HANSARD
Printed and Published by Nova Scotia Hansard Reporting Services
Ms. Maureen MacDonald (Chair)
Mr. Chuck Porter (Vice-Chairman)
Mr. Alfred MacLeod
Mr. Keith Bain
Mr. Graham Steele
Mr. David Wilson (Sackville-Cobequid)
Mr. Keith Colwell
Mr. Stephen McNeil
Ms. Diana Whalen
[Mr. Keith Colwell was replaced by Mr. Harold Theriault.]
[Ms. Diana Whalen was replaced by Mr. Leo Glavine.]
WITNESSES
Mr. Jacques Lapointe
Auditor General of Nova Scotia
Mr. Claude Carter
Deputy Auditor General of Nova Scotia
Ms. Elaine Morash
Assistant Auditor General
Mr. Alan Horgan
Assistant Auditor General
In Attendance:
Ms. Mora Stevens
Legislative Committee Clerk
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HALIFAX, WEDNESDAY, OCTOBER 4, 2006
STANDING COMMITTEE ON PUBLIC ACCOUNTS
10:00 A.M.
CHAIR
Ms. Maureen MacDonald
VICE-CHAIRMAN
Mr. Chuck Porter
MADAM CHAIR: I'm going to call the committee to order. We have, today, the Auditor General and his staff to talk about the June 2006 report. We'll begin in the usual fashion with introductions.
[The committee members introduced themselves.]
[The witnesses introduced themselves.]
MADAM CHAIR: We've had an opportunity to talk and have a presentation from the Auditor General. The report has been in the public domain now for several months. So rather than having an additional report from Mr. Lapointe, we're going to go right into questions. We will allocate 20 minutes to each caucus, which is our usual process, and then we'll divide up the remaining time, whatever that turns out to be. We will start with the NDP caucus.
Mr. Wilson, you have 20 minutes.
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MR. DAVID WILSON (Sackville-Cobequid): Thank you again for sitting through our earlier meeting, and the one last week. I want to begin asking questions around some of the recommendations you made under your audit of the District Health Authorities of Colchester, East Hants, Cumberland, and Pictou Counties. I know I've discussed this many times over the last couple of years, but it seems to be something that re-occurs every year, we talk about the same thing, and that's around the approval of the business plans for the DHAs throughout the province. I know your audit just pertained to three of them, but I believe my questioning would refer to any of them.
I would like to start with the fact that December 2007 was the creation or approval or proclamation of the Health Authorities Act, which gave the mandate for the government to reduce or increase the number of health authorities, and consolidate some. A large portion of what the DHAs have to do is implement the business plan and try to stay within the frame of the Health Authorities Act. One of the stipulations in there, is it not, is that the health authorities must run no deficit. Is that true?
MR. JACQUES LAPOINTE: That is correct.
MR. DAVID WILSON (Sackville-Cobequid): In legislation, it specifically says that the health authorities can't run a deficit, but it also states in there that if approval doesn't occur by March 31st, the end of the previous fiscal year, that the health authorities can only spend up to six months of the previous year's budget. Is that also true?
MS. ELAINE MORASH: Yes, it is.
MR. DAVID WILSON (Sackville-Cobequid): We know from past experience that many of the DHAs, some of them, go almost the full year without being approved. You've indicated in your report that these three that you audited had significant time pass before the approval of their DHAs. Technically, by the law or by the Act that we have in place, are the DHAs following that Act, to your knowledge?
MR. LAPOINTE: I will ask Elaine to address that question.
MS. MORASH: There are certainly some instances of lack of compliance in that, because the business plans were not approved until very late in the year, they would have expended more than the one-half of the current year's expenditures, which is legislated. There is also legislation that deals with the Department of Health's and Executive Council's responsibility for approving those business plans, and those business plans were not approved in the time frame that's set out in the Act, as well.
MR. DAVID WILSON (Sackville-Cobequid): From what I'm hearing, then not only are the DHAs not abiding by an Act that we have here in the province, but neither is the Executive Council. We all know that the DHAs spend more than six months of
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their previous year's budget when they haven't been approved in the year. I just wanted to start with that, to try to indicate that the DHAs are actually, technically, breaking the law in this province when it comes to them implementing their business plans because they haven't had approval from government. Would you agree with that statement?
MS. MORASH: Technically, yes, I agree with you.
MR. DAVID WILSON (Sackville-Cobequid): One of the things, in going through your audit, I notice that especially this current government seems to do quite a bit of assessments and consulting in all departments, and especially in Health. I believe over the last three to four years, there have been well over five different consultings or reviews of Health, certain areas, whether it's IT or the value-for-money consulting or assessment that was done in 2003 and 2004; Corpus Sanchez, which I believe was initially with the Pictou Health Authority in 2005, but now is doing a broader review; and also an equipment processing review by the Colchester-East Hants District Health Authority in 2005.
When I look through some of the findings, you read through some of the reports that came back and the reviews came back, saying that the DHAs are actually not doing a bad job, they're doing a good job managing the funds that they have. Is that what you've seen in your assessment or audit of these health authorities?
MS. MORASH: That's correct. We relied on reviews that were done by a consultant, and those were quoted in our chapter, and that consultant's conclusion was that the DHAs were not doing a bad job, that they were in fact middle of the pack or better, in terms of their ability to perform.
MR. DAVID WILSON (Sackville-Cobequid): I'd like to just quote one section of your report, and it was around the Colchester-East Hants District Health Authority, this was the report from Virginia MacDonald and Associates. It just said, "[Colchester East Hants Health Authority] is performing very well in comparison with its peers and uses its resources wisely. It appears to be underfunded relative to its peers and has been unable to develop significant new programs to meet identified needs."
When I read that, the way I interpret it is that they're doing a great job with what they have. So what implications could you give us that are placed on the DHAs when they don't have approval of their business plan at the start of the fiscal year?
MS. MORASH: It's a basic premise of good management and good governance that a budget should be in place at the beginning of the fiscal year, and that sort of forms the framework that an organization lives under during that fiscal year. So in this case, because the budget isn't approved, that formal financial framework is not in place at the beginning of the year, and it's very difficult to come up with the strategies to manage
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within a non-existent budget. The Department of Health would argue that the district health authorities know the basic amount that will be in place and that they're sort of just negotiating on the edges in terms of, this is not the whole amount that's uncertain but just the gaps between the funding that the Department of Health has for the district health authority and what the district health authority needs. They would argue that the district health authorities have a good idea in terms of what their fiscal framework is going to be for the year. But from the district health authority's perspective, it creates uncertainty and the lack of an approved financial framework for the year. It's difficult to manage in that environment.
MR. DAVID WILSON (Sackville-Cobequid): I would imagine that in the current year, it must be very difficult. Not only do they not get approval of this current fiscal year's business year, not only that but they had to weather through an election and then approval of a budget that wasn't approved when it was initially brought to the floor of the Legislature. I can just imagine the stress put on the DHAs to try to meet their requirement to meet the Health Authorities Act that was implemented back in 2000.
[10:15 a.m.]
One of the recommendations you made was around implementing a funding formula. Do you think that would assist or hopefully speed up the approval process of their business plans from government, if there was a funding formula implemented by the government?
MS. MORASH: It would have to be established first. The funding formula has not only not been implemented, there hasn't been one established. But yes, we believe that a funding formula would aid in speeding up the process.
MR. DAVID WILSON (Sackville-Cobequid): So, in your opinion, do you believe that the government is holding the DHAs at a higher standard of accountability when dealing with their own budgets than they do for themselves, without approving their budget in a timely manner?
MS. MORASH: Certainly, if the situation in the province was that the estimates weren't approved until after the beginning of the fiscal year, we would think that was very odd and that would obviously create some difficulties for the province. So I guess when you look at that from a provincial perspective, and then you look at what is happening in the district health authorities, you can see that there is a different standard in place.
MR. DAVID WILSON (Sackville-Cobequid): So I know that your recommendation 9.1 is that the Governor in Council and the Department of Health
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approve prior to commencing the fiscal year. That hasn't been a new recommendation from your office?
MS. MORASH: That's correct.
MR. DAVID WILSON (Sackville-Cobequid): On almost every occasion I think we have heard that. That has been a standard recommendation from your office. Do you believe that government is genuine or are taking the steps necessary to, hopefully, listen to that recommendation that your office has made in this report?
