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20 avril 2005
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Wednesday, April 20, 2005


Office of the Auditor General

Printed and Published by Nova Scotia Hansard Reporting Services


Mr. Graham Steele (Chairman)

Mr. James DeWolfe (Vice-Chairman)

Mr. Mark Parent

Mr. Gary Hines

Ms. Maureen MacDonald

Mr. David Wilson (Sackville-Cobequid)

Mr. Daniel Graham

Mr. David Wilson (Glace Bay)

Ms. Diana Whalen

[Mr. Michel Samson replaced Mr. David Wilson (Glace Bay)]

In Attendance:

Ms. Mora Stevens

Legislative Committee Coordinator


Office of the Auditor General

Mr. Roy Salmon

Auditor General of Nova Scotia)

Mr. Claude Carter

Deputy Auditor General

Ms. Elaine Morash

Assistant Auditor General

Mr. Alan Horgan

Assistant Auditor General

[Page 1]



9:00 A.M.


Mr. Graham Steele


Mr. James DeWolfe

MR. CHAIRMAN: (Mr. James DeWolfe): Good morning, ladies and gentlemen. I'd like to call this meeting of the Standing Committee on Public Accounts to order on this beautiful April 20th morning. Today we have with us the Auditor General and his staff as we discuss items concerning his 2004 performance report and the 2005 business plan.

We'll start off, as usual, by introducing ourselves, beginning with Mr. Steele.

[The committee members introduced themselves.]

MR. CHAIRMAN: Without further ado, I would like to turn to Mr. Salmon to introduce his staff and perhaps some opening comments too.

MR. ROY SALMON: Thank you. We are very pleased to be here to discuss this document that we tabled in March of this year. My staff is here to assist in answering questions. To my left is the Deputy Auditor General, Claude Carter; to my right are Elaine Morash and Alan Horgan, two Assistant Auditors General in the office.

What I would like to do and hopefully it will be relatively brief, is I will just run through what I consider to be the highlights of the performance report and business plan and then turn it over to you to ask questions on the document or on any other topic that you are interested in.


[Page 2]

First let me turn to an overview of the structure of the report. It starts off with a message from myself that essentially outlines the purpose of the report and provides some highlights. There is then a statement on auditors' independence, which is a requirement for this type of document - it states that we are independent and how we strive to ensure that we remain independent. Third is an outline of the role of the Auditor General, the statutory responsibilities that I carry. Then we get into the meat of the document, the report on performance for 2004 and the plan for 2005. Then a series of appendices, the organization of the office, listing of the staff, ranges of our salaries, and a listing of the audits that we have planned - some of which are already in progress for this year.

Some highlights of our performance for 2004. For the first time we issued two reports covering audits that were completed during the year - one was tabled in June and the second, as normal, in December. The reaction we received, as we interpreted it, from members of this committee, and indeed from the media, was that this was very well received. It provided more timely information for consideration by the committee and so we are planning to continue that this year.

We're well along in the preparation of a report to be tabled in June; in fact we have a meeting scheduled to review four draft chapters this afternoon. That's our planned timetable and, of course there will be another report in December.

The government introduced new legislation that was passed by the House that requires a more timely tabling of the annual consolidated financial statements and Public Accounts. The deadline in legislation was moved up from December 31st to September 30th. That puts more pressure on both the Department of Finance and other departments and agencies to produce the appropriate financial information, and puts pressure on us to conduct the audit of that information. But we were both successful and, in fact, the financial statements were tabled on the deadline of September 30th. As well, we were able to reduce the time we spent on this audit by 30 per cent, which is very significant as it frees up resources for other work.

Another highlight was we, for the second time, conducted an audit of the Department of Health's performance reporting. The document is entitled A Measure of Our Health and Health System. It was issued on November 30th and my audit opinion was included in it. To a significant extent this audit was conducted concurrently with similar audits being conducted of similar documents in other jurisdictions, so there was some level of collaboration in doing it.

The office underwent two reviews of our auditing practices - one which is conducted on a periodic basis by the Institute of Chartered Accountants of Nova Scotia. It focuses strictly on financial statement audits, not on our broad-scope audits. We came out of that quite well. They did have recommendations for us, but overall we were quite pleased with the results of that review.

[Page 3]

Secondly, and for the first time, we underwent a peer review by staff of the provincial auditor of Saskatchewan. They spent about three days in our office. They reviewed two significant audit files. They also had recommendations for us but, on the whole, their conclusion was that we were meeting professional standards.

In terms of our performance against our plan, in terms of audits we had planned to conduct, we did complete all but two - one could not be completed because we had a particular staff member suffering from a long-term illness, and the other one we just deferred because the government had contracted a private sector auditor to conduct similar work and we didn't want to duplicate, and we had access to the results of that work.

We were able to bring about marginal improvement in percentage of audit entities that have been audited in the last five years. The five years that had ended in 2003, we had completed audits in 63 per cent of the government audit entities - we improved that to 65 per cent and we hope to continue to improve that, and you'll see that in our business plan.

Overall we made improvements in meeting our audit time budgets, but there is always room for further improvement in that area. Budgeting time for an audit is a tricky business because you're never sure what you're going to run into in terms of issues and once you identify issues they have to be pursued and that can lead to exceeding the budget.

We did meet our financial budget target and there was a voluntary mid-year 1 per cent reduction in recognition of a government budget management exercise. We participated in that, but we still met our budget.

I'll return to the business plan. We have identified the assignments that we want to conduct in calendar year 2005 - they are listed in Appendix IV and we'd be pleased to answer questions on any of those.

We're changing our focus. Over the last number of years we've been focusing on higher level departmental and government-wide matters. So we were up here in terms of level of detail, and this year we're focusing on very specific program areas and getting into more detailed issues, and certainly that's evident in the four chapters that I've just read draft copies of that we're going to be discussing this afternoon. So we want to perform work that will more closely address the core audit mandates of the office: stewardship of public money, internal control, efficiency in economy, and compliance with legislation.

We also are moving towards greater use of information technology. We want to be able to analyze electronic data within the departments, determine whether there are anomalies in that data that we should examine in greater detail and we plan to use more thorough risk analysis in the development of the scope of individual assignments, focusing on where the greatest risks to government are.

[Page 4]

We also want to place greater attention to major government projects. We've had some discussion in this forum over the last year or two on major systems like SAP and pension management, and we want to continue and increase our focus on those activities. As reported to you previously, we want to start following up on previous audits on a three-year cycle. So this year we will be following up on 2002 audits and the results of those follow-ups will be in the December report.

We believe that doing that will allow us to better measure the value of our office activities, whether our recommendations are leading to constructive change and better management and better due regard for economy and efficiency. We hope that by being more formal in our follow-up activities, it will stimulate government to pay closer attention to dealing with our recommendations.

There has been quite a change in standards across the auditing profession regarding quality assurance and control issues, so we're going to be focusing more attention on ensuring that our standards are of appropriate quality and meet control standards. We want to review the style and content of our reports on the audits that we perform, with the objective of making them of greater value to the committee and to the Legislature. We also want to monitor how the government contracts for audits and consulting studies and use those to leverage our own efforts to promote constructive change - in other words, pay greater attention to relying on those efforts rather than duplicating.

In terms of financial targets the government added $100,000 to our 2004-05 budget after we met with you on this report last year, so our budget at $2.3 million was higher than what was contained in our performance report a year ago and that all helps in terms of the scope of our coverage. Again this year our office budget was increased for 2005-06 and then after we had prepared this report, which contains a budget of $2.557 million, we were given another $100,000. That's going to permit us to hire additional staff which, again, although we will be hiring at the student levels, and that requires a significant amount of training along the way, it will increase our capacity to broaden our scope of audit coverage.

[9:15 a.m.]

So, overall, I personally am quite pleased with the performance of the office in 2004. There are opportunities to improve our performance, to focus our efforts more specifically. I want to acknowledge the increase that has been provided to the office's budget by the government, but there still remains many opportunities for audits which the office is not yet resourced to fulfill. So we would like to receive your comments, answer your questions and, if you have suggestions, we certainly would appreciate hearing them. We view our role as being here to serve you and, through you, the Legislature and the public. So anything we can do to improve what we do, we would be pleased to hear about.

