ANNUAL REPORT, OFFICE OF THE PROVINCIAL AUDITOR, 1990
CONTENTS
Wednesday 6 February 1991
Annual Report, Provincial Auditor, 1990
Trent University
Afternoon sitting
University of Toronto
Adjournment
STANDING COMMITTEE ON PUBLIC ACCOUNTS
Chair: Callahan, Robert V. (Brampton South L)
Vice-Chair: Poole, Dianne (Eglinton L)
Bradley, James J. (St. Catharines L)
Charlton, Brian A. (Hamilton Mountain NDP)
Conway, Sean G. (Renfrew North L)
Cooper, Mike (Kitchener-Wilmot NDP)
Cousens, W. Donald (Markham PC)
Hayes, Pat (Essex-Kent NDP)
Johnson, Paul R. (Prince Edward-Lennox-South Hastings NDP)
MacKinnon, Ellen (Lambton NDP)
O'Connor, Larry (Durham-York NDP)
Tilson, David (Dufferin-Peel PC)
Substitutions:
Cunningham, Dianne E. (London North PC) for Mr Tilson
Daigeler, Hans (Nepean L) for Mr Conway
Fawcett, Joan M. (Northumberland L) for Mr Bradley
Haeck, Christel (St. Catharines-Brock NDP) for Mrs McKinnon
Hope, Randy R. (Chatham-Kent NDP) for Mr Hayes
Clerk pro tem: Carrozza, Franco
Staff: McLellan, Ray, Research Officer, Legislative Research Service
The committee met at 1007 in room 228.
ANNUAL REPORT, OFFICE OF THE PROVINCIAL AUDITOR, 1990
Resuming consideration of the 1990 annual report of the Office of the Provincial Auditor.
TRENT UNIVERSITY
The Chair: We will start. Mr Stephenson, I would ask you for the purposes of Hansard to identify the two gentlemen to your right and to our left.
Mr Stephenson: To my immediate right is Dr Stubbs, the president of the university and beside him, Dr Earnshaw, vice-president of administration. My name is Robert Stephenson. I am vice-chair of Trent University's board of governors. Jean de Pencier, the chair of the university's board, sends his regrets at not being here today, but he unfortunately is overseas on business today, which has prevented him from appearing. Seated with me at the table today are Dr John Stubbs, president and vice-chancellor of the university, and Dr John Earnshaw, vice-president, administration and finance. In addition, seated behind me are my colleagues Todd Wilcox, chair of the board's audit and finance committee; Tony van Hoeckel, director of financial services; Susan Wheeler, director of communications, and George Gillespie of McCall Turner and Co, the university's external auditors.
Our opening remarks will be brief to allow us as much time as possible to answer the committee's questions. First, however, we wish to provide you with some information about the university and how we manage ourselves as an independent institution, and to respond to the Provincial Auditor's report of the inspection audit conducted three years ago at Trent. Copies of the remarks I am about to present have been circulated.
Trent University is a private non-profit corporation established by an act of the Ontario Legislature in 1963. The university has a 26-member board, which is made up of 18 representatives of the public at large, two current students, two alumnae and two members of the teaching faculty. The remaining two seats are assigned ex officio to the president and to the chancellor. The Trent act assigns to the board of governors responsibility for the government, management and control of the university and its property revenues, expenditures, business and affairs.
These responsibilities are taken most seriously by the board and its committees. Most of our business is conducted at open meetings, normally attended by the press and reported in local media. We have a comparatively small committee substructure supporting the board, and the terms of reference of the committees are regularly reviewed to determine that the scope of inquiry being exercised is appropriate.
The Trent board has a combined audit and finance committee which by its nature requires the board member involved to master a complex body of financial information, including a full appreciation of internal and external audit results. Among its members are two chief executives of large companies and two chartered accountants, along with others added from outside the board to widen the committee's expertise. Mr Wilcox, whom I introduced just a moment ago, is chair of that particular committee.
Sharing in this responsibility for guiding the university in the pursuit of its mission is an academic senate to which the Trent act assigned responsibility for the educational policy of the university and, in conjunction with the board, the necessary academic structures.
An enduring strength of the Ontario university system is the diversity of educational opportunity it provides to the people of the province. In that diversity, Trent has a unique niche. It is the only institution focused almost exclusively on undergraduate arts and science education. It is intentionally small, and our programs are delivered, to the extent possible, using a small group teaching format, a model normally uncharacteristic of undergraduate programs. Small group teaching requires low student-faculty ratios, and we have the lowest in Ontario, as well as a physical plant designed to accommodate many small classes rather than larger groups.
Within the obvious constraints of this mission, we deliver high-quality education, research and service efficiently and effectively. Our government-grant revenue per student is among the lowest in Ontario, as are our faculty salaries, but we devote a larger share of our operating budget to the instructional program than any other university in this province.
Maintaining these distinctive features has been increasingly difficult over the past decades as resources have dwindled. Early in the 1980s, a growing accumulated deficit required significant reductions in Trent's non-academic operations. We are proud that this deficit was eliminated in 1986-87 and that the operating budget has been balanced since 1982. Of course, this has involved certain costs to the institution. For example, administrative and information systems are underdeveloped, and the administrative infrastructure is inadequate to carry out what at other universities are considered normal institutional analysis functions. To the extent that these self-imposed limitations contributed to the findings of the Provincial Auditor's inspection audit, we make no apology. Our emphasis is where it belongs -- on providing high-quality instruction, scholarly work, and service.
University accountability is a highly complex matter which is addressed in an equally complex way. As mentioned earlier, ultimate responsibility for an institution resides with the board of governors. Our financial operations are all subject to audit by external auditors, to internal audits of operations and procedures, and to audits conducted by funding and government agencies such as the Natural Sciences and Engineering Research Council, the Canadian International Development Agency and the provincial retail sales tax auditor.
Other funding agencies require that we engage external auditors to review how research and contract funds are disbursed. These include the Ontario Ministry of Community and Social Services, the Ontario Arts Council, Industry, Science and Technology Canada, and the Secretary of State. Our enrolment reports are audited annually by external auditors who report directly to the Ministry of Colleges and Universities, and, we would emphasize, have always been found to be correct within the error margins stipulated by the ministry.
We make public reports on our activities to a wide range of government agencies. Statistics Canada accumulates data on faculty and students. Under the Council of Finance Officers of the Universities of Ontario, detailed financial information on each Ontario university is compiled and published annually.
We report annually to the Ontario Council on University Affairs, a body of citizens established and constituted by the Lieutenant Governor in Council to provide the government with advice on university system matters. This body also advises the Ministry of Colleges and Universities on the eligibility of individual programs for public funding and assesses duplication among, and societal need for, the educational programs being funded.
The highly regulated environment in which we conduct our activities both constrains our scope for self-management and provides increasing opportunities for public accountability and scrutiny, whether the subject is pay equity, employment equity, workplace health and safety, hazardous materials in the workplace, employment standards, workers' compensation, regulations governing recycling and waste management, animal care, fire codes, building codes, landlord and tenant regulations -- the list goes on. Notwithstanding the growing mass of external requirements or, indeed, perhaps in part because of them, we voluntarily engage external consultants to assess the efficiency and effectiveness of each of our administrative departments on a rotating basis.
The quality of our academic activity is constantly under review. Graduate programs are assessed by external reviewers under the guidelines of the Ontario Council on Graduate Studies, undergraduate departments are reviewed by external evaluators, and our faculty are judged at a number of points in their careers thorough systems of peer evaluation, as well as every time they apply for research grants or submit scholarly work for publication.
Among the many factions of society to whom Trent University accounts, a key group is our clients: the students who entrust their education and their futures to us. To ensure that their voices are heard in our decision-making, students sit as full, voting members of the board of governors, the senate, the senate budget committee and many other university decision-making bodies. Responsiveness to student concerns and needs is a priority at Trent, and we have been rewarded in recent years as the growth in demand for admission to Trent has outstripped other Ontario universities.
Donors are another group to whom the university feels a significant obligation of accountability. In an age where universities increasingly must seek financial support from sources other than government, the individuals, corporations and foundations that support us through our fund-raising efforts receive detailed information not only about the purposes to which their gifts are put but also about the institution's overall direction and the role it plays in society.
At Trent, we accept the principle that openness leads to more effective management and to better public understanding of the role we play in society. It was in this spirit that the university acceded to the request that the Provincial Auditor conduct an inspection audit of appropriate areas of our books, although, strictly speaking, universities, as recently confirmed by the Supreme Court of Canada, are not part of government nor are they government or crown agencies. To quote from the 29 November 1990 Supreme Court decision on mandatory retirement:
"The fact that a university performs a public service does not make it part of government.... The universities are legally autonomous. They are not organs of government even though their scope of action is limited either by regulation or because of their dependence on government funds. Each has its own governing body, manages its own affairs, allocates its funds and pursues its own goals within the legislated limitations of its incorporation."
We provided the committee in advance with copies of our detailed 1988 response to the auditor's report. While the views expressed in that document remain valid, developments in the intervening three years do in some instances modify the university's responses. The comments which follow take their order from the Provincial Auditor's 1987-88 report.
Enrolment reporting figured largely in Trent's inspection audit, and it is worth mentioning that the enrolment reports investigated by the Provincial Auditor in no way affected the level of transfer payments to the university system. These counts were and are used only to allocate the grants envelope among the universities. Since Trent receives less than 1.5% of university system grants, it would take an excessive degree of counting error -- perhaps 100% or more over a period of many years -- to have a material impact on our sister universities' allocations.
Second, compared to a decade ago when virtually all MCU operating grants were allocated under an enrolment-driven formula to be expended at the discretion of the institutions, we have experienced a significant growth in a number of directed funding envelopes for which separate competitions are required, with little or no regard for enrolment, and for which separate accounting reports are made to MCU.
Concerning the distinction between honours and general students, we reiterate that as far as Trent University is concerned any allegations of overfunding were nullified by the retroactive approval of our counting criteria by Deputy Minister Dr Brzustowski in a letter to President Stubbs dated 19 August 1988. Further system safeguards have been introduced since the Trent audit which also have a bearing on the subject of honours and general enrolment counting. The first was the introduction of discrete institutional enrolment corridors for funding purposes which limit funded enrolment fluctuations to plus or minus 3% around an established base line.
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The Chair: Excuse me. Is that a typo? That should be 2%, should it not?
Dr Stubbs: No.
Mrs Cunningham: Enrolment structures.
Mr Stephenson: This is the figure which I believe is appropriate for the base line we are speaking about, Mr Chairman.
As well, last fall new guidelines for counting honours and general enrolment developed by OCUA were implemented by MCU. These will ensure greater conformity among Ontario universities in identifying and counting second- and third-year honours students and will effectively address any future concerns about disparities between a university's counts of fourth-year students and the proportions of third- and second-year enrolments reported in the honours category.
The next two sections of the Provincial Auditor's report also concern enrolment counting and are titled "Non-Compliance with Internal University Guidelines" and "Ineligible Students and Courses Included." The university remains of the opinion that the enrolment counting errors identified by the Provincial Auditor did not generate a materially significant overstatement of enrolment. This was verified by our external auditor in 1988. None the less, we have acted on these findings and corrected weaknesses in our registrarial processes, which were largely manual at the time and prone to clerical error. We have completed the installation of an expensive automated enrolment reporting system and hired new staff to oversee government enrolment reporting. At a recent meeting of the board of governors audit and finance committee, our external auditor commented on the extremely accurate results generated by this new system.
The Provincial Auditor's report contains a number of observations about reporting and safeguarding our plant assets; our detailed comments are contained in our 1988 response. We have completed our furniture and equipment inventory, which now lists over $9 million in assets. It is audited annually by our external auditors, giving particular attention to desirable, portable items. The capitalization threshold remains at $1,000, and asset records are adjusted for items valued in excess of this amount including those discarded, lost or sold. Trent's computerized library system is now in place and we will be able to identify lost and stolen books this year.
The Provincial Auditor found our payment and payroll practices appropriate, which was satisfying given that these are areas where the exposure to risk is greatest, when over 80% of the operating budget is devoted to employee salaries.
Finally, our response to the auditor's comments on the honouring of a contract with a former senior official remains unchanged from that recorded in the Provincial Auditor's 1987-88 report. The board of governors acted in good faith and in the best interests of the institution, and the settlement was not unusually generous in the circumstances.
I would like to extend to the public accounts committee the university's full co-operation in pursuing any areas of interest either today or in the future. Our books are open, and you are most welcome to visit Trent and to observe the educational and research programs in which we take pride.
This concludes my introductory remarks. My colleagues and I would be happy to answer any questions the members of the committee may wish to pose.
The Chair: Thank you very much. Do either of your colleagues wish to add anything? Then we can get into questioning. All right. The first person on my list is Ms Poole, who is an alumna of your college, by the way.
Ms Poole: The Chair just destroyed my image.
The Chair: If you have anything on her, now is the time to produce it.
Mr Cousens: She probably would not qualify to get in today with the standards.
Mrs Fawcett: Did you get up on the wrong side of the bed or something?
Mr Cousens: I take it back.
Ms Poole: Let the record show that Mr Cousens was smiling as he made those comments.
Well, Mr Chair, you have just destroyed any image of impartiality I have with my questioning, but nevertheless, despite my affection for Trent, I shall try to be fair-minded about my questions.
First of all, on the first page you made the comment that you deliver "high-quality education, research and service efficiently and effectively," and more specifically, that your "government-grant revenue per student is among the lowest in Ontario," as are your faculty salaries. As far as the grant revenue per student being the lowest is concerned, is that primarily because Trent is dealing with undergraduate students and you do not have the high expenses attributed to doctoral programs, or is it simply because your faculty salaries are lower and you practise other cost economies?
Mr Stephenson: This end of the table has been practically nodding, but perhaps I could ask Dr Earnshaw or Dr Stubbs to answer that.
Dr Earnshaw: The question is based on revenue first, not on expense, so let's limit it to revenue in the first instance. The revenue per student at Trent is among the lowest in the province because arts students, who predominate in our program, are very lowly weighted in the distribution formula relative to PhD students, so on the revenue side we have the low grant per student. The issue of how we spend it is not related to the revenue. We can spend it as we wish. We have chosen, as our reports said, to spend the highest proportion of the revenue we have, limited as it is, on instructional programs. That is an institutional priority.
Ms Poole: Since its inception, Trent has had a very different philosophy from many universities in that it has stressed the smaller unit for teaching and put the emphasis on quality as opposed to quantity. I am not saying this to be critical of other universities. I am saying that you have had it as a specific mandate to keep your tutorials, seminars and instructional classes very small.
Could you please elaborate on, from its inception, how the ministry and how the government has treated grants differentially from other universities in its granting procedures. The ministry has already said to us that there is a specific grant that is given to Trent that is given to no other university in Ontario and I would like you to tell us what type of grants are available to you.
Dr Stubbs: The university is the recipient of what is called a differentiation grant which acknowledges that Trent is unique in the Ontario system with its almost exclusive focus on undergraduate teaching. The reason we receive a differentiation grant is that, as Dr Earnshaw indicated, our revenue per student is at the low end and we still face all the operational and reporting requirements of any university in the system, so consequently we are somewhat hamstrung by simply the base grant and the targeted funding that we would receive.
This whole question of the differentiation grant has been examined at great length twice by the Ontario Council on University Affairs, which plays a very important role in the system as the buffer body between government and the universities, and OCUA instituted the differentiation grant in the early 1980s in recognition of costs that were associated with smallness and with our particular focus on undergraduate education.
The entire differentiation grant was reviewed in great detail in 1987-88 and was reconfirmed as being appropriate for the university and was in fact pegged to inflation, which it had not been in the past. There was recognition that we had costs we could not support out of the income received from general grants and from the differentiation grant, and consequently it has been pegged to inflation.
It is also, I think, important to say that physically the university is designed for smaller group teaching. That was the mandate and purpose of the university when it was set up in the early 1960s within the Ontario system, as you have heard already. Each of the universities is rather different and Trent's particular focus was to be on undergraduate education and in this particularly intensive way that we teach. It is also important to note that our faculty has carried teaching loads that are heavier on average than those in the rest of the province, approximately 30% heavier across the board because of the way we teach.
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Ms Poole: Just one further line of questioning which has to do with the auditor's conclusions concerning enrolment and the fact that the auditor had calculated that since 1982 Trent had received approximately $11 million which might otherwise have been granted to other universities: First of all, I should perhaps clarify for you that the auditor had dealt with the ministry on this and the conclusion was that the $11-million estimate would have actually gone back to 1968, not 1982. It appeared that the ministry had approved it from 1968 and it was just the 1982 lack of approval which was then in question. So I believe the final conclusion was that the period of overpayment was from 1982 to 1987-88 and that it would be in the amount of $1.3 million.
Could you please comment on the criteria in 1968, which you received approval for from the ministry, and how it differentiated from the criteria used by other universities and the rationale behind it?
Dr Earnshaw: The criteria that were approved for Trent and other universities in 1968 that did not have segregated, streamed programs of honours BAs and general BAs permitted the universities to use higher grade achievements of students to be a proxy for an honours student.
In the 1960s and later in the 1970s, Trent had a grading scheme approved using coarse grades, letter grades -- A, B, C, D -- grade point average, a very coarse grading system, and in 1982 through our senate we moved along with the trend of the times towards a more refined grading system using numerical grades. The conversion from the equivalent letter grade to the numerical grade system took place in 1982.
Ms Poole: At the time of the change in 1982 to the numerical system, did the mark that was deemed to be appropriate to be counted as an honours student actually change?
Dr Earnshaw: No. It is equivalent.
Ms Poole: So it was an equivalent.
Dr Earnshaw: The answer is that we used an equivalent grade numerical system to what was in the coarse system prior.
Ms Poole: I believe the information that was suggested to our committee was that the grade standards had indeed lowered, but that is in fact not true; it was just that a numerical equivalent was given.
Dr Earnshaw: We moved from a coarse grading system to a refined grading system, and when you do that you try to make them as equivalent as possible. Our senate at the time did review that conversion. It is fair to say some students who previously would have counted would not count in the new system, and conversely, there were students who would have not counted in the previous system who became eligible.
It is a fine question and it is a question of judgement as to whether it was lowering or highering standards. We did move to standards, though, which were the same as in practice at other Ontario universities. We were not inventing a new system in 1982, we were using an existing system that was elsewhere.
