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December 18, 2018

PUBLIC ACCOUNTS COMMITTEE

The Committee met at 9:30 a.m. in the House of Assembly

Chamber.

CHAIR (Brazil):

All good?

HON. MEMBER:

Yes.

CHAIR:

Okay.

Ladies and gentlemen, I want to welcome everybody to

the Public Accounts Committee hearings on the Management of the Procurement of

I'll just explain the process and some of the

housekeeping items. We'll get each of the witnesses who haven't been sworn in

previously to be sworn in, in a second, by the Deputy Clerk.

I want to welcome everybody here, obviously.

The intent here is to look a the Auditor General's

report and have a multitude of questions around the process to how we got to

this point, what are some of the processes to move forward, and how do we best

identify the solutions that ensure that the people of Newfoundland and Labrador

have confidence in the spending processes of any entity in government but,

So before we get in, the way it normally works here,

I'll do a

preamble and outline some of the concerns of the Public Accounts

Committee, and then each of the witnesses will get an opportunity to introduce

themselves. And I do ask that when we get in to the actual hearing part of it

and the question and answer part, that you identify who you are so that your

light – you can see that the little red light by your microphone comes on,

because this is being recorded, and then it will be streamed later for the

general public to know the questions and answers and the process that's been

used here.

I do welcome people in the gallery – I know have a

vested interest. Some from the board and some from the Department of Education.

So all are welcome. There are probably media members in the media room who will

be taking notes and probably reporting after the fact.

So, again, I first would like to ask that everybody

would introduce themselves, and then we'll do the actual affirmation or the

swearing in.

I'll start with the Vice-Chair of the Committee.

MR.

BRAGG:

Derrick Bragg, MHA for Fogo Island - Cape Freels, and the Vice-Chair of the

Public Accounts Committee.

MR.

PETTEN:

Barry Petten, MHA for Conception Bay South.

MR.

KING:

Neil King, MHA for the District of Bonavista.

MS.

ROGERS:

I'm

Gerry Rogers, St. John's Centre, MHA.

MR.

REID:

I'm

Scott Reid, MHA for St. George's - Humber.

CHAIR:

I'll start with Tony.

MR.

STACK:

District.

MR.

PRICE:

MS.

MULLALEY:

Julia Mullaley, Auditor General.

MS.

STANLEY:

Lindy Stanley, Audit Manager with the Auditor General's office.

MR.

WALSH:

Good morning. Ed Walsh, Assistant Director of Human Resources and Acting

Associate Director of Programs and Operations.

MR.

HALL:

Good morning. Terry Hall, Assistant Director of Education, responsible for

finance and business administration.

MS.

KEATS:

Trena Keats, Audit Principal with the Office of the Auditor General.

MR.

WISEMAN:

Tony Wiseman, Audit Senior, Office of the Auditor General.

MR.

COOK:

Martin Cook, Audit Senior, Office of the Auditor General.

CHAIR:

Again, welcome to everybody.

I'm going to ask the Deputy Clerk if she'd do the

affirmation or swearing in of any witnesses who haven't been sworn in during

this sitting of the Public Accounts in the last three years.

Swearing of Witnesses

Mr. Stack

Mr. Price

Ms. Stanley

Mr. Wiseman

Mr. Hall

Mr. Walsh

Mr. Cook

CHAIR:

Thank you, Elizabeth.

I'll just start with a quick

preamble of the Public

Accounts, how we got to this point to the hearing. Then at the completion of

that, I'll ask Mr. Stack if he'd like to give a general synopsis of where we are

when it comes to the recommendation of the AG and the findings, and then we'll

go into the question and answer process.

The normal process is that we'll start – each one of

the Members have up to 10 minutes to ask various questions and get answers back

and forth. They may direct the question to the AG or her staff, depending on the

nature of the answer or the particular issue that's being involved here.

It's meant to be open. It's not meant to be

intimidating in any way, shape or form. It's not a process here where the public

accounts are trying to throw anybody under the bus. The normal process would be

when the AG's report comes out, the Public Accounts will sit – and we sit a

multitude of times – and review the report. We normally then would send a letter

to the line department or particular entities saying: Can you update us as to

what you've done to address these particular issues?

In this case, because it's a fairly new report, yet

it's been ongoing for two years, we felt it was severe enough that we want to

immediately address it, and thought the best way to get to the root of how we

address the findings and how we can reassure the general public and the House of

Assembly that due diligence is being done, that accountability and transparency

is being followed, and that there's a process put in place to reassure people

and have confidence in the spending habits of the Eastern School District, we

felt the best way to do that is to have a full-fledged hearing as quick as

possible.

Then, we can look at formulating a set of

recommendations, and maybe follow-up information back and forth with the board

and/or with the Department of Education, so that when we present our report

early in the spring in the next sitting in March, that the recommendations are

fluent and reflect exactly what we feel, as a Committee, that would be the

proper process for accountability and ensuring that the money being spent, in

the future, are done in the proper manner, and that the mechanism is put in

play. If that means there are resources that are available, we have the ability

to make recommendations relevant to that.

If it's relevant to the structure of the organization,

we have the ability to make those recommendations. It then can get debated in

the House of Assembly. But the important part here is for the Public Accounts,

which is non-partisan. made up of all three parties, to look at the best way

that we can support the entity and, in this case, the Eastern School District,

to ensure that accountability and the best use and the best return on the monies

being spent are put in play, and that the mechanisms are there to ensure that

everything is done in the proper manner.

Some of the concerns that came out of here are: We

know, or we're anticipating, that this only a small part of what might be a

bigger situation, because the AG had only done one particular division under the

facility's procurement. So, we want to ensure – and we know there are ongoing

investigations, and we're not interfering with that. That's not what the intent

of this hearing is about. But we want to make sure that the mechanisms in play

are not only to reflect or address this particular area, but all the areas of

the organization's operations and spending habits.

So, with that being said, the one thing I do want to

emphasize, we find this a bit alarming and very serious that we have challenges

in our financial situation, but we particularly have them in our education

system about monies that we would prefer if we had additional funds that could

be used for other programs and services. No doubt, the board and staff would

agree to that, that we want to ensure all the monies that are spent are being

spent to better move our education system forward.

With that being said, it's the intent – if people are

familiar with how we operate – of why we called a particular, quick public

hearing on this entity because we feel this needs to be addressed as soon as

possible. We're looking forward to hearing what steps have been taken and what

are the future steps to ensure it doesn't happen, and what other mechanisms are

put in play to identify any other challenges that are within the organization,

in the immediate and in the near future.

So, without further ado, I'm going to turn it over and

ask the first questions to Mr. Bragg – oh, sorry, Tony; I ask the CEO if he'd

like to give a general concept.

MR.

STACK:

I may, I ask that the chair speak first and then I'll follow.

CHAIR:

Perfect, sure.

MR.

PRICE:

Thank you, Tony. Thank you, Mr. Chair.

Before I start, we have some challenges, too. This is a

wrestled because there are sections before, so it's getting that concept in your

head that it's the full provincial district is the first step that we have to go

to. The Eastern or the Western or, as I like to call it, the Labrador district

before obviously had some significant impact in their regions, but now we have

to do it on a global basis.

Obviously, I take my role as chair very seriously. It's

a volunteer position. I've been around this education system for far too long –

I was looking and we were doing some calculations – about 28 years, and you

don't stay involved with something like this unless it's important, and it's

very significant to the province.

I would argue, as chair, that there is no organization

in government or in the private sector that does what the educational board

does.

CHAIR:

Excuse me, sorry, Goronwy, I hate to cut you off, but I noticed

Hansard doesn't have your – they now have it on now. They didn't

have it on. Sorry, because this is being recorded.

MR.

PRICE:

Okay, I can hear it. Sorry about that.

What I was saying is the organization itself, every

single day, it reaches every community whether there's a school there or not,

which when you look at that there are very few organizations that do that. The

scope and scale of that exercise is humungous, so you really have to be about

children in order to make sure that this organization works. It's a humungous

task: 67,000 students; 10,000 employees. I know you understand this, but that is

the framework and the scope.

Thank you for the opportunity to come and speak today

and answer the questions, with our senior staff. Obviously, I'm the chair of the

staff that are here today. I'm going to speak to the Auditor General's report as

chair of the Board of Trustees. I'll then ask Tony to speak, as the director of

Education and CEO for the district, and then make every effort to answer the

questions that you present.

As you know, in 2016 the provincial government asked

the Auditor General to investigate suspected fraudulent purchase activity within

Auditor General had also examined the policies and procedures in place to ensure

compliance with the Public Tender Act

and other legislative governing financial management and procurement processes.

The scope of the AG report covers facilities purchasing for the Avalon region of

the NLESD for the period of July 2011 to 2016, so it's a snapshot from before.

School District or school board, I want to say the results were very

disappointing obviously for us, and we take the findings of the Auditor General

very seriously. That's demonstrated through the action that's taken place since

the report coming down: meeting with the Auditor General, going through the

process, having our trustees come together on specialty, developing an action

plan that addresses that piece. So, it's not a case that nothing has happened

since the report came out. There's been specific activity that's taken place and

we are moving forward.

To be clear, the overall theme of the findings was not

a total surprise. As a board, we had been aware for some time that we had some

issues. But, as you can appreciate, we could not comment while the Auditor

General investigation was ongoing, and it was ongoing for a significant period

of time. As a result of the spring 2015 internal review of a number of

purchasing transactions, it was the district staff that first recognized there

might be a problem. Further, it was the district staff that first alerted the

Board of Trustees and it was the district staff who first alerted law

enforcement of the potential fraud.

Even before the Auditor General investigation, the

board made it clear that improved financial management and oversight was going

to be a priority moving forward. Following the trustee elections of November

2016, the board began developing a three-year strategic plan which committed to:

improved purchasing processes and approval procedures, better inventory controls

and improved financial management processes. This is part of the strategic plan

that was in place that recognized, obviously, that there was stuff that needed

to happen, especially in the context of the very large district.

In the two years since the Auditor General's office

began its investigation, the board has also established a number of new policies

to govern financial practices, including an internal audit policy that demands

higher transparency and accountability to the public. This was not there prior

to this, so we've got a direct input to the Board of Trustees that meets those;

a conflict of interest policy for employees, August 2017, which clearly

articulates expectations for personal integrity and ethical behaviour in the

performance of the duties; and, a risk management policy which came into effect

in 2016.

We are also in the process of developing an ethics

policy for employees and a code of conduct as recommended in the AG report,

which will complement our conflict of interest policy as a whole.

I will let Tony provide more detail with respect to the

operational changes that will be put into place to ensure the financial

procedures and oversite are compliant with legislation and best financial

practices.

As a final note, I want to say that we were very

disappointed with the activities that were identified, particularly because we

know that the actions of an individual, or any number of individuals, can really

cast a lot of suspicion on the total organization. As I opened up with, this is

a huge organization. That means we have a huge responsibility to make sure that

things go the way they should go. And, that's unfortunate.

Given we have honest, hard-working district staff who

conduct themselves to the highest degree of professionalism and personal

integrity, day in and day out, for the advancement of students and our education

system, our job, as always, is to ensure people are working in the environment

that makes sure proper procedures are followed, and which mitigates the risk or

any fraudulent activity in the future.

I would say that, from my point of view, you have to

implement the policies, you have to do this piece, but we are going to have

excitement in the future. What we have to do is to make sure that we're all deck

and we know, going forward, that we can identify as quickly as possible.

