PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 10, 1998

• 1539

[English]

The Chairman (Mr. John Williams (St. Albert, Ref.)): Good afternoon, ladies and gentlemen. I would like to call this meeting to order. We have a quorum to hear testimony, but we don't have a quorum to pass motions or entertain motions this afternoon.

As witnesses today, we have with us Mr. Denis Desautels, the Auditor General of Canada, and Mr. Grant Wilson, principal of the audit operations branch. From Indian Affairs and Northern Development Canada, we have Mr. Scott Serson, the deputy minister, and Ms. Cynthia Williams, assistant deputy minister of socio-economic policy and programming and program redesign sector.

An hon. member: Put that on a business card.

The Chairman: That's right.

Mr. Brent DiBartolo is here as well. He's assistant deputy minister for corporate services.

The agenda today is to hear the testimony, and if we have time we will then suspend the sitting and resume in camera to consider the draft report on the Public Accounts of Canada, 1997.

We will now call Mr. Desautels to present his opening statement.

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Mr. L. Denis Desautels (Auditor General of Canada): Mr. Chairman, thank you for the opportunity to discuss the follow-up of our 1995 audit of on-reserve capital facilities and maintenance, as well as other observations relating to escalating costs of a water supply project and the lack of compliance with a funding arrangement.

The last time I met with this committee to discuss Indian and Northern Affairs Canada was in December 1996, Mr. Chairman. At that time, we discussed funding arrangements for first nations.

Over many years, and annually since 1990, our audits of the department have covered a very wide range of programs and issues. Given the importance of improving living conditions on Indian reserves in Canada and the ongoing significant costs of meeting the reserve's needs, Mr. Chairman, I share your interest in matters affecting first nations people and how the department manages its relationship with them.

There are more than 600 first nations that receive funding from the department. Over 80% of the funds provided are administered by them in their delivery of programs on reserves for the benefit of about 350,000 registered Indians. It's significant that 70% of first nations comprise less than 1,000 registered members, and 45% have fewer than 500 members. Approximately two-thirds of first nations communities are located in rural, remote or special access areas across Canada, with the remainder located in urban areas. On-reserve populations are continuing to grow, and both the need for services and related costs can be expected to increase.

First nations differ from one another in many ways, including their preparedness to resolve outstanding issues with the department and to assume responsibility for program delivery. Consequently, solutions to given issues may not be appropriate to all first nations, nor may the issues themselves necessarily apply universally. Ultimately, the department is responsible for being aware of and acting on the issues, especially when devolution of government programs bears expected risks.

Since we are not the auditors of the first nations, and because we must respect their relationship with the department, our audits do not include directly auditing first nations expenditures of the funds that are provided by Parliament. Our work in the department focuses on how it manages the substantial funds entrusted to it by Parliament. As in other audit areas, I'm always interested of course in accountability and results.

[Translation]

Mr. Chairman, if you don't mind, may we turn to the specifics of today.

The main objectives in our follow-up of the 1995 audit of capital facilities and maintenance were to determine the status of the 1995 recommendations, to identify emerging improvements, and to note any significant matters that came to our attention.

In November 1995, we reported several audit concerns relating to funding allocation, risk management, program delivery, accountability for results and other matters. Overall, we found room for significant improvement in all of the areas reviewed.

The department replied, in its response to the audit, that it had been working in a number of areas to ensure that limited capital resources are used effectively. It further stated that it would review and reconsider certain areas that the audit identified for necessary improvements. The development and maintenance of on- reserve infrastructure continues to be a priority of the department in its efforts to improve living conditions in aboriginal communities.

In recent years, expenditures by the department for on-reserve capital facilities and maintenance have been substantial for such things as roads, schools, water and sanitation systems, and other facilities. The applicable budget for 1997-1998 is over $800 million.

The demands for infrastructure and related services are increasing at a time when existing conditions in many reserves are substandard. The necessary catch-up in living conditions and the ability to meet future needs are dependent largely on obtaining the best value for program funds spent. Program devolution without adequate safeguards will continue to put funds at risk while jeopardizing effectiveness.

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In 1997, we followed up on selected key areas of program delivery, including capital project planning, implementation and evaluation, and maintenance practices.

Chapter 35 reports that several initiatives have been undertaken by the department to study the issues and implement improvements. The department believes that most of the initiatives will be completed by 31 March, 1998.

[English]

Our follow-up audit revealed no tangible improvements in program delivery since 1995. For example, project risk assessments, implementation, monitoring, and evaluation of results still need strengthening. At the same time, we must consider that some of the completed initiatives, as well as the ones that are targeted for completion by the end of March, will not bear fruit until some time later. In addition, the department still needs to ensure that maintenance funds of up to $270 million for 1997-98 are being used in a cost-effective way for the purposes intended.

The two separate case studies reported as other observations in chapter 36 are typical of some of the difficulties that relate to on-reserve infrastructure development. They deal with project costs, implementation, procurement, and related matters.

In the case relating to the inadequate justification of escalating costs of an on-reserve water supply project, we are concerned that the project proceeded without due consideration of a known, less costly alternative. In its response, which follows paragraph 36.41, the department does not dispute the facts but believes it acted reasonably notwithstanding the audit concerns raised.

In the other case, which deals with the lack of compliance with the funding arrangement between the first nation and the department, additional costs of up to $1 million may have been incurred with questionable benefits. The department's response, which follows paragraph 36.47, sends mixed messages, but again it does not dispute the facts. In both cases, the department had the responsibility for ensuring cost effective use of limited resources.

In conclusion, Mr. Chairman, I think the department will need to implement remedial action on the reported audit issues more expeditiously in the future. Moreover, it will need to identify and resolve emerging issues, especially as it proceeds towards implementation of the government's policies on aboriginal inherent rights. If appropriate action is not taken, we can expect increased risks to the funds provided, inadequate progress in improving on-reserve living conditions, and difficulties in meeting future needs.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Desautels.

We'll now turn to Mr. Scott Serson, the deputy minister of the Department of Indian Affairs and Northern Development.

Mr. Scott Serson (Deputy Minister, Department of Indian Affairs and Northern Development): Good afternoon, Mr. Chairman, members of the committee. I also appreciate the opportunity to discuss our department's progress in implementing the auditor general's recommendations for improvements to the on-reserve capital facilities and maintenance program.

[Translation]

Let me begin by saying that we have taken the Auditor General's recommendations very seriously. There has been and will continue to be room for improvement in how the capital program is funded and delivered and we welcome the Auditor General's input on how we might do that.

[English]

I also want to say that significant progress has been made on each of the auditor general's five recommendations. Several initiatives are ongoing, and we expect full implementation within the next few weeks.

Our efforts to date include an internal audit of the capital program that is helping managers implement improvements. We have also updated our assessment of the capital requirements and reviewed the allocation of funding to the regions to ensure that resources are being distributed effectively.

Last June, we issued an operation and maintenance compliance regime that will ensure that on-reserve assets are properly operated and maintained. This regime will be implemented in 1998-99.

We have been working with first nations to strengthen accountability for capital spending and have revised service standards to ensure consistency with federal, provincial, and industry standards.

[Translation]

Aboriginal governments, like all governments, must be both politically and financially responsible. The legitimacy of aboriginal governments depends on their ability to be accountable to the people they represent. Canadians also want to ensure that we are investing in strong, effective and accountable aboriginal governments.

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[English]

We have implemented a policy requiring first nations to publicly tender all federally funded construction contracts worth more than $500,000. We are working with first nations and the industry on guidelines that will balance value for money with socio-economic benefits to communities. This is consistent with the auditor general's report.

In its December 1997 review of our actions to date, the Office of the Auditor General indicated that we were not moving quickly enough on its recommendations. Today, I think, Mr. Desautels said that we need to implement remedial action more expeditiously in the future.

I want to assure the committee that the pace of implementation does not reflect any reservations on our part. We have taken action on each of the recommendations. It simply indicates the complexity of the issues we are addressing and, perhaps even more importantly, the need for us to consult with our first nations partners extensively.