Ms Poole: What other universities other than Trent are in the situation where they do not actually have differentiated honours programs, so that they need an alternative method of weighting. If you are not aware of it, there is no problem, we can ask the ministry.
Dr Earnshaw: I think there are about nine, I believe. Over half but not all that I could think -- you would have to ask the question of the ministry.
Ms Poole: So they would be indeed under the same system as Trent, so you are differentiated in one way, but there are others in your situation?
Dr Earnshaw: I cannot speak for other universities up here. I think the ministry would have to answer that.
Ms Poole: Okay. I believe we are having them on Thursday, so thank you very much.
Dr Earnshaw: I cannot say our system, though, was modelled after one other university, so that --
Ms Poole: I just wondered if Trent was unique in having applied these particular criteria and this system or whether there were others in your situation, but we can confirm that with the ministry.
The Chair: Before I call on Mrs. Cunningham, I would just like to clarify something. Did that change have any bearing on the qualifications for entry into Trent?
Dr Stubbs: No.
The Chair: My concern, and I expressed it to the deputy minister, was with your small teaching classes. It is an ideal setting for young people who may have a need for greater supervision and might be denied access to other universities for that very reason. That did not happen?
Dr Stubbs: No, but perhaps I could elaborate because this may be relevant here. The university is one of the few universities that conducts interview programs for applicants. This past year we interviewed 2,600 students individually, so our admission decision is not made simply on the grades that are submitted to the university by the school, but also on an examination of this record.
In the last cycle of admission we offered admission to some 200 students who did not meet the admission requirement of Trent, which was 74 per cent this past year and about 60 of those students accepted admission. What limited tracking we have doing over the years, which is on an ad hoc basis, suggests that those students have done very well in our system because of our ability to offer some individual attention and our ability to recognize potential before they come to the university.
The Chair: I was thinking of places like Albert College which have a very small pupil-teacher ratio. They are ideal for kids who perhaps have some type of learning disability or what have you, may never make it to university, or St. Mary's University in Halifax.
Dr Stubbs: That is correct. Those students, as you know, are identified as special needs students and Trent, on a relative basis, has the highest percentage of special needs students in the Ontario system based on incomplete data.
The Chair: I am glad to hear that. I was a little concerned about the change in terms of how you -- funding.
Mr Stephenson: If you could indulge me on a personal note, I am not sure I would have fallen under the category of special needs, but I was one of the students who went to Trent as a result of being admitted through an interview process, having been somewhat of an indifferent high school student.
Mrs Cunningham: Look at our Chair.
Mr Stephenson: I do not know if the president would now include me in his category of people he was tracking, but within four years I was admitted to Oxford University and then subsequently to the University of Toronto. So if I fooled Trent, I continued my fooling ways with those universities as well. I attribute my turnaround very much to the small group teaching and personal approach of Trent; not to say that it is appropriate for all students, but for people such as myself it was a godsend.
The Chair: I can share with that. I fooled the University of Toronto. In Osgoode Hall, I really fooled them.
Mrs Cunningham: Mr Stephenson, Dr Stubbs and Dr Earnshaw, it is a pleasure to have you here this morning. I am Dianne Cunningham from London North, so the centre of my constituency is the University of Western Ontario. I would say that in spite of some of the issues around university audits -- of course, it is a first for Ontario to do such a thing. We were told that the auditors were not always received with open arms. You look at that with some degree of, not surprise but interest, and I think it has been at least -- the University of Guelph enlightened us significantly yesterday.
We were very much looking forward to yourselves and, later on today, the University of Toronto. I think that given the presentation before the finance committee by Dr Prichard on behalf of the Council of Ontario Universities last week, and I would say you should be very proud to have the representation, it is with some degree of, what should I say, interest that we sit here listening one week to the tremendous challenges of the universities in these times, and at the same time looking at some of the conclusions of the auditor around what, from my point of view anyway, is just improving the accountability or responding to the accountability of the systems that are publicly funded.
I was interested in your comments, Mr Stephenson, on page 3. It is not new to this committee that we are reminded that in fact you welcomed the inspection of the appropriate areas of your books. The question right now for us is along the lines of accountability and in fact the auditors mentioned to us three things and I would like you just to respond if you can -- more response than a question.
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We are troubled in this committee. Basically we have been challenged as to our rights to even have this access to information, but you can comment on that. We are wondering, when we find problems here in this committee of the Legislative Assembly, no one seems to want to take the responsibility for it, with respect to universities. The administration and the government say, "We can only go so far in checking up on how the money is spent." The universities tell us, "You can only look at certain things."
It is our responsibility in representing the public to make sure that we are efficient and that the students are served first, and I would like you to help us because we need this kind of information. We hope that this audit has been helpful. So if you could respond to that concern around jurisdiction or accountability or legislative, I would appreciate it.
Mr Stephenson: With your permission perhaps I will ask Dr. Stubbs, actually, to respond to the question.
Dr Stubbs: The question of accountability is at the heart of this set of hearings and I recognized that from the beginning. Let me begin by saying something about the role of the Provincial Auditor and the visit of the auditor to Trent.
I think that our reply in 1988 which you have before you -- from Jean de Pencier -- indicates that the university was accepting in very clear terms a number of the recommendations, a number of the issues that the Provincial Auditor raised. We have taken steps to respond to those concerns, so there is on the part of this institution a recognition that the auditor played an important role. The board would acknowledge that in its discussions. Certainly the auditor made the university feel uncomfortable and I do not think we should duck that issue at all.
But we have made a considerable number of changes in response to that and I think it is important to say that the system was not blind to the process that was going on, and that the other universities in the Ontario system have studied with great care the individual experiences of each of the universities with the Provincial Auditor and have taken steps, I am sure, in many of the areas that he identified as needing attention, so there has been both at our level and at the system level considerable response to the issues that the auditor has raised, and I think our systems are better and I think they are more effective.
I should also say, though -- I say it and we have said it in the brief -- that responding to some of those issues has been a very expensive activity for us and those funds have been expended, but they have been expended when we also feel quite strongly -- our academic senate feels very strongly -- that such funds should be delivered on the other side of the house, not on the administrative side of the house. But we have responded. We are much more efficient. Particularly in enrolment reponing we have a system that seems to be virtually error-free at the moment.
The broader issue of accountability and the broader issue of how you as a committee and how, through you, the Legislature and ultimately the people of the province can be assured of accountability is a major issue. I would suggest that there are a number of ways in which we have tried to respond. I do not think they are fully acceptable to the broad public, but certainly it is worth reiterating that the board of governors is representative of our own community, of the broader community, that it operates in a very open fashion, that in a smaller community such as Peterborough we are in the newspaper regularly. Our board meetings are normally reported in the local media and on television. Certainly in my experience, moving to a small community I had no idea that I would find myself in the paper two or three times a week as page 3 main news. That is a fact of life in a smaller community that I had not experienced.
Our senate is equally open and certainly acts as a ginger group in making sure that the board is well aware of its particular concerns. The accountability we have to the Ministry of Colleges and Universities is very extensive, as this committee has heard. There are enormous reporting requirements. There is more and more money that is coming to us on a tied basis that we have to account for under separate audits and we have worked very openly and very co-operatively with the ministry in developing and responding to its concerns about accountability.
There is another agency which I do not think has figured largely, from what I understand in your discussions, and that is the Ontario Council on University Affairs. I have some familiarity with the council because I was asked by the Minister of Colleges and Universities to undertake a sunset review of that agency, which I did, in 1988, and recommended that it continue in its role, recommended a number of proposals, all of which have been accepted by the council, all of which I think address in various ways the matter of accountability and which speak to a number of the issues that you are concerned with. The recommendations that come from OCUA to the ministry are very, very detailed about accountability, and the ministry, by and large, accepts those recommendations.
We are particularly cognizant of the fact that the ministry does not accept council's recommendations on funding and has not done so since 1977-78, but on most other issues it has done so, and I think there is a great measure of accountability in that particular structure. It is not a well-known organization but it plays a very important role. So I think there are within our structures a number of ways of ensuring accountability, of broadening accountability, and I have no doubt that there are more coming. I would say that in particular in the case of the auditor, to return to that, the issues that were raised are germane and central to your concerns and have been addressed. I think I will stop at that point.
Mrs Cunningham: As we have the opportunity to question, we are getting into more detail. One of the concerns of the auditor was, why would it have taken an audit to expose some of the concerns which happen to be the same categories from university to university? Why is this not just happening from the university's own external auditor, who would perhaps not have the mandate to take a look at your own policies and make certain that they are being implemented, or should it therefore be monitored more closely by the ministry?
In responding, if you could keep in mind that one of my great concerns is that I cannot stand all the bureaucracy and paperwork. I would rather have people teaching kids, so if you could keep that in mind when you are responding, I would like you to address that as well.
Dr Stubbs: I think I would ask Dr Earnshaw to respond because I think you are particularly talking about financial accounting and that is his area.
Dr Earnshaw: I will separate my answer into two aspects. One is enrolment counting where the impetus for those processes in fact is driven by the ministry. We are abiding by the regulations that have been set by them and our processes are, we believe, fully in compliance with those.
In the case of other matters, such as the tighter control of assets, universities have for years discussed that point among themselves and are very aware of the risk exposure that we have put upon ourselves, and also aware of the costs that would be involved and the bureaucracies that would be involved to control that risk. And it is basically a risk analysis that we have taken and collectively discussed for many years. In fact, it has been discussed throughout Canada and throughout North America very extensively, as the cost of covering all risks in an institution when your primary goal is educational, is teaching kids, as you put it. So the issues have certainly been discussed.
The auditor brought new light to it from outside. Outsiders do that in the same way that we get outside opinions when we have our own internal audits and our own external assessments of our administrative programs. And when those happen, we put things right. So I think there has been a history of putting things right when reviews take place and when discussions take place, but there has also been a history of discussing things and deciding that it is not worth doing what other people might decide should be done.
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Mrs Cunningham: This is a short one, Mr Chairman. One of the great concerns I have is, would you, if you were asked, and I am asking you -- the monitoring that is going on now, this enrolment thing seems to be the biggest. By the way, it is happening in school boards too around attendance and part-time students and how you count them all and the whole bit. That is what has been I think fairly useful, at least for the ministry and for us. Would you prefer more extensive monitoring and reporting, or do you think it is a good idea to have these spot audits from time to time? How would you prefer that be handled?
Dr Earnshaw: My personal preference would be the second of those. The bureaucracy needed to do it totally would just add more staff that would be just spinning wheels in order to produce slightly more accurate numbers, and the benefits achieved from that for the province and for the institutions would be, in my opinion, negative. We take resources out of the classroom.
Mrs Cunningham: You understand I will be quoting you from time to time, don't you?
Dr Earnshaw: Yes. We are taking resources out of the classroom to do that.
Mrs Cunningham: Thank you.
The Chair: Okay. Just by way of clarification on that, the people who came here yesterday from the University of Guelph told us that their loss was approximately $35,000 per year and to put in place a process to avoid that would cost in the neighbourhood of $100,000, so therefore it was not economically feasible. Have you thought about whether those figures are what you would suggest, or is the loss perhaps less because your university is smaller?
Dr Earnshaw: We have in place an inventory system, so we know what we are losing. Our financial statements do in fact reflect now even more effectively than they did when the audit was taking place, an inventory of our systems, and for management purposes as well as for control purposes, we are pleased with the system we have in place.
The Chair: Obviously, Guelph has one in place too and it is losing $35,000 per year in assets. Was that net or after insurance? Net after insurance, I am advised. They figure that to tighten this up even more so would cost them in the neighbourhood of $100,000, I think was their estimate, and upwards. They felt it was not appropriate.
Ms Poole: As clarification, I do not believe that the University of Guelph has a comprehensive asset management system. They do not have an inventory. It is just on an ad hoc basis of it. They estimated $100,000 per annum it would cost to set up this inventory system and computerize it and to be efficient about it and they estimated it would cost only $35,000 per year in losses, although I asked them how they knew this if they did not know what their assets were. They did not know what their total assets were, so I think the Chair's question is, how do your costs compare?
Dr Earnshaw: It is very difficult for an arts and sciences institution like Trent to compare ourselves with Guelph, with all its farms and other things we do not have any part of. It is a much more research-intensive place than we are. Our controls are basically in place and our management needs are there to make sure we know which assets we have and we can keep track of them and write down when they are depreciated, when they are broken, when they disappear. We are not finding things disappearing.
The Chair: So when you recently did your report, what did you find?
Dr Earnshaw: We audit every year. We do a random sample with our external auditor and we do an annual check with all departments where they have to tick off on the list if they still have the equipment that they told us they had last year. We do both of those and we are not missing anything.
The Chair: Guelph seemed to lose a lot of fire extinguishers. I guess they are still being hoisted even now.
Ms Haeck: I am the other Trentie, so let's sort of get our --
The Chair: Trekkie or Trentie?
Ms Haeck: Trentie. We have occasionally watched Star Trek, but these days I have no idea where Dr Spock is. I am also a librarian in my other life and I am somewhat interested in what you had to say about the computerized library system. Could you update me on where you are in that process?
Dr Stubbs: Yes, I would be happy to reply. The university is the last university in the Ontario system to move to a computerized or automated library system. We have just completed the first two or three phases of that at a cost of nearly $2 million. We now have an ability to track all the items in the library through this particular system.
Ms Haeck: This is including, to use the professional jargon, retrospective conversion.
Dr Stubbs: Yes. That is correct.
The Chair: What is that? Maybe you can explain that to us.
Ms Haeck: Retrospective conversion means you usually --
The Chair: Is that St Paul on the road to Damascus?
Ms Haeck: Sometimes probably the librarians feel that way. You start your system, say, in 1980, but you in fact had acquisitions since 1964. So you have this bulk of books that have to be put into the computer basically. So you had how many years' worth of books to put into your computer, but U of T has 100 years to worry about.
Dr Stubbs: We had 27 years to enter into the system -- we used the Utlas system -- and we completed it, I am advised by our librarian, more quickly than any comparable library in Ontario. The whole conversion project took less than two years.
Ms Haeck: I understand that you have undertaken cursory audits or inventories of the system at different times. Have you got a handle on what you have lost in the intervening years?
Dr Stubbs: Not yet, but we will have such information, we believe, at some point in the summer. As you well know, we are adding modules to the system as we develop it, but we are now capable of undertaking that activity. To be very blunt, we do not have the human resources to invest in it until the library slows down a little bit in the spring, but certainly one of the activities that is undertaken is to get a much stronger understanding of the state of our inventory.
Ms Haeck: I have another question and it is one that I asked the alumni committee when it hit me up for funds a few years ago. It relates to, shall we say, a rather interesting -- contract leaving. Golden parachute, I believe, is the current term for that situation. I am somewhat concerned that when contracts are entered into for positions like yours -- but I am not suggesting that you have the same contract. First of all, the auditor pointed out that there were really no minutes around the discussions of those contracts. The executive of the board seemed relatively uninformed about what had happened. The final deal of the golden parachute was one that obviously had an impact on the services that the university was able to offer. Have the processes to undertake such contract discussions been firmed up somewhat so that people are appropriately informed and they do not see a million dollars being dispensed to someone to say, "Thank you. Really, it's been fun"?
Dr Stubbs: I would let Robert Stephenson comment from the perspective of the board.
Mr Stephenson: I am an appropriate person to comment to because I have been kicking around the board since 1979, and it will be 12 years a week or so from now when I first joined the board, so I have either been an observer or a participant in many of the events to which you are referring. I think it is appropriate perhaps for this committee if you will allow me to give you a little bit of the background of what went on because I think there has been some misunderstanding about the events that surrounded the circumstances to which you are referring. I think it is also appropriate that we use this occasion for me to try and put that right, because I am concerned that people are, either through misunderstanding or otherwise, putting their own interpretation on those events -- and usually it is to the detriment of the individuals involved, whether it is the executive committee or the individual. And it is Dr Theall, the ex-president of the university. I think we all know he is the individual involved.
In order to understand what happened, the first thing we have to remember is that Dr Theall came to the university in 1980, at a time when the university was undergoing severe financial pressure. I referred to it in my remarks earlier this morning, that the deficit had accumulated. When Dr Theall joined us, we were on the way to a deficit that ended up at about $1.5 million, which, given the size of the university, the same points we made earlier about our uniqueness, the small aspect of the university, and if you can imagine $1.5 million in that context, it was one that was extraordinarily concerning to us and extraordinary steps had to be taken.
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Dr Theall was asked by the board to reduce the deficit, to bring it back to a balanced budget. He did, at tremendous cost to his own reputation. I should stress his reputation within the university community because the cost-reduction steps caused a great deal of strife. In 1983, the board undertook a presidential review as to whether or not his contract ought to be renewed at the end of 1984. 1 myself was a member of that review committee and I can say that although almost every person who came before us stressed how important it was to renew Dr Theall's contract, a good number of them expressed concerns about whether or not it would be appropriate to renew his contract for a full five-year term. But the important point in my mind was that it was universally, almost, recognized that it was critical for the university to renew Dr Theall's contract.
That committee made its report to the board, and the board in 1983 received it and voted at that time to enter into negotiations with Dr Theall through the executive committee. The executive committee did that and it operated in the process of negotiation with the chairman of the board, the chairman of the executive committee and the vice-chairman of the board, as it was then constituted. Those negotiations were carried on and by the beginning of 1985, and there was some time period involved here and you have to appreciate that a number of factors intervened, including a very serious heart operation for Dr Theall. By the beginning of 1985 there was no signed contract in place, and the Provincial Auditor has made that point. But I think it is also appropriate to say that a number of us felt that there was a contract in place none the less, and I presume Dr Theall did, because from 1 January 1985 he began to function still as Trent's president and I can only assume that he felt some comfort that he had, if not the signatures on paper, the assurance of a contract.
Well, the tensions to which I referred earlier that had begun to percolate their way to the surface in the review process began to boil, particularly in early 1985. The executive committee of the board came under extraordinary pressure from the faculty of the university to the effect that it had lost confidence in Dr Theall. The executive committee anguished over many meetings, many discussions about the situation and whether or not it was prepared to continue to support Dr Theall. It was. Its decisions were to support Dr Theall.
