This is page numbers 171 - 209 of the Hansard for the 12th Assembly, 6th Session. The original version can be accessed on the Legislative Assembly's website or by contacting the Legislative Assembly Library. The word of the day was report.

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Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

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Henry Zoe North Slave

Thank you, Mr. Chairman. The Standing Committee on Public Accounts Report on the Review of Financial Statements of the GNWT and the Report of the Auditor General of Canada for the Year Ending March 31, 1993 was tabled on October 6th. I believe Members have had the opportunity to read the report. I understand we are dealing with this report today, but Members will recall that I read the executive summary into the record when I made the report in the formal sitting.

I wonder if I could ask the committee that, because our report is lengthy, it be deemed read into the record. If so, I can proceed with the recommendations right after that.

Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

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Some Hon. Members

Agreed.

---Agreed

Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

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The Chair Brian Lewis

There are no nays. I would like to report to the committee that this report, as we received it, will be printed in its entirety into the Hansard, in lieu of it being read. Thank you.

Committee Report 5-12(6): Report On The Review Of The Financial Statements For The GNWT And The Report Of The Auditor General Of Canada For The Year Ending March 31, 1993
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 196

The Chair Brian Lewis

Executive Summary

The public accounts for 1992-93 were tabled in the Legislative Assembly in November of 1993 and the Auditor General's report was received in April, 1994. The Standing Committee on Public Accounts conducted its public review of the report on June 20 to June 23, 1994 and also met on August 25, 1994 to prepare this report for the Legislative Assembly.

The public review initially consisted of a follow-up on issues and concerns of the standing committee from the previous year. Much of the focus was on the emerging role of the office of the Comptroller General resulting from the organizational changes within the government. The committee is concerned that combining the office of the Comptroller General with the Secretary to the Financial Management Board not lead to problems with respect to crucial information flow and accountability. In addition, the committee examined the audit and evaluation functions and noted that high priority must be given to staffing and allocation of sufficient resources to fulfil evaluation objectives. The Finance committee of the Legislative Assembly should ensure that adequate checks and balances are maintained in the system and that evaluation subscribes to the highest levels of integrity and objectivity.

It was also noted that there had been an increase in the occurrence of fraud being perpetrated against the government, the investigation of which resulted in the diversion of substantial resources away from the regular audit activities.

The committee discussed several issues noted in the Auditor General's report with the Comptroller General. Among these were the implications and impacts of the health billings dispute, the pay equity dispute, and the policing costs associated with the Royal Oak labour dispute. In light of the potential negative impact on the financial stability of the government, the committee encourages a conservative and responsible approach to financial planning and management.

The Auditor General noted that there had, once again, been delays in the preparation of financial statements, particularly those of consolidated entities, such as the NWT Development Corporation and the NWT Business Credit Corporation. Dependence upon subsidiaries' statements, and lack of internal resources were cited as the primary reasons for the delays. The Auditor General suggested allocating more resources to the office of the Comptroller General to assist these entities. However, the Comptroller General advised the committee that additional resources have been allocated to the entities, themselves, to address the situation.

The Auditor General noted a number of overexpenditures in 1992-93 due to a variety of factors. In general, the committee discussed the overexpenditures with the appropriate officials and encourages departments and agencies to identify potential resource needs at an earlier stage wherever possible, so they can approach the Legislative Assembly for supplementary funding. Tabling a comprehensive listing of payments to suppliers and contractors on a quarterly basis will also enable the Legislative Assembly to monitor financial resources more closely.

The committee discussed the government's cash position in 1992-93 with the Department of Finance and noted that, while the situation has improved compared to the previous year, in 1993-94, the deficit in the cash position was roughly $38 million. In addition, forecasts for 1994-95 predict a deficit in the cash position of $78 million at year end. The committee stresses that, given the present situation, the potential impacts of health billings, pay equity, and police costs disputes, the cash position must be closely monitored and up-to-date information provided on a regular basis to the Legislative Assembly and to the Finance committee.

In chapter three, of the Auditor General's report, some problems were noted with the recording of capital expenditures. According to the financial administration manual, expenditures are to be recorded in the year they are incurred, not when they are actually paid. On a number of occasions, the Department of Municipal and Community Affairs did not accrue liabilities for work performed in 1992-93 in municipalities because the contribution agreements weren't signed until the following year. The committee is concerned that proper accounting procedures are followed and that authority of the Legislative Assembly to approve capital planning and spending is not circumvented.

In its 1991 report, the Public Accounts committee made several recommendations regarding the development of an assets control system for the Government of the Northwest Territories. While such a system is the responsibility of each department, the Public Works and Services model is the most widely used. Generally, departments are in various stages of implementing inventory control systems for both capital and controllable assets.

Closely related to inventory control is the issue of custodial storage and warehouse procedures which was raised by the Auditor General in 1991. The Department of Public Works and Services is presently conducting a review of these procedures which will include an inventory of all government warehousing facilities and stock currently being maintained, and a plan for privatizing warehousing. The current practices of maintaining and storing valuable artifacts were discussed, and there are indications that the GNWT policy is required in this area. Due to the specialized nature of the facilities also required for abstract storage, it is anticipated that the pending privatization plan will address this issue.

Another related issue that concerned the committee is the future direction of records management and storage. The committee felt that, if storage space is limited, it would be wise to investigate alternative methods using the latest technology at the same time that departments are encouraged in addressing the operational requirements of records management such as, what to keep and for how long.

