1 2 3 TORONTO COMPUTER LEASING INQUIRY 4 GOOD GOVERNMENT PHASE 5 6 7 ******************** 8 9 10 BEFORE: THE HONOURABLE MADAM JUSTICE DENISE BELLAMY, 11 COMMISSIONER 12 13 14 15 16 Held at: East York Civic Centre 17 850 Coxwell Avenue 18 Toronto, Ontario 19 M4C 5R1 20 21 ******************** 22 23 24 January 20th, 2004 25

1 APPEARANCES 2 3 David Butt )Commission Counsel 4 Daina Groskaufmanis (np) ) 5 Zachary Abella ) 6 7 Linda Rothstein )City of Toronto 8 Andrew Lewis ) 9 10 Janet Smith )Registrar 11 Carol Geehan )Court Reporter 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 TABLE OF CONTENTS 2 Page No. 3 4 Exhibits 4 5 6 Presentation by Mr. Erik Peters 7 7 8 Presentation by Ms. Valerie Gibbons 9 and Mr. Sam Goodwin 119 10 11 Certificate of Transcript 193 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 LIST OF EXHIBITS 2 Page No. 3 4 76 Unbound documents - 5 3 pages 8 6 7 77 CD - labelled: TCLI Research 8 Papers and Bibliographies. 152 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1 --- Upon commencing at 10:00 a.m. 2 3 THE REGISTRAR: The Inquiry is now in session. 4 Please be seated. 5 MADAM COMMISSIONER: Good morning. 6 MR. DAVID BUTT: Good morning, Commissioner. 7 Commissioner, this morning, we're privileged to have with us, 8 Mr. Erik Peters, and Mr. Peters was the Provincial Auditor 9 from 1993 to 2003 and in our discussion with Mr. Peters, we 10 -- we hope to cover a number of areas. 11 Obviously we look forward to hearing some 12 insight about the office of the Provincial Auditor to the 13 extent that may assist you in your recommendations in the 14 municipal context. We'll also cover a couple of other areas 15 procurement, Conflict of Interest and lobbying. 16 MADAM COMMISSIONER: Okay. Thank you. 17 MR. DAVID BUTT: Now, Mr. Peters, if I might, 18 I understand you have a brief opening presentation that gives 19 us a bit of an overview of the role of the auditor; is that 20 right? 21 MR. ERIK PETERS: That's correct. 22 MR. DAVID BUTT: And just before we do that 23 if I could briefly share with the Commissioner your -- your 24 background. You've been a CA since 1965 I understand and you 25 were with Price Waterhouse between 1960 and 1992 and you were

1 also involved with the office of the Auditor General of 2 Canada? 3 MR. ERIK PETERS: Can I correct that 4 slightly? 5 MR. DAVID BUTT: Sure. 6 MR. ERIK PETERS: I was with Price Waterhouse 7 until 1978. 8 MADAM COMMISSIONER: That's a big difference. 9 MR. ERIK PETERS: Yeah. And then became -- 10 joined the office of the Auditor General and became an 11 Assistant Auditor General of Canada and left that 12 organization to become Regional Controller for Europe, Africa 13 and the Middle East for Alcan Aluminium stationed in 14 Switzerland. And after that I was called by the Canadian 15 Broadcasting Corporation to become their first Vice President 16 of Internal Audit and after that I became the Provincial 17 Auditor. 18 MR. DAVID BUTT: And you were the Provincial 19 Auditor, as we mentioned, from 1993 until just -- just 20 recently -- 21 MR. ERIK PETERS: Right. 22 MR. DAVID BUTT: -- the end of 2003. Okay. 23 And I understand you're also a Fellow of the Institute of 24 Chartered Accountants of Ontario, elected to that position in 25 1994?

1 MR. ERIK PETERS: Right. 2 MR. DAVID BUTT: And in the year 2000 you 3 were the recipient of the Institute's award of outstanding 4 merit for conspicuous and sustained service to the profession 5 and the broader community? 6 MR. ERIK PETERS: Yes. 7 MR. DAVID BUTT: And, of course, as we 8 mentioned, you have a brief presentation to help orient us to 9 the role and function of the Provincial Auditor; is that 10 right? 11 MR. ERIK PETERS: Yes, that's correct. 12 MR. DAVID BUTT: I'd like to hear that now, 13 please? 14 15 PRESENTATION BY MR. ERIK PETERS: 16 MR. ERIK PETERS: Thank you, very much. 17 Thank you very much for the opportunity to be with you here 18 this morning. I would like to introduce my office to you -- 19 or my former office, so if I refer to it in slip of the 20 tongue, I'm only retired for about three (3) months so I may 21 refer to it accidentally as my office, so I hope you'll 22 forgive me. 23 But, to begin with, please -- I would like you 24 to refer to the three (3) handouts that I've provided. There 25 are three (3) of them. First, is the mission statement of

1 the office. The second one is the accountability framework 2 in which the office operates and I'll briefly go afterwards 3 through the abbreviations that are in there. 4 And the third document is entitled "Focus 5 areas of audits and examples of results we look for" and the 6 main purpose of providing that is that those are the areas in 7 which we focus our audits and I felt they might be useful to 8 you as areas to explore when you deal with good governance. 9 MADAM COMMISSIONER: I wonder if I might just 10 interrupt at this point. We should probably have this made 11 an exhibit and I just want to make sure, Mr. Peters, I know 12 it doesn't look like there's any media here but there's 13 actually a room up above that has media in it and I want to 14 make sure that they have a copy of this. 15 Do we know if they have a copy of this? 16 MR. ERIK PETERS: Yes, Heather Hogan has 17 looked after that. 18 MADAM COMMISSIONER: Okay, thank you very 19 much. All right. And so this would be the next exhibit, 20 exhibit number? 21 THE REGISTRAR: Exhibit 76. 22 MADAM COMMISSIONER: Thank you very much. 23 24 --- EXHIBIT NO. 76: Unbound documents - 3 pages 25

9
  1                 MR. ERIK PETERS:   When I became the
  2  Provincial Auditor in 1993 I stated that I hoped that the
  3  office would be a catalyst for action -- for corrective
  4  action in the government and the theme of the office is to
  5  help fix problems and not fix blame.  
  6                 We had a -- I developed a very basic formula
  7  for this which was along the lines of good accounting plus
  8  sound accountability provides value for money for the
  9  taxpayer.
 10                 In reading our mission statement, it is
 11  important to bear in mind that the Office and the Provincial
 12  Auditor are not part of the public service.  The Provincial
 13  Auditor is an officer of the legislative assembly of Ontario
 14  and independent from the government of the day who
 15  administration the office audits.
 16                 This is reflected in the Mission Statement,
 17  where it refers to independent audits and I stress the word
 18  "independent", and states that:
 19                   "The office of the Provincial Auditor 
 20                   assists the assembly and holding the 
 21                   Government and its administrators 
 22                   accountable for the quality of the 
 23                   administrations stewardship of public funds
 24                   and for the achievement of value for money 
 25                   in Government operations."

1 The office's independent audits include attest 2 audits, value for money audits and compliance audits. 3 The result of the attest audits is the 4 Provincial Auditor's opinion whether or not the financial 5 statements of the Province are fairly presented in accordance 6 with generally accepted accounting principles. 7 The office carries out about forty (40) attest 8 audits annually and provides this kind of opinion, the most 9 significant of these is of course the attest audit of the 10 public accounts of Ontario, among the Crown agencies audited 11 are the Liquor Control Board of Ontario, annual sales in 12 around the $3 billion range. 13 I always considered it a bit of a toss up in 14 Ontario whether we were gambling more or drinking more, but I 15 think they're running neck to neck in their revenues. The 16 Ontario -- the Electricity Financial Corporation and TVO 17 Ontario, as well as many others. 18 Our value for money audits examine the 19 administrator's due regard for economy and efficiency. The 20 office audits the quality of performance in the delivery of 21 Government program services, and the office assesses the 22 extent to which managers know that they are effective in 23 achieving legislative program objectives. 24 The value for money audit work culminates with 25 the tabling of the annual report in the Legislative Assembly.

1 The annual reports tabled since 1993 when I became the 2 Provincial Auditor, contained well over one thousand (1,000) 3 recommendations and commitments by the entities we audited, 4 to implement the recommendations. 5 In all our audit work we assess compliance 6 with laws, regulations and laid down policies, but, and I 7 would like to point this out, there's a big but, I must 8 emphasize that the Government of the day is held accountable 9 for policy matters by the Legislative Assembly, and not by my 10 office; by the office of the Provincial Auditor. 11 Members of Parliament continually monitor and 12 challenge Government polices and programs through questions 13 during legislative sessions and through reviews of 14 legislation and expenditure estimates. 15 In holding the Government and its 16 administration accountable for the quality of their public 17 fund stewardship and for achieving value for money, the 18 office operates in the accountability framework, which you 19 have in the handout, and that is the second page, and I 20 promised that I would go through some of the abbreviations, 21 which I use. 22 The little box that you see on the Legislative 23 Assembly says PAC, that is the Public Accounts Committee, and 24 if you're interested I can give you the terms of reference of 25 that committee, but the fact is that if you follow the little

1 arrows, the -- the Ministry's agencies and Crown Corporations 2 are accountable to the Minister. The Minister, in turn, is 3 accountable to the Legislative Assembly. 4 We, OPA, means Office of the Provincial 5 Auditor, I like it to mean OPA, which I am, of three (3) 6 great boys, grandfather. The acknowledgment of responsibility 7 is what we receive from the Ministries, and that is normally 8 in -- in the legislation and the regulations under which -- 9 which the Government Ministries, agencies and Crown 10 Corporations use, to carry out their work that governs them. 11 We audit and we report to the Legislative 12 Assembly, so we report to the same level of authority as the 13 Ministers do. And when the report is tabled, the Legislative 14 Assembly immediately refers our report to the Standing 15 Committee on public accounts, which then deals with the 16 issues that we are bringing forward, and actually adds, in 17 may instances, recommendations of their own. 18 For example, the Public Accounts Committee has 19 the right to deal with the Government policy, which we don't. 20 So, if they want to make some policy statements to that, or 21 admonish for example, which has happened a number of times, 22 Ministries, that they do not want them to reappear, 23 responding to the same concerns again and again, that we have 24 raised. 25 So they're -- they're very -- the Public

1 Accounts Committee is really a very important feature of our 2 work, because that is who follows up on behalf of the 3 Legislative Assembly on our concerns, observations and 4 whether our recommendations have been implemented or not. 5 The -- to make an analogy with respect to this 6 framework, to a corporate structure, we view the residents of 7 Ontario, as the shareholders, the Legislative Assembly as the 8 Board of Directors, the Public Accounts Committee would be 9 the Audit Committee of the Board, and the Ministers along 10 with the Premier, would be the corporate executives. 11 So, when we carry out our audit, be the attest 12 value for money or compliance audits, we hold the government 13 and its administrators accountable for achieving specific 14 results. 15 We categorize these results under seven (7) 16 focus areas. Each of these focus areas is anchored in the 17 Audit Act of the Province of Ontario. While we apply all of 18 these focus areas in our audit work, each is given a 19 different emphasis depending on the nature of the audit we 20 are carrying out. 21 And the seven (7) areas along with the 22 examples we look for, are the third sheet in your handout. 23 And I would like to emphasize that these have served, as 24 well, I introduced them actually in this focussed area, in 25 1993, when I became the Provincial Auditor.

1 And I would recommend them when you are taking 2 a look at good governance, are these are areas where 3 governance should be good. There should be good financial 4 stewardship. There should be adequate financial management 5 systems, procedures and key practices. The assets of the 6 entity should be safeguarded, including and that's a very 7 important one (1) to me -- including the reputation for good 8 governance. 9 I consider that an asset of government. There 10 should be due regard for economy and efficiency in managing 11 human, financial and physical resources. 12 There should be measuring, reporting, 13 evaluating and taking corrective action to improve 14 performance of government. 15 There should be compliance with the 16 legislation, policy and laid down procedures, of course. And 17 there should be procedures to measure and report on program 18 effectiveness. 19 And let me go through to some of the examples, 20 we look for. Some of them sound very easy, but, are very 21 tough to do. 22 Books of accounts are properly kept. I had 23 the misfortune -- or in a way good fortune because it set the 24 tone and developed from there, to qualify the account on my 25 auditor's report on the accounts of the Province, for the

1 first time in its history, when I became the auditor in '93, 2 largely because there were problems with the way certain 3 expenditures were being accounted for. 4 Public money has to be fully accounted for and 5 that was one (1) of the areas that I advocated that the 6 financial statements of the Province -- I'll go into that in 7 a moment -- include actually all the financial activities for 8 which the legislative assembly is responsible, up to 1992, 9 they did not. In '93, they did not and then from '94 on they 10 did. 11 Public assets are properly accounted for, are 12 properly managed, maintained and controlled and with the due 13 regard -- due regard for economy and efficiency, areas, high 14 quality, efficient and effective government services are 15 delivered. 16 Public funds are prudently used for the 17 purposes intended. Key areas -- later on, on procurement 18 I'll elaborate a little bit on the next point, talking about 19 the acquisition of goods and services and managing goods and 20 services. 21 And very important to me, anyway, as 22 Provincial Auditor, was that the use of alternative service 23 delivery benefits the taxpayer; in other words, that dealt 24 with the issue of privatization of services. 25 I considered that privatization of services,

1 was only advisable for the taxpayer when two (2) conditions 2 are met. 3 One (1) that government policy, objectives 4 will be effectively met. And secondly that the taxpayer was, 5 actually, fiscally or financially ahead from the alternate 6 service delivery and the outsourcing activity. 7 Measuring and reporting and evaluating and 8 taking corrective action to improve performance, the key word 9 here is performance and to make sure that the evaluation of 10 expected and actual performance is timely and relevant. 11 The cost of the measurement reporting is 12 justified. I would used as a background for my CBC 13 experience. The CBC used to have a little program called Our 14 Native Land and -- which was addressed at the aboriginal 15 communities. 16 And if you wanted to measure how successful 17 you were in reaching an audience, it really turned out to be 18 very -- cost prohibitive because once you get a rating 19 service to target a specific audience, widely dispersed 20 across the country, the measurement of your performance in 21 attracting an audience becomes very costly, so, then 22 alternative methods were developed. 23 The alternative method actually developed was 24 to deal with the Chiefs of the various nations and have them 25 as an advisory council to the corporation and they would

1 advise as to what was relevant to the aboriginal community 2 and that would then do the program. So there are other ways 3 of doing it but the key point is that the measurement and 4 reporting and evaluating has to be cost justified. 5 And, of course, very important that 6 appropriate action is taken to improve performance. The -- 7 in the next area, compliance of the transactions and 8 activities of the entity are within its statutory powers and 9 last, and this is one (1) area in which, incidentally, the 10 audit mandate is slightly different. 11 While we audited for due regard for economy 12 and efficiency in value for money area, as far as 13 effectiveness is concerned, we were only asked to assess 14 whether there were sufficient procedures in place to know if 15 program objectives are achieved and if they are not, if 16 management knows why they are not being achieved. 17 The difference, there, is that once you get 18 into effectiveness of a particular program, the office could 19 get into a second guessing of government policy and that was 20 to be avoided when we were under the circumstances. The 21 example that I use very often in speaking engagements, I may 22 bore you with that for just a moment, is if the government, 23 as a matter of policy, had passed a law that every citizen 24 who dug a five (5) foot hole in their backyard received a 25 hundred dollars ($100) from the government.

1 You may have questions about the -- the wisdom 2 of the policy decision but there is the policy decision, but 3 as an Office of the Auditor we would audit that the hundred 4 dollars ($100) was actually paid only to people who actually 5 dug the five (5) foot hole and was not paid to those who 6 didn't dig a hole and was not paid to those who dug only a 7 three (3) foot hole and that people who dug two (2) holes 8 weren't paid twice. 9 So, as to just -- a little illustration as to 10 the difference. The policy decision that they passed the law 11 would not be challenged by us or questioned in any way but 12 the way the law was administered is what we were entitled to 13 audit. 14 One of the questions in the -- in the 2003 15 report and I want to get into that for just a moment, there 16 were some -- there was some question raised that we bemoaned 17 the fact that we have in my report done that all along, that 18 in certain areas action was not taken swiftly or as 19 efficiently as we wanted it to be taken. 20 But, on the other hand, the majority of our 21 recommendations were implemented and I just wanted to relate 22 to you some of the things that were being done so that you 23 get a flavour. Effective 1994, based on our recommendations, 24 expenditures were recorded by the government when incurred 25 and the revenues when earned rather than when they were paid

1 and received respectively. 2 Sounds very simple but it was a massive step 3 forward because it made governments record actually 4 expenditures when they incurred them, not when they were 5 actually paid. I can go on to examples of that after if you 6 want. 7 Inclusive financial reporting of all financial 8 activities of the government instead of reporting only the 9 activities of the consolidated revenue fund, that was a major 10 step forward. We now include -- had to include the 11 activities of government organizations or Crown agencies and 12 board and commissions. 13 In 1996 on our advocacy and that of the 14 Ontario Financial Review Commission which I will speak to 15 about later on when you have questions about that, the budget 16 and the financial statements use the same accounting rules, 17 that made a big difference. 18 In '94, for example, in '93 and '94 I pointed 19 out that the budget -- budgetary process used accounting 20 rules which gave a deficit of approximately $4 billion lower 21 than that which was reflected in the public accounts and that 22 was -- not a performance issue, that was simply using the 23 wrong accounting rules in -- when the budgeting was done. 24 So, as of 1996 that was fixed. 25 Reporting on financial performance, economic

1 achievement, and a number of indicators of financial 2 condition in the provincial annual report, in addition to the 3 public accounts, was prepared. In other words, I had urged 4 the government not to just report its financial position but 5 also deal with its financial condition. 6 By condition I mean some indicators as to 7 whether the current programs were sustainable, whether there 8 was flexibility in developing new programs, and whether they 9 were vulnerable by influences, outside the Government sphere. 10 To give you one (1) at the Provincial level, certainly one 11 (1) that is very important, is the funding received by the 12 Province from the Federal Government, that would be external. 13 Vulnerability, I would use one (1) example to 14 bring it down -- this down to the level I always found of 15 concern, when there's an earthquake in Japan, that we should 16 be shaking in our boots, and why is that? That's because 17 many of -- a large amount of our Provincial bonds are 18 actually held by school boards in Japan. 19 So, if they have an earthquake and they have 20 to rebuild their schools, they have to cash our bonds, and 21 what happens to us then? 22 So, the -- in 2001, the implementing the 23 Public Sector Accounting Board rules were apply -- 24 implemented for Ontario's Municipalities, including 25 incidentally, Toronto, and the GTA Municipalities, and that

1 was done on a recommendation that we had made in 1994. I can 2 go into that later on, because part of my background which 3 was is in -- was Chair of the Public Sector Accounting Board 4 of the Canadian Institute of Chartered Accountants. 5 The -- in as late as 2003/2004, which I'm very 6 pleased about is that all financial reporting of public 7 accounts budget and estimates were moved to a basis where 8 expenditures on tangible capital assets are recorded as 9 assets and amortised over their useful lives, rather than 10 being written off when acquired and this would be done while 11 also reporting the impact of capital expenditures on the net 12 debt of the Province. 13 In the area of accountability we have been the 14 catalyst for the creation and reports of two (2) Ontario 15 Financial Review Commissions, most of their recommendations 16 have been implemented, leading to such accountability 17 improvements as the publication of the business plans by each 18 ministry, and to push to achieve certain accounting 19 improvements that we have mentioned above, they supported 20 those. 21 As to value for money, just to give you a few 22 highlights, 2001 Report on the Community Reinvestment Fund 23 continues to adjust the financial and performance 24 relationship between the Province and its Municipalities. 25 The 2000 Report on Poor Management at Agricorp

1 resulted in massive changes in governance and Ministry's 2 supervision of that agency and it's hoped, of other agencies. 3 The 1998 Report on the Involvement of Andersen 4 Consulting, now Accenture in the Welfare Business 5 Transformation Project, resulted in a re-examination of the 6 common purpose procurement process, and we'll hopefully talk 7 about that a little bit later on and the renegotiation of the 8 contract saved the taxpayers tens of millions of dollars. 9 1996 Report on the Construction of Highway 407 10 changed the Government's approach to private/public 11 partnerships in terms of risks and rewards. 12 1994 Report on Drinking -- that drinking water 13 did not meet Ministry standards, made a major contribution to 14 the corrective action taken following the 2001 Walkerton 15 Disaster. 16 1994 Report on the Relationship between the 17 Ministry of Municipal Affairs and the Municipalities, 18 generated consistent financial reporting by Municipalities in 19 accordance with public sector accounting rules, and I think I 20 mentioned that before. 21 The 1993 Report on the Construction of the 22 Workers' Compensation Board Building, now WSIB began a major 23 overhaul of the Workers' Compensation Board and the 24 legislation governing it. 25 There are many other value for money reports

1 that led to major improvements, including reports on programs 2 in education, curriculum and special education, to mention 3 two (2). Health, long term care, OHIP, Public Health, 4 Transportation, Truck Safety, and some of these reports dealt 5 with many agencies, for example, on consulting contracts. 6 And I would be amiss if I wouldn't reiterate 7 the importance of the Public Accounts Committee of the 8 Legislature, in -- in dealing with these issues and making 9 its own recommendations on them to the Legislative Assembly. 10 With that, I would like to conclude the opening remarks, I 11 think I've taken too much of your time, but I hope that it 12 was helpful. 13 MR. DAVID BUTT: Yes, no, thank you very much, 14 and for providing that overview, and that -- that will assist 15 us in focussing our -- our questions. 16 Now, just a couple of follow up questions on 17 the role that you've described. You've described an 18 independent function reporting directly to the legislature. 19 And you've also described the different kinds 20 of audits that you do. The compliance audits, the attest 21 audits and the value for money audits. 22 Can you tell us, how do you devise a work plan 23 for any given year, as you work towards delivering an annual 24 report? 25 MR. ERIK PETERS: The delivery of the work

1 plan starts actually by an annual assessment of what we call 2 the audit universe and the audit universe are actually the 3 major government programs. 4 And we have devised initially just a dollar 5 threshold. If there program spends X dollars or there is a 6 public importance threshold. For example, we have examined 7 the Parole Board a number of times, although it spends only 8 $4 million a year, but, it had great ramification for public 9 safety. 10 So, what we do though, with each program, is 11 that we do what we call a risk analysis. And we include 12 factors in the risk analysis, such as, the results of 13 previous audits, the total revenues or expenditures at risk, 14 the impact of the -- possibly audit revenues, as well, 15 incidently. Tax collection is also one (1) of the areas that 16 we have audited. 17 The impact of the program or activity on the 18 public. The inherent risk due to the complexity and 19 diversity of the operations. The significant of possible 20 issues that may be identified by an audit. The cost of 21 performing an audit in relation to the perceived benefits. 22 And this -- these factors are analysed in what 23 we call a preliminary survey of the particular program. Now, 24 we have, as in my office, the office of the Provincial 25 Auditor, has been in existence since 1869.

1 So there's quite a record there, actually, 2 under the Westminster Parliamentary system, the first auditor 3 was appointed in 1314, in England. So, there's -- but, our 4 own offices' history, of course, is very important of things 5 that we did before in previous audits. 6 From this, we rank the programs against the 7 resources that we have available into also we have high, 8 medium and low risk and then we follow up, most on the high 9 risk audits, of course, they would get priority, but, medium 10 and low also that we achieve, is a certain amount of good 11 coverage, for the Legislature or our client. 12 Maybe that's an important part to me, that we 13 consider the legislature our client, everybody else, 14 including the Premier, are auditees, those who activities we 15 audit. Our client is the legislature. 16 MR. DAVID BUTT: And is there provision for 17 the legislature to make a request as your client, to say, 18 will you perform an audit on program X? 19 MR. ERIK PETERS: There certainly is. In the 20 Audit Act, there's section 17, we always call it, but, that 21 allows us to take special assignments on three (3) bases. 22 One (1) from the Legislative Assembly, and I 23 always have insisted that that be done as a whole. On 24 resolution of the Standing Committee on Public Accounts. 25 And if requested by a Minister of the Crown.

