Legislative Assembly of Ontario

HOUSING AUDITS

CONTENTS

Thursday 19 May 1994

Housing audits

STANDING COMMITTEE ON PUBLIC ACCOUNTS

*Chair / Président: Cordiano, Joseph (Lawrence L)

*Vice-Chair / Vice-Présidente: Poole, Dianne (Eglinton L)

*Bisson, Gilles (Cochrane South/-Sud ND)

Callahan, Robert V. (Brampton South/-Sud L)

*Crozier, Bruce (Essex South)

*Frankford, Robert (Scarborough East/-Est ND)

*Marchese, Rosario (Fort York ND)

Marland, Margaret (Mississauga South/-Sud PC)

*O'Connor, Larry (Durham-York ND)

Owens, Stephen (Scarborough Centre ND)

*Perruzza, Anthony (Downsview ND)

*Tilson, David (Dufferin-Peel PC)

*In attendance / présents

Substitutions present / Membres remplaçants présents:

Wilson, Gary, (Kingston and The Islands/Kingston et Les Iles ND) for Mr Owens

Also taking part / Autres participants et participantes:

Ministry of Health:

Amin, Karim, former director, audit branch

Hill, Jessica, acting assistant deputy minister, mental health programs and services group

Ministry of Housing:

Burns, Daniel, deputy minister

Glendenning, Andy, director, audit services branch

Singh, Brad, former director, audit services branch

Studden, Trevor, regional manager, central/metro Ontario region, field operations division

Williams, Elizabeth, manager, finance and administration, central/metro Ontario region,

field operations division

Office of the Provincial Auditor:

Peall, Gary, director, Education and Training, Housing and Municipal Affairs audit portfolio

Peters, Erik, Provincial Auditor

Clerk / Greffier: Decker, Todd

Staff / Personnel: Anderson, Anne, research officer, Legislative Research Service

The committee met at 0928 in room 151.

HOUSING AUDITS

The Vice-Chair (Ms Dianne Poole): Good morning. I'd like to convene this session of the public accounts committee as we continue to look at issues concerning Houselink Community Homes Inc and Supportive Housing Coalition.

First of all, I apologize for the room change. Because the finance committee required translation for its witnesses this morning, it had first option to have room 151.

We'll now begin with the Ministry of Housing and Ministry of Health officials. I believe the understanding is that we'll begin with the audit section of the branches, continuing the questioning from last week. Following that line of questioning, we'll invite the Deputy Minister of Housing and the assistant deputy minister of Health to come forward.

Would the audit staff like to come forward at this time, please. Good morning and welcome back to public accounts. Mr Glendenning, before we begin with members' questions, I understand you have some responses from outstanding questions last week.

Mr Andy Glendenning: I thought we should try to put some more information on the table regarding questions that came up last week.

Several questions were directed to the issue of why the police weren't called as a result of the Houselink audit. We thought it would be helpful to the committee's deliberations if we presented an explanation of the auditor's view. I want to emphasize that I'm not a lawyer, so please don't take this as a definitive view.

In essence, the conditions under which a non-profit corporation receives provincial funding initiate a contract. While there were no formal operating agreements for some of the Houselink programs, the ministry had defined its expectations by which Houselink should operate through commitment letters, the non-profit manual and the budget approval process. Under common law, an offer of funds by one party and acceptance of conditions by another constitutes a contract. Breach of the conditions of a contract of that nature is a civil matter, where the only remedy is recovery of damages. A criminal matter, on the other hand, would require proof of dishonest intent or intent to defraud.

The difference between a civil matter and a criminal one lies in intent and in remedy. For example, if you pay for something and you feel you don't get your money's worth, this is a civil matter. The only remedy is suit for recovery of damages, in this case the purchase price. Where criminal intent is proven, the result includes sentencing or punishment rather than only recovery.

The test for criminal action has to be the presence of dishonest intent, deceit or fraudulent intent. This has to be proved beyond a reasonable doubt -- a very high test which is difficult to meet when it requires the interpretation of a contract.

Mismanagement of funds does not always amount to misappropriation if the ultimate application of the funds was directed to the overall mandate of the operation.

The other question that was raised concerned the operating agreements. We were asked, of the audits we performed, how many were without operating agreements. A review of the audit reports indicated that the absence of an operating agreement was noted in a little under half of the audit reports performed. As we have said earlier, the lack of an operating agreement does not mean that our expectations were not defined.

Those are some of the questions that were raised last time around. We are open.

The Vice-Chair: Thank you, Mr Glendenning. We'll start with the official opposition, a 15-minute round.

Mr Joseph Cordiano (Lawrence): Before we start, Madam Chair, could I ask what the time is for this morning's proceedings with the auditors? Is it 45 minutes?

The Vice-Chair: I think the idea was that members would have an opportunity to complete their line of questioning. If after the 45-minute period there are still outstanding questions, I suggest we continue until they're resolved and then go to the deputy minister and assistant deputy minister at that time.

Mr Cordiano: Thank you. Let's just start with that information regarding the operating agreements, where half the audits pointed to a lack of operating agreements. I would be very interested to have you identify -- I suppose you wouldn't be able to do that this morning -- which of those audits lacked operating agreements. In the absence of that, could you answer this question regarding the lack of operating agreements in half of those reports: Were they, on the whole, more problematic than the audits you performed on the reports that had operating agreements in place?

Mr Glendenning: That's a very good question. I think we would have to do a really in-depth analysis to answer that accurately. Very quickly, I would say not necessarily.

Also, on the point you raised, I didn't say half; it's under half, actually, just to be a little bit more precise.

I was reporting to you what the audit reports noted. In other words, the report itself said that in this case there were no operating agreements and made an appropriate recommendation that there should be operating agreements. The ministry is committed to putting those operating agreements in place. I think you can take it as a given that if the auditors noted there was no operating agreement, it was seen to be a problem.

Mr Cordiano: That concerns me a great deal. This committee has repeatedly, since the auditor's report of 1992, concluded that the lack of operating agreements was a very real problem, and we made recommendations in our report to the effect that operating agreements were urgently needed, and that if the ministry was proceeding as it had planned with the additional allocations, there would be problems on the horizon. That's why we saw operating agreements as a key component in rectifying problems pointed out by the auditor.

With all of these audits pointing to the same problems, and I understand that's half the audits you've examined -- we don't have the time, at least in this series of hearings, to go into detail on those audits, but I suspect we would find a recurring theme in most of those audits, one that was familiar and seen throughout the auditor's findings in his report of 1992, so what we've suggested makes a great deal of sense with respect to the lack of operating agreements.

Let me move on. Perhaps I could ask the auditor's staff with respect to the audits that were conducted. I'm still not clear about the dates. There were different dates regarding different audits, and there were two, as you suggested to me last week -- I think one was 1988 and the other was 1990.

Mr Gary Peall: The dates of the reports I believe were late 1991 and March 1992.

Mr Cordiano: But there were other reports on Houselink and SHC in the Ministry of Health, internal audits that were conducted that predated that. Perhaps when you get that answer, you could make that available.

At the end of the day, when we're looking at these audits, the thing I'm looking for is, what evidence is there that the ministry took whatever steps were necessary? As you were conducting these audits and as information came forward and you began to see a pattern of difficulties with some of these agencies -- we know you've conducted a series of audits across different agencies -- what was the thinking at the ministry? What actions were taken? That's a question I'm going to pose to the ministry, of course, when we get there. But as auditors you recommended that a series of initiatives be taken. Could you tell me what, in your opinion, was the outcome of these initiatives by the ministry? I want it from your point of view, because I will ask the ministry that question. Do you feel that satisfactory action was taken on your recommendations by the ministry? I know I'm asking an overall, general kind of question, but we will get into specifics with the ministry. I ask both of the auditors.

Mr Glendenning: If I could just answer first on that, I think you're quite correct that the answer is best directed to the program staff when they come up, but it's a fair question to ask the auditors as well. I can indicate that our process in an audit normally is to solicit a response from our own regional office and the non-profit entities themselves regarding their position on the audit recommendations and what they're going to do in terms of action. I understand in these cases that a response was given, but I'll let Mr Singh address that more specifically.

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Mr Brad Singh: In the Houselink and Supportive Housing Coalition audits, when we finished the audits, the process we went through was that we issued a draft report and we discussed it with the program staff to get their views, and then we issued a final report. After the final report was issued, depending on the length of time -- I don't have the actual information here, but I do recall that each and every recommendation we made on Houselink and SHC was addressed. They responded in writing saying they've taken corrective action. We went by that.

Mr Cordiano: They responded to you in writing. Were you satisfied that the management responsible for undertaking that action was indeed contacting the agency and taking the appropriate action, and that's where you would have left it off? And that's satisfactory?

Mr Singh: Yes. I understand they were working with the two agencies. That's why I took some time to generate the response. They were working with them, and in the end when we got the response, they addressed every recommendation we made.

Mr Cordiano: The next question is, how long did it take from the time you made your recommendations, the time the program people got back to you, responded in writing, and then set their action plan with regard to the agencies? How long did that process take?

Mr Singh: I don't have that detail here, but I can get that for you.

Mr Cordiano: So you couldn't be sure, as auditors, that the actions you recommended be taken and that in response were noted by the program people to be taken -- at the end of the day you wouldn't know if the agency itself then responded to those requests.

Mr Singh: I have to take what the program people tell me in writing. For me to verify that would mean diverting resources to go out again to re-audit the same agency, which we just don't have enough resources to do. The process we followed did not call --

Mr Cordiano: I'm not suggesting re-auditing. I'm just suggesting that, at the end of the day, would the program people themselves -- and again I state to you that I will ask them that question. It's clear that once you make your recommendations, you have no way of knowing whether they're carried out by the agency. That's where we lie in terms of the actions taken.

Mr Singh: I take their word for it in writing, because it is in writing. The response from the program people is in writing.

Mr Cordiano: This is very important to me, because this committee has made recommendations to the ministry that it take initiatives to implement recommendations we've made. We've made recommendations around operating agreements, and to this date the ministry has been unable to implement all the operating agreements. The deputy has suggested he would like to come back, and we certainly will. But at the end of the day, once you made your recommendations, there was no way of knowing whether these were carried out, other than the correspondence you got, which was an intention to carry out these actions.

What concerns me is that once you have all these audits out there -- and I understand that it's not your place to see that the action be carried out; it's the ministry's. Your duty as an auditor is to point out the problems. But when you have almost a quarter of a million dollars, in the case of the audit you did -- I think it was the SHC audit, so it's probably with the Health people that we're talking about the quarter of a million dollars. I don't have the figure in front of me and I apologize; I'm just flipping through my documents. You found $240,000-odd that --

Mr Karim Amin: I think the overall was $2.1 million.

Mr Cordiano: I'm sorry. What am I talking about? I think you had a final audit that showed $2.1 million outstanding that had to be collected, and at the end I think it was $250,000 that still needed to be collected.

Mr Amin: I can forgive you for not remembering all the numbers because you have a busy life.

Mr Cordiano: I'm sorry, I should have had the number in front of me.

Mr Amin: With respect to the numbers, when we identified a final amount recoverable from the agency, all of that money was recovered.

Mr Cordiano: And that took how long, from the time you recommended it to the time it was recovered?

Mr Amin: It was recovered by September 1991. As I explained the last time I was here, the process was one of convincing a new board that the money was indeed owed to the Ministry of Health. We went through many, many meetings to present to the board the ministry's viewpoint. Eventually, the board accepted the ministry's viewpoint and moneys were returned to the ministry fairly promptly upon accepting our viewpoint.

