Public Accounts Committee — Department of Development — 12 October 1993

1993-10-12

Newfoundland and Labrador — Committees

October 12, 1993

PUBLIC ACCOUNTS

COMMITTEE

The committee met at 2:00 p.m. in the Colonial

Building.

MR. CHAIRMAN (Windsor): Good afternoon, ladies

and gentlemen. I now call the meeting to order. I think everybody expected here,

is here, and I want to welcome all of you here today.

First of all, the media, I think, are aware of the

fact that we operate under the rules of the House of Assembly here. The Standing

Committee is basically an arm of the House of Assembly. You have had an

opportunity to take your photos and I think you are finished; you are welcome to

do that. Are you finished with your photos? Do you want another couple of

minutes? You can go ahead, I can wait for the next couple of minutes while we

are doing the introductions, at any rate. We are not that formal in the

committee hearings.

I would like to introduce the members of the

committee: to my immediate right, Mr. Danny Dumaresque, Vice-Chair and MHA for

Eagle River; Mr. Alvin Hewlett, to my right, MHA for Green Bay; Mr. John Crane,

MHA for Harbour Grace; Mr. Melvin Penney, MHA for Lewisporte. Absent today are

Mr. Glenn Tobin, MHA for Burin - Placentia West and Mr. Oliver Langdon, MHA for

Fortune - Hermitage.

Before introducing the witnesses, we have the

Minutes for September 14. You have had a moment to look at them. Could I have a

motion to adopt those Minutes, please?

On motion, Minutes adopted as circulated.

MR. CHAIRMAN: I would like to welcome the

Auditor General and her staff. I ask the Auditor General now if she would like

to introduce the people who are with her.

MS. MARSHALL: Thank you, Mr. Chairman. To my

immediate left is Mr. George White, Audit Manager, and to my immediate right,

Mr. Bill Drover, Audit Principal, both of whom are with my office.

MR. CHAIRMAN: Thank you very much.

Witnesses - we have Mr. House, I guess, as Chairman

of the Board, and chief spokesman in this particular case. I never know whether

to go to the CEO or Chairman of the Board - I usually make the wrong choice. I

ask Dr. House if he would like to introduce the people who are with him.

MR. HOUSE: Thank you, Mr. Chairman. To my right

is Jim Janes, President and CEO of the corporation, who, I guess, probably will

be the chief spokesman for most of today's activities, although I will certainly

be willing to join in, on Jim's wishes. To my left is Patrick Kennedy,

Vice-President, who is in charge of the financial side of the corporation.

MR. CHAIRMAN: Thank you very much. I will now

ask the Clerk to swear in the witnesses. I will just advise the witnesses, as we

do this, that evidence is given under oath. It is not a trial, by any means, it

is a hearing to collect evidence to report, as we must, back to the House of

Assembly.

SWEARING OF WITNESSES

James Janes

Douglas House

Pat Kennedy

MR. CHAIRMAN: Thank you very much.

As I was saying, the mandate of the Public Accounts

Committee, of course, is that we are really the final step in the accountability

process. We normally react to items brought to the attention of the House of

Assembly by the Auditor General in the Auditor General's Annual Report and this,

of course, is the case here today. However, we are not limited to that - we are

certainly free, as a committee, to choose other items that may be of concern to

the committee, that we think are valid and worthwhile for the committee to spend

some time investigating. Members of the House of Assembly, from time to time,

refer matters to us or ask us to investigate matters. The committee then will

decide if it is appropriate, or the House, itself, may well refer other matters

to the Public Accounts Committee.

In this particular case, we are relating to

section

4.4 of the Auditor General's Report of 1992. I think we are all familiar with

the topics. Again, as I said, our role here today is simply to gather

information, to ask for your views on the items as expressed by the Auditor

General and perhaps to ask her and her staff for their views as well. Quite

often these meetings, in fact, turn out to be quite productive in bringing

together a meeting of minds and clearing up any misunderstandings or

misconceptions of really what the Auditor General and her staff may be talking

about or perhaps how various Crown corporations and agencies should be

responding to the Financial Administration Act and to the Auditor General. So it

is in that spirit that we welcome you. We appreciate your coming here today and

giving us the benefit of your experience and knowledge on these particular

matters.

Before we begin, let me ask the witnesses to speak

clearly into the microphones. All of these proceedings are recorded and are

transcribed by the people at Hansard in exactly the same format as used in the

House of Assembly. They don't have the benefit of eyes to see who is on the

other end of the tape. They know the MHAs fairly well because they listen to us

ad nauseam in the House of Assembly and they get to know our voices, but as for

the witnesses, particularly those who are here for the first time, they are not

as familiar with them. So, I will ask you to speak clearly into the microphones

and to identify yourself before you speak if I fail to do so. Generally, as I

recognize you I will identify you. The main purpose for doing that is for the

benefit of Hansard, so if you would do that with us. We normally go from 2:00 to

4:30 or 5:00 p.m. I believe we really need to get out of here by 4:30 - the

doors in this building, I think, lock automatically at 4:45 or 5:00 p.m. and if

you are not out then, you order your breakfast the next morning in here. We

generally take a coffee break around 3:15 or 3:30 p.m.

So, perhaps, to introduce the topic, I will ask the

Auditor General if she has some opening comments she wishes to make?

MS. MARSHALL: Thank you, Mr. Chairman.

We commenced an examination of Enterprise Newfoundland

and Labrador Corporation in May, 1992. Our audit was directed primarily to those

systems and transactions relating to management practices, fixed assets,

purchasing and loan and equity investments. Our review was designed to assess

whether management practice were adequate to provide information to management

and the board of directors for decision-making and control of revenues and

expenditures, to ensure that the corporation was in compliance with the

Enterprise Newfoundland and Labrador Corporation Act, and to ensure effective

accountability and safeguarding of public monies.

Our review was also designed to assess whether

policies and procedures were adequate relating to the control and use of fixed

assets; that the purchasing system was adequate to ensure monitoring and control

of the purchasing function and compliance with statutory requirements; and

lastly, that policies and procedures were adequate relating to the monitoring

and collection activities of the corporation's loan and equity investments.

As a result of our audit, we reported as follows: In

the area of management practices, we noted a number of areas in which management

practices needed to be improved. Weaknesses were noted in each of the

organizational, planning, budgeting, reporting, and internal audit areas. In the

area of fixed assets, control over fixed assets were not adequate. In the area

of purchasing, policies and procedures to ensure monitoring and control over the

acquisition of materials were not documented. Several instances of

non-compliance with the Public Tender Act were noted. In the area of loan and

equity accounts, we noted that sufficient attention was not given to the

monitoring and follow-up of loan and equity accounts. We were especially

concerned that approximately 42 per cent of the corporation's recorded

investments of approximately $70 million was considered doubtful as at 31 March,

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you very much.

I am sure there are a number of issues there that

members of the committee will want to raise. Dr. House or Mr. Janes, which one

would like to make an opening comment on behalf of the corporation?

DR. HOUSE: I guess I could make an opening

comment, Mr. Chairman, and maybe Jim would like to follow up on it.

I think what the committee really needs to take into

account here is that the Enterprise Newfoundland and Labrador Corporation is a

fairly new corporation and when we started to develop it in 1990 there was a

huge task of amalgamation to be done, putting together the former Newfoundland

and Labrador Development Corporation and a number of branches of the former

Department of Development. I think this amalgamation process went reasonably

well, was handled quite well and, of course, part of that process was the

decentralization and regionalization of activities of this corporation to five

regional offices, and eighteen, I think it is now, field offices of the

corporation.

So there was a large organizational task that had to

be undertaken initially. Together with this at the time there was, I guess, the

creation of a lot of expectation of business people, would-be business people,

and people involved in development throughout the Province, that they would get

access to this new corporation and the services they had to offer. And they did,

and I think there was a tremendous pressure on the management and staff of ENL

throughout the Province during the first year or two of its operation to respond

to the needs of clients in all regions of the Province. So, putting together the

organization, dealing with the organizational issues that had to be dealt with,

and trying to provide the best possible service that the corporation could, to

its clients in the early years, really took the major part of the attention of

the corporation as it was getting established.

Now, we were always aware that in the process of doing

that, it was also important that the correct procedures with respect to public

tendering, to financial management, to control of doubtful accounts, and so on,

was a high priority. It has always been our intention to put into place the

kinds of control mechanisms that we have to have in order to do that adequately,

sufficiently. We are, I think, now in a position where we can say that we have

actually done that.

At the time when the previous audit that the Auditor

General has mentioned here was being carrying out we were only part way, to be

quite honest with you, towards achieving that. That is the context, I think, in

which these concerns need to be considered. They are very serious concerns and

we believe that we have addressed those concerns in a serious way. As we proceed

here this afternoon I think we will be able to outline to you the various steps

and measures that have been taken, that I think will adequately, and are now

adequately, addressing these concerns in the public interest.

Maybe I can turn it over to Jim. He might want to

comment a little on sort of where we have gone in that direction.

MR. CHAIRMAN: Thank you, Dr. House.

Mr. Janes.

MR. JIM JANES: Mr. Chairman, I don't know that I

really have much more to add than Dr. House has already voiced. I think, very

clearly, our first year-and-a-half or so we were involved in getting this

corporation going on a proper footing basis. Clearly, there were issues within

management that had to be dealt with; they were, and they continue to be. As

well, as we go through this committee hearing this afternoon, some of the things

that ENL has been able to accomplish over the last twelve or fifteen months, I

think, will allay a lot of the concerns that this committee or the Auditor

General might have had back some seventeen or eighteen months ago. Thank you.

MR. CHAIRMAN: Thank you very much.

Generally, our procedure in committee is to ask

members of the committee to direct questions to the witnesses or to the Auditor

General and her staff. We normally go around the table, give each member a few

minutes, ten to fifteen minutes each, whatever is reasonable. Committee members

are very familiar with it and have been always very co-operative.

Who would like to begin? Mr. Crane, would you like to

open questions this afternoon?

MR. CRANE: I don't mind. It is as well to begin as

to be the last. One thing in the Auditor General's Report that came out,

certainly right from the start, was that she recommended a complete set of

corporate instruction manuals would be put together. At that time, in 1992, you

only had one out of seven or something, I think the report says. How successful

have you been in completing those instruction manuals?

MR. CHAIRMAN: Mr. Janes.

MR. JANES: At this time, we have two of our

manuals just about complete. We still have significant work to be done in that

area. I think the committee probably should be aware, one of the things the

Enterprise Corporation stated early was that it would be a flexible

organization, and that it would not be necessarily bound up with a lot of

regulation and so on and that one of the things that falls out of ten or eleven

or twelve instruction manuals represents basically a lot of red tape and so on.

ENL tried to be different from that. However, I can

state to the committee today that with 170-odd employees, not all of those

employees were basically in a position to accept a flexible approach to doing

business the way that the Enterprise Corporation had intended to do. So now it

is important and the corporation has recognized it as a priority to get to work

on these instruction manuals to assist those employees who need that type of

guidance. Today, there is still a significant amount of work to be done on the

instruction manuals.

MR. CRANE: With respect to the budgeting process,

the Auditor General recommended it, and you agreed that although you - for

1993-1994, completely independent of the recommendations report, you said,

detailed procedures and instructions were developed and used. Are these

instructions close to or in line with or compatible with what the Auditor

General recommended?

MR. JANES: We feel that they are. We have had this

process in place now - we are heading into our third year. A special committee

of the corporation has been established to deal with that, and perhaps what I

could do here is turn to Mr. Kennedy and just ask him to inform the committee of

some of the details of the work that has been done in putting together a proper

budget committee.

