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HANSARD

NOVA SCOTIA HOUSE OF ASSEMBLY

COMMITTEE

ON

PUBLIC ACCOUNTS

Wednesday, January 18, 2006

LEGISLATIVE CHAMBER

2005 Report of the Auditor General

Printed and Published by Nova Scotia Hansard Reporting Services

PUBLIC ACCOUNTS COMMITTEE

Ms. Maureen MacDonald (Chair)

Mr. James DeWolfe (Vice-Chairman)

Mr. Mark Parent

Mr. Gary Hines

Mr. Graham Steele

Mr. David Wilson (Sackville-Cobequid)

Mr. Keith Colwell

Mr. David Wilson (Glace Bay)

Mr. Michel Samson

[Mr. David Wilson (Sackville-Cobequid) was replaced by Mr. Howard Epstein.]

In Attendance:

Ms. Mora Stevens

Legislative Committee Clerk

WITNESSES

Office of the Auditor General

Mr. Roy Salmon

Auditor General

Mr. Claude Carter

Deputy Auditor General

Ms. Elaine Morash

Assistant Auditor General

Mr. Alan Horgan

Assistant Auditor General

[Page 1]

HALIFAX, WEDNESDAY, JANUARY 18, 2006

STANDING COMMITTEE ON PUBLIC ACCOUNTS

9:00 A.M.

CHAIR

Ms. Maureen MacDonald

VICE-CHAIRMAN

Mr. James DeWolfe

MADAM CHAIR: Good morning. I would like to call the committee to order. Today we have the Office of the Auditor General, to speak to the 2005 Report of the Auditor General. If we could start with introductions by the members and by the witnesses so Hansard can get a sound level.

[The committee members introduced themselves.]

[The witnesses introduced themselves.]

MADAM CHAIR: Thank you very much. Mr. Salmon, the floor is yours.

MR. ROY SALMON: Madam Chair, with your indulgence, before we get on with the report and your questioning, seated in the gallery is Jacques Lapointe, along with his wife, Kathleen. They are here on a house-hunting trip, preparing to take over responsibilities of my office on March 1st. I would ask members to recognize Mr. Lapointe with a warm welcome. (Applause)

MADAM CHAIR: Good morning, and welcome to Nova Scotia.

We will start with the Auditor General.

1

[Page 2]

MR. SALMON: Madam Chair, I have a few brief comments. I tabled this report last Wednesday and had the opportunity to brief the committee in camera. We don't intend to go over it again, but rather simply, we're here to respond to your questions.

MADAM CHAIR: We will start the opening round of questioning from the NDP caucus. Mr. Steele, you have 20 minutes.

MR. GRAHAM STEELE: Mr. Salmon, this is not the last time you will appear before this committee, however, it is the last time that you appear to present one of your reports. I want to thank you, again, for another clear and informative report. I'm sure we'll have plenty of chances between now and the end of March to thank you for your years of service to the province.

This morning, which is about the report as a whole, I don't want to spend my time dealing with individual departmental audits, because there are a lot of meat in those chapters, and I really do hope that over the course of the Spring and early Summer that we will get into Community Services, Education, and the Office of Health Promotion. The things I want to talk about this morning are the things that cut across departments where there's no one particular individual we could call to this committee to account for the observations you make in your report. I want to focus in particular on Chapter 3 of your report, Consulting Contracts and Service Arrangements.

Information provided by your office indicates that the use of consulting contracts has risen steadily over the last four years from $7.6 million in 2001 to $16.4 million in 2004-05, with a substantial increase in that amount every year; that is a 115 per cent increase in the use of consulting contracts every year. Unfortunately, the conclusion that you draw from your audit in the last paragraph of Chapter 3 is, "There were too many instances where documentation and/or other considerations were assessed as less than fully adequate."

For example, your audit reveals the following: 28 per cent of the projects you looked at were sole-sourced, meaning there was no competitive bid or selection from standing offers; of the seven sole-sourced contracts, three had the work started before authorization was issued and another two had the work completed before authorization was issued; half of the standing offer projects were started before a purchase order was issued; two of the 25 projects you looked at had poorly defined contracts and another two had no contract at all; 36 per cent of the contracts had inadequate information in the invoices; there was no post-project evaluation in 96 per cent of the projects; no report was ever prepared in 44 per cent of the projects and even in the 14 cases where there was a report, there was no documented response from the department for five of them.

These are only examples from what you say in Chapter 3 of your report. Obviously these numbers are much too high. The procurement policy is there for a reason. We saw with the Liberal sponsorship scandal what happens when rules aren't followed.

[Page 3]

My first question for you, Mr. Salmon is, if I ask you, when it comes to consulting contracts, whether the Nova Scotia procurement policy is being occasionally, often, or habitually sidestepped, which one would you choose?

MR. SALMON: Often.

MR. STEELE: What are the risks we're running when we have a government that is often sidestepping its own procurement policy when it comes to consulting contracts?

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

MR. CARTER: Sorry, the question again is, what are they . . .

MR. STEELE: What are the risks that we're running, what is it that could go bad, could go wrong, if we have a government that is often sidestepping its own procurement policy? In other words, why should the people of Nova Scotia care that the government is often sidestepping the procurement policy? Why should they care?

MR. CARTER: Lack of control over the use of public funds, inadequate due process as it relates to the use of the funds, the funds being used in a way that isn't seen as being fair, or transparent, or open, those types of considerations. Certainly, in terms of accountability, as you indicated, there are policies and rules that are there, and if the system is sidestepping those on a very frequent basis then the accountability function is impaired.

MR. STEELE: If somebody knowingly doesn't follow the procurement policy, what are the consequences?

MR. CARTER: There are no consequences formally built into the process. Clearly, depending on the significance of the deviation and I guess in the consequences to government through whatever mechanisms, there may or may not be sanctions. There is no guideline there to say if you step across this line this is what's going to happen to you.

MR. STEELE: Is that a problem do you think, that people know that if they break the procurement policy there's no real punishment?

MR. CARTER: If you look at a traditional accountability process where you have an allocation of responsibilities and are reporting back, one of the legs of that accountability chair is sanctions and corrective actions. If there aren't any sanctions or corrective actions built into the process, then you don't have a complete accountability process in place.

MR. STEELE: Do you think there ought to be sanctions and, if so, what would they be?

[Page 4]

MR. CARTER: I'll let Roy answer that one.

MR. SALMON: I believe there should be sanctions, and in any accountability structure you can build in levels of sanctions depending on the seriousness of the deviation, and that can go all the way from a warning put on a personnel file, to demotion, to firing.

MR. STEELE: I was particularly interested to notice that over in Chapter 5 of your report you address the same issue. In Chapter 5 you are reviewing the recommendations you made in your annual report in 2002. One of those recommendations, which can be found on Page 55 at Paragraph 14.4, was that there should be some level of reporting to the House of Assembly on procurement. I was especially interested to see that the government's formal response to that recommendation was that no action is taken or planned.

Now it was only on 5 per cent of your recommendations that the government said we don't agree, we're not going to do it, but one of those was that they said they have no intention of providing more information to the House of Assembly about exceptions to the procurement policy. What's your response to that?

MR. SALMON: That the House of Assembly should follow up on that and take action to require the government to report on procurement.

MR. STEELE: And if the House of Assembly is controlled by the government, how do we do that?

MR. SALMON: That's your problem in the democratic system.

MR. STEELE: So we have a procurement policy where there are no sanctions for breaking it - it doesn't even come to the House of Assembly because the government refuses to provide more information to the House of Assembly. How can the citizens of Nova Scotia be confident that the consulting contracts are being awarded appropriately and with due regard for value for money?

MR. SALMON: They can't.

MR. STEELE: What are we going to do about that, Mr. Salmon?

MR. SALMON: I put it back in the hands of the members of this House of Assembly to take the appropriate action. Other than that, there is nothing that can be done.

MR. STEELE: Let's turn to two specific examples, two specific contracts that you deal with in your audit report. One of the sole-sourced contracts you looked at is described at the bottom of Page 29 as "Legal research and strategic analysis" for the Department of

[Page 5]

Intergovernmental Affairs. Mr. Carter, what can you tell us about this contract and which rules were broken when it was awarded?