MS. MORASH: During the course of this audit, they brought forward a plan for achieving those deadlines for the 2006-07 fiscal year. They had set out some timelines and those are shown in Exhibit 9.1 on Page 143. Those timelines have not been met, but during the course of this audit - and this audit would have been conducted primarily in late 2005 - they did have a plan in place for meeting revised timelines, better timelines for 2006-07, and those are shown in that exhibit.
MR. DAVID WILSON (Sackville-Cobequid): To date, I don't believe any of the DHA budgets or business plans have been approved. Could you comment on that? Do you know that that is a fact, that any of them have been approved as of yet?
MS. MORASH: My understanding is the same as yours but I haven't asked the question either.
MR. DAVID WILSON (Sackville-Cobequid): Maybe we'll ask the question come October 30th, hopefully.
One of the other recommendations under the Health aspect of your audit was around the finance and audit committee for each of the DHAs. I know you have some concerns of those committees being able to have someone with a professional accounting background or recognized financial expertise in areas of budgeting and management of finances. Could you just elaborate a little bit on why you recommended that or what that recommendation was?
MS. MORASH: When we looked at the finance and audit committees of these three DHAs, they had some very dedicated individuals, but when we inquired about their backgrounds, some of them had some small business experience but there wasn't anyone there with a professional accounting designation or, for example, a career as a bank manager or somebody with recognized financial expertise. These are very large government operations. They require that kind of financial expertise in order to be governed appropriately, and we believe it is very important that the district health authorities be able to attract that kind of expertise to help with their financial governance.
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MR. DAVID WILSON (Sackville-Cobequid): Is this something that the boards have brought forward to your attention through your audit? Was it them or was it just your opinion when evaluating the makeup of the board?
MS. MORASH: It was something specific that we were going in to look at. It was part of our audit plan. When we discussed this with management and we discussed our tentative findings, in terms of the lack of such expertise, certainly the chief executive officers of the district health authorities agreed that there was room for improvement, but they talked about the difficulty that they have in attracting people with that kind of expertise because these are volunteer positions and they require a great deal of time and effort. These are complex organizations to govern and this is a volunteer role.
MR. DAVID WILSON (Sackville-Cobequid): Would you see it beneficial to these boards to look at possibly giving a stipend and trying to attract those qualified individuals to sit on these boards? I mean we are dealing with a large portion of the provincial budget that is going towards these health authorities and we have a volunteer board which, I think in any of the reviews that we have read throughout the years, is saying that they are doing the best job they possibly can. Do you think government needs to give them a little bit more resources to ensure that they have the qualified individuals on these boards to manage the DHAs appropriately, and for the best amount of funds that taxpayers are funding the health area?
MS. MORASH: I'm not sure whether financial remuneration would make a difference. It may be something that the Department of Health would like to explore. A token financial remuneration probably wouldn't be sufficient. I'm not sure what the rationale was for removing the stipends in the Health sector. They were removed several years ago. The Health sector is different than other government sectors, where board members are paid. I think it's a bigger issue. I don't feel that we are the ones who should be responding to that question. It's probably a better question for the Department of Health and for government, perhaps the Executive Council or the Treasury and Policy Board - central government - in terms of why that decision was made.
MR. DAVID WILSON (Sackville-Cobequid): I think government needs to really try to recognize the importance of some of the recommendations you bring forward. You just stated earlier, when I started my questioning, that not only the government but the DHAs are technically breaking the law when it comes to their business plan and implementing their budgets for the year. I think that needs to be a strong - hopefully, that is a strong message to government that they need to clean up their act and get these business plans approved in the appropriate manner and in a timely fashion that is stated by legislation. Thank you for those comments.
MADAM CHAIR: Mr. McNeil, of the Liberal caucus, you have 20 minutes, until 10:43 a.m.
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MR. STEPHEN MCNEIL: Thank you again for coming in, not only today but a few weeks ago, doing a presentation. I just want to do a bit of a follow-up on the DHAs and their business plans. You had suggested that they were technically breaking the law. Explain that to me.
MS. MORASH: The Health Authorities Act has some specific provisions that deal with the timelines for approval of business plans. Those provisions are very well laid out in the Health Authorities Act, and those provisions are not being followed.
MR. MCNEIL: Have the DHAs not provided government with their business plans?
MS. MORASH: The DHAs have provided government with the business plans. It's government that hasn't approved those business plans in the timelines that are set out in the Act.
MR. MCNEIL: So, technically, then, in order for the DHA not to break the law, six months into the fiscal year, they would cease, stop operation.
MS. MORASH: That's correct, unless their funding was approved.
MR. MCNEIL: And their funding is approved by the government.
MS. MORASH: That's correct.
MR. MCNEIL: So, technically, I would say that perhaps the government is forcing DHAs to break the law.
MS. MORASH: Agreed. I agree with what you're saying.
MR. MCNEIL: In this fiscal year, right now, how many business plans have been approved? Do you know?
MS. MORASH: As far as I know, none, but I haven't specifically asked the question. I haven't seen evidence that any of them have been approved.
MR. MCNEIL: It was asked earlier, around the issue of your recommendations that come forward to government - and I know this is not the first year that it has been recommended that there be a mechanism put in place to ensure that the DHAs' business plans are approved within that timeframe. I guess I'll just ask you, from your perspective, knowing that that has been put out there and is really being ignored by government, what is the purpose of the audit if government is not going to be held accountable for it?
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MR. LAPOINTE: That is a very good question. We put out recommendations in our reports when we feel there are some areas where changes should be made. That's the reason we make them. We put these recommendations out in good faith to serve the public interest and to serve the House of Assembly. We do feel that it's incumbent upon government to take action on our recommendations. Where that doesn't occur, we feel that's a failure. We will be taking follow-up action, in terms of what we intend, after two years of making the recommendations, to follow up to see whether they have, in fact, been implemented. The action we can take on this is to report to the House and to this committee as to whether action has, in fact, been taken on our recommendations and, at that point, there is nothing else that we can do.
MR. MCNEIL: If you go through your report, there is recommendation after recommendation, really. There are a number of them that will say, this was brought up in the audit of 2002 and the audit of 2005. Has your department ever actually done an analysis of how many of your recommendations have actually ever been implemented?
MR. CLAUDE CARTER: The December 2005 report had a follow-up chapter on the 2002 recommendations, and I think, off the top of my head, we had 34 per cent of the recommendations had been implemented - I think that 34 is the number. The majority of them had not been fully dealt with, some of them not dealt with at all.
MR. LAPOINTE: Now that was our report on the audit of three years prior. We have never done a comprehensive study of everything. We have recently begun following up on recommendations, and we will be doing more so and tightening up further. I have to say that we expect to see significant action on our recommendations in the future, that is our expectation.
MR. MCNEIL: So I'm assuming by your response under your mandate, that will be one of the areas that you'll be doing follow-up on and making recommendations to government.
I also wanted to talk a little bit around the health care issue, around MSI and some of the issues that have come up with it. I noticed in your report, in Recommendation 10.4, you were talking about the payment of claims for expired health cards. You talked about the risks and benefits of that. I am wondering if you would explain that a little bit.
MS. MORASH: Certainly. The Department of Health made a decision a number of years ago that expired health cards would be accepted in physicians' offices. I understand that the background was that physicians were submitting claims for services, office visits for example, where the patient had failed to renew the health card. Those claims were being rejected when they were presented by the physician for payment and so the Minister of Health decided that it would be acceptable to take expired health cards
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for services rendered in physicians' offices. So our point was, if there is a process for renewal every four years, that is supposed to be a control over the issue of health cards, to make sure that every person who has a valid health card is, in fact, entitled to receive MSI services in Nova Scotia.
Our point was that this control is being abandoned for physicians' services and we recommended that the Department of Health do a detailed analysis to see what the consequences of that were, and to try and quantify how many claims were being paid that related to expired health cards. The Department of Health did not perform that analysis. When we came in again during the current audit - we had originally made that recommendation in 2003 - we took software that we have available to us, data extraction software, and did our own analysis. We found that the amount of claims paid was not overly significant for 2004-05, the amount was approximately $0.5 million, or 0.2 per cent of the fee-for-service billings that the physicians had put through.