Mr Cordiano: Those are all the questions I have.

The Vice-Chair: Good timing, Mr Cordiano. Your time was just about to expire.

Mr David Tilson (Dufferin-Peel): I'd like to pursue the issue you first raised. It sounded like some lawyer has written you a statement to read to the committee, and that's fine. But my observation, when I read the various audit reports -- I see, for example, the former executive director of Houselink having total control of moneys, using moneys from operating general funds to pay for unapproved overseas travel, furniture, dinners, liquor, parking tickets and personal purchases. We also see in your report that part of the money has been paid back, that some of the money has been paid back, but we don't know whether all the money has been paid back. I understand what you've said in law. I understand that.

But surely when an auditor gets a smell of wrongdoing -- and it's not for you to determine whether someone has done some wrongdoing. Your job, presumably, is to determine whether there has been waste, whether there has been improper procedures or those sorts of things, non-criminal activity, making the thing run a little smoother. But if there's a smell of wrongdoing, even a scintilla of smell of wrongdoing, surely you have an obligation to go not to the ministry but to the police.

Mr Glendenning: I would agree with your statement. There is an obligation on the part of an auditor, if they determine that there is unlawful activity, to ensure that appropriate action is taken by law enforcement authorities. I think the circumstance of this case was that that degree wasn't found.

Mr Tilson: I ask this to both auditors. Did you or any of your staff have any suspicions of wrong? I read these things and I look at unauthorized moneys being taken; so far, we've been told that the former executive director took moneys and hasn't paid it all back. Unless something's happened since, this money's still out there, she still has it, unless the Ministry of Housing or the Ministry of Health come forward and say it has been paid back. But all the information I have says it's not been paid back. That, to me, says that public funds have been taken. I don't know, maybe it's appropriate, but surely it's not for you to determine that. Surely that's a matter for the police to look at.

Mr Glendenning: I would point to the previous statements that were made about a joint meeting between Health and Housing where that issue was discussed. I believe, if my understanding is correct -- I wasn't there -- the conclusion was that there was not sufficient data to support referring this for a law enforcement kind of analysis.

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Mr Tilson: Who made that decision?

Mr Glendenning: My understanding is that it was a meeting between the auditors of Health and Housing.

Mr Tilson: Auditors made that decision, or was it someone in the ministries of Health or Housing, or was it politicians who made that decision?

Mr Glendenning: First of all, I don't think there was any involvement at the political level. I'm not sure whether it was referred to legal counsel or not. I can't answer that. I wasn't there.

Mr Tilson: Someone made that decision, but you don't know who made it.

Mr Amin: Perhaps I can answer that, sir. I was at the meeting. With respect to the issue of suspicion, suspicion is no proof, and we cannot move on suspicion to enter into the discussion of fraud. It is on that basis that we had to reject whatever possible suspicion there was. Suspicion is no proof, sir.

Mr Tilson: I don't understand that, quite frankly. If you say that in your opinion as an accountant or as an auditor you don't think there's any possibility of any criminal wrongdoing, I understand that. All I know is that when I read these reports and what the media have told and what they have found, that moneys have been taken and not paid back, that leads me to say that something illegal has happened. I don't know. It's not for me to determine that. That's a police matter. It may well be that there was no illegal activity. You can't say that; I can't say that. You may suspect it in your role as an auditor, but you can't say that. But if you suspect it, surely you do have that obligation.

Mr Amin: Well, sir, I tell you, the moneys you're referring to were expended by the housing corporation without approval. That's the bottom line. The moneys you refer to did not have any element of fraudulent action; neither did we find that there was any intent to deceive in any way, shape or form.

Further, sir, with respect to my earlier answer, I must say that before we go to the police, we must have almost incontrovertible proof that there is fraud out there. We must also accept that if we are going to go to the police with suspicion and suspicion only, they'll throw us out the door in 10 seconds flat. It's not something that we believe we should take to the police when the evidence before us does not at all point to the issue of fraud. We must only take to the police, who are also paid by the public, that which we feel has more than a reasonable chance to succeed in a court of law. We have done it in the past in the Ministry of Health, sir.

Mr Tilson: I hear what you say. I don't understand it, but I hear what you've said.

I'd like to move to another area. Mr Glendenning, you said that half the audit reports you have made did not have operating agreements. I would like to know what that means in numbers.

Mr Glendenning: It was indicated in the report as a finding that there was no operating agreement, and that constituted eight reports.

Mr Tilson: And this is up to what date?

Mr Glendenning: This would be up to 1993. I'm not precisely sure of the month.

Mr Tilson: And since that time?

Mr Glendenning: Since that time, I haven't examined those particular reports, so I can't answer that.

Mr Tilson: And the same applies to the Ministry of Health? My question is the issue of operating agreements with respect to the audits that were done in terms of the Ministry of Health. I suppose you would do much fewer. You wouldn't do as many reports, obviously.

Mr Amin: We do a fair number of audits in the mental health area.

Mr Tilson: I didn't mean that. With respect to housing, obviously, because of the nature --

Mr Amin: No, we are not a housing ministry, sir. We don't have any housing programs.

Mr Tilson: I'm quite aware of who you are, but you didn't do an audit in this area. I have no idea what reports you've done with respect to housing.

Mr Amin: We have done a few audits with respect to housing programs that we and the Ministry of Housing are associated with.

Mr Tilson: And of those, what is the percentage of operating agreements that have not been made available?

Mr Amin: We have what is called a memorandum of understanding. I do not have the number with respect to that, but I believe the program people may be able to answer that. My understanding is that memoranda of understanding is a normal way of operating with our agencies.

Mr Tilson: And all of these audit reports have been made available to the Provincial Auditor?

Mr Amin: Yes, the Provincial Auditor has complete and unrestricted access to our reports.

Mr Tilson: You've said that before, but does he have the reports?

Mr Amin: I don't think he has the reports.

Mr Tilson: He's going to be asking for them.

Mr Amin: If he hasn't got the reports, if he wishes to get them, he certainly can. Mr Teixeira is here and he can let you know how we operate.

Mr Tilson: I'd like to get into the issue -- and this is a question to both of you -- of the extent of your audits. I don't know the terms of reference of your audits versus the terms of reference that the Provincial Auditor may make of these types of organizations. Are you able to compare them?

Mr Amin: With the Provincial Auditor's? Sometimes a comparison is not just there. Sometimes the Provincial Auditor will take the total program, all of the big programs. We may take a part of the program.

Mr Tilson: Housing is the same, Mr Glendenning?

Mr Glendenning: Yes. When we are auditing non-profits -- and I think this was discussed in previous deliberations of this committee -- we do have an audit program for non-profits against which we conduct our audits, so that is somewhat structured. But if you're asking if they can be compared to those of the Provincial Auditor, yes, there are common elements between audits, but they wouldn't necessarily be undertaking the same audit program we would. I would like to think ours are probably more in depth.

Mr Tilson: That's exactly what I'm getting at. Is the Provincial Auditor precluded from making the types of audits that you make, because of the Audit Act?

Mr Glendenning: No, not by any means. I wouldn't say that there's any restriction in that matter at all.

Mr Singh: When the Provincial Auditor did the audit of the non-profit program, it is my understanding that they did go out to look at a few agencies. However, what they looked at was very specific. They didn't look at all the things we would look at in a particular agency like Houselink, because they were looking at the broad program in general. That's the difference.

The other thing was that we were planning to do an audit of the non-profit program, but when we were going to do it the Provincial Auditor came in that year, so we didn't do it.

Mr Tilson: Have there been any audits of Houselink since you've done these?

Mr Singh: No.

Mr Tilson: There have been none? Can you tell me why?

Mr Singh: Simply because, as I mentioned earlier, there are -- and I don't have the exact figure -- over 1,000 non-profit agencies in the province. The audit branch has a very limited staff and we want to get where the biggest bang for the buck is.

Mr Tilson: I understand. Very serious allegations have been made with respect to Houselink. Are you able to provide the committee with the written response from the ministry, both of you? Are you able to make those written responses available?

Mr Amin: Can I make a clarification with respect to the Provincial Auditor's objectives and ours? Many times the objectives are not comparable, because the Provincial Auditor may have a broader scope to the performance of his work.

With respect to the question of why no other Houselink audit was done, I should tell you that there is good reason why, in the Ministry of Health, it hasn't been done, and it's because of the program. Our ministry program and the new Houselink board and new Houselink executive director have been moving progressively forward with respect to making Houselink a much tighter organization, making the board work much more efficiently and effectively for the benefit of the corporation.

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Mr Tilson: How do you know that if there haven't been any further audits?

Mr Amin: We had it in the form of follow-up audits with respect to that, in which the auditor and Mr Ibrahim visited the facility and looked at some of the improvements.

Mr Tilson: Can you provide us with copies of those informal audit reports?

Mr Amin: These were what we call onsite inspections, sir. They are not audits.

Mr Tilson: Can you provide us with any written reports with respect to that?

Mr Amin: The ministry can provide the committee with a status report with respect to Houselink, and that will have to be done by the program, because the program is responsible for the implementation and recommendation.

Mr Tilson: The allegations with respect to Houselink, specifically with respect to the executive director at the time, were that substantial moneys went away for different reasons, which I've stated, and that some has been repaid. We don't know how much has been repaid. Can you tell us how much has been repaid?

Mr Amin: With respect to the surplus, $1,735,775 was repaid.

Mr Tilson: How much hasn't been repaid?

Mr Amin: Everything that was recovered by the ministry has been recovered, for the audit period.

Mr Tilson: So all moneys for the audit period have been repaid.

Mr Amin: Have been repaid.

Mr Tilson: Have you got any documentation or correspondence dealing with that subject?

Mr Amin: I feel certain that the ministry has that, yes, sir.

Mr Tilson: Can you make that available to us?

Mr Amin: I'd like to think that's possible, yes.

The Vice-Chair: Mr Amin, are you sure you're not a lawyer? That was a very good answer. Or a politician -- one of the two.

Mr Amin: Madam Chair, thank you very much. When I leave the public service, I'll go to law school, right?

Mr Tilson: You're all doing a very wonderful job, but the question is, are you going to make this --

The Vice-Chair: Mr Tilson, I'm sorry, the time has expired.

Mr Tilson: You did interrupt me, Madam Chair, so if I can just finish on one question: Will you make all that information available to the committee, both of you?

Mr Amin: Yes, sir, I think the program has that responsibility, and that question should be better directed to program.

The Vice-Chair: We'll now move to the government caucus. We have Mr Marchese and Mr Perruzza.

Mr Rosario Marchese (Fort York): Can you tell me whether we've had any operating agreements with any of the agencies that we've had in the housing field in 1983 or 1984 or 1985 or 1986 or 1987 or 1988? Did we have program agreements with any of the agencies that are connected to us?

Mr Glendenning: It's my understanding that there are some operating agreements in effect for the Ministry of Housing programs, though I think we would have to get back to you on that kind of detail if you want more than that.

Mr Marchese: I just wanted to establish some historical perspective, because I don't want us to be stuck in one particular time frame: 1992 and on, or 1991 and on. That is to say that if we have problems in one area, it's because there are historical connections to it, and part of my concern around it is, how are we dealing with it in a general way to solve some of those particular problems? If you can get information and pass it on, that would be fine. I'm interested in knowing whether we've had operating agreements with any one of the agencies since the beginning, and if we had some operating agreements with some, why it is that we didn't have operating agreements with others. How do we establish those inconsistencies and how do we deal with them?

