Assemblée Législative de la Nouvelle-Écosse

Les travaux de la Chambre ont repris le
21 septembre 2017

Public Accounts -- Wed., June 24, 1998

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HALIFAX, WEDNESDAY, JUNE 24, 1998

STANDING COMMITTEE ON PUBLIC ACCOUNTS

8:00 A.M.

CHAIRMAN

Mr. Howard Epstein

DEPUTY CHAIRMAN

Mr. Hyland Fraser

MR. CHAIRMAN: Ladies and gentlemen, I would like to call the meeting to order. You will see from the notice of today's meeting that we have planned a continuation of the presentation from the Auditor General's Office. I also propose to deal today with procedural matters affecting the future scheduling plans of the committee. I would like to turn to that item after hearing from the Auditor General's Office. So perhaps I can request that our presenters leave us with enough time at the end - perhaps one-half hour - to deal with our procedural matters.

Before beginning, I should note that we have received notification that there is a change in the membership of the committee. Michel Samson will be replacing Honourable Wayne Gaudet on the committee.

MR. JOHN LEEFE: Also George Archibald will be replacing Ernie Fage today.

MR. CHAIRMAN: I note, then, that we have one change for today. The notification with respect to Mr. Samson is intended as a permanent change on the membership of the committee. So, that said, perhaps we will invite our guests to continue their presentation.

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MR. ROY SALMON: Mr. Chairman, I am not sure I feel like a guest but we shall proceed. Two weeks ago we undertook to provide you with a briefing on my 1997 report which was deemed tabled in the House on February 11th. We got most of the way through that in terms of providing an overview of the report and then dealing with some chapters in more detail. There were three chapters left outstanding that I wish to provide comments upon. What I have provided to members today are copies of five overhead slides that I would have used if I had been able to but I understand that since this session is being televised, we are not able to use an overhead projector and screen. So I have provided you with copies of the slides to refer to as I go through.

The three chapters that were left that I wanted to deal with were the results of work we had done with regard to school board amalgamation and issues of accountability of school boards. Secondly, our audit of the installation of a new corporate financial management system across government, comments upon that. Finally, some comments on a review we had done of the audit work done by the auditors of the Queen Elizabeth II Health Sciences Centre. That was not an audit that we did, rather a review of work that was done by their auditors.

So let me start first with the school boards and the issues there. What we wanted to focus on primarily was, having made the decision to amalgamate school boards, whether the planned efficiencies, the planned savings that were the basis for the decision, had actually been achieved. The initial estimates were that the savings of something in the order of $11 million would be realized across the province from these amalgamations. We attempted to obtain information from the school boards as to what had actually been achieved. What they informed us was that the savings were considerably less than the $11 million and we were able to do enough work to satisfy ourselves that their calculations of achieved savings were indeed significantly less than the $11 million.

The second issue that we got involved with . . .

MR. CHAIRMAN: You have a point that has just been raised.

HON. RUSSELL MACKINNON: Mr. Salmon, could you indicate what the savings were?

MR. SALMON: Elaine, can you speak to that? I think it is in the report.

MS. ELAINE MORASH: Yes, I can. It is on Page 109 of our report. The figure that they reported was $6.7 million. However, there were some expenditures that they felt were related to amalgamation that were coming which they hadn't included in those figures, they couldn't be quantified yet, and the most significant of those was $4.5 million identified by one board related to the costs of bringing non-teaching employees to wage parity. So that

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although they identified $6.7 million in savings, they believed that that should be reduced to reflect other costs that they would incur as a result of amalgamation.

MR. MACKINNON: Is it possible to get clarification on these as we go along. Is that a problem?

MR. CHAIRMAN: No, go right ahead. That seems a very useful way to proceed. I guess we also have an intervention from Mr. Leefe. Is this an observation on procedure?

MR. LEEFE: No. Are you going to permit questions now?

MR. CHAIRMAN: Okay, except I didn't think Mr. MacKinnon was finished.

MR. MACKINNON: If it is okay with Mr. Leefe, I have just one more follow-up to that. The issue on wage parity, was that something that would probably be realized over a period of time whether amalgamation took place or not?

MS. MORASH: That was not their opinion.

MR. MACKINNON: What is the AG's opinion?

MS. MORASH: There would have been no reason to bring those collective agreements to a level playing field had there not been amalgamatin.

MR. CHAIRMAN: Are we all clear what we are talking about in terms of wage parity? This is a term that people sometimes use to mean different things but I assume in this context what we are meaning is that different school boards, having been amalgamated, it was then discovered that people doing essentially the same jobs were being paid at different rates and then there was a tendency for the lower paid to want to come up to the level of the highest paid. That is what we are all meaning by this. Okay, go ahead.

MR. LEEFE: With respect to the $4 million cost for moving toward wage parity, that is just one board?

MS. MORASH: That is right.

MR. LEEFE: So is that $4 million figured into the $6 million in savings that are referenced on Page 109?

MS. MORASH: No, it is not.

MR. LEEFE: So the $6 million saving, if you look at $4 million, if it cost $4 million per board and there are how many boards?

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MS. MORASH: There are seven.

MR. LEEFE: Seven boards, seven times $4 million is $28 million.

MS. MORASH: No. I think they are very different in size.

MR. LEEFE: All right. Would there be any boards that would have spent less than $1 million in parity?

MS. MORASH: I don't have that information. This figure was not audited. It was a note to a questionnaire that we sent to the board saying that this was what they expected to happen when the collective agreements were renegotiated. So it was just an estimate.

MR. CHAIRMAN: Part of the problem would be, of course, that the wage freeze legislation was still in effect until November 1997 and I think negotiations would only have started after the end of the freeze legislation. In some school boards, I think they are still negotiating now.

MS. MORASH: That is correct.

MR. LEEFE: So based on the information that has been provided this morning which came from the boards, one might reasonably conclude that in fact there were no savings with respect to amalgamation but there may indeed be a significant cost.

MS. MORASH: There are a couple of points that I would like to make. One is that the $11 million figure that was estimated by the department prior to amalgamation was based on annual savings. So when we say the annual savings are $6.7 million, that is annually. As we mentioned, the $4.5 million or other parity costs, are not included in that figure. There were also some severance costs, one-time costs, that were incurred by the boards and also some one-time revenues that were achieved by selling surplus property, for example. So those figures are also reported on Page 109.

MR. LEEFE: But the parity would be an ongoing cost.

MS. MORASH: That is right.

MR. LEEFE: And that would be the largest.

MS. MORASH: That is correct. There are some ongoing costs and revenues and there are some one-time costs and revenues.

MR. DARRELL DEXTER: Just so I understand what you are saying, did the one-time revenues that show up on Page 109 offset the one-time costs?

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MS. MORASH: Not exactly.

MR. DEXTER: Which is greater?

MS. MORASH: The one-time costs are greater.

MR. CHAIRMAN: Please continue.

MR. SALMON: The second issue that we got into as we persued this issue of savings and one-time costs related to severance payments that were made to employees who were to be let go, I guess is the best way to put it, as a result of amalgamation and downsizing at the administrative level. There was something in the order of $2 million paid out in severance payments to school board employees. Of those employees, there were three that we found to be unusual in terms of the arrangements that were made. Some of this has been in the press in the past, so I think the situations, to some extent, are known. There were two employees who were paid severance and immediately hired back into other positions within the school board. We found that to be unusual.

In the third case, it was the understanding of those who were making decisions that this employee had a 10 year employment contract, and that that contract had to be honoured. At the time of the amalgamation and at the time that decisions were made, there were three and one-half years that were understood to be remaining on this 10 year employment contract. We were never provided with a copy of the contract although we asked on numerous occasions. It became our understanding that, in fact, the contract was a verbal contract and, therefore, there really wasn't the legal obligation to pay the remainder of the three and one-half years.

The employee was retained by the school board on a part-time basis for the remaining three and one-half years, and was actually paid out the remainder of the contract as a salary for the three and one-half years.

MR. CHAIRMAN: There is a question for you.

MR. MACKINNON: Which school board, Mr. Salmon?

MR. SALMON: Colchester.

MR. CHAIRMAN: I guess this has prompted a couple of other questions. Mr. Leefe.

MR. LEEFE: Which boards were involved in the paying of severance and hiring back staff?

MR. SALMON: Halifax.

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MR. LEEFE: In both instances?

MR. SALMON: The two were both Halifax, yes.

MR. CHAIRMAN: Mr. LeBlanc.

MR. NEIL LEBLANC: I am just looking at the efficiency estimates that you have here and the board questionnaires. I ask myself the question, when the boards were originally set up, the CEOs were appointed by the province. Were they hired by the board or were they appointed by the province? I believe they were appointed by the province, weren't they?

MS. MORASH: No, there was a committee, there was a selection process. The amalgamation coordinators are maybe who you are thinking of. There were amalgamation coordinators brought in at each of the boards and it is, in fact, their estimates that we quoted on Page 109 as the targets that were to be achieved through amalgamation, but they were appointed, I believe, by the province. I am not sure of that but I believe that they were, but, no, there was a selection process for the superintendents of the boards.

