Public Accounts — Issue No. 9 — Friday, February 2, 2007 (HTML)

2006 Legislative Session: Second Session, 38th Parliament
SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS
MINUTES AND HANSARD

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE ON
PUBLIC ACCOUNTS



CONTENTS

		Page

The 2010 Olympic and Paralympic Winter Games: a Review of Estimates Related to the Province's Commitments		199
A. van Iersel B. Blackhall J. Garrad D. Doyle D. Foster D. Morhart
Managing Pharmacare: Slow Progress Toward Cost-Effective Drug Use and a Sustainable Program		215
A. van Iersel K. Crawley B. Nakagawa M. Sydor

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:

Brent Blackhall (Office of the Auditor General)
Kathy Crawley (Office of the Auditor General)
Dan Doyle (VANOC)
Doug Foster (Ministry of Finance)
Jeff Garrad (B.C. Olympic and Paralympic Winter Games Secretariat)
Bill Mercer (Ministry of Health)
David Morhart (Deputy Solicitor General, Ministry of Public Safety and Solicitor General)
Bob Nakagawa (Ministry of Health)
Morris Sydor (Office of the Auditor General)
Arn van Iersel (Acting Auditor General)
Cheryl Wenezenki-Yolland (Comptroller General)

R. Fleming (Chair): Good morning, everyone. I'll call the Select Standing Committee on Public Accounts to order this morning and welcome all committee members back for our first meeting of 2007. It's good to see everyone here.

We have a full agenda, with two reports under consideration this morning and a tight time line, so I would suggest that once we approve the agenda, we move straight into the first report, which is on the 2010 Olympic and Paralympic Games. You have suggested time lines for each item on your agenda, and if that's agreeable to committee members, I will accept a motion to adopt the agenda.

R. Fleming (Chair): Without any delay, then, I will introduce Arn van Iersel, the acting Auditor General, to present the first item. With him is Brent Blackhall from the Office of the Auditor General as well. Good morning, Arn. Nice to see you.

The 2010 Olympic and Paralympic
Winter Games: a Review of Estimates
Related to the Province's Commitments

A. van Iersel: Good morning, Chair, Deputy Chair and Members. First of all, from me, happy new year, as I have not seen many of you since the December meeting.

As you've already heard, with me today is Brent Blackhall, who is the project leader for this audit from our office. Unfortunately, Russ Jones, the assistant Auditor General who had overall responsibility for overseeing the audit, is not with us today. We have Brent and myself to present and then to answer your questions.

Our purpose today is to summarize our most recent review of the expected costs of the 2010 Olympic Games, with particular focus, of course, on the costs for the province of British Columbia. Please note that this was not a formal audit but rather a review of what was then the latest information, that being August 31, 2006, which is now five months old. In this regard, my office and I suspect the committee is looking forward to any new information that can be provided by our government witnesses today with respect to the issues that we raised in our report some months ago.

The 2010 games, as we said then, represent a significant demand on the financial resources of the province, and we believe it's in the public interest to regularly examine and report on those financial implications of this particular undertaking. The demands on the province relate to its direct contributions as well as the potential draw against the provincial guarantee and the indemnities that have been provided to the cities of Whistler and Vancouver. Our aim is to help British Columbians understand the nature and scope of this commitment and exactly what the province has taken on.

We also wanted, in response to public interest, to provide an estimate of the total government commitment from all three levels of government. It's for this reason that we show not only the estimates for the province but also that for the federal government and municipalities, an example of that being the city of Richmond.

This is our second report. Our first report was issued in January 2003, now some four years ago. We do anticipate doing further work, and as you've heard me say before, we expect our next report will be in the fall of this year.

Overall, based on our information as at August 31, the 2010 games are expected to cost $2.5 billion from all the various sources. We expect, though, that there will also be significant benefits. We hope that in addition to continuing to update the costs, the province will soon be able to provide an update of the benefit estimates, which was not available to us as of August. In our report we suggest that the province should update its benefits such that we can have an overall and a complete picture of the Olympics initiative going forward.

I should note again that I provided the best information at the time of our report. We fully expect the figures and the costs, including benefits, will continue to change, and therefore, we stress the importance of ongoing vigilance and due diligence with respect to completing the Olympic program.

One of the next major pieces we need to review, in our opinion, is the updated version 2 business plan from VANOC. We expect to review this plan shortly, as we understand that it's very close to being updated. We also hope that it will be publicly released in the near future. The major variable, as you all know, will be the broadcast rights revenue, shared by VANOC and the IOC. VANOC, we understand, is hoping to complete the negotiations of this important piece with the IOC in the next few months.

In our report we are very concerned with a number of continuing pressures, both on the operating and the capital budget for the games. We will explain these in further detail as we address the findings of our August report.

As an office, we do recognize, again, that there are lasting benefits from the games. These relate, for example, to the ongoing capital facilities that will be available. At the same time, these facilities need to be funded and maintained on an ongoing basis.

I would very much like to thank VANOC, the Olympic secretariat, the Ministry of Finance — all for their cooperation in the performance of this review.

Chair, Deputy Chair and Members, that's my introduction, and at this point I would like to ask my colleague Brent Blackhall to take us through the slides, which should be about 15 minutes.

My recommendation to you would be that we go through our presentation and that you then ask the

government to do its presentation, and you ask, and we answer your questions at that point — the reason being, I think, that a lot of the issues in your mind, I suspect, will be at least somewhat addressed by the government presentation that will follow us. Thank you for this morning.

B. Blackhall: The purpose of our review was to update our 2003 report on the bid estimates, highlight the province's management efforts to date and report on the complete games costs and benefits. Since our last report Vancouver, of course, was announced by the IOC as the successful candidate for the 2010 games. In 2005 VANOC had released a new budget, so we thought it was a good time to do another report in this area.

Our 2003 report on the bid estimates noted some key risks that needed attention going forward if Vancouver won the bid for the games. Those risks included escalation on construction costs, inflation risk in medical and security estimates, and the risk of not achieving budgeted revenues due to fluctuating foreign exchange rates.

We also pointed out in our 2003 report that obtaining the forecasted economic benefits would require an extensive tourism marketing program. So we wanted to update the public on those efforts. Also, we noted in that report that achieving the budget targets would require very strong management and oversight.

Our 2003 report provided an estimate of the provincial taxpayer costs of the games but did not include an estimate of the municipal or federal spending on the games. So with our current report we wanted to provide a more complete picture of the costs.

Here are the total costs and revenues and the net costs. From the slide you can see the net costs after deducting games revenues. That's for ticket sales, broadcast rights and sponsorships, etc. It is $2½ billion, with $1½ billion being spent by the provincial government, $400 million by the municipalities and $600 million by the federal government.

You'll notice at the bottom of the slide that we say it does not include any benefits. It's not that we didn't want to include them or that we were trying to be mean or anything. They hadn't been updated since 2002, so we couldn't put them in there. The 2002 study that was done has some assumptions in there that are no longer plausible, so we hope to revisit that later, in our next report.

Moving on to our findings and recommendations. We found there were key venue agreements not yet finalized, and we recommended that negotiations be completed as soon as possible.

As noted on this slide, the agreements on the Whistler athletes village and GM Place were not yet finalized at the time of our report. However, VANOC has since received good news from the IOC, in that ice hockey will be allowed to be played on North American–sized ice sheets. This eliminates the need to make capital changes at GM Place. Even with the elimination of the requirement to make those changes to the size of the ice sheets, we understand that there's still no final agreement yet on GM Place.

Regarding the Whistler athletes village, if the negotiations aren't completed in a timely manner, it adds a cost pressure due to the shortened time frame for a completion of construction. It also raises a possibility that VANOC may have to resort to a temporary housing solution for athletes at the village. We understand that this agreement has still not been finalized.

Regarding medical and security cost estimates, we noted that they had not been updated since they were developed in 2002. We recommended that the province should update its estimates for these costs.

In our 2003 report we noted that the process used to develop the estimates was reasonable. We were concerned back then about inflation not being built into the estimates, and we still have the same concern. We didn't get a chance to see any new estimates, so we don't have any comments on whether or not the assumptions are still plausible.

The security estimates are the responsibility of the RCMP. Until the province receives new estimates from the RCMP, the costs are uncertain. At the time of our report we also noted that the sharing agreement between the province and the federal government on security costs was still being finalized.

We found that the province had not yet defined what an Olympic cost was, and we recommended that a comprehensive definition be developed and that there be regular reporting to the public on those costs. The province only considers those items in its $600 million envelope to be Olympic costs.

For our work in the cost area we've been fortunate to have an audit report on the Sydney 2000 games as a guide. The Auditor General of New South Wales issued a report after the Sydney games titled Cost of the Olympic and Paralympic Games. We brought copies of that report. If any of the members would like a copy, we can hand them out after.

For the Sydney games the government of New South Wales had a cabinet decision that defined an Olympic cost. Our definition of Olympic cost is based in part on that definition and its expanded definition, which the Auditor General of New South Wales used. We also had established a definition in our 2003 report. So we had that going forward as well.

This slide shows a comparison of the items that were considered to be an Olympic cost by the government of New South Wales and those considered to be an Olympic cost by the province. These are comparing the Summer and Olympic Games, but there are still comparisons you can make here. You'll see that the New South Wales definition was much more comprehensive, due in part to their interpretation of the guarantee made to the IOC to cover the financial outcome of the games.

One of the main differences is the revenues and expenses of the organizing committee. That's the top line, "OCOG," the Organizing Committee of the Olympic Games. For Sydney it was SOCOG; for Vancouver it's

VANOC. Those were included in the New South Wales government definition but haven't been included in the province's envelope. At this point it's assumed to be a break-even budget, so there wouldn't be a net impact anyway.

Also, you can see down on the third-to-last line: "Hedging gains and losses." The New South Wales government stepped in and guaranteed the foreign exchange rate on the foreign revenues for the organizing committee so that they could lock in the revenues and plan for their expenses. We haven't done that here with our 2010 games. We'll talk more about that in a later slide, actually.

Some key things that we felt should be included in the definition of Olympic cost are the Callaghan Valley road, the operating cost of the Olympic secretariat, the Sea to Sky Highway upgrade and Crown corporation sponsorships. The Callaghan Valley road is the road into the Whistler Nordic centre, and without it there wouldn't be access to that Olympic venue.

The Sea to Sky has been included by us since it was included in the bid books as a commitment by the province to the IOC and was key to Vancouver getting the games. Unlike the RAV line, convention centre and airport expansion, all those things weren't in the bid book as commitments, but the Sea to Sky was required to be in there.

We're trying to put all the costs in one place so you can see the total cost of putting on the event. It's not like we're saying…. We acknowledge that the Sea to Sky cost might be budgeted in a different place, but in order to show the cost if you had to put the games on, we think everything should be shown together in one place.

As noted, we also consider sponsorships by Crown corporations to VANOC to be an Olympic cost to the province. B. C. Lottery Corp. is an example, and there will likely be others to follow. As noted in our report, VANOC had budgeted a significant amount of sponsorships to come from the provincial and federal Crowns.

We noted that the foreign exchange rate risk needs more attention and recommended that the province work with VANOC to implement a comprehensive hedging strategy. This was a significant revenue risk that we noted in our 2003 report. It deals with a significant amount of U.S. revenues that come from broadcast rights and international sponsorships. VANOC won't receive the bulk of these revenues until 2009-2010, yet they must plan well ahead of that for its expenses. So it's hard to plan for everything if you've got a significant variability in your revenue numbers.

At the time of the bid estimates the exchange rate was $1.55 Canadian for $1 U.S. At the date of our report it had dropped to $1.13. At the time the games were awarded to Vancouver, the province could have locked in at a rate of $1.45 for a seven-year-forward contract. At that time the NBC contract had already been negotiated by the IOC, and the IOC sharing formula in place meant that approximately $400 million U.S. was going to the organizer of the 2010 games. VANOC wasn't formed, of course, until September 2003, so really, this risk only could have mitigated by the province at that time.

For the Sydney games the government of New South Wales acknowledged this risk and entered into a forward exchange contract to lock in the revenues for the organizers. So they've basically guaranteed to the organizer: "Don't worry about it. This is the exchange rate you're going to get, so you can plan now. You can lock in, knowing this is the revenue that you're going to get." This added certainty to the games budget. They took on this risk, since they had guaranteed the financial outcome of the games to the IOC.

What we're saying is that this risk could have been better managed. Since those revenues were not locked in, there's significant variable risk in VANOC's revenue estimates. Since we started our review, VANOC has entered into a hedging program, but not for all the revenues. It's a good start, but there's still a significant amount of revenues that remain unhedged. We're saying: "Don't speculate with it. Just lock it in so that you know what you're working with."

This slide — a downhill skier here — shows the trend in the exchange rate since the bid estimates to the date of our report. We should point out, however, that the current rate has improved somewhat and is now about $1.18.

We noted that stronger oversight is needed going forward and recommended that the province conduct a due-diligence review of VANOC's future business plans and encourage VANOC to report publicly on those plans. Effective oversight is important due to the risks the province has taken on regarding the games. It has guaranteed to the IOC to cover the financial outcome of VANOC and has indemnified Vancouver and Whistler from any liability resulting from them having entered into the bid city and host city agreements.

Whistler and Vancouver, however, must first seek instruction from the province in order to be covered under this indemnity. For those reasons, it's important that the province perform a due-diligence review on VANOC's budget so it is aware of the potential risk it may have to cover.

We noted that a coordinated marketing effort is required and recommended that the province coordinate its efforts in this area. Our concern mainly is around the economic benefit model, which has not been updated since 2002. That model assumed that there would be an effective international tourism marketing plan in place as early as 2003 and that the plan would use the games as a catalyst. However, the province has not been able to stick to that plan, since the IOC restricts international marketing of the games until the previous games are over. This means that the province isn't allowed to start any significant international games-related marketing until after December 31, 2008.

We understand that the province is going to update its economic benefit estimates soon, and we hope to be able to comment on that in our next report. So this will be a new model, different assumptions.

Russ put Tourism B.C.'s logo on there. I think that's just to highlight that we already have expertise in place within the government, from a marketing perspective, within Tourism British Columbia — media hosting, accommodation, reservations, etc.

We noted that post-games legacy plans need to be considered and recommended that the province discuss with VANOC its designs on the legacy venues so they incorporate features included in post-games business plans for those venues.

Some venues won't be self-supporting after the games. The province and the federal government have contributed $55 million each to the 2010 Games Operating Trust to help cover these future costs. The venues covered by that operating trust are the Whistler sliding centre, the Whistler Nordic centre and the Whistler athletes centre. The plan is for these venues to be owned and operated after the games by the Whistler Legacies Society. At the date of our report this society had yet to be formed.

