:
Good afternoon, colleagues. Welcome back.
This is meeting number 96 of the Standing Committee on Public Accounts on Thursday, May 3, 2018. Today we are here to consider the special examination report on the National Capital Commission of the fall 2017 reports of the Auditor General of Canada.
We have with us the Auditor General of Canada, Mr. Michael Ferguson, and from the Office of the Auditor General, Margaret Haire, principal. From the National Capital Commission, we're pleased to have Mr. Marc Seaman, chairperson, board of directors, and Mark Kristmanson, chief executive officer.
To begin, we'll invite our Auditor General to make his comments, and we look forward to good questions thereafter.
:
Mr. Chair, thank you for this opportunity to present the results of our special examination of the National Capital Commission. Joining me at the table is Margaret Haire, the principal responsible for the audit.
As you know, a special examination of a crown corporation is a type of performance audit. A special examination seeks to determine whether a 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.
[Translation]
The National Capital Commission, or NCC, owns and manages over 10% of land in the national capital region, including Gatineau Park, the Greenbelt, various urban parks, and many leased properties. The corporation also manages six official residences.
In our examination, we found a significant deficiency in the corporation's asset maintenance practices and weaknesses in its risk management practices.
We also found that the corporation had good systems and practices in the areas of governance, strategic planning, performance measurement, performance reporting, and all other national capital region operations.
[English]
In regard to asset maintenance, the corporation's data on asset condition indicated that more than one-quarter of the corporation's assets were in fair, poor, or critical condition. The corporation determined that it didn't have enough resources to carry out the work that it needed to do to restore and maintain its assets. Therefore, it had to put off maintenance on some assets.
We concluded that this was a significant deficiency, because, if the corporation's assets continue to deteriorate, the corporation might not be able to meet its mandate, and the assets could cause health and safety issues.
The weaknesses we identified in risk management practices were in two areas. First, in the corporation's overall risk management approach, the corporation didn't consistently assess its strategic and operating risks, prepare an inventory of all risks, or set risk tolerances. This made it difficult for management and the board to have comprehensive risk information to make decisions.
[Translation]
The board and management did not clearly describe, in the annual corporate plan presented to the responsible minister, the risk of having insufficient resources to restore, maintain, and preserve the corporation's assets. As you know, the annual corporate plan is a key way to inform the government of the corporation's issues.
The corporation agreed with all of our recommendations and prepared an action plan in response to our concerns. However, because our audit work was completed in March 2017, I cannot comment on any actions that the corporation has taken since then.
Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee members may have. Thank you.
:
Thank you, Mr. Ferguson.
[Translation]
Thank you, Mr. Chair.
I'd also like to thank the members for the opportunity to appear before the committee today.
[English]
Good afternoon, Mr. Chair, and members of the committee.
I'm Marc Seaman, chair of the board of directors of the National Capital Commission. As mentioned, I'm joined here today by Dr. Mark Kristmanson, the commission's chief executive officer.
[Translation]
I will touch on the NCC's mandate and the measures taken in 2018 to carry out that mandate. Then, Mr. Kristmanson will discuss the NCC's operations and, more specifically, the Auditor General's special examination.
[English]
The modern NCC is committed to building a dynamic and sustainable 21st century capital that reflects the best of Canadians and of Canada. This commitment is enshrined in the National Capital Act, which gives the NCC four main roles: planning, development, conservation, and improvement. This is so that the nature and character of the seat of the Government of Canada may be in accordance with its national significance.
In short, the NCC's job is to ensure that Canada has a capital appropriate for a G7 nation, a capital that is a source of pride and inspiration for all Canadians.
[Translation]
Eleven months ago, on behalf of the Government of Canada, the Honourable Mélanie Joly, Minister of Canadian Heritage, appointed me as chair of the NCC board of directors. It's a great honour to be able to contribute to the development of the national capital region for the enjoyment of future generations.
I'd like to take this opportunity to say that, since becoming board chair, I have not ceased to be surprised at the wide array of assets and property under the NCC's stewardship, not to mention the scope of the corporation's responsibilities.