[Page 5]

MR. CHAIRMAN: Thank you, Mr. Salmon. We'll begin with 20-minute questioning periods, as usual, and we'll start with Mr. Steele of the NDP.

MR. GRAHAM STEELE: For the rest of the year the Public Accounts Committee works very closely with the Office of the Auditor General to review the activities of government, to review the expenditures of the government, and I think it's important that at least once a year this committee's focus turns to your office to see how you have been spending your money, how you've been spending your time.

I worry a bit that perhaps we haven't struck the right balance between accountability and independence. Your office needs to be independent of government. You have to fear nothing from the government, seek no favour from the government. You have to be independent. That's part of the reason why the Office of the Auditor General in this province, and nationally and in other jurisdictions, has just risen in public esteem over the last number of years and now has become a central institution of public accountability because of its independence but, at the same time, your office can't be so independent that it's not really accountable to anybody for what it does. Let me start by asking you the general question - have we struck the right balance between accountability and independence, or are there some changes that you would like to see happen?

MR. SALMON: I believe we have the right level of independence. It can be argued that because we are dependent on government, essentially Executive Council and Treasury and Policy Board, for our resourcing that it could be perceived that we would, or I would, coddle favours, if you like, from that body in order to augment the resources, but that doesn't happen and I think we have the right relationship with Treasury and Policy Board on that issue. It would always be nice to have more money to do more, but we all realize that we're in an era of fiscal restraint and we share a responsibility with regard to that.

In terms of accountability, this is the forum for that. We are accountable to you and, through you, to the Legislature and I believe that we're making that work appropriately here. We meet regularly, you have access to us and we attempt to serve you, and through tabling this report we try to demonstrate our accountability and our performance and it's your responsibility to judge whether that's acceptable or not.

MR. STEELE: One of the things that you said today - and in fact you say each time we bring you forward for review of your office - is, and I'll quote you exactly: "There are many opportunities for audit which the office is not resourced to fulfill." What I worry about more than anything is that your office maybe has settled into a comfortable groove where you're used to a certain amount of money and it goes up a little bit each year or it goes down a little bit each year - you remember when you had to give some money back in midyear, once or twice, but that your office is in this comfortable groove where you cover so much of government and no more and then you point out that if you had more you could do more, and I'm just wondering what opportunities there are to make it clear to the government, to this

[Page 6]

committee and to the public, how much more you could do if you had more money, and what risks we're running if we don't give you the money.

Now, let me read you something from the Auditor General Act which I came across. Section 21 says, "The Auditor General shall prepare annually an estimate of the sums required to be provided by the Legislature for the carrying out of this Act during the fiscal year, which estimate shall be transmitted to the Management Board for its approval, and shall be laid before the Legislature with the other estimates for the year."

One way of interpreting that is that you have the right, in fact the duty to lay before the Legislature a budget for the amount of money that you feel you need, but what is happening is that your budget proposal is treated like every other budget proposal of government, which is that it goes through Management Board, goes through the mill and it's only the approved estimates that get laid before the Legislature, not what you said you needed, but what the government says you deserve. Is there an opportunity here for you to fulfil this section of the Auditor General Act in a different way by laying before the Legislature a budget of what you feel you need to do the job that is laid out for you in the Auditor General Act?

MR. SALMON: Certainly, your interpretation of Section 21 is accurate and certainly we could do that. If you make a straight extrapolation of the fact that we're covering 65 per cent of the auditable audit entities over five years and cost that out at 100 per cent and prepare the estimates on that basis, it would be a very significant increase. Strategically we have chosen, or I have chosen, not to do that because of the era of fiscal restraint. I don't want to be treated, from a resource point of view, significantly differently than other government departments. We are quite aware from our audit activities that departments are short-staffed. They struggle to achieve their program objectives and they're not adequately staffed. I would not look very good to heads of other government departments if I was treated that differently. That's been my strategy.

MR. STEELE: It seems like a modest and achievable goal to say to government, we will cover 100 per cent of the reporting entity, at least once, in every five-year cycle. But your office has settled into a groove where you're covering roughly 65 per cent every five years, so there are some entities of government that can go, I'm sure you'll agree, for a decade, two decades or longer without any visit from your office. Is that acceptable, or do you think that maybe we should set our sights a little higher and aim for 100 per cent?

MR. SALMON: I don't think that we should be aiming for 100 per cent. I would say that there are a number of those entities that we have not been covering that are low-risk. We attempt in our planning to cover those areas which are higher risk. The higher risk ones. We would have a difficult time costing out what it would take to cover 100 per cent. It would be hard to estimate. So we continue to strive for productivity improvement and with the additional resources we've received for this year, that 65 per cent will go up. How much? We

[Page 7]

might get 70 per cent. We certainly will strive to do the best we can but, Mr. Steele, I am not going to approach government for that significant an increase when the rest of government is strapped.

MR. STEELE: What are the risks that we're running if your office doesn't insist on 100 per cent coverage within a reasonable time?

MR. SALMON: That's hard to quantify. The absence of audit coverage in some areas could lead to control risks, could lead to inadequate performance program management, but it's hard to quantify.

MR. STEELE: You'll have to excuse me for focusing on what I see as potential gaps. Personally, I think your office runs very well. I also have to say that I find your performance report and business plan to be the best around, bar none. I could only dream that other units of government could produce a performance report and business plan that is this clear, this concise, this understandable. I have a feeling that it's a function of the fact that your office doesn't feel the need to do any political spin doctoring around this, that if you meet your targets you say why, if you don't meet your targets you say why, you explain the risks and rewards of doing or not doing what you are proposing in your plan, I find it very clear and understandable.

I want to say that before I move onto something else that I think is a gap, not necessarily in your office, but over the course of the time I have been involved in politics, both as an elected member and as a staff member at a caucus office, there's one group of people who have nowhere to turn - what I want is your insight into what we might be able to do - and that is just the ordinary citizen who sees a waste of money, and they call up and say, I think the Auditor General should look at this or I think somebody should look at this, but there's actually nowhere for them to turn. Of course, the ordinary citizen doesn't have the capacity to go into that unit of government, find out what happened, investigate, explore, to say, is this what it seems to be or is there more to the story than this? Your office has the capacity to do that but your office consistently, when you get that kind of call, says, no, I'm sorry, we can't look into that, it doesn't fit within the audits we have planned for this year, we don't investigate sort of one-off citizen complaints, so I'm sorry, we can't do it. Do you keep any records of how many calls like that your office gets every year?

MR. SALMON: We get quite a number, I can't tell you what the number would be. We had a letter this week from a lady complaining about an activity in school transportation in Cape Breton and brought it to our attention, but it's at a level of detail that is too specific to get into. We keep them on file, we keep a record of them and they're useful background if we got into that school board and school transportation was one of the focuses for our audit effort. One letter like that complaining about how she, personally, is being treated with regard to school transportation can't trigger an audit immediately by us. Most of the calls and

[Page 8]

letters I receive are of that nature. I turn them over to my staff, they look into them and we respond to them as best we can.

MR. STEELE: You don't look into complaints by individual citizens, do you?

MR. SALMON: Yes, we review what they say, we make enquiries of the appropriate department to get further background. There is another one in process at the moment that Allan's dealing with, we'll see where it takes us. But we can't just drop what our plans are and what's in progress and launch into a major study based on the complaint from one citizen.

[9:30 a.m.]

MR. STEELE: Often these things lead nowhere, but just as often they are the tip of an iceberg where somebody sees something that shouldn't be happening or that raises their suspicion - it could even be a whistleblower within the Civil Service - and the problem is that they fundamentally have nowhere to turn, nobody to take it to. Even if they take it to a local politician, the politician doesn't have the capacity to investigate, to audit, to get the wider picture, and some people don't want to take things like that to a politician. They want to keep it quiet, they don't want their name used, they just want the appropriate authorities to look at it, and the problem that I've found is that the appropriate authorities don't want to look at it because they are too busy doing other things.

MR. SALMON: No, that's not the reason. The reason is that the issue generally that's raised is not of sufficient materiality for us to focus efforts on.