Under the shared legacy agreement of 2002 between the province, the bid corp. and the Squamish and Lil'wat First Nations, the province committed that individual members of the society will not be responsible for any liability from these facilities.

In order that there be maximum possible revenue generation in the post-games period on these legacy assets, design changes need to consider business plan requirements proposed for the venues so future liability to the province is reduced, so that liability might make…. Again, we're saying that if the trust runs out of money, someone has to step in and cover the ongoing costs of those venues.

Going forward, we plan to continue to monitor the province's commitments and VANOC's progress. We'll review VANOC's version 2 business plan as part of our next report, and we'll also update the costs and benefits at that time.

We anticipate releasing our next report in the fall of this year. We'll continue to review the province's games commitments until the games are over, and we'll issue a final report on the total costs and benefits after the games — maybe in 2011, hopefully.

The contacts on this project are on the slide. If you have any further questions, you can reach any of us at the e-mail addresses noted there or by calling our office.

A. van Iersel: Thank you, Brent, on behalf of the office, for doing that in the absence of Mr. Russ Jones, who I said was not able to be here. This is Brent's first time coming to the committee, so I know that he was looking forward to doing so.

Again, my recommendation to you Chair, Deputy Chair and Members, is that we now hear from the government, and then we can have questions after that if that meets your needs.

R. Fleming (Chair): Okay, that's great, and then committee members will have the opportunity to raise questions from either presentation.

At the table we have with us, leading off today, Jeff Garrad from the Olympic Games secretariat. Dan Doyle is with him, as well, from VANOC, and from the Ministry of Finance Doug Foster is here. We'll let you get underway with the presentation, and then we'll have an opportunity for committee members to ask questions of you.

J. Garrad: I am Jeff Garrad, chief financial officer of the B.C. Olympic and Paralympic Winter Games Secretariat. Annette Antoniak, president and CEO of the secretariat, was unable to come today. She had to attend to a medical issue. I want to thank you all for providing us with the opportunity to update this committee on the 2010 games and the activities of the secretariat.

In order to ensure that as much information as possible is available to the committee, we've asked representatives from other parts of government and agencies that are working on this important project to join us today. On my immediate right I've got Doug Foster from the Ministry of Finance, deputy minister's office, and as mentioned before, Dan Doyle, executive vice-president of construction at VANOC.

It's important to note that the 2010 games are a partnership. The B.C. secretariat works closely with many external organizations, including the government of Canada; VANOC, which is a federally chartered organization not owned or controlled by the province; the city of Vancouver; the resort municipality of Whistler; the Canadian Olympic Committee; the Canadian Paralympic Committee; the city of Richmond; and the private sector. The key responsibilities and obligations for most partners are outlined in the multiparty agreements.

The B.C. Olympic and Paralympic Winter Games Secretariat is the province's primary agency responsible for managing the province's commitment to the 2010 games. The secretariat is responsible for oversight of VANOC activities, leveraging with its partners the potential economic benefits of the games, and maintenance of games, partner, stakeholder and community relationships. Our group also works closely with many parts of government.

The successful hosting of the 2010 games will require all the partners and more to work closely together on a wide variety of issues over the next three years.

The province's commitment, since approving the bid, is $600 million for the staging of the 2010 games. It has always included a significant contingency to protect taxpayers from unforeseen costs. Originally set at $139 million, the contingency now stands at $76.5 million after allocations of $8 million for first nations legacies and up to $55 million for the provincial share of increased construction costs, due mainly to inflation and cost escalation associated with the overheated lower mainland economy.

The federal government has committed to contributions equal to the province's for venue construction, Olympic Live Sites, legacy endowment, security and the Paralympics.

With respect to the overall construction budget controlled by VANOC, currently there is a contingency of $66.8 million contained within the overall budget of $580 million.

Given the significant financial commitment from the province, a comprehensive environment of oversight over this project has been established. Treasury Board maintains control over games expenditures. Vancouver and Whistler are required to receive prior provincial approval before incurring cost to be covered by the province. We recently signed a performance and accountability agreement with VANOC. The province has representation on the VANOC board of directors. We've also established, as I've mentioned, the Olympic secretariat to oversee the province's financial commitments and to leverage the benefits from hosting the games.

In fulfilling its obligations, the Olympic secretariat has been working hard to ensure that the province's interests are protected while ensuring the work required to stage the games continues to go forward. We retain qualified resources to review VANOC capital construction budgeting and management systems and to make recommendations to us. We have representation on the VANOC board of directors, finance and audit committees.

We work with our partners to help ensure that venues provide positive and sustainable legacies for athletes and communities. We work with VANOC to make sure that it considers scope changes to help contain costs, and we publish annual progress reports, key reports and agreements on our website. We have recently implemented an enterprise-wide risk management system within the secretariat.

VANOC itself has hired competent people to staff operational and construction areas and is developing risk management plans in consultation with the province's risk management branch.

Following the due-diligence review by Partnerships British Columbia, the province signed the performance and accountability agreement I referred to moments ago with VANOC to address key findings and recommendations from that report.

The key VANOC obligations under this agreement include to establish a capital advisory committee; to provide updated reports on the total capital cost of the games, including completed project definition reports and risk management plans, and also a report to show the games venue completion within the $580 million budget; to implement additional recommendations from the Partnerships B.C. report; to continue to seek changes or alternate delivery options to reduce venue costs while maintaining IOC requirements and retaining post-games legacy potential; to maintain a minimum centralized contingency allocation with any savings from venue scope changes to be transferred to that capital contingency; to provide quarterly reports on construction progress, progress to date, capital spending, forecast costs and individual venue completion schedule, risk and mitigation strategies and contingency allocations — that's quite a mouthful; to work with the province to negotiate outstanding venue agreements and amendments to agreements and to submit for approval any draft venue agreements or amendments to agreements; to make publicly available VANOC's procurement policies and practices; and to initiate a plan to ensure consistency with best practices.

With respect to the Auditor's first recommendation — which was that the province work with VANOC to help get all venue agreements in place as soon as possible and to closely monitor VANOC's progress in managing construction of the venues to ensure they can be delivered on time and on budget and not result in the transfer of costs to the ultimate guarantor of the games, the province — the province agrees that having all venue agreements in place is important and is working closely with VANOC on this.

With respect to the statement that the province is the ultimate guarantor of the games, the province does not agree with this broad statement, as the only guarantee provided by the province is to the International Olympic Committee in respect of VANOC's obligations to the IOC. It is not a blanket guarantee available to others.

In addition, the province has indemnity agreements with the city of Vancouver and the resort municipality of Whistler, but the extent of this coverage is limited and controlled by the province. It should also be noted that the province does not guarantee any of VANOC's borrowings.

With respect to venue agreements, it's important to note that venue agreements for all venues were signed during the Olympic bid. Although some revisions and amendments are required to resolve outstanding issues with them, the secretariat is working with VANOC to finalize these remaining venue issues.

With respect to monitoring, the secretariat's CEO co-chairs the VANOC finance committee, and secretariat representatives attend all VANOC board, finance and audit committee meetings. The secretariat chairs a bi-weekly meeting of Olympic partners. Again, the performance and accountability requires VANOC to provide quarterly reporting to the province, requires provincial approval for all venue agreements and substantive amendments to all venue agreements, and sets out a protocol for venue capital contingency management.

I've provided here for the information of the committee — although it's difficult to read on that screen, but, hopefully, you can read it in your packages more clearly — the latest projections from VANOC with respect to costs and completion dates for Olympic venues. In the above table, please take note of the $66 million construction contingency contained within the overall budget, which is managed by VANOC but is subject to the terms of the performance and accountability agreement and the approval of VANOC's board.

Early completion of venues allows for early commissioning and testing of the facilities, public and community access, and important additional training time for B.C. and Canadian athletes to help create a home team advantage.

Again, for additional information of the committee, here are the key recommendations that came from the Partnerships B.C. report. Establishing a capital works or construction advisory committee. This has been done. Completing project definition reports and project execution plans for venues, including a complete quantitative risk register, October 1, 2006. This has been done. Approving funding for venues only where projection definition reports and execution risk management plans are in place. We're doing that. Developing more stringent and regular reporting processes. We've done that. Monitoring progress on implementation project support services and risk management plans. That has been done. Considering various project delivery options and incorporating that into contract provisions to mitigate the risk of claims at the end of the process. That has also been done.

With respect to the Auditor's second recommendation, which was that the province update its medical cost estimates and also update the security cost estimates as soon as the required information is available from the RCMP, the province agrees with this recommendation. It is important to remember that both are detailed operational plans being developed by organizations experienced at delivering these services following time lines that are appropriate for an event to be held in three years' time.

With respect to medical services, the Ministry of Health has the lead on this and is working with the secretariat, VANOC, B.C. Ambulance Service and Vancouver Coastal Health Authority to develop games medical plans. Preliminary estimates indicate that the games medical services can be provided within the available resources of VANOC and the provincial government.

With respect to security, the Ministry of Public Safety and Solicitor General has the lead for coordinating provincial security and public safety. The RCMP has the lead in preparing detailed games security plan and budget. The cost-sharing agreement between Canada and British Columbia to implement the security plan has been signed. The preliminary RCMP estimates indicate that the games security can be provided within the $175 million federal-provincial budget.

A key oversight feature is the provincial-federal participation on the security committee. The original security budget, plus any requests for additional funding, is subject to provincial Treasury Board approval.

With respect to recommendation 3, which was that the province establish a comprehensive definition of Olympic-related costs and report regularly to the public on the status of those costs, the province has made it clear as to the amount of the incremental direct financial commitment to stage the games through its annual provincial budgets and other publications. This commitment totals $600 million.

There are other suggested games-related costs that the Auditor General attributes to the games but are not directly related to staging the games or funded within the direct games-funding envelope. Attribution of these items as Olympic is subjective.

The province will continue to use the games as an opportunity to meet the objectives of the existing programs. These are not incremental games costs. The secretariat continues to publish an annual progress report, which is available on our website, updating these costs. The other related costs shown in the Auditor's report are budgeted and reported on through various reporting and disclosure processes as required by government.

With respect to recommendation 4, where they recommend that the province work with VANOC to implement a comprehensive hedging strategy for its foreign sourced revenues…. As noted in the earlier presentation, VANOC has implemented a hedging strategy on the advice of its own investment advisers, which occurred during fiscal '05-06, and continues to work on that today.

The Auditor's report notes that VANOC is considered to be independent of the provincial government. Therefore, the decision on whether to hedge is VANOC's, not the province's. As hedging is appropriate for revenues belonging to the entity undertaking the contracts, broadcasted international sponsorship revenues provided by the IOC belong to the IOC and not the province.

The Auditor used the benefit of full hindsight in calculating the suggested $150 million revenue loss. In reality there were conflicting views in 2003 about where the U.S. exchange rates were headed. VANOC's view on the recommendation of its independent advisers was that it would have been imprudent to hedge for unknown amounts at a time of conflicting exchange rate forecasts.

With respect to recommendation 5, which was that the province conduct a thorough due-diligence review of VANOC's financial information in the future and that it require VANOC to prepare its future business plans in accordance with the terms of the multiparty agreement and encourage VANOC to make its budget for the games public documents….

The province agrees that a thorough due diligence is needed in reviewing VANOC's finances so the province can fully understand the assumptions and risks. This is a key reason why the province and Canada each sought independent advice in reviewing VANOC's requests for additional contributions in support of its venue construction. It's also a reason why the province and VANOC have entered into the performance and accountability agreement.

The province agrees that in the interests of transparency, the public would be well-served if VANOC made business plan information public. Just to bring you up to date on some of their actions on this. VANOC is currently negotiating with the IOC as to the amount VANOC will actually receive with respect to broadcast revenues, allowing VANOC to finalize its budget once those negotiations are complete.

Once the business plan is finalized, which we expect to have happen in the next few weeks, we will note that this is the first bottom-up plan and will have more complete and meaningful information of the

province. The province's internal audit and assurance group is currently engaged in reviewing VANOC's business planning documents and will perform a review of VANOC's version 2 business plan.

Partnerships B.C. has been engaged to perform additional review work as well. We expect that the business plan, as noted earlier, will be reviewed by the Auditor General later this year, and VANOC has publicly committed to releasing information on its business plan once complete.

Recommendation 6 was that we recommend the province coordinate its marketing efforts for the games to make better use of the marketing expertise it already has in place. The province agrees that a coordinated marketing effort is required for the province to realize the full benefit of the games. The province has finalized its agreement with VANOC on the use of 2010 Olympic marks.

The province continues to work with its partners to maximize games benefits, including coordination of marketing efforts, as noted in the Auditor General's report. The Auditor has acknowledged that it has not yet received updated information to review or include in his findings regarding the potential new revenues that would help offset games costs through additional economic activity before, during and after the games.

The province agrees that it's worthwhile to update the economic benefits analysis that was prepared in 2002. We are working to update the economic benefits analysis from 2002 and also to include the province's marketing plan in that analysis so the Auditor General can begin to take the overall benefits into account when preparing his reports.

The province has implemented programs to leverage the games, including the 2010 Commerce Centre, which is working to bring Olympic procurement opportunities to B.C. businesses and has hosted over 90 workshops educating B.C. businesses in all regions on how to earn Olympic business. We hosted the very successful B.C.-Canada Place in Torino during the 2006 games, and we're working to leverage the Olympic brand at international business events.

Programs being developed in the coming months include additional 2010 Commerce Centre programs, including the business network to promote partnerships between B.C. businesses and Canadian and international businesses, and continued development of workshops to educate B.C. businesses.

Programs and summits to facilitate first nations economic benefits from the games, including the 2010 aboriginal business summit underway today in Vancouver. We're also hosting the B.C.-Canada Place in Beijing during the 2008 Summer Games.

Development of programs for international media. Pre-games, we will host media coming before 2010, and at games time we will have responsibility for hosting the unaccredited media centre.

With respect to recommendation 7, which was: "We recommend that as the province will ultimately be responsible for the post-games operations of the Whistler Sliding Centre, Whistler Nordic Centre and Whistler Athletes' Centre, it discuss with VANOC the current design plans for those venues to ensure they incorporate the features envisioned by post-games business plans." The province will not be responsible for the post-games operations of these facilities.

The games agreements contemplate that these facilities will be the responsibility of the not-for-profit Whistler Legacies Society. Both the Whistler Sliding Centre and the Whistler Nordic Centre, as noted earlier, are to receive annual financial support from the $110 million Games Operating Trust.

The province, through the secretariat, continues to work very closely with VANOC and the future members of the Whistler Legacies Society on financially sustainable business plans for these facilities so they can become lasting legacies to the communities they serve.

