1998 ANNUAL REPORT, PROVINCIAL AUDITOR MINISTRY OF COMMUNITY AND SOCIAL SERVICES
CONTENTS
Monday 14 December 1998
1998 Annual Report, Provincial Auditor:
Section 3.01, business transformation project/common purpose procurement
Ministry of Community and Social Services
Ms Suzanne Herbert, deputy minister
Ms Bonnie Ewart, ADM, social assistance and employment opportunities division
Ms Ann Szyptur, acting director, business technology and technology integration branch
STANDING COMMITTEE ON PUBLIC ACCOUNTS
Chair / Président
Mr Bernard Grandmaître (Ottawa East / -Est L)
Vice-Chair / Vice-Président
Mr Richard Patten (Ottawa Centre / -Centre L)
Mr Marcel Beaubien (Lambton PC)
Mr Bernard Grandmaître (Ottawa East / -Est L)
Mr Bill Grimmett (Muskoka-Georgian Bay /
Muskoka-Baie-Georgienne PC)
Mr Jean-Marc Lalonde (Prescott and Russell / Prescott et Russell L)
Ms Shelley Martel (Sudbury East / -Est ND)
Mr Richard Patten (Ottawa Centre / -Centre L)
Mr Peter L. Preston (Brant-Haldimand PC)
Mr Joseph N. Tascona (Simcoe Centre / -Centre PC)
Mr Terence H. Young (Halton Centre / -Centre PC)
Substitutions / Membres remplaçants
MR JACK CARROLL (CHATHAM-KENT PC)
MR DOUG GALT (NORTHUMBERLAND PC)
MRS SANDRA PUPATELLO (WINDSOR-SANDWICH L)
Also taking part / Autres participants et participantes
Mr Peter Kormos (Welland-Thorold ND)
Mr Erik Peters, Provincial Auditor
Clerk / Greffière
Ms Donna Bryce
Staff / Personnel
MR RAY MCLELLAN; MR LARRY JOHNSTON,
RESEARCH OFFICERS, LEGISLATIVE RESEARCH SERVICE
1998 ANNUAL REPORT, PROVINCIAL AUDITOR MINISTRY OF COMMUNITY AND SOCIAL SERVICES
Consideration of section 3.01, business transformation project/common purpose procurement.
The Chair (Mr Bernard Grandmaître): Good morning. I must apologize for making you wait, but we had so many very interesting questions and I'm sure you'll be able to help these people with your answers. Welcome to the public accounts committee.
I'd like to welcome the deputy minister, Suzanne Herbert. Madam Deputy Minister, I'll let you introduce your staff.
Ms Suzanne Herbert: Thank you, good morning. I'll quickly introduce my staff to you. This is Debbie Moretta, who is my executive assistant. I have Ann Szyptur, who is the acting director of the business transformation project, and Bonnie Ewart, who is the assistant deputy minister for social assistance and employment.
The Chair: Madam Deputy Minister, before you start I would ask you to, not limit your presentation, but members would like to ask questions. So if you can take 15 or 20 minutes, and then we can block off the number of questions.
Ms Herbert: I understand your desire to get to questions fairly quickly, so I will try and move through this fast, but there are some issues I'd like to share with the committee up front. I'm going to start.
As you know, one of the core businesses of the Ministry of Community and Social Services is to provide assistance to Ontario residents who require income support.
Social assistance delivery was split between municipal and provincial field offices. It was paper-focused, administratively cumbersome and labour-intensive, with approximately 7,000 provincial and municipal social assistance staff working in over 200 delivery sites to serve over one million clients.
The technology that supported eligibility verification and cheque production for the social assistance system was operated by two mainframe computers, both of which were outdated and pushed to capacity. In addition, a number of municipal delivery agents had developed and were operating stand-alone systems of their own. The lack of common technology led to error, underpayment, overpayment and fraud.
The reform agenda has included new legislation, new programs, an integrated delivery system and a change in the philosophy of social assistance from an entitlement system to one focusing on individual responsibility to work. Integral to this reform is the need to modernize technology and business practices to support the change. It literally requires a re-engineering of all the systems that support social assistance, including administration and technology.
The system is supported by two large, centralized computer systems, the comprehensive income maintenance system, which we fondly call CIMS, and the municipal assistance information network, called MAIN. Both computer systems were developed in the 1970s and are limited in their flexibility and the functions they can perform. In addition, the systems have reached their practical capacity and are unable to accommodate many of the changes necessary to improve program delivery, customer service or administrative effectiveness.
The ministry had clear goals. It had to replace an outdated system with one that had several key features, including a common province-wide technology and database to reduce fraud and administrative errors; automated electronic information-sharing to confirm eligibility; a more efficient intake process; and reduced paperwork to allow more time for caseworkers to help their clients find employment.
The ministry began with the automating social assistance project, or ASAP, in 1994. This project focused on addressing the immediate technology needs and later implementing two new applications -- caseworker technology and Ontario Works technology -- to automate a highly manual, paper-based delivery system.
Caseworker technology was intended as an interim application to automate data collection and support file maintenance in both ministry and municipal social assistance offices. This provides some relief to delivery staff dealing with cumbersome paper processes and outdated mainframe technology. Ontario Works technology was intended as a transitional solution to reporting on the employment aspects of the Ontario Works program until a more permanent solution could be developed.
The two applications have taken the ministry a significant step forward. As of November 1998, caseworker technology has been implemented in approximately 71 provincial and 144 municipal sites across the province and more than 7,000 staff have been trained to use the new hardware and software. Ontario Works technology has been implemented in 17 provincial and 165 municipal sites, with more than 4,600 staff trained.
While ASAP is an important first step, it alone does not provide the long-term solution. Even with new applications, the system is still too cumbersome to react quickly to the policy and program changes necessary to support reform. There is still too much duplication of data entry, no common database, and a lack of integration among the various computer systems being used.