Mr Glendenning: If I could deal with that question just generally, we do have several different kinds of programs over time, the earliest ones being federal-provincial, which would have documentation behind them, moving on into the overall programs that were fully provincially funded. You do have different types of programs, and the conditions of those programs would be different from program to program, and you would also have different kinds of operating agreements, some of which are there, some of which are not. You've got this whole spectrum.

Mr Marchese: I understand that. I understand that all of you have ruled out criminal activity, based on the definition that you provided about what constitutes criminal activity. How would you any one of you qualify or characterize what has happened with these two particular agencies we're dealing with in terms of how they manage their financial affairs? How would you characterize them?

Mr Singh: If I can address that, I think I mentioned that in my remarks last Thursday. I would characterize these two agencies as being very well intentioned: They are housing individuals who are mentally challenged. However, I feel they lack the necessary expertise in accounting and in procurement and probably in certain aspects of management.

I want to go back a little bit to the question of no evidence. As I said last time, we took it upon ourselves, because as professionals we exercise due care, we followed up on a lot of the allegations.

I'll give you an example of one. There was an allegation that was made that various contractors were doing personal work for people at Houselink and billing and invoicing Houselink for it. We examined these invoices. We found that was the case, but we found also that Houselink did not pay for the work. So that allegation was totally unfounded.

This is an example of what I mean when we said we could not find any evidence of wrongdoing, the allegation being that Houselink paid for the work of people who own their own houses. What we found was, yes, the contractors who were employed did work for individuals who worked at Houselink, but Houselink did not pay for it.

Mr Marchese: Do you have a response to that as well?

Mr Amin: Yes. How would I characterize the agency management? I would say they were lacking in proper accounting practices in reporting. They had weak administrative practices. The governance issue with respect to how the board operated was less than satisfactory. I would say those were the contributing factors to the problems the agency had.

If I may, sir, I do have to add a piece of clarification. Last time this side of the committee asked a question with respect to the way in which auditors conduct themselves. I just want to say very clearly that the same auditing standards are applied to all audits consistently, including Houselink, and the extent of the tests and examinations is determined by the circumstances of the individual audits. It came from an individual on this side, so I do wish to put that on the record.

Mr Marchese: That's fine. We talked about $1.7 million more or less of items that were identified as issues of concern. Could you as quickly as possible identify what they were, what you found to be irregular about them, and could you identify those areas where allegations have been made about misappropriation of funds and how big those items are as cursorily as you can? I think we haven't put that on the record, although it's available in the audits that we have received.

Mr Amin: If I remember, I think with respect to the amounts recoverable by the Ministry of Health, we had identified $2.176 million and we recovered $1,735,775 after adjustment by the program area. On the other issue, the amount identified was $248,349, and these deal with a variety of issues like sabbatical leave, merit pay, unsubstantiated travel etc. Those are the two pieces that we've identified.

With respect to the $248,000-plus, that information was passed on to the program branch, whose responsibility it was to make the decision whether to recover or not to recover or to approve retroactively those amounts. I think the program person will give you the backup and the detail with respect to their actions etc. Does that answer you, sir?

Mr Marchese: Yes, in part. I was going to ask the deputy the same question in terms of what they've done with respect to the itemized issues, so we'll get a good sense of what evidence there is in terms of what steps have been taken by the ministry to deal with this. That's the question Mr Cordiano raised that I am interested in, because part of the problem is to identify what the problems are and then to be sure that we have in place a system that deals with it from now on in a very general way.

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Mr Amin: If I may, you use the word "misappropriation." I would choose to say that "misappropriation" was not the word we used.

Mr Marchese: Well, that's fine. That's why I asked you earlier on how you would characterize what has happened in terms of their ability to administer well, or not so well, those dollars. I understand that when you use the word "misappropriation," it's almost an allegation as well that one makes.

It is in this regard that in the subcommittee I was also going to recommend that we invite Ms Lea Caragata, because she has written a letter to us asking us to listen to her. I would be very interested personally in listening to what she has to say, and Mr Tilson, I suspect, would be interested because he made reference to a number of allegations with respect to some of that activity. I think, for the record, it would be important for us to invite her to speak to any of the allegations that have been made. That is all I have for now, Madam Chair.

The Vice-Chair: Thank you, Mr Marchese. Mr Perruzza, you have about six minutes.

Mr Anthony Perruzza (Downsview): Really very quickly, last week I asked for some information with respect to the proposals and the budgets and some of the correspondence that goes back and forth from groups and community groups to the ministry. I'm wondering if it's here. That's it? Great. I suspect that once I have an opportunity to go through that, I'll have some more questions dealing with that.

My question is to both of you. Just to get it on the record, I'd like to know, who are your bosses? Who do you report to directly?

Mr Glendenning: In the Ministry of Housing, for administrative purposes, the audit services branch reports to the assistant deputy minister of corporate services. For the purposes of our audits, our audit reports are directed directly to the deputy minister.

Mr Perruzza: So when you do your audit, you do your report, you have a boss directly in the ministry, and that's the deputy minister, who reviews your material or your reports. At that point I would presume that you would have a meeting with the deputy and go through that material and have a formal briefing with the deputy in that regard. Yes?

Mr Glendenning: Depending on the complexity of the report or the results. Obviously, if it was fairly routine, there wouldn't be that necessity. If it was a significant report, yes, that would take place.

Mr Perruzza: Okay. Do you have independent authority? I guess what I'm trying to get at is, when you've done your review, just picking up on Mr Tilson's question, if you suspect that there is some wrongdoing, without meeting with or consulting with your deputy, could you at that point call the police on your own? And would you do that on your own?

Mr Glendenning: I certainly wouldn't feel restricted in that way. In fact, if you go into independence, we have an absolutely unfettered right to examine records within the ministry. There are no restrictions on that as far as our right of access to staff, to records, what have you, is concerned. That's part of our mandate, so I don't see any particular restriction.

As far as the question you're asking, do we have a right to direct things to police authorities, I would take that, quite frankly, as a personal right. As a citizen and as a civil servant, it's a responsibility.

Mr Perruzza: So what you're saying is that if you suspected there was some wrongdoing, no one would be able to hold you back, or you wouldn't communicate that intention to your boss, who is, I presume, the deputy minister. Or do you have sort of an in-line boss in the ministry other than the deputy?

Mr Glendenning: Yes. As I said, for administrative purposes, we report to the assistant deputy minister of corporate services. But the reports are directed directly to the deputy, and there is that right of access and communication. I feel there is as much as you can say in a hierarchical organization. There is unfettered audit right, as far as I'm concerned.

Mr Perruzza: What happened in this particular case when you did your audit, you did your report, you wrote your report? What did you do next?

Mr Glendenning: I'm sorry, I can't answer to this particular audit, because I wasn't audit director at the time.

Mr Singh: If I can address that, in the case of Houselink, at that time in our ministry there was a former deputy minister and we had an audit committee. I recall that the findings of Houselink were discussed with the audit committee, which was chaired by the deputy minister.

Mr Perruzza: Who was on your audit committee?

Mr Singh: At that time the audit committee was made up of the deputy minister and the assistant deputy ministers of the ministry plus one or two other directors, like the director of finance and so on.

Mr Perruzza: Do they have names, for the record?

Mr Singh: Yes, the deputy was Mr Glenn Thompson. You're really jogging my memory now. The assistant deputy minister of corporate resources was Mr Arnie Temple, the assistant deputy minister of the program area was Mr Tim Casey and the assistant deputy minister of the policy division was Ms Anne Beaumont.

Mr Perruzza: When did that take place?

Mr Singh: That took place on December 18, 1990.

The Vice-Chair: Thank you, Mr Perruzza. I'm sorry, but your time has expired.

Mr Amin: May I please have a chance to answer a question?

The Vice-Chair: Certainly.

Mr Amin: With respect to the information you requested, the program personnel who will join you here shortly will answer that question, sir, because they have responsibility for that.

With respect to the question of reporting in the Ministry of Health, the director of the audit branch reports to the deputy minister for all auditing activity. That director reports to an assistant deputy minister for administration only. That assistant deputy minister has no responsibility for audit practice. That's what brings the accountability to the deputy minister on-line.

With respect to the independent authority, "Can you call the police on your own?" -- those were your words, I think -- I'd like to think it's a little bit more complex than saying, "Can you call the police on your own?" We must recognize the way in which branches are organized and which accountability frameworks are set up.

A program that gets a legislative authority to spend money has total responsibility for that program. If, in the course of our work, we find that there is compelling evidence that fraud or near-fraud has been committed, it is our duty to seek appropriate legal counsel and to seek appropriate advice and talk with the program area.

I'd like to think that when the police are called in, the police are called in by that program area whose responsibility it is to defend those dollars approved by the House for spending by that program area. We are still advisory to that program area, and I'd like to think that's how we'd like to keep it.

Mr Perruzza: Did you seek out legal counsel?

Mr Amin: In this case, no, sir. We had some discussion with legal counsel on some of the issues.

The Vice-Chair: I'd like to give the auditor an opportunity to ask any questions or make comments.

Mr Erik Peters: I just wanted to follow up on the last point. The normal procedure, and I think you would agree, if an auditor suspects fraud, is that there would be an obligation to advise management, because management then has the responsibility to make a number of decisions. Hopefully, and the standard should be, that would be based on legal advice as to what to do under the circumstances, whether further investigation is warranted by internal resources, whether the police are called in.

For example, to give you just a small example, an auditor would normally not even be expected to know which police force to call in. Because the ministry's involved, is this is an OPP issue, or because it happened in Toronto, is it the Metro police that should be called in? Those are all legal questions that should be resolved at that particular point.

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Management has really the responsibility to take action under the circumstances. If police are called in, normally it then ends up to be a shared responsibility, or based on police advice, whether the police actually want to take over the investigation or whether they ask the auditors to do further investigation and then they review the audit files and proceed further.

I think this is the standard, and I trust from your second answer that you would have followed the standard of advising management to take the action, because it's not audit responsibility to take this kind of action. Or is it in your ministry? That is my first question.

Mr Amin: I think you confirm what I said earlier on, Mr Peters. We have done this before in the Ministry of Health and it's always done exactly the way you pointed it out: legal advice. Maybe we get forensic. There are times when we get a forensic auditor to come and join us. But the bottom line is, senior management makes the call when to go to the police.

Mr Peters: Fair enough.

Mr Glendenning: If I could just address the same thing from the standpoint of the Ministry of Housing, I would agree entirely with what you're saying. I don't want my previous comments to be misconstrued. I thought perhaps the member of the committee was asking me if I felt in any way constrained from taking appropriate action, and the action you are suggesting is entirely appropriate.

Mr Peters: Okay. Thank you very much.

I have a second question. There's also, unfortunately, a question of ethics by the auditors which is raised in one of your reports. I'm referring specifically to page 7 of your 1991 report, in which you say that:

"The audit fee was inflated by the public accountant at the request of the executive director, with the agreement to return the inflated amount in the form of donation. This would enable Houselink to utilize the donation funds for unbudgeted expenditures."

This paragraph raises ethics questions; it raises questions about the quality of the external audit that was conducted; the independence of that auditor. It raises a whole raft of questions about the code of conduct of auditors, and I wonder if you could explain to us what action was taken on this particular step.

