The Nova Scotia Legislature

The House resumed on:
September 21, 2017.

Public Accounts Committee -- Wed., Mar. 7, 2001

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HALIFAX, WEDNESDAY, MARCH 7, 2001

STANDING COMMITTEE ON PUBLIC ACCOUNTS

8:00 A.M.

CHAIRMAN

Mr. Russell MacKinnon

MR. CHAIRMAN: Good morning, ladies and gentlemen. Welcome to today's Public Accounts Committee meeting. As scheduled, we have the Auditor General's office to continue with the discussions on his report from last week. With us, in attendance, we have, as usual, Mr. Roy Salmon, Mr. Claude Carter, Mr. Alan Horgan, Mr. David Perry and Mr. Roger Lintaman. Welcome, gentlemen. Of course, I will ask the members of the Public Accounts Committee to introduce themselves because we have a few new faces here.

[The committee members introduced themselves.]

MR. CHAIRMAN: First of all, before we start, I think it is only appropriate that we extend congratulations to the two Parties from yesterday's events, to the Conservative caucus and to the NDP caucus. I am sure I speak on behalf of our caucus, extending congratulations on a victory well fought.

So starting off, Mr. Salmon, if you would like to open up with a few remarks, then we will proceed from there.

MR. ROY SALMON: No presentation this morning at all, Mr. Chairman. Mr. Perry and Mr. Lintaman are here being the Audit Managers involved in the audit work we have done in the areas of Education and Health. Ms. Morash, who is the Assistant Auditor General responsible for both those sectors is away on business in Toronto so I have asked the two managers to sit in. They are prepared to answer any questions of detail with regard to audits in those two sectors. We are here this morning to respond to any questions you may have with regard to the audits that we conducted and that are reported in my last annual report. Thank you.

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[8:02 a.m. Mr. James DeWolfe took the Chair.]

MR. CHAIRMAN: Thank you, Mr. Salmon. I guess we are going to start this week with the Liberal caucus. Mr. MacKinnon, are you going to be leading off?

MR. RUSSELL MACKINNON: Yes, thank you, Mr. Chairman. Mr. Salmon, I was reading through your report. In particular, in Paragraph 1.15 on Page 9 of your report, you indicated some examples that demonstrated the government's " . . . weaknesses in the processes to plan, assess, monitor and review how public money is spent." Would you be able to give us some of the more blatant examples that demonstrate those weaknesses?

MR. SALMON: Weaknesses in the way . . .

MR. MACKINNON: The government's " . . . processes to plan, assess, monitor and review . . ." how the tax dollars are being spent.

MR. SALMON: I think the major areas that we pointed to this year relate to the areas of health care and education. In particular, I would point to Emergency Health Services and the fact that significant decisions were made by the former government with regard to changes in ambulance services. There has been significant growth in the cost of that service, significant improvement in the delivery of that service, if you look at it at a very macro level but no system of evaluation of the impact of that change on other aspects of the health care system, and the absence of that information makes it very difficult to know whether the additional cost and what appears to be a significant improvement in service, has had an impact on the costs or the delivery of other aspects of the health care system. It is that absence of information that we are pointing to.

The other major area that I wanted to point to was in education where because of the timing of budget decisions, school boards are not in a position to make the decisions that they need to make, to make budget cuts or service changes in a timely fashion. Those would be the two major examples I would point to.

MR. MACKINNON: Perhaps we will come back to the one on education in a few moments but I wanted to focus on this program review that was done. Of course the government released some of those documents I guess just in the last couple of days. I noticed in there, there was one particular reference point with regard to the Strategic Research Group in government. Are you familiar with that?

MR. SALMON: No.

MR. MACKINNON: That came in under the Department of Finance, I believe. Yes. That was one of the programs that was slated to be eliminated, Strategic Research Group. Our clerk isn't here. If you could bear with me, I will pass it to you.

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MR. SALMON: Certainly.

MR. MACKINNON: That particular Strategic Research Group within government, as I understand, was quite critical to assisting the government in determining how to assess, plan, monitor and review the effectiveness of how government money was being spent and programs and so on. You have had an opportunity to glance at that.

MR. SALMON: I looked at it briefly.

MR. MACKINNON: That one there, to me, would seem to be, it is identified as being a critical component. In the mid section they ask its importance and they identify it as being critical but yet that has been eliminated. It seems to go to the heart of your concern in the government saying that it has control over the situation in terms of wanting to eliminate, better put, to be able to balance the budget. That was a concern that you raised last week. How would you see the elimination of that particular committee within government having an impact?

MR. SALMON: We are talking about a cut of $140,000.

MR. MACKINNON: It is not so much the dollar value as it is the fact that it was identified as a critical component within the structure of government.

MR. SALMON: What you are suggesting is that it was identified as critical yet it was cut.

MR. MACKINNON: Yes.

MR. SALMON: I am not sitting here understanding, at that level of detail, why decisions are made. What you are talking about here is a central agency function that has, if it was there, a broad role to play in decision making. Where we have pointed to in terms of deficiencies is in terms of ongoing processes at the program level in Education and Health. I would never suggest that a group like this could necessarily play a significant role in dealing with the deficiencies that I am concerned about because the issue isn't having two or three people in a strategic place in a central agency making decisions. The issue is the process and the role of this Legislature as well. Bringing forward a budget to this Legislature in April, May, June or July for a year that is already started, is a major part of the problem because a school board, in order to make decisions on what to do about how many teachers to have and classroom sizes and issues like that has to make those decisions in advance of the year. So it is a systemic problem, not the issue of having a small group of people in a central agency.

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MR. MACKINNON: Through you, Mr. Chairman, with all due respect, it may be a small group but it is identified as a critically valuable group within government. I guess why I focused on that is because I had the opportunity to peruse the synopsis of that program review report, at least the information that was released. Last week you indicated that the government had provided you with information from the program review, at least allowed you to review it. Obviously that wasn't one of the pieces of information, was it?

MR. SALMON: I am sorry?

MR. MACKINNON: You indicated last week that the government allowed you to review parts of the program review report.

MR. CLAUDE CARTER: No, we indicated that we were looking for information to support the cuts as it relates to it. I can't say that what is in front of us now is exactly what we saw.

MR. MACKINNON: But you did see parts of the program review report.

MR. CARTER: We saw summary schedules and so forth.

MR. MACKINNON: But you didn't see that information.

MR. CARTER: Our requirements were very specific. We were looking for what is the impact on manpower as it relates to spending capabilities and personal income taxes. So we weren't looking for the whole gamut in terms of what exactly is going to be cut.

MR. MACKINNON: So you weren't provided with that information then.

MR. CARTER: We were provided with what we felt we needed.

MR. MACKINNON: I understand that but you weren't provided with that.

MR. CARTER: I don't remember seeing something like this, no. In fact, in terms of what we are doing in revenue estimates, I don't see where we would need this for the work we do in revenue estimates.

MR. MACKINNON: My next question would be, has the Auditor General received any indication that the Finance Minister is willing to act on some of the advice that you provided to the committee last week or some of the concerns that you have raised within your report?

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MR. SALMON: Every indication I have had from the time that I first started discussing the findings of our audits and started discussing my draft report, which I have always done with officials in the central agencies, was that the government understood what the issues were, that there was no disagreement between myself and the government over what the issues were and that the government intended to act to deal with the issues that I had identified.

MR. MACKINNON: Thank you. Yesterday, the Minister of Finance indicated that in all probability there would be more increases or more additional user fees, particularly in health care, I believe a user fee on payroll taxes. Would that be . . .

MR. BARRY BARNET: Mr. Chairman, on a point of order. The member says that the minister indicated that there be additional user fees. It is my understanding that is not what the minister has said. What he indicated at a dinner meeting was that if they were unable to resolve some budgetary issues, that would be something that they would have to consider resorting to. So if the member has a letter or some documentation that shows his position of what the minister said, would he please table it for all members because I am not aware of that.

