Fisheries Committee on Oct. 31st, 2017

[The Chair, Liberal, Scott Simms]

Good morning, everybody.

We have today, pursuant to Standing Order 108(2), a briefing on the detailed action plan of Freshwater Fish Marketing Corporation, in response to the spring 2017 reports of the Auditor General of Canada. As you know, we passed a motion some time ago, brought forward by Mr. Donnelly, to study this within a six-month period. Our six months are almost up. Therefore, here we are.

First of all, happy Halloween, everybody. I forgot to wear my costume this morning.

[A voice]

Or did you?

[The Chair, Liberal, Scott Simms]

Or did I? Well, someone said this morning that my jacket gives me the aura of being Austin Powers, so I'll take that as a compliment.

This morning's meeting has two parts. We are going to hear from the Auditor General's office and later from the Freshwater Fish Marketing Corporation. Then we have to get into some committee business regarding legislation coming up, which has passed second reading. That's Bill C-55.

In the meantime we have here this morning, for the next hour or so, Heather McManaman, who is a principal at the Office of the Auditor General; as well as the assistant auditor general, Mr. Clyde MacLellan, who I'm sure has gone through this procedure several times before.

Are both of you making presentations or just one for the opening?

That would be you, Mr. MacLellan. You have up to 10 minutes, sir.

[Clyde MacLellan, Assistant Auditor General, Office of the Auditor General]

Mr. Chair, thank you for this opportunity to present the results of our special examination of the Freshwater Fish Marketing Corporation. As you mentioned, joining me at the table is Heather McManaman, the principal who was responsible for the audit.

A special examination of a crown corporation is a type of performance audit. Specifically, a special examination determines whether a corporation's systems and practices provide reasonable assurance that its assets are safeguarded and controlled, its resources are managed economically and efficiently, and its operations are carried out effectively.

The Freshwater Fish Marketing Corporation was established in 1969 to market and trade, both inside and outside Canada, freshwater fish caught in western and northern Canada as well as the by-products of that fish. Our examination of the corporation covered the period from October 2015 to June 2016.

The corporation has faced many external challenges in recent years. These challenges included considerable risks associated with a complex and changing business environment. For example, the supply of whitefish increased at the same time that Canadian sanctions on Russia reduced the number of buyers for this fish. Also, the Province of Manitoba gave notice that it intended to withdraw from its agreement under the Freshwater Fish Marketing Act and therefore eliminate the corporation's exclusive right to purchase fish caught in the province.

Our special examination identified many significant deficiencies in the corporation. As a result of the pervasiveness of these significant deficiencies, we concluded that the corporation had not maintained its systems and practices in a manner that provided reasonable assurance that its assets were safeguarded and controlled, its resources were managed economically and efficiently, and its operations were carried out effectively. We refer to this type of conclusion as an adverse opinion, which is the strongest negative assessment that we can give in a special examination.

In several ways, we found that the board of directors and management failed to meet their responsibilities for oversight and management of the corporation.

Specifically, we found that the board did not ensure that the corporation's strategic plan was up to date and provided clear strategic direction to management. Furthermore, management had not provided and the board had not reviewed updated risks and risk-mitigation measures since 2014. Consequently, management did not have strategies in place to mitigate the significant events that affected the corporation. This greatly limited the corporation's ability to meet its objectives, make long-term commitments, and make timely decisions about its future.

We found that management disregarded key controls. For example, management created positions without job descriptions and filled them without competitive or merit-based processes. Also, management disregarded the corporation's procurement and purchasing policy when it purchased certain pieces of capital equipment without a proper business case analysis. Some of this equipment was never used in the corporation's plant because it did not meet its needs.

We also found that some plant workers had not taken compulsory health and safety training, and that a hazard prevention program was not finalized. If these health and safety issues are not addressed, they could lead to employee safety incidents and expose the corporation to significant losses.

Finally, we found that, despite the recommendations we made in our 2005 and 2010 special examinations, the corporation's targets and standards for yield, capacity, and labour efficiency still had not been reviewed. These findings matter, because yield is a key measure of efficiency and production performance.

The corporation agreed with all of our recommendations and indicated that it would act to address our concerns. However, because our work was completed in June 2016, I cannot comment on any measures that have been taken since then. The committee may wish to ask the corporation's officials to clarify what measures have been taken in response to our recommendations.

Mr. Chair, this concludes my opening remarks.

We would be pleased to answer any questions the committee may have.

Thank you.

[The Chair, Liberal, Scott Simms]

Merci à vous, Mr. MacLellan.

We'll now go to questions. I'm sure you know the format by now.

