CONTENTS
Thursday 1 February 1996
Audit Act amendments
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
Substitutions present / Membres remplaçants présents:
Doyle, Ed (Wentworth East / -Est PC) for Mr Hastings
Also taking part / Autre participants et participantes:
Peters, Erik, Provincial Auditor
Leishman, Ken, Assistant Provincial Auditor, Management Board Secretariat
Kathy Bouey, assistant deputy minister, program management and estimates, Ministry of Finance
Bob Christie, assistant deputy minister and controller
Robert Siddall, director, controllership branch
Phillips, Gerry (Scarborough-Agincourt L)
Clerk / Greffier: Decker, Todd
Staff / Personnel: Campbell, Elaine, research officer, Legislative Research Service
The committee met at 1004 in room 151.
AUDIT ACT AMENDMENTS
The Chair (Mr Dalton McGuinty): Good morning, committee members. The committee's now in session. This morning we're going to be dealing with a presentation by the Provincial Auditor on possible amendments to the Audit Act. Mr Peters, I'll turn it over to you.
Mr Erik Peters: Thank you, Chair. With me today are Ken Leishman, the assistant Provincial Auditor, and John Sciarra, who, among many other duties, is responsible for liaison with this committee.
I'd like to thank the committee for beginning a public consultation process on proposals to amend the Audit Act. The main purpose of my presentation today is to provide the committee with a background and the underlying principles that describe the primary intent and advantages of the amendments I will be proposing. In this way, I hope to provide the committee with the basic information on the subject of auditing certain grant recipients.
I deliberately mention "certain" grant recipients, because out of the almost $40 billion spent annually in transfer payments, it is my view that only certain grant recipients should be subject to value-for-money audits by my office. For ease of presentation, let me refer to these as schedule A grant recipients and the others as schedule B grant recipients.
I believe you have the package before you, and the details of the schedules A and B are outlined in appendix 1. It may be worthwhile if you wouldn't mind having it sort of on the side, because it gives you an idea of what we're talking about. As you can see, on appendix 1 we've tried to provide a fairly clear breakdown of schedule As and schedule Bs.
Schedule A grant recipients meet the following two criteria: (1) They must be eligible to receive a grant, and (2) the government grants the funds with strings attached. Such strings may entail direct compliance with relevant legislation, spending the funds cost-effectively, and only for specified government program purposes.
The principal recipients of schedule A grants are in the so-called CHUMS sector. Others refer to it as the MUSH sector, but I prefer CHUMS, for some reason. CHUMS comprise colleges, hospitals, universities, municipalities and school boards. Most of these grant recipients operate within different but in most cases -- and this is important -- quite inadequate accountability frameworks with the fund-granting ministries. This is a very important feature with which I will deal later on.
I propose that schedule A grant recipients be subject to full-scope compliance and value-for-money audits by my office. The amount of annual grants given to schedule A recipients is outlined in appendix 1, as I mentioned before, and the number we show there is approximate. It's $25 billion a year.
The principal schedule B grant recipients are general welfare or family benefits allowance recipients, medical practitioners who receive OHIP payments, pharmacists paid under the drug benefit program. In a different class within schedule B are unconditional grants to municipalities. Schedule B grant recipients need not and indeed should not be audited by my office. The amounts paid to them are also shown in appendix 1, and you can see that they total about $14 billion a year.
Perhaps some background on our past inspection audit activity would be helpful.
The current Audit Act came into effect in April 1978 and gave the Provincial Auditor the authority to conduct inspection audits of grant recipients. The granting of this authority effectively recognized the significance of grants in government finances.
Given the multiplicity of grant payments, it was not feasible, nor was it intended, that the Provincial Auditor undertake inspection audits on a broad scale. Instead, it was left to the discretion of the Provincial Auditor to determine an appropriate level of activity.
Initially, the Provincial Auditor conducted inspection audits only on an exception basis, for example where evidence obtained in ongoing ministry and agency audits indicated that such audits were advisable. However, consistent with the generally increasing emphasis on government accountability, between 1984 and 1991, the office expanded audit activity to include the major recipients of government grants.
Our work in this area included several audits in each of the community college, university, hospital and school board sectors. The results of these inspection audits were included in our annual reports to the Legislature.
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The university and hospital communities were sufficiently concerned about our planned inspection audits of their institutions that they obtained legal opinions. The legal opinions focused on whether there are any limitations on the authority of the Provincial Auditor to perform an inspection audit of a grant recipient.
The opinions concluded that there are two such limitations: First, an inspection audit should be limited to an audit of only the provincial grant payments received by the institution and not to other receipts, and second, it must be limited to an examination of the institution's accounting records. It is rather interesting that the legal opinion obtained by the university community excluded from accounting records the universities' internal audit reports, which in effect rendered these inaccessible to the Provincial Auditor. As well, recommendations made to management by external auditors were also considered not to be accounting records and therefore could not be accessed by us.
We should remember in this context that virtually all these organizations have private sector firms of chartered accountants actually carrying out attest audits and giving them an opinion of whether their financial statements present fairly the state of their financial affairs and the operations of the organizations. In that context, firms of chartered accountants normally do issue management letters about where they can improve, and it is these management letters that were not accessible to us.
The legal opinion obtained by a hospital focused on whether medical records of the hospital could be considered accounting records and whether the hospital is required to disclose these records to the Provincial Auditor during the conduct of an inspection audit under subsection 13(1) of the Audit Act. Incidentally, for ease of reference, as appendix 3 you have the Audit Act attached, so later on when I refer to section 3 you might want to refer to those.
The second legal opinion was on whether the hospital is required to disclose financial records to the auditor regarding ancillary operations, for example parking lot fees and operations. The legal opinion concluded that medical records cannot be considered accounting records and therefore the hospital is not required to disclose these records to the auditor.
The opinion stated: "These records are for purposes of patient care and there is nothing in them of a financial nature. Although they may be used for statistical purposes, they are not relevant to an inspection audit" -- remembering that "inspection audit" is again defined as strictly an audit of the accounting records. That's one we were not so keen on doing anyway, because it was being done by private sector CA firms, so what value would we be adding under the circumstances?
With respect to the confidentiality and disclosure of patient medical records, Tom Wright, the province's Information and Privacy Commissioner, has recently expressed some views on this subject, and I would suggest that the committee may want to hear directly from Mr Wright on this subject as one of the people it would like to hear from.
Regarding ancillary operations, the opinion concluded that "the hospital is not required to disclose financial records of its ancillary operations except to the extent that these operations are funded by grants from the consolidated revenue fund and the auditor's examination is indeed in relation to such grants."
One of the difficulties we have with this, and I deal later on with the commingling issue, is that once a dollar arrives in the system, it is very tough for the auditor to distinguish between a dollar that was given to the institution from a government grant or a dollar it received for a half-hour of parking. We'll deal with that later on.
Our inspection audits in the university and hospital communities were performed within the boundaries set by these legal opinions, which are based on the current wording of the Audit Act. I should point out that our inspection audit activities in school boards were more full-scope in nature and were considered very useful by that community.
The legal opinions I've just referred to made it clear that the full scope of the Audit Act does not apply to inspection audits. Rather, as defined in the current Audit Act, inspection audits must be limited to audits of grant payments received by the organization and cannot be more than very limited financial and compliance audits. That again goes back to the definition of "inspection audit" in section 1, which says that an inspection audit is an audit of the accounting records of the organization.
The Office of the Provincial Auditor does not dispute the conclusions reached in the abovenoted legal opinions. On the other hand, this narrow interpretation appears to be inconsistent with the current public emphasis on accountability. From this office's perspective, there's an implied expectation that the funds provided to organizations will not only be spent for the intended purpose, which we assess in our compliance audits, but will also be spent prudently with regard to economy and efficiency, and that the organization has established adequate procedures for the measurement and reporting on the effectiveness of programs, which we assess in value-for-money audits.
Over the years, the public accounts committee has been very supportive of this office's views and concerns respecting the current scope limitations of inspection audits of grant recipients under the Audit Act.
The previous public accounts committee also explored the issue of Audit Act restrictions on the scope of an inspection audit of a proposed special assignment of special education grants to school boards under the authority of section 17 of the Audit Act, under which this committee by resolution can give special assignments to my office.
In this regard, a research paper prepared for the committee by the legislative research service discussed the following issues: whether the public accounts committee can direct the Provincial Auditor under sections 16 and 17 of the Audit Act to conduct a value-for-money audit of a school board; and the procedural implications of the Provincial Auditor conducting such an audit on the committee's direction; and lastly, the powers of the Ministry of Education and Training in relation to audits of school boards.
In considering the above issues, particularly the uncertainty of the intended scope of assignments under sections 16 and 17 of the Audit Act, I advised the committee that from our perspective amending the Audit Act would be necessary to carry out such value-for-money audits. This would also give the committee a clear power to direct us to perform inspection audits of grant recipients on a value-for-money basis.
The question was essentially whether you can give us an assignment and ask us to conduct a value-for-money audit while the Audit Act said for that particular organization we could only have access to the accounting records. In other words, would the power of a resolution on this office supersede the stated limitations in the Audit Act? We ultimately reached the conclusion that no, it didn't, that this committee, just as my office does, would have to abide by the provisions of the act as they were stated.
Since 1990, the committee has been voicing its desire to give the Provincial Auditor the legislated access to information necessary to carry out full-scope compliance and value-for-money audits of schedule A organizations receiving government grants. From my office's perspective, the only way for the Provincial Auditor to assist the Legislative Assembly in this regard would be through appropriate amendments to the Audit Act. I'm essentially after the necessary legislative tools that will allow us to provide a valuable service to the Legislature.
Perhaps some recent history in context would be helpful to the committee.
When I was appointed as Provincial Auditor, effective January 1993, considerable work had already taken place on the subject of amendments to the Audit Act. In fact, the then government had committed to a public consultation process with the transfer payment sector, accounting bodies and other interested stakeholders on the subject of amendments to the Audit Act as proposed by my predecessor. The public accounts committee was to have played a leading role in the public consultation process.
However, after careful thought, I suggested in a February 1993 letter to the then chair of the public accounts committee that amendments to the Audit Act be deferred until a more appropriate and workable legislated accountability framework is established. My main concern was, and is today, that the absence of a workable legislated accountability framework for the management of resources and for performance cannot be overcome by more audit. In fact, the existence of such a legislative framework would make the proposed audits of schedule A grant recipients by my office significantly more effective.
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In this regard, in June 1993, the public accounts committee passed a motion giving me approval in principle to pursue with the central agencies the establishment of a workable -- and I emphasize workable and I emphasize also legislated -- accountability framework before any amendments are made to the Audit Act.
For the past two and a half years, I have pursued and advocated the establishment of a legislated accountability framework with the central agencies -- Ministry of Finance and Management Board Secretariat -- without success. Their preference is to pursue non-legislated ways to strengthen the accountability framework.
Under the Audit Act, it is one of my responsibilities to conduct value-for-money audits and to report on their results in my annual report to the assembly. It is the responsibility of management to actually ensure that value for money is obtained. Therefore, the current, very limited value-for-money mandate for management and the inadequate accountability framework for performance cannot be overcome by good auditing, which can only make recommendations to remedy weaknesses and deficiencies. This is why I strongly believe it is necessary to enhance governance and performance management in all government expenditures and activities by legislating appropriate management responsibilities and accountability frameworks for central agencies, ministries and schedule A grant recipients.
I believed then and continue to believe today that:
Obtaining value for money and performance management should be legislated everyday management responsibilities, rather than indirect requirements monitored through periodic audit examinations under the Audit Act.
The ability of the Legislature to hold various entities, including schedule A grant recipients, accountable, and the economy, efficiency and effectiveness of audit examinations conducted by my office, would be greatly enhanced if such a legislated accountability framework were put in place. This would be so because legislated responsibilities would require managers not only to set up accountability frameworks, but also where feasible to establish internal audit functions. Audits by the Provincial Auditor would then be more useful to the assembly, through the public accounts committee.
A number of features of accountability by ministries for transfer payments are provided by Management Board of Cabinet in the form of a directive. A directive does not have the same status as a legislated accountability framework.
At one of my first meetings before this committee, and I'm departing from my text for a moment, we had before us, I believe, the then vice-chair of the Workers' Compensation Board, and it had created a subsidiary without obtaining an order in council, which was required by management directive. The vice-chair's answer was, "I didn't know I had to get one." The chair of this committee turned around to me and said, "What do I do now?" I said, "There's no power, no authority for the committee to deal with that." If indeed this was only an administrative directive to obtain an order in council, there is nothing legislators can do in way of sanctions or critiquing or whatever. All they could say was, "We are astonished you didn't know," but that was it.
That's why a directive does not have the same status as a legislated accountability framework. However, features of the directive could be used to advantage to develop such a legislated accountability framework.
Subsection 13(1) of the Audit Act permits the Provincial Auditor to perform an inspection audit of a recipient of a grant from the consolidated revenue fund or an agency of the crown. However, section 1 of the current act, as I pointed out before, narrowly defines an inspection audit as "an examination of accounting records." This has scope-limiting financial and compliance audit connotations.
Many large schedule A grant recipients, and this is a very important point, receive funding from various public and private sources. For example, universities receive tuition fees as well as grants. These are commingled in the accounts of the grant recipient. Based on limitations imposed on our past inspection audits, we firmly believe the Provincial Auditors's right of access should be extended to all relevant records of grant recipients. For example, some of the universities argued that some of the programs they are following are not funded by the province and therefore we have to stay out of them.
Accordingly, consideration should be given to amending the relevant sections of the Audit Act to permit my office to carry out full-scope, compliance and value-for-money audits of schedule A grant recipients. The actual drafting of the amendments would be done by legislative counsel in consultation with my office, and of course with you.
As well, the committee may wish to consider amending section 13 of the act so as to clarify that unconditional transfer payments to schedule B grant recipients, such as unconditional grants to municipalities, OHIP payments to doctors, or family benefits allowances to needy individuals, would not be subject to audit by the Provincial Auditor.
