that people can come to two or three public hearings. If there's no time to fit the rest, they could send in writing their suggestions or proposals. Once we have that, it comes back to this committee for discussion and we can deal with that forthwith.
We're not postponing it. We're not opposing the sense of what you want to do. I think this motion gets to where you want to go and I hope you will support that.
The Chair: Thank you, Mr Marchese. At this point, the time has expired. The 10 minutes are over.
On a point of order, Mr Bisson.
Mr Gilles Bisson (Cochrane South): I need to put something on the record. I want to say that I want to support --
The Chair: I'm sorry, it's not a point of order, Mr Bisson. I do think we should move on. Is the committee now ready to take the vote on the motion?
Ms Poole: Mr Chair, there appear to be two motions. I would ask that my motion go first.
The Chair: We're only considering the matter that was before us.
Ms Poole: Mr Marchese moved a second motion. I think we should take a vote on both of them, but I think mine should be taken first.
The Chair: There is only one motion on the floor. That is the motion by Ms Poole, and that's the matter that we are dealing with this morning. Is the committee ready to take a vote on this motion? Yes?
All those in favour of Ms Poole's motion?
Mr Tilson: Recorded vote.
Ayes
Crozier, Marland, Poole, Tilson.
Mr Marchese: Mr Chair, I move a recess because of the bells.
The Chair: I'm sorry, Mr Marchese. We have started to take the vote and cannot entertain your motion to recess. All those opposed to the motion?
Nays
Bisson, Frankford, Marchese, O'Connor, Perruzza, Wilson (Kingston and The Islands).
The Chair: The motion is defeated.
Mrs Marland: Are all these actually members of the committee?
Mr Marchese: Mr Chair, I have a motion.
I move that the standing committee on public accounts recommends to the Minister of Finance that they proceed with public hearings to consider amendments to the Audit Act, including increasing the Provincial Auditor's scope of value-for-money audits to include payments to transfer recipients, and that this be done without delay.
Mrs Marland: On a point of order, Mr Chair: I would like to know if the six members who just voted on Ms Poole's motion are all -- if you have sub slips or they are members of this committee.
Mr Marchese: They're members of this committee.
Mrs Marland: It's a fair question.
The Chair: They're all members of this committee, Mrs Marland.
Mr Marchese has put a motion --
Mrs Marland: We see different faces.
The Chair: Order. Mr Marchese has placed a motion on the floor. By previous agreement, I will repeat, the committee decided to move with the next agenda item, and by previous agreement we decided to extend the time to this point, but we do have the matter that is next on the agenda to be dealt with. If the committee wishes and if there is consensus, we can move to proceed with Mr Marchese's motion on the floor. If not, we will move on to the next order of business.
Ms Poole: Might I suggest, just to expedite this, that we have already had an opportunity to debate the thrust of Mr Marchese's motion. Can we take a vote now? Can we have consent to do that without further debate so that this issue can be dealt with without delay?
The Chair: Is there agreement to do that?
Mr Tilson: No.
Mr Marchese: I propose that we extend time to deal with this motion for five minutes.
Mrs Marland: Maybe you'd like to circulate your motion in writing.
Mr Tilson: On a point of order, Mr Chair: The rules are changing in this place. I can't believe the rapid pace that the rules are changing. We had an agreement at one point last week that this debate on the next topic will begin at 9:45. We had another agreement that this would be extended 10 minutes. We've already gone beyond that, and now Mr Marchese wants to change that rule. It's a nuthouse in here. Let's get some order.
The Chair: I just wanted to consult with the clerk. The committee does have a notice-of-motion provision which can be exercised. We had a previous agreement to deal with the order of business on the agenda that is next, and unless the committee wishes, we will proceed to that item.
Mr Marchese: I had moved a motion that we deal with my motion and that we take five minutes to deal with that. That's the motion I put before you. I realize that we could put this as a notice of motion, but I propose something else.
Mr Tilson: Point of order.
The Chair: We can move -- just a moment, please. Mr Tilson, on a point of order.
Mr Tilson: I'm still waiting for your rule on the point of order that I made.
Mr Marchese: There is no point of order.
Mr Tilson: It was that time is expired that Mr Marchese moved the last time. That 10 minutes has long since expired.
Interjection: By agreement.
Mr Tilson: Either we have rules in this committee or we don't, and it appears that we don't.
Ms Poole: On a point of order, Mr Chair.
The Chair: No. I will make this ruling. Obviously, we do not have agreement. There is a lack of consensus. The committee can move forward in any way it wishes by voting on the matter, and the majority rule will prevail. If Mr Marchese's motion is to be put on the floor, at that point we will vote on the motion. We can vote on any motion. It's a question of how the committee wants to move forward.
Mr Tilson: You're quite right, Mr Chair: The majority rules, and the majority has shown what it's going to do in this place.
The Chair: I believe we should deal with this motion at this present time, because there is a lack of consensus to move forward. Mr Marchese's motion --
Mr Tilson: Mr Marchese's stall tactics.
The Chair: Order. We will have a five-minute recess to regain our composure, gentlemen and ladies.
The committee recessed from 1001 to 1008.
The Chair: Order. We will commence once again with the proceedings. The matter before us is the motion that was placed on the floor by Mr Marchese.
Mrs Marland: I move that the question be called.
Mr Marchese: Can I make just a slight amendment for clarity, Mr Chair? I want to change the conclusion.
The Chair: On your point of order, the motion has been put and the matter is on the floor. I don't think we can correct the motion, as I've been instructed by the clerk. Mrs Marland moved that the motion be now put, so the matter will be placed on the floor. Mrs Marland, do you wish to withdraw that so Mr Marchese can amend his motion?
Mrs Marland: Of course.
Mr Marchese: Thank you, Margaret. At the end of the paragraph, where it says, "and that this be done," change it to "and that these public hearings be held without delay."
Ms Poole: Mr Chair, I was hoping we'd all agree that in the third line, instead of saying "that they proceed with public hearings," we say "that public hearings be held." It leaves leeway for our committee to hold the public hearings instead of the Finance minister, if that's what we all feel is appropriate.
The Chair: Perhaps I could summarize it. "That the standing committee on public accounts recommends to the Minister of Finance that public hearings be held to consider amendments to the Audit Act, including increasing the Provincial Auditor's scope of value-for-money audits to include payments to transfer recipients, and that these public hearings be held without delay."
Mrs Marland: Can we just say "that public hearings be held by this committee"?
Ms Poole: I think that's what Joe said.
The Chair: All those in favour? It's unanimous.
Mr Tilson: A recorded vote.
Ayes
Bisson, Crozier, Frankford, Marchese, Marland, O'Connor, Perruzza, Poole, Tilson, Wilson (Kingston and The Islands).
HOUSING AUDITS
The Chair: Perhaps now we can move on with the second matter before us on the agenda. Ms Poole, will you take the chair, please?
Mrs Marland: Madam Chair, I have a point of order on business. My understanding was that our order in this review of business was that we would start with the authors of the audits so we would know how the audits were done etc, and then we would move to the ministers, and obviously that would include the deputies. That way, we would know the questions to be asked. I just noticed from the printout of the agenda that we are listing Mr Burns and the ADMs and so forth. I just want to be clear that we are going to start with the authors of the audits first.
The Vice-Chair (Ms Dianne Poole): Brad Singh from the Ministry of Housing is actually the person who signed the audit. In addition, we have the chief auditor present today. They will be given an opportunity to answer questions and they will be heard from today.
Mrs Marland: My point is very specific. It was my understanding that we were going to start with them.
The Vice-Chair: Yes.
Mrs Marland: Fine.
The Vice-Chair: The clerk has advised me that the Ministry of Health officials will be coming a bit later, and that this was an agreement by the subcommittee, and will be starting with the Ministry of Housing officials. I would call them forward at this time.
Mr Tilson: Madam Chair, I don't think you heard what Mrs Marland was saying. I understand it's only the auditors, the authors of those reports, that we're having today, and any support people they wish to bring with them. But the deputy ministers aren't coming today, are they? Mr Burns is on the agenda.
The Vice-Chair: For clarification, we do have witnesses from the Ministry of Housing, but we are beginning with the auditors of the reports. We will begin with the auditor from the Ministry of Housing, and the auditor from the Ministry of Health will be joining us a bit later.
As committee members are aware, on the agenda item we have issues concerning Houselink Community Homes Inc and Supportive Housing Coalition. I call the witnesses forward at this time. Please identify yourselves for the purpose of Hansard, including your names and the titles that you hold.
Mr Andy Glendenning: My name is Andy Glendenning. I am currently the director of the audit services branch in the Ministry of Housing. I have been director since January of this year. At this point, I should also introduce Mr Brad Singh, who is the former director of the audit services branch of the Ministry of Housing.
To explain how we will proceed, I'm not going to start with a history of non-profit housing; that's not in my jurisdiction. I would like to give some idea to the committee of the process of control exercised by audit and go through that very briefly, and then perhaps we can get into a presentation by Mr Singh on the audit itself. We're dealing now with the Houselink audit, as I understand it.
Mrs Marland: Can I just ask how long you're going to be, Mr Glendenning, in terms of talking about process?
Mr Glendenning: Very brief. What I wanted to address, as I said, is the process of control through audit of non-profit corporations. To deal with internal audit, that is a management tool. Internal audit within an organization differs from external audit. External auditors are primarily engaged to professionally attest to the accuracy of an organization's financial statements. The internal audit's function is to examine the adequacy of the organization's financial and management controls and suggest improvements, where required.
