Legislative Assembly of Ontario

1994 ANNUAL REPORT, PROVINCIAL AUDITOR

CONTENTS

Thursday 17 November 1994

1994 annual report, Provincial Auditor

Erik Peters

STANDING COMMITTEE ON PUBLIC ACCOUNTS

Chair / Président: Cordiano, Joseph (Lawrence L)

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

*Acting Chair / Président suppléant: Crozier, Bruce (Essex South)

Bisson, Gilles (Cochrane South/-Sud ND)

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

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

Marchese, Rosario (Fort York ND)

Marland, Margaret (Mississauga South/-Sud PC)

*Martel, Shelley, (Sudbury East/-Est ND)

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

*Perruzza, Anthony (Downsview ND)

Tilson, David (Dufferin-Peel PC)

*In attendance / présents

Substitutions present / Membres remplaçants présents:

Curling, Alvin (Scarborough North/-Nord L) for Mr Callahan

Johnson, David (Don Mills PC) for Mr Tilson

Mammoliti, George (Yorkview ND) for Mr Marchese

Murphy, Tim (St George-St David L) for Ms Poole

Phillips, Gerry (Scarborough-Agincourt L) for Mr Cordiano

Sutherland, Kimble (Oxford ND) for Mr Bisson

Clerk / Greffier: Decker, Todd

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

The committee met at 1010 in committee room 1.

1994 ANNUAL REPORT, PROVINCIAL AUDITOR

Consideration of the 1994 annual report of the Provincial Auditor.

The Vice-Chair (Ms Dianne Poole): Good morning, I'd like to convene this session of the public accounts committee. Today we are going to be reviewing the Provincial Auditor's report and determining what areas the public accounts committee would like to study.

I'd like to begin by offering the Provincial Auditor an opportunity to make some opening remarks, including, if he so chooses, any recommendations or suggestions of areas where he feels it might be appropriate that we pursue recommendations in his report.

Mr Erik Peters: Again, as we did in the previous year, we focused on three areas: accounting, accountability and value for money, and all three are areas the committee might want to follow up.

In the accounting issue, we are certainly very pleased, and have expressed that many times, that the public accounts now are based on the standards for good accounting and financial reporting practice that are used by other governments in Canada. The concern we had was that the interim actual results that are presented with the budget when it is brought forward are doing two things.

First, they are focusing essentially on the consolidated revenue fund itself and not on the other financial activities for which the government is responsible that are outside the consolidated revenue fund. There are three particular kinds of enterprises that are concerned with that and I just want to go over those very quickly.

There are, first, so-called government organizations. Those are government organizations that are essentially run by the government as well, directly, and they virtually receive their funding directly from the government itself. In the current climate, for example, the capital investment corporations clearly fall into that category. Some are intended to do otherwise eventually, but they are still currently fully relying on government funding for their activities. They will be included in the government reporting entity, if you will, on a line-by-line basis. Every one of their activities should be included and is included in the public accounts.

The second area of activity the government is in is so-called business enterprises. Examples of those are the Ontario Lottery Corp, for example, which is independent and declares a dividend to the government. Another example is the Liquor Control Board of Ontario, which also declares a dividend to the government. These are, under the new accounting rules, consolidated on what is called the modified equity basis in which the government picks up the dividend, essentially, reverses the dividend when it consolidates it, and then takes in the net equity that the province owns in these organizations.

The third area that I would like to spend a minute with you on is what we deem to be trusts. These are organizations that essentially are, by legislation, at arm's length from the government itself, and where the legislation itself is prescriptive in such a way that the government can actually not receive dividends from them. Conversely, the government is not on the hook to fund them if they get into trouble.

A good examples of that, at least the way the current legislation is framed, is the Workers' Compensation Board, which under the Workers' Compensation Act is independent of the government. I believe, if I read the testimony correctly by the Secretary of the Management Board of Cabinet, the intention even of the new legislation is to keep them financially independent of the province.

That is a difficult area for us as auditors, I should add to that. That's why we made special mention of it in our annual report, because the more control the government appears to exercise over these activities, the more it gets roped into the government entity. An example of that: If the government gets into the business of determining what kind of benefits the Workers' Compensation Board should cover, that could very well be deemed to be such a significant element of control that ultimately we may have no choice but to include it in the government reporting entity. So this is an area that both the Ministry of Finance and we are watching very, very carefully, how this is being done.

The other major organization which is of interest in this connection is certainly Ontario Hydro. We had quite a bit of legal advice when we conducted the audit, and so did the Ministry of Finance, to determine whether or not Ontario Hydro needs to be included. Finally, the conclusion that was reached both by the lawyers we had as well as ourselves, and total concurrence of course by the Ministry of Finance -- there was no arm-twisting or anything like that at all -- was that Ontario Hydro is sufficiently independent that it need not be included in the government reporting entity, firstly because the areas where it is a potential drain on the government are already disclosed; in other words the guarantees are disclosed, and the fees being paid, and they are in addition to the debt that was actually borrowed by the province and then flowed to Ontario Hydro, which is also clearly disclosed in the financial statements.

The point is that the Power Corporation Act itself deems Ontario Hydro to be neither profitable nor a loss maker. It's supposed to break even. If they have money, they can set it aside in a reserve to repay debt. If they don't make money, they can call on that reserve and call it down. A classic example of course occurred during the year in which the $3.5-billion write-off by Ontario Hydro did not result in a call on the government to say, "Bail us out in some way." That helped in the process.

So that is the third category. These are the two major examples.

If I may be allowed an off-the-report comment, the press for example added up the debt to the $150 billion. Therefore we're looking at the $33 billion, $34 billion of Hydro as really being outside the government domain. We're looking at the $12 billion on the Workers' Compensation Board as outside the domain. But we have a careful watch on whether they should be included or excluded, depending on the activities that are going on. This is not in our report, but we had frequent discussions, not with the Ministry of Finance necessarily but also with the Ministry of Labour and even some discussions with some board members about the new structure of the Workers' Compensation Board to ensure that this independent and arm's-length relationship is safeguarded. In any event, the major problem there is one of the government-reporting entity, inclusion and exclusion.

The second point we're making very strongly in our report is that the Minister of Finance, as late as November, related the fact that he will in the new budget prepare a reconciliation between what is called the modified cash basis of accounting which was used in the past with the new Public Sector Accounting and Auditing Board, or PSAAB, rules of accounting. That would be presented with the new budget when it is done.

What does concern us, and with my eyes wide open I'm stepping into a bit of controversy here, is that there are certain transactions that are planned in the budget which don't depend on these accounting rules. They depend simply on an assessment of financial reality. These we have pointed out in our report and these we may want to deal with.

For example, all the loans made to universities, hospitals and municipalities, by the PSAAB recommendations and by actually the so-called clean sweep that occurred in 1986, since that time, are considered grants. A little anecdote: I had many phone calls, for example, from hospitals calling me up and they said to me, "Wait a minute, our treasurer has just given us the financial report and he says that the loan we got from the province, we have to disclose it as a grant."

They said: "Is that right? As Provincial Auditor, do you have anything to say about that? How do we vote when we vote on those financial statements?" I said: "No, it's absolutely right. They are grants."

There is something in the Canadian Institute of Chartered Accountants called the emerging issues committee. I'm not sure where it came from -- I can assure you it didn't come from my office -- but somebody asked for a ruling by the emerging issues committee on the loans flowed through the capital investment corporations set up under Bill 17. The ruling from the Canadian Institute of Chartered Accountants was very clearly that these are grants, they're not loans.

If you in the public accounts were to, for example, look at the accounts of OFA, the Ontario Financing Authority, the loans that were flowed through the Ontario Financing Authority are not even shown in their balance sheet, by agreement. We discussed this at length and it was not even a matter of negotiating. There was full agreement by the Ministry of Finance that this was the proper way of disclosing them.

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The Ontario Financing Authority essentially discloses these loans the way, to give you an example -- I hope I'm not outside the realm of the way you deal with it -- many trust companies, for example, administer the pension plans for many corporations. I don't know whether I'm putting the right one in, but I know Royal Trust, for example, may administer pension plans for Stelco -- I don't know whether they do or not -- but Royal Trust would not consider that an asset of its own. They call it an asset under administration and, as such, exclude it from their balance sheet because they have really no role in it other than being the custodian and charging a fee and potentially giving some investment advice. That is another possibility. But taking this concept into account, there was absolutely no disagreement nor was there any debate in preparing the accounts of the Ontario Financing Authority and leaving these debts off their book. They also were in the statements of the Ontario Realty Corp.

