Public Accounts Committee on Nov. 29th, 2012

[The Chair, NDP, David Christopherson]

I call this 68th meeting of the Standing Committee on Public Accounts to order.

Welcome to our guests this morning. The Auditor General is here, and the chairperson of the Canadian Dairy Commission, Mr. Williamson, is also with us.

Thank you for joining us, sir. I understand that you did provide an action plan as we requested, but apparently there are not copies of your opening remarks. Is that correct?

[Randy Williamson, Chairperson, Canadian Dairy Commission]

I'm not sure if there are or not. If I can consult with our corporate secretary—

[The Chair, NDP, David Christopherson]

I was advised that there weren't.

[Randy Williamson]

I'm not aware that there are, so I would probably agree with you.

[The Chair, NDP, David Christopherson]

Okay. There was a request. Is there any particular reason why not?

[Randy Williamson]

No particular reason whatsoever. I was not aware of the request.

[The Chair, NDP, David Christopherson]

I checked with the clerk. Maybe we need to emphasize that in the instructions because it was verbal. Maybe we need to follow up with e-mails or something. I'll just leave it at that, and we'll make sure it works for us all in the next process.

Colleagues, if you recall, these are the special examinations of crown corporations, as is our tradition. We normally pick two because that allows us to do an hour each and then the equivalent of a two-hour regular meeting. In this case, we were only able to organize one for today, but we'll do that for the next hour and then we'll go in camera and continue report writing.

I would suggest, as we've done before, that we would just begin the rotation and run the rotation until the time expires. This is what we've done, but I'm open to any other suggestions.

Mr. Kramp.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Chair, I have a unit that is not working. My speaker works but nothing else. There's no translation. There's no audio at all.

[The Chair, NDP, David Christopherson]

I see one of our fine technicians is on his way over. If he can fix it, he will.

Are you good, sir?

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

I'm good. Fine, thank you very much.

[The Chair, NDP, David Christopherson]

Very well.

Is everyone in agreement? We'll just do our rotation until the time allotted expires. All right.

We are ready to go, and we will open with Mr. Ferguson's remarks. You have the floor, sir.

[Michael Ferguson, Auditor General of Canada, Office of the Auditor General of Canada]

Thank you.

Mr. Chair, thank you for this opportunity to discuss chapter 6 of our spring 2012 report, which covers special examinations of crown corporations that were issued in 2011. In particular, we will be discussing the special examination of the Canadian Dairy Commission. Our full report is available on the crown corporation's website.

Joining me at the table is Dale Shier, the Principal who was responsible for the audit.

Under part X of the Financial Administration Act, we conduct periodic special examinations of crown corporations. Special examinations of crown corporations are a form of performance audit where the scope is set by law to include the entire corporation. A special examination provides an independent opinion to determine if the corporation has reasonable assurance that its systems and practices allow it to safeguard and control its assets, manage its financial, human, and physical resources economically and efficiently, and carry out its operations effectively.

We note as a significant deficiency any weakness in the systems and practices of the corporation that could prevent it from reaching its objectives. Thus our special examination reports are a source of important information that parliamentarians can use to hold crown corporations to account.

We did not note any significant deficiencies in the Canadian Dairy Commission's systems and practices. However, we did find areas for improvement.

Our report includes three recommendations. One recommendation addresses the need for the commission to improve the performance indicators that it uses to assess and report on its operations.

The other two recommendations relate to governance by the commission's board of directors. Both recommendations are driven by the small size of the board of directors. Under the commission's enabling legislation, the size of its board is set at three people, one of whom is also the chief executive officer. One of our recommendations related to governance deals with the difficulty of having the breadth of skills needed for effective governance in a board with only three members.

Our second governance recommendation deals with conflicts of interest. With a board of only three members, conflicts can cause difficulties in achieving quorum for votes. We recommended that the commission develop procedures for board members to declare conflicts of interest and for the commission to manage conflicts.