[Translation]

For example, First Nations now manage the capital program and they must be consulted when changes are contemplated. We also need to consult staff in our regional offices and others, such as Health Canada and the construction industry, because we are often dealing with issues of public health, safety and equity.

[English]

It's also worth pointing out that we are managing a program in an ever-changing environment. The aboriginal population is growing about twice as fast as the overall Canadian population. On reserve the growth rate is about 2.9%. The aboriginal population is also very young; almost two-thirds of aboriginal people are under 30. These demographic trends place even greater pressure on our efforts to deliver adequate programming within limited budgets.

In addition, “Gathering Strength—Canada's Aboriginal Action Plan”, the government's response to the Report of the Royal Commission on Aboriginal Peoples, has provided a new framework for our relations with aboriginal people.

A key objective of “Gathering Strength” is to support stronger communities, people, and economies. Towards this end, the government has committed additional resources to capital projects on reserves. But that response also emphasizes— as first nations themselves increasingly emphasize —the need to increase management capacity in first nations, the need to strengthen accountability in first nations, and the need to put a greater focus on the results of our investment.

In conclusion, additional efforts are clearly needed to ensure that the capital program can continue to meet its objectives. We will continue to look at ways to use our resources even more effectively.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Serson.

Mr. Mayfield, eight minutes please.

Mr. Philip Mayfield (Cariboo—Chilcotin, Ref.): Thank you, Mr. Chairman, and thank you very much for your presentation, Mr. Serson.

As I listened to your report, and after reading the auditor general's report, what comes to my mind first of all is the frustration of many aboriginal people who come to me and talk about the amount of money that is spent locally and of how little benefit it is to them personally.

I'm talking about infrastructure, housing, and health— a whole range of issues. What concerns me is that the auditor general seems to express— and, sir, you will correct me if I put words in your mouth inappropriately —some frustration that the issues he has pointed out to the Department of Indian Affairs have not been seriously addressed. We see the auditor general pointing out that the department is reviewing its methodology and methods. It's conducting an internal audit and reviewing the feasibility of including projects. It's reviewing and updating its information management systems and analysing its needs. It seems there has been a lot of navel gazing over there and the results are not being reflected at the local level.

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The question I would like to ask you is, inasmuch as the auditor general has pointed out that no significant improvements have been made since the report was issued in 1995, why are the changes— and I'm not talking about the reflection or the study —taking so long? What concrete assurances can you offer the committee that the remaining changes will be made promptly?

Mr. Scott Serson: I'm not sure just how to go about answering that, Mr. Mayfield. I tried to reassure you that we take the auditor general's observation seriously. I've also said that, on some occasions, his remarks to us are fairly general.

We therefore have to go back to do a more detailed review in the department about where these problems exist and develop even further advice as to how we can improve on them. Then we have to consult with first nations because we are in a partnership with them and we want to make sure they have an opportunity to input to those solutions. That sometimes takes time. But if you are asking me to go through— which I didn't want to do because I knew the chairman was quite concerned about limits on introductory remarks in more detail —some of—

Mr. Philip Mayfield: Let me ask you then, what means do you have of assuring yourself and the department that the money provided locally is accounted for?

For example, I get complaints from aboriginal constituents about schools that have closed because the money necessary to operate them has either vanished, has been misused or has been inefficiently used. I have asked about audits. In one instance I was told there was an audit, but in fact the audit was not properly done. I've taken this to the police.

These are very serious matters and I'm sure you're aware of them. It's a matter of the money getting through in the most efficient way to be used for the benefit of those people who most need it, and that's not happening. It's not simply a matter of saving money, but of having value for the money being spent.

Mr. Scott Serson: You're asking about our general accountability practices. I will ask Mr. DiBartolo to outline those to you, please.

Mr. Brent DiBartolo (Assistant Deputy Minister, Corporate Services, Department of Indian and Northern Affairs): Mr. Mayfield, you referred specifically to audits as an example.

Our funding agreements with first nations have accountability provisions built in, based on principles of transparency, redress, and openness. There is a requirement for each first nation to undertake an annual financial audit by a qualified independent auditor and provide the result of that audit to the department and to first nation members.

There have been problems in the past in terms of getting clear audits from first nations. I would note a remarkable improvement over the last 10 years in terms of the number of unqualified audits we get. That's not to say there are not some first nations that still have problems getting qualified audits.

When we encounter a situation where we either have a qualified audit or a first nation finds itself in debt— the threshold we use is 8% of its annual income or essentially one month's cashflow —we work with it to develop a remedial management plan. Those plans can range anywhere from those administered directly by the first nation itself, with support from the department, to the extreme situation. There are a few of those in the country, I must admit, where we actually send in a third-party manager to manage the operations of the first nation.

I would note they are significantly in the minority. Most first nations are operating in a reasonable financial position, are debt free, provide unqualified audits on an annual basis done by independent auditors, and provide the information to the first nation members.

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Mr. Philip Mayfield: I'd like to just touch on another issue, if I may, and that is the issue of public tendering. I notice in your report that you say the department has implemented a policy requiring first nations to publicly tender all federally funded construction contracts worth more than $500,000. Does that include housing?

Ms. Cynthia Williams (Assistant Deputy Minister, Department of Indian Affairs and Northern Development): In the last number of years in the housing program, given the importance of housing to the community and in terms of the opportunity for employment and the opportunity to develop skills at the community level, we've been trying to use it as a really aggressive instrument for economic development and to develop capacity at the community level. We have been working with first nations to develop housing plans.

Under our new housing policy, which was introduced two years ago this summer, communities are asked to develop five-year plans that will speak about how they're going to address their housing needs in both renovation and new construction, how they're going to access private capital sources to rely less on public funds, use public funds as leverage with the banks, and access training programs to give more people in the community the skills as builders, as electricians, in servicing, that sort of thing.

Mr. Philip Mayfield: In jest, if I was told that materials for building houses were actually sold by members of the community and the money pocketed and the houses never built, how am I to respond to people who are expecting houses and who tell me stories like that?

Mr. Scott Serson: Mr. Mayfield, I guess our response would be to suggest the same things to you that we have suggested to ourselves. If there is a knowledge of dishonest behaviour on the part of someone in a first nations community, we look for individuals to come forward, give that information to us and/or give it directly to the local police force so it can be investigated. If there are issues of fraud, etc., that's what we must do and that's what we have increasingly encouraged people with those kinds of concerns to do.

The Chairman: Mr. Desrochers.

[Translation]

Mr. Odina Desrochers (Lotbinière, BQ): In paragraph 11, the Auditor General says:

We followed up on selected key areas of program delivery, including capital project planning—

Chapter 35 reports that several initiatives have been undertaken by the department to study the issues and implement improvements.

He concludes by stating:

The department believes that most of the initiatives will be completed by March 31, 1998.

Today is March 10. Do you have any indications confirming the department was going in the general direction of your recommendations? Do you have any specific indicators?

Mr. Denis Desautels: Mr. Chairman, the information we got when we did the follow-up confirmed that the Department was going in the direction of our recommendations. The frustration we expressed and that we're expressing again today has more to do with the speed with which things were undertaken. As I explained in paragraph 12 in today's statement, even though changes were brought to some systems, there will be a delay before those changes produce an impact in the field, in the management of specific projects. In the management of a specific project, we have not yet seen that the changes had the desired impact.

Mr. Odina Desrochers: Am I to understand that the initiatives the Department promised won't be implemented by March 31, 1998? You're telling me that the schedules have been extended. It's not going fast enough to your liking?

Mr. Denis Desautels: No, that's not quite what I'm saying, Mr. Chairman. Even if everything were to be done before March 31, 1998 as indicated, that would not necessarily translate immediately in changes in the management of specific projects.

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Mr. Odina Desrochers: Thank you. Now I have other questions for the Deputy Minister of Northern and Indian Affairs. In your statement, you set out quite a quantity of concepts and beautiful ideas, but no date, no schedule, no action plan. Did you, as the Auditor General has just said, think of setting realistic schedules so that we could follow the progress of the improvements you want to implement based on the Auditor General's recommendations?

