Public Accounts Committee on May 3rd, 2018

[The Chair, Conservative, Kevin Sorenson]

Good afternoon, colleagues. Welcome back.

This is meeting number 96 of the Standing Committee on Public Accounts on Thursday, May 3, 2018. Today we are here to consider the special examination report on the National Capital Commission of the fall 2017 reports of the Auditor General of Canada.

We have with us the Auditor General of Canada, Mr. Michael Ferguson, and from the Office of the Auditor General, Margaret Haire, principal. From the National Capital Commission, we're pleased to have Mr. Marc Seaman, chairperson, board of directors, and Mark Kristmanson, chief executive officer.

To begin, we'll invite our Auditor General to make his comments, and we look forward to good questions thereafter.

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

Mr. Chair, thank you for this opportunity to present the results of our special examination of the National Capital Commission. Joining me at the table is Margaret Haire, the principal responsible for the audit.

As you know, a special examination of a crown corporation is a type of performance audit. A special examination seeks to determine 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 National Capital Commission, or NCC, owns and manages over 10% of land in the national capital region, including Gatineau Park, the Greenbelt, various urban parks, and many leased properties. The corporation also manages six official residences.

In our examination, we found a significant deficiency in the corporation's asset maintenance practices and weaknesses in its risk management practices.

We also found that the corporation had good systems and practices in the areas of governance, strategic planning, performance measurement, performance reporting, and all other national capital region operations.

In regard to asset maintenance, the corporation's data on asset condition indicated that more than one-quarter of the corporation's assets were in fair, poor, or critical condition. The corporation determined that it didn't have enough resources to carry out the work that it needed to do to restore and maintain its assets. Therefore, it had to put off maintenance on some assets.

We concluded that this was a significant deficiency, because, if the corporation's assets continue to deteriorate, the corporation might not be able to meet its mandate, and the assets could cause health and safety issues.

The weaknesses we identified in risk management practices were in two areas. First, in the corporation's overall risk management approach, the corporation didn't consistently assess its strategic and operating risks, prepare an inventory of all risks, or set risk tolerances. This made it difficult for management and the board to have comprehensive risk information to make decisions.

The board and management did not clearly describe, in the annual corporate plan presented to the responsible minister, the risk of having insufficient resources to restore, maintain, and preserve the corporation's assets. As you know, the annual corporate plan is a key way to inform the government of the corporation's issues.

The corporation agreed with all of our recommendations and prepared an action plan in response to our concerns. However, because our audit work was completed in March 2017, I cannot comment on any actions that the corporation has taken since then.

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee members may have. Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Ferguson.

We'll now move to Mr. Seaman, please.

[Marc Seaman, Chairperson, Board of Directors, National Capital Commission]

Thank you, Mr. Ferguson.

Thank you, Mr. Chair.

I'd also like to thank the members for the opportunity to appear before the committee today.

Good afternoon, Mr. Chair, and members of the committee.

I'm Marc Seaman, chair of the board of directors of the National Capital Commission. As mentioned, I'm joined here today by Dr. Mark Kristmanson, the commission's chief executive officer.

I will touch on the NCC's mandate and the measures taken in 2018 to carry out that mandate. Then, Mr. Kristmanson will discuss the NCC's operations and, more specifically, the Auditor General's special examination.

The modern NCC is committed to building a dynamic and sustainable 21st century capital that reflects the best of Canadians and of Canada. This commitment is enshrined in the National Capital Act, which gives the NCC four main roles: planning, development, conservation, and improvement. This is so that the nature and character of the seat of the Government of Canada may be in accordance with its national significance.

In short, the NCC's job is to ensure that Canada has a capital appropriate for a G7 nation, a capital that is a source of pride and inspiration for all Canadians.

Eleven months ago, on behalf of the Government of Canada, the Honourable Mélanie Joly, Minister of Canadian Heritage, appointed me as chair of the NCC board of directors. It's a great honour to be able to contribute to the development of the national capital region for the enjoyment of future generations.

I'd like to take this opportunity to say that, since becoming board chair, I have not ceased to be surprised at the wide array of assets and property under the NCC's stewardship, not to mention the scope of the corporation's responsibilities.

I grew up in the national capital region. I'm blessed to have lived and worked most of my life here and, until recently, I wasn't even aware of the scope and the vast responsibilities of the NCC. That would include 535 square kilometres of terrain, or more than 10% of the entire capital region, comprising 300 kilometres of multi-use pathways and 200 kilometres of scenic parkways; 145 bridges, including two interprovincial bridges; Gatineau Park and the Greenbelt; and 1,700 properties with 1,000 buildings, including the six official residences.