The ministry needed a common province-wide delivery system and a redesign of business practices to go along with the new technology. That's why the business transformation project, or BTP, was created.
The mandate of BTP is a massive undertaking that will support the development of an efficient, employment-focused welfare delivery system. New business processes and technology solutions will reduce error and improve efficiency. They will ensure the right people get the right benefits at the right time, and they will improve how staff work, giving them more time to help clients.
Through the design and development of new business processes and technology, BTP will also support the delivery of the province's new Ontario disability support program for people with disabilities. However, while it was clear at a higher level what the business transformation project needed to achieve, it was also clear that the ministry did not have the resources or expertise to do the work internally. The ministry needed a private sector partner with expertise and experience in providing business, technical and transitional advice to help reform the social assistance delivery system, and it recognized that kind of expertise is expensive in today's market.
Any approach would have resulted in expense to taxpayers, but because of the magnitude of the project, the ministry wanted a partner who would share the risk and investment -- something that isn't possible with the traditional fixed-price contract.
CPP is an innovative approach to managing large projects. It is a competitive procurement process for selecting private sector partners to work with the government to identify, design, develop and implement new ways of delivering services, particularly information technology-based service delivery. CPP differs from traditional fixed-price arrangements in the following key ways: CPP is a risk-based arrangement in which the vendor invests its own human and financial resources and can only recover its costs from savings achieved through the work of the partnership; and the exact solutions or specifications are not known at the time that the ministry issues the request for proposal. The vendor selection process focuses on the selection of a vendor who can work jointly with the ministry to develop the right solution. In CPP, the government negotiates pricing, time frames and deliverables with the successful vendor, and the partners share the risks and the costs.
To quote from the 1995 CPP guidelines, the process is used:
"When a ministry has a multi-stage design-build-operate project and does not have the right mix of time, skills and money to identify, design and develop its own solution, then the ministry needs private sector expertise and resources.
"Since the ministry does not have the resources to write detailed specifications before selecting a partner, vendors cannot propose prices at this early stage of the project. And since the ministry needs private sector investment and will likely be unable to pay a return on that investment until the project succeeds in providing anticipated benefits, the potential vendor-partners must be capable of sharing the project risks and investments with deferred benefits."
The ministry was one of the first in Ontario to use the CPP approach to working with the private sector. In October 1994, the government directed the ministry to work with Management Board to pilot common purpose procurement. Because the business transformation project was a pilot for CPP, ministry staff worked closely with Management Board staff in the development of the request for proposals and subsequent selection and negotiations processes.
The choice of Andersen Consulting as the ministry's partner in BTP was the result of an open, competitive selection process handled by ministry staff that followed the CPP guidelines as they were stipulated at the time. As part of the CPP process, the ministry did an analysis of its needs and scope of the project to prepare the RFP. Written responses were evaluated and shortlisted by a ministry selection team. Reference checks were conducted. Shortlisted vendors made oral presentations. Andersen Consulting was the highest-ranked vendor. In April 1996, they were chosen in essence to be the party we would negotiate with.
On January 27, 1997, the ministry and Andersen Consulting signed a four-year contract to undertake a major business redesign and technology project in support of social assistance reform.
During negotiations, the ministry and Andersen Consulting completed a high-level business case to determine if the project was viable. It focused on the types of administrative and program changes required, such as intake processes and the automation of forms and looked at other jurisdictions to determine how their experience could be applied. Under the contract, Andersen Consulting agreed to work with the ministry to replace the two outdated computer systems, CIMS and MAIN; design new business process and technology to support implementation of Ontario Works and the Ontario disability support program; plan and implement the restructuring of the delivery system; and provide staff training and other support as provincial and municipal organizations change to accommodate the new business processes and technology.
The contract signed with Andersen Consulting means the improvements it helps implement have to be effective and create savings for the ministry. Andersen Consulting pays its own costs and is paid only from the savings the project generates. The ministry and Andersen Consulting jointly manage the project. However, it is important to be clear that Andersen Consulting's role is limited to helping the ministry improve its business processes, implement new technology and help employees adapt to the changes. The government is solely responsible for establishing and interpreting social assistance legislation, policies and regulations. Andersen Consulting and BTP do not have the authority to change the eligibility requirements for social assistance, nor will the project achieve benefits based on these types of savings.
I'd like to review a few of the particulars about how Andersen Consulting is paid within this arrangement. The contract stipulates that Andersen Consulting may be paid back its costs to a maximum of $180 million. However, there is no guarantee that Andersen Consulting will receive the full amount unless the project delivers the benefits. Savings will have to be in excess of $180 million for the cap to be reached.
This is a one-time payment for the ministry. The savings that result from streamlining and improving the efficiency of the delivery system will continue for the government year after year. The $180-million cap covers the key components of the project that are essential to reforming the social assistance delivery system and replacing the outdated mainframe technology. The cap can only be renegotiated under limited circumstances, such as substantially changing the scope or the complexity of the work.
The agreement states that the company will not be paid for any services until savings are achieved. All of the work on the project, however, does not generate benefits. To the end of October 1998, Andersen Consulting spent more than $46 million on this project. As of the same date, a total savings of $29.7 million were realized in the cost pool. Andersen Consulting has received $24.2 million.
Each partner receives benefits based on their costs. The ministry expected that Andersen Consulting would receive a larger portion of the savings during the life of the project because the company will incur higher costs and higher risks. The government will continue to benefit from the estimated $200-million-plus savings for years after the project is completed.
I'd like to acknowledge the concerns raised about the BTP process by the Provincial Auditor. The auditor raised legitimate concerns. He has made some constructive recommendations to the ministry. His advice has also influenced the development of the new CPP guidelines which were recently completed by Management Board.
Some of the auditor's recommendations to the ministry have already been implemented and action is being taken to address others.
