Legislative Assembly of Ontario

AUDIT ACT AMENDMENTS
CO-OPERATIVE HOUSING FEDERATION OF CANADA, ONTARIO REGION

ASSOCIATION OF DISTRICT HEALTH COUNCILS OF ONTARIO

CONTENTS

Thursday 25 April 1996

Audit Act Amendments

Co-operative Housing Federation of Canada, Ontario Region

Bill Morris, manager, government relations

Association of District Health Councils of Ontario

Gord Gunning, executive director

Jeff Wilbee, treasurer

STANDING COMMITTEE ON PUBLIC ACCOUNTS

Chair / Président: McGuinty, Dalton (Ottawa South / -Sud L)

Vice-Chair / Vice-Président: Colle, Mike (Oakwood L)

Agostino, Dominic (Hamilton East / -Est L)

*Beaubien, Marcel (Lambton PC)

*Boushy, Dave (Sarnia PC)

Carr, Gary (Oakville South / -Sud PC)

*Colle, Mike (Oakwood L)

Crozier, Bruce (Essex South / -Sud L)

*Fox, Gary (Prince Edward-Lennox-South Hastings / Prince Edward-Lennox-Hastings-Sud PC)

Gilchrist, Steve (Scarborough East / -Est PC)

*Hastings, John (Etobicoke-Rexdale PC)

Martel, Shelley (Sudbury East / -Est ND)

*McGuinty, Dalton (Ottawa South / -Sud L)

*Pouliot, Gilles (Lake Nipigon / Lac-Nipigon ND)

*Skarica, Toni (Wentworth North / -Nord PC)

Vankoughnet, Bill (Frontenac-Addington PC)

*In attendance / présents

Clerk / Greffier: Todd Decker

Staff / Personnel: Elaine Campbell, research officer, Legislative Research Service

The committee met at 1106 in room 228.

AUDIT ACT AMENDMENTS
CO-OPERATIVE HOUSING FEDERATION OF CANADA, ONTARIO REGION

The Chair (Mr Dalton McGuinty): Good morning and welcome to the standing committee on public accounts, and in particular our consideration of possible amendments to the Audit Act. Our first presentation today will be made on behalf of the Co-operative Housing Federation of Canada, Ontario Region, by Mr Bill Morris. Welcome, Mr Morris. You have a half-hour for your presentation, and committee members would appreciate it if you would allow some time during that for them to ask questions.

Mr Bill Morris: I've prepared a presentation that is both written and oral. I'll try and walk through the written presentation in such a way that we cover it in time to get to some of the questions, if we can.

I'm here today representing the Co-operative Housing Federation of Canada, Ontario Region. We represent the owners and the residents of cooperative housing. More than 450 cooperatives are our members, and that represents over 40,000 households here in Ontario.

Each of these cooperatives is an independent private business operating within a framework provided by the Co-operative Corporations Act. Housing cooperatives also participate in government programs, both at the federal and provincial level, and it's this involvement with government programs that has brought us into contact with the Provincial Auditor.

Housing cooperatives, I want to stress, are businesses similar to those that operate in communities throughout Ontario. We're a particular kind of business, cooperative businesses, but cooperative businesses have a long and proud history in Ontario. There are many within the farm supply end of the business community as well as within the financial community.

We, as I say, work under government programs. These government programs are designed to do two things primarily. First of all, they're designed to bridge the difference between the cost of building new housing and operating it in a market in which very little housing is being built. The assistance we receive to bridge that gap is repaid to government. We also receive and implement a program of rent-geared-to-income assistance for some people who live in cooperatives. This is an income supplement program to allow low-income people to afford to live in housing cooperatives. Typically, people pay somewhere in the order of 29% if they're receiving rent-geared-to-income assistance.

These two types of assistance are provided through programs of the Ministry of Municipal Affairs and Housing. In terms of our relationship with the ministry, it is governed by multi-year contracts or operating agreements. These establish both the assistance that's to be provided to cooperatives as well as the repayment schedule and other requirements of the program.

We'd like to speak about the experience of non-government organizations, non-government businesses, in dealing with ministries and dealing with the Provincial Auditor. The Provincial Auditor has twice, in the last five years -- I guess it's six years now since they first started to do their reviews of housing. We have some observations we'd like to make. Generally, these are going to follow three themes.

First, again, housing cooperatives are not extensions of government but are independent businesses legislated through Ontario statute with requirements set by their members and by statute and program. Second, we're responsible in terms of audits. The observation we'd like to make is that audits, the two we're familiar with, have generally resulted in a focus on more rules rather than improved performance. Third, we don't believe the existing accountability structure is particularly appropriate and are seeking change to that accountability structure.

Generally, housing cooperatives begin with fairly ambitious objectives in terms of providing housing within their communities. The objectives are both social and business-oriented. It's this duality we strive to balance in terms of the day-to-day operation of housing cooperatives. Boards are elected by cooperative members; they form committees; they undertake to take on the day-to-day management of the housing cooperative. We want to stress that there are three levels of scrutiny we see within the relationship.