MR. MCNEIL: So that's another recommendation of 2003 that was not followed through on. It was you, in this present audit, had to go in and extract the information to find the information.
MS. MORASH: That's correct.
[10:30 a.m.]
MR. MCNEIL: I'm wondering, has the department done anything with - and there is probably an obvious answer to this - but those claims that are coming in on expired health cards, what has the province done to ensure that that Nova Scotian is then brought back into the health care system with the proper identification health card? Have they done anything, do you know? Have you asked that question?
MS. MORASH: I am not aware of what they have done, whether they have, in fact, sent out additional renewal notices or whatever, we didn't ask that question so I am not sure.
MR. MCNEIL: You also alluded to the fact that there are more actual health cards than there are people in Nova Scotia, out there presently.
MS. MORASH: That's correct.
MR. MCNEIL: Maybe you could explain that to me. How is that possible?
MS. MORASH: I guess what happens is that, when individuals move out of the province, they often don't cancel their health cards. So there is a tendency for the number of health cards in circulation to grow and, in fact, since the plastic health cards were
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issued, the number has grown to more than the actual number of individuals in the province. So our recommendation is here for the Department of Health and Medavie to monitor that gap and make sure that they have a handle on how big it is and what the causes of it are, and to see if some action can be taken to try to get that number down, closer to the population of the province.
MR. MCNEIL: Just so that I am clear on this now, the department is actually paying bills for health cards that are - they don't have a handle on them, actually, on expired health cards that they are going to pay a physician for seeing a patient and we don't have good control on how people are leaving the province. Did you make any recommendations to them on how they could tighten that up?
MS. MORASH: No, what we've said is that we believe they should take a more active role in monitoring these things and in trying to figure out what the consequences are and putting appropriate controls in place to monitor. If there is a good reason, for example, for accepting expired health cards, if they need to do this in order for individuals to get services that they need on an emergency basis or whatever, they have to quantify and explain why it is that they have to accept expired health cards, what the benefit is to the system and to Nova Scotians and then what action they are going to take to try and make sure that the health cards are, in fact, renewed.
MR. MCNEIL: Is monitoring this part of the Medavie contract, keeping it updated, the MSI numbers, or is that in the department itself?
MS. MORASH: Both, it is a combination. Medavie reports these things and has the databases to be able to count the number of individuals with health cards and that kind of thing, they have that capacity, but there are also people at the Department of Health who are responsible for the MSI system and for setting policy. The policy framework rests with the Department of Health, so it is a combined responsibility.
MR. MCNEIL: In Recommendation 10.1, you talked about the alternative funding agreements to reflect current practices. Perhaps you could just explain that.
MS. MORASH: This related to the policy manual that the Department of Health has in place. Because they have a contract administrator, Medavie Blue Cross, it is very important that they have up-to-date policies, to make sure that Medavie Blue Cross and the Department of Health are following the same policies with respect to administration of physician payments. What we found was that the policy manual had not been updated for a number of years, so that there were policies in it that didn't reflect current practice.
One of the examples of that is, policies that had to do with the provision of billing numbers for physicians. Several years ago, there were restrictions on billing numbers and there were policies in place that dealt with that, and committees that were in place to
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regulate billing numbers for physicians. That system is no longer in place. The current agreements between Doctors Nova Scotia and the Department of Health do not make reference to restriction of billing numbers and, as a result, some of the policies have to be updated or taken out of the policy manual.
MR. MCNEIL: So the issue of the alternative funding plan and the issue around the MSI cards, does the issue lie within the department just not being updated, not being modernized, not being in step with what is happening?
MS. MORASH: Yes, these are administrative matters that could be dealt with better, in terms of just tightening up the administration, so these are administrative policies that should be updated, to reflect every time that they negotiate a new agreement with the doctors, there is need for the policies to be updated to reflect what the current terms and provisions are of the most recent agreement, and that is what is not happening.
MR. MCNEIL: In every question we've talked about, whether it be the MSI, whether it be about the alternative funding plan, whether it be about the DHA business plan, it seems to arrive back at the doorstep of the Department of Health not being in tune with what is going on, and what they are requiring people who work under them to do. Does that not seem somewhat alarming to you, considering they are the largest chunk of the expenditure in the Province of Nova Scotia?
MS. MORASH: Certainly we have recommendations for improvement in administrative practices in some aspects of the Department of Health. That's the common theme that you identify here, and I agree that is a common theme throughout those . . .
MR. MCNEIL: I guess what's frustrating, when you look at it, is these are recommendations that really have no teeth. You can make all the recommendations you want, if they want to continue to ignore them, as they've done - looking at the 2003 audit, it was 34 per cent. I would cherry-pick the 34 per cent of the easiest ones, as I'm sure the government has done, and said we'll do those, and these ones are a little bit tougher, makes our job a little bit more difficult to have to approve a business plan in time to ensure that the DHAs around the Province of Nova Scotia are not breaking the law.
I would suggest that perhaps one of the things that needs to be clearly earmarked to government is, what are our priorities? When you look at a budget, and the largest budget item is the Department of Health, I would clearly think that any recommendation that would improve the accountability of that department would be top priority. Would you agree?
MR. LAPOINTE: Certainly. As I mentioned earlier, I would agree that our recommendations are made in order to effect change that we feel is important. So,
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certainly, we feel that if we make the recommendations, there is a responsibility on the part of government and its administration to act upon them.
MR. MCNEIL: I would say to you, and I'm sure your recommendations are made in great faith, but in order to effect change, you need to have a willing partner.
MR. LAPOINTE: I would say that the recommendations we make are part of reports that are, in fact, reportable to the House and to this committee. We are agents of the House, and our only power, truly, to effect change is through the House. That is, in effect, why we have, for instance, this process. This committee is a significant part of the accountability structure of the Province of Nova Scotia, and certainly is our route to communicate our concerns. Ultimately, all we can do is report to the House our findings, and report to this committee our findings. That is all the power we have.
MR. MCNEIL: What can this committee do for you to make sure that these recommendations that are paramount, I think, to improving the accountability of government to the people of Nova Scotia - what can we do? We can sit here and debate these recommendations, but if the government is going to ignore them, is going to be forcing DHAs in the Province of Nova Scotia to be breaking the law - shall we say to DHAs, cease providing services to the people of Nova Scotia? That doesn't make sense. We can sit and wail away at government, complaining about the fact that they're not following your recommendations - what do you want us to do to ensure that the Government of Nova Scotia follows through on those?
MR. LAPOINTE: That's a fair question. There are a couple of things that this committee is empowered to do. One is to - as in fact you do to a certain extent and perhaps you want to look at doing more - investigate deeper into some of the areas that we report on, to call witnesses and to inquire and to follow up yourselves on our reports, our findings and our recommendations. I think that's a very important part of the whole accountability and governance process in the province. The other power that this committee has, of course, is to report any significant concerns it has to the House.
MR. MCNEIL: I would suggest that probably the issues around funding formulae have been asked many times by, I would suggest, both Health Critics. I know during budget estimates, our Health Critic posed the question to the minister around the funding formulae and what was happening in the development of them, and the response was, it's a complex and complicated issue.
MR. LAPOINTE: These are complex issues. That's one of the reasons, of course, why we're looking at them. Another ability of course that this committee has is to request the government or its departments to report to this committee on what it intends to do about our recommendations. There are powers that this committee has to go further into this.
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MR. MCNEIL: I would suggest, and I would encourage in your department, you also have power, and that is to continually pursue whether these recommendations are being followed. Quite honestly, I think they need to be prioritized. The ones that make an impact on Nova Scotia, and we're talking about a large chunk of the budget when it comes to the Department of Health, it would be interesting to know what 34 per cent was approved by government, of the 2003 recommendations. Thank you for your time, and I'll share the rest of my time with my colleague, the member for Kings West.
MADAM CHAIR: Mr. Glavine, you have until 10:43 a.m.
MR. LEO GLAVINE: Thank you once again, in this public forum, for coming in today and giving us an opportunity to question and to get clarification on some of the report and its recommendations. I wanted to start off in the area of Community Services. In your concluding remarks, you had said that there were inadequate access controls and appropriate segregation of duties and so forth. You talked about inadequate review and approval processes. Was that in reference to the Employment Support and Income Assistance Program, or was it generally around the disbursement of budget and practices within the department?