Approximately 40 per cent of the total unconsolidated government expenditures in 1992-93 were grants or contributions. In consideration of such a large portion of the government's budget being given mostly to boards and agencies to deliver programs and services, it is imperative that financial controls and accountability are maintained. The Department of Health and Social Services assured the committee that communication and working relationships will be addressed and improved through the negotiation of the master memorandum of understanding to be completed by December 1994.

Similar issues were highlighted with respect to boards of education. The Department of Education, Culture and Employment informed the committee that six of seven boards have signed MOUs as the base of their relationship with the department. However, the department is currently revising the Education Act which is expected to provide a legislative framework for the boards' responsibilities and define accountability mechanisms.

The committee discussed several other issues noted by the Auditor General with the relevant departmental officials. The possibility of further investigating the use of video-conferencing technology to cut down on travel and other costs was examined, and a future requirement in public accounting sector for assessing and recording restoration costs incurred through environmental liability were discussed with both the Comptroller General and the Department of Renewable Resources.

In order to address a number of these issues and deal with specific areas of concern, the Standing Committee on Public Accounts made the following recommendation.

Recommendation 1

The Standing Committee on Public Accounts recommends that the Government of the Northwest Territories, through the office of the Comptroller General, investigate the possibility of engaging the service of a forensic auditor for the sole purpose of dealing with attempts to defraud the government.

Regarding the health billings, pay equity and policing cost disputes, we made a number of recommendations.

Recommendation 2

The Standing Committee on Public Accounts recommends that the Legislative Assembly receive regular briefings from the appropriate officials on these and any other issues in dispute which have the potential to seriously impact the financial resources of the Government of the Northwest Territories.

Recommendation 3

The Standing Committee on Public Accounts recommends that the Department of Public Works and Services, on behalf of the government, provide a comprehensive listing of payments over $5,000 made to suppliers and contractors by the Government of the Northwest Territories on a non-cumulative quarterly basis to be tabled in the Legislative Assembly within 45 days.

Recommendation 4

The Standing Committee on Public Accounts recommends that the government review the capital planning process, and the role of the Legislative Assembly and priorize capital expenditures, and present options for ensuring legislative spending approval while improving process flexibility.

Recommendation 5

The Standing Committee on Public Accounts recommends that the Department of Personnel, in cooperation with NorthwesTel, implement a pilot project in Yellowknife to test the cost-benefit of using video-conferencing technology for staffing procedures.

Recommendation 6

The Standing Committee on Public Accounts recommends that the Department of Personnel, in cooperation with NorthwesTel, assess the option for expanding the use of video-conferencing technologies as recommended in the travel management report.

The Auditor General's Report For 1992-93

Earlier this year, the Auditor General of Canada, Mr. L. Denis Desautels, forwarded his Report of the Auditor General to the Legislative Assembly for the Year Ended March 31, 1993 to the Speaker, the Honourable Jeannie Marie-Jewell. This document, along with the Public Accounts 1992-93, Volumes I and II, became the focal point of four days of public hearings in June 1994 and one day of follow-up work in August 1994.

The Auditor General's report is divided into five chapters: chapter 1, financial statements issues; chapter 2, compliance with authorities issues; chapter 3, audit notes; chapter 4, grants and contributions; chapter 5, follow-up on recommendations of previous report.

Section One: The Process

Timing And Presentation Of The Public Accounts

The public accounts for 1992-93 were tabled in the Legislative Assembly in November 1993. The report of the Auditor General to the Legislative Assembly for the year ended March 31, 1993 was received by the Speaker on April 14, 1994. As a result, the report could not be tabled in the Legislative Assembly which had adjourned on April 7, 1994 until October 4, 1994. Under the rules, however, the report was sent by the Speaker to the chairperson of the Standing Committee on Public Accounts for public review.

Public Accounts Hearings

The committee would like to thank the Auditor General of Canada and all of the GNWT departments for their attendance and responsiveness at the public hearings in June. The cooperation of all deputy ministers and their support staff was very much appreciated and contributed to a constructive and useful process. The witnesses and the date they appeared before the committee are listed in appendix I.

Report Format

This report of the Standing Committee on Public Accounts on the Report of the Auditor General to the Legislative Assembly for the Year Ended March 31, 1993 represents a departure from the normal format of past reports in that it is presented by department rather than by issues for ease of charting progress on various issues.

Given the closeness of PAC's mandate to that of the Standing Committee on Finance with regard to the issue of departmental financial accountability and responsibility for adherence to the Financial Administration Act, this format will make it easier to relate to SCOF reviews and government budget processes.

Section Two: Issues And Concerns

During the public hearings in June 1994, the committee discussed various issues raised by the Auditor General with senior departmental officials. At these meetings, the committee requested additional information regarding these issues and concerns from the senior officials who appeared before the committee. In August, the committee reviewed and further discussed the information provided by officials and finalized this report. This section of the report summarizes the issues and concerns raised and presents the committee's comments and recommendations.

Follow-up: Previous Year's Issues And Concerns

Organizational Change - Role Of The Comptroller General

In 1992, the Standing Committee on Public Accounts recommended, in Committee Report 13-12(2), Strengthening the Roles and Responsibilities of the Deputy Minister of Finance and the Office of the Comptroller General, specifically to make these roles independent of each other and allow a more proactive approach to dealing with spending problems.