First and foremost, we're responsible to our members. Those members are living in the housing, are stakeholders in the housing and are there on a 24-hour-a-day basis in many cases. This means, as is often said about housing, it is a 24-hour business.

Second, we have a legislative responsibility under the Co-operative Corporations Act. As part of the requirements of that act, each cooperative has to undertake an audit conducted by an outside firm. Those audits are public and are available to the Ministry of Consumer and Commercial Relations.

Third, we have the scrutiny provided through the programs themselves. Programs have requirements in terms of submitting both the audited statements as well as an annual information return. This goes beyond the standard financial statements provided by auditors, and also includes the management letters that are often done within the course of audits performed on cooperatives. The layer on top of that is, of course, the one of the Provincial Auditor indirectly, in that the auditor has examined the operation of housing cooperatives within its mandate to look at the performance of government in terms of implementation of its programs.

Our observations -- and we've shared them both with the Ministry of Housing and in our brief meetings with the auditor's office -- are as follows:

First, there's an imbalance between the public and confidential nature of the auditor's work. This creates problems for external businesses, such as cooperative housing, in interpreting reports and making good use of the auditor's findings. For example, the auditor's draft and final reports receive considerable media attention. Draft reports are sometimes leaked to the media and others, without particular regard to the potential damage that inaccuracies within drafts can cause. When findings have later been found to be inaccurate, we've found little in the way of an attempt to rectify the public's perception with respect to errors.

On the other hand, useful information is cloaked in secrecy. Non-government organizations have absolutely no idea what approaches have been used to collect data and what analysis has been used, or whether the techniques are appropriate to the housing industry. Co-ops are denied access to information about the underlying assumptions, methodology and benchmarks, yet we are made subject to evaluations as if we're an extension of the Ministry of Municipal Affairs and Housing.

While the role of the Provincial Auditor is to evaluate the performance of the ministry in delivery and administration of government programs, the ministry's general response to the Provincial Auditor's findings is to create more rules for non-government organizations participating in government programs.

By way of example, we'd like to highlight the most recent housing program introduced in Ontario, the Jobs Ontario Homes program. This program was developed in the wake of a Provincial Auditor's report, with significant input from the auditor's office and the public accounts committee. The problem we see is that the result was a tighter program accompanied by longer time lines, greater government control rather than less government intrusion, and responsibility for development decisions moving away from housing cooperatives to the hands of government staff. In some cases, civil servants ended up making deals with contractors and engineering firms independent of the groups that were later expected to take on the management of the housing. The problem in the end was that this didn't result in better value for money; it resulted in simply a more expensive program.

In his first look at ministry programs, the Provincial Auditor stated that we don't need more rules, we need more appropriate rules, and we'd generally agree. However, as I say, the response has generally been to create more rules, not intended to provide better performance but generally intended to avoid embarrassment to the ministry and the government of the day.

While we agree that a new accountability framework in terms of housing was long overdue and badly needed, I think it's safe to say that we differed about the direction we thought the government should head in: generally, we thought a program that had clear objectives, fewer rules and a more business-oriented relationship with government. We've also proposed to government that we, the industry, take on more of the functions currently performed by government.

These proposals were designed to try to improve the accountability framework and add value for money. We believe this is done when government ministries are accountable for the long-term value of their programs as well as the day-to-day administration of government activities; and when private businesses, including those participating in government programs, have an opportunity to improve the performance rather than simply attending to more rules; and when industries, not government, are responsible for self-regulation through value added, service-oriented approaches. This combined approach of audits of government, performance incentives for business, and industry self-regulation will help government to achieve the highest return for the lowest cost within the framework of accountability and value for money.

We've been building cooperatives in Ontario for more than 25 years and have witnessed significant changes within governments over that time. Each new government tends to bring a new style, new objectives and new priorities to housing. We would hope that in terms of value-for-money audits, the changes governments seek to make would go through some kind of screen that would determine whether the changes proposed in fact would end up with greater value for money, and whether the procedures currently in place can be improved with respect to ensuring greater value for money.

We do not believe it is particularly appropriate for the public auditor to do value-for-money audits that look at the performance of businesses participating in government programs. We make that point because we think businesses are primarily responsible to their owners, and in the case of housing cooperatives, this means to their members. The members are responsible for the financial performance of the corporation.

There's no question that narrowly based systems of rules and compliance have an effect on performance. For example, there are two approaches used within the rent-geared-to-income program, one by the Ministry of Housing at the provincial level and one by CMHC at the federal level. The ministry's approach is to have a very thick binder of rules that attempt to look in advance at every situation that might arise and provide guidance in terms of how each situation should be dealt with. The CMHC approach is to have one page that says, "This is who is eligible for the program." There's no indication that the Ministry of Municipal Affairs and Housing approach of detailed rules results in any better performance. Unquestionably, however, it does result in higher costs in terms of the overhead of the ministry and of housing cooperatives.

