ONTARIO SCHOOL BOARD
REFORM NETWORK
ORGANIZATION FOR QUALITY EDUCATION
JOHN ANDRACHUK, KATHLEEN PINTO
CONTENTS
Thursday 6 June 1996
Audit Act Amendments
Ontario School Board Reform Network; Organization for Quality Education
David Hogg, chairman, Ontario School Board Reform Network
Doretta Wilson, representative, Organization for Quality Education
John Andrachuk, Kathleen Pinto
Committee Business
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:
Carroll, Jack (Chatham-Kent PC) for Mr Beaubien
Kennedy, Gerard (York South / -Sud L) for Mr Agostino
Also taking part / Autres participants et participantes:
Erik Peters, Provincial Auditor
Clerk / Greffier: Todd Decker
Staff / Personnel: Elaine Campbell, research officer, Legislative Research Service
The committee met at 1004 in room 228.
AUDIT ACT AMENDMENTS
The Chair (Mr Dalton McGuinty): Good morning, ladies and gentlemen. Welcome to the standing committee on public accounts. Today we are considering possible amendments to the Audit Act.
ONTARIO SCHOOL BOARD REFORM NETWORK
ORGANIZATION FOR QUALITY EDUCATION
The Chair: We're going to begin with a presentation by Mr David Hogg. I just want to let you know before we begin that we're going to allow your presentation one half-hour and we would appreciate it if you would give committee members some time to raise questions with you.
Mr David Hogg: We've made that arrangement.
Thank you very much for allowing us to be here. First of all, let me execute the introductions. I'm David Hogg, chairman of the Ontario School Board Reform Network. As a colleague I brought along a parent who is a taxpayer to the school board in which I'm a trustee, but I'm not representing the school board on this occasion. I will make some personal remarks, if I may proceed with my presentation.
The Ontario School Board Reform Network, OSBRN, is a unique association since it has as members both public and separate school board trustees. I'm here on behalf of the members to support in the strongest way the Provincial Auditor's request to have the provincial audit function's powers extended to include value-for-money audits. We believe it is imperative to have value-for-money audits apply to those agencies which spend the largest proportion of Ontario tax dollars, so in particular to school boards. To emphasize the importance of these extended powers to school board students, parents and taxpayers, I would like to use as an illustration some parallels and examples.
Which of us would accept a transfusion of blood which had not been exhaustively tested to ensure there would be no subsequent adverse or even fatal effects? Which of us would use any drug for which we had no assurance that it had been subjected to a minutely rigorous validation regimen as to its effectiveness? Would we not also want to be reassured there were no adverse or dangerous side-effects?
On February 19, 1993, the Ministry of Education and Training mandated implementation in three years of the Common Curriculum, Grades 1-9, for Ontario students beginning in September 1993. The document was a vague prescriptive for learning in Ontario schools. It was barely intelligible and had to be rewritten, ostensibly to make it understandable to the public. Ironically, the rewritten version became the text used by those teachers who were prepared to make any attempt to read it.
One of the destructive components of the Common Curriculum, Grades 1-9, was the requirement to destream grade 9 the following September. The education system was expected to respond with a total redesign of grade 9 in four months of school time and two months of summer holidays, a quality project management impossibility. On June 6, a representative of the Ontario Secondary School Teachers' Federation challenged the then Minister of Education and Training, the Honourable David Cooke, to produce research supporting destreaming as an effective strategy. Mr Cooke chose not to reply because, as the OSSTF vice-president pointed out, there was no such research.
Not only was there no research to support destreaming, there was no research to support the approach taken by the Common Curriculum, Grades 1-9. I know this from personal experience, because under the Freedom of Information and Protection of Privacy Act I requested access to any large-scale empirical research which supported the approach mandated in this ministry policy document.
If the ministry had been straightforward, it would have denied me access on the basis that research did not exist. Instead, they sent me five pages of references, not one of which were relevant, leave alone being relevant research; neither was any of the reference documents anywhere close to being empirical research. I was extremely disturbed at the time with this cavalier response, and my position has not changed one iota.
Part of my submission is an article I had published in the Toronto Star May 5, 1994, dealing with the imposed, unsuccessful learning strategies. As well, there is a list of programs unsupported by comparative empirical research which was presented to a 1994 education conference at Carleton University.
It is unlikely that anyone knows the countless millions of dollars consumed by activity in the ministry and school boards caused by the Common Curriculum, Grades 1-9. On Monday this week, the Metropolitan Separate School Board staff were not able to provide trustees with even an estimate of the cost of the work outlined in a statement of direction to further work in the board on the Common Curriculum, Grades 1-9, nor was there a satisfactory answer to the question, "How do we know that what is being proposed in the Common Curriculum, Grades 1-9, is better than what we have now?" The response was that it was "thought" it would be better. In other words, because the policy was a ministry mandate, nobody chose to examine the policy for benefit and value added. Where is the diligent search for the best and most effective practices? This lack of critical appraisal is not considered to be unique in any way to the Metropolitan Separate School Board.
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If checks and balances do not occur, that should be completely unacceptable to the people of Ontario. If these checks and balances are considered accepted and routine procedures in health care, why not in education? If we now think they should be carried out in education, who will do it? We believe the best current solution is the provincial audit staff, who have the breadth of vision to integrate this aspect, as one example, into a global assessment of the effectiveness of expenditures within the education, and particularly school board, environments.
Others will deal with financial ramifications in more detail this morning. I want to finish on a personal note as a separate school board trustee. I want to dissociate myself completely from the brief presented by the Ontario Separate School Trustees' Association on March 4 of this year. An auditor's management letter to MSSB invalidates their claim of efficiency.
Before we open for questions, I turn to Mrs Doretta Wilson, an MSSB parent who is active in the education reform movement of which OSBRN is a part.
Mrs Doretta Wilson: I thank members of the committee for allowing me the ability to come and speak today and Mr Hogg for giving me some of his time.
I am speaking on some parts for the Organization for Quality Education and I have some personal comments to make as well. As a taxpayer and parent I would like to support the members of the committee by urging you to proceed in making the necessary amendments to the Audit Act to allow value-for-money audits of transfer payment recipients such as the Metropolitan Separate School Board. I am a taxpayer who supports this institution as my children are educated by this board.
Over and over, parents are given the "government is cutting our funding" excuse for the inability to improve standards of education through the proper implementation of more effective literacy and numeracy programs. To date, few outright cutbacks have occurred at the classroom level. However, this is a tenuous as well as misleading state of affairs. There are sufficient funds; how they are spent is the problem.
Our board's directors have a nebulous understanding of the board's financial position because of archaic accounting practices that do not always adhere to generally accepted accounting principles.
As a parent, I am frustrated that public money is robbed out of our children's mouths, so to speak, when possible poor financial decision-making means that effective learning-to-read programs cannot be afforded by schools. Recently this has led to my own parent-teacher association, which by the way manages to fund-raise about half our school's textbook and supply budget -- our PTA has been asked to purchase the necessities of education, such as required textbooks. This contravenes the Education Act. School boards continue to use methods and education programs that have 30 years of research telling directors of education that they don't work. Where is our value for tax money here?
I am also today representing the Organization for Quality Education. OQE supports the proposed changes to the Audit Act. I will read from their platform on spending on education:
"Researchers found no correlation between spending and academic achievement except in cases of extreme abundance or scarcity. Indeed, Canadian academic achievement has declined over the last 25 years, according to Nelson Canada, the publishers of the Canadian Test of Basic Skills.
"Even though government spending on public education over the past generation has increased at 7.6 times the cost of living, the Japanese spend proportionately two thirds of what Canadians spend on education and the Germans somewhat less than the Japanese, yet both Germany and Japan achieve excellent education results.
"Much better educational outcomes are possible without additional spending. In Canada" -- and probably Ontario -- "huge amounts of money are wasted on such things as unnecessary head office staff, curriculum development, computer programs, public relations, toys, frivolous outings, unproductive conferences and luxurious headquarters. As a result, there is little money for textbooks and evaluation.
"By far the largest haemorrhage is in the area of non-teaching staff outside the school. There is no research evidence to justify an abundance of administrators, consultants, itinerant specialists etc, as there is no research basis for small class size except possibly in the primary grades. In Korea, which gets excellent academic results, class sizes of 45 to 55 are common. We do not, however, advocate increasing the number of classroom teachers.
"However, we do endorse teachers' salaries which reflect the effort and effectiveness of competent professionals. We would like to see the best teachers rewarded for staying in the classroom instead of being promoted out."