Thank you.

Tony, I believe, you have some stuff.

CHAIR:

Thank you, Mr. Price.

We will turn to Mr. Stack now for his opening comments.

MR.

STACK:

Thank you, Mr. Chair. Thank you, Goronwy.

As Goronwy noted, the Auditor General's findings did

not come as a complete surprise to us, since it actually expanded upon an

investigation and initial findings that were already in process at the district

since 2015. Admittedly, the extent of some of the actions were more pervasive

than we had anticipated when we started and, in some respects, more disturbing.

There were terminations. Where we suspected illegal or

fraudulent activity, we engaged law enforcement. Individuals the district

identified are no longer working at the district, and one has already been dealt

with through the justice system.

While we were in the midst of a more in-depth internal

review of practices and procedures in 2016, including the engagement of an

external forensic auditor, the Auditor General was called in. Our own

investigation and any ongoing police investigations were then suspended.

We welcomed the Auditor General and the resources

available through that office and co-operated fully in the process. We had

become aware of some serious issues and we were committed to taking action to

reduce the possibility it could happen again. While we participated in the

process and awaited recommendations, we also took steps to enhance the integrity

of internal purchasing procedures. Again, within the resources we had to work

with.

For example, as our chair noted, the school board made

better financial and asset management a priority through our strategic plan and

policies which govern district activities. From an operational perspective, we

expanded our independent internal audit division that conducts both targeted and

random audits to ensure we are compliant with legislation and policy. We

developed mechanisms by which employees could report any concerns they

identified in their own work environments. We've tightened up purchasing

procedures to better ensure proper approval and oversight. Albeit, this is very

demanding on manual processes.

While not specifically covered in this audit, we've

also delivered targeted financial training to individuals within the district.

We provided ethics training to staff through the Gardiner Centre at Memorial,

starting with facilities and finance management staff and, earlier this month,

with provincial directors from all of our divisions in all of our regions. This

is particularly important because the Auditor General's report speaks

specifically to a culture which allowed certain attitudes and activities to go

unchecked. We recognize as a district executive team we have a responsibility to

change that culture, and that will begin with the development of an ethics

policy and a code of conduct for staff, as recommended by the Auditor General.

I should note we appreciate that the Auditor General

took the time to come to speak to our Board of Trustees in early November and to

answer their questions related to the report. As evidence to the trustees'

commitment to accountability, they have also availed of training related to

governance at Memorial's Gardiner Centre.

Meanwhile, prior to the release of the AG report, the

district had, on a few occasions, already acknowledged limitations within its

financial control systems. The district is currently working with the provincial

government to identify and implement more robust financial management software,

and an inventory management system that will allow us to better identify

district assets and track their use. We know our current system has limitations,

and it must be said that the district itself has resource limitations when it

comes to identifying people who would implement new systems and maintain them on

an ongoing basis.

I think it's important to say at this point that the

district did have financial management processes in place, but it's much clearer

to us now that they were not always followed, nor as effective as they should

have been. There were clearly insufficient controls in place to prevent or

detect abuse. And, to be honest, that made us very vulnerable. I don't want to

suggest there was wide-spread, deliberate wrongdoing within the Facilities

division in the Avalon region but, clearly, the environment existed for

wrongdoing to happen, because it did happen.

Even when staff members were doing the right thing, the

documentation was incomplete or didn't exist to show that they had done the

right thing. In many instances, there was no paper trail and this, obviously,

created opportunity. Again, it doesn't necessarily follow that there was

widespread fraudulent activity, only that an environment existed in certain

pockets of the organization which allowed wrongdoing to occur.

That said, we have accepted all the AG's

recommendations. Many initiatives and changes related to the recommendations

have already been implemented or are in various stages of implementation. We

have established an implementation team to ensure appropriate follow-through, as

we realize it would be an ongoing process to continuously ensure the integrity

of our processes and financial management.

I'll end this opening statement by saying this: We have

over 8,000 employees throughout the province including district staff, school

administrators, teachers, support staff such as secretaries, bus drivers,

custodians, maintenance personnel and more, and this report has had an impact on

all of us.

I recognize our management team in all regions of the

district recognizes that we have a leadership role to play in creating and

nurturing a culture in the district that demands we adhere to the highest

standards of professional and personal integrity, honesty, ethics and

intelligence and diligence in the performance of our duties. The vast majority

already do.

We are dedicated to children. We are dedicated to

education. We are dedicated to ensuring each and every child has a positive

school experience and achieves to their full potential. But we're also dedicated

to ensuring we operate in a manner that ensures operational and financial

integrity.

Thank you.

CHAIR:

Thank you, Mr. Stack.

We'll start now with Mr. Bragg.

MR.

BRAGG:

Thank you.

Well, gentlemen, thank you for your opening statements

and thank you, Mr. Chair, for chairing this here today. I think this is a report

that you can almost fall on any page and ask a dozen questions. One that came up

to me that you alluded to in your opening statement; you said the report of the

Auditor General came as no surprise.

So, if it came as no surprise, I wonder why nothing was

acted on so that something could have been started to be prevented before the AG

came in. Is there a reason that was overlooked?

MR.

STACK:

When I say there was no surprise; in 2015 we became aware, through our own

processes, that we had issues. We had proceeded with our own internal

investigations, which resulted in some terminations and engagement of law

enforcement.

So that's what I mean by no surprise. We were aware we

had some issues in the Facilities division in the Eastern region. So that was

with respect to that comment.

MR.

BRAGG:

(Inaudible) would've had an internal audit done every year, and my understanding

your internal audit never reached the board level. What would be the reason

behind that?

You had your own (inaudible). So when the AG came in

for us, there was a report that you guys would've generated internally that you

would've thought would've went to the board, or I would've thought would've went

to the board for discussion. That would've outlined some of these surprises or

lack of surprise, I guess.

MR.

STACK:

We haven't engaged the services of an internal auditor. We also have an external

auditor that goes over things on an annual basis, and that report goes to the

board.

But you're correct, and going forward what we've

instituted is that the internal auditor will report to a committee of the board

to look specifically at these and they'll have direct insight, direct

interaction with the board officials on a go-forward basis.

MR.

BRAGG:

(Inaudible) senior manager, when something came to you from the external

auditor, why would it be ignored? Why would it not be taken to the board level?

MR.

STACK:

I can only speak to processes that were – sorry.

MR.

PRICE:

As chair, obviously, I've fulfilled different roles over time. And to have the

perception that the board didn't know or the executive didn't know that we are

having challenges, that's not accurate.

I was vice-chair in the earlier days and obviously

moved up to the chair position, and when we have issues, no matter what they

are, whether they be in HR or they be financial or if there are circumstances

that are a little startling that have come out in this report, that would've

come to the executive, and the chair would be familiar with those particular

issues.

The actions, the follow-up, the investigation, that

would've been updated to the chair. But was there a complete report given to all

the board of governors, board of trustees? No, not at that time, because you're

still in the investigation mode and you have to go through a process.

So it's not fair to say, or it's not accurate to say

the board didn't have some oversight and insight into what was going on when

these processes and these individual circumstances were identified by our staff.

That did come to the top of the organization from the volunteer board point of

view, and then we move forward. That's what took place afterwards in the

investigation.

MR.

BRAGG:

Excuse me; I got a bit of a head cold today.

Okay, in light of that, what have you guys done for

your checks and balances? Is there a checklist of things that you've started to

do or – leading up to, to prevent this? Because I'm thinking – and, as you said

earlier, this is the Avalon Eastern region. Before the amalgamation we had three

or four different regions of the province.

So I'm just curious if you're going to follow it all

through, or if there are other checks and balances replacing other parts of the

province that would've prevented this long before it got to this level?

MR.

STACK:

If I may, we're dealing with a report that spans from 2011 to 2016, and, of

exist until September 2013. So some of this is prior Eastern. You're referencing

internal audio reports that would've predated my involvement in a role, or the

staff here that are with me, back in – probably as far back as 2009. So I can't

speak to what occurred then.

What I can speak to now is that our board is seized

with – the staff are seized with making sure we perfect this going forward.

There are still some issues. We have some resource issues. We prepared a list of

items that has gone to the board for approval, forwarding an ask to the

Department of Education for some support to implement so that we can not only

get better at detection but also prevention. Some of these will require human

resources. Some of them will require technological resources. And if those

recommendations are implemented, we believe we will be in a position to be more

responsive to detection of fraud and also prevention of fraud.

MR.

BRAGG:

you want to take over now?

CHAIR:

Okay, we're going to move now to Mr. Petten.

MR.

PETTEN:

Thank you, Mr. Chair.

Thank you all for joining us here today for these

important questions we have on a very important issue.

Derrick just asked some questions pertaining – I want

to follow up on, too. This is not new. The chair recognizes this goes back a

long time. I'm troubled, and as I'm listening to this and I've read a lot of it,

this is not new. This was pre-2015.

There's a chart here in the AG – there were findings in

2012. There's another in 2012; 2013 there are three; 2014 there are four. This

was reported to senior management and the responses coming back were no

response. They just stopped paying a cellphone bill.

There was one instance of a facilities manager getting

his cellphone bill paid with no – he was retired. It was just like there was – I

guess the concern it raised to me when I read it, and we've had briefings on it,

it didn't seem like it was being taken seriously; even though, from what I'm

reading, it's not my – there's factual evidence that this was not new. This was

pre-2015. This is not new to anyone in this province, if you read the reports.

This went on for years.

So I guess the general question that bugs me or pries

at me is: why? How could this have happened when you're seeing this stuff? This

wasn't just one isolated incident, this was a real – there were a lot of issues

here. So that's my general – to sum it up. And one big question is: How could

this have happened?

MR.

STACK:

And that's a very good question.

As I said in my opening statement, as a district staff

were certainly disturbed by many of the findings. The Auditor General uncovered

quite a few things in the report here. A lot of which, frankly, there's no

rational explanation. Some of it – other than it was fraud committed by

individuals with intent to do so. And some of that has been referred to law

enforcement.

So particular examples that are in here, the Auditor

General spent a couple of years with us. We've looked at it and, really, the

only rational explanation is there was purposeful fraud, fraudulent activity

that is likely of a criminal nature.

What I can say is that we spent a lot of time on this

in the last couple of years, starting in 2015 and moving forward, to put in

place the procedures to better prevent and detect. Some of that – to be more

confident and to bring confidence back to the system – requires an investment

and an ask that we submitted to our board of trustees who have authorized it and

sanctioned it and sent it on to the Department of Education. That'll allow us to

have better technological means and better human resources to track and identify

but, more so, prevent fraud.

MR.

PETTEN:

Thank you.

Well, I guess on that note, too, we're going to be

spending $2 million, plus – I think, what is it, $2 million and one point three,

followed up with exact numbers. Anyway, if we're going to be spending that money

should we not find out what broke down? You're bringing in a solution without

knowing your problem.

We all know there's a problem. There was fraudulent

activity, but unless you find a solution to fix those fundamental problems,

you're going to just replace people and you're going to bring in another person

that's going to create and do fraudulent activities, you're not getting any

further ahead; yet, you got a Cadillac system but you have no way of – you got

to know where you're coming from to find out where you got to go. It's one of

those things, you got to find your problems first.