[English]
I grew up in the national capital region. I'm blessed to have lived and worked most of my life here and, until recently, I wasn't even aware of the scope and the vast responsibilities of the NCC. That would include 535 square kilometres of terrain, or more than 10% of the entire capital region, comprising 300 kilometres of multi-use pathways and 200 kilometres of scenic parkways; 145 bridges, including two interprovincial bridges; Gatineau Park and the Greenbelt; and 1,700 properties with 1,000 buildings, including the six official residences.
I was even more surprised to learn that all of this is supported by an annual capital appropriation of $22.4 million and by a permanent staff of 400. I was not surprised when the Auditor General's office raised its concerns over the issue of deferred maintenance. Indeed, in my interviews with the auditors, I mentioned my own concerns in this regard, and I commend the Auditor General for highlighting this challenge.
The special examination report states that “The Corporation assessed the condition of 27 percent of its assets as fair, poor, or critical, and identified a shortfall in resources needed to restore those assets”. The NCC's analysis shows that it might not be able to maintain and preserve all its assets at an acceptable level in the future. This echos the 2006 mandate review, which said that “Attempting to continue to do everything, even when funding has faded away, has verged on the heroic, but now borders on the irresponsible”.
That was 11 years ago. Since then, the NCC has played its part in government-wide efforts to curtail expenditures. So this government's investment of $55 million over the next two years as announced in the 2018 federal budget is not only very welcome, but also necessary. It will address in a tangible way the concerns raised in the Auditor General's special examination.
Our board of directors is committed to working efficiently and effectively with the staff of the modern NCC and its many partners and stakeholders, and with Canadians from coast to coast to create the capital promised in the NCC's mandate, which I referred to a few minutes ago.
[Translation]
The board of directors of the modern NCC is made up of women and men from diverse walks of life and every part of the country. In recent years, the board amended its governance rules so that the mayors of the cities of Ottawa and Gatineau could participate in board meetings on an ex officio non-voting basis.
This involvement, along with ad hoc contributions from other mayors in the region, has brought a whole new dimension to our work.
[English]
Our board of directors supports the Auditor General's recommendations and has approved management's action plan, including a focus on risk management.
I've been particularly impressed by the risk management assessment framework presented by staff for every decision brought to the board for approval or for a decision.
The board also recognizes that in almost every other category, the Auditor General found a well-run organization delivering real value on behalf of all Canadians.
[Translation]
I would again like to thank the committee for inviting us to discuss the special examination of the NCC conducted by the Auditor General, whose report was released in 2017. The committee's work will help fulfill Parliament's wish of making Canada's capital a place worthy of its national importance.
[English]
Mr. Chair, with permission, I would like to turn now to our CEO, Dr. Kristmanson, to address the report in greater detail.
:
Thank you very much, Mr. Chair.
[English]
Members of the committee, bonjour.
Thank you, Mr. Seaman, for your opening remarks, and to the Auditor General.
I thank the committee for this opportunity to discuss the Office of the Auditor General's special examination of the National Capital Commission.
[Translation]
I'd like to recognize the work of the Auditor General, Mr. Ferguson, as well as of Margaret Haire, Sophie Boudreau, and Étienne Matte, with whom we worked closely for several years in the lead-up to the report.
[English]
To begin my presentation today, I'll set out the five core priorities that the NCC's board of directors has established for the current planning period.
The first priority speaks directly to the Auditor General's report, and this is to address the condition of the NCC's infrastructure and assets, including the official residences of Canada. I'll return to that in a minute.
Our second objective is to foster the redevelopment of the LeBreton Flats.
[Translation]
Our third priority is to offer better public access and new connections for Canadians to discover the shorelines and waterways in the capital region.
Our fourth priority is to modernize the NCC's planning framework.
[English]
Finally, our fifth priority is to be a value-added partner here in the region, creating legacies that serve as sources of pride for all Canadians.
Running through all of these priorities is a meaningful commitment to corporate excellence as a federal crown corporation.
Returning to the first priority, which is addressing the condition of the NCC's infrastructure and assets, the NCC agrees with the conclusions of the Auditor General's special examination. The commission has been strengthening its asset management regime on an ongoing basis.
About three years ago I focused our efforts on cataloguing and understanding the nature and extent of deferred maintenance across the large and diverse portfolio that Mr. Seaman described in his remarks. In 2016 and 2017, the commission undertook significant efforts to gather information related to all the different aspects of life-cycle processes, inspection activities, capital investments, building condition reports, and so forth, in order to amalgamate them into an integrated framework.
