Public Accounts — Issue No. 8 — Friday, December 8, 2006 (HTML)

F2006 Legislative Session: Second Session, 38th Parliament
SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS
MINUTES AND HANSARD

Present: Rob Fleming, MLA (Chair); Joan McIntyre, MLA (Deputy Chair); John Yap, MLA; Harry Bains, MLA; Iain Black, MLA; Ron Cantelon, MLA; David Chudnovsky, MLA; Guy Gentner, MLA; Randy Hawes, MLA; Mary Polak, MLA; John Rustad, MLA; Ralph Sultan, MLA; Diane Thorne, MLA

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE ON
PUBLIC ACCOUNTS



CONTENTS

		Page

Election of Deputy Chair		169

Auditor General Financial and Business Plan		169
	A. van Iersel
	E. Price

Auditor General Audit Coverage Plan		179
	B. Gilhooly
	A. van Iersel
	E. Price

Audit Follow-Up Process		189
	A. van Iersel
	E. Price

Committee Meeting Schedule		195

Other Business		196

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


Witnesses:	Bill Gilhooly (Office of the Auditor General) Errol Price (Office of the Auditor General) Su-Lin Shum (Office of the Auditor General) Arn van Iersel (Acting Auditor General) Cheryl Wenezenki-Yolland (Comptroller General)

R. Fleming (Chair): Good morning, committee members, and thank you for being here. We're going to begin our meeting this morning of the Select Standing Committee on Public Accounts.

I'd like to welcome everyone back for a meeting of this committee. I'd like to welcome all of our guests from the comptroller general's office and from the Office of the Auditor General. We also have a guest with us in the gallery today, Mr. Alan Barnard, who is the former comptroller general of the province of B.C. Welcome, and thank you for being here.

You have a recently recirculated agenda in front of you, with the seven items of business there. The first is simply to approve the agenda. If I could get a motion to that effect.

R. Fleming (Chair): Next item of business is the election of the Deputy Chair. As many of you know, the Deputy Chair, who has served this committee very well in the past 16 months, resigned in September because he has taken on additional duties in his caucus. John Yap would like to make a nomination for a new Deputy Chair, and we'll give him the floor now.

J. Yap: Thank you, Chair. It has been an honour to have served this committee as Deputy Chair, but as you mentioned, my workload has changed a bit. As you said, I resigned from the position, and today's meeting will formalize that process.

It's my honour to nominate Joan McIntyre for the position of Deputy Chair of our committee.

R. Fleming (Chair): Nomination is moved and seconded. Are there other nominations? Any further nominations? Seeing none, then I declare Joan McIntyre to be the Deputy Chair of the committee.

In fact, Joan has been serving for several months in anticipation that she would have the committee's confidence, and it's good to have it official.

J. McIntyre (Deputy Chair): Thanks, Chair. Could I just add a little note here? I would like the committee and our visitors in the gallery to join me in congratulating our Chair, Rob Fleming, on becoming a new dad in recent weeks. We wish him well. I just wanted to add that.

R. Fleming (Chair): Thank you very much, Joan. That will explain any gaps in my thoughts or attention, perhaps, this morning. You may have to raise your hands extra high and wave them furiously to get on the speakers list. It's just a matter of sleep deprivation that I'm struggling with.

We will now move on to item 3, the Office of the Auditor General financial and business plan, a provision of some context. We have three witnesses, and the acting Auditor General, Arn van Iersel, will begin the discussion.

You can see that the time allocated for this item, after the presentation and in total, is 30 minutes. We really want to keep to our time lines this morning so that members who have to travel out of the capital again can make those commitments.

A. van Iersel: My pleasure. Chair, Deputy Chair and Members, we're trying something new here today, in the sense that we're providing a context to a financial and business plan which, as I'll talk about in a minute, gets presented on Monday to the Finance and Government Services Committee. It's our attempt to link the two documents closer together, notwithstanding the fact that under the Auditor General Act, the responsibilities have been separated in terms of the financial statement audit and coverage plan and the budget between two committees.

With me today is Errol Price, Deputy Auditor General, to my left. We also have in the room, sitting behind me, Bill Gilhooly, who will join us later when we come to the financial statement audit coverage plan. Also, Bob Faulkner is sitting with Bill and was instrumental in pulling the plan together. To my immediate right we have Su-Lin Shum, who is the director of corporate planning. That's our team for today.

We're very pleased to have this opportunity to talk about the context for the '07-08 business and financial plan, together with the financial statement audit coverage plan, which will come in a little while, as I said. It seems appropriate, in our view, to discuss these items on the same day, because your approval in what financial statement audits we conduct should be informed by the broader business plan. The Finance and Government Services Committee will be reviewing the full business and financial plan on December 11 — I think it's from 10:30 to noon — and then making a recommendation on our '07-08 budget to the Legislative Assembly.

This year I would like to emphasize that we've taken a new approach with respect to the preparation and presentation of our plan and our funding request. First, the plan is based on a five-year vision and linked directly to specific goals for the office.

Second, we've presented our plan and request for resources in budget packages, so we can better show the committee what the Legislature will get from our office, dependent on the approved levels of funding.

Third, we have provided information within the plan that directly addresses some of the feedback we heard from MLAs, either during discussions raised last year on the funding requests at MLA surveys or on other meetings that we've had since I came into the role.

For example, we're now providing greater information on our office priorities and how these have specifically shaped the plan.

Fourth, there's been no prior public release or discussion of the plan or requests. Similar to other offices of the Legislature, the plan will only be made available to the public after the Finance and Government Services Committee has discussed it on Monday. We want to be open and transparent about our plans and our budget but are also mindful of Finance and Government Services Committee's role and mandate.

Our office has a clear vision of how we can best serve legislators and the public and of the resources necessary to do this. We respect that the Legislative Assembly must decide on an appropriate level of funding for our office, given the many other pressures on the provincial budget. We hope our new approach better meets the needs of both committees in coming to their respective decisions, and we'd hope to hear from you sometime in the future on that.

Vision 2011. For those of you who have been following our office closely — and our website, in particular — you'll notice that we have a new vision and mission statement for the office. I've been acting Auditor General now for approximately six months. Since my arrival I've had the pleasure of working closely with my executive team and staff on our opportunities and what we collectively felt needs to change.

This has resulted in a new five-year vision, as you see, that describes what we want to be by 2011. The vision sees us becoming a highly valued legislative audit office, recognized for excellence and promoting effective, accountable government.

Our audit office is already seen as a leading office in Canada on various aspects of our lines of business. For example, we receive numerous requests to mentor or partner with other audit offices on performance audits. Recently we were visited by a senior member of the European Court of Auditors, the European Union's independent auditors. They wanted to know more about our approach to doing performance audits.

However, there's much more to do in meeting this vision, and we wish to do the best in serving you and, through you, the citizens of B.C. Our mission continues to confirm that we will serve the public and you as the public's representatives by providing independent audits — advice on how well government is managing its responsibilities and resources. No one else does or really can do this kind of work.

I often like to describe our vision further by talking about our key attributes. This is an independent audit office that is well understood and respected by legislators and the public; regularly sought out by legislators, government and our peers in providing advice and support; modelling credibility, accountability, efficiency, effectiveness, and openness and transparency; and always operating in the public interest.

We are innovators and best-practice practitioners and work to the highest standards. We are an employer of choice with highly engaged and motivated staff. I feel these are some very descriptive statements of what our vision is to embody.

While the Public Accounts Committee is not officially government's audit committee, you have similar oversight responsibilities. As government's external auditors, we seek to provide you and the Legislative Assembly with credible, relevant and timely information that promotes sound financial administration and reporting across government; well-managed provincial programs, services and resources; comprehensive public sector accountability reporting; and effective public sector governance. And we will continue to incorporate best practices in our work and as an employer. While we realize that we cannot achieve these goals through our actions alone, they are what we strive for in doing that work.

Our three primary lines of business are financial audits; performance audits, previously called risk audits, value-for-money or comprehensive audits; and our third line being accountability reporting. We spend 65 percent, 30 percent and 5 percent of our resources currently across each of these lines of business. Each contributes to the goals that we have set for ourselves.

In addition, each contributes to fulfilling the different responsibilities under the 2003 Auditor General Act. For example, the act clearly specifies that I must report on whether the financial statements of the governments reporting — that is, all of government — meet generally accepted accounting principles and are presented fairly.

The act also specifies my duty to bring assessments to you concerning a number of other responsibilities — including whether government is operating economically, efficiently, effectively — which directly relates to our performance audits. And I'm to tell you whether government's accountability information with respect to program results is adequate, which directly relates to our accountability reporting line of business. In addition, the act also specifies a number of other responsibilities relating to the proper management of revenues, grants, trusts, transfers and loans.

As you know, the Auditor General Act was revised in 2003 and is, if not still, the most comprehensive in the country. But with this act we have a lot to live up to.

To help us do our job, we've organized our staffing structure to better align with our goals and lines of business. This was another task that I undertook when I came to the office. Errol Price, who has been introduced to you today as the Deputy Auditor General, is responsible, as you'll see, for corporate services and for overall quality assurance for the work of our office. Su-Lin Shum, who is also with us today, is a key part of that corporate services team devoted primarily to planning and reporting for our office.

Each assistant Auditor General is responsible for other elements related to the lines of business. Bill Gilhooly, who's with us and will be presenting the next agenda item, will have responsibility for carrying out a number of financial audits, including the audit of the summary of financial statements.

Both our organizational structure and changes to our vision, mission and goals are steps to improve our effectiveness and efficiency. Staff, as well as the executive

team, felt that the previous structure pulled them in too many different directions. Our plan builds on the recognized core focus on financial statements and seeks to provide the Legislative Assembly and the public with greater assurance about key aspects of government operations and other value-added products.

Under this plan, the public and the Legislative Assembly will receive the following benefits in relation to our goals. For sound financial administration and reporting across government, you will continue to receive our audit opinion on the summary financial statements but would also receive a number of additional financial management reviews. For well-managed provincial programs, services and resources, you will receive substantially more independent insight covering different program areas.

We believe that covering a broad range of government activity, including an increased focus on the SUCH sector — or schools, universities, colleges and health — means that we are delivering better service to you. For comprehensive public sector accountability reporting, you will gain our assessments of how well reporting is being done governmentwide as well as in the specific sectors — education and health being examples.

For effective public sector governance, you will obtain our advice that identifies where government has put in place good-governance practices and where there might be room for improvement. We believe we can add greater value by providing a series of what we term "best-practice guides" that seek to build on areas where government activity is being well managed and disseminating that information to other organizations.

For best practices in our work and as an employer, we will ensure we are an effectively run organization. That includes being able to attract and retain quality audit staff, which is a challenge for us.

Speaking of challenges, despite our strong reputation and track record, the office is facing some significant issues. Our strength is our people, and our first challenge is ensuring that we have the staff required to do the work to the highest standards. In recent years we have become far less able to recruit the staff we require, with fewer people applying, usually with much less experience.

At the same time, audit standards have changed tremendously, affecting the public and private sector alike. It is estimated that audit standards have changed by up to 40 percent and now require even more substantive planning and audit procedures.

There is a whole new approach to auditing now, which means a much greater emphasis on systems, business processes, governance procedures and top-down controls. What this means is that we would need to spend significantly more time carrying out our audit work and that we need to train our staff on the new standards and those new procedures. Much of our effort in meeting the new standards in doing financial statement work has had to come at the expense of our other lines of business.

Lastly, operational costs continue to increase — in particular, costs related to professional services. In addition to our staff, we rely heavily on contractors to perform the valued work that we provide. These contractors are in much demand and as a result are commanding a higher price.

There are some gaps and opportunities. Rather than cutting back further on our performance audits to meet these challenges, we really need to increase our presence throughout the government entity, such that we deal with all the major risks and programs over a reasonable time period. We also need to dedicate more effort on internal control systems and procedures, which are two areas to focus on under the new standards and which are the cornerstones of good financial practices.

Best-practice guides, as I've already said, are an example of how the Legislative Assembly can also capitalize on our expertise. This builds on the audit work we already do. We need to better bolster the resources dedicated to accountability reporting. We need to believe that robust accountability reporting by government organizations would considerably enhance the oversight role of the Legislative Assembly and its constituents.

The financial statement audit coverage plan. As I said, Mr. Gilhooly will speak to the details. But how does it fit? One of the key objectives in providing you this financial background is trying to better fit the plan. So how does it fit? As you can see from the diagram up on the screen, the financial statement audit coverage plan is part of our financial audit line of business, one of our three major lines. It identifies the audits of specific public sector organizations where we need to be involved.

As you will hear, it's necessary to ensure we have sufficient knowledge of these organizations in order to form an opinion on the summary financial statements. The costs of this plan are generally covered by the audited organizations directly and not from our appropriation. The recoveries we receive from these organizations account for approximately 20 percent of our spending.

That's my introduction to the plan, Chair, Deputy Chair and Members. At this time the details will have to wait until the Finance and Government Services Committee meets on Monday. For those of you that are joint members, I apologize. Some of what I've said today will be repeated, but I also promise you much more detail in regards to the finances at that time.

R. Fleming (Chair): Thank you, Arn. I will take a speakers list. Before we go any further, though, I neglected in the introductions to introduce the committee to our comptroller general, Cheryl Wenezenki-Yolland, who is here with us this morning. Welcome, Cheryl.

C. Wenezenki-Yolland: Thank you very much. I'm very happy to be here and look forward….

C. Wenezenki-Yolland: Yes, Cheryl W-Y, and when I worked at a high school, they just called me Mrs. W.

H. Bains: In one of the diagrams you show that your work is divided up 65 percent, 30 percent and 5 percent accountability. Can you tell us how you arrived at that number? I'm particularly interested in the accountability part. How does that compare to the previous years? And how does that compare to other jurisdictions, especially the federal government?

A. van Iersel: Thank you, Member, for the question. The numbers are arrived at based on our '07-08 expected budget. As I said already, they're going to be explained in detail on Monday.

You also heard me say, Member, that we want to make sure that we carry out the audit of the summary financial statements in accordance with generally accepted auditing principles and standards. So what is meant, over time, is that more of our resources — again, something I've said — have to go into that particular line of business.

If you were to look at this a few years ago, it would have been more like 55 percent, 30 percent and 15 percent. There has been a shift. It's in deference to the need to do the new work required under the audit standards. We continue, though, to do important work in accountability reporting, such as Building Better Reports and working with government and the Crown Agencies Secretariat with respect to Crown corporations.