You're bringing in a system, but I think – I guess what

I'm saying is it doesn't appear outside that this was fraud and it should never

have happened. It doesn't appear that the root cause of the problem has been

resolved, or at least I'd like to know what has been done I suppose to resolve

it from your side.

MR.

STACK:

With respect to – we've mentioned one aspect is a culture that allowed that to

occur. So we recognize that. We've taken that very seriously.

The first two bullets, recommendations in the Auditor

General speaks to code of ethics, code of conduct, and we've already initiated

the education piece around that and building those code of ethics in the Auditor

General's recommendations.

Secondly, when you talk about procedures, we have an

antiquated system of financial management. The school data systems is very much

outdated. You had the ability to go in and manipulate that system with intent,

if you're really strongly intending to commit fraud, and that system is still in

place. So what we have right now are some very vigilant people in the

procurement that are eyeballing through manual processes where this – all these

purchases.

What we hope to have is a better system that allows –

that can only – where various levels of approvals for purchasing can only happen

with the technological inputs from that individual who's authorized to do so,

and there's oversight built in to these systems. We don't have that system now.

I can go in as an individual and order something. I can

go in and, using someone else's name right now, approve that. Because the way

the login works, it doesn't – so the only way we can properly ensure that there

are no improper purchases is manual oversight. So we have an antiquated system.

If we get a better system, that'll improve our ability to respond.

I don't think anybody can positively say that you have

a foolproof system that prevents and detects all fraud. There are – to use the

term – the evil genius who will always find a way around your system. The best

we can do is build the systems and the oversight to the best of our ability. But

right now we remain vulnerable because we have an antiquated system, and that's

part of the new ask.

Now, we have a response from the Department of

Education and the response indicates that they've accepted our ask and, as part

of the normal budget process, it will be reviewed. But they've also indicated to

us that government has a system that is used in core government that has the

capacity, in their view, to address a number of issues identified such as

central purchasing, accounts payable, including quality control, inventory

control and asset management. They've asked for, and we've agreed to,

co-operating with the services of a consultant to work with the district and

government officials to conduct a detailed business requirement and scoping

exercise.

So I guess all that to say is that we've put in an ask.

We were asking for a system and some human resources to go forward. Governments

response is thank you for that, and we're going to engage a consultant to work

with you and see if maybe some of the government systems can be leveraged with

our ask to improve things going forward.

MR.

PETTEN:

Yes, thank you. I wondered the same thing.

I'll ask a short time in my allotment for this time.

I'll just go back to some of the concerns I've raised throughout here.

You have a situation – in May 2015, the districts

internal auditor raised concerns about a particular vendor regarding double

billings, unclear invoices; yet, the AG determined that the district continue to

pay the invoices submitted by the vendor.

That's not that long ago, and it just cries out. When

everyone was aware – again, I'll say, why? It's almost appalling when you read

some of it. I can't understand why this would ever have happened at this level

of school district.

MR.

STACK:

In that time frame, there are a couple of individuals that were looking at their

practices and were beginning to understand that we are vulnerable and we may

have been a victim of fraud. We've got to go through normal due process, keeping

in mind normal HR processes. There's a lot of heat and light being put on those

particular individuals, which led to us starting a process of termination. That

was the start of it around that time frame.

The things that you're referring to were detected by

the district staff, and you go through a process that ultimately resulted in

termination of those individuals and referring them to law enforcement. So that

is around the time frame that you're talking about.

CHAIR:

Okay, Mr. Petten.

I'm going to move to Mr. King.

MR.

KING:

I'd just like to thank you folks for coming out this morning.

I know Mr. Petten asked a question about the systems

and whatnot, and you talked about a consultant. Is this consultant within the

Department of Education or an outside consultant?

MR.

STACK:

The Department of Education will be engaging an outside consultant –

MR.

KING:

Okay.

MR.

STACK:

– is my understanding.

MR.

KING:

Just going back to some findings here on page 5, and something stood out to me:

“procurement policies also resulted in expenditures for goods and services not

being properly authorized and reviewed and there was often a lack of sufficient

documentation to support invoice payment.”

Who's responsible for that now? I know you talked about

a new system coming in, but who's actually overseeing that now? Because the more

I read this, the more it stood out to me that the buyer actually had a

ridiculous amount of power where there were no checks and balances. What's put

in place now to take that power away from the buyer, and who oversees it?

MR.

STACK:

I'm going to defer the detailed answer to that –

MR.

KING:

Yes.

MR.

STACK:

– to our chief financial officer, Mr. Terry Hall.

MR.

KING:

Okay.

MR.

HALL:

Thank you, Tony.

So to answer your question, given the volume that goes

through, we couldn't do what we call a true centralized procurement team because

of the volume. So our facilities managers, supervisors, were entrusted with a

certain amount of buyer approval limits.

So, basically, what that means is they – starting at

the very bottom of the supervisor, I'll just use a number for you – had up to

$3,000 they could approve in order to keep things going. Our Facilities division

is the only one. The other divisions, their actual procurement, their quoting,

all of that, always went through our procurement team.

The facilities team – to your point – did have this

power. So they had the power to initiate, to approve and to do the receipting of

the goods. So that's what made us vulnerable, and our system allowed that

because it doesn't have the appropriate audit trail nor the built in protection

in order to stop it, which is why we need to replace it.

What we have done since we've discovered this – very

manual, because we can't get any more improvements in the system. The supplier

has already told us they're not doing any more upgrades. They're not doing any

edits or anything like that.

So we have done more preferred vendor lists. For

services that we use on a regular basis, we now have more preferred vendor

lists. So that takes the choosing of a vendor out of the hands of our facilities

managers and our maintenance folks that are out doing this work on a daily

basis.

We've also initiated that we have to have better

segregation of duties. So while the system doesn't prevent it, we now have a

manual process whereby people are looking to say whoever initiated this in the

requisition, it has to have a different buyer and a different receiver before AP

will process it.

We've also done more standing offers, so as that takes

it out of the hands of facilities managers that every time they need, let's say,

paving on a parking lot or holes filled, there's a standing offer. So they don't

need to go out and get bids or take a specific vendor. So we're taking that

control away from them, for the most part, as much as we can on a manual basis

so as they don't have that ability to go out and choose and do it on their own.

We've also moved the quoting process for facilities

inside of our procurement team. So we've managed to get that much done. Even

though it's a burden on our procurement team, who, as Tony mentioned, we do have

a resource constraint that we have in our proposal. We need more people in order

to get a true centralized procurement.

All of that said, we have tightened up quite a bit and

taken some authority away from the facilities team to be able to get better eyes

on it in finance. And when it gets to our accounts payable, they now have to do

a matching to ensure that if the details on the PO doesn't match the invoice,

even if the amount matches, they have to kick it out. But they have to make sure

the amount matches, that there is a goods receipt slip and that it all matches

before they will pay it. So we've got a lot of manual controls put in to take

power away.

MR.

KING:

Okay, thank you.

That was a very detailed answer, and certainly shows

that – my thoughts on it is you're taking the power away from the buyer, and

you've got standing offers, preferred vendor lists and whatnot, which seems to

be common in other government departments as well.

One thing that stood out was the quick emergency, quick

purchase orders, and that was almost like a licence to print money for some

businesses. You look at – if it was 98 per cent of the invoices coming to almost

$96,000, there's no documented evidence of an emergency and no receipts and no

whatnot. What's being done with those? Are they still being issued? Is there

more – well, obviously, I would assume there would be more scrutiny under those,

but to me that was just a free-for-all for anyone who wanted to go in and

purchase something.

MR.

HALL:

Yeah. So we have – Tony, do you want me to answer that one as well? Okay, sorry.

We have pulled back the quick PO books. So all of our

facilities managers don't have it. The reason these quick PO books were put out

there, just to give a bit of context, is if something happened at 7 o'clock at

night – in a school, say, a pipe broke – we didn't want to have to hold up the

facilities team, that because our procurement team wasn't in to issue a PO to

the vendor, they needed to get that stopped immediately to mitigate the amount

of damage in the school –

MR.

KING:

Yeah.

MR.

HALL:

– but also to try and get it fixed so as we preserve the educational and

instructional time. We don't want schools to be closed if at all possible.

Did that get to a point where some of the facilities

managers deemed everything was an emergency? I think you're right, in some

cases. You're absolutely right, and it got abused. So we have pulled those back.

We only have two or three out now to our critical, more

senior people in facilities who can make the decision as to – they got to have a

phone call now into them from the facility supervisors out in the field, to

them, in order to say this is what's happening. Then the senior person issues

the quick PO now as an interim measure until we get a better system or we can

get a better procurement in terms of, I don't know, P-cards or something like

that, that we will look at as well that other government departments have. But

we have severely restricted that as well.

MR.

KING:

Okay. So, basically, the spirit of the quick purchase order will be to keep the

school open the next day if something happens, and basically that's –

MR.

HALL:

Mitigate damage and get things done in the nighttime when the staff is not there

in the office to issue a PO to a vendor in order to get them in. But they also

know now that, look, if something is able to be contained and not be a safety

issue, then contain it.

MR.

KING:

Yeah.

MR.

HALL:

Then the next morning we'll deal with it, as long as it's not a safety concern.

If we got to close – we've also told them the mandate of at all else, don't have

the school closed. It's okay, we may fail and have to close the school for a

morning some time, and we've told our facilities managers and our director that

might happen;

whereas before they considered it a failure if they had to close

the school for two hours, but we said we have to do it right and make sure that

it's followed.

MR.

KING:

Thank you, Mr. Hall.

I do have some more questions, but in the limited

amount of time I'll come back to those after.

CHAIR:

Mr.

Stack is about to speak.

MR.

STACK:

Just to add to Mr. Hall's comments. When I speak to culture, I wouldn't want to

leave the impression that it's a culture of individuals that are preoccupied

with nefarious activity. There was some of that, absolutely.

When I speak to culture, as Terry alluded to it, is

this culture of operational effectiveness. Don't lose any precious instructional

time, and we all prescribe to that; however, that culture then permitted an

environment where for expediency, then the PO system could be abused. And Terry

and I met personally with all the directors and said look, we may have to accept

failure. We may have to lose instructional time in order to adhere properly to

the legislation around procurement and our own internal practices around

procurement. So when I speak to culture, that's part of what I meant, too.

MR.

KING:

(Inaudible) nothing was documented. Yeah, I agree that it did open up the door

to some nefarious actions but more than likely a lot of those, my thought would

be, they're honest enough but just people didn't keep the receipts or put them

back in.

MR.

STACK:

lot of it, there was – as I say, there was clearly fraudulent activity but there

was a lot of individuals that were not doing diligence with respect to recording

why things happened. And in some cases, though, they were doing the wrong thing

for the right reasons.

MR.

KING:

Yeah.

MR.

STACK:

But

it was clearly the wrong thing and it's not acceptable, and we've communicated

that.

So a school loses a roof off a gym – and I'm not using

a particular example now, I'm just using a scenario. A roof goes off a gym you

secure, on an emergency basis, a contractor to make sure that roof is – there

are no issues with it. If the Facilities person engages services then for the

repair of that roof, once it had been secured on an emergency basis that would

have been wrong; that's just an example.

MR.

KING:

Thank you very much, Mr. Stack.

CHAIR:

Thank you, Mr. Stack.

Ms. Rogers.

MS.

ROGERS:

Okay, thank you, and thank you once again for everyone for your time today.