As a taxpayer, I am appalled that no accountability exists for how or why our tax money is spent by school boards such as the Metropolitan Separate School Board. Making the proposed changes to the act becomes a necessity in light of today's financial realities and government fiscal responsibility. Every cent of education funding should not only be properly accounted for by the Provincial Auditor, but also spent for the best possible educational outcomes resulting in less expensive remediation. With the ability to know exactly how our money is being used or abused, taxpayers can be sure that public money is spent by our school boards in a more efficient, effective manner.
Mr Hogg: We're now open for questions.
Mr Mike Colle (Oakwood): Thank you for coming. I'm reminded that there was a $10-million or something gap found in the MSSB budget this year and they couldn't account for it. I don't know if they finally did account for it; you might comment on that later.
The question I have is, given our intention here to essentially go into school boards and do some kind of accountability audit process, a value-for-money audit -- you think obviously there's a great need for that -- how could we be most effective? In other words, given our limited resources in audit capabilities, how would you direct us in terms of ensuring that whatever we do is effective? It isn't where we're on basically a wide-ranging effort; we want to be very focused. Maybe you could give us a few ideas, Mr Hogg or Mrs Wilson, in terms of where we could be most effective.
Mr Hogg: One thing clearly is that when a new program is to be implemented in the classrooms, there have to be the backup data, the comparative empirical research that would indicate there is some chance of successful application of that particular strategy in improving learning in the classroom. That doesn't happen at present.
The fact that somebody is going to come in and look for that information and review it would immediately put the system on alert that this has to be done, and there wouldn't be any more, hopefully, of these fly-by-night: "It seems a good idea. It works in theory, it seems to be a great idea and therefore we should implement it." This seems to be the criterion that is used not on one occasion but again and again. A scenario of minimum activity will be required today; that's the expectation.
I had some experience with the provincial audit staff when they did their value-for-money audit on the Ministry of Education. They're very skilled people. They came to those people they knew were criticizing the way business was carried out and asked for input. There are a lot of very professional people in the reform movement who have done a tremendous amount of research, perhaps done more reading than people in education because they've got day-to-day activities they become engaged in and forget that they should be extending the horizons of their knowledge. That will be minimum workload for maximum return, and then you can start going down through the prioritization.
It wouldn't be very long before the organizational structures would become familiar to the audit staff and where inefficiencies are resident within those organizational structures. In fact, the Metropolitan Separate School Board is currently going out, and we've authorized the payment of $50,000 to an outside management firm to look at what is called re-engineering, yet the academic side is excluded from this particular activity.
I wrote to Mr Peters inviting him to get engaged in this, because I thought the expertise should be resident within the province, rather than resident with some private entity that could then go out and make profit on it. It seemed to me that this was provincial property and should be used as such. Because of the restrictions, I got a very nice letter back from Mr Peters that I read again yesterday and had to decline.
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Those are two areas immediately, and there is another one. The deficits within the Metropolitan Separate School Board going back to 1993 have been the result of having more teachers on staff than were required by the collective agreements. In 1993, for instance, in the elementary panel alone there were 199 teachers over establishment -- $50,000 a year, 200 times $50,000 a year: $10 million. The deficit was $10.9 million that year. This was identified again last year in the management letter I referred to, and the deputy director of human resources admitted that they hired 90 teachers at the beginning of this year that they didn't need to hire. Once you have somebody looking into this on a regular basis, I think the money is going to be there.
Mr Colle: Ms Wilson was commenting on the fact that you're raising money for standard textbooks on a volunteer basis, which raises the question, have you done a comparison? The Catholic school board, MSSB, on a per-capita basis has less money than its counterpart on the public side. If you're talking about possible inefficiencies and waste on the MSSB side, has there been a comparison on the public side, which gets many more tax dollars per pupil?
Mr Hogg: There are some data. What we've relied on is the Sweeney report, because they went to the ministry and they did an analysis; I don't know whether you have seen it. I have these figures readily available in the memory cells. The range of spending on instruction -- that excludes transportation and other things; I wanted to keep it focused in the classroom -- in public boards per pupil per year goes from $4,100 to $5,900, so there's an $1,800 spread there.
The way I characterized it on equity funding was, to give you some idea of what that means, suppose a textbook costs $30 -- that would be a pretty expensive textbook -- it would mean that every year the board at $1,800 per year more per student could supply the students with 60 more of these textbooks each and every year for each and every student. Is the gap between education that's delivered in the poorer boards that much greater from the richer boards? I haven't seen that in the results and I examined these results extensively. That isn't evident, so we have to believe that there are other things, apart from the amount of money available, that provokes quality education in the classroom.
Mrs Wilson: What I'm more interested in and what OQE is interested in is the long-term effectiveness of the implementation of these programs. We also have to look at the results of children studying under these programs. You have to look at testing these children long-term: "Is this effective?" A new program is very expensive to implement. Teachers must be in-serviced; there's the hardware of the textbooks themselves that have to be delivered. It's an expensive proposal to put in a new program if it is untested to begin with, which is why David was talking about looking at the research before you even put it in, and then you also have to look at testing the children over the long term to see if this is effective.
Our board has just started standardized testing, the CAT, Canadian achievement test, in grade 5 consistently over the past three years now. It's been a real eye-opener, I think, for educators as well as parents, because we aren't doing as well as we thought we would be doing. The question comes into play that obviously the children are not all stupid, so we have to look at something else. Is it what we're teaching them? If we're delivering the wrong program, let's fix the program and make sure we're putting the right stuff in there.
Instead of going out, as we have been asked to do in our PTA, and buying a whole new set of textbooks -- it's just a horse of a different colour. It's another set of books that isn't doing anything more effectively. I'm kind of annoyed at having to be a charitable donator to my school to have to buy this ineffective set of programs, and then I'm annoyed as a taxpayer that our board is constantly having to retool our textbooks, so to speak, for something that's ineffective.
The Chair: Mrs Wilson, can I just stop you there? I want to move on to our next questioner because I'm sure he wants to raise different issues.
Mr Gilles Pouliot (Lake Nipigon): Bonjour. An educator I'm not. I barely made it here 12 years ago, and the rest I picked up at the library.
Mr Hogg, I'll get to this. You are supportive -- and I appreciate the submission of having the Provincial Auditor involved in a value-for-money audit to an agency, if you wish, to your school board. You express a focus on curriculum. And are the taxpayers of Ontario getting a fair bang for their tax dollars, madam?
Then you parallel the situation in -- you mentioned Korea, Germany and Japan. You are an elected representative; the public has elected you to look after school affairs. You receive money by the power of levy, transfer payments from the provincial government to your board. What percentage of the pool of money you have goes to salaries, fringe benefits? Is it 70%? Is it 75%?
Mr Hogg: The last figure I came in contact with was 65%. I know that the one that is usually quoted quite widely is 80%, but I don't see it at that level; it's somewhat lower than that. But it certainly is the major component of expenditures.
Mr Pouliot: That money is appropriated to respond to collective bargaining. The teachers go to you, it's a give and take, and you can say no or you can say yes, right? You're elected by the people, fully democratic. Oh, there's one thing missing: You take a directive in terms of curriculum from the province.
Mr Hogg: That's right.
Mr Pouliot: In there, there's no accompanying envelope to give you the funding, or you feel the research leaves something to be desired, that the government rules by decree.
Mr Hogg: That's right.
Mr Pouliot: You've been in this good deed of public service for many years?
Mr Hogg: No. I've been an elected representative for 18 months, but I have met at the highest level in the ministry on this particular topic -- at the highest level.
Mr Pouliot: Indeed, by your tone and confidence, and you speak of substance. You've mentioned Mr Dave Cooke -- nice fellow. Has there ever been a Minister of Education you liked, Mr Hogg?
Mr Hogg: I haven't met one I didn't like. I might not like what they're doing, but certainly the people who have been in there have been very personable, charming.
Mr Pouliot: You ought to be in the diplomatic corps, sir.
I have one last question. With the highest respect, Mr Erik Peters, the Provincial Auditor, doesn't profess to be an educator. How do you see a value-for-money audit, in a broadly summarized form? What do you think he and the people on his team should do? You don't have an axe to grind; there is no vendetta here. It's just that I sense a bit of anxiety when it comes to curriculum, and a value-for-money audit would fix the problem?
Mr Hogg: The only way of really fixing the problem of education in Ontario is to allow the teachers to use their professionalism in the classroom to deliver quality learning. That's the end result. What we should be doing is looking at things that are impeding that. With the analytical ability that resides in the provincial audit team, although they may not be educational experts, they can ask these questions.