As 1985 began to come along, and the Provincial Auditor has pointed out that there was a very narrow time period here, and it was a narrow time period when the executive committee came under this increasing pressure which culminated, to some extent, in the early summer of 1985, when in an unprecedented way, each of the department chairmen of the university save, I believe I am correct, two who served as Dr Theall's academic colleagues at OCUA, requested a meeting with the executive committee to voice their concerns. Dr Theall, in my view, behaved in an exemplary way throughout and, in my view, so did the executive committee. Both, in their own ways, were faced with an extraordinary situation that was developing at an ever-increasing rate. We were proceeding on the basis of having a commitment, a contract with Dr Theall for a five-year term which had been negotiated in good faith.
During this time period it became increasingly obvious that in order to remedy the situation, something had to be done. Dr Theall and the executive committee mutually reached an agreement that one solution would be, with protection for his economic situation, to have his retirement as president occur at an earlier period than it would have under the existing agreement. It tied in to the points that had been made to us some two, two and a half years earlier during the review process, and that was done.
Now, I know there are a number of people who would prefer to view what had happened as either a unilateral firing by the board, which it was not, or a unilateral resignation by Dr Theall, which it was not. Both parties behaved in this situation, I think, with the utmost discretion and the utmost responsibility in acting, as I have said in the opening remarks, in the best interests of the university. The awkwardness, I know, when you apply what I may refer to as a spreadsheet analysis to a situation such as this, is that is it very easy to add up the numbers. I would like Dr Earnshaw, after I conclude these remarks, to comment on the numbers involved themselves.
What we cannot add up is a human cost that is involved. The toll was tremendous on the university. What did we gain from the actions that were taken? Well, we gained a university that over the last number of years has, I think, been remarkably vigorous. There are to be sure, God help us all, a good number of problems still facing the university. It certainly is not as though the faculty and the board are seeing eye to eye on items -- that certainly is not the case -- but we are not facing the tremendous tensions, the tremendous disruption that was happening in the university.
We have been able to get on with business. We have been able to get on with a fund-raising drive which has been remarkably successful, thanks in good part to the alumni of the university. We have been able to get on with facing the other problems that face the university. The benefits we gained from the actions that we took, collectively, mutually, were tremendous. I regret the whole situation. I do not regret and I do not back away from the actions that we took.
Ms Haeck: Before Dr Earnshaw comments, it is a fact, it has happened and I think you have explained it very well, but my major concern is for the committees of the board who obviously are out on the selection committee and who are part of the negotiating process with whoever would be a future candidate for that kind of a position, that there are adequate records, that everyone appears to be informed, that if there is ever some kind of a review, you do not end up with this kind of a cloud.
I think you understand as well as I understand that the perception of having done all of this has probably weighed much more than the explanation itself Those safety valves of having things documented and having everyone who is responsible being a stakeholder are really essential to yourselves, and obviously to be able to say to the community at large, "Hey, look, we've protected our interests and your interests and here's the written document to prove it."
Mr Stephenson: Yes, I could not agree more. The bona fides and the good faith of individuals, that they can put their hand on their heart -- it is awfully nice if you can -- and say, "Here's a piece of paper that evidences the particular steps that were taken." So you are absolutely right, that that has been recognized and steps have been taken.
The compensation subcommittee to which I referred earlier has been enshrined in the university's constitution. Steps have been taken in the university secretariat to better deal with the documentation of the decision-making that goes on, so that we do not find in the future that we are facing the same difficulty of explaining what in fact occurred. People can sit down -- it may still be confidential, but if appropriate -- and be able to read the paper trail that is required so that they can arrive at the same conclusion that we think they ought to arrive at.
Perhaps I could ask Dr Earnshaw to comment on the numbers because I want to confine my remarks to the perception and to the atmosphere. I think the numbers themselves deserve some comment, though perhaps not quite at the same length that I took.
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The Chair: I wonder if we could reserve that because I have a feeling there is going to be another question on that issue and maybe that could be answered at that time.
Mr Daigeler: I have, first, two specific questions and then a more general one. In your presentation you referred to the 18 representatives of the public at large on your board. Do you have any government appointees? Second, how are these public-at-large members chosen?
Mr Stephenson: There is a board committee which is a nominating committee, which meets regularly throughout the year, and its members are charged with the responsibility of listening, encouraging others to make recommendations to it through a host of avenues, to develop a working list of names of individuals who might be appropriate to serve on the board from time to time, bearing in mind a fluid conception as to what constituencies ought to be represented and that there be no particular magic to any particular list. You can imagine who they might be.
To some extent we are constrained just by sheer geography. We clearly want to draw heavily from the local Peterborough community. We also need to draw heavily from Toronto and from Ottawa. We have drawn from Montreal and other areas as well over the course of years. The members who are chosen then are put forward to the board for consideration, usually a month in advance so that there is some chance for discussion.
There are no government appointees as such. Having said that, I am not sure what conclusion you ought to draw from it. I know what conclusion I draw. It is that once appointed, anybody is a member of the board who owes his or her responsibility to the university and to the constituencies to which I referred earlier. No one on the board, whether student representatives -- I use that term loosely -- or the alumni or the faculty or others, can consider themselves as being narrowly confined in their views to promoting the interests of any one particular group. All of these individuals, once on the board and appointed, share the overall aggregate responsibility.
The Chair: That is provided in your statute, that there is no requirement for Lieutenant-Governor-in-Council appointments. They are all done under your bylaws.
Mr Stephenson: Quite right.
The Chair: Maybe Mr Daigeler and the others would be interested if a copy of those were available and they are not of too great a volume. You might want to see them. That may save you further explanation and Mr Daigeler could ask his next question.
Mr Hope: I would like a supplementary on that, if you do not mind.
The Chair: Okay, you are coming up on the agenda. Supplementaries I find normally stray off into questions, so maybe you would like to go on to your second question, Mr Daigeler. I do not want to cut you off but it is really a technical thing.
Mr Daigeler: You may sense where we are coming from here. I mean it is somewhat familiar. I could kind of guess how the process is working. But I am not entirely confident that the public is that assured about the impartiality of that process, not just for your university but I think for the whole governance of the universities in general. You made and I think the president and other universities made the point that we have these governing councils and they have a tremendous responsibility to protect the public interest. But I am not sure whether the selection process gives the public that much confidence. You sense where I am coming from.
The other specific question that I have is, you make reference on page 3 of your document at the top to the fact that you voluntarily "engage external consultants to assess the efficiency and effectiveness of each of our administrative departments on a rotating basis." Could you explain a little bit more how that works and give some examples perhaps?
Mr Stephenson: I would like to ask the president to respond to each of those, the first because of the extent to which I, as a member of the board, can be viewed in any way as protective or biased towards its operation -- the president is the one who reports to us and he may view us in a different light -- the second because of the president's particular involvement. I would like him to respond to that as well.
Dr Stubbs: The question of the composition of university boards has been raised and is under current discussion by the Minister of Colleges and Universities. I have seen public reference to those particular concerns. Certainly this university has no difficulty at all if there is a desire to amend the acts so that there can be appointments by the Lieutenant Governor to our board. We simply are operating under the structure that was passed through the Legislature in 1963, so there is in principle no difficulty with that.
I believe our board is very representative of the broader community. Our board is, if I can say so, not heavily representative of big business, in the sense that sometimes is caricatured. It is, I think, a broadly representative board of the community. It has a considerable number of alumni members on the board who are there not by virtue of being alumni but simply as representatives within the communities that they are members of. We have had a consistent representation of labour. We have had native Canadians on our board. We are working towards equity in terms of gender.
The Chair: It sounds like you are doing fine without the Lieutenant-Governor-in-Council appointments, thank you.
Dr Stubbs: Yes. If I could turn to the other issue, which is the question of the activities that we take vis-à-vis our administrative units, I should say very clearly, from the beginning, that I believe profoundly in the process of performance review. When I became president of the university, I requested that the board institute such a process for me and there is an annual performance review of the president. I in turn review the people who report to me, they in turn review and so on all the way down the line, and that is very appropriate, because we are in the process of reviewing students. After all, that is what a university is about.
We are regularly involved in a process of reviewing and challenging and testing students to see that they have accomplished certain things. There is a complete process of accountability in that sense. In the administrative sense, it seemed to me, when I became president, that the university would find it beneficial to bring in outside consultants on occasion to examine the administrative activities. So we have a rotational system of four administrative units per year being examined by outside consultants.
Mr Daigeler: Management consultants.
Dr Stubbs: No, they are not necessarily management consultants. For example, the library was examined by the head librarian of another major university library. At the moment, the audio-visual area has just been reviewed, again by the director of a major audio-visual facility in another university.
The director of communications is about to be reviewed this year. The finance office will be reviewed. Each of these areas is in a rotation and all of them will be reviewed on the basis of this cycle, about every four or five years. All of our academic departments are reviewed on a cycle that is about six years or seven years, all by external people. These reports are extremely valuable to me and particularly to the vice-presidents who are responsible for those particular areas, and most of the recommendations have been implemented.
Mr Daigeler: I find that actually very interesting, the first time I have heard of this kind of a process being in place. Perhaps this goes some way towards an answer to the final question that I have, which reflects, I think, the basic concern that the Provincial Auditor has.
As I am sure you know, the auditor is very concerned about what he considers a very limited scope of audit possibilities that were available to him. He really feels the universities were trying to restrict that area which he could look into very, very tightly. He feels that, rather than staying within the scope of the present audit possibilities, he should be given a broader mandate to look into what you can loosely describe as value-for-money questions and to again increase the public accountability of the university sector. What would be your general comment with regard to that kind of a mandate for the Provincial Auditor?
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Dr Stubbs: I am quite sure that there are some areas in which that process would be helpful. On the other hand, I do not take the view that the matters that the auditor is looking at at the present time or has looked at are particularly narrow. It was certainly not my sense of the questions that were asked of the areas that were examined that they very narrowly defined. It seemed to me that they spilled over into a variety of areas and certainly led to a number of comments that I can only construe as commenting very directly on our efficiency as managers.
This is no more evident than in the case of enrolment recording. The result of the auditor's report has produced a fundamental revolution in our registrar's office where all these transactions are recorded. As I say, we went to a very expensive automated system so that we can be better assured of the quality of management in that area. I feel that the kind of activity that we are undertaking, the kind of reviews that we do internally, the kind of interuniversity comparison that is inevitable and goes on all the time at the level of Vice-President Earnshaw and others, allows us considerable scope for discovering what we are doing well and what we are not doing well.
We are incredibly interested in economies because we desperately need the resource that we can find to address the teaching and research and service needs in the university. At the moment, if pushed very hard, I would say I am not supportive of that, but I am not against, as I said earlier, I am not opposed to the auditor having to look at the areas that he looks at. As I said, his comments have had system-wide effect very, very quickly, and I think it varies.
Mr Cousens: The public has a tremendous sense of outrage when they learn of a golden parachute that was as rich as the one that was raised earlier and has been highlighted by the auditor. I think it raises a number of questions that have to do with the goings-on within a university or any public institution which are not publicly known until after the fact. I have to say, that in spite of the excellent review of the situations described by Mr Stephenson, it shows a tremendous amount of humanity and concerns. It is quite something when you get the faculty and heads of departments coming in and making those statements. We went through a very tough time.
Having said that in one side of the ledger, I am dealing with the fact that we are talking about huge sums of money which a public institution has spent, and I want to go over the numbers and just be sure. Maybe the easiest way is -- we have in the auditor's statement the numbers and, if they are correct, we do not need a lot more analysis. I am looking at the auditor's report on the inspection of Trent University, and there is $60,000 during a six-month period, another $250,000 for salary and benefits, another $250,000 for salary and benefits, another $50,000 for a mortgage obligation and another $70,000 for his tenure and professorial duties. That adds up to $680,000. In today's dollars you can add another 10% or 15% with inflation, and it is close to $800,000.
If a person retires with a package and you take 10% of that, he is going to live very well, especially if he had a few RRSPs and other pensions. The new NDP government just did it with David Silcox, another sweetheart deal. It is public now. But I think it is bad and the public does not like it. I have to ask three or four questions that come out of this one. First, when did it become public knowledge that this was the kind of dollars that went to the now expired president from this office? When did that become public knowledge?
Mr Stephenson: Perhaps if I can turn it to Dr Earnshaw. I better appreciate now the prophetic comments of the Chair earlier that this question would arise in a later question. If I can turn it to John Earnshaw.
Dr Earnshaw: It became public knowledge when the Provincial Auditor's report was released.
Mr Cousens: Well, I am furious. I think that is exactly why we need an auditor going into institutions to look at what is going on. Are the numbers close to what I have just described, $680,000, $700,000?
Dr Earnshaw: Let me explain the numbers. I met with the entire board of governors in closed session to review these numbers in great detail. The conclusion that was drawn by the board at that time was that the actual severance amount, out of these numbers, amounted to $295,000. All of the other items listed by the auditor are ongoing items, that were part of services rendered in an employment contract for which the services were fully rendered and acknowledged. The actual settlement was $295,000.
Mr Cousens: Would you break out your $295,000, then? Let's hear what you say, because I would be most interested.
Dr Earnshaw: The $295,000, I believe, is based on two years of non-work between -- I have to go through the numbers with you here now. The leaves were part of a first contract, the first five years -- I am trying to make up the numbers as I go along; I do not have it in front of me. It is based on 2.4 years of service with benefits. That is where the $295,000 comes from.
Mr Cousens: What did he get a year? What was his annual salary?
Dr Earnshaw: At the time of leaving it was $117,000.
Mr Cousens: It was $117,000. So you would be including --
Dr Earnshaw: I have just been provided with the numbers. The $295,000 represents one year at $115,000, the second year at $117,000 and four months at $21,000, adding up to $254,000. The balance is related to benefits on top of the salary numbers. That is the answer. The university costs for benefits are not included in those numbers; $117,000 does not include --
Mr Cousens: So that comes up to your number of $295,000?
Dr Earnshaw: That is correct.
Mr Cousens: Where does the $50,000 mortgage obligation come in, then?
Dr Earnshaw: That was not part of the parachute. It was in the contract of employment.
Mr Cousens: It is public through the auditor, and I have to say that is one of the reasons the Public Auditor has a committee such as us to exist. I wonder, are there any other situations close to this within Trent University? When I start raising the question on it -- I am sorry if I am upset; I am. I have a sense of grief over public moneys -- your explanation may well be right, because there are other costs, but my numbers, taken from the auditor's statement, are $680,000, in those dollars, in those days, and you are saying it is close to $300,000.
The public is not willing to accept that any more. I would like to know if the university has a policy and also whether the universities have a policy on how much can be paid out to break some of the contracts and agreements you have. One of the things you said in your confidential document, a confidential letter of 23 August 1988 to the auditor, was that there were no court costs. Maybe you could have saved the taxpayers a few dollars if there had been court costs or if there had been some other kind of guideline that forces people to live within some kind of meaningful package.
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My question comes back: Is there a guideline in the university that says, "Here is the maximum you can work in," so that it goes back to the board? The board can approve anything, as it now stands, because you are responsible for the moneys, but have you any internal controls that would prohibit this kind of thing from happening again? In spite of the humanity you talked about -- I have on one side of me a conscience that says, "Do it right," but I am also saying "Do it fair."
Mr Stephenson: Perhaps if I can respond. Humanity was only part of it. I hope that we would never do anything in any institution without that being part of it, but that aside, part of the point I was earlier trying to make was that it was not simply being honourable and acting in a humane way but assessing what the overall costs to the university could be in any particular set of circumstances. One never knows, because one never has the luxury of being able to step back and roll the tape again with a different set of circumstances.
Our view at the time, acting as an executive committee of the board to whom the authority had been delegated, was that this was in the best interests of the university. No one likes the dollar amounts. I mean, $10 if wrongly spent is $10 that ought not to have been spent. That is not, in my mind, at issue, because I do not think anybody in this room would take issue with you on that particular point. But what you do need to do when you are exercising judgement in a set of circumstances is decide what is in the best interests of the university. It may be that the dollars involved are such as to give you tremendous pause, but the members of the executive committee did apply their minds to it, we were legally represented at the time, so we had no basis for believing that it was an inappropriate arrangement to enter into. The whole situation was regrettable, but the arrangement to disengage was not inappropriate. That is not to say that we are not all concerned about the dollars themselves. That is in my mind treated as a given.
Mr Cousens: I want to go on record, Madam Chairman. In all fairness to the university and the tragic circumstances surrounding it, it has another element of tragedy. The cost for the golden parachute, as Ms Haeck described it, this golden handshake, is unacceptable to me. I would come back to the chairman and this committee that it is full reason for the auditor to have more scope to do more detailed audits in all universities, regardless of the way you interpret your act as incorporation, so that there can be a review of spending on certain things such as this. To me, you are dealing with public money and as one who is responsible for it, and in spite of these statements and where you are coming from, I see this as reason for a far more detailed review of the spending of public moneys in universities.
As for the other things you are doing, you are doing so many things well, your students are coming out well equipped to meet the world and I have seen you make marvellous strides from an educational point of view. You cannot do that without at the same time having a tremendous sense of fiscal responsibility, and I think we have a problem in the province of Ontario.
Mr Stephenson: If I may respond in part to that, we felt a tremendous sense of fiscal responsibility. We did before, we did during, we do after. If the Provincial Auditor had been at our elbows, advising us what the most appropriate judgement would be in the situation, well, then we would have had yet one more voice.
Mr Cousens: No, I would not want to see him that close to you ever. I think the ministry should be. They can come in and look after the fact. I do not want you to ever talk to those guys too long. But the university and the ministry and the government should have the control, and they come in and see that everybody did it right.
Mrs Cunningham: I will be brief. Just so you know, Mr Cousens gets angry frequently, and you are not alone on the other end. l sit beside him often.
I just wanted to make a comment. I think one of the questions in the minds of the public around some of our top executive positions within our education institutions, not just universities but colleges and school boards, is something that is frequently raised with us as we represent the public. I think it might be worthy of some discussion within your own group -- you, Dr Stubbs, mentioned the advisory committee to the government -- so that the universities at least for their own sakes can get together and discuss what is fair.
At the same time, I think it is in the interest of the educational institutions to advise us, as elected politicians, of what is appropriate. Most of us come here with no idea of what is appropriate, what the competitive marketplace is, what is happening to our universities in Ontario and Canada. You mentioned going to Oxford. It is a university I know quite well. We are just not competitive, and we are losing it. Maybe this one outburst will -- with due respect, I will change my choice of words, because I have to deal with this person later on.
Mr Cousens: You sure do.
Mrs Cunningham: This strong questioning on behalf of my colleague, who probably expresses fairly the concerns of those of us who are elected, I think might lead to some other discussions which will help rather than hinder the progress of the universities and their competitiveness.
