STANDING COMMITTEE ON PUBLIC ACCOUNTS
Mr. Russell MacKinnon
MR. ROY SALMON: Mr. Chairman, this is Mr. Alan Horgan, an Assistant Auditor General and I will correct you, Elaine Morash is also an Assistant Auditor General in the office. This is my senior management. They run the office.
We are pleased to be here and we apologize. We are having some technical difficulties here with our projector. We had a presentation that we wanted to make to you but we can start on the basis of paper. Essentially, for you to follow along with us, the whole presentation is structured on what you see in front of you in the highlights booklet. So if you want to follow along as I speak to you, I am following what is in that highlights booklet.
We were delayed this year in tabling the report. In fact, I am in contravention of legislation that this House passed a couple of years ago in which a deadline was established of December 31st for tabling my report. We were delayed because the completion of the financial statements of the province was delayed which delayed our audit of that and consumed considerably more resources than we had planned to utilize on that audit which delayed other work we were doing. Then we got into a couple of very complex audits that, in terms of carrying them out and completing them, took additional time. We felt it was important to do them well and complete them and get them into the report rather than not complete them and come forward with a less than complete report.
Turning to the report, let me just start by giving you a very brief overview based on the table of contents which is in our highlights booklet which you have. First of all, there is the chapter which tries to bring everything together and I will comment on that in a few minutes, the overview and significant issues. Two government-wide audits and the first which we have been doing now for several years and is very significant from our perspective in terms of good management, good government, accountability information and reporting. A second one, government-wide on user fees and I believe it was Mr. Dexter who had originally raised the issue of the processes and policies around user fees and so we have done that audit.
Then we get into departmental audits. First, Community Services, and these are in alphabetical order, not order of significance. Grants to organizations that provide Family and Children Services.
Then into Education. We did two school boards, the largest in the province, focusing on their financial and management practices. First of all, the Halifax Regional School Board and second, Chignecto-Central Regional School Board. As well in Education, we did an audit of the processes around making grants to universities.
Then moving into health care, we did an audit of the Cape Breton Healthcare Complex, an audit of Emergency Health Services, an audit of the physician alternative funding initiatives.
Then, in terms of departmental audits, the final one was in Housing and Municipal Affairs, the Land Information Services Division of that department.
Then in Crown agencies and corporations, we ended up doing two audits of the Nova Scotia Liquor Commission. First, the commission itself and then subsequent to that, after the government carried out a review of the alternative service options, we did a review of that initiative and have reported separately on that.
Then, finally, our standard review of financial statements and management letters of other Crown agencies and corporations and then our standard other audit observations, the additional appropriations and cash and other losses. There is also a chapter - it is not in that table of contents - that is our accountability report in terms of how we feel the office has performed, what we are involved in and how we try to hold ourselves accountable to you.
So let me turn then to just an initial comment in terms of a broad overview in what I feel is the most significant issue that this government and this province has to face and has to deal with. This is discussed in Chapter 1. That is that following on from the report of the fiscal management task force, January of last year, where the recommendation was made that the government had to deal with the debt crisis, the fiscal crisis, and balance the budget on an annual basis by 2002-03. The government accepted that recommendation that I believe that the bulk of the findings in this report in terms of the deficiencies that exist in major programs in terms of the way they are managed, in terms of the way the budgeting processes work, the way decision making is made, that all of those deficiencies have got to be dealt with or we are not going to balance the budget.
As we go through it, we will come back to this at the end but that is my major message. This is a situation that we have been auditing for years, certainly since 1992 when I arrived here, and pointing out these deficiencies in the way programs are managed, in the way information is communicated in terms of deficiencies in information that comes forward to this House for decision making. If those issues are not dealt with and we have a long history here, we are not going to deal with the fiscal crisis. That is my opinion. That is where I stand today and it has got to be dealt with.
So moving on, you people did pass amendments to the Provincial Finance Act in June of last year that call on government to provide better accountability information and reports to this House on their plans and their performance. That's now required by law. That information, once it starts to come forward, we emphasize again, it has to be relevant, it has to be reliable and it has to be understandable. At some point, it has to be auditable and audited.
Moving on, I am required to report on the revenue estimates every year. We did this year. That was tabled with the budget on April 11, 2000. Over and above that, we have provided comments that would hopefully improve that process and those estimates. We have communicated those to the Department of Finance.
We audited the government's financial statements for the year ended March 31, 2000. They are now consolidated. We are one of the leaders in the country. I wanted to balance my earlier comments by saying that there are a lot of positive things happening here in this province. Those financial statements were released on December 14th as part of the Public Accounts. My opinion was qualified. It was not the normal standard unqualified audit opinion. It was qualified because we had a scope limitation - which is auditor jargon I know but there was a scope limitation - in that certain of the items that related to the pension plans and actuarial valuation reports on those pension plans with regard to Sysco, the Sysco financial statements had not been completed so we could not rely on them. So I had to have a scope limitation because I couldn't rely on those numbers.
One of the issues that we intend to deal with in the future that came to our attention is that when you look at and examine the province's March 31, 2000 financial statements, there is now approximately $30 billion of Treasury and pension-related accounts or balances that this government manages and controls. That is a lot of money. It is a lot of investments, it is a lot of debt. We believe that it would be appropriate for this House of Assembly to get better information about how that is being done, how $30 billion is being managed and use information to hold the government to better account in terms of what its longer term plans and its performance are in those areas. So, that's an overall comment in terms of that overall major aspect of government operations.
In the area of procurement. The procurement branch of the Department of Finance, which has now been moved to the Department of Transportation and Public Works, does report on policy exceptions in the procurement processes and on the results of its monitoring of compliance with the government's procurement policies to the Priorities and Planning Committee. But there is no requirement for that committee to bring forward a report to this
House. We believe that it would be an improvement in accountability relationships if Priorities and Planning did bring forward that kind of report to this House. I know you have to deal with a lot of information and a lot of legislation, a lot of things on an ongoing basis but that is one area, procurement is a major activity.
The government is in the process of modernizing its management manuals in terms of policies applying across government and we believe that has to be clarified in terms of those policies and how they apply to other public sector entities, those entities that are outside the core government departments. For example, we believe that there should be better disclosure of compensation arrangements for executive and senior management positions in all public sector entities not just those that are in the Supplement to the Public Accounts, which is just departments and agencies. We believe there should be disclosure of compensation arrangements with those in hospitals, school boards, Crown agencies and so on. So that at least there can be some comparison made and some assessment of fairness.
We can move now to user fees. Our audit revealed that there are no government-wide policies, procedures or practices that ensure consistent and fair application of user fees. There is no comprehensive information on significant user fee programs coming forward to this Legislature other than on a hit and miss basis. That information doesn't come forward by individual departments or on a government-wide basis.
The government had indicated that it would implement the 36 policies that were recommended in the 1997 Licences, Permits and Approvals Task Force Report, but there has been no significant progress on the financial aspects of those recommendations. The report and recommended policies did not extend to approximately 300 provincial agencies, boards and commissions. We have no idea of the number of user fees or total revenues that are associated with those entities.
Departments have not reviewed government programs where user fees are charged. Due to the Eurig Estate court decision, the government may be putting sources of government revenues at risk if there is a court challenge. User fees for most hospital-based health care services are not based on actual costs because the systems aren't there to provide the information that is needed to determine what the costs are. There is no apparent rationale for fees charged by the Registry of Deeds for personal property registration. It has been 13 years since government last completed an external review of its method of calculating fees charged to companies which harvest trees from Crown lands.
Moving to Community Services. This division of that department provides grants and assistance to non-government organizations that are eligible. We found that the grants are appropriately supported and they are properly approved. There are good systems and controls in place to ensure that these organizations use the funds appropriately. But there are weaknesses with respect to non-legislated grant programs. We noted that improvements could be made to performance reporting by all Family and Children's Services organizations that are funded. This division has not used the department's own business plan to prepare a more detailed operational plan to guide itself in the planning and delivery of its programs and services.
