Public Accounts — Issue No. 22 — Monday, June 11, 2012 (HTML)

Present: Bruce Ralston, MLA (Chair); Douglas Horne, MLA (Deputy Chair); Kathy Corrigan, MLA; Eric Foster, MLA; Guy Gentner, MLA; Randy Hawes, MLA; Kash Heed, MLA; Vicki Huntington, MLA; John Les, MLA; Joan McIntyre, MLA; Lana Popham, MLA; John Rustad, MLA; Shane Simpson, MLA; Ralph Sultan, MLA

2. The following witnesses appeared before the Committee and answered questions relating to the Office of the Auditor General’s Report: An Audit of the Ministry of Forests, Lands and Natural Resource Operations’ Management of Timber (February 2012)

• Ian Miller, Manager, Sustainable Forest Management Section, Resource Practices Branch

4. The following witnesses appeared before the Committee and answered questions relating to the Office of the Auditor General’s Report: The Status of Enterprise Risk Management in the Government Ministries of British Columbia (June 2011)

6. The following witnesses appeared before the Committee and answered questions relating to the Office of the Auditor General’s Report: Crown Agency Board Governance (May 2012)

• Doug Caul, Assistant Deputy Minister, Ministry of Transportation and Infrastructure

• Michael Kohl, Vice-President of Finance and Chief Financial Officer, BC Transit

• Ian Rongve, Assistant Deputy Minister, Sector Strategy and Quality Assurance , Ministry of Advanced Education

• Elaine McKnight, Associate Deputy Minister, Chief Administrative Officer, Ministry of Health

The following electronic version is for informational purposes only.
The printed version remains the official version.

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE ON
PUBLIC ACCOUNTS


CONTENTS
Page
Auditor General Report: An Audit of the Ministry of Forests, Lands and Natural Resource Operations' Management of Timber	579
J. Doyle
M. Sydor
D. Konkin
I. Miller
A. Nussbaum
Auditor General Report: The Status of Enterprise Risk Management in the Government Ministries of British Columbia	596
J. Doyle
M. Gaston
P. Grewar
Auditor General Report: Crown Agency Board Governance	606
J. Doyle
M. Gaston
D. Caul
I. Rongve
E. McKnight
M. Achadinha

B. Ralston (Chair): Welcome. We're about to begin a busy day. The first item on the agenda is the report of the Auditor General, An Audit of the Ministry of Forests, Lands and Natural Resource Operations' Management of Timber. I see Mr. Doyle is here, and with him is Morris Sydor, assistant Auditor General.

We have some witnesses from the Ministry of Forests, if they could come forward. I believe they're in the second row there — the time has come: Doug Konkin, deputy minister; Albert Nussbaum, director of forest analysis and inventory branch; and Ian Miller, manager of sustainable forest management section, resources practices branch.

Before I ask Mr. Doyle to open, I just wanted to note that it's our Deputy Clerk and Clerk of Committees' birthday today, so we wish her well on this important and auspicious day.

B. Ralston (Chair): I think we'll save that for later. Given the vocal talent range of the committee, I'm not sure that that would be appropriate.

Auditor General Report:
An Audit of the Ministry of
Forests, Lands and Natural Resource
Operations' Management of Timber

J. Doyle: Thank you, Chair, and good morning, Members. Nearly two-thirds of British Columbia's 95 million hectares is forested. These forests contribute to employment, tourism and recreation and generate significant revenue for government to finance public services. Approximately 22 million hectares of forested land in the province is available for timber production and harvesting. When industry harvests from this land, it is legally required to, and does, reforest it.

Government has no legal obligation to reforest, but with 90 percent of B.C.'s forests under government responsibility, their reforestation decisions have a significant impact on the future of our forests. Whilst not legally obligated to reforest damaged areas, this should not prevent government from acting in the public interest by actively managing these areas.

In the light of the devastation resulting from the mountain pine beetle, the ministry has a window of opportunity to shape our future forests and mitigate the impact with a timely, strategic reforestation plan and cost-effective silviculture. To do this, government needs to establish a provincial plan that states its long-term timber objectives and to focus its resources in order to foster economic stability and quality of life for British Columbians, both now and in the future.

I thank the ministry for their assistance and cooperation during this audit. I'll look forward to receiving updates on their implementation of the recommendations made in this report through our normal follow-up process.

With me today is the engagement leader of this project, Assistant Auditor General Morris Sydor. I will now turn it over to Morris for a brief presentation of the report.

Good morning, Chair and committee members. Today I'll provide a brief overview of our audit of the ministry's management of timber.

Of British Columbia's 95 million hectares, 55 million is forested, and approximately 22 million hectares of this forested area is available for timber production and harvesting. Industry is legally obligated to reforest the areas it harvests with healthy, commercially valuable trees that meet certain height, density and species requirements. When a harvested area meets these requirements, it is declared free-growing and industry's obligations are complete. At this time the stewardship responsibilities return to the government.

We carried out this audit to determine whether the ministry is achieving its objectives for timber. We asked three questions. Has the ministry clearly defined its timber objectives? Does the ministry have the management practices it needs to achieve those objectives? Does the ministry monitor and report its results against the timber objectives?

We concluded that the ministry has not clearly defined its timber objectives. Without clearly defining its objectives, the ministry cannot ensure that its management practices are effective. Existing management practices are insufficient to offset a trend towards future forests having a lower timber supply and less species diversity in some areas. And the ministry does not appropriately monitor and report its timber results against its timber objectives.

We found out that the ministry has not developed strategic timber objectives that guide decision-making and
[ Page 580 ]
demonstrate the outcomes it is pursuing. Two areas in particular need to be more clearly defined: whether the desired timber outcome seeks to achieve a targeted volume, value or species diversity, or some combination of each; and how current economic interests are balanced with providing environmental, economic and social opportunities for present and future generations.

Our recommendation here is that the ministry develop a plan for directing forest stewardship that clearly establishes defined timber objectives and stewardship principles to guide decision-making, actions, time frames and assessment of results.

The ministry has estimated that as much as 1.1 million hectares of forest within its area of responsibility has potential for replanting. This represents about 5 percent of the harvestable forest. We found a significant gap between the total area replanted by the ministry and the total area suitable for replanting. Actual replanting levels were not meeting planned levels.

Our recommendation is that the ministry ensure that its investments in silviculture are sufficient to achieve long-term timber objectives and that they align with stewardship principles and are cost-effective.

Since 1987 industry has been responsible for reforesting the area it harvests and, since 2004, to do so within a 20-year time frame. Currently about 2.3 million hectares are under ministry obligation, approximately 11 percent of the timber-harvesting land base. Ministry assessments conclude that forest companies achieve their reforest obligations.

Industry is motivated to achieve the restocking obligations as soon as possible to reduce their financial liability and risks. We found ministry evaluations raising concerns about a trend towards less species diversity in some areas, harvesting of high-value species and then reforesting with lower-value species, and the suitability of the stocking standards in light of the impacts of climate change. We recommended that the ministry ensure that restocking activities result in the establishment of forests that are consistent with its long-term timber objectives.

We found weaknesses in the information available to support management decisions, including limited information on areas affected by pests, diseases, wildfires and other natural disturbances. As well, many entries made by industry on their harvesting and replanting required modification because mapping or silviculture data was missing or did not meet data-quality specifications.

The ministry relies heavily on the accuracy of its growth and yield projections to predict timber productivity. Current ministry research raises questions about the accuracy of the growth in yield projections.

We recommended that the ministry ensure that its information systems reflect actual forest conditions in priority management areas.

To fulfil its stewardship role, the ministry uses this oversight framework. We noted concerns with some individual components of this framework. Forest stewardship plans establish industry stewardship responsibilities. Generally, these plans stated vague and non-measurable commitments and proposed few innovations.

Compliance and enforcement reports showed a steady decline in forest practice inspections. However, this reduction did not appear to be related to a greater degree of compliance by industry, nor was it reflective of the ministry's expectation that compliance and enforcement work would be more complex under the Forest and Range Practices Act.

Ministry effectiveness evaluations have identified a number of issues which call into question the assumption that once trees reach free-growing, they will continue to grow as expected with minimal additional silviculture.

Overall, we found no assessment of the risks posed to the success of this framework or whether changes are needed. We recommended that the ministry ensure that the collective and individual components of its oversight framework are sufficient to ensure the achievement of long-term timber objectives.

We also found a lack of strong performance reporting. The performance measures do not provide the information needed to demonstrate progress over time against the intended result. They focus primarily on activities and outputs. They do not distinguish between industry or government stewardship, making it difficult to assess individual performance of industry in the ministry.

Our recommendation is that the ministry develop and implement appropriate performance measures to demonstrate progress towards achieving long-term timber objectives and report publicly on the results.

We will do a follow-up report on the status of the recommendations in April, 2013. That summarizes my presentation, Chair.

B. Ralston (Chair): Thank you very much. We'll now move to a response from the ministry. Mr. Konkin, are you going to lead on this, then?

D. Konkin: With me is Ian Miller, the manager of sustainable resource management in the resource practices branch, and Albert Nussbaum, director of forest analysis and inventory branch.

I will move quickly through this and summarize our responses and then leave the floor open for questions. The first recommendation is there. Flip to the next slide, and you will see our summary there.

Basically, government has established timber objectives in the Forest and Range Practices Act and in the Ministry of Forests and Range Act that guide the estab-
[ Page 581 ]
lishment of more detailed objectives by the ministry contained in documents such as the ministry's service plan and provincial and management unit–level silviculture strategies. Given the public land model in B.C., timber objectives must be integrated with the objectives for a multitude of forest values.

This lends itself to a framework of objectives, principles and strategies of increasing specificity of detail from the provincial level to the management unit level, and that is what is in place in B.C.

The ministry is constantly evolving this net framework. For example, at the provincial level we have a new resource stewardship vision and framework, an action plan for climate change adaptation, an ongoing land-based investment strategy, a statement of social and economic objectives for the Crown for use by the chief forester in AAC determinations, and an incremental silviculture strategy for B.C.

At the local level we have land and resource management plans and other types of higher-level plans. We have stocking standards for forest stewardship plans and woodlot plans, and we have recently initiated type 4 silviculture strategies that will provide greater focus to objectives like timber quality, species diversity and landscape-level retention in the context of resource management objectives for wildlife, water, visual quality and the like.

Our response to recommendation No. 2, which focused on the ministry ensuring its investments in silviculture, are sufficient to achieve long-term timber objectives. A key point here is that we believe caution must be used to compare legal, basic silviculture obligations following harvesting, which belong to industry, to discretionary investments in areas impacted by natural disturbances — i.e., government responsibility.

It is our view that there must be a strategic analysis of opportunities and that this discretionary spending must be judged against larger social and economic issues. Within the government we certainly do an analysis of opportunities, implications, costs and benefits in order to develop investment scenarios and guide the money which is provided to the ministry.

As we are nearing the end of the economic life of mountain pine beetle–damaged stands, the ministry is currently updating its Forests for Tomorrow strategic plan with more recent and accurate information regarding the extent of pine impact, the amount of timber harvesting that has occurred, the amount of natural regeneration that is present, and so on.

Investment options and scenarios are being developed for government consideration. Obviously, there is a close linkage to the recently formed select committee, which is looking at the mid-term timber supply in the province.

The next slide outlines audit recommendation No. 3: that the ministry ensure that its restocking activities are consistent with the long-term timber objectives. Stocking and seed use standards and guidance are based on the ministry's biogeoclimatic classification system, which is intended to ensure that forests are restocked with ecologically suitable species. The Forest and Range Practices Act requires that areas are restocked with free-growing stands that are healthy, ecologically suitable and commercially valuable.

As part of the ministry's climate adaptation plan, existing standards and guidance are being reviewed, and we anticipate making adjustments in the near future. These will reflect the science-based information that we have been gathering in terms of climate change and other impacts.

Audit recommendation No. 4 deals with the information systems. The ministry aims for a level of accuracy and detail for its inventory that is effective both in terms of forests planning and its costs. The date of an inventory does not necessarily represent its usefulness. For example, between re-inventories the attribute data used to support decisions are updated using growth-in-yield models, permanent sample plot–checking and a results database. Annual forest health surveys occur each year, and there are other sources to estimate growing stock and conditions.

The ministry is now completing an inventory strategy for B.C. that will establish how the various risks, objectives and technology opportunities are accounted for in the ministry's inventory program. The reason we have waited till this time is because the mountain pine beetle has largely run its course, and we believe now is the time to look carefully and put more investment in.

The next slide outlines audit recommendation No. 5. The ministry ensures that its oversight framework is sufficient to achieve timber objectives. All of the components outlined on this slide are important individually and in combination. The oversight framework relies on a multifaceted and multiparty approach to evaluating the effectiveness of our legislative regime.

We have both long-term focus from FREP in terms of reviewing and examining the effectiveness of our programs, and we have compliance and enforcement.

I would note that the compliance and enforcement numbers that have dropped are accurate, but they reflect a long-term history, where the ministry has found a 94- to 95-percent compliance level in the forestry field and the fact that we now have a broader mandate, where we take on inspections across the natural resource regime.

The next slide outlines the recommendation in regard to developing and implementing appropriate performance measures. And our response. The provincial long-term timber harvest level can be readily rolled up and reported from the timber supply review. It can represent both an objective and an outcome, since it is determined from management-unit, allowable annual cut determin-
[ Page 582 ]
ations that take into account objectives for timber and non-timber values.

Our summary is presented there. Basically, the summary can be read there. We believe timber is part of a much larger management regime that we are obliged to undertake as per the act, and timber-in-isolation objectives are appropriate but must be revisited frequently due to social, economic and environmental changes.

While we believe the audit report did not fully capture the complexity of the public forest and range lands model, we fully acknowledge that there are many improvements that we can make, that there are a number of changes going on and that we will work to implement the Auditor General's recommendation. The ministry appreciates the efforts of the Auditor General and will, over the next few months, do best efforts to try and incorporate the recommendations.

Mr. Nussbaum and Mr. Miller are here to respond to questions. They don't have an independent presentation, Mr. Konkin? That's it?

B. Ralston (Chair): I'll turn to questions now. I don't have a list yet. Anyone else want to be on the list?

Okay, we've got a list to start, then. Government members seem to be a bit shy this morning, so we'll wait.

You know, this is a major…. I'm quite surprised and dismayed and disappointed with the response by the ministry relative to the allegations and the audit that was done by the Auditor General.

Maybe I'm just plain simple. I understand all that, I guess, but let's just go through recommendation 1 — the response from the government.

I don't know if it's doublespeak or what English it is, but let me read it out to you: "The ministry has an established framework of objectives, principles and strategies of increasing specificity of detail from the provincial level to the management unit level that integrates timber objectives with objectives for other forest values."

Can you tell me what that means? Maybe the Auditor General can dive into this. I mean, what is this? What are you saying here? Explain it to me, a layperson who doesn't know. Can we try again?

G. Gentner: The ministry. Well, I'm quoting your display here. I'm just wondering what this all means.

D. Konkin: What it means is…. As outlined in my verbal presentation, we do have a series of things, starting at a very high level, which outline provincial-level objectives. An example of that would be the resource stewardship vision and framework or the action plan for climate change adaptation or the land-based investment strategy.

Those things basically have to be fairly high level because of the differences in this province. We are one of the most diverse provinces in terms of biogeoclimatic conditions in the country, if not in North America. Therefore, we start off with the higher-level objectives and work down into more local objectives.

Quite often those are intertwined with very specific land use planning processes that have occurred and need to reflect the land use objectives that are outlined there. So a silviculture strategy would be enabled at a high level, but the actual strategy that will be pursued would depend on what the issues and importance are within any particular region or timber supply area. That would be an example of what I mean by a spectrum.

G. Gentner: Just a quick response. Well, it's the recommendation. The Auditor General is asking you to develop a plan to establish timber objectives. You're telling me it's based on a higher-based objective versus a lower-based objective.

I still don't understand whether or not you get the Auditor General's position relative to your response. I'm sorry. I just don't understand. I mean, do you have a plan, based on these objectives, or not — whatever they are, lower or higher?

D. Konkin: What we are basically responding with is saying that there is absolutely a danger in developing, at a provincial level, any specific objective and any particular value — that those must be melded together at a land base, working with communities, working with First Nations and having a discussion about the social, economic, environmental objectives at a local bid basis. We think it is dangerous to focus on any one particular value and set an objective.

Beyond that, I would go to say that if you did set a specific objective in one of those, you'd be revisiting it very frequently because of the frequency of the changes that are going on.

We are right now in the process of, for example, taking all our climate adaptation work, which is very significant…. In the next week we'll be holding a large seminar on that — working with stakeholders, working with environmental groups, working with industry — talking about how we take that science-based information and convert it into provincial-level strategies and, once we have those provincial-level strategies, taking those and, again, holding local conversations and converting them into objectives at a local basis.
[ Page 583 ]

G. Gentner: I did ask the question to the Auditor General. I mean, maybe the Auditor General could help me understand what the ministry is trying to say. I think it was quite clear what the Auditor General was suggesting. If I have it correct from the ministry, this is a very complex situation relative to higher and lower objectives. Does the ministry's response satisfy the Auditor General's position on recommendation 1?