I was even more surprised to learn that all of this is supported by an annual capital appropriation of $22.4 million and by a permanent staff of 400. I was not surprised when the Auditor General's office raised its concerns over the issue of deferred maintenance. Indeed, in my interviews with the auditors, I mentioned my own concerns in this regard, and I commend the Auditor General for highlighting this challenge.

The special examination report states that “The Corporation assessed the condition of 27 percent of its assets as fair, poor, or critical, and identified a shortfall in resources needed to restore those assets”. The NCC's analysis shows that it might not be able to maintain and preserve all its assets at an acceptable level in the future. This echos the 2006 mandate review, which said that “Attempting to continue to do everything, even when funding has faded away, has verged on the heroic, but now borders on the irresponsible”.

That was 11 years ago. Since then, the NCC has played its part in government-wide efforts to curtail expenditures. So this government's investment of $55 million over the next two years as announced in the 2018 federal budget is not only very welcome, but also necessary. It will address in a tangible way the concerns raised in the Auditor General's special examination.

Our board of directors is committed to working efficiently and effectively with the staff of the modern NCC and its many partners and stakeholders, and with Canadians from coast to coast to create the capital promised in the NCC's mandate, which I referred to a few minutes ago.

The board of directors of the modern NCC is made up of women and men from diverse walks of life and every part of the country. In recent years, the board amended its governance rules so that the mayors of the cities of Ottawa and Gatineau could participate in board meetings on an ex officio non-voting basis.

This involvement, along with ad hoc contributions from other mayors in the region, has brought a whole new dimension to our work.

Our board of directors supports the Auditor General's recommendations and has approved management's action plan, including a focus on risk management.

I've been particularly impressed by the risk management assessment framework presented by staff for every decision brought to the board for approval or for a decision.

The board also recognizes that in almost every other category, the Auditor General found a well-run organization delivering real value on behalf of all Canadians.

I would again like to thank the committee for inviting us to discuss the special examination of the NCC conducted by the Auditor General, whose report was released in 2017. The committee's work will help fulfill Parliament's wish of making Canada's capital a place worthy of its national importance.

Mr. Chair, with permission, I would like to turn now to our CEO, Dr. Kristmanson, to address the report in greater detail.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Seaman, and we'll welcome the comments of Mr. Kristmanson.

[Dr. Mark Kristmanson, Chief Executive Officer, National Capital Commission]

Thank you very much, Mr. Chair.

Members of the committee, bonjour.

Thank you, Mr. Seaman, for your opening remarks, and to the Auditor General.

I thank the committee for this opportunity to discuss the Office of the Auditor General's special examination of the National Capital Commission.

I'd like to recognize the work of the Auditor General, Mr. Ferguson, as well as of Margaret Haire, Sophie Boudreau, and Étienne Matte, with whom we worked closely for several years in the lead-up to the report.

To begin my presentation today, I'll set out the five core priorities that the NCC's board of directors has established for the current planning period.

The first priority speaks directly to the Auditor General's report, and this is to address the condition of the NCC's infrastructure and assets, including the official residences of Canada. I'll return to that in a minute.

Our second objective is to foster the redevelopment of the LeBreton Flats.

Our third priority is to offer better public access and new connections for Canadians to discover the shorelines and waterways in the capital region.

Our fourth priority is to modernize the NCC's planning framework.

Finally, our fifth priority is to be a value-added partner here in the region, creating legacies that serve as sources of pride for all Canadians.

Running through all of these priorities is a meaningful commitment to corporate excellence as a federal crown corporation.

Returning to the first priority, which is addressing the condition of the NCC's infrastructure and assets, the NCC agrees with the conclusions of the Auditor General's special examination. The commission has been strengthening its asset management regime on an ongoing basis.

About three years ago I focused our efforts on cataloguing and understanding the nature and extent of deferred maintenance across the large and diverse portfolio that Mr. Seaman described in his remarks. In 2016 and 2017, the commission undertook significant efforts to gather information related to all the different aspects of life-cycle processes, inspection activities, capital investments, building condition reports, and so forth, in order to amalgamate them into an integrated framework.