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On Monday, I asked two questions of the superintendent of program design when he came forward with this statement of direction, fairly simple questions. First, there was a list of work that was to be done: "How much is it going to cost?" The answer: "I don't know." Then there was a little more discussion. The next question was: "How do you know that what you're proposing here is better than what we have already in the classrooms?" "We think it's going to be better."
These are audit-type questions. You don't need to be an educator to ask that type of questions. They come from common sense. Maybe somebody should have been asking these type of questions --
Mr Pouliot: No, no, not so fast. That's got nothing to do with the book.
Mr Hogg: There are these types of questions. I've been in the audit function. I should have told you that I spent 10 years in education, some of that as a principal. I spent 30 years in business, and part of that was as an internal auditor. I'm a professional engineer and a professional accountant. There are questions that, even though you may not have expertise in the area, you're able to draw out the information that will indicate to you whether the system, the process, is working efficiently and effectively. That is where I see this skill that would be resident there, without the necessary expertise. I could quote you experts, but we probably don't have time.
Mr Jack Carroll (Chatham-Kent): Thank you, Mr Hogg and Mrs Wilson. I think I heard you say that there's very little relationship between the money spent on education and the quality, that more money doesn't necessarily equate to a better product.
Mrs Wilson: That's true.
Mr Carroll: Do you sense that the current funding model, where part of the funding for education comes from property taxes and part of it comes from the provincial government, in any way contributes to the inefficiencies you see in the system and the lack of accountability in the system?
Mr Hogg: Absolutely. This is one of the key problems with the system. Put yourself within the bounds of Metro Toronto. You have the Metropolitan Separate School Board, which has a relatively low assessment base from which to draw -- I can't remember the exact figures, but it's something like that we draw from 24% of the tax base but we educate 29% or more of the students. There's an inequity there.
If you rely solely on your tax base, you can go to that tax base and you can increase the mill rate by a minuscule amount and draw out huge amounts of money, and then you start implementing programs such as junior kindergarten, which is now voluntary. If you happen to be coterminous with that board, you're now faced with: "Do we implement junior kindergarten or don't we? If we don't, our students are going to go to the public school system and we may not get them back again." So we're forced to take actions that we may think of in a different way, might deliver in a different way. That is a key component.
Until equity funding comes in, in my opinion, it doesn't matter whether it's the prior governments or the current government, there will never be control of expenditure in this province, never.
Mr Carroll: Assuming equity funding did happen, do you still see the need for the Provincial Auditor to be involved in the value-for-money audits?
Mr Hogg: Absolutely. If you go to those boards that claim to be poorer, you have no guarantee that they're spending the money effectively. For instance, when you go into a school, the normal size of class would be 29, 30, 32, yet the negotiated PTR, the pupil-teacher ratio, is down to 16. For every class of 32 students, there is some ghost teacher somewhere who has zero students.
Mrs Wilson: A librarian.
Mr Hogg: We need to have these people come in and ask, "Are you distributing your teachers appropriately?" This province does not know whether its special education programs are effective. I asked that question --
Interjection.
Mr Hogg: No, they're non-educator questions. I went to the board and asked, "Where are the quantitative data which tell you whether the special education programs are effective?" "We don't have it." "Shouldn't we have it? Do you expect us to go out and fund this research?" "No. This is so important that you should go to the province and get them to do it province-wide." We got a letter back from the province saying the ministry doesn't have it either.
The ministry doesn't know the percentage of readers at risk in this province. How do you know how effective your reading programs are unless you've been tracking this over a number of years? Only one board, to my knowledge, does this, the London Board of Education. In a nine-year period, the readers at risk in grades 3 and 4 rose from 5% to 22%. Who was monitoring this activity and saying, "Hey, wait a minute, something's gone out of whack here and we've got to bring this back under control"?
Mr Carroll: One other quick question, because we haven't got a lot of time: The health care system has an accreditation system set up where a group of peers come into a hospital and evaluate the hospital and give it an accreditation, two, three, four years or whatever. That system seems to work fairly well. I have some problems with whether the Provincial Auditor, doing value-for-money audits, can effectively assess the value of the education system. Maybe we need some other body to come in and assess the value of the education system. Do you really believe the Provincial Auditor's office has the capacity to assess the value in the education system?
Mr Hogg: Yes, I believe the Provincial Auditor can orchestrate this. We go back to the value-for-money on the ministry. What do they do if they don't have expertise in that area? They go to people who do have the expertise, and they've got this for free. I spent an afternoon, and I was totally happy to be there, and I know they did this to other people. There is that huge resource out there that they can draw on and get the questions that they should be asking. These people, they're pretty sharp cookies.
I understand what you're saying, and it may be that there is benefit to doing that as well. But the system hasn't been able to self-monitor. Why would you implement the common curriculum when the teachers are against it?
Mrs Wilson: My concern is that if you get a body of peers to go in and do this evaluation, it's not an objective, arm's-length organization that is going to do this. This is the problem that exists within our school system as it is, that the teachers' unions and principals' associations seem to have most of the control over what goes on in the classroom, either directly or indirectly. That would be my concern, that you don't have an objective -- I don't know the correct term -- sort of like how you have a CA firm come in and do an audit of a corporation. This would not happen if you have other teachers and principals coming in there and doing what they do already.
Mr Hogg: What you suggest already happens within our board. They have a systems review group that goes around and does exactly that, but I haven't seen -- quantum improvements are needed. These are not minuscule things.
The Chair: Mr Hogg and Mrs Wilson, I'm sorry that we've come to the end of your time. Thank you very much for your presentation.
Mr Hogg: Thank you very much for your time; we really appreciate it.
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JOHN ANDRACHUK, KATHLEEN PINTO
The Chair: Our next presenters are Mr John Andrachuk and Mrs Kathleen Pinto. Welcome to the committee. You have one half-hour for your presentation; please allow time for questions.
Mr John Andrachuk: We just have a small organizational problem here. Both Kathleen and I are left-handers, so we both immediately gravitated to the left.
Mr Steve Gilchrist (Scarborough East): Is that a bad sign?
Mr Andrachuk: I don't know.
Mr Colle: I think you're going to see who's on the other side.
Mr Andrachuk: Good morning. We're pleased to have this opportunity to assist you in the question of enhancing the Provincial Auditor's powers to perform value-for-money audits in grant institutions. Kathleen Pinto and I are both chartered accountants, and this morning we bring to you our professional viewpoints.
In addition, we bring other experience that strengthens the views you're going to hear from us this morning. Kathleen has a particular interest in one of the major grant recipient institutional sectors, and I bring a wide private sector experience as a member of boards of directors, as a chief executive officer, as a chief financial officer, in several business sectors, including financial institutions, real estate and manufacturing.
Our understanding of this situation at this point is that the Provincial Auditor and his predecessor have been requesting the power to perform value-for-money audits in grant recipients since 1990 in order to fulfil the auditor's obligations under the Audit Act. The auditor's request resulted from denial of access due to legal opinions obtained by several institutions, particularly universities.
For six years now, you have not had the benefit of the expert advice of the Legislature's auditor's review of the use of funds provided by the province. We also understand that the auditor has come forward this year with a focused set of targeted institutions which collectively receive approximately $25 billion, and that he has explicitly recommended that he not pursue other organizations where he could not effectively audit the use of the grants.
This $25 billion represents well over half of all provincial government program costs and is approximately $2,500 for every sentient being in Ontario. So I'm paying $2,500, Kathleen is paying $2,500, and I've got five kids, so seven times $2,500 -- my family is paying almost $20,000 for these particular schedule A grant recipients.
We find it stunning that the Legislature has not exercised its responsibility nor utilized the full range of its powers to ensure that over half of the money it spends each and every year on behalf of the people is wisely and prudently utilized. The Legislature appears to have naïvely relied on the efficacy of the governance mechanisms that it believed were present in the grant recipient institutions. However, as we shall demonstrate with a concrete institutional example, this reliance and belief are indeed naïve.
The public's moneys are not being responsibly administered, and this should come as no surprise. We now know, broadly speaking, that our governance mechanisms, both private and public, are inadequate. The private sector for several years now has been decisively addressing the need for governance reform. Our public institutions are only now beginning to glimpse the defect and needs. The public expects you to govern responsibly in their interests.
This morning I was reading one of the newspapers -- the Globe, I think it was -- and there was an article here on the fact that Sir Adrian Cadbury is in town, speaking to some group of friends. The end paragraph says:
"He says he is becoming increasingly interested in the responsibility of shareholders for promoting good corporate governance. In Britain, he says, institutional shareholders that were once entirely passive investors are at least voting their shares at meetings.
