Public Accounts — Issue No. 5 — Tuesday, January 31, 2006 (HTML)

2005 Legislative Session: First Session, 38th Parliament
SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS
MINUTES AND HANSARD

Present: Rob Fleming, MLA (Chair); John Yap, MLA (Deputy Chair); Iain Black, MLA; Ron Cantelon, MLA; Adrian Dix, MLA; Randy Hawes, MLA; Norm Macdonald, MLA; Joan McIntyre, MLA; Mary Polak, MLA; Bruce Ralston, MLA; John Rustad, MLA; Ralph Sultan, MLA

Unavoidably Absent: Harry Bains, MLA; Diane Thorne, MLA

Officials Present: Wayne Strelioff, Auditor General; David Fairbotham, A/Comptroller General

Others Present: Josie Schofield, Committee Research Analyst

1. The Committee approved its agenda for today’s meeting.

2. Monitoring the Government’s Finances, Report 6 (November 2005).
Witnesses:
• Wayne Strelioff, Auditor General
• Bill Gilhooly, Assistant Auditor General
• Tamara Vrooman, Deputy Minister, Ministry of Finance
• Nick Paul, Assistant Deputy Secretary to Treasury Board, Ministry of Finance.
• Raj Sihota, A/Director, Financial Reporting and Advisory Services, Office of the Comptroller General

3. Resolved, that the Committee endorse the recommendations contained in Report 6, above.

4. Building Better Reports: Our Assessment of the 2003/04 Annual Service Plan Reports of Government, Report 4 (July 2005).
Witnesses:
• Wayne Strelioff, Auditor General
• Susan Jennings, Assistant Auditor General, Education Sector
• Michael Macdonell, Director, Education Sector
• Nick Paul, Assistant Deputy Secretary to Treasury Board, Ministry of Finance

5. Resolved, that the Committee endorse the recommendations contained in Report 4, above.

6. The Committee agreed to a request from Mr. Adrian Dix, MLA to consider a motion of which he had given notice at the meeting of the Committee on December 7, 2005 namely,

That the Select Standing Committee on Public Accounts ask the Auditor General to investigate the effectiveness and impact on patient care of the privatization of food services, cleaning services and security services by Health Authorities.

7. It was moved by Mr. Adrian Dix, MLA;

That the Select Standing Committee on Public Accounts ask the Auditor General to investigate the effectiveness and impact on patient care of the privatization of food services, cleaning services and security services by Health Authorities.

A debate arising and the question being put it was defeated.

8. The Committee met in camera to consider a process to recommend to the House an Auditor General for the Province of British Columbia.

9. The Committee met in public session.

10. It was moved by Mr. John Rustad, MLA;

That the Select Standing Committee on Public Accounts use an executive search firm to assist the Committee in recommending to the House the appointment of an Auditor General.

A debate arising and the question being put, it was agreed to on the following recorded division:

11. It was moved by Ms. Mary Polak, MLA,

That a subcommittee consisting of the Chair, Deputy Chair and Ms. McIntyre be struck to facilitate the procurement of an executive search firm and candidates for the position of Auditor General.

A debate arising and the question being put, it was agreed to, on division.

12. The Committee adjourned at 1:02 p.m. to the call of the Chair.

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE ON
PUBLIC ACCOUNTS



CONTENTS

		Page

Auditor General Report: Monitoring the Government's Finances Report 6		107
	W. Strelioff
	B. Gilhooly
	T. Vrooman
	N. Paul
	D. Fairbotham

Auditor General Report: Building Better Reports: Our Assessment of the 2003/04 Annual Service Reports of Government		118
	W. Strelioff
	S. Jennings
	M. Macdonell
	N. Paul
	D. Fairbotham

Privatization of Food, Cleaning and Security Services by Health Authorities		132
	W. Strelioff

Other Business		135

Chair:	* Rob Fleming (Victoria-Hillside NDP)
Deputy Chair:	* John Yap (Richmond-Steveston L)
Members:	* Iain Black (Port Moody–Westwood L) * Ron Cantelon (Nanaimo-Parksville L) * Randy Hawes (Maple Ridge–Mission L) * Joan McIntyre (West Vancouver–Garibaldi L) * Mary Polak (Langley L) * John Rustad (Prince George–Omineca L) * Ralph Sultan (West Vancouver–Capilano L) Harry Bains (Surrey-Newton NDP) * Adrian Dix (Vancouver-Kingsway NDP) * Norm Macdonald (Columbia River–Revelstoke NDP) * Bruce Ralston (Surrey-Whalley NDP) Diane Thorne (Coquitlam-Maillardville NDP) * denotes member present


Witnesses:	David Fairbotham (Acting Comptroller General) Bill Gilhooly (Office of the Auditor General) Susan Jennings (Office of the Auditor General) Michael Macdonell (Office of the Auditor General) Nick Paul (Treasury Board staff) Raj Sihota (Office of the Comptroller General) Wayne Strelioff (Auditor General) Tamara Vrooman (Deputy Minister of Finance)

R. Fleming (Chair): Good morning, committee members, and welcome back to the Public Accounts Committee for 2006. Gung hay fat choy, everyone.

It's nice to see your smiling faces back with us for our business of today. We have a number of staff members with us this morning to guide us through our two business items that we need to discuss. We have an in-camera section towards the end of our agenda.

R. Fleming (Chair): Our first item is Monitoring the Government's Finances, report 6. We have the Auditor General's office to take us through that report first, and then we'll hear from the Ministry of Finance officials.

I should point out on our agenda that Susan Jennings is for item three and was incorrectly listed as a witness for item two.

W. Strelioff: Good morning, Chair and members and colleagues. Welcome to the new year.

The topic today is our report on monitoring the government's finances. This, as my colleagues know in my office and elsewhere, is one of my favourite topics. This report is one that I keep with me as I go through meeting to meeting to meeting because I'm often asked questions about the state of the government's finances, and this is my reference point.

Today we're here to explain what this reference point or our report says. In previous discussions I had said that one of our goals, the goals of our office, is for you and the public to receive the best information possible on the performance of government. It's one of our two key goals. The second goal relates to being an exemplary organization. One is an externally focused goal; the second is an internally focused goal.

For several years we have produced an annual report on monitoring the government's finances in the hope that it would spur the officials of government to include a similar discussion and analysis when they produce the summary financial statements in a document called the Public Accounts.

What we're looking for is a management discussion and analysis that's robust, that talks about trends, risks and uncertainties, and explains where we've been and where we go in the future. In this report we provide a framework of financial information intended to spur on and perhaps provide some guidance to government as it improves how it explains its state of finances in its annual public accounts — the annual financial statements that come out around the end of June for the year ending March 31.

With me today are two key people in our office that lead our work on the public accounts or our government's finances. Bill Gilhooly is an assistant Auditor General in charge of our finance group. He'll be describing some of the information in this report. Lisa Moore is our director of public accounts who leads the coordination of the audit of those financial statements, which in previous discussions I think I pointed out to you involves about 200 different organizations where all or a lot of them have different boards, auditors, management groups. It all comes together in a consolidated set of financial statements, which our colleagues from the Ministry of Finance are responsible for preparing. Lisa Moore is responsible for making sure that when we sign off, we've done our due diligence and we know we've done our due diligence.

Two hundred organizations…. It's probably the most complex set of financial statements certainly in B.C. because of all the different lines of business. Investment management, pensions, health sector, education, hydros, lottery corporations, social services, Attorneys General, commitments, contingencies, uncertainties in measurements — all coming down to single measures of surplus/deficits and liabilities and assets and revenues and expenses.

When the government prepares its financial statements, it does provide a financial highlights section in the Public Accounts to describe and explain some of the details contained in the summary financial statements. It also includes some commentary on the revenue sources, expenses, surplus/deficits, assets, debt and other liabilities, and variances from budget among other things.

In our report on monitoring the finances, in the appendix at the end we include an excerpt from the financial highlights as appendix A, beginning on page 79. We think that what the government has been doing in the financial highlights is improving. Each year it gets stronger. Of course, we think it needs to move up significantly.

I think you're probably more sensitive to this than we are, but certainly more and more of the public is asking for more additional information about the performance of government and the performance of every large organization. In the audit world or financial reporting integrity world, certainly since the troubles associated with Enron, WorldCom, Livent, Bre-X, the Bank of Commerce and other publicly traded companies, the standards-setting world has upped the ante, requiring preparers of financial statements — my colleagues — and auditors to explain more, discuss more and do all this in a more timely manner. Remember, I think we've said in the past that the financial statements of the province get done by the end of June. It's a pretty tight time frame for all this to happen.

Individual financial statements have been approved by boards of directors all across the province.

Auditors are signing off. Management groups have discussed the results with many people. Then it all gets consolidated or aggregated in the government's overall financial statements. It's the same case in the plan which is taking place right now — all that coordination, aggregation and making sure that when you receive the proposed budget or financial plan, it's robust and supported by solid analysis. At the end of the year you can then compare plan versus actual.

The key difference in a compared private sector and public sector is that in the financial statements of government, they actually conclude a plan-versus-actual comparison — right in the financial statements. It's the key difference. Of course, in government it reflects the importance of that plan. At the end of the day, compare it, and on the same basis, hold it. Don't have changes in accounting policies in one compared to the other so that all you have is explanations of reconciling numbers that make it very difficult to understand what's going on.

Of course, auditors also are not exempt from the change that's going across the world, really. We're all subject now to more people reviewing us in terms of our own performance. And it's all healthy. It all makes sure that we're able to explain our performance and that we actually build or set higher and higher standards in terms of what we do to make sure you can rely on our reports and work.

In our government world there is a standards-setter that deals with how to report the financial results of government. It's through the Canadian Institute of Chartered Accountants, which does the same for the private sector. In that organization there's something called the Public Sector Accounting Board. By the way, I used to work with that group in the '80s when it started, which was an interesting time of course.

They have guidance on how to measure liabilities and assets and revenues and expenses, which our colleagues are always discussing how best to interpret. The guidance is getting more specific, and the comparability between the private and public sectors is getting closer and closer. I thought it would be closer 20 years ago, but now in looking back on it, I think that probably five to ten years from now it'll merge together. And it might even move to one set of rules and guidance right across the world. It's moving there in the private sector world, and in the public sector world it's moving to one basis of accounting, which will make it easier to explain and interpret rules.

Canada has recently moved to endorsing and working towards the international standards. There's an international standards-setting group, and we're moving in that direction. The gambit is that we're assuming the U.S. will move there. The U.S. tends to go on its own, but the gambit is that we'll all move towards an international standard over the next five to ten years. The noise or signals seem to be that that's the case.

The CICA, for the public sector, makes recommendations on how to prepare financial statements as well as how to prepare management discussion and analysis to explain the financial results. Some of its recommendations include making sure there's a discussion and analysis of the summary financial statements and an annual report together with the summary financial statements. Make sure there's an acknowledgment of who's responsible for preparation. You'll see the chair of the Treasury Board signing off, as well as the Deputy Minister of Finance and the comptroller general.

Communicate information that is understandable, relevant, reliable, comparable and concise. Include a concise summary of significant events that occur during the year. For example, did you sell something, or did you move to an ASD or an outsourcing arrangement? And if it impacts the financial results or the financial context, explain that.

Explain significant risks and uncertainties underlying the financial statements. That often is involved when you're predicting the future. For example, pension measurements involve significant risks and uncertainties underlying the financial statements. That is often involved when you're predicting the future. For example, pension measurements involve significant risks and uncertainties. Explain significant variances between what you thought you were going to do and what you did do, and over time include trends on key financial statement items. It's important.

That's the framework of criteria that we use when we prepare this report — "Well, here's what you could do with the summary financial statements that we think are quite robust." But if you look at any set of financial statements for any complex organization, they're pretty difficult to sort through. That's the role of a management discussion and analysis — to try to tease out the essential messages and make it more accessible and friendly.

In our report we provide a nine-year trend of several economic and financial indicators for B.C. and compare B.C. to other jurisdictions on some of the indicators. We haven't been able to adhere to all the principles recommended by the CICA in our report, because some of them really pertain to management. I mean, discussing trends and uncertainties and variances — well, that's what management would do. We just set the frame for what could be a good robust explanation for the finances.

How did B.C. do over all? One of my favourite schedules is on page 4 — giving the nine-year overview, splitting out the general programs of government and the activities that are carried out through business enterprises, based on the summary financial statement information. It's taking that information and now trying to bring it to life more in a management discussion and analysis sense. As you can see, for the year ending March 31, 2005, the total surplus was $2.6 billion — a significant change from 2004 and 2003.

Then you can see the two components in the actual general tax-supported programs and revenues. The surplus was about $160 million — the big source of revenues over expenses over the enterprises. You can see that there's about a $2.4 billion surplus. You put it together, and you see the overall financial results.

You also can see that the accumulated deficit is about $3.2 billion and that the net liabilities or net debt, which is often the measure referred to by credit raters, is around $26 billion, against which there are infrastructure assets of about $23 billion.

In comparison to other provinces and compared to last year, B.C. maintained its ranking in two of the indicators and improved its ranking in the third indicator on the screen. B.C. maintained its rank as fifth among provinces in the ratio of GDP per capita and second on the net liabilities to GDP, and the credit rating is second in the country — pretty important signals as to what's going on with our finances.

In part one of this report we use a financial information framework to present the overall financial results. You can see that on page 4. There's a more detailed…. For the analytics in the crowd, pages 16 and 17 provide a more specific schedule, particularly on the revenues, expenses and the different types of enterprises over the last nine years. You can see how the trend is going and compare that to your understanding of the economy, policy shifts, etc.

Also in part one of our report we examine several trends and several important indicators of financial condition. The indicators of financial condition that we use are advocated by the Canadian Institute of Chartered Accountants as relevant to understanding the financial condition of a government. Then in part two we compare B.C. with other Canadian jurisdictions by looking three main indicators.

We also include several questions. This is a new section to this report. We're often asked questions about the finances. Well, here are those questions, and here's our understanding of the answers. It's just to give you a quick checklist of questions and answers.

Now I'm going to turn the presentation over to my colleague Bill Gilhooly, who will lead you through the report in more detail.

Before I start, I want to make sure everyone has a copy of the report. As Wayne indicated, it's a fairly data-rich report, so I'm just going to sort of hit the high points to give you a good understanding of what's in the report, but try not to overwhelm you. I'll be referring to it quite frequently during my remarks.

As Wayne mentioned, the trends and indicators in the report are based on the financial framework. The more detailed one is in exhibit two on pages 16 and 17. Similar to the government's financial statements, we've differentiated between the transactions and balances of taxpayer-supported general programs and those of self-supported business enterprises. Our framework provides more information on the government's business enterprises than is in the government's main financial statements. The framework is not meant to be a replacement, but it's a tool that you can use to supplement the financial statements in order to better explain the transactions entered into by government.

