NOVA SCOTIA HOUSE OF ASSEMBLY
Wednesday, February 29, 2012
Department of Finance
January 2012 Report of the Auditor General
Printed and Published by Nova Scotia Hansard Reporting Services
Public Accounts Committee
Hon. Keith Colwell, Chairman
Mr. Howard Epstein, Vice-Chairman
Mr. Clarrie MacKinnon
Mr. Gary Ramey
Mr. Mat Whynott
Mr. Brian Skabar
Mr. Andrew Younger
Mr. Chuck Porter
Mr. Allan MacMaster
[Mr. Jim Morton replaced Mr. Howard Epstein]
[Hon. Christopher d’Entremont replaced Mr Chuck Porter]
Mrs. Darlene Henry
Legislative Committee Clerk
Mr. Jacques Lapointe
Ms. Ann McDonald
Assistant Auditor General
Mr. Gordon Hebb
Chief Legislative Counsel
Department of Finance
Ms. Margaret MacDonald, Deputy Minister
Mr. Byron Rafuse, Associate Deputy Minister
HALIFAX, WEDNESDAY, FEBRUARY 29, 2012
STANDING COMMITTEE ON PUBLIC ACCOUNTS
Hon. Keith Colwell
Mr. Howard Epstein
MR. CHAIRMAN: Good morning everyone, I’d like to call the meeting to order. I’d like to start with introductions, starting with Mr. Ramey.
[The committee members and witnesses introduced themselves.]
MR. CHAIRMAN: Good morning everyone. I look forward to an interesting meeting. Mr. d’Entremont.
HON. CHRISTOPHER D’ENTREMONT: Thank you very much, Mr. Chairman. I was wondering, maybe for a couple of extra meetings, we of course had some news that the government spent hundreds of thousands of dollars in untendered contracts and many Nova Scotians are concerned about that, the way that taxpayers’ dollars are being spent.
I’m proposing today that at the earliest convenience or maybe at an emergency meeting of the Public Accounts Committee that the committee call Paul Black, the Director of Policy and Community Relations to explain the role of the Premier’s Office in the decision to circumvent the tendering process when it comes to Ships Start Here.
MR. CHAIRMAN: What I would suggest you do is prepare a letter for the subcommittee, provide it to our subcommittee and we’ll take that under advisement at our subcommittee next week.
MR. D’ENTREMONT: I’m wondering, since this seems to be an extremely important issue, is there any way that we could consider that here and maybe have a further discussion about it either at the beginning of this meeting or later on? I think it would be an issue that would be considered sooner than later when it comes to this untendered contract.
MR. CHAIRMAN: Yes, we could do that. I suggest we do it immediately at the end of this meeting. How much time do you think it will take?
MR. D’ENTREMONT: It depends. I know where my position is on this one, so we’ll have to see what the others think about bringing in Paul Black.
MR. CHAIRMAN: We will do that and I’ll leave some extra time; probably an extra 15 minutes at the end of the meeting to discuss it.
MR. D’ENTREMONT: Thank you very much.
MR. CHAIRMAN: Thank you. We’d like to start the meeting today with Ms. MacDonald. If you’d like to make a presentation, we’d be only too pleased to hear it.
MS. MARGARET MACDONALD: I just have some opening comments. My name is Margaret MacDonald, Deputy Minister of the Department of Finance; I’ve been with the department since November 2010. I’ve appeared before the Public Accounts Committee before, but this is actually my first time in the role as Deputy Minister of Finance. I certainly thank you for the opportunity to come to the committee and to speak to the Auditor General’s Report and we certainly hope that it will be useful for you.
As I’ve indicated, Byron Rafuse, the Associate Deputy Minister for the department and the controller is with me. I think you all know Byron so I will refrain from more introductions on him.
We certainly recognize and appreciate the opportunity to come here to talk about the January 2012 Auditor General’s Report. We certainly realize and appreciate the importance of the work of the Auditor General’s Office and we’re certainly happy to respond in any way we can to your questions. We work closely in an ongoing way with the Auditor General’s Office throughout the year in many aspects of the work that we do at the Department of Finance. The big areas, of course, which you’d see in this report are the review of the revenues prior to the budget and . . .
MR. CHAIRMAN: Excuse me just one second. We have to make an adjustment to your microphone.
MS. MARGARET MACDONALD: We also work with the Auditor General’s Office extensively in releasing the year end Public Accounts. Again, that’s a matter of the current Auditor General’s Report.
I’d just like to mention, we are the host department for the Internal Audit Centre at the Department of Finance, which is a service provided to all of government. It’s just a way of saying that we certainly recognize the value of the auditing community and the work that we do.
In the report itself, as many of you would know, I’d like to emphasize there were many positive comments. There are certainly areas for improvement, we recognize that as well and, again, we’re happy to comment on those when we have an opportunity. We recognize that we haven’t implemented all of the recommendations of the Auditor General. We are certainly willing to continue to work with the Auditor General. I think we’ve sort of opened a few doors in some of the conversations that we’ve been having so that we can always improve the budget and the reporting processes that were there.
I just want to quickly touch then on the various chapters in the report. I’ll try and do that quickly and then bring my comments to an end. Chapter 2 looks at the results of financial audits and reviews; it provides summary comments and recommendations on government financial reporting with respect to our budget cycle, including revenue estimates, consolidated financial statements and budget forecast updates.
The reporting of revenues from government units and the forecasting of petroleum revenues have been raised as issues in this particular chapter. The audit opinion on the review of our revenue estimates in April 2011 was qualified because the estimates did not consider all revenues in the consolidated entity. Our response at the end of the chapter indicates that the inclusion of those revenues and the associated offsetting expenses in the annual budget would require changes to our budget process and we’d be pleased to speak to that.
I guess I would say that this has been a matter that has been outstanding, I think, since we moved to a consolidated approach to the financial statements. It is an accounting matter and we certainly will continue to work with the Auditor General’s Office to see if we can find a resolution on this matter. We think it’s important that we do have good transparency and we do provide a lot of information to Nova Scotians, particularly through the Public Accounts Committee.
I would just note for your reference that we have received an unqualified opinion with respect to the Public Accounts We can speak more about that if you have any questions.
With regard to the petroleum royalties, we do feel that there is a rigorous process to ensure royalties are forecasted appropriately. We do involve the Department of Energy in that particular piece of work. Certain inputs into that royalty model include proprietary information, which is the reason why we have difficulty bringing in a third party or an independent review of the royalty review. That accounts for why we have difficulty in implementing the recommendation that the Auditor General has made in that area.
There are also recommendations in this chapter to improve model-based revenue projections. That’s a fairly complex area, but we are working to try to implement most of the recommendations and we will continue to work to improve the revenue model projection process.
Chapter 3 reviews the financial governance and control framework for our debt management practices. I would like to note that the Auditor General is quite positive about this area of the department; he did confirm that there was adequate oversight in risk management policies. This is the area of the department that is responsible for the oversight of the current debt that we have in managing the activities in the capital markets with respect to that debt.
I’d also like to point out that we’ve implemented all of the recommendations that were made in that report. Just as I said, for clarity, that particular division manages the activities around the current public debt and takes into account and manages in that process interest rate risks, credit risks, liquidity risk and foreign-currency risk, to ensure that the provincial debt is managed appropriately. We have policies in place to identify and control those risks and, as the report indicated, our Debt Management Committee provides adequate oversight of this work.
I’m actually very proud of the work of the department in this area and I’m happy to see that Chapter 3 really reflects the excellent work the Department of Finance has done in this area over the past number of years to ensure that we have an appropriate operating unit there.
Chapter 4 is a chapter which was written by the Auditor General with respect to financial indicators on the debt. The Department of Finance did not participate in the preparation of this report so, because of that, I would simply note that it’s there and I don’t have any particular comments with respect to the Auditor General’s Report in that area.
Chapter 5 is a review of audit reports and management letters for other departments and organizations. I would just point out that the Department of Finance doesn’t get access to the management letters until we have access to it in the Auditor General’s Report, so some of these issues would not necessarily have been known to the Department of Finance through our work. I guess what I would say is that if you have questions and concerns there, we would likely probably have to refer you to the department or we would certainly seek to get the information for you from the department, but our activities in some of those areas are somewhat limited.
The final chapter of the report, Chapter 6, is an indication of our success in implementing the recommendations made by the Auditor General. Almost all of the recommendations are the responsibility of the Department of Finance. There are a couple there that relate to other departments. We have accepted and implemented about 76 per cent of those recommendations. I won’t go into detail about some of the ones that we haven’t implemented because that may be part of the discussion this morning. But I guess I would like to point out that we do have a significant record of implementing the recommendations and we certainly want to continue to work to try to do that. We value the Auditor General’s comments in that regard and we do work to try to implement as best we can.
That’s a very quick and general overview of the report and how it actually relates to the work of the Department of Finance. Mr. Rafuse and I would certainly be happy to answer any of your questions. If there’s anything that you ask us today that we’re unable to provide, then we’d certainly be happy to bring those questions back to our colleagues and provide whatever information the committee requires.
MR. CHAIRMAN: Thank you very much. The first round of questioning will be for 20 minutes. Mr. Younger.
