SUBCOMMITTEE REPORT

SPECIAL REPORT, PROVINCIAL AUDITOR

CONTENTS

Thursday 30 November 2000

Subcommittee report

Special report, Provincial Auditor
Mr Erik Peters, Provincial Auditor
Mr Jim McCarter, assistant Provincial Auditor

STANDING COMMITTEE ON PUBLIC ACCOUNTS

Chair / Président
Mr John Gerretsen (Kingston and the Islands / Kingston et les îles L)

Vice-Chair / Vice-Président
Mr John C. Cleary (Stormont-Dundas-Charlottenburgh L)

Mr John C. Cleary (Stormont-Dundas-Charlottenburgh L)
Mr John Gerretsen (Kingston and the Islands / Kingston et les îles L)
Mr John Hastings (Etobicoke North / -Nord PC)
Ms Shelley Martel (Nickel Belt ND)
Mr Bart Maves (Niagara Falls PC)
Mrs Julia Munro (York North / -Nord PC)
Ms Marilyn Mushinski (Scarborough Centre / -Centre PC)
Mr Richard Patten (Ottawa Centre / -Centre L)

Substitutions / Membres remplaçants
Mr Raminder Gill (Bramalea-Gore-Malton-Springdale PC)

Also taking part / Autres participants et participantes
Mr Michael Gravelle (Thunder Bay-Superior North / -Nord L)
Mr Steve Peters (Elgin-Middlesex-London L)

Clerk / Greffière
Ms Tonia Grannum

Staff / Personnel
Mr Ray McLellan, research officer,
Research and Information Services

The committee met at 1003 in committee room 1.

SUBCOMMITTEE REPORT

The Chair (Mr John Gerretsen): I'd like to call the meeting to order. The first thing I think we should be dealing with is the subcommittee report. Richard, would you like to read the report in, and then maybe we can have it seconded and discuss it.

Mr Richard Patten (Ottawa Centre): Yes. Being a phantom member, I'd be happy to.

Your subcommittee on committee business met on Wednesday, November 22, 2000, and recommends the following:

(1) That the committee table periodic reports on the sections of the auditor's special report that have been reviewed.

(2) That the schedule for the public accounts committee in its review of the 2000 special report of the Provincial Auditor be as follows:

November 30: Overview of special report by Provincial Auditor, followed by questions/comments from each caucus.

December 7: 3.01 Agricorp (Agriculture, Food and Rural Affairs)

December 14: 3.09 Emergency health services (Health and Long-Term Care)

(3) That the committee will begin each section with a closed-session briefing by the research officer and the Provincial Auditor. The deputy minister and other appropriate staff of each ministry will be asked to attend the committee following the closed-session briefing to pro-vide a response to the auditor's report.

(4) That the committee request of the House leaders to sit for up to eight days during the weeks of February 26, 2001, and March 5, 2001 (Monday to Thursday)"-except Tuesday, of course-"to continue its review of the 2000 special report of the Provincial Auditor;

(5) That the committee review the additional following sections of the 2000 special report of the Provincial Auditor, schedule to be determined.

3.03 Project to automate the land registration system, Polaris (Consumer and Commercial Relations)

3.04 Institutional services and young offender operations (Correctional Services)

3.06 Operations division (Environment)

3.13 Forest management program (Natural Resources)

Chapter 4 (3.04) Land transfer tax program (Ministry of Finance)

Chapter 4 (3.10) Science and information resource division (Ministry of Natural Resources)

Chapter 4 (3.12) Ontario Provincial Police (Ministry of the Solicitor General and Correctional Services).

The Chair: Is there any discussion on that report?

Ms Shelley Martel (Nickel Belt): It appears the House is going to sit an extra week, so we could also sit on December 20. I'm wondering what we want to do with that session, if we want to leave it. I guess my suggestion would be that we leave it open to see if there is any overflow from either of the two sessions on December 7 and December 14 and leave that as a potential where we might recall either of those two ministries, rather than moving on to another entirely new section.

The Chair: Yes. The other thing is that I'm not sure. Is it definite that the House is sitting that week?

Mr Patten: Nothing is definite.

The Chair: I would suggest that if it looks as if the House is going to sit that week, the subcommittee could meet and maybe decide what it wants to do on December 20-or December 21. Is that agreeable to everybody?

Any further discussion on the report then? All those in favour? Opposed? Carried.

SPECIAL REPORT, PROVINCIAL AUDITOR

Consideration of the special report of the Provincial Auditor.

The Chair: Today we'll have an overview by the Provincial Auditor. I don't know how long Mr Peters is going to speak, but he indicated to me maybe 10 or 15 minutes and then I would suggest that you go in rotation for 20 minutes, 30 minutes, whatever you want to do, for each caucus to ask any questions.

Mr Erik Peters: Just one quick question. Would you like me to move to the other end?

The Chair: It makes no difference. I think you can stay right there.

Mr Erik Peters: OK. The other one is, I have some speaking notes, and I thought you might be interested in having those. As I say, they're just speaking notes and the famous check against delivery takes place. I tried to keep it within the time frame outlined by the Chair. I actually had prepared two versions for it, one that omitted the sections that you already had decided to meet on. But in the final analysis this morning, I decided to speak to all of them because your motion was that I was to give an overview of my report. It may be just a few minutes longer than I'd indicated but not very much.

I would like to thank you very much for the opportunity to discuss this report with you. With me today is Jim McCarter who is the assistant Provincial Auditor.

First, I have to give you a brief explanation why this is a special report and not my annual report. According to the Audit Act, I can only lay my annual report before the assembly after the public accounts have been tabled. By mid-October we were not sure when the public accounts would be tabled by the Minister of Finance. However, by that time my report sections on accountability, value for money and follow-up on value-for-money audits in my 1998 annual report were finalized. As you know, I always follow up two years later. I, therefore, availed myself of a provision of the Audit Act which allows me to make a special report to the Speaker at any time on any matter that I believe should not be deferred until the annual report.

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As you know, the public accounts were tabled on November 1. I plan to submit my annual report to the Legislature on December 5, which is this Tuesday. That report will principally contain my commentary on the public accounts of the province, the activities of your committee and the operations of my office. Together with the special report, these two reports-that is, the annual report and the special report-complete my reporting responsibility for the year 2000 as outlined under the Audit Act.

This special report, like all my past annual reports, is intended and designed to be a catalyst for action to improve the administration of public funds and for better performance in delivering government services. We have made 118 recommendations in this report, and I am pleased to note that the ministries have generally agreed to take action on them and in some cases have already done so.

I would like to highlight certain value-for-money and accountability issues raised in my report to assist you in determining which sections of the report you may want to consider for review, in addition to the ones your committee has already selected.

Agricorp failed to manage certain of its resources with due regard for economy and efficiency. My office had to intervene to safeguard resources entrusted to Agricorp. The Ministry of Agriculture, Food and Rural Affairs and the board of directors did not have the necessary governance and accountability procedures in place for Agricorp to ensure that Agricorp's activities complied with legislation and corporate procedures, and I'll be happy to elaborate on that if you want me to.

For the child welfare services program, the Ministry of Community and Social Services did not have sufficient assurance that children in need were adequately protected. That was a reporting information problem. The ministry had also not yet adequately linked the funding it provided to the assessed cost of the underlying services that were received from children's aid societies.

The Ministry of Consumer and Commercial Relations transferred Polaris, the project to automate the land registration system, to Teranet Land Information Services Inc in 1991. According to a recent consultant's study, the original cost estimate of $275 million to complete Polaris could now be as high as $1 billion, and though the original anticipated completion date was 1999, Teranet has indicated a potential project completion date of 2010. At the time of our audit, the ministry had not decided on a course of action to cope with this situation. They knew about it for about a year-they knew about it longer than that, but the consultant's report first draft was in November 1999.

The Ministry of Correctional Services operating expenses for correctional institutions have increased 19% in the last five years, despite a 6% decline in average inmate count. Some of the contributing factors to the expense increase have been the significant decline of offenders in the temporary absence program-it declined from about 25,000 offenders to about 4,000; rising average correctional staff sick days; and higher overtime costs. On the temporary absence program, we did a calculation in our report that if we had in place the same procedures as in Alberta, we would save about $50 million a year. In other words, they have 20% of their offenders in this program and we have 8%.

While the ministry has acted on our 1993 recommendations to realize significant savings through the modernization or replacement of existing correctional institutions, it did not properly assess the alternative delivery options; in other words, how to do it. They knew the need, but not how to do it, before proceeding on a renewal project estimated to cost $270 million. The estimated cost, included in the $270 million, to build a new cooking facility to serve a number of correctional institutions had increased from $5 million to almost $10 million. As well, the facility's production capacity would be 1,000 meals a day short of meeting the needs of the institutions to be served.