MR. LAPOINTE: Madam Chair, I'll ask Alan to address that question.
MR. ALAN HORGAN: The use of those words, review and approve, with respect to our concluding remarks were more with respect to certain key internal controls. One that comes to mind is the requirement to do bank reconciliations. We noticed that bank reconciliations weren't being done on a regular basis. We didn't see any evidence that there was a review and approval process for those bank reconciliations. We thought if there was a more rigorous review and approval process, then there wouldn't be, perhaps, as much of a lapse in some of these recommendations. It was more focused on specific controls.
MR. GLAVINE: So not necessarily around some of the programs that are administered by Community Services, whether it be Affordable Housing Program or the Employment Support and Income Assistance Program. It wasn't so much directed there.
MR. HORGAN: That's correct.
MR. GLAVINE: One area that I did want to question a little bit was when we consider having about 34,000 Nova Scotians receiving Employment Support and Income Assistance, did you find any deficiencies there in terms of how that program is administered? That's why I was asking whether or not - was it that review process and so forth in which there seemed to be some inadequacies showing and presenting themselves?
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MR. HORGAN: In this report, our June 2006 report, our focus of the audit was with respect to how the department makes direct deposits into the accounts of income assistance clients. Yes, we had some concerns about controls with regard to how that is being done, they are many and varied.
[10:45 a.m.]
We also did some audit work that we reported in our previous report, December 2005, and that included an examination of some other areas in Employment Support and Income Assistance. We had a number of findings in that report as well, around segregation of duties, issues, what responsibilities were given to which persons and does that afford appropriate control, and the ability of certain people to authorize non-routine payments to income assistance clients and such. Both in that audit from the previous year and this audit, we had recommendations that applied to Employment Support and Income Assistance.
MADAM CHAIR: Mr. Porter.
MR. CHUCK PORTER: Thank you to the witnesses for being here today, it's great to have you here. I'll ask a couple of questions for myself, and then I believe my colleagues have a couple of questions. I know you audited various departments. In general, did the departments you audited co-operate with your work? Were there any issues in that regard?
MR. LAPOINTE: I would say, and we remarked in the report, that generally speaking, across the board, we received very good co-operation from management and from staff. There's certainly no complaints to make in that regard.
MR. PORTER: In saying that, did they agree with your findings, or were they given an opportunity to make recommendation or suggestion toward your findings?
MR. LAPOINTE: The findings are reviewed with those being audited for factual accuracy and so on as part of the normal process. Yes, they are looked at with management in the different departments. The other opportunity they have, of course, is to give a formal response to our recommendations and to our findings. Where they do, we include them in the report, so you can see, verbatim, what they give to us. As a general rule, what you'll find is that management, at this point, indicates agreement and an intention to implement our recommendations. We include them directly in the report.
MR. PORTER: So generally speaking, you talked a lot, obviously, about the performance issues there. Just for clarity, when you spoke with the different staff and departments, they agreed that maybe there were better ways things could be done or things that maybe they just weren't aware of? An issue of education maybe on
[Page 15]
accounting principles or something along those lines, oh well, maybe we could do it this way and we haven't been for whatever reason?
MR. LAPOINTE: For the most part the way our findings and recommendations are received is they're discussed with management, and I don't know if my colleagues have anything else to say on this, but our findings are that they are discussed - there's a lot of back and forth, and if they disagree, they say so. Then when you say, on what basis, for the most part, they tend to see, at a management level, that, yes, we have a point. People are, as a rule, in the Public Service, looking for ways to do programs better, so they don't always necessarily want to hear what we have to say. There are some issues around, on occasion, disagreement on access to information. There can be some differences in terms of confidentiality of things that we want to look at. That can be an issue. Well, this committee has had its issues.
MADAM CHAIR: We've had our own experience with that.
MR. LAPOINTE: In looking at staff, the co-operation we receive, generally, is quite good.
MR. PORTER: So there were no major sources of disagreement then, in your opinion, with regard to the audit work you did?
MR. LAPOINTE: No, I wouldn't say that. Looking at all the different chapters, and looking at the responses that we received, the disagreements, if you look at the responses from the Department of Finance on the first couple of chapters, they don't really agree with some of our findings, particularly with weaknesses in the financial and accounting systems. Quite clearly, they have a different view of some of our findings in that area. What am I missing? If you look at the first chapter, getting out of the value-for-money audits and our reporting in here on a review of the revenue estimates, we did, in fact, have some differences there that led to a qualification of our opinion on the revenue estimates, having to do with presentation primarily of SAP and to do with our accessed information on some of the revenues. It certainly is never at 100 per cent and there are always some areas of disagreement with management. That was the significant one this year.
MR. PORTER: I'll talk a little bit about the SAP audit. Could you please review the situations where we are maybe deemed high risk with the SAP audit?
MR. LAPOINTE: Sorry, I couldn't hear the question.
MR. PORTER: Could you please review the situations maybe which are deemed to be a bit of a high risk in the area of the SAP audit that you did? I know we talked a little bit about that.
[Page 16]
MR. LAPOINTE: High risk, in terms of, let's see if I understand it, in terms of which areas that we were . . .
MR. PORTER: You made recommendations, if you want to just detail a little bit more on the recommendations that were made. I guess really what I am after is, are you satisfied at this point with steps that are being taken to mitigate some of these risks, after having gone through and done the audit?
MR. LAPOINTE: You are thinking in terms of all the recommendations that we made? (Interruption) Oh, yes, well, I'll talk about the SAP.
MADAM CHAIR: Mr. Carter.
MR. CARTER: Sure, thank you. First of all, as Mr. Lapointe indicated, we are not in a position to tell you whether or not we are comfortable with what management's plans are to deal with the recommendations and the issues that were identified by the various audits that were conducted with respect to the SAP systems. As indicated in the report, much of that work was done by specialized audit resources that we contracted, or we contracted jointly with Finance, or Finance actually contracted on their own accord.
In terms of the high risk items, there are some fairly fundamental segregation-of- duties issues that were identified in those audits, where people have capacities, either through their access to functional abilities in the system and other responsibilities, that create a control concern in those audits. Related to that is access to some of the more powerful user IDs that can virtually do anything and everything within the SAP environment, in terms of those not being properly restricted in use and so forth. That has been a longstanding issue from our point of view and, frankly, one that we were told had been dealt with and then we subsequently did some investigation and discovered that what we had been told was incorrect. So there are some fairly fundamental SAP procedural matters that we believe that government and management at the Department of Finance and across government need to deal with, to ensure that those weaknesses are, in fact, addressed.
Again, as we said at a previous meeting, in a $7 billion operation that has invested so heavily in SAP, which is an internationally recognized financial management and control system, you want to implement it properly and you want to use its features to the fullest extent to control your operations.
Come back to the question that was asked earlier, have we identified specific errors or frauds as a result of these weaknesses? The answer to that is no, but we have not geared our audits at that level and, frankly, while putting in good controls is partially aimed at ensuring that there isn't misappropriation and so forth, it is also aimed at ensuring quality of information, cost-effective control procedures, flow of information,
[Page 17]
and also to protect the public servants who are the ones who are there on a day-to-day basis because at the end of the day if something goes astray, anybody associated with it is tainted. That is something that is of concern.
So, in terms of high risk, there is high risk in terms of payment-run parameters, so there is a lot of that type of very specific SAP related things that have been identified and there is a longer list of what the specialist auditors classify as medium risk matters. We think that government, through the Department of Finance, needs to address those as quickly as possible so that the public gets the best bang that it can out of that SAP product.
MR. PORTER: Thank you very much for that answer. I guess you answered part two of my question, it was about the errors, so thank you for that.
I am going to turn it over - I had just a couple of questions, to Alfie.
MADAM CHAIR: Mr. MacLeod.
MR. ALFRED MACLEOD: Thank you and again, I welcome you back again. It seems to be a continuing saga, but it is great to have you here. With respect to the Nova Scotia Research and Innovation Trust, what does the Office of Economic Development need to do to improve the accountability of that operation?
MR. LAPOINTE: Thank you, I will ask Claude to reply to that.