MR. CHAIRMAN: Mr. Kennedy, would you like to do

that?

MR. KENNEDY: Thank you, Mr. Janes.

The finance committee that was formed in the

corporation - what we have tried to adopt in developing our operating and

capital budgets, is what we have used, being a bottom-up and top-down approach.

The procedures that we followed were in complete compliance with the Treasury

Board guidelines. We implemented a procedure whereby the regions and divisions

of the corporation would submit operating and capital budget requirements, they

would be challenged by this internal committee, and then we would prepare a

budget document that went to our board of directors who, in turn, would

challenge it as well. For 1993 - 1994, that process was effected and, in fact,

we are doing it again for this particular year.

MR. CHAIRMAN: Mr. Crane.

MR. CRANE: In browsing through these reports,

there is one thing that always seems to come up with Crown corporations and it

is no different with yours. Nobody seems to have a handle on fixed assets, and

when this was written up, apparently you people didn't have much of a handle on

it either - no ledger, no tagging on a lot of your fixed assets. How in the

world can a group the size of yours, ever keep a handle on it if you don't have

some kind of procedure in place?

MR. JANES: Mr. Crane, at this point in time, we do

have a well documented fixed asset ledger. All of our assets have now been

labelled or stamped, as is the custom of government departments and other

agencies of government, and all of that ledger has been computerized and the

actual policy on fixed assets now forms part of that instruction manual that I

talked about a minute ago, plus one final thing; we do have people in the field

as of this time, instructing all of our staff in the regional offices who are

involved with fixed assets, as to how these entries are dealt with and so on, so

that we have, in place at this time, proper accounting for our fixed assets.

MR. CRANE: That is a good job, Sir, I would say.

You are really on the ball according to that.

One other question which has to do with purchasing

policies. I was looking through a list of some of the purchases made, such as

display booths, and what hit me was, there was only one supplier for a display

booth. I can see that on some things like licences and software, but it struck

me as being strange, in the case of supply booths, that you would be able to

find only one supplier. Can you explain what was so specific about that?

MR. CHAIRMAN: Mr. Janes.

MR. JANES: We had need for a certain type of

display booth for various manufacturers' shows and other things that we do from

time to time, and we had some requirements that, based on the information given

to me, there was only supplier in St. John's who could handle that, but I will

ask Mr. Kennedy if he could just give us some more of the details.

MR. KENNEDY: At the time the display booths were

purchased, we did, in fact, tender for the supply of the display booths for the

corporation and we awarded the tender to the lowest bidder. The point in

question in respect to the supplemental equipment, was that the supplier we had

to get it from was the original supplier of the display booths to begin with, so

the only way we could get the equipment to be compatible, was to go back to that

lone supplier.

MR. CRANE: There are several other questions here

but I will turn them over to Melvin.

MR. CHAIRMAN: Before you leave, could you just

clarify that for me, because as I read through the documentation here, these

display booths were for different offices, so you are saying that these regional

offices each had a certain number of display booths and that these, in order to

add on to them, had to be compatible? Is that the situation?

MR. KENNEDY: No, what we tried to do was to have

uniformity, in fact, Mr. Windsor, with respect to the display booths for all of

our regional offices, and the display booth that we purchased was like a

table-top type of display, and they were uniform right across the corporation,

so it wasn't a question of having different display booths in different regional

offices. The idea was that the graphics and some of the enhancements that had to

be made to the display booths, once we committed to that type of display booth,

we had to be uniform in how we could get the equipment to properly match up to

it.

MR. CHAIRMAN: And this was the only supplier who

could supply something that would be compatible?

MR. KENNEDY: We did put out tender requests from

several suppliers to supply a display booth for us. The one we chose,

originally, was the lowest bid, and in getting into other peripherals or add-ons

to it, we had to go back to the original supplier, since that was the only place

where we could get the equipment to match.

MR. CHAIRMAN: Mr. Hewlett, would you like to carry

on?

MR. HEWLETT: Thank you, Mr. Chairman.

There are some considerable figures in here with

regard to written off accounts, and the category, doubtful accounts, is in the

tens of millions of dollars. Is this an excessively high number, when you think,

for instance, the 1992-1993 doubtful accounts category increased from $29

million to $37 million? In 1993, at the end of March, there was $7.3 million

written off as bad debt, basically. I am just wondering if I can get some

commentary from the corporation as to the size of these doubtful accounts in

terms of the overall accounts that are on the books of the corporation.

These numbers, at least to myself as a layman, seem to

be rather high in terms of - I believe you have your $70 million or so loan and

equity investments out at any given time. The write-off, for instance, was 10

per cent of that total, and you are talking about nearly half when it comes to

doubtful accounts. I was just wondering if I could get a comment on that.

MR. JANES: Mr. Hewlett, what we are dealing with -

you talked about $70 million; that was in March, 1992. Today we have, as at

March 31, 1993, about $85 million, and the amount of allowances basically from

42 to 43 per cent.

What you have, I think, is a position that is

indicative of a development agency dealing in one of the worst economies, if not

the worst, in Canada, attempting to provide funds to various entrepreneurs who

want to start a business or, at the same time, work to keep some existing

businesses alive, and I think we have done a share of both of that.

I made enquiries across Canada last year at the OCED

conference here in St. John's. I spoke to representatives from the U.K., who

indicated very clearly that their experience in that part of the world was very

similar to ours - somewhere between 40 per cent and 45 per cent.

When you look at the allowances you are also having to

look at three categories that are very important to consider. We have about $12

million to $14 million of our portfolio that is in the fishery-related sector of

the Province. We have some $8 million in equity contributions to small and

medium-sized businesses, and we have almost a like amount in the venture capital

sector of our portfolio.

Fisheries - I think we all know what that is about,

particularly today with the moratorium, and no real indication in sight as to

when that might turn around.

Equity - for all of the committee members there should

never be any doubt that equity is the riskiest part of any deal and, as we are

all aware, it is part of the mandate of Enterprise Newfoundland and Labrador

Corporation to be involved in equity participation to the various clients of our

corporation.

Venture capital is an older program that was part of

NLDC, carried over, and it has had its share of problems as well. It has a

seven-year interest moratorium arrangement, no payments, and a lot of the early

venture capital fundings were to single project types of proposals; and those,

again, are perhaps the riskiest, because if you are dealing with a true venture

capitalist, there is a tendency to basically average the risk out over a number

of investments or a number of ventures. When you get into single project, of

course, you are into a basic proposition of either it works or it doesn't.

MR. DUMARESQUE: I am sorry, Mr. Janes -

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: If I could interrupt just on a

point of information there as it relates to NLDC: Do you have any idea of the

amount of doubtful accounts that have been associated with NLDC? You mentioned

$12 million to $15 million, and $8 million for equity and so forth.

MR. JANES: Yes.

MR. DUMARESQUE: Of that $70 million, what part of

it would have come from NLDC and maybe the rural development board?

MR. JANES: I will just ask Mr. Kennedy if he could

provide those to you, Mr. Dumaresque.

MR. KENNEDY: The allowance for doubtful accounts

for March 31, 1993 totalled $37.1 million, and the breakdown between the

Newfoundland and Labrador Development Corporation and the Rural Development

Authority and ENL is as follows:

NLDC, $19.3 million; the Rural Development Authority,

$5.2 million; and enterprise corporations, $12.6 million.

MR. CHAIRMAN: Mr. Hewlett.

MR. HEWLETT: Just looking at those numbers, NLDC

and the Rural Development Authority were in existence for many years and we are

talking about $19 million. In ENL, a relative newcomer on the scene, we are

already up to $12.6 million.

Mr. Janes mentioned the fishery. Can we expect, in

sort of the next year or so, because of the disaster in the fishery, a

significant increase in the number of accounts that are basically marked down as

bad debt rather than just doubtful?

MR. JANES: I think what we have done, Mr. Hewlett,

is captured a good sense of what this fisheries component of our portfolio is

all about, and that what you see is basically the extent of our problems. If

things change in the fishery over the next short while, maybe there are some

arrangements here that can be made to restructure or otherwise deal with those

but, depending on the outcome of the fishery over the next number of years, give

you a better picture then as to what might happen to these accounts.

I should say one thing, Mr. Chairman, before I finish.

Mr. Hewlett did have a two-part question previously, one dealing with the

allowances, the other with write-offs. I should advise the Committee that the

write-off position we have had presented to our board in recent weeks covers a

period going back to 1986. NLDC and ENL had provided information to the

Department of Development, which is our department of government; we are a part

of that department. And, while we had advised them of what had been formally

written off during the year, going back to 1986, no action was taken on those

various advices. So what we are dealing with today are write-offs, in effect,

going back to at least 1986.

So you don't get, necessarily, a true picture in the

write off of an ENL proposition, but Mr. Kennedy also has some numbers - some

current numbers, Pat, on the write-offs?

MR. CHAIRMAN: Can you give us some examples of the

types of current items that you have written off and why they were written off?

Mr. Hewlett, do you mind if I interrupt?

MR. HEWLETT: No, go ahead, Mr. Chairman.

MR. KENNEDY: I have a list of the write-offs here.

The amount of write-offs at March 31, 1993 is $9.006 million. The breakdown,

again, between the three agencies is as follows: Newfoundland and Labrador

Development Corporation, $5.9 million. The Rural Development Authority, $3

million. Enterprise Corporation, $180,000.

Some of the accounts, Mr. Chairman - for example, in

1986 there was a write-off in respect of a company named Atlantic Printing

Limited, and that was for $79,000. The big ones are in the fisheries sector. On

December 2, 1991, Notre Dame Bay Fisheries Limited, there was a write-off of

$1,023,000 approved by the board. A big one also is another fish company, Cape

Race Enterprises Limited, on May 10, of 1990, for $141,000, and on October 12,

1989, a company whose name was Atlantic Power Tongs Limited, $557,000.

MR. CHAIRMAN: What was that? Atlantic who?

MR. KENNEDY: Atlantic Power Tongs. That was a

company formed to deal with drilling, offshore rigs. They had clamps to turn the

tubing that goes into the hole to drill the drill holes. That was $557,000.

There was a company on December 2, 1991, Atlantic Challenge Limited, $154,000.

Do you wish me to keep on going with names?

MR. CHAIRMAN: I think that is okay. The $180,000

ENL money - what sorts of items would that cover?

MR. KENNEDY: The big ones from ENL, the $179,000 -

basically that was one particular company, if I can find it.

MR. CHAIRMAN: So you have only had one company

that has been written off since ENL was formed?

MR. KENNEDY: Yes, Sir, it is actually represented

by three amounts. There is an amount of $714, an amount of, I think, $158, and

one big one for something like $170,000. I will try to find the name for you and

let you know what that is.

MR. CHAIRMAN: So those would be the only three

that ENL has written off from its current portfolio?

MR. KENNEDY: Yes, Sir, that is correct.

MR. CHAIRMAN: Mr. Janes.

MR. JANES: Mr. Chairman, I should remind you that

this information is to March 31, 1993.

MR. CHAIRMAN: I'm sorry, for what?

MR. JANES: To March 31, 1993.

MR. CHAIRMAN: 1993.

MR. JANES: So there are other write-offs -

MR. CHAIRMAN: Since then.

MR. JANES: - that have taken place since then,

absolutely.

MR. WINDSOR: Are they of significant numbers?

MR. JANES: I don't think there are any significant

numbers. I will tell you what we have done, Mr. Chairman, and that is basically

go through and start to clean up some of this portfolio now so that a lot of the

RDA accounts - in particular, the smaller items that basically represented a

very significant number of accounts have been cleaned up, particularly where

there is no likelihood at this point in time of ever recovering any money. So we

have done some cleaning up of that.