Mr Amin: The matter was reported to the Houselink board, sir, and the Houselink board, in our view, has the authority to deal with their external auditors.

Mr Peters: This is a fairly strong statement, that in fact the audit fee was inflated in order to permit the organization to have unbudgeted expenditures. That would go totally against the code of conduct of the external auditor.

Mr Amin: Like I said, sir, that matter was referred to the Houselink board, which has the responsibility to recruit their external auditors. By the way, I should say that that auditing firm no longer does the audit.

Mr Peters: That answers my follow-up question on that.

The other part that concerns us very gravely in this is, from the information stream that goes to the ministries from Houselink and from the Supportive Housing group, would that information stream be good enough for management that is in charge of that program to detect the sort of things you found in your audit and, if it is not, has the information stream now been improved by management so that these sorts of things can be detected on a routine basis as they come forward to management, or does it require further audit?

Mr Amin: I think you're speaking to the issue of improvements, changes to the system?

Mr Peters: To their financial reporting.

Let me just make a supplementary comment here for a moment. We have been given by the researcher annual reports from Houselink. They are totally void of any financial information. They are a social reporting instrument. It talks about how many free tickets for ball games they got etc, but there is no management information as such in these reports.

Is there an information stream that provides to the program managers information from which they could assess whether or not these operations are managed and financially accounted for properly?

Mr Glendenning: If I may address that, there is, as has been alluded to, constant improvement in that management stream, and I think the program people will address that in terms of the annual reports and financial reports that are required of the regional offices as opposed to the annual report of the agency itself. There is a constant stream of information going to our regional offices, but it's probably best addressed by our program people.

Mr Singh: If I can make a comment too, our ministry's finance branch has been working with the Institute of Chartered Accountants of Ontario to come up with a reporting package so that there'll be better information that will be provided to the program people rather than just an audited test statement.

Mr Peters: Thank you, Chair.

The Vice-Chair: Thank you, Auditor. Do other members of the committee have questions they would like to continue the discussion?

Mr Tilson, you've indicated you have a question. Why don't we just continue ad hoc until the questions are done.

Mr Marchese: Can we put a time limit on it, Madam Chair?

Mr Cordiano: I thought we agreed we would have the first hour of these --

Mr Marchese: That's what we'd agreed in our subcommittee, you're right, but if he has an urgent question he wants to ask of them we can do that. But I would put a time limit on it.

Mr Cordiano: I'd like to move on to the program people after that.

The Vice-Chair: Yes, Mr Cordiano, you had asked me at the very beginning how I intended to conduct this and I said we would go in rotation. However, if members did have questions, I felt they should be resolved before we continued.

Mr Tilson: The question I have is with respect to the report that indicates that the executive director at the time had total control of the funds. My question is to anyone, probably to everyone; my question is to everyone. Can you tell me, of all of the audits you've done with respect to non-profit housing during the period that we've been discussing to the present time, have executive directors or individuals, treasurers, whoever, had in the review of your audits sole control of the funds of either individual corporations or service providers such as Houselink?

Mr Glendenning: I think it would be fair to say we don't note that as a very consistent trend in the audit reports, so there are variations on the theme. We might find that in some cases a party other than the executive director, for example, a property management company, has probably been exercising far too much control over expenditures.

There are different situations. Different non-profits have shown up different kinds of control problems. The only consistent theme I would say is coming out of the non-profits is a somewhat unsophisticated type of management where probably adequate controls may be lacking but not of a magnitude that would cause the collapse of the corporation.

Mr Tilson: Obviously I've got Mr Marchese and Mr Cordiano upset, and I don't mean to do that, but it's a concern that we're talking about systems.

To be a little bit more specific, and again my question is to everyone, can you tell me, of all of the audit reports that you have done during all the period of time I've spoken of to date, specifically the numbers of organizations, and I'm generalizing, where this lack of control exists? It could be executive directors, it could be consultants, it could be treasurers of corporations, it could be anyone, but where an individual has complete control and the only way anybody's going to find out about it is if either of you, particularly the Housing people, happen to pop in and look at the records.

Mr Singh: I do recall, just to follow up on what Andy said, that what you're really talking about is, in audit jargon, lack of segregation of duties. I believe there was one audit report that we released in which a bookkeeper had access to writing cheques and posting the invoices and so on to the books. There was one other case, but this is really a case of lack of segregation of duties.

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Mr Tilson: When did that take place?

Mr Singh: I don't have the details. I do recall that there was a fine. It's not Houselink.

Mr Tilson: I know that, but was it recent or was it within the last four or five years?

Mr Singh: Yes.

Mr Tilson: Can you give us the name of the corporation?

Mr Singh: I can't recall it, but I can look it up.

Mr Tilson: Will you tell us in due course?

Mr Singh: Yes.

Mr Tilson: I have other questions, Madam Chair, but if you wish to get on to other areas, I'm agreeable.

The Vice-Chair: My feeling on the issue is that we're here to get at the facts, and if members have crucial questions that have not been asked, then members should be given an opportunity, I think within reason, as long as the questions are very brief and not unduly extensive.

Mr Tilson: I have one other question. I think it was Mr Glendenning last week indicated and I'd like him to elaborate as to how he happened to choose Houselink to do an audit.

Mr Glendenning: I think that's probably better addressed by Mr Singh, who was the director at the time.

Mr Gilles Bisson (Cochrane South): You asked this question last week.

Mr Glendenning: It came originally out of an audit performed by the Ministry of Health and it alerted the Ministry of Housing as to problems, and that directed us directly to Houselink. Generally, though, in terms of how we select non-profit audits, is that the nature of your question?

Mr Tilson: Yes. It starts off with Houselink, and you're telling me the Ministry of Housing for some reason decided to do an audit, and that's how you got involved, but that would be my next question. I'd like perhaps before you get into that to specifically go over to Housing and ask you, sir --

Mr Amin: Health.

Mr Tilson: I keep calling you Housing and you're quite right. I apologize.

Mr Amin: I'd like to have a house. That'd be good.

Mr Tilson: I'm sure you would. Can you tell me specifically who instructed you to do an audit for Houselink?

Mr Amin: The circumstances leading to the audit of Houselink were that the program branch sent us 12 audits and Houselink was on that audit list. We chose to do a Houselink audit on the basis of that and in consultation with the program area.

Mr Tilson: Could you continue on as to how you, Mr Glendenning, decide to do audits?

Mr Glendenning: We follow a similar kind of process to that identified by Health. On an annual basis, we would go to our regional offices and ask them for, let's say, candidates for audit. They would identify to us, perhaps right across the province, about 30.

We would also of course ask them to give reasons why they thought the entity should be audited. We would assess those against audit selection criteria and, as I said last week, the audit criteria include such things as the relative size or the complexity of the portfolio, the currency of their submissions to the ministry emphasizing what the auditor said earlier, how well we have the information on the operations, suspected impropriety with respect to operating or capital costs, any significant non-compliance with ministry expectations, potential loss due to misappropriation, any third-party complaints, any history of unresolved conflict with the regional office.

Those are the kind of criteria we would assess against the submissions made by the regional office, who would identify each non-profit's particular situation.

Mr Tilson: With respect to Houselink and the Supportive Housing Coalition, and my question again is to everyone, what role did the minister or her staff have with any of these investigations, if any, to your knowledge?

Mr Singh: To the best of my knowledge, absolutely nothing.

Mr Amin: Mr Tilson, I'd like to add a piece to my earlier question with respect to how Houselink came to be an audit. It was on the list, but a telephone call to the ministry program area pushed it up on a priority basis. Someone called in and told us --

Mr Tilson: Told you or told the --

Mr Amin: Told the program area.

Mr Tilson: Told the program director.

Mr Amin: They advised us to move that forward. With respect to your second question, there was absolutely no involvement of the minister or the minister's staff in this audit.

The Vice-Chair: Thank you, Mr Tilson. I believe Mr Cordiano has one question and then we'll proceed with the next phase.

Mr Cordiano: Very quickly, I want to go back to my figure of $242,000, which was not suggested in there. I was referring to the amounts that were spent in an unapproved fashion, and then after the fact, after they were expended, program management made approvals. Obviously, with respect to that $242,000, there was no authorization for those expenditures and you recommended that those funds be recovered.

Mr Amin: Mr Cordiano, with respect, my recommendation reads as follows: "We recommend that community mental health branch review the above situations (which were not included in our calculation of amount recoverable from Houselink) and take appropriate action."

Mr Cordiano: Could you refer to what document that is?

Mr Amin: My audit report to Deputy Minister Decter.

Mr Cordiano: I'm just trying to find that.

Mr Amin: Page 7.

Mr Cordiano: "We recommend that community health...take appropriate action." I suppose that the only appropriate action in your mind, as a recommendation, would be to approve those expenditures after the fact.

Mr Amin: No, sir, that was not in my mind. I had no recommendation, I had no action in my mind at the time. When you present information of this nature to the program management, the program management has got to review the information with respect to its policy, the intent of its policy --

Mr Cordiano: What was their policy?

Mr Amin: -- history and with respect to how the circumstances fit the situation and what opportunities there were, other situations, to improve the situations in the program area. Therefore, I did not have a specific recommendation in my mind.

Mr Cordiano: I appreciate that, but my difficulty is, if these expenditures were made, and you've identified them as unauthorized expenditures, and management comes to take action after the fact and says, "Now that they've been spent, we'll authorize these expenditures," does that not look like ad hockery rather than ascribing to a set of guidelines that everyone understands and can follow? I mean, there is that element. Would you not be concerned as an auditor that practices being followed are very ad hoc?

Mr Amin: I was concerned. It is my concern that led me to advise management of the circumstances. It is management's responsibility to dispose of those situations as I presented them to management.

Mr Cordiano: Fair enough. I will ask management what their views were on that.

Mr Amin: Yes. Thank you very much.

Mr Cordiano: I wanted to establish and be clear what your intentions were around those recommendations. Thank you.

The Vice-Chair: I would like to thank the witnesses for their attendance before us today. I am sure that if members have additional questions as we proceed with our hearings, you would be pleased to address them if they are submitted to you in writing.

Mr Amin: Thank you.

The Vice-Chair: We will now call upon the Deputy Minister of Housing, Mr Daniel Burns, and the assistant Deputy Minister of Health, Jessica Hill, and ask you to come forward.

Mr Marchese: Can I just recommend that everyone speak up as much as they can? This room is terrible for acoustics, so most of us are struggling to hear every word. Please do your best to articulate loudly.

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The Vice-Chair: Thank you for that very constructive suggestion. I would like the witnesses to begin by identifying themselves for the purposes of Hansard.

Mr Daniel Burns: My name is Daniel Burns and I'm presently the deputy minister in the Ministry of Housing. With me at the front is Trevor Studden, who is the manager of the central region office in our field operations division. It is his operational responsibility to deal with the two agencies we are discussing.

With us are Toni Farley and Liz Williams, who are both managers in the central region office. Our audit staff, of course, are remaining to ensure that further materials required from them will be available. Finally, although she's not right here at this minute, my own executive assistant, Patti Redmond, will provide materials if they are required in the discussions.

The Vice-Chair: Ms Hill, would you like to introduce your staff?

Ms Jessica Hill: Yes, thank you. I'm Jessica Hill, acting assistant deputy minister for the mental health programs and services group in the Ministry of Health. With me are Dennis Helm, acting director for central region in the mental health programs and services group, and Jane Cleve, who is the program consultant for Houselink.