Goronwy, I want to say thank you for stepping up to

your position in a time when you knew that there were many complications and

changing – and Mr. Stack as well, stepping up for your position knowing that you

had many things to deal with. Changing culture is a tough job. It really, really

is a tough job.

Also, we all know that coming up with policies and

procedures that will safeguard but also not choke and prevent work from going

forward, that's a delicate balance as well. I know that there is a lot of work

being done in that area.

Tony, you had said that we have accepted all of the

AG's recommendations and we have a strategy and a plan to implement changes and

an implementation team in place. Can we have a copy of that strategy and plan?

MR.

STACK:

Absolutely. I have a November 3 submission to Minister Hawkins and we can

certainly provide that.

MS.

ROGERS:

Thank you very much.

And have you submitted that plan to the AG and to the

AG's office?

MR.

STACK:

No, I don't believe we submitted it to the AG's office. No, we didn't.

MS.

ROGERS:

Okay, because my next question would be to Julia Mullaley, our Auditor General:

Are you confident in this plan and strategy? I believe it would probably be more

than appropriate and actually important for the AG to see that strategy and

plan. Would that be correct, Julia?

MS.

MULLALEY:

Yes, it certainly would be fine. We could take a look at the plan. My

understanding, some of the plan, I assume, is part of the budget submission to

government. So as long as government was comfortable with us having it, and

certainly not getting into the debate on prioritizing where money should go,

because certainly that would be the government purview. But the types of actions

there we certainly could look at.

MS.

ROGERS:

Yes, and I would think the same thing that we're not looking at government

allocating money or not, but basically what is the plan and strategy going

forward to dealing with the very specific issues that have been highlighted by

the investigations in terms of where there are weaknesses. I haven't seen, and

perhaps I've missed it, but oftentimes when there's an Auditor General report

there is a very substantive response from the entity that has been subject to an

audit.

District, Mr. Stack or Mr. Price?

MS.

MULLALEY:

Probably I can speak to that. It's been the protocol over the years – this one

actually came in under a special assignment by Lieutenant-Governor in Council

request.

MS.

ROGERS:

Okay.

MS.

MULLALEY:

Those are normally investigations, so there would be findings in it but no

detailed response from the client department or entity. The regular audits, I

would say, that we do as part of our mandate, the performance audits, they do

certainly, as you say – they always are provided to the department and entity

and there's always a detailed response in it. But it's different when it's asked

for under an investigation concept.

MS.

ROGERS:

would there be, though, any kind of response in terms of – I guess that would be

in the strategy and plan that the Eastern School District is developing or has

developed now. So it would be good to see that, to see how you're going to

address some of those issues.

And again, I understand the huge job of changing the

culture. That's really important. Tony, you were talking about the antiquated

system and how often we wish that we had state of the art instead of state of

the arc. So, you've explained a little bit where things are at with that and the

request that you have put to government and the consultant. Is there a time

frame associated with that? Is there any time when we can expect some results?

MR.

STACK:

Clearly, you know, the faster that we get a system in place, the better.

Because, right now, we are relying on manual oversight and a lot of vigilance on

the part of Mr. Hall's staff. So, yes, the sooner the better, but there are no

timelines established. We've got a response from government that indicates that

it's part of the normal budgetary process, but no timelines have been given.

They'll communicate budget decisions to us once budget 2019 has been approved

and then we also have the other activity of the consultant working with us as

well.

MS.

ROGERS:

Okay, and that consultant have already begun?

MR.

STACK:

were advised in a letter to our chair, Mr. Price, on November 29 that they'll be

appointing a consultant in the coming weeks.

MS.

ROGERS:

Okay, thank you.

I also want to note that I imagine that this is hard

for staff, as well, in the Facilities branch to be under such scrutiny and all

the accusations that are overhanging there. So it must be hard as well for staff

who are very dedicated and working hard.

So, Mr. Price, I'd like to look at the issue of the

board. What sort of training do board members undergo when they are first

appointed or elected?

MR.

PRICE:

We went through the elections 2½ years ago now, and when the 17 trustees came on

board one of the first priorities was obviously the PD of trying to – with new

trustees, they don't really necessarily come from a place that understands what

the role of a trustee is. So right off the top, we do those professional

development sessions where we bring people in that determine what governance is,

what day-to-day operations are, and we go through that process. Obviously,

different people come from different places and those learning curves take

different amounts of time for different people.

So we do that PD on a regular basis. But the nature of

our board is that it's an elected board. So it's not a case that you submit a

resume and you can say we have this particular skill set there. A lot of the

times it does come together, and you do have a good reflection of society or a

good reflection of skill sets on the table. But it's not a case that you have a

chartered accountant or you have a psychologist and a program person.

So the PD is put in place for the board. The trustees

recognize through their committees of the board that there is an oversight

requirement, and I can assure you – and in some of our discussions this morning,

it seems that you get the sense that nothing is moving. I can rest and I can

tell you from my position, there are a lot of things that have changed since the

identification of these circumstances that took place back then.

The oversight, some would say – and I see it as a

volunteer more so than in the system when I hear people complaining, you've got

to remember – you said it a minute ago – the culture. We had four cultures that

came together under one roof when we came to this place, and everyone knows that

different parts of this province operate very differently and it's reflected in

the House.

So bringing those cultures together and coming into one

and taking different policies that exist in certain places, the challenge for

Terry is – and their specific challenge of coming up with a single policy that

doesn't throw the baby out with the bath water in downtown Nain are significant.

Because if you have an issue in Nain, getting three quotes could be a challenge.

Those realities have to be taken into consideration. And where we fell down, it

was identified in this, it's not in what we do, it's in how we document and

justify afterwards. Humans aren't good, sometimes, at going back and cleaning

things up after you've done something in an emergency fashion. I can assure you,

some of the feedback coming out of places outside of St. John's are: Oh, my God,

how are going to run the system, with these new systems in place, that ensure

the financial accountability.

From a trustee point of view, the training has been

there. We had a special session specifically dealing with the AG report. We

invited the AG in and she certainly came in on – I think it was a Sunday, wasn't

it, Sunday morning or Saturday morning bright and early and went down through

it. Then the board of directors took each of the items and our senior staff went

away and came back with a plan.

Education, we've got supports. Government has given us

supports for PD, and that education is taking place.

A long-winded answer, I apologize for that, but it's

really important to know from my sense and to put across to you that things

aren't the same as they were. There is an accountability framework, but you have

to be careful because the system still has to run.

MS.

ROGERS:

That's right.

MR.

STACK:

And the children have to be in class and you have to be able to have the

resources.

I can tell you, the system is pushing back now because

the oversight that's been put into the system now is squeezing them in their

day-to-day job, which tells you that, yes, the Public Accounts part of it is a

high priority but we have to make certain, from our point view and our senior

staff point of view, that we don't paralyze the system within this.

MS.

ROGERS:

That's right.

MR.

STACK:

it's open eyes, but making sure that you are accountable to your actions.

MS.

ROGERS:

Yeah, and consequently why it's so important that we have a real diverse group

of people that are trustees to ensure that all those different voices are heard

so we're developing systems that, in fact, are effective and workable –

MR.

STACK:

All over.

MS.

ROGERS:

all over. Yeah, and for all people.

CHAIR:

Ms.

Rogers, I'm going to move to Mr. Reid there now.

Thank you.

MS.

ROGERS:

Thank you.

MR.

REID:

Thank you.

I'd like to thank all the staff for coming here and

sharing their views on this report with us as well. I'd like to, as well,

recognize the good work being done by employees of the board all across the

province as well.

I think we have some serious questions to ask here, and

we had some serious problems as I read through this report. What I'm hearing

today doesn't really, for me, settle my mind in terms of some of the issues that

have been highlighted in this report.

I think for us to get to the root of how we solve the

issues that have arisen, we have to have a full understanding of exactly what

the problems were and how we got where we were. And to be clear, we have to

understand that the problems highlighted in this report are pretty serious,

right? Basically, when the chair and the CEO started off, you talked about the

scope of the organization, and I think that sort of speaks to, for me, the need

to have proper procedures in place. When you have a big organization, you have

to have the proper procedures in place.

Based on things like splitting of orders, it seemed to

be common practice, basically. What was happening here in this report, there was

no procedure foreseeing that the scope of work to be done was actually done and

completed. The billing process and the way purchase orders were – the tender

process wasn't clear. The quick purchase orders, as you outlined, is necessary

in some cases but it seemed it was being abused, or at least it wasn't properly

documented. There was a lack of segregation of duties, the same personnel.

So there are a lot of problems here and the potential

for abuse. I think if we're to get at the root of the problem, it's not just a

few bad apples or a few people who are doing fraud. The root of the problem

seems to be the lack of proper processes that were in place.

I just want to throw out a general, basic question, I

guess. How did we get where we are? How did we get to a report like this? Which

is pretty damning in terms of processes that were in place. How did we get to

this state?

MR.

STACK:

That's a fundamental question that we've been preoccupied with these last months

and years when this process was initiated. And you're right, this is – and I

said it in the opening statement. We're disturbed by this.

Our focus now is on – we understand we were victims, as

well, of fraud. We have a lot of employees out there, hard-working employees

doing the right thing day in, day out and have done so since the inception of

the various boards, predecessor boards and our board now. But you have to have

in place procedures and policies that are going to deal with those individuals

that are going to take advantage of systems, and that's why we have fraud in

this world.

So we're focused on, and have been focused –

particularly since 2015 – on developing the policies that prevent this, and

detect. Since then we've got an internal audit policy. We beefed up our internal

audit processes. The internal auditors will report directly to the Board of

Trustees.

There is a conflict of interest policy that's been put

in place. And to speak to the impact to that, every week now – and we have a

Monday executive meeting – we're processing conflict of interest declarations.

So it'll show you the level of understanding by our front line personnel of the

importance of this policy.

Risk management; we had instituted risk management but

the Auditor General has recommended, specifically, fraud risk management. So

that'll be embedded within the risk management processes. So we've looked at our

vulnerabilities with respect to purchasing and approval of purchasing. Mr. Hall

addressed some of those, and those are ongoing.

I'll concede that we are still vulnerable, because

we're relying on manual processes. These are people that weren't necessarily

hired to do that specific function, but were seized with detection and

prevention. We do need a better system going forward, and that's part of our

request. What that looks like at the end, will it look exactly like what we've

asked for? I guess we also got to rely on the process that the consultant is

going to recommend.

There may be government systems that can be leveraged

here, but we do have to keep in mind that we're dealing with 254 school

locations and not all of them are going to be able to interface with something

like an Oracle system that government uses. So it's going to be a process that

is going to be very involved.

I can tell you, as the CEO of the organization, I'm

aware that our Board of Trustees is seized with this. We are, as a professional

staff, the executive staff of the district, we are seized with ensuring that

something on the scale of this never occurs again.

MR.

REID:

In terms of your response to this report – and you said you weren't surprised by

the findings of this report. In fact, your internal auditors and your external

auditors that you have highlighted some of these same things. Also, in terms of

the AG's report, I understand it took two years to do, and you were being

provided with updates and issues that were being identified as the report

continued.

Do you think you've been prudent in dealing with these

issues as they came up in terms of the internal auditors' report and in terms of

the reports that were given to the board as the AG did their work?

MR.

STACK:

you want to speak to some of that?

MR.

PRICE:

Yes.

MR.

STACK:

ahead.

MR.