In summary, the Auditor General's report reflects the complexity of undertaking the games, and the province appreciates the work done. The report confirms the province's estimate of costs for those items within the province's direct funding envelope for the games. The report does underscore the challenges that result from the multitude of partners involved in the games and notes the importance of strong oversight on the management of the province's interests in the games. The province has implemented and will be implementing a number of actions to strengthen provincial management and oversight with its partners.

While the province and its partners share a desire and a responsibility to ensure the success of the games, each partner must be accountable for the risks they choose to incur by expanding the scope of projects beyond that necessary for staging the games themselves.

Investments being made in the preparations for the games will yield benefits beyond the relatively short period of the games themselves. While estimates of these benefits haven't been updated since 2002, the province is undertaking to update this work so that it is available to be included in the Auditor General's next report.

R. Fleming (Chair): Thank you very much. Is there anything else to add from anyone else for that presentation, or are we ready to have discussion?

R. Fleming (Chair): Committee members, questions for either of the three representatives from the government response or to the Office of the Auditor General. I see Harry Bains on the list, and I'll take a speakers list now.

H. Bains: Thank you very much for the presentation. I've got a few questions. First of all, before I get much more into it, page 16 in your presentation talks about a business plan and your commitment. VANOC has publicly committed to releasing information on this business plan once it's complete.

Can you explain that? Does that mean you will make the business plan public or just the information about the business plan? That's what I read.

J. Garrad: The business plan is VANOC's plan to release, and we've encouraged them to release it publicly. Perhaps Dan Doyle from VANOC might be better able to answer the question related to the nature of the plan they might want to release publicly.

D. Doyle: Thank you, Jeff. It is our intent to release our plan publicly once we complete it.

H. Bains: So what does that mean? Will that be made public, or you just have an intention at this point and that could change?

H. Bains: I have some questions on the business plan. As you know, in your progress report that was put out in November 2004, it touched on the area of the business plan and the commitment as outlined in the multiparty agreement. I read the paragraph that you have in there. It's on page 9, by the way. It says:

So I gather you went over the multiparty agreement. You understood what the provisions of the multiparty agreement were, and the multiparty agreement was put in place with an understanding of the clear time lines as they would be unfolding before them. For example, the Torino games — when they would be held. We knew exactly when they would be held at that particular time. It further goes on to say that once that first business plan went through this process, the second one would be presented in September of 2006 following the lessons learned from the Torino experience.

My question is this. Knowing fully well those time lines…. That was your expectation as a body of the government overseeing VANOC's activity under this area. The question is: was that business plan presented to the government, as it was expected, six months prior to when it was to be presented to the government? This report came out only six months prior to when the business plan was to be presented to the government. It was April, and this came in, in November — right? — the prior year.

So what changed if the business plan wasn't presented to the government? If it was presented to the government, what happened to it?

J. Garrad: We did receive VANOC's updated business plan in, I believe, summer 2005. Shortly after we received that plan, we received a request from VANOC for additional funds to help with its venue construction program. That request of government, in our view, changed significantly the nature of the plan we received, and we focused on reviewing the request that was before us.

H. Bains: Then my understanding is that once that business plan was presented to the government, government did not approve it — as the minister said in the House — because there were many unanswered questions. Did they leave any instructions when they refused to approve it, to send it back to VANOC, on what areas needed improvement in that business plan?

J. Garrad: The plan that we received from VANOC, again, was its first update since the bid, and it really was a high-level plan developed, given that it was that far away from the games. When we focused on the capital asks before us, by the time we'd developed a response to that, VANOC was well underway in developing its version 2 plan, which we'd expected to receive in late 2006. We expect to receive that in the coming weeks now. Again, this would be the first bottom-up plan from VANOC, and we wanted to put our energy towards evaluating a more substantive plan.

H. Bains: I have information from VANOC, who advised me that their role under that agreement is only to present the business plan to the government. And if it's not approved, it's not up to them to have that approved. Also, they said, when the business plan was presented to the government, when they refused to approve it, at the same time they did not send any instructions with it. So my question to you is: did they or did they not send any instructions on what areas they lack before they could approve it, and did you receive those instructions?

J. Garrad: We didn't not approve the first business plan. We deferred our approval of the business plan to the next version. We did hold discussions with VANOC on the first business plan, but there were no specific directions back to VANOC.

H. Bains: The question comes…. The federal government approved it, the VANOC board approved it,

but the provincial government saw some reasons not to approve it. So if it was good enough for the board, if it was good enough for the federal government — as was required under the multiparty agreement — there has to be a reason why the provincial government didn't approve it. So my question is: what were those reasons? Were you able to fix that, and when did you fix it?

J. Garrad: There was nothing in the plan that caused the province not to approve it, aside from what I mentioned earlier, which was that we received additional information shortly after receiving the plan that in our view changed the plan.

H. Bains: They didn't approve it, but they didn't tell you what the problem with it was. That's what I'm hearing.

H. Bains: The question is…. They didn't approve the plan, but at the same time they didn't feel any…. I'm paraphrasing what you've said — that they didn't see anything wrong with the plan either. They want more information.

J. Garrad: We did receive additional information on the plan following our receipt of the plan. We do expect to receive the updated business plan in the next short while from VANOC and will provide a full due-diligence review at that time.

H. Bains: Mr. Chair, I don't think I'm getting an answer to my question. The question was…. The multiparty agreement was — I'm just going to go back — signed between different parties that are engaged in hosting the games. Clearly, some time lines are set in there. Clearly, it says, and your own document confirms, that the first business plan will be — it didn't say maybe; it says "will be" — ready by April 2005.

Then it lays out all the other time lines. After Torino there will be another version. After the first one is approved by both levels of government, there will be quarterly reports. All that is in there. Also, if there is any variation of $5 million or more, there will be a prior written consent from both levels of government.

That was the obligation that you took — that the business plan will be there in April — knowing full well all those time lines at that particular time. The time came. The federal government saw the business plan and approved it. They are equal partners. Your board saw fit, and they approved it.

The provincial government found, in their wisdom, not to approve it but at the same time did not send any instructions about what was lacking in that business plan before they would approve it. The request that you mentioned, of $55 million, went to both levels of government, not just the provincial government. But they approved it, knowing that information, and they had also done their due diligence before they approved it. But what is it that they tell you was wrong with the business plan so that they couldn't approve it that time?

It says that the business plan will be there at that time, and it will be approved by both levels of government.

J. Garrad: I believe I've answered that question. There was nothing in the business plan that was wrong with it from the provincial perspective.

H. Bains: Okay. That leaves now…. It's up to the provincial government to answer. If there was nothing wrong with the business plan — as you put it today, now — why didn't they approve it? Is there somebody here from the provincial government to answer the question?

J. Garrad: That would be me. I'm with the Ministry of Economic Development, which is the ministry within which the Olympic secretariat resides.

The business plan, as I mentioned earlier, was not approved by the province because it had substantially changed due to the additional request for capital funding from VANOC that was received by government.

H. Bains: When did you receive that approval of that additional $55 million?

J. Garrad: We received the request for additional funding in, I believe, September 2005.

H. Bains: I'm talking about April. You're saying that their request wasn't even there when the business plan initially was to be presented to you. That was April 2005. So you didn't have that information at that time. So why wasn't it approved?

J. Garrad: VANOC's board did not approve the business plan, I believe, until July 2005. The province was not in receipt of the business plan from VANOC until late August, early September. I could find the date for you if you like, but it was not until after summer 2005. So it was a very short period of time thereafter that we received the request for additional venue funding.

H. Bains: So the presenters who wrote the business plan — at the same time they're asking for more money?

H. Bains: That's where I'm coming to. You hadn't had the request from VANOC at the time the business plan was presented to you.

H. Bains: So why did you not approve it at that particular…? You had no information that the request for more money was coming.

J. Garrad: Given the short time frame between the receipt of the business plan and the receipt of the request for additional funding, we did not have sufficient time to do a full review of the plan, so we weren't in a position to approve it. When we received the additional request for funding, the plan changed significantly, and we focused on addressing that request.

R. Fleming (Chair): Member, I have a speakers list now, so maybe what we can…. You can get on the list again.

B. Ralston: My question is about the area of defining games costs. The Auditor General's staff referred to the definition used by the Auditor General of New South Wales in staging the Sydney Games. I'm told that that definition is this: the marginal cost of hosting the Olympic Games — that is, the additional costs incurred by government in hosting the event — over and above the expenditure to which the government was otherwise committed. That's the definition they used for defining an Olympic cost.

Now, in your response to recommendation 3 — and this is to the government — you've suggested there are other games-related costs that are not directly related to staging the games. You describe attribution of these funds as Olympic costs as subjective. The example given by the Auditor General's staff is the Callaghan Valley access road, which I understand is some 13 miles. Without the road being built, you can't get to the Callaghan Valley Nordic centre.

So by what logic do you describe this as not an Olympic cost? In other words, you have to build the road to use the venue. You wouldn't have spent the money to build the venue if it were not for the Olympics, which falls squarely within that definition. Why is that not considered an Olympic cost by the government?

D. Foster: It was very clear in the provincial government's response to the Auditor General's report that when you start to measure costs…. It is a really troublesome concept, because what is a cost? It's very hard to separate out the incremental activities that take place in a province where something the size of the games affects just about every single person, level of government and community in some way.

So is it fair and appropriate to start to say that the costs of, for example, the Sea to Sky Highway…? But for the Olympic Games, would the Sea to Sky Highway have been upgraded? It's one of the highways with the largest accident rates in B.C., and it was clearly indicated by the minister responsible and others that the Sea to Sky was something the government was very much committed to do.

In respect to the member's comment about the Callaghan Valley, I think it's clear — and government has made that clear — that all sorts of things have been happening in the entire Sea to Sky area, whether it be the Sea to Sky or new opportunities around Whistler for tourism and, most importantly, economic development, which also involves very important partners, being First Nations.

So to say "But for the games, would a road have gone into the Callaghan Valley?" would suggest: would there ever be development of that area? I think it would be a tough time for me or others to say: "Well, but for the games, that's a cost." I think that is normal for what the ministry of highways and other departments in government have been doing.

These are the comments that we were trying to get through in the government's response. The government has made a definition of its games costs — a $600 million envelope. In fact, it has itemized which of those things comprise the $600 million envelope, and it has done so since the winning of the bid. In every single publication that we put out — whether it be the secretariat's progress reports or whether it's the annual budget or estimates — we're very careful to ensure that we have the $600 million commitment. We report on that consistently, since that time.

B. Ralston: Well, I understand the government's political commitment to the $600 million and its reluctance to move from that, and perhaps the discomfort that is communicated to you in answering these types of questions. I also understand the notion of intangible benefits that are difficult to measure. But in this case, on the Callaghan Valley — and there are other examples: the Olympic secretariat itself — the government disputes that that's an Olympic cost, which seems ludicrous to many. Or the wood used for the roof of the Olympic oval, which is funded by the province through the forestry innovation fund…. These are direct costs.

Are you saying that in the case of the Callaghan Valley, there were plans to build a road to a nonexistent Nordic centre that necessitated the building of that road? I suggest that's simply not true. I understand that you're in a box on the $600 million. But as a public servant, don't you have an obligation to be candid with the public and admit that's a direct cost?

D. Foster: Just to reiterate my earlier comment, economic development is one of the key cornerstones. In a variety of documents it has been very clear. Callaghan Valley is one of those areas of economic opportunity.

But if we take a moment to look past the Nordic centre after the games. The games are finished now. It's a legacy. It's a future. It's going to continue to provide benefits and economic development opportunities for the area, and the road will be a key part of that.

Too often people get fixated on measuring the short-term — but for the games, for 60 days. But the reality is that you have to think past those 60 days and say: "Is the road going to be there 25 or 30 years later when we look back and say that economic development couldn't have happened but for the games?" That's the point I was trying to make.

I think it's simpler to say: "Define your commitment." As I say, we'll have discussions almost every year about different kinds of things and costs that take place. A good point — and I'm glad the Auditor General's staff were careful to talk about that — is the benefit side. It's too soon to measure the benefit, but I wonder if it might change the member's views when those benefits start to get added up.

Actually, the question then is: is it a cost to whom? If the development benefits are independently derived and they're not a cost to the taxpayer, is it still fair to say that that's a cost to the games?

B. Ralston: Is Mr. Foster saying there was a definite plan to build a road to the Callaghan Valley in the absence of a commitment to build a Nordic centre there for the Olympics? Yes or no?

D. Foster: I think I've answered the original question, and I think it's relevant to the question that was asked.

M. Polak: I'm going to start with a question that has lurked below the surface. It kind of goes like this. The subtle suggestion being made is that somehow the attribution of the original $600 million has been altered since the bid, such that the government originally said it's going to cost $600 million to do X and then changed X in order to make it still fit into the $600 million.

So I guess my first question — not sure to whom it's best directed — is: has the attribution of the $600 million commitment been altered since the change?

J. Garrad: The components of the $600 million committed by government have not changed.

M. Polak: So what the government said was going to cost $600 million is still the same type of things we said were going to cost $600 million. That's still there?

J. Garrad: The items included in the $600 million envelope haven't changed. Some of the components have changed slightly, in that we have approved allocation of contingency as anticipated when the envelope was developed.

M. Polak: Yeah, the dollar amounts, etc. But the items that were attributed to it haven't changed.

I wanted to ask about the contingency fund. One of the temptations in government — not because people aren't trying their best to manage money, but just the nature of the beast — is that when one proposes that there ought to be a contingency fund, the risk that all of us as members of the Legislature are concerned about is….

How is that managed such that you don't have staff working on venues and picturing that $66.8 million left and thinking: "Nudge, nudge, wink, wink. I'm going to make sure that in the end, I'm going to get another five of that. I know they'll give me ten of this. I know they'll give me 20"?

How do you, on a day-to-day basis — in this kind of climate where we've got escalating construction costs everywhere — manage that such that you don't have people constructing that mindset where they think they're going to have easy access to that contingency fund?

J. Garrad: There actually are two contingencies. There's the remaining contingency within the government's $600 million, which is currently $76.5 million. The $66.8 million you're referring to is VANOC's contingency for its overall venue construction. Dan could probably speak to how they're managing that.

D. Doyle: The $66.8 million that we have in our central contingency, as Jeff has already pointed out in his presentation, is governed by the performance agreement we have with the province, which determines at which point we draw down what amounts. It's also governed by the fact that the board of VANOC has to approve any allocation out of that contingency. The governments of British Columbia and Canada are both represented on that board.

The third element in all of this, though, is the philosophy that we have at VANOC. Our philosophy is that we're going to build the very best project we can, under budget and on time. Every one of the members of the VANOC team that works in the capital area is dedicated to ensuring that we do deal with cost-effective delivery of the venues.

