Special report,
Provincial Auditor
Mr Erik Peters, Provincial Auditor
Mr Jim McCarter, assistant Provincial Auditor
STANDING COMMITTEE ON
PUBLIC ACCOUNTS
Chair /
Président
Mr John Gerretsen (Kingston and the Islands / Kingston et les
îles L)
Vice-Chair / Vice-Président
Mr John C. Cleary (Stormont-Dundas-Charlottenburgh L)
Mr John C. Cleary (Stormont-Dundas-Charlottenburgh L)
Mr John Gerretsen (Kingston and the Islands / Kingston et les
îles L)
Mr John Hastings (Etobicoke North / -Nord PC)
Ms Shelley Martel (Nickel Belt ND)
Mr Bart Maves (Niagara Falls PC)
Mrs Julia Munro (York North / -Nord PC)
Ms Marilyn Mushinski (Scarborough Centre / -Centre PC)
Mr Richard Patten (Ottawa Centre / -Centre L)
Substitutions / Membres remplaçants
Mr Raminder Gill (Bramalea-Gore-Malton-Springdale
PC)
Also taking part / Autres participants et
participantes
Mr Michael Gravelle (Thunder Bay-Superior North / -Nord L)
Mr Steve Peters (Elgin-Middlesex-London L)
Clerk / Greffière
Ms Tonia Grannum
Staff / Personnel
Mr Ray McLellan, research officer,
Research and Information Services
The committee met at 1003 in committee room
1.
SUBCOMMITTEE REPORT
The Chair (Mr John
Gerretsen): I'd like to call the meeting to order. The
first thing I think we should be dealing with is the subcommittee
report. Richard, would you like to read the report in, and then
maybe we can have it seconded and discuss it.
Mr Richard Patten
(Ottawa Centre): Yes. Being a phantom member, I'd be
happy to.
Your subcommittee on
committee business met on Wednesday, November 22, 2000, and
recommends the following:
(1) That the committee table
periodic reports on the sections of the auditor's special report
that have been reviewed.
(2) That the schedule for the
public accounts committee in its review of the 2000 special
report of the Provincial Auditor be as follows:
November 30: Overview of
special report by Provincial Auditor, followed by
questions/comments from each caucus.
December 7: 3.01 Agricorp
(Agriculture, Food and Rural Affairs)
December 14: 3.09 Emergency
health services (Health and Long-Term Care)
(3) That the committee will
begin each section with a closed-session briefing by the research
officer and the Provincial Auditor. The deputy minister and other
appropriate staff of each ministry will be asked to attend the
committee following the closed-session briefing to pro-vide a
response to the auditor's report.
(4) That the committee
request of the House leaders to sit for up to eight days during
the weeks of February 26, 2001, and March 5, 2001 (Monday to
Thursday)"-except Tuesday, of course-"to continue its review of
the 2000 special report of the Provincial Auditor;
(5) That the committee review
the additional following sections of the 2000 special report of
the Provincial Auditor, schedule to be determined.
3.03 Project to automate the
land registration system, Polaris (Consumer and Commercial
Relations)
3.04 Institutional services
and young offender operations (Correctional Services)
3.06 Operations division
(Environment)
3.13 Forest management
program (Natural Resources)
Chapter 4 (3.04) Land
transfer tax program (Ministry of Finance)
Chapter 4 (3.10) Science and
information resource division (Ministry of Natural Resources)
Chapter 4 (3.12) Ontario
Provincial Police (Ministry of the Solicitor General and
Correctional Services).
The Chair:
Is there any discussion on that report?
Ms Shelley Martel
(Nickel Belt): It appears the House is going to sit an
extra week, so we could also sit on December 20. I'm wondering
what we want to do with that session, if we want to leave it. I
guess my suggestion would be that we leave it open to see if
there is any overflow from either of the two sessions on December
7 and December 14 and leave that as a potential where we might
recall either of those two ministries, rather than moving on to
another entirely new section.
The Chair:
Yes. The other thing is that I'm not sure. Is it definite that
the House is sitting that week?
Mr Patten:
Nothing is definite.
The Chair: I
would suggest that if it looks as if the House is going to sit
that week, the subcommittee could meet and maybe decide what it
wants to do on December 20-or December 21. Is that agreeable to
everybody?
Any further discussion on the
report then? All those in favour? Opposed? Carried.
SPECIAL REPORT, PROVINCIAL AUDITOR
Consideration of the special
report of the Provincial Auditor.
The Chair:
Today we'll have an overview by the Provincial Auditor. I don't
know how long Mr Peters is going to speak, but he indicated to me
maybe 10 or 15 minutes and then I would suggest that you go in
rotation for 20 minutes, 30 minutes, whatever you want to do, for
each caucus to ask any questions.
Mr Erik
Peters: Just one quick question. Would you like me to
move to the other end?
The Chair:
It makes no difference. I think you can stay right there.
Mr Erik
Peters: OK. The other one is, I have some speaking
notes, and I thought you might be interested in having those. As
I say, they're just speaking notes and the famous check against
delivery takes place. I tried to keep it within the time frame
outlined by the Chair. I actually had prepared two versions for
it, one that omitted the
sections that you already had decided to meet on. But in the
final analysis this morning, I decided to speak to all of them
because your motion was that I was to give an overview of my
report. It may be just a few minutes longer than I'd indicated
but not very much.
I would like to thank you
very much for the opportunity to discuss this report with you.
With me today is Jim McCarter who is the assistant Provincial
Auditor.
First, I have to give you a
brief explanation why this is a special report and not my annual
report. According to the Audit Act, I can only lay my annual
report before the assembly after the public accounts have been
tabled. By mid-October we were not sure when the public accounts
would be tabled by the Minister of Finance. However, by that time
my report sections on accountability, value for money and
follow-up on value-for-money audits in my 1998 annual report were
finalized. As you know, I always follow up two years later. I,
therefore, availed myself of a provision of the Audit Act which
allows me to make a special report to the Speaker at any time on
any matter that I believe should not be deferred until the annual
report.
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As you know, the public
accounts were tabled on November 1. I plan to submit my annual
report to the Legislature on December 5, which is this Tuesday.
That report will principally contain my commentary on the public
accounts of the province, the activities of your committee and
the operations of my office. Together with the special report,
these two reports-that is, the annual report and the special
report-complete my reporting responsibility for the year 2000 as
outlined under the Audit Act.
This special report, like all
my past annual reports, is intended and designed to be a catalyst
for action to improve the administration of public funds and for
better performance in delivering government services. We have
made 118 recommendations in this report, and I am pleased to note
that the ministries have generally agreed to take action on them
and in some cases have already done so.
I would like to highlight
certain value-for-money and accountability issues raised in my
report to assist you in determining which sections of the report
you may want to consider for review, in addition to the ones your
committee has already selected.
Agricorp failed to manage
certain of its resources with due regard for economy and
efficiency. My office had to intervene to safeguard resources
entrusted to Agricorp. The Ministry of Agriculture, Food and
Rural Affairs and the board of directors did not have the
necessary governance and accountability procedures in place for
Agricorp to ensure that Agricorp's activities complied with
legislation and corporate procedures, and I'll be happy to
elaborate on that if you want me to.
For the child welfare
services program, the Ministry of Community and Social Services
did not have sufficient assurance that children in need were
adequately protected. That was a reporting information problem.
The ministry had also not yet adequately linked the funding it
provided to the assessed cost of the underlying services that
were received from children's aid societies.
The Ministry of Consumer and
Commercial Relations transferred Polaris, the project to automate
the land registration system, to Teranet Land Information
Services Inc in 1991. According to a recent consultant's study,
the original cost estimate of $275 million to complete Polaris
could now be as high as $1 billion, and though the original
anticipated completion date was 1999, Teranet has indicated a
potential project completion date of 2010. At the time of our
audit, the ministry had not decided on a course of action to cope
with this situation. They knew about it for about a year-they
knew about it longer than that, but the consultant's report first
draft was in November 1999.
The Ministry of Correctional
Services operating expenses for correctional institutions have
increased 19% in the last five years, despite a 6% decline in
average inmate count. Some of the contributing factors to the
expense increase have been the significant decline of offenders
in the temporary absence program-it declined from about 25,000
offenders to about 4,000; rising average correctional staff sick
days; and higher overtime costs. On the temporary absence
program, we did a calculation in our report that if we had in
place the same procedures as in Alberta, we would save about $50
million a year. In other words, they have 20% of their offenders
in this program and we have 8%.
While the ministry has acted
on our 1993 recommendations to realize significant savings
through the modernization or replacement of existing correctional
institutions, it did not properly assess the alternative delivery
options; in other words, how to do it. They knew the need, but
not how to do it, before proceeding on a renewal project
estimated to cost $270 million. The estimated cost, included in
the $270 million, to build a new cooking facility to serve a
number of correctional institutions had increased from $5 million
to almost $10 million. As well, the facility's production
capacity would be 1,000 meals a day short of meeting the needs of
the institutions to be served.
Some 15% to 20% of inmates
require some form of clinical intervention for mental disorders.
In our 1993 report, we pointed out that many of these inmates
should be in treatment facilities and not in jails and that
correctional staff were not adequately trained to handle inmates
with mental disorders. At that time, there was a commitment to
take action. The Ministry of Correctional Services Act specifies
that it is the responsibility of the ministry to ensure that
inmates requiring hospitalization be properly placed for
treatment. Given that the issues relating to mentally disordered
inmates have been identified since 1993, we are concerned that
the various initiatives taken to address their needs have yet to
be implemented.