PRICE:

I'll speak to the first part, the government side of this. Because the flavour

that nothing was done – like the world unravels in real time. And can we fix

history? No. That's the part that causes us all the grief when you get a report

like this that articulates exactly what has gone on.

We said in our opening statement that when the trustees

were elected, one of the strategic issues that we talked about was developing

the policies around findings because we recognized that there was an issue. Our

senior staff in the accounting section, as well as our CEO, as we were

progressing through this and the things were identified as issues, they were

fixed at the time. We weren't waiting, we put policies in place and we changed

procedures to make sure once you know something, the test is on you to fix it.

We weren't waiting until the end to come up with this.

It's a good process to go through to have somebody come in externally and look

at all your processes because this is a mammoth job. But, as they were going

through the process and issues were identified, our financial staff certainly

put the policies in place, came to the board and we changed policies. We

recognized that we had to do things.

Now, there are lots of detail in that and our staff can

talk to that detail, but it wasn't a stagnant process in the sense we weren't

waiting for someone at the end of the day – we knew the issues. This system does

not work unless you respond in real time to issues as they present themselves.

The financial accountability in the last number of years has been phenomenal. If

you were to talk about – we mentioned these emergency POs. Before, how many were

there? Today, how many are there? They're minimal today. That tells you that the

culture is already shifted away from using them to do whatever you want to do

whenever you want to do it.

So, those subtle changes in the system speak to some of

the items in this.

After that, I'll pass over to Tony.

MR.

STACK:

So again, focusing on the fact that we were aware and when you say no surprises

– again, I'm speaking in 2015, because in 2015 we are aware that there have been

some activities that are inappropriate. There was a HR process and an

investigative process that unfolded that dealt with certain individuals.

Recognizing that that was occurring, we were aware that a review of our systems

highlighted a number of control deficiencies, and we started making corrections,

implementing changes right away. Some compensating controls, where possible,

given the limitations I've already addressed.

We had the district processing system, school data

systems had significant limitations with respect to system controls. So we did

identify those concerns. We commenced changes to improve the control

environment, again, starting with our own investigations in 2015 and recognizing

as well that we have a high dependency on manual controls.

We're still operating in the SDS environment, but we've

completed a number of options for improving that system. We also recognized very

early on that we needed some cultural change. I was pleased to see that the

Auditor General also recommended that, and a concerted effort began back a

couple of years ago. So as the AG was engaged, we were also engaged in fixing

what was happening.

We created and launched the risk management program. It

continues to evolve. Based on the Auditor General's report, we're including a

fraud risk management program, in addition to the operational one. We've

instituted leadership training, new policies, as I've referenced – conflict of

interest, a big example.

And on the operational side, a lot of concerted effort

with Terry's Financial division, with the Facilities division operating hand in

glove with a high degree of oversight – oversight to the point of frustration

where some of our finance people were saying you're really constraining me from

doing my job and we had to say to them, this is necessary. This level of

oversight and interaction is necessary.

So we haven't been sitting by. We weren't waiting for

the Auditor General's report to start down the road. What I will say is that the

Auditor General's report has given specific recommendations and some very clear

guidance, and we are committed to ensuring those recommendations are ultimately

followed up on and achieved.

CHAIR:

Okay, thank you.

Mr. Reid, I'm going to go to Ms. Parsons, or unless you

have one quick – because after we finish Ms. Parsons, it's the first round of

questions, we want to take a 10-minute break. I want to note, too, that we will

break at noon for lunch for an hour.

So Mr. Reid if you got a follow-up, quick one, before

Ms. Parsons?

MR.

REID:

Yeah, just a quick one, I guess.

This report is based on a spot check of the Avalon

school board. Have you done any sort of checks on other boards to see if similar

problems exist there and the extent of the problems? You mentioned you had

different cultures coming together.

Have you identified that what happened in the Avalon

was an anomaly or is it worse elsewhere, is it better elsewhere, do you have any

sense of that at this point?

MR.

STACK:

We have no evidence of that level of wrongdoing in terms of the fraudulent piece

elsewhere. However, the controls and the measures and the policies apply evenly

across all regions of the district.

We have a provincial focus to this. For example, our

session at the Gardiner institute a couple of weeks ago with all of our

directors in each of the divisions, some 30 in total, around 30 folks, involved

everybody from Nain to St. John's.

So the response is provincial in scope, but we have no

evidence of any type of nefarious activity in other regions, other than Avalon.

MR.

REID:

My question was related to the procedures that were in place in other regions.

Were they more stringent? When you say you have no evidence that there was any

problems there, does that mean you haven't checked to see if – you can't give me

any conclusive evidence either way or what does that mean?

MR.

STACK:

No, what I'd say is there's no evidence of any fraudulent activity. There is

evidence of problems with the procedures.

MR.

REID:

Okay, so internally you've checked –

MR.

STACK:

Yes.

MR.

REID:

– done spot checks on what's –

MR.

STACK:

Right.

MR.

REID:

– happening in the other regions and it identified similar issues that were

identified –

MR.

STACK:

Similar processes, not identical, and that's why the policies that we're putting

in place and the measures and protocols are necessary provincially, recognizing,

of course, that we can't handcuff a school in Rigolet from acquiring resources.

If there's only one vendor in the local area, and it

needs to be acquired, we have an approval process for that that looks after

that.

MR.

REID:

Okay.

I have some other questions but –

CHAIR:

Yeah, we'll come back in a second round.

MR.

REID:

we'll deal with those later.

CHAIR:

Thank you, Mr. Reid.

Ms. Parsons.

MS.

P. PARSONS:

Good morning.

Like my colleagues, I appreciate, of course, you being

here but I think it's safe to say that it's unfortunate why we're all here

today, given what we've gone through in the news media recently as well.

I just want to stay here in the conclusions of the

report. Again, I'll reiterate and I'll state this and put this on record, this

control environment and lack of action over the years to address known internal

control deficiencies and disregard of policies significantly increased the risks

of errors, unauthorized actions on ethical behaviour, and or fraud.

Are you confident that the people who've been hired to

conduct the responsibilities in these jobs, including the trustees, are you

confident they're doing everything they can to do the job well and to prevent

these sorts of things from happening?

MR.

STACK:

Maybe our board chair can respond on the trustee side, but on the staff side, I

can tell you, MHA Parsons, that I'm confident in the team we have to see this

through and to turn the culture around and to arrive eventually at a place where

these measures and controls will prevent this type of thing, in large measure,

in the future. Recognizing, you're never completely ever going to be in a

situation where your detection systems and your prevention systems are 100 per

cent. But we will do whatever humanly, mechanically, technologically possible to

arrive at a place where the scale of this sort of thing never occurs again.

MS.

P. PARSONS:

Right. I'll use other workplaces as an example. Say, in journalism, a reporter

goes and presents their work and it's vetted by other people, it's checked. An

MHA, for example, submits an expense claim. It goes through a channel and it's

seen, different eyes are on that.

Are you confident that these sorts of processes are in

place? Again, because we are accountable to the taxpayers and this is arguably

one of the most departments in our system of education.

MR.

STACK:

have the policies and procedures. Largely, we are reliant now on manual

processes. We need a better system for a school district that has 254 school

sites and a bunch of other buildings and work sites.

Something like inventory control is extremely difficult

when you're dealing with resources. We don't have central warehouses that you

can deposit items. What we can do is work on a technological system to have

serialized items that are checked and ensure that if you're going to buy a new

item, then the other one is identified as being beyond repair or it's end of

life. That's not easy. I'm not saying it's easy to do this, but we do need and

we've developed a plan. We've submitted it to government to get us to a place

where we can be better at inventory control, asset management and procurement

systems.

I don't know, Chair, if Mr. Price would like to – you

mentioned trustees.

MR.

PRICE:

I guess you started with a question: Are we satisfied with what we do? From a

point of view of trustees, obviously, we'd like to be able to make sure that

everything is the best it possibly can, but we have to deal in the reality of

what we have in front of us.

The trustees – and we've started off – recognize how

serious this is. We've implemented committees of the board to review the details

in this. Sometimes you get tied up – and I don't mean to say this isn't

important. What I'm saying is the number of transactions and the size of the

organization, if we didn't have those policies and procedures in place, such as

the travel claim approvals and all those, if you didn't have that for 8,000

employees, this system would go down pretty quickly. And we're similar to other

agencies and we have those pieces and process.

It is a challenging and daunting task, and the trustees

recognize it, to come up with a system and policies that truly allow the system

to work properly right across the district.

The system in St. John's is very different from the

system in Labrador and the West Coast, and we recognize that we've got to do the

due diligence on these, but we didn't have an internal auditor directly

answering or coming to the board before. We do now.

We have a risk assessment, internal risk recognition

system that brings the risks of the organization, whether it be in HR, whether

it be in curriculum, whether it be in financial, that comes to the board. These

things were never there before. So it's all building blocks that help us do our

job better than we were doing before.

Answering the questions; some of the issues in here,

there's no answer to it. Some of the specifics or the issues in there, there's

no answer to the – just a second, because I think I picked up my phone and I

need to turn it off so I'm not talking to the world. Sorry about that.

So, we are addressing, through our board function and

our trustees, the important stuff in this report, but we're also not limiting

the scope to that. We now have systems that internally, on our own steam,

address issues and bring it to the board so that we can fix it. That wasn't

present before.

The different policies, when we first came together as

a unit in the amalgamation process there was about a year and a half – Tony,

correct me if I'm wrong – that we were operating under four different policies

and procedures in the province. We're now all operating on the same page. So,

there is consistency that has come of this and the accountability.

I can't stress any more that our staff – and I've been

here all the way through this – have treated this at the upmost importance level

and have dedicated themselves totally. When an issue came up, once you're aware

of it, you got to fix it. We don't wait for other people to come in and say it's

got to be fixed. Sometimes, externally, it looks like you're not doing anything,

but there's a lot of stuff that goes on internally that you have to deal when

you're dealing with these pieces.

I guess, in a long way, to answer the question, the

trustees, through the policies that we've been developing, the training that

we're getting, the internal audit – the AG clearly came in and told us what we

need to do in terms of trustee oversight. Because that was the question for us,

through the AG, was: What do you mean when you say enough oversight wasn't

given? How does that track into some real steps that we can take? This risk

assessment process that we're doing, the internal audit, the accountability

through our Finance and Operations Committees, going back and validating these

pieces, go on a basis – can we do more? I'm sure we can do more. We got a team

that's willing to do more but it's going to take time.

The other challenge – and I can say it because I'm not

in a staff role here – is we'll take it on a simplistic level. How well does the

internet work in all our communities around the province? Some of it works very

well and in other areas it doesn't work so well. So, when you're implementing

financial accountability and you're using all these great software platforms

that jam up your computer – I'm not saying it's not going to be done, but there

are real challenges in making it work.

If there's anything that I've seen since I've been at

this table, our team is doing what it takes to make people accountable but

understanding the context that their coming from so they don't overburden and

kill them so the system breaks down. Long-winded, I know, but I'm really trying

to emphasize that we've got 17 trustees around this province that are absolutely

on deck in trying to respond to this report in the most professional and

accountable way possible.

Our forward-looking piece is if the AG comes in again

in the not-too-distance future or whenever and does another analysis, that a lot

of this stuff is taken care of in the appropriate fashion, and that'll be the

final litmus test.

Thank you.

MS.

P. PARSONS:

Good. Thank you.

CHAIR:

Ms.