It's not a matter of everybody having the $66.8 million as a dream in their eye. We are looking to minimize the amount that we have to take out of that.

M. Polak: Lastly, one of the other concerns that is expressed as a result — I think, in my opinion — of past Olympic experiences in other areas is that there will be a surprise ending to the financial story. Some of that is characterized in terms of concerns around individual facilities. Sometimes it's individual areas.

One that I think concerns me and concerns other members of the public is: how do you address the concerns around what's going to happen post-games, and what's going to happen to issues involving communities such as Vancouver and Whistler? How does the indemnification work, such that we can have confidence that we are not hanging on to a big bill at the end of this as a result of overruns in those kinds of areas? What's our confidence level there, and why?

J. Garrad: I think one of the unique aspects of this project, from my perspective and the perspective of many, is the number of partners that are involved in hosting the games. I think the very unique and strong

relationship we've developed working on this important project has resulted in a lot of small positives and a lot of big positives. We've managed to reduce costs, for example, by not building a sledge hockey arena in Whistler and moving those events to UBC. That was about a $20 million saving from the capital budget.

Alongside VANOC and the international support federations, we worked to get, as the Auditor pointed out earlier, the approval for an NHL-sized rink to be used for hockey rather than the international-sized. Again, that saved us some capital money.

We all work very closely together. We're all working on the goal of having a great games at the lowest cost to taxpayers and of providing the best long-term benefit to the communities.

J. McIntyre (Deputy Chair): I guess I can foresee this debate going forever and ever about what's included in some of these costs and what's not. I remember that in the early days, when we were working on the bid, there was all sorts of speculation in the media. As I recall, it was the $6 billion games. So it's good that it's below that. I think that it's forever subject to debate. I don't think there's any question.

Actually, funnily enough, I represent the Sea to Sky corridor, and I found a clipping in some old files. The minister then in charge of this, Ted Nebbeling, had a big headline in the Province while the Salt Lake City games were going on: "Games or Not, Sea to Sky Highway Gets Upgrade." He announced that….

The minister responsible for the bid says: "B.C. will unveil its plans to upgrade the Sea to Sky Highway by May. The improvements — which may include new bridges, tunnels and three-lane sections — will be made to the narrow, dangerous route even if we don't get the games."

This has gone on for years and years and will no doubt be going on way past 2010, so I think we have to take what is fully accounted…. The Sea to Sky Highway is fully accounted in the Ministry of Transportation budget. It's all there — open, transparent. The opposition can ask about it in the estimates — whatever they'd like to do. It's there, and it's fully accounted.

My understanding is that the Auditor General, in his review of the Sea to Sky Highway, doesn't dispute the final cost of that contract over the length of the contract to still be $1.89 billion. There it is. It's open and accountable.

I think we need to move on from some of this. What I'd like to see and maybe wouldn't mind hearing from the Office of the Auditor General — and to Member Polak's point — is that the $600 million envelope that is there and that I guess the government has clearly and consistently said is for hosting and staging the games…. When I read the Auditor General's report, I thought there was a very good and firm commitment that that $600 million was appropriate for what we've said is in that budget.

I guess I have a separate question to the Auditor General. I was very interested in the performance and accountability agreement. It looked like a big step forward in response to some of the issues that the Auditor General pointed out over time — that we need to tighten some of the accountability. I would appreciate a comment from the Office of the Auditor General in terms of whether or not they think that accountability agreement was a step in the right direction in tightening all this up.

A. van Iersel: Page 41 of our report back in September shows the makeup of the $1½ billion that we attribute to the province. As you'll note from the very top of that chart, that shows the breakdown of the original $600 million and the $600 million as of August 31.

As has already been said today, there have been changes in the individual amounts within that $600 million. But yes, at this time, subject to further information, the $600 million is holding.

We've been clear, though, in our report in saying that we don't think those are the total games amounts. The items below that represent the additional items — Sea to Sky, of course, being the biggest now at $775 million, which is within that $1.8 billion figure that the Deputy Chair talked about.

That is the current estimate and the way in which the Sea to Sky Highway is being accounted for as it proceeds. Whether $775 million will end up being the end figure, we don't know. It's not completed.

There are, as has already been mentioned today, other costs related to the secretariat — the Callaghan road, which has already been discussed; Own the Podium, and so forth. We have some question marks. There is some further work to be done on other items — provincial Crown sponsorships, marketing programs and so forth.

What we were trying to illustrate was that beyond the $600 million, there are other costs that we think should be considered and disclosed. It goes back to what we've said in our presentation, when we talked about one possible model being the auditor in New South Wales and the 2000 Sydney games. Again, we're not holding that up as the ideal model. We're saying there's a particular case where a broader view was taken in regards to what was an Olympic cost. In fact, they had an interesting item in there called Homebush stadium — not nearly the amount of the Sea to Sky Highway. Again, it was something that was planned to be done, and in the end the amount was included. I'm recalling around $80 million to $90 million.

Here again we encourage the government to come up with a totally inclusive games cost budget for information purposes. As has been said, though, it's not about: are these costs not provided for in ministry estimates and so forth? We acknowledge that those that have been spent have been properly provided and budgeted and so forth. It really gets back to what it is. I wouldn't agree with the suggestion that it was arbitrary. I would say it is a judgment that has to be made, and we've asked the government to make the judgment.

That's our particular opinion on where we think we should go in the future, and it is consistent with the

fact that we already included the Sea to Sky at $600 million in our first report. The Sea to Sky was a specific Olympic commitment made by the province to the IOC. I understand representation was actually flown in to IOC in order to hammer that point home.

Our understanding on that was, yes, it was a planned expansion of the highway — obviously for good reason. But we didn't have any evidence that said it was a firm commitment up until the time that the games were awarded.

The other question asked of me was on the performance and accountability agreement. We've looked at it when that was made available to us. We do think that is a positive step on behalf of the province as part of the total package in what we call the necessary due diligence to manage the costs. Whether it is sufficient in all respects, we haven't done that kind of analysis, but we do think it is an improvement in and amongst some of the other efforts that we want to acknowledge in regards to managing capital costs.

Until such time as we get updated information with respect to version 2 of the business plan and actually see some of these facilities move from planning into construction with firm construction, it's difficult for us to provide any final assurance, which is our reason for saying why we want to continue to do further reports with the next one — as we've already said — expected in the fall.

J. McIntyre (Deputy Chair): A quick follow-up, I guess, just to the point. I think it just goes on and on about why this is debatable — the Auditor General's response to some of those things that he pointed out on page 41. You get things in like the Squamish Lil'wat cultural centre included in this — again in my riding. A wonderful beneficiary — economic development for first nations, cultural development — all the kinds of things that to me are just the related and spinoff benefits of 2010 as a catalyst.

I understand there are other major first nations cultural centres being developed in the province — one in the Okanagan and one up in the Queen Charlottes and one in Whistler. Is the one in Whistler there just because Whistler is part of the 2010 games?

I'm going to leave it at that. As I said in my very first point, I think these issues will be debated forever, and it's a judgment call. As long as we account for these things and the government is open and transparent about these, I think you're doing your job. So thank you.

A. van Iersel: The Lil'wat centre just referred to is part of the shared legacy agreement. So that's the reason we included it.

D. Chudnovsky: I have some questions about the secretariat's response to recommendation 2 and specifically with respect to security costs.

J. Garrad: I'd like to suggest, if I could, that I bring forward Deputy Minister David Morhart from Public Safety and Solicitor General to help answer questions on securities. He is more intimately knowledgable on this than I am.

R. Fleming (Chair): Okay. If the person could just introduce themselves to the committee for purposes of Hansard and then address the members' questions through me.

D. Morhart: Thank you very much, Chair. My name is David Morhart. I'm the Deputy Minister of Public Safety and Solicitor General. To address the question that was asked, from Torino the latest number that we have is €160 million.

D. Chudnovsky: So €160 million, give or take, right now is about $250 million Canadian.

D. Chudnovsky: I've been checking lately, planning a trip to Europe in the next little while. It's $1.50-something.

Okay, thank you for that. Can we be told when this preliminary RCMP estimate was done?

D. Chudnovsky: A lot of things have happened with respect to security in the world since then.

D. Chudnovsky: Okay. The members of the secretariat are aware that there are a number of people well placed to make judgments about security costs who are at least skeptical, and some more than sceptical, about this estimate — the IOC chair, people from Salt Lake, federal Commons committee members. Is there any concern on the part of the secretariat about the concern that's been expressed by those folks?

D. Morhart: The estimate we have is something we are quite comfortable that we can live within at this point, given the threat level that we see for the games. This will be evaluated continually as we move closer to the games, but right now we have a strong partnership agreement with the federal government to watch that together.

D. Chudnovsky: The estimate of $175 million, as you indicate, comes from the original bid book. Is there an expectation that there'll be an update of that estimate,

D. Morhart: That will be part of the regular reporting through the secretariat's reports.

D. Chudnovsky: So that's part of the regular reporting. We have a report here from the secretariat in response to the Auditor General's report, and we don't see anything but the initial estimate. There's a disjunction there.

D. Morhart: Just to clarify, since the time of the Auditor General's report and the reference we gave today, we now have a cost-sharing agreement signed with the federal government. We also have a preliminary budget with the RCMP. The security committee that Jeff Garrad referenced will be meeting in the next several weeks to go through that preliminary budget and over the next number of months and years will be looking at refinements to that budget.

D. Chudnovsky: Is there an expectation that the Armed Forces will be involved in security at the 2010 games, and is the cost of any participation by the Armed Forces or the security services, other than the RCMP, included in the $175 million preliminary figure?

D. Morhart: The original bid book did contemplate the involvement of the Armed Forces. At this point we have not officially invited them. We're working through security operational plans, and that will be determined at some point in the future.

D. Chudnovsky: I'm not sure that I totally understand your answer. Is what you're saying that the potential cost of participation of the Armed Forces in security is included in the $175 million estimate? That's my question.

D. Morhart: To answer that more specifically, we can't answer that specifically.

D. Chudnovsky: I had students over 30 years of teaching who talked like that.

If you look at the cost-sharing arrangement we have with the federal government, it's very clear that each of the parties to the agreement has responsibilities for the various policing or security activities that they are normally responsible for.

The Armed Forces obviously has responsibility for international issues and issues, along with Canada Border Services and the RCMP, on things like terrorism. Those types of things are, under that agreement, federal responsibility. So are they part of the $175 million in that kind of event? No, they're not.

R. Fleming (Chair): Member, I have a number of other members who wish to speak, so if I could move on.

D. Chudnovsky: Could I just say, Chair, that I have a specific question about accessibility that I'd like to get on the list, so if you could put me back on.

R. Fleming (Chair): I'm going to suggest that we try and get through the list by 12 o'clock. Originally we were scheduled to end in about five minutes, but in order to accommodate other committee members…. I will move to Diane Thorne, who is next on the list.

D. Thorne: I think my question is probably for VANOC, because I'm specifically interested in the social impacts section of the games. I, too, have questions about accessibility, but Mr. Chudnovsky is going to cover that, so I'm wondering about housing and loss of housing or what will happen with housing both now and after the games.

I know that VANOC has an inner-city agreement, the goal of which, I'm assuming, is that after the games we will see no net loss of housing and that, in fact, throughout the downtown core of Vancouver we'll probably see an increase in social housing. But I am concerned because there have been two separate reports done about loss of low-income housing already, one on around 425 units in the downtown east side and one by Pivot Legal, which just came out, that puts it at 514 in the downtown core itself — right?

I don't think an inventory of existing rental stock has been done recently or even since before the agreement was signed for the Olympics. I guess my specific question to VANOC around this is: are there studies around the existing housing that I don't know about, so that we have something to measure against and gauge both now and in the future so that we know about the impact on housing now and after the Olympics? And what has VANOC done to monitor the loss of affordable housing that is taking place right now?

I'd like to know, specifically…. If it's not possible today, I'd like it at some point read into the minutes and to get the information. What is the specific housing plan that VANOC has committed to in Vancouver?

D. Doyle: I can't directly answer that question, but I will get you the information. That's not my area within VANOC.

D. Doyle: I came prepared to address the issues that were in the report. So I definitely will get you that information.

D. Thorne: Okay. There's nobody here today, then, that would have that information?

D. Thorne: You're VANOC today. Okay. I'd like it read into the minutes at some point when I get the information. I don't know how that gets done here, but I'm sure somebody here knows. Josie knows.

J. McIntyre (Deputy Chair): Excuse me. If I can just speak for a moment, I do want to remind all members, actually, that we are here to review the Auditor General's report specifically. This is the representative from the Ministry of Economic Development on the Olympic secretariat. This is not a questioning of VANOC and questioning about plans for 2010 Olympics and Paralympics. I just want to make sure that we're asking the appropriate questions here because we have limited time and quite a few more speakers.

D. Thorne: Well, I do think this is part of the integrity or intent of the Auditor General's report — that the agreements that have been made before signing are followed. I think that even if it's not specifically mentioned in the report that we're dealing with today, this may be our only opportunity for quite some time to deal with these issues.

The social impacts have not been discussed, and I think they're a very important part, both during the planning and what's happening in Vancouver around housing and other social impacts and also into the future. I would like it clarified that I think it is part of the discussion today. So I would like the answers read at some point into the minutes of the meeting, but I'm happy to wait.

R. Hawes: I'm not sure who I want to direct my questions to, so I think I'll just start by first saying that I know that the Finance Minister, in response to the Auditor's report, did say: "You know, you've built a much larger umbrella to cover the costs, clearly, than the government did, but all of the costs…." I just want to re-emphasize that everything you've put under the umbrella has been budgeted and is laid out very clearly in the government's books.

I just want to touch for a moment on the bid committee, when they put the bid together, and why would they put the Sea to Sky Highway in it? I don't think it takes a lot of imagination to understand that it was a planned project, but anything that could have helped with this very competitive bid process would quite naturally be put in.

For example, if the Sea to Sky Highway was thought by the bid committee to be of benefit in the bid, I'm sure it would have been in it, as would the several-billion-dollar lift in health care over the last few years. If they thought that would have helped, it would probably have been in the bid, because it doesn't really cost anything to put it in the bid since we planned to do it anyway.

Would it have been sensible had they broadened it even further in the bid? Would you have wanted to include all of those costs? I don't think that would have been…. I'm sure you would agree that would not be sensible.

You've put in some costs for the RAV line and the Olympic station when there isn't a possibility of an athlete ever getting on the train. It has nothing to do with the Olympics, other than somewhere nearby is the Olympic village. You know, I know that even the public has some difficulty understanding some of these things, and frankly, I don't think that the public is too mindful. They do understand that these costs are accounted for elsewhere.