For $576 million in pupil
transportation grants, the Ministry of Education had not yet
established satisfactory procedures to ensure the economical,
efficient and equitable delivery of pupil transportation
services. Related to this,
we also concluded that the Ministry of Transportation can and
should strengthen its systems and procedures for ensuring that
operators of school-purpose vehicles comply with legislative and
regulatory safety requirements.
The Ministry of the
Environment did not know the extent to which facilities that
discharge contaminants into the environment were meeting current
environmental standards and, consequently, where corrective
action had to be taken to protect the environment.
A 25% reduction in staff at
the ministry over the last few years had contributed to a 34%
decrease in the number of ministry-initiated inspections
conducted per year. For instance, inspections of municipal water
treatment plants declined from over 400 to 190 per year over the
last five years. Further in this regard, the ministry identified
significant violations in 31% of the inspections it conducted in
1999-2000. The ministry relied extensively on facility operators
to comply voluntarily rather than impose stringent and available
enforcement measures such as issuing control orders or laying
charges. This was of particular concern as one third of the
violators were repeat offenders.
The ministry reported
individual measures of effectiveness through its annual business
plan. However, the business plan did not provide a comprehensive
assessment of the overall impact of the ministry's efforts on the
environment. For example, under its goal for cleaner land, the
only measure reported on publicly was the per centage of PCBs in
storage that had been destroyed. Also, under its goal for
healthier ecosystems, the efficiency of processing approvals and
environmental assessments were measured but the outcomes of these
approvals were not measured. Outcome measurement, of course, is
always a difficult area.
Regarding the Ministry of
Finance's retail sales tax program, we found that administrative
practices have improved from our previous audit. However, further
improvements are needed to close the tax gap, particularly in the
area of audit coverage, or more important actually, to analyze
the areas which give rise to the tax gap and take steps to
correct that situation.
We had the following major
concerns from our audit of the Ministry of Health and Long-Term
Care community health centres program: the ministry had not
assessed the efficiency, effectiveness and ability of community
health centres to provide quality care; and funding was not
linked to expected services to be provided by these health
centres.
The Ministry of Health and
Long-Term Care needs to ensure that emergency health services are
more patient-focused and that ambulance services better meet
response-time requirements. According to the latest statistics
made available to us, we found that 50% of ambulance operators
did not meet established response-time requirements, which were
based on 1996 actual response times.
In April 1998, the emergency
services working group, with representation from the Ontario
Hospital Association and the ministry, reported that hospitals
were requesting redirect consideration and critical care bypass
at different occupancy levels and for different reasons and that
there were no standard, monitored criteria to define what
capacity is. For example, the working group reported that during
the period it surveyed, hospital emergency departments in the
greater Toronto area were not at full capacity 36% of the time
when redirect consideration or critical care bypass was
declared.
Furthermore, the entire
ambulance system, when realigned through downloading to
municipalities, may not provide a balanced and integrated system
of ambulance services and may cost Ontarians an additional $100
million in order to achieve the actual response times in 1996,
which already weren't that good.
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Our major concerns with the
Health and Long-Term Care health services organization and
primary care network programs were:
-The health services
organization patient rosters had not been adequately verified,
even though in one verification they found, for example, that
8,000 people on the roster should not have been there.
-The Ministry of Health and
Long-Term Care had not assessed whether it was receiving value
for money for the more than $20 million in annual funding it
provided to the group health association in Sault Ste Marie.
-Expansion of the primary
care network program, to include 80% of the eligible family
doctors, was being planned-it was actually being planned for
implementation as they went along-while evaluations of the pilot
primary care networks were still not completed.
-Capitation, that is, per
person funding rates, did not take into account factors that may
affect the need for primary health care, such as patients'
medical histories.
Of particular concern is that
many of the major concerns arising from this audit were similar
to the ones we noted six years ago.
Our major concerns with the
Ontario midwifery program were: there was a lack of adequate
information to determine whether the objectives of the program
were being met, and the Ministry of Health and Long-Term Care had
not assessed the cost-effectiveness of the current delivery and
funding model for midwifery services.
In our audit of movable
assets, we conducted our work at five ministries. We concluded
that although ministries generally followed the process
recommended by the Management Board Secretariat for acquiring
information technology equipment and used the Management Board
Secretariat standing agreements with various manufacturers for
their equipment acquisitions, doing so did not ensure they
received value for money. We also concluded that movable assets
were not adequately managed, and identified a number of issues in
that regard.
Regarding the Ministry of
Natural Resources forest management program, we concluded that
the ministry did not have sufficient information to adequately
meet its obligation to annually report on the management of
Ontario's crown forests.
In addition, the ministry has not yet completed its transition
from directly managing many aspects of forestry to implementing
appropriate oversight and monitoring procedures to ensure that
forestry companies comply with legislation and ministry policy
and to ensure that the long-term health of Ontario's crown
forests is managed with due regard for economy and
efficiency.
Regarding the Ontario Native
Affairs Secretariat, we found that although the value of land
claim settlements was adequately supported, improvements were
needed in the timeliness of reporting and accountability by First
Nations for the use of funding provided to them for land claim
negotiations.
In its advisory role, that
secretariat helps coordinate Aboriginal-specific programs
delivered by other minis-tries. Expenditures for these programs
exceed $370 million a year. We concluded that the secretariat
needed to improve the timeliness of, accessibility to and level
of detail in its database of information in these programs.
From our follow-up on our
1998 value-for-money audits, I would like to highlight two, and
those are in addition to the ones you have selected.
The Ministry of Community and
Social Services renegotiated, in April this year, a number of
improvements for taxpayers on the original agreement with
Andersen Consulting, and I'm pleased to note that this committee
played quite a role in that process. However, these improvements
were limited by the fact that under the original agreement and
the early opportunities initiative task order, Andersen
Consulting was not obligated to agree to any changes other than
to extend the contract. What was achieved is actually over and
above what was in the contract, so that's a plus. However, the
improvements notwithstanding, Andersen Consulting was paid $95
million by March 31, 2000, although the project was significantly
behind its original schedule and the project costs at that time
exceeded the benefits-and the benefits grew by $30 million.
Regarding the Ministry of
Health and Long-Term Care, Ontario health insurance plan: of the
12 million OHIP cards in circulation in January 2000, 8.3 million
were issued prior to 1995. For those 8.3 million cards,
eligibility had still not been verified.
As to accountability, I would
like to raise two issues. Firstly, an accountability regime to
the Legislature, and therefore to the taxpayer, for the
activities of the Ontario Innovation Trust is significantly
impaired; some would say, virtually non-existent. By March 31,
2000, the government had flowed $750 million to the trust, of
which $500 million was pre-flowed well before the funds were
actually required. I urge the government to establish for these
funds an appropriate accountability regime to the
Legislature.
Secondly, we have sought over
the last decade to have the Audit Act amended to enable my office
to assist the Legislature in holding government service delivery
agents better publicly accountable for achieving value for money
for the $30 billion these agents receive annually as transfer
payments from the government.
Over four years ago your
committee unanimously endorsed our proposed amendments to the
Audit Act. Since there has been no action on this issue since
then, I respectfully recommend that this committee revisit this
subject.
Overall, this special report
on accountability and value for money deals with a significant
number of issues where corrective action needs to be taken. We
look forward to seeing positive and timely results from
ministries' actions on our recommendations.
I wish to express my sincere
thanks and appreciation to the staff of my office for the solid
and professional work they have put into this special report.
I'd be happy to answer any
questions.
The Chair:
OK. It's 10:28, so I would suggest a half-hour for each caucus.
Why don't we start with 20 minutes per caucus initially, and then
we'll see what you want to do for the last half-hour. We'll start
with the Liberal caucus: Mr Gravelle and then Mr Peters.
Mr Michael Gravelle
(Thunder Bay-Superior North): Mr Peters, I want to ask
about the Andersen Consulting issue. Obviously, what you said was
in terms of Andersen Consulting still receiving a
disproportionate amount of the benefit pool in relation to its
work effort. I take it from what you said that there's no way of
controlling that because of the way the contract was originally
signed by the government with Andersen. In other words, despite
the fact that part of the agreement was changed, they can't
change the fact that they've paid them more than they should. In
essence, I think that's really what you're saying, that they've
been paid benefits they probably shouldn't have been paid,
ultimately, if it was an appropriate agreement. Is that fair to
say?
Mr Erik
Peters: I would have some difficulty with the word
"should," because that was an agreement signed between the
government and Andersen Consulting, and Andersen was within its
contractual right of enforcing the clause. What I am saying is
that the improvements that were achieved are remarkable in light
of the fact that Andersen didn't have to agree to them.
Mr Gravelle:
Right, but in essence the original agreement, which I think we've
all been pretty critical of, and I think it's fair to say you've
been critical of it as well, obviously-there's nothing much we
can do about that at all. That agreement is locked in place.
Mr Erik
Peters: Of course the other choice that was available to
the ministry was cancellation and re-tendering and all those
things, which the ministry, to the best of my knowledge,
certainly weighed but considered that the cost of doing so would
be too high.
Mr Gravelle:
If that could have happened, would that have been something you
would have recommended they do?
Mr Erik
Peters: We didn't evaluate the alternatives. We did
suggest that it be given consideration.
