Public Accounts Committee on Nov. 29th, 2016

[The Chair, Conservative, Kevin Sorenson]

Good afternoon, everyone.

This is meeting number 37 of the Standing Committee on Public Accounts, Tuesday, November 29, 2016.

In our first hour, we will be meeting with the Office of the Auditor General and the Atlantic Pilotage Authority.

I'll also remind the committee that in the second hour, we will be discussing the review of the Auditor General's report, which was brought down today. We will discuss some of the committee business around some choices we must make.

In our first hour, as we look to the review, we welcome the Atlantic Pilotage Authority on the Special Examination Report of the Fall 2016 Reports of the Auditor General of Canada.

Appearing before us to assist us with this study, we have from the Office of the Auditor General, Mr. Clyde MacLellan, assistant auditor general; and Heather McManaman, principal, who I think was at our meeting early this morning as well.

From the Atlantic Pilotage Authority, we have Sean Griffiths, chief executive officer; L. Anne Galbraith, chair; Peter MacArthur, chief financial officer and corporate secretary; and Brian Bradley, director of finance.

We welcome you all here to the East Block. It's a building that we don't usually meet in. It is a beautiful building.

I'll invite the Auditor General's Office to make an opening statement, and then we'll hear from Atlantic Pilotage Authority. Then we'll proceed into the question rounds for the committee.

Mr. MacLellan.

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

Thank you, Mr. Chair, for this opportunity to present the results of our special examination of the Atlantic Pilotage Authority. Joining me at the table is Heather McManaman, the principal responsible for the audit.

A special examination of a crown corporation is a type of performance audit. Specifically, a special examination seeks to determine whether the crown 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.

Our examination covered the period from October 2015 to March 2016.

The Atlantic Pilotage Authority is a federal crown corporation whose mandate is to establish, operate, maintain, and administer in the interests of safety an efficient pilotage service within designated regions.

In our examination of the corporation, we identified significant deficiencies in both the corporate management practices and the management of pilotage services. As a result of the pervasiveness of the significant deficiencies, we concluded that the corporation had not maintained the systems and practices in a manner that provided it with reasonable assurance that its assets were safeguarded and controlled, its resources were managed economically and efficiently, and its operations were carried out effectively.

Although its history includes few safety incidents, the corporation needs to formalize and fully implement systems and practices that would demonstrate that it has been diligent in maintaining its pilotage operations. Doing so would minimize the corporation's risk of compromising its safety record in the future.

Regarding the specific significant deficiencies reported, we found that the board of directors, despite having strong competencies, had not set strategic direction for the corporation, nor had it reviewed its mission, vision, or strategic objectives since 2003.

For example, the corporation's strategic direction did not address its long-term financial self-sufficiency. Instead, the corporation reacted to its operating losses in three of the past four years by implementing a surcharge on tariffs. Setting an effective strategic direction is important in order to articulate where an organization is going, what actions are needed to make progress, and how the organization will measure success. Without a strategic direction, management cannot develop and execute plans proactively.

We also found significant deficiencies in the recruitment, staffing, and performance management of pilots and pilot boat crews. For example, the corporation used the services of entrepreneurial pilots without documented contracts specifying terms and conditions. The corporation had not documented that the skills required of pilots and pilot boat crews were up to date, and in some instances, the corporation failed to carry out performance reviews or lacked complete documentation of the reviews. These findings matter because strong systems and practices in the areas of recruitment, staffing, and performance management are necessary for the delivery of the corporation's mandate, which includes the prevention of possible harm to pilots, users, and the environment.

Finally, our report identified room for improvement in some other areas. In particular, the corporation needs to implement a cyclical review of the designation of every compulsory pilotage area under its responsibility. Cyclical reviews would take into consideration changes in technology, ship standards, and traffic patterns. In addition, the corporation needs to perform annual inspections on all pilot boats that it uses to provide pilotage services.

The corporation has agreed with all of our recommendations, and has indicated that it would act quickly to address our concerns. However, because our audit work was completed in March 2016, I cannot comment on any measures that have taken place 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, Conservative, Kevin Sorenson]

Thank you very much, Mr. MacLellan.

We'll now move to Captain Griffiths for his opening statement.

[Captain Sean Griffiths, Chief Executive Officer, Atlantic Pilotage Authority]

Mr. Chair, thank you for the introductions of our team at the APA.

We appreciate the opportunity to be here with you today to speak about the special examination conducted by our colleagues at the Office of the Auditor General through late 2015 and early 2016. The APA is committed to ensuring that it delivers its mandate by the safest, most efficient means possible, all while remaining current within the ever-evolving marine industry and staying within the confines of the Pilotage Act. We welcome the opportunity for feedback, which ultimately improves our business processes. Therefore, we fully supported the OAG through a concerted effort and agree with the final outcome that is before you today.

Of the 10 recommendations, we are pleased to report that six are now completed, while the remaining four will be completed before the second quarter of 2017, in the next six to seven months.