There is no formal strategy or model in place to determine the level of funding for organizations providing services under non-legislated programs. The division does not use a formula for funding residential child-caring facilities but funding decisions are somewhat more structured then with non-legislated programs. There is no formal documentation of the respective roles and responsibilities of the division or its regional offices or the funded organizations for each of these grant programs.
We did find that the inspection and licensing processes are timely and comprehensive. There is appropriate and timely follow-up to ensure deficiencies observed are corrected, program reviews are comprehensive and followed up. We believe they should be done on a more frequent basis and more funded organizations should be included when these reviews are done. We did note that there are various financial and statistical reports generated for these grant programs but there are few outcome measures established and reported so it is difficult to tell whether the program is having the desire effect.
Moving to Education, we believe that timing of the budgeting process is critical in terms of appropriate decision making as you approach or get into a fiscal year but it is even more critical for regional school boards than the rest of the sector because what we found was that if teaching positions need to be reduced, boards have only a small window of opportunity to do those reductions. Collective agreements require notice of termination of probationary teaching staff effective July 31st to be given by late April. Any savings from reductions in the number of teachers are not able to be achieved until the end of the school year in July, four months into the fiscal year.
If the province informed regional school boards of probable funding for the next several years or much earlier on an annual basis, they could better plan for the future. Now you have a process, and we went back historically for 10 years where the earliest a budget was even brought into the House was after April 1st and most decisions, most approvals of estimates were into June, July and sometimes later. That just doesn't work, as far as I am concerned. It doesn't work. When a school board is told here is your budget on April 11th and the fiscal year has already started, their window of opportunity to do the things that are necessary is very limited.
In both Chignecto and Halifax, we found elements of a business plan but neither had developed a formal plan. Part of that is due to the fact that the Department of Education has not defined the format of strategic and business plans for regional school boards. We recommended in our report that the Department of Education work with the school boards to establish the format. Then all the boards, particularly these two large ones, could work towards developing formal, strategic and business plans and those are required by legislation.
In doing the audits of these two school boards, one of our major objectives was to provide an overall opinion on the reasonableness of the school board budgets. For Chignecto-Central Regional School Board, we were able to provide an unqualified audit opinion on the budget process and the budget document. We found that as at the date that the board approved the budget, the budget assumptions, which are critical to the establishment of the budget, that those assumptions were suitably supported, were consistent with the plans of the board and
provided a reasonable basis for the budget. Those assumptions were fairly reflected in the budget.
In the case of Halifax Regional School Board, however, we encountered an audit scope limitation because certain critical pieces of information that we needed to do our audit were not available. We therefore were unable to give an overall opinion on the budget process or the budget document. We were unable to provide an opinion on the process because budget assumptions, such as enrolment projections and targeted class sizes were not explicitly documented as part of the budget process and approved by the board and certain supporting budget documentation had not been retained.
We became aware of one instance where the members of the Halifax Regional School Board were given inadequate information upon which to base a budget-related decision. We have recommended that board members be given information which explicitly considers both revenues and expenses when profit centres are being discussed.
Grants to universities. The introduction of a new provincial funding formula for universities has been a positive development over the past number of years. The major benefit of the formula is that it has rationalized the allocation of provincial funds among the universities. That is a very positive move forward.
Back in 1996 when we last reported on universities, there were initiatives in progress which appeared to hold promise for improving the accountability and the value for money of expenditures in the university sector. They included potential cost savings identified in the business plan for the metro Halifax universities. Studies on performance indicators were underway and comparable financial information and work on quality assurance efforts were also underway. The MPHEC and the universities have made some progress in the quality assurance area but there has been little progress in the other areas.
At that time, the accountability relationship between the then Nova Scotia Council on Higher Education and the universities was not well defined. In August of last year, the council was replaced by the Nova Scotia Advisory Board on Colleges and Universities. We recommended that that advisory board work in conjunction with the universities to develop an accountability framework that includes descriptions of roles, responsibilities, objectives, outcome and performance measures, and a reporting framework. That would help the province obtain maximum value from its expenditure on universities.
As you probably are aware, the university funding formula is based on enrolment figures. We reviewed documentation of university enrolment submissions and we found deficiencies in the audit work performed on those submissions. Our review of the calculation of unrestricted operating grants for three universities indicated that the council had incomplete documentation to support the history of the grant calculation.
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Again, as you are probably aware, studies have suggested that the university infrastructure requires a large investment of funds. Capital funding has been inadequate. It is important that funding be targeted to projects that provide the most value. Our audit did reveal that those capital projects that have been funded have been the highest priority. Ranked that way. There is a set of comprehensive criteria that is used to determine those priorities. The new council has taken over responsibility for that process and is going to develop its own criteria to evaluate requests for capital funding.
We believe that because of the significance of regional funding requirements from other provinces in the Maritimes that there is a need for a more rigorous monitoring of the accuracy and completeness of recoveries received through the Maritime Provinces Higher Education Commission.
Moving to Health. The Cape Breton Health Care Complex. Our audit indicates that that is a well-managed organization from a governance perspective at the board level. Yes, they did approve deficit budgets but that was a systemic problem due largely to the Department of Health's directives to maintain services and not reduce staff. In other words, they had no choice. Those deficits were subsequently funded by the government but the new Health Authorities Act now limits the ability of those authorities to approve deficit budgets. The Complex does prepare an annual report. We did recommend some improvements in its content including more detail and inclusion of the audited financial statements and the new Health Authorities Act, if implemented, would meet those recommendations.
We did note that the Complex has been a leader in obtaining performance information from other facilities and using that information to measure how it manages itself. Bench-marking like that is an excellent technique. They have done that in collaboration with a number of other hospitals throughout Canada. We commend them for that. We suggest that both the Department of Health and the District Health Authorities use that kind of information to measure and improve performance in many important areas of their operations.
Right across Canada many in the health sector have commented that good information systems are the key to dealing with fiscal and other problems in health care. The Cape Breton Health Care Complex, along with a number of other entities in the health field, did submit a proposal to the Department of Health for a new information system. That took place more than two years ago. That was all part of a strategic information technology plan. They have not had a response from the Department of Health. There is a need for more collaboration for partners in the health care sector.
The Cape Breton Health Care Complex monitors inappropriate bed use and reports the results of that monitoring to the board. Routinely those reports show that more than 25 per cent of patients occupying acute care beds could be more appropriately treated in another setting. That's consistent with anything that's reported right across this province. Inappropriate bed use is a significant problem and it cannot be remedied by the Complex acting alone. Again, the need for collaboration. The Department of Health, the Cape Breton Health Care Complex and other long term and acute care providers need to work together to achieve a solution. Implementation
of the recommendations in the Department of Health's recently released report is a first step in that process.
The Complex does have a good financial monitoring process, although there is a need to improve some of the forecasting. Management in the Complex had already identified that need and we agree with the actions they are proposing.
They have recently established a Clinical Financial Advisory Committee to identify opportunities for improvements in the management of clinical activities. They have a list of potential areas to be reviewed and they have started. Recommendations are going to come forward, and again we support what they are doing.
Their procurement function is well managed and they comply with provincial procurement policies and the Atlantic procurement policy.
Moving on. Again, this comes back to the issue of user fees. Their rates charged to uninsured patients are not based on the cost of actual services provided but rather on an average per diem cost. So the rates may not reflect the actual cost incurred. We again recommend that the Complex and the Department of Health work together to develop an approach which results in the recovery of full costs from any services provided where there is the opportunity to charge fees.
Emergency Health Services. There is no legislation for the provision of this service. We believe that it is important that Emergency Health Services Nova Scotia have explicit legislative authority to impose user fees, training, licensing, medical standards and on other matters. In 1994, legislation was assented to but it has never been proclaimed. We have recommended that legislation and regulations governing the activities of this important service containing appropriate accountability provisions be developed and enacted as soon as possible.