Before I start, I wanted to mention a couple of conventions at the bottom of page 18. When we refer to gross domestic product for a fiscal year, we're using the GDP for the calendar year that ends in the fiscal year, and we also use the population data in a particular fiscal year. We were using the population as at July 1 in that fiscal year. These are the same conventions that government uses in its reporting as well.

I'd like just to walk you through a number of the exhibits you'll find in the report. In the report, three exhibits focus on government revenue. They can be found on pages 20 to 23.

The first one I'll ask you to look at is exhibit five on page 23, which is also on the screen. This exhibit shows the rate of change in key components of government revenue over the last nine years. The change is compared to the growth in the provincial economy as measured by the gross domestic product and is indicated by the dotted black line in the exhibit.

The most significant historical fluctuations have related to revenue from natural resources and from government enterprises. However, in the last two years revenue from federal transfer payments has sharply increased. There is also a significant drop in taxation revenue in 2003 due to decreases in personal tax rates and thus lower estimates of taxation revenue. Over all, though, it is federal transfers that have shown the greatest percentage increase since 1997. The spikes in enterprise revenue are largely due to power-selling by B.C. Hydro.

Our next three report exhibits focus on government expense trends. They can be found on pages 25 to 28 in the report. The one I'll ask you to focus on here will be exhibit eight on page 28. This exhibit shows the changes in key components of government expense on a per-capita basis for the last nine years. These changes are compared to the change in the B.C. consumer price index, which is the dotted black line.

The largest overall increases related to spending on health and spending by B.C. Hydro in the enterprise category. Per-capita spending on interest and social services has declined when compared to the level of spending in 1997. Total per-capita expenses have been declining gradually since 2002 and are at near-1997 levels in real terms, accounting for inflation.

Of course, when we deduct expenses from revenues, we are left with either an annual surplus or a deficit, so I'll now refer you to exhibit nine on page 29. This graph shows the trend in annual surplus/deficit for the last nine years. Between 1997 and 1999 the province recorded increasing annual deficits of $900 million, a small surplus in 2000 and a $1.26 billion surplus in 2001. This was followed by deficits of $1.2 billion, $3.1 billion and $1.3 billion between 2000 and 2004. As Wayne mentioned, the surplus in 2005 was $2.6 billion; 2002 included one-time pension gains of $1.5 billion and restructuring costs of $500 million. Without these, the deficit would have been $2.2 billion in 2002. The 2005 surplus includes a significant increase in federal transfer payments and significant increases in lottery net income.

Exhibits ten through 12 on pages 31 to 33 of our report deal with asset trends. I'd now like to direct your attention to exhibit ten on page 31. This exhibit groups the assets depending on their nature, such as financial assets, infrastructure capital assets, the revenue-generating assets and total physical capital assets. The total physical capital assets are used in some of the other indicators in the report. They are composed of general program infrastructure capital assets — that's a multiple; highways and such — and capital assets held by business enterprises.

Exhibits 13 through 15 on pages 35 and 36 deal with liability trends. Exhibit 13 is a table that's too detailed to show on the screen, so if I may, I'd like to direct your attention to this exhibit on the top of page 35. This exhibit breaks down liabilities between the debt and other obligations of both the general programs and the enterprises.

Most of the increases in liabilities over the last nine years are due to an increase in general program debt and other obligations of both general programs and enterprises. The increase in liabilities from other obligations accounts for about half of the overall increase in liabilities since 1997. These other liabilities include such items as general trade accounts payable, accrued interest on the debt, employee leave entitlement and deferred revenue. Debt of business enterprises has actually declined from its 1997 levels.

Continuing on with liability trends, exhibit 15 on page 36 shows the government's financial position in terms of its net liabilities per capita. Net liabilities are measured as the difference between a government's total liabilities and its total financial assets. Net liabilities is the amount that future taxpayers will need to finance or repay as a result of past revenue-raising and spending practices. In other jurisdictions it's often referred to as the net debt.

If you flip back quickly to exhibit one on page 4, you can see how net liabilities are calculated. The chart on the screen shows the net liabilities owed for each person in B.C. over the last nine years. As you can see, over the period 1997 to 2004, the net liabilities per capita increased by about 34 percent from just over $5,000 to just over $6,700. In 2005 net liabilities per capita fell 7 percent to $6,259. This is the result of a decrease in debt of about 5 percent combined with an increase in population of about 1 percent.

As Wayne mentioned, in 1997 the CICA published a report called Indicators of Government Financial Condition, which is this little report here. It's been well used.

Exhibit 16 on page 38 lists the seven indicators that are recommended for use in terms of three general concepts of financial condition. As explained on page 37, those concepts are related to a government's sustainability, its flexibility and its vulnerability. Sustainability refers to whether a government is able to carry on with its existing spending programs and able to repay existing obligations without incurring new debt. Flexibility refers to how well a government is able to generate funds to pay for new spending programs either by increasing taxes or through additional borrowing. Finally, vulnerability refers to whether government is becoming dependent on sources of funding it cannot control. We include all seven CICA indicators in our report and also in our presentation.

The next two slides are related to measures of government sustainability. The first is exhibit 17 on page 39 of the report. In this graph we compare the government's net liabilities to the size of the provincial economy as represented by the GDP. The bar graph shows, in terms of the percentage of the annual provincial gross domestic product, how much the government must repay in the future. The trend for B.C. indicates that the overall burden on taxpayers was relatively stable over the first few years. However, after a decrease in 2001 the ratio increased and held at its highest level during the past nine years for both 2003 and 2004.

In 2005 the ratio declined significantly to 16.8 percent. This was the result of declining net liabilities coupled with an increasing GDP.

The second indicator of sustainability is in exhibit 18 on page 40. The change in net liabilities to GDP shows the magnitude of the change in net liabilities compared to the province's GDP. The graph shows that for 2005, the annual decrease in net liabilities was about 1.1 percent of the provincial GDP related to that year.

The next three slides are measures of the government's flexibility. The public debt charges to revenue are shown in exhibit 19 at the top of page 42. This indicator is often referred to as the interest bite and shows the percentage of each dollar of revenue that is used to pay interest charges on debt. The lower the percentage, the better off the province is. It is a flexibility indicator in that as more of the province's revenue is used to pay interest on debt, less is available to provide other services. The interest bite trend for B.C. has improved fairly steadily between 1997 and 2005, mainly due to gradual increases in revenue in areas such as federal transfers, government business enterprises and natural resources, coupled with a fairly constant interest expense over that time. This constant interest expense over the last nine years is the result of falling interest rates coupled with an increase in debt.

The next graph is exhibit 20 at the top of page 43. This graph shows the percentage change in the province's capital assets for each of the last nine years. It shows the net amount of spending on infrastructure and other capital items by government. It is an indication of flexibility, emphasizing the need for governments to put in place and maintain adequate infrastructure to serve its citizens. Any deferral of expenditures on maintenance can lead to a need for expensive corrections at a later date. Such a strain on future resources reduces the flexibility of government to provide other services.

In 1998 government slowed capital spending, in particular on transportation, to examine its capital investment policy and looked for alternative ways to meet the province's infrastructure needs. In 2003 the

lack of change reflects the write-off of regional hospital district assets. In 2004 the small increase reflects the removal of the B.C. Ferry Corp. In 2005 B.C. Rail assets were removed from the financial statements, and capital asset spending would have increased by about 3 percent if we had adjusted for this item.

The final flexibility indicator is shown in exhibit 21 on page 44. The ratio of own-source revenue to GDP represents the extent to which the government is taking income from its own economy in the form of taxation revenue and other fees. As this ratio decreases, it provides an indication that the government has more flexibility to generate further future revenue from the economy. The increase in 2001 was due to the fact that there was an unusually large increase in B.C. Hydro's revenue in that year, and the decrease in 2003 is partly due to the decrease in taxation revenue.

The next two slides are measures of a government's vulnerability. The first is exhibit 22 at the bottom of page 46. Government-to-government transfers consist of money the province receives from the federal government. In this indicator the federal revenue is shown as a percentage of all of B.C.'s other sources of revenue. Since the province cannot generally determine how much money it will receive from the federal government in future, increases in the ratio may denote a higher dependence on the federal government as a funding source and therefore increase the province's vulnerability.

As you can see, the province's dependence on the federal government for funding increased in 2003 to almost 12 percent of own-source revenue. This was due to an increase in federal equalization program revenue recorded by the province in 2003. It was determined in 2004 that much of those funds had to be repaid to the federal government. However, the province was also the recipient of larger grants under the federal Canada health and social transfer programs in 2003 and 2004. Therefore the ratio remains higher overall than it has been in prior years. In 2005 federal transfers increased by more than double the budgeted amount, and the ratio is now at its highest percentage in the past nine years.

The second vulnerability indicator and the final CICA indicator of financial condition is exhibit 23 at the bottom of page 47. This graph shows the amount of foreign currency debt as a percentage of total government debt. The government often borrows in foreign currencies and, to minimize its exposure to swings in these currencies, enters into derivative contracts such as currency swaps.

This practice, often referred to as "hedging," ensures that debt repayments are fixed in Canadian dollars. This ratio looks at the amount of foreign currency of debt that is not hedged, and it shows the degree of vulnerability of the province to swings in foreign currency exchange rates.

As you can see from the exhibit, the non-hedged foreign currency debt as a percentage of total government debt has not changed much since 2003. However, the decrease in 2003 was due to a repayment of non-hedged foreign currency debt by B.C. Hydro during the year.

Part two of our report, which begins on page 51, compares B.C. to several Canadian jurisdictions. There are three significant indicators in the report that we can reliably use to compare B.C.'s financial performance to that of other provinces and the federal government. They are GDP per capita, net liabilities to GDP, and credit ratings.

If you refer to exhibit 26 on page 55, we present the GDP per capita for B.C., Alberta, Ontario, Quebec and Canada. The GDP per capita measures the average output per person in each jurisdiction and is an indicator of the wealth of a province. In this graph Alberta has had the highest GDP per capita in all nine years. We chose these jurisdictions to show a comparison to B.C. because of the proximity of Alberta and the sheer size of Ontario and Quebec. In this graph the line for Canada represents an average of all provinces.

We have included the data for all jurisdictions in appendix B on page 95. As noted previously, B.C. ranks as fifth highest among all provinces. In this graph and in the appendix you can see that B.C.'s per-capita GDP is less than the Canadian average. Nine years ago B.C. was almost right at the Canadian average.

The next exhibit we want to bring to your attention is number 27 on page 56 of our report. The net-liabilities-to-GDP measure is one of the CICA indicators, and the data for B.C. was shown earlier in our presentation. The data for all jurisdictions is also included in appendix C on page 97.

For this indicator, it is better to have a lower percentage than a higher one because net-liabilities-to-GDP provides an indication of how much a government must repay in the future compared to the size of its economy. B.C.'s trend has been somewhat stable over the last nine years. A downward trend such as Canada's or Alberta's would be more favourable.

The measures shown in this exhibit and in appendix C indicate that the B.C. government's net liabilities as a percentage of B.C. gross domestic product are likely to be the second lowest when compared to other jurisdictions. This means that the B.C. economy is better able to sustain demands placed on it by government than most other provinces, since our net liabilities are the second lowest in Canada. However, it is also evident that many other jurisdictions have shown more improvement in this indicator than B.C. over the last nine years.

If any readers are wondering why there are gaps in 2005, it's because not all other provinces had published their public accounts at the time we published our report. There are only three or so provinces that actually had published in time to make this comparable.

Alberta is the only jurisdiction with a negative net-liability-to-GDP for the years 2001 and on. This indicates that Alberta is in a net asset position. It has more financial assets than liabilities.

The third and final interjurisdictional indicator is credit rating, and this exhibit can be found on page 57.

Here we see the credit rating as provided by Moody's Investors Services for the same jurisdictions for each fiscal year since 1997. The scale on the left is the rating used by Moody's. The higher the rating, the better. We have also included the ratings of all the Canadian jurisdictions in appendix D on page 99.

Credit rating is a widely used indicator of government financial performance and condition. Credit rating agencies keep watch on changes in the province's financial condition and publicly report on them.

In the view of Moody's, B.C. has bettered its standing in the financial markets and is currently at the same level it had back in 1997. Canada and Alberta currently share the highest credit rating, with a triple-A, while B.C. is second with a rating of double-A1. Ontario and Manitoba share third place with a rating of double-A2.

We will now turn our presentation back to the Auditor General to introduce part three and provide a few concluding comments, including our recommendation.

W. Strelioff: Certainly, over the past few years, we think the information provided by government has improved each year. When legislators passed the Budget Transparency and Accountability Act, that spurred on improvement right across the system, beginning with improved performance measurement and reporting. Of course you know, I think, that the implementation of generally accepted accounting principles, with the first full year's financial statements presented as of March 31, 2005, went a long way in improving the financial reporting framework and information of the B.C. government.

At the same time, of course, there is recognition by many people across the country, including Canadian financial statement standard-setters, that government should provide a clearer explanation of its financial results so that all of us can understand and are better able to assess the significant and complex operations of government.

On this note, we have included one recommendation in our report. That is that the government expand its use of the financial statement discussion and analysis in its public accounts to better describe the year's activities so that all of us can better understand the major trends, indicators and decisions that have affected the government's financial position and its financial performance.

I certainly look forward to the day when this discussion takes place and the focus is on the overall annual performance report of government, rather than only the financial results. Later this morning we'll be discussing the importance of performance reporting. The goal is to encourage the government to provide a robust explanation of its plan and actual performance in terms of its financial and non-financial results and plans.

The financial framework we have, which is put in place through generally accepted accounting principles, is a key component. A clear explanation of what you're trying to achieve in terms of goals, objectives, is another key component — then linking them. What are you trying to achieve? What are the programs and strategies you're putting in place? How are you allocating the resources?

That's the promised land. That's where we're going. I look forward to the day when a discussion like this takes place in the context of the overall performance report of the government. This is an important ingredient, but the linkages…. What are we trying to achieve? How are we aligning our programs? How are we allocating resources?

The system of government is going through a significant transition, and it's going to take some time. We're moving away from the tradition of focusing on one fund of government — the consolidated revenue fund — to a more comprehensive framework of financial information. We're moving away from focusing on inputs — how much we're going to spend, where the revenue is coming to, what we're trying to achieve, the results. Pretty significant transitions are going on, and they're important.

I've asked Bill to initiate discussions to help this transfer by transferring the framework of information we have in here to our officials in Finance so that they can work with, tease out and provide you with a similarly robust trend analysis of the government's finances. We've done a lot of work in making sure it's apples to apples.