Some 15% to 20% of inmates require some form of clinical intervention for mental disorders. In our 1993 report, we pointed out that many of these inmates should be in treatment facilities and not in jails and that correctional staff were not adequately trained to handle inmates with mental disorders. At that time, there was a commitment to take action. The Ministry of Correctional Services Act specifies that it is the responsibility of the ministry to ensure that inmates requiring hospitalization be properly placed for treatment. Given that the issues relating to mentally disordered inmates have been identified since 1993, we are concerned that the various initiatives taken to address their needs have yet to be implemented.

For $576 million in pupil transportation grants, the Ministry of Education had not yet established satisfactory procedures to ensure the economical, efficient and equitable delivery of pupil transportation services. Related to this, we also concluded that the Ministry of Transportation can and should strengthen its systems and procedures for ensuring that operators of school-purpose vehicles comply with legislative and regulatory safety requirements.

The Ministry of the Environment did not know the extent to which facilities that discharge contaminants into the environment were meeting current environmental standards and, consequently, where corrective action had to be taken to protect the environment.

A 25% reduction in staff at the ministry over the last few years had contributed to a 34% decrease in the number of ministry-initiated inspections conducted per year. For instance, inspections of municipal water treatment plants declined from over 400 to 190 per year over the last five years. Further in this regard, the ministry identified significant violations in 31% of the inspections it conducted in 1999-2000. The ministry relied extensively on facility operators to comply voluntarily rather than impose stringent and available enforcement measures such as issuing control orders or laying charges. This was of particular concern as one third of the violators were repeat offenders.

The ministry reported individual measures of effectiveness through its annual business plan. However, the business plan did not provide a comprehensive assessment of the overall impact of the ministry's efforts on the environment. For example, under its goal for cleaner land, the only measure reported on publicly was the per centage of PCBs in storage that had been destroyed. Also, under its goal for healthier ecosystems, the efficiency of processing approvals and environmental assessments were measured but the outcomes of these approvals were not measured. Outcome measurement, of course, is always a difficult area.

Regarding the Ministry of Finance's retail sales tax program, we found that administrative practices have improved from our previous audit. However, further improvements are needed to close the tax gap, particularly in the area of audit coverage, or more important actually, to analyze the areas which give rise to the tax gap and take steps to correct that situation.

We had the following major concerns from our audit of the Ministry of Health and Long-Term Care community health centres program: the ministry had not assessed the efficiency, effectiveness and ability of community health centres to provide quality care; and funding was not linked to expected services to be provided by these health centres.

The Ministry of Health and Long-Term Care needs to ensure that emergency health services are more patient-focused and that ambulance services better meet response-time requirements. According to the latest statistics made available to us, we found that 50% of ambulance operators did not meet established response-time requirements, which were based on 1996 actual response times.

In April 1998, the emergency services working group, with representation from the Ontario Hospital Association and the ministry, reported that hospitals were requesting redirect consideration and critical care bypass at different occupancy levels and for different reasons and that there were no standard, monitored criteria to define what capacity is. For example, the working group reported that during the period it surveyed, hospital emergency departments in the greater Toronto area were not at full capacity 36% of the time when redirect consideration or critical care bypass was declared.

Furthermore, the entire ambulance system, when realigned through downloading to municipalities, may not provide a balanced and integrated system of ambulance services and may cost Ontarians an additional $100 million in order to achieve the actual response times in 1996, which already weren't that good.

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Our major concerns with the Health and Long-Term Care health services organization and primary care network programs were:

-The health services organization patient rosters had not been adequately verified, even though in one verification they found, for example, that 8,000 people on the roster should not have been there.

-The Ministry of Health and Long-Term Care had not assessed whether it was receiving value for money for the more than $20 million in annual funding it provided to the group health association in Sault Ste Marie.

-Expansion of the primary care network program, to include 80% of the eligible family doctors, was being planned-it was actually being planned for implementation as they went along-while evaluations of the pilot primary care networks were still not completed.

-Capitation, that is, per person funding rates, did not take into account factors that may affect the need for primary health care, such as patients' medical histories.

Of particular concern is that many of the major concerns arising from this audit were similar to the ones we noted six years ago.

Our major concerns with the Ontario midwifery program were: there was a lack of adequate information to determine whether the objectives of the program were being met, and the Ministry of Health and Long-Term Care had not assessed the cost-effectiveness of the current delivery and funding model for midwifery services.

In our audit of movable assets, we conducted our work at five ministries. We concluded that although ministries generally followed the process recommended by the Management Board Secretariat for acquiring information technology equipment and used the Management Board Secretariat standing agreements with various manufacturers for their equipment acquisitions, doing so did not ensure they received value for money. We also concluded that movable assets were not adequately managed, and identified a number of issues in that regard.

Regarding the Ministry of Natural Resources forest management program, we concluded that the ministry did not have sufficient information to adequately meet its obligation to annually report on the management of Ontario's crown forests. In addition, the ministry has not yet completed its transition from directly managing many aspects of forestry to implementing appropriate oversight and monitoring procedures to ensure that forestry companies comply with legislation and ministry policy and to ensure that the long-term health of Ontario's crown forests is managed with due regard for economy and efficiency.

Regarding the Ontario Native Affairs Secretariat, we found that although the value of land claim settlements was adequately supported, improvements were needed in the timeliness of reporting and accountability by First Nations for the use of funding provided to them for land claim negotiations.

In its advisory role, that secretariat helps coordinate Aboriginal-specific programs delivered by other minis-tries. Expenditures for these programs exceed $370 million a year. We concluded that the secretariat needed to improve the timeliness of, accessibility to and level of detail in its database of information in these programs.

From our follow-up on our 1998 value-for-money audits, I would like to highlight two, and those are in addition to the ones you have selected.

The Ministry of Community and Social Services renegotiated, in April this year, a number of improvements for taxpayers on the original agreement with Andersen Consulting, and I'm pleased to note that this committee played quite a role in that process. However, these improvements were limited by the fact that under the original agreement and the early opportunities initiative task order, Andersen Consulting was not obligated to agree to any changes other than to extend the contract. What was achieved is actually over and above what was in the contract, so that's a plus. However, the improvements notwithstanding, Andersen Consulting was paid $95 million by March 31, 2000, although the project was significantly behind its original schedule and the project costs at that time exceeded the benefits-and the benefits grew by $30 million.

Regarding the Ministry of Health and Long-Term Care, Ontario health insurance plan: of the 12 million OHIP cards in circulation in January 2000, 8.3 million were issued prior to 1995. For those 8.3 million cards, eligibility had still not been verified.

As to accountability, I would like to raise two issues. Firstly, an accountability regime to the Legislature, and therefore to the taxpayer, for the activities of the Ontario Innovation Trust is significantly impaired; some would say, virtually non-existent. By March 31, 2000, the government had flowed $750 million to the trust, of which $500 million was pre-flowed well before the funds were actually required. I urge the government to establish for these funds an appropriate accountability regime to the Legislature.

Secondly, we have sought over the last decade to have the Audit Act amended to enable my office to assist the Legislature in holding government service delivery agents better publicly accountable for achieving value for money for the $30 billion these agents receive annually as transfer payments from the government.

Over four years ago your committee unanimously endorsed our proposed amendments to the Audit Act. Since there has been no action on this issue since then, I respectfully recommend that this committee revisit this subject.

Overall, this special report on accountability and value for money deals with a significant number of issues where corrective action needs to be taken. We look forward to seeing positive and timely results from ministries' actions on our recommendations.

I wish to express my sincere thanks and appreciation to the staff of my office for the solid and professional work they have put into this special report.

I'd be happy to answer any questions.

The Chair: OK. It's 10:28, so I would suggest a half-hour for each caucus. Why don't we start with 20 minutes per caucus initially, and then we'll see what you want to do for the last half-hour. We'll start with the Liberal caucus: Mr Gravelle and then Mr Peters.

Mr Michael Gravelle (Thunder Bay-Superior North): Mr Peters, I want to ask about the Andersen Consulting issue. Obviously, what you said was in terms of Andersen Consulting still receiving a disproportionate amount of the benefit pool in relation to its work effort. I take it from what you said that there's no way of controlling that because of the way the contract was originally signed by the government with Andersen. In other words, despite the fact that part of the agreement was changed, they can't change the fact that they've paid them more than they should. In essence, I think that's really what you're saying, that they've been paid benefits they probably shouldn't have been paid, ultimately, if it was an appropriate agreement. Is that fair to say?

Mr Erik Peters: I would have some difficulty with the word "should," because that was an agreement signed between the government and Andersen Consulting, and Andersen was within its contractual right of enforcing the clause. What I am saying is that the improvements that were achieved are remarkable in light of the fact that Andersen didn't have to agree to them.

Mr Gravelle: Right, but in essence the original agreement, which I think we've all been pretty critical of, and I think it's fair to say you've been critical of it as well, obviously-there's nothing much we can do about that at all. That agreement is locked in place.

Mr Erik Peters: Of course the other choice that was available to the ministry was cancellation and re-tendering and all those things, which the ministry, to the best of my knowledge, certainly weighed but considered that the cost of doing so would be too high.

