Good afternoon, everyone.
This is meeting number 37 of the Standing Committee on Public Accounts, Tuesday, November 29, 2016.
In our first hour, we will be meeting with the Office of the Auditor General and the Atlantic Pilotage Authority.
I'll also remind the committee that in the second hour, we will be discussing the review of the Auditor General's report, which was brought down today. We will discuss some of the committee business around some choices we must make.
In our first hour, as we look to the review, we welcome the Atlantic Pilotage Authority on the Special Examination Report of the Fall 2016 Reports of the Auditor General of Canada.
Appearing before us to assist us with this study, we have from the Office of the Auditor General, Mr. Clyde MacLellan, assistant auditor general; and Heather McManaman, principal, who I think was at our meeting early this morning as well.
From the Atlantic Pilotage Authority, we have Sean Griffiths, chief executive officer; L. Anne Galbraith, chair; Peter MacArthur, chief financial officer and corporate secretary; and Brian Bradley, director of finance.
We welcome you all here to the East Block. It's a building that we don't usually meet in. It is a beautiful building.
I'll invite the Auditor General's Office to make an opening statement, and then we'll hear from Atlantic Pilotage Authority. Then we'll proceed into the question rounds for the committee.
Thank you, Mr. Chair, for this opportunity to present the results of our special examination of the Atlantic Pilotage Authority. Joining me at the table is Heather McManaman, the principal responsible for the audit.
A special examination of a crown corporation is a type of performance audit. Specifically, a special examination seeks to determine whether the crown 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.
Our examination covered the period from October 2015 to March 2016.
The Atlantic Pilotage Authority is a federal crown corporation whose mandate is to establish, operate, maintain, and administer in the interests of safety an efficient pilotage service within designated regions.
In our examination of the corporation, we identified significant deficiencies in both the corporate management practices and the management of pilotage services. As a result of the pervasiveness of the significant deficiencies, we concluded that the corporation had not maintained the systems and practices in a manner that provided it with reasonable assurance that its assets were safeguarded and controlled, its resources were managed economically and efficiently, and its operations were carried out effectively.
Although its history includes few safety incidents, the corporation needs to formalize and fully implement systems and practices that would demonstrate that it has been diligent in maintaining its pilotage operations. Doing so would minimize the corporation's risk of compromising its safety record in the future.
Regarding the specific significant deficiencies reported, we found that the board of directors, despite having strong competencies, had not set strategic direction for the corporation, nor had it reviewed its mission, vision, or strategic objectives since 2003.
For example, the corporation's strategic direction did not address its long-term financial self-sufficiency. Instead, the corporation reacted to its operating losses in three of the past four years by implementing a surcharge on tariffs. Setting an effective strategic direction is important in order to articulate where an organization is going, what actions are needed to make progress, and how the organization will measure success. Without a strategic direction, management cannot develop and execute plans proactively.
We also found significant deficiencies in the recruitment, staffing, and performance management of pilots and pilot boat crews. For example, the corporation used the services of entrepreneurial pilots without documented contracts specifying terms and conditions. The corporation had not documented that the skills required of pilots and pilot boat crews were up to date, and in some instances, the corporation failed to carry out performance reviews or lacked complete documentation of the reviews. These findings matter because strong systems and practices in the areas of recruitment, staffing, and performance management are necessary for the delivery of the corporation's mandate, which includes the prevention of possible harm to pilots, users, and the environment.
Finally, our report identified room for improvement in some other areas. In particular, the corporation needs to implement a cyclical review of the designation of every compulsory pilotage area under its responsibility. Cyclical reviews would take into consideration changes in technology, ship standards, and traffic patterns. In addition, the corporation needs to perform annual inspections on all pilot boats that it uses to provide pilotage services.
The corporation has agreed with all of our recommendations, and has indicated that it would act quickly to address our concerns. However, because our audit work was completed in March 2016, I cannot comment on any measures that have taken place 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.
Mr. Chair, thank you for the introductions of our team at the APA.
We appreciate the opportunity to be here with you today to speak about the special examination conducted by our colleagues at the Office of the Auditor General through late 2015 and early 2016. The APA is committed to ensuring that it delivers its mandate by the safest, most efficient means possible, all while remaining current within the ever-evolving marine industry and staying within the confines of the Pilotage Act. We welcome the opportunity for feedback, which ultimately improves our business processes. Therefore, we fully supported the OAG through a concerted effort and agree with the final outcome that is before you today.