[English]

Mr. Scott Serson: If I were to reply in detail, Mr. Desrochers, I would say that as a follow-up to the auditor general's recommendations we have put in a compliance regime for facilities, operations, and maintenance. That has been issued to the regions to ensure that on-reserve assets are operated and maintained properly. We've initiated an environmental issues inventory and remediation plan to address environmental concerns. We've issued levels of service standards that the auditor general urged us to do for fire protection, roads and bridges, and electrification. We've updated our assessment of capital needs and targets. We've updated assessments for capital needs on-reserve and that's been completed. I mentioned that in my remarks.

We've decided that the inventory of all capital assets will include only those assets that are completed. The auditor general asked us to go further. We weren't sure about the wisdom of that. As I said before, we clarified public tendering over capital projects over $500,000. We have some things that remain to be done. We're going to make further investment under “Gathering Strength” in ways to increase program efficiencies and expand the range of resource officers.

[Translation]

Mr. Odina Desrochers: Mr. Chairman, I don't have to hear a list that I've already heard. I want to know if you have set a schedule to respond to the Auditor General's recommendations.

Mr. Scott Serson: Yes.

Mr. Odina Desrochers: I'm asking you when it will be implemented. When are you going to announce that all those lofty principles you've described are actually going to bring results? Will it be in July, in September or in 1999? That's what we want to know.

[English]

Mr. Scott Serson: As I said in my remarks, we expect most of them to be in place as policies by the end of this month. There are some that will have to be implemented through the course of the next fiscal year, which I think is what the auditor general referred to. He's concerned that it's going to take some time to implement, but that's our timetable.

The Chairman: I think Mr. Desrochers is asking if you have a report that you could table before this committee telling us exactly the time lines that you're going to implement to the various points that have been raised.

Mr. Scott Serson: We could put that kind of information in writing and give it to the committee, yes.

[Translation]

Mr. Odina Desrochers: Thank you. Is my time up, Mr. Chairman?

[English]

The Chairman: You've got two more minutes, Mr. Desrochers.

[Translation]

Mr. Odina Desrochers: I'll give the floor to my colleague.

[English]

The Chairman: Mr. Myers, eight minutes please.

Mr. Lynn Myers (Waterloo—Wellington, Lib.): Thank you, Mr. Chairman.

With respect to the 600 first nations and 100 tribal councils, I want to ask Mr. Serson how many have completed the assessments that were required.

Mr. Brent DiBartolo: We are working with the first nations and the tribal councils. We're expecting 75% of them to be completed by the end of this fiscal year and the balance to be undertaken during the course of the next fiscal year.

Mr. Lynn Myers: Are you at liberty now to share the results of what you found?

Mr. Brent DiBartolo: I don't have the information here.

Mr. Lynn Myers: In a general sense.

Mr. Brent DiBartolo: I think by and large what we're finding in first nations is the inevitable range. Some of them have very comprehensive policies and procedures in terms of general management ability. There are inevitably some weaknesses that are being identified and we're working with each of the first nations to help address those weaknesses as we move forward with new funding arrangements.

Mr. Lynn Myers: When you say “work with them”, what does that mean? How does that translate?

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Mr. Brent DiBartolo: We develop an action plan with them. Very often the weaknesses identified require training, and we'll work with them to identify appropriate training opportunities.

There is some work being done with first nations and the first nations financial associations so that they collectively can improve the financial and accounting capabilities of first nations. I know two provinces have such associations, and five others are looking at that.

There is a commitment by all first nations to adopt commonly accepted accounting practices that recently have been adopted by some provinces and the federal government. I would point out that most municipalities haven't even adopted them.

So depending on the nature of the issue, there are various mechanisms available in terms of us providing support to them.

Mr. Lynn Myers: What will happen to the 25% that don't complete? Is there any consequence as a result of that?

Mr. Brent DiBartolo: No. It was our expectation that some of them would take longer to complete than others, but as I said, our expectation was that we would get 75% of them this fiscal year and the balance next.

Mr. Lynn Myers: But at some point 100% have to report?

Mr. Brent DiBartolo: Yes.

Mr. Lynn Myers: Okay.

Mr. Serson, in your testimony or presentation you said there was a complexity of issues and a need to consult extensively— I think those were your words —in terms of why the slow pace. I think you can sense there's frustration in terms of why things haven't happened and probably should have.

You referenced the capital program, which the first nations now manage, as an example. You talked about Health Canada and the equity issue and safety and so on. Can you go through a specific example? I would like to get a sense of how, specifically. Can you cite an example of how that would get tied up or bogged down because of the complexity, because of the need to consult?

Ms. Cynthia Williams: I'm wondering what a good example would be.

Mr. Lynn Myers: You tell me.

Ms. Cynthia Williams: Yes. I'm trying to think of the best.

I could speak maybe about the tendering policy, which is one of the issues the auditor general spoke to in his report. The issue of tendering is one that's really important to first nations communities.

I mentioned earlier the benefit they seek to derive from housing. We support them in developing that capacity. They have a strong interest in ensuring that they get maximum benefit to the community from whatever government contracts or indeed from whatever contracts are available to the community.

So we issued a general guideline— indeed, it was a directive from the minister —to the chiefs indicating the requirement to go to public tender for all contracts over $500,000. We indicated that we understood the importance to the community of capturing local benefit from contracts, as well. We then undertook to work with the communities. It involved national-level work, and regional-level work through our regional offices, to work with communities to develop an appropriate approach to valuing local benefits.

Now, the local benefits can cover a range of activities. It can be supplying goods, it can be employing local labour, it can be the primary contract, or it can be the subcontract. It can be achieved through a 100% contract with a community-owned business or an individual in the community, but there are other ways in which you can also derive benefit and build capacity at the same time, such as, for example, engaging in joint ventures.

So we're working with the communities to identify the range of approaches and considerations that could be taken into account. Then, as well, there's the issue of valuing the local benefits. That would be an example of the kind of detailed work that goes on.

Before we issue, we are headed in this instance to issuing guidelines— to meet the auditor general's concerns —on how to ensure there is a sound, auditable record of the approach the community is taking in terms of public tendering, in terms of structuring the tender, in terms of evaluating the tender, and then in terms of measuring the success against the various kinds of criteria that would have been brought to bear.

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That is an example of the kind of extensive process we go through.

The Chairman: Lynn.

Mr. Lynn Myers: Just very quickly, I was also interested in your presentation, Mr. Serson. You say it's worth pointing out that you're managing a program in an ever-changing world and then you refer to the demographics. That would be true of any program at any time, wouldn't it? Why specifically—

Mr. Scott Serson: It would be true, but I guess, Mr. Myers— when Statistics Canada released their last report on the aboriginal population, one of the noted Canadian columnists in the Globe and Mail said, “Statistics Canada drops a surprise on the Canadian public”.

The Statistics Canada report basically said there is a baby boom happening on reserve. I continue to underline that, because when we talk about the costs of providing capital, services, etc., to first nations people, we need to remember that they are going through a baby boom very similar to what Canadians went through post-war. If we look at the expenditure patterns post-war on capital infrastructure and delivery of services, I'm pretty sure we'll find that they're fairly similar.

Mr. Lynn Myers: It almost seemed, though, that you're using that as a defence against why you're perceived to be dragging your heels. That's not the case, I gather.

Mr. Scott Serson: No. I'm just trying to explain the context in which we operate.

You said it yourself, Mr. Myers: we're dealing with 600 different entities, plus the tribal councils. I'm just trying to underscore the fact that when you try to consult and make sure you're producing something— we're going to have disagreements with first nations, there's no doubt about it, but trying to increase the level of involvement so that things are acceptable takes time.

The Chairman: Mr. Grewal, four minutes please.

Mr. Gurmant Grewal (Surrey Central, Ref.): Thank you, Mr. Chairman. With four minutes being too short a time, Mr. Chairman, I will be very brief.

