October 17,

2012 PUBLIC ACCOUNTS

COMMITTEE

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

CHAIR (Bennett): Good morning. This is a meeting of the Public Accounts

Committee. I am the Chair; my name is Jim Bennett.

The Public Accounts Committee is a committee that inquires into financial

matters involving the Province, and today we are looking at the Growing Forward

Program as it is outlined in the Report of the Auditor General. The Public

Accounts Committee primarily focuses on the Auditor General's report but is not

restricted to the Auditor General's report.

I will call on the Committee members to introduce themselves, and also the

witnesses to introduce themselves. The evidence that we hear is given under

oath; however, all of the witnesses are here voluntarily, nobody has been

subpoenaed, and we appreciate their attendance to provide us with additional

information.

Nothing that is said in this meeting, which really is a hearing, can be used

against the individual who is providing that information. The same protections a

person would receive in the House of Assembly, generally applies to the Public

Accounts.

I am going to call first on the Vice-Chair to introduce himself. The other

members will introduce themselves, and then I will go to the witnesses who are

here, and then to our Committee staffers.

Mr. Brazil.

MR. BRAZIL: Mr. Chair.

Welcome to the witnesses from Natural Resources and the Auditor General's

staff. I am David Brazil, Vice-Chair of the Committee, and I represent the

District of Conception Bay East Bell Island.

MR. S. COLLINS: My name is Sandy Collins, and I represent the District of

Terra Nova.

MR. K. PARSONS: Kevin Parsons, the District of Cape St. Francis.

MR. CROSS: Eli Cross, Bonavista North.

MR. MITCHELMORE: Christopher Mitchelmore, MHA for The Straits White Bay

North.

MR. JOYCE: Eddie Joyce, Bay of Islands.

MR. PADDON: Terry Paddon, Auditor General for Newfoundland and Labrador.

MR. JANES: Claude Janes, Audit Principal.

MS RUSSELL: Sandra Russell, Deputy Auditor General.

MR. EVANS: Jim Evans, CEO, Forestry and Agrifoods Agency.

MS MacDONALD: Cindy MacDonald, Director of Agriculture Business

Development.

MR. DEERING: Good morning, I am Keith Deering. I am the Assistant Deputy

Minister for the Agrifoods Development Branch of the Forestry and Agrifoods

Agency.

MS GILL: Janice Gill, Manager of Agriculture Business Services.

CLERK: Elizabeth Murphy, Clerk Assistant, Clerk of Committees.

MR. DROVER: Craig Drover, Researcher of Committees.

CHAIR: The page who is with us today is Ryan Steeves, and we welcome Ryan

to the first meeting that he has attended. Thank you.

It is customary to have witnesses sworn or affirmed, and all of the

individuals, including the Auditor General and his staff are witnesses, but all

of them have previously been sworn. Ms Murphy will administer the oath or solemn

affirmation.

Swearing of Witnesses

Mr. Evans

Ms MacDonald

Mr. Deering

Ms Gill

CHAIR: The way we do questioning is that each member is allocated

ten-minute increments. We start with a member of the Official Opposition and

then we alternate to a government member. We will go back to the member from the

Third Party then back to a government member. When the members have asked all of

the questions they wish to ask, then I may ask questions if there are areas I

feel should be covered in more detail or something that may not have been

covered previously. Members then are invited to ask further or supplementary

questions.

Typically we will take a break somewhere between 10:30 a.m. and 11:00 a.m. to

allow people to attend to whatever, then come back and go through until roughly

around 12:30 p.m. I say approximately because if a member is in the middle of a

ten-minute period, then I ordinarily would not stop that member. If somebody is

asking questions on a specific item, I would not stop them in the middle of the

item. It would be better for them to finish the item even if they ran over a

little bit, just for continuity purposes.

Unless anybody has any questions, I will begin with Mr. Joyce.

MR. JOYCE: Thank you, Mr. Chair.

I will start on page 165 of the Auditor General's report: Related party

policy not considered. It says, "A total of $1.306 million was paid to three

related entities, which represents $806,000 above the maximum funding under the

guidelines of $500,000 per applicant." If you go on the next page 166 you can

see how the shareholders for each one has arranged by the Auditor General and

put forth here. If you notice, "The $500,000 in funding to Entity 2 was approved

by the IC even though staff recommended rejection of the project." Can you

explain how this was done?

MR. DEERING: I guess, from my perspective, we have acknowledged the

Auditor General's observations. Based on our information we can confirm that the

related party's policy was contemplated by the Implementation Committee. We have

taken measures to ensure that this information, when it is considered, is better

documented in the decisions, the records of decisions, for the Implementation

Committee. As well, we will take more formal steps in the next framework

agreement to ensure that there is more adequate representation of the related

party's policy in the Growing Forward 2 framework.

MR. JOYCE: So these three related companies, what part of the Province

were they operating?

MR. DEERING: These three companies would have been located on the West

Coast of the Province in the Codroy Valley area.

MR. JOYCE: Codroy Valley.

Can you explain, on top of page 167, "The $500,000 in funding to Entity 2 was

approved by the IC even though staff recommended rejection of the project."

MR. DEERING: Obviously, from time to time, we have a lot of people that

feed into our process. We engage the views of our field staff, wherever we

possibly can, in terms of the information that the Implementation Committee has

to contemplate.