MR. JOHN HOLM: On the point of order, Mr. Chairman. That is called normally a disagreement between two members.

MR. CHAIRMAN: Yes, it is, Mr. Holm. I agree.

Mr. MacKinnon, you have the floor.

MR. MACKINNON: Thank you, Mr. Chairman. Perhaps if the honourable member had listened to what I said, I used the word probably but that having been said, the fact that we have, I believe, some 40 pieces of legislation on the books now that have user fees attached to them and you raised concern last week, the fact that the government is applying user fees that could very easily be construed as a tax more so than a user fee because of the fact that it may be going beyond the intent of what a user fee would be normally set out for. Again, I go back to the point that the Minister of Finance indicated the suggestion that possibly there could be, for certain reasons, increase in user fees on payroll tax. That was as late as the 7:00 o'clock news this morning. What changes in legislation would have to be made to validate that as being either a user fee and/or a tax?

MR. SALMON: Mr. MacKinnon, I didn't hear the news report this morning. I don't know what the minister said.

MR. MACKINNON: Well, assuming that the minister indicated that there would be an increase of user fees on payroll taxes . . .

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MR. SALMON: I don't understand it.

MR. MACKINNON: Well, I didn't quite understand what he was saying either. I am just trying to paraphrase after listening to it very carefully. He is suggesting there would be an increase in user fees for additional health services or to maintain health services. Would there have to be changes to the Health Act or any various Acts to be able to validate that?

MR. SALMON: At this point, I am not sure that I can even comment or answer that question. Maybe Mr. Horgan could.

MR. ALAN HORGAN: I would just say we can't comment on those specific items because - of course they are occurring in things that we haven't looked into. Based on our audit, the general principle is that if a user fee is in excess of the cost of the program that it is being levied for, then that is tantamount to a tax. If it is tantamount to a tax, then it has to be authorized by way of legislation. If the total amount of money brought in by user fee is consistent with the cost of a service, then the label user fee is more fit and those types of user fees can be set by non-legislative means, such as regulations.

MR. MACKINNON: Has the Auditor General's office identified any user fees that could or should be more appropriately identified as a tax?

MR. HORGAN: What we have identified is that there are a number of services out there for which they are not aware of the total cost. In those cases where there is a user fee for those services, we could not tell and government, to some extent, was not sure whether the costs were consistent with the fee or were higher or lower. So I guess in answer to your question, there is a real void of information to determine that.

MR. SALMON: And there has been for a long time.

MR. MACKINNON: Yes. I noticed even in the last budget there were increases of substantive amounts within the Department of Fisheries of user fees, by more than 300 per cent. I am looking at 10 or 12 different line items here, and no one has been able to justify the rationale for those increases to date. That is probably what you are referring to, that type of logic?

MR. SALMON: That's correct.

MR. MACKINNON: Right. I want to go back to the Department of Education and, in particular, the Halifax Regional School Board. It was indicated due a to lack of information, the disks were erased or something, so as a result the Auditor General's office couldn't do a thorough, or a complete - I think that would be a better word, not that you aren't thorough, I know you are - audit of that board's operations, that $350 million budget.

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Was it just the disk that was requested? Was there any request for back-up information that the board may have had?

MR. SALMON: I will ask Mr. Lintaman to go into detail about the lack of information that was available to us to support the assumptions underlying the budget and the budget itself.

MR. ROGER LINTAMAN: With regard to the lack of detailed information supporting the final number on the budget documents, there were numerous instances where the information wasn't available in terms of an electronic format, or in a hard copy. A lot of that detailed information was recreated but it could not be recreated to the final number, as indicated in the budget documents.

MR. MACKINNON: Did the school board indicate whether they had additional information stored at another source to be able to provide that?

MR. LINTAMAN: They indicated that they did not have any additional information to support the variance in the numbers that we were trying to determine.

MR. MACKINNON: I am a little concerned about that, quite frankly, Mr. Chairman, because I understand Monday morning school board officials met with HRM officials and indicated that they had additional information, as I understand it - and I do stand to be corrected, and will be given copies of the tapes of those meetings sometime today, hopefully - indicated that they did have additional information but the auditors didn't ask, so if they didn't ask, they didn't offer. I was a little concerned about that and wanted to draw that to your attention because if there is any indication that the school board officials may have misled the Auditor General's office, I am quite concerned because here they are back to HRM looking for additional supplementary funding and they can't even identify how much money they have, where it is going, or how effectively it is being spent. I even contacted a data recovery specialist company who indicated they would be able to retrieve that information even if it was erased and if they couldn't retrieve it there would be no cost. I will certainly table that letter because this company is an expert company located in New Brunswick, it does work for the Canadian military, for J. D. Irving, for the New Brunswick Government and I can go on and on.

I think it is quite concerning that we would have that type of action ongoing when the Auditor General's office is identifying education as one of the . . .

MR. CHAIRMAN: In agreement we will have the Clerk copy that letter.

MR. MACKINNON: Yes, it is to be tabled for all members. So I would like to draw that to the Auditor General's attention. Before I turn it over to my colleague, I request that the Auditor General's office please do a review of this particular situation if, in fact, that

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information is there and if they haven't been forthcoming with the Auditor General's office that action be taken to ensure that a complete audit is done so we would be better able to assess the value for dollar within the Department of Education on that $350 million line item. Would that be okay?

MR. SALMON: I didn't hear the report that you are referring to. We did our audit. We asked for information. The information that was available was made available to us. To our knowledge, nothing was withheld. If someone is suggesting that there was additional information available and it was withheld from us, I would be very concerned as well. All I can say is we will follow up on whatever has been said recently.

MR. MACKINNON: That would certainly be appreciated because I find it very concerning when we can't assess a $350 million budget.

MR. DEWOLFE: There is exactly one minute left, if you have a further question.

MR. MACKINNON: My next question would go back to the issue of user fees. Does the Auditor General's office have any indication as to how many pieces of legislation would have to be changed or really should be changed if additional user fees are being applied? Just to confirm what I indicated, here is the press release from the Department of Finance with reference to the issue that I raise. "The alternative to managed growth is more revenue, in the form of more health user fees and fee increases, the minister said." I will table that and there is some additional information . . .

MR. BARNET: Mr. Chairman, on a point of order. The member quoted half of a sentence. If he could quote the first half of that sentence it would provide the right kind of context. What he did was he actually pre-empted the statement of the minister. He started at the word alternative and he didn't provide the first half of that sentence which clearly indicates that that is not the direction the government is going in.

MR. CHAIRMAN: I have to reiterate that the time has expired for the . . .

MR. MACKINNON: Mr. Chairman, on a point of order. If the honourable member would at least take the time to read the material he will find out that the words that I used are, in fact, a sentence in whole. Please. I ask the honourable member to please take time to read the material before he comments.

MR. DEWOLFE: Point taken.

MR. BARNET: Mr. Chairman, on the point of order. The member is absolutely ridiculous. I have read it and he knows that. What he has done here is try to portray what the minister has said out of context and it is both unfair and unreasonable to do that.

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MR. CHAIRMAN: Thank you, honourable member. I will now turn the floor over to the NDP caucus. You have 25 minutes beginning at 8:30 a.m.

MR. JOHN HOLM: Mr. Chairman, as I begin I can't help pointing out - and I know that my colleague, the member for Cape Breton West doesn't need any help - but I think the Conservative caucus will have their turn in terms of answering questions and putting forth their spin in due course.

[8:30 a.m.]

A few things that I would like to touch on first, if I may, with the Auditor General and staff, first of all on the program review information that was released. I know as a result of the court challenge and so on that our caucus, and now the new member for Halifax Fairview led on our behalf, we had obtained a significant amount of information. I am wondering if the Auditor General has asked for that information as well and if not, if he would like to receive a copy of that information. Would that be helpful for the process?