MR. ANDREW YOUNGER: Thank you, Mr. Chairman. I apologize for being a few minutes late. I keep underestimating the delay caused by the Waterside construction down there; they’ve knocked it down to one lane.
I want to get into some questions here about some of the sections. First, I did want to comment, and this comes out of the start of the review of this report a few weeks ago when the Auditor General was berated by the member for Halifax Chebucto - and I think we all remember that - but unlike the other member, I’m not going to spend all my time doing that, I think he was wrong.
Mr. Chairman, you asked that we bring a few trees with us to table everything so I have done that. First of all I will table the comments of the member as reported to the media, I think we’re all well aware of them so I won’t go through them. I will then table the comments of the Minister of Finance, who actually defended - and I’m glad he did - the Auditor General in saying what he said, in that he called it - he said he didn’t agree, but I think that’s fine. The Finance Minister has every right to agree or not agree in the Department of Finance with various recommendations.
I’m also going to draw the committee members’ attention to the Auditor General Act, which specifically allows the Auditor General to write what he did and I will table that. I didn’t table the whole Act; I just tabled the definition in question, Mr. Chairman, because I think we can all get the whole Act and try to save a few trees. It allows for investigations and the Act defines investigation as meaning, “. . . any examination that results in observations but does not lead to an opinion;” and I think that’s exactly what that was, it was an observation. It’s very much in line with observations that have been made in recent years by Auditors General in New Brunswick, and also federally, on debt and the risk of debt.
Frankly, I think that debt management is probably one of the biggest things we have, one of the biggest risks we have going forward. I want to thank the Auditor General for including that chapter because my personal advice is I agree with what he said, but even if I didn’t agree, I think it’s important to have those opinions from people who are officers of the Legislature. We don’t have a whole lot of people who are officers of the Legislature, but there are a few positions that are and I think that those opinions are extremely important for the Legislature to be able to consider on a go-forward basis.
With that, I felt it was important to address that issue since it was very important, Mr. Chairman, but I don’t want to spend all my time on that, as the former member did. Instead, I want to move forward to asking, and I’ll start with Chapter 2 - and you can almost guess that this is where I was going to go - which is this whole issue of reporting of third-party entities. This has come up repeatedly since 2001, long before I was here.
This is troublesome to me and I think it’s obviously troublesome to the Auditor General, since this is why that section repeatedly gets an unqualified statement. It’s more troubling to me because the current government has made significant noise about the fact that they had this Deloitte report done, when they came to power in 2009, and how we’re following this recommendation, we’re following this recommendation, and the Deloitte report is always held up by the current government as this is why we’re doing this. But, of course, when it said don’t carry forward education funding, and the Deloitte report said that, it’s like, oh yeah, but we’re going to ignore that section.
I’d like to table another section of the Deloitte report - it’s a single page so I’ll table this - which actually makes the exact same recommendations. This will work its way around shortly. In fact, in Section 4.5, you’ll see on this paper in Recommendation 1(a), Deloitte, in their recommendation to government, made the exact same recommendation that the Auditor General is making, which is, “Move to a schedule of all revenues (Consolidated Fund and Governmental Units) to be prepared for inclusion in the budget documents and examination by the Auditor General.” So now we have not only the Auditor General saying that, but the independent auditing firm that the government of today decided to contract is saying this is exactly what the government should do and the government is still saying no. When will all those revenues be consolidated?
MS. MARGARET MACDONALD: Thank you for the question. I became aware of this issue recently in the department. As I said in my opening statements, I’ve been Deputy Minister of the Department of Finance now for about a year and a half, or something under that, and understood that this issue has been going on, as you said, for quite a long time.
What I’ve asked the staff to do, and I can’t sort of say to you today that it will be resolved, but I’ve opened up some doors to some conversations to see if we can actually find a resolution to this particular issue, because it has been going on for a long time.
I’d like Mr. Rafuse to perhaps give you a bit more of a technical description about some of the issues we have associated with that. I would say that I think the general understanding around the development of the budget - when the government moved to adopt Generally Accepted Accounting Principles - was to really reflect in the budget the expenditures and activities, revenues and expenditures associated with the General Revenue Fund, which is what you will find that the budget does deal with. If you follow it through to its logical conclusion, that is designed that way because it takes you then to the Appropriations Act, which sets out the actual spending authority for the departments, through the budget process. This answer is by way of a rationale, I think, about why the situation is the way it is and how it has sort of grown up to be that way.
I do think that moving to a consolidated revenue approach is something we have to look at in the department, in terms of the budgeting process, because it would require us to do a different budgeting process, which would then require additional resources and those sorts of things. I think those are the kinds of conversations that I’m trying to pursue around the best approach.
When I made my opening comments, I mentioned that we have an unqualified opinion on the Public Accounts so it is the difference between the budget and the Public Accounts but the Public Accounts are complete and unqualified and very transparent, and they provide the information to Nova Scotians. So it isn’t that we don’t deal with this information, it’s just the manner in which we deal with it right now.
If you would permit, I would like Byron to talk very briefly about some of the issues that we have in terms of trying to implement the recommendation.
MR. CHAIRMAN: Mr. Rafuse.
MR. BYRON RAFUSE: Thank you. As you pointed out, the Deloitte report did provide four options of which this issue could be addressed. Each of those options have a different level of complexity to them and the recommended option in the Deloitte report, as in the Auditor General’s recommendation, is not so much as full consolidated revenue - which would have a major impact on the budgeting process for the province - but as an inclusion of a list of tax revenues from those outside entities.
The difficulties that lie with that are, first of all, to provide enough review evidence for those amounts at the time of the preparation of the estimate. Some of those amounts are not known and that would lead to the necessity in some people’s minds, maybe, to include them. Really the focus of the estimate, as the deputy said, is to talk about providing spending authority to allow funds to flow out of the consolidated revenue fund, through the Appropriations Act. The inclusions of these revenues and the associated expenses of those, and you can notice in the budget there is an assumption that these revenues and estimates are equal and offsetting and have no effect on the bottom line. In fact, there is a reconciliation provided in the Public Accounts where you can see that the format for the two - either including them or not including them - results in the same bottom line. The inclusion of these may be confusing to the reader - that was a concern from the fiscal community, that you are talking about revenues of which the expenditures are not voted on in the House. That would, in some people’s minds, lead to a difficulty understanding the bottom line, so that’s one of the reasons why it’s a struggle to provide them there.
As well, too, it’s really the focus of the estimates being the accountability of the government, which is the accountability of the funds going out of the Consolidated Revenue Fund. So from that perspective, there are some difficulties getting it.
Now the other prospect is, as I said, the difficulty to know some of these in advance. Some of them are quite well known and from previous years they don’t change a lot but some of these entities that we consolidate do have their activities and their revenue sources. If you recall in previous sessions when I talked about the revenues of the parent, or the very revenues of the children, we’re really talking about the revenues of the children here. Those activities may not be well established, so then it would be difficult to actually produce a document that would be meaningful to the group or to the House.
MR. YOUNGER: You’ve talked about appropriations in spending and I think that’s the problem in the province, is that we focus all about how we can spend the money and not on what’s coming in on the other side. That’s not a criticism of you individually; that’s just the way that - that’s probably why governments around the world have gotten into the mess they’ve gotten into. From my perspective, the Public Accounts are probably challenging for a lot of Nova Scotians to read, as it is, at the best of times. I don’t think there’s a strong argument, in my view, to not include them just because it will make it more complicated to read and understand the bottom line. I think the whole reason we had the session there a few weeks ago was so that the people in this room could figure out how to read what we have.
In terms of the timelines, I think that’s easily solved by just transitioning to that move over a number of years and requiring those entities to report, but if we are asking legislators to come into the Legislature every Spring and approve a budget, which includes, obviously, handing money over to some of these entities in some cases or it approves departmental revenues, some of which may flow down to some of these reporting entities, then we should also know what those revenues are that are coming in. Otherwise, we don’t actually have a full picture of the financial liabilities and so forth of the province. What’s concerning to me is that we end up with a very incomplete picture at the end of the year. I was happy to hear the deputy say that you’re sort of looking at how this might happen. I do appreciate that.
Do you think it’s fair for legislators and Nova Scotians to be asked to approve and give comment on a budget each year, regardless of the government, if they don’t have a full picture of what the revenues and expenses are of all of the entities that encompass provincial liabilities?
MS. MARGARET MACDONALD: I appreciate your question and I appreciate the concerns. As I said earlier, I’d really like to kind of take a dive into this and see if there are ways that we can deal with the issue. That may be the best that I can say in response to that. There are other avenues of information. As Mr. Rafuse has said, these are sort of children of the larger entity - which doesn’t excuse accountability by any means, but they have different processes. They are, to some extent, semi-autonomous and they produce their own documentation that outlines their budget, their revenue, and their expenditures in their business plans and that sort of thing, so there are other avenues to obtain the information in terms of accountability. Then, of course, we provide all of it in the Public Accounts at the end of the day.
So I would say that the information is available, but again, having said that, I appreciate the question and I’m not able to give you a full response to it other than to say that we’d certainly try to continue to work to some resolution.