Mr Gravelle:
Do you have concerns about the fact that under the revised
agreement they expanded the circumstances under which payments may be made
outside the fee cap? Do you have a number of concerns about that?
In other words, the $180 million is a locked-in figure, but then
there is the amount they can charge out of that fee cap. You make
reference to some of those concerns, but are they serious
concerns about some of the extra costs?
Mr Erik
Peters: The serious concern originally was of course
that these extra charges were very ill-defined or very poorly
defined, so they didn't know what could be charged outside the
cap. I think what has happened under the re-negotiation is that
there is now a better definition of what can be add-ons to the
cap.
Mr Gravelle:
Wasn't it part of the original agreement that they did not have
to pay Andersen until the benefits exceeded the costs?
Mr Erik
Peters: Under the original first agreement and under the
terms of what was called "common-purpose procurement," that was
the fundamental idea of that process. However, that was fairly
quickly set aside by the ministry through the early opportunities
initiative task order, and the ministry there agreed they would
pay up front.
Mr Gravelle:
But they didn't have to.
Mr Erik
Peters: Under the original agreement, they didn't have
to, but at that time they agreed to do so.
1030
Mr Gravelle:
So, then, as of this stage, the $30.5 million is the difference
in terms of the actual costs exceeding the benefits.
Mr Erik
Peters: The costs exceeded benefits by $30 million. But
$95 million had been paid to Andersen Consulting for their
work.
Mr Gravelle:
Just a clarification too: in your report last week, that
project's cost pool totalled $146.7 million, $117.4 million to
Andersen Consulting. It seems to me that would be two fiscal
years of payment, then, because it was $60.5 million that
Andersen got paid in the last fiscal year. Is that correct?
Mr Erik
Peters: They are running on a cumulative basis. In other
words, the chart that you find on page 265 of my report is on a
cumulative basis. That's the project to date, if you will. So out
of the amounts paid, you see the end of the consulting costs,
which was $95 million, and by the year before, if the number was
$65 million-I don't recall who was talking to them.
Mr Jim
McCarter: The number I have is that at March 1998, $15
million was paid. At July 1999, I think when we did the special
report, $55 million had been, and at March 2000, $95 million had
been paid.
Mr
Gravelle: I guess what I'm looking at is that $117.4
million was paid to Andersen Consulting. I'm looking at the
figures on page 260 of the report, just before "Current Status of
Recommendations." The cost pool total is $146.7 million: $117.4
million to Andersen Consulting and $29.3 million to the ministry.
The benefit pool totalled $116.2 million, which of course makes
up for the cost pool exceeding the benefit pool by $30.5 million.
Then you say, "Payments to Andersen Consulting totalled $95.6
million." I'm trying to get my head straight around this, the
$117.4 million to Andersen and then the $95 million-
Mr Erik
Peters: The $117 million dollars is what Andersen
charged to the project. The $95 million is what they were
actually paid in cash. So there's another $22 million. But also,
if you take a look at it, there is a distinction made between the
early opportunities task order, which gives them the right to
pay, and all other task orders.
The Chair:
There's a chart at page 264.
Mr
Gravelle: Yes, OK. Can you just give me the totals again
for the three fiscal years, then?
Mr
McCarter: The March 1998 figures I had were that $15
million had been paid by March 1998. At July 1999-I think that's
when we did a special report for this committee-it was $55
million, and at March 2000, it was $95.6 million.
Mr
Gravelle: Mr Peters, if I could ask, is there anything
else that could be said in terms of whether the early
opportunities initiative should be in place or should not be in
place? It was an adjunct to the original agreement, in
essence.
Mr Erik
Peters: It was certainly permissible under the original
agreement for the ministry and Andersen Consulting to agree to
different terms under these individual task orders as they went
along. But nevertheless it was done. There was a question raised
as to why it was done at the time. We raised that in our 1998
report, but I think it's a past event where the paying carries
on.
Mr
Gravelle: What I take from this to some degree is that
the original agreement that stated that Andersen would not be
paid until the benefit pool exceeded the cost pool in some ways
was a-how do I put this without being the least bit rude? It's
almost a useless thing to put in, in the sense that it seems
clear there was no real intention of sticking to that. On the
surface, it sounds like that was a serious part of the agreement
that actually was never meant to be taken seriously, because
obviously they were going to be setting up a way to pay Andersen
in advance. Why would you put that in any agreement if you don't
intend to honour it?
Mr Erik
Peters: Well, it was originally in the agreement because
under the common-purpose procurement guidelines that were issued
by the government of the day, that was actually the concept that
was supposed to have been followed. The fact was that these
guidelines were not followed.
Mr
Gravelle: So the early opportunities initiative was a
way to get around the original guidelines. So the original
guideline was that we certainly shouldn't pay them until there's
some benefit on the benefit side. That sounds appropriate. But
then we've got to find a way to pay them somehow, so we'll set up
this early opportunities initiative.
Mr Erik
Peters: That's right.
Mr Steve Peters
(Elgin-Middlesex-London): Mr Peters, in your opening
remarks you said that your office had to intervene to safeguard
resources entrusted to Agricorp. I'd like to understand, were you as the
auditor asked to look into the affairs of Agricorp, or was this
on your department's own initiative that you went into
Agricorp?
Mr Erik
Peters: Agricorp was selected on the initiative of my
office.
Mr Steve
Peters: You weren't asked to look into what was going on
at Agricorp?
Mr Erik
Peters: No. I took a look at Hansard, and I think the
way the minister described the events on November 22 was correct.
Just to give you a little bit of background on this, as you know,
I am the auditor of Agricorp's financial statements. What had
happened in our financial statement audits is that we
continuously ran into problems of where to allocate expenses. The
ministry is right. When we brought it to their attention, they
corrected it. To allow us to give a clean opinion on the
financial statement of Agricorp, these situations were corrected
as we were going along.
But we became increasingly
concerned about a wide range of issues in these audits. It
started with some of the travel expenses that were very funny.
There were contracts struck that we had questions about. In our
risk analysis, which we normally carried out, in about June of
last year we decided there were enough flags here that we should
conduct a value-for-money audit of this corporation. We initiated
the audit. Once we initiated the audit, the findings became very
significant. In fact, they became so significant that we
suggested to the staff of the ministry that they may want to
consider getting the minister involved, and then they did.
Mr Steve
Peters: You made reference to a November Hansard, but in
a previous question that was asked in the Legislature the
minister said the ministry asked you to look into Agricorp. But
you've just stated that you went in as a result of your standard
audits.
Mr Erik
Peters: That's correct. That's why I say that we found
the remarks on November 22 were much closer to the facts.
Mr Steve
Peters: On page 25, there are a couple of references:
"However, legislation prescribes, and a legal opinion confirmed,
the allowable uses of the fund, which do not include
administrative expenses."
Later on, on page 25,
"Agricorp engaged an investment adviser, without competition, for
a minimum annual fee of $400,000. The advice ... was of little
value." Then you end that statement saying that "included
investments the corporation was legislatively prohibited from
purchasing."
Then later on, on page 36,
it says, "The adviser repeatedly recommended a diversified
portfolio that would include stocks and other related instruments
Agricorp is not allowed to purchase under the Agricorp Act."
I'm trying to understand
those three comments on pages 25 and 36. Are you suggesting-what
I'm trying to understand is, are these illegal activities that
Agricorp was engaged in?
Mr Erik
Peters: Let me just gather my thoughts as I answer this
question, because it became technically very complicated. For the
whole program under which Agricorp operates, there are two pieces
of legislation that actually regulate it, a federal piece and a
provincial piece. I'm not 100% sure in my own mind right now
which piece is what, but in any event the overall is that
Agricorp can invest these funds that it operates in government
securities or government-guaranteed securities. In other words,
largely that would be bonds, debentures, which are guaranteed.
Therefore, there's no provision made for equities and stocks and
this sort of thing.
Why it was not illegal is
that virtually every time the situation occurred, we stopped it.
My office, in our annual audit, stopped these transfers that were
supposed to be made. The idea was that the administrative costs
were to be carried by the taxpayer and the funds were to be
shared, the premium costs, by the insured people and the
government. So in all of these circumstances we stopped the
transaction. If the transaction had been completed, it would have
been contrary to the law.
Did I make this point
clear?
1040
Ms Marilyn
Mushinski (Scarborough Centre): Mr Chairman, for
clarification, who determines what is legal and what is illegal?
And if it is illegal, at what point would, let's say, the police
or the crown be involved? Is it the auditor who determines what's
legal and what's illegal?
The Chair:
Could you answer that?
Mr Erik
Peters: What we did is we asked Agricorp to justify
their wish or their proposal by legal advice. When they got the
legal advice, quite frankly, it didn't look right.
Ms
Mushinski: I'm not concerned about that so much as who
determines what's legal and what's illegal, and at what point-if
you determine that you suspect something is illegal, do you then
involve the police?
Mr Erik
Peters: No. We first involve lawyers, and that's what we
did.
Ms
Mushinski: OK. That's what I needed to know.
Mr Erik
Peters: That's what we did, and we asked Agricorp to
engage a lawyer to give them an opinion as to where they stood.
Once that lawyer opined-and that lawyer was engaged on our
instigation, but by Agricorp. Once that lawyer said, "Hey, what
you're doing is wrong," then they stopped and the whole thing was
fixed.