MR. SALMON: We have asked for and received any information that we felt was necessary to conduct the audits we were conducting. We have not had anything withheld from us, to my knowledge. In terms of the program review, to the extent that that process impacted on any audit work that we were doing in any particular program area, we received what we needed.

MR. HOLM: As part of your review did you look at value for money? Did you look at items like whether or not the particular programs that were under review and under elimination could have a longer-term detrimental impact upon costs for the Government of Nova Scotia? I confess I haven't had an opportunity myself to see all the information, but some of the reports that I have heard, was that some of the programs that were eliminated, there were concerns that that could result in longer-term cost implications possibly because of increased health care costs and other kinds of costs. I am just wondering if as part of the review, did you look at the programs in terms of whether or not they were providing good value for Nova Scotians and if the elimination of some of these programs might have a detrimental impact, in terms of costs and/or other areas? I was just wondering if that was in the scope of what you were doing.

MR. SALMON: We didn't audit the program review process. We didn't focus on items that were part of program review that were eliminated. Our audit focus was on particular programs and how those programs were being managed, so I can't give you a direct answer to that question. Our focus was on particular programs, how they were managed, what information was generated about them and how decisions were made about them.

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MR. HOLM: One of the things, I think, in the audit function or the Generally Accepted Accounting Principles is also, of course, looking at value for money but that depends on what you are doing in a particular audit. I believe what you are saying to me is you didn't get into that element of an audit with regard to the program review, but rather how they were managed and those kinds of things.

MR. SALMON: Yes. If you look at our audit of physician services and alternative funding arrangements, what we were focusing on was that decision was made, the government went into a process of alternative funding, but the information being generated doesn't tell the government whether or not that system is better than the previous system.

MR. HOLM: I guess where I am coming from too - and I am not trying to be argumentative but just make the point that - in some of the other programs they have also eliminated, there could be some cost implications, certainly when you talk about going into private service - for example, in some of the agricultural kinds of things - that could have environmental cost impacts.

We know that, for example, we have costs now booked for the Sydney tar ponds clean-up and that is a liability to the province. If there are certain things being done, programs being eliminated, there could be cost implications both in human and financial terms down the road. I am just wondering, you didn't take a look then, obviously, at those kinds of possible ramifications and that is really projecting forward so I doubt that that would have been included in part of the audit scope.

MR. SALMON: We did in the audits we did, but not generally in terms of program review.

MR. HOLM: I want to go back to another item that was briefly touched on. You talked about school boards and being able to properly plan because of the lateness of when they are given their budget information. That, of course, is a long-standing complaint and concern of school boards. I was speaking to my colleague a few moments ago and trying to remember which government it was that made a promise a number of years ago that that was going to be rectified and that they would be providing information well in advance of the start of the new fiscal year for school boards. Of course, fiscal years were changed to bring them in line with the province and that was one of the things that was supposed to help resolve the problem.

School boards, hospital boards would fall under the same kind of situation. Have there been any discussions with the government - you are making recommendations but have you had any discussions with government - or suggestions from government that they are prepared to try to move to address that problem? I don't know how you do and I can't think of a single business that would be feeling comfortable about going about a third of the way through their fiscal year and passing a point where they are able to make any decisions that

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would allow them to adjust and bring their costs in line, where they don't know their budgets in advance. It just strikes me to be a completely untenable situation for the school boards, the hospital boards and others.

MR. SALMON: I would agree with you that the current situation, in terms of timing, makes decision making extremely difficult. We have had discussions about the issue. I think everybody is concerned about it. It is a matter of changing the process and we certainly have not seen any specific concrete plans as to how that is going to be achieved but everybody wants to change it.

[8:38 a.m. Mr. Russell MacKinnon resumed the Chair.]

MR. HOLM: Then, of course, the boards and the various ones that are responsible, if they can't live within the budgets they are allocated, they end up being the ones who are criticized, quite often, for failing to live within their means. They are, of course, told they had sufficient money to buy paper and all the other things and they are criticized for not living within their means, but in reality the time-frames, because of when they are given their dollar amounts, they are already locked in to many of the key items and they have no ability to change those so they are really stuck in a situation over which they have no control.

I just want to also briefly touch on the HRM. I don't know if any other boards - I know the audit dealt with two particular boards - but in terms of the lack of information, I heard the member for Cape Breton West talking about how some information can be unerased and that, of course, is true. You can do that and I have done that on disks that I have erased accidentally myself when I wanted some information back. It isn't necessarily all that complicated, unless it has been erased in a security erase or unless you have written something over the top of it. What I am more interested in is in terms of a budgetary process.

It strikes me that when you are preparing next year's budget, you want to be able to look at and bring up the information from last year's budget process so you can do a fair comparison, one to the next, and be able to then look at what you did, tweak it, refine it, put in new numbers and new priorities and so on, but you really need to have what you did before to expedite and make your next budget process a little bit more efficient. My question really is, am I way off base on that and if not, does the Halifax Regional School Board have readily available to them the information used in preparing last year's budget in a format that will make it possible for them to use as they are preparing their next year's budget?

MR. SALMON: Mr. Lintaman can elaborate on this one but that is one of the points we made in this year's report, that the school board at the management level has made their lives difficult, in terms of the preparation of future budgets . . .

MR. HOLM: And much more expensive because they have to reduce . . .

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MR. SALMON: . . . because they did not retain the information underlying the assumptions and decisions that were made with regard to last year's budget. It wasn't just a question of providing information to us that would help us assess their process, it was also a question of not having the information to understand why they made the decisions they did, what supported the assumptions they made when they moved forward into the next year. Roger, do you want to elaborate on that at all?

MR. LINTAMAN: First, if I go back to the issue involving the data in the electronic format just for a moment, that was a case of many iterations during the budget process, as you can appreciate. I don't have the exact number of iterations in memory, but let's say there were at least a half-dozen iterations. The base budget, with the various number of line items - and there are a considerable number of line items - these pieces of information were revised, recalculated and written over numerous times.

In terms of monitoring, the detail information in support of budgetary assumptions and the calculations and all of the factors and components used in the determination of the final budget number, are particularly important. If you are not able to reproduce or you don't have a track on exactly how that final number was determined, then you are quite correct, you will not be able to monitor properly. You will have inefficiencies in your process; you could make erroneous decisions; and in comparison to year to year end for the ensuing year, in terms of the process, you haven't done yourself any favours.

MR. HOLM: That just totally boggles my mind. My office operation is pretty rinky-dink, running a constituency office, when you compare it to running a school board or anything else but even I know that if I lose some files, they can be pretty difficult to recreate. Computers do crash, even main systems, so you make back-ups and back-up CDs are quite inexpensive and you can put one heck of a lot of information on it. It just boggles my mind that the board didn't have back-ups of all of that material as they were going through, back it up so that even in the budgetary process if something happened, if one of these little worms that sneak in that are bothering everybody - and they even get into government systems - if you don't have the back-ups you are in trouble. I would even think it would be more expensive to try to delete and destroy the back-ups than it would be for the cost of the CD that it was kept on. It puzzles me to no end and hopefully, that problem will be rectified in the future.

I want to touch on user fees and I want to use an example if I can here, with the 911 system. That is called a user fee and as a result of being called a user fee - HST, of course is collected on top of the fee - instead of that being called a user fee, if it was classified as a tax, would it be subject to HST?

MR. SALMON: To my knowledge there is no tax on tax.

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MR. HOLM: That is my point. Do you know how many user fees in Nova Scotia have HST imposed on them?

MR. SALMON: No, I don't know.

MR. HOLM: Where I am coming from on this and maybe you can follow but certainly there has been some criticism of the current government and you have pointed out some of these user fees, and I know that HRM, just based on what I read in the media, is considering, or at least the mayor, is considering asking council to challenge the fee on the 911 service. By having it classified as a user fee instead of a tax, that means the province has the ability to charge HST and get their tax upon the tax, whereas if it was, in fact, done through legislation and called what it is - at least I think most Nova Scotians believe that it is a tax, maybe a tax to cover the cost of that service and therefore a designated tax, but it is - a tax, then that HST portion would be removed from it. Is that correct?