MR. YOUNGER: Thank you. Before getting in this role, I sat on the boards of some of these organizations so I’m familiar with them. I was on the Bridge Commission for a few years, for example, and a lot of these debts and bonds - although they float their own, they’re often, in some cases, either guaranteed by the province in a roundabout way or they are approved by the Minister of Finance. The Bridge Commission, for example, has to get it signed off by the Minister of Finance and I can tell you, we talk about parents and children a lot in terms of how this works. If I was co-signing a loan for my son, you can rest assured that I would want to know the revenues and expenses, so that whole parent-child argument, to me, is actually the perfect argument of why I would want to know it, because I wouldn’t just be signing a blank cheque for my kid.
I want to ask also about the petroleum revenue issue. This one is intriguing to me because a number of months back we had another Auditor General chapter which, in a nutshell, if I recall it correctly, you talked about, well, I can’t really audit and tell you whether the safety standards are being followed - obviously that’s not your department - because of this claim of proprietary information. The federal Auditor General at the time, if I recall correctly, was saying, listen, this whole proprietary thing is really a red herring because Auditors General can keep things confidential and they should still be able to audit them. Frankly, the royalty revenues are the property of Nova Scotians. So how are we going to address that petroleum revenue issue?
MS. MARGARET MACDONALD: I had an opportunity to look at the discussion that occurred when the Auditor General appeared before this committee in just the last couple of weeks. I was really intrigued by the discussion because I believe what the Auditor General and the staff were saying - I think the report itself suggests that the Auditor General’s Report and the recommendation suggested, or we certainly understood, that we were talking about an independent third-party review. I think that’s when you have issues associated with the proprietary information because it’s bringing somebody else in to have a look at information that typically is provided to us on a very confidential basis.
In looking at the comments, I understood the Auditor General and the Assistant Auditor General to say that the independent review wasn’t necessarily where they were placing their emphasis. That was a new sort of opening on this issue to me. Again, I don’t want to sit here and say well, we’re going to have a conversation and then trying to put you off, but I thought that was an interesting sort of change in the discussion, or at least perhaps a misunderstanding on our part. I understood some of the comments to be saying it doesn’t necessarily have to be an independent person; it’s really about controls inside the office. I think that’s an area that we can explore with the Auditor General, to see if there’s some room for us to deal with this particular recommendation and our current inability, or concerns at least, around implementing it.
MR. YOUNGER: Mr. Chairman, maybe I could ask the Auditor General to respond to that, if that’s appropriate.
MR. CHAIRMAN: Mr. Lapointe.
MR. JACQUES LAPOINTE: Certainly, I can say that this office has never, in any discussions with the Department of Finance, recommended a review by a third party outside of government. As had been discussed with them, the recommendation has been that another party review the work, even from within the Department of Finance who was not involved in the initial work. It is equivalent to a quality assurance review.
Everything that we do in our office is subject to an independent review by someone else in the office. That’s a quality assurance function and that’s what we are referring to, it’s really fairly simple.
MR. YOUNGER: Thank you, Mr. Chairman, and thank you, Mr. Lapointe. I think that’s important and I think that’s an eminently reasonable request and I’m glad that you’re going to be looking into that. I hope that, and it’s sort of a joke that some of the answers will be we’re going to look into this and approaching the thing and maybe Mr. Chairman will have to bring people back in a few months to see where we’ve come down the road because I certainly want to give you the benefit of the doubt that they will be looked into and addressed. If they are not addressed, I think we have a major issue with petroleum resources in particular, whether it’s offshore or onshore. Those royalties are up and down and it often seems like a guessing game for the public to have some transparency around that.
I think I probably have only 14 seconds (Interruption) oh, one minute, all right. I’ll just leave it at this since I have only a minute. How do you deal with the issue of proprietary information, whether it is petroleum resources or otherwise, in terms of providing accountability to the Legislature but also addressing what you feel - where’s the balance?
MS. MARGARET MACDONALD: This is probably one of the primary instances of that. I’d probably look to Byron for some confirmation of that. So this is probably the primary issue and I think - you know it is a particularly serious issue because we are a small province and sometimes we can’t release information in the aggregate because we have - some industries are small enough that even in the aggregate it’s fairly easy to determine who the information belongs to or what the information relates to, so there is an issue there.
I guess we simply do our best to try and protect that information and balance that with accountability and with transparency. I guess coming back to this issue, and I certainly don’t . . .
MR. CHAIRMAN: Order, please. The time has expired. Mr. MacMaster.
MR. ALLAN MACMASTER: Thank you, Mr. Chairman. We’re coming towards the end of the 2011-12 fiscal year. Should we expect any surprise surpluses?
MS. MARGARET MACDONALD: We’ll be doing a forecast for 2011-12 with the budget. That’s probably about the most information I can provide you today, in terms of the position of the province.
MR. MACMASTER: Okay, and I respect if you can’t provide more than that but have there been any budget items either on the revenue side or the expense side that appear to be substantially different from the budget that was approved last Spring?
MS. MARGARET MACDONALD: We issued a forecast in December, which indicated that there were some changes at that point in time. In particular, we had some prior year adjustments with respect to our revenues, but at that point in time expenditures were certainly well within budget. I think we’ll have to wait for the forecast as it comes out with the budget this Spring to be able to define to you any particular changes, but we certainly did prepare a complete forecast of all known issues at the time in December.
MR. MACMASTER: One of the items that the government has been working on - or they said they were going to be working on - is reducing the number of full-time equivalents by 1,000. Can you report any progress on how that has been going?
MS. MARGARET MACDONALD: Again, we will report on that in the budget this year. It is one of the measures that we typically put our FTEs into the budget documents and we would continue to report on that when we bring out the budget material this year as well.
MR. MACMASTER: I’ve noticed in previous years that the estimates and the actual number of FTEs - there’s quite a bit of variance. I know departments like to hang on to their FTEs because it gives them an ability to maybe take on new projects or move in new directions and if they have the FTE approved in the budget, well, they have some power to be able to do things without - I guess it gives them some flexibility and I know departments like that.
I guess on the other side of it, for a government that is trying to balance the budget, to make sure that we’re able to have things such as, I can think of something in my area as small as - well, it’s small as a budget item but it’s important for the people in the area - the emergency surgery at the hospital in Inverness. Recently that has been eliminated and I know people are very upset about it and I guess I kind of link the two together. Sometimes there are decisions that, say, the district health authority might need to make in conjunction with a requirement to reduce its budget and then when I’m scouring the budget of the province, when you see FTE counts and departments are able to keep that flexibility of keeping the FTEs on their books, it’s almost allowing the government to pad its budget a bit. Is there any way that the Department of Finance tracks that number? I know it’s a fairly significant cost for government.
MS. MARGARET MACDONALD: You’re talking about tracking the FTE number. We produce that number in the budget documents. The Department of Finance itself doesn’t actually manage or track that number as such. That would be the Public Service Commission in conjunction with the Treasury Board, but we would certainly publish it in our documentation; that’s probably the best answer. In terms of details around that particular initiative, it would be more of an initiative associated with the Public Service Commission and to some extent the Treasury Board.
MR. MACMASTER: I respect that. We’ve had them here before and I’ve asked them that question as well, but I just wanted to check to see what kind of connection there would be between the two departments.
I guess the reason I’m talking about human resources in government is it makes up a big component of the budget. If you look at the salaries and benefits across government, it’s probably somewhere in the order of maybe - would you say it’s about 70 or 80 per cent of the cost of government?
MS. MARGARET MACDONALD: Byron says yes, so I say yes.
MR. MACMASTER: Okay. Everybody is the same, we all would like to earn more money and we can’t blame people for that, it’s only natural. I guess one of the things we’ve been seeing lately is school boards and district health authorities being asked to reduce their budgets to bring the provincial budget back into line to bring it into balance. Have you any comment on labour contracts that have been signed the last couple of years and those coming up in the near future and their impact on the budget?
MS. MARGARET MACDONALD: I guess my only comment would be that it is a fact that most of the services that the government provides are provided through people. It is a large part of our budget, there is no question, but that’s simply how many of the services get delivered.
From a labour perspective, again it isn’t an issue that we manage at the Department of Finance. I’d certainly hesitate to speak at any length about it but again, we’re always interested, of course, in the financial results of any of the discussions or negotiations that take place because it does have a significant impact on where we are in any particular year in our finances. Pursuing a balanced budget, it becomes a significant issue, of course, because it comprises such a large part of the budget. So clearly those are areas that government would be working on in order to achieve a balanced budget.
MR. MACMASTER: Sure, and I can think of the school boards - I think 82 per cent of their costs are wages and benefits. Would it be true that if the government makes a decision on labour contracts for the school boards, and then asks the school board to find cuts within its budget, it’s essentially asking that school board to find cuts within, say, 18 per cent of that budget?
MS. MARGARET MACDONALD: I really can’t speak about the percentages. I think that to date, the discussions with the school boards have been focused very much on the declining number of students that we have in the system and, to the extent possible, the appropriate amounts of supports that should be around that declining demographic. I think that is the effort that the Department of Education has undertaken with the school boards around the budget imperatives that are there.
MR. MACMASTER: Yes, and I’m certainly seeing that in my area that I represent. We’ve seen declining enrolments for years now and it’s tough because the school boards have assets that were built for X number of students and now there are fewer students and the costs don’t change. I know that the department tries to support rural students by adding a bit of an extra amount in the funding formula per student, to recognize that.
