Public Accounts Committee on May 3rd, 2018

[Dr. Mark Kristmanson]

We participated in the deficit reduction action plan, for example. I'd have to go back. I don't know exactly how to answer that question to be technically correct, but there were successive initiatives to reduce expenditures.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

I want to continue along the line of Mr. Deltell,s questioning regarding the official residence of the Prime Minister. It was reported in the media that meals are being prepared there and transported to Rideau Cottage. It seems like a weird practice to engage in. Are there any plans afoot to try to upgrade the kitchens at Rideau Hall or Rideau Cottage, or is this practice going to continue?

[Dr. Mark Kristmanson]

I should really let the Prime Minister's Office comment on the house operations, because we are not involved in them. We're involved, obviously, in the maintenance and upkeep of the facilities.

I think the point is that the house has been decommissioned as a residence, but is still being used by staff. My understanding is that the approach that's being taken right now is the most cost-effective one.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Okay, thank you.

Mr. Ferguson, I want to paint a bit of a chronological picture here. I think the Auditor General's Office did a report in 2007 on the National Capital Commission. Which of the recommendations from that 2007 audit were not implemented? Are you aware of any matters that have improved or deteriorated? I just want to paint a timeline of how well, from the Auditor General's viewpoint, the NCC has acted in the last 10 years.

[Michael Ferguson]

As we say in paragraph 18, which you referred to earlier, we identified at that time that there was a lack of funding to maintain the assets at the level they needed to be maintained. Again, we found that being able to balance the inventory of assets with the money available for the long-term maintenance was still an issue in 2018.

I think we also identified at that point that there were issues with risk management, and this time we identified that the corporation had made improvements in its risk management practices but that there was still some work to do.

In general, those two things were still issues that were around. There had been some progress on the risk management one, but in general the issue of balancing inventory of assets with the money available to maintain the assets probably did not improve, or in fact maybe even got worse over that timeframe.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. MacGregor.

We will now go back to Monsieur Massé.

Mr. Massé, you have seven minutes. Go ahead.

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

Thank you, Mr. Chair.

Mr. Ferguson, thank you for appearing before the committee yet again.

Thank you, as well, gentlemen. As witnesses, your contribution is important. It will help us better understand the issues raised in the Auditor General's report.

Mr. Ferguson, in paragraph 35 of your report—and this came up briefly earlier—you refer to a significant deficiency in the NCC's maintenance of its assets. In its response, the NCC said it lacked funding, having not received a funding increase since 2009-10. I'd like to hear your perspective on that.

Is it strictly a matter of money, as the NCC claims?

Does it have to do with planning, or does it come down to priority-setting around asset maintenance?

I'd like to know your take on that before we hear from the NCC officials.

[Michael Ferguson]

Thank you.

I think it has to do with a variety of things. You have the asset inventory, on one hand, and the budget for fixing or addressing problems, on the other. Both elements come into play, giving rise to certain questions. Are there too many assets in the inventory? If it is necessary to maintain all of the assets, is there enough money to do the work?

There may be other ways to address the problem, like reducing asset operating costs. As I mentioned, we observed the same problem back in 2007. You brought up planning, and it's important that the government give the NCC the support it needs to plan for the long term, given the life cycle of the assets in its inventory. Planning needs to address every stage of an asset's life cycle, for the entire inventory.

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

Thank you, Mr. Ferguson.

Mr. Seaman and Mr. Kristmanson, you haven't had a funding increase since 2009-10. As you mentioned, in its most recent budget, the government set out $55 million in additional funding over the next two years.

Why has the NCC not been able to obtain the funding it needs to manage and maintain its assets?

Over the past eight years, I would think you had spoken with both the previous government and ours, of course. I'm curious as to why you weren't able to get the previous government to pay attention to your needs and give you the necessary funding. As a result, an important building—the prime minister's residence—is in such poor condition that it is unfit for occupants.

[Dr. Mark Kristmanson]

I can comment on the previous government's approach.

During the first two years of my mandate, that is, prior to the 2015 election—and prior to our funding needs being taken more seriously—I was told by both ministers that we had to use our reserve fund to pay for projects.

In 2017, the board of directors decided to allocate available funding to legacy projects in connection with Canada's 150th anniversary. We did not receive any grants or funding specifically for the 150th anniversary. Everything we did in 2017—and we did quite a bit—we paid for out of our reserve fund.

Our goal is to use the reserve fund at a slower pace. We have a strong case for reinvestment, which the current government took seriously and accepted. Prior to that, we were using our reserve fund to improve the condition of assets and carry out legacy projects for Canada's 150th anniversary.

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

Mr. Ferguson raised the possibility that you might have too many assets in your inventory.

Is that something you've considered?