In 1996, this service developed a strategic operating plan which included the vision, the mission, the values, the strategic goals, the operating plans and specific initiatives planned for the next five years. The current plan covers the five year period ending March 31, 2003. We found that this strategic and operational planning was thoughtful and comprehensive. It was last revised in February 1999 and it should be updated in the near future. We have recommended that the organization report performance in accomplishing their planned objectives to this House.
They have a formal, written contract evaluation process in place for the air medical transport program. We noted that similar contract evaluation processes are not in place for the ground ambulance and communications and dispatch centre contracts. We have recommended that such plans be developed as soon as possible.
Ambulance lease agreements require ambulances to undergo regular preventive minor and major maintenance. We examined the maintenance records for 10 ambulances consisting of 148 minor and 19 major maintenance reports. We examined the maintenance records for 10
ambulances, consisting of 148 minor and 19 major maintenance reports. We found that minor and major preventive maintenance was not always being performed within the kilometre limits specified in the lease agreement. Failure to perform this maintenance when required may lead to a reduction in rebates at the end of the lease term. At the time of our audit, there were outstanding disagreements with the contractor over the condition of 47 of 90 returned ambulances, which eventually resulted in the loss of $562,000 in rebates.
The department and Emergency Medical Care Incorporated, which is the ground ambulance service provider, had not established which entity would be responsible for the lost rebates. Departmental management has informed us that controls have been established to prevent the loss of rebates in the future, but there is the potential that we have lost $0.5 million.
Emergency Medical Care Incorporated was selected as the preferred contractor for ground ambulance services on a sole-source basis. We were informed that a public request for proposals was not issued because the department lacked financial and operational data upon which to base a request. The acceptance of Emergency Medical Care Incorporated as the preferred operator, was strongly influenced by Executive Council's preference for a Nova Scotia-based operator. There does not appear to be a written evaluation of Emergency Medical Care Incorporated as a suitable candidate for a province-wide ground ambulance operator against predetermined evaluation criteria, notwithstanding that it was a new company and neither it nor the parent company, which was Maritime Medical Care, had any previous experience in the ambulance business. There also does not appear to have been an analysis of the costs and benefits associated with alternative service delivery by a non-profit or government agency.
Compliance by the contractor with the terms of the ground ambulance contract is controlled through a system of performance requirements, incentives and penalties. The most significant of these are ambulance response times and paramedic qualifications. The reporting of monthly performance indicators to measure contractor compliance with response time performance, was under development at the time of our audit. The contract also calls for penalties, commencing in the year that is just going to end at the end of March, for certain performance failures. But a system to capture and report performance failures had not been fully developed at the time of our audit and that would have been late in 2000.
Prior to 1995, ambulance services were provided by private sector operators in approximately 54 geographic regions in Nova Scotia. To facilitate the transfer to a single operator, 34 existing operations were purchased at a cost of $14.3 million. Our review of this transaction revealed significant deficiencies in the way it was done, in terms of documentation and accountability. We were not able to conclude whether these transactions were carried out with due regard for economy and efficiency - well, economy not efficiency. We found that there was no clear direction to Emergency Medical Care Incorporated, in terms of situations where the contractor was required to comply with provincial procurement policy and we recommended that such direction be provided.
Back to user fees again in the health sector. For ground ambulance and air medical transports there is no legislative authority to govern the levy of these user fees. We found the process for establishing ground ambulance and inter-provincial billing rates for air medical transport to be well researched and documented. Although rates charged were not always based on the full cost of services provided to users, there is a documented rationale for the rates.
Physician alternative funding. There have been a number of reports that were commissioned by the Department of Health in which alternative physician funding had been recommended in addition to the traditional fee for service payment system. The Department of Health and the Medical Society have negotiated a principles document for negotiating alternative funding initiatives. That is an important first step in ensuring consistency of alternative funding, with the objectives and priorities of the department.
One of the principles of this funding contract system is that payments should typically draw no more resources from the Medical Services Insurance (MSI) budget allocations than was historically drawn by fee for service. The evidence we examined indicates that on average, alternative funding contracts cost more than historical fee for service remuneration.
The department, when investigating an alternative funding proposal does not prepare a summary document, which clearly sets out specific outcomes. In addition, the estimated cost of the alternative funding proposal is not compared to a fee for service alternative. Such a document, which clearly articulates relative alternative funding costs and benefits, would help to ensure accountability for program results. We recommended that this be done.
The authorization process for alternative funding contracts appears to be operating appropriately. We did find weaknesses in the control system for alternative funding payments that is administered by Maritime Medical. We have recommended increased monitoring to reduce the risk of data input errors and overpayments.
We noted that evaluation of the effectiveness of alternative funding initiatives depends on data collection through the shadow billing system. This system also supports billings to other provinces for services provided to non-Nova Scotia residents. Their controls are not adequate, particularly for medical specialists. Monitoring of the completeness of the information is now being performed on an ad hoc and infrequent basis. We did note the department is working with Maritime Medical Care to develop a quarterly reporting system, which should help to address this deficiency.
Both the 1997 contract with the Medical Society and the individual alternative funding agreements call for contract evaluations. The department has established an evaluation steering committee with the Medical Society, as well as terms of reference to guide the evaluation process. We have recommended more frequent evaluations and changes to the scope of evaluations.
We noted that individual alternative funding contracts permit the department to decrease payments after 90 days if actual service levels are less than the contract payments. But this
provision is very difficult to implement because of the manner in which the contracts are structured, so we have recommended that these provisions be strengthened as well as enforced.
Final department, Housing and Municipal Affairs, the Land Information Services. We found that they did have an adequate strategic planning process, although we did make some recommendations for improvements. Plans are currently underway to take on a major restructuring of the way the Registry of Deeds conducts business and meetings have been ongoing with stakeholders, including private industry. Again, though, their performance measurement and reporting system could be improved if there were regular performance reports prepared for stakeholders and they should prepare a rationale for their fees that are being charged for registering real property and personal property transactions.
Overall their procurement function is well managed. They do adhere to the provincial procurement policy and the Atlantic procurement policy. They do have a right to audit accounts maintained by their private partner but there have been no such audits conducted. We did find that they had effective controls in their computer environment.
Finally, turning to Crown Agencies and Corporations, the Nova Scotia Liquor Commission. Again, we found that its board performs its responsibilities of governance reasonably well. We believe the number of commissioners should be expanded beyond the maximum of three, in order to increase the effectiveness of the governance function. We found that the board, itself, was not adequately evaluating members of senior management from a personnel performance point of view.
Their annual report does lack substantive information on their performance and therefore it doesn't meet its potential as an accountability document. We found that the Liquor Control Act is outdated in some areas and there is a need for a significant review of it. It is complying with all significant aspects of its legislation and regulations but it should give more attention to its regulatory responsibilities. It is giving due regard to economy and efficiency in the way it plans, manages and monitors its operations. We do believe that the scope of internal audit activity should be broadened and changes organizationally should be made to enhance the independence of the internal audit function.
Finally, the review of alternative service options. What we tried to do here was provide a description of that review in terms of the government's role in the sale and regulation of alcoholic beverages. That review was carried out subsequent to the conduct of the audit that I just talked about so we wrote a separate chapter audit on it. It essentially concluded that the review had been conducted appropriately.
Just a couple of final comments. Chapter 13 deals with our review of financial statements and management letters. There really is not a lot of real significance in there but there are some interesting comments.
Finally, additional appropriations. The financial statements for the year ended March 31, 2000, include expenditures totalling $639 million, resulting from additional appropriations.
As of January of this year, none of these had been approved by Order in Council or by the Legislature. This really does raise a question in my mind of whether this Legislature had effective control of the public purse, in that the government has been able to record as expenditures $639 million that has not been appropriately approved yet and we are almost a year after the year in which those expenditures have been recorded.
Finally, we always report on cash and other losses. There were, in the year ended March 31, 2000, about $0.5 million consisting of cash losses of $46,000, property losses estimated at $750,000 and recoveries of $218,000. But not all departments and agencies fully comply on a timely basis with the policies around governing the reporting of losses.