I guess what it comes down to for me, though, I wonder who comes first, are we putting people first or government first? I know that’s not really a question to ask here at Public Accounts Committee but I guess it’s something that runs through my mind when I’m thinking about the human side of all these numbers.
Over the next five years I know there are labour contracts that come up at different points in time. Can you give some commentary on the impact on the budget that we look at today, based on those future contract settlements and what impact they could have on the finances of the province?
MS. MARGARET MACDONALD: I can’t really be specific about that because it’s future-oriented and unresolved. There may be a calculation somewhere that I might be able to provide that says for every increase in labour costs or increase in the payments for labour, it would amount to X pressure on the budget. I think that’s just a given.
As I said, a lot of our services are delivered through people, so it is always a concern, of course, about the extent to which we increase our labour costs and the impact of that on the budget. I mean that’s simply a consideration for people like Byron and myself, in the roles that we have, which is to receive the information and try and determine the impact on the fiscal plan.
In terms of the go-forward, I’m really not in a position to speculate about where that might go. It’s a matter for discussion at a lot of other tables, particularly I would think collective bargaining tables is likely where a lot of that discussion will take place.
MR. MACMASTER: Yesterday I sat on the Human Resources Committee. We had the Canadian Federation of Independent Business. They were kind of making the point that a lot of the small business owners sometimes are having difficulty attracting people to work in their businesses because they are competing with government for their workers.
I guess in their case they are limited by how much they can pay, based on how much revenue they can generate in their business - how many sales, how much sales activity they can generate and so on. In the case of government, I guess we’re only limited by the amount of taxation, so if we increase the HST, it gives us the added ability to pay those higher wages and whatnot.
I guess just moving towards, when we’ve seen budgets that haven’t been balanced and we see the incurrence - actually, before I move on to the debt, I guess I just want to ask one other question here. In 2010, in the Public Accounts, salaries and fringe benefits totalled just under $730 million and in 2011 they totalled about $755 million, which would be about a 3.4 per cent increase.
Now, I respect that I should be referencing those numbers for you, but I guess the point is that it seems like the cost of government is increasing in this area, which is right across government. Would it be fair to say, then, that instead of decreasing the cost to government, we’ve actually over the last couple of years seen an increase in the cost of government?
MS. MARGARET MACDONALD: I think I’d probably need a bit more specifics around the question, in order to really answer the question for you. The budget documentation that we filed last year and the work that’s being done at Treasury Board indicates the government is taking a really serious approach to expenditure reduction.
That’s really my primary comment there, we’re looking at all areas of government where we can reduce expenditures appropriately, in order to get back to balance. We always have to balance that exercise with the reality that in some cases costs are going to rise, for a whole variety of reasons, not necessarily related to labour costs. In the health care system, for instance, utilization, just the number of people who are coming into the system to use it, that’s really a matter beyond the control of anyone, so you can see fluctuations there.
If I thought longer, I could give you other examples of just heating costs in schools. There are various areas where we have to take into account that we simply can’t keep all of those costs under control, so I would have to go back, I think, and look at the various areas that you’re talking about and look into it a bit deeper in order to give you a proper answer to the question. I think it’s fair to say that while we are making a lot of progress, really, in trying to get spending under control, there are some things that we simply have to recognize that don’t lend themselves to that exercise very well.
MR. MACMASTER: Sure. It’s funny, I can think of another example. I was talking to somebody two days ago and their children are picked up on a secondary road but it’s to the point now where the school board requires them to walk an extra kilometre, to save a few dollars I guess. I just think it’s kind of sad that it gets to that point where a young child going to school has to walk. Sometimes they’re young children and if it’s in a rural area, parents are worried about coyotes and things like that. I just find it’s a very small example, it kind of puts it into perspective, the trade-offs.
I guess one of the ways the government has chosen to bring the budget back into balance is by increasing the HST. How much revenue has that generated, from the 2 per cent increase? It’s quite sizeable, the extra revenue that it has generated. Maybe you could provide some numbers around that.
MR. RAFUSE: I can provide you the absolute value of the HST, but the actual change for the 2 per cent, I’d have to get back to you on that; I don’t think I have that with me. I know what it was projected but if you look at the Public Accounts in the revenue section - as I talk very slowly here - I will find that amount.
MR. MACMASTER: I think it’s somewhere in the order of $400 million or $500 million, is it?
MR. RAFUSE: The increase? I have just the total, sorry, of the HST.
MR. MACMASTER: I guess the figure that I’m trying to hit at, our provincial portion of the HST was 8 per cent and now it’s 10 per cent; that 2 per cent increase, how many extra dollars is that bringing into the budget every year?
MR. RAFUSE: I would have to get back to you on the actual increase but the overall size of the HST revenues is about $1.5 billion overall. Part of that would be the increase on the points but we can get back to you on that.
MR. MACMASTER: Right, okay. So I guess if you took one-fifth of that and again, maybe it’s not fair, but given that it has been increased by 25 per cent, you’d probably be looking at - was it 1.3 you said, total?
MR. RAFUSE: The total is about 1.5.
MR. MACMASTER: So it could be somewhere in the order of about $300 million extra dollars that are coming in. I guess we’ve done some numbers on the increase and it works out to about $430 per every person in the province, the extra amount that’s coming into government, so that’s one thing that the government has chosen to do. The other thing they’ve chosen to do, I guess, is add to the debt by running deficit budgets.
I know the Auditor General has raised it recently and I know there was a member of the committee here who took great offence to it and used all of his time to basically say to the Auditor General, who asked you? It’s not appropriate for you to give commentary on the ethics of adding debt. I guess what I see in that is somebody who’s greatly bothered and maybe whose conscience is bothered by the fact that they’re adding a lot of debt to the province.
I think we all know that ultimately we don’t have a good record in the province of going back and repaying debt that we incurred years ago. I think we started incurring deficit budgets before I was born and we’ve seen very few times when the province has actually gone back and tried to repay that debt. I guess what concerns me going forward is that politicians come and go - I think our average lifespan is seven years - and we’re long gone when it comes time to go back and pay for the decisions we’ve made. We’ve talked about the value of that and actually tried to introduce legislation here to make the Legislature recognize when it’s approving - and we’ll be approving a budget pretty soon here in a few weeks time - to make us aware of the impact that we’re having on future generations.
I guess I should move toward a question. How would you characterize the Department of Finance’s relationship with the Auditor General?
MS. MARGARET MACDONALD: I think it’s very professional. I think we have a good working relationship, frankly. We have - what would you call them? - interesting discussions by times around various issues. My sense certainly is that there’s a good deal of respect on both sides, between the staff of the Department of Finance and the Auditor General’s Office.
MR. MACMASTER: That’s good to hear and it’s understandable there might be some competitive tension and that’s probably a good thing, as the Auditor General’s role, of course, is to hold the government to account to make sure that things are being done accurately and suitably. Maybe not to stir the pot, but perhaps the Auditor General might like to offer some commentary on the relationship of his office with the Department of Finance.
MR. LAPOINTE: I certainly would be glad to. I would agree with the deputy minister that we have a good working, professional relationship with the department and have for a considerable period of time. We have our differences of opinion and disagreements and tensions, as you characterize it, and that’s to be expected. Nevertheless I would say that it’s a good working, professional relationship.
MR. MACMASTER: Thank you, that’s good to hear. In the chapter of the recent report that we’ve been looking at about financial indicators, the Auditor General talks about sustainability. Does the department feel the province’s current debt position is sustainable?
MS. MARGARET MACDONALD: Our role at the Department of Finance is . . .
MR. CHAIRMAN: Order, please. Unfortunately, the time has expired. Mr. MacKinnon.
MR. CLARRIE MACKINNON: Thank you very much, it’s great to have you here this morning to answer some questions. I would like to begin with a comment in relation to questioning by the member for Inverness. It’s my understanding that the debt has, in fact, been paid down only seven times in the last 50 years. Could you tell us when was the last time?
MS. MARGARET MACDONALD: I’m just going to refer that to Byron for the technical details.
MR. RAFUSE: I believe the measure you’re looking at is reduction in the net debt and the reduction in the net debt actually did occur last fiscal year, where the all-inclusive measure of your debt position, your net debt, which is beyond just your mature bonds that you have floated to finance your operation but also takes into account your pension obligations and other liabilities. Last year it did note a decrease in that amount.
MR. MACKINNON: Thank you very much. In relation to the debt, it’s my understanding that the debt is in the order of $13 billion. Can you give us a more exact figure?
MR. RAFUSE: The net debt as of last March 31st was $12.8 billion.
MR. MACKINNON: And as a comment, it’s my understanding that three-quarters of that current debt is attributable to Progressive Conservative Governments over the years and one-quarter of it to the Liberal Government. I just want to put that on the table.
Now, to begin with the Finance Act, the Department of Finance is accountable to the public. It’s accountable to the Legislature, of course, but more importantly to the people of Nova Scotia. There are a number of mechanisms by which we, or you, are accountable to the people of Nova Scotia. Can we sort of deal with those one at a time, beginning with perhaps the estimates themselves?