MR. CARTER: In the chapter, we identified a lack of information coming back to the Office of Economic Development, as it relates to the trust and what its funds were, in fact, being utilized for and also as it relates to what the outcomes are. I must state for the record that in terms of responding to recommendations from our office, it has been my experience that the Office of Economic Development is very forthright in terms of receiving our recommendations and attempting to deal with them on a timely basis. In this regard, this particular audit spanned a number of months, in fact it actually started one year and finished the next. Many of the issues that we have identified, we identified fairly early on for the Office of Economic Development.
They began a process, in terms of discussions with the trust and with the Council of Nova Scotia University Presidents, to identify changes that were necessary so that they would, in fact, get the information they need, so that there is a better accountability information flow. We suggested audited financial statements for the trust, we suggested that there be a reporting back to OED on the actual use of the funds, the plans for the use of the funds and the outcomes. Those are the types of things they are attempting to put in place through a new memorandum of agreement with the Council of Nova Scotia
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University Presidents, universities being the major recipients of the funding for innovation and research purposes.
It is a flow of information in terms of how the funds are used, what the outcomes are and what the position is of the fund. Our understanding is that the new agreement will address those things, and I'm not sure what the status of that is. It was supposed to be signed sometime during 2006-07, whether it has been signed or not, I can't tell you because I don't know.
MR. MACLEOD: Thank you. There has been some discussion this morning about medical cards and payment of doctors and concerns that were raised over these payments. What would some of the other concerns be in relation to the payments made to doctors? Is it solely based on the concern that some of these cards are expired, or are there other issues that are related to that?
MS. MORASH: The major thrust of that audit was not the expired health cards, but rather, it was these alternative funding arrangements that are made between Doctors Nova Scotia and the province. So these are physicians who are no longer being paid entirely on a fee-for-service basis but rather, are being paid on something that is more akin to block funding or salary or some combination of fee-for-service and block funding.
Our concern with respect to that has to do with accountability and the fact that when the fee structure is changed, there still has to be some monitoring of what services the physicians are delivering and what the outcomes are from that funding arrangement. So the bigger issue that was addressed in that audit was this change in the payment mechanism for physicians and making sure that there are controls in place, that the outcomes of those physicians' services are still being monitored.
[11:00 a.m.]
MR. MACLEOD: These changes you are talking about, would these changes have to take place with the approval of Doctors Nova Scotia or would it be done on a one-on-one basis with the different physicians throughout?
MS. MORASH: There has been a conceptual framework agreed to between the province and Doctors Nova Scotia, so this is a framework in terms of how these future negotiations of specific arrangements will be conducted and what the contracts will, in fact, look like. Yes, the negotiations are done on an overall basis first, then the principles are put in place and then after that, the subsidiary agreements are negotiated with individual medical specialties, for example.
[Page 19]
MR. MACLEOD: This might be an unfair question, but to your knowledge, some of your concerns about the type of funding and the accountability, are they part of the discussions that are ongoing with Doctors Nova Scotia?
MS. MORASH: These alternative funding arrangements are not new, they have been going on for the past several years. We have some concerns with some of the current agreements that are in place now. We know that there has been some progress made for the future in that there has been a new principles framework agreed to between Doctors Nova Scotia and the province. If that principles framework can be implemented in individual future agreements, it looks like there will be progress made, but the existing agreements, the older ones, we identified some concerns with respect to deficient accountability. Those concerns were also identified very clearly by a group of consultants, the North South Group, who had done a report for the Department of Health on certain of those arrangements - I think the report was dated 2004 - and they clearly identified some problems with lack of accountability in the existing agreements.
So there are existing agreements, there has been some progress made in terms of this conceptual framework, these principles for the future, but the new agreements for the future have not specifically been negotiated yet.
MR. MACLEOD: Okay, thank you very much.
MADAM CHAIR: Mr. Bain, there are about three or four minutes remaining.
MR. KEITH BAIN: Thank you, Madam Chair, and good morning and thank you again for your time, the last couple of sessions that we had. I am going to change the question, if I could, and it is going to go to the education side and the concerns that were expressed over the control of the school-based funds.
I guess my question would be, you pointed out a couple of instances; how would you classify the problems that exist out there, relating to school-based funds?
MS. MORASH: There are some serious problems with respect to school-based funds. We looked at only two school boards - we looked at Strait Regional School Board and we looked at the French board. The controls at Strait Regional School Board with respect to school-based funds were quite good and we found some instances where the controls, as they had been laid out in a policy, were not exactly followed but those controls were quite good at the Strait Regional School Board.
At the French school board, there were some difficulties because they have 19 schools, they were all following their own policies and there wasn't central control of that area. There hadn't been a framework laid out for the 19 schools to follow. This issue appears to be prevalent throughout the province. Although we looked at only these two
[Page 20]
specific school boards, there have been instances identified, it has been discussed, for example, at the Halifax Regional School Board, and I am aware that they have come out with a relatively recent new policy to try to tighten up the controls over school-based funds. So there is a significant amount of funding out there and the school boards are all different in terms of what their individual problems are with respect to the proper controls over the funds.
MR. BAIN: So would you say, could it be an oversight, as far as the controls weakness, or is it a systemic weakness?
MS. MORASH: I think it is the nature of the assets that are supposed to be controlled. Those school-based funds come in to all the schools throughout the province, they come in in dribs and drabs - it is fundraisers, it is chocolate bar sales, it is money that is coming in for school trips and band fees and fees to participate on athletic teams. I mean there is such an amount of money coming in, it is a large amount in total, but it comes in nickels and dimes and it is very difficult to control because of the way that it is coming in and because the staff are not there on the front lines to control it. For example, the schools don't have accountants. These are funds that if they were coming into a small business, you would have accountants and you would have trained administrators there dealing with these funds.
In the schools you have teachers who are overburdened with other matters and you have principals who don't have a lot of administrative training. You don't have financial software, so a lot of this is being dealt with as best as people can do it, but the expertise and the financial systems are not in place and it is a very big job to put them in place throughout the province to deal with these funds appropriately.
MADAM CHAIR: The time has expired but you will have an opportunity to continue.
We will now have a second round of 10 minutes per caucus because we have two or three items at the end that I would like to save a little bit of time for. So we will go to Mr. Steele, you have 10 minutes.
MR. GRAHAM STEELE: Thank you very much. Let me first apologize for being late. One of my neighbourhood schools, École Chebucto Heights School, was the poster school this morning for International Walk to School Day and we had a number of guests, including the Minister of Education and the Mayor of Halifax and the chair of the school board, although the guest who got by far the biggest response from the children was that person dressed up as a giant apple. So there is a lesson in there for all of us, I think.
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I would like to pick up on the control weaknesses that you have identified in the government's financial system. Now I know that most people's eyelids get very heavy when you use the phrase "SAP financial management system", yet it is extraordinarily important, as you point out here, and the things that you say about this system are very strong. Auditors tend to use restrained language, but the language you use here is very strong; Paragraph 3.42, ". . . there are significant persistent fundamental control weaknesses that still need to be addressed." As far as auditors go, that is pretty strong language - "significant persistent fundamental". Paragraph 3.28, "The audits performed in 2006 are still reporting serious system and control weaknesses, many of a basic, fundamental nature, and many of which have been reported in the prior years' audits noted above."
Then you go on in that same paragraph to talk about assurances received that certain practices had changed; when you audited them you found that, in fact, those assurances were untrue and they hadn't changed and the weaknesses persisted. As auditors' language goes, this is pretty strong stuff, but because it sounds like a dull topic, the first thing I am going to ask you is to explain or to say in your own words, why should this matter to the person on the street? What is this all about? There is a real problem here, but what does it mean to you and me and the person walking past the building?
MADAM CHAIR: Mr. Lapointe.
MR. LAPOINTE: Thank you. I will ask Claude to address this issue as he certainly was responsible for this area.
MADAM CHAIR: Mr. Carter.