Mrs. Jordan, you have seven minutes, please.

[Bernadette Jordan, Liberal, South Shore—St. Margarets, NS]

Thank you, Mr. Chair.

Thank you to our witnesses for appearing this morning.

Just by way of putting it on the record, you stated that Manitoba is pulling out of the Freshwater Fish Marketing Act. Who is still involved? Who would still be left after they leave?

[Clyde MacLellan]

I'll ask Ms. McManaman to give you the specifics of who remains in the agreements.

[Heather McManaman, Principal, Office of the Auditor General]

If and when Manitoba withdraws from the act, the Northwest Territories and Alberta will remain. However, Alberta has closed its commercial fishery and has focused on the recreational fishery.

[Bernadette Jordan, Liberal, South Shore—St. Margarets, NS]

Thank you.

In point number nine of your opening remarks, you say “the Board did not ensure that the Corporation's strategic plan was up to date”, and that it hasn't been reviewed since 2014. How often should the strategic plan have been updated?

[Clyde MacLellan]

It's our view that strategic planning is an annual exercise.

[Bernadette Jordan, Liberal, South Shore—St. Margarets, NS]

You also stated in that point that there were no “strategies in place to mitigate...significant events that affected the Corporation.” Can you tell me what some of those significant events may have been?

[Clyde MacLellan]

In the report we provided, a conversation about, for example, Manitoba and the likelihood that it would exit from the program was one example of a type of risk that we felt should have been thought about and considered, in terms of mitigation strategies, and then reflected in the strategic plan if necessary.

[Bernadette Jordan, Liberal, South Shore—St. Margarets, NS]

You went on to say that management “created positions without job descriptions and filled them without competitive or merit-based processes.” How did they fill them? Do you know? Is that a question you can answer?

[Heather McManaman]

The examples we refer to in our report were actions taken by the president in place at the time. He undertook his recruitment process, which we didn't feel was merit-based, and he appointed people to positions, or he assigned persons to a particular position but didn't have a job description for it, or set a salary that didn't go through the corporation's process. They have a process in place whereby they would set salaries based on the tasks and functions of a particular role.

[Bernadette Jordan, Liberal, South Shore—St. Margarets, NS]

You went on to say that management “disregarded the Corporations's Procurement and Purchasing Policy.... Some...equipment was never used in the Corporation's plant because it did not meet its needs.” What happened to that equipment?

[Heather McManaman]

One piece of equipment was sold back to the vendor at a cost less than the purchase price. The two other pieces of equipment that we refer to were modified and subsequently able to be used in the plant. This was addressed outside of the period under audit; we're also the financial statement auditor of the corporation.

[Bernadette Jordan, Liberal, South Shore—St. Margarets, NS]

I don't know if this is a question you want to answer or if it's something that you can answer. Basically, Alberta has now closed its commercial fishery. Manitoba is pulling out. All that's left is the Northwest Territories. Is there any reason you would continue on with this board?

[Clyde MacLellan]

That very much is a policy question, which we as an organization don't get into.

It's interesting that the question you ask—whether or not the corporation should be continuing—is actually a question that was asked of the Auditor General when the report was first tabled. His response, which is very similar to what I indicated, was that it's very much a policy decision of the government. Certainly we found that what we expected in terms of management of a crown corporation was absent during the examination.

The Auditor General did recognize that Freshwater Fish was established in 1969, and since then there have been a number of changes in the environment in which it operates, the world in which we work. Certainly, it's reasonable to ask to consider all of that. Unfortunately, we can't provide any answer in respect to that.

[Bernadette Jordan, Liberal, South Shore—St. Margarets, NS]

With the, I'm going to say, failing grade—you gave an adverse opinion, I believe is how you—

[Clyde MacLellan]

That's correct.

[Bernadette Jordan, Liberal, South Shore—St. Margarets, NS]

I'm going to call it a failing grade.

[Clyde MacLellan]

That's fine.

[Bernadette Jordan, Liberal, South Shore—St. Margarets, NS]

Was that the first time it happened with this organization? Is it the first audit they've had in which this has happened, or is this an ongoing issue?

[Heather McManaman]

We conducted a special examination in 2005, and it was not an adverse opinion. There were no significant deficiencies, although we did note a number of weaknesses. In 2010 we conducted another special examination. That was an adverse opinion. Then again in 2017, there was another adverse opinion.

We also found that some of the observations from 2005 and 2010 were similar to what we found again in 2017.

[Bernadette Jordan, Liberal, South Shore—St. Margarets, NS]

In 2005 and 2010 you would have made recommendations. Were those recommendations acted on, or are these still the same problems, in this last report?