MS. MARGARET MACDONALD: Yes, generally speaking, as I said earlier, primarily we provide the budget based on the Consolidated Revenue Fund. We work with Treasury Board to develop the expenditures associated with that and then we present that budget to the House each year. Again, that leads to the statutory authorization for departments to spend money.
It is a long-standing, probably one of the highest accountabilities that we have as a department, to prepare those materials for the minister to take into the House, and hopefully it provides Nova Scotians with as clear a picture as we have about the state of the province’s finances.
I guess I would refer you in that respect to some of the documentation that we prepare around our budget. I had an opportunity to look back on it as I was preparing to come and appear before the committee. It’s very extensive, it’s very professional and if we want to use the transparency and accountability words, I think there’s a lot of information there for Nova Scotians should they want to take advantage of the material that we publish at budget time.
As we go through the year, we are then required under the Finance Act to report on a public basis the status of that particular budget. So in September and in December typically, we provide what we call forecast updates. Again, we provide the public with an update of all the information we have at that particular point in time, both on the revenue side and on the expenditure side, as well as the capital side, as well as any sort of adjustments to economic assumptions that we see or any issues associated with our budget that may be happening out in the public. So we have that accountability. Again, through the minister, the minister presents that material to the public on those bases.
We then do a third forecast on the particular budget year as we go into the next budget, so we would forecast, we would put a full forecast for that particular year into the budget. Then we follow up with the Public Accounts, the audit of the Public Accounts. Again, I think the Auditor General has recognized the efforts the department has put into that.
We used to have the Public Accounts coming out quite late in the following fiscal year. That was moved up, by Statute, to come out by the end of September. What we’ve done through practice, which includes both the Auditor General’s Office and the Department of Finance office, is a real effort to get those financial statements out as soon as possible to the public once the year end has occurred. I think last year it was the end of July that we had the Public Accounts out for the public. So that’s our cycle of information that we provide to the public.
MR. MACKINNON: That’s an excellent point because I’d like to follow up on that a bit. I note in Chapter 2 that the audit opinion on Public Accounts for 2010-11 was positive, unqualified, and the government was commended for producing these documents significantly earlier than the legislated deadline of September 30th. How were you able to achieve this important improvement?
MS. MARGARET MACDONALD: First I think I would have to compliment the Auditor General’s Office because it is as much a piece of work for the Auditor General’s Office as it is for us to engage upon the audit of the Public Accounts, so it’s definitely something that I think we have both achieved. I think it’s really no less than saying that a lot of people have actually made this a priority and have worked towards getting these accounts done in as timely a way as we can, ensuring that we’re meeting all of the requirements. It really was a conscious decision, in my understanding, for both offices to say that it’s really appropriate for us to get these out as quickly as we can. People have committed to that and I think you’re seeing the results of that now.
MR. MACKINNON: I would like to commend the department for doing such a good job and certainly the government is pleased that it has been able to make these documents available to the public in a timely fashion.
I’d like to sort of look back in history for a little while. When were these documents historically released in previous years? Let’s look back at previous years and do a little documentation on when they were done in the past.
MS. MARGARET MACDONALD: I’ll ask Mr. Rafuse to respond to some of those.
MR. RAFUSE: Just before I answer that question, the notion of moving these forward actually, as the deputy has indicated, is a major undertaking. This involves a lot of planning - not only by the Office of the Controller and Government Accounting with the Auditor General’s Office were actually planning for this, and it needs to and does usually start in the January or maybe December time frame the year before where we agree on certain deliverable timelines and dates. So the notion that when we were thinking about switching it, as the deputy indicated earlier, in previous years we were getting late into the Fall. I think there was even a post-Christmas one at one point, so the legislation was changed to September 30th. I don’t recall the exact date of that, to be honest with you, but it remained to be a struggle to achieve that deliverable.
So about four years ago, or maybe five years ago, we decided to challenge the staff to come up with a plan to present to the Auditor General about moving that forward. I actually thought the expectation was that we would try to move it to August 31st. They did come forward with a very robust plan to move it to July 31st, actually to my surprise, so that was since my tenure as the controller, which began in 2005. Since that time, we have been achieving the end-of-July release, or at least to be ready for it. We did move that a bit during an election year because the timing around that was appropriate, so we did get into the August time frame. That move to July 31st, which is our planning date, occurred about four years ago and we’ve achieved it every year since.
MR. MACKINNON: Thank you, I commend you for that. The recommendations made in Chapter 3, many of them have already been implemented. Could you perhaps look at them one by one and give us at least the most important ones; in fact, indicate which ones have been implemented to date?
MR. RAFUSE: Certainly, we’ll look at these recommendations and just to give out by way of background - and the chapter does speak to this - this is actually a follow-up to a review that occurred in 2004 where the governance and controls around our Liability Management section, and then at that point our investment management section, were reviewed. It was a qualified review, because really there was an inability to test controls because a lot of controls weren’t in place to be honest with you. Since that time a great amount of work has been put in place to establish not only the governance policies that are needed to manage the debt, but actually to set up the internal infrastructure to do so and to provide an appropriate separation of duties within those functions.
You’ll see language in this document about front-office, middle-office and back-office functionalities. The front office is really the people who do the investments and do the trades, and that’s the one where the policies are developed and approved through the Debt Management Committee and ultimately by the minister. It gives them the guidance about what kinds of risks are appropriate and what types of instruments are allowable and the types of credit risks they’re allowed to take. The middle-office function, which is established on this, is really what I often refer to as on-time, real-time auditing. They actually review every trade as it occurs to make sure that not only does the front office follow the policies and the back office in this is really the nuts and bolts accounting, but that the actual trades and initiatives have been duly or properly recorded on time. If not, they have an obligation to report that through the management structure of the department.
That’s really what this original audit was all about, they decided the deficiencies, and this latest chapter is the work that the Auditor General did in conjunction with an external audit firm to actually come in and test that not only did we have all the recommendations from the new review in place that had already been established by - I want to call it - a pre-audit done by our internal audit section, but to see whether or not all of those procedures that are in place are working effectively. We were quite pleased because we actually thought we had achieved some major strides here that those controls were effective and the governance of the Liability Management section was adequately put in place.
We’re just going to sort of go to the recommendations now where, as with all organizations, it’s always great to have an independent review of looking at how you do things and you may think you have achieved an objective. A lot of these recommendations stem from - I wouldn’t call them concerns about overarching controls because those, as the audit report says, were quite adequate and they were quite pleased - they were more on the finer details, especially around some reconciliation issues and some separation of duties issues.
We do have a relatively small shop there to be honest with you and sometimes it’s difficult, in any shop that’s small, to have appropriate separation of duties so you really have to do some, what we refer to as, over-compensating controls on top of those responsibilities by individuals, to ensure that adequate controls are in place and that the policies are achieved.
So really, Recommendation 3.1 talks about a calculation of interest coming out of our custodial reports. The custodian, by the way, we have a relationship with a third party that actually holds all of our sinking funds and holds our assets in the market, so they’re independent from us. We did change custodians last year and we’re quite pleased that the reports we get out of that new provider are much more robust and that the calculations needed, as referenced in 3.1, around our sinking funds interests, that the changes were put in place and we’re quite pleased with that.
Recommendation 3.2 talks about reconciliation documentations and I think, if I recall correctly, something was referred to as a reconciliation that shouldn’t have been referred to as a reconciliation and we have changed that process as well.
If you look at the chapter itself, on Page 46, it actually talks about the relationship and how we do provide separations of duties. You can see that the Liability Management section reports directly to the deputy, which is the front office as I spoke to earlier, but the middle and back office report up to the controller. We are really the checks and balances on the system.
Recommendation 3.3 in the chapter talks about the risk assessments of the roles and responsibilities and ensure controls exist to mitigate identified risk. They do provide that, “We believe a risk assessment of the roles and responsibilities of positions within the divisions should be prepared to ensure identified risks are sufficiently mitigated.” We do believe we have a process in place that we did make some fine tune adjustments to address that concern as well.
Recommendation 3.4 talks about the ability for people who are in what we refer to as our Millennium system, which is a new system we use that produces all our tickets, as our confirmation that a trade or an investment has been made. There was an ability for people to change the limits on that and we have sort of tightened that down a bit, so that people can’t do that without appropriate authorization.
Finally, I think in 3.5 we talked about the administrator role, which is really the Director of Compliance and Reporting, where the recommendations that they should have only have read-only access. Their role requires them to have a bit more so we’re still kind of working through the processes. I would say there that we’re going to put some compensating controls in place so when that individual needs to have access more than reading it, that they can do so.
I think there’s a couple more recommendations but they are ones which we have implemented and I think that they are pretty self-explanatory.
MR. MACKINNON: Thank you. I think Chapter 3 does make it abundantly clear that significant strides have been made by the department to improve governance and control frameworks, particularly in regard to Liability Management and Treasury Services and Capital Markets Administration, all of this since the 2004 denial of an audit opinion. What was the most significant change in the governance and control framework since the audit of 2004, where there was a denial of an audit opinion?
MR. RAFUSE: I would say there are probably two significant changes; the actual establishment of a middle office and back office function, where we actually created an infrastructure to allow separations and duties. That back office accounting function used to actually be imbedded right in the liability management side, so there is almost the same staff performing that function, which was not appropriate. We actually established the middle office, or the compliance function, since that; it’s a new role. So that I would say was one.