J. Doyle: What I read in this is that the ministry has attempted to be nimble in looking at the whole complex array of things that impacts the forests. My objective in conducting this audit was: is there a plan that's available right now which says what the objectives are for the forests? We haven't found that plan. What we have found is a lot of work but no overarching plan that we could look at and say: "Well, this is the plan. Therefore, now we know what the objective is going forward."

The fact that that plan may need to be amended and changed on a regular basis is reasonable, but that wasn't the response that we got.

K. Corrigan: I'm particularly concerned about the issue of replanting. I note on page 17 of the report that the Auditor General points out that: "If there is a significant delay in replanting after the initial ground survey, the cost of replanting may rise because additional site preparation is needed, or it may no longer be cost-effective to replant at all. This opportunity exists for about 20 years before the area is no longer cost-effective to replant."

Then the recommendation is that the investments in silviculture be "sufficient to achieve long-term timber objectives, and that they align with stewardship principles and are cost-effective." The plan says 22,000 hectares a year, and there has been an average of only 8,700 or so hectares a year over the past five years.

To the ministry: I'm wondering if it can be explained how it is that the amount of investment in silviculture, as represented by replanting, is so much lower than even the plan says and whether or not the ministry thinks this is appropriate.

I. Miller: A simple matter of economics. We know where the land is. We have done the analysis of where best return on investment is. It's not a matter of not knowing where the ground is or having a plan in place to be able to go and reforest. We work with the budget we're allocated. We prioritize as best we can, and this is what we accomplish.

To your question, "Is it sufficient?" I would suggest, in my personal opinion — I'm not sure if I'm speaking for the ministry; if my deputy has a different view on the matter, he may chime in — certainly not.

K. Corrigan: Just a follow-up to that, then. If it is not, then is this a function of priorities within the use of the land or priorities in terms of funding? What about the fact, as well, or the comment that is in the report, that after a certain amount of time you lose the ability to replant cost-effectively?

I. Miller: I'll tackle the last one first. Of course, 20 years…. In British Columbia you can't stop trees from growing; you can't stop vegetation from growing. After a period of time the cost-effectiveness is around finding plantable spots, finding an opportunity — whether it's brush competition or within the existing trees that have grown naturally — our ability to get in there and replant. Of course, there may be issues with physical access to the site that may also play in, in that 20-year time period. Not every site is always going to be accessible. That would be the first part.

On the other, around the efficiencies in return, I think — if I understand the question correctly — it's a matter of prioritizing with the budget that our ministry is allocated and where we put that. Obviously, reforestation is a big priority for us, and we do plant. The highest priority is the areas we're going to get the best return on for the money that we do invest.

K. Corrigan: Yeah. One more follow-up. If the investment were higher, if the funds were increased, then there would be increased planting. Is that safe to say?

D. Konkin: If I may. I do want to qualify that answer in the sense that there is work underway in the larger government in terms of the mid-term timber supply, for example. That work may result in recommendations that could result in a higher prioritization on fertilization, for example, or on forest health work. I mean, there are many things that have to be balanced both within the natural resource side and, of course, in the larger government — in terms of education, health and other factors.

What Ian is saying is that we certainly, once we are given a budget, have a process of evaluating the different priorities, and those priorities vary by timber supply area in terms of what they might be. Our budget covers things like dealing with invasive plants, dealing with fish passage and many other things. It is quite dynamic. Each year we review that budget, look at what the priorities are by location and allocate our money accordingly.
[ Page 584 ]

S. Simpson: I guess my question is to the Auditor General. When I look at the forest sector and the debate that's been going on in the province for a period of time…. As we know, the sector is going through change. We know we're going to have an industry that doesn't look like the industry used to look back a decade or so ago, back when it really was driving our economy in British Columbia. It is going to be — I think everybody's hopeful — a vibrant industry but an industry that's going to look somewhat different than it has looked in the past.

Clearly, the issues of timber supply and forest health are going to be fundamental questions to that. We know we've had the debates about issues like how we deal with reforestation around beetle wood, debates around what level of raw log shipments is good or bad and how the government deals with that — all matters that indirectly relate in some ways to this.

When I read the report, I see the Auditor General saying that the objectives for the ministry aren't clear on the timber issue, that management practices aren't meeting the standards that the Auditor General believes are necessary and that the monitoring still needs more work.

My question, I guess, to the Auditor General is: based on those assessments, based on how complex it is as to where we're going, does the Auditor General have comfort that, with the response of the ministry, we are heading to a place where we're going to have the fundamentals in place to deal with those questions of how we revitalize this industry, starting with producing sufficient and ongoing timber supply? Or are the problems that have to be dealt with more fundamental, based on the work that you've done?

J. Doyle: It seems to me that the forests are a natural resource for this province that needs to be nurtured as we go forward. We're pointing out a couple of key themes in the report. The first is that there's a likelihood that there's going to be a less valuable forest in the future than there was in the past. In some respects, that's a natural part of cutting a tree down and waiting for a long time for a new one to be grown, but part of it also is the action of man — or, in this case, government — to actually ensure that the forest health is maintained in all aspects of what forest health means.

What we've detected — and we get a lot of this information not just from observation, but also from internal documentation — is that there are concerns in regard to species diversity in some areas. There are concerns about the volume of silviculture. But we do accept that the return on an investment-type process does utilize the funds that are made available in an appropriate way. As a consequence, we're just looking forward — maybe 20, 30, 40 years — to say that sometime in the future the value, the inherent value of the forest itself is going to be a lot less than it is at the moment.

Now, to make that change when you have natural disasters like the pine beetle — I think you've heard the ministry say they're going to be working on what their response is to that — and also other natural disasters, like fire or invasive weeds and pests and so on, means it's a complicated process to maintain forest health. But all "complicated process" means is that you need to put the appropriate resources to it and make sure that, in fact, over time there is improvement and there are targets that your activity can be measured against. We found difficulty finding those targets, and we found difficulty in the reporting processes of those targets.

Those were our simple recommendations. If you look at every one of those recommendations, you can't really say, "No, I disagree with it," because it's a normal part of good management. What you can say is, "Ah, but this is what we're doing about it," which is what the ministry is actually saying at the moment.

I was particularly pleased to see that they're going to meet with my staff on a regular basis as we go through the follow-up process for this particular audit. I may be in a better place to answer your question in a year's time when we've gone through some of that extended engagement to see what issues have changed and how the recommendations are being addressed as we go forward.

S. Simpson: I think I'm going to paraphrase Mr. Konkin here, and I'd certainly ask him to correct me if I'm not being fair with this.

The question is to the Auditor General, although I certainly would like the ministry to make sure that I'm accurate in interpreting what I think I heard them say, which is largely in response to this.

While there's been some acknowledgement, certainly, of some of these issues that have been identified in the three core recommendations or observations of the Auditor General, the ministry is saying that the complexity in putting this kind of plan together at a high level, a provincial level…. There are challenges with doing that because so much of it comes down to local communities and, I assume, to First Nations, to social and environmental issues. The complexities at that level, which differ somewhat from where the Auditor General is at in your report…. That creates another level of challenge to meet the objectives that you've laid out here.

It's a bit, I think, of a question to say that this has to be done in a different way. That's part of the reason why the ministry is heading in a slightly different direction, I think, than what has been laid out in these recommendations.

My question to the Auditor General is: do you accept the view that the fundamentals — what I saw as fundamentals around objectives, management practice and monitoring…? Do your recommendations need to be at all amended or rethought, respecting the fact that the
[ Page 585 ]
ministry has talked about the complexity of having all of these different layers that have to be dealt with in order to put a plan in place long-term?

J. Doyle: No. It's my view that it doesn't matter how complex something is. If government needs to deal with it, it needs to overcome those complexities.

But I do believe that when you're looking at something which is not short-term, and this is not short-term, you need to look at results over longer periods of time and have a different view as to where things may be going or where they may eventually land.

That being the case, I would have expected to see detailed outcomes — if it's broken down into local areas, that's fine, but it's adhering to principles that are being established through the legislation at the ministry level — and then actions that are being taken at the local level that would actually satisfy the outcomes that are desired or the plan that is being put forward, and that that plan will actually result in the kinds of changes which will result in a forest that is able to provide value to citizens going forward for the next 50 years or so.

Now, it seems to me that to argue that something is complex doesn't work. Everything is complex. The issue is: how do you ensure that the right term of view — whether it be ten years or 20 years or 30 years — is actually adopted and that we don't look at things with the wrong view?

When we started this audit we had three clear objectives, criteria. They're on page 7. We asked: "Has the ministry clearly defined its forest objectives for timber?" It's a simple question. It doesn't matter how complicated things are. It's a simple question, and the answer was no.

"Does the ministry have the management practices it needs to achieve its objectives for timber?" Well, my guess is it that it does. There's room for changes in different areas, and those have been canvassed in the report and have also been mentioned by the ministry, so there are opportunities to go there. But you've sort of, in the questioning, picked on an issue around how much investment can take place, and that's a restriction on the resources available.

The third criteria was: "Does the ministry appropriately monitor and report its timber results against its objectives…?" Well, that's a bit hard if we couldn't find the objectives in the first place. But assuming that there are some objectives there, is it faithfully reporting against those — which, in case you didn't know, is part of my mandate under section 11 of the act? We found that that was limited as well. So an inappropriate picture was being painted in the public documentations that were available in regard to progress against those objectives.

All of those means there's a wake-up call for the province in regard to the forest industry as it goes forward — the health of the forest and also its capacity to deliver value to citizens over the next few generations.

The ministry is quite capable of working that out and has determined that it wishes to take certain action to make that happen. I suppose my responsibility is to see how that action would actually play out in regard to the context of this particular report. I see that happening through these regular meetings that we have, not just for the next short period of time but also a continuous engagement with this particular ministry over a much longer period of time as well.

B. Ralston (Chair): Mr. Konkin, did you have anything you wanted to add to that?

I guess I would highlight areas of agreement. We absolutely do believe objectives and targets are important. I would also agree with the Auditor General that we do need to work through the complexities. I think the area where we require more discussion is around the singular kind of focus on timber in this audit and the need to combine that.

When you look forward into the future, we believe there will be more and more significant, unexpected disruptions. You look at the economy today and the diversity of the markets — what's happening in the marketplaces. You look at climate change. You look at mountain pine beetle, as an example of that. We think the primary focus has to be about building resilience into our forests and our forest management regime. With that resilience, of course, timber would be a component of it, a necessary component.

So what I look forward to is discussions with the Auditor General's staff around: how do we develop targets within that very dynamic framework? I would absolutely argue that trying to specify a long-term timber supply target and have people believe that you can with certainty deliver a 20- or 50-year long-term timber supply target is highly dangerous. There are far too many things going on right now in the system to allow that.

That in no way excuses working through it, dealing with the complexity, having fluidity and having targets, and there we do look forward to having discussions with them and sorting our way through that.

V. Huntington: I guess just a quick response to Mr. Konkin's comments. I guess I don't see where needing the resiliency to respond to issues, problems that we all know are coming and facing this department especially…. I don't see where being able to respond and have the resiliency you need as negating a need to establish an objective in the first place.

You should be able, I guess, if you go to another report…. The risk management areas of your ministry, I'm
[ Page 586 ]
assuming, would be balancing those potential disasters against your objectives and having a system in place that you have determined might be able to manage to the best extent we could those impacts that, in many respects, we can already foresee.

I'm assuming the department must be doing modelling on those issues. If not, I would assume that you're looking at doing modelling on those issues. But I don't see why they can't be managed against a set of objectives, which I think would probably provide a better understanding of what is happening overall.

Aside from that, it's difficult not to want to go down into the specifics. I guess I'd like to say that like everybody in this room, I grew up knowing that our number one resource was forestry; that from the 1950s, even the '40s, we had a forestry school in this province that was considered the best in the world; that we had a reputation for a government management system within our forestry that was modelled in other areas of the world.

I guess it's not difficult for me to say that I think we've seen a chaos…. I mean that respectfully, because I believe that a number of different government policies — certainly budget issues, certainly issues like the pine beetle — have impacted your departmental objectives. But I'd like to know why this department seems to have lost control of our forests and our forest industries. I mean that with a great deal of respect because I know the management personnel and the on-ground personnel are so highly trained and so committed.

But there's a problem out there, and I'd like your comments on what you think that problem is, where it came from and how you're moving to rectify it.

D. Konkin: Well, I don't necessarily agree that there's been a loss of control. In terms of your larger comments, this last week there were two groups from around the world here in B.C. to learn from what we do — a group of 35 that came from across the world that I went to speak to in Whistler, and another group of approximately 60 of India's top foresters. They send four classes a year to B.C. to speak to us and learn from us. They don't go to other jurisdictions. They come here to learn from us.

I don't believe we have lost our way. What those people are coming for, primarily, is to talk about leadership and dealing with uncertainty in terms of natural resource management. They're here to talk about the climate change work and all the modelling that we do around the various scenarios that can develop from that, about how we've handled the mountain pine beetle and a number of different things. I think there is certainly some evidence that the world still views us as a leader.

Things are absolutely changing, and they are more chaotic than they ever used to be. I can say that, having worked for 30 years in this industry. Again, that is largely driven by things that are outside of our direct control, and market changes. What Russia does in terms of adding a toll on its logs has an impact and ripples around to our markets in Asia. What happens in the U.S. housing starts makes a change.

It makes things very difficult to predict. An example would be mountain pine beetle. How much of that area do we have to reforest? To this day there isn't a person in this province who can tell you, because lumber prices have just driven up over $350. At $350 you can log more area, and more area will be reforested.

Those kinds of things are happening all the time, and we have to adapt and manage around them. We monitor them all the time. We try and keep government informed of that, and we take action accordingly. Of course, we have to work with the resources we're given.

V. Huntington: Thank you, but we aren't reforesting. So with that $300 lumber, you can log more area and, you say, therefore we'll have more replanting. But we aren't replanting. We aren't keeping up with the logging, and surely that has to be part of your modelling structure, your strategic goals.

If you're going to overlog and lag way behind in your replanting, whether…. The industry doesn't seem to be lagging behind. They're doing that in other ways. But I just see contradictions, I suppose, in some of the things you're saying.

For instance, from '87, when you turned over much of the obligation to reforest or replant to industry, and your reports have been coming back, when you are able to monitor, that the language on these plans is vague, that single species are being planted where high-value species used to be, and yet you also have an objective of ensuring that what are ecologically suitable species be replanted…. How can you have that objective and at the same time say: "But we're seeing single species. We want forest health, but we're seeing single species"?

Why isn't there, for instance, the objective that an industry replant with the percentages that they have removed; that if you really want forest health, you copy how the forest maintains its health? Do you see these forest stewardship plans as being a problem in your long-term objectives for forest health?

D. Konkin: Okay, there are many things there. Probably the first thing and most urgent thing that I need to correct is that in terms of the harvesting, the harvesting is absolutely staying current with its reforestation obligations. It is not a matter of somebody harvesting and not reforesting. I think contained in the report is the number, which I believe is around 98 percent current with the harvesting.

D. Konkin: Okay. So then when it comes to the government obligation, that's in response to wildfires and forest health. At this point there is a large debate about what area will be left and needs to be reforested. We are in the process right now of updating our plans around that because we are seeing that economic window starting to close, where it is less clear that areas will be harvested. So we are engaging with more money this year to get out, do more sampling and understand what is out there.

As Ian identified, most, if not all, of these areas will come back naturally. And a significant number of them, over 30 percent — we know this from our research we've done to date — already have trees coming back, understorey trees that are being released.

Then again, it is a societal, social, economic question around: do we want to ignore those trees, because they might not necessarily be the ones that we think are the most economic, or plant something else? Again, those are discussions that need to be held.

At some point, if I have to look ahead, yes, we will identify probably hundreds of thousands of hectares that could be reforested. Or we can allow them to come back naturally. We will provide a priority list and identify that to government, and government will have the difficult decision of deciding if that is a priority versus the many other priorities in government. That will be a tough decision beyond me.

We will of course take that information and use it in terms of carrying forward our activities. But at this point I would say we're not quite there that we know that. Again, the economic change has made it possible for more of those stands to be reforested, and we've held off because we know that if we mow those down or reforest them, we could be costing jobs and lost economic opportunities. I hope that's answered it to some degree.

B. Ralston (Chair): Just before you begin, Mr. Doyle wanted to respond, I think.

J. Doyle: I just would like to draw all members' attention to pages 18 and 19 in the report, which deals with industry stewardship and also diversity in replanted areas. I think this is at the heart of the question. You see at the bottom of page 18, indeed, that industry has replanted 98 percent of the area that has been harvested over that period of time.

Then I want you to go just above that particular table and read what we found. I'll just bring it to your attention.

"We found ministry evaluations raising concerns about harvesting of high-value species and then reforesting with lower-value species, a growing increase in reforested areas being dominated by a single tree species and the suitability of the stocking standards in light of climate change."

"There are a number of reasons why a change in tree species diversity is occurring. These include: reforestation is a cost to forest companies…."

So quite understandably, they're doing what they're being required to do, and that's fine. Maybe the rules need changing.

"Short-term reforestation decisions made by industry to get…harvested areas to a free-growing state are not necessarily the same as reforestation decisions taken to ensure long-term forest resilience and productivity….

"The chief forester's vision for British Columbia's future forests is providing a diversity of well-adapted, healthy, resilient forests that will fulfil the needs of future generations."

The ministry believes what's required to maximize forest resilience to conditions associated with the climate change as well….

"A particular concern raised by some forest professionals is the tendency to plant lodgepole pine as the single dominant species."