MR. CARTER: The contract that you're referring to relates to legal research services associated with the Campaign for Fairness. It was charged through the Department of Finance in the restructuring costs area, but really related to and was undertaken for the Department of Intergovernmental Affairs. The concerns that we had were that - again, we were looking at this both from the point of view of compliance with procurement policies but also whether or not the engagement was properly managed - in terms of the procurement policy, the alternative procurement approval was given after the fact, the work had already started when the approval for this being sole-sourced was put in place. We had some concerns about whether the scope of the work was fully defined and worked into the contract. I won't say that's about it, but that's what pops out at me right now in terms of our concerns in that regard.

[9:15 a.m.]

Similar to a number of situations where alternative procurement was used, rather than open tendering, the approval was put in place, in this case after the fact, to do that. Now, is that documentation or is that receiving approval. That's where the grey area is. I mean, was there a decision made at a lower level to go ahead with this that was subsequently then ratified? Our concern was that the documentation that is required under policy wasn't put in place prior to the work actually commencing.

MR. STEELE: Another one of the sole-sourced contracts you looked at is described as the bottom of Page 30 as, "Research to develop a value profile of Nova Scotians" for the Treasury and Policy Board. What can you tell us about this contract, and what rules were broken when it was awarded?

MR. CARTER: The alternative procurement approval process, again, was undertaken after the work was initiated. There were invoices actually received for the work prior to the alternative procurement approvals being put in place. Again, is that the documentation being done or is that the actual approval from the higher levels?

MR. STEELE: Okay, let me just make sure that I understand this. The work was done and invoices were sent and, after that, approval for the project go-ahead was given?

MR. CARTER: The work was started. So there was some work done and some work invoiced prior to the actual approval being put in place, as required under the alternative procurement policy guidelines. The policy is quite clear, that the approval to use alternative procurement is supposed to be put in place before the fact.

MR. STEELE: What's the sanction if the approval isn't given before the fact?

[Page 6]

MR. CARTER: There isn't any. I guess it would vary depending on the person who is actually approving the alternative procurement form, whether or not they take any sanctions on somebody who comes in after the fact.

MR. STEELE: Of course, it's particularly ironic that research on values was not put out to competitive tender and was not properly documented. I would have thought that one of Nova Scotia's values doesn't include awarding contracts to one's friends without competition. Who was this contract awarded to?

MR. CARTER: Sorry, which one?

MR. STEELE: The values research.

MR. CARTER: The values research was AOR, Atlantic Opinion Research.

MR. STEELE: Can you confirm that the principal worker on this file was Peter Butler, who also happens to be the Conservative Party's favourite pollster?

MR. CARTER: I can't confirm that. We don't have the name of the individual who did the work in our file, we just have Atlantic Opinion Research.

MR. STEELE: So if I said to you that all previous work done for the government by Atlantic Opinion Research was done by Peter Butler, who was the long-time Conservative Party pollster, you wouldn't know one way or the other?

MR. CARTER: No.

MR. STEELE: Where does all this leave us, a litany of problems with the way consulting contracts are awarded, Mr. Salmon? What are the people of Nova Scotia to make of this? What are we going to do about this problem?

MR. SALMON: Well, there's nothing I can do about it other than report it, and I put it back into your hands.

MR. STEELE: I want to take the five minutes I have left to deal with a series of short snappers based on various things in various parts of your report. One that caught my eye on Page 124 deals with the Fisheries and Aquaculture Loan Board. It says, "The audit of the Nova Scotia Fisheries and Aquaculture Loan Board revealed problems with the completeness and accuracy of information presented to the Board of Directors." When I read that, I thought, that's serious. If the board of directors is being misinformed, what's going on there? Who misinformed them and how much should we worry about this?

MR. SALMON: I'll turn that over to Alan Horgan.

[Page 7]

MR. ALAN HORGAN: The nature of the information that finding is addressing is reporting to the board of directors on the state of the various accounts, the collectability of the various loans. We found that those reports to the board did not always include a complete representation of all accounts that were perhaps in arrears, or delinquent.

MR. STEELE: Who's making these reports?

MR. HORGAN: The management of the board. Now, in saying that, we can't draw any conclusions as to motive - it could very well be just an oversight of which ones are brought forward and stuff like that. We're not implying that anything devious is going on, it's just we're reporting specifically on the quality of information and that there were some shortcomings in it.

MR. STEELE: If I were on the board and I heard that management was misinforming me about what was going on, deliberately or otherwise, I wouldn't be very happy.

On Page 121, the Industrial Expansion Fund rears its ugly head again. Listen to what it is that you say about the Industrial Expansion Fund, "The auditors report . . . was qualified because certain expenses and revenues were not reflected in the financial statements. The report was further qualified because a statement of cash flow was not provided and classification and disclosure of receivables was not adequate. In addition, the write-offs of assistance reflected in the financial statements had not been approved by the Governor in Council as required." So, apart from incomplete financial statements and a lack of statutory approvals, everything's fine over at Industrial Expansion Fund; that's pretty serious stuff.

We keep getting the Industrial Expansion Fund in front of this committee - they were in front of this committee recently and, again, what we learn is that the information they are providing to us is not accurate, and their auditor has provided a qualified report. Yet again there seems to be no consequences, there are no sanctions for providing incomplete financial statements. What, Mr. Salmon, are we going to do about this?

MR. SALMON: I have to repeat the same answer, Mr. Steele. All I can do is report it, and it's up to the House of Assembly to take the action that's required.

MR. STEELE: When the House of Assembly is controlled by essentially a Progressive Conservative working majority, it's a little more difficult than just saying the House of Assembly should do something about it, because the people on that side of the House have to want to do something about it first.

In Chapter 5, which is the follow-up on the recommendations you made three years ago, your conclusion is, "progress has been slow." Again, three years ago you made a whole bunch of recommendations - over 100 if I recall rightly, when you count sub-recommendations - and yet progress has been slow. What are we going to do about this?

[Page 8]

What concerns me obviously, today, is the lack of consequences, the lack of sanctions. You do what you do, we do what we do, and the government says, well, we'll do it when we get around to it, if we do it at all. What can we do about this?

MR. SALMON: All I can do is report it, follow up on it, and I would suggest that the process that has to be followed is for members like yourself to raise these issues in the House of Assembly, probably in Question Period, and make public your concerns and put pressure on the government to take action.

MR. STEELE: And another one in the same vein, special warrants, where you suggest the government should have sought prior approval from the House for additional spending and didn't. No consequences, no sanctions. What are we going to do about that?

MR. SALMON: We have been raising the issue of the approval of special warrants and additional appropriations for years. I firmly believe that there is an absence of effective parliamentary control, legislative control over the expenditure of public money. All I can do is continually raise it and suggest that the House of Assembly should take the appropriate action to amend the legislation and put in place the appropriate controls.

MADAM CHAIRMAN: Thank you. The time for the NDP caucus has expired. We will now move to the Liberal Caucus.

Mr. Colwell.

MR. KEITH COLWELL: I'm going to ask a couple more questions about the consulting contracts and services. I haven't a great deal of concern about that, and I won't ask what we can do about it because I understand what you can and can't do about this. I truly appreciate your report identifying these things, leaving it to us to make it public and to push the government to make sure that things are done properly.

Of the consulting services and work that was done, a lot of sole-sourcing, in your opinion, and this may be difficult to answer, where did the sole-sourcing decision come from? Was it from staff directed by the minister's office? Was it the minister's office directing staff to move these things forward for whatever reason? Was it staff working outside of their level of responsibility? Do you have an opinion on that?

MR. SALMON: I'll turn that to Claude.

MR. CARTER: Recognizing that we're doing this work after the fact, we're looking at documentation that's in place related to the decisions. We do make enquiries as to what the reasoning is behind going with a standing offer, or sole-sourcing, as opposed to an open tender. In terms of getting into the nuances of, did this come from outside or above, in terms awarded to this person, we wouldn't have gotten into that level of discussion. We would be

[Page 9]

looking at what is the documentation in place and when was that documentation prepared, when was it approved, as opposed to vetting the substance of the comments that are included on that.

MR. COLWELL: Basically, it would be my understanding that either the minister's office, or the deputy minister, the minister, or someone at a very senior position would have to ultimately decide whether this was sole-sourced, whether it was tendered, or whatever. Is that a correct statement, on my behalf?