MR. LEBLANC: You always look at numbers and you ask yourself, which side would the bias be and, if anything, these new people want these boards to work. That is why I was asking the question whether they were appointed by the province or whether they were selected, but you say they were selected. Okay, thank you very much.

MR. CHAIRMAN: Please continue.

MR. SALMON: Those are my comments with regard to school board amalgamation and accountability. I would like to turn now to . . .

MR. LEEFE: Before we leave that, because the Auditor General's staff has touched on the coordinators, this information came essentially through the coordinators?

MS. MORASH: Through published reports prepared by the coordinators and reviewed by the Department of Education and brought together into a document that covered the whole province.

MR. LEEFE: There seemed at the time, if my recollection serves me well, some difficulty in acquiring the report signed off by the coordinator for the Southwest Regional School Board. Do you recall if that signed off report ever was forthcoming?

MS. MORASH: It was included in the comprehensive report, the province-wide one that was prepared. We may even have the detailed report. I just do not recall whether, in fact, we had the detailed one as well as the overview that was put in the province-wide report, but I do not recall any difficulty in getting that particular document.

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MR. LEEFE: Each report had to be signed off by the coordinators, as I understand it?

MS. MORASH: That is correct.

MR. LEEFE: Mr. Chairman, if the Auditor General and staff could have a look to see if a copy of that report is available, I would certainly appreciate having a copy provided to the committee members with the coordinators' signatures appended thereto.

MR. SALMON: We will determine the status of that and if we can make it available, or if the Department of Education could make it available to the committee, yes.

MR. LEEFE: Thank you.

MR. CHAIRMAN: Mr. Fraser then Ms. Godin.

MR. HYLAND FRASER: The $11 million projected saving, that was done by the department and not by the coordinators? Where did the figure come from, again?

MS. MORASH: It was first quoted by the department in a public report called, Education Horizons. Then it was supported by work that the coordinators had done. So, if you totalled all the identified efficiency estimates in the coordinators' reports, you came very close to $11 million, actually, $10 million.

MR. FRASER: In their report, would they have addressed the wage parity or pay equity issue at all? Was that targetted or was it just forgotten about and then it came about after the fact?

MS. MORASH: I cannot recall if they, in fact, addressed the topic. They certainly did not quantify it because it can only be quantified after the collective agreement negotiations had taken place. So, it may have been addressed. I just do not recall.

MR. FRASER: I guess for all the other employees whose pay rose to the level of the top of whatever, I am sure they are not critical of the whole process, because they are all gainers morally and pay-wise. So, I mean while the savings may not be there, I am sure there are a number of people who are very satisfied with the amalgamation because that is how they got pay equity.

MS. MORASH: Maybe if I could just add a point here. The purpose of the audit was not really for us to quantify the savings. What we were trying to do was to determine whether the Department of Education had a process to track the savings. When we found that they did not, then we decided that we had to go to the boards and get whatever information was available. So, that was when we decided to go to the boards individually with this

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questionnaire and ask them to estimate the savings. So, certainly the objective of the audit was to determine what kind of a process the Department of Education had in place, or planned, to track the savings and the process was not there.

MR. SALMON: Just in response though to your comment. My concern is value for money, cost to the taxpayer and if employees are willing to work as teachers at a certain wage level and then find that as a result of amalgamation they are going to gain, because others are being paid more, it is to their satisfaction but is it to the satisfaction of the taxpayers? Suddenly, because of amalgamation, people are paid more. That is a value for money issue as far as I am concerned.

MR. CHAIRMAN: I do not know if it is teachers so much as the support staff, but in any event, Ms. Godin, you had a question.

MS. ROSEMARY GODIN: In your concluding remarks about amalgamation, you talk about monitoring efficiencies and I will paraphrase here, you are monitoring, ". . . to evaluate the success of the initiative.". That's on Page 106, Paragraph 9.47. It is one of your concluding remarks. I am just wondering, how long is it going to take to evaluate the success of this initiative? Since you are doing this tracking, will there ever be a time when you will be able to say?

MR. SALMON: Well, I am not talking about monitoring by myself. I am suggesting that it is the responsibility of the Department of Education, having made decisions to enter into amalgamation based on estimates of efficiencies to be gained, it is their responsibility to track and monitor whether or not those gains are achieved. That should not be a long-term process. Over a period of two years, maybe three years, it should be possible to track whether or not the planned efficiencies were achieved and to conclude whether or not the decision that was made was the right decision. But that is not my responsibility. That is a management responsibility.

MS. GODIN: But would you have a responsibility to comment or check on what their results are of their tracking?

MR. SALMON: And that is what I have done. My point was that they didn't. They should have and they didn't. That is the reason for that comment.

MS. GODIN: Okay, thank you, Mr. Salmon.

MR. DEXTER: Maybe this is part of the same question but you talked about your concern being value for money. The other side of that equation is the service delivery. So how do you have a look at, is there increased service delivery as a result of this amalgamation? Do you do that kind of analysis or are you saying, we can't really do that, that should be the job of the department as the question has been put by my colleague?

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MR. SALMON: The same point. The Department of Education and the school boards should be tracking, to the extent that it is possible to track, improvements in service delivery. We would comment as to whether or not they are doing that and what the results of it are.

MR. DEXTER: Your point, to date, is that there has been no analysis of whether or not the amalgamation has led to an increase of services or increase of service delivery.

MR. SALMON: I can't speak for today. At the time of our audit there hadn't been.

MR. DEXTER: I am assuming from what you said that your opinion would be that any competent management plan would include an analysis that determined whether or not service had increased or service delivery to the client base had been increased.

MR. SALMON: I believe that that is an appropriate action for management to take, yes.

MR. CHAIRMAN: Mr. Leefe, did you indicate?

MR. LEEFE: No, that is fine. Is the Auditor General finished with this section?

MR. SALMON: In terms of making comments, Mr. Leefe, yes, I am, with this section.

MR. LEEFE: In that case, I do have a question. I am looking at Page 108, the graph which shows school board expenditures per student. It would appear that the dollars going to the classroom declined significantly through the amalgamation period. We don't know what they are today but as of the 1996-97 budget, they are well below the per student expenditure back in 1992-93. As a person who has spent part of his life as an educator, I find that alarming. We are putting more money into education and yet it appears that less is getting to the people who are supposed to benefit most and that is the student. Is that a fair observation based on what I think I see here?

MS. MORASH: With one exception, perhaps. That is, if you look on Page 107, the amount of money that has been going into education has not increased over the period. If you look at 1996-97 budget figures, it is slightly less.

MR. LEEFE: Is it proportionately less with respect to the graph on the top of Page 108 or even taking that into consideration?

MS. MORASH: The two graphs are just different ways of presenting the same information. On Page 108, what is called School Board Expenditures includes all of the money that is spent by school boards except school construction. It doesn't include debt service. So it includes both administration and classroom costs.

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[8:30 a.m.]

MR. LEEFE: It appears from the graph on Page 107 that District Board Management, Special Education, Transportation and Property Service costs have remained relatively consistent, yet School Administration and Instruction is the bar that moves. Is that correct?

MS. MORASH: I believe that that is correct, although there are smaller changes in the other bars as well. I know it is difficult. There is a trade-off here in terms of how much detail you show. I don't have the numbers in front of me, I just have the graph, and it is kind of hard to tell if there are minute changes in any of the other bars.

MR. LEEFE: But it is clear that there, then, must be significant changes with respect to School Administration and Instruction if it is big enough to be shown here and the other changes are small enough that the other bars appear to be relatively consistent.

MS. MORASH: It depends on how you define significant, I guess.

MR. LEEFE: So, again, is it a correct observation that, in fact, the student has received less money in the classroom since amalgamation than in the period prior to amalgamation, as demonstrated in the years shown in these graphs?

MS. MORASH: I feel that we would like to review the figures again to give you an answer on that. I think that given the information that I have here today, and I don't have the supporting figures, I would not want to make a blanket statement like that. But certainly Page 108 shows that the expenditures per student have gone down a small amount, less than $50. No, perhaps a bit more than that. If you compare it with 1994-95, about $200 per student in that period.

MR. LEEFE: Which could be a very significant amount of money per board.

MS. MORASH: That is correct.

MR. LEEFE: Like we are talking millions. Correct?

MS. MORASH: I would have to look at the numbers but certainly, if you multiplied the $200 per student times the number of students at an individual board, that would give you the figure.

MR. LEEFE: Thank you, Mr. Chairman.

MR. CHAIRMAN: Mr. Samson.

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MR. MICHEL SAMSON: I just have one question here for my own clarification. You are talking about your expenditures per student that have declined but on Page 108, your graph right below that shows that your student enrolment has also declined. So is there not some sort of a balance there that one correlates with the other that the expenditures and the enrolment have both declined to reflect the declining enrolment of students since pre-amalgamation?

MS. MORASH: But these are expenditures per student. If the student base had stayed the same, had not declined, then the expenditures per student would be different. The expenditures per student are based on the reduced student population.

MR. SAMSON: So the two graphs don't reflect one another at all.

MS. MORASH: I think that they do. That is that the reduction in enrolment has been included as a factor in the top graph.