So that completes my formal presentation but I just want to come back to the broader issue I raised at the beginning, in all of the things I have said, in terms of those deficiencies in processes, controls and systems, impact on this government's ability to manage expenditures and therefore manage the deficit and deal with the deficit issue. I cannot emphasize any stronger than I am right now, the need to improve those systems and processes to bring more effective control to the management of the public purse. Mr. Chairman, we are open for questions.
MR. CHAIRMAN: Thank you, Mr. Auditor General. Speaking about a deficit, I think perhaps the Halifax School Board must have taken some of the pages out of my book. I only have 15 pages in mine, so I guess there is a deficit somewhere. (Laughter) If everyone could check to make sure they have the last several pages on Crown Agencies and Corporations, is that included in your booklet?
MR. SALMON: Mine has Pages 1 to 20.
MR. CHAIRMAN: Before we open the floor up with questions - and we will start off with the NDP caucus - I would like to recognize Mr. Jon Carey, who will be taking over for Mr. Brooke Taylor as a full-time member of the Public Accounts Committee. The honourable member for Kings West is taking over for the member for Colchester-Musquodoboit Valley and we would like to welcome Mr. Carey to our committee.
The format, because this is the first session and we have another session coming up next week, we can do it one of two ways. Perhaps we will do an overview of questions because the Auditor General has touched on a variety of departments, topics, agencies and so on, or do we want to just start at the first? My first impression would be just a general questioning for this, since we only have an hour left, and then we would start off with 15 minute intervals and then what time is left we will appropriate, would that be fine?
SOME HON. MEMBERS: Agreed.
MR. CHAIRMAN: Mr. Holm.
MR. JOHN HOLM: Mr. Chairman, I am glad we are going to have another session next week because there is so much contained here that it is difficult to get your head around it all.
I just want to start off, if I can, on this whole idea of revenues, projections and the user fees. Looking at the report, for example, in Paragraph 2.17 where you are talking about the assumptions and how they have very conservative assumptions, you said that, "Assuming that the 1999-2000 forecast is accurate (yet to be audited) the rate of growth in provincial source revenue has dropped from 8.6 % to 2.6 % including no growth in personal income tax revenue despite the assumed increases in personal income and employment."
To me that seems to be a contradiction in the basis of the way the government is assuming that if you are projecting the income rates are going to increase and employment is going to be increasing, then it doesn't seem logical, as the assumption would appear to be here, that, in fact, the revenue increase would actually drop from 8.6 per cent down to 2.6 per cent. Is that not lowballing in the extreme?
MR. SALMON: I will ask Mr. Carter to address that question, please.
MR. CLAUDE CARTER: Mr. Chairman, as this committee is no doubt aware, we had a mandate to review the revenue estimates and the assumptions behind the revenue estimates since 1994. What we found over the course of having that mandate is that there is a general level of conservatism that is in place as it relates to revenue estimates. I think we all remember the years decades ago when revenues were projected and actuals came in under that. So there was a natural tendency to be fairly conservative.
We have been monitoring that as best we can recognizing it is a fairly subjective topic and it is hard to really pin it down definitively but we have been conscious of that throughout the five or six years that we have been doing this review.
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When we looked at the revenues for the 2000-01 estimates we felt that there was, in some regards, a step backwards or a step down, a little bit more conservative, in that regard. Really the thing that brought it out to us was that line in terms of personal income taxes where we saw basically a flat line between the forecast that was in the estimates document and the estimate for 2000-01 but at the end of the day we were able to come to a conclusion that what was in the estimate was supportable, there is a rationale behind it and there were linkages. However, from our point of view it was more conservative than prior years.
MR. HOLM: Right and by being more conservative in prior years and as you talk about the flat line, it makes it look better at the end of the fiscal year if actually the revenues are up and that can then be used to either cover increased costs that were unexpected so that you are still in budget line or you have a reduced deficit. That could be a net effect as well.
I am very concerned about this whole idea of the user fees. Maybe I am paraphrasing this incorrectly, if I am, please tell me. I think the Auditor General, Mr. Chairman, in his comments basically was saying the government has no record of all of the various user fees in government departments and agencies that are being collected and doesn't know how many
dollars, supposedly are coming in from all of those fees and, of course, they don't have to justify them through this House. User fees are not approved in this House so in effect they can be a cash cow. The government at any time can increase amounts or user fees can be increased and the amounts that are charged in the way of user fees, they aren't justified against actual expenditures. You pointed out that that could be therefore open to a court challenge and could put those sources of revenue at risk.
Am I correct in this in that the government is supposedly unaware of all of the various user fees that it does collect and it doesn't have the rationale for many of those to justify the rates that are charged?
MR. SALMON: Let me try to deal with it this way and perhaps Mr. Horgan, who was responsible for this audit, could supplement my comments. The basic finding, I would suggest is that yes, they do know what user fees they are collecting. The system is capturing the user fees. The major issue is, how are those fees determined? Are they based on some kind of cost analysis that says in providing this service we are recovering the costs incurred to provide the service or is it just arbitrarily determined? If we are going to be in the business of providing services for a fee that has a value to the people of this province, then we should have a system in place to determine that we are getting back what it is costing, at least, unless there is some other reason for not recovering that cost. What is lacking here are systems to identify what the fee should be, essentially. Alan, do you want to add to that?
MR. ALAN HORGAN: I would just add that yes, the Auditor General is correct in that the accounting systems are capturing the user fees charged and received. However, Mr. Holm, you were also correct in stating that there is no central summarizing or reporting of user fees. So in that regard government does not see a complete picture of the total amount of user fees and the various programs from which they come and any cost structures that surround it. One of the findings of the audit was that there is a lack of central monitoring and reporting of user fees.
[3:03 p.m. Mr. James DeWolfe took the Chair.]
MR. HOLM: And if the government doesn't see it then certainly the House doesn't see it and Nova Scotians don't see what they are raising and user fees do not, as they call them, others would call them a tax, and it is a way to increase the government revenues without having to go through the accountability process of having that budget really being approved in the House or those items being debated in the House because again, they aren't part of that actual structure. I know that the overall budget is but the government can - those things generally get lost and especially with many of the agencies. So it strikes me as another whole accountability issue. I don't know if you have any observations or comments on that. I am going to be sharing my time here with Mr. Dexter, too, so I . . .
MR. SALMON: Just one additional comment and that is that when the estimates come forward, user fees are netted against the expenditures in the vote and you can see them there so you do have the opportunity to debate them but they are spread all over the place. They are not brought together . . .
MR. HOLM: Yes, but we would have no idea what the total increased revenues projected to come in from tax or user fees, however you would go . . .
MR. SALMON: Not on a total basis.
MR. HOLM: . . . you wouldn't have that information and it is certainly a way that government does increase their revenue without calling it taxation.
MR. CHAIRMAN: Darrell Dexter, you have five minutes.
MR. DARRELL DEXTER: I want to follow up on that directly. We will take the example that you used which is the Registry of Deeds. Do you know, for example, what it costs to operate the Registry of Deeds?
MR. SALMON: Alan.
MR. HORGAN: I will just mention that this audit was a joint effort between my team and Elaine's team and so I am going to hand that question off because Elaine was responsible for that section.
MS. ELAINE MORASH: What we are seeing on that one is that the fees were established a long time ago and when they were established the rationale wasn't kept so when we went to look for a rationale it wasn't there. I guess it predated the involvement of the people we were talking with and you couldn't relate the fee that is being charged to the cost of that service. But if you are asking, can they calculate the cost of operating the Registry of Deeds, yes, they have appropriate accounting systems to be able to calculate the cost.
MR. DEXTER: So did you look at the cost of providing that service as opposed to what is collected through user fees in the . . .
MS. ELAINE MORASH: No, we didn't. We were asking them purely and simply, can you justify the fee that is being charged? Do you have an analysis that supports that fee? That is what we couldn't find.