Each year that we provide this analysis for you, we make adjustments to make sure all the accounting policies are the same, so you can move right through it and not be worried about measurement changes — more thinking about the underlying policy decisions, economic realities, changes that have been made.

That's our presentation. As I mentioned at the beginning, this is one of my favourite reports — one I keep with me all the time as I go from meeting to meeting — because it gives me a quick answer to frequently asked questions.

Committee, I would suggest that we proceed with the other presentations. Unless there are questions that people are dying to ask now, we can hear from the deputy minister and others. We want to finish this item, according to the agenda, by 10:30. We have a mixed record of doing that in the past, but it's a new year, so we can start on a different foot. Is that agreeable?

We'll just let Ministry of Finance presenters set up. Oh, they're already set up, so we'll just take a minute and begin with Ms. Vrooman's presentation.

T. Vrooman: While the presentation is being handed out, I would like to introduce the staff from the Ministry of Finance who are accompanying me today. To my left I have Nick Paul, who is the assistant deputy minister of Treasury Board staff and deputy

secretary to Treasury Board, and over on my right, Raj Sihota, who's the acting director of finance and reporting advisory services in the office of the comptroller general. I believe you know David Fairbotham, the acting comptroller general for the province.

I think the Auditor General and his staff did a very good and thorough job of going through the contents of their report, so what I'll focus on is the recommendations and our specific response to them. The presentation I gave to this committee before Christmas on the introduction of generally accepted accounting principles in this province was really a preface to much of what we would like to discuss here.

As the Auditor General has noted, we have made significant progress in the way we consolidate and report the financial results of the province. The focus has primarily been driven by the goal to make our financial statements fully GAAP-compliant in the year that's under study at the moment, which is 2004-2005. In that year, as a result of compliance with GAAP, the Auditor General did give us a clean audit opinion, unqualified.

As you know, we continue to be, as recognized by the Auditor General, a leader in governance and financial disclosure, principally because of our legislated compliance with GAAP. Through other financial statutes, we have also legislated budget and reporting dates. That also increases the predictability and transparency the public can expect when we table our financial plan, our budget, for the year as well as our public accounts or our annual financial results.

Our quarterly reports do include full-year forecasts. Our first quarterly report includes a forecast for the next three years, then the second quarterly and the third quarterly reports both include what we call in-year forecasts to the end of the fiscal year in question. Those quarterly reports are built on the same structure and foundation as the budget, so it's easy to compare results on a line-by-line basis, intra-year, as we move toward the close of each financial year.

We do have financial statement discussion and analysis in the public accounts — as you heard from the Auditor General, perhaps not as robust as he would like to see, but we certainly are making progress in that area, and I'll talk to you a little bit more about that. We have included a document that's called the Financial and Economic Review, the companion piece I carry around with me all the time, which is the one that talks about what the province has been doing historically both in service areas and in finances over the last seven to ten years. It's a very good document published by the Ministry of Finance each July.

In terms of how well we're doing, in terms of the timeliness of our public accounts, we do release them by the end of June — this particular year on the 29th of June 2005. That is a target and a requirement in the Ministry of Finance's service plan that we aim to meet. We have generally been the first jurisdiction to release our financial statements.

While you may say that's just part of the Type A personality of finance departments, it's important to get that information as close as possible to the end of the fiscal year in question to keep it relevant and timely, and it's also a good discussion point and indicator for the fiscal year that's already in play. The closer you can get that to the end of the fiscal year, the better you do. And we generally are number one, or sometimes number two to our colleagues in Alberta.

Consistency. Again, we do have sort of a series of reports that are all GAAP-compliant and are all built on the primary document we table, which is the budget, so you can track the province's financial progress as we move throughout the year. They are complete in the sense that they do fully consolidate the schools, universities, colleges and hospitals — the SUCH sector — as well as the taxpayer-supported and commercial Crown entities of the province. Again, that is done in each of the reports we put forward. They are comparable in the sense that there is consistency of presentation throughout the year.

One of the recommendations that Wayne talked about and that Bill took you through in some detail is the comparability of the financial discussion section of the public accounts. What they've recommended we do is to include, as the Auditor General said, more long-term trend analysis and to use the specific indicators mentioned, as well as compare those indicators not only over time within the province but to other jurisdictions across the country.

In terms of focus, it's again no surprise that our focus has been on just getting us to be fully compliant with GAAP. As I said to you last time, GAAP is not a fixed thing that stays constant over time. It is an interpretive art rather than a definitive science. Keeping up with GAAP and ensuring that our financial statements are fully GAAP-compliant is our number-one priority, and we continue to focus on that.

In terms of monitoring what's happening, though, in terms of making some of those discussion elements more fulsome, as the Auditor General indicated, we have been monitoring the discussion that has been happening in the public sector accounting advisory board as well as with the Canadian Institute of Chartered Accountants to ensure that we're aware of the discussions and trends that are happening there. Where possible, we include those kinds of practices in our financial reporting.

The problem is that as the Auditor General indicated, those practices are evolving, and we don't want to jeopardize the clean presentation we have in our financial statements with respect to its compliance with GAAP. Until those are fully GAAP-compliant, it's difficult for us to include them fully in the discussion we have presented.

Trend analysis. We agree that trend analysis is important, but I'll be honest with you: it's a very difficult thing to do over time. As the Auditor General's staff knows, the apples-to-apples comparison is the most significant hurdle that we overcome. Because of restructuring of government and because of the fact we've changed the way we present information to be complaint with GAAP, historic comparisons can be challenging.

That doesn't mean we shouldn't try to do them. In fact, in the financial and economic review document I talked about, we do attempt to do those kinds of comparisons. The problem is not wanting to erode the progress we've made on the GAAP standard.

Going forward, we think that those kinds of comparisons will be easier. Once you have a point in time where you're GAAP-compliant, going forward makes that easier. Consolidating and reporting on the entities that were outside of our GAAP world-view previous to 2004-2005 provides the most difficulty. That has been one of the reasons we have resisted incorporating a long-term analysis into our financial statements explicitly.

In terms of the financial indicators, as I said, we continue to monitor them, and we will continue to watch where we think it is appropriate for us to be building on that work and incorporating it into our statements. The problem is that there's some difference of opinion as to whether or not those are the indicators that should be used, whether those indicators are fully compliant with GAAP, and how those indicators are interpreted by each of the jurisdictions across the country.

So we are very in tune with what PSAB is recommending. We have staff conferences with those folks regularly, and we do have a British Columbia representative on that board. But until there's a little more consistency and experience with those indicators, we are taking a bit of a wait-and-see approach rather than whole-scale adoption — again, because our focus has primarily been on consolidation and incorporation of GAAP.

In terms of comparisons to other provinces, this is something we like to do. Generally, as the Auditor General showed, we find we compare favourably to other provinces. The problem we have, as I said last time, is that we are the only jurisdiction that has legislated GAAP, so our world-view is a little different from others'.

The other problem is that GAAP is not consistently interpreted across the country, so Auditors General each use their wealth of professional experience and the expertise of their staff to provide guidance to the province and to legislators on how to interpret GAAP. That leaves us with a bit of an issue in terms of how to have consistent comparability of GAAP-compliant entities across the country. That doesn't mean that just because it's too difficult we won't attempt to do it, but we do think there's some caution to be taken in terms of adopting those comparisons sort of holus-bolus as we go forward.

Our ministry commitment in terms of what we present is to continue to refine and update our financial presentation to ensure that it is fully GAAP-compliant. I think some of the comments made recently in the public about how accessible our financial statements are, are a good reminder to us in terms of making sure the public also has an ability to read our financial statements in a way that is useful to them and easily understood without years of financial training. That's something else we'll continue to work on.

On the technical side, we continue to work with the Auditor General, and I welcome his suggestion to give us access to his data. I think that will be of great use to us in terms of moving forward, and we're going to continue to monitor progress at the various discussion forums across the country in terms of how to get consistent indicators and comparability.

We also do talk to non-accounting bodies in the form of credit rating agencies and others in terms of things they find helpful. One of the things I think you would note, if you looked at the press releases of each of the credit-rating agencies when they upgraded our rating last year, was that the fact that we're GAAP-compliant was significant in terms of their confidence and in terms of transparency and consistency in our audited financial statements. That continues to be important for us.

As always, we thank the Auditor General and his staff for their work with us on this. They've been very generous in terms of sharing their recommendations and their data, and we thank them for that.

I will open the floor to questions from committee members for either the deputy minister or the Auditor General.

On page 9 you said there are some indicators that are disputed and some that are accepted. I'm wondering if you could give examples of indicators that are accepted and indicators that are disputed and perhaps give some brief reasons for both.

T. Vrooman: Sure. I can give you a high-level response to that, and then I will ask staff if they have any more detail to fill in.

The kinds of indicators we're talking about…. Credit ratings. That one tends to be a fairly easy one because the rating agencies have to take the fact that we have different financial statements and different ways of reporting and try and aggregate those in a way that makes sense for them. The problem, though, is that each rating agency has a different way of doing it. We may pick Moody's as a standard, but S&P does it a slightly different way. Dominion Bond Services would include municipalities and municipal debt where others wouldn't, so even there, there's not great agreement around how to calculate even something as simple as the debt profile of each of the provinces.

Generally, the biggest problem with the indicators is on the debt and what constitutes debt or an obligation on the part of a province. Direct debt is fairly simple. Everybody agrees that the direct debt or deficits that result from the direct operations of a provincial entity, or government, is fairly straightforward.

Again though, whether or not you include a school, university, college or hospital debt as part of some-

thing that's directly borne by the Crown is an issue. How you treat self-supported or commercial debt can also be an issue. How you calculate your net liabilities can also be an issue, because each jurisdiction complies with different standards. So, in general, it's the debt side that tends to be more difficult. Measures like per capita and GDP are fairly well understood and comparable across jurisdictions.

N. Paul: The other part of this is that different jurisdictions, if you go through their reports and analyses, tend to pick different sets of ratios. There's only one jurisdiction I could find that really did as extensive a set of ratios as the Auditor General has done. Most of them will use debt-to-GDP, but as Tamara said, they'll all have slightly different definitions. Certainly, the rating agencies do. A lot of them use the interest bite or interest cost as a percent of revenue, but after that, the commonality disappears. You won't find people reporting, for example, with as extensive a set of debt statistics as we do in Public Accounts.

D. Fairbotham: The Public Accounts already has some indicator information in it, particularly the debt report at the back of Public Accounts. We are already using some indicators. It's a good performance.

J. Yap (Deputy Chair): Basically, Auditor General, what I'm hearing is that this is a good news story, that the province of British Columbia is on the right track, certainly in terms of debt compliance — leading the country, leading jurisdictions. It's good news, and I commend you on carrying this along with you as a key reference.

A question for the deputy minister. In the closing slide, you had a reference to feedback from stakeholders, and you mentioned in there among the stakeholders the credit-rating agencies. What are you hearing in general terms from the credit-rating agencies on the state of our finances in B.C.?

T. Vrooman: What we've been hearing in general is that they're very optimistic about the state of the province's finances. The fact that all three of the rating agencies last year gave us a rating upgrade signals the fact that they were all almost unanimously confident in the results we were putting forward. I think they continue to look to British Columbia as a leader in economic growth.

Certainly, we have the sister envy of Alberta to deal with, and we have not and likely won't be able to keep pace because of the extraordinary resource revenues — from oil, in particular — that continued to strengthen their financial position. But certainly, the rating agencies have been very supportive of the direction the province has taken in terms of its finances. Again, they did note that GAAP was an important component in that, in terms of being able to report on how well we're doing in a consistent way, because we comply with that standard.

They've also talked about the fact that they've been impressed with the way we've been able to take both the investment agenda we have, the tax-competitiveness framework, and also be able to support some of our key social programs. So on the spending side they've also been fairly supportive of what we're doing.

The biggest thing we hear from investors, actually, is that they like what they're seeing but that they're disappointed we're not offering more product in the form of bonds or other debentures that they can borrow, because it's such a good investment. We think that's not a bad problem to have.

J. Yap (Deputy Chair): What do you hear from them in terms of the financial reporting from the credit rating agencies?

T. Vrooman: In terms of the financial reporting, again, like I said, all three of the rating agencies — Dominion, S&P and Moody's — cited the fact that we're GAAP-compliant as one of the key strengths of what we're doing. We don't hear a lot of comment from them on the need to go further than that, to be honest. They're now looking at things like our debt profile, our ability to deliver our collective agreements within mandate and those kinds of things as key indicators of our success over the next two to three years.

J. McIntyre: I, too, am very pleased. I interpret this as a very good news story as well — that everything's progressing positively over the years.

My question is to the deputy minister, again, with respect to some of the analysis. I sympathize with your comments about the difficulty in trending over time. I guess my question is…. I'm curious: because we're GAAP-compliant, which is a good thing, when we're now including things like the SUCH sector, how does that affect the sort of rosiness of our picture, especially in the trend, when you're looking over the past years?

T. Vrooman: Just to make sure I'm understanding your question, is it that through consolidating the SUCH sector, has our picture improved as a result of that single act?

J. McIntyre: Yes — or the opposite. Again, I'm not an expert, remotely, but it would seem like putting something like that on our books now would, I guess, dampen the overall picture. I may be wrong about that.

T. Vrooman: It could. We certainly spent a lot of time planning the consolidation, because it wasn't a simple thing to do. We worked with the Auditor General and the Minister of Finance's Accounting Policy Advisory Committee to ensure that we had the right processes and understanding and assumptions in place when we brought those entities on. If you recall from

the presentation last time, the majority of government spending actually occurs in the hands of those agencies — schools, universities, colleges and hospitals. It's the vast majority, even though when you look at our finances from the consolidated-revenue-fund view of the world, it doesn't quite look the same.

The biggest issue we have there is to make sure that there's consistency in terms of planning, that their assumptions are the same as our assumptions in terms of the kind of spending profile they have going forward and that we understand what their own-source revenue looks like as opposed to the grants we give them. That's particularly important in the university sector and less so in schools and hospitals, which tend to be…. The vast majority of their funding comes directly from the province. I would say that's the biggest risk in terms of bringing them onto our books.

On the capital side, again, their capital assets are easier to know, because you can count them — although that required a bit of planning to make sure that we had the right capitalization frameworks in place. They had moved from one set of accounting, as a sort of not-for-profit, into more directly government GAAP, so those kinds of accounting issues were also issues. For the most part, the consolidation went smoothly. Now it's just a consistency of assumptions going forward in terms of integrating them into our budget plan.

N. Macdonald: What are the expectations around the federal transfer payments as we move forward? If you could just explain: what can the province expect?

