HANSARD

Printed and Published by Nova Scotia Hansard Reporting Services

Ms. Maureen MacDonald (Chair)

Mr.Chuck Porter (Vice-Chairman)

Mr. Patrick Dunn

Mr. Keith Bain

Mr. Graham Steele

Mr. David Wilson (Sackville-Cobequid)

Mr. Keith Colwell

Mr. Leo Glavine

Ms. Diana Whalen

WITNESSES

Office of the Auditor General

Mr. Jacques Lapointe, Auditor General

Mr. Alan Horgan, Deputy Auditor General

Mr. Terry Spicer, Assistant Auditor General

Ms. Ann McDonald, Assistant Auditor General

Ms. Evangeline Colman-Sadd, Assistant Auditor General

In Attendance:

Mrs. Darlene Henry

Legislative Committee Clerk

Ms. Sherri Mitchell

Committees Office

HALIFAX, WEDNESDAY, NOVEMBER 26, 2008

STANDING COMMITTEE ON PUBLIC ACCOUNTS

9:00 A.M.

CHAIR

Ms. Maureen MacDonald

VICE-CHAIRMAN

Mr. Chuck Porter

MADAM CHAIR: I'd like to call the committee to order, please. Good morning.

Today we have with us the Office of the Auditor General regarding the report that was released last week. We'll begin in the usual manner, with introductions.

[The committee members introduced themselves.]

MADAM CHAIR: Good morning and welcome. I will now ask Mr. Lapointe for some opening remarks, then we'll proceed to questions.

MR. JACQUES LAPOINTE: As you know, last week my second semi-annual report for 2008 was tabled with the House of Assembly, and I'm pleased to have the opportunity to discuss it with you here today.

The report includes five chapters on program performance audits that we completed during the year - the chapters on payments to vendors, internal audit, home care, pension regulation, and public passenger vehicle safety. It also includes two chapters on our audits or reviews of government financial reports and our reviews of the external audits of government agencies.

Chapter 1 also lists the other reports we have issued this year since our last report in February and those include the opinions on the 2008-09 revenue estimates and the March 2008 government financial statements, and the two special reports we issued on the Nominee Program performance report for 2007-08 and also our business plan for 2008-09.

So, Madam Chair, to leave maximum time for questions, I'd be pleased to answer your questions.

MADAM CHAIR: Thank you. The opening round of questions will be with the NDP caucus. I recognize Mr. Wilson, and you have 20 minutes.

MR. DAVID WILSON (Sackville-Cobequid): Thank you, Madam Chair, and thank you again for coming before the committee.

First, I want to thank you, Jacques, for the work that you and your office do on behalf of all Nova Scotians, on ensuring that there's a group or an office looking at the best interests of Nova Scotians around where their money is going. Today I'll be sharing my time with my colleague, but there are several important areas here that you covered in the last audit, so I'm going to start with the home care aspect of it. As the Health Critic, I'll lean that way for the first round.

I noticed that with your audit - and being on this committee for a number of years, I think it's important that government recognize the recommendations that your office puts forward in the audits that you do. Sometimes they do respond well, I must admit, to some of your recommendations, but sometimes they don't. We take the audit that you did in Health on home care, you had indicated in the audit that over the past number of years, since 1996-2002, there were a number of recommendations. I'm not too sure who I should ask my questions to, but the first question clearly is, how many recommendations have been made over those number of years from your office - and I know you haven't been here and some of your staff - from the Auditor General's Office since 1996 involving home care?

MR. LAPOINTE: There were, I must say, quite a few recommendations made over that time - there was a report in 1996, and one in 2002, and this one.

What we did in the report was list at the back of that chapter the ones still outstanding, which is most of them. There are quite a few. We've examined some of those areas again and added a further 28 recommendations this year, which incorporate some of the issues addressed before, and obtained a response on all of them.

MR. DAVID WILSON (Sackville-Cobequid): We all know the numbers, there were 29 recommendations made from 1996, and this audit you made 28 recommendations. From the previous audits, it's correct that only 17 per cent of those recommendations, which I believe five recommendations were implemented. To your office, does that concern you -

specifically to home care and the number of audits that we have seen over the last decade - that 17 per cent of your recommendations the government has actually acted upon? Is that a concern of yours, and your office?

MR. LAPOINTE: It was certainly a concern to us; it was one of the reasons we decided to have a look at this one. We felt that there didn't seem to be evidence of action being taken on these, and they go back such a long way. Yes, it's definitely a concern and it is why we raised it specifically in the chapter. Our feeling was that all of these recommendations need action now. Things change over time, but the ones that are still appropriate now, the ones that we made now, they are significant and they cover all aspects of the program. The commitment we wanted was to take action on all these recommendations and certainly to do so before the program was devolved or substantially changed.

MR. DAVID WILSON (Sackville-Cobequid): Did you get that commitment from government, that they would do that?

MR. LAPOINTE: We, in fact, did. If you look at the response, the response is very positive. The department does indicate that they intend to take action and that includes our recommendations that at least a plan of action, and actual action on significant issues, be taken before devolution.

The department has committed to doing that, and we discussed it with the deputy minister as well, who also appeared to be strongly committed to us to taking action on this.

MR. DAVID WILSON (Sackville-Cobequid): That's somewhat ironic because I read the response from the government and you're saying now that the minister has indicated that he has a willingness to do that, yet during Question Period, when asked, the minister seemed a bit taken aback and really not that concerned with implementing the recommendations, but I guess time will tell.

That definitely concerns us, with the anticipation of the government devolving home care to the district health authorities and the IWK. So with some of the concerns, why is it so important that these recommendations and the concerns that you have in this area be dealt with prior to them devolving home care to the health authorities and the IWK?

MR. LAPOINTE: Well I can ask Ms. Colman-Sadd to give a little more detail on that, but certainly from a high level our concerns were that the deficiencies that we've noted are significant enough and wide enough, spread through the whole program, that it would not be wise to devolve something which is significantly deficient - it needed to be corrected prior to being handed off to someone else, as their responsibility.

MADAM CHAIR: Ms. Colman-Sadd.

MS. EVANGELINE COLMAN-SADD: Thank you. I guess more specifically, as an example, one of the things that we found was an inconsistent application of policies or, in fact, difficulty to determine where policies were. They're not all in the same place. They're sort of a mishmash, they're scattered, and our belief is that if you devolve it in that state, so that nine health authorities, plus the IWK, all have responsibility for home care, then you're not likely to achieve any sort of consistent application and a consistent level of service throughout the province. So we felt that there were certain areas that needed to be addressed before devolution and then, for maybe the less critical ones, a plan of action put in place to address them in the early stages as it's being devolved.

MR. DAVID WILSON (Sackville-Cobequid): So what you're saying - I mean, if they go ahead with this without the recommendations, would you foresee problems with the district health authorities and the IWK, those organizations that will take over the responsibility, do you foresee problems within their ability to have that clear and transparent delivery of that service?

MS. COLMAN-SADD: Our concern is that when we did this audit, as it's being centrally administered, we had issues with whether or not services were being delivered in accordance with service plans, whether or not policies were being applied consistently and that's with the central administration because the policies haven't been updated in a really long time. So, as a result, I can only imagine that if you devolved it where ten entities are responsible for it, that that problem is not likely to go away; in that situation, as you decentralize, it's likely to get worse.

MR. DAVID WILSON (Sackville-Cobequid): In your summary, in the kind of "Coles Notes" version that you gave us for Chapter 4, you had indicated that there had been a number of strategies in place, which we know from government, to address home care and long term care and that stuff - and I'd like to just quote from here right quick - "the Department has not determined the future demand for services and does not know whether service providers will have an adequate supply of trained professionals to provide future home care services." That's in your second paragraph.

I mean, when we look at health care as a whole, the number-one concern is recruitment and retention of health care providers. We need the health care providers there to deliver the service. So here in your second paragraph, right off the bat, you identify that the department doesn't really know what the future need is for health care providers in this sector. Does that concern you? Is that correct - am I interpreting that correctly with that statement that you made in your report?

MR. LAPOINTE: I can address that I think. Our feeling was that it's important, regardless of the difficulties today, to be able to look at the program and ensure that the department is able to deliver it effectively in the longer term, and that meant planning and

anticipating the future service requirements and the ability of the providers to have the capability to do that.

What we did find was that there wasn't sufficient evidence of really good long-term planning so no one could really assure us that the resources were in place, or the plans were in place to ensure resources will be there in the future. That's one of the reasons we put it near the top of our report.

MR. DAVID WILSON (Sackville-Cobequid): I know the audit was with the department, do you know the service providers, do they have documents, do they have reports today, are you aware of any that these service providers would have on hand that potentially you could say, well, you know, we know what the outlook is going to be in another five, 10, 15 years so we're preparing for that - are you aware of any of these service providers having that information on hand?