MR. CARTER: Thanks. What does it mean to the person on the street? It may not mean anything to them directly, except that their tax dollars are being used to acquire these internationally-renowned systems and products, and there is a lot of money that has been spent in terms of acquiring them, putting them in place and continuing to operate them. As it relates to - again, as I said earlier, for an organization, a $7 billion or $7.5 billion organization that is using such products, you would expect that ensuring that they are implemented and that controls available to be exercised with those products are, in fact, put in place in terms of best practices, you would expect that would be the case. I would assume that the public would expect nothing less from government and public servants, that they would use these products and put them in place in a way that is properly controlled. So certain fundamental things like segregation of duties and single user-single password type features would, in fact, be in place.
The other thing from our point of view is the persistence of these matters is a very real concern. SAP was implemented nine years ago. We have to get it right and getting
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it right means looking at some of the procedures and issues that have been identified through these audits and trying to deal with them on as timely a basis as possible. Related to that is also taking a look at the whole concept of control, what does adequate control mean, as it relates to the use of SAP and how SAP integrates with the other processes and procedures. So let's make sure that we don't have too many processes and procedures, let's not have too many controls, let's make sure we have the right level of control that addresses the risks, and the one that has been raised today was, has there been a loss of funds? That's one thing, but is there quality information? Is the process cost-effective and efficient? I guess that would be my response to it, the expectation would be that a $7.5 billion organization would get it right.
MR. STEELE: And in the private sector you would expect a corporation with revenue and expenses of $7.5 billion a year would not be handling things this way.
MR. CARTER: That would be my expectation, that if these types of weaknesses were found in the private sector, they would be dealt with very quickly because they are very fundamental. Segregation of duties and access to information . . .
MR. STEELE: Let's talk about this problem that is not being dealt with quickly, that these are persistent problems. In fact, one of the things that is disturbing about this is that the Department of Finance seems to be downplaying the problem. There is a reference to this in Paragraph 3.23 and 3.24, where the Department of Finance's response to all of these concerns is "this control activity exception does not necessarily indicate that there is a high risk to the SAP operating environment". I take it that you, Mr. Lapointe, in your office you beg to differ on that, that these are, in fact, high risk things. Is it fair to say that you are concerned that the Department of Finance is not taking these problems seriously?
MR. LAPOINTE: We are concerned about this and we mention that in the report. You will see in their response that again they put forward a disagreement with us as to the level of severity of this. We feel that these are fundamental controls and that they must be addressed.
MR. STEELE: Presumably, it's also fair to say that when the Department of Finance says yes, well, but nobody has actually identified a fraud or you haven't been able to put your finger on any leaks, the truth is that, rather than say there have been no frauds, the true answer is that they don't know because the controls are inadequate. There could be an ongoing fraud or leakage of money because of a lack of controls that they are not even aware of. Wouldn't that be more accurate rather than saying there is no problem, no actual problem and the truth is they don't really know?
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MR. LAPOINTE: I would say it is fair to say that if the controls are inadequate, you don't have all the information you need to know precisely what is going on in the system.
MR. STEELE: Now apart from this problem of persistence and whether they are reacting adequately or not, this SAP system is just getting bigger and there is a reference in your report at the top of Page 23 to the fact that the human resources module is being rolled out, that it was originally budgeted for $5.7 million and the budget is now vastly increased, it is now at $24.6 million for the same project that was budgeted for $5.7 million. Would it be fair to say that your office is very concerned about this expansion of the module when they haven't got the controls right on the existing portion of it?
MR. LAPOINTE: I would say that is a key statement that we made. Do you have more to say on that, Claude?
MR. CARTER: Yes, we did an audit on the SAP HR application in place in government that was put in April 1, 2005. The results of that are similar to the issues that were identified on the application control of SAP. As it relates to the money, our concern is project management. Our concern is governance, accountability and control of large systems projects. As an office, going back more than a dozen years, we have raised issues about government's practice as it relates to IT projects and the fact that government approves these projects at one level of dollars and then they take on a life of their own and the money just increases.
Is $24.6 million the right price to pay for SAP HR? We're not in a position to tell you, but we know that the gap between $5.7 million and $24.6 million needs to be explained in terms of what went wrong. That is the issue we are bringing forward, that maybe it should have been approved at $24.6 million to begin with. We really don't know, but we think there needs to be an accountability as it relates to that project.
[11:15 a.m.]
MR. STEELE: I have just one last question because I know I am rapidly running out of time. I don't want to talk about a conversation that we had during the last in camera meeting because that wouldn't be the right way to do it, but I do want to put to you a topic that we discussed in the in camera meeting, that is the fact that the Public Accounts just came out and you gave an unqualified audit opinion in the Public Accounts, but it was a very close thing right up to practically a day or two before the thing went to print you weren't sure whether you were or were not going to give an unqualified audit opinion.
What were the issues that made it such a close thing? Have those issues been resolved to your satisfaction?
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MR. LAPOINTE: Well, we were looking at a number of issues, but I would say we are always looking at issues at the last minute on these things. I would never give a statement on what the opinion will be until it actually occurs. Certainly we were having conversations with the Department of Finance on a number of accounting issues, trying to determine, for instance, whether - look at the unadjusted errors, there are always a lot of areas of difference. The question was, were they adequately addressed, were they sufficiently below a materiality, and so on.
I suppose other areas would have been, we were looking at accounting treatment differences of spending on grants during the year and particularly at the end of the year, as to whether they were appropriately accounted for, looking at the reporting entity as to whether that was correct. There were quite a lot of other areas, but I don't know which particular things you want me to look at.
MADAM CHAIR: Thank you. The time has expired. Mr. Glavine, you have 10 minutes.
MR. GLAVINE: Thank you, Madam Chair. I wanted to go back to the Community Services comments that were made, your concluding remarks. I did want to reference them insofar as you had identified some very serious control weaknesses. You talked about inadequate access controls, inappropriate segregation of duties, ineffective bank reconciliation procedures, inadequate review and approval processes. In particular, you talked about the electronic funds transfer system and, in fact, without government or department policies to guide them. You went on to say that you note the division of this importance, the controlled state of security measures and controls are reckless, irresponsible and unsafe.
Now if that were an individual, we would try to reel them in. This is a department, this is a system. That, in my conclusion, and I don't want to put words in your mouth, but does this mean that this department really needs an overhaul of some of its current practices? Would you conclude that, Alan?
MR. HORGAN: We may have to, in our opinion, address a number of problems, control weaknesses, whether that represents an overhaul, I mean that is just a matter of how you interpret it. This audit uncovered a number of what we believe to be control weaknesses around electronic funds transfers. We select it because it is a very high risk area, as well as just their fundamental IT operations, how they are organized, arranged, and how they develop policies and how they plan for their computer operations. Their computers are extremely important to the operation of Community Services, as they are to most government operations. It is just so fundamental to them being able to accomplish their mandate and, of course, something they hold in very high importance is being able to provide funds to those in need who are, indeed, eligible for that money
[Page 25]
and that this money gets to them when it is supposed to, which means on a very timely basis and IT is fundamental to that. Electronic funds transfer is just one example.
So because IT is so important to the department, then control of IT is very important to the department as well and basically that is what we are saying, that they should re-examine a number of areas of control and we explicitly lay out some areas which we think should be addressed.
MR. GLAVINE: Thank you, that's really the explanation that I wanted to hear, that there are some glaring weaknesses there that hopefully, over the short term, can be addressed. I know that overpayments to recipients are not just because the caseworker deems that they need more this month but, rather, mistakes are made and we hear them in our MLA offices. Overpayment collections seems to be a way of life for the department and, of course, now use other means to collect those back, like agencies and so forth. So I thank you for that.
The other area that I wanted to go to once again was regarding Natural Resources and sustainable forestry in Nova Scotia. I am pleased to see that you are recommending finally a report, which has been promised for nine years, now almost 10, that Nova Scotians are still waiting for. In fact, Nova Scotians are truly in the dark on this issue as to whether or not our forests are sustainable.
I was wondering why you didn't go so far as to recommend that there be an annual allowable harvest, an annual allowable cut, that the department should be implementing when that is now the practice of other jurisdictions.
MR. HORGAN: The reason we did not venture into that area is because we see that very much as government policy. It is how that would be one means that government could use to effect its mandate, to achieve what it wants to achieve, one of a number of different ways. The mandate of our office is not to audit and provide conclusions on high level, regulatory level government policy. We look at how government implements policies that they have chosen, so we look at the systems and once they have decided to do something, we see how they go about trying to achieve what they want to do. That specific area would very much be one of policy.