MR. HOUSE: Mr. Chairman, could I just add an

observation or two -

MR. CHAIRMAN: I recognized Mr. Dumaresque first. I

will get back to you Dr. House.

MR. DUMARESQUE: I want to also make an observation

from the information that I have seen. There are a number of accounts that -

people have gone bankrupt, personal bankruptcy or whatever and in these cases

they would be part of the reasons why they have been written-off, I would

assume, is that a fair statement?

AN HON. MEMBER: Yes.

MR. DUMARESQUE: When Mr. Windsor asked what is

written-off I think he also asked why these other - 99 per cent of the accounts

that are written-off under NLDC and RDA, were there any real outstanding issues

as to why these accounts would be written-off as opposed to the issue that I

just raised?

MR. JANES: Mr. Dumaresque when you say are there

any outstanding issues, can you just -

MR. DUMARESQUE: Well I am just wondering -

MR. CHAIRMAN: I think they are primarily fishery

related. I think that is the question that you are asking.

MR. JANES: A lot of those that he talked about

were indeed related to the fishery. But, the write-offs that we've had are not

solely concentrated in that area. It is just that some of the larger ones, in

reference to the NLDC portfolio, pertained to the fisheries.

MR. DUMARESQUE: Mr. Kennedy do you have a comment

on that?

MR. KENNEDY: Yes, the only comment I would add to

that would be in terms of declaring an account to be written-off, it was

something that was not done quickly. The corporation worked with the clients as

best we could to try and work them through their hard times. It was only when

things got to the point where there was no more chance for salvation that such

action was taken. On some of the big ones that I just mentioned, the large

amounts, they were actually put through former receiverships and efforts were

made to recover as much of the secured as we possibly could and so on. So it is

a question - we've had some situations in NLDC, particularly where accounts

would be in arrears for periods of up to two and three years, we worked with

those clients and they eventually rebounded and brought their loans current and

we worked on with them. So these are situations where they were kind of down and

out last ditch before the action was taken to recommend write-off to our board.

MR. DUMARESQUE: Would you know of any of these

that would be associated with the venture capital area associated with the seven

year moratorium aspect of it? Is there now a programme in place where there is a

seven year moratorium as it was under the old NLDC programme? Does that still

exist today?

MR. JANES: Mr. Dumaresque, the Venture Capital

Program continues. It has been changed from when it was implemented through

NLDC. It is now a funding programme that has an upper limit of $500,000 rather

than $1 million. It requires a minimum of two investments rather than a single

project proposal that we had dealt with in the past. So the Venture Capital

Program continues and the interest moratorium for seven years continues. The two

changes have been; (1) the upper limit of investment and (2) the venture capital

list will do two investment deals rather than one which was the case many times

in the past.

MR. CHAIRMAN: Mr. House you want to make a

comment?

MR. HOUSE: Thank you, Mr. Chairman.

Just to add to Jim's comment first of all on the

venture capital thing. One other change that has been introduced is that

previously we argued that the venture capital list would sort of have the

freedom to choose the investing company and that ENL would not do its own

investigation of the viability in its estimation of the investing company. We

have now moved away from that. We want to feel secure that the investing company

is a good investment ourselves before we agree to the investment. So that is a

third change that has been made there.

The more general comments I was going to make, if I

may at this point or would you -

MR. CHAIRMAN: Sure, go ahead.

MR. HOUSE: I was just going to make two more

general comments, Mr. Chairman. I think the first one is very important for

putting the activities in context here and that is an economic development

agency, like Enterprise Newfoundland and Labrador Corporation, is always kind of

in a dilemma in trying to find the right balance between encouraging economic

activity to happen, being supportive of local business people - and we have lots

in this Province who are attempting to make things happen at a time when we

really need economic activity - on the one hand, and therefore to be as liberal,

small "L", as you can be in dealing with your clients, but on the other hand, of

having this responsibility to the public to manage its funds properly.

You have to find the right line. We're in the danger

on the one hand of being accused by people of being too much like a bank. I'm

sure you've probably heard people say that. That ENL is too much like a bank.

These are usually people who are clients who have attempted to get funding who

haven't been able to get it. On the other hand, of being too ready to take

risks. We've got to find the right balance between those two.

We've been very aware of that at the board of

directors level. One of the things that we've done over the last few years is

we've looked around, both internationally and with other agencies in Canada.

Basically we've found that the sort of write-off provisions and bad debts and so

on that we've encountered in our corporation are pretty much in line. When you

take into account the recessionary nature of the economy over the past couple of

years, and particularly the difficulties in the fishing industry, I think that

our record compares quite well internationally and nationally in that respect.

There's always that kind of line, the balance that we've got to find between

those two extremes. We think that we're pretty good there.

The second general comment I would like to make is

that - and I would like to give credit to Mr. Janes and Mr. Kennedy and the

staff of the corporation over the past year or so on this one - and that is, in

addition to having to deal with all of the organizational start up challenges

that the corporation faced, we also found over time that we had inherited a

situation in which there had been this kind of strange situation. Where over the

years, you know, that NLDC had sent off these letters to the Department of

Development saying a certain amount needs to be written off, and so on, but it

hadn't actually happened. There's a certain amount of cleaning up work that has

had to go on and I think that the staff have been doing that over the past year.

I think that what you'll find, Mr. Chairman, is that in subsequent years the

situation will be a lot clearer and a lot more straightforward. It will be a lot

easier to answer a lot of the kind of queries that this Committee and the

Auditor General might have.

Thank you.

MR. CHAIRMAN: Thank you very much, Dr. House. Let

me say that if the corporation were more like a bank we'd have no need of you.

The banks are not giving anybody any money today. Mr. Hewlett, you've been most

patient. I interrupted you about fifteen minutes ago. Would you like to carry

on?

MR. HEWLETT: Just one other point. The gentleman

from the Enterprise Corporation mentioned the recessionary nature of our

economy. As industry critic for the Opposition I constantly get press releases

come across my desk from the Minister of Industry, Trade and Technology singing

the praises of the Enterprise Corporation, and outlining, usually on a

project-by-project basis, the number of jobs created, the amount of funding

given particular companies, and so on.

But we're into I suppose what can be described as the

creation, in any given few months or a year or so, of hundreds of jobs. This

economy of ours needs thousands I suppose, for want of a better phrase. You are

a development corporation, of a sort. I was wondering if any member of the panel

there would care to speculate: are we making any progress in addressing the job

creation needs of this economy? Significant progress in terms of putting a real

dent in the nature and the depth of the recession which seems to have a grip on

us.

I of course have always stated that government and/or

its agencies need to be more pro-active in the chasing down of economic

opportunities and so on. It's one thing to be a bank. It's another thing to be

out there dragging them in by the hair of the head. I was wondering if the panel

would have any comment on the role and the prospects of your organization in

creating thousands of jobs.

MR. CHAIRMAN: Dr. House?

DR. HOUSE: I guess there are a couple of comments

I would like to make on the very important and very fundamental question that's

been asked here.

I think the first one is that we have to recognize

that Enterprise Newfoundland and Labrador Corporation itself is only one part of

what has to be a wider response by government to the present difficulties in the

economy. ENL is specifically geared to small and medium size enterprises, and

really in Newfoundland it is basically geared to small enterprises.

ENL has had so much demand for its services in the

first couple of years of its operation that it kind of used up all of its

energies just to be reactive, Mr. Hewlett, to the demands on it. Now that has

changed a little bit during the past six months probably, and we are finding

that there is now a little bit more of an opportunity for some of our project

officers and people working in the regions to become a little bit more proactive

in trying to get out there and make business deals happen as it were.

We have recently put into place the business

opportunities data base, through the ACOA enterprise network, which identifies a

whole series of business opportunities that people contacting our offices can be

introduced to and we hope that we can interest them in pursuing.

So the first part of my answer is that yes, ENL should

become more proactive. It is beginning to be. Just the practical demands on its

energies and resources in the first couple of years of its operation made that,

in practice, very difficult, but it is becoming a bit more that way.

The second answer is that there are other agencies of

government which have been taking a more proactive approach to making business

development happen.

Within the Economic Recovery Commission itself we have

a group that we call our business initiatives group, and they are essentially a

proactive group trying to make business deals happen - business start ups, joint

ventures, attract outside investment, help work with companies that are

currently in trouble to stabilize and therefore to save jobs, because a job

saved is worth as much as a job earned although it is not as visible. So that is

one agency of government that has been very proactive, but again it is only a

small group of people and I would suggest if you wanted to get more information

about that you might want to follow it up with David French who heads up that

group within the ERC.

In addition to that, within the Department of

Industry, Trade and Technology we, the government, have recently put into place

what they call a ministerial prospecting group which has the explicit mandate to

be proactive in attempting to attract outside investment into the Province. In

the first year of their operations they have mainly been laying the groundwork

in identifying sectors to be focusing on, identifying specific opportunities and

so on, so we are hoping to see a lot more success in terms of proactive

investment attraction coming out of that group in the next while.

So part of the answer is that ENL was very difficult

to be proactive at first, but is becoming more so now. The second part of the

answer is that there are other agencies of government that are charged with that

and are being proactive.

Thank you.

MR. CHAIRMAN: Thank you very much. Mr. Hewlett?

MR. HEWLETT: Thank you very much. Mr. Chairman, I

pass.

MR. CHAIRMAN: Mr. Penney, would you like to carry

on, Sir?

MR. PENNEY: Thank you, Mr. Chairman.

MR. CHAIRMAN: Before you start, let me say that

although we are in the House of Assembly, we are a little less formal. If you

would care to remove your jacket or have a coffee, we will take a break in

fifteen or twenty minutes, but if you want to have a coffee or go to the

washroom or something, feel free to do so.

Mr. Penney?

MR. PENNEY: Thank you, Mr. Chairman.

I would like to go back to the topic of doubtful

accounts for a moment. The figures that you provided us with, that $37.1

million, were the doubtful accounts for 1993, and of that $12.6 million was from

ENL as compared with $2.6 million from ENL for the previous year. Mr. Hewlett

mentioned this. He brought it to your attention that this was a fairly large

figure, $12.6 million, for a corporation that was a couple of years old,

compared to the $20 million that NLDC had there when you took it over.

Now that is an increase in one year from $2.6 million

to $12.6 million. That is an increase of $12 million. It has increase five fold.

Now certainly this is not indicative of what we could expect for successive

years. Could you give me some idea what your projection might be? Now I realize

you cannot predict the future, but based on the information that you have and

the data that is available to you today, could you project for us, please, what

you might expect that figure to be as of March, 1994, and probably as of March,

1995? Will the figure continue to escalate or will it level off?

MR. JANES: Mr. Penney, we believe that the figure

in the 42-43 per cent range will continue. What you will see take place of

course over time is the NLDC, which was a heavier portion of this portfolio when

ENL commenced, will suddenly start to decline; and the ENL position, because all

of the funding that is now taking place through that corporation, will continue

to move along. There's no question about that. If you believe that 42 or 43 per

cent is going to be the number then there has to be a diminishing of NLDC and an

increase of ENL.

One thing I should mention is that the figure of NLDC

that we gave, the nineteen point some million dollars, excluded the $5 million,

Mr. Kennedy, for the write-offs?

MR. KENNEDY: Yes.

MR. JANES: So that indeed, Mr. Penney, the NLDC

position prior to write offs was some $24 million, rather than the $19 million.