T. Vrooman: Sure. I'd be happy to do that. In terms of what you saw in the report that was provided to you, you saw the extraordinary increase in federal transfer payments. That, as the Auditor General and his staff said, was primarily due to the health accord that was signed, which put more federal transfers into the hands of the provinces in 2004.

The equalization formula, as you know, is currently in a holding pattern. What the federal government did before the election was basically hold the formula constant and give us a forecast for that one year. They've been silent on what that will look like going forward, so we have had to assume the status quo.

There's quite a degree of uncertainty, though, as a new government comes in, in Ottawa, about the status and the flow of the collection of those federal payments. So what we would assume, I think, in the interim is that the commitments that the previous government made continue to be the commitments that we have and, we have to assume, going forward until we hear otherwise. But I think there will be a period of time when those commitments are either confirmed or rejected.

We're not expecting, in terms of our forecast at this time, either an extraordinary increase or an extraordinary decrease in the amount of revenue that we're forecasting coming from the federal government.

M. Polak: I think this question is to the Auditor General. I might be incorrect, so it's to whomever this is most appropriate.

Exhibit nine on page 29. My question is around the comparability. Given that GAAP compliance wasn't a reality for probably the better part of the budgets in that graph, I'm wondering about the apple-to-apple issue. The context I would give is just that I know that when school districts made the transition to GAAP, for example, what would have been reported as a balanced budget in past years suddenly became a budget where they had to acknowledge millions in unfunded liabilities and such things.

I'm just wondering if you could comment on the comparability. When was GAAP compliance sort of a reality in the portrayal of surplus deficit, and what kind of validity or lack thereof would that sort of point to in that type of a graph? I recognize the challenge that it presents when you're trying to go back and trend it over time during transitions in reporting.

W. Strelioff: Members, when we do these comparisons, we have restated the results, so it is an apples-to-apples comparison. The basis of that is that until this past year, each year we would advise you that the financial statements are misstated, and we would actually quantify the amounts of the misstatement. When we quantify, we then reach into the system and say that if generally accepted accounting principles were used, here's what the results would look like. Then each year we make adjustments all the way back to make sure that that apples-to-apples comparison is still valid.

W. Strelioff: They do include the SUCH sector. I mean, that's the key adjustment. We would make the adjustment so that the comparison is valid.

R. Sultan: I would like to commend the Auditor General on the clarity and comprehensiveness and succinctness of this report that he carries around under his arm. I certainly react very favourably to it.

Turning to your recommendations, you say, "We recommend the government expand its use of the financial statement discussion and analysis in the Public Accounts," so that we're all better off thereby. I'm just wondering. There is such a comprehensive and succinct statement analysis and discussion in this report in and of itself. Are you suggesting that the ministry should replicate it or use this as a model for its own discussion and analysis?

I'm just wondering…. As the deputy minister has pointed out, they also have the summary report that they carry around under their arm, which is also, I think, a model of clarity.

I'm not quite sure where you're going. Could you expand? Perhaps the deputy could respond.

W. Strelioff: Yes, we do recommend that the government in its annual financial report called the Public Accounts provide a more extensive analytical explanation of the finances — reach back five, ten years and talk about the transit and talk about the future, like you would see in a major corporate annual report. We do suggest they use the model of framework of information that we have set out in here but take ownership for it.

As I said earlier, in this report we're not able to explain variances to any degree of certainty or measurements uncertainties or strategies that are being put in place. That's the thinking of the people who are responsible for managing our finances.

We are asking for a more in-depth, comprehensive explanation of the finances in the annual Public Accounts — the annual financial statements. We do suggest using this financial framework, but we would suggest — hope — that the ownership of the explanation comes from the government itself.

T. Vrooman: For our part, I think we understand the recommendations that the Auditor General has made, but I think our view at this point is that compliance with GAAP has been such a key part of what we have done. Until we better understand how integrating that into our financial statements would work and get a little bit more comfort, frankly, that other jurisdictions are looking at things the same way and that other bodies are looking at things the same way, we feel that we do make enough information available elsewhere, either through the good work of the Auditor General or through our other reports. Keeping the focus on compliance with GAAP is our first priority.

R. Sultan: Could I just follow up to the deputy minister? I think it has been reported that we're ahead of the curve — I think that was the phrase in the Auditor General's report — with respect to other jurisdictions in Canada. We get the sense from the deputy minister that we are GAAP compliant, and it's taken enormous effort to get there. The other jurisdictions with which we compare ourselves maybe aren't quite there yet.

My question is: are we viewed as a model by them? I mean, are they in awe? Do they think we're crazy? What's the reaction across Canada to this enormous effort that has gone in to produce these splendid accounts here in British Columbia?

T. Vrooman: I think that the view would be a little bit mixed — in awe and crazy — for achieving what we did in the period of time that we achieved it. But I think they continue to look to see not only that we've achieved compliance with GAAP but how we live with it day to day. They very much look to us for how we interpret new and emerging issues, how we deal with new opinions and guidance that comes from PSAB. That's true, as I said last time, not only of our colleagues in Canada but right throughout the western Westminster parliamentary system world.

We continually at the comptroller general, and I'm sure at the Auditor General's office, receive calls from our colleagues from Australia, New Zealand, the United Kingdom and elsewhere in Canada when they say: "We're just coming to this. How did you deal with it, because you are so far ahead of where we're at?"

We don't mind being a leader in that area, but we wouldn't mind some others coming up on some of these other areas so we can learn from them as we go. That's why we're taking a more cautious approach with respect to the interjurisdictional comparisons in particular.

J. Rustad: I just want to actually ask for a comment about exhibit two on page 16 of the report, particularly around the taxation revenue. Taxation revenue stayed relatively stable from '97 to 2000. In 2003 we saw, of course, the drop in taxation revenue associated with the personal income tax cut, and then it's been about a 25-percent increase in taxation revenue since 2003. I'm just speculating as to the reason for such a dramatic increase.

T. Vrooman: Sure. I can talk to you about that. We are seeing an increase in the amount of corporate income tax paid as well as personal income tax paid as a result of the fact that both of those entities are earning more. As the economy and our GDP growth continued on the upswing through those years, we saw more and more revenue coming in from those sources. You'll see, as we start to report out on the years that we're currently in, that trend continues.

J. Rustad: Just in terms of follow-up, I guess there is some debate as to whether tax relief has had a benefit in terms of additional growth in the economy. In particular — and I look at it from that taxation perspective — 25-percent growth in revenue and taxation over that period of time seems to be quite extraordinary. Do you believe that the tax relief that has been applied has been beneficial to that increased growth revenue?

T. Vrooman: I think the short answer to that is yes. I mean, it's definitely been a combination of factors, but the competitiveness of your taxation regime is one of the key things that drives not only investment decisions but also the wealth that's generated in a particular jurisdiction.

R. Fleming (Chair): I don't have any of the committee members on the speakers list, so I have a question from myself for the Auditor General.

In the discussion around vulnerabilities, where you looked at federal transfers…. I think the deputy minis-

ter has answered that question already. There was an item around debt and foreign currency.

I didn't see included in there, though, the resource sector revenues, even though earlier in the report there was discussion around looking at the nine years. There were two positive anomaly years: the 2000-2001 fiscal year, where you had revenues in excess of $6 billion; and then, of course, this fiscal year just past, where you had revenues reach those levels again. Obviously, that has a relation to the surplus of the government. You know, you've got a resource sector firing on all cylinders, and that was not included under your vulnerability discussion. I'm just wondering if there's a reason why.

W. Strelioff: Yes, members. We stuck to the indicators recommended by the Canadian Institute of Chartered Accountants and didn't go outside of it. But you're right that in those jurisdictions that are commodity-based and resource-dependent, that's a key piece of analytical work that needs to be put on the table, explained, monitored and managed well. For the purposes of this report, we wanted to stay in the frame of what was recommended by an outside group as how to explain the finances of a particular government, although I do agree that a more in-depth explanation would include the extent to which a jurisdiction is vulnerable to commodity changes in prices.

R. Fleming (Chair): Another question I had was…. You included data around GDP per capita and did some provincial comparisons. I think B.C. was below Saskatchewan, below Ontario and close to Manitoba. Of course, Alberta is in another stratosphere. But there was no discussion or analysis about what that means. It could mean that we have more retirees on fixed incomes, or it could mean that there's a productivity problem or a wage problem, an earnings problem, in the province. I'm just wondering what that data informed you of.

W. Strelioff: The purpose of this report is to say: "Here are some key components of the financial condition of a jurisdiction compared to other jurisdictions that should be put in an annual performance report." The actual analytical explanations really are something that management should provide you. Of course, that's one that I've asked about quite often, particularly the comparison between B.C. and Saskatchewan. I've always found it interesting that the GDP per capita in Saskatchewan is quite a bit larger than B.C., but I've never got a good explanation of that.

The general answer to your question is that we're here to say: "Here's some valuable information that you need to consider when understanding the state of a government's finances." The actual explanations, analysis, should be coming from your management group.

R. Fleming (Chair): Seeing no further questions from the committee members, I'll thank the presenters, once again, from the Ministry of Finance and from the Auditor General's office.

We'll move on to the next item of business. Before we do that, however, there is an error on the agenda which I'm sorry was not caught before it was printed. It's contained in your minutes of December 7. You'll recall that there was a motion served by Mr. Dix regarding a request of the Auditor General — I'm sorry that I don't have the wording in front of me — to look at his workplan.

Here it is: "That the Select Standing Committee on Public Accounts ask the Auditor General to investigate the effectiveness and impact on patient care of the privatization of food services, cleaning services and security services by health authorities." That would probably have been on the agenda as past business or a notice of a motion that had been previously served.

What I will suggest is that we have discussion on that motion under item five, "Other Business," if that's agreeable to the committee. Okay, thank you.

Auditor General Report:
Building Better Reports:
Our Assessment of the
2003/04 Annual Service Reports
of Government

R. Fleming (Chair): Item three: Building Better Reports. The Auditor General, I suspect, will lead us again in this item. We'll just wait for some shuffling to occur here.

This is also an important topic: public performance reporting. When I think of public performance reporting, I think of linking what you are trying to achieve, how you are aligning your programs and strategies and what resources you are allocating. That linkage — costs to programs to results; results to programs to costs — is very difficult to do. Very few organizations do a robust job of providing those linkages and explaining what they're trying to achieve with measurable information rigorously prepared, reported and used.

Earlier today we were talking about a key component of good, solid performance reporting. That relates to having a solid financial accounting framework so that when we're trying to link what's being achieved — in our health programs, for example — we actually have complete measures of health costs — or education costs or social services. Having a complete financial framework envisioned by generally accepted accounting principles is a key step forward.

We also need a government that will clearly set out what it's working to achieve in terms of measurable goals and objectives, then linking them. Public performance reporting and results-focused management is

a key to successful management in any organization but is particularly important in the public sector and is a key ingredient, in my view, to earning public confidence.

All of us know that the purposes of government are broad and diverse: education, health care, justice, transportation, social safety nets and on and on. While the emphasis on these activities and services will vary between levels of government and, to some extent, between jurisdictions, there's one thing we all can agree on, and that's that the purpose of government is to provide these services and administer these activities. It's not just to spend money; it's to achieve results by putting in place effective programs and services.

Governments in various parts of the world have begun to recognize the shortcomings of performance reporting in the public sector and have begun to address this challenge. I'm pleased to say once again that B.C. is taking a significant leadership role. That's the case: earned, hard work, lots of miles to go, but we are again looked upon as leaders.

With me today as part of that leadership initiative within my office is Susan Jennings, an assistant Auditor General. She leads our work on education. As well, she's responsible for performance reporting initiatives, which include the topic today about building better reports.

Mike Macdonell is leading the charge on making sure that we're thinking far ahead and that our work on building better performance reports is sound, is intellectually rigorous and moves to better management of public resources. Significant contributions were made by both of these people to the state of the art in B.C. as well as across Canada.

Also with us today is Malcolm Gaston. Malcolm is right here. He's a new recruit in our office — new being about ten months — who came from Audit Scotland and is a valuable addition to our office. He's preparing our current version of Building Better Reports, so he's assessing the current performance reports of government to make sure that our assessments are rigorous and help organizations manage and explain themselves.

We meet with all of the organizations we review, so that process is underway — it's near completion — where we provide individual assessments of the quality of what's called the service plan reports — the quality of public performance information in B.C.

Five years ago you stepped forward with changes to the Budget Transparency and Accountability Act. Among other things, the act requires ministries and other government organizations to issue each year a service plan identifying the goals, objectives, performance measures and targets for the next three years and then issue an annual service plan report — the annual performance report — explaining actual results and comparing those with those planned.

The focus of our examination is on the service plan report, although our assessments, of course, have an impact on how the service plans are brought together. The introduction of the BTAA was a tremendous step forward. It's important for legislators to stand up and say: "We want the information coming from officials of government to be rigorous, to be focused on results in addition to outputs and to be as strong as possible." That's an important signal to all the people in the system who manage our tremendous array of public resources and responsibilities.

Before you today are the results of our assessments of the annual reports. The report is the fourth in a series. We're doing our fifth right now.

S. Jennings: Good morning. I thought that before we start and actually review our assessment of the 2003-2004 annual service plan reports of government, we should give you some background about the reporting principles we use. The reporting principles are a key part of the methodology we use in assessing the reports. I can just give you a quick overview of those reporting principles.

The Auditor General mentioned the Budget Transparency and Accountability Act and how it requires ministries and Crown agencies, and actually government as a whole as well, to issue three-year service plans that include goals, objectives and measures and then to report annually against those plans as well. For simplicity's sake, we refer to those as the service plans and the annual reports.

While the legislation describes the process that organizations should follow, it really doesn't provide very much guidance in terms of what the content or the quality of that reporting should be. We recognize this challenge, so government and the Auditor General's office work together to develop reporting principles that could help government in reporting annually about its performance. These principles have come to be known as the B.C. reporting principles, and they were endorsed by the Public Accounts Committee in 2003.

This unanimity, which is unique in Canada, means that there is broad consensus about the basis on which government should tell its performance story. It's the first time in any jurisdiction that we know of where government, or those who prepare the reports, legislators, representing those who use the annual reports, and auditors, or those who assess the quality of the reporting, have developed a common understanding of what good public performance reporting should be.

I should mention that the B.C. reporting principles have attracted attention from other provinces. Nationally, the principles are also having an impact. They've been influential in shaping the development of national performance reporting standards — for example, by the Canadian Institute of Chartered Accountants.

What I'd like to do now is give you a quick overview of the B.C. reporting principles. For more information, we're handing around a quick reference guide, which summarizes them. There's also a fuller report that's available, if you wish.

