Public Accounts — Issue No. 23 — Tuesday, February 2, 2016 (HTML)

Strategy Room 420, Morris J. Wosk Centre for Dialogue
580 W. Hastings Street, Vancouver, B.C.

Present: Bruce Ralston, MLA (Chair); Sam Sullivan, MLA (Deputy Chair); Kathy Corrigan, MLA; David Eby, MLA; Simon Gibson, MLA; George Heyman, MLA; Vicki Huntington, MLA; Greg Kyllo, MLA; John Martin, MLA; Lana Popham, MLA; Linda Reimer, MLA; Selina Robinson, MLA; Ralph Sultan, MLA; Laurie Throness, MLA

Others Present: Carol Bellringer, Auditor General; Stuart Newton, Comptroller General

2. The following witnesses appeared before the Committee and answered questions regarding the Office of the Auditor General Report: An Audit of the Panorama Public Health IT System (August 2015)

4. The following witnesses appeared before the Committee and answered questions regarding the Office of the Auditor General Report: Monitoring Fiscal Sustainability (June 2015)

• Keith Godin, Executive Director: Social Policy, Performance Budgeting Office

6. The following witnesses appeared before the Committee and answered questions regarding the the Office of the Auditor General Report: Budget Process Examination Phase 1: Revenue (June 2015)

• Sadaf Mirza, Chief Economist & Executive Director, Economic Forecasting and Analysis

7. The Auditor General provided an update and answered questions regarding the Follow-up Process and Action Plans.

The following electronic version is for informational purposes only.
The printed version remains the official version.

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE ON
PUBLIC ACCOUNTS


CONTENTS
Page
Auditor General Report: An Audit of the Panorama Public Health System	807
C. Bellringer
S. Brown
S. Newton
D. Shera
Auditor General Report: Monitoring Fiscal Sustainability	816
C. Bellringer
B. Gilhooly
G. Farkas
S. Newton
Auditor General Report: Budget Process Examination Phase 1: Revenue	827
C. Bellringer
B. Faulkner
G. Farkas
D. Riley
S. Mirza
Follow-up Process for Office of the Auditor General	833
C. Bellringer

B. Ralston (Chair): Good afternoon, members and guests. There’s an agenda here.

First, I want to just acknowledge the presence of a new member at the table. John Martin, MLA, has been appointed. [Applause.] It’s unanimous.

Mike Morris has — I’m surprised — decided to leave the committee to take on another assignment, which shocks me, but there we are. He was a member of the subcommittee, and Sam will be appointing one of the government members to replace him on the subcommittee, which deals with procedural and scheduling matters.

So thank you very much. Welcome back to the new year. We have an agenda before us, and our first item is the continued consideration of the Office of the Auditor General report An Audit of the Panorama Public Health IT System.

I want to introduce — and I think there are a number of people from the Ministry of Health as well — Carol Bellringer, who’s the Auditor General; Pam Hamilton, director of IT; Stuart Newton, who is the comptroller general; Stephen Brown, deputy minister of the Ministry of Health. Then I’ve got Deborah Shera, Dr. Bonnie Henry and Jonathan Robinson. Welcome to everyone.

What I’m going to suggest — because we have, obviously, considered this report before — is that perhaps the Auditor General can give a brief recapitulation of where we’re at, and then I’ll turn it over to Mr. Brown to continue.

C. Bellringer: Thank you, Mr. Chair. You’ve introduced Pam, who was the principal author of the report. She’s replacing…. Morris was here for the last two times that we met.

I hadn’t actually prepared any introductory comments on this. I thought we’d been through everything. Certainly we can go through it again.

One thing I will…. Just looking back at what’s progressed since the issuance of the report and then looking to where we are today, we won’t be doing a follow-up on this for a little while — I mean, depending on whether or not we choose it. We’ll be talking about that at the latter part of the day today around the follow-up process. But we haven’t done anything since then, other than some ongoing conversations.

The one thing — I think it was drawn out at the last Public Accounts Committee meeting — was that we certainly saw a very different reaction, if you will, from the ministry. When the report first went out, there was a definite resistance around the last recommendation that we made, which was looking at having an independent review done of Panorama.

Certainly, we are much more comfortable with the ministry’s update that was brought forward at the last meeting that indicated that they would be doing…. I mean, it can take many forms, so it’s really a matter of seeing what actually does take place and then seeing whether or not it’s going to do enough of an assessment. But we’re much more comfortable with where they’ve landed with that subsequent to the release of the report.

B. Ralston (Chair): I do note that in the action plan, that is referenced as an alternate action that’s being taken — the commissioning and independent review. Doubtlessly, we’ll hear it from Mr. Brown on that, but I think that decision has been made since we last met. Is that correct?

B. Ralston (Chair): Very well. Good things happen when the Public Accounts Committee meets.

Thank you very much. I didn’t mean to put you on the spot there. I just wanted to give you an opportunity to open, as always.

S. Brown: Just to formally introduce Dr. Bonnie Henry, who is the deputy provincial health officer. Perry is away on vacation at this minute. Bonnie has an extensive background at the B.C. Centre for Disease Control as well, so a good background.

I did mention to the committee before Christmas that we’ve just appointed a new assistant deputy minister for our IMIT, and that is Deborah Shera, who’s joined me today. She’s become more familiar with the file over the last couple of months. And Jonathan Robinson is a key staff member who works with Deborah — just by way of introduction.

I thought I’d give a very brief update on where we’re at and then, obviously, over to any questions that you’ve got.

Really, jumping straight to slide 3, in terms of improvements. I think, to what Carol was referring to, as we got more into this report and what actions we would take coming out of the report, we are really trying to take advantage of the report to take a step back and take a really good look at not just this particular project but actually how we’re approaching the management of IMIT projects writ large. So we are trying to take advantage of the situation to, really, not only look at the Panorama but to
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actually take a step back and a good look at how we manage IMIT projects.

I won’t go through this list in detail with you, but that slide represents my attempt as more of a layperson in IMIT to actually try and get some fundamental clarity in a number of key areas, which I’ve now asked the IMIT branch to actually look at and come back and give me some criteria on. I used the word “excellent” as well because it was a word that Carol used in her document — that because of the size and the complexity and budget, we need to actually strive for a level of excellence.

I’ll explain where we are with this, to actually begin to try to define what exactly good, excellent practice could look like and that that becomes some standards of practice that we adopt, at least as a ministry. And obviously, we’ll be sharing with our colleagues across government.

I will emphasize one thing that’s been a big learning for me personally, I think, in looking at this particular project. When I say “clear process” at the beginning of this list, I think one of the things — and we’ve already just applied it in another project…. One of the key steps at the beginning is actually making sure you understand what problem you’re trying to solve, and if you have enough discipline or processes in place around how you actually conduct yourself in terms of doing the business of health.

In this particular area, Bonnie and I were discussing just a couple days ago on the outbreak management. I’ll get the number wrong, and Bonnie can correct me. I think it’s 70-odd communicable diseases that are reportable, and the actual work of how those are reportable and what we actually do with them is a complex clinical process that needs a level of consensus across a whole range of people. So if you jump in and start trying to do an IT solution for that before you’ve actually got agreement on what it looks like, it can actually cause all kinds of problems.

We’re really trying to take this issue seriously as we go forward here. But before we move to an IT solution — we do need to move ahead with a whole range of IT solutions — have we actually properly defined and understood the problem we’re trying to solve and then understood an IMIT solution that can cost-effectively help us move the services forward?

I won’t talk any more on that. I would be more than happy to talk if you’ve got any questions on it, but I just wanted to highlight that we tried to use that. What will be happening with this list is that we are going to try and put in place over the coming months some operational definitions — which I’d be happy to share with the committee and, obviously, with the Auditor, going forward — to say what exactly our standards are and that they’re open to public scrutiny. They’re also, then, useful to us in terms of how we actually move projects.

To give you a quick update of what progress we’ve made over the last couple of months, in terms of the recommendations, I’ll just go over to the first finding. The first is with respect to the three- to five-year business plan, which will be presented to me in June. Obviously, I’d be more than happy to share it with the committee and with the Auditor.

We have now moved ahead with the Provincial Health Services Authority and the B.C. Centre for Disease Control to actually get in place a consultant to begin to shape that up. That consultant, working with Dr. Henry as well the other health officers, is beginning to actually shape up the business plan for how we might move forward over the next three to five years. That business plan will then, in part, also be informed by something else I committed to, which is that we are doing a survey of users of the system over the spring. That will give us a very straightforward sense of how users see the system.

That survey, which we’re building off of something that Island Health were developing — we’re going to launch that in the spring — will be done also at the same time as the draft business plan. That survey will inform some of the functionality or the improvements in usability of the system, as we actually look at what improvements we need to focus in on over the next three to five years. We will bring that into play.

Again, you would see the results of that survey, I would suggest, in late May or early June when we get them in. We’ll be using that to inform the business planning process, which we committed to do coming from the Auditor’s report.

The last piece, which Carol just mentioned…. We did an informal, but the informal doesn’t cut it. That was basically asking staff: could they look around and see what other products were out at the moment and see if that shifts our thinking.

We are in the process of actually developing a formal way of looking across the marketplace to see what the products are that may either be there as enhancements, add-ons or potentially even replacement of various pieces. With that, we’re developing a framework for that. We’re going to have…. I’ll talk in a second.

We’ve now contracted with a third party to do an independent review of a whole range of things that we’re doing in the ministry. Once we’ve actually got that in place — the conversations that Carol and I have had — I will make sure I share that. I think I answered that to amend the last time — that I will make sure I share that methodology and seek any perspective that the Office of the Auditor General might have in terms of the credibility of that independent look at what else is in the marketplace, as things evolve over the coming years.

We’ll do that. I think I said this last time. But we’ll make sure that once we’ve got that done once, we’ll do that annually as a process so that as we try to evolve the program, we’re actually building out a competent and good way forward in terms of the program. That piece is underway.
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Then, turning to the second findings, we said we would do two things here. We would both do an internal look at our project management as well as our contract management, which is on the next slide.

We’ve now got the internal process underway, and you can ask any questions on that. We’ve got that underway in terms of looking at the full scope of what we’re doing by way of project management and contract management. Probably more importantly, to one of the areas that the Auditor General brought in, we have now finished contracting for a third party to take an independent look at where we’re at. We think we’ve made some significant improvements, but we want to actually validate and get further feedback.

We put out an RFP. EY — Ernst and Young — was the successful proponent. That’s in the last slide there. They are independent of our management systems, and they’re reporting through to me — they actually started this week — incrementally over the coming three or four months through to summer. They’re going to take an independent look and give me a different lens on how we’re performing and where there may be further areas for improvement.

They’ve opened up a range of areas right now, going right through the areas that I identified at the beginning — from governance, oversight, how we actually launch projects, the project management. They’re taking a whole look at the improvements that we think we’ve made, or the division thinks it’s made, but they will give us an independent lens and feedback.

So all in all, with that package of actions, we’re underway. Dr. Henry can give you more details in terms of some of the clinical work that’s underway as you ask any questions. But we’re well underway with the actions in terms of what we committed to and would be in a good position to give an update to the Auditor or to yourselves once we get into the early part of summer in terms of the next steps that we’ve taken.

With that, I’ll stop. I did see there’s more on the slides, if you want to pick out, because we also identified just in the progress report some of the iterations that have been coming into play over the last couple of months. You also see references there, which I think are from last time, that there are some more modules coming on, particularly around TB and STI, in the spring. They’re just coming very soon. I put those on the back page of the deck as a way of an update to you.

B. Ralston (Chair): Does the Auditor General have any comments on that plan? It seems to conform with what your recommendations were, certainly in terms of the independent review.

C. Bellringer: Indeed — nothing of concern. It’s not raising any red flags for me or anything.

L. Throness: My question is sort of on a broader scale than the Ministry of Health. I notice that the Ministry of Health is now absorbed in responding to the recommendations that the Auditor General has brought forward.

Ms. Bellringer, your recommendations are directed towards the Ministry of Health alone, but this can be regarded as a case study of pitfalls that an IT project can fall into. I’m wondering: what can your office do to make sure that the whole of government learns the lessons that have been brought forward by you here? What can your office do about that?

C. Bellringer: It’s an excellent question. The answer is not quite so straightforward. The one project that I’ve…. We identified it in our three-year plan, and I’ve mentioned it at the committee before. We are doing something right now on challenges in large IT projects that we’re just finishing off now, but it’s not an audit. It’s looking at what are good practices. It is a message piece, an information piece, to try to get that message out right across government.

What we found when we did Panorama is something that we realize when we go in and then do an audit of a specific IT or any other kind of contract: until you get into the detail at that audit level, you don’t really know whether or not it’s being applied properly. Certainly, the guidelines can be out there and everybody can be well educated, and then something can still go off the rails.

We also recognize when we’re doing an audit, we’re going in at a level of detail we would not even expect management to be going into on everything they do because it’s so fine of a lens. But if we’re not learning something from that for other things, then it’s really not taking advantage of the fact that an audit’s been done.

What I’ve been very hopeful about within the Ministry of Health specifically is watching the change in acceptance of the fact that there are things that needed to be looked at more closely in terms of the contract management. I mean, we weren’t getting into the clinical issues.

I have seen that change. I have seen it being applied in other areas, and we will find out when we go in and do that detailed audit of the Cerner, which is scheduled for a couple of years out. But that’s the only time we’ll be able to tell whether or not it’s really in place.

L. Throness: I think this is a really helpful process, and thank you for bringing this audit forward. I think it’s raised the attention level to IT projects, and probably other government ministries are looking at that as well.

Perhaps it would be helpful also for your office to signal to other departments that you will be paying closer attention to IT projects in the future because of the vulnerabilities that are naturally associated with it, and that may be salutary in its application.
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C. Bellringer: When we do our planning every year — and we’ll be updating that performance audit coverage plan every year — we are looking for other products that we can come up with, other forms of education and so on, where we can use an audit and then see where it can have application in other places. So we’ll take the member’s suggestion seriously into account in that context.