"`What we've done is given them an agenda, a checklist, so that they can play their part,' he says. `That is increasingly becoming the driving force.'"
He headed up a major commission in Britain that gave a report in 1992 on corporate governance that resulted from disgraceful corporate failures. The Brits put this team together, they gave a recommendation, and the recommendation indeed is being implemented.
The point of this is that shareholders are now saying: "Enough is enough. We're not going to put up with boards of buddies who come in, have lunch, chat about whatever, go home, and the organization fails."
In Canada, as you know, we've had a number of institutions, several of which I'm intimately familiar with, in the financial institution sector that failed because of gross mismanagement and corporate misgovernance, starting from the top down. The boards of directors failed, whether it's Royal Trust or Confederation Life or a number of others. I happen to know the situations intimately. They failed as a result of governance failure.
As a result of these problems, these débâcles, the private sector has started to realize that they'd better get their act together, and they're being forced to do so from the top down, by the shareholders, the public in general. That's exactly what's happening here. That's why the two of us are here this morning. We believe there's an opportunity here to do one little thing about this.
We believe you must utilize all the tools at your command to ensure that public bodies you're funding are responsibly managed in the public interest. The Provincial Auditor, your Provincial Auditor, is an important control tool. It's only one little part, but it's an important little part. He must be enabled to fulfil his duties under the act. We're here today to strongly recommend you give him the power not only to ensure compliance of the intended use of funds but, as well, to report to you on the effectiveness of their use, and we also recommend that the Legislature act to put in place accountability legislation.
The province is in effect the operational banker for thousands of grant institutions. In particular, the auditor's schedule A group consumes $25 billion each year for operating and capital costs. No banker or investor would ever provide this relative degree of funding, representing over half of their own revenue flows, without tight accountability and auditability.
We notice that most of the recipients you've heard from so far have been extremely negative on the idea of value-for-money audits. These include the Council of Ontario Universities and the Ontario Separate School Trustees' Association. The local health agencies shone in contrast; they were like burning beacons of reasonableness and responsibility.
The negative organizations seem unable to comprehend that you, the Legislature and the public accounts committee, have a responsibility to ensure that effective control mechanisms not only exist but demonstrably operate. We are unsympathetic with their concerns.
A central characteristic of public institutions, in contrast to private sector entities, is that crucial checks and balances are absent. They cannot go out of business, their customers cannot leave them to go elsewhere, and the money just keeps on rolling in regardless of their degree of honesty, probity, prudential management, efficiency or effectiveness. A control mechanism and the exercise of that control mechanism and the rigorous use of it is even more important in public institutions than it is elsewhere, because these public institutions lack the natural control mechanisms that you'll find with businesses, organizations in the private sector.
We're pleased to see that the auditor has indicated a focus by virtue of his decision to audit only the schedule A recipients, and that he has demonstrated economy by reducing his staff significantly over the past several years. You should demand that this focus be even further tightened by a focused use of the value-for-money technique. The auditor should go where the bucks are and target major opportunity sectors where the results of a single audit can be used as a paradigm to influence the rest of the gang in the targeted sector.
Here's what I mean by that: Go in one place and go from stem to stern, tear it apart. The auditor should be sure to be careful on the choice of his targets, and he should go in and use that as an example to be utilized throughout that sector. Whether it's to strike fear into the hearts of mismanaging so-called executives in that sector or whether it's to be used as a set of methods doesn't really matter. The fact is, if you've got an example, the example can be set to be followed.
While we're conscious of the need to ensure the auditor's independence, we suggest that you should demand a strategic plan from the auditor for the audits, using the expanded powers, and that this plan should be reviewed with you at the outset and then periodically thereafter. In other words, it would probably be a smart idea if you heard from Mr Peters what he plans to achieve by doing what he plans to do before he goes in, that instead of reading about it in the Globe and Mail the day after the release, you ought to know what he is intending to do and how he's intending to do it. You should exert and maintain control to ensure that the audits have a purpose and do not simply become a procedural exercise, which is a natural tendency of all bureaucracies.
Schedule A clearly illustrates where the bucks are and consequently where the focus should be: health, $10 billion; education, $7 billion. That's about 70% of the $25 billion that Mr Peters has identified.
We would now like to concretize our recommendations by illustrating the long-term result of the absence of structured and enforced control mechanisms with the example of a dysfunctional major institution. This institution is the largest entity in Canada in its sector, with operating expenditures of over $700 million, provincial grants last year of $240 million, and, with over 9,000 employees, is one of the 15 largest employers in the GTA. In other words, this institution is important, and its performance or malperformance, as is the case, conditions the performance of other analog institutions.
Kathleen will now review this institution's situation as an example of the degree of improvement opportunities that are available to the people of Ontario.
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Mrs Kathleen Pinto: Ladies and gentlemen, we thank you for the opportunity of appearing before you on this urgent issue. We've been following the deliberations of your committee regarding value-for-money audits, and we have certain observations which we believe are relevant for your consideration.
In reviewing the presentations to date before your committee, we noted that there was a presentation made on March 4, 1996, by the Ontario Separate School Trustees' Association. This group cautioned against amending the Audit Act to allow value-for-money audits of recipients of provincial government grants on the basis that "accountability and efficient use of funds are the norm of separate school boards and other assessment-poor boards in Ontario." It also argued that "the proposed amendment would represent a further intrusion of government." It further stated that "there is accountability to members of the board, and through them to the pupils, parents, ratepayers and to the community at large." This assurance, however, was somewhat contraindicated by the statement that "as a result of wide discrepancies in the per pupil cost of operation, it is difficult for ratepayers to understand the costs of education." It was also stated that "assessment-poor boards are efficient."
We believe that value-for-money accounting does not focus merely on efficiency.
We've been following the course of one of your ministry's grantees, specifically the Metropolitan Separate School Board, which received grants of $238 million in 1994 and $231 million in 1995. Referring to the Provincial Auditor's presentation on amendments to the Audit Act on February 1, 1996, we noted that in schedule A major grant recipients, specifically in the education and training sector, $4.5 billion is granted to school boards. This means that our particular board receives approximately 5% of all the funding available to school boards in Ontario. This board therefore constitutes one of the major clients of the Ontario ministry. It should also be noted that the MSSB incurred operating deficits of $6.7 million in 1994 and $8.4 million in 1995.
We've studied the audited financial statements and the management letters issued to this school board by their auditors, and there are several major financial and management system problems disclosed by these documents. Knowing that the audit fee was in the neighbourhood of $50,000 for this organization which has a total operating budget of $700 million annually, we can also appreciate that there can be only minimal independent scrutiny of the accounts by the independent auditor. Their fees are just too low for them to be able to do any comprehensive analysis of how the systems are operating within this organization.
Without knowing the particulars of MSSB's internal operating and financial management systems, we relied in our presentation here upon the auditor's management letter to gain some understanding of the types of problems confronting this organization during a period of declining revenues. To state that our analysis of the management letters and audited financial statements failed to inspire confidence is an understatement.
We have summarized herewith a number of the problem areas identified because they provide important, independent and professional insights into the gravity of the financial and management problems confronting this particular grantee. The current problems are several, and the ones we've identified and will talk about today include:
(1) Inadequate budgetary controls. The 1996 budget for this organization was not approved until late in the fifth month of its current fiscal year. During the past two months, taxpayers have been attempting to follow the budget process, and they've been provided with many, many different estimates of what the deficit position would be this year. For an organization with an annual budget of $700 million to have advanced five months into its fiscal year without an approved budget suggests that financial controls must be grossly inadequate. How can prudent spending decisions be made in the absence of a budget? How can departments prioritize their objectives without knowing the resources available to them?
(2) Exceptions to compliance with generally accepted accounting principles. The 1995 audited financial statements point out in the notes several areas in which accounting policies are not those generally followed. They focus specifically on several accrual accounting methods which are not followed with respect to their interest expense, their liability for sick leave benefits, the board's obligation for retirement benefits for employees who have retired, and the board's obligation for sick leave benefits payable in 1996 to employees who have retired.
The problem with these abovementioned policies is that the organization is not recording financial obligations as they occur. Consequently, its future operations will be negatively affected by these obligations as they become subject to payout. To record the obligations as they are incurred would add considerable integrity to the budget process and provide a better matching of costs with the activities associated with incurring those costs.