Parsons, you're good?

MS.

P. PARSONS:

Good, yeah.

Thank you.

CHAIR:

Okay, we'll take a break until 11:10 for people to stretch their legs and if

they got to make a phone call.

We'll come back then and get into the second round, and

we'll break for lunch at 12.

Thank you.

Recess

CHAIR:

Wait now, Derrick. Sorry, your light is not on. I don't know if –

MR.

BRAGG:

Okay, we're good to go.

No, when I initially started this and reviewing it over

the last week or two, I had looked at the full document and said I will ask

almost line-by-line questions, but I'm more hooked up on the policy and the

procedures.

Some of the responses from you guys, I'll be honest,

I'm not really convinced we've done a lot. I don't know if you have a list of

things you've done that you could present to us, or how soon you could do that,

because your answers seem to be generic answers to most of our questions, and

most of us have gone down the same line.

What assurance can you give the people of this province

that you fellows have made great changes, great movements over the last six,

eight, twelve months or whatever to address this?

MR.

STACK:

Okay, fair question.

Look, there are no real excuses for what happened. It

should never have happened. So I'll be clear on that.

I think we said in the opening remarks the district did

not have the policies and procedures in place to mitigate the risk, but we have

been developing them over the past couple of years. We're at a point right now

where we believe we have the policies that deal with it. There are a couple of

additional ones that the Auditor General recommended, and the report is in

September. Policy development does take some time.

So a couple of the things – like, for example, risk

management, from a financial perspective, has a process been initiated. Another

policy, we are under whistleblower legislation as an entity of government but

we're developing our own, and I have a draft of that right now. All the policies

that I mentioned have been developed since we became aware of this situation. So

we believe we have the policy framework.

We also have the commitment, from an ethical

perspective, around changing culture and developing those code of ethics. Those

are well under way, but the trustees and a few of the senior staff could sit in

a room and we could give you a code of ethics within a day, but the process of

developing a code of ethics has to be an elongated process that involves and

includes all of our staff right down to the rank and file, and then gets vetted

and comes right back up. The strength in developing code of ethics is almost in

the process, as opposed to the final result, and the final result would be

important going forward.

So all of those policies are in place, and a couple

being developed that are specific to the Auditor General's report that we've

been aware of since September. The reassurance piece is I am committed, as CEO,

to ensuring that we have in place procedures that vastly improve our detection

and our prevention for fraud. But I'll be honest, I don't know if there's a

system in the world that is completely, 100 per cent prevention – completely.

Now, we had the staff look at what's required in terms

of technological and a HR acquisition to get to a place where we're ultimately

confident. That plan has been developed and submitted to government, and

government has responded. So I guess that's our short answer. And in this

current environment, we have been preoccupied with this to the point of almost

distraction.

I'm the director of education, and that continues; that

work continues. I am focused on deep learning initiatives and moving this

province forward, responding to the Education Action Plan, ensuing that we get

to a place where we are improving the outcomes. That is our main core business,

but we're also focused on the financial piece.

Perhaps I'll defer to Mr. Hall to give maybe a more

verbose answer on some of the financial things we have done and are planning to

do, just to extenuate and provide more detail to what I've just said.

Mr. Hall.

MR.

HALL:

Sure. Thank you, Mr. Stack.

If I can, if you could indulge me for a second, I just

want to go back for 30 seconds to a couple of points from Ms. Rogers earlier,

and I do want to say I appreciate the comment you made about Mr. Stack. He did

stand up in a difficult time and took this on and he is to be applauded for it.

He takes this more serious than anyone even knows every day. We've gotten to be

best friends almost, we talk every day.

The other thing I just want to mention, you asked about

if the AG had a copy of our proposal, not specifically handed; however, Ms.

Mullaley would be aware that we were looking at needing a new system, and that's

first and foremost for us if we're going to make significant change.

What I do want to mention is the Comptroller General is

aware of our proposal from an operational point of view and is working with us

and the department on the implementation and the potential system that we will

need. So, from an operational point of view, we have engaged the Comptroller

General. Just if that helps to answer your question.

Specifically to your question – I won't bore you with

all the details. I've already alluded to some of the power we've taken back from

the facilities team and some of the things we've put in. We have, what I call,

put in some stop-gap measures, given we're still working with the system and

people resources that we have had and going through this. So I call it, we have

put in the stop-gap measures to mitigate anything from happening going forward

while we're looking to get the appropriate process, people and system in place

that we need.

We looked at it from two angles, operational and

cultural. So from a cultural point of view, reiterate some of what Mr. Stack

said, we actually designed a leadership management course with the Gardner

Institute that we were putting our facilities management and our finance

management through. So they've already conducted three separate courses, they

have three more to do. So we're trying to change the way people are thinking and

the culture. We're making the district more aware of what our expectations are

and what needs to be done, because we do take the public money very seriously

when it comes to that.

We've also created and posted a number of new policies,

as we've addressed. Board has done training. The district executive just last

week, we did training ourselves. We sat through and went through a code of

ethics, code of conduct and those types of things. So we're taking it serious to

that point as well.

On an operational side; we just, this past number of

months, engaged a student on a work term, their final work term to come in and

work with one of our individuals to start the process of getting a formalized

documentation of our purchasing process, because that was lacking.

That's one of the things would have been mentioned by

the AG's office that we didn't – when we came together, we didn't do one formal

purchasing process that everyone could lay their hand on and say they know

exactly what to be doing to acquire goods. So we've got that process done, and

we have an initial draft that the student and one of our individuals worked on

that we're still working on.

We created, as I said, an approved vendor list that

people have to go to when they need certain services. So they don't have the

ability to go anymore and pick who they want. The procurement team is doing the

quotes for facilities.

We added a second internal auditor. In mid-2017, we

added another internal auditor. We only had one internal auditor for the whole

district. So we added another one to be able to get out and be more proactive

and help divisions and help other areas understand processes and what they need

to do better, to be more proactive.

Again, quick PO books, we limited them down to a

couple. We have done a review of an asset management system we'd like to bring

in that will help track. We have IT that are currently tagging at least the IT

assets that are coming in. Because our shiny objects are some of the most

expensive and where we spend a lot of money, as you can appreciate, computers,

iPads and those things. So they're, minimally, at least now tagging IT assets

when they come in to the office before – so we can at least record them. And

we're working on an absolute tracking system.

We designed a fuel and gas logbook that we now have in

all of our vehicles. That any time there is a point A to point B trip, the

person in the vehicle has to write it down where they went. So we can always

take – they're reconciled at the end of the month against our fuel logs. So if

there's a purchase on a fuel card, we know that vehicle must have driven 400-450

kilometres when these logs are recorded. In conjunction with that, we did a

pilot on a GPS for our maintenance vehicles. So as we'd have a better

understanding as to where our vehicles are and be able to track it more on a

system basis versus depending upon manual fuel logs.

We implemented a wet signature on any invoices that

come in that's over $10,000 as a starting point. Before, as long as it matched,

you didn't need a wet signature on it but we've changed that. We started with

$10,000 because that's our major cut off for having to go to tender; however,

again, we keep banging away at it. We do have limited resources and we're hoping

to fix that.

We process anywhere from 80,000 to 100,000 invoices a

year with a team of six, sometimes seven, AP folks that are trying to do this.

So, you can appreciate, we can't explicitly look at every one, so we work on a

model of sampling. We do find some stuff through samples which then drives us to

have to look further, but that's the extent of the processing we're doing. But

we have implemented new stuff in AP as well to help them with – as the last set

of eyes before a check is cut or anything like that goes out, that they can at

least flag something.

So we're giving them more training as well. We've had

them in and helped them understand other things to be looking for and what to

flag. We've gotten ourselves to a point where – and I believe I'm accurate in

saying my last number – we're at about 90, 94 per cent. We're doing EFTs now. So

there are no cheques. We don't manually deliver cheques anymore which would have

been a comment in this here, we're on EFTs. So there's no one coming and picking

up cheques or we're not delivering them anymore.

I won't bore you with the other few things, but there

is a long list of stuff that we have done and implemented for stop-gap measures

to educate our staff. And I assure you, as Mr. Stack said, this hit everyone. I

assure you when this came out, my accounts payable staff were devastated right

down to that level. They are in it to say what is it you need us to do better if

we can be your last set of eyes to help. So whatever area we can, we're trying

to do stuff.

Again, we know we have a road to go. We need a system

that will help us with the controls in the system versus being manually

dependent, and we need to get better at preventing this versus depending upon

detecting it at the back end before it goes out.

So we are just off the starting line, and we all know

it. We have a road to go but we're committed to do it and make more change that

we need.

MR.

BRAGG:

Thank you.

CHAIR:

Okay, Mr. Bragg.

Mr. Petten.

MR.

PETTEN:

Thank you very much.

I have a couple of questions I want to ask Mr. Price,

Chair. When did you first become aware of the problems pre-2015? Because I know

you were vice-chair, you said, prior to becoming chair. Do you have any idea

when you would've first become aware of some problems being reported within the

organization pre-2015 or pre-AG?

MR.

PRICE:

I can't give you a specific date because I don't keep the logs. What I can tell

you, we have a system in our organization that if there's anything untoward that

goes on, such as the difficult challenges that were identified by us with some

of our employees, that the executive and the chair is notified.

As we were going through these particular issues, that

was not the exception. I was notified as soon as it became pertinent to the

district. Which day it was? It was when it was in real time. It was when it was

happening, I was aware that these things were ongoing. If it raised the level

where disciplinary action was going to be taken or we were going to take a

pause, that's when it goes to the executive, and the executive has to make the

decisions on (inaudible). So I guess the accurate answer without giving dates,

because I don't know them off the top, would be yes. In real time, as this was

unfolding and (inaudible).

I would be also aware in this process, sometimes there

are HR issues that you have to work your way through in a very methodical

fashion. I would've been aware and be asking the questions: Why is it taking so

long to deal with this? And the explanations would've been given back to me at

that time why it was taking long. So it's not a case of being kept in the dark.

You have to go through the processes, and internal processes that you got to do

in these circumstances.

I can't re-emphasize, this is a huge organization. Our

budget, and this is why it's so important, is a billion dollars. It's a huge

amount of money for a province of our size, and our respect for that is

absolutely critical. So when you get a report like this come out, and I say it

again, it's startling, it's serious and you've got to deal with it. In my

mindset, and in a trustee's mindset, you ask yourself after these things have

been identified: Can this happen today like it happened before?

We have changed. When this came out, we didn't

(inaudible) every one of our secretaries in the schools, back when this was

happening, went through specific training to try and tighten up what was going

on. Not just here in St. John's, not just in Eastern, not just on the Avalon

piece, not just in Facilities, this whole issue permeated right the way through

the organization, at the time, in real time, to try and fix and make sure these

kind of items didn't happen again, okay, that we see in this report.

MR.

PETTEN:

So the board would've been aware – because these problems are dating back to

2012 and probably even earlier than that. Did the board give any direction – I

know it's the old board and you're a part of it. Was there any direction given

to the district at that time? And on the flip side, what did the district

report? What was reported to the board's finance committee from the district

during that period of time? Because, again, it's glaring throughout the report,

as we've talked about many times, and I'm not still settled. There's an awful

lot of stuff here that would seem to be – and I wouldn't use the word ignored

because I realize it's a problem – but seemed to be, they weren't dealt with

pre-2015 when the AG stepped in.