1 But, the Minister of the Crown, particularly we are entitled 2 to turn the request down on the basis, if it interferes with 3 our other duties. 4 One (1) example, in the eleven (11) years, it 5 very rarely happens. It happened once and then only in a 6 slight way, is that if a Minister discovers in his Ministry, 7 for example, incidents that he would like to handle, a 8 particular Minister approached us and said, could you do this 9 for us, but, on the proviso that you report only to me about 10 what happened. 11 And then we had to point out that that 12 conflicts with our duty to our client, the legislature, if we 13 do the work for you, the report has to be made public. 14 And when we have done special reports for 15 Ministers, they have always been made public and it was 16 accepted by the Minister. 17 MR. DAVID BUTT: I'd just like to follow up on 18 that, if I could, by asking about the construction of your 19 work plan and the power of the legislature to give you 20 special projects. 21 Do you have any concern that the use by the 22 legislature of this power to request special projects, could 23 inhibit you from carrying out your task based on the risk 24 assessments that your own office has done? 25 In other words, is there a possibility for the

1 legislature to overload your plate with things that are less 2 important than you think should be done? 3 MR. ERIK PETERS: Well, much to the credit of 4 the legislature, they have never asked me to do work. There 5 was one particular instances -- instance, which I won't go 6 into in detail, but where I was requested to do work and I 7 asked the -- the government house leader who requested this, 8 that I would do so only if he could secure the agreement of 9 the other parties so that the Legislature would do it as a 10 whole. 11 And there was not that possibility so we never 12 had that assignment, but on the other assignments, to come 13 back to the core of your question, yes, it has been a 14 concern. We are, in the Canadian environment, we are the 15 lowest funded audit office in -- of all Provinces the Federal 16 government in Canada. 17 So a consistent question was, if we ask you to 18 do this special work, does that mean you have to drop 19 something else that you have identified on a risk basis? And 20 we have -- we have normally managed to not drop anything off 21 until -- I forget the year actually when we were asked to do 22 the Bruce Lease. 23 That was the first time that I was -- that was 24 a very complex audit of leasing the Bruce facility and at 25 that point I did go back to the -- the standing committee or

28
  1  the Board of Internal Economy which sets the budget of my
  2  office and said, I needed additional money to do this work.
  3                 And, in their wisdom, they turned me down. 
  4  And there was, fortunately, such a public outcry at the time
  5  that they relented and ultimately we did get the money, but
  6  it takes that sort of effort. 
  7                 MR. DAVID BUTT:   So, as I hear you describing
  8  that scenario, you were having this discussion, if I can call
  9  it that, with the Legislature in public? 
 10                 MR. ERIK PETERS:   That's right. 
 11                 MR. DAVID BUTT:   So your communications with
 12  the Legislature about the formation of your work plan is on
 13  the basis of exchanged writings, I suppose, that are -- that
 14  are made public or depositions at -- at public committee
 15  hearings? 
 16                 MR. ERIK PETERS:   The audits that we identify
 17  on a risk basis are not -- our depth audit plan is not
 18  public. 
 19                 MR. DAVID BUTT:   Right. 
 20                 MR. ERIK PETERS:   In this case, it became
 21  public because the -- the audit of the Bruce Lease was done
 22  on a resolution of the Standing Committee on Public Accounts
 23  and that was on Hansard.  
 24                 And so, because it was publicly demanded, I
 25  responded publicly that I had problems doing the work if I

1 wasn't -- if there wasn't sufficient funding to do that 2 additional work. 3 MR. DAVID BUTT: Could I -- could I just ask 4 another question on the issue of the earlier example in which 5 you said, I will do this task for you if you get all party 6 support; where do you get the power to wield that kind of 7 political muscle in responding? 8 MR. ERIK PETERS: Well, I don't think it's 9 necessarily political muscle, but it was, again, to safeguard 10 the independence of my office I certainly did not want my 11 office associated with the wishes of -- in one particular 12 party. 13 It was to be done on consent of all parties 14 represented in the Legislature and that was just to safeguard 15 the office. It was not a matter of clout, it was just a 16 matter of saying, wait a second. I'm not working for a 17 party. I'm not working for a particular member of a 18 particular party. I'm working for the Legislature as a 19 whole. 20 MR. DAVID BUTT: Now, in the municipal 21 context, if I could just ask you to think about that for an 22 instance, of course there's not a party system and I'm just 23 wondering, to maintain a similar kind of independence when 24 the Council might request the external auditor to do 25 particular tasks, would you have any thoughts on how you

30
  1  could maintain that distance so that the auditor, again, is
  2  not seen as working for any particular sub-group on Council? 
  3                 MADAM COMMISSIONER:   And just to clarify, I
  4  don't think that the City would be asking the -- necessarily
  5  the external auditor, it would be their Auditor General who
  6  is an internal, like -- like you in that same sense.  Not
  7  like Coopers Lybrand or something. 
  8                 MR. ERIK PETERS:   Yeah, if I may -- may hook
  9  into that, we have -- my office is considered, for all
 10  intents and purposes, as the external auditor of the
 11  government. 
 12                 MADAM COMMISSIONER:   Okay. 
 13                 MR. ERIK PETERS:   So we are -- have the same
 14  status as -- as an external auditor would have on -- in the
 15  private sector corporation.  So we -- we are actually an
 16  external auditor not an internal auditor.
 17                 We have always fostered, actually, the
 18  establishment of an internal audit function in the
 19  Government, in fact it went to the point that I lent my --
 20  one (1) of my senior executives to become the Chief Internal
 21  Auditor for two (2) years to the Provincial Government, to
 22  establish the office of the Chief Internal Auditor, in the --
 23  in the Government, because I feel that the management should
 24  have at their disposal also, a control mechanism, the control
 25  and the benefits that are achieved through -- through the

1 auditing. 2 MADAM COMMISSIONER: Mr. -- maybe Mr. Lewis 3 can correct me if I'm -- if I'm categorizing this wrong, but 4 I thought that with the City there is now an Auditor General, 5 who is Mr. Jeff Griffiths. 6 MR. ANDREW LEWIS: That's correct. 7 MADAM COMMISSIONER: And there are internal 8 auditors -- 9 MR. ANDREW LEWIS: Well, and -- 10 MADAM COMMISSIONER: -- there's the auditor -- 11 MR. ANDREW LEWIS: The internal auditor I 12 think Mr. Hoy said was Mr. Veneziano. 13 MADAM COMMISSIONER: Right. 14 MR. ANDREW LEWIS: And there's the internal 15 audit function, which is separate from the Auditor General 16 function, which I think what you're saying is that your 17 office, Mr. Peters, doesn't perform the function of 18 determining in advance, or proactively, whether controls are 19 in place, am I -- am I correct in understanding -- 20 MR. ERIK PETERS: That's right. 21 MR. ANDREW LEWIS: -- you don't perform that 22 function? 23 MR. ERIK PETERS: Yes, that -- we -- we 24 prefer that that be done by internal audit, largely because 25 we consider internal audit as part of the management

1 function, and therefore to safeguard the independence of my 2 office. In other words, we shouldn't get involved in making 3 decisions before they're being taken, because that would 4 impair the independence of our audit subsequent. 5 MR. ANDREW LEWIS: And I take it by -- by 6 what you mean by that is that if you were to advise on a 7 particular set of controls on a particular system, that if 8 that system broke down at some point and you were auditing 9 the problem that had arisen, there would be a conflict in 10 that; is that -- 11 MR. ERIK PETERS: That's right. 12 MR. ANDREW LEWIS: Okay. 13 MR. ERIK PETERS: Actually it finds its way 14 also into the nature of the recommendations we make. 15 Traditionally our recommendations focus on what is to be 16 fixed, as opposed to how to fix it, like -- because we don't 17 want to prescribe a course of action to management, to fix a 18 particular problem. 19 MR. ANDREW LEWIS: I see, and -- and one (1) 20 follow up question is, do I understand you saying that the 21 -- that you've suggested or advocated that an internal audit 22 function be created, but there is not one (1) currently at 23 the Province? 24 MR. ERIK PETERS: Oh, there is one (1). 25 MR. ANDREW LEWIS: Oh, there is?

1 MR. ERIK PETERS: Yeah, in fact, we went so 2 far as to -- I -- when I started out I was on an ad hoc 3 committee of Deputy Ministers to create an internal audit 4 function, and ultimately once we had the framework hammered 5 out, it became important to turn it over to what we would 6 call a Chief Internal Auditor. 7 And it was just the first Chief Internal 8 Auditor -- the Province had trouble recruiting one (1), and 9 I decided that it was such an important issue, that I would 10 dedicate one (1) of my senior executives to become -- and 11 it was actually -- became a member of the Management Board 12 Secretariate, left my office for that period of time. 13 MR. ANDREW LEWIS: Thank you. 14 MR. DAVID BUTT: Mr. Peters, I'd like to 15 return to that -- that question of Council and Municipal 16 Council taking a part in establishing a work plan for you, 17 but just before we do that, because we're on this topic, it 18 might be helpful for us to hear your thoughts on what is the 19 appropriate division of responsibility in general terms, 20 between external or Auditor General, like yourself, and the 21 internal audit function. What -- what's different about the 22 -- the roles they play and what -- what are the important 23 principles that keep them separate? 24 MR. ERIK PETERS: Well, the number -- the 25 number 1 difference is who the client is. The Internal

1 Auditor's client is the Chief Executive, or the -- the 2 management. 3 The -- to put the analogue, the external 4 auditor such as we, we report effectively to the 5 shareholder, now the shareholder, as I've pointed out in -- 6 in Ontario's case, would be the residents of Ontario, but 7 they -- they are not represented really of course -- of 8 course through the public, by me having -- holding press 9 conferences and everything else when they are tabling my 10 report. We -- we do address the residents of Ontario 11 through that particular venue. 12 But the representatives of the public and of 13 the shareholders in this case, are the Legislative Assembly, 14 and I would -- I think that probably at the Municipal level 15 I would see that being in the same way, and I would think 16 that the -- my recommendation would be for Council to leave 17 the Auditor General to determine his work, his or her work, 18 based on risk assessments, and if the Council, wishes to do 19 something, that that be done a majority vote of Council. 20 Or if it were done -- and that's something I 21 would like to recommend to you, is to take a look at the 22 potential establishment of functional Committees of Council, 23 and of course the establishment of the equivalent of a 24 Public Accounts Committee, or say an Audit Committee of 25 Council, maybe that exists already, I'm not too familiar

1 with the Municipal environment. That -- and that if they 2 wanted to give instructions to the Auditor General that they 3 would do so, again on a majority resolution. 4 MR. DAVID BUTT: Majority resolution of the 5 entire Council or of the -- 6 MR. ERIK PETERS: If it's the Council, of the 7 Council, if it is a committee, the committee. 8 MR. DAVID BUTT: Looking then at -- at the 9 structure of municipal politics, if we had an eight (8) 10 person committee and a simple majority vote of that 11 committee, could add an agenda item to your work plan, do -- 12 do you not see a risk, that with -- with a mere five (5) 13 votes, they could have an impact on your risk assessment 14 work plan? 15 MR. ERIK PETERS: Interesting question. 16 That's certainly something to analyse, whether you want to 17 go with a simple majority or two-thirds (2/3) or some higher 18 -- higher degree of majority. 19 Also, you may want to avoid the suffering 20 that I went through in some sense, and to say, okay if you 21 do this, find the additional funds to do it, if the Auditor 22 General determines that he actually needs additional funding 23 to do the particular special assignment. 24 MR. ANDREW LEWIS: I -- I wonder if I could 25 just jump in for one (1) second on -- on the funding issue.

1 Do you find and you had said that the Ontario auditors 2 office, was the, I think, the least funded of all the 3 Provinces, is what you said. 4 Does that aff -- the lack of funding, does 5 that affect the number of audits that you do or the quality 6 of the individual audits, or both? Do you have a choice to 7 make between that? 8 MR. ERIK PETERS: Well, I -- I rather have 9 goo -- a good work done on a few audits than poor work on 10 many. It's as simple as that. 11 MR. ANDREW LEWIS: Okay. 12 MR. ERIK PETERS: So, the quality of the 13 audit has not -- has not suffered. What has suffered, is 14 that we would certainly sometimes ideally would have loved 15 to have a report that says, this -- this program is 16 performing well, it's well administered, but, when you are 17 funded at that level, that's not very helpful to the 18 taxpayer. You just start to take a look at the high risk 19 programs and prefer -- and high risk means that there are 20 things that need to be fixed. 21 So, my reports have become increasingly -- or 22 have been fairly unpopular with the government in power, 23 because the Minister's had to stand and answer to it, but it 24 was -- part of the funding issue was that we had to focus on 25 areas, that simply had to be fixed.

1 MR. DAVID BUTT: And -- and just to follow up 2 on an earlier strand that I -- I heard; when you're engaging 3 in your risk assessment, the -- the notion of risk does tend 4 to move beyond purely a financial risk, am -- am I accurate 5 in -- in asking that? 6 And I think back to the Parole Board example, 7 where the actual dollars at stake were not as large as -- as 8 many other programs, but, the -- the impact on public safety 9 was potentially very large. 10 So, it -- is it fair to say, that a non- 11 monetary consideration like that, properly enters into your 12 -- your risk assessments? 13 MR. ERIK PETERS: Oh, very much so. They're 14 a total of about -- I'd identified about eighteen (18) risk 15 factors and the -- the financial would be only one (1) of 16 those. 17 MR. DAVID BUTT: Could -- could you share 18 with us some of the principal risk factors that are non- 19 financial that you think are important to integrate into 20 risk management planning? 21 MR. ERIK PETERS: Well, the -- certainly 22 number two (2) what we rank, would be the con -- management 23 controls in place over a certain activity. 24 The -- the other would be -- would be the -- 25 the overall performance at -- at the performance reporting

1 and that -- and the performance of the program, both in 2 quantitative, as well as, in qualitative terms. 3 To give you an example of one (1) the -- my 4 reports over the ten (10) years have been peppered with 5 cases where, for example, funding was given to third party 6 agencies by the -- by the Government, simply on the basis of 7 across the board increases or decreases, without due regard 8 for that organization's actual service level and quality of 9 services being provided, which has resulted in hardships in 10 some areas and has resulted in surpluses in other areas. 11 And so this kind of performance, we would -- 12 we would assess. We try to assess. In fact, one (1) of the 13 things that I've done in the ten (10) years that -- that 14 I've been here and that was started by my predecessor 15 already, was to actually expand the domain of my office into 16 the broader public sector, I mean the -- the sub-sectors, 17 school boards, universities, colleges, hospitals. 18 There was some wrestling about whether we 19 should go into municipalities as well. There has been -- 20 that was definitely on the agenda. There were -- there were 21 cabinet members who favoured that approach and there were 22 others who were against that approach. 23 But the point of that was that we wanted to 24 follow the money all the way through. Like, in other words, 25 our count was that there were at least over seven thousand

39
  1  (7,000) organizations, when we did the count, where there
  2  was Directors administering public funds given to them by
  3  the Province where the Province had really no, or very
  4  little, input into the quality of service and the level of
  5  service that was being provided.
  6                 The Government came back and said, you're
  7  wrong, and there are over ten thousand (10,000) so it's
  8  quite a problem, but half of the government money is
  9  actually spent that way.  The annual budget of about 34
 10  billion, I would say that there were close to thirty (30) or
 11  a little bit over $30 billion is spent by the Province is
 12  given to other Boards, other organizations to administer. 
 13                 MADAM COMMISSIONER:   Now, just -- if I might
 14  ask a question with respect to your independence; do you see
 15  a difference, Mr. Peters, in -- in your independence if you
 16  report directly to the legislative assembly or if you report
 17  to the legislative assembly through the public accounts
 18  committee? 
 19                 MR. ERIK PETERS:   We report to the assembly. 
 20  It is just by standing order.  Our report is then referred
 21  to a committee to deal with. 
 22                 MADAM COMMISSIONER:   But if you were to have
 23  to report to the public accounts committee and then from the
 24  Public Accounts Committee it would go up to the legislative
 25  assembly would that -- would you see that as making a

40
  1  difference to your independence? 
  2                 MR. ERIK PETERS:   No, it doesn't because in
  3  all cases I've insisted that the report be also be made
  4  available to the legislature as a whole; like, in all cases. 
  5  If we are requested to do work by a minister that would be
  6  done and certainly as stemmed from the public accounts they
  7  would be totally, immediately available and they know that. 
  8  The committee knows that once they've passed the motion and
  9  asked me to do the work that is not work that they would
 10  keep to themselves.
 11                 In fact, what did -- what does happen is that
 12  normally the committee meets at ten o'clock in the morning
 13  and sure, the question period in the afternoon is chock full
 14  of dealing with the issues that we raised in the report to
 15  the committee in the morning. 
 16                 MADAM COMMISSIONER:   Thank you. 
 17                 MR. DAVID BUTT:   I'd like to return, if I
 18  could, to the -- to the issue of internal versus external
 19  auditors and you've described the difference from the
 20  perspective of having a different client, could you give us
 21  a functional description of the differences?
 22                 In other words, what different jobs do they
 23  do that each have their own inherent but separate value? 
 24                 MR. ERIK PETERS:   The inherent is that they
 25  are -- an internal audit function is really part of the

1 management control function. It's an -- a reasonable 2 assurance provider to management that the controls that they 3 had hoped to put in place are actually working. 4 So that would be their -- the mainstay of 5 what they get back. And, also, value for money. I 6 certainly have asked to put that into the mandate so that 7 managers know. I'm always reminded when I first -- when I 8 was appointed as Vice President of Internal Audit by the CBC 9 the then president of the CBC Pierre Juneau, he said, I've 10 only -- here are my marching orders. Your marching orders 11 are to make sure that we don't get a bad report from the 12 Auditor General of Canada. 13 So, in other words, do the work that we, as 14 management, know and are doing a good job so that we don't 15 get publicly reported on by the Auditor General. 16 MR. DAVID BUTT: As the Provincial Auditor, 17 are you involved in the rendering of advice on the 18 soundness, from an auditing perspective, of proposed 19 policies? 20 MR. ERIK PETERS: We are -- we are from time 21 to time. From time to time, the Management Board of Cabinet 22 who was responsible for issuing government policies will fly 23 them by us, but will fly them by us also only from the point 24 of view of not saying, and that we refused to do that, 25 whether it's good or bad. Merely, whether there are issues

1 in the policy that we could see causing a problem. 2 MR. DAVID BUTT: And if they want a more 3 thorough financial analysis of a proposed policy, would that 4 be something more suitable to the internal audit function? 5 MR. ERIK PETERS: Absolutely. And 6 particularly the -- in the Information Technology area, for 7 example; new systems development; that we would highly 8 recommend that internal audit deeply be involved in ensuring 9 that there are appro -- appropriate controls built into the 10 Inf -- Information Technology systems that are being 11 developed. 12 In your particular case, for example, I would 13 have -- you know, starting from the MFP Inquiry, that -- 14 that you had, from my perspective a well functioning 15 management would have had an internal auditor look as to how 16 do you control leases, so that management knows, you know; 17 how are we controlling this? Because it's -- if I had been 18 the manager, I would have been very worried about that, 19 because of the -- the computer leasing is an instinctively 20 poorly managed area. 21 MR. DAVID BUTT: We heard yesterday from Ms. 22 Hoy at the City, some concern about the potential for 23 managers to over rely on the -- the advice functions, for 24 example, the Legal Departments and the Internal Auditing 25 Departments, in -- in formulating policy.

1 Again, looking at internal audit as opposed 2 to external, do you perceive that as a -- as a potential 3 problem in -- in policy development? 4 MR. ERIK PETERS: Well, I always make a 5 distinction between two (2) terms, the word reliance and 6 abdication. I -- I think there's nothing wrong with a 7 manager relying on advice in areas where they don't have the 8 expertise, from internal like -- like legal advice, or 9 getting the -- the internal auditor's advice or perspective 10 -- perspective on something. 11 But it is ultimately the manager that has to 12 make the decision, that's what they're being paid the big 13 bucks for, so that in the end -- but you cannot abdicate the 14 decision making, you cannot subsequently hide behind that -- 15 that was the advice that I was given. You can certainly 16 mention that, but you -- you shouldn't -- it is still the 17 manager's responsibility to make the ultimate decision. 18 MR. DAVID BUTT: Can -- can I move to a 19 slightly different area now, and ask you about what teeth 20 does the Auditor's Report have? 21 MR. ERIK PETERS: Well, the -- the first one 22 (1) is because simply the Auditor, through the independence, 23 has a certain -- has a degree of credibility that certainly 24 the -- the credibility gives it teeth. 25 A -- a professionally conducted audit, where

44
  1  you have the facts straight, is basi -- unassailable facts,
  2  is certainly the best -- the best tool in that.
  3                 For the Auditor in the public sector; I've
  4  always considered the -- and that's why we -- we did it,
  5  that we held a media conference and where there was a lock
  6  up with the media, and to advise the public at the same
  7  time, and certainly that -- that put a certain oomph into
  8  it.
  9                 MR. DAVID BUTT:  Could you tell us about the
 10  -- the lock up policy, and how it -- how it functions?
 11                 MR. ERIK PETERS:  The lock up policy is that
 12  on tabling the -- our report is largely -- is -- is totally
 13  secret.  We are -- there are certainly -- there is --
 14  courtesy drafts of our report, are certainly provided to the
 15  senior management of the Government before publication, but
 16  it's the drafts that our final report will be based on.  
 17                 And as you know, we -- in the reporting
 18  structure that I introduced, was that I asked the Ministries
 19  or Program Executives to respond to each of our
 20  recommendations in writing, and we put that into our report,
 21  their responses right in there, so they know -- they know
 22  what we said, what we recommended, and they have their
 23  reactions.  
 24                 And most of their -- their reaction, I tell
 25  them, is intended to be a statement of commitment by

1 management, to fix the particular problem. And so they -- 2 they know that. 3 So, when -- when we come to -- to the lock- 4 up, we hold actually a number of simultaneous lock-ups, we 5 hold a media lock-up, and we hold a members lock-up, in 6 which the members of the Legislature can be in the room and 7 the -- there's a third one (1), which is the Ministry lock- 8 up, which is where the management can also take a look at 9 the report. 10 Most of the time they're not too well 11 attended, because they are -- they already know what they 12 said, and they knew -- knew what to do, but the media lock- 13 up are intended -- the point of all of it, is that because 14 our reports are fairly voluminous - like the 2003 report is 15 close to four hundred (400) pages long - that to give the 16 media enough time to take a look at the issues that we are 17 raising and to become reasonably familiar enough with them 18 to do a story. 19 But, it was done at the request of the 20 Speaker of the Assembly, because our report is confidential 21 until tabled by the Speaker in the House. 22 And so the lock-up, we normally start the 23 lock up about nine o'clock in the morning. At about noon, 24 we have a media conference, which is taped, both radio and 25 television in the media room, they're taped, but, they can't

46
  1  leave the building.  I mean my staff goes with them to the
  2  washroom, to make sure they don't use a cell phone.  
  3                 But, once it's tabled, then it goes virtually
  4  simultaneously, the Pages come into the House and distribute
  5  a copy to each Member and the media get going on their
  6  stories for the day and do the follow up.
  7                 MR. DAVID BUTT:  Was this procedure devised
  8  during your tenure or did it exist?
  9                 MR. ERIK PETERS:  No, that was in place.  It
 10  actually was in place already when I joined the office of
 11  the Auditor General of Canada.  They already had that in
 12  place, in the late 1970's.
 13                 MR. DAVID BUTT:  How important do you see
 14  that procedure around the release of your report, to the
 15  proper functioning of the office?
 16                 MR. ERIK PETERS:  I think very important.  I
 17  think the -- it -- I can give you an example, when I first
 18  qualified on the public accounts, first the tabling of the
 19  public accounts, doesn't get that sort of attention.
 20                 And, in fact, when I brought it first up, I
 21  know that the political advisors to the Cabinet members at
 22  that time, felt that well, if the Auditor qualifies, you
 23  know, it's going to be a one (1) day wonder and everybody's
 24  -- the day after, nobody will remember.
 25                 Well, it wasn't so.  You know, because the --

1 in my report was that for the first time we qualified on the 2 accounts of the Province, because they had intentionally 3 understated the deficit by half a billion dollars, which was 4 the key issue and then the media picked it up. 5 In fact, the party in power at that stage, 6 when we ultimately, when we had the first meeting after they 7 lost the election, they blamed me for losing the election, 8 because the issue had been raised. 9 So, it is not that we are courting the media 10 on it, but, we are the -- it's really the Speaker and the 11 opposition parties, quite frankly, because public accounts, 12 for example, is chaired by a Member of the Opposition, under 13 the structure. 14 And that's done in all legislatures across 15 the country, that the Chair of PAC, is a member of the 16 opposition and the Vice Chair is appointed by the 17 opposition, as well. 18 Like for example, in the current one that is 19 currently in power, Mr. Sterling is the Chair, because he's 20 P -- Progressive Conservatives. So he -- but previously it 21 was John Garretson, from the Liberals when the PC's were in 22 power. 23 So, they want -- they are for this, as well. 24 So, it is not -- the reason I'm mentioning it, is because of 25 the -- you do want to get corrective action. It is very

1 frustrating for an auditor, for example, in 1994, we pointed 2 out that over one million Ontarioans were drinking water 3 that was not deemed safe by the Ministry. 4 When we followed up and we follow up, 5 incidentally two (2) years later, automatically, not outside 6 the risk assessment. We have a chapter 4 in our report, we 7 would follow up -- by '96, we felt that they had fallen 8 behind in implementing the corrective action, which was 9 called the Drinking Water Surveillance Program that was 10 established, when we did our audit. 11 And then other priorities took over et 12 cetera, et cetera and then all the sudden the thing of 13 course, blew up, Walkerton which was seven (7) years after 14 the report and right now, we have the meat inspection, for 15 example, the -- but, even though we reported a long time ago 16 that there were problems with the meat inspections, et 17 cetera. 18 MR. DAVID BUTT: Okay, so just in terms of 19 teeth that we've been discussing, there's, of course, the 20 lock up procedure that facilities public disclosure of this, 21 there's the requests that you have made that departments 22 report back to you in writing on the steps they have taken 23 to address concerns you have raised; is it fair to say that 24 the Chairmanship of -- or the Chair of the Public Accounts 25 Committee being a member of the opposition is an important

1 aspect of giving your work the teeth it needs? 2 MR. ERIK PETERS: Yes, very much so. 3 MR. DAVID BUTT: And is -- is there anything 4 else that you can describe to us that falls in the category 5 of giving your -- your work the teeth it needs to get -- get 6 implemented? 7 MR. ERIK PETERS: Well, I think underlying 8 it all is simply having a good staff and it being right. 9 You know, having an internal control mechanism within the 10 office to make sure that what we go public with is -- we 11 have sufficient evidence, has been professionally developed 12 and was properly appropriated and was done -- and that's an 13 important feature, was done without bias. 14 MADAM COMMISSIONER: Without what, sorry? 15 MR. ERIK PETERS: Without bias. 16 MADAM COMMISSIONER: Okay. 17 MR. ERIK PETERS: I -- we don't -- won't 18 tolerate, for example, people who have axes to grind. You 19 know, our own internal control mechanisms within the Office 20 of the Provincial Auditor are such that we, thank goodness, 21 in the eleven (11) years I was there, we have not been found 22 out having reported wrong facts once and I consider that 23 very important. So independence and credibility. 24 MR. DAVID BUTT: How to you accomplish, 25 internally, the credibility section; is that a human

1 resources issue of attracting the right staff or do you have 2 internal training? 3 MR. ERIK PETERS: All of the above, if you 4 will. For example, we have a very tight Code of Conduct 5 which we -- all my staff has to sign an oath of office. In 6 fact, the oath of office is so strong that we have to have a 7 separate section of the act to allow my staff actually to 8 tell me about their findings. 9 The oath of office simply says that, you 10 know, you're doing this and your findings are totally -- you 11 know, they are your own findings, but then we have another 12 section of the act that says that the findings can be 13 discussed within the office if it furthers the 14 administration of the Audit Act as a -- as a piece of 15 legislation. 16 And, secondly, of course, if disclosure is 17 required under the Criminal Code, like, in other words, we 18 cannot withhold evidence if we find evidence of criminal 19 wrongdoing then we have other obligations to call in the 20 police or cause the ministry to call in the police. 21 Fortunately, that hasn't happened as long as I've been 22 there. 23 We have -- we have had the police called in 24 but there was not necessarily on -- based on our -- the Code 25 of Conduct, also we have -- we foster a professional

51
  1  environment.  In other words, the -- from a certain level
  2  on, which is Audit Senior level on, my staff all have to
  3  have, as a minimum, a Canadian accounting designation.
  4                 They have to be either Chartered Accountants,
  5  Certified General Accountants or CMA's, Certified Management
  6  Accountants.  As you know, under the Public Accountancy Act,
  7  the Assistant Provincial Auditor and the Auditor must be
  8  licensed under the Public Accountancy to practice public
  9  accountancy.
 10                 Which, incidentally, if I can make a little
 11  footnote, I think, Ms. Bellamy, you raised the question
 12  about external audit and made the financial statements, we
 13  audit the financial statements as well.
 14                 If -- if I had my druthers, I would say in
 15  the municipal environment, the Auditor General should have
 16  that function as well or, if -- as an alternative which we
 17  do in certain circumstances, is that the audit of the
 18  accounts of the municipality be done under the direction of
 19  the -- of the Auditor General.
 20                 They can be done by a private sector firm but
 21  it would be under the direction.  In the Provincial
 22  environment we do this for about six (6) organizations.  The
 23  big ones are the WSIB, the -- the Workplace Safety Insurance
 24  Board, is actually both the financial statements and the --
 25  all value for money audits, under the direction of my

1 office, but are all performed by private sector accounting 2 firms and we -- the other one (1), I guess that's -- that's 3 the biggest one (1) that comes to mind when we're -- we're 4 doing that. 5 MADAM COMMISSIONER: Thank you. 6 MR. ERIK PETERS: There's some hospitals that 7 -- one (1) hospital I think. 8 But it -- as I said, I made a -- I made a 9 footnote to get -- to get into that, but the -- to come back 10 to the Code of Conduct, the -- where there are also certain 11 risk constraints on my staff, my staff, for example, cannot 12 participate in any political activity of any kind and I -- 13 frustrated as they were, I won't have a sign on my lawn for 14 anyone, and I -- I told them if you do it, I have it for 15 everybody or nobody. My preference is for nobody, but the 16 staff the same, they cannot be involved. 17 Also, they cannot be involved in even 18 volunteer organizations which are largely funded by the 19 Province, we have conflict declarations, cannot invest in 20 entities in which the Province has an equity position. We 21 -- we are -- they -- they are allowed to invest in Ontario 22 Savings Bonds, or if they wanted to, debentures of Ontario 23 Hydro, or anything like that, although, they have to be 24 declared. 25 And the whole process, firstly, the Code of

1 Conduct has -- has -- we alert all people before they sign 2 on, before they come onboard, it's a human resources 3 function that they are totally made aware of both the oath 4 of office, as well as the Code of Conduct under which we 5 operate. 6 We also demand a second annual declaration of 7 compliance from our staff, that they have complied with all 8 terms of the Code of Conduct. 9 Included, incidentally, in the -- in the 10 Conflict of Interest portion, is if any relatives -- 11 relatives are working for an organization that we audit, 12 like the staff members would -- would be pretty well 13 excluded from that. You know, if somebody's husband works 14 in -- in the Ministry of the Environment, then that 15 particular staff member would not audit the program of the 16 Ministry of the Environment. 17 MR. DAVID BUTT: Now, while we're talking 18 about the -- the office of the Auditor General, you 19 mentioned earlier about how in -- in one (1) case you said, 20 you know, if I am to carry out a particular request, I'll -- 21 I'll need more funding, and you spoke about the funding 22 levels. 23 Is -- is there a benchmark by which you can 24 assess an appropriate level of -- of funding for the Auditor 25 General's office, an appropriate level of staffing, or at

1 least are there comparisons with other jurisdictions that 2 you can help us with? 3 MR. ERIK PETERS: Well, the comparisons are 4 certainly there. The -- to give you -- to give you an idea. 5 We are running -- we -- we do one (1) statistic, which is 6 that we add to the jurisdiction's revenues and expenditures, 7 and then relate the audit budget to the sum total of that, 8 because that -- those are the dollars that are subject to 9 audit. 10 Just to give you a feel for it, Ontario, my 11 office was funded at the rate of about seven (7) cents per 12 thousand on that. The -- 13 MR. DAVID BUTT: And just help me, those of 14 us who are math challenged. So, if -- if the total 15 revenues, let's say for the City of Toronto are 6 billion, 16 and they're roughly spending what they get in, the 17 comparative figure then would be six (6) plus six (6), which 18 would be 12 billion? 19 MR. ERIK PETERS: That's right, twelve (12), 20 and it would be seven (7) cents per thousand (1,000), which 21 would on six (6) plus six (6) on a 1.2 billion, would 22 probably give a -- well, there -- would -- would give you a 23 budget of about eight hundred thousand (800,000), but I 24 don't think they could operate on that. There's a certain 25 minimum level which has to be accomplished.