The first principle explains the public purpose served, and applying this principle should ensure that an organization's whole reason for being is explained. It's the big picture; you know, why does an organization exist? It should be clear who the clients are, who the stakeholders are, what programs and services are delivered, how they're delivered and whether they're delivered consistent with the organization's values. In linking goals and results, the reader should be able to understand: what the organization plans to achieve — its missions and goals; what it does to achieve them — its programs and strategies; what it has achieved — the results; and how it knows this — its measures of performance.

Principle three, which is "Focus on the few critical aspects of performance," suggests that reports present clearly and concisely the overall performance story in a way that is meaningful to users. Only the key goals, objectives and measures should be reported, so the reader can see the forest for the trees.

Under principle four, which is "Relate results to risk and capacity," risk is the chance of something happening — and it could be either positive or negative — that may impact upon objectives. Capacity is the ability of an organization to manage its risks and achieve its objectives. That could include human resources, information technology or financing, for example.

The fifth principle, "Link resources, strategies and results," is really about knowing the cost of results — what the public received for the money spent and how efficiently and effectively services were delivered. Applying this principle means linking the financial data with non-financial performance information.

Principle six, which is "Provide comparative information," is asking organizations to compare their current results to previous years, to the budget and, where possible, to the performance of other organizations. The essential question is: is performance getting better or worse, and what does that mean for future performance?

Principle seven, "Present credible information, fairly interpreted." This principle is actually different from the others, because it focuses on the quality of the information rather than on the content of the report. It captures a number of attributes of credible information, such as consistency and fair presentation, relevant and reliable data — that a report is understandable and timely, for example.

Then the final principle, "Disclose the basis for key reporting judgments," is really calling on a report to explain the basis for selecting those few critical aspects of performance; the rationale for choosing the measures and why they've changed, if they have; the source of data and any limitations in its use; and management's competence in the results reported.

That's a quick overview of the principles. I should say we found them very useful in several ways. Government, I know, has used them in reporting guidelines that they issue to ministries and Crown agencies, and we use them to help inform you about the quality of the annual reports you receive.

With that, I can ask Michael if he would just review with you the results of our last review of the annual reports of government.

M. Macdonell: The office's first strategic goal is to ensure that the people of British Columbia and their elected representatives receive the best information possible for assessing the performance of the provincial public sector. One of the things we do to meet this objective is assess the quality of annual reports. We've done this — assessing the quality of annual reports — each year since they were first issued under the Budget Transparency and Accountability Act. We're now in our fifth year of assessing the quality of reporting.

This update is on the assessment of the fiscal 2004 annual reports. We'll have another update for you on our assessment of the fiscal 2005 reports coming out in March.

In addition to informing you about government's overall progress in incorporating the B.C. reporting principles, our report highlights good practice. We've also provided individual organizations with objective feedback on how the reports compare to the principles to help them improve the quality of their reporting.

Our experience with organizations, as well as the experiences of others, has shown that this internal management process has strongly influenced public reporting. It's our view that effective external performance reporting must be preceded by effective internal results-based management. Without this internal focus on measuring and achieving what's important, external performance reporting is likely to be little more than window dressing.

A few moments ago you were introduced to the B.C. reporting principles. While these principles outline the characteristics of good external public performance reporting, it's important to note that incorporating the principles can help support government in effectively managing for results. Incorporating the principles is deceptively easy when viewed from the outside, but we know from our own experience, as well as the experience of others, that it can take significant effort and time because of the work that needs to go on inside.

When we first began examining annual reports, public performance reporting and results-based management were new to many organizations. So rather than providing a simple pass-fail review of their quality, we began using a four-stage developmental model, believing it was the appropriate strategy given the state of public performance reporting at the time.

The first stage in the model we call "startup." As the label implies, organizations are just getting started. At the second stage, "in process," we've noted progress, but significant elements are still missing or not adequately addressed. The third stage, "fundamentals in place," we believe is a level attainable by all public sector organizations. While room for improvement still exists, the fundamentals-in-place stage represents the minimum standard all reports should reach.

Finally, we have something called "fully incorporated." A fully incorporated assessment means a report has achieved a standard of excellence, standing out as an example for others.

You'll note our report is in two parts. You have the green report, which is the overall summary, and then there's the detailed appendix, which has the individual assessments of organizations, ministries and Crowns.

This year we assessed a total of 34 organizations, including all 19 ministries and 15 of the larger Crown agencies, such as B.C. Hydro, the B.C. Lottery Corp., the Oil and Gas Commission and the Legal Services Society. We also assessed the Annual Strategic Plan Report, an umbrella document covering the whole of government.

It's important to note that our work was limited to assessing whether reports contained the types of information called for by the B.C. reporting principles. What we didn't do was examine the accuracy of the performance information, so principle seven, which deals largely with data quality, was excluded from our work.

The results of our assessment show that some organizations are approaching a standard of reporting that we hope all will someday achieve. However, there remains considerable room for improvement in most reports. None that we assessed provided a complete picture of performance; however, we did observe a gradual improvement over the previous year. This continued the trend we've noted each year since we began our annual assessments: steady, albeit measured, progress year over year.

We also noted what may be a new trend this year. The quality of Crown agency reports was noticeably better than the reports of ministries. The graph up on the screen shows the average assessment for each principle for all ministries. The red line represents the minimum standard we believe all reports should attain. As you can see, there remains considerable room for improvement for ministries.

There have always been minor differences between the overall quality of ministry and Crown agency reports. This year, though, the gap widened significantly. In fact, ministry reports accounted for most of the lowest assessments. That being said, there was a slight improvement in the overall assessments of ministry reports from the previous year.

Of particular note, ministry reports did a better job this year in linking the results achieved with the resources expended. This allowed readers to better understand the cost and efficiency of government programs. We believe this improvement was due in great part to the inclusion, for the first time, of specific guidance for ministries that they should produce this information.

Ministry reports continue to be weak in explaining the key risks to achieving program objectives and the capacity to meet these risks. When we looked at the guidance provided to ministries to help them prepare the reports, this area was not consistent with the reporting principles.

Turning to Crown agency results, this slide shows the average assessment by principle for the 15 Crown agency reports we looked at. It shows that the average assessment for Crown reports is still not at the minimum standard. However, the average assessment for three of the principles was higher than the average assessment for ministries, and a number of Crown agency reports did well in individual areas.

Crown agency reports accounted for most of the best assessments, and a number of reports were strong in individual principles. No single report met the minimum standard in all areas; however, we were encouraged by the progress being made year over year. Compared to the previous year, reports did a better job of explaining risk factors that could affect the achievement of objectives, the capacity of agencies to achieve intended results now and in the future, the way resources influenced results, and the efficiency with which results were achieved. However, on average, reports were incomplete in explaining the basis on which information was prepared and the limitations on its use.

Our final graph shows the results of our assessment for the governmentwide Annual Strategic Plan Report. We assessed the report because we believe it's such a critical element in the government's accountability to the public. The Annual Strategic Plan Report is a key vehicle for government to communicate to legislators and the public how it has fulfilled and funded its legislative mandate. Ideally, it does so by reporting results in the context of government's overall goals, objectives and performance measures at the corporate level.

As shown on the graph, the strategic plan report was assessed at the lowest level for all but two principles. We believe this low assessment reflects a number of missed opportunities. The Annual Strategic Plan Report states that it was prepared on a whole-of-government basis. However, Crown agencies were excluded from its scope. It's our belief that if organizations are of such significance that they're included in the public accounts of the province, then these organizations should also be included in the strategic report that underlies these public accounts.

The Annual Strategic Plan Report states that it's an umbrella document for individual ministry reports, meaning that it provides the guiding framework for the reports of individual organizations. However, we couldn't find meaningful linkages between the Annual Strategic Plan Report and the annual reports of ministries. As a report on the performance of government as a whole, the Annual Strategic Plan Report could present an ideal vehicle to address cross-cutting issues, priorities and goals — in other words, the overarching strategic aims of government and how they're achieved through its individual operating components.

The report could also link the finances of government with broad strategic initiatives that cut across ministry and Crown agency boundaries to powerfully

communicate the full extent of government operations in key strategic spheres. However, the report didn't do this, because it didn't contain any financial information.

As a result of our work, we offer three recommendations to help support the development of good performance reporting. Our first recommendation was for an executive sponsor for performance management and reporting. Second, we recommended formal leadership to support the implementation of the B.C. reporting principles by ministries. Finally, we recommended enhancing the use of annual reports by legislators.

I'll now go over the recommendations in more detail. As the results of our assessments suggest, there's still some way to go before annual reports of government provide a comprehensive picture of performance. Getting there will take sustained leadership — in essence, a visible champion within government — to drive forward the performance management and reporting agenda. Consequently, we recommend the government identify an executive sponsor to coordinate and support the implementation of various performance management and reporting initiatives across government, as we noted in last year's study, Building Momentum for Results-Based Management.

Ministries and Crown agencies are required to publish the reports in compliance with central guidelines. For Crown agencies, this guidance is provided by the Crown agencies secretariat. The secretariat also provides support and assistance for performance reporting and performance management. However, responsibility for supporting ministry performance management was less straightforward.

Ministries expressed to us their concerns about the ambiguity of this arrangement and uncertainty about where they could get support for working with the B.C. reporting principles and building the capacity to use them within their organizations. In discussions with our office, government committed to what they termed operationalization of the B.C. reporting principles — in essence, to work toward ensuring ministries had sufficient capacity, resources and infrastructure to produce good performance information, manage for results effectively and fulfil the B.C. reporting principles in their external reporting.

We commend this objective but believe it will be difficult to follow through in the absence of an executive sponsor. In order to provide strong leadership within central government, we recommend that executive responsibility for performance reporting guidelines, the operationalization of the B.C. reporting principles and the building of capacity to manage for results within the individual ministries be assigned to a senior official having sufficient authority to effect change, such as a senior deputy minister.

British Columbia, along with an increasing number of other jurisdictions worldwide, has recognized that the number of dollars spent does not tell stakeholders what government has accomplished or if accomplishments have been achieved effectively and efficiently. The Budget Transparency and Accountability Act recognizes that the performance of government needs to be measured by more than just the financial bottom line, and that's why annual reports are so important.

We view legislators like you, the public's elected representatives, as the first audience for annual reports. Public use of annual reports by Members of the Legislative Assembly affirms their value and provides a powerful incentive for continuous improvement.

The Select Standing Committee on Crown Corporations examines the plans and reports of selected Crown agencies. We believe the service is an incentive for organizations to provide good reporting and provides a positive model for other legislative committees. Consequently, we recommend that the process of examining service plans and annual service plan reports by the Legislative Assembly's Select Standing Committee on Crown Corporations be extended to other standing committees of the Legislature so that the service plans and annual service plan reports of ministries are also subject to public scrutiny and open discussion.

We ask that the Public Accounts Committee endorse our recommendations as set out on pages 22 and 23 of our report, Building Better Reports, our assessment of the 2003-2004 annual service plan reports of government.

By the way, this is another one of the documents that I carry with me all the time — that quick reference guide. It asks some pretty tough, hard questions about an organization. I hand it out at audit committee meetings and places where I'm invited to speak or discuss issues. It's a good tool for thinking about the performance of an organization.

Certainly, one of the premises in this work is that those organizations that can explain their performance in a robust way are more likely managing it strongly. Those that are the opposite, that can't explain their performance in a robust way — it's a signal that they've got management challenges.

That's why we're focusing a lot of our energies on this part of our work. Certainly, the more I've delved into this area, the more important it's become in terms of managing an organization, leading an organization, explaining performance and trying to gain public confidence — and earn it. Earning it, of course, is a constant challenge. We're seeing more jurisdictions make progress in this area — Alberta, Saskatchewan, Ontario, Quebec, federally. You see Auditors General doing reports on this. Other governments do look to B.C. for our experience, just like we looked to other jurisdictions for their experience. We've made a significant contribution, but as you can see by the analysis, there's a lot of room for change.

Our initial thinking or views on the 2005 reports. The trend is about the same: some progress, but…. In the three sectors, ministries not doing as well, Crown agencies moving forward stronger and the government overall strategic report not being very good.

This is probably the last opportunity that I have to speak to you about the importance of performance reporting, so I'm hammering this issue into your minds, because it really is significant. The quick reference guide is a good way of asking questions about performance in any setting that you go into where you are talking about the performance of a public sector organization.

I also ask you to consider some final thoughts. When you consider annual reports, think about balance. We live in an environment that often ignores success and punishes every mistake. We need to acknowledge both equally. There are successes; there are mistakes. I encourage you to take a balanced view when assessing performance and not focus on every potential flaw.

I'd also like you to consider the audience, the kinds of decisions they should make and judgments they should form. Will readers simply accept what's written, or will they view the information with a skeptical eye? Skepticism is almost a value in how we view or deal with our systems of government. It's a shame that the performance information that is provided to you…. If it doesn't get used and scrutinized, that's not a good thing, particularly if people believe it's not credible. Imagine if government's financial statements were viewed as being not credible.

It leads to the role of independent audit. To have credible performance information on the table that everyone believes in, there need to be assessments of the credibility of that information. We've begun to lend our credibility to a small number of annual reports — the Workers Compensation Board, the public guardian and trustee, and right now we're working with the B.C. Assessment authority. All have engaged us to attest to their overall performance report.

The Workers Compensation Board's performance report, which I've probably mentioned in previous meetings, is probably one of the leading-edge performance reports you'll ever see — in Canada, anyway. They've done a good job of linking results to programs to resources. We actually gave our first-ever clean opinion that the overall performance report of the Workers Compensation Board fairly presents its performance, linking financial and non-financial — did that for December 31, 2004. It took a number of years to get there, but it's there. We're examining that right now to make sure that the 2005 report is similarly robust.

We've also carried out examinations of different kinds of performance reports, like the Abbotsford hospital value-for-money disclosure report. We wanted to make sure that the information was as robust as possible. The Sea to Sky Highway project. We wanted to make sure that you knew that the information presented in that value-for-money disclosure report is credible. We're working right now on what's called the Canada line or RAV line. When they issue their value-for-money disclosure report, there will be a statement to the extent to which we think that information is a robust explanation of the agreement they set in place for building that important transportation system.

Public performance reporting takes courage — to set out and explain your performance, to recognize where you've not lived up to what your plans were and why, as well as where you've been successful in terms of meeting your plans and results. It's taking a cultural shift, focusing…. As I mentioned earlier, the past tradition was to focus on one fund of government. Now we're moving to a more comprehensive view of the finance of government. The past focus was to focus on inputs. Now we're trying to get to results. Information systems have to be developed. Performance management approaches change. You get exposed when you report publicly that you haven't achieved what you were hoping to achieve.