However, and this is a big however, the ministry programs and activities under which such payments are made are now and will continue to be subject to full scope audits by the Provincial Auditor. The ministry activities are largely in the area of determining eligibility -- is this person eligible to receive a family benefits allowance? -- and once they have determined eligibility, there's really no point, then, auditing the recipient to see whether they bought food or booze or whatever. It's none of the government's business and none of my office's business as a consequence.
Members of the assembly and of previous PACs have expressed the view that schedule A grant recipients who are given government funds to achieve a legislated purpose should be audited to assess if they have spent government funds for the intended purpose prudently and that they are measuring and reporting on the achievement of their legislated objectives.
Members of the assembly from all three parties have expressed their views on this issue as follows: In October 1992, in the publication A Blueprint for Learning in Ontario, the Ontario Progressive Conservative caucus stated -- I brought it along; some of you may have seen it; it looks like this.
Mr Dominic Agostino (Hamilton East): Have you got the other book there?
Mr Peters: Do you want to see that?
The Ontario Progressive Conservative caucus stated, "As recommended by the standing committee on public accounts, the Provincial Auditor should be allowed to perform value-for-money audits of all," and there is emphasis on "all" -- "government agencies and recipients of government funds."
In December 1992, the Honourable Floyd Laughren wrote to the then Chair of the public accounts committee, and I quote, "As I have stated in the past, I support any proposed amendments which will allow the Provincial Auditor's office to continue their important role in ensuring that value for money continues to be received for all government expenditures."
According to Hansard, in November 1995, Mr Joseph Cordiano, former Chair of the public accounts committee, stated in the assembly, "...the real heart of the matter lies with the quasi-public transfer partners, the recipients of those funds. I ask the minister, why hasn't his government moved to make the amendments necessary to the public Audit Act so the auditor could go in and audit some of these transfer payment recipients to determine some real savings?"
I'm not aware of any views of members of the assembly contrary to those which I have cited above. It is my intention to advocate only amendments to the Audit Act which in my view would benefit the assembly by making my office's service to it and to this committee more useful, more comprehensive and more effective.
Let me briefly share with you my thoughts about the cost of these amendments. As you know, the professional staff complement of my office is its most important and only true asset. As some wag told me, my assets go up and down in the elevator every evening and every morning. The funded staff complement of my office has shrunk from 115 staff in 1991 to 85 staff proposed by me to the Board of Internal Economy for 1996-97, an effective reduction of 26%. At the same time, government expenditures have increased by 21%, from $46.5 billion in 1991 to $56.2 billion in 1995.
Experience has taught us that value-for-money audits are very staff intensive and should be carried out only if they add value. The value-for-money audits of grant recipients, which would be conducted if the amendments to the Audit Act are passed, would be at the discretion of my office, and that's an important feature.
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I therefore propose to accommodate a very limited number of such audits of grant recipients each year, with a corresponding reduction of such audits of ministries and agencies. In other words, I would change the mix of value-for-money audits. This proposal is based on the assumption -- and that's an important assumption -- that my office's proposed staffing complement remains intact. I would only ask for increased resources if we believe the numbers of such audits are so low that the assembly, through this committee, was not being well served.
I would like to sum up my presentation by stressing that the proposed strengthening of the legislative audit regime over transfer payments may well serve to expedite, but should not replace -- and I emphasize should not replace -- the establishment of a workable legislated accountability framework. Amending the Audit Act to permit the Provincial Auditor to perform full-scope audits, including value-for-money, of grant recipients is the principal change my office is proposing. However, there may be some advisable and related administrative housekeeping changes to the Audit Act, which are listed in appendix 2 in your handout.
I would be pleased to elaborate on some specifics, if the committee so wishes, during the questions and discussion that will follow. Thank you very much for your patience and attention to this lengthy presentation. Mr Chair, I'm in the committee's hands and would be pleased to answer any questions and/or clarify any matters for the committee members.
The Chair: Thank you, Mr Peters. We'll begin questioning with Mr Carr.
Mr Gary Carr (Oakville South): As usual, you did a fine job of the presentation and informing us, and I appreciate that very much.
On page 2 you talk about the legal opinions, and I want to talk specifically about hospitals. As you know, as a result of Bill 26, the provincial government now can go in and supersede the powers of hospitals, the board and so on. Was this legal opinion prior to Bill 26 passing? As you know, we have powers to go in now and say to hospitals, "You perform this service; you won't do that." I would assume that any value-for-money audits could be done as a result of those dramatic powers the provincial government has. When those legal opinions were done, I take it that was prior to Bill 26.
Mr Peters: Well prior. It was actually prior to me taking office. Ken, do you recall?
Mr Ken Leishman: It was 1990 or 1991.
Mr Peters: So well before, and second, in response to your question, that's why I'm recommending you hear from Tom Wright, the privacy commissioner, who has spoken on the issue as well.
Mr Carr: In light of the changes, of course the colleges and universities sectors would be different. They haven't been touched yet; I suspect they may too as well. I don't know. With the powers you see now in Bill 26, is it really necessary for us to make changes for the auditor to go in? In some respects I almost see it duplicating the efforts. If these powers are as strong, and they are, why in the hospital sector would we need to change the Audit Act to allow the auditor to go in and look when the ministry has stronger powers? They have more power not only to go in and look at it, but can go in and say: "Sorry, this floor of this hospital, these nurses, are gone. You're not providing these services." Why would we need to change it for the hospital sector, in view of the extraordinary powers the Ontario government now has?
Mr Peters: The powers under Bill 26, as I understand them, and that is a fairly limited understanding at this point, are really powers of access to medical records. The changes to the Audit Act that we're looking for are -- in inspection audits, if we wanted to audit a hospital, we could look only at the accounting records right now by limitations imposed in the wording of the Audit Act. If the government wanted us to audit hospitals for value for money, we would need access to other acts.
Let me give you an example or explain a little. We would be interested in verifying the statistics a hospital uses, for example: How many operations did you carry out? What kind did you do? How many incidents do you have of bedsores? -- which is an indicator of nursing care. We wouldn't be interested in the identity of the patient who had them, but we would like to take a look at whether the statistics they keep on this are valid, so we would have to look at some sort of record to check the validity of those statistics.
In the VFM area, these are some of the questions one would be asking as to what kind of statistics they keep: How many emergency cases do they treat? What's the capacity of the emergency room, and are they in excess or not? The only way to verify that is to find out the statistics on the caseload.
Mr Carr: What I'm getting at is that it seems this almost would be a duplication to change the Audit Act to allow you to do that. It's my understanding that with these powers now, the government can go in and do that. They can appoint a superintendent to run it if they want. They could go in and say, "Give us all your books," and pull them all out and look through them.
What I'm getting at is why we would need to change the Audit Act to have the auditor have powers that I believe the provincial government has now. I'm just asking the broad question, why would we need to change the Audit Act for hospitals to allow the auditor to go in when the government -- it may be that you're saying it should be done through the auditor because you're more arm's length and non-political than the government and are trusted more than a lot of the governments, notwithstanding the politics. You may say you would have rather have that power to do it as an arm's-length agency.
What I'm getting at is that we're going to change the Audit Act to go in and take a look at hospitals and do value-for-money audits, which I think all parties agreed in the past was the right thing to do. But that was prior to Bill 26 when extraordinary powers came in for the government to go in and do these types of things that we would be asking you to do. I'm just wondering if we need to do it now. Why would the auditor need to go in and do a value-for-money audit of a hospital when the government can not only go in and do a value-for-money audit but can go in and do whatever it wants in hospitals now? Why would we need to duplicate the powers and change the Audit Act?
If in the broad sense we need to do it for colleges and universities, we may need to change the act to allow you to do it for colleges and universities. But specifically for hospitals, why would we need to do it now?
Mr Peters: Actually, for a wide variety of reasons. The first is that the changes brought in in Bill 26 essentially allow this discretionary power to the minister. The powers that are given to my office are given to my office as a legislative officer and therefore would be the power of the Legislative Assembly, essentially, to conduct these audits. That would be number one: There is not necessarily an accountability for the results of these activities of the minister to the Legislative Assembly.
Mr Carr: But we could do it as a committee.
Mr Peters: Your minister can do it, but the assembly as a whole cannot do it. That would be one reason.
The second is that the inspections you describe are really not value-for-money audits; they are specific inspection powers. Certainly the activity that would be conducted as a result of those provisions in Bill 26 would be taken into consideration by us if we were to conduct discretionary audits of hospitals. We would certainly not be duplicating any of the work. We would ensure that information gained in these examinations is made available to us in that. But the amendments to the Audit Act are really sought to give the Legislative Assembly, through this committee, the ability to assess whether hospital operations achieve value for money and whether they comply with the law.
Mr Carr: Actually, I'd like that, because I've always believed that as legislators we should have the power to be able to do that as well and we shouldn't just leave it to the minister. I say this more as somebody who sat in opposition. A government of the day can do whatever it wants, but through this committee, we can also, for want of a better word, get involved in taking a look at what governments do. I think those are powers that we as legislators need, because we're the ones who do get elected and can get thrown out. I'm glad you clarified that. I couldn't see why.
Now, the difficulty you've got, knowing the politics of public accounts, is that the government still controls the public accounts. The opposition, who would in some respects like to have the powers to have you look at some of the hospitals in value-for-money audits -- it's still controlled by the government because the committee is still controlled by it. But I certainly think the power should be in our hands, as duly elected people, to be able to say to you, "Yes, we'd like to do a value-for-money audit at a particular hospital because there's been a particular problem there." I suspect that notwithstanding some of the powers in Bill 26 we should still take a look at making these changes. Thank you. That was very helpful.
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Mr Bruce Crozier (Essex South): Thank you for your report, Mr Peters. I'm pleased that my colleague opposite has expressed the opinion that he feels the authority should be in the Legislature in areas where we no longer have it. I would welcome him to come and join our voice at any time he likes when we start to deal with the ramifications of Bill 26.
Mr Carr: I support the bill 100%.
Mr Crozier: Then your rump's on both sides of the fence.
Anyway, you've pointed out very clearly that you feel there are two areas, one where you should be able to do value-for-money audits, in the schedule A agencies, and that you also need some legislated support for this. You pointed out that over the past two and a half years you had pursued several ministries to support you in this and in fact made the comment that you pursued the legislated accountability framework without success, that their preference is to pursue non-legislated ways to strengthen the accountability framework. Would you be prepared to give us an opinion on why you think the ministries took that position and you didn't have the success you'd hoped for?
Mr Peters: The main argument that was advanced was that we were dealing essentially with penalties and sanctions. One of the concerns was what to do if the ministry breaks the accountability framework. Their view was that the current provisions allowed them to take budgetary sanctions against the ministry; if they, as a central agency, determined that a ministry had breached the accountability framework in some way, they could take some action. But there is no record of such action having actually been taken in recent times.
My difficulty with that argument, and why I consider my pursuit this far without success, is that I really would like to have the legislators put back into the driver's seat of being able to assess whether somebody has actually broken an accountability chain that they shouldn't have; whether they have not met responsibilities that the Legislature feels they should have.
Right now, to give you an extreme example, if a deputy minister had done something that the Legislature feels they shouldn't have done, technically the Legislature cannot point to any document that says, "You are accountable to us for that particular action." That may be a very poor example, but I cited the case of somebody who said, "Yes, we formed a subsidiary and we didn't get an order in council." There were presumably administrative sanctions available, but there were no sanctions for the legislators, and I thought the legislators ought to be put back into the position of getting hold of these sorts of events.
Mr Crozier: I certainly agree with your position and would support it. Have you submitted draft legislation to be considered in those areas where you feel it needs to be strengthened or instituted?
Mr Peters: Yes. Specifically, the most explicit I've been -- since 1993 I have more lamented the fact that we didn't succeed, but in my first annual report in 1993 I outlined the key features that I thought such legislative efforts should have. They are fairly lengthy; I'd be glad to provide them, but they may be too lengthy to report. But just to highlight a few of them for you, I said in this report the key features of a workable legislated accountability framework are as follows: establishment of management responsibilities for reporting performance, plans and budgets; establishment of management responsibilities to maintain proper books and records, financial management control information systems and management practices which provide reasonable assurance that the assets of the entity are safeguarded, that transactions comply with the legislation, regulations, bylaws and directives and financial, human and physical resources are managed economically and efficiently and operations are carried out effectively. That's just the beginning of this.
I'm not a lone voice in the wilderness on this one. I seem to be that a little bit in Ontario, but other governments have taken very significant action on this. The latest and probably very important one is actually the Government Accountability Act, passed in Alberta as part of the overall revamping of management over there. That is one recent one and that was used pretty well, in part anyway, as a blueprint by the Ontario Financial Review Commission when it made its recommendations in November of this year: effectively, that this government pursue the establishment of similar features. That was part of that, but prior to that there was the Citizen's Charter in the United Kingdom, which wanted to get the same sorts of management responsibilities enshrined in legislation; there's Bill S 20 in the United States. I think we cited it already at that stage. I think it was passed as legislation as the Government Performance and Results Act of 1993.
So we are really, in this recommendation, pretty well in line with what many governments are pursuing right now. Actually, some of the features also are directly stated in the Financial Administration Act of the federal government.
Mr Crozier: So it would be appropriate for this committee to consider those legislative changes and hopefully to support them then.
Mr Peters: That would be terrific.
Mr Gilles Pouliot (Lake Nipigon): Hansard will make for most interesting reading. I like to work with people who wear their heart so openly on their cuff. I'm not the least guarded. What the heck, that's what committees are all about.
Just take five minutes ago; you heard it repeatedly. The member opposite candidly, without caution, said under Bill 26 you can do whatever you wish. Five minutes before that, in your presentation you were talking about seeking consent to scrutinize under the halo of value for money, which does not give you the right under that umbrella to commit a multitude or any sin.