We called the Ontario Financing Authority a conduit, which is the way it is currently operating. Ultimately, there may be plans to do something different with that corporation, but the current financial reality is that they are operating currently as a financial conduit.

The hospitals, for example, have included these as grants although there's no doubt about it, lawyers were engaged, lawyers drafted up loan agreements, interest rates were struck, severe negotiation took place, particularly between the Ontario Realty Corp and the Ministry of Finance, to determine rates that were to be paid. But the fact of life remained that these loan agreements were a legal form but not financial substance.

So this is why we're talking about the $900 million, and when we looked at the current budget, as prepared, again these transactions are budgeted to be outside that. My office -- and I want to be very, very clear on this -- cannot, should not and does not want to audit the budget. We're looking at transactions that are planned to take place. My office reports on these transactions when they take place. So what we're looking at is the comparison as to how these transactions are financially planned and what the financial reality is in which they are actually transacted when they come to the front.

So these transactions in the past budget, for example, for the hospitals, had been budgeted as loans. Indeed, the mechanics were put in place, loan agreements were struck, lawyers were engaged, lawyers drafted loan agreements, boards of directors approved loans, but when the financial statements were presented, for example, in the case of hospitals to the boards, they found themselves approving a grant in the financial statements because that was the financial reality.

That was how the transactions were done. So what we are continually saying is that we should very carefully look at how the transactions are actually executed; how they are planned, how they are executed.

The second part of our concern is these transfers of real estate from the government to people like the Ontario Realty Corp. The difficulty again is that there are legal agreements struck. They are all there; they are all signed by independent parties. The chairman of the board of the realty corporation will sign, the Deputy Minister of Finance will sign, in some cases even the Minister of Finance.

However, the difficulty with that -- and I hope the Chair will stop me if I get too long on this, but I think this part is very important to understand -- is that the potential is here that if these transactions are transacted the way they were last year, the budgeted deficit may be significantly higher when it actually comes out in the public accounts. This is the concern of the office and this is the concern we are raising on the accounting issue in this report.

The second transaction is these transfers of existing assets to the realty corporation from the government. There are two kinds of these and I just want to spend a minute on that.

Firstly, there are assets which the province declared surplus and put into the realty corporation and said, "Please dispose of these as best you can." We have agreed that is legitimate outside business, that is, holding assets for resale, and those assets we have left in the public accounts of the province. That is one part of the Ontario Realty Corp's activities that has all the earmarks of earning the taxpayers actually outside revenue by disposing of these properties. Indeed, during the year they disposed of about $23 million worth of those when you look at the realty corporation, so that was done.

There is a second part, though, and this is what the government itself calls, and the Ontario Realty Corp's not very keen on that nomenclature, managed assets, in other words, where these buildings were transferred to the Ontario Realty Corp with the purpose of giving sort of a private sector approach to lease, rental and managing property and doing this.

It is the assets that are transferred on this basis where we are questioning because, at the moment of the transfer, there is really no revenue generated for the taxpayer at all. In fact, quite frankly, we raised the question on this as to -- the term of "beneficial ownership" is used in the accounts of Ontario Realty Corp because it was, in agreement with us, found to be a very expensive proposition to actually transfer real title. That demands legal work and the cost of this would have been just tremendously high. In order to stop that, we went along with saying that beneficial ownership had been transferred between the two. However, again, these transactions are underpinned with loan agreements. There are lawyers who will say beneficial ownership has actually been transferred, but it has been transferred between totally controlled organizations, the consolidated revenue fund and the Ontario Realty Corp.

As a result, the way the financial transaction ultimately was done did not create at that particular point any new revenue. The benefit will be in the future, hopefully, if this board, which has quite a number of outside appointments on it, does manage to save the government money. That's where the real benefit is going to be. If they can save money, if they can consolidate ministries into smaller space, if they can rent some of the space out to the private sector etc, that's where the benefit is going to be for the taxpayer. But the benefit is really not in transferring it to them, particularly since it is transferred at estimated market value. Appraisers were hired to determine the estimated market value, and at that point it was set up. It was just an appraised value, but not a real dollar flow. That was the second.

The third kind of transaction, which is contemplated again, was the one similar to the GO Transit situation. The GO Transit situation itself was actually a very imaginative and quite well-thought-out way of borrowing, of using government assets to borrow funds. All credit is due for that transaction. However, the point was that although GO Transit then declared the proceeds from this debt as a dividend to the government itself, according to the Toronto Area Transit Operating Authority accounts, the government already agreed in December 1993 to repay, to take over the debt, literally, for GO Transit and pay it back. So it was a debt, yet at the time when the deficit was presented, the deficit was reduced by this amount by declaring it a revenue, although the agreements had all been signed already that this was a repayable debt.

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So these are the three major characteristics of transactions that we are looking for in the current year because they are budgeted again in one way, and we'll have to look very carefully at how the transactions are actually done so that we all get the right picture.

I can say to you that the Minister of Finance, in the November 1 question period in the House, indicated that he had written a letter to me, and indeed he has. In the letter, the Minister of Finance is asking for our cooperation and input in making sure that these transactions are properly handled. So we are very much looking forward to a period of cooperation with the Ministry of Finance on these transactions to ensure that things are done the way the new accounting rules should do them; but more importantly, not depending on accounting rules, that the financial reality is going to be there, that the business is done in a way that gives rise to proper accounting.

There's a statement I've made to the Ministry of Finance and it's one I won't waver from after decades in the accounting profession, that accounting doesn't drive budgeting or financial transactions. It's the financial transactions that drive the accounting. So what I'm saying is, do the transaction right and good accounting will follow. That's the basis on which we are approaching this.

On the accounting area, that's basically, in a long nutshell, our concern, but I thought I would bring to the public accounts committee a little bit of this background so that you have a bit of an understanding, more of an understanding -- many of you already have some of the decision processes that we relate in our annual report on the accounting area -- of how we arrived at the conclusion that ultimately, for the current year, the net impact of the accounting change was actually a $15-million positive impact on the current deficit. That should in no way detract from the fact that with agreement with my office, the major impact of the accounting change was actually done as of April 1, 1993, and it amounted to $7.6 billion. The accumulated deficit was increased by $7.6 billion, as explained in schedule 12, I believe, of the public accounts.

The major change in that, and again it's a beneficial one for the government -- in the preceding year, if my memory serves me right, the pension liability shown in the notes to the financial statements was in excess of $13 billion in 1993. The accounting rules allow a different kind of assessment, and we did an incredible amount of work. I should confess to you we hired actuaries, the pension plans hired actuaries, we hired actuarial consultants to come to what numbers we should include in the accounts.

From last year's $13.8 billion, you'll find that the number included in the accounts actually in the liability is $6.7 billion, so from one year to the other almost halving of the liability. The financial analysts who do bond rating and all those good things take the $13 billion and add it to our debt and say that's legitimate stuff. So, by halving it down, we as a province actually have benefited from this accounting change.

We have benefited really in two ways: one by reducing the pension liability that is disclosed in the financial statements of the province, and the current year's deficit also has gone down slightly. I'm not ashamed and I'm not embarrassed at all about having suggested this accounting change, because there has been, in the overall picture currently, a benefit. But as I point out, neither the direction nor the size of the accounting change itself is as significant as the fact that you, as members of the Legislative Assembly, will receive better financial information than you did in the past on accounting.

You may wish to make a decision as to whether to have a discussion with officials from the Ministry of Finance as to how the transactions have been done, what the impact of the capital investment corporations on these matters is. These are some of the things you may wish to discuss and maybe shed some light on or give both of us a bit of guidance, and the benefit of your advice as the public accounts committee.

The second area is the area of accountability. On accountability, I have written to you in May and I wrote the same information to the Minister of Finance in June, that I find, I euphemistically call it, the progress slow, but it's pretty well imperceptible. We're not moving very much. Yet, at the same time, there is concern that there's $30 billion being spent of the public purse that is turned over to other organizations in, as a minimum, an unclear degree of accountability to the Legislature, ultimately. That continues to be of concern.