You asked me in regards to the federal budget breakdown between these lines of business. I don't know. If my deputy here…. I think we're going to have to take that particular question on advisement. They are a much bigger office than we are. They are an office of over 600 staff. They also have some responsibilities that we do not.

H. Bains: Just a follow-up, Mr. van Iersel. You said, if I heard you correctly, that the previous year's accountability part took about 15 percent of your office's work. Now it's 5 percent. My question was on how you come up with that decision and why you believe that work will be less of your time requirement than last year.

A. van Iersel: I think the past experience in that particular area was around 10 percent to 15 percent, so 15 might have been on the high side. What we have to bear in mind is that the budget has gone up, so where our work has remained more static in the area of that line of business, the percentage would have fallen.

One of the best products, you would remember is, Building Better Reports, as I said, the annual review of government service plan reports and so forth. This particular diagram is based on what our plan is for '07-08. Again, our primary focus is on the financial statements and on performance auditing. In the plan — again, I'm afraid I can't speak to the multi-year details — you would notice an increase in accountability reporting over the five-year period.

H. Bains: I don't think I've got my answer. I think the answer is that…. Whether it's 10 percent or 15 percent or in between, if that's how much time was required of your office on the accountability part, what has changed? How do you come up with the decision that now you will spend only 50 percent of your time on accountability, rather than what it used to be? Is it less important today? Or what has changed?

A. van Iersel: I wouldn't say that in our office it's a vision that's at all diminished in importance. As I've said, what has happened is that the budget request, which will be tabled on Monday, has gone up. Just that simple fact reduces the amount of percentage share relative to this function. But again, it's a one-year thing which will be built up over time.

In particular, why is the financial audit piece larger? It is what I said — about a 40-percent change in the audit standard. So in meeting the standards, we have had to put more resources in the current year and, again, in next year to make sure that when we issue the opinion and someone comes and reviews our work, we can say it has been done consistent with generally accepted auditing standards.

We've put the money in the priority consistent with the legislation, which says that my office must do the financial statement work. They're all important, but as a result of having to do that, the relative weighting of the performance accountability piece has gone down.

R. Fleming (Chair): Excuse me, Member. I'll just recognize the Deputy Auditor General, because I think he wanted to add.

E. Price: Just an additional comment, if I may. It really comes down to a matter of judgment. The accountability reporting line of business is still relatively new for the office. We've been working in the area for probably ten years, I guess, but the concept of accountability reporting — the concept of having government and its organizations report comprehensively on its performance — is still a relatively new concept. We have the Budget Transparency and Accountability Act, which requires such accounting, but the substance of the accounting is still developing.

Some members may recall that a few years ago we did come to this committee, with government, with a set of reporting principles for public sector performance reporting. Those principles were adopted or accepted by the committee as it then was. What we've been doing since then is working with government to try and get those principles implemented.

It's still a relatively new line of business. We believe it's an important line of business, because we think that there's tremendous potential to enhance public sector accountability, to enhance the oversight role of legislators and, ultimately, to improve public confidence.

It's a question of judgment. At the end of the day, how much of our resources should we devote to that emerging line of business? Obviously, we have a finite amount of resources, so the more we devote to one, the less we can devote to others. It's a question of finding balance in the three lines of business.

R. Fleming (Chair): I'm just going to go to another member. Perhaps you can come back to that point.

It means that you anticipate spending 50 percent less time and resources in this part of the business than last year. Is that a fair statement?

E. Price: I'd have to go back and look at the actual figures. There's a certain amount of core work that we would continue doing. For example, we provide assurance on the performance reports of the Workers Compensation Board, B.C. Assessment Authority, and public guardian and trustee.

We have been doing a lot of other work in terms of promoting the principles and trying to work with organizations. The building-better-reports work that Arn referred to, where we have reviewed the reports of all government organizations over a five-year period…. We're thinking that next year we need to take a different approach, and the approach that we're coming up with may require less resources.

R. Fleming (Chair): I think there are a couple items there, then, to provide information to the member and to the members of the committee. The other was about the federal percentage of value-for-money auditing out of that office.

R. Hawes: Arn, the question I'm going to ask actually may somewhat relate to the next section that Bill Gilhooly will be looking after. But they're sort of high-level questions, so while you're in the chair and since the buck stops at your desk, I'm going to ask you the questions.

I know that Monday you're going to come and ask for a lift from the Finance Committee. That's no big secret. I have been asking now — this will be the fifth year, I think — about your charge on fee-for-service and how it relates to what a private auditing firm would charge. I see in your presentation today that you say you formulate your audit fees using the same approach as the private sector but leaving out the return-on-investment or profit element.

My question for quite some period of time has been…. When you're out there auditing — for example, PavCo or any of these organizations — and you're doing it at a rate that's somewhat less than a private auditing firm would charge, they're getting, in a sense, a subsidy over other Crown corporations or parts of the SUCH sector that are having to hire a private sector accounting firm.

My question would be: why would you not move your rate to be the same as though you were capturing profit and return on investment and use that money to help support some of the other endeavours that you are going to be asking us — the B.C. taxpayers, actually — to support, when it should be supported, in my view, by the organizations that you're giving a break to? You're giving them, in my view, an unfair advantage over similar organizations throughout the province. Maybe you could comment on that.

A. van Iersel: This is something we can discuss in greater detail in the financial statement audit coverage plan, but as the question's been asked, let me answer it.

Our rates are determined on the same basis as you've summarized, Member, in that we determine the number of hours we think a particular audit will take to do. We have charge-out rates, as do other organizations, that reflect the direct costs of those particular employees, plus the overhead.

My understanding of the situation — Mr. Gilhooly can help us out a little more later — is that when it's all said and done, our rate charged to the organization ends up being quite comparable — not necessarily on a specific organization-by-organization basis but as a pool. The reason is that while we don't charge for a profit incentive, we are not as large a shop as a KPMG or a Pricewaterhouse so we don't necessarily have the same economies of scale in terms of the resources that we bring to the assignment. So they gain in the sense that we don't charge a profit, but there are some costs that we bring that are not otherwise in a KPMG bid.

What I've been advised, six months into this assignment, is that in the end the rates tend to be fairly comparable. In fact, if I may, I'll just add by saying that one of the things we hear from organizations is that our rates are not necessarily as competitive.

Sometimes the KMPGs, the PwCs of the world actually want to buy the business, so to speak, in the sense that they are very interested in being the auditor to a health authority or a school, and they sometimes try to get them all together. As a result, they bid quite low. We're not aware of their particular books, but we suspect that they are, in some cases, providing bids that are less than what they would be otherwise if they were an independent.

R. Fleming (Chair): Perhaps, given that Mr. Gilhooly is a witness in the next item, you could pursue it there.

R. Hawes: The problem that I have, Chair, is that there is another side here that is not going to be discussed by Mr. Gilhooly. It's not even really going to be on the table today, and that's the performance audit side that is going to go to the Finance Committee to look at. As I say, if there is extra money that can be generated here in the fee-for-service side that can go to that side, that has to be discussed somewhere, and there is an overlap between the two committees.

I'm not entirely satisfied with your answer, as I have not been in the last four or five years.

R. Fleming (Chair): I'm not sure if your argument is with the acting Auditor General or with the division of labour, as it were, under the legislation that we're working under in the Auditor General Act, in terms of that dichotomy between the budget of the office and the workplan being discussed here.

R. Hawes: I think that if there is a surplus that's generated on the financial audit side, that surplus is retained within the department and can be used, I would imagine, where you need to use it.

If you were to generate profit on the fee-for-service side…. I frankly have some difficulty, given the scope of the work that you do, in believing that it's not possible for you to be generating some profit if you are charging a market rate. There are smaller accounting firms, by the way, that do audits and do generate significant profit at a rate that I'm assuming is comparable to a KPMG or a Pricewaterhouse or whatever.

I'm still having some difficulty with this, and I'm having some difficulty…. Frankly, I'm surprised, Chair, that the members on your side of the Legislature aren't jumping on this kind of an item, because you frequently like to say that public sector costs are much lower than private sector costs because of the profit factor. If that's the case…. Surely, if we are adding the profit factor in here, we're going to generate significant extra money. We must be subsidizing….

R. Fleming (Chair): I'm sure that will be a fulsome discussion at the Finance Committee on December 11, where it's more appropriate.

R. Hawes: I'm pretty sure it's going to be a fulsome discussion today, Chair, because it's something that is on my mind. I'm very concerned about it, and frankly, I intend to have a fulsome discussion about it here today.

R. Fleming (Chair): I just want members to be aware — and I think they are — of the line and the different roles of the committees with relation to that. I think your comments are in order. I'm not disagreeing with that. I'm just suggesting that in terms of having a thorough discussion of that and how it relates to the overall budget of the office, that's not for us to do here today.

R. Hawes: I think, Chair, with all due respect, that as we discuss the financial audit plan, it is of some concern, and it is mentioned in the document that we'll be covering today. The costing approach that is used is covered here, so I intend to canvass that in great detail.

I have not had, for five years — and I brought minutes from previous years' meetings — satisfactory answers. In fact, some of the answers are quite contradictory to what I hear the Auditor say today. The answers that I've had in previous years, actually, are quite contradictory to what you're now saying, so I have some difficulty with that.

Again I say, Chair, that I'm going to reserve the right to canvass this in a very thorough fashion. I hope that when Mr. Gilhooly takes the chair to speak to us, the Auditor will also be here to answer some questions because, as I say, that's where the buck stops.

A. van Iersel: Yeah. I will be here throughout all of the presentations, so I'd be pleased to continue to try and answer members' questions.

One other thing to bear in mind on this question is that the people we charge are all public sector organizations. So what it means is that if we were to charge over and above the rates we're now charging, that would have to come from an appropriation or another source of funds for another organization within the public sector.

Again, I'm not trying to say that the question isn't valid. I'm just saying that should we charge, that might help us, but it would be at the expense of someone else.

R. Hawes: Chair, I do want to respond, because that's a comment that actually is at the very root of what I'm talking about. I understand totally where the money would have to come from if you charge more money. But I also understand that when you're auditing different organizations that are very similar throughout the province, and you're charging a lesser fee to one organization, then another similar organization is having to pay a private auditor more money. In my view, you're creating an unfair advantage — in essence, an artificial subsidy for the organization that got the lower rate. I don't think that's fair.

Since the money is always out of the same pocket, I would rather see the money flow into your coffers, into your operation, and have an equitable method of payment throughout the province for all of these similar organizations.

D. Chudnovsky: Very interesting analysis from the member opposite. If I just might make a short comment and then ask my question. Very interesting analysis, but certainly a debate that needs to happen around the conclusion. The analysis I find very compelling; the conclusion, maybe not so. Maybe we'll get a chance.

To the acting Auditor General: in your presentation, you talked about the organization being less able to recruit recently. Do you know why that's the case?

A. van Iersel: This is something that predates my arrival in the office. It is something that is also much bigger than our particular audit office. It's something that's happening in the accounting/auditing profession more widely. I believe many members would have read what that particular issue is all about.

The turnover rate that we had last year was 19 percent, so there's an illustration of what we face. Some of that

was due to more senior employees approaching retirement age, but that continues throughout government.

This year so far we've lost six people. That represents a to-date turnover rate of about 7 percent. So the issue we face is that we're losing some valuable staff who have continuity in regards to the audit files and the understanding of government, which is a little different than working in the private sector. We do think that the problem is going to get a little worse before it gets better. Again, it's not rooted in what the challenge of our office is. It's rooted in the broader auditing/accounting profession. There's a high demand for qualified accountants from the CGAs, which I come from, the CAs or CMAs.

Another issue we have is that we get some very capable students. In fact, I'm delighted to say that we had four or five students pass their uniform final exam very recently, and one of them was in the top 50 in Canada of 2,600 students who wrote the exam. If you're familiar, the UFE is not an easy exam to pass. So we're delighted to have that quality of student come. I think, in some respects, that's where our future lies — in trying to recruit more students.

The challenge we have in recruiting is that we're not getting the same people applying with the same level of experience that we used to see. There are too many other opportunities, too many other organizations that can pay a higher rate. Here again, we're not looking to be, nor do I believe government is looking to be, the highest payer in regards to these particular occupations. But you want to be in a competitive band, and you can also use the attraction of public service and working in Victoria.

We're still working through that issue. One of the challenges that I have going forward is working through where our new people are going to come from — as I said, 19 percent last year and 7 percent this year. I expect that will grow over time. We may lose some of those students who just qualified, so we have to get new students. We have to find ways of attracting them.

If I may, one other thing that comes up in this is that when you're not able to get students or new auditors of the right expertise, it means that you're looking for contractors. The market for contractors has also increased considerably in terms that it's one of the drivers to our budget in regards to what we see increasing over time.

Again, it's all a matter of the labour market and the contractor market. It's an area we have to work on. We have some capability to try and make ourselves more attractive, but ultimately we're a small player in a very big situation.

D. Chudnovsky: Yeah, thanks very much. The acting Auditor General has gone in the direction that I wanted to go in, so let me try to package a number of questions into one to finish up with.

That is, you said also in your presentation — and you've laid that out in a bit more detail, at least in one area — that operational costs have increased. I'm wondering whether the Office of the Auditor General is able to quantify for us the increase in operational costs over time and the impact of the increase in operational costs.

That is, sometimes operational costs increase. You pay them, and you do the same amount of stuff as you did before. Sometimes operational costs increase, and you're not able to pay them, so you reduce the amount of work being done as compared to what was done before.

I'm looking for a matrix that you could just pull out of the air, perhaps, which traces the work and the resources over time so that we're able to see how much it costs and what amount of work is being done.

A. van Iersel: I need some guidance from the Chair in terms of how far you wish me to go in regards to talking about the budget.

R. Fleming (Chair): I think we always welcome brief answers at this committee.

A. van Iersel: The whole purpose of coming here today with this context piece was to better inform the committee but at the same time to respect what will happen on Monday. But it's a good question. I can tell you that yes, operational costs, in addition to salary….

Again, put in context, the majority of our costs are staff. That's not surprising, I don't think, given that we have professional auditors and others in our office. There are other drivers, and other drivers would include — as I've already mentioned — professional services, particularly in an environment where we're not able to attract staff. We can't say: "Hold up the summary of financial statements." We want to get those done.