MR. SALMON: So the total expenditures have reduced considerably as a result of the two factors. The declining enrolment plus the declining expenditure per student are both factors in the resulting total expenditure number which reflects both declines.

MR. DEXTER: I just wanted to follow up on that point because what you are saying is that, in fact, this second graph demonstrates an increased loss - if I can put it that way - to the school board. You take the two together and it means the amount of money that is actually going into the boards is much less than if you just took them individually.

MR. SALMON: Yes, but I should emphasis that that doesn't necessarily reflect a reduction in the quality of education. It may simply be a reflection of efficiency gain.

MR. DEXTER: That is fair enough but, as you said earlier, there is no way to measure that because the department hasn't undertaken any kind of a control to measure that.

MS. SALMON: Correct.

MR. LEBLANC: In regard to Paragraph 9.18, on Page 101, I noticed that it says, '". . . in any fiscal year a school board shall not incur or make expenditures that will result in the total of the amounts of expenditures being in excess of the total of the amounts of the school board's revenue from all sources in that fiscal year.'". Then you said that management indicated that a school board cannot budget for a deficit, and you are saying that you also believe that it cannot incur a deficit and it goes on. I am sorry to ask the question, because I think some school boards have brought in place some bridge financing which is a new innovative way that this government is coming into to deal with a variety of items. Perhaps you could comment a little bit on that. What has been the circumstances? Are school boards actually budgeting for them or are they ignoring them, because I know a lot of the school

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boards in certain years had deficits. Maybe you can make some comments as to what your audit found.

MS. MORASH: We did look at the bridge financing. The information that we found is in Paragraph 9.16 and 9.17. There was a process established by the department to deal with deficits that the boards incurred. The deficits I do not believe had been budgeted. I would have to check that out. I do not recall, but I don't believe they had been budgeted. They occurred and the department established this process to provide bridge financing as you said, and the amount of bridge financing is quoted in Paragraph 9.17.

MR. LEBLANC: I know like the CSAP, our region was informed that there was a deficit. I think I remember going to the meeting as a member of Foyer École de PTA and being informed that they had dealt with part of the deficit and a few other programs by the province providing bridge financing, which you know really in essence was to defer the problem to a future date, in the fullness of time type of concept. I am asking myself, first of all, whether that is allowed under the Act, because you are quoting provisions of the Act here; and, the big concern, of course, is that if you compound the problem into the future, the problem when it comes back then could very well be compounded again to a greater extent. I am sort of wondering whether or not this is permitted under the Act?

MS. MORASH: That was a question that we had as well. It was not clear to us. Certainly the department's opinion was that it was permitted under the Act, but we did not seek a legal opinion on it. So, I cannot tell you legally, but we certainly raised questions and believed that if this was the intent of the Act then perhaps it should be clarified.

MR. LEBLANC: So, I am just trying to understand what you just told me. You are saying, you shared the concern but you did not formulate an opinion on it? Is that right?

MS. MORASH: That is right. We highlighted it as a potential concern, but we did not have a legal opinion as to whether in fact it was permissible under the Act. We did not see any reference to it. The department believes that it is permissible under the Act, and there was a process established to cover these deficits. Over three to five years, the amounts were repayable.

MR. LEBLANC: Perhaps you could just clarify for me. When the Auditor General comes across, this is an example in the Department of Education but you are going to come across this on numerous occasions, it does not matter which department you are in that you are going to have a disagreement with the upper echelons of departments because they sometimes see themselves as the wise man on the mountain and they say, well, the Act says this and I interpret it to be this way and clearly if you are asking the question, you very well have a different interpretation of that. Just so that the members of the committee can understand. Who resolves this? You say it takes a legal opinion. Is a legal opinion requested?

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MR. SALMON: I do not believe it is a question of a legal opinion because I am sure that the Department of Education could go out and get a legal opinion to support their position, and I can go out and get a legal opinion to support my position. This is the place where it gets resolved and that is why I report it to this House. This is the court of highest authority, this Legislature. My responsibility is to bring these issues to you 52 members of this House, through this committee.

MR. LEBLANC: Well, I guess I do not argue that you report them, especially if you find that it does not clearly support the Act or the regulations as it is written. Of course, for ourselves as Opposition members, our only opportunity is to bring criticism upon the government. At the same time we try to assume that the government is following its own laws. I guess in this one here I am trying to be specific in the sense of saying if in your opinion the Act is not being followed - and obviously you have some reservations because you brought it up here - it comes in as to whether or not the deputy minister or the minister can make their own determination as to if that complies with the Act. Obviously, there is some grey area in this regard and I am bringing it up along those lines.

MR. SALMON: And in terms of structuring laws through legislation that do not leave grey areas, those issues have to be addressed in this House of Assembly.

MR. LEBLANC: Mr. Chairman, thank you.

MR. DEXTER: I was a little taken aback by the idea that legal opinions are just for sale, whatever one you want. (Laughter)

MR. SALMON: Some argue that other opinions are too, but anyway.

MR. DEXTER: Nonetheless, in the individual Acts, are there not compliance mechanisms of one sort or another to . . .

MR. SALMON: I am sorry?

MR. DEXTER: When you talk about non-compliance with the individual legislation, are there no compliance mechanisms within those Acts that would allow you - in this case the Department of Education - to force them to comply with a standard?

MR. SALMON: Clearly there are situations where incidents of non-compliance are very obvious and we certainly report those.

MR. DEXTER: When you say report them, do you mean report them in the course of your report?

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MR. SALMON: Yes. I have no authority to enforce compliance. All I can do is report on non-compliance, that is my responsibility.

MR. MACKINNON: Mr. Salmon or Ms. Morash, you indicated less dollars going into the classroom did not necessarily mean a reduction in the quality of education or the delivery of such. Where did that money go?

MR. SALMON: Where did the money go?

MR. MACKINNON: Yes. You say less money is going per student into the classroom. Did you track that $200 per student or whatever figure you want to put on it?

MS. MORASH: I think if you look on Page 107, there were less dollars going into the system. It is not, as I view it, a question of administration versus classroom, it is fewer dollars going into education. I refer you to the graph on the top of Page 107 which shows school board revenues broken down by Provincial Grants, Municipal Grants, the Education Tax and Supplementary Funding. That shows the dollars that are going into the system and there has been some decline in the dollars going into the system during the time period.

MR. MACKINNON: What do you mean, into the system?

MS. MORASH: Into education in this province.

MR. MACKINNON: You are saying the overall Education budget has declined since 1993?

MS. MORASH: That is correct.

MR. MACKINNON: The total number of dollars?

MR. SALMON: Yes.

MS. MORASH: The dollars that are going to the school boards. That is total school board revenues.

MR. SALMON: The amounts of money that school boards receive to fund education.

MR. MACKINNON: Okay, but not necessarily into the Department of Education?

MR. SALMON: No, out of the Department of Education and out of other sources.

MR. MACKINNON: But the total budget has not necessarily been reduced, just to the school boards?

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MS. MORASH: That is correct.

MR. MACKINNON: And as a result there has been no measure of a reduction on the quality of education? There is no indication that the quality of education has been reduced?

MS. MORASH: The department does a lot of work in measuring quality of education. The results of that work are not reflected in our report but certainly they have processes in place to measure the quality of education. They test children at various stages and they report on the results of those tests, et cetera, so that would be a question that is better asked of the department if there is a question with respect to quality of education.

MR. MACKINNON: So aside from just being so clinical, dollar-wise, there could be the suggestion that the quality of education has actually increased?

MS. MORASH: That is a question you would have to ask the Department of Education. There are no comments in here with respect to quality of education.

MR. LEEFE: I would suggest my colleague ask school teachers. I think he might get a more direct answer with respect to that question he has raised. I am looking at Page 102, now that we are on to Performance Measurement, and in fact there is a reference to Performance Measurement made here in Paragraph 9.20. "Education Indicators for Atlantic Canada was published by the Atlantic Provinces Education Foundation . . .", and this references ". . . outcome measures.". What is the Atlantic Provinces Education Foundation? Of what persons is it composed? How is its membership composed?

MS. MORASH: Technically, I guess it is an offshoot, if that is the right word, of the Council of Maritime Premiers. Its membership is the Atlantic Provinces. In terms of individuals, I do not know off the top of my head which specific individuals, but it is a group that comes under the auspices of the Council of Maritime Premiers.

MR. LEEFE: With respect to measuring educational outcomes, would this organization have the same degree of independence with respect to review as, say for example, the Office of the Auditor General with respect to reviewing the province's finances?

MS. MORASH: The information that was published in Education Indicators for Atlantic Canada, was basically compiled by the school boards as part of their reporting procedures to the Department of Education. There are checks and balances at the Department of Education level on that information that comes forward from the school boards. The Department of Education has a staff of people that go to the school boards and audit this; they have a grants and an audit group; there are regional education officers that used to be called school inspectors under the old system; and certainly there are checks and balances on the provision of that information.