The ministry immediately obtained the receipts for all project-related expense claims. Procedures for monthly review and retention of expense claims are now in place. Procedures are now in place to ensure that important documents such as the paperwork for reference checks will be properly retained in the future. All ministry costs are now regularly examined and added to the cost pool where appropriate. Previous costs which were not in the pool but were project-related have been added.
The auditor raised questions about the monitoring of expenditure levels. We have reviewed cost drivers in several areas as a result. The overpayment to Andersen Consulting identified in the auditor's report has been recovered. There is no longer an Andersen Consulting representative on the project's quality council. This is an advisory body which meets about twice a year. The auditor felt it was important that there is no perceived conflict of interest.
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I want to point out, however, that the auditor did not say there is no value for money in this project. What he said was that the ministry could not demonstrate an auditable business case which assured him that there was value for money. Indeed, 1995 Management Board guidelines spoke to this issue. Under "Value for Money" the guidelines say, in part, "The key issue is how to demonstrate that the ministry obtained value for money since the traditional mechanism of competitive price bids does not exist in CPP.... Whether the ministry gets good, better or best value for money depends on the strength of the common purpose in the project and how well the arrangement for sharing risk and reward is structured for a win-win result."
The ministry agrees that it is important to be able to provide and document value for money spent. Given the auditor's belief that this had not been demonstrated adequately, the ministry has initiated a third-party review of the business transformation project and the ministry's management and monitoring of the contract with Andersen Consulting.
The purpose of this review is to provide advice on how to ensure and measure the value of this service to the taxpayer; review the auditor's findings and provide advice on additional action needed; and assess the ministry's strategies to manage the CPP arrangement with Andersen Consulting and provide advice on additional actions needed to address any gaps. The ministry is expecting a summary report of the review early next year.
The business transformation project has already made a number of improvements to help streamline the delivery of social assistance reform. BTP helped develop and implement an improved way for clients to report income. Improving the monthly income reporting process has helped reduce overpayments and underpayments and decrease administrative costs. In addition, a blueprint that provides details of a new service delivery model has been developed by BTP with input from ministry and municipal field staff. A new business practice called the consolidated verification process, or CVP, has been implemented across the province. CVP is a streamlined business process for review of program eligibility and entitlement that has become the verification standard for all social assistance programs.
BTP is helping the ministry develop new business processes and technology to support the implementation of the Ontario disability support program. This includes the development of new forms, manuals and business procedures. It has produced, as of October 1998, savings of about $30 million. Because it impacts directly on the delivery of social assistance to the over one million people who rely upon it, BTP is a vitally important part of the ministry's larger efforts to transform social assistance to be more cost-effective, responsive to clients and accountable to the taxpayers of Ontario.
I'd be happy to answer questions now.
The Chair: We will divide the remaining time equally. Let's say 45 minutes, so 15 minutes per caucus, starting with the official opposition and then the NDP and the government members.
Mr Richard Patten (Ottawa Centre): Welcome this morning. I have two quick questions, because we don't have much time this morning. My first one is, in your selection process, the auditor was saying that a fair amount of this was subjective, the three criteria that were laid out. You just mentioned that you did some reference checks on some of the senior managers who were part of Andersen Consulting. Then we find that once the contract is achieved, with ministry approval, six of 11 of the senior members on the team are no longer on the project. Could you explain how that would happen?
Ms Herbert: I think in a long, multi-year project, which this one is, what you'll find is that people do move in and out of the work. This is as true of the ministry as it is of Andersen. Sometimes, for whatever purposes, the skill match isn't right; sometimes people leave their jobs and move on into new territories. Over a multi-year contract, it's not unusual to have senior staff change, alter, move out of project delivery.
Mr Patten: What was the time frame within which they left, though?
Ms Ann Szyptur: There were two groups of people. There were people who had not been part of the project initially and there was also a group of people who left during the first year of the project.
Mr Patten: Related to chargeable, classified by Andersen Consulting, it shows here that payouts were made. First, in "December 1997, Andersen Consulting had been allocated...90% of the amount of the benefit pool but had contributed only 63% of the total hours spent on the project."
Second, "Andersen Consulting may at any time increase its standard published billing rates and charge the higher rates to the project without the necessary approval of the ministry." On the second question, has that been changed? If it hasn't been changed, why would the ministry enter an arrangement like that, which is wide open and open-ended for Andersen Consulting to increase its rates based on whatever it wants?
Ms Herbert: There is a process for reviewing the rates. The process is that Andersen Consulting comes forward and shows its published rates. It has to demonstrate that the rates it wants to charge the government are the same as the published rates it would charge anyone else, should they be using the rate level.
Having said that, the auditor raised some legitimate concerns for us and for others who are using the CPP process. It's one of the things we're asking the third-party reviewer to look at.
Mrs Sandra Pupatello (Windsor-Sandwich): Just to begin with a question to the Deputy Minister: The Provincial Auditor said this morning that they had a "most difficult time" auditing this area. In fact they said they spent three times the amount they should have on this audit. They said "most difficult time with no access to the floor, no access to document." Is there a reason that, unlike typical audits done by the Provincial Auditor, you made this one so particularly difficult for the Provincial Auditor?
Ms Herbert: I would say two things in response. One is that if there was a problem with access to documents throughout the time the audit was being done, from September till late in the winter, that issue did not come to my attention. I would say this is a difficult and complicated area. I assume it was the first large audit of the CPP for the auditor. It certainly was the first time through an audit of the CPP for us, which I assume would make it more complicated.
Mrs Pupatello: We asked that question of the Provincial Auditor as well, in fact a Conservative member did, and the Provincial Auditor said he felt quite comfortable doing this kind of audit. They followed the New Brunswick model. They looked at what had happened there. I presume that you too looked at that model when you were looking into the CPP, and that you followed the experience in New Brunswick. Given all of the information out there today in terms of overpayments and overcharges, would you recommend cancelling the project as they did in New Brunswick?
Ms Herbert: Just a couple of clarifications, if I might. One is that they did not cancel the project in New Brunswick, not the social assistance project.