Mr Gravelle: If that could have happened, would that have been something you would have recommended they do?

Mr Erik Peters: We didn't evaluate the alternatives. We did suggest that it be given consideration.

Mr Gravelle: Do you have concerns about the fact that under the revised agreement they expanded the circumstances under which payments may be made outside the fee cap? Do you have a number of concerns about that? In other words, the $180 million is a locked-in figure, but then there is the amount they can charge out of that fee cap. You make reference to some of those concerns, but are they serious concerns about some of the extra costs?

Mr Erik Peters: The serious concern originally was of course that these extra charges were very ill-defined or very poorly defined, so they didn't know what could be charged outside the cap. I think what has happened under the re-negotiation is that there is now a better definition of what can be add-ons to the cap.

Mr Gravelle: Wasn't it part of the original agreement that they did not have to pay Andersen until the benefits exceeded the costs?

Mr Erik Peters: Under the original first agreement and under the terms of what was called "common-purpose procurement," that was the fundamental idea of that process. However, that was fairly quickly set aside by the ministry through the early opportunities initiative task order, and the ministry there agreed they would pay up front.

Mr Gravelle: But they didn't have to.

Mr Erik Peters: Under the original agreement, they didn't have to, but at that time they agreed to do so.

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Mr Gravelle: So, then, as of this stage, the $30.5 million is the difference in terms of the actual costs exceeding the benefits.

Mr Erik Peters: The costs exceeded benefits by $30 million. But $95 million had been paid to Andersen Consulting for their work.

Mr Gravelle: Just a clarification too: in your report last week, that project's cost pool totalled $146.7 million, $117.4 million to Andersen Consulting. It seems to me that would be two fiscal years of payment, then, because it was $60.5 million that Andersen got paid in the last fiscal year. Is that correct?

Mr Erik Peters: They are running on a cumulative basis. In other words, the chart that you find on page 265 of my report is on a cumulative basis. That's the project to date, if you will. So out of the amounts paid, you see the end of the consulting costs, which was $95 million, and by the year before, if the number was $65 million-I don't recall who was talking to them.

Mr Jim McCarter: The number I have is that at March 1998, $15 million was paid. At July 1999, I think when we did the special report, $55 million had been, and at March 2000, $95 million had been paid.

Mr Gravelle: I guess what I'm looking at is that $117.4 million was paid to Andersen Consulting. I'm looking at the figures on page 260 of the report, just before "Current Status of Recommendations." The cost pool total is $146.7 million: $117.4 million to Andersen Consulting and $29.3 million to the ministry. The benefit pool totalled $116.2 million, which of course makes up for the cost pool exceeding the benefit pool by $30.5 million. Then you say, "Payments to Andersen Consulting totalled $95.6 million." I'm trying to get my head straight around this, the $117.4 million to Andersen and then the $95 million-

Mr Erik Peters: The $117 million dollars is what Andersen charged to the project. The $95 million is what they were actually paid in cash. So there's another $22 million. But also, if you take a look at it, there is a distinction made between the early opportunities task order, which gives them the right to pay, and all other task orders.

The Chair: There's a chart at page 264.

Mr Gravelle: Yes, OK. Can you just give me the totals again for the three fiscal years, then?

Mr McCarter: The March 1998 figures I had were that $15 million had been paid by March 1998. At July 1999-I think that's when we did a special report for this committee-it was $55 million, and at March 2000, it was $95.6 million.

Mr Gravelle: Mr Peters, if I could ask, is there anything else that could be said in terms of whether the early opportunities initiative should be in place or should not be in place? It was an adjunct to the original agreement, in essence.

Mr Erik Peters: It was certainly permissible under the original agreement for the ministry and Andersen Consulting to agree to different terms under these individual task orders as they went along. But nevertheless it was done. There was a question raised as to why it was done at the time. We raised that in our 1998 report, but I think it's a past event where the paying carries on.

Mr Gravelle: What I take from this to some degree is that the original agreement that stated that Andersen would not be paid until the benefit pool exceeded the cost pool in some ways was a-how do I put this without being the least bit rude? It's almost a useless thing to put in, in the sense that it seems clear there was no real intention of sticking to that. On the surface, it sounds like that was a serious part of the agreement that actually was never meant to be taken seriously, because obviously they were going to be setting up a way to pay Andersen in advance. Why would you put that in any agreement if you don't intend to honour it?

Mr Erik Peters: Well, it was originally in the agreement because under the common-purpose procurement guidelines that were issued by the government of the day, that was actually the concept that was supposed to have been followed. The fact was that these guidelines were not followed.

Mr Gravelle: So the early opportunities initiative was a way to get around the original guidelines. So the original guideline was that we certainly shouldn't pay them until there's some benefit on the benefit side. That sounds appropriate. But then we've got to find a way to pay them somehow, so we'll set up this early opportunities initiative.

Mr Erik Peters: That's right.

Mr Steve Peters (Elgin-Middlesex-London): Mr Peters, in your opening remarks you said that your office had to intervene to safeguard resources entrusted to Agricorp. I'd like to understand, were you as the auditor asked to look into the affairs of Agricorp, or was this on your department's own initiative that you went into Agricorp?

Mr Erik Peters: Agricorp was selected on the initiative of my office.

Mr Steve Peters: You weren't asked to look into what was going on at Agricorp?

Mr Erik Peters: No. I took a look at Hansard, and I think the way the minister described the events on November 22 was correct. Just to give you a little bit of background on this, as you know, I am the auditor of Agricorp's financial statements. What had happened in our financial statement audits is that we continuously ran into problems of where to allocate expenses. The ministry is right. When we brought it to their attention, they corrected it. To allow us to give a clean opinion on the financial statement of Agricorp, these situations were corrected as we were going along.

But we became increasingly concerned about a wide range of issues in these audits. It started with some of the travel expenses that were very funny. There were contracts struck that we had questions about. In our risk analysis, which we normally carried out, in about June of last year we decided there were enough flags here that we should conduct a value-for-money audit of this corporation. We initiated the audit. Once we initiated the audit, the findings became very significant. In fact, they became so significant that we suggested to the staff of the ministry that they may want to consider getting the minister involved, and then they did.

Mr Steve Peters: You made reference to a November Hansard, but in a previous question that was asked in the Legislature the minister said the ministry asked you to look into Agricorp. But you've just stated that you went in as a result of your standard audits.

Mr Erik Peters: That's correct. That's why I say that we found the remarks on November 22 were much closer to the facts.

Mr Steve Peters: On page 25, there are a couple of references: "However, legislation prescribes, and a legal opinion confirmed, the allowable uses of the fund, which do not include administrative expenses."

Later on, on page 25, "Agricorp engaged an investment adviser, without competition, for a minimum annual fee of $400,000. The advice ... was of little value." Then you end that statement saying that "included investments the corporation was legislatively prohibited from purchasing."

Then later on, on page 36, it says, "The adviser repeatedly recommended a diversified portfolio that would include stocks and other related instruments Agricorp is not allowed to purchase under the Agricorp Act."

I'm trying to understand those three comments on pages 25 and 36. Are you suggesting-what I'm trying to understand is, are these illegal activities that Agricorp was engaged in?

Mr Erik Peters: Let me just gather my thoughts as I answer this question, because it became technically very complicated. For the whole program under which Agricorp operates, there are two pieces of legislation that actually regulate it, a federal piece and a provincial piece. I'm not 100% sure in my own mind right now which piece is what, but in any event the overall is that Agricorp can invest these funds that it operates in government securities or government-guaranteed securities. In other words, largely that would be bonds, debentures, which are guaranteed. Therefore, there's no provision made for equities and stocks and this sort of thing.

Why it was not illegal is that virtually every time the situation occurred, we stopped it. My office, in our annual audit, stopped these transfers that were supposed to be made. The idea was that the administrative costs were to be carried by the taxpayer and the funds were to be shared, the premium costs, by the insured people and the government. So in all of these circumstances we stopped the transaction. If the transaction had been completed, it would have been contrary to the law.

Did I make this point clear?

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Ms Marilyn Mushinski (Scarborough Centre): Mr Chairman, for clarification, who determines what is legal and what is illegal? And if it is illegal, at what point would, let's say, the police or the crown be involved? Is it the auditor who determines what's legal and what's illegal?

The Chair: Could you answer that?

Mr Erik Peters: What we did is we asked Agricorp to justify their wish or their proposal by legal advice. When they got the legal advice, quite frankly, it didn't look right.

Ms Mushinski: I'm not concerned about that so much as who determines what's legal and what's illegal, and at what point-if you determine that you suspect something is illegal, do you then involve the police?

Mr Erik Peters: No. We first involve lawyers, and that's what we did.

Ms Mushinski: OK. That's what I needed to know.

Mr Erik Peters: That's what we did, and we asked Agricorp to engage a lawyer to give them an opinion as to where they stood. Once that lawyer opined-and that lawyer was engaged on our instigation, but by Agricorp. Once that lawyer said, "Hey, what you're doing is wrong," then they stopped and the whole thing was fixed.