Subsequently, in 1993, changes to the executive management functions were made in the larger context of the "Reshaping Northern Government" initiative. Effectively, the roles of the Comptroller General and secretary to the Financial Management Board were combined in an effort to make the Comptroller General directly accountable to the Financial Management Board and responsible for internal financial management. The deputy minister of Finance is now responsible for external financial management.

As a result of this reorganization, the Standing Committee on Public Accounts is generally concerned that too much power for financial planning and allocation may be vested in one office. In addition, extra care must be taken to ensure that such centralized decision-making does not lead to "bottlenecking" and a restriction of crucial information flow.

A third concern the committee noted calls into question the prudence of housing the audit and evaluation function in such close proximity to the planning and allocation functions and under the authority of the Comptroller General, when logically, they should be independent of one another.

Although there appear to be no tangible problems at the present time, the committee has decided to adopt a wait-and-see attitude to ensure that the checks and balances are maintained in the system and that any problems are brought to the attention of government. To facilitate this "watch-dog" role, committee Members believe that both the Standing Committee on Public Accounts and the Standing Committee on Finance should be regularly and frequently updated on the progress and status of financial planning and management developments and initiatives.

This will require that there be a strong and continual flow of information, by way of regularly scheduled briefings, from the department of the Executive to the committees.

Audit And Evaluation Functions

The audit and evaluation functions are meant to provide an independent, objective, professional control mechanism to improve decision-making and accountability. As previously mentioned, the committee is not entirely comfortable with having the "back end" control in the same department as the "front end" planning and resource allocation function.

In addition, the committee is concerned that, given the present pace of staff, the evaluation unit and the workload that is envisioned, it may be a number of years before tangible evaluation results are obtained. If positions are not staffed immediately, it could be even longer.

Committee Members are also concerned that no new financial resources have been allocated to this function. The committee strongly urges the government to move swiftly on this initiative and ensure that adequate resources are made available to fulfil evaluation objectives. Time is of the essence.

The committee recommends that the audit and evaluation division share their plans and progress in meeting objectives with the Standing Committee on Public Accounts on a regular basis.

In addition, it is the intent of the committee that the Finance committees (PAC and SCOF) will play a role in ensuring that evaluations subscribe to the highest levels of integrity and objectivity. In addition, the government should move towards the development of an overall evaluation policy to guide the evaluation process.

The office of the Auditor General may also assume a role from time to time in ensuring the quality of evaluations through the normal audit process.

There was some discussion regarding the increasing occurrences of fraud being perpetrated against the government. The committee recognizes that frauds and the subsequent investigations required serve to divert resources away from regular audit activities. Therefore, in consideration of the severity of the problem and the substantial resources being diverted, the committee makes the following recommendation.

Recommendation 1

The Standing Committee on Public Accounts recommends that the Government of the Northwest Territories, through the office of the Comptroller General, investigate the possibility of engaging the services of a forensic auditor for the sole purpose of dealing with attempts to defraud the government.

Accountability

Merit System For Deputy Ministers

The committee would like to note that a request for background information on the implementation of the merit system for deputy ministers from the Comptroller General's office has received no response. The committee wanted to assess the supposed advantages of the system, particularly with regard to improving accountability in the public service.

The committee expects that requests of this nature will receive more adequate attention in the future.

Auditor General's Report

Office Of The Comptroller General

Health Billings Dispute

The Auditor General has commented on this issue in his report in each of the last three years. As this dispute is now proceeding before the courts, its resolution is difficult to predict. Within the context of the government's prospective cash position, however, the worst-case scenario of having to write off approximately $60 million in receivables would seriously impact the ability of the government to deliver its full range of programs and services.

Pay Equity Dispute

As with the health billings dispute, this issue is also proceeding before the courts to establish the appropriate jurisdiction of the Canadian Human Rights Commission and their authority to deal with the complaint of the Union of Northern Workers. The resolution of this issue also has the potential to significantly impact on the government's financial position.

The Standing Committee on Public Accounts would like to note for the record that, while these issues including the extra policing costs associated with the Royal Oak labour dispute are currently being addressed through legal means, the government must keep in mind their potential for negatively impacting on future financial stability. Wherever possible, the government must use a conservative, contingent approach to fiscal management and planning.

Further, the committee makes the following recommendation.

Recommendation 2

The Standing Committee on Public Accounts recommends that the Legislative Assembly receive regular briefings from the appropriate officials on these and any other issues in dispute which have the potential to seriously impact on the financial resources of the government of the Northwest Territories.

Financial Statement Preparation

The Auditor General notes in his report that the preparation of auditable financial statements was again delayed in 1992-93.

One reason cited for the delays was the inability of consolidated entities to complete their statements within the prescribed time frame. Management responses referred to a lack of internal resources in the cases of both the NWT Development Corporation and the Business Credit Corporation. Additionally, the Development Corporation has a number of smaller subsidiaries which must present their statements to the corporation prior to the preparation of their own statements.

The Auditor General made the suggestion that the office of the Comptroller General could be given additional resources and responsibilities to enable them to assist these entities, and other departments as required, in fulfilling their financial statement obligations in a more timely manner.