Underneath that there then are a number of activities that the ministry has brought into place to try and counter these situations: the Future Forest Ecosystems Initiative, which was brought in by the chief forester, which was to try and address some of these issues; the guidance on tree species, which the chief forester brought in in 2009; and in 2011 the forest and range evaluation program. That has been initiated, but obviously, because of the timing of the audit we weren't able to do a great deal of work on that particular one.

It isn't just a question — and I think this is a theme in the report — that things grow again; it's the value of the resource as we move forward as a province and see what value that resource can actually provide at some time in the future.

V. Huntington: I guess that, at the bottom, is my concern. I guess there's a diversity even on what the priority should be. Is it return on investment — as your response to the Auditor General's report would indicate is your priority — versus forest health?

And forest health — out of that flows so much else. It's ecological health. It's investment health. It's community health. I just fear that even your priority of return on investment is going to disappear simply because we aren't monitoring or requiring a different response to these stewardship plans in order to ensure forest health.

Mr. Konkin, in your initial presentation you mentioned the importance of distinguishing between government planting and industry planting, but in the report, in one of the slides on the performance reporting prepared by the Auditor General, "industry performance was not distinguished from ministry performance" as a way of highlighting the difference and understanding through the reporting process what is taking place.

I guess my question is: given that you agree with that, what's your comment on the finding of the Auditor
[ Page 588 ]
General that there isn't sufficient effort to distinguish between government planting and industry planting in the reporting?

D. Konkin: I guess what I would say is that we do have a system where industry absolutely reports its activities. The Auditor General commented on that system and at the time correctly identified that it needed some updating and some work.

We have put significantly more resources into that and brought it up to speed. It is the RESULTS system. So it is absolutely possible to track the industry obligations and how they are performing in regard to those obligations. That absolutely can be done.

B. Ralston (Chair): Did the Auditor General wish to expand upon that comment? It was included in the slide on the performance reporting.

J. Doyle: I think it's important that any reporting that's done by any ministry is transparent, accurate and properly reflects reality. I would have thought that the way that industry is replanting, subject to all the comments I've made before…. The fact that they are replanting is a good thing. The fact that the legislation requires them to, if you like, replace what they have taken out of or off the land with something that can be utilized and harvested at some time in the future is a good thing.

It was the mixing of that concept with the fairly large expanse of forest that had either been damaged due to fires and everything else or predated the 1987 change in policy, which needs to be considered as well. That's a large tract of land. It's a large amount of forestry, some of which is naturally regrowing.

I am not a forester, but I get advice from foresters. Sometimes when land naturally regrows trees, it's not the same as what happened before. It's not the same quality. Sometimes it is; sometimes it isn't. So the issue is looking at that big block of land that had been previously harvested before these arrangements came into place to determine how that was faring, and the only measure that I can find was the amount of silviculture that was taking place as we go over the last five years or so.

Now, what we showed in the report and in the presentation was, in fact, the amount of silviculture that was taking place, albeit that it was based on a return on investment, which basically means: use the money you've got in the best possible way…. Being a finance professor, I can tell you that then leaves you a list of things that you'd like to do and you can't do which would still be a good return on investment. So the issue is: is that volume of work adequate to provide replacement for the area of forest that's being cleared by previous work that's been undertaken or damage by fires or pests?

I think my simple, short answer would be that there seems to be a gap between the target and what's actually happening. Even if you look at that target and what's actually happening, the amount of land…. And I know that pine beetle–damaged area is included in this. The amount of land that is suitable for replanting — and it's on page 17 — is over a million hectares, and the amount that's being replaced at the moment is a tiny fraction of that.

J. Rustad: I have a number of questions, so I'm going to try to group them into a couple of themes. It's interesting. The Auditor General just made a comment that nature doesn't do a very good job of replacing its forests, which is an interesting thought when you think about how we got our forests in the first place over time. I guess it's also an interesting thought in terms of the productivity and value that is being added to the land base through man's activities, in terms of how we utilize those trees and reforest. In particular….

The first question, because I want to get to the whole reforesting and a number of other topics, is to Doug Konkin. Over time our forests right now, for the most part, are overmature, especially in the Interior and through large areas of the province. How much lost value happens on a yearly or on a decade basis to an overmature stand that just sits there and is not harvested or active?

I'm not aware of any specific numbers. In the course of my practice I haven't seen any, but as a forester my view is, especially when you look at value, that the forests themselves — and Mr. Nussbaum may be able to shed a bit of light on this too — were, when you say overmature, essentially stagnant, perhaps losing volume from trees dying. But you know, the trees are still alive, and they still grow in increments. So the value equation may be a bit of a net-sum game.

In some cases I would say value may be increasing because as trees get older they get bigger, they get more clear wood and may result in, actually, value increasing, still continuing, even though they might be overmature in the past. Your question actually goes back to: what do you mean by overmature? As a forester I have a particular perception of that. It may or may not match yours.

B. Ralston (Chair): There might be a tendency of the committee to reject the concept of overmature, given our age.

A. Nussbaum: I wouldn't mind responding to that for a moment too. It's Albert Nussbaum from the forest an-
[ Page 589 ]
alysis and inventory branch.

Being fairly familiar with the inventories, I would say that for the most part in a fairly aged stand growth and losses to the stand are roughly in balance for the majority of the time. It's sort of an evolution, unless you have a significant beetle outbreak or something. There are a lot of pests that rattle around in the forests and take trees here and there. That happens on a natural basis. Ingrowth occurs.

I'd say a lot of our mature forests are sort of in a holding pattern. But the risk is that you have something catastrophic go through, whether it be fire or you have a beetle or something. Then you experience a significant loss. That's the way I would answer that.

D. Konkin: If I may, John, I'll add one more thing. I think what you may be thinking, too, is there is an opportunity cost in that a younger forest would be growing more vigorously than that and putting on more volume, and then there is, as Albert said, the susceptibility. That's clearly what we saw with mountain pine beetle.

J. Rustad: Just to that, and this goes to the reforestation question, I noticed the numbers pointed out by the Auditor General on page 18 showed the amount of area harvested versus the amount of area planted.

Now, if I remember this correctly, a typical regen delay, the time it takes to get an area reforested versus the time it's harvested, is often six to 18 months. So when you see these numbers reflected down here, of course it's the last year or two that you tend to get the kind of catch-up in terms of that overall process. But that area planted versus harvested is roughly…. So we're at 98 percent. We're very close to 100 percent in terms of that reforestation of that.

On top of that, we are planting — I think that slide was about 8,000 hectares — over and above that. We're actually, on average, planting more than we're harvesting. Is that correct?

D. Konkin: We are planting more than we're harvesting, absolutely, because we are dealing with some of the backlog and other issues. So, yes.

J. Rustad: To that reforestation, because we're dealing with backlog in terms of disturbances — wildfires and pine beetle — typically, when a fire goes through a stand or a pine beetle attacks a stand there's still value to those logs, even though from an inventory perspective on the time of the event, it is now considered to be NSR, or not sufficiently restocked. But there is still value in those trees for a number of years, depending, of course, on the intensity of the attack and the type of climate conditions those trees are in, etc.

When you're looking at that opportunity, does it make sense, then, that even though it may be on the books in terms of the need to reforest, there should be an opportunity to actually capture value of those trees over a period of time, which could be three, five, ten, as we're seeing with the pine beetle trees — perhaps 15 years or more — that those trees can have some value and be utilized for forest products?

D. Konkin: It absolutely does. We've seen, actually, harvesting occur from the '80s in mountain pine beetle infestation, and it occurred as much as 20, 25 years later that people were extracting value from those stands — yeah.

A. Nussbaum: I was thinking, this is something I've struggled with for a long time. The question I have is: should mature mountain pine beetle stands be considered not sufficiently restocked or not? I think the answer is: we'll only know when we're truly done harvesting them.

When I look at the table on page 17, exhibit 4, the 650 hectares that is attributed to mountain pine beetle is probably, in my mind, premature. It will be NSR when we know that industry can no longer harvest it. So to equate that with backlog NSR or something, to me, is very strange, because we're still harvesting that. We're still reforesting it. We still have activities in it. It's totally undetermined to me when we'll stop actioning that.

That doesn't mean that I think all of that area — that we'll get to every hectare of the forest that is impacted by mountain pine beetle. Of course there will be areas that aren't harvested. The problem is it's difficult to determine which ones.

J. Rustad: Thank you. I'm assuming the same on page 17 about the wildfire — the 200,000 hectares that's in "other disturbances such as wildfire"? There were still standing trees on many of those stands, as well, that could be actioned on by industry at some point.

D. Konkin: The bulk of that, John, is actually scheduled to be reforested and over the next two years will be addressed, because the bulk of it industry turned its attention to immediately and harvested. Fire normally would have a significantly worse impact than mountain pine beetle in terms of cracking, checking of the wood. So industry will go there right off the bat. But that area we plan to have addressed in the next couple of years.

B. Ralston (Chair): I know you're the Chair of another committee where you do this all day, but I will let you have another question. Go ahead.

J. Rustad: Thank you, Chairperson. This is important,
[ Page 590 ]
because it goes to many of the questions that were asked around — we're not reforesting our forests, and those sorts of things. That doesn't necessarily paint the picture that's actually happening out in our forests.

I guess the last question I have is around the analysis that the Auditor General did. A question to the Auditor General, and then over to the ministry after I get an answer. Part of the analysis you did with this, did you just look at area that fell within the timber supply areas of the province — in other words, a volume-based management side? Did you look at TFLs, community forests or other types of tenures on the land base to see if there were any differences between those and the area that was managed under a volume-based system?

J. Doyle: Just a couple of observations. We wouldn't need silviculture if nature did the job well enough. The fact that we've got a very good silviculture industry is trying to accelerate the process of producing harvestable trees at some time in the future. Nature can, in fact, deliver quite good outcomes, but man is, I suppose, in a hurry and wants to get access to these trees in the fastest-possible way, which is why the silviculture industry has been developed.

So 8,000 hectares were planted. I did earlier on make the comment that the million dollars included the pine beetle, but even if you take the other two, that's still 8,000 hectares that were replanted out of 400,000 that are estimated by the ministry to need replanting for that table. The pine beetle area, I agree, still needs to be properly assessed and looked at. That is an ongoing project within the ministry, where they are looking at that.

We did include it and separate it out on that table on page 17 so there would be no doubt whatsoever as to where the numbers came from.

The quick answer to the question from the member is no. Other types of tenures are not included in the numbers that we've got, and it is obviously likely that harvesting and silviculture are taking place there as part of the industry or the owners' responsibilities. They're not included in this analysis, which is in the main being derived from the ministry's own records.

J. Rustad: Thank you for that, and just a follow-up on that to the ministry, which is: many of the recommendations that were made by the Auditor General…. You know, from looking at some of the area-based operations we have in the province, which seem to meet many of those objectives, I'm just wondering, I guess….

I know through the ministry there are some challenges and budgets and all kinds of issues around that. But from other jurisdictions around the world, plus our own examples of area-based within the province….. Just your thoughts around the management objectives and outcomes between some of those other systems in other jurisdictions around the world, as well as our own examples in B.C., versus the volume-based management — what the differences are that you've seen between the two and whether or not some of these recommendations have been addressed or, I guess, are getting better outcomes associated with them under the area-based stuff that we have.

D. Konkin: We are one of few jurisdictions in the world that has such a high percentage of Crown, publicly owned lands. It's difficult to make comparisons. Even privately owned lands are managed extremely differently in different jurisdictions under different regimes. I think one thing I can say is that when we look even within the province on area-based tenures…. Within area-based tenures there are certainly examples of tenure operators who can plan more comprehensively because there is no one from kind of the outside coming in and planning for a block.

They certainly are quite aggressive about reducing the amount of loss to beetles and those kinds of things. There are differences in terms of area-based management, but there certainly is evidence, and in some cases they do a higher level of planning and certainly a higher level of management in terms of managing non-recovered losses.

L. Popham: My question is directed towards the Auditor General and to the ministry. It's in regards to the focus on other stakeholders that use the land base along with the Ministry of Forests, the conversations that I've been having with other land base users, such as ranchers, trappers and hunters. It seems as though the ministry operates almost like a silo without considering the economic impacts of other stakeholders.

I'm just wondering if the Auditor General had noticed any shift in that type of thinking, because from the perspective of places such as the Cariboo, as the forest industry declines due to pine beetle and forestry practices, forestry management, the other possibilities for economic generators are lost due to the fact of a silo mentality, for lack of a better term. So can the Auditor General comment on that, and then the ministry, please?

D. Konkin: From the ministry perspective, we certainly have many mechanisms that are designed to break out of any silo mentality. Certainly, the formation of this ministry in its most recent state is kind of a natural resource format. We are very much working on understanding what is happening in a larger sense, in a cumulative sense on the land base — what is going on, how it's impacted. In dealing with the mid-term timber supply, we've clearly identified there are multiple values from all those forests out there — visual quality, wildlife, water — and those need to be considered.

Certainly, in the move to harvest more mountain pine beetle stands, there have been individuals who have been
[ Page 591 ]
impacted and brought those impacts to our attention, and we deal with them as best we can. Wherever we can, we proactively try to head that off with watershed planning and other things. But absolutely, there have been some concerns expressed.

J. Doyle: I'll just draw your attention to page 13. The top dot point just lays out the role of the ministry in regard to a range of different issues. This report was focused basically on the forest, but we've had other work looking at parks. We've had other work, which is in the planning stage, looking at biodiversity. We've had some documentation put together to look at some of the fauna in the forests as well.

One of the great difficulties in conducting an audit is to try and find focus. I think the ministry has brought that point forward by saying: "You're looking for simple solutions to a complex issue." But I don't think we are. We have to put it into context.

I think that there are a lot of things that they have to consider, and we're going to be looking at some more of them as we go forward. Again, we'll be looking at a similar set of criteria that we have here in regard to how those other stakeholders are actually managed by the ministry in their use of the forest areas within the province.

E. Foster: Just a little further to what John Rustad was saying, and I'd ask the question of both the ministry and the Auditor. As it pertains to the area-based tenure model, one of the comments…. And I had a quick look. There was a discussion that the licensees, to a great degree, plant for economics, not for long-term investment, because they have no long-term guarantee on what they're planting.

To the ministry: would you suggest that if we move to a more area-based tenure system, the concerns that the Auditor has brought up might be addressed?

I just don't…. Sorry, to the member. I don't think it's quite that one-to-one. As is true in everything to do with forest management, it's extremely complex. It's not a: "Yeah. If we went to area-based, that would solve the problem." I mean, it might, potentially. It gives us different mechanisms and different levers to operate. But does that translate directly, and could I say with any kind of certainty in this venue that, yes, that would solve the problem or tackle the problem or be a better solution? I'm not certain. It's too variable.

E. Foster: Okay, and one other thing. To Vicki's comment, there are some of us that took our forestry education other than at the University of British Columbia. We think our school's pretty top-notch too.

In the earlier discussion about the long-term planning and so on, with all the uncertainty that goes — and we use the pine beetle as an example — no one, certainly in our discussions over the last few weeks, could give us any certainty as to the shelf life of the timber and so on and so forth.

To the ministry: would you be concerned? I go back to some of the long-term comments in the Auditor's report. Making long-term projections based on those uncertainties would be, in my consideration, very dangerous. If I were an investor, I would look with some concern at those long-term predictions based on the uncertainties. Would you suggest that that would be correct?

D. Konkin: I would absolutely agree that there is no one answer and that what we need to do to deal with the complexity is do risk analysis and scenario-planning and outline mitigation techniques. It's not like we shouldn't have objectives, but we have to recognize that there are things that we didn't know — we don't even know what we don't know at this point — and that things are going to come along and allow for those scenarios.

G. Gentner: Well, let me just pick up on that point, and I want to dissect. Let's take recommendation No. 5. The ministry response that we saw on the board was: "The ministry will continue to ensure" — seems to me that everything's okay — "that the oversight framework is sufficient to support achievement of timber objectives."

It's interesting, hon. Chair, that when you look at the recommendation posed: "The ministry…ensure that its oversight framework is sufficient to achieve timber objectives," that was not the recommendation. The recommendation was to look at the "long-term timber objectives."

Maybe it's an oversight, or maybe it's misinformation, or maybe it's deliberate. But I don't know why the….

I don't understand how it is that we saw a recommendation here put forward, and the ministry can't even recognize the recommendation as put down by the Auditor General. It deliberately…. Sorry. I'll rephrase it. There's an oversight somehow. Through all the language presented by the ministry, it never once talks about long-term timber objectives. It doesn't recognize the Auditor General's language, and Mr. Konkin just admitted that they…. There is a difference, I believe, between the long-term projections and the long-term objectives.

That's the first flag I have with recommendation 5, and
[ Page 592 ]
I go on about recommendation 5 — continue to ensure that there be oversight. Yet the ministry contradicts this. On the Auditor General's report, on page 22, it says: "Ministry staff expressed concern about whether there is sufficient capacity at the field level to carry out the evaluations needed to support the decision-making."

When we go into recommendation 5 further, the Auditor General presents the difficulties they have in putting this forward. He looks at the oversight framework necessary to be connected with various components. One is the minister's Forest and Range Practices Advisory Council, which in November 2011 said that it did not have the confidence that "the Forest Ministry can adequately describe the current condition of the managed forest or track changes in its condition into the future."