I do think there are some ways that we can be seen within various ministries, even when we’re doing our planning. When we get into the audit of the ITGCs, which is on the agenda for tomorrow, the IT general control review that we did…. We did a self-assessment, which is asking them how they are doing, but we did it broadly across 150 organizations. So you get at it from a different angle.

There are things like that that we can do with audits that we do. We actually take advantage of having done a sample. There’s another one coming up where we did four organizations, but there are several more than that that it would apply to. We’re sending a copy of the results to all of them and saying: “Here’s something that you as that the governing body of these organizations should take into account.”

B. Ralston (Chair): Just before we go to the next questioner, Mr. Newton, will this inform the process of internal audit in the future as well or not?

S. Newton: Internal audit doesn’t report to my office, but I can still speak on behalf of that.

They do take into account Auditor General reports that occur. As well, this report and previous IMIT reports have also been discussed by…. Every ministry has its own chief information officer. They meet as well and discuss. I do know, in relation to large IMIT projects, there’s a reconsideration of how they’re funded and perhaps a lot more checks and balances along the way. So it is having an impact over the course of the last couple of audits.

I also look at it in terms of the procurement side, where we see risk, and what kinds of things do we need to do when we’re testing transactions. So it will filter into, sort of, the checks and balances that exist.

S. Robinson: I appreciate the comments by Mr. Brown. I just have some questions about surveying of users and recognizing the value in doing that.

In going forward, when you talk about surveying users, are you talking about all users or a select group of users, samplings? What methodology are you going to be using to check in with the users of the Panorama?

S. Brown: I’ll get corrected if I’m wrong. I believe we’re going to actually open it up to all users.

S. Brown: I think the piece — Dr. Henry can make commentary on…. I’ve been doing my own, trying to check out this program over the last couple of months. You’ve got two distinct, kind of, interests here. You’ve definitely got your front-line nurses who are actually having to use the system, but you’ve also got — where Bonnie comes from — the Centre for Disease Control, which is surveillance.

So we’ve got both sets of users. It was interesting — the contrast between, for the nurses, what is practical for them to help them immediately get on with their job versus what is also important to the provincial health officer and deputy health officer in terms of…. So we’ll be surveying the whole, and making it completely open.

From some of the conversations I have, I don’t think we’re going to have a reluctance to actually get engaged in the survey. I think we’re going to get some good practical feedback from it.

S. Robinson: That’s why I just wanted to make sure. Because every user will have their own reason for needing the information, and if you only have a certain select group, then you might be missing out. But as long as they’re all being consulted, that’s great.

K. Corrigan: The last time we met, Mr. Brown, you said that it will probably be as late as January before we formally table this report — referring to the audit, I believe — at our leadership council, which is all the CEOs and senior executives from the ministry. Then, a little bit later….I think it would probably be around February by the time we’ve actually been through the full process internally and gone to leadership council and got sign-off of our game plan going forward. It won’t be radically different, but it will be enhanced and refined, I think.

S. Brown: The two dates he gave you there…. The leadership council — I wasn’t sure if it was going to happen, but it was cancelled in January because we were hosting the health ministers meeting in Vancouver. I thought that we might be able to pull off a January meeting. We didn’t. It is on the agenda for our February meeting, which is the third week in February, which is where we will go through the process.

In addition to that process, Dr. Henry and I have been talking. We’re also going to be pulling in both the Centre for Disease Control and the PHSA into the discussion, and we’re going to have a follow-up meeting in terms of action coming from this report. We’re thinking that will be in March time — right? — once we’ve done some more work. So we’ve got, like, a couple. But the leadership piece will be taking place in February.
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K. Corrigan: One follow-up, and then you’ll put me on the end of the list again? That sounds fine, Chair. Thank you very much.

I wanted to ask about the process that you have…. And if you could just remind me of the name of the company. I didn’t quite catch it.

B. Ralston (Chair): The name formerly known as Ernst and Young? It’s kind of like Prince.

S. Brown: My pronunciation. My Mancunian accent. Sorry. I do apologize. I actually just got us delivered to the Wall Centre because the driver thought I was saying the Wall Centre, not the Wosk Centre. It’s my Mancunian accent. I do apologize.

K. Corrigan: I spent yesterday with a Scottish person, so this is an improvement.

On that independent review that is going to happen, that presumably — I’m just wondering about process — is going to come back to you. Is that information going to come to this committee, or can it come to this committee?

S. Brown: The answer is it can, and it’s going to be public. It’s not going to be a private report coming to me. We asked for some transparency because we want to do a reset here and take advantage, as the member was saying, of this report.

I had asked, also, towards the very end of the last meeting whether there was any public reporting from the time that the contract was first signed through to and up until this report. Was there any public reporting and what was happening with the Panorama system, and you said that you didn’t know the answer. I appreciate that in the responses, the follow-up information, you did answer that question. I just wanted to get it on the record. This is the response. As far as the ministry is aware, there was no public reporting on the Panorama system.

I’d been asking about that because I was concerned about the possibility that, because the provincial government had taken the lead on this project and a lot of money had been spent on it, there might be a tendency to want to (1) keep it quiet and (2) continue on with it when it wasn’t necessarily the right thing to do in order to avoid public embarrassment. That’s why I ask that question.

You can respond if you want. It’s not really…. I just wanted to get it on the record because it was in writing.

S. Brown: You’re absolutely accurate. We went back and had a look and couldn’t find any public reporting.

V. Huntington: I must say, it’s like a breath of fresh air, listening to it. I feel kind of like finally, the whole committee is becoming more like a partnership in terms of looking at good governance exercises. I think the response is wonderful. I think it’s been a great exercise.

In response to one of the questions I asked about decision-making, you’ve provided the list of individuals who attended the meeting. The one thing I noticed: with perhaps the one exception of the program manager who, in effect, was an epidemiologist, not an IT person, B.C. had no IT specialists at these meetings, whereas there were specialists from all the other provinces and territories.

I wondered if your review has looked at whether that may have impacted some of the decisions along the way and whether you will indeed have specialists involved in some of these major decisions.

S. Brown: It’s a really good question. I actually didn’t use that internally. I’ve not looked back and said whether we could have done a better job if we’d have had that kind of advice. But going forward, part of the Ernst and Young review is we’ve asked for some advice on how to get the right kind of expert advisory resources linked to the ministry on a regular basis and what that would look like and how you would do a refresh, etc. We will be going forward adding that as a given, that we build that into our go-forward plan.

We’re just trying to work through. And while for me, having expertise in this area, it seems like a straightforward ask, I’m being advised you’ve got to think that through carefully about where you get them and how independent they are. But when you’ve actually got a small cadre of people involved in this in an area…. We are going to do that, and we’re looking at how we establish that so it becomes a routine part.

V. Huntington: I only mentioned that because it’s almost like a conflict of interest, if these people there that are making these highly technical decisions are looking at it from a program delivery model rather than an IT model. It’s a built-in conflict right there. I just think it would be much healthier to have the specialized input.
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S. Brown: The other piece, if I could just say — I was just mentioning before the meeting started — is also I’ve asked…. Another issue, I think, is that in terms of accountability in making decisions, we also need to be able to translate IT into general management language. When I’ve been looking at it, at this process, and you look at how many people…. What does accountability mean?

I was shocked when I saw that list, actually. When you asked the question: could we provide you a list of the decision-makers…? And you look at the variety and the size. We were having some discussions about: how do we better define accountability, but also understandability, for the general manager?

Like Carol says, to be honest with you, this has been an exercise for me, going down in detail. You wouldn’t normally go down in the kind of detail. But then you lose confidence if you don’t know. So we’re trying to think our way through how to frame that in a better way for ourselves in terms of managing projects.

V. Huntington: To the comptroller general: again my confusion, in some respects, about your role within the structure of government. My sense, from everything I’ve kind of heard over the last discussion, is that IT — and you mentioned it again today — is sort of embedded in each ministry. But it’s almost like an anarchy. There’s no structure that controls the guidelines and the methodology in the different ministries.

I’m wondering: who’s responsible for that? Who’s responsible for understanding whether or not the ministries are living up to a good-governance role on these different things? This isn’t going to be an isolated issue. It certainly hasn’t been, and it won’t be. Until somebody in government steps in and says, “Thou shalt,” I’m not sure where government intends to go on the issue.

S. Newton: There is a government chief information officer, central to government, who sets out IMIT policy. They do set out policy in core policy for IMIT as well as engage in IMIT projects. The governance role for IMIT rests with the government’s chief information officer, so there is a central person. They are also engaged with all the ministry chief information officers in regular CIO meetings, as well, similar to like I do with chief financial officers in ministries, where they’re able to discuss issues and be able to put forward information or policy decisions.

V. Huntington: I guess what I’m saying is that I don’t think it’s working. Otherwise, this wouldn’t be happening. Somebody’s got to step in and examine that role, if it’s an Auditor General’s audit or whether…. I don’t know who. Who does it?

S. Newton: Well, that’s a separate question, and that would be, essentially, a project that would look at: what is the role of the government CIO and how does it operate in relation to ministries or large IMIT projects?

B. Ralston (Chair): I’m going to go to the Auditor General and then to Mr. Brown.

C. Bellringer: The governance model is going to be covered in the report that’s coming out from our office on the challenges in large IT projects. I will say that the area that I’m having the greatest struggle with is actually not the ministries. The CIO does have a fairly extensive role in oversight over ministries, but that does not include the 138 external organizations that are not included within the ministries — Crown corporations, agencies, boards, commissions and so on, each of which has a board of directors.

Where my dilemma comes from is: what kind of oversight would be appropriate when you have all those various organizations? Some of them may be quite capable, and some of them — maybe their capacity needs some development. That’s the one. We’ll have further exploration of that whole issue in that report.

S. Brown: I’m probably going to say close to what Carol just said. We as a ministry, in terms of going to the deputies’ committee on technology, are going to raise this issue, because it’s what the balance is. I’m not sure what the balance is myself. I think we were having discussions about: wouldn’t it be better if there was a more…? Perhaps it gets to the member’s question about a core competency within government that actually sets and does some oversight.

A counter to that was made to me, which is that in Health, where you’ve got such a big clinical component, if you get it too centralized, you could get too far away from the clinical. And so I don’t know where…. But I was going to say I think the report that Carol’s bringing out will actually stimulate some discussion. It’s what the right kind of balance is between those. But we are going to be, from some of the learnings we think we’ve got from this, taking that forward to the deputies’ committee to have some discussions.

S. Gibson: I think your survey of the users is a laudable exercise. I think that’s a good thing.

Three suggestions I would make, based on my experience in this field. One is that all the users need to have access to the others’ comments. You’ll find that this will dramatically increase the response rate, when people can see what other people are saying.
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The second thing is that the raw data should be available as well so it’s not — I don’t mean this to be pejorative — sanitized so that others are not getting that.

The third thing I recommend is that you ensure that the people who are completing this survey instrument understand how it will be employed, how it will be used.

B. Ralston (Chair): I had a question. MLA Corrigan referred to the fact that as this project proceeded — and I think the report chronicles that it did go off the rails and incurred extra costs dramatically — there were no public progress reports. What internal mechanisms of reporting were there to the deputy minister and to other officials, responsible officials, that would give some sense of where this project was going?

S. Brown: I don’t have an answer to that. Let me get the answer for you. I believe there would have been routine, regular reports through to the various deputies. There have been several deputies over the life of the file. But I will get an answer and get that back to you quickly in terms of the detail.

B. Ralston (Chair): It would seem to me that the internal monitoring of the progress of a major project would require some regular reporting in order to assess whether it’s achieving its goals or not. Is that something that Ernst and Young will be addressing? Is that in the terms of reference of their independent review of how to better manage a major IT project?

S. Brown: I don’t know about the terms of reference, but in terms of the discussion I was having with them yesterday, that will be part of what of what they’re looking at. I’ve asked them to look at the whole reporting and decision-making and how that progresses over the life cycle of a contract. That is part of the work they’re doing in terms of looking at that.

B. Ralston (Chair): Since the Ernst and Young report will be public, will…? Typically — I mean, I don’t want to make too much of the term — the directions or the terms of reference or the terms of engagement of Ernst and Young on this project…. Will that document — in other words, the workplan that they’re being contracted to do — be made public in the near future, given that it sounds like they’ve already started?

S. Brown: I hadn’t thought about that, but that’s a good recommendation. Let me have a look at that and give some consideration to it.

B. Ralston (Chair): Okay. And on the Ernst and Young report, then, is there a contractual time at which they are bound to report, or is it open-ended? What’s the time frame in which we might reasonably expect this report to be finished and to be made public?

D. Shera: Yes, they’re targeting for an interim report at the end of March. Then if they want to deep-dive in some areas subsequent to that, there’s an opportunity for that. But we’ll be getting an interim report by the end of March.

B. Ralston (Chair): Is the plan to make the interim report public, or are you simply going to make the final report public? There is a real difference there, I would think.

B. Ralston (Chair): Any particular reason why you’re apparently choosing not to make the interim report public, given that you’ve stressed that you’re engaging in a public process here?

S. Brown: Yeah. The way they presented to me when I talked to them was that they wanted to come up with a number of hypotheses, but they would actually need to do some deeper diving — and that I should give them some direction in terms of where the deeper diving should occur. So I thought it would be a more fulsome report, so I hadn’t. If you think that’s a good idea, I will give some thought to it. But I’d actually thought the end report, once you’ve actually done a fulsome look at the issues and made some recommendations to us….

B. Ralston (Chair): Given the term “deeper dive” has been used…. I’ve been to a few conferences, and I gather that’s a fashionable term these days. I suppose it’s somewhat suggestive of what’s involved. But maybe Ms. Shera could describe or give an example of what might merit further scrutiny of that type, without being bound to say that this is going to be one of the areas.

D. Shera: Well, for example, if they’re doing a review of how we manage contracts end to end, there are a number of topic areas that would cover. Governance structures and levels of accountability might be one of those.