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This emphasis on rules rather than performance we think is problematic. We believe the efforts of this committee are best focused on mechanisms which deliver accountability and add value with less government expenditure rather than more labour-intensive evaluations of third parties that may document problems but do nothing to improve performance. What can we do instead to achieve accountability and value for money?

First, the current review process could be made more useful. Information on methodology, assumptions and benchmarks should be made available to representatives of organizations and industries affected by the Provincial Auditor's reports. Draft reports need either to be kept completely confidential or made completely public.

Second, the government's concern about value in delivery of its housing programs should distinguish between day-to-day program administration and the long-term nature of the program. Again, we're talking about a program here that has 35-year agreements but tends to be looked at within the narrow confines of day-to-day operations and five-year mandates of governments.

Third, program administration should emphasize performance, not compliance. Self-regulation can be successful in achieving the ultimate value for money, through changing programs to ensure we're using systems more appropriate to ensuring that performance is achieved rather than simple compliance.

We've been working at both the federal and provincial levels and have been attempting to influence governments to change programs in this direction. We have worked at the federal level and have gone through a process of comparing the function of government in terms of the day-to-day administration of programs. That process, when looked at by an independent firm, has found that our approach, an industry self-regulation approach, would save the federal government more than $2 million a year and, over 20 years, somewhere in the order of $50 million in terms of ensuring that there's a best-practices approach rather than just a compliance approach.

As private businesses, housing cooperatives are well versed in the role of audits, the need for accountability and the importance of value for money. As an industry, we have advocated improvements in all areas for many years. We appreciate your interest and attention to our concerns and suggestions. Thank you.

The Chair: Thank you, Mr Morris. We'll begin questioning with Mr Hastings.

Mr John Hastings (Etobicoke-Rexdale): Mr Morris, I'm a little confused. Clear my thinking on the value-for-money approach, which you don't seem to think is that important in day-to-day program administration; that value for money ought to be placed more on the longer-term investments, so-called investments, in the housing stock, through the mortgage paybacks, I presume. Yet you also say, on page 4 of your submission, that we need more rules and not program performance improvements.

Mr Morris: I'm sorry, where are you referring to?

Mr Hastings: Sorry to get here late. On page 2 you were saying the focus has been more on rules than on improved performance.

Mr Morris: Yes. We're saying that has been the focus. We're not advocating that that should be the approach. We're saying that has been the result of the previous audits.

Mr Hastings: All right. Then what is your basic comment with regard to why value for money isn't as essential on day-to-day program administration as it is on the investment in the housing stock itself?

Mr Morris: Primarily because the relative dollars involved in day-to-day administration are fairly small. As the Provincial Auditor's report previously found, most cooperatives and non-profits have almost all their business costs as fixed costs. I believe the last report found that only 18% of costs were what were termed as "manageable." I'll just say that "manageable" refers to everything outside of paying the mortgage, paying the taxes, paying the utilities; that involves all the repair, all the staffing, all those kinds of decisions. It's relatively small amounts of money.

We're saying that if you really want to focus on value for money, focus on ensuring that the programs first and foremost are efficient rather than on setting a lot of day-to-day rules. That's essentially the thrust of what we're saying. We're not suggesting that within the relationship we currently have with private auditors those private audits don't have a beneficial effect on the day-to-day operation of housing co-ops; they of course do. But we're saying that to add an additional layer in terms of the day-to-day operations by having the Provincial Auditor essentially look again at the work that has already been done by an independent, private sector auditor to look at the business operations of a co-op is a bit duplicative, that the real focus should be on the programs themselves and on the ministry's performance in terms of implementing the programs.

Mr Hastings: You also allude to the fact that the members of the co-op are the most important folks in dealing in the co-op world, the people who actually live in those non-profit co-ops. Under legislation and amendments brought by the previous regime, a member of a co-op, under section 66(1), could be way behind in payments and doesn't even get dealt with by the board of directors. There are other amendments in there that almost render a co-op board ineffective in dealing with day-to-day financial administration. Do you have comments on that?

Mr Morris: I would disagree with that characterization in that the amendments that were made to the co-op corporations act essentially imported the fault provisions from the Landlord and Tenant Act in terms of dealing with situations like arrears. It was designed to try to ensure that there was some level of fairness within the process, because while most cooperatives had those provisions in their bylaws, a number didn't.

What we were afraid of was the fairly rare case, but ones did come to our attention, where essentially people were evicted without any process at all because they didn't have the protection of legislation; all they had was a business relationship with the cooperative. We had some fairly ugly incidents where people were essentially evicted in the middle of the night, kind of green-garbage-bag evictions. So we said, "What's the community standard?" The community standard at the time was the Landlord and Tenant Act, and we simply imported those clauses.