1 To give you -- give you an example, if you 2 take Prince Edward Island, which is the smallest Province, 3 on a related measure they would spend about a dollar forty 4 ($1.40). 5 MR. DAVID BUTT: You're at seven (7) cents, 6 they're at a dollar forty ($1.40). 7 MR. ERIK PETERS: They're at a dollar forty 8 ($1.40), but that is because there's a certain minimum 9 required. You know, you -- you've got to have an office 10 space, you've got to have chairs and furniture, and you've 11 got to have some people in the -- he has a smaller staff, 12 much smaller staff of course than I do, but the -- the 13 benchmark may be the big -- the bigger offices -- for 14 example, the Federal Auditor General I think is running at 15 about, they're running there's at about thirty five (35) 16 cents per thousand. 17 They have -- when we were considering our -- 18 the wrong process, but, they get the right amount of money. 19 They make their submission to the Treasury Board, which 20 essentially has bureaucrats approving it. 21 And they get -- like in one (1) year, for 22 example, the Auditor General of Canada, got budgetary 23 increase that was 100 percent of my budget. Mine the 24 process is good, it's a legislators who are sitting on the 25 Board of Internal Economy determining the amount.

1 But the amount that I'm getting, is much 2 poorer than -- as you can tell by that. In fact, I would 3 say that's the next close -- if you take the next closest 4 Province, that should be the benchmark. 5 Quebec has almost three (3) times my staff 6 and certainly has -- they are running at about thirty eight 7 (38) cents. 8 MR. DAVID BUTT: How about some of the 9 western Provinces? 10 MR. ERIK PETERS: Alberta is running at about 11 seventy (70)-- I'm sorry -- I'm getting the expenditure 12 number -- oh, in fact, you could cut my numbers in half, if 13 you take the Federal there at seventeen (17) cents and 14 Quebec at about eighteen (18), nineteen (19) cents. 15 Alberta on that basis, would also -- would be 16 running thirty eight (38) to forty (40) cents. 17 MR. DAVID BUTT: On the basis of cutting them 18 in half as you've -- 19 MR. ERIK PETERS: Well, when I said the 20 number that was sticking in my mouth, originally, you 21 develop these statistics using only government expenditures, 22 but, later we -- actually, on my urging to some extent, our 23 office has got far more active in also ensuring that 24 appropriate revenue was collected. 25 So, once we ran into that, then we of course,

1 had to take the revenue amounts into consideration and that 2 doubled it up. That's just pure math. 3 MR. DAVID BUTT: Okay, so then on a 4 consistent basis that includes both revenues, just so I have 5 a sense of the numbers, that includes both revenues and 6 expenditures, you're at seven (7), Quebec is at eighteen 7 (18) or nineteen (19), Canada is at seventeen (17)? 8 MR. ERIK PETERS: About these, yes. 9 MR. DAVID BUTT: Okay, and Alberta would be 10 where? Thirty eight (38) or seventeen (17) or nineteen 11 (19)? 12 MR. ERIK PETERS: Alberta would be close to 13 thirty six (36). 14 MR. DAVID BUTT: Okay. 15 16 (BRIEF PAUSE) 17 18 MR. ERIK PETERS: Again, it has to do with 19 the size of the Province -- 20 MR. DAVID BUTT: Yes -- 21 MR. ERIK PETERS: -- there's a certain base 22 size. 23 MR. DAVID BUTT: Just in terms of transposing 24 that to a municipal context, I mean we've heard lots about 25 the size of the government -- municipal government, City of

58
  1  Toronto, being perhaps the fifth largest in the country,
  2  bigger than many Provinces.
  3                 Would you foresee that that kind of rough
  4  benchmark in looking at the level of staffing for an
  5  external auditor, would apply?
  6                 MR. ERIK PETERS:  With one (1) proviso, and
  7  that is, I believe, that the -- all legislative auditors in
  8  Canada, do the attest audit of the public accounts of their
  9  jurisdiction.
 10                 And I don't think that's happening in the
 11  City of Toronto.  I believe, you have a private sector firm
 12  doing the financial statements, giving their opinion on the
 13  financial statements and that's -- so that is the one (1)
 14  proviso that you have to put, but, it depends also then on
 15  the ratio that you are working at.  
 16                 Like we were working at a ratio that we spend
 17  approximately 70 percent of our budget on value for money
 18  work and 30 percent on attest work.
 19                 Compliance permeates the whole thing, you do
 20  compliance audits whether you do financial attest audits or
 21  value for money audits.
 22                 MR. ANDREW LEWIS:  If I can jump in for one
 23  (1) second, I do believe, and I'll let you know if my
 24  understanding is incorrect on this Madam Commissioner, but,
 25  the external -- sorry the Auditor General in the City of

1 Toronto, does supervise -- 2 MADAM COMMISSIONER: Yes -- 3 MR. ANDREW LEWIS: -- the work of the 4 external -- 5 MADAM COMMISSIONER: -- oversight for the 6 external audit. 7 MR. ANDREW LEWIS: -- there's an oversight 8 function there. 9 MADAM COMMISSIONER: I think that's what Mr. 10 Griffith's mentioned that in his affidavit. 11 MR. ANDREW LEWIS: Yes. 12 MR. ERIK PETERS: Oh, good, I'm glad to hear 13 that. 14 MADAM COMMISSIONER: Yes. Yes, he has the 15 oversight of all external attest audits. 16 MR. ERIK PETERS: Okay, very good. 17 MR. DAVID BUTT: Just a procedural question 18 here, Mr. Peters, if we finish closer to 12:30 than 12:00, 19 would that be suitable, in terms of your schedule? 20 MR. ERIK PETERS: That would be fine with me, 21 yes. 22 MR. DAVID BUTT: Okay. That would among 23 other things, allow us to take a short morning break. 24 MADAM COMMISSIONER: Would you like that 25 short morning break now then, or would you like -- does that

1 make sense? 2 MR. DAVID BUTT: That divides the morning up 3 nicely if we're going to about 12:30. 4 MADAM COMMISSIONER: Okay. 5 MR. ERIK PETERS: Okay. 6 MADAM COMMISSIONER: All right. Why don't 7 we just take ten (10) minutes; would that do it? Right, ten 8 (10) minute break. 9 THE REGISTRAR: The Inquiry will recess for 10 ten (10) minutes. 11 12 --- Upon recessing at 11:20 a.m. 13 --- Upon resuming at 11:30 a.m. 14 15 THE REGISTRAR: The Inquiry will resume, 16 please be seated. 17 MR. ANDREW LEWIS: I wonder if I could just 18 ask one (1) -- just start off with one (1) clarification 19 question and bring a document to the Commissioner's 20 attention? 21 First of all I -- it was -- it was seven (7) 22 cents per thousand dollars ($1,000); is that correct? 23 MR. ERIK PETERS: That's right. 24 MR. ANDREW LEWIS: I just heard per thousand 25 (1,000), and I assumed that's what you meant?

1 MR. ERIK PETERS: Per thousand dollars 2 ($1,000) of revenue a day. 3 MR. ANDREW LEWIS: Thank you, that was my 4 first question. And then just to bring, Commissioner, your 5 attention to the relevant City Council document in the -- in 6 the book of documents that accompanied Ms. Hoy's 7 presentation yesterday; at Tab 3.1.4 is the report that the 8 Policy and Finance Committee as adopted by the Council on 9 November 26th, 27th and 28th, 2002, on implementation of the 10 Auditor General and internal audit functions and in there, 11 it sets out specifically the roles of the -- the External 12 Auditor, the Auditor General and the Internal Auditor. 13 MADAM COMMISSIONER: Thank you very much, Mr. 14 Lewis. 15 MR. ERIK PETERS: If I -- if I may add to -- 16 to the answer, there was one (1) other criterium that we 17 use, and that is the number of the dollars audited per staff 18 member, so that do deal with not just the dollars in the 19 budget, but also the staffing level. 20 MR. ANDREW LEWIS: I see. 21 MR. ERIK PETERS: And again, we are by far 22 the lowest at about -- we're running close at -- at about 23 1.4 billion per staff member, and other Provinces are 24 running significantly less than that for staffing. 25 MR. DAVID BUTT: Now, could I ask a slightly

1 new area; just in terms of the development of the work plan 2 again, but is there any opportunity, we -- we've heard about 3 how the Legislature can make a request that -- that could 4 end up in your work plan, is there any opportunity for a 5 Civil Servant, or -- or in the Municipal context, staff 6 input into your work plan, be it by way of bringing matters 7 of concern to -- to somebody's attention, that would have 8 them end up on your plate? 9 MR. ERIK PETERS: They -- they certainly can. 10 At the time when we -- after we have done our risk analysis, 11 and determined that we want to do a particular audit, the 12 process' then that I -- I will normally write -- the 13 Provincial Auditor writes a letter to the Deputy Minister 14 responsible, or the highest level bureaucrat responsible to 15 say that this audit will be -- will be done and there will 16 -- is a survey function and there is a very critical input 17 which is provided actually by management. 18 Once a survey is done and we -- the offices 19 identified the area to audit, the criteria against which we 20 audit, will be presented to management, and will be agreed 21 to -- will have to be agreed to by management. A 22 disagreement on the criteria is already a reportable item. 23 In other words, if we feel that something 24 should -- a criteria is -- in other words, another word to 25 put to it is audit expectation, like for example, we say

1 when -- to take the leasing example, we would say that we 2 would expect you to adhere to all provisions of the 3 management board or cabinet directive on leasing. 4 And if the management at this point says, no, 5 we don't, then we virtually have a reportable item and then 6 we say, why don't you, and what -- what is happening and 7 what is going on. 8 And to answer your specific questions, that's 9 when normally they'll come out. They will tell us that, you 10 know, these are areas of concern to us, and to where we have 11 -- they will -- it's a -- it's a good give and take in the 12 development of the criteria, as to what -- what the 13 management concerns are. 14 Also, I have certainly have my eye -- open 15 and the -- who was as Provincial Auditor, and if a Deputy 16 had a particular concern that they wanted to raise with me, 17 they would raise it. 18 For example, we -- one (1) of the audit 19 techniques that we're using, is -- if you have a widespread 20 organization with, say operating in hundred and fifty (150) 21 locations in the Province, that we would identify key 22 locations, but, we would address the others by way of a 23 survey, like we would write a letter to them, asking them 24 certain questions. 25 And certainly the questions that we would be

1 asking these areas, would be discussed with and agreed to, 2 by -- by the senior management of the organization. 3 MR. DAVID BUTT: And returning to -- to 4 something that you mentioned earlier, you spoke about how 5 there are non-monetary issues that -- that you look at that 6 have a qualitative aspect to them, and -- and yet you said 7 in -- in conducting your risk assessment, and determining 8 your work plan, and yet you also using the analogy of 9 digging the hole, avoid or try to avoid commenting on or 10 wading into, policy debates. 11 Is -- is that a difficult line to draw when 12 you're essentially making qualitative assessments of -- of 13 policies, aren't you straying very close to commenting on 14 the wisdom of policy and is that appropriate in the context 15 of your auditing functions. 16 MR. ERIK PETERS: What we're trying to do is 17 keep in our own minds, sort of, a definition between public 18 policy or government policy and administrative policy and -- 19 and this -- this causes grave concern and this is a fine 20 line, for example; if you talk about alternate service 21 delivery. And when we questioned whether it was carried out 22 properly, sometimes we got the feedback in saying, wait -- 23 wait a minute, we can't comment on alternate service 24 delivery because that's government policy. 25 We have decided that we want to out-source a

1 -- certain activities and I said to them, well that's fine, 2 if that's your policy decision that that is one (1) of the 3 alternatives that you're considering. 4 But, as Auditor and on behalf of getting 5 value for money for taxpayer, would certainly be that you 6 make a sound business case for the outsourcing and that's 7 administrative policy, how do you administer this 8 outsourcing, we'd say, do you do a business case, do you 9 have a feasibility study, as to what the benefit would be to 10 the taxpayer? 11 How would you enforce that government policy 12 would be enforced -- enforceable, if you do the outsourcing? 13 And at that point, we said, that's something that is 14 certainly within our purview and it doesn't -- we don't 15 question your policy that you are considering alternate 16 service delivery, but, it has to be done against these 17 guidelines. 18 MR. DAVID BUTT: So what I hear you drawing 19 then, is essentially it's a distinction between 20 administrative policy and policy writ large in the -- in the 21 political sense? 22 MR. ERIK PETERS: That's right. And it is -- 23 I agree with you, it is sometimes, it's -- it's a very fine 24 line. You know for -- we have, for example, in the 25 municipal sector, we had -- we talked about the community

1 re-investment fund and local services realignment and the 2 Government had always said there would be revenue neutral. 3 Well, and we found out that it was 4 administered, and so it did not turn out to be revenue 5 neutral, then we did comment on that. 6 MR. DAVID BUTT: In actually conducting your 7 -- your audit work, has the benefit of your -- your 8 experience shown to you, any practices that -- that hinder 9 the carrying out of effective audits that you'd like to 10 share with us? 11 MR. ERIK PETERS: Well, some -- the or -- let 12 me rephrase that question slightly. What are the issues 13 that you have to be aware of, you know, in order to ensure 14 that the audit is done? 15 The first one is, of course, independence. 16 And it's particular, I guess, it's my personal makeup, I 17 prefer to err on the side of providing service. 18 So, I had to consistently stop myself. You 19 know, if I get a call from somebody in saying, look, we're 20 looking at this huge project right now, and 21 certainly well -- coul -- could you help us out, could you 22 take a look at it? It's very tempting but I have to step 23 back and stay independent, it isn't my problem. The -- 24 MR. DAVID BUTT: Just -- just to clarify what 25 you've said there, when somebody on the Government side wants

1 some pre-policy implementation advice is -- 2 MR. ERIK PETERS: That's right. 3 MR. DAVID BUTT: Is that the situation you're 4 describing? 5 MR. ERIK PETERS: That's right. 6 MR. DAVID BUTT: And in that context you 7 would say, no? 8 MR. ERIK PETERS: Yeah. 9 MR. DAVID BUTT: I can't provide that so that 10 you can preserve your independence if it's necessary to 11 subsequently audit it after it's put in place? 12 MR. ERIK PETERS: That's not -- not 13 necessarily policy advice but, see, is -- is this a good 14 project or is it a bad project. You know, it's -- normally 15 it had to do with project management. You know, we do -- we 16 have this project in mind and I'm getting -- getting this 17 feedback from -- sometimes they were -- were ministers who 18 would -- would say, I'm getting the bureaucrats telling me 19 this and one bureaucrat is telling me that and I've -- I've a 20 problem here, could you give me advice as to how to deal with 21 this particular situation, et cetera. 22 But I have to back out simply on the 23 independence basis. The other one -- area that has only come 24 up in recent years is actually access to information, that -- 25 that is another impediment that we certainly have had some

1 concern about in the 2003 report there was -- is one -- are 2 two (2) examples cited and I believe it was in the 2001 3 report where we also had to cite a Ministry to the 4 legislature because, under the Audit Act, my office has 5 access to all the information that we consider necessary to 6 carry out the duties of the office under the Audit Act. 7 And the main concern circles around cabinet 8 documents. You know, to what extent cabinet documents are 9 available to us -- to the office in -- in conducting the 10 work. A lot has been made out of the -- there was a Federal 11 case, the Petrofina case which Ken Dye, as Auditor General, 12 was fighting where the documents supporting the decision 13 whether or not to privatise Petrofina -- or to acquire it, 14 sorry, should be accessed by his office and there was a court 15 decision that said, no, that Cabinet documents were subject 16 to constraints and getting the information. 17 The -- but little -- little known on that was 18 that, at the same time, the Government though issued an order 19 in council that defined what documents the -- the Auditor 20 could have access to and that allowed far greater latitude in 21 access because one -- one of the things that Cabinets or 22 whatever is facing is if the Auditor comes out and says, we 23 cannot conclude on a certain audit simply because we did not 24 -- the Government did not provide us with the information. 25 And we consider it necessary to conclude that

69
  1  then, as it did in 2001, come -- becomes a matter of getting
  2  -- having to get a ruling from the speaker.  
  3                 MADAM COMMISSIONER:   Mr. Butt asked you about
  4  pre-policy implementation advice -- 
  5                 MR. ERIK PETERS:   Yeah. 
  6                 MADAM COMMISSIONER:   -- and I'm just
  7  wondering how -- how you, in your office, ensure that if you
  8  -- if any of your people are -- or were -- I'm following --
  9  following in the same problem that you have, if any of your
 10  people were involved in any meetings in advance of you doing
 11  and audit, other than you doing an audit?  Sort of, pre-
 12  policy implementation or if -- or when something is being
 13  developed, how would you make sure that your staff informs
 14  the other public servants that -- or the public servants that
 15  they shouldn't take more comfort, as it were, from your
 16  presence -- from your office's presence?  I don't know if
 17  that's too convoluted but -- 
 18                 MR. ERIK PETERS:   No, I think I understand
 19  your question.  Actually, what we do is we -- we avoid
 20  attendance at these particular questions. 
 21                 MADAM COMMISSIONER:   Okay. 
 22                 MR. ERIK PETERS:   Although, my staff does
 23  participate, for example; the -- the Assistant Provincial
 24  Auditor does participate in the Assistant Deputy Ministers'
 25  meetings, but those are largely not project formulation or

1 policy formulation meetings, they are largely information -- 2 where info -- information is being exchanged among the Deputy 3 Ministers. 4 MADAM COMMISSIONER: Thank you. Mr. Butt...? 5 MR. DAVID BUTT: Thank you, Madam 6 Commissioner. Having served in the office of Provincial 7 Auditor for ten (10) years, looking back at that experience, 8 are there aspects of the office that you would suggest could 9 be imp -- improved? 10 MR. ERIK PETERS: Well, the two (2) -- the two 11 (2) were certainly the -- the ones that I pointed out; the 12 one (1) is to extend the domain to allow the office to follow 13 money, to ensure that public funds are prudently spent for 14 the purposes intended by these organizations that receive 15 transfer payments from the Province. That was certainly one 16 (1) area of improvement. 17 MR. DAVID BUTT: Now, you had mentioned the 18 prospect of extending that to Municipal grants, given the 19 existence -- let's assume for a minute the existence of an 20 appropriately constructed Auditor General at the Municipal 21 level, would it still in your view be necessary to overlap 22 those -- those two (2) functions, by extending the Provincial 23 Auditors as well? 24 MR. ERIK PETERS: I don't think I would -- 25 that would not be a criterium that I would use under the

1 circumstances. I believe that the existence of another 2 Auditor would not influence that to -- to an extent. 3 The -- what would influence it is the nature 4 and form of the transfer payment that is being granted. I 5 certainly would not preclude cooperation between the two (2). 6 Like if you, for example, have a co-funded venture, let's say 7 for -- I'm not sure, I think I'm correct that ambul -- land 8 ambulance services are jointly funded by the Province, and 9 the -- and the Municipalities, at least in some cases and the 10 question arises as to what conditions are imposed. 11 If the Provincial contribution is an 12 unconditional grant, I would say that we would stay out of 13 it, because there are no conditions to audit against. 14 If it is a conditional grant, given for a 15 specific purpose, I think then we would -- then we would 16 consider taking a look at it, but we would certainly not do 17 so to get to the next question in isolation, like if the 18 Auditor General of the City looks at it, or maybe we do it as 19 a joint project. 20 There are a number -- in other provinces for 21 example, there are a number of joint audits being conducted 22 between the Auditor General and the Provincial Auditor and I 23 think that's -- that's probably a very good idea from the 24 point of cooperation. 25 MR. DAVID BUTT: And now just to flip the

1 hypothetical if -- if there -- there were no independent 2 General Auditor, would that increase the need for extending 3 the Provincial Auditor's domain to -- to monies transferred 4 to -- to Municipalities, even unconditionally? 5 MR. ERIK PETERS: Well, I did -- the extension 6 of the domain has to be -- is a matter of legislation, you 7 know, either you have the right to follow the money through, 8 or you don't have the mon -- the existen -- you don't have 9 that right, but the existence of another auditor is just a 10 procedural influence. 11 That influence is still the way the audit is 12 conducted, like I'm dealing with that the audit is conducted, 13 has to be legislation how the audit is conducted, depends on 14 the control mechanisms and that are in place in the 15 recipient's organization. 16 MR. DAVID BUTT: Yes, and -- and I guess what 17 I'm -- I'm getting at is your sense of the wisdom of 18 following, as a Provincial Auditor, Provincial money to 19 Municipalities where there is not an Auditor General or 20 independent auditor function? 21 MR. ERIK PETERS: Well, maybe I'm not catching 22 the nuance there. In -- in my own answer is -- is either the 23 Province gives the -- or puts the -- into the Audit Act, and 24 says that the Auditor's domain is that you can go beyond just 25 auditing financial statements.

1 MR. DAVID BUTT: Right, and I'm asking, should 2 they? 3 MR. ERIK PETERS: Did we audit the financial 4 statements of the other organizations, or -- 5 MR. DAVID BUTT: Should -- should the -- 6 MR. ERIK PETERS: Oh -- 7 MR. DAVID BUTT: -- domain of the Provincial 8 Auditor be extended to auditing programs funded with 9 Provincial money in Municipalities, in the absence of a 10 Municipal, External or Independent Auditor? What's the 11 wisdom of that? 12 MR. ERIK PETERS: I -- I think the wisdom is 13 to do -- to do it in -- in any event, if conditional money 14 flows. Like, if -- if you give unconditional grants, for 15 example; if you give Municipalities grants, simply on the 16 basis of population, or the square kilometres of occupancy of 17 the municipal boundaries, I don't think there's much of a 18 criteria, in that we would like to follow, because that's a 19 policy decision to make that grant. 20 If you say to a municipality, we give you X 21 dollars and for this we expect you to perform certain things; 22 then I would think that we -- we should have the right to 23 follow that money. 24 MR. DAVID BUTT: Okay. Now, this was all part 25 of the answer to the larger question of suggested

1 improvements to the Provincial Auditor's office, and of 2 course, you -- you've discussed the -- extending the domain. 3 Any others that you'd like to comment -- 4 MR. ERIK PETERS: The other one (1) certainly, 5 this is the wrong place to make that plea, but, I think to 6 re-examine the funding level of that office. 7 MR. DAVID BUTT: Okay. 8 MR. ERIK PETERS: I think it's -- the office 9 could, if you consider that in the ten (10) years that I was 10 in the office, for example, we have identified and Ministries 11 have agreed with us, that we have saved about half a billion 12 dollars, through our audit recommendations; I think that's a 13 -- that's a pretty good return on investment. 14 MR. DAVID BUTT: Okay. And moving then to 15 another topic; turning away from your views of the office 16 itself, again through your experience in the audit function, 17 are there ways to improve, that you have seen, that you'd 18 like to comment, to make the delivered gover -- government 19 services more open and accountable? 20 MR. ERIK PETERS: Yeah, there -- well there -- 21 there are a raft of those around. I just want to make sure 22 that I catch up on my notes. I'm just -- I think you raised 23 that question in the -- in the question -- that point in the 24 questions you gave me. 25

1 (BRIEF PAUSE) 2 3 MR. ERIK PETERS: In what area did you put it 4 in? Oh -- okay. 5 The first -- number one (1), and that has been 6 throughout in the -- in my reports, has been to improve the 7 information that is provided for decision making at all 8 levels. 9 We found that, that has been wanting 10 throughout, in many levels. Whether it was the absence of 11 business cases to -- before decisions were being made, 12 evaluation of alternatives, evaluations of control, pre- 13 determination as to whether or not, the particular 14 transaction that they had in mind, would be beneficial for 15 the taxpayer, all these sort of things, so improve the 16 decision making -- information for decision making, at all 17 levels. 18 The second one; is establish clear 19 accountability frameworks. In other words, one -- one of the 20 -- for example, at the Provin -- Provincial level, we had -- 21 I would say, for example, the Ontario Hydro problem that was 22 -- was because the accountability framework between the 23 Province and Ontario Hydro was significantly impaired, in 24 terms that, that people -- for example, we have Deputy 25 Ministers serving on the Board of Directors, but, they

1 couldn't vote. 2 Things like this, which all took -- sometimes 3 may have precluded them from getting the necessary 4 information, to understand what was actually going on. 5 In other cases, we have -- the Government has 6 set up structures that actually obstructed accountability, to 7 give you an example, the Ontario Renovation Trust is one (1) 8 of those which we have commented on, virtually since its 9 inception in 1999, where just using the fact that there was a 10 Board of Directors, that was four (4) people from the outside 11 and three (3) from the inside, was used to virtually ensure 12 that these people are not accountable to the Minister, for 13 their activities. 14 And therefore the Minister was not accountable 15 to the Legislature for their activities and they were given 16 large amount of money, they had $750 million swirling around 17 in their bank accounts. 18 MR. DAVID BUTT: So, in terms of again, the 19 general lessons that might be applicable to Munis -- 20 Municipality, we -- we have the notion of the controls and 21 accountability, essentially? 22 MR. ERIK PETERS: That's right. And the -- 23 the third area, I would say, is that to -- to take a look at 24 the planning, financial reporting and accounting functions. 25 The linkage between planning and how plans are dealt with.