It was diminished by the amount of the write-offs that we also had put forward

as of March 31. As a final position, I think that this Committee, or government,

Department of Industry, Trade and Technology, will probably continue to see the

risk portion of our portfolio continuing at the 42-43 per cent range for the

next year and for the year after.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: I can appreciate that. I can also

appreciate the fact that we are trying to perform in pretty difficult financial

times. Recessionary times. I can also appreciate the fact that you have a

difficult role to play, when most of your clients who come to you have already

been turned down by the banking establishments. Could you give us some idea -

recognizing those factors - how many people have in fact come to ENL for

assistance? How many people have come requesting that you assist them in

starting a small or medium size business? Can you give us some idea how many of

them you have in fact been able to assist? How many of those applicants have

been successful in getting into business, or probably how many jobs have been

created as a result of ENL?

MR. CHAIRMAN: Dr. House.

DR. HOUSE: We can give you those figures. We can

get them and give you pretty exact figures on that, but I don't think that we

can do that right at this moment.

MR. CHAIRMAN: I neglected to advise you earlier

that if questions are asked that you don't have information here on, you can

certainly give that to us in writing subsequently.

DR. HOUSE: I would prefer to do that rather than

to make a guess which could be wildly wrong.

MR. KENNEDY: The corporation reconciles on a

monthly basis what loans we've done, to whom and so on. That information is

readily available. I don't have it here with me this afternoon but I can

certainly make it available later.

MR. CHAIRMAN: Perhaps we can ask that you make

that available to each member of the Committee as soon as possible.

MR. KENNEDY: Sure, no problem.

MR. CHAIRMAN: Thank you.

MR. PENNEY: On that topic for a moment. The

information that we have been presented with suggests that for the year 1992

there were 8,000 people who came to ENL requesting assistance. That was for the

year 1992. I'm not looking for anything specific. I recognize that you don't

have that with you and you can provide us with it. That's fine. How would that

figure compare with the number of people who came for assistance in 1993?

MR. JANES: The number 8,000 covers both the funded

and non-funded clients of ENL. What we have found through the statistics keeping

that we do on a month-to-month basis is that 10 per cent of that number is

clients who are looking for funding assistance, and the other 90 per cent are

looking for non-funded, or the soft support services that we provide in ENL.

That's the type of services we talk about as far as business plans, going out

and doing the books for rural development associations, those types of things

where we're hand-holding and attempting to bring various clients along.

As a matter of fact, it was just the last board

meeting that we had where some information came forward at a year over year

basis. What we're finding is that the number of clients coming into ENL looking

for funding is probably down about 15 per cent. I say that approximately 15 per

cent from last year.

Whereas the number of clients that are coming in looking

for support services is probably up about 40 per cent. So there's that kind of a

switch that's going on.

I think I can probably state it this way. In the first

two years we were open I think most of the people in this Province wanted to

find out about ENL, what they had to offer, what was going as far as ENL and

ACOA and so on. That's all been covered now. What they found out is that ENL

provides funds and expects to get it back.

Whereas ACOA in the past provided

grants. We don't provide grants to our clients. So that you've got a kind of a

situation where a lot of that's been covered now. Clients who are coming in to

see us are those who need some support, to look into their business activities,

what is happening, where have they gone wrong or, where they have some strengths

and where they might continue to exploit that.

MR. PENNEY: More or less guidance?

MR. JANES: Yes. The mentoring, the hand holding,

that type of service I think has become more predominant these days.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: Mr. Chairman, I have a few more

specific questions. I am assuming that everybody here has been provided with a

copy of the same material that we have, and, if I may direct your attention

gentlemen to page 8 of this document. The Auditor General is referring to

internal audit procedures and the notation there in the middle of the page: An

audit committee of the board of directors has not been established. The internal

audit function is directed by a group consisting of the president, the

vice-president of corporate services and the internal auditor; and then the next

line says: the internal audit function does not have a mandate or terms of

reference.

If I may, Mr. Chairman, direct the first part of my

question to the Auditor General. Ms. Marshall could you please explain to us

your concern that our committee was structured in the way that it has been, that

it did not consist of members of the board of directors but it was a group

consisting of the president, the vice-president and the internal auditors; could

you explain to us how this compares with the internal auditing procedures of

other Crown corporations and what your concern would be with this procedure that

had been put in?

MR. CHAIRMAN: Ms. Marshall.

MS. MARSHALL: Most large corporations would have

an internal audit committee of the board of directors. The committee that was

established by ENL was comprised of officers of the company and the internal

auditor himself. Really there should be a reporting structure whereby the

internal auditor would report to people who are independent of the day-to-day

operations of the company, so if there are any concerns about the operation of

the company there would be access to somebody outside. Most large corporations

would have this type of internal audit committee, and the concern that I had was

ENL was disbursing such large sums of money that I felt that it would be

appropriate to have an audit committee of the board of directors.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: I note in the reply to the Auditor

General's comments, that the corporation acknowledges the concerns and agrees

and recognizes that the changes are necessary. Could you please, gentlemen, give

us an update; what has in fact changed with that structure since the Auditor

General's Report?

MR. CHAIRMAN: Mr. Janes.

MR. JANES: Mr. Penney, the committee that we had

in the corporation at the time the Auditor General visited was a transitional

committee. The internal audit function had started in 1991 and it continues to

this day. While I say it was transitional, it was transitional awaiting board

approval of an appropriate committee and I should advise this committee today,

that a proper audit committee exists in ENL today and the members are: Mr. David

French, Chairman; Mr. Gilbert Gill, Vice-chairperson; Miss Joan Pinsent, member;

so that those three individuals are members of the board of directors of ENL. In

addition the president of the corporation and the internal auditor are called

from time to time to that committee as is appropriate, and that indeed it has

been structured, established, ratified by the board, a mandate has been approved

by the board and the basic scope of the internal auditors requirements have been

approved by the board as well, so that we can say today that all of that has

been done.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: Within the same document, Mr.

Chairman, page 12, at the bottom of the page, the heading is: Guidelines for the

Hiring of Consultants, and the Auditor General's comment is: Our review

disclosed that the corporation does not have a documented policy or guidelines

for the hiring of consultants.

Would one of you gentlemen explain to me what policy

you have been using prior to this report being submitted?

MR. JANES: Mr. Penney, the guidelines that we

followed would basically be those of Treasury Board and that while the

corporation at the time of the visit of the Auditor General did not have a

formal policy in place and documented in its manuals, it does today have a

policy on hiring consultants that is, I would say, 99 per cent consistent with

the guidelines that have been established by Treasury Board. Those guidelines

have now been approved by the board of directors.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: The same document again, Page 15, Mr.

Chairman. I draw your attention to the corporation's response at the top of the

page. It says the corporation's board of directors and executive have taken

dramatic timing and comprehensive action to deal with the area of the

corporation's activities. At the present time an internal committee chaired by

the president and chief executive officer is in the process of doing a 100 per

cent review of the corporation's investment portfolio. The mandate of the

committee, which is also acting under authority of the board of directors, is to

complete this review by mid-December 1992 and to make firm recommendations to

the board of directors regarding future management of the investment portfolio.

The first question: was this achieved by mid-December 1992, and secondly, what

were these firm recommendations that were made?

MR. JANES: Mr. Penney, the internal committee that

carried out this account-by-account review completed its work in January of this

year. It was somewhat pass the date that we had established but close enough

that it was current in any event. That work was presented to the board of

directors, the full board, during a meeting in early April 1993 and the board

ratified at that time what we call our loan administration policy within the

corporation. It was approved to be implemented and effective as of July 1, 1993,

and that did happen, so that today within ENL there is a proper account

administration policy dealing with collections, risk rating of accounts,

establishing allowances for accounts, and so on.

The issue here, of course, the important issue, is

that as Dr. House has indicated earlier, when the doors of ENL first opened

there was a lot of emphasis placed on clients coming through the door looking

for assistance and there was probably too much emphasis placed in that area. Of

course the main issue at the time was providing good service to those people.

What we now have in place is a better balanced approach, balanced from the point

of view of when you put it out you are also expected to get it back, so that it

is not heavily skewed towards meeting client's needs for funding and basically

letting it go at that. Today we have a proper policy in place to see that the

recovery of funds is given every bit of attention that it should. The missing

ingredient today in having that fully effective is the redeployment of several

people within the corporation to beef up the collection activity, and that is to

take place very, very quickly so that all of the recommendations that came out

of that committee's report to the board as far as loan portfolio management has

been accepted and ratified by the board and is now in place as of July 1, 1993

as a current operating policy of ENL.

MR. CHAIRMAN: Dr. House did you want to interject

here?

DR. HOUSE: Mr. Chairman, there is just one

addition to Jim's comment here and again it is a matter of balance, I think.

Initially the demand for service was so great that we were kind of caught in

this pattern of getting the money out and satisfying the clients in that sense.

We are now paying more attention to collections but I do not want people to get

the impression that we are suddenly mainly focusing on being a collection

agency. What we are really trying to do now is put more emphasis on better

follow-up and after care with the clients and hopefully by providing continuing

after care services to clients we can help more of them turn the corner into

becoming successful viable enterprises and therefore collections will not be

necessary. The main emphasis is still on trying to make businesses succeed,

however, when it becomes clear that they are not going to succeed then the

collection side of the enterprise's activities will be emphasized.

Thank you.

MR. CHAIRMAN: Mr. Janes.

MR. JANES: There is just one final point. We have

also, as part of this policy, requested that all regional offices do a review of

their portfolios on a quarterly basis and to submit that information to the

corporate office for consolidation and further analysis so that the system is

starting to work now where the people in our regional offices who are

responsible for the day-to-day contact with clients are becoming more familiar

with these requirements. As I mentioned, you put it out, you also have to get it

back, so the idea today is to try to improve that side of the corporation's

activity that was probably a little bit wanting in the past.

I should say finally, the numbers that we have

achieved over the last couple of years, our total collections went from some

$7.2 million at the end of 1992 to $10.4 million or $10.5 million, and based on

statistics to this date we are probably heading for about $12-million-worth of

recoveries this year. So I think, in looking at the transactions in the

corporation, there is a steady improvement all the way through, being mindful of

what Dr. House has said, that we are not a collection agency or a high-powered

collection agency. We are trying to balance the day-to-day activities of what

happens at ENL.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you very much.

MR. PENNEY: Mr. Chairman, if I may follow up on

that.

MR. CHAIRMAN: Mr. Penney, we will hear one more

question from you before we move on.

MR. PENNEY: I would like to stick with this topic

for a moment. I think we all recognize that you are not a collection agency, and

the comment that was made by ENL in reply to the Auditor General's Report

states: We don't see ourselves as a collection agency, but when a client is

behind on a payment we will remind him that they owe us money and we are

expecting payment.

Unfortunately, many people are not as concerned about

owing government money as they are, say, a bank or a utility. I think we have to

recognize that is pretty accurate. So you owe the government money, so what? Big

deal. It is our money to begin with, and if you don't repay it, what are they

going to do to us? We know what the bank is going to do if you don't repay your

loan.

So could you just explain to us generally: What do you

do? How do you collect? What do you do with me when I don't pay? Obviously you

just don't write it off every time, so what procedures do you use?

MR. CHAIRMAN: Mr. Janes.

MR. JANES: Mr. Penney, I think what we do is

basically done in stages, and the first approach would be to find out what is

happening to your business, whether or not some things have to be changed. So

that is kind of a counselling approach that we take first. If there are issues

within your corporation, your small business, that need some redefining or

restructuring, we work with you, as a client to do that. We basically give you

another chance, and I should say that in a lot of cases we give clients more

than one or two or three chances, and we will continue to work with you to make

sure that you are on the right track; but if, for any number of reasons, your

business fails and you are unable to pay back ENL, a number of issues will be

dealt with; first of all, of course, whether or not receivership is the proper

option, whether or not the sale of the business could be another option, so that

we will continue to work with these situations all the way through.