But as you get into transfer payment, and it was you, sir, who talked about, I think, medical records. I'll have to check Hansard. It's so foolproof and it records what has been said, and the imagination of members, depending on the time of day -- they give it the proper tone and they can make a concoction out of it.
I'm concerned, because no, you cannot do whatever you wish. I don't wish to take my friends opposite out of context. This is a non-partisan committee.
Mr Mike Colle (Oakwood): Is it?
Mr Pouliot: Well, it is, yes.
Mr Agostino: Is it more them than us?
Mr Pouliot: No. It's just as non-partisan as myself being the emperor of China, Mr Colle.
Mr Marcel Beaubien (Lambton): No comment.
Mr Pouliot: And you won't respond.
I'm concerned, you know. It's against the right of the collectivity, and I'm sure it's not intended that under value-for-money transfer payments, medical records of a person come and that we use this case. Whether the name is obliterated or not, I'm afraid of these things. The privacy commissioner has mentioned that every time, every opportunity that is given, any window, we should all be on guard.
I say that regardless of Bill 26, because we don't want anyone, we don't want the offices of government and your office, sir, to be embarrassed. Nor do we wish it, unless they say so, because they have more people than we have. There are more members of that first brigade than there are foot soldiers with the opposition.
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Mr Beaubien: We're front-liners.
Mr Pouliot: Yes, that's right. They fought bravely. I see that you lost nine according to the latest poll, but that's okay.
Mr Beaubien: That's just an aberration.
Mr Pouliot: I'm not the one saying this, because I try very hard not to be partisan, but I heard it said, Mr Auditor, that some administrations would not be opposed to using your good office to justify its slash-and-burn. When I see the transfer payments list, many of them are money transferred to the marginalized, to the less fortunate. Life is circumstance, those who cannot run as fast as the others, and sometimes it's very difficult, by a mandate, to see that those people, because of stickers, checkmarks for the sake of the books, for the sake of good accounting, are focused, because we will be watching very closely as to what -- and I say this with respect. You're an independent body and the Legislature needs you. You're the best checkmark we have here.
But where will the focus be when we talk about transfer payments? Under the CHUMS scenario -- I don't want this to turn into CHUMS. I have a long list of transfer payments that I would wish to be scrutinized. So I caution that it has to be aboveboard and I caution further, with respect, that whenever we have individuals, regardless of Bill 26, that we don't lose the intent and the spirit of what we're doing, that people must be protected and know we cannot do anything we wish even if it's Bill 26. You only do what the people will tolerate your doing, regardless of legislation, more often than not. So just a word of caution. Maybe over the years I will learn to trust them more, but to this day it's very difficult, even if I'm my traditional benevolent self, sir. It is not an easy task sometimes.
Mr Peters: Let me comment on that in several ways: first, as I think I clearly outlined, it is important for this committee to hear from the privacy commissioner on this issue; secondly, it is a policy of my office not to deal with individual cases. As you know, we had the incident, where we talked about the drinking water, and we couldn't even name the plants. The ministry had to name the plants that had the difficulty with that.
The other point is also, let it be very clear, that nobody in my office is and nobody pretends to be competent to re-examine a medical case or anything like that. The entire intent of potentially taking a look at medical records is merely to assess the validity of statistics that are used -- for example, how many cases do we have, this sort of thing. Also, what we are seeking here is not to extend the powers of auditing. What we are extending here is really the access to records of grant recipients who, after all, are receiving something like $25 billion out of the $56 billion. What we're trying to establish is some sort of check for the Legislature, to say, "How well are we spending that vast percentage of our money?"
So I certainly can give this committee every assurance that the reason we would like this is to improve financial management and control and the management of resources by the Legislature, and there's no other hidden agenda; there's nothing there.
Mr Pouliot: I thank you. I just wanted it to be a matter of record. Now I understand. This is exactly in that context that Mr Carr made his remark and it does coincide with yours, and I thank you. So Hansard will not be as interesting to read tomorrow as I thought it could have been.
Mr John Hastings (Etobicoke-Rexdale): Mr Peters, I'd like to congratulate you on a very thoughtful and insightful presentation of this stuff, because it's hard for some of us to get our brains wrapped around the intricacies, let alone the concepts.
One of the things I'd like to ask you about -- you've made reference to it; I don't think it's in your written remarks -- is the post-secondary sector and the hospital sector, wherein the foundations in both cases received funds for specific programs from donors. You seem to indicate to me that in trying to get a legislated accountability framework, you would want to have the capacity or the authority to audit the moneys provided in those programs where donors are making significant contributions. For example, the Ontario Cancer Foundation or Wellesley received $2 million -- I don't know if it was Wellesley. A gentleman the other day donated $2 million for a specific program.
Mr Colle: St Michael's Hospital.
Mr Hastings: St Michael's? The Ivey family at the University of Western Ontario over the years have made enormous contributions to the operations of Western; Trent has been the recipient, and the list goes on. I would like to know what your thinking is as to how you would manage this issue of where donors provide specific contributions for specific programs which still have sort of a funding equivalent, I guess, in dollar terms, from the Ontario government.
Do you see that there would be a necessity to audit those parts of a program which are derived singularly or commingled with the moneys from each ministry, whatever the case may be? Because I see you already have the authority in section 10 of the Audit Act that all books, financial records, reports, ministry agents, all property -- do you think there's a privacy issue there? That would be my second question in terms of this issue where there is a commingling. Or do you see that the donors, giving significantly or not so significantly -- all contributions from private donors -- should be separated out for whatever their intent is, unless it's specifically designated that the moneys go into the general operations of an institution, whether it be a university, community college or a hospital?
Mr Peters: The answer may be slightly on the long side, so bear with me on this. You have touched on a number of very important issues in your question and I think I need to deal with these very important features that you have brought forward.
The first one: Let me deal very quickly with foundations, particularly in the university setting. There is an act, actually, on the books of the province under which the foundations ought to be audited, and that act specifically provides also for inspection rights by my office.
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But that lets me get into the second area. Foundations can be looked at by my office, but the current limitations are strictly that we can do only an audit of the accounting records. Many of the donors, for example, make donations for specific purposes. We call those restricted assets. In other words, they may donate the funds for the palliative care unit of a hospital or they may say, "We want it to be used for cancer research," and whatever. But under the current limitations of the act, we cannot even verify if the hospital has used those only for that purpose. The accounting records may very well show that they say it has been done, but we would like to have access to the records that prove that in fact it has happened. In fact, it would be partially done to even help the donors in this particular respect.
The other part is that with the province having such a significant stake in many of these organizations -- we're looking at the hospital community, for example. I don't know what the exact percentage is, but well over 90% of hospital funding is derived from the province. Legislators have been very concerned that hospitals actually had recorded deficits against their government funding, and in the meantime we're building up foundation assets to a great extent. There has been a question raised as to what the right of the province is. Could the province, for example, take the view that the province could reduce its funding if there were a lot of assets and income derived by a hospital from a foundation? Those kinds of questions we, under the current setting, cannot address at all.
So in the setting that you describe, I believe that being such a significant funder of these organizations -- and I'm not talking about organizations which receive the occasional piece of money from the province. Really we are going to have to be very judicial not only because our resources are limited, but also your intent may be limited of not looking at an organization that maybe receives even as much as 40% of its funding from the government. Maybe we have to agree on a cutoff somewhere where we want to look more. But the point is that the current accountability to the Legislature is really very limited, to a major funder.
I had an incident where, for example, I met with a number of members of the faculty and the administration of a university, and I stressed to them that I was going to drive for accountability to the Legislature for organizations which are substantially funded. He was very outspoken. He called me names and things that I don't want to particularly put on Hansard when I brought forward this point, but the kindest word that he had was that he thought this was an entirely self-serving presentation by me to enhance the powers of my office.
I had the statistics with me and I said, "What you are really saying to me is that you, as an institution which receives 82% of your funding from the province, do not wish to be accountable how you spend that money." There was icy silence in the room. That's really what I'm after. What I'm after is on your behalf to institute some sort of accountability to you for the significant funds that you're spending.
Mr Hastings: Let me put it this way, then. With the private sector probably going to be relied on to a greater extent for many programs and operations in these public institutions, or there will be more public-private partnerships evolve over time, the point you raise about whether a foundation of a hospital or a university, if it had $100 million or whatever more than what it had reported in terms of a deficit from its transfers, from its grants, do you see any concern or do you think my concern is somewhat trivial in terms of whether the future trend will hold, that there will be an increasingly significant reliance on the private sector, whether you call that non-profit or private individuals or corporations contributing to various types of public institutions today? In terms of getting your value-for-money audit that you want for the broader area of public moneys, do you think it would be a deterrent, I guess would be the way I'd phrase it, to increased contributions?
Mr Peters: Quite frankly, I don't think so. Let me give you two very specific reasons and examples where we already have acted on this.
The previous government introduced something called the Capital Investment Plan Act, under which it created four capital investment corporations, and very large ones; they were substantial. The Ontario Realty Corp, the Ontario Transportation Capital Corp, the Ontario Clean Water Agency and the Ontario Financing Authority were the four key ones that were created. At that time, my office was approached as to whether we wanted to be the auditors of these particular organizations. I said yes, from the point of view that essentially these corporations were going to carry out activities that were carved out, really, of the consolidated revenue fund, which is part of the legislative accountability, and that is part of my audit domain. Therefore, on behalf of the Legislature I should retain that right.
However, it was actually I who suggested to the government of the day that "If one of the intents of creating these organizations is to encourage public-private sector partnerships, I would like to specifically amend the audit provision." I appeared before the standing committee on general government for that very purpose, to permit in those partnership situations for the partner to actually be able to appoint their own auditors to look into the transaction; in other words, to enhance the ability of these partnerships. Because very often a partner who comes in says, gee, you know, "They are all one and the same." The separation, the independence of my office, is often not clearly understood.
So I would say I see absolutely no obstacle to making provisions, where we get into the private sector partnership, that this be permitted; in other words, that the private sector partner can bring their own auditors into the picture if they wanted to. Or to another extent, and this in fact may encourage private sector partnership, if my office were to conduct value-for-money audits -- let me put one thing to you. Value-for-money audits are not cheap. They are the most expensive kind of auditing that you can conduct. That's why I was so very conscious of it and in my presentation repeatedly said that we would only conduct those audits if we feel they add value. The private sector partner will most likely look favourably upon a situation where the government, as part of its partnerships, provides that kind of audit of the organization at no charge to the organization being audited.
Mr Hastings: Let me ask you on another, more significant issue about your proposals to amend the Audit Act in terms of getting this legislative accountability framework and the value-for-money concept included in not only the transfer partner agencies but also the direct ministries themselves.
I don't see any attempt or reference in your remarks, even if you had these added tools, approaches to getting greater accountability for each public dollar spent, to a penalty or a sanction placed on the agency that you're undertaking a value-for-money audit on in the first place. If you find agency or ministry B has overspent its budget in grants for municipalities, as an example, by half a billion dollars, what kinds of tools would you require, or what is your thinking? That's the end of the value-for-money audit that you've done. You report to this committee and to the minister of that respective ministry about what occurred in that hypothetical scenario. But where is there any sanction or penalty for the public servants or the people who were directly responsible for the expenditures of those funds? I don't see any.
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How do you enforce making your value-for-money audit have real teeth in it, or is it just a comment that you have in your annual report that a certain minister or ministry did certain things and they still continue to do them? I've seen it in practically all levels of government, that you report on an activity and two years later the same people are doing the same thing, or they've changed it a little bit; the amount of money may be reduced significantly, but the practice is still in effect.
Mr Peters: Well, you're striking very much at the heart of the matter of many of these. Firstly, I'm very glad that you didn't notice any penalty or sanctions in my proposal. I'm absolutely delighted, because there weren't any built in and there are none proposed.
What we're saying is that that is really up to you as the legislators. I report to you the incident. I will report to you also, state to you, what recommendations I can make to remedy the situation. I will also state to you and report -- that's the new format of the report -- what commitment the ministry or the offender or the person who didn't do something right is undertaking to fix it. But as to what the reaction is to it, and this is the very point, at the current point you have virtually nothing you can do about it as legislators. To me, it's far more important what you are going to do about it than what I can do about it. I am a reporter of this to you for action, but as long as this framework is not legislated, there's nothing you can do either. That is the problem. That's why we are pursuing a legislative framework, so that you can take action.
Let me get into the second point of this. Under my act -- and that is a very ironclad law that I operate under explicitly and implicitly, and every member of my staff works under -- we do not second-guess government policy. If the overspending occurred as a result of a policy decision by the government, it is none of my business. So there are more aspects to this.
There's a third aspect to it if you are dealing with a direct overspending of a budget. That requires a citation in my annual report of that particular entity that did so. Sometimes that gets anecdotally very embarrassing. I remember with one ministry we had agonies, because out of a quarter-billion-dollar budget, they had overspent by $600. Should we cite them? We had agonies whether we should haul before a deputy for $600 out of a quarter-billion-dollar budget. It sometimes worries me how precise things get. And we didn't. You even had that budget example where you said, it's funny, somebody spends $500 million over budget; that's what I'm reacting to.
But in answer to your question, the entire intent of a legislated accountability framework is to permit the assembly -- and I'm an officer of the assembly -- to take action. I cannot and should not take any action on this other than bringing it to the attention of the assembly, which is my client. I hope that answers your question.
Mr Hastings: I was just going to say that maybe it's a little bizarre that you want to have a more activist role in terms of getting value for money, but your office is limited, I assume from your remarks, by not having an activist follow-through; that's the legislators' role. I'm just wondering, if you're on a very fine line on the value for money, which I believe in, but it's for us to follow through in terms of sanctions or penalties, you don't even recommend a certain concept of it for us to follow through. It's up to us to propose that, I take it?