1 One particular area that has been of concern 2 to my predecessor and to me for a long time is the -- is the 3 estimates, the approval of the estimates leading to the 4 Supply Act in the Province and I'm not sure whether the 5 municipality has something similar to that. 6 But just to brief recap, is the -- once the 7 budget is tabled, then after the tabling of the budget, five 8 (5) days later, the estimates are to be tabled in the 9 legislature and the estimates are then permanently referred 10 to through the standing committee on estimates which then 11 normally spends its time reviewing the estimates and then 12 comes back with their recommendations. 13 And normally, in Ontario's case, some time in 14 November, December when already more than half the year has 15 actually passed and then encourage that the Supply Act be 16 passed to give the ministries actually the money to spend 17 that they asked for in the estimates. 18 And we found, again, that permeates a lot of 19 things. Firstly, only a limited amount of programs or 20 ministries actually have available in that particular period 21 of time. The information that is presented, very often, is 22 they're going into very much detail rather than staying at a 23 fairly high level. 24 On it, one thing is, for example, the -- the 25 Ontario Financial Review Commission, which was created

1 incidentally at my instigation, that Commission recommended 2 that they also take a look at the auditors report in looking 3 at the estimates; that's not being done. 4 So there were -- there were some concerns as 5 to how practical it is. Somebody did a study at the federal 6 level on the estimates process and they found that in -- 7 after reviewing something like $230 billion worth of 8 expenditure, I think it was 2.3 trillion or some astonishing 9 number, only once had they adjusted an estimate actually. 10 And that was to reduce the salary of the President of the 11 CBC, I think, by a thousand dollars ($1,000) or something out 12 of all those trillions of dollars. 13 So that is a function that certainly bears 14 improving in general government. 15 MR. DAVID BUTT: Okay. If I could move now 16 to the procurement context and just ask you a few questions 17 about your experience in the Provincial sphere with 18 procurement practices and, first of all, do you have a sense 19 of what the elements of a good procurement or purchase policy 20 might be? Some -- just some of the basic elements. 21 MR. ERIK PETERS: The ones that I would like 22 to bring to your attention, I thought maybe the best answer 23 to that question was to provide you with the basic elements 24 that are in the Provincial policy, the management board of 25 cabinet directive on elements of a good procurement policy.

1 And I'd just, if I may, provide you with -- if 2 you wanted to refer to it after, incidently, for research 3 purposes, I'm quoting from pages 207 and 208 of the -- of my 4 -- my report to the legislature of the year 2000. 5 And what I want to bring to your attention is 6 that the Management Board of Cabinet has issues several 7 directives related to the acquisition and management of 8 equipment, supplies and services including information 9 technology resources. 10 The principles are -- there are three (3), the 11 overall objective is to acquire and supply, at the right time 12 and in the most economical manner, the appropriate level of 13 equipment, supplies and services required to meet government 14 needs. 15 For information technology procurement 16 specifically, Ministries are to acquire information 17 technology to identify -- sorry, to fulfil identified 18 business needs through a fair, open and competitive 19 procurement process that treats suppliers fairly and equally. 20 Once acquired, that's the third one, 21 "Once acquired, all equipment, supplies and 22 services are to be managed efficiently, 23 effectively and economically." 24 And these are close to my heart on the leasing 25 area, because firstly, you'll ask -- later on you may get

1 into the lobbying, or whatever. 2 I think lobbying, for example, by a supplier, 3 in my view, impairs a fair and open and competitive 4 procurement process. 5 The -- their mandatory requirements: 6 "Ministries must ensure that planning forms 7 an integral part of the acquisition 8 process, and include clear definitions of 9 requirements, justification for the 10 acquisition, consideration of alternative 11 ways to satisfy the need, and selection of 12 the most appropriate option for approval." 13 And secondly: 14 "Except for certain equipment, supply and 15 services that must be obtained from 16 approved mandatory centre of common 17 services, acquisition must be made through 18 a competitive process, that ensures the 19 best value for funds expended, to meet 20 specific needs, and promotes fair dealings 21 and equitable relationships to the private 22 sector." 23 And thirdly: 24 "Ministries must choose the supplier that 25 meets all mandatory requirements, and has

1 the lowest evaluated cost." 2 I don't think later on you will raise the 3 question of whether it is justifiable not to go with the 4 lowest cost, all I remember is John Glenn, when he was 5 sitting in his spacecraft saying, what it was the foremost 6 thought when he went through -- hurtled through space, he 7 said, I -- I remember constantly that every piece of this 8 contraption was done by the lowest bidder. 9 And furthermore, once acquired moveable 10 assets, particularly -- and this is where I thought I'd bring 11 it out, because you are a leasing inquiry: 12 "Moveable assets must be managed in an 13 efficient, effective and economical manner, 14 appropriate systems must be established and 15 maintained, to ensure the effective 16 management and security of these assets, to 17 help maintain their security, the existence 18 of moveable assets must be periodically 19 verified at intervals that vary with the 20 nature of the assets, but in no case, less 21 than every four (4) years." 22 So, these are some of the -- 23 MR. DAVID BUTT: And -- and in terms of 24 management the -- managing the procurement process, we've 25 heard some talk in the discussion yesterday, about the notion

82
  1  of a Fairness Commissioner, or some independent individual
  2  that would deal with complaints or problems with the
  3  procurement processes.  Is in your experience, would
  4  something like that be necessary in the procurement context,
  5  a position like that?
  6                 MR. ERIK PETERS:  Now, I am casting my mind
  7  back to the years that I spent in the private sector and I've
  8  done most of those.  I don't recall that function actually
  9  being necessary.  What I do, in the Government concept --
 10  Government milieu, consider necessary is that it is not good
 11  enough to just put a good policy out like this, but there
 12  must be mechanisms in place that those policies actually
 13  adhere to on a -- on a day to day basis by management.
 14                 MR. DAVID BUTT:  What -- what sort of
 15  mechanisms would you suggest to ensure that the policy is
 16  adhered to?  Is -- is sanctions an -- an option, for example?
 17                 MR. ERIK PETERS:  Sanctions is -- is one (1)
 18  option, although that has not been -- I found that that's not
 19  a very helpful option, incentives work better than sanctions
 20  very often in these cases.  You know, to -- if -- if an
 21  organizations actually manages to save money or do something
 22  right, that there would be some sort of -- some mechanism in
 23  place to reward them for doing it right.
 24                 MR. DAVID BUTT:  And -- and you're talking
 25  about the -- the public sector side of the procurement

1 process? 2 MR. ERIK PETERS: That's right, and the -- 3 certainly internal audit has a role to play to ensure that 4 these are adhered to. 5 MR. DAVID BUTT: For major procurement 6 transactions, however you might define major, would you 7 foresee a formal role for internal audit being the lead up to 8 a major procurement? 9 MR. ERIK PETERS: Yes, I would. Say for 10 example, in the -- it may not necessarily be tied to dollars, 11 but also to importance, I -- I can see a role for internal 12 audit, for example, to participate in system -- Information 13 Technology Systems development, to take a look at that. 14 But the other key instrument that I could see 15 is actually the delegation of signing authority. In other 16 words that you make certain things responsible -- certain 17 people responsible, sometimes we can have them too low. 18 I had a private sector client, who ran a 19 billion dollar business, where even the President of the -- 20 the Chief Executive Officer, could not sign an acquisition 21 over a quarter of a -- over two hundred fifty dollars ($250), 22 not a quarter of a million, two hundred fifty dollars ($250). 23 And I think that's -- that's far too low. 24 But, for example, to give you a Provincial example, that I 25 think is working -- is not working very well, but, it's there

1 and I think it's useful, is for example, if an Information 2 Technology project, goes over five hundred thousand dollars 3 ($500,000) from the original estimate or original project, it 4 requires a Minister to approve the project. 5 This has caused problems, like my auditor's 6 report are full of situations, for example, in one (1) 7 system, we found that they signed a contract for nine hundred 8 thousand (900,000), it mushroomed to 2.3 million and yet no 9 Minister's approval was obtained. 10 So, -- but I would think that the -- it's a 11 two (2) prong process. One (1) having a delegation of 12 signing authority that says, if a project is of a certain 13 amount or certain import, then it has to be signed by say a 14 Director, higher by an Assistant Deputy Minister, higher by a 15 Deputy and higher it has to involve the Minister. 16 But, then to have a second process, in place, 17 that is once the contract is granted and the project is 18 underway, that when costs exceed the originally agreed upon 19 parameters, that at that particular point, also Directors are 20 there that say, okay, fine, it exceeded, or we have change 21 orders. 22 Now, who approves those? And who is made 23 aware and who deals with that particular situation? So, it's 24 the initial and the ongoing. 25 MR. DAVID BUTT: In the context of the ongoing

1 management, could you comment on the wisdom of having flags, 2 for example, when a project gets to 80 percent of its 3 budgeted cost, a reminder being in place, so that staff have 4 to take a look at it again, just to make sure that things are 5 on track to prevent, perhaps an over run situation? 6 MR. ERIK PETERS: Oh, absolutely, I think 7 there should be quite an extensive reporting process on major 8 projects, particularly that compares the original cost -- the 9 percentage of completion, the commitment for further 10 payments. 11 For example, you may run into a situation 12 where a project is only 50 percent complete, but, you're 13 already well over the cost. Like in other words, if you have 14 a million dollar project and you are 50 percent complete and 15 you've already spent seven hundred thousand (700,000). 16 You clearly have some indication that 17 something is not going the way it should be going. What I 18 would expect management to do is to set certain parameters if 19 you -- particularly, and if you have a $6.5 billion budget, 20 you have contracts all over the place, in order to reduce the 21 volume, that you would simply set parameters of exception 22 reporting. 23 Like in other words, if I'm the Director of a 24 particular department or something, I want to know every 25 contract that goes say, 10 percent over, at this stage. Or I

1 want to know everything where we're spending ten thousand 2 dollars ($10,000) more than either dollar or percentage, some 3 sort of parameter. 4 And then have these float up through, so that 5 by the time you get, say Shirley Hoy, whom I greatly respect, 6 incidently, and met her when she was Assistant Deputy 7 Minister in Municipal Affairs, that by that time, she is only 8 confronted with really major issues -- 9 MR. DAVID BUTT: Yes. 10 MR. ERIK PETERS: -- that have to be 11 addressed. 12 MR. DAVID BUTT: Now, we discussed when we met 13 earlier, the notion of common purpose procurement and how it 14 has been used in the IT sector, in particular, at the 15 Province. 16 Do you have any comments, first of all, could 17 you tell us what common purpose procurement is, and can you 18 give us your assessment of the practice? 19 MR. ERIK PETERS: Well, CPP, I did dig up the 20 -- I did dig up the definition and I'd -- CPP is defined as 21 in the situation, where under CPP a private sector vendor is 22 selected to work closely with the entity, in this case, the 23 Ministry, to identify, design, develop and implement new ways 24 of delivering services and in so doing, share the investment 25 in and risks and rewards of the project.

1 In other words, it is in contrast to the 2 traditional procurement process, in which vendor selection is 3 based primarily on price, or lowest evaluated cost, the CPP 4 process bases vendor selection on qualitative factors, such 5 as proven experience, expertise, project approach and 6 management strength as well as other factors such as 7 financial stability and capacity and financial and 8 partnership arrangements for sharing risk, investments and 9 benefits. 10 I can give you that, incidentally the 11 reference is 1998 report -- Annual Report of the Provincial 12 Auditor, page 32. 13 MR. DAVID BUTT: 1998 report, page 32? 14 MR. ERIK PETERS: Yes. If you want to make a 15 copy of it, I can make it available to you after. 16 MR. DAVID BUTT: Yes, thank you. So it's 17 essentially a partnership in procurement entered into in 18 advance of the procurement with a private sector supplier is 19 that -- 20 MR. ERIK PETERS: That's right. 21 MR. DAVID BUTT: Is that a fair -- 22 MR. ERIK PETERS: That's right. 23 MR. DAVID BUTT: -- shorthand definition? 24 Does it work? What are your views? 25 MR. ERIK PETERS: Well, the ones we have

88
  1  found haven't worked.  In fact, in one case we ultimately --
  2  we reached a conclusion that all the risk and rewards
  3  remained with the private sector and the cost and damage was
  4  with the public sector. 
  5                 MR. DAVID BUTT:   And what works better, in
  6  your view? 
  7                 MR. ERIK PETERS:   I think the -- the
  8  traditional procurement process with vendor selection with
  9  specified deliverables at a specified price and at a
 10  specified time, incidentally. 
 11                 MR. DAVID BUTT:   Right.  And as the -- as the
 12  definition was given to us, it sounded, at least on the
 13  surface, like a good idea.  Could you help us with -- with
 14  why that kind of close relationship with the private sector
 15  does have its problems -- 
 16                 MR. ERIK PETERS:   Well -- 
 17                 MR. DAVID BUTT:   In your experience? 
 18                 MR. ERIK PETERS:   Why it did have the problem
 19  is that very often in the planning process things didn't go
 20  right.  If there were two (2) particularly CPP projects that
 21  we reported on, the one was the revision of the welfare
 22  system where there was supposed to be a sharing of risk and
 23  rewards, but in the planning process they didn't take,
 24  particularly, into account how much of the work and benefit
 25  was actually achieved by Ministry's own staff versus by the

1 consultant -- by the consulting staff. 2 And, for example, in that case, there was one 3 particular circumstance that they ran into is that CPP 4 requires, sort of, a two-stage process; the first one is to 5 find organizations that can actually are -- have the capacity 6 to provide the service. 7 So you have a -- you make a request for 8 proponents before you do your request for proposal. And what 9 happened is that once you had selected the most qualified 10 proponent that the contracting arrangement ended up virtually 11 in a sole sourcing arrangement and so we lost the competitive 12 edge in the -- in this particular case. 13 In one case we found that, for example, the 14 proponent when they were being identified as to whether they 15 could do the work quoted hourly rates for their work that 16 were -- that when they got the contract they immediately 17 increased those rates by 63 percent because the competition 18 had been eliminated. 19 MR. DAVID BUTT: Right. So we've got two (2) 20 vulnerabilities as I hear you identifying it, the planning 21 stages, there's certain vulnerabilities involved in the 22 private sector and there's also the risk of the loss of that 23 competitive edge? 24 MR. ERIK PETERS: That's right. I mean, the 25 advantage was that Ministries felt that they didn't have the

1 capacity to do it themselves, but that could be resolved by 2 other means. 3 MR. DAVID BUTT: And how would you resolve 4 that if -- if, for example, there is an IT procurement 5 situation and there is not the requisite in house expertise 6 to really assess what IT solutions will be appropriate, how 7 could you address that information deficit apart from a 8 common purpose procurement arrangement? 9 MR. ERIK PETERS: I -- I think through 10 engagement of consultants for a specific purpose at a 11 specific price with a specific deliverable. 12 MR. DAVID BUTT: So would it, in essence, be 13 a separate procurement of the independent competitive 14 procurement of the expertise you need to make your second and 15 ultimate procurement decision? 16 MR. ERIK PETERS: That's right. 17 MR. DAVID BUTT: Is that right? 18 MR. ERIK PETERS: That's right. I -- I have 19 to correct myself, I misspoke, I think in the one (1) case I 20 referred to the damage was to the taxpayer, I meant to say 21 the risk we made to the taxpayer -- 22 MADAM COMMISSIONER: Okay. 23 MR. ERIK PETERS: Not damage. 24 MADAM COMMISSIONER: I think you said that the 25 -- the risks and the rewards remained with the private sector

91
  1  and the cost and damage was at the public sector?
  2                 MR. ERIK PETERS:  Yes, and I think I misspoke
  3  myself, what I meant to say is that the rewards went to the
  4  private sector and the risk remained with the taxpayer.
  5                 MADAM COMMISSIONER:  Okay, I wondered about
  6  that.
  7                 MR. ERIK PETERS:  Yes.
  8                 MADAM COMMISSIONER:  Thanks.
  9                 MR. DAVID BUTT:  Now, if I could just return
 10  to your John Glenn joke for a minute, under what
 11  circumstances do you think, if at all, that a contract should
 12  not go to the lowest bidder?
 13                 MR. ERIK PETERS:  Well, there -- I can think
 14  of a number of them.  One (1) certainly would be if there is
 15  a suspicion of low balling.  By low balling, I simply mean
 16  that the -- the bid comes in so low, that you start to
 17  question you know, why are they coming in -- what is the
 18  expectation.  
 19                 And if for example, the expectation may very
 20  well be that there may be other work in the wings on which
 21  they can re -- recoup some of those -- the costs that they
 22  are incurring in providing the service, that will be one (1).
 23                 The other one (1) is -- also has to do with
 24  reputation and quality and performance.  Like in other words,
 25  if, in the proper business case evaluation, they look at it

1 and say, well, you know, really they are -- they are offering 2 a low price, but we have questions as to whether they have 3 really the capacity and the -- the know how to do the job and 4 to -- to perform well. 5 If -- if those things happen, and by all means 6 they can happen, but then they should be justified, 7 documented -- documented and justified, and they should form 8 part of the decision making process. It should be afterwards 9 it should be available. 10 One (1) -- one (1) of the concerns that we had 11 very often is that we ran into a situation where in fact the 12 lowest bidder was not chosen, but nobody remembered why not. 13 There's a certain Corporate memory that has to be created, 14 and justification. 15 MR. DAVID BUTT: If I could move, other than 16 asking you if there's any more issues in -- in the 17 procurement sphere that in -- in your experience you've come 18 across, that are particularly problematic or worthy of 19 attention you'd like to share with us? 20 MR. ERIK PETERS: Well, I -- I think you've 21 raised the -- at one (1) stage the question with me about 22 particular pitfalls, and I -- I thought I'd maybe relate some 23 of those to you. 24 MR. DAVID BUTT: Sure. 25 MR. ERIK PETERS: As to what -- in some of the

1 pitfalls is particular -- let me deal with IT equipment, 2 because that's one (1) thing you're interested in: 3 "IT equipment, not acquired at competitive 4 price, assessment of the various makes and 5 models of available equipment are made and 6 documented to ensure selected equipment is 7 the most appropriate and cost effective, is 8 not done. The desirability and cost 9 effectiveness of leasing IT equipment in 10 comparison to other forms of financing, was 11 not clearly established. Equipment leases 12 were -- were not entered into only when it 13 was necessary to do so, and they were not 14 entered on a competitive basis, on 15 competitive terms." 16 That's on the leasing on that, the -- also 17 particularly in the area of lease and moveable assets: 18 "Accurate and up to date listings of all 19 owned and leased moveable assets were not 20 maintained. Verification of existence and 21 efficient deployment of all moveable assets 22 was not practised. Missing or under 23 utilized assets were not identified on a 24 timely basis to take corrective action." 25 That in summary, in specific cases --

1 MR. DAVID BUTT: Just -- just to stop you 2 there for a minute, and this is based on your experience of 3 reviewing some leasing practises at the Provincial level? 4 MR. ERIK PETERS: At the Provincial level, 5 yes, that's what this is from. Again, if you want to refer 6 to it, it's from page 209 of my special report, accounting -- 7 "Accountability And Value For Money, 2000". 8 So that's -- the -- in specifically this is 9 1998 report, on leasing we found the Ministry could not 10 demonstrate that a competitive process was used to select the 11 vendor. 12 Fifty (50) separate lease agreement had been 13 entered into and we could not -- the Ministry could not 14 provide us with evidence that any of the fifty (50) 15 acquisitions were acquired competitively. 16 Insufficient approval levels, like I talked 17 about delegation, we found that the last time the Ministry 18 received approval for the acquisition of information 19 technology equipment was in 1990. 20 And they -- when Management Board approved a 21 five (5) year information technology strategic plan, which 22 included infrastructure cost of $46 million dollars for 23 hardware and software. 24 This approval did not cover any of the active 25 leases since the plan had expired in '95 and the amount

1 approved had already been spent. As of March '98, including 2 the $66 million dollars for active leases, the Ministry had 3 either spent or had outstanding lease commitments for $130 4 million dollars. So, approval and follow up was -- was 5 certainly a problem on that. 6 The -- in -- we found that, for example, there 7 were thirteen (13) active leases and seven (7) amendments 8 with varying terms and conditions. The leases had not been 9 reviewed by the Ministry's legal department. 10 After we asked questions regarding the 11 agreements the Ministry requested the legal department to 12 review the current terms and condition of the leases, almost 13 a year after the first of the active leases that were signed. 14 Our view is that, if it's major leases and 15 major amounts, certainly in house Counsel or Counsel should 16 be involved. 17 MR. DAVID BUTT: And again, those are issues 18 that are dealt with in your 1998 -- 19 MR. ERIK PETERS: Yeah, 1998 report. 20 MR. DAVID BUTT: -- report. 21 MR. ERIK PETERS: All of this is '98 report. 22 The majority of computer equipment is leased for a term of 23 five (5) years, whereas the Ministry indicated that the 24 useful life of the equipment is only three (3) years. 25 In other words, this is certainly something

1 that they needed technology advice on, so not to lease 2 equipment for terms longer than its useful life. 3 MR. DAVID BUTT: And just -- just in terms of 4 keeping an eye on that, on the time again, if we could I 5 guess reference the report -- 6 MR. ERIK PETERS: Okay -- 7 MR. DAVID BUTT: -- does that capture the 8 issues that? 9 MR. ERIK PETERS: Okay, yeah, I -- I think it 10 has the -- there are just two (2) very quick things I want -- 11 it's says all '98 report and it's going from page 195 right 12 through to page 214 -- 13 MR. DAVID BUTT: Okay. 14 MR. ERIK PETERS: -- that I went into. There 15 a lack of information, the value of the equipment already on 16 hand was included in the new leases of $22 million for 17 service and other computer equipment and $14 million of work 18 stations. 19 The Ministry was unable to demonstrate that 20 the blended lease costs were reasonable and relied on the 21 supplier to determine the cost, so that is a key area. I 22 don't think in any leasing situation, the supplier should be 23 the sole determiner of the cost. 24 It should be the organization that does the 25 leasing, that should determine how much they're paying. They

1 don't put yourself into the hands of the people, who have 2 clearly an interest. 3 The other one was the lack of safeguarding of 4 the leased assets. We found a substantial number of assets 5 where -- that were either observed at the location, but, not 6 recorded on the listings, or recorded on the listings, but -- 7 but could not be located. 8 Noted that the listings -- listing was usually 9 not updated to refl -- reflect the equipment reassignment. 10 So in other words, what do we have? There were approximately 11 two thousand, four hundred (2,400) computer processors and 12 laptops recorded on the inventory listing. 13 The Ministry did not know how many computers 14 had actually been leased. Management estimated that the 15 correct number should be around three thousand five hundred 16 (3,500). 17 So, that's eleven hundred (1,100) laptops. 18 So, and the Ministry had delegated to local managers the 19 responsibility for maintaining inventory of the assets, 20 including computer equipment. 21 But, we found that the asset control function 22 was a low priority for most managers, even though they were 23 responsible for asset management. The Ministry did not have 24 procedures in place, to ensure that local managers performed 25 a periodical verification of the assets.