Ms Mushinski: My apologies. I just needed-

The Chair: OK, I'll add two minutes on to your time, Mr Peters. Go ahead.

Mr Steve Peters: On page 27 of your report, Mr Peters, you make reference to a long-term bond that was purchased in May 1999. That bond then was sold in September 1999. You comment that by using these funds inappropriately, Agricorp violated its fiduciary responsibility.

I'd like to know-it's a two-part question-if you could give me the date, or, if you can't today, if you could provide me with the date that that bond was sold in September 1999. I'd also like to know, what exactly was inappropriate, in your words, about that bond?

Mr Erik Peters: There are two questions here. The first one: details of the transactions you would have to obtain from Agricorp. Under section 19 of the act, I cannot provide you-we said what we have to say in this particular paragraph. So if you wanted details of the transaction-actually, the key to your second question, the key to the answer, rests in the first and last sentences of this paragraph.

The first sentence says, "Agricorp has a buy and hold to maturity strategy for long-term investments in the Ontario crop insurance fund." In other words, we buy securities and they are held to maturity. What happened here is that they incurred a loss, even though-and that's where the last sentence comes in-"there was no need to sell these investments to meet indemnity obligations." In other words, it was a poor investment decision. They decided to sell bonds although they didn't have to do so, in spite of their strategy to hold them until maturity.

The Chair: Mr Cleary, and there's about three or four minutes left.

Mr John C. Cleary (Stormont-Dundas-Charlottenburgh): Thank you, Mr Peters. Was that investment done by the board of directors, or how did that take place at Agricorp?

Mr Erik Peters: They actually have within their management an investment group that is supposed to look after the investment of these various funds. There is oversight supposed to be carried out by the board. I believe there was also-I'm going by memory-a finance committee somewhere in this, but we found that they didn't meet or didn't exercise their function.

Mr Cleary: When was the minister notified about these problems?

Mr Erik Peters: The meeting with the minister took place, I think, at the end of our field work, which we identify as about March, but it was only a very high level. He was concerned what was going on, and it was a very high level; we didn't go into much detail at that particular meeting.

Mr Cleary: I know this is a big issue in rural Ontario. I just got off the telephone with some people from the west end of my riding and the east end of the next riding. They're not going to let go on this. They're out for blood and they want to see these people who made these investments dismissed. That's the way a lot of people in the agricultural community feel. The other thing they want to know for the record is the percentage of dollars that were invested that were provincial funds and agriculture community funds-the breakdown of the pot of money. I guess that's not a fair question.

The Chair: Do you have a breakdown of the money? Whose money was it?

Mr Erik Peters: Whose money was it? The investments were certainly the money of the funds that are set aside to ensure crops, so it is the fund's money. The difficulty we had with Agricorp was that the administrative costs are to be carried by the taxpayer and the risks of the insurance funds are to be carried by the funds. So the investments are the funds' money in that regard.

I want to come back to one I related to you previously. It is fairly unusual for us to actually meet with a minister. The meeting with the minister was actually caused by the staff because I made a suggestion to them that maybe it was worthwhile, because we were not sure. We don't know in any ministry how the information flow actually is between the bureaucrats and the minister on our audits. We meet in our audits, as we carry them on, with the bureaucrats, with the staff of, in this case, Agricorp and the ministry. We keep them abreast of all our findings and they are pretty well in the picture of what we have found. Now, how much they carry forward then to even the deputy minister and beyond really, that's their own procedure and within that I'm not getting involved.

The only reason we actually wanted to deal with the minister at this point was because this question of legality was raised with us and by us. The staff actually raised the question as to, "What legal authority are you looking for?" and we said, "What legal authority do you have?" When we discussed what legal authority they had, we found that there was a gap. That's why the ministry agreed with us to actually engage a lawyer to take a look into the situation.

The Chair: We'll have to leave it at that for now.

Mr Erik Peters: Have I confused you totally?

Mr Cleary: No.

The Chair: We may get back to it later on. Ms Martel.

Ms Martel: If I understand you correctly, this was at the end of your field work, and so the transactions you were concerned about would have been going on through the whole process of your audit. Your meeting with the minister to determine the legal authority under which these were happening was actually at the end of the audit. Is that correct?

Mr Erik Peters: At the end of the field work.

Ms Martel: It would have been about March 2000?

Mr Erik Peters: Yes; it would be before March 2000. But we would have advised the staff of all our findings as we went along, and they were fully aware.

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Ms Martel: When did you start to do the audit?

Mr Erik Peters: This audit was started in about October 1999.

Ms Martel: So for six months this process unravelled. You must have been concerned even earlier than March about some of the transactions that might have occurred had your office not intervened.

Mr Erik Peters: Very much so, and we raised them. It was an audit of Agricorp, so our primary auditee was the staff at Agricorp itself. We raised these issues with the management as we went along. We raised them to the board level toward the end of the audit. We need to have our ducks lined up, if you will. We have to discuss with staff because you have to give staff the benefit of the doubt: "This is our finding. What else do you have? What are the facts? Are we seeing it right?" We have to do a due diligence exercise in our audit, and that was certainly carried out. We reached our conclusions once we had all the information gathered, and that takes time.

Ms Martel: During the process of the audit, were you not taken seriously by the staff or by the board?

Mr Erik Peters: I think we were. The staff did take us seriously but they were, as you always find in audits, fairly defensive. Ultimately, that's why in our report we also looked at the role of the board of directors and the role of the observer by the government on the board of directors. I should tell you that was a major concern we had at that point. The ministry is represented by a person at the assistant deputy minister level on the board. The question was-these people are sitting in these board meetings. What do they do? In fact, there is a fundamental question here on the whole governance structure: What guidelines are there for people who are supposed to be observers on board meetings? Do they have the right to inquire? Do they have the right to make comments that the information presented may not be as it should be? Where exactly is that process? There is weakness in the system on this one, because observers very often do not have a very well-defined role on this. But this has been going on for years, and somebody must have noticed.

Ms Martel: But this representative is at the ADM level, so senior management in the ministry.

Mr Erik Peters: That's right.

Ms Martel: Is it not clear in either the legislation or the regulations what instruments are available to Agricorp to use for investment purposes and which are forbidden? Is this the problem?

Mr Erik Peters: No, they are very clearly stated.

Ms Martel: In legislation or in regs?

Mr Erik Peters: In legislation.

Mr McCarter: If you want to turn to page 26, "Legislation restricts all of Agricorp's investments to highly liquid, high-grade money-market instruments, such as federal and provincial bonds, deposit notes," etc.

Ms Martel: So the board and, frankly, the ministry observer should have been aware of that?

Mr Erik Peters: That's quite right. This is one of the things-if the information percolated up to the board level. One of the difficulties this organization had was that, in retrospect, we found that the information that was raised to the board level was extremely well controlled. In many cases they were informed after the fact or they may not have been informed at all. That's why we raised the questions of governance and accountability, because, having been a board member myself, if I had this dearth of information coming at me I would have raised a significant number of questions and said, "Why do you come forward to ask only after you have signed a contract?"

The Chair: When you say you've been a board member, it's not of Agricorp, just a board member.

Mr Erik Peters: Not of Agricorp. Absolutely. No, I couldn't be a board member of any Ontario organization.

The Chair: I understand. I just wanted to have it clear.

Ms Martel: Just so I'm clear, the individual transactions, especially the ones you had concerns about, would not have been made available to the board unless board members specifically asked for that. Is that what we should assume?

Mr Erik Peters: I really don't know how much information was made available to them. The information that was provided should have raised flags in two areas: the quality of the information that was provided and also what was going on that they didn't have any information on. If you look at our report, again on page 27, for example, we state, "The corporation's board had not approved the speculative trading strategy. We were informed that management had obtained verbal approval to proceed from two of the three members of the board's audit and finance committee. However, this committee functions in an advisory capacity only and did not have the authority...." They also held a "strategic and tactical committee comprising board members...." The "monitoring was ineffective since neither of these committees ever met regarding the speculative daily trading activity." So it looks like there were significant problems in the information flow, not only as to the quality but also as to the timing of the information.

Ms Martel: After having been there and having had a discussion with the minister, are you convinced that the problems are fixed here? I raise that because I've been contacted too in the last week by a group of farmers in Huron county, 42 of them, who continue to have really serious ongoing concerns about Agricorp and are using the terminology of fraud, which is a pretty serious term to be using. Their assessment of even the current structure is that it's not working.

Mr Erik Peters: That I can't comment on because after we raised this to the top level, the board members were replaced on the board of directors-I'm not sure how many-and also a new chief executive officer was engaged. Also other changes were made in the senior management as part of it. So that's all I can tell you.

Ms Martel: In terms of your other concerns around the quality of information, the timing of it, who has access etc, we'd have to ask the ministry that.

Mr Erik Peters: That's right.