MR. SALMON: I really don't know. I haven't looked at that issue at that level of specifics.

MR. HOLM: Maybe it is something I could put forward as - and I know you have a busy schedule and so on - something I think when we are talking about how the government is raising revenue, whether it is or isn't appropriate, or whether it is or isn't a priority of government to do things that way, certainly that is not the role of the Auditor General to set the policy directions, I am not suggesting, for government, but it would be very interesting to know how much in the way of HST revenue is being generated by, in effect, putting that on top of what some want to call a user fee but really amounts to a tax.

In your report under Treasury Management, you talk about all the various monies outside the budget process, the $30 billion the government is responsible for managing and so on, that would include the pension funds and other things like that. You talked about there being a need for a better information process to the House of Assembly, for example, and I made note of your suggestion that we should be enquiring a little bit more about how those funds and so on are being managed and processed; something that truthfully I haven't done very much myself and I took it as good advice. Under that $30 billion fund, are all of those funds managed exclusively by the government or are some of those co-managed?

MR. SALMON: I'll ask Mr. Carter to respond to that.

MR. CARTER: What were the last couple of words?

MR. HOLM: For example, the pension funds, I know there are pension commissions and you have representatives, for example, of the teachers on the Teachers' Pension Fund and government employee representatives on the Government Employees Fund. How many of those funds are really exclusively managed by government? If those funds do not perform

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up to a certain level, how many of them would have financial implications or obligations that the province would be liable to cover?

MR. CARTER: The short answer is, my understanding is all of them.

MR. HOLM: All of them are . . .

MR. CARTER: Government has a responsibility, if the management of those funds is not conducted in a manner that meets the liabilities. I think it is important as it relates to the Teachers' Pension Fund and the Public Service Superannuation Fund that the Minister of Finance is the trustee and I guess in that role, has the overall responsibility for it. Certain elements of those funds are done externally to government. They do have investment dealers, custodial services and so forth; similarly on the debt side, as it relates to interest payments, debentures and custodial and so forth, that is being done by external service providers as well.

MR. HOLM: Have you looked at the performance of those funds to find out - as part of the audit process to see - exactly how they have been performing and what kind of liabilities we have either increased or decreased over the last period of time?

MR. CARTER: We audit the pension funds: the Teachers' Pension Fund, the Public Service Superannuation Fund and the members' retiring allowance. Have we done a specific management audit of the fund management function?

MR. HOLM: Right.

MR. CARTER: No, we have not. It is part of a larger Treasury management initiative; it is going to be a multi-year initiative for our office and hopefully, we will get started on it this year.

MR. HOLM: In your report, Mr. Salmon, you also talked about the procurement policies. You talked about exemptions made to the procurement policy and talked about where there were exemptions but there wasn't a reporting process back to, I believe, the House about those. Can you give us any examples of where there were exemptions or a list of the exemptions that were made that were not reported to the House?

MR. SALMON: I will ask Mr. Carter to respond to that.

MR. CARTER: Unfortunately, I would have to have a copy of the most recent or one of the procurement reports in front of me and I don't have it and I don't have that good a memory.

MR. HOLM: You have those though, do you?

[Page 15]

MR. CARTER: Yes.

MR. HOLM: Would you be able to make those available to this committee, the exemptions where the government didn't follow the policy?

MR. CARTER: If that is the committee's wish.

MR. HOLM: Well, it is certainly my wish. Mr. Chairman, I would ask that the exemptions to the procurement policies be made available to the committee, if the Auditor General's Department is prepared to do that.

MR. SALMON: My position would be that if the committee decided to request a report on those specific exemptions, that the request be made to the Department of Finance or the department that is responsible for procurement, not to the office of the Auditor General. It is their report, it is their information, not mine.

MR. HOLM: Mr. Chairman, at the end of the committee hearings, I would like to have that motion put forward.

MR. CHAIRMAN: One minute.

MR. HOLM: One minute left and I haven't given you a chance to ask your questions yet. We'll get them in the next round.

Under the disclosure of compensation arrangements - I don't know if I am going to have time to get into that - you talked about the kind of information that isn't made available with senior public servants and so on, that isn't made available in the corporate world that has to be disclosed. That is a crude summary of what you said, I think. I am wondering if the Auditor General could briefly expand upon the kinds of things that are not disclosed under our disclosure system about the various packages provided to senior employees, that would be made available in terms of - I think you talked about bonuses, market adjustment, bonus arrangements and so on . . .

MR. MACKINNON: Order, please. Your time has expired. Perhaps we will come back to this in the second round. We will turn it over to the PC caucus. Mr. Chataway.

MR. JOHN CHATAWAY: Mr. Chairman, for this member of the committee to sit down with such learned people about money and financial matters in this province, it is a great day. I think today's weather has also improved compared to yesterday's forecast saying what it would be like and you have actually improved the weather, certainly some of us politicians here feel that we have also improved in another way with some by-elections, but we are very glad to be here.

[Page 16]

I think just some basic, maybe, ordinary questions that people in Nova Scotia are actually bearing with, because many of us pay taxes in Nova Scotia. But what is the difficulty if the government allows a deficit to continue to climb? I don't want a complicated answer, but if the government would allow the deficit to continue to climb, what problems would there be? At what point, for example, would the credit rating agencies downgrade our credit rating, because it happens to most people if they borrow money and they don't have as good a credit rating as other people, I guess it downgrades the credit rating. Certainly when we realize that we have nearly $12 billion - it is certainly $11 billion overdrawn or debt - this is a significant cost. I understand - and I certainly could be corrected - that $1 billion of Nova Scotia taxpayers' money is going to pay interest on the money that we do owe. So, just basically, I would like to know if the government allows the deficit to continue to climb, what would be the difficulties?

MR. SALMON: I haven't got a specific answer to your question. All I can say is that you are right. Nova Scotia is running a budget of about $5 billion and approximately 20 per cent of it is going to pay interest on the debt; that's close to $1 billion a year that could be spent on health care or education, but it is going to pay debt service costs. At what point does a bond rating agency say we are downgrading your rating? I don't know. I know we are close. At what point do investors say we aren't going to lend Nova Scotia any more money? I don't know, but I think we are close. We have the second-lowest rating in the country as a province.

MR. CHATAWAY: I agree that people certainly consider that when lending us money or not, but certainly reaching the target of a balanced budget is a commitment of this government. You state, or somewhere I understand you have said that the government's ability to carry through with this commitment - that is to follow through with the commitment to achieve the fiscal management task force recommendation to balance the budget in the year 2002-03 - is at risk. Would you expand further on that statement?

MR. SALMON: In previous audit reports and in this one, we have pointed to deficiencies in information systems, in the information that comes forward, in the timing of the information that comes forward, that all impact on the ability of the government and of government officials to make decisions with regard to how much to spend on specific programs, which programs to cut, which programs to spend more money on. All of that impacts on the ability to manage expenditures and deal with how to get expenditures under control in order to balance the budget.

[9:00 a.m.]

As I continue to say, the ability to manage revenues is limited, because so much of it is in the hands of others. What is very clear is that balancing the budget because of windfalls, such as selling Nova Scotia Resources Limited, is not going to solve the problem. The problem is having the right information to deliver necessary services at the right level

[Page 17]

within reasonable costs; you have to have the information, you have to be able to make judgements and make decisions and keep things under control.

MR. CHATAWAY: I understand - and correct me if I am wrong - that indeed we did make the target last year. The government had said, okay, we want to reduce the deficit to about $260 million and they basically got that goal. It certainly was not an easy thing, it was hard, dedicated work, but the goal was made. I understand that you would back that statement up?

MR. SALMON: I am not quite sure I understand the question, but . . .