The auditor general has mentioned in his remarks that the department still needs to ensure that maintenance funds are being used in a cost-effective way for the purpose intended. Are there any established guidelines in the Department of Indian and Northern Affairs? What efforts are being made to ensure that the funds are used in a cost-effective way?

Mr. Brent DiBartolo: One of the works in progress that the auditor general referred to is development of an operations and maintenance program and a directive. I think he noted in his report that a draft went out in July 1997. The final one will be going out before the end of this month and will be effective for the 1998-99 fiscal year. And compliance, in terms of operations and maintenance, will be built into the funding agreements. We will be requiring every first nation to do an operations and maintenance plan for their capital facilities and we'll be reviewing progress on a regular basis.

Mr. Gurmant Grewal: Mr. Chairman—

Mr. Scott Serson: I just wanted to say in addition that the assessment Mr. Myers referred to does include capital assets and maintenance issues. We're asking first nations to do a self-assessment of their capabilities in a number of areas and, if they're found lacking, to develop training and development plans to meet those needs.

Mr. Gurmant Grewal: Mr. Chairman, the auditor general mentioned in paragraph 36.47 that the department “failed to comply with the conditions of its funding arrangement”, and said:

Furthermore, in the absence of supporting analysis, the justification for accepting the cost and risk premium of up to $1 million by not tendering, and the deeming of benefits of $2.4 million, were questionable.

Why did the department fail to comply with its own funding arrangement? Why is this supporting analysis missing in the documents? And where is the accountability for the $1 million? What is the explanation for this?

Ms. Cynthia Williams: I believe this part of the auditor general's report is in reference to a particular capital project for water and sewer.

Mr. Gurmant Grewal: Yes, it seems like that.

Ms. Cynthia Williams: In this particular case the regional office worked with the first nation to establish a fair value for the contract. They went through a very elaborate process and established a dollar figure, which was based on a calculation of a number of risk considerations that could come into play in the execution of the contract.

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It also sought to value the local benefits that would be derived from the contract. The reason why the first nation, in this case, was strongly of the view it wanted to go the sole sourcing route was in order to derive the benefits for the community. The region worked closely with the community and established a fair value.

I have to say the fixed price we negotiated was actually below what the price would have been if all the risk factors had been taken into account. So there was indeed an effort to establish a reasonable price that would put some constraints on the first nation in terms of performance.

In addition, the contract provided that 70% of the subcontracts were to be put out to competitive tendering. The other 30% was not put out because it had identified it as the local value. Also, when the project is completed, and that should be within a year, there is—

Mr. Gurmant Grewal: I have a very quick question. Why is the supporting analysis absent? It should not be missing. If I can refer to further comments by the minister, he mentioned that aboriginal governments have to be accountable the same as any other government. If they're not accountable, who's responsible and why are they not accountable? What efforts are being made so aboriginal governments are accountable as well?

Ms. Cynthia Williams: We took the comment very seriously that the auditor general found insufficient supporting evidence. As a result of that we have been working with our regions to insist they keep more complete files and have very clear standards for valuing local benefits so that at the end of the project they can go back to measure, evaluate, and report on them.

The Chairman: Thank you very much.

Mr. Mahoney, four minutes please.

Mr. Steve Mahoney (Mississauga West, Lib.): Mr. Chairman, I have a question for the auditor.

In point 4 of your document you say it is significant that 70% of first nations comprise less than 1,000 registered members and 45% have fewer than 500— along with some other details. Why is that significant from your perspective?

Mr. Denis Desautels: It is significant because it speaks to the range in capacity among first nations and their capability to assume responsibility for administering different government programs that are being devolved to them.

Mr. Steve Mahoney: Are you suggesting they are too small and too divided? Are you suggesting some form of amalgamation in service delivery? We see it all over the country at the municipal level where small communities are getting together. Are you suggesting they should be doing that?

Mr. Denis Desautels: I haven't specifically suggested that, although I would not preclude it. In fact, in some areas of the country some first nations have been regrouped under bigger councils to be able to pool resources one way or another. It is possible to do that.

We're only talking about infrastructure today, but there are also health programs, education programs, and so on that we're asking these small communities to run themselves. People are not always ready to jump in and do this for them.

Mr. Steve Mahoney: I see our government in Ontario is looking at creating a greater Toronto services board that would administer certain programs, presumably across a large geographical area. I wonder if Mr. Serson could comment, from the department's point of view, whether that makes sense. But before you do, let me give you a second question that would follow that.

I'm concerned about the comments on difficulties in obtaining unqualified audits on funds that have been advanced by the federal government. On the question of money management versus service delivery, are we getting quality for the investments being made? There is a general perception that as much as we tend to spend tens or hundreds of millions of dollars in federal taxpayers' money in this area. Are we seeing benefit for it? It relates, in my view, to the model for service delivery, the dollars being spent, and the inability to get qualified audits.

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Mr. Scott Serson: On the first question, I guess one of our readings of the royal commission report is that they are recommending to first nations— and I think this is genuinely an issue for first nations —that they consider some re-amalgamation. The royal commission refers to it as nation building, reconstituting themselves in larger entities based on previous historical patterns.

Within the department we are trying to change the nature of our dialogue with first nations to move away from simply a focus on devolution and the taking on of jurisdiction under self-government to larger governance issues like economies of scale, like the question of capacity, like what size of unit can reasonably expect to manage certain jurisdictions. So that is an important part of our dialogue.

Brent, do you want to deal with the second one?

Mr. Brent DiBartolo: There may be a bit of confusion in that the member referred to “qualified” audits. I mentioned in my previous comment that the vast majority of first nations get “unqualified” audits on an annual basis. By that I mean audits done by qualified professional accounting firms where the auditor testifies to the validity of their books without qualification.

The Chairman: One quick counter, and then Mr. Mahoney might have another quick question.

Mr. Scott Serson: I do think we're all concerned about the question of investment and getting results. I think that's another stage of the dialogue that has to change with first nations. The department has to change it, and they've shown every willingness to do this. We have to focus on questions of structural change and how we get better results, better improvement, in socioeconomic indicators. I couldn't agree more.

Mr. Steve Mahoney: Thank you.

A very brief question on the oil and chemical spills and the fact that the auditor seems to identify that we do not have, or you do not have, an emergency measures plan.

Am I reading it correctly that after all these years we don't have a plan to deal with chemical spills on first nations property?

Mr. Scott Serson: Oh, I do think we do have plans in place. At some stages our dealings on these issues are complicated by our need to interface with first nations. There's the question of calls, times, etc., but I think we do have an adequate system in place.

The Chairman: Mr. Scott, four minutes, please.

Mr. Mike Scott (Skeena, Ref.): Thank you, Mr. Chairman.

Mr. Serson, I would draw to your attention page 36-16, paragraph 36.40, and suggest to you that the first four paragraphs at the top of the inside of the page are a chronicle of failure. I would suggest to you that this chronicle of failure resulted in the possible wasting of $2.3 million of Canadian taxpayers' money. It demonstrates an amateurish approach to project management, to say the least, and the failure of the department to properly manage and oversee the expenditure of large sums of taxpayers' money in keeping with the federal government's fiduciary obligations.

The auditor general has made this point over and over and over with regard to the Department of Indian Affairs and Northern Development and its spending, and we have seen no substantive changes since I've been a member of Parliament.

I was in the construction business before I became a member of Parliament. We built these types of projects. At times we had 200 people working for us. I can tell you, sir, that if we had job supervisors that did this to our company, they wouldn't be working for us.

I can also tell you that I know a little bit about the bid process, and I'm flabbergasted to find out that Canadian taxpayers' money is being spent without a proper bid process. I would suggest to you that misspent money hurts aboriginals for whom it's intended. The money is diverted away from worthwhile projects that go wanting because the money isn't there for it.

I would also suggest to you that it is really letting down the taxpayers of Canada. This $2.3 million represents the sum total of probably the total taxes of 200 Canadian families for one year.