Instead, the government elected to provide the NWT Development Corporation and the Business Credit Corporation with additional human and financial resources in 1994-95 to address the problem. This may serve to alleviate future problems if the new positions are staffed immediately, however, it is anticipated that delays will again be experienced in preparing for the 1993-94 financial statements.

The committee recognizes that there is still a generic need to receive statements earlier in the process. Therefore, the committee endorses an approach whereby the office of the Comptroller General will work in concert with the Auditor General's office to identify potential accounting issues as early as possible in the reporting process. This will help to avoid delays in the presentation of the financial statements.

Environmental Accounting

The Auditor General noted that under generally accepted accounting principles, the government is required to adopt policies on environmental accounting. Restoration of the environment, subsequent to certain activities, both public and private, will result in costs that will need to be taken into account. This item will be discussed further under the Department of Renewable Resources.

Compliance With Authorities

The Auditor General noted an overexpenditure within the Financial Management Board Secretariat attributable to the human resource management function. This was due to an underestimation of government employee leave and other benefits entitlements.

On August 25th, the committee received a full briefing on the complexities of this issue within the context of a presentation of the draft financial statements for the 1993-94 fiscal year from the Comptroller General. The committee was informed of the difficulties that have been encountered in accurately determining liability for employee benefits, particularly with respect to ultimate removal benefits. The Comptroller General noted that improvements have been made to the method of calculating and forecasting this liability for the 1993-94 fiscal year and the government is attempting, through the collective bargaining process, to minimize its liability in this area.

The committee recognizes the difficulties being encountered and encourages any efforts on the part of the government that serve to refine its estimates and reduce its liability.

General Note On Overexpenditures

In fulfilling its role in the accountability process, the committee investigated the recorded instances of overexpenditure and obtained explanations from the central agencies and departments concerned. The committee encourages departments and agencies to identify potential resource needs at an earlier stage so they can approach the Legislative Assembly for supplementary appropriation prior to year end. This would enhance accountability and control and allow debate in the Legislature prior to spending.

In two instances, however, overexpenditures resulted from differing interpretations of legal responsibilities and proper accounting treatments. These are addressed under the headings of the relevant departments.

Upon consideration of the discussions with officials of overexpended departments, and in recognizing the need to closely monitor the financial resources of the GNWT, the committee makes the following recommendation.

Recommendation 3

The Standing Committee on Public Accounts recommends that the Department of Public Works and Services, on behalf of the government, provide a comprehensive listing of payments over $5,000 made to suppliers and contractors by the Government of the Northwest Territories on a non-cumulative quarterly basis, to be tabled in the Legislative Assembly within 45 days of the end of each quarter.

Department Of Finance

Cash Management

The Auditor General's report noted that the government's cash position had improved in 1992-93 compared to the previous year. However, upon closer examination, and in looking at 1993-94 figures, the cash position of the government is still a matter of concern. In 1993-94, expenditures exceeded revenues and the deficit in the cash position was roughly $38 million at year end.

In addition, forecasts for 1994-95 predict a worsening of the cash position by an additional $40 million at year end to an estimated deficit in the cash position of $78 million. This depends, however, on the assumption that potential impacts such as the health billings dispute, the pay equity dispute and extra policing costs during the recent labour problems are not felt in their entirety in the present fiscal year and the status quo is maintained.

In an effort to address this anticipated 1993-94 deficit in the cash position, the Legislative Assembly passed Bill 14, An Act to Amend the Borrowing Authorization Act, thereby increasing the government's borrowing authority from $65 million to $100 million. The committee would like to be assured that the appropriate steps are being taken, and will continue to be taken, to ensure that future deficits in the cash position are avoided and the government will be able to reduce the borrowing limit.

The committee would like to stress that, given the present situation, it becomes even more important that the cash position is closely monitored and that up-to-date information is provided on a timely and regular basis to Members of the Legislative Assembly and financial committees.

Department Of Public Works And Services

Recording Of Capital Expenditures

The Auditor General's report made note of two occasions where payments were made after March 31, 1993 for work performed by the contractors during the 1992-93 fiscal year. The management response indicated that not recording the liabilities was an oversight and the department issued revised and more detailed instructions to staff to avoid a recurrence of such situations.

Controllable Assets System

In its 1991 report, the Standing Committee on Public Accounts made several recommendations regarding the development of an asset control system for the Government of the Northwest Territories.

The Department of Public Works and Services currently operates a model available for use by other departments, although it should be noted that controllable assets are an individual departments' responsibility. The office of the Comptroller General reviewed government departmental inventories and controllable assets systems and found that the Public works and Services model was being used by some departments and very effectively by one department in particular. The Comptroller General's office will endeavour to work with other departments to assist them in using the system more effectively.

Custodial Storage And Warehouse Procedures

In 1991, the Auditor General recommended that the "Department of Government Services should be given full responsibility for operating the warehouse with trained staff (and) there should be proper systems and records for items stored in the Yellowknife warehouse."

The Department of Public Works and Services responded in 1991 by saying that individual departments were still responsible for maintaining their own inventories of materials stored and that no policy on custodial storage was being developed.

However, the department is presently conducting a review of custodial storage and warehouse procedures that should be completed by December 1994. The review will include an inventory of all GNWT warehousing facilities and the stock currently being maintained, and a plan for privatizing warehousing. The department would establish procedures for the maintenance of custodial stock.