The Vice-Chair: Normally, we would ask for some brief opening statements. I notice, Ms Hill, that you have submitted for members a fairly extensive brief. I wonder if, instead of reading the entire brief, because I think it would take an extensive period of time, you would be willing to highlight the most relevant or most important sections of that.

Ms Hill: Certainly. The brief actually covers general comments, introductory remarks, but also accountability mechanisms that we've put in place in the area as well as specific follow-up steps that we took with Houselink and the Supportive Housing Coalition, so it is very responsive to both the previous day's hearings as well as today.

The Vice-Chair: Am I to assume, Mr Burns, you would have some opening comments as well?

Mr Burns: Yes, we would like the opportunity to make some brief comments. I have some which are in the nature of setting some historical context around the time that we're considering here, and Mr Studden has some material that relates to the actual chronology of our relationship in the Ministry of Housing with the two organizations. At the appropriate time, I would like to present that material.

The Vice-Chair: Why don't you begin, then Mr Studden can give his information and then we'll go on to Ms Hill.

Mr Burns: I'd like to start by spending just a couple of minutes on the historical policy context that led to the development of agencies like the two that we are considering. I should say parenthetically that I'm going to speak in I hope a brief and pointed form. I do have a short paper which covers the same terrain which, if the committee would find helpful, we can make available, and there it is.

For a very long time, individuals in the province who needed support where they lived were largely housed in institutional settings or in family settings. That's one side. On the other side, for a very long time -- and I think we talked about this last year when we discussed the development of the non-profit program itself -- social housing was focused on two groups in society: the elderly and families with dependent children. Up until the 1970s, those two social policy approaches, if I can put it that way, governed the terrain that these agencies now operate in. So what changed?

Beginning in the 1960s and accelerating in the 1970s, we had a change in the way we approached trying to support individuals who need help to live in an everyday way in society. We concluded that it was not appropriate to house the number of people in institutional settings that we had then, and families were becoming less and less able to support large numbers of dependent individuals themselves. The option we turned to nationally, not just in Ontario, was to develop, in a community setting, community agencies and organizations that would have the capacity to house and support individuals and sometimes families who needed that extra support in a housing setting, but in a community setting, not an institutional one.

On the housing side, as I just said, social housing began in this country with a focus on the elderly and on families with dependent children. That was the governing policy framework until, I think, 1978. At that point, we began to see a series of changes that extended access to various other groups in society, and over the course of the 1980s we eventually extended the right of application to access in housing and social housing to every citizen of the province.

Members of the committee may remember from when we were talking about the non-profit program last time that the federal government was responsible, essentially, for the design and delivery of all the social housing programs in Canada until 1986. In 1986 they withdrew from program delivery, and in a set of provincial agreements the provinces entered that terrain. In Ontario in 1987 and 1988, in addition to taking on the responsibility for delivering the federal-provincial joint program, the province initiated some new social housing initiatives. One of those was targeted at organizations in the community that wanted to house and support individuals who otherwise would have been in an institutional setting. It was called P-3000. When Homes Now came along later, one of the objectives it had was again to provide more funding support to those sorts of organizations.

By the time we got to the late 1980s, the time we're considering, we had the convergence of a number of changes in social policy and quite dramatic changes in funding arrangements which resulted in the rapid growth of a large number of community institutions whose object was to provide both housing and support in a community setting for people who in another time and place would have been housed and supported in an institutional setting. As I said to you, in 1978 we would not have been housing these people in a social housing policy framework, but today, when we're providing funding support to over 1,000 community housing organizations, about a third of those provide at least some of their units to individuals who also need support. That third of organizations has provided roughly 10% of our total program in the non-profit and cooperative world in that format.

So through the 1980s, a dramatic change in social policy approaches, a dramatic growth in new organizations, and new approaches to supporting individuals in a community setting.

The two organizations whose audits we are considering today and considered last week are both examples of what I was setting out in more general terms.

Houselink itself began as an effort to try to ensure that as people left community mental health facilities in Toronto, particularly the Queen Street facility, they ended up in appropriate housing settings, and when they were there, they had some chance to work with people in their new community setting, essentially a service response. I'm sure the Ministry of Health will add more to that in its remarks.

Mr Tilson: Madam Chair, I wonder if I could interject at this point. I will say, Mr Burns, just to assist you, that legislative research has provided us with some detail as to what you're speaking of and we have all received --

Mr Bisson: I would rather he did this. I would like to hear from him.

Mr Cordiano: You should read this.

Mr Burns: I'm almost done, Madam Chair.

Interjections.

The Vice-Chair: Mr Tilson has the floor.

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Mr Cordiano: We do have a number of pressing questions we'd like to ask.

Mr Burns: And I'm more than happy to answer them.

Mr Tilson: It's simply to assist Mr Burns, in that most of us have read the material. Most of us are aware of what you're saying, just to assist you. But I appreciate you're trying to --

Mr Burns: I have only three more remarks I want to make by way of my general introduction.

Houselink began to participate in housing programs in the mid-1980s. It developed to the point where it now operates a portfolio which Mr Studden will touch on in a minute.

The Supportive Housing Coalition began in 1982 out of similar concerns, as a coalition of community agencies that dealt with vulnerable individuals. It began as well with a service focus, but again in the mid-1980s turned to providing housing in combination with its service support.

I have one last context remark I wish to make, and it's this: As a nation and as a province, we had, I think, a broad policy consensus that we wanted to move away from housing vulnerable individuals in large institutional settings. We believed it was both more appropriate for the individuals in terms of their own lives and much more cost-effective, wherever it was possible, to have those people live in a community context and support them there.

We did not choose, in this province or any other province in this country, to approach that problem with one model in mind. So what you find in our situation as the Ministry of Housing is that we provide support in one central program delivery framework to organizations with dozens of different approaches to the objective of supporting people on a community basis. Through the late 1980s it was quite common for us to need to, and in fact by common debt we did, sit down with the Ministry of Health, and not just the community mental health branch but other branches, with the Ministry of Community and Social Services and with the Ministry of Correctional Services to try and make sure that as these new community institutions developed, we sorted out the administrative arrangements. There was no one model at work here, and there were many, many, many times when we needed to spend some focused effort to sort out basic administrative arrangements.

The two examples we're looking at raised those kinds of questions and also illustrate how we tackled solving the problems that were identified in working with this new form of community organization for the kind of social policy reasons that I just alluded to.

That's the end of my remarks. Mr Studden has the history of our relationship with the two organizations. He's also got it in writing, but I think it would be helpful if again we just spent a couple of minutes outlining our specific relationship with each one from an operational point of view.

Mr Trevor Studden: My comments are quite brief, but I think they truly do touch upon some of the questions that were previously asked, so they are probably quite valuable to the committee at this point.

The Ministry of Housing's relationship with Houselink in terms of the development of permanent housing began in 1986 with the allocation of three projects for 91 units. I might mention that an allocation is a commitment from the Ministry of Housing to fund a specified number of units for some 35 years. Since 1986, Houselink has received allocations under various provincial housing programs, until March 1989. At that point in time, Houselink had been allocated 229 units in 17 buildings. As Mr Burns has already mentioned, all of the units are for persons requiring additional care or support.

Prior to July 1990, we had no reason to be concerned about the administration of the units being managed by Houselink. We had received unqualified audited financial statements for each year up to and including March 31, 1989. I should mention that as part of the program we rely quite heavily upon the professional certification given to our yearly request for financial statements.

We had received the statements for March 31, 1987, and March 31, 1988, and had made the annual settlements with Houselink. There was no indication of any difficulties. We also had the March 31, 1989, statements in our office waiting to be reviewed.

I should add that as part of our recognizing Houselink, we had recognized them as an experienced provider, and they did have at that point in time a management plan in place with our ministry.

In July 1990 we learned from Health's auditors of potential problems at Houselink. At that time, we requested our own audit, not to duplicate the work that had been done by Health, but to focus primarily on Houselink's housing operations. In doing so, we wanted to examine Houselink's internal controls and financial management. Internal controls, as previously mentioned by the auditors, are the checks and balances that should exist in any system. Appropriate internal controls are important because they are a means to protect an organization's assets.

By October 1990, preliminary audit findings and recommendations were available. These findings showed that there were some problems identified with Houselink's accounting, procurement and financial reporting practices as a result, as Mr Singh previously mentioned, of weak internal controls. We also learned that cost overruns for the construction of some of the buildings had been partially financed with operating subsidies.

At this point in time, we proceeded to finalize our review of Houselink's financial statements for 1989 and for 1990, which we had subsequently received. In early December 1990, a meeting took place with key people from Health, Houselink and ourselves, including representatives from the audit branches of both ministries. The purpose of the meeting was to discuss the audit findings, the amount of money to be repaid to Health and Housing and the steps we would all take to correct the problems and recover the surplus subsidies. At that time we had identified $389,000 of operating surplus as being due to our ministry and had so advised Houselink. We had, however, agreed to accept a partial payment of $240,000 at that point in time, and the balance was repaid in February 1993.

I would now like to talk about some of the corrective measures taken by Houselink and the ministry to rectify and improve the overall administrative controls.

In February 1991, a new executive director was hired by Houselink. This person has been instrumental in making changes and has worked very closely with our ministry staff to ensure that improvements were made. Houselink acquired assistance to help with the development of internal control procedures and good accounting practices as well as to train staff. Houselink has also installed a new computer system and has strengthened the role of its finance committee. Houselink now has a new audit firm and has repaid the money owing to ourselves and the Ministry of Health and has implemented all of our recommendations.

During this period of time, staff of the Ministry of Housing undertook a number of measures to correct the situation at Houselink and prevent problems in the future. We made a number of recommendations for internal change and monitored their implementation. We also assisted staff at Houselink in improving their financial records and have made sure that Houselink and their audit firm know exactly what is expected with regard to the financial reporting.

It has been reported that there was double funding of Houselink's operations by Health and Housing. So that there would be no room for doubt in the future, Housing staff have negotiated a cost-sharing agreement with the Ministry of Health. This agreement details the funding arrangement between Health and Housing, and a copy has been given to Houselink. Housing staff have also resolved the problems with construction cost overruns on two projects, making sure that Health's operating subsidies were not used for this purpose.

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I'd like to point out that Houselink has concentrated its efforts and activities on rectifying problems as they became known. They chose to focus their efforts on resolving their administrative difficulties; we strongly believe they have done so. We know Houselink has made the necessary changes and has put the proper processes in place.

In closing, I'd like to say that my staff are satisfied with the present status of Houselink's operations and we are confident the problems of the past have been resolved satisfactorily and in the most economical way.

In terms of supportive housing, our relationship with the Supportive Housing Coalition began in February 1983 with the Ontario community housing assistance program and an allocation for 10 hostel units at that point. Today, Supportive Housing Coalition manages some 625 units in 35 buildings. Once again, all of these units are for people requiring additional support or care.

Prior to 1989, as in the case of Houselink, we had no reason to be concerned about the management practices of Supportive Housing Coalition. There was no indication of any problem until Supportive Housing Coalition was audited by Health in 1989. Two outstanding issues from this audit were of particular concern to Housing. One was the allocation of administrative expenses between Health and Housing, and the second was the possibility of duplicate funding of vacancy losses.