MR. LAPOINTE: We did not find that kind of thing. We did find out from some providers that they were having - in our survey they responded to us that they were having difficulty in finding the resources today, that they were having capacity problems, and in some cases were having difficulty delivering what they had to deliver at the present time and were, in fact, competing with other parts of the health service in the province sometimes for providers such as nurses in the nursing area. So their ability to deal with this problem in the future was still not clear.

[9:15 a.m.]

MR. DAVID WILSON (Sackville-Cobequid): So would you say, you know, with any strategy or any program that you're going to deliver, that information should associate that? Would you agree with that? I mean to implement a government program, wouldn't that be a key part of it? To know what the future holds, to know tomorrow how many people we'll need, how much money it's going to cost, would that not be an important component to any strategy or any plan or delivery of service from a government department?

MR. LAPOINTE: Well, we certainly feel that it is in this case, because this is a program which can be anticipated to have an increase in the demand in the future. It is a core program for taking some of the pressure off the other parts of the health system, and simple demographics I think anticipates that there will be, in the future, greater demand for services in the home. So if there's anticipated growth in this and there's competition for health service dollars, some long-term planning is critical to avoid crises in the future.

MR. DAVID WILSON (Sackville-Cobequid): Your second recommendation in your audit is the fact that the government should update the Co-ordinated Home Care Act and Homemakers' Services Act. We all know that with any delivery of service, any changes in policy, you know, legislation is a positive thing to have associated with that and we see far

too often, especially currently, that we have legislation that dates back decades and hasn't changed with how the delivery service has changed. So your second recommendation, why is it important that government look at ensuring legislation is updated like the Co-ordinated Home Care Act and the Homemakers' Services Act?

MR. LAPOINTE: I'll ask Ms. Colman-Sadd to speak to that.

MS. COLMAN-SADD: When we did our 2002 audit of home care, we noted that there was no single piece of legislation that covered the program, and that would have been one of the things that we were looking for then, you know, some updating of legislation coming from that report, and that's one of the things that did not get implemented. I mean, one of the reasons why it's important to update and consolidate these things is as you devolve to the district health authorities, obviously the way home care services are delivered is changing and it's important to have a legislative framework around that so that there's some mechanisms for accountability and to hold both health authorities and service providers accountable for how services are ultimately delivered.

MR. DAVID WILSON (Sackville-Cobequid): So, for the record, has the government acknowledged that and agreed to that recommendation? Have they advised you that they will be bringing forward legislation that would oversee all that to ensure the delivery of the service that Nova Scotians need?

MS. COLMAN-SADD: The department's response, as listed in our report, is that they agreed with the recommendation in principle and will pursue appropriate new legislation through the government legislative process. So, I would presume, based on that, that they do intend to pursue new legislation.

MR. DAVID WILSON (Sackville-Cobequid): But they haven't given you any timeline on when?

MS. COLMAN-SADD: No.

MR. DAVID WILSON (Sackville-Cobequid): I'd like to get into some of the concerns and deficiencies that you identified in your audit. The first one I want to talk about is the fact that we have service providers throughout the province delivering excellent service in the environment we have today to Nova Scotians, especially in home care. But we don't have signed contracts - we have letters of understanding with many organizations. I think you had mentioned in here that the VON for example, who everybody has so much respect for and they've been providing services in our province for many, many years - their last contract expired in 1996. What's the concern with not having a signed contract compared to having letters of understanding that they currently do with so many service providers?

MS. COLMAN-SADD: The letters of understanding are only signed with certain of the service providers. It would certainly represent the majority of them, but there is not a signed document with all of them. That's one issue.

Another issue is that the letters of understanding don't cover key areas that we would expect to see covered in a contract, like dispute resolution mechanisms, termination mechanisms, if you're having difficulties with the service provider or if they're not providing the service that they're supposed to. And, things like reporting of certain information on a regular basis to help the Department of Health know how the home care program is performing. That's one of the concerns when you don't have a signed contract and you don't have a mechanism for that regular reporting.

I guess there are two issues. Number one, you may not have the information that you need and, number two, you don't really have a mechanism. If you haven't laid out the performance expectations that we expect you to comply with in this contract and a service provider is not meeting them well, you haven't laid them out so it's going to be difficult contractually when you don't have a contract. You just have a very brief page-long letter of understanding to make an argument that these are areas that we expect you to comply with and you're not complying with them, here's the deadline by which you must.

It's much more difficult to enforce those kinds of things if you don't have them laid out contractually with your service providers.

MR. DAVID WILSON (Sackville-Cobequid): The reason why I brought that up is that I think that covers so many problem areas that we potentially will see, could see or have seen in the past. As an MLA, the majority of my calls are from constituents, from residents who are complaining about a government service. In this section here, you're telling us there was no actual complaint process for an individual who might be receiving service from home care. Is that correct? There's no designated approach to someone who might have an issue with home care to complain to the government that we need some changes or even just to identify that there has been an issue.

MS. COLMAN-SADD: That is correct. We spoke with some service providers, we did some surveys of service providers - most of the service providers we surveyed indicated they did have a complaint process in place. We did a little bit of testing at a couple of them, made some recommendations for improvements. But at the Department of Health, there was no process in place, no consistent - you know, this is how complaints are filed, this is how they're tracked. So it would be very difficult for them, for example, to say this is how many complaints we had in a particular fiscal year and here's how they were dealt with because the information is just not compiled in a very readily accessible way.

MR. DAVID WILSON (Sackville-Cobequid): That should be a number one concern of the government because currently, in the system we have today, I know for a fact, people

are waiting months and sometimes even longer for service. They're afraid to complain, they're afraid if they see something that's wrong, they make those complaints, they're afraid that service provider will - you know, it doesn't happen a lot - but that service provider will refuse to come, and there's no avenue, and it just strikes me as strange that the government doesn't have an avenue to keep track of them and a process.

The other concern I see here, that you had noted, was that there was no provision for audits by your office under these letters of understanding - is that correct?

MS. COLMAN-SADD: That is correct, there is no provision for our office to audit, at a service provider as an example.

MR. DAVID WILSON (Sackville-Cobequid): So here we have a service which costs taxpayers, I believe, around $83.5 million a year, if I'm not mistaken - over $83 million a year, yet there's no avenue because of the way the structure and the agreements that they have with these providers, for your office to audit them. I mean that, to me, is something that the government needs to ensure happens, because ultimately that is taxpayers' money and ultimately your office is deemed to ensure that taxpayers' money is being spent appropriately.

I hope the government recognizes that clause in here. I know we've talked about other departments and agencies that don't fall under your jurisdiction, and we have concerns, especially when you're talking about such a large amount of money - I mean $83 million is a lot of money to have no responsibility to have an audit done by your office.

MADAM CHAIR: Order, the time has expired for the NDP caucus. I recognize Mr. Glavine for the Liberal caucus. You have 20 minutes.

MR. LEO GLAVINE: Thank you very much, Madam Chair, and thank you, Auditor and staff, for being here and allowing us to drill down a little further. I hope to cover some - I have some questions regarding the URB and the bus issue, and some on home care as well.

In terms of the bus fleet inspections - I found the numbers quite staggering when you look at almost 4,900 mechanical inspections and 3,100 vehicles being taken out of service. Now out of the 220 inspections from 2006 to 2008, 63 per cent of vehicles inspected had deficiencies. Now we went through, just a bit over a year ago, with the South Shore Regional School Board, again your office doing an audit on their bus fleet and other mechanical processes relating to their school system. So in many ways what you saw in the South Shore Regional School Board is probably much more widespread, based at least on this snapshot through the URB inspections.

So noted also, 274 of the deficiencies noted on school buses and 35 were related to brakes - so how many of these recommendations, if not implemented, could potentially

jeopardize safety of children and passengers in the province? I think based on some of the media reports, this was probably the area of great concern.

MR. LAPOINTE: The difficulty we had with this was identifying the extent of any potential safety issues, simply because the record keeping for it was not at a level that would allow us or, in fact, a board, to be definitive about that. Some of the deficiencies would be relatively minor and some would involve imminent problems, but we don't have that information and weren't able to determine precisely.

MR. GLAVINE: Were you able to determine if, in fact, some of the repairs being done or needed on buses were actually recurring problems?

MR. LAPOINTE: Yes, but I think I'll ask Mr. Spicer to answer in a little more detail on that.

MADAM CHAIR: Mr. Spicer.