Of the 10 recommendations, we are pleased to report that six are now completed, while the remaining four will be completed before the second quarter of 2017, in the next six to seven months.
I would like to provide a brief overview of the Atlantic Pilotage Authority with a slide show, which you also have copies of, I believe. It should be quick.
This was updated this year, 2016, as part of our plan. Our mission statement is to deliver safe, effective, and self-sustaining marine pilotage services in Atlantic Canada. Our objectives have also been redefined, but we'll move on to governance, the next slide. The authority has a representative board, with two members recommended by the marine industry, two recommended as pilotage representatives, and two named as public interest representatives. You can see the makeup of the board.
In the organization itself, as you can see from the org chart, there are 47 employee pilots, 17 pilot boat crew members, and six dispatchers. We do have 11 entrepreneurial pilots, as mentioned in the report, who provide services in a number of the smaller ports, representing about 7.5% of the traffic, or 630 assignments out of roughly 8,000.
The next slide shows the provinces inside our jurisdiction, which covers 17 compulsory areas, about 32,000 kilometres of coastline. Pilot transfer is very significant to us. We have rules, regulations, procedures, and safety equipment in place to ensure safe embarking and disembarking of the pilot. How a pilot gets to an assignment is through a fleet of robust, modern pilot boats. They are stable platforms, effective in rough weather, fast and manoeuvrable. They utilize integrated navigational equipment and have capable man-overboard retrieval systems. We own nine of them.
Some of the ships that call the east coast of Canada.... We pretty well get them all, from general cargo ships to container ships, auto carriers, foreign and domestic oil tankers, various types of cruise ships—which are getting bigger every year—and coastal tankers servicing the eastern parts of Canada.
Here, I draw your attention to some pretty significant milestones and indicators. In the last 10 years, which sort of covers the special exam period, 90,000 assignments were conducted. The incident-free rate was 99.93%. This rate always hovers between 99.93% and 99.96%. We've never released any pollutants in the waterways, and no injuries have occurred due to an incident while under pilotage.
Pilotage assignments where a pilot was delivered within one hour of confirmation time occurred 99.1% of the time, and for those that were delayed, the average delay was about 2.2 hours. Over 10 years, we've accumulated profits of about $1.9 million. We've launched four new pilot boats in this time, with a total cost of $13 million, and have $3.9 million outstanding in loans on these vessels today. We invested between $500,000 and $1 million annually in new equipment and vessel upgrades beyond the vessel purchases. That's pretty significant.
I won't get into the next slide, but we did a survey of our stakeholders and customers this year about satisfaction, safety, and our commitment to safety in public perception, and the response percentages, in green, are all in the eighties and nineties.
Then we move on to the special examination report. There were 10 recommendations, as I mentioned earlier. Under the category of corporate management practices, there were four recommendations. The authority has addressed these and implemented solutions. Under management of pilotage services, there were six recommendations; three of these will be addressed by the end of 2016, two more by March, and the final one by June.
In conclusion, our authority has a proven record of safety and efficiency, which contributes to public confidence and trust in Canada's marine industry, particularly with the transportation of crude oil to eastern Canadian refineries, terminals, and ports. The OAG has made 10 recommendations for the authority. The authority will have seven of these implemented by the end of 2016, and the remaining three in the first half of 2017.
I look forward to your questions.
When I was hired two and a half years ago, with a fresh set of eyes on policy, procedure, and operations, we began the overhaul of a lot of procedures and protocols within the authority. Many of these were under way, in progress, during the kickoff of the audit, but weren't established and weren't finalized by that time.
A lot has changed at the authority in the last two and a half years, dramatically since I joined. I'm sure my chief financial officer, Mr. MacArthur, would agree. Of all of us, he has the longest time with the authority, 28 years. The changes in the last three years for the positive have come a long way.
As far as the financial issues are concerned, we have always taken a longer view than a window of two, three, or four years. In the time I've been with the authority, we've had two periods of time when we've lost money, and it's because of changes in our business, for the most part, or issues that we've had with our business.
For example, in 2009, we made over $1.3 million. In 2010, we made almost $2.4 million. In 2011, we made $1.65 million. We lost $600,000 and $550,000 in the two years that were looked at in the exam. In the two years before that, we had one year of profit of $100,000, and the other year we had a loss. It tends to be cyclical as far as the financial part is concerned.