I am very pleased to report that the NCC completed this review prior to the deadline set in our action plan of March 31, 2018. We now have a 10-year recapitalization plan to restore and maintain these assets to an appropriate condition. With the additional $55 million accorded by the government in budget 2018, we can now initiate this plan and address the highest priority demands. We feel this is a judicious investment at this time. It is proportional to our internal capacity to deliver on capital projects while allowing us to address the most immediate risks associated with the assets.

Looking ahead, we're working with government to define additional tranches of funding to deal with subsequent phases of these asset repairs until we can say that the entire portfolio is restored to good condition.

The second area of concern raised in the Auditor General's report is the NCC's risk management framework. Again, the commission agrees with the Auditor General's findings and welcomes the report's recommendations.

To that end, as recommended by the Auditor General, the NCC's senior management has approved a comprehensive enterprise risk management framework that sets risk tolerances, allows for the assessment of strategic and operational risks through a consistent and integrated process, and supports the provision of comprehensive risk information as part of the decision-making process, including regular reports to the board of directors.

This framework is based on an in-depth strategic risk evaluation conducted during the 2016-17 fiscal year. Further to this risk management strategy, the NCC developed an inventory of operational and corporate risks, which is updated regularly.

Risks are now incorporated into our quarterly reporting process and, of course, the board's decision-making.

We've also provided staff training to ensure the successful implementation of the updated framework throughout the organization, and we believe that the Auditor General will find, in his reviews going forward, consistency and discipline in this area.

In closing, I'll draw your attention to other findings taken from the rest of the report that I believe the committee will find encouraging. For example, the implementation of the NCC's new business systems, replacing the systems from the 1990s, was completed on budget and on scope, and through an intensive staff training process has now been fully integrated into our operations.

I would also mention that in the NCC's leasing portfolio, particularly in the residential and agricultural properties, the NCC has lowered its vacancy rates from 13% in 2012 to 3% in 2018.

We've seen substantial increases in awareness and appreciation of our public consultation process, which has been transformed in recent years.

I could mention other positive results reflected in the report, but we welcome the two recommendations, and I'll be very pleased to address these and any questions and comments the committee may have.

Finally, I express appreciation both for the NCC's internal audit function and the oversight of the Auditor General and his staff. These quarterly, annual, and 10-year exams give the NCC a deeper perspective on how it can raise its level of excellence as a federal crown corporation.

As such, Mr. Chair, I welcome this report.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Kristmanson.

We will now move to our first round of questioning. It's a seven-minute round. We will go to Mr. Arya, please, for seven minutes.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Mr. Chair.

Mr. Chair, many people would be surprised to know the large scope of operations the NCC manages. Many people in Ottawa are not aware of it, the 17,000 properties and 400 staff members. I know that the NCC has always had a challenge with respect to resources. As national capital region members of Parliament, several times we have submitted a presentation to the government about the requirements of the NCC. We are so glad that the government listened to us and has given $55 million to the NCC, which is much needed, I should say. The staff and the management of the NCC have always been good with the us, the members of Parliament from the national capital region, in our frequent interactions with them.

However, let me go into the issues that still, in my view, should be addressed.

One is that the NCC manages very prime property and excellent assets like Gatineau Park, but also the greenbelt adjoining the suburban area, where the city is growing. Sometimes the NCC's one-size-fits-all rules and guidelines, in my view, act as a problem to many of us, say, in the Nepean riding. Whenever we have to deal with the NCC, this, I think, is an ongoing problem.

Mark, if you can recall, I think we first touched on this soon after our election, and I would like to know if anything has been done with this segregation of the types of properties you deal with and the guidelines applicable to them.

[Dr. Mark Kristmanson]

I think the committee might be interested to know that it is unique in the world, as far as we know, to have a federally owned greenbelt circling a capital, in this case the southern arc of our capital. Most other greenbelts are privately owned and are held in place through zoning and regulation. Ours has a unique function.

One of the functions of the greenbelt is to land bank sites for federal campuses or activities for the very long term. Unlike the municipalities, who generally take a 20-year planning outlook, we take a 50-year planning outlook, and even longer in some cases. The greenbelt master plan that you're referring to has this long-term stewardship role—

[Chandra Arya, Liberal, Nepean, ON]

Mark, I'm sorry. I apologize, because my time is limited.

My thing is that when you want to deal.... Let me take the specific example of Saint Monica Parish. I've been dealing with your office for years now with that, either in terms of having a different NCC property by giving up this or some sort of land swap. These things go on and on and on for years. Your real estate division, I think, deals with it, maybe because the top management is much more active or involved with high profile projects like LeBreton Flats or asset management and maintenance, etc. Solving the problems of the properties under lease has taken quite a long time.