I am very pleased to report that the NCC completed this review prior to the deadline set in our action plan of March 31, 2018. We now have a 10-year recapitalization plan to restore and maintain these assets to an appropriate condition. With the additional $55 million accorded by the government in budget 2018, we can now initiate this plan and address the highest priority demands. We feel this is a judicious investment at this time. It is proportional to our internal capacity to deliver on capital projects while allowing us to address the most immediate risks associated with the assets.
Looking ahead, we're working with government to define additional tranches of funding to deal with subsequent phases of these asset repairs until we can say that the entire portfolio is restored to good condition.
The second area of concern raised in the Auditor General's report is the NCC's risk management framework. Again, the commission agrees with the Auditor General's findings and welcomes the report's recommendations.
To that end, as recommended by the Auditor General, the NCC's senior management has approved a comprehensive enterprise risk management framework that sets risk tolerances, allows for the assessment of strategic and operational risks through a consistent and integrated process, and supports the provision of comprehensive risk information as part of the decision-making process, including regular reports to the board of directors.
[Translation]
This framework is based on an in-depth strategic risk evaluation conducted during the 2016-17 fiscal year. Further to this risk management strategy, the NCC developed an inventory of operational and corporate risks, which is updated regularly.
Risks are now incorporated into our quarterly reporting process and, of course, the board's decision-making.
[English]
We've also provided staff training to ensure the successful implementation of the updated framework throughout the organization, and we believe that the Auditor General will find, in his reviews going forward, consistency and discipline in this area.
In closing, I'll draw your attention to other findings taken from the rest of the report that I believe the committee will find encouraging. For example, the implementation of the NCC's new business systems, replacing the systems from the 1990s, was completed on budget and on scope, and through an intensive staff training process has now been fully integrated into our operations.
I would also mention that in the NCC's leasing portfolio, particularly in the residential and agricultural properties, the NCC has lowered its vacancy rates from 13% in 2012 to 3% in 2018.
We've seen substantial increases in awareness and appreciation of our public consultation process, which has been transformed in recent years.
I could mention other positive results reflected in the report, but we welcome the two recommendations, and I'll be very pleased to address these and any questions and comments the committee may have.
Finally, I express appreciation both for the NCC's internal audit function and the oversight of the Auditor General and his staff. These quarterly, annual, and 10-year exams give the NCC a deeper perspective on how it can raise its level of excellence as a federal crown corporation.
As such, Mr. Chair, I welcome this report.
Mr. Chair, many people would be surprised to know the large scope of operations the NCC manages. Many people in Ottawa are not aware of it, the 17,000 properties and 400 staff members. I know that the NCC has always had a challenge with respect to resources. As national capital region members of Parliament, several times we have submitted a presentation to the government about the requirements of the NCC. We are so glad that the government listened to us and has given $55 million to the NCC, which is much needed, I should say. The staff and the management of the NCC have always been good with us, the members of Parliament from the national capital region, in our frequent interactions with them.
However, let me go into the issues that still, in my view, should be addressed.
One is that the NCC manages very prime property and excellent assets like Gatineau Park, but also the greenbelt adjoining the suburban area, where the city is growing. Sometimes the NCC's one-size-fits-all rules and guidelines, in my view, act as a problem to many of us, say, in the Nepean riding. Whenever we have to deal with the NCC, this, I think, is an ongoing problem.
Mark, if you can recall, I think we first touched on this soon after our election, and I would like to know if anything has been done with this segregation of the types of properties you deal with and the guidelines applicable to them.
:
First of all, as I mentioned off the bat, and you've mentioned, it's an organization with a vast portfolio and scope. I've actually been very impressed with the organization and the transformation that's been under way.
We refer to the modern NCC because, as you mentioned, we want to make sure that, as we go through all levels of the organizational excellence mandate, we're looking at how the organization can be more collaborative and continue to be collaborative with its stakeholders and its municipalities—and it is very collaborative; we've now got the two mayors on the board—increasing its level of transparency, openness, and engagement with a lot of public consultations and engagement, creating a level of inspiration and pride, which we talked about, not just for the citizens of the national capital region on both sides of the river but also for all Canadians.