I'm asking, I suppose, of both sides: how do you collect the information when your own staff member suggests that you're not doing it and the minister's Forest and Range Practices Advisory Council says it's not working and, further, when the ministry itself doesn't recognize the whole notion — not of long-term projections but even the notion of long-term objectives that is never once mentioned by the ministry?

D. Konkin: If I may, the first thing is that I'll apologize for our wording. We were told to keep our slides brief, so we shortened our wording. I think it's meant to mean exactly the same, but if you didn't take it that way, my apologies.

In terms of staff comments around capacity, staff in this agency have gone through a significant amount of change recently. I think if you ask almost any public servant in British Columbia, they will tell you that they would love more capacity. The public demand is overwhelming. And yes, almost every individual member would love to have more capacity. I leave it up to you whether government can afford to have the capacity that every member wants to have.

More importantly, I think your question is around the quality of the information we've got and the appropriateness of using the information to make decisions. I'd like Albert to comment on our comfort level in terms of the inventories.

A. Nussbaum: Okay. The inventory program has been part of the Forest Service for a mighty long time, so to me it reflects a long-term quest. We work on the inventory daily. We believe it's completely appropriate to use it for strategic decision-making. It is not an operational-level inventory tool. When it's used in those situations, it can be problematic.

It is not a perfect inventory. We've been receiving feedback on where there are some areas that need work. We are working diligently with the resources we have available to address those shortcomings. I would say that it is still a very valuable tool, a piece of information that is used every day by a multitude in the profession for the purposes of figuring out what's happening in the forest estate.

G. Gentner: Well, the ministry has recognized the shortcomings, and there's a lack of capacity. We hear a lot of excuses today, but the ministry says, with its recommendation, that it will continue to ensure that somehow things are not all that bad. Of course, the Auditor General says otherwise. Does the Auditor General want to comment?

J. Doyle: No information system is perfect. If you look at our recommendation, it actually says that we recommend that the ministry "ensure that its information systems reflect actual forest conditions in priority management areas." We recognize that you can't be perfect across the entire inventory, but you must be capable of accessing good-quality information in those areas where it's important.

The issue has been — and I think is currently the case — that there are doubts or issues around the quality of information that's being put into this system and the way it's managed and updated. While it's the best tool that's available, we believe that there needs to be more focus and a better way of upgrading it so that it's fit for purpose for the use that it is being put to.

You'll see in the report — I think it's on page 20 — that sometimes the chief forester has to estimate what the situation is on the ground and can't rely upon the actual inventory itself. So the issue is then: does that mean that the decisions that are made are in some way inferior to those that would be made if full knowledge was available? That's a judgment call by the chief forester.

What I look at is: is this system sufficient to support decisions that are made? At the moment I think there are enough gaps to recommend to the ministry that they actually go back and have a good look at this and determine what's required to bring it into a place where it's fit for purpose. Once they have done that, they can mark this particular recommendation off as substantially completed. But I don't think they're there at the moment.

K. Corrigan: I have one question for Mr. Konkin or ministry staff and one question for the Auditor General. I'll start with the Auditor General one.

On page 21, under the heading of "Compliance and enforcement," the Auditor General says: "Our review of compliance and enforcement reports showed a steady decline in forest practice inspections, from over 31,000 in 2000-01 to less than 15,000 in 2008-09." That's the most recent compliance and enforcement data.

I'm wondering if the Auditor General has any comment on the response that we heard today — that this
[ Page 593 ]
decrease in enforcement reflects 94 percent to 95 percent compliance historically. I'm wondering if the Auditor General has any comment about whether that's a sufficient answer or whether the oversight is sufficient — any further follow-up on that response.

J. Doyle: I'll draw your attention to page 21, under that same heading, and there's a paragraph: "Our review of compliance and enforcement reports showed a steady decline" — which I think is the focus of the member's question — "from over 31,000…to less than 15,000" in the year that we looked at, which was '08-09, which is the most recent published. We don't know what the situation is beyond that date.

What we said was that we don't believe the reduction in inspections was related to a greater degree of compliance — we couldn't see that — nor is it reflective of ministry's expectation that the work of compliance would be more complicated under the change in legislation.

Then we go on to say: "Despite the significant role compliance and enforcement plays in the oversight framework, the ministry has not demonstrated whether its existing compliance and enforcement inspections are sufficiently robust to ensure industry compliance." And we found a number of areas where reports that had been published, in regard to inspections — and I think I referred to them before — demonstrated differences in the types of trees that were being replanted and the preponderance of lodgepole pine in certain areas.

What we did was we analyzed the records that were there, and we couldn't see a reason why there would be a drop based on risk. So you'd appreciate that I'm looking at this from a risk perspective, which is: the reason you have a compliance review is to mitigate a risk of non-compliance as opposed to any other reason. So we couldn't see that featuring as the reason why the number of inspections reduced over time.

K. Corrigan: Just a follow-up on that. The 94 to 95 percent compliance — historically, does that…? I mean, do we know what the compliance is recently, or is there any change related to the reduction in inspections?

K. Corrigan: It is not in the report. It was a verbal comment that was made by the ministry today, I believe. If I'm incorrect, then….

J. Doyle: The only percentage I've got in my report — as you know, I only speak to the report — is 98 percent, which is the simple calculation between harvested and replanted. There's a time lag between those two, and I don't recall us ever publishing any figures on the amount of compliance. I think you'd need to ask the ministry about that, and then maybe I'll be in a position to respond.

D. Konkin: The ministry does annually publish its compliance enforcement results. The rate as of last year was 89.8 percent. That does not signify a drop in the forest industry. It largely signifies the fact that we have broadened our inspections to include pretty much every industry on the land base.

The forest industry continues to run at about a 94 percent or 95 percent compliance rate. Those are the numbers, but we can certainly provide the annual report with the trends and the data.

K. Corrigan: I'm going to go on to another question. This one is for ministry staff. There's been quite a bit of discussion about the complexity and the lack of certainty in the forest industry. I certainly appreciate that, although it seems to me there's always been uncertainty in the forestry industry, with fires and so on.

I'm wondering, as a very general question…. There's been also discussion about competing interests, and I am wondering if it is the overall view of ministry staff that, essentially, investment in forestry is losing out to competing interests that are not within the forest industry, that forestry is losing out, perhaps, to mining or other competing industries.

I get a sort of undercurrent of that being the suggestion, and I'm wondering if that is the feeling of the staff that are here.

D. Konkin: No. I would say not at all. Mining, for example, is a much more site-specific thing that is in no significant way competing with the larger land base that forestry is on.

K. Corrigan: But there was talk about competing interests, and there's also concern expressed that perhaps the investment that we're making in terms of the amount of replanting is insufficient. I'm just trying to get a sense of what those competing interests are. Are they competing interests for the land base, or is it competing interests for money, essentially?

D. Konkin: Well, generally, I'd say there's always a competing interest for money. It's the scarcest resource that we have. I specifically mentioned earlier that the land base fund that we have covers a diversity of things, including treatment of invasive plants, fish passage, rehabilitation of roads, fertilization, reforestation — those kind of things. So we have to prioritize amongst all those activities.

J. Les: Maybe an observation, and I'd be interested, perhaps, in a response from the Auditor General.

Sometimes I think we sort of look at these things as
[ Page 594 ]
a bit of a zero-sum game. I get the fact that the Auditor General has looked at this whole topic from a very specific point of view in terms of maintaining the forest resource and making sure that it's there for the long-term perspective.

But I would submit it's not always a zero-sum game. I recall a conversation I had, probably 20 or 25 years ago, with Mike Harcourt, who I think most of us will recall. At that time, of course, there was a large debate raging about clearcuts.

He said, "You know, we must always be honest enough to understand that we in the Lower Mainland and the Fraser Valley live in the largest clearcut in the province of British Columbia," which I thought was a good, valid and interesting perspective. The fact that the Lower Mainland is not sufficiently restocked has not, however, meant that it has no economic value.

I think that perspective obtains across the province today, particularly in the beetle-killed areas. There are certainly foraging opportunities there for people who are running cow-calf operations. Ungulates, I suspect, across the province are doing rather well as a result, and whatever economic activity emanates from that.

Geologists are telling us that they are discovering potential mining opportunities that had not been obvious before, because the land is more exposed and more amenable to prospecting.

There is sometimes, I think, a viable debate to be had around: what is the highest and best use? I can't imagine that there isn't a future in British Columbia that does not have a very large forest industry, absolutely. You just have to fly across the province a few times to understand that.

But I think it's worthwhile in the context of this discussion this morning just to put on the table to let's maybe have a more nuanced approach to this. Let's be pragmatic when we consider these questions. There are probably areas of the province where there hasn't been a forest for some time that we should be restocking. On the other hand, there are probably areas where, if there's a large die-off of trees because of the pine beetle, it might be the best thing that ever happened to that area.

I think this isn't necessarily a discussion solely about a glass half empty. It's potentially also about a glass half full in some areas. I'm not sure that the Auditor General is able to take some of these other factors into consideration in preparing this report. I'd be interested in any perspective that the Auditor might have on that.

J. Doyle: I agree. It's not a zero-sum game. The concept of highest and best usage of the land was not actually in the report anywhere. It is a debate perhaps for…. We’re not allowed to use the word "debate." Anyway, it's a discussion for another time because I have not looked at that.

This was a carefully crafted review of three criteria which were agreed on in advance with the ministry. It's like a searchlight. It's looking at one particular aspect of something, and very little light diffuses out to other areas. The three areas that we wanted to look at were forest objectives for timber — they're on page 7, by the way — management practices, and reporting. That's the area that we focused in on and looked at. I am fully aware that it resides within a much more complex area of activity that has other demands and other requirements associated with it.

The way I work with that is: what is the role of the ministry? What's its stated role in regard to those particular areas of activity? We use that as the criteria to see what the current state is.

What we found was, if you like, there's a gap that needs to be addressed within the context of everything else, but it still needs to be addressed. What was being expressed was not necessarily, in our view, what was actually being achieved or delivered. So whilst I accept that there are other aspects to look at this in the broader term, they would come out in different reports that I do, where we look at different parts of the elephant, if I can use that phrase, in different ways, over a series of reports over a period of time.

We've not looked at highest and best use for land. What we've done is said, "What do you say is the situation?" and then: "What are you doing about it?" That's the basis of the criteria. If nothing is said and nothing is done and there's no requirement to report on it, then I would have a very difficult mechanism or difficult job to go in and actually say: "Well, what is reasonable and appropriate?"

As it is, it's quite well structured and relatively clear, so I can ask the questions. As I say, I agree my criteria in advance, before I actually start the work. If that criteria misses out on certain aspects, there is an opportunity for something to be said. I don't recall highest and best use being part of that. Although naturally, if you were to look at it on a very comprehensive, right across the whole board, whole of province, you might be looking at those sorts of areas. But we tend to turn the searchlight on them on an audit-by-audit basis.

The work we did with the Agricultural Land Commission a short while ago looked just at the agricultural land and how that was being dealt with. We didn't look at whether it was beneficial to actually have industry placed on that land. We just said that the role of the Agricultural Land Commission was to manage the transition from agricultural land to industry or residential or whatever, and we just looked at the processes that were taking place and whether or not it was achieving its objectives.

So simply put, there is a stated series of objectives, and we just tested them to see whether or not the work that was being conducted and the information provided was reasonable and appropriate.
[ Page 595 ]

V. Huntington: I'm interested in the comments that the ministry feels there's 94 percent compliance.

I just want to speak about the stewardship plans for a moment. Given that the language in the report, it appears to have come from some staff, that…. No, I guess, the Auditor General's language is that much of the language in the stewardship plans is vague, unenforceable as a result, and that it would appear that much of the compliance of the requirement to replant is meeting, if you will, a default standard; i.e., they've met the requirements of the stewardship plan even though it's a single species of lower value.

I'd like to know, No. 1, does that figure of 94 percent compliance include the stewardship plans? And No. 2, does the ministry have any interest in reviewing the stewardship plans? I think there was a comment that the industry would look at them, and many of them are coming up this year. And are you going to be changing the standards and the language of these plans in order to require a higher level of compliance?

D. Konkin: There are a number of things there. First, to be clear, the compliance figure that I've indicated is a larger compliance figure that is based on inspections out in the field. So these are our compliance enforcement officers going out and inspecting. It could be across the range.

V. Huntington: Yes, I just asked whether the stewardship plans were included in that.

D. Konkin: To be clear. Something like a planting is in the legislation. That standard is set there. It's set in stocking standards; it's set in a number of things. That would be included in those statistics. But the actual looking at a stewardship plan and making an evaluation whether…. I think it's been identified that some of the staff felt it was vague and could be improved. That wouldn't be part of those stats. That's a separate kind of evaluation process.

Now, in terms of the FSPs themselves, they provide an opportunity for a licensee to go above and beyond the minimum legal standards or to deviate from those standards in a way that is satisfactory to the government staff. The fact that they largely reflect the normal standards is largely a sign that those plans were brand-new, just introduced, and industry was largely going into a downturn from the economic cycle.

I can't say exactly what the plans will look like going forward, but there are ongoing discussions with them about those plans. The vagueness in that plan does not translate to: "You can bypass the planting requirements that we have in law."

Then, I'm going to go further and make one more comment. There's been a lot of weight put on planting of low-value species, and I just want to say as a forester that that is a fairly subjective comment. If you look back in history, people thought pine was a weed. Many decades ago it was treated like a weed, and it was just knocked down. Now it is one of the highest-value species we've got in terms of lumber production. Similarly, with deciduous species.

So there is a lot of pine being planted. We have in no way concluded that that is inappropriate. We are taking steps, working with industry, creating incentives to increase the diversity. We recently took some steps to increase the amount of spruce being planted, recognizing kind of the costs of that.

But I wouldn't want people to say that pine is an inappropriate weed species or low-value tree.

B. Ralston (Chair): Mr. Doyle, I think we're almost finished here. We've got a couple more minutes, so maybe if you wanted to respond to that and any final thoughts, and then we can wrap up and take a recess at 12:30.

The member was referring to page 21 of the report, where there's discussion around the forest stewardship plans. We relied upon a Forest Practices Board report in regard to looking at these plans and the fact that they contained vague and non-measurable commitments.

So in this particular case, we relied upon the Forest Practices Board for that information. When we rely upon an expert…. We went long and talked to them about what they'd done and how they'd done it, and we were generally satisfied that they had done it in a manner which we could utilize.

The comment that there were few innovations in these plans and that they were generally very similar to the default standards provided by the ministry was flowing from a review conducted by the ministry.

There is a place to go, and the ministry has actually responded to some of those concerns in work that it's been doing as they go forward, so be aware that the audit looked at a certain period of time and what was happening.

What the ministry has said is that things are going to change as we go forward. The issue is monitoring what is changing and how it's changing and the impact that that change will have on future activity.

The point is made in the next paragraph that a lot of these plans are actually up for renewal this year. This is a very good time to actually look at what should be the structure and form of those stewardship plans and
[ Page 596 ]
how we eliminate the vague and non-measurable measurements, which have been a feature of previous audit reports, where we've commented on the vague and non-measurable measurements that have been put into agreements or plans that have been put forward and said that this needs to change as we go forward. So the opportunity is there for the ministry to actually make a difference as it goes forward.

B. Ralston (Chair): Oh — your briefest comment so far, and entirely appropriate, given the hour that's remaining.

Any concluding remarks from either Mr. Doyle or Mr. Konkin, and then otherwise we'll recess. I think we've had a good discussion.

J. Doyle: Could I just say one thing? It's most unusual for a ministry to offer to have quarterly get-togethers to talk about the way that these recommendations are going to be dealt with as we go forward, and I commend the ministry for that.

D. Konkin: Well, I would thank the Auditor General for the report and the recommendations. I think the hallmark of a great agency is that it seeks to do better. In our case, we're seeking to do better with less, and we will need all the collaboration we can in making that happen, so we'll look forward to working together.

B. Ralston (Chair): Okay. Thank you very much. We'll now recess for half an hour and have lunch. We'll reconvene at one o'clock.

B. Ralston (Chair): Members, we're going to deal with the report of the Auditor General, The Status of Enterprise Risk Management in the Government Ministries of British Columbia. It's a report that dates from June 2011. It's, I think, the oldest report that we have at the moment.

Here, on behalf of the Auditor General, is the Auditor General himself, assisted by Malcolm Gaston, the assistant Auditor General; and from the Ministry of Finance, Mr. Phil Grewar, executive director of provincial treasury.

Auditor General Report:
The Status of Enterprise Risk
Management in the Government
Ministries of British Columbia

J. Doyle: Effective risk management is integral to the success of any enterprise. Being aware of and planning for potential risks contributes to efficient and effective programs. Conversely, poor risk management can result in economic loss, missed opportunities, unmet goals or worse.

Nearly a decade ago government adopted an official risk-based approach. However, our work in this area has found that government has not sufficiently integrated risk management into its practices within the ministries.

This compendium report is comprised of three separate pieces of work that examine risk management and enterprise risk management in government ministries from different levels: first, at an overall level, summarizing risk management by ministries across government; second, focusing on the detailed findings of the audit, such as enterprise risk management maturity ratings and barriers to full integration; and finally, at the program level, auditing the risk management approaches of different government programs.