Ms Martel: You wouldn't have a sense of what they have done in response to those issues as well.

Mr Erik Peters: That's right. Whether they have redefined the role of the observer and how communication flows now between management of Agricorp, the board of Agricorp and the ministry staff are questions that have to be answered by the ministry.

Ms Martel: Let me ask you a question about the emergency health services for the Ministry of Health. In the audit report-and this is in your overall audit conclusions-you mention that the ministry estimated that the transfer of ambulance services to the municipalities would cost about an additional $53 million in the year 2000, and some of the one-time and compensation costs are noted. But if I recall, your estimate is closer to $100 million. I wonder if you can give the committee some idea what the ministry is basing their figures on and what you're basing yours on.

Mr Erik Peters: If you want to follow me to page 161, where we outline the various components that are involved in the number that comes out to slightly higher than the $100 million-

Ms Martel: I don't see it on page 161.

Mr Erik Peters: The first one is in the first bullet, where it says, "The ministry estimated that an additional $40 million annually and $11.6 million in one-time funding would be needed to meet the current response time requirements." One of the things I was careful to do was to link the $100-million requirement to meet the 1996 response times. The other number comes in the second bullet on the next page, "The ministry estimated that, due primarily to the transfer of land ambulance services to municipalities, the cost of providing the existing level of service would increase by approximately $53 million in the year 2000." So it was really adding together the $40 million annually plus the $11-million one-time cost, giving you $51 million, plus this $53 million, which gives you about $106 million. So that's where the $100 million comes from.

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Ms Martel: Sorry, just to clarify, the $100 million is an annual additional cost? Because some of those items are one-time.

Mr Erik Peters: Right. It includes $11.6 million one-time.

Ms Martel: You feel comfortable in that it's probably $100 million, give or take the $11 million in there? That's an additional cost that was not anticipated at the time of the download.

Mr Erik Peters: Yes, it would be close to $100 million. It's either over $100 million or close to.

Ms Martel: Do you think that's going to get higher?

Mr Erik Peters: That would be speculative on my part. Those were the numbers the ministry provided to us at that time.

Ms Martel: When you looked at dispatch times-and this is on page 169, before the recommendation-you mentioned that the ministry was aware that the response times were not being met but they were taking minimal corrective action, and then the new regs under the Ambulance Act no longer specified a time requirement for dispatch. I understand, if I look at the ministry's response, that how they are doing that now is to have this performance agreement between each dispatch centre and the ministry, so there will be some new standards set there. My concern is, (a) is this going to work, and (b) will you not end up then with different standards across the province in terms of dispatch time?

Mr Erik Peters: It's a very good question to ask the ministry. We just had to stop at the point where we said, "It used to be there; it is no longer there." You now have a new mechanism in place and it's a mechanism that we did not audit because it was only put into effect as of May 1, 2000.

Ms Martel: Did the ministry give you any idea-because you had already expressed a previous concern about the monitoring of the previous dispatch time-of how they were going to monitor the new agreement to guarantee that the times would be met?

Mr Erik Peters: I again have to take you back to the May 1 date.

Ms Martel: You were done.

Mr Erik Peters: At that time, we were done. The audit was done. We just brought it in to update the situation.

If I may make an overall point on this one, in our approach in all the statements that I've made, we have said that if you consider a change in program delivery, that should be based on a sound analysis of what is currently going on in that program so that a clear determination can be made as to whether the program can be continued as it is, whether it should be modified, in what format it can be outsourced or whether it can actually be totally-you know, that the government should get out of the business that is there. One of the concerns here is that we clearly have a service that is not performing as well as it did in 1996. That is now being reorganized and, as we said, some of the municipalities have expressed concerns about that.

Ms Martel: I wanted to ask you a question about the Ministry of Correctional Services, the 19% increase over that five-year time frame. You have attributed it to three areas: the decline in the temporary absence program, the sick days and the higher overtime cost. Do you have a breakdown of how that 19% works against those three categories?

Mr Erik Peters: No, we don't, because the system doesn't have that.

Ms Martel: It doesn't allow for it?

Mr Erik Peters: Those are the key areas that we could identify. The temporary absence program would be speculative, how much it would be, so we can't identify it. But we did identify clearly the numbers of the overtime. Of course, there is a linkage between people away on sick leave and overtime. If somebody is away sick, somebody else most likely has to work overtime to cover off.

Ms Martel: Did you ask the ministry why there had been such a change in their temporary absence program? What was the reason behind that?

Mr Erik Peters: The reason is actually stated in their response. I'm trying to find the page.

Mr McCarter: Page 85.

Mr Erik Peters: They just said public safety is top priority and they felt there was a risk to the public.

Ms Martel: Do they have any evidence to support their concern that people who were using this program were more likely to reoffend, to be in trouble in the community etc? Did they provide you any evidence of that?

Mr Erik Peters: Actually, our findings were the opposite of that. Our findings were that there was fairly little risk reported by the particular provinces that had applied this program far more extensively than Ontario did.

Ms Martel: But your assessment was not based on Ontario numbers, though, in terms of how the program worked. Should I be clear about that? You were basing it in terms of how it worked elsewhere and whether or not it was a problem, is that correct?

Mr Erik Peters: No, we said on page 84 that our examination revealed that Ontario's success rate with the temporary absence program over the eight years remained unchanged at 97%, with failures attributed mainly to technical violations such as missing curfew. So we did assess the Ontario situation.

Ms Martel: My apologies.

Mr Erik Peters: No problem.

Ms Martel: Do I still have some time?

The Chair: You have three minutes left.

Ms Martel: I wanted to ask you about the MOE, particularly the decline in staff, but more importantly, the decline in inspections. Your recommendation on the bottom was that, "The ministry should explore options and develop procedures to increase its inspection coverage."

Mr Erik Peters: What page are you reading from?

Ms Martel: This is 119. Does that mean increase the number of staff?

Mr Erik Peters: That would certainly be one of the options. Other options would be contracting out, finding people who do it, who are specialists, for example, in certain types of inspections. It's a wide range of options that could be available to the ministry.

Ms Martel: It is your view that the decline is clearly linked back to manpower or a lack of human resources.

Mr Erik Peters: That is certainly one-

Ms Martel: It's not a question of the strategy they're using to determine their inspections, it's a question of people power.

Mr Erik Peters: It's a question of people power and also-well, it is a part of how to determine inspections, because we have some 220,000 certificates of approval out there, some of which were issued as far back as 1957, and certainly since 1957 environmental standards have changed. For example, an organization that received its certificate of approval then may now be found, on re-examination of what they're actually doing, to be a lot better or a lot worse in contaminating the environment because of new factors that are found.

This is a constantly changing area. As you know, in one of our previous reports, they internally had identified something like close to 300 air pollutants, where their own scientists felt their standards were out of date on that and had to be brought up to date. Even a very simple step that we conducted, for example, comparing our standards through the Internet with some of the government standards in some of the states in the United States, gives you a very clear picture in some areas that we have to do work in that area, or the government has to do work in that area.

The Chair: We'll turn to the government side now.

Mr John Hastings (Etobicoke North): Erik, on the Agricorp thing, you said there was a finance committee or subcommittee set up which did not meet?

Mr Erik Peters: Yes.

Mr Hastings: Or never met?

Mr Erik Peters: To the best of our knowledge, we said they didn't meet. We didn't find any evidence of them meeting.

Mr Hastings: There was nothing in the board minutes about it?

Mr Erik Peters: No.

Mr Hastings: Were they required to have an executive investment committee that would be made up of board members and maybe your CEO and outside people? Did this corporation not have specific bylaws on how it was to operate?

Mr Erik Peters: They may not have. I can't answer that question right off the bat, but one of the facts we did point out is that the board clearly couldn't agree even on what they were supposed to be doing. We pointed out that they had six vision statements in three years of what they were supposed to be doing.

Mr Hastings: I've seen that.

Mr Erik Peters: From the vision, virtually everything flows, and if the board cannot agree what they were supposed to be doing there, then there is a governance problem.

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Mr Hastings: Did they ever have a seminar at the start of their operation as to what their role was? Did you ever find anything in the minutes of their meetings that indicated-aside from their exercise in strategic planning, did they ever have an initial meeting? Did you see anything in board minutes as to the discussion of what their role was, is or was going to be?

Mr Erik Peters: I have difficulty answering that question because we didn't particularly examine, for example, what the board orientation program looked like, which I believe every corporation should have, to just tell the board members what to do. We didn't examine that particular-in the board minutes that we saw, we were aiming more at the decision-making process rather than the overall orientation and training of board members process.

Mr Hastings: Did you get the impression from the financial information and the way information got reported to them that there was a varied confusion as to what their role was in anything, particularly the handling of finances and investments?

Mr Erik Peters: Yes, very much so. If I could lead you back-I'm trying to find the page. We did a survey of board members and we reported on that.

Mr McCarter: On page 43. "Board ... members indicated they had not been given written explanations of their role and responsibilities" etc. We list a number of things on that page.