Mr Peters: Certainly the deputies can follow through, and I'm reporting to those. The point I'm really making, and I don't want to be too long about it, is that this accountability framework I advocate would make it the responsibility of the management to obtain value for money. I can only report on incidents where they don't; that is my role. This is the very crux of your comments: What good does it do you or me if I can point out -- occasionally, every five years, I go in and say they didn't get value for money. But in the meantime, every day, somebody has to be responsible in government to ensure that value for money is obtained for the funds spent. That is what I want to establish in that framework.
Let me give you a very specific anecdote. In the very beginning of my audit we talked about elevator inspections. We found in our audit of those that the staff was working on a cycle that every two years they had to inspect elevators. When we reported before this committee that they were not inspecting elevators the way they should, the management of the ministry informed this committee that we had invented that standard, that there was no standard established that they had to inspect elevators in the two-year cycle. All of a sudden, we were all helpless. What could we do now? They accused me of having set the standard. Here we had a value-for-money issue, and how do we get it fixed? The only tool I have now, in addition to whatever you have to do -- your tool -- is that I've said, "Okay, if they haven't fixed it in two years, I report it again," and that's what I'm doing and that's about all I can do.
Mr Agostino: I think Mr Hastings made some good points in regard to the lack of teeth, that we will go through a certain process and that's as far as we can go and the auditor can go. But we also have a situation where the political and the public arena often becomes the scrutiny and becomes the pressure point for those changes to occur if an auditor comes forward and reports a certain operation or a certain waste of money in a ministry or in a department.
In the past, everyone in opposition has certainly jumped all over that, regardless of the party, and has very clearly hammered away at the government of the day in regard to those deficiencies. I well remember our friends with the two books kind of thing and how that whole thing played out, the perception that the auditor would not sign the books. I know, as one of the opposition, we kept repeating that. I'm not suggesting that's the way it was, but in opposition that's pretty well -- whatever the circumstance may be, the political and public process around the report of the auditor often is enough of a sanction that it gets the ball rolling to make the necessary changes. The opposition will normally keep plugging away at that and keep ensuring that the public continues to be aware of that mismanagement or breakdown in a government operation.
In regard to what's been proposed, I welcome very much the changes Mr Peters has suggested. Very clearly, having spent seven years as a legislator at the municipal level, where the transfer of provincial funds was a significant part of our funding, I understand the need for accountability. It's important for every major transfer agency of government to be accountable for the money they're receiving and to ensure that checks and balances are in place. Often these type of audits will lead to savings being identified, will lead to different ways of carrying out a certain operation that will save the taxpayers dollars, and that's important, particularly when it comes to hospitals.
That's one area I've always had a bit of a problem with, because for an institution and a body that receives so much provincial funding, there's so little accountability. Unfortunately, hospitals have operated in this province very much as private institutions. Often the public and the auditors at the provincial level, which is the level that funds the hospitals, have not had a great deal of access to the operations of those hospitals and how those hospitals are spending their money. That's long overdue, and if nothing else, it will ensure greater public awareness of the accountability. I think that's extremely important.
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It's the same thing with school boards and municipalities. I would have no problem whatsoever. I hope those transfer partners also realize that it is the reality and the need today, that if you're going to depend on government for such a significant amount of your budget, there's also going to have to be some accountability and some scrutiny to ensure that the money's being spent for the things it has been given for.
I suggest that funding partners that have a problem with that would only have something to hide; otherwise, they should welcome with open arms this type of approach by the auditor. It's not going in and telling them how to run their business; it's not going in and telling them how to run a hospital or how to run a municipality. It's going in and saying: "You're getting X dollars to carry these programs out. We want to ensure that we have checks and balances within our own system to make sure that money has been spent on what it has been allocated for."
My concern was a little bit along the line of what my colleague mentioned in regard to what sort of direction is given to the auditor. It's been made very clear that these types of audits and inspections would be at the discretion of the Provincial Auditor and his office and, regardless of the party in power now or 10 years from now, free of political interference, and that's very important.
Mr Peters has done a great a job, from what I have seen in my time here and from what I followed before I got to Queen's Park, of keeping that independence, often at great criticism to himself as a result. He has done an outstanding job of ensuring that it is at arm's length, is non-political and is away from the political process, which I think is exactly the role of a Provincial Auditor as a watchdog. I commend him for that. What has been suggested here today will lead to greater public accountability, and I think that's good for all of us.
Mr Pouliot: I'm not going to respond to how many sets of books and so on, but I will comment that when you go and visit some of the transfer recipients, ie, hospitals, how many sets you'll be able to find.
Ministers are a touchy lot. When they read your report, it is a dreaded document. It's mentioned in Evita that figures get in the way and accountants slow things down and the money keeps rolling in etc etc. They don't like to be cited; it is quite embarrassing. When you have the compliance, you find that many of the answers from the ministries are generic. Some would say it goes as far as being verbiage. It really doesn't mean a lot; it's a bedtime story at best. It can mean anything. "Mea culpa. We've listened to you and we're working at rectifying the problem."
When taken to task, when checked again for the monitoring of compliance, you find that the player has changed its mask. It's tales of Houdini. You see the same habit, the same sloppiness sometimes, and sometimes you don't see it. You're not going to ask a minister to resign, although why not? It seemed like not such a good idea at the time, but now, thinking about it, if it's to assure compliance -- but suffice it that people don't wish to see the lack of compliance.
It's very embarrassing for a government, for ministers of the crown, to have the Provincial Auditor cite them, note them, that they're not doing the proper job with the public purse; they're fully accountable, but that they're not as meticulous. People take a great deal of pride, and they will call the ministry and say: "Look, I do not wish to see the likes of Erik Peters under any of the same circumstances. Save me. That's your job."
The worst embarrassment is to be laughed at. Not only are the books sloppy, but if it is unveiled that some cute tricks have occurred -- for instance, that the minister would use the government car, the people's car with the chauffeur, to go shopping or to a tanning salon while the car was running and the chauffeur was on duty -- that is very, very embarrassing. It's laughable.
Ministers don't like this. They have their own monitoring of compliance, because they don't want to see the Provincial Auditor. You have a lot of clout. I'm not so concerned about the monitoring of compliance. It's built into the system that when the Provincial Auditor comes calling, beware, and if you're found to be in default, you correct it. Over the years, you see of course some of the old tricks, if you wish, they remain the same; it's difficult to change the system. But people are fearful.
You're scoring many points and the taxpayers have a lot to be thankful for, because they know they can rely on a non-political entity whose integrity, interest, dedication can never be questioned, a true professional: the Office of the Provincial Auditor.
I won't say any more, but I think you have a built-in guideline. You have a lot of clout by virtue of the Office of the Provincial Auditor, so I'm not too, too concerned about compliance. Once they are noted, the opposition will do their job also. They're good at imputing motives; they have ulterior motives as well. Pas de problème.
Mr Carr: I wanted to talk about your limited resources. What we're attempting to do is expand some of the powers. You mentioned you now have 85 staff, a reduction of 26%, but you're looking at government expenditures which have gone up 21% in four years. On page 7: In 1991 we were at $46.5 billion, to $56.2 billion, so essentially it's up 21% in four years. You look at that statistic and anyone would say, in 1995 are our services better than they were in 1991? Most people would say they aren't, yet we had a 21% increase in Ontario government spending in four years. Ironically, that $10 billion would be the deficit.
We're asking you to do more with less. You're at 85 staff and you were at 115 before that. Most people would say that with that $56 billion, up 21% in four years, and with the limited resources, we maybe should have the auditor concentrate just on the Ontario government operations. As you know, in the $56 billion you'll get a chance to get around to many departments in that area.
Should we be expanding and looking at going into our transfer partners at a time when most people are saying the Ontario government probably can do a better job -- this isn't a fault; it's the numbers -- if you could do more departments and so on? Should we be going into the transfer partners, into hospitals and colleges and universities, when we've had a 21% increase in spending in four years in this province? A lot of people in the public would say the auditor should spend more time with the Ontario government looking at all the problems that can be related in the Ontario government. Do you think we should be expanding to our transfer partners at a time of limited resources when we probably cannot do a very good job of even taking a look at our own auditing in the province of Ontario?
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Mr Peters: That's an interesting question. But remember that the payments to those transfer partners have increased proportionately. In those $46 billion versus $56 billion, the ratio paid to transfer partners has remained the same. The responsibility of the Legislative Assembly to administer these programs -- remember that all of these payments are made under government programs that should be accountable to the Legislative Assembly. What we're really saying is, if you want to achieve effective spending reductions, why would one want to leave out of the scope of seeing whether there's value for money achieved something as high as very close to 50% of the spending of the government?
On individuals, the government has gone and reduced the payments to individuals, which we're not saying are subject to audit, but stepping back for a moment, I really think that in order to achieve substantive savings, substantive improvement in the spending pattern of this province, the legislators should be able to sit back and have the assurance of a whole government program, of being able to say: "Look, this program is doing exactly what we want it to do. We're spending the right amount of money on it, so it does what we want it to do. Let's leave it alone. This program we're spending a lot of money on, but there are a lot of changes that have to be made to make it more efficient, more effective, more economical." But what tools do you have to assess that? If we don't do it, how do you find out on these transfer payment recipients? I think that is a good question that legislators really should ask themselves.
There's a third question: Is the program so poorly done or are the objectives so unclear as to what we want to achieve with this program that maybe we should stop it altogether, just can it? In order to help with that sort of decision, I think value-for-money audits, the kind of reports I'm putting out are really an invaluable aid to the legislators. I think from that perspective, to literally say, "Let's exclude from scrutiny $25 billion a year that we are spending in this particular area" -- I would have difficulties with that. I would have difficulties in my own mind justifying it. I would have difficulties towards my own responsibility if I didn't ask, as Provincial Auditor, that you take a closer look at these kinds of expenditures in order to see whether savings can be achieved by the government in that area.
Mr Carr: I agree, because I think what it does is it comes down to priorities. Just so you know how effective you have been, non-profit housing, which was looked at -- and I don't use this word lightly -- was an absolute disgrace. You did take and persuade governments, because it was started under the previous Liberal government and then continued under the NDP, and when we took a look at it even the Liberals, in the last election, agreed that non-profit housing shouldn't continue. So in fact by some of your actions I think you do persuade not only the public but political parties that some of the actions of the government are poor.
I guess what you're saying -- and I would ask if you agree with me -- is that it's really a case of looking at the priorities. That's what you'd like to do -- have the ability to look at the priorities. They may be the transfers to hospitals, they may be non-profit housing, they may be the Ministry of Community and Social Services, but we as legislators should have the legislation to allow you to look at the priority areas, to the best of your ability. Is that really what you're asking?
Mr Peters: That's what I'm saying. Let me just single out two areas, and they both are in the Ministry of Education. The school boards actually receive their funds in order to implement and comply with the Education Act of the province. That is a provincial statute. Why would we as a province want to stop, by saying, "Look, we don't really care how you comply with the Education Act, but here's the money anyway and we'll give you $4.5 billion"? In the same ministry, we have actually the opposite happening with the universities. We have actually no legislation in place that deals with the university system, if you will, because all our 17 universities are established under separate pieces of legislation. That's why I'm again looking for this accountability framework. How do we hold them accountable? We're paying them $1.8 billion a year. Do we have this assurance?
You related, in your opening remarks, to my budget. Let me make a very quick statement to you about that. In terms of dollars spent on my office in relation to government expenditures, Ontario spends on public auditing right now -- and, as you noticed, I have not asked for more money. What I've actually asked is, "Leave it intact," and what, "Leave it intact," means is that I'm offering essentially a 16% reduction of the dollars for my base budget, or 9% for my approved budget. So I'm offering a reduction anyway.
To put this into context with what other provinces in Canada are doing, and the federal government, in Ontario we're spending currently about 13 cents out of every $1,000 on my office. The nearest province is triple that -- New Brunswick, at 36 cents. Other offices: Alberta, for example, after the cuts that Ralph Klein imposed, is spending 80 cents per $1,000 after the cuts. So they're spending more than five times what my office is currently spending. Conversely, I'm asking one of my staff members currently to audit something like close to $600 million a year of government spending. That's how I'm staffed. The nearest government auditor, legislative auditor, to that is the federal one, who's at less than half that amount; and the others are at various.
Our responsibilities do differ. Alberta does a lot of more attest audits than we do, so one cannot say that we are necessarily more efficient. But as an overall government expenditure, my office is spending very little. Quite frankly, it is worrisome to me that we are looking at this amendment to the Audit Act, but at the same time I must inform you, as I did, that I will be able to conduct only a very limited number of those audits with my current resources.
Mr Carr: And what you want is to be able to pick the priorities and be able to have the legislation to do that.
Mr Peters: Exactly.
Mr Colle: I think the one recommendation or approach in the presentation made that is being missed is that what you're asking for is the legislated framework to be incorporated; in other words, that this accountability framework be incorporated in all government departments. That is what is missing. In other words, we're not asking the auditor necessarily to intervene in every situation, but if there's a management accountability framework incorporated in the way government operates, it's going to void the need, basically, for you to do these spot audits. I think that's where the cost-effectiveness is and I think that's what you're asking for in the legislation. Am I not correct?
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Mr Peters: I'm afraid that's not what I'm asking for. The concern why we linked the Audit Act with the accountability framework is, if management is not charged with the responsibility, then to send in the auditor to audit something that they are not officially legislated to do, or mandated to do, the audit may not be as effective as it could be because we would audit into a vacuum and they would say that we impose an accountability on them that they don't have under the current legislation. The way I view it is that the spot checks would be a lot easier and a lot more cost-effective if such a framework were in place, but they're still necessary.
Mr Colle: That's what I'm asking you. Aren't you asking for the legislation to be amended so that this framework will be incorporated in every department?
Mr Peters: Later on, yes.
Mr Colle: Because right now it's not there.
Mr Peters: That's right.
Mr Colle: So therefore they can say, "We didn't know what the benchmarks were, we didn't know that this is what our responsibilities were, because there were no guidelines," that they're basically just general administrative directives right now that are very, I guess you might say, vague at best. So you're asking for these accountability frameworks to be incorporated in the legislative changes.