For each report, my office has made recommendations to improve the status of government's risk management. I look forward to receiving updates from the government's plans for implementation of these recommendations, and I would like to thank everyone involved for the cooperation and assistance they provided to my staff during these audits — in particular, to Phil Grewar, executive director of the risk management branch.

With me today is the engagement leader of this project, Assistant Auditor General Malcolm Gaston, and I'll now pass over to him for a brief presentation.

M. Gaston: This compendium report contains the findings and recommendations from three separate reports, as the Auditor General has just outlined. Each report examines the concept of risk management from different levels within British Columbia ministries.

Starting with our first report, what are risk management and enterprise risk management? Risk management is a systematic and proactive approach to dealing with risks. Enterprise risk management is the same approach applied to the organization as a whole. The process involves identifying, analyzing, evaluating and mitigating the risks of not being able to achieve an organization's objectives. Throughout the process there are communication and consultation with key stakeholders, and continual monitoring and review.

Why are risk management and enterprise risk management important? Given the significant size and scope of its operations, government cannot make fully informed
[ Page 597 ]
decisions without being aware of the numerous risks that it faces. When an organization engages in risk management practices to determine potential risks, it can be proactive and plan to mitigate them.

Conversely, if it hasn't determined potential risks, it can only be reactive when an event happens, with possible serious consequences. Equally, opportunities such as investment or employment opportunities are not identified and may be missed.

Risk management and enterprise risk management provide a framework for consistent and controlled future activity. They help increase evidence-based decision-making and assist with protecting assets and an organization's reputation.

The focus on risk management and enterprise risk management began when the Ministry of Finance adopted a risk-based approach to management and adopted core policy requirements in April of 2002. The risk management branch was given the responsibility to develop risk management programs designed to minimize risks within government's programs and operations and to its assets.

Core policy still contains the same requirement as that included in 2002 — that under the direction of the deputy minister, each B.C. ministry is accountable to Treasury Board for developing, implementing and maintaining an enterprise risk management process.

The Ministry of Finance's risk management branch is available to ministries as an adviser, and its role is to provide leadership and support within the B.C. government in the area of risk management and enterprise risk management. Ensuring compliance with policy has not been part of the branch's role. In their supportive role, the branch has provided training to ministries, as well as tools to assist ministries in implementing risk management, including a guide, sample risk register, risk dictionary, a risk maturity model and self-assessment templates.

To establish a complete assessment of risk management in government, we audited three objectives. These cover the extent to which each ministry has integrated enterprise risk management into its practices; whether the model and tools being provided meet the needs of ministries; and lastly, completeness — how well the key risks from the three programs have been incorporated into each ministry's overall approach.

In conducting our audit, we issued a self-assessment to each ministry and then used a program that included document review and interviews to ensure that the ministry's self-assessment was a reasonable reflection of its maturity. We also audited three programs within ministries.

Overall, we found that government has made insufficient progress in integrating enterprise risk management into its practices, given that it was officially adopted a decade ago. Over half of the ministries are not in compliance with key aspects of government's risk management policy. This leaves the B.C. government vulnerable to unanticipated risks and potentially unaware of opportunities. Without adequate acceptance and use of the standardized process and tools, there is also an inability to create a centralized risk register for government oversight.

We made six recommendations under two themes within this first report. The first group of recommendations focus on the need for appropriate accountability, specifically achieved through regular assessments of risk management maturity, setting targets within deputy minister accountability letters, ensuring annual reporting of ministry risk registers and reporting on risk management performance to the Deputy Ministers Council.

The second group focuses on how the risk management branch should support ministry accountability for enterprise risk management by facilitating reporting to the Deputy Ministers Council, as well as ensuring an overall risk register is in place based on annual ministry-level risk registers.

Our next report focuses on the risk management practices within ministries. This report focuses on the barriers to integrating enterprise risk management into ministries. As with our first report, we state that effective risk management is absolutely critical to effective management. Effective risk management results in a preventative rather than a reactive approach.

For this area, we focused on whether the current risk management and enterprise risk management models are effective in meeting the ministry's needs. Our output from this was that we corresponded with all ministry deputy ministers involved in this audit to feed back what we had identified as good practices as well as lessons learned from each ministry. We issued four management letters for further follow-up in addition to these public reports.

This summarizes the key findings in this area. This is based on ministries' own self-assessment, so these have been identified by ministries. The slide shows that the two highest-ranked barriers to successful enterprise risk management implementation were identified as a lack of human resources and a lack of funding.

These are just some examples of comments collected from our self-assessment and may further explain the barriers to implementing enterprise risk management. Again, the top two barriers come up — lack of human resources and lack of funding.

This slide shows the validated results of the risk management maturity ranking that took place. From a maturity point of view, most ministries rated themselves as having integrated enterprise risk management only up to level 2, so that best practice is still being developed, with a few working towards achieving level 3, which is: the fundamentals are in place.

Very few ministries stated that they have embedded
[ Page 598 ]
enterprise risk management, and none assessed themselves as having optimized enterprise risk management. Therefore, the majority of ministries' risk management practices are still developing, or they're working towards having the fundamentals in place. Again, the results are a decade after the adoption of enterprise risk management.

Fourteen ministries reported they'd developed and implemented an enterprise-wide risk management plan. However, not all the ministries are in compliance with the relevant part of the core policy and procedures manual.

Four ministries identified that they have no to minimal practices for evaluating risk, and there's varying use of the tools provided by the risk management branch. However, 100 percent of ministries did report that they were using or partially using the guidelines provided.

We made three recommendations in this report that are specific for ministries: that they maintain ministrywide risk registers, that they use the resources provided by the risk management branch and that each ministry appoint a coordinator to ensure ministry accountabilities are met.

Our third report focuses on three very different examples of what ministries do and how these areas manage risk. We conducted these additional audits to develop an assessment of how enterprise risk management appears in ministry program areas.

Our key finding was that risk is managed very differently in different program areas. The different approaches have been developed to meet program areas' risk management needs. We also found that program-level risks in general are not rolled up to the ministry-level risk registers.

Based on recommendations from the risk management branch and discussions that we had with a number of ministries, we selected these three areas. I'll go through each of these in turn.

Gaming policy and enforcement branch. The mandate of the branch is to ensure that gaming is operated with honesty and integrity and that the interests of the public and participants are protected. The key risks here are around integrity, such as illegal gaming or the registration and certification of gaming equipment and lottery schemes.

Our findings were that the branch's risk management model was comprehensive, and management's view was that risk management enhances service delivery. There is a plan and process for assessing the effectiveness of the branch's risk management strategy and for evaluating the costs and benefits of that, but these processes are just in the process of being implemented.

Further, there was uncertainty with respect to the rollup of branch risks to the ministry-level risk register. At the time of our audit there were changes in reporting lines.

Our second area was the Maples Adolescent Treatment Centre within the Ministry of Children and Family Development. This centre provides residential and non-residential services as well as after care and community development services to troubled youth aged 12 to 17 and their parents. Key risks here are violence — violence to self, others and property — and include suicide attempts, assault, abuse and vandalism.

Our findings here were that the centre has a system for maintaining client-level risks that includes identifying, assessing and mitigating risks. However, program-level risks are not managed through a risk register or equivalent process. The effectiveness has only been partially assessed for client-level and program-level risks. Again, these risks did not roll up to a ministry risk register.

The third area was the southern Interior engineering part of the Ministry of Transportation and Infrastructure. This is part of the highways department, responsible for highway operations around the Okanagan, Thompson-Nicola, Cariboo and West Kootenay area. Key risks are in relation to safety.

We found that the region had processes in place for managing risks to engineering projects and contracts and that these are implemented and evaluated for effectiveness. While organization-level risks had been identified and assessed for likelihood and consequence in 2007-2008, the risk matrix had not been revisited or recently updated.

An action plan with mitigation strategies had been developed for two of the top five risks. We were informed that the rollup of branch-level risks to the ministry level occurred, but this was through verbal communication channels and was not documented.

We made one recommendation in this third and final report that encompasses all ministries in B.C. government. We recommend that they require their program areas to maintain a risk management process that will inform the ministrywide risk register.

P. Grewar: Thank you for the opportunity to respond to this report. I will try not to repeat what Malcolm has said, so I will kind of skip through some slides reasonably quickly.

We were basically a part of this process because we were quite keen on actually seeing this thing come through. We were contacted at the planning stage — that this is what the Auditor General intended to do — and we worked with them to plan and implement the audit.

The audit sought to determine progress of government, and Malcolm has told that. There were four key findings based on the ministry's self-assessment of ERM, the use
[ Page 599 ]
of the model and the tools and the three distinct programs that Malcolm has mentioned. Ten recommendations arose from the three combined reports.

While we recognize we haven't made the gains envisaged within the 2002 policy, we are a leader in the public sector risk management policy and practice. We recently were contacted by DeLoitte to basically feature our ERM program across Canada on a webinar they produce for governments.

By far, we've had the most success in projects. It's an easier sell. It's an easier buy-in on projects to use the enterprise risk management process for projects. Heavy use in P3s. Public-private partnerships are all about risk identification, risk analysis, risk evaluation and allocation of risk within the various contracts.

The Olympics were a strong, strong user of enterprise risk management. We were involved with analyzing, doing a risk register and risk analysis for the bid. We worked with VANOC throughout the games. VANOC is the first Olympics to feature ERM as part of their requirement, and every Olympics after this has to have enterprise risk management as part of their management strategy.

We also did a risk register for the province's contribution to the Olympics, making sure that the province was able to identify risks for not achieving what it intended to do. Unfortunately, it coincided with the pandemic scare, so we also did a pandemic risk register and combined it with the Olympics risk register to ensure that the province was able to respond.

We've had subsequent successes to the review. The review really galvanized ministries to come into the risk management fold. In addition to what's on the slides, we've got the Ministry of Finance maintaining a very, very good risk register based upon its business plan. We've got the Ministry of Jobs, Tourism and Innovation including a strategic risk assessment. We've got Public Safety — or, I guess, Justice — maintaining corporate risk registers now where they did not before.

We have a draft policy revision, a complete rewrite of the policy based on the recommendations of the Auditor General. It is in draft form and before the OCG and their process to get a policy amendment.

The Maples Adolescent home, which you saw just recently as one of the three participants, is actively moving ERM into a more formal framework for themselves.

The issue we had through trying to implement ERM was the fact that we did not have a stick. We were not responsible for enforcement of ERM. At the time the policy was written it was "Let the managers manage" — in essence, let the ministries do what the ministries are supposed to do. We feel that that is one of the big issues that causes the slowdown and the stagnation of ERM implementation.

The three top barriers were…. I would put them as "Insufficient leadership equals the lack of resources and a lack of funding." I mean, that's the really…. You know, where do you want to spend your money, and where do you want to put your time?

The overall response of government was that we can meet the OAG recommendations through adherence to the current policy with the addition of three functions: reporting on progress of ERM implementation, a reporting and rollup of ministry risk registers to a cross-government level and reporting and risk maturity at the ministry level.

These are the recommendations, and these are the government responses to the recommendations.

Recommendation that government regularly assesses ERM maturity for ministries. All these have gone through Deputy Ministers Council. Deputy Ministers Council supports the policy revision requiring ministries to undertake a risk maturity self-assessment every three years. Annually is much too frequently. Every three years seemed to be a reasonable approach to the risk maturity level.

Recommendation to provide ERM targets within the DM accountability letters. This will be considered as new accountability letters are produced. That's really the opt of the Deputy Minister to the Premier as to what he wants to do with that.

Annual reporting of ministry-level risk registers. Again, we have support from Deputy Ministers Council, requiring ministries to report semi-annually to us. We will basically do the collation, the analysis and the rollup to report annually to Deputy Ministers Council and also to Treasury Board.

The regular reporting of ministry ERM performance to the DMC, deputy ministers committee. We have support for a policy revision requiring ministries to provide the semi-annual performance update. What this is…. This is not reporting the risks. This is reporting the risk mitigation strategies and their moving ahead with the risk mitigation strategies. So they're actually identifying new risks and minimizing the frequency or the severity of the risks which they've already identified. This worked really well for both the pandemic and the Olympic risk registers.

The recommendations aimed at ministries: to maintain an up-to-date ministry-level risk register — that was supported and, again, requires semi-annual updates to the risk management branch — and to utilize our approved ERM processes. Our response is that we'll continue to consult with and support ministries in their endeavours with risk management with appropriate tools.

The recommendation was to appoint an ERM coordinator, and all ministries have done that now. We have an executive-level ERM contract, typically at an EFO or ADM management services level.

Ministries are required…. Program areas to maintain a risk management process that includes a risk register capable of being rolled up to a ministrywide risk register — this is current policy, and we leave it to ministry
[ Page 600 ]
executives to decide which program areas they deem to be important enough to roll up into a ministry risk register. These are the recommendations aimed at us, the risk management branch.

To report to deputy ministers on progress towards full ERM implementation— again, we're doing a policy revision. We are collating and reporting based on the ERM maturity self-assessment every three years. So basically, this is ensuring that the ministries are moving ahead and that they're rating themselves as to their risk maturity on the tool that we've given them to do that.

To create and maintain an overall risk register for all ministries based on ministry risk registers — again, a policy revision. We will maintain an overall risk register based on the semi-annual reporting of ministry-level risk registers.

So consistently through this ministries are reporting to us every six months on their activities, on their progress, on new risks, rolling up the risks to us. We are then collating these and producing on an annual basis a cross-government risk register for consideration of Deputy Ministers Council and Treasury Board.

We are the risk management branch. We're quite good at advocating for risk management, oddly enough. We're quite pleased with what we've achieved to date yet recognize that we have a lot more to do. We find the OAG recommendations constructive and helpful, and, in consultation with government and ministries, we've already moved forward on them. That's it.

K. Corrigan: I was wondering how much the problem stated on page 22, that "Another ministry stated that, given the resources needed to implement the process, ERM is not a priority…." I'm wondering if there is a feeling in a number of ministries that the work it takes to do a risk assessment, and enterprise risk management generally, is not worth it. There's so much work to do that the ministries say simply that with the resources they have, this is not a priority.

Is that significant? I know there were others — lack of human resources and so on. But underlying that, is there a certain skepticism about the process of enterprise risk management?

P. Grewar: Well, one learns as one goes along, and we have greatly shrunk the work required. Basically, if you are…. A P3 project, for example, is a substantial project and has a very large, risk-registered database attached to it. A ministry business plan can be somewhat less than that. A branch business plan can be even less than that.

We've tried to constrain it. We've really streamlined how we interface with ministries on this. One ministry implemented it on, I think, such a full-bore basis, involving such a tremendous amount of work, that they didn't do it any more. As they said: "This is way too much work." It really reflects what you said.

We've tried very hard to minimize the work required and to show value for the work that's being done.

K. Corrigan: Just a short follow-up on that. One of the statements made in the report — and I can't remember where it's made, exactly — by the Auditor General is that it makes sense because essentially you save or you gain more by having an active risk management program.

So I'm wondering, I guess, for the Auditor General…. I mean, is that the case? Is it always the case that it's better to actively have a risk management process as opposed to not having it?

J. Doyle: Thank you for the question. The policy is a good one. It was put into place so that the risks in any entity could be managed appropriately, and that's rooted in very good management theory. So the simple answer to your question is: yes, absolutely.

The risk management branch exists to support and help ministries to deal with this area of work, and the policy manual was adjusted to try and make it as useful and as helpful as possible so that ministries could achieve what was required. All of that is geared towards and focused on actually improving the quality of services. So a simple answer to your question is: yes, absolutely, again.

K. Corrigan: Just one more follow-up to the Auditor General. If it is always worthwhile, then, assuming that the process is manageable, do you have an overall thought about why it is that ministries pretty well across government have been lagging so significantly in this?

J. Doyle: That was the purpose of the audit. We asked them the question and we put the results in the report itself, which I accept at face value.

Please be clear. There are some areas within government — and we gave some examples of case studies — where risk management is done very, very well indeed, and individual program areas should be commended for that.

The tools and the support provided by the risk management branch are very, very good indeed. So the issue is trying to bring all these ingredients together, both the leadership and also the tools that are available, to actually minimize risks and to have the capacity to take advantage of any opportunities that may exist.

All along the road it's: "This is what you should be doing." What we've done by self-assessment is determine that, in fact, that's not the way it's being played out at the moment, particularly at the ministry-overall level. That doesn't mean to say that good work isn't going on and that some risks aren't being actually managed well. Some of them aren't being collated very well at the min-
[ Page 601 ]
istry level, and as a consequence, there is a reduction in the efficacy of the response to those risks.

R. Sultan: I have a question for the Auditor General, and that is in a very broad sense. Could equal results be achieved if the mandate of this group was significantly narrowed? I find the mandate of the group quite astonishing.

If we look at the definition of risk on page 12, your report concedes that risks are different for every minister and at every level. Risk can be financial, reputational, operational, legal, technological — to name just a few. Fraud could be considered a financial risk. We have challenges due to financial constraints or changing demographic trends — demographic risks, I suppose one might read into that. Then we have risks from major natural disasters, etc.

On page 13 following we have typical risk categories: financial, legal, reputation, stakeholder approval, implementation, operation, construction and market risks. If we go to the three examples chosen, on page 32, dealing with gaming, it's pointing out that the key risk is integrity related to illegal gaming. It's suggested the focus should be on certifying gaming equipment and, I suppose, checking up on the integrity of the organization.