MR. TERRY SPICER: Thank you. Yes, in fact part of our testing was we isolated 55 of the buses and looked at the inspections, both of the semi-annual inspections, to assess just that, whether there are similar areas and, in fact, we found that some of them were, and they were typically around tires and those types of things.

Again, though, we couldn't isolate specifically whether it was exactly the same thing because of the documentation around the inspections. It's a fairly high-level documentation so it was very difficult to go deeper into that area.

MR. GLAVINE: One of the obvious deductions here is taking a look at the age of the school bus fleets. Did you have any recommendation around that area that perhaps, you know, government should have a definite standard, or is there a standard in place around the age of the fleet and is this reason for the significant number of buses that are periodically taken out because of deficiencies?

MR. SPICER: There is a standard and, in fact, the URB is quite involved in the process of acquiring buses. I'm not exactly sure of the time frame but I believe it's around 10 years, something like that, where buses are routinely put out of service. What the age of the bus is and how that applies and affects the deficiencies, we are not able to do that, but I guess the deficiencies, you know, they sort of stand for themselves.

MR. GLAVINE: I know this in many ways is probably tough for you to make a definitive statement based on the limitations of some of the records and processes that you do use, however, can we go so far as to say that perhaps we do have a school bus safety issue in Nova Scotia when you take a look at what you revealed around the South Shore system and the URB information that you've been privy to in your audits?

MADAM CHAIR: Mr. Lapointe.

MR. LAPOINTE: I think I would have to say that the concern we had was that the size of the failure rate at 63 per cent at any particular inspection time was a cause for concern and it's a sign of safety risks being too high. It's not, by itself, a sign that there is a safety issue but that there is a risk of one, and on the basis of that we felt that further action should be taken by the board to go further on this and see whether that is, in fact, indicative of something serious or something minor.

[9:30 a.m.]

MR. GLAVINE: And I know in your report you indicated you had taken a look at, at least Newfoundland and Labrador, one jurisdiction, and discovered a very low rate of 14 per cent. So when you take a look at deficiencies on those tested of over 60 per cent, it seems to me that there's something broken about the way we do things here along the line of preventive maintenance, you know, the nature of inspections, limited resources - I'm wondering if you could comment on that, please.

MADAM CHAIR: Mr. Spicer.

MR. SPICER: Just to clarify, we haven't included in the report the Newfoundland and Labrador statistics. The major reason is because it's difficult to compare apples to apples and make sure that what they're inspecting is exactly the same as what's being inspected here.

MR. GLAVINE: Sure.

MR. SPICER: And that's really one of the big problems with evaluating exactly what we have here, but again I think what's important to note is that inspections are a picture in a point in time and these deficiencies that are being noted, it is reasonable, I think, to conclude that these vehicles were on the road prior to these inspections. Now, again, what the real difficulty is, and I think what really needs to be done, is that there needs to be an assessment of the deficiencies to figure out exactly what amount of them are imminent hazards, which ones are out of tolerance, and how much are they out of tolerance, so that action can be taken, on those carriers, that need to be.

MR. GLAVINE: Thank you. With that, I'll move to - are you ready? Okay, go ahead.

MADAM CHAIR: I recognize Ms. Whalen. You have until 9:44 a.m.

MS. DIANA WHALEN: Thank you very much. There are so many issues in this report, so we did want to share our time, if we could - and I welcome you again this week to

go over some of the issues. I wanted to start with the Pension Regulation section, if we could, and a couple of questions there around the recommendations that were made.

I think one of the things that frames a lot of this discussion around financial control, and certainly in the pension area particularly, would be the economic uncertainty we're facing right now and the market volatility which we've been seeing, which means that everybody is watching very carefully, whether they have pension plans, RRSPs and whatever they've done with their money for the future, to prepare for retirement. I think it's more important than ever that there be a sense of confidence in the role that government plays in regulating pensions.

In reading your report, the concern I had was that there hadn't been a number of things done in that department which would have been helpful to give that level of confidence. I believe last week when we spoke, I think it was said by one of the auditors, and I just wanted to get the exact word - that we don't have a high level of confidence in the accuracy of the information that's presented. Could you perhaps elaborate on that?

MR. LAPOINTE: Yes, in fact, I'll ask Mr. Spicer to address that.

MADAM CHAIR: Mr. Spicer.

MR. SPICER: Thank you. What we're saying in our report is that there is limited verification of the information that's reported by the administrators of the pension plan through their annual information returns. So again there is a risk that the information may be inaccurate, which really limits the division's ability to assess that information and overall to assess the health of the pension plan. So they're really accepting the information of the administrators without a lot of independent verification of that information.

MS. WHALEN: So you're saying it does impair their ability to really be sure that the plans are healthy.

MR. SPICER: Again, there is a risk that if the information you're receiving isn't accurate, isn't complete, then obviously your ability to assess that information is going to be impaired.

MS. WHALEN: Is there evidence that in that division they're making an effort to assess the information, or are they simply accepting it - are they doing any analysis at all of the information that's presented?

MR. SPICER: They do do analysis, yes. One of the things they look at is trends from year to year based on the information that has been reported. If there are items that appear to be outside or unusual, they do follow up on that information and get explanations.

MS. WHALEN: One of the things that you mention in addition to the lack of verification, that they didn't take the time or perhaps have the resources to do that, which would be a problem in itself. You also mention that they don't have any look at whether or not the management of those plans is prudent, whether the investment policies or approaches and strategies are really appropriate for the level of risk that a pension plan should bear.

You'll remember, maybe a year ago or so, we had the NSAHO on our agenda here and had looked at their plan and there were questions here at Public Accounts at that time about their management taking a very different strategy and being more aggressive, as we saw it. The manager of the pension area said that was beyond their scope. Could you comment on that? - because I believe they should be looking at that type of thing when they're talking about the pensions of literally thousands of Nova Scotians.

MR. SPICER: Sure. Whether it's beyond their scope, it is within the legislation that they are able to get information, any information that they deem necessary. We believe that to effectively safeguard pensions, part of what you need to do is, in fact, to assess whether the investment strategies are prudent.

Now "prudent" needs to be defined and, again, we believe that the division needs to do that. We do know that there are agencies out there like the Pension Investment Association of Canada that have put some framework around what is prudent - and a prudent investment strategy would include appropriate diversification, whether a risk management process has been put in place and those types of things. So the legislation would support them being able to do that.

MS. WHALEN: When you examined their entire division, did you look at their mandate? Do you think they've defined their mandate in a restrictive way, and is that within their own power or has somebody else defined their mandate for them?

MADAM CHAIR: Mr. Lapointe.

MR. LAPOINTE: I consider that the mandate really is defined in the Act. The main objective of the Act is to safeguard pension entitlements in these pension plans that are covered by it. That means that the department has a responsibility to administer the Act and that means taking whatever steps are required, within reason, to safeguard those entitlements.

Our recommendations were based around that objective and we were saying that they had the mandate and they had a responsibility to go a little bit further than they were doing now, to examine the information from these plans with a little more rigour than they were doing, and to ensure that at least the policies that were in place would be reasonably considered prudent, at least in accordance with the Act and the regulations, within reasonable limits - they don't need to go to excessive extremes on this, but just to do what is possible, and that's more than what they are doing now.

MS. WHALEN: So really, in terms of looking at the prudence or the investment strategies, they're not touching it all, is what I understand and, as you say, the legislation requires them to safeguard the pension assets, to ensure that we have confidence in how our pensions are being managed. It seems they've chosen not to do that.

What I am interested in is the fact that their response to your audit says they are not going to do that. Can you outline what could be done? I guess for us, if we feel, as the Public Accounts Committee, that more should be done, that government should be requiring them to act further - what do we do when they say no, we're not going to move on that recommendation?

MR. LAPOINTE: Well, I can say that particular response to that one piece seems to be a misunderstanding in the department as to what it is we are recommending. I read there from that response and I read that they feel we're asking them to go out and look at every investment in every plan, to audit those and make a judgment as to whether each one is a prudent investment or not, which is a level of audit and a level of work that we're not suggesting at all.

What we've said through that report was that we feel they need to examine the investment policies in place in these plans, get some evidence that they, in fact, comply with whatever would be called a prudent investment strategy, and so you have to define what that would be. At a starting point, you could define it with the investments requirements that are in the regulations to the Act, and not go to extremes, but some further work needs to be done.

So they appear to be objecting to something that we, in fact, are not saying. What we are saying is much more reasonable than what I suspect they think we're saying to them.

MS. WHALEN: Can I just ask - and this is more procedural - but when you're finished your audit and you've made your recommendations, if there is a misunderstanding like that, whose job is it to try and correct it? Are you finished with that audit and you're going on to another area now, or would you be able to have continuing dialogue to sort that out and to increase the safeguards that Nova Scotians have on their pensions?