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I'd like to ask the auditor general if he can confirm that this is just an example, that this is not just a one-off situation. This is an example, but it probably occurs over and over again. Does he not believe, based on the audit tests not only in this area but in other departmental areas, that literally tens of millions of dollars— if not hundreds of millions —are spent without proper accountability and likely with very poor results? Would he not agree that maybe one of the ways to address this is to ensure that there is a proper legislative authority for the department? We understand that it is not in place right now, so therefore there is not an adequate guideline to measure departmental spending by.

Mr. Denis Desautels: I'll ask Mr. Wilson to answer those questions.

Please, Mr. Wilson.

Mr. Grant Wilson (Principal, Audit Operations Branch, Office of the Auditor General): Thank you, Mr. Chairman. With respect to whether this case is representative, we believe it can be found in other situations. In fact, in every year that we provide an audit chapter on various programs, we always provide certain cases. In 1995, we outlined three cases that were similar in nature. Of course they were not the same situations or circumstances.

This particular case that we're talking about was found during the course of discussions with the regional office. It came to our attention as another matter in our follow-up. We state that it is representative. The other case of the tendering was of a similar nature.

I'm sorry, but the second question—

Mr. Mike Scott: It's about the legislative authority. I would really like to know— this has been an ongoing criticism from the auditor general of the Department of Indian Affairs and Northern Development. I would like to know from you whether you believe that a proper legislative basis is what is required as a foundation to ensure that the money is spent properly and that there are proper guidelines in effect in the future to oversee or control that spending to ensure the proper accountability is in place.

Mr. Denis Desautels: I'll let Mr. Wilson answer.

Mr. Grant Wilson: Mr. Chairman, I'm not so sure that this is a legislative issue as much as it is a management issue.

The department is clearly responsible for ensuring that funds appropriated by Parliament are spent for the purposes intended. As the deputy minister has stated, the department does have procedures and policies. They do look for instances of capability and capacity in order for first nations to complete this, but it often comes down to— One of the problems we encounter, no matter what programs we look at, is the difficulty in balancing those expectations with capacity, as Mr. Desautels said a little earlier.

So what we've been saying in the past— and I think the department has taken this very seriously —is that to ensure there is an appropriate attempt to balance what the department is providing in terms of devolution, they're asking first nations with the capacity to carry out those responsibilities. With devolution there is high risk, and it's the department's responsibility to minimize that risk.

The Chairman: Mr. Pagtakhan, four minutes.

Mr. Rey D. Pagtakhan (Winnipeg North—St. Paul, Lib.): Thank you, Mr. Chair, and thank you all for your presentation.

I would like to go back to the topic of the tendering process. Why was half a million set as the limit above which there has to be tendering? Second, of the number of contracts that are awarded in a given year or a period of time, how many of them will be for less than half a million and how many will be for over a million?

Ms. Cynthia Williams: On the issue of why the half million dollars was set, DIAND defines major or minor capital projects, and we were using the $500,000 threshold, so we adopted that in this case. We did that in consultation with our regional offices and with the first nations communities. That's the explanation for why that number was selected.

On the question of how many contracts, I'm sorry, but I would have to get back to the committee with the precise breakdown. I can do that. What I can tell you is that in terms of our own budget, approximately two-thirds of the capital budget is what we call “minor” capital and one-third is “major” capital. So that gives you some guidance about it.

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Typically, two-thirds would be under the $500,000 threshold, but I would be happy to get back to the committee with more details.

Mr. Rey Pagtakhan: To the auditor general, is it sound fiscal management to have two-thirds of the capital project expenditures untendered?

Mr. Denis Desautels: For a number of reasons tendering projects is a very important tool, including getting the lowest price, and also dealing with other contracting principles, such as fairness in awarding contracts and so on. Generally across government there is an expectation that there will be tendering on contracts for amounts lower than that.

Personally, I feel it is a high threshold. That's why, in the case we brought to the committee's attention, I think it's allowing a contract to go without tender at an amount above that. I believe it is a high threshold already and therefore should be respected.

Ms. Cynthia Williams: I wonder if I could add to that. We don't in any sense discourage first nations from going to tender on the smaller contracts. Indeed, we have recently issued some guidelines to first nations that encourage them to develop lists of suppliers for the under-$500,000 and actively encourage them to send those out to tender as well.

So I wouldn't want to leave you with the impression that we encourage tendering only over $500,000.

Mr. Rey Pagtakhan: Are you able to keep track of contracts awarded to, say, one contractor, that, over a series of projects, will be more than $500,000? Is it important to know that to avoid monopoly by single contractors? From your perspective, is it important to know that?

Ms. Cynthia Williams: I think that's information first nations would take an interest in and we would take an interest in as well. Now, the minor capital is managed by the first nations themselves. For the projects that are publicly tendered, of course, we would take a very active interest in who those contracts are awarded to. We take an even more active interest in ensuring that the results of the contracts are achieved.

The Chairman: Last question, Mr. Pagtakhan.

Mr. Rey Pagtakhan: You indicated that you're about to issue the principles for tendering, right? Of course, we have just heard an exchange between you and the auditor general's office about perspectives. In this period of friendliness, would you consider vetting your guidelines first with the auditor general, assuming the auditor general would be kind enough to give an opinion on it? Is it a helpful process in improving the system?

Ms. Cynthia Williams: Yes, it is. I believe we did send a copy to the auditor general's office a few weeks ago for comment, in that very spirit.

Mr. Rey Pagtakhan: To the auditor general, has that been responded to?

Ms. Cynthia Williams: It's just arrived.

Mr. Grant Wilson: We did receive the draft guidelines. We have yet to look at them, so we can't comment on them.

Mr. Rey Pagtakhan: Thank you, Mr. Chair.

The Chairman: Thank you, Mr. Pagtakhan.

Mr. Telegdi, four minutes.

Mr. Andrew Telegdi (Kitchener—Waterloo, Lib.): Thank you, Mr. Chair.

Having looked over the report, I guess it could be considered quite damning. I was looking at the thing on reserve water supply. What struck me when I read that— in terms of the regional municipality I come from. I can tell you, what was put out at one time about what the cost was going to be and what the cost ended up being were greatly different. Having had that background, I wasn't totally shocked when I looked at that particular comment from the AG.

I was out on the west coast of Vancouver Island, on a reserve of about 800 people. It was totally isolated. You had to get there by boat. What struck me when I was out there was that so much of the work being done on that particular reserve was being done by outside contractors, yet among the people living on the reserve, the unemployment rate was humongously high.

When you talk about including spin-off benefits to the community, is it part of the spin-off benefits to the community to try to utilize the local people who are unemployed otherwise?

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Mr. Scott Serson: I want to turn to Cynthia to answer that question, but I do want to indicate something in terms of the example the auditor general supplied on the water supply.

To underscore that particular case, it may not be a mitigating factor to the extent of the level of our expenditures. I just want to put on the record that there was a mine upstream. The first nation adamantly refused to accept the $28,000 alternative because they were worried about eventual contamination of their water. After a year of discussions with them, the department decided it had to look at other alternatives.

Cynthia, do you want to speak to the issue of spin-off benefits?

Ms. Cynthia Williams: I agree completely with the comment. We are working very hard with first nations to maximize local benefits. I might say that in that case, it's not just the benefit of an individual contract; it's building the capacity in the community to be able to access more of those contracts over time, and to keep the money circulating in the community. As the member indicates, too often contract money comes into the community and then has to go out to hire the expertise. We're therefore working with first nations to develop really integrated plans that look at things right from the education and training programs through to the work opportunities. Accessing capital projects, of course, represents a major work opportunity.

Mr. Andrew Telegdi: Certainly the feeling I had was that you should be trying to utilize the opportunities for the local people to be engaged in the workforce as much as possible.

On the water supply, you mentioned the mine upriver. In my community, it's the same thing. We have a chemical company upriver that caused all sorts of problems that we never dreamed of, and we were taking water from the river.

Thank you.

The Chairman: Thank you, Mr. Telegdi.

I have a few questions of my own. Firstly, if you have a policy that anything over $500,000 goes out to tender, how on earth did an $8.9 million contract get approved?