Lastly, it's really about delivering some of these results, as you refer to, so we always have an eye on what the end result is, so the deep consultative process is very important to have, but process is a means to an end, where the end is defined and we never lose sight of that. I think those are some of the practices we're bringing into play.
Mr. Ferguson, thank you for appearing before the committee yet again.
Thank you, as well, gentlemen. As witnesses, your contribution is important. It will help us better understand the issues raised in the Auditor General's report.
Mr. Ferguson, in paragraph 35 of your report—and this came up briefly earlier—you refer to a significant deficiency in the NCC's maintenance of its assets. In its response, the NCC said it lacked funding, having not received a funding increase since 2009-10. I'd like to hear your perspective on that.
Is it strictly a matter of money, as the NCC claims?
Does it have to do with planning, or does it come down to priority-setting around asset maintenance?
I'd like to know your take on that before we hear from the NCC officials.
I just want to start by acknowledging what Mr. Kristmanson said earlier, which is that these properties, whether they are Rideau Hall or 7 Rideau Gate, are a great source of pride for Canadians. Therefore, it's so important that we see them well-maintained, and for those that are public buildings, parks, and other assets that can be enjoyed and used by the general public, we see them as being accessible.
I want to continue some of the questioning by my colleagues today. We know that when it comes to assets, the longer you wait to repair them, the more expensive it can get. There's a snowball effect, just like with your own house. If you have a roof that is 15 or 20 years old, you want to replace it before there's a leak and it causes further damage.
The Auditor General's report noted that some of those properties among the 27% of assets that are in poor, fair, or critical condition do generate revenue. In effect, then, when we are not proactive in maintaining these properties, not only are we losing revenue, but we are inevitably spending more money to do the repairs that are ultimately required.
I have a couple of questions related to this. Are any properties in such a bad state of disrepair that they are now prohibitively costly to repair?
:
Again, I think you can start by coming at the problem from the two extremes. Are there too many assets? If there can't be any more funding, then does that mean there are too many assets?
If there are not too many assets, and that's the stock of assets you want to have in the National Capital Commission, and they need to be properly maintained, then you have to make sure there's a proper funding. There can be anything in the middle, trying to balance those two things off.
Certainly, just going to what the assets are and what it's going to cost to maintain them, and saying, “Here's the amount of money that's needed” is the very simple calculation in the first instance.
I think, though, there also needs to be that very deep consideration of what it is we want the commission to do and what assets we want them to maintain. Once that is done, then really, the maintenance number needs to be a long-term plan of what's needed to manage the life cycle of all of those assets.
Once the assets that need to be maintained are decided upon and there's a plan for life-cycle management, it's becomes a fairly simple exercise, and the cost number really just falls out of that.
:
We are working with the funding received in the federal budget 2018 based on the security and safety risk associated with assets. Some of the top priorities that we're dealing with are the Hog's Back bridge, which has had to close a number of times. It's an ancient bridge, and we will be doing important remediation work to it.
We're also working on the shoreline pathways that were damaged heavily in last year's flooding. That's another top priority for us.
The urban forest is taking an enormous hit from the emerald ash borer, an invasive species. We have now removed 20,000 ash trees. There are 20,000 more trees to go. It represents a risk to the public. Then there is all the replanting of that urban forest. That's a high priority within our program as well.
There are assets too many to mention, but many of them are infrastructure kinds of assets: overpasses, small footbridges, pathways, embankments, retaining walls. It's a broad portfolio.
As I say, it's assessed by the safety and security first, and then we move up the chain.
Mr. Kristmanson, I still want to cover the issue that to mitigate the risk of insufficient financial resources, there was a delay in maintaining some assets. You knew you had a constrained budget, you knew this was going to affect how you could maintain these assets, and I think you also knew the risks associated with that, namely, that the longer you left them the more they would cost you in the long run.
We have a responsibility in this committee to make sure that the nation's finances are being spent well, and also that we have an adequate number to do the job we're doing. I'm concerned that with the knowledge the NCC had, it still did not make it into the minister's hands.
What were the discussions around that? Given all of that knowledge, why did you feel that the information still didn't warrant making it into that report? Were the risks ever clearly explained, going up the chain?