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That Education Indicators for Atlantic Canada, in our opinion, is a very good document. There was a lot of work done on defining the appropriate performance indicators and outcome measures for education. So it was the fact that the indicators themselves had been well defined as part of that process that we found really positive. The provision of information from the schools and the school boards and through the regular testing channels, et cetera, I would not anticipate that there would be a concern with respect to whether it was reviewed by an independent party, because there are checks and balances at the Department of Education on the provision of that information.

MR. LEEFE: Thank you.

MR. CHAIRMAN: Did you have another point?

MR. LEEFE: No.

MR. CHAIRMAN: In that case, before we leave the topic of education, I just had a couple of questions myself. One is, given the comments that were made earlier about the projected expenses and possible savings that are associated with amalgamation, is this a topic that we could reasonably expect you might return to in your next annual report by way of follow-up? Is that normally how your office would operate?

MR. SALMON: We do normal follow-up. I do not know that we would return to the topic of amalgamation. We certainly would return to the topic of the extent to which government and school boards report on how they spend funds they have and how they report on the quality of education.

The whole issue of performance measurement of government programs is an ongoing issue for us. Returning to Mr. Leefe's comments about this document called Education Indicators for Atlantic Canada, if you go down three paragraphs, we refer to the issue of reporting on performance of all programs, including education, in the documents called Government By Design and the planned document called Nova Scotia Counts that we understood was going to be released in the spring and still has not been released.

It leads to the question of that kind of government reporting on performance of programs generally and whether or not that information that is reported should be deemed more credible if it was audited and that is where the audit profession is going and where governments are going in terms of reporting on performance and having those reports going beyond financial information, going to performance information, having it audited and having an audit opinion as to whether or not it is believable.

MR. CHAIRMAN: The second education question I had relates to the special report that is being undertaken by your office with respect to the P3 schools. I wonder if you are now in a position to indicate when you think that report might be ready.

[Page 17]

MR. SALMON: We are speaking specifically of the issue of a report on the O'Connell Drive school?

MR. CHAIRMAN: The O'Connell Drive school.

MR. SALMON: We really are in the hands of the government. We are at the stage of having identified one or two outstanding issues that we have asked questions about and are awaiting responses. We have produced a draft report which is now in the hands of the Department of Education for comment. My best estimate is that we are probably about two weeks away from giving this House a final report.

MR. CHAIRMAN: Thank you. I would ask if you would like to move on, now, to your next topic.

MR. SALMON: All right.

MR. FRASER: I have one other question. It is just a follow-up on the question that I had before on pay equity and stuff like that. Mr. Salmon, you indicated that your audit was to inform us whether there was value for money, I guess, value to the taxpayers for money. I don't want to put words in your mouth and you can correct me if I didn't interpret it correctly, in the pay equity that happened because of amalgamation, I guess you felt that perhaps that wasn't good value for taxpayers' money because it wasn't anticipated or it happened because of the amalgamation or did I misread that?

MR. SALMON: I wouldn't want to conclude that, no. All I am suggesting is that individual school boards had been able to negotiate collective agreements with their teachers on one basis and as a result of amalgamation, pay equity became an issue. Is that value for money? I really can't conclude on that. Do you get better education because you pay teachers more because you have to pay them more because of amalgamation? It becomes a string of issues, doesn't it.

MR. FRASER: I guess every time, say a bus driver gets an increase in pay, he is driving the same bus, the same route the next day. An increase in pay, is that less value for the taxpayer for the work or should they go out and find somebody who would have worked for lesser pay. We don't want to infer that, I presume.

MR. SALMON: You can't infer that at all, no.

MR. FRASER: Okay.

MR. DEXTER: I feel obligated to take this up because my colleague here keeps referring to the whole aspect of pay equity. There is no suggestion here that there have been any kind of pay equity initiatives as a result of amalgamation. It is wage parity between

[Page 18]

bargaining units. So it has nothing to do with pay equity, at least as we traditionally think of those issues.

MR. SALMON: I may have been misleading you here because the wage parity issue does not apply to teachers. It is the non-teaching staff.

MR. DEXTER: I guess my point is, in fact you said at one point in time, pay equity became an issue and my colleague kept referring to questions of pay equity but as we traditionally understand, the concept of pay equity deals with work of equal value. That was never something that was affected by amalgamation. It was wage parity among bargaining units that affected the cost structure.

MR. SALMON: As I understand it. Is that correct?

MS. MORASH: Absolutely.

MR. DEXTER: I just wanted to be clear on that.

MR. CHAIRMAN: Yes, and of course if people see themselves as underpaid, they are not very happy doing their jobs. Perhaps we can move on to the next topic.

MR. SALMON: Next topic. Corporate financial management system. I should start off by saying that this is a very complex computerized system that was developed for the government based on new technology. When the project was launched, it was scheduled to be implemented on April 1, 1997. As it progressed, the decision was made that it would be implemented on that date. At the time, we had concerns about control deficiencies within the system and those deficiencies arose primarily because we felt that it was being implemented with haste. The Department of Finance shared those concerns and the audit work that we did indicated and supported the fact that there were concerns.

As a result of our audit work and the concerns that existed in the minds of the Department of Finance officials who were moving to implement the system, it was decided that we would jointly - the Department of Finance and my office - contract for a special audit by a private sector firm with the expertise to do an in-depth analysis. That audit was to be completed by March 31st. The work was completed by that date. They have produced a draft report. It has not yet been finalized. We understand it will be within the next month or so and the plan is then to take appropriate action to rectify the control deficiencies but essentially we have a system here that is government-wide, an online computerized system that is intended to achieve efficiency in the processing of financial transactions as well as produce much better information for managers within the system to control their expenditures and their revenues and make more appropriate decisions, better decisions, as a result of the information they have.

[Page 19]

So that is ongoing. I don't think that I can add anything more to comments on that. Claude, is there anything more?

MR. CLAUDE CARTER: The only thing I would add is that many of the concerns that we had identified and some additional ones that were identified during the audit process that was jointly sponsored by our office and the Department of Finance, using external resources, people responsible for the new system have been working on rectifying those. So it is not like the world stopped and is waiting for the results of the final audit report. They are, in fact, working at those.

When the system was implemented on April 1, 1997, it was the combination of a fairly extensive systems project. In fact, depending on how you measure it, it may be one of the largest, if not the largest, computerized business systems implementation project that the province has ever undertaken. They faced a number of challenges leading up to April 1, 1997 and subsequently. Then shortly after April 1997, some key people who had been involved in the project left the employment of the province and left the project team and those responsible for continuing the implementation and dealing with the outstanding matters in a much more difficult, challenging situation. It took a significant amount of time to fill those vacancies because you are talking about people with specialized skills that had been developed during the project and the market for those skills is very competitive.

[9:00 a.m.]

They have now, as I understand, positions filled and they have people working and continuing to work on the project. As Mr. Salmon indicated in the report, most of the work was finished by the end of March. The report was in draft, we reviewed it, we had some comments about the contents and presentation, and we have asked the external firm to revise the draft to present the results of their work in a clearer way. That has sort of been on hold as most of us have gotten very busy with year-end work with respect to March 31, 1998, both at the Office of the Auditor General and the people at the Department of Finance. My understanding is, we will be getting a revised draft sometime in early July.

MR. CHAIRMAN: Mr. LeBlanc.

MR. LEBLANC: I wasn't aware of this new program that was brought in. From start of the design to the implementation, how long a process was that?

MR. CARTER: Just to make sure that I get the dates rights. I think that in terms of the identification of the need for a new financial accounting management information system was identified some years ago, the actual decision to go forward with it and actively seek proposals was in early 1995 or late 1994, I might be a bit, a year out there. The detailed RFP process went forward in early 1996. The selection of the vendor and the package, and it is a packaged software, so it is not like it was developed right from scratch, and it is a package

[Page 20]

that is an internationally used financial information and accounting system. The contract was awarded in March 1996, and the work essentially started shortly thereafter, and continued through 1996 and into 1997.

MR. LEBLANC: So am I to understand this was tendered to the private sector, is that right?

MR. CARTER: Yes, it was tendered, RFP'd and so forth.

MR. LEBLANC: So the difficulties that accrued from delays weren't due to in-house problems, they were due to external factors. In other words, it wasn't the staff of the province that turned over, it was the staff of the private company?

MR. CARTER: That caused the problems?

MR. LEBLANC: Yes.

MR. CARTER: No, I wouldn't suggest that. I would suggest that they decided to implement this very extensive new system in one year, which was referred to by some people as the big bang approach to implementation. And again, the reasons for making that decision related as much to the need for a new information system in this regard, as well as these types of projects frankly can drag on for years and years, and the decision was made, look we are going to get this package, we are going to implement it, essentially with limited modifications, and do it in a year. And that was the way the project went forward, and the project was on schedule leading up to the end of 1996. Our understanding is, early in 1997 issues began to arise about, are we really going to be able to make the April 1, 1997 deadline. The decision was made that yes we can make the deadline, there are some matters that are going to have be dealt with after April 1, 1997, but yes we can implement it successfully, convert the data files, get the system functioning and then deal with any outstanding matters after that.