Mr. Scott Serson: If you look at the facts, Mr. Williams, you will find that a majority of the contract was tendered. It was a portion that was kept for local hire. In that particular case, in lieu of the tendering process, we went out to get an estimate on the work from a local company and then made the comparison.

The Chairman: But I understand that 70% was subcontracted by the general contractor who got an $8.9 million sole-source contract when you have a policy saying anything over $500,000 has to be tendered. My question is about why you gave an $8.9 million contract to a general contractor when you have a policy that says anything over $500,000 has to be tendered.

Ms. Cynthia Williams: This was a case where the community was really keen to go the sole-source route. As we worked with them on that, we sought to take very reasonable and prudent steps to ensure that value for money was achieved. I outlined some of the steps that were taken before.

The Chairman: Did you have a departmental policy meeting at senior levels to waive the policy in this particular issue, or did it just fall by the wayside?

Ms. Cynthia Williams: We did not have a senior-level policy meeting, but officials in the department did seek to take what they thought would be reasonable steps to ensure that there was good value for money, that a reasonable cost for the contract was established, and that there was a sound management structure put around the contract.

The Chairman: At what level of the department was that decision made? Was it at the deputy minister level, Mr. Serson?

Mr. Scott Serson: No, it wasn't at my level.

Ms. Cynthia Williams: It was issued at the regional level.

The Chairman: So the regional level can waive departmental policy at will?

Mr. Scott Serson: The ultimate departmental policy is to get value for money, Mr. Williams. They tried to be flexible to try to accommodate the desires of the first nations while still assuring value for money and while making sure that some of the spin-off benefits stayed in the community.

The Chairman: You talk here about $2.4 million in socio-economic spin-off benefits, yet the department could provide no analysis to support the deemed benefits.

Ms. Cynthia Williams: I could say two things on that. One is that as a result of that comment and finding by the auditor general, we have taken steps to ensure that when local benefits are being valued, they're being done on an auditable basis so that people can come in behind.

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Secondly, in relation to this project, once it is completed the region has a commitment to go back to assess the local benefits to ensure they were indeed obtained.

The Chairman: Are you going to implement a policy that the regional offices cannot waive these tendering processes and it has to be at a higher level, or will you continue to allow regions to waive the policy when they feel it's desirable?

Mr. Scott Serson: We try to encourage some creativity and flexibility while ensuring value for money. We could look at the levels at which these decisions are being taken. It might be a worthwhile suggestion.

The Chairman: But as the auditor general pointed out, $500,000 is a high threshold to begin with. Very few, if any, other government departments have that kind of threshold, and here we're finding it in yours.

Moving on to the water situation, was Mr. Desautels or Mr. Wilson aware there was a mine one mile upstream from the reserve?

Mr. Grant Wilson: Yes, we were.

The Chairman: Did you feel that impacted on the situation of using water from the river?

Mr. Grant Wilson: The source of the contamination that was identified by the first nation itself was found to be the water treatment plant and not the water. The water coming out of the treatment plant was more contaminated than the water going in.

The Chairman: Why would we spend $2.3 million to fix a $26,000 problem when we know the contamination is right within the water treatment plant and not coming from the river?

Mr. Scott Serson: I was just trying to underscore that as we dealt with the first nations on alternatives, one of their key preoccupations was the perceived threat of contamination from upriver.

The Chairman: But if it is documented that the contamination is right within the water treatment plant itself, how on earth can we turn a $26,000 project into a $2.3 million project and tell the Canadian taxpayers they're getting value for their money?

Mr. Scott Serson: I'm not going to claim that on that project.

The Chairman: Thank you. That's good. I understand it was a local first nation that actually got the contract to do all the well drilling, pipe laying, and so on. On what basis did we get up to $2.3 million?

Mr. Scott Serson: I don't have the answer to that.

The Chairman: Who was monitoring it? Was it the local regional office?

Mr. Scott Serson: The regional office would have been monitoring that.

The Chairman: Did it report back to the Ottawa office that there was a cost overrun in the magnitude of 100 times?

Ms. Cynthia Williams: I can't say at what point we became aware of that.

The Chairman: Do you have any policies to monitor these types of issues?

Ms. Cynthia Williams: Yes, we do, sir. In this case, we started with the approved $26,000 option and sought to work with the first nation for an extended period of time to build its confidence in that option. It was only after over a year that we realized there simply was a lack of confidence in the water supply.

The Chairman: Was it a lack of confidence in the water supply or the capacity to have a negotiated fixed-price contract? Did you ever look at that?

In every other department of the government you would call it a serious conflict of interest where the person who says, “I've lost confidence in a $26,000 fix; I'd rather have a $2.3 million fix” is the one who gets the contract to do the $2.3 million fix. I'm wondering why you don't take a look at this conflict of interest and try to address it, while recognizing you have an obligation to provide socio-economic benefits to the nations. Have you tried to analyse and develop polices to separate the two?

Ms. Cynthia Williams: Yes. I mentioned earlier our tendering approach— I worked with the first nations on this issue —and the work we're undertaking in terms of requiring first nations to put in place capital plans and identify in advance. There is a system by which, at the regional level, the capital needs across the entire region are ranked, prioritized, and put into a system so we can move out on them as money becomes available. So there are various systems in place that seek to ensure money is going where it needs to go and is being spent effectively.

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The Chairman: I think Mr. Scott's point is very valid. The money gets spent, but the people who need it most don't get the benefit of it. Somehow it gets lost in the high-priced and middle contractors and so on he referred to.

I think of Mr. Pagtakhan's comment also, that you don't seem to monitor a series of contracts under half a million dollars that may be going to one single contractor, who is completely cleaning up on all the contracts. They are also sourced, non-competitive contracts, because they are under the threshold of half a million dollars. I don't think you have the policies in place to monitor that. Am I right?

Ms. Cynthia Williams: A lot of the minor capital— We mentioned earlier that most of this program has been devolved to first nations, so we don't have the same direct oversight role as you would have if you were running the program directly. That said, as we have devolved the programs we have sought to put in place a number of policies and programs and reporting requirements from first nations to us, and we've sought to use our funding arrangement as one of the places to ensure there is appropriate reporting back. We are of the view that we have in place programs that achieve that balance of respecting the first nations management of the program and delivering results for the members of the community.

The Chairman: Mr. Mayfield.

Mr. Philip Mayfield: Thank you very much, Mr. Williams.

I would just like to touch on this tendering process too. We've talked about the instance where the tenders were not let. It seems as though within your department you're able to shift policy at will at the regional level, and here, I suppose. How do you justify changing policy without reference to senior policy advisers, managers? Is this just a matter of “We do the best we can without accountability in the department”?

Mr. Scott Serson: Cynthia may have other comments, but I think, Mr. Mayfield, it's a question of trying to balance the issues the members have put before us today. There is, on the one hand, the question of value for money, and on the other hand there is the question that these are small communities, often quite isolated, and our desire to see more of this money stay in the community and lead to training and work opportunities for the first nations citizens themselves in the construction of these facilities— That's the fundamental balance we're trying to work with as we work with our first nations partners.

Mr. Philip Mayfield: What system of accountability is there in that, though? Who is accountable?

Mr. Scott Serson: The regional managers are accountable—

Mr. Philip Mayfield: To whom? You said they did not refer back.

Mr. Scott Serson: No, but we are trying to encourage them to take those two things and balance them, to work with those two parameters. Sometimes they come up with flexible solutions. We want them to be somewhat creative about that.

Mr. Philip Mayfield: This threshold of $500,000: is this an arbitrary figure that has been established within the department? Can it be raised or lowered?

Ms. Cynthia Williams: It could be raised or lowered if it seemed it was the wrong level.

Part of introducing it at that level— I mentioned the minor and major capital rule. As well, this was the first time we were introducing such a rule, with the first nations communities as well. I mentioned that was introduced two years ago. Yes, it is a number that could be revisited.