As I've already told you about, we're finding it difficult to get contractors, and we're finding that our rates of reimbursement for a contractor aren't as lucrative to that contractor as a KPMG or a PwC. We're not looking to pay their rates. We're looking to find, preferably, local people or people in Vancouver who are prepared to work with us.

We also have travel costs that have increased over time, related to hotels and to getting around the province. Not all our audit work is here in Victoria. We have to travel to Vancouver. We do try to make it as efficient as possible. So when we're talking about one large school district to be audited versus another school district, we have tended to focus on districts in the lower mainland and Greater Victoria in terms of what we can do — at the same time, trying to rotate through the system.

A broad estimate would be that there's been about a $500,000 increase in these other costs.

J. Rustad: I have a couple of questions, and I want to follow up a little bit with some of the conversation that was happening earlier on. I heard a few things

that, to me, sound a little bit contradictory. I want to start off, first of all….

You're saying that the Office of the Auditor General is an employer of choice, but you're having difficulty attracting staff. You're saying that contractors around the province…. The fees, when you have to bring that in, are rising because of costs. Contractors are facing the same increase in travel costs and other pressures that your office is. Then you're saying that your rates are comparable, but it isn't generating the kind of profit dollars that the private sector might be.

I've got two questions I want to bring up. You've said that sometimes your rates are perhaps even higher than other organizations. Why isn't it generating a larger revenue around that?

Because of the contradiction there, I actually have a question: who audits the auditor? In terms of your price structure, in terms of your cost structure and how you do the work, who actually looks to make sure that you guys are doing things efficiently and following appropriate standards?

R. Fleming (Chair): We'll start with those two, and then maybe he'll answer the third. Who knows?

A. van Iersel: Dealing with being an employer of choice, that's a many-faceted agenda. It's not strictly about paying more money in regards to salaries and benefits. As you might suspect, we try to be comparable to the broader public sector in regards to the appropriate rates of remuneration.

Aside from salary and benefits, we have a plan. We're still finalizing it, moving ahead on how we can attract staff. One is to build on our strengths, which is a small office where you have significant opportunities. You won't be doing ticking and bopping, if I can use that old phrase, for all your life.

We made a commitment when we restructured — you saw the new organizational structure — that while we've gone to a line-of-business model, which creates efficiency, we're as eager as members here are in terms of creating efficiencies so we don't have to come back and ask for repetitive increases.

So that efficiency, as you heard me refer to, comes from the fact that we now can use people as specialists. But people were very concerned about being told that they were going to work in the financial area, the performance area or the accountability area for all their career. So I made a commitment with the executive that said: "No. We will have a special management approach that says that you give us a commitment…." This is similar to what some private sector firms do. "You give us a commitment for a couple of years. You learn that particular aspect. You produce value, and then you give us a signal that you want to do something else. We make a commitment to rotate you in other parts of the office." Again, trying to give people opportunities to learn all of what's available in terms of the work we perform.

The other thing we're doing is trying to be more in touch with our employees in terms of what drives them. It's not all money. It's: do they feel recognized? We had two sessions. We've expanded the executive — these are small things, but they all count — to now have guests that come in and listen to what we're talking about, who are encouraged to give their views to help us decide particular issues. Every two weeks there are new guests that come.

So it's all about a greater engagement with those particular staff. It's also about employee development. A lot of our costs, when you talk about operational costs, are also in the area of training. You heard me talk about a 40-percent increase in standards.

Well, we had a major workshop about a month ago, a two-day intensive workshop, just dealing with the new forms that have to be filled out. I know accounting is a lot more than just about forms. We had another two-day workshop having to do with systems.

Our commitment to our staff is: "We want you to be the best practitioners, so we will devote a lot of our money towards doing that kind of training." They seem to react to that, because I don't think every one of them, to be honest — not in our experience — wants to be an Auditor General employee all their life. They want to move to other opportunities in the broader public service, which has always happened. Many of them will go on to move to Vancouver and join a big firm, because their goal might ultimately be that they want to be a partner. We don't have that particular thing to offer them.

You asked who's our auditor. We do have an auditor. The auditor is our financial statement auditor, who doesn't look into our efficiency or effectiveness. We do that ourselves. We try, through our various initiatives, to minimize our costs. But ultimately it's through discussions here, and it's through discussions on Monday in terms of us proving to you that we're respectful of the taxpayers' dollars. You can believe me, and I think you can believe our entire organization. We want to be respectful and are respectful of taxpayers' money.

We also have outsiders that look at us. They don't so much monitor the money on your behalf, but the Institute of Chartered Accountants…. We're subject to practice reviews. I did touch on that earlier. That's one of the reasons, first and foremost, why we want to be sure we're meeting the new standards.

The worst thing for an auditor general or an acting auditor general like me would be if somebody comes in and says: "You're not meeting the generally accepted auditing standards." We have been subject to those in the past, and I must say that the last time, prior to my

time, we had a very good rating in terms of how we performed relative to what that group saw other places.

They will be back, and I would encourage them to be back. Again, it's about the work we do and the quality of the work. They don't look at the relative cost of our work.

J. Rustad: Just a comment about that. I think it would perhaps be quite beneficial to go through a performance audit or a value audit of the organization in terms of the projects you undertake and the cost structures and how that compares to delivering from what would normally be delivered in the private sector. For the member who raised this earlier, then we'd be able have those kinds of answers for that.

A. van Iersel: Just jumping in on that, another thing that's sort of at the forefront of our discussion is improving efficiency, for example, with respect to performance audits. We find we're spending a lot of time at the front end defining the scope in terms of what the audit questions are that we want to ask. We spend time talking about it and spend time with clients honing that. Then we go on to do field work. I think at field work, we're really tight, as I've already alluded to. We do good work, standards-based work, and then we come to the back end in terms of reporting.

I think we have some opportunities on the back end, as we do on the front end, in terms of tightening up some things. I think we have to be more aggressive when we send people reports and say that it's three weeks to respond. Then it's three weeks to respond as opposed to…. I think my deputy is going to add as well.

We're already relatively good at this work, but I think there are opportunities for improvement. So we're looking at our audit methodology — and Errol is going to be a key part of this — and how we could be better. It is based on best practices, what we observe in the private sector and in peer jurisdictions, be it Alberta or Ontario.

E. Price: If I may, through you, Chair, respond to the question about who audits the auditor. Just another piece of information. It doesn't exactly answer your question directly, but I just wanted to mention that in addition to our financial statement audit that is done by a private sector firm engaged by the Finance and Government Services Committee…. The same firm has also been engaged to audit our annual performance report. That is the report in which we set out our key performance indicators, and we are seeking to have an external validation of that information.

That's real leading-edge practice. I believe we're the only Auditor General office that actually has such an audit. The reason we did that, in part, was that we have been promoting good accountability by government, so we wanted to be demonstrating that we were there as well.

It doesn't get to the heart of your question, but there is some externally validated information about our performances available.

J. Rustad: Sorry, I didn't actually get to ask the second question. That was still part of the first question.

J. Rustad: It would be great to have that kind of performance review in terms of that value for money.

During the presentation, you laid out your projected expenditures — which were 65 percent, 30 percent and 5 percent — with regards to financial performance and accountability. You also mentioned some operational cost increases that you're going to be asking for from the Finance Committee on Monday. From what I understand, depending on scenarios, that actually could be quite significant in terms of the request.

The question I have is around those projected expenditures. Do you expect those expenditure percentages to remain the same? The reason why I'm asking that is that in going through appendix A and looking at the work outline that you have in here, I don't see any substantial change to the organizations that you're going to be touching on and working with from 2005-2006 to 2006-2007. I don't see any substantial change in there. Yet from what I understand, there could be a significant operational cost increase request on Monday.

So I'm wondering: does that mean you're going to be changing what that percentage is and what it would look like in 2011?

A. van Iersel: I'm happy to answer this. This was really the thrust behind coming here with this kind of discussion. It works for me, and I hope it works for you.

I do believe the percentages will change. Again, we're kind of presupposing what decisions might arise from Monday. Without talking to the details of Monday's conversation, we are asking for a significant lift. I think I was already quoted in the paper once, saying that there would be a request. I don't think I said "significant." I think I said there would be a request for a lift.

We have done that, thinking back from: what does that vision require us to do? Consistent with some questions that were asked earlier, we do want to do more in regards to accountability reporting. But we also want to do more in regards to the performance or risk audit work as well. What we're proposing is a request that has four different packages to it. The first package deals with what we think is required to maintain the status quo in regard to…. We continue to deliver the same services that you're getting from us now.

I'm talking about the bottom up, then a series of packages that build on that. We're actually recommending the highest-level package, which is consistent with our vision. We haven't worked out the percentages for each and every year. There are five years to get to the vision. Over time, I expect those percentages will change and will see some shifting.

J. Rustad: Just following up on that. The reason why I asked that is because when you look out the four or five years in this plan, there isn't any significant change. I'm assuming that if there's significant increase being requested, that would go into something that doesn't fall in this plan, which would be into the performance perspective.

Is that the intention of the shift? Like I say, those numbers would potentially change quite significantly from 65-35, from what's being presented here.

A. van Iersel: The link between the plan on Monday and this plan we're going to be talking about — the financial statement audit coverage plan — is that the financial statement audit coverage plan in effect is neutral. In other words, whatever our costs are based on those charge-out rates and our expected work in particular organizations, we recover those costs.

Whether you want us to do more or less of the recovery, depending on where we go to in our conversation, the recovery would match that. So from a pure bottom-line point of view, it will be neutral. The work in the performance audit area, the work in the best practices and accountability of reporting, is all funded by appropriation. That's different. In those cases where we want to do more work, it means we need to ask for more money to do it. That's the difference.

The financial statement audit coverage plan is an integral part of our office, in the sense that it has to happen for us to do the financial statement work. But to the extent that we're dealing with organizations that are beyond ministries….

That's another key point. I should have said earlier that we directly fund from our budget the work that happens in ministries and other direct government organizations. But when it comes to Crowns, hospitals, universities or health authorities, they're organizations that routinely pay auditors to do this. We pick which ones we need to be involved with so we have a good understanding of what's happening in the broader system. As you heard me say, we will charge similar to what a private sector organization would charge. But it's neutral in the sense that whatever costs we need, we recover from those organizations that are in the plan at the time.

Then the plan changes. As you say, the plan will change a significant amount or a little bit. However it changes, you might see both the expense and the recovery change, but they'll change together. So when it comes to the bottom line, there is no significant effect. Does that help?

R. Fleming (Chair): In other words, this report you were referring to only covers that one product line related to financial audit statements, not the three that were referred to in the presentation.

J. Rustad: I understand that. But it's in terms of the percentage and breakdowns. It's misleading to say it's going to be 65-35 if the rest of the plan, which we're not going to be covering here, is going to change that dramatically — which it could potentially do. That's why I'm driving at this point.

M. Polak: This is going back to one of the points raised earlier. I will do so in a more detailed way when Mr. Gilhooly is here.

The key concept I want to ask about is the approach to fee-for-service with respect to the other public sector organizations that are being audited. I've heard it talked around that we are dealing with taxpayer-funded organizations, the suggestion being that therefore we certainly wouldn't want to be overcharging them or making a profit off them.

What I'm hearing underneath that and what I wanted to pull out of this is: as the lead person in the organization, from a policy perspective, would it be correct to say that the principle under which you're operating, with respect to fee-for-service, is to give a deal, so to speak, to those who are in the public sector?

A. van Iersel: No. In fact, our whole philosophy behind the recovery system is to recover our costs.

A. van Iersel: Again, maybe I wasn't clear earlier. It doesn't necessarily happen on a specific organization-by-organization basis, because we set rates generally. We estimate hours. Sometimes we're more correct than others.

M. Polak: You wouldn't negotiate an individual project with an individual organization?

A. van Iersel: We're talking about financial statement work. It's up to us to decide what we think is required. We will look at previous auditors' files to see what efforts they put in, and hours and so forth. But at the end of the day we determine what we have to do, and then we charge out to make sure those costs are recovered.

R. Fleming (Chair): Mr. Bains is the only person left on the speakers list, and then I'll suggest that we move on to the financial statement audit coverage plan.

H. Bains: Just a quick one — a follow-up to the previous question that was asked on the turnover of staff. You said it was 19 percent last year and about 7 percent this year. How does that compare to the public sector in a similar industry?

A. van Iersel: I don't know the answer to that. We didn't compare. We thought 19 was exorbitantly high, which is why we think we need to do some things to bring some attention to the recruitment and retention. And the 7 percent, just to be clear, is to date. We still have six months within which we expect some people will leave our office — again, mostly for good reasons. It's not for anything inappropriate.

Again, if we may, we will seek to get that turnover rate for the public sector and provide it to you.

R. Fleming (Chair): At this time I will call Mr. Bill Gilhooly to begin the presentation on the next item on our agenda this morning. Welcome, Bill.

B. Gilhooly: Good morning. If I seem a bit sleepy, it's because I, too, share a new event four months ago. I was up well past the late-night news doing similar things to what you've been doing, so I commiserate.

I'm going to be referring to copies of the report this morning. I just want to make sure all members have a copy. We do have spares if you need them.

The purpose of this discussion is to provide you a briefing on the proposed coverage plan and answer your further questions. I'll assume you're familiar with the contents, and my remarks, therefore, are just to emphasize the main messages in the plan.

This actually is a leading-edge practice in our view — involving legislators, especially the Public Accounts Committee, in our deliberations. Approval is required under section 10(6), and it drives the whole appointment process across the system. However, as has been stated, it's not for approval of the plan costs. That, of course, is for Monday's meeting.

This is a three-year rolling plan, and it's in the same time frame as our funding proposal and also that of government's fiscal plan. We need to take a three-to-five-year outlook on our rotations — for example, when contracts are coming due with private sector auditors.

Our focus is mostly on the '07-08 fiscal year, which is the upcoming year of the audit cycle. This is the fourth plan submitted since our act came into effect in 2003.

As you just heard from Arn, this plan is a subset of the larger business financial plan. As we will discuss, we need to have a plan that provides the Auditor General with the right depth and breadth of knowledge and understanding of the business of government and the issues.

When the act was drafted, the audit profession contemplated a rotational approach to doing audits, especially in sectors with like-type organizations. Five-year limitations were also being introduced at a time when audit independence was a bit rocky, resulting from some issues from Enron. However, the audit business settled on senior partner rotations instead of audit firm rotation, so our act is a bit out of step with the current practice. We'll speak to that a bit more in our remarks.