Mr Peters: Not in the changes in the Audit Act. What vehicle to actually use to impose, to develop a workable legislative accountability framework is still up for grabs as to what the vehicle is. My act would not be the vehicle to do it. My act would only deal with the access to information, to the records of the grant recipients, and that is all. But the legislative accountability framework, there would have to be another vehicle found, whether it is some sort of general legislation on general government -- say, the Financial Administration Act or some other vehicle like that -- or whether it be put into individual legislation that is in existence would be another way, but I uncoupled the two. Actually, the original hope that I had is that we would get this in place first and then we would change the Audit Act. But it has been the wish of this committee in the past that we go about it the other way around, that we change the Audit Act first and then consider changes to the accountability framework.
Mr Colle: The second quick question I have is with Bill 26 and some of the changes we've seen. We've seen a move towards block funding, where some of the grant recipients are now basically going to fall into maybe category B where there aren't going to be conditions to their government grants. How do you see this possibly changing your ability to perhaps monitor these block grants that are given, for instance, to municipalities?
Mr Peters: That's a very interesting thought. In fact, that is a good question to pose for this committee and it's one we have actively to consider. The word that I am getting at the moment is that in the block funding, one way of approaching it, or one way that is being considered, is indeed to give unconditional grants and impose as the only condition that the Provincial Auditor can go in and audit on the value-for-money basis. That is one particular possibility I've heard of being pursued. Now, if that were the possibility -- in other words, to build the right to audit into the grant -- then I have, again, the problem that my act would permit me only to look at the accounting records but not at anything else under the current -- so there would be a problem there, if this were a solution.
The other point, if this were the solution of block funding, is that the audit right this far I can manage because I can control it to a certain extent, because these audits would be conducted at my discretion. If this is being built into every fund, then literally I would really have a resource problem because it may very well result in my office having to audit virtually every one of those block grants, and I just don't have the people, with 85, to audit $25 billion worth of grants made on that basis, so I'd lose the grant.
The other one is quite frankly, relating it back to your first question, if we have no proper accountability framework in place and we now give a grant and we're saying, "No conditions, this is how you can spend it," and the only condition we were to impose is that the Provincial Auditor can go in to do it, then I would say we have a real problem, because, number one, we don't have a proper accountability framework and, number two, we're spending an awful lot of money without control by the Legislature. It effectively puts my office at the disposal of individual ministers of the current government as opposed to putting the services of my office at the disposal of the Legislative Assembly, which is the intent of my office. In other words, I would say that there are earmarks in that block funding that could impair, actually, the independence and objectivity of my office.
If, on the other hand, these funds are entirely unconditional, in other words, the government says from now on, "If we deem you eligible, you're a municipality and because you're a municipality you're eligible to receive X billions of dollars," at that point I really raise another question with you as legislators, and that is, to what extent do you feel that those funds are spent with proper accountability to the Legislature itself? What controls do you have after? Like, this is the case where we don't even have my office looking at it.
I'm very concerned about this. I think once block funding is considered, there really has to be a good accountability framework of some sort in place. Those things go hand in hand. So a good accountability framework would accomplish really the two things: better accountability to the Legislative Assembly and it would certainly make my work easier as auditor.
Mr Colle: It seems Bill 26 is giving, just as I conclude, that kind of accountability only to the minister, and it's going to be very difficult to get ministers now to agree to bring in a third party when they've made themselves the only accountable people in the process. So it's going to be quite interesting to see what develops.
The Chair: Sorry. I just want, Mr Peters, to have you abbreviate your response because there are other members who are interested in some questions.
Mr Peters: Yes, we may have another opportunity tomorrow morning.
Mr Pouliot: I have a comment and one question to follow. Yes, Mr Colle, under this slash-and-burn regime, one of the tactics, one of the strategies as they download, as they shy away from their responsibilities, is to pass the responsibility, give more power to local autonomy, but don't put as much money in the envelope for those responsibilities. So for local decisions, people will have more latitude at the local level, but the cheque isn't in the mail. It's part of a strategy if you opt to slash and burn, but it's a matter of philosophy.
You would run counter, you would run right into this as this transition because the times will be very difficult. Mostly the less fortunate, for instance, will be taking the hit big time. They will suffer a lot. You would, when you look at value for money to grant recipients, run counter, because there will be some panic as the human dimension becomes only too apparent. You won't have $5 to go to the cinema, $1 to buy a cola and $1 for transportation to and from; you will have $5 in lieu of $7, but you can do whatever you wish with the $5. That's the regime's idea of responsibility.
Do you feel that you have the resources to do an adequate job as you scrutinize under value for money the grant recipients? Would you need more resources? Because your mandate would take on a bit of a different twist, or would it?
Mr Peters: Yes, it would take on a different aspect, but I believe that at the current level I can accommodate it in the mix of value-for-money audits. As I said, we would do maybe one or two grant recipients, but we would do therefore a ministry less or an agency less in terms of value-for-money audits we are currently carrying out. I would try to accommodate it in the mix.
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You also made a very valid point, if we are dealing with significantly downsized operations or people who are receiving significantly less money. There are two aspects to it. One is we have to give them a certain amount of time to reorganize themselves and regroup and deal with that particular eventuality, and the other is that of course the chances are that many of the problems of value for money may be resolved the hard way in that regard. So we would take that into consideration.
Mr Steve Gilchrist (Scarborough East): It's always a pleasure to follow Mr Pouliot. I'm reminded of the fable of Hansel and Gretel: You have to leave a trail of breadcrumbs through the forest of segues and deviations to come to the question. But it certainly adds some levity to the proceedings.
Two very quick questions, recognizing that we have another opportunity to address all these things later and Mr Skarica has a question: We heard some comments earlier today or some questions revolving around certain privacy aspects that might be involved if your mandate was broadened to include things such as hospitals. I wondered whether you have pursued the proposed changes that you're advocating here with Mr Wright, the privacy commissioner, and whether he has had any thoughts.
My second question, following up on Mr Colle's request for greater clarification about the legislative framework, the accountability framework, that you also have suggested in here, whether you have -- I note you've used the words "I've pursued" and "advocated" in there. Does that suggest you've taken this to the point where you've actually drafted a proposal that we could consider in terms of how best to mesh the accountability of the ministries with your legislative requirements under the Audit Act?
Mr Peters: Very quickly, to both questions: Yes, I have discussed the issue with Mr Wright and as a result in my presentation -- and I think maybe I said that before you came in -- Mr Wright would be quite pleased to appear as a witness before you. As you will recall, the intention of the subcommittee was that eventually we would have public hearings on this and I thought Mr Wright might be a good person to hear from on this particular issue.
As far as the accountability framework itself is concerned, we certainly have not advanced to the point of drafting legislation. What we have done, though, particularly in my 1993 report, is we have outlined the key features of such a framework that should be considered. I shared that partially before and I'd be very happy to share that with you again. If you feel there's a benefit, we'll certainly be --
Mr Gilchrist: I would personally appreciate that, if you could copy the extract out of your 1993 report and circulate it.
Mr Peters: I'd be happy to do that.
Mr Skarica: As you know, I'm in the training area in the Ministry of Education, and I was talking to some trainers yesterday and they told me we've spent $1 billion in order to get them to talk. Now, $1 billion in order to get people to talk. Mr Pouliot was a member of that government. I don't blame him personally; in fact I'd like to say as an aside that when I consider how much he talks and how little he gets paid, we're getting tremendous value for money.
It seems to me what's happening, the pattern for the last little while, is that a government overspends, let's say $1 billion, we don't get value for money and they get removed from office. The next government does the same thing. The result for the public is they end up with $2 billion that they have to pay interest payments on. You've been frustrated because you've identified areas where there's waste and yet there's nothing you seem to be able to do.
Would it be practical that with this work in government if a minister overspends by 20%, why can't you reduce his salary by 20%, the deputy minister by 20%, the assistant deputy minister by 20%?
Mr Colle: That's your job, Toni.
Mr Skarica: Would that work?
Mr Peters: It definitely would not work, because I should not have that kind of power. That's not what I'm seeking at all. I think all we're seeking is access to the information that we consider necessary under the Audit Act to provide this committee with information on which this committee can act and on which, through this committee, the Legislative Assembly can act to remedy situations. Certainly my client remains at all times the Legislative Assembly, and this committee, essentially, is the arm of the assembly that deals with my report. The responsibility to take action really rests with my client, the assembly, not with my office.
The Chair: If there's nothing further, the committee will stand adjourned until 2 o'clock this afternoon.
The committee recessed from 1156 to 1401.
The Vice-Chair (Mr Mike Colle): Before we begin, I should mention and read into the record that we've had to do some agenda juggling because of some people who are unable to come. We'd like to thank Ms Bouey and Mr Christie for making themselves available on such short notice to give us technical background which will be of great value to us as we continue to deal with other ministries in our attempt to understand the role the ministries play with the public accounts committee. I want to thank you again for coming on such short notice.
What we'll do is just begin, if you could introduce yourselves for the record. You're the only witnesses today, I think, so we're going to have quite a bit of time to have you give us a presentation and for questions that will follow. The floor is yours.
Ms Kathy Bouey: I'm Kathy Bouey from Management Board Secretariat.
Mr Bob Christie: I'm Bob Christie, with the Ministry of Finance. I must apologize initially, because I have only about half an hour, but Mr Siddall, director of the controllership branch, is here. I will stay as long as I possibly can and hopefully we'll be of assistance to you.
The way I can be of most use to the committee would be to make a few comments on the advice we've had from the Ontario Financial Review Commission, to which the Provincial Auditor was a special adviser, on the general issues around accountability and the promotion of an accountability regime. When the government put together the Financial Review Commission this summer, one of the very clear mandates for that group was to give the government advice both on issues of financial reporting and presentation, and issues of improving management and accountability.
For those of you who are not deeply familiar with the report -- it's not necessarily the mainstream reading of most people, as fascinating as it is to those of us who work in the financial areas -- the basic message in areas of accountability from this esteemed group of people who advise the government on these matters was that we needed and ought to look at quite a different way of articulating what our goals were in managing our business and our processes. They were specifically suggesting to us that we look at more of a business planning framework, a multi-year business planning framework, for organizing the planning of government activities; and along with that, a performance management and performance measurement and performance targeting approach, saying what it was that programs and ministries were doing and measuring against those performance targets in terms of making judgements about whether the operations of such programs had met the expectations that had been set out for them.
They certainly regarded the promotion of accountability in that regard as being very important and felt that a business planning framework and the surround of performance and output-oriented measures of outcomes of government programs was really a key step to improving both the operation and planning of government and to improving the accountability structure, in the sense that one would have actual results of government activity to look at in terms of assessing the activity of government.
There were, of course, a number of other recommendations from that commission, 55 in all, some of which have been adopted, others of which the Minister of Finance will address in his upcoming budget. In the interim, of course, we've had a number of other contextual changes, including the expenditure reduction announcements in the November statement and the conversion of a substantial dollar volume of conditional transfers, particularly at the municipal level, to unconditional transfers, which also affect the kind of accountability and auditing matters that the Provincial Auditor has been discussing. I'm sure members are familiar with that.
Perhaps with that general introduction, and in light of the time, if there are specific matters that committee members would like information on or would like addressed, perhaps I could be available for questions.
Mr Pouliot: Maybe you can tell us more about the budget.
Mr Gilchrist: We're giving the tax cut, Gilles, don't worry.
Mr Crozier: I'd like to refer directly to a comment made by the Provincial Auditor this morning in a presentation he made to this committee on amendments to the Audit Act. He said that for the past two and a half years that he has pursued and advocated the establishment of a legislated accountability framework with the central agencies -- and he named the Ministry of Finance and Management Board Secretariat -- he has advocated the establishment of a legislated accountability framework without success. He went on to say, "Their preference is to pursue non-legislated ways to strengthen the accountability framework." Could you comment on that? If that's actually the case, why is it that you would want a non-legislated framework?
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Mr Christie: There certainly has been a number of conversations over the last several years about the accountability framework that Ministry of Finance and Management Board and the Provincial Auditor's office, among others, have been involved in. Generally, those conversations have been directed at, what's the best way to improve accountability and the operation of government? In fact, many of those issues were -- they were not the whole reason for the establishment of the Financial Review Commission, but they were certainly part of an environment in which the government felt it needed outside advice on the way we ought to pursue things in terms of both our financial reporting and of our accountability structures.
As I described earlier, the advice we got from the commission, and which we're still looking at quite closely, is that the kind of direction we ought to think about pursuing is this one of a different model. As opposed to whether it's legislated or non-legislated, they have got us thinking about a different approach that involves a much more output-oriented way, thinking about programs and accountability structures.
In terms of a legislative environment, the advice we received on that was that the notion of business planning and business plan reviews should be enshrined in legislation, but to the extent that they gave us advice on the legislative side, it was more around the business planning requirement than it was around specific mechanisms for assuring accountability.
Mr Crozier: If it were legislated, though, would that not then make your ministry, for example, more accountable to the Legislature, as opposed to the fact that if it were not legislated you would I guess be responsible to the minister? Is that a correct interpretation?
Mr Christie: It's my understanding that the minister is accountable to the Legislature.
Mr Crozier: A lot less than they used to be.
Mr Christie: I stand to be corrected, but --
Mr Crozier: You can simply ignore that comment, as a matter of fact.
Mr Christie: I will. Accountable for what?, I think was the question the Financial Review Commission was raising with us: accountable for accordance with Management Board directives, accountable for vote-and-item use of money, or accountable for the achievement of certain goals that the government and the Legislature may have set for the operation of a program? I think historically there have been a number of accountability measures and mechanisms in place in the form of Management Board directives, in the form of the structure of estimates, in the form of a reporting through public accounts, all of which do go to the Legislature.