So I don't know if you could answer those two questions

of what direction you gave the district, I guess, and what the district reported

back to the finance committee of the board.

MR.

PRICE:

Okay.

A lot of the issues that would've been brought to us

would've been criminal in nature or fraud or those kind of pieces. The direction

of the trustees of the board is you have to deal with fraud in the proper

channels of dealing with fraud. You go and do the investigation. When it's done,

at some point it comes to a place where the investigation produces a certain

amount of information that requires legal involvement. That would be at the

direction of the board at that time. Go through the process, identify the

issues, bring them back to the board and say we're at a position now where we've

done this, now we go to the police. That's the process that we were following at

that particular time.

I can't stand or sit here and say, do I know all the

details of what happened in all the districts. At that particular time, when we

were going through amalgamation, there are huge different policies taking place

in different areas of the province at the same time. We weren't in a policy-free

environment where it was a free-for-all for everybody. There were policies that

were being applied, such as the Labrador policies for finance and accounting

were being applied in Labrador at that time in the way they'd done it for years.

So I guess, to answer your question, these items

would've come to the board in the same fashion of any other criminal activity,

whether it be in the programming side or the financial side, and we'd have dealt

with it in that fashion. Do we tell them to go – it's not required to tell your

people to go to court or to pursue legal action in that fashion. Once fraud or

illegal activity has been identified, there's a process and you go for it, and

that's what would've happened and did happen in these pieces.

A lot of the items that were here, obviously, the scope

in the AG report has given us a lot of insight into what policies and procedures

we've implemented and we're going to have to continue to implement it, such as

our risk piece, but the actual legal context, we go through the standard

process.

MR.

PETTEN:

Thank you.

I have one question for Mr. Stack there now, too.

How many staff were in the Facilities division pre-AG

report, before any real action was taken? How many staff were in that division?

MR.

STACK:

How many staff – I'm not sure I understand your question.

MR.

PETTEN:

Before any dismissals, before any firings or any legal action was taken, how

many staff were in that division, Facilities division?

MR.

STACK:

I'd have to research the total number of personnel in the Facilities division. I

couldn't give you an exact answer, but I can certainly obtain that for you.

MR.

PETTEN:

Some of the same staff are still there in the positions that were there during

the full process, correct?

MR.

STACK:

Yes. Some of the same staff would be there, yes.

MR.

PETTEN:

it's only the staff that were identified as having direct involvement in the

fraudulent activity that have been let go or replaced or –?

MR.

STACK:

Any of the management staff that was involved have been terminated.

MR.

PETTEN:

Any

of the management staff.

MR.

STACK:

That's right.

MR.

PETTEN:

And

what about regular front-line staff?

MR.

STACK:

There were some – again, I don't want to get in to confidential HR procedures,

but there were other staff that were non-management that were also terminated,

yes.

MR.

PETTEN:

Okay.

One more question and then I'll pass it over to Mr.

King.

So you got a proposal for a new audit risk committee,

based on what's happened. How many board members will be on the new committee?

Where they'll come from?

MR.

STACK:

The new entity, the financial oversight committee, will comprise elements of the

board, as well as some external membership.

And I'll ask Mr. Hall for the exact detail, because I

don't have it right in front me, as to the composition of that entity.

MR.

HALL:

The proposal we have and that was approved was seven. We were going to have up

to seven. There will be membership from both our current standing committees on

it. The vice-chair or the chair of the larger board would also be on it, and a

minimum of one, up to two external. So we would go out and make sure we have

financial expertise or legal expertise that will also come in and be part of

this audit and risk management committee.

MR.

PETTEN:

I want to follow up. Who would appoint those two outside people? Who would they

be appointed, or what process would be followed to appoint those two people?

MR.

HALL:

Well, that's currently what we're discussing and that the chair will discuss

with the board as to: Do we go outside to have someone appointed independently

or is the board going to go through a process to review and understand who would

be appointed. So that's the piece we're currently at. We've established the

makeup of the committee and that's what we need to now appoint. So we're in that

process.

I don't know if the chair would like to comment on what

his thoughts are.

MR.

PRICE:

The audit and finance committee of the board that we're structuring and the

guidelines, the external

part is in the AG report there was a recognition that

we didn't have some of the professional designated skill sets on the board,

which is through the elected process that I've already alluded to earlier on,

you don't get that. So these external people will be dictated by their legal

designations and what the requirement for that audit committee is. So that's

going to be a limiting factor in who's identified.

The other part that has to be debated is, where do

these people come from? Obviously, our headquarters is in St. John's, so there's

a little bit of a logic to have them located in St. John's, but there's also a

logic that we're a board from across the province, so we have to try and deal

with that.

So to answer your question, we're working through it.

We haven't identified exactly how that's going to work yet, but it will be open

and it will be posted with the rest of our policies and our committee structures

on how that's done on our regular website.

CHAIR:

Thank you, Mr. Petten.

Mr. King.

MR.

KING:

Thank you.

I'm going to page 53 of the Auditor General's report

about human resources policies and procedures. There are four, I think,

recommendations that come with that:

“Establishing formal job descriptions that clearly

outline roles and duties of a position.

“Hiring individuals with competencies that match the

requirements defined by job descriptions.

“Performing background checks when hiring individuals,

particularly for those positions of trust and authority.

“Evaluating individual job performance on a regular

basis to identify competency and performance gaps, develop plans to address

these gaps and monitor employee progress against these plans.”

If you go a little bit further, you'll see two

employees that were highlighted through the AG that were hired and didn't

necessarily meet qualifications and they were actually bumped up to a senior

position. Are those two people still employed with the school district? What are

you doing right now to come up with new job descriptions and meeting those four

recommendations that came out of the HR section?

MR.

STACK:

I'm

going to ask Mr. Walsh, in his capacity as the assistant director of human

resources, to respond to some of the granularity of the question.

I want to be careful in alluding to any answers that

might identify employees here.

MR.

KING:

Yeah.

MR.

STACK:

I have to be careful in the response with respect to the two individuals here.

I can say that the policies around the hiring and

performance evaluation have been improved since this report was written. And

I'll ask Mr. Walsh to respond.

MR.

WALSH:

Good morning.

First and foremost, I guess it's important to note that

the beginning stage of any recruitment process is always the development of

current and accurate position descriptions.

Post-amalgamation of the four previous boards, these position descriptions were

housed in the different regional offices or – yeah, in the different

regional offices of the province. And given that they were housed there and

that's how they were developed, there wasn't a consistent process for their

development. Oftentimes even positions that on paper or on our website appeared

to be the same position, their actual position description was different.

So as a part of our response to the report, we've

centralized the collection and the management of position descriptions for all

management positions in the province. We've been collecting them, collating them

and analyzing them to determine whether or not they're current or whether or not

further work and development needs to be done on them. And we've started that

process with any of the areas in which we've identified needs for updating. So

that forms the basis of any recruitment process. Now that we have those collated

in a central repository, we can now use them in the development of job ads for

positions that occur in the future.

By way of context, from the education side alone, not

necessarily the management or the facilities side, since May 25 of this current

school year – or this year, I should say – the district has processed over 1,700

recruitments for education personnel. And, of course, when you are processing

that many job competitions in a short period of time there is always the

opportunity for things to not be done in a consistent manner.

Obviously, if there are issues with the recruitment process

itself, collective agreements, in particular, on the education and the support

staff side would address those. But as a part of our oversight of the human

resources procedures, we've developed our own, inside of human resources, mini –

I guess I would call it – audit process on job competitions to ensure there's

consistency in the development of the jobs, the recruitment of the individuals

and the offering of contracts.

From a policy development perspective, we currently have a

draft policy that's about to go to the board on the performance appraisal for

management individuals. Prior to this past fall and prior to the AG's report,

this policy did not exist. It's moved its way through the initial stages,

committee stage of the board, and is ready to go before the full board

at its next meeting.

Also,

our internal process has been, we've initiated a review of our certificate of

conduct policy, highlighting some of the challenges that existed prior to this

current year. Of course, part of our annual review process anyway, we would be

identifying things in that policy that need to be addressed.

Part of

our policy development also is we are going to be doing, and have started doing,

some education sessions with employees to which the policies apply to so that

they fully understand what their obligations are.

MR. KING:

Just going back to the two employees mentioned in the Auditor General's report,

they were not qualified for the positions they held. Are they still in the same

positions?

respect the fact that there are privacy concerns, but we're not naming names.

We're just looking at positions. Are they still employed? Because that's very –

to me, that's speaks volumes as to people not qualified to do their jobs,

especially in engineering roles.

MR. STACK:

I can say that one individual is still employed in the position.

MR. KING:

Okay.

MR. STACK:

There is a question as to – and it was noted an engineering role. There's a

question as to whether or not that role required an engineering background or

more of a business MBA-type role. I can't speak to – because I wasn't involved

in the design of that competition, but I am confident that the individual that's

currently in the role is capable of performing that task and is integral to

turning this around going forward.

MR. KING:

Okay.

That's

all the questions I have.

CHAIR:

Okay, Mr. King.

Ms.

Rogers.

MS. ROGERS:

Thank you very much.

I can

truly appreciate, Tony, when you talk about wanting to move on to some of the

other issues, particularly around the implementation and recommendations from

the task force and really what our education system is all about. I can imagine

how frustrating this must be. It's almost like the tail that wags the dog for a

while. So let's do something about this dog.

We hear,

it's sort of bits and pieces, of some of the – I've asked you for a report on

the strategy and plan that you have, but can we also have a formal report of

what you have implemented to date, the new policies and procedures you've

implemented to date? If we could have a written report like that.

I would

also ask the Auditor General: Julia, can you tell us what you feel would be

helpful? Because, again, what we're trying to do now is free you of this as well

so you can get on with the other important work, but also to instill confidence.

And the

other thing is that if your asks require additional resources, whether it be

personnel or whatever, that we, as the Public Accounts Committee, our role is to

ensure that what you need in order to proceed in a way that is fiscally

responsible and reliable, that our role as a Public Accounts Committee is also

to push on your behalf to make sure that that is in place. I do believe that is

part of our responsibility.

So I'd

like us, like you all to be able to move on as well. So let's establish what is

needed. Again, the Auditor General, Julia Mullaley, if you could let us know

what you believe you need also in order to have a confidence, because the audit

that was done was so comprehensive over a long period of time. So let's get this

right. Let's wrap it up so everybody can move forward.

MS. MULLALEY:

Yes, sure. I think I'd like to start out by certainly commending the board and

senior management in tackling this situation.

It was a

very significant review with, what I would say in my time frame of auditing, it

was probably one of the audits that I've seen the most significant weaknesses

throughout the organization in the areas of – the whole parameters of control

environment.

So from

the governance side with respect to implementing and developing and making sure

that risks were being proactively identified and managed too, because setting

the tone at the top is so important, and I heard that today. I commend the board

and senior management for saying that and acknowledging that the culture

certainly needs to be changed. I heard a lot of things today about how that is

changing now. To your point earlier, I think that certainly takes time.

Some

significant issues around the systems and asset management systems, and, again,

they are significant issues and take time. I'm also really pleased to hear a lot

of the other initiatives that are underway that we heard about today to address

risk, because I think we all acknowledge today that those risks, because of the

systems and still some of the policies, they still exist in the organization. We

did look at one small part of the organization, although it was responsible for

a significant amount of procurements, having said that.