MR. DEXTER: And they said they had no rationale for what it was they were charging.
MS. ELAINE MORASH: That is correct.
MR. DEXTER: You are not suggesting that fees at the registry have not increased since 1990.
MS. ELAINE MORASH: I can't recall. I don't have that information in front of me in terms of whether they have or haven't increased. The fees were established a number of years ago.
MR. DEXTER: However, the revenue generated by the Registry of Deeds goes right back to the Department of Finance, right?
MS. ELAINE MORASH: It's provincial revenue, yes.
MR. DEXTER: I wanted to cover a few things very quickly, if I can. We have looked at various kinds of fees. For example, the 911 fee is a new fee that is being charged. We look at the budget estimates. The budget estimates tell us that the cost is going to be some $677,000 or $750,000 and yet the fee is going to raise some $3.2 million. Is this an example of a revenue stream that would be at risk unless particular kinds of legislation is put in place to support it?
MR. HORGAN: Potentially, yes, you are right, depending on how you define at risk. The Eurig Estate decision was a decision of the Supreme Court of Canada based on a challenge of probate fees in Ontario and the decision of the Supreme Court was that if fees collected on a program are not related or, in most cases, exceed the actual cost of a program then they are tantamount to a tax. They are not suggesting that government can't levy a tax but in levying a tax it should be done through legislative means as opposed to other means like regulatory means.
So with respect to 911 fees which, of course, we haven't reviewed as part of this audit because, as you say, it was new, whether or not it is at risk is somewhat dependent on how they establish the fees, whether they are established through legislation, whether they are established through a non-legislative means like through regulations and also whether government performs the analysis to determine what the true costs of the systems are. I have heard through media reports that they are suggesting that fees collected will not pay just routine operating costs but will also go to maintain capital equipment and perhaps improve capital equipment. So how you actually define the cost for a program is up to debate. The gist of the argument is whether the fees collected relate to the costs.
MR. DEXTER: When you suggest a rationale and you have said this, in fact, in a number of places in your report, what you are really doing is saying the rationale that you are looking for supports the complete recovery of the cost of the service or some portion thereof. You are not suggesting, I take it, that the rationale would generate a windfall for the government because that would be tax, is that right, under the Eurig decision.
MR. CHAIRMAN: The time is just about up so a very quick response, if you could.
MR. SALMON: In doing the audit, we didn't take that particular focus. What we were looking for was that in the determination of the user fee there be a rationale for the rate and cost is the start point. Then you go from there and you can go up or down if you have a rationale. We couldn't find it in most situations.
MR. CHAIRMAN: Thank you. We will turn our focus now to the Liberal caucus and Russell MacKinnon.
MR. RUSSELL MACKINNON: Mr. Salmon, what is the total debt of the province presently?
MR. SALMON: As at March 31, 2000 it was about $11.2 billion.
MR. MACKINNON: $11.2 billion?
MR. SALMON: Yes. That is the net debt.
MR. MACKINNON: That is the net. What is the gross?
MR. SALMON: The gross is about $15 billion.
MR. MACKINNON: What is the differential?
MR. SALMON: The differential is . . .
MR. MACKINNON: I know the numbers but I mean what does it represent?
MR. SALMON: There are sinking funds and financial assets that reduce that from $15 billion to $11 billion.
MR. MACKINNON: Looking at Paragraph 14.5 where you indicate more than $639 million were appropriated without either an OIC or legislative authority. Were you able to identify what those figures represent?
MR. SALMON: The biggest piece of that was the provision of $400-some million for the environmental costs and losses at Sysco.
MR. MACKINNON: But the Deputy Minister of Finance indicated that they didn't spend that.
MR. SALMON: We are not on a cash basis of accounting, Mr. MacKinnon. We are on an accrual basis which is Generally Accepted Accounting Principles.
MR. MACKINNON: I realize that but it is on the books, do we not have to account for it?
MR. SALMON: It is accounted for.
MR. MACKINNON: Do we pay interest on that?
MR. SALMON: No.
MR. MACKINNON: We don't. So what happens, can the Department of Finance put that back on the books next year?
MR. SALMON: They are committed to cleaning up the Sysco sites.
MR. MACKINNON: So is it appropriate to just carry that as part of their operating deficit year after year, whether . . .
MR. SALMON: It is not part of the operating deficit on an annual basis, it is part of the accumulated debt.
MR. MACKINNON: Why would something be booked if it is not given proper executive or legislative authority?
MR. SALMON: The government decided to.
MR. MACKINNON: That doesn't follow within the legislative mandate, does it?
MR. SALMON: This has been going on for years in this province, Mr. MacKinnon.
MR. MACKINNON: I am well aware of history but I also recognize that recently the government - when they were in Opposition - indicated that that is what they would not do. Was there any discussion back and forth between the Department of Finance and your office at the time that this was included in their budget without the proper legislative authority?
MR. SALMON: Yes, there was, there always has been, there is continual discussion on many issues and these are the government's financial statements and my responsibility is to ensure that, to the best of my ability, the financial statements are prepared in accordance with Generally Accepted Accounting Principles. From that perspective it was appropriate to record this liability and therefore I reported that it had been recorded but that it had not been properly approved.
MR. MACKINNON: So what you are saying is you knew it was accounted for but not give the proper approval?
MR. SALMON: And that is what I reported.
MR. MACKINNON: Okay. What about the balance of the $639 million? What does that represent?
MR. SALMON: Some of it is accounting policy changes, some of it is over-expenditures in some departments. There is a list of it in our report in that chapter, and it is also fully described in the financial statements.
MR. MACKINNON: Could we then switch over to Paragraph 8.3, the contract evaluation process in place for the air medical transport program. I understand the Department of Health has now taken over the air ambulance program, in other words Starr has given up that contract. Would you be kind enough to elaborate as to what the dynamics of that particular concern is that you outlined in Paragraph 8.3?
MR. SALMON: Could I ask Ms. Morash to address that question, please?
MS. ELAINE MORASH: In the contracts for the air medical transport program there was a provision that said that the contractor performance had to be evaluated and the only point that we were trying to make here was that there was not a similar provision in the contract with Emergency Medical Care for the ground ambulance component. We think that that is a valuable feature of a contract that when you are contracting with the private sector for a service that you have a provision in the contract that requires periodic written evaluations of the contractor's performance. That becomes something that is important when you are considering renewing the contract in the future.
MR. MACKINNON: Were we able to determine value for dollar with Starr Air Ambulance?
MS. ELAINE MORASH: That was not one of the objectives of the audit, no.
MR. MACKINNON: On Paragraph 8.4 there is concern about the maintenance of the ambulances, in particular indicating that there was concern over 47 of 90 returned ambulances that resulted in a loss of $562,000 in rebates. Would you be kind enough to expand on that, please.
MS. ELAINE MORASH: Certainly. These were ambulances that had been used by the predecessor ambulance companies, so they were ambulances that had been given to the small ambulance companies to use and then Emergency Medical Care was awarded the contract for the provincial ambulance system. At that point the ambulances transferred from the small contractors to Emergency Medical Care. The issue really had to do with who was responsible for the maintenance deficiencies so it was a unique situation in that because the ambulances had been used by two separate companies, it was difficult to pinpoint where the problem was. It is a problem that is not expected to recur in the future because now the ambulances are going to Emergency Medical Care, only being used by Emergency Medical Care and if there is a deficiency in maintenance, you know who is responsible for it. It was a unique situation because the ambulances had been used by two different companies.
MR. MACKINNON: Thank you. Mr. Salmon, in your opening remarks you indicated that deficiencies in the decision-making process was really - as I understood - the essence of the problem in terms of being able to grapple with budget deficits and debts and until we get to the heart of the problem, we most likely would never be able to balance our budget or at least get control of our budgetary process. I assume from that that you had an opportunity to read some
or all of the government's program review report? They reviewed x number of programs and so forth. Did you have an opportunity to read that report?