As far as the changes in the organization are concerned, as Sean just mentioned, the human resources person we'd had for a few years left us and we had to recruit a new human resources person. When Sean was promoted from the chief operating officer, we didn't have anyone in place to replace him and we only got that position done, the director of operations, in February, and we had a new person. We ran through a period of time when we were running lean on our management side. We also had a dispatch supervisor who left us with almost no notice in October 2015, with two weeks' notice.
We have struggled to try to meet some of that. I think today we're in a lot better position than we were a year ago.
Thank you for coming today.
I want to look to a couple of areas here. As Madam Mendès said, losses in the last three of the four years is very concerning. The one is board oversight, strategic direction, and decision-making. The other one is recruitment and staffing of pilots and pilot boat crews. Both are pretty scathing observations in this audit of operations. When I read the overall audit or read into what was found, it sounds like the organization was pretty dysfunctional at one point in time. I'd like your view on that in this context.
Let's pull back the curtains here. You never know what an organization is like until you're there. We cannot be there, yet we're reading a report on this organization. We're not televised. No one's watching us from afar. In your opinion, what were the worst days, the worst situation, that you were facing in terms of this dysfunction?
I'll ask that of Mr. Griffiths first.
I can comment on that. Thank you, sir, for the question.
There are a few things. We have no control over board appointments. If a vacancy is left there, it is just the same as today. You would have seen on the slide show—it was quick, but it was there—that the expiry dates of several board members are still expired and not replaced, but we still function.
Further, with the strategic direction, we agreed as a group back in September of last year that it was time to look at our strategic direction and redefine our vision, mission, and mandate. We've done that, and the meeting was set in stone before the audit commenced. It didn't matter, because the audit had to approve the process today, and that process didn't exist. We identified this before the audit kicked off that we had to address this direction.
Thank you for your attendance here today. We do appreciate it.
The first thing I want to note is the percentage of incident-free assignments. It's 99.93%. That's pretty damn good. It's impressive. I suspect that's what you're talking about when you talk about how the result, the actual job you're doing, is doing the job. This isn't all the standards, but that's an important one, and we accept that.
I have to tell you, though, where we have a disconnect from the get-go here, in terms of what's in front of us from the Auditor General and what your testimony is today, is when we're looking at things such as paragraph 5 of the auditor's comments this morning, and they're in the report too. Remember, these are auditors; they're like librarians. They walk softly. They use nice words. They're not mean people. When they say things like “significant deficiencies”, that's harsh in their world. Then, to hear the words “as a result of the pervasiveness of the significant deficiencies”, and then hear the testimony that “oh, no, everything is all fine”, I have to tell you, here's my impression so far going forward: as long as the end works, it justifies the means.
It sounds as if it was a well-functioning organization at one time. We haven't yet identified what changed, but certain people have changed, and now all of a sudden, a lot of the infrastructure that used to be taken care of as well as the good results are not happening.
When I look at some of the things the board hasn't done, it looks a bit like an old boys' network to the extent that they don't worry too much about those details and those reports, as long as they get the job done, and they do. The problem is that when you're a crown corporation for a G7 country, that ain't going to cut it. It would seem that the people who were in charge of this ship before got that, and then somewhere down the line, it fell apart.
I'm going to give you another chance to revisit that answer to what my colleague asked. When I see things like “pervasiveness of significant deficiencies”...boards that at the top of the house—I'm sorry, but you two, a lot of the responsibility is yours.
Before I get into my detailed questions, I'd like to give you a chance to revisit what has gone on there, unless you want, again, to say everything is fine and wonderful. Come on. We want to hear the reality, and I'm not convinced, Chair, that we've heard that yet.
With respect, if you would, please comment.
In the case of this most recent three out of four years when we were in a deficit, we had enough cash reserves from the $5.3 million we had made in the three or four years before that to carry us through that period of time.
As mentioned earlier, it's a cyclical business where we'll have things happen. We may have already budgeted for the following year.
To give you an example, we had budgeted for 2016, and in January, we found out that two of the operations we included in our budget were shutting down entirely, one being a potash mine in Sussex, New Brunswick, and the other one being a gypsum mine in Cape Breton. We had already included those numbers in our calculations, and they disappeared overnight. Sometimes it goes the other way, and you get some business you didn't expect to get.
We bill based on the size of vessels, so when I mentioned earlier that because the size of vessels had declined, our revenues went down while the number of assignments we had stayed the same, that's the worst-case scenario for us. We still have the work to do. We still have to have as many pilots to do it, but our revenue has dropped off the cliff. That's what really happened to us in 2015.
I'd like to thank the witnesses for their participation.