Ms
Mushinski: My apologies. I just needed-
The Chair:
OK, I'll add two minutes on to your time, Mr Peters. Go
ahead.
Mr Steve
Peters: On page 27 of your report, Mr Peters, you make
reference to a long-term bond that was purchased in May 1999.
That bond then was sold in September 1999. You comment that by
using these funds inappropriately, Agricorp violated its
fiduciary responsibility.
I'd like to know-it's a
two-part question-if you could give me the date, or, if you can't
today, if you could provide me with the date that that bond was
sold in September 1999. I'd also like to know, what exactly was
inappropriate, in your words, about that bond?
Mr Erik Peters: There are two
questions here. The first one: details of the transactions you
would have to obtain from Agricorp. Under section 19 of the act,
I cannot provide you-we said what we have to say in this
particular paragraph. So if you wanted details of the
transaction-actually, the key to your second question, the key to
the answer, rests in the first and last sentences of this
paragraph.
The first sentence says,
"Agricorp has a buy and hold to maturity strategy for long-term
investments in the Ontario crop insurance fund." In other words,
we buy securities and they are held to maturity. What happened
here is that they incurred a loss, even though-and that's where
the last sentence comes in-"there was no need to sell these
investments to meet indemnity obligations." In other words, it
was a poor investment decision. They decided to sell bonds
although they didn't have to do so, in spite of their strategy to
hold them until maturity.
The Chair:
Mr Cleary, and there's about three or four minutes left.
Mr John C. Cleary
(Stormont-Dundas-Charlottenburgh): Thank you, Mr Peters.
Was that investment done by the board of directors, or how did
that take place at Agricorp?
Mr Erik
Peters: They actually have within their management an
investment group that is supposed to look after the investment of
these various funds. There is oversight supposed to be carried
out by the board. I believe there was also-I'm going by memory-a
finance committee somewhere in this, but we found that they
didn't meet or didn't exercise their function.
Mr Cleary:
When was the minister notified about these problems?
Mr Erik
Peters: The meeting with the minister took place, I
think, at the end of our field work, which we identify as about
March, but it was only a very high level. He was concerned what
was going on, and it was a very high level; we didn't go into
much detail at that particular meeting.
Mr Cleary:
I know this is a big issue in rural Ontario. I just got off the
telephone with some people from the west end of my riding and the
east end of the next riding. They're not going to let go on this.
They're out for blood and they want to see these people who made
these investments dismissed. That's the way a lot of people in
the agricultural community feel. The other thing they want to
know for the record is the percentage of dollars that were
invested that were provincial funds and agriculture community
funds-the breakdown of the pot of money. I guess that's not a
fair question.
The Chair:
Do you have a breakdown of the money? Whose money was it?
Mr Erik
Peters: Whose money was it? The investments were
certainly the money of the funds that are set aside to ensure
crops, so it is the fund's money. The difficulty we had with
Agricorp was that the administrative costs are to be carried by
the taxpayer and the risks of the insurance funds are to be
carried by the funds. So the investments are the funds' money in
that regard.
I want to come back to one
I related to you previously. It is fairly unusual for us to
actually meet with a minister. The meeting with the minister was
actually caused by the staff because I made a suggestion to them
that maybe it was worthwhile, because we were not sure. We don't
know in any ministry how the information flow actually is between
the bureaucrats and the minister on our audits. We meet in our
audits, as we carry them on, with the bureaucrats, with the staff
of, in this case, Agricorp and the ministry. We keep them abreast
of all our findings and they are pretty well in the picture of
what we have found. Now, how much they carry forward then to even
the deputy minister and beyond really, that's their own procedure
and within that I'm not getting involved.
The only reason we actually
wanted to deal with the minister at this point was because this
question of legality was raised with us and by us. The staff
actually raised the question as to, "What legal authority are you
looking for?" and we said, "What legal authority do you have?"
When we discussed what legal authority they had, we found that
there was a gap. That's why the ministry agreed with us to
actually engage a lawyer to take a look into the situation.
The Chair:
We'll have to leave it at that for now.
Mr Erik
Peters: Have I confused you totally?
Mr Cleary:
No.
The Chair:
We may get back to it later on. Ms Martel.
Ms Martel:
If I understand you correctly, this was at the end of your field
work, and so the transactions you were concerned about would have
been going on through the whole process of your audit. Your
meeting with the minister to determine the legal authority under
which these were happening was actually at the end of the audit.
Is that correct?
Mr Erik
Peters: At the end of the field work.
Ms Martel:
It would have been about March 2000?
Mr Erik
Peters: Yes; it would be before March 2000. But we would
have advised the staff of all our findings as we went along, and
they were fully aware.
1050
Ms Martel:
When did you start to do the audit?
Mr Erik
Peters: This audit was started in about October
1999.
Ms Martel:
So for six months this process unravelled. You must have been
concerned even earlier than March about some of the transactions
that might have occurred had your office not intervened.
Mr Erik
Peters: Very much so, and we raised them. It was an
audit of Agricorp, so our primary auditee was the staff at
Agricorp itself. We raised these issues with the management as we
went along. We raised them to the board level toward the end of
the audit. We need to have our ducks lined up, if you will. We
have to discuss with staff because you have to give staff the
benefit of the doubt: "This is our finding. What else do you
have? What are the facts? Are we seeing it right?" We have to do
a due diligence exercise
in our audit, and that was certainly carried out. We reached our
conclusions once we had all the information gathered, and that
takes time.
Ms Martel:
During the process of the audit, were you not taken seriously by
the staff or by the board?
Mr Erik
Peters: I think we were. The staff did take us seriously
but they were, as you always find in audits, fairly defensive.
Ultimately, that's why in our report we also looked at the role
of the board of directors and the role of the observer by the
government on the board of directors. I should tell you that was
a major concern we had at that point. The ministry is represented
by a person at the assistant deputy minister level on the board.
The question was-these people are sitting in these board
meetings. What do they do? In fact, there is a fundamental
question here on the whole governance structure: What guidelines
are there for people who are supposed to be observers on board
meetings? Do they have the right to inquire? Do they have the
right to make comments that the information presented may not be
as it should be? Where exactly is that process? There is weakness
in the system on this one, because observers very often do not
have a very well-defined role on this. But this has been going on
for years, and somebody must have noticed.
Ms Martel:
But this representative is at the ADM level, so senior management
in the ministry.
Mr Erik
Peters: That's right.
Ms Martel:
Is it not clear in either the legislation or the regulations what
instruments are available to Agricorp to use for investment
purposes and which are forbidden? Is this the problem?
Mr Erik
Peters: No, they are very clearly stated.
Ms Martel:
In legislation or in regs?
Mr Erik
Peters: In legislation.
Mr
McCarter: If you want to turn to page 26, "Legislation
restricts all of Agricorp's investments to highly liquid,
high-grade money-market instruments, such as federal and
provincial bonds, deposit notes," etc.
Ms Martel:
So the board and, frankly, the ministry observer should have been
aware of that?
Mr Erik
Peters: That's quite right. This is one of the things-if
the information percolated up to the board level. One of the
difficulties this organization had was that, in retrospect, we
found that the information that was raised to the board level was
extremely well controlled. In many cases they were informed after
the fact or they may not have been informed at all. That's why we
raised the questions of governance and accountability, because,
having been a board member myself, if I had this dearth of
information coming at me I would have raised a significant number
of questions and said, "Why do you come forward to ask only after
you have signed a contract?"
The Chair:
When you say you've been a board member, it's not of Agricorp,
just a board member.
Mr Erik
Peters: Not of Agricorp. Absolutely. No, I couldn't be a
board member of any Ontario organization.
The Chair:
I understand. I just wanted to have it clear.
Ms Martel:
Just so I'm clear, the individual transactions, especially the
ones you had concerns about, would not have been made available
to the board unless board members specifically asked for that. Is
that what we should assume?
Mr Erik
Peters: I really don't know how much information was
made available to them. The information that was provided should
have raised flags in two areas: the quality of the information
that was provided and also what was going on that they didn't
have any information on. If you look at our report, again on page
27, for example, we state, "The corporation's board had not
approved the speculative trading strategy. We were informed that
management had obtained verbal approval to proceed from two of
the three members of the board's audit and finance committee.
However, this committee functions in an advisory capacity only
and did not have the authority...." They also held a "strategic
and tactical committee comprising board members...." The
"monitoring was ineffective since neither of these committees
ever met regarding the speculative daily trading activity." So it
looks like there were significant problems in the information
flow, not only as to the quality but also as to the timing of the
information.
Ms Martel:
After having been there and having had a discussion with the
minister, are you convinced that the problems are fixed here? I
raise that because I've been contacted too in the last week by a
group of farmers in Huron county, 42 of them, who continue to
have really serious ongoing concerns about Agricorp and are using
the terminology of fraud, which is a pretty serious term to be
using. Their assessment of even the current structure is that
it's not working.
Mr Erik
Peters: That I can't comment on because after we raised
this to the top level, the board members were replaced on the
board of directors-I'm not sure how many-and also a new chief
executive officer was engaged. Also other changes were made in
the senior management as part of it. So that's all I can tell
you.
Ms Martel:
In terms of your other concerns around the quality of
information, the timing of it, who has access etc, we'd have to
ask the ministry that.
Mr Erik
Peters: That's right.
Ms Martel:
You wouldn't have a sense of what they have done in response to
those issues as well.