As there was nothing concrete that indicated problems, we did not request our own audit until late 1990. The results of this audit show that there were some concerns with Supportive Housing Coalition's accounting, procurement and financial reporting practices and, once again, that internal controls were weak. Our auditors also noted that construction cost overruns had not been financed in accordance with ministry policies and that sales tax rebates had not been used to reduce the mortgage principal in a timely manner. Our auditors also commented on the land loan guarantees allocated to Supportive Housing Coalition, as a number of projects remained to be completed.

In April 1992, the central regional office met with representatives of Supportive Housing Coalition to discuss the audit findings. Later that month, Supportive Housing Coalition confirmed in writing its full intention to comply with the audit recommendations. I'd like to talk about some of what Supportive Housing Coalition and our ministry have done to resolve the audit concerns and improve administrative practices.

In an effort to improve its procurement practices, Supportive Housing Coalition is now involved in the segregation of duties and rotating its awards to contractors through a competitive process. They have also improved their financial practices and reporting, and work with their auditors to improve internal controls. In addition, they have agreed to apply for sales tax rebates in a more timely fashion and use these rebates to reduce mortgages. Finally, they have developed a very extensive management plan. We have reviewed this plan and consider it to be more than satisfactory. Supportive Housing Coalition is now requiring more involvement from the members of its board and finance committee in the area of budgets and financial reporting.

Staff of the Ministry of Housing also took steps to correct the situation at Supportive Housing Coalition and prevent a recurrence of the problems. In June 1992, the executive director of housing field operations wrote to Supportive Housing Coalition and advised them to concentrate their efforts on improving the management and financial administration of their existing portfolio. In the meantime, Supportive Housing Coalition was told there would be no new allocations until an acceptable management plan had been submitted to the central office. In cooperation with Supportive Housing Coalition, we have also reviewed the 1992 vacancy statistics and the charges to Health. No reporting problems were found.

In addition, my staff have worked with Supportive Housing Coalition to improve the method of budget allocation. All outstanding financial statements were reviewed and settled in May 1993. We will also continue to monitor Supportive Housing Coalition's compliance with the above recommendations.

In support of Supportive Housing Coalition, I would like to point out that its staff and board members have made significant changes. I know that since the results of the audit were known, they have focused their efforts and energies on correcting the problems. They have worked very closely and cooperatively with my staff to implement all of the recommendations.

In the spring of this year, Supportive Housing Coalition initiated a strategic review of its organization. This is being done by outside consultants and is currently in process. The report should be completed later this summer and is expected to make recommendations on the staffing structure and administrative procedures.

Although there is still work to be done, my staff are satisfied with the progress Supportive Housing Coalition has made. They have a proven track record in terms of both project development and management. They have demonstrated a dedication and commitment. We are confident that Supportive Housing Coalition has the necessary organizational skills to resolve its administrative problems and will continue to grow as a major housing provider in Metro Toronto.

My comments may have been a bit longer than I had honestly anticipated myself, but I thought they should all be out on the table. Thank you.

The Vice-Chair: Thank you, Mr Studden. Ms Hill.

Mr Cordiano: Madam Chair, there are approximately 50 minutes left.

The Vice-Chair: There are 55.

Mr Cordiano: I think members have many questions they would like to pose. We took almost 25 minutes for that presentation from the Ministry of Health. Not to be disrespectful to the people who came here today, I would personally like to ask some questions around some of the details on the audits that were presented to us, if other members agree. If they don't, we can carry on in the fashion that you suggested, Madam Chair.

Mr Marchese: I think we should give Ms Hill the opportunity to give some opening remarks, in which case it would leave each caucus with approximately 15 minutes anyway. We can ask them to come back, obviously, but I think it's important to have introductory remarks.

Mr Tilson: Are you prepared to extend your June 8 deadline?

Mr Marchese: I think that if we don't engage in a great deal of repetition, we can keep to that deadline.

Mr Tilson: It gives us 15 minutes of comments.

The Vice-Chair: I think it is important to give the Ministry of Health an opportunity to make some brief opening comments. In fact, they may address some questions that members have at this time in those comments.

I can appreciate your concern, Mr Cordiano. The comments from the Ministry of Housing did take longer than we had anticipated, but I think politicians are probably the last ones to criticize bureaucrats for talking longer than they should.

Mr Cordiano: We get paid by the word.

Ms Hill: I will try to keep my comments very brief. Primarily what I want to focus on are accountability mechanisms that we've put in place and the follow-up to both audits.

To begin with, I think it's important to understand that the Ministry of Health had expanded the budget for the community mental health programs in direct response to the deinstitutionalization of people living with a severe mental illness. Funding increased from $42.9 million in 1985-86 to $92.5 million in 1989-90, and to $142 million in 1993-94. From the mid- to the late 1980s, therefore, funding more than doubled.

During this period, existing programs were expanded and the number of programs increased by about 25%. The priorities during the 1980s were growth and expansion to meet the needs of the community. The focus of ministry staff was on reviewing proposals for new programs and setting up the services.

Due to the rapid growth in community programming and limited staffing resources within the ministry, there was definitely a delay in putting all the appropriate accountability mechanisms in place. We recognize that the controls were weak and the approval processes were much more informal in the 1980s than they are today.

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The Provincial Auditor undertook a review of the former community mental health branch in 1992. This audit clearly identified accountability mechanisms which needed to be strengthened in keeping with the increased focus on fiscal management and monitoring that was occurring across all ministries. The community mental health branch was aware of these needs, and preparations for improved practices were already under way. Since 1992, and reinforced when I joined the branch in March 1993, the following measures have been implemented or enhanced to strengthen the accountability of programs with regard to both financial and program management. I think these specifically address the Provincial Auditor's question about the information flow from our programs:

-- Detailed budget reviews for all programs are undertaken each year.

-- A new budget package was put in place for the 1993-94 fiscal year which combines the operating budget with an operating plan including goals and objectives and a program activity report.

-- An internal record of all financial reporting requirements for each transfer payment program is maintained and monitored. Appropriate adjustments are made to cash flows.

-- Program budgets are semiglobal budgets with separate categories for compensation and other operating expenses. Programs must obtain approval in writing before transferring funds between these categories and before any changes are made to the number of program staff.

-- All budget requests, including reallocations, are received in writing and are reviewed by ministry staff to determine if they are in keeping with ministry guidelines and whether any base budget or fiscal adjustments are necessary.

-- All funding approvals and budget adjustments are confirmed to programs in writing.

-- A program evaluation process was established in 1990. This ministry-staff-led process involves a review of policies and procedures and accountability mechanisms as well as consumer satisfaction.

-- A standard memorandum of understanding package was developed in 1992. The MOU package is currently being updated to reflect recent changes. Our plan is to ensure that updated agreements are in place with all funded programs by the end of the fiscal year.

-- Audits are conducted on a routine basis or when specific issues are identified.

-- In determining the implementation plans based on audit recommendations, priority is given to ensuring that corrective action with regard to accountability is immediately put in place. A balance between making appropriate recoveries and ensuring that services for vulnerable people are not disrupted is sought.

I'd now like to turn to the specific steps which were taken by the branch in relation to the audits of Houselink and the Supportive Housing Coalition.

Mr Tilson: On a point of order, Madam Chair: Do I understand that we're asking this delegation to return next week? We're now on page 4 and I assume we're going to go to page 8 of this presentation, which will pretty well take us to 20 to, I would imagine. As long as we have the assurance that the delegation is coming back next week so we can ask questions --

Mr Cordiano: It's constituency week.

Mr Tilson: Not next week; you're right. The next meeting of this committee.

The Vice-Chair: Perhaps I could ask the acting deputy minister, and the Deputy Minister of Housing as well, if your schedule would permit reattending on June 2, I think it would be.

Mr Burns: Recognizing that in the first instance, all of your agenda-setting is in your own hands, in our case we've set aside all four of your meeting times in our schedules, and any official of the ministries required by you for your own agenda will be available at any one of those times.

Ms Hill: The same with our ministry as well.

The Vice-Chair: Thank you. Mr Tilson, given the fact that the ministry representatives are willing to attend for the next meeting, can Ms Hill continue?

Mr Tilson: Sure. We could read it over, but that's fine. I'm just following along with her.

Ms Hill: The audit report identified that as of March 31, 1990, Houselink had $2,176,115 in surplus Ministry of Health funds. Following a number of adjustments, which Karim Amin reviewed last week and this morning, the final recovery amount was determined to be $1.735 million.

I would like to emphasize that after receiving the draft audit report in late November 1990, the branch recovered $1 million by February 1991 and an additional $735,000 by September 1991. The audit recoveries were completed by September 1991, in advance of the finalization of the audit report, which took place in October 1991.

In order to prevent Houselink's continued accumulation of surplus, a few weeks after receiving the draft audit report, the branch reduced the program's 1990-91 budget by $192,000 and its annualized budget by $130,000.

Once the final audit report was issued in October 1991, it become part of the public record. Since that time, the Ministry of Health has not received a single request from the public for its release. Had such a request been received, the report would have been shared.

The audit report identified a number of issues in the areas of RRSPs, merit pay/bonuses, salary increases, sabbaticals, audit fees, landscaping and other expenditures, as well as internal control procedures, board structure and management practices. These areas were reviewed in detail by the branch.

The branch confirmed that the RRSPs were part of the employee benefit package which was established under the authority of the board of Houselink. The RRSP contributions, representing approximately 3% of compensation, were spread out among up to 17 staff per year over a five-year period.

The branch confirmed that the merit pay and salary increases were also spread out among numerous staff over a several-year period. The merit pay practice was discontinued following the audit.

The branch confirmed that the total remuneration for staff, including salaries, merit pay and benefits, was within the range of approved salaries for staff of community mental health programs at that time. Had prior ministry approval been requested for the salary increases, it would more than likely have been granted and incorporated into Houselink's approved budget.

Since the audit, Houselink has followed the appropriate approval process with regard to salaries and benefits.

The branch confirmed that sabbaticals were a board-approved policy. The sabbatical policy was discontinued following the audit.

The branch confirmed that in direct response to the audit, Houselink implemented internal financial control procedures with regard to expenditure approvals and cheque-signing.

The branch confirmed that Houselink set up a system for maintaining appropriate documentation with regard to all expenditures, including expenditures related to attendance at staff development conferences.

The branch confirmed that Houselink implemented internal procedures whereby public funds cannot be spent on parking violations, liquor for staff-client functions and charitable donations.

With regard to the unapproved expenditures, the options at the time for the branch were to recover the expenditures or to allow them. Given that the funds had already been spent and that the agency's primary revenue source is public funding, the following was taken into consideration with regard to possible recoveries.

The branch could not have required the directors of the corporation to repay the amount, as directors of incorporated companies are immune from personal liability for the actions of the corporation.

The branch could have demanded that the non-profit corporation repay the amount. However, repayment would have been difficult for an organization which receives most of its revenues through public funding. This action would have brought about costly legal proceedings for the ministry and perhaps dissolution of the corporation. The corporation would have had no legal basis for demanding that the program staff personally repay the salary increases they had received.

The branch could have reduced the program's transfer payment. This action would have caused service delivery reductions and would have resulted in punishing the clients of the program, and in essence it would be the ministry paying the ministry back.

It was the determination of the branch that either of these options would have led to significant instability within the organization and ultimately would have had a negative impact on the clients of the program.