As you may recall, we recover audit fees when we do work outside of the CRF. The rest of our financial work is covered off through our regular appropriation. The estimated recoveries for this work are included in our overall funding request for approval of the Finance and Government Services Committee.

Today we're seeking items for approval for four things. One is to approve the proposed plan in appendix A on page 12. The second is for the Auditor General to continue as direct auditor of 14 entities where the term exceeds five years. The third is for the Auditor General to continue as the direct auditor for two entities outside of the reporting entity. Fourth is for the Auditor General to continue to administer the auditor appointment process. These recommendations are restated on page 2.

Like all plans, this one is built on a number of assumptions. Some of the major ones are discussed on the slide here. Obviously, if the number of entities changes or standards change — and they only seem to go up — then the assumptions around the scope of the plan also change.

It's also excluding the 19 ministries, since we already audit 100 percent of those that comprise the CRF. They're not included in this plan, and funding for this work has already been included in our appropriation.

One of the most significant assumptions is that we must make sure we meet professional standards. In that sense, meeting these standards isn't negotiable in terms of reducing the extent of our work below what we feel is needed to fulfil our requirements under the act. That's why we ensure we have a good representation of entities across all sectors of government. On the other hand, we don't need to audit 100 percent of them to be able to form an opinion on the summary financial statements.

That brings us to the levels of involvement that we devise for our audit coverage. Essentially, we define our involvement on three levels of audit participation for the approximately 150 entities in the reporting entity.

The first is limited involvement, where we don't do any fieldwork and do only a selective review of auditor files. That is for just over 100 of the organizations. In the middle is oversight, where we review other auditors' plans and files and also attend some or all audit committee meetings. We plan to do that next year for about 18 organizations. Finally, we do direct audits with our own staff or contractors. We planned to do that for 22 organizations last year. We have found this approach to serve us well so far in ensuring sufficient, appropriate audit coverage across the reporting entity.

Of course, there are other considerations to make in determining appropriate levels of audit coverage. For example, we don't need to audit every health authority to have confidence about the audits risks and

the knowledge we need to know about in the health authority business. By directly auditing a sample of one or two and having lesser involvement in the others, we can achieve our objective for purposes of the summary audit opinion.

Of course, we need to move through similar entities over time to ensure that our sample stays representative of those groups. For dissimilar or unique entities, like in Crown corporations, we apply a risk-based process with higher levels of coverage in areas of higher significance or risk.

Another important consideration is based on capacity. We need to make sure we keep enough direct audits to get the detailed knowledge and understanding of government that is not gained from oversight alone.

As a certified articling office, we strive to ensure we have enough direct audits to provide the depth and breadth of experience they need for their professional designations. Arn also spoke to some of the benefits of that from the past rates we have of our students and their achievements. That certainly speaks to the quality of the experience they're getting from the direct audit work.

It's also a way to grow our professional staff internally. Many of our students, as Arn said, have gone on to make significant public service careers.

Turning now to the detail plan. Here's a table that is reproduced from page 6 of your plan, which summarizes our plan coverage for the next three years for the 146 entities. It's really a rollup of the detail plan shown in appendix A. It's essentially the same plan as last year, as one member alluded to. It doesn't seem to change. Really, we're just adding '09 and '10, plus plan changes.

The first column shows the types of entities, the groupings, and the second column shows the number of entities in each type. The remainder of the table shows our plan coverage by fiscal year and level of involvement. For example, in 2007-2008 we planned to have limited involvement in three of the six universities, have an oversight involvement in two of them and audit one directly. This is a similar approach that we're following for health authorities.

As you can see from the totals, our levels of involvement don't change significantly between levels of involvement and by year. Also, our highest level of involvement is in the Crown corporation group, where we do seven by oversight and audit 15 directly, out of 38 entities for '07-08.

Of course, the implementation of the coverage plan, like any plan, can change. As in prior years, we have highlighted changes to the plan to bring them to your attention, and they're included in appendix B on page 20. I'll just go over a couple of the significant plan changes by sector here.

In the post-secondary sector we're reducing from a direct audit to oversight. UBC is one we've audited for about 20 years now. We feel it's time to start moving around in that sector, so we are increasing to a direct audit role at SFU from the oversight role that we've had. We're also reducing our involvement at UNBC from an oversight role to a limited role. UNBC is one we audited directly for a number of years, as well, from its startup inception.

In terms of the authorities, the Fraser, Interior and Northern health authorities we're reducing from an oversight role to a limited role. The Provincial Health Services Authority we're reducing from a direct to oversight role. However, we're still ensuring we maintain sufficient coverage with each one of these sectors. For example, in the health sector we're still going to be doing one significant health audit with the health authority directly — the Vancouver Island one — and the Vancouver Coastal Health Authority through oversight.

As far as the Crown agencies…. The B.C. Immigration Investment Fund, the Forestry Innovation Investment and Partnerships B.C. we had planned to have a continued direct involvement with, although I should add that the issue with Partnerships B.C. is still an open one in that the board is meeting soon to consider whether they would entertain for us to continue as direct auditors or to go to an oversight role for this year.

Coming to a topic we've covered in some detail already, which is cost recoveries. As many of you are aware, our act allows us to charge and recover fees for our audit work. We develop our fees based on professional standards. It's essentially a bottom-up approach. We look at the entity type and size, complexity of the business, areas of audit risk in the entity and in the financial statements. We also consider the materiality for the job and the scope.

The hours of the staff are multiplied by the charge-out rates that include salary and benefits costs and an overhead component that reflects the cost of running the office. As you've heard in the other presentation about new standards, this will inevitably increase our audit time for each job and thus our costs. We therefore expect to see a moderate increase in audit fee recoveries in '07-08 and beyond, and this is consistent with what is happening in industry across North America.

Each year we consult with organizations impacted by changes to the plan. This is required under section 10(7), and we have consulted with board chairs, audit committee chairs or equivalent, as well as senior management. We use a combination of meetings at audit committees or individually with members, as well as telephone inquiries and correspondence.

All impacted organizations are aware of changes we're proposing to the plan, although there are still some issues in the K-to-12 sector which I'll speak to next.

Since the Auditor General Act was passed, a few things have got a bit out of synchronization. As came up in discussion of the prior year plan, there are potential legislative conflicts between the Auditor General Act and the School Act due to not all consequential amendments being made when the act was passed. This has created some confusion over who appoints the auditors for school districts when the Auditor General is to be appointed.

At the request of government, we have been consulting with Ministry of Education officials on potential changes to the School Act that would eliminate these issues. We have also been working with the comptroller general's office on a few other needed consequential amendments related to the Auditor General Act.

So just to recap, we're looking for approval today on four items: it is the proposed plan and appendix A; it's for the Auditor General to continue as direct auditor of 14 entities where the term exceeds five years; for the Auditor General to continue as direct auditor for two entities outside the reporting entity; and for the Auditor General to continue to administer the auditor appointment process.

That concludes my review of the coverage plan. We'd be happy to take further questions from members at this time.

G. Gentner: My apologies for being late. I wish we could do an audit on TransLink. I was stuck on SkyTrain for some time, but then again, of course, hon. Chair, this government hasn't appointed its three MLAs to sit on that board, so there's no accountability.

Relative to the direction that we're seeing here in the next couple years, it was mentioned that we're looking at post-secondary education. UBC has been done, and we're going to be moving around in that sector. Why isn't that policy fulfilled when you start looking at Crown corporations? We've seen oversight, oversight, oversight for a number of years with B.C. Hydro, and yet we can continue with the Columbia Power Corp. — direct, direct, direct.

When we look at something like the B.C. Lottery Corp. — oversight, oversight, oversight, and no direct. Why would we not move — rotate the higher involvement amongst the Crowns?

B. Gilhooly: When we devised the plan, entities that have like characteristics in terms of risks and issues, which we call homogeneous groups — like the school districts and health authorities…. Our plan is to do a rotational approach so that we don't stay in one place too long. However, for large entities that are not homogeneous, where the risks are unique and not likely to change, our plan will generally be to either stay in an oversight position on those organizations or be the direct auditor and not actually reduced to a limited involvement over time.

G. Gentner: Just a quick supplemental. So if I'm correct, the risks will not be changing with the Crown corporations over the next couple of years. Is that what I'm hearing?

B. Gilhooly: If I may, for organizations such as, say, B.C. Hydro, which is a multi-billion-dollar organization and a significant part of the summary financial statements that the Auditor General signs his opinion for, those characteristics will never change. So we don't see ever reducing our involvement to the summary statements in those very large significant organizations.

G. Gentner: Well, another Crown corporation is B.C. Lottery Corp., and there are a lot of assumptions based on revenue stream over the next couple of years. There seems to be a lot of risks and uncertainties with that Crown corporation, and yet I don't see any direct involvement. Can the office explain why?

B. Gilhooly: Certainly. That is another one of the significant entities that is part of the summary financial statements and one of the larger revenue streams especially. I believe it's approaching $1 billion. In that case we have an oversight involvement, but we believe that is sufficient for the needs of the Auditor General — what the Auditor General needs for having knowledge and understanding of that organization.

We also work very closely with their auditor, KPMG. We also attend all of the five or six audit committees per year and review the plan of the auditor when it's approved with the audit committee.

G. Gentner: And one last one, if I may: how much are budget constraints playing in the lack of direct involvement for Crown corporations like B.C. Lottery Corp.?

A. van Iersel: This is our minimum plan — minimum in the sense that it represents what coverage we feel, as with past plans, needs to be in place in order for us to express an opinion on the statements. We're quite comfortable at this level of involvement in the plan that we can express such an opinion. If the committee wanted us to do more, we would have to have more money to do so. But we don't feel that's necessary. We feel this is the minimum that we can do.

D. Chudnovsky: I have sort of two themes that I want to approach, so I'll leave it to you to decide how to do that.

Let me begin with the first, which is: if I understood correctly from your presentation, both the health authorities and Partnerships B.C. will have their…. Your office will reduce its work in taking a look at both of those organizations. I'm wondering whether you could explain how those decisions were made, especially in the context of a whole raft of issues, many of them financial, that have come up with both of those — in one case, the area; and in the other case, the organization.

B. Gilhooly: In the case of health authorities, they are homogeneous entities. Our involvement is partly based on finding out what the common risks and issues are that affect the summary financial statements. It doesn't mean because we're reducing our involvement that they're getting less exposure to audit. It just means someone else will be providing that audit service, and we will be stepping back a bit. Even though we'll still be at the table, we won't be actually doing the audit.

The benefit of doing the audit directly in particular homogeneous-type entities like health authorities is that it gives us a much deeper understanding and knowledge

of the issues on the ground than it would from just oversight alone. So that's one reason why, for each one of the homogenous groups, we make sure we're auditing at least one of them directly and having an oversight role in several others to give us collectively for each one of those groups the information we need, the understanding we need as part of the consolidation for the summary financial statements.

A. van Iersel: Just to supplement that, it's also important to recognize that in addition to financial statement work, we do other work. So if an issue were to arise with Partnerships B.C. or with a particular health authority, we would consider that in terms of our performance audit planning. It's not just the financial statement work.

And here again, I want to emphasize something that Bill said. We move around the system to provide ourselves with what we feel is the necessary minimum coverage to have direct knowledge of each of the types of organizations in the entity and to keep our skills up. But we're all doing the same auditing according to the same standards.

While we may not be the direct auditor of an entity, we have significant confidence, of course, in our fellow auditors doing the work in a direct audit engagement or an oversight. We're all following the same standards, subject to the same scrutiny. But if there were a situation where something came to light, we would consider other avenues in terms of looking at that.

D. Chudnovsky: Following up that, with respect, I'm not sure that the answer was really an answer. If I follow your reasoning, one almost comes to the point where one would ask: why not oversight the level of oversight for all of the organizations and entities that you look at? If in fact there is a reason for being for the provincial auditor's office, and if in fact that includes more than simply watching other auditors do work at the standards that you say — and I have no reason to think otherwise — are the same standards that you use, then one almost gets to the point where one can ask the question: well, why not just watch all of them do it in that way?

Certainly, government wants more of an involvement from its own Auditor General, and certainly, the people want more of an involvement from their Auditor General. So I go back to my question, which was: how did you make the decisions in those cases to reduce that level of supervision?

B. Gilhooly: If I may. When we put the act in place in 2003 and came up with our first plan, it was a bit of a learning experience, because the model we're using here is a bit of a hybrid of what you find in other jurisdictions. In some jurisdictions like Alberta they do much more direct auditing throughout the whole public sector system, whereas in Ontario they audit mostly the central part of government and rely on the auditors of all the other organizations to do that work.

It can have other ways it can play out, such as in the state of Victoria, Australia. The Auditor General there signs off on 600 organizations, including all the municipalities. So every contract for every single audit in the whole state runs through the Auditor General.

There are different models that have been put in play. In B.C. we have a hybrid which we believe gives us the best of both worlds. We don't have to audit 100 percent of the organizations. We do believe we need to audit a minimum number of organizations and have an oversight involvement to give the Auditor General, according to our professional standards, the minimum information and understanding needed to be able to sign off on the summary of financial statements.

A. van Iersel: Our plan, in effect, is a balance. We could do all the work. I mean, you might have the same question: why is it necessary for us to do all the audits directly? We don't think that's necessary. The intent of the act, as we understand it, and the intent of the office in history is it's not necessary to do all the work directly. It's what's necessary for us to formulate an opinion, per GAAP, that we're satisfied in providing to you.

It is a balance between one model, which is that you do it all, and another model, that you trust your fellow auditors. We think it's an appropriate balance between those two extremes. It's worked well for our office in terms of keeping us engaged in what's happening in the various organizations within an entity and being on top of…. That is another reason why we want to rotate in some key areas, which is why we're going to give up the University of British Columbia.

That's something that I talked over with the exec team and said: "We've done it for a long time. Isn't it time that we looked to another university?" We're planning to go to Simon Fraser. Both are comparable in terms of large universities that have the same kind of financial challenges, risks and so forth.

It's important to move around. Otherwise, why are you always doing the same thing over and over? It's a balance, and it's moving around the system such that we are continually getting the right levels of comfort.

R. Fleming (Chair): Okay. I have a speakers list, so if you make it a very concise follow-up….

D. Chudnovsky: That's fine, Chair. If I could go back on your speakers list, I have a whole other area that I'd like to explore.