Mrs Pupatello: They cancelled --
Ms Herbert: The justice project.
Mrs Pupatello: -- the justice project as well.
Ms Herbert: I understand from my conversations with the Deputy Minister that the social assistance project in New Brunswick has been quite successful.
Mrs Pupatello: Would you not recommend cancelling any part of the Andersen contract?
Ms Herbert: At this point, I would not want to prejudge or speculate about the outcome of the third-party review we have under way right now.
Mrs Pupatello: OK. In the House a couple of weeks ago we asked a question about what parts of the savings were going to be attributed and therefore included in calculations of profit to Andersen, changes to Comsoc regulation etc. One area was a policy change in the Ministry of Education, which led to people who used to be on OSAP and also on the welfare rolls being completely removed from welfare and put completely on a loan program.
We asked the Provincial Auditor this morning and he said it would be better answered by you. The policy change was in the education ministry, not Comsoc, but the benefits are to Comsoc. Were those 17,000 people who are no longer on welfare counted as the benefit to decreasing the welfare rolls and therefore part of the benefit that would be paid to Andersen?
Ms Herbert: First of all, as I said earlier in my comments, the BTP project cannot have in its benefit pool monies that come from policy decisions or eligibility decisions that the government makes.
Mrs Pupatello: Policy of any ministry?
Ms Herbert: That's right.
Mrs Pupatello: So the 17,000 have not been included?
Ms Herbert: That's right.
Mrs Pupatello: It counts for administrative change, though.
Ms Herbert: Yes.
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Mrs Pupatello: In the administration, I looked at the actual computer screen used in the local regional offices when people leave welfare. There are certain entries you can make to explain why people leave the welfare rolls. There is no longer a place in your new, changed administration, which I presume is part of Andersen's benefit, that allows you to say that people left welfare because they found a job on their own. There's no place to include that any more. It's been changed. If you can't document anywhere in the file that people left welfare because they found a job on their own, that will automatically be viewed as a benefit to Andersen and therefore profit to Andersen. Is that correct?
Ms Herbert: I'll say one thing and then I'll ask Bonnie to address the screen issue. For some time in our present system we've been unable to track why people leave welfare and how many people leave welfare for a job. So we've had to do independent surveys --
Mrs Pupatello: We've been saying that for a long time, too, so I'm pleased to hear you say that as well.
Ms Herbert: We hope to fix that with BTP, but right now what we do is an annual survey. We actually follow up with clients through a survey technique, which allows clients to tell us why they left welfare.
Mrs Pupatello: Surely if you're about to embark on an improvement of administration, then having very recently changed the screen, you would have included information for people who leave the program voluntarily. But that is not included in the changed, updated version of the screen.
Ms Bonnie Ewart: That will be built into the new system. We have a problem with our screens at the moment. What would get counted in the BTP project is through the consolidated verification process, which is the rigorous review that was introduced as part of the project. If the person left as a result of that review, that would be attributed as savings to the project. If that review was not performed and the person left voluntarily to get a job, that would not form part of the savings of the project.
Mrs Pupatello: That is just happening now, but has not happened in the last --
Ms Herbert: That's right. We've had to --
Mrs Pupatello: Andersen has been credited with savings, though, so --
Ms Herbert: We've had to do independent surveys in the past. We've done two --
Mrs Pupatello: I should deduce from that answer, then, that Andersen did get credit for ministry staff savings of various kinds to show overall that Andersen does benefit just because you can't prove they don't. Therefore they have --
Ms Herbert: Let me ask Ann to explain it. I apologize for all the jargon we use in our system, but we call it the metrics approach to costing the benefits of the project. Ann, can you just take a couple of minutes and do that?
Ms Szyptur: I can just talk about the metrics principles we have developed to measure our savings. In measuring savings, we want to make sure that savings are accurate and that they're also balanced by simplicity and ease of understanding. The key, in terms of measuring savings for this project, is that it has to be an incremental value over the current rate we're working on. We have to be able to measure business transformation project related savings that are separate from other effects, and measure what happens without the business transformation project changes, in other words, the base line. In order to do that, we're actually using our CIMS mainframe system in terms of coding. So staff need to code terminations that are related to business transformation.
Mrs Pupatello: OK. In that, it talks about that benefit pool and cost pool. Did any of you who are presenting today notice that the fee per hour that was being charged by Andersen included their profit as well, so that while they were charging $575, which was actual charge, they assumed that they may charge $400 and the actual was higher than $400. That was for the project director -- not that that individual was being paid $575 per hour, but the profit to Andersen. When you costed out the cost of your ministry staff, did you include a 50% profit margin when you costed it to the pool as well? I assume it's a 50% profit.
Ms Herbert: Fifty per cent that we make in profit -- no, we did not. We included a salary rate and a 15% admin cost.
Mrs Pupatello: Which is actually additional cost.
Ms Herbert: Admin cost; that's right.
Mrs Pupatello: There was no profit in the ministry amount --
Ms Herbert: That's exactly right.
Mrs Pupatello: -- but likely a significant one in the Andersen amount.
Ms Herbert: Yes, because as you know, what's called a billable rate includes a company's overhead and their profit margin. It's one of the structures in the contract that the auditor has raised concerns about. It's what I would call a construct, and it is part of what we're looking at as part of the third-party review.
Mrs Pupatello: Could you tell me what wasn't included as a reimbursable cost to Andersen? The list of reimbursable costs was pretty extensive: basically computer hardware, computer software, third-party software, travel, meals, accommodation. I was thinking as I read the report, "What was left not to be charged back as a reimbursable cost?" What's an example of what wasn't a reimbursable cost to Andersen on this project?
Ms Herbert: I'll ask Ann to talk about the contract. But we have to remember, because this is not a normal RFP, fixed-priced contract, that Andersen was upfronting its own costs. In a normal contract, the government would be paying those costs monthly regardless of the product that Andersen provided. We just have to remember that in a CPP Andersen is paying their own costs.