This led to a discussion of the issues of artifacts and the current practices with which these valuable items are stored. The department acknowledged that the specialized facilities that are often required for artifact storage are not operated by the GNWT and that the privatization plan will address this issue. The committee felt that it might help to define what constitutes an "artifact" and then develop a policy for the control and management of artifacts. The Comptroller General suggested that this matter should probably be referred to the Department of Education, Culture and Employment.

Another issue that arose from these discussions was that of records management and storage. The committee was concerned that an overall plan for that logical management of government records is lacking, which leads to the problem of deciding what records to keep, where to keep them, for how long and in what form.

The department noted that while record storage is a part of the warehouse requirements, the whole area of record management is a separate exercise. The role of Public Works and Services is to assist departments with their records management organization so that only relevant records are stored. What would then follow would be a review of alternative technologies to determine the best method of storage.

The committee feels strongly, however, that if storage space is at a premier, it would be wise to investigate alternative storage mediums such as electronic of microfiche storage at the same time that departments are engaged in addressing the operational requirements of records management. Therefore, the committee urges the government to conduct a coordinated review of its storage requirements with respect to artifacts and records in particular, which would involve the departments of Public Works and Services, Education, Culture and Employment and Justice, for the purpose of assessing the legal implications.

Department Of Justice

Overexpenditure

In the 1992-93 fiscal year, the Department of Justice incurred an overexpenditure of approximately $146,000 attributed to extra policing costs associated with the Royal Oak labour crisis. The legal dispute with the federal government as to who is responsible for the extra costs rendered it impossible to accurately predict the department's liability, if any, in this matter. Under his authority, the Comptroller General estimated this liability to be approximately $392,000 and booked the amount, resulting in the overexpenditure.

From a legal standpoint, the department appeared justified in its refusal to recognize a liability, while from the perspective of the accounting principle of "conservatism," the booking of the liability is also sound.

This "collision of legal and accounting principles" was brought about by unusual circumstances, and the future resolution of this issue is unpredictable. In essence, both the Department of Justice and the Comptroller General have tenable arguments, yet the latter has final authority for bookings.

Legal Contracting

The issue of legal contracts was discussed in Committee Report 6-12(6) on the 1991-92 financial statements. At that time, it was noted that some departments were contracting for legal services without consulting the Department of Justice, as they are required to do.

Subsequent to the committee report, the issue of legal contracting has been reviewed by the office of the Comptroller General in consultation with the Department of Justice and the financial administration manual directive 808 is being revised.

It is not possible for the Department of Justice to review all contracts entered into by GNWT departments. Therefore, client departments have developed standardized agreements which have been approved by Justice. This eliminates the necessity for the department to review each and every contract. However, departments are required to have the Department of Justice review all non-standard agreements over $50,000.

Department Of Economic Development And Tourism

Overexpenditure

The Department of Economic Development and Tourism incurred an overexpenditure as a result of an out-of-court settlement in which assets were transferred to the government and the capital appropriation of the department was exceeded by $173,761.

The department advised the committee that one asset in particular is being sold at the appraised value and the disposal of the remaining assets is currently being negotiated. No further costs to the department are anticipated.

Delay In Preparation Of Financial Statements

As in previous reports, the Auditor General noted again that there have been delays in the preparation of financial statements. This item has been discussed in section B.i. under the office of the Comptroller General, given the responsibilities of that office with respect to the timely provision of financial statements.

As previously mentioned, additional resources and PYs have been allocated for 1994-95 to address that issue. The committee is concerned, however, that this may not prove effective, particularly with respect to the NWT Development Corporation, where problems originate in subsidiary organizations.

The committee will observe progress on this issue with interest, and will note whether there is improvement, although there are indications that this will not be the case in 1993-94.

Conflict Of Interest Guidelines

This issue is being addressed in context of the committee's report on the audit of the Department of Economic Development and Tourism, the NWT Development Corporation and the NWT Business Credit Corporation, which discusses the importance of conflict of interest rules and guidelines given the intimate nature of the NWT economy and the potential for conflict between the public sector and private businesses.

The Standing Committee on Public Accounts would like to stress again the need for the government to review all conflict of interest rules and guidelines to ensure they are appropriate and adequate to cover the unique situations in the north, particularly those facing staff and board members in the area of economic development.

Venture Capital Definition (Arm's Length)

At the time of the Auditor General's report, the business development fund of the Department of Economic Development and Tourism did not have a definition of "arm's length" in its policy or directive. In its venture capital program, there is a requirement that investors receiving funding must be in an "arm's-length" relationship with the company in which they are investing.

The department responded that this had been overlooked but that they are now using the Business Credit Corporation's definition of "related parties," which was derived from the Income Tax Act. The committee feels that this is satisfactory only as a basis for developing a definition of "arm's length," but confusion could arise if the complicated language of the Income Tax Act derivation is not simplified and clarified.

Department Of Health

Health Billings Dispute

This issue has been discussed under section B.i.

Overexpenditure

The overexpenditure of approximately $75,000 incurred by the Department of Health can be attributed to the impact of the health billings dispute with the federal government. In the 1992-93 fiscal year, a $7.9 million surplus was turned into a deficit in the amount noted above due to an $8 million valuation adjustment against the DIAND dispute.

Once again, the committee notes the ever-increasing potential impact on the resources of the GNWT and strongly urges a conservative and prudent approach to financial planning and management.