MR. CHATAWAY: Did we basically make our target last year? The government said, here, we are going to set the target, and they did do that. Is that so? Is that what happened?

MR. SALMON: That's a very difficult question for me to answer. If you look at what the estimates were for 1999-2000, the estimate was a $500 million deficit, and we came in with a $300 million deficit. But an awful lot of that is due to revenue growth and to unusual items. My focus is on processes and systems and the information that comes forward, not on whether or not actual numbers are achieved.

When you go back and look at the estimates for 1999-2000, revenue was projected at $4.6 billion and came in at almost $4.8 billion; expenditures were predicted at $5 billion and came in at $5.1 billion. So there is growth on both sides. Was that good management or was it just a product of what happened? It is very difficult to comment.

MR. CHATAWAY: I am sure maybe nothing is a perfect action, however, I think the government is, most of the time, going in the right direction. Basically the commitment of this government is to balance a budget. It cannot happen in one year because it is not a simple solution. They are going to go ahead and say, by the year 2002-03, this will be balanced, but they are certainly going in that direction. I don't know the exact figures, maybe you would know it better but it was approximately $260 million last year and this year it is about $90 million and next year it will be balanced. It certainly is a good step in the right direction.

One thing maybe, if I may, Minister LeBlanc recently told Nova Scotians that health costs increased by 10.5 per cent each year since the late 1990's, I believe it was about 1997. The economic growth in Nova Scotia was only about 3 per cent. Health costs would consume every available dollar for government programs for the year 2011. He supports the Auditor General for being right when he stated that the province does not have information systems in place - I think you just mentioned that - to support the kind of long-term decisions that are required to control costs. Does your report support fees charged for utilizing the services in health care?

[Page 18]

MR. SALMON: That is a policy decision that I would not want to comment on. What I will . . .

MR. CHATAWAY: Maybe I should have asked the second part of the question, I don't mean to embarrass you or whatever; practice will make perfect and maybe 100 years from now I will speak better. Does your report ask for more accountability in the reporting of these fees?

MR. SALMON: Absolutely.

MR. CHATAWAY: And I think that is something we all agree with.

MR. SALMON: Accountability is fundamental to the whole process and accountability means reporting on what you are doing, how you are charging fees, what the government is providing in terms of services, what it is costing and the gamut of information is endless. But there has to be appropriate reporting on operations, on revenues and effectiveness of services.

MR. CHATAWAY: I certainly agree with that answer, I think that is your job and it is good that you reported it. This is possibly naive, but why does the Auditor General's office sometimes wait for years to highlight better actions? I read out of your report, Paragraph 3.8, "It has been approximately thirteen years since government last completed an external review of its method of calculating fees charged to companies which harvest trees from Crown Lands.", and in the area of user fees, I believe it is Paragraph 3.3, "Government indicated that it would implement the 36 policies recommended in the 1997 Licences, Permits and Approvals Task Force report, but no significant progress . . . ", et cetera.

I would wonder why good recommendations by your department, et cetera, should be checked out quickly to see that what you said has been accomplished. You mentioned 13 years and 3, 4, or 5 years ago, and this is in this year's report. I just wonder why it took so long to make that statement, especially when good recommendations - and I think many people would agree they are good recommendations - should be checked out more quickly, I guess, especially since good advice should be acted upon sooner rather than later.

MR. SALMON: I have been here since 1992 and we have made recommendations every year. Some of them are acted upon and some of them aren't. Much of it is related to the ability of people within government to do everything that is necessary. Everybody works hard but there is only so much you can do. It takes political will, in many cases, and sometime I guess that is just not there. I am not criticizing any particular Party or any particular politicians, but things take time and that is true right across the country.

[Page 19]

MR. CHATAWAY: I assume that if you had some ideas - a, b, c, d, do these things in any department or something like that - if you brought them up either informally or formally the next year, you would want to make sure your comments had been reacted to in some way. Is that not the case?

MR. SALMON: We have always followed up on previous recommendations and if they weren't acted upon we repeated them. You will find a history in my reports of continually repeating and focusing on what I considered to be the significant issues and reporting on where progress had been made and saying, basically, we still need to do more in these particular areas.

MR. CHATAWAY: Basically I know that you don't spend all next year reviewing what went on in this year's report, but you do touch base and try to ascertain whether your recommendations have been accepted, et cetera?

MR. SALMON: That is correct, yes.

MR. CHAIRMAN: Mr. Carey.

MR. JON CAREY: Mr. Chairman, continuing on the line of my colleague, it tweaked my interest when you said your main concern is in the process rather than the outcome. I guess government's concern is the outcome, but is there an evaluation or reconsideration that if the outcome is working, maybe the process isn't so bad? You are looking for a process to do a proper accounting and evaluation but I think one of the comments you made is that your major concern in your position is the process.

MR. SALMON: Yes, because when you go all the way back to what my mandate is, if a government decides to run a deficit, that is a policy decision and I won't comment on that policy decision. But the process has to be in place to manage the achievement of the policy decision. So if the policy decision is balance the budget, then you have to have a process in place that gets you there in a way that allows you to make the right decisions to get there. I am concerned about the process, in terms of are you making the right decisions with regard to programs that deliver the services that you want to deliver, while getting you to your goal. My concern is there aren't the processes, there isn't the information, so you don't know whether you are making the right decisions.

MR. CAREY: So I guess we could make the assumption that you feel if the proper processes were in place, it would make it easier for the government to balance the budget.

MR. SALMON: If that is their goal, yes.

MR. CAREY: I can assure you that is their goal.

[Page 20]

MR. SALMON: I understand it is too.

MR. CAREY: I think, most certainly, we would agree that accountability is important in user fees and every issue. Since July 1999, has progress been made in - considering the prior available information, how would you rate the progress, has it been none, some? I guess, are we making progress?

MR. SALMON: In terms of processes, yes, we have been making progress since 1993. We kind of slipped back a little bit in 1997, because we had developed things like business planning and the accountability document that came forward called, Government By Design, from 1993 through to 1997-98. We finally got a performance report out in 1998 called, Nova Scotia Counts, that said, this is what we have done. Then we kind of slipped back but now it is recovering again, as I understand it, in terms of processes. It is a bit of a roller coaster.

From 1993 to 1997, Nova Scotia moved forward in terms of being a leader in accountability and reporting. We kind of had a little bit of a lapse there but every indication I have seen is that we are going to get back up to the top of the roller coaster. What we need to do is maintain that momentum continually and keep moving this thing forward. Now we have legislation that requires performance reporting and that is going to happen this year. That is good, that is an indication of going in the right direction.

MR. CAREY: Your definition of user fees appears far broader than that of the Department of Finance or the minister. Could you explain the reason for the difference and how you categorize arrangements such as stumpage fees as user fees?

MR. SALMON: I will ask Mr. Horgan to respond to that.

MR. HORGAN: I would suggest that there is no one definitive definition of user fees. We used a definition that would allow our audit to examine a broad range of fees charged by a government, so we used a definition that I think would be consistent with the way the public sees user fees, that most fees that are not defined as a tax alternatively would be a fee and thus we scope these into our audit. The definition we have is for purposes of defining what we audit.

The Department of Finance had a bit of a narrower definition just because that was a function of their budgeting at the time that they were just trying to define different types of revenues for budget purposes and they had a slightly different definition. I wouldn't suggest that is the definition that government uses at all times when discussing user fees.

MR. CAREY: Apparently, I am out of time, but on the study of user fees - and I understand there is one to get some solid base, some long-standing user fees prior to July 1999 - did you feel they lacked proper study prior to implementation?

[Page 21]

MR. HORGAN: I don't understand your question.

MR. CAREY: User fees that were implemented over a long period of time - apparently it has been ongoing - do you feel that they lacked proper study before implementation, as far as getting accountability and the method in which they were implemented?