Mr Erik Peters: We surveyed the board members. They said the governance structure was not working well: the size of the board, conflicts among committees, lack of accountability, also that lines of authority and communications were unclear, including the roles and responsibilities of individual directors and committees. That's the first bullet.

They were not given written explanations of their role and responsibilities, including the expectations, terms and conditions of their appointment, the role and responsibility of the board chair was not defined and they were dependent on management for information relevant to the proposed courses of action requiring board approval. They were not provided with adequate information upon which to assess strategic issues or alternative courses of action. That was why one of my concerns was the minutes. We have an observer there. Why was that not noted? Why does the observer not come to the same conclusion as the board members that "This is the board member speaking"?

Mr Hastings: Did you or your staff interview the ministry rep?

Mr Erik Peters: Yes, I did.

Mr Hastings: What kinds of statements-or are they privy to confidentiality? Was it pretty clear in your interviews or your staff's interviews with this individual that he or she didn't have a very strategic direction on his or her role?

Mr Erik Peters: I would have on the record, and even off the record, difficulty answering that question. I'd prefer not to.

Mr Hastings: Silence speaks volumes.

I'd like to probe a little more about the investment activities. It clearly states that it's high-grade government bonds, treasuries, I guess GICs?

Mr Erik Peters: Yes. They're officially guaranteed.

Mr Hastings: What is this commodity that's called the project involving optional units?

The Chair: What page are you on?

Mr Hastings: It comes up on the bottom of page 31, the "optional unit coverage" project. Does that involve some kind of modified risk in commodity trading? What does that mean?

Mr Erik Peters: What it means is, if a farmer planted the same kind of crop in various locations, he can insure by location as opposed to the crop as a whole. The concern about that is that normally, because insurance works on the basis that there will be gains and losses, you try to insure the whole of the crop to prevent the-because the premium determination is really on everybody's crop of that particular one in the province.

The idea was that, for example, if a farmer knows that every three years these fields get flooded and struck by thunderstorms or something, he could then insure only those and leave the other stuff intact. So they were looking at this optional area, and we found that it was not particularly well done, if I remember correctly.

Mr Hastings: In what regard? In what way? They didn't have the indicators to measure the variables that would create these adverse conditions-cyclone weather, insects?

Mr Erik Peters: We were concerned that if the program is actuarially sound, it would not monetarily benefit producers. If it is not actuarially sound, there is an increased risk exposure to the Ontario crop insurance fund. So we felt they really had to do an actuarial analysis to determine whether this was a good program.

The Chair: Julia, did you want to-

Mrs Julia Munro (York North): I only wanted to suggest, as you did, that in terms of insurance, obviously the theory is that there are good things and bad things and that it levels out. The problem also for the individual is the fact that anything like this kind of project forces the premium up to the point where it then becomes not even a viable option; as you started to say, that it will have an impact on the intended beneficiary because of the fact that the premiums then would have to be so high if you're allowed to take only those areas where you would consider there to be the high risk.

Mr Erik Peters: Yes. That's exactly right. You're right on. You put it much better than I did. What we're seeing is, if it is actuarially sound, in other words, if the actuary says you're only insuring the high-risk stuff, the premiums go up. If it's not actuarially sound, then there is an exposure to the fund itself.

Mr Hastings: My final question relates to-the CEO, I assume, or the board chair was to make some contact with the Ontario Financing Authority because the OFA is the umbrella agency that was to provide them with advice, as you mention on page 36. You make a comment there, on the top, before your recommendation, that they didn't contact the authority for advice.

Mr Erik Peters: Yes. That is the memorandum of understanding that the corporation has with the ministry, to use that service. In the preceding paragraph we question paying such a high price for advice that is of little value. We're saying you have a memorandum that says here that you have the financial experts of the government-maybe I shouldn't go out of line on this one, but I think our OFA has quite a number of good people who can give that advice; it's a good organization-and they were not availing themselves of it.

Mr Hastings: Did they ever, from your estimation?

Mr Erik Peters: In the report we're saying they haven't. We are saying they had not contacted the authority to obtain its advice, in the last sentence before the recommendations. That's why the last bullet in our recommendation is, "Consider obtaining investment advice from within the government." I think it would appear to be one of the prudent things to do.

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Ms Mushinski: I have some general questions about auditing business practices. The first question I have of you is, how long have you been the Provincial Auditor?

Mr Erik Peters: Since January 1, 1993.

Ms Mushinski: Since 1993, have you identified questionable business practice that has lead to criminal investigations?

Mr Erik Peters: Offhand, I cannot recall a single-no, we have not run into a situation where we had to turn files over to the police for investigation. Our policy is that if we run into something that should be turned over to the police, we would do so.

Ms Mushinski: So that is a requirement within the act.

Mr Erik Peters: That is a policy that I like to follow.

Ms Mushinski: I'd like specifically to turn to your comments on, actually, the Ministry of the Environment, but it has to do with your overall comments with respect to assessing the business plans. Every ministry has a business plan. In assessing those business plans, you clearly look at how the ministries measure outcomes. Correct?

I don't know if you look at specific programs within the business plans and apply the same principles of measuring outcomes to those programs as you would to the overall business plan. The reason I'm asking this is because I can certainly recall when ministers, back in 1995, were charged with the responsibility, and I happened to be in cabinet at the time. One of the biggest challenges was developing a business plan that had those measurable outcomes. I'm just wondering how you, yourself, assess those measures.

Mr Erik Peters: The first step, actually, that we conduct in an audit is that we take a look at the business plans. We use them to develop criteria, because the business plan really outlines the expectations that the ministry sets for itself.

Ms Mushinski: What did you do before 1995, when ministries didn't have business plans?

Mr Erik Peters: Certainly 1995 helped, but we actually followed the same process all along, even after the business plan. That is, we sit together with the senior management of the ministry and we agree on the criteria against which we will audit, with the management of all programs.

Ms Mushinski: I assume those criteria are applied equally across the board for any program that you are auditing. Is that correct?

Mr Erik Peters: No, it's tailored to the individual ministry. It's tailored to each one. The process is standard; the application is tailored.

Ms Mushinski: That's understandable. I guess my question really gets back to what you said in your original submission on the difficulties in measuring outcomes: how do you do it?

Mr Erik Peters: There are a lot of qualitative outcomes. There are really three categories of performance: controlling your input costs, in other words, what it costs you to do something; measuring output-we issued so many drivers' licences, or whatever you do-and then outcome, which is far more difficult, because when you get into outcome, for example, if you issued the driver's licence and your process was tightened up, how many accidents did you prevent because the drivers are now better trained? That's almost immeasurable.

Ms Mushinski: How do you measure the happiness of the customer, in other words.

Mr Erik Peters: In a variety of ways. There are satisfaction surveys, for example, done by various organizations.

Ms Mushinski: Then can I specifically go to your speaking notes, where you say on page 3, fifth paragraph, that "under its goal for cleaner land, the only measure reported on publicly was the percentage of PCBs in storage that had been destroyed. Also, under its goal for healthier ecosystems, the efficiency of processing approvals and environmental assessments were measured but the outcomes of these approvals were not."

Could you explain that? Can I assume from that that the ministry did not have measurable outcomes as a component of its business plan for this particular program?

Mr Erik Peters: It has a reporting responsibility to report on the state of our environment in the province of Ontario. One would expect in the certificate of approval process they are carrying out, what impact does this process have on the environment? In other words, outcomes would be less contaminants put into the air, water or soil of the province. That would be certainly an outcome that you would have. I agree with you that it is a difficult area to measure, particularly because it takes so many factors into consideration.

Ms Mushinski: Right. As you have said, especially in the area of an imprecise science, I guess, where there are constantly changes in scientific applications to environmental purity or whatever. It isn't an exact science, so what criteria do you use? Do you draw conclusions from other jurisdictions? Do you do comparisons?

Mr Erik Peters: We do quite extensive research before we go into it. We certainly use the research that is available within the ministry itself. It is a collaborative effort prior to commencing our audit. For example, there is a rating that says that Ontario, among the 50 states, or whatever it is, and our provinces, ranks number whatever as a polluter. We would look at that report and ask, how did they determine that? How do we, as a province, then let that determination influence how we structure our activities to protect the environment?

Ms Mushinski: My final question is, in making these recommendations and suggestions to ministries, especially on the environment, do you anticipate that you will get responses? How long do you give to get responses? Has any action been taken with respect to your recommendations?

Mr Erik Peters: Firstly, we allow them, of course, to print their response. The time we give them normally-we work together with the ministry staff as we go along. It is a percolating up process. We deal with our findings, say, at the director level. Then we deal with the ADM level. Normally, once we have finalized what is going on for factual clearance, we give the ADM level about three weeks to frame a response. That is after we have already worked with them significantly.

After we get their response, there are a lot of discussions that take place on the responses. Normally, that's about another month of debate that takes place. Then there's actually a final meeting in which the deputy minister and I meet with our senior staff on the particular situation. Then we help them finalize their response.