MR. STEELE: Not sufficient materiality. So it may be a relatively small amount of money but yet these are the things that get citizens hopping mad. It might be $500, it might be $5,000, it might be $50,000 - none of which meets your levels of materiality - what is the citizen to do when they see what they think is government money being wasted?

MR. SALMON: For the most part they decide to contact my office. In some cases it's appropriate for them to contact the Ombudsman, who would be in a similar position with a different focus than I am, but that's an appropriate spot to go as well.

MR. STEELE: Because, of course, wasting government money just gets people hopping mad. If you look at the sponsorship thing up in Ottawa, which I think Claude Carter has pointed out before that if you put it on a proportionate level in Nova Scotia it would be about $1 million out of the Nova Scotia budget. In the biggest picture it's not an awful lot of money, but this thing is about - it appears - to bring down a government and trigger an election. The amount of money is small, but the amount of citizen cynicism that it generates about politicians and their motives and their methods is enormous.

[Page 9]

Two such cases that we're all aware of, that just get me hopping mad, are the recent cases in Service Nova Scotia and the Strait Regional School Board. The Strait Regional School Board is one where nobody really fundamentally has ever been called to account - and that makes me mad too.

What appears to have happened is you essentially had a volunteer board who were just bamboozled by a very charismatic, very powerful, very knowledgeable superintendent of schools, and a very great deal of public school money was wasted - it just disappeared into people's pockets, it went on schemes that education money should never have gone on. That's only a few years ago and we've never yet had one single person in front of this committee who says that they're accountable, that they agreed to be called to account for this awful waste of public school funds. How does this happen when your office has all its auditors and we had internal auditors, how is it that within government this kind of grotesque waste of money can still go on?

MR. SALMON: That's a hard question to answer. I agree with you, the Department of Education took action on the Strait and commissioned a forensic audit that went in to identify what happened, the scale of it, who was responsible . . .

MR. STEELE: But that was all after the fact, how do we stop it from happening in the first place?

MR. SALMON: Put in the appropriate controls, and people exercise the responsibilities they are charged with. It would appear on the surface in the Strait that the people on the board were not exercising their responsibilities. Elaine, do you want to comment on that? I think you looked into it in more detail than others.

MR. STEELE: How do we stop the Strait Regional fiasco from happening again?

MS. ELAINE MORASH: A couple of comments. I think that the gap in the audit regime in Strait was exactly what you were talking about earlier. We went to the Strait Regional School Board once in my tenure with the office and it was probably, I'm going to say, maybe 12, 15 years ago and that was the only time that we've been to the Strait Regional School Board and it is one of the entities that is that population of 35 per cent that we never get to.

The second gap with the Strait Regional School Board was that the financial statement auditor - and I guess I have to be quite careful in terms of how I phrase this - was not probably the best auditor that they could have gotten. This person, I think, is now either deceased or retired and I can't recall which one, but it was very late in his career, a sole practitioner and I believe that there could have been a stronger financial statement audit regime there too. So I think that there were a combination of things, yes, there were problems

[Page 10]

with the board members, but there were mechanisms in place that should have caught some of those things and they didn't.

MR. STEELE: Did I just hear you say that we might have caught this if the Auditor General's Office had been better funded?

MS. ELAINE MORASH: Perhaps. That is the type of entity that we are not getting to. Most of the entities in that 35 per cent, are entities that are not central government but are school boards, district health authorities, universities, and those are the ones that we don't get to on a regular basis and there are an awful lot of those entities.

MR. STEELE: Of course, the other one is Service Nova Scotia. I can understand somebody pilfering money once, twice, maybe, but this was 127 times over seven years. How is it that our audit regime in this province can't catch something like that?

MR. SALMON: To some extent we don't get to that level of detail in the audit work we do, although we are attempting to more focus our efforts now on more detailed analysis. As I understand the Service Nova Scotia issue, there were very basic weaknesses in the system of control that allowed this to happen and it happened over a significant period of time and there were changes in staff at the supervisory level and the system just didn't work the way it was supposed to.

MR. CHAIRMAN: Thank you Mr. Salmon. We'll move on to the Liberal caucus.

The honourable member for Halifax Citadel.

MR. DANIEL GRAHAM: Thank you, Mr. Chairman and thank you, Mr. Salmon and thank you to everyone who works in your office, particularly those with whom we come in contact on a regular basis and are with you here today. I think it's important to reiterate the progress that has been made in Nova Scotia from the time that you came on as the Auditor General and the state of the province's books. It's testament not just to your skill, but to your character and the character of the people in your office, that you've managed to walk that subtle line and push governments in the right direction. It has led to much more transparency and a clearer picture for Nova Scotians about the state of the province's finances. I would like to repeat that for the records. I've said it in the past. I know that we're in the closing year or so of your time here and it will be important to recognize some of the legacy of that.

I'd like touch on some of the themes that Mr. Steele had been speaking about just a short while ago. In particular to get your thoughts with respect to this balance between independence and accountability. As we enter a transition period and find a new Auditor General, I think you yourself recognize that this is an opportune time for us to look at the regime we presently have. To improve it potentially with respect to the appointment process, to the term process and I'm interested in any thoughts or comments you might have with

[Page 11]

respect to that? Presently, for example, your term is an indefinite one and for most jurisdictions in Canada, the term for a more limited period. I'm wondering if you feel comfortable commenting on first the issue of term, and then I'd like to get into any other areas where you think there could be improvements and then talk in more detail about accountability, but first with respect to term and other improvements.

MR. SALMON: With respect to term, yes, I would agree with you and I would recommend, if I had a voice in putting forward amendments to the Auditor General Act, I would recommend a 10-year term non-renewable. This is the only jurisdiction in Canada where the appointment is at pleasure. All the others are terms. They do range from six to eight, to 10 years. The shorter ones, there can be a reappointment, but I believe 10 years is the appropriate length of time and that's admitting I've probably stayed too long, but that's what I would propose. That's what it is at the federal level and in several other jurisdictions.

MR. GRAHAM: What about other improvements that you might recommend, for example, with the appointment process?

MR. SALMON: The appointment process, at the present time it's strictly in the hands of Executive Council. The Executive Council can decide who to appoint and how to make that appointment. I believe that the Legislature and, indeed at the appropriate level, the Public Accounts Committee should have a role and I would suggest an amendment to the Auditor General Act that requires submission of a resolution into the House seeking approval of the individual who's to be appointed.

I don't believe that it would be necessary to enshrine in legislation a formal structured search process. That can be worked out in a manner that provides for appropriate competencies to be involved in the search and structured in a way that guarantees a non-partisan and non-political appointment. So formalizing the role of the Legislature in the appointment would be appropriate.

Thirdly, there are a number of housekeeping matters that could be dealt with if amendments were going to go forward but the third major one is the level of remuneration for the Auditor General. Again, at the present time in the legislation, it's strictly in the hands of the Executive Council. They can determine how much they want to pay for an Auditor General. I believe the legislation should reflect an appropriate structure in terms of what the remuneration should be. In most jurisdictions it's very clearly tied to the level of salaries of senior deputy ministers. In a couple of jurisdictions, federally and British Columbia, I believe, it's tied to the remuneration of the Chief Justice of the Supreme Court at the federal and provincial levels. So one of those mechanisms should be enshrined in legislation.

MR. GRAHAM: And presently, if memory serves me correctly, the removal of the Auditor General can only be done with a two-thirds majority vote in the Legislature and when you speak of the approval of the appointment of an Auditor General, are you prepared

[Page 12]

to opine on whether a two-thirds majority or a simple majority would be the more appropriate course?

MR. SALMON: I think that if I was in that position, if the vote was close, I would turn it down. I would think that it would be appropriate that a process is put in place that has all-Party representation in the process that could lead to unanimous approval.

MR. GRAHAM: I would like to turn to the issue of accountability which is in some respects I think a stickier one when it comes to the Auditor General than it is about almost anyone else. We have fortunately enhanced the independence, notwithstanding what the member for Halifax Fairview has said about the budget issues, and I would like to touch on that briefly, but on the issue of straightforward accountability, obviously we have the provision, we have the nuclear option of removal of the Auditor General, but all organizations benefit from some type of review process, either a peer review process or something that happens inside the office, that improves the excellence and efficiency that goes on inside.