MR. LAPOINTE: I would say that we're always available to management to discuss these issues; I can't imagine that we would not be. But we have had some discussions, we always do, at the end of the audit, through the audit and towards the end, attempt to clarify these issues. That's sometimes successful and sometimes isn't. We're always available to discuss these things, we don't just wait until two years later, when . . .

MS. WHALEN: Mr. Lapointe, one of our worries is that we've seen reams of recommendations from the Auditor General that have gone unacted on. We see with health care, nine and 12 years have passed under the home care recommendations - scarcely 20 per

cent of them picked up. So there's not much confidence for us, especially in this time of uncertainty, that something is going to be done.

I think what we're hearing is that government needs to take action, that it has to be leadership from our government. You've made your recommendation, you've told us that we don't have the safeguards in place; in fact you've mentioned in your report that in the current financial climate, in the context of waning investor confidence in the markets, additional safeguards should be under active consideration.

I get very much a "business as usual" response from government under your financial controls, where it's oh, ho-hum, these are small things that don't add up to a lot, and yet you've told us they add up to a lot, and with the pensions not accepting one of the most major recommendations you've put forward. I don't know if there's time for a comment on that.

MADAM CHAIR: There is.

MR. LAPOINTE: What we felt was that in these particular times with the problems in investments everywhere and in all pension plans, this is certainly a time when we felt that some active position must be taken and some more action must be taken in monitoring these plans now to make sure there are no serious risks in any of these plans that they will be in danger.

MS. WHALEN: I appreciate that, and I don't know that I have much time to go to the financial controls, but I'd like to just touch on one thing you told us last week, which was that what you're seeing in the response to your recommendations and in and around financial controls on payments and other issues, you're getting a casual, off-hand response from government and that you don't see a culture of control within our government, the way we're managed. Could you perhaps comment on that before my time elapses?

MADAM CHAIR: Order. The time actually has elapsed. I will allow the Auditor General to respond, if that's okay with the PC caucus.

It is okay.

MR. LAPOINTE: Well, I'll just say briefly then that our feeling was that some of our recommendations were subject to a response in that particular audit, that we were identifying areas of low risk and that had compensating controls in any case. We did not agree with that, part of the reason being that in any particular control, that control may be important or may be less important. When you add all of the issues that we found in this and other audits, and all the control issues that we found prevalent in all of the audits by private auditors and all the agencies, we felt that overall it was a cause of concern, and that a culture of control, as I put it, needed to be developed, meaning that we needed to strengthen our attitude to

controls and simply have a more prevalent belief that controls are important and need to be acted on, one by one, until overall the situation improves.

[9:45 a.m.]

MADAM CHAIR: Order. I recognize Mr. Porter for the PC caucus. You have until 10:05 a.m.

MR. CHUCK PORTER: Thank you to each and every one of you for appearing today with us again. We see you quite often and it's great.

I just want to pick up, Mr. Lapointe, on a comment you made a few minutes ago and I think you used the word "misunderstanding." If I understood, what you said is that there was a misunderstanding between you and the department on the information you were gathering. If that is correct, why wouldn't you have continued to meet to work out whatever the misunderstanding that you had was, to clarify any points?

MR. LAPOINTE: We continued to meet with the department through until the day before we issued the report and attempted to clarify the understanding of what it is we were recommending. I'm not sure why there would be a belief in the department at this point, still, that we are recommending an in-depth analysis at the level they're saying.

So I don't really have an answer to that, but certainly we have discussed, and are willing to discuss at any time now, subsequent to the report or at any point, what it is that we're trying to say in the report.

MR. PORTER: So, I guess, just for my own clarity then, did they take this to mean that perhaps the recommendation was overzealous, what you were recommending was unreasonable? Is that what you took from that?

MR. LAPOINTE: What we were told, and what's in the response, is that the particular recommendation - and this has to do with verifying the prudence of investments - that particular recommendation is excessive and is impractical to be on their mandate. Certainly if it was stated that way, I would agree that it would be, but in fact we are recommending a more reasonable approach, that some effort be taken in that direction, and we believe that's possible to do.

MR. PORTER: Okay, and in Recommendation 5.2 it says "The Pension Regulation Division should implement a process to periodically verify that pension plan assets are prudently invested." - I think those were your words, "prudently invested" . . .

MR. LAPOINTE: Yes.

MR. PORTER: "The Division should also verify assets that are invested in accordance with legislation and the plan statement of investment policies and procedures."

Is there another jurisdiction, can you tell me, in this country or in the British Commonwealth where this is done, where this recommendation would have been put forward or is carried out in that recommendation that you have made?

MR. LAPOINTE: Well, I'm afraid I can't quote jurisdictions. I know that the reviews of investment policies are conducted - and I'll let Terry speak to them in more detail on this - but in fact there are audits conducted or visits conducted and plans and information is looked at in more detail. Even if it was not, our feeling was that looking at this particular case, what we're recommending should be done - but I'll let Terry address this more specifically.

MADAM CHAIRMAN: Mr. Spicer.

MR. SPICER: We do know that Saskatchewan and Alberta, as an example, have a model that I think is certainly implementable. They use a risk-based approach to selecting those pension plans that they feel are at risk, and they do actually go out and do site visits. Based on the literature we're able to obtain around what Saskatchewan does, they focus on things like the membership, the contributions that have been made, the asset administration, and also whether the plan is managed properly, which would include appropriate governance models and those types of things in it. So there are models out there that, you know, Nova Scotia could look at as a basis at least to start to look at that.

MR. PORTER: Could look at it, and I understand that, but the particular recommendation in those words aren't exact out there anywhere else, or this is just your recommendation - this is new, this is over and above what other jurisdictions that you've just referenced, Ontario, would basically be more than that, would add to that I guess, build on that?

MR. SPICER: Unfortunately, we haven't been able to go to those provinces and specifically look at what they look at when they go out and do site visits, but again there is a model that's in place in other provinces.

MR. PORTER: Can you define for me - and others who may be watching or listening - "prudently invested", and who do you feel is qualified to judge if a pension fund is prudently invested?

MR. SPICER: Sure. Again, prudently definitely has to be defined. Now, the Pension Investment Association of Canada, if you go to their Web site - and they've made submissions to several provinces on pension legislation reform and those types of things - they talk about some high-level criteria for how one would assess prudent. They talk about whether an investment strategy is appropriately diversified - that would be a criterion that

one would look at to see whether a strategy is prudent; they look at whether appropriate governance structures are in place as an example; and they look whether that investment strategy is based on some assessment of where the risk lies. So it's those types of things that one would assess that could include prudence but, as we indicated, I mean prudence has to be defined obviously with some criteria.

MR. PORTER: I agree, yes. What type of education would one need to remain current on such a thing as prudence when it comes to the situation, and how many people do you think the department would need to retain this type of evaluation? You know, to get into this kind of detail that you're suggesting, I'm just kind of curious as to what are we looking at. Let's detail it out - what will the province need to make what you're recommending be followed through?

MADAM CHAIR: Mr. Lapointe.

MR. LAPOINTE: I can say that we're not in a position to be able to say what kind of resources would be required to do this. We were recommending what we felt was a reasonable approach that should be taken, but we don't determine resources required.

MR. PORTER: I guess I have some trouble with that only because in certain areas - and I want go back a few minutes to the health care side that we talked about earlier on, my NDP colleague talked about earlier, and you were recommending how resources were reflective of the situation, and in this case you are now saying that you can't reflect on how much resource it would take to prudently manage the investments of pensions - how can we do it on one and not on the other, I guess, is what I'm asking.

MR. LAPOINTE: I would say that we would never calculate and recommend to any department the precise number of resources they require to run their department. What we can do is say what we feel would be a reasonable action that they should take. It is then up to the department to see whether or not that requires more resources and then to make a decision, if more resources are required, whether or not they will do so.

MR. PORTER: Okay, so for clarity, I'll rephrase the question then, and that may make it easier for you. So we know, from a performance-based audit, which this is in part, to perform at a certain level you're going to need people who know what they're doing in this field, that's quite obvious - skilled people, investment-type people - so to manage this appropriately, do we have enough staff on hand now to look after what is required, or would you say, from a performance perspective, that we're going to need more resources?

You may not be able to tell me how many or recommend how many, but do we need more?

MR. LAPOINTE: We can't judge whether the staff, who are there now, have the skills required to do the work that we're asking. There is no possibility that we could tell you what resources are required to do this, what skills are needed. There are very skilled staff doing this. The people in the department know what they're doing and if you look at what they're doing, we weren't criticizing it, we were saying that a different focus needed to be put on this work.