Management accepted all three of our recommendations. As the period of our examination ended in August 2010, the committee may wish to ask management what actions the commission has taken over the last two years to address 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, NDP, David Christopherson]

Thank you, sir.

Mr. Williamson, we will have your opening remarks, sir.

[Randy Williamson]

Good morning. My name is Randy Williamson, and I am the chairman of the Canadian Dairy Commission. We refer to it as the CDC.

I've been invited today to discuss the information contained in the 2012 Auditor General's report that concerns a special examination of the CDC. I would like to give you a quick overview of the Canadian Dairy Commission.

The CDC is a crown corporation that employs approximately 60 people. Our offices are in Ottawa. Our annual operating budget is approximately $8 million. Half of this amount consists of government appropriations. Our other sources of funding are dairy producers, our commercial operations, and the marketplace. The mandate of the CDC as it is written in its act is to “provide efficient producers of milk and cream with the opportunity to obtain a fair return for their labour and investment and to provide consumers of dairy products with a continuous and adequate supply of dairy products of high quality”.

The CDC reports to Parliament through the Minister of Agriculture and Agri-Food Canada. The CDC is an important stakeholder in the Canadian dairy industry. It sets support prices for dairy products. These prices are used as references by the provincial milk marketing boards to establish the price of industrial milk in each province. The CDC also calculates the production quota required to supply markets, acts as a facilitator to coordinate dairy policies in Canada, and administers several programs on behalf of the Canadian dairy industry.

We work closely with other stakeholders in the industry. These include dairy farmers, dairy processors, provincial governments, retailers, restaurant owners, and consumers, as well as other federal organizations such as Agriculture and Agri-Food Canada. In Canada, the dairy industry represents $5.8 billion in farm receipts, and $13.7 billion of products shipped from approximately 453 processing plants. As of August 1, 2012, there were 12,746 dairy farms in Canada, housing slightly more than 900,000 cows, and producing over 79 million hectolitres of milk per year.

The dairy industry is characterized by a system called supply management, where farmers produce only the quantity of milk that is required to fill projected markets. Many aspects of this system are administered by provincial milk marketing boards.

The governing body of the CDC consists of a chairperson, a commissioner, and a chief executive officer. The board is responsible for providing leadership and supervision of the CDCs activities, ensuring that the objectives of the Canadian Dairy Commission Act and the CDC's strategic plan are met, and that best governance practices are in place. Board members also form the audit committee as per subsection 148(2) of the Financial Administration Act. This committee reviews quarterly financial statements as well as program evaluation and internal audit summary reports. The Office of the Auditor General is the official auditor of the CDC, and in addition to the special examinations, it performs the audit of our year-end financial statements presented in the CDC's annual report.

I would like to get back to the special examination that the OAG conducted at the CDC in 2011.

The OAG noted good practices in a number of areas and found no significant deficiencies in our systems and practices. The report formulated three recommendations. The first had to do with improving the collective skills of the board members. The second dealt with procedures for board members to declare and manage conflicts of interest. The third recommendation touched on the performance indicators that the CDC establishes to measure its performance.

The board agreed and has since made the necessary changes to improve its governance practices as they relate to the three recommendations.

Thank you.

[The Chair, NDP, David Christopherson]

Very good. Thank you also.

With that, we'll begin our rotation.

Mr. Saxton, you can kick it off. You have the floor.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you, Chair, and thank you, witnesses, for being here today.

My questions are for the CDC.

Mr. Williamson, can you explain how the CDC works with industry to grow the market here in Canada?

[Randy Williamson]

It's a very important component of our responsibility. It is a responsibility shared with many other agencies within Canada. Specifically, within the CDC in the areas that we have direct influence over, we have over the years introduced a number of programs to facilitate the growth of dairy products and the opportunity for growth within Canada.