The other thing is the role of the Debt Management Committee in establishing appropriate policies and to identify the appropriate risk tolerances that the liability management folks must adhere to. That is a robust process. I would say we have not only representatives from outside of the department on the Debt Management Committee, we have an independent from outside of government that sits on that committee. The deputy minister does chair that committee and provides recommendations on governance and also procedural policies for approval from the minister. That was not in place beforehand and so there wasn’t an overarching governance structure beforehand. So those two things together, I would say, were the two most significant things that have been put in place.
MR. CHAIRMAN: Order, please, the time has expired. Mr. Younger, we have eight minutes.
MR. YOUNGER: Eight minutes, thank you, Mr. Chairman. I’m going to make just a very quick comment, Mr. MacKinnon is absolutely right that there was a debt payoff in the last year. Of course we all know that the net debt is up since 2009, when the NDP took office and the largest single debt payment in Nova Scotia’s history was under a Liberal government.
The fact is, I mean at the end of the day, we can get into this debt debate but there is no Party that is guiltless in adding to the debt of this province. I’m not going to sit here and say the Liberal Governments haven’t been - I mean, that would be ridiculous - and the Tory Governments haven’t been, and the current NDP Government isn’t and we had a bunch of minority governments where people were horse trading. Many of the people sitting here today weren’t there during the minority governments, but were horse-trading to keep governments alive. While minority governments often have benefits in some respects, they can often be very expensive as well because money sometimes gets spent and added to the debt on the part of all the Parties in the Legislature during that time.
I think we all need to recognize that is a fact and that there are all Parties and all members bear some responsibility and frankly, to some extent, members of the public who on the one hand come demanding lower taxes and lower fees and then also at the same time, in the second breath want to know why the services haven’t increased or why they don’t have a special service. It’s an important discussion. We actually have to have that important and honest discussion at some point with the public.
I only have a few minutes so I’d like to draw your attention to Pages 78 and 79 of the Auditor General’s Report. There is something I couldn’t find clearly in the report and maybe it is or maybe it’s not in the report, but it says there were 11 recommendations - and we see it in the chart - that the government does not intend to implement. Now, my understanding in reading this is, you submitted responses and there were four of them that the Auditor General said - and I’m summarizing of course, Mr. Chairman - you know, you make a good case, we see your point so we’re not going to track those.
At the end of the day there were seven where there is a disagreement between the government - mostly the Department of Finance - and the Auditor General’s Office. I’m going to guess that one of those is the consolidated revenue issue that we discussed so that leaves six. I’m just trying to find out which six recommendations does the government not intend to implement that the Auditor General’s Office still feels are important to implement.
MS. MARGARET MACDONALD: Actually, each year, if you look at the list, like the June 2005 report would have made the recommendations on the consolidated revenue issue and then it would have been repeated in subsequent reports. I didn’t actually do the math, but most of those seven, I think, would be repeats of the issue associated . . .
MR. YOUNGER: So the same recommendation over and over.
MS. MARGARET MACDONALD: Byron is telling me that it’s about four out of the seven would be, again, associated with the same issue around consolidated revenue.
MR. YOUNGER: What are the other three? You knew I wasn’t going to let you get away with that. (Laughter)
MR. RAFUSE: I can provide that to you. We didn’t bring that status report. I thought the detail was actually in here as to what they were, but they result from other audits, some of which are control-based audits, but I can provide you with those actual findings and the explanation we gave as to why we’re not implementing them.
MR. YOUNGER: That’s fine. There is a reason I ask. There may be very good reasons and very debatable reasons why something is not going to be implemented. I think we all understand the consolidated revenue one - I don’t agree with your position. If I’m going to pick sides, I’m going to pick the Auditor General’s side on that one. We understand what that one is, but I think it’s important for the public and us as legislators to know which recommendations the government doesn’t agree with and why that is. That is something that I would appreciate coming forward another time and we may choose to call that back if there is an issue.
I want to get back to this petroleum revenue issue since I don’t have a lot of time and so don’t have time to move on to something entirely different. We see the royalties and at the moment they’re declining, but hopefully maybe with the Shell deal they might go up and so forth over time. Are those revenues currently being calculated on a gross production basis or a net production basis, or do you know?
MR. RAFUSE: Sorry, I need to get back to you.
MR. YOUNGER: You may have to get back to me on this too. The reason that I want to know is because under the onshore royalty regime there’s effectively a holiday for the first couple of years of production, which they call exploration. Then after that, the royalties are calculated on a very net basis. I know there’s no such thing as “very net” but I call it a very net basis because you can take off a lot of expenses which before paying the royalty rate, when you report to the Securities and Exchange Commission, you wouldn’t take off the same revenues, which strikes me as an issue because it results in potentially less royalty revenue to the province.
What I’d like to know - and if you can’t answer this right now, that’s fine, you can get back to us - is whether that has been calculated into the royalty rate. Because we’ve allowed all kinds of reductions, are we asking for a higher royalty rate as a result to compensate for that?
MR. RAFUSE: No, I don’t have that with me but I will provide clarity on whether or not . . .
MR. YOUNGER: Okay, thank you. I think you understand why I’m concerned about that.
MR. RAFUSE: Yes, I know what you mean.
MR. YOUNGER: I’ve said many times in this House that, from my perspective, the resources are ours and we should be the primary beneficiaries. I understand why there are incentives, and all that sort of thing, and there may be very good reasons for them, but I want to make sure that we’re not getting short-changed on the other end.
I would also like to know - and again, if you don’t know the answer, you can get back to us with information - how those production models are audited and whether those are audited in a public fashion. The reason I ask is because I know that we’re into this issue of whether it’s proprietary or not, some of the information. Are we just taking John’s oil company’s word that what they’re pulling out of the ground is exactly what they are pulling out of the ground? How is that being audited?
I know that Exxon and all those guys are auditing it, there’s no doubt they’re auditing it. The question is are we independently auditing it in some fashion, and how is that happening?
MR. RAFUSE: I take it you mean, is it in regard to the actual, ultimately the actual that’s recorded, as opposed to the projection of the royalty that you’re referring to, because we do rely on audit material provided from those producers . . .
MR. CHAIRMAN: Order, please, the time has expired. Mr. MacMaster.
MR. MACMASTER: Thank you, Mr. Chairman. I can’t let this little point on the debt go. I know we heard some comments earlier but I just want to point out for anybody who is watching, the reason I asked my first question about a surprise surplus, if we’re going to expect another one this year, was because last year we had a surprise surplus. The government did make a payment on the debt but they did it with an increased revenue source of increased taxes through the HST.
If we actually look at the debt that has been added to the books since they’ve taken power, they’ve added more debt per year than any administration in the history of the province, which I think is unethical. We can always look at the past, but what’s important is what’s happening right now and taking a principled stand on some of these things.
I’m going to move toward some more questions. When the Auditor General presented his report to this committee in January, a member of this committee said, “Very interesting, but who asked you?” What role do you believe the Auditor General has in reviewing and commenting on the finances of the province?
MS. MARGARET MACDONALD: I accept the report from the Auditor General. I think there’s a reference there - I think we should note that it’s not a report, as I noted earlier, that the Department of Finance participated in the development of. This was a report prepared by the Auditor General’s Office. He makes reference to preparing it, in accordance with exposure drafts, on the recommendation of standards and procedures around these particular issues. So I accept his report.
He has indicated he has prepared it in order to assist people in engaging in the debate around the issue and I certainly accept that as well.
MR. MACMASTER: In my first round of questioning I referenced a 3.4 per cent increase in salaries and fringe benefits in the government, and this government has chosen to make those increases. Since we see this increase, is the government justifying the claim of tightening our belts, I guess, by cutting front-line services like health care and educational professionals, instead of upper-level management?
MS. MARGARET MACDONALD: What I can say in response to that is that any salary increases across government have been consistent in both the management and unionized environments. I’m not aware that there is any difference between the two.
MR. MACMASTER: Isn’t it fair to say though that students’ and citizens’ health is where the government is getting its savings for its claimed ethical and financial conduct and belt-tightening?
MS. MARGARET MACDONALD: The fiscal plan that was published in 2010, and that gets re-published each year with the budget, has assumed - and we have implemented - substantial reductions through all government departments as well as other entities, which government funds out of the consolidated revenue fund. We could certainly provide you with the detail around that as it gets implemented through the various budgets. I think primarily the effort on expenditure management has been managed through the Treasury Board. I certainly participate in a lot of that. I would say that the effort to reduce expenditure in government and work towards a balanced budget appears to be something that we’ve asked just about every unit of government in every area to participate in. There has certainly been some measured approach there as best we can do in trying to determine the impacts on people.
MR. MACMASTER: But I guess it does seem that the actual salaries and fringe benefits within government itself and the civil service are actually increasing.
MS. MARGARET MACDONALD: I don’t have the detail in front of me today. I can just tell you that there was a 1 per cent increase in costs in salaries, which was implemented across all units of government. On the other hand, we are looking at the number of FTEs and other expenditures in departments so it would probably require a bit more analysis for me to actually come out definitively one way or the other on the bottom line on that.