When we say that they need to, for instance, obtain audited information or obtain verifiable information through the annual information return and so on, it's not a question of resources, it's a question of a different focus. So it may very well be that they can do it with the people they have now, it may be that they need to bring in more skills.

MR. PORTER: And I guess that was what I was trying to get at. There are a lot of different focuses, as we all know, within government, within Finance and so on. So my question - this is very important, obviously - was there a recommendation within your recommendation that more resources would be needed? That's where I was trying to - you haven't come right out and said - you said prudent investment, right? That's great. A definition is required, as Mr. Spicer has said, as to what prudence is obviously. But again, at the same time, I'm looking for - is there enough focus and is more focus going to take more people to find what that is and carry it out?

MR. LAPOINTE: The different direction we're suggesting in there, as I said, may or may not require additional resources. It may require that the resources that are there now do different things, but it would be up to the department to determine whether more resources are required, whether they had the skills in-house or did not, and then make a policy decision as to whether to apply the resources to that program. Policy decisions of that nature are not in our scope.

MR. PORTER: Thank you. Do you think with the current global financial crisis, Mr. Lapointe, that people's awareness is heightened over their pensions and their retirements, savings?

MR. LAPOINTE: I'm sorry, that people . . .

MR. PORTER: Do you think that given the current global financial crisis that we're in, that people's awareness is heightened around the pensions and their retirement savings?

MR. LAPOINTE: I think everyone's awareness is increased somewhat as to the frailty of investments everywhere, and certainly in pension plans as well. That's true.

MR. PORTER: Do you think this heightened awareness has caused people in this industry undue stress, by people who are prejudging the abilities, based on short-term results - say, the last three or four months - after years of steady growth? I know, we all do, just

watching markets and everything else, they're up and down right now like a yo-yo. So where are people, do you think - are they going to stay the course or are they going to be too nervous- you know, there's a lot of prejudging. Every day there's prejudging and are we there as well now, talking about our pensions and is there any prejudging going on in looking at the long term?

MR. LAPOINTE: That's not the kind of speculation I can get into. You know, the recommendations we're making on here, we started to look at quite a long time before any of the current crisis ever began. These are recommendations that we feel are important at any time on an ongoing basis and they will be important once we leave this current financial crisis behind us in the long term.

MR. PORTER: Are you able to tell from the information you receive from your pension administrator whether a company is prudent about the way it manages your pension funds? You know, we're going back to that word prudent again and without that definition, maybe that's hard to answer, but what is prudent? Is there a confidence or do you have a confidence about your own pension administrator, whether the company is prudent about the way it manages your pension funds?

MR. LAPOINTE: You're asking me to answer questions that are really quite beyond the audit we're talking about here.

MR. PORTER: I guess I see the word prudent and I'm looking for that definition and I'm trying to come up with some things that come back to the word prudent, you know. It's a big word when we're looking, and it's important to prudently invest but yet it doesn't describe what that is. I think that's important to the people of Nova Scotia what that means, hence the question.

We can move on a little bit here too, I want to go back to some of the busing issues as well, some of them have been brought up. Your section on the public passenger vehicles safety notes a 63 per cent failure rate of the buses. I understand that a vehicle could fail, I think you used the word a little while ago, Mr. Lapointe, on some minor things, so a seat being cut I guess, or damaged, or a first-aid kit - maybe a seal was broken. Are those all part of that inspection that you found when you did your audit? Were those all part of that audit process and I know, Mr. Spicer, you talked about it a bit, and I didn't seem to get a clear understanding of exactly what was included in that.

[10:00 a.m.]

MR. LAPOINTE: Yes, we'll ask Mr. Spicer to answer that.

MADAM CHAIRMAN: Mr. Spicer.

MR. SPICER: Exhibit 6.3 on Page 104 I think lies out sort of what we categorize and these are categorizations right from the inspection reports themselves. In that other category, you would have those things like those items you just mentioned there, sort of the medical kits and those types of things would be what we categorized as other. These specific areas are tires, brakes, steering, suspension, power train, instruments and equipment; body type areas like wipers, doors and mirrors, I mean those are fairly self-explanatory.

MR. PORTER: Sure. Do you know how often the inspection on those vehicles is done as per required?

MR. SPICER: It's twice a year.

MR. PORTER: Twice a year. So some of the minor things that we would see would be almost noticeable daily. Would the driver be doing a regular inspection, a walk through on the bus? I remember years ago when I was a kid, my father drove a school bus and every day, at the end of the day you would sweep it out and you would check for, a mirror may be broke, or a seat would be cut, or whatever. Are those a daily reported occurrence, or I guess inspected, would be a daily inspected occurrence?

MR. SPICER: Yes. As part of the requirements, the driver is supposed to do a daily trip inspection where they would basically walk around the bus and look for obvious, you know, potential hazards that might be there. That would include the cleanliness of the bus or, that the lights could be seen appropriately, and those types of . . .

MR. PORTER: So that's twice. Sorry, I didn't mean to interrupt you there.

MR. SPICER: That's daily, the driver does that on a daily basis.

MR. PORTER: That twice annual inspection we're referring to here is the bigger stuff. Maybe the tire is coming off and/or engines being checked, or whatever those bigger items are, unless they fail during the course of in between inspections which I guess could happen regardless of when it was inspected. Is there anything out there that says on those inspections specifically, it was inspected on this date, found this, wasn't done, somebody's safety was in jeopardy?

MR. SPICER: Well, no, the inspections are dated and based on our review of the 220 inspections, any of the deficiencies that were noted, they're either required to be fixed immediately, or if for some reason they need to get a part or what have you, those repairs would be done before the safety sticker could be put on that bus.

The report, I think, is fairly clear and the fact that we have no issues with the quality of the inspections that are done, it's the deficiencies that are being noted is what's concerning.

MR. PORTER: Yes. That was one area, but just for clarity, and for the record again, what area was that inspection done on, that audit done on? What area of the province?

MR. SPICER: All over the province.

MR. PORTER: Everybody?

MR. SPICER: Yes.

MR. PORTER: Were there any noticeable differences between different jurisdictions within the province or were they fairly similar as per those types of notable deficiencies that you're talking about? I guess to be clear, were there any more in, for example, the Tri-County area versus the South Shore area of instances like this?

MR. SPICER: Nothing that was unusually high or low.

MR. PORTER: Okay, thank you. How much time do I have, Madam Chair?

MADAM CHAIR: You have until 10:05 a.m., so you have one minute.

MR. PORTER: Thank you. So you noted though that the failure rate was too high based on how minor or major it is in the deficiencies. What compromises, do you think, the regulator should make to bring that failure rate down?

MR. SPICER: I guess what we're recommending is that they analyze exactly what these deficiencies are - how many of them are imminent safety hazards as they define them? How many are those types of areas that they consider to be at a tolerance? I must say, those standards are what the Utility and Review Board has set so, again, there really needs to be some analysis of what we are finding and in what carriers we need to look to see why some have more serious issues than others.

MADAM CHAIR: Order. The time has now expired for the PC caucus. I recognize Mr. Steele. We'll do 15 minutes per caucus this round.

MR. GRAHAM STEELE: Thank you. I'd like to use my time to highlight a few things that probably haven't come out yet and probably won't come out any other way.

In Chapter 7 of your report, you refer to this issue of additional appropriations or off-budget spending, or money that gets spent by the government typically toward the end of a year, that has never formed part of any budget. The numbers are absolutely astounding. On Page 132 of your report, there's a table that shows that in the last five years there has been almost $1 billion of off-budget spending - $976 million in five years.

It gets worse because $607 million of that amount is in just the last two years, and in the last year it was - one year alone - $385 million of off-budget spending that was never put to the House of Assembly, never voted on by the House of Assembly, for which there were no advance plans of any kind or accounting to the Legislature.

Mr. Lapointe, you have said on more than one occasion, that has to change. What are we going to do about it because the problem's not getting better, it's getting worse?

MR. LAPOINTE: The concern that we've had in my office and as you say, for several years, is that this increasing use of year-end appropriations, as a way of deciding expenditures, bypasses the accountability of the House. As an exceptional measure or a way of dealing with something on a one-off basis, the flexibilty is there to be able to deal with situations that arise, but it's not meant to be, in our minds, a process to be used in a normal, routine way to determine spending. What we've recommended is that a practical process be found to bring these matters to the attention of the House, get a House debate on them, rather than doing them the way they're being done now. We have never recommended what that process should be, that's for the House to decide, but we feel that it's an accountability issue.

MR. STEELE: And what's the danger involved, if the government can spend $1 billion of off-budget spending in five years? In terms that Nova Scotians can understand, why should this matter?

