Public Accounts Committee on Oct. 19th, 2017

[The Chair, Conservative, Kevin Sorenson]

Good morning, everyone. This is meeting number 72 of the Standing Committee on Public Accounts on Thursday, October 19, 2017. I would remind everyone that we are televised today.

In our first hour we will study the Auditor General's special examination report of the Freshwater Fish Marketing Corporation, of the Spring 2017 Reports of the Auditor General of Canada. We have as witnesses before us today, from the Office of the Auditor General, Clyde MacLellan, assistant auditor general; also Heather McManaman, principal. From the Freshwater Fish Marketing Corporation, we have David Bevan, chairperson, board of directors; Stan Lazar, interim president; and Wendy Matheson, vice-president, human resources and government services.

We have an opening statement from the Auditor General's office and also from Mr. Bevan of the Freshwater Fish Marketing Corporation. Then we'll have time for questions. We may conclude about five minutes before the time is up as we have some committee business we want to do before we move into the next hour of presentations.

With that I'll turn to Mr. MacLellan. Welcome to the public accounts committee.

[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 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.

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 that province.

Our special examination identified many serious 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 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 meets 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 it 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. This finding matters because yield is a key measurement 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, Conservative, Kevin Sorenson]

Thank you very much, Mr. MacLellan.

We'll now turn to Mr. Bevan, please.

[David Bevan, Chairperson, Board of Directors, Freshwater Fish Marketing Corporation]

Thank you for the opportunity to appear here today, and thank you to the Office of the Auditor General for their observations and recommendations.

I'm going to speak briefly to the slides that are in the deck we sent to you.

The Freshwater Fish Marketing Corporation was established in 1969 to connect geographically dispersed communities to world markets. The conditions that led to its establishment generally persist to this day. We buy, process, and market 15 million kilograms of fish coming from Manitoba, Saskatchewan, and the Northwest Territories. We purchase fish from about 1,600 fishers. They are predominantly from dispersed, isolated, and predominantly indigenous communities. We have the infrastructure and the supply chains to move products into those communities to help support the fishery and the fish back out. Our average sales over the last three years have been $73.5 million, and we employ 250 full-time employees and 150 seasonal employees.

On the next slide, there's more information about how much money we spend in each jurisdiction to obtain our supplies of fish, and where we sell the fish.

Key performance indicators, on the following slide, for the year following the special examination indicate that our profits prior to final payments and income tax are up. Our retained earnings have increased to almost $15 million, which is in excess of our long-term debt, and we have improved our yields and improved our operational costs per kilogram. This year, in the first quarter, our performance continues to be quite positive. We have in the first quarter a profit after tax of $4.3 million, as compared to $2 million in the previous year. We have increased sales volumes. We have strong revenues, a competitive market pricing, and we've controlled our expenses. We are on track to meet the corporate plan.

The next slide gives a graphic presentation of our retained earnings since we changed our policies in 2010. At the bottom is the profit after taxes and after final payment to fishers.

The real risk that we face at this point is the withdrawal of Manitoba from the Freshwater Fish Marketing Act. Manitoba is going to create logistical, operational, and governance challenges for the corporation. They supply 80% of our fish. The Government of Canada has consulted with stakeholders and will be coming forward with a decision as to how they will respond to the changes with respect to Manitoba. In the meantime, the board and the management of the Freshwater Fish Marketing Corporation are acting to secure supply, to use the infrastructure for processing, to maintain our revenue, and to meet commitments to customers in the world.

The following slide is on special exam status. I think we'll skip that, as there will be questions, and I'd like to spend a few seconds on the summary.

The special exam took place at a very difficult time for the corporation, between October 2015 and June 2016. Board members had observed many of the problems that were noted in the Auditor General's report and had been raising those concerns with the Government of Canada. In December 2015, the then chairperson of the board resigned halfway through his term. As a result of that, the president took on both the duties of the president and the chairperson of the board. That led to further concerns which the board members raised with the Government of Canada.

The Government of Canada took action in late February 2016. They appointed new board members, myself, and also John Wood, who took on the duties as interim president as a result of the removal of Donald Salkeld as president at that time pending the results of an investigation. That investigation resulted in his dismissal with cause.

We are acting upon the recommendations of the Auditor General, for which we have the authority to do so. Many of the recommendations are going to require Government of Canada action, and we're co-operating with the Government of Canada in that regard.

Just to wrap up, I note the performance that we recently posted is positive regarding profitability, growth of retained earnings, and support for isolated communities.

We would be happy to answer any questions you may have. Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Bevan.

We will now move into the first round of questioning. It's a seven-minute round and we will go to Mr. Lefebvre.

[Paul Lefebvre, Liberal, Sudbury, ON]

Thank you, Mr. Chair.

Thank you for being here this morning.

Mr. Bevan, when did you start your role with this organization?

[David Bevan]

I started in late February 2016.

[Paul Lefebvre, Liberal, Sudbury, ON]

I realize this audit was done concurrently and you took over after that.