After careful review of details of the payments, and recognizing that the branch's accountability expectations were still in their developmental stage in the late 1980s, it was accepted that the board's understanding of its autonomy for approving expenditures was different from ministry expectations. Accordingly, it was the decision of the branch to allow the payments and to focus on ensuring that corrective action was put into place immediately. As mentioned earlier by Mr Amin, and now, Houselink implemented corrective internal control and management procedures in direct response to the audit.

With respect to the Supportive Housing Coalition, the Ministry of Health has worked with the coalition to address the issues identified in the Ministry of Health audit related to lieu-time payments, disposition of donations, joint funding arrangements with the Ministry of Housing and administrative practices.

It is important to note that the Ministry of Health audit did not identify any financial recoveries. The Ministry of Health has since clarified that the lieu-time payment was provided from the Ministry of Housing funds for work related to Ministry of Housing purposes. This is not contrary to Ministry of Housing policy. There is no question regarding the fact that the overtime was worked.

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Under these circumstances, the final determination of work performance and appropriate compensation rests with the board, as the employer. The board has significantly reduced the utilization of external professional accountants, but they maintain that, given the complexity of their financial portfolio, they still require some outside support. They will be phasing this practice out over time as their own staff enhance their professional training.

The ministry has confirmed that the Supportive Housing Coalition board of directors has established a comprehensive procedure to deal with the acceptance and disposition of charitable donations. Ministry of Health and Ministry of Housing staff have met on several occasions to review funding arrangements and to confirm that each ministry is not providing more funding than appropriate. These discussions are ongoing and will be coordinated with both ministries' responses to the Supportive Housing Coalition's current organizational review, scheduled to be completed in June.

Finally, the ministry has confirmed that all the matters related to internal controls, cheque-signing practices, board minutes etc have been fully addressed.

In conclusion, accountability standards in general are different in 1994 than they were in the late 1980s. We are confident that the mechanisms we have in place today, which continue to be refined, allow our transfer payment agencies to achieve a balance between appropriate accountability and independent program management. In this way, the ultimate goal of all of our programming -- that of providing necessary support services for vulnerable people -- is being fostered.

The Vice-Chair: Thank you, Ms Hill. We'll begin with our rotation, 12-minute sessions.

Mr Bruce Crozier (Essex South): I just have a quick comment, and I'll only ask one question because I think usually, by the time we get finished, all the questions I've got have been asked anyway.

I hope the committee has moved on from the point of trying to define what is fraud and criminal with the auditors to an area where, although some of what we may have seen done on the management level may be criminal in the quotation mark sense, essentially what we want to address now are perhaps the concerns we've had with past management and those steps that have been taken to improve that management.

In your address, Ms Hill, you have made the comment on page 6 that "the community mental health branch could not have required" and so on, because "incorporated companies are immune from personal liability for the actions of the corporation." I'd like to have a legal opinion on that, if in fact someone can't give me one today. I really question that statement, number one. I'd like a legal opinion. It has always, or at least recently, been my opinion that in fact directors are responsible and that's why you have directors' liability insurance.

Ms Hill: We certainly can bring legal counsel with us to the next session, if that would answer the question.

Mr Crozier: Is that the way we would normally get the opinion?

The Vice-Chair: The ministry would be invited to either do it by written response before the next meeting, or in fact they could bring their legal counsel with them to the next meeting, whichever is the more appropriate option.

Mr Crozier: Whichever is the most economical.

Ms Hill: Yes.

Mr Cordiano: I would like to ask the Ministry of Health, with respect to the statement you made in your submission to us, the last part of that statement says that the standards for accountability in 1994 are different than they were in the late 1980s.

I have before me a document that's dated April 21, 1989. It's to Martin Barkin, Deputy Minister of Health. It's regarding the first audit, I believe -- at least, that's the only information I have -- about the Supportive Housing Coalition. This was for the year ended March 31, 1988. From that audit -- and you're probably familiar with this so I don't need to go back in time here and go into detail in what was suggested -- I think it was pointed out that there were administrative expenses between Health and Housing, duplication of expenses -- these were the things that were of concern in this audit -- review the budget of the Supportive Housing Coalition, avoid duplication of funding, a number of other things, fringe benefit package of the program and consider establishing a guideline for all the community mental health programs. This was dated April 21, 1989.

The audit report was for the year ended March 31, 1988. There were a number of recommendations that were put forward regarding the practices, recommending that a petty cash book be maintained, so on and so forth. There were a number of other recommendations about accounting records, about fringe benefits, as I pointed out earlier, capital expenditures, all of the same things that were recommended in subsequent audits.

I look at this, a subsequent audit, which was dated in a letter to Michael Decter, June 8, 1993, on the Supportive Housing Coalition. It reads pretty much the same as the previous audit. There are a lot of concerns around expenditures, the practices, the lack of guidelines etc, the lack of administrative procedures, and fringe benefits comes up again.

By my accounting, from April 21, 1989, to January 8, 1993, this audit and the subsequent audit was for the period April 1, 1988, to March 31, 1991. What concerns me about your last statement, that you have improved your accountability standards, is that it took almost -- I suppose, if we were generous, we might say that in April 1992, subsequent to the reporting of the auditor and his findings that either Health or Housing started to take additional action, additional audits were requested of a variety of agencies, responses were given to the auditor's findings, the Ministry of Health came back to this committee with a plan for improving accountability and for including new management systems for tracking allocations and a variety of other things.

At the end of the day, I would say it took quite a period of time between that first audit of Supportive Housing Coalition and the last audit, if I'm not mistaken, which was handed to the deputy minister in June 1993, unless this letter is incorrect. That's what, four years? It took four years in which to start to take action.

Ms Hill: Of the two reports you were referring to, one of them, the first one, speaks to both requirements we should make of programs but also improvements we should make in the branch. The second audit report speaks more to the improvements that are required in the Supportive Housing Coalition. There is no doubt that in terms of our own accountability mechanisms, as I said, the Provincial Auditor's report indicated that we had considerable movement to make.

What I really tried to indicate with my comments is that since the Provincial Auditor's report, we have been moving forward, full steam ahead, to strengthen all our accountability mechanisms, because we believe very strongly that it is putting the accountability mechanisms in place, up front, that makes all the difference to our funding relationships with our transfer payment agencies.

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Mr Cordiano: So do we. I would just point out that when we were talking earlier with the auditors about expenditures that were unauthorized -- and the figure was $248,000; I keep saying $242,000 -- this was done after the fact. The frustration that I have, and I think the biggest concern people have, in reviewing these audits is that action was initiated, concerns were expressed, back in 1989, at least beginning with some concerns around the Supportive Housing Coalition.

Some actions, as you point out, were taken at that time, no doubt, but following that is a letter to Michael Decter on Houselink on October 24, 1991, over that audit, again relating back to this expenditure of $248,000. What we're trying to get at here is that there was a lack of administrative procedures, or at least that there were guidelines lacking, which all points to the fact that there were no operating agreements with regard to most of these agencies. It's been pointed out by the auditors that, of the audits they conducted, half of those agencies did not have operating agreements with the Ministry of Housing. As a result we have expenditures that occurred, unauthorized expenditures that were not recovered and subsequently approved. Why were those expenditures approved subsequently?

Ms Hill: I went through in my comments, but I certainly can go over them again, why that amount of $248,000 was approved. I refer you to page 5. If you'd like me to walk through the $248,000 --

Mr Cordiano: I've heard what you've said, and what you've said is, "We could not recover those from individuals." There was a problem to do so because of the fact of lack of liability extended to those people. Obviously, there was legislation that was passed by this present administration dealing with liability or negligence on the part of directors of the board of any corporation. You've suggested that you will get back to us. I just find it difficult. When did you authorize these expenditures, on what exact date?

Ms Hill: Let me just pull out the chronology of events that I have.

Mr Cordiano: That you haven't made clear in your documentation.

Ms Hill: Yes, I certainly can provide you with the chronology of events if the committee would like that. The process we followed is that we wrote to Houselink in April 1991, requesting a formal response to the draft audit report, every item of it. Written feedback was received in April as well, which included a set of internal control procedures which were implemented in direct response to the audit. As well, during the process of reviewing the draft audit report, we reviewed those expenditures with the agency. Specifically, as I said, it was not simply a matter of whether we could or could not recover. We went through all of the expenditures to determine whether, if they had sought approval, we would have approved them, which is an issue for us because if there are poor management practices in place -- what we were trying to determine is whether the funds were used for the purpose of appropriately serving the clients of the agency and were in line with other approvals we've given when they've been asked for. The $248,000 largely fell into that category in terms of the RRSPs and the merit pay and so on, which I've outlined on page 5.

Mr Cordiano: I'm going to have to move on and allow my colleagues to ask questions, but this really is the heart of the matter. I would like to get back to you when you do come before us again on the details of those expenditures and what you did authorize and what was approved after the fact.

The Vice-Chair: The official opposition's time has expired, so we'll move to the third party.

Mr Tilson: I appreciate that the Ministry of Health, and perhaps the Ministry of Housing, for that matter, will be providing us with some sort of legal opinion on the liability of directors and staff of these types of service organizations. My understanding is that in cases of negligence, or even illegal activity, for that matter, they certainly can be held liable. In fact, that is why executive directors and treasurers are bonded and that is why, as Mr Crozier has indicated, no directors -- to my knowledge of any groups that I've ever spoken to -- would ever agree to sit on boards of directors without the organization providing liability insurance.

I'm wondering, Madam Chair, if I could direct a question to Ms Anderson. Would she be in a position, through any of her resources, to provide us with an opinion on that topic of the issue of liability of directors and staff of non-profit corporations?

Ms Anne Anderson: We can certainly do that for you, have some of our legal staff do an opinion.

The Vice-Chair: Mr Tilson, I think we should get a legal opinion on it, but I think the confusion about it was that the government had introduced legislation concerning the liability of directors. They had included non-profit organizations but, if my memory serves me properly, I think the government withdrew that portion referring to non-profit directors. That's why we're having difficulty grappling with it, but the legal opinion can certainly clarify it.

Mr Tilson: I'm only saying that with the limited experience I've had with non-profit housing corporations, directors and staff have had some sort of insurance. If that were the case -- and I'm getting back to the question that was started to be canvassed by Mr Cordiano, and that is the whole issue as to why there was approval given. That seems to be much the basis of why the approval was given, that people may have done things, illegally or not, or been negligent, in which case it would cost action to proceed against them and there may not be any recovery. I believe that could be the case. If I'm wrong, that's fine; I'd just like to hear some specific opinion.

Getting into other areas, and I suppose this applies to either of the ministries or both of the ministries, and that is -- Mr Studden hasn't had an opportunity to speak on this topic as to approvals, and maybe we should do that first. My understanding is that many boards of directors have had little knowledge of finance and management and that therefore many of the decisions were left to the position of the executive director or other staff. I'd like some comment on that issue, as to the qualifications of the boards to deal with these types of financial decisions, presumably on the recommendation of executive directors or paid staff.

Mr Burns: Are you asking a general question about how we deal with this or are you asking specifically about one of these organizations back at the time of the audit?

Mr Tilson: We know that specifically with Houselink one half of the board members were residents. We know that and we know they simply had little knowledge of financial matters, and much of the justification for granting the ratification of these decisions was based on the fact that these decisions had been approved by board members. So, yes, the question is specific towards Houselink, but if that is the case, then it could apply to the whole system.

Mr Burns: Thank you. That makes it simpler for us to address. What I'd like to do is just take 30 or 40 seconds on the general question and then ask Mr Studden to address the question of his meetings with the board from our point of view, which took place at the beginning of this, to look at the question of developing better board practices and training where necessary.