As we look at governance and governance within Ministry of Health projects and then governance across the health sector, if they found some issues in there that suggested follow-up work that’s more broad than that, we might ask them to have a look at that as well. That would be sort of going a little bit further than the confines of looking at just our internal structures.
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B. Ralston (Chair): What’s your view on the value of regular interim reporting as a way of detecting when a project is not achieving its goals, going off the rails and potentially posing a risk of huge cost overruns?

D. Shera: I think that there’s value, in large, complex projects, in regular external project assurance. So people coming in and doing a health check on where you are and how you are doing against…. There are very traditional or standard things that you measure against — having them come in and help the team evaluate how you’re doing against them.

B. Ralston (Chair): Would that, in your view, add appreciably to the cost of the contract if those measures were implemented routinely in major projects?

D. Shera: I’d have to confirm it, but I think, off the top of my head, that’s usually 3 percent or so of the total contract value. If it’s a big contract, that’s a lot of money. On the other hand, if you’re helping to prevent overruns or expansions in time or whatever, I think it’s a good investment. That’s just my personal opinion.

B. Ralston (Chair): It seems that large IT projects are a challenge in many jurisdictions. I recently read an article about the department store Target and their implementation of an IT system here in Canada which was disastrous. They spent $7 billion and basically bankrupted the company and had a lot of expert advice as well.

In your view, is it possible, with the right precautions and the right management oversight, to implement large IT projects successfully?

D. Shera: It’s hard. I think it’s certainly possible with the right controls in place. You’re right. There’s a lot of literature that says large IT projects are hard to do. But there are also processes that allow you to, instead of just embarking in a large one, have gates and phases so that you are doing it in a more controlled way. You’ve got the whole vision in line, but you do it chunk by chunk.

At the end of a phase, however you may define that, you can make a go, no-go decision, and you’ve got time to correct before you go to the next phase.

B. Ralston (Chair): That certainly has a certain appeal. Is that part of what — maybe Mr. Brown can answer this — Ernst and Young will be looking at in the external review that they’re going to conduct in the case of the Panorama project?

S. Brown: We’re looking at the project management’s life cycle — we talked about this, I think, the first time — which was one of the key issues with Panorama — the off-ramps that could have been taken and why they weren’t taken.

We talked about…. In the CST one, which we’re just involved in with the Lower Mainland, we did take an off-ramp and made that decision. We are going to be building that in. We’re building that in anyway, but part of what Ernst and Young will be looking at is the work that Deb’s team is doing in terms of how to actually manage the life cycle of a project, what the key review phases are and when to, as Deb puts it, set in gates where you can make decisions on whether to go through or not. That will be part of the whole.

B. Ralston (Chair): Just again, a final question to the Auditor General, then. Considerations such as the one that Ms. Shera has mentioned — are those part of the further study that your office is engaged in now in terms of management of large IT projects?

C. Bellringer: Yes, they are. We’ve actually seen a bit of a change within government in terms of breaking down a large contract into more manageable pieces. That is one of a number…. It’s considered best practice in large IT projects.

B. Ralston (Chair): Those are the questions I have. Anyone else on the committee that has questions?

G. Kyllo: During the tendering process, I would anticipate that the time and energy that companies would be putting into completing a large project like Panorama won’t be static. So when you set out the terms, do you actually ask for details as far as the different milestones that are to be achieved — and the payments, because I would imagine they must do a draw on the contract? The amount of effort involved in a large contract like that would not be static and consistent month to month.

When you let the tender documents out, do you ask for proponents to provide detailed information as far as man-hour estimations or key milestones so that you actually have a way of testing their performance on a month-to-month basis as the project is developing, rather than getting partway through in a milestone on completing a particular component that could be six or eight or nine months down the road? If they have monthly draws that are being drawn upon towards a contract, finding out nine months into a contract that they’re way over hours or they’re overbilling….

Is there a way, through the RFP process, that you could ask proponents to actually provide detailed analysis on what the milestones are — obviously, a timeline for the project — so that you’d just get a better opportunity for you to do an evaluation before those invoices are paid on a monthly basis towards a longer-term contract? I think it’s further to what the Auditor General had indicated, so that we don’t end up at the end of the project and find that there’s a big overrun or that there are some deficiencies with the project.
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S. Brown: I’ll let Deb answer, because she’ll give you the technical answer. But the answer is yes, they’re built in. One of the key issues that occurs in these projects is actually holding off payments because there is a dispute over a deliverable or something hasn’t…. I believe that’s quite finely chunked out, as you go through the project, Deb.

D. Shera: As you go through the project. It depends on your procurement method about whether you could have a proponent do that up front and whether they actually have enough information. If you go for what is called a fixed-price contract, then they will do that, but they will build what you call a contingency or risk factor into the cost. In many instances, if you’re going for a complex project, they don’t really have enough information at that time, at the time of bidding.

However, they have enough to give you a range of estimates. But you should always then have the project plan that you are measuring against, and the deliverables and the timelines against that. Yes, you should always have that. Whether that’s done in their bid or whether that’s done on project initiation often depends upon how much time they have and how much access to detailed requirements they have.

G. Kyllo: This is a follow-up. I guess if the request was part of the RFP process, you’d be able to also evaluate different proponents to have a look at what the consistency is or the estimation of man-hours — say, on creating certain modules. It would also probably give you a bit better direction as far as which company you may potentially want to contract with.

There may be a company that has the overall lowest price, but if there are two or more that are bidding, you may see that there could be some outliers. It might draw your attention to where there may be a company that…. Overall their contract price looks good, but there may be a particular component where they may have really underestimated compared to the other two proponents that might put a request in.

C. Bellringer: Just going back to the original contract that we reviewed and that was part of the audit — the two risk areas that were seen to be problematic at that time. One was around acceptance and acceptance-testing. It was a big deal with this both because of the differentiation between the national component and then the B.C. component of the project. As you accepted one piece, it then shifted to the next. So as the national was shifted, anything that was remaining to be done was no longer going to be done under the national component. It had to get fixed under the B.C. component.

Even cutting it into pieces matters. You have to think about where it fits into the overall timeline as well as who is going…. The practice at that time that we don’t…. It is not best practice. It’s not even good practice. It’s not a common practice, which is allowing the vendor to do the testing for you. That would be a very important component to correct and to make sure that you’re doing your own testing somehow — at least independently of the vendor themselves.

Therefore, acceptance was early. So things that happened afterwards were at an additional cost. If they had been found at the time of the closure of the original contract, if you will, then they would have had to have been remedied prior to signing off. Whereas in this case, they shifted to the next timeline.

There are some technical pieces to it. Those were two that we found in this specific case.

K. Corrigan: Just to follow up on that. It seems like the basic problem with the IT projects is that even if you supposedly have a fixed-price contract, the reality is that everybody seems to go into it with not even really knowing for sure what you’re going to do and how you’re going to do it, which is different than when you’re building a road. You have a pretty good idea that it’s going to go here, and it’s going to cost X number of dollars per mile or kilometre.

It is a real problem. I hope that the ministry is thinking about that as part of this overall review, because it is a problem. As the Chair says, it’s international. You look in almost every jurisdiction. But that doesn’t make it excusable either, I don’t think. I think we have to get our head around that.

I was looking back, over the last couple of days, at both the sessions that we had earlier and the report and then the answers that we had. Something that I don’t think was covered, although I may have missed it, was: who set, originally — was it IBM, or was it the idea of the ministry — that an off-the-shelf solution would work in this case?

S. Brown: I’ll check the answer. I believe that was really a policy direction of Infoway. They, at the time, wanted to get away from the build and try to use proven products.

As you saw in the discussions we had — and as I’ve had a look at this project — that pretty well fell apart within a matter of…. I think it was about 18 months in terms of the reality of that, and I think there’s been quite an evolution in thinking since then. At the time, I think he was trying to get some standardization for the exact same reason of trying to manage costs by actually saying: “We know what we’re buying because it’s an off-the-shelf product.” But those have not been able to be used the way that was intended.

B. Ralston (Chair): Okay. I don’t have…. Unless there is anyone else who has got a question, that exhausts the questions.

We’ll look forward to the Ernst and Young report. Then I think the committee may want to have you back again, Mr. Brown, to explain the report, given the continuing interest of the committee in this particular report and, I think, a legitimate interest in the large IT projects and their implications as a cost driver in the overall cost of government. Thank you very much for the presentation today.

B. Ralston (Chair): We’re now going to consider the next item on our agenda, which is the consideration of the Auditor General’s report, Monitoring Fiscal Sustainability, which dates from June 2015. I’ll turn it over to the Auditor General.

I see Mr. Bill Gilhooly. He’s over there. I’m also seeing George Farkas from the Ministry of Finance, who’s an assistant deputy minister and deputy secretary to the Treasury Board, and Keith Godin, who’s the executive director, social policy, performance budgeting office. Mr. Newton continues there, as well, as the comptroller general.

Monitoring long-term fiscal sustainability informs decisions today and whether those decisions are expected to result in sustainable government in the future. We prepared this report as an information piece. It wasn’t an audit. We were looking at the risks to fiscal sustainability in British Columbia and how government is reporting on its management of those risks.

During the course of the review, we also looked at practices in other jurisdictions, and we looked at reporting standards related to fiscal sustainability.

Common with other governments, there are significant risks to the long-term fiscal sustainability of the B.C. government. We found that government does not yet report on its overall long-term fiscal sustainability but does report on certain aspects.

Government also reports on most aspects of its present-day financial health, which compares well against other provinces.

Before I turn things over to Bill, I just want to publicly recognize Jason Reid. He was formerly with our office as an executive director and led the work. He recently moved to a new role in the K-12 sector. Bill will go through this.

I am going to just add one quick thing. It’s interesting with these reviews and reports, when we issue them. You start to have that lens when you look at everything. There are frequent government reports right across this country. If you are paying attention to the detail, as we always are, it becomes more and more evident that there’s this short-term, medium-term lens, and the long term is missing everywhere.

We do speak to that within this report — that the reporting on the long term is in its infancy across Canada. Again, no excuse for that, really, because the long term is critical. Every time you hear of some obvious economic change that is now seriously impacting government accounts, you look at it and say: “That is one of those long-term things that should have been factored in so that the implications of that could have been seen in advance.”

This report is part of an ongoing theme to improve financial literacy and awareness. In recent years, we’ve also published guides on how to prepare and understand public sector financial statements. We’ve also evaluated financial management areas like cash flow management, where the story was, in part, already there to see in the financial reporting.

We’ve prepared this report to inform legislators and the public of the importance of fiscal sustainability, key principles to effectively report on and manage risks to sustainability, risks to B.C.’s fiscal sustainability, reporting guidance and practices in other jurisdictions, and how B.C. currently reports on fiscal sustainability risks and mitigation strategies.

We did not audit the completeness or accuracy of government reports we reviewed, and we did not assess internal monitoring and risk management processes related to fiscal sustainability. Fiscal sustainability means government can provide services and meet its financial commitments both now and in the future. Monitoring long-term fiscal sustainability and adopting a long-term outlook help government respond to long-term pressures and risks in a gradual manner instead of being forced to adopt sudden and disruptive policy changes.

Globally, more governments are recognizing the importance of planning for long-term fiscal sustainability. However, long-term reporting is still in its infancy, as Carol mentioned, in many jurisdictions.

An aging population is a common risk in advanced economies globally, including British Columbia. Population aging will reduce economic growth and government’s ability to generate revenues, increase the overall cost of government’s programs and increase the fiscal pressure on the delivery of health care.

In fact, as you can see in exhibit 3 from our report, health care expenses have been already growing faster than government’s overall budget. In 1999, health care
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expenses made up 30 percent of B.C.’s expenses, and by 2014, they had grown to 41 percent.

Exhibit 1 from the report shows the actual and projected change in population growth and the old-age dependency ratio. This ratio is the number of dependents, or those over 65 years of age, divided by the working-age population, which is those 18 to 64. The ratio of senior citizens relative to the working-age population is expected to increase significantly in the coming decades. This means that the fiscal pressures resulting from population aging will intensify.

Our report also discusses other risks to fiscal sustainability, such as climate change and maintenance and renewal of large infrastructure, like bridges and buildings.

Looking at how government reports on risks, we found that government reports on most aspects of its present-day financial health, which compares well against other provinces, as Carol mentioned. Government also reports on certain aspects of long-term fiscal sustainability such as risks and strategies for growing the economy and achieving health care sustainability.

One comprehensive plan we noted in the report was Hydro’s integrated resource plan, which takes a 20- to 30-year outlook. However, since government generally plans on a three-year cycle, it cannot comprehensively demonstrate how decisions made today will result in a sustainable government in the future.

As Carol mentioned, this report was not an audit. Our aim was to raise awareness about the topic and encourage government to consider improving its current practices. As such, our report includes one single recommendation, which is to report publicly on its assessment of the province’s long-term fiscal sustainability, including reporting on relevant targets and results. This assessment should inform the annual budget process.

G. Farkas: Yes. I’d like to thank the Auditor General and her staff for her report on monitoring fiscal sustainability. The examination was conducted in a professional, courteous and collaborative manner with Treasury Board staff. We will continue to work with the Office of the Auditor General as we move to implement the report’s recommendation.

As the Auditor General and assistant Auditor General have just noted, reporting on long-term fiscal sustainability is really in its infancy in Canada. To provide members with a bit of a context, B.C. is one of only four jurisdictions in Canada to publish a three-year fiscal plan. Four jurisdictions, in fact, project only one-year estimates, while some other jurisdictions go beyond three years but, perhaps, with less detailed information as you move out to the outer years.

No province in Canada currently provides a long-term financial forecast as part of their annual budget process. However, as perhaps mentioned, and mentioned in the Auditor’s report, Ontario does publish a fiscal sustainability report every four years.