Mr Mike Colle (Oakwood): Thank you, Mr Morris. By the way, I lived in one of the first co-ops, I guess the pioneer co-op of the GTA, Ashworth Square, back in the early 1970s down in Mississauga. I have a bit of experience from a personal perspective.

One of the concerns I have is the maze that exists, sometimes lack of clarity of the structures. It's a specific type, not the regular type of co-op, but there's a building in my constituency that is run by a board. This board is supposed to be elected every year and accountable to the tenants and to the government. But in essence what's happened is that there has been a real rift; the residents feel totally alienated from the board, and the board seems to be almost like an oligopoly that's put in place and has nothing to do with representing the tenants. The tenants, the people living there, are certainly very upset.

They had an audit done. The ministry asked for an audit to be done of the board, and they went out and hired private auditors. The audit came back with a clean bill of health. The problem is that, despite this audit, it's almost impossible for the tenants to have any input, and they still have questions in terms of where tax dollars -- they're not quite sure whether it's federal tax dollars or provincial tax dollars. But they face an alienation between this board, that's supposed to be democratically elected etc, and the people who live in the building and spend their lives in the building.

I'm just wondering how you get around that. Wouldn't there be a potential for the Provincial Auditor, perhaps, to step in and say this is a system that needs some rectifying? Right now, the way the rules are set up, the tenants have no recourse.

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Mr Morris: I guess my response would be the Churchillian one, that democracies are the worst form of governance we have ever created, except all the rest.

I'm not sure whether what you're describing is a co-operative or a non-profit. It sounds like it may be some kind of hybrid. If it is incorporated under the co-op corporations act, the members do have a fair amount of recourse. They have the recourse of recall -- which we don't have with our legislators, as you know -- in terms of boards of directors that are elected. But it does require people being willing to exercise their democratic responsibilities. Without that, you're right, democratic procedures and processes can break down, where people don't or aren't able to exercise their democratic rights and responsibilities.

That raises a second question: Is it the appropriate role of the Provincial Auditor or some other body to fix that situation? I'm not convinced it's the role of the Provincial Auditor. I think there are better systems that could be put in place to deal with that. The system I would propose would be essentially industry self-regulation, where we are given the power similar to that which labour unions enjoy in terms of trusteeship; that where a group runs into problems that are in the short term unreconcilable by themselves, then not government but a non-government organization, whose only purpose is to ensure that the thing gets back on its feet and running properly, is brought in to deal with that situation. I don't believe that's the mandate of the Provincial Auditor's office.

Mr Gilles Pouliot (Lake Nipigon): Mr Morris, as always, one is suitably impressed with the quality of your presentation and the sincerity which is so apparent. I know that with people like you, the co-op is indeed in good hands.

On page 4 of your presentation, you voice an anxiety where you talk about the transitions between governments, between administrations. When you look to the future -- and it's the well-known style of the present government, or its intention, to have more scrutiny under the umbrella of value for money.

We're not talking here, Mr Morris, about the CEO of one of the large hospitals and the housing allowance that goes with it, totalling, with different benefits, more than half a million dollars a year straight from the pockets of taxpayers. I don't want you to comment on that; I'll do that, sir. We're not talking about that kind of value for money, nor are we talking about tax arrears, about deferrals, about how to "play the system" to one's advantage under depreciation allowances and research and development. We don't see value-for-money audits on these things, for the committee has not seen fit to commission the Provincial Auditor and his staff to do so.

When you see this -- and I know you represent a lot of the poor. People have now a chance to be like the others. I mean, sheltering? Heavens. Do you feel an audit could possibly become, in the eyes of your members, an inquisition? Do you feel that since they're not rich, those people, they could possibly feel targeted through the system?

Mr Morris: Possibly. My comments are less a concern about that than about us ensuring that we use appropriate mechanisms. Government brings certain mechanisms. There's an interesting book by Jane Jacobs recently looking at the various systems of accountability used in the commercial world and used in government, and clearly they're very different. They subscribe to very different sets of values.

I'm here expressing the concern that our participation in government programs, which we have been engaged in for almost 25 years, began with a review of public housing that said: "Public housing is something we shouldn't be doing. We should be harnessing the energies of the private sector in the community in order to build non-government housing that is responsible to the people who live in it, not to governments."

Our experience over the last 25 years has been that we like that initial approach, but our concern is that increasingly we're being sucked back into a public housing sphere where all the decision-making is removed, and when you remove all that decision-making from people, you of course forfeit the benefits of those non-government organizations and the business orientation they bring to it. We got into this to do something that government couldn't do on its own through ownership and management of housing. I'm afraid what we're doing is slowly but surely throwing that away by moving to greater and greater government accountability.

Rather than imposing on us what we're asking for, give us incentives, give us systems we can work with that are akin to the systems outside of government. Make us make decisions that are market-oriented -- that's what we're asking for -- rather than entering further into a compliance-oriented system.

The Chair: Mr Morris, thank you very much for your presentation.