This would give an opportunity for this committee to deal essentially with the area of amendments to the Audit Act in the area of the inspection audits. As I outlined in my letter to this committee and again in the report, the current definition of "inspection audits," being limited to the accounting records of organizations, essentially would not permit my office to conduct full-scope value-for-money audits of the organizations that are receiving the funds. In fact, it severely impedes another aspect of our audit also, which is whether or not these organizations comply with the legislative objectives. Compliance is a very severe area.

Just to tell you how limiting this is -- this is not in the report but I'll just add it as anecdotal, because it's known to this committee and it is a matter of public record already but it's worth bringing up again -- when my predecessor tried to audit a university, they hired a legal firm and they wrote a letter as to what accounting records are. We were astounded to find that the legal definition of "accounting records" even excludes such things as the report of their external auditors; it excludes such things as the internal audit reports that they're receiving. Accounting records are by their definition accounting records. They're the general ledger and the cash book and that sort of thing. That is just far too limiting.

Spending $30 billion in that area, I'm not saying they're misspent and I'm not really saying the board of directors and the management of these organizations are doing their job poorly. What I am saying is, we don't know and we don't have the tools to know, and what we're really saying is, let's see if we can't take a stab at it. I am quite aware that there will be a severe, heavy resistance from these organizations. Particularly the university community is up in arms over the thing. They believe that such an audit would be an intrusion, it would damage their institutional autonomy and it would do damage to their academic freedom.

You, as a committee, have had the experience of asking me to do an audit of a school board about special education and unfortunately I had to turn you down. There was no point in doing it, because they already had external auditors and they were doing what I would be doing, so I would be treading on the same ground.

The upshot is, anything that you decide to do to move along better accountability for these transfer payments in the form of grants, which is my primary concern, would be greatly appreciated.

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As far as the value-for-money part of the audit is concerned, this year we have about 13 chapters. Each of them may be of interest to you. The sequence we had them in here, just to give you a little bit of a flavour -- it's essentially in the front of my report -- for my press conference I had selected a number of them in the areas of concern. The first one I had selected was the forestry situation, and the ministry actually is in agreement with that, where I believe we are not safeguarding properly the asset that the forests of Ontario represent in the current environment.

The basic objective here is that we replace the trees that are cut with the species that we want to grow in the areas that are cut, and we want to do it in the right areas. Currently, what is happening is that these decisions are based on aerial surveillance inventories which are taken and which are then translated into a map of species and areas which could be, or should be, cut, and the preparation of these inventories has simply fallen so far behind that we no longer have the assurance that we actually are harvesting the right areas or that we are doing the right work, putting the right species in.

The second part again is a money thing. Most of the money seems to be spent up front, that is, on site preparation and on putting either seedlings into the ground or planting small trees, but most of the time there's no money left for tending. My staff has come back with very shocking pictures of comparing two adjacent sites, one that was tended for five years and has now six- to seven-foot trees growing healthily and in a good environment, while the one not tended across the way is just scrub and maybe the occasional tree of the desired species once every 20 feet or so.

That was one area of concern. The other one, and I don't want to dwell on it any longer, but I tell you I'm grateful for what happened in the House on both sides, is the drinking water and the sewage situation which we raised. I very much like our report and I think you'd like it to be a catalyst for action and certainly there is going to be action. I hope this is not just a one-day wonder and shouting match but that there are actually results. So this is one other area you might want to just find out what the follow-up by the ministry is on its own report.

One thing I might explain to you which is beyond the report is that we are mentioning that there were subsequent reports, but the reporting of how plans are performing in all these things are a little bit behind and the 1992 and 1993 reports, for example, on sewage treatment plants just came out when we were through with the audit.

Another fact that you may wish to bring before ministries, and this applies generally -- it does not apply just to the Ministry of Environment and Energy -- we had originally planned to table our report at the beginning of the fall session, so we did our work in such a way that the ministries had pretty well our final draft report in their hands in June and July. As you know, the Parliament only convened at the end of October and, secondly, the really massive undertaking -- I should praise the tremendous effort that was made by the Ministry of Finance and certainly by my staff. We burned the midnight oil many nights to get this new accounting change through.

There was a lot of work done and the public accounts were 20 days late, but it's a miracle that they were only 20 days late. The effort that was made to push that through was just incredible. As a result, our value-for-money audits were out there for a long time, for several months already, and ministries certainly had a chance to take action on these reports. So, so much about the water. That may be one area you might want to take a look at.

The family support plan: We found the administration in some difficulty. Largely, the computer system deficiencies were of major concern, and also the way the plan works itself is of some concern inasmuch as at the moment there is no purge, all 126,000 cases turn around in this thing at all times. Definitely something has to happen to their computer base system to improve the administration.

Also, and this is something that is throughout my report, as you know, under the Audit Act we are supposed to see if the effectiveness of programs is measured and reported. We cannot comment. The press is always after me for that, to report on the effectiveness, what's the overall rating etc. No can do. The act simply is, wisely -- and I'm very happy about that, to stay out of it -- designed in such a way that I can deny answering those questions. But what we can assess is whether or not the effectiveness is measured and reported by the ministry itself, and quite frankly, in that area there's a lot of mileage to go.

The ministries very often just do not measure and report whether the particular program is effective, and the corollary is that if they don't measure and report, they are in difficulty in evaluating how effective it is. Certainly the most important step to us, it permeates all our work, is, do they take corrective action then to achieve the effect, to make it effective, to achieve results? This is why our whole audit thrust is in that direction, that's what I call the new style of reporting: Are we achieving the results?

So in the family support plan, we found that the ministry very much needs to improve it's measuring and reporting of the plan's performance.

On child welfare services, again the major thrust is measuring and reporting whether it achieves what we want it to achieve. The other part is, and I quote directly from the report, we also recommended that the ministry improve its efforts towards early intervention and "the prevention of circumstances requiring the protection of children."

That's a very, very difficult area, but it is in the law. Subsection 15(3), I believe, of the act under which they operate asks them to take steps to prevent the circumstances requiring the protection of children. While that is very difficult, it is what you as legislators have decided that they ought to get involved with. You may want to find out what is happening on that score.

As far as general welfare, there are astounding statistics as to the increase, tripling, of the people who depend on general welfare from 1987 to the present, and more than quadrupling of the amount of moneys paid. The last serious look -- I shouldn't say serious; I correct myself -- the last formal study was done in 1987. So currently we are not quite sure whether we or the ministry know -- there's also a very good question, and in that regard you might have some input, as to whether it's worthwhile doing.

Why I raise that question of whether to formally study is that the Ministry of Community and Social Services has been given a very, very substantial amount of money to bring the computer systems which they are using up to date. We are currently following that up as to what is happening there. The main difficulty -- and I do it with some reluctance, but I think it's an important point to make -- we are saying that the ministry should work together with the municipalities to strengthen the efforts. This cooperation with the municipalities just has to be a simple key factor and also a key factor in avoiding abuse if this kind of welfare is administered by a municipality. There are 350 municipalities, I believe, involved in doing this. We are worried about people right now.

I think Alberta and British Columbia did a study of border residents as to collecting money in British Columbia and in Alberta as well, out of the system. The way the system is run right now, there is a very strong possibility that people are collecting in two adjacent municipalities, just travelling from one to the other.

The systems are now under development, but we are making a very definite recommendation -- and I'm not out of line at all with my report here -- that they have to take some interim steps until these systems are in. What are we doing under the current system so that people do not collect in different municipalities, just present the same information and collect money? In any event, there is a lot of activity that should be taking place while this is developing.

I believe, if my memory serves me right, the plan of improving the systems is a three-year plan. I think we're not looking at full implementation until about 1996-97, something in that time frame. So what is happening in the interim is certainly a question that legitimately can be asked.

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The Vice-Chair: Auditor, I apologize for interrupting. Your comments are quite valuable, but I am a little concerned about the time, since we do want sufficient time for members to contribute to the debate. I wonder if it's acceptable to committee members if the auditor just summarized, if there are any particular areas where he would recommend. We could probably do a job on each one of them, but our time over the coming months will be quite limited in what we can cover.

Mr Peters: I think what I'll do is, rather than highlight them to you, because each one of them has its particular parts, I'll just quickly list them off.