Mr Erik
Peters: That's right. Whether they have redefined the
role of the observer and how communication flows now between
management of Agricorp, the board of Agricorp and the ministry
staff are questions that have to be answered by the ministry.
Ms Martel:
Let me ask you a question about the emergency health services for
the Ministry of Health. In the audit report-and this is in your
overall audit conclusions-you mention that the ministry estimated
that the transfer of ambulance services to the municipalities
would cost about an additional $53 million in the year 2000, and
some of the one-time and compensation costs are noted. But if I
recall, your estimate is closer to $100 million. I wonder if you
can give the committee some idea what the ministry is basing their figures
on and what you're basing yours on.
Mr Erik
Peters: If you want to follow me to page 161, where we
outline the various components that are involved in the number
that comes out to slightly higher than the $100 million-
Ms Martel:
I don't see it on page 161.
Mr Erik
Peters: The first one is in the first bullet, where it
says, "The ministry estimated that an additional $40 million
annually and $11.6 million in one-time funding would be needed to
meet the current response time requirements." One of the things I
was careful to do was to link the $100-million requirement to
meet the 1996 response times. The other number comes in the
second bullet on the next page, "The ministry estimated that, due
primarily to the transfer of land ambulance services to
municipalities, the cost of providing the existing level of
service would increase by approximately $53 million in the year
2000." So it was really adding together the $40 million annually
plus the $11-million one-time cost, giving you $51 million, plus
this $53 million, which gives you about $106 million. So that's
where the $100 million comes from.
1100
Ms Martel:
Sorry, just to clarify, the $100 million is an annual additional
cost? Because some of those items are one-time.
Mr Erik
Peters: Right. It includes $11.6 million one-time.
Ms Martel:
You feel comfortable in that it's probably $100 million, give or
take the $11 million in there? That's an additional cost that was
not anticipated at the time of the download.
Mr Erik
Peters: Yes, it would be close to $100 million. It's
either over $100 million or close to.
Ms Martel:
Do you think that's going to get higher?
Mr Erik
Peters: That would be speculative on my part. Those were
the numbers the ministry provided to us at that time.
Ms Martel:
When you looked at dispatch times-and this is on page 169, before
the recommendation-you mentioned that the ministry was aware that
the response times were not being met but they were taking
minimal corrective action, and then the new regs under the
Ambulance Act no longer specified a time requirement for
dispatch. I understand, if I look at the ministry's response,
that how they are doing that now is to have this performance
agreement between each dispatch centre and the ministry, so there
will be some new standards set there. My concern is, (a) is this
going to work, and (b) will you not end up then with different
standards across the province in terms of dispatch time?
Mr Erik
Peters: It's a very good question to ask the ministry.
We just had to stop at the point where we said, "It used to be
there; it is no longer there." You now have a new mechanism in
place and it's a mechanism that we did not audit because it was
only put into effect as of May 1, 2000.
Ms Martel:
Did the ministry give you any idea-because you had already
expressed a previous concern about the monitoring of the previous
dispatch time-of how they were going to monitor the new agreement
to guarantee that the times would be met?
Mr Erik
Peters: I again have to take you back to the May 1
date.
Ms Martel:
You were done.
Mr Erik
Peters: At that time, we were done. The audit was done.
We just brought it in to update the situation.
If I may make an overall
point on this one, in our approach in all the statements that
I've made, we have said that if you consider a change in program
delivery, that should be based on a sound analysis of what is
currently going on in that program so that a clear determination
can be made as to whether the program can be continued as it is,
whether it should be modified, in what format it can be
outsourced or whether it can actually be totally-you know, that
the government should get out of the business that is there. One
of the concerns here is that we clearly have a service that is
not performing as well as it did in 1996. That is now being
reorganized and, as we said, some of the municipalities have
expressed concerns about that.
Ms Martel:
I wanted to ask you a question about the Ministry of Correctional
Services, the 19% increase over that five-year time frame. You
have attributed it to three areas: the decline in the temporary
absence program, the sick days and the higher overtime cost. Do
you have a breakdown of how that 19% works against those three
categories?
Mr Erik
Peters: No, we don't, because the system doesn't have
that.
Ms Martel:
It doesn't allow for it?
Mr Erik
Peters: Those are the key areas that we could identify.
The temporary absence program would be speculative, how much it
would be, so we can't identify it. But we did identify clearly
the numbers of the overtime. Of course, there is a linkage
between people away on sick leave and overtime. If somebody is
away sick, somebody else most likely has to work overtime to
cover off.
Ms Martel:
Did you ask the ministry why there had been such a change in
their temporary absence program? What was the reason behind
that?
Mr Erik
Peters: The reason is actually stated in their response.
I'm trying to find the page.
Mr
McCarter: Page 85.
Mr Erik
Peters: They just said public safety is top priority and
they felt there was a risk to the public.
Ms Martel:
Do they have any evidence to support their concern that people
who were using this program were more likely to reoffend, to be
in trouble in the community etc? Did they provide you any
evidence of that?
Mr Erik
Peters: Actually, our findings were the opposite of
that. Our findings were that there was fairly little risk
reported by the particular provinces that had applied this program far more
extensively than Ontario did.
Ms Martel:
But your assessment was not based on Ontario numbers, though, in
terms of how the program worked. Should I be clear about that?
You were basing it in terms of how it worked elsewhere and
whether or not it was a problem, is that correct?
Mr Erik
Peters: No, we said on page 84 that our examination
revealed that Ontario's success rate with the temporary absence
program over the eight years remained unchanged at 97%, with
failures attributed mainly to technical violations such as
missing curfew. So we did assess the Ontario situation.
Ms Martel:
My apologies.
Mr Erik
Peters: No problem.
Ms Martel:
Do I still have some time?
The Chair:
You have three minutes left.
Ms Martel:
I wanted to ask you about the MOE, particularly the decline in
staff, but more importantly, the decline in inspections. Your
recommendation on the bottom was that, "The ministry should
explore options and develop procedures to increase its inspection
coverage."
Mr Erik
Peters: What page are you reading from?
Ms Martel:
This is 119. Does that mean increase the number of staff?
Mr Erik
Peters: That would certainly be one of the options.
Other options would be contracting out, finding people who do it,
who are specialists, for example, in certain types of
inspections. It's a wide range of options that could be available
to the ministry.
Ms Martel:
It is your view that the decline is clearly linked back to
manpower or a lack of human resources.
Mr Erik
Peters: That is certainly one-
Ms Martel:
It's not a question of the strategy they're using to determine
their inspections, it's a question of people power.
Mr Erik
Peters: It's a question of people power and also-well,
it is a part of how to determine inspections, because we have
some 220,000 certificates of approval out there, some of which
were issued as far back as 1957, and certainly since 1957
environmental standards have changed. For example, an
organization that received its certificate of approval then may
now be found, on re-examination of what they're actually doing,
to be a lot better or a lot worse in contaminating the
environment because of new factors that are found.
This is a constantly
changing area. As you know, in one of our previous reports, they
internally had identified something like close to 300 air
pollutants, where their own scientists felt their standards were
out of date on that and had to be brought up to date. Even a very
simple step that we conducted, for example, comparing our
standards through the Internet with some of the government
standards in some of the states in the United States, gives you a
very clear picture in some areas that we have to do work in that
area, or the government has to do work in that area.
The Chair:
We'll turn to the government side now.
Mr John Hastings
(Etobicoke North): Erik, on the Agricorp thing, you said
there was a finance committee or subcommittee set up which did
not meet?
Mr Erik
Peters: Yes.
Mr
Hastings: Or never met?
Mr Erik
Peters: To the best of our knowledge, we said they
didn't meet. We didn't find any evidence of them meeting.
Mr
Hastings: There was nothing in the board minutes about
it?
Mr Erik
Peters: No.
Mr
Hastings: Were they required to have an executive
investment committee that would be made up of board members and
maybe your CEO and outside people? Did this corporation not have
specific bylaws on how it was to operate?
Mr Erik
Peters: They may not have. I can't answer that question
right off the bat, but one of the facts we did point out is that
the board clearly couldn't agree even on what they were supposed
to be doing. We pointed out that they had six vision statements
in three years of what they were supposed to be doing.
Mr
Hastings: I've seen that.
Mr Erik
Peters: From the vision, virtually everything flows, and
if the board cannot agree what they were supposed to be doing
there, then there is a governance problem.
1110
Mr
Hastings: Did they ever have a seminar at the start of
their operation as to what their role was? Did you ever find
anything in the minutes of their meetings that indicated-aside
from their exercise in strategic planning, did they ever have an
initial meeting? Did you see anything in board minutes as to the
discussion of what their role was, is or was going to be?
Mr Erik
Peters: I have difficulty answering that question
because we didn't particularly examine, for example, what the
board orientation program looked like, which I believe every
corporation should have, to just tell the board members what to
do. We didn't examine that particular-in the board minutes that
we saw, we were aiming more at the decision-making process rather
than the overall orientation and training of board members
process.
Mr
Hastings: Did you get the impression from the financial
information and the way information got reported to them that
there was a varied confusion as to what their role was in
anything, particularly the handling of finances and
investments?
Mr Erik
Peters: Yes, very much so. If I could lead you back-I'm
trying to find the page. We did a survey of board members and we
reported on that.
Mr
McCarter: On page 43. "Board ... members indicated they
had not been given written explanations of their role and
responsibilities" etc. We list a number of things on that
page.