MR. CARTER: The policy is that any alternative procurement decision needs to be approved in advance by the deputy head. That's the policy. So that's what we're auditing against. What went on before that in terms of this is who we're going to give it to, or we're going to take it off the standing offer, what's in their mind about that is not what we're really chasing. We're looking at, there's a policy and was it adhered to? Recognizing that when they decide to go with other than the competitive bid, they're looking at either the standing offers - and there are lots of names on that that they can choose from. They don't have to justify why they chose one person or one organization over another. When it comes to sole-sourcing, there is supposed to be in the documentation an explanation as to why sole-sourcing was the preferred route. That has to be approved by the deputy minister in advance of the work being done, which is one of the concerns that we've had.

MR. COLWELL: That's what I was trying to get at. Basically, if I'm an employee of a department and I decide that I'm going to sole-source something and don't talk to the deputy about it, I'm probably going to be in big trouble, and, if I'm not, there's something wrong.

MR. CARTER: You could be in trouble.

MR. COLWELL: There's something wrong, unless I have a written authorization to do that particular procurement.

Along sort of the same lines, Executive Council appropriations, in your report of the 2004-05 fiscal year, there was $132 million. That's bigger than the individual budgets for at least eight of our 13 departments. It appears that the government is making appropriations without proper approval, or coming to the Legislature. That's a significant amount of money, $132 million. I would bet, I'm just guessing here, that in 2005-06 that number is going to probably be even higher. Then, if you tie that together with the consulting services and contracts, it appears that government has decided one way or another that they're going to spend a lot of money and not be too accountable for it. It just appears that way from your report if you sort of read between the lines and look at the numbers.

[Page 10]

[9:30 a.m.]

MR. SALMON: You're coming back to the issue that was discussed earlier. The legislation gives the government the authority to approve, at the Executive Council level, additional appropriations. The problem is the legislation and only the House of Assembly can take action to correct that situation. The government is not doing anything inappropriate, because the Legislature has given them the authority to approve additional appropriations.

MR. COLWELL: I fully understand that, what I'm trying to visualize here in this whole process is the system that the government has used over the last six years or so, with regard to accountability and how they do things - and I know they changed the accounting system to a new type of accounting system which basically allows you to increase the debt and still have a balanced budget, which wasn't the case prior to that, is that correct?

MR. SALMON: That is correct.

MR. COLWELL: So basically you can borrow money and not count it in that fiscal year - you can actually, if you looked at it compared to what it was years before that, it would have been continually run deficits - would that be true? - in the accounting system.

MR. SALMON: Well, recognize that in achieving a balanced budget one of the expenses is a non-cash item called appreciation of capital assets. So the debt will increase to the extent that the acquisition of new capital assets exceeds the amount of the depreciation that's charged in that year, and that's Generally Accepted Accounting Principles and appropriate accounting.

Recognize as well that in approving the budget on an operating basis, there's also an approval process of the capital expenditures that are planned by the government. So there's an opportunity for the Legislature to consider the implications of the capital expenditures that are proposed and the impact that they will have on the net debt of the province.

MR. COLWELL: Yes, I understand all that as well. My real question and my direct question is, prior to the changing of the accounting practices - which I don't disagree with, I mean, that is fine as long as you have a standard set of practices that you follow that is recognized not just here, but outside this area - if today the government was using the same practices they did prior to 1990, would they have had a continuous balanced budget as they claimed they have?

MR. SALMON: No.

MR. COLWELL: That's what I thought. Would they have had it any year, in the time since they have come to power, that they would have had a balanced budget?

[Page 11]

MR. SALMON: I'll ask Claude to see if he can find that. My assumption would be that no, they would not have had a balanced budget because there has been, on an annual basis, an increase in the net debt.

MR. CARTER: I sort have been monitoring that to some degree on an informal basis because in the late 1990s they were on what was called an expenditure basis of accounting and GAAP has now moved to an expense basis. The focus of the expenditure basis is the change in net direct debt, and if net direct debt goes up then you've had a deficit. I believe that the 2005-06 budget was balanced on an expenditure basis. Prior to that, if they had stayed on an expenditure basis, they would not have been balanced per se. So you are right, there was a change between the late 1990s from an expenditure and expense basis, which resulted in surpluses being reported, in accordance with Generally Accepted Accounting Principles, because at that time there were two bases acceptable, expenditure and expense, now there's just expense. But on the old basis, in terms of net direct debt changes, it would continue to go up so that would have been a deficit under the expenditure basis.

The other thing that's important for this committee to recognize is that moving to an expense basis means that you don't just look at the annual surplus or deficit, you have to look at the change in net direct debt and see what the components are. So it isn't a single measure anymore, there are at least two measures that people need to focus on, for exactly the same reason as you've indicated. You can balance the surplus or deficit on an expense basis, but if you're spending incredible amounts of money on capital that goes through net direct debt, then that's something that needs to be subject to accountability by the House.

MR. COLWELL: So really what I'm getting at is that the government can spend, as long as it's on a capital basis - correct me if I'm wrong - as long as it's not an expense basis, increase the debt, and then still claim that they balanced the books.

MR. SALMON: Under Generally Accepted Accounting Principles that is correct.

MR. COLWELL: So in other words, the debt can grow and grow, and the government can go to the people of Nova Scotia and say we're balancing the books and everything is fine.

MR. SALMON: Yes, but the financial statements also indicate that there is growth in the net direct debt, and also recognize that the House of Assembly has approved those capital expenditures.

MR. COLWELL: Except for the ones they do by Order in Council, right?

MR. SALMON: Correct.

MR. COLWELL: Which can add to the debt as well?

[Page 12]

MR. SALMON: Pardon?

MR. COLWELL: They could possibly add to the debt, the appropriations by the Executive Council?

MR. SALMON: Yes.

MR. COLWELL: Which in a roundabout way is approved by the Legislature, as you indicated. I have some serious concerns about all of this because if you look at consulting contracts that have to be approved by the deputy minister, and the deputy ministers typically don't do anything that is not a policy of the Executive Council because they don't last long if they go in the face of government. Would that be an accurate statement?

MR. SALMON: I would say so, yes.

MR. COLWELL: And they are awarding contracts to individuals or companies and if you look at the sole-sourced - a standing offer is a different thing because hopefully they have done the work and that hasn't been sole-sourced, let's hope, but if the standing offer and all of the work has been done, if you find this is the best person and they've got the expertise and you want to continue with them, that's a different thing than a sole-sourced - so if you look at that and you look at the consulting contracts that have gone like that, you look at the money the province has spent through Orders in Council, it seems like they have a pile of cash they can spend with very little or no accountability on the initial end of it when they first spend it. Is that correct?

MR. SALMON: Well certainly the additional appropriations have to be reported so it's visible and transparent as to what has been spent - that contains some aspects of accountability, but in terms of the basic principle of legislative control, it's not effective.

MR. COLWELL: I would agree with that.

MR. CARTER: On the other matter in terms of the consulting contracts and procurement, not that many years ago we had recommended that government should be reporting to the House on procurement exceptions. Earlier it was indicated that that isn't happening and so forth; in fact we have some concern about whether or not exceptions are being reported to the Executive Council in a manner so that they can do their oversight as to whether or not the policies that are in place are being properly administered across government. Certainly as it relates to our work that's described in Chapter 3, that could be seen as a concern.

The other thing, and we mentioned this last week, is that it isn't necessarily a matter that this House wants to get down to micromanaging particular procurement transactions but in a perfect world - and I think we're never going to get there but it's what we should be

[Page 13]

moving toward - government would be providing this House with a report on the level of its compliance with its policies, procurement being one of them, and the level of controls that are in place, and the effectiveness of those controls as it relates to compliance with policy, due regard for economy and efficiency. When the House gets that, and assuming it has the proper details behind it that can help the House do its job to hold government to account, then the issue becomes, is the report that's coming from government a fair representation. That's where the audit function can come into play and say whether or not that report on the effectiveness of controls is what it should be. Without that in place, we're going to continue to do periodic procurement work, or work in other policy areas, likely find efficiencies and deviations from policy, and we're going to be in this perpetual give to and fro.

To come back to the basic comments that Mr. Salmon made, is that there is a need for better accountability and information to come to this House about government's compliance with its stated policies and its exceptions with respect to those.