[9:45 a.m.]

On the one hand government would be reluctant to take on the responsibility of reviewing the Auditor General because the Auditor General is actually reviewing government. On the other hand, there must be some mechanism that we could put in place to ensure that day-to-day, week-to-week, month-to-month, year-to-year processes are improved and for that matter in a worse situation where you don't want to - where somebody wouldn't employ the nuclear option of removal but some serious things are going on and there's a significant potential breakdown. You want to be able to provide meaningful feedback, and I appreciate what you said about the role of the Public Accounts Committee in that regard, but having sat on this committee, I'm not sure if we have the level, at this point, of subtlety or the history to be able to effectively do that in a way that is meaningful for you and your office.

MR. SALMON: Well, in my presentation and as outlined in our performance report, all Auditors General in Canada have recognized this need for the type of review of day-to-day activities that you've mentioned and so we've launched this peer review process and we're expanding it. We're formalizing it to a greater extent and I get a formal report, as I did this year from Saskatchewan, with the results of that peer review. I think that's one answer to your question. How to put in place a more formal personal assessment of the Auditor General is a difficult issue to address. So I think that the best we can do is this peer review process that we're striving, plus the work that the Institute of Chartered Accountants does.

MR. GRAHAM: I'm going to flip lastly to the 65 per cent, 35 per cent split, but before I go there I'd like to touch a hobby horse of sorts of mine and just ask whether or not much work or much thinking has gone into the following issue? The issue is one that I

[Page 13]

describe anecdotally. It's not the result of any research that I have seen, but for many of us who have been around government, on the inside, both at the provincial and the federal level, they know what a frenzy there is in January, February and March, with respect to spending excess dollars and ensuring that you get next year's budget. So people are making choices they wouldn't otherwise in a solid business plan.

Nova Scotia and Canadians see this all the time. It contributes to the cynicism that people have about government and the waste of money that happens inside government and while undoubtedly there are a number of positive things that happen with that March Madness, as I call it when all of that spending, it's not the basketball, it actually happens in government departments, where they start to spend money like crazy at the end of every year on those projects that either are on the fringe of their core activity or are a disguised way of ensuring that they retain the budgets that they have. Can we not comprehensively get to that and state it out loud that this is happening? It shouldn't be. There needs to be a clearer plan in place and the Auditor General, it strikes me, has a role to potentially play in that.

MR. SALMON: I agree, we do, and we do address the issue. I have the same attitude toward it that you do. I think all my staff share that. Certainly, we attempt and will continue to attempt to focus on the issue and to report on it, but that's the extent of my responsibility. I can't stop it happening.

MR. GRAHAM: For what it is worth, as a member of the Public Accounts Committee that has a relationship and a communication to you and I know that any formal matters come through the Chair, I would urge you to consider whatever creative ways you can put in place to begin to address the issue comprehensively and send a clear signal to departments that the spending madness that goes on in March needs to be more justified. It's not to say that it won't continue in some fashion, but if we state it loudly as a problem, then it strikes me that we will begin to chip away at the overall problem.

MR. SALMON: Claude would like to comment.

MR. CLAUDE CARTER: Just further to what Roy said, last year we did start focusing more on spending close to the end of the year, and frankly it was a bit of an eye-opener to me in a number of regards, and one of the initiatives that's mentioned in our business plan for this year is increased data analysis. In fact, what our intentions are is to get down to, not just the number of transactions being processed, but the volume of transactions being processed by period - meaning months during a fiscal period by business area - that would allow us to, in fact, trend those and to identify areas where we should concentrate more detailed scrutiny. So, your issue is one that we hold very dear and important.

MR. GRAHAM: Thank you. I would like to turn to the 65/35 split. Mr. Salmon, you indicated in your earlier remarks that you are guided by the risk associated with that

[Page 14]

remaining 35 per cent. I'm just wondering if you could provide to us a sense of how you determine that risk?

MR. SALMON: Elaine, do you want to comment on that?

MS. ELAINE MORASH: We went through a detailed process this year where we looked at every entity that we have responsibility for auditing and we ranked each entity using a quantitative scale against a number of attributes. Those attributes would be things like the materiality of the spending, our prior audit history in that entity, what we know about that entity and the controls that are in place, what we've read in the media and other sources, other things that have come to our attention, and just basically the nature of the entity itself like, for example, whether spending is mostly salary dollars or whether it's a grant program. So we have gone through that detailed analysis and when we came up with a quantitative score for each entity, we used those scores to evaluate each entity as a high, medium or low priority for audit within the next five years.

MR. GRAHAM: When I hear that, I think I feel some of the anxieties that have been expressed by the member for Halifax Fairview that if it's not complete, if we don't go through in a five-year cycle to 100 per cent, then you'll never know what you have on the outside and on the fringes of this. So I'm wondering whether or not any other jurisdictions in Canada have hit a level higher than 65 per cent and, if so, what's the kind of range that they might be dealing with?

MS. ELAINE MORASH: Some of the jurisdictions' mandates are not as broad as ours are. We've had what we call a transfer payment mandate since the late 1980s which brings in all of that population - the school boards, health authorities and universities that I have spoken about earlier. Some of the audit offices don't have that mandate so, as a result of that, their target population would not be as large. So it would be difficult to compare the statistics unless you know that you're dealing with the same mandate and the structure. In Saskatchewan, for example, they have many, many more Crown corporations than we do. It's just the way in which their government is organized. So I think it's very difficult to make comparisons. I know that doesn't answer your question and I don't have the information in terms of what their ratios would be. All I would stress is that you have to have caution when you're comparing, that you're really comparing apples and apples.

MR. GRAHAM: I would just like to determine if there's any way that you can imagine at the federal level by doing a comparison with federal audits, or any comparable jurisdiction, that we can determine whether we are high or low. Do you have even a sense of that? I appreciate the challenges associated with comparing apples to apples, but do you have a sense of whether we're high or low on that 65 per cent figure?

MR. SALMON: This, again, has to be anecdotal, but I would say that we're in the same range with most jurisdictions. My colleagues, when we have discussions, would all say,

[Page 15]

I could use more, I could use more resources, I could do more, I could go into greater depth, but that's just not feasible. I think we're all essentially following the same strategy and we're all in the same boat.

MR. GRAHAM: On Page 3 of the slides that you've provided us, you indicate under the business plan that you intend to provide closer audit attention to major government projects and you referenced in your opening remarks the SAP program, pensions and the like. I'm wondering if you could provide us with a little more detail about what that potentially involves. What do you mean by major government projects, how broadly does this go? My assumption is that we've had some challenges around pension questions over the last while and they are enormously material to the bottom line of this province in a way that most Nova Scotians don't fully appreciate. Is that going to be some of your focus or can you give us a better sense of the go-forward plan?

MR. SALMON: Could I refer you to the appendix on the very last page.

MR. GRAHAM: Of the main report?

MR. SALMON: Yes, Discretionary Audits.


MR. SALMON: One example of what we're talking about is the eMerge system under Economic Development & Public Service Commission. Another one is down below, under Health, the Nova Scotia Health Information System - that's one we're discussing this afternoon - Natural Resources - Fleet Management, we're getting into a significant amount of detail as to how vehicles are maintained and controlled; the PENFAX system in Finance, which is in the pension area. Claude, are there any others you would care to mention?

MR. CARTER: Under Economic Development we've got an assignment there called Consulting and Service Arrangements - that's really looking at management of consulting and service arrangements in not just Economic Development, but also selected other departments. Right now we're looking at sort of the smaller level ones, but the model that we're using there, we see it having applicability in terms of the procurement management process in a number of larger areas like eMerge, like SAP, and some of the other systems.

MR. GRAHAM: Thank you, those are my questions.

MR. CHAIRMAN: We'll now move to the PC caucus and I will recognize Mr. Parent.

MR. MARK PARENT: Thank you for your attendance here, but more importantly for the level of service that you and your office have given the province. I want to echo my

[Page 16]

colleague's comments on the progress that has been made. I find that that balance where you hold government accountable, but where you work with government, I think that you've managed to make it - and it must be a difficult balance to reach and must take a lot of courage at times. I remember talking to Sheila Fraser a few years ago when the sponsorship scandal was starting to unfold, and she was in the paper every other day and the government certainly was not pleased with her, I remember commending her on her courage. She was quite self-deprecating, but I thought that it showed an awful amount of personal fortitude on her part and I think you've shown, in a certain level in the same way in our province, the same sort of fortitude.