Neither internal audit nor external audit has as its prime purpose a detection of wrongdoing. Management improvement is the prime purpose of internal audit, and financial accuracy is the purpose of external audit. However, where issues of doubtful judgement or wrongdoing are discovered, these are identified in the audit report.
The internal audit function within ministries differs also from the role of the Provincial Auditor. While both concentrate on reporting on value for money and management improvement, the Provincial Auditor has a corporate perspective and reports through the public accounts committee to the Legislature. The internal audit function, while independent within the ministry, reports to the deputy minister and/or, in some cases, the ministry audit committee. Again, its concentration is on internal improvement.
Verification of compliance processes are, or should be, built into the ministry's programs. It's the program management's responsibility to carry out these checks as part of the operational procedure. It is these procedural controls that are most often scrutinized by the internal auditor.
Just a bit of background on the non-profit program: The non-profit housing entities are independent corporations registered as not-for-profit. They are accountable to an independent board of directors appointed under the corporation's bylaws. Funding is available through the province for various housing projects. The non-profit corporation may apply for funding and, if it is granted, must meet ministry-determined conditions.
If I could outline those conditions, in part, a non-profit corporation in receipt of provincial funding must have contracted with a qualified external auditor, that is, a private company, to perform the following: first, an audit of the final capital cost of each project and, second, to perform annual attest audits of expenditures against budget. By "attest audits," I mean the accuracy of the financial statement.
For the past year, the ministry has been developing a more mature and streamlined accountability framework for the non-profit housing program. As part of this process, the ministry has worked closely with the Institute of Chartered Accountants of Ontario to develop a more effective auditing and reporting process. These efforts have culminated in the development of new annual information returns from non-profit groups and in the issuance in February by the Canadian Institute of Chartered Accountants of recommended reports for use by chartered accountants in their audits of non-profit housing corporations. The new annual information returns and audit reports will increase the ministry's assurance concerning the compliance of non-profit providers with their operating agreements and will provide more effective and efficient monitoring of non-profit financial and management practices.
The regional offices of the Ministry of Housing are in frequent contact with the non-profit corporations. The budget and year-end financial statements are approved annually, as are the submissions of the external auditors' statements. The regional offices periodically perform compliance reviews of the housing programs to determine compliance with program guidelines with respect to administration of the non-profit corporation.
1020
The audit services branch of the Ministry of Housing performs audits of non-profit corporations at the request of the regional offices. Candidates are identified by the regional offices annually and are determined through these compliance reviews and the liaison with the non-profit corporations. Currently the branch is able to perform 10 to 12 such audits a year.
Each year, as part of its audit planning process, the audit services branch asks the regional offices to name candidates for audit as identified in the regional reviews of non-profit projects. These may be included in the audit plan based on audit selection criteria. This would include the relative size and complexity of the non-profit, the currency of the group's submissions and regional office's reviews -- that is, the budget, annual returns etc -- suspected impropriety with respect to operating or capital costs or potential conflict of interest, any significant non-compliance with ministry expectations, any potential loss due to misappropriation, any third-party complaints, and perhaps a history of unresolved conflict with the regional office.
In 1993-94, 15 non-profit audits were undertaken. Five are complete and 10 are awaiting completion.
In the 1994-95 audit plan, 27 audits of non-profits have been requested, of which the audit services branch will be able to perform 10 to 12.
It's important to emphasize that the audit report the committee has seen, due to the process of financial control and audit that we follow, is not necessarily representative of the operation of non-profit corporations throughout the province. Because we have a process of elimination through the external auditors, through regional office reviews, before they reach the audit services branch, these audits and others are undertaken when out-of-the-ordinary problems are identified.
That ends my comments. I'll turn it over now to Brad Singh, unless there are any questions.
Mrs Marland: I have questions.
The Vice-Chair: Mrs Marland, perhaps it would be appropriate to hear from Mr Singh first, and then open up for questions from members. That might be a more orderly process.
Mrs Marland: That's fine with me.
Mr Brad Singh: I would like to open my remarks by thanking the committee for providing me with the opportunity to come here today to talk about the two audits, the Houselink audit and the Supportive Housing Coalition.
I want to touch a bit on the process that was followed in both audits. In both audits a lot of similarities were employed. To begin, both audits were requested by the manager of our regional office as a result of concerns that arose from audits being conducted by the Ministry of Health. Those were both requested audits.
Mrs Marland: The Ministry of Health, did you say?
Mr Singh: Yes. In setting the scope of the audit, we began by consulting the regional program staff to determine what information they wanted from the audits. In both cases we met with the Health auditors, liaised with them, and reviewed their audit working papers to avoid duplicating work. As a result of that review, we decided to limit our examination to only transactions that were funded by Housing in both entities.
We obtained as much information as possible prior to visiting the actual non-profit organization and actually developed a tentative audit plan before we visited them.
In both cases, the audit period was the same. It covered the operating expenses for the fiscal years ending March 31, 1989, and March 31, 1990. We also reviewed the capital costs of completed projects in both entities and projects that were being developed.
We held opening meetings with each non-profit group to tell them what the audit was about, the scope, the timing and so on, and to answer any questions they had, and we made preliminary visits to the offices of the two non-profit groups. As a result of these visits, we refined our audit plans.
In our actual field work and testing, we reviewed accounts, we reviewed transactions, documents, we interviewed staff, we visited actual projects and, in the case of the Supportive Housing Coalition, we visited two support agencies.
During our work, ongoing discussions were held with individuals involved in both organizations. At the end of the field tests and work, we discussed our findings with the regional staff on a preliminary basis.
Subsequently, we issued a draft report that was issued to the region for consideration, and in the end we issued a final report. Subsequent to the final report, the region met with the groups to agree on the corrective actions they would take.
Those are the similarities that we used in both audits.
I would like to move a bit into one special area, and that is the special investigative procedures we used in one audit.
Mrs Marland: Could you just say when you issued the draft and final reports?
Mr Singh: The final report for Houselink was issued in February 1991. The final report for the Supportive Housing Coalition was issued in March 1992. I can get you the draft reports.
Mr Perruzza: Madam Chair, I thought they were going to give their presentation and then we would ask questions at the end.
The Vice-Chair: Mrs Marland was asking a point of clarification. That's why I allowed it. I understand that all members have a copy of the two reports, so you should already have that information available.
Mr Singh: I could get back to you later on those two dates.
I mentioned the similarities in the process undertaken in both audits. In the case of the Houselink audit, however, we undertook some special investigative procedures.
Normally, as Andy, my colleague, has said, an audit of a non-profit housing corporation will focus on the adequacy of financial controls, and management controls to some extent. However, in the case of the Houselink audit, because of the concerns that came to our attention, we expanded our scope and we employed additional audit investigative procedures that an auditor would not normally use in an audit of this nature. The reason for this is because an auditor has a professional duty to exercise due care and extend his procedures and techniques where appropriate so as to arrive at a satisfactory conclusion.
In using such procedures, for example to detect fraud or unlawful activity, the auditor would be looking for evidence of deliberate intent to deceive to obtain a benefit not otherwise entitled to, using such means as falsification of books and documents, misappropriation of funds and theft, forgery and so on. If such evidence is found, the auditor should immediately bring the matter to the attention of senior management, since there is an obligation of every citizen to report unlawful activity to the police.
The special procedures we used in the Houselink audit included the following:
-- We performed title searches on all Houselink properties.
-- We performed title searches on the real properties owned by one individual.
-- We performed searches of ownership of companies of major Houselink contractors.
-- We interviewed some Houselink suppliers and examined documents provided. I recall in one case my staff actually went out to visit one supplier and examined documents in his premises.
-- We interviewed the former board chairman at our office and we followed up on some of his concerns.
-- My staff conducted site inspections and considered the reasonableness of repair costs, with the assistance of program technical staff.
1030
These special investigative procedures did not uncover any evidence of unlawful activity. In fact, I recall that at a joint meeting of the audit and program staff from both the Housing and Health ministries on October 12, 1990, we discussed this matter and we jointly agreed that there was no evidence of fraud or unlawful activity.
Therefore, although in the Houselink audit we considered the possibility of fraud and unlawful activity, the facts we uncovered just did not support this. What we found instead, as indicated in the reports before you, was poor fiscal management, poor procurement practices and incorrect accounting treatment, exercised probably by individuals who were well intentioned but who had very little expertise in these areas.
In ending my remarks, I wish to point out that the situation that existed in both audit reports occurred some years ago and it may not be a true reflection of what exists today in these two organizations. In fact, it is my understanding that corrective action has been undertaken in both cases. Our program staff, who are here today, can provide you with more details on the corrective action, if you so wish.
Mr Perruzza: Madam Chair, could we get a copy of those comments?
The Vice-Chair: Do you have written comments, or are they just made from notes?
Mr Singh: They're a bit rough. Do you want it now?
Mr Perruzza: I'd like to have them now. We get them in Hansard anyway, but not for a couple of weeks.
The Vice-Chair: Mr Singh, would you have any problem giving your rough notes to the clerk for distribution?
Mr Singh: No.
The Vice-Chair: We'll have the clerk make copies for all members for distribution.
We will have rotations by the three caucuses. I would suggest we'll start with 10-minute rotations and then divide the remaining time up after we see how long the first round goes. We'll start with the official opposition, Mr Cordiano.
