Good morning, everybody.
We have today, pursuant to Standing Order 108(2), a briefing on the detailed action plan of Freshwater Fish Marketing Corporation, in response to the spring 2017 reports of the Auditor General of Canada. As you know, we passed a motion some time ago, brought forward by Mr. Donnelly, to study this within a six-month period. Our six months are almost up. Therefore, here we are.
First of all, happy Halloween, everybody. I forgot to wear my costume this morning.
A voice: Or did you?
The Chair: Or did I? Well, someone said this morning that my jacket gives me the aura of being Austin Powers, so I'll take that as a compliment.
This morning's meeting has two parts. We are going to hear from the Auditor General's office and later from the Freshwater Fish Marketing Corporation. Then we have to get into some committee business regarding legislation coming up, which has passed second reading. That's Bill .
In the meantime we have here this morning, for the next hour or so, Heather McManaman, who is a principal at the Office of the Auditor General; as well as the assistant auditor general, Mr. Clyde MacLellan, who I'm sure has gone through this procedure several times before.
Are both of you making presentations or just one for the opening?
That would be you, Mr. MacLellan. You have up to 10 minutes, sir.
Mr. Chair, thank you for this opportunity to present the results of our special examination of the Freshwater Fish Marketing Corporation. As you mentioned, joining me at the table is Heather McManaman, the principal who was responsible for the audit.
A special examination of a crown corporation is a type of performance audit. Specifically, a special examination determines whether a corporation's systems and practices provide reasonable assurance that its assets are safeguarded and controlled, its resources are managed economically and efficiently, and its operations are carried out effectively.
The Freshwater Fish Marketing Corporation was established in 1969 to market and trade, both inside and outside Canada, freshwater fish caught in western and northern Canada as well as the by-products of that fish. Our examination of the corporation covered the period from October 2015 to June 2016.
The corporation has faced many external challenges in recent years. These challenges included considerable risks associated with a complex and changing business environment. For example, the supply of whitefish increased at the same time that Canadian sanctions on Russia reduced the number of buyers for this fish. Also, the Province of Manitoba gave notice that it intended to withdraw from its agreement under the Freshwater Fish Marketing Act and therefore eliminate the corporation's exclusive right to purchase fish caught in the province.
Our special examination identified many significant deficiencies in the corporation. As a result of the pervasiveness of these significant deficiencies, we concluded that the corporation had not maintained its systems and practices in a manner that provided reasonable assurance that its assets were safeguarded and controlled, its resources were managed economically and efficiently, and its operations were carried out effectively. We refer to this type of conclusion as an adverse opinion, which is the strongest negative assessment that we can give in a special examination.
In several ways, we found that the board of directors and management failed to meet their responsibilities for oversight and management of the corporation.
Specifically, we found that the board did not ensure that the corporation's strategic plan was up to date and provided clear strategic direction to management. Furthermore, management had not provided and the board had not reviewed updated risks and risk-mitigation measures since 2014. Consequently, management did not have strategies in place to mitigate the significant events that affected the corporation. This greatly limited the corporation's ability to meet its objectives, make long-term commitments, and make timely decisions about its future.
We found that management disregarded key controls. For example, management created positions without job descriptions and filled them without competitive or merit-based processes. Also, management disregarded the corporation's procurement and purchasing policy when it purchased certain pieces of capital equipment without a proper business case analysis. Some of this equipment was never used in the corporation's plant because it did not meet its needs.
We also found that some plant workers had not taken compulsory health and safety training, and that a hazard prevention program was not finalized. If these health and safety issues are not addressed, they could lead to employee safety incidents and expose the corporation to significant losses.
Finally, we found that, despite the recommendations we made in our 2005 and 2010 special examinations, the corporation's targets and standards for yield, capacity, and labour efficiency still had not been reviewed. These findings matter, because yield is a key measure of efficiency and production performance.
The corporation agreed with all of our recommendations and indicated that it would act to address our concerns. However, because our work was completed in June 2016, I cannot comment on any measures that have been taken since then. The committee may wish to ask the corporation's officials to clarify what measures have been taken in response to our recommendations.
Mr. Chair, this concludes my opening remarks.
We would be pleased to answer any questions the committee may have.
Thank you, Mr. Chair, and thank you for the opportunity to respond to the special examination of the Office of the Auditor General.
As they noted, we have accepted the recommendations, indeed. Many of the recommendations and observations were being reported by the board members to the Government of Canada at the time of the audit and before the audit was completed. We have implemented almost all the recommendations for which we have full authority to do so. We are still working on the recommendation to have all the policies of the board communicated to the employees of the corporation, and that should be done by December. We are working with the Government of Canada on those recommendations for which they have the authority to implement and we don't.
We have a risk committee in place. We have a new board member who is the chairperson of that committee, and I have written to the Government of Canada requesting that the Government of Canada appoint board members to fill the vacancies that still remain on the board.
The audit took place at a very difficult time for the corporation. Before the audit started, many board members had been communicating to the Government of Canada that they had concerns with the operation of the corporation. The Auditor General confirmed many of the points raised by the board members. The Government of Canada took action as a result of those contacts with board members, and in March 2016 removed the president at the time, and, as noted, he was dismissed with cause later in 2016.
Also, the government appointed three new members, me as the chairperson, and two others, one of whom was John Wood, a former president. He acted as an interim president pending his decision to remove himself from that position in February 2017, and Stan has been serving as interim president since then.