MR. HORGAN: Based on our audit we discovered many user fees, if not most, go back a long time. They go back so far that it is very difficult for us or for government, when we are making our enquiries, to determine what the basis for the setting of many of those fees was. So I wouldn't suggest that there was no basis at the time. I mean certain fees that go back 10 years or 20 years, it is just that it is so long ago that it is just unclear now perhaps whether there was a full study or some kind of basis. From that point, as they roll forward, we noted from our audit that there is a lack of continued monitoring to see whether the fees are reviewed on a regular basis, whether they still make sense with regard to the service being provided and the cost of that service.

Government conducted that study that we referred to earlier, Licences, Permits and Approvals Task Force. They reviewed a number of these and came up with similar findings and brought forward a number of recommendations. Some of those recommendations referred directly to how user fees should be determined from a financial perspective.

MR. CHAIRMAN: We will now start our second round and go for 12 minutes each. I will start off with the Liberal caucus. Dr. Smith.

DR. SMITH: Mr. Chairman, briefly I would like to deal with two areas, particularly the user fees related to health and also the information system because I think they are very much linked. I attended the Minister of Finance's speech yesterday and I wasn't quite aware of his references, then a press release later of health user fees and the increases. Essentially, the minister said if there is not really managed growth within health we would have to resort to user fees and fee increases. I guess I would simply call them health premiums.

In your report, Mr. Auditor General, Paragraph 7.73 and 7.76, I am sure you are well familiar with proposals to the health information system and that this proposal was provided to Health almost two years ago. Do you think the price tag is more expensive today? It was outlined $35 million one time and $2.5 million annual ongoing and then the $11 million. What kinds of costs might we be looking at in the year 2001, relative to those earlier projections?

[9:22 a.m. Mr. James DeWolfe took the Chair.]

MR. SALMON: I really couldn't comment on what a system like that might cost today compared to what the estimates were previously. It is very hard to judge.

[Page 22]

DR. SMITH: I think that is a fair comment, it is probably too broad. I would be wondering though if there is some idea of any savings through your examinations within the department that you are very familiar with now because I know you have been very interested in the department and certainly being one of the main cost items to government. We have information, for instance, one of the vice-presidents of the Royal Bank, I think, had a piece in one of the national newspapers a short time ago on how far behind health care is in the information system and I truly believe that. As a past minister, you realize it doesn't grab people's attention but it is such an integral part and I think your report has highlighted that. Do you think we would have seen significant savings had that been introduced, that information system that was proposed a couple of years ago? Do you think we could have realized savings at this juncture?

MR. SALMON: Well, if you start on the basis that better information leads to better decisions and better decisions result in more efficiency or more effectiveness in the delivery of services, then the answer has got to be yes.

DR. SMITH: We have heard a lot about the clinical footprint, the medical health services plan. We hear the Minister of Health speaking a lot about evidence-based decisions and all of these issues. Yet, when the report came out we saw that it was really a rehashing of old numbers. Everyone knows that a hospital stay in Cape Breton is longer than say, in the Valley. This has been known for decades.

In your opinion, do you think it is more important to have the information system up and running than some sort of plan that says it is based on evidence-based decision making, but obviously cannot be fully functional at its fullest because of the lack of an information system? The government has had this proposal for an information system for over two years. It hasn't officially responded to date. Do you think they are putting the cart before the horse in all of these things?

I, personally, was disappointed in the so-called clinical footprint. We were in the House here, last year, everything was going to be answered in the clinical footprint. Obviously it wasn't. It is a skeleton framework, in my opinion. But do you think they put the cart before the horse in all of that or did you have a chance to look at the clinical footprint to any extent? I think only one phase of three phases has been released at this juncture.

MR. SALMON: That is a very difficult question to try to answer, is the cart before the horse. Mr. Perry, do you want to comment at all?

MR. PERRY: Again, I am not that familiar with the clinical footprint document. There is certain information in Health that is available now. My understanding is that they are attempting to perhaps use the information that is available at the present time more effectively than what they have in the past. I would certainly support that initiative.

[Page 23]

The question of whether health care information is adequate at the present time, I think most agree that better information systems are necessary on a whole bunch of fronts to make even better decisions. I think that trying to work with the information that we have available now in a more effective way . . .

MR. SALMON: I go back to what I said last week. The whole health care environment has been in such a state of change, structurally, organizationally and things have got to settle down. We have to get stability in the system. That is the horse and then the cart follows.

DR. SMITH: I think that was our concern when the Goldbloom report was ignored and we moved further from four to nine regions or authorities now as we know them. I think it is a concern because tying in the Finance Minister's comments yesterday with the issue that if it is not managed and it is not informed decisions and managed growth in the health care system that there will be health premiums. Whether that is a payroll tax or whatever, I am not quite clear, but you can call it a tax or a user fee. I am not going to go there. I am not going to trouble you with that. I think you have dealt with that one well.

So I guess we don't really have an idea of how much it is costing the province right now not to have a health information system. I don't mean this is pretty basic stuff but we still have a lot of paper floating around in health care which is very dangerous. Many patients are not called back on their tests. Still you hear daily, well, if we don't call you, you can assume it is okay. There is no guarantee that those tests find their way back to the doctors' offices. We have duplication. People from Yarmouth come into Halifax and tests are repeated. It is interesting that you say from 1993 to 1997 there was an increase in accountability and I would suggest that things started to deteriorate with the minority government. When demands were placed on the government, whether it was right or wrong, to stay in power, certain concessions were given to the other two Parties. That is when I personally feel that - maybe there is evidence that that is not so but - certainly at least some of the areas on the spending side, started to slacken up a bit. I was there through that period from 1993 through to 1999 in Cabinet.

[9:30 a.m.]

So whether there is a commitment to make the system better, a couple of years ago we had a proposal with $75 million going into a health information system that was voted down by the other two Parties in the budget, now we see, two years later, no action on this. I believe that we are not only losing savings within, we are lacking information to make informed decisions and I think patient safety, quite frankly, people are losing their lives because tests are being lost in this province and I am convinced of that. My question would be, is there any information that while you highlighted the proposal that is not being responded to, did you have any indication from government that perhaps they would be acting on this and putting at least a basic information system in place?

[Page 24]

MR. SALMON: My sense is that there is a commitment to deal with the information system issues, not just in health care but generally, to the extent that it can be afforded.

DR. SMITH: Thank you.

MR. CHAIRMAN: Mr. MacKinnon.

MR. MACKINNON: Mr. Chairman, how much time do I have, approximately.

MR. CHAIRMAN: You have until 9:34 a.m. so you have two and one-half minutes or so.

MR. MACKINNON: Ironically, last week, through you, Mr. Chairman, to the Auditor General, the same day that, Mr. Salmon, you tabled your report, the Department of Finance, i.e., the Minister of Finance, put out a press release restating the actual deficit for the 1992-93 fiscal year. Initially I believe it was, I am going on round figures, $580 million is what the government tabled. Then when they recalculated under the GAAP process, it worked out to about $1.1 billion. So that was the operating deficit for 1992-93. In recalculated form, I might be wrong on this but would that not have been the largest single deficit ever recorded of any government?

MR. SALMON: I couldn't comment on whether or not it was. We have not tried to audit those restatements. We have seen them but I couldn't comment on them.

MR. MACKINNON: I hear crackles from the Tory caucus saying, get with the times and yet when my colleague, the Finance Critic, the honourable Don Downe, speaks every time about certain issues on finance with the present Minister of Finance, that Minister of Finance always comes back and says when you were a minister this is what you did and yet he wants to distance himself from the fact that he was part of a government that actually put us in the situation we are in. I raise that because there are politics to it, obviously. I have my perspective on things and the Conservative caucus will do what they can to advance their cause and our caucus will do ours and the socialists will do theirs.

MR. CHAIRMAN: You have 10 seconds left in the allotted time, Mr. MacKinnon.

MR. MACKINNON: Well, I guess that pretty well summarizes it, Mr. Chairman. We have a large debt and we still have a deficit and the Auditor General has indicated controls on processes have to be put in place. Thank you.

