Evidence of meeting #73 for Fisheries and Oceans in the 42nd Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was board.
A recording is available from Parliament.
Principal, Office of the Auditor General
We found that in some cases mandatory health and safety training wasn't taken. If it's mandatory, we would expect 100% compliance and we did not find that.
We also found that a hazard prevention program was not fully in place. It hadn't been fully implemented and that's required under the Canada Labour Code. We obviously would have expected that to be in place, particularly given the nature of their operations.
NDP
Fin Donnelly NDP Port Moody—Coquitlam, BC
Right. Thank you.
Could you talk a little about local fish processing? This is the whole point of this board. Have they had any success with processing fish locally?
Assistant Auditor General, Office of the Auditor General
Notwithstanding all of the negative observations we had in terms of the processes and the lack of strategic direction updates and risk management, the corporation does continue to market the fish. They have had a number of profitable years. We raise in our report that you have to be careful that the profitability is influenced by a number of factors, including exchange rates. They are enabling the fishers to have a point of contact to purchase the fish. They are marketing that fish. They are returning money back to the fishers.
A bit of the concern for us in all of the issues around every internal process is that the goal under the act is to maximize the return to fishers. Anything that happens that diminishes the productivity that they could achieve—notwithstanding having sold—that puts additional costs, whether it's by non-compliance with certain policies, all have a potential risk of diminishing the return that could be provided to the fishers. What you would want to see is the corporation running as efficiently as it can, respecting all of the rules, and then maximizing that return.
I think the answer to your question is yes. It's not that they're not doing the core activity, but what we expect of a crown corporation is to respect, obviously, the rules, the laws, and good practices to optimize the return that is provided to the individual stakeholders.
Fin Donnelly NDP Port Moody—Coquitlam, BC
On that note, on the individual stakeholders, were you able to determine whether the profits were being distributed to as many local fishers as equitably possible?
Principal, Office of the Auditor General
The pricing system works like this. They set an initial price that they will pay fishers upon receipt of their catch, and that's established at the beginning of the fishing seasons. They would pay pound for pound, the price per pound. At the end of the fiscal year, they have a final payment to fishers and a retained earnings policy that is approved by the board. They use that policy to determine the final payment, distributing the profits, if you will, to the fishers. That is based on sales to the corporation by each individual fisher or fishing co-op and profitability of those species. If your species were not profitable, you wouldn't get a final payment, but if you're selling walleye to the corporation and that species had a profitable year, then you would share in the final payment.
We do look at that annually as part of our financial statement audit and we didn't find any issues.
Liberal
Liberal
Ken Hardie Liberal Fleetwood—Port Kells, BC
Thank you, Mr. Chair.
Thank you, witnesses, for being here.
It looks like the board got bored. We have a situation where in 2005, you did an audit, and things seemed to be okay. Can you confirm that?
Assistant Auditor General, Office of the Auditor General
If I may correct that, there were weaknesses we identified, but the severity of the report was not the same as it was in 2010 and 2017.
Liberal
Ken Hardie Liberal Fleetwood—Port Kells, BC
Between 2005 and 2010, were there large-scale changes on the board of directors?
Principal, Office of the Auditor General
I wasn't involved with the corporation in 2005.
Assistant Auditor General, Office of the Auditor General
I can't recall whether there were huge changes between 2005 and 2010. There certainly was a significant turnover just before we started the audit in 2017 and throughout that period.
Liberal
Ken Hardie Liberal Fleetwood—Port Kells, BC
Similarly, have you tracked the turnover in management since 2005?
Liberal
Ken Hardie Liberal Fleetwood—Port Kells, BC
Perhaps the witnesses to come will help clarify some of this.
Is there an argument that the board breached its fiduciary duty to the corporation?
Assistant Auditor General, Office of the Auditor General
When you use those words, it very much brings in a legal context. Our report was not designed to answer the question the way you have posed it. In looking at the role the board was to play and the importance of oversight in exercising its role in terms of providing governance, we found, as you can see in the report, significant gaps and weaknesses.
Liberal
Ken Hardie Liberal Fleetwood—Port Kells, BC
You have a scenario where a president was let go with cause.
Liberal
Ken Hardie Liberal Fleetwood—Port Kells, BC
At the same time, there were numerous vacancies on the board of directors. Without knowing all the details, I'm starting to feel a little bit sorry for the president, because it sounds like he was not given very good direction by the board, or the board simply didn't exercise the kind of oversight you would ordinarily expect people appointed to that position by the government to exercise.
Assistant Auditor General, Office of the Auditor General
The way I would characterize the various players in the whole process.... My summary would be very simple. There's a lot of blame, if you will, to go around in terms of the gaps at the board level, in terms of the oversight, and in terms of some of the actions of the president, which are outlined in the report, that didn't respect the policies of the organization. Then, of course, there was management itself in terms of its role in providing information to the board and its own due diligence on a number of actions.
One of the things that's critical for us in respect of the board is that you need the positions filled. Many times what we're finding in crown corporations is that there is either a long period during which those vacancies exist and are not filled on a timely basis, or people are asked to stay on, on a goodwill basis, even though their term has expired, without necessarily a guarantee. There are other issues in terms of legislation around the various relationships that exist.
What we're raising is that the government engage with the corporations to fill the positions on a timely basis so that you don't have gaps, and you have the strength and competency on the board to provide direction.
Liberal
Ken Hardie Liberal Fleetwood—Port Kells, BC
This is empirical more than anything, but we've noticed something of a trend. I'm going to ask if you've noticed the same thing in your various audits of crown corporations and other creatures of the federal government. Boards tend to be abdicating more and more power and responsibility to senior management.
Assistant Auditor General, Office of the Auditor General
I'm not sure I would share that characterization. There is an important line to be drawn between oversight and management. There is always a challenge for boards to ensure that they're not running the business, yet they're challenging the decisions of management. That's a unique role and position to occupy, and you need the right kind of competencies and strengths to be able to do that, with the assurance that you can, while not taking over.
I would characterize it a little differently. I'm not concerned that they're trying to abdicate and are just holding their positions without doing anything, but if you weaken a number of people who are on a board to the point that it's very difficult to establish committees and have quorum, all the responsibility lands on a very few, and it becomes overwhelming. To what you are observing, you may, in many cases, see a situation in which a board has vacancies, or individuals who are uncertain of their future, which leaves a very small number to handle the whole thing, and it's just too much for them.
Liberal
Ken Hardie Liberal Fleetwood—Port Kells, BC
How many vacancies were on the board when you did your audit?