R. Hawes: Just before I ask the question I really want to ask, I want to make it absolutely clear…. We're talking here about your fee-for-audit schedule. You can audit as much or as little as you wish. You've said you're on a cost recovery basis, so what you've decided to do here has absolutely nothing to do with the appropriation that you're receiving. If you decided to do everything in here, you will recover all of the costs. So it's completely within your discretion and determination. Would I be correct in that?

A. van Iersel: Not entirely, Member. There are some other provisions in the act which guide us in terms of where we are as the auditors. You'll recall there are provisions that say we should only be the auditor for five years, which is one of the reasons why in this particular report you see requests for exemptions. So there is guidance.

Again, it goes to what the intent was of the 2003 legislation. The legislation said that the auditor has to have the access he or she needed in order to form a professional opinion on the statements. It was recognizing that in this jurisdiction versus, as Mr. Gilhooly said, other models, we were trying to reach a balance. We weren't trying to replace all the private sector auditor community that was working in the various organizations.

R. Hawes: Which is exactly why…. I guess I'll say, then, that financial constraints aren't the problem here. There are other constraints, perhaps, like the five-year rule.

I want to be absolutely clear that from our perspective, your function is to reach a place where you can sign off on the province's financial statements with absolute comfort that you have achieved everything you're required to do under the rules that you follow as auditors. Correct?

One other point worth nothing here is it's not just the act alone. There are many factors that come into it. Another factor is the size of our office. If we were to decide, hypothetically, that we wanted to now be the direct auditor of all these organizations…. We don't have the staff to do that. We would, in effect, have to go and compete with other firms and bring those staff in. We don't think that's the right approach.

Another point, if I may, that wasn't made earlier is that of those recoveries is about a half-million, which represents a straight pass through, in the sense that even though we signed the opinion in some cases, we rely on a third-party auditor. Those fees are estimated by them, based usually on a request for proposals. They bill us, and we pass that bill through.

There are a number of different ways in which we meet our requirements. But you're correct in the requirement, which is: what's the necessary amount of involvement directly in these organizations, taking into account that we have 146 different organizations in many different sectors?

That is the whole basis of the plan. What is our professional judgment necessary so that when the Auditor General signs that summary financial statement opinion, we can say with confidence, per the standards, that there's a basis for it?

R. Hawes: Which is exactly why I am not comfortable with this committee attempting to tell you what you may or may not audit. That's for you. If we do something that creates discomfort, where you can't sign off the statements, that's not where we should be. We're politicians; we are not auditors.

However, I will say that we are allowed to talk about the fees that you charge and how you spend money in other — I'll call it — discretionary spending areas. That's where I wanted to come to with respect to your fees and the cost recovery.

When you have audited a school district, for example, for five or six years, I would guess that there is a level of comfort with what you need to do there. You're very familiar with the work in that particular school district, so you set your fees accordingly.

If an outside firm came to do it, they wouldn't have that same level of comfort. My almost certain guess is that the fee that would be charged would be significantly higher. That's where I have been going with this, as far as what you're charging in your fee-for-service. I think, personally, that in most cases you're probably far, far too low. If you're basing it on how many hours and what our charge-out rate per person is…. I don't believe that the bigger firms, or indeed the smaller auditing firms, quite do it that way.

Internally, they have a look at that, but they add significant margins and they add things to the charge-out rate for each auditor they're going to have in there, because there is a profit earned on each one of the auditors as well. So it's not straight cost recovery, and I'm not comfortable with you doing straight cost recovery, because I think it's unfair to other organizations.

That's as far as I'm going to go with this. Finance Committee on Monday will be an extremely serious discussion about it, and I hope that you'll come prepared with some answers.

I'm going to ask one last question for numbers for Monday. I would like to know Monday that the dollar cost for your fee-for-audit-service is constant in terms of your request for an appropriation. It's 100-percent cost recovery, and there is no additional cost to the taxpayer on this side, on the fee-for-audit side. I'll be looking for that assurance on Monday. That's fair.

M. Polak: I wanted to ask a question — two areas I want to canvass. The first is with respect to the fees. I understand that you're hoping to provide some additional clarity when you come to your Monday discussion at another committee.

Looking at page 9 and having heard the presentation with respect to how the fee structure is generated, etc…. Do you have a method whereby you track the estimated hours spent, staff costs associated with a particular audit, and then your actuals at the end so that you know you're estimating that correctly? If you notice that something is taking longer, do you adjust the fees? How does that operate?

B. Gilhooly: Yes, Member. We do have a budget for each one of our jobs. That is based, as I said earlier, on a bottom-up approach that estimates for each particular line item on financial statements how long it will take, as well as administration for the job. We also have engagement letters with all the entities that we audit directly, so they have a sense of: "Here's what the costs are. Here's what the services are that are being provided." Usually the chair of the audit committee will sign that, or the CEO of the organization.

If, for any reason, our costs were to go over what we said, in some cases we will bill more, but it will not be a surprise to the committee. It would have to be as a result of things that were beyond our control, such as the readiness of management and the provision of their working papers. If we believe that the costs were due to our office being inefficient for whatever reason — perhaps we had new staff, or something like that — we would likely just stick to what the amount was in the engagement letter. It really varies by job — who is assigned to the job, the nature of the job and just the unexpected issues that can come up.

M. Polak: You find, though, overall, that by and large, your estimates of the size of the job, if you will, are accurate?

B. Gilhooly: Within reason. Some are slightly above; some are slightly below. But in general, financial statement audits are more accurate to predict the costs for than other types of work.

M. Polak: Is there anything in the statute that prohibits the office from going beyond cost recovery?

B. Gilhooly: My understanding is that the definition of recovery is that you can only collect a dollar for each dollar you spend. You can't collect $1.20 for each dollar you spend, but you can't collect less either. So for every dollar we spend that we have authorization for through the recoveries, we can collect up to a dollar if we actually spend those costs, but not more and not less.

A. van Iersel: That was an issue some years ago in Ontario, where fees for services were charged in excess of the costs. They were ruled invalid, so I would need to update myself regarding what happened as a result of that and what the legal interpretation is. I think it's another thing we'll take away and get an opinion on.

M. Polak: Flipping to another topic. This goes back to something that you mentioned, and it just twigged. You mentioned that with respect to the plan you have around activities that would be related to the revenues that are appropriated, there are four different, I guess, scenarios or four different proposed models. Did I hear that correctly?

M. Polak: I'm trying to get around talking about…. Well, I'll just say it. So you're going to the Finance Committee, and you mentioned that there are basically — I forget the term used — four different models that you are proposing.

A. van Iersel: The term I used was "packages," which is an old, zero-based budgeting term. In essence, what it is, is trying to equate a certain level of service — what the Legislature, yourselves and citizens would get in return for a particular level of funding.

If I may just explain why we're doing that. We have a particular level of funding that we're most comfortable with and that ties into Vision 2011. We've done our work on that. Having said that, though, as you heard in my introductory remarks, we know that with the significant increase, that's a challenge for any committee, be it this committee or the committee on Monday.

Therefore, we wanted to provide some options in regards to reduced level of service over time and so forth. It was an attempt to say: "Here's what we think we need, but if that's not within your means, here are some options." Our recommendation, clearly though, is the highest level. That's for '07-08, and every year it would have to be reviewed again, depending on the affordability and our current estimates of what it's going to take to achieve that plan.

M. Polak: I guess my discomfort arises from…. Again, we're into that sticky issue of the roles of the different committees, etc. One of our roles is to express our support or concerns, etc., around what the plans are to do different things and the overall direction that's taken. Clearly, if we're talking about four different packages, four different options, it would be difficult, from this vantage point, to consider how that plays out, when we're really only talking in sort of a unidirectional kind of mode here.

A. van Iersel: The member is quite right, which is why when I arrived on the scene, having observed these meetings from the past and the frustrations of members, I wanted to try and better connect the two issues, which are the financial statement audit coverage plan — which, under the act, clearly needs to be approved here — and the budget, which gets approved in another forum.

It's my attempt and our office's attempt to try and bridge some of that, being respectful of what you as legislators have said in terms of who is to do what. That's the challenge we're in until someone decides, and it's a legislator decision to change the allocation of responsibilities.

The danger, however, would be that if you change that, then you would have to be consistent with other officers of the Legislature. We're kind of blessed in the sense that we have two committees that we can go to and report to. Others do not.

M. Polak: I guess the situation I'd like to pose to you, then…. Actually, the agenda items really flow together somewhat. In reviewing the agenda, preparing for the meeting, etc., one of the ways in which I'm challenged to understand a bit of the direction we're considering heading in is when we…. I know we're going to talk about the follow-up process, so I won't go deeply into this or anything.

It seems that on the one hand, we are attempting to focus the attention of the committee more directly on a primary role of dealing with the financial audit plan. But on the other hand, we are preparing to discuss a potential expansion of the committee's role with respect to following up on reports and the manner in which we do that.

I throw that out there with the thought that as we come to discuss the follow-up, we need to consider that issue of consistency and the importance of establishing what our appropriate role is and isn't, as the case may be.

A. van Iersel: I understand the questioning here. There was a conversation some time ago in terms of what was possible in regards to making a presentation to you that did not in any way infringe on the stated responsibilities in the role that your sister committee has to perform.

Maybe at the end of the day there needs to be further thinking about what is the best approach to bringing these things closer together, but that's not for me to recommend at this time. We're trying, as I said, to better inform you in regards to what is driving our office and the types of issues we see and how we plan to proceed with that.

I think the other thing we have is members that are joint members. I believe there are four members of this committee who carry forward into Monday's discussion, and that's another factor to consider.

R. Fleming (Chair): Well, like Christmas, the financial plan comes once a year to this committee.

I have a couple of questions myself, and then we have three additional speakers on the list. Then we'll maybe entertain looking at a motion that deals with the recommendations in the report on page 2.

My question is around the presentation we had from Bill and the plan assumptions. One of the assumptions was that there are no new entities being created by government. I wanted to ask about regional trust funds — for example, the reconciliation fund, the pine beetle fund. We see some of these regional economic funds that are given as one-time tax dollar contributions, sometimes $100 million and those types of sums.

A. van Iersel: I'll start the answer, and maybe Bill can add to it, of course. This plan is for organizations that are in the government reporting entity, although as you'll notice in the plan, we do ask for permission to do two outside of the entity — one being…. I always want to say Workers Compensation Board, but it's WorkSafe British Columbia. And then the employee community services plan, which we do on a volunteer basis. As you know, they are the United Way arm into government in terms of collecting money from government employees.

Those are the only exceptions that we have asked for in continuing this. Other than that, the plan is restricted to organizations that are part of government. Those entities that I've heard you refer to are not in the government reporting entity. We audit in respect of moneys that are contributed to those entities. Until such time as they come back into government, if that were the case, we wouldn't audit them unless we found a particular case to do so. Then we'd need your permission to do that.

B. Gilhooly: If I may add, there are a number of entities — at least a dozen — that are outside of the government reporting entity, according to how our profession defines the reporting entity. However, we look at each one of those annually to see if anything has changed and whether they would be brought back into the reporting entity. If they were, then we would look under our coverage plan requirements at what level of involvement we would have with those entities from limited involvement to oversight to possibly being the direct auditor if we thought that was appropriate in the case.

A. van Iersel: Others now would be the Ferry Authority, the Safety Authority. These are organizations that, according to past reviews, have been determined to be outside of government. But as Bill says, we look at it from time to time.

R. Fleming (Chair): That's interesting. I didn't know your authority was prescribed that way. I thought the principle was that where a government dollar is…. You know, the Office of the Auditor General can go where there's a provincial tax dollar. It seems to me that the list of 12 organizations now outside of government is growing.

I know that the former Auditor General in his final report included comments that he believes the Office of the Auditor General needs to respond and anticipate more of these and have some kind of oversight role in what are sums of, in some cases, 100-percent provincial tax dollar contributions.

A. van Iersel: Thank you, Chair. That clarifies it a little more for me so I can better answer your question.

One thing we do is look at who's in and who's out of government. That is done through the annual process, and as Bill alluded to, we will look at key organizations to determine that the judgment that was made previously is still in effect. If they come in, they're automatically included as a potential candidate in this plan. If they're out, we would need your permission.

To go on, though, now that I better understand what you're asking about, that doesn't mean that we can't use the old auditing expression: "Follow the government dollar." To the extent that moneys have gone to any organization outside of the entity, we can follow the dollar to make sure that the moneys were used in accordance with the purposes for which they were provided — that's what we used to call following the money — or if there were any conditions, that they've met those was conditions. That is another thing we do in reviewing the financial affairs of the province.

R. Fleming (Chair): So you have a reactive relationship to those entities but not a proactive responsibility, say, with the other parts of government.

A. van Iersel: I think our proactive responsibility is to monitor the status of each of these organizations and to make sure that any dollars we contribute are consistent with the reasons given and are well-spent and so forth.

R. Fleming (Chair): Okay. Well, then, a specific question related to that. In the appendix there is a listing of the Private Career Training Institutions Agency. There's no mention of any historical audit coverage there, and there's no proposal over the next three years to do that. I'm wondering if I can maybe be enlightened on the thinking there.

Similarly, the B.C. Safety Authority is also…. I don't see it listed in the appendix anywhere.

B. Gilhooly: Member, the organization you refer to…. For purposes of signing off the public accounts, it wouldn't be considered a high-risk entity or of high significance. So our approach would be to have a limited involvement, where we review the financial statements each year, and we'd be reliant on the work of the auditor of that entity for the purposes of the public accounts.

The B.C. Safety Authority is one of the entities that for purposes of the government report has been considered to be outside, so it's not something we would include in the coverage plan. We'd only include entities in the coverage plan that we consider and agree with government's position on that they are inside the reporting entity.

R. Cantelon: Mr. Chair, thank you very much, but I think most of the parts of the question have been answered in the bits and pieces of many of the other answers he has provided. So I'm satisfied.

G. Gentner: Very briefly, I want to get back to recovering for audits. We're talking about high-risk Crown corporations, namely, of course, Partnerships B.C. — a discussion that was raised. My understanding is, relative to recommendation 1, for approval, a lot of it still hinges on where the Partnerships B.C. board is considering whether to ask the Auditor General in the next couple of days…. Now, my understanding, too, is that the fee for an audit…. Is that negotiable, or is that just a standard fee?

A. van Iersel: As I said, we determine what work is required to perform a particular audit in terms of person-hours and the types of people. We have already established charge-out rates for those kinds of people, so that's the way in which we estimate the cost of the audit.