It should be noted that B.C.’s current three-year fiscal plan is held in high regard. Our credit-rating agencies have commented about the comprehensiveness of our reports, which elements are legislatively required under the Budget Transparency and Accountability Act. One credit-rating agency recently commented that they view the province’s financial disclosures as transparent, comprehensive and timely and that the province’s fiscal management practices are amongst the best in Canada.

Given the province’s strong foundation on budgeting and reporting over the medium term, there is an opportunity here to build on these strengths and show some leadership in regards to reporting on a more long-term basis.

Slide 2 overviews the Auditor General’s recommendation, which we have canvassed. The government recognizes the importance of long-term planning so that the public can have confidence that the programs and services that are provided today can also be provided in the future. Further, there is recognition that information should be shared with the public in a meaningful way so that they, too, can develop informed views around the province’s fiscal sustainability.

There are, however, some important considerations that we need to keep in mind. For example, a forecast is just that — a prediction of future events. We know that actual results will differ. Of course, this becomes even more evident when we are forecasting in the longer term. For example, forecasts don’t factor in recessions. Further, placing reliance on long-term forecasts that are dependent on commodity price assumptions also presents some obvious challenges for decision-makers.

It is also important to recognize that public policy choices a government makes will impact longer-term forecasts. More often than not, long-term forecasts consider the downside risks — for example, if a demographic trend were to continue. However, often we don’t take into consideration upside risks — actions that governments can take that will influence these results. This context is also important when government is reporting to the public because it provides useful context as to why policy choices in the short term are being made.

As the report had pointed out, there is more work to be done to create a comprehensive public report on sustainability. However, as noted in the presentation, there is
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considerable information currently being released by the province today to help inform the public. For example, B.C. Stats provides 20-year projections on B.C.’s population, and the Jobs, Tourism and Skills Training Ministry produces a ten-year labour market outlook on workforce supply and demand.

This information is valuable to understand what jobs will be required in the future and who might fill those jobs. If we take that one step further, this information could also be valuable to report out on how government programs and services such as education and health might need to evolve to meet the population’s changing needs.

As referenced in the report and today, B.C. Hydro is one example that’s legislatively required to produce an integrated resource plan every five years, sending out a 20-year forecast. Given Hydro’s mandate, which is truly effectively multi-generational, this information helps inform the public about Hydro’s intent to address energy needs in the longer term.

In terms of implementing the Auditor’s recommendations, I’d just like to give you a bit of the overview. We’ll be starting with a jurisdictional scan but also engaging our colleagues across the country.

Some of the of the reports that have been referenced by the Auditor General in her report we will certainly consider as part of our review. We also need to be mindful that what works for national governments may be slightly different for subnational jurisdictions. There are also obvious resource constraints that will influence the timing and manner in which these recommendations could be addressed. I’d refer you to the action plan, which lays out the approach and the timelines associated.

In terms of what we plan to publicly report on, there are essentially five key areas of the provincial budget that we believe serve as a good reference point. In terms of economy, economic growth considerations such as demographic trends and productivity are topics many economists are talking about in both Canada and British Columbia, and there are sources of academic research, such as work done by Don Drummond and others, to guide our thinking.

Capital decisions obviously have long-term consequences. Some questions that readily come to mind are: are we maintaining our assets for their future, for their useful life? How do we replace our aging infrastructure, and what impact will that have on taxpayers and ratepayers, moving forward?

In terms of debt, the amount the province borrows currently for taxpayer-supported and commercial capital projects impacts our debt, which obviously eventually has to be repaid. So we need to be mindful of that as well.

With respect to revenue, providing long-term revenue projections based on changes that we are seeing in the various sectors of our economy begins to identify long-term trends, including potential decisions for future governments to ensure that the province receives adequate provincial revenues to pay for various government programs and services it expects to deliver.

Finally, with expenditure, are the expenditures that are made in the context of a three-year fiscal plan sustainable in the future? This work, of course, we consider in the Ministry of Finance, but we believe the public could benefit from increased reporting.

Finally, we’ll be evaluating our work to ensure that it reflects best practice but also to consider how best to introduce these concepts to the public in an easily digestible way.

In closing, Treasury Board staff look forward to continuing the dialogue with this committee, and I welcome your feedback to help guide our future work.

D. Eby: I’m not quite sure who my question should be best answered by — probably the Auditor General. I take Mr. Farkas’s comments very seriously when he says that at best these are forecasts of long-term trends, as our plan for next year is much clearer than our plan for three years from now or for ten years from now or for 20 years from now.

How do you balance the proposal here…? I mean how do you balance the cost of preparing something like this — a ten-, 15- and 20-year plan for the future of government, assessing all of our infrastructure, all of our expectation of when things will break down and when they won’t — with the reality of the amount of work that that requires and the actual cost to taxpayers of preparing a plan like that versus the benefits of it? This seems like a huge piece of work.

I guess what I’m saying is that when you look ten or 15 or 20 years down the line, the focus gets very diffuse, and you’re making best guesses. But nobody predicted 2008. Very few people are, I think, accurately predicting the impacts of global warming, or so on.

I guess what I’m asking is this. How do we avoid creating work that ultimately will have to be thrown away because the conditions have changed? That’s just the function of the fact that time has passed. How do we make sure that we’re not wasting time preparing plans that are going to have to be thrown away?

C. Bellringer: My first reaction to it…. Bill may have some more specific points to add from some of the research we did, but I think the greatest value from it is the shift in thinking. I think it then becomes something that integrates within every aspect of every decision that’s made.

It’s a shift from…. I’m not suggesting this is how it’s done right now. But do you build the road because you
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can afford the infrastructure costs this year and you can afford the increase to the debt load, or do you start looking at every decision in the context of: it’s got a 40-year life, so what’s the best present-value calculation? Every single decision starts to be looked at through a long-term lens.

It is done in many aspects of many of the service decisions. When you add beds to a hospital, it’s not just an infrastructure cost. There’s a huge operating cost attached to it.

So my starting comment around…. If you start to listen to the dialogue publicly, it’s a discussion around: what was the bottom line this year? Was there a deficit or a surplus? What’s the requirement? It’s an annual balanced budget. It’s not a discussion in the public sense around whether or not a decision made today is going to be sustainable over the next 20, 30 years. I think it’s becoming more and more to move in that direction.

I accept the comment around: “I don’t think it should be something that is so complex that it has a huge cost attached to it.” But there has to be some work done on it. The costs associated with suddenly realizing that, for example, oil prices are going to have a huge impact on your budget, should have been factored in, in your sensitivity analysis. So it’s not so much figuring out for each of the next 40 years what your bottom line is going to look like, but rather what are the various high-risk areas and have we factored in what happens if it goes in the wrong direction?

Also, the long-term calculations do take into account not just the downside. As well, they are intended to also look at the upside. You have to work through all of those components. As I say, it’s a shift in thinking as opposed to a huge cost burden to the system.

B. Gilhooly: I take the member’s point. The jurisdictions that we put into this report are ones that have found it worthwhile to either legislate or to produce these reports that are used in legislative debates and also give the citizens comfort that government is looking after their long-term interests today and into the future. So that generational equity is often a theme that you see in these.

Even though there will be more investment for the Ministry of Finance, if they undertake this work, they’re really building on what they’re already doing. It’s not a net new exercise, in my sense. There’s already a lot of economic modelling that’s done. There’s already a lot of research that’s pulled in. It’s really repackaging it and reporting it publicly to inform the debate and give the public a sense that their future interests are being looked after.

G. Farkas: I guess what I would point out in response to your question, which is actually an excellent question, is that I think some areas perhaps are easier and more tangible to wrap our minds around than others.

For example, if we go back to B.C. Hydro, when they’re building an asset, they’re doing it for 60, 70 years. Clearly, they need that long-term forecast to understand whether or not that investment makes sense, both in the short-term and longer-term perspective. Where it gets a bit more challenging…. You know, we’re a trade economy subject to commodity price fluctuations. Revenue forecasts are going to be a challenge to forecast in the longer term with any amount of certainty, clearly, because we have trouble today — as you point out in your forecasts — given the fluctuations in those prices.

The approach that we’re going to be taking, mindful that in some areas it’s going to make more sense than in others, is a systematic approach to look at each area of the budget where there are the risks and make a determination of what makes most meaningful sense to report out on.

K. Corrigan: Page 29 of the report talks about some of the potential pitfalls of having balanced-budget legislation. It suggests that it “can shift spending and the tax mix toward programs that offer quick budgetary successes…and away from the financially and socially optimal allocation.” It also suggests that it can shift “allocation from operating expenses to capital expenditure where the budgetary impact is deferred into the future.” And then it also talks about the dangers of encouraging disposal of public assets.

Transit is probably a great example. There’s all the talk about particular rapid transit lines, but no plan about how you’re going pay for the operating costs that are associated, and there are significant operating costs.

My question is: when you were putting together this report, there’s no mention of the contractual obligations, which are now far…. I can’t remember what it is for the final year, but it’s over $100 billion. It’s far more than the provincial debt.

Is that a risk as well? That is partially related to the issue of investing in infrastructure rather than operating. It’s a way of deferring the costs, but they’re spread over time, so then we have $100 billion. Did you look at that issue at all, or have you thought about that issue with regard to sustainability?

C. Bellringer: I’m sorry. I’m sitting here asking the assistant Auditor General whether that report was issued yet or not.

C. Bellringer: It’s at the printer. I’m thinking that you maybe got a preview of it. [Laughter.]

C. Bellringer: You may want to read our report on public accounts that will be out quite soon. That does have some comments on that specifically — but not in this report.

B. Gilhooly: If I could just add to that. We didn’t look at that specifically, but it’s an example where that would relate to a sustainability issue around flexibility for the future. So in one sense there’s $100 billion of future financial commitments locked up over some period of time, but on the other hand, there are 25 years of certainty of services too. It’s sort of a double-edged sword. But we didn’t include it in this report. It wasn’t one of the key risks we identified.

I think perhaps what you’re bringing up is an item from an accounting point of view — what meets the definition of a commitment? — which is related but not quite exactly the same as the scope of our work.

B. Ralston (Chair): I thought the very reason it wasn’t listed as debt is because delivery of the services was only contingent and not certain. You’ve just said it was certain over 25 years. I think the accounting principle in refusing to record it as debt is based on the fact that regardless of the contractual structure, the contracting party may not be able to deliver the service. Am I wrong in that?

S. Newton: There is an agreement for services such that…. Let’s use RCMP services, for example — the RCMP contract. Government will receive services next year. When it receives the services, it will pay for those services. Until it receives the services, there is no obligation to pay, so there’s no debt.

However, there is a note in the financial statements that informs the reader that in future years there’s already a structure in place where government plans in that year to spend on those services. But from an accounting perspective, because the work isn’t done, nothing is owed. It’s just alerting the reader that in future years we do have these agreements that service will be provided. The issue then becomes, and as Bill alluded to, in future years we get certainty, but we also have a constrained choice.

We also have resources that in the future will already be dedicated to something. Contractual obligations is a $100 billion number. It’s over an extended period of time. In a year it’s somewhere between 12 and 20 percent, depending on the year, of costs. If you looked at provincial government employee salaries over the same time period as the contractual obligations, it would be an infinitely larger number. And we wouldn’t have plans in future years to not have staff do things, so we’ve already made commitments like that in how we resource activities.

The key piece for contractual obligations is that until the service is delivered, we actually don’t owe anything. But the plan is that we will in that year engage in a transaction for services.

B. Ralston (Chair): But the contracting party has contractually bound themselves to provide the service into the future in a legally binding document. And yet the accounting practice is — I’m told — it’s listed as contingent and not debt, because it’s not certain that they will be able to, regardless of the contractual structure, actually deliver the service.

S. Newton: We still need a past transaction in order to have the obligation, and the obligating transaction is the delivery of service.

B. Ralston (Chair): But there is no certainty, according to the accounting principle, that that service will be delivered. Then that, as I understand it, is the difference between classifying it as a future obligation or as a debt, because a debt is a certain obligation in the future.

S. Newton: It’d be the difference between a mortgage payment which is…. Clearly, we would have an ongoing obligation to pay versus a contract for services.

B. Ralston (Chair): You’ll forgive me if I sound a little impatient, because I regard it, I think, as an arcane and rather very finely parsed distinction without a difference between the two kinds of obligations. But that has significant accounting consequences for the treatment of contractual obligations, does it not?

S. Newton: Absolutely, and it’s the standard practice across the country in order to be able to treat these obligations. There’s no inconsistency between how we were treated or any other jurisdiction was treated.

B. Ralston (Chair): Oh, I’m not saying…. It conforms with the accounting standards. I’m just saying that the distinction is a very fine one and a very blurred distinction to, I think, a practical observation, because there are going to be RCMP services in 2018 and 2019. It’s not a contingency in any way, but that’s how it’s classified for accounting purposes.

C. Bellringer: Sorry. From an accounting perspective, we wouldn’t make the distinction around the word “certainty” but, rather, as to whether or not it has taken place yet or not. It’s going to take place. I think there is a certainty attached to those obligations. It’s just a matter of it hasn’t happened yet. So it then goes into…. It’s a future-year event. It’s noted, but it’s not showing up in this year’s accounts. It hasn’t happened yet.

There’s a third category, which are things that are not…. There is no legal obligation attached to it, but it’s still, as Stuart was describing, something like employees. You know over the next X number of years you’re going to have health care workers and every sector, and those are
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not factored into the contingency number. Those are the ones that you’re not going to know about by looking at financial statements. You’re not going to know the magnitude of that. You can just work it out. What was it this year? Then I can go multiply it.

I don’t think there’s a clear distinction between an understanding of what is included in the contractual obligation and what is excluded completely from that.

K. Corrigan: A few years ago, I had a conversation with both the comptroller general and the Auditor General’s office on this very point. My understanding in the responses I got at the time was that the major difference was largely about whether or not it was an operational versus a capital cost. My understanding, for example, with the big P3 contracts…. Well, that was what I got back. At least that was my understanding, and I’ll show you the correspondence at some point.