MR. COLWELL: I like your approach on this. It's important that these things be done in that manner. There is a lot of taxpayers' money that is being spent, and it's nice to know that it's being spent appropriately. I do appreciate your departments working so closely to ensure that this happens. I understand your hands are basically tied, you can report what you see but that's it; and hopefully you see everything. Maybe that's not the case sometimes, when you're reviewing this stuff, it makes it hard to make a decision.

One other quick question - it may not be a quick answer - last Fall we saw a large amount of what appeared to be a lot of projects announced by the government in anticipation of a possible Fall election. How much money can they spend heading into a supposed election - I don't know if there was going to be or not, but it sure appeared that way - without any accountability on the announcements and everything? It seems like they announce schools, they re-announce them, and announce them again, re-announce them again, and the dollars add up pretty quickly. How much can they commit to without going back to the Legislature for approval on those types of announcements?

MR. CARTER: I'd venture to say that a sitting government, under the existing rules, could announce pretty much anything that they wanted to. When it comes to actually spending the money, that's where we have some concerns about whether or not there is effective parliamentary control over the actual spending, and because of the way the statutory provisions are right now, there is no limit on that additional spending that government could undertake, other than they would have to limit it such that their surplus results would achieve the targeted surplus amounts, which are now balanced plus whatever the offshore revenue component is.

[Page 14]

As an example, in 2005-06, they could have - if they had a full forecast of what their surplus was going to be, that $150 million or $160 million - possibly spent another $75 million or $100 million. Thankfully they didn't, I guess, depending on - maybe I shouldn't have said that but - what the priorities were.

MADAM CHAIR: Mr. Colwell, you have 45 seconds.

MR. COLWELL: I'll just wrap up by saying, hopefully, they didn't spend the money, they made a lot of commitments out four, five, six years, it doesn't account for this year. So I have some very serious concerns about that part of it. I just want to thank you, and thank Mr. Salmon for all of the work he has done for the province in the last several years.

MADAM CHAIR: The time has expired for the Liberal caucus. We will now go to the PC caucus.

Mr. Parent.

MR. MARK PARENT: I do want to thank you, Mr. Salmon, for your 14 years - I mentioned this at our last meeting, and I want to put that on the record - and for the work that you and your staff have done, we appreciate it. When one is coming to the end of one chapter in one's career I think it's an opportunity to look at the achievements that have been made. So I want to give you the opportunity to talk a little bit about the achievements that have been made in the province's finances, and in the accounting of those finances. What would you say would be the greatest achievements that have been made to date?

[9:45 a.m.]

MR. SALMON: I really don't want to take credit for the changes that have been made. It has taken a lot of initiative and effort by several governments over the last number of years. When you look at the quality of financial reporting in this province now, compared to what it was in 1992, it's light years of difference, and we influenced that, I believe, but it took government initiative to do it.

The other achievement, and this was an objective I had when I first came here in 1992, was to have full audit responsibility. The Auditor General was not the auditor of the financial statements of this province. A public accounting firm carried out the audit and reported to the Minister of Finance, not to the Legislature. The report was made public but it wasn't an appropriate audit structure. Finally getting that changed, and it took until 1998 to achieve that change, that was a major achievement. It certainly put a heavy workload on this office, particularly this man beside me, to conduct that audit, because it's a major effort. So those are the two major ones in my view.

[Page 15]

A third one was the changes that were made very early on in how this committee operated. I give credit to the committee members of that day to make the changes they made. In 1992, ministers were sitting where you're sitting, and Leaders of the Opposition Parties were sitting over here and it was just a partisan debate, it wasn't effective, it was just a forum for political discussion. The Auditor General, prior to myself, never attended these meetings, perhaps once a year when the report was tabled. I changed that practice. No matter who the witnesses are I'm here or one of my staff is and that, to me, has made the committee more effective. My office became a resource to this committee, as opposed to standing on the sidelines. So in answer to your question, I would say those three.

MR. PARENT: I want to thank you. I realize that it takes co-operation of the government in power to make these changes and certainly I'm not discounting that, I sit on the government side and am proud of what we've done. I do think you and your office have made substantive changes and recommendations and have been part of a process that has been, for this province, a good process and one that has been good for the citizens. I wouldn't be too humble if I were you, I would tout the successes that I have had.

Leading on that I guess the next question is, when you look at other jurisdictions across Canada, you've made some recommendations particularly in terms of GAAP principles for budgeting that we might look at in the future, in comparison with other provinces are there other strengths that we have or deficiencies that we have that should be noted?

MR. SALMON: I would suggest that we've come a long way over the last 10 or so years and caught up with other jurisdictions, where we were at the bottom of the pack we're at least toward the top of the pack; we're not completely there. I wouldn't say that there are any particular deficiencies in comparison to other jurisdictions. Perhaps Claude wants to comment on that issue.

MR. CARTER: I think the internal audit initiative in government is very promising and that's one area that I think Nova Scotia has, over the last decade, had some lack of focus. The initiative to put back in place an internal audit function in government for government managers in terms of providing them with assurance and advice is very important. There are jurisdictions that are way ahead of us in that regard.

The other one is the performance reporting, the accountability reports. I think Nova Scotia, in the early to mid-1990s was very aggressive in a leadership role as it relates to that. My perspective is that that initiative, while it continues to chug along, it's not moving to the same degree that it is in some other jurisdictions in terms of ensuring that the information that comes to the House and to the public is the right level and of the right nature. It's still good information, I think, but it is part of the initiative to make sure that the right information is out there, and sometimes the right information is information that somebody in government might prefer not to share with others. Performance sometimes is better;

[Page 16]

sometimes it's not as good as it should be. Part of an accountability process on a principle basis is that people have to be allowed to make honest mistakes and be accountable for those, but let's learn from the mistakes, and move forward. Until we have that mindset, governments would be very reluctant to say, let's air our dirty laundry.

MR. PARENT: It was raised by the NDP with regard to GAAP, in regard to the budget and capital spending, and under questioning from the member from the NDP side, you stated that we didn't have a balanced budget. My understanding is GAAP, which is what was recommended, allows for this. Now whether GAAP should be applied to future budgets, as well, is a slightly different discussion that we need to have. Under GAAP criteria, expenditures that are capital expenditures that are considered assets are accounted in a certain way. Am I mistaken there?

MR. SALMON: No, you're correct. Under GAAP, the surplus or the deficit is determined on the basis of operating expenditures, including depreciation on capital assets. The capital asset acquisition costs are outside of that calculation. So you have to look at the two aspects of it. Yes, you have a balanced budget in accordance with GAAP, but you also have an increase in net debt because of capital expenditures. That's appropriate.

MR. PARENT: I understand that, but according to GAAP, we've had an appropriate balanced budget. On the other side, the net debt, as a result of capital expenditures and GAAP being applied to budgeting I think is a different issue. I'm not discounting the importance of that, I think it's something we need to look at. You've raised it several times. I just wanted to clarify that.

MR. SALMON: Yes, that's correct.

MR. PARENT: Good, I thought my understanding, oh, I missed something here. In procurements, while I raised it at a previous meeting that I'd like to see some sort of post-analysis of these procurements - which is exactly what you recommend in your report - I don't think the picture is quite as one-sided as the Opposition pointed out. In your report, you note on Page 26 that 81 per cent were adequately documented, and that 88 per cent project management was adequate. When I taught at Mount Allison, and I gave someone an 88 per cent, they went home dancing for joy, now there was still room for improvement, but 88 per cent is good.

The one that does concern me a little bit is the one that has been highlighted already - well there were two that were highlighted, and the expenditures for $840 million for the Campaign for Fairness, I think no one would argue with that - the Treasury and Policy Board, the value profile, I didn't quite get what that was done for. Did you mention that and I just missed it? What was the value profile being developed for?

MR. SALMON: I'll ask Claude Carter to answer.

[Page 17]

MR. CARTER: Based on the information that we have, it was done as input into a Throne Speech being drafted.

MR. PARENT: That's really all the data you have on that particular item?

MR. CARTER: Well I have more information, but that's what it was related to, looking at - just let me pull it out - value profile of Nova Scotians in order to measure beliefs and preferences as they relate to the assessment of key policy issues, government programs, and delivery of services in anticipation of the Throne Speech.

MR. PARENT: This would have been approved by the minister, Michael Baker, I assume?