Mr Erik
Peters: We surveyed the board members. They said the
governance structure was not working well: the size of the board,
conflicts among committees, lack of accountability, also that lines of
authority and communications were unclear, including the roles
and responsibilities of individual directors and committees.
That's the first bullet.
They were not given written
explanations of their role and responsibilities, including the
expectations, terms and conditions of their appointment, the role
and responsibility of the board chair was not defined and they
were dependent on management for information relevant to the
proposed courses of action requiring board approval. They were
not provided with adequate information upon which to assess
strategic issues or alternative courses of action. That was why
one of my concerns was the minutes. We have an observer there.
Why was that not noted? Why does the observer not come to the
same conclusion as the board members that "This is the board
member speaking"?
Mr
Hastings: Did you or your staff interview the ministry
rep?
Mr Erik
Peters: Yes, I did.
Mr
Hastings: What kinds of statements-or are they privy to
confidentiality? Was it pretty clear in your interviews or your
staff's interviews with this individual that he or she didn't
have a very strategic direction on his or her role?
Mr Erik
Peters: I would have on the record, and even off the
record, difficulty answering that question. I'd prefer not
to.
Mr
Hastings: Silence speaks volumes.
I'd like to probe a little
more about the investment activities. It clearly states that it's
high-grade government bonds, treasuries, I guess GICs?
Mr Erik
Peters: Yes. They're officially guaranteed.
Mr
Hastings: What is this commodity that's called the
project involving optional units?
The Chair:
What page are you on?
Mr
Hastings: It comes up on the bottom of page 31, the
"optional unit coverage" project. Does that involve some kind of
modified risk in commodity trading? What does that mean?
Mr Erik
Peters: What it means is, if a farmer planted the same
kind of crop in various locations, he can insure by location as
opposed to the crop as a whole. The concern about that is that
normally, because insurance works on the basis that there will be
gains and losses, you try to insure the whole of the crop to
prevent the-because the premium determination is really on
everybody's crop of that particular one in the province.
The idea was that, for
example, if a farmer knows that every three years these fields
get flooded and struck by thunderstorms or something, he could
then insure only those and leave the other stuff intact. So they
were looking at this optional area, and we found that it was not
particularly well done, if I remember correctly.
Mr
Hastings: In what regard? In what way? They didn't have
the indicators to measure the variables that would create these
adverse conditions-cyclone weather, insects?
Mr Erik
Peters: We were concerned that if the program is
actuarially sound, it would not monetarily benefit producers. If
it is not actuarially sound, there is an increased risk exposure
to the Ontario crop insurance fund. So we felt they really had to
do an actuarial analysis to determine whether this was a good
program.
The Chair:
Julia, did you want to-
Mrs Julia Munro
(York North): I only wanted to suggest, as you did, that
in terms of insurance, obviously the theory is that there are
good things and bad things and that it levels out. The problem
also for the individual is the fact that anything like this kind
of project forces the premium up to the point where it then
becomes not even a viable option; as you started to say, that it
will have an impact on the intended beneficiary because of the
fact that the premiums then would have to be so high if you're
allowed to take only those areas where you would consider there
to be the high risk.
Mr Erik
Peters: Yes. That's exactly right. You're right on. You
put it much better than I did. What we're seeing is, if it is
actuarially sound, in other words, if the actuary says you're
only insuring the high-risk stuff, the premiums go up. If it's
not actuarially sound, then there is an exposure to the fund
itself.
Mr
Hastings: My final question relates to-the CEO, I
assume, or the board chair was to make some contact with the
Ontario Financing Authority because the OFA is the umbrella
agency that was to provide them with advice, as you mention on
page 36. You make a comment there, on the top, before your
recommendation, that they didn't contact the authority for
advice.
Mr Erik
Peters: Yes. That is the memorandum of understanding
that the corporation has with the ministry, to use that service.
In the preceding paragraph we question paying such a high price
for advice that is of little value. We're saying you have a
memorandum that says here that you have the financial experts of
the government-maybe I shouldn't go out of line on this one, but
I think our OFA has quite a number of good people who can give
that advice; it's a good organization-and they were not availing
themselves of it.
Mr
Hastings: Did they ever, from your estimation?
Mr Erik
Peters: In the report we're saying they haven't. We are
saying they had not contacted the authority to obtain its advice,
in the last sentence before the recommendations. That's why the
last bullet in our recommendation is, "Consider obtaining
investment advice from within the government." I think it would
appear to be one of the prudent things to do.
1120
Ms
Mushinski: I have some general questions about auditing
business practices. The first question I have of you is, how long
have you been the Provincial Auditor?
Mr Erik
Peters: Since January 1, 1993.
Ms
Mushinski: Since 1993, have you identified questionable
business practice that has lead to criminal investigations?
Mr Erik
Peters: Offhand, I cannot recall a single-no, we have
not run into a situation where we had to turn files over to the police for
investigation. Our policy is that if we run into something that
should be turned over to the police, we would do so.
Ms
Mushinski: So that is a requirement within the act.
Mr Erik
Peters: That is a policy that I like to follow.
Ms
Mushinski: I'd like specifically to turn to your
comments on, actually, the Ministry of the Environment, but it
has to do with your overall comments with respect to assessing
the business plans. Every ministry has a business plan. In
assessing those business plans, you clearly look at how the
ministries measure outcomes. Correct?
I don't know if you look at
specific programs within the business plans and apply the same
principles of measuring outcomes to those programs as you would
to the overall business plan. The reason I'm asking this is
because I can certainly recall when ministers, back in 1995, were
charged with the responsibility, and I happened to be in cabinet
at the time. One of the biggest challenges was developing a
business plan that had those measurable outcomes. I'm just
wondering how you, yourself, assess those measures.
Mr Erik
Peters: The first step, actually, that we conduct in an
audit is that we take a look at the business plans. We use them
to develop criteria, because the business plan really outlines
the expectations that the ministry sets for itself.
Ms
Mushinski: What did you do before 1995, when ministries
didn't have business plans?
Mr Erik
Peters: Certainly 1995 helped, but we actually followed
the same process all along, even after the business plan. That
is, we sit together with the senior management of the ministry
and we agree on the criteria against which we will audit, with
the management of all programs.
Ms
Mushinski: I assume those criteria are applied equally
across the board for any program that you are auditing. Is that
correct?
Mr Erik
Peters: No, it's tailored to the individual ministry.
It's tailored to each one. The process is standard; the
application is tailored.
Ms
Mushinski: That's understandable. I guess my question
really gets back to what you said in your original submission on
the difficulties in measuring outcomes: how do you do it?
Mr Erik
Peters: There are a lot of qualitative outcomes. There
are really three categories of performance: controlling your
input costs, in other words, what it costs you to do something;
measuring output-we issued so many drivers' licences, or whatever
you do-and then outcome, which is far more difficult, because
when you get into outcome, for example, if you issued the
driver's licence and your process was tightened up, how many
accidents did you prevent because the drivers are now better
trained? That's almost immeasurable.
Ms
Mushinski: How do you measure the happiness of the
customer, in other words.
Mr Erik
Peters: In a variety of ways. There are satisfaction
surveys, for example, done by various organizations.
Ms
Mushinski: Then can I specifically go to your speaking
notes, where you say on page 3, fifth paragraph, that "under its
goal for cleaner land, the only measure reported on publicly was
the percentage of PCBs in storage that had been destroyed. Also,
under its goal for healthier ecosystems, the efficiency of
processing approvals and environmental assessments were measured
but the outcomes of these approvals were not."
Could you explain that? Can
I assume from that that the ministry did not have measurable
outcomes as a component of its business plan for this particular
program?
Mr Erik
Peters: It has a reporting responsibility to report on
the state of our environment in the province of Ontario. One
would expect in the certificate of approval process they are
carrying out, what impact does this process have on the
environment? In other words, outcomes would be less contaminants
put into the air, water or soil of the province. That would be
certainly an outcome that you would have. I agree with you that
it is a difficult area to measure, particularly because it takes
so many factors into consideration.
Ms
Mushinski: Right. As you have said, especially in the
area of an imprecise science, I guess, where there are constantly
changes in scientific applications to environmental purity or
whatever. It isn't an exact science, so what criteria do you use?
Do you draw conclusions from other jurisdictions? Do you do
comparisons?
Mr Erik
Peters: We do quite extensive research before we go into
it. We certainly use the research that is available within the
ministry itself. It is a collaborative effort prior to commencing
our audit. For example, there is a rating that says that Ontario,
among the 50 states, or whatever it is, and our provinces, ranks
number whatever as a polluter. We would look at that report and
ask, how did they determine that? How do we, as a province, then
let that determination influence how we structure our activities
to protect the environment?
Ms
Mushinski: My final question is, in making these
recommendations and suggestions to ministries, especially on the
environment, do you anticipate that you will get responses? How
long do you give to get responses? Has any action been taken with
respect to your recommendations?
Mr Erik
Peters: Firstly, we allow them, of course, to print
their response. The time we give them normally-we work together
with the ministry staff as we go along. It is a percolating up
process. We deal with our findings, say, at the director level.
Then we deal with the ADM level. Normally, once we have finalized
what is going on for factual clearance, we give the ADM level
about three weeks to frame a response. That is after we have
already worked with them significantly.
After we get their
response, there are a lot of discussions that take place on the
responses. Normally, that's about another month of debate that
takes place. Then there's actually a final meeting in which the
deputy minister and I
meet with our senior staff on the particular situation. Then we
help them finalize their response.