Where the concern arose, from our point of view, is that some of the things that had to be dealt with after the implementation, so that the level of control was at a level that would be appropriate, dragged on because there weren't the resources within the project team to deal with them. There were some security considerations, there were some training considerations, and so forth. So those were left unattended, from our perspective, from April 1, 1997 through until later in 1997 and led us to the point where we felt there was a need to do a much more detailed and specialized audit on that project, on that new system so that government and this Legislature can have the assurance that the core financial system in government has the level of integrity that it should have.

MR. LEBLANC: So basically your concerns were that the internal controls on the system could have been in jeopardy because of these factors not being put in place?

[Page 21]

MR. CARTER: Yes, we did have that concern and the Department of Finance shared that. This system is more than just a financial accounting system. It is supposed to be the foundation, if you like, for business process re-engineering across government as it relates to financial administration and information. From our point of view, the real challenge or key issue is that the province has invested more than $4 million in this new system and ensuring that the government and the taxpayers get the maximum benefits from it requires that these control issues and the realization of the benefits be managed in a very proactive, aggressive manner.

MR. LEBLANC: Also one thing I learned from being in the lock-up for three hours and coming out and trying to compare the quarterly statements of the province to the ones that come out on Budget Day, I hope that you could suggest to the government that we have consistent, consolidated statements so that I am not there with a calculator trying to add them all up to see whether they compare. So if this system can do that so I do not pull my hair out on Budget Day in the future, I will support this new system any time.

MR. CHAIRMAN: At some convenient point but no later than 9:30 a.m. I am going to interrupt this portion of the meeting so we can move to our procedural questions. But I would now ask Mr. Salmon to move to the next topic.

MR. SALMON: The next topic is the Queen Elizabeth II Health Sciences Centre. I want to make it very clear here that we did not do an audit of the hospital. It is my responsibility under the Auditor General Act to review financial statements of various entities within the sphere of government activities, primarily those who receive funding from the government and to review the management letters that are issued by the auditors of those entities.

It has been our standard practice over the years to include in the annual report a chapter which summarizes the results of those reviews and highlights any issue that we feel we should make the Legislature aware of. In this particular case, when we reviewed the financial statements and the management letter issued with regard to the Queen Elizabeth II Hospital, we felt the issues were so significant that we should summarize those in a separate chapter of the report. What concerned us was the commentary provided by the auditors of the hospital in their management letter.

Their management letter indicated that the hospital had incurred a $12.5 million operating loss for the year ended March 31, 1997. At that date there was an accumulated operating deficiency of $21.9 million, that management had anticipated for the year that has just ended, March 31, 1998, an additional operating loss of $11.9 million was anticipated. It indicated that the hospital had undertaken a re-engineering initiative that it was planned would generate total savings of $38 million by the year 1999-2000, but the auditors also expressed concern that should those savings levels not be obtained and that if deficits continued to

[Page 22]

escalate, the provincial government would likely have to step in and underwrite those deficits. Otherwise the hospital would not be able to meet its financial obligations.

As well, the auditors expressed concern that a number of amounts had been recorded as assets, that is accounts receivable, on the hospital's financial statements. These were accounts that were receivable from both the Department of Health and the Workers' Compensation Board, and that there were disputes between those entities as to whether or not these amounts were actually payable by those organizations to the hospital and, therefore, that if these amounts were not collected by the hospital from those entities, the amount of the deficit would be substantially increased. So I felt that it was important to bring this to the attention of this Legislature and, therefore, reported it.

As well, because of the concerns about the materiality of these amounts, I indicated that I would undertake an audit of the hospital. That has commenced with some preliminary work and we plan to continue that activity, to conduct additional work in the fall, after I get some other things done, and provide a report to the Legislature in my next annual report with regard to the activities within the hospital. I am quite willing to answer questions on that topic as well.

MR. CHAIRMAN: Does anyone have any questions for the Auditor General with respect to the QE II? Mr. Leefe.

MR. LEEFE: Mr. Chairman, this is a very distressing report. I wonder if the Auditor General has any comfort that, in fact, the $60 million accumulated deficit is not going to be realized?

MR. SALMON: At this point in time I do not have enough information to know whether the plan that the hospital has put in place to generate savings will recoup the accumulated deficits. I cannot comment as to whether or not that plan can be carried out, and that is why we are doing the audit.

MR. LEEFE: It is rather interesting, just for comparison sake - comparisons by their very nature are odious - to compare that $60 million potential deficit with the net expenditures of government departments. It is significantly greater than the expenditures of most departments of government, that $60 million?

MR. SALMON: The budget of the Queen Elizabeth II hospital, the amounts transferred from the provincial government to that hospital represent about 30 per cent of the total budget of the Department of Health.

MR. LEEFE: Significant dollars. I note on Page 170, the reference to renovation projects at the new Halifax Infirmary and the Victoria General sites being 50 per cent over budget, and this is the centre's auditors speaking, " . . . future capital projects be carefully

[Page 23]

planned and budgeted by staff who are technically skilled and knowledgeable about the project.". By implication, that suggests very strongly that those who were in charge did not know what they were doing. Is that fair?

MR. SALMON: I read it the same way, Mr. Leefe, yes.

MR. LEEFE: How could that possibly be?

MR. SALMON: I cannot answer that question and that is another issue we want to address in our audit.

MR. LEEFE: It is a damning statement. There is also reference here to, I am looking on Page 169 now, the third bullet down below Paragraph 15.3. "The Department of Health does not allow employees to benefit from both programs.", that is the Early Retirement Incentive Program and the Compensation Assistance Program/Labour Adjustment Strategy. "To date, $335,000 of the related receivable from the Department of Health has been written off due partially to overpayments.". In other words, there were people who were paid out of both funds?

MR. SALMON: That is our understanding. Elaine, can you comment on that?

MS. MORASH: Yes.

MR. LEEFE: Were any of those persons who were paid out of both funds, contrary to the department's policies, required to repay the overpayment or were they simply written off?

MS. MORASH: The information is on Page 172. Everything that we have we got from the hospital's external auditors and it is all there. I would have to reread it to see what they said.

MR. LEEFE: Perhaps you can help me because I am coming to a point here, so if you can identify that for me. The receivable . . .

MS. MORASH: Written off, "To date, $335,000 of the receivable has been written off due to overpayments and unrefundable miscellaneous costs.".

MR. LEEFE: The only way one can interpret that then is that no repayments were required. It was simply written off as a mistake by government?

MR. SALMON: The hospital had recorded these payments that they had made to employees as a receivable from the Department of Health. The Department of Health refused to pay those amounts and, therefore, the hospital had to incur the costs.

[Page 24]

MR. LEEFE: The hospital ate it?

MR. SALMON: Yes, but they had made the decision to pay the employees.

MR. LEEFE: But the employees were not required to pay anything back?

MR. SALMON: No.

MR. LEEFE: I am going to jump a little bit to another department because this really concerns me. I want to ask the Auditor General if, in his view, this inconsistency is excusable. I have on a continuing basis, constituents come to me who have been in receipt of social assistance, and who through no fault of their own have received payments for which retroactively it is determined they were not responsible and yet every one of those people, who is living well below the poverty line, is required to pay that money back. I think that is a gross inconsistency. I think it is unjust and unfair and I wonder if the Auditor General has a view with respect to that kind of inconsistency with the way government deals with those to whom it has a responsibility, whether they are employees or persons who are in receipt of social assistance?

MR. SALMON: Mr. Leefe, in this case it is not government that is taking the action. Hospital management determined that it was appropriate to pay these employees under two programs. Hospital management made the decision to pay them. Hospital management then attempted to recover the money from government. Government refused to pay to the hospital. Therefore, the hospital is bearing the cost. The employees received benefits that the hospital management deemed were appropriate.

MR. LEEFE: Who, Mr. Chairman, owns the hospital?

MR. SALMON: That is a very good question.

MR. LEEFE: Can you provide an answer?

MR. SALMON: No. It is a hospital that has a board of directors appointed to run it. It is funded by the province.

MR LEEFE: The directors appointed by?

MR. SALMON: Elaine, can you help me there?

MS. MORASH: Some are appointed by the province. Some are not. So there is a mixture there. The buildings, I believe, are still owned by the province.

[Page 25]

MR. CHAIRMAN: As I remember the QE II Act, the chairman of the board is appointed by the provincial government as is the majority of the members of the board.

MR. LEEFE: So in the view of the public, generally one would think the government owns the hospital?

MR. SALMON: That is probably a correct perception, yes. We have this continuing issue of what is the reporting entity for the government. We refer to it every year in our annual report in terms of what should be included in the financial statements of the province on a consolidated basis. How big is that entity? Is it all of the hospitals, the whole health sector? Is it all of the schools? How do you treat the universities, are they in or out? It is a great big black box that needs to be addressed.

MR. LEEFE: Whether the accumulated deficit is $45 million or $60 million or $5 million or however million, whatever the deficit is, if that deficit is left on the books of the QE II, that deficit does not show up as a deficit on the government's books, does it?

MR. SALMON: No, it does not.

MR. LEEFE: In your view, should it?

MR. SALMON: That is an issue that needs a lot more research before I could give you a definitive answer. It is debated on a regular basis among accountants and auditors as to what is the reporting entity of a government. It extends to the issue of the Workers' Compensation Board, which my friend, the minister over there, has to wrestle with and that's debated across this country. There is no easy answer to your question, Mr. Leefe.