We have found, and I believe it is probably the most

reasonable approach, that only as a last resort will we put a company out of

business. It is our intention to keep that company going. We have invested so

many dollars, and so much time of our people, into a business, that it behooves

us to do what we can to make sure it survives. The very last step would be

basically to put it out of business.

MR. CHAIRMAN: Dr. House, you wanted to add

something to that?

MR. HOUSE: Thank you, Mr. Chairman.

Mr. Penney, I think, one of the things I am really

struck by with respect to ENL and its activities is that there is what I can

only call an important business education function that ENL and other agencies

within government have to play, and it is part of this larger problem of

dependency that we find ourselves in, in this Province.

It is true there are a number of people who have felt

in the past that almost by right they can come in to an agency such as ENL and

expect to be given a grant or a loan or some equity investment, whether or not

they have a viable business proposal. One of the things we are trying to do is

to spread this public education, I guess, function, to change that way of

thinking.

ENL should not be in the business of simply giving out

grants or loans for which it never expects to get paid back, so every time we

make an investment, whether it be an equity investment or a loan, we want to do

it on as businesslike a basis as possible and we want to get our clients to buy

into the idea that this is not free money. Money from government is money from

other people, other taxpayers, and it is just as much a responsibility to manage

that money properly as any other money they may get access to. So we see that as

being an important part of the function of the corporation, to move people to

that more businesslike and more professional way of developing business

opportunities. That is the only way they are going to work in the long run.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you very much, Dr. House.

Mr. Penney, we will get back to you again a little

later on if you have other questions. I am going to move on to Mr. Dumaresque,

but so as not to interrupt him - it is just about 3:15 p.m. - perhaps we will

take a ten-minute coffee break and Mr. Dumaresque can carry on afterwards.

Recess

MR. CHAIRMAN: Order, please!

We shall continue now. Let me first of all thank the

witnesses for changing their schedules. We were originally scheduled for this

morning but because of the long weekend some of the committee members found it

difficult to get back from their districts. Two of them are not back yet.

Because of other commitments, they called and said they couldn't be here today.

We appreciate your changing your schedules. Hopefully, we will finish this

afternoon, if not we will have to do so another time.

Now, Mr. Dumaresque, if you would like to carry on.

MR. DUMARESQUE: Thank you, Mr. Chairman. Most of

the questions that I had have already been asked, but I would like to ask a

couple of questions.

First of all, I would like to take this opportunity to

commend the corporation on the work you have done to date, and particularly on

the fiscal responsibility that you have exercised. Because if there were a

criticism that I would align myself with it would be more to the fact that you

are a little bit too much like a bank, from some of the experiences I have had.

As we have seen, where you have only 2 per cent of your bad debts being actually

written off, it certainly shows that you are like a dog with a bone, you are not

about to give up on that business. I think that is one of the things for which

you should be commended.

The other aspect of your operation that I have found

very useful as a member from Labrador is the flexibility you have shown. As I

said, I would like to see a little bit more, but the flexibility that you have

shown, in my view, has absolutely, no doubt, resulted in jobs being maintained

and jobs being created in Labrador where they would not have been created if it

wasn't for your ingenuity and if it wasn't for your ability to reflect the

unique needs of some areas of this Province, particularly in Labrador.

I note some of the areas that you have invested in,

for instance, in Labrador, that we have had a lot of problems getting investment

in before: the bakeapple processing operation in Forteau; some of the adventure

tourism aspects that you are involved with in Northern Labrador and Western

Labrador as it relates to the caribou industry; the use of labradorite under Mr.

Goudie there in Northwest River. The aspect of being involved with the Credit

Union and the Co-operative as they work to give financial services to remote

areas of Labrador has certainly not only found the services there, but you have

also created long-term meaningful jobs in that area. Certainly, also, there is

the assistance with local transportation companies in Labrador, of which the

Mary's Harbour one comes to mind, where we have been able to find a little niche

there to address the freight services for that area.

These things are put together when the nice neat

budget and the nice neat cash forecasting and all of these things are not

readily available, cannot be obtained. You have been flexible. You have given

these circumstances the merit that they deserve, and I want to congratulate you

on that.

MR. CHAIRMAN: If I had known you were going to say

all that I would have let the camera stay on. You could have sold them a

commercial.

AN HON. MEMBER: I wish you had!

MR. DUMARESQUE: No, I mean, you don't get many

chances to say these things to people who are there for you.

MR. CHAIRMAN: May we have a list of those projects

approved in the Eagle River district?

MR. DUMARESQUE: Northern Labrador, Western

Labrador, Goose Bay, Northwest River - I don't know if there are any approved in

Eagle River district, but I don't mind that.

The other services that you have provided to a lot of

people in Labrador have really been of interest to me. Because I have found,

where ENL has become a one-stop shop you have taken a number of people who have

come to me looking for assistance, brought them in, given them technical

assistance, and certainly been able to give them a lot of the information that

would say: `okay, you are not supposed to be here anyway.' But you have done

that. I guess that was the first question that I wanted to put to you.

With the preponderance of funding agencies out there -

in Labrador, for instance, Labrador Venture Capital, ACOA, different aspects of

ACOA, and other community futures - with the preponderance of these

organizations, do you see yourselves in the future as an organization that might

be more involved with some of these other services that you have been able to

provide to the business community, as opposed to directly providing money? If

so, why do you see that as being more important?

MR. CHAIRMAN: Dr. House.

DR. HOUSE: Mr. Chairman, I guess I could start on

that one. Let me just make two comments. The first is that there is now a

general recognition by both orders of government that there are a lot of

agencies - business support agencies and economic development agencies that work

in this Province and other provinces as well. And I think you will see over the

next period of time, over the next year or two, some consolidation taking place

so that we won't have too much duplication and overlap in different government

agencies providing economic and business development services. I think that

would be a good thing and that, as you suggest, Mr. Dumaresque, it would allow

more free time to some of the staff people at Enterprise Newfoundland and

Labrador for some of the other kinds of services we have already been performing

but to do them more in terms of the non-financial support services, not just

directly to business people but also to economic development agencies,

development associations, development corporations and, in some cases,

municipalities now trying, as well, to sort of carve out a niche for themselves.

You can see the importance of their involvement in supporting economic

development. So I would certainly hope that ENL will always continue to be,

first and foremost, an economic development agency and view its business support

and its financial support services to business as just one tool in its tool kit,

if you will, for that broader issue.

MR. CHAIRMAN: Mr. Dumaresque?

MR. DUMARESQUE: The other question I had, I guess

I should direct to the Auditor General. In light of the answers that the

officials have given here today and the information they have provided to you as

late as 27 September, how do you feel now that the corporation has met some of

the issues you raised eighteen months ago?

MS. MARSHALL: Based on the discussions I have had

with officials of ENL, I feel that they are addressing the concerns raised in

the report. With regard to the establishment of the audit committee, I would

like to indicate that I have met with the newly-formed audit committee and

reviewed my concerns with them, and we will be going in at some future date to

make sure that action has been taken on our recommendations.

MR. DUMARESQUE: I have no further questions at

this time.

MR. CHAIRMAN: Thank you, Mr. Dumaresque. Perhaps I

will just move around the table again because I have a few questions of my own,

all from a fairly general point of view. You talk about a flexible corporation.

Could you tell us a little bit about the structure of the corporation for the

benefit of the committee and perhaps for the benefit of the news media? As I

understand it, you have five regional offices and eighteen satellite offices. It

seems everywhere I go in rural Newfoundland, I see an Enterprise sign. It is

nice to see, I might say, but do you want to tell us just a little bit more

about it?

MR. JANES: That was the other good thing I was

going to mention.

MR. CHAIRMAN: You forgot one, yes.

MR. JANES: Mr. Chairman, the Enterprise

Corporation was primarily established from employees of NLDC, The Newfoundland

and Labrador Development Corporation and some operating divisions of RAND, the

sections that were attached to the Department of Development back in 1990.

When ENL opened its doors, the consolidated number of

positions was roughly 150. We added about thirty-five new positions to give us

about 185 and then, of course, in July of 1982 the crafts division of ENL moved

over to Tourism and Culture. So that brought us to a position of 172 employees.

Those 172 employees are spread throughout the Province on a regional basis. We

have five regional offices, at St. John's, Clarenville, Gander, Corner Brook and

Goose Bay. We have eighteen other field offices and these are primarily one

person offices, with the exception of Grand Falls - Windsor and Marystown where

we have two or three employees in each of those two units.

The regions, to date, show probably the most activity

in the Avalon region. Roughly 50 per cent of the businesses and business

activity take place within the Avalon region. Corner Brook would follow that as

far as business activity is concerned - Central Labrador and Eastern. Most of

our activities in our smaller regions are involved with soft services or support

services vis--vis, what takes place on the Avalon because of the concentration

of business.

We have a number of specialists. We have regional

consultants who are basically our `first stop' people you come in to visit; ENL

offices backed by a consultant who will basically take you through all the

various processes. We also have in our regional offices specialists in

marketing, in engineering, in accounting-bookkeeping services, and that group of

people basically forms the nucleus of a working group in assisting businesses to

get off the ground, or assisting businesses change direction, or correct some of

the inefficiencies or ineffectiveness that has taken place in the business.

In our corporate office, we have basically our

corporate services, that is, providing services through the corporation for

legal accounting and so on. We have our enterprise services which is an

additional support to some of our larger and more complicated proposals that

come to us from time to time. These are people with considerable experience in

looking at larger proposals. Our human resources department is a small group of

three or four people, involved in day-to-day activities with personnel matters

and so on.

I think, Mr. Chairman, that gives you a little bit of

a flavour of what we are all about.

MR. CHAIRMAN: Thank you, very much.

Dr. House.

MR. HOUSE: Mr. Chairman, I would just like to add

a little bit in terms of the origins of ENL that might be of some interest to

members of the committee and possibly the media here. For me, it goes back

further, back, really, to 1985, as a member of the Royal Commission on

Employment and Unemployment, travelling around and holding public hearings

throughout the Province. One of the most common concerns that we had expressed

to us by people in all parts of Newfoundland and Labrador was the concern that

everything happened east of the overpass and any decision that had to be made

and any business or economic development proposal they had, they had to go to

St. John's in order to get the decision. It was really in response to that need

that was felt out there in the regions that one of our recommendations in the

1986 report was that there should be established regional economic development

agencies. Really, what ENL is, to a large extent, is the form that has been

taken in implementing that recommendation. Obviously, it is very pleasing to me,

personally, to see something that you felt had to be done in response to what

people were saying is now actually in place, is working, and is actually

accomplishing the end you had in mind. And we are not getting those kinds of

complaints anymore with respect to the availability of business support

services. It now looks kind of more generally in terms of government services

that this kind of regionalization and decentralization of decision-making and

providing better services to people on the ground is going to be followed by

government in other of its activities.

MR. CHAIRMAN: Thank you very much. That leads

exactly into where my next question is leading. I think Mr. Janes mentioned soft

support services some time ago. No doubt, those are very valuable, particularly

in rural Newfoundland where there is probably not available the same level of

expertise or professional consulting advice as there might be within the

periphery of the St. John's area or the larger urban areas. I can see that

working very, very well in those areas. How about the decision-making process as

relates to financing, though? For example, do those little field offices have

authority to approve financing? Is that done at the regional level or perhaps,

for larger amounts, is it done at the corporate office level? Could you explain

that system to us?