My understanding on the big P3 contracts, for example…. Even though the payments are made over a period of 35, 40, 25 years — whatever — the capital portion of the build of the project is realized as debt right at the moment that the hospital is built but that the operational component of it is the thing that is seen as a contractual obligation. That was the way I understood it from my conversations — that largely it had to do with operational versus capital spends.

S. Newton: Yeah. There is a build, so you get your asset. The reason why the asset — the capital piece — would be recognized as an obligation right away is because: here’s your asset. You now have it. The operational components around that asset would be occurring in future years. Each year would require…. I’m going to operate the asset for you, so you would pay year over year for the operation piece, and the operation piece is the separate stream.

With the P3s, capital and operating are dealt with two different ways. On the P3, that would be a capital versus operating distinction. But looking at other types of contractual obligations, it still relates to: do you have something and you still owe for it? Or is there an expectation in the future that the transaction will occur?

B. Ralston (Chair): Thanks. I think MLA Corrigan and I have taken off on a tangent here, and I apologize for that. But we’ve both engaged in that question over the years.

S. Robinson: I appreciate the fabulous explanations in here. I have a couple of questions, if I might, Chair.

The first question has to do with this idea of short, medium and long term. The Auditor has pointed out three years as a medium term. I’m thinking: “Are you kidding? That’s short term.” From my perspective, that’s a real short-term frame.

I just wanted to get some clarity about how the Auditor General and, perhaps, the Ministry of Finance understands short term, medium term and long term, because I’m certainly of a different perspective.

B. Gilhooly: Thank you for your question, Member. I recall that that three-year term was something we read in the literature as what they defined as medium term. There is no standard definition. Others might have a different view. Medium term might mean ten years, perhaps. It depends on the situation you’re applying it to.

G. Farkas: Maybe I’ll just answer the question in the context of our current reporting structure in B.C. We do produce quarterly reports in the Ministry of Finance: quarter 1, quarter 2. Quarter 3 is produced when the budget is tabled. So from my perspective, that would constitute a short-term plan, our reporting structure. And of course, under legislation we have a three-year fiscal plan. In my view, that would be more of a medium-term plan and consistent with the Auditor’s views around the literature.

In terms of long-term planning, I don’t think a one-size-fits-all approach applies. I think you’ll find that jurisdictions, depending on the topic area, will define long term differently. One example, of course, is Hydro’s 20-year plan. But you know, perhaps with other types of targets like the Greenhouse Gas Reduction Act, you go out for a longer term. So it really depends, in my view, around the subject matter.

S. Robinson: Coming from local government, which is where I have most of my government experience, three years is still considered, in that world, very short term. Long term is a 20-year visioning document.

When I think about language and the fluidity of some of the language, it might be really helpful to talk about the years rather than short term, medium term and long term because we come from different perspectives. As Mr. Farkas pointed out, it depends on the different project. It might have a different frame or a different lens.

I also had a question, if I can, Mr. Chair…. Local governments have to do capital asset management. They’ve been required to actually take a look at every single asset that they have — which is a lot of work and very expensive to do — because it’s good fiscal planning. That’s about being responsible government.

I have to say how shocked I am, sitting in this seat now, to say the province doesn’t do that. Local governments have to do that. Local governments are a creature of the
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province, and the province doesn’t have to do that. If someone could just explain to me how it is a “do as I say, not as I do” rule comes to be.

G. Farkas: In fact, the province does do that. We have a long-term capital plan. One thing to point out is we have something we call a routine capital envelope that’s used for maintaining our assets that ministries are provided with, the large capital ministries.

We also have an exercise that’s led out of the Ministry of Finance to look at facilities condition indexes and to gather data so we have a good understanding of asset condition across the province.

B. Gilhooly: We are aware that government’s been doing these financial condition indices reports, getting contractors to do that. In our three-year plan, one of the things we’ve put in there and are almost finished planning is a performance audit about asset condition right across government. We’ll be talking to several of the key ministries about our scoping decisions on that.

We also have referenced quite a bit what’s been happening in local government around the issue of underground, horizontal assets. “Infrastructure deficit” is a term that’s used quite a bit, which is deferred maintenance and what that means for short- and longer-term budgeting and what that can mean for imbalances that can develop in the amount of maintenance that’s applied at the wrong time. Instead of waiting for the fire hydrant to blow up on the street, you would fix it ten years before. So those important kinds of decisions.

We did make contact with several subject matter experts in the local government facilities industry, and it’s been helpful to get us up to speed in our understanding of that.

S. Robinson: Just to make sure I understand, provincial government is doing exactly what it’s asked local governments to do. I just want to make sure that there’s some consistency in that. I want to make sure I understand that. You’re in the process of finding that out?

S. Robinson: On page 29 of the report, the Auditor General speaks to balanced budget legislation and shifts the composition of spending and revenues and encourages creative accounting. If perhaps the Auditor General can just talk a little about — because I don’t come from an accounting background — what creative accounting might look like and: how does one identify when it’s been creative accounting?

C. Bellringer: The extract on page 29 is coming from the Parliamentary Budget Officer, which is a federal independent office.

We did, though, draw out some of the risks that the Parliamentary Budget Officer has pointed to. Year-end managing of when a transaction takes place is something that…. We are aware of the risk. We also have a project on that that’s on the go.

The kind of thing we’re referring to there is you can speed up the transaction to make sure you get it done before year-end, or you can leave it on the back burner and worry about it in April. Those are the types of things that we’re concerned about. It should be something that’s decided on based on when the best time is to do it, not trying to get it before or after the year-end.

L. Throness: A comment and a couple of questions, Chair, if that’s all right. First, with regard to contractual obligations, I was involved in the debate around the repositioning of the CPP in Ottawa when I was in opposition then. We learned there that all of life is an unfunded liability and that, you know, I will need food and clothing for the rest of my life. That’s necessary. You could call that a contractual obligation, maybe, with society. But maybe this stuff about contractual obligation is just really government doing its job on a permanent basis. It is obligated to its voters to do that job.

Anyway, my first question is about long-term reporting. In the future — you never know — climate change could be balanced by something else, like maybe higher agricultural receipts or maybe better tourism in B.C.’s north. Aging could be balanced by greater automation as we focus more on capital versus labour. The future presents both risks and opportunities.

Given when you look in the past that opportunities have been greater than risks, because we’re better off today than we’ve ever been, would it not be of greater public value to focus more on long-term determination of opportunities rather than the more defensive looking at risks all the time? Do we have our focus in the right place?

B. Gilhooly: Thanks for the question. I think you’re right. Risks can be positive, and risks can be negative. We brought out four significant risk areas that happen to be downside risks. There’s no reason why, in looking at long-term risks, that long-term opportunities couldn’t be factored in.

I think what we were thinking, too, is that when we’re talking about these long-term risks, we’re talking about: can government make projections based on today’s set of policies, today’s set of tax rates, and know what the future planning assumptions are and look at what those trends are and then let that come back into the debate on those important issues which will address the downside risks and the upside opportunities?
[ Page 823 ]

L. Throness: My second question is…. In the appendix, there were a bunch of examples of different countries that have used different time frames. What is the best time frame for B.C.? I don’t think I saw that in your report. Do you recommend a time frame?

B. Gilhooly: I don’t recommend a time frame. I can’t speak on behalf of Carol. But I think earlier a colleague here mentioned that it’s situational. A 50-year time horizon might be for age or health dependency or social programs, and maybe shorter time frames are more appropriate for other things. It’s really situational.

B. Ralston (Chair): I had myself on the list next. I’m returning again to page 29. These are the Auditor General’s comments on a report by the Parliamentary Budget Office, which, as the Auditor General mentioned, is an independent office that was established by the federal government. These comments are on the effects of balanced-budget legislation, and the implications for fiscal sustainability is, I think, the context in which these comments are made.

I know the report here is self-evident, but for the purposes of this discussion here, I’m just going to read the one or two lines of the comment. This type of legislation “encourages disposal of public assets. Balanced-budget legislation increases the likelihood that assets are disposed of at times and at prices that are not optimal.”

The parliamentary budget office “referenced studies that found governments facing potential non-compliance with balanced-budget laws are more likely to sell public assets. Asset sales to achieve budgetary requirements could lead to a loss in economic and social welfare, if maintaining public ownership, or holding out for higher prices, would be more valuable than immediate budget room.”

Then the report goes on to talk about recent observations in British Columbia. Related to this effect is a comment about the previous year’s budget, where there have been significant assets sales resulting in recognition of revenues, and resulting in assistance to the bottom line, resulting in a balanced budget.

I’m wondering, given the comments to the Parliamentary Budget Office, what the impact of the legislation — and I think it’s hinted at here — on long-term fiscal sustainability, if that is the tendency or effect that the legislation appears to drive in the budgetary process.

G. Farkas: I guess the easiest way for me to answer the question…. If you talk about the government’s policy around surplus assets, the government’s position is they’re selling assets that they deem as surplus that shouldn’t have that type of long-term consequence that was alluded to in that report.

C. Bellringer: I believe the report that the Parliamentary Budget Officer put together was when they were having the discussions as to what the federal policy position was going to be, and so they wanted independent input into that process.

One of the recommendations at the time, I believe, in that report — I think it’s coming out in that report — was that something like a one-time event…. So sale of assets should not be included in operating when you’re looking at it from the perspective of whether or not you’ve balanced the budget.

But that’s definitely a policy call. I mean there are policy calls right throughout the Balanced Budget Legislation. Should you be looking at it on a one-year basis, or should you look at on a multi-year period? Four years is what they were using in Manitoba when I left. Can you have exclusions? Again, that’s something that’s assessed. Do you include Crown corporation revenue or don’t you? So there’s a number of policy calls to be factored in. We did want to draw attention to it.

In the 2014 year, when you have a fairly small surplus, and then you look at the components of it, you really can’t look at any one item. But there was a significant sale of assets that year, so it was important to point to it. Less so in the 2015 year.

B. Gilhooly: I just wanted to add if I could, Chair, that we’re finishing the planning on an audit of the B.C. land sales program, and we expect that to be out towards the end of this calendar year.

B. Ralston (Chair): Well, just to continue with reading from these observations, which I think are helpful.

“For the year ended March 31, 2014, government reported an annual surplus of $353 million, which included revenues of $601 million from the sale of assets. In the previous year, the revenues reported from the sale of assets were only $13 million. This means that government would not have achieved a balanced budget without the additional revenues from the increased sale of assets.”

It goes on to talk about 2015. Given that that’s a policy and the assets are for sale, surely people, sophisticated purchasers in a real estate environment, would recognize that the government was driven to sell these assets out of necessity, and it would increase the bargaining position of purchasers, as opposed to the bargaining position of the government as vendor, given that they had to sell them, if I could put it that way, in order to balance the budget. Does that not have a long-term impact on fiscal sustainability?

C. Bellringer: Our position is that it is a risk that…. We can’t say definitively whether a particular transaction
[ Page 824 ]
did suffer from that, and that is why we are doing a more detailed audit of specific transactions.

G. Heyman: I note in the Parliamentary Budget Officer’s report about…. It’s in the context of the balanced-budget legislation but is pertinent, I think — whether there’s legislation or just a focus on balanced budgets as the bottom line of budgeting, if you will.

It talks about programs that offer quick budgetary successes in the short term and away from financially and socially optimal allocations. The effects of reconciliation measures such as increases in taxes or spending reductions could have economic or social consequences that outweigh the short-term benefit of balancing the budget.

That sort of puts me in mind of what, in two years of touring with the Select Standing Committee on Finance and Government Services, we often hear — members of both sides of the House — quite compelling presentations about the long-term impacts of the lack of funding for particular programs, whether it’s the implications of a lack of child care for women entering the workforce and therefore contributing to the B.C. economy, whether it’s the implication of failure to fund aspects of K-to-12 or post-secondary education on developing the skills and talent that British Columbia’s economy and that young British Columbians will need to succeed, whether it’s the impact of postponing capital expenditures in post-secondary education institutions because they can’t borrow money to fix infrastructure that clearly needs to be fixed because of the impact on the government’s bottom line and debt load. Eventually, this will all have to be done at a possibly greater cost.

Another example that springs to mind is not having adequate home care services for seniors when the alternative is, after a fall or an illness, that the senior is going to spend considerably more time in more expensive acute or extended care.

My question is: when you envision planning for fiscal sustainability and evaluating decisions, do you see a way to reasonably evaluate the long-term social and financial cost of not investing in social programs as well as capital infrastructure?

G. Farkas: That’s a very good question. I would start by…. The report of the Auditor General is really focused on fiscal sustainability. I’m not personally aware of any planning that’s done on a long-term basis that takes more of a triple bottom line or various different lenses. Again, I think your question is very valid, and I think it’s something worth consideration as well.

G. Heyman: I wasn’t necessarily even thinking in terms of triple bottom line, although I think that’s useful. I would just think that if, for instance, a decision is that we don’t have the money to provide more home care now, even though not doing so will be more expensive in the long run — or simply it’s that we have more money in that budget envelope — even though it will cost more, we’re quite happy to see the expenditure shift there because that’s where the money is. That’s strictly a fiscal consequence.

Can you envision a way of accounting for that, or at least commenting on that, as a way of informing government program decision-making? I realize that goes, in some ways, against the public’s expectation that government will restrain expenditures and balance the budget wherever possible. But perhaps the public might have a different view if they saw an analysis that showed that if you dig into it a bit more deeply, you’re either deferring expenditures that will grow exponentially further down the line or even next year.

G. Farkas: My short answer is it’s certainly worth some consideration. We’ll take that feedback back and work it into our future work.

I’d point out, though, that certainly in some government decision-making that I’m aware of, we do factor in, for example, life-cycle costs, when decisions are made. That would be one example. It’s a different context than what you’re talking about, but it’s an example of where a decision would be made with that future, longer-term consequence in mind, even if the initial purchase is more expensive.

G. Heyman: Thanks. I raised the question because in two years, I think, everyone on the Finance Committee has wrestled with how, in the context of how budgets are constructed, we actually make not even the best social decisions but the best financial decisions, given some of the evidence that is before us.