So on a

go-forward basis, I think that, again, to keep this – and I think the term you

used this morning, that the board and the senior executive had been seized with

that. I mean that says a lot. It's really important I think, that you need to

continue to be seized with this until you have the confidence that this is

corrected in the organization. It's not going to be overnight, but you got to

make sure like your action plan – and you have a implementation team on it and

you're monitoring it because I think we've all worked in organizations where we

set a plan in motion but one of the downfalls of any plan you set in motion is

you back off the implementation. You're not monitoring how well it's working.

So I

guess as a piece of advice is that you continue to be seized with it. Make sure

you're continuing to have the discussions at the board and senior management

level to make sure that these controls and additional initiatives are working

and you're seeing a difference in the organization; and to continue to celebrate

the successes when you do, when you see things improving. I think to be able to

provide that feedback to staff in how that's making a difference is a positive

thing as well.

I think

that's sort of what – it has to continue to be a real priority of the board as

well, and senior management for sure. I think it's a really good lesson learned

for all of our agencies and boards and our own offices and our own departments

because these things can happen, and it's important to see the consequences of

what happens when controls and governance and different aspects fall down. So I

think it was an important lesson as well.

MS. ROGERS:

And I think as well, the

whole issue of developing policies and procedures, so often what happens when we

see there has been a crisis, that there's been a violation of a privacy or

procedure, then we tighten up and it's not necessarily the best way to go. So

it's that delicate balance, as you said –

MR. PRICE:

Goronwy.

MS. ROGERS:

I'm so sorry.

MR. PRICE:

No problem.

MS. ROGERS:

Goronwy.

MR. PRICE:

Close enough.

MS. ROGERS:

Sorry.

As you

said, Mr. Price, we don't want to see the organization paralyzed. How often have

we seen policies and procedures – and I call it the once factor. That once

somebody did something, so the whole policy and procedure changes because of the

once. We don't want to see that happen as well, where we also can see the whole

issue of subsidiarity where people can make decisions that make sense from where

they are perched in the work they are doing. I understand the complexity there

and that balance. Hopefully, our pendulum doesn't swing so much that it

paralyzes the work or stops the work.

Would it

be possible then to get a written report of the work that you have done to date?

As well as – because I understand what you've proposed to government sounds like

a specific ask on a system. So it's not just the system, I think it's the other

comprehensive issues as well.

We know

there were policies and procedures in place, yet they weren't followed. So what

do we do about that? Can somebody speak to that? Because it seems like some of

the very specific violations, they were violations of existing policies and

procedures. So if someone could speak to that.

MR. STACK:

Sure. Thank you for that.

First,

we can certainly compile sort of a synopsis of actions taken to date. We've got

it in various forms, so it probably won't be too onerous to compile that.

MS. ROGERS:

For us and for the Auditor

General as well.

MR. STACK:

Right.

MS. ROGERS:

Thank you.

MR. STACK:

In terms of the submission to government, the highlights of that are around

upgrading our financial management system, having a business analyst embedded,

inventory control, asset management, centralized purchasing, and some folks to

do that, the fleet and fuel card management, as well as GPS tracking for our

vehicle fleet, and accounts payable, quality control. That forms the essence of

the ask.

With

respect to the policy piece, you're quite right, policies are written. When we

write these policies, though, we do it through the lens of, it has to be

something that's in the art of the possible. We can't write policies that we

know won't actually make sense when the rubber hits the road, so to speak. So we

were very cognizant of that in developing the policies.

We're

already seeing effect. As I mentioned, the conflict of interest policy has

engendered a tremendous degree of dialogue and discussion and discourse within

all aspects of our employee ranks. So that's evidence there.

Ultimately, the other piece that makes the policies work is right from the board

oversight, and the board have made it clear that they are going to ask the

questions and demand the reports that we have to furnish to them. So that

functionality will give the staff the engine, if I will, or the fuel to ensure

that happens, and that's how we make policies be followed.

Yeah, it

does require a focused energy around, as I said earlier, changing the culture;

but, as well, being absolutely – and I'll use the term again – seized with it.

And to the point where – the pendulum has to come across where it actually does

create friction in order to get a response until we can move forward.

MR. ROGERS:

I'm aware my time has run out, but I have a very quick question just in relation

to that –

CHAIR:

Yes.

MS. ROGERS:

– if that would be okay.

The AG

had reported that the bylaw stipulate that the internal auditor meet with the

board, but reported there was no evidence of such meetings. So why did that

happen? Can we be assured, in fact, that the internal auditor will meet with the

board? Because the board can't really do its work if that's not happening.

MR. STACK:

That's right, and I think Goronwy will speak to it, but what I can say is the

board has been clear with me that they want access through this risk management

and audit committee to sit, and the direction – like, the auditors work

independently from me.

MS. ROGERS:

Mm-hmm.

MR. STACK:

The auditors report directly to the board, and that's how it should be. That is

now enshrined, and I can guarantee you that will happen.

MS. ROGERS:

That the internal auditor will meet with the board?

MR. STACK:

Report directly to the board, yes.

I don't

know, Goronwy, if you'd like to add to that.

MR. PRICE:

No, I'm just reiterating what you said. We've got a process in place now.

There's at least – obviously, it's not every meeting they'll do there, because

we have such a broad scale of stuff there, but there's an anchor point that

requires us – that they meet at least once a year with us and present their

report. The same as the risk component of it, identifying the risks in the

various sectors presented to the board.

Then the

prioritization of those risks, if we

assess something as higher priority than the internal response, then that's

where it's done. Before it was not a required statute that they be there on a

regular basis. It is there now, and it will happen or else people will be

uncomfortable.

CHAIR:

Yes.

Thank

you, Ms. Rogers.

MS. ROGERS:

Thank you.

CHAIR:

Mr. Reid, we'll let you take

us in to 12 o'clock, and then see when we come back if you need more time.

MR. REID:

Yeah, okay.

started off, I was looking at the nature of the problem and how it developed. In

this round of questions, I want to get into the solutions a little bit more and

look at some of the things we've talked about here today in a little bit more

detail maybe.

One of

the things that's come up is the financial accounting system that the board uses

and how important that is, and the fact that funds have been asked for to put

that system in place.

I'm

wondering, in terms of the nature of the problem that was identified in this

report, how much of it is the lack of a proper accounting system and how much of

it is cultural? I'm just wondering – to be cynical about it, we could say we

could have the best accounting system but if we haven't changed the culture

significantly then we won't have solved this problem.

So I'm

just wondering, in terms of the nature of the solution, how much of the solution

is this accounting package? How much is cultural change –?

MR. STACK:

That's a very good point.

Thank you for that.

It's

difficult to assign percentages to say. I will say this, I think the Auditor

General correctly pointed out the problem with culture. We internally recognize

that and endorse that finding, certainly.

As I

spoke to earlier, the culture of operational efficiency around not losing

instructional time and opening schools at all costs, dealing with a vast array

of infrastructure out there, allowed an environment to exist where if you're

going to go outside of regulation to get something done, then that speaks to a

permissive culture which then allows for other activities to occur, and that's

wrong. So we've been very clear that the culture has to be not only doing the

right thing but doing the thing right, and there's a distinction. We've been

very clear on that.

We also

communicated with our operational managers that people like me, who are not

experts in construction or financial controls, as educators, probably have over

the years assisted in this, you know, we need that school open; and they were

responding. Now, what we've reassured them is, that's fine, you have to be

preoccupied with expediency and effort but you can't do it at the expense of

procedure, regulation or violation of policy, no matter what. So culture is a

part of it, yes. Again, I can't assign a percentage to it, but it starts there.

The

training that we're doing, the process in developing a code of ethics – that

starts at the top, goes down, gets socialized and debated and then brought back

up – is important, and that's going to take time. It'll probably take this year

to do it.

Now,

that's not to say we're not operating in – it's not that we're operating without

ethics, we're operating without a defined code of ethics right now. A lot of our

professions have code of ethics in their professional capacities as well, but we

need a unifying code of ethics.

So the

culture starts there. The code of ethics or ethics development is important. The

policies that back that up, the board oversight, all of it is a part of this

piece.

I don't

know if I've answered your question completely.

MR. REID:

Instructional time; I can understand in terms of the quick purchase, the quick

order and things like that, but the instructional time, a lot of the things that

have been identified here don't relate to instructional time, and you use that

as justification for some of the processes that were in place.

MR. STACK:

What I meant by instructional time was, if you're preoccupied with that, and

then the people that were doing the procurement felt they could bend the rules

to achieve the result that we all wanted, then what other rules could I bend?

That's what I meant –

MR. REID:

Okay, I'm not –

MR. STACK:

– by an environment.

MR. REID:

I'm not sure –

MR. STACK:

If you're operating in an environment where it's okay to look at a regulation or

a procedure –

MR. REID:

Yeah.

MR. STACK:

– and you're going to overlook that, then there are other parts that are not

related to instructional time which you might also overlook. It creates a

culture of permissiveness, and that's what we're saying has not – that cannot

occur.

MR. REID:

Yeah, but most of the things that are identified here did not, sort of, relate

to instructional time. So the link to instructional time, in my point of view,

is somewhat tenuous in terms of –

MR. STACK:

Okay.

MR. REID:

In terms of a quick order, I certainly understand that, but to say that

instructional time led to splitting of orders and the other things, raises

concern with me. I don't know if we really have the nature of the issues here.

MR. STACK:

So if you're permitted to – if somebody is not looking closely at you violating

a regulation to get a task done that people above you want done, then what we're

saying is that helped cultivate a culture. It's not a direct cause or

relationship, no, and I don't mean to suggest that.

MR. REID:

Yeah.

MR. STACK:

Some of the things in here are clearly inappropriate, repugnant and go against

the very ideals, the vision and values that the organization stands for. That's

clear.

CHAIR:

Okay.

If I

could suggest, Mr. Reid, when we come back, the extra three minutes you can have

then to start some questions.

MR. REID:

Yeah.

I don't

know, Mr. Price seemed like he had something to say.

CHAIR:

Oh, yes, sorry.

Mr.

Price.

MR. PRICE:

From my standpoint, what I

took – it's not the educational time on task, it's the mentality. For me, it's

like this, we have facilities in this province, without facilities children

don't go to school. If we run into problems in this place, the attitude was that

we got to do everything we possibly – it's got to be a can-do attitude. Can-do.

On Monday morning that place is going to open, it's going to open no matter

what. In that environment of can-do, sometimes people were breaking the

regulations that they should have been following. That's the connection there.

The

other part about the software, which I think was in your question as well, was

the looking for software. There are simple things that we have in our software

packages that don't allow us to put the controls in place. For example, I think

it was alluded to earlier on, in the approval process the same person could

purchase, approve and do everything because the software didn't allow us to

differentiate those kind of things.

Is that

correct, Terry?

MR. HALL:

That's correct.

MR. PRICE:

So although everyone knows

it, we can't fix it because there are some physical limitations with the

software to do that. Those subtle controls in the modern types of equipment

you've got will allow us to do it, and were huge. There's no way we can do and

put the controls in place on a manual basis for an organization like ours. We

have to have the equipment. We have to have the software that's modern and

allows this organization of its size to function properly and function in the

reality of the province. Because even when it shows up, it's not going to be

easy.

Registering students for your attendance is a different challenge with the

software that we have in different places of the province, because you can't get

online and those kinds of things. So it's not going to be the be-all and

end-all, bu