MR. MACMASTER: The overall number of recommendations made in the Auditor General’s Report increased by 16 per cent, by 23 recommendations over the previous year; and 41 per cent, or 69 of the recommendations, made in 2011 were repeated from 2010. Can you explain why the recommendations were not acted on?
MS. MARGARET MACDONALD: I guess it goes to back to that question we had earlier about, if you have a specific one we could certainly look at it and come back to you with more information about the issues that we have. We certainly try to implement as much as we can. I guess I’d like to emphasize the 76 per cent completion rate as opposed to the ones that we haven’t, but that’s not necessarily how people look at these reports, but I think the 76 per cent shows that we certainly take the recommendations seriously. We try to implement as much as we can. If you want some more detail on those areas that currently we’re either working on implementing or we’re not able to implement, we would be very happy to provide you with some information around that.
MR. MACMASTER: Maybe that is something we could direct in writing to the department. I guess from a broader perspective, does the department intend to act on all of the recommendations contained in the report?
MS. MARGARET MACDONALD: I think it’s fair that we’ve already indicated that we do not intend to implement in a number of areas. If we could change that - and again as I said earlier - I think around that sort of inclusion of third-party revenues, I don’t want to overstate the outcome of that, but we’re certainly taking another look at it; we’re talking about it. If that was no longer an issue, I think those statistics would improve substantially. We will do the best we can and we will work as hard as we can to implement, but I think we’ve already made some determinations that we’ve been public about in terms of our ability to actually implement.
MR. MACMASTER: I know the member for Dartmouth East has talked a bit about it. In the Auditor General’s Report, the revenue estimates “ . . . include all revenues of the consolidated entity, including all agencies’ third party revenues in a schedule . . . to ensure the budget is prepared and presented fully in accordance with Canadian generally accepted accounting principles.” Can you give us, again, sort of the department’s position on that recommendation?
MS. MARGARET MACDONALD: Again, as I said earlier, it has been a long-standing issue, it has been around for about 10 years and we continue to talk about it, so we’re going to continue to talk about it some more. We are going to try to see if we can . . .
MR. CHAIRMAN: Order, please. The member’s time has expired. Mr. MacKinnon.
MR. MACKINNON: Thank you very much. I would just like to look at the need for stimulus funding in recent times. We have had decades of deficits or balanced budgets, without any reduction in the overall debt of the province. A lot of the good times, there was money spent in every direction possible. The need for stimulus funding, we have been dealing with a period - in fact, the world is dealing with a period - that is the greatest fiscal crisis since the Great Depression. We, in fact, have had to match federal dollars and we had to match federal dollars that the federal Conservative Government was racking up massive, massive deficits. We put in I don’t know how many millions of dollars to stimulus funding, so my question is, do we know exactly how much we did spend to match those federal dollars?
MR. RAFUSE: Certainly during the capital planning for the last couple of years there have been a number of programs that the federal government has put in place, which required matching dollars from the province to take advantage of those. They have been primarily in the areas of the Building Canada Fund, which is primarily on the road construction side of the house, but also along some other information technology funds that were made available through their infrastructure program, which allowed us to either match or otherwise participate in those plans. Both of those plans, if you run those types of spending through your economic models, do have a positive impact. Therefore, that’s probably one of the primary reasons they were selected for those infrastructure or stimulus-type programs. If we had not done that we would not have been participating in those programs, is an accurate statement, yes.
MR. MACKINNON: So we’re, in fact, talking hundreds of millions of dollars?
MR. RAFUSE: Certainly on the road construction side we are talking hundreds of millions of dollars. We can actually provide for you the level of funding that has been made available to those programs and our participation, as I don’t have it with me, but you are talking multi-millions of dollars, hundreds of millions of dollars.
MR. MACKINNON: Thank you very much. The rest of my time I will turn over to Mr. Ramey.
MR. CHAIRMAN: Mr. Ramey.
MR. GARY RAMEY: Thank you very much, Mr. Chairman. I have actually just a few questions; I think they’re more for clarification than anything else and they go back to the payment. There was a payment made on the debt recently, or not that long ago, is that correct?
MR. RAFUSE: For the fiscal year last year the net debt position did go down, yes.
MR. RAMEY: And what was the payment that was made?
MR. RAFUSE: Since net debt is kind of a very robust measure, it’s really a result of having a surplus greater than your investment and TCA, to simplify it. That’s really what resulted in that figure being reduced. It’s kind of different than repaying your bonds.
MR. RAMEY: Understood. Okay, I guess that’s probably why I didn’t get it on the first go-round. My second question is, just after the present government took office, we had the H1N1 incident, as did all provinces in the country so it wasn’t unique to us. Is there any figure as to what that actually cost government? I mean it wasn’t a planned-for expense, no one knew that we were going to hit that one, but do you have a rough idea of what that may have cost government?
MR. RAFUSE: I don’t have it with me, but I do know that there was tracking done both within the lead government department on that, which at the time would have been the Department of Health Promotion and Protection, but also at the DHA level there was obviously a lot of preparation costs and also deployment costs during that season. I don’t have it, but I do know they did some tracking on that.
MR. RAMEY: Is it possible to get an estimate of that?
MR. RAFUSE: I can certainly ask the Department of Health and Wellness to provide that.
MR. RAMEY: Thank you. I’d just be interested in seeing what that actually did cost. The other thing is - and I hope this is an appropriate question - we’re one of three Maritime Provinces and we’re small and I guess in many ways we’re similar - similar people, similar demographics, similar geography, I won’t go on about it, maybe similar debt levels. In any event, I was just wondering there is often the comparison made when I’m at various committee meetings and I’m listening to people present material at these committee meetings, they sometimes compare Nova Scotia to New Brunswick.
Of course, there was - and it has been brought up in the House, it’s no secret - the issues related to cross-border shopping particularly in the area where my colleague, Mr. Skabar, happens to be. I’m just wondering, in your deliberations, consultations and thinking about how we’re doing, do you look at all at comparisons between a province like ours and let’s say our closest neighbour because we’re connected to it, New Brunswick? I was just wondering if you do, if you have information on where we stand here in Nova Scotia with regard to our debt to GDP ratio, in relation to for instance New Brunswick and their debt to GDP ratio and if they’re similar or different?
MS. MARGARET MACDONALD: I would say generally yes. It is always useful information to look at what other provinces are doing, although primarily for us in terms of preparing the budget that may be a better question for the minister. For us, our particular role is to have a look at the revenue, the expenditure and determine that we can sort of meet the imperatives that are put in front of us within sort of the construct that we have there.
I think I might refer you actually to the Auditor General’s Report in that respect regarding comparators around GDP between Nova Scotia and other provinces. I think he has outlined some of them here in the report. I would just have to find it here to make reference to it for you.
MR. CHAIRMAN: Order, please. Time has expired for questioning. I would ask if the deputy minister would like to make any comments to wrap it up and then we have some requests for information, a whole list of them here that I will go through?
MS. MARGARET MACDONALD: I would really just simply like to thank the committee for their interest and for their patience with us. We will certainly try to provide any information that they need and we’ll be happy to come back at any point if there’s further clarification required. Thank you.
MR. CHAIRMAN: Thank you. I’m going to go through this rather lengthy list for today to make sure I have it all, if not, maybe the clerk can advise me if I’ve missed anything.
There was a request for how much revenue the 2 per cent increase in the GST that the province has seen in dollars - and the clerk will send letters on all of these, of course. A second item, that the Department of Finance provide a list of the items that the department disagrees with the Auditor General on - in particular it was seven items and I think you addressed a couple of those, but if you could list those as well. The next one was the petroleum revenues and in conjunction with that was the royalty rates calculation of these, how that is done, the actual revenues and how they’re issued. Also, there were some questions around production models, how they’re audited, how these are done, and I think a partial answer was given on that but not a complete answer.
There was also another question on the details of the budget, around salaries, and we’ll go through the transcript to make sure we get that correct question; also the funding of the Infrastructure Stimulus Fund program in the province, what that actually cost; and the cost of H1N1. I believe this one was answered and I would ask Mr. Ramey if indeed he did get a satisfactory answer on that - I think it was Mr. Ramey - and that was the debt-to-gross-domestic-product ratio, compared to New Brunswick. Mr. Ramey.
MR. RAMEY: Yes, Mr. Chairman, I was satisfied with that answer, thank you very much.
MR. CHAIRMAN: You’re satisfied, okay; we’ll take that one off the list.
Now is there anything else that I’ve missed on that list? Okay, I think we have everything.
Thank you very much and I thank our guests for coming. Now we’ll go back to Mr. d’Entremont to continue on with the discussion he started this morning.
MR. D’ENTREMONT: Thank you very much, Mr. Chairman. Again, just to bring it back to light, about $330,000 in taxpayers’ dollars have gone towards an untendered contract. Of course we know what that contract was for, the Ships Start Here, and it was designed to give this NDP Government credit for the shipbuilding contract that, of course, lobbying had absolutely no bearing on.
We see the fingerprints of the Premier’s Office all over this. The Premier’s director of Policy and Community Relations used to work for the company that carried out the work. We’d like to have him come in, and explain and answer questions on this questionable contract. Of course some of these things didn’t come to light until a FOIPOP was done by the Canadian Taxpayers Federation. Of course all of that information is available on-line. It did seem like until somebody asked the question, they didn’t really do any of the work, so it looks like things were getting signed after the question was asked. So I believe there’s a lot of hanky-panky going on here that we’d like to have some questioning done on.
