Public Accounts Committee on May 2nd, 2013

[Lysane Blanchette-Lamothe, NDP, Pierrefonds—Dollard, QC]

Thank you.

Coming back to the status of the helicopter and airplane fleet currently available for search and rescue, could you tell me about the status of that equipment and whether it can be used to meet to current needs, based on what we know?

[Michael Ferguson]

Are you speaking about the equipment?

We found, as I said, aircraft that have been in service for 45 years and helicopters that can't get to northern Ontario or northern Quebec without being refuelled. So we have significant concerns on the air force side related to equipment. On the coast guard side, we found that the equipment was adequate.

[The Chair, NDP, David Christopherson]

Very good. Thank you. Time has expired.

Thank you, madam.

We go to Mr. Dreeshen.

You have the floor now, sir.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you very much, Mr. Chair.

Thank you, Auditor General and all the other principals.

I'd like to speak to chapter 10, which deals with public-private partnerships, and discuss some of the ways in which the analysis has been done there.

First of all, I'm wonder whether the Auditor General could confirm to the committee and for Canadians that the scope of the audit was not on public-private partnerships per se but on the technical funding arrangement between the government and this crown corporation.

[Michael Ferguson]

Mr. Chair, this was a very specific audit looking at one specific question, which was essentially the method by which the government provides funding to PPP Canada. It was not in any way an assessment of any of the projects that PPP Canada undertakes.

[Earl Dreeshen, Conservative, Red Deer, AB]

Thank you very much.

As we know, the P3 contracts are typically long-term engagements that require specific financing to leverage their performance and innovation. I think this is important for taxpayers, in order to divest the risk associated with the design and the construction, the maintenance, and the operation of these long-term investment projects.

I'm just wondering, though.... There is a discussion with respect to the blended average interest rates that were analyzed.

The department had taken some numbers, worked them in one way, and found that there was very little difference between what they had to pay for interest and what they were getting back on their investments. I believe your department took a look at it as well, maybe from a different angle, and more or less came to similar conclusions.

I wonder whether you could comment on that.

[Michael Ferguson]

Mr. Chair, the analysis that we did looked at the amount of money that had been borrowed by the government and paid to PPP Canada. We then assessed what we felt would have been the carrying cost—the interest cost of the government to borrow it—and compared it with what PPP Canada had earned. Obviously, in doing that type of analysis there are assumptions made, but we feel that we came up with what would be the best point estimate of it.

There was a slight difference in cost; I believe it was $1.6 million that we felt would have been, over the time period we looked at, the cost of it. But even without that point, we are raising the issue that when the government borrows for certain durations or at a certain credit rating, and then PPP Canada invests for different durations or into assets with a different credit rating, there is a difference, a risk—there's an exposure, either a credit exposure or a duration exposure. That's why we were raising the fact that we believe, in the time period we looked at, that there was a cost of about $1.6 million. But we were also concerned about the potential for financing risks.

[Earl Dreeshen, Conservative, Red Deer, AB]

Paragraph 10.14 of the report says:

Using this approach, the Department found that the government’s borrowing rate would be slightly less than PPP Canada’s rate of return on its investments, and the result was savings to the government for the 2011–12 fiscal year.

Is it a case of looking at what they might have been able to get back in 2010 perhaps, when you were looking at this and the difference in 2011-12?

[Michael Ferguson]

Certainly in the analysis we did in 2011-12, in that last year, it looked like PPP Canada earned more than what the cost of borrowing was. But it's important to remember that you can't borrow at a AAA rating and invest in a AAA rating of the same duration on the same day and make money. For there to be a way to earn money in this fashion, the amount that was borrowed either had to be invested for a different timeframe than it was borrowed for, or it had to be invested in something that had a different credit rating, and this results in exposure on the financing side.

[Earl Dreeshen, Conservative, Red Deer, AB]

Speaking to exposure, paragraph 10.17 says that in your view “there are approaches that would minimize government exposure to financing costs”. One of them, of course, is “a written guarantee from the government that the P3 funding is available upon request, closer to the time of the Corporation's disbursements”. But you also say that the corporation's status “could be changed from a non-agent to an agent of the Crown for the purpose of administering the P3 Canada Fund”. The third point was that “The Corporation could deposit its advance funding in the Consolidated Revenue Fund, as permitted by the Financial Administration Act”.

How does the PPP take a look at that? They have their own responsibilities as well. Is there any type of issue that they would have seen?

[Michael Ferguson]

Mr. Chair, what we were concerned about was that PPP Canada had, I believe, somewhat more than $700 million, which they have to invest. They will get more under the current program. Then, as I understand it, there was also some other money announced in the budget.