Grants And Contributions

Approximately 40 per cent of the total unconsolidated government expenditures in 1992-93 were grants and contributions. In consideration of such a large proportion of the government's budget being given mostly to boards and agencies to deliver programs and services, it is imperative that financial controls and accountability are maintained, as well as ensuring value for money in achieving program objectives.

The committee feels that the issue at stake here is not merely one of lack of communication between the department and health boards brought about by a difference of opinion regarding the amount of autonomy the boards should enjoy. Rather, it is an issue of responsible financial management and accountability. Certain controls regarding the administration of public funds were ignored and the result may yet have a significant financial impact on the Government of the Northwest Territories.

Therefore, the committee strongly urges the government to enforce the financial controls set out in the Financial Administration Act in order to prevent similar situations in the future. Further, the committee will note with interest the development and implementation of the memorandum of understanding with health boards in the sincere hope that such issues are addressed and communications and working relationships are enhanced.

Memorandum Of Understanding With Health Boards

The department is currently working on a memorandum of understanding with health and hospital boards in an effort to improve communications, define authority and autonomy, and specify reporting requirements to achieve the desired level of accountability. This MOU is due to be completed by December 1994.

The department comments on the lack of trust and communication between the department and the boards in the past and noted that, while working relationships are improving, there is still some dissatisfaction with the definition of responsibilities and level of autonomy the boards enjoy.

The committee was given a briefing on the development of the MOU by the department in late August which outlined the content of the master memorandum of understanding. The committee is still looking forward to receiving a draft copy of the text of the MOU and will also note with interest the completion of this undertaking.

Financial Health Of Boards

The committee questioned the department regarding the overall financial health of the health and hospital boards, to which the department replied that they are all stable. However, it was noted that none of the boards have submitted annual reports or financial statements as required. Apparently, the boards felt that the costs of producing such reports were too great. The committee is not prepared to accept this disregard for accountability mechanisms where the expenditure of "public funds" is at issue. The deputy minister made the commitment to ensure the boards that an expensive glossy product is not expected, but that the basic information required under the Financial Administration Act is crucial.

The committee has noted the deputy minister's commitment and expects that the required information will be provided, on time, by the boards in 1994-95.

Legislative Review

During the hearings, the department also explained that a consolidation plan is currently being developed for the amalgamation of Health and Social Services by April 1, 1995. Over the course of the next two years, the department plans to utilize the combined resources of its two policy and legislation units from Health and Social Services to review the legislation that has not yet received the attention required.

Asset Tracking System

The department has made a commitment to have a capital asset tracking system operational by December 1, 1993. The department advised the committee that the system is in place in all regions except for Kitikmeot and Keewatin. Apparently, the system is tied to a standardized accounting system, which differs from the current systems used by some boards. However, aside from Kitikmeot and Keewatin, where hardware problems were experienced, the department was able to negotiate installation. It is expected that all regions will be on line in the fall of 1994.

Department Of Social Services Financial Controls

The Auditor General dedicated chapter 5 of his report to a follow-up of areas of concern noted in previous reports. Beginning in 1988, the Auditor General reported weaknesses in the financial controls for payments to beneficiaries in areas such as spending limits on cheques and the implementation of a new information system.

In 1992-93, the Auditor General again tested the control weaknesses previously identified and discovered that some of the same problems such as cheque splitting, issuing cheques with a single signature, and exceeding the $2,500 limit per cheque, were still occurring.

The department indicated during the hearings that these problems are presently being addressed primarily through the establishment of staff development officers in the regions to enhance staff training.

The department also recognizes that a review of the system and processes that are currently in place for the issuance of social assistance benefits is warranted.

The department has indicated, in its management response to the Auditor General, that violations of the financial administration manual by employees would be dealt with in a disciplinary manner. Recognizing that supervisors are ultimately responsible for the actions of their subordinates, the department has since experienced a significant turnover in superintendents. In fact, the majority of these turnovers were a direct result of a lack of appropriate financial management controls. The committee is encouraged by the department's apparent commitment to accountability and will be interested in any further improvements to the system that may result from the consolidation and information systems with the Financial Management Board Secretariat, particularly with respect to the smaller communities.

The committee noted, however, that the department must also maintain its service to the people in need, and financial controls should not get in the way of providing that service. By way of example, in 1992-93, 36 per cent of the total Social Services budget went to salaries and wages. In fact, there is growing concern that the administrative burden on social workers is increasing to the point where little time remains to actually tend to the needs of those whom the system is serving.

Given that the department has previously undergone an operational review, and is presently in the process of amalgamating with the Department of Health, the committee wishes merely to note these concerns and leave it to the future Department of Health and Social Services to address them satisfactorily. The committee will follow up on progress in these areas once the Department has had an opportunity to address them in a comprehensive manner.

Department Of Municipal And Community Affairs Recording Of Capital Expenditures

In Chapter 3 of the Auditor General's Report, some problems were noted with the recording of capital expenditures. According to the applicable accounting procedures in the financial administration manual, expenditures are to be recorded in the year they are incurred, not when they are actually paid.

The Department of Municipal and Community Affairs provides funds to municipalities for a variety of infrastructure needs. On a few occasions, the department did not accrue liabilities for work performed in 1992-93 in municipalities because the contribution agreements weren't signed until 1993-94. The Comptroller General accrued these liabilities on the department's behalf to ensure proper accounting treatment. In such a situation, the committee is concerned with two issues. One is that proper accounting procedures are followed and the second is that the authority of the Legislative Assembly to approve capital planning and spending is not circumvented.