98
  1                 So, it has to go right through the screen. 
  2  It's not unique to government, incidentally, I found this in
  3  the private sector too, that control over leased assets was
  4  prob -- was a problem area.
  5                 MR. DAVID BUTT:  And -- and again, this is
  6  based on your experience in the private sector?
  7                 MR. ERIK PETERS:  In the private sector, yes,
  8  I had a major client where we virtually found that the
  9  secretary of the Information Technology manager was the one
 10  who had signed it and based on her signature the manager
 11  would approve it and based on her signature the controller
 12  would approve it.
 13                 So when we -- we really boiled down to it,
 14  there was -- somebody got this and when we asked her how she
 15  based it and she felt well, there was a reliable supplier,
 16  so. 
 17                 MR. DAVID BUTT:   And then if I could move to
 18  the topic of lobbying, now you -- you've expressed an initial
 19  view; could you just elaborate on that in terms of your view
 20  of the appropriate role of lobbying in public sector
 21  procurement? 
 22                 MR. ERIK PETERS:   Well, it -- I should
 23  preface my comments with the fact that I understand you have
 24  my former legislative officer colleague, Coulter Osborne,
 25  before you and I -- I think he is -- he's the expert in the

1 area, I'm not. 2 Mine is a little bit from afar but I feel that 3 really lobbying should be acceptable only if it's done in the 4 public interest, not in the self-interest of the people who 5 are doing the lobbying. 6 And that would, in my view, exclude, pretty 7 well, lobbying by commercial interests. And that comm -- 8 commercial interests should be invited into the organization 9 only when asked or when it's part of the bedd -- bidding or 10 tendering process when they have to elaborate on it. 11 I've found in other organizations where, for 12 example, commercial interests have been asked to evaluate the 13 other people's tenders. Totally undesirable practice. 14 MR. DAVID BUTT: Now, could -- could you help 15 us with this, commercial people should be invited in only 16 when asked -- or be -- have access only when asked; are you 17 talking about access to politicians or access to staff? 18 MR. ERIK PETERS: Well, interesting question. 19 I -- I would say all around. I think if -- if I were a 20 politician, I would be fairly -- very, very careful if I'm 21 approached by somebody who approaches me as a politician 22 because they want to sell a service to the organization; I -- 23 I would have -- I would have grave concerns about that one. 24 MR. ANDREW LEWIS: And, sorry, just to be 25 clear, we're -- we're talking about in the procurement

100

1 context here; is that correct? 2 MR. ERIK PETERS: That's right. 3 MR. ANDREW LEWIS: In your -- for you -- the 4 comments you just made? 5 MR. ERIK PETERS: Yeah. If -- if the person 6 approaches -- you -- you get this from time to time. Even my 7 office was approached by people who have invented a new 8 mousetrap, you know, and say, we don't know how to get on to 9 this thing and can we demonstrate to you that this is really 10 a new mousetrap. 11 And our normal response to that was there -- 12 there is a process in place where you can do it and in the -- 13 in the provincial government, for example, is that to get on 14 to the VOR list, Vendor Of Record list, I think -- I believe 15 -- do you have Neil Sentance before you at some stage? 16 MR. DAVID BUTT: Yes. 17 MR. ERIK PETERS: From the Ministry -- or the 18 management board secretary. You may want to ask him about 19 the particular -- how this Vendor of Record process falls but 20 that was normally our -- our approach which said, well, if 21 you have a new mousetrap let the Management Board secretariat 22 know and see if you can establish yourself as a vendor of 23 record and so that -- that would hopefully happen in that 24 particular case. 25 MR. DAVID BUTT: And just to help us

101
  1  distinguish between the kinds of lobbying that you see as
  2  helpful as opposed to the commercial lobbying which -- which
  3  you've expressed a view against, could you give us an example
  4  of the kind of lobbying of either politicians or staff that
  5  you would view as -- as appropriate because it's in, as -- as 
  6  you've said, the public interest? 
  7                 MR. ERIK PETERS:   Well, two (2) come to mind. 
  8  For example; I could think of the Elizabeth Fry Society who
  9  takes the interest of prisoners in correctional facilities at
 10  heart and they may -- they have nothing to personally gain as
 11  a commercial interest, but if they intercede with the
 12  Minister of Correctional Services on behalf of prisoners, I
 13  can see that there would be a benefit of listening to them. 
 14                 MR. DAVID BUTT:   Now, there are some that
 15  might argue that if the Elizabeth Fry Society lobbies to
 16  improve the conditions of prisoners, any improvement is
 17  necessarily going to involve enhanced procurement, whether it
 18  be better food or more closing or access to library
 19  resources, there -- there's going to be, right behind that, a
 20  procurement process so some might argue that the Elizabeth
 21  Fry Society is -- is really just commercial lobbying, one
 22  step removed? 
 23                 MR. ERIK PETERS:   Well, it is -- it -- I
 24  still think that they do it -- they do it essentially in the
 25  public interest, and as long as -- if they -- if they have a

102
  1  direct connection to people who supply services to
  2  Correctional Services, I would say then your -- your comments
  3  are absolutely right, but that is something that the people
  4  who are being lobbied for, should ferret out, in the process. 
  5  Like they should hopefully do it by experts.
  6                 MR. DAVID BUTT:  So -- so the key that
  7  distinguishes this for you is the -- the -- the actor who's
  8  actually doing the lobbying, and whether or not that actor is
  9  acting in there own self interests or -- 
 10                 MR. ERIK PETERS:  In the public interest.
 11                 MR. DAVID BUTT:  -- in the more public
 12  spirited -- 
 13                 MR. ERIK PETERS:  Yeah.
 14                 MR. DAVID BUTT:  -- interest.
 15                 MR. ERIK PETERS:  I think you put -- put it on
 16  the head -- the nail on the head far better than I could
 17  have.  What I mean -- meant really to say, lobbying in the
 18  public interest is -- is probably okay, public -- for in a
 19  commercial interest, I would have problems with.
 20                 MR. ANDREW LEWIS:  And sorry, is that -- is
 21  that the case, whether it's directly related to the
 22  procurement process or not?
 23                 MR. ERIK PETERS:  Well, you -- you get pretty
 24  well, it's -- it's almost like a telemarketer phoning you and
 25  says, we have this questionnaire, and then they really want

103
  1  to sell you the Encylo -- Encyclopaedia Britannica.  You
  2  know, it's -- you have to make that distinction, or try to
  3  make that distinction, but the -- my view, it has to be
  4  generally in the public interest.  
  5                 Like for example, the -- even when asked, the
  6  Province engages in a large and very expensive consulta --
  7  consultation process in the budget development and I consider
  8  people who appear there and say, in the budget development,
  9  if they represent the public interest, that's fine.  
 10                 If they have forecasts to make, as to what for
 11  example, the growth of the gross domestic product was going
 12  to be, that is great, but somebody who appears and said you
 13  have to buy my computer equipment, and -- and that -- then
 14  that process, I don't think, has a place. 
 15                 MR. ANDREW LEWIS:  No, okay, I can appreciate
 16  that, but what about an example of where -- where there's a
 17  particular piece of legislation, or a bylaw that's being
 18  debated, and so on.  So, it's not specifically to do with a
 19  particular company wanting to sell a product, although it
 20  might have an impact on their business ultimately?
 21                 MR. ERIK PETERS:  Oh, very much, but -- but
 22  that is normally an asked process, right?  That, I mean, if
 23  -- if you want to widen a particular road, then you notify
 24  the residents of that road and -- 
 25                 MR. ANDREW LEWIS:  Yes.

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  1                 MR. ERIK PETERS:  -- and you ask them for
  2  input and have public meetings and all those sort of things.
  3                 So, I am saying, asking for input is a -- is a
  4  good thing, but people coming forth and saying, we want to
  5  sell you something, I -- I have problems with it -- problem
  6  it.
  7                 MR. ANDREW LEWIS:  Okay, I think I understand
  8  your distinction, thank you.
  9                 MR. DAVID BUTT:  Now, if as -- as you've
 10  suggested, we -- we are to discourage or one (1) is to
 11  discourage commercial interests approaching Municipal -- or
 12  political decision makers or staff, how does that entity,
 13  that Governmental entity get its information on how to --
 14  what products are out there?
 15                 MR. ERIK PETERS:  Well, in -- in -- I -- going
 16  back to -- well, to two (2), in the private sector you
 17  normally have a purchasing department, and you have so called
 18  purchasing agents, who, part of their responsibility, and
 19  there was the same for example, in my office, part of my
 20  Information Technology staff's responsibility was to ferret
 21  out new products, and you know, read magazines or
 22  publications that were in the technology area.
 23                 So that they knew what -- whether -- the --
 24  the new zip drive's out or -- or a new network manager or
 25  anything like that.  I would consider that part of the kit

105
  1  bag of -- really of management, of -- of a good procurement
  2  practice, to have a constantly casting about, as to what
  3  products are out there, and what could be of benefit to the
  4  organization.
  5                 MR. DAVID BUTT:  And so it's a question of --
  6  of those individuals initiating the contact, but initiating
  7  it on their own terms, in terms of researching a product, and
  8  then perhaps contacting the commercial entity to ask -- 
  9                 MR. ERIK PETERS:  Right.
 10                 MR. DAVID BUTT:  -- questions about it.
 11                 MR. ERIK PETERS:  Right.  And in the public
 12  sector oft -- very often you ask for proponents.  You know,
 13  and the private sector doesn't.  I had a mining client, for
 14  example, in the private sector, and they said we -- we have
 15  -- we have a need to haul so many tonnes of ore, and
 16  approached -- had a public announcement in the -- in the
 17  newspapers and said, who -- who -- anybody who builds trucks
 18  that haul ore, let us know, you know, and we have at ten
 19  o'clock in the morning on such and such a date, we'll have a
 20  meeting with you, bring your equipment, or -- whatever you
 21  want to do.
 22                 MR. DAVID BUTT:  And so again, it's the
 23  potential vendor controlling that process of acquiring --
 24                 MR. ERIK PETERS:  That's right and if they go
 25  public and say look we are interested in -- if that's one (1)

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1 way of doing it, by -- by advertising in -- in professional 2 magazines or magazines that -- or publications that deal with 3 a particular activity, and saying, we're interested. 4 MR. DAVID BUTT: Just one (1) more question, 5 in the area of -- of lobbying, do you have any thoughts on 6 lobby's registries; one (1) example, but, other -- other 7 mechanisms that might effectively control inappropriate 8 lobbying? 9 MR. ERIK PETERS: I think that may be a better 10 question for Coulter because I'm the -- the lobbying 11 registry, is not -- I'm not familiar with it, as to what 12 they're criteria are, as to what puts you on and what keeps 13 you off and, nor am I familiar with what -- what mechanisms 14 are in place to prevent abuse. 15 MR. DAVID BUTT: Okay. If I could move then 16 to Codes of Conduct, and -- and you've described in some 17 detail, the tight Code of Conduct that exists in your office. 18 And I'd just like to ask you a general 19 question, apart from having a Code of Conduct like that, 20 apart from that code existing, how can you ensure that 21 members of your office, or members of a legislature or a 22 broader civil service, that are likewise subject to a Code of 23 Conduct adhere to it? 24 How can you cultivate a culture of adherence 25 to a Code of Conduct in an organization?

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1 MR. ERIK PETERS: Well, the -- to begin with, 2 in all -- in my view, a Code of Conduct is -- is an 3 encouragement document, it's not an -- it's not an 4 enforceable. 5 The way you do it is by having a clear 6 statement of organizational mission and values and they're to 7 install in the organization. This is what we're about, these 8 are the values that we hold dear. 9 And you -- you educate on that, you -- you 10 talk about the values with -- with the staff, setting 11 examples, particularly the tone at the top, is very 12 important. The perception that the tone -- that -- you know, 13 the famous Caesar's wife, sort of, that -- that your -- that 14 your conduct is impeccable is -- is most important, from the 15 top. 16 On the public officials, now I'm not sure 17 whether it's -- to what extent it's practised, you know that 18 better than I do, but, the Oath of Office, should normally 19 contain most of the values and the rules by which public 20 officials should conduct themselves. 21 I think, you know, it's the Oath, that for 22 example, our Ministers swear and I'm not sure, I would think 23 there would be an Oath of Office for the Mayor, and there 24 would be an Oath of Office for Council members. 25 The principle continually has to be that the

108
  1  public interest overrides the personal interest.  It's one of
  2  the values that I think, particularly in the public service,
  3  has to be ins -- instilled and is -- is being instilled by
  4  and large, in a good measure.
  5                 Staff should be encouraged, particularly to
  6  maintain high professional standards; ensure professional
  7  work environment.  Like we get into these areas of having a
  8  harassment free environment, as well, because practising
  9  harassment can be very bad.
 10                 MR. DAVID BUTT:  So -- so what -- what I hear
 11  you saying then, is that the professionalism of the office,
 12  and the -- the ethics, the quality of the ethical practices
 13  in the office, are -- are related?
 14                 MR. ERIK PETERS:  That's right. 
 15                 MR. DAVID BUTT:  So again, just to spin this
 16  out, does it make sense then, that an important part of
 17  encouraging an ethical environment would be educational
 18  programs, aimed at enhancing the professionalism of the
 19  staff?
 20                 MR. ERIK PETERS:  Very much so.  Like in other
 21  words, if you -- if you say that we want people to adhere to
 22  standards, then you have to communicate those standards.
 23  That's absolutely necessary.
 24                 And you also should provide guidance on --
 25  well, on other areas, for example, for disclosure

109
  1  requirements, by staff to -- for example, if -- if you're
  2  approached with a gift, you know, somebody says, well,
  3  somebody sent me, you know, forty (40) ounce of Scotch or
  4  somebody says they would have me go to a fully paid golf
  5  tournament in Las Vegas, disclose both.
  6                 If they have your superior or, ultimately, in
  7  our case, it was me these situations were brought -- were
  8  brought to the attention of the head of the office and we had
  9  to make a ruling whether -- what was acceptable and what was
 10  not acceptable. 
 11                 MR. DAVID BUTT:   And I appreciate that the
 12  standards for the Auditor's office might be different from
 13  the standards that would apply to the public service more
 14  generally, can you offer us your insights on -- on what level
 15  of that sort of benefit is appropriate in a -- in a context
 16  of a relationship between a public servant and a private
 17  sector supplier? 
 18                 MR. ERIK PETERS:   Well, the base answer and
 19  it's -- it's tough to enforce is really, if it -- if it is
 20  sufficient -- if the gift is of sufficient size to influence
 21  their decision making.  You know, somebody buying somebody a
 22  lunch may not -- you know, doesn't necessarily influence
 23  their decision.  Even going -- having a ticket to the
 24  symphony may not influence their decision but to provide a
 25  fairly constant benefit or a large benefit that is out of

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1 proportion would be -- so it's the influence that is wielded 2 through that particular gift. 3 The other one is also but -- 4 MR. DAVID BUTT: Just before you get to that, 5 I wonder if I could follow up, so what I hear you saying is 6 that one would have to, in terms of assessing the propriety 7 of the -- of a benefit, take a contextual approach and in 8 some circumstances a particular dollar amount of a gift may 9 be perceived as influencing decisions in other circumstances, 10 it wouldn't? 11 MR. ERIK PETERS: Yeah. I would -- I would 12 think so. Well, what helps in the Province certainly, and I 13 think, again, Coulter would be -- Coulter Osborne would be a 14 good source to talk about that, and that is the Province does 15 have an Integrity Commissioner. 16 MR. DAVID BUTT: Yes. 17 MR. ERIK PETERS: And that has been very 18 useful. I admit to you that I've used the Integrity 19 Commissioner. You know, when I went to them and when I had 20 situations at the very first audit I was asked to do was the 21 construction of the new WC building and it turned out to be 22 that that was built on land owned by the CBC where I'd been a 23 Vice President. 24 So I went to the Integrity Commissioner and 25 said, it was Greg Evans at the time, and I said, Greg, let's

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1 look at this, do I have a problem or don't I? 2 So it's to get an advance ruling that you have 3 an Ethics Commissioner who can independently weigh the 4 situation. Thank goodness Greg said I didn't. 5 MR. DAVID BUTT: Regardless of the answer, I 6 take it from your own experience that you found that to be a 7 helpful resource, even at the most senior level of public 8 service functioning, to be able to access? 9 MR. ERIK PETERS: Extremely helpful. I -- I 10 think particularly for the elected officials that should be 11 in place. There should be a place to go because on -- on 12 election there must be ramifications of -- that they have 13 business interests or something like this and where they have 14 to go and get clarification of whether a particular business 15 interest they hold actually in their new position have 16 aspects of a Conflict of Interest side and you may want 17 somebody as experienced as Greg or Coulter to have the 18 benefit of their wisdom on that situation. 19 MR. DAVID BUTT: Now, I'm sorry, I took you 20 away from your -- 21 MR. ERIK PETERS: No problem. Well, the 22 other one was the standards of behaviour, competence and 23 integrity. I think you shouldn't overdo the guidance but 24 there should be guidance for -- for staff and for everybody 25 on -- on those as to what is appropriate and what is

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1 inappropriate. 2 MR. DAVID BUTT: So, what I hear you saying 3 then is that the Code of Conduct should go beyond general 4 principles and actually try to define, perhaps by examples, 5 standards? 6 MR. ERIK PETERS: That's right. It gives 7 guidance and the last one I would like to bring to your 8 attention and we have found that very useful if that we have 9 all staff members, including myself, have to provide -- in my 10 office, have to provide an annual declaration of adherence. 11 Like, if circumstances changed or whatever, 12 that we had signed that we said, we are aware, and this is 13 what I'm doing, I'm holding this particular Directorship in 14 this particular corporation, what is my level of remuneration 15 for that, et cetera. 16 So, it was declared and disclosed, and that in 17 our particular case, for example, the Director of -- or the 18 head of my human resources department would then discuss with 19 me each -- each one (1) of the items where there had been 20 changes and we would evaluate whether we had to take action, 21 and whether -- how to -- how to react to the particular 22 change. 23 MR. DAVID BUTT: I -- I can see that having 24 two (2) benefits, first of all there's a -- new pieces of 25 information are brought into play if -- if the situation is

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1 -- your financial situations change, investments and so on, 2 but perhaps a broader benefit, and correct me if I'm wrong on 3 this, is that it is a regular and recurring opportunity to -- 4 to have a conversation about ethical conduct, in the context 5 of a particular workplace? 6 MR. ERIK PETERS: Exactly. 7 MR. DAVID BUTT: Mr. Peters, those -- those 8 are all the areas that I propose to -- to cover with you and 9 I certainly thank you very much for your attention and -- and 10 time this morning. 11 MR. ERIK PETERS: May I add one (1) -- just 12 one (1) thing that -- that intrigued me, in particular, 13 because of the -- the kind of Inquiry that you just held. 14 And that is that the -- as you know, because 15 of the Enron and Worldcom and all this sort of thing, there - 16 - there's a lot of questioning, particularly in the private 17 sector as to the -- the role of directors and good governance 18 and good accountability. 19 And one (1) of the areas that I -- I thought I 20 would bring to your attention is that, for example, in the 21 area that you investigated, the -- the -- or I looked into 22 Information Technology, that for example, the Canadian 23 Institute of Chartered Accountants had some publications, one 24 (1) was called, "The Twenty (20) Questions Directors Should 25 Ask About Information Technology", and that's available from

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1 the Canadian Institute of Chartered Accountants. And that 2 says either you do it through a separate board or something 3 that they -- they should deal with strategic issues, 4 technology trends, performance of IT personnel, internal 5 control, governance. 6 For example, has the board considered the 7 creation of an Information Technology sub-committee, or 8 assign the Board members specific responsibilities for the 9 organizations investment in and use of information 10 technology. 11 What on the -- who on the management team is 12 responsible for information technology, corporate governance, 13 is this person in a sufficiently senior management position? 14 What is management doing to ensure that employees are aware 15 of a non-compliance with a company's information and security 16 policies? 17 It goes into the risk issues, risk and 18 security, personal information and privacy, the electronic 19 business, availability of what they say with that is, has the 20 organization adopted formal availability policies, has it 21 implemented effective controls to provide reasonable 22 assurance that systems and data are available in conformity 23 with available policies. 24 And then they go into legal issues, has 25 management considered and addressed legal implications that

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1 pertain to the use of hardware, software, service agreements 2 and copyright laws. 3 For example, one of the things that we 4 wrestled with, almost continually is you know, does everybody 5 who uses WordPerfect is actually licensed to use WordPerfect, 6 you know, because there are licenses and copyright issues 7 involved in that. 8 Anyway, I just thought I'd bring that to your 9 attention. The -- the second issue that -- that struck me 10 currently being -- 11 MR. DAVID BUTT: Just -- just before you leave 12 the -- the first issue, that's a publication that -- 13 MR. ERIK PETERS: That's a publication -- 14 MR. DAVID BUTT: -- you're reading from -- 15 MR. ERIK PETERS: -- and I can -- can give you 16 the reference number if you wish. It's the Canadian -- it's 17 a publication of the Canadian Institute of Chartered 18 Accountants, there -- there's a whole series out actually, to 19 help Board of Directors and governance, and I -- I just 20 thought because of the nature of your -- of the Commission, 21 the -- brought the one (1) on information technology, but 22 there are other broader issues that they're in. 23 MR. DAVID BUTT: And then, I'm sorry, the 24 reference number then from that -- 25 MR. ERIK PETERS: Oh -- I just realized that

116

1 they don't -- don't have it in there, but I can -- I can 2 probably supply that. This one (1) doesn't have -- oh, wait 3 a minute, it is -- there's not a particular reference number, 4 but, I give you the title and the address and the telephone 5 number. 6 Do you want to put it on record, or shall I 7 just give it to you? 8 9 (BRIEF PAUSE) 10 11 MR. DAVID BUTT: You can give it to us, that 12 would be fine. 13 MR. ERIK PETERS: Okay. I'll do that. The 14 other part that intrigued me on this whole, you know, when 15 you talk with governance, is part of the decision making 16 process. 17 And I read with great interest actually two 18 (2) publications that currently come out, these are done by a 19 -- it's called a breakout book, but, it's called "Secrets in 20 High Places." 21 And it dealt with how decisions are made in 22 the infrastructure program that is jointly funded by the 23 Federal Government, Province and by -- in the Municipality. 24 And one (1) of the issues, I know it's 25 somewhat beyond, but, it got into good governance, what

117

1 intrigued me was, that I found in the Ontario case, that they 2 had real problems identifying, finding out who made the 3 decision and who was informed of what, on infrastructure 4 programs. 5 And what intrigued me was John Filion -- I 6 don't know whether that rings a bell, but, what a Councillor 7 at that time, said that our decisions were made on the basis 8 of whoever yelled the loudest, maneuvered the best and stick- 9 handled the thing through Council, was an intriguing notion 10 and it touched on decision making. 11 One (1) of the problems that I have with -- 12 that I think they're starting to address, in this 13 publication, is really in a sense, voter apathy and this is 14 of major concern because if things such as you're 15 investigating and this Commission lead to hopefully, it's the 16 opposite of distrust or lack of confidence, in the public 17 processes and that confidence has to be re-established. 18 And I think that is possibly one (1) of the 19 ways of attracting voters back to vote. You know, because 20 it's at all levels, it's not just municipal. It's Federal, 21 provincial, as well as, municipal level, that there is a 22 decline of -- significant decline of voter interest. 23 And from the perspective that I came from as 24 Provincial Auditor, I felt that much of it is because there 25 is an increasing concern about the quality of public

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1 administration and I hope that we had worked on restoring 2 that and I think your Commission from what I see, one of its 3 designs is to restore that confidence and I wish you all 4 success with that. 5 MADAM COMMISSIONER: Thank you very much, Mr. 6 Peters. And I want to thank you particularly, for coming 7 here today, I know you're a very busy person, and not only 8 for sharing with us the experience you had, when you were the 9 Provincial Auditor, but, also sharing experience you had in 10 the private sector. 11 And also going out on your own and getting 12 some other information, in terms of books and articles and 13 brochures that are, in fact, very helpful to me and will be 14 helpful to me in making our recommendations. 15 So I appreciate you doing that on our behalf 16 and I also appreciate you staying an hour later than you had 17 expected to be here. 18 MR. ERIK PETERS: You're very welcome. 19 MADAM COMMISSIONER: All right. We will 20 resume at 2:00 o'clock with Ms. Valerie Gibbons and Sam 21 Goodwin, from ERG. 22 All right. Thank you. 23 THE REGISTRAR: The Inquiry will adjourn for 24 lunch until 2:00 p.m. 25

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1 --- Upon recessing at 12:52 p.m 2 --- Upon resuming at 2:00 p.m. 3 4 THE REGISTRAR: The Inquiry will resume, 5 please be seated. 6 MADAM COMMISSIONER: Good afternoon. 7 MR. DAVID BUTT: Good afternoon, Commissioner. 8 This afternoon we have with us Ms. Valerie Gibbons and Mr. 9 Sam Goodwin from the Executive Resource Group. I know, 10 Commissioner, you'll be very familiar with the work of Ms. 11 Gibbons and Mr. Goodwin, as they have prepared the background 12 discussion papers that contain various suggestions that are 13 posted on our website, and that are essentially the 14 foundation for the Good Government Phase of the Hearing that 15 we're conducting now. 16 And we are -- are pleased to be able to have 17 Ms. Gibbons and Mr. Goodwin here to explain a little bit 18 about the process of preparing the extensive research that 19 they've done, and to talk in -- in brief terms, because of 20 course, as you know, the papers are long and detailed, about 21 some of the highlights, recommendations or suggestions that 22 the papers contain. 23 So, if I could just start perhaps by asking a 24 few questions about the background of our panellists. First 25 of all, Ms. Gibbons, you -- you were the Deputy Minister in

120
  1  Management Board -- at the Management Board Secretariate, and
  2  thus the Chair of the Civil Service Commission from '92 to
  3  '94 and before that, held various Deputy Minister positions
  4  throughout the mid to late '80s and early '90s with the
  5  Ontario Government.
  6                 And you've also, in terms of other governance
  7  related activities, served on the Judge's Remuneration
  8  Commission from '96 to '97 and -- 
  9                 MADAM COMMISSIONER:  Just so the record is
 10  clear, it's not the level that affects my salary, it's the
 11  Provincial Court level; right?  Okay.
 12                 MS. VALERIE GIBBONS:  For which I'm finely
 13  remembered, I'm sure.
 14                 MR. DAVID BUTT:  Yes.  And the National Parole
 15  Board from 1996 to 1998, and currently you are the senior
 16  partner, and have been since 1995, in the Executive Resource
 17  Group, which is essentially a consulting firm, offering a
 18  large range of organizational design, operation and
 19  consulting services in both the Ontario public and the
 20  broader public sectors; is that correct?
 21                 MS. VALERIE GIBBONS:  Yeah, that's correct. 
 22  In addition, we do significant work in the public policy
 23  field, specific to issues raised by -- by Governments and
 24  public servants, and we do much work in the defining and
 25  describing what good public policy processes and products

121
  1  are.
  2                 MR. DAVID BUTT:  And, Mr. Goodwin, who is also
  3  here with us, brings essentially twenty (20) years of
  4  combined private and public sector experience as a senior
  5  consultant, project manager and policy and operations
  6  executive and policy analyst; is that -- is that correct, Mr.
  7  Goodwin? 
  8                 MR. SAM GOODWIN:   Yes, it is. 
  9                 MR. DAVID BUTT:   And, of course, you and I
 10  have consulted extensively during the course of the
 11  development of these papers as -- as has Ms. Gibbons with us,
 12  but just more particularly in terms of your background, Mr.
 13  Goodwin, you were the senior consultant to a firm called
 14  "Government Policy Consultants"? 
 15                 MR. SAM GOODWIN:   Yes. 
 16                 MR. DAVID BUTT:   And that was, again, the
 17  early to mid '90's? 
 18                 MR. SAM GOODWIN:   Just for two (2) years. 
 19                 MR. DAVID BUTT:   And prior to that you were a
 20  senior manager and program coordination at the Ontario
 21  Ministry of Community and Social Service and you have also
 22  served as a senior policy advisor in the Ontario Cabinet
 23  office and as executive assistant to the Deputy Minister of
 24  Consumer and Commercial Relations? 
 25                 MR. SAM GOODWIN:   Yes.

122

1 MR. DAVID BUTT: Now, knowing a little bit 2 about you, Ms. Gibbons and Mr. Goodwin and your -- your firm, 3 I'd like to ask a little bit about the preparation of the 4 good governance papers that you have performed for us. 5 And, first of all, we note from the papers and 6 they're posted on the website and they've been entered as 7 exhibits, that they cover, in conceptual terms, four (4) 8 broad categories; one category being lobbyists, the second 9 one being procurement, the third one, conflict of interest 10 and the fourth one, municipal governance. 11 How were those broad topics chosen as your 12 focus of research? 13 MS. VALERIE GIBBONS: Can I ask a 14 clarification on process here for just a moment? 15 MR. DAVID BUTT: Sure. 16 MS. VALERIE GIBBONS: Sam and I are very much 17 used to working in a kind of flick and flack kind of way so 18 if it would -- if the Commissioner is all right with it and 19 you as well and Counsel for the City, if we can just fill in 20 where each other leaves off or forgets to cover; would that 21 suit? 22 MADAM COMMISSIONER: It suits me, absolutely. 23 MS. VALERIE GIBBONS: Okay. Thank you. 24 MR. DAVID BUTT: We'd have a hard time doing 25 it any other way for you.