MR. CARTER: This would have been approved by the Deputy Minister of Treasury and Policy Board, who was also, at the time, Deputy Minister for the Premier.

MR. PARENT: I do think we need more post-analysis of the consulting fees, and I agree with your recommendation. I asked before if we were getting value for our buck with consulting fees and in many ways we are, and in many ways there is expertise that consultants bring that they don't have in-house, but we need a good analysis of that so we know in every case the value for buck is being delivered as best we can.

MR. CARTER: I just want to interject because it has come up twice - our audit and our report in no way challenges the propriety of that particular work being done by government or being paid for by the public purse. What we're looking at is that there's a contract and there's a process and did it apply. The appropriateness of the work in terms of the public paying for it is not part of our scope.

MR. PARENT: No, and I understand that. The question is, is policy formed in contracting them out and do we need some sort of analysis after the contracts, which is what I think you highlight in your report, and I think that's a fair sort of analysis.

In terms of the government's role on recommendations and the recommendations that you've made, again I note that 77 per cent have been completed or are in progress, and while we want to do more - and it would be nice to have 100 per cent - I think 77 per cent is fairly good. I asked before and I'll follow up, have you any data from other provinces in terms of recommendations that are made by Auditors General on what the time is that those are implemented by other provinces? How do we compare to other provinces in this regard? I don't think you had the data the last time I asked this.

MR. CARTER: As indicated when we met last week, within the legislative audit community the follow-up of recommendations is one of the performance indicators that the community has identified. We're just beginning to gather information in that regard. Some

[Page 18]

jurisdictions are monitoring it, as we are now doing, and others are not yet doing it, so there isn't a comparison.

MR. PARENT: I think that would be important to be able to have that comparison module and see how we compare to other provinces in terms of performance indicators, and that would then provide another check on whether we're on target with meeting recommendations, whether we're going too slow compared to other provinces, et cetera. When will we have that sort of information across Canada, do you know?

MR. CARTER: I would expect it's going to be about another couple of years before we have the whole thing populated. I would suggest to you that that is no reason for a government to wait to say let's put in place a more formal framework to deal with the Auditor General's recommendations, or recommendations for any other audit function frankly, and put in place a mechanism to ensure that things are being dealt with on an appropriate and timely basis.

MR. PARENT: I'm not saying that, I'm just trying to sort of judge, because these things take time to change. Recommendations are made and work is being done on it and . . .

MR. CARTER: There are a lot of other challenges and a lot of other priorities.

MR. PARENT: . . . that people have to balance and . . .

MR. CARTER: That's right.

MR. PARENT: I think those are all the questions I have for right now. I'll turn it over to my colleague.

MADAM CHAIR: Mr. Hines.

[10:00 a.m.]

MR. GARY HINES: Thank you for being here today because you are very diligent in your appearance before us and it's going to be kind of sad to see you no longer sitting in that position. I think you humble yourself in terms of the credit you take, and I know this is kind of a feel-good session in terms of those comments but I truly believe that. In fact, when you were asked the question earlier about what can we do regarding the resolution of some of these issues you basically said, I can't do anything, it goes back to your hands, I believe that you truly do more than you are giving yourself credit for.

You made four recommendations for changes. I would like you to outline the importance of those changes and how you see them affecting governance and accountability if those changes were made. Can you expound on those?

[Page 19]

MR. SALMON: We've had a fair amount of discussion this morning about the quality of financial reporting, the completeness and clarity of financial reporting. My first recommendation was to simply urge government to maintain that focus, don't lose sight of it. People in this province have a right to expect complete, timely, high-quality financial reporting and that didn't exist back in the 1980s. The fact that it didn't exist had a significant impact on the debt problem this province got itself into and it just wasn't visible.

Secondly, related to that issue, is the issue of how the budget is prepared. I strongly urge government to take action, and they have started to take action, to prepare the budget on the same basis as the financial statements so you can compare the plan to what actually happened.

Thirdly was a recommendation to this committee, and that was to become more proactive in what it reports to the House of Assembly, to make recommendations, to attempt to hold the government accountable for carrying out those recommendations, recommendations that I make or recommendations that this committee forms based on its hearings here. After examining witnesses and identifying issues, make recommendations on what should be done about them.

Finally was the issue of the Auditor General Act. We had discussions almost a year ago between representatives of the three Parties and myself as to what could be done to add to the independence of the Auditor General function and there were four that I recommended; two of them were implemented. One was to establish a 10-year term for the position and secondly, to involve the House of Assembly in the appointment process by being the ultimate approver of the appointment of an Auditor General, and that was carried out. Third, I felt there was a need to establish in legislation the basis of compensation for the Auditor General, rather than leaving it to the sole discretion of Executive Council. That recommendation was not accepted and that amendment was not made. Finally I felt that to add to the independence of the audit function and the audit office, that the approval of the budget for the office should be taken out of the hands of Treasury and Policy Board and put into the hands of a committee of the Legislature, perhaps this committee, or I believe there's a committee on Internal Economy, one or the other, but to add to the independence of the office by approving the budget, those were the four. I would urge government and the Legislature to take action on those.

[10:03 a.m. Mr. Keith Colwell took the Chair.]

MR. CHAIRMAN: The honourable member's time has expired. I will go back to the NDP caucus.

Ms. Maureen MacDonald.

[Page 20]

MS. MAUREEN MACDONALD: I'm really interested in pursuing a better understanding of Chapter 4 and some of the issues that have been raised around the protection of personal information and the privacy of Nova Scotians. This is a very important issue, as you point out in this chapter, and it's sort of a fundamental tenet of our society to believe in the rights of individuals to have their personal information held in confidence when they give it to government departments and that it be used in the appropriate manner in which it was intended. I think there are some issues that have been raised that are quite troubling, really, as I read through this chapter.

One of the things that you say, and I recognize that this wasn't a full audit in the sense of the word, in terms of the detail and kind of assessment that is generally done, but nevertheless, I think in the areas that you looked, which I believe were in five departments and eight different programs, you found some practices or the lack of practices that would be of real concern to Nova Scotians. I'd like to get a bit more detail on this.

On Page 33 of the report, at the top, the bullet says, "The Government of Nova Scotia should continue to assess the implications of the changes enacted by the U.S. government through the Patriot Act which could pose a risk to the security of the personal information of Nova Scotians". My question is, "should continue to assess", what assessment has been done to date and to what end? Are you able to provide that for us?

MR. SALMON: I'll ask Claude Carter to address that question.

MR. CARTER: There was a report done, I believe by the Department of Justice, or for the Department of Justice at the request of the Executive Council, titled Ramifications of the U.S. Patriot Act for the Province of Nova Scotia Personal Information Databases. We obtained an edited copy of that report. I think we have nine and a half of the 16 pages, and so forth. It talks about the initial assessment they've done in terms of that U.S. piece of legislation and the impact on information in Nova Scotia.

Our understanding is it's still a work in progress in terms of how government is going to deal with the implications that have been identified in that report. I should add that it does say here: An initial high-level risk assessment of the personal information databases of the Province of Nova Scotia determined that generally its personal information databases were at minimal risk. That stops, and then what's below that isn't there for us to review, so we're not aware of that. I guess what I'm saying is, we've looked at what they've given us, it, in and of itself, doesn't alleviate our concern about that piece of legislation, and we urge government to continue its efforts to ensure that it does everything that is appropriate and practical to ensure that that personal information is protected.

MS. MAUREEN MACDONALD: I'm thinking that probably the committee would appreciate a copy of that report, edited as it is, if that is at all possible. This is something we can pursue.

[Page 21]

MR. SALMON: If I could respond to that. I think it would be more appropriate for it to be obtained from Treasury and Policy Board rather than from myself.

MS. MAUREEN MACDONALD: We will pursue that then. One of the other things that is stated on the same page, Page 33, Section 4.14, "We identified significant controls and weaknesses in the systems and have discussed these findings with departmental staff." What I would like you to do, if you could, the programs you looked at were Student Assistance, in Education, Employment Support and Income Assistance, the Mental Health Outpatient Information System and so on, as itemized there in Exhibit 4.1. I'm wondering if you could specify some of the significant controls and weaknesses that you identified, and where you identified them with respect to some of these programs?