MR. SALMON: Yes, I have read parts of it, I haven't read it all. It is used in our audits in particular areas that we audit. I was very much involved with the Fiscal Management Task Force and from my perspective, that is a useful input to the process but it is not enough, the program review.
MR. MACKINNON: Do you have that report? Does your department have it?
MR. SALMON: I don't believe we have the full report. I have seen the results of the decisions out of that program review.
MR. MACKINNON: Would you be able to table that for the committee?
MR. SALMON: No, it is not my report. If you want it you get it from the government.
MR. MACKINNON: I see. Do we have to get everything that you refer to in your report from the government?
MR. SALMON: I give you what I produce, not what I collect in the conduct of my audits.
MR. MACKINNON: So anything you collect is not for the approbation of the committee, is that what you are saying?
MR. SALMON: That is correct.
MR. MACKINNON: In terms of accountability?
MR. SALMON: In terms of accountability.
MR. MACKINNON: Okay, that is different. Going back to item 5.5, you refer to the Halifax Regional School Board and on Page 10 of your report, finishing off that certain supporting budgetary documentation was not retained. Was that because they shredded it or it just evaporated, a cleaning lady walked away with it or what?
MR. SALMON: We were told that much of it was on computer disks and the disks and computers were cleaned after the process was completed. We were given various reasons why documentation had not been retained. Perhaps Ms. Morash could elaborate on that.
MS. ELAINE MORASH: That is accurate in terms of what we were told happened to the information and I have no reason to suspect that it was anything but completely innocent. Budget is not something that we normally audit with this degree of detail and rigour so they didn't anticipate at that point that we would be auditing the budget and therefore they didn't
retain that support. When we came in after the fact to look at it for the first time, and it was the first time we had looked at their budget, they were surprised that we had decided to audit the budget and the information was not available. My understanding of the situation was it was just because they had not anticipated that we would be auditing the budget surely and simply.
MR. SALMON: I would like to just elaborate on that if I could. We very strongly believe that in terms of process, history and future analysis, keeping such information makes an awful lot of good sense because you can go back to it the next year when you are doing your next budget then you can look at what you did and make some comparisons and some analysis. Even though it was innocent, we believe it should have been retained, for their own purposes, not just for ours.
MR. MACKINNON: So am I to conclude from that that this was information that was retained or at least at one time retained, or controlled, or handled by administrative personnel within the school board and not the elective process?
MR. SALMON: Correct.
MR. MACKINNON: So it is quite possible that the elected school board members didn't have the vital information to be able to determine whether a particular school should be opened or closed. Is that what I am interpreting?
MS. ELAINE MORASH: We were not looking at the school closure policy. What we were looking at was support for the entire budget, so that would include support for individual line items like salary of classroom teachers, for example. Aside from the information that was on the computer hard drive and had been destroyed, there were also other difficulties with the board members sometimes being given presentations verbally, rather than having information in a written form. When we came in to try to audit it after the fact, it wasn't always available to us, so it may well have been in the hands of the board members or the board members may have heard this information as part of a verbal presentation but when we came in after the fact to audit it, the information was not available to us because it hadn't been documented at the time.
MR. CHAIRMAN: One minute left.
MR. MACKINNON: Mr. Chairman, personally I find it a little ironic that a board of that magnitude would only hold its vital information on disk and not at least on the hard drive, or some paper system. One final question, if I could, to you, Mr. Salmon, through you, Mr. Chairman, the revenue projections, I believe my colleague has touched on them. Do you feel that the government was being overly optimistic or extremely conservative, small "c", in their revenue projections?
MR. SALMON: We believe that they were being conservative. We do not believe they were overly conservative. We were able to see, as Mr. Carter said earlier, a rationale for the assumptions and the decisions that were made in putting forward the revenue projections. That
resulted in me being able to give an unqualified opinion - as I have every year - on those revenue projections.
MR. CHAIRMAN: Thank you. We will now address your attention please to the PC representatives. Mr. Barnet.
MR. BARRY BARNET: First of all, Mr. Salmon, I want to congratulate you and your staff on, from first blush, what appears to be a very comprehensive report that I actually look forward to going through in greater detail tonight and the next couple of days. Mr. MacKinnon actually asked the first question and I was extremely interested in the fact that there were documents that related to budget that weren't available from the Halifax Regional School Board. Your staff's explanation was sufficient so I don't have to ask that question. I do look forward to particularly reading the section with respect to the Halifax Regional School Board from a personal interest, as well as from an interest on behalf of the constituents I represent. The other issue that sort of jumped out at me was the issue surrounding the ground ambulance.
In your outline, you briefly touched on the way in which the ground ambulance contract was awarded. My question is, to me it would seem to be reasonable that the government would have at least developed a shadow bid or some sort of shadow bid process, to determine whether or not there was fair value for money being spent. Was there any remote type of shadow bid process in the development of that agreement?
MR. SALMON: I will ask Ms. Morash to answer that question.
MS. ELAINE MORASH: No, there was not, or nothing we became aware of during the course of the audit.
MR. BARNET: So it begs the question, how was the government able to determine whether or not the people of Nova Scotia were getting fair value for their money. If they at least didn't develop some sort of a process to compare it with something else, then, in fact, there is no ability to determine whether or not there was ever fair value for money spent. That is concerning and Nova Scotians should have a look at that over the next couple of days.
[3:30 p.m.]
The other issues that were raised by Mr. MacKinnon about the school board are ones that I certainly intend to raise at our next session. Mr. Chairman, how many sessions have we dedicated for examining this, do you know?
MR. CHAIRMAN: I believe there is one more.
MR. BARNET: Just one more. Okay. I will pass the rest of my time off to Mr. Langille.
MR. CHAIRMAN: Mr. Langille.
MR. WILLIAM LANGILLE: Getting into the Nova Scotia Liquor Commission, I notice you say, "The number of Commissioners should be expanded beyond the maximum of three allowed by the Liquor Control Act in order to increase the effectiveness of the governance function." Could you explain that, please?
MR. SALMON: We believe that any organization that is that complex, involved in so many activities, production, marketing, the whole range of things, that a board of three could be improved with a board of a few more bringing to bear other expertise, other viewpoints, more input, more discussion, better decision making. It is hard to say what the right size of a board is and it is certainly not 15 but three seems small.
MR. LANGILLE: So do you have a number, say five or so?
MR. SALMON: Eight is a good number.
MR. LANGILLE: Eight.
MR. SALMON: Around that, six, eight, nine, something like that but three is too small.
MR. LANGILLE: You also say the Liquor Control Act is outdated in areas and in need of significant review. Could you explain just where it is outdated and what review is needed?
[3:31 p.m. Mr. Russell MacKinnon resumed the Chair.]
MR. SALMON: Perhaps Mr. Horgan could elaborate on some of that.
MR. HORGAN: There are a number of areas in the Liquor Control Act that we felt were not representative of how government and government agencies conduct their business these days. The Liquor Control Act requires various approvals at very high levels, approvals such as all liquor purchased by the commission has to be approved by the Chief Commissioner or a person authorized by the minister. It is not something that the senior person in an organization would normally be doing, approving routine purchases. All sale of liquor to the commission by say a brewery, distiller, or vintner, according to the Act, requires the approval of the minister. Items like that which are moving approval functions well up the ladder, which is not normal for most business functions.
We had some concern about some weaknesses in the Act relating to the enforcement of the Act. The Act is not clear on what parties are responsible for enforcing various requirements of the Act. There is the Nova Scotia Liquor Commission, there is the Alcohol and Gaming Authority as well as there are a number of police organizations. They all have a hand in enforcement responsibilities but the Act is not clear on which groups the various responsibilities fall to.
In fact, the Act has one or two requirements which are nearly impossible to enforce. The Liquor Control Act indicates it is against the law for anyone to be drunk in their own home which really would be something very difficult to enforce.
MR. LANGILLE: There would be a lot of charges if you could enforce it, wouldn't there?