Mrs Pupatello: Those being put into the pool.
Ms Herbert: Then if there are benefits, and only if there are benefits, can they put their share of the costs into the pool. Having said that, I will ask Ann to answer your question about what wasn't in the contract.
Ms Szyptur: What we tried to do for both the ministry staff and Andersen Consulting staff in terms of the cost pool was include reasonable costs that are consistent with the Ontario government guidelines for things like travel expenses for both ministry staff and Andersen Consulting staff. We have included accommodation costs for the minister, we have included travel costs for Andersen Consulting.
Costs that would not go into the cost pool for Andersen Consulting are costs that are not consistent with Ontario government expense policies.
The Chair: Thank you. I must move on. I'm sorry, Ms Pupatello, but time is of the essence.
Mr Peter Kormos (Welland-Thorold): Who signed this agreement on behalf of the government?
Ms Herbert: The guidelines in 1995 required that the deputy sign a contract.
Mr Kormos: Who signed the agreement that was signed on January 27?
Ms Herbert: The deputy of the day.
Mr Kormos: That was approved by the minister?
Ms Herbert: No. The guidelines don't require approval by the minister.
Mr Kormos: The agreement that was signed on January 27, 1997, wasn't approved by the minister?
Ms Herbert: No. The guidelines from Management Board that were in place at the time the contract was signed gave delegated responsibility to the deputy.
Mr Kormos: Was the contract reviewed by Management Board?
Ms Herbert: No, it was not.
Mr Kormos: Was the contract reviewed by cabinet?
Ms Herbert: No, it was not.
Mr Kormos: Was the contract reviewed by anybody other than the deputy minister and her staff?
Ms Herbert: The guidelines are different today. The guidelines that were just released require approval by Management Board before a contract is signed. At the time this contract was signed, there was no requirement for approval at the cabinet level.
Mr Kormos: Was the minister briefed about this agreement?
Ms Herbert: To the best of my understanding, no.
Mr Kormos: The minister was unaware that this agreement was going to be signed on January 27, 1997?
Ms Herbert: The minister would know that the contract had been signed.
Mr Kormos: After the fact.
Ms Herbert: The procurement policies of the government are very clear that the deputy minister has delegated accountability for the negotiation and signing of the contract.
Mr Kormos: I understand that. You're telling me that the minister would not have known that the contract was signed -- am I correct in regard to January 27, 1997, being the signing date?
Ms Herbert: The minister would have been told. I want to draw the distinction, Mr Kormos: There's a difference between being told the contract is being signed and being briefed about the contract before it's signed.
Mr Kormos: I understand that. We're going to deal with both issues before we're finished.
The contract was signed January 27, 1997, is that correct?
Ms Herbert: That's correct.
Mr Kormos: Would the minister have known prior to that date that the contract was going to be signed on January 27, 1997?
Ms Herbert: To the best of my knowledge, no.
Mr Kormos: Would the minister have been consulted at all about the pending contract, the one that was signed on January 27, 1997?
Ms Herbert: The minister would know, of course, that we had an RFP out on the street and that we were in negotiations. That was commonly known. BTP is a fundamental underpinning to the reform of social assistance, and as such she would have been aware of the BTP project.
Mr Kormos: So you're saying there was no obligation on the part of a DM at that point in our history to inform the minister.
Ms Herbert: No, there was not.
Mr Kormos: But at the same time, the minister was aware that the RFP was out there and that there was an agreement that in all likelihood would be entered into at some point.
Ms Herbert: Yes.
Mr Kormos: The minister has frequent contact with you as her DM, doesn't she?
Ms Herbert: Yes.
Mr Kormos: These are briefing sessions, among other things.
Ms Herbert: Yes.
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Mr Kormos: It's open to the minister to make inquiries about the status of the RFP?
Ms Herbert: Ministers' offices are well aware that they are not to discuss RFPs before they are signed.
Mr Kormos: Is it open to the minister to make inquiries about the status of the RFP?
Ms Herbert: Yes, it's open to them. Most ministers don't.
Mr Kormos: Was the minister aware of the magnitude of this pending agreement?
Ms Herbert: She understood that this project, as we've said earlier, was a massive undertaking. It was going to actually reform the business processes and produce better information and clearer eligibility requirements. So she was aware of the intent, at a high level, of the project.
Mr Kormos: The largest single undertaking in how many years by the ministry?
Ms Herbert: Undertaking?
Mr Kormos: Activity, effort, project. The largest single activity, undertaking, project, effort by the ministry in how many years?
Ms Herbert: I would say that the entire social assistance reform -- legislation, Ontario Works, ODSP, BTP -- all the work was an extremely large undertaking that the ministry was going through.
Mr Kormos: You're saying the minister did or didn't familiarize herself via you with the status of the RFP?
Ms Herbert: I have to be clear: I wasn't the deputy of the day.
Mr Kormos: Deputy minister, continuity in the office.
Ms Herbert: Yes.
Mr Kormos: Yes? So did or did not the minister familiarize herself with the status of the RFP via the deputy minister?
Ms Herbert: Not until the contract was signed. The minister does not get involved in the daily management of the ministry.
Mr Kormos: Once it was signed, without being vetted by either Management Board or cabinet -- you're telling us that, is that correct?
Ms Herbert: That's right.
Mr Kormos: When was she first briefed about the nature of the agreement subsequent to its signing on January 27, 1997?
Ms Herbert: My assumption would be that at some period in the next month she would have been told that the contract was signed.
Mr Kormos: Would she have been made familiar with the contents of the agreement, the nature of it?
Ms Herbert: My assumption is that, at a very high level, she might have been.
Mr Kormos: What do you mean by "at a very high level"?
Ms Herbert: Without going into any details about the structure of the CPP.
Mr Kormos: You mean she would have been advised of it at a very cursory level?
Ms Herbert: I'm speculating now, as you can appreciate, but I can tell you with certainty that the minister would only have been told about the contract after it had been signed.