Mr. Griffiths, I'm rather disappointed to see that a corporation like yours is apparently surprised by the Auditor General's findings. This is what I took away from your presentation.
You said that your corporation contributes to public confidence, but to my mind, that's not enough. A more meaningful and solid foundation is necessary.
The Auditor General's visit probably caught you off guard. You said you agreed with the report but that it wasn't representative of the reality because your organization was short-staffed during the period on which the audit focused. That's a bit of a simplistic explanation.
You've provided an opinion survey. I could give you one too. Nowhere do you provide information on sampling, methodology, or the date. What is there to support the credibility of the survey and your claim that everything is fine?
We are all wasting our time here today if you're going to sit there and tell us that your organization is doing fine and that you don't have any problems. I'm going to put it this way. The Auditor General got to you.
Put yourself in his shoes. If you were auditing your organization, would you come to the same findings? That is my question to you.
Yes, I probably would, because we agreed with the findings of the report.
I at no time said that the authority is in perfect shape, in tip-top order and things are running great. We do need improvement.
This exercise of the special exam showed us where we need improvement, and we appreciated their help in identifying those concerns. We take them seriously and we've been working very, very hard over the last six to eight months to rectify these. You can see by our action plan that over 50% have already been completed, and we will complete the rest before the due dates.
As far as the survey goes, sir, it was a very, very intense survey, with the right questions in the right field. If you want copies, I'd be happy to send the whole thing to you, with our target audience, and why we asked what we did.
I want to start by saying that it's good news to know that your assignments are 99.93% incident-free. At the same time, I want to express my deep concern over what I've read and what I've heard today. I want to underscore the reality here. This is one of the few cases where the Auditor General has given a fail grade for a special examination of a crown corporation. To me, that number one is extremely concerning.
I'm satisfied with what I've heard in terms of how you are addressing your current deficit, three out of four years, $1.2 million, using the surplus that you accumulated through previous years. However, I want to get back to how that ties into what you're doing moving forward. I heard very clearly that you have implemented seven of the recommendations, or will by the end of this year. You will address the remaining three recommendations by June of next year. I don't know the specifics of those.
I know we have very limited time here, but it strikes me that there needs to be a greater sense of accountability here. This isn't a mom-and-pop operation; this is a crown corporation. There's an expectation that funds are being used accordingly and that you are running a good ship, that you are running a ship that is essentially efficient, that you're making use of resources properly. To me, basic things such as having properly documented contracts for your entrepreneurial pilots would be a simple thing that should have been done already. For example, when you look at the lack of performance evaluations for some of your employee contracts, how could you not have these things on file? In terms of the governance, I'm not getting a clear sense of how those challenges are being met based on some of the earlier questions I heard.
I want to tie that back to your financial realities. Over the past four years you have gotten into this slump where you're seeing deficits three out of four years. From my understanding, you have talked about it at the board level, to have some strategic objectives. Is there a strategic plan? Is there a plan that this organization will move forward with to turn that deficit around, but at the same time, be able to address all these operational challenges that have been identified in the report?
Can you give me a better sense of that? The way it was presented in the power point doesn't assure me. I believe the public needs to be assured that there's a real concrete plan moving forward to address these concerns and a way to find financial balance and responsibility moving forward.
From the financial aspect, we've identified some of the highest risks. We talked earlier about the reduced size in ships, and how to react to that, which we can, to plan ahead. Our future financial plan includes mechanisms in our tariff to ensure the economic downturns of shipping. It also includes a fund for severance payouts for employee pilots as they retire. It also includes a fund for asset replacement, which we never had before, which will reduce our borrowing down the road. Those are long-term visions. We've also instrumented a two-year tariff this year to mitigate any risk of downturn from the following year for falling tariffs, with of course the option to review at the end of this year. Those four things are a good, strong financial plan going forward.
From the operational point of view of your question, Mr. Chen, the integrated management system we're developing right now, that the authority lacked for years, will help our information management. It will help our policy and procedures. It will catalogue all the things we want to do that we're supposed to do, and hold us accountable with annual audits to that effect. It will match ISO 9002 accreditation. We have a document control system which will ensure fleet maintenance, inspections, and protocol, along with certificates and companies. These will be held in one uniform location for easy access.
Those are some of the tools we have developed so far.
Right now? Okay, with that in mind, I'd just like to give you a few perspectives. There has been a long conversation since we started a little bit.