Mr Joseph Cordiano (Lawrence): Let me start by saying that I believe what we will deal with on this committee is an effort to ascertain from the audits you conducted the administrative procedures and policies that were in place, or the lack of those, at both the ministry level and the agencies themselves, having conducted themselves in this fashion.
Obviously, as you've pointed out, if any wrongdoing has taken place, I believe those matters are left for the investigators, who would then undertake a proper criminal investigation of those activities. I take it from your audits -- and these documents have been made public now -- that in your opinion there was no wrongdoing. I think that's a separate issue from what we will deal with, in terms of the matter of criminality or wrongdoing and fraudulent behaviour.
I would like to focus my attention, from your audits, on the administrative policy review of those practices that were in place and the lack of those practices. We don't have copies of this, but following on the heels of the auditor's report of 1992, this committee undertook its review of the report. We had numerous hearings that took place at quite some length. We had officials from the Ministry of Housing come before us to review the non-profit program and the findings the auditor made in his report of 1992.
What I find interesting is that the auditor did not have access to these internal audits that were conducted on the Supportive Housing Coalition. One is dated April 21, 1989, a report addressed to Martin Barkin, MD, Deputy Minister of Health back then. There were a number of items in this report and recommendations around administrative procedures and the failure to follow those procedures.
I also find it interesting that there is a letter dated October 24, 1991, addressed to Michael Decter, about Houselink Community Homes: "a copy of our audit report on Houselink Community Homes," from the period April 1, 1988, to March 31, 1990. I don't believe the auditor had access to that audit either. I believe there is another internal audit that refers to Houselink Community Homes, also done by the Ministry of Housing. The date of that I don't have, but it's an earlier report.
I point these out because the auditor conducted his audits -- March 1992 was the completion of his audit -- and he did not have access to these audits. I find it interesting that when the Ministry of Housing appeared before us, their view was that they had not compiled enough data around particular projects and enough information about what was taking place in the Ministry of Housing in terms of projects in the non-profit program. As a result, their lack of data, they say, was why they couldn't come up with a management system that was truly accountable. They didn't have enough data, they said. I find this rather interesting, because these audits were conducted precisely for that reason, to get some data to understand what was taking place in particular projects. There were concerns around lack of procedures, as you pointed out in your audits, throughout this process.
The Vice-Chair: Mr Cordiano, I apologize for interrupting, but the auditor wanted to make a point of clarification about one of your comments.
Mr Peters: If I may, Mr Cordiano. If we had asked for those records, those audit reports, we would have had access. I just want to put on the record that there was no denial of access at any point.
Mr Cordiano: Did you have knowledge of these reports?
Mr Peters: As far as the Housing one is concerned, we probably looked at them in our planning phase of the audits, where we sort out which are the major issues and which are issues we're not pursuing. As far as the Health audit is concerned, we were not pursuing at the time these audits occurred an audit of the mental health program of the Ministry of Health, so we would have had access but we would not have pursued any issues arising out of those reports.
Mr Cordiano: I understand that, but these matters were pertaining to housing. The reports were around the conduct of these agencies in the process of doing their reviews of housing projects, their overlaps in terms of the Supportive Housing Coalition.
Mr Peters: That's true, and your points are perfectly valid. I just wanted to correct that if we had wanted to have access to these records, to these audit reports, we would have had access.
Mr Cordiano: But no one volunteered these reports, is what I'm suggesting.
Mr Marchese: No one said, "Here, look."
Mr Cordiano: The point is, this is the auditor of the province of Ontario coming in to do a report. The ministry's attitude throughout this entire process was, "Because these projects have gone forward and have been built with urgency and with haste because of the acute shortages, we don't have enough relevant data to determine whether" --
Interruption.
The Vice-Chair: Mr Cordiano, I'm sorry, the bells are ringing for a quorum call.
Mrs Marland: We're not going to adjourn for a quorum call; I'm sorry.
Mr Perruzza: Well, if you guys play games in the House --
Mr Tilson: We're not playing games. You've got to keep a quorum in there, and you can't keep a quorum.
Mrs Marland: You've got 69 members.
The Vice-Chair: Mrs Marland, the standing orders require that if there is a quorum call, the committee be adjourned until such time as the quorum call is satisfied. We will have perhaps a very brief recess until the bells stop ringing, at which time I would ask members -- I am calling the meeting back to order. Mr Cordiano, the quorum call has been satisfied, so we are going to continue.
1040
Mrs Marland: Why don't we have 20 minutes instead of 10, because Joe has been going 10 and he's not --
Mr Cordiano: I've gone 10 minutes?
The Vice-Chair: Mr Cordiano has two more minutes plus a bit of time for the interruption.
Mrs Marland: Let's go for 20-minute portions instead.
Mr Marchese: Ten minutes is fine.
The Vice-Chair: Being a Liberal, I will compromise. Why don't we change it to 15?
Mr Cordiano: The point I'm trying to make through this is that the auditor did conduct an audit trying to ascertain a number of pieces of information out of his audit. At the end of the day, not having access to this information, or at least this information wasn't made available -- I'm sure that if there were knowledge of the information or it related to his own audit, the request would not have been denied. I don't doubt that.
All I'm suggesting is that the approach taken by the ministry during the time we had our hearings was to say that there were no relevant data or that there was not a compilation of data readily available to be able to ascertain what new procedures should be put in place, what new accountability framework should be put in place, what new models should be put in place to account for demand and need etc, all these items that were contained in our report that the auditor's findings alluded to.
I'll just list some of the recommendations we put forward in the report of the public accounts committee. One of them was, "The Ministry of Housing should adopt a directive on competitive procurement practices to ensure that administrative procedures are followed to promote economy, efficiency and effectiveness in the development of residential units in the non-profit housing program."
Further, another recommendation, "The Ministry of Housing should review the application of the conflict-of-interest directive at the end of the first year...the Ministry of Housing should develop an improved methodology to control capital costs which would include an assessment of the `maximum unit price'...." etc.
These reports would have indicated that there were problems and would have pointed to the need for corrective action, which you obviously have done in your report. The recommendations that follow speak to these concerns. There needs to be a full accounting for the lack of action by both ministries for having to correct these deficiencies. With your recommendations, that could have easily been accomplished.
Speaking to the Houselink audit report for the period April 1, 1988, to March 31, 1990, specifically the $2.4 million that was shown on the books of this organization as schedule A, if you can follow this -- I think it's on page 2 of that particular report -- you say that "these surpluses had accumulated since 1984.
"A further analysis of Ministry of Health's surplus of" $2.1 million "showed that it was represented by," and you break it all down.
"In addition to the above cash, there was another bank account in the name of Houselink...having a balance of" half a million dollars, or close to $600,000, "as at March 31, 1990."
Further to that, on the bottom of page 4, you say, "Our analysis, after making appropriate adjustments, showed that of the" $1.3 million in a term deposit, "at least $1 million belonged to Ministry of Health." So you're talking about $1 million that belonged to the Ministry of Health after you'd done this audit report.
There isn't enough time to go into other matters, but if you would like to --
Mr Singh: Mr Cordiano, what you're referring to is the Health audit. I think it's more appropriate if the Health auditors answer your questions. We did the Housing audits.
Mr Cordiano: You specifically did not deal with any of these overlaps then.
Mr Singh: No, because what we did, as I said in my presentation, is that we liaised with the Health auditors and we tried to avoid any duplication of work.
Mr Cordiano: This is Houselink's audit for that period. That's why I pointed out the exact dates, so that we could straighten out which one of these -- there are about four audits before us. I understand that there is a Ministry of Housing audit report.
The Vice-Chair: Mr Cordiano, just before you continue, I think Mr Glendenning had a comment to make in response to your question.
Mr Glendenning: Just to deal with the first part of your question, I'd like to emphasize what the Provincial Auditor has already said. When they came into our office, our files were open to the Provincial Auditor. There was no question of hiding anything on our part. I'd like to say that they were open.
Mr Cordiano: I'm not suggesting that.
Mr Glendenning: Okay. In terms of the second question you were asking, in public accounts, Housing indicated there were not sufficient data at that time. I wasn't there in public accounts, but I would point out that we had only done Houselink and Supportive Housing at that time. I don't regard that as a large amount of data, but that's the fact.
The third point I'd like to make is that if perhaps we could identify which audit report you're quoting from, it might help us to respond more effectively. The title would help us.
Mr Cordiano: That's why I referred to the period. I thought we were dealing with both audits, so let's try and get straight who's done what, because there are a number of audits before us.
Mr Glendenning: To identify ourselves again, it would be the Houselink audit performed by the Ministry of Housing, as opposed to the Ministry of Health.
Mr Cordiano: I'm sorry about that, but on this document I don't have who the auditors were, so it's difficult for me to recall --
Interjection: That came from the Ministry of Health.
Mr Cordiano: That's the Ministry of Health one, but I don't know who the auditors were. There's no mention on this, on the front page anyway, of the authors of this report. I apologize. I may have overlooked that.
Madam Chair, I thought we were going to hear from both auditors, on both reports, at the same time. I can't distinguish between who's done what on these audits if we don't have clear identification on the documents themselves of who's done which audit and I can refer back and forth to each audit. Let's try and clarify that first.