We're following somewhat what the previous auditor was charging to get a sense of if we're comparable, reasonable and so forth. We determine what's required. I don't have enough experience yet to determine if ever we deviate from those fees. Maybe Bill could answer that.

B. Gilhooly: In the case of Partnerships B.C., I believe we started that organization in the first year it was created, so we've been the auditor from its inception. So we don't have a track record in terms of following the previous auditor.

G. Gentner: The question, therefore, is: if we don't know the fees, for example, how are we going to determine the fees when the Auditor General looks at something called value for money, which has always been a real hornets' nest as to how it's going to be defined?

I know that as it stands today, if I have it correct, Partnerships B.C. will determine what their view of value for money is, and either the Auditor General just signs off and agrees with it or has to look at it more deeply.

My question, therefore, would be: would the Auditor General consider waiving the fee for audit with Partnerships B.C. in order to define an independent value for money?

A. van Iersel: I think there are two different things that we could potentially do with respect to Partnerships B.C. The first thing we're talking about under this plan is the financial statement work in regards to their revenues, expenses, assets and liabilities. That's what is currently at question in terms of whether we do that or whether an outside auditor does. As we already talked about, regardless of whether we do it or they do it, there is a standard that either of us has to meet. If we ever felt there was an issue in terms of the financial statements, we could ask to insert ourselves, follow up with the auditor.

That's the financial statement piece. Separate from that, the appropriation side of our budget allows us to

do value for money and other types of assessments. That's not what we're talking about here in this plan. That's the example of the Sea to Sky that was done and so forth.

With those particular documents, then, we would decide that there's something for us to do, and we would do our work, and we would find the money within our appropriation to do that. That's the usual model.

R. Fleming (Chair): I'd just remind the member we have three reports — Sea to Sky was mentioned, 2010 games and the Canada line — that will be discussed at this committee within the next several sittings of the committee. So those are good questions to canvass there, I think.

A. van Iersel: If I may, Chair, just again to clarify. Regardless of what happens with the financial statement work and who does it, our office still has the ability to do other work ourselves in the performance audit, value-for-money area, if we see that's a priority for us. That's where we look to, and we're going to come to this at another one of our meetings when we talk about how we select risk-audit projects outside of financial statements.

R. Sultan: There's an absolutely stupendously large entity that I don't think is on your list — namely, B.C. Investment Management Corp. I presume they are not inside the government reporting entity, and that's why they are not on the list. Is that the way it is?

A. van Iersel: That's true. Currently they have been determined to be excluded. That's the position the government has taken, and we have agreed with it to date.

B. Gilhooly: It's in the high billions. Those assets are already included within the public entities that are included in the summary financial statements. So the only part that is not consolidated is their operations themselves, which is in the $50 million range.

R. Sultan: So indirectly they are included in the balance sheet of the government.

R. Sultan: I don't know whether that undercuts my next question, which was that there seems to be an interesting little accounting debate going on in Ottawa right now about the accounting for the Canada Pension Plan assets and the net-debt position of the government.

Just out of curiosity, does that have any parallel in our own financial statements?

A. van Iersel: I don't believe it does, Member. I, like you, have followed with interest how the debt plan works. But no, it doesn't. The government is reporting consistent with generally accepted accounting principles, and we're auditing that consistent with GAAP.

R. Fleming (Chair): Mr. Chudnovsky, and then we are at the end of our speakers list.

D. Chudnovsky: My question has, in some sense, to do with operations as well.

It's my understanding that over the last number of months, the acting Auditor General has removed himself from a number of the investigations. So I'm wondering whether it might be possible for us to get an itemized list of any reports, investigations, audits and whatever activities of the office from which the acting Auditor General has recused — I think that's the word, but we all know what it means — himself and, also, a forward-looking report on which of the reports and activities that are projected in the report we've had today he expects to take the same action on.

A. van Iersel: Thank you for asking the question. Independence is important in regards to our office. Some of you will remember another engagement where I spoke to the need to have independence and how I would conduct myself, which is why I said I wouldn't be signing the 2005-2006 financial statements, and I did not. Not only did I not sign, but I was not involved in those statements. My Deputy Auditor General took that responsibility on behalf of the office. So there's an example.

There are other reports that are upcoming where I will choose to do the same. I have the same interest as my fellows in the organization, the various accounting bodies in my own Certified General Accountants Association, in not having a situation come up with independence.

We have been assessing things as they go. You will see some reports come out — some quite soon — where I have not. I would prefer to let those come out as they will in regards to the release. Just to let you know, if you're a real advocate in terms of following the reports on our website, we do expect to release four reports next week. You will see where I've chosen to recuse myself, and I have done that with the right intentions and motivations. That's something I spoke to

early on when I was being considered to do this acting job. It's my intention to continue to do that.

I'll explain why I can't give you all the answers in terms of rolling forward. You need to do a lot of work in assessing each of these things, so we're relying on our standards. We're relying on outside parties to get advice and so forth. We will listen to that advice, and we will act accordingly.

It is my decision, but when making that decision, I will very much want to meet and exercise the standards, which has been my practice to date. You'll see that practice continued. I can't say everything today.

The other thing you should know about why is because with the passage of time my particular circumstance should change, regarding the fact that the standards are tied to how recently you were involved in some of these things. There's another factor. Over time I expect that there will be fewer and fewer things where I would have an independence question that needs to be addressed.

D. Chudnovsky: Let me make it clear that in asking the question, there's no suggestion that the action taken by the acting Auditor General in the context in which he finds himself isn't just as he describes it.

The acting Auditor General referred to reports. Are there any other activities inside the office, beyond reports that do come out from time to time, at the bottom of which your name doesn't appear? Are there any other activities within the context of the work that's done by the office that you have removed yourself from or expect to remove yourself from?

A. van Iersel: I chose reports because, at the end of the day, that's the outcome, the product, of our office. The report is simply the end point of a long process. As I already said, for the 2005-2006 financial statements, it wasn't just that I didn't sign it or that I wasn't involved in communicating it. I wasn't involved in planning, conducting or otherwise advising. Not signing the report is the end point of a decision made much earlier not to do things.

D. Chudnovsky: Any other areas where there isn't a report forthcoming at the end where you did remove yourself — on issues that don't end up with a report as the bottom line?

A. van Iersel: I've yet to run across any other particular areas of concern. But I will abide by the standards, and I will meet them in all respects. I have a very dedicated and professional team that also will speak when they feel that's the case.

One of the key things to remember with the Office of the Auditor General is that we are a team. While I, and sometimes the Deputy Auditor General, sign or don't sign particular reports, we work as a team to meet the standards. I've already told you earlier today that the last review that was done of our office was very positive in regards to how we conducted ourselves in meeting those standards on the audit front. I have the same interest as you, which is to do the right thing.

R. Fleming (Chair): We are at the end of the speakers list, and we have the report in front of us.

J. McIntyre (Deputy Chair): It's with great pleasure, actually, in my new role as the Deputy Chair to make a motion. I'd like to move that this committee approve the Financial Statement Audit Coverage Plan for Fiscal Years 2007/2008 through 2009/2010, along with the four recommendations listed, which will be on page 2 of the plan, for everyone's interest.

These would be the four recommendations. First is to approve the financial statement audit coverage plan for the fiscal years, as I said, 2007 and 2008 through 2009-2010, as shown in appendix A. The second part is to consent to the Auditor General continuing as the appointed auditor for 14 government organizations and trust funds where the engagement term exceeds five consecutive fiscal years.

Third is to consent to the Auditor General being appointed auditor for two organizations outside the government reporting entity, as they've listed on page 10 of their plan. Last is to endorse the Auditor General's continued administration of the auditor appointment process, as described in their plan.

J. Rustad: With the understanding of the role that we have in here, I will be voting in favour of this motion, but I just wanted to state that the approval of the financial statement and the audit coverage plan…. I find it somewhat perplexing, in that the workload has not seemed to increase and yet on Monday there is going to be a significant request. I have just a little bit of discomfort there in terms of whether or not there has been or whether or not there should be a cost-savings review in terms of how the process is.

There's been mention that travel costs, etc., have increased. Are there more efficient ways of doing that, etc.? I'm a little uncomfortable with those. It's not a question. It's just something that I wanted to say in terms of a statement, and I hope that line of questioning will be taken up on Monday when the plan comes forward.

D. Chudnovsky: I just want to go back to some of the discussion that's happened so far. As I understand it, what we are faced with here is a set of recommendations based on one of four packages that you're taking to the Finance Committee next week, and this is the minimum one. Am I understanding correctly?

D. Chudnovsky: No. I'm misunderstanding. Well, I'm new at this, and I apologize.

A. van Iersel: Just to clarify. It's always the danger when you're trying to deal with two products that are

related but are not before you committee members at the same time. We've already talked about the challenge it presents.

To be clear, this financial statement audit coverage plan is fully recovered. It is what we've said is the minimum we need to do, in terms of financial statement work, in order to sign the opinion. With this approval, if it's given by you, we feel comfortable enough in doing this work, together with the work we do with ministries and the direct government, that we could sign the opinion, whatever that opinion might say. It's not dependent on what happens on Monday.

A. van Iersel: On Monday there are four levels of service and costs, but they are focused on the performance audit work, the accountability reporting work. So there's no fear here — to put it that way, I guess — of you approving this and there being a disconnect on Monday. There isn't.

D. Chudnovsky: I'm glad to say that my problem was language, not substance. Thanks to the acting Auditor General for fixing my language.

D. Thorne: I also have a language question, which may just speak for itself. I don't know. In the recommendations it states: "Auditor General." That means, I'm assuming, the Office of the Auditor General, because it doesn't say "acting Auditor General." I'm assuming it means "the office of" rather than….

R. Fleming (Chair): Perhaps we should just add that to the motion. Then it would read, "Office of the Auditor General," because I think…

Okay, any further discussion on the motion? If not, then we'll put it to a vote.

R. Fleming (Chair): People are heading to the door anyway. We'll take a three-minute break, and then we will move on to item 5.

R. Fleming (Chair): Committee members, if we could take our seats and resume the meeting, I'll ask the acting Auditor General to take his seat and begin the next item, which is a review of the follow-up process. There is a PowerPoint presentation here and then time for a discussion, of course.

We are a little behind — approximately 25 minutes behind where we thought we would be on the agenda. This is an opportunity to get back on track and conclude this item by one — not that I'm trying to curb discussion.

We are ready to begin again, and I will turn the floor over to Arn van Iersel, the acting Auditor General, to present the next item.

A. van Iersel: Let me first explain why this particular item is here. One of the areas of interest for me…. In subsequent conversations with our team, we wanted to examine the follow-up process. As you would know, this has been in place for a number of years. It goes back to the previous Public Accounts Committee. Our thinking is that we could modify this a little bit to better add value.

You have two documents with you. One is a copy of the slides, and then the other is a little paper that was written. The slides are based on the paper. It talks about what we saw as the issues and so forth.

What I'll do is go through the slides, and then hopefully, I can answer any questions that you have. The intent is not to remove the follow-up process but to see, with your assistance, how it could be changed to be more effective.

Why do we follow up each audit? This is something that is done not only in B.C. but elsewhere. As it says here, this goes back to a previous PAC committee who wanted to know — and our office wants to know — what happens to all the findings and the recommendations from our performance audit. You heard us use this term earlier today. When we do performance audits, most of them have a whole series of recommendations. It goes back to your genuine interest in: are ministries acting on those recommendations, and are they doing that in a timely manner?

It also provides an incentive. I'm not assuming here, necessarily, that organizations wouldn't want to act on the recommendations that we found, but it is an added incentive when they know that they have someone looking at their implementation, their action plans. We do that, and you provide the added incentive there. It also, as it says on the slides, keeps them accountable for dealing with the issues that were identified.

That's what it's all about: making sure that whatever work is done that has recommendations and findings finds its way to fruition and that we achieve the benefits, the savings — whatever it might be.

This is a diagram of what the existing follow-up process looks like. Our office, then, on your behalf, contacts the organization and says that it is time to update ourselves and the committee on where we're at. As you will recall from discussions in the past, the follow-up process can range from as short as six months. Other occasions it will be 18 months. It's based on the number of recommendations, the importance, how you see them and the urgency. It's six to 18 months.

We will ask the audited organization…. Often a ministry, then, will provide a written response saying: "Here's our summary of the recommendations, and here's our evidence for how we think we've met those requirements." They provide that back to us.

We do a high-level reasonableness check. What I mean by that is: we don't do another audit. We look at the information provided, compare it to our audit notes and just make sure that all the recommendations are included in it and so forth. Then we might ask the ministry for some changes to bring that up to date.

With that information as it's been developed, we will then put a follow-up report before you. Our tendency in the past has been to try to lump follow-up reports together. One of the things we were thinking we should do, rolling forward, is to have a particular time or day devoted to follow-up and just run through a series of follow-up reports that you would have a review of and determine your own assessment: is progress being made? When that happens — those of you who have been through it — the ministry would reappear and, generally, give a slide presentation and speak to the document.

After all that consideration, of course, your committee produces its own report through Craig and Josie. That report summarizes what happened in the discussion and if there are any particular recommendations that you wish to make. At a high level, that's how the current process works.

I've already mentioned that we're not alone in this. Most audit offices, including the Auditor General of Canada, perform such follow-ups for the same reason, which is to have some accountability, and most use recommendations as the basis for follow-up. In a report, we typically will have a finding that says: "We found this." As a result of that finding, we will make specific recommendations to try and address that finding.

As it says here, half of the offices perform their own assessments of management's representations. In other words, they do a quality control exercise to determine that what the ministry is saying is reliable and fair and represents the state. The other half do not. That comes in.

Timing does vary. I have always said that our practice here has been six to 18 months but when we surveyed people, it can be as long as three years. Here again, it's really intended to…. What's a reasonable time frame in which to undertake the recommendations, given that they might call for saving and change? And balancing that with: what's the urgency to get something addressed?

Why improve the process? There are a couple of things that I've observed and that we've discussed at our management table. The first thing is that as we've just said, most reports are based on recommendations. I think recommendations always have an important role to play, but in my estimation, I would hate to lose the discussion around what the original findings were.

The reason for this is that a finding to me tells us what the problem is. It's usually a fuller description of that problem. The recommendation is only one potential way in which that finding can be addressed, and it is a recommendation at a point in time in regards to the thinking at that time. It reflects on what is being suggested.