Mr. Philip Mayfield: You've said this policy has been put in place where projects over half a million dollars will be tendered. Yet at the same time we're doing this balancing thing. How can the committee believe your statement that all federally funded projects worth more than half a million dollars will be publicly tendered?

Ms. Cynthia Williams: That is our policy: that projects—

Mr. Philip Mayfield: But that policy has already been broken.

Ms. Cynthia Williams: In instances where it's not observed— and here I have to say when the auditor general observed that when he went in and audited a project that was in excess of that and had not been publicly tendered and he was not satisfied with what he found on file, we have taken steps in that regard. We consider that as a very serious observation.

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We intend to ensure that if, for whatever reason, the tendering rule in a particular case doesn't seem to be the one that will best serve the interests of all parties, there will be a high degree of performance if there is going to be a variation from it. The auditor general observed the case and we take it very seriously and are taking steps to address it.

Mr. Philip Mayfield: With regard to the half million dollars, it's a fairly high threshold, but if there is a project that is just over half a million or perhaps quite a bit more, can that be broken down into a number of projects that would all come out to the same thing, but each project in itself would be less than half a million dollars simply to avoid the tendering process? Is that done?

Ms. Cynthia Williams: It is not something we would encourage.

Mr. Philip Mayfield: Is that done?

Ms. Cynthia Williams: I can't answer that, Mr. Mayfield.

The Chairman: Do you monitor to find out if it's done?

Mr. Scott Serson: I would not think that typically the kinds of projects we're talking about funding— schools, roads, etc. —are susceptible to that kind of breakdown. Of course, the auditor general could have views on this; I'd be interested in his views. But I would think that in most cases these items are listed on a capital planning inventory and the first nation is anxious to get the whole project put in place.

Mr. Philip Mayfield: There's the well drilling. There's the trenching for the piping. There's the plumbing. It can be broken down in a number of different ways.

The Chairman: Do you have another quick point to make on that?

Mr. Denis Desautels: Yes, Mr. Chairman. We did not find evidence in the work that we've done, and we've looked at quite a few projects, of project or contract splitting.

The Chairman: Thank you.

Mr. Scott.

Mr. Mike Scott: Thank you, Mr. Chairman.

Mr. Serson, as you indicated to the chairman in response to questioning from him— First of all, the auditor general said this case is symptomatic. The testimony we had a little bit earlier was that they would expect that if they did more auditing and more testing they would find that this occurs in other instances as well, possibly many other instances.

Mr. Serson, it was your evidence that the taxpayers did not get reasonable value in this project. Therefore, I would assume you would agree with me when I make the statement that if it's the case in this instance it's probably the case in the other instances too that the taxpayers are not getting good value for the money that is being spent.

Mr. Scott Serson: No. We've been talking about two particular cases. On this one, I responded that way. On the other one, the other particular case, I think the kinds of steps— even though it was not the tendered project —the region took to assure value for money, including getting a price from a local contractor as a comparison, etc., was reasonable. Now, should that have been better documented? Absolutely. I'm not—

Mr. Mike Scott: All I'm saying, Mr. Serson— When the auditor general does the work, what they do is take samples to determine whether or not— That's the way auditing is done. That's the way accounting is done.

You would agree with me then, in this case, that the value wasn't there for the money and that this is a symptom, an indicator of what is out there, that there are probably many other instances, or at least some other instances— if you would agree with that —where good value has not been obtained for the money spent.

I'll go on to the next question. What happened to the $30,000? The department put out $30,000 to the first nation. I presume that the money was put out to pay for the $26,000 fix that didn't happen. Can you tell the committee if you got the money back, or what happened to the $30,000 that I think was earmarked for the fix that never happened?

The Chairman: Mr. Scott, I think you're referring to the comments in paragraph 36.37.

Mr. Mike Scott: Yes.

The Chairman: Thank you.

Ms. Cynthia Williams: My understanding in that case is that some of the money was used in the assessment and in the attempt to introduce that option. I mentioned earlier that it was the option on the table for a period of time. It is my understanding that the money that was not spent, however, was in a sense rolled over into the other contract.

Mr. Mike Scott: How much money would that have been?

• 1700

Ms. Cynthia Williams: I'm sorry, Mr. Scott, I don't know the exact breakdown.

Mr. Scott Serson: We should be able to get that.

Ms. Cynthia Williams: If you'd like it, I could—

Mr. Mike Scott: Yes, I'd really like to know what happened to the $30,000. I hear this too often, that the money is put out and there are no results coming back for it. We need to know.

The Chairman: I'll have Mr. Serson write a letter to the committee, Mr. Scott.

Are there any further questions?

Mr. Mike Scott: No.

The Chairman: Mr. Grose, you have four minutes, please.

Mr. Ivan Grose (Oshawa, Lib.): Thank you, Mr. Chairman. As usual, I won't take four minutes.

Having spent most of my real life in the construction business, I'm appalled by this tender/no tender business. I've submitted hundreds of tenders, and if I was low bidder and fulfilled the qualifications, I got the job. If I didn't, then I didn't get the job; the next guy got it.

I'm more than a little stunned by the fact that you have a $500,000 limit, but maybe you'll exceed it in some special case. I've seen that kind of thing happen, and I didn't like it.

I have a question. I have an article here from the Toronto Star, so of course it must be factual. It's about a closed system for houses, and it could apply to communities as well, where you recycle water and all this kind of thing and use the sun. I realize a lot of these communities are in the north where the sunlight would not provide enough power, but the water problem seems to be the one we're sticking on.

It says:

We are selling the healthy house system to communities in the Northwest Territories, to island communities or cottages and to a variety of Indian reserves across the country—

I wonder how much research you have done on that. Rather than getting the water supply out of a river a mile downstream from a mine, or a smelter, or whatever, how much work have we done on investigating that kind of thing?

Ms. Cynthia Williams: Maybe I could speak to that and answer it in two ways.

One is in terms of our new housing policy that I mentioned, which was introduced two years ago this June and encourages bands to develop five-year plans that look at integrated housing strategies. So they really are encouraged and provided with incentives to use local building materials. The point is to adopt innovative housing approaches.

The notion of innovative approaches to housing is one to which we're giving a lot of attention. First nations make a high priority of it. There are some terrific success stories across the country. I'm thinking of Tyendinaga in particular. It has won awards for its innovative approach to housing. We are working with first nations to set up best practice exchanges so that they can share that knowledge with each other.

But in addition, under the initiative of “Gathering Strength”, the government's aboriginal agenda, we've been working with the AFN, the national chief, on this very issue of innovative approaches to housing and to capital, water, and sewer.

Though I'm not aware of this particular case, we are looking to provide the support to enable first nations to access some of this. Canada has a real competitive advantage in how to do things like build houses for inclement climates, and first nations are very interested in accessing that.

Mr. Ivan Grose: Thank you very much. You've answered my question by not answering it at all.

That's all.

The Chairman: Mr. Pagtakhan.

Mr. Rey Pagtakhan: Thank you, Mr. Chairman. I have two questions.

In the presentation by the auditor general, he indicated there was concern— this relates to the water project —that the project proceeded without due consideration of a known, less costly alternative. Then there's the response of the department, that while it does not dispute the facts, it believes it acted reasonably. I'd like to reconcile this sort of statement by the auditor general in your presence.

First, can an action be reasonable in this instance, knowing of an alternative that is less costly, and yet it was not even considered?

Ms. Cynthia Williams: The less costly option was considered—

Mr. Rey Pagtakhan: Oh, it was considered.

Ms. Cynthia Williams: —and we spent a fair bit of time working with the community to gain their acceptance of that option. But the community ultimately did not accept it. They did not accept the renovations to the existing water source.

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Mr. Rey Pagtakhan: So the community had reservations about that alternative.

Ms. Cynthia Williams: That's exactly right.

Mr. Rey Pagtakhan: To the auditor general, in light of that explanation, would you be as indicting in your statement as you had been earlier?

Mr. Denis Desautels: Mr. Chairman, I would not change our view of that situation. I think the facts as we've outlined them in our statements today and in the actual report are the same.