We certainly had quite a challenge when we took on the responsibility, myself as chair and John as the interim president. There were a number of things that had to be corrected, as noted in the special exam. I'd like to spend a few minutes on the slide deck that was sent to you, if I may.
As noted by the Auditor General, Freshwater Fish was formed in 1969. Many of the conditions that existed then persist to this day. We are the buyer, processor, and marketer of approximately 15 million kilograms of fish that come from Manitoba, Saskatchewan, and the Northwest Territories, and we still have one fisher in Ontario. We buy from 1,600 fishers, 80% of whom are from isolated northern communities, and they are mostly indigenous. We operate a supply chain that moves products into those communities to aid with the fishery, and then moves the fish back out and on to markets. Our sales have averaged $73.5 million over the last three years. We have 250 full-time and 150 part-time employees.
I'll just skip to the Freshwater Fish Marketing Corporation Auditor General's 2010 special exam recommendations. A retained earnings and debt management policy needed to be implemented, and they were. An audit committee was established, led by a board member with professional credentials, and that was in place. An integrated risk management plan was developed and approved by the board. Until the time of the audit, that had been maintained. The board profile was changed so that we had less representation and more professional people on the board. Contracting and procuring policies were strengthened.
The most recent audit, as noted, took place between October 2015 and June 2016. As noted, the president at that time failed to follow many of the policies and procedures that were implemented between 2010 and the time of the audit. The chairperson of the board, whose term was supposed to go into late 2016, resigned. Under the Freshwater Fish Marketing Act, when there's no chairperson, the president becomes both the president and the chair. I think you can appreciate that this is not ideal governance, to say the least. Board members had no alternative but to directly communicate with the Government of Canada. The Government of Canada took action by removing the president and putting in place new board members.
Again, the point is that the government did take action, however, that action did not result in an immediate turnaround. We had a huge whitefish inventory and that was our biggest risk when we took over. We had to re-establish proper human resources because we didn't have all the skill sets we needed to get on with the management of the corporation.
The next slide gives you an idea of where we spend money to procure fish and where we sell the fish.
The next slide is on key performance indicators. The year after the audit, our profits were up to $7.6 million, before our final payment. Our retained earnings are up to $15 million, which is higher than our long-term debt. Our long-term debt is $12.5 million. So we have more than enough to cover our long-term debt. We increased our gross sales, improved on cost per kilogram for processing, and we maintained fish volumes.
For this fiscal year our profits, after tax but before any final payments to fishers, are up to $4.3 million for the first quarter, as compared to $2 million for the previous year and compared to $1.5 million in the plan. Our performance is strong because of sales volume, strong revenue, competitive market pricing, and control of expenses. We're on track to achieve the goals that are in our corporate plan for 2017 to 2022.
The next slide shows that when we saw the change in the policy regarding retained earnings and debt, the retained earnings did indeed climb to a point where we now are now at our target of 20% of gross sales.
The biggest risk we face right now is the Manitoba withdrawal, which is likely to happen by the end of the year. That's going to raise operating, governance, and logistical concerns because, as noted, it is 80% of our supply. The Government of Canada has conducted consultations to determine what the future of the corporation would be and it will share that with all of us once it has reached a final determination.
Last year, we told the Government of Canada that in light of what Manitoba was announcing, we would operate in a free market and we would maintain the value of the corporation's assets and resources. We would also secure a supply of fish so that we could utilize the processing capacity that exists in Winnipeg and meet our commitments to international markets while maintaining revenues. We're achieving that through entering into long-term contracts as we did in Saskatchewan, with Manitoba fish. The vast majority of those fishers in Manitoba have agreed to sign contracts with us. If you sign a contract with us as a Manitoba fisherman, we'll buy all your fish and we'll provide services like ice and totes. We will help with the administration of things like employment insurance. If you don't, then we will buy fish from people who don't sign contracts, provided that fish is profitable for the corporation.
In summary, the exam took place in a rather remarkable period.
One interesting question to the Auditor General would have been: have you ever done a special exam on a crown corporation when the corporation had removed its president and was in the process of dismissing with cause, and where those symptoms were caused by those situations? Is that something unique? I don't know the answer to that.
We've acted on the recommendations of the OAG for which we have authority and we're working with the Government of Canada. As noted, we still have vacancies. We have five board members out of nine. I definitely agree that the more people around the table, the better the quality of the decision. I hope that some of those vacancies will be filled quickly.
Recent performance indicates that things are back on track. That, by the way, is audited by the Office of the Auditor General. Last year's profits of $7.4 million, etc., that's audited. That's not us saying we're on track. It's evidence that that is the case.
Thank you very much.
Thank you, gentlemen, for being here.
Over my time in Ottawa since 2004 I've heard a number of times from Manitoba MPs who have heard from commercial fishermen in or near their ridings their dissatisfaction with the freshwater marketing board.
I want to try to tie in my question, if applicable, with your opinion on what the wheat board was. At the time the criticism of a lot of Manitoba and other western farmers was that there was too much bureaucracy, if I can use that word, within the wheat board, and that at the end of the day for the people producing the wheat or barley or whatever the product was, their share of that product was diminishing constantly.
Could the same thing be said about the freshwater marketing board in that ultimately there has to be a reason why Manitoba fishermen want to pull out? In your opinion, is that the reason, that they don't feel they're getting as big a bang for their buck?