MR. JANES: Mr. Chairman, the authorities presently

in place within Enterprise Corporation are as follows. The regional offices have

decentralized authority up to $150,000. Now, I should say in clarification that

the $150,000 has been approved except that it has not been implemented at this

point because of all of the various aspects of the loan administration policy

that we are trying to get in place, the collections and so on. That has been

intentionally withheld until we are satisfied on an operating basis that that

increased authority could work its way into the regions. But indeed, the

authority has been approved, it is there. Above $150,000 to $500,000 is handled

by a corporate transaction committee, and that corporate transaction committee

will handle everything, as I said, from $150,000 to $500,000.

Above $500,000 to $1 million, it is handled by the

full board of directors of ENL. Anything above $1 million would find its way to

Cabinet with a recommendation of support or non-support by the board of

directors of ENL.

MR. CHAIRMAN: Dr. House.

DR. HOUSE: Mr. Chairman, just to clarify a point

there. The regional offices do now have authority up to $100,000. What Jim is

talking about is we are changing it to increase it to $150,000, but they do now

have authority up to $100,000.

MR. CHAIRMAN: That brings us to the point, I

guess, and the point that the Auditor General has made, as it relates to having

a comprehensive management manual. With so many people involved, with requests

coming in to so many regional offices and field offices, surely then, that makes

it that much more important to have policies of the board, which become policies

of the corporation, clearly documented so that everybody in all of those

twenty-three offices is consistent, while being flexible, by all means. As it

relates to the ideas that you are prepared to look at, there must be consistency

in approving funding. I think this is obviously where the Auditor General is

getting at, from the point of view of approving funding, but also from

management procedures, be it vacation, sick leave, or whatever else, all of

these things, accounting practices, monitoring practices.

Three years, the corporation has been in place, and

you still don't have those management - except for two almost completed. You

have been in basically since 7 December 1990. We still don't have the management

manuals, which, to me, would almost seem to be first step. I think that is what

the Auditor General is saying as well. Let's get the structure in place, clearly

define the policies laid down, the guidelines in place, then turn our

twenty-three offices loose on the world.

MR. DUMARESQUE: If I could just make a point, Mr.

Chairman.

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: The twenty-three offices: Is it my

understanding that there are only five offices, the regional offices, that have

the authority, for instance, to spend $100,000 - not all twenty-three?

MR. CHAIRMAN: There are many other things, though,

that would be in a management manual besides just funding. Do you want to

respond, Mr. Janes?

MR. JANES: Mr. Chairman, yes I will. It is

correct, as Mr. Dumaresque has just mentioned, that there are only five offices

in our system that have the authority to do any funding. Then, of course, you go

to the corporate office or the board. The issue that you talked about, the

manual, I think I have made reference to, in particular, the policy pertaining

to loan administration or portfolio administration. Clearly, that is the most

fundamental, the most important part of our operations as it relates to funding

activities. As you mentioned - you talked about policies pertaining to human

resources, personnel benefits, and so on, which are things that have to be done

as well, and to a great extent, they are in place.

The loan administration policy is clearly the one that

we have now in place, as of April this year, effective July 1, and it continues

to be the guiding instrument as far as consistency and the treatment of the

portfolio in general throughout ENL is concerned. That one key element is in

place. The rest of the issues within the manuals will build on that.

MR. CHAIRMAN: Well, certainly, Mr. Janes, I accept

that that obviously is the most important one, the one that would, I guess,

cause greatest concern, maybe second only to financial management. I assume

there is some reasonable policy in place for accounting processes and so forth,

and that is very important. Still, there were hundreds of millions of dollars, I

guess, portfolio, dealt with during the period of time when that manual was

being developed.

MR. JANES: Hundreds of millions?

MR. CHAIRMAN: How much have you given out?

MR. JANES: Mr. Chairman, the thing is -

MR. CHAIRMAN: What was it - $70 million -

MR. JANES: - we had last year a total of $70

million outstanding, and this year, to the end of March 1993, $85 million. So

those positions are an extension of what we assumed or acquired on January 1,

1991, and indeed, there was in excess of $40 million in a consolidated position

that we assumed from the other agencies when we started on January 1. So the

numbers, hundreds of millions, I don't think, Mr, Chairman, are applicable.

MR. CHAIRMAN: Well, nevertheless, tens of

millions.

MR. JANES: Tens of millions would be more

appropriate, yes.

MR. CHAIRMAN: Nevertheless, tens of millions have

been put out through loans, equity, whatever, without clear policies being in

place in the form of a comprehensive manual. There may be management memos and

so forth. Dr. House, do you want to respond to that?

DR. HOUSE: Yes, Mr. Chairman, I would like to pick

up on your last point there. You have sort of taken the words out of my mouth,

and that is to say that although there hasn't been a comprehensive manual for

everybody in the corporation on all corporate policy since ENL has started, we

are working on putting that in place now.

People should not get the impression that there hasn't

been any policy or any guidelines or any regulations that govern the behaviour

of the members of the corporation. That isn't the case. When the corporation

started, it inherited the policies that had already been in place at NLDC, and

the Department of Rural, Agricultural and Northern Development, as it had been

under the Department of Development, so really what we have been doing over the

past few years is building on those policies through a series of board decisions

and so on, and now what we need to do is to consolidate and to formalize those

policies into this instruction manual.

We also ran into some practical difficulties that

maybe Pat Kennedy could elaborate on in terms of a serious accident to the

employee in the corporation who was taking a lead for us in putting all of this

together, and that led to some delay in getting the thing formalized, but we do

have policies in place and those policies are what guides the behaviour of

people working in the corporation.

MR. CHAIRMAN: Nevertheless, two-and-a-half years

seems like a long time to finally get a manual put in place. I accept what you

are saying. I understand where you are coming from here, and don't want to

belabour it, but maybe you could tell us, then, what sorts of policies are in

place as it relates to the types of things that the corporation does get

involved in? What sorts of things do you provide loans for? What types of

industries, for example, do you get involved in, in equity positions? How do you

differentiate between the two? Could you give us some idea of the sorts of

things there?

Venture capital, you told us you basically give to a

venture capital company and let them decide, but now you have some handle on

that. I might just say I am pleased to see that because it was effectively a

blank cheque you were giving them before, and they were taking taxpayers'

dollars and deciding in which companies they would invest. I had some real

problem with that, so I am pleased to see that you have tightened up on that and

have some control of it.

Could you tell us a little bit more, then, about the

types of industries that you are prepared to look at? What policies are in

place, or have you simply followed through from the rural development policies

and NLDC policies and the Department of Development policies?

Mr. Janes.

MR. JANES: Mr. Chairman, we basically look at just

about any proposal that would come in through our door. I mean, there is nobody

turned away arbitrarily.

We have concerns today about the fisheries. Clearly,

at this point in time, we have to do triple the work on the fisheries to make

sure that it is a new enterprise that can deal with value-added and

underutilized species and so on but, by-and-large, fisheries is an area with

which we would be very concerned.

The ERC, as you are aware, put out within the last

year a strategy of growth opportunities - there are eleven of those, and I would

say today that the Enterprise corporation keys in on those as the important

areas of the economy that we would look at - adventure tourism, crafts, high

tech industries and so on. Those are the areas that we see and we have basically

mandated within ENL as the areas that we will look at in the future as far as

new business opportunities are concerned.

MR. CHAIRMAN: So your prime area of concern -

certainly, I can appreciate your concern about the fishing industry. It would

have to be a high risk industry, I guess, today, and I guess you have to wonder,

in fact, if we need expansion of any infrastructure there, but I would think

there is a big opportunity here for diversification, getting into secondary and

tertiary processing of fish products. That would be an area that I would say the

corporation would want to look at.

MR. JANES: Yes, we have. As a matter of fact, some

of the areas within the mussel-growing operations, and one, in particular, that

I think we have some great potential in is the SCB fisheries operation in Bay

d'Espoir. There were some early hurdles we had to get over but we have found now

in the last couple of years that every pound of product produced down there is

sold. Without question, they are developing a very good aquaculture operation in

Bay d'Espoir, and I think, moving from last year's harvest of 600,000 or 700,000

pounds, the eventual potential in that area is probably as much as 4 million

pounds of fish coming out of the waters around Bay d'Espoir, Roti Bay and so on,

so that those are the areas where we talk about the new fishery, I guess. It is

on a new fishery, the aquaculture area and so on that ENL has concentrated some

of its more recent efforts.

MR. CHAIRMAN: How about the service sector? You

mentioned tourism. You are supporting the tourism sector as well?

MR. JANES: Mr. Chairman, yes we are. We continue

to support tourism. We have a very close working relationship with the people in

the Department of Tourism and Culture. As far as upgrading existing facilities,

looking at new opportunities, adventure tourism, particularly in the Labrador

region, we are working closely with people in that area, and yes, we view

tourism obviously as one of the important opportunities in this Province.

MR. CHAIRMAN: Dr. House.

MR. HOUSE: Mr. Chairman, I would just like to

elaborate a little bit on this question of service sector activity and the

flexibility that ENL needs and, I think, should continue to have as a

developmental agency. Let me just talk about retail, the retail sector, for a

minute. For the most part, we do not invest in retail activity. In particular,

we don't do that in situations where there is already somebody servicing a

marketplace and we don't want to use government funds to create unfair

competition for somebody who has gotten in there through his own or her own hard

work. However, we don't want to have a hard and fast rule that there is going to

be no support for retailing because sometimes in some places you can serve a

real developmental need. Let me just give you one example that arose recently.

We had a request up in Labrador, again, from a budding entrepreneur in Davis

Inlet who wanted to set up a little - selling food kind of operation, a retail

operation. So here is an example of a service that is not now being provided by

anybody. It is being offered by a budding entrepreneur, in a community that

really needs economic development. So in that kind of situation we would think

it appropriate that we would provide support for that kind of activity in that

kind of situation.

MR. CHAIRMAN: If we have a government-owned store

we would be happy to sell them that, Doctor.

MR. HOUSE: Absolutely. So I mean there are cases -

you want to be a little bit careful not to lay down hard and fast rules that can

defeat the purpose of the enterprise.

MR. CHAIRMAN: Yes, well, certainly I agree. Davis

Inlet, Hopedale and Makkovik are places where we operate these government

stores. However, we are finding there that - as sort of an aside now; you may

have more up-to-date information than I do - we were finding over the last few

years that there were some private stores starting up there and it has been the

policy of government, I don't know if it has changed under the new regime, but

certainly it was our policy not to compete unfairly with private enterprise. So

we got into areas where private enterprise wanted to provide a service and we

stayed away from it with the government stores. I know, in our hearings in Happy

Valley, Goose Bay last year when we met with the five managers, the regional

managers of those stores, we found, in fact, that the stores now are less

competitive because we are staying away from some of the high-volume products,

the popular products that we were providing, the essentials, fresh fruit and

that kind of thing, that we were trying to get in there. Somewhere we have to

get a transition to get over into that area. That may be an area where

enterprise might get involved with an entrepreneur and help them buy out the

government store rather than choking us to death and having us lose millions in

the meantime and still having demands from the private sector up there to keep

those stores alive as a government service they don't want to give up.

Let me get on to your question, Doctor, your comment

as it relates to retail. We had some concerns a year or so ago - and you

provided some information to the House as it relates to some of the types of

things that you had funded. We had some debate in the House of Assembly on it.