I do question the phrase, "comfortable groove", because certainly on the government side we wouldn't accuse you of being in a comfortable groove. Even on the financial level, as you've mentioned, your budget has increased from 2001, from $1.71 million to $2.30 million and up to $2.60 million - you're talking $2,600,000 roughly and that's in an age, as you mentioned, of fiscal restraint.

I am interested in the whole question of independence and accountability. I, personally, and I don't speak for the government on this, think that the issues you raised about terms of appointments - that was one thing that Sheila Fraser raised with me when I talked about the courage she was showing, that she had a term appointment and that she knew she was in that appointment regardless of what happened, and that gave her a certain independence as well as the appointment process and the remuneration process - that your suggestions are all very good suggestions I think.

[10:00 a.m.]

In terms of accountability, just a question. The chartered accountants do some sort of an analysis - do you have a full independent audit done, an outside audit of your office expenditures ever? Is that what the chartered accountants do or is it just sort of a quick look at how you're operating?

MR. SALMON: No, we don't have that type of audit. Some jurisdictions do. We have been subjected to an internal audit from the Department of Finance in the past - not on a regular basis, but we have undergone that kind of audit. We're overall part of the government's financial system and it might be worth considering whether or not having an auditor appointed specifically to audit my financial statements, that might be appropriate.

MR. PARENT: Other jurisdictions do that?

MR. SALMON: Yes, some jurisdictions do.

MR. PARENT: In terms of these peer reviews which you've established with each other, I assume they are more than just financial audits, they would be how the office

[Page 17]

operates in its entirety. Are those submitted to anyone else besides your office? Are they submitted to the Legislature? Would the Legislature have access to the peer review of the Government of the Saskatchewan?

MR. SALMON: As I recall, I believe the short report I received from Saskatchewan was tabled with this committee, but there's no other formal process.

MR. PARENT: But it is tabled at this committee and then it goes into the public record?

MR. SALMON: Yes and I support that.

MR. PARENT: You spoke of the focus on specific program issues. Getting back in some sense to the core business of auditing, if you recall, this was raised - you have to excuse me, I may know a lot about how many angels dance on the head of a pin but when it comes to auditing my expertise is not nearly as in-depth - it seems to me that there is a rather furious discussion going on in auditing circles in large part because of what happened at Enron where there was a move to look at high level processes and procedures and encourage that if they were in place, the smaller details would sort of all be looked after, to now moving back in some sense to the core functions. Is that what's going on? Just for my own education, can you elaborate a little bit on those two camps - maybe more than two - in terms of what auditors should be doing?

MR. SALMON: The situations at Enron and WorldCom have led to a series of initiatives. One, right across North America, there has been a re-emphasis of the role of internal auditors, a raising of their profile. Secondly, there have been initiatives to establish more significant and focused quality control activities of the public accountants - a higher level of standards for their performance, independent reviews of their performance, requirements for expanded and more formal quality control processes within a public accountant's office. Indeed, we are picking up on that in the legislative audit community. Thirdly, there has been a much more expanded and focused establishment of stronger and more independent boards of directors and audit committees and greater accountability of management. The facts that have come out about Enron and WorldCom indicate that at the management level there were serious deficiencies and lack of accountability to the board of directors.

So, all of those combined are changing the world that we live in in terms of public accounting and legislative auditing.

MR. PARENT: I want to touch on a hobby horse of mine before I come to specific questions. It does tie in, I guess, to a certain degree with what the member for Halifax Citadel said. It comes out of my own background as MLA for one of the ridings in the Annapolis

[Page 18]

Valley, both in the health system and the education system in the Annapolis Valley. The comment has been made to me time and time again by people in those fields of work in the

Annapolis Valley, and I believe it to be true, that they have been very efficient. In fact, they've been recognized at various stages for running the most efficient, in terms of health, it was one of the most efficient. Yet, efficiency isn't rewarded financially. In fact, it's almost penalized.

If you're efficient, if you can do with less, if you can work within your budget, then instead of being rewarded, you're penalized because the ones who go over budget, who can't stay within budget, who don't cut back in order to meet the targets that they're given will be rewarded. I know that. It does tie in with that rush to spend in the March madness, but I guess I have this frustration that comes out of my experience. We in the Annapolis Valley have been very efficient in both our education and our health systems and yet the efficiency, until recently, hasn't been rewarded. It's simply because of the way in which budgeting is done. If you go over budget, clearly you didn't have enough budget to begin with therefore you're given perhaps not as much as you asked for but a bit more. If you're able to keep to target, clearly you don't need any more money.

Do you understand my frustration and what can your office do to help reward efficiency?

MR. SALMON: Well, I believe it comes back to the issue that we've been stressing for a number of years - the need for appropriate performance reporting, appropriate business planning and then performance reporting against, as Mr. Steele pointed out, every organization should be preparing and tabling something like this. There should be an accountability session. I've stressed this on numerous occasions.

The estimates process is critical and the focus in estimates debates should be on performance and planned performance as opposed to line by line review of expenditure items. That's where these documents become so valuable, particularly the business plans at estimates time, but also historical performance.

I strongly believe the onus is as much on the politicians and members of the Legislature as it is on the managers within departments.

MR. PARENT: I accept that. In fact, when Mr. Steele was talking about waste, I have so many people come to me and it's my job as MLA, they have an avenue to complain to and I have a responsibility to investigate government waste. Certainly, your challenge to us in the estimates process is well put.

I know it is difficult - you mentioned it's like comparing oranges and apples when you look at other Auditors' General offices in terms of budgeting and performance. You indicated anecdotally, and perhaps this is the best we can get, that in terms of budgeting, our

[Page 19]

office is budgeted roughly the same as other offices across the province. In terms of performance, how would we rate? Again, I know that's difficult because you audit certain things that other people don't audit and some things they audit we may not audit. But, anecdotally - I'm not asking for anything scientifically, how do we rate? Are we in the middle of the pack? Are we in the forefront? Do we need to pull up our socks a bit and if so, in what areas?

MR. SALMON: Are you speaking of my office?

MR. PARENT: Yes, of your office in terms of other offices, this is anecdotally.

MR. SALMON: Yes, well, anecdotally, I would suggest that we compare favourably. The peer review process I referred to supports that, based on the senior people from Saskatchewan who examined two of our major audit files felt that they learned from what we were doing. They indicated they saw value in some of our processes to adopting in their office. So, that tells me we're doing reasonably well and the peer review by the Institute of Chartered Accountants of Nova Scotia would indicate that we measure up to professional standards which, I believe, we can all be proud of. For my part, the big change in Nova Scotia has been the changes referred to by Mr. Graham, the improvement in transparency, financially, by the government. The changes in my mandate in 1993 and 1998, have allowed us to expand our activities into the broader financial areas of government. So overall, I'm quite comfortable with the legacy I'm leaving and I believe we stack up with anybody in the country.

MR. PARENT: You mentioned some of the accounting and the transparency through Generally Accepted Accounting Principles. What changes do you see in the future happening with GAAP? Are there changes that are going to be made that are going to improve GAAP?

MR. SALMON: There is continuous, constant activity at the Canadian Institute of Chartered Accountants in terms of the development of changes in financial statement presentation, accounting standards. There was a move to establish, at an international level, consistent standards and it's constantly evolving. I wouldn't want to point to any specific area. There are quite a number of areas and they're always under examination.

MR. PARENT: I want to get back to the 65/35 split because I think you're right, I mean, even God doesn't hold 100 per cent accountability to himself or herself. So what would be a good sort of, would 75 per cent be a benchmark that would be a good benchmark to reach and to budget properly? What sort of level would be an appropriate level where one would say, this is a good level?

MR. SALMON: I don't think I can answer that question in that way. I would say that as we go through this ranking process that Elaine described - and we strive certainly to cover all of the high-risk areas - the more of the medium-risk areas that we can cover would make

[Page 20]

me more comfortable. Elaine, can you comment on how far down we get in terms of the high, medium and low?