MR. LEEFE: So by the government refusing to cover the overpayment, government very neatly ensured that that cost, that deficit, would accrue to the QE II and not to the Department of Health?

MR. SALMON: Under present accounting policies, yes, that is correct.

MR. LEEFE: So from time to time it may be easy for government to make that kind of decision and avoid incurring costs to itself on the books by ensuring that those costs are on the books of other agencies such as the QE II, perhaps school boards or perhaps regional health boards?

MR. SALMON: That is correct at the present time. I would point out that we have progressed over the years in government accounting to bring more and more of these entities into the reporting entity. Progress is being made from that point of view but issues remain as to which entities are in and which entities are not in.

[Page 26]

MR. LEEFE: Mr. Chairman, just this one last observation and the Auditor General's staff may wish to comment on this, and this was brought up with the Minister of Education yesterday during consideration of his estimates. Up until a couple of years ago we knew how much money was being budgeted for every campus of the Nova Scotia Community College, per campus. We now have blanks beside every campus and we just have a global amount. When the minister was asked to provide the breakdown of funding, his response was, well, I am not sure I can do that because there are some receivables in there and it may not be possible. It strikes me, at least with respect to community colleges, that we are getting less information now than we used to get and it is very difficult to deal with that budget without more specific knowledge. So I don't think things are necessarily getting better.

MR. SALMON: I really can't comment on that specific point, Mr. Leefe. I don't have knowledge . . .

MR. LEEFE: Which, I guess, kind of leads me to, it appears now that the community colleges are being treated as a kind of an at-arm's-length entity, as with the regional health boards, as with the school boards, as with the QE II.

MS. MORASH: The community college was created as a separate entity from the government. I can't remember exactly the date but there was an Act of the Legislature that created them as a separate body. There is a process where the board's membership will be appointed by other than the province eventually, but my understanding is that at the current time, the members of the board are still appointed by the province. So it has a closer tie to the province now than it will in the fullness of time. But it is a separate entity, and when the decision is made to create a board and give it authority, there is an accountability question as to how that relates back to the province.

MR. LEEFE: So prior to that distinction being created through legislation, if there was a deficit for the community college system, or what we now know as the community college system, that deficit accrued to the province?

MS. MORASH: It was a part of the Department of Education, previous to it being cut loose, the community colleges - and there were many - were a part of the Department of Education. It is now one entity and it is separate.

MR. LEEFE: But today, if the community colleges have a deficit, that does not show up on the Department of Education's books?

MS. MORASH: I have no idea whether they have a deficit or not, but that is . . .

MR. LEEFE: But if it did?

MS. MORASH: That is probably accurate, that is right.

[Page 27]

MR. CHAIRMAN: Mr. Leefe, I am going to have to interrupt. We have only four more minutes before we have to move on to our next topic, and I have a request from Mr. MacKinnon and Mr. LeBlanc, so I hope they can ask some quick questions.

MR. MACKINNON: I will try to be quick, Mr. Chairman. I suppose a supplemental to what my honourable colleague from Queens has suggested, I don't think any reasoned individual would refute the argument that if somebody has been paid twice for service, whereas the suggestion as he has related to the worker's compensation individuals have been treated differently, I think any reasoned individual would support his contention on that point. But also too, I think my honourable colleague would certainly agree, from his own experience, I think, and years of experience would show, that when governments provided autonomy to certain boards and commissions, certain considerations were given this, as Ms. Morash has suggested. You know, they had certain obligations and the issue of due diligence, and as he suggested, they were very keenly aware of every dollar that came in and went out.

I think it would be easy to suggest that he was more keenly aware that more dollars went out than came in under a previous administration, and the records will show that is probably why we are paying $833 million a year in interest payments.

MR. CHAIRMAN: Over to Mr. LeBlanc, two minutes.

MR. LEBLANC: I don't have any red herrings today, I only have a few mackerel. I was going to ask a question. You were talking about the uncollectibles for the QE II and in that regard, you didn't mention a monetary amount. If you did, I missed it in your dialogue. Could you be a little more specific about what kinds of dollars we are talking about for uncollectible items for the QE II?

MS. MORASH: Talking only about the severance payments, the amount is quite small; but if you are talking in total, there are a number of different amounts in here and they relate to different transactions. Many of them have to do with the environmental illness problem and who is going to end up paying for that. So there are different amounts in here. I believe at one point, we added them up and it was $12 million or $13 million, but certainly there are different amounts that are identified for different things. I am looking on Page 172, and I see $2.3 million in environmental claims; I see $3.28 million related to the move to the Halifax Infirmary; severance payments to former employees of $5.4 million. So there are different amounts that are quoted here.

MR. LEBLANC: So we are talking another $12 million to $13 million over and above the accumulated deficit of $46 million. I think if I added the three together, you are talking $12.8 million, $21.9 million and $11.9 million, which is roughly about $47 million, plus another $12 million to $13 million of contentious issues that it doesn't matter who is going to pay for it, eventually it will be the taxpayers. The QE II is not exactly a money-making business, it isn't a casino; it doesn't have any sources of revenue other than, basically,

[Page 28]

government. Eventually the taxpayers of Nova Scotia, whether it is increased payments in the future or whether it is write-off of this amount by the province of the debt, it is going to be eventually paying it. So we have a $60 million accumulated deficit at the end of March 31, 1998 in the QE II? Eventually it is the province who is going to have to pay it.

[9:30 a.m.]

MS. MORASH: The $60 million figure is the one that has been widely quoted as the figure coming from the QE II's business plan that accumulates all of the projected deficits. So that figure is quoted by the external auditors in their letter. They talk about potential borrowings of $60 million to finance accumulated deficits and that has been widely circulated as the total of the business plan problem at the QE II.

MR. CHAIRMAN: Okay, it is 9:30 a.m. and we are going to have to interrupt this part of the agenda.

MR. LEBLANC: I was just in full flight.

MR. CHAIRMAN: We can return to talking with the Auditor General.

MR. LEEFE: Mr. Chairman, I really must object. It is the committee's decision whether we move to another agenda item. Mr. LeBlanc is not yet finished. If the committee wishes to proceed I think it up to the committee to make that decision.

MR. CHAIRMAN: I do not disagree with you at all. I announced earlier my intentions but if anyone wants to challenge this, go ahead. Is there a motion to stay with this?

MR. LEBLANC: I am not really going to take a whole lot longer but I have a few questions. You have a half-hour of the committee's time, that is the only thing about it. I just wanted to go into one component but it is up to the committee. I would like to ask a few more questions.

MR. CHAIRMAN: Okay. The problem is next Wednesday is Canada Day, it is a national holiday, we are presumably not going to be meeting that day. We have to set our agenda, we have some complicated matters that we have to get through in terms of our planning for how we wish to proceed. On the other hand, the Auditor General is going to be available to us on future occasions and we can certainly pursue the issues that you raise. I do not mean that this will be the last opportunity to deal with these questions.

MR. LEBLANC: Okay, fine.

[Page 29]

MR. CHAIRMAN: We will now move into this problem of the agenda. I would ask that there be distribution of some materials for everyone to look at. Mr. MacKinnon, I will get to your point in just a moment. There are three items that are being distributed now to members of the committee. One is a legal opinion provided to us by Mr. Hebb, of the Legislative Counsel, who is legal advisor to this committee who is canvassing a number of points with respect to procedural matters. The second is a draft of a motion that I understand Mr. Dexter proposes to bring forward. The third is a copy of a letter that has been received from Mr. MacIntosh who is legal counsel for Mr. Fiske.

I would ask the committee members to just take a minute or so to look at both the legal advice from the Legislative Counsel and the draft resolution and the letter. Then we can move to a discussion of how we wish to proceed.

Mr. MacKinnon.

MR. MACKINNON: Mr. Chairman, in being able to sort in my mind the list of witnesses here and so on, is it possible I could ask Mr. Salmon one question with regard to the Gaming Corporation?

MR. CHAIRMAN: Sure.

MR. MACKINNON: Have you ever conducted an audit on the Nova Scotia Gaming Corporation? If you did, what were the findings?

MR. SALMON: I have performed an annual audit of the financial statements of the Gaming Corporation and provided an opinion as to whether those financial statements presented fairly the results of operations of the Gaming Corporation, which includes the financial operations of both the casino and Atlantic Lottery Corporation. I have not performed a value-for-money audit or management audit of the Gaming Corporation.

MR. MACKINNON: Is that report available?

MR. SALMON: The report on the financial statements?

MR. MACKINNON: No, your audit.

MR. SALMON: My opinion on the financial statements is published in the Annual Report of the Gaming Corporation.

MR. MACKINNON: Could you give us some indication?

MR. SALMON: It is in Volume 2 of the Public Accounts.

[Page 30]

MR. MACKINNON: Could you give us a thumbnail sketch of it so I can sort in my mind, in terms of priority, the different witnesses here?

MR. SALMON: My opinion has been that the financial statements present fairly the results of the financial operations of the Gaming Corporation. My opinion has been qualified with regard to one accounting issue related to the way they account for payments made to the Sheraton.