ASSOCIATION OF DISTRICT HEALTH COUNCILS OF ONTARIO

The Chair: The next presentation is being made on behalf of the Association of District Health Councils of Ontario. Welcome to the committee, gentlemen.

Mr Gord Gunning: Good morning. My name is Gord Gunning. I'm the executive director for the association. My colleague is Jeff Wilbee, the volunteer treasurer for the association and the chair of Huron-Perth District Health Council. If you have technical questions, Jeff will handle those at the end of the presentation.

I don't propose to go through the submission in detail, but I would like to highlight some key points and then allow opportunity for some dialogue with the committee.

As many of you know, district health councils were established by the government back in 1972 to provide local and regional health care planning. We have been given the responsibility for recommending to the Ministry of Health specifically plans for the delivery of health care in each of the districts. Councils are advisory bodies to the minister and no agency programs are to be submitted to the minister for approval without prior approval of the district health council.

In 1994, under Bill 173, two additional responsibilities were added that I'd like to quickly highlight. DHCs are now expected to make recommendations on the allocation of resources to meet the health needs in the council's geographical area. As many of you know, those resources total some $17.4 billion annually. We also have the responsibility for making plans for the development and implementation of a balanced and integrated health care system in the geographic areas across the province.

For the record, over 8,000 volunteers contribute more than one million hours each year to community health planning through district health councils, and there are 33 councils covering 100% of the province's total population.

The purpose of our presentation today -- first of all, we should say we have not been identified as a schedule A grant recipient that would be subject to full compliance or value-for-money audits by the Provincial Auditor. However, we are schedule 3 transfer payment agencies, and DHCs have been partners with the Ministry of Health in establishing mechanisms to enhance accountability in recent years, and we wish to share some of our ideas about the proposed amendments to the Audit Act in these regards.

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I'll skip the background on page 2 -- I'm sure you're well aware of that -- and speak to Mr Peters's proposed amendments to the Audit Act that expand the Provincial Auditor's authority to conduct compliance audits that will determine if agency funding dispensation is for the intended purposes, as well as value-for-money audits that will determine if the agency funds are spent "prudently with regard to economy and efficiency."

The proposed amendments to the Audit Act to allow for full compliance and value-for-money audits of schedule A grant recipients are based on the establishment of what's been termed a "workable legislated accountability framework." I highlight that because we'd like to come back to that point a little later in the presentation. Certainly that framework is regarded to be necessary to enhance governance and performance management in all of your government expenditures and activities.

Some of our observations: Very briefly, we strongly support the principle and the intention of the Provincial Auditor's proposal. However -- I guess there's always a "but," otherwise we wouldn't be before you today -- we think there are opportunities that do exist to refocus on emerging models for publicly funded services and that there may be some alternative government directions you may want to consider in terms of the management of services provided at the local level, where we operate on a daily basis, and which can be supported by current government policy to more cost-effectively enhance governance and performance management accountability for the dispensation of public funds.

We believe accountability can be effectively addressed at a service system level, with outcomes for service care provision assessed within this context. This is an emerging area in a number of jurisdictions across Canada, but we think this can be done by establishing some fiscal and, in health care, clinical accountability at the local level through some models of organizational networks that provide efficient, integrated care for a local population. What's the definition of a local defined population? In the literature at least, it seems to range from a minimum of 100,000 people to a max of two million.

In a recent article by Leatt, Pink and Naylor, they've introduced a proposed definition of an "integrated delivery system." That's been bandied about a lot in health care these days, but it's the first definition we've found that we think makes some sense and wanted to share with you. It's defined as a network of health care organizations that provides or arranges to provide a coordinated continuum of services to a defined population. The network would be held clinically and financially accountable for the outcomes in and the health status of that population, and would manage the allocated funds on a capitation basis. They cite US and Canadian experiences with these vertically integrated models, and they describe some methods to control costs and provide a continuum of quality care through financial incentives to providers for minimizing costs, and performance measurement through peer review, clinical audits, expert reviews and utilization analysis.

Just as an aside, there are some active conferences and meetings going on even today and tomorrow and two more days in May in Ontario to deal with this very issue and try to come forward with some recommendations from the health sector.

Within this model of system care, the government's role, we believe, would be to examine the allocation and expenditure of funds on the basis of performance benchmarks, established with the provider networks and individual providers, that focus on anticipated outcomes. In this way, the success of a health system in addressing population health needs can be determined by assessing the individual agencies, such as hospitals, which you've heard from, and public health units, on the basis of how they are expected to function and how they ultimately contribute to a system-wide plan for affecting population health.

We believe that monitoring the implementation of these service plans is critical to improving the economies and efficiencies, and performance benchmarks are seen to be the foundation of an effective monitoring system for these service plans.

A strategic approach to controlling the costs and ensuring effective use of public funds by all these government agencies in this way is believed to address some of the issues that would continue to arise in an enhanced Provincial Auditor's role for assessing value for money.

Two issues come to mind in this regard.