I think a number of the matters that the Provincial Auditor is rightly concerned about include more the value-for-money area than the kind of, let's say, checking off of statements that happens with public accounts. But there are also a number of mechanisms that look at value for money in the operation of programs internally, including in part the estimates process, which is again reviewed by the Legislature.
There are a number of processes that need to be sorted out and examined in this. That was, as I say, part of what the Financial Review Commission was helping us to look at. We're still, as I say, assessing their recommendations.
Kathy, perhaps you might want to add something on the Management Board accountability side of the matter.
Ms Bouey: Sure. I think another aspect of the legislative accountability issue is that, as Bob has mentioned, Mr Eves's economic statement has set out some quite large cuts in transfer payments. As a result, I think it's going to be pretty clear that the transfer payment universe that we have right now may look quite a bit different in a couple of years, or three or four years' time.
As we work through that, decisions have to be made about the appropriate kinds of conditions. As Bob has pointed out, we're looking up front at the mandate for programs, the kinds of conditions that are put on their funding, the eligibility, and then the accountability at the agency or local government or organization level.
The difficulty in trying to set something in stone right now is that, until we have sorted through some of these issues, it is hard to know exactly where to go in a way that will really hold. I think the thing that's really important, and I think we're in complete agreement with the auditor, is that the accountability framework has to be strengthened.
We are looking now at the recommendations of the Financial Review Commission. We are working with the other ministries in terms of how we can have a better planning process, how we can measure more in terms of outcomes, focus more of the efforts in terms of making program decisions on the kind of outcomes that are there and the management tools that are needed in terms of making sure that people achieve those outcomes.
As one works through that, for example, Mr Wood, the MPP, is heading a government task force on agencies, boards and commissions that has been established to review the mandates of agencies and recommend elimination of those whose work is completed or which is no longer needed. It will also recommend measures to improve value for money in the agency sector.
As these levels of funding change, our relationships with our transfer partners are also changing. We are looking at the issues of overlapping accountabilities. For example, if we give money to another level of government or an organization for a particular program, we both have some degree of accountability in that. We want the agencies and organizations that are actually distributing the money to be prudent with the public funds as a condition of their continued support.
The merit of having, for example, the Provincial Auditor go in and look at how that money is spent is an important option to look at. I think we also need to think about what needs to be done in terms of making sure that the agency or board owns its own problems in terms of the role of external auditors at that level, and what kinds of results they're expected to report.
Other levels of government have their own accountability relationships with taxpayers and the province will recognize this in setting its future funding arrangements. As Bob has already noted, the government has begun to deconditionalize some of its grants in doing that.
The other aspect we'll have to be looking at is the capacity of recipient organizations and governments to deliver service efficiently and to minimize the secondary overhead associated with the transfer payments. If we have too many providers with limited delivery capacity, then we have inefficiency. Discussions are already happening in some sectors as to how to readjust.
I think, as we work through this, first of all we need to look at the overall accountability framework -- What is the legislation? What is done internally? -- recognizing that we are in a stage of quite important and large transition, and to try and look at where we will be in terms of the kind of accountability that should be there on an ongoing basis rather than what looks to be there right now.
I'll open it up for questions.
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The Vice-Chair: Before you continue, Mr Peters would like to clarify something in terms of what Mr Christie mentioned.
Mr Peters: Just some additional comments. In its work the Ontario Financial Review Commission took essentially a leaf out of something called the Government Accountability Act, which I mentioned this morning, which had been passed by the Alberta Legislature, and one of the requests -- certainly if you wish to do so, we will gladly provide you with a copy of that for reference that was being done, if that is helpful in this regard.
The second comment I'd like to make is that the Ontario Financial Review Commission was essentially mandated under its order in council to report to the Minister of Finance and has gone indeed a very long way in establishing a performance-based accountability framework. As you noticed this morning, the word "performance" was repeated in my presentation to you about three or four times as one of the things that is of great importance to us as to what performance is achieved with this money.
In retrospect, and actually for the present too, we were discussing at the Ontario Financial Review Commission at great length -- I brought up the matter of an accountability framework with the commission itself and the commission itself found that within their mandate they could not push this argument further than they had as they were. I agree with them whereby if the government were to implement the recommendations that they had indeed made, we would be a far way along. I ventured a number, which is always a dangerous thing, but I said around 80% there.
What I nevertheless have to do, as the legislative auditor and as an officer of the assembly and as servant particularly to this committee and adviser to this committee, is to continue to advocate that you as members of Parliament have some accountability to you which is separate from the administrative accountability that is being established between the central agencies and the ministries and which is different from the accountability that is achieved to a minister and through the minister to the assembly.
This is really the other mechanism that we're talking about and this is why the key word that we're working with is, I think all of us agree, "workable." There's no doubt about that, but there is a definite debate about "legislated." I just want to bring out the point that the word "legislated" is really brought in to give the members of Parliament a tool in addition to all the tools that the administration might set up.
There's one last comment, if I may, and that is one of the points brought in is the question of the overhead costs of administering it. We nevertheless in all of this have to remember that even if the amount of funding -- assume for argument's sake that the amount of funding is cut by 20%. We would still talk about $20 billion of taxpayers' money flowing into these organizations, and we have to ask ourselves the question, "With that kind of money what kind of accountability and what kind of mechanism would we like to have in place to manage that sort of funding?" That's it.
Mr Pouliot: Mr Peters, with respect, you weren't gazing in a crystal ball when you mentioned 20%. We fear that it will be -- if you have an attitude which is based on a policy of indiscriminate slash-and-burn to satisfy the insatiable appetite of the most fortunate, who knows? I guess the province could have to rely on the very last user fee dollars of those who don't have the capacity to get richer in this world.
Madame, I need your help because I don't wish to impute a tone that perhaps wasn't there. I listened intently to your words of wisdom in your presentation, and we've got accustomed over the years we've been working together, for better for a number of years, so it's a renewed pleasure. But you send some hesitation when you mention -- you didn't mention block funding. "There's the envelope and a pittance, but we'll give you devolution at the same time, you see: fewer dollars to do things with, but you'll have the power to" --
Ms Shelley Martel (Sudbury East): The tools.
Mr Pouliot: -- "the tools to do what you wish with it."
I would be afraid that somebody would plainly tell me to go to hell as I interfere. On the one hand, you're sending a signal to municipalities that they are the beneficiaries of devolution, they have more power now. On the other hand, you're cognizant that $30 billion out of -- what do we spend? $56 billion something, and we take in $46 billion; the rest of it is a challenge, plus another $5 billion because of the tax, but that's another story. You no longer dedicate those payments, or not to the same extent. You give more devolution so people have more flexibility to deal with the money they have.
Mr Peters wishes to be sanctioned by the committee, to be mandated to go one step further in the money trail, the transfer payments, to say, "Are we really getting value for money?" Aren't you running against the current here? It's quite a challenge. You don't have the same dedication of funds, you have less money and your transfer agency's partners in the tradeoff have not only more jurisdictional capacity but more flexibility in terms of allocation of funds. You're trying to follow a curriculum, which you will have to follow if you want to come back here and tell the people of the province, as their guardian, that yes, people are getting value for money now that we have entered the field where we didn't belong before.
I will not be on the road with you, for I value my life. I've been here only 11 years, but I was almost 11 years at the municipal and regional level before I got here.
The Vice-Chair: Is there a regional level in Manitouwadge?
Mr Pouliot: No, we have a region and the proud community of Manitouwadge also. So I did both of them. We're not all from the big city, sir. In fact we never have two bad days in a row where I come from, for on the second day you always point to Toronto.
I have some difficulties with this as I read what the Audit Act should reflect. On the one hand, I heard the presentation from Mr Peters this morning, and I'm sold; I think really we have to and I think we did acquiesce. On the other hand, I'm afraid of the heavy traffic, because we've been told by those people there, we've been told by the government, "Expect more devolution." In fact Mr Leach got a standing ovation when he told that to AMO, the Association of Municipalities of Ontario. It's the only standing ovation he will get, but you enjoy those while they last. I know what it's like.
Mr Beaubien: How many did you get?
Mr Pouliot: Very good.
Ms Martel: Let them answer the question.
Mr Pouliot: No, no, no, just one second here. How are you going to do this? I sense a reluctance. You tell me how you're going to do this. You're talking about a business planning framework. The revenue picture changes every day. Every second month the Treasurer comes in with his statement -- because we don't have yet the courage for a full-fledged budget -- of 5%. The Conference Board of Canada says 2%, two days ago the Royal Bank says 1.8%. Who am I to believe? This government or the Conference Board of Canada and the Royal Bank? Well, really.
I would appreciate your comment on what I've mentioned. How are you going to do it in terms of nuts and bolts? Where's the fallout in the real world? Because these people are going to cut your resources. You can't say this, but I can. I have to live with them, and I don't like it one bit. Under Bill 26 they've given themselves powers that are unprecedented. So when you make this bouillabaisse, when you make this, it doesn't add up. The philosophy doesn't hold.
Mr Christie: Perhaps I could comment on an element of your question. Again going back to the Financial Review Commission, you talked about the advice you hear from the Royal Bank or the Conference Board of Canada. One of the recommendations of the review commission in terms of our planning was that we adopt prudent, cautious assumptions to the economy and to our revenue etc, so that if there were revenue surprises -- and I think people who have been around our financial affairs for a while are familiar with some of the surprises that we can experience on the revenue side. The advice we got was that we'd be quite cautious in terms of the way we forecast this and plan this so that if we do get a surprise, it's more likely to be a pleasant one than an unpleasant one.
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Certainly there has been an attempt to do that and time will tell how successful we are in that. For example, between the minister's July statement and the statement in November, although the economy had weakened quite a bit, our revenue basically remained on track because we had taken quite a cautious approach to the revenue picture in July. In the context of your concern about the planning side of the comments you were making, I wanted to bring forward that part of the recommendation of the review commission.
Ms Martel: Maybe I could just follow up from where Gilles was heading when he talked about, how do you put in place an accountability framework for the transfer partners, when at the same time you're saying to the transfer partners (a) you have less money and you can expect less money in the next two years and probably the two after that, and (b) instead of putting conditions on our funding, we're moving to unconditional or block grants. It seems to me that if you're trying to talk about accountability, the very mechanisms you want to enshrine that accountability are being removed. If you don't have conditions, if people are given the money and told, "Make do with what you have as best you can based on your local priorities," how do you have an acceptable accountability framework as the commission, as I understand, wants us to look at?
Mr Christie: There are a number of dimensions, I guess, to that. One is that there are within -- I mean, in terms of what a specific ministry does with the people with whom it deals, the model, again, that the commission was talking about was one that would have the ministry, in terms of all of the tools at its disposal -- not just its directly financial tools but its regulatory activity and the other ways in which it deals with those parts of the province for which it's responsible -- would have basically performance targets, ways in which it could be measured in terms of what it set out to accomplish in its area of responsibility. Certainly, while grants are one way of achieving that, there are other ways as well, including joint planning with either a local partner or a community partner, including regulatory mechanisms etc. So there are a variety of things that can be brought to bear to accomplish the goals that are set out.
I think it's also worth noting that many of these so-called unconditional grants are present not to force compliance, let's say, with certain provincial goals, they're there for a sense of fairness; for example, like federal equalization payments, in terms of trying to even out the resource base that people have to deal with things, and I think that's particularly true in the municipal area. For example, one of the things you would look at in that regard was not whether it was tied to a program outcome or not, but whether it achieved a certain goal in terms of giving different regions roughly comparable fiscal capacities for dealing with their difficulties. It's not necessarily that a grant be tied to a specific program, it depends on the purpose of the grant and then, again, that comes into how you audit against it.
Mr Gilchrist: To either or both, there's no doubt that all three parties I'm sure would agree that the hallmark of this or any government should be openness and accountability. I guess really the question we're wrestling with here today is how best to achieve that goal. There is no doubt that within the existing purview of the auditor we have the ability to go in and see if the taxpayers' dollars are being appropriately expended, and where they are not the public is illuminated with the deficiencies as they exist. However, as the auditor has correctly pointed out, the vast majority of the dollars we are accountable for we ourselves don't directly expend, we merely transfer them to the so-called MUSH sector.
I guess my question is, if changes to the Audit Act are not appropriate, and that is certainly the model that Mr Peters has presented to us so far, are there other mechanisms to ensure that within that MUSH sector there first off is the same degree of audit, the same degree of accountability, whether it's done through the Provincial Auditor -- maybe it's done through an outside auditor of some kind. More importantly, not only is the audit being done, but is that information being shared back to the relevant minister and, if not, how would you propose, or are there other models that have been advanced, to ensure that we receive the straight goods on how our dollars are being spent?
Ms Bouey: On that one, I think it's important to take a look at the sectors, sort of sector by sector, to see what the requirements are in terms of first of all what the ministries are requiring from their transfer payment partners in terms of, are the expectations laid out clearly in terms of outcomes? And then what kind of reporting requirement there is in terms of do they have to have some form of audit, what happens to the results of that audit? That's something you may want to explore with the ministries and with the transfer payment partners. Clearly, there should be at some level some sort of review as to whether people are spending money, that the outcomes are clearly expected and that there is a review that people are spending money to meet those outcomes.
Mr Gilchrist: You mentioned the work done by the Ontario Financial Review Commission. Would it be appropriate, from your perspective in terms of having been involved in this far more than at least myself as a new member in this whole process, to seek the input from Mr Broadhurst, who I believe is the chair of that commission? Also, would it be appropriate to seek input from selected transfer partners to get an idea of whether or not they are doing the same kind of thorough audits and what they would suggest in terms of the mechanisms to ensure that the information is coming back to us, and through us to the taxpayers?
Ms Bouey: I would think it would be. In terms of the transfer payment partners particularly, I think accountability is always a two-way street. Both sides have to understand what's expected of them and why. It would be useful to have their views. I know that we at Management Board would be quite interested in their views as they look ahead and see the regimes that they will be facing, just what the appropriate accountability structure should be.