We looked at violence against women, that particular program; the Jobs Ontario Training program, which was much discussed; water and sewage we have discussed; community and health programs, which are alternative methods of providing health care. We followed up on our previous audit of grants to public hospitals. We looked at the rent regulation program. We looked at forest management, which I discussed. We also looked at the activities of the OPP, Ontario Provincial Police. Their main area seems to be in human resource management, major concerns; drivers' licensing and control and the municipal road subsidies.

I thank you very much for the interference. I can go on forever, as you can tell.

Mr David Johnson (Don Mills): I, for one, am interested in the comments of the auditor, and I hope we haven't minimized any of his comments in any of those areas. I would encourage that if he has any particular comments in the areas that he ran through quickly at the end that he would like to make, I, for one, would like to hear them. We've got lots of time this morning.

The Vice-Chair: That's fine with me, Mr Johnson. The problem we have is that normally we take one meeting to decide what areas we are going to cover, and members have various opinions about what they should be. It's been 45 or 50 minutes so far with the auditor, and I think it's been time well spent, but if members want to take this into a second meeting to make our decision, I'm happy to do that; whatever you feel is appropriate.

We do also, I would point out to members, have a couple of things that we haven't quite finished up on the docket of public accounts. One is whether we are going to have hearings for changes to the Audit Act, and the second is the legislative accountability framework. Those are both ongoing efforts that we've been discussing.

We have three more sessions of public accounts before the Christmas break, and then we would have to make a decision whether there are specific areas we'd like to cover in the intersession. So we've got fairly limited time.

Any comments? Do you want the auditor to continue?

Mr David Johnson: If he has anything that he particularly would like to bring to our attention as a result of this report, I particularly would like to hear it.

Mr Kimble Sutherland (Oxford): Maybe I could suggest that if we allow the auditor to go until 11 o'clock, another five or six minutes or whatever, with specific comments, then that'll leave an hour for discussion. I think the Chair is quite correct in saying that with the limited time we have we need to make some decisions on what we want to examine.

Mr Anthony Perruzza (Downsview): Can I ask for a specific area of focus? I'm keenly interested in the techniques used for the audits, because it's quite obvious when you go through this report that this report is written, in my view, when you compare it with past reports that have been presented by auditors to both this committee and to the House, in a substantially different way in the way the auditor is now looking at value, value for money, and in the way the auditor is looking for, as he calls them, "corrective measures exercises in ministries and throughout government," and the way the auditor looks for accountability measures in the process of government as they relate to school boards, as they relate to hospitals, as they relate to municipalities, as they relate to universities; as he mentioned in his presentation, where a university wasn't even clear on the techniques that it needed to use in order to have an accounting measure for the services that it was providing.

Maybe we should take this into another exercise of this committee and perhaps spend some more time on doing that, because it would seem to me that even the auditor's report is an amorphous thing, and it changes and it evolves. I'd like to have a clearer understanding of the techniques that he uses in making those assessments.

The Vice-Chair: Well, Auditor, we've just given you a challenge in five minutes to highlight the rest of the report and give a synopsis of the changing techniques. So I'll leave it to your discretion which you'd like to tackle.

Mr Peters: Okay. It probably takes me five minutes to think about that. In all fairness, I've told you my main points in each individual case. I would like to refer you to chapter 1, in which we tried to summarize, essentially, each chapter on the value for money, tried to give you the three key issues that we wanted to deal with in each of them that we felt would be of interest from a summarized point of view. They may give you also sufficient input to make the decisions.

If I can highlight, I'm quite concerned, and this deals with the accounting issue again, with the municipal road subsidy, where I believe improvements can really be made in the way financial information is again provided to the Legislature in turn when they get the estimates, so that they can properly assess it. In the estimates, for example, the road subsidies are shown as $700 million of capital, and it's not the ministry's practice to spend that money on capital. So the Legislature might want to know about those sorts of situations.

The Ontario Provincial Police, it's a rather interesting situation in terms of major, major staff turnover through factor 80 and an aging police force. They're looking at recruiting about 400 new policemen. They have to put a lot of things into how they do it. Also, we found that there has been over the last few years quite a deterioration in the number of hours spent actually by uniformed policemen or by the policemen in policing activity. Their other duties, report writing and everything else, take a lot of their time. I think the number is that it has gone from 24% of active policing time to 16%. That's quite a significant decrease over the number of years. So something has to be done if you put this together with the community policing that they want to get involved in.

We talked about forest management. The Jobs Ontario Training program, I don't have to add anything to the debate; it's going on. Some of the other areas, like the community health programs, the grants to public hospitals, may very well fit into the accountability discussion as well: How are we accountable?

Just a short anecdotal thing, one of the things we noted is that there is an accreditation mechanism in the province for hospitals, and that is not used by the ministry to assess the performance of hospitals. You know, how well do they make out in their accreditation?

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This maybe is a summary comment to everything: In my report, I very clearly indicate what the ministry's response is to each of our recommendations. So one of the ways of proceeding would be to follow up on these individual recommendations.

As far as the question of what has changed in our auditing and how do we go about doing it is concerned, essentially what we are auditing for now, and it's crystallizing more and more, is that we are auditing for results. What is the bottom line? Are we achieving the bottom line? Do we get value for money for the tax dollar spent? All our audits are focused on this. It's always the results.

To give you an illustration, we will say, for example, under the Ministry of Transportation, "Strengthen the processes to ensure that medically unfit drivers are not operating vehicles." The point is that in the past we would have said, "Gee whiz, you know, it's terrible; you have 12,000 cases," or whatever the number is, "Well, you know that you have to follow up whether they're safe," and we would strengthen the process. We are now saying, "Strengthen the process," because what you really want to do is you want to pull drivers off the road who are medically unfit to operate the vehicle. So the thrust is in that direction.

In the forests, we are no longer talking about whether the forest management agreements are good or bad or indifferent, but are we actually getting reforestation for the acreage that is cut? So our focus is on that. But that means we have to have very clear criteria or standards against which to audit, and most of our time is really spent with the ministry agreeing on those criteria. What is the ultimate objective and how do you know you're getting there? What are the criteria you're using? We then mutually agree on these criteria, and we audit against these criteria.

Mr Perruzza: Do you do an assessment on lazy people versus a flawed tendering process? I'm not clear when you say that.

Mr Peters: If you talk about people, we say, for example, "The fact is that the number of hours that a policeman spends on policing have gone down." So we say, firstly, what defines, what are the duties of a policeman? What do you expect? What are the criteria of expectation? Then we go step by step and find out which of these criteria are being met and which are not being met. That's why we get into absenteeism. We get into training, we get into how well the computer system works that they're operating with.

In other words, we're looking at every single aspect that could stop, for example, a policeman from doing police work out on the road. So yes, we do get into that. Does that make more sense?

Mr Perruzza: Like, they used to handle 10,000 calls; now they're only handling 7,000 calls.

The Vice-Chair: Mr Perruzza, perhaps you could leave your question till the time for your caucus's questions, and we'll just have the auditor finish up.

Mr Perruzza: I think it's important to get, again, a good understanding of these kinds of things, because I think we're on the same wave length: We want to get the best bang for the buck possible. I think the auditor does a good job in doing that. But if we don't gain a clear understanding of where the waste is and how it's happening, then how can we go in and, to use his words, introduce corrective measures to make government more efficient?

The Vice-Chair: I agree with you absolutely. I was just pointing out that this can be done during your caucus time, because I think we have a number of members who are quite anxious to get into the debate. Are you completed?

Mr Peters: Yes. I think I'm beyond my time, actually.

The Vice-Chair: Thank you very much, Auditor, you've been quite helpful. We'll start with 10-minute rotations of the three caucuses. You're free to either ask questions of the auditor or alternatively to give recommendations for what you'd like to see public accounts do in the coming months.

Mr Larry O'Connor (Durham-York): Maybe we should welcome Gerry Phillips to the committee as well. We appreciate having you here with us, Gerry.

Mr Gerry Phillips (Scarborough-Agincourt): Very nice of you to say that.

The Vice-Chair: Thank you, Mr O'Connor. We welcome the Finance critics for both the Liberal and Conservatives parties, Mr Phillips and Mr Johnson, and also the parliamentary assistant to the Minister of Finance, Mr Sutherland.

Mr Sutherland: We all know who we are.

The Vice-Chair: Having done the protocol, let's get to business.