123

1 MS. VALERIE GIBBONS: We're not trainable, I 2 don't think, to any other format. Sam, do you want to start 3 with that one or do you want me to begin? 4 MR. SAM GOODWIN: No, I -- I can start. We 5 -- each of us -- this is -- well, it came out of discussions 6 with Commission Counsel in terms of what were the major 7 issues -- public policy issues that we would cover. 8 And we had a number of meetings with -- with 9 you, David, and spent time working through what those issues 10 might be and I think, in terms of time and manageability, 11 focussed -- decided to focus on those four (4). 12 MR. DAVID BUTT: Okay. And then having 13 focussed on those -- those areas, you developed a method of 14 approach to your research; could you tell us a little bit 15 about how that -- the, sort of, principal aspects of that 16 method that you used to approach your topics? 17 MS. VALERIE GIBBONS: Yeah, maybe I can 18 begin, Sam, and then you can fill in with some of the detail. 19 The project took, in all, about five (5) months. We began, 20 in earnest, in -- in August dealing with interviews and 21 establishing interviews and beginning to do the research. 22 So each of our papers has, kind of, three (3) 23 chunks to it. In some cases, the second and third chunk are 24 in one (1) volume and in some cases they're separate into 25 three (3) volumes but we took a look at the best practices in

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1 other jurisdictions as a -- as a way to formulate a base from 2 which we could then move to the second phase which was the 3 description of what was actually happening in the City of 4 Toronto and then combining those two (2) chunks into an 5 analysis and we've used, in the paper, recommendations to the 6 Council for consideration -- Commission for consideration. 7 We understand that these are -- are, in fact, 8 suggestions to be considered and as the full debate is 9 undertaken with the Commissioner that you will decide what 10 you will decide with respect to the information provided. 11 MR. DAVID BUTT: So -- so in that sense, just 12 to follow up a little bit, it's -- it's fair to say that 13 these -- these suggestions in the paper are a springboard 14 that focusses discussion in the sense that we have a proposal 15 or a suggestion, the merits of which can be discussed in -- 16 in the hearings that we have, but that it was never the 17 intention that those papers would represent the Inquiry's 18 final views on matters? 19 MS. VALERIE GIBBONS: No, no. It was our 20 hope to be able to identify, through the best practices, the 21 tensions that exist in various jurisdictions as they try and 22 put the right practices in place and there's always tension 23 in any particular approach to public policy. 24 And that you for -- on behalf of the 25 Commissioner, would begin to ferret out with the experts that

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1 will be appearing before you, what some of their views are on 2 the best practices. 3 MR. DAVID BUTT: Thank you. And can you -- 4 can you tell us in addition to designing the -- or I suppose 5 after designing the method of approach to your research, you 6 obviously had research to -- to carry out. 7 What source material did you access in -- in 8 terms of carrying out that research? 9 MR. SAM GOODWIN: It was a fairly extensive 10 collection by the end of the project. It varied somewhat by 11 paper, in terms of relevance, but, we looked at -- in terms 12 of jurisdictions, we looked fairly broadly across Canada, 13 North America, tried to capture federal, state, municipal 14 levels. 15 In some cases, lobbyist registration, for 16 example, there isn't a lot of lobbyist registration activity 17 outside of North America, that by definition started to scope 18 the focus of our research on that paper. 19 In comparison, procurement is something that 20 -- where you would find useful information, resources, from 21 outside of North America, the UK, Australia, New Zealand. 22 The types of documents we looked at, included 23 government reports, publicly available documents, policy 24 papers, research papers, documents produced by research 25 organizations or think tanks, academics, practitioners in the

126
  1  area, depending on the -- the subject matter.
  2                 Advocacy papers, advocacy organizations are
  3  often very active in stating public policy positions on some
  4  of these issues.  And all in all, that's several thousand.  
  5                 I think at the end of the day, it probably
  6  works out to close to eight thousand (8,000) pages of -- of
  7  documents that were part of it, which is probably not many
  8  for the Inquiry in total, but, it was -- we thought a good
  9  number for this project.  Sorry, go ahead --
 10                 MR. DAVID BUTT:  Sorry -- yeah, in -- in
 11  addition to the documentary sources, were there other sources
 12  that you consulted?
 13                 MR. SAM GOODWIN:  Yes, we did an extensive
 14  series of interviews for each paper.  By the end of each
 15  paper, we -- I think we averaged somewhere between twenty-
 16  five (25) and thirty-five (35) interviews for each paper,
 17  including going back at people we -- 
 18                 And our interviews, again covered off
 19  practitioners, current and former public officials, Federal,
 20  Provincial, Municipal, public officials from other
 21  jurisdictions, recognized experts, academics, advocates,
 22  people in advocacy organizations, who had written on the
 23  subjects that we addressed.
 24                 MS. VALERIE GIBBONS:  If I could just add that
 25  in relation to the interviews, we used a formatted set of

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1 questions, asked the same questions of everybody and did the 2 analysis on a -- on a grid to see if we could get the balance 3 of opinion. 4 So, that when we say in the paper; for the 5 most part people said; that actually adds up statistically to 6 the most part; we don't ever say, I think, 95 percent, but -- 7 MR. DAVID BUTT: Okay. Now, hearing you 8 describe the breadth of witnesses that you interviewed, you 9 obviously sought out a theoretical perspective and a 10 practical perspective of people actually working in the 11 various fields that you looked at. 12 Did that cause you to take any particular 13 steps with respect to your interview methods? 14 MS. VALERIE GIBBONS: I'm not sure I'm clear 15 on that question David -- 16 MR. DAVID BUTT: Just in terms of people who 17 may still be working in the -- in the field, how -- what 18 steps did you take to, sort of, encourage that you get a full 19 a breath of information as you might? 20 MS. VALERIE GIBBONS: We took -- at the 21 beginning of every interview and every interview was at least 22 an hour, sometimes an hour and a half, we would assure them 23 that what they said to us, would be taken in confidence, that 24 in no way, would we attribute to them specifically any -- any 25 remarks or any -- any strongly held view they might have and

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1 -- but I think that, from our perspective, Sam and I, that it 2 did facilitate quite an open discussion with people. 3 MR. DAVID BUTT: And again, that being -- the 4 primary focus being the development of a broader policy 5 perspective and -- and your indications later -- about that 6 this -- earlier about the questions being asked being 7 consistent. 8 I take it, that enabled you to draw 9 conclusions based on a macro-analysis of the data, as opposed 10 to micro-analysis? 11 MS. VALERIE GIBBONS: On the way to the 12 information -- 13 MR. DAVID BUTT: Now, if I could turn to the 14 actual papers them -- themselves, in what I would propose to 15 do in terms of going through the papers, is to deal with them 16 in -- in this order, Governance, then Lobbying, then 17 Procurement and then Conflict of Interest. 18 And for the sake of using our time here most 19 effectively, I'll be asking you questions around your 20 ultimate suggestions, again, sort of non-binding suggestions 21 for discussion in this forum, in those four (4) areas. 22 So, perhaps if I could start with the lobbyist 23 registration piece that you worked on, of course, it 24 consisting of the three (3) papers, but if we could skip 25 ahead to the third, and -- and ask if you could, in -- in

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1 highlight form, tell us a little bit about the key 2 recommendations that -- or -- or suggestions that you bring 3 forward with respect to lobbyists? 4 MS. VALERIE GIBBONS: Just to -- to be clear 5 on -- on the lobbyist registration piece, that we wanted to 6 achieve -- our -- our recommendations fall into three (3) 7 sections, the disclosure requirements with respect to who is 8 being lobbied, and the decision is that the lobbying efforts 9 are attempting to -- to influence. 10 What we should be doing with respect to 11 sustaining and developing a culture the supports how 12 individuals respond to lobbying efforts, and then some 13 support op -- operate -- more operational kinds of 14 suggestions and recommendations. 15 We'd like to be clear up front, that we in no 16 way felt that lobbying was not a legitimate part of the 17 process, as many jurisdictions say, and as many enshrine in 18 legislation, it is really viewed as a very important and 19 essential piece of the policy development process. 20 We wanted to ensure more than anything, that 21 if a registry was to be set up, that it would be effective 22 with respect to the relevance and usefulness of the 23 information that the -- that the registry made available to 24 the public, to public servants, to elected officials, to the 25 media and to other lobbyist groups.

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1 It was not our intention ever to capture, as 2 lobbyists, those individuals that as part of the day to day 3 ongoing business with Government, find themselves in -- in 4 front of a particular kind of Commission, doing a deputation 5 of some kind. 6 So, we just wanted to make sure that whatever 7 we recommended, led us to a relevant system of -- of lobby 8 registries. 9 MR. DAVID BUTT: And -- and if I could just 10 ask one (1) -- one (1) brief follow up, obviously you've, in 11 -- in terms of conducting your research, and perhaps I didn't 12 draw this out in enough detail, did look at City of -- of 13 Toronto documents, as -- as well. 14 MR. SAM GOODWIN: I should have mentioned 15 that, David, absolutely. 16 MR. DAVID BUTT: Could -- could you tell us a 17 little bit about the extent of your view or review of actual 18 City of Toronto documents on all of the topics? 19 MR. SAM GOODWIN: We had access to all of the 20 documents that the City had provided on the subject areas to 21 the Commission, a very extensive collection of policy papers, 22 reports to committees, Standing Committee, discussions, staff 23 analysis, going back in some cases two (2) and three (3) 24 years. 25 MR. DAVID BUTT: And so when having accessed

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1 those relevant City documents as part of your research, can 2 you tell us how you approached your -- your ultimate 3 recommendations in -- in relation to measures that the City 4 may already have in place? 5 MS. VALERIE GIBBONS: We should mention first, 6 that we were very impressed with the efforts of the City in 7 this and in many other areas. They made best efforts, given 8 a very difficult initiation, and instead of amalgamating 9 Municipalities with not quite a turn-key operation, trying to 10 get up and running in a way that delivered services to the 11 public, but also began to integrate and coordinate and 12 consolidate their policies. 13 So, we say hats off to them, they tried 14 really, really hard to -- to get a good foundation in place 15 and in this area they have made some recommendations that Sam 16 will speak to later on, that are consistent with -- with the 17 views that we hold and -- and other jurisdictions illustrate 18 and demonstrated as best practises. 19 So, they were -- they're on the cutting edge. 20 What we're going to be suggesting the Commissioner consider 21 in her debates with the experts in this area are 22 supplementary, rather than intended to replace the good work 23 that's been done at the City. 24 MR. DAVID BUTT: Now, if we -- I could perhaps 25 move to some of the -- the particulars of the -- the

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  1  suggestions that you make, and you -- you mentioned earlier,
  2  Ms. Gibbons, how you had categorized your lobbyist
  3  registration suggestions into three (3) parts, the first part
  4  being Enhanced Disclosure.
  5                 Could I ask you in -- in the category of
  6  Enhanced Disclosure, in relation to lobbyist activity, what 
  7  -- what are a couple of the key recommendations that you --
  8  or key suggestions that you put forward?
  9                 MS. SAM GOODWIN:  Well, I think I'll -- I'll
 10  take that one (1), if you don't mind.
 11                 The first and most important one (1) is
 12  describing what we called on the paper, describing the
 13  decision to be influenced and as we looked at lobbyist
 14  registries across North America we saw a tremendous focus on
 15  the identity of the lobbyist and the identity of the client.
 16                 But in terms of public policy rela --
 17  relevance to the public or to decision making it would very
 18  difficult to find information about.  The really key aspect
 19  of lobbying is which decision is the lobbyist actually
 20  attempting to influence.  So that -- that is one of our most
 21  important recommendations in this area. 
 22                 I think also describing each public official
 23  and which public officials are -- are the subject of the --
 24  of the lobbying effort is also fairly important.  
 25                 MS. VALERIE GIBBONS:   It -- we found in the

133
  1  literature that although in some instance people were asked
  2  to identify the -- the individual's lobby, it was such -- at
  3  such a high level that any capacity for the public to
  4  actually zero in and know who it was that was being lobbied
  5  was pretty minimal.  So we wanted to put some specifi --
  6  specificity into that particular area of disclosure.   
  7                 MR. DAVID BUTT:   And -- and then in -- in
  8  terms of beyond the actual disclosure and moving to the --
  9  sort of, the -- the culture environment in which lobbyists
 10  take place, that was the second of your three (3) categories
 11  in which you divided your -- your lobbyist research. 
 12                 Again, can you help us with some of the key
 13  suggestions that you have in that area? 
 14                 MR. SAM GOODWIN:   Well, I think one of the --
 15  one of the main conclusions we've reached in this area was
 16  that -- that the -- an organization's ability to deal
 17  effectively with lobbying has, you know, to a certain extent,
 18  regulating the activities of lobbyists themselves is an
 19  important part of the public policy response.
 20                 But, at the end of the day, the -- the most
 21  effective or the most powerful component's actually how the
 22  organization itself decides to respond to lobbying and, as we
 23  looked at different jurisdictions, it's a -- each
 24  jurisdiction has a bit of a different approach.
 25                 Some jurisdictions would prefer to rely

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1 exclusively on -- more exclusively on -- on regulating the 2 lobbyists activity and not being particularly clear on how 3 the organization will respond and in other organizations 4 they're very clear about, regardless of what lobbyists do, 5 this is how our organization will deal with it. 6 And so we suggested that it was very important 7 for any organization that is subject to lobbying activity to 8 establish clear expectations for how staff and the lobbyist 9 -- staff are to respond to lobbying -- staff or any officials 10 in the organization, elected officials, non-elected officials 11 and, from our perspective, that would include being clear 12 about what is -- a clear and explicit -- what it constitutes 13 acceptable and unacceptable behaviour as part of establishing 14 the appropriate culture. 15 And then, as with any kind of cultural 16 development exercise, training and developing supporting 17 materials to reinforce the desired behaviour. 18 MR. DAVID BUTT: And -- 19 MS. VALERIE GIBBONS: Excuse me, we find in 20 this regard the best practising jurisdictions used case 21 examples. Real, live situations where you'd have, in 22 discussion, with the -- between the elected and the non- 23 elected officials what the -- what the good behaviour and the 24 bad behaviour looks like; something concrete that you could 25 land.

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1 MR. DAVID BUTT: And -- and these case 2 discussions, would they be in the context of an educational 3 program during the day or would there be examples in the 4 organization's reference material, appended to, say, a code 5 of conduct? 6 MR. SAM GOODWIN: You could -- 7 MR. DAVID BUTT: How would -- how would those 8 be promulgated? 9 MR. SAM GOODWIN: Actually, you'd see them in 10 all of those areas, David. You'd see it in the Code of 11 Conduct. You would see it in educational materials, you'd 12 see it in ongoing educational seminars. 13 I think one of our recommendations was that 14 Council and senior staff -- our suggestion was that Council 15 and senior staff should find opportunities to sit down and -- 16 and use case studies to determine and -- and help focus their 17 own efforts. You would see it in publicly available material 18 as well. 19 MS. VALERIE GIBBONS: The City of Toronto has 20 -- not in this area, David, but in the Conflict of Interest 21 area, a good question and answer, kind of, tool kit that they 22 -- that staff use where they -- they describe the individual 23 and the situation they find themselves in, I am this kind of 24 a -- of a public servant. I have been asked this question. 25 Am I right when I say I can or I cannot do that?

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1 And then the answer says, yes, you are right, 2 you cannot do that and here are the reasons why. And that 3 was one of the best tools we saw in that particular end. I 4 know it doesn't relate to lobbyist registration but that's, 5 sort of, a notion. 6 MR. DAVID BUTT: But it -- although it 7 doesn't relate, it's the kind of tool -- 8 MS. VALERIE GIBBONS: Exactly. 9 MR. DAVID BUTT: -- that I hear you saying 10 works very well and -- and could, perhaps, work very well in 11 the -- 12 MS. VALERIE GIBBONS: Absolutely. 13 MR. DAVID BUTT: -- in the lobbyist area as 14 well. 15 MR. SAM GOODWIN: It keeps the focus on the 16 organization itself. I mean it's not as simple as to say, it 17 doesn't matter what lobbyists do, but, it -- the real 18 effectiveness comes by the organization taking control of its 19 own response to lobbying. 20 MS. VALERIE GIBBONS: I think we say in our -- 21 in our -- I know we say in our paper that if -- if bad lobby 22 occurs, and the response to it is positive, you can bet your 23 sweet patooty you're going to get bad behaviour because 24 people think that's what -- how do you spell patooty by the 25 way?

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  1                 MR. DAVID BUTT:  We'll leave that for the
  2  Court Reporter.  Now the -- just in the context of where you
  3  focussed your activities, it appears to me that in terms of
  4  the first two (2) categories, with respect to disclosure and
  5  then with respect to the cultural response, you've tried to
  6  capture, if I can use an economic analogy, the needs at both
  7  the producer and the consumer level, is that fair to say?
  8                 MR. SAM GOODWIN:  Yes, very much so.  Very
  9  much so.  I think for us the discussion of lobbying, as we
 10  say in the paper, lobbyist registrations are invariably
 11  implemented because the public had concerns about integrity.
 12                 You see it across all jurisdictions, concerns
 13  about backroom deals, special access to politicians, all of
 14  those kinds of things.
 15                 And at least at the rhetorical level, a strong
 16  emphasis on lobbyist registration being about enhancing
 17  public confidence in decision making and as we looked at most
 18  registries and talked to practitioners and officials running
 19  registries, advocates, it was very difficult to draw a link
 20  between most registry systems, that just focussed on
 21  identifying the lobbyist and the client, and actual measures
 22  of enhanced public confidence.
 23                 And that's where I think you'll see in the
 24  paper, we came up with a list of five (5) questions and the
 25  first three (3) of those we felt would be reasonable for a

138
  1  lobbyist registry to incorporate, sort of, who is going the
  2  lobbying?  
  3                 What decision are they attempting to
  4  influence, because that is the core of the legal definition
  5  of lobbying, in most jurisdictions.  Lobbying is an effort to
  6  influence decision making for public officials and also which
  7  public officials.
  8                 And that if the public had access to that kind
  9  of information, they would then be able to decide, whether
 10  the lobbying on their own terms was successful, and whether
 11  at the end of the day, the decision was in the public
 12  interest.
 13                 MS. VALERIE GIBBONS:  We also felt that the
 14  more information you give people about the nature of the
 15  debate that you're having, the most likelihood there is that
 16  the public will understand.  
 17                 Ah-ha, this is something that maybe I should
 18  be paying attention to, that I ought to be voicing some
 19  opinion and that I should be getting involved in, because it
 20  is going to affect me, my life and the life of my community.
 21                 MR. SAM GOODWIN:  And it was very interesting,
 22  looking at different jurisdictions from a -- most as I
 23  mentioned, most of those began with a discussion just about
 24  integrity.
 25                 When the policies were actually framed, put on

139
  1  paper, registries were implemented, the objective almost
  2  invariable shifted to being about transparency.  So, we quote
  3  other various jurisdictions and their sort of statements,
  4  leading up to the formation of a registry.
  5                 That the registry needs to be in place to
  6  strengthen public confidence and again deal with backroom --
  7  all those kinds of suggestions and then when you look at the
  8  communications material, the lobbyist registry actually in
  9  place, it says, this is not about -- and people said to us,
 10  our registry isn't about public confidence, it's about
 11  transparency.
 12                 And I think everything that we could find and
 13  in discussing with the experts, that it just did not seem to
 14  be a terribly effective tool.  And to the extent there was
 15  evaluative material of the impact of lobbyist registries on
 16  public -- or greater of that level of transparency on public
 17  confidence, it actually suggested that it worked the other
 18  way around.
 19                 That it was not enough information to show the
 20  public, that good decisions were actually being made, but,
 21  just enough to make the public think that there was a lot of
 22  -- a lot more --
 23                 MS. VALERIE GIBBONS:  In fact, the media and
 24  the opposition parties, always, or opposing candidates use
 25  the information in the lobby registry, to imply that

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1 something -- something was going on that ought not to be 2 going on. 3 MR. SAM GOODWIN: And that's the point of 4 American experts, because they have vastly more experience in 5 this area than Canadians; that the primary users, as we 6 suggest in the paper, the primary users of the material, the 7 information in the lobbyist registry, not the public, it is 8 media campaigns, political campaigns, because it's enough -- 9 it's just enough information to say, that someone's been in 10 talking to so and so. 11 We don't know what it's about et cetera, and 12 sort of, you see that being left in an implied -- 13 MR. DAVID BUTT: And I guess that would lead 14 me ask a couple of questions. If that's the case, if those 15 are the primary users, is in some kind of net way, is a 16 lobbyist registry then not a good thing to have? 17 MR. SAM GOODWIN: Well, we -- we -- as you can 18 see from our report, we struggled with this issue. I think 19 our suggestion was they are standard features of -- of you 20 know, most large Governments, which we would include the City 21 as one (1). 22 In a -- in an environment of scarce resources 23 and a lot of things to do, in the absence of those more 24 focussed questions, of what is the decision to be influenced, 25 and who is actually the subject -- the focus of the

141
  1  influencing effort, I think we suggested that it wouldn't
  2  necessarily be our first choice, of things to do if you had a
  3  -- a long list of -- 
  4                 MS. VALERIE GIBBONS:  We talked to many
  5  experts that said, if you're going to do it, do it right.  Be
  6  sure that you're clear on what the outcomes are that you're
  7  expecting from the registry, make sure you resource your
  8  staff so that they can undertake the tasks you assign to
  9  them, get as much information as you can, and make it
 10  available to the public in as robust a use of technology as
 11  possible, so that they can do their own analysis of -- of the
 12  material on the registry.
 13                 In addition, we suggested that the registry
 14  itself undertake a proactive role and begin to compile
 15  reports with respect to what are the biggest issues we're
 16  being lobbied on, who is getting the most lobbying activity,
 17  which firms are doing most of the lobbying.
 18                 MR. SAM GOODWIN:  Who in our organization is
 19  the subject of the most lobbying contact.
 20                 MR. DAVID BUTT:  And again, that -- that's a
 21  method of facilitating use by the public in a -- in a
 22  transparency sense, as opposed to simply that strategic use
 23  by media or opposition -- 
 24                 MR. SAM GOODWIN:  That's right.
 25                 MR. DAVID BUTT:  -- groups.

142
  1                 MR. SAM GOODWIN:  And it -- it is very much
  2  about shifting the debate from who to what, and -- and -- and
  3  most lobbyist registrations, I think we're careful to qualify
  4  this in -- in our report, most lobbyist registries are very
  5  much focussed on the who and as Val suggested -- 
  6                 MS. VALERIE GIBBONS:  Who is doing the
  7  lobbying.
  8                 MR. DAVID BUTT:  Yes.
  9                 MR. SAM GOODWIN:  -- experts, practitioners,
 10  it just isn't -- and if you ask public servants -- if you ask
 11  public servants in jurisdictions that lobbyists have lobbyist
 12  registries, whether the who is doing the lobbying is relevant
 13  to them in their day to day responsibilities, generally the
 14  answer is -- 
 15                 MS. VALERIE GIBBONS:  Didn't know we had one
 16  (1).
 17                 MR. SAM GOODWIN:  -- it's not terribly useful
 18  to me.
 19                 MS. VALERIE GIBBONS:  It's interesting to note
 20  that when we asked the Canadian jurisdictions at least, what
 21  kind of calls they'd had with respect to the lobbying
 22  registries, virtually none from the public, not very many
 23  from the media, early on rush of questions with respect to am
 24  I a lobbyist, you know, do I qualify, do I have to fill out
 25  my form, but more recently very -- very little.

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1 MR. DAVID BUTT: Now, just to move to your 2 third category of -- in the lobbyist area, you've had 3 enhanced disclosure suggestions and the cultural response to 4 lobbying, and then you had some other perhaps more 5 operational kind of suggestions to offer to the Commission, 6 could you tell us about those please, just the highlights 7 again. 8 MR. SAM GOODWIN: Well, I believe that there 9 are three (3) that we touch on, Val's already mentioned one 10 (1), is that analytical capacity. 11 MS. VALERIE GIBBONS: I'm always on the slide 12 he's not on. 13 MR. SAM GOODWIN: That's good enough. 14 MR. DAVID BUTT: It's good to be ahead of the 15 curve. 16 MR. SAM GOODWIN: It keeps me moving, 17 otherwise I'd spend too much time on the slide I was on. 18 So, we did suggest that the City of Toronto's 19 registry, as we would make a suggestion of any organization 20 in this case, a fairly robust search and analysis capacity. 21 We sort of developed a -- a mock up of a 22 question, if I was a member of the public and I was 23 interested in particular alternative service delivery 24 opportunity or privatization, it would -- what would I like 25 to know.

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1 MR. DAVID BUTT: Yeah. 2 MR. SAM GOODWIN: Who is lobbying, who are 3 they talking to, what is -- you know, if it is a -- a -- I 4 can use an example of forestry licenses, who's lobbying on 5 forestry licenses, how do I find that out? 6 So, a much more robust capacity within the 7 registry for the City or the organization itself to say, 8 here's who -- who's -- here's who's lobbying on what. 9 And then also being very clear to the public 10 about what is -- what is not considered to be lobbying, I 11 think it's very important in the Municipal context. We saw 12 some examples, I think Chicago is one (1) that we were very 13 impressed with. 14 As part of their communications to the public, 15 very clear and very descriptive for pages, that the -- the 16 kinds of day to day normal interactions of a citizen with 17 their Government are not considered to be lobbying, so if 18 I've made an application to a Committee of adjustment, going 19 through that process is not lobbying. 20 And I also think that the last thing was the 21 value added -- was the -- the technology, the capacity of 22 making sure that technology is robust enough that -- to 23 support a sophisticated search of capacity, because I think 24 we certainly saw as we looked across the jurisdictions, it 25 varied considerably.