But when we flip over to the second example chosen for examination, Maples, we find out the key risk is violence, and there's reference to suicide, assault, abuse and vandalism. Finally, we come to my favourite sector — engineering, Ministry of Transport. The key risk is safety, and it’s a key aspect of highway operations and also highway design.

Now please explain to me, Auditor General, how any one department can roam around the government mitigating suicide risk on the one hand, then go out to the Kootenays and make sure the highway design is up to snuff, then turn itself inward to the Ministry of Finance itself and begin to examine the manifold financial risks that I'm sure are inherent in the financial operation of this $40 billion enterprise operating in, by an easy measure, at least 50 different business sectors.

I would suggest and ask you: is risk too broadly defined? In many of the areas I've just described, is not risk mitigation something you expect of managers, to keep their job? It's not a separate department you call in to point out some of the obvious areas of their inherent responsibility.

I think, for example, of the newspaper headline this week of J.P. Morgan Chase, one of the most respected names in banking, having initially a $2 billion trading loss reported, and then it was $5 billion, and now there are rumours that it might be as high as $8 billion, triggering broadly ranging international banking regulations beyond those that are now being contemplated. Risks galore in the financial sector.

I would ask whether or not this endeavour…. Who can be against risk? I get on that helicopter on Monday morning, and as a mechanical engineer I wonder: "What keeps us up in the air?" It worries me sometimes, I have to confess.

Perhaps the group could focus on financial risk — quite dramatic, and easier to assess, I would argue, having been involved in risk management in a major bank myself — and as a second area, litigation risk. I think there is huge exposure to the trial lawyers who are always looking for a new market to conquer. If you could mitigate the government's exposure in those two areas only and let the professional engineering association worry about the engineers who design bad highways, or staff who do not do their job in some child care centre resulting in abuse of the persons in the unit….

That is my question. I guess an ancillary observation is that you point out there's a lack of resources and lack of funding to carry out risk adequately throughout the entire range of government. I'm just wondering if that isn't a symptom of an attempt to do too much in areas which are really just part of keeping your job.

The first is that this policy was actually brought in, in 2001. It was rooted quite carefully on good management practice, which put the responsibility for managing a ministry or an area or an activity into the hands of those best-placed to deal with that responsibility. The policy manual is quite clear on how that works.

What they then did was they tried to make sure it didn't levitate above the ground by putting into place support structures which would actually set line managers and ministries up to succeed in regard to how to deal with the risks that face them individually.

I'll point out that the three…. What was the risk within government is many and varied. The three different entities we had were in three different ministries. I suspect you wouldn't go from one to the other in the same day. If you were a mobile public servant, I suspect you might catch all three.

The risk management branch's role is not to do risk management. The risk management branch role — as I understand it, and I can be corrected — is actually to provide tools and support to the people that have to do risk management. So you're dead right when you say it's the managers in the line positions that are actually managing the risks that they face on a day-to-day basis.

What seems to be one of the problems is taking those risks and rolling them up to see if organizationally there are a series of risks that might cross a number of different areas of endeavour that may need to be dealt with.
[ Page 602 ]
Financial risk is a classic example of that, but there are others.

So in order to collect in the small and then bring up to the large, so you can have an overview, you use a technique called risk register, which identifies at the program level or below the kinds of problems that this particular activity or endeavour could face and how they can be dealt with and managed to ensure the success of that endeavour or program.

When those risk registers are created, when they're rolled up, you have to look at those risks very carefully to see if they really mean much for the whole organization, because what could be a big deal for a program may actually be small potatoes as far as a ministry is concerned. So what you need is an appropriate response at the appropriate level to the risks that you've identified. But without identification of the risk by local management, how do they know that they are managing the work that they have to do well, and in fact that they are set up to succeed and can succeed in what they do?

So the whole of government risk register wouldn't include all these hundreds of thousands of individual risks. It would look at a group of things that could be dealt with at a whole-of-government level that could have an impact on the whole of government. Those risks need to be identified quite carefully. It is simply not a matter of merging two spreadsheets together and rolling it up. It's actually looking at and weighing up the consequences, the likelihood and impact of the risks that have been identified in the individual risk registers, which is why it's being handed over to some extent by the experts and not included elsewhere.

The actual lack of resources that you mentioned was not…. I reported it, but it was because that's what I was told. So the second part of this compendium is about a survey that was conducted on all ministries. All I did was collect the information, collate it and report on what we found.

You will find that I have drawn no inferences from it, other than to say that these matters seem to be the situation, and, therefore, they may need to be considered when things are addressed.

R. Sultan: Well, if I may be permitted a supplementary question. Since we have made a major investment — although I didn't, in my quick reading of the report, find the cost of this operation to the government. Perhaps you could confirm that. As opposed to the loss…. The loss is thereby avoided. Have you tried to do that kind of cost-benefit equation?

P. Grewar: It's difficult to know things that didn't happen. This is the issue we always come up with. It's really contingency planning, to a large extent, when you think of it — identifying the potential things that could happen that prevent you from doing what you planned to do. And then you say: "Well, I've got this business plan to carry out this stuff, but I also need to put in the business plan the strategies that will cut the risks of not being able to achieve it."

It's always a difficult sell when you come to the question you raised. We provide the framework. We are facilitators. We don't do the risk analysis; the ministries do the risk analysis. But we provide the framework and the ability for them to do it and to roll it up into something that's meaningful to them.

R. Sultan: Well, could I ask a final supplementary? I certainly can understand it's hard to measure what doesn't happen. Have you got an estimate of what has happened, in dollar amount?

P. Grewar: It's not necessarily a dollar amount. Reputational risk is not a dollar amount. Risk of harm to an individual is not a dollar amount. The risks are varied and diverse, and we really…. When we first started off, people wanted us to put it into dollar amounts. Then they could say: "It's worth X dollars" or "It's worth Y dollars" and "We want to really deal with the Y dollar stuff first." But when you're dealing with lives, with injuries, with reputational risk, you can't put a dollar value behind it.

J. Doyle: I think an excellent example is P3s, where the analysis that's conducted before a P3 is done is many and varied, not just financial. It's considered important — not just best practice — that you go through that kind of analysis before you make a decision either way. The same would be for the Olympics.

I've got plenty to say about the Olympics, but the real issue about risk is that if you don't go through an appropriate and full and comprehensive risk analysis to identify what could go wrong…. So you plan for the worst and you hope for the best. You've got to go through the exercise in order to make sure that the things that could happen don't happen — or, if they do, there's a ready response to them.

Now, I'd agree that things like people's health — and that means physical injury; property; dollar values; and those sorts of things tend to come up first on the list of things that you should be looking at. But there are other simple things, as well, that can sometimes escape attention, that are critically important.

I was shown a video recently, and it just gives you an example. Here was a guy eating a cookie who didn't want to talk to the media. The risk that he finally went through cost him his career, I suspect, yet it was a very simple thing to think: "Risk. What should I do? How should I
[ Page 603 ]
deal with this situation?" I'm sure he'd been told to do something different, but he decided to go elsewhere and to eat his cookie. I don't know why.

Risk management is a critical part of everything we do, but sometimes it doesn't have to be a huge edifice of spreadsheets, controls, documentation and everything else. The way it's expressed in the policy manual is that it should be sufficient and appropriate for the ministry. But via their own measurement, what the ministries are saying is that they're still implementing. They haven't got there yet. By now I would have thought that if it was important and it was policy, they would at least achieve the embedded area, which is level 3.

B. Ralston (Chair): Okay. I think we're going to try and finish this one at two, but I don't want to rush the discussion, of course.

S. Simpson: I want to go to an example that I know a little bit better and that I'm trying to understand, on the notion of risk assessment. It relates to the decision around privatization of the liquor warehousing system.

Now, that process is proceeding. There's a request for negotiation that has gone out. I believe it closes on the 29th of June. The minister has indicated to me in the estimates process, and said publicly, that there's not necessarily a business case at this point but that that may follow the negotiation and set the level there.

It seems to me that that's a process that's not huge in the context of government by any means, but it does have an effect, potentially, on the revenue stream. At least, there should be an assessment, I would think, of whether it impacts the revenue stream of the government stores that produce about $1 billion of revenue for government and of how that might affect them. As well, the private industry has raised a number of issues, and I'm sure they would like some assessment on whether their concerns have legitimacy.

The question I have is…. I don't know, and I'd certainly be happy for Mr. Grewar to tell me whether he's aware of it. I may be wrong, but I get the sense that there has been no risk assessment done of that particular initiative at this point in time. If that's wrong, I'd appreciate to be corrected.

My question to Mr. Grewar, and to the Auditor General, as well, is: does it make sense, in terms of reasonable processes, to follow this request for proposal, this negotiation, and to advance this plan in that fashion without having done this risk assessment, at least at some level, before proceeding?

P. Grewar: Well, I can respond to one of the questions, anyway. We actually had staff in there last week, with the Liquor Distribution Branch, facilitating risk identification and analysis with them. That's basically a part of the stage of doing it, so it is underway on a risk-register basis. They will produce a risk register based on it, and they'll have some risk mitigation strategies in place. It is being done.

J. Doyle: I've done no work in this particular area. As you know, it's my practice only to report on things that I've done work in.

S. Simpson: A supplemental on that…. And I appreciate that. Maybe it comes back, then…. And I appreciate the comments of Mr. Grewar that there is some work proceeding on this now.

The question that I have, and in terms of how work proceeds…. Actually, this project, I believe, as Mr. Coleman has told me, is essentially a Finance Ministry project more than his ministry's project, because it's a decision on disposition of assets that was made by the Minister of Finance.

Is this a cart-before-the-horse thing, in terms of the decision to proceed and see whether there's a privatization opportunity here before that process is completed and assessed? Or maybe the process will be completed and assessed before the 29th of June or the 20th of July. I don't know.

S. Simpson: No, the question was for Mr. Grewar, but I'm happy for your theoretical view as well.

P. Grewar: I don't think I can answer it, to be honest. I mean, we're not party or privy to all of the risk analysis work that's done within ministries, for sure. And there could have been risk analysis, risk identification work done on this. I'm not aware of it, but there could have been. We really don't get into that level, within each ministry, as to how they conduct their business.

J. Doyle: Chair, all I would say is that we are looking at the focus of our work as we go forward, and one of them is the long-term aspects of short-term decisions. A natural part of that would be the disposal of significant assets that are currently under the control of the province. So whilst I've done no work at this stage, such a transaction would, obviously, attract my attention and would be the subject of further work.
[ Page 604 ]

V. Huntington: It startles me a little bit, as I read through these reports, that there isn't a requirement that the ministries work with your office to develop a system that you find acceptable. Obviously, it's a policy issue within the ministries and your office.

When you say things like, "It's an easier sell, an easier buy-in on projects," I wondered: do projects like the large ones where you're instituting…? The big computer operations where you're programming ministrywide computer interfaces and where so often we see…. Well, I don't want to say often, but I think we've seen two that were just absolutely horrendous in their cost and inefficiency at the end of the day.

I'm not trying to say anything against government or the attempt to create these, but are those the types of projects that would have risk management registers attached to them? If so, why do they get so far down the road before anybody recognizes that you've got an absolute disaster on your hands?

P. Grewar: Well, I guess maybe the first question you asked was about why ministries didn't have to do what basically we say they should do. The new policy will basically give more clout to making them implement enterprise risk management. Again, we're not aware of all of the risk management work being done within the ministries. I mean, we don't have enough staff to go in and find out at every program level what risk analysis is being done.

I will say that the comment I made regarding projects were an easier sell is predominantly because they have a life that is finite. I mean, it just starts, and it goes through a process, and it stops. The Project Management Institute has a very large risk management mandate to manage projects properly. So it's inherent in managing a project to have a risk management framework involved.

V. Huntington: That, of course, is the type of project I'm speaking to. It's where you've engaged a company to begin the development of a system, yet the system seems to get so far down the road before any of the…. As you say, assuming there's risk analysis at all before any of that starts to kick in, it can be hundreds of millions of dollars. We've seen that.

I hope that you're successful in somehow engaging ministries and requiring, even if it's for projects over a certain dollar figure that must have some sort of risk management approvals. Then perhaps some of these losses, as Ralph is talking about, could potentially be avoided.

The other short question I wanted to ask is: if you're going to ask for three-year collations of the self-assessments, are these going to be done on a staggered, rolling basis up to the DMC? If you are going to require all ministries to submit them all to you on a three-year basis, you'll be overwhelmed as you prepare the report.

P. Grewar: Well, no, it wouldn't be overwhelming because we did this. We started business continuity planning. We basically set up a framework for ministries to report on how active they were in carrying out their business continuity work. We ended up with a nice heat diagram of red, yellow, green. People didn't like to be red, and they then tended to do the work. We have a framework. We have a risk continuum, basically, which says that you rate yourself where you stand on maturity. Ministries will be doing that.

It's not a lot of work on our part. All we will be doing is receiving their information every three years and passing it up to Deputy Ministers Council. There won't be a lot of analysis done. Ministries themselves have to know where they stand, and they're the ones reporting, as they did for the Auditor General's report.

Of what value is a risk management approach if you cannot measure it against an objective? I don't understand. I mean, if all you're doing is saying, "Okay, ministry, send us your risk managements," yet you're not understanding what losses there are, what the risks…. Have you had a loss that's been judged against a register? I don't understand, if there are no objectives, how you measure the successes.

P. Grewar: Well, there is. I think what you referred to before was risk maturity. Basically they're saying that they are doing it, they're starting it, or they're well into it, that it's being implemented on a regular basis or that they're doing that on the entire ministry up and down and sideways. That's a maturity.

When you're dealing with risk registers that are reporting to us every six months, we're doing the analysis. We're finding out whether the risk of this ministry and their mitigation strategy is creating a risk for another ministry, which we've seen.

We did this for the Olympics, a good example where we started with a whole big bucket of red risks — these are the big risks — and a smaller bucket of yellow and green risks. Over the period of the Olympics it swung like this. The reds went down, and the greens went up. That's the activity we want to see. That shows that they're doing risk mitigation, and the risks are being reduced.

Really, that's what we're looking for in this case in terms of a cross-government risk register. Explain?
[ Page 605 ]

D. Horne (Deputy Chair): Along those lines, I think in keeping with it and obviously in mitigating risk, organizational culture is a potential factor within that — basically, the culture within the organization — to not only identify risk but to manage those risks.

I think one of the things I found most interesting in report 3b was the fact that the highest score of the ministries was in the area of organizational culture from themselves — where, from an organizational cultural standpoint, they sit within the realm of things. Yet when it comes to actual implementation, they scored themselves lower. Obviously, from a cultural standpoint they see themselves as progressed, but in actually achieving the goals they see themselves needing to achieve, not so much.

In saying that, obviously, from an organizational cultural standpoint, understanding of risks and mitigating those risks is integral to basically actually achieving the goals of enterprise risk management. Would you see the fact that, from an organizational culture standpoint, they're fairly far progressed actually does indicate that substantial ground has been achieved?

P. Grewar: One of the things that achieving a risk-management strategy and implementing it does is it gives you permission to take risks. In the past the culture has been risk-averse within government. If you did something and it went okay, you were fine. That's your job. If you did something and it wasn't okay, then you had some issues to deal with.

Provided that the risk analysis is done and that you can say, "Well, the risks are thus, so we're taking these strategies to mitigate it, but I want to go on and do this project or this initiative," you basically get a buy-in that it's acceptable to take the risk to implement the project. It's very freeing for folks.

I think that's the cultural thing. To change the culture is an enormous task, and I think it's something where we're moving ahead quite a bit, as I think you've indicated. The risk register, the actual grunt work of doing it, is a different task. A lot of folks will say, "We do it intuitively. We manage the risks on a regular basis. It's part of our job to manage risks," but they don't write it down. They don't write out the mitigation strategies.

All we're trying to do, basically, is to get them to start putting some of the analysis in place in a written form so that we can then have a better idea of how they're achieving their programs.

B. Ralston (Chair): We're about to finish. Just before we finish, Mr. Doyle, in the follow-up process this one is now, I think, a year old — unusually, because we had caught up in terms of our back reports. When would the follow-up for this report take place?

B. Ralston (Chair): So we're behind on the follow-up too. Do you mean the previous October, or the October to come?

If we could just take a recess of about two minutes to enable a change. We have a number of witnesses for the final presentation, and I want to give them as much time as possible. If we could take, literally, two minutes. Don't leave the room.

B. Ralston (Chair): Our next topic is the report of the Auditor General, entitled Crown Agency Board Governance, dating from May 2012.

We have a number of witnesses here from the Office of the Auditor General. Mr. Gaston, assistant Auditor General, is in service again. Then there are a number of responders: on the B.C. Transit aspect of the report, Doug Caul, assistant deputy minister, Ministry of Transportation and Infrastructure, and Manuel Achadinha, president and chief executive officer of B.C. Transit.

On the University of Northern British Columbia and Camosun College: Jacqui Stewart, who is the executive director of post-secondary audit and accountability branch, Ministry of Advanced Education; and then Katherine Thiessen-Wale, director, legislation, Ministry of Advanced Education; Ian Rongve, assistant deputy minister, sector strategy and quality assurance, Ministry of Advanced Education; Eileen Bray, vice-president, administration, University of Northern British Columbia; Kathryn Laurin, president of Camosun College.

On the Vancouver Coastal Health Authority aspect: Elaine McKnight, associate deputy minister, chief administrative officer, Ministry of Health.