Mr Phillips: I'm looking for some help from the auditor just in terms of how we might deal with some of the issues he raises.

In your report, you say, "Most of the key financial decisions by the legislators are based on the financial information presented in the budget," so that as legislators, I think you're saying, when we make our decisions is when the budget is presented and we debate the budget. That's the time when --

Mr Peters: Right.

Mr Phillips: You then go on to say that the way the budget is presented, the Ontario finances, the way the budget presents them, differs significantly from financial reality under any accounting rules, that regardless of new, old, any accounting rules, the way the 1994-95 budget is presented to us right now differs significantly from what you would call financial reality.

You go on for last year to identify $1.6 billion of what you would call differences in financial reality. Then you say that in the budget we're dealing with now, the 1994-95 budget, which is the one we make our key decisions on, financial reality would say that the transactions -- that there's at least, I think you say, $2 billion worth of changes that if you used any accounting rules should be in. Could you just identify for us what makes up that $2 billion or $2-billion-plus?

Mr Peters: Yes, I can. I can give you the background on that. Before I do that, very quickly though, we are dealing with the way it's planned and the way they are going to be transacted may be in fact correct. What we're talking about is that when the public accounts are coming out in the fall, they would account for them in accordance with their financial reality. The point is pushing it forward --

Mr Phillips: I need your help because when we have to make our decisions, we have a different set of books than you will present to us a year from now.

Mr Peters: There is only one set of books, as far as I'm concerned, the public accounts, and there's one set of financial information presented to you with the budget. I make that distinction between books, because I audit only one set of books. In any event, I give you the details.

I don't have it with me. Does anybody have the 1994 budget? I think the easiest is --

Mr Phillips: Surprise, surprise.

Mr Peters: I go by memory. You can check up. On page 115, I think, you will find about $1.949 billion, made up of $1.6 billion I think to universities, hospitals etc, and there's $349 million which was to other institutions. When you go to page 101, I think it is, of the budget, you'll find there is $165 million contemplated of lease -- similar transaction to the GO trains for ferries, trains and equipment of Ontario Northland.

In the paragraph below, again on page 101, is another $250 million of transfers planned to the Ontario Realty Corp. That adds up to about $2.3 billion or something I guess.

Mr Phillips: If I could just kind of paraphrase for you what you said: If they proceed doing what they say they're going to do, which is $1.949 billion worth of capital, if they proceed the way they presented to us in the budget, and if they proceed to do, on page 101, the refinancing of the ferries and the $250 million worth of managed assets, you would say that the deficit would be $2.364 billion higher than we currently have reported.

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Mr Peters: If these transactions are transacted the way they were done last year.

Mr Phillips: That's what they've told us they plan to do. I think they're proceeding with hospitals and school boards now on capital for this year on a loan-based financing basis. That's what the school boards tell me.

Mr Peters: Fair enough.

Mr Phillips: This is the problem we get into. I guess my question is, what's your recommendation to us on how we, as legislators, get the financial information that we need to make our key financial decisions? You say we have to have it when the budget's presented and the budget is presented in a way that, right now, you would say doesn't give us the finances the way you think. How do we reconcile that?

Mr Peters: My recommendation is essentially twofold. Firstly, you may want to decide as the public accounts committee to hear from the Ministry of Finance as to what is currently done about these particular transactions, like how are they being transacted, how is the business done? There's one thing that in an interim way the public accounts committee, in my opinion, could consider doing.

The second part is -- and I think we have achieved -- we made a recommendation that next year, when the budget is presented, the actual interim unaudited deficit, and I know it has all these adjectives, be as close to the deficit that will ultimately be reported in the public accounts as possible at that particular time. In other words, what was done in the past is that they were excluded because they were budgeted that way.

They were excluded because of their budgeted form. Because the word "actual" is in there, I think there should be an effort made to put those as close as possible to the others. Those are the two recommendations.

Mr Phillips: I like both of those recommendations. One is to have the financial officials come and if they plan to do what they say they're doing in the budget, then the deficit is going to be $2.364 billion higher. If they have a different way of doing it, then we should hear from them and how that's going to then be reported.

I think your second recommendation, just so I'm clear on it, when they present the 1995-96 budget -- is that the time when they should be giving us the reconciliation of this year's budget, the 1994-95 budget and also giving us the estimate for 1995-96 using what you would regard as financial reality accounting rules?

Mr Peters: The first step of the recommendation, yes, I definitely make it as a recommendation and I understand that there is agreement to do it. The second part of the recommendation is for you to make. I can only advocate because that means changing the accounting rules or changing the financial reality with which the budget is prepared.

Mr Phillips: But you would advocate that we do it?

Mr Peters: I continue to advocate, yes.

Mr Phillips: And for both 1994-95 and 1995-96?

Mr Peters: That's right. Sorry. No, 1994-95 -- I think that is the first step, having the ministry officials here, but what I'm advocating is that the 1995-96 budget be put on the new basis.

Mr Phillips: When it's presented to us.

Mr Peters: When it's presented for the decision-making. If I may add a third one -- I'm really getting way out on a limb here, but I'm doing it very deliberately.

We also deal with these numbers in the estimates committee and potentially these issues could also be dealt with in the finance and economic affairs committee. Some efforts have been made in coordinating some of these activities and it may be worthwhile considering actually for this committee to involve those processes as well in their deliberations, the deliberations of the estimates committee and the deliberations of the finance and economics committee, but I don't want to detract and maybe I'm out there --

Mr Phillips: I don't mean to be extreme, but I just have no faith at all in the budget that's presented. You identified last year 10 major changes that had to be made in the way the books -- from the budget to the public accounts. So we find that we debated a budget a year and a half ago, and I'm paraphrasing you here, that had no financial reality. We go through a charade, and it's embarrassing and insulting to us, in my opinion. Your hands are tied because only 18 months later can you say to us, "Excuse me, but you weren't debating financial reality, you were debating a set of books that you" -- you don't call them books, but the only thing that we have to debate is what I call a book.

Mr Peters: A financial plan.

Mr Phillips: You call it a financial plan, but this is the book where you say we have to make our major financial decisions.

Mr Peters: That's right.

Mr Phillips: You say it doesn't have financial reality. We are in wonderland here, we really are.

Mr O'Connor: Oh, Gerry.

Mr Phillips: It's absolutely true. I suspect the government has put out some numbers today saying, "Here's what we're spending," and I have zero confidence in it. The auditor won't sign those things. We're making a charade of this thing, a total charade.

Mr George Mammoliti (Yorkview): Did you have confidence in your last budget?

Mr Phillips: Of course I did. We have a total charade and we are absolutely playing games. This isn't directed at you, because you have no authority other than essentially, 18 months after the fact, to give us your comment on a completely revised budget. In fact, I went through all of the changes that you forced the government to make: the GO train refinancing, all these sales and leaseback of government buildings. The Frost building, where the Minister of Finance is sitting, has been sold and leased back. The school and hospital capital is a charade. There is no single --

Mr Mammoliti: Tell us a little bit about the SkyDome.

The Vice-Chair: Mr Mammoliti, Mr Phillips has about 30 seconds left.

Mr Phillips: There is no single hospital that can sign the books the way you want them to. Even the teachers' pension, where we took $150 million out of the teachers' pension through legislation; the drivers' licences, where we've got five-year drivers' licences, and still in this budget, we're taking the revenue from that in it. I'm sorry to be frustrated by all of this, but we go through a budget debate that, as I say, has no basis in reality. Yes, the books will get cleaned up, but they'll be cleaned up after the next provincial election.

The Vice-Chair: Thank you, Mr Phillips. We'll go on to Mr Johnson for his comments, 10 minutes.

Mr David Johnson: Just following up on that, I would first of all like to thank you for being with us today and offering your comments. I know, having dealt with auditors at the municipal level in the past, it's not an easy job, but it certainly is an essential job and it's one that, thank heavens, we have talented people to do.

Just following up perhaps on Mr Phillips's comments with regard to the 1995-96 budget, which you've indicated you hope is in the form of the public accounts, that the same sort of accounting is used, you also indicated during your comments that the government has had this document essentially, I guess, since June or July, and it's had it -- I didn't count the months -- I think you said seven months or thereabouts.

Have you had any indication from the government that it would concede to your suggestion, your recommendation, your firm recommendation I think it is, that in 1995-96 they would indeed use the new, proper accounting procedures?