I ask you as legislators to encourage and support all public sector organizations in their move to robust performance reporting. Performance reporting is a signal that performance management is happening. It's a by-product. It's not the end product; it's a by-product. It's pretty important to the system of the public sector. It isn't easy, but then nothing important usually is easy.

R. Fleming (Chair): Thank you, Michael, Susan and Wayne, for that presentation. I think, similar to the last item, if we could have the Ministry of Finance present their presentation…. We have Nick Paul here, and he has a PowerPoint presentation. Is that okay, Mr. Hawes?

R. Hawes: I just wanted one point of clarification from the Auditor while what he just said is still fresh. One of his comments causes me some difficulty.

I just wonder if I could ask, Auditor: in all of the performance reporting, is there any that have gone backwards, or is there progress in every single one? Are they getting better — all of them?

R. Hawes: I'll tell you why I'm asking. You said that the government was….

R. Hawes: When you said it wasn't good, it led me to wonder: are you saying that there's a deterioration, or is there an improvement and maybe it was just a poor choice of words on your part?

W. Strelioff: When we look at our current analysis, we find that some are moving forward, and there are a few that have stepped back.

W. Strelioff: I did say that in our current…. I'll step back. In a general sense, the robustness of performance reporting is improving. There are examples of individ-

R. Hawes: So you're saying the government's…. Your words were that the government's wasn't good.

W. Strelioff: I did say that the government's overall strategic report is not leading the way. It's weak.

S. Jennings: The one that I think Wayne was referring to is the governmentwide report. We look at ministry reports and Crown agency reports, and then there's a governmentwide report as well. I think, from what we saw a couple of years ago, that it has moved down on some of those principles — in part, I think, largely for some of the comments Michael had made, where it did not include Crown corporations, for example. It didn't speak to all of government.

R. Fleming (Chair): Okay. Thank you again for the presentation. We will have questions for you after we hear from Mr. Paul.

N. Paul: Members, Tamara Vrooman had to leave for a meeting, so with apologies, you get a number two. I'll just go through the Finance response. Some of the response you have seen already or heard the Auditor General's staff discuss — the performance principles. I'll go through that quickly and focus on the response to the recommendations.

The first slide, slide two, points out that the government is committed to improving its accountability. It does want to make the point that this is a continuous process, and we agree that more work is needed.

Just for the purpose of getting everybody thinking about this and how easy it is, these reports are key communication devices, but the work of government is complex, and the work of ministry is complex. Sometimes it's hard to put these things into a very simple perspective. When you deal with the entire government organization — the $30 billion organization with its many attributes that we talked about under the finances — it's not easy.

Just one of the things that I have a hard time doing myself is explaining my particular job to a person I meet when they say: "What do you do?" If you think about this committee here and you say, "What does the Public Accounts Committee do?" sometimes it's hard to explain to an ordinary person what you do and the complexity and all the intricacies of it. That's part of the challenge in doing these reports: taking a complex environment and basically simplifying and communicating it. We have the reporting principles to guide us, but I think that's an important thing to realize. It's just not that easy, and we are making progress. We're actually proud of our progress. I'll talk a little bit about what we do in Finance as well.

In terms of the context, I think you're all familiar with the underpinnings of the Budget Transparency and Accountability Act — getting this reporting and accountability framework going. Both the Auditor General's staff and our own staff are proud of the work in developing the reporting principles. That was a good job and one that I think we all espouse as principles. The challenge, of course, is to live up to the high standard that those principles set. You're familiar with what the BTAA requires us to do: three-year plans and an annual report.

One of the issues in making progress that I do want to point out is the lag. We use the feedback from the Auditor General in terms of helping us fix what we do next time. But the basis for each one of these service plan reports is actually set two years before the report is developed when the service planning progress starts.

Because you report against your plan, you set the framework when you develop your plan, and we put out guidelines. We put out guidelines, for example, in October for the 2006-2007 service plans that will be tabled in February. The report on those won't come out till June 2007 with the public accounts — that's a long lag — then the review by the Auditor and how we're doing and our response to that. That's one of the things you have to realize. It takes a while to develop and make progress, and we do value the Auditor's insights in terms of his feedback.

In terms of the 2003-2004 service plan reports — the question that Mr. Hawes asked — the Auditor noted some slippage and some areas of improvement. We've actually done a lot in terms of the 2004-2005 reports and the 2006-2007 plans that are coming up to strengthen in these areas — the ones of linking resources and results. That's one of the things that the Auditor General's staff identified.

We note also that the Crown corporations are stronger. That's perhaps because they've got a culture of doing this. They are more independent organizations, a little bit more organized like a business in terms of their annual report process. They tend to have got a head-up in terms of their progress relative to ministries. That's important, as well, to recognize.

As I mentioned, we are trying to strengthen our reports, and the guidelines that have been put out have tried to deal with this. In terms of focusing on the few critical aspects of performance, one of the things to note is that in the guidelines that have gone out, we have tried to limit ministry performance measures to 12.

This is where this question of simplification comes in. In terms of detail and in the public policy debates, some of the questions are quite detailed. Is 12 enough?

That's on one hand. But then if you had a hundred, the reports and the plans would just be so complex that nobody could get past page 3. That's a balance to be struck, and I think that's something you have to keep in mind as we assess progress.

Also in our guidelines, we've had ministries focus more on identifying their purpose. Given the strategic plan that came out in September, which is focused on the five great goals, the guidelines have got added emphasis on having the ministries link to those five great goals. That's to try and deal with the link between the strategic plan and the ministry plans that the Auditor has commented on.

The other point was that there are quite a few initiatives in government which are cross-government, so there'll be programs that involve different ministries. Trying to deal with that is another thing that's been built in.

The Crown agencies are doing well. Their emphasis for improvement in the new service plan guidelines is on performance reporting and risk and capacity. That picks up from the feedback that we've gotten.

Crown agencies secretariat, which is now a part of the Ministry of Finance, held a workshop with the Crown corporations in the October-November period to help them with the guidelines and to talk about the new directions. They've also been developing a risk management workshop for Crown corporations staff.

In terms of the recommendations, the first key recommendation of the Auditor General was on executive sponsorship. In terms of this, it's a key view that government has that the key accountability link for driving service plans and service plan reports is individually within organizations. In ministries, that's the minister responsible and the deputy minister.

Because of that and because of the other structures — the cabinet committees that review the service plans through the fall — and also the fact that we do have a coordinating agency that's located in the deputy ministers' policy secretariat…. The coordinating agency was previously in the assistant-deputy-ministers-to-corporate-services group. Because we have the coordinating agencies that keep the guidelines in front of people and try to move progress ahead, we feel that's an appropriate structure in terms of keeping accountability for the plans and the reports.

Certainly, in the Ministry of Finance — I'm on the other side of this in my day-to-day job, and I look at our work in terms of developing service plans — we've done an awful lot internally to restructure. The resource issue was big for us, so we've got a coordinating committee that keeps the balance between having as many people involved as possible and keeping the resource usage efficient. That's been quite successful in our own work, and we've managed to get a lot more profile on what's happening in planning. I'll also talk about ministry business plans in a minute.

We believe that within ministries — and certainly looking at our own example — if they're driving this to do as good a job as possible, that's the right structure.

Crown agencies secretariat, which I mentioned earlier, is now in Finance. The Auditor mentioned that they're doing pretty well. The Crown agencies secretariat continues to try and encourage progress in those agencies.

In terms of the need for strong leadership, I've basically spoken to this. The key here is the minister's accountability. The minister signs the service plan and the service plan report in terms of accountability, and the staff in the ministries are key to delivering on the objectives that have been set by government.

With Crown agencies there's a slightly different structure. It's the board chair that signs the accountability statement, but the minister responsible is the representative tabling it in the Legislature.

In terms of the recommendation that service plans and annual reports be examined by the Legislative Assembly standing committees, this is fundamentally a resource issue for the Legislature to decide. All the reports are subject to public scrutiny. There is, in our view, adequate opportunity in estimates debate or in other discussions in the Legislature for discussions on service plans and service plan reports. The Crown agencies, because there is a Select Standing Committee on Crown Corporations, have their own forum where those reports can be discussed.

In terms of moving forward — this will be no surprise — we're committed to continuous improvement. Just as a note in terms of continuous improvement, the Ministry of Finance was quite pleased to see, in looking at the preliminary work the Auditor General has done on the year following this particular report, that we got a score of two fundamentals in place out of a total score of four across the board. Tamara made sure that I pointed that out to you.

Continue to move forward, and the planning structure has been improved. There was some uncertainty, which the Auditor General referred to, when the coordinative function was moved from Treasury Board staff to the ADM committee of corporate services, and that has now been consolidated in the deputy ministers policy secretariat. We believe the planning structure has improved and is adequate to deal with the new issues.

These are a couple of new things that are happening in the government planning process, and it comes to speak to the audiences and simplification. You've got four bars in this diagram. The top one is the strategic plan, so you're familiar with that, but the new element is ministry brochures. This is because ministries have a requirement to try and reach their stakeholders with information as to what they're doing. New this year will be ministry brochures that are a much more accessible summary sheet as to what the ministry does and what they're trying to do.

The ministry service plans will be as they were, but then there's another new block which is ministry busi-

ness plans. This deals with a particular tension that all the ministries deal with, and that is the difference between the internal audience in the ministry and the external audience such as the Legislature and so forth.

Inside the ministries, when you're working on these service plans…. What happens is that you have these committees. They'll look at a draft service plan, and then they'll say: "Where's my branch?" or "Where's what I do?" Ministry staff obviously want to see how their work links to what the ministry's service plan is all about. From a staff perspective, that's very understandable. It's a desirable thing from a management perspective to make sure that people know how they fit in to the ministry service plan. But that, on the other hand, would mean a much larger service plan, and it would be inconsistent with the main audience of the service plans, which is the Legislature, of course, which would want a higher-level document.

That's why the ministry business plans are being developed, and that's new this year. It will be interesting to see how that works. Certainly, from an internal management perspective, I think they'll be very positive in terms of management from an inside-the-ministry perspective.

Okay. In conclusion, we like the B.C. reporting principles, and we continue to try and do better in this area, but the key is, of course, finding the right balance between timeliness, sufficiency, relevance, precision and cost.

R. Hawes: Just to go back to what I was saying before. Auditor, when you made your presentation, you did mention that sometimes we're too quick to criticize, and we don't take time to compliment where we should be complimenting.

I took what you were saying earlier as being perhaps too quick to criticize, because I know what was in place prior to the Budget Transparency and Accountability Act. That was nothing like this. I know how far you have come. I know how difficult this is, and I really want to compliment you on how far you have come. The progress, I know, continues to be made. I know there is a dedicated push to make this more fulsome and certainly more, in the Auditor's words, robust. I don't think you should be criticized at all for the progress you've made. I think you've made great progress and continue to make it.

I just wanted to make sure that certainly what the Auditor said about perhaps the government hasn't done a good job…. I think those were your words — that it was a poor job by the government on the overall report. I don't quite see….

W. Strelioff: Just in general, when we're looking at the results of our '05 assessments…. As I said, the trend that we've reported for '04 does continue. Crown agencies continue to make progress at a greater speed than ministries. Ministries' progress is quite slow. The governmentwide reporting that brings it all together is weak. For the '05 they continue to miss some opportunities to explain how the overall system of government works, what we're trying to achieve and what we did achieve.

R. Hawes: But compared to prior to the transformation under the Budget Transparency and Accountability Act, the progress is remarkable, really. You have to say that.

W. Strelioff: As I said, the first time we evaluated performance reports was after the BTAA, and we think that's a very significant step. We also think that having the adoption of general reporting principles systemwide is important. We think that the move to build them into the service plans and get central guidance is important. They're all steps forward.

We think, though, that there are significant opportunities to improve how organizations report on performance and, therefore, manage. There are some pockets of leadership that are pushing the envelope and doing a very good job and some reluctant participants that need to be encouraged more.

Committee members, there is some lunch at the back of the room, you may have noticed. Just help yourself, because we're going to keep working through the agenda.

N. Macdonald: The general approach, of course, is something that's really exciting. The point I would make is that obviously, for some projects and for some organizations it's an approach that's going to be fairly easy to implement. You talked about different Crowns finding it easy.

I'm not surprised that with some of the ministries, though, there is difficulty in making a lot of progress with this. The background I have is in education. There are different attempts at bringing accountability to education. It's just an extremely complicated thing to do.

I guess attempts at accountability, such as the Fraser Institute's attempt to bring in accountability…. It sort of highlights what you can do if you do something improperly. It can lead to rewarding strategic behaviour that isn't necessarily educationally sound.

That's just the point. As we push ministries to look at accountability, there has to be recognition that…. Education jumps to mind, but there would be other ministries, as well, where you would really have to be very thoughtful about how you did it.

I know there are accountability exercises that are in place now that perhaps the government thinks are ac-

tually collecting information that's useful. On the ground level I didn't feel that a lot of the stuff that was collected was useful. There's no consistency between what was collected, what was done in one school…. The information that was collected would be collected in a certain way and then a different school completely differently, and you couldn't really compare.

It has to do with people who, in some cases, don't feel it's important. They feel that the other part of their job is more important, or else they don't really know how to collect information accurately, or you want to spend the resources that it would take to get accurate information somewhere else.

That's just the point I would make — that it's of course a worthwhile way to go. In some organizations it would work very easily and could happen quickly, but like I said, for the Minister of Education, I would suspect that she's hearing from the ground level, that she would need to go very, very slowly on it. I think it would be fair for her to take that into account. I'm not sure about Health or any other ministry, but that's certainly one that I can think of.

R. Fleming (Chair): Did you want a response from the Ministry of Finance on that, or…?

N. Macdonald: I guess it was a statement. I suppose there's a question: what do you think of that?

W. Strelioff: In general, when I look at the quick reference guide, where we have, "With this principle…MLAs and the public will know," and then, "Reviewing performance reports, key questions…." It's a really interesting set of questions in trying to figure out where an organization is going in any circumstances. But it's hard, and it's not easy for any organization that we've come across, including Crown corporations. It takes a lot of significant thinking and alignment of direction. In many cases it's creating new information systems on informing on how to manage and change. It's a big task, but it's worthwhile.

N. Macdonald: Maybe just to come back. We have just a few minutes. The danger with it is that very often within things like education you end up with a number that looks objective, but to arrive at it, there are a series of subjective judgments that are made. So all over the place you have different degrees of subjectivity put into numbers that look objective, but in the end they aren't. The danger is that you would somehow guide government policy towards something, when you know that at the base level you don't really have something valid that's been measured in any way that's particularly valid. I would see that as one of the difficulties.