The real question is this. Given all the challenges associated with managing and maintaining the inventory, does the additional funding give you enough latitude to undertake renovations and maintenance—in other words, all of the work you have to do to make sure all of the buildings are in an acceptable condition?

Do you now have more latitude to undertake the necessary work?

[Dr. Mark Kristmanson]

The full $55 million is being used to address the most immediate risks. We developed a plan in consultation with Treasury Board. At the NCC, our management of assets and property is guided by a tenet. Is it possible to dispose of the assets to free up money for something else?

After the 2006 mandate review Mr. Seaman referred to, Treasury Board recommended that the corporation use revenues from the sale of land only for the purpose of acquiring land that is in the national interest. That was the restriction placed on us.

We used that revenue to purchase a third of the privately held land in Gatineau Park, for instance. We have purchased nearly 200 hectares of land since 2008, so that's how we've been using the revenues from the sale of NCC land. We have to abide by that restriction. We can't use that revenue for improvement or deferred maintenance projects.

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

Do you think purchasing that land will give you more money to carry out your mandate?

[Dr. Mark Kristmanson]

One of the board committees deals with value for money, looking for ways to use NCC land to bring in more revenue. This fiscal year, we've generated more than a million dollars in additional revenue, out of a total of $30 million. We expect to have an extra $5 million for the next five years. With a little creativity, we can leverage our assets to bring in more revenue.

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

Very good.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Massé. I gave you extra time. I'll take it away from you next time, though.

[Voices]

Oh, oh!

[The Chair, Conservative, Kevin Sorenson]

We'll move to Mr. Trost, please.

[Bradley Trost, Conservative, Saskatoon—University, SK]

Thank you, Mr. Chair.

In my 14 years in the House of Commons, this is the first time I've ever been on this committee, so you'll have to forgive a few of my questions. This is totally new to me.

First, on the whole concept of risk management, can you explain to a layman here some of the very concrete things that can go wrong if you don't do your risk management right?

I'll start with the National Capital Commission, because apparently you didn't do your risk management right, according to the Auditor General, once upon a time. What could have gone wrong, and maybe what did go wrong, because you didn't have your risk management done right once upon a time?

[Dr. Mark Kristmanson]

I think I'll answer that in two parts.

The first thing that could go wrong—and did, in a sense—is not alerting the senior levels of the organization and the government to a growing risk around, say, deferred maintenance.

We accept the premise of the Auditor General's report that this vertical alignment of risk management has to work so that it goes all the way through to the minister.

[Bradley Trost, Conservative, Saskatoon—University, SK]

So you set up future governments for surprises; that's one problem.

[Dr. Mark Kristmanson]

In a way, yes, because in trying to adhere to one government's legitimate attempts at austerity measures and so forth, perhaps the commission—I'm speaking not for myself but for my predecessors—was in a position in which it was difficult to raise some of these issues.

I think the other answer to your question is that without good risk management, you become too risk-averse. I'd say this is the case of the NCC. It has a very low risk tolerance. I think that to manage a federal crown corporation really well, you have to be able to take the right amount of risk. You have to know how to manage it, mitigate it, and inform decision-makers, and to take good decisions.

While the overall effect has been to be very risk averse, I think that with this improvement we're bringing along we'll be able to manage risk in a way that gives the organization confidence in having—

[Bradley Trost, Conservative, Saskatoon—University, SK]

Give me an example of something you would do now that would be more “out there”, as opposed to being afraid to do it before. I really know almost nothing about how you do your operations—I read a little bit about 24 Sussex Drive or Rideau Hall. I'm very much like an ordinary citizen coming here. Two hours before this meeting, I didn't even know I was going to be here. So very much in a practical sense, what do you mean? Give me some practical illustration that I can deal with.

[Dr. Mark Kristmanson]

I'll give you one that's top of mind, because we discussed it at our executive meeting yesterday. It is, to what extent should we recapitalize some of our residential properties to be high-yield residential properties that will bring back revenues to the government, but at the cost of maybe turning those properties into something different from what the residents around them would like? It might change the fabric of a neighbourhood.

In our risk structure we would have eliminated any idea of this, based on our risk framework in previous times, whereas now we're looking at it and saying it is a risk in terms of public perception, but how can we manage it? Which groups do we need to meet? Which municipally elected officials should we meet to transform a certain area into a different kind of leasing operation? I think that's a good example of areas in which, if you're too risk-averse, you just will never change and you might not seek a better outcome.

[Marc Seaman]

Let me add to this. I can't comment on previous risk; I was appointed as the chair in June, 11 months ago.

As I mentioned in my opening remarks, one aspect that we're certainly impressed with at the board level is the risk assessment framework that Mark just referred to. Every decision will look at pros and cons and have risks. What are the impacts of those risks? What are the mitigations of the risks? That way, at least at the board level, we are able to make an informed decision based on the various risks associated with each of the decisions.