Now, granted, we don’t have the capacity to thoroughly analyze the validity of the evidence or research that’s presented to us, but much of it seems reasonable. It seems to me that that would be seen as the topic of…. Reviewing fiscal sustainability has been raised. It would be worthwhile expanding the scope a little bit beyond simply physical infrastructure or investment in information technology, etc.

C. Bellringer: If I could just add, we certainly weren’t limiting our comments to infrastructure and the things that are easy to do the calculation on. We couldn’t think of anything specifically that we saw that was showing that sort of full-cost life cycle, looking at the crossover implications of policy decisions. But I’m certainly of the view that, to the extent possible, all policy decisions should be costed out, and it inevitably gets into exactly what you’ve just described.

G. Heyman: Yeah. You certainly approached it with your comments on aging and climate change.
[ Page 825 ]

R. Sultan: If I may pull the discussion back from May of 2017 to this report on the quality of the budget processes of the government, I would like to make the observation that I find this report very unusual. I find it very unusual because, typically, Auditor General’s reports come in and castigate one department or another of the government for failings and malfeasance and general less-than-perfect government. But this report I find to be almost glowing in its praise of the fiscal process of this government.

For example, it says the purpose of the report is to provide “an independent examination of the budgeting process to give MLAs…assurance that the budget is based on sound processes.” Then it goes on to say very directly that it is. The economic forecasts “are suitably supported” and “provide a reasonable basis.” The presentation and disclosures are all there. It’s consistent with the Chartered Professional Accountants of Canada format. It’s compliant with the legislation — the Balanced Budget and Ministerial Accountability Act and the Budget Transparency and Accountability Act. “We did not identify any significant instances of non-compliance.”

Where have we heard that or how often have we heard that from the Auditor General before? It goes on. It mentions in passing that this exercise is merely the compilation of the individual output of 150 different organizations of government. Wow.

My question to the Auditor General is…. This seems to be an almost unique performance in this country, compared to other provinces and, indeed, the federal government — which I’m sure you’ve studied carefully. If my assessment is reasonably correct, how come? What’s so special about British Columbia? What are we doing differently?

B. Ralston (Chair): Okay, that’s a question, I think, not a rhetorical one. I think it’s a question.

C. Bellringer: I’m assuming we’re talking about the next report, not this one but the next agenda item. Do you want me to…?

B. Ralston (Chair): No, but if you do have a response to MLA Sultan, that would be great.

B. Gilhooly: Thank you, Member, for your question. I guess, broadly speaking, we thought it was important to examine the rigour that goes into the development of the budget process and the quality and transparency of the reporting because that’s what the public would like to know about — whether the information was put together in a robust and reliable way. We found not much wanting, and that’s how we’ve reported it.

R. Sultan: May I ask the representatives of the Ministry of Finance, given this unusual performance, at least in my assessment…? You do meet occasionally with your counterparts across Canada. Do they want to meet with you in the bar and have you explain how you do it?

G. Farkas: Well, Member, B.C. is in an enviable position right now. As you’re likely aware, most other jurisdictions are running deficits. B.C. is uniquely positioned to be in a surplus position.

R. Sultan: Don’t they express some admiration for that, or don’t these other jurisdictions give a damn?

B. Ralston (Chair): I don’t know whether that’s a question that…. Well, it’s up to him if he wants to answer it. Discretion might forbid him from answering that. I think that was another rhetorical question, perhaps.

K. Corrigan: One of the significant risks that the report spends some time talking about is the risk associated with an aging population. I have two questions about that.

Page 14 talks about and has a graph, an exhibit, about the old age dependency ratio, which is the number of dependents divided by the working-age population. The dependency ratio…. There are more people who are dependents, increasingly, as opposed to working-age people.

This graph goes up to 2041, after which it will probably be about the time it’s irrelevant to me. I know that people are living longer. That’s one factor. But is it not also true that part of the dependency ratio changing has to do with the baby boomers as well? Is there a projection beyond that where the dependency ratio is then going to go the other way? We’ll all die, essentially — right? — and then, at some point, the shift is going to happen.

I know that’s looking 25 years ahead, but that’s the kind of time frame we’re talking about. It’s really not the point of the report, but it is a very significant risk that’s identified.

B. Gilhooly: If I could start, maybe, answering that question. We didn’t look beyond this. This was the information we used from B.C. Stats, and this is a very similar graph to what the Parliamentary Budget Officer also does on the national level. It is a good question about…. If you look, say, 15 years beyond that, what does that mean for all these key risks like infrastructure spending and revenue generation and all those things that, perhaps, a longitudinal analysis might bear out and inform the process?

K. Corrigan: Yeah. It’s a bit of a tangential kind of question, but it is mentioned as a very significant risk.

G. Farkas: I would point the member to the Select Standing Committee on Health interim report, 2011-12, which goes into a bit more in-depth analysis.
[ Page 826 ]

One of the other comments in that section about aging population and the rest says: “The aging and elderly on average also use government services to a greater extent than the younger population.” My understanding was that that is certainly true, but it’s almost…. It’s certainly predominantly related to the last six months of life. So if there’s a risk of costs increasing significantly, it has more to do with the fact that there’s a greater number, which gets back to the baby boomers issue as opposed to the fact that the population is getting older. Is that a legitimate observation that I’ve made?

Sorry. I’m asking health-type questions, but it is a risk that’s mentioned as very significant for the future.

B. Gilhooly: From what I’ve read about it, I think that’s true. In the last few years of life, the cost per cohort in all those age groups goes up very significantly — sometimes, say, 20 to 30 times more than cohorts 15 or 20 years younger. It would be interesting to model out the expected stresses on the system as the large baby boom bulge goes through the last ten years of the graph and sort of stress-test that.

B. Ralston (Chair): On page 8 in the executive summary, in the first column, discussion about fiscal sustainability:

“For example, government does not forecast the fiscal impact of population aging on overall revenues and program costs over the longer term, and it does not project the long-term costs required to maintain and renew capital infrastructure. Therefore, government does not report on whether decisions made today are expected to result in policies and programs that are sustainable over the longer term.”

Could the Auditor General or Mr. Gilhooly explain that particular reference to long-term costs in reference to capital infrastructure?

B. Gilhooly: Perhaps I can start. We’re speaking in the context of what’s in the public domain. Mr. Farkas talked that there is activity going on. There’s a lot of measurement of infrastructure about asset condition going on. We look forward to doing that audit and encouraging more reporting out of what asset condition is across the public sector and how that informs long-term sustainability and decision-making.

B. Ralston (Chair): Are you saying that the ministry may very well be doing it but they’re just not reporting it publicly? It’s a very emphatic statement: “Does not project the long-term costs required to maintain and renew capital infrastructure.” That’s a fairly sweeping observation. I’m interested in that and its implications for fiscal sustainability. I’m not sure that that’s what was meant when this comment was written, but I could be wrong.

C. Bellringer: We were specifically talking about, as Bill just mentioned, what was available in the public domain. It was what is not available and, therefore, what is not reported. We don’t know, at this point, everything that’s available internally. The Ministry of Finance may have more information on that.

G. Farkas: Certainly, I see in this report a bit of a distinction around what we’re doing internally in terms of planning and informing government decision-making versus what’s in the public domain. We do analysis on a long-term basis around our capital infrastructure program. It’s information that comes before government for decision-making.

B. Ralston (Chair): Is there any particular reason why — given that you’re going to focus, as you’ve agreed, more on fiscal sustainability and providing those observations and reassurances to the public — given this observation by the Auditor General, you wouldn’t make those public?

G. Farkas: If you look on the action plan under “Publicly report on the assessment of key issues,” it’s captured under “(b) Capital.”

B. Ralston (Chair): This is 2(b), and it says: “Report on capital spending to include a summary of provincial…condition assessment programs.” It seems to me that that might be a bit different from the long-term costs required to maintain and renew capital infrastructure. Maybe that might follow from an assessment, but it doesn’t expressly say that. Is there some reason why, if you’ve said that’s what it means, it doesn’t expressly say that?

G. Farkas: I would say that how it’s written down on the action plan is, perhaps, more narrow. But as we go through the work of undertaking what we have put out in the public domain, certainly, it could fall within the scope of what we look at.

B. Ralston (Chair): Are you prepared, then, to revise the action plan to reflect your comments here today?

K. Corrigan: Just following up on that…. I can’t find it. It’s related to the comments that were just made by the Chair, and the question. I’m sure somewhere in the report it says that not having the long-term analysis that we’re talking about on page 8 means that the annual budget process is lacking to some degree. So I’m still….

I can’t remember where that was. It does say on page 8: “Reporting should tie directly into the annual budget process and link to other budget practices…. This is to ensure government gives adequate attention to the potential long-term fiscal consequences of its current policies.” But I think somewhere else in the report it actually says the budget process could be made better if there was an understanding.

I’m trying to, I guess, tie that back into what the Chair was just asking. That work is essentially, then, being done now. But is it because…? The comments were that that information may not be being made public. How would that, in some way, impair the budgeting process, if I’ve read that correctly? Is it because all the MLAs don’t see that information, and therefore we don’t understand it? Or am I misinterpreting what the report says? I can’t find where that specific reference was.

B. Gilhooly: If I could, our recommendation does speak to that. These assessments should inform the annual budget process. That’s based on the research of good practices. The information shouldn’t just stand alone as public reports, but the government should actually use that in its various forums and debates and dialogue to inform decisions it makes on its short-term and medium-term budgeting decisions.

B. Ralston (Chair): Unless there are any late additions, I don’t have…. Okay. Go ahead.

G. Kyllo: Further to the comments that were made by the Parliamentary Budget Officer around the balanced budget legislation. It’s certainly important to the rating agencies. I believe the number that I had heard in the last year or so was that, for example, should B.C. have a credit rating similar to Ontario, we’d spend about an extra $2.1 billion a year in interest costs. Balanced budget legislation certainly is important to the rating agencies, which ultimately reflects on our credit rating and the cost of borrowing. It’s definitely a very important facet, and I’m happy to see that we have that in place.

With respect to the sale of surplus assets. If it’s a surplus asset and there isn’t an immediate need or value or use for government, I think the value of that asset in the private sector moving forward with development and construction projects certainly has other significant revenue streams and benefits to government. Looking at simply the value of that asset today and projecting on what the value of that asset may be in one or two or three years…. I think we also need to take a look at what the value of that asset is in the hands of the private sector actually moving forward. It’s not a really easy question to be answered with respect to the need and necessity for the sale of surplus assets.

Also, with respect to…. MLA Eby brought it up right at the very start of our conversation. Really, what is the cost and the real long-term value? There are so many unknowns with respect to exchange rates, commodity prices, oil prices…. There are so many different factors that are having a significant impact that are beyond the control of government. I think that if we are going to be looking at longer-term fiscal sustainability and having a look at doing additional work, we really have to weigh what the true value is and the benefit that’s being provided to the taxpayers.

B. Ralston (Chair): Those are all good observations. Any comment from anyone? Okay.

I’m going to suggest that we recess for ten minutes so people can get back in touch with their offices or whatever. We have one further report, which is scheduled to take about an hour. We’ll reconvene in ten minutes.

B. Ralston (Chair): The final item for consideration this afternoon is the report of the Auditor General entitled Budget Process Examination Phase 1: Revenue. I’ll turn it over to the Auditor General and Mr. Gilhooly. I believe Bob Faulkner, who is the director of financial audit, is there as well. From the Ministry of Finance, there are some new faces at the table. Mr. George Farkas, the assistant deputy minister and deputy secretary of the Treasury Board, is there. Dave Riley is executive director of fiscal planning and estimates. Sadaf Mirza is the chief economist and executive director, Treasury Board.

Budgets are one of the most important and visible documents that governments produce. Many people and organizations both inside and outside of government rely on them to plan their future. A robustly prepared and transparently reported budget adds value to the democratic process.

B.C.’s annual budget is the first step in government’s annual financial accountability cycle. The cycle is com-
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plex and, as you know, involves estimating revenues, operating expenses, capital spending and debt levels for the entire government reporting entity. This includes consolidation of the financial plans for all ministries, Crown corporations and SUCH-sector entities — school divisions, universities, colleges and hospitals.

In 1999, our office reviewed government’s estimating process and made recommendations on the governance and management process. I believe the report was 400-and-some-odd pages. I have it downloaded and haven’t read it yet.

Approximately 15 years later, our recent examination focuses on the economic and revenue forecasts in the 2014-15 three-year budget and fiscal plan. Bob will go through the results of that work momentarily. This work is the first phase of our plans to examine government’s budgeting processes. We’re actually currently working on a focus on the expenditure side of the budget.

This report is the first in a multi-year, phased approach to examining government’s budget process. In this report, we examine the economic and revenue forecast processes in government’s Budget and Fiscal Plan 2014-15–2016-17, which was tabled in the Legislature on February 18, 2014.

The budget is one of government’s key accountability documents, which always draws a lot of public interest. We wanted to provide an independent examination of the budgeting process to give MLAs, and the public, assurance that the budget is based on sound processes.

Again, this first piece of work looked at a specific component of government’s budget process — the economic and revenue forecasts.

In B.C., the annual budget process is coordinated by Treasury Board staff within the Ministry of Finance. The process involves more than 150 government organizations that prepare their individual budgets, which are then consolidated into government’s annual budget documents. Forecasts in the budget rely on assumptions of future economic activity.

The Ministry of Finance’s economic forecasting and analysis branch is responsible for developing economic forecasts that support significant components of the budget. Two of the main outputs of the annual budget process are the three-year budget and fiscal plan and the main estimates, which are tabled in the Legislative Assembly.

We examined and provided assurance on the systems, methodologies and processes used by the Ministry of Finance in preparing the economic and revenue forecasts in the budget and fiscal plan. Our four criteria for this examination were developed using the assurance standards for future-oriented financial information issued by CPA Canada, as well as applicable requirements of the Budget Transparency and Accountability Act and the Balanced Budget and Ministerial Accountability Act.