The classic example is what the Fraser Institute does, which not only doesn't measure accurately at all, I don't think, but it also can lead to strategic behaviour. You can do things that are educationally unsound, but you can affect the measurement and therefore make it look like your organization is improving, when in fact what they're doing is actually counter to what is educationally useful. That's the danger that I put out there with any of the things we're trying to do as we step forward, and I think it's a real danger with some of the organizations like Health and Education that really use up an awful lot of the public's money.

There are intangibles that won't be measured that are really the key, and there are solid measurements that are probably not particularly consistent or sound. That's the point I would make. I guess there's no question in there either, but there you are.

W. Strelioff: We did face many of the challenges raised in our work at the Workers Compensation Board or WorkSafe. In their report of December 31, 2004, for the first time we were able to conclude on the relevance of the performance indicators selected — that they were relevant to the performance of the organization — and the accuracy. Certainly, the board there values that added credibility and scrutiny to make sure that when you do receive performance information and you wonder whether it's useful or real, there's a rigorous challenge to it.

R. Fleming (Chair): Michael, did you have something you wanted to add there?

M. Macdonell: I think Mr. Macdonald raises a very valid point, in that there's a real danger in taking any performance indicator at face value without questioning what lies beneath it. It's really a good question for readers: how do you know that what you're being presented with is fair, objective, valid, and what judgments do you make from it? Are the judgments that are being put forward somebody's opinion, or are there proven causative linkages between measuring something and the actual outcome you're trying to measure?

That's one of the things in principle eight that management should be very transparent and very clear about: how solid is the data, and what are the assumptions that underlie it? What elements are fact, and what elements are opinion? And what confidence should readers take away?

A very important element of the assessments that we look for in reports is: how transparent is the disclosure around the data that's been presented? When we do the assurance work that Wayne was mentioning, at the Workers Compensation Board and other organizations, we challenge those assumptions. So when you see our audit opinion attached to, say, the annual reports of the public guardian and trustee or, in the upcoming year, to the B.C. Assessment Authority, you'll know that we'll have challenged those assessments; that the information that's presented is accurate; and

that when opinions are presented, they're presented as opinions, as opposed to statements of fact. It's important to distinguish between those.

B. Ralston: This is a question to the Auditor and perhaps an opportunity to muse about the future of performance reporting.

Within the business world I'm familiar with increasing attempts through the Global Reporting Initiative to measure non-financial performance, such as environmental impact or social measures of business activity. Obviously, business and government aren't analogous, but some of the Crown corporations are perhaps more closely analogous to business activity.

If one were to look to the future of performance reporting, what non-financial measures that have been attempted to be captured by the Global Reporting Initiative might you recommend for legislators to consider as something to be implemented in the future?

S. Jennings: Actually, it is an issue that we've looked at. We've explored the Global Reporting Initiative, corporate social responsibility and so on. One of the areas that we don't expand on very much in the principles but that we're very conscious of is the one about what we term the proper conduct of public business — and saying that while we're all very focused about getting results, it still matters how we get those results in the public sector. I mean, I'm sure it matters in the business sector as well.

In the public sector we're very concerned about issues of equity and access and so on, so we've been looking to those models of the Global Reporting Initiative or corporate social responsibility, trying to see if there is some way of adapting that kind of reporting that could be applied to performance reporting in the public sector. It's still, I think, early days in terms of how we might do that or whether people even believe that's a good thing that should be reported upon.

B. Ralston: I appreciate that that's obviously beginning to intrude into the political realm, but I think there's an attempt…. That's certainly what the GRI is grappling with — an effort to have some comparability across jurisdictions as to those non-financial performances and given that comparability, therefore, increased management focus on dealing with those issues as they arise in the course of their business.

I'll take it that you're exploring that and that you're not at this point completely rejecting that as a future direction.

M. Polak: I'll give you a little overview before I speak. It's not going to be that long. Just a couple of quick comments, and then I have a question. It will be after the answer of that question that I want to make another quick comment that has to do with the recommendations, which is why I'd kind of like to separate it out.

I appreciated a lot what Mr. Macdonald had to say. I think the challenge we will face on a committee such as Public Accounts and, indeed, in reporting as we grapple with some of the softer areas of government — the human enterprise of education or health or social services — is that when you desire to produce something with which you can compare jurisdiction to jurisdiction, that will always be easier when it comes to numbers than it will be with respect to actual on-the-ground performance measures. That's simply because when determining what it is one wants to measure in education, outside of the numbers game one is essentially making a political or philosophical distinction as to what's important.

There are choices there that are public policy choices, and I would argue that you will perhaps never get to a place where the on-the-ground performance measurements are satisfactory from a comparability standpoint, because right from the get-go you're making a choice about what I'm going to measure and what I'm going to emphasize. When you're dealing with something not number-oriented, that will forever be a challenge because there will be that question of ethics around what I want to measure when I'm measuring a classroom. Is it class size that's important, or is it the number of points on a scale a child can reach when they're in a reading matrix? Those are all choices that you have to make, and at some level when you back it up, they're philosophical/political.

I also want to recognize that in the change literature — and we are talking about huge change in government and in cultures and ministries — there's a phenomenon known as the implementation dip. I think it is something important for us to recognize as we seek to motivate that culture. We need to acknowledge the fact that there will be that phenomenon as we move forward. I know from my read of the change literature that it's in acknowledging that that we assist members of our organizations to grapple with it and move forward beyond what happens when that initial excitement of implementation has dwindled and we're down into the dirty work of it.

My question is around the impact of multi-year planning versus single-year planning. I know that's a shift that has taken place in government with respect to looking further out and creating financial plans and business plans that look to sustainability. I'm not sure who would be the best person to comment on it, but if I could hear some comments with respect to the impact of that change…. How has that changed what ministries or what governments do — that move to multi-year strategic planning as opposed to single-year fiscal planning?

N. Paul: One thing I can say, and it's an obvious result, is that now we have ministries…. Crown corpo-

rations like Hydro had been doing this for a while, but ministries and some of the other Crown corporations now are required to look ahead beyond the single year. I think that in itself creates much more stability.

If you've looked at some of the planning documents, you can see it's an evolving, adaptive process. The three-year plans…. I think that at first, everybody thought there would be total certainty about three years ahead when you set your three-year plan, but they have been adaptive. I think that's sensible, and it seems to work. As organizations do better or worse or run into challenges, then the plans adapt year to year so that there's a rolling plan.

I find, certainly as I look at organizations and in my own organization, that the plan becomes a yardstick. You set a yardstick as to where you think you're going, and then every year you get a chance to review and modify that. It really helps you to think ahead as to where you want to go three years from now. Some of the things we do in government take three years, ten years, to make a change. If you're still in the one-year model, you're never going to get there because you never knew where you wanted to go. I think longer-term planning is very beneficial for those large changes.

W. Strelioff: I agree. Multi-year planning is a key ingredient to robust planning, performance management and reporting. It is a requisite.

Your comment about choices — yes. That's particularly difficult in the world of government. Clarity exposes. It's an interesting phrase. It exposes what choices you make. When you make decisions or choices, you're saying: "Here's what's a priority, and here's what's not a priority." That's hard. It's essential in terms of aligning and moving forward and going, but it does expose. Clarity exposes. I also think it sets you free too. The direction is there, and away we go.

M. Polak: The quick comment was just with respect to…. We're going to be dealing with recommendations and whether to endorse them or not, or modify or what have you. It was with respect to the recommendation to have service plans put forward perhaps at select standing committees, say, for education, etc.

My concern there would be that you've got the ability of select standing committees, such as education — take it as an example — to spend their time and their resources engaging in explorations of some very focused initiatives. For example, the committee on education is charged right now with looking at literacy and specifically adult literacy. The time and focus of members of those committees it takes to do that is, I think, well spent.

My own personal opinion would be that with respect to service plans, the analysis of business plans that are coming in the future, I do think that's covered off well in estimates and that we would be perhaps risking some of the ability of those committees to engage in their focused work as opposed to what would amount to really a secondary review that can now be accomplished in estimates.

Certainly, I would have concern if these were reports that were otherwise private or internal to government, but given that they're public and accessible to the public, I think the estimates process is certainly sufficient for what we are attempting to do in analyzing service plans and giving the public a sense of their veracity, their sustainability.

J. McIntyre: Let me start by stating that I think that certainly the office of the Auditor General's review of these service plans reports is excellent. I applaud the efforts to push government to make progress and to achieve higher goals in terms of the transparency and accuracy of their reporting and the link thingy to make between plan and outcome.

Perhaps following along in what Randy Hawes said, I really feel that there's some amount of downplaying or underplaying the success that has been achieved to date when I read the report. I guess specifically if I could have you look at page 25, there's a comment here when you get into the depths of the report that "a total of 27 fundamentals-in-place assessments were attained; a significant increase over the 12 that were attained in each of the last two years."

Again from my perspective, making an increase of 15 from 12, I would interpret to be hugely successful, especially because the fundamentals in place, when you look at those three stages of development, are very important. As you point out yourselves, it says that most of the elements have been fundamentally addressed.

I guess I come from a little bit different perspective, but I notice that the office — similarly to the review on public service — tends to use terms like "limited progress," "minimal" or "measured," where sometimes I think there have been some significant achievements. I think in all fairness, when we're reporting to the public, it's very important…. Actually to your very point that we should look at balance…. We should celebrate the successes when we see them as well as address areas to improve.

This is sort of a continuing theme of mine, but I would like to see in some of this report that some of the significant changes are reported in the high-level summaries that we receive. Maybe it's a request or maybe there's an explanation there, but I find that where we've made significant achievement in some of these reports, it's just not being played up to the extent that I, as an analyst, would.

S. Jennings: I just wanted to mention that we do try to strike the right balance when we want to be encouraging and continue to promote good performance reporting, which is one of the reasons, in terms of how we report, that we generalize on the weaknesses. We never say this ministry didn't do very well. We always generalize on the weaknesses, and we actually try to be

One of the ways we do that through the report is that we actually identify examples of where an organization has done well. If you reach the fundamentals in place on a particular principle, we've said: "Look at exhibit six on the principle of linking resources to results. This ministry or Crown agency has done well."

We do try to strike the balance. We don't want to mislead people into thinking that everything is just so fine that we never have to worry about it anymore. Yes, there were 27 fundamentals in place for organizations, but that's not across the board on any one report, for example. We do struggle with that, trying to get the right balance to say: "Yes, they're doing well, and you should look at some of these examples, but let's not lose sight that there is room for improvement as well."

R. Sultan: I was just going to give a brief report from the trenches, as it were, because I sat on this committee on natural resources and the environment reviewing service plans. I watched these ministers and deputy ministers struggle and endeavour to respond to what, in fact, were the top-down directives in terms of the overall government strategy for the five great goals. I think these great goals have performed a very useful purpose. They're simple. I think they're unarguable. I don't know who would be against health, education, jobs, protecting the vulnerable and looking after the environment, but every service plan had a section in there saying: "Here's what we're trying to do to meet the five great goals."

I thought it was very functional in that respect, and I'd go so far as to say that in my experience around here, the Ministry of Transportation people seem to be more concerned with moving trucks and cars than in the past.

I would suggest that it's possible, maybe even probable, that the emphasis on tens of millions of dollars being spent on bikeways in the most recent announcement in the last day or two is a result of the strategic plan coming out of the Premier's office, saying: "Look, every ministry has to enunciate how it contributes to fulfilling the great goals, whether we're talking Transportation, Children and Families or whatever. Across the board, check off every one of those five and tell us how you're contributing to that end result." And by golly, I'd suggest that perhaps it's working.

D. Fairbotham: Having been involved with seeing the way performance reporting has evolved in governments over the last few years, I think there are some consistent observations. You're seeing a real culture change, much more of a focus on results. It isn't easy, but I think that having moved to a three-year service planning and reporting process has enabled people to be more strategic, more forward-looking, and to look at the results in the longer term.

It has improved the focus on goals and objectives and outcome measures. I think, over all, what we shouldn't overlook, apart from what's written in the various reports, is that it's the culture that's taking place and making ministries and Crowns much more focused on managing performance as well as reporting performance publicly.

S. Jennings: I thought I should just mention that since you'll see another version of this coming around in the next few years…. In the next review that we're doing, up to the one in March, what we're going to do is a slightly different approach to the review of the annual reports. So actually, we do want to start focusing in terms of those five goals to say: "If those are the goals, we want to look at the annual reports of the organizations that have primary responsibility for achieving those goals." Actually, we will apply the same kind of assessment methodology that we do to those. Then our report will report back in terms of: what kind of information are you legislators getting on those five goals? So I think you'll see a slight change in terms of our reporting in this area.

I wondered if I might also talk a little bit about our recommendation, the one that referred to the Select Standing Committee on Crown Corporations. We had thought it was a very good model that perhaps this committee and the Legislative Assembly might want to consider for the review of some other plans and reports. One of the reasons we put this in there was that it actually has been discussed and debated sometime in the past.

For members who may not be aware, it was about ten years ago that the Public Accounts Committee suggested that if…. Again, this was prior to the Budget Transparency and Accountability Act, so at that time everyone was trying to promote the idea of annual plans and reports. The Public Accounts Committee felt very strongly about it and suggested that if that did come to pass, if there were plans and reports, it would make sense for those reports to go before select standing committees that were focused on particular sectors of government so that there could be a very good in-depth discussion of what government had planned to do and what it actually did achieve. There could be a good debate about plans and priorities.

B. Ralston: Speaking of wanting to celebrate success, if we imagine ourselves in 2011, what would successful performance reporting of the construction of the Olympics look like in terms of the reporting that's been set out and the guidelines that have been set out here? I address that to people from the Ministry of Finance.

N. Paul: The specific focus there, which is on the Olympic Games, is somewhat different than the focus that Susan Jennings was talking about on the five great goals. In terms of the Olympic Games, I think that probably the main criterion will be the issue of how the games went off. That will be a public assessment.

In terms of more formal reporting, the Auditor is looking at the costs of the Olympic Games. Perhaps I can ask Wayne to comment on what his plans are for reporting there.

W. Strelioff: Members, we're doing some work on the Olympics right now. As you might remember, in 2003 when the budget was presented to the IOC, about two days later we issued a public report to you on whether we thought the due diligence was rigorous — what our understanding of the total financial undertaking was so that we can compare the actual results as it moves through. We had several recommendations on making sure that what was planned actually happens.

Since then, the government has put in place what I think is called the Olympic secretariat. We are working with that organization to some extent, trying to ensure that their reporting on the overall Olympic undertaking is as robust as possible. They did issue a report in November 2004 describing the government's understanding of the overall undertaking. My understanding is that they will be preparing a new report soon, and we will be reporting on our understanding of the overall finances and scope of projects and timetables. The plan is to report in March from our office.