145
  1                 MR. DAVID BUTT:  And -- and is this a search
  2  capacity that's available for public use, or is this for
  3  internal -- 
  4                 MR. SAM GOODWIN:  Well, actually -- well, both
  5  I suppose, yes, absolutely both.
  6                 MS. VALERIE GIBBONS:  The intention here is
  7  that the public can acc -- access all of the relevant
  8  information that they need to know to make their own
  9  determination of whether or not undue influence has happened,
 10  or as I said earlier, to decide whether this is an issue they
 11  should become involved in as a -- a citizen of the community. 
 12                 MR. DAVID BUTT:   Now, just to back up a half
 13  step and ask you about this notion of discussing publicly
 14  what is not considered lobbying activity, what, in your
 15  research, is the benefit of conveying that kind of
 16  information?  What sort of problems do you avoid by doing
 17  that? 
 18                 MR. SAM GOODWIN:   Well, we actually -- we
 19  suggested on both sides.  I think, from a, in terms of
 20  developing the desired culture, you want to name all types of
 21  behaviour, what's appropriate, what's inappropriate, what is
 22  lobbying and what is not lobbying.
 23                 So, just as much as it's important for
 24  citizens to understand, because I think one of the things we
 25  heard from folks that we talked to and said, you know, what

146

1 would happen if you had a lobbyist registration at the 2 municipal level, well, there isn't a great deal of 3 familiarity at Canada's municipal level of lobbyist 4 registries and a quick initial response is often, well, it 5 would capture way too much. 6 You know, citizens would be -- they're not 7 lobbyists and so it's very important, therefore, to be very 8 clear for citizens that, you know, the processes they can 9 engage in with the City that do not constitute lobbying. 10 It's equally clear to be -- equally important 11 to be clear with the lobbyists what is -- what are various 12 types of activity that is lobbying. I think we saw in other 13 jurisdictions, again, the definition of lobbying was kept at 14 a very high level. The subject matter was kept at a very 15 high level and there was a great lack of clarity whether this 16 type of activity would be considered lobbying or that type of 17 activity. 18 So, generally being, not prescriptive, but for 19 the purposes of people understanding and having open dialogue 20 in their organizations. 21 MR. DAVID BUTT: Now, if I could move to the 22 next of the four (4) categories that we've been dealing with 23 and that's the governance research that you did. And before 24 I do that, I'll pause to return briefly to the -- the issue 25 of the research that you engaged in; you prepared and

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1 provided for us a CD that is a combination of source 2 documents and bibliographies could you -- I would propose to 3 make this an exhibit, Madam Commissioner, and I've discussed 4 with Mr. Lewis but I will provide a copy to counsel for the 5 City as well. 6 MS. LINDA ROTHSTEIN: Thank you, Mr. Butt. 7 MR. DAVID BUTT: And if you could just help 8 us with the contents of the CD that you provided? 9 MR. SAM GOODWIN: Well, it is -- it's 10 organized by major subject area and within each major subject 11 area there are two (2) files. In fact, I believe the big 12 ones are the collection of all the documents we used that 13 were available electronically or that we could get scanned. 14 They're created in a PDF format and that's really the bulk 15 of, I think, probably 95 or 97 percent of what we used. 16 Other than the City's documents themselves, we didn't -- we 17 didn't give those back to you. 18 MS. LINDA ROTHSTEIN: More time. 19 MR. SAM GOODWIN: But we could if you like. 20 I have a large box full. 21 MS. VALERIE GIBBONS: No, I've destroyed 22 them. 23 MR. SAM GOODWIN: And -- and in addition to 24 that we've included bibliographic references for documents 25 that were not available electronically. So I think between

148

1 those two (2) types, we've captured probably 98 percent. 2 But what -- what isn't in there is, you know, 3 hundreds of, sort of, smaller web-based documents where 4 you're really reading for background context. It's not an in 5 depth research or analysis paper but you'll find something 6 interesting in the State of Wisconsin that talks about 7 lobbying; not -- not important enough to capture but -- but 8 added to the -- the, kind of, background context for us. 9 MS. VALERIE GIBBONS: The City was extremely 10 helpful to us in doing this. There was not one moment's 11 hesitation ever when we asked for clarification or a piece of 12 documentation. They stopped doing whatever it was they were 13 doing and they, kind of, -- 14 MR. SAM GOODWIN: Oh, absolutely. 15 MS. VALERIE GIBBONS: They combed through 16 their stuff, they got it packaged up -- 17 MR. SAM GOODWIN: Very timely. 18 MS. VALERIE GIBBONS: -- they had it sent to 19 us, it was wonderful. 20 MR. SAM GOODWIN: And as we went through the 21 interviews, of course, other things would come up, documents 22 that people were aware of and they were just wonderful at 23 getting those to us in as timely a way as possible. 24 MS. VALERIE GIBBONS: In responding to 25 telephone calls.

149

1 MR. SAM GOODWIN: Absolutely. 2 MS. VALERIE GIBBONS: It was great. 3 MS. LINDA ROTHSTEIN: Mr. Goodwin, one of the 4 questions I've been asked, if I may just at this moment is, 5 we understand your point about not identifying particular 6 views with individuals whom you interviewed and we don't have 7 any issue with that, but just getting the list, is that also 8 in that CD or is that available? 9 MR. SAM GOODWIN: No, no. I think that's, as 10 Val's suggesting, at the beginning where we met with people, 11 the fact -- I'm assuming, I mean obviously in the panels, a 12 number of the people that were -- there will likely be people 13 in those panels who may self-identify or others -- 14 MS. LINDA ROTHSTEIN: Oh, I see. 15 MR. SAM GOODWIN: -- who may self-identify. 16 MS. LINDA ROTHSTEIN: Okay, so the point was, 17 more than that you weren't attributing what they said, you 18 simply weren't going to reveal that you'd interviewed them at 19 all? 20 MR. SAM GOODWIN: Right, yes. 21 MS. LINDA ROTHSTEIN: All right. I didn't 22 understand that. 23 MR. SAM GOODWIN: Yeah, and that actually 24 became a point for some people during the interview. We -- 25 MS. LINDA ROTHSTEIN: Okay.

150
  1                 MR. SAM GOODWIN:   They had to return to us
  2  and say, let me just be clear that -- that I, not only -- 
  3                 MS. VALERIE GIBBONS:   Can I say this without
  4  actually -- 
  5                 MR. SAM GOODWIN:   -- I, not only won't be
  6  quoted but, I'm not -- it won't necessarily be know that you
  7  spoke with me. 
  8                 MS. VALERIE GIBBONS:  But, we got comments
  9  like that from people, so that we could be assured that it
 10  wasn't a particular point of view, that an individual held. 
 11  We would check it out.  
 12                 We would ask two (2) or three (3) other
 13  people, you know, it's been said that this, what do you
 14  think?  And they would say, well, gee, no, that wouldn't be
 15  my view on that.  
 16                 So if you ask three (3) other people and you
 17  got a different view, you'd think, well, maybe that's not a
 18  burning piece of information we want to insert in our report.
 19                 MR. DAVID BUTT:  And so again, you're -- in
 20  terms of the compilation with the standard questions, you
 21  were very much looking for what the preponderance of views
 22  were and -- as opposed to taking any particular suggestion,
 23  as being premised on the views of one (1) person?
 24                 MR. SAM GOODWIN:  That's right.  And even
 25  within those questions that was our core set of questions for

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1 the interview. You can imagine we had considerable 2 flexibility to -- to go down one (1) path or another, always 3 coming back to the core. 4 MR. DAVID BUTT: So, is it fair to say then 5 that throughout the paper with respect -- the papers, with 6 respect to all of your suggestions, they're premised not on 7 any isolated comment by any individual, but, rather on that 8 statistical preponderance of that came from the standard of 9 questions? 10 MR. SAM GOODWIN: Preponderance -- 11 MS. VALERIE GIBBONS: I can assure you that 12 after Sam and I working together for ten (10) years, we've 13 got it down to a fine tooth comb, where there is agreement 14 and where there isn't, because Sam has this remarkable 15 capacity to take very detailed notes quickly and I'm often go 16 away thinking I heard something that, of course, I didn't. 17 So I will say, this is so, and Sam will say, 18 no, no, that's not so, you know, here is what they said 19 exactly. 20 MR. SAM GOODWIN: The suggestions were also 21 benchmarked though against best practices. So that in some 22 cases, you know, we saw practices that are simply just not 23 familiar in Canada. But, that we felt had merit. 24 MADAM COMMISSIONER: All right, so in terms of 25 that -- I think the Registrar is sitting there eager to mark

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1 that as an Exhibit, that would be Exhibit 77, is it? Thank 2 you. 3 4 --- EXHIBIT NO. 77: CD - labelled: TCLI Research 5 Papers and Bibliographies. 6 7 MR. DAVID BUTT: Thank you very much. Just 8 one (1) other question on the CD, you said you've organized 9 it into subject areas. Are they the same -- 10 MR. SAM GOODWIN: Yes -- 11 MR. DAVID BUTT: -- four (4) subject areas that 12 we're dealing with here? 13 MR. SAM GOODWIN: -- Yes. 14 MR. DAVID BUTT: Okay. Thank you. Moving 15 then to the recommendations or the suggestions with respect 16 to governance. First of all, they're fairly numerous is that 17 right? Fair to say, from the papers? 18 MS. VALERIE GIBBONS: They are somewhere 19 between thirty (30) and fifty (50) -- thirty five (35) and 20 fifty (50), depending on whether you're reading the full 21 recommendation section -- 22 MR. SAM GOODWIN: At some points -- 23 MS. VALERIE GIBBONS: -- or just the 24 highlights we've tried to hit in the executive summary. 25 But, there are at least forty (40).

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1 MR. DAVID BUTT: So, I won't ask you by any 2 means to go into all of them in detail, but, could you -- 3 could you just again, hit some of the principle highlights of 4 those recommendations in the governance area? 5 MS. VALERIE GIBBONS: Really in this area, I'd 6 like to begin by saying that as we thought about making 7 recommendations about governance, particularly anything that 8 reflects a structural change, we were very conscious of the 9 strength of opinion, that exists in the municipal sector, 10 that although not perfect, the model for Ontario, is best 11 suited to the needs of Ontario. 12 We were even cautioned, on occasion, that if 13 we were to make recommendations that were deemed to be 14 excessive in their intrusion into that model, that we would 15 be viewed as trying to thwart in some way, the democratic 16 process, or we'd meet a very minimum resistance from folks. 17 That being said, it was still our view that 18 the City as big and as complex and as large as it is, in the 19 sort of, budget and personnel and fields of responsibility 20 sense, and the size of the Council, that some kind of 21 structural recommendation would be required. 22 Although as I'll go into later on, we were 23 very cautious to try and maintain the balance between -- kind 24 of a nice balance of power, between the individual right to 25 participate in the decision making process and the need for

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1 some kind of streamlining and organization of the decision 2 making process, and focussing on strategic agendas. 3 So, we tried to achieve a balance there and I 4 hope -- I hope that we've been able to do that. 5 I guess there were probably six (6) or seven 6 (7) things we hoped overall we could achieve in the 7 governance recommendations or suggestions for consideration 8 by the Commission. 9 One (1) is that we would strengthen the 10 political and the bureaucratic leadership with respect to 11 both the Council and to the staff; that we'd make clear 12 through the process of strategy development what the 13 direction was to the staff, so that they could begin to 14 undertake the responsibilities to deliver the intent of the 15 policy, with assurance that they were on the right, sort of, 16 track. 17 We saw a strengthened role for Council in -- 18 in participating in the development of the strategy for the 19 City, up to and including engaging the -- the public, with 20 respect to their views about particular policy, pieces of 21 particular strategies, and we thought there was need to 22 clarify the roles and responsibilities between the elected 23 official and those that serve them, so that each would 24 understand the -- where one role begins and the other -- and 25 the other ends.

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  1                 There's a large and very effective public
  2  service in the City of Toronto, we wanted to find ways to
  3  maximize the use of -- maximize the benefits of the public
  4  service and we saw delegations being a -- an enormous piece
  5  of that.
  6                 There was a hope that we could restore some
  7  professionalism and respect between the politicians and the
  8  public servants in the City, because it had been strained, I
  9  think, in the last little while, and we wanted to create a
 10  capacity for the City to develop and sustain a new sort of
 11  set of operating values and principles.
 12                 So, those were the overall kind of outcomes
 13  that -- that we wanted to achieve.  If --
 14                 MR. DAVID BUTT:  So, again, given those core
 15  values that you were looking to achieve in your
 16  recommendations, what -- what areas did you practically
 17  address in terms of your suggestions?
 18                 MS. VALERIE GIBBONS:  All right, in the -- in
 19  the interests of time, let me -- can I touch on three (3)
 20  first, and then --
 21                 MR. DAVID BUTT:  Sure.
 22                 MS. VALERIE GIBBONS:  -- show me where you
 23  want to go from there.
 24                 The first one (1) is roles and
 25  responsibilities.  We interviewed probably thirty-five (35)

156
  1  individuals for this particular piece of the -- of the work
  2  that we were doing, and the first question that we asked all
  3  of them was in your mind, for a well functioning Municipality
  4  to exist, what are the three (3) pre-conditions?  
  5                 The first one (1) was always clear roles and
  6  responsibilities between the elected officials and the -- and
  7  the public servants; that was echoed in the research, Sam
  8  will remind me of the name, is it George Cuff?
  9                 MR. SAM GOODWIN:  George Cuff.
 10                 MS. VALERIE GIBBONS:  George Cuff, who says
 11  that this is the single most thorny issue that exists between
 12  the public servants and the -- those elected to govern -- 
 13                 MADAM COMMISSIONER:  Can we just have a
 14  spelling of that name please, for the Court Reporter?
 15                 MR. SAM GOODWIN:  C-U-F-F.
 16                 MS. VALERIE GIBBONS:  So, people recognize
 17  that this is a -- is a -- an ongoing issue at the Municipal
 18  level, it's also an ongoing issue in the not -- not for
 19  profit sector, where boards and their Executive Directors and
 20  senior staff often enter into very tough times because they
 21  can't get clear on who's running the organization and -- and
 22  who's setting the policy direction.
 23                 So, we've suggested that for the City of
 24  Toronto, time would be well spent if the senior officials and
 25  the -- and the elected officials spent some time together,

157
  1  again in the forum that uses case examples to explore where
  2  does my role end and where does your role begin?
  3                 As a way of trying to enf -- reinforce, that
  4  the elected officials role in our view, is to govern, and the
  5  role of the public servant is to give -- give non-partisan
  6  public service advice, with respect to the decisions that are
  7  required, and once the decisions have been taken, then to
  8  deliver those goods as best they can, and to manage the
  9  results and to be able to report back in an accountable way
 10  to the Council that they've been able to achieve what it is
 11  the policy intent is.
 12                 MR. DAVID BUTT:  Yeah.
 13                 MS. VALERIE GIBBONS:  So, that was the first
 14  thing, and -- 
 15                 MR. SAM GOODWIN:  And I think we suggested
 16  also that in -- Council has a policy of regularly conducting
 17  Government's reviews, and this is -- you know, this -- for
 18  our perspective, from the literature's perspective is such a
 19  central issue in terms of effective governance of any board,
 20  that the roles and responsibility should be an ongoing part
 21  of governance reviews as well.
 22                 MS. VALERIE GIBBONS:  We also in -- in this
 23  section, suggested that the CAO be accountable to ensure that
 24  the public servants not only understand, but are reflecting
 25  the new behaviours, and -- and not playing fast and loose

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  1  with what has been decided on, and that the Mayor assume a
  2  much more strengthened role with regard to the Council, and
  3  trying to ensure that the -- the Councillors are -- are in
  4  fact playing according to the rules.
  5                 MR. DAVID BUTT:  So, that's the -- the roles
  6  and responsibilities area.  And if I could just ask one (1)
  7  question that's premised on some discussion that we had
  8  yesterday with -- with Ms. Hoy.  
  9                 Hearing you, Ms. Gibbons, to define the -- the
 10  role of the public servants as to provide the advice and then
 11  execute.  The question that I had for Ms. Hoy yesterday, and
 12  I can appreciate your -- both yours and Mr. Goodwin's
 13  thoughts on is; is it appropriate for a senior manager in the
 14  public service to be -- to be visionary in terms of the
 15  policies and priorities that the politicians ought to --
 16  ought to follow through with?
 17                 MS. VALERIE GIBBONS:   I view it as the role
 18  of the public servant to be as progressive as they can with
 19  respect to providing good public policy advice backed up with
 20  good factual information.
 21                 That being said, elected officials not
 22  infrequently say, we thank you for the advice but I didn't
 23  ask the question or, alternatively, they say, thank you for
 24  the advice and we're not going to take it, we're going to do
 25  this instead.

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1 And at that point you have an opportunity to 2 say, can I just have a few minutes to -- to go back at what I 3 think the implications of not -- of moving forward in that 4 direction will be, in which case you're allowed that time, 5 and then, unfortunately, if the decision's taken that you 6 don't think it is in the public interest you're still seized 7 of the responsibility to get it done or you resign. 8 MR. DAVID BUTT: Right. 9 MS. VALERIE GIBBONS: Not -- not an avenue I 10 recommend, but sometimes it needs to happen. 11 MR. DAVID BUTT: Okay, so then beyond roles 12 and responsibilities what are some of the other key areas 13 that you looked at in terms of suggestions in municipal 14 governance. 15 MS. VALERIE GIBBONS: Delegation was a -- was 16 a big issue. We found that in our -- and, Sam, you pop in 17 any old time, we -- we found out in our -- in our discussions 18 with folks, there's a wide variation in the understanding 19 with respect to what is permissible to delegate and what is 20 not permissible to delegate. 21 And that in some municipalities there is 22 extensive delegation to -- to do a range of things and in 23 some municipalities there just is not. And it has as much to 24 do with the culture of the organization as anything. 25 So we made the general recommendation of the

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1 community of municipalities might get together and begin to 2 explore and come to some sort of common understanding about 3 what is and what is not permissible under the Act. 4 But we had no intention to suggest that every 5 municipality should do it the same way, but armed with the 6 standard -- the standard understanding, the common 7 understanding, each municipality could decide within its own 8 context whether it was going to take the full extent of 9 delegations permissible or to -- or to hold back just a 10 little and -- and not give a full sense of delegation. 11 We suggested, as well, that for -- once this 12 baseline has been formed, this common understanding was put 13 in place, that Council asks CAO to come forward with -- with 14 a sense of how one might rethink and revisit and revise the 15 existing delegations at the City. 16 We took as a starting point for this the 17 position that rather than deciding what they wanted to 18 delegate, they should take the position -- Council should 19 take the position of what they could not delegate because it 20 would call -- put more risk into the situation than they 21 wanted to, it would be bad fiscal implications or it would 22 be, I think, legal or strategic implications. 23 So, fewer rather than more things that they 24 would retain for themselves because they -- they could not 25 delegate them and on the issue of delegation, to delegate to

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1 the lowest extent possible in the organization to staff. And 2 commensurate, of course, with the risk implicit in that 3 delegation. 4 So, with those two (2) things as a backdrop, 5 suggestion to -- to the Commission for Council, down the road 6 some point to consider, we think they might get a nice 7 balance of levels of delegation. 8 MR. DAVID BUTT: And moving beyond 9 delegation, any structural suggestions that you looked at? 10 MS. VALERIE GIBBONS: Yeah, the Executive 11 Committee is the only structural recommendation that we made. 12 It has impacts for other committees but -- but it is the 13 biggest one and the one around which there was most debate. 14 And, as I said earlier, it is -- it was -- 15 felt very important by us, and those we talked to, that we 16 maintain the sense of balance of power somewhere in here. So 17 that we -- we did not give to Executive Committee the power 18 just to take independent unilateral decisions. 19 We rather said, they should assume 20 responsibility for strategic direction for the City overall 21 and for strategic direction with respect to major corporate 22 policies. So, Finance, Human Resources, Information, 23 Information Technology, legal kinds of issues, asset 24 management perhaps. The big pieces, that they should have 25 strategic responsibility for coming up with the plan; of

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1 course, supported by the public service to get that done. 2 But that they would recommend those to Council 3 as opposed to having the power to actually take those 4 decisions; it's that balance. And we suggested as well that 5 major efforts be made to involve the committees, therefore 6 members of council, and the community councils and, through 7 their councillors, to the citizens to get the broadest input 8 possible, so that everybody would feel that they had a voice 9 at the table, if not actually at the Executive Committee. 10 We suggested the Mayor chair the committee, 11 that the striking committee make the determination with 12 respect to the four (4) -- we said ten (10) members there -- 13 was that our numbers? 14 MR. SAM GOODWIN: No, nine (9) -- the Striking 15 Committee would continue to recommend the chairs of the 16 standing committees, and then an additional number of members 17 for the Executive Committee. 18 We've given as an example, four (4), but, 19 basic principal was an odd numbered executive committee with 20 the Mayor, standing committee chairs and some other 21 Councillors. 22 MS. VALERIE GIBBONS: So that in the process 23 of establishing the committee to try and maintain the 24 principle that many of the municipal officials say the 25 Councillors value, and that is, the broadest opportunity to

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1 have their voice, on behalf of their constituents, at the 2 table. 3 It's also important to note, that the new 4 Municipal Act, does say to Councils, that they have a job 5 broader than just representation of their own Council, their 6 own constituency, but, they have a responsibility to speak 7 and work on behalf of the City, as a whole. 8 But, I think it's critical that the municipal 9 sector to find a way to have greatest participation possible 10 in arriving at a set of recommended strategic directions. 11 MR. DAVID BUTT: I've heard, of course, very 12 well articulated in terms of maintaining the respect for the 13 traditions of municipal government as it's currently 14 structured. 15 And in terms of moving to an executive 16 committee suggesting a different structure, what are the 17 benefits that that structure would or could provide? 18 MS. VALERIE GIBBONS: Well, it allows, we 19 believe, for a more streamlined approach to decision making, 20 a clearer focus and an accountability for developing the 21 strategic context within which the rest of the decisions of 22 the standing committees and the work of the public service 23 will be undertaken. 24 As it stands now, it is quite diffuse, and if 25 the executive committee is in addition to setting the

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1 strategic direction, held accountable, as we've suggested, a 2 report to the public, on the extent to which they're making 3 progress against the strategic agendas, and there is an added 4 strength in the role that would require real commitment from 5 the membership. 6 MR. SAM GOODWIN: As well as being the primary 7 interface between Council and the administration. So there's 8 much more focus on that role, consistent, we talked earlier 9 about roles and responsibilities. 10 So coming out of that roles and 11 responsibilities review and the discussion of different 12 delegations, a way to -- a different structural way to focus 13 that relationship. 14 MR. DAVID BUTT: If I could move now, 15 recognizing that of course, there are many more very helpful 16 and important recommendations in the governance piece, but, 17 having hit some of those highlights, if I could perhaps 18 address the issue of procurement. 19 And first of all, again this work being 20 perhaps a little more nuts and bolts area of operation. Did 21 you draw on City work and City documentation that pre-existed 22 your efforts? 23 MR. SAM GOODWIN: Absolutely. This one (1) 24 was quite interesting, because obviously the Auditor General 25 had done a fairly extensive, a very extensive review, over a

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1 lengthy period of time and had looked at the organization in 2 far more detail than we were going to be able to. 3 I think our challenge was to find the right 4 points to -- the key points to reinforce, in terms of the 5 Auditor's recommendations; they were very well made, it's a 6 good piece of work, and also to look in terms of other 7 jurisdictions, where we might supplement those. 8 MR. DAVID BUTT: And having done that, 9 supplementary kind of task as you've described it, what are 10 you able to offer by way of suggestions for discussion? 11 MR. SAM GOODWIN: Well, these are very much 12 ways to improve what the City has in place, again, 13 procurement is quite different among all of these subject 14 matters in -- the level of professionalism in terms of 15 concept and theory that exists out there in a recognized body 16 of professional knowledge. 17 So, the first area was values, what we call 18 values based procurement and this was very much just, in 19 effect, ramping up to the discussion of procurement values. 20 We looked at best practices organizations and 21 we saw organizations that had extensive, ongoing, extensive 22 discussion within their organizations of procurement ethics 23 that was incorporated in training. 24 It was incorporated in Codes of Conduct, case 25 study examples, check lists. It really infused how their

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1 policy approaches and I think what we found with the City, is 2 although they're -- the policies that are a general 3 reflection of procurement ethics, compared to some other 4 jurisdictions there was -- we felt there was more that could 5 be done, from a best practises point of view, in this area. 6 We also looked at decentral -- more 7 decentralized accountability, and I guess we framed it in a 8 report for the City as a Government as large as it is, has a 9 highly centralized -- highly centralized procurement function 10 that we think made obvious sense in the context of 11 amalgamation. 12 But with the kinds of controls and other 13 measures that we're recommending -- suggesting in our report, 14 that -- that we could have training, an oversight role of the 15 -- of the Purchasing Materials Management Division, those 16 kinds of things, we believe that something, again from a best 17 practises point of view, that gave greater delegation to the 18 line areas to conduct their own procurement, something to a 19 certain dollar value, consistent with policies, trained, 20 accredited staff, all of those kinds of things would make 21 more sense as the -- as the procurement function in the City 22 continues to mature. 23 MR. DAVID BUTT: And if I -- if I could just 24 pause there and ask a couple of questions on that. In -- in 25 practical terms then, is it -- am I capturing your thoughts

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1 accurately to suggest that the Department of Works, for 2 example, is the only City department that uses snowploughs, 3 so it would be appropriate for that department to be engaged 4 quite heavily in -- in the procurement of that kind of 5 equipment that they use; is that -- 6 MR. SAM GOODWIN: Yeah, it's -- there's -- 7 there are two (2) issues combined in this that it's important 8 to distinguish, one (1) is the -- I'm sorry, this is a very 9 nuts and bolts issue, you're quite right, but departmental 10 purchase orders is the first thing I think we talked about in 11 the report, and in fact, the -- the issue for us with the 12 City was less the fact that it was set at seventy-five 13 hundred dollars ($7,500), which is quite reasonable in the 14 context of other Municipalities across Canada and North 15 America. 16 It was that by practice, as opposed to by 17 policy, most procurements or the vast majority of 18 procurements above that amount are full competitive sealed 19 bid processes, so quite extensive request for, you know, 20 tender documents, it's -- it's expensive for the staff, it's 21 expensive for the organizations. And most organizations we 22 looked at recognized that that does not provide value added 23 -- or value for money for taxpayers or organizations. 24 MS. VALERIE GIBBONS: And it's onerous for the 25 private sector.

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1 MR. SAM GOODWIN: Absolutely. So you see 2 levels ranging from twenty (20), twenty-five (25), thirty 3 (30), thirty-five thousand (35,000), below that the 4 expectation that elected officials have of their public 5 servants is that they will use what we call an informal 6 process, three (3) quotes. 7 It's still -- still document and still within 8 rules, but much less structured than a full sealed 9 competitive bid process. 10 So, we're suggesting -- that's the first 11 change we're suggesting was that whether the City 12 decentralized or didn't decentralize, it should be getting 13 better value for money on that level, and then consistent 14 with that, we -- you could take a variety of figures, our 15 sense was a hundred thousand dollars ($100,000) was certainly 16 consistent with what we saw in other jurisdictions. 17 For purchases below a hundred thousand dollars 18 ($100,000), the process, whether it was going to be a three 19 (3) quote process, or a full competitive sealed bid process, 20 could be effectively managed, and is effectively managed in 21 any organizations within the line department. 22 Again, in the context of clear corporate 23 policies, training, handbooks, manuals, guidance, checklists, 24 all of those kinds of things, from a quality assurance point 25 of view.