MR. LAPOINTE: It may be that some may see it as a theoretical issue but I see it as an issue of the basic principles of accountability of the House; the more you deviate from that, in a way, the less democratic we're being. So perhaps that's a theoretical issue. But it's a question of ensuring that the vast bulk of the spending of the province has scrutiny of the House and approval of the House before it's done, not after the fact. That's our concern.

MR. STEELE: Now, on that same theme of the scrutiny of the House, the majority of the members of the Legislature have expressed desire to have a financial update presented to the House, in light of the quite serious national and international economic crisis currently underway. The Government of Nova Scotia is almost alone in Canada, saying that it is not in a position to present a budget update and won't be until the end of December.

Do you have a view about whether it would be prudent for the government to deliver such a financial update, or whether it's in a position to do so? The factual question is, is it in possession of the data that would allow it to do that?

MR. LAPOINTE: Frankly, Mr. Steele, that's not really an issue on which I can express an opinion. I can deal with the issues of the report and the issues in the audits that we find, but really not on issues like . . .

MR. STEELE: Well, let me ask you the factual question, then, of whether the government and the Department of Finance would have in its possession information about the state of the economy and the state of government finances on any given day that would allow it to have some sense of the current state of the province's finances.

MR. LAPOINTE: Again, you're asking me a question, in effect, speculation on facts which I haven't investigated and which I simply don't have facts with me to be able to answer.

MR. STEELE: Okay. I'd like to go back to this issue in Chapter 5 of pensions, which has been explored by some of the other members. I want to start by quoting from you a line from your report, from Paragraph 5.13. It says, "We concluded that the current systems and processes were not adequate to effectively safeguard pensioners' benefit entitlements." To me, that's dynamite, it's shocking that the processes within the Pension Regulation Division are not adequate to safeguard pensioners' entitlements.

I'm not sure if that message got through clearly enough. You've talked about the fact that the Pension Regulation Division has enough staff, although maybe they needed a different degree of expertise, and yet the Pension Regulation Division seems to think that everything is fine, that there are no problems - and you both can't be right. Does the Pension Regulation Division need a shakeup in order to meet their statutory obligations, and what would that shakeup look like?

MR. LAPOINTE: If you look at our report, it's not a question of a shakeup in a department, it's a question of simply undertaking certain proceedings and taking certain procedures. Whether they can do it with existing staff or with other staff or with retraining of current staff, we don't know, but we felt that the recommendations we were making that would allow them to say they are taking reasonable steps to safeguard entitlements, were reasonable steps, reasonable recommendations. If they were not, frankly, we wouldn't make them.

If we felt that our recommendations were such that they reasonably could not be handled by the department and were going to cause resource problems, and it was obvious it would, we would address that in the report. As it is, we're not in a position to say whether they can handle it or not but what we felt was that what we were saying they should do was not that extreme.

MR. STEELE: Okay, because, for example, in Paragraphs 5.22 to 5.26 you refer to the fact with respect to investment policies. Now, let me back up a bit and say that the law requires that pension funds be prudently invested but the Pension Regulation Division, according to your report, does not typically even have investment policies on file. They do not review whether those investment policies are prudent in the circumstances, they do not review whether the investment policies are even being followed.

What concerns me the most is that according to Chapter 5, this audit was completed in February, long before anybody knew that financial turmoil was coming. So if things were bad then, presumably they're worse now. Yet the department's response is, well, you're asking us to do too much.

So what do you think we need to do about this? There's obviously a disconnect between the words you used in Paragraph 5.26, "a significant risk", and what the government says, which is nobody else does what you're asking us to do so we're not going to do it. What do you think we, as members of this committee or members of the Legislature, need to do in order to get the government moving on this very significant issue?

MR. LAPOINTE: It's certainly hard for me to answer that question but it is certainly within the power of the Public Accounts Committee to determine to pursue certain issues and if the committee chose to pursue this issue, presumably it could find out a little more than we found out during the audit, or take it further.

MR. STEELE: Now, two weeks from today we have coming before us the chief executive officer of the Nova Scotia Pension Agency and I know the Pension Agency was not included in this audit because it's not subject to regulation of the Department of Environment and Labour. But based on your audit findings, what advice would you give this committee about the issues that we should be pursuing with the CEO of the Public Pension Agency?

[10:15 a.m.]

MR. LAPOINTE: Well, presumably the committee could ask the same questions that we were asking in the audit and see what kind of answer they get in comparison. That's how I would advise the committee.

MR. STEELE: I want to turn quickly, because my time is running down, to Chapter 3, which I don't think is going to get a whole lot of attention if we don't raise it today, and that has to do with internal audit. Now, I want to refer to Paragraph 3.12 of your report which says, "We concluded the internal audit activities for the government reporting entity as a whole were inadequate, and in fact did not exist for many significant entities. There was no internal audit function in any of the district health authorities or regional school boards, which account for about $2.1 billion of Provincial expenditures. In addition, significant agencies, boards and commissions, were lacking internal audit." Why should that matter to Nova Scotians?

MR. LAPOINTE: Well, internal audit is a control that can often be overlooked, you know, and in the past in corporations it certainly was, it was underestimated. But ever since we've had the calamitous corporate problems of Enron and WorldCom, and all of the others that followed, it has become an accepted corporate standard that a strong internal audit

function reporting to an independent audit committee is one of the safeguards against such things as large-scale corporate fraud or large-scale problems in an organization as a key control and a cornerstone of good governance. So surely, if that's true in the corporate world, it is true in government as well, and it's a resource and a control that is invaluable to our minds. We say that not because it's an audit function related to us, it's quite different from what we do, it's a management support.

MR. STEELE: It's interesting, you know, in this chapter of your report you find - and I know I'm putting words in your mouth, but I'm trying to summarize - that when an internal audit is done, it's done pretty well. The problem is so little of it is done that it's really just a drop in the bucket.

I want to mention on the Nominee Program, the immigration program that we're all thoroughly familiar with, it's interesting, one of the many documents that was released to this committee was an internal audit report, which was superb, it was excellent. The analysis was good, it was well-written, identified all the issues that later came up. The problem was that Internal Audit had been brought in too late and by the time Internal Audit had done their analysis, the train was already hurtling down the tracks and, of course, all the problems, all the risks that were identified by Internal Audit, in fact came to pass.

I do agree with you, when an internal audit is done, it is great, it's just not done enough. You say in Paragraph 3.18, "The lack of internal audit throughout the GRE. . ." government reporting entity, ". . . is a significant deficiency, and the impact of its absence in the overall governance framework of the Province of Nova Scotia cannot be overstated." I mean, for an auditor, that's pretty tough language, but the government is not doing it, so what are we going to do about it? What are you going to do about it?

MR. LAPOINTE: I agree, these are strong words, and they are strong words because what we see as a key control is effectively missing in large parts of the organization, and we know that it could be so much stronger by having a control like this.

I must say that the conversations we've had with departmental staff indicate that senior people are looking at this, discussions have been held about our chapter with the existing government Audit Committee, because they need to determine who would take action and what that action would be. We mentioned that an oversight committee, an oversight group needs to take some decisions on this, but who would that be? That decision is still to be made.

MR. STEELE: The government is probably thinking that this is a cost item. Is there a possibility that a proper internal audit function will save the government money?

MR. LAPOINTE: It's something that is very hard to prove. Internal auditors here and there have every now and then gone out and attempted to find those costs and, when they

have, they've been successful, but it's very hard to prove. It remains that it's my personal belief that an internal audit function saves money until you reach a point of diminishing returns, which it's never approached for the simple reason that they are very good - when they work - they're very good at finding efficiencies, at preventing problems from arising that would cost money if they arose. We feel that it's a very effective investment in long-term efficiency, and that's one of the reasons we feel it's important.

MADAM CHAIR: Order, the time has expired for the NDP caucus. I recognize Mr. Colwell for the Liberal caucus. You have until 10:36 a.m.

MR. KEITH COLWELL: Thank you. I have an initial question that isn't in your audit report, but it's a question I think is important to Nova Scotians. It's on how we report unfunded liability, in particular the unfunded liability of the pension fund, which I've been hearing rumours is between $900 million and maybe $1 billion - I don't know what the number is, but it's very, very high.

Should that unfunded liability, or a portion of that unfunded liability, be shown on the books of the government when they start calculating whether they're in a deficit position or not, or is it just totally ignored - or how is it done? I know the bookkeeping system a few years ago was changed substantially to more of a business type of bookkeeping rather than what the province had for a couple of hundred years, and a lot of these things now are based on the yearly expenses rather than the capital costs that they have.

I'd like your opinion on that because that's a very important question. We've danced around the pension funds here a lot, by everybody, but the real issue is, will this put the government in a deficit position? I'm looking for the bookkeeping answer of that, not the dollar answer of it.