MR. CHAIRMAN: The time has expired for the Liberal caucus. We will now turn our attention to the NDP. Mr. Epstein.

[Page 25]

MR. EPSTEIN: Mr. Chairman, thank you. I wonder if the Auditor General can help us understand something about the two chapters that are in his report that focus on the Liquor Commission. I am referring to Chapters 11 and 12. There are a few things that seem to be quite striking about these chapters. I am wondering, Mr. Salmon, if I have read them correctly. Chapter 11 focuses on the operations of the Liquor Commission itself, kind of on a year-to-year basis looks at the normal kind of range of accounting matters and if I read it correctly, makes some criticisms but not very extensive criticisms, on the whole seems to say it is a fairly well-run shop.

Then Chapter 12 looks at the process that the government went through last year in which it considered the possibility of privatizing the Liquor Commission operations. You go through in that chapter the review of the process that was undertaken by the external consultants and what the government did, this was the PricewaterhouseCoopers report of September 2000. What I wonder is this, if I am reading it correctly, you have chosen to direct our attention to these as two separate processes. I assume that was for a reason, that you don't see them as absolutely the same but they are connected. Is that your starting point?

MR. SALMON: The start point was we decided, as part of our audit planning process, to do an audit of the Liquor Commission and we did. Subsequent to the completion of that audit, we became aware that the government had undertaken this review related to whether or not to privatize. We felt that our audit report would be incomplete if we didn't provide a commentary on the process that was undertaken subsequent to our audit. So we didn't do another audit, we just provided a background commentary on the process that had been undertaken to review whether or not delivery of liquor should be privatized. So the second one was just a commentary and description of that process but it wasn't an audit.

MR. EPSTEIN: That is a very fair statement, because what struck me is that your phrase, background commentary, is what tends to come across when one reads Chapter 12. At the same time, I feel we are left with perhaps not as much of the benefit of your thoughts as we might usefully have. So when I read Chapter 12 I am left wondering if we are getting the full benefit of the views of the Auditor General's office on what kinds of processes are appropriate when the government turns its mind to the possibility of privatization.

Now you know, of course, I am asking this because the possibility of privatization is something that the government has been very clear about that as it drives to try to balance the books, it is interested in the possibility of selling off assets. The current example is the possibility of the sale of Nova Scotia Resources Limited. Again just as if the Liquor Commission had been sold off, it would have been a very large potential sale. Of course, the predecessor government sold off Nova Scotia Power, privatized it, so I am wondering, are there any lessons for us here?

[Page 26]

When I read your Chapter 12, particularly Paragraph 12.13, I am left thinking that either you pulled your punch or you haven't made any conclusions or you haven't maybe nudged us along the process or in our thinking about the process in a way that might be helpful. For example, if you look at Paragraph 12.13, you poke a little bit at the assumptions that were made by the PWC external consultants. You say, " However, as with any analysis involving future events, these projections are dependent on a number of assumptions. Factors such as anticipated discount rates, inflation, and sales growth - to name just a few - played a key role in determining the net present values noted above, . . . "

Now that is a very fair statement and I think you are right to direct our attention to those kinds of assumptions. What I wonder is whether you are now in a position to say to us that maybe the figures that they used in arriving at their conclusion as to the net present values, might be wrong. Is there something about this particular piece of analysis that you are now telling us we ought to question or are you saying you just don't have the information?

MR. SALMON: We are not commenting on that at all. We are simply pointing out as with any forecast or budget when you are making assumptions you are always going to be wrong, you are never going to be exactly right. It is just a product of the process. We are saying the process was reasonable, the analysis was reasonable, the basis for making the assumptions was reasonable, whether they were right or wrong is another issue. I am not commenting on whether or not they were right or wrong.

MR. EPSTEIN: Okay, I think that is really what I was wondering, you are not saying whether they were within any kind of reasonable tolerance. I mean I take your point that in general, it is going to be a rare event when anyone is going to be exactly right with these kinds of future forecasts. But at the same time, surely there is a kind of tolerance, a variation that might be acceptable and might not be?

[9:41 a.m. Mr. Russell MacKinnon resumed the Chair.]

MR. SALMON: We felt the basis that was used was reasonable.

MR. EPSTEIN: In this case, what I am really wondering about is whether you are intending now to move to any particular audit of Nova Scotia Resources Limited for this coming year?

MR. SALMON: We haven't got that in our plans, no.

MR. EPSTEIN: Is there anything in how you have approached the issues that you dealt with in Chapter 12 that will be relevant to a proposal for NSRL's privatization or other privatizations?

[Page 27]

MR. SALMON: If I go back to 1992-93, and the process that was used at that time for the sale of Nova Scotia Power, it was a reasonable process, as far as I am concerned, I was involved. This one, in terms of the review of the Liquor Commission, was a reasonable process.

MR. EPSTEIN: Well, many of us have a different view on the sale of Nova Scotia Power. Some of us think it was sold off vastly undervalued but that maybe takes us astray a little bit here.

MR. SALMON: Hindsight is always easy, Mr. Epstein.

MR. EPSTEIN: And I said it in 1992, as well that it was sold off undervalue. I was right then and I am right now, I think. In any event what I am concerned about is this, if you take the Nova Scotia Liquor Commission proposal and the PWC report, if, in fact, the price of liquor was three or four times the figure they were working with, then of course their net present value wouldn't even be remotely correct, isn't that right? If it turned out that the price of liquor and the sales growth and the profits were just wildly different than they were dealing with at the time, then, of course, they couldn't possibly end up with the right number, isn't that right?

MR. SALMON: Yes.

MR. EPSTEIN: The same statement can be made about natural gas, isn't that right?

MR. SALMON: Sure.

MR. EPSTEIN: And as we all know the price of natural gas has gone up from about $2.50 per trillion cubic feet to about $8.50 per trillion cubic feet, isn't that right?

MR. SALMON: Yes.

MR. EPSTEIN: So isn't it an essential piece of information when you look at the privatization of an enterprise that sells a product, to look at the sales of the product and see in a realistic way what those sales are likely to be and what the return is?

MR. SALMON: It is one of the assumptions you have to take into consideration, yes.

MR. EPSTEIN: Will the public be in any position to judge the appropriateness of the sell-off of something like the Liquor Commission if it ever happens, or Nova Scotia Resources Limited, if we don't have detailed projections of revenue based on current prices of the product?

MR. SALMON: That is clearly a component of the analysis you do.

[Page 28]

MR. EPSTEIN: I would have thought so. Just to nail this one down, are you aware of any projections that have ever been made public of the future sales of the product that Nova Scotia Resources Limited is involved in?

MR. SALMON: We have not done any audit of that process.

MR. EPSTEIN: Well, that is an interesting one. How am I doing for time?

MR. CHAIRMAN: You have 1.5 minutes left.

MR. EPSTEIN: Do you want to go back to your question?

MR. HOLM: Yes, I would like to go back to a question that I started earlier. It is on Page 22 of the report, Paragraph 2.41, and you talked about, "We requested information as at March 31, 2000 on compensation arrangements for executive or senior management positions from organizations included within the government financial reporting entity. Further, we gathered general background information on such compensation reporting requirements in other jurisdictions. The following are our initial overall observations based on a review . . .", compensation arrangements for deputy ministers, et cetera, and you have the five points and so on listed here. I am just wondering if the Auditor General would like to expand upon, in the time that is left, the points that have been made and if there are any examples.

MR. CHAIRMAN: You have 30 seconds.

MR. SALMON: Any examples? We just feel that information should be made available to this Legislature, at a fairly summary level, of levels of compensation and benefits that are being paid to senior people across the government entity as we describe it.

MR. HOLM: Are there any specific examples that jump out where it wasn't done?

MR. CHAIRMAN: Order. We are certainly over time and I have already kind of short-changed the Conservative caucus a little earlier so we want to be fair to them. Mr. Barnet.