MS. ELAINE MORASH: I think it's always the tradeoff between the cost and the benefit, how much resources you're willing to put into the process. If the goal is every entity over $5 million, and you may or may not agree with where we drew that boundary, but we said $5 million were the entities that we were concerned with and if you agree that every entity over $5 million should be audited within every five years, then that would require additional resources. I guess the tradeoff is whether the resources go there versus a provision of health services, for example. It's not an easy job that you do, but I think it's like everything else, it's just a question of what are the priorities and how important is this?

When we came into it, I guess, we were hoping that we would be able to achieve 100 per cent over five years, 100 per cent of the entities over $5 million, but that's not going to happen with the resources that we have. I guess the other thing is that as you go into more entities, you have to watch that the scope of your audit isn't eroded too, that you're just not going in there and doing something that is so superficial that it's worthless. So there also is a balancing act between the depth of audit that you do once you're in those entities. So think coverage in terms of numbers of entities audited is one measure of what we do, but it's certainly not the only measure. I think that we also have to keep that balance in terms of what we do when we go into those entities.

MR. PARENT: Now, you referred to in your business report, two of the audits that you meant to get to, one wasn't done because an outside audit had been done and you didn't want to duplicate the efforts. You had access to the information. Is there a role for outside audits? We've already mentioned perhaps the role of an outside audit being done on your office, but beyond that, is there a role for outside audits, and how would your office work with that and where are the boundaries there?

[10:15 a.m.]

MR. SALMON: Let me ask Claude to answer that.

MR. CARTER: Certainly the outside audits we're talking about are ones that are commissioned by government in areas so they're really no different than government having its own internal audit function do that work and from an audit perspective, we look at the results of that and determine whether or not it's relevant to us and whether we can rely on it. The incident we were talking about was the Treasury area which was done by Deloitte & Touche and those types of things are perfectly legitimate. It's perfectly legitimate for us to adjust our schedule to wait to see what the results of those are.

[Page 21]

MR. PARENT: Yes, that's not really what I'm getting at. What I'm getting at really is your opinion on whether these should be done or whether your office should be doing them?

MR. CARTER: I think that if government decides that it wants to do an audit of itself on its own, that's not something that we would take exception to. We don't have the capacity to look into more technical areas like Treasury to the depth that a firm that has specialists who are internationally recognized can bring to bear. So it's a trade-off. In a perfect world, it would be nice if the legislated audit office did have all of those specialities available to it. We could contract to do it. In fact, we've done that back in 1999, exactly the same coverage and many of the same results incidentally. So we don't take exception with government starting to do audits on itself and, like I said, we are prepared to step aside and let that happen and look at the results and take those into account in terms of what we do in the future.

MR. PARENT: How much time, Mr. Chairman?

MR. CHAIRMAN: Just seconds.

MR. PARENT: Just seconds, okay, I wanted to come to the outside agencies, school boards, universities, and all that because I think that those are areas where significant government dollars are being spent. I'm not sure the accountability is there as much as it should be, but I will have to come back to that because I think my time is up.

MR. CHAIRMAN: We'll move into 10-minute segments now beginning again with Mr. Steele of the NDP caucus.

MR. STEELE: If I have only 10 minutes, I'm going to have to move quickly from topic to topic, but let me just summarize what it was I was getting at before and has been picked up by some of the other members who were asking questions and that is this idea that with existing resources you can cover 65 per cent of the government within a five-year cycle. My point was that what I'm afraid of is that we've all come to accept 65 per cent coverage as normal and acceptable and that your office has just stopped even asking for the resources that would allow you to do 100 per cent coverage. Is 100 per cent coverage reasonable within five years? I would certainly think it is.

My own personal belief is that every single person handling public money should know within a reasonable degree of certainty when the auditor is coming to visit them and so 100 per cent coverage is not only possible but highly desirable when you're dealing with the public's money because, as we were talking about, it only takes a very small amount of waste or mismanagement to increase a substantial amount of the public cynicism and distrust and so, for example, when you were talking about targeting entity to $5 million and more, well, as we've discussed, the sponsorship program, if it was scaled down to Nova Scotia levels, it would be $1 million and never would have been subject to audit on the current

[Page 22]

criteria that the office is using, but I didn't want to ask you about that anymore. I just wanted to summarize my position on that.

One thing that I am very interested in, now this is not about your office at all, but I'm going to take this as an opportunity to ask you anyway, the money coming to Nova Scotia from the offshore accord, clearly a very important part of the budget that's going to be brought before this Legislature very soon, a very substantial amount of money, a very substantial payment on the debt, a relatively small but not at all insignificant amount of money will be saved in interest costs every year which is then available for whatever the government chooses to use it for, but we're in this uncertainty. What's happening up in Ottawa, is it going to pass or not? If it passes, when is it going to pass?

My question for you is according to accounting principles in the current climate, how ought our government account for this? Should they include it in their budget? If so, on what terms or should they leave it out?

MR. SALMON: In preparing the budget, particularly on the revenue side, you forecast your revenues based on assumptions and those assumptions must be reasonable. So the task for officials in the Department of Finance, and the Treasury and Policy Board is to examine that situation, examine whatever information they can obtain about what is going on in Ottawa, examine the representations that are being made by the government in Ottawa, and determine whether it is a reasonable assumption that that money will be received sometime in this fiscal year. If they come to that conclusion that it is reasonable to assume that it will be received sometime this fiscal year, then it would be appropriate to include it in the budget. My responsibility under my mandate is to review what they have done and come to my own conclusion as to whether or not the assumption that is made is reasonable.

MR. STEELE: Part of your statutory mandate is to review the government's revenue estimates and sign off on them as being reasonable?


MR. STEELE: And that, in fact, the revenue estimates are based on those assumptions which you have agreed are reasonable. So when we see the budget within a matter of, certainly it appears to be days, we will see your certificate about whether you think the government's assumptions with respect to the offshore accord are reasonable or not, is that correct?

MR. SALMON: That is correct.

MR. STEELE: I would like to ask you now to turn the spotlight back on this Public Accounts Committee. You are in a unique position, I think, to make recommendations to this committee about how it can improve its operation, something that we don't ask ourselves

[Page 23]

nearly often enough. I have expressed the view publicly before that this committee is very, very busy, but not necessarily terribly, terribly effective. I was wondering, could you state for the record your views or any advice you have for this committee about how it can improve its efficiency and effectiveness?

MR. SALMON: There's one significant issue that I have raised in the past that needs to be addressed and that is that this committee at the conclusion, or perhaps more often than once a year, should prepare and submit a report to the Legislature that includes recommendations to government designed to improve the operations of government. That should be based on the inquiries that are made of witnesses here, of issues that are identified in those meetings, and that should be synthesized, a report prepared, and recommendations made.

MR. STEELE: And what are the consequences in terms of accountability if this committee continues to not do that?

MR. SALMON: Well, the backfill position is that the government is left with the recommendations that I make and that's where the focus is. So the effectiveness of this committee is limited in terms of its mandate and exercise of its responsibilities.

MR. STEELE: Are there any other things that this committee, do you think, could do better to work better with your office or to enhance the public accountability of the government?

MR. SALMON: I don't think there are any major issues in that regard. I wonder sometimes why certain items are selected for the agenda, what the motivation is for those. Let me say, this is the most active Public Accounts Committee in the country, as far as I know. I would suggest that you would be more effective utilizing your time focusing on issues raised in my reports as opposed to other topics.

MR. STEELE: I just want to give the opportunity to the Deputy Auditor General to add any comments that he wishes to make. Mr. Carter, do you have any advice for this committee about how it can be more efficient and effective?

MR. CARTER: I think the committee should be looking to government to provide it with its plans and response to the Auditor General's Report and recommendations on a more formal basis. We're doing a follow-up and recommendations and we say we're going to do that, but that process has to start long before three years after we issue it. That would be beneficial and some jurisdictions do that. Roy, I think you worked at that at the federal level previously? It would be useful, I think, in terms of saying government's reaction or response to our recommendations.