As Mr. Wilson explained earlier, the solution that I guess was not taken into account was that the source of pollution, the treatment plant, not necessarily the river itself, needed to be fixed. Our concern is that in fact no money was spent on fixing that particular problem. We feel that if that had been done, as a minimum, regardless of the acceptance of that solution, regardless of whether you go forward, at least they would have that source. That's guaranteed.

At the end of the day, my understanding is that even in seeking an alternative source of supply, they have not come up with a source of supply that is without any pollution whatsoever. Mr. Wilson might wish to add to that, but even when we drilled the wells, I think the source of water was not without some problems.

Mr. Grant Wilson: That's correct.

Mr. Rey Pagtakhan: So to put it into the overall context, would you say that this case— without debating the merits of the case and differences of opinion —was an isolated case? Are there more cases? Or can you assure the committee that in fact funds are used appropriately for projects and that this, we assume, is at the very worst an isolated case?

Mr. Scott Serson: Mr. Pagtakhan, we're a department that has been talking about devolution for the last 10 years, and in many cases that's been taken to mean that we will turn over the management of these programs to first nations and they will have the ultimate responsibility.

In the last three or four years the department has recognized that, number one, there are issues of management capacity. First nations have recognized that themselves. The auditor general has recognized it. We're trying to be more proactive in ensuring that we're working on training and development, that we're working with first nations on accountability issues.

I can't deny that there are going to continue to be needs for vigilance and improvements. There will be.

The Chairman: Thank you, Mr. Pagtakhan.

Mr. Rey Pagtakhan: May I ask a question of the auditor general?

The Chairman: Very briefly.

Mr. Rey Pagtakhan: Mr. Auditor General, having heard the response, having heard that we would like to devolve the management to the first nations peoples, are you satisfied with some of the limitations during this transition process?

Mr. Denis Desautels: Mr. Chairman, we're very conscious of what the department is trying to do and of what governments have been trying to do over the last number of years. We're quite conscious of the difficulties and challenges in doing that, the challenges of devolution along with the challenges of building capacity and so on. We're very conscious of that.

We're also conscious of the fact that mistakes will happen. I think we can be tolerant of that to a certain degree if that's part of the price to pay to move in a certain direction, but at the same time I think if those mistakes can be avoided and minimized down the road, we have a duty to bring it to your attention so that systems changes can be made and proper risk assessment can be introduced in order to have this process of devolution take place successfully.

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I think the examples we're giving are not necessarily to be found all over the place. They illustrate some of the difficulties and some of the systems changes that need to be brought about to reduce those risks down the road.

The Chairman: Thank you, Mr. Desautels.

Mr. Grewal, you have a short question.

Mr. Gurmant Grewal: Mr. Chairman, thank you for that.

With reference to the threshold of a $500,000 limit, we noticed that a contract of $8.9 million on the reserve infrastructure project was awarded by the first nations. The departmental project risk analysis determined that the lack of tendering and selection of chosen contractors by the first nation resulted in an estimated extra cost of $1 million, so the project cost is about $9.9 million, approximately.

The minister admitted that the violation of the policy, I should say, was the responsibility of the regional manager. My colleague, Mr. Mayfield, asked the question, who is accountable? It was said that the accountability went to the regional manager. My question is, to whom is the regional manager accountable? Who is responsible? Who assumes the accountability for the project? Where is the bottom line? Where does the buck stop?

The Chairman: Thank you, Mr. Grewal.

Mr. Serson, do you want to respond to that?

Mr. Scott Serson: The chain of accountability would come up through the region to Cynthia here, and ultimately to me, Mr. Grewal.

I'm not sure if I understood the question.

The Chairman: I think his point was that—

Mr. Gurmant Grewal: An earlier question was not answered: who is ultimately responsible? You stopped the responsibility at the regional level. There was no further pathway of accountability anywhere. You stopped at the regional manager.

My question is this: is the regional manager responsible, or does the responsibility go and then stop somewhere else?

Mr. Scott Serson: In this particular case, I think the regional manager took the responsibility to introduce some flexibility and variations from a policy.

The Chairman: Mr. Scott has a quick question.

Mr. Mike Scott: Like my friend, Mr. Grewal, and others, I know I could be here all night asking questions of these people. I appreciate them bearing with us, but I do have one more question that I would really like to have answered.

I come from a construction industry background. We paved in multimillion dollar highway and airport projects, and we also did people's driveways for $2,000. I have to tell you that we bid on everything we ever got for our company.

As for a $500,000 limit, I can understand there being a limit for administrative reasons. Sometimes the cost of tendering to government must get onerous. It must get to be worth more to go through the administrative process than the actual tender value.

But I would suggest that $500,000 is way beyond that limit. I would suggest that this is very much too high. I'm asking the auditor general whether he doesn't think that $500,000 as a limit for awarding contracts without a tender, tendering process, bid bond, or all of the trappings that go with that, is maybe not an invitation to at least shoddy management, if not corruption in the system.

Having come from a construction industry background, I know what can happen when you have large sums of money if the accountability mechanisms aren't in place and if the proper checks and balances aren't in place.

I put that to the auditor general. Is he satisfied with the $500,000 limit, or would he prefer to see it at something far lower than that?

Mr. Denis Desautels: Mr. Chairman, I stated earlier that I thought the $500,000 limit was too high a threshold. I think I was quite clear on that.

I also mentioned that I believe very strongly in tendering contracts of this nature. I said it was not only to get the best price, it also assured fairness and integrity in the whole contracting process. I believe in that very strongly.

What should be the threshold in this particular situation? I think that's something that merits some discussion. I believe departments should be guided by advice from all of us, including members of this committee.

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I note the department's intention to achieve certain other objectives through the contracting process. If those other objectives are an argument for moving the threshold or for being more flexible on that threshold, I think we should hear the department's arguments along those lines.

Going in, my position is that $500,000 does sound high. It's much higher than for the rest of government, and it should be reviewed in the light of the department's overall objectives.

The Chairman: Thank you, Mr. Scott. I think we want to try to wrap this up here.

As a final point, I'll change to something I ask all committees and all departments, and that's the year 2000 or millennium bug. I understand you are perhaps further ahead than many. Are you going to have the issue resolved in time completely? Where do we stand?

Mr. Brent DiBartolo: As you say, we are further ahead in terms of our current plans. We have just been reviewed by the interdepartmental committee that has been set up. Their assessment is that we're in very good shape. Our plans are to be year 2000 compliant by April 1, 1999.

The Chairman: Okay, thank you very much.

We're going to ask the auditor general for his closing comments, but I would just like to make a comment to Mr. Serson.

When you talk about devolving departmental authority, I understand the rationale behind that, but I also pointed out that the Canadian taxpayer is the one who comes up with the money. You're asking the first nations to do the contracting, in many cases you're asking them to do the work, and you're asking them to build in socio-economic benefits as well. I have made reference to what I called a serious conflict of interest. I think you have an obligation to ensure that your guidelines or directives regarding the tendering process clearly delineate these issues in order to ensure there's transparency in the bidding process.

Mr. Desautels, go ahead with your closing remarks.

Mr. Denis Desautels: Thank you, Mr. Chairman. I would just like to repeat very quickly that I'm quite conscious of the challenges and difficulties that the department is facing in that area. Nevertheless, I'd like to also repeat that I am a little impatient in terms of concrete results coming out of the improvement process we are discussing.

There are two areas in particular that require close attention. I think there's a need to improve maintenance practices generally. There's a lot of money being spent each year on them, but in addition to those, I believe about $7 billion worth of infrastructure is at stake here, so proper maintenance practices are absolutely crucial.

Secondly, what's important is compliance with the requirements of planning, implementation, and ultimately evaluation of all capital projects. The more quickly we can show concrete results in those areas, the better off everybody will be.

Thank you.

The Chairman: Thank you, Mr. Desautels.

We're going to suspend the hearing for two or three minutes to clear the room. We have one little paragraph to change or to debate on “Public Accounts of Canada” before we table it in the House of Commons.

[Editor's Note: Proceedings continue in camera]