MR. GLAVINE: Okay, thank you very much. I think there is probably just a short time remaining?
MADAM CHAIR: You have until 11:27 a.m., so you have about four more minutes.
MR. GLAVINE: It is difficult in a short time to deal with specifics. In terms of education, and I know you only took an audit and a detailed glimpse at a couple of the
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school boards and you talked about some of the inadequacies in terms of the different funds that are collected, in other words the user fees in our schools. We are talking about hundreds of thousands, in fact millions of dollars across Nova Scotia that are collected for a whole range of requirements. In fact, when I did a quick look at a few schools this fall - as Education Critic, it is one of the areas that I constantly hear about, user fees - I was absolutely shocked to hear that the student fee in one of our schools included a percentage for computer paper. Did you make any deductions in your work that certainly led to what I think we all know, and that is public education is under-funded in this province and therefore we need all these cookie jars all over the place, and I think certainly make for many vulnerabilities in the system.
MS. MORASH: We didn't look at why the funds were collected. All we were looking at were basic controls in terms of once the funds come in, are they adequately controlled? So we weren't looking at the amount, whether it is required, what should be funded by the province versus what should be funded by parents. That wasn't within the scope of the audit at all, it was just basic controls in terms of once the money comes into the schools, how is it protected - the basic stewardship responsibility that the schools have.
MR. GLAVINE: If it seems, then, that nobody is responsible here, what would be one of the recommendations of the Office of the Auditor General for these thousands of dollars that come in, hundreds of thousands of dollars in some schools, in our large high schools? What should we be doing as a safeguard here?
MS. MORASH: I think the responsibility is with the school boards and they need to put policies in place, clear policies, that include basic controls over cash. For example, I can tell you from a personal experience that my children at a high school in the metro area are only allowed to bring money in as cash, they won't take personal cheques. Well that increases the risks, certainly, so it is policies about whether that kind of an approach is acceptable or whether they take personal cheques, what the custody is of those funds when they come into the school, what the accounting systems are.
One of the things that we encountered at one of the school boards was that there was only a single signature required on a cheque from the bank account and that some of those cheques had been signed in advance. These are very basic financial controls that are not included in a policy and there should be very basic provisions in that policy in terms of what is acceptable behaviour and what isn't. Things like one signature on a cheque just isn't an acceptable control, when you have what is essentially public money coming into an organization.
MR. GLAVINE: Okay, thank you very much.
MADAM CHAIR: We will now go back to Mr. Bain, you have 10 minutes.
[Page 27]
MR. BAIN: Thank you, Madam Chair. I will just continue the discussion on the control of school-based funding again. I know you make reference that boards need to have a policy and I know one board in particular, and I am sure there are others throughout the province, that do indeed have a policy relating to school-based funds, and they have a central office staff person who is responsible for reviewing the school-based funds and making recommendations. Is that the sort of idea that you are looking at, or proposing that should be done?
MS. MORASH: Absolutely, and some of the school boards have made progress in that regard, in that they do have the policies in place and, as you indicate, some of them have staff people in place who make visits out to the school periodically and make sure that the policies are being followed. So it is that kind of a policy framework, along with the monitoring and appropriate reporting. I mean one would expect, for example, that there would be bank reconciliations prepared on a periodic basis and that those would be submitted to the central office.
The other impact that this lack of policy has, and this lack of appropriate controls, is that the financial statement auditors of the school boards have been unable to give unqualified opinions on school-based funds. How this came to a head was a couple of years ago, there was a new accounting standard that came into place nationally that said that these funds should appear on the financial statements of school boards, that even though they aren't part of the school board's normal revenue streams, that the school board does have responsibility for them and that they should appear on the financial statements. So that accounting standard really forced people to pay more attention to this area and the controls. Then, when the auditors came in, the auditors said, we can't given an opinion on this because the standard internal controls are not in place. So it is an evolving area and hopefully, within the next few years the auditors will be able to give an unqualified opinion on these funds and that there will be better controls at the school level.
MR. BAIN: Thank you, that clarifies it, Madam Chair.
MADAM CHAIR: Mr. Porter.
MR. PORTER: Just one question, again I want to follow up on that a little bit. With regard to school boards, and there have been issues, you audited only a couple of the school boards of the many and maybe some are doing things better, like my colleague has suggested in different policies. Policies are wonderful, but are you suggesting in your recommendations with that policy or along with that policy, that there should be somebody who is, I will say, an accountant or are you saying government should step in here at this point now and take control of those dollars and manage the fundraisers, or are you suggesting that they stop doing fundraising at schools because of the issues with that? There are a lot of areas there and you talk about a variety of different dollars, big
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money, small money - nickel-and- diming, I think, maybe was your terminology there - but it all counts and is all very important money for each one of these individual schools and school boards.
[11:30 a.m.]
I am very interested to know, in all of the work you have done and the audits you have done and unqualified opinions and maybe fairness in that, but is part of your recommendation that there should be an accountant either within a region or a school board or a section of the province divided up - I am very interested to hear what your thoughts are on that in detail.
MS. MORASH: It is the responsibility of the school boards to implement these controls, not the Department of Education's. We don't want to second guess what is the appropriate approach for a particular school board. It depends on how the school board has decided to administer its operations. Some of the school boards do have accountants who are assigned to specific schools to deal with, they use a family of schools model where you have a group of schools that is the responsibility of a certain financial administrator, other schools have decided not to go that route. So I think there are a number of administrative models that can work, but it is clearly the responsibility of the school boards, under the current legislation, to put in appropriate controls over these funds.
I am not advocating that the Department of Education step in and take responsibility and we are not saying anything in terms of whether there should be more or less money coming into the schools as user fees. All we are saying is that there have to be some basic controls put in place, and it is the responsibility of the school boards to do so.
MR. PORTER: Just for clarification on that, then you are talking a province-wide standard?
MS. MORASH: Not necessarily, it would be a school board by school board standard, the same way as the school boards have policies in many other areas. Not all schools are administered the same way, the school boards have governance responsibilities so the individual school boards would have responsibility for this as well.
MR. PORTER: So, although we're recommending issues from the Auditor General's perspective, concerns or policies, you are really not coming back with a recommendation that maybe what is good for one might be good for all or not; you are not stepping out to make that recommendation. Maybe I am missing something, and I apologize if I am, but I just want to delve into that because if you are going to have something that works in the western part of the province, maybe that will work in Cape
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Breton or in Halifax. You folks audited these schools, so I want to get into that a little bit. Is it province-wide, or why doesn't one work as good as the other, if we are talking dollars and cents?
MS. MORASH: The school boards have all made different decisions in terms of how their operations are administered. Some, for example, will decide that a particular software package is the way to go. Maybe they put Simply Accounting in all their schools and that for them, it is the secretaries who they want to train to use Simply Accounting as the financial tool for these school-based funds. Others may decide that they want to go with manual records and maybe they want to have somebody at central office, versus the school secretaries doing it, maybe some boards think that the principals should do it.
We don't want to take the governance responsibilities away from the school boards. They have the right to organize their operations in the way they see fit. That is the responsibility they are given under legislation, so we don't want to say that you should do it one way versus another. That is their responsibility to decide the appropriate approach.
Despite that, I think they can all learn from best practices and there are committees where, for example, the school board financial officers would come together and share best practices. I think maybe that is where we get at the kind of thing you are talking about, where we learn from one another, so there are forums in place to do that.
MR. PORTER: So you're not maybe advocating that, but not against that either. That is something that would certainly be an approval or an enhancement to that policy or could be added there.
MS. MORASH: Yes, sharing is definitely good, yes.
MR. PORTER: Thank you very much. That's all I have, Madam Chair.
MADAM CHAIR: Thank you, that concludes this portion of our agenda. On behalf of the committee, I would like to thank the Auditor General and his staff for being here today and for briefing us prior to today, on two different occasions. So thank you very much.
I think we very much look forward to following up, as a committee, and bringing various departments in front of this committee and possibly other committees, to discuss in greater detail and examine in greater detail the issues and the matters that you have raised, in terms of trying to hold the government to account and the various departments for how they respond to your recommendations. So again, thank you.