The Acting Chair (Mrs Fawcett): I do not think there is a question there, so --
Mrs Cunningham: I have to sort of put things in perspective. I am waiting for yours, Randy.
The Acting Chair: Mr Hope, at last. You have been waiting. You have been patient.
Mr Hope: I do not mind other people getting supplementaries.
Just one thing: What really scares me today is that for 13 years I have been through the labour movement, as a leader in the labour movement, and to hear our Mulroney government and its agenda as being proposed, with the free trade agreement and now with Mexico -- I was going to stay non-partisan, I was not going to bring this up, but I see our Conservative government is trying to take away our competitiveness and divert it to lower-wage, underdeveloped areas of the United States and Mexico.
As I come from a labour movement, there is the public identity out there that tells me that people of low and middle incomes are denied access to university because of the tremendous cost, the ability to obtain grants versus obtaining loans. I look at who has to pay, and usually it is mom and pop who have to try to help get the people through the school system.
But on the other hand I want to look at this open market, the competitiveness. When I hear the Conservatives say "competitiveness," it scares me. In order for us to be competitive, we have a marketplace out there that we have to establish, and the universities are going to develop the education which will be the future of Ontario to stay competitive. But competitive does not mean recessions or concessions.
Is this Ontario government's accountability -- whether it be financial or moral is the accountability I want to look at -- to the people of Ontario, first, to keep the professionals you train and educate, with the expertise you have, in Ontario and develop our economy? I am looking at a way this new Ontario government can help the universities, working co-operatively. I hear the word "autonomy" quite a bit -- I was one who came from a union that claimed its autonomy in the separation from the United States -- and autonomy somewhat scares me. I understand your autonomy, but I also think that through this new government and your expertise we have a direction we have to move in, and number one is to stabilize.
I notice in your statement that you are working in a co-operative manner through the auditor's report with more responsibilities. How can we start to be accountable not only fiscally, with the moneys we put, but accountable to the general public to make sure that accessibility is the key thing for all levels of income?
I am glad you brought it up. He said it was not by the order in council. I did not think so, because when I heard you say the labour movement was part of the 18 representatives, I am sure they had a good voice, making sure there was a diverse part of the community out there dealing with all sectors of life and not just an élite sector.
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My main question to you is: What direction do you see us taking in order to achieve that so-called autonomy yet at the same time taking Mr Cousens's concerns into consideration, being accountable to the general public? And I do not think only fiscal; I think responsible for making sure we try to keep people here in Ontario to develop our marketplace and to make sure we are more competitive in the world market.
Dr Stubbs: I would be happy to try and answer that question. If you will forgive me, given the way you asked the question, I could talk a little about Trent as a local university in a very strong union community, because you raised that question. One thing Trent is extremely proud of is that every union in Peterborough supported the founding of the university financially. There is no such experience anywhere in Canada.
An illustration of a more current situation would be the fact that -- despite the question Mr Cousens has raised and the issue we focused on, which was very widely discussed in the Peterborough community, I can assure you, because it was very widely covered in the media -- we met, for example, with the unions at Canadian General Electric, the largest industrial employer in town, and had a long discussion of the issue. I think if you ask any of them, they would feel satisfied -- not happy, but satisfied -- with the procedures Robert Stephenson outlined. A manifestation of that might be that the union at GE has contributed $131,000 towards our current fund-raising campaign, and many other unions in town have also been involved, because Trent is a local university and it does create accessibility for people in a community who did not have access to university in the past.
The second thing I would say about accessibility in the broader sense is that we work very closely with the community colleges and with the school system in our region, and we believe we have something of a model in the relationship we have struck with each of those sectors to facilitate co-operation and to ensure that we are maximizing the opportunities for people who are seeking access to our system.
I would argue, too, that our interview process speaks to the question of accessibility for those who do not necessarily have the marks. That in many cases may reflect an economic reality, which is that those students spend many hours, as a number of you will be well aware, at part-time jobs trying to earn the income they need to go university or to keep them in high school. We try to address those issues.
Trent, historically, has always been either at the top or second or third on the list of universities with the most students who receive OSAP, so we are not an élitist institution. We are an institution that attracts a very wide cross-section of the community. We have the highest percentage of female students of any university in Ontario. We are an accessible university, serving the community and the region and working very closely in co-operation with those agencies in the education sector that we should be working with.
I think we provide a very good education. I think we provide within our institution a sensitivity to a number of issues because we are small. That is important in the context of the questions you raised. Trent University was the first university in Canada to create a program in Canadian studies, the first university in Canada to create a program in native studies and a number of other areas that were unique and still are unique, or virtually unique, in the Canadian system. So we have tried to speak to a number of those issues. We are very proud of our philosophy and our sense of mission within the region and within the country.
It is also important to say within the broader issue of where Ontario is going that we have students from 65 countries at Trent. That is a very large number of countries to be represented in a small university which is primarily undergraduate. Most foreign students who come to our universities tend to come at the graduate level. We see many more students at the graduate level than the undergraduate level. We have a tremendous program called the Trent international program. I hope that within what we do we provide not only access, but a broad experience that is very directly relevant to many of the needs of this province and the country.
The Chair: We are going to have to move on, Mr Hope. I am sorry. We normally sit until 12 and unless I can get concurrence from the committee to sit beyond that -- there are two more questioners, Mr Johnson and Mr Charlton -- I guess you would like to yield to your colleagues.
Mr Johnson: The auditor and his audit of the universities plays a very valuable function in tightening up controls within the system of any particular university, especially when they become aware of some of their shortcomings as they are identified by the auditor. So you suddenly come under a closer scrutiny, a public scrutiny, that is very important. Grants are made to the universities. They are public funds and part of our job is to ensure that these public funds are used in the best interest of the public. We have to be accountable, and so universities have to be accountable for those funds too.
He points out errors and omissions that the universities may or may not agree are errors or omissions and it becomes an interpretation, without a doubt. With regard to the enrolment reporting and the $11 million that the auditor has identified as an amount of money that might have been granted to other universities, we know now, after the fact, and the auditor found out after the fact, that there was ministry approval after the fact.
The Chair: I do not think it was after the fact. l think he came and advised us yesterday that after discussion with the relevant people he -- that is my understanding. Mr Charlton is shaking his head, but my recollection was --
Mr Charlton: The 1982 change was approved after the fact, so let's get on with the question.
The Chair: Maybe we should clarify that because I think it is germane to your question.
Mr Charlton: It has just been clarified by a nod from the university. Let's get on with the question.
The Chair: With respect, Mr Charlton, I think the auditor is the one who addressed us yesterday as to exactly what the position was. I think we should have that straight before we --
Mr Charlton: It was in the university's presentation this morning.
The Chair: I do not think it was retroactive, was it?. Was there a letter sent to the --
Dr Stubbs: Yes.
The Chair: All right. I guess Mr Charlton is right then. Go ahead, Mr Johnson.
Mr Johnson: Anyway, I will skip some of what I was about to say. I will get more to the point and the question will follow.
It suggests to me that one interpretation might be that it was not applied for because back in 1982 it may not have been granted. I do not know that in fact is true, but granted retroactively, it is certainly in the interest of the university and the ministry to do that, to grant it so that suddenly this $11 million is allowed because they were granted, retroactively, approval for that amount of money.
I understand that universities want to maximize their funding. There is a need there; I am sure it is evident. The Ontario operating funds distribution manual is a very complex manual to have to go through, I have no doubt. I guess universities look through this thing and they pick and choose the best route to go to get the most funds available from the government. What I would like to know is, presently, does the university have approval for the criteria and is this something it has to apply for yearly?
Dr Earnshaw: Is the specific question, do we have full approval for current practices? We do not apply for it unless there are revisions to current practices, so we apply for approvals of changes.
Mr Johnson: So you would not need to apply for any changes now because you have received that approval just recently.
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Dr Earnshaw: If we change our reporting technique for any reason whatsoever, we need to get approval for that change, but we do have an ongoing approval for the practices that we are now using.
Mr Johnson: Are those practices that you have been using since 1982?
Dr Earnshaw: That is correct. They have remained unchanged since then and they are still in practice today.
Mr Johnson: But you only received approval for that just recently.
Dr Earnshaw: Perhaps I could explain that by another way of characterizing it. First of all, the $11 million has never been accepted by the university as the correct number, and that is the university's calculation.
Mr Johnson: That is why I spoke about errors and omissions not being agreed upon, basically.
Dr Earnshaw: No, but the calculation does not give an answer, if you use the formula that is used for distribution, that comes out to $11 million. It would give an answer of $1.3 million. The approval retroactively --
Mr Johnson: An auditor has a job and he has ways and means of coming to a conclusion. If he uses those, does the university not use those -- as to his criterion for coming to this conclusion, does the university not use it?
Dr Earnshaw: No. Can I explain it to you a little bit?
Mr Johnson: Sure.
Dr Earnshaw: It is a little technical, so I will have to do it. We had approval in 1968 for a practice of counting. In 1982 we refined that practice. But because it is a refinement of practice, you could still use the original approval to do a calculation for everything but the refinement itself. In other words, you can convert a 68% to a C and you can go through all those calculations. Using the assumption that the 1968 approval is still in place today, because we have not really changed anything other than refined it, the calculation using the formula would have been $1.3 million. The $11 million comes from an assumption that you abandon all approvals by making a change, and we and the ministry have simply said that did not happen.
Mr Johnson: So there is a disagreement.
Dr Earnshaw: Yes. Now, on the other side, let me tell you, there was notification of the ministry in 1982. We were not doing anything under the table. There was nothing sleazy about it. It was done for academic reasons. Our senate had very good reasons to refine the grading scheme on behalf of our students. The ministry was duly informed in writing and acknowledged that information, but it is accepted by others that this was not an application for an approval. But nobody hid anything from anybody. There was nothing surprising, and therefore the retroactive approval was a confirmation that this notification should have been a little more serious in 1982 than just a letter saying, "Here is our new grading scheme."
Mr Johnson: With regard to the auditor's way of coming to the formula he used to arrive at this $11 million, Trent University is saying that the figure would actually be $1.3 million if you had not changed that formula back in 1982. Is that right?
Dr Earnshaw: That is correct.
Mr Charlton: I will just deal with my main concern and a couple of the questions, but we are quickly running out of time. Mr Daigeler raised, and the auditor has raised with the government, this question of value-for-money auditing. My understanding of the University of Guelph's comments here yesterday was that it took a much stronger position against value-for-money auditing than what I read into the comments I have heard from you people here today.
They basically took the position that value-for-money auditing would likely and inevitably cross that line into the area of academic freedom, and I guess I can understand that concern. I certainly can understand the concern in the case of Trent University. For example, if the Provincial Auditor were to take the position that the university could substantially improve its value for money by doubling the size of your classes, that is a very direct comment on an academic decision the university has made about how it wants to operate and teach.
On the other hand, it would seem to me that if value-for-money auditing in some kind of an agreed system where the auditor's reports and comments might usefully help the financial performance of a university -- for example, if the auditor could point out ways to improve tendering and bidding processes because of flaws in the current process that were costing excess dollars that were unnecessary, or something along those lines. I guess what I am trying to get from you is some comment about where you see value and comment about where you would see intrusion in terms of the question of this value for money.
Dr Stubbs: I would like to respond, and maybe I need to clarify what I said because I am clear in my own mind that I guess I lined up with Guelph, but with not as much vigour, because I suggested that many of the areas that were touched by the audit did speak to this issue, and the one, for example, that you raised is an illustration. The question of purchasing was examined in some considerable detail by the Provincial Auditor, and as a result of that we made some changes in our purchasing procedures. The position I took in my comment was that I was personally not opposed to -- in a sense this is the wrong language -- the auditor undertaking the kinds of audits that he had undertaken at our institution and other institutions, because I said we all learn collectively from that process.
I frankly do not -- I am not an accountant -- know fully what we mean by the term "value-for-money audit." I have read about it. I understand generally what we mean about it. I think there is a good deal to be learned from jurisdictions elsewhere that have attempted to deal with this question of accountability. I believe the deputy minister talked about outcomes assessment. This is something that is going on in the United States. A number of states have tried to do this, not with very much success is our understanding.
It is an amazingly complex area and it keeps weaving into the academic areas of the university. I think it is important to say that faculty tenaciously holds to its position, through the senate, that the academic areas are not the responsibility of the board of governors. There is no firmer line in the institution's internal battles than that one. The board has no role to play beyond its financial stewardship and its conception of its role as representative of the broader public in determining the academic programming of the university, and I guess I sense, as I said earlier, that I thought that the kind of audit we went through touched many of those areas directly. There is certainly -- we have discussed it at some length -- one area that caused us a great deal of difficulty and grief, and I am not --
The Chair: Before we continue, can we have the concurrence of the committee that we continue a bit further beyond noon?
Agreed to.
Dr Stubbs: If I could conclude, I do not want to be on the record as saying that I think the auditor, based on our experience, should expand the scope of the audit at this point in time, because I believe that much has been learned from the process we have already gone through. But I am not opposed to the auditor continuing the activity that he undertakes through inspection audits at the present time. I do not speak for the universities of Ontario. I will have a number of darts in my back.
Interjection.
Dr Stubbs: Yes, battleaxes. The Chair: Thank you very much. There was one question asked by Mrs Cunningham and I wonder if perhaps in a word you can answer it. She asked if there had been a legal opinion sought in reference to the compensation package for the former president.
Mr Stephenson: Not an opinion in the sense that I believe the question would have been asked, but the --
Mrs Cunningham: I did not ask that.
The Chair: Oh, Mrs Poole, I am sorry, had wanted that. So in essence there has not been a legal --
Mr Stephenson: Not a formal opinion that Mrs Poole may have had in mind. But the board was represented by legal counsel and legal counsel cannot tell you whether or not you ought to sign a document, but --
The Chair: But it can advise you as to the practicalities of what four months' difference between that and the court decision might have been, what it might have cost you in legal costs if you had to fight the --
Mr Stephenson: It was a concern of mine when it came time for approval and I personally asked the question as to whether or not legal counsel had, in the circumstances with which we are dealing, viewed it to be a reasonable arrangement -- given that we were dealing with unreasonable circumstances, that the arrangement was reasonable.
The Chair: We appreciate your coming here from Peterborough. It is a delightful place and to leave it even for a brief moment is a sacrifice. We appreciate your coming before the committee. We stand adjourned until 2 o'clock this afternoon.
The committee recessed at 1200.
AFTERNOON SITTING
The committee resumed at 1400 in room 228.
UNIVERSITY OF TORONTO
The Chair: Good afternoon. I would like to welcome Dr McGavin from the University of Toronto. Are you presenting the brief, or is someone else?
Dr McGavin: I am presenting the brief.
The Chair: All right. Perhaps you would be good enough to identify, for purposes of Hansard, the lady sitting to your left and the gentleman to your right.
Dr McGavin: Yes. To my left is Dr Annamarie Castrilli, the vice-chair of governing council, an appointee of the Lieutenant Governor in Council, and on my right is Professor Robert Prichard, president of the University of Toronto. We also have in attendance Richard Criddle, the vice-president of administration, and our external auditor in the person of Geoffrey Clarkson. They are sitting behind.
The Chair: All right. If you would like to proceed and when you finish --
Mr Daigeler: It is okay to proceed.
The Chair: Oh, I am aware of that. I was told by Mr Cousens that we could proceed if the Conservative caucus was absent.
If you would like to proceed and then when you are finished, there will be questions from the committee.
Dr McGavin: Thank you very much, Mr Chairman. I cannot tell you how pleased I am to be here today. I intend to talk a little bit about the governance process at the University of Toronto, talk about the audit and the progress to date and then talk about at the end some ways in which we can work together to our mutual benefit. I have introduced Annamarie Castrilli, the vice-chair, and President Prichard, Richard Criddle and Geoffrey Clarkson, and they will all be available to assist in the questions as necessary.
At the outset I want to briefly outline the structure of the governing council of the University of Toronto. It was created by this Legislature in the University of Toronto Act in 1971, after consideration of a report from the university about the modernization of its governance.
A few of you, or all of you, may know that one of the principal authors of this report was then a fourth-year history student from University College who is now the Premier of the province of Ontario, Bob Rae. The governing council of the University of Toronto is a unicameral body, which holds all the powers that boards and senates hold separately on other campuses.
I think I can report that we are the only unicameral board on this planet. Is that correct? The model was not followed by many, but it is working extremely well at the University of Toronto.
One half of the members of the governing council are laypersons. Sixteen are appointed by the Lieutenant Governor in Council and eight alumni, as well as the chancellor, are elected by the alumni. The other half consist of 12 faculty, 8 students, 2 administrative staff -- these are all elected -- plus the president and 2 senior officers appointed by the president. This diversity of membership, together with our unicameral structure, are important elements of accountability. We believe this unicameral structure, involving all constituencies in a single governing body, allows us unusual scope, for example, in examining proposals before us from all possible perspectives before making decisions.
I have brought with me a list of current members and brief biographical notes about them, which I will leave with you. Members of council work incredibly hard at making our system work and I am pleased to record here my gratitude for their efforts.
Governing council carries out its legislative, judicial and monitorial functions through three main bodies reporting to it: the academic board, the business board and the university affairs board. These boards, in turn, have a variety of standing committees reporting to them and it is this collectivity that we refer to as the governing council system.
Because council is such a diverse group, we devote time each year to reviewing our responsibilities. Last fall, l prepared some remarks for council members on their roles as trustees of this important asset we call the University of Toronto and I concluded to them in this way:
"The university is a self-governing community...but it is also a public institution with much of its income coming from the taxpayers and from the university's benefactors. You, the governors, are accountable to the public to assure that the university maintains and enhances its position as an institution of academic excellence and to assure that the public funds are being spent responsibly and effectively." To digress for a moment, for the "public" I mean also the Legislature and through its elected officials.
I went on to say to the governors: "During your time as a governor, you are going to be asked to make many decisions -- some easy, some extremely difficult. We will do our best to make sure that you have all the information you need to make the best decisions. I encourage you to ask questions of the administration, your chairs and vice-chairs and the secretariat staff to learn all you need to know about the issues at hand. If you do this, you will not always end up in the majority on every issue, but you will have contributed effectively to our decision-making and have helped governing council make wise and effective decisions."
These are our standards. We feel responsible for preserving, enhancing and handing on the assets and the reputation of the university to the generations that will come after us. This is why the governing council of the University of Toronto exists.