1130

Mrs Munro: Have we run out of time?

The Chair: The time is up. I was going to suggest maybe another round of six minutes.

Mr Patten: I just have a couple of quick questions. In your highlights this morning, Mr Peters, at the tail end of your report you twice suggest that you urge the government to establish appropriate accountability regimes for funds, and you're referring to the Ontario innovation fund. Then, on the last page, you said you sought over the last decade to have the Audit Act amended, presumably in order for you to audit some of the agencies or bodies that are receiving public funds but you have no access to them. Is that correct?

Mr Erik Peters: We don't have access to all the information. We have access only to the financial information but not access to the other information that we would need to have to assess whether they are achieving value for money.

Mr Patten: When you say you sought to have the Audit Act amended, did you send a letter to the Premier? How do you do that?

Mr Erik Peters: The approach has been actually through this committee. Under the rules of the House, it's the Minister of Finance who is the sponsor of any amendments to the Audit Act, so we have also communicated with him. In this report, I actually reproduce a letter that I'd written to the Minister of Finance in August this year.

Mr Patten: Mr Chair, I wonder if I might flag that as an issue that this committee might discuss in our proceedings maybe in the interim. I mean this is a decade now. We're talking about $30 billion a year that our Provincial Auditor is not able to fully examine on our behalf. It seems to me that would be something that this committee perhaps can examine.

The Chair: I think in the last five years, just for the record, there have been two private members' bills-one by Mr Maves and one by Mr Grandmaître-that were introduced and may even have been debated, voted on, but sort of lost-well, they didn't lose; they just sort of died on the order paper. I think Mr Eves as well, in one budget, indicated that he was going to make amendments to the Audit Act-I think it's the budget of 1996-97-and then it was never followed up on.

Mr Erik Peters: He indicated in that act he would introduce something called the Public Sector Accountability Act. I refer to this in my report. There is action on that particular front that is, though, separate. Mr Eves has re-established the Ontario Financial Review Commission, which was originally established in 1995. Again I have been asked by the minister to act as an adviser to that group. Their report hopefully is going to be presented soon, but one of the mandates was to deal with this Public Sector Accountability Act.

Without wanting to pre-empt them, one of the agreements that we made-and I refer to that in my letter as well-is that the matter of the Audit Act should actually be dealt with most directly between the minister's office and myself because the staff of the Ministry of Finance is subject to audit by me and it's a different approach to the minister in this case that we should have.

But I appreciate the comment that you made, because in 1996 there was a unanimous vote by this committee endorsing the amendments to the Audit Act that I then proposed. In that motion, the Minister of Finance was also asked to provide a response, which he did in September 1996. In that response he indicated that he would take up this issue again once the Who Does What exercise had been finished, because one of the areas that is of difficulty is the municipal area and certainly the working relationship between the province and the municipalities was such that there was a potential of excluding grants to municipalities from this particular project.

Mr Patten: If the committee agrees, my suggestion would be to ask our researcher if he might pull it together. It sounds like there are some initiatives and suggestions and maybe some pieces of legislation that have been proposed. Maybe he could pull that together for us and say, "Look, here's"-

Ms Mushinski: I'd love to see in the Public Sector Accountability Act some comments on judicial accountability as well.

Interjections.

The Chair: Does that includes drug testing for MPPs as well? Maybe you could put a package together and give us a background on that.

Mr Patten: All right, thank you.

The Chair: OK, Mr Peters, you've got two minutes.

Mr Steve Peters: Mr Peters, earlier on when I was asking about legality you said-I'll paraphrase, and if I'm incorrect, correct me-that if the transactions had been completed, they would have been illegal.

I'm coming to the daily trading aspect: my understanding of daily trading is that transactions are closed and completed at the end of a business day. Were the daily trading activities that were taking place a violation of the Agricorp Act of 1996? Were these daily trading activities illegal?

Mr Erik Peters: The transactions themselves were speculative in a business judgment. These transactions certainly took place in the kinds of investments specified in the act itself. In other words, they were doing bond trading; they were speculating on interest rates. So the question of legality was really not there.

Where the question of legality arose in this case was that once the losses occurred, there was an attempt made to charge the losses against the insurance funds as opposed to dealing with them as a cost of administering the fund. That's where the problem occurred. As I said, the transaction in that regard was not finalized; in other words, the taxpayer paid the $325,000, not the funds, not the premiums, not the farmers.

That's what we stopped. That's why we said the intervention took place. My office said, "Look, if you cross that boundary, then you have a problem." But the other one was a lack of judgment, speculative, and certainly a total absence of supervisory procedures of governance and accountability. Why didn't anybody tell somebody, "Don't do this; don't engage in day trading"?

Ms Martel: If we're going to do some work on following up on the Audit Act and potential changes, I do think that we should look at what else you're allowed to audit, or not allowed to audit.

Specifically, the lack of ability for you to audit the Ontario Innovation Trust is just a glaring example of why we need some changes. You made it really clear that the government was using the trust to significantly exaggerate its spending on innovation in that year. I take it the problem was that the government transferred funds to the trust and stated that in fact that money had been spent when in actual fact very little of that money transferred has actually been spent on any project. Is that the question? Was that your conclusion?

Mr Erik Peters: The phenomenon that occurs here is that in the past we used to pay Innovation on the basis of a grant. Somebody came and applied and said, "Here's the money," and we were looking at the grant recipient. This Innovation Trust has actually introduced a middleman, and we are dealing with this as a grant to the middleman without having any control or any information on how well this money is actually spent in terms of fostering innovation in the province itself.

In fact, in my report, I point out that as of March 31, 2000, the actual expenditures of the trust have only been $2.5 million and that there was a commitment for $158 million. There were actually $90 million on hand, unrestricted, there were over $225 million on hand for investment purposes already, and yet we put another $500 million into the trust and said that was innovation expenditure in the year ended March 31, 2000.

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Ms Martel: So I'm clear, the government was also publicly saying this was money that had been spent.

Mr Erik Peters: In the accounts it's treated as spent money, yes.

Ms Martel: So of the $750 million that the government has showed in the public accounts to be spent, are you saying that only $2.5 million was actually spent?

Mr Erik Peters: That's what the trust accounts show, yes.

Ms Martel: The base is not $250 million; it is actually $750 million.

Mr Erik Peters: That's right. It is an original $250 million in the previous year-

Ms Martel: From 1998-99-

Mr Erik Peters: -and another $500 million in the year ended 2000. The accounting is acceptable simply because the trust is not controlled by the government. Of the trustees, a minority membership is the government and the majority are I believe universities, hospitals and somebody else. There's a third group involved which doesn't come to mind. We have a minority interest, so the government, for accounting purposes, can say, "Yes, the money flowed out the door because it flowed to the trust," but whether it has actually been spent by the trust on innovation, that is where I'm saying the accountability is not there. The trust, by the legislation which establishes it, is not even accountable to a minister of the crown and therefore I think it would take a legal decision as to whom you can even ask questions about this now. If you wanted to have the Ontario Innovation Trust before you, whom could you ask to come? There's no minister accountable for it and the trust itself has no accountability relationship to the Legislature.

The Chair: Who controls it? Is it under the Ministry of Finance?

Mr Patten: The Ministry of Energy, Science and Technology.

Mr Erik Peters: Yes, but without the minister having any role.

Mr Patten: Yes, that's right.

Ms Martel: Is there any kind of operating agreement between the minister and the trust?

Mr Erik Peters: No. We spell that out in chapter 2. There is no operating agreement. There is no accountability. You couldn't get up in question period and ask any minister of the crown because they can say, "Well, the trust is not accountable to us."

Ms Martel: There's no memorandum of understanding even?

Mr Erik Peters: No. They are approved as endowments by cabinet. I said, "Specifically, I am concerned about the inability of the government and the Legislature to obtain assurance that the trust is spending public funds prudently and for the purposes intended and to take corrective action if it is not; the lack of ministerial accountability for the trust's activities," and the last one, which may be the least important, is that I can't look at it either on behalf of the Legislature. It is an independent corporation and therefore no memorandum of understanding even.

Ms Martel: Do you have access to their annual audit which is to be done by an independent third party?

Mr Erik Peters: Pro forma, I don't, but when I've asked for it I've received it.

Ms Martel: Is it a public document?

Mr Erik Peters: No, it isn't.

Ms Martel: So you can get it by virtue of the fact that you're the auditor, but we would have to go through freedom of information.

Mr Erik Peters: I'm not sure how you would go about it, to be honest. I asked the Ministry of Finance, and they were kind enough to give me a copy of the auditor's report. That's where the information that I've printed was, that only $2.5 million was disbursed.

Ms Martel: So it was given to you as a courtesy, because you didn't even have a legislative requirement to ask for it.

Mr Erik Peters: Right, plus I raised the issue, actually, in my last year's report already on the first quarter of a billion. I raised it at that time in my report as a significant impairment of accountability.