Mr Kormos: What would be the level or the intensity of the information given to the minister? Would it have been more than simply saying an agreement was signed?
Ms Herbert: She would have been told the general parameters of the agreement, which at that point would have been the same parameters that were outlined in the 1995 CPP guideline.
Mr Kormos: Would she have been told that it was one of the terms of the agreement, with respect to its expense policy guidelines, that all claims for out-of-pocket expenses were to be presented with supporting receipts? Would she have been told that in the briefing?
Ms Herbert: I assume that the minister was given at a very high level the parameters of the contract. She would have been told that they met the CPP guidelines of the day.
Mr Kormos: Really, it would be redundant to advise the minister that out-of-pocket expenses would require a receipt, wouldn't it? Can you name any activity the government engages in where out-of-pocket expenses don't require receipts?
Ms Herbert: I'll just go back to my earlier comments that the minister would have been briefed at a high level on the parameters of the contract and that they met the CPP guidelines of the day.
Mr Kormos: You signed the contract. You knew that out-of-pocket reimbursement requests were to be accompanied by receipts, didn't you?
Ms Herbert: Again we're speculating. I was not the deputy who signed the contract.
Mr Kormos: The deputy minister knew that, is that correct?
Ms Herbert: I can only assume that the deputy was briefed on the structure of the contract.
Mr Kormos: Who made the decision not to require receipts to the tune of around $1.4 million?
Ms Herbert: I think that is a fair question. I would tell you that when that issue was brought to our attention by the Provincial Auditor, we immediately moved to make sure that the receipts were in their right place. I had my own audit and investigation branch go back to assure me that that process was being carried out as it was intended to be. In fact, they assured me that we now have in place a system that guarantees that the expenses are reviewed.
Mr Kormos: But that had been going on for almost a year, to the tune of $1.4 million. Am I correct in that regard?
Ms Herbert: Staff told me that's the right number.
Mr Kormos: Who in the ministry was responsible for supervising the activities so as to ensure that the activities complied with the agreement?
Ms Herbert: I just want to be clear here. The fact that the expenses weren't in the right spot and hadn't been reviewed as they were intended to be didn't mean that the expenses were wrong.
Mr Kormos: But they weren't accompanied by receipts. That's the report of the Provincial Auditor.
Ms Herbert: Yes, that's correct.
Mr Kormos: Who in the ministry was responsible for supervising the day-to-day affairs related to this agreement whose responsibility would be to determine that the agreement was being complied with, in particular with respect to the submission of receipts for out-of-pocket expenses?
Ms Herbert: Mr Kormos, I'm the deputy head. I'm accountable for the management of this project.
Mr Kormos: Why wasn't that aspect of the contract being supervised?
Ms Herbert: Clearly, staff made a mistake.
Mr Kormos: Was that a mistake? That was an error?
Ms Herbert: It was an error because we were not following the contract obligations. We should have picked that issue up.
Mr Kormos: But what was the mistake? Were they mistaken as to what the contract required? Were they mistaken as to whether or not the contract required receipts to be submitted?
Ms Herbert: No. What my own audit and investigation staff tell me is that we knew what we should have been processing. We were just sloppy in making sure that they were coming in at the right time.
Mr Kormos: They didn't come in at all, according to the auditor, until after the auditor's report, some 10 1/2 months later.
Ms Herbert: We had some in.
Mr Kormos: The auditor makes it quite clear that it wasn't 100% of the receipts absent, but he makes it similarly clear that of the $1.55 million in out-of-pockets, $1.4 was incurred by Andersen, and that the majority of the Andersen staff's claims were not accompanied by receipts -- not the minority; the majority -- over a period of 11 months. What were people mistaken about, whether or not the contract called for receipts, or were they simply negligent in terms of their supervision of the contract?
Ms Herbert: The ministry has accepted responsibility for not managing this correctly and we fixed it as soon as it came to our attention.
Mr Kormos: Why weren't ministry staff aware of it during the course of those 11 months that it was taking place? How often did the supervisory role of the ministry occur such that it could have advised itself as to whether or not receipts were being submitted? That's pretty fundamental, isn't it?
Ms Herbert: Yes, it was.
Mr Kormos: What went wrong?
Ms Herbert: My only assumption and what my audit staff tell me is that we made an error in how we supervised this aspect of the contract.
Mr Kormos: Fair enough. What was Andersen's excuse, though? They were the ones who's staff were submitting expense claims without receipts. What was their excuse?
Ms Herbert: Mr Kormos, I'll go back to repeating what I said, and probably irritating you, which is that the ministry investigated this issue and we've fixed it.
Mr Kormos: I understand that. However, it remains that it was Andersen's staff who were submitting claims without receipts. They knew what the terms of the contract were as well, didn't they?
Ms Herbert: It would be my assumption.
Mr Kormos: So what was their excuse? You've explained why the ministry didn't catch it. I'm asking if you know whether or not Andersen has advanced a reason for its staff making claims without receipts, contrary to the agreement.
Ms Herbert: It was our job to ensure that the receipts were reviewed against the ministry and government guidelines. We did not do that job.
Mr Kormos: Isn't it the job of Andersen's staff to comply with the contract as well?
Ms Herbert: Yes.
Mr Kormos: And they didn't, did they?
Ms Herbert: This part of the contract management was our responsibility.
Mr Kormos: But the fact is that Andersen's staff didn't comply with the contract, did they?
Ms Herbert: Well, it's a moot point. The fact is that we made a mistake here. We should have been managing this. We should have been reviewing the receipts in the office and we were not.
Mr Kormos: Were Andersen's staff conducting themselves in compliance with the contract when they submitted claims without receipts?
Ms Herbert: Obviously it was a procedural agreement in the contract. It was our job, though, to review the receipts, and we didn't do that.
Mr Kormos: You didn't do that and Andersen's staff didn't submit receipts, obviously, did they?