The Vice-Chair: Mr Cordiano, my understanding was that the Ministry of Health officials might not all be here right at the beginning. If the auditor from the Ministry of Health is here at this time, could you please come up to the front and then identify yourself for Hansard. If there are any other staff from the Ministry of Health who wish to participate, please come forward as well. It would probably be helpful for members of the committee if you stayed at the front table so that if there are questions that arise, you would be available.
1050
Mrs Marland: Madam Chair, how are we going to proceed? Twenty minutes have now elapsed.
The Vice-Chair: Mr Cordiano started speaking at 10:34. There was a two-minute interruption with the business about the quorum and I added five minutes because there was an agreement that each caucus would have 15 minutes. Mr Cordiano has one minute left of his time.
Mr Perruzza: Madam Chair, I don't know if this would be appropriate, but there are a lot of people here today, so we really don't know who we have here. Would it be appropriate to get people in the gallery to introduce themselves and let us know where they're from?
Mrs Marland: Go and ask them yourself.
The Vice-Chair: I don't think there's any need. Some of the people present may be members of the public. I think what we're interested in are the witnesses who are presenting.
Mr Perruzza: It would be good if they identified themselves as the public. We don't need to know their names, but we should know the ministry people.
Mrs Marland: You're taking up Joe's time.
The Vice-Chair: Mr Cordiano, would you like to continue. Would you like the official from the Ministry of Health to respond?
Mr Cordiano: The point I'm trying to make is that these audits deal with agencies that have funding from both Health and Housing, and there's some overlap. Let's try to deal with them in a consistent and uniform fashion. That's what I'm trying to say. There will be questions that run across both ministries, so perhaps the authors of all those audits would come forward. I'd like to put the previous question to -- I'm sorry; your name again?
Mr Karim Amin: My name is Karim Amin. I am the former director of audit for the Ministry of Health. I am currently the director of supply and financial services in the Ministry of Health. With respect, Madam Chair, I also have an introduction for my presentation, and I also have a level of information I could present to the committee before I can choose to take questions.
I would, however, advise you that I have two other auditors with me who would be pleased to join me in answering questions at this time. I would also state that my understanding was that we would start at 11 o'clock, or that the second set of auditors would start at 11 o'clock with respect to Ministry of Health audits, so we allowed ourselves to plan accordingly. However, if the Chair wishes another procedure, we'd be happy to comply.
Mrs Marland: Yes, but just ask a question, get an answer, and then I'd like a turn.
The Vice-Chair: We have a little bit of difficulty. I apologize. I wasn't aware that you wouldn't be presenting till 11 o'clock and you have not had an opportunity to make opening comments. I would suggest that at this time you make those opening comments, because I suspect that members' questions will cross both audits. Once you've had the opportunity to make your presentation, then you may address Mr Cordiano's question at that time, and then we will move directly to Mrs Marland.
Mrs Marland: How long are you going to be, Mr Amin?
Mr Amin: Honourable member, I have a few pages of introduction to give, similar to Mr Glendenning's. It will set the stage for my presentation.
Mrs Marland: Mr Glendenning was four minutes, so that's fine.
The Vice-Chair: Perhaps the other thing you could do is invite your two auditors to join you at the table and introduce them so that if there are questions, committee members could ask them. We'll provide an additional chair for you.
Mrs Marland: I feel like we're being stage-managed here.
Mr Gary Wilson: Do you want the information or don't you?
Mrs Marland: Yes, but I have specific questions and I don't think I need a whole stage presentation. That's all I'm saying. I'd like to use my time to ask specific questions, and I don't mind who answers them.
Mr Gary Wilson: You'll get your chance, I'm sure.
The Vice-Chair: Mr Amin, could you please identify the two auditors who are with you.
Mr Amin: With me today are Mr Vincent Liu, chief auditor, Ministry of Health, and Mr Ali Ebrahim, management auditor, Ministry of Health. I was the former director of audit. I am currently not the director of audit, but it was I who signed the three audit reports the Ministry of Health has before the committee today and I feel it's incumbent upon myself to present myself here for questions and discussion.
I shall attempt to be quite brief with respect to my opening remarks. What is important is that in the Ministry of Health, our audit branch is quite independent. It obtains its authority from the deputy minister and the audit committee. Over the years we have selected audits from a wide variety of programs in the ministry and we used such factors as financial risk, date of last audit, budget size, input from senior management and direction from our audit committee to select these audits.
I will have to deal very methodically with respect to the issue of the Houselink audit. It's for that reason that I requested the opportunity to present to you what I consider the key events leading to the audit.
In 1989, the community mental health branch in the Ministry of Health requested an audit as one of 12 audits. The audit was Houselink homes. An auditor was assigned to do the audit on March 26, 1990, and as part of the process, appropriate terms of reference were developed for this audit.
Shortly after the inception of the audit, the auditor received a number of anonymous phone calls. The salient issues coming out of these phone calls were: (1) the limited role of the board in relation to the approval of expenditures, direction provided by the board to the executive director, and lack of accountability for ministry funds; and (2) the excess authority exercised by the executive director. In performing the audit, the auditor was able to quickly address the significant concerns brought out in the anonymous phone calls.
As part of the audit process, the auditor met with the chair and treasurer of the Houselink board for the first time on June 5, 1990, to share with them the tentative audit findings. I would underline that the question of governance is significant in the management of these types of corporations.
Following discussion between the audit branch and the former director of the community mental health branch, I as director of audit made the decision on June 13, 1990, to expand the audit period for determination of surplus from two years to eight years; that is to say, detailed analysis for two years and determination of surplus funds for eight years.
The field work was completed in July 1990. The auditor met with the executive director of the Houselink corporation on August 14 and August 28, 1990, to communicate the audit findings and to request additional supporting documentation and other information. The executive director resigned on September 14, 1990, at which time we had not received all the documentation requested.
On October 5, 1990, the auditor met with the director of the community mental health branch on the findings. The director of the community mental health branch agreed to request a meeting with the Ministry of Housing to discuss the surplus and other issues. This meeting took place on October 12, 1990. Present at that meeting were representatives from the respective two ministries' audit branches and program areas.
A subsequent meeting took place on November 6, 1990, following which a draft audit report was issued to the director, community mental health branch, on November 23, 1990, with a copy to the director of our fiscal resources branch. They do the budgeting.
Several more meetings took place between representatives of the two ministries and the Houselink board, as well as an exchange of correspondence, with a view to issuing the final report. Houselink's response to the draft audit report was sent to the director, community mental health branch. The response was dated April 30, 1991, and was signed by the then president of the board.
In response to our draft report dated November 23, 1990, the community mental health branch advised the audit branch in writing on September 27, 1991, indicating its general agreement with the contents and recommendations of the audit report. The final report was then issued on October 24, 1991, to the deputy minister.
The Houselink Community Homes audit was one that in my view required a lot of professional judgement and due care. With your permission, I will outline the key elements of that report for the committee.
Mr Cordiano: I would like to move on to some questions. I only have one or two minutes left, but --
Mr Marchese: You don't have any time.
Mr Cordiano: Wait a minute; I do so.
Mr Marchese: You asked your question.
1100
Mr Tilson: On a point of order, Madam Chair: On the question that's just been raised, I think this committee should have as much information as possible. The problem is that we've got a gun to our heads as far as time is concerned. The government members have put a time limit on how much we're going to debate this issue and it's already --
Mr Gary Wilson: You're taking it up now.
The Vice-Chair: Mr Tilson, are you suggesting that at this stage we revert to questions?
Mr Tilson: I think a number of members have quite a few questions to ask. The difficulty is that this information may be most pertinent that he's going to tell us and what the committee should know, but we may not have any time for questions because of the gun that's been put to our heads by the government members.
Mrs Marland: Can we have the auditors next week as well?
The Vice-Chair: We could check for availability in the event that members' questions aren't fully answered this week. Would you be available to appear next Thursday at 9:15 should that be required?
Mr Glendenning: We are available from the Ministry of Housing; there's no question. We want to be here to respond to your questions.
Mr Amin: As best as I know, I have a classification hearing. It's a statutory hearing that I've been scheduled to be part of. It's an independent hearing.
Mrs Marland: But your staff could be here?
Mr Amin: I feel certain, yes.
Interjection: Can we have a copy of those comments as well?
Mr Tilson: Having heard that, I'm sure I'd like to hear what he has to say.
The Vice-Chair: We'll ask you then if you would continue with your presentation and after that, we'll revert to questions. Mr Cordiano asked a specific question. If you could address it in your comments, that would be helpful.
Mr Amin: There are four significant parts to the Houselink audit that I'd like to outline. First, we'll cover part of what Mr Cordiano asked.
Surplus: In determining the surplus, we used the audited financial statements prepared by the external auditors. We defined surplus simply as the excess of revenue; that is, money paid by the ministry over actual expenditures.
Our analysis of the surplus account covered the period 1983-84 to 1989-90, while the audit amount covered the two years, 1988-89 and 1989-90.
According to our calculation based on information contained in financial statements, the accumulated surplus was $2,176,115. To this figure, we added $25,000 for amortization and mortgage interest, deducted $35,675 for furniture and equipment purchases and deducted a further $300,000, an amount considered allowable by the community mental health branch regarding renovations. After these adjustments, the amount recoverable by the Ministry of Health at March 31, 1990, was $1,865,440.
Subsequently, the community mental health branch approved an additional $129,665 for capital expenditure.
This leaves $1,735,775, which was recovered in its entirety by the ministry by September 1991.