First, you heard from the Ontario Hospital Association in its presentation to the committee in February that the Provincial Auditor would require specific expertise within the office to conduct these value-for-money audits, so we won't get into those details, but we concur with that position that it would require some additional expertise and probably some additional resources in his office.

Second, the Provincial Auditor reported that his staff complement is being reduced from 115 in 1991 to 85 in 1996-97, or a 26% reduction. The very staff-labour-intensive nature of value-for-money audits we feel may cause a problem there.

Also, a central interest of the Provincial Auditor is the level of economies and efficiencies achieved by individual government agencies, so our hope is that economies and efficiencies can be covered under the performance benchmarks or those kinds of measures.

Based on that context or that background, we believe that governance and performance management can be most effectively enhanced in the health sector through the establishment of the model of a local integrated health delivery system which would establish an accountability framework for the expenditures of public funds through government agencies. It's based on government fiscal frameworks, ministry policy and service system self-regulatory mechanisms.

In this regard we believe, as similarly stated by the OHA, that the focus of the auditor should be on ensuring that the Ministry of Health, in our case, has appropriate accountability structures in place with respect to its transfer payment allocations. We feel there are basically seven points to cover off that accountability framework or that accountability structure.

(1) The creation of a vertically integrated health delivery system at the local level.

(2) A clear government fiscal framework that requires each ministry to fund its own administration and transfer payment agencies accordingly. We feel that Bill 26, the Treasurer's economic outlook and the impending provincial budget are all strong moves and directions in this area.

(3) The requirement of transfer payment agencies to operate with balanced budgets as a part of the government fiscal framework and to prepare annual operating plans.

(4) To develop ministry policy frameworks that require the establishment of performance management standards for each of the agencies, boards and commissions, and processes to monitor and assess performance against these standards, so we're really looking to the future over the next three to four years.

In April of this year, the Ministry of Health did announce a framework that would facilitate a strategy to enhance accountability of its operations and those of its transfer payment agencies. In its strategy to restructure, the ministry plans to move, as quoted by the minister, "from a fragmented to an integrated system" and to a role that "no longer merely processes transactions but will manage, monitor and protect information strategically." In that respect, we agree and support the Ministry of Health directions to become more strategic and policy-focused and to be a more active system manager, if you will, rather than a passive payer.

(5) To establish performance management standards or benchmarks that would be based on deliverables and expected outcomes that are determined as a function of the resources available to carry them out.

A couple of recent papers have been produced by the Canadian Institute of Chartered Accountants in 1995 which I'm sure Mr Peters is fully aware of. We thought perhaps those, Guidance on Control and Guidance for Directors, may be a starting point to help create those performance measures with schedule 3 agencies and other agencies in the broader health sector.

The recent establishment of the Health Services Restructuring Commission and the mandate it has been given by the government to focus on a systems approach and to achieve the cost savings and reallocate those cost savings over the next four to five years I think also supports the seven-point plan we're suggesting and certainly the role of district health councils. We've obviously been intimately involved in looking at operating plans and allocation and reallocation of those funds to deal with high-growth areas, and with rural and northern issues.

The position we're taking is that rather than a value-for-money audit for individual institutions, we would prefer to see a systems cost-saving approach that can be measured through some form of performance auditing, if we can use that term, for which the Provincial Auditor, the Ministry of Health and the health sector partners can jointly develop the performance standards of the system being restructured.

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(6) We feel there is a need to establish, if they're not already in existence, memoranda of understanding or agreements between the government and each of its agencies, boards and commissions which give clear direction by Management Board of Cabinet and specify administrative requirements and financial reporting relationships which would address some of those concerns we have for the future.

(7) Finally, legislation that clearly defines the role and relationship of the transfer payment agency to its relevant ministry.

To sum up, through this general accountability framework, we believe the Provincial Auditor would have in place a mechanism through each ministry to evaluate value for money for the ministries and their ABCs. This framework would allow the ministries and Provincial Auditor to focus on the cost savings achieved in each of these service areas.

In conclusion, we certainly strongly support the government's goal of enhancing accountability of governance, cost-effectiveness and performance management of public funds. We believe this can be achieved in the health sector by the establishment of local integrated health delivery systems. Fiscal and clinical accountability can exist within a local network of service providers that manages a continuum of health services to a defined population.

This strategic approach to service provision uses the expertise and knowledge within the public health sector at the local level to assess the use of public funds by government health agencies.

We believe our proposed framework provides the means for the government to assess its cost-savings targets in the health sector, and may even be applied more generally to other sectors, be that education, law enforcement and others, on the basis of service deliverables and expected outcomes, and that we would have a mechanism for assessment and reallocation of public funds to areas of greatest need. We would hope this framework, as it evolves, would be more forward-looking and would ensure that the citizens of Ontario would be better served.

Those are our thoughts. We hope those are helpful to your committee in your review of the Audit Act. Thank you for the opportunity to be here with you today.