MR. MACKINNON: But that would be a housekeeping measure.

MR. SALMON: It is a couple of million dollars difference, out of $100 million total income, something like that. But my audit does not relate to the issues that were discussed last week.

MR. LEEFE: I wonder if the Auditor General could inform the committee if his office is competent - and he knows the sense in which I mean that - to undertake a value-for-money audit of the Gaming Corporation with respect to its relationship with ITT Sheraton?

MR. SALMON: I certainly believe we are, and we intend to.

MR. LEEFE: Good, and do you intend to do so soon?

MR. SALMON: Not this year, we have too much else on our plate this year. But probably next year, yes. And again, Mr. Leefe, as you know, we attempt to do our audits on a retrospective basis, rather than on the basis of auditing what is planned.

MR. LEEFE: Absolutely.

MR. CHAIRMAN: I invite Mr. Dexter to speak to his proposed motion.

MR. DEXTER: It is my intention to put this by way of a motion, and I am going to read through it, it has seven points, and then open it for discussion.

I move that the committee:

(i) Do adopt as its present order of business, the further investigation of the matters raised through the evidence given at the committee by Mr. Ralph Fiske on the operations and governance of the Nova Scotia Gaming Corporation;

(ii) Set a schedule of hearings to be at the call of the Chair after consultation with committee members, and in consideration of the availability of witnesses;

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(iii) Call as witnesses as many of the persons named on the attached list as appear likely to be able to assist the committee in its business;

(iv) Request of the Nova Scotia Gaming Corporation, the Office of the Premier, and any other involved office, that all written records such as papers, documents, letters, receipts, expenses, accounts and minutes of meetings be made available to the committee forthwith so that the members can prepare to meet with witnesses;

(v) Request of the Speaker, upon any necessary motion of the House, that any necessary subpoenas be issued in order to secure attendance of witnesses, along with all relevant written records;

(vi) Request of the relevant clients, a waiver of solicitor-client privilege in instances where a witness might otherwise be so bound; and

(vii) Request of the House, authorization for the committee to continue its operations even should the House be prorogued.

The witness list contains 12 names, and I will read them: John Merrick, Sheila Butler, Kim Bustin, David Thompson, Bob MacKay, Robbie MacKeigan, Dara Gordon, John Savage, Bernie Boudreau, Bill Gillis, Russell MacLellan and Ralph Fiske. (Interruption)

MR. CHAIRMAN: There has been a question as to who Kim Bustin is. Kim Bustin is a CA who was formerly in the employ of the Gaming Corporation. Thank you.

Members who will have read the letter of advice from the Legislative Counsel will see suggestions made to us that the question of solicitor-client privilege, for example, may not be relevant strictly, and in any event, members will also know from comments made in the proceedings of the House that there have been offers of waiver of solicitor-client privilege. They will also see some advice from the Legislative Counsel's Office as to the actual procedure for the issuance of subpoenas and observations with respect to procedures and powers that may already be in place with respect to the prorogation of the House.

In any event, it seems as if the motion is in order and sets a proposed course of action. We are open for suggestions or debate. Any comments from any members of the committee?

Mr. Fraser.

MR. FRASER: Is this going to be all we are going to be doing for the next period of time, until this is satisfied? Are we limiting ourselves to this? We can't discuss anything else if we adopt this, until this is cleared off the board? I guess that is my first question. The second, at the call of the chair, can we put a maximum amount, or do we have to - for us who

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are living away from here - come in every day for the next six months, or whatever. Can we put some limits or something on it, or maximums, or whatever?

MR. CHAIRMAN: Very fair points. I didn't read the motion as indicating that we wouldn't be dealing with anything else. As I read it the problem of availability of witnesses is going to be a real inhibition, I think, in terms of scheduling given that we are at the very end of June and about to start summer vacation time. So, there is no telling what the result is going to be of approaching witnesses, and of course, it is fully my intention, I should say of course, to consult, and as I think the motion says, to consult with committee members as to their availability. So that is likely to be a problem, or a possible problem as well.

As for the suggestion of six months, it is my hope that we won't be spending six months dealing with this topic. It was my hope that we might be able to organize ourselves to deal with this topic fairly soon, and in a concentrated period of time. My hope was that we might be able to find a one-week stretch in which we might, if necessary, meet every day or every second day in order to go through what was necessary. I would be happy to hear any different suggestions from members of the committee.

MR. LEBLANC: Mr. Chairman, I am just trying to digest the information that is here, and also with Gordon Hebb's interpretation that is here. I am rather surprised that it comes in, because this is basically a full-scale inquiry into everything, and basically all the other work of the committee is put aside, it is for the call of the chair, and I look at it in a sense more that it will be the Howard Epstein committee rather than the Public Accounts Committee.

The Premier indicated yesterday, I am not here to defend the government in any shape, manner or form, but I look at yesterday that he said that if the solicitors want to be put forward, he would be more than willing. I look at this type of motion when the government has stonewalled witnesses and so forth.

I tend to think that we should be proceeding under the same procedures that we did before. We had witnesses, we want those witnesses to be called. We put some suggestions on the floor, let's bring them forward. If it comes that the government starts to stonewall the witnesses or doesn't comply with it, then we as the Public Accounts Committee sit down and review this process then. I guess in a sense, this is the type of motion that I would see when nothing else is moving forward.

Other members can share their opinions, but this has only happened, I think the witness, was it last week, that he came forward, to me this is what you would perhaps do down the road, if in a sense, we cannot get any answers to the questions, we aren't doing that well in Question Period, but that isn't unusual but I think that as a committee, we should specifically request the witnesses to bring forward, and if that is the solicitors of the province, then do them one at a time, and go in that manner.

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I look at this, and I just really, I guess I am not that comfortable with it. I think we are going to do the work in any case. I guess in a sense I am questioning as to why we are going to proceed in this manner, before we start the process at all.

MR. CHAIRMAN: May I remind the member of two things, one is traditionally I am informed the committee does meet at the call of the chair, this isn't unusual. The other is that, of course, the minister responsible for the Gaming Corporation publicly invited the committee to continue to investigate this matter, and to call before it all of the other people, the people involved, and who had been named by Mr. Fiske. As I understood it, this is being responsive both to the clear implications of what it is that Mr. Fiske said, and to the invitation of the minister responsible.

MR. DEXTER: I just wanted to point out, I guess, as well, that in part this deals with things that may be necessary, for example, there has been no agreement to provide the written documentation, which is the foundation for much of examination of witnesses. I have difficulty bringing in individuals who simply don't refer to notes or may not refer to notes, may not refer to files and we don't have any ability to examine the foundation documents on which their opinions may be based. So part of what this motion does is make available to us or seek to make available to us the written records on which we would then base our examination.

MR. EPSTEIN: Yes, it may be the way to deal with any concerns anyone might have is to simply deal with these points one by one as we go through them and see if there are any changes people might want us to suggest.

Mr. MacKinnon and Mr. Leefe, and then we better move through to the motion.

MR. MACKINNON: Mr. Chairman, with all due respect to my colleague, any witness that comes before this committee or before this House, whether it be at the committee level or within the legislative framework with all members in attendance, reference to any documentation has to be tabled. The honourable member should know the Rules of the House.

Second of all, I think, from experience, and my colleague from Queens could certainly attest to the fact that I have been on this committee before, if there is any sense of obstruction or impropriety we go after it, because we have an obligation, we are public servants and we are accountable regardless of what our political stripes are. But I do have a concern before this process is even given a fair shake that we seem to be side-tracked with a political obsession by the NDP, on what appears to be a witch-hunt. We have major issues. I am not discounting the importance of each and every witness. I want each and every one of these witnesses here and more, if need be, but we do have a lot of work to do, as the member for Argyle has suggested. We have the QE II, we have the P3 schools, we have a lot of ongoing

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issues and I think we should not become obsessed or side-tracked because of one political agenda.

The Auditor General has given a report, just momentarily, that indicated a clean bill of health on an auditing of the Gaming Corporation. That's only one small aspect of it, I understand that. But we take it and we accumulate it and we deal with it as the information comes in. But let's not get side-tracked and put all the other business of this committee off the rails because of one political obsession. That's my suggestion.

MR. CHAIRMAN: The member should note that Paragraph (iv) of the motion speaks to obtaining records in advance so that they can be studied by way of preparation. It has nothing to do with the tabling, which of course is the normal procedure. This would request, and it says request, the tabling of documents in advance for study.

MR. LEEFE: Mr. Chairman, I did have an opportunity to have a discussion with Mr. Dexter last evening respecting the motion he has brought forward today. Last night I took some time, when I went home, to review the motion. I did not review it in the context in which it now must be placed as a consequence of your recommendation, Mr. Chairman, that we look at possibly setting a full week aside to deliberate on this matter.

I don't want to make it my profession to deal with the relationship between the Gaming Corporation, the government and ITT Sheraton. This, I think, has the propensity of taking on a life of its own, far beyond anything that the Public Accounts Committee has done in previous years, certainly in my five years as Chairman and to my recollection prior to that as well. We have not, as a committee, yet, even established a schedule of hearings for, if need be, the summer and through the fall, which has normally been the case for this committee. It may well be that in establishing a schedule for hearings that we may establish a day, two days, or more or less, with respect to this particular matter.