The governing council takes its trusteeship of the university very seriously. We have a standing committee, the audit committee, whose sole concern is the oversight of the way in which our fiduciary responsibilities are carried out. Its chair is William Weldon, of Arthur Andersen and Co, and its vice-chair is Spencer Lanthier, of Peat Marwick Thorne, very senior chartered accountants in Toronto, and with national reputations. Unfortunately, they were both committed to out-of-town meetings prior to receiving notice of today's sessions. They have asked me to convey their regrets to your committee and to indicate their availability to discuss the provincial audit and its results with your members at any other time. However, their absence means they cannot restrain me from pointing out to you the key role they played in the conduct of the provincial audit at the University of Toronto.
As soon as I was notified of the auditor's intention to visit the University of Toronto, I indicated to him and to the university's officers that the governing council's audit committee would exercise close oversight of the process and be the body to set out the tone for the university's conduct. I think that Mr. Archer's staff will tell you that the audit committee, and in particular its chair and vice-chair, were much in evidence during the process.
The basic attitude of myself and the audit committee was that the inspection audit was an occasion for self-examination and for seeing how well we as governors are discharging our responsibilities as trustees of the university. We took comfort that the inspection audit, to borrow a phrase from the deputy minister's remarks to you, "did not report any instance in which funds provided by the ministry were not spent on the purposes for which they were intended." However, we also took to heart the auditor's findings of certain weaknesses in some of our detailed controls and have acted quickly to remedy them -- for example, by reminding staff of the necessity of following established policies and by initiating the review of existing policies where this was required.
I would like to summarize for the committee our activities in the areas addressed by the auditor in his report to the Legislature.
1. With respect to enrolment reporting, the auditor reported, and I understand the deputy minister has confirmed, that the university is accurate in its compliance with the ministry's guidelines. We have followed the progress of discussions between the auditor and the ministry on enrolment reporting and can only endorse any actions which emphasize full compliance and consistency in reporting. This is the basis on which we believe the University of Toronto and all other institutions should be treated.
2. With respect to tendering policy, the auditor found inconsistent application of the requirement for public tenders. This matter was in fact dealt with as part of a policy approved during the year being audited. Public tenders are now called for in accordance with the governing council's requirements.
3. With respect to our ability to account for furniture and equipment, we, like other institutions, are at the point where we will have to review our ability to maintain a fixed-asset inventory system. On this, the Ontario universities are moving in co-operation with each other through our financial officers to review such systems. The University of Toronto will decide by 30 April 1991 exactly what to do about our present system.
4. The auditor was critical of the way in which the university safeguarded some of its assets. In response, last month information was provided to all our departments on ways in which to improve the physical protection of assets. At the same time, the self-insurance deductible limit for each department was raised to $2,500 to emphasize to each unit that it has a financial stake in the protection of assets. In addition, the physical protection of assets is being reviewed as part of the study I just mentioned on central fixed-asset inventories. Finally, a policy on the loan of fixed assets for employees is being developed for presentation to our audit committee and business board by 30 April of this year.
5. With respect to policy on disposal of surplus assets, in which the auditor found some deficiencies in implementation, department heads have already been reminded of the need to follow established procedures. The policy itself has been reviewed to make it as clear and comprehensive as possible and will be ready for presentation to our business board by early March.
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6. With respect to library books, the auditor found that not all of our libraries use the same systems of control and it was therefore not possible to estimate total annual losses. The auditor noted that complete annual counts of all books are not practical. We concur with this, but are moving to develop a suitable provision for losses which will be in place in our forthcoming financial statements for the year ending 30 April 1991. We can report to you today that the 0.3% loss reported by the auditor for one library was halved by the subsequent return or location of the books.
7. With respect to purchasing policy, the auditor found instances of the requirement for competitive quotations not being followed. The university has an adequate purchasing policy in place. To ensure it is followed, record-keeping has been implemented to track purchases from single-source suppliers and preferred vendors. Purchasing staff and department heads have been instructed to adhere fully to the requirements for written quotations.
Mr Chairman, this is our summary report to you on the specific findings of the auditor about the University of Toronto. We will be happy to respond to questions from the committee about any of these matters.
Again, our audit committee is playing a key role here. Several months ago it discussed with our administration the detailed follow-ups that were called for in response to each of the auditor's observations. Audits, whether by the province or by governing council's own external auditors, can be only part of the picture. The expenditure of the public funds for which the governing council is accountable is subject to scrutiny which is as great as anything any of us has ever encountered. There is hardly anything that is decided without extensive public discussion on our campuses, both in meetings and in the media.
The on-campus media, of course, have their own traditions of independence, including the ones that are run by our own employees. The involvement of all campus constituencies and our openness act as a self-correcting mechanism, bringing us all the time back to fundamental questions about the wise use of scarce resources in the light of the university's basic goals and the overall public interest.
This is particularly true of the big decisions we make. Resources are too scarce to allocate without close scrutiny and debate. For example, our annual budget process involves extensive interchanges between academic units and central administration, plus scrutiny of budget recommendations in several committees of governing council, including an examination by our business board of the fiscal responsibility of the overall budget.
In addition, once appropriations are established, we have mechanisms in place to limit expenditures to those that are approved or to recover funds in subsequent years if budget targets are not met. We also have an internal audit staff that is effective at what they do and which has direct access to the chair of the audit committee if the need ever arises. The president, who is responsible for the overall conduct of our administration, makes reports to and is open to questions at each meeting of our executive committee and governing council.
At the University of Toronto, we are proud that broad participation in open decision-making has the sanction of the provincial legislation. As I noted earlier, the University of Toronto Act provides for broad membership in our governing council. It also requires us to make virtually all our decisions in public meetings. We keep meticulous records of our decision-making, which are available at any time in the governing council office for anyone to inspect. We would be happy, of course, to put any member of the Legislature on our distribution list, in case there are a few of you out there who have not got enough to read.
Debate, even very public debate, is not an end in itself. It is necessary to ensure that our role as trustees is well discharged, but it is not sufficient. The grist for our mill, so to speak, is information and opinion about what the university should actually do to discharge its responsibilities in the areas of teaching, research and public service.
The governing council and the university officers are at the centre of these debates and have at their disposal an enormous range of expert opinion, internal and external appraisals, the wisdom of bodies like the Ontario Council on University Affairs, and the advice of external bodies which accredit our professional programs. We are the matrix through which all of this flows and the product is, we say with some considerable confidence, a range of teaching and research service and a catalogue of individual and collective accomplishment of which the people of this province can be proud.
I might add that I think it is in the public interest to maintain this breadth of accomplishment by many measures. The universities of Ontario deliver a great deal, particularly when the relative investment of public funds is taken into consideration. At the University of Toronto we have spent some time examining our competitive position, and we would be happy to expand on this point further.
A university which does not strive to provide the best possible teaching, research and public service is not living up to its own ideals. The same standards should be applied to our institutional governance. The autonomy given to our universities is not possible today without two things: clear provisions for public accountability and internal mechanisms to mould the work of our highly skilled faculty and students into a set of programs and activities. University boards of governors are the means of uniting these two requirements.
Today, of course, and in particular in front of the standing committee on public accounts, our challenge is not just to provide the means by which public accountability and academic self-governance are to operate simultaneously, but to provide the means by which these goals are seen to be realized. It is, of course, why the audit committee and I invested our time in the oversight of the university's response to the inspection audit. It is also why we are eager to tell you anything you want to know about the findings on which the auditor has reported, and of course we will be pleased to respond to any questions about the University of Toronto.
Our accountability to the elected representatives of the people of Ontario is important. Over the past two days you have heard about some of the ways in which this already operates. Among the important issues of the 1990s will be the measurement and improvement of institutional performance, both collectively and individually. Individual performance will be of particular importance. The extent of institutional diversity will itself be a measure of performance.
In the absence of deliberate efforts to ensure diversity, every institution will gravitate towards some single norm, probably the least common denominator. The Legislature should be concerned about performance and diversity. The University of Toronto would be pleased to participate in the development of further ways in which these can be expressed and measured. We think that measures must be as concerned with output as with input. We also think that measures must take account of qualitative, as well as quantitative factors, and be diverse enough to support a differentiation of institutions.
Again, Mr Chairman, we welcome this opportunity to appear before you, in the expectation that it will help us better discharge our responsibilities. I will end by repeating our preparedness to respond to your questions. Thank you very much.
The Chair: Thank you, Dr McGavin. Would either of your colleagues wish to add anything, or would you rather do that through questions?
Mr Clarkson: I think it would be our preference to simply respond to your questions, sir.
Mr Cousens: I would like to begin with congratulations to the new president in assuming such a big responsibility. I wish you well in your job. It is a big one and it is a good one.
Mr Prichard: Thank you, sir.
Mr Cousens: Something that comes out of the auditor's study is the assets that are totally part of the university scheme. I happen to like golfing on one of your assets called Midland Golf and Country Club. Where does that fit into the assets of the university, where do the profits go, and how does that come to the bottom line of the university?
The Chair: And he wants to get his golf balls back too, lost on that first tee, I would think.
Dr McGavin: Can I ask the president to respond to this question, please?
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Mr Prichard: Let me respond very briefly, Mr Cousens, and then seek help because I have only a vague familiarity with the particular financial circumstances.
Mr Cousens: It is a symbolic question. It is really pointed to a much bigger question.
Mr Prichard: I understand. On the bigger question, I will be able to answer On the smaller question, fortunately I have a colleague with me who among his responsibilities as the assistant vice-president of finance has been responsible for dealing with that asset, and if it would be appropriate, I would be happy to have him give you a detailed answer to the origins of that gift, to its current status, to its worth and how we are trying to realize the university's interest in it.
Mr Cousens: Save the trouble. What I really want to know is, you have a number of assets like that that are really part of what is the legacy of the University of Toronto. Where does that fall into your bookkeeping? How do the dollars that are taken from that fit into the total corporate picture of the finances of the University of Toronto? I think one of the things the auditor really did not touch on in a big way was that part of the assets. Maybe they are so exclusive and personal that you would not let the auditor look at it; I am not too sure. Give me a sense of the legacy that is University of Toronto and how much money is coming into that. Does that go to operating costs? To what extent does it go to operating costs? Does it go for new capital or is it just a growing reserve?
Mr Prichard: Let me try again. I would be happy to respond to any specific asset in detail either now or in future, but let me try and take a larger picture.
The assets of the university, beyond its human assets, are principally on the three campuses of the University of Toronto: the St George, Scarborough and Erindale campuses. In addition we have two further small campuses. One is the Aerospace Studies Institute in Downsview, which is on the same property as the University of Toronto Press, once part of the Connaught Laboratories, and we have the Dunlap Observatory, which was a gift to the university in the 1920s and which is in Richmond Hill where the observatory is. Those are the five, if you think of land assets. Among those, our ownership of all but the St George campus is complete; that is, within the land mass that you think of as the campus, that is owned by the university received by gift from the province or from individual benefaction.
In the case of the St George campus, the assets are somewhat misleading. If one walked or drove through the campus you might assume that within what most think is the precinct, that is owned by University of Toronto. In fact the ownership is mixed in that the university owns the bulk of that. Some of the universities associated with us -- St Michael's, Trinity, Victoria, own parts of it; Knox College owns part; Wycliffe College. There are other owners, and then there are commercial owners within the precinct as well of properties that have never been the property of the university. There is municipal ownership of the Boys and Girls House library. As I say, in a sense the physical asset is mixed.
As to those land assets we have, the great majority are dedicated to institutional uses and there is no income associated with them. The exceptions to that are principally with respect to residences, where there is of course, revenue. it serves an institutional purpose, but there is a revenue stream that goes back into the residences' accounts and then into the general accounts of the university. There are probably -- well, I would have to think about this -- some in which there is rental income from external sources which again is realized as current operating income and put into our income statements.
All income received by the university is accounted for, of course, by our internal audit and then by our external audit. It is all subject to the scrutiny of the governing council. That is, there are no funds which are not on the table in our public statements. As to the allocation, we have both capital funds and operating accounts. For example, the residences have to have a return into a maintenance and repair fund so as to maintain the capital assets so the ancillary is maintained as an ancillary. The parking ancillary is an ancillary. We have those ancillaries. Then we have the bulk of our accounts as our operating account.
So, of all the assets you see, some of them generate income. That income is brought in either to the capital account or the operating account and is then distributed through the budget process of, first, the administration proposing a budget, and then of course that budget being subject to scrutiny on the campus and spent.
Mr Cousens: Mr Chairman, if possible, I would appreciate receiving a listing of the different assets that are not related to the campuses and the precincts as you have described them, but start pointing to other assets owned by the university such as --
The Chair: Such as shares, Mr Cousens, or what?
Mr Cousens: No, I am a graduate of the joint, so I want to be gentler than I was with Trent.
Ms Poole: You did graduate, Mr Cousens?
Mr Cousens: Not retroactively, and we are proud of it.
But I am concerned with the other assets that are really part and parcel of the legacy that is the U of T. I only know of a couple, but one happens to be a golf club which generates cash. We always hear about universities being broke, which you are not, but it is tight. Where did that money go? How much is flowing in from that? Does it go into special reserve funds? Does it go into general revenues? How is that monitored and maintained and built upon, because it becomes a huge capital source of funds that I do not think many people think about when they start thinking about university assets.
Mr Prichard: I would be happy to generate such a list for you. I believe it is a short list in that we on the whole have tried to realize those assets and bring them back to the extent they are outside the precinct. I can think of the Midland, where we own -- we inherited some shares within it -- some of the memberships. We do not unfortunately control it. If we controlled it, our situation, our dealing with it, would be quite different. So that is one. There are probably a couple of others.
As you probably know, we have the Royal Conservatory of Music, which is part of the university at present -- it is about to be severed from the university -- and there is a music publishing company which was given to the conservatory which is again going with the conservatory. That publishes all the music, but that is a separate entity so you might think of that as falling into that category, although it is part of the severance of the conservatory and that will not be ours. I could struggle to think -- but we are talking, I think, of a list of three or four items. We would be happy to produce such a list for Mr Cousens if that would be helpful.
Mr Cousens: I would like that, anyway. Can I just ask the auditor --
The Chair: I would only ask you that if you produce it, maybe you could send it to the clerk and he will see that all members of the committee get a copy of it.
Mr Cousens: Did the auditor have a chance to review legacies and other gifts, as part of your audit, that have been given and bequeathed to the University of Toronto? Is that part of your assessment?
Mr Peall: No. Our mandate only entitles us to lesser things that are involved in the operating fund, so we cannot address the endowment fund of the university or its capital.
Mr Cousens: As to the way in which the funds come from those legacies, that usually becomes an exclusive preserve of the university, then, so it is not taken into consideration by the province.
Mr Otterman: It is fair to state that the administration was very careful not to allow us to get into any of the other funding areas or expenditure areas. We were restricted to the review of the operating fund.
The Chair: I think in fairness the act that empowers the auditor to do that actually does limit him to that, does it not?
Mr Otterman: Based on legal interpretation, one can put that slant on it.
The Chair: I would not want to leave the impression that the university had this purse that it was not opening up.
Mr Cousens: I guess what I want to find out is how clearly defined is the line. I have a sense there is a --
Mr Otterman: The line was drawn very clearly. We were held strictly to the legal interpretation that said an inspection audit, what it could and could not do, and our access was to the operating funds in which the government grants are given; in this case, the enrolment funding.
Mr Cousens: Would it have been your preference to look beyond some of those guidelines as to how the moneys were being handled?
Mr Otterman: Yes. In any audit, any restriction significantly affects what you can do, and it would have been much better to have a wider scope. So the assets, the items that we examined and talked about were ones that could be directly tied to government funding.
Mr Cousens: To me, this leads to a series of questions which mean we will never know as legislators just how good a job you are doing if in fact you close the door to the auditor to do a kind of in-depth look at the University of Toronto. What I am hearing is that there was a line drawn. He could not cross over it because of the controls that you had before he came into the place. On the one hand, you are talking about how open you are and on the other, when he went there I do not sense that there was a total receptivity to his presence.
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Dr McGavin: I hope I can say with some measure of confidence that within the parameters of the audit, as it was set out for us, and the way in which we deployed our resources to deal with the audit, there was complete openness.There was the odd debate and there was the odd discussion, but I think the audit committee -- I have some confidence that the audit committee feels that to the mandate that was given to the Provincial Auditor, we were as open as we could be. Where does it stop? Once you get going on that thing it is another issue, but we dealt, at the time, within the parameters of that and I would hope that we were as open as possible within that mandate.
Mr Prichard: I think there is an important clarification here. One is, as I understand it -- I should say I was not at the university as president at the time, so I reported only on the explanation given to me by my predecessor -- but there is a statutory mandate for the Provincial Auditor, which I believe was the basis of this audit and that defined the scope of the audit, the statutory mandate. Within that mandate -- we can be corrected -- I do not believe and it has not been reported to me that there is any point on which we have not provided full information on those matters within the scope of the statute for the Provincial Auditor.
There is a second question which is that the full breadth of the University of Toronto, as you are suggesting, is much larger than the scope of public funds provided by the government of Ontario to the University of Toronto. There is substantial federal support. There is substantial private support. There are alumni. It is a very large organization. While the Provincial Auditor does not reach that, because the statutory mandate is limited to provincial funds, on the question of the mandate, this mandate of the governing council and the procedures described by the chairman extend to every corner of the university and all its assets, all its revenues, all its activities.
The mandate of the governing council is exactly congruent with the activities of the University of Toronto, so there is nothing that is excluded from the governance process that was described with the openness within our particular mandate, our governing structure. The Provincial Auditor's mandate is, of course, much more restricted.
The Chair: Is it correct that 60% of your funding comes from the government, though?
Mr Prichard: Sixty per cent?
The Chair: Sixty per cent of the funding is from the provincial government.
Mr Prichard: That is approximately correct.
The Chair: I think, Mr Cousens, the deputy auditor wanted to --
Mr Cousens: Perhaps you could comment on the first point made by the president.
Mr Otterman: Yes. I would like to confirm what Dr McGavin said, that under the rules of our audit, if you want to call it the inspection audit scope -- I believe the legal opinion was obtained by the Ontario Council on University Affairs, it was not the University of Toronto that went in and did this -- within that scope we had the full co-operation of the board, as the chairman has said, so that confirms the clarification.
Mr Cousens: I guess I will close off with my point, which probably will not win me one vote and I might even lose one at home, and that is --
The Chair: You have got four years.