MR. HORGAN: The Liquor Control Act also says no one can give alcohol as a gift except as permitted by the regulations. The regulations are perfectly silent on this matter so in some regards it is illegal to give alcohol as a gift, which is something that would be difficult to enforce and it probably wasn't the intent. The intent was to have regulations, I believe, controlling that aspect. So those are examples.
MR. LANGILLE: Do you know when the last time the Liquor Control Act was revised? Some of these seem very outdated to me. I am surprised.
MR. HORGAN: They are. In fact there has never been a wholesale revision of the Act. The Act was first passed in 1930 and to a great extent is the Act that was passed in 1930.
MR. LANGILLE: I think that is something that should be addressed very soon. Thank you very much.
MR. CHAIRMAN: Mr. Carey.
MR. JON CAREY: I would like to go back to the ground ambulance one for just a moment. That particular contract, I think, was over quite a long period of time. When they found that there were weaknesses or deficiencies in the maintenance and so on, would your department have made any recommendations as to corrective action or how they might renegotiate or look at a contract? I don't know how involved you would get in making recommendations but it appears to me that that was sort of a sweetheart deal and is coming home to roost.
MR. SALMON: I would ask Ms. Morash to answer that question.
MS. ELAINE MORASH: We did not make any specific recommendations in terms of changes to that section of the contract. As I had indicated earlier, the ambulance maintenance problem was mainly one that resulted when the contract was first initiated and it had to do with two different companies operating the same ambulances. I know that the Department of Health is investigating this area now and they seem to have a good handle in terms of what needs to be done.
MR. CAREY: Just in follow up, is it correct that that contract goes on for some period of time yet?
MS. ELAINE MORASH: Yes, it does. I can't remember exactly the length of it but it is . . .
MR. CAREY: It is 2003 or 2004, is it not?
MS. ELAINE MORASH: Yes, it is in the report. I just can't put my finger on it right now but yes, it is for a period of time.
MR. CAREY: Thank you. I will pass my time on to my colleague, John Chataway.
MR. CHAIRMAN: Mr. Chataway.
MR. JOHN CHATAWAY: It certainly is a great report and I am looking forward to the second time. I am possibly only speaking for this member, I am certainly gaining a lot by the testimony you have given and things like this. Something that I feel is very important, when you owe $11.2 billion and it is $15 billion gross, et cetera, obviously it is very necessary that any government has to count what it owes and what it takes in, et cetera, very carefully. I think that is of course why we have the Auditor General's Report here. I can see that there has been a comment made that we are not overly conservative but basically I think it is just being very carefully done.
What is particularly interesting is the Generally Accepted Accounting Principles and this government changed our accounting and adopted those Generally Accepted Accounting Principles and we have changed to that and I am sure everybody is busy having to do important things. I just wonder, Mr. Auditor General, why would we have done that and what good would have come out of counting things like that?
MR. SALMON: One of the major objectives is complete reporting and the major change that was accomplished through accepting and adopting the Generally Accepted Accounting Principles was moving to what are called consolidated financial statements in that we brought all of the government operations into the financial statements so they are complete. That meant bringing in all the hospitals, the school boards, the regional health authorities, the Crown agencies so that everything is in. When you look at $11.2 billion, it is complete. The numbers that we were looking at in previous years, now we have had two years of consolidated financial statements, those numbers were not complete. The other advantage, in terms of completeness, is comparability in that now we have got virtually every province on the same basis of accounting so that you can look at New Brunswick and look at Nova Scotia and look at Newfoundland and say well we are all on the same accounting basis so we can make some comparisons. It helps the bond raters in terms of assessing a province's ability to finance and raise money. It helps the investors because they have a complete picture, although they have to take into account other factors. So that is kind of the background to why.
Now, recognize that the previous government had announced that they were going to do the same thing, what your government did was escalate it by one year. I think we were all on the same wave length. This was the right thing to do, it just took us longer to get there than some other provinces.
MR. CHATAWAY: This is a supplementary question, I guess, but I understand that people have lent our province money, et cetera, that have lowered the rates because we have basically told everybody everything that we owe. So honesty is a good policy when you are having to borrow money, they very much appreciate the person that they are lending the money to to be quite forward and honest and say what the truth is.
MR. SALMON: I believe that that is true, that the bond rating agencies would agree with you although what you have saved them is making a whole lot of adjustments that they were having to make in the past to get to the numbers that are now in the financial statements.
But coming back to the issue of the fiscal crisis, this province has the second lowest rating in the country from a borrowing perspective.
MR. CHAIRMAN: Okay then, we will now go back to the NDP caucus. We have enough time for five minute rounds each. We will start off with Mr. Dexter.
MR. DEXTER: I just wanted to quickly draw your attention, if I can, on Page 17 you say, "Until late last week, we had not been provided information supporting the impact of planned cuts that had been used in the preparation of the revenue estimates." I think that is the same information that we launched a court challenge to try to find out, is it not? Isn't that the same information you are referring to? Probably.
MR. SALMON: Mr. Carter will address that.
MR. CARTER: To be honest, I am not sure what the court challenge relates to. What we were looking for . . .
MR. DEXTER: This seems to be a fairly complete description of what we were looking for, actually.
MR. CARTER: What we were able to do at the Department of Finance, because we had this outstanding issue that prevented us from finalizing our work and reporting, we had to sit down with the Deputy Minister of Finance and I forget who else was there, they walked us through a series of information which may or may not be what you people are looking for.
MR. DEXTER: It says here, "There was no information available on the timing or implementation of the planned cuts." Do they give you rationale for not providing it?
MR. CARTER: They agreed to provide it to us at the end of our review and from our point of view we would have preferred to have seen it earlier.
MR. DEXTER: We would like to see it now. If you haven't seen it all, if we win, we will share it with you.
I want to go back to user fees, if I can, just for a second because it is my observation with respect to what you have said here that the kind of voracious appetite that the government has for revenue, when it comes to user fees, essentially is unchecked. There is no central clearing house of the user fees. There appears, in many cases, to be no rationale underpinning what fees are being charged. There is no accountability for those fees to the Legislature so they have power but no responsibility. Is there a situation that would be worse for the people of the province than what is set out here in your document with respect to user fees in this province?
MR. SALMON: Any comments?
MR. DEXTER: Could it be worse? No.
MR. HORGAN: I see that as a rhetorical question because every situation can be worse.
MR. DEXTER: But it is pretty difficult to get worse than this when you have agencies out there that can charge fees that don't have to account to anyone for doing it, certainly don't have to account to the people of the province. They can take that revenue. I guess it is bad enough. People look around and they say, look, they have always taxed the money we receive. Now they tax the money we spend and they won't even leave us alone when we get in an ambulance and now when we pick up the telephone they still won't leave us alone. They just keep reaching into our pockets and yet here we have user fees being charged and there is no accountability mechanism at all in place to protect the people of the province. That is essentially what your review has found, isn't it?
MR. SALMON: Again, we are focusing more on how the fee is determined, what the processes are for that and what the authorities are. I guess from the point of view of control, if you don't have in place what we are recommending should be in place and an appropriate role for this Legislature in that process, then it is the people themselves who have to pay the fees who exercise the control by either refusing to pay or voting at the ballot box, one or the other.
MR. DEXTER: That's right but the fees as they exist now are omnipresent and omnivorous, aren't they? It seems to be what you are saying. You look at department by department. Right now, in the last round of budget estimates, we saw long-term care beds, for example, in facilities, in hospitals now, you pointed out that they are not an insured service and now hospitals are going to be allowed to charge user fees for those beds. And, you point out that as user fees in the health care system, because the way the budget is set up, that they are, in fact, going to be encouraged to charge more user fees because they get to keep . . .
[3:46 p.m. Mr. James DeWolfe took the Chair.]
MR. CHAIRMAN: I am sorry, the time has expired for the NDP. I will now turn your attention to Dr. Smith of the Liberal Party.