MR. BARNET: Thank you, Mr. Chairman. If I could move back to the Education chapter within the Auditor General's Report, a couple of things, one is that I am not fully aware of the process that you follow to produce your report but when you examined the Halifax Regional School Board, did you compare the board's budget to their actual expenditures from their audited financial statements from year to year?

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MR. SALMON: Again, it is back to process and what information goes forward from management to the school board itself as they make decisions related to the budget and the financial performance of the board. We felt that the information that was going forward with regard to the budget and with regard to their performance against the budget was not adequate.

MR. BARNET: I guess in other words they simply compared their budget to their budget and if year after year a line item was off by $1 million then they will continue to be $1 million off if that is what they are using for their background.

MR. SALMON: Correct. That was one of the issues.

MR. BARNET: In fact, it has been brought to my attention by constituents that there are line items in their budget that exceed budget by 10 per cent and 100 per cent and in some cases $1 million and $2 million and if they don't look at the actuals they will continue to go down that road.

MR. SALMON: Correct.

MR. BARNET: Another issue, a recommendation I guess, brought forward was this issue about the timeliness of providing them with their budget information from the province. It is obviously a concern that if we pass our budget in the spring and they are trying to develop their budget, post our budget, then they are waiting, I guess, until, in some cases, it is too late to make some of these decisions or a decision that could have been made three months ago will have to have a financial impact over three-quarters of a fiscal year. Would it be prudent or would you think the government would be wise if we moved in a direction where the school year, from September to September, mirrored the budget year? That way your cost drivers are running the same and there is plenty of opportunity for the school board to develop its budget post the province's budget that is established in the spring?

MR. SALMON: You can deal with it, and I believe you have to deal with it, and it is complex, but you have to deal with it taking in all factors. The school year, the need to get some concrete communication going on that allows you to look multi year. Three years out, five years out, some time-frame, and to advance the timing of all of that communication so that everybody is working on some reasonable basis of saying this is what the funding levels are going to be, macro, within this range over this number of years so that you bring in the fact that the province is on a fiscal year basis, April 1st to March 31st, the school year is September to September and you have to mesh all of that into a decision-making process that allows you to manage and make decisions.

MR. BARNET: One of the criticisms that we have heard, particularly from school boards, is that often if they are trying to adjust their budget in June, they are doing it with a nine month year rather than a 12 month year. If we simply were able to convert that year, that

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opportunity to September, then they would have the information, time-frames would be in place to make those adjustments in advance of their budget year from September to September. That is something, obviously, that the department will have to look at and will have to consider. I understand your recommendation as well.

I guess the one thing that disturbs me the most with respect to the report is the Halifax Regional School Board's community collaboration and partnership department. I am particularly disturbed about the comments back from the school board with respect to your audit. I will just read them for the record. The school board says that the implications of your comments are offensive and they firmly believe the Auditor General's interpretation of the board's report in this report is incorrect. They went on to say that there have been a number of adjustments and changes in the program, that solicitors have been hired and there is the possibility of a police investigation and on and on. With respect to that, the issue you raised, as I recall, was that the board was given the opportunity to make a decision with respect to the expenditures but weren't given the opportunity to review the actual revenue side of that. Is that correct?

MR. SALMON: The information that we examined that went forward to the board when they made the decision to cut that program did not fully disclose the impact on the revenue side. They were not told that cutting $1.6 million of expenditures would result in the loss of $1.3 million in revenues.

MR. BARNET: The board, in their response to your audit, went on to say that the reduction of expenditures associated with the program was a fact. The approximate expenditure of $1.6 million is also a fact. The retention of the net revenue from facility rentals and the proceeds from the Excel Program is a fact as well. Obviously it has been a year since that happened. Are we aware of what the differences are as a result of this decision, how much financially they have lost or gained as a result of this decision?

MR. SALMON: They cut the expenditures and they lost the revenue.

MR. BARNET: So how does the board then justify what they have said there by saying that it is offensive? I guess you can't answer that, obviously. Mr. Salmon, I wouldn't even expect you to answer that. That is for them to answer.

MR. SALMON: Exactly.

MR. BARNET: I apologize for that. I want to share my time with my colleague.

MR. CHAIRMAN: Mr. Langille.

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MR. WILLIAM LANGILLE: Mr. Chairman, I would like to follow up on the school board. What does a superintendent of this school board, HRM, what is his salary approximately?

MR. SALMON: Roger, do you know?

MR. CHAIRMAN: Mr. Lintaman?

MR. LINTAMAN: I don't know have his exact salary in memory but it is in excess of the $100,000 mark.

MR. LANGILLE: Thank you. One thing that the Public Accounts Committee has to deal with is ethics. I believe we deal with ethics.

MR. SALMON: Ethics?

MR. LANGILLE: Ethics.

MR. SALMON: Yes.

MR. LANGILLE: Everyone here today was centering on the Halifax Regional School Board. I just want to go to Chignecto-Central Regional School Board and just discuss ethics. Now when you did your audit, were you looking at how they balanced their books?

MR. SALMON: How they balanced the books?

MR. LANGILLE: Yes, in the budget.

MR. SALMON: We looked at their processes, how they managed and prepared the budget and how they put forward information to their board - I am talking both boards here, Halifax and Chignecto. We looked at the processes, we had criteria and determined how well they performed in terms of those processes.

MR. LANGILLE: Where I am going here is, in Chignecto-Central Regional School Board, they have the highest number of term teachers than any other school board in Nova Scotia.

MR. SALMON: Highest number of?

MR. LANGILLE: Term teachers, teachers who don't have a contract. It is my understanding that the way they balance their budget or part of it is that they will take a teacher on term who is teaching 195 days a year, which is the maximum teaching days, say a teacher with five years' experience still on term, then turn around and give that job to

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somebody with only approximately 70 per cent of one year, give that job to that other teacher. In essence, they are saving thousands of dollars that way. Were you aware of that or did you look into anything like that?

MR. SALMON: We would not have gotten into that level of detail. Mr. Lintaman could perhaps comment.

MR. CHAIRMAN: Mr. Lintaman.

MR. LINTAMAN: The only response I would make is that we didn't look at the staffing from that perspective. We looked at the assumptions involved relative to class sizes, pupil/teacher ratios and the staffing that would flow out of that. I will wait until . . .

MR. LANGILLE: What you are saying is that you looked at the outcome rather than the process in this instance.

MR. LINTAMAN: No, that is not correct. (Laughter) (Interruption) That is right, we looked at the process.

MR. LANGILLE: I will be looking into this as that is in my constituency area. I will be looking at the way they are balancing their budget, personally.

How much time do I have left?

MR. CHAIRMAN: One short snapper.

MR. LANGILLE: The other thing is I want to get into stumpage. To me, that is not a user fee, that is a commodity. It is a commodity which I believe we have grossly been selling to companies and we certainly, on Crown Land, should be getting a higher stumpage fee.

SOME HON. MEMBERS: Hear! Hear! (Applause)

MR. LANGILLE: That is all.

MR. CHAIRMAN: That pretty well consumes our time. I would like to thank Mr. Salmon and all his staff for coming today and being very helpful to the committee and forthright.

Our next meeting is going to be on Wednesday, March 21st and we will have Access Nova Scotia here at 8:00 a.m. I understand Mr. Holm has a motion.

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MR. HOLM: Mr. Chairman, I would like to move that the committee request of Priorities and Planning a listing of all exemptions from the government's procurement policy over the past year and one-half and for the list to include the reasons why the government's procurement policy was not followed in those exemptions.

MR. CHAIRMAN: On the question, would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is carried.

MR. DEWOLFE: I said Nay.

MR. CHAIRMAN: No, I asked. I believe the Clerk will confirm.

MS. MORA STEVENS (Legislative Committee Co-ordinator): I didn't hear any Nays.

MR. CHAIRMAN: The meeting is adjourned.

[The committee adjourned at 10:00 a.m.]