First, I'd like to give the committee some assurance early in the conversation about the use of the word “dysfunctional”. We do an audit of a number of crown corporations and special exams and see all types of organizations and the state of affairs. I am quite comfortable in saying to you that this is not one we found to be dysfunctional. I have seen dysfunctional organizations, so I have a comparison by which to do that, and I just want the committee to be satisfied that from our perspective, we would not classify it that way.
That said, I do want to echo phraseology that Mr. Christopherson had used, sort of the colloquialism of the end justifies the means. In our particular case, our focus of this audit was on systems and practices and the importance of those systems and practices in being able to demonstrate due diligence on an ongoing basis. So while we recognize in many organizations we audit that the results can be positive, it is very important we think for crown corporations in fulfilling their obligations under the Financial Administration Act, to have robust and rigorous systems and practices.
What concerned us here, and Mr. Griffiths referred to the adverse opinion that we had provided, is that the nature of the systems and practices and the rigour in which they were applied were not what we would have expected of a crown corporation, not what we'd seen in the past, and we're concerned and that's why we had mentioned that.
I just wanted to echo that that's an important context for us.
There has been bit of a discussion about our past audit and this audit. I do what to inform the committee that all of our audits are done rigorously. We do, however, apply continuous improvement to our own work over the years, and we look at new risks and new issues and the expectations do change over time. But I do want to leave no doubt in your mind that all of our audits, even going back 10 years, are done rigorously and we seek evidence to support those, and when we don't find it, we call a spade a spade. That's always been the approach of our organization.
Finally, if I may, there has been, I think, a very good conversation around board appointments and the challenges both in the structure of boards and the timely replacement of boards, and you recognized that the Auditor General has been here to speak to some of those challenges.
One of the other exams that you'll be looking at has a similar challenge, when you examine the IDRC, a special examination. We are keeping a close eye on the appointments process, and considering what our future audit work might involve based on all of that.
I just wanted to give you some assurance that it is top of mind to us as well, as we look at that.
I think those were the principal matters I wanted to summarize for the benefit of members.
Thanks, Chair. I'll be brief.
Thank you very much, Mr. MacLellan.
Let me just say that's the beauty of dealing with the professionalism of the Auditor General's Office. They won't let us go beyond what their reports say to, so it needs to be emphasized that if it's not dysfunctional, then that concept is not one we should have. Results are good. With processes, we have all kinds of problems.
One of the things that's concerning us is that it used to be fine and then it fell off, and then there are HR problems and there were changes in the leadership. There's a bit of this story that we don't know and it has to be tied to the business that a lot of your problems were because people were leaving. Why were people leaving all of a sudden? There's something in there about the culture that's happened that we haven't quite nailed, but we'll give that some further thought. I thought it was important to recognize that when we go too far in our language, the Auditor General is the first one to say, “Hold on, it's not quite that”, but then when it is time to call a spade a spade, they do. That fairness, I think, is really important, because in this process, you can get run over real quick by us, as you can see, and sometimes certain entities should be and other times just a nice little slap on the wrist will do fine.
However, I did have one question.
You mentioned, Mr. Griffiths, your internal audit system. Could you speak to me about the internal audit system you have and if you've increased or improved it at all over the last little while? I did take to heart what you said about that being there to catch some of the things going forward. Can you give us an update on your internal audit system, please?
I want to thank you for appearing today.
I want to be clear on part of what the mandate of our committee is. As you know, our Auditor General conducts audits of many different departments. He released one today. The public accounts committee's responsibility is to follow up on those audits to make sure that departments or crown corporations are, indeed, meeting their timelines, fulfilling the recommendations that they've accepted and are going through it.
We commend you that you have an action plan and you're well down the road on the action plan. You have a timeline to complete the action plan. These are all very positive steps that the public accounts committee recognizes. But this past week we had a department that had timelines as well. Then when they left the meeting, as was typical a few years ago, they unilaterally changed the timelines, extended the timelines. We had to call back a department and find out why. That's putting it mildly. We appreciate that you are on track, on time, and that you believe that by June you will see these completed. We commend you for that.
I can guarantee that governments want you to succeed. They want you to have the right people and the right plans in place. As you continue to better the governance structure and some of those things, we're certainly hoping that we'll see success.
Thank you for being here again. In spite of our Auditor General not being here today—he is busy; we get it—to the Auditor General's team, thank you for a very good job and for appearing before the committee today.
We will suspend. I'll allow our guests to make their exit, and then we will go in camera on committee business.
[Proceedings continue in camera]