I must say this is the worst performance audit I've seen since I've been a member of Parliament. The conclusions reached by the Auditor General are extremely concerning, and you just mentioned to us that for a period of time, the chair of the board was the executive director. Am I correct in saying this?

[David Bevan]

That's correct.

[Paul Lefebvre, Liberal, Sudbury, ON]

I have to say, in my community organizations in Sudbury we don't even do that. I apologize. I know you weren't there. However, as a taxpayer, as a member of Parliament, this is extremely absurd and concerning, I must say. I will try to keep my comments productive, but as you can see, I'm completely aghast with this audit. It's seriously concerning.

I'm sure my colleagues across the aisle will ask a lot of questions, but you said that you are in a very precarious position now that Manitoba wants to pull out. I'll get to the governance issues, but right now, I think there's an existential crisis ongoing in your organization. This is a crown agency. Is that correct?

[David Bevan]

That's correct.

[Paul Lefebvre, Liberal, Sudbury, ON]

We all agree on that. Wow.

From what I've read, confirm to me or tell me I'm wrong that this crown agency currently has an existential crisis, given where this is going. Tell me if I'm correct or wrong.

[David Bevan]

I would just respond to your first observation about the inappropriate situation of having a president be the chairperson of the board at the same time. That is actually prescribed by the Freshwater Fish Marketing Act. It's in the law.

[Paul Lefebvre, Liberal, Sudbury, ON]

Incredible.

[David Bevan]

Therefore, there was no alternative but that.

Yes, we are facing a situation where the continuation of the corporation as a crown corporation is certainly in question. We have taken steps to secure supplies by entering into contracts with fishers by ensuring that the corporation can continue while the Government of Canada determines what it wants to do with the corporation.

I certainly support the observations that were being made by the Auditor General at the time of the audit, because many of those observations were being conveyed to the government, which took action to remove the previous president and to replace that president. You can certainly look at the performance since that time. Things are going reasonably well.

[Paul Lefebvre, Liberal, Sudbury, ON]

They're getting better.

I have to say, however, where my concern lies is not with this audit, but the fact that there was one in 2005, and there was one in 2010—

[David Bevan]

That's correct.

[Paul Lefebvre, Liberal, Sudbury, ON]

—and we're still back here in 2017. For us we see this repetition. Basically, you come here and say, yes, you're going to do all these recommendations, you're going to follow them, and then after that, you're back here five years later saying you haven't done it.

The comments from the observations, “the corporation's targets and standards for yield, capacity, and labour efficiency still had not been reviewed”—just not acted upon, “reviewed”. This is from 2005, 2010, and we're back in 2015.

What can you say about that?

[David Bevan]

Well, they have been reviewed and there are targets set at this point in time.

I would point out that some of the observations in 2005 and 2010 were acted upon, but they fell by the wayside. A lot of our practices on human resource hiring and dealing with that were not followed. Our practices on procurement of equipment were not followed. They did continue with the retained earnings, obviously, from the information that I presented to you.

Some of the things were followed through on, but others were in place, but not followed.

[Paul Lefebvre, Liberal, Sudbury, ON]

Okay, so where are you right now? You said it's been reviewed, so what is the plan? The Auditor General's office wanted us to ask you what you have put in place now, and certainly that was a question we were going to ask in any event. Where are you guys as of now?

[David Bevan]

We have re-established the human resources policies regarding hiring people. We have done the risk evaluation and put in place mitigation for those risks. I might turn to Mr. Lazar on some of the issues around yield, etc., but action has been taken to do that, and the results demonstrate that. The results from last year were audited by the Auditor General. They are—

[Paul Lefebvre, Liberal, Sudbury, ON]

The financial results are one thing, but the governance issue is pervasive. It's a complete separation for me. Basically, when you have a crown agency that is governed this way, like I said at the outset, community organizations look as if they're governed to a better extent.

Mr. Lazar, please comment on where you guys are now in terms of putting the recommendations in place and addressing the major governance issues that you have currently.

[Stan Lazar, Interim President, Freshwater Fish Marketing Corporation]

I don't know that it's my place to talk about the governance issues. I am the interim president from an operating perspective, so I'll address your question about the yield, the measurements, and how we manage that.

As identified in the report by the Auditor General, the corporation was not effectively measuring the yields in 2010. Since then, the corporation recognized that the standards we use for yield are a significant operating issue that affects our profitability. Since that time, we have a system and a process in place, and the response by the corporation details that we review those metrics. As regards yields, and by specific species, we have yields that are measured. Our operation staff, management and all the key people in the plant operations have that as part of their performance management currently.

[Paul Lefebvre, Liberal, Sudbury, ON]

Okay.

How much time do I have, Mr. Chair?

[The Chair, Conservative, Kevin Sorenson]

You have three seconds. We'll come back to you, Mr. Lefebvre.

Mr. Sopuck, welcome to our committee. I know you are from Manitoba, and this is not a new entity to you. You are very knowledgeable on freshwater fishing.