Ms Martel: That was at the time when $250 million had been transferred, and then despite what you had raised another $500 million was transferred.

Mr Erik Peters: That's right.

Ms Martel: One final question. You said in your media scrum that in all your time as auditor this report and last year's reports raised the most serious findings for you. Can you explain why that is?

Mr Erik Peters: There are a number of issues. There's massive change going on within the government in the way service is being delivered. What we have found repeatedly-I'll give you one example; maybe an illustration helps. When you alter service delivery-I related this, I think, to the media. I attended a conference on private-public sector partnerships. There was a long discussion with some of the governments in the United States, state governments, as to, "If you had to do it over again, what would you do differently?" The first answer that almost all of them gave was, "You would evaluate your pilots before proceeding with a process."

This committee has already met on the Ministry of Transportation, where we went and outsourced a lot of the highway contracts before evaluating the pilot. This year again we have, for example, identified that on the primary care network there was supposed to be an evaluation of pilots first and then proceed with what is going on. So that is one area. In that regard you should also know that the government should have a very clear picture of how much it costs itself to do the program right now and what is involved in its own delivery. The second part, which is really important and which I think I've come out with fairly clearly in public this far, is that when you outsource or consider alternate service delivery, two fundamental aspects have to be adhered to: one is that the policy objectives of the government have to be met; and secondly, once it's done the taxpayer has to be ahead. Those are the two fundamental rules. What we have found in many of the cases is that we don't see yet where there is a clear indication that the ministry has put itself in a position of ensuring that policy objectives are being met and that they are in fact met in such a way that the taxpayer is ahead. Those were the features.

The Chair: We'll have to leave it at that. The government caucus.

Mrs Munro: I know Mr Gill has a comment to raise as well.

I actually was going to bring up the issue that Richard did in terms of the question of the auditor and the recommendations that you made seeking the opportunity to look at the recipients of money. Because we've already been through the main questions that Richard raised, I want to know if this is done in other jurisdictions, sort of the crystal ball gazing in terms of what you would want to see, and obviously if there are other jurisdictions that give us a demonstration of how this kind of thing works in other areas.

Mr Erik Peters: It does work in other jurisdictions inasmuch as other jurisdictions very often have access to that information. Secondly, one point that I want to make abundantly clear is that we are using this only on a discretionary basis. In other words, I don't foresee us auditing value for money in General Motors of Canada because they're receiving a $10,000 grant under the apprenticeship program, to use an extreme example.

Ms Mushinski: Didn't that happen in 1994?

The Chair: In 1984, I think.

Mr Erik Peters: In previous meetings Mr Patten very often raised the question-for example, we have a small social service delivery agency that receives, say, a $40,000 grant and we don't want to impose on these people all sorts of reporting, not only a reporting structure that may be very costly and terribly counter-productive to what they're doing, but on top of it say, "And, by the way, if you don't do it right the Provincial Auditor can come in and take a look at you." So there has to be a great amount of discretion as to what we can actually look at, not only for the reason of the recipient-or I should say primarily for the reason of the recipient, but another reason, of course, is also the call it makes on my resources. One of the things I have to consider in this regard is the resources, and in that regard I should tell you that we would have great difficulties accommodating this under the current budget, largely on the basis that currently my office is funded to the extent of about 14 cents for every $1,000 that the Ontario government spends. Compare that with the nearest colleague in the legislative auditing community that I have, and they have about triple the funding, in the range of about 35 to 40 cents per $1,000.

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The Chair: Which jurisdiction would that be?

Mr Erik Peters: There's a number of them. New Brunswick is very close; they're at about 38 cents. The federal government is at around 35 cents or thereabouts. BC, for example, as a much smaller province, has a far larger budget than I do, about 25% more money than I do. I had to bring that out because it may require an increase in the money spent on my office.

Ms Mushinski: The federal government actually ignores the auditor at times, too.

Mr Erik Peters: I won't comment on that.

The Chair: The election is over. We've got another three or four minutes left, Mr Gill.

Mr Raminder Gill (Bramalea-Gore-Malton-Springdale): As I understand, these audits have been going on since perhaps the 1930s or whatever, and various governments go through this. It seems to me from our discussion today that each year we look at similar things and we seem to be highlighting the same concerns.

I'm not sure whether governments ignore it or those concerns are not so valid, or whatever reason, because we seem to be going through this year after year. Everybody is paranoid, the report comes out. Do you want to maybe elaborate on that?

Mr Erik Peters: Firstly I just would like to comment on the year. The concept of value-for-money auditing in the government was actually introduced in the late 1970s. Up to that point, many legislative audit offices were really more an adjunct to, in some areas, the Minister of Finance, for example in Manitoba.

Ms Mushinski: The federal integrity commissioner.

Mr Erik Peters: Pardon? Right. Well, I can't comment on that.

The Chair: You didn't mean to say "right."

Mr Erik Peters: Can Hansard please take that one off the record? That was the heat of the battle.

Yes, there is a certain degree of concern of my office that, as I did again this morning, we raised questions seven years ago and action was not taken. It has to be taken in the context of priorities. It also has to be taken in the context of the government's own reaction. I should tell you that, with this year's report, I was quite pleased with the government's approach to the report in the House. They said, "Yes, we have problems. Yes, we're going to fix them. Yes, we're going to address them."

That's exactly what this committee is about, and that's exactly what the government is about, and that is what makes my reports have a difference. I can tell you also that in terms of return on investment, my office is outstanding. We have identified opportunities for saving money for the taxpayer, and they have very often been acted on, and money has been saved by the government in doing things better.

The Chair: So, Mr Gill, this is not a useless exercise.

Mr Gill: Specifically on your speaking notes, page 4, the second paragraph: you're talking about the ambulance system, and you're hypothetically saying because of realignment, because of downloading-as if the system or the service delivery or the response time is going to get bad. You're hypothetically forecasting that we might need $100 million more to achieve some kind of benchmark of 1996 response times. Do you want to elaborate on that? Is it hypothetical?

Mr Erik Peters: No. I'm repeating what the ministry told us. These are not my estimates. These estimates are done by the Minister of Health. It is their own estimate of what it would cost to re-establish the service levels or the response-time requirements that were actually met in 1996. These costs include, as Ms Martel pointed out, a certain amount of one-time costs of having to cancel contracts in facilities and leases of about $11 million. But there is also a $53-million estimate made by the ministry based on what the municipalities are telling them right now as to what it would cost for municipalities to take over the ambulance services.

As you know, this service was supposed to have been downloaded as of January 1, 1998, or somewhere thereabouts, but great difficulty ensued. Because the municipalities were largely not prepared to assume the responsibility for the service, the government retained providing the service and then also changed the funding formula and how they deal with the municipalities at that point. The municipalities are paying for it. So, their $100-million number is not my number, it's the ministry's number.

The Chair: One minute left. Ms Mushinski. Well, OK, 30 seconds each. Mr Hastings.

Mr Hastings: I'd like to get Ray to find something out for us regarding Mr Peters's comments about the 25% reduction in the environment ministry leading to fewer inspections. This is that old input-output problem you talk about, Erik, and that the only way you can improve your inspection numbers is that you have to have more staff. That gets me thinking you're caught up in the same quandary that the rest of us are. You've got to go beyond that equation to why can't you prioritize your inspections in terms of getting the same result number out versus your inputs. In other words, it becomes a management issue. You were talking about drivers' licences and how that's managed. If you have a good driver-ed program, you should have a reduction in accidents, but it doesn't necessarily follow; it should. I'd like Ray to do some work on that to show where you only have inputs-outputs and there's no other way of managing the issue.

Mr Erik Peters: Can I just very quickly say two things? I'm not talking about staff; I'm talking about the number of inspectors. But the second one, I'm just wondering, rather than burdening our researcher with it, whether there's a possibility at all that that issue could be raised with the ministry when it's before the committee, whether they could provide the information and if that question could be raised with them.

Interjection.

Mr Hastings: Broader? I was using environment as the example.

The Chair: We'll have to leave it at that, because I see there's a vote being called. I have three very quick points. Ray is going to provide each office with a package on Agricorp today. It will go into some of the background as to the relationship between Agricorp and the ministry etc. Every committee member will have that before the weekend.

Ms Mushinski: I'd like to see a copy too of the constitution for Agricorp.

The Chair: I think that's part of it. So next week Agricorp will be discussed. There will be a 30-minute closed session. The ministry, or at least Agricorp, will then be given 15 minutes to make their presentation, and there will be about 20 to 25 minutes left for questions and answers for each caucus.

The final thing that I wanted to say is that on Monday evening between 5 and 7 there is a reception that the CAs are holding, and there will be some pertinent comments about Erik Peters at that point in time, so I would ask all of you to attend and bring your colleagues as well.

Ms Mushinski: Pertinent or impertinent?

The Chair: Pertinent, I'm sure. The committee is adjourned.

The committee adjourned at 1159.