My big fear is other places. Perhaps even in British Columbia or in other parts of Canada they are going to bid for future games. The more that you inflate the costs by throwing in things that were going to be done anyway, I think the more difficulty there is for other places in future to bid, because there will always be opponents saying: "Oh, look what it cost in B.C."

I do have a tremendous difficulty, personally, with the way you did this. I have a lot of trouble with your rationale when you say that it was because it was put into the bid — when you think about why it would have been put into the bid. It didn't cost anything, and it was going to be done anyway. Clearly, the Sea to Sky Highway, since it was going to be done anyway, was something that probably had some benefit within the bid.

I think your rationale is very, very suspect for putting some of that in. I'm pretty disappointed in that. I just wanted that on the record.

The last thing I want to say is that I was very pleased to see the comments in the response here to the issue of hedging. It's real easy in hindsight to be critical. I'm thinking back to the late 1990s, early 2000 with a previous government that borrowed a bunch of money on what they called a warehouse loan because they said interest rates were likely to go up later, which they didn't. They guessed wrong.

With the benefit of hindsight, that was a very poor decision — to borrow a billion dollars on a warehouse loan to warehouse money, just as the advice that you got about hedging may not, in hindsight, have been the best advice. But based on the information at hand at that time, you followed the advice of the experts that you use. I think that's a commendable thing.

Government should never be criticized, in my view, for following the advice of the people they hire who have expertise. I just want to come to some…. I think you should be defended on that, and I'm glad that you put it the way you did.

My last comment is that I was very disappointed to hear some criticism or some innuendo that cast aspersion on the fact that you might not be being candid or that questioned your honesty. I just don't think there's any place for that. I happen to have a great deal of confidence in our civil service. I think you do a great job. I think your integrity and your honesty are beyond question. Those are my only comments.

A. van Iersel: Two issues were raised which I would like to respond to. I've already explained that we've

encouraged government to come up with a definition of Olympic costs that we think is more consistent with what happened in Sydney — again, not suggesting that is the paradigm but one that is broader than the $600 million to date.

We believe that's important, in terms of transparency, in regards to what the costs are. Again, to repeat what I said earlier, we're not arguing with the accounting. We're not arguing with the disclosure of the numbers in other documents, budgets and so forth. It's really: what should be included?

As I said, Chair and Member, going back to the rationale for Sea to Sky we looked at, was this on the plans? Yes, it was generally in the plan. However, no firm commitment was made in regards to this.

It was also put in the bid book, and I understand why it was put in the bid book, because our review indicates that this was a major concern of the IOC in terms of the transportation, the movement of athletes between Vancouver and Whistler. That was a concern that could potentially have led to a different conclusion than, fortunately, the city and the province received in regards to hosting the games. It was critical. It was the only major capital commitment that was made in the bid book, I believe, for that reason.

I want to be upfront. Again, as our report says, we acknowledge that Sea to Sky has lasting benefits. It will have benefits well beyond 2010. The difficulty we have is: when would it have been built if it were not committed for the games? We don't have an easy rationale to suggest. That's why we're asking the government to consider what is the most transparent and consistent. So that's difficult for us to say. We just want to be transparent in regards to what we believe — why it was included and so forth. It's similar to the other items.

The second issue in this vein was the RAV line. That station was not originally contemplated. It was thought of after the decision regarding the athletes village. Again, I should point out that $8 million was separately provided by the province to fund that station. So we don't have a perfect answer, but we felt there was sufficient evidence to suggest that that should be disclosed as a potential Olympic cost.

Moving on to hedging. Going back to our original report, we understood hedging was to be done. To be clear, we're not asking VANOC or the province to speculate. We really come from the point of view that it is important to pin down your sources of revenue as early as you can so you have certainty around the revenue number that allows you to do better planning going forward. That has always been our contention.

We in our office are not good forecasters of the Canadian–U.S. dollar rates, but what we do know is that information was available early on of sufficient veracity that would allow someone to hedge. It's similar to what happened in Sydney regarding the relationship there between the games and their equivalent of the province. So we included it for that purpose. We encourage today and we're happy to hear that some hedging has already been done. I don't know if it's everything that needs to be done, but the more you hedge, the more certainty you have.

When you look at these reports, it's all about making sure you have certainty — certainty of costs, certainty of revenues. When you talk about that major broadcast piece, we feel there could have been more certainty than what we had. That was the reason for including it. I hope that better explains the rationale from our office.

J. Rustad: Noting that we are well over time on our comments, I'll try to be very brief. If I could, to our Auditor General: I'd like just some clarification. There are two parts to what I want to ask. One is just some clarification on wording, and then one is an actual question.

Earlier in one of your statements you had mentioned that some of these costs should be disclosed. Now you've just finished saying that you're not arguing about what has been disclosed. So if you could clarify. When you say things like "should be disclosed," it's not that information has not been disclosed by government but rather that from your opinion, it perhaps should be included. If you could perhaps clarify that comment so that there is no….

When you originally made that comment, I kind of perked up and thought: everything has been disclosed. What is he talking about in terms of something that hasn't been disclosed? So I'm just wondering if you can clarify on that, please.

A. van Iersel: I'd be happy to do that. What I'm saying here is that we're not arguing about the accounting with respect to the expenses and the liabilities that have already been documented or about the manner in which they have been budgeted or reported. What I am saying is that it is very important to take all of the Olympic-related costs and disclose them in one particular place.

As you notice, we've included the province, the federal government and also the municipalities. When we did this review, we had many suggestions from taxpayers who said they wanted to see it all together. So when we talk about disclosure, we're trying to take those properly accounted for costs to date and say they should be put together in one report that shows all the costs of the games.

The other thing I want to come back to is that at some point, when we have clear information regarding revenue, we would be happy to audit that and to include that as well. So the disclosure issue is: what's the overall cost and benefit of the games? We believe that should be in one report, which is the reason why we constructed this particular review in that way. I hope that helps.

J. Rustad: Thank you very much for your opinion on what should be included and not. We can agree or disagree, and that's neither here nor there. The question that I do actually want to get to is around

security costs, and I would like maybe both the government's and the Auditor General's opinion on this.

In earlier discussions there was talk about whether the military was going to be involved and whether there had been some discussions around that. If for some reason an unforeseen event happens and the military feels that their presence should be greater than perhaps what was prescribed, which of course…. That sort of thing could happen. I mean, 9/11 happened. Many things have happened that are horrendous events.

If something were to happen and that military commitment ends up being significant, for whatever reason, was that something, then, that should fall under federal, or is that something that would end up becoming shared? Other than our tax revenue that goes to the federal government, the provincial government is not normally involved in national security issues from a financial perspective.

In your opinion, and perhaps the government could also comment…. If that extra military presence is required in terms of security, I'm wondering whether or not that is something that would be a shared expense or whether that's something that would be expected to fall upon the federal government.

A. van Iersel: Thanks for the question. With regards to security, we pointed out that there was a concern because the number that has already been discussed today has not changed since 2002. We also heard today from Mr. Morhart that work is underway in regards to the sharing agreement in regards to security and moving forward and that they're meeting, I heard, next week.

We don't have the information today in our hands, in the Office of the Auditor General, to definitively opine on who will pay for what, because we need to see an updated budget for security, and we need to see the specifics of the cost-sharing with respect to contemplated events today and what might be seen as extraordinary events at the time of the games, be it something like a terrorist attack and so forth.

I don't have the information yet. I'm very interested in obtaining that information and analyzing it, but I think we're not there yet in terms of what we have seen to make a definitive statement today about who would pay for these as yet unforeseen events. Maybe Mr. Morhart could add to that.

D. Morhart: As I mentioned earlier, there's a partnership of a number of agencies that are working on the security front, and the armed forces have a seat at that table. The lead agency, though, is the RCMP, and the RCMP makes the call as to what a security level is, what their best recommendation is as to what sorts of resources we bring in.

As I mentioned earlier, if there is some large event that happens that's of a multinational, international, nature such as a terrorist activity, that is clearly federal responsibility. The province has no responsibility in that regard. So in that case, that is not part of the security cost-sharing arrangement that we have with the federal government.

If the RCMP chooses to include Armed Forces personnel in manning venue security as a means of helping that occur, that could be included. But that's all part of the deliberations as we get into a concept of operations plan over the next couple of years.

G. Gentner: Noting the time and the like, at this time I would like to move the recommendations of the Office of the Auditor General of British Columbia relative to its report, The 2010 Olympic and Paralympic Winter Games, September 2006.

R. Fleming (Chair): Okay, so there's a motion on the report. We are at the end of our allocated time, but….

There are seven recommendations in the report. They are on page 49. I would suggest that discussion has covered virtually all of them, so it's a fairly simple matter here. The motion is essentially to receive the report and the recommendations of the report.

R. Fleming (Chair): It's adopted. I would thank all committee members for allowing us to complete this. And for all individuals who've come to visit us today to speak to the report, thank you for your time and your expertise today.

We will take a three-minute recess to allow setup for the next report, on managing Pharmacare.

Managing Pharmacare: Slow Progress
Toward Cost-Effective Drug Use and
a Sustainable Program

R. Fleming (Chair): I appreciate everyone who is back in their seats, and we are going to move on in the agenda to the report on managing Pharmacare. We will begin again with the Office of the Auditor General, and the acting Auditor General, Arn van Iersel, will present a PowerPoint presentation, and then maybe, just as we did with the last report, we will hear from Bob Nakagawa from the ministry and go into discussion.

Is there an additional witness there? Kathy, would you care to introduce yourself, or anyone else?

M. Sydor: I'm Morris Sydor, assistant Auditor General in the office, and I was overseeing this project at the time.

A. van Iersel: Thank you, Chair. You just took away my opening line, but that's fine.

In the interests of time, we are going to proceed fairly quickly. This is a March 2006 report, which predates my arrival at the Office of the Auditor General, and one that obviously is important and needs to be looked at.

The fieldwork for this particular audit was carried out from September 2004 to March 2005. We originally looked at the Pharmacare program in '97-98, which was then a large program supporting population health by reimbursing residents for eligible prescription drug costs. The Pharmacare program since that time has continued to grow at a rate of roughly 10 percent per year and, at the time of our most recent work, had an annual cost of $900 million.

As you can see by the title, there were concerns about how the program was being managed. Many of the concerns from the early report were still there at the time of the most recent audit. The conclusion was that this program needed greater management attention. We collaborated through the Canadian Council of Legislative Auditors with seven other Canadian Auditor General offices carrying out similar audits in their jurisdictions on similar programs. Similar conclusions were made in these jurisdictions, and more details are provided in appendix B to this particular report.

In our view, the government needs to improve its capacity to manage the Pharmacare program in a complex world of pharmaceutical companies, physician practices and pharmacy operations. When our report was released in March 2006, the government said that it was making changes and implementing our recommendations. Hopefully, today the committee will hear specifically what progress has been made since then, almost a year ago.

I would now like to ask Mr. Sydor and Kathy Crawley to provide a brief overview through a PowerPoint presentation.

K. Crawley: Good afternoon. The title of this Pharmacare report expressed our concern that Pharmacare management, although it had included sustainability and cost-effective drug use as priorities, had not been as successful as we'd hoped over the eight years since our previous audit.

This chart shows the province's cost to provide the Pharmacare drug reimbursement program since 1999. As you can see, there has been an increase each year with the exception of 2003. That was after the Fair Pharmacare plan was introduced. Also note that since then, the annual increases have gotten larger.

Our overall audit question was: how well does the ministry manage the Pharmacare program to achieve its stated goal? That goal was a sustainable, evidence-based prescription drug insurance program that improves the health of British Columbians.

Overall, we found that British Columbia was a leader in implementing initiatives such as the PharmaNet system, cost-containment strategies such as the reference drug program, and drug utilization strategies such as the distribution of therapeutics initiative letters to physicians that summarize best practices in cost-effective drug use, and academic detailing, where physicians are visited by pharmacists from their local hospital to discuss health outcomes and compare the costs of frequently prescribed medications.

The problem, as we saw it, was that these and other ministry initiatives should have been expanded with the help of physicians and pharmacists. For example, the PharmaNet system — it could be in every physician's office, helping them decide which drugs to prescribe. But it's very slow in coming. Another example — academic detailing. It was piloted in one hospital in the North Shore when we did our first audit in 1997, and this initiative had not expanded and was still in the pilot stage in 2005 when we came back.

We asked why. Why has the ministry been so slow to move forward with those innovations? One of the main reasons was that they didn't have enough people dedicated to the task. Their numbers were stretched to keep up with the complicated day-to-day tasks needed to ensure that the program was running smoothly. There was also regular turnover of Pharmacare's executive.

Secondly, the task of how to move forward with the initiatives wasn't spelled out — such as what actions were needed to meet the objectives. Without this direction, it was difficult to develop meaningful performance measures that would indicate how well they were doing at meeting their objectives.

Finally, there was very little information about how Pharmacare was doing in the ministry annual report or even in the Pharmacare Trends document.

Now, to arrive at the overall conclusion as to how well the ministry was doing at meeting its Pharmacare program objectives, we asked a series of seven questions. The first question was: is Pharmacare being managed using a results-based approach? We expected that Pharmacare would have objectives, which it did, and that those objectives would be linked with a series of actions that needed to happen. We expected that Pharmacare would have measures to help determine if those actions were successful at meeting the objectives, that information would be collected regarding those measures and that it would be used to make decisions about continuing on or making adjustments.

We felt that doing business with the pharmaceutical industry required a strong results-based approach. As I indicated earlier, in our overall conclusion we found that Pharmacare's objectives were not linked to actions to accomplish them. There were few relevant performance measures, and although various evaluations had been done, many of them on the reference drug program, we found that they did not explain how well Pharmacare was doing at meeting its objectives.

To implement a results-based approach, we recommended that Pharmacare's management have a look at its stated objectives and update them as needed, align those objectives with the actions needed to accomplish them, identify and obtain the necessary staff, and finally,

develop performance measures that would show how well the objectives were being met.

The second question we asked was: is Pharmacare reimbursing members for only those drugs that are cost-effective? We expected that Pharmacare would properly assess new drugs under consideration for inclusion on their formulary for effectiveness and reasonable cost. We also expected that Pharmacare would reassess drugs already on the formulary from time to time to determine whether they should continue to be listed. This would ensure that Pharmacare was not paying for drugs that were less effective or more expensive, or both, than a newer alternative drug.

What we found was that drugs being considered for addition to the formulary were assessed for effectiveness and reasonable cost. The ministry relied on several national organizations to guide it through the drug decision-making process. Once Health Canada gave a drug the okay for sale in Canada and the Patented Medicine Prices Review Board set the maximum price that could be charged, the Common Drug Review looked at the clinical studies and made a recommendation as to whether it provided good value for money.