Mr Gilchrist: I guess the only other question I'd have, and I know Mr Skarica has a question, there is no doubt that the transfer payment scene is changing dramatically. I think the point you made was that it would be inappropriate to cast in stone some kind of a model today based on the spending in the 1994-95 year when already we've made significant steps to change not just the dollar value but the overall parameters behind a lot of our funding of transfer partners. In fact, with municipalities, by and large, we've gone to unconditional grants. Whereas previously there might have been a mechanism to tie so many dollars to the actual construction of roads, now we've said, "Here's a bundle of money and do with it as you see fit and you're accountable to the taxpayers in your own municipality."
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How do we reconcile, I think I've said earlier, the consensus that at some point there is a need for us to build, if not through legislation at least through a lot more detail in terms of the guidelines given to the ministries, the accountability before we spend money as opposed to finding out after the horse has bolted that it was improperly spent? Is this something you would see happening a year from now, two years from now, that we would have evolved into a new businesslike style in terms of our relationship with our transfer partners, at which time it might be more appropriate? I know it's somewhat unfair to ask you to gaze into your crystal ball, but if not in terms of months, are we halfway through a process here and you're confident that at some point in the future we'll be able to deal with this legislatively or through guidelines?
Ms Bouey: I think we are already working with our colleague ministries in terms of adopting what we can from the Financial Review Commission, working to see how we can make it work in the public sector setting, the kinds of more businesslike practices. I would suspect over the next year or two we will have a far better idea of how that can be made to work.
Another element in this is there has been some reference in the discussion to conditional versus unconditional grants. As one works through the changes in programs, obviously, people will have to give thought to whether the nature of the particular program is such that it's one that the province wants to dictate a lot of the terms and conditions around or whether it wants to give, as Bob has suggested, a local capacity to determine that as one of many other priorities.
Mr Toni Skarica (Wentworth North): I just have one question. Sometimes, as you know, our government's criticized for moving too quickly, and I've heard that from the members opposite and often in the papers as well. I note here that this was a problem, accountability, value for money, we needed a better system, and that was reported in the 1993 annual report. It referred to discussions with this committee that it started in 1989. That was $45 billion ago. Why is this taking so long? If I was watching these proceedings, I might ask that. Why does it take so long? We knew we had a problem in 1989-90 and here we're discussing it in 1996. If you can answer that without casting aspersions to the members opposite, what's the holdup?
Mr Christie: I can't directly answer your question. This is obviously, just from the nature of the discussion that's been had to date, a matter that's got some complexity involved to it, and I think that's certainly a factor. It's also the case that the pressures on government -- the environment is changing and in the time period you mention has changed quite rapidly. I think the necessity to adjust to that in terms of retargeting what one wants to do on the accountability front deals with part of your question as well.
Certainly, recently there have been steps such as the Financial Review Commission and its report and the kind of follow-up activities to that that Kathy has mentioned that I think show at least a more rapid pace of advance on the problem than has been the case in the past. For those of us whose responsibilities include these areas of accountability and improving accountability, I think we're very hopeful that that pace of improvement will continue.
Mr Skarica: It would seem to me that when you're piling up debts at the rate of $10 billion a year, there's somewhat of a need to move somewhat quickly.
Mr Gerry Phillips (Scarborough-Agincourt): Just in terms of the Audit Act, what should be the major financial document that we rely on from the government every year? What document is the key financial document?
Ms Martel: This is a trick question.
Mr Christie: At the moment, it depends clearly on the purpose for which you're looking at the document. If you're looking at what is the government's financial plan, I would suggest that the key document is the budget; if you're looking at what is the government's financial position, the key document is public accounts; if the question is what are the government's key spending plans, the key document is the expenditure estimates.
Mr Phillips: If the budget is our key planning document, which I agree with, I think that is the document and I think the public probably thinks that -- anybody who's ever looked at it says, "That is the key document" -- do you think our Audit Act should require that perhaps we prepare our budget each year?
Mr Christie: I have no opinion on the matter.
Mr Phillips: Maybe I can just propose an opinion, at least for the committee, and that is, if we all believe it is the key financial document, the key planning document, if as the Provincial Auditor has told us in his reports that is the most important document for the Legislature to evaluate where the government stands financially, I one of the things we may want to look at in the Audit Act is to make sure we have a budget every year.
I was amazed actually that we don't need to have a budget, that legally you can get by with no budget. So the government has chosen this year, 1995-96, for the first time in history to have no budget, the first time in history there is no budget for the province.
Mr Gilchrist: Which government and which spring?
Mr Pouliot: The member has the floor.
Mr Phillips: Yes. The viewers who may be watching this will be interested to know the government's beginning to heckle, but it is the first time in history that the province has not had a budget. For me, at least, one of the first things in an Audit Act would be that perhaps we should insist to ourselves that we actually prepare a budget. Perhaps that may be putting you in too tough a spot, but certainly one of the things I will be discussing with the committee is that almost above everything else we should have a budget that lays out for the people of the province.
The second thing -- I'm looking at the Ontario Financial Review Commission -- that it recommends is that the government table what's called its medium-term fiscal outlook, its outlook for the current fiscal year and the next two years. Again, I think one of the things we want to look at in the Audit Act is that this be available. Again, for the first time in my memory, we do not have an outlook of the expenditures and the revenue of the province. We don't have that for the next three years. We've got one number which is the deficit number.
I may be asking the wrong people, it may be that we have to discuss this, but is that also a key document, a key number that should be required in an Audit Act, that the government lay out for the people its medium-term fiscal outlook?
Mr Christie: On the question of the medium-term fiscal outlook as it pertained to the OFRC recommendation, I believe the recommendation was that the budget should contain such a medium-term outlook. The question of what is a budget and how often a budget should be proposed again is a different issue. I know that there are federal precedents for budgets that are more or less frequent than the annual norm. In terms of some of the medium-term information, certainly the November statement of the Minister of Finance contained a lot of the information that is normally provided in the fall of each year, including a medium-term economic outlook, but you are correct that it did not contain the multi-year expenditure and revenue projection.
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Mr Phillips: Let me just say that I found that personally offensive. You had nothing to do with it, so I'm venting my anger at somebody else, not you. That was the reason -- I suspected all along the government wasn't going to do that for the public. What this is, is a medium-term fiscal outlook. It's a three-year outlook on the revenue and expenses of the province, which is fundamental.
The thing that really irritated me, frankly, was to find that the bond rating agencies, the credit rating agencies, apparently have been given some form of medium-term fiscal outlook, according to published information have been given that, and the Legislature was never given the medium-term fiscal outlook. I believe that is the key document.
The reason I raise this is for the Audit Act I wonder if we shouldn't be looking at what are the prescribed, essential, publicly available data that we should be guaranteed we have every year. We still don't have it. The minister is coming on Monday to committee. I assume he's going to provide it for us then. But we will have gone for six or eight months without having a medium-term fiscal outlook from the government.
Again, I'm putting you in an unfair position, Mr Christie, because this is really for the government to answer, not for the staff, but for me, discussing the Audit Act, I think a couple of fundamental things we should have in the Audit Act is that we have a budget each year -- I believe the committee actually recommended that the budget be presented before the fiscal year starts.
Mr Christie: That's correct.
Mr Phillips: I'll ask the question of the minister on Monday, because it's an unfair question for you.
In terms of other recommendations in the Financial Review Commission's recommendations that should be in an Audit Act, do you have any advice for us on other things that they recommended we should consider for our Audit Act?
Mr Christie: Generally, the recommendations of the commission were not legislative in terms of their focus. I think the main legislative area they talked about was the business planning framework. A number of their recommendations did have to do with the way in which we organize our planning and accountability structures, but typically their recommendations did not lead towards particularly an Audit Act change, to the best of my recollection.
Mr Phillips: Maybe the Provincial Auditor can answer, how do we ensure that a budget does contain the elements that are recommended if it's not through legislation?
The Vice-Chair: Mr Peters would like to clarify something.
Mr Peters: I think it's probably a good time, because Mr Phillips just raised a question. I think one of the things we have to do is follow in a way the lead somewhat of the Financial Review Commission, which divorced the accountability framework and the planning framework from the Audit Act itself, because the Audit Act in a way prescribes my duties, but should really not be used to prescribe the duties of the Minister of Finance or the Ministry of Finance.
Very specifically -- and I notice, Mr Phillips, you have it there -- you might want to take a look, if you wouldn't mind, at page 32 of the Financial Review Commission. I just would like to refer you to this, because there's a very important feature of the recommendations of the Financial Review Commission and that is that as I did in my 1995 report, the commission itself has found the legislative estimates review process, which I think is probably the best vehicle for the Parliament, for the assembly to take a look at the estimates and the plans, as it currently exists -- as I put it in my report, in the past my office had deemed it to be inefficient and maligned, and I said it has graduated to merely being ineffective.
In the recommendations they make, and maybe I could read them very quickly into the record, they suggest, and this is a suggestion of the commission and maybe this will deal with these concerns:
"That the special review consider the following additional suggestions from the commission:
" -- An appropriate committee of the Legislature, which could be a renamed and redefined existing committee, should be given the task of reviewing each ministry business plan before the start of the three-year planning cycle it covers;
" -- The committee should conduct reviews on a three-year rotational cycle....
" -- In looking at each plan, the committee should be able to consult with the appropriate minister and deputy minister, the Provincial Auditor, and others as needed;
" -- The committee should look at the ministry's proposed measures...." etc.
Also very important in this connection is recommendation I-18 which says that "the requirement for business plans, as outlined in this report, at the government, ministry and agency level, be legislated."
Mr Phillips: Aha.
Mr Peters: So there is a very distinct recommendation here and I think, if I may help in this process, they did stay away from building something like this into the Audit Act, but we're recommending, as I did this morning, that the legislation follow another vehicle, an accountability framework vehicle of one sort, be it the Financial Administration Act or the Management Board of Cabinet Act or some other --
Mr Phillips: Bill 26?
Mr Phillips: Too late. That's gone.
Mr Peters: I don't want to get into the political debate on this one. I just wanted to point out to you that the commission has dealt with the issue and just to relate this to you.
Mr Phillips: That's helpful.
Mr Pouliot: We wouldn't wish to label anything "Son of Bill 26" for there is nothing left there. I share the views of my learned colleague and the Finance critic for the official opposition, Mr Phillips, that not only decency but when we're talking about the irony here -- legislated accountability. Beyond the noblesse oblige, the first thing you would do is at approximately the same time each and every year you would have a full-fledged budget.
No one would be locked out at a lock-in. There would be no ruse, no lure, no games, no one would hide under the cover of darkness for ulterior motives. So a budget each and every year followed by estimates which go hand in hand, so people who indulge in the line-by-line would have their fill, would have their curiosity, and could do the work for they would have the tools to do the work. You could build it. Are the taxpayers of Ontario getting value for money? It would make his job an awful lot better in terms of appropriation of time, if nothing else, that you would know what to expect, you knew what format it would take.
I have a question vis-à-vis the proposal that is in front of us, and a comparison with other jurisdictions, namely, provinces. How is the sister province of -- we hear Alberta more often but I think both in size and in terms of neighbours, our relationship commercewise with the province of Quebec, for instance, which is the second largest jurisdiction. Philosophically, with the present administration it may not be as valid as the one from Alberta, for the Alberta experience is written in the book. But how are the other provinces doing in terms of pursuing the role of expanding the mandate of the Provincial Auditor and their value for -- well, not so much value for money, maybe not as much as here, Mr Peters, but in their endeavour, how does it work? Are they more advanced than we are? Do they go further? Do they check the transfer payments to see if taxpayers are getting value for money?
Mr Christie: Perhaps I could ask Mr Siddall to help out with the answer to that question.
Mr Robert Siddall: I'm the director of the controllership branch. I think on the question the Provincial Auditor could also help in terms of how other jurisdictions are, but in the area of transfer payments, I guess the federal government would be in a position where they would have transfer payments to Ontario and other provinces, and the Auditor General of Canada does not have the opportunity to do value-for-money audits of our transfer payments. But generally I don't believe that there is any jurisdiction in Canada that has, currently, the opportunity to do value-for-money audits of transfer payments. I would defer to the Provincial Auditor, who might have better information on that.
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Mr Peters: Thank you, Rob. What I would like to do for your benefit -- the mandates of the legislative auditors across Canada are starting to be very similar in this regard. The use of transfer payments, though, between the various jurisdictions differs quite a bit in terms of the approach taken. For example, Saskatchewan has taken the approach of virtually incorporating corporations as separate corporations all along. But there is no obstacle in terms of access to information put in the way of most other jurisdictions.
I think we are fairly unique in our being in the inspection, that our inspection audits for transfer payment recipients are limited to accounting records. Most of the other jurisdictions are moving along the lines of extending the value-for-money audits into the other areas. We can provide the committee, if you wish, with the specifics of each jurisdiction.
Mr Pouliot: Just one last comment. As you get closer, as you establish an action directe and a flow between what we send to our transfer partners, you are not allowed to comment on a political philosophy, right, Mr Peters? If your findings result in a political philosophy, you're not allowed in your report to make any comments, right?
The Vice-Chair: As a result of the policy.
Mr Peters: That's right. With our policy I cannot comment on it.
Mr Pouliot: The line is getting a lot more difficult to walk, and with the acrobats opposite it's immensely more difficult. I'm trying to be comfortable with -- and I dealt with transfer payments when I was the reeve of Manitouwadge -- conditional grants. We used to refer to them as a sham -- I've examined closely the philosophy -- transfers between for instance the Ministry of Transportation to pretty well each and every municipality. There was an allocation, for instance, for removing snow and another one to build roads.
Over the years what did happen, because then it became philosophical, was that the money that was for capital went for operation, because you didn't want to tell Harry Smith, the grader operator, that he would be out of a job, and a small portion was put aside to access the supplementary allocation under the Ministry of Transportation. So people were playing the shell game very well.