Auditors generally deal with past transactions and events. A budget is a forward-looking document that relies on forecasts of future economic activity. One thing is certain. The actual results will vary from the budget estimates, and the variances might be significant. Therefore, our examination cannot provide assurance on whether government will achieve their economic revenue or surplus forecasts.

We concluded that the key economic and revenue assumptions used in the 2014-15 three-year budget and fiscal plan are suitably supported, reflect expected economic conditions, are consistent with government’s plans and provide a reasonable basis for the forecast. We also found that the forecasts accurately reflect the key assumptions.

For the presentation and disclosure, we concluded that the budget and fiscal plan allows for comparison with the actual results in the summary financial statements. We also found that the current level of disclosure provides a good foundation for readers to assess the risks associated with revenue forecasts. Many of the disclosures set out in the CPA Canada standards are included within the budget and fiscal plan.

We also found that there was good discussion on the risks to economic growth. Further, appendix table A5 in the budget and fiscal plan document provides detailed information on the key economic assumptions for significant revenue sources. That said, we did have recommendations in a few areas where government could enhance the disclosures in the budget and fiscal plan. I’ll get to those in just a minute.

Finally, we examined all the requirements of the legislation as they relate to the economic and revenue forecasting in the budget and fiscal plan. We did not identify any significant instances of noncompliance.

While our overall conclusion from the examination was positive, we did make three recommendations for the Ministry of Finance. These recommendations focus on improvements to the information presented in the budget and fiscal plan, to assist readers in better understanding the risks and sensitivities underlying the revenue forecasts.

The first recommendation is for the Ministry of Finance to clearly disclose in its budget and fiscal plan the inherent limitations associated with future-oriented financial information, in line with the disclosure standards established by CPA Canada.

We also recommended that the ministry enhance its sensitivity disclosures in appendix table A5 of the budget and fiscal plan, explaining why the selected economic variables are used and disclosing and discussing the likely range of historical data volatility.

Our final recommendation was for the ministry to provide additional information on the risks supporting the annual forecast allowance.

G. Farkas: We would like to again thank the Auditor General and her staff for the budget assurance report and the examination of the economic and revenue processes and forecasts. As we implement the recommendations, we look forward to continuing to work with the Auditor General, as well as subsequent audits around the budget.

The report stated that government prepared the economic and revenue assumptions and forecasts based on sound processes supported by external forecasts that were appropriate and compiled accurately. As such, as indicated, the OAG has no recommendation in this area.

The report also noted that government met requirements under the Budget Transparency and Accountability Act and the Balanced Budget and Ministerial Accountability Act.

Government accepts all three of the recommendations in the report that were more technical in nature. The first recommendation is to clearly disclose in the budget and fiscal plan the inherent limitations associated with future-orientated financial information, in line with disclosure standards established in the CPA of Canada.

We have accordingly amended our quarter 1 and quarter 2 reports this year and commit to doing so in the budget document as well. We look forward to asking the Auditor for feedback to ensure that our approach addresses her recommendation.

The second recommendation was to enhance the sensitivity disclosures in appendix table A5 of the budget and fiscal plan, explaining why the selected economic variables are used in disclosing the likely range of data volatility.

We agree that would be useful context for the public. However, we believe that release of this information, of more historical information, is more suited to our stand-alone document, or the annual financial economic review, which in fact does provide historical information as opposed to forward-looking projections. This is a report that’s produced after the public accounts, usually released in July.

At the suggestion of staff of the Office of the Auditor General, a reference to where this information is published will be included in the budget document. The next iteration of the financial economic review is 2016, in July, and we will reference this change at that time.

The final recommendation is to provide additional information on the risks supporting the annual forecast allowance. We accept the Auditor’s recommendation, and we’ll be providing additional information to help better inform the reader as to how the forecast allowance, as well as the other levels of prudence in the budget, is developed by the Ministry of Finance.

In closing, Treasury Board staff look forward to continuing the dialogue with the committee and welcome your feedback.

L. Throness: To the Auditor General: rarely have I heard an Auditor General deliver such a glowing report. It must have been really boring for you to do.

I would point out…. You say: “We examined the calculation of revenue forecasts…. We did not identify any instances where these calculations did not accurately reflect the underlying assumptions.” Rarely does the Auditor General use the word “any.” So we’re very appreciative of that.

I wanted to ask you…. You used to be the Auditor General in Manitoba. Can you think of any unique way that B.C.’s practices or processes differ from Manitoba or other jurisdictions that make things better? Is there anything we do that’s better than other places that makes us more accurate and reliable?

C. Bellringer: That’s a big question. We hadn’t done this work with any jurisdictional comparisons in mind. We weren’t looking at the design.

I will say that I like the quantity of disclosure that I saw with what B.C. is doing. I mean, that varies across the country. There’s no question.

There are two practices that we drew attention to in the report that are done in Nova Scotia and Ontario, where the Auditor General’s office actually expresses an opinion on the pre-election budget, and that would actually be something I would feel really uncomfortable doing. But it’s clearly a policy call, and we’ll do it if we’re ever asked to do so.

Where you see a fairly rigorous process in place in something like that that’s a bit of an unusual practice, or at least something that not everybody is doing, it usually flows out of something that maybe wasn’t going so well. You can see the direct parallel between improvements and when things were maybe not as transparent or not as rigorous, and then the improvements come through.

I have to say I’m…. I had heard that this 400-page report that I referenced that was done in ’99 led to a lot of changes. It’s good to know that they were integrated well within the system so that they’re certainly…. There are still a huge number of policy calls that lie behind each of the decisions that are made within putting the budget together. But in terms of process, you can be satisfied that you’re getting solid information to do those comparisons.

I can’t comment on whether it’s unique in B.C. I think most provinces are certainly attempting to do things to that level of…. Perfection would be maybe a bit extreme, but being transparent and so on. B.C. is doing a very good job.

B. Ralston (Chair): The natural gas price and revenues to the Crown from natural gas have always been very difficult to predict and, like many resource prices, very volatile. A couple of years ago, I believe, the Minister of Finance commissioned — I think on the recommenda-
[ Page 830 ]
tion of the Auditor General — an external review of that revenue assumption in the budget.

Are processes like that, where there’s some kind of…? I think it was Kevin O’Neill, who was a former deputy of Finance, federally, or something like that — an eminent person, as they say. He produced a report about the estimation of revenue from natural gas based on a variety of factors. Are external reviews like that, or mechanisms to take that kind of external look at key indices, built into this process now?

G. Farkas: Mr. Chair, just a point of clarification. Dr. Tim O’Neill, when he did review us….

G. Farkas: He looked at all of our revenues. He did provide recommendations in natural gas, but the review was broader in nature.

B. Ralston (Chair): Okay. My recollection was that it focused specifically on natural gas, but I accept your correction, of course.

G. Farkas: It’s one of the levels of prudence that we continue to build into the fiscal plan. What he recommended was that we take a more prudent approach. How we’ve interpreted that is: going to the 20th percentile. And again, as you know….

D. Riley: That means that 80 percent of the forecasts, private forecasts, are higher than the natural gas price that’s used in the budget forecast.

G. Farkas: I’ll also point out that we have a legislated committee, the Economic Forecast Council, that the minister meets with late November — I think, the 27th.

G. Farkas: Again, the minister does receive advice, as do staff, around how very prominent economists across the country are viewing B.C.’s progress.

B. Ralston (Chair): I think it would be fair to say the recent collapse of the price of oil was not predicted. Obviously, B.C., in its budget, doesn’t rely very much on the price of oil, but it has a related impact on the price of natural gas.

What mechanisms are there to…? It does seem that even the most reliable economists and agencies — the International Energy Agency, for example, in Paris — don’t seem to have predicted this recent collapse. What mechanisms can you build into the budgeting process to at least exercise some measure of prudence when budgeting for natural resource revenue?

G. Farkas: I’d probably want to answer that question in more general terms, because natural resources sector revenue is not a huge component of provincial revenue. There are various other sources of revenue that obviously the province relies on in its revenues.

We do have four levels of prudence that we look at. We take the average of the economic forecast, and then we forecast more prudently provincial GDP. That’s one level of prudence.

We also have a contingencies allocation and a forecast allowance, and again, we do accept the recommendations of Dr. Tim O’Neill to build in a more prudent natural gas revenue forecast.

With respect to your other revenue sources, as the Ministry of Finance is determining what the revenue forecast is for those streams, we do consider taking a conservative approach.

B. Ralston (Chair): In terms of volatility and predictability, my recollection from looking at this over a few years was that retail sales tax and income tax were relatively stable. So in terms of predictive accuracy, what would be the most stable sources of revenue, generally, in the provincial budget, and what would be the most difficult to predict?

D. Riley: The most stable are things like federal government transfers, barring any big policy changes, obviously, from the federal government. But they tend to be relatively stable over time.

A number of sources of fee revenue are generally stable. They don’t go swinging up and down.

In terms of the huge volatility — you’ve touched on natural gas — other natural resource revenues are also volatile, obviously, because of external commodities, external markets and prices that are determined outside. Another area that’s been extremely volatile is corporate income tax revenue. Again, when you look at it from the economic perspective, corporate profits are also probably the most volatile economic factor amongst the national accounts, so it translates right into corporate income tax revenue.

B. Ralston (Chair): Given the way that corporate income tax is collected within the CRA and then remitted to the provinces — I believe that’s how it works — what’s the lag time in the collection and your ability to predict? I understand there is some lag time between economic events that affect corporate profits and turning up in terms of revenue.
[ Page 831 ]

D. Riley: That’s correct. We record it based on the cash advances that are provided by the federal government to the province and then make the adjustments for the previous calendar year when CRA has finished its audits or its assessments. It’s roughly a year’s time.

B. Ralston (Chair): Am I wrong in thinking that personal income tax is more stable and predictable than corporate income tax?

D. Riley: It’s more stable and predictable, especially given its size relative to corporate income tax. It’s two or three times the size — or more, four times the size. It does have volatility, again because of the lag. Because CRA does the assessments for personal income tax revenues, we don’t find out what actually happened until a year after the fact. That can cause some volatility. But relative to its size compared to corporate income tax, it is more stable.

B. Ralston (Chair): A couple of other ones. The property purchase tax — obviously, that’s topical these days. I’m not entering into that debate in any way, but in terms of it, how difficult is that to predict?

D. Riley: You’re quite right. That is a very difficult revenue source to predict because of behaviour. You get a lot of change in behaviour. It can influence this. Also, over the past number of years, it’s been a source of revenue that’s actually not necessarily increased when the economy increases.

It’s actually increased when the economy has gone into recession. And the opposite — it’s actually decreased when the economy has been growing. When you get that kind of volatility that isn’t linked to the economy, it makes it a very difficult revenue source to predict — because what do you base it on?

B. Ralston (Chair): You’re not saying it’s predictably counter-cyclical? That would be an advantage — would it not? — if you had a source of revenue when everything else goes south.

D. Riley: Yes, if it was predictably counter-cyclical, then it would be easy to predict.

What about the other one? And I’ll let other members, if they have questions…. What about lottery revenue? Generally, I think it’s over $1 billion a year. How predictable is lottery revenue?

D. Riley: It’s actually been quite stable, relatively stable. I mean, it grows. I would say that a large majority of the platforms have levelled off. In other words, there are only so many new lottery tickets you can put out. If you put out a new lottery ticket, that cannibalizes the other ones. Any strong growth in the lottery would have to come from the e-gaming side, which is more or less in its infancy at this point.

B. Ralston (Chair): What calculation do you do, or are you able to do, if there’s a new source of revenue identified by the government? Is that something that your section does, or is that something that would be done by Treasury Board in the Treasury Board assessment of a new measure or tax?

B. Ralston (Chair): I don’t want to monopolize here, but I don’t see a lot of other hands.

K. Corrigan: Maybe this would be tax policy as well. I’m wondering what kind of work goes into assessing both geographic and income equity.

For example, as the Chair has mentioned, there’s been a lot of talk, certainly in my community, about the fact that so many people are losing their homeowner grant this year. That would be almost entirely true about some of the communities in the Lower Mainland, like Vancouver, Burnaby, North Shore, New Westminster.

Is that part of the building of the budget — analyzing what the impact is of changes in the sort of economic background? And then, is part of the work in building a budget…? Is there any analysis done or advice given about the impact, for example, of increasing MSP premiums — which, if you’re not at that very low income, is a regressive tax, as is the sales tax? Is that part of the work that is done in preparation of a budget?

G. Farkas: Probably the easiest way to explain how the budget is prepared is there’s an economic forecast that’s produced by the Ministry of Finance, Treasury Board staff, as well as a revenue forecast.

The Minister of Finance will make various different expenditure decisions around, for example, ministry allocations and also has purview to make tax policy decisions, to which you’re referring to. Those are the kind of considerations that would be brought forward to the minister in consideration of the provincial budget.

K. Corrigan: Just a quick follow-up on that. So in other words, that would be an initiative of the Ministry of Finance to proactively do some of that type of analysis? Is it an ongoing type of work? I’m just trying to get a sense of how it fits into the process.

G. Farkas: There are various different ways in which…. There’s ongoing work that’s done by the Ministry of Finance
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on a whole host of issues. Certainly, some of the considerations would go forward to the Minister of Finance.

Of course, the government — cabinet, Treasury Board, the Minister of Finance — will have their own objectives in building a provincial budget, which staff will be asked to review and analyze. He also relies on other places for information as well. For example, a Select Standing Committee on Finance provides recommendations that come into consideration during the budget process.

R. Sultan: The member from Burnaby raises an interesting line of inquiry which intrigues me as well. Maybe I’m paraphrasing some of the questions she’s already asked, but do you actually forecast each revenue stream, stream by stream by stream, based on some model driven off the macroeconomic forecast? If you do, does that seem to be a helpful contribution?

The other question is…. In terms of this economic council you’ve put together, you track how well these folks predict the future. Have you got some stars and some not so starry that you might mention?