I also note that on April 2, 1996, a management letter from the auditors to MSSB states, "Periodic budget and expenditure reports are not prepared on an accrual basis, resulting in significant differences between the December 31 financial statements and the periodic budget and expenditure reports." In other words, their budgetary process is inadequate for the responsibility assigned to them.
(3) Ongoing deficit problems with this board. The board was forced to allocate $11.8 million of its 1995 budget to retiring portions of the operating deficits from 1993 and 1994, and it also made principal and interest payments of $16.3 million. What that means is that $28.1 million, or 4% of its operating budget, was eaten up in financing charges and debt retirement obligations.
(4) Inadequate and weak financial and management reporting systems. A management letter from the auditors was issued on March 22, 1996. It contained several alarming observations. I think it should be noted that these observations arose out of the work done to enable the auditor to evaluate the system as required by generally accepted auditing standards. The auditor's study was not designed for the purpose of expressing an opinion on internal controls, and so it would not necessarily disclose all the weaknesses in the system.
The organization failed to meet its social contract obligations because of confusion as to how to implement and monitor social contract requirements. The management reporting system is not designed to handle the different year-ends the board has to deal with. Our board has a different fiscal year-end of December 31, the ministry's fiscal year-end is March 31, and the social contract obligations worked on an August 31 basis. That the management reporting system had not been modified to enable staff to deal competently with its reporting and statutory requirements is highly questionable. To bring this down to a real-life picture, the board was overstaffed during its social contract period by approximately 110 staff members, and it was this overstaffing that was admitted to have occurred due to accounting errors. The cost is significant; it is over half a million dollars.
In late 1995 the board approved an early retirement incentive plan which was so attractive that over 120 teaching staff left our teaching system in mid-year at December 31. Although numerous questions were raised concerning the wisdom of this plan prior to its approval, it was argued by management that it would save the board money, because senior retirees at the top of the pay scale would be replaced by entry-level teachers at the bottom of the pay scale. Unfortunately, due to the social contract errors described a minute ago, no new teachers will be hired, so the cost savings will not be realized in the first year. The notes to the 1995 audited financial statements also disclose a liability of $4.6 million for retirement gratuities to be paid in early 1996.
Plans like this need to be reviewed by experts to determine if the stated objective of the plans are in fact being met. The present statutory audit merely confirms that the moneys are legitimately being spent, but the statutory audit does not report upon the plan's success in meeting its stated objectives. In this case it was supposed to save money, but we have no way of knowing if that is happening now.
The management letter also points out that the organization does a review of enrolment data on a test basis and that it tests six elementary schools a year. The auditors point out that on this basis it will take over 20 years to review the enrolment data of every elementary school. I know there are 185 elementary schools in the system. I estimate it will take over 30 years to audit every school. It is unlikely that there would need to be a huge investment in human resources or a highly sophisticated internal audit program to accurately determine the enrolment of a larger sample of schools on an annual basis. But I think it's very interesting that the board's management comment back to the auditor over this criticism was that "finding the time and resources to achieve this might prove difficult." To me, that suggests there are internal management reporting problems which are preventing this type of improvement from occurring.
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The auditors also criticized the board for moving capital and operating items back and forth from capital to operating funds. Although the board indicates that, in future, items once approved will remain in their fund budget, the fact that this type of movement was occurring signals serious weaknesses in budgeting, financing and control areas.
The auditors point out that, on average, 24% of the total repairs and maintenance expense was incurred after November 17, 1995. What this means is that a material portion of this expense is made within the last six weeks of the fiscal year. This rush to spend at the end of the fiscal year raises the risk that poor decisions will be made and that non-urgent expenditures might be undertaken to preserve budget allocation in future years.
(5) There are inadequate budgetary, financial and management controls in this system. In April 1996, the auditors issued a letter of recommendations regarding the 1995 operating deficit. The auditors had been hired for a special assignment in which they discussed budget preparation and periodic reporting processes with staff and management in the finance and personnel departments. Serious criticism of the budgeting and reporting processes was made after this investigation and it was stressed that ownership and accountability for budget processes must be communicated throughout the organization. It was also recommended that ownership and accountability be designated to the departments which manage and control spending. In other words, the controls aren't there now; they've got to be implemented in order to make this organization function effectively.
(6) This organization does not have an audit committee. Although one existed in the past, it apparently did not meet regularly and eventually it was disbanded. I realize there is no legislated requirement to have an audit committee for a school board, but it would seem to me that an organization with a $700-million annual budget whose main source of funding is grants from provincial and municipal sectors should find some benefit from the input of an audit committee which would serve to strengthen the auditor's position by providing a mechanism to assure his independence from management and by providing avenues for communication and discussion with individuals other than those actively managing the organization. The auditors, as representatives of the members of the school board, would therefore be provided with formal and required access to the trustees, who are non-management individuals.
In conclusion, we concur with the Provincial Auditor's efforts to have the legislation changed to enable the Provincial Auditor to engage in value-for-money audits on the grantees of provincial government grants.
As the above presentation points out, there are several red flags waving with respect to the Metropolitan Separate School Board's accounting, budget and management processes. Although this institution is struggling to maintain its level of operations in the face of declining revenues, it is evident from the audited financial statements and the auditors' special report on the 1995 deficit that its ability to operate effectively is seriously undermined by poorly designed and outdated management information systems.
We believe it is urgent that the Audit Act be amended to introduce value-for-money auditing. Although cash-poor boards may believe they are operating efficiently, it is highly questionable that they are operating effectively. Implementation of a value-for-money audit at a school board such as Metropolitan Separate School Board would enable the Provincial Auditor to review the operations of a significant grantee and at the same time obtain an in-depth knowledge of the types of financial and management problems challenging the recipients of this province's tax dollars.
A value-for-money audit at a board such as MSSB would undoubtedly confirm Mr Peters's statement in his presentation on February 1, 1996, that, "Most of these grant recipients operate within different, but in most cases quite inadequate, accountability frameworks with the fund granting ministries."
That being the case, the provincial government is unable to meet the current public emphasis on accountability which has, again in Mr Peters's words on February 1, 1996, "an implied expectation that funds provided to organizations will not only be spent for the intended purposes...but will be spent prudently with regard to economy and efficiency, and that adequate procedures are established for the measurement and reporting on the effectiveness of programs which we assess in value-for-money audits."
The financial problems challenging provincial grant recipients such as MSSB must be identified and dealt with if the public's expectations are to be met. The Provincial Auditor has been seeking the authority to discharge his responsibilities with respect to meeting these expectations since 1990. It is time to give him the authority to get on with his work.
The Vice-Chair (Mr Mike Colle): Thank you very much. We don't have any time for questions; you've used up the 30 minutes. I want to thank you on behalf of the committee for a very comprehensive analysis of the case study with MSSB and your comments on the auditor's initiative here in introducing value-for-money audits. As members of the auditor's committee, we appreciate this type of effort and interest in an area that we feel is very important. On behalf of the committee members, I commend you for taking time to do your research and analysis and bringing it forward to the committee. We will be using your comments in our deliberation as a committee as we proceed with this amendment, hopefully. Again, on behalf of the members of the committee, I thank you for showing an interest in an area that is impacting on a lot of taxpayers and a lot of students.
Now we'll take it into committee. I don't think there are any more deputants. I'll hand it over to Mr Peters to give us an idea of where we go from here and to give us a bit of direction.
Mr Erik Peters: This far, the committee has received about 19 exhibits from various people talking about the particular issues. What I'd hoped to accomplish in today's session was to discuss some of the points and concerns raised by the witnesses who have appeared before the committee. That would essentially be today's session, the paper I would like to present to the members, and to stand questions you may have on those particular issues.
The Vice-Chair: That would be fine. You have that paper?
Mr Peters: Yes, I have that paper.
The Vice-Chair: I'm sure that would be fine with the committee.
Mr Peters: Although you'll find that the paper is marked "Confidential," it is a public document. What I'd hoped to achieve with this stamp is that it wouldn't be left behind in the room afterwards. They take on a life of their own.
The Vice-Chair: I'm not quite sure of the status of these. In other words, they're marked "Confidential" --
Mr Peters: I've caused confusion that I didn't want to. It is a public document.
The Vice-Chair: So members of the public would be allowed to have a copy of this?
Mr Peters: Definitely. There's no problem.
The Vice-Chair: Maybe some of the deputants would like a copy. It's comments on some of the things they commented on. Perhaps we could get you, Mr Peters, to briefly highlight some of the key points you want to make the committee aware of through this paper.
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Mr Dave Boushy (Sarnia): Can I ask a question of Mr Peters? What are the requirements right now of the boards in regard to letting the taxpayers know their financial position? There must be some audits done.