But a number of those sorts of things here we would have to question. Maybe you

would like to comment on some of those. I know, there are fast food take-outs,

convenience stores and lounges not in areas where - like Davis Inlet, your valid

point, that if there is not a service provided, then there is nothing wrong with

government helping private enterprise start up something that would otherwise,

without government assistance, not be viable or where they couldn't get the

financing. But how do you justify some of these things, like a chicken take-out

or a lounge in an area where you already have those types of things? I can use

your sheets here to give you a specific example if you wish, but I think you

know what I am talking about. Would you like to respond to that and tell us if

that policy is still in place now?

Let me just say before you start, it has always been

my understanding that government does not normally fund a competitive market. It

is no benefit to the economy, Dr. House, as I am sure you know. It is no benefit

to the provincial economy to fund one service station across the street from an

existing service station or one supermarket across the street from an existing

supermarket or one chicken take-out across the street from an existing chicken

take-out. You are not going to sell any more chicken and you are not going to

sell any more gas, you are simply spreading the business there. What is the

policy of the corporation as it relates to that and how do you explain these

types of things?

MR. HOUSE: Just a couple of things there. First of

all, one of the features of a regionalized, decentralized agency is that, even

as a board of directors, you do not have direct control over every decision that

is made, which is as it should be. What you are doing is, you are giving to your

managers within their regions the responsibility to make decisions as they see

fit within the guidelines established by the board of directors. And it may be -

and I don't know, because you would really need to have the regional

vice-presidents here to answer the question - it may be that some of the

examples you point to fit under that category. That's one comment. So there are

some decisions that are made that we, as a board of directors, do not control,

nor should we, because of the nature of our decentralized organization.

The second comment is that you can point to one or two

examples such as you have mentioned - and there may be specific reasons for

those; I am sure there are. But, on the whole, if you look at the distribution

of the funding that has been done by Enterprise Newfoundland and Labrador

Corporation, you will find that the great majority of businesses we have

supported are in manufacturing, tourism, resource industries, things that are

new enterprises that create new wealth for the Province and really do contribute

something new to the provincial economy. I think that the overall picture, is

very clear, that that is the emphasis of the corporation.

MR. DUMARESQUE: I would like also to make a

comment here, Mr. Chairman.

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: Would it also be a fair comment to

make that ventures you have invested in, as you have provided to the House of

Assembly for the last couple of years, have not been absolutely different,

deviates totally from business ventures that were entered into under the Rural

Development Agreement or the board and NLDC? Would that be a fair comment? I

know a couple of them come to mind, and it certainly appears that they would be

in the same area. Is it fair to say there has been no great deviation, as has

been in the past?

MR. JANES: Mr. Chairman. I think what has happened

- you bring up a couple of examples, and I know I have heard those before.

Because when that information went to the House the question was raised and we

did investigate that and found out that indeed, the decision was based on

independent analysis that was done of a particular (inaudible) and that that did

not really affect the spirit of squaring with the competition. That is what we

have always used in this corporation. Anything that has come to my attention has

always been: if it is done we cannot do it. We have that as a policy.

As Mr. Dumaresque said, when you get into rural

Newfoundland, what you have there in the continuation of small business would

obviously be an extension of what took place in the past, particularly with the

Rural Development Authority and the RAND

section of the Department of

Development - that small business is small business in Labrador, in the Northern

Peninsula, the South Coast of Newfoundland, and so on. So, we did carry on the

traditions to a great extent. We have our program that provides very small

interest charges on proposals that are within a certain dollar limit and are

confined to certain types of industries, so that we do recognize the small town,

the rural aspect of Newfoundland, in making some of these fundings.

I think, in response to the point that you made, Mr.

Chairman, about competition, we do try as best we can - as best we can. You have

to remember that when you get into the regions there are four or five other

independent thinkers who are involved, who are basically analyzing the

information and making a decision from a competition point of view. We try to

the extent that we can to stay away from creating enterprises that will impact

on somebody else. Why create a job if you are going to close one down on the

other side of the street? We avoid that to the extent we can.

MR. CHAIRMAN: Well, that is the reason I asked the

question. I was always under the impression that was the policy. But I look at

some of these. I would suggest we have a free thinker in Labrador. We have a

weight reducing salon in Labrador City, a beauty service in Labrador City,

musical instruments and sheet music service, retail fashion and fabric store,

buy-out of an existing grocery, retail and gas bar operation in my friend's

district and, as I recall, the explanation for that was that he was the only one

in the area and needed to be continued.

I can live with that one. It gets back into the same

category as Davis Inlet, although I think there are quite a number of services

up there now. A take-out service in Makkovik - perhaps there wasn't a take-out

service in Makkovik. I can live with those sorts of things. But there were quite

a number here that I would have to say were quite contrary to what we always

considered to be the normal, non-competitive policy that you have just talked

about. This is why I asked the question: Is it still in place? And, if so,

doesn't this again point out the need for this comprehensive policy manual? So

that the regional offices know - you know, within their own realm of

flexibility, but there are certain guidelines that we shouldn't go outside of,

that you people are going to answer to right here, and to your minister in the

House.

Dr. House.

DR. HOUSE: Mr. Chairman, first of all, the

guidelines are already there. People know what they are. But there is another

factor that has come into the situation now, and it may make it a little bit

different from what it was even three or four years ago; that is, in a lot of

regions of the Province right now it is becoming very difficult even for

established businesses to get the kind of normal funding support that they would

expect to get from the banking system. There are therefore some situations in

which our people in the field find themselves where there is what appears to be

a very legitimate business need for some funding. And maybe it is in a business

or something that is not one we would ideally want to be supporting. But in

terms of the local economy in that particular - you know, whether it is Labrador

West or wherever it might be, it could be very important.

So there is another function that ENL is being almost

forced into performing in some places, of being rather kind of a substitute for

a commercial bank, that it really shouldn't be doing. But is it better to do

that, or is it better to let the business shut down and just not have that

service being provided in the community? I think, in a lot of cases, we would

say it is better that it play that role.

Again, the need for flexibility in responding to the

particular conditions and needs of local economies is a very important strength

of ENL and I would be very concerned, myself, if we were to go too much the

other way, and say: We are going to build up this big set of rules and

regulations and so on, and everyone out there working for the corporation has to

stick to the letter of the law all the time. I think that you would find that

the service to clients could deteriorate as response to that.

Again, it is a fine line, but we have to keep finding

that balance, and I think we are doing a pretty good job on it so far. Although

I do agree with you, we do need to have those guidelines and those regulations

formalized and put in place and applied to everybody.

MR. CHAIRMAN: I appreciate where you are coming

from. Your point is a very valid one. But I think you are going to be

hard-pressed to convince me that the financing of a lounge in Clarenville is a

great social need in Clarenville. Maybe it is an exception, maybe it is one that

slipped through. If that is the case, fine. All I am trying to establish here is

that we do have strict policies in place. Otherwise, I would like to know if it

is open. Because I have thousands of my own constituents, and people from all

around the Province, who are calling me asking: Is there funding available for

this? I say: Look, don't waste your time and money, government is not going to

fund a retail operation. I have sent hundreds of people away. The next thing

they call me back and ask: How come this guy got funding for a chicken take-out

or a lounge or a beauty parlour? I say: I can't answer that.

If it is going to be an open-door policy, if we are

going to finance any and every type of business that comes in, then let's do so,

and let people know that.

AN HON. MEMBER: It is not an open-door policy.

MR. CHAIRMAN: We, as members of the House, for

years have been saying: Sorry, we just don't fund you to put somebody else out

of business. My friend would be pretty upset if we funded somebody across the

street in Lewisporte and put up another drugstore, and so he should be. But if

we are going to fund somebody else to do something, then let's put up another

drugstore.

MR. DUMARESQUE: Mr. Chairman, if I could ask a

question.

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: Mr. Chairman, maybe to put this in

perspective - how many people, would you say, have come to you as a result of

decisions you have made and said: `Look, this is absolutely wrong, and I have

gone out of business because you have done this'? I certainly haven't heard the

Member for Menihek, in particular, talk about these things not being done or

that they shouldn't be done in his area, neither have I heard very much public

criticism, if any, of the decisions that you made. Have you been confronted with

any significant number of people coming to you and saying: I have gone out of

business because you have done this down the street?

MR. JANES: Mr. Dumaresque, I would say that I

could count on one hand the number of comments, the number of enquiries, that

have come to my office in that respect where we have provided funding to

somebody that another operator took exception to and said that this was now

going to be severe for him.

MR. DUMARESQUE: Yes, and were these business then

eventually eliminated in the Province?

MR. JANES: I haven't heard of any that have

actually gone out of business, but I have been on the receiving end of enquiries

about: `Why did you do this because of' - and I would think it is restricted to

perhaps a handful of situations that have come across my desk. Again, Mr.

Chairman, when you talk about competition, that whole matter is one, really, of

common sense. The thing is, when you talk about creating a job and putting

another out of business, or eliminating that job, you are down to the point,

really, of common sense. You really are, because whatever way you say it,

whether it is five different ways or one way, the point is that competition and

the impact on competition through the granting of public funds is something

that, as I have mentioned earlier, we try to minimize to the extent possible.

It is the policy of ENL not to create enterprises that

create jobs that will, in the very short run or the long run, eliminate jobs of

people doing similar things in other enterprises.

MR. CHAIRMAN: Well, the point is made and your

arguments are well taken, but there is still some room for concern, I am sure.

Your comments, Dr. House, in relation to banks, I

would love to get on, but we would be here all night if I gave you my view on

the banking fraternity today. Perhaps we should start moving on, and I will get

back again later.

Mr. Crane, do you have some further questions?

MR. CRANE: No, I don't have any other questions.

MR. CHAIRMAN: Mr. Penney?

MR. PENNEY: Thank you, Mr. Chairman.

Somewhat like yourself, if I were to get into some of

the questions we could probably be here and talk about the philosophy of it for

another couple of days, but I am quite satisfied with the answers I have been

given to the questions I have asked.

I would like to take the opportunity to commend these

gentlemen for the manner in which they have answered our questions, and also to

compare them to the other Crown agencies that have come before this committee

since I have been a member. I think they fare quite well and they are to be

commended.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Mr. Hewlett?

MR. HEWLETT: Thank you, Mr. Chairman. I don't have

much. My line of questioning was to be with regard to the autonomy, etcetera, of

regional offices, but I think you have headed me off at the pass on that one.

I, too, have some concerns with regard to these

offices, the possibility of subjective or even politically influenced

decision-making, but I think the points you made were well made and basically

cover the issue.

You mentioned a few specific examples that were tabled

in the House of Assembly. I had one that came my way as industry critic there, I

guess it was about a month ago. I received my usual press release from the

Minister of Industry, Trade and Technology, Mr. Furey, outlining a bunch of

businesses that had been funded by ENL, and one of them happened to be a picture

framing, matting, organization.

At that particular time I had to go get a certificate

framed at a local existing business here in town, so I brought along the press

release from the minister and showed it to that particular businessman. He was

quite upset because he is in the business. There are several framing and matting

services in and around the city, and he was shocked to find out that his tax

dollars had gone to finance some competition for himself - at least from his

point of view.

He will mutter that to me, and he will mutter that

among his colleagues in the business, but I don't think he will say anything

publicly about it because there is always the possibility that you may have to

go and try to get financing sometime from a corporation, so it is not good to

burn your bridges.

I would ask someone from the corporation how, in an

urban setting such as this, in St. John's, where there are several framing and

matting services, does the corporation finance such a new operation?

MR. CHAIRMAN: Mr. Janes?