As the dollars got fewer and fewer you did not have, some will say, the political courage, but you could not tell them, "Well, look, you're only getting so much money, we're sending you fewer dollars, but now we're going to tell you this is for operation and this is for capital." Plus, given the diversity, you had a great deal of difficulty trying to police it. So you were much better off to take 10% off your transfer payment one year after the next and say, "At least, Harry, you can do what you wish with that," and you kept monitoring a lot.
What I'm trying to put across is that it's very difficult to respect your mandate, value for money -- and heavens, that's okay -- and not have the ability to comment on political philosophies, because it's exactly that. The example I've given is not one on transportation, but I'm sure they do abound, and they really tie your hands.
That's the only caution I have. I too would wish to see where every dollar that Ontarians pay goes. Is it being well spent? Given the diversity of this vast and magnificent land -- we have 11 million people, 880 municipalities -- it's a task indeed.
Mr Peters: Just a very quick comment. First I'd like to confirm to you that in the province of Quebec the auditor general has the right to carry out value-for-money audits. He does have that right already. So does Nova Scotia and so does British Columbia, for example, as three other big provinces.
Mr Pouliot: Maybe it wouldn't be a bad idea for this committee to travel and live the British Columbia experience to see how they do things there so we can better compare.
Mr Peters: It may be value for money in this weather.
Another quick comment and that is, we can comment to a certain extent on these decisions. In my 1994 report, for example, I reported, on the municipal road subsidies, that virtually 50% more was spent not on building roads, which was the legislative intent, but on clearing ditches and putting salt on the roads.
Mr Pouliot: You almost cost me my job at cabinet, Erik.
Mr Peters: I did, eh?
Mr Pouliot: I had four ministries and you were the most difficult. I still remember that day. It really hurt me. You were right on, but that's no reason.
Mr Peters: Here I thought I was helping your cause.
Mr Gilchrist: I guess you could say that to bring it up again is to rub road salt in an open wound.
The Vice-Chair: Rock salt.
Mr Gilchrist: Rock salt, indeed. I just want to get something on the record because I think the hallmark of the work of this committee so far in this term has been a very non-partisan approach to the issues, and I'm disappointed. It's unfortunate that Mr Phillips stayed only long enough to make his shot. I would just like to ask both of you, for the record, what time of the year are budgets always presented in this province?
Ms Bouey: Generally, budgets have been in the spring, in the period somewhere between March and June.
Mr Gilchrist: It's fair to say that, given that we weren't elected in the spring of this year, it would be inappropriate to castigate this government for not having prepared a budget at the time of year, considering we weren't the government?
Ms Bouey: I wouldn't have any comment on that.
Mr Gilchrist: Okay. The other point I'd like to make is that Mr Phillips suggested that the economic statement, which was a very thorough outline of the spending issues that face this province, the background and the plan for the next 18 months, in some areas goes forward five years -- more than the three years he was suggesting we required. I direct him to page 41 as an example on where our budget will stand. So I think, Mr Chairman, it's somewhat inappropriate and it was particularly inappropriate, given that budgets -- rather than my making the observation, let me ask Mr Peters directly.
The fact that the government every spring comes out with a budget, which is its overall statement of where it expects to spend its money, given that a myriad of factors can interfere with the actual expenditures -- you don't get the contracts signed on time to build that road; there may be delays in arriving at certain pre-planning and pre-engineering conclusions -- your audits always deal with the actual dollars that are spent, not with the dollars that are proposed to be spent in the budget. Is that not correct?
Mr Peters: That's absolutely correct.
Mr Gilchrist: So to suggest that the budget has anything to do with the audit process is really to some extent a red herring. In fact, expenditures are what you deal with.
Mr Peters: That's right. There is no relationship between the budget and the Audit Act as such. Where we are concerned, although not officially, about the budget at the moment, and I have made recommendations, is in fact that the accounting rules that are followed in the accounts that I audit should be the same accounting rules that were actually used in determining the budget. Otherwise I get into the position where I've been in the past, that I normally have to give an audit opinion on accounts that show, in one year, up to 20% different deficit numbers than were budgeted for, and that is of major concern.
I think that is one of the concerns that Mr Phillips had, in fact. He felt that I shouldn't be put into the position of having to make those kinds of comments. In fact, the Ontario Financial Review Commission has very clearly recommended that the accounting rules that are followed in the budget should be the same as the ones I use in the public accounts. That is a recommendation of the commission.
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Mr Gilchrist: It's my understanding that that was one of the changes that the Finance minister already has announced.
Mr Peters: And I was delighted with it.
Mr Gilchrist: So there will no longer be, as you euphemistically termed, two sets of books. You are going to have the straight accounting that's expected of companies outside the government.
Mr Peters: Let me put it the way I like to put it, that we plan on the same basis as we perform.
Mr Gilchrist: Excellent. Thank you, Mr Peters.
Mr Phillips: I had to slip out of the room for a minute and I gather -- pardon me?
Mr Peters: We resolved your problem.
Mr Phillips: That's fine. It's unfortunate that whoever said something about me couldn't wait till I came back in the room, but now I'm back.
Just to summarize what I take from the discussion, and the staff can comment if they want, we don't have a budget this year. The government was elected in June. There have been lots of governments elected in June before that then present a budget. They prepare and get a budget ready, but the problem is, I gather, Mr Peters, that there's no legislative requirement that a government present a budget. It's nowhere legislated that there has to be a budget each year.
Mr Peters: I have not done the research, but preliminarily I would agree with you.
Mr Phillips: If we were to deal with that, it would have to be not in the Audit Act but in part of the recommendation that might come from reviewing the Ontario Financial Review Commission.
Mr Peters: That's the I-18.
Mr Phillips: The I-18 would say there's a requirement that the government each year prepare a budget and that the budget should be in this format and that it contain I guess the recommendation from this committee, which I gather the government is supportive of, that the budget should contain business plans etc. But you're saying we can't do that in the Audit Act or it's inappropriate to do that in the Audit Act.
Mr Peters: It would be inappropriate in the Audit Act.
Mr Phillips: But it is appropriate to do it in a form of freestanding legislation? Or should another piece of legislation be amended?
Mr Peters: It could be in the Financial Administration Act or it could be in another piece of legislation that deals with the financial end of administration of the government's finances.
Mr Phillips: I would hope that we would give serious consideration to doing that. I realize we're talking about the Audit Act right now, but an even more fundamental thing for me is that the public is owed a presentation of the finances in a way that meets some basic criteria and, importantly, that every year we have one. I don't think we can ever go through another year where the government gets all its spending authority by special warrants. It is unheard of that you've gotten all your spending authority to spend all your money by special warrants and by Bill 26.
Mr Chair, I hope we deal with that part of the budget process when we're dealing with the Audit Act.
Just in terms of the Audit Act, Mr Provincial Auditor, I gather that it is your opinion that this area, dealing with some value-for-money audits in our transfer payments, is an area that has high priority with Provincial Auditor staff over focusing on the non-transfer-payment areas. Is that a fair statement?
Mr Peters: Actually, no. It is a high priority in terms of being the only amendment or enhancement of the Audit Act that we're seeking right now. But in my presentation I made it abundantly clear that at the current resource level the only way I can handle, actually -- if there were an amendment to follow in the Audit Act, I could only apply it by changing the mix. In other words, I would retain my priority. The act as priority would not be affected, in other words, my audit of the public accounts of the province, nor would the audit be affected of the 70 organizations on which I give separate audit opinions in the government. The only impact it would have is actually to reduce slightly the number of ministry audits and agency audits we are carrying out for value for money and compliance. We could only do one or two transfer payment recipients in a year, maximum, for compliance and value for money, and it's the compliance and value-for-money area we currently cannot look at and we are seeking an amendment for.
Mr Phillips: Well, we in the Liberal caucus have pushed very hard for moving to the public sector accounting and auditing format. I'm pleased to see the government moving to that; we've supported that from the outset. Does that move put any extra pressure at all on the provincial audit, or you were doing it anyway for the public accounts so that the move is not going to represent the use of more resources for the next year or two?
Mr Peters: You mean moving the budget also on to PSAAB, now that we have the books?
Mr Phillips: Yes.
Mr Peters: No, it essentially doesn't.
Mr Phillips: So one way or another, that doesn't impact you, because the public accounts I think actually have been prepared on that basis anyway. So that shouldn't represent incremental work for either --
Mr Peters: That has now been accomplished, thanks to Mr Siddall and his good work over in the Ministry of Finance, as well as very much effort on behalf of my staff. But I think we're over the hump in that regard.
Mr Phillips: That's very helpful. Those were all the questions I had.
The Vice-Chair: Ms Bouey would like to make a comment.
Ms Bouey: Just a question of clarification. We are now operating under the spending authority from the estimates which were tabled in -- I believe there were estimates and supplementary estimates tabled in early November last year.
Mr Phillips: So you operated on special warrants for the first six months, was it?
Ms Bouey: About that, yes.
Mr Phillips: Or to the end of December?
Ms Bouey: I'm not sure exactly when the special warrants expired, but the estimates were tabled at the beginning of November, roughly.
Mr Pouliot: I have a question for Mr Peters. Given that you will have no supplementary resources, and we know the government is preparing a long list of casualties, which will number anywhere between -- one report says an astronomical figure of 27,000. Indeed, their manifesto, that bulletin that they published during the election, mentions 13,000 and there is an acquiesence from the Minister of Finance and the minister responsible for treasury board that it will be more, it will exceed that, so it's not likely that you will have more resources.
As you embark on your extended mandate of going to the recipient -- the agencies, boards and commissions, people who get money by way of transfer payments -- you will not be able, with the same staff, the same personnel, to do the same meticulous audit of government ministries. People can only work so many hours a day.
In my opinion, if there ever was a time where meticulous attention should be given to ministries, the time is now. I think you've mentioned, Mr Peters, that you won't be as vigilant -- or you will be as vigilant but not as often inside the ministry because you will have to use some personnel to go and see the transfer recipient and audit them. It's my understanding that the zeal of the present regime will not allow for more staff. They won't give you more money or more tools so you can do the job on behalf of Ontarians. It's going to be tough.
Where does it give? If you embark and you go and do audits of school boards or hospitals, if you wish, some ministries will suffer, right? Some audits won't be done.
Mr Peters: One or two compliance and value-for-money audits in ministries may not take place that year.
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Mr Pouliot: Mr Peters, maybe you cannot answer this, but would that not serve the -- oh, you're not inclined that way, but some people, maybe it would serve their purpose that this not be done. "Why don't you go and audit the other people? They're getting..." -- the recipients from the province -- "and leave the ministry alone." I know it's an impossible question to answer, but sometimes I think that way, because they force me. These people across think that way. I would not wish to sacrifice, as a member of the committee, auditing the ministry, much more so than the transfer recipients, and obviously, unless you have more resources, unless the government gives you more tools to do the job that needs to be done --
Mr Peters: Let me just, if I may, respond to this in two ways. There are certain statutory duties that my office has which are the so-called attest audits of the consolidated revenue fund and other financial statements of the government, of agencies. That work will not suffer.
There is another, and that is the discretionary aspect of my work, which is essentially the value-for-money aspect.
What I am proposing is that we'll be able to accommodate this within the mix of audits, provided that my current level of resources is not further reduced, or the ones that I have proposed will not be reduced. If that is reduced, then indeed there will be consequences.
If you'll let me make a last comment, assume for a moment that eventually we manage to get into a balanced budget, a zero deficit. My audit domain will have shrunk in that case by only about $10 billion, to $90 billion, if you add revenues. Assume we have $45 billion in revenues and $45 billion of expenses at that particular point in time; my audit domain is still $90 billion. That requires a certain minimum level of audit effort. That is still a very big business indeed.
Mr Pouliot: Thank heaven we have 725,000 jobs that are on their way, that are coming; not now, but are coming very soon. Thank you.
Mr Beaubien: Just a quick question for Ms Bouey. Could you tell me how the government operated from April 1995 to June 1995? Did they have a credit card? According to the members on the other side, it would appear that there was just no money to operate the government.
Ms Bouey: I believe they operated under special warrants.
Mr Beaubien: So it's not unique; it just did not occur after June 1995.
One of the comments I would like to make: I thought these committees were supposed to be non-partisan. I've been here an hour and a half today and probably I've heard politics for an hour and 15 minutes.
Mr Phillips: I don't think Mr Gilchrist was that bad.
The Vice-Chair: Mr Skarica, did you have a non-partisan question?
Mr Skarica: No. We had an admission from a former cabinet minister in this very room today, and I won't mention him or her to embarrass him or her, but they admitted their ministry came in over budget after the year-end. Did that happen from time to time in the past?
Ms Bouey: Yes. The way it happens is through a system of Management Board approvals. There are treasury board orders issued and so on, or supplementary estimates during the year.
Mr Skarica: And that happens even though there's a pretty vigilant auditing staff. Correct?
Ms Bouey: Audits take place after money is spent.
Mr Skarica: One of the questions I asked the auditor is how feasible it would be to have a plan where -- in private business, if you come in substantially over budget and you're the manager, you often either lose your job or take a pay cut. How feasible would it be to have the minister who is 20% over budget have 20% of his income forfeited, or the deputy minister in the same position? Has that ever been addressed or would that have any impact aside from a little bit of alarm?
Ms Bouey: As someone who is neither a minister nor a deputy minister, and who works for them, I have a certain reluctance to answer that question.
Mr Skarica: How about yourself?
Ms Bouey: Quite seriously, it is something I understand the Centre for Leadership for government executives is looking at, some form of performance-based pay.
The Vice-Chair: If there aren't any more questions, I want to thank the witnesses for appearing, and again, under short notice, for rearranging your schedule. I think that's very appreciated.
We are to meet again tomorrow morning only. That is my understanding. So the committee stands adjourned until tomorrow at 10 o'clock. Thank you.
The committee recessed at 1526.