The Chair: Thank you very much for your presentation. We'll begin questions with Mr Colle.

Mr Colle: Why would you not think that a possible intervention or involvement of the Provincial Auditor in ensuring that the health dollars are spent wisely would complement what you're suggesting in terms of these benchmark approaches? With our resources, the auditor's would be a limited intervention, to a certain extent. What would be wrong with the auditor, in a very targeted way, trying to enhance the systems you suggest be put in place to ensure that there's more accountability and wiser expenditures of health dollars?

Mr Gunning: I don't believe we're saying we would object to the increased accountability and authority for the Provincial Auditor to have that capability. What we're saying is that given the resources, it's the old focus on the 15% or 20% that's causing 80% of the cost or 80% of the problem. Our view was that if we looked at the framework of accountability that's developed in conjunction with the auditor, then where he has to look at an exception or a problem or crisis area, he can use his resources better, and it's not expected that it would be a requirement or an expectation of his office to do it more broadly.

Mr Colle: But given that $17.4 billion is spent on health care and that we're getting to the point where it is going to be dramatically changed in terms of service delivery and there's going to be a scramble for every penny spent in health care, how would the auditor not be able basically to ensure that you're going to squeeze every cent out of the system and in essence be sort of a catalyst for more return for health dollars, given what we're getting into?

If you are trying to achieve more efficiencies -- which obviously you are; you're in the front lines of this, an essential part of it -- I don't really see the rationale. In essence you're saying the auditor's resources are limited, but I think what the auditor is saying is that there's so much money involved here, we have no other choice but to get involved in this field because we feel it is a responsibility to try to assess what is really going on in this massive expenditure area.

Mr Jeff Wilbee: Perhaps I could attempt to answer, at least from my own perspective. One of the ways I would address that is that in the broadest sense, we have just set up a Health Services Restructuring Commission to take a look and make sure that the efficiencies and the work that's gone through with all the volunteer hours and staff dollars we've put in in terms of planning -- that in fact those plans are carried out and implemented. In the broadest sense, it would seem to me, in my own mind, it is at what point do we audit? We have to make sure that process is working very well.

If I can take it down to a very practical sense in terms of operating a district health council, I think you're quite correct. We are on the front lines. My understanding of our role, as chair of a district health council, as a volunteer, is that we are through a consultative process to be able to advise the minister, give him the best advice we can on how we can gain the most effective and cost-efficient system within a particular district or region, and clearly, as my colleague Gord has said, that more and more we take a look at integrating the health system.

The advice isn't the best advice we can give if the planning process itself isn't efficient and effective and is itself not integrated. For example, the reason we're strongly in favour of these overall benchmarks, and one of the things that has happened recently in conjunction with the Ministry of Health and the district health council system, is the development of a stabilization kind of fund. Essentially, planning dollars come from a number of areas within the ministry that we advise, and sometimes that can be very restrictive.

If I can put that in a practical sense of operating a district health council, we would have core funding and then special project funding that might include funding for development planning of long-term care, mental health reform, hospital restructuring. We would see a pooling of that kind of money to not only reduce some of the silos within the ministry itself but also how that is conducted out in the community we're attempting to plan.

To get to the pooling in a very practical sense, if you have certain moneys within a special project, you hire a planner to work on it -- say, hospital restructuring -- then you can't perhaps in many cases then move those resources back and forth over the other initiatives. Our experience over 22 years is that that is not the most efficient and effective way to manage a planning body. Within that, clearly one has to have those kinds of benchmarks; the idea of building those, doing yearly work plans that the ministry itself needs to be accountable for, to make sure those work plans are first of all appropriate and, second, achievable. To my mind, then, that's where the audit process enters the system. If that isn't established at those levels, then when you get down to auditing it in more minute ways, perhaps we lose some effectiveness there.

Mr Pouliot: Following what Mr Colle has so ably mentioned, $17.4 billion is a lot of money, more than one third of the overall purse. On your end, you don't have the power to levy or the power to borrow. Until recently, in some cases there was some power to have, if not an annual, a deficit picked up. It became part of the culture in some cases. In fact, a cynic would say it was factored in, in anticipation that it would be picked up.

On page 4, your tone signals, grosso modo, that you would welcome the participation of the Provincial Auditor, and then you accompany that statement with a caution, a reminder of the complexities. It's almost as if you would say you are redefining the atom. This is sort of the nuclear physics of health, if you wish, that, "It has become so complex and so intricate in our world that unless you, Mr Auditor, have the expertise and the resources" -- and then you go on in your menu by pointing out some of the spices in the sauce and you say: "Well, poor you, Mr Peters. We know your staff will be reduced by some 26%, and you are a fine soldier, with expertise, but unless you have the resources and tools to match the task ahead, maybe it can better be achieved" -- I'm trying to voice the conglomerate here -- "by individual government agencies." It's sort of a mix, sort of a vague definition.