Mr Peters: First, just to clarify the time frame, I talked about the value-for-money audits, that they were available in June or July, so we are talking about a four-month period having elapsed. If I was misunderstood, I wanted to clarify.

Mr David Johnson: That adds up then.

Mr Peters: On the second part, as far as using the rules in the budget is concerned, in the press conference held by the Minister of Finance on October 20, the Minister of Finance indicated that he would not prepare the budget on that basis. That's the latest knowledge I have on that topic.

Mr David Johnson: That was my suspicion. You've indicated, in terms of the reconciliation, it's about a $15-million difference that you noted.

Mr Peters: Yes.

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Mr David Johnson: But the government's announced deficit, I think, is -- we're talking about the year 1993-94, I think -- $9.3 billion, I believe.

Mr Peters: That's right, $9.278 billion.

Mr David Johnson: Of course, the difference is much greater than $15 million. I think that's the problem.

Mr Peters: That's right. The difference is $1.570 billion, I believe.

Mr David Johnson: Yes. That's my suspicion, that the reluctance is that the government is not keen on having a deficit that's over $10 billion. By using proper accounting techniques, the deficit inevitably is higher, it's realistic, that's what it really is, but it's not as saleable, I guess, to the general public. My guess is that if, in the 1995-96 fiscal year, the budget were put out as you've firmly recommended, using those accounting principles, then the deficit would not be the $8.5 billion, I think, that for example is currently forecast for this year -- or is it $8.2 billion now, depending on the revenue situation -- but it would be much higher again --

Mr Peters: That's right.

Mr David Johnson: -- and perhaps less saleable. I don't know if that's a fair question to ask you, but isn't that really the nub of the whole problem?

Mr Peters: That's the nub of the problem and that's why we said, if the $2 billion is treated the same way as the transactions were done last year, then the deficit would be in the $10.9-billion range.

Mr David Johnson: I'm a little inexperienced with regard to other provincial governments or federal governments. Do these same kinds of problems happen in other provinces? Are there two sets of deficits that are issued? It astounds me.

Mr Peters: Yes.

Mr David Johnson: It seems so clear that reality should prevail and yet we have reality and we have something else that gets displayed in the budget. Is this common fare in other jurisdictions?

Mr Peters: I'm afraid so. There are two aspects to this accounting and I'll just go very quickly on that. The first aspect is what's called accrual accounting. That is where we are making sure that we are not relying on just moving cash from one year to the other. That's what happened last year. We had $500 million of pension contribution that we said belonged to the last year because we paid them one second after midnight on April 1. I always call that the logical second. That was my ultimate argument in that. I'd say, "For one second, you may have earned half a billion dollars or not." That's what I call the permissive accounting rules, that was the cash, and that's what the government has gotten away from on the accrual.

There's a second aspect and that is what is called the reporting entity aspect, as to what is included and what is excluded. That is where the difficulty arises. Many of the governments present in their budget only the direct transactions of the consolidated revenue fund or its provincial equivalent in other provinces and therefore do not include the other entities that need to be included; like, in this case, on a very pure basis, that would be the approach.

Let me go through the GO Transit situation. The plan was that GO Transit would do all this transaction, incur the debt and then pay the proceeds as a dividend to the consolidated revenue fund. The consolidated revenue fund was planned to have this dividend revenue. But the way the transaction was done was that according to the financial statements of GO Transit, in December 1993, a memorandum of understanding was signed between the government and GO Transit that they would pay it back. The financial reality was that the province had assumed the debt. Whether the form was there or not, whether there were dividends declared or loans or whatever, it didn't matter.

Mr David Johnson: That was the reality.

Mr Peters: There are two aspects to this: Firstly, the inclusion or exclusion, and that is part of the budgetary process; and the second aspect is the financial reality. That's maybe the only part where we really differed in these accounts because the government has said those are accounting differences and we said, "No, no, wait a second, they are really financial reality differences."

Mr David Johnson: Can I ask you a question? If you were the Treasurer of the province of Ontario -- Erik Peters, Treasurer, Minister of Finance of the province of Ontario -- and next week you were to bring out a budget for the province of Ontario and it was to incorporate the debt as of Monday of next week of the province of Ontario, what would you estimate? You wouldn't know to the nearest penny, but what do you think as of next Monday, according to proper accounting procedures, would be the debt of the province of Ontario that you would put in your, Erik Peters's, budget?

Mr Peters: You're putting me into a very, very difficult spot, but let me leave it with the answer that we provide in our report. If the transactions, the two point whatever, are transacted the way similar transactions were done in the preceding actual year, I think the deficit would be around $10.9 billion.

Mr David Johnson: I guess the Minister of Finance has indicated that by the end of this fiscal year the debt in the province of Ontario will be about just over $90 billion. That's what it says in that document, page 115 or whatever. Do you concur with that, roughly ?

Mr Peters: That is one point I really thank you for the opportunity of making. There is one point that in all of this, the Ministry of Finance and the Minister of Finance have been absolutely clear and straight in the amount of debt they would have to issue, and it is in the accounts. The rest is really accounting if you look how the transactions are done. But the reality is that in both years -- in the year just past, where we reported ultimately a final deficit of $10.8 billion, the Minister of Finance had said, "I have to issue new debt of $11.1 billion." When you look at the budget, I think, the document you have there, and in this case I forget the page number but I remember the number --

Mr Phillips: You're slipping.

Mr Peters: I'm slipping. It's terrible. I think it's around 116, something like that. It's $11.1 billion again. So regardless of how we account it, we borrowed last year --

Mr Phillips: Page 116. He's right again.

Mr David Johnson: Let me ask you, then --

The Acting Chair (Mr Bruce Crozier): Your time's concluded. Sorry.

Mr Sutherland: I want to make a couple of comments to remember again and put on the record some of the history here. I appreciate the auditor's comments about the enormous task of changing over the public accounts to the new system that the auditor required, and remembering too that all governments, quite frankly, are at the whim of the Provincial Auditor and which style of accounting they really want to have, in terms of the previous auditor having had a preference for the old form, the modified cash basis; you have a preference based on the public, the --

Mr Peters: PSAAB.

Mr Sutherland: PSAAB, yes. But you can't just change the accounts of an over $50-billion corporation overnight, and we appreciate the comments on the work that it took for the Ministry of Finance officials to work with your office to have that done.

I would certainly hope that this committee, besides looking at the specific areas here in the auditor's report, will go back to this issue of the Audit Act. I think it needs to be done based on a couple of the sections that you highlight: when you talk about grants to public hospitals and the issue of some of the hospitals transferring operating surpluses over to their foundation funds and where the authority for the hospital to make that decision comes from and where the accountability is for those types of dollars; the information regarding the municipal subsidies and how money that everyone under the basis is given for construction and capital purposes somehow goes over to operating for snow removal purposes, and where the authority comes for that.

I guess if you want to talk about accountability and your comments made earlier regarding a university, it would seem to me that wherever the provincial government is the primary funder of operations, over 50% of the operating budget, that for an organization to say, "Sorry, no, you can only look at the actual accounting records," clearly tells me that the accountability systems haven't been set in place that all of us as legislators need. I think all those in those so-called communities, whether it's the university community, the hospital community, the board of education community, people want to know that information.

It doesn't matter who the government is. Provincial Auditor's reports have always focused on, "What are the governments doing for their degree of accountability for the funds they are transferring?" and your report on this issue reflects about the ministries not tracking.

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I believe that process is important and those processes should be highlighted, but part of it too is these individual agencies making these decisions. I mean, 30% of the provincial budget is transfer payments to other agencies. That's a significant amount of funds, and yet it appears clear from not only this report, your 1994 report, but the audits that have been done in the past on certain school boards, on hospitals etc, that the accountability mechanisms to the government for those funds need to be improved. Now, you can say let's just do the ministry ones, but until you go in and actually have some ability to come up with a value-for-money audit in those individual agencies, it's hard to prove.

I'm not a regular member of this committee, but I have sat in a few times and we've gone through the whole process on the universities, the Broadhurst task force, and how you determine accountability and how you determine value for money in an education system. Do you say, "This is the percentage of graduates of the people who entered," therefore that's how you do it? Do you determine it on how many of them get jobs afterwards etc? You're not dealing with tangibles in the same way you are when you're producing so many widgets. It's a harder process, but it's very clear to me that those processes have to be developed.