[Dr. Mark Kristmanson]

I know the case. We've discussed the one that you're speaking of, and it is a priority to get it solved. We've offered some options to that particular group, and I'm not sure we've found the right option for land swaps and so forth.

Just to complete my thought, if you don't mind, we have an internal debate between the stewards and the developers and improvers on the extent to which we can be flexible with these lands for these different kinds of uses. It's a constant, ongoing internal challenge function. I just want the committee to know that this is an active debate on every file within the NCC, and in the debate between the planners versus the developers and the land managers, they usually have to come to creative solutions to allow new uses.

I'll take away your comment, and we could actually talk about that offline, and I can update you.

[Chandra Arya, Liberal, Nepean, ON]

What about changing the guidelines, having a different set of guidelines for the properties downtown, say, than having the same guidelines applied to suburban properties?

[Dr. Mark Kristmanson]

Right. The plan for Canada's capital is the overarching aspirational document, and underneath that plan are the sector plans. The core area sector plan covers the ceremonial core of the capital and has a series of attributes that would reflect that, as opposed to the greenbelt master plan, which is looking at the surrounding agricultural lands. There is also an urban lands master plan, and within that there are lands that will eventually have been approved by the Treasury Board for disposal and rationalization.

There is a series of master plans, and there are differences in principle and in vision for each of those plans.

[Chandra Arya, Liberal, Nepean, ON]

Mr. Seaman, with your private sector background and now that you're chairing the NCC, what are the changes you want to bring to this organization, if you can tell us in a very short time?

[Marc Seaman]

First of all, as I mentioned off the bat, and you've mentioned, it's an organization with a vast portfolio and scope. I've actually been very impressed with the organization and the transformation that's been under way.

We refer to the modern NCC because, as you mentioned, we want to make sure that, as we go through all levels of the organizational excellence mandate, we're looking at how the organization can be more collaborative and continue to be collaborative with its stakeholders and its municipalities—and it is very collaborative; we've now got the two mayors on the board—increasing its level of transparency, openness, and engagement with a lot of public consultations and engagement, creating a level of inspiration and pride, which we talked about, not just for the citizens of the national capital region on both sides of the river but also for all Canadians.

Lastly, it's really about delivering some of these results, as you refer to, so we always have an eye on what the end result is, so the deep consultative process is very important to have, but process is a means to an end, where the end is defined and we never lose sight of that. I think those are some of the practices we're bringing into play.

[Chandra Arya, Liberal, Nepean, ON]

Mark, you mentioned that staff training is good. You have 400 staff members. How diverse are your staff in terms of women, indigenous people, visible minorities, and people with disabilities?

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Arya.

[Dr. Mark Kristmanson]

To be very quick, we won an employment equity award last year for diversity in gender, and we're above the standards for indigenous people, gender, and the disabled community. We have work to do on visible minorities. We're trailing the region. We have an action plan for that, and I hope we'll see progress. In fact, we're seeing already an uplift.

[Chandra Arya, Liberal, Nepean, ON]

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Kristmanson, and also Mr. Arya.

We'll now move to M. Deltell.

Mr. Deltell, you may go ahead for seven minutes.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you, Mr. Chair.

Mr. Ferguson, ladies and gentlemen, welcome to the committee.

Mr. Ferguson, I'd like to start with what you said about the maintenance of the NCC's assets, in other words, that the corporation's data on asset conditions indicated that more than a quarter of its assets were in fair, poor, or critical condition.

I assume that 25% includes 24 Sussex. Is that right?

[Michael Ferguson]

The NCC may be able to provide a more detailed explanation.

I can, however, say that 24 Sussex has a number of different problems, and each one has to be assessed. The answer is yes, the 25% does include the residence at 24 Sussex.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

You didn't pay closer attention to the residence at 24 Sussex than you did to the NCC's other buildings and properties, did you?

[Michael Ferguson]

The audit focused on all of the organization's practices. Naturally, the residence at 24 Sussex is very important, but it is just one of many assets in the NCC's portfolio.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you so much, Mr. Ferguson.

Mr. Seaman, and Mr. Kristmanson, first of all, thank you so much for being here.

Mr. Seaman, thank you for taking your new job in the crown corporation after a successful career in private business, and especially with the Ottawa Senators. We wish they will go further in the next years, for sure.

Mr. Seaman, and Mr. Kristmanson, what is the state of 24 Sussex Drive?