In addition to that I would say on Page 35 you outline that three of the five departments did not have any departmental privacy policy, and then you went on to say that in the other two departments that the policy in one department is nine years old and another department is preparing a policy. Could you be more specific with respect to which departments we're talking about - the three departments that had no departmental privacy and the two departments, one with the nine-year-old policy and one that's in the process.

MR. SALMON: I'll ask Claude Carter to answer that question.

MR. CARTER: The three departments without departmental policies were Education, Justice, and Service Nova Scotia and Municipal Relations - and if you could help me in terms of the paragraph reference for the other one.

MS. MAUREEN MACDONALD: It's Section 4.21 on Page 35 - indicating one department had a nine-year-old policy and the other was in the process.

MR. CARTER: I'm sure I have it in here, but whether I can pull it out. I would hate to speculate, so if I can take a minute.

MS. MAUREEN MACDONALD: Sure, certainly.

MR. CARTER: I don't have that information with me, but I will get it to you in terms of those two.

MS. MAUREEN MACDONALD: Thank you. I have to say that it's a little shocking to me to find out that for example there is no policy in the Department of Education with respect to the handling of private information around student assistance. That's unbelievable. I'm not too sure what the two out of the three Justice databases are. I have an appreciation of what the Restorative Justice database would be but these other two I'm not too sure. To imagine that the Department of Justice has no privacy policy in place for these forms of databases is quite a shock and it's a big concern.

[Page 22]

I notice that you've put the criteria that you were recommending that the government consider using as the basis for establishing some government-wide privacy protection. You placed that in the report as Exhibit 4.2. I noticed down in the second part of this policy or criteria, Protection of Electronic Personal Information Criteria, the third last bullet, "Access to Electronic Personal Information should be controlled both physically and logically." Secondly, "The infrastructure containing the Electronic Personal Information should be appropriately and securely housed." Now I want to ask the Auditor General if there's anything in place to require government departments to report the theft of a computer, for example, out of a department, do we have anything in place to report the loss of something like a computer that stores important information?

[10:15 a.m.]

MR. SALMON: There is a requirement that departments report any losses of assets or cash to my office. We review those reports. We have no way of determining if everybody is reporting but there is a requirement for them to report. We review those and we summarize them in my annual report.

MR. CARTER: Just an update. What Mr. Salmon says is correct as it relates to the old management manual policies. When they issued the new management manuals a year or year and a half ago they did not include the Reporting of Losses chapter in there, it's in the Table of Contents but it's empty right now, they haven't updated the policy. There is a standing historical practice that used to be supported by a management manual policy that presumably, once they finish putting in all the policies, will be back in there on a piece of paper, but it's not right now.

MS. MAUREEN MACDONALD: My next question would be, have you had any recent reports of the theft or misappropriation of computers in any of the departments, for example, the Department of Community Services?

MR. CARTER: I can't speak to the substance of the reports from all the other departments, that's in our file, but I will go back again and check to see if any of them relate to either notebooks or computers being stolen. We did have three notebooks go missing from our office and that's reported in the chapter. Whether or not you would think the information on our computers is confidential is something we can talk about.

MS. MAUREEN MACDONALD: The reason I ask, I'm not asking so much about notebooks missing from your office but certainly I represent the North End of Halifax where the Department of Community Services office for the central region is located. It has been brought to my attention that there has been a number of thefts in that building where Community Services has four or five floors, including their housing section, their Employment Support and Income Assistance divisions and quite possibly a notebook from a fairly senior manager may have gone missing. I'm not sure if that's accurate or what kind

[Page 23]

of information would be on the hard drive of such a piece of equipment, but these are the kinds of things I think we have to be very concerned about. It's interesting to see that the criteria that you're pointing to would, in fact, establish some of these parameters that we would have to have mechanisms in place to protect against.

I recognize that my time is coming to an end and I'd like to share a bit that's left with my colleague.

MR. CHAIRMAN: Two minutes.

Mr. Epstein.

MR. HOWARD EPSTEIN: I had hoped for a few more minutes but I'll take what I have. As former Chairman of the Public Accounts Committee I wanted to join with my colleagues today in expressing our thanks to you, Mr. Salmon, for all of your good work as Auditor General. I have to say that I have always been an admirer of the work that you and your really small staff have been able to do. As you say, entirely correctly, you have acted as a resource to members of this Legislature and to the members of this committee. It's work I admire, you should take a great deal of satisfaction from the process of mutual education that has always taken place across this floor. The praise that is given today and on other occasions is entirely appropriate so thank you.

MR. CHAIRMAN: You have one minute.

MR. EPSTEIN: In that case I can ask a substantial question. I want to ask you about Page 19 of the report, and it has to do with this problem of additional appropriations and special warrants. You really do call the government to task for its failure to pass Orders in Council to justify the additional spending that they do. I guess I'm really wondering if you can clarify for us what the essential difference is between an additional appropriation and a special warrant, and tell us whether other provinces or the federal government have legislation that really nails this down. You're suggesting to us that we ought to change our legislation, so I'm wondering if there is a model out there, and whether you can tell us how we ought to deal with this?

MR. SALMON: I'll ask Claude Carter to deal with that.

MR. CARTER: The distinction between additional appropriations and special warrants is, additional appropriations relate to additional spending authority required for matters that have already been voted upon, in other words appropriations that have been voted upon in the House; the special warrants relate to an urgent and immediate need that was not included and incorporated into the budget of government, in other words an unplanned event or matter that essentially government is adding, getting additional funding.

[Page 24]

The way the Act is written right now, special warrants clearly have to be approved by Executive Council in advance of the spending, as opposed to what is now in place for additional appropriations, it puts it in place 90 days after the fact. In terms of comparisons across the country, we've done some very rudimentary, and I emphasize very rudimentary, research in terms of what's going on in other jurisdictions. There are three or four jurisdictions that use supplementary appropriation legislation, where the government comes back to the Parliament and says, you gave us this originally, we now need this additional spending.

The impression I got is that timing is an issue in most jurisdictions, because the reality is few Parliaments, or Houses of Assembly sit all year long, so there is always some lag. So it isn't necessarily always before the fact that the House is debating these things, and it is a challenge. There isn't a perfect model out there, I guess is what I'm saying. Our concern is that we think this House has a role to play in terms of upfront accountability as it relates to government's additional spending plans over and above what was originally approved.

MR. CHAIRMAN: Thank you.

Mr. Samson.

MR. MICHEL SAMSON: Thank you, Mr. Chairman. Sticking on the same issue, I guess, today's paper raises an interesting point about what we've been talking about. Based on the budget that was supported by the NDP and the government this Spring, I'm wondering where in the budget you could indicate to us the funding for this new office in Ottawa that's going to cost $400,000, I'm wondering if you could tell us where that is in the budget that was approved this Spring.

MR. SALMON: I really couldn't answer that question, we wouldn't get to that level of detail in reviewing the budget.

MR. MICHEL SAMSON: As an elected official, I'm wondering, can you tell us when constituents ask us where did they get the $400,000, because we never heard of this before, what answer are we expected to give?

MR. SALMON: I would suggest to you that within a $5 billion budget it wouldn't be hard to find $400,000.

MR. MICHEL SAMSON: Is this not an example of where the government has continued to go in the last three years with the additional appropriations, which are clearly not identified, specifically, when the budget process is underway. Yet, we suddenly hear throughout the news of these new appropriations that are taking place, which was not

[Page 25]

approved by the Legislature, that the government has decided to go out on its own and create?

MR. SALMON: That's back to the issue I spoke to earlier, the legislation gives Executive Council the authority to approve additional appropriations without coming back to the House of Assembly. I do not believe that that is effective control over public funds.

MR. MICHEL SAMSON: I fully agree with you on that. I was a bit surprised, listening to the comments by Mr. Steele earlier, only to hear the comments from his colleague, the honourable member for Halifax Chebucto, saying he had no issue with this office being set up and how it was being done. It's something to say the Department of Health has overspent in the Capital District, so we need additional funds, but it's something else to say we're creating something completely new that never existed before that we didn't bring in front of the Legislature, we didn't specifically identify it in our budget and yet we've decided this is a whole new thing, this is a completely different thing.