D. Riley: Yes, each revenue source is a bottom-up approach. Personal income tax, for instance, would use different sorts of economic drivers behind it — personal income or household income versus corporate profits, which would use more the business lens and corporate profits types of indicators. Obviously, things like forests, they’d be taking into account the exchange rate, lumber prices, pulp prices — that kind of thing. Each one is done independently and built up.

R. Sultan: You have some super forecasters and some that perhaps should stay home?

S. Mirza: With respect to the Economic Forecast Council, currently we have 13 members on the council. How each one does their forecast varies. Some use very sophisticated modelling techniques, others not necessarily. With respect to accuracy, we are aware of some forecasters who tend to forecast on the higher side. Others tend to be more prudent in their forecasting, but that’s probably all I should say on that.

G. Farkas: I’ll just add that we don’t publicly release how they do in their forecasts, but that’s not to say that the minister may not raise the question during the deliberations in November when he talks to the experts for advice.

D. Riley: I will point out that in the budget, each individual forecaster is shown, so an individual could track.

B. Ralston (Chair): So if Ralph wanted to go back and do that, he could do that himself, then, and report to us.

A couple of other contingencies. One would be the impact of, say, something like the softwood lumber. There’s some vast uncertainty in that area. How, maybe at Treasury Board or in Mr. Riley’s unit, are you able to quantify that?

Secondly, I think the most dramatic economic variable this year has been the collapse of the Canadian dollar against the American dollar. How successful was the budget in predicting that last year?

G. Farkas: With respect to the softwood lumber agreement, that’s not something we’d try to predict in the forecast in terms of how the negotiations might conclude. What we would do, though, is identify it in the attestation statement of the Deputy Minister of Finance as a risk.

B. Ralston (Chair): Usually, the deputy minister specifically excludes that as a variable that is unpredictable from the other predictions in the budget. That’s my recollection of how they do it.

G. Farkas: We would just point out that we wouldn’t have assumed any particular outcome in an agreement like that.

B. Ralston (Chair): And on predicting the exchange rate with the American dollar?

S. Mirza: With respect to the exchange rate, it is inherently a very difficult variable to forecast, so at the Ministry of Finance, we rely on private sector forecasts for that. We rely on six private sector forecasts: IHS Global Insight, CIBC, Bank of Montreal, Scotiabank, TD and RBC. We take an average of their forecasts, and that is what the Ministry of Finance adopts as their own forecast.

Last budget, for 2015, the average forecast was for 85.3 cents U.S. for 2015. The actual came out at 78.2. So obviously….

S. Mirza: Off quite a bit. But it is inherently a very difficult variable to forecast.

Any further questions or any further wrap-up comments from the Auditor General? Okay, thank you very much.

I think we have one more item before we leave, which is a brief update on the follow-up process from the
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Auditor General. Maybe we can just pause for a moment and let the Ministry of Finance officials head back to putting together the budget for this year.

Members, there’s one final item before we go. It is a brief update on the follow-up process. I don’t expect it to be very long. Given that we were timed to conclude at 4:30, I think we’ll conclude in advance of 4:30. If people will just stay in their seats for another few minutes, we should be able to conclude.

C. Bellringer: We decided it was more cost-effective, because I was already here.

B. Ralston (Chair): Very well. Just to open the consideration of this report, this is an update on the follow-up process and action plans. I’ll turn it over to the Auditor General.

You’ll recall that in June 2015, you agreed to a new follow-up process. In August, that was the first time that the various entities that had undergone a performance audit in the past three years were each requested to provide an action plan. Going forward, the request will come as soon as the report is issued, but that was the catch-up process.

They were completed and returned to the Public Accounts Committee in the fall. Of the ones requested, only two of them were not submitted within the time frame. Those two were two of the school districts. It was on a school district board governance examination, Surrey and Mission. Mission’s self-assessment is still outstanding. However, the board chair has indicated he intends to submit that shortly.

I will say and the staff that work on this all asked me to let you know that it was an overwhelming success. They were very pleased with the process and asked me to also acknowledge the work that was done by the Clerk’s office as well as the comptroller general’s office. The process was really quite smooth.

What we’ve now done is we went through all of the various action plans, and from that, we made a decision to look at three of them. So we’ll be doing a progress audit to make sure that those entities actually did what they said they did in the action plan and that it’s fairly and accurately representing the progress that they’ve made against the recommendations.

We took into account the status of the recommendations; the perceived reliability of the plan that was provided; the potential financial, social or environmental impacts of the recommendation; whether we had received any further requests or questions either from the Public Accounts Committee members or other members of the Legislature — citizen concerns, that kind of thing — and we also had to look at our staff availability.

We anticipate publishing these in the spring. It won’t make the March cutoff. They’ll be published separately with the most recent action plans. But we ourselves will not be publishing any of the other action plans, so it won’t take the format that we used to do when we did that publication of the self-assessments.

A couple of things just to draw to your attention. When we were going through all of the action plans that have come in…. It can be that you will no longer receive action plans from an organization in the case that they’ve already reported that the recommendations are fully implemented or if they’ve made the assessment that they’re no longer relevant.

That applies to the following four: the university board governance examination; Britannia mine water treatment plant project; the Crown agency board governance, B.C. Transit; and an audit of B.C. Transit’s ridership growth. We took that into account when we decided which ones we were looking at. We sort of gave it an extra look to make sure that we shouldn’t include them on the list. Those you will not be seeing again.

There may be some we did not select that still have outstanding recommendations, where we appreciate they’re still going to be producing a further action plan. So we may not have selected those with the three that we picked. We kept that in mind and thought: “Well, we’ll still have another opportunity to select them the next time around.”

The follow-up process was considering twice-yearly submission — not meaning two requests to the same organization but, rather, taking those that were fit into the cycle at one point and then six months later: are there any added to that? If we were to do the six months after the last request, there would only be two audits that would fall into that category. One is the integrated case management, ICM, system that we issued in March of ’15, and the other is the adult custody division’s correctional facilities and programs that we issued in January ’15.

So a year after the last request in the fall, we would recommend to you that those just be rolled into that and let it go six months later, just so that there’s only one system of asking for requests. I believe that that fall list would be…. There are four other reports that fall into that fall, and there are a few other odds and ends that weren’t actually audits that we’re seeing are kind of slipping through the cracks. So we may draw attention to those and get those added in as well. That’s entirely up to
[ Page 834 ]
you, whether you stick to the plan of doing it every six months or leave those two to the year later.

I can answer questions around…. I do have our list of details that we took into account. We had some internal meetings in our office to really think through carefully which ones we were selecting. I can give you a little bit more information on individual audits, if you’re wondering why we didn’t pick them.

S. Gibson: It’s somewhat related to this — and thank you for the presentation. I received a call the other day from Royal Bank Visa that asked me: “Did you take out a $7,000 line of credit?” I told them: “No, I didn’t.” They knew that, because I don’t take out lines of credit on my credit card. But they had software to track that. They knew right away that it was out of character for me to take a $7,000 line of credit on my Visa. So they immediately put it back in again, and I got a letter in the mail.

The reason I asked, with that maybe anecdotal story, is: do you have templates or systems — it relates to what you presented, in a way — that spot things? For example, you’re studying university governance. But that template can also be used for, maybe, a corporate study, so you don’t have to completely reinvent things each time. You’ve got almost like a foundation or a template to use.

If so, how do you use that? Is there software that you can use so you don’t have to have the same amount of labour to come up with these recommendations — i.e., that you don’t need action plans or whatever? That’s my long question for, maybe, a short answer.

C. Bellringer: The answer is probably longer than the question. It depends which aspect of our operation we’re referring to. If we’re doing the follow-up selection, we have quite a rigorous process in the assessment. But other than the spreadsheet itself, it’s not mechanical. It’s something that the individuals who worked on the audits…. They think through the factors that I read out.

When we do our audits, we have a lot of audit programs. We have all kinds of databases that we use to bring together…. I do a lot of research on what’s done in other jurisdictions, and we can access audit programs. If something in a similar program area was done in another province in Canada, we contact the auditors there, and they share with us the criteria that they used and the way they developed it. We don’t start from scratch with every audit we do, but we do tailor it depending on the risks and so on. It’s using technology quite rigorously, but we’re not using it mechanically as well.

S. Gibson: Well, I guess, Mr. Chair, for myself, I don’t think we want to get into the micro of it. You guys are good at that, and that’s why you’re doing such a great job. But it would be interesting for me, as just one member, to see kind of what goes behind it. You know, the tapestry is beautiful at the front but kind of tangled at the back. Sometimes that would be of interest to me, because I value what you do, but I don’t always understand the intricacies of it. Maybe I don’t need to know.

C. Bellringer: We’d be happy to share more details with you. If you wanted to make a field trip over to the office one day as well, we can show you some of the things we do. It is a fascinating process.

We do something called “challenge” on all of our reports. There are a couple of points in time when the audit team will be providing the findings to other individuals within the office. From time to time, we’ve actually allowed people from the outside to assist us in the challenge meetings. I think the comptroller general’s office was invited in at one point, on one report. I’m not sure. It goes back a bit. But we look to those opportunities as well, to say: “You know, if you want to come and participate in some of our processes, we can build that in.”

B. Ralston (Chair): Maybe we’ll put together a list of people who want to go on that field trip. It’s an idea. I’m partly joking, but it might be an idea, if there’s sufficient interest. I don’t know.

R. Sultan: Just a very general question, Auditor General. You’ve been here long enough now, I think, to get a sense of the atmosphere of this government and the legislators. I just wanted to ask whether you have found it, from time to time, difficult to penetrate the corridors of power and find out what’s really going on.

Have the government ministries been transparent, cooperative, helpful and open or, from time to time, maybe a little bit less? The reason I ask, obviously, is that — as I see it, at least — you are one of the principal means by which the Legislature holds the government to account. I think the motivation that you are able to do that is equally strong on both sides of the House.

Are you being allowed to do your job well? If not, would you report back to the Chair and co-Chair immediately?

C. Bellringer: We watch for that all the time. I can share with you some of my observations over the last year. I would say we eventually get everything we’re looking for. There are times when there was reluctance. I can’t generalize. For every audit we do, there’s a whole different environment that we are working with.

I will say it took about six months — maybe longer — to build up some trust in some areas. We have to strike a balance all the time with making sure that we never waver in being completely transparent about what we are finding but, at the same time, not being overly aggressive
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with public servants who are there to do their job. That takes a bit of tightrope-walking because, as I say to the staff quite often, we carry a big stick, but we don’t always have to use it.

It’s a fascinating world. I don’t know a lot of the people that are in the public service in British Columbia. For myself, it’s been a learning experience to get to know everybody. But it also gives me a really great perspective to step back from it and not be swayed by, “Oh, so-and-so always does that.”

There are benefits to being new, but it’s difficult to build that trust. It’s been a…. I don’t know. I can’t say too much more than that. Thank you for the question.

I had one quick question. You mentioned there are two reports that you were proposing to defer. My only question would be: what would be the message to those two if they were deferred six months?

C. Bellringer: It’s entirely up to you. I think the question is more to the comptroller general’s office and Clerk’s office — whether there’s any issue around…. There really is no problem to do it. If you want to do it for just two, we can do it for…. I mean, it’s up to you to request the action plans.

The suggestion was made by our staff as to whether you wanted to do it that way or not. You could ask for it on the six-month plan, but we could still choose to schedule it a little bit later. We might have some staff scheduling problems. If you were then to wait, the action plan you asked for would be more recent. I’m not sure if we have staff available to look at it right away, if you ask for it in the summer. On the other hand, we can work around that. We may not choose to look at those.

B. Ralston (Chair): I think, speaking for myself, if we’re on a schedule, I’d just prefer to keep it. The message through the system is that you’re going to ask for these at this time and they’re not going to be deferred, even if it’s only two. Given the discretion that you will exercise in carrying that out, I think that’s fine too.

C. Bellringer: We don’t feel so strongly about it that we’re saying that you really should wait that six months. But it was a suggestion more than a…. I did say recommendation, but I should have just said a suggestion for you to consider.

K. Ryan-Lloyd (Deputy Clerk and Clerk of Committees): The committee has uploaded to its website today, to the Public Accounts website, a new section which supports the follow-up process and makes reference to your June 3 decision to embark on receiving the action plans in conjunction with the help of the Auditor General’s office.

It was a suggestion by the Auditor General’s office that as the action plans are considered by the committee, we compile them in a publicly accessible part of the website. We’ve just begun that process today.

The ones that have been considered to date will find their way there. Others, as they’re received, on whichever schedule works best for the committee, will be provided to you on an ongoing basis. But those that are considered by the committee will be made available here.

With a view towards tomorrow, if any members would like to pick up their print binders this evening for review, in anticipation of tomorrow morning’s 9:30 start, we do have them available now.

B. Ralston (Chair): I have the sense members might be otherwise engaged this evening, but I’m just guessing.

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Chair:	Bruce Ralston (Surrey-Whalley NDP)
Deputy Chair:	Sam Sullivan (Vancouver–False Creek BC Liberal)
Members:	Kathy Corrigan (Burnaby–Deer Lake NDP)
	David Eby (Vancouver–Point Grey NDP)
	Simon Gibson (Abbotsford-Mission BC Liberal)
	George Heyman (Vancouver-Fairview NDP)
	Marvin Hunt (Surrey-Panorama BC Liberal)
	Vicki Huntington (Delta South Ind.)
	Greg Kyllo (Shuswap BC Liberal)
	John Martin (Chilliwack BC Liberal)
	Lana Popham (Saanich South NDP)
	Linda Reimer (Port Moody–Coquitlam BC Liberal)
	Selina Robinson (Coquitlam-Maillardville NDP)
	Ralph Sultan (West Vancouver–Capilano BC Liberal)
	Laurie Throness (Chilliwack-Hope BC Liberal)
Clerk:	Kate Ryan-Lloyd

REPORT OF PROCEEDINGS (Hansard)

SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE ON
PUBLIC ACCOUNTS