I am not prepared to set aside all of the other important work this committee does in order to focus almost solely, or at least solely until the matter is finally dealt with, on this particular issue. It is an important issue. It is one on which there has been, as my colleague, the member for Argyle has said, some significant movement by the government, the Premier now indicating that he is fully prepared to waive solicitor-client privilege, both with respect to Mr. Merrick and Mr. MacKeigan, so that the door is now open to us. I do not recall at any other time, but with one exception, there has not been any discussion of subpoenas being issued by this committee. It has never been necessary with respect to the committee meeting at the call of the Chair, I cannot speak for the time prior to the fall of 1993 because I was not a member of the committee, but I do know that from 1993 to 1998 during my term as chairman, I felt it my role to call the committee, not entirely at my discretion, but always after consulting the committee with respect to when we should meet. Even when the committee was dominated by a government majority, there was never ever any difficulty in having the committee meet when any member wanted it to meet.

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As I say, upon reflection last night, and I did spend some time thinking about this, I have significant reservations with respect to the motion put forward by my friend and colleague and I wanted to have the opportunity to lay those concerns before the committee this morning.

MR. CHAIRMAN: Does the member have any suggestions for us as to what order of priority the issues would take with respect to the other issues he suggested, that is the QE II and P3 schools? Would you prefer to deal with those items first?

MR. LEEFE: I think health care and education are very much on the minds of Nova Scotians. I think we would all agree with that. This is a hot political issue at the moment. It may continue to be. It may not continue to be. We have no way of knowing that, but this committee's deliberations, I believe, should be long-term, not short-term, and I think that we have to ensure that we maintain a very good balance with respect to the issues that are brought before the committee. I think, my view is that in advance of dealing with the motion that is proposed by my colleague this morning, that we should, as a committee, sit down and define an agenda for ourselves based in part on the Auditor General's most recent report and move forward with our deliberations based on that agenda.

MR. CHAIRMAN: Ms. Godin.

MS. GODIN: I sense, Mr. Chairman, a certain amount of disunity here that is not going to be settled in the five minutes that we have remaining, but I am concerned with one point that I am hoping we all can agree to so that something is resolved today before we leave. That is from the solicitor, Gordon Hebb's letter, on Page 5. It also is included by the way in Mr. Dexter's motion. "As a precautionary measure, the Public Accounts Committee may wish to ask the House for a resolution declaring that the Public Accounts Committee is not dissolved by prorogation of the House . . .". Is that something that we could agree on today because I am very concerned that this might come up and it might be a way to put a halt to anything that we want to continue in the future and, of course, the QE II, what we have heard here today, it is a mess and it has to be looked into; the casino as well, because they are all things that have real human tolls attached to them and they have to be looked at. I am hoping that we could act on Mr. Hebb's recommendation and agree to do that. Also, I do not believe Mr. Fraser's question was answered on how often we were going to meet during the summer. I think that is what he was asking. There is so much to cover and the outside members will want to know that.

MR. CHAIRMAN: Okay. We do have the motion that was put in front of us. It is not necessary to call a vote on it, but I wonder if what emerges from our discussion is any agreement as to what the business of the committee is going to be next?

AN HON. MEMBER: We have a motion on the floor.

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MR. CHAIRMAN: Yes, we do. I still see two speakers. I have Mr. Dexter and Mr. LeBlanc.

MR. DEXTER: The main objective of this motion was to expedite this matter which from all sides of the House has been the subject of much discussion over the last week since Mr. Fiske appeared. This in part is done at the invitation of the minister responsible and the Premier. The items that are set out in this motion simply touch on all of those items which might be necessary or might have to be dealt with while the House is not in session. For example, the issuance of subpoenas is purely precautionary. If people agree to come, then why would you bother issuing a subpoena? It simply gave the committee the ability to deal with these things in an expedited fashion.

It was my understanding that certainly that was the wish of the Premier that all of the facts come out, and what this motion did was simply allow that to come forward in a reasonable fashion. So that is the sum and substance of this motion. I would just say that this does not necessarily tie the hands of the committee to do something else, as well. If there were some other items or some other issues that wanted to be discussed by the committee, there is no reason why that could not be done as well.

MR. CHAIRMAN: Mr. LeBlanc, and then there has been a call for the question.

MR. LEBLANC: I guess I am listening to the comments that Mr. Dexter just made as to what may happen, what may be necessary and so forth. I go back to my opening comments, this is something to me that would be way down the road that we, as a Public Accounts Committee, are blocked on. I am not even sure it would right it in the way that it is done here.

Our intention as a caucus is to call some of the witnesses, actually, that are on this list but this procedure for ourselves, I am not in agreement with and if the motion would be put I am voting against it. But subsequent to that vote, I will be asking for some of the witnesses on that list to be called before the Public Accounts Committee. So I am telling you, in advance, my position so that the members of the committee will be aware of it.

MR. CHAIRMAN: There has been a call for the question.

Would all those in favour of the motion please say Aye. Contrary minded, Nay.

For, 3. Against, 6.

The motion is carried in the negative.

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However, this does leave us with the problem of how to proceed. We had suggestions earlier about dealing with P3 schools, we still have not heard the rest of the Auditor General's Report and the QEII is also on the list.

Mr. LeBlanc.

MR. LEBLANC: I go back to my comments of a few minutes ago. I think that the Premier has indicated that he would encourage us to call some of the legal counsel. I look at either John Merrick who is a legal counsel for the Gaming Corporation, who would be a good witness to call before the committee, and maybe from there even Robbie MacKeigan in a subsequent meeting. It is going to take time for this to evolve, I appreciate that, but I think those are the kinds of things that I would be supportive of and I would ask for some input from some of the other members as to how we would proceed.

MR. CHAIRMAN: Mr. Samson.

MR. SAMSON: I think subsequent to Mr. Fiske's testimony, that Dara Gordon came right out and publicly stated that she wished to be called in front of the committee as soon as possible. As a result of that, I think it is only fair, having heard his side of the issue and being that he actually came out and spoke about Ms. Gordon in his testimony, that she should be given the opportunity to come before us now and give her side of the story.

MR. CHAIRMAN: Mr. Dexter.

MR. DEXTER: I would just point out to the member that Dara Gordon appeared before this committee in the not too distant past. This committee, because of its make-up, last time chose not to call Mr. Fiske. He has been called this time and I don't think it is necessary to go right back to Ms. Gordon at this point.

[10:00 a.m.]

MR. LEEFE: In fact, when the committee deliberated on who to call with respect to the Gaming Corporation, the minority on the committee requested that Mr. Fiske be called as well as Ms. Gordon and the majority on the committee did not support the calling of Mr. Fiske at that time. They did support the calling of Ms. Gordon. I can't believe that Ms. Gordon at this juncture would have so much new information to provide us that we should call her early on. We may wish to call her but I would think at a much later date. I, personally, am much more interested in hearing what Mr. Merrick and Mr. MacKeigan have to say.

MR. CHAIRMAN: I am going to try to sum up what seems to have emerged from this discussion. As I understand it, members of the committee are saying that they do wish to continue to look at the issues raised by Mr. Fiske but they don't wish to deal with them before

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they have a look at the P3 and the QE II issues, which we had discussed earlier. Or is that a misinterpretation of what the members are saying?

MR. LEEFE: Not at all, Mr. Chairman. We are quite prepared and, indeed, anxious to have Mr. MacKeigan and/or Mr. Merrick appear as quickly as possible.

MR. CHAIRMAN: The point of departure and the difficulty was in scheduling essentially ongoing hearings.

MR. LEEFE: Exactly.

MR. CHAIRMAN: What you are talking about is keeping to the usual schedule of once every week or once every two weeks subject to everyone's summer plans. Is that essentially what the message is?

MR. LEEFE: Subject to our due consideration, summer plans may or may not enter into it.

MR. CHAIRMAN: In that case, can we try and agree on when the committee would next meet. Would we meet, I guess, July 8th, our regular Wednesday?

MR. LEEFE: I will move, Mr. Chairman, that subject to the availability of Mr. MacKeigan and/or Mr. Merrick that the committee meet again two weeks from today. If neither of them is available, then we would look to the Chairman to provide us with information with respect to when either of them may be available and we can then set a meeting date which is mutually agreeable to all of us, understanding that both, I believe, will be making themselves readily available as a consequence of a commitment made by the government yesterday.

MR. CHAIRMAN: Mr. MacKinnon, you had your hand up, did you have a comment on this?

MR. MACKINNON: I agree with that, Mr. Chairman, and if either of those two aren't available, just so the committee won't be held up, if any of the other witnesses that are listed here, I think the committee should look at that, in the spirit of cooperation and making sure we are trying to continue to cooperate.

MR. CHAIRMAN: Is that overall agreed?

It is agreed.

Would all those in favour of the motion please say Aye. Contrary minded, Nay.

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The motion is unanimous.

We stand adjourned. Thank you very much.

[The committee rose at 10:03 a.m.]