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1 MR. DAVID BUTT: That -- that would be the 2 case though, with assets that were unique to that line 3 department? 4 MR. SAM GOODWIN: Yes, that would be -- that's 5 right -- 6 MR. DAVID BUTT: I'm asking you? 7 MR. SAM GOODWIN: -- that department's 8 purchasing, it would take care of its own purchasing needs up 9 to a -- a preset spending limit. 10 MR. DAVID BUTT: So, if there are assets that 11 are used on a corporate wide basis, then even though like the 12 contract might be within say a hundred thousand dollar 13 ($100,000) limit there might also be -- otherwise be in a 14 line department, what are you suggesting for those assets 15 that are used across the board? 16 MR. SAM GOODWIN: Certainly the -- the notion 17 of Vendors of Records, blanket contracts, all of things, 18 that's been very important, it's well documented in the 19 literature on procurement. I think as the Auditor General 20 pointed out, there's an opportunity for better coordination 21 there, from a record keeping and tracking point of view, 22 between and among departments. 23 We didn't feel the need to replicate that 24 recommendation in a sense, but absolutely it's a -- the 25 demonstrated success of -- of blanket contracts, Vendors of

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1 Records, standing agreements is -- is well documented. 2 MR. DAVID BUTT: Thank you, and -- and then 3 just to move on to the next principle aspect. 4 MR. SAM GOODWIN: There were a couple of other 5 aspects, official -- what we called official contact point in 6 a true competitive process. 7 I think as we looked at other jurisdictions it 8 was very clear among procurement professionals, so clear that 9 in some jurisdictions they don't even both to incorporate 10 this in a policy, because it is -- it is so embedded in their 11 operating culture, but that the procurement process should 12 have an official point of contact, that is the -- the 13 individual that vendors, wishing to bid or are in the process 14 of bidding on a contract, or with concerns, would contact 15 initially and I think we gave some parameters for that -- 16 for that official point of contact. 17 In some organizations that official client 18 contact actually begins for certain types of procurements 19 before a bid release request document is -- is released to 20 the public, but the principal here is -- is fairness and 21 equity and openness so that everyone understands about the 22 process. Everyone has the same right of access and everyone 23 has, in fact, the same access. 24 And, again, when you look at other 25 organizations, organizations across various jurisdictions, I

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1 think we recommended that official point of contact be in 2 place right up until the point that an award is made. 3 MS. VALERIE GIBBONS: And the official point 4 of contact applies to elected and non-elected officials as 5 well. 6 MR. SAM GOODWIN: I think so. 7 MR. DAVID BUTT: So that would mean that 8 contact with the elected officials -- 9 MS. VALERIE GIBBONS: Be prohibited. 10 MR. DAVID BUTT: -- prohibited during that -- 11 MR. SAM GOODWIN: Yeah, and this ties very 12 much into our lobbying recommendations; this would mean that 13 while -- while a procurement is underway there should, in 14 fact, be no lobbying of elected officials. There should be 15 no -- again, if you look at different jurisdictions and there 16 are -- these are often extremely explicit. 17 There shall be no contact other than the 18 contact with the designated person and they're often very 19 specific to say this -- this definitely includes Ministers 20 and Minister's staff, for example. 21 MS. VALERIE GIBBONS: And if you do you will 22 be disqualified. 23 MR. SAM GOODWIN: Yeah. You risk being 24 disqualified for this, so. 25 MS. LINDA ROTHSTEIN: And, Mr. Goodwin, just

172
  1  on that point, if you don't mind, Mr. Butt, what about in the
  2  lead up to the procurement?  The, sort of, period when
  3  everyone knows there's likely to be one, what was your sense
  4  of the extent to which politicians should have or be
  5  permitted to have any role in the procurement process at that
  6  stage? 
  7                 MR. SAM GOODWIN:   Well, it -- in a best
  8  practices jurisdiction, you would say, it varies depending on
  9  the procurement and, again, back to our discussion of the
 10  lobbying.  It's really less about what the lobbyist does and
 11  more what the organization decides is appropriate for it in
 12  terms of responding to that lobbying.
 13                 I think it, with more substantial
 14  procurements, more complex ones, you know, there's usually a
 15  long process, six (6) months or a year, of engagement with
 16  the private sector in progressive degrees of formality.
 17                 I think most public servants involved in
 18  procurement understand that once you're getting, say, within
 19  the six (6) month period, once you're thinking about putting
 20  together a request for information or you're at the draft RFP
 21  stage, the public service is really starting to scale back on
 22  its contacts, informal contacts. 
 23                 MS. VALERIE GIBBONS:   Heavy involvement in a
 24  specification piece of the process and then if that's done
 25  right and it's done openly and transparently and everybody

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1 has an opportunity to get their kicks at the can about what 2 they think the solution to the problem might be; if that's 3 done right, I don't think there would be much benefit to 4 lobbying at that particular point, but once the 5 specifications are decided upon and enshrined in an RFP and 6 on the street, definitely, from that point forward, no. 7 MR. DAVID BUTT: Can I ask this question, it 8 touches a little bit on -- on lobbying but really in the 9 context of procurement, Erik Peters, the former Provincial 10 Auditor -- 11 MS. VALERIE GIBBONS: Know him well. 12 MR. DAVID BUTT: Yes, spoke to us this 13 morning and suggested that in a commercial context there's -- 14 there's no role for any contact at any time with -- by 15 lobbyists or with government officials, be they elected or -- 16 or staff; did you have comments on that -- on that view? 17 MR. SAM GOODWIN: Well, as we talk to 18 different jurisdictions the opinion on this varies. There 19 are councillors who maintain a right of access by anyone at 20 any time, procurement or not. There are Councils and 21 Councillors who say, you know, don't come and talk to us 22 because we won't talk to you. Go see our officials, that's 23 our standard response, we've responded that way for fifteen 24 (15) or twenty (20) years. It's -- 25 MS. VALERIE GIBBONS: But in many ways, the

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1 lobbyist organizations are part of the development process so 2 that as deputy it would -- or as ADM or CAO, it would not be 3 uncommon to have a problem you were dealing with that had to 4 do with, well, Fisheries or Wildlife or whatever that you 5 want to make sure that there was a fully and open debate 6 about the issue. You heard people out with respective 7 solutions possible. 8 Everybody had a chance to -- to have their 9 input to the public policy discussion. You don't want -- just 10 because it's a -- because we technically call people 11 lobbyists, it doesn't make them bad. The Association of 12 Children's Aid Society is a lobby group. 13 And, frankly, the Ministry of Community and 14 Social Services works very closely with that organization to 15 make sure that the -- the views of the membership are well 16 represented as policies are beginning to be put forward. 17 If -- if, for no other reason than to be able 18 to say that the Minister of the day, they're going to hate 19 this when we do it. I mean, let's say you have a kind of 20 advanced warning or to say, we seem to have a quorum in here 21 with respect to what it is we were trying to accomplish. 22 MR. DAVID BUTT: In purely commercial terms 23 though, if you have the policies and structures in place, 24 your procurement process is professional. It is clear you 25 have single points of contact. You have a structured,

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1 neutral, fair, open and accessible complaints process. The 2 -- and it's very clear in the budgets that things are 3 approved. You could argue that, no, there really isn't a 4 place for lobbying when you have all of those things in 5 place. 6 MR. DAVID BUTT: And -- and -- to be fair -- 7 MR. SAM GOODWIN: On the commercial side. 8 MR. DAVID BUTT: -- to be fair to Mr. Peters, 9 he did make a similar point to what you made, Ms. Gibbons, in 10 the sense that, those groups who are acting in the public 11 interest, have a different role to play than -- than, as you 12 say, Mr. Goodwin, a purely commercial context. 13 MS. VALERIE GIBBONS: I think, -- Sam, you can 14 remind me if I get this wrong, but, in the -- in the lobbying 15 report, we spent not very much time dealing with the European 16 community, because the European community has had a long 17 standing very tight and perspective approach to policy 18 development that by definition, involved everybody. 19 So, their sense of needing to have a lobby reg 20 -- registry system; was we don't need one, because we're open 21 and -- open and engaged all the time. In cultures where it's 22 like that, I would imagine, you know, there would be less 23 need, but, not all cultures are the same. 24 MR. SAM GOODWIN: No, and you're certainly 25 seeing in the literature on the European community increasing

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1 concerns -- 2 MS. VALERIE GIBBONS: That's right, yes. 3 MR. SAM GOODWIN: -- I think it's kind of like 4 Canada twenty (20) years ago. We said we didn't need a 5 lobbyist registry. That was just the US, and I think we're 6 seeing a much more open acknowledgment of the fact, that 7 lobbying can be very intensive in Canada; maybe not on the 8 same scale as in the US, but -- but still quite intensive. 9 MR. DAVID BUTT: And -- and is that consistent 10 with the feedback you're getting, in terms of your research 11 that that's happening at the Municipal level, as well, as -- 12 MR. SAM GOODWIN: It -- it depends on the 13 municipality. I mean we asked different municipalities, and 14 I think as we suggest in our report, some municipalities have 15 much more lobbying as a -- as an activity than others. 16 And as we're quite blunt to say, that has as 17 much to do with how that jurisdiction defines what's 18 acceptable, as opposed to the lobbyists themselves. 19 I think as a politician would say, if I'm 20 accessible to lobbyists, I'm going to get more lobbying. If 21 I'm not making myself accessible to lobbyists, you know, the 22 -- the impact on the profession is -- is fairly clear. 23 MS. VALERIE GIBBONS: It's safe to say some 24 municipalities said, it just didn't happen. 25 MR. SAM GOODWIN: Yeah --

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1 MS. VALERIE GIBBONS: We don't encourage it. 2 MR. SAM GOODWIN: -- it's not part of the -- 3 MS. VALERIE GIBBONS: It's not part of the 4 procurement process. 5 MR. SAM GOODWIN: -- of something they accept. 6 MR. DAVID BUTT: Could I ask you then about 7 complaints procedures -- 8 MR. SAM GOODWIN: Yes -- 9 MR. DAVID BUTT: -- that's another area -- 10 MR. SAM GOODWIN: -- that's another in the 11 procurement. Yes, I think, the issue here was again from a 12 best practices point of view, you're looking for a well 13 documented, well established complaints process that is 14 neutral, that is fair and accessible, that focuses on the 15 merits of the proposal in question. 16 This isn't a matter of rethinking the -- the 17 whole competition and we recommended a two (2) stage process 18 in the City that we thought would be effective in this 19 particular context. 20 The first, and again, this is not particularly 21 ground breaking, but, first level would be a neutral panel of 22 public servants and again the focus is on the -- the merits 23 of the complainant specifically. And then we recommend our 24 second level of panel. We -- we suggest in our report that 25 that be at the Auditor General's office because we saw that

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1 as a -- as an indication of independence and integrity, and 2 we thought that that - I mean this represents a fairly 3 significant change in approach for the City of Toronto - and 4 we thought that using the Auditor General might make it a -- 5 a more acceptable suggestion for the City; but, very much 6 these are professional, neutral, focussed on the merits. 7 This is not a case, I think, we -- we again 8 fairly blunt, this is not a case of unsuccessful bidders or 9 successful bidders, coming to argue. We're suggesting that 10 this is not a case where elected officials would advocate on 11 behalf of bidders. 12 The principal fairness and equity, means that 13 everyone must have the same treatment and most jurisdictions 14 interpret that to mean, in fact, that they won't be -- they 15 won't be lobbied during the complaint process, as opposed to 16 the -- as opposed to the reverse being the case. 17 MS. VALERIE GIBBONS: The Auditor's office 18 has a skill set, as well, though that is accustom to 19 evaluating process and product quality and knows how to 20 dissect something to be assured that proper care has been 21 taken. 22 So it's an appropriate skill set to handle the 23 complaints procedure, we felt, as well. 24 MR. DAVID BUTT: And -- and what's -- what's 25 the alternative that you're seeking to replace? Perhaps the

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1 less desirable alternative that you're seeking to replace in 2 -- in a context like this? 3 MR. SAM GOODWIN: Well, as we understood from 4 our interviews, the process at the City, is not particularly 5 well documented and it takes place at the Standing Committee 6 for the most part, or it often in, as -- as reported to us in 7 Council debates. 8 A complaint can come by via a variety of 9 formats. A Councillor can stand up in Council and 10 effectively blind side the staff, raising a concern about a 11 procurement -- apparently phrased in a very neutral way, but, 12 effectively representing a constituents concerns, though not 13 necessarily declaring that. 14 At the Standing Committee level, it's been 15 reported to us, you will have lobbyists -- vendors and 16 lobbyists arguing with each other, in front of the Standing 17 Committee. 18 Councillors actually appearing at a standing 19 committee advocating on behalf of a lobbyist. Again from 20 when you speak to procurement professionals, this is -- this 21 is not consistent with best practice, I think it's fair to 22 say. 23 MS. VALERIE GIBBONS: Is it a bad practice? 24 MR. SAM GOODWIN: It would be a bad practice. 25 MR. DAVID BUTT: You -- you made a

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  1  recommendation with respect to a Fairness Commissioner in the
  2  procurement process.  Could you tell us a little bit about
  3  what -- what role a Fairness Commissioner might play?
  4                 MR. SAM GOODWIN:  Yeah, Fairness
  5  Commissioners, I mean this is touched on in the Auditor
  6  General's report as well; they're a very standard feature of
  7  complex procurements now, and I think they're -- they're
  8  important from two (2) perspectives, and one (1) they're an
  9  outward message. 
 10                 And let me start with the inside, this is --
 11  this is very helpful tool for organizations to ensure that
 12  their -- their practises -- practises and the -- and the
 13  process in place for a particular procurement are done fully
 14  in accordance with policy, and that's also an opportunity to
 15  learn through each process; externally it's a very important
 16  outward symbol of fairness.  
 17                 I think as we spoke to people in the private
 18  sector, it was reinforce for us, that having a neutral third
 19  party oversight of -- when -- when the private sector knows a
 20  Fairness Commissioner is in place, their confidence level
 21  generally goes up in terms of fairness of the process.
 22                 And I think given the -- given what we saw
 23  with the City in the absence of this, we felt that Fairness
 24  Commissioners could be used as a way to infuse -- to assure
 25  Council that the process was fair, and to assure vendors as

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1 well, that the process was fair. 2 MS. VALERIE GIBBONS: And they're also expert 3 in the area of -- of procurement, so they bring tools to the 4 -- to the various pieces of the -- of the other procurement 5 process that would -- would ask the kinds of questions that 6 would enable the staff to determine right up front, do we 7 have the specifications right, are we clear that we have the 8 authority required to do this? Is there approval on the 9 budget -- 10 MR. SAM GOODWIN: Is there anything embedded 11 in our evaluation criteria that we do not realize -- 12 MS. VALERIE GIBBONS: Yes. 13 MR. SAM GOODWIN: -- would actually give 14 weight to one (1) type of respondent or another; so very 15 useful in that regard. 16 MS. VALERIE GIBBONS: So, you'll be talking to 17 Howard Grant, I believe, with respect to that, if you were to 18 ask Mr. Grant to bring the volumes that he's got that 19 describe good practises with respect to various aspects of 20 the procurement process, the ma -- you know, I'm sure they 21 wouldn't be that high for tools for people to use as you're 22 beginning to think about a procurement of this kind or that 23 kind. 24 MR. SAM GOODWIN: I think our main conclusion 25 here was -- was, go ahead and do it. Our sense was, as I

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1 said -- I think we said in our report, this is not a whether 2 to do it, it's a -- it's a get on and do it. We didn't think 3 it was an issue that was particularly bedded -- embedded with 4 public policy dimensions, and in general it's a fairly 5 administrative activity that -- that you would expect could 6 be easily implemented. 7 MR. DAVID BUTT: I'd just like to ask a 8 question that harkens back to your -- your research methods. 9 You mentioned just a short time ago that from the private 10 sector perspective, the confidence level goes up by virtue of 11 the existence -- the mere existence of a -- a Fairness 12 Commissioner, and -- and again, is that -- that consistent 13 with your earlier methods or the preponderance of view in 14 your -- 15 MR. SAM GOODWIN: Oh, I think so -- 16 MR. DAVID BUTT: -- discussions with the -- 17 MR. SAM GOODWIN: -- it's also documented in 18 the literature as well. And you could find that in 19 discussions of roles -- and most people who talk about a role 20 of a Fairness Commissioner, that's -- that's one (1) of the 21 -- the generally recognized benefits. 22 MR. DAVID BUTT: Okay. If -- if I could ask 23 you just before we leave procurement, to talk briefly about 24 your suggestion around best and final offer, and it's an 25 unfamiliar term to me. Could you -- could you help us with

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  1  that please?
  2                 MR. SAM GOODWIN:  Well, it was unfamiliar to
  3  us as well, and as we looked for it across North America. 
  4  It's a practice that has not been widely established in
  5  Canada, but is extensively used in the United States.  
  6                 I think as we -- we tried to suggest in the
  7  report, and it's well documented in the literature on
  8  procurement, part of the difficulty of  -- of traditional,
  9  what we call one (1) shot procurement process, where you --
 10  you know, there's your bid request, you respond to it.  
 11                 We can't talk to you about it, and we'll rank
 12  you, is that people don't always get it right, and they don't
 13  always get it on both sides.  
 14                 The -- the private sector, notwithstanding
 15  what process you put in place before the request document
 16  goes out to engage the private sector, they don't always know
 17  exactly what, as a public servant you're thinking, and public
 18  servants frankly, don't always get it right either. 
 19  Sometimes there'll be a suggestion that part --
 20  implementation has been over scheduled, they've under
 21  estimated the cost.  So, this is effectively a two (2) stage
 22  process.  
 23                 It is a -- it would be, for many procurement
 24  professionals, kind of mid-career in Canada, this might be a
 25  bit of a surprise, but as we talked to officials in other

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1 jurisdictions they would absolutely swear by it as an 2 extremely effective two (2) stage process that allows you to 3 get at the limitations. 4 So that you go through -- the first stage it 5 looks very much as a traditional RFP or a -- or tender or 6 request for quotes and then either a top bidder or a small 7 group of -- of top bidders are identified; effectively a 8 shortlist, and certain aspects, it's usually some variation 9 of cost and quality, you go back to the bidders and say, 10 would you like a to -- an opportunity to -- to effectively 11 sharpen your bid in those areas? 12 Everyone is given the same opportunity. They 13 are -- you don't disclose between and among bidders and you 14 don't have to, effectively, submit a second bid, but US 15 jurisdictions that do this and, again, it is almost, as far 16 as we could tell, very many municipalities, states, federal 17 level, are quite passionate about the fact that this allows 18 them to achieve better technical -- better technical bids and 19 better pricing than they believe they otherwise would have 20 achieved. 21 MS. VALERIE GIBBONS: The only thing I would 22 add, Sam, is that if you're going to use the best and final 23 offer as a process, that you -- you notify the -- the bidding 24 community -- vendor community that this is going to be a 25 piece of the puzzle.

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  1                 MR. SAM GOODWIN:   Yes, that's -- that's very
  2  much stated up front in the -- in the particular procurement
  3  that we will be using a best and final offer process. 
  4                 MR. DAVID BUTT:   And it's obviously a much
  5  more involved process for everybody on both sides, so
  6  presumably there'd be a threshold beneath which you wouldn't
  7  particular want to engage in that much effort. 
  8                 MR. SAM GOODWIN:   Well, as -- as we learned
  9  from looking at other jurisdictions, not necessarily so.  It
 10  doesn't have to be large and complicated.  You can, in fact,
 11  do it on commodity purchases.  
 12                 You've received ten (10) bids and you take the
 13  top three (3) and you say, is that, in fact, your best and
 14  final offer or do you want to sharp it a little bit.  So, in
 15  some jurisdictions they would, say, use it on large, small,
 16  complex, simple. 
 17                 MS. VALERIE GIBBONS:   It's not in use
 18  significantly in the public sector anywhere in Canada.  We
 19  understand that in the private sector in Canada it is used
 20  and Michael Asner, if he comes, is -- is a person, I think,
 21  who has experience in this area in America and in -- and in
 22  Canada. 
 23                 MR. DAVID BUTT:   If I could move now to the
 24  -- to the final area which is Conflict of Interest.  And,
 25  again, this -- this built on work product that you reviewed

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1 from the City of Toronto? 2 MS. VALERIE GIBBONS: This is another one of 3 those areas where the City has done a very good job and 4 they've produced policy and codes of conduct for the elected 5 officials and for the public servants. 6 They have a very good tool that helps 7 individuals sort out the appropriate responses to conflicts 8 of interest. So, the suggestions we make in this area tend 9 to be supp -- intend to -- intended to be supplementary 10 rather than, in any way, trying to say that what they have in 11 place isn't good. 12 There are probably two (2) major ones. The 13 first has to do with disclosure and we -- we felt that 14 because Toronto was the, as they tell us often, the sixth 15 biggest government in North America, it is -- it is in many 16 ways like a federal or -- fifth, thank you, Commissioner. 17 It is the fifth biggest -- that in many ways 18 the conflict of interest policies that are applicable at the 19 Provincial and the Federal level should apply at the 20 Municipal level in Toronto and that we that we would suggest 21 that a -- that confidential discos -- disclosure of assets 22 and contingent liabilities for the elected officials to an 23 integrity commissioner should be -- should be considered by 24 the Commission as something they might want to recommend to 25 -- to the City.

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  1                 And that we similarly adopt a disclosure of
  2  Conflict of Interest, as well -- disclosure of assets for the
  3  public servant at the very senior levels because of the
  4  influential position that they find themselves in as -- as
  5  top senior bureaucrats and because they, themselves, have a
  6  commitment, we believe, to not only talking about but
  7  actually doing things that will reflect well on them as -- as
  8  individuals that hold, in higher standards, integrity and
  9  ethics as part of public service. 
 10                 MR. DAVID BUTT:   Beyond the -- the disclosure
 11  aspects then, do -- can you tell us about your suggestions
 12  around continuing or supplementing the City's efforts to
 13  build an ethical organization?
 14                 MS. VALERIE GIBBONS:   The City is working
 15  very hard at trying to, my word not theirs, revitalize, the
 16  public service from the point of view of commitment to values
 17  from a healthy organization and a -- an improved morale kind
 18  of an organization.
 19                 They've -- they've been under enormous stress
 20  as individuals over the last several years trying to cope
 21  with amalgamation and changing policies and -- and all the
 22  pressures of delivery.  So this -- Shirley and her senior
 23  people have begun an initiative to restore the health of the
 24  public service.
 25                 We have suggested that she -- that we create a

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  1  kind of, ethics centre of excellence in her office wherein
  2  would be housed, as one of the individuals, the -- the person
  3  that the public servant -- senior public servant would
  4  disclose confidentially to, with respect to assets and
  5  contingent liabilities.
  6                 But, that this organization would be seized of
  7  the responsibility to -- to develop a leading edge, kind of,
  8  training in ethics management program, where they'd embed in
  9  the whole organization and in everything they do
 10  operationally, in the sense that they -- they respect and
 11  value and reward behaviour of a -- of a high standard and
 12  ethical nature.
 13                 This, I think would enable the City to pull
 14  together as well, all of the various policies, that have
 15  conflict of interest implications.  Get them in one (1) spot
 16  as a tool for the organization to be able to go to and
 17  reflect.
 18                 At the moment, you've got bits and pieces
 19  embedded in Conflict of Interest policies, in procurement
 20  policies and recruitment policies and there really isn't a
 21  consolidated place where an individual can go and actually
 22  find out what's the relevant piece for me, in this particular
 23  -- in this particular area.
 24                 And finally, we've suggested that this
 25  organization might also has the hotline.  A hotline not to

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1 tattle on people, but, for individuals to call and say, I'm 2 in this situation, I don't really know if I'm in a conflict 3 of interest, I believe I may be; can you give me some advice. 4 And that's not to circumvent the process of 5 going to your immediate supervisor. It would still be that 6 you would have to go to your immediate supervisor and declare 7 to them, that you are in one (1), but sometimes when you're 8 exploring, whether or not, this is really an issue that you 9 should be worried about, you do need some specialized 10 guidance. 11 And -- and it gives you comfort, I think, to 12 know I don't need to, or I do need to, and then you can get 13 it into the appropriate chain for review and consideration. 14 Anything else Sam? 15 MR. SAM GOODWIN: I think we'd also 16 recommended that, really more of a secondary recommendation, 17 but, that Council and the senior administrative staff should 18 be meeting on a regular basis. 19 This is not a formal Council meeting, but, 20 again it's -- it's, if you look at the literature on 21 governance, this process of dialogue between the executives 22 and sort of the managers and the governors, is very, very 23 important. 24 And having the opportunity in an informal 25 basis, regularly to talk about ethics and Code of Conduct of

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1 issues, to explore case studies, it's -- in terms of building 2 cultures, it's that opportunity with an organization to have 3 -- to have open and frank discussion that allows people to 4 get their issues out on the table, to discuss their own 5 values and out of that -- that's the process by which 6 organizations come up with a consolidated -- consolidated 7 culture. 8 MS. VALERIE GIBBONS: There was just one (1) 9 tiny little mechanistic one (1), the -- on the gifts and 10 benefits. There seems to be lack of clarity as perceived by 11 many, with respect to that particular policy; what's 12 allowable and what's not allowable and it seems to hinge 13 around the value of what's allowable and what you need to do 14 if you get yourself in a situation where you can't avoid 15 taking something, because it would be unconscionable not to. 16 So there is -- the staff have done some good 17 work in this area, they have a, scripted nice piece of 18 policy, that could and should go forward for consideration by 19 the Council, it would be -- it would provide all the guidance 20 that's required, in that area. 21 MR. DAVID BUTT: Those are really the 22 highlights that I -- I intended to cover with you this -- 23 this afternoon. I don't have any more that I wanted to draw 24 from you in -- in particular. 25

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1 (BRIEF PAUSE) 2 3 MADAM COMMISSIONER: Ms. Rothstein, do you 4 have anything else? 5 MS. LINDA ROTHSTEIN: No, my client is very 6 grateful to the work that you've done. As you know, many 7 people at the City have read what you've done and many people 8 were tuned in today to hear your overview and really 9 appreciate the hard work and effort that you've brought to 10 this and given to the Commissioner in making her 11 recommendations. 12 So, thank you very much. 13 MS. VALERIE GIBBONS: We applaud them and -- 14 and their efforts, as well. 15 MADAM COMMISSIONER: Well, I would like to 16 thank you too, Ms. Gibbons and Mr. Goodwin, for -- for coming 17 today. You probably thought you'd already done all the work, 18 for goodness sakes, why did you have to come and tell us what 19 it was, but, I think for purposes of our transcript, and for 20 historical purposes, if nothing else, it certainly, having it 21 in a non -- one and half hour presentation, as opposed to 22 reading the tome of material that you've provided for us, 23 will make it a lot easier. 24 MS. VALERIE GIBBONS: You don't like watching 25 paint dry.

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1 MR. SAM GOODWIN: I was going to say, Madam 2 Commissioner, does this mean that people won't run out after 3 hearing this, to actually read the papers? 4 MADAM COMMISSIONER: Absolutely not, but, I 5 suspect that what will happen, is more people will find 6 themselves in the position to be able to read the whole thing 7 and also to get a highlight of what you're suggestions are. 8 And, I think, that from my perspective it's 9 certainly been very helpful to me and will continue to be 10 helpful to me in writing my report and preparing my 11 recommendations. 12 So, thank you both very much. 13 MR. SAM GOODWIN: Thank you. 14 MS. VALERIE GIBBONS: Thank you. 15 MADAM COMMISSIONER: And so tomorrow we start 16 at ten o'clock with Mr. Sean Moore and Duff Conacher, I 17 believe it is. 18 MR. DAVID BUTT: That's right, to discuss the 19 issue of lobbyists. 20 MADAM COMMISSIONER: Lobbyists, and we have a 21 panel in the afternoon, as well? 22 MR. DAVID BUTT: That's right. 23 MADAM COMMISSIONER: Okay, see you all 24 tomorrow at ten o'clock, thanks. 25 THE REGISTRAR: The Inquiry is now adjourned

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1 until Wednesday at 10:00 a.m., January the 21st. 2 3 --- Upon adjourning at 3:30 p.m. 4 5 Certified Correct 6 7 8 9 ___________________________ 10 Carol Geehan 11 Court Reporter 12 13 14 15 16 17 18 19 20 21 22 23 24 25