Mr Peters: Yes, there are. Essentially, the first group of organizations we are referring to that receive about $25 billion generally -- there may be exceptions -- do have external financial auditors who annually present financial statements to the board or the governance organization of those organizations.
Mr Boushy: Without you or the government getting involved in their operation, can there be an amendment or new direction to make them do what you want them to do through these channels of audit?
Mr Peters: There are two aspects of the question. One aspect is that if you want the external auditors who are currently conducting the financial assurance audit to also do value-for-money audits, they would then have to be funded out of the tax basis of the individual organizations, and there is a question as to how that would be regulated and who would fund that particular work.
The second one is that there have been, for example, repeated attempts to get my organization to audit some of the school boards, and in most of those cases we had to decline the request because, under the current act, we could only look at the accounting records; they're already being audited, so we couldn't add value to the process in the audit. That's what this amendment is.
In past history, and I don't want to go too long, after we did the audit on curriculum development and special education, for example, there was an attempt made by this committee to see if we could not do, effectively, value-for-money audits on some of the school boards. There was a legal opinion obtained at that time by this committee from legal counsel of the research of Parliament, saying that in such a motion the committee could not add additional powers of access to information to my office. In other words, even if the committee instructed me to carry out a value-for-money audit of a school board, I was still hampered by the legislation, which said I could only look at accounting records. So I couldn't take that next step.
There have been continuous efforts -- we have major debates, by letter, with various school boards. There was a second problem school boards were facing; that is, a number of school boards have actually requested that we come in and do value-for-money audits and I had to decline on the basis that they were not grant recipients; they were entirely funded by the ratepayers. Of course, on those audits, even if the Audit Act is amended, I still cannot go in, because the Audit Act is still geared to organizations that receive grants from the province and that receive grants with strings attached. In other words, in the traditional situation of a school board, the province gives the grant really to make the school board a partner in the implementation of the provincial Education Act.
The Vice-Chair: I think that's a good summary. Mr Peters is going to proceed, to highlight some of the key points in his paper.
Mr Peters: That is before you. If you want to cut off the edge that has "Confidential" -- I got taught to write it in, but it is not confidential; it's a public document.
In light of the presentation we have just heard about the Ontario Separate School Trustees' Association, I won't go into it because it largely repeats -- the witnesses have very well presented to you the concerns they have about the presentation made. The general point is that it appears that the Ontario Separate School Trustees' Association does not necessarily represent the views of all the separate school board trustees. We have had letters from a trustee and we have also had a letter from management asking us to do an operational audit.
Just to put it into perspective, separate school boards in the province receive about $730 million a year from the provincial government, and the Metropolitan Separate School Board received $260 million. I'm in no position to discuss with you how we arrived at our $260 million, which is from the latest record, and the presentation made on $238 million, but it gives you an order of magnitude. OSSTA represents 51 boards, and about a third of the money is given to this Metro separate school board.
We have dealt with their individual points on the first pages of this. We have also dealt with the Association of Local Official Health Agencies on page 3. One of the major concerns we have to deal with, and that was brought up by the other health organizations as well, is the matter of access to confidential patient records.
If you will recall, the committee had invited the privacy commissioner to deal with that issue. As a result of that presentation, as well as meetings subsequently held between the privacy commissioner and ourselves, the amendments to the Audit Act will propose restrictions on the use of that information which were proposed by the privacy commissioner, so we should be in a fairly good position on that.
The details of that are on page 8. In that particular aspect, we are proposing that we "shall not collect or retain personally identifiable information, except as may be necessary for the proper administration of this act or any proceedings under this act."
Then (b), to make the constriction really count, is, "Where collection or retention of personally identifiable information is necessary as set out in clause (a), personal identifiers other than the names of individuals shall be used in regard thereto."
Our legal counsel has done that, and when we come with the final proposal, we have taken into consideration existing legislation in Alberta, section 15(4) of the Alberta act, where they simply said:
"The Auditor General or an employee of the Office of the Auditor General who receives information from a person whose right to disclose that information is restricted by law, holds that information under the same restrictions respecting disclosure as governed the person from whom the information was obtained."
In other words, we cannot have more rights of access than the people who maintain the records. We are quite willing to delete any information. As I explained to you, we are going to use this kind of information only for the purpose of validating statistics. We really don't care who received an appendectomy, just that an appendectomy was performed at that hospital.
One particular presentation was made to which I really would like to respond in some depth, and that is the presentation of the Council of Ontario Universities. I deal with that on page 4. The key concerns we have is that we are effectively dealing with a bit of a problem of a failure to inform you properly of the state of accountability in Ontario's university system. Let me give you a very quick background. Most of what I'm talking about initially is on page 7 of this report.
As you know, my office conducted audits of selected universities. Part of that, and also the wish of this committee and other forces combined to ultimately result in a report which looks like this, called University Accountability: A Strengthened Framework, Report of the Task Force on University Accountability. It was the Broadhurst commission and was published in May 1993. If some of you recall, Bill Broadhurst is the same Bill Broadhurst who chaired also the Ontario Financial Review Commission.
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We are concerned that the council in its representation to this committee failed, and I underline failed, to adequately update the committee on the May 1993 Report of the Task Force on University Accountability entitled University Accountability: A Strengthened Framework. That report was triggered by our limited-scope inspection audits of the universities in the late 1980s. The council failed to advise your committee of the following quote from page 63 of that report:
"In our," the task force's, "meeting with the University of Toronto, the president stated that his institution would not now oppose amending the Audit Act to extend the powers of the Provincial Auditor to audit operating funds transferred to restricted accounts. The task force favours such a change. It will satisfy one of the concerns of the Provincial Auditor and the standing committee on public accounts."
What is of interest is that when the council appeared before you, also inscribed as a witness was indeed the president of the University of Toronto; however, he did not appear at that meeting. There was a second invitation extended and again the president was not able to present his views to you. But it appears clear to us from that particular statement that the council's opposition to amending the Audit Act is not shared by Ontario's, indeed Canada's, largest university.
As well, the council failed to advise PAC that the accountability review committee, recommended as the external monitoring body by the task force in recommendations 40 to 47, inclusive -- that is, seven recommendations dealing with this issue -- was not established. Consequently, the "pilot project for institutional reviews [to] be undertaken by the accountability review committee in the 1993-94 academic year" was not carried out.
Again, I consider this a very serious failure that you were not advised of this. These are seven of the 65 recommendations of this report, which dealt with this issue, which established membership funding and the mechanism and all these things as to how universities were supposed to regulate their own accountability. The committee was not informed by the council of this, that they had simply failed to establish this committee and therefore that committee had not carried out any work.
The council also stated in its testimony that "if the Provincial Auditor today went into some of the universities to look at the efficiency framework, he wouldn't find it, and therefore it would be rather difficult to audit it." Now, that is a direct quote from the council's presentation to you. This would appear to be an admission of failure by the governing bodies or councils of those universities, since the council cited the chair of the task force, Mr Bill Broadhurst, as follows, "Responsibility for ensuring that adequate accountability systems are in place and functioning properly rests with the governing body or council of each university."
We consider the value-for-money audits of our office to be a catalyst for action to improve efficiency and, as such, a service both to the auditees and to the Legislature which voted these grants.
We agree with the council that each university must decide how it is going to assess its own effectiveness, but note that the council again failed to advise the committee that the universities have not reached agreement on, let alone implemented, the performance indicators upon which development commenced several years ago by the Council of Ontario Universities and the CUPA committee on accountability. I'm not sure what CUPA stands for.
Since our audit mandate is to assess if procedures to measure and report on effectiveness have been established and are satisfactory -- that is our audit mandate -- it is clearly not part of our mandate "to bring different measurements to the university system." They must establish their own measurements. This was a council concern according to page 200 of the March 4, 1996, Hansard. However, we would bring it to the attention of the university and the Legislature if procedures to measure and to report on effectiveness were not established or were unsatisfactory.
Our office has built up its expertise in value-for-money auditing since 1978 and legislative auditors are considered leaders in this audit discipline. There is indeed certain expertise in value-for-money auditing in the private sector firms conducting the attest audits of university financial statements, but under the current restrictions of the Audit Act, my office does not have access to the resulting reports by those private sector firms. Furthermore, those auditors report to the governing body or council of the individual universities. There's no requirement to disclose such audit reports to the ministry or beyond. If such value-for-money audit reports existed at any university, they would of course be carefully considered by us as part of our proposed expanded mandate and would be used to reduce the extent of our work if we found the report sufficient to do so.