The reasons for the surplus are (1) operating budgets were approved and funded by the ministry and Houselink did not spend them entirely; (2) one-time funding by the ministry for specific properties and projects were not spent or were spent partially.
The factors which contributed to the surplus are (1) no annual settlements were prepared for review by the Ministry of Health for two years by Houselink; (2) no annual activity review reports were submitted to the ministry for review as part of the evaluatory process.
They were real good, hard reasons why the surplus accumulated.
The second part of our report dealt with what we call unapproved and unsubstantiated payments. Our intention in preparing this section of the report was to bring to the attention of the community mental health branch situations which, in our opinion, were either not in line with good business practices or in compliance with ministry guidelines.
We recommended that the branch review the situations and take appropriate action. There were several situations brought to their attention.
Mrs Marland: No figures for that?
Mr Amin: It was $248,000.
Internal control weaknesses: We believe that internal control is a vital part of any organization. Internal control has been defined as the plan of organization and all the coordinate systems established by the management of an enterprise to assist in achieving management's objectives of ensuring, as far as practical, the orderly and efficient conduct of its business, including the safeguarding of assets, the reliability of accounting records and the timely preparation of reliable financial information.
Our intent was to bring to the Houselink board and the ministry program management weaknesses in the internal control system for their review and action. Our observation pointed to internal control weaknesses in several significant areas.
Governance -- inappropriate board structure and ineffective management practices: We observed that the board had little control over Houselink's affairs, particularly the executive director, and lacked accountability for ministry funds.
Of significance, the board chair --
Mr Tilson: Chair or executive director?
Mr Amin: The chair, sir.
Of significance, the board chair and members were not fully aware of the major financial decisions taken by the executive director. Very few board meetings were held during the two-year audit period and minutes were not signed by the chair. Quarterly reports, annual program activity reports and year-end settlement forms were not prepared appropriately and submitted to the ministry. The board did not have active committees such as finance and personnel to assist in the discharge of its duties.
Finally, I wish to advise that the community mental health branch took action to recover the surplus funds immediately after the issuance of the draft report dated November 23, 1990. Also, by October 1991, the majority of the issues identified in the final audit report were addressed by the branch in cooperation with Houselink.
The Vice-Chair: We'll go to questions now. Mrs Marland, 15 minutes.
Mrs Marland: I heard very clearly what Mr Singh said, that they did not uncover any unlawful activity. I also heard very clearly what Mr Glendenning said, which was that the prime purpose is management control, not wrongdoing.
It makes me wonder, if I had just arrived on this planet and I looked at some of the newspaper clippings that were reporting some of the issues arising out of the Houselink audit, for example: The agency stockpiled $2.2 million in excess funds in its bank accounts; the staff overpaid themselves $248,349 in benefits and excess salaries without approval and used public funds for unauthorized travel, board dinners, parking tickets, wine and liquor for residents' parties; the agency inflated its expenses for repairs, maintenance and janitorial work; the agency failed to get competitive bids for major contracts; sloppy accounting practices; cost overruns on two developments of $630,000 and $1.1 million.
We also notice, with some interest of course, that there is a strong relationship between whom Houselink employs, namely, Meg Sears, the mother of Bob Rae's former campaign manager, Robin Sears -- and interestingly enough, Bruce Lewis was the lawyer in the past for Houselink. He also is the lawyer for the Toronto Islands, which refers to questions I asked yesterday in the House. Mr Lewis is married to Mary Lewis, the chief of staff for the Minister of Health.
Mr Gary Wilson: Are there questions here?
Mrs Marland: You're so frightened, aren't you, Mr Wilson?
The Vice-Chair: Mrs Marland has the floor.
Mrs Marland: The point is that we have a situation where Houselink has been dubbed with a number of major allegations. We're told there is still $310,000 that hasn't been properly accounted for. We're told that an audit investigating the spending by the executive director of Houselink showed that money was spent on extra salaries, landscaping, internal air travel and furniture, between the years 1980 and 1990. This sounds like a tremendous amount of unacceptable expenditure of public funds. It sounds like a tremendous amount of absolute lack of accountability.
1110
You have said, Mr Amin, that there were weaknesses in several significant areas. You have said that the minutes were not even signed by the chair of the board and that the board had little control over the affairs of Houselink or little control over the executive director.
My concern is, now that we are getting some of these facts out in the open, how can we turn around and say that none of this was unlawful activity? I'm looking at Mr Singh when I ask this, because those were your words, that there was no unlawful activity. Is a board of either of these organizations -- and of course it would apply for the whole province -- liable or responsible for what goes on in its corporation?
Mr Singh: I just want to make a couple of comments. I think in my presentation I stressed that to prove unlawful activity, you have to have the element of an intent to deceive. In the case of Houselink, the Housing transactions anyway that we looked at, we did not establish that.
When you mention the $2.4 million that was sitting there as a surplus, yes it was. However, in the case of the Ministry of Housing, our settlement was late and we did not go back in 1989 or 1990. So that's one thing.
As to the staff overpayment that you mentioned, again the intent to deceive was not there. When the Health auditors went in, there was no intention of hiding that from them. In Housing -- I can only speak for Housing -- we didn't have appropriate policies in place and so you cannot do this.
Mrs Marland: What you're saying is that you couldn't establish the intent because you didn't have the tools to do it.
Mr Singh: No. I'm saying that we did not have the appropriate policies. At the time when we did the Houselink audit, we didn't even have agreements with them, the Housing ministry.
Mrs Marland: Oh. Okay. Then this comes back to something this committee has been asking the Minister of Housing for three years, which is, are there operating agreements in effect between these non-profit housing agencies and the government? It's been a concern identified by the Provincial Auditor. It's now very revealing to hear that we can't get at the root of what a problem is or lay blame because there's nothing that tells them how to operate. Is that what we're saying?
Mr Singh: Essentially, yes, at that time.
Mr Gary Wilson: The Minister of Housing is waiting to come back to respond to those issues.
Mr Tilson: On this point, notwithstanding the fact that the committee is aware that many of the housing agencies across the province don't have operating agreements -- I think we're aware of that -- all of the allegations that have been made and comments that have been made, not only in both the audit reports but in the media, have suggested criminal activity; in other words, breach of trust, money that's simply unaccounted for, breach of trust moneys, taxpayers' trust moneys.
I suppose it's not for you, as auditors -- my question is to both Housing and Health officials that are here -- to allege criminal activity; I don't think that's your role. But certainly the real question is that if there's any suggestion of criminal activity, of taking moneys, notwithstanding that moneys may have been returned -- we've heard that, that moneys were taken improperly and returned; that's one issue. But the other issue was, if there's any suggestion of criminal activity, would you have the authority or would you be able to report that activity to the police, and did you?
Mr Singh: If I can comment on that, over 17 years of auditing in the government and another three years in the private sector, I have come across quite a number of fraud cases and when that happened, we reported it. In some of them I've worked with the police; it's a police call. So to answer your question, a definite yes.
Mr Tilson: Did you report the activity, as a result of your audits, to the police? My question is to both audit staff.
Mr Singh: I'm talking of previous audits. I'm not talking about Houselink.
Mr Tilson: I'm talking about these audits, sir.
Mr Singh: We did not find any instance of unlawful activity.
Mr Amin: I think the question is a very fair question in the circumstances. When one sees that amount of public money written up in a report, and a professionally prepared report, I must add -- for the benefit of the House, I will let you know that each of these members here with myself have had many years of auditing and accounting experience. I am a certified general accountant; so is Mr Liu; Mr Ebrahim is an ICA finalist and a bachelor of commerce, so we have had a number of years of training and experience in this business.
It's a very fair question you've asked. In relation to the management of public funds, it ought to be asked every time. We have, in the Ministry of Health, as you're very well aware, a number of programs and they receive lots of money. Our audit branch, over the years, has had experience in dealing with fraud, near-fraud, bad management practices etc, and we have in the past worked with the anti-racket squad, with the crown law office and we have secured convictions over the years when we recognized that fraud had been committed.
In relation to this situation and in relation to the questions you have asked, we did not have evidence to suggest that there was criminal activity, nor did we have any evidence to suggest that the police ought to be called in. Therefore, sir, with respect to your question, we had no basis on which to call in the police.
Mr Tilson: The problem is that there is a whole pile of money, almost $400,000, unaccounted for. Where did it go?
Mr Amin: No, sir, with respect, I would say that all the money has been accounted for. What has happened is that moneys were paid in extra salaries and bonuses which were outside of funding guidelines.
Mr Tilson: All right, so you're telling me that moneys were spent and you know where it went, but it was spent beyond the authority that was given by the Ministry of Health or the Ministry of Housing.
Mrs Marland: That's right.
Mr Amin: That's right.
Mr Tilson: That's called criminal activity.
Mr Amin: I must beg to differ.
Mr Tilson: You disagree with that.
Mr Amin: Yes, sir.
Mr Tilson: The issue that when moneys are spent beyond the authority that was given by the grantor, namely, the taxpayer or the government, the various ministries: If those moneys are either spent for unauthorized purposes, or put in the personal pockets of staff, are you telling me that's not criminal activity?
Mr Amin: I have to repeat and say it's not criminal activity. The definition, as was pointed out earlier on, with respect to intent to defraud is very clean and very understood. What we have here is bad management practices.
Mr Tilson: Sir, the fact of the matter is that staff have put money into their own pockets and they weren't authorized to do so. I can list all the matters that Mrs Marland -- took trips, antiques, all kinds of unbelievable things they weren't authorized to do. I can't believe you're sitting here and telling me that's not criminal activity.