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We presently require, and have for some time, groups who wish to sponsor and manage non-profit housing to demonstrate to us that they have the capacity to do that. One of the things that they have to do is demonstrate that in their membership and in their board they've got a good, solid cross-section of the skills that you need to tackle this kind of responsibility.

Having said that, we also encourage people, and in the future will require them, to have some participation of residents on boards. There's nothing about that element by itself which would, in my view, suggest that a board as a whole didn't have the capacity to deal with its responsibilities. You'd have to look at the composition of the whole board, and as I said, we do that when people are now entering our system and applying for financial support.

Mr Studden can speak to both Houselink and Supportive Housing Coalition at the time we discussed their situation with their boards.

Mr Tilson: I quite agree, and maybe you're right: We should hear from Mr Studden on Houselink and Supportive Housing. I guess we're dealing with respect to Housing throughout the whole policy with respect to people who are on boards. But the comment is that if this practice is that we allow some sort of understanding -- eventually, you know, Mr Burns, we're going to start talking about operating agreements.

Mr Burns: Yes.

Mr Tilson: You know that's coming. But specifically on the topic of qualifications, in other words, just anyone can't sit on these boards, particularly when we're dealing with thousands, millions, of dollars. So that's very important, I think, that you relay to the committee the ministry's specific policies -- and in some instances this would apply to the Ministry of Health -- as to the qualifications of board members who will be making, specifically on non-profit boards, very important financial decisions. I know you're finished, but somewhere along the line I'd like you to tell us what the ministry's policy is on that issue.

Mr Burns: As I said, we require people who are now wishing to enter our program to demonstrate they have the capacity as an organization, including their directors, to tackle their responsibility and --

Mr Tilson: How do you do that when half the board, specifically with Houselink, didn't have those qualifications?

Mr Burns: I haven't seen any evidence that the resident directors, as part of a larger board, were incompetent to be directors or attributed to a situation where the board was not able to grapple with its problems. I think the evidence is that, confronted with the assessment of its weaknesses, the board worked quite diligently in its own terrain and with our staff to address the questions that were raised.

Mr Tilson: The problem is, Mr Burns, that the audit said just that, that half the board members were residents who had very little knowledge of finance and management. That's what the audit said.

Having said that, we know that's a fact at some point. Both ministries have made it very clear that this has all been clarified. I'd like to know how. That's a very serious allegation that's been made by the audit people.

Mr Burns: At the level of our policy approach, I've indicated to you what our approach is. With respect to the individual organizations, as Mr Studden indicated in his opening remarks, we sat down with the board and the executive staff and worked with them to create a work plan, a program, to address the issues raised in the audits.

Mr Tilson: Ms Hill, have you got any comments on this issue of qualification of directors, dealing specifically with the audit report?

Ms Hill: I think Houselink itself can speak probably in much greater detail to their own orientation packages and training for board members. But I think what did change following the audit was much clearer internal controls put in place and requirements of board members.

Mr Tilson: What are they?

Ms Hill: The requirements?

Mr Tilson: Yes.

Ms Hill: I'm not sure of all the details right at my fingertips. We can probably provide them for you.

Mr Studden: Just in terms of the board of Houselink, as Mr Burns said, I did make some opening comments with regard to the fact that it's not just the board that we rely upon, but I'm sure the board themselves rely very heavily upon the information they're getting from their audited statements that they have been receiving. In the case of Houselink, they are an experienced provider. As Ms Hill did indicate, there is ongoing training for board members that I know is provided in the case of Houselink. Houselink as well has a very extensive management plan, and they have had a management plan in existence for quite some time.

Mr Tilson: What are the qualifications to be a --

The Acting Chair (Mr Bruce Crozier): Mr Tilson, the time will have expired by the time that question is finished, 11:46.

Mr Tilson: What are you saying, that I can't ask any more questions?

The Acting Chair: Exactly. I was trying to say that nicely.

Mr Tilson: Very kind, Chair.

Mr Perruzza: Very quickly, I got a package of information here which I just had an opportunity to scan very quickly, and it's really all from the Ministry of Housing. Last week I also asked the Ministry of Health, so I guess that information from the Ministry of Health is coming.

Ms Hill: Yes, it's coming.

Mr Perruzza: My questions are really just for the Ministry of Housing reps. They're pretty standard applications in the way they're set up; I guess just the numbers change from project to project, application to application.

Every community group I've ever known really has to communicate with you a number of times before it's allocated any money, so I suspect that there are further budgets and further correspondence other than this. But is this what you review when you allocate moneys to groups; you just go through this and then you send this confirmatory letter to them?

Mr Studden: If I could just touch upon the package Mr Perruzza has in front of him, in case everyone is not quite aware, it contains the financial statement review process that the Ministry of Housing undertakes, as well as the budget review process. For the period in question, that being 1988-89 and 1989-90, we have provided the budgets for Houselink and the audited financial statements for those years.

The package does have, I think at the beginning of it, a fairly extensive review process that we undertake. I can go through that process, but in terms of your question, Mr Perruzza --

Mr Perruzza: My question is this: You look at these numbers. How do you screen this stuff? How do you say, "Sure, shelter loan amount is $226,334"? How do you confirm that number? Do they just submit that and you say, "Okay, sure, we accept that, $226,334 for that item we're going to give to you"? How do you deal with it?

Mr Studden: In terms of the budget review, for the first-year budget, a very extensive program is put into place so that we know that what is being asked for makes sense in relation to other non-profit corporations, so that we're not giving them more, whether it be for janitorial services or anything else. We establish comparables for the actual budget and in terms of the financial statements. Then when we do receive financial statements, we make comparisons of the financial statements against budgets and against other non-profit organizations or comparables.

Mr Perruzza: So you do that for the first time and then later on you compare them and you say, "Sure, you need some money for roofing; here it is," $4,000 or whatever it is that they're asking for. Then you say, "Okay, here's the $4,000 for your roof," or do you say, "Oh, yes, Jeez, these guys really do need a new roof so we'll give them the $4,000"?

Mr Studden: In terms of the repairs, we look at it as being reasonable or not reasonable. We would not go out and look at the actual building ourselves. We expect the non-profit corporation to undertake that itself.

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Mr Perruzza: In looking at this stuff it seems pretty standard, and they've crossed the t's and dotted the i's and you just give them the money. So what you're saying is that you've really placed the onus for honesty on them as opposed to yourselves.

Mr Studden: In terms of the onus for honesty, yes, it is placed upon the non-profit corporation, but at the same time we do scrutinize the financial statements and the budgets on a regular basis -- yearly, as a matter of fact -- to ensure that what is being asked for is not at all unreasonable.

Mr Perruzza: Then you sent back this letter, and basically it's a confirmatory letter. Is Elizabeth Williams still in the Ministry of Housing? That's Elizabeth Williams, and you're Elizabeth Williams's boss.

Mr Studden: Yes.

Mr Perruzza: And you've been there since, both of you?

Ms Elizabeth Williams: Since 1986.

Mr Studden: Since 1989.

Mr Perruzza: Okay. So then you sent back this letter, which basically says: "With regard to audited financial statements, these are to be submitted within five months of the project's year-end. Guidelines for submissions....If you require any further assistance...."

There are two audits here that you supplied in the package; I just want to ask that question in a minute. There's a letter that we got from the researcher which is dated March 25, 1991, to Mr Studden by Mr Singh and it says, "As per your request," here is the audit of Houselink. When did you ask the Mr Singh to do the audit?

Ms Williams: Of Houselink?

Mr Perruzza: Yes.

Mr Studden: July 16, 1990.

Mr Perruzza: That's how this other letter went out, which is basically unsigned, again from Elizabeth Williams, which says: "To the board of directors of Houselink Community Homes. Give us back $240,000 because you've got a surplus there."

Mr Studden: This was all part and parcel of the audit and the review of the financial statements for the two year-ends involved.

Mr Perruzza: Right. I want to ask a question on that in a second. So you asked in July 1990 for the auditors to go in, and they reported to you about a year later, on March 25, 1991. Right?

Mr Studden: Yes.

Mr Perruzza: But in the interim, you sent out a letter on December 5, 1990, which said: "You guys owe us $240,000. Give it back." Right?

Ms Williams: Yes.

Mr Perruzza: The two financial statements by Mintz and Partners: One is dated March 31 and one is dated and stamped -- I guess it's a Ministry of Housing, finance and administration stamp -- June 14, 1990, just to get that on the record. I guess that's the date. So a month later you asked for an audit. Right?

Ms Williams: But not as a result of receiving that.

Mr Perruzza: No?

Ms Williams: No.

Mr Studden: The financial statements you have in front of you are a regular, ongoing process. The request for an audit was as a result of our discussions with Health. So the world did not stop at any point. We continued dealing with the financial statements. That's why, in my opening address, I made mention of a number of dates and the statements we had on hand at that particular point in time, because we continued to review statements and deal with Houselink on a regular basis.

Mr Perruzza: Okay. So you're saying the onus for honesty is with the group, right? You got a financial statement dated March 31, 1989. It's stamped here -- I presume it's stamped by you -- June 14, 1990. You get it 14 months later, right? This statement says that this group is running a surplus, but you still wait for the Ministry of Health to say to you, "Go in and take a look, because there's something wrong here"?

Mr Studden: In terms of the statements, I'm not quite sure -- you're telling me what the dates are.

Mr Perruzza: Yes, but this is your package.

Mr Studden: I'm saying there is very much a process involved for these statements where it is expected that the statements be sent in to us six months after the year-end.

Mr Perruzza: Five months, it says in your letter.

Mr Studden: Sorry. Yes, five months.

In terms of our having received those statements, and in that case we may not have received that statement in a timely manner, we would have been dealing with them -- I'm not quite sure why we didn't receive the statement in a timely manner in that particular case. But there would be no indication to us that anything was wrong.

Mr Perruzza: When you don't get a statement, do you send out a letter saying: "We haven't gotten your statement. Get your act together and get us a statement"? Can we have that information as well as part of this package so that we can figure out where -- I guess what I'm trying to figure out is, is there a driver in the car or are we just headed down the road? So I look forward to that information. I'll turn it over. I know my colleague wants to ask you a couple of questions. But I have several others.

Mr Marchese: Madam Chair, I'd like to allow him the opportunity to finish his questions for the day.

The Vice-Chair: Since there's only actually about a minute left, Mr Perruzza, maybe you could finish off your time, unless you've completed your questions.

Mr Perruzza: They would take a lot longer than a minute, Madam Chair. They're going to take several days, in fact.

The Vice-Chair: I'm not quite sure we have several days.

Mr Perruzza: What I'll do is, I look forward to the information from both ministries and to reading that.

The Vice-Chair: Thank you. I appreciate the offer of ministry representatives to be in attendance at our next meeting, June 2. It's my understanding we have a consensus by committee members that we would like the deputies and their staff to be back for the June 2 meeting.

Mr Crozier: And the time?

The Vice-Chair: The time would be 9:15. I think we had unanimous agreement that we would at least attempt to start at 9:15.

Mr Marchese: Madam Chair, could we have subcommittee for a few moments?

The Vice-Chair: Certainly. I would ask Mr Cordiano, Mr Tilson and Mr Marchese to stay for a subcommittee meeting. The public accounts committee stands adjourned until 9:15, Thursday, June 2.

The committee adjourned at 1158.