There's something about having overspent in a department and saying we need additional funding and rather than going back to the House this was something that was in the budget as a priority and as an existing expense, and it's something else for the government to suddenly come out and create something completely new and say we'll just make it an additional appropriation and we'll approve it through Cabinet. Is the legislation that wide open that they can just create anything they want outside of the budget and there's no control from the House or any sort of check or balance on that expenditure?

MR. SALMON: They cannot do that through an additional appropriation - as Mr. Carter described - that requires a special warrant, but they have the authority to approve special warrants.

MR. MICHEL SAMSON: So special warrants basically are in cases where it wasn't an existing expenditure, this is a completely new expenditure?

MR. SALMON: That's correct.

MR. MICHEL SAMSON: On the issue of those special warrants, is that something that exists in all other jurisdictions as well, that they can create whatever new policies they wish after the budget has been passed and simply do it through a special warrant?

MR. SALMON: I could not be definitive on that. Perhaps Mr. Carter could comment.

MR. CARTER: I can't be definitive either in terms of what goes on in other jurisdictions exactly, but I would suggest to you that there needs to be mechanisms for governments to react quickly to emergencies and so forth as it relates to putting in place spending authority. As it relates to the special warrants, using your example, this is through

[Page 26]

the Department of Intergovernmental Affairs; there's a blanket appropriation for the Department of Intergovernmental Affairs. It is one of those items in a grey area - is it part of an existing program or is this a new program? This is where it gets down to debate, debate that frankly from our point of view doesn't happen as it relates to new or additional spending that government undertakes. The example we included in the report was the strategic initiatives that were announced last December.

MR. MICHEL SAMSON: I fully agree that government has to be permitted to be in a position where they are able to put additional funding when there are emergencies, but with all due respect, I'd like to see who would claim that putting Ian Thompson at $130,000 in an office in downtown Ottawa would be considered an emergency by anyone's standards here in Nova Scotia.

Again, this government has continued to do this over the years and they've continued to hide behind the blanket of GAAP and of saying they have balanced budgets, and yet we continue to see these massive appropriations take place after the budget has been passed. Unfortunately, under our system, by continually saying that the budgets are balanced, it's all under GAAP, pay no attention to the fact that last year, I believe, for tourism, over $70 million was approved in additional funding. Again, these are non-emergencies, these are new initiatives the government is creating outside the budgetary process that was not brought to the Legislature, it was not approved by the duly elected representatives of the people of Nova Scotia. Where do we draw the line of what's an emergency and what's a clever means for the government to avoid the budgetary process and create new programs on a whim, without having the scrutiny of the public in doing so?

MR. SALMON: I come back to the recommendation I made earlier. The House of Assembly will have to change the legislation if you, as members, want to deal with that situation.

MR. MICHEL SAMSON: Let me ask you this on the whole issue of GAAP, do such appropriations, new programs created outside the budgetary process that do not fall under the term of being an emergency expenditure, does that fall under GAAP approval?

[10:30 a.m.]

MR. SALMON: Once those additional appropriations or special warrants are approved and the money is spent, that money is accounted for in the financial statements, just like the money approved in the original budget, and it all complies with GAAP. If there is a balanced budget at the end of the fiscal year, including those additional expenditures, then obviously it has been offset by additional revenues, in most cases.

[Page 27]

MR. MICHEL SAMSON: Well I guess the question for us becomes, what happens if there is not additional revenues yet these additional expenditures continue to be made by government outside the budgetary process? Up to now, we've been fortunate that there have been additional revenues, mainly based on the generosity of Ottawa sending money to this province. The question is, what means do we have to control the government from continuing to spend outside the budgetary process when there is no additional funding that could potentially take what was presented as a balanced budget, no longer balanced, because of these additional appropriations?

MR. SALMON: Then when you get the financial statements there likely won't be a surplus.

MR. MICHEL SAMSON: As legislators we have to wait, basically, is the message. We have to allow the government to continue to do this and wait until these financial statements arrive after the money has been spent to see if they've overspent or not.

MR. SALMON: That's correct.

MR. MICHEL SAMSON: I think it's fair to say that there's something wrong with our system when we have a situation such as this where the Legislature doesn't have more control over the finances of this province when that can continue to occur.

MR. SALMON: Recognize that in addition to the annual financial statements, the government does publish a quarterly forecast that takes into account their additional projected expenditures, and reports, in accordance with GAAP, in those forecasts as to whether or not there is a surplus or a deficit.

MR. MICHEL SAMSON: Let me put this to you, Mr. Salmon, if the government comes back and says that the $400,000 that's going to be required for this new office in Ottawa was a result of a special warrant that went to Cabinet - you said that government needs the ability in times of emergency to be able to get additional appropriations - if they went for a special warrant for this office would you deem that an appropriate use of these special warrants in this case?

MR. SALMON: I don't know enough about the rationale for establishing that office to answer that question. I don't know whether it's an emergency or whether it is a necessary expenditure or not, I really can't comment, that's basically a policy decision.

MR. MICHEL SAMSON: Would it be an idea, knowing that to bring back the Legislature it takes 30 days notice - there certainly are challenges in bringing all the elected members in for these types of additional expenditures - if we were to go that way, is there some means of looking to your office as a means of a check and balance, when such requests are made to the Executive Council, to be able to give an opinion as to whether this is an

[Page 28]

appropriate use of a special warrant or supplementary funding based on whatever initiative it is that the government is bringing forward. It would be easier to go to you than to bring back all 52 members to the Legislature each time this happens, so is that a possibility when we're looking at legislation and changes here, that your office could play a greater role in that process?

MR. SALMON: How much do you want to increase my budget?

MR. MICHEL SAMSON: How much would you need? I guess that would be the question I would ask.

MR. SALMON: That's very hard to estimate.

MR. MICHEL SAMSON: Would it be practical, let me ask you that?

MR. SALMON: It would be difficult. The way we plan our work and to suddenly divert resources because of an initiative that has arisen or an announcement that has been made . . .

MR. MICHEL SAMSON: I understand that, but is there not a means where prior to these announcements the government could present a proposal to your office saying, look, here's what we have in mind, we've overspent, the Department of Health needs additional money, the Department of Community Services needs additional money, we want to send Ian Thompson to Ottawa for $130,000 without even posting the job, or we have no idea how to even decide on the office space. Would there not be a means where we could require them to at least bring to you a proposal where they said, can you give us a quick opinion - is this the kind of expenditure that meets the concerns of your office in asking for a special warrant by the Executive Council, which is clearly outside the approval of the elected members of the Assembly?

MR. SALMON: I would not consider that kind of activity to be within my mandate and, really, when you get right down to it those kinds of discussions and approvals should be in this House.

MR. MICHEL SAMSON: In this case I'm talking about $400,000, but as you pointed out in your review, we have the Department of Tourism and Culture, $70 million - I believe that's more than the budget of eight departments of this province in one expenditure - an additional appropriation was made by the Executive Council outside of the parameters of the Legislature. So $400,000 is peanuts compared to the $70 million the government decided they were going to appropriate outside of the budget. I think you'll appreciate that while $400,000 may not be very important, $70 million, to Nova Scotians I believe, is something that someone at least should be looking at outside the Tory Cabinet backroom in deciding such expenditures.

[Page 29]

How much time do I have?

MR. CHAIRMAN: Two minutes.

MR. MICHEL SAMSON: If that's the case, in wrapping up I want to add my voice to also thank you, Mr. Salmon, and your staff. Having arrived here in 1998, I've certainly seen a number of changes and I appreciate your comments on how taking away the Leaders of Parties has depoliticized this committee a little bit. I was baptized in this committee during the Ralph Fiske days, so any more political than that, and with my good friend the member for Halifax Chebucto as chairman, I cannot imagine much more of a political circus than what the Opposition underwent at that time.

Certainly the changes that have been made have been positive. I was pleased to learn of your ability to speak French - I wasn't even aware of that. It certainly would have made Public Accounts Committee much more interesting for my colleagues by posing more questions to you in French.

Let me finish by wishing you good health in your retirement and your future endeavours. Encore, grande merci pour vôtre service et vôtre dévouement à notre province. Je nai pas de question que l'histoire va bien réfléchir vôtre temps comme vérificateur général de la province de la Nouvelle Écosse. Merci.

MR. SALMON: Merci.

MR. CHAIRMAN. Mr. Hines.