We have a program that we refer to as the domestic dairy product innovation program. It is a program whereby a processor or further processor can identify a product that is innovative, new, and needed in the marketplace. We then will follow a process to provide milk to that organization, such that there is no shortage of supply to meet the market's needs.

We have a program that we refer to as the dairy marketing program, whereby we solicit opportunities within Canada for further processors as well as for processors, which provides them with an opportunity to explore opportunities in marketing that they do not necessarily have the resources to explore. We have funding that provides a cooperation with them that allows them to expand their business.

We have a matching investment fund that is focused on research, on opportunities for research into new and innovative products, whereby we have a matching fund, up to a certain limit. It has been very successful for us over the last few years.

We have a special milk class permit program, which was introduced in the mid-1990s in response to a need to provide further processors in Canada with the opportunity to access milk at a competitive price, such that product that was coming into Canada would be met at competitive prices. This is also a very successful program and a large component of what we do.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

Can you explain how you work with government to keep supply management strong?

[Randy Williamson]

We have excellent communications and relationships with government. The development of our objectives and strategic plans is done in consultation and in concert with government. We constantly refer back to our CDC mandate, which is to ensure that we provide efficient producers with an opportunity to obtain a fair return, and to provide a continuous supply of quality dairy products. Everything that we do relative to our strategic plan in consultation with the ministry is in pursuit of achieving those objectives.

[Andrew Saxton, Conservative, North Vancouver, BC]

Thank you.

You have prepared an action plan in response to the Auditor General's report. Perhaps you could take us through that and explain your action plan.

[Randy Williamson]

There were three primary areas, as indicated. If I were to simplify them, the first area is the area of skill sets on the board. There was an indication by the OAG that, in particular and more specifically, there was a shortfall in the financial skill set on the board. We concur.

In fact, we have a number of requirements relative to the skill set. We feel that it is relative to the complexity of the nature of the business and the nature of supply management. Having an individual on the board who is familiar with producer issues and an individual on the board who is familiar with processor issues is also very important. With a three-member board, it becomes very difficult to ensure that we have the breadth of skill.

To the extent that we recognized the shortfall, the recommendation was received and our response to it is that where the board feels there is a shortfall, we seek outside expertise. An example of that is our recent conversion from the previous accounting standards to an IFR, international financial reporting standards system. We solicited the services of an outside firm to assist us in that transition.

The second area of recommendation was in the area of conflict. Once again, the conflict was in the fact that we have a three-member board. A producer recommendation provides one of the commissioners and processors another, and there is an apparent conflict as it relates to the producer ruling on support prices and being part of the process that establishes support prices. We recognize that as an issue. We have changed our bylaws to ensure that at the commencement of every meeting any agenda item is reviewed to determine whether or not any individual member has a conflict of interest, and there is an expectation to recuse oneself, should any exist.

In addition, we take a position of neutrality. This is certainly the expectation we have of all members, that we have a neutral position on the issues we deal with such that we avoid any conflict of interest.

[The Chair, NDP, David Christopherson]

Time has expired. Thank you both.

We go over to the official opposition.

Madame Blanchette-Lamothe, you have the floor.

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

Thank you, Mr. Chair.

I would like to go back to what Mr. Williamson was saying concerning his action plan. Afterwards, I will give him the opportunity to continue his explanations concerning what has been done to comply with the recommendations.

First of all, concerning the first recommendation, you say that you now evaluate collective competencies on a regular basis. What do you mean by “on a regular basis”? What is the frequency of these competency assessments, what tools do you use, and how do you use them? How rigorous are the analyses of the levels of competence?

[Randy Williamson]

The manner in which we assess the need for support, if you like, in terms of shortfalls in skill sets, is our judgment. It's a judgment on a particular agenda item, a particular issue, in terms of whether or not we believe that the skill sets of the individuals are adequate to meet the needs of our mandate.

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

When you say “our judgment”, you are talking about the judgment of the members of the board?