Mr Cousens: I have got four years before they will remember, but that is not the way people are these days.
I am concerned with the limitations that would appear to be part and parcel of the views that the auditor -- my comparison is, when we in the town of Markham recently raised $6 million for a new hospital, the Markham Stouffville Hospital, once the ministry found out about it, it found a way of taking a large portion of that money. The percentages had all been worked out as to how much we would have to raise locally. When it saw that we were more than successful, it changed the equation by the time we opened the hospital, so all the money we had raised locally went into the beautiful new hospital. We were able to collect it because we are rich enough that we will raise more. But the fact was that the rules changed once it knew we had the money in the pot.
I think there is a certain element in which, when the province is looking at the cost of education, there should be some way in which the auditor's review of a public institution which is jointly financed by public money, private funds and other levels of government -- that there should be a more complete review of that without -- I realize the guidelines that were there. I have talked earlier with the auditor, so I am aware that his limitations were fully met by the university, but I am concerned with the inability that he had to go beyond those boundaries to look at other matters that would give us a more complete outside review of the finances of the university.
Then you are able to tie those things and you will see how it comes together. It can be abused by the government -- you know, it is not them any more -- when it starts seeing just what the resources are, but then that is where your alumni and others start fighting for it, and maybe they try to increase it. I guess I have a problem. I will come back to the committee when we are reviewing our report, that we look at the scope the auditor is allowed to have in such institutions. If he was only allowed to look at 60% of the pie, and not so many other parts, as it ties into the total function, I think there is a limitation that should not have been there.
The Chair: We have some other questions, but I would just like to ask you, what impact would that have on your ability to fund-raise outside of the public domain, if the people who were contributing in that vein felt that all of that was going to be looked at? I think that is important to know. If you have an opinion, I would like to know what it is, because when we are doing our report I think that is of some importance.
Dr McGavin: The public, be they alumni or the community around us, want the affairs of the University of Toronto to be beyond reproach, not just the 60%, but the 40%. We have mechanisms to deal with, shall we say, the other 40%, to partially answer the question. I take your point, Mr Cousens, about the other 40%.
We have internal auditing mechanisms in our own system, again, wide open. These people are not cloak-and-dagger operations. The marketplace within the institution is in itself a very controlling mechanism. There are not just little wee pockets of money out there that people do not know and are not watching rather closely. So we have our own internal dynamic with our own internal auditors and our own internal, if you like, marketplace dynamic.
Second, we have external auditors who do a scrupulous job day in and day out, giving good advice and converging on various groups, asking the right questions and signing off on audited statements with the reputation of their firm behind them.
The Chair: I do not think that was the gist of it. The gist of it was, what impact would that have on your ability to gather contributions, this other 40%, from the private sector, if they knew that this was all going to become part of a public audit?
Mr Prichard: I think there are separate questions here, Mr Chairman. If our donors thought that their contributions would diminish the public support we receive from the province of Ontario, I believe it would be devastating to our capacity to raise funds. So to the extent there is any sense of offset, our capacity to persuade the alumni and friends of the university and the corporate sector and the foundations to support us would be devastating. At that level, it would be devastating.
At a second level, though, I think our success in persuading people to support us is, as the chairman said, dependent upon our being exemplary with respect to the quality of financial management and the integrity of financial management in the institution. So we must have in place procedures, because we are often asked by benefactors: "How will my money be dealt with? How will it be invested? What are the rates of return? What is it being spent on?" We have the most detailed accountability to our benefactors and if they are dissatisfied they stop giving. So it is not responsive to whether the Provincial Auditor should be doing that or whether his mandate should be restricted to provincial funds, but the need to report openly on every cent received by the university I think is central to our being able to do it.
I was just going to say that the financial statements that the University of Toronto publicly delivers report on every single cent, every single asset of the University of Toronto, no matter what its origins, public or private. In terms of the integrity of it and availability, it is there, but if the question is the offset, if alumni give more and then the province will give less, that I believe would end the growth of private giving to Ontario's universities, which has really been quite spectacular over the past decade as it has built and built and I hope will build over the next decade. It would end it. It would bring it to an end.
The Chair: Thank you for that clarification.
Mr Cousens: Perhaps I could comment because I think it is very important to understand that it is not my desire to cut into the investment by alumni and others to the university, but I have a concern about the way in which the levels of responsibility tie in at a government level to an institution that is largely publicly funded. I would not want to see the dishonesty that took place between our Markham Stouffville Hospital and the Ontario Ministry of Health. An agreement was made and it was broken, but we were so glad to get out of things that, okay, we live with it.
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None the less, I think it is important that when we were raising that money it was public, it was known, and I think the picture that we get now from the Provincial Auditor is not as complete as it could be if he had further boundaries to look more fully and more completely, and if he saw something in there that was triggered from his study -- and I will come back to this when we are doing our report.
The Chair: That is what I was going to say. We can deal with that --
Mr Cousens: I just want to cover myself so that --
The Chair: I thought you covered yourself admirably, actually.
Mr Cousens: Maybe I am digging a deeper hole.
Mrs Cunningham: Is Mr Cousens's name on your donor list for alumni of University of Toronto, because you should send him an immediate --
The Chair: Check it and see when he last contributed.
Mr Prichard: As president, I make a point of not examining those questions with respect to provincial politicians.
Mr Daigeler: It is a pleasure to be able to talk to the representatives of the University of Toronto, first to congratulate you on the initiatives you have taken in response to the auditor. Quite frankly, of the two universities we have seen so far, your response strikes me as one most forceful and clearly committed to making changes in light of the auditor's reports with regard to assets, library control and public tenders and so on, and I hope you will continue. From your remarks, I sense that you will continue to monitor that very closely.
However, that broader question that Mr Cousens was trying to get at is one that bothers me still quite a bit. I do not know whether you have a copy of this document -- if not, you should certainly get one because it is a public one -- the 20 December 1990 letter by the Provincial Auditor to the Deputy Minister of Colleges and Universities in which he summarizes his experience with the audits of the three universities. He is saying there: "Because the scope of an inspection audit was narrowly interpreted by the universities, many areas that are essential to the operations and accountability of universities were excluded from our review. We cannot assess whether public funds were spent with due regard to economy, efficiency or effectiveness."
Later on -- I think we were talking about that already -- he goes specifically to the University of Toronto: "For example, subsequent to our audit of Toronto, the media reported that the university was faced with a significant operating deficit for 1990 fiscal year due to many years of government underfunding." Certainly, your president has appeared before our legislative committee on pre-budget hearings, finance, making that very point, that there is very significant underfunding.
The auditor goes on to say: "However, we noted that in fiscal years 1988 and 1989 the university had accumulated an operating surplus of well over $50 million, which was transferred to a restricted fund. As we have no access to restricted funds, we were unable to determine the accounting controls or subsequent disposition of the transfers to these funds. In fact, during our audit at Toronto, we were aware that an employee was facing court charges for misappropriation of restricted funds. The employee was able to misappropriate about $175,000 over a five-year period. The misappropriations went undetected because of a general lack of control over fund receipts and the absence of audit of such funds."
Quite frankly, when I read this from the Provincial Auditor and I hear your earlier remarks about the controls that are in place, I remain a little confused and wondering who to believe here, whether the underfunding situation is as dramatic as is described and, second, whether the controls that are in place are working as effectively as they should.
Dr McGavin: Thank you very much for the question. We are aware of this, and let's stay on this topic until you have complete satisfaction. I think there are some important issues here. I am going to ask the president, Rob Prichard, to go over the details with you in the detail you would like. Let's sort this thing out right here and now.
Mr Prichard: If I could take what I think is a detail, but I think it is important to separate it here, which is the reference to the misappropriation of funds, I would like to be very clear on that fact, because it is, I believe, unrelated to the other matters from which you are reading.
That involved an employee, a number of years ago, engaging in clearly fraudulent conduct which was eventually caught. The person was prosecuted and the funds were reimbursed to the university by insurance to replace the lost funds. It was a clear case of fraud by an individual employee. It was clearly wrongful. Like any large institution, like a bank, like an insurance company, from time to time -- fortunately, touch wood, infrequently -- you get a very seriously dishonest employee who steals from the institution. It happens, regrettably, in any large institution. It happened at ours.
I am pleased to say that case was dealt with satisfactorily. The person was successfully prosecuted and all the funds were recovered from insurance. That situation clearly should have been caught faster than it was. But I want to make clear that that situation is totally unrelated to the other matters described here, coming through the discussion of the underfunding and the accumulated surplus. This is a completely unrelated matter.
On the question of that particular employee, of course it then led to a review of what procedures we use for receipts of funds. I can tighten, tighten, tighten, as any institution should, but I would not hold out to you that over the next five years or 10 years there will not be another employee, I regret, who will steal from our institution, and no matter how good our controls we will not be able to find it. I am pleased that it was dealt with properly once the employee was caught stealing and it was dealt with appropriately.
Maybe it would be helpful if I answered any more about that particular incident, if that would be helpful to Mr Daigeler.
Mr Daigeler: My point, really, in raising this here is that the auditor is using this example as evidence for his claim that he should have an enlarged mandate to look at the operations of the universities.
Mr Prichard: My answer to that, sir, would be that the breadth of mandate of the Provincial Auditor will not affect whether an incident like this occurs again in the next 10 years, just as various municipalities -- it will not, in my view, catch that if there is sufficient fraud and coverup of the fraud and falsified records, unless you have an audit that goes right down -- a deep, deep audit triggered by some expectation of impropriety, which, of course, is how cases like this are caught. Someone is living above her means, someone is doing something. Then you get a trigger. Then we have an internal audit group that goes in and looks at every cheque, every document to find the forgery and it is dealt with. My own view would be -- it is, of course, only my view -- that the fact that from time to time there will be a case like this will not help you decide the appropriate breadth of mandate of the Provincial Auditor.
Mr Daigeler: I will have to ask the auditor later on about this, but I am going not so much on the fact of this misappropriation but by the conclusion the auditor drew in his report, where he says, "The misappropriations went undetected because of a general lack of control over the fund receipts and the absence of audit of such funds." I am not here to judge whether this is accurate or not. I am just going by the fact that here is a public document in which the Provincial Auditor is saying this. I can only assume that he has reason to believe that if he were from time to time allowed to do these wider inspections it would not occur. Perhaps we want to move on the other point.
Mr Prichard: Mr Chairman, to the clerk, if you would like a more comprehensive background on what this involved, all the newspaper reporting, all our reporting, the new controls we put in place, I would be happy to provide that to you. Again, it was an issue we publicized, we reported to the newspapers, we reported to our governors, and we have done what we can to try and minimize the likelihood of it. Our interest as an institution in ensuring that these incidents are minimized is no more or less intense than the Provincial Auditor's, as is true of any public or private institution. I start with this, simply because I do not personally believe -- I defer to your judgement, of course -- that this incident is helpful on the general issue of the appropriate scope of the provincial audit.
Mr Daigeler: We can move on to the other question of the operating surplus.
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Mr Prichard: You asked about the surplus. At the risk of taking too long, the only way I can answer this is to give a quite detailed financial answer to explain the origins of that surplus and the disposition of the surplus and the reasons for it. With your indulgence, Mr Chairman, I would like to work through those numbers. I have some notes prepared to help me.
The auditor refers to two years of operating surplus, of $32 million in 1988-89 and $22 million in 1987-88. In the interest of clarity, why do I not take the bigger of the two years? They are conceptually the same, but let me take the year in which the number is the larger. I should say that we do not disagree. We accept the auditor's numbers on this. There is no disagreement about numbers. The only question is to put that number in context, understand it and interpret it in terms of your question about underfunding.
The surplus recorded of $32 million is composed of four components, if you will. It is made up of four different lines in our financial statements. I will round off the numbers, just to give you a sense, because the hundred thousands do not affect the outcome.
It is made up of $1.8 million that was used to reduce the prior year's accumulated deficit; second, just under $500,000, which was used to reduce the operating deficit in our ancillary, associated with the University of Toronto library; third was made up of $7.5 million, which represented funds that had been committed but not actually spent, purposely. The two largest of those purposes, simply by way of illustration, were:
At the end of the fiscal year, commitments had been made for repair of buildings where the contractors had not yet arrived to do the work and therefore collect a cheque; the commitment was made to spend the money, but it was not actually paid to the contractors because the work had not yet been done, but the money had been notionally spent. The second major area was outstanding purchase orders for books in the library, where there is often a delay between the purchase order and the arrival of the books, going over the end of the year. But the $7.5 million in total represents commitments already made but not yet paid, the cash not actually flowing out of the account.
Those first three numbers together that I have given you, paying down two deficits and the forward commitments already made, amount to $9.7 million. The remainder, approximately $23 million, arose in 1988-89 as a result of the situation of the university's pension plan and Department of National Revenue regulations governing contributions to the plan. In that year, the pension plan was in surplus. That led to a negotiation with our employees, the faculty association, which led to an agreement whereby various pension benefits were enhanced in that year. In particular, the level of indexation of pensioners and some adjustment of long-term pensions were improved.
It was also because of the size of the surplus that we were not able to contribute our current service costs that year to the pension fund, because the surplus was larger than the maximum permitted. As a result, what we did with that cost line in our budget of $23 million was that instead of putting it into the pension fund, we put it into a restricted fund, outside the pension fund because it could not go into the pension fund, and we then used the income from that restricted fund to flow back into the operating budget. We expended it into a restricted fund, with the income, then, from the restricted fund coming back into the operating budget.
So when the Provincial Auditor and our auditors report that, that $23 million is not an expenditure for operating purposes, just as the $7.5 million is not an expenditure for operating purposes but funds dedicated to a specific purpose. Those together amount to $32 million. So the statement is correct that we had, for accounting purposes, an operating surplus of $32 million, incorporating those four headings. You might then say, "I understand why you'd pay off your deficit, since you'd already accumulated it." If we get into deficit, it gets deeper and deeper or we try to pay it off. So we tried to pay it off "I understand why there are forward commitments, but why would you put this into a restricted account and only spend the income in the operating budget each year? Why would you do that, instead of spending it all in that year? Why wouldn't you just spend down the $23 million?"
The reason is as follows. It was the judgement of our administration, endorsed by our governors -- there are no secrets about this -- that because of the new liabilities we had incurred in agreeing to enhancement of the benefits to the employees, which would represent a continuing cost for ever -- because current service costs are not just a one-year matter; they continue for ever -- we had to make corresponding provision for the operating budget that would allow us to continue to meet that cost as we go. So rather than spending it down in a single year and at the end of the year, having spent the money, not having the capacity to meet our liabilities, which are in effect for ever, for which we get no enhanced operating support, what we should do was put the money in a restricted fund and spend the income from it each year to meet our new liabilities.
From a point of financial management, our liabilities were increased, and our income stream was increased by an appropriate amount. It was the judgement of the administration and of the governors that that was a prudent response to a one-time event, which was more prudent than spending it down and then leaving us with the liability in future. That is why there is a surplus in the accounting sense. As I say, there is common ground between the Provincial Auditor and the university. There is no difference in the numbers.
The question is then, and I am quite happy to answer further questions on that explanation, what does that tell us about whether or not the university is underfunded, as I described in my appearance before the committee downstairs last week, and my counterparts have done the same and the newspapers have done the same and the leaders of the parties have done the same?
For that, I think I would say that I cannot improve upon what the deputy minister said to you two days ago with respect to his assessment of the funding available to the universities of Ontario relative to other Canadian provinces. What I can perhaps do, just to supplement that slightly, is to give you a sense of the disparity a university like the University of Toronto feels, which is distinctive because of the scope of activities of the university.
The University of Toronto is a member of an organization called the American Association of Universities, which is the 50 leading American universities, about half public and half private. It is Princeton, Yale, Harvard, Stanford, Chicago; but it is also Michigan, Berkeley, UCLA, Ohio, Pennsylvania State, Michigan State. It is the great public and private institutions of the United States. There are 50 of them. There are two non-American members that have been admitted to membership in that group. Those are McGill and the University of Toronto. Those are the only two non-American members.
In that company, when we compare our resources to the public institutions -- not the private institutions, the public institutions -- the disparity of support for our university relative to them is the most striking of all. The disparity between Michigan and Michigan State and Pennsylvania State and Ohio and Illinois and Berkeley and ourselves is absolutely devastating, in terms of our capacity to compete with them to be among the fine universities of the western world.
The number that perhaps best captures it is that on a per student basis the University of Toronto receives 40% less per student than the average of those public doctoral institutions. That is leaving aside the extraordinary resources of the private universities. With the public universities, our funding is 40% less per student.
This is not the forum, I am sure, for me to give a more extensive treatment. I would refer you to the transcript of what I said last week, and I am happy to provide you with speeches and any detailing of this you want on comparative indices. But in my own view this disparity is absolutely critical to the health of our university. Indeed I would say on behalf of the other universities of this province that it is a policy which over the long term will not only damage Ontario's universities, as it is now damaging them, it will greatly damage the economic, social and cultural welfare of this province, which in my view is intimately linked to having a healthy post-secondary sector and having some institutions which can rank with and compete with the best institutions in North America, particularly at a time when we have now exposed ourselves as a country to open competition with the rest of North America. To leave ourselves so constrained with respect to the support for our post-secondary institutions, my own view, no doubt influenced by my current job, is that this is a tragic policy for the province.
My short answer to you, sir, would be that there is no question and no ambiguity on the question of the severe underfunding of Ontario's universities. I believe that is common ground among the deputy minister, the minister, the Premier and the leaders of the other two parties, but it is for each of them to speak and not just for me. I think it is a tragic situation.
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The Chair: We have to move on. Mr Hope.
Mr Hope: Just one thing I have to get clear out of all the wording you just put across. Have you taken the surplus of your staff's pensions and are you using it to put it in a special fund?
Mr Prichard: No.
Mr Hope: Just do not go into an explanation. I just wanted to get something straight here because when you talk about pension surpluses --
Mr Prichard: No, the straight answer is no. No dollars were ever removed from the pension fund --
Mr Hope: We would not become friends for long, I tell you.
Mr Prichard: -- and no dollars will be removed from the pension fund.