I would like to provide a brief overview of the Atlantic Pilotage Authority with a slide show, which you also have copies of, I believe. It should be quick.

This was updated this year, 2016, as part of our plan. Our mission statement is to deliver safe, effective, and self-sustaining marine pilotage services in Atlantic Canada. Our objectives have also been redefined, but we'll move on to governance, the next slide. The authority has a representative board, with two members recommended by the marine industry, two recommended as pilotage representatives, and two named as public interest representatives. You can see the makeup of the board.

In the organization itself, as you can see from the org chart, there are 47 employee pilots, 17 pilot boat crew members, and six dispatchers. We do have 11 entrepreneurial pilots, as mentioned in the report, who provide services in a number of the smaller ports, representing about 7.5% of the traffic, or 630 assignments out of roughly 8,000.

The next slide shows the provinces inside our jurisdiction, which covers 17 compulsory areas, about 32,000 kilometres of coastline. Pilot transfer is very significant to us. We have rules, regulations, procedures, and safety equipment in place to ensure safe embarking and disembarking of the pilot. How a pilot gets to an assignment is through a fleet of robust, modern pilot boats. They are stable platforms, effective in rough weather, fast and manoeuvrable. They utilize integrated navigational equipment and have capable man-overboard retrieval systems. We own nine of them.

Some of the ships that call the east coast of Canada.... We pretty well get them all, from general cargo ships to container ships, auto carriers, foreign and domestic oil tankers, various types of cruise ships—which are getting bigger every year—and coastal tankers servicing the eastern parts of Canada.

Here, I draw your attention to some pretty significant milestones and indicators. In the last 10 years, which sort of covers the special exam period, 90,000 assignments were conducted. The incident-free rate was 99.93%. This rate always hovers between 99.93% and 99.96%. We've never released any pollutants in the waterways, and no injuries have occurred due to an incident while under pilotage.

Pilotage assignments where a pilot was delivered within one hour of confirmation time occurred 99.1% of the time, and for those that were delayed, the average delay was about 2.2 hours. Over 10 years, we've accumulated profits of about $1.9 million. We've launched four new pilot boats in this time, with a total cost of $13 million, and have $3.9 million outstanding in loans on these vessels today. We invested between $500,000 and $1 million annually in new equipment and vessel upgrades beyond the vessel purchases. That's pretty significant.

I won't get into the next slide, but we did a survey of our stakeholders and customers this year about satisfaction, safety, and our commitment to safety in public perception, and the response percentages, in green, are all in the eighties and nineties.

Then we move on to the special examination report. There were 10 recommendations, as I mentioned earlier. Under the category of corporate management practices, there were four recommendations. The authority has addressed these and implemented solutions. Under management of pilotage services, there were six recommendations; three of these will be addressed by the end of 2016, two more by March, and the final one by June.

In conclusion, our authority has a proven record of safety and efficiency, which contributes to public confidence and trust in Canada's marine industry, particularly with the transportation of crude oil to eastern Canadian refineries, terminals, and ports. The OAG has made 10 recommendations for the authority. The authority will have seven of these implemented by the end of 2016, and the remaining three in the first half of 2017.

I look forward to your questions.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much.

[David Christopherson, NDP, Hamilton Centre, ON]

Chair, I have a point of order.

It's just a small matter, and I accept that it's small, but I just find it passing strange that the presentation was made by the chief executive officer and not the chair. The chair is the one who is ultimately responsible publicly, not the chief executive officer. It's interesting. Even the way they are listed here, Mr. Griffiths gets top billing above Madam Galbraith.

Perhaps the chair could give us a reason why the chief executive officer gave this presentation, and not the chair.

[L. Anne Galbraith, Chair, Atlantic Pilotage Authority]

There is no particular reason. He had done up the presentation. I could have easily given it. Sorry for not recognizing that point of order.

[David Christopherson, NDP, Hamilton Centre, ON]

Thanks, Chair.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Christopherson.

Thank you for your presentation. It was very good.

We also have the action plan. We thank you for getting that in earlier. It was circulated last week.

We'll go to Ms. Mendès, for seven minutes, please.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Thank you very much, Mr. Chair, and thank you all for your presence here today.

I have to say that it was a bit of a fluke that I actually got my hands on the 2007 report by the Auditor General on the pilotage authority. I find it a bit striking that what was said in 2007 was very complimentary. There were no main issues to point to the authority.

I'd like the Auditor General to tell us what changed so much between 2007 and 2016, particularly when you mention that there has been no strategic plan review since 2003, while in 2007 it didn't seem to be an issue. What has changed that made it so flagrant?

[Clyde MacLellan]

Mr. Chair, if I may begin, we do our work and look at a period of time to find the evidence to support the criteria established to meet the objectives of the audit. When we look at each particular period, we look at and assess the conditions at that point in time.