[Page 30]
I would ask the committee to look at the agenda. We have two items on the agenda and, in addition, I am going to table a piece of correspondence with you. So we will start with the subcommittee report. The subcommittee met last Monday morning. You have the report, it was circulated prior to today's meeting. I would ask for an adoption of this report. Is there any discussion? Mr. Steele.
MR. STEELE: I have two questions about the recommendations of the subcommittee. The first one is the listing of the Gaming Corporation. I was wondering if the subcommittee had any views on a more precise topic or a specific aspect of their mandate? I am a bit concerned about inviting the Gaming Corporation in general, with no indication of why they are being invited.
MADAM CHAIR: I'll ask members of the Liberal caucus. This came from the list from the Liberal caucus, if you'd like to speak to that or if you can speak to that.
MR. STEELE: The Gaming Corporation is being invited at the initiative of the Liberal caucus. I am just wondering - I think it would be helpful to the committee and to the Gaming Corporation if we could be a little more precise about why they are being invited.
MR. MCNEIL: To my knowledge - now I will speak to Keith, who sits on the subcommittee - we did not want to narrow the focus from when you invited in the Gaming Corporation. We wanted to leave it wide open, but if it is the wish of the committee or your caucus to narrow the focus, we would certainly consider that.
MR. STEELE: I guess I'm not that concerned. My experience in the past has been that the less focus we have, the less useful the committee's work is because then we are all over the place.
MR. MCNEIL: Well, I think that would be incumbent on each caucus to decide where they are going to go with their questioning, and then it would be determined where we went from there.
MR. STEELE: Okay, fair enough. I am actually more concerned about the second one, and that is the last item on the list. Now the Offshore Onshore Technologies Association of Nova Scotia is a very important organization, an industry group representing a very important sector of the economy, but it is not the habit of this committee to invite an industry group to talk to us generally about their work. It sounds like something more suited for the Economic Development Committee, so I am wondering if the subcommittee could explain in what respect is inviting OTANS to this committee relevant to our work, which is holding the government to account?
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MADAM CHAIR: That specific matter also came from the Liberal caucus. Just let me say a little bit about the subcommittee and its work. The three caucuses brought forward topics. As a subcommittee, we discussed procedurally how we would move these topics forward. The topics that were brought forward from each caucus were brought forward in an order of priority and we more or less decided, by consensus in the subcommittee, to proceed by taking the first items from each of the lists.
We did have a very brief discussion in the subcommittee about whether or not it was appropriate to have certain matters in front of the committee that didn't have a direct relationship to the work of the Public Accounts Committee and that could be more properly viewed in another committee or reviewed in another committee. For example, you will see that, under additional matters of discussion, we had this discussion around some of the education matters that were brought forward from the PC caucus. For example, Learning for Life update, whether or not that might be more appropriately reviewed in the Human Resources Committee. We decided to send the student loan program over to the Subcommittee on Human Resources, because they had already decided to make that part of their committee.
It is a fair question, I think, in terms of that particular item. Maybe what we could do is send it back to the subcommittee for some further discussion.
MR. MCNEIL: Madam Chair, if I may, I assume the subcommittee already had discussions on the recommendations that are in front of us, and you must have approved of them, as a subcommittee.
MADAM CHAIR: We did, yes.
MR. MCNEIL: So I'm not sure why, if the subcommittee approved it, we are now deciding that it is not an appropriate place. I think Mr. Steele highlights a real problem, that is committee structure, period, in the House of Assembly. I am not sure that it is clearly defined where one goes and one doesn't go, that is one of the inherent problems with this whole structure. Our caucus put forward this recommendation that obviously the subcommittee has approved. I don't mind it going back to the subcommittee, but we're chasing our tail. Obviously, our caucus moved forward with this recommendation, wanting it to come before this committee, the subcommittee approved it. Are we going to send it back?
MADAM CHAIR: Well, it's up to members of the committee whether or not they do that. The clerk needs to have some direction to the committee, so she can schedule witnesses. We have agreed on this group of witnesses at the subcommittee level, to bring forward to this committee. Mr. Steele raises a fair point, there is a fair question here, in terms of this committee doesn't normally - I'll take responsibility for my part on the subcommittee. It never occurred to me that, in fact, that was a group that is not a
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department of government. It is very rare for us to bring a group in front of us that isn't a department of government because this is what the Public Accounts Committee does. The Public Accounts Committee reflects on government expenditure in its various departments and holds accountable, as the Auditor General told us earlier, and digs deeper into the decisions being made.
I can remember having Doctors Nova Scotia come in with the Department of Health to our committee to talk about the alternative funding, I think, but outside of that I think we have to be very careful about the kind of precedent we set if we proceed in that way. So this is up to the will of the committee, ultimately, but I think it is a fair question and we can send that particular item back to the subcommittee for reconsideration, or you can adopt this report as it is in front of us, that's the will of the committee.
MR. STEELE: Maybe it would help to focus the vote if I move an amendment to the recommendation. I move that the recommendation be amended so as to have the Chair write to the Chair of the Economic Development Committee suggesting that they invite OTANS to appear before them.
MADAM CHAIR: Is there a seconder for that motion? Discussion.
MR. MCNEIL: If I could speak to that. I would prefer, Madam Chair, and I think it is in fairness to the people who sit on the subcommittee, that if you are going to do something with the offshore technologies that you return it to the subcommittee first, and allow those members to have that discussion before we refer it to a new committee.
MR. STEELE: I withdraw my amendment and propose an amendment that we refer OTANS to the subcommittee for further consideration.
MADAM CHAIR: Okay, is there any discussion on that? Question?
Would all those in favour of the motion, please say Aye. Contrary minded, Nay.
The motion is carried.
MR. STEELE: I now move that the recommendation, as amended, be adopted.
MADAM CHAIR: Any further discussion on the subcommittee report? The motion is to adopt the subcommittee report, as amended.
Would all those in favour of the motion, please say Aye. Contrary minded, Nay.
The motion is carried.
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Okay, the next item we have is the review of the briefing book. The clerk has put together and provided for committee members, a very comprehensive briefing book that outlines all of the parameters and the background to the operations of this committee. I am assuming that every member received this and has had an opportunity to make use of it.
[11:45 a.m.]
I think that over time, if there are any deficiencies, if we identify that there need to be additional pieces brought to that briefing book, then those are matters that need to be brought to the attention of the subcommittee members and we can look at how we can improve on what is already pretty good work. Thank you, I want to thank the clerk.
I want to ask the clerk to circulate to members of the committee a letter that I received from Mr. Hebb, Legislative Counsel. The subcommittee, in our deliberations, discussed whether or not this committee would be taking any further action with respect to the failure to secure certain documents around the S and J Potato Farms and Magic Valley loans. The question we had was, what is the status of that work, given that the House was prorogued and an election was held?
I wrote to Mr. Hebb, asking for his opinion and he has provided this. I am just tabling this letter here today, we will not discuss it. You haven't had an opportunity to see his response and I would like you to have an opportunity to look at that. We will place this on an agenda for a full discussion, on how the committee would like us to proceed, given what Mr. Hebb has had to say.
At this point I wonder, is there any other business? Mr. Steele.
MR. STEELE: I have a motion I would like to propose for the committee, it reads as follows:
I move that the Public Accounts Committee direct the Chair to write to Heather Foley-Melvin, requesting that Ms. Foley-Melvin deliver to the clerk of committees any documents pertaining to her appointment as CEO of Conserve Nova Scotia, including but not limited to; her job description, contract of employment, and curriculum vitae and that these documents be delivered to the clerk as soon as possible but, in any event, no later than one week before her scheduled appearance before the committee.
MADAM CHAIR: Thank you. Is there any discussion on that motion?
MR. STEELE: By way of explanation, I would just say that Ms. Foley-Melvin is going to appear before the committee, although a date hasn't been set. It seems to me that the committee's work will be considerably enhanced if we have some documentation
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in our hands in advance, rather than receiving it on the day of, or potentially after the hearing. So essentially, what I am proposing is that the committee simply ask for that information in advance of the hearing.
MADAM CHAIR: Any discussion?
Would all those in favour of the motion please say Aye. Contrary minded, Nay.
The motion is carried.
We stand adjourned, thank you.
[The committee adjourned at 11:49 a.m.]