[Page 24]

MR. STEELE: I have time for just one more topic and that's the question of the internal audit function in government. Mr. Salmon, you had mentioned that the Enron/WorldCom scandals have thrown a fresh focus on internal audit, yet the entire Government of Nova Scotia - $6 billion worth of government - has exactly seven internal auditors: three of whom are currently assigned full-time to the Department of Community Services, apparently to chase down - among other things - some very small overpayments to social assistance recipients; another three are assigned on a full-time basis to the e-Merge project; leaving one single internal auditor - the manager of the unit - to cover the entire rest of government. What are the consequences of the lack of an effective internal audit function within the Government of Nova Scotia and what are the risks that we're running as a result?

MR. CARTER: I think the risks are that management in government isn't getting timely information on the quality of its controls and processes that it's responsible for. I think the consequences are the risks of events like the one that you referred to earlier could continue to occur. There's a lot of work that could be done for management in assisting it to determine whether or not it's dealt with controls adequately. Management in the Government of Nova Scotia doesn't have the capacity to focus on those things itself and it does need some independent objective view coming to it of its own accord that it can then deal with and remedy the weaknesses and concerns.

MR. STEELE: Thank you very much.

MR. CHAIRMAN: Thank you. That concludes the NDP time allotment. We'll turn to the Liberal caucus, Mr. Graham.

MR. GRAHAM: Thank you. I'm not sure if the questions I have will take the entire 10 minutes. I'd like to touch on one early question pertaining to the role of the Auditor General. It seems to me that we have moved to a place where there are more checks and balances on government spending. It is no longer possible for government in its entire capricious discretion to spend money as they desire. There needs to be some objective basis for that. But there is also an independence of government itself and one, there are operations questions that come to play in government's decision to spend money in certain areas. It would be unacceptable, I expect, for you to go into the Department of Education and find that they say, we're going to spend our $800 million - or whatever it is - and we'll figure it all out, without having some kind of a breakdown of how that happens. For smaller amounts of money in the range of hundreds of thousands of dollars, you might be less concerned.

[10:30 a.m.]

It strikes me that there continues to be a lingering in-between area where there is a fair bit of discretion that is being used. I'd like to focus in on the Department of Economic Development, the decisions that have been made in Cabinet with respect to the capital investment plan and the discretion around that pool of money. You may say that, in your

[Page 25]

wisdom - and I know that Mr. Carter may have commented on this in a previous meeting that we have had - that it's well within government's power to exercise the kind of discretion that they have with the tens of millions of dollars of money that they have in that pool. But frankly, from my perspective, it seems like a fairly murky pool of money where targets aren't set, you don't have a report of an annual plan, decisions are made by Cabinet that sometimes don't make it to the street.

Ultimately, these are taxpayers' dollars that are being spent in an area that at one time was described to be the almost exclusive purview for Nova Scotia Business Inc. Are you able to comment on the general question about your role in relation to ensuring that government has some guidelines for the use of its money and then specifically with respect to this amount of money, and whether you're comfortable that there is enough around this that the material, the amount of money in question is not so great that we should be concerned?

MR. SALMON: We have continually stressed the need for transparent and solid business plans that are tied back to the resources to be utilized in the conduct and carrying out of those business plans and then following up on that with a performance report that outlines what happens.

This progress has been made. All departments prepare business plans, the Crown agencies prepare business plans. Those are all tabled in the Legislature, but I sure don't see much debate on them.

MR. CARTER: Your comments at an earlier meeting took me back to the office to look at exactly what is in the budget and planning documents for the Industrial Expansion Fund, and what Mr. Salmon says is correct. It is certainly unfortunate that the Industrial Expansion Fund information isn't part of those publications yet. Certainly we will be suggesting that it should be. It is a gap in the level of information coming to this House on that front.

MR. GRAHAM: If I were to put it in simple language, it would be your view that we should take the Industrial Expansion Fund out of the closet, as it were, and make it a more transparent fund with clear criteria and more reporting.

MR. CARTER: There should be a business plan for the Industrial Expansion Fund and an accountability report for that fund tabled in this House just like every other Crown agency.

MR. GRAHAM: Is there potentially a role that your office can play, apart from what you've said already this morning, in moving that along? I appreciate, Mr. Salmon, what you said about the role of legislators and trying to ensure those kinds of things happen. Do you have any suggestions for how we could ensure this does see the light of day and that there

[Page 26]

is more transparency around what a fund that hands out in some circumstances tens of millions of dollars to some industrial expansion ideas?

MR. CARTER: The Auditor General is the auditor of the Industrial Expansion Fund, so we do audit that currently under a contract arrangement with a public accounting firm on an annual basis. When the budget and business plans for 2005-06 are reviewed, we'll be reviewing those again to determine whether there's been any change in the level of information provided to the House. Then we will be considering that for reporting purposes in the June report.

MR. GRAHAM: I appreciate that. I did mistakenly call it the Capital Investment Fund instead of the Industrial Expansion Fund at the outset, but that is the fund that I was referring to.

I'd like to pick up on one of the lines of questioning that was raised by my friend, the member for Halifax Fairview. I note with some interest that there appear to be some comments coming from Ottawa from the Leader of the Opposition that his intention would be to satisfy the offshore requests of Newfoundland and Nova Scotia through a more comprehensive plan that includes other jurisdictions like Ontario and Saskatchewan. When I read reports in the newspaper that suggest that, in fact, is the direction he may be headed in, then flags go up in my mind about the certainty that this money will actually flow. I'm wondering whether or not you're able to comment on the specific uncertainty that you may be feeling about any of that money coming down the road.

MR. SALMON: Well, certainly there is a level of uncertainty as to what's going to happen in Ottawa with talk of an election, what the polls show and all of that has to be taken into account by our colleagues at the Treasury and Policy Board and the Department of Finance in determining what a reasonable assumption is for purposes of the budget, and I'm in the same position, I have to consider all of that as well, but I'm just not prepared to speculate on which way it's going to go.

MR. GRAHAM: Do you recall the discussions that went around a few years ago about the Census question that was alive and well, and that I believe it was the Provinces of Saskatchewan and Prince Edward Island who either noted it or quantified the amount because they felt at that time there was enough certainty around that question that they could put it into their budget and Nova Scotia was silent with respect to that. It raises, in my mind, the level of certainty that you might feel you require as we move forward into this budget and in particular whether or not you're looking for the comfort of at least a written comment from Party Leaders. It strikes me that all that we have right now, unless I'm missing something, is an election promise that is spoken about by the Premier about what Mr. Layton and what Mr. Harper may have said, and I don't know whether there's anything in writing and I don't know even if it was in writing whether or not that is something we can rely on, particularly if Mr. Harper is making comments about this having to include other jurisdictions.

[Page 27]

MR. SALMON: Claude, do you want to comment?

MR. CARTER: Can I say no? (Laughter) I think we are in the middle of doing that review right now and I think it would be inappropriate for me to comment and prejudge where we're going to end up or even to discuss what we're considering.

MR. GRAHAM: Thank you. Those are my questions.

MR. CHAIRMAN: Thank you. Now we'll turn to the PC caucus and back to Mr. Parent.

MR. PARENT: Thank you very much and just a quick rejoinder. Clearly this is an issue in terms of the delay of the implementation of the signed accord but my understanding is from reading the tea leaves, which we're all trying to do right now, is that both the Liberals and the Conservative Party have both indicated that they are in favour of this accord, so the question really is not if, but when? Of course, the when creates problems for the budgetary process and I think I just wanted to get that on the record.

I want to come back to my questions now about auditing agencies such as school boards, hospitals and universities. I looked at the budget breakdown for Acadia University, for example, which is a university near my riding and one that I attended. We supply maybe about 30 per cent of their budget. How then does one do a proper audit on an agency like that when you're not the full-funding partner? What are the complexities of that, and that would be the same to a lesser degree with school boards and health boards?

MR. SALMAN: I'll ask Elaine to comment on that.

MS. ELAINE MORASH: School boards and health authorities, you're right, are much more straightforward because the province provides the vast majority of the funding. Universities have always been a little bit troublesome for us because our Act reads that we can audit any financial assistance that comes from the province so, yes, we have a mandate. Even if somebody got $100 from the province we could go in and audit the spending of that $100.