Overall, in the universities we are very concerned.
We also in the text dealt with one specific area that maybe I should state as well. The council advised you that I had not acceded to their protocol. In other words, what they had said is that recommendation 34 of the Task Force on University Accountability -- this document again -- stated that the Provincial Auditor be given authority to conduct inspection audits of all funds provided by the government of Ontario for operating purposes, whether employed directly for these purposes or transferred to other accounts, and that this additional authority be granted preferably through a protocol with the institution. The council considered this an appropriate solution to deal with the limitations of the current inspection audit mandate, ie, not to change the definition of an inspection audit but to advocate a protocol.
"Such a protocol was developed by the council and submitted to the Provincial Auditor, but regretfully he chose to reject it."
The council neglected to advise you of the reasons I gave you for rejecting this protocol. In my letter of October 20, I stated, "While the protocol represented an improvement over the limitations faced by my predecessor, it is nevertheless still based on the current definition of `inspection audit' under the Audit Act."
I further stated that "changing the definition to permit the office to carry out all its duty under the Audit Act would be subject to public hearings by the standing committee on public accounts, at which time the council could make its views known to the committee." The committee's motion to hold such public hearings had been passed in May 1994.
As I've pointed out, the predecessor committee had already passed a similar motion, and the request to agree to this protocol coincided virtually with a motion of this committee to hold hearings. So I did not feel it appropriate to agree to a protocol that was based on provisions of the Audit Act, which may well be outdated at that stage, and would lock me into a position this committee may differ from.
These were some of the key areas where we had concerns with the presentation by the Council of Ontario Universities.
I dealt with the Ontario Hospital Association concerns. There were a number of concerns expressed about the resourcing of my office. I have mentioned to you that I was not seeking additional resources but I would just shift the value-for-money component of my work from ministry audits into some of these grant recipient audits.
The other area I need to deal with a little bit is because there were again -- and I emphasize where I believe you were not fully informed because I think that is really another reason for augmenting the access to information under my act. Where organizations come forward and make statements to you that you cannot verify and that we know from our knowledge to be inaccurate, I should be able to point those out for you, and there is indeed some necessary clarification.
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The Co-operative Housing Federation, Ontario region: On page 11 we refer to that. The federation's submission, on an overall basis, deals more with criticisms of our reports and proposals for improving accountability and value for money rather than expressing any specific concerns. We deal with their specific points.
But at the outset, one point of clarification is necessary. On page 2 of their submission, it is stated, "In recent years, the provincially funded housing cooperatives have been the subject of audits by the Provincial Auditor." In fact, we have never performed such audits. In 1992 and 1995, we audited the ministry's non-profit housing programs. As part of the 1995 audit, we did visit a few non-profit groups to interview staff and board members, but these were mostly non-profits as opposed to the co-ops.
Our concern in this regard is again that these organizations receive a significant amount of provincial funding and there's a significant exposure by the province. I'm departing from the text for a moment. In the public accounts we state that currently the province is potentially on the hook to the tune of about $8 billion of mortgages held by these not-for-profit organizations, so there should be an interest on the part of the province to see how these organizations are indeed spending their money.
Not only that: If indeed some of these organizations were to fail to meet their mortgage payments, there will be, to support the non-profit housing supported by the province, a significant obligation on the part of the province to take over those mortgage payments to ensure that those people put there by the province continue to have shelter and that the building cannot be foreclosed on and therefore have people put out on the street and other things happen to them. There is a direct exposure to the province on these organizations.
Furthermore, a predecessor committee of yours held hearings into the management of these organizations and in these hearings it became very plainly evident that the governance of these institutions was really lacking and accountability was just not in existence there.
In spite of their objections that we would impose new rules and new processes, we really doubt whether that would necessarily result from this. What really would happen is that it would plug you, as legislators, into the accountability loop, and you are out of the loop right now. Yes, indeed our audits in all respects will require some discussion with management, will require management time of the organizations which we audit, but I think that is a reasonable price to pay for better accountability to you, the legislators, who are, after all, spending, as we have pointed out, a vast amount of the money that is appropriated by the Legislature on these grants. There should be better accountability for these grants. As I've mentioned to you, we hope that the amendments to the Audit Act will act as a catalyst to sponsor better accountability, to work on that.
With that, I think this document largely stands on its own and I recommend its perusal to you. We would be happy to answer any questions you may have.
One quick comment, if I may, just to conclude some housekeeping: There was a total of 19 exhibits listed by the clerk to the committee. Two of these came from my office. Two came from the privacy commissioner and dealt essentially with how to deal with the privacy issue of medical records. Ten of the submissions were not supportive. In the document before you we have dealt with seven of them, but the three others, which were done by letter, essentially raised similar concerns, so I would just be duplicating effort if I were to go into those.
Four were clearly supportive. I was particularly pleased that the Institute of Chartered Accountants of Ontario, as an institution, also registered their support, and you certainly have heard today very clear support from a trustee, as well as from public accountants again supportive of the position. One submission was really not directly to the Audit Act but started to deal with the question of liability of medical practitioners, so we didn't deal with that in particular detail.
In addition to the amendments that we will be bringing forward and hope to present to you -- actually the schedule is to present those to you at the next meeting, as to how it might manifest itself in terms of legislative wording -- there are not only those provisions that deal with auditing grant recipients, there are two other areas that are of a housekeeping nature that we will bring before you and that I thought I'd bring to your attention just in principle form, but you will see the detail.
One is that there have been amendments to the Public Service Act. Our act in many respects paralleled provisions of that, and there were a few provisions that we had to amend slightly in order to update them to the current Public Service Act.
The second area, and that is of interest to this committee, is that when we made the change to the new accounting rules and the public accounts of the province in 1994, or when the government made those changes at our urging, which we really appreciated, at that time a new concept was formed. Up to then the financial statements of the province essentially were the statements of something called the consolidated revenue fund. With 1994 we introduced the concept of having the province's statements be so-called summary financial statements. Technically, my act had not been updated. It still required me to express an opinion on the consolidated revenue fund.
With this, I would like to introduce the housekeeping amendment so that my office can give an audit opinion on the financial statements of the province as now designed. That is a small housekeeping amendment, but it is of importance because you are, after all, the public accounts committee, and we did change the public accounts. The public accounts committee dealt with that, so that is the tail end of it, to just bring the Audit Act up to date in that regard.
In summary, we feel that we can deal really with all objections that have been raised appropriately. I think the committee will find that our approach to these objections is reasonable and that many of the objections arose from what are really very often misconceptions as to what a value-for-money can and cannot do and how it impacts.
All three parties have made clear expressions in favour of this sort of development. I pointed out the one document, and the others have been in favour of that. I still consider an improved accountability framework as a very important feature. It would certainly help if the committee decides to let my office do these kind of audits. It will make them much more efficient if we could audit in a good, sound accountability framework.
There have been some proposals made by the government in the recent budget submission in reacting to the Ontario Financial Review Commission which are moving in the direction of improving the accountability framework, and we are grateful for that.
The Chair: Thank you, Mr Peters. Before opening it up for discussion and comments, and we'll begin with Mr Pouliot in that regard, I want to draw to committee members' attention a couple of handouts that we've been given by Elaine Campbell, our research officer. One kind of summarizes for us. It's entitled Provincial Auditor's Proposals for Amending the Audit Act. Sometimes it's helpful to find out where we are, because we can lose sight of the forest for the trees. That's just a brief outline of what Mr Peters is looking for by way of amendments. There is a second document, which is a summary of comments and recommendations that we have received from people who presented in connection with this subject.
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Mr Pouliot: Just speaking for our party, it was mentioned en passant that beyond the tacit agreement, the three parties would endorse, would acquiesce the principles, but of course normalcy to me is to see the final draft and expenditure associated with it. We're certainly fully aware that some of it will not be meticulously expressed, it cannot be, but whenever possible.
Again, we focus on the Information and Privacy Commissioner. It makes people on our side of the House very nervous indeed. We don't wish to catastrophize -- it's not our role here -- but we want ironclad assurance in the draft spelling out the specific purpose for which one would access records. I've been asked to convey that you.
Mr Peters: That is of course an issue that has been very close to us, that we have carefully dealt with. When we, hopefully at the next meeting, will be presenting our proposals, I'd be very pleased to add to that the specific letters we received from the privacy commissioner in this regard.