With that in mind, given that all of the discussion has been on recommendations, it seems that we're missing an opportunity to reflect back on the findings themselves and to have a renewed discussion about if that finding still correct. Are there now other ways in which to address that? That's one issue.

The next one is that there is no triage, to use a surgical term, done generally in regard to follow-up. What I mean by that is a report would get selected for follow-up. It would happen on that timing interval, but there wouldn't be a discussion about which of these findings, which of these recommendations would be the most critical. Where would we advise that the ministry should go first? Where would we expect to see the greatest process?

Again, I think that's an opportunity for you, with our assistance. We do spend resources on this and, as I said, we're eagerly looking for how we can improve our operations, to use the resources in the best ways. A consideration, when it comes to the follow-up process — and we're believers that it needs to continue — is: what's the best matching of available resources to the high priorities? I think that's something to look at.

Then, the other thing we see, because it's not another audit, is that sometimes I think too much comfort is given in the follow-up report. I think it's fair in some cases to rely on that. I think in other cases you need to really ask yourselves: "Is this so important that it needs another audit just to make sure that everything we see is as represented?" That's another question.

Having had that conversation in our office, then, we came up with five principles. You may have some other principles. The first principle talks about who is accountable anyway in regards to follow-up. Our thinking is that it's really the ministry or the audit organization that have to seize the day. They have to prepare the action plan and be accountable for achieving those particular actions. That's the one thing we want to make sure we're emphasizing in our process.

We also, as a principle, want to make sure that these organizations present reliable assessments of progress and that they are focused on the findings — not just the checking of recommendations, but what the finding was, and have you done all the things necessary? There may be things that weren't recommended that should be done as well — again, the importance of talking to the finding.

We want to play a supportive role. We realize you're not in a position to verify the veracity of these. So we do need to continue a role in this in regards to advising ministries how to prepare this, and to set standards, to set formats and make sure that you get quality information — not necessarily a new audit, but quality information.

The other principle is that we should focus on new audits and what matters most to you. We have a repetitive introduction of new audits. I mentioned four more coming next week and some recently released. In January,

who knows? There are always a growing number of audits that we would want the committee's advice and review on.

We want to make sure that's where we focus our efforts, and it's also where there's a particularly sensitive issue. That ties into our principle 5. We need advice from you as members of the Public Accounts Committee. What are your highest priorities in dealing with this particular issue? Of course, we're here to provide some advice for you to respond to assessing those particular priorities.

The new process doesn't look that different than the old process. Here again, it starts when the report is discussed at your committee. You determine at that time what the most important findings are. What are the most important recommendations? What do you want to see done most quickly?

That information, of course, goes to us and is our focus in regards to working with the ministry. The ministry will still prepare the process, but we want them to be more accountable. We want them to be focused, as I just said. When they've done that, they will provide that response. It gets tabled here, similar to what happens now.

Then you still have your decisions to make in regards to: do you want yet another follow-up? Do you want some specific changes in terms of what they've approached? Or you might recommend: "We're not comfortable. We need a follow-up audit."

At the same time, we will do the same reasonable check ourselves in terms of: are we comfortable with the interpretation of the findings and the recommendations? We will ourselves determine…. Perhaps, even though you may not have asked that we do a follow-up audit, we may decide that it's so important, and that we don't see enough progress, that we would do such an audit and bring that back to you.

We both have responsibility in deciding on how this is responded. That's the new process. It's not too different, but it ties into those principles of who is accountable, where the greatest value-added is, how you triage to the major issues, and so forth.

It may change a little more. We're open to suggestions. We want to have a pretty good format for ministries to respond so that you can see: "Well, what was it all about? What's the report? When was it last looked at? Was there an action plan? What was our finding?" Here we haven't replicated…. There could be many findings from a report. This just illustrates one such finding.

Action taken is: what has happened with the auditee? What have they done? Here we've assumed they've instituted this utilization management unit. Don't ask me, necessarily, what that is. This is hypothetical.

We want to know, more importantly, what the result of that action was. Did it address the finding that was originally proposed? And then, what are next steps? Is there more to be done?

This is from the ministry. When you read the paper, you'll see that one of our ways to enforce their accountability is that we want the deputy minister and the assistant deputy minister signing. In the past they didn't necessarily always come and speak to follow-up reports. That's always an option, depending on their importance, but we want them to sign off and say: "I take responsibility for this." This could be many pages, dependent on the number of recommendations that we have to deal with.

One question you have to give us guidance on is: how do we transition? We're just talking about this today. We need to know whether this is acceptable to you, or if another modification on this meets your needs best. Whatever is decided, we need to also determine all the reports that have come before and where people have been told how to do the old process.

What we've suggested is that we would apply the new approach to all reports that are issued in December and beyond. That would mean we'd come ready, when you discuss them, to give you our advice on what the key issues are, on what we think is the right timing. You would have an opportunity to think on this conversation, decide yourselves what you think and minute that in your discussions.

Other than that, we'll allow the existing reports to continue to come along on such a thing as a follow-up day. But we reserve the right, on your behalf, to pull things out of there and do additional work. It means we'll have to inform the ministries that there's sort of a duality for a time here. Hopefully, that's not going to be too big an issue for you, and we can tell you how that works out.

We need to revise the guide that currently exists in the website for legislators, for ministries and for our offices in how that is going to happen. We will update our own performance audit manual in terms of what our role is and what our expectations are.

What are the benefits? I always like to come back to what you are getting for this change in approach. We think that with the change, we can provide you as legislators with more new, up-to-date audits and can redirect some of our resources to focus on those as opposed to lower-priority follow-up work. We will still follow up things from the past, as appropriate, but the emphasis will be on the new stuff.

We think the accountability link has shifted. Ministries, rather than pro forma coming in here and telling their story, will be accountable and will present and have to speak to that information. That already happens to some degree, but this is sort of re-emphasizing that. We think that reporting will be more relevant. Also, as you heard me say, we will do more work if we have any concerns based either on things that you suggest we follow up on or things that we ourselves think are not properly addressed.

That's an overview of trying to modify the current process. Again, to be crystal-clear, as my old economics professor used to say: "You must follow up. It's the matter of what's the most effective process." So that's the proposal before you. We'd dearly love to hear your comments and suggestions.

R. Fleming (Chair): Thank you very much, Arn. I've got some speakers wanting to comment on your presentation.

G. Gentner: I was just wondering: we're seeing here what the benefits are, but what are the detriments? Are we going to be politicizing the process even more by having to come back to this committee to decide whether or not there should be further involvement? Before, they seemed to be more of an independent arm of the acting Auditor General. Would you like to comment?

A. van Iersel: That is a very good question. Just to clarify: our office is independent, and we will make whatever decisions we feel are necessary. That hasn't come out clearly enough. Let me say that.

We do think, though, that we would benefit from your particular perspective as input, in regards to what you see as priorities. It's been my experience in the past — given that you've looked at recommendations and that you have, generally speaking, as I can recall, endorsed the recommendations of our office and have been able to add your own recommendations in a number of cases — that it isn't absolutely necessary that it become a political issue.

That's not mine. I'm just being very…. When you get to know me, I'm very candid. It's really up to the Chair, the Deputy Chair and you as members to look at this from a point of view of what's in the best interest of the taxpayers.

As I said, my experience is not that these things — when it comes to endorsing recommendations, deciding when it would come back — become political. But I think the member is quite right to raise that as a potential issue for the committee to sort through. It's not an abrogation, either, of my office to say: "Well, we're not interested." I want to do this. We want to do this. It's really, I think, a better application of resources to the highest priorities that we see, and based on your advice as well.

As I said, one of the key differences we see now is that we will actively look for things where we want to re-audit, as opposed to perpetually having follow-ups. Sometimes — and this is one of the things we noticed from other offices — it is better to re-audit as opposed to endlessly calling people before the committee and having them update and not seeing action.

G. Gentner: Just one quick supplemental, Chair. This new chart still gives PAC the ability to prevent or stop follow-up — correct?

A. van Iersel: No, Member. We will be glad to have another look at the chart to make sure it accurately reflects what we want to say. My eyesight is not good enough to see that, but we will do what work is necessary. We are as interested as you are in follow-up work.

What this is about is having more of a direct relationship between the minister and yourselves in terms of the accountability question, the reporting question. But at the end of the day we will still do what we think is necessary.

We're not expecting that you will tell our office exactly what has to be done on each occasion. That's a recommendation to us. I think it can be a valuable recommendation, and in many cases I suspect we will be consistent with that. But if it ever got to a point where we wanted to do a follow-up and you hadn't thought so, we would still do so. That's our independence coming to the fore.

G. Gentner: Just quickly, I have a problem with the language, I guess. I mean, we're asked to decide to request further office to validate…. So we have the ability to dismiss validation, if I have it correctly.

R. Fleming (Chair): Maybe I could put a little bit of context in this, because the former Deputy Chair and I sort of looked at this with the former Auditor General. It has continued on, and I'm glad we've gotten to the presentation today.

Several years ago PAC committees in B.C. and elsewhere didn't do much in terms of follow-up. Then it evolved that we focused on follow-up reports to the recommendations quite properly. But over time it became a dialogue, I suppose, between the Office of the Auditor General and the ministries, with then very onerous reports coming back to the Public Accounts Committee. In the last parliament we accumulated many, many reports with information that was sometimes two or three years behind because we were locked in this process.

This isn't just about streamlining the follow-up process; it's about putting the PAC committee more directly back into the link with the ministries. So I would actually think that we'll have a little bit less interaction with the Office of the Auditor General and a little bit more with witnesses from the government ministries, where PAC committee members have identified things for improvement based on the Auditor General's original report.

It may mean that the onus shifts to us to be very diligent about that, but it also makes it a more focused process where the follow-up becomes more concise and that we do, eventually, once the recommendations have been substantively accomplished, move on and free up time at this committee for new business. Does that help at all?

I'm going to go to my speakers list. Because he has a flight to catch, I'm going to bump Iain Black up at the indulgence of the committee.

I understand the intent of what you're trying to do. I'm not sure that I agree we'll get the outcome that you just suggested, Chair, with respect to clearing the decks for other work to be done by this committee. I'm concerned, actually, that it may have the opposite effect. However, that's actually not the main…. I wasn't going to go there, but I just want to make that comment in passing.

I understand the intent of what's being proposed here, but I have to share Mr. Gentner's remarks with respect to the caution about putting the independence of your office in any way into question. I think that is a

very sober thought that we should be putting around that. I mean, right now you've got the independence of performing the first audit — where you go, what you look at, the decision and stance that you take as a result of doing that audit. Those remarks are delivered in an unfettered fashion.

I think retaining, as you've implied you would anyway, but not watering down or opening up to other influences the decision that says: "Of the ten reports we've put in" — one, two, five or eight of them, whatever it is — "those ones," as your office has, and it's a judgment, "really concern me, so therefore, I'd like to go back in and look again." I think the importance of keeping that in a context where it is free from…. You used the word "advice" a few times.

My concern is that there's a fine line, and sometimes I think it gets a little fuzzy in the eyes of the public, who have to have the perception of the independence of your office more than any of us do. I think there's a fine line between that advice and direction, and we don't ever want to go into a situation, in my opinion, where we start putting that into jeopardy.

If it comes into this forum where, as it sits right now — well, as it's always been — the government members of the day have a majority vote, suddenly now directing where that follow-up should take is very much a political football. The beauty of your office, and the critical nature of your office, is that it is above that fray in its operations on a day-to-day basis.

I don't want to overstate the point, perhaps, but I think it is one that must factor into our discussions here this afternoon.

I think what we've been doing has actually served us fairly well, and there could be ways to streamline that. You do a performance audit, and you pass an opinion. It's your opinion. The ministry that's involved always writes a reply before we see the report. Their reply, as a courtesy, is always included in the report. If there are a series of recommendations, the ministry has an opportunity to say: "We like these ones. We don't like those ones for these reasons. We're not going to do them."

This committee…. I don't want to see us put in the position where we're arguing back and forth about which of the recommendations have more import than others because, after all, it's you that did the audit and not us.

I would rather see us saying to the ministries as the report goes forward and in their comments…. I would rather see them say: "Here's the time line. We believe, looking at our own ministry budgets and workloads and…. Here's the time line we believe that we can follow to put the recommendations that we are going to follow in place. Here are the ones we won't put in place, and we will report out back to the Auditor General's office on our progress on this time schedule."

That means that you're going to get the follow-up. You decide, because you're going to do it anyway, which ones you think are very material and require some more follow-up. I'm not comfortable with us being the ones that do it, and there are some reasons already stated.

I'm very comfortable with you doing it. By having it within their initial reporting schedule, I know you can accomplish what you're looking for that doesn't pass a whole bunch of responsibility to this committee that should, I believe, remain with you because it is your audit opinion that we are talking about.

First of all, I want to thank you for actually bringing forward this idea. The reason why I want to thank you is because you're obviously looking to try to improve the system, to look at the way we're doing things and to bring forward some ideas. I encourage that. That's good.

However, having said that, I think the ideas that you have brought forward, quite frankly, are still within the office's ability to do now. In terms of how this committee's structured, in terms of how your office is structured, you have the ability to do those sorts of things as it is now without us having to go down this road, for the most part, with the exception of the comments made by committee member Hawes. I'm a little confused on that because of that.

Quite frankly, I'm quite comfortable in the independence of your office and your ability to be able to direct where you'd like your workflow to go and how that should be structured, and then bring any questions that you may have to our committee. I'm very comfortable with that. In other words, what I'm saying is that I think the current structure suits our purposes quite well.

J. Yap: A number of my concerns have already been expressed. While I can totally see why you're trying to come to grips with this mountain of follow-ups that are out there…. I commend you for trying to come to grips with it.

One question I have is: is there anything that's stopping your office from doing a triage of the follow-ups right now to decide that some of these reports may not be as critical as others, and then sort of focus your efforts there? Is there anything that's stopping that triage?

A. van Iersel: No, Member. I mean, we have and can do some triage on these follow-up reports. Let me explain.

Again, I appreciate the support for bringing new ideas to the table. That's always welcome, regardless of the outcome today. Yes, I do search for ways and means of making us relevant and efficient and so forth, which is the genesis for this.

The other genesis — I just wanted to explain so everybody understood — is we're looking for ways in which we can work as effectively as possible with this committee. You're probably quite familiar with the role of audit committees in private sector corporations and so forth. This is a bit of an exploration with you as to how we could perhaps use some of those types of things but not cross the independence line.