Given that these are starting to become large sums of money, we feel that there needs to be a way of making sure that the finance risks are managed. The government is not in the business of borrowing money to then invest it to try to end up making money, so we feel that this exposure needs to be managed.

[The Chair, NDP, David Christopherson]

The time has expired, Mr. Dreeshen. Thank you.

We go over to Mr. Byrne.

You, sir, now have the floor.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thanks, Mr. Chair, and thank you to the Auditor General and members of your staff.

I have a quick question on chapter 8. Could you help clear up some confusion that I think exists in many people's minds? If the government can't readily identify the specifics of what $3.1 billion was spent on, how can Parliament be confident that it was spent properly and within statutory and policy guidelines?

[Michael Ferguson]

What we were looking for.... Again, this was a very large initiative, a horizontal initiative that included a lot of departments, and it had specific identified objectives—things that were trying to be achieved. Also, there was a mechanism put in place for Treasury Board Secretariat to collect information that could be used for monitoring purposes.

We felt that this would have been the important information to produce summary-level data about what was spent, what it was spent on, and what was achieved. That wasn't done, so there's no overall summary picture that can go forward to anybody.

In general, of course, any dollar that goes out of the federal government's bank account is subject to all of the controls in place in those departments. But that doesn't mean that it's captured in such a way that it can reported against this type of initiative.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Understood. Thanks.

In this context, we had a situation not long ago where there was abuse of parliamentary authority. Parliament had voted and authorized certain expenditures for the Canada border infrastructure fund. We later found out that it was spent on gazebos 200 kilometres away from the border.

Is there a risk that some of the $3.1 billion may not have necessarily been spent on what Parliament had approved it for?

[Michael Ferguson]

Certainly the first part of trying to answer that question is to look at what the budget appropriation was and what was spent and then to try to analyze that difference. The one thing that was occurring in this case was that there was this process for reallocation, and they were tracking when reallocations happened. There's just nothing captured in terms of the total amount of the reallocations.

What's hard to say is how much of that difference was things that were just now spent and how much of it was things that were reallocated and went through the proper process to be reallocated, but then it's not possible, based on the information we have, to answer the question of whether anything was spent on things outside of these initiatives.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Mr. Ferguson, would you suggest to the committee that there is a risk, then?

[Michael Ferguson]

I guess I would have to say there would be a risk because there is not enough information to answer the question completely.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thank you very much.

Regarding chapter 7 on search and rescue, the government released today—which I'm sure you're aware of—what I can only suppose was intended to be projected as an action plan related to your report. I'll applaud you, sir, because what took many people and many organizations a long time to produce, you, through your use of the performance audit, have goaded the government to take action and produce immediately on a very sensitive issue.

In today's action plan on search and rescue, if the government wants to call it that, 95% of spending was on satellites or satellite function, two-thirds of which was simply on renewing the subscription to an existing satellite system. In your report, does the word satellite appear anywhere?

[Michael Ferguson]

Mr. Chair, given that there are 11 chapters, I don't remember every single word we used.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

No. I'm being a bit facetious, Mr. Ferguson.

Let me ask you this. Did you indicate to Parliament through your report that you had any concerns about satellite availability, satellite access, or the future of satellite availability? Was that mentioned within any paragraph of the report?

[Michael Ferguson]

The thing we did mention was a need to put more clarity around the use of beacons to the extent that it has an impact on satellites and satellite usages. I can't really speak to that specifically, but we did say that there was more action that needed to be taken on the policy around beacons.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

I think also what you said was that there was an issue about analogue systems versus digital systems in the beacons, and you suggested that there was a need for Transport Canada to move forward on moving the marine management system to digital systems, while analog systems really don't afford a whole lot of protection.

You really raised a key issue, which is the search and rescue mission information management system. You reported that the system was on the breaking point. An effort had begun to replace it just five months ago, after a very serious systems failure in 2009. You did not expect that new system to be completed until 2015-16.

In today's report, there is something about an information management system, but it's called the search and rescue asset management system. It seems to me that it's exclusively surrounding Department of National Defence and Coast Guard aircraft, making sure that the government can coordinate where aircraft are, whereas, if I understand correctly, the search and rescue mission management system is a highly evolved and very complex piece of software that actually tracks on-the-ground personnel, other organizations, everything related to a search and rescue mission.

The two are very different, I believe, based on what I'm reading—

[The Chair, NDP, David Christopherson]

Hurry, Mr. Byrne, please.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Would you be able to make a comment on whether or not the government has actually succeeded and met that requirement of replacing the search and rescue mission management system through a search and rescue asset management system directed at the government's assets only?