While there may be several valid arguments regarding the will of the community versus the timing of the capital planning process, or the urgency of the situation versus established priorities, in the final analysis the Legislative Assembly must not be viewed as a "rubber stamp" for securing approval after the fact for decisions made where there is clearly no authority to do so.

In addition, the committee is concerned that, contrary to the Financial Administration Act, which states that no expenditures shall be incurred unless there is a budget for them, it certainly appears that capital money is being precommitted, thus reducing the flexibility and control of the Legislative Assembly to make allocation decisions. This is especially disturbing, considering the scarcity of resources and the expanding needs of northern communities.

Recommendation 4

The Standing Committee on Public Accounts recommends that the government review the capital planning process and the role of the Legislative Assembly in priorizing capital expenditures, and present options for ensuring legislative spending approval while improving process flexibility.

Grants And Contributions

As previously mentioned, about 40 per cent of all expenditures are grants and contributions to boards and agencies to deliver programs and services on behalf of the government. In addition, the current community transfer initiative will likely result in an increase in contributions to communities in the future. As the Auditor General notes in his report, subject to specific contribution agreements and various enabling legislation, accountability information is required from recipients and ongoing monitoring is needed to identify any problems with the financial health of municipalities. Therefore, the committee has a keen interest in the method and frequency of municipal inspections. There are indications, such as the financial distress of one community in particular, that there is a need to be more proactive.

The department indicated during the public hearings that they are planning to do more municipal inspections using regional personnel. This should be helpful in terms of both monitoring and assisting municipalities on the verge of financial distress.

During the hearings and in follow-up communication, the committee requested that the department provide information on the current financial status of all municipalities. At the time of this final report preparation, this information had not been received in its entirety. While this may have been an administrative oversight, generally, the committee would appreciate more timely and appropriate responses to its requests.

Asset Transfer

In 1991, the Auditor General recommended that the Department of Municipal and Community Affairs ensure that the proper arrangements are made for insurance and maintenance when assets are transferred to communities.

The example of the burned fire truck in Aklavik was used as an illustration. After the transfer, the truck was underinsured and the department was unable to receive the full replacement cost from the insurance company after the truck burned. In this instance, the government was unable to recover approximately $50,000, which represents the replacement cost less the insured value of the truck.

In consideration of the new community transfer initiative, there will probably be an increase in the number and value of assets being transferred to community governments. The Standing Committee on Public Accounts insists that the responsibility for these assets must be clearly defined and, where necessary, adequate arrangements are made to secure the assets.

Asset Management System

In response to the Auditor General's 1991 recommendation, the Department of Municipal and Community Affairs and Public Works and Services have developed an asset management system. The department noted that the system was designed and installed, and user manuals have been distributed. Inventory input is still required in the smaller communities and some training in the use of the system will be necessary. However, the department has made a commitment to have the system fully operational by the end of the fiscal year.

Department Of Personnel

Video-Conferencing

In following up on its 1991 recommendations regarding weak controls over government travel, the Auditor General's office noted one area in particular where considerable savings could be realized in the near future. This is the use of video-conferencing or other technological alternatives when conducting employment interviews with out-of-town applicants.

The Department of Personnel maintains that there are two main limitations to the technology at this time. The technology is presently limited to Yellowknife in the NWT, and the cost is prohibitive at this time. Alternatively, in an effort to reduce

travel costs, the department has enhanced the use of telephone screening in the staffing process.

The committee discussed the issue, including the extensive potential benefits of this technology in addressing the government's communication needs and recommends a two-pronged approach.

Recommendation 5

The Standing Committee on Public Accounts recommends that the Department of Personnel, in cooperation with NorthwesTel, implement a pilot project in Yellowknife to test the cost benefits of using video-conferencing technology for staffing procedures.

This project should be used to assess the effectiveness, efficiency, feasibility and potential cost savings associated with using the proposed technology versus incurring expenditures for travel. Based on the results of the pilot project, the department could being assessing options for the future.

Recommendation 6

The Standing Committee on Public Accounts recommends that the Department of Personnel, in cooperation with NorthwesTel, assess the options for expanding the use of video-conferencing technology as recommended in the travel management report.

Department Of Education, Culture And Employment

Grants And Contributions

The Auditor General's office, in recording their observations pertaining to grants and contributions, noted that approximately $166 million of the Department of Education's budget went to boards of education. The report discussed the accountability relationship between the department and the boards, and the resultant trade off between the autonomy of the boards and the financial risk to the department.

In 1992-93 six of seven boards had signed a memorandum of understanding as the basis of their contribution arrangement with the department, each with its own unique characteristics, reflective of the particular region.

The South Slave Divisional Board of Education does not have a memorandum of understanding in place and the department feels that it would be increasingly difficult to reach such an agreement in the future, particularly with regard to some of the financial aspects. In fact, the department indicated that there was a general feeling among all the boards of education that they were under resourced and being forced to assume too much responsibility, without the autonomy they desired. The department is presently in the process of reviewing and updating the Education Act to provide a legislative framework for dealing with the accountability of the boards to the Legislative Assembly.