In that context, you asked what would be robust performance reporting in the year 2011 on the Olympics. I haven't thought through this question. It's not always prudent to answer questions that you haven't thought through, but I will anyway. I think if the Olympic secretariat embraced those reporting principles all the way through and provided a robust explanation to you and to the public on the overall Olympic undertaking and then once it's over to complete the cycle, that would be a significant accomplishment.

Remember, part of our 2003 work was to try to ensure that there is a comprehensive overview of what the promise is and have an auditor directly involved in it. That's never happened before. It's never happened, as far as I know, in the history of Olympic Games where, when a bid is presented to the IOC, right away — the next day or so — there's an auditor's report on the quality of the due diligence and what the overall financial undertaking is.

Now, in pushing that forward, what I wanted to do is keep track all the way through. Often on these major undertakings it's hard to keep it together in terms of the overall initiative. You'll see pieces over here, pieces over there, and at the end of the day sometimes the discussion focuses on what happened at the games only and doesn't explain all the different infrastructures and other types of initiatives that took place and that were funded by the public.

I wanted to make sure that that continues right until after the Olympics. So in terms of passing on the torch to a future Auditor General, I'll be recommending strongly that they continue that vigilance. It's never been done before. It certainly would be, I think, in the public interest to have a robust, continuous, rigorous explanation of the undertaking that's been guaranteed by the people of B.C.

B. Ralston: If I might have one follow-up question, then. In your report in March 2006, will you be making any recommendations as to the frequency and the detail of the reporting of the Olympic secretariat in order that the public might monitor the progress of this endeavour?

W. Strelioff: In our first report we did recommend that there be rigorous performance reporting on this undertaking, so that recommendation is on the table. I would assume we're looking at that syllable, and we'll have some thoughts on it.

R. Fleming (Chair): Okay. Thank you, committee. I don't have any further members wanting to ask questions.

Just as a follow-up, actually, to Mr. Ralston's question. For those who may be following this discussion in the public or through Hansard or whatever, when we're talking about that, I think it's important to note that the provincial government's undertaking is on the operations side, not on the capital. VANOC has responsibility for managing the capital risk, and of course, the provincial government only has three seats on the VANOC board of 20. I think it may be complicated to get the full accounting that is being alluded to. I think the public and others should be aware of the nature of the relationship between the Olympic secretariat and VANOC — and their various responsibilities.

R. Fleming (Chair): No doubt that will all be in the report that we'll receive in March.

J. Yap (Deputy Chair): In your presentation — which I thank you for, Auditor General — you said: "B.C. is once again taking a leadership role." I think those were the exact words.

J. Yap (Deputy Chair): In your review, your comparison to other jurisdictions, how would the reporting under the Budget Transparency and Accountability Act

compare to other jurisdictions? Is it fair to say that your statement that we're once again taking a leadership role reflects that we are one of the best in terms of reporting compared to other jurisdictions?

W. Strelioff: I'm going to ask Mike to give a more specific answer — and Susan. It was important for legislators to put on the table the Budget Transparency and Accountability Act and provide direction and support. That's important to make sure that everyone begins to align and that the expectations are clear.

M. Macdonell: I think Wayne's observation of B.C. being in a leadership position is a fair observation. We have a couple of things going for us here, including the BTAA. I think the biggest thing that we have is agreement between report-preparers, the government, report-users — you legislators — and ourselves, the auditors, on what the fundamental components of good public performance reporting actually are. That's embodied in the B.C. reporting principles. That is truly a leading-edge development.

I don't know of any other jurisdiction in Canada — or in the world, for that matter — where there is that unanimity, that total agreement, on what the fundamentals of good performance reporting are. We're all pulling, if you will, in the same direction, and that does put us in an advantageous position compared to other jurisdictions.

J. Yap (Deputy Chair): I'll ask a follow-up question. In your travels, do other jurisdictions look upon us as amazingly visionary or as crazy?

M. Macdonell: I'm not sure that either of those terms has come up in the discussion. We certainly are looked to as leaders in this area — not necessarily the only leaders, but we are certainly looked to for our leadership. Amongst our peers in the legislative audit community, they certainly look…. Some quarters, I think, look to the B.C. situation with some degree of envy but also with some degree of trepidation. It's a bold venture that we're all embarking upon. As Wayne alluded to in his observations, it takes courage.

R. Fleming (Chair): Thank you very much for being available today and making those presentations. It's very much appreciated. The committee members had a chance to ask questions about your reports. Again, thank you.

We're going to move on. Actually, I need a motion to move receipt of the report.

R. Fleming (Chair): We're going to move on in our agenda to other business, if the committee will permit it, before we finish our meeting with an in-camera session.

J. Rustad: Just one comment in terms of the agenda. Would it not be more appropriate to deal with the matter of issue four as an in-camera issue and then come back out for issue five? The only reason why I'm concerned about that is noting the time, it's just after 12. I'd like to make sure we have that discussion as opposed to item five. If we have time, then we can fit in item five.

R. Fleming (Chair): I'm hoping that item five won't take long. I'm just thinking of the Hansard staff and others — that they don't have to return here.

J. Rustad: Sorry. If I may, I'm more concerned with the importance of item four. Hopefully, that won't take very long either, and we can come right back into….

R. Fleming (Chair): What's the wish of the committee then — to move to item four or place item five before it?

R. Hawes: If item five can be dealt with in a matter of two minutes, I think it's fine. But we'd have to deal with it very quickly. In that vein, if we are going to, I don't mind…. I'd like to open at least with my thoughts on item five…

M. Polak: The same thing. I would say that as Chair, perhaps we could ask your indulgence to monitor our conversation and watch the time. If we're starting to get into it, then it might be something to defer.

R. Fleming (Chair): Okay. Fair enough. Then we will move to item five. We're on "Other Business," and then we will move in camera after this item is concluded.

Adrian, did you want to repeat the motion that you served to committee on December 7?

A. Dix: Yeah, I'll just move the motion standing in my name. All members have it in the minutes of the Select Standing Committee on Public Accounts:

R. Fleming (Chair): I know committee members have had six weeks or so to consider it, as has the Auditor General. I was made aware of this, and it impacts his workplan obviously, which is based on your capacity and priorities. I wonder, maybe just before committee members discuss it, whether we could get a response from you to this notice of motion.

W. Strelioff: Members, the proposed work is not in our current work program. Areas that we're examining in our current work program related to health include infection control, electronic health records, ambulance services, access to surgical services and complex care and complex home care. Those are in our current work program for the next few years. Obviously, there are many issues that we don't examine.

My understanding is that the government does review through the health authorities many aspects of its contracts for food services, cleaning services and security services, and does provide public reports on those contracts and contract monitoring. Obviously, because we haven't looked at the subject matter, I don't know how effective that monitoring is.

The Auditor General Act does provide for these situations. There is a section in there that was changed in April 2003 to provide legislators with the authority to direct our office to carry out examinations that are emerging or that legislators believe should be examined but they know that they aren't in our current work program.

So if you decide to pass a motion and direct our office to carry out such an exam, what I would do is come back to you with a project plan that sets out the scope of such an examination, the types of issues that we would examine, the timetable and the costs, and then ask for your agreement that that's what you were thinking of when you passed the motion.

A. Dix: I think this is a significant public policy initiative of the government in health care. It has been the privatization of services and delivery of services in hospitals and other health institutions. Obviously, there was a debate at the time about that, which was very passionate. People took different views on it.

The fact of the matter is that we're well into that privatization now, and there's been no independent review — none — of these contracts. I receive and I know other members of the Legislature receive a huge number of interventions and letters from constituents referring to these very questions. There are concerns about the quality and the cleanliness of health facilities. There are concerns about the quality of food. When you think of the importance of those in terms of our health system, I think that's not good enough. I think it's reasonable, as legislators, to ask the Auditor General or somebody — and in our system it's the Auditor General who is to do this — to conduct an independent review and independent audit.

The final thing I'd say is this. Regrettably, I've spent a fair amount of time in the last few months in hospitals with family members. I can tell you, just personally, that the level of cleanliness and the quality of food is in serious decline. It is tragic what's going on if you spend a few hours in emergency rooms or in hospital rooms. As a government, health is the number one thing we spend on. We've seen that today very clearly. It's going to continue to be the number one thing we spend on, but that's not good enough. We should ask the Auditor General to review whether we are getting value for money for those contracts. When people call my office, even though I'm an MLA, I cannot get access to those contracts. I can't see them. I can't see what's being required. I can't see what people are being paid. It is a very important issue.

I think what the Auditor General can do is help take that issue out of the political realm and assist us as legislators to draw the appropriate conclusions now that we are well into this, I think, very difficult experiment.

R. Fleming (Chair): Committee, I have three speakers. I just want people to be mindful, too — I want to keep this on time for our other business — that the Auditor General has made an offer to be able to provide the committee with some kind of estimate where he would give the scope, the cost and perhaps the capacity to reprioritize and put this in your workplan. I just want to ask him if that is something that could be available for February 8. It might be something committee members would want to have in front of them just so they have the ballpark figures on those issues of cost and time lines.

R. Hawes: I think we should deal with the motion before we ask the Auditor General this. I'm going to put that in my comments — your point.

R. Hawes: First and foremost, if we are not going ahead with this — and I'm speaking against this motion — I would not want to waste the Auditor's time in preparing a presentation for us that's obviously not going to be necessary. So I think we should just move on with whether or not we're going to proceed with this.

I can see that there are some politics behind the motion, and I'm not real thrilled with that. The health authorities and the ministry have set up an audit process, and they have begun to establish some yardsticks. There was no yardstick before. There is no unit of measurement to go back and say what was before and what's now. It just doesn't exist.

There will be a lot of conjecture. There will be a whole bunch of politics in it. There will be a whole bunch of philosophical statements made by various sides that are pro-privatization and anti-privatization and on and on. Frankly, the Auditor has the ability

today to do this kind of an audit if he so chooses. He doesn't need us to ask for it. If he thinks it's important, he can put it in his workplan as he prioritizes what he feels is important.

He has said he is aware that there is some outside examination being done by the health authorities. There is an audit process now in place. I don't see the value in his going out and doing this. I think it's quite fair to wait for the results of the audits that are being undertaken, and some of them are in.

There have been other requests of the Auditor that have been turned away by this committee. Members of this committee have made requests that the committee has turned down — some, I think, for political purpose. They do add to the cost of operating the Auditor's office. They're often made without regard to what that cost might be. The Auditor can listen to requests such as have been made by members of the public, by members of this committee, by MLAs, by anyone who wants to make a request. His office is open, I think, for requests from anybody. You consider them; you don't necessarily act on them.

If the member is concerned and wants to see this as an audit, he can make that suggestion, and the Auditor can consider it. But I don't see it as being something that would come through this committee, and I'll be voting against this.

R. Fleming (Chair): I have three speakers. I may actually just cut the list off, and then if necessary, we'll just have a vote on the motion.

I absolutely support the idea that we want to be taking a close look at transitions in health care. As we move forward into a different context with an aging population, we want to do that even more so.

The reality is that if you're looking at performance data like this, the only way that it's relevant is if you have decent benchmarks to work with. Unfortunately, we don't have this here, because in the past, governments have seen fit to not pay attention to what was happening in that realm. So there's nothing there. We're only just developing benchmarks.

Coming from the education field in a district where we led the province in terms of reporting measures and in designing performance and assessment modules, I know that if you want to get something relevant — and we need to because this is critically important — you need a minimum of three years of benchmark data to be able to look at a trend, look at improvement or not, see if something is an anomaly or not. Coming at this cold and saying, "Well, I'm going to walk in and see what it's like," with nothing to compare it back to makes the information somewhat irrelevant.

I mean, I'd be happy to support this in a couple of years hence when we've got some data to work with, but at this point I just don't see that as useful.

B. Ralston: It seems obvious that the government members of this committee are going to defeat this motion, but I think it's important to just reflect on what we've heard about performance reporting.

The Auditor General has spoken of the need for robust reporting, and he says it's difficult. I don't particularly have any predetermined conclusion as to what might be found. There may be guidance that would be offered as to how one might make those comparisons over the years to come.

I think it's in the interest of the public to have that independent insight into these contracts. It is a major government policy initiative. Maybe this will be another opportunity for the government to celebrate success, or maybe it will persuade the government to head in a different direction. I don't think that the government members should be afraid of an independent and robust look at this area of government operation.

N. Macdonald: For me, as well, I think there's an opportunity here. If there are complications, that's something that the Auditor General can come back and explain the complications around how he's going to gather information and make a judgment on it.

To me, as I was listening to the report that included performance reporting principles, there are a number of them here talking about how you link resources to strategies to results. It seems that the part that's missing here is some look at the results.

To me, if this could be done in a cost-effective way, I think it's definitely something that we should go forward with. It's certainly something that touches people's lives. So I would support the motion.

J. Rustad: I'll make this very quick. I just wanted to talk once again about the motion as asked — to investigate the effectiveness and impact of a particular decision. How can you measure the effectiveness of the impact if you have nothing to compare it to? It is impossible to measure an impact of any particular decision that a body makes, whether it's government or anything else, unless you have baseline data, unless you can carry this thing forward.

We could proceed with doing this, but the relevancy of the information that would be collected is somewhat questionable unless, of course, it's simply to try to further a political perspective on a particular situation.

Personally, I think the idea is very important. As a colleague — Ms. Polak — said, we need to make sure that we are doing all we can in health care. However, I do not see this as being an effective expenditure of taxpayer money, considering that we don't have baseline data.

Now, given the fact that as a government we actually have become the first jurisdiction in Canada to have a uniform audit process in place and to be reviewing this now…. Once we get some of that data in place,

I think it would be very relevant to have this debate in question, but that is for a few years down the road.

C. James (Clerk Assistant and Clerk of Committees): In order to legitimize the process, two motions should be moved — one striking the subcommittee and the other authorizing the use of an executive search firm.

Are you wanting that on the second motion? The first motion was just to strike a subcommittee, without reference to who was on it or how many people.

C. James (Clerk of Committees): This is typically a division. In other words, I have to read the results.

R. Fleming (Chair): I'm looking for a mover for the second motion on the subcommittee composition.

R. Fleming (Chair): Josie is going to circulate a report which we are going to bring before the Legislative Assembly. It's a draft report. It'll be updated next week to include the decisions and the content of this meeting — just detailing the Public Accounts Committee's activities during the last session.

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Yeas (8)	Nays (3)
Hawes Rustad Polak McIntyre Yap Black Cantelon Sultan	Ralston Dix Macdonald

	YEAS — 8

Cantelon	Sultan	Polak
Hawes	Yap	Black
McIntyre		Rustad

	NAYS — 3

Dix	Ralston	Macdonald

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