For those drugs rated as providing good value for money, Pharmacare carried out a rigorous review of the documentation that the Common Drug Review provided and then decided if the drug was needed in the province and if it was affordable. The problem was that Pharmacare was not able to carry out this internal review on a timely basis, which resulted in delays in getting drugs on the formulary. We also found that existing drugs on the formulary were not reassessed.

On a positive note, we found that Pharmacare policy to assign benefit category to each drug on the formulary helps it save money. Pharmacare provided only partial coverage on drugs that had a less expensive alternative, and it limited coverage on certain expensive drugs to patients in certain circumstances.

We recommended that, where possible, the Pharmacare drug assessment process be streamlined to ensure that new drugs get on the formulary on a timely basis and that drugs already on the formulary be reassessed from time to time to determine their continued cost-effectiveness.

The third question that we asked was: is Pharmacare purchasing the drugs it covers at a reasonable cost? We expected that drugs would be acquired at best prices. What we found was that Pharmacare does not purchase the drugs. Rather, the pharmacies make their own arrangements with the manufacturers. There were no bulk-purchasing arrangements made by the ministry, and that limited Pharmacare's ability to get the best price.

We learned that the ministry had on occasion made arrangements directly with drug manufacturers to share in cost overruns on expensive drugs. However, this practice is very limited. Through collaboration with legislative audit offices carrying out similar Pharmacare audits in their offices, we were able to determine that B.C. pays similar prices for the 20 most prescribed drugs as Saskatchewan, Manitoba, New Brunswick and Nova Scotia. However, comparable does not mean best prices were paid by all. We recommended that the province explore and implement ways to ensure that best prices are paid for drugs.

The fourth question we asked was: is Pharmacare promoting cost-effective prescribing practices and drug use with physicians? We expected that there would be programs or initiatives that help physicians choose the best drug at the lowest price when they were writing patient prescriptions. We also expected the ministry to monitor the effectiveness of those programs and to make changes when needed.

What we found was that there were several initiatives that had initial success, but most had not been substantially expanded. As mentioned earlier, academic detailing continued to be funded for only one location on the North Shore. Other examples include moving slowly with providing access for physicians to the PharmaNet system. At the time of our audit the original 100 sites in the pilot had not been expanded. Also, the PharmaNet system was underused by the ministry, which hampered the ministry's ability to identify early trends in physician prescribing practices and drug use.

One of the challenges the ministry had in moving forward with the initiatives was the skepticism held by physicians. They felt that ministry initiatives were really just cost-saving measures that did not put the patient first.

During our first audit we heard from physicians that the province did not adequately consult with them before introducing the reference drug program that you may be aware of. That initiative was seen by the physicians as the ministry overstepping physicians' professional judgment. Even though independent evaluators have since shown that the reference drug program did not harm patients and that it saved money, the initial lack of consultation in the 1990s was remembered. At the time of our second audit, the ministry continued to have difficulties gaining physician confidence and cooperation.

In this area we recommended that PharmaNet information be used to help physicians make better choices when they prescribe drugs, that the ministry expand the existing initiatives and develop new ones that support appropriate drug use and that the ministry involve physicians in these developments so that confidence is restored in both the ministry's intentions and its ability to follow through with the initiatives.

So far we've talked about choosing the right drugs for the formulary, purchasing them at the best price and promoting their best use. The fifth question we asked was: is the eligibility of the recipients of the various Pharmacare benefits being adequately assessed? What we expected was that differing eligibility requirements for the various plans were understood by the physicians, pharmacists and patients so that those patients who were eligible were receiving benefits. We also expected that controls were in place to ensure that those receiving benefits were eligible to do so.

What we found was that eligibility requirements for the various plans were located on the Pharmacare

website. We also found that there were processes in place to assess the eligibility at the time of registration and throughout the covered period for the various Pharmacare plans.

However, there was one exception, and that was plan G, which is the no-charge psychiatric medications program. At the time of our audit we learned that since the introduction of Fair Pharmacare, Pharmacare staff have no longer been available to check one of the plan G criteria, which was determining if the patient was eligible for MSP premium assistance. It was left up to the director of each mental health centre to decide whether to carry it out or not. So we recommended that the ministry clarify the eligibility criteria for plan G and then go out and assess compliance with those criteria.

As you know, PharmaNet relies on a large, complex computer system that's connected to hundreds of community pharmacies across the province. So our sixth question was: is Pharmacare ensuring the legitimacy of the claims being submitted? What we expected was that the ministry would have adequate procedures in place to ensure its policies and procedures for approving, processing and paying claims were adequate and were being followed. We also expected the ministry to ensure that the system operated in a way that protected the privacy and security of patient information.

What we found was that the computer controls provided complete and accurate processing of the data, verification of claims and timely payment. We also found that the system operates under strict privacy and information security measures designed to prevent unauthorized access and to protect the integrity of the information. Good. All good.

One concern we had in our first audit was the lack of a robust audit function. We found that the ministry had expanded its audit department and that actions from the department had resulted in substantial recoveries, which are shown on this chart. However, we also learned that the timeliness of audits is important because pharmacies are only required to keep the detailed records for three years. Although the audit department had expanded, they were experiencing backlogs in their planned audits, and that could result in the loss of potential recoveries.

The seventh and last question we asked was: is the ministry meeting its accountability responsibilities for the Pharmacare program, the Legislative Assembly and the public? We expected the ministry to use the B.C. reporting principles as a basis for reporting. You can find those principles on page 63 of our report. What we found was that the ministry's annual report described the purpose of Pharmacare and identified some key risks which the program faced in meeting its goals, yet there was very little information on what it was doing to meet its goals and just how well it was doing. There was no reference to the staff shortage issues, which were central to the difficulties experienced in the policy branch.

We also took a look at the Pharmacare Trends report, which the ministry issues from time to time. We found lots of statistics on each of the insurance plans, such as the volume of prescriptions, the number of patients and the amounts that were paid out, but there was no insight given to what the statistics in the report meant or what the ministry was doing to influence them.

Many stakeholders want information about Pharmacare's performance. The ministry is losing the opportunity to tell its story, to extol its successes and innovations and to inform about the challenges and the risks that affect Pharmacare's performance. So we recommended that the ministry use the B.C. reporting principles for reporting Pharmacare's performance in the annual report.

In summary, we hope to see the ministry build its human resource capacity to manage and run the complex and high-powered business of Pharmacare; to streamline the drug approval process to help get cost-effective drugs on the formulary on a timely basis; to get the best prices for the drugs that it covers; to increase support to physicians and others to promote appropriate prescribing and the use of drugs; and to involve physicians in robust ways while developing and implementing those innovations and initiatives. That brings us to the end of our presentation.

R. Fleming (Chair): Thank you very much, Kathy. Are there any other additional points to be made from either representatives of the Office of the Auditor General?

A. van Iersel: No, Chair. I would recommend, as you've already suggested, that we hear from the ministry and then take questions after that.

R. Fleming (Chair): Okay. Then we'll call Mr. Nakagawa forward to make his presentation.

Good afternoon, Bob. Welcome to the Public Accounts Committee. We'll let you begin your presentation whenever you're ready.

B. Nakagawa: Thank you very much, Mr. Chair. I really do appreciate the opportunity to provide a response to the Auditor General's report. I should mention that I am accompanied by Mr. Bill Mercer, who is the acting executive director for Pharmacare, as well as Darlene Therrien, who is a director for PharmaNet and evaluation, and Lynda Chiu, who is one of my senior pharmacists in the program. So I am ably supported.

Again, thank you very much for the opportunity to respond. I should say at the outset that we in pharmaceutical services do value and appreciate the comments coming from the Auditor General's office. We view it as an important tool for us to get the perspective of an outside evaluator on our process. As we work through the presentation, you will see some of the steps that we have taken very specifically to address the comments that were made by the Auditor General in the report.

I'd like to start off by providing a brief background, and I recognize that you have limited time available today for this topic. I may go through some of the slides quickly, but I do want to provide you with enough time to ask questions at the end of the presentation. So my apologies if I rush a little bit.

The Pharmacare mission is to provide British Columbians with a cost-effective and evidence-based universal drug program, and our goal is really to foster better health outcomes. It isn't just to manage the cost part of it. Cost-effective is a two-part formula, one that does involve the amount that we pay for a drug. But at its essence, the drugs that we pay for must be safe and effective, and to do that we must use them appropriately.

A little bit on the universal drug program that I'll talk about later. This is something that we can be very proud of in British Columbia. You will have heard some of the media around the 600,000 Atlantic Canadians who do not have catastrophic drug coverage. We don't have that situation here in this province. We have had since the early 1970s a universal drug program that provides catastrophic drug coverage to all British Columbians.

A few quotes — and I won't spend a lot of time — from the National Forum on Health a number of years ago. They commended the B.C. Pharmacare program because our approach was actually aimed at reducing drug costs and improving prescribing appropriateness. That's very important.

Another comment that was made. A major health policy journal in the U.S. commented that what makes the B.C. approach unique is the focus on paying for proven health outcomes. They concluded that Pharmacare's outcome-based approach to drug coverage saves B.C. approximately $35 million annually.

This slide just reinforces that we aren't alone. Across Canada we are seeing increases in drug expenditures over the time frame. This was provided by the Canadian Institute for Health Information and shows that we're well over the $20 billion mark for total drug expenditures in Canada.

Pharmacare expenses, as the Auditor General has highlighted, have also increased. The slight plateau in expenses that you will see in the early 2000s is the impact of the Fair Pharmacare implementation. You can see that the increases in expenditure didn't occur during that time frame but then picked up again in recent years.

A few things that I think are worthwhile noting in terms of what B.C. Pharmacare is. We're one of only four provincial drug plans that provide universal catastrophic drug coverage to all of our citizens. We're the only provincial drug plan to have a no-charge psychiatric medication program, which we refer to as plan G. We are one of four provincial drug plans that does not require social assistance beneficiaries to pay any deductible or co-payment for their prescriptions.

We are one of three provincial drug plans to provide coverage to residents of long-term care facilities without a deductible or co-payment and one of only four provinces that have designated programs for cystic fibrosis patients.

I've had comments from psychiatrists who have indicated to me that plan G in particular is an extremely valuable program and one that should serve as a model for the rest of the country.

In general, as I mentioned at the outset, Pharmacare values the external review of the program. We appreciate the constructive comments of the Office of the Auditor General. We would also say that the sustainability of a public drug benefit program depends not only on what drugs are covered — the formulary that we provide — but also on who in the population qualifies for that coverage and how much coverage is provided to them. That's where a lot of our focus has been in the last few years.

Pharmacare has made significant strides providing equitable access to safe and effective prescription drugs. In May 2003 we implemented the Fair Pharmacare program. There was a lot of concern at that time about the structure of the plans supporting those who by their age — those 65 years of age and older — were provided with better coverage than other citizens who had less income.

So if you had a very well-off senior who was 65 years of age perhaps making millions of dollars in wise investments, we would include them in the beneficiary list, whereas you might have a family of four with a couple of expensive chronic diseases really struggling to make ends meet. There was an inequity in coverage that was addressed with the Fair Pharmacare program.

In addition to this, in January 2005 we implemented a monthly deductible payment option that tried to soften the impact of having to pay a deductible. At the beginning of the deductible year — the insurance year, which we are at now — some individuals would struggle with having to pay that out of pocket. We developed a program that provided for those individuals to pay in equal instalments throughout the year — again, to reduce the impact of those deductible payments.

For Fair Pharmacare, it's important to note that there's no deductible or co-payment for patients on social assistance. There's also no deductible for low-income families. They only pay a co-payment on each prescription to an accumulated family annual maximum.

All other families in the province pay a combination of a deductible and then a co-payment up to a family annual maximum that's based on their income. No family pays more than 4 percent of their net annual income on prescription drugs. The system is set up so that the lower the family income, the lower the percentage of annual income towards the costs. Those families earning less than $15,000 pay no deductible.

Specifically in response to the Auditor General's recommendations…. The Auditor General recommended that we update our strategic objectives and align our objectives with actions. Up until last year Pharmacare was under the medical and pharmaceutical services division. Last year the pharmaceutical services division was established it its own right. Within that, we are in the process of updating a strategic plan that aligns those programs with goals and objectives. We agree that we need to define specific actions that are aligned with those goals and objectives.

The Auditor General recommended that we build needed capacity, and I'm here as a testament to the

importance of this to the Ministry of Health. A new assistant deputy minister position, the position that I'm in, is dedicated solely to pharmaceutical services. I'm in the process of establishing a new organization in order to focus very much on the issues that the Auditor General has identified in his report.

The Auditor General recommended that we develop performance measures. We've been working this last year to develop that measurement system and to have ongoing evaluations that determine baseline data we can use to compare with when we gauge our performance. As we move forward, clearly there's a need to establish those performance measures as we develop our future service plans.

Maximus is an example of a contract that we have where we publish the key performance measures on a quarterly basis. These can be things like how quickly we're answering calls, processing enrolment and account maintenance, processing pharmacy claims and providing requests in a timely manner, and many other measures. But we do provide that information.

The Auditor General also recommended that we streamline our drug assessment process in order to come to decisions in a timely way that will determine the drugs we list on our formulary. We had undertaken from April 2005 to November 2005 to improve our efficiency, to enhance transparency, to integrate stakeholders' participation — stakeholders being both patients and the pharmaceutical industry. The formulary management review…. The implementation plan was discussed with the stakeholders in October and will be published soon.

The next slide is just one of those examples. I recognize that it's extremely difficult, if not impossible, for you to read, but I wanted to show you this is something that is available now on our website. What it does is it actually tracks the requests for drugs to be added to our formulary, and this is available to the public to see, to manufacturers to see, in terms of where their particular application is in the process. We identify when they had requested the drug to be reviewed and then when the decision was made.

This has just recently been made available, and we clearly will need to continue to refine it as we move forward, but I wanted to show the committee that we are very interested in transparency. This actually does save my staff a fair amount of work as well when they're having to answer questions from the public or from manufacturers about where a drug is within the process.

I should note, however, that the manufacturers' submissions…. When they request a drug for consideration in the formulary and we review the drug and come to a decision, if that decision is to not list it on the formulary list because of a lack of therapeutic effectiveness or increased side effects…. We will make a decision that that should not be made available.

Without exception, the manufacturer will then appeal that decision and ask that we reconsider the decision that was made. What that results in sometimes is that it looks, perhaps, like a prolonged process because we reopen the file if they've provided us with some new information to make sure that we do provide sufficient attention to that as we move forward.