Mr Amin: You see, sir, the definition of "criminal activity" is very precise.
Mr Tilson: Yes, it is.
Mr Amin: In our judgement, the actions by the Houselink management did not constitute criminal activity.
Mrs Marland: You focus your answer on the intent. What I want to ask you is, in your own words, you said "unapproved, unsubstantiated payments of $248,000"; a quarter of a million dollars, in your own words, unapproved, unsubstantiated. I don't take any question about your personal credentials, Mr Amin, and the staff and the five of you sitting here. My concern is, when does it have intent?
If you are approved as a staff person to spend so many dollars in several areas, including your own wages that go into your own pocket, and you get more than that, you take more than that without permission, when does it become an illegal activity? Maybe I should be asking a lawyer this, because you're dealing with it as an accountant and you're dealing with it under the authority that's laid out by the ministry, so maybe you're the wrong person to be asked. Maybe someone else has to say: "If you do something without approval, I'm sorry, folks, it's illegal. You've taken money that was not appropriated to that purpose, and especially if it's your own salaries." When would you report that and say, "Look, I can't prove intent but this person has more money than was approved, or it was spent somewhere where it wasn't approved"?
Mr Amin: We must conclude, based upon our examination, that those payments were outside the guidelines. Bonuses were paid that were outside the guidelines.
1120
Mr Tilson: What guidelines?
Mr Amin: The ministry guidelines with respect to how the agency should operate.
Mr Tilson: There's no agreement.
Mr Amin: The Ministry of Health has --
Mr Tilson: Oh, you're right. I understand. Okay.
Mr Amin: -- guidelines within which the agency can operate.
Mr Tilson: And you're saying they're within the guidelines or outside the guidelines?
Mr Amin: They were outside the guidelines.
Mr Tilson: Yes. So Mrs Marland --
Mr Amin: When they're outside the guidelines, they do not constitute a criminal act. What they constitute is, they have broken the guidelines.
Mr Tilson: I'm sorry, they don't?
Mr Amin: They do not constitute a criminal act; they constitute that they have gone beyond the guidelines.
Mrs Marland: You have to rob a bank, I guess, for it to be a criminal act, but if it's government funds and public taxpayers' money, it doesn't matter. I mean, what we're saying is that because it's public funds and there are certain guidelines, anything outside of that is not a criminal act. It's unbelievable to think that we have that kind of colossal lack of control of expenditure of public taxpayers' money in this province today. It's unbelievable, and going back for so many years.
The Vice-Chair: Mrs Marland, the Conservative time is over plus we have a quorum call. So I'm adjourning the committee meeting until such time as the bells cease.
We'll now go to the government side, and we have Mr Marchese and Mr Perruzza on the list.
Mr Marchese: It must be terribly frustrating for some of the members of this committee to have these deputants not agree with their suggestions that this is criminal activity.
Mr Tilson: It's okay. It's okay to do this stuff.
Mr Marchese: It's good for you to feel free to be able to comment as openly as you can, not to be either intimidated or feel guilty that you're not agreeing with some members who want to force criminal activity on individuals.
Mrs Marland: You might as well send a notice out to all our staff to do whatever they want to do.
Mr Marchese: What we're here to do is to establish --
The Vice-Chair: Mrs Marland, Mr Marchese has the floor. I'd ask you not to interrupt.
Mr Marchese: What we're here to do is to establish whether things that have been done by these organizations and/or others are inappropriate and what you and we are doing to make sure that those inappropriate practices are being dealt with. That's hopefully what we're here to do.
If there is criminal activity, that is something that should be pursued. I understand and appreciate that. But having heard what these auditors are saying, I think that we should appreciate their comments and attempt to get to practices that solve inappropriate activity.
I want to ask you some questions in terms of accounting, audit process. All of you can answer as briefly as you can. On the issue of audits: How do ministries decide which non-profit organizations are to be audited?
Mr Singh: In the case of the Housing ministry, non-profit audits are requested -- when I was there, anyway. This is why in both Houselink and Supportive Housing Coalition audits have been requested by program managers. They may not be representative of the entire non-profit program simply because the program staff, when they request these audits, know that there are some problems with them.
Mr Marchese: Is that the same for you, Mr Amin?
Mr Amin: We are slightly different. We also in the audit branch identify audits on our own. We do an independent pick of some audits. What happened in this particular case is that we were given 12 audits by the branch to do, and Houselink was on that list. We are also given audits by the deputy minister and the senior officers of the Ministry of Health because, as you know, our function is to report to the deputy minister.
Mr Marchese: We obviously have had non-profit housing for quite some time. Did you begin doing these audits in the 1980s? Because we've had federal-provincial programs, housing programs as well. Did you have audits then? Did you initiate audits in 1986, 1987, 1988? If so, was the process the same or have things changed over the years?
Mr Amin: The process is the same.
Mr Marchese: Did you conduct audits in 1982 or 1986 or 1987 of the different organizations?
Mr Amin: Yes.
Mr Marchese: Mr Singh?
Mr Singh: I only arrived in the audit branch of the Ministry of Housing in 1990, and Housing was one of the first audits that we did in the non-profit program. I cannot really speak for what happened before then.
Mr Marchese: I see. Any other knowledge? Okay. How many audits do you do a year?
Mr Glendenning: As I said in my remarks, in the Ministry of Housing we do 10 to 12 audits a year, but I should add to what Mr Singh has said. He was pointing to the system that existed at the time of the Houselink audit. Today we have a slightly better, improved version, if you like, of selecting the non-profit audits in that we go through a process of examining submissions from the regional offices and rating them based on audit selection criteria. There are selection criteria and a process in place now which we go through on an annual basis. But to answer your question directly, 10 to 12 a year.
Mr Marchese: I'm assuming that you're streamlining or improving your accountability mechanisms as a result of these kinds of audits you've done very recently, in the last couple of years. Is that what has made you change your audit practices? Have you not in the past -- you weren't here, so it's difficult for you to comment, but you were, Mr Amin. Have you not in the past observed accounting practices that you think you might have wanted to change and did not? Is this the first time that some of you have begun to think about changing accounting practices?
Mr Amin: Heavens, no. We have, over the years, made a recommendation to many agencies across the province to improve their management practices, their accounting practices, their reporting practices. I've been here since 1983 and we've done that, I would say, from then on.
Let me tell you, sir, on the issue of accountability and management, we in the Ministry of Health have had a constant development and improvement as part of our business because we have that number of agencies, that number of significant programs out there.
Mr Marchese: It was useful to have the auditor say earlier on, as a way of correcting or clarifying things that Mr Cordiano was saying, that he did have access to these audit reports that you all made. That is correct, is it not?
Mr Amin: As a standard practice when the Provincial Auditor's representatives come to our office -- our director is Mr Michael Teixeira and we have worked together very closely over the last 10, 12, 14 years -- they have complete, unrestricted access to all our files and personnel.
Mr Singh: If I can comment on that too, Gary Peall is the director responsible for auditing the Ministry of Housing. When I was there as director of internal audit, whenever his staff came -- each year they would come to review our work -- the first thing I would give them is a binder of all our audit reports. From there they can choose to look at whatever they want. They have full access.
Mr Marchese: Were there any data that he did not have access to?
Mr Amin: Not at all.
Mr Marchese: He had access to all the data that you had?
Mr Amin: That's right, sir.
The Vice-Chair: Mr Marchese, the auditor has asked if he can make a point of clarification.
Mr Marchese: Yes, please.
Mr Peters: Just a point: Let me just deal directly with the issue here. If there had been any constraint on our access to information, that would have been part of our report. The fact is that we did not carry out an audit of the mental health program of which Houselink I think is a part -- I forget the exact title. It's community mental health --
Mr Amin: That's right, and it has since been changed. You have to learn a new title now.
1130
Mr Peters: I see. That changes too. So we did not audit this.
I would like to pursue though, if I may, with the permission of the committee, the point of fraud versus breach of public trust. The auditor may identify a situation that could become fraud if the auditor brings the matter to the attention of management and management does not take the necessary corrective action.
I have a very specific question for you in this particular case. There were reported unapproved and unsubstantiated payments of $248,000. How were these disposed of by management after? Were they ultimately approved by somebody in management to make them legitimate? Did you obtain approval?
Mr Amin: Mr Peters, when we agreed to appear before this House -- this is just a preamble to answer your question -- we had it broken down in three pieces. That question would have been put to our program people with respect to the disposition of the recommendations. Do you get what I'm saying?
Mr Peters: You're right.
Mr Amin: We have received response for the purpose of issuing our report, and the community mental health branch has addressed each of the recommendations with respect to that amount of money. All of that money was spent in the interests of the Houselink corporation, and the community mental health branch has disposed of each of those recommendations, as management.
Mr Peters: Okay. Then let me ask you a very specific --
Mr Marchese: Mr Peters, I appreciate your questions but you are taking away some of my time.
Mr Peters: I'm sorry, I didn't think the Chair would take away from your time.
The Vice-Chair: No, Mr Marchese, whenever the auditor requests time, I always add it on to the caucus time.
Mr Marchese: Very well. Then he can continue.
Mr Peters: I had a very specific question where, for example, somebody makes a contribution to an RRSP. You would admit that if it's unapproved and unsubstantiated, then it is not directly linked to the program, so somebody in the program must get down to approving that particular transaction.