We will proceed with the Auditor General, and then each group can present in the order that I've just recited. Transit, UNBC and Camosun College are going to be dealt with together, and then Vancouver Coastal Health Authority.

J. Doyle: My office first conducted work on Crown agency governance in the 1990s. The report recommended that government review the current governance system and develop a model to promote good governance into the future. To assist the public sector's progress in implementing good governance principles, my office examined board governance structures and practices in four Crown agencies during 2011-12.

While it's not possible to measure a board's success, there are recognized best practices that enable a board to provide appropriate and fair advice. For example, board members should understand good governance and have other relevant knowledge. A board should also have a range of competencies and be structured so that those skill sets are used.

This report details our high-level findings from our examination of these four Crown agencies. It is interesting to note that although the agencies represent three different sectors, the results were strikingly similar. Whilst all four boards met the core principles of good governance, they all experienced challenges in the areas of board size, director competency and timely appointments of board members, evaluating their performance as a whole by committee and individually, and communicating with their respective ministry.

Each organization has provided a response to our examination findings, and I am pleased by their receptiveness to this report's recommendations for improvement. I look forward to receiving updates from our established follow-up process.

With me today is one of the engagement leaders. We had a number of engagement leaders looking at different projects, and then we published them all at the same time. It is assistant Auditor General Malcolm Gaston, and I'll turn it over now to Malcolm to make a brief presentation.

I'd like to take this opportunity to thank the four Crown agencies we examined, as well as the three ministries involved, for their cooperation and assistance.

Governance refers to the structures and processes that direct, control and hold an organization to account. For most organizations, the governing body is the board of directors, comprised of people elected or appointed to provide organizational oversight. Good governance is the foundation from which an organization can achieve its objectives. It ensures that an organization is allocating resources wisely and serving the public interest openly and transparently.

Active board governance is key to ensuring effective Crown agency governance. There are approximately 200 Crown agencies in B.C. that have been established by government to serve the public interest and advance overall government policy objectives. At the same time, Crown agencies operate with a degree of autonomy to deliver services and make decisions without direct day-to-day control by government ministers.

We reviewed Crown agency governance in 1996 and noted areas for improvement then. Given the importance of good governance, we decided to review progress made by assessing governance structures and practices in four Crown agencies: B.C. Transit, the University of Northern British Columbia, Camosun College and Vancouver Coastal Health Authority.

These organizations represent a range of Crown agency types and responsibilities. B.C. Transit is responsible for transportation systems in B.C., excluding Metro Vancouver. It operates transit services with 58 local government partners across the province. UNBC is one of B.C.'s five research-intensive universities. Camosun College provides a wide range of undergraduate and other programs. And Vancouver Coastal Health Authority is one of six health authorities in B.C. and serves 25 percent of the provincial population.

All four Crown agencies were assessed using the same three examination objectives. The first objective assessed whether board composition, size, term length and appointment processes result in boards with members who have the capacity to fulfil their governance roles.

The second objective assessed whether government made its performance expectations of organizations clear and whether it monitors compliance with them.

The third objective assessed whether boards are taking the necessary steps to fulfil their roles and responsibilities, thereby providing effective governance.

We developed our criteria based on the B.C. government's good practice guidelines and checklists produced by the board resourcing and development office and the Crown agencies resource office, as well as good practice guidance published by our office in 2008.

We made a total of 25 recommendations, and we are pleased by each organization's receptiveness to these. Crown agencies and ministries have outlined in their responses how they will address our recommendations.

In terms of the key findings, ensuring boards are comprised of members with the skills and experience needed to provide effective organizational oversight is a key component. Developing and implementing formal, up-to-date board competency, matrices and succession plans was found to be a challenge for some of the boards we examined. This increases the risk that boards will not have all of the skills and experience required to provide effective oversight.

Timely appointment of board members was also a common concern. We found that the process for appointing directors is not always timely enough to ensure that boards have a full complement of members. Our recommendations in this area are directed at both gov-
[ Page 607 ]
ernment and Crown agencies.

As part of the board governance examinations, we looked to see whether government clearly communicated its performance expectations to boards and if these expectations were developed in consultation with boards. We found that boards were not adequately consulted when performance expectations were developed in some cases, and in others, board acceptance and monitoring of government performance expectations is not adequate. This is a risk to the achievement of government's expectations.

Improved consultation should help to encourage boards to assume ownership of government expectations and provide better monitoring and accountability for achievement of these.

In all of the board examinations, we found that boards were not conducting annual evaluations consistent with good practice expectations as identified in the guidelines provided by the board resourcing and development office. A board's evaluation of its performance is important to enable it to identify strengths, areas for improvement and to implement strategies to address challenges. Evaluation is also important for identifying areas for improvement for individual board members and contributes to the consideration for renewal of board appointments when terms expire.

Our examinations also found examples of good governance practices in all four Crown agencies. Just some examples are: at B.C. Transit, the whistle-blower program in place, UNBC's well-documented division of roles and responsibilities between the board and management, Camosun College's risk management framework and Vancouver Coastal Health Authority's fulfilment of ministry reporting obligations.

I'd like to comment, that overall it was gratifying to observe board members with a high degree of engagement and dedication to their public service role.

Looking ahead, we will be following up with the four Crown agencies in 2013 to review their progress and report publicly on the status of these recommendations. We intend to conduct additional board governance examinations in the future to identify further opportunities for improved governance at the organization level and to assess whether there are issues that require coordinated action by central government.

D. Caul: Thank you, Chair. With me I've also got Mr. Manuel Achadinha, who's the president and CEO of B.C. Transit, and then Michael Kohl, who's the VP of finance and chief financial officer of B.C. Transit.

Mr. Gaston has already covered the objective of the review, but it was, again, to examine the governance of B.C. Transit and to provide recommendations to both B.C. Transit and the Ministry of Transportation and Infrastructure for a number of improvements. The report acknowledges a number of strong aspects to the governance already in place, but it did indicate that there is some room for improvement.

The results of the examination identified two key findings and six recommendations. Of the six recommendations, two of them were specific to the Ministry of Transportation and Infrastructure. The first was to ensure that "the board of B.C. Transit is composed of directors with adequate skills and experience to fulfil the governance responsibilities." The second was to "ensure that the board appointment process allowed the board to maintain a quorum at all times."

There was one recommendation of the six that required joint effort between the ministry and B.C. Transit, and that was to "engage in a more comprehensive consultation with each other to develop those performance expectations that are clear and acceptable to both parties."

Then there were three recommendations for B.C. Transit board: one, to "develop and implement a training plan designed to ensure that the board members have the necessary knowledge and ongoing training to meet their responsibilities"; another one, to "develop and publicize a written charter that describes the board's responsibilities in accordance with government's best practice guidelines"; and finally, to establish and implement an annual process to evaluate performance of both the board as well as individual members.

Key findings of the government's examination found that the board's composition results in some "skills gaps that compromise the board's ability to provide oversight to the organization in key areas such as finance." This is a feature particularly of the fact that of the seven board members, four of them are identified by holding office at a municipal level, and then three of them were at-large members.

The examination also determined that the board's composition and appointment process resulted in a "risk that it will not have enough directors to meet quorum," which could result in the board not being able to make important decisions for the organization in a timely manner. That particularly comes up when there are the municipal elections in November and it takes a number of months before we finally replace those board members who have either left office or were not successful in the municipal elections.

Overall, response from both the ministry and B.C. Transit…. While certainly we acknowledged the strong points that have been identified by the Office of the Auditor General, we concur with the findings and the recommendations and the examination and that we will work together, both the ministry and B.C. Transit, to en-
[ Page 608 ]
sure that we have that continuous improvement and that we are implementing these changes.

B. Ralston (Chair): Thanks very much. I'm going to ask you to give way to the next group. Because there are a number of common themes here, I think it's more fruitful if we discuss them together, including timeliness of recruitment, andboard director qualifications.

The next group would be the UNBC and Camosun College group. The four people I named earlier, I believe, are here. Sitting down in front of the computer — Mr. Rongve, I gather?

I. Rongve: Okay. Thank you. My name is Ian Rongve. I'm from the Ministry of Advanced Education. Supporting me today I've got Kathryn Laurin, who is the president of Camosun College, and I've got Eileen Bray, who is the vice-president of administration and finance from the University of Northern British Columbia. I'd like to thank the committee for the opportunity to come and respond to the Auditor General's report, and I'd like to thank the Auditor General and his staff for the thoughtful work that he's done.

I'd like to point out that we're talking about two of our public post-secondary institutions. We've got another 23 that have boards. Everything that we say and everything that we've learned from these reports on the two institutions we're going to be, and we are, applying to the other 23. I think, given that, we're really leveraging two audit reports into a lot of improvement across the system.

I'll go through the presentation and, basically, the structure of the Auditor General outline.

Under the first objective of the audit, the board governance structure, the report had five recommendations spread out over the two institutions. Two relate to developing a competency matrix and succession plan — one recommendation for each institution. One recommendation suggested that Camosun College ensure that board members "possess adequate skills and experience to fulfil the board's governance responsibilities." Then two recommendations relate to timing of board appointments, either through staggering term end dates for UNBC or ensuring that candidates are appointed in a timely manner for Camosun.

In response, both the institutions and the ministry have been working hard to respond to these. Ministry staff have requested and reviewed, and the institutions, for that matter, have developed and improved their competency matrix that they are using for filling board appointments. And we're doing that again for the 25 institutions, not just the two that have been identified.

Ministry staff are also having much more frequent conversations with board chairs about their needs and with the board resourcing and development office concerning board appointments. We are tracking the appointments and the timing of appointments within the ministry to a greater extent than we have before. So from our perspective, I think we're moving forward with the recommendations.

We'll move on to the next slide around government priorities. We have worked quite hard with our partners in the sector to put in place processes around making sure that we have government's priorities worked in with the board and with the plans of the institutions.

Under this area, the Auditor General's report had four recommendations. It included a recommendation for each of the organizations to assure agreement on the board's role in implementing government's expectations — this gets to the comment in the presentation by the Auditor about having some board input on what boards were being held accountable for — and then a recommendation for each of the organizations to ensure stronger linkages between the institution's plan and government's expectations, making sure that the institution's strategic plan, their internal plans, really reflects government's expectations.

Now, as with Crown agencies, we establish government's expectations through a government letter of expectation. We have spent a lot of effort in the current cycle for the '12-13 government letter of expectation, making sure that it has greater accountability and greater alignment with government's priorities.

We spent, and my staff will attest, a great deal of time working back and forth with the institutions on the wording of the letter and on how things were going to be measured. We received considerable feedback, and it resulted in revisions to the letter. We still, I think, feel that it is a much stronger letter than it has been in the past yet still respects the institutions' and the boards' needs.

The other thing around government priorities and alignment that I think is really important to understand or to realize is that we have established over the last couple of months a leadership council of the presidents of all of the institutions. They are meeting at least quarterly and more often, actually, in practice.

We had our inaugural meeting in April, and then we will be meeting again very soon. The idea around the leadership council is that we have a common table around which we can talk about government's priorities,
[ Page 609 ]
institutions' requirements and have that open and frank discussion.

Moving on to slide 4, around board processes. The Auditor General's report provided four recommendations. Two of these recommendations are directed at UNBC to implement an enterprise-wide risk management program and communications plan. Of course, having just sat through the hour on enterprise risk management, I can see why that was important — and then the communications plan.

The remaining two recommendations, addressed at both the university and college, recommended that the boards complete annual performance evaluation. Certainly, our ministry supports a formal approach to risk management and communications, and both of the institutions…. Certainly, UNBC has moved to a more formal risk management process, and they are developing a communications plan. Both institutions have also put together a more formal process around assessing the performance of their board members and their board.

We'll then move to Vancouver Coastal Health Authority, Elaine McKnight. Then after that we'll move to questions.

E. McKnight: : Good afternoon, everyone. Similar to others before, I wanted to thank the Auditor General for the report and thank everyone for letting us present today.

As a follow up for the number of recommendations, I'll just go through very quickly and highlight the response. First, we do agree with all of the recommendations that were laid out in the report. We, in conjunction with the ministry and Vancouver Coastal, have already embarked on a number of the recommendations.

Recommendation 1 is around the timeliness for presenting candidates to fill board vacancies. We do recognize that there have been delays in the past, so we are working with Vancouver Coastal to correct that process and to ensure that they have a good amount of qualified members to be able to ensure that they can have quorum on a regular basis.

On the response to the second recommendation, we are looking to have regular meetings and to have a good understanding between the Ministry of Health and the Vancouver Coastal board around the strategic directions.

At the Ministry of Health our responsibility is to ensure that we gather input from a number of areas — a number of different stakeholders, all of the health authorities — to establish strategic directions for each year and kind of a strategic direction over the next five years. That strategic direction is set by cabinet, and then it's our job to ensure that each of the health authorities carries out that direction, though also taking into account the unique differences within each of the health authority areas.

In this case, for Vancouver Coastal, we meet regularly with the CEOs and the board chairs. We have regular meetings. We also have had, over the last couple of years, a senior government representative on the board as a liaison to ensure that we can take feedback back and to be able to ensure that there's regular dialogue.

On recommendation 3 — to ensure that the board has adequate orientation, that they understand the roles and responsibilities — again, there are a number of things that are underway already. There has been a new board liaison position put in place. That's to be able to ensure that we can work with all of the new members. Also, new members will be assigned a mentor.

I think the orientation piece…. Also, a review of the actual orientation package itself, and I think the last one around that kind of continued feedback…. Each of the new board members will be meeting quarterly through that first year to ensure that they have the skills and understanding that they need.

Recommendation 4 is around ensuring that the board "conduct annual performance evaluations." So the CEO, like the board chair and the chair of each of the subcommittees…. That was an ongoing kind of review. In the month of May all of the other board members have gone through a review process, and those reports are just being finalized now. That recommendation has definitely improved the processes overall.

Recommendation 5 is that the CEO performance evaluation be clearly linked to the strategic priorities and based upon the strategic plan and objectives. Right now there are very specific targets for the strategic priorities. We work very closely with each of the health authorities and Vancouver Coastal to ensure that the CEO performance is there. In '12-13 the board has agreed to develop a broader 360 evaluation for the CEO.

Recommendation 6, that Vancouver Coastal "oversee the development and implementation of an external communications plan," has also been completed, and it's going to be presented at the June board meeting this month, overall.

That's all on the recommendations. As I said, they have all been accepted and are all beginning to be acted upon.

I'm just going to ask each of the spokespersons for the group, then, to come so that if there are questions the spokesperson can answer. It's going to be a little awkward because other people in your team will be back a bit, but if we could do it that way.

J. McIntyre: My questions actually are probably to the Auditor General, because they're more general in nature. The first one, I guess, really speaks to the role of the board resource and development office — BRDO for short.
[ Page 610 ]

It would appear that some of the things that were common through the different presentations and through the four agencies that were looked at — things like achievement of government's performance expectations, annual board evaluations, evaluations of the performance of each of the directors, and the gaps in skill sets and appointment timing and things like that — I guess just raises the issue: where are these things supposed to lie? I guess I thought, to a certain extent, they lie with BRDO, but it appears that maybe it's the ministries that are overseeing these.

I guess my question is really: is it grey? Is it blurred? In your investigation, did you find that they were clearly set out — a delineation of those responsibilities? I think some of the presentations raised more questions than answers about where those accountabilities lie.

J. Doyle: I think it's quite clear that they are split responsibilities. I think each board needs to take responsibility for its own situation and, if it has difficulties, to communicate them back. I think it's then the role of the central body to actually systemically deal with those kinds of issues. Maybe what's happened over…. We didn't do a great deal of work in examining the role and the function of the central body. What we did was we went to the boards and found out what it was like from their perspective and got collaborative evidence.

My guess is that there will be movement on that file and that there will be demand driven by the various boards so that the supply can be provided centrally and to ensure that each of the boards doesn't have the kinds of problems that they've currently got.

There is some excellent work being done centrally, and there's some excellent training and what have you that's being made available, and excellent documentation that is there as well. It's just a matter for the boards to actually deal with them appropriately and to fill in the gaps that we've identified.

I was particularly heartened to hear that the Ministry of Advanced Education is actually going to apply the ripple effect. They've got detailed findings for two entities, but they are going to roll that right out across the whole system, which is as it should be. I'm assuming that Health will do the same.

J. McIntyre: My concern is that it goes back to Citizens' Services, I guess, where BRDO lies, because that's what I thought. They were sort of not here in this whole presentation. You picked four different groups to look at, but it would seem, obviously, that there is common ground amongst all of this, and I appreciate that. I thought it had some very good reputation, as you say, lots of good work, the standards they set. I just…. Yeah, it would appear that there needs to be some extra work there.

I had one other quick question, if the Chair will indulge me. As I remember, when I was on Public Accounts previously, one of the reports…. I think one of the recommendations many years ago had talked about making sure that all these boards had audit committees. I think that was very important. I guess my question is, when you looked at these four groups and any other agencies that you've looked at, whether or not you as the Auditor General feel that we've made progress in making sure that in governance that we have audit committees in place.

J. Doyle: In the conduct of the financial audit right across the GRE, we did a lot of work with a lot of audit committees. Some of them have got different names. Some of them are called finance and audit, some of them are called audit and risk management, and some of them are just called audit. My own office has an audit committee as well.