MR. HINES: In starting out I would suggest to the honourable member opposite that he may be suggesting that 40 per cent of Canadians would be exempt from the job that has just been awarded in Ottawa because of the colour blue. I would suggest that we shouldn't be too anxious to disqualify Canadians in that respect.

However, in moving on, you've made some recommendations for internal controls and recommendations for improvement. Are you suggesting that more staff would need to be employed or that the roles and responsibilities of the existing staff would be formalized? Do you think we can do it with the staff that we have?

MR. SALMON: I certainly think we can try. There are ways to streamline the processes, be more efficient and effective, and have better controls without making significant increases to the staff. We've continually been concerned about the adequacy of resources at the centre, particularly in the Department of Finance. That situation probably should be addressed and probably would require not a significant number of more staff, but probably some.

[Page 30]

MR. HINES: Just one last question before I pass to the honourable member for Colchester-Musquodoboit Valley. Do you believe there is a correlation between the additional expenses for consulting and so on within government, in getting measurables with accountability? Do you think that has increased the costs of consulting regarding government bodies, is it part of an increased accountability?

[10:40 a.m. Ms. Maureen MacDonald resumed the Chair.]

MR. SALMON: Certainly there has been a need in recent years to improve systems and controls. In some cases, these are quite sophisticated and complex computer systems. The decision has to be made when you're going to undertake such an initiative whether you have the resources in-house, whether you have the expertise in-house to carry that out, or whether you need to go outside. Quite often, going outside for consultants for a short-term project is more cost effective.

MR. HINES: Thank you, Madam Chair. I will pass now to Mr. Taylor.

MADAM CHAIR: Mr. Taylor.

MR. BROOKE TAYLOR: Roy, I would simply like to say thank you for your years of service.

The federal government has come under fire for almost a decade now regarding the federal Firearms Act. Mr. Salmon, I'm not sure of the fiscal relationship between the provincial Firearms Office and the federal government, can you shed any light on that arrangement?

MR. SALMON: No, I can't.

MR. TAYLOR: When did the Auditor General's Office last do an audit of the provincial Firearms Office?

MR. SALMON: I don't think we ever have.

MR. TAYLOR: Roy, what initiates or influences your office regarding any particular audit? I know from time to time you can't do them all, that's fairly obvious to everybody, but do you need a formal request? In what form do your askings come in?

MR. SALMON: We have a set of in-house criteria, and we have essentially taken the total government universe and broken it down into program areas and then used the criteria to rank the risks in each of those areas. We have a target of getting into auditing in all major areas over, we'd like to be on a three-year cycle but we're on about a six-year cycle. Longer than that? (Interruption) Longer than the six years. That's the way we plan our work.

[Page 31]

We publish an annual plan here with this committee, and we attempt to get to all of the major areas over a reasonable period of time. Under the legislation, we also can react to special requests, they can come from a minister, they can come from this committee, they can come from Executive Council. I do have the right to respond by saying, yes I'll do that audit if you fund it. That has happened on a number of occasions, we've done special reviews and they have been funded outside of my annual budget.

MR. TAYLOR: Madam Chair, I was thinking more along the lines of in the Auditor General's general course of duties whereas this committee has a responsibility to demand accountability and brings value for money up time and time again. I think all members agree with that premise, at least. I would respectfully ask that you do give consideration to auditing the provincial Firearms Office, whereas it hasn't been audited. I think you did acknowledge that, did you not?

MR. SALMON: We will certainly give that consideration and see where that might fit in with our plans.

MR. TAYLOR: I guess it goes without saying, the arrangement - if, in fact, there is one - with the federal government, in terms of the financial implications, would probably be disclosed as well. I would be satisfied with that response. I yield to my colleague for Kings North.

MADAM CHAIR: Mr. Parent.

MR. PARENT: I just wanted to follow up on the privacy concerns that were raised by a member of the NDP caucus. I understand the Minister of Justice has stated that legislation will be brought in to help protect Nova Scotians who may be vulnerable because of the Patriot Act. That satisfies one of your concerns, are there other concerns that you have about privacy that you think we should be working on as a province?

MR. SALMON: I would ask Claude Carter to respond to that.

MADAM CHAIR: Mr. Carter.

MR. CARTER: Madam Chair, before answering that question, specifically, I think that it's important to recognize that, with all due respect, the passing of a piece of legislation in and of itself doesn't improve the level of control, it lays the groundwork for going forward. What we've seen, if I could try to summarize it, is a situation across government where there are varying levels of control, understanding, a variety of thinking about what's important, what's not important, and it's pockets of control in certain locations. What we're suggesting is that government take an across-the-board view of it and define an overarching computer security architecture framework that then could be pushed down through the

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organization into departments and other entities and actually moving on down to the individual systems level.

[10:45 a.m.]

There isn't a void out there, there are people who are very concerned about privacy and protection. They are beginning to take steps to talk to one another between departments and so forth, it's an evolving consideration. I would suggest to you that what has gone on nationally and internationally, as it relates to peoples' concerns about security and privacy protection has added additional weight and importance to those initiatives.

MR. PARENT: I'll get back to a question I raised. I agree with the importance of privacy but also with the balancing of it. At the poverty forum that I participated in this last week, many of the people made suggestions on what government should be doing to help those low-income people that would actually directly violate privacy concerns. How do you balance that, because we could have that analysis, that data provide some of the suggestions they had, but the moment you begin to do that you violate peoples' privacy. Privacy comes at a cost of efficiency at times in government. I guess it's not really a question but I don't know what the balance is.

As I said before, at the meeting of e-ministers in Quebec City and this is what everyone is wrestling with, how do we protect privacy and yet deliver efficiency. I don't want us to lose the balance in any way because if we do that, then I think we'll be missing the boat. I guess I would just encourage you in your analysis of it that there is a balance there on both sides, that you can have absolute privacy but at the cost of efficiency and actual service to clients. I was going to point that out at the poverty forum, I was going to say, listen, we could do that as a government but at the cost of violating your privacy and they probably would have said at that stage, sure, violate it, but the moment we did there would be concerns about that, too. So it is a balance and I guess I want to reiterate that.

Particularly in today's climate, when departments need to communicate interdepartmentally, we need to get out of departmental silos in governments, different levels, and people don't differentiate between levels of government. It's a real challenge how to provide the service that the citizen is demanding and has the right to, and yet at the same time respecting privacy concerns. I appreciate you flagged the issue but I do want to just raise that again, that it is a balance, as is most things that a government strives for. I want to encourage you to keep that in mind.

MR. CARTER: I think you raised a very important point not just with respect to privacy but also as it relates to any improvements and controls. The Office of the Auditor General often makes recommendations for improvement in controls. Inherent in all of those recommendations - and people should recognize this - is the reality that government, management, is the one that is responsible for ensuring the controls are there, and that

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controls are optimized. None of our recommendations should be taken as, well, put more controls in, put more controls in, it is that management needs to look at what is the optimal, and that's where the balancing function comes in.

I can remember years ago where people were implementing controls because we recommended them, and I am saying that's not what you do. You need to look at the issue, look at the recommendation and what is the best thing to do. The best thing to do sometimes is to do nothing else, for whatever reason. We're just raising it as a recommendation and it's not a "do this or else" type situation.

MR. PARENT: That's an important point. Thank you, very much. Our caucus has no further questions.

MADAM CHAIR: You have four minutes remaining. In that case, we will turn the floor back to Mr. Salmon for any wrap-up or closing comments that he would like to make at this time.

MR. SALMON: Really just to say thank you for the opportunity to provide this report, to discuss it with you, and the opportunity to work for you over the last number of years. Thank you very much.

MADAM CHAIR: This morning, a number of members of the committee have had an opportunity to thank you and reflect on the importance of the role and the way in which you carried out the duties that are entrusted to you and your office. I'm not going to belabour this point, I think members of the committee who have much longer experience than I with this committee made the point quite well in terms of the high regard in which you have been held, and the members of your staff. We assure you that we will continue in that vein. We wish you all the best in your retirement, thank you. (Applause)

MR. SALMON: Thank you very much.

MADAM CHAIR: The Subcommittee on Public Accounts is meeting fairly soon, we have a meeting scheduled for Friday, January 22nd. I would ask the members of the various caucuses to consult with your representatives on that committee to bring forward further topics that we should be examining so we can get that scheduled. I thank you very much for your attendance.

The committee is adjourned.

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