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You will come under public scrutiny more and more; there's no getting away from it. The demographics alone are not helping you. The volunteers too are on the waiting list. We all are clients. Ten thousand people each and every month go from being 64 years old to 65 years old in the province, roughly 120,000 people per year. Used cars demand more care, more visits to the clinic, more diagnosis, and you will be asked to focus with this.

In a climate where you have a vision du jour -- they're the political menu of the day; they're not a special, I can assure you. They've clearly indicated with the new philosophy that what we know from yesteryears -- I'm not asking you to comment on this, I can do that, but I can see the acquiescence -- is that there'll be fewer dollars and then they don't know where they're going. They're fighting on all fronts. I picked up the paper today and I see that the expertise, the doctors, are being taken to war by this brigade. I also see that the nurses -- you know, the front -- are being taken to task too. I don't see the highly paid administrators and the friends of friends being taken to task.

While you welcome the principle of value for money, a better bang for our buck in the health field, you caution us that we don't have the resources to do the job that needs to be done. I'd like to have a little more comment, because obviously the status quo -- if they don't hit you between the eyes, they'll get you with a thousand cuts. I know those people; I work with them. They'll broadside you so big-time badly, what is your real solution to address the recommendation made to the Provincial Auditor? What would you do if you were in our shoes?

Mr Gunning: A quick answer from my perspective. If the committee decides it wants to grant Mr Peters, as Provincial Auditor, the value-for-money authority under the Audit Act, you're going to have to increase his staff load significantly, not decrease it. But what we would like to see is certainly a partnership -- our sector, health, but others -- where we could work with the auditor to set the standards. The bottom line from our view is that there's a lot of legislation and a lot of requirements laid on the sector, but we're not working in a synchronized way and we're not integrated. The partnerships are key in the next year or two to work collaboratively and together to make it happen. It's not a you-and-us; it's together that we're going to make it happen.

Mr Toni Skarica (Wentworth North): Dealing with page 8, one of your recommendations for a general accountability framework is that there should be a performance management benchmark. My short question to you -- and I'll have a longer explanation in a second -- is, what difference does that make? From what I've seen in my experience in government already, if you get a mess and you see an agency that's overspending, what happens is that you go in there and you restructure, but the people who made the mess resurface somewhere else. Their pay is not affected. Mr Pouliot's a prime example of that, my friend. He was the Minister of Transportation and his department came in way over budget, as he candidly admitted to us, and he'll end up walking away with a $1-million pension, and all the bureaucrats in his ministry are still there.

Why can't we have a system where if you have a budget of, let's say, $100 million and you come in with $120 million of spending, why can't the people responsible take severe pay cuts, like 20% or 40% or something? Why can't we have something like that?

Mr Gunning: The quick reaction is, we can, but I think you also have to have the flip side and provide an incentive for the group to come in with an $800,000 budget and $200,000 in reserves.

Mr Wilbee: In terms of "Why bother?" you have to have those measurements, those outcomes, those targets, those criteria to meet. How can you evaluate whether you've met the target if you don't have that? That's essentially our point, that we need to have those benchmarks. Your initial question was, why bother?

Mr Skarica: Yes, but to my mind, you also have to have that in or what's the point? I can see already that with a lot of the restructuring we've done, the same people are showing up elsewhere with the same salaries, so the public's not any further ahead.

Mr Wilbee: As a volunteer and a citizen, I think this is an exciting time. It's a great challenging time, no doubt about that, but clearly, with the pressures on us -- and I think your colleague is quite correct in the sense that no way should there be any less scrutiny of how the system is looked at to make sure it is effective and efficient, but again, you have to have those tools with which to do it.

Mr Skarica: And we're not cutting Mr Pouliot's pension.

Mr Hastings: We're all focused here on financial planning, stability planning, that we have to accommodate these efficiencies etc, but I don't see any reference in your financial thinking to how we would deal with catastrophic, cataclysmic diseases should they arise, and they're on the horizon, for example, AIDS.

Mr Colle: Close down that Ebola health thing.

Mr Hastings: Ebola was a minor thing when you look at -- but the number of TB carriers coming into the country. They're here, but public health people, at least some of them, don't seem to want to deal with or even talk publicly about this kind of stuff. How do your financial proposals try to accommodate or anticipate these kinds of disruptions, or whatever word you'd use?

Mr Gunning: One approach I've heard about recently is that if you took the $17.4 billion and an agreed-upon percentage of that was considered a risk pool, and within that risk pool, if there was a major catastrophe -- say a tornado blew down the Owen Sound Regional Health Centre, for an example, or there's an epidemic -- that's what funds it. It's not an unfunded liability; it's that over the next five, 10 years you would take a piece of that $17.4 billion and put it in.

Mr Hastings: You set aside or find the bucks within the $17.4 billion.

Mr Gunning: Yes.

The Chair: Gentlemen, thank you very much for your presentation. We appreciate it.

Committee members, the committee stands adjourned until this time next week.

The committee adjourned at 1209.