As members have said here today — and I accept it 100 percent — I have no more interest in being seen as less independent than you do. But it's: how do we inform you? How do we get your facts, recognizing that at the end of the day, we make the decision? I'm not saying that from a power point of view. I'm saying that in the interest of what role I and my colleagues have to play. I truly understand the independence issue. But I wanted you to understand what we were trying to do here.

Coming more specifically back to the issue of what we can do, we can look at these various reports, and we can decide which ones to follow up. We can decide which are the most important and how to do that, as long as we're not impinging you in your comfort in terms of recognizing that you may or may not want to have a say. What I mean by "a say" is expressing a thought as opposed to directing or otherwise controlling my office.

E. Price: If I could just add a comment. I think there has been a practice in this committee for a number of years of looking for every audit once it comes to this committee to then be followed up. One of the key principles that sits behind this proposal is that that would no longer be the case, that we would be a little more selective in the follow-up process. My sense from both today's discussion and other discussions is that most members would agree with that concept.

The issue I think we're talking about now is, effectively, who makes the decision. Again, something that sat behind this proposal is that when any audit is discussed by this committee, the Auditor General would come to the table with some suggestions or recommendations or an indication, if you like, as to what areas we intend to follow up with. But we did want to provide an opportunity for the committee to, if you like, add to that.

J. Yap: But, Errol, we would continue to have that opportunity — right? We always have it.

J. Yap: If we stay with the status quo and your office comes up with ideas to streamline your follow-up process and do the triage, as we've discussed…. If any member of this committee had a particular interest in one report and the follow-up on the report, that could happen anyway — right?

A. van Iersel: Trying to make sure I understand the message — and it's helpful — is that we would then decide, as we have the ability to do, what reports to follow up, particularly if we want to focus on one finding or another in terms of where most of our resources should go.

We would consider that at the time that the report is tabled here or before it gets tabled here, and then we could make known our decision in that. Then you would have an opportunity to ask us about it and give input, and we would be back to whether we wanted to change our thinking or not. Is that where we're at?

R. Fleming (Chair): I would just add, though, that in those cases that you spoke of earlier where there are recommendations that originate from this committee, obviously there's a particular interest in those being reported back here directly from the ministry. I suppose the Chair and the Deputy Chair — and any committee member, for that matter — can always raise when they would like to have a follow-up done.

I think what we were trying to do here was just to better align our responsibility because oversight and accountability is the job of legislators here, and this is the committee where it's done — to try and make that clearer.

However, I'm glad you've taken the comments to date. I don't think in the end we're talking about vastly different things here. We're just talking about, I guess, where the flags get set up in this process.

I have a couple of other speakers, and then maybe we'll just conclude on this item.

J. McIntyre (Deputy Chair): I think we are obviously moving to some consensus on this, which I appreciate. I just wanted to add my voice to this because I really appreciate the thinking that has gone into this and the goals to strengthen accountability and also to not get us in a process of these endless reviews which the Chair referred to that we have gone through in the past.

We do want to be more efficient. I think the idea of really going back to the Auditor General's office to — we're using this term "triage" — sort of tell us and guide us about what's important…. I think your idea of focusing on the key audit findings rather than getting buried in recommendations and things like that represents significant progress on this front.

But I feel very strongly, especially since the authority lies in your office anyway, that that's where this should remain, and that it doesn't come to PAC for us to be sorting out what others have said — sort of debating back and forth political footballs. I think we're pretty well going in the same direction now, if the Auditor General agrees that we've given you some good direction. Thank you for your thoughts on it.

R. Fleming (Chair): I think we are, then, finished on this item, unless there are any concluding remarks you wanted to make, acting Auditor General.

A. van Iersel: Just one for clarity in terms of wrapping this up, so we're all leaving with the same understanding. We won't proceed this way. We will take this away. We

will modify it based on what I think we clearly heard, which is that we have authority. We have the independence. We will make suggestions in regards to what should happen, but at the end of the day, it's our decision. You provide comments or input.

The question I want to ask at this point is: do you wish to see this again, or will you just leave this with me?

R. Fleming (Chair): Well, I think some of the items that were raised by you and by committee members today, particularly around the format of the reports and how that information is brought back to this committee for follow-up, is really…. There's really not a substantive difference of what was proposed and what had occurred. I don't think you need a direction from the committee per se. As you say, you act independently in that regard.

If there are some slight differences that come to this committee in the way that a follow-up report is formatted, I'm not sure that we're going to consume more time here getting into that kind of management.

R. Hawes: Could I just ask one question? I'm assuming that you can, on a follow-up report that didn't contain anything of significance, rather than taking time or writing a report…. I'm assuming that follow-up report could be put into the public record in this committee without actually going through all of the discussion and simply filed as a part of a public record. Could we not be doing that?

A. van Iersel: I think that's physically possible. My recommendation is to be mindful of your time as well. We would only use your time for things that needed its attention.

R. Fleming (Chair): Of course, most of those reports will require a motion to move them to the House for adoption whenever a report is issued by the Auditor General. We will perhaps have a day or a time when we will try and expedite moving through a number of those reports. There are quite a few of them now.

R. Hawes: Maybe outside of this committee, if the Auditor wanted to, he could follow up with individual members and just get their thoughts and ideas and then make some….

R. Fleming (Chair): We're going to move on now and talk about future meetings of the committee. There have been a number of dates discussed between the Deputy Chair and me. While this might not be the preferable way to do this, I think we're going to throw out two dates for committee members to consider now for the weeks in late January. That is January 24 or 26, and February 2.

As you will recall, the House was called back, and we had two meetings scheduled a couple of weeks ago. Both of them were cancelled, regrettably, so the agenda items there would simply be put forward to January. The committee would have an opportunity to meet on at least a couple of occasions, perhaps three if we can do that, before the House sits again on February 8.

J. McIntyre (Deputy Chair): Just to add to that. I had asked my committee, just for the edification here for other members, for the 24th and February 2. I'd asked you to hold both those dates. The Chair has just asked that we maybe change the 24th to the 26th, but it may not work for some of my members. So if you're comfortable, we'll leave it at the 24th or the 26th. I didn't want to commit to the 26th without being able to canvass my members.

R. Fleming (Chair): I've had feedback from some members, including one who's left the room now, that the 24th doesn't work. So we'll have to perhaps do this by e-mail, although I see some hands.

J. Rustad: Actually, I was just going to suggest that probably the most effective way to deal with this is via e-mail in terms of how we proceed. It's tough to sit here and say I'm available on this date. I don't have all the calendar information on events and other things that may be going on.

R. Fleming (Chair): Fair enough. I will remind members, though, that I think we do need some flexibility from them and some priority for this committee to meet. There were about six meetings that were at various degrees of being tentatively scheduled which were cancelled this fall. I appreciate that many members on this committee sit on other standing committees or are involved with search committees and those kinds of things. They did get some pecking order, I suppose, this fall. But Public Accounts really does need to meet, and it needs to meet several times before the House resumes.

J. Rustad: If I could just make a comment. It's a shame that we lost the two dates in November, which we had originally planned, because of the extended session of the House sitting. It's a shame that we missed those two dates.

R. Fleming (Chair): There were six others, though, in addition to those two.

J. McIntyre (Deputy Chair): That is why I did ask my committee for the 24th and February 2. They were original dates that you'd requested in the fall. At our subcommittee meeting you asked for those Wednesdays.

R. Fleming (Chair): I think it was the 31st, though, not February 2. It's give-and-take. I appreciate that.

D. Thorne: This is something additional. It's not about a meeting, so I guess it's new business.

R. Fleming (Chair): We'll be there in just a moment. Ron on committee meeting dates.

R. Cantelon: Just on dates. I did hold the 24th. I didn't hold the 26th, and I'm booked on the 26th now. So I'd have to go back and make arrangements. I honoured the whole dates I was given.

R. Fleming (Chair): I know that others held the 31st, and that's now been changed to the 2nd.

R. Fleming (Chair): Okay, I think we're done with future meetings of the committee. Diane was waiting to be first on that topic. You're under "Other Business," are you?

H. Bains: Like I said, I wasn't sure whether my question will fit here or….

D. Thorne: Well, Chair, this is actually something that I want the committee to consider doing, I guess, at the next meeting. I've just finished serving on another successful hiring committee for the children's representative, and it's led me to start thinking about our responsibility here at this committee to hire a permanent AG. I think we need to get on with it. It's in the best interests of the committee, I think, to start looking at this again. It's been almost a year since we talked about it.

If we were to move a motion today, we could probably accomplish the task before the end of the spring sitting. I think we really, to be efficient, should be thinking about trying to do that.

I know that we're supposed to do a notice of motion, which obviously I will do if I can't get the committee to agree to waive that. But I do have a motion, and it would be strictly to move that we strike a subcommittee to select a permanent Auditor General and that staff present the committee with a time line that would accomplish the search, selection and recommendation to the House by the end of the spring sitting.

I guess I'm asking what the will of the committee is. Are we going to do this or not, or are we going to just carry on without striking another subcommittee? I guess at the will of the House, I do have a motion.

R. Fleming (Chair): I saw a couple of hands. I don't know if it's to the motion.

M. Polak: Well, I share Diane's concern about leaving this in sort of a limbo. However, given the fact that we had some significant difficulties last go-around with this, I really believe we would have a greater likelihood of success with whatever process we engage in if we were to have a fulsome discussion about how we want to go about this.

I would suggest to you that given that many of us have blocked this into our calendars to end at one o'clock or 1:15 or what have you, it wouldn't enable us to have that discussion. So while I'm comfortable with the concept that we want to move ahead, I don't know — because we haven't had a chance, really, to discuss it — if doing the subcommittee thing is the way or if we've got another way we want to do it. I would be more comfortable if we had an opportunity to explore more in-depth how we want to approach this issue.

R. Fleming (Chair): Okay. Let me just…. The motion. Did it have a time limit attached to it, or was it about that the committee commit to resuming its search?

D. Thorne: I would ask staff to give us a time line that could accomplish the task at hand by the end of the spring sitting so that we could have the recommendation okayed by the end of the spring sitting and we don't have to have a special sitting, which we've just gone through — that we could just get it all done before the end of the spring sitting.

I was going to do this earlier, of course, but this is the first meeting we've had. If we wait till the end of January, I doubt — I guess it's a staff issue — if we can accomplish all of that, knowing the amount of time it took us last year to get where we got.

So that's what I'm concerned about. It's the time line more than anything. I know what you're saying.

J. Rustad: This is a substantive motion that has been brought forward, and at this particular point, given the fact that this meeting has two or three minutes left in it in terms of the scheduled time frame, I do not think it's appropriate to try to debate this at any length.

So I think it would be appropriate for this to be a notice of motion, and it's something that could be brought forward to a future meeting. Then we can set the appropriate time aside to have that discussion.

R. Cantelon: Well, I just echo John's comments. We've had two members leave not knowing it was going to be on the agenda, so I don't think it's appropriate to discuss it. They might well have had input that they

want to put into it. I think a notice of motion is appropriate considering the magnitude of the motion. We should discuss it fully then — and leave some time in….

H. Bains: Well, I just want to say that it's our mandate and our duty to move on in this area, and we should do it a.s.a.p. Delaying it, for whatever reason, will probably be seen as abrogating our duty to hire a permanent Auditor General.

One day we are going to have one. So the bottom of the process and how we go there, I think that's something…. Again, the onus is on all of us to make sure that we find a way in an expedient manner — that we get there. I don't know what the proper procedure is. Maybe staff can guide us through today.

There shouldn't be a huge debate over this issue. It's our mandate to hire the Auditor General. We don't have one. What is there to be debated? I think the issue is how we get there. If that's the issue and then we want to have a discussion on that — fair enough. But I think staff probably can guide us through and get us there in a quicker fashion.

R. Fleming (Chair): I've got a couple of other speakers, and then maybe I'll ask the mover of the motion her thoughts.

R. Hawes: Frankly, I don't think this should be discussed here right now. I have a totally different viewpoint than you are expressing. I think we went out, just a matter of a short few months ago, on a national search, had a lot of applicants, and the outcome was less than perhaps many of us would have desired.

So on a national basis, going out again…. I'm not quite so sure that going out this quickly is going to produce the kind of results that you're looking for, because the kind of candidates we're looking for may not yet be ready to come forward, based on what happened last time.

I would rather have a full discussion about this when there's time to have that discussion. As a courtesy for the two that aren't here, who had to leave without knowing this was going to be discussed…. I think it's a discourtesy to carry on here, so I'm not prepared to carry on with this discussion.

J. McIntyre (Deputy Chair): I think I'd like to echo the remarks. I don't think it's appropriate to discuss this right now, especially as it's a personnel matter, and the acting Auditor General and staff are sitting here. I think that without any notice of this motion, it's inappropriate to be entertaining it.

R. Fleming (Chair): I'm going to ask if the mover would consider making it a notice of motion in a moment, and then…. If you could just hold off for a second.

H. Bains: Can I just ask a question, maybe while the acting Auditor General is here, or anyone in this room? How much, actually, did it cost us last time around? Are there any numbers available?

J. Rustad: We don't actually have anything on the agenda here for discussion. Why are we having a discussion? It's just a point of order, because, quite frankly, I've got a flight to catch.

J. Rustad: But we're going into discussions now and questions that, quite frankly, are…. It's not in order, in my opinion, and I'd just like to get a point of clarification on that because it's not on the agenda.

H. Bains: Can I leave this with the Auditor General to come back with that — whether we…?

I will go back to Diane and ask: would you have this as a notice of motion for our next meeting of Public Accounts?

D. Thorne: Absolutely, Chair. It has to be unanimous by the committee for it not to be a notice of motion, in any case, so I will make it as a notice of motion for the next meeting.

R. Fleming (Chair): Thank you very much. Any other business? I have one small item. I just want to direct your attention to the report that came out of the annual conference of the Canadian Council of Public Accounts Committees that John Yap and I attended. There are some areas of interest there.

The one thing that I want to direct people's attention to in particular is that we will be hosting this conference next year, and we have confirmed dates in August now. Let me just announce them into the record, as to what they are: August 19th to 21st. I hope to have a good organizing committee that will involve as many Public Accounts Committee members as want to be involved in that.

I expect that we will have an incredible turnout of delegates from across the country to Victoria for that important meeting. We have a draft program drawn up already, so we'll circulate that to the members.

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REPORT OF PROCEEDINGS (Hansard)

SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE ON
PUBLIC ACCOUNTS