We did some audit work in universities last year and started that audit work by meeting with CONSUP, the Council of University Presidents, and explaining to them that we were well aware that the province provided less than 50 per cent of the funding at most universities and that we would limit our audit work to where the funds that came from the province were transferred into, and that meant their general operating funds. We didn't do any work, for example, in their endowment funds because the province doesn't contribute to those funds. We stuck to the operating fund and we said, because there's no restriction on these funds that come from the province and they're intermingled with all of your other operating funds, we really have to go in and look at the entire operations, the operating fund

[Page 28]

of the university. So that's what we did. We looked at the internal controls over the operating fund. If there were strict restrictions on the funds coming from the province and they could only be used for a certain purpose, then we would just go in and look at what those funds were used for. But, as it is now, university funding is totally unrestricted and it does get intermingled with tuition revenues and other sources of operating revenue.

MR. PARENT: In your audits of these types of enterprises, have you received good co-operation?

MS. ELAINE MORASH: Absolutely.

MR. PARENT: So no roadblocks thrown up and everyone is open to audits from your department?

MS. ELAINE MORASH: I think had we started with the approach or the assumption that we wanted to go in and audit the endowment funds or even ancillary operations where the province doesn't contribute, and I'm talking cafeteria operations, residences and things like that that are not supported by the province, we might have gotten a different reaction, but we had already thought about it and said, okay, we're just going to go in and look at the operating fund which is where the tuition revenues and the provincial revenues go.

MR. PARENT: Is it your intention, in this risk analysis assessment that you do, to do more of these - school boards, health boards, et cetera, universities?

MS. ELAINE MORASH: That's right but they are probably the most problematic area in terms of achieving 100 per cent coverage within five years. In the early 1990s, before Mr. Salmon's tenure, our goal then was to audit each one of them within a 10-year time span. Obviously, we were closer in achieving a 10-year time span than a five, so there are some choices that have to be made in terms of what the right number is.

MR. PARENT: Thank you. I will turn the questioning over to my colleague.

MR. SALMON: Could I interject for one moment? You raised the issue of co-operation and support from those whom we audit, in my tenure over the last 13 years, I've only run into one situation where there was resistance and it took some efforts on the part of both the government and my office to overcome that, but we did.

MR. PARENT: Can I just follow up on that?

MR. CHAIRMAN: Yes, go right ahead.

MR. PARENT: Is it possible to name where the resistance came from, what the argument was?

[Page 29]

MR. SALMON: Yes, it was the Atlantic Lottery Corporation and the roadblock that was put in our way was that my mandate stopped at the border of Nova Scotia and that the head office was located in New Brunswick. I simply got the Auditor General of New Brunswick to co-operate with me and we went in.

MR. PARENT: And then the audit was accomplished?

MR. SALMON: In the end, Nova Scotia gained $5 million a year forever.

MR. PARENT: Yes, I remember that now, thank you for your work.

MR. CHAIRMAN: Mr. Hines.

MR. GARY HINES: Mr. Salmon, before I came to this illustrious position of representing the people of Nova Scotia, I used to spend my days sitting on my bulldozer. The two things I took to work with me were my lunch box and newspaper, so I had them with me at all times. I can remember years ago - and I don't know how many years you have been here but I wore out three bulldozers, I know that, while you were in office - I used to read my newspaper and used to think to myself, who is the gentleman by the name of Salmon? When the Liberals were in power I agreed with you and when the Progressive Conservatives were in power, part of the time I disagreed with you, but I can tell you that always your performance was unfettered, you said what you believed and you made your points and for that I don't think you'll have a problem leaving a legacy, especially with becoming GAAP compliant and so on.

[10:45 a.m.]

Your unselfishness today was expressed in not asking for greater budgets. I'm impressed with that statement because you know the need in other areas of government. I'm also impressed with the fact that you've committed some of that funding increase to the hiring of students. I think it's very important that you have that student resource and also very important to the students that you'll employ on moving on with their lives.

I want to go to the training aspect of your position. What kind of resources and what kind of times are allocated to training and what drives the training needs?

MR. SALMON: Elaine would be the best one to deal with that.

MS. ELAINE MORASH: We do hire students fresh out of university who work in a program of studies to obtain a professional accounting designation. The resources that we have to give to those students are quite intense. For example, we pay for their courses when they pass them and we provide them time off with pay to take those courses that they need to obtain their professional accounting designation.

[Page 30]

That's one aspect to our training, the other aspect is professional development for our own staff. All of our own staff, with the exception of a few admin staff are professional accountants, we all have professional designations, but we all have a responsibility to maintain currency in our professional body of study. We provide courses in the range of 10 to 15 days of professional development a year for our staff who have professional accounting designations in order to keep them current. Some of that course work - sometimes we hire consultants and others to come in and put on courses for all of our staff and sometimes we send our staff to courses that are put on by other organizations, including the Institute of Chartered Accountants.

Training is an important function in the office and it takes a lot of time and effort, especially when there are so many changes going on in the profession all the time, as Roy talked about earlier. But we see the students playing an important role in our office and what happens is that many of our students obtain their professional designations with our office. They may choose to stay with our office for the longer run or they may choose to go into other areas of government. For example, many of the senior people at Finance are people who had a background from our office when they first entered in government. It's a good training ground, it allows our students to see a lot of different government departments and how they operate.

MR. SALMON: Mr. Hines, if you turn to Page 31 in our document here, we already have five student auditors among our 28 staff. I think two of them will be writing the CA final examinations in September. We have high hopes that they will qualify and move up the ranks. Our plan, now with the additional resources, is to hire three more. That's a lot of students at one time in our office, but these five have been with us, on average, about a year so they've gone through a learning curve. They're certainly much more productive now than they were a year ago.

What Elaine has outlined is the process we go through. When I arrived here in 1992 my predecessor had stopped training students. I said, that's wrong. We're a training ground for government, we want to develop people up through the ranks and so we're going to make the investment. I didn't view it as a cost of operation, I viewed it as an investment on behalf of the office and the government generally.

MR. HINES: I applaud you for that. I think it's a wonderful effort. In your goals list in your performance report, "Develop policies and implement procedures related to Office's compliance with FOIPOP legislation and access to information under government privacy policies." What exactly do you mean by that? What have you done to achieve this goal?

MR. SALMON: I'll ask Mr. Horgan to answer that question. He's our FOIPOP expert.

[Page 31]

MR. ALAN HORGAN: With respect to FOIPOP, we've often wondered exactly how that piece of legislation applies to our office. So we asked for some opinions from the Department of Justice as to whether our office is treated any differently with respect to that piece of legislation, than say other parts of government. We received the opinion and we, in fact, have certain immunities through different pieces of legislation.

What we want to do with respect to policies and practices is to understand these immunities and make sure that we apply them consistently. We're also told that in order to maintain these immunities we must be consistent, in that we can't just grant information to some people who ask for it and not to others, because that would be unfair and inconsistent with those immunities. We just want to be sure, ourselves, that we are consistent and we're following standard practices.

MR. CHAIRMAN: Time has expired and with the remaining minutes I would like to now ask Mr. Salmon, or any of the staff, if they'd like to make closing comments.

MR. SALMON: Thank you, Mr. Chairman, we certainly appreciated the opportunity to come here today and to discuss our performance and our plans. I appreciate the comments and issues that have been raised, some of them, I think, will require some more consideration in my office, particularly the funding level.

Overall, I must say that I'm very pleased with what has been going on in the office and what we've been able to accomplish, both in the short term - the last year - and over the long term. Hopefully, I'll have the opportunity to come back once more a year from now with a report on what has been accomplished in my last year. Thank you.

MR. CHAIRMAN: Thank you, Mr. Salmon, for providing us with excellent reports, I know they are well received and also, for providing this committee with more insight into the tasks that you perform on a daily basis, and your vision for the future of your office. I think I can speak for all committee members when I say that we look forward to working with you and your staff, in particular, Alan, Elaine and Claude, during the weeks and months ahead and also, with the audit managers who drop in occasionally, we always look forward to their expertise as well.

The next meeting will be on May 11th with the Nova Scotia Gaming Corporation.

The meeting is now adjourned.

[The committee adjourned at 10:53 a.m.]