MADAM CHAIR: Mr. Lapointe.

MR. LAPOINTE: I think I will ask Ann McDonald to speak to that.

MADAM CHAIR: Ms. McDonald.

MS. ANN MCDONALD: The government's financial statements currently reflect the unfunded position of the plan. There are two sets of financial statements that relate to each one of these pension plans, and I'm speaking about the Public Service, the Teachers' Pension and the Sysco, which are the significant funded plans - "funded" meaning that their assets have been set aside to deal with future benefits to be paid.

The sets of financial statements deal with the plan itself and then, on the province's financial statements, the province's liability associated with those plans is reflected. So you have a set of financial statements, for example, for the Public Service Plan that will show an

unfunded liability. The government's, after they account for it, their liability is shown on that plan as well in their financial statements, so it is considered in the overall financial position of the province.

MR. COLWELL: My concern with that is, with such a huge unfunded liability and potentially a huge bill that's going to be coming to the province over time, how can they possibly balance the books with this huge potential impact to the financial statements of the province?

MADAM CHAIR: Ms. McDonald.

MS. ANN MCDONALD: If you're referring to the actual pension statements, there is, of course, the unfunded part is the liability, shown as the deficit in a plan, the difference between the benefits that are to be paid and the assets that are there to cover it.

On the province's financial statements, the liability for the pension plans forms one part of the total liabilities of the province and ultimately any deficiency in the pension plan is reflected in the total net direct debt of the province. So that's how ultimately the books get balanced, through a debt situation.

MR. COLWELL: So it showed in a debt situation rather than an operating situation. With the debt situation you only look at the servicing costs of the debt for the yearly statements to see whether you balanced the books that year, correct?

MS. ANN MCDONALD: On the total province's financial statements, of which the pension liability is a part, yes, that's right, the debt servicing costs include the costs associated with these plans in the total expense for debt servicing for the province's books.

MR. COLWELL: Yes, that's what I thought. In other words, then, on the other side, on the debt side of it, where the province is somewhere around $13 billion or $14 billion in debt, if they add this unfunded liability in, would they have to add it all in?

MS. ANN MCDONALD: The way that the province accounts for its liability in the pension plans is quite complex. It deals with smoothing out pension assets over a period of time, to allow for fluctuations in markets, so we're getting into some fairly technical accounting terms.

But to quickly answer your question, the unfunded position of the plan at any point is going to be part of what comes forward to the province's total liability, and so consequently it is a consideration point in the province's total debt, whether it is a direct impact of the addition to the unfunded liability that's taking place, or reported recently, remains to be seen at year end as the smoothing impact of the existing assets is considered. It's quite complex.

MR. COLWELL: Yes, I realize it is. The other thing is there's some discussion about the unfunded liability of the Workers' Compensation Board being up again this year. Again, is that handled exactly the same way?

MS. ANN MCDONALD: The Workers' Compensation Board is a separate entity, so their unfunded liability is dealt with outside of the province's financial statements.

MR. COLWELL: Okay. The audit report that the Auditor General presented this last session, the last time we had the briefing and the reports you've tabled, I'm very pleased with the results of the - well, I'm pleased and I'm not pleased. You've stated through the process there is a lack of culture of control with government, and as you go through the report and you look at all different things, indeed it is showing up everywhere - it's everywhere in the system.

You talk about home care, some of my colleagues have talked about that - from 1996 to 2002, only 17 per cent of the recommendations implemented, and I understand government doesn't have to implement them all and they may choose not to implement them all, but I have a high regard for the Auditor General's Office and always have had, and between 2004 and 2005, only 39 per cent of them were implemented. Then when you look at other things that are happening - and there are serious issues in the home care problem if you talk to individuals who are not getting adequate home care - the home care providers say they're not being provided with money, the province says they don't have staff - it's a whole big mess. In the meantime, senior citizens are waiting to get into nursing homes and all the problems that go with that. Probably if some of these recommendations would have been implemented, it may have alleviated some of those problems.

Then we look at the problem that the Auditor General, your office has had, for example, the immigration file which, again, was stated here already. We're very familiar with it and being only, first of all, not being given information, refused information - that's inconceivable. It's just inconceivable in this province that that should happen. Then they find out that when you do finally get access to it, here, you can have a look at this, you're not allowed to photocopy it, you're not allowed to take it, and by the way you're not allowed to look at this stuff. This is not acceptable.

Then you go on and review the payments to vendors and then payments to vendors - there's a serious lack of control and a great risk to the Government of Nova Scotia and if it's a great risk to the Government of Nova Scotia, it's a great risk to the taxpayers of Nova Scotia. Then we see Executive Council appropriations, which was already talked about here, growing to unprecedented levels, passed by Executive Council and for who knows what when it really comes down to the fact. I know the Auditor General doesn't decide where money is spent, you just report and you follow accounting practices, but when you look how it has grown since, you know, from $99 million in 2003-04, $159 million in 2004-05, $111 million in 2005-06, $222 million in 2006-07, and $385 million in 2007-08. If you look at the

way that the government seems to be - just a total lack of control of what's going on. I definitely wouldn't want to have to be in your shoes to report all this stuff and try to track it all down because it's very difficult to do.

[10:30 a.m.]

Then we talk about, you know, in the last session of the Legislature, we've been pushing the government for a financial update. I'm not convinced even when we get the financial update, based on the information that's provided here by your department, your Office of the Auditor General - which again I have a great deal of respect and faith in - that I'm going to have too much reliance on the government's financial statement update whenever they bring it until after the Auditor General has had a chance to look at it in some detail. It's very difficult because you only look at different aspects of departments and things because it's impossible to look at the whole picture. You would have to have about another probably 200 or 300 staff to do that on a regular basis which wouldn't be practical. I'm not going to really have any faith in those updates when they come based on what they're doing.

Then there's a lot of discussion in the reports about internal audits that aren't being finished. That concerns me greatly after running a business for a long time. Audits are important, they really show you where you should be. Sometimes you don't like to hear the answers - and that's fine too - but if you implement what has been suggested, generally it improves your business. In this case, it would improve government and I feel all the recommendations you've made here make a lot of sense, a lot of practical sense.

There has been some indication here by government members that indeed they've been trying to nail the Auditor General's Office down about decisions you make here and there. People forget - and sometimes the auditor doesn't say this, and can't say or doesn't say it - that indeed the auditor only reports using approved accounting practices and principles of what the deficiencies are. You don't make a decision on how they're going to be repaired or replaced, or do anything else with them.

We talked about the school bus system here with the vehicles; that's in quite a disarray and it shouldn't be. I mean all these things we're talking about aren't new. This isn't something new, this isn't rocket science. It's not something that's a whole new technology but you talk about the school bus system and I ran a quality assurance system in my business. It's very clear with the buses and the school system - there is no quality assurance system. There are no checks and balances in place, just by what was reported. It begs to ask the question that if there are so many things wrong and so many things that the government isn't co-operating with the Auditor General, which I think is absolutely essential in any government - it doesn't matter who they are, where they are, what's going on - to keep control of things and to keep track of things, that these things simply aren't being done.

I can't believe that it is the Civil Service that is doing this because I think we've got a very professional Civil Service in this province. When the government decides to expropriate even in this year $385 million for extra expenditures - and then I hear of announcements being made in communities for money that is being spent and there doesn't seem to be a program to go with the money, maybe that is where this $385 million is going, and that's not accountability by government of taxpayers' money. So I'm very, very concerned about this and I know my colleagues are as well. It seems like there has been a lot of, I wouldn't say mismanagement in government, but not appropriate management in government as time has gone forward.

Maybe I could just ask the Auditor General just one question, and again you may not be able to answer it, based on the work that you are supposed to do. In the overall picture of the government, with all these deficiencies, all these things that if you're running a business, if you're a CEO of the organization you'd probably be fired, quite frankly, by the board of directors if all these things weren't corrected, or most of them corrected and improved as they move forward, do you think the government in general has a real handle on how to run the financial situation of this province?

I know you may not be able to answer that question, but I think it's a very, very important question.

MR. LAPOINTE: Well I think you're right that I can't really answer that question. The conclusions we were able to come to in this report, as far as we could see in terms of generalizations, were that we were running across similar financial control weaknesses - and also the IT component of financial control weaknesses - in a lot of areas that we went into and so were our private sector auditors auditing agencies. There was a consistency across the board in weaknesses, in financial controls and in IT controls related to them - inaction in dealing with them so that they persist over time. That is something we felt had to be addressed in some way across the board.