Ms Herbert: Clearly not.
Mr Kormos: Did they offer an explanation as to why they failed to submit receipts for a majority of their claims over the course of 11 months?
Ms Herbert: Because it was our responsibility to manage and monitor the receipts, what we did when this came to our attention was immediately request the receipts, which Andersen then provided us with.
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Mr Kormos: Did they provide an explanation as to why they didn't submit them when the claims were first made?
Ms Herbert: I think the important point here is that we've fixed the process. Only allowable costs were approved and we have a system in place now that moves claims through an adequate, good, solid review process.
Mr Kormos: Andersen's staff violated the terms of the contract over a course of 11 months and that didn't cause you any concern?
Ms Herbert: Clearly, as the accountable deputy, I was concerned about the fact that we had not done our job here, yes.
Mr Kormos: Were you concerned about the fact that your partners, Andersen Consulting, had violated the contract, some portion, to the tune of $1.4 million?
Ms Herbert: No. I would say that you're drawing a relationship between the money and a process. What they did not do was send the receipts and they weren't allowed to be reviewed and, as a result, they weren't reviewed against the government guidelines. Clearly, we made a mistake there. That mistake has been fixed.
Mr Kormos: Did Andersen make a mistake or were they conscious that they were violating the contract when they submitted claims without accompanying receipts?
Ms Herbert: As I say, when we requested the receipts, the receipts came forward. That was our job to request the receipts.
Mr Kormos: I understand that. Did you similarly request an explanation as to why Andersen's staff hadn't submitted the receipts with their claims?
Ms Herbert: I examined the process that the ministry had in place since this particular aspect was our responsibility.
Mr Kormos: Is it not the responsibility of Andersen's staff to comply with the contract as well?
Ms Herbert: Yes.
Mr Kormos: Did they comply with the contract in this regard?
Ms Herbert: Again, because we did not request the receipts, which we should have done, it created an issue that the auditor brought to our attention. We followed up and it's been fixed.
Mr Kormos: Did you provide the auditor with the written reports of consultants who were called upon to assess or audit the contract proposal from Andersen prior to it being signed?
Ms Herbert: Sorry, Mr Kormos, could you repeat that?
Mr Kormos: Did you provide our auditor, the Provincial Auditor, with consultants' reports that had been utilized prior to entering into the agreement with Andersen to audit or determine the appropriateness or feasibility of the agreement?
Ms Herbert: Are you referring to Coopers?
Mr Kormos: I'm referring to any and all that you may have obtained.
Ms Herbert: Coopers and Lybrand were working with us in terms of developing and negotiating the contract.
Mr Kormos: Did they make their written reports?
The Chair: Thank you, Mr Kormos. I must move on.
Mr Jack Carroll (Chatham-Kent): I asked the Provincial Auditor this and he wasn't able to share the information with me. Can you give us a little history on the CPP project and when the idea was first approved that Comsoc would walk down this road of a CPP project? What was it hoping to accomplish with that?
Ms Herbert: If I can go to the last part of your question first, between 1993-94 actually, the ministry knew it had to do something around its technology system. By that, I'm just talking about CIMS and MAIN. It's a system that doesn't provide us with adequate information. We've struggled with underpayments and overpayments which the Provincial Auditor has several times documented. Quite frankly, it's a system that has a lot of Band-Aids on it and we're always very anxious about what's going to happen.
We knew from a technology perspective we had to do something. At that time, you have to remember, the system was much bigger. We had many more clients on the system. We were spending about $3 billion more than we spend today, which is about $6 billion. We knew that we had to reform some of the business processes.
At the same time, the government of the day was looking at the resourcing costs of directly doing an RFP, which would be very expensive. In October 1994 there was a discussion at Management Board around piloting a CPP approach with social assistance. Our first and only go-ahead was through Management Board in October 1994. Basically, they asked Management Board staff to work with us around piloting a CPP project.
Mr Carroll: Did that direction come from cabinet, do you know?
Ms Herbert: Yes, Management Board.
Mr Carroll: You made reference that you've now engaged a third-party review to assess the benefits of the Andersen Consulting contract. Are you at liberty to share more information about who that third-party review is being conducted by and the terms of it?
Ms Herbert: The third-party reviewer is a gentleman by the name of Ray Hession. Ray was the vice-president of finance and admin and technology at CMHC for a number of years and was a federal deputy with supply and services.
We've essentially asked Mr Hession to do three things. I'm just culling them out. We've asked him to provide advice on how to ensure and measure the value of this service to the taxpayer, because as I said, the Provincial Auditor felt we hadn't demonstrated the value adequately enough. We asked him to review the auditor's findings and to provide advice on additional action needed. We also asked him to tell us how well we were or were not managing the contract, and if there are gaps that he finds, then to propose some strategies for the ministry in terms of contract management.
Mr Carroll: Mr Peters made a comment that his major concern in the CPP process was that the private sector participant in actual fact share an appropriate amount of the risk; rather than the taxpayer sharing the risk, the private sector consultant does. Can you tell us in layman's terms, because this is a difficult process to understand, what you perceive to be the ministry's risk, being the taxpayers, in this whole process and what you perceive to be Andersen Consulting's risk in this process?
Ms Herbert: I'll take a quick stab at this and then I'll ask Ann to talk a little bit about the benefits and risks.
At the present time, Andersen is upfronting all of its costs and may or may not achieve the benefits in the project. Clearly, that's a substantial risk for them as an organization. We have agreed that there's a common purpose here. For them, it is clearly to create a system with us that will return them their investment. For us, we are not upfronting the costs directly, as we would through a normal contract, and we are gaining their expertise and their business process expertise as a result. At the end of this, our hope is that we will have a business process and a technology system that will ensure that the system has created good customer service, that it has clear eligibility, that it reduces fraud and that it provides us with information for planning and policy purposes.
Ann, do you want to say a few more words? Jack has asked in layman's terms whether we can explain this.