I think the first response to your question is, in 2007, looking at the window that we looked at, we found evidence supporting all the criteria.

Fast forward, if you will, to nine or 10 years post that time, and when we looked at the same issues, the quality of the evidence and the rigour supporting those decisions was not the same as it was in 2007.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Do you have a reason as to why that happened?

[Clyde MacLellan]

I think that would be a question better directed to the corporation. We look for the evidence to indicate whether the systems and practices are in place but don't necessarily try to find, in all cases, the reason. I think that would be a question better directed to management.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Thank you.

I will ask Captain Griffiths.

[Capt Sean Griffiths]

With respect to the audit back in 2007, I can't comment. I wasn't employed at the authority at the time.

However, we did notice during the course of this audit, the level of detail. How evidence was presented and communicated to the Auditor General was unique and very detailed. I'm sure the line of questioning was different in 2007 from today, and the way evidence was presented was different.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Since you just said that you weren't with the corporation then, was that an issue? Was that a problem, that there was a lot of change in human resources and maybe a certain difficulty in the transition between different teams? Is that part of the issue?

[Capt Sean Griffiths]

There were some challenges around staffing and recruitment. I was promoted last year. Last July, I was appointed as CEO. Our chair is new to the board, as are other board members. We had an operational change in the work structure as well. All those presented some challenges for this audit.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

One of the things the Auditor General pointed out was precisely the way you managed your human resources. The pilot training and competency evaluations, even the health reports, were somewhat lacking. How do you explain that? How do you explain that these changes from 2007 to 2016 are so obvious? They were also pointed to as being very good points in 2007, as being points that had warranted the commendation of the Auditor General.

[Capt Sean Griffiths]

Correct.

When I was hired two and a half years ago, with a fresh set of eyes on policy, procedure, and operations, we began the overhaul of a lot of procedures and protocols within the authority. Many of these were under way, in progress, during the kickoff of the audit, but weren't established and weren't finalized by that time.

A lot has changed at the authority in the last two and a half years, dramatically since I joined. I'm sure my chief financial officer, Mr. MacArthur, would agree. Of all of us, he has the longest time with the authority, 28 years. The changes in the last three years for the positive have come a long way.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Would you mind elaborating? That's obviously also another issue, the two years you ran deficits that you managed to cover by increases in charges. How do you account for the fact that it was reasonably recently that you faced these financial issues?

[Peter MacArthur, Chief Financial Officer and Corporate Secretary, Atlantic Pilotage Authority]

As far as the financial issues are concerned, we have always taken a longer view than a window of two, three, or four years. In the time I've been with the authority, we've had two periods of time when we've lost money, and it's because of changes in our business, for the most part, or issues that we've had with our business.

For example, in 2009, we made over $1.3 million. In 2010, we made almost $2.4 million. In 2011, we made $1.65 million. We lost $600,000 and $550,000 in the two years that were looked at in the exam. In the two years before that, we had one year of profit of $100,000, and the other year we had a loss. It tends to be cyclical as far as the financial part is concerned.

As far as the changes in the organization are concerned, as Sean just mentioned, the human resources person we'd had for a few years left us and we had to recruit a new human resources person. When Sean was promoted from the chief operating officer, we didn't have anyone in place to replace him and we only got that position done, the director of operations, in February, and we had a new person. We ran through a period of time when we were running lean on our management side. We also had a dispatch supervisor who left us with almost no notice in October 2015, with two weeks' notice.

We have struggled to try to meet some of that. I think today we're in a lot better position than we were a year ago.

[Alexandra Mendes, Liberal, Brossard—Saint-Lambert, QC]

Fiscally speaking, for the years where you managed to operate in a very positive financial situation, are those monies passed over to the year after, so that you can balance out the more lean years? Is that how you operate?

[Peter MacArthur]

Yes. What we tend to look at is, over a longer term, we have to make some money or at least break even. As Sean mentioned in his presentation, since 2007, we've built four pilot boats at a cost of about $13 million and we only financed a portion of that. The rest came from our cash reserves.

This year it looks like we're turning the corner and we should have a profit of anywhere between $800,000 and $1 million.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Ms. Mendès.

We'll now move to Mr. McColeman, for seven minutes.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Thank you for coming today.

I want to look to a couple of areas here. As Madam Mendès said, losses in the last three of the four years is very concerning. The one is board oversight, strategic direction, and decision-making. The other one is recruitment and staffing of pilots and pilot boat crews. Both are pretty scathing observations in this audit of operations. When I read the overall audit or read into what was found, it sounds like the organization was pretty dysfunctional at one point in time. I'd like your view on that in this context.

Let's pull back the curtains here. You never know what an organization is like until you're there. We cannot be there, yet we're reading a report on this organization. We're not televised. No one's watching us from afar. In your opinion, what were the worst days, the worst situation, that you were facing in terms of this dysfunction?

I'll ask that of Mr. Griffiths first.