Mr Hope: Dealing with your university, and I am referring back to page 5 when you talked about "a university which does not strive to provide the best possible teaching, research and public service," as one who has been an adult educator within my organization, working on a large number of people sitting in a room and doing lecture style, I guess I have to ask the question, is that quality education, when you have a whole bunch of people? I do not know what the numbers are. The only lettering I have after my name is MPP. I never went to university or college. I guess I have to ask that question to you. When you fill a room full of people and you have one facilitator instructing or educating a group of people, I guess I have to ask the question, what is the quality of education that is actually being absorbed by the individual sitting there?
Dr McGavin: Let me take a start at this. Education is not just something that is given by somebody. It is something that is taken and something that is desired and something that is very much dependent on the individual sitting in that classroom. At some point along the way, and I do not know what grade it happens in, sooner or later people say, "Education is your responsibility." At that point in time, the individual either takes that view and moves on or does not and quits education. My point there is that it very, very much depends on the individual sitting in that classroom.
Quality education, I wish we could measure it. I want to ensure that the University of Toronto provides the best quality in everything it does and when the individuals, through the mail or through some other process, sign up for a course on writing or Mao thought or English or history, they generally hope that they are going to get the best possible education they can have. I think that is what you are talking about. It is up to the university to provide the best people we have in a room that is going to be comfortable enough, not leak and not be too warm or too cold, and to provide other means to ensure this education is proceeding, through providing library facilities, through providing duplication facilities, proper procedures. All of these things take a tremendous team effort with everybody involved, not the least of which is that individual who wants to have an adult education or be part of the continuing education process.
The University of Toronto believes that education is a lifelong process. Last year we gave an honorary degree to a woman; she was only 100 years of age, working on a degree. She epitomized lifelong education.
Mr Hope: Some of us thought it was going to take us that long to get through the university.
Dr McGavin: She did not start when she was 14. She is a terrific person -- one of the prouder moments in giving an honorary degree. But she always expected she was getting the best. I hope that they are getting the best.
I am getting a little worried now that they might not be getting the best. We are cutting now to where we are cutting into the future of this province. When we cut back on research money, when the transfer-payment numbers come down, if they have not drifted in here already, when the budgets come out and once again we are cut back a little bit more, it says a whole lot of things but it tells the great minds in the high schools, those who want to go on for continuing education, that maybe it would be better to do it some other place where there is more money being given to research, where professors are being attracted and being stimulated by the dynamic of higher education in this province or that province.
There are instances out there where people are sitting between seats, where they cannot get material duplicated. This is not because there is some other group out there squirrelling away some money somewhere; it is because we are having to cut back and we are having to rely very much on the individual who is sitting in that chair saying, "I'm going to make sure that regardless of these constraints, I'm going to get a quality education." Not everybody is that motivated.
I hope that we are providing a quality education. If we are not, I want to quit it. If we cannot do it, then we do not do it. It is getting tough, the lateral thinking -- the imagination of the administrators and the people involved in the University of Toronto is flat out, working as hard as it can to provide quality education. I hope we are doing it. I do not know if that answers your question or not. It is tough.
Mr Prichard: In supplementing that response, I think the quality of education in Ontario universities is less good than it was five years ago. I say that of my own university as well. I think the overcrowding of the university has significantly contributed to that decline in quality.
Mr Hope: Overcrowding in what sense?
Mr Prichard: Overcrowding in the sense of having more students to accommodate than the resources, both physical and human, of the university can properly support to provide a first-class experience. I do not measure that by a single class size. On your very specific question, I believe a very large lecture hall with a very large number of students in it and a fine professor can, as part of an education, be a valuable contributor. I personally am not opposed to having classes of 1,000 or 1,200 students in our Convocation Hall if it is part of an experience that also includes then breaking out into small groups, into tutorial sessions, into labs and the like. I think that diversity, taking advantage of the economy of scale, of having an excellent lecturer imparting general lecture as part of a learning experience can be an effective part of learning. Indeed when it is in that context of a diversity of educational experience and it is one part of it, our student response to it is really quite positive and I think it is quite an effective way to teach, if it is part of it.
What kills us is if the scale of the operation in all aspects of the student experience is so large that there is never the individualization of the learning experience, never the time when the student is called upon to speak, the student is called upon to write and get feedback on the writing, where the student has to work it through with the teacher or with the teachers. It is the loss of that experience as part of education which is so damaging, and similarly, on the non-academic side when, because of too many students and a shortage of human resources, where a student who needs guidance, who needs counselling, who needs help, who needs tutoring, who needs help to make sure she makes it through or he makes it through, it is in those areas where the quality of education most suffers, not per se simply the fact that some of our classes will be very large.
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Mr Hope: Well, I guess why I posed this is, coming from the labour movement and representing parents whose children may be in university if they continued and had the finances to do it for them, what I look at is, number one, the student aspect. We talked about accountability also financially and I think we have a moral obligation too as politicians to make sure that proper education is formulated. It is bad enough that a lot of us are getting grey hair sooner than we wished to get them but --
The Chair: You will get them a lot faster here, believe me.
Mr Hope: Well, the Liberals gave them to me the last five years so I guess I can live with them now.
The Chair: Oh, now, now. This is non-partisan, this committee. He said "the Liberals."
Mrs Cunningham: For shame. You are the one who talks about the non-partisanship of this committee.
Mr Hope: Okay. I will drop it then. I guess what I am looking at is dealing with the attractiveness of your university to a lot of people of rural Ontario. It is a different lifestyle for a lot of children moving in, and I guess what I am looking at is the extra strain that is maybe put on to a student. You talk about the thing outside the classroom where I am sitting in my room and I am thinking, "God, I wish I had asked this question," because there is many a time, as Dianne can verify, when I have said, "Dianne, I wish I would have asked this question." She says, "Good thing you did not ask it," but at least I have always wanted to ask that question.
The Chair: Why not ask your mother?
Mr Hope: I guess I am kind of wondering about the educational process, because as we see what is happening with our federal government's initiatives to enter us into a world market, in North America or whatever you want to call it, which is making us -- and you hit it on the nose a while ago: competitiveness. It seems to be the key issue. I guess I worry about the word "competitiveness," but you know, I am looking at, number one, our universities and our community colleges providing the future of Ontario through technological change, which is a key thing in which we are vastly behind the rest of the world, and I think it is very important.
I just feel that more personal communications with instructors and facilitators to the general students in developing a higher quality -- you talk about competitiveness and you always hear about them. I have come from the automotive sector. It is about corporations talking about being competitive and talking about quality. I am looking at quality as that aspect of the communication and dialogue between a student and the facilitator.
Mr Prichard: I agree with you, sir. I agree with you.
The Chair: I am sorry. It seems as though I keep cutting you off, Mr. Hope.
Mr Hope: I know you do.
The Chair: I do not mean to do that and I am sure that they would like to respond because there was another committee at which you responded in the same vein, but I think we have to sort of stick to what we are dealing with.
Mr Hope: This is what we are dealing with.
The Chair: Well, we are in a sense and we are not in a sense, I suppose.
Mr Prichard: I agree with Mr Hope's comments.
The Chair: That is a quick response.
Mr Hope: Thank you.
Mrs Cunningham: Dr McGavin and Professor Prichard and Dr Castrilli, it is good to have you here today. The auditor's report, of course, is the subject matter of the committee, so I will try and stay on topic if I can. It is very difficult, especially for me at any time. I admit it, at least; there are others in this room who do not.
I will also say, having listened to your presentation on behalf of the Council of Ontario Universities at the finance committee last week, it is the irony of talking about the tremendous challenges that the universities have and the competitiveness of our students attending our universities and others, the tremendous dilemma, but I have quoted you frequently since, so I thought you did a magnificent job on behalf of the constituents that you represent.
Dr McGavin: Thank you.
Mrs Cunningham: I do not know if anyone has asked this -- and Mr Chairman, if they have --
The Chair: I will cut you off.
Mrs Cunningham: -- I will give you permission to cut me off.
Mr Daigeler actually started on this particular document. It is the last page of the 20 December one, and I am not sure if he has included the last page.
Mr Daigeler: No, I was getting to that at the end of --
Mrs Cunningham: You got this from me, right?
Mr Daigeler: That is right.
Mrs Cunningham: So in fairness to the auditor, no matter what side one is on right now, he talks about the enabling acts of the universities. You have heard my colleague Mr Cousens, who I wish would listen to me in the way that Mr Hope does from time to time. But I will say that there are legislative problems around who looks at what. I believe that we do have the responsibility, certainly as elected persons, to make sure that public funds are spent accordingly. I share, I think, what I heard is a concern from your chairman that if we get into the private stuff, as a person who has to raise money for public institutions, we would not have a hope in heck of raising any if we at the same time had to put it towards the operating grants of our universities. So I share that.
The first point is, the enabling acts pretty well tell us who can do what. Basically the auditor takes a look at his role as the management of the public funds of the institutions.
In looking at the reports that we received on all three universities, at first glance and without a real knowledge of how universities work, the headings alone are, I think, shocking. You heard just the one example that my colleague used, and you should have heard the one that he used this morning as an example of the kinds of things the public is really concerned about.
I would like you to respond to what you feel would be appropriate beyond the scope of the auditor, if anything. That is the first question.
The other point that was made, I believe probably by you, Dr McGavin, was that you have your external auditors. I would share the auditors' view on this that basically they comment on what has been fairly presented by the universities in their reporting. I am wondering whether they then, from your point of view, should be given more of a role by the administration of the universities in making certain that the universities, where they know the rules of the government -- because they did not always know the rules -- comply with the rules. Because obviously there were some rules around the basic income units that were not followed correctly. But more important, there were policies of the universities themselves that were not followed, in all three audits and not just at Toronto. So perhaps you could respond to the role of the external auditor in some way.
The last one would be this: If you had your choice, would you want --
The Chair: This is multiple choice, by the way.
Mrs Cunningham: No. I am asking you three. Then you do not have to --
The Chair: All right.
Mrs Cunningham: The third one is, if you had a choice, and this committee has to make some recommendations -- rather, I think we have been given some choices here -- do we look at changes in legislation -- which I think Mr Cousens might want, I do not know; do we look at more efficient monitoring by the ministry itself of the funds that it in fact, I think, should be responsible for, or do we look at another audit process? Why should we have to wait for inspection audits to point these things out with the work of the auditor? We need adequate monitoring by somebody, either the external auditors of the universities themselves or by the ministry offices.
I hope it is not complicated. I tried to stay with the three points. I would appreciate your views so that in our further deliberations we can get them clarified.
Mr Prichard: I will take the first and third questions and my boss will take the question that you directed specifically to him on the role of the external auditor. Our external auditor is with us if you want to put any questions to him about what increase in his role he would find helpful.
Mrs Cunningham: I would appreciate that.
Mr Prichard: On the first question, what is appropriate beyond the Provincial Auditor, my own sense is the answer for us and for the system is that indicated in the chairman's final paragraph about performance. My own view is the challenge for us is to find ways to benchmark our performance, set goals for performance and measure ourselves against them. That to me is the challenge for us -- just the way Xerox had to set quality goals for itself, measure where it was, set a plan to improve and then measure that improvement, just like any well-run organization sets goals for itself, sets out ways it thinks it can measure them quantitatively and qualitatively and then does it.
What I have said, from the beginning, from the day I was interviewed by the chairman as to whether I might be given this job, and through things I now say on the campus -- I am beginning to open up with the campus -- is: How can we better measure ourselves, benchmark ourselves, see where we are, ask ourselves where we want to be and then measure whether or not we are getting there?
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That is something we should do regardless of what you as elected representatives do. If we do that well internally and then share the result, my guess is, once one gets beyond the financial integrity, which is, I take it, the Provincial Auditor's current responsibility, there is no difference there. We are talking about the effectiveness in meeting our mission, defining our mission and meeting it.
My own view is that our development of measures of our performance is the key to it. Having said that, I want to immediately caution that the wrong side of performance measures is to encourage everyone to look alike. As anybody who has ever had to listen to me for more than five minutes knows, I think the key to a strong Ontario university system includes diversity of institutions.
You had one before you this morning with a very special mandate, a magnificent mandate of undergraduate education. My own view of the view of the future of the university system in Ontario is that that should be continued, encouraged, invested in and measured against those standards. It would be unwise to take the performance measures appropriate to Trent and necessarily apply them to my own university and vice versa.
The key in developing performance measures and monitoring those measures is to build in from the beginning the diversity that I think will serve Ontario well, with different institutions negotiating a mandate with the government as to what it is going to try to do rather than being asked how you are going to measure whether you are doing it and then reporting back on how you are doing. For me the answer is diversity but measures of how well we are doing quantitatively and qualitatively. That would be my answer to the first question.
On the third question, the question of the integrity of our financial accounts, on that limited mandate of the university, I would defer much to the Provincial Auditor as to whether he thinks, on the basis of the three that have been done in these hearings, there are other steps you can take to expand it to the other universities, to increase the frequency or whatever. We have no reservation about that. Anything we can do to reduce the frequency of financial difficulties for ourselves, we are in favour of. If that is the judgement, we are not expert at that. We would welcome that if that would increase it.
On the question of the improved performance of the university, as opposed to the integrity of our financial reporting, spending every dollar we received for the approved purposes, my own judgement on that is that the answer will lie in a variation between one and two, which will be a forcing mechanism that forces each institution to measure itself and then measure its performance over time against goals and report on that.
My sense is that you need a version and a variation of the Ontario Council on University Affairs as the buffer to insist on that performance, to insist on definition of mandate and then measurements against it. That might require a legislative change. It might require more monitoring by the ministry. It would, in my view, best be done in a way that is sensitive to diversity of institutions and the quality of the performance of the institutions.
That is what I would focus your attention on beyond the financial integrity on which I defer to the judgement of your auditor as to what more steps could be taken and up to the judgement of the chairman and our external auditor as to other steps that could be taken to ensure every possible precaution that is cost-effective against lack of accountability and integrity of our financial system. Our interest in that is equally as intense as the government's, Mr Chairman.
Dr McGavin: I would like to get to your second question but just say something on what is referred to in university language as outcomes, assessments and accountabilities, to say that the University of Toronto for some time has been a member of the Canadian Universities Data Exchange Consortium where this issue is debated with some vigour. These types of performance indicators are used quite extensively in some states in the United States; maybe 15% or 20%, it is hard to say. Whether they are a carrot or a stick, it is hard to say. Again I caution exactly what President Prichard says: They have to be used with care. I would like more of these measures, just for our own internal evaluation and progress and performance evaluations. I have spoken to the president about that and I think this is proceeding.
To answer your question about the expanded powers of our external auditor, he is a function of the audit committee which is a committee of the business board. Basically, we can ask anything of our external auditor. We can ask him to expand his role in any way we like. To this end, we are grateful to the Provincial Auditor for coming through. We have raised some issues. They have taken a look at a few things and, indeed, through that whole process the external auditor has been alerted to some other issues and we will be checking on it. Basically, we can ask our external auditor to carry out any analyses we like through the audit committee of the business board, again a very open procedure. We do not have to ask the president, "May I?" We do it. That is the way it works at the university.
The Chair: I think we are going to have to --
Mr Prichard: The auditor, if it were possible, did have something he wished to say on this specific question.
The Chair: Sure. Please identify yourself for posterity.
Mr Clarkson: My name is Geoffrey Clarkson. I am a partner of Ernst and Young and I am the partner responsible for the audit of the University of Toronto.
In regard to the question of expanding the role of the auditor in the universities, the process is already starting in connection with the audit of the various excellence funds. The ministry has asked us to report directly to it on certain funds which are allocated to the university. In the case of the enrolment audits, we report specifically to the ministry, and there is no reason why audits of specific funds cannot be expanded and we can report on it.
On probably a broader issue, which I think is what you are focusing on, the question of comprehensive auditing or value-for-money auditing, all of the major auditing firms now have experienced staff who have been experimenting with and developing techniques for measuring criteria to measure whether money is being spent effectively. I think that this would be a group who could provide a lot of help to universities in developing standards for measuring outputs and input costs.
I would just point out that one of our partners has just been made the Auditor General, Denis Desautels, and his experience was focusing on applying value-for-money auditing in the government sector. I would think that this is the sort of thing you are thinking of.
Mrs Cunningham: Just as a supplementary, because I think it is going to be key to our own recommendations, my experience on a school board for some 15 or 16 years was that the auditor did exactly what this auditor said, passed comment on whether things were done well or otherwise, but I do not remember him talking about our own policies and whether they were efficient. I can be specific.
If you take a look at the table of contents -- I will just read a couple of them -- you read this: "Competitive quotations policy not followed." This is under "Purchasing and Payment Practices." "Purchasing department bypassed." Another one was "Tendering policy not followed for capital projects."
The university has responded to us on that, so I am not interested in whether that was good or bad. I am just asking you as the auditor, do you have an opportunity or have you in the past -- forget Toronto because we are talking in general now -- would it be a normal part of public audit, either in school boards or colleges and universities or hospitals, to pass comment on whether institutions are following their own processes that they have in place?
Mr Clarkson: Some of those; not all of them.
Mrs Cunningham: Some of them. I guess my point is that we could be saving everybody a lot of time and money if somebody looked at the role of why you pay an auditor and what you want him to do. Actually, I think a manager of a department should be doing that. That would be my view. In the perfect setting, the manager should be responsible and if he does not do it right, fire him. But I do not see a lot of people being fired in public institutions and I have been around for a long time. Maybe managers nowadays just need you to be the scapegoat, so to speak. Sometimes auditors are afraid to do that too because they do not get a job the next year round.
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Mr Prichard: These auditors are not, I can assure you.
Mrs Cunningham: We represent the public, so that is why we are asking these questions. You just might want to make a comment on my facetious but realistic observation.
The Chair: We are the only public service. We get evaluated every four or five years or sometimes earlier than that in fact.
Mrs Cunningham: Our chairman is very sensitive on that topic.
Mr Clarkson: My own experience is that we do favour a place with money limitations on the type of audit we are doing so we audit basically receipts and disbursements to make sure that they are all right and that the financial statements present fairly.
When you get into some of these other accountabilities like the purchasing system, we do not get into them. It would be very easy for us, if we are instructed, to add that to our terms of reference, to spend a week or whatever it may take to do that work.
In terms of being challenged, they report everything we do. At U of T in particular, they have had a history of having, almost to my annoyance, senior partners of other firms who are always asking the tough questions to make sure that we are getting into the areas that should be reviewed, and I think it has turned out to be very useful and to the advantage of U of T.