Ms Szyptur: Also talking about the business arrangements for a second, what we tried to do in terms of the business arrangements was in fact balance the risk and rewards of both the ministry and Andersen Consulting. We did that through the benefit pool and the cost pool perspective, where interest costs etc from both the ministry and Andersen Consulting went into the cost pool. The benefits were shared by both the ministry and Andersen through the benefit pool-cost pool arrangement, based on the amount of costs that were going into the cost pool. So it's really a fair -- looking at sharing those benefits based on the costs that were going into the pool. We did try to create that balanced approach of risk and reward. In the same way, the ministry did not get any benefits back, as Andersen Consulting did not, unless there were benefits that had been achieved.
Mr Carroll: One last question: You are the deputy minister of a ministry that over the last three and half years has saved about $3 billion of taxpayers' money; obviously a very complicated ministry. The auditor's reports going back over several years have indicated the need for streamlining and updating of the administrative process. You also made reference to that. So we put a process in place to do that. As the deputy minister of that ministry, the one-time costs of up to $180 million will only be achieved if we have annual savings on behalf of the taxpayers at least in excess of that.
Ms Herbert: That's right.
Mr Carroll: Having looked at what you've looked at and having been through this whole process and I know addressed many of the auditor's concerns, are you convinced that this is a good process on behalf of the taxpayers of the province?
Ms Herbert: I'm convinced that it was a reasonable approach to achieving the benefits we required. As I said earlier, we have a third-party reviewer in who hopefully will demonstrate that to the ministry and to others who have questioned the value of this contract, but I don't want to speculate or prejudice those outcomes.
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Mr Peter L. Preston (Brant-Haldimand): Was any money paid out to Andersen prior to results?
Ms Herbert: No.
Mr Preston: None at all?
Ms Herbert: No.
Mr Preston: All the money that Andersen has received has been based on positive results?
Ms Herbert: That's right.
Mr Preston: You talked about published rates. Published where?
Ms Herbert: Do you want to talk about the rates?
Mr Preston: Talk about the published rates.
Ms Szyptur: We've used the term "published rates" in the contract. What those mean is the standard rate that Andersen Consulting uses on a general basis. It's not published in the sense of --
Mr Preston: Why do they call them "published rates" then?
Ms Szyptur: I think that's just internal terminology that Andersen Consulting uses.
Mr Preston: It's a convenient term for saying, "It's open but we're not telling you," right?
Ms Herbert: It's an internal term that says that these are the rates they would quote if asked. But you're right, it is not a public rate published somewhere.
Mr Preston: How do we ask?
Ms Szyptur: There's a process that we deal with in terms of a time frame on an annual basis. Typically, Andersen Consulting's rates change as of September. Their fiscal year is September to September. At that point in time we ask if there are going to be new rates. They volunteer that information very often. What we get back is what the new rates will be if there are any changes. As well, we get a list of the staff who are on the project and what their new rates will be. So it's geared on an individual basis as well.
Mr Preston: Is the Provincial Auditor privy to these published rates?
Ms Szyptur: Yes.
Mr Preston: You do have the original rates, Mr Auditor?
Mr Erik Peters: We take the rates directly from the invoices sent to the ministry, as we would do on any contractual arrangement. They are contained in the invoices and therefore they are in the public domain.
Mr Bill Grimmett (Muskoka-Georgian Bay): My question relates to the auditor's comment on page 34 of this year's auditor's report, where he talks about the ministry not demonstrating the cost-benefit implications and overall value to itself of each proposal. In looking at the common purpose procurement, deputy minister's guide, and in working through the process of arriving at a common purpose procurement agreement, I note that when the parties get together, the vendors are to provide an oral presentation. Is anyone here able to tell us whether or not at that stage there was any discussion or analysis of possible cost-benefit implications and overall value to the ministry? Was that discussed at that stage in the preparation of the project?
Ms Szyptur: The vendors that were part of the oral presentations did make a presentation that focused on the value from a high-level basis. They also looked at costs, not in terms of this project specifically but looking at comparing it to other experiences they've had in other jurisdictions.
Mr Grimmett: When we get to the next stage where the vendor has been chosen and there's discussion about forming at least a memorandum of understanding, at that stage, from your recollection, was there any detailed discussion on the cost-benefit implications? We're talking about $180 million at some point. At what point did you start to discuss the details of the costs and benefits?
Ms Herbert: In this process the original decision to proceed with a vendor is almost an agreement to proceed to then negotiate, which is different than a normal contract where we would put out very detailed specs and then ask for bids on detailed specs. At the very beginning, when we choose a vendor, we then begin a process where we examine whether we think there is mutual benefit. As part of doing the examination of mutual benefit, one has to look at the cost benefit to each of the tasks in the life of the project. Otherwise a vendor would not sign with us. If they could not see that there were benefits to be achieved by work they might do, then there would be no reason for them to invest, as Andersen has done in this project. So there was a discussion about cost benefit.
Having said that, the auditor said -- and I have this marked on page 34 of my audit report -- that he feels we did not demonstrate the cost-benefit implications in a way that he could see value, which is why we've asked the third-party reviewer to look at that. It is difficult to do this work early on in a CPP. The auditor also acknowledges that in his own report, where he says that unlike the traditional procurement process, selections aren't chosen on price, which is normally how we would do it. So this is a complicated procedure to establish value. Given that we were a pilot and learning as we went, I think the auditor's comment requires us to do the due diligence and have us demonstrate the value for money in this contract, which is what we're doing now.
Mr Grimmett: Mr Chair, are we planning on further reviewing the same material at the next meeting?
The Chair: It is my understanding that we are to meet this Thursday at 10 o'clock in an open session, as we are this morning.
Mr Grimmett: Because I have further questions that I'd like to pursue on that.
The Chair: Right.
The business of the day being completed, I will bring this meeting to an end. Staff, you are invited back on December 17 at 10 o'clock. Thank you.
The committee adjourned at 1157.