Sometimes it can look like the process takes two or three years when, in fact, during that time frame the manufacturer has come back with new information that we've had to relook at, and we've made another decision. And then they come back again. So it can be a lengthy process. That information is available on the Web.

The Auditor General has recommended that we reassess drugs that are already on the formulary. To that end, we have been actively involved with a number of initiatives.

The Canadian Optimal Medication Prescribing and Utilization Service, called COMPUS, is a joint venture of the federal and provincial jurisdictions. They will look at ensuring that drugs are used optimally once they are available in the Canadian market.

Health technology assessments always look at what information we've gathered about these drugs since the time of marketing. At the time of marketing oftentimes there is not a lot of information about these drugs, so we need to be vigilant about watching the literature afterwards.

Finally, the drug effectiveness review project, which is out of Oregon Health and Science University, does class reviews of drugs. They will take a look at a particular drug class and review whether there are any substantial differences amongst the agents in that class — ones that have been proven to be more effective than others or more safe.

Continuing on with this, the Auditor General has recommended that we reassess drugs already in the formulary. The therapeutics initiative does conduct some real-world safety and effectiveness reviews after we've made our benefit listing. As we move forward in the new organization that I've alluded to, the drug intelligence branch will be looking at drugs that have been on the formulary for some time to ensure that they provide continuing benefit to British Columbians.

Purchasing at a reasonable cost is important. The Auditor General has recommended that we explore and implement ways to ensure that we do get the best prices for drugs. We will be establishing a business management branch that will be looking at negotiating and tendering contracts with drug manufacturers in order to make sure that we do attain the best possible price on the drugs we cover.

I should also mention that British Columbia is the provincial co-lead, with Health Canada, in the national pharmaceuticals strategy. One of the priority elements of that strategy is to look at pricing and purchasing within the public domain.

Pharmacare is continuing to engage proactively with industry regarding product-listing agreements for high-cost drugs. So where their list price appears to be higher than the value we believe the drug is providing or where we believe there's a large potential for a drug to be used beyond its labelled indication, we will enter into product-listing agreements to try to share some of that risk with manufacturers.

The Auditor General has recommended that we utilize PharmaNet information for physicians. I can tell you that the access to PharmaNet has been expanded to include practitioners through the medical practice access to PharmaNet program. In December of 2005 there was a provincial rollout, and we have around 840 physicians signed up to access PharmaNet in this manner.

This program is strongly endorsed by the B.C. Medical Association as well as the College of Physicians and Surgeons. As part of the e-health project, the ministry plans to implement physician access to PharmaNet through hospitals in early 2007.

The e-health drug strategy is also underway. The objective there is to ensure that physicians do have complete medication profiles and that they can access clinical drug information and financial reference tools so they'll have an idea of how much these drugs are going to be costing their patients when they show up in their pharmacies.

Finally, but certainly not least, within that strategy is the capacity for electronic prescribing. There are huge benefits in getting away from the handwritten prescriptions. Although there is some joking about how difficult it is to read physicians' handwriting, it is an extremely serious and important issue because if you can't read your prescription, your pharmacist can't either, and we can't afford to guess as to the content of those prescriptions.

The Auditors General recommended that we support appropriate drug use, and they have alluded to some of the programs that we have supported over the years and that we continue to support, such as the therapeutics initiative, the community drug utilization program, academic detailing, as well as some of the other programs that we are participating in nationally.

In addition, we feel it's important as a management tool that we actively engage in trying to influence the demand side of the equation. We will be doing this through a new branch on drug use optimization. There are other jurisdictions in the world that have aggressively developed these strategies. The idea is to give physicians the tools to educate them, in a way that isn't commercially motivated, on the best way that pharmaceuticals can be used for their patients.

More on the recommendation of the Auditor General that we involve physicians in developing actions. We are undertaking a project with the BCMA and UBC on education for quality improvements in patient care that we call EQIP. That project is underway now. We've received extremely strong endorsement from physicians groups, and we do engage them in the detailed development of this program.

We're working with the physicians guidelines and protocols advisory committee, also called GPAC, on how pharmaceuticals fit into treatment guidelines.

Certainly last but not least is that we will be expanding the drug benefit committee to include more practising physicians in recommending products for addition to our formulary.

The Auditor General has recommended that we clarify the eligibility criteria and assess compliance for plan G. We would agree that this is important, and we have initiated a review of that issue with the internal audit and advisory services from the office of the comptroller general in order to develop the accountable plan G policy.

In terms of the legitimacy of claims submitted, there is a concern about capacity and our ability to reduce the audit backlogs. We have hired an additional auditor in order to address some of those issues.

The Auditor General has recommended that we use B.C. reporting principles for reporting performance and that we produce an annual report. I'm happy to advise you that I have reviewed a penultimate version of the report that will be retabled in 2007, and that work was well underway with that report, so we were not able to implement the B.C. reporting principles. But we certainly will commit to doing that in the future.

Finally, just to sum up, work on many of the actions recommended by the Office of the Auditor General is underway, and we do appreciate the time they took to produce that report for us. We believe that the fundamentals for an equitable and sustainable Pharmacare program are in place, and we are very proud of the program that we offer to British Columbians.

R. Sultan: I think all of us would agree with Mr. Nakagawa that we have here in British Columbia a Pharmacare system to be proud of. It is technically, in terms of its IT aspects, quite remarkable, I think, compared to other jurisdictions in North America.

It's universal, comprehensive in the range of conditions addressed and economically fair. We can all, I think, take credit — past and current governments — for maintaining a Pharmacare program that is indeed special and one to be proud of.

Having said that, I find, Mr. Nakagawa, your response to the Auditor General's report, which I would hardly say is giving you an excellent or even good report card…. I'd say at best it's pass-minus, and some might even say it's bordering on unsatisfactory in terms of performance relative to what is expected of your leadership. For example, the Auditor General says: "We found strategic objectives not linked to actions, performance measures lacking, some evaluation done but not well linked to objectives."

In response to that, which strikes me as being rather crushing criticism, you give us the quotation from 2004 from an American Health Affairs journal by Morgan, Bassett and Mintzes, who say that what makes the B.C. approach unique is the focus on paying for proven health outcomes.

Now, I would wager that Morgan, Bassett and Mintzes have not come close to examining the reality of what happens in the Pharmacare program in comparison to what the Auditor General has examined in the course of their study. Therefore, I find it rather remarkable

that you would open your presentation to us on such a self-congratulatory tone and suggest that the performance of this important component of the Health Ministry is almost bullet-proof. I don't think that would be consistent with what I take the Auditor General's findings to be.

Let me be more specific. Much of the controversy — and there is controversy — surrounding the Pharmacare program relates not to how prescriptions are delivered and how payments are made and whether there is perhaps even some small element of systematic fraud in the system. I am confident that you folks do a good job of policing that end of it.

The controversy arises in terms of the particular pharmaceuticals being considered for adoption under the program. We had previously, in a previous government, the George Morfitt report, which was supplemented by a review initiated by our former Minister of Health Planning, Sindi Hawkins. It concluded that the savings of the program had plateaued around $12 million or so. I found that astonishingly low and probably subject to some re-examination.

I believe you quoted a figure of $35 million. Given the turmoil that seems to go on, one might expect a more precise measure of savings. Instead, we hear from the Auditor General that there are no remarkable economies, it appears, in our purchasing of prescription drugs. We hear from other sources that in fact, when we turn to generics, the unique attribute of the Canadian system is how much higher than world prices we pay in Canada for our generics.

What in the heck is going on? Is that really the power of Quebec on display once again? I would think of all the provinces — here we are at the far end of the country distant from those pressures — we could have done better.

Did the Auditor General's office review the government-funded Corbett report, which I understand was produced in 2004 and came up again with what is rumoured to be some rather critical judgments about the effectiveness of this dimension of the Pharmacare program?

All trails seem to lead to the therapeutic initiative at UBC. So I have the following questions. How much does the TI cost to operate? What are its terms of reference? Who is it accountable to? How are the members chosen? Has there been any turnover in the last decade? Would the money being spent there be more effectively spent in other manners?

Finally, I cannot resist commenting on the report of a conference that your ministry sponsored last spring at which some rather colourful language was used to describe the pattern of behaviour one observes in the pharmaceutical industry, namely: "Immoral, dishonest and corrupt." So I ask you, Mr. Nakagawa: do you endorse the views in this conference sponsored by your ministry that generally speaking the pharmaceutical industry is characterized by immorality, dishonesty and corruption? And if not, have you taken any measures to issue a statement of regret perhaps?

R. Sultan: I appreciate I'm getting dangerously close to that, but I use that rather flamboyant example to illustrate the unfortunate controversy which surrounds one element of what is in fact a remarkably excellent program that we should all be proud of.

R. Fleming (Chair): Well, there's your opening question, Mr. Nakagawa, or several questions.

R. Fleming (Chair): If there are any answers that require…. There is the option of…. Some of Mr. Sultan's questions…. You can always respond to us in writing, too, about some of the specifics around the projects he was asking about.

B. Nakagawa: Thank you very much, and I do appreciate Mr. Sultan's questions. There are many questions that have been tabled, and I don't know that we have the time to go through each one of them. Some of them are a little bit difficult for me to isolate.

What I will say, though, is that I did not want to mislead the committee to imply that I was quoting a $35 million number in terms of savings for the reference drug program when previously we had tabled numbers of $12 million. The $35 million was from the Morgan, Bassett and Mintzes' paper in which they were projecting the impact on some of the cost containment things.

What I will say, too, is that the Auditor General has made comment on the need for evaluation, and we don't take issue with that. We agree it's important that we do evaluate programs. That isn't in contradiction to the Morgan, Bassett and Mintzes' paper, which is speaking from a health policy perspective but than a detailed…. They weren't trying to do the same thing. It wasn't meant to provide a response to the Auditor General as much as to set the tone that we do some wonderful things within the program.

I will also say that the CHSPR conference that was alluded to at the end was not a ministry event. This was an event that was sponsored by the health services research group that is based at the university and the speakers, as many conferences do, speak on their issues. The ministry has in no way attempted to control or have input into the content of the topics that speakers present. I don't think that it's something that we would necessarily want to get into either.

I would say, though, that the quote was not entirely accurate and that I did hear at the event that one of the speakers said the pharmaceutical industry…. He did not say that the pharmaceutical industry was immoral. He said they were amoral and that that was quite a different sense to the presentation or the comment that the individual speaker made. But that was not in any way a ministry speech.

R. Fleming (Chair): Was the corrupt part accurate, or was that misquoted as well?

B. Nakagawa: I don't even remember him saying that aspect of it, but I mean I can't comment. But I do remember him specifically using the word "amoral" and that frequently being quoted as "immoral." As the committee well knows, they are very, very different.

I know there are probably other issues in terms of the therapeutics initiative and others. I'll take your direction, Chair, in terms of whether you would like me to continue on in addressing that.

R. Fleming (Chair): I think that something in writing to the Clerk that members can look at, at a later date would be very beneficial. That would be very much appreciated.

R. Fleming (Chair): Any comments from the Office of the Auditor General on the question?

A. van Iersel: I don't have a question, Chair, but we'd very much encourage the ministry to prepare a detailed action plan in response to this audit and to share that with this committee, going forward, such that we can all monitor and share in the progress that needs to be made. That would be my comment. We'd be happy to work with the ministry in regard to putting that together.

As I mentioned to you and the Deputy Chair, I unfortunately have to leave this meeting. I hope you'll allow Morris Sydor and Kathy Crawley to continue in my absence.

G. Gentner: First of all, I have to concede that I certainly cannot compete with the flamboyancy of the member to my left, but I have an open question to both the Office of the Auditor General and the ministry itself. It is relative to recommendation 6 regarding, of course, the Maximus B.C. contract.

Notwithstanding a performance review that the ministry suggests could be conducted once in awhile to the Auditor General's office, what is meant by a needed, regular review or audit, and why does the ministry continue to suggest that it has to wait to evaluate the effectiveness of this contract?

My other question is…. The rationale from the ministry is that there have been some changes conducted by Maximus. Until those changes are complete, there cannot be a proper review or audit. This leads to a further question: how long do we wait for those changes to be completed? It seems to me that it's an ongoing process.

With that — general questions, Chair — I open it to both parties to sort of figure this one out, because I'm having a hard time.

B. Nakagawa: I am happy to start and maybe come back if necessary. I don't want to leave the committee with the impression that there is not any ongoing evaluation of the Maximus contract. I can advise you that HIBC Maximus has consistently met or exceeded service level requirements for Pharmacare operations over the past year.

On the provider side, Pharmacare help desk has been available 24 hours a day, seven days per week, except for very insignificant interruptions. The claims processing system has similarly been available, except for planned maintenance. Weekly pharmacy payments have been made on time. Some 99 percent of the pharmacy registrations have been processed within two business days, and the average wait time to respond to provider telephone inquiries has been less than one minute.

On the beneficiary side, applications to register with Fair Pharmacare have been processed on time. Eighty percent of applications have been processed within two business days, and 99 percent have been processed within five business days. The Fair Pharmacare interactive-voice-response application and web registration services have been available 24-7 as well — except for minor outages outside of their control and planned maintenance. The average wait time to respond to calls from the public has been less than three minutes.

I think these are good examples to provide the committee that recognize we are evaluating the performance of Maximus under the contract. It's part of their obligations. I don't want the committee to have an erroneous impression. This is a ten-year contract. We need to look at the whole piece. It has been contemplated that there be a value-for-money audit or an effectiveness audit at some point in the contract. I would leave that to the Auditor General to determine when they feel that would be necessary.

R. Fleming (Chair): Perfect segue into the Auditor General's response to the question.

K. Crawley: At the time of our audit, the Maximus contract was very new, and we were concerned that information was coming forward to the ministry and that they were just accepting it as it came.

Another concern was that it looked like it was going to be several years before they had an independent review of that information, and we thought it should be sooner rather than later. I believe that there were some problems actually getting the information on a timely basis. So that's where we were coming from in our audit report.

G. Gentner: Just a quick supplemental. I suppose I should ask: when are we going to get a value-for-money audit? I'm not talking about a self-indulging performance review conducted by the ministry. Do we have a ballpark estimate on when we're going to get this audit?

M. Sydor: I'm not sure we have a specific time line in place. We're looking at all the alternative service delivery changes government has made over the past few years.

As you're aware, our office has recently restructured into financial groups and performance audit groups. I think the financial audit group is, in fact, looking at issues like Maximus and other alternative service delivery mechanisms and trying to see which ones of those our office can audit and what that timetable would be.

Certainly, the Maximus agreement is one of the issues that we are considering. As to a specific time as to when we might carry that out, I don't think we've come to a determination on that yet.