Mr Prichard: I believe it is also the case that the audit committee, led by these senior partners, insists on meeting with the external auditor, with all university employees excluded, to report, so there is no question of influence, and to have that once a year. It is also the practice of the external auditor to meet with the president once a year to review in private his concerns about the integrity of the systems of the university, including matters of a rather broad mandate. I have had my first such experience with the auditor where he does it with no vice-president there, no one else there, but simply tells me, "President, these are the matters on which I believe you need to attend over the next 12 months and I will be reporting back to you in 12 months as to whether you have."
Both of those experiences, dealing with the audit committee with no one including myself there and then dealing with myself with none of my colleagues there, are I think very important mechanisms, constantly looking for ways to enhance the integrity of our system.
Mrs Fawcett: I really want to say that this has been a pleasure to be on this committee and listen to the testimony of the three heads of the universities. Certainly there are problems out there. Definitely we want to keep our competitive edge. It does seem to be getting rather dull, and we want to finely hone it.
Getting back to the funding and the way that the province funds, the testimony certainly points to the fact that there are discrepancies in this funding weight, whether it is students or whether it is subjects, and how some universities seem to be averaging the weights for different kinds of subjects and it is rather confusing.
One question: I wondered who it is that decides on that weight. Just basically, it would seem that universities are underfunded, yet I do not know where the money is going to come from. But is this system the right one? I would like your comments on that. Do you envision a better system, or is this the best way to do this?
I have to come back to the auditor concluding that, in the one area, the U of T did receive significantly more funding than the other universities, and the ministry had said that if you had used the blended weight possibly you would not have been overfunded. I am just wondering about your comments there.
Mr Prichard: Let me deal with the third question first because I think it is important for the record to repeat what the deputy has said with respect to weights used. It is the case that the auditor himself says: "On the whole, we found enrolment data reported to the ministry for the 1989 fiscal year were accurate within tolerable limits. The university also complied with established guidelines in all significant respects." The deputy has confirmed that. I believe it is important to us because again it is an issue of integrity that in every respect the reporting on the weights was in compliance with the ministry guidelines, was approved by the ministry, and that subsequently the ministry has further confirmed that our behaviour was proper.
We recognize that the auditor has said that he believes some of the ministry's guidelines were uneven and differences in those should be straightened out, and we have given our full support for that. Indeed, already, effective 1 November 1990, our enrolment report is now is accordance with the new regulations, which have been established system-wide. But I do want to record that there was no claiming of enrolment by the University of Toronto that was at variance with the ministry guidelines applicable to the University of Toronto.
Furthermore, I think it is important on this point to report what the Ontario Council on University Affairs, which is your independent advisory agency, not the University of Toronto, has reported on this question: Did the University of Toronto, over the relevant period of the last 10 years, receive a disproportionate share of funding as a result of the ministry having different guidelines in place for different universities? The unequivocal answer is no on that question from the OCUA's report on this question.
The report, for the record, being "the study of differentiation between honours and general programs in arts and science," figure 1 from that report graphically describes OCUA's position that if there was any disproportionate sharing, the University of Toronto lost rather than gained from the sharing as a result of the blended weight. I would be happy to provide you with the full tables and the documentation of that position. I do want to be clear that all claims were consistent with the operating manual and, to the extent that there was any disproportionate share, it was not to our benefit.
On the earlier questions, you asked a very important question, in my view. Is the current enrolment-driven funding mechanism the most appropriate? My answer to that would be no, if it is taken as: Is enrolment funding, as the sole basis for distribution among universities, an appropriate mechanism? I would say no. I think it is insensitive to the range of tasks that different universities undertake, the different government purposes which are pursued.
My own view is that some of the envelope funding which is distributed on grounds other than enrolment, for example, research intensivity of the university, is entirely appropriate, and I endorse that differential basis because it is more likely to enhance the diversity of the system by recognizing that not all universities are alike, they have different mandates and so different bases. The University of Toronto would support some disengagement of enrolment from distribution reflecting the multiple purposes of the universities rather than the sole purpose, which is counting students.
On the question of who decides on the weighting, the Ministry of Colleges and Universities decides, and the minister, on --
Mrs Fawcett: Do you have input to that at all?
Mr Prichard: The OCUA often holds hearings to which we make submissions, but the decisions are the government's, not ours. On the final question of who pays, I refer you to my testimony last time, suggesting that the public purse cannot pay it all and we need to have a sharing of the burden of a plan of recovery for Ontario's universities.
Mrs Fawcett: Just as one specific one, because there was quite a thing on the commerce programs in the auditor's report, I just wondered: Can a first-year student enrol in commerce and then be counted as a commerce student, or is your first year of commerce really like general arts and then you go in?
The Chair: I think the objection was that they said they were using pre-commerce as a call for commerce.
Mr Prichard: A student in first year at the University of Toronto cannot be "in" commerce, in the narrow sense of that word, that is, the formal "program." The admit-to-program decision is taken the end of the first year and the beginning of the second year, so in a narrow sense, the student cannot be "in" commerce.
In a slightly broader sense -- is the student engaged in a four-year program leading to the bachelor of commerce? -- the answer is yes, in that the student must in first year take courses that are consistent with the four-year requirements for commerce. The ministry's test, as you know, is: Is the student behaving in a manner consistent with being a commerce student, that is, in terms of the courses chosen to be on the four-year course? So the answer to the question of classification is: Is the student taking a program which is a necessity in order to complete the program, once admitted to the program in commerce and then complete it? Is the student taking that set of courses? If so, that student is classified as, in effect, pre-commerce because it is part of the integrated, four-year requirement.
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I should also say, for the four-year requirement of courses -- again, it will not surprise you, I happen to have the information in front of me -- in terms of the percentage of courses required for a student in commerce at the University of Toronto over four years, we are well above the provincial average of the commerce program. Actually, we are well above the provincial average for the commerce content of the four years.
Mrs Fawcett: And some of that content would be in the first year.
Mr Prichard: Some of the content is in effect in the first year, but we also, in our commerce degree, require students to take 23 courses, not just 20, the usual four-year degree, and three of those courses are not funded by MCU, because they are in addition to the 20-credit limit. We add three more on in the last three years so the student has 23 courses to get the four-year degree in our commerce at our university.
Mr O'Connor: This has been a very enlightening week, as was mentioned earlier, having so many learned people talking to us all at once. It is a remarkable change from my previous life, as some of my predecessors have mentioned. But one thing confuses me a little bit. As we try to respond to the audit and what not, something that bothers me is the complexity of this manual for the basic income units, the allowance of the envelopes that might not -- perhaps you are not getting the best value for the dollar, because we are responsible and that is what the auditor is trying to do, put some weight on that value. Perhaps you could respond to whether you think we are getting the best value with this system. This system, I know, has just been updated, but perhaps it needs to go beyond the update and needs to be completely revamped.
Mr Prichard: With the permission of the Chair, I would like to not answer that question now, because I am six months into this job. One thing that distinguishes you, sir, from me is that you have actually held that manual in your hand and I never have.
Mrs Fawcett: We can give you a copy.
Mr Prichard: If you would permit me a week to prepare a letter responding to that question and submit it to the clerk, that might be a more informed answer than I could give you today.
Mr O'Connor: The second part to that question, then, would be the economy of scale. Class sizes were mentioned earlier, that the smaller universities, because of their mandate and the way they operate through their bylaws or constitutions, have smaller class sizes. If all the students are getting funded in the same way through the guidelines set out by the ministry, yet the size of the classrooms is much larger and we have 1,000 students receiving funding as opposed to 50 students receiving the funding, perhaps you could enlighten me as to the economy of scale, that there is not some way we can approach this. The public expects us to respond, and I think you as well, so perhaps we can try to address this a little bit.
Mr Prichard: There are two distinctive differences. The first distinctive difference that is permitted in the large university like the University of Toronto is reflected in the breadth of programs available and possible because of the size of the undergraduate body, the breadth of disciplines represented across the university. Enrolment in those disciplines will vary quite sharply depending on current interest and current pursuits; some disciplines are more popular for a number of years and then others will become more popular as others decline. As you know, we are desperately trying to increase the relative science enrolment. The science disciplines are relatively underenrolled, the social sciences and humanities overenrolled. What is possible in the large university that is not as possible in the small is that breadth of representation of disciplines and, within disciplines, the breadth of representation of subdisciplines within the field.
The second distinctive feature which distinguishes the smaller universities from the large relates to the nature of the research enterprise. This relates back to my earlier question about how we fund universities. We fund universities basically on enrolment. The expenditure patterns of universities are driven by both the teaching and the research responsibilities. You can look at universities from the point of view of how research-intensive they are, that is, how much research per faculty member is taking place, and it is the costs associated with that research -- research is expensive to undertake and the grants received for research from the federal granting councils do not meet the full costs of doing the research, so the universities that have the large research facilities, the laboratories, the health science centres, have to invest in those in order to provide an infrastructure within which we then receive research grants, centres of excellence awards and the like. That is the second aspect of why a small, less research-intensive university is different from the large.
The consequence of that, though, in the context of our breadth of curriculum, is that there are some classes that are very large and some classes that are very small rather than all being of an average. If they were of an average, the average would be too high because of the relative disrepair of the faculty-student ratio that has occurred with the growth of enrolment.
Mr O'Connor: Do you believe it could be possible or should even be possible, given the broad diversity of the 22 universities, that there could be a manual such as this devised to try to be equal in its funding for individuals in the enrolment process, so that we are not excluding some people from maybe some of the diversity that is allowed at different universities?
Mr Prichard: I think the key is to link the funding support to the mission of the university and to ensure that the missions of the different universities are different, meeting distinctive needs, and to ask, ideally, what support is necessary to meet that mission effectively. It costs different amounts to meet different sorts of missions, so equality of outcome does not necessarily mean equality of investment. It costs much more to educate a medical student than it does to educate a law student. It costs probably four or five times as much to educate a medical student as it does a law student. It costs much more to educate a science student than it does an arts and science student. It is different.
So equality of opportunity, yes, but that will not lead you to equality of funding per student because of the vast differences of programs and the cost of delivering those programs. I would be happy, again, in the context of the response to your first question about the need for redress of the manual, to try to respond to that.
I should say that in all these discussions of this fall of funding of the universities, certainly I have tried to refrain and I think most of my colleagues have tried to refrain from intensive disagreements among ourselves about the allocation within the pool of funds available, because I think there is such common ground among the minister, the Premier and the other parties that the pool itself is inadequate. It is not a very healthy thing to do, with each university struggling as much as they are struggling now, to spend our time intensively on these distributional issues without first attending to the need for a plan of recovery.
In the context of a plan of recovery, to take seriously the distributional issues strikes me as making sense, but in the current context of the damage we are doing at each university through the attempts to respond to the deficits we have, I am not very interested in enhancing our situation at the expense of Trent or the expense of Guelph. I do not find it a very palatable exercise, even if I could persuade you of the advantages of that redistribution at present. Given the current financial circumstances, I do not think that is a very healthy line of pursuit of public policy. I would rather focus on getting in place a plan of recovery which includes within it wise, prudent distributional mechanisms to make sure the funds are being spent as effectively as possible among the institutions.
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Mr O'Connor: I can appreciate that. A similar response has been given to us earlier on questions like that. I look forward to your response to the first part and I think it will be very useful to us as a committee as we decide to make a recommendation.
Mr Prichard: The precise question is, would the University of Toronto welcome an overhaul of the yellow book? That is the precise question?
Mr O'Connor: Yes, precisely and --
Mr Prichard: One of my colleagues is writing it down.
Mr O'Connor: -- I think the envelopes that are special to your university, to the universities, in trying to make it as fair and equitable as possible.
Ms Haeck: Dr Prichard, it is nice to see you again.
Mr Prichard: Thank you. I should correct that. I am not a doctor. My father was a doctor. I am not. I go by Robert.
Ms Haeck: I was looking at your CV here. Anyhow, we will not get into your CV, by which I understand from some of your biography you have done great work.
I do want to turn to page 3 of your submission today, and possibly Dr McGavin can also illuminate me on a couple of probably more practical points as opposed to some of the discussion that has taken place earlier this afternoon. My librarian hat is going on at the moment. Item 6 refers to libraries. I understand you have one library out of the 60 that you have under the aegis of the University of Toronto that very regularly goes through and does an inventory of its books. In light of the auditor's comments, is there a way of ascertaining if the other libraries have a regular inventory policy in place and if in fact they anticipate following through on inventorying their rather large collections?
Mr Prichard: To give you a reliable answer to that, again subject to the permission of the Chair, I would like to respond to that question in writing to make sure I have the views of the chief librarian accurately recorded before I do so. She is a superb, internationally respected librarian. I would like to make sure I accurately reflect her plans with respect to the inventory arrangement and her views on what the tradeoffs are within it, if that would be all right.
Ms Haeck: That is fine. While it is not mentioned here, I do know from my other life that you had a rather large computer project under way. Are you any closer to getting the computerization process, the automation of your library systems, further along the road? I realize the retrospective conversion of that collection provided a rather substantial obstacle, which I think every librarian out there would fully comprehend.
Mr Prichard: This is a good-news story. We are in pretty good shape now on the automation of the catalogue and of the acquisitions system. I happen to have spent a big chunk of my own life in the last three or four years in this area, which is why I can answer with more confidence on this. It has really been quite successful and is quite well advanced now. It takes us back to the beginning, the early discussions with Mr Cousens. The principal source of financial support for the last three years has been what is called the president's fund, which is the funds contributed to the university by individual donors for undesignated purposes to be used at the discretion of the president. My predecessor for the past three years made the number one claim on that fund for further investments to complete the central library recon project and automation.
With that private support, combined with the base support that continues in the library, we are in quite good shape on that front. The challenge, of course, is to extend it out to all the smaller divisional libraries and fully on to the three campuses. We have not completed that task yet. There is a good deal ahead, but we have broken the back of it and we have now got a degree of accessibility to the collection both on and off campus by remote terminal from other users. Indeed I would not be surprised if there is a terminal in this building somewhere. I do not know the answer to that, but it is now in principle doable to be able to search the catalogue from distant locations.
Ms Haeck: So one can say that you are definitely actively working on making sure that you have a better handle on what is in your substantial library collection.
Mr Prichard: Yes, but that does not answer your specific inventory question, which is a different one.
Ms Haeck: No, I fully appreciate that. Item 2 on page 3, you mentioned a tendering policy and you are now following governing council requirements. Do you have sort of a base level at which it has to be referred to the governing council? When I was on another board, we dealt only with items of value of $7,000 and up. At what level do you actually, at the governing council, look at expenditures on tendering or purchasing?
Mr Prichard: Let me get you a precise answer from the person who is what we call the senior assessor to the business board, which approves all capital expenditures.
Ms Haeck: Sure.
Mr Prichard: This is Richard Criddle, who is the vice-president of administration and who serves the business board on capital matters. What is the minimum capital expenditure that must come before the business board, Richard?
Mr Criddle: There is no minimum. It depends entirely upon the nature of the expenditures. In the category of renovation expenditures, for example, they may be as low as $30,000 and they may be as high as $300,000. For capital projects which go through, there is again no minimum amount which the administration is allowed to spend freely. All of those expenditures go before the business board for approval before the contracts are let.
Ms Haeck: The reason I asked is that in fact under some of his comments relating to purchase and payment practices, the base amount that he mentions is $1,000. Do you look at anything that is of value of $1,000?
Mr Criddle: If I recall, the auditor's concern had to do with the disposition of equipment or the safeguarding of equipment and in their tests they selected items in excess of $1,000. It was those ones they could not find, rather than a contract process. The question of policy on contract tendering and the new policy that was passed by governing council had to do with a former requirement that those solicitations be advertised in the newspaper rather than distributed to competitive firms. That qualification was removed in 1989 at about the time of the audit.
Ms Haeck: From the tendering point, but from a purchasing point as well, do you look at what items are going to be purchased?
Mr Criddle: Yes. That does not come to the board on the purchasing side of purchasing of goods and services. There is a dollar limit above which those items are to be tendered, and on contracts the dollar limit for tendering is $125,000. Those having been tendered will not come back for approval. As the budget went through for the project, that total budget was approved on a project by project basis without really any minimum dollar limit.
Mr Daigeler: Thank you very much, Mr Chairman, for permitting me one more question. Coming back to the conclusions that the Provincial Auditor has drawn from this three-year enterprise, he is saying on the one hand that the external auditors of the universities have no mandate to look at questions of due regard, of economy, efficiency or effectiveness, and also that the Provincial Auditor himself has no mandate either to or was not allowed to look at these questions. On the basis of those two observations, he concludes, and I am quoting from him, "We are of the opinion that accountability for the significant amount of funding provided to Ontario universities remains inadequate."
Based on this conclusion, while he has not said so specifically, I think he probably will be asking that either the ministry or the Provincial Auditor be given a wider mandate to investigate these questions of what he terms economy, efficiency and effectiveness.
Would you, as the University of Toronto, resist an expansion of that kind of mandate if it were to come either from the ministry or from the Provincial Auditor?
Mr Prichard: It is not my view that it would be likely to enhance the accountability of the university. I would refer you to my answer to Mrs Cunningham as to the more likely directions to get an emphasis on efficiency and effectiveness and performance and the requisite monitoring of that performance. I would defer to my comments I made earlier along that line.
The Chair: Any other questions? Once again, I say that is not an invitation.
All right, fine. Thank you very much. We appreciate your taking time out from running the university. It is a large one and certainly I think it is well known around the world. It certainly can compete with many of the universities in the United States, and we hope that will continue to be the case. Thank you for taking time out to come before us, and we wish you well in your new role as president.
I have been sitting here trying to figure out how old you are, but I will not ask you, because I think I have passed that --
Dr McGavin: He is getting older.
The Chair: I have probably doubled that somewhere along the line. We appreciate your coming forward.
Mr Prichard: Thank you very much for the courteous hearing. My guess is it is the chairman for whom I work who should have the last word.
Dr McGavin: Thank you so much. We both have a concern about education, on a daily basis. We want to work with the public representatives in every way we can to make sure that Ontario has a product that it is very, very proud of, that is competitive. This process does help and we were very pleased to be here today.
The Chair: Tomorrow morning we have a discussion. The ministry will be here, and perhaps I might inquire as to whether the deputy --
Clerk of the Committee: Dr Benson will be here.
The Chair: Dr Benson will be here representing the ministry tomorrow, and then we will also be writing our report. Sharpen your pencils and think about it overnight and hopefully we can deal with that expeditiously. We stand adjourned until 10 o'clock tomorrow morning.
The committee adjourned at 1601.