The department has also developed a financial administration manual which defines and governs their financial relationship with the boards. It provides for the submission of budgets to the department and monitoring of boards by the department, including conducting board reviews periodically, based on risk. The department indicated that, generally, the education boards are reasonably stable financially. The department also ensured the committee that the reports derived from such reviews will be made available to Members of the Legislative Assembly as they are completed.

Asset Management

The section under the heading, Public Works and Services, included a brief discussion about the control and safekeeping of cultural and other artifacts. The Department of Education, Culture and Employment has completed an inventory of their assets and have undertaken to do some appraisals of artifacts for insurance purposes. The safe storage of departmental artifacts and items of value is facilitated in the Northern

Heritage Centre and the Iqaluit museum. A storage facility in Holman for the "Holman Prints" is also being contemplated.

The committee is concerned with the apparently disorganized approach to artifact storage by all departments and the costs involved, particularly with respect to the storage of items in the south. It is imperative that there be a comprehensive approach to storage of assets in general, and valuable artifacts in particular. The committee strongly urges the government to direct the Departments of Public Works and Services and Education, Culture and Employment to conduct a review of artifact storage procedures. A definition of artifact may be required and a policy for artifact storage and preservation should be developed.

Department Of Renewable Resources

Environmental Accounting

In anticipation of the current and potential costs to government of the restoration and clean-up of environmentally damaged or contaminated sites and the requirement to have such costs reflected in financial statements, the GNWT has undertaken to review all potential liabilities and gather the necessary data for an accurate estimation and full disclosure by the end of the 1995 fiscal year.

While the overall direction and responsibility for environmental accounting rests with the Financial Management Board Secretariat, the Department of Renewable Resources, in conjunction with the Department of Justice, has examined its current and potential liabilities and is expecting a consultant's report in the near future. It should be noted, however, that the actual area that falls within the jurisdiction of the GNWT only includes municipal and Commissioner's land. Crown land is the responsibility of the federal government, and land claim settlement areas are the responsibility of other parties.

The work done by Renewable Resources and Justice will likely prove to be a very useful step in providing a model for other government departments to address their particular environmental liabilities and determine reasonably the associated costs of restoration.

The entire concept of environmental liability is relatively new, not just in the north, but for the rest of Canada and the world, as well. As these situations and problems are being addressed, new challenges emerge. One such difficulty noted by the committee is the problem of "orphan sites." These are sites in need of restoration where the responsible party or parties cannot, for a variety of reasons, reasonably be determined or identified, or if the can, they are insolvent. According to current legislation in Canada and the NWT, the responsibility in such cases generally reverts to the landowner, usually the government.

There are many complex issues associated with determining environmental liability. It may be quite some time before a comprehensive and uniform approach can be developed to identify the full range of environmental liabilities and evaluate them. The Standing Committee on Public Accounts acknowledges the efforts made on this initiative to date and will note with interest the progress on this issue.

Committee Report 5-12(6): Report On The Review Of The Financial Statements For The GNWT And The Report Of The Auditor General Of Canada For The Year Ending March 31, 1993
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

The Chair Brian Lewis

Mr. Zoe.

Committee Report 5-12(6): Report On The Review Of The Financial Statements For The GNWT And The Report Of The Auditor General Of Canada For The Year Ending March 31, 1993
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

Henry Zoe North Slave

Thank you, Mr. Chairman. The first recommendation of the Standing Committee on Public Accounts is with regard to the audit and evaluation function.

Committee Motion 12-12(6): To Adopt Recommendation 1, Carried
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

Henry Zoe North Slave

The Standing Committee on Public Accounts recommends that the Government of the Northwest Territories, through the office of the Comptroller General, investigate the possibility of engaging the services of a forensic auditor for the sole purpose of dealing with attempts to defraud the government. I so move it, Mr. Chairman.

Committee Motion 12-12(6): To Adopt Recommendation 1, Carried
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

The Chair Brian Lewis

The motion is in order. To the motion.

Committee Motion 12-12(6): To Adopt Recommendation 1, Carried
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

An Hon. Member

Question.

Committee Motion 12-12(6): To Adopt Recommendation 1, Carried
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

The Chair Brian Lewis

Question has been called. All those in favour? All those opposed? Motion is carried.

---Carried

Mr. Zoe.

Committee Motion 12-12(6): To Adopt Recommendation 1, Carried
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

Henry Zoe North Slave

Thank you. Our second recommendation pertains to the pay equity dispute. Mr. Chairman, our committee makes the following recommendation.

Committee Motion 13-12(6): To Adopt Recommendation 2, Carried
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

Henry Zoe North Slave

I move that the Standing Committee on Public Accounts recommends that the Legislative Assembly receive regular briefings from the appropriate officials on these and any other issues in dispute which have the potential to seriously impact on the financial resources of the Government of the Northwest Territories.

Committee Motion 13-12(6): To Adopt Recommendation 2, Carried
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

The Chair Brian Lewis

Thank you, Mr. Zoe. The motion is in order. To the motion.

Committee Motion 13-12(6): To Adopt Recommendation 2, Carried
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

An Hon. Member

Question.

Committee Motion 13-12(6): To Adopt Recommendation 2, Carried
Item 20: Consideration In Committee Of The Whole Of Bills And Other Matters

Page 206

The Chair Brian Lewis

Question has been called. All those in favour? All those opposed? Motion is carried.

---Carried

Mr. Zoe.