DR. JAMES SMITH: The Opposition has the responsibility to keep this user fee issue going because I think it is quite revealing. I guess my question would be on that and I know we will have an opportunity to come back another day but we saw the increase in Pharmacare being attributed to an extra $22 million that really was found not to be valid in the calculations of the need for increasing. Are you saying, Mr. Auditor General, that there is a risk of court challenges here in user fees and how do you feel that if that was to be challenged, I am not saying Pharmacare necessarily but in other areas relative to user fees and a lack of what the other speakers have brought forward here today and what is in your report, are you saying that there is a fairly substantive chance that a court challenge may be successful?
MR. SALMON: It certainly appears so but I will turn it over to Mr. Horgan to elaborate.
MR. HORGAN: The greatest respect with regard to user fees and a court challenge is the fact that in most cases government does not know the full cost of its services so the problem is that if they are challenged on a fee, and this fee is not set by legislation, the government may be called to show that the fee is reasonable with respect to the cost of the service being provided. We asked of a number of departments whether they have done that type of analysis and in many cases some departments tried and were not able to. Other departments didn't try at all but I wouldn't say universally but in most cases government did not come up with the cost of their individual programs, or haven't to date. So without knowing the cost of those programs it is hard to say how at risk any particular or any specific fee would be.
DR. SMITH: I, too, was going to mention something on the revenues but I think maybe we will leave that for now. Mr. Dexter did comment on that, particularly relevant to Page 17. Finally, in wrapping up, my comments would be on the Cape Breton Healthcare Complex. I don't think there is any area of the province that has really shown such improvement in health care. I think really what is reflected in your assessment and all the positive things you said about them is that when I go and visit, as a previous Health Minister, I see an improvement in health care. So I think there is a direct relationship to good management and good health care and if anybody wants to see that, go to Cape Breton, because you have satellite hospitals that are now working within that complex.
MR. SALMON: Maybe we should have you on our audit team.
DR. SMITH: I may be available as a consultant after the next election. (Laughter) That is with full expenses. Do you see any concerns on the horizon there with the new regional health authority change of that structure, as opposed to the previous regional situation? I know that they have been separate and apart from the region and now they will be incorporated, or is that a positive thing perhaps? It is one area that may be positive or may be negative.
MR. SALMON: Let me give you kind of a general comment from my perspective and then maybe Ms. Morash can elaborate. I have had concerns for several years now with the constant change in the structure of health care across this province. We are continually changing
the structures and the reporting relationships, the accountability relationships and everybody is in a constant state of transition. That is not good for the delivery of services. Ms. Morash.
MS. ELAINE MORASH: Specific to Cape Breton, I think you have identified an important factor which is good management. Since the CEO of the Cape Breton Healthcare Complex is now the CEO of that district health authority, I think that may be a positive development in Cape Breton. The good management will stay under the new structure and I think that is important.
DR. SMITH: As long as it doesn't get too diluted, yes.
MR. CHAIRMAN: Mr. MacKinnon, you have 30 seconds.
MR. MACKINNON: Mr. Salmon, item 2.3 with regard to Sydney Steel, the fact that you weren't able to complete your audit on that because of the lack of financial information. Could you give us some indication as to what really the issue is that you were dealing with there and what the scope of - I know there could be a lot of contingency liabilities, pensions and that sort of thing?
MR. SALMON: The issue was that the auditors of Sydney Steel had not completed their audit with particular reference to the extent of liability under the pension plans, the unfunded liabilities. So because they had not completed their audit and the financial statements had not been finalized, we were not in the position to rely on them, that was our issue. Claude, do you want to elaborate?
MR. CARTER: Very quickly just to add to that, we were working with drafts of financial statements for Sysco and the related pension funds, as was the Department of Finance staff. I think it is important to note that Finance government accounting staff who were responsible for preparing the province's financial statement, used the best information they had available. We perfectly understand why the auditors of Sysco and those pension plans wanted to wait until all the i's were dotted and t's were crossed from their point of view. From our point of view we had no option but to qualify in regard to that.
[ 3:53 p.m. Mr. Russell MacKinnon resumed the Chair.]
MR. CHAIRMAN: Thank you, we will now turn the remaining time over to Mr. DeWolfe from Pictou East.
MR. JAMES DEWOLFE: Thank you, Mr. Chairman, Mr. Salmon, and your senior staff for providing us with many details of your report here today. I certainly believe the work of your office is extremely important, not only to our government but to each and every Nova Scotian.
I was certainly delighted to hear in your opening comments that you suggested a lot of positive things are happening here in Nova Scotia and I think that is something that we can all
be proud of. With regard to consolidated financial statements, there was also a comment that we are a leader in our country. Could you give us a brief comparison of other jurisdictions; what are the differences and why might we qualify as being, in fact, a leader?
MR. SALMON: I will turn it over to Mr. Carter, he has more detailed knowledge of this than I have, that is for sure.
MR. CARTER: I think what is really important is that the Government of Nova Scotia - and as Mr. Salmon indicated, the previous administration had indicated that they were going to move to this basis as well - in 1999, decided they would move to Generally Accepted Accounting Principles. Our statements are now prepared and we report on those statements within a framework of Generally Accepted Accounting Principles. Other jurisdictions generally still report on a disclosed basis of accounting. That doesn't mean they are using accounting standards or practices that are significantly different than ours, but they are using a disclosed basis of accounting. In those jurisdictions, governments can still make decisions that disclosed basis of accounting will be something other than Generally Accepted Accounting Principles and their auditor then has to deal with that.
From our point of view, the accounting function for government and the audit function, as it relates to those financial statements, have the same foundation or framework that they are looking at, it is Generally Accepted Accounting Principles, it is not something as discretionary as it was in the past, it is not perfect and it is evolving. There are a lot of big issues that are still being dealt with and will be dealt with, but it is there and it is benchmark that we can all look at and interpret. Generally, we end up interpreting it fairly closely, so I think that is the major consideration, it provides a credible foundation for this province's financial reporting. Instead of the discussion in this House being about how the results are reported, it can now move to what are the results. I think that is a fundamental benefit of moving to Generally Accepted Accounting Principles.
MR. SALMON: Some other provinces have gone to Generally Accepted Accounting Principles but as Mr. Carter indicated, there are some that are still on a disclosed basis and therefore have some discretion. The federal government's been Generally Accepted Accounting Principles for a long time, they were the leaders.
MR. DEWOLFE: Thank you. Is my time up?
MR. CHAIRMAN: Two more minutes.
MR. DEWOLFE: Two more minutes, just one quick question. You mentioned that you had some concern over arm's-length boards and commissions and so on and the lack of control over some of these boards and commissions of perhaps salaries and so on. That is kind of a concern of mine and I guess when we talk about school boards, or universities and that sort of thing. Do you have any suggestions on how we may regain a little more control over the public purse with regard to these organizations?
MR. SALMON: I would suggest that what the government needs to do - as I understand it with this evolving new Civil Service Commission - is to establish personnel policies in a way that they are applied to every organization across the government system: boards; commission; hospitals; school boards, the whole range. Right now when you look at compensation levels, they are all over the map. There is a need to put in place personnel policies that are applicable to everybody and that has to be driven out of this new Civil Service Commission.
MR. CHAIRMAN: That is a good start on today's report. I would like to thank you, Mr. Salmon, for a very detailed and thorough report. As well, I thank Mr. Carter, Mr. Horgan and Ms. Morash. I think our lively and spirited debate earlier helped to set the tone for next week at 8:00 a.m. here in the Chamber with the Auditor General.
As well, perhaps if individual caucuses would be kind enough to start bringing some additional potential witness lists in for future consideration because our list is now getting short. Now that we have the Auditor General's Report I know everybody will be anxious to move on that. Mr. Holm.
MR. HOLM: If we could, just before leaving that topic, there were a number of other topics that had been on the list and approved, that have not yet happened.
MR. CHAIRMAN: They are being scheduled. We will need additional witnesses to fill our time.
MR. HOLM: Good.
MR. CHAIRMAN: The meeting is now adjourned.
[The committee adjourned at 4:00 p.m.]