As I said earlier, when I see that operating funds were transferred not just into operating reserves but over to foundation accounts, which really are in effect set aside for ongoing types of capital projects, that concerns me. Everyone seems to be concerned, as they should be, about provincial deficit issues. Is that an appropriate thing for them to be doing? What authority is there established, either through the Public Hospitals Act etc, for making those types of decisions?

I will tell you too that I happened to sit in on the one day of hearings that occurred in my region when we were reviewing the Public Hospitals Act. If we feel there's more necessity for value-for-money audits, I think that one day of hearings that I sat in -- and there were hearings all across the province -- gave me a clear indication that there are many people in the community who felt the activities of certain hospitals, and I don't want to make a blanket statement of all of them, but some of them, were very, very difficult to achieve information on in their own community.

We had one reporter who had covered hospitals for a long, long time and he couldn't go to cover a hospital meeting; he couldn't get any information to him. He was very concerned about how secretive this one specific hospital was. The hospital commented later, "Well, we have opened up our procedures since then." But I think we have a responsibility, government has a responsibility, to be accountable for all the funds and make sure there are those mechanisms that you talk about, some form of measurement on the ministry's behalf to ensure a degree of accountability and value for money. But when we're transferring 30% --

Mr Peters: Fifty-eight per cent.

Mr Sutherland: Okay. I guess 30% then is probably the MUSH sector.

Mr Peters: It's $30 billion of $54 billion.

Mr Sutherland: Okay. Well, when we're transferring those many funds, and particularly again when we're the main funder on operation grants, more than 50%, it would seem to me we not only have a right but an obligation to ensure that those moneys are somehow measured against the value-for-money process. I know in my community, every local agency tells me they're doing a wonderful job, and it's true in every community.

The worst thing I think any elected politician can do is go against some of the long-established community-supported institutions: hospitals etc. Everybody loves their local hospital, and that's great that they have the strong community support. I guess in their own sense they may be doing a very good job, but we don't know that for sure other than people just saying that and people looking well at the auditor's report, and of course we know what most of the local auditor's reports do. They're the records the university wants to provide for you. "Can you account for all your expenditures?" "Yes, we have the receipts to account for all those expenditures." There's no fraud going on, no misappropriation of funds going on in that way.

I would certainly encourage this committee to continue with that, to have those types of hearings, because I know there are a lot of organizations interested. I know there's been some talk of which organizations should come in, but I know a lot of the employee organizations or unions represented there would probably want to participate in those types of hearings too, to say these are the types of accountability processes that should be going on.

Mr Peters: Thank you very much for those comments. If I may, on the accountability, certainly you have no argument from me. However, I would like to express my concern that the change to the new accounting rules was not a whim of mine.

Mr Sutherland: Oh, sorry. I didn't mean to imply that. It's just a different preference. It's clear that you had a different view than the previous auditor, based on different issues.

Mr Peters: Also, though, what had happened is that PSAAB, the Public Sector Accounting and Auditing Board, had in the term of my predecessor certainly not advanced as far as it has now.

Mr Sutherland: Okay. Fair enough.

Mr Peters: The second part is that the other governments in Canada had gone a long way in that time, and those were the people we were competing with in the market for funds. So I felt it was really necessary for the province to be on a competitive basis for debt when it went into the market, because we were suffering in comparison to the other provinces when we had to raise money. The pension fund, for example, is still an issue in many provinces, but we are now way ahead.

The Acting Chair: The 10-minute rotation has now been completed. We have a choice, I guess, if we want to continue on with another five minutes apiece or if the committee now wants to set some direction.

Mr Tim Murphy (St George-St David): I think probably there would be some utility in at least discussing how we're going to schedule, frankly, what little time we are going to have left in the committee before the House rises -- I think probably only one, maybe two more sittings of the committee -- and then what we'd like to have approval from the House leaders for for sitting subsequently, once the House has risen, and what we need to do to get that approval. Perhaps the way to open it would be for me to move a motion and then we could use that as the basis for discussion.

What I would propose is that next week, if that's possible, depending on the availability of the Finance people, we have them come in to discuss some of the auditor's comments on the books of the province --

Interjection.

Mr David Johnson: He's making a motion.

Mr Murphy: -- and perhaps the week after, if appropriate. Then subsequently, I think we should spend some significant number of hours getting the Jobs Ontario people in here. I would ask for approval for that for the intersession.

The Acting Chair: Is that part of your motion?

Mr Murphy: Yes.

The Acting Chair: You've made a motion in those two parts.

Mr Murphy: A two-part motion: First is to spend the next two sessions of the committee with the Finance department, and then subsequently I think we should have, I don't know, two or three days with the Jobs Ontario people. That's my motion.

Mr David Johnson: Could I just ask a question pertaining to the motion? How many official days -- Mr Murphy said there were one or two or three; he wasn't sure. How many days are there left of this committee?

The Acting Chair: Three more.

Mr David Johnson: Three more after this?

The Acting Chair: According to the current schedule, yes.

Mr David Johnson: So that motion could be accommodated, then, with one day on the accounting procedures and two days on Jobs Ontario. Is that the way that --

Mr Murphy: Well, I don't --

The Acting Chair: I'd like to have some order to the debate on this. You've kind of asked the question.

Mr Murphy: I think that's up to the mover, if I can just clarify the motion.

The Acting Chair: Quickly.

Mr Murphy: I think probably the Finance people will take -- I think it really is a question of hours, so if we have three sessions, that's six hours. I frankly think the Finance department alone could take up four hours of that. I think the Jobs Ontario stuff, for explanation, could take eight to 10 hours of committee sitting time, and we don't know whether Finance could even be ready for next week, for example. So my proposal is to have at least four hours for Finance and then 10 hours for Jobs Ontario.

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Mr O'Connor: I appreciate the motion by our visiting colleague today for discussion. This committee has certainly had a great deal of debate around the Audit Act. While I appreciate the intention of his motion trying to set the committee's agenda for the next period of time, I think that one thing this committee has certainly had on its agenda, and I think really does need to take place, is a good discussion on the Audit Act and to hopefully get that through a hearing process and through the Legislature.

I appreciate where you're coming from. I would recommend that, yes, we maybe bring in people from the Ministry of Finance to have a discussion, follow-up to what we've heard today, but I would recommend that we put some time, effort and energy into the Audit Act, which is something that this committee has certainly been pushing for for a considerable length of time. In fact, I'd suggested we start the hearings this past summer, but it wasn't accepted at that point by the committee because we had some ongoing work.

I think we're now at the stage where we could probably move into the work of the Audit Act, and I would suggest that should be part of the ongoing agenda of this committee.

The Acting Chair: So you're opposed?

Mr O'Connor: Yes.

The Acting Chair: Anyone else?

Mr Sutherland: I would pick up on my colleague's comments and suggest that maybe what we could do for the next three weeks is have the Finance people come in next week for a couple of hours of discussion about the general issues and then start into the issue of hearings on the Audit Act and having the groups come in. No one can say for sure, once we've had the hearings, what the process may be for getting on that. But I think even the sense of going through those hearings and having the different organizations come in and get a sense of the issues the committee is concerned about and what they're looking at would hopefully send a good message to these organizations, if some of them haven't received the message already, that there are some issues of concern about what the role of the auditor should be and how we, as the public accounts committee in the Legislature, feel the accountability should be for moneys transferred to these organizations.

The Acting Chair: So you're in favour of part 1 but opposed to part 2?

Mr Sutherland: Well, I'm kind of putting a counterproposal.

The Acting Chair: I was just trying to keep count.

Mr Phillips: Firstly, it's absolutely imperative that we get the financial officials in to discuss the recommendations of the Provincial Auditor. If they are planning to proceed with almost $2.5 billion worth of transactions, that we know if they proceed the way they've got them in the budget, the auditor will require them to be changed, so that's absolutely imperative.

I would hope this committee is totally in favour of getting the 1995-96 budget prepared on a basis that, to use the auditor's expression, reflects financial reality. If we don't push on that, we are once again going to have a budget presented which is our key financial document -- technically a book, but the budget is our key financial document. So those two things are imperative to be pushing, in my opinion, and all parties, at least all members of this committee, I think should be pushing.