1130
Mrs Munro:
Have we run out of time?
The Chair:
The time is up. I was going to suggest maybe another round of six
minutes.
Mr Patten:
I just have a couple of quick questions. In your highlights this
morning, Mr Peters, at the tail end of your report you twice
suggest that you urge the government to establish appropriate
accountability regimes for funds, and you're referring to the
Ontario innovation fund. Then, on the last page, you said you
sought over the last decade to have the Audit Act amended,
presumably in order for you to audit some of the agencies or
bodies that are receiving public funds but you have no access to
them. Is that correct?
Mr Erik
Peters: We don't have access to all the information. We
have access only to the financial information but not access to
the other information that we would need to have to assess
whether they are achieving value for money.
Mr Patten:
When you say you sought to have the Audit Act amended, did you
send a letter to the Premier? How do you do that?
Mr Erik
Peters: The approach has been actually through this
committee. Under the rules of the House, it's the Minister of
Finance who is the sponsor of any amendments to the Audit Act, so
we have also communicated with him. In this report, I actually
reproduce a letter that I'd written to the Minister of Finance in
August this year.
Mr Patten:
Mr Chair, I wonder if I might flag that as an issue that this
committee might discuss in our proceedings maybe in the interim.
I mean this is a decade now. We're talking about $30 billion a
year that our Provincial Auditor is not able to fully examine on
our behalf. It seems to me that would be something that this
committee perhaps can examine.
The Chair:
I think in the last five years, just for the record, there have
been two private members' bills-one by Mr Maves and one by Mr
Grandmaître-that were introduced and may even have been
debated, voted on, but sort of lost-well, they didn't lose; they
just sort of died on the order paper. I think Mr Eves as well, in
one budget, indicated that he was going to make amendments to the
Audit Act-I think it's the budget of 1996-97-and then it was
never followed up on.
Mr Erik
Peters: He indicated in that act he would introduce
something called the Public Sector Accountability Act. I refer to
this in my report. There is action on that particular front that
is, though, separate. Mr Eves has re-established the Ontario
Financial Review Commission, which was originally established in
1995. Again I have been asked by the minister to act as an
adviser to that group. Their report hopefully is going to be
presented soon, but one of the mandates was to deal with this
Public Sector Accountability Act.
Without wanting to pre-empt
them, one of the agreements that we made-and I refer to that in
my letter as well-is that the matter of the Audit Act should
actually be dealt with most directly between the minister's
office and myself because the staff of the Ministry of Finance is
subject to audit by me and it's a different approach to the
minister in this case that we should have.
But I appreciate the
comment that you made, because in 1996 there was a unanimous vote
by this committee endorsing the amendments to the Audit Act that
I then proposed. In that motion, the Minister of Finance was also
asked to provide a response, which he did in September 1996. In
that response he indicated that he would take up this issue again
once the Who Does What exercise had been finished, because one of
the areas that is of difficulty is the municipal area and
certainly the working relationship between the province and the
municipalities was such that there was a potential of excluding
grants to municipalities from this particular project.
Mr Patten:
If the committee agrees, my suggestion would be to ask our
researcher if he might pull it together. It sounds like there are
some initiatives and suggestions and maybe some pieces of
legislation that have been proposed. Maybe he could pull that
together for us and say, "Look, here's"-
Ms
Mushinski: I'd love to see in the Public Sector
Accountability Act some comments on judicial accountability as
well.
Interjections.
The Chair:
Does that includes drug testing for MPPs as well? Maybe you could
put a package together and give us a background on that.
Mr Patten:
All right, thank you.
The Chair:
OK, Mr Peters, you've got two minutes.
Mr Steve
Peters: Mr Peters, earlier on when I was asking about
legality you said-I'll paraphrase, and if I'm incorrect, correct
me-that if the transactions had been completed, they would have
been illegal.
I'm coming to the daily
trading aspect: my understanding of daily trading is that
transactions are closed and completed at the end of a business
day. Were the daily trading activities that were taking place a
violation of the Agricorp Act of 1996? Were these daily trading
activities illegal?
Mr Erik
Peters: The transactions themselves were speculative in
a business judgment. These transactions certainly took place in
the kinds of investments specified in the act itself. In other
words, they were doing bond trading; they were speculating on
interest rates. So the question of legality was really not
there.
Where the question of
legality arose in this case was that once the losses occurred,
there was an attempt made to charge the losses against the
insurance funds as opposed to dealing with them as a cost of
administering the fund. That's where the problem occurred. As I
said, the transaction in that regard was not finalized; in other
words, the taxpayer paid the $325,000, not the funds, not the
premiums, not the farmers.
That's what we stopped.
That's why we said the intervention took place. My office said,
"Look, if you cross that boundary, then you have a problem." But
the other one was a lack of judgment, speculative, and certainly
a total absence of
supervisory procedures of governance and accountability. Why
didn't anybody tell somebody, "Don't do this; don't engage in day
trading"?
Ms Martel:
If we're going to do some work on following up on the Audit Act
and potential changes, I do think that we should look at what
else you're allowed to audit, or not allowed to audit.
Specifically, the lack of
ability for you to audit the Ontario Innovation Trust is just a
glaring example of why we need some changes. You made it really
clear that the government was using the trust to significantly
exaggerate its spending on innovation in that year. I take it the
problem was that the government transferred funds to the trust
and stated that in fact that money had been spent when in actual
fact very little of that money transferred has actually been
spent on any project. Is that the question? Was that your
conclusion?
Mr Erik
Peters: The phenomenon that occurs here is that in the
past we used to pay Innovation on the basis of a grant. Somebody
came and applied and said, "Here's the money," and we were
looking at the grant recipient. This Innovation Trust has
actually introduced a middleman, and we are dealing with this as
a grant to the middleman without having any control or any
information on how well this money is actually spent in terms of
fostering innovation in the province itself.
In fact, in my report, I
point out that as of March 31, 2000, the actual expenditures of
the trust have only been $2.5 million and that there was a
commitment for $158 million. There were actually $90 million on
hand, unrestricted, there were over $225 million on hand for
investment purposes already, and yet we put another $500 million
into the trust and said that was innovation expenditure in the
year ended March 31, 2000.
1140
Ms Martel:
So I'm clear, the government was also publicly saying this was
money that had been spent.
Mr Erik
Peters: In the accounts it's treated as spent money,
yes.
Ms Martel:
So of the $750 million that the government has showed in the
public accounts to be spent, are you saying that only $2.5
million was actually spent?
Mr Erik
Peters: That's what the trust accounts show, yes.
Ms Martel:
The base is not $250 million; it is actually $750 million.
Mr Erik
Peters: That's right. It is an original $250 million in
the previous year-
Ms Martel:
From 1998-99-
Mr Erik
Peters: -and another $500 million in the year ended
2000. The accounting is acceptable simply because the trust is
not controlled by the government. Of the trustees, a minority
membership is the government and the majority are I believe
universities, hospitals and somebody else. There's a third group
involved which doesn't come to mind. We have a minority interest,
so the government, for accounting purposes, can say, "Yes, the
money flowed out the door because it flowed to the trust," but
whether it has actually been spent by the trust on innovation,
that is where I'm saying the accountability is not there. The
trust, by the legislation which establishes it, is not even
accountable to a minister of the crown and therefore I think it
would take a legal decision as to whom you can even ask questions
about this now. If you wanted to have the Ontario Innovation
Trust before you, whom could you ask to come? There's no minister
accountable for it and the trust itself has no accountability
relationship to the Legislature.
The Chair:
Who controls it? Is it under the Ministry of Finance?
Mr Patten:
The Ministry of Energy, Science and Technology.
Mr Erik
Peters: Yes, but without the minister having any
role.
Mr Patten:
Yes, that's right.
Ms Martel:
Is there any kind of operating agreement between the minister and
the trust?
Mr Erik
Peters: No. We spell that out in chapter 2. There is no
operating agreement. There is no accountability. You couldn't get
up in question period and ask any minister of the crown because
they can say, "Well, the trust is not accountable to us."
Ms Martel:
There's no memorandum of understanding even?
Mr Erik
Peters: No. They are approved as endowments by cabinet.
I said, "Specifically, I am concerned about the inability of the
government and the Legislature to obtain assurance that the trust
is spending public funds prudently and for the purposes intended
and to take corrective action if it is not; the lack of
ministerial accountability for the trust's activities," and the
last one, which may be the least important, is that I can't look
at it either on behalf of the Legislature. It is an independent
corporation and therefore no memorandum of understanding
even.
Ms Martel:
Do you have access to their annual audit which is to be done by
an independent third party?
Mr Erik
Peters: Pro forma, I don't, but when I've asked for it
I've received it.
Ms Martel:
Is it a public document?
Mr Erik
Peters: No, it isn't.
Ms Martel:
So you can get it by virtue of the fact that you're the auditor,
but we would have to go through freedom of information.
Mr Erik
Peters: I'm not sure how you would go about it, to be
honest. I asked the Ministry of Finance, and they were kind
enough to give me a copy of the auditor's report. That's where
the information that I've printed was, that only $2.5 million was
disbursed.
Ms Martel:
So it was given to you as a courtesy, because you didn't even
have a legislative requirement to ask for it.
Mr Erik
Peters: Right, plus I raised the issue, actually, in my
last year's report already on the first quarter of a billion. I
raised it at that time in my report as a significant impairment
of accountability.