Mr Amin: That's correct.
Mr Peters: You say the disposition of your recommendation was then that ultimately management in the Health ministry approved this transaction?
Mr Amin: The policy of the ministry has been to allow RRSP contributions for employees as a part of benefit packages. As you very well know, sir, these small agencies do not have pension plans. It is therefore a part of the benefit package that the ministry has introduced a policy with respect to RRSP contribution. The ministry will be undertaking a broader look at the pension plan and the policy with respect to benefits to these agencies in the next little while.
Mr Peters: So, in your opinion, would the $248,000 ultimately have been approved by a proper authority within your ministry?
Mr Amin: Yes, sir.
Mr Peters: Okay. That was the line of questioning I wanted.
Mr Marchese: I think they're very appropriate questions, because the point is, how do we take corrective actions on things that we believe are either inappropriate or could be interpreted as being inappropriate? That's what we want to get to. Do the non-profit organizations do their own audits?
Mr Singh: Each non-profit organization is required to have an audit done by an external auditor. That is an attest audit, as my colleague Andy here said. An attest audit essentially verifies the accuracy of the financial statements. They do not go into the appropriateness of expenditures like we do in our internal audits. However, as Andy has said earlier, we are working with the institute of chartered accountants to come up with more requirements for the external auditors.
Mr Marchese: Right. That's in essence what I was going to ask you: Are attest audits inadequate? I appreciate what you just said, that in some cases, obviously they don't get into the detail that we would want. What I think you said earlier on is that you've introduced other practices that get to that; I think it was you, Mr Glendenning.
Do you want to comment on that with respect to audits, in terms of whether attest audits are adequate or inadequate and other practices that you're initiating to deal with that?
Mr Amin: Well, sir, I will not speak to either adequate or inadequate, because that's a matter for the public practice organization.
Let me say that the Ministry of Health requires annual financial statements audited by a public practitioner. That is part of our requirements.
Mr Marchese: I want to ask again for the record: I think you've touched on a lot of things that you believe have been done by Houselink and Supportive Housing Coalition to address your concerns. Can you quickly outline areas that have been dealt with or areas that you still feel need to be addressed? Either of you. Mr Singh.
Mr Singh: As far as I'm concerned, in the case of Houselink, I'm given to understand that all our recommendations have been implemented, but our program staff here can give you the details.
Mr Marchese: All right.
Mr Glendenning: I think that question might be better addressed at a later meeting of the public accounts committee when we can deal with the program staff and what actions they've taken as a result of the audit.
Mr Marchese: Mr Amin, anything further to add?
Mr Amin: I think I'll agree with Mr Glendenning, but I'd like to underline very significantly that ever since the draft audit report was issued, corrective action started by the ministry program staff, by the new Houselink executive director, by the new Houselink board. I should say that the new Houselink board chair was very, very instrumental in bringing about significant change to this process and to this corporation.
Mr Marchese: Thank you, Madam Chair. There are others who want to speak.
The Vice-Chair: Yes, the government has six minutes left, and I have Mr Perruzza and Mr Wilson.
Mr Perruzza: Just very quickly, the way I understand it, and I've just been going through some of the comments that were made here earlier, this particular agency was chosen I guess as one of 12 within the Ministry of Housing.
Mr Glendenning: If I could just clarify, sir, Ministry of Health.
Mr Perruzza: Please let me say this, and then I'll give you a chance to clarify it. The Ministry of Health selected it as one of 12. You went in, you took a look. Some people called you. You got some anonymous phone calls. You went in, you looked at it, obviously in much more detail, then you contacted or informed the Ministry of Housing and said, "Look, you guys better get in on this and take a look at it because there's a problem here that we want you to take a look at." Right? If I understand that correctly.
I want to backtrack a little bit, and I've been thinking here of a barn. Somebody went in and opened the door, fired a shot in the air and all the horses got out. Then we discovered that not all of them ended up in the pasture but that some of them headed elsewhere.
What I'd like to know and I guess my question has a lot more to do with how the gate gets opened and how the shot is fired in the air: How did these guys end up with $2 million more? Every agency that I've ever known has always come and cried the blues of how underfunded it is and how it can't then make ends meet with the moneys it's getting. So how would these guys be able to access all of this surplus cash and just stow it in the bank and send some of it elsewhere?
Maybe from the Ministry of Housing.
Mr Singh: From two main areas: When they are building a capital project there is such a thing called a final capital cost accounting for that. That money is actually provided by financial institutions, but in what is budgeted and what is the actual there could be a difference. They're supposed to return that money to reduce the mortgage, but if they don't, that could become a surplus.
Then when the project is in operation, every year there's a budget that you're going to spend. You budget $1 million and you only spend $900,000, so you have $100,000 remaining. If they do not return it to the ministry or if the ministry is lax in reconciling, then it accumulates, and in the case of Houselink this is why, over the years, $2.4 million accumulated.
Mr Perruzza: Just in a simple way, they come in and submit a proposal. Right? A budget. They itemize in that budget and in that proposal what it is they need the money for, item by item. Right? Obviously, the ministry has its own sort of standard about what it's going to give. They don't necessarily provide all of the moneys that are essentially being asked for. Right? Now there's this paperwork. Somebody in the ministry has to respond to that and then they give the money on the basis of that.
We don't have any of that information here. That hasn't been provided. Is there a way that we could get that for this period so that we could take a look at what it is that they were asking for, what it is that they were being given and what essentially happened? The thing that I'm interested in is, where are the checks and balances and where is the scrutiny before the horses actually are let out of the barn? Because once they're gone, as Mr Tilson says, they're gone.
1140
Mr Singh: I don't have that information here, but I'm sure I can get it for you from program staff.
Mr Perruzza: So we would get all of that documentation, the applications, the budgets, the moneys that were issued, who had the authority to provide that, to release those funds, and who provided the scrutiny for that. Because obviously, if you give them some money and then somebody comes back at some point and says, "Well, we need some more," somebody has to say, "Well, Jeez, you didn't spend all the money we gave you last time."
Mr Singh: If I could just make a comment, at the end of the year there is a process called settlement whereby the ministry is supposed to say, "Okay, this is what we gave you. How much did you actually spend?" In the Houselink report, we did identify that the ministry was -- we were rather late in settlement and this is why they had a surplus built up.
Mr Perruzza: Okay, but I'd be getting that information from you before next week? Thank you.
The Vice-Chair: I'm sorry, Mr Perruzza, the government time is over. Just before we divide the remaining time evenly, we will go to the auditor for a comment and question.
Mr Peters: I would just like to make a very quick comment based on the last questions that were raised. In fact, that was the major thrust of our audit report. That's the matter specifically that we brought to the attention of the Legislative Assembly, that indeed there were very poor practices in approving the budgets of these organizations when they came forward. Simply at the time when the approvals of the budgets were made, very often they did not have the information where this organization stood financially.
The second part, which is also of major concern and is contained in this committee's interim report, is the matter of the operating agreements. Obviously, these are matters that have to be covered in operating agreements. Mr Singh might give the answer, but this committee has effectively already made recommendations to the ministry in this regard to improve those practices and we are very much looking forward to the ministry shaping up those practices, soon and effectively.
Mr Perruzza: Yes, but I still want to take a look.
Mr Peters: I'm not denying you that right at all. I just wanted to raise with you that this matter has been raised with the Deputy Minister of Housing.
The Vice-Chair: We only have 15 minutes left and there's every possibility we'll be called for a vote shortly before 12, so I would suggest four minutes per caucus, but we'll have to observe the time very closely. We'll start with the official opposition. Mr Cordiano, you have four minutes.
Mr Cordiano: Let me ask this of all the auditors in both ministries. I've forgotten who said this, but I thought I heard that 12 audits a year were scheduled for your department to be undertaken in the Ministry of Housing. Is that correct?
Mr Glendenning: I'm sorry, I didn't hear the question.
Mr Cordiano: Madam Chair, there's a little too much noise at this point.
The Vice-Chair: Could we cut down on the conversations.
Mr Cordiano: I thought I heard that you undertake 12 audits a year.
Mr Glendenning.: Our current system allows us to perform about 12 audits a year. That's correct.
Mr Cordiano: When did that practice begin?
Mr Glendenning: After our experience with Houselink and Supportive Housing Coalition, I think our audits became more regular and more routinized.
Mr Cordiano: Give me a date, approximately.
Mr Glendenning: I'd be hard pressed to do that, but I would suggest in 1992.
Mr Cordiano: After 1992? In that year?
Mr Glendenning: Yes, around that. What we see is a gradual increase of the number of audits we have been doing since, let's say, Houselink. They have been increasing steadily each year. We're up to being able to perform 12 at this time.
Mr Cordiano: What about the Ministry of Health? Have you had a similar experience with these programs that overlap with the housing component?
Mr Amin: We don't have terribly many programs that overlap with housing components with the Ministry of Housing, but with respect to our community programs, we have had a history of doing quite a number of those over the years.
Mr Cordiano: I'm specifically referring to those that overlap.
Mr Amin: No. We have very few programs where we overlap with the Ministry of Housing.
Mr Cordiano: In the Ministry of Housing, though, you've done what amounts to several fiscal years of auditing. So you would have approximately 20 audits already conducted by this time?
Mr Glendenning: A little bit more than 20.
Mr Cordiano: In those audits that you've conducted, have you uncovered similar problems to what we're seeing in these audits?