R. Hawes: I have a series of questions. In the interest of time, I'm going to ask that you provide a written answer to my questions, if that's okay with you. And I would like a comprehensive written answer.

R. Hawes: I would like the answers actually put on the record here at some stage, too. I assume they would be.

R. Fleming (Chair): We'll accept it at the next committee meeting when they're available.

R. Hawes: First, Mr. Sultan raised the question of the Corbett report — 2004, I think. In your response to the Auditor's report, you said there was an extensive shareholder consultation process. I assume you are referring to the Corbett study. Would that be correct?

Given that, my understanding is that the Corbett report required, at the end of everyone putting their input into the consultant, that there would be an amalgam of all of the inputs and a big group discussion, which would include the shareholders. And it was terminated early, much to the dissatisfaction of both the consultant and the stakeholders.

I would like to know why that was concluded early, and if possible, I would love to hear from Mr. Corbett on his level of satisfaction with the final outcome. So my first question would be surrounding the Corbett report.

You talked about shareholder consultation, and you mentioned in your brief today that you have improved that, etc. I would like to know how you've done that, and specifically how you've done it, because….

I'm going to speak now on behalf of a number of my constituents, but I think hundreds of thousands of people around the province — people who suffer from Alzheimer's or diabetes or COPD, or people who are receiving chemotherapy and suffer chemo-induced anemia and are waiting for drugs like Eprex to be approved for that — have been basically left out in the cold, feel themselves left out in the cold and are not getting the medications approved that other provinces in fact are approving. I would like to know how you consult with those people and how you intend to get some satisfaction, because if they are indeed stakeholders, they need to feel somewhat satisfied that they've been listened to.

In saying that, I guess I will say that I have talked to, and they have actually been in this building, making representation…. Neurologists, endocrinologists, respirologists, oncologists, hemotologists have all come here and talked about the non-responsive nature of your operation to the drugs that they see are extremely valuable. So I would like to know how you are building consultation with them that would, in fact, include them and would respect the knowledge that they bring to the table.

That leads me to the TI. I do know that occasionally the TI does consult with clinicians. I know that according to the clinicians — many clinicians, and I could start naming some — they are routinely consulted, and then their consultation is totally ignored. They question where the knowledge level is within the TI to ignore the advice they've been given by clinicians as to the value of the medications that are being considered. So I'd like an answer to that question. Where's the expertise there, then, within the TI?

Secondly, I would like you to consider the way that Mr. Sultan phrased his question, and maybe an answer. Who are these people, etc.?

My third one would be regarding cross-ministry cost-benefit analysis. In order to properly assess the benefit and the costs of a medication, I think you have to take into account what the downstream benefit of paying for that medication is. If it takes people off of disability rolls and puts them back to work, for example, there's a tremendous offset for government. I'd like to know specifically what steps you take, and who does it, to look at cross-ministry benefit analysis — the cost-benefit analysis of drug approvals.

Lastly, I guess I would like to know, because you talked about being open and transparent…. The comments that I have had from many societies, from the Alzheimer's to the society for diabetes or the B.C. Cancer Agency, etc., is that your agency is not only closed but completely non-responsive. Compared to other provinces, it's amazing the comments that we hear about what's going there and the complete and total lack of response.

I will comment on your presentation here where it would appear that you proudly say: "We are one of

only four provinces that have designated programs for cystic fibrosis patients." But we're the only province that doesn't have a medication for Alzheimer's. We were the last one on one of the latest drugs on diabetes that endocrinologists say is very important and not a "me too" drug. We were over 1,500 days in the approval process. The next closest province — and all have approved it — was 700, and most were down in 100 to 200 days. We were over 1,500 days — hardly something to be proud of.

I would like answers to the questions on openness and transparency and exactly what steps you can explain that you have taken that can go out to these very large groups representing hundreds of thousands of British Columbians so they can have confidence that their issues are being heard by your organization.

R. Fleming (Chair): Those questions, then, for the Ministry of Health to respond to, and of course Hansard will record the question exactly, and we will appreciate a reply at the committee.

Next on the speakers list is Mary, who has graciously taken herself off. I have Diane, and then it's closed, and we can move on to our other items.

D. Thorne: I'm going to be very quick. If it's not a quick answer, you can write my answer as well.

I'm interested in saving money on buying drugs, as referred to in recommendation 9 in the AG's report, where they talk about buying the drugs and cutting out the pharmacies and dealing directly with the wholesaler. I notice in your response that you say that there is what you call a "supply chain project," where you're looking at all kinds of ways to save money on supply of drugs. I am wondering what the status of that project is, and specifically, as part of that project, what the status is of your negotiating directly with suppliers and manufacturers.

B. Nakagawa: I think it's fair to say that that's not a really quick answer, but I can provide a fulsome one in writing.

R. Fleming (Chair): We've come to the end of this report section, so a motion to adopt the report and recommendations is in order as well.

R. Fleming (Chair): Thank you, Bob, and thank you, Bill, for appearing from the ministry. Morris and Kathy from the Office of the Auditor General, thank you very much for being here today.

R. Hawes: Can I just go back one step here? I'm not sure if you've done that already, but could I just make sure that…. For example, in our first presentation today on the Olympics, our motion was to accept the Auditor's report and recommendations.

R. Hawes: But I would also like to get it on record that we should also be accepting the response of the ministry. That should happen, I guess, with this, too.

R. Fleming (Chair): Okay. Well, I note within the text of the report document itself that there is the response of the ministry, I think under Minister Hansen's….

R. Hawes: But I would like that specifically indicated, too. I think it's important.

R. Fleming (Chair): Okay. What I'll do, then, is just clarify at a later date how motions like that are adopted and what they implicitly mean, just so it's clear, because I didn't want to have a second motion around that. Is that fair?

R. Hawes: Maybe the mover would accept that as a friendly amendment. Get back to us.

R. Fleming (Chair): The draft report to the House is being distributed right now. I think you received it a couple of days ago, an e-mail version. So this committee obviously gets dissolved on February 13 when the House prorogues, and we will have to submit a report at some point in February, I imagine. A copy of this report is complete but for a synopsis of today's proceedings, which will be our last meeting on these terms of reference that we have. This is just an opportunity, if members had any corrections or changes they wished to signal, to make them.

Seeing none, then, could we have a motion to adopt the draft report to the House? It's moved and seconded.

I. Black: Before we call the vote, I have a question on the motion on the floor.

I. Black: Just for clarity: given that there are two sections missing…. I've had a chance. I've read the entire thing. I've got no problem with what's here, but we haven't seen what we did today, so are you asking us to approve in good faith what's likely to come from Josie, or are you effectively asking us to approve something that we haven't seen yet?

I. Black: And will there be subsequently another vote on what is circulated electronically? I'm just confused what it is we're voting on. I feel like I'm voting a little blind here.

R. Fleming (Chair): We'll just ask the Clerk to clarify it. We've done this before.

C. James (Clerk Assistant and Clerk of Committees): In the effort, at some expediency, we'll circulate the final version, which will include today's meeting, but if members have difficulty with any part of it, then that will be taken out and dealt with in a subsequent committee report.

I. Black: Okay. My reason for asking, Chair, is simply because there were obviously some spirited comments made, and I want to ensure that they are captured appropriately. I want to make sure that the individuals who made them have the opportunity to review the text and make sure that they're appropriately reflected. With that caveat, I'm comfortable. Thank you.

R. Fleming (Chair): Fair enough. Josie, did you just suggest something about an amendment to the report?

R. Fleming (Chair): That's how the motion will read, then. Then on adopting the draft report as amended?

R. Fleming (Chair): The Chair will present that report to the House during the next session.

We're on to other business. I bring to the committee's attention a letter that was received today that was submitted to the Speaker by the Acting Auditor General, which outlines a resignation, effective June 1 of this year, as Acting Auditor General. I think that for one thing, it perhaps makes the notice of motion that was on today's agenda moot. The reasons in the letter…. I assume that the committee will be copied on it at some point.

At this point it resides with the Speaker, and the Deputy Chair and I were copied on it, but it does speak to a resignation that will occur on June 1, and it makes it incumbent upon this committee to use this session to get back to the business of naming a permanent Auditor General for the province. I just bring that to the committee's attention now.

R. Fleming (Chair): There are a couple of members who wish to speak to it. I think that's probably all. The letter really just states that he is submitting his resignation.

C. James (Clerk of Committees): The letter is labelled "strictly confidential," but I believe I could photocopy the letter and circulate it to the members this afternoon.

R. Hawes: So this is not something that would ever go onto the public record?

C. James (Clerk of Committees): I don't think reading it into the public record would be appropriate.

J. Yap: And that was my question, Chair — if we would know what the letter said.

R. Fleming (Chair): The letter is directed to the Speaker, Bill Barisoff, and it just basically gives a time line. I think I've described it in the main details.

J. McIntyre (Deputy Chair): I've not read the letter myself, although I did understand, as you said, that the Chair and I were being copied. I actually think it might be at my office today. I did get a phone call, as did the Chair, yesterday afternoon, so I've had a little bit of time to absorb the news before Rob mentioned it to the committee today.

I do want to make a statement as the Deputy Chair, because I think that it's really with great regret that as a committee we basically have no choice in accepting the acting Auditor General's decision to step aside in June. Essentially, my understanding is that he wants to remove himself from the politics of this situation. In doing so, I believe that Arn van Iersel has clearly demonstrated the very qualities that we saw in him all along. That's personal integrity and professionalism.

I believe, having now assumed this role as Deputy Chair and working with the Chair, that the acting Auditor General has tried to perform his duties for the last six or seven months to the best of his abilities. He has been trying to illustrate both his expertise and his independence. Apparently it has not been to the satisfaction of the opposition, who today had a notice of motion to propose another search. As a result, he selflessly put the interests of the Office of the Auditor General ahead of his own professional interests.

I don't think we should fool ourselves here, because he, along with others, viewed this motion that we were going to debate as a vote of non-confidence — or, I'd say, at a minimum, as an unwillingness of the opposition to support him unanimously in moving to the role of the Auditor General. He's a gentleman who has had a lengthy service here — public service in this province — a long track record, successful. Likely this position as full-time Auditor General would have been the pinnacle

of his career. Again, here he is putting the integrity of the office in front of his own interests.

When I reflect on the decisions we were going through in the spring, one of the strengths of his candidacy was that he emerged from our ranks as a leader. I think his full-time appointment had the potential to send a very strong signal to other civil servants in this province that we don't have to go outside this province to find individuals of his calibre. I just want to say that I think it's a sad day today, that politics has trumped professionalism, and it's affected a stellar career quite severely.

I guess I just end with repeating that I feel this notice of motion, combined with Mr. van Iersel's resignation today…. I don't think those events are unrelated, and I just think we've been left in an untenable position here of no choice but to accept his resignation and thank him for at least providing us a bridge to June 1 so that we can move on, as Member Thorne wanted to do, and get on with a permanent replacement. Anyway, he's earned my admiration, and I hope that of the others around this table.

D. Thorne: As the mover of the motion, I have to respond to that and also to the reasons for my notice of motion. I would say that when an assumption was made by myself — and I am assuming by everybody in the Legislature — that when a search committee fails in its job to have a unanimous recommendation…. I mean, I am a new MLA, but I'm assuming that when a search committee fails to have a unanimous recommendation to give to the Legislature, and an acting person is appointed in any position…. The assumption has to be that the person is in an acting position. At some point in time, when the committee decides, another search committee will find — at least, try to find — a permanent person for that committee.

If I'm wrong, I'm assuming Mr. James will correct me, but that would be my assumption of an acting position. It was in that spirit that I brought forward a notice of motion that we set the wheels in motion to look for a permanent replacement. At no time did I ever assume that Mr. van Iersel would not apply again for that job. In my mind, I just assumed he liked the job, that he would apply, and that he would want to be permanent.

Why would he want to continue being the acting person working under the kind of cloud he was working under? Whether we want to talk about a cloud or not, there were comments from all over the world on the fact that we failed to come to a conclusion, etc., and when were we going to have a permanent AG for the province of British Columbia?

It was in that spirit. It was in no way intended to be a reflection on the work that Mr. van Iersel has done in the past year as acting Auditor General. I wasn't asked what I thought about his work, and I have therefore made no comment about what I thought. I thought I was starting the process that was always intended to happen. It seemed timely, and that was what I was doing with the notice of motion.

I would just like to add that I'm a little upset about the inference that my making that notice of motion was strictly politics, because it had nothing to do with politics — nothing.

R. Fleming (Chair): Well, Member, before we get into opinions and interpretations, we have been given no reasons for the resignation. All we have is a letter of resignation.

I think it is also absolutely correct, as Diane Thorne has said, that B.C. currently, today, has no permanent acting Auditor General. It didn't have one yesterday, either. The business of this Public Accounts Committee — our obligations under legislation — was to name the next permanent Auditor General. So this task, motion or not, is ours under legislation to do, and it was always just going to be a question of when the committee undertook to do that.

R. Hawes: Mr. Chair, I would like to make a motion — that being that the Chair and the Deputy Chair convey in writing the committee's thanks to the acting Auditor General for his service and that we commission the Chair and the Deputy Chair to meet with the Clerk to immediately begin the process of seeking a new, permanent Auditor General. You can't do anything without a motion, and so I think we have to have a motion here.

R. Fleming (Chair): Our committee ends on February 13, so these motions will not have a life beyond that. Is that correct?

R. Hawes: Mr. Chair, if I could speak to the motion — the first one. Certainly, it's this committee that the acting Auditor General predominantly has worked under. I think it's appropriate that the Chair and the Deputy Chair do send a letter of thanks for all of us. I'm assuming most of us will be back here on this committee after February 13. Some may not, in which case their thanks are being conveyed.

Lastly, I do think it's appropriate that the Chair and the Deputy Chair at least begin a process immediately, because June 1 is going to come quickly enough. This is something that we've got to get on, like, quickly.

I would recommend that you start the process, and I would assume, as you report back after February 13 — very fast, because you'll have made progress — that we will accept what your recommendation is, and we'll move quickly.

R. Fleming (Chair): On the first motion, instructing the Deputy Chair and me.

R. Fleming (Chair): On the second motion, to begin to undertake a process and report back to the committee on a search.

J. Rustad: I just want to clarify that any motions or any process we start on February 13 when the House prorogues would be nullified or void at that point…

J. Rustad: …in which case we'd have to repeat that process, and this committee would then have to reconvene in whatever form it may be after the 13th to do that.

J. Rustad: To give you a week to do something, but because that would end then…. It doesn't matter what the process would start. A future committee ultimately would have to pass a similar motion to actually be able to do anything.

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REPORT OF PROCEEDINGS (Hansard)

SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE ON
PUBLIC ACCOUNTS