MR. COLWELL: That would indicate to me there is a management difficulty, a management problem there at some level and ultimately the ultimate responsibility of this province goes to the Cabinet to direct their deputy ministers and staff to move forward.

So it all, as you've indicated and I realize you couldn't directly answer my question but you did in a roundabout way, there seems to be a deficiency in management ability in this government and the more and more reports we see from the Auditor General, the more and more things we see and hear outside of the Auditor General, it leads to more and more belief that that is the case. It's very, very concerning, especially with the financial situation that we're seeing in the world today, there doesn't seem to be any slowdown in spending by the government . . .

MADAM CHAIR: Order, the time has expired for the Liberal caucus.

I recognize Mr. Porter for the PC caucus. You have until 10:51 a.m.

MR. PORTER: Thank you. I don't have a lot of time but there are a few areas I want to cover so I'm going to go through them rather quickly.

I want to go back to the busing issue for a couple of minutes, and just a couple more questions I had, based on some of the information. There are four categories that were examined, I believe, in busing. Of those four, where did the school buses rank, by way of deficiencies and the average of the group?

MR. LAPOINTE: I'll ask Mr. Spicer to answer that.

MADAM CHAIR: Mr. Spicer.

MR. SPICER: Again, I can point you to Exhibit 6.2 in the report. School buses, percentage of inspections with deficiencies was 63 per cent, which is right about on the average of all of them.

MR. PORTER: All four were about the same?

MR. SPICER: Yes.

MR. PORTER: There's criticism in the report regarding the outdated management information software used by the division. Isn't it unfair, I guess it may be the right word, as a new system was in the works and planned to be up and running - did you know in your investigation that they ran into a supplier issue, and was that recorded?

MR. SPICER: Yes, again, as the report indicates here, we recognize that management has acknowledged that they need to update their information systems and that, yes, in fact they had started the process - I believe it was in 2005 or 2006. But, again, we're in 2008 now and it's a critical part of their ability to manage this process. We acknowledge that they recognize it, we acknowledge that they deem it as a priority, and I'm confident that a new system will be in place soon.

MR. PORTER: Thank you for that answer.

You note that driver error is often cited as a reason for accidents and that the division has limited monitoring of driver activities in this area - I think it was maybe in Paragraph 6.28. But there is no specific recommendation that I could see in this area. Have you a recommendation? Is there a reason why that wasn't put forward? What do you expect the division to do?

MR. SPICER: I guess the recommendation is incorporated in our Recommendation 6.4 around the division doing an overall risk assessment of their operation and analyzing where the risks are and whether they have the appropriate controls in place to deal with those risks. So, specifically, we believe it will come out of that risk assessment process, how they will address that particular area.

MR. PORTER: We talked a little bit about the daily inspections that are done by way of drivers on regular things. These buses are on the roads five days a week, some of them more, depending on the extracurricular activities that they're involved in. You did express, to some degree, your opinion with regard to the daily and the semi-annual bus inspections. Is it adequate in your opinion, as auditors, that these inspections are satisfactory in the present system?

MR. SPICER: Sorry, can you repeat that question?

MR. PORTER: Do you think the inspections are adequate? The time frame, the dailies, the deficiencies that are being shown obviously are reflective that the work is getting done, but as an auditor are you confident that the inspections are being done twice yearly? Is that adequate for what you're finding, and also by way of what's being found daily - I think you mentioned high levels in the daily stuff, and others that were being found - do you think that's adequate, as an auditor?

MR. SPICER: Sure, well, again, the report clearly indicates that we're comfortable that the inspections are happening semi-annually. I guess it goes back again to the deficiencies. What we're concerned with is what's being found in the inspections, it's not that the inspections are not being done, so . . .

MR. PORTER: Let me ask you this question, then: Are you comfortable that students in Nova Scotia are - that's not the right word - are bus students in Nova Scotia facing risks due to lack of bus maintenance?

MR. SPICER: That's a tough question to answer specifically. Again, and I'll keep going back to this, we're concerned with the number of deficiencies that have been found here. We're concerned with the number and the types. What we don't have is a detailed description of what these deficiencies relate to - are they imminent hazards or are they what is deemed to be sort of out of tolerance? Without that information, I don't think anyone can answer those questions.

MR. PORTER: So, I would just go a little deeper then, Mr. Spicer, and ask if you have - obviously, you don't know the answer to that, you have some concerns you're expressing - is there a reason that we weren't delving a little deeper to find out whether there is a risk here that's unforseen?

MR. SPICER: Really, at the time the inspections are done - you can't go back and re-inspect something that's been inspected on a certain date so, unless the documentation around what was found in those inspections is available, it's impossible to go back and recreate the inspection.

MR. PORTER: Okay, thank you for that.

MADAM CHAIR: Mr. Porter, would you permit me to make an introduction?

MR. PORTER: Sure.

MADAM CHAIR: I'd like to draw the attention of members and the Auditor General's staff to some guests who have joined us today in the Speaker's Gallery.

We're joined by members of the Scottish Parliament, and I would like to ask the following members to stand as I introduce them: Alasdair Allan, who is a member of the Scottish Parliament for Western Isles and is with the Scottish National Party; Murdo Fraser, who is a member for Mid-Scotland and Fife, with the Scottish Conservative and Unionist Party; Tom McCabe, member for Hamilton South, with the Scottish Labour Party; Jamie Stone, member for Caithness, Sutherland and Easter Ross, with the Scottish Liberal Democrats; and Margaret Neal who is the secretary with the Commonwealth Parliamentary Association - Scottish Branch. So we extend a welcome to you all and hope you enjoy your time here.

I see you have our Speaker accompanying you, so you can't help but have a great time while you're here. (Applause)

MR. PORTER: Welcome, it's great to have you here today with us.

Just a couple more questions - I just want to bounce to one health care question and maybe comment. There was some discussion about signed contacts, letters of understanding, and just very quickly my question would be, even though today there may not be a signed contract from your audit, do you think that there is a lesser value of care being provided by the health care providers in Nova Scotia? Just a yes or no, just because we're running quickly on time.

MR. LAPOINTE: All right, well, I would say no in that case.

MR. PORTER: And moving back to pensions - I'm going to bounce quickly here over the next couple of minutes. I appreciate that - can you tell me if the audited financial statements of a pension plan, Mr. Lapointe, make you feel more or less confident about the risk management of a pension plan?

MR. LAPOINTE: The audited financial statements and the response that would be received? Yes, I would say that that would be an improvement in the current procedures since I came in.

[10:45 a.m.]

MR. PORTER: I will get you to elaborate on why you think that's the case.

MR. LAPOINTE: One of our recommendations was that the annual information return and the information that comes in would be improved if it was subject to external verification - an independent verification - and that's what an audited statement does. So that deals with one portion of the information coming in.

MR. PORTER: Right, and can you tell me also the importance of the administrator of a pension plan in the current regulated system in Nova Scotia, and how confident you are in the abilities to carry out their duties in any given pension plan?

MR. LAPOINTE: Most of the administrators in the plans in our sample that we looked at were, in fact, the employers, so these were employer-managed plans - they were the ones filling in the forms and signing the returns.

MR. PORTER: Adequate?

MR. LAPOINTE: That's not adequate, no.

MR. PORTER: Deficiency?

MR. LAPOINTE: We needed the department to get external verification of the accuracy of this information.

MR. PORTER: Can you tell me how you feel about the recommendations in your report - will they calm the fears of ordinary Nova Scotians about their pension plans?

MR. LAPOINTE: They should improve the confidence that they have, that the department is in fact monitoring and safeguarding their entitlement to benefits - yes, it should improve their confidence.

MR. PORTER: So you're confident, I guess, that the pension plans are being monitored by the government adequately - is that what I hear you say?

MR. LAPOINTE: If the recommendations that we made are implemented, they will then be more adequately monitored.

MR. PORTER: And do you think there are any pension plans regulated by the province that are at risk and, if so, how many?

MR. LAPOINTE: No, we're not in a position to identify that.

MR. PORTER: Thank you very much and that will be the end of my questions for today.

MADAM CHAIR: Thank you. That concludes the questioning portion of our meeting today. I would invite Mr. Lapointe, if you have any concluding comments.

MR. LAPOINTE: Yes, Madam Chair, I just want to thank the committee for this opportunity to discuss our report today. I must say, as always, I do appreciate the committee's commitment to oversight of public spending and also the committee's support for my office. Thank you.

MADAM CHAIR: Thank you. We certainly will be following up on chapters from your report. The subcommittee will be meeting next week to consider the topics that we have on our list, which include chapters from your reports. So thank you very much to you and all your staff for being here today.

Is there any other business at this time?

Hearing none, we stand adjourned until next week. Thank you.

[The committee adjourned at 10:48 a.m.]