Mr Gerard Kennedy (York South): I just would ask the indulgence of the committee for a new participant. I wonder if I could ask Mr Peters with respect to the two presentations we heard. A couple of things came to mind, and they have to do with the effectiveness of these further powers in terms of the public interest. It seemed to me that the presentation about the inadequacies of the school system, the effectiveness of curriculum is only subject to certain kinds of objective testing in the context of an audit, a value-for-money audit. I wonder if you can comment on how applicable some of the concerns raised in the first presentation today would be to the value-for-money audit.
Second, in the second presentation we heard a lot of what traditional audits had uncovered at the Metro separate school board, substantial management concerns in the management letters there, and how the value-for-money audit would add to the effectiveness of the school boards in effecting those seemingly necessary changes; in other words, how it wouldn't duplicate.
Third, because it all relates to how much this will bring to the overall public scrutiny, there is always a certain salaciousness to numbers, especially when they come out. As a new thing, how will this not distort people's perceptions of some of these granting agencies which are partners with the government?
So those things, all relating to your perception of how this new role for your office will work.
Mr Peters: Let me maybe start with the tail end of your question first, if I may. As far as a role is concerned, it is really not new. Section 13 of the Audit Act had always made a provision that my office could actually audit the records of grant recipients. The only problem was that those audits were restricted to so-called accounting records, by definition.
So I'm not seeking new access to organizations. All I'm seeking is actually a widening of the records which I can look at so that we can conduct audits, whether money was actually prudently spent. Part of that which may be worth repeating and which was alluded to in some of the presentations was that when we tried to do audits under the old regime, legal opinions were obtained which prescribed accounting records very narrowly so that, for example, the management letter that one of the witnesses -- I believe it was Ms Pinto -- referred to this morning, under that legal opinion, was not accessible to my office. I couldn't even look at that to carry out an audit. What we're really seeking is the access to the records that are necessary to examine. That is what we are trying to achieve.
The second part -- I think the point was very clearly made, and I compliment the people who appeared this morning on that -- is that really, the value-for-money audit is not an end in itself. It is a means to an end, and it hopefully does two things
First, it improves the appreciation and accountability of management to the governing board of the grant recipient. In other words, to have that input and work with it allows the board of directors or whatever it is to govern the institution better.
The second is to put essentially the Legislative Assembly, as the grantor of this $25 billion, into the loop and improve the accountability to the Legislature and thereby have one very important byproduct, and that is that the ministries that administer these funds throughout the year also strengthen their accountability framework, the methodology they are using, in which they are spending the funds.
A very important part of that is that we have heard quite a bit thus far about accountability and conditional grants and unconditional grants. One of the things we have made very clear in our representation is that where the Legislature, in its wisdom, says, "We're going to give you the money simply because you're you. You are a person in need who needs a family benefits allowance. You are a medical practitioner who is rendered a fee for service. You are a municipality and the government has decided to give each municipality a certain amount of money. We don't care what you spend it on, but that is an unconditional grant," those we don't really want to look at. That would be an imposition on individual rights, and Parliament has decided that it doesn't want that.
But where we have, for example -- this morning we had presentations on the school boards -- the $14 billion or so that is spent on grants to educational institutions, each one of those institutions is required by this Legislature to employ the terms of the Education Act up to secondary education and other legislation that deals with the universities. They are a partner of this government in delivering a program. Currently, as it stands right now, we have no way of finding out how well, how prudently that money is actually spent in being a partner of this government in delivering those particular programs.
I hope that answers your question.
Mr Kennedy: I wonder if you can comment directly. I heard a wide range of concern about the way curriculum is developed and not tested and so on. Would it be directly applicable to the value-for-money audits?
Mr Peters: Very much so. In our 1993 report we reported on curriculum development, but we reported at the ministry level. In a very interesting development of that part of our audit work; to be very specific, we interviewed a total of around 700 educators -- members of educational organizations, principals, people who were trustees of school boards -- to come to our opinion. The upshot of it was that we were able to report only on the ministry's activities with respect to curriculum development, not on individual school boards' actions in actually implementing it.
I don't know whether you were here, but in response to the question I had before, the upshot was that this committee dealt with that issue at that time. Then, when we reported that the accountability framework within which schools and the ministry were operating was so impaired that the ministry could not ensure that the curriculum it developed was actually implemented in the classroom, at that point this committee made an attempt and asked, "Why can't you go in and do an audit of how the school boards are implementing it?" That's where we were stopped because we couldn't look at the necessary records to evaluate that; we could only look at the ministry records.
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Mr Carroll: Mr Peters, I wonder if you could comment on a couple of things. Up until about a year ago, as a layperson I used to read in the paper about audits conducted by the Provincial Auditor and recommendations made year after year, the same recommendations, and nothing ever seemed to result from the recommendations you or your predecessors made. If you're given this expanded ability to do value-for-money audits of our transfer partners or some of our grant institutions, do you see any obligation on their part to act on some of your recommendations? That would be my first question.
Secondly, we hear a lot about grant institutions not accounting for expenses as they incur them but rather as they have to pay them. There are tremendous liabilities that have accrued over the years that we have not made any accounting for, whether it's in vacation time, sick leave buyout or whatever. Do you believe in the concept of accrual accounting for our grant institutions?
Mr Peters: Oh, definitely. To answer that last question first, the 1994 transition to the new accounting was actually to introduce that accrual accounting at the provincial level. I'm a strong believer in full accountability.
Accrual accounting really means that expenditures are recorded when they are incurred and revenues are recorded when they are incurred. Previously, under the so-called modified cash basis we could literally -- if we record expenditures only when we paid them, we would miss all these accruals. On revenues, the same thing: If we record revenues only when we actually receive the cash, we are not on that accrual basis. We have a far fairer picture that the surplus or deficit the organization incurred is really the result of the actual expenditures incurred or the actual revenues earned in that particular period. I believe in accrual accounting, very clearly.
To get to your first question, the major impediment very often to implementing our recommendations is really diffusion or confusion about accountability. This particular amendment to the Audit Act will enforce better accountability and therefore enforce cooperation between the ministry and the grant recipients to implement these recommendations. Previously, it was sort of: "If you do this, that's really your responsibility. You have to look after that." That confusion will be eliminated. I'm very hopeful that our recommendations will become far more effectively implemented as a result of this.
The Chair: I want to remind committee members that we'll have an opportunity to pursue this again Thursday coming.
COMMITTEE BUSINESS
Mr Pouliot: If it's the pleasure of the committee, I propose the following motion:
That the committee request authorization for its subcommittee to attend the annual conference of the Canadian Council of Public Accounts Committees and that a budget for this purpose be prepared and presented by the Chair to the Board of Internal Economy.
The Chair: Is there any debate, any discussion?
Mr Pouliot: It's held once a year; in Victoria, British Columbia, this year from September 8 to September 10. It's one of those endeavours where when the state calls, you don't question, you go. On behalf of the New Democrats, I too will do the ultimate sacrifice and have the largest jurisdiction represented at the Empress Hotel in Victoria. Five members of the committee are allowed to go.
The Chair: If there is no further discussion, then all those in favour?
Mr Gilchrist: Sorry, we were busy discussing. Could you read your resolution one more time, Mr Pouliot, please?
Mr Pouliot: That the committee request authorization for its subcommittee to attend the annual conference of the Canadian Council of Public Accounts Committees and that a budget for this purpose be prepared and presented by the Chair to the Board of Internal Economy.
That's made up, as we're most aware, of two members from the Treasurer, the two House leaders from the opposition and a supplementary member for the government side.
Mr Gilchrist: Thank you. It's my understanding that the House leaders will be discussing this matter and giving their input as well.
The Chair: The committee is simply making a request at this time.
Mr Carroll: Pardon my ignorance, the annual conference on what?
The Chair: This is the 1996 conference of the Canadian Council of Public Accounts Committees.
Mr Colle: It's the 10 provincial committees and staff. It rotates every year. When did we have it here last?
Mr Pouliot: July 1993.
The Chair: Are we ready for a vote? All those in favour? All those opposed? The motion's carried.
Mr Colle: In terms of the disposition of the previous item, we're going to do that next Thursday?
The Chair: You mean further consideration of the amendments?
Mr Colle: Yes.
The Chair: Yes, next Thursday. We should at that time have an opportunity to raise further questions with Mr Peters as well. We should be receiving a letter from five ministries essentially responding to the recommendations he's made.
Mr Colle: I thank Mr Peters for his clear responses to some of the questions raised by the deputants from the colleges and trustees etc. That was a good response. Will we have to confer with the privacy commissioner again?
Mr Peters: No. We have the letter and the proposal.
The Chair: No further business? The committee stands adjourned.
The committee adjourned at 1156.