It is good practice, and where we detect an agency that does not have an audit committee — and some school districts have in the past been in that category — we bring this to their attention so that they can see how they can actually use an audit committee to effectively manage risk, and also to look differently and in more detail at some of their own operations.

K. Heed: My attention was drawn to the Ministry of Health section here and the presentation specific to Vancouver Coastal Health. To the Auditor General: you talk a lot in your evaluation about board governance, how we can enhance governance to ensure we have properly trained directors, appropriate numbers, etc.

Then in recommendation No. 5 from Coastal Health Authority you kind of advance to the CEO evaluation, which I understand is a function of the board, and in that, just on page 43 — we're talking about the CEO evaluation — I detect a little bit of conflict with respect to that person's evaluation on whether or not he or she — I don't even know who it is right now — is actually meeting the performance evaluation.

The Auditor General was specific in saying it should be evaluated based on the strategic priorities within the organization. So I just wanted a little bit of clarification here and specifically why we looked at that one particular point for a CEO when…. Although it's good governance to ensure your CEO is evaluated properly, this kind of stood out from everything else that was discussed based on the other agencies that we looked at.

J. Doyle: All the agencies addressed the same survey. So if it didn't come up as an issue in any of the other agencies, it was because it wasn't identified in any of the other agencies as an issue.

On page 43 it says that "the board disagrees with the observation that the evaluation of the CEO lacked specific indicators." We raised the point that we didn't think it did. I'm looking at…. It's quite right and appropriate for
[ Page 611 ]
the health authority to have its own perspective. What I'd like to see going forward is that the CEO's evaluation is subject to specific objectives and indicators. If that is what's going to happen in the future, then I'm satisfied.

The fact that they didn't agree with my assessment this time around doesn't mean to say that it didn't need to be said and doesn't stop them actually doing the right thing as we go forward.

E. McKnight: The Auditor General is correct on the thought around some disagreement on that front. At the same time, I think that no issue for enhancing that process…. I think the board felt that they had carried out that role. But they're willing to look at ways, as pointed out in the 360 evaluation and some of the other strategic priorities.

G. Gentner: I look at this sort of from a cautionary position when we start dealing about the board composition. You talk to a bunch of politicians, and like it or not, in this world of ours there are orders-in-council and there are decisions that are made. My experience with boards is that some of the best boards we've had, with due respect, were those people who didn't necessarily have sufficient accounting expertise.

I think the chemistry representation of people in the community is important in all boards, and we rely on staff to help answer those questions. I caution where we're going with this, because I don't know it's necessarily in the purview of the Auditor General or maybe, perhaps with various Crown agencies, to make those decisions on composition, although I understand that if we get into the realm of politics, in my estimation, there are some appointments that are made based on whatever and may not necessarily be in the best interests of the picture.

I just throw that out to the Auditor General. How do you deal with that aspect? I have to tell you that I was in a situation years ago, in a different situation, where we appointed a board that had delegated authority to spend money. For heaven's sake, I even put one of my political opponents on it, and he did a fantastic job until, of course, he decided to run against me and we killed him. That's a whole different issue.

I just want to ask about the politics and how we deal with it when it comes down to the composition of boards. It's a reality. How do we get good people on boards?

J. Doyle: I don't think anywhere in my report does it say you have to have an accounting qualification to be a board member, much as I think it's a good idea. Sorry, that was a joke.

What I said was that the composite of the board should have adequate skills in order to do what is expected of them properly. That's a completely different story than, "You've got to have one accountant, one IT guy, one lawyer, one whatever" — quite different. It's a composite array of skills, and if they don't have those skills intrinsic in the board itself, there should be a capacity to co-opt those skills so that they can help inform decision-making.

That's as far I go. I don't buy into whether the members of the board are elected. I don't buy into whether they're appointed. All we're saying is a self-evident fact which actually exists in the policy manual, which is that a board should have the range of skills and competencies necessary to do its job properly. While it saddens me that it doesn't mean there's an accountant on every one, I understand.

R. Hawes: I actually have three short questions. Recommendation No. 2, with respect to Coastal Health, talks about how the ministry and the board should "come to a shared understanding of the board's role in establishing the health authority's accountabilities and the ministry's performance expectations."

My recollection is that there's been quite a bit of friction in the past in that area. I guess the questions would be: how broad is the autonomy? Is the ministry really in charge here? Are they the ones who are, in the end, when there's friction, going to say: "No, no, this is the way it's going to go"?

E. McKnight: You're right. In the past there have been different areas with a fair bit of contention. I would say right now that actually the relationship with the Vancouver Coastal board is excellent. I think it's important.

It is an issue around setting strategic priorities for the Minister of Health, trying to find that good balance between having a set of strategic priorities for all of the health authorities, for all the citizens in the province, and then that balance of what's really important for the residents within Vancouver Coastal's area.

I would put it more as kind of a misunderstanding on the roles around putting the input into strategic priorities. We have lots of dialogue with all the health authorities, different agencies and different stakeholders. At the end of the day, as they pointed out, that material, all of those priorities, are put together and taken back to cabinet. Once those priorities are set, then it is the Ministry of Health's job to ensure that the boards carry out that direction.

In this case, I think it's fair to say that we just need to spend more time with the board to ensure that they have a sense that they are heard in the priorities they need to put forward. I think that's a critical kind of factor.

We had met on a regular basis before. Actually, next week we're having a more detailed discussion with a number of the senior executives in the ministry and the board members and some of the senior leadership in
[ Page 612 ]
Vancouver Coastal.

I would definitely say that the relationship is strong. It is not contentious at this point, as it had been in the past. But those scenarios can arise in any of the health authorities if there is a fundamentally different view on a strategic priority overall.

R. Hawes: This is sort of related to staffing, and maybe you can't answer it. I don't know.

A new board liaison position — is that a permanent position, or is that sort of somebody who is going to do it off the side of the desk?

E. McKnight: I do apologize. I don't know the specifics on that, if it's full-time or not. We can find that out. My understanding is that it was a position to ensure that the education and any kind of orientation, ongoing education, were there for any of the board members.

The other one that I'm interested in is recommendation 6, "development and implementation of an external communications plan."

I'm not familiar with how many communications officers Coastal Health has. I have a pretty good idea of how many Fraser Health has. Do you know how many communications officers they have? And why do they now have to have a recommendation that they develop a plan — when, I'm assuming, they have a pretty healthy staff of communications people to communicate externally?

E. McKnight: I can also find out the exact number of staff. I don't have that with me today.

In most of the health authorities, I would say, the communications numbers are not high for the number of resources. That may be different in Fraser Health, but I know that in Vancouver Coastal those had recently gone through a fairly consolidated scenario, with some of the Lower Mainland activities in consolidation, so those numbers were reduced. I can find out the specifics on that part.

I think the recommendation was intended to communicate out kind of the board role to the community, the function of the board.

J. Doyle: That was exactly the point I was going to raise, Chair. On page 47 it just details what it is. It's some kind of difficulty about the board knowing its role in this process — not creating a new empire to actually communicate its expectations. The recommendation is focused at defining its role in stakeholder relations.

At the moment the board is active in external communications but actually has an unclear role in regard to that. It was just tidying up that piece of administration to make sure that in fact they speak with one voice, that it's quite clear and that there aren't any confusing misunderstandings.

B. Ralston (Chair): Those responses could come through to the Clerk, then, and we'll circulate them to members of the committee.

L. Popham: My questions are around B.C. Transit and the appointment of the board. The example that's given in the Auditor's report is around the 2008 election and how there were missing board members, up to the point where the vote on the budget could have been jeopardized by not having the right amount of board members sitting. I believe, if I understand it rightly, that the same thing played out in the 2011 election and that the appointment of new members was not done until just a couple of weeks before the budget was to be voted on.

I guess I'm wondering if it's fair to expect the process to be changed before the next municipal election. Also, a question around: is there confidence that the board members that voted on the current budget for B.C. Transit had the experience to do so?

D. Caul: In the two situations you're talking about, one was the board of B.C. Transit and the other one, most recently, was the Victoria regional transit commission, where those commission members were appointed just prior to the time when the commission had to approve the budget, just for clarity's sake.

Quite clearly, we've heard the message from the Auditor General that the process isn't as speedy as it needs to be. That's definitely one of the commitments that we're making: to make sure that that does happen and that we have people in place in time for the B.C. Transit board.

The Transit Act actually has some language in it, in section 4(1.1), where it says: "No act or proceeding of the directors is invalid merely because of there being in office less than the number of directors required by this section." What it does is it says that under the legislation you don't need a quorum, but quite clearly, that's not ideal. It has never been used.

It's important to make sure that we are following the good principles of board governance and to get those positions in place in plenty of time to operate with a quorum, whether it's required under the law or not. So yeah, we are committed to make sure that that's in place, and we will make sure that we're implementing this change, as recommended by the Auditor, around
[ Page 613 ]
timeliness.

I would probably have to turn to the president and CEO to be able to talk a little bit about the most recent example with the Victoria regional transit commission.

M. Achadinha: The most recent budget decision was made by the Victoria regional transit commission. The commission is an appointed body, by the province, but it's composed of…. All seven members are elected officials.

In this case the outgoing commission actually made a recommendation to the incoming commission — which is valid — in terms of options that they should consider. The commission this year actually had, I think, a relatively easy decision because revenues were significantly higher than what was budgeted. As a result, they were able to put back 7,000 hours that the previous commission had taken out. So I think they were in a good position to move forward.

As one of the commission members said, it was a great opportunity to come in and say, "Zero increase in taxes and an increase in service," and it was all because we were able to reduce fare fraud through the change in the transfer policy in Victoria.

K. Corrigan: I'm wondering — a question of the Auditor General…. I think it's valuable to have elected representation on boards. How much that is in any given case — it's not necessary to have a discussion about that today.

Given that there are 200 agencies, I think it said in the report, I'm wondering if you thought about making a recommendation. I don't know whether this would be within your mandate or not: a recommendation that the board resourcing office or some other agency within government should provide training to go along with the best practices guide, offer training through government in a more centralized way — standardized training or training that could help new board members become better qualified at the outset. Was that a consideration at all?

Training is provided to boards in different ways, depending on which board you're in. Different groups of boards — so, for example, school boards — have got their own association which actually permits and encourages training for new trustees. Where there's a gap in that, the board can go to the office and ask for training, or there is private training that's available on a commercial basis.

My guess is that there's a pretty substantial training program that is available on demand, and every board or every organization with a board needs to think how they can support the members of the board and induct them into their new responsibilities quickly and smoothly.

This has been going on now for quite a few years and actually should be a well-structured process across the entity. I think, in the main, it works well for the basic issues, but there are always areas for improvement. That's a feedback loop that goes back to that office and also to any other offices that provide this kind of support.

E. Foster: One quick question further to what Guy had to say about the makeup of boards — and I appreciate the Auditor General's comments. When we talk about people being qualified, the board resourcing office, when they send out requests for people's names to be put forward, if there's a shortage of a skill set on a board, will ask for that. If they're looking for an accountant, for example, or someone with accounting experience on a board, they will specify that when they send it out.

I think it's important to remember — again, to Kathy's comment about the elected officials representing people in the community — that the input of laypeople on these boards is extremely important. With all due respect to my academic colleagues, if you had only academics on a college board, for example, there would be no input from other than academics. So I just caution that message, because I read it two or three times.

I appreciate your comments, but I think we have to remember that laypeople and the elected officials from councils and so on, on the transit board, add a great deal to the conversation.

J. Doyle: …I would totally agree. I don't know what the collective…. No, I won't go there.

No, you need variety, and you need representation from different areas, and I think this province is well-served with the quality and the variety of individual members that serve for the public service on the boards.

I think the issue is that if there is a board which, in itself, doesn't have the range of skills that it needs to properly manage its responsibilities, then it needs some mechanism to be able to access those skills — whether it's from management or it's from adjunct people who can give them advice.

I think the key issue there is that if the board does have a gap, it can address that gap rather than continue to go on and perhaps make decisions with a lack of knowledge or expertise or experience.

S. Simpson: My question is to the Auditor General. When I look at the governance boards of Crowns, public agencies — we can look at school boards and that as
[ Page 614 ]
well — there's quite a discrepancy in the levels of transparency and public disclosure by boards, respecting, of course, that there always are matters of confidentiality and matters that need to be kept in-house, and there are in-camera procedures for allowing that to be done. There is quite a variety and range in terms of levels of transparency and public disclosure.

My question for the Auditor General is: when you looked at board governance, was there a consideration of the value of transparency and public disclosure in terms of how boards do their jobs and how they account to, ultimately, taxpayers, who through government are their shareholders, largely? Is that an important consideration here, and did you give any attention to that?

J. Doyle: I concur that openness and transparency are very important, particularly for public institutions. How each board deals with that is, in some respects, up to the board unless they're given direction by government. So some boards will actually have open meetings where members of the public can go and ask questions. Others don't go down that road. They have the meetings, and the decisions and the findings of whatever they have been doing are actually disseminated in an alternative way.

So it's a fit-for-purpose model. I don't think you can have the same process for every single entity because sometimes that is onerous, and other times it's good, straightforward common sense and transparency.

Each board seems to be in a situation where they can describe their own path in regard to it, and all that I can do is come along afterwards and say: "How transparent were they? How well did they effectively manage their stakeholders? Did they achieve what they set out to achieve with regard to the requirements from government or the stakeholder expectations letter that they got from government?"

S. Simpson: As a follow-up to that, one of the areas that you did look at was the issue of board evaluations and how the evaluation procedures at boards occur as they make determinations for themselves or they have independent external reviews to determine how they're doing. I'm wondering whether you found in that…? Does this question…?

I would concur that every board is a bit of a unique entity, and I would hope that most boards would look to advance transparency and public disclosure as far as possible, but that will be a different measure for every organization.

When you looked at the evaluations of board performance that are done and how they are effecting their responsibilities, is that something that's looked at in the evaluation, as to whether, in fact, the level of transparency and public disclosure is as complete as it can be without compromising the operations?

I would ask the Auditor General that, but I would certainly invite the organizations that are represented here to make a comment about whether they've looked at that within their own organizations.

J. Doyle: The first thing I'd say is that every entity that we're talking about produces a service plan, and there's a lot of information on that. And every entity produces a set of financial statements which are audited. So there is quite a bit. What's missing are the internal mechanisms and perhaps the process or the documentation that goes towards decision-making, which most boards hold to themselves rather than make public.

When it comes to board evaluations, there quite rightly is an internal document because if it was anything else, it would be quite difficult for boards to continue to operate looking over their shoulders. It might very well stem the flood of people who want to be on boards if they knew that their performance was going to be evaluated each and every year in an open process.

However, if government wanted to go down that road, I'm sure we could test that theory and see what it looks like. It seems to me, however, that it's a self-reflective "how do we improve?" type of process rather than identification of problems or weaknesses or errors. It should be a constructive process on how to grow the synergy within the board rather than anything else.

B. Ralston (Chair): There are no further questions, so I want to thank the participants. I know some had travelled here to be here for this presentation, so thank you very much.

The only other item we have is any other business, and I don't have notice of anything else. A motion to adjourn would be in order.

Hansard Services publishes transcripts both in print and on the Internet.
Chamber debates are broadcast on television and webcast on the Internet.
Question Period podcasts are available on the Internet.

Chair:	* Bruce Ralston (Surrey-Whalley NDP)
Deputy Chair:	* Douglas Horne (Coquitlam–Burke Mountain BC Liberal)
Members:	Spencer Chandra Herbert (Vancouver–West End NDP)
	* Kathy Corrigan (Burnaby–Deer Lake NDP)
	* Eric Foster (Vernon-Monashee BC Liberal)
	* Guy Gentner (Delta North NDP)
	* Randy Hawes (Abbotsford-Mission BC Liberal)
	* Kash Heed (Vancouver-Fraserview BC Liberal)
	* Vicki Huntington (Delta South Ind.)
	* John Les (Chilliwack BC Liberal)
	* Joan McIntyre (West Vancouver–Sea to Sky BC Liberal)
	* Lana Popham (Saanich South NDP)
	* John Rustad (Nechako Lakes BC Liberal)
	* Shane Simpson (Vancouver-Hastings NDP)
	* Ralph Sultan (West Vancouver–Capilano BC Liberal)
	* denotes member present
Clerks:	Kate Ryan-Lloyd
	Susan Sourial
Committee Staff:	Josie Schofield (Manager, Committee Research Services)
Other Staff:	Stuart Newton (Comptroller General)

Witnesses:	Manuel Achadinha (President and Chief Executive Officer, B.C. Transit)
	Eileen Bray (University of Northern British Columbia)
	Doug Caul (Ministry of Transportation and Infrastructure)
	John Doyle (Auditor General)
	Malcolm Gaston (Office of the Auditor General)
	Phil Grewar (Ministry of Finance)
	Michael Kohl (B.C. Transit)
	Doug Konkin (Deputy Minister of Forests, Lands and Natural Resource Operations)
	Kathryn Laurin (president, Camosun College)
	Elaine McKnight (Ministry of Health)
	Ian Miller (Ministry of Forests, Lands and Natural Resource Operations)
	Albert Nussbaum (Ministry of Forests, Lands and Natural Resource Operations)
	Ian Rongve (Ministry of Advanced Education)
	Morris Sydor (Office of the Auditor General)

REPORT OF PROCEEDINGS(Hansard)

SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE ON
PUBLIC ACCOUNTS