Mr Glendenning: There have been some similar problems, but I'd be hard pressed to say that there's a particular pattern that is indicated by these audits.
Mr Cordiano: Would you be able to make those audits available to the committee?
Mr Glendenning: I understand that some of them are going -- they are going to be released. Some of them aren't complete.
Mr Cordiano: I just want to make that clear on the record.
How much time do we have left? I want Mr Crozier to ask some questions.
The Vice-Chair: You have two minutes.
Mr Cordiano: In addition to that, I would ask how many of those audits, how many in those cases lacked operating agreements? The audits you selected.
Mr Glendenning: Off the top of my head, I'm sorry, I don't have that information with any precision.
Mr Cordiano: Would you provide us with that information?
The Vice-Chair: You have time for a very quick question and quick response.
Mr Cordiano: Okay. The operating agreements are one thing and I also ask what new criteria you were using in terms of capital costs assessment. I'm not getting at the right question here, but I think it's just going back to what we determined was a problem in the auditor's findings with respect to maximum unit price. Did you analyse those capital costs in those new audits for a better and efficient use of capital dollars? Was the criterion of a more efficient use of those dollars applied when doing the audits?
Mr Glendenning: I think it would be fair to say that our audits are conducted against the ministry standards.
Mr Cordiano: New standards.
Mr Glendenning: I'm in a position where I'm speaking since January 1994 in terms of my experience, but as I understand it, those standards have been tightened up, so we would audit against those new standards.
Mrs Marland: I want to be very clear about your answer to our Provincial Auditor when you said that these overexpenditures were approved by senior staff at the ministry following the expenditure. I'd like to know if Robin Sears's mother's trip to Germany in 1989 to a mental health convention with the Houselink's former executive director was approved by senior staff in the Ministry, although we understand that the auditors didn't find any board records authorizing the trip.
Mr Amin: Yes. My understanding is it was approved.
Mrs Marland: Did the senior staff at the ministry also approve the -- it was approved after the trip?
Mr Amin: After the trip.
Mrs Marland: After the trip, great. Did the same staff approve the overpayment of $248,349 in benefits and excess salaries to staff?
Mr Amin: Yes.
Mrs Marland: After the audit?
Mr Amin: After the audit.
Mrs Marland: I would like to ask the same question about the payment for unauthorized travel, board dinners, parking tickets, wine and liquor for residents' parties. Were all of those approvals made by senior staff in the ministry after your audit?
Mr Amin: That's my understanding.
Mrs Marland: That's your understanding. Is that a different answer from Mr Amin than yes?
Mr Amin: Sometimes we use different language. I tell you what, our recommendation --
Mrs Marland: I just want to know, is it yes.
1150
Mr Amin: I would like to get to a fundamental part of our recommendation. Our recommendation --
Mrs Marland: No, I'd like to deal with my question.
Mr Amin: And I'm dealing with it, with respect.
Our recommendation asks that the program management review and take appropriate action. I would also suggest that questions of this nature with this detail, requiring management attention and management decision, may be better placed before managers when they come before the committee later on.
Mrs Marland: Fair enough. But I want to --
Mr Tilson: That's not true. Could I just pursue one question? It gets back to the criminal element. If you believe that there has been misappropriation of funds and that misappropriation continued notwithstanding some approval after the act was done, after your audit was done -- even if it had been done before your audit was done, but it was done after the audit was done -- why wouldn't you as an accountant make recommendations or report that matter to the appropriate criminal authorities?
Mr Amin: Well, sir, with respect, the word you use is "misappropriation." In my judgement there was not misappropriation.
Mr Tilson: I used the word "criminal" activity.
Mr Amin: That too, sir, the word that you point to, if I have the knowledge of misappropriation -- I didn't have misappropriation. Also, to answer your second part, I did not have evidence of criminal activity.
Mrs Marland: So what we have here is an example where the ministry auditors went in, diagnosed all these problems, reported them to senior staff who then said: "That's okay, boys and girls. We'll just pat you on the head. We'll authorize it. We'll clean it up. It's gone for ever."
In other words, the ministry, the staff above you, when they saw what you had identified, which was unapproved spending -- whatever other word you want to use, it's unapproved spending -- your bosses simply said: "That's fine. Of course, we'll approve it now. They've already had the free trip to Germany etc. We've already drunk the booze and the wine and so forth. We already have the surplus. We already have the cost overruns. We already have no competitive bids on major contracts because the buildings are built."
I want to be very clear that those approvals were all given after the fact, after these problems had been identified and to use your own words, your own accountancy jargon, "unauthorized and unsubstantiated expenditures" were then authorized and substantiated by the senior staff after the fact.
Mr Amin: I cannot speak to substantiation. Substantiation has a different meaning.
Mrs Marland: All right. Approval? Authorization?
Mr Amin: I can say that on the basis of what I know, and I think this is a matter for the program to speak to, the program addressed each of these concerns and did not seek to ask for the money back.
Mrs Marland: Does it scare you a little bit that we have thousands of similar agencies around this province that haven't had the good fortune of you and your staff having been in in the interest of the taxpayers of this province and found out how they operate, whether they overpay their salaries, they give unapproved bonuses, they have unapproved expenditures? As a taxpayer in this province, does that have some concern for you perhaps?
Mr Amin: Ms Marland, I want to tell you when it comes to the taxpayers' money I step with size 12 shoes. I like to think that I protect every penny as best as I can.
Mrs Marland: You do where you've been, but it's where you haven't been that frightens the rest of us.
The Vice-Chair: Mrs Marland, I'm sorry, the Conservatives' time is over.
Mr Gary Wilson: Mr Marchese has an urgent question, if he wants to --
Mr Marchese: I just want to ask the auditors whether they know now or have ever known any NDPer, or have you ever been connected directly or indirectly to an NDPer, or are you affiliated to any NDPer, that could prejudice your views on this matter, yes or no?
Mr Amin: Mr Marchese, sir, I'd like to answer that question full sentence. I am not, have never been, neither do I ever plan to be, while I'm in the employ of the public service, a member of any political party. I will say that again: I do not intend to be and I have never been and never plan to be a member of any political party.
Mr Marchese: Thank you.
Mr Amin: I do not expect to be influenced by any political party. It is my business to be a public servant. Some of us still feel there are virtues in the public service.
Mrs Marland: There was before Dave Agnew became chair.
Mr Perruzza: On a point of order, Madam Chair: It's to the Ministry of Housing. I'd like to know if I can get from the Ministry of Health as well, please, the same reports that I asked for?
Mr Amin: If you would write it down. If you could give us a note on it, we would --
Mr Perruzza: I've said it in Hansard.
Mr Amin: Okay.
The Vice-Chair: Yes, Mr Perruzza, if you could after the meeting illuminate for the Ministry of Health officials which report you'd like. Mr Wilson, you have a couple of minutes left.
Mr Gary Wilson: Ten minutes? I think we've had a very --
Mrs Marland: There's nothing wrong with these people. What's wrong is at the top.
The Vice-Chair: Mrs Marland, Mr Wilson has the floor.
Mrs Marland: The fish rots from the head.
The Vice-Chair: Mrs Marland, Mr Wilson has the floor.
Mr Gary Wilson: I just wanted to say that I found this very informative for several reasons and that in fact what we're trying to do here I think is improve the process, and the auditors have shown how crucial a role they play in this.
Mr Tilson talks about a gun to the head. What we're trying to do is get to the Ministry of Housing so we can talk to them about the steps that it has taken in improving the process. That's why we've set a time limit that we've expanded through meeting earlier.
I would like to ask the auditors while they're here, because I had the impression from a question from the Tories that once you became an auditor with the government you changed your standards that you might have had as an auditor with the private sector. I'd just like to say --
Mrs Marland: A point of order, Madam Chair.
The Vice-Chair: Mr Wilson, Mrs Marland has a point of order.
Mrs Marland: My point of order is that the rules of this House which apply to this committee do not permit imputing motives. There was no question by a Tory that was reflecting the professionalism of these people that are before us this morning. I have already placed on the record --
Mr Gary Wilson: Is that a point of order, Madam Chair?
Mrs Marland: -- I have no question of their professional integrity --
Mr Gary Wilson: Well, I said that's my impression.
Mrs Marland: -- I would not ask him the question Mr Marchese asked, as a matter of fact.
The Vice-Chair: Mrs Marland --
Mr Gary Wilson: Well, let's clarify it then.
The Vice-Chair: -- I'm returning the floor to Mr Wilson.
Mr Gary Wilson: I'd just like to know whether your practices change from one venue to the other.
Mr Amin: Mr Wilson, sir, with respect, I did not get the impression that the honourable member on this side of the floor in any way, shape or form suggested that my professional practice changed.
Mrs Marland: Thank you, Mr Amin.
Mr Amin: And with respect to your question, sir, I do not think my practice will change if I move from this room or the room next door to the one across the street. I do believe, sir, when we swear to a code of ethics, when we accept professional standing, we stay with all aspects of them.
Mrs Marland: Exactly.
Mr Gary Wilson: It's good to hear. As I say, that was my impression.
The Vice-Chair: We have completed our hearings for today. We will adjourn. At 9:15 next Thursday morning, it is my understanding that officials both from Housing and Health will be free to join us at that time. I do appreciate your cooperation.
The public accounts committee stands adjourned till next Thursday and we'll start sharply at 9:15.
The committee adjourned at 1158.