Ms Martel: That was at the time
when $250 million had been transferred, and then despite what you
had raised another $500 million was transferred.
Mr Erik
Peters: That's right.
Ms Martel:
One final question. You said in your media scrum that in all your
time as auditor this report and last year's reports raised the
most serious findings for you. Can you explain why that is?
Mr Erik
Peters: There are a number of issues. There's massive
change going on within the government in the way service is being
delivered. What we have found repeatedly-I'll give you one
example; maybe an illustration helps. When you alter service
delivery-I related this, I think, to the media. I attended a
conference on private-public sector partnerships. There was a
long discussion with some of the governments in the United
States, state governments, as to, "If you had to do it over
again, what would you do differently?" The first answer that
almost all of them gave was, "You would evaluate your pilots
before proceeding with a process."
This committee has already
met on the Ministry of Transportation, where we went and
outsourced a lot of the highway contracts before evaluating the
pilot. This year again we have, for example, identified that on
the primary care network there was supposed to be an evaluation
of pilots first and then proceed with what is going on. So that
is one area. In that regard you should also know that the
government should have a very clear picture of how much it costs
itself to do the program right now and what is involved in its
own delivery. The second part, which is really important and
which I think I've come out with fairly clearly in public this
far, is that when you outsource or consider alternate service
delivery, two fundamental aspects have to be adhered to: one is
that the policy objectives of the government have to be met; and
secondly, once it's done the taxpayer has to be ahead. Those are
the two fundamental rules. What we have found in many of the
cases is that we don't see yet where there is a clear indication
that the ministry has put itself in a position of ensuring that
policy objectives are being met and that they are in fact met in
such a way that the taxpayer is ahead. Those were the
features.
The Chair:
We'll have to leave it at that. The government caucus.
Mrs Munro:
I know Mr Gill has a comment to raise as well.
I actually was going to
bring up the issue that Richard did in terms of the question of
the auditor and the recommendations that you made seeking the
opportunity to look at the recipients of money. Because we've
already been through the main questions that Richard raised, I
want to know if this is done in other jurisdictions, sort of the
crystal ball gazing in terms of what you would want to see, and
obviously if there are other jurisdictions that give us a
demonstration of how this kind of thing works in other areas.
Mr Erik
Peters: It does work in other jurisdictions inasmuch as
other jurisdictions very often have access to that information.
Secondly, one point that I want to make abundantly clear is that
we are using this only on a discretionary basis. In other words,
I don't foresee us auditing value for money in General Motors of
Canada because they're receiving a $10,000 grant under the
apprenticeship program, to use an extreme example.
Ms
Mushinski: Didn't that happen in 1994?
The Chair:
In 1984, I think.
Mr Erik
Peters: In previous meetings Mr Patten very often raised
the question-for example, we have a small social service delivery
agency that receives, say, a $40,000 grant and we don't want to
impose on these people all sorts of reporting, not only a
reporting structure that may be very costly and terribly
counter-productive to what they're doing, but on top of it say,
"And, by the way, if you don't do it right the Provincial Auditor
can come in and take a look at you." So there has to be a great
amount of discretion as to what we can actually look at, not only
for the reason of the recipient-or I should say primarily for the
reason of the recipient, but another reason, of course, is also
the call it makes on my resources. One of the things I have to
consider in this regard is the resources, and in that regard I
should tell you that we would have great difficulties
accommodating this under the current budget, largely on the basis
that currently my office is funded to the extent of about 14
cents for every $1,000 that the Ontario government spends.
Compare that with the nearest colleague in the legislative
auditing community that I have, and they have about triple the
funding, in the range of about 35 to 40 cents per $1,000.
1150
The Chair:
Which jurisdiction would that be?
Mr Erik
Peters: There's a number of them. New Brunswick is very
close; they're at about 38 cents. The federal government is at
around 35 cents or thereabouts. BC, for example, as a much
smaller province, has a far larger budget than I do, about 25%
more money than I do. I had to bring that out because it may
require an increase in the money spent on my office.
Ms
Mushinski: The federal government actually ignores the
auditor at times, too.
Mr Erik
Peters: I won't comment on that.
The Chair:
The election is over. We've got another three or four minutes
left, Mr Gill.
Mr Raminder Gill
(Bramalea-Gore-Malton-Springdale): As I understand,
these audits have been going on since perhaps the 1930s or
whatever, and various governments go through this. It seems to me
from our discussion today that each year we look at similar
things and we seem to be highlighting the same concerns.
I'm not sure whether
governments ignore it or those concerns are not so valid, or
whatever reason, because we seem to be going through this year
after year. Everybody is paranoid, the report comes out. Do you
want to maybe elaborate on that?
Mr Erik
Peters: Firstly I just would like to comment on the
year. The concept of value-for-money auditing in the government
was actually introduced in the late 1970s. Up to that point, many
legislative audit offices were really more an adjunct to, in some areas, the
Minister of Finance, for example in Manitoba.
Ms
Mushinski: The federal integrity commissioner.
Mr Erik
Peters: Pardon? Right. Well, I can't comment on
that.
The Chair:
You didn't mean to say "right."
Mr Erik
Peters: Can Hansard please take that one off the record?
That was the heat of the battle.
Yes, there is a certain
degree of concern of my office that, as I did again this morning,
we raised questions seven years ago and action was not taken. It
has to be taken in the context of priorities. It also has to be
taken in the context of the government's own reaction. I should
tell you that, with this year's report, I was quite pleased with
the government's approach to the report in the House. They said,
"Yes, we have problems. Yes, we're going to fix them. Yes, we're
going to address them."
That's exactly what this
committee is about, and that's exactly what the government is
about, and that is what makes my reports have a difference. I can
tell you also that in terms of return on investment, my office is
outstanding. We have identified opportunities for saving money
for the taxpayer, and they have very often been acted on, and
money has been saved by the government in doing things
better.
The Chair:
So, Mr Gill, this is not a useless exercise.
Mr Gill:
Specifically on your speaking notes, page 4, the second
paragraph: you're talking about the ambulance system, and you're
hypothetically saying because of realignment, because of
downloading-as if the system or the service delivery or the
response time is going to get bad. You're hypothetically
forecasting that we might need $100 million more to achieve some
kind of benchmark of 1996 response times. Do you want to
elaborate on that? Is it hypothetical?
Mr Erik
Peters: No. I'm repeating what the ministry told us.
These are not my estimates. These estimates are done by the
Minister of Health. It is their own estimate of what it would
cost to re-establish the service levels or the response-time
requirements that were actually met in 1996. These costs include,
as Ms Martel pointed out, a certain amount of one-time costs of
having to cancel contracts in facilities and leases of about $11
million. But there is also a $53-million estimate made by the
ministry based on what the municipalities are telling them right
now as to what it would cost for municipalities to take over the
ambulance services.
As you know, this service
was supposed to have been downloaded as of January 1, 1998, or
somewhere thereabouts, but great difficulty ensued. Because the
municipalities were largely not prepared to assume the
responsibility for the service, the government retained providing
the service and then also changed the funding formula and how
they deal with the municipalities at that point. The
municipalities are paying for it. So, their $100-million number
is not my number, it's the ministry's number.
The Chair:
One minute left. Ms Mushinski. Well, OK, 30 seconds each. Mr
Hastings.
Mr
Hastings: I'd like to get Ray to find something out for
us regarding Mr Peters's comments about the 25% reduction in the
environment ministry leading to fewer inspections. This is that
old input-output problem you talk about, Erik, and that the only
way you can improve your inspection numbers is that you have to
have more staff. That gets me thinking you're caught up in the
same quandary that the rest of us are. You've got to go beyond
that equation to why can't you prioritize your inspections in
terms of getting the same result number out versus your inputs.
In other words, it becomes a management issue. You were talking
about drivers' licences and how that's managed. If you have a
good driver-ed program, you should have a reduction in accidents,
but it doesn't necessarily follow; it should. I'd like Ray to do
some work on that to show where you only have inputs-outputs and
there's no other way of managing the issue.
Mr Erik
Peters: Can I just very quickly say two things? I'm not
talking about staff; I'm talking about the number of inspectors.
But the second one, I'm just wondering, rather than burdening our
researcher with it, whether there's a possibility at all that
that issue could be raised with the ministry when it's before the
committee, whether they could provide the information and if that
question could be raised with them.
Interjection.
Mr
Hastings: Broader? I was using environment as the
example.
The Chair:
We'll have to leave it at that, because I see there's a vote
being called. I have three very quick points. Ray is going to
provide each office with a package on Agricorp today. It will go
into some of the background as to the relationship between
Agricorp and the ministry etc. Every committee member will have
that before the weekend.
Ms
Mushinski: I'd like to see a copy too of the
constitution for Agricorp.
The Chair:
I think that's part of it. So next week Agricorp will be
discussed. There will be a 30-minute closed session. The
ministry, or at least Agricorp, will then be given 15 minutes to
make their presentation, and there will be about 20 to 25 minutes
left for questions and answers for each caucus.
The final thing that I
wanted to say is that on Monday evening between 5 and 7 there is
a reception that the CAs are holding, and there will be some
pertinent comments about Erik Peters at that point in time, so I
would ask all of you to attend and bring your colleagues as
well.
Ms
Mushinski: Pertinent or impertinent?
The Chair:
Pertinent, I'm sure. The committee is adjourned.