MR. JANES: Mr. Chairman, Mr. Hewlett, that

particular situation that did take place just recently was a proposal that was

very carefully evaluated by our marketing people out of the Avalon region, if I

am not mistaken, and the proponent was found to be substantially different from

a framing and matting store that you find around the various malls and so on.

This business was one that was providing materials on a wholesale basis to some

of the larger stores, K Mart, Woolco, and so on, and the equipment they had was

not isolated down to custom-made orders as you would find in some of these

smaller framing and matting places, but rather was there to service the bigger

clients around here who otherwise would be bringing these supplies in from the

mainland and selling them across the counter through these bigger stores.

Now, the question obviously arose at the time: Would

this impact upon the other stores around the area? and the answer we received

was no, that the amount of material impact on people like Hi-Lite Framing and so

on was not going to be that important. As a matter of fact, it was minimal. The

major benefit was basically the ability to access the bigger department stores,

K Mart, Woolco and so on, to sell to them to replace the imports that were

coming in from other parts of Canada.

MR. CHAIRMAN: Mr. Hewlett.

MR. HEWLETT: Do we reasonably expect that the K

Marts of the world will give up on their volume purchasing in the national or

international schemes they have on the go? Do we expect them to buy from a local

wholesaler when, for the most part, they are part of national chains that would

probably be availing of the services of a wholesaler, but on a far larger scale

than anything we would foresee in this Province?

MR. JANES: Mr. Hewlett, the information we

received, the analysis and research that was carried out, satisfied our people

in our Avalon region that this new client had a good opportunity to succeed at

the business that he was contemplating.

MR. HEWLETT: I guess it is too early to tell.

MR. JANES: Right.

MR. HEWLETT: Thank you, Mr. Chairman.

MR. CHAIRMAN: Mr. Dumaresque, have you some

questions?

MR. DUMARESQUE: No, Mr. Chairman, The questions I

asked earlier were answered and I am quite happy.

MR. CHAIRMAN: Just to follow on, stemming from the

line of questioning you had earlier, could you tell us something about

monitoring of projects after funding has been approved? You have told us a

little bit about chasing up on doubtful accounts or outstanding or overdue

accounts and so forth. Tell us about the monitoring of a project. Somebody comes

in - and I have seen some examples of that and have some suspicions of them,

that is why I raise this question. As you know, I have helped some constituents

of mine go through your system. I know the types of analysis that your people go

through, and the detail of the proposal that you request, and rightly so. But I

am not aware that there is a strong monitoring policy or program afterwards.

In other words, somebody gets put through the mill to

get some money approved. Then, when they get that money, is there anybody really

following up to see if they spent that money for the purposes, which are fairly

narrowly defined by the corporation, as the sorts of things you will fund? You

won't fund vehicles. You won't fund this, you won't fund that, but you will fund

this and you will fund that. So anybody generally coming in with a proposal to

you, you may well find that: we won't fund this 50 per cent of your cost but we

will fund that 50 per cent of the cost. Who, then, determines that the money was

actually spent on those items for which they were approved in accordance with

your guidelines? I am led to believe that is fairly weak. Can you comment on

that, Mr. Janes?

MR. JANES: Mr. Chairman, the consultants in our

regional offices across the Province are identified as the contact people who

are responsible for that phase of our operation. When a proposed project is

approved, that regional consultant - let's say it is in Gander, in the Central

region - has a responsibility to see that the funding takes place as authorized

by the committee or by the board.

If there is a need for technical involvement, one of

our engineers - and we have two in-house and three more through the NRC service

- would become involved in providing technical support to make sure that the

plans were followed, and so on. And to the extent that the project is followed

up on, at the time it's complete, and the operation is moving ahead, the

regional consultant has that client then, on his or her list, to continue to

visit and to see how things are going.

Now, I am not about to tell you that we are perfect in

that area - far from it, but I have given you basically a description of how

these things are supposed to be. If you have had a number of examples where

people have come to you and said, well, this wasn't followed, and so on, then I

suppose, to a great extent, that would be the lack of compliance. To the extent

that we can fulfil that, our internal auditor visits the regional offices at

least once a year, sometimes twice a year, and it is that person's job to go

through every one of the funded client arrangements for the period that he is

auditing and to make sure that all aspects of that authorization have been

followed.

If you're going to ask: Does he go and verify the

bills that were paid to a hardware store? No, he doesn't, he verifies the

authority that was given to the region in order to provide funding to a client.

And, in cases, he would make a visit to that just to see that the store is there

in operation, or whatever it is. That basically is the process that we follow

through.

MR. CHAIRMAN: Tell me more about these regional

consultants. Are they in-house consultants, or external consultants you have

engaged? How do they operate?

MR. JANES: The regional consultants are all

permanent employees of Enterprise Newfoundland and Labrador.

MR. CHAIRMAN: Okay.

MR. JANES: They operate in-house. They are

basically the person who is the first-stop arrangement for ENL and clients who

come to visit us, whether it is for funding or non-funding arrangements.

MR. CHAIRMAN: So the same people who do the

analysis for the funding are responsible for follow-up to ensure that the

funding is expended in accordance with the approvals that were given and for the

purposes given?

MR. JANES: The regional consultant is the person

who would follow up. Let me explain it this way. When they come in, you would

make the application to this consultant. If there is a requirement to do

financial analysis, we have people in our support services area, accountants,

bookkeepers and so on, who would review that. If there is a marketing component

that has to be tested, that consultant would turn it over to the specialists in

marketing and they would do their part of the evaluation. If there is a building

program and there are plans, specifications, we would turn it over to one of the

two in-house engineers, who would look at that and test it for reasonableness

and so on. Then, it would find its way through our account management area into

the board, into the regional authority for approval. When it is approved, the

thing comes back to the regional consultant as the point of the contact person

who would then carry out the monitoring and so on to see that the funding would

take place in accordance with the authorization that was given. So there are a

number of people involved in the process. The consultant doesn't normally take

it and carry things all the way through to a conclusion and then continue to

monitor after the fact. There are other people involved who would test various

parts of that application and then it would go back, once it has been approved,

to the regional consultant, and they go on from there.

MR. CHAIRMAN: Let us assume that one of these

clients goes in default and is in arrears to the corporation, and subsequently,

in looking at that, it is found that monies were expended for other than the

purposes for which they were approved. Do you deal with that client in a way

different from a client who did everything he or she said they were going to do

when they applied for the money, but for other reasons, perhaps beyond their

control, the business didn't succeed? As you have already said, these are

high-risk normally and there is going to be a certain failure rate, obviously.

If there wasn't then the banks would be happy to have them.

MR. JANES: When you ask: Do you treat these people

differently? what do you mean by that?

MR. CHAIRMAN: Do you view the default differently

and what procedures do you have then to follow-up? If client A comes in and

says, `I want to do A, B, C and D, and here are the amounts of money I want,'

and you say, `Yes, these are all legitimate under our guidelines and we will

approve monies for A, B, C, and D; here is your money - go to it', he goes in

default because something changes in the economy or the thing just didn't fly,

the market just didn't take it. Client B says I want money for A,B, C, and D and

you approve it for that purpose. He goes in default and you find out

subsequently that they didn't spend their money on A, B, C, and D but spent it

on other things for which you would not have approved, say, they bought

vehicles, which is one thing you specifically will not finance. What do you do

with that person? That person then has defaulted but he has also broken the

agreement he had made with you. He has broken his contract to take ENL money,

taxpayers' money, and do these certain things because your analysis indicates

that is a reasonable project and has a reasonable possibility of surviving, but

he has done something different with it. Is there a difference in how you deal

with those two clients?

MR. JANES: Mr. Chairman, yes, indeed there is a

difference. The client that would take public money from ENL and go and deal

with it other than on the basis that the money was granted, we would definitely

treat that person differently. As a matter of fact, one of the first things we

look at is the recovery of funds. Clearly, we have a client who is not

trustworthy, and I can tell you that in recent months we have gone to our legal

counsel and explored ways and means to recover that money, even to the extent of

taking legal action against them. So we do treat them differently, there is no

question about that, and we do what we can to recover the money, because that is

the issue. Now, if there were a clear breaking of the law, then we have had

situations over the last number of months that come right to our board, where we

have reviewed the aspect of turning it over to the police department to

investigate the possibility of criminal charges and so on against the parties

involved. We are following all of those aspects to the extent that we can.

MR. CHAIRMAN: Well, that was basically part of my

next question: What procedures do you put in place? You will take legal action,

you do have internal people who do collections or attempt to recover.

MR. JANES: Yes.

MR. CHAIRMAN: Do you use external collection

agencies? I think I read in some of the briefing notes that you might have from

time to time.

MR. JANES: We feel that we have the capabilities,

skills, and experience in our corporation to look after the collection of our

accounts. We are not a high-powered collection agency but we want to make it our

business to ensure that we do get our money back, there is no question about

that. We have a

section of our corporation - and this is the balance that I

talked about earlier, putting it out and getting it back, the need to have our

account managers become more proficient in the recovery of funds. And I can tell

the committee this, that in the past when accounts of various clients were at

basically the point where they were headed for the ditch, where there was no

real hope of recovery, government in the past had a tendency to kind of close

the books on that. We have started a new process in ENL that is called

undischarged debtors, in that today, we will do internal transactions for those

various clients but we will not relieve them of the legal responsibility to pay

back this money to government. What we will do is every year, as a minimum, our

account managers will contact those clients in a further effort to recover money

and that will continue with the hope that the financial circumstances or

fortunes of those people will change to the extent that at least we can recover

some of our money, even if it is through a compromise or a settlement. But,

those not declaring bankruptcy or those who have not been put out of business

through receivership, where we have basically recognized a very difficult

situation with the prospect being very, very remote for recovery in the

short-term, we will deal with it internally. But we will continue to carry it as

an undischarged debt, something that we will go back and visit again every year

in an attempt to recover these funds.

MR. CHAIRMAN: Okay. I don't know how we are doing

for time - we are out of time. Mark, do we have to be out of here exactly at

4:30 p.m.? I know the doors close at a certain hour. Are we okay for a little

while? There are a few more things I wanted to get into. I don't know if other

members have other questions. I appreciate, Mr. Janes, your comments there.

There are a few other things that I wanted to get

into. There were some things here on tenders, the lack of public tenders, some

items that were purchased without proper tenders. I noticed some purchase

orders. We already talked about the display booths and so forth. I am just

looking at some of the dates, and my copies are not very clear. On page 114 of

the documents, there is a purchase order there and - the date, I can't see it,

the 24th of something, I don't really know - again, that is for those display

booths.

MR. KENNEDY: Mr. Chairman, that is January of

MR. CHAIRMAN: What is it?

MR. KENNEDY: January 20, 1992.

MR. CHAIRMAN: January 20, 1992?

MR. KENNEDY: Yes.

MR. CHAIRMAN: Well, that is interesting, because

that is the purchase order and the quote is dated February 17, or am I wrong?

AN HON. MEMBER: No, it was actually paid on

February 18.

MR. CHAIRMAN: It was paid on February 18. There is

a memo here from Mr. Grinling, on the 18th, saying that he has purchased these.

Purchase orders were issued on January 20 but the quote - I don't see the quote

anymore now. I thought it was here - we don't have a quote. I think that is the

problem. We don't have a previous quote in writing fo

Document details

Collection	Newfoundland and Labrador — Committees
Citation	1993-10-12
Type	committee
Volume / chapter	committees_standingcommittees_publicaccounts_ga42session1_1993-10-12_pac_.htm
Language	en
Format	html
Source	PROVINCIAL
Identifier	05672e63fed44781c597bc8ad2968880f07fcf11

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