Then it seems to me the auditor has said, listen, he wants to see something happen on the recommendations. He's pleased about what appears to be happening on the water front, on the clean water area. I think a way to make things happen in other areas is to take some of these issues in his report and to spend some time following up. If we don't, then the auditor's report means nothing. It's sort of just, "Oh, well," it's a one-day thing and it's gone, so that people who are accountable for programs -- we kind of defang the auditor's report. If we want to make the auditor's report meaningful, I think we have an obligation to follow up on several areas. Jobs Ontario is one of them.

The Acting Chair: Any further discussion on Mr Murphy's --

Mr Peters: May I make a very brief point on the water front? We don't know what action has taken place. The attention that we are paying to it will hopefully cause action. I don't know what action is actually being taken. I just wanted to clarify the record.

Mr David Johnson: It seems to me that the important items out of this are certainly the financial and the accounting items that the auditor has raised right off the top and I think there seems to be general consent that we should discuss them, so perhaps I won't say anything more about that. That would deserve at least a day. The Jobs Ontario question is one that has been raised very prominently and we believe there should be time allocated to that.

The question with regard to the Ministry of Environment and Energy -- I think the auditor has indicated that, "Thank heavens the debate is starting on that," but from where I sit, this committee would be a good vehicle to carry on the debate that the auditor has indicated he's so happy to see starting.

In addition to that, there are a number of issues we haven't dealt with in any depth today with regard to the Ministry of Community and Social Services that the auditor has raised very prominently in the report and I would suggest that deserves some time.

Finally, there have been discussions with regard to the Audit Act and the ability of the auditor to extend his audit to universities, municipalities etc etc.

I think what's required, frankly, is that we occupy the three days left in this session, and some time, to do a thorough job, should be allocated in the intersession, if that's the proper terminology. I'm not sure if Mr Murphy's motion allows for that or not, but --

Mr O'Connor: Actually, usually it comes to the subcommittee. As members come in and bring issues forward, the subcommittee usually deals with a lot of those recommendations.

Mr David Johnson: I would suggest we start with the accounting procedures next week and then set up some sort of a schedule that through the remaining two meetings of this committee this year permits discussion of these other items plus, since there won't be enough time to finish them, allocate some time during the intersession, perhaps another couple of weeks. Is that the kind of thing that would normally happen?

The Acting Chair: We'll have to finish it in another manner. This motion, as it was put, doesn't specifically say that.

Mr Murphy: I want to speak to that if I can. Until, in fact, Mr Chair, you were elected, I was a regular member of this committee. Perhaps the way to do it, because this has generally been a consensus committee, is to do it in two parts, so we can schedule the balance of the time that we have while we have full control of our schedule as a committee dealing with the Finance ministry people on budgetary matters. I think we can do it in subcommittee, or we might as well do it while we're here, using up the time we have in the next 15 minutes.

I would then say we should ask for two or three weeks from House leaders to do as we did previously, I think it was in the summer, was it, or --

Mr Peters: We did it in January as well.

Mr Murphy: That's right, the last time we sat, in January last year, we had actually quite good sessions. I think we had the Solicitor General people in on last year's report, as well as some of the Education people, and I think we could do a similar kind of thing here; we could have some time on the Audit Act in that period of time, for example, some time on Jobs Ontario and the other recommendations of Mr Johnson.

Why don't I split it up into two parts, or perhaps just make two separate motions: first, that for the balance of three weeks, the six hours that we have, we dedicate to getting the Finance officials in. I'll make that motion alone.

The Acting Chair: So you've at least separated --

Mr Murphy: I'm just making two motions. My first motion, then, is that the balance of the time we have in this committee until we rise is dedicated to having the Finance officials in and discussing the recommendations of the auditor and the Finance department's response to them: motion 1.

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The Acting Chair: I'd like not to make that a new motion that we can debate around the table again, but it's kind of up to you guys --

Mr Murphy: I think it's worth hearing a response.

Mr Sutherland: I certainly think it's appropriate to have the Ministry of Finance in to discuss some of the issues the auditor has raised and some of the compliments the auditor has given for the change in the books, and the work that was done to do that, and certainly have no problem doing that next week for a couple of hours.

Beyond that I think it is imperative that we get on with some of the hearings regarding the Audit Act and make that a priority. I'm not clear on all the history, but my sense of what has occurred is that the process is that a commitment's made, "Yes, we're going to do that." I understand we have all the goodies, we have all the good issues and goodies in the auditor's report.

That certainly does merit more examination, but it seems to me what the process is, the Audit Act comes up as an issue, the auditor's report is there, no, we've got to go through all those issues and then we get to the crunch -- well, we're almost around to the auditor's next report and we don't get into the Audit Act and I think the Audit Act issue has been delayed far enough in terms of hearings that it really should become the next priority issue.

Mr Murphy: We can be the committee to which the Audit Act reform bill is referred after you guys introduce it and we pass it on second reading.

Mr Sutherland: With all due respect, I do not believe that is the history --

Mr Murphy: Just a suggestion.

Mr Sutherland: -- of how the Audit Act is reformed, and would not be in keeping with some of the traditions of this place, of how you would do that with one of our independent officers of the assembly.

Mr Murphy: In any event, why don't we do this, if I can pick up on up on your earlier suggestion, Kimble, that we refer to a subcommittee meeting, to be had before the committee meets next Thursday, the issue of intersession work including what would be on it, the Audit Act, Jobs Ontario etc, and it can be decided in subcommittee and we'll just deal with the issue, the motion that I made about scheduling the balance of the time that we have rather than do it in here, so that the motion for the balance of the time is the Finance matters.

Mr Sutherland: Of the next three weeks?

Mr Murphy: Yes.

Mr O'Connor: As the usual process of this committee goes, one of usually a sense of cooperation, we don't even have to go to such a formal extent as my colleague who's joined us today has presented to us. Usually we can agree to moving what the business would be of the next week if we haven't got a laid-out agenda, and it appears at this point then that we are being rather fluid as far as the proceedings of the committee goes. I'd suggest that we would encourage and invite the people from the Ministry of Finance to come to our next hearings and stop it at that point and allow the subcommittee to take a look at some recommendations that are made by every caucus as to how the remainder of the time shall be dealt with.

From now through to the end of the intersession and to the intersession and during that period as well, there certainly has been for the regular committee members an interest to proceed with some hearings to actually start dealing with the Audit Act.

I appreciate my colleague coming and trying to help us organize our time in a more seemingly different fashion that would probably be more suitable to his liking, but for the continuity of the committee I'd suggest that maybe we bring in Finance people and leave some of the work that planning for the future needs to take place to the subcommittee.

The Acting Chair: Mr O'Connor, as to the fluidity of the committee, the verbiage is fluid but I'm sorry if you haven't agreed with the way the Chair has handled this, but I think we'll get to the end that we want to get to.

Mr O'Connor: No reflection on the Chair at all, Mr Crozier.

The Acting Chair: I don't know who else would control the fluidity then.

In any event, we do have a motion. Are you ready to deal with it or would Mr Murphy want to withdraw it and go your way? It's your choice. Question? No?

Mr Phillips: Comment?

The Acting Chair: I think it's time we dealt with the motion, that's all.

Mr Phillips: I was trying to be helpful.

The Acting Chair: Okay. Well, be helpful. We've got five more minutes.

Mr Phillips: There may be a consensus, which is: let's invite the Finance people here for next week, let the subcommittee meet and think about this and blah, blah, blah, and if there is that consensus -- I'm not even sure what the motion now says. It may not --

The Acting Chair: The motion now says: "That officials in the Ministry of Finance be called to address the Provincial Auditor's report as it concerns the government accounting methods."

Mr Phillips: I think that's fine then.

The Acting Chair: As to time, the subcommittee can deal with that.

Mr Phillips: I'm glad I asked the question.

Mr Sutherland: The subcommittee will come back for ratification here?

Mr Murphy: That's fine.

Mr Sutherland: Mr Chair, the motion is simply to have Ministry of Finance come to comment on the auditor's comments on government accounting.

The Acting Chair: I was even going to suggest, to keep with tradition, that we just simply have consensus on that.

Mr Murphy: Sure. That's fine.

The Acting Chair: Is our business concluded? When would you like the subcommittee to meet? Monday afternoon following question period? We don't have anybody here that's on it, so we'll say yes, okay?

The committee adjourned at 1157.