Again, I so move that we would have Mr. Paul Black, who is the director of Policy and Community Relations, come in and maybe present the timeline for this contract and maybe answer some questions on behalf of government for the Ships Start Here contract.
MR. CHAIRMAN: Mr. Whynott.
MR. MAT WHYNOTT: Thank you very much, Mr. Chairman. I would ask that we, as a committee, take a five- to seven-minute recess so that our caucus can consult on this motion, and then return - I would suspect we’d meet probably for about five to seven minutes, but upon our return the committee can then make a decision, if that’s on course with what you would allow.
MR. CHAIRMAN: Yes, I will do that with the concurrence of the other Parties. But before we do that, I would also like to get agreement that if you take longer than this that we will continue past 11:30 a.m. to finish the discussion. Is it agreed?
It is agreed.
Is it agreed that we take a five- to seven-minute break right now?
It is agreed. Thank you.
[11:08 a.m. The committee recessed.]
[11:14 a.m. The committee reconvened.]
MR. CHAIRMAN: I will call the meeting to order. Mr. Whynott.
MR. WHYNOTT: Thank you, Mr. Chairman, and thank you to the other members of the committee for allowing us to have that recess, I appreciate that. It gave our caucus an opportunity to have a chat.
Mr. Chairman, our caucus will not be supporting the motion because we feel that the public procurement process was followed in regard to this. It’s quite unfortunate that the Opposition is not behind the shipbuilding contract. This is about making a confidence builder for Nova Scotia. (Interruptions) This is the first time . . .
MR. CHAIRMAN: Order, please. Mr. Whynott has the floor.
MR. WHYNOTT: Ships Start Here was an unprecedented partnership between public, private, non-profit organizations, as well as academic sectors. The co-operation and collaboration between over 70 organizations that came on side to bring awareness to this issue of ensuring that Nova Scotia and the Irvings were awarded the contract from the federal government. It’s unfortunate that this is the way that they’re going on this, so our caucus will not be supporting that motion.
MR. CHAIRMAN: Mr. Younger.
MR. YOUNGER: I would probably not have said much on this until Mr. Whynott’s inflammatory statements there. Mr. Whynott knows full well that all Parties of the Legislature, including the Liberal caucus, supported the Ships Start Here program. In fact, I had the sign on my lawn and appeared with - I think Mr. Whynott was there - all Parties went together to the shipyard for the tour.
We will support the Tory motion because this motion is not about whether you support the Ships Start Here. To support the Ships Start Here would be supporting this motion, in fact, to show that the government says things were done above board - Mr. Whynott just claimed that - then the opportunity to prove that everything was done above board is to do it in this Chamber, in the public view and to answer those questions. In fact, the only reason he wouldn’t support the motion is if he had something to hide. We will certainly support this, just as the member well knows and the Premier has acknowledged, that all Parties supported it. The member probably needs to get on side with the Premier who also recognized that all Parties supported the Ships Start Here project.
MR. CHAIRMAN: Mr. d’Entremont.
MR. D’ENTREMONT: I thank the member for Dartmouth East for supporting this motion and for saying exactly what I wanted to say that, of course, all Parties supported this as a unanimous motion in the House of Assembly, but we’ve heard time and time again about the importance of this contract and its importance for Nova Scotia. I think it’s a wonderful thing that Irving Shipyard won it on its own merits. Nova Scotia won it on its own merits, not because there was a flashy campaign of $300,000 that was apparently untendered.
If the member says that everything was done above board, then they shouldn’t have any problem whatsoever to bring it to the floor of this committee where we should have a public airing of it. If there is something to hide, well then obviously they’re going to be voting against it. Apparently, you can sort of draw between it that they do have something to hide and we’ll see how this vote goes and they’ll have to answer to Nova Scotians as to why this was untendered and why they seem to be hiding the issues. There must be something further to hide here. Thank you for the opportunity.
MR. WHYNOTT: Mr. Chairman, of course as you have ruled before, if anything is going to be tabled that we have copies for all members and so right here we have the NSBI Procurement Policy. As you’ll find on Section 3.8 . . .
MR. CHAIRMAN: Table that now, please.
MR. WHYNOTT: Yes, sure. In Section 3.8 of the Alternative Procurement Policy, “An unforeseeable situation of urgency or emergency where the good, service, or construction requirement cannot be obtained by means of open procurement procedures.” In this circumstance the key determinant is that the situation is unforeseeable and truly urgent in nature. So I’d ask for the question, please.
MR. YOUNGER: I’ll just respond to that, but the policy also requires sign-off, and the documents which were released yesterday indicate the sign-off actually happened after the procurement took place. The issue is the timing of the sign-off, I believe.
MR. D’ENTREMONT: The other point is that I don’t understand the emergency that was here. We had known for many years about the shipbuilding contract, about the process that the federal government was putting in place for this one, so I don’t understand why all of a sudden they had an emergency, they had to go and procure the services of a marketing company. Again, this is just trying to throw a little bit of fog on this issue, which seems to be a usual circumstance by this government. Again, I guess we go to the question on this.
MR. WHYNOTT: The policy was followed and I ask for the question, please.
MR. CHAIRMAN: Would all those in favour of the motion please say Aye. Contrary minded, Nay.
We had four Ayes. It’s a draw. I break the tie and I say Aye.
The motion is carried. (Interruption)
No, your member voted for it, so therefore it will be put on the agenda.
We’ve got some business to attend to. (Interruptions) Mr. Morton.
MR. JIM MORTON: Mr. Chairman, I would like to clarify my position on this vote. My intent was to vote no, that was my attitude and maybe I gave a reflex reaction, but I did correct that.
MR. CHAIRMAN: Just one second, I’ll ask the solicitor. The member did vote, it was very clear to the Chair that he did vote, but I would ask the solicitor’s view on that.
MR. GORDON HEBB: It’s up to the Chair to rule on the vote, but I do add that it’s open to any member to appeal to the committee any decision of the Chair.
MR. CHAIRMAN: The member wishes to appeal to the committee, of course. Mr. Morton.
MR. MORTON: I would certainly like to appeal, and perhaps a way to deal with this would be to call for a recorded vote.
MR. CHAIRMAN: Well, it was already voted on and it was very clear to the Chair that you did vote yes, so therefore it’s going to stand. Mr. MacKinnon.
MR. MACKINNON: The appeal was to the committee not to the Chair. There has been a request for a recorded vote; that is the appeal. It’s an appeal to the committee; it is not an appeal to you, Mr. Chairman. You do not represent the full committee.
MR. HEBB: Yes, the appeal is to the committee, so it would be a vote by the committee on the appeal. If you then want to have a recorded vote on the appeal, that’s a separate question.
MR. YOUNGER: Mr. Chairman, I would suggest, however, that the member in question would not be able to vote since he would be in a conflict of interest and so the appeal would obviously not be successful in any case. (Interruption) You don’t get to vote on your own appeal.
MR. HEBB: It would be my opinion that all members of the committee would have a vote on the appeal.
MR. CHAIRMAN: Okay. Mr. MacKinnon.
MR. MACKINNON: Mr. Chairman, I would call for a recorded vote on the appeal.
MR. CHAIRMAN: On the appeal. Does another member request a recorded vote? It requires two members. Mr. Skabar.
A recorded vote has been called for.
All those in favour of the motion will say Yea; all those opposed, Nay. The clerk will call the members for a recorded vote. (Interruptions) This is on the appeal only.
[The clerk calls the roll.]
Mr. Colwell Mr. Younger
Mr. Morton Mr. d’Entremont
Mr. MacKinnon Mr. MacMaster
[MRS. HENRY: For, 6. Against, 3.
MR. CHAIRMAN: The motion is carried.]
MR. CHAIRMAN: Now I will entertain a motion to re-vote on the original motion. Mr. MacKinnon.
MR. MACKINNON: For clarification, the original motion.
MR. CHAIRMAN: The original motion was that we call Mr. Black before the committee to explain the untendered contract. I’d entertain a motion on that. Mr. Younger, there was a motion. Is a recorded vote requested again or just by Yea and Nay? Okay.
Would all those in favour of the motion please say Aye. Contrary minded, Nay.
The motion is defeated.
Okay, after that long wrangle, we have some minor committee business here. It is my understanding that the NDP caucus may be having business out of town on March 28th, I believe that’s your national convention. Do you want to maintain the March 28th meeting of the Public Accounts Committee? Mr. Whynott.
MR. WHYNOTT: Thank you, Mr. Chairman. I don’t see any conflict for having the Public Accounts on the 28th.
MR. CHAIRMAN: Okay, just making sure, for scheduling purposes.
With that said, we have the next meeting on Wednesday, March 7th, and it will be followed by a subcommittee meeting immediately after that, so anybody who has new agenda items, would they please bring them forward to the clerk as soon as possible.
A motion to adjourn is in order.
MR. D’ENTREMONT: So moved.
MR. CHAIRMAN: We stand adjourned.
[The committee adjourned at 11:27 a.m.]