There are examples of where staff may submit information to us or to the

Implementation Committee that the Implementation Committee may decide, for a

variety of reasons, to give that information obviously full consideration but

may decide to make a different decision than was recommended by the staff

person.

The staff are not technically on the Implementation Committee, but it is our

view that the Implementation Committee is responsible to take a much broader

view of the decisions that need to be made and technically consider things that

are provincial in scope.

MR. JOYCE: Can I ask who is on the Implementation Committee? Who was on

when the decisions were made?

MacDONALD: The Implementation Committee, I am the

Chairperson. There are two other members, one is Rick Carey, he is the Director

of Land Resource Stewardship, and the third person is Roger Churchill.

MR. JOYCE: Is he in government?

MS MacDONALD: Three of us are government employees with the Department of

Natural Resources.

MR. JOYCE: When these decisions were made, were they the three people who

were on the committee at the time?

MS MacDONALD: Yes, correct.

MR. JOYCE: Okay.

In the next sentence down, the next paragraph: "Entity 2 was ineligible under

the Program as the company did not generate farm sales; it was a land clearing

company only".

How can that be approved when the Auditor General said they were not even

eligible for the funding?

MS MacDONALD: I think the comment is coming from one of the staff

comments that were in the file. We do deem that the applicant was eligible. We

have funded them in the past under other programs and we have funded similar

entities under this program as well.

We consider land development in this Province very important for the

agriculture industry and this project, it was a good project. It involved the

purchase of a rock Rotoveyer. Basically, it is a large piece of equipment

involved in doing large-scale land development.

The entity, we considered it was eligible under the program. I think the

comments that were raised by the Auditor General, which are fair comments, were

comments that were concerns raised in the fall by one of the staff in their

assessments.

MR. JOYCE: Can I ask the Auditor General, in here it goes on about how

this company, Entity 2 was clearing land, "over the past three years, Entity 2

had developed more land for its related entities than that for local producers

(560 of 700 acres cleared was for its related companies)". It goes on to other

things.

Did you notice, or did the Auditor General notice that this company is just

for land clearing only and not

MR. PADDON: The comments that are being related or talked about here in

those five bullets are us reiterating what we saw from staff at the Department

of Natural Resources. These are not our comments. These are just us saying, here

is what the staff said in terms of their input into the decision-making process.

It is really internal staff raising the issue around who they have done the land

clearing for in previous years.

MR. JOYCE: Did the Entity 2 produce any farm sales?

MS MacDONALD: (Inaudible) take agricultural activity. The development of

the land itself would be considered an agricultural activity.

MR. JOYCE: The statements here, if it came from staff, Entity 2 has to

run the program as the company did not generate farm sales, it was land

clearing. That is incorrect then?

MS MacDONALD: From the Implementation Committee's point of view, yes,

that would be incorrect. That is a staff person's comment.

When we have applications or proposals reviewed, they can be reviewed by

agricultural development officers, by farm management specialists. Sometimes

commodity specialists themselves will make an assessment on the file, including

the program managers for Growing Forward. When the Implementation Committee

looks at an application, we are looking at sometimes as many as three or four

different comments or recommendations on the file.

MR. JOYCE: Okay.

MS MacDONALD: Not always do all the staff assessments agree. Sometimes,

depending on the projects, some staff are more in support of it than others. The

purpose of having this Implementation Committee of three people is that we

provide them to show there is equity across the Province for all the

applications. This is something we would have funded in the past for an

applicant. Even though one staff might have had concerns with the project, it

would be something we would have funded under the program.

MR. JOYCE: Yes. I am sure it is on file and we do not need to know the

name. Can you present us with the farm sales they had for about five years prior

to getting this funding? Obviously, the staff here did the assessment. The

company did not generate farm sales. I am sure you have it, the actual farm

sales that they had.

MS MacDONALD: Yes. I would not have it with me, but it is certainly

something that we can get because they are required to submit their financial

statements to us.

MR. JOYCE: Yes, and that is the other thing. In the report that the staff

did, the company is financially shaky but yet it was still approved. If you are

looking at a financial company where the staff on the ground is stating that no,

they had no farm sales, they are in financial difficulties. Yet, the funding was

approved against the recommendations, which is three different companies, which

are getting over $800,000 and each one is all related. It does look a bit

suspicious. I am not saying there is anything, but it does look questionable.

MS MacDONALD: If I can comment on the comment regarding the weak

financial position. One of the objectives of the Growing Forward Program is to

strengthen both the profitability and innovative capacity of the sector. We will

look at projects even if an applicant is in a weak financial position we may

fund a project because it would help their overall profitability of the

operation.

For instance, you may have a dairy operation that is importing a lot of

forage. That is a high cost to the farm and is impacting their overall bottom

line. We will look at that. They may be in a weak financial position but our

funding would help them, for instance, either put more land into development or

help them with forage equipment. That would help their bottom line. If we think

the project helps address either the innovative capacity or profitability, we

will look at funding the project.

MR. JOYCE: Is it common for the IC to fund three different related

entities at the same time?

MS MacDONALD: Yes. The policy under Growing Forward is that we can fund

related companies.

MR. JOYCE: Is it normal for you to fund three different entities, which

have been pointed out by the Auditor General, that are related in some fashion

in shares? Is it common? When was the last time you did it?

MS MacDONALD: There are probably two or three, or four other farm

situations I can think of where there are multiple farm enterprises. What is

common in farming is that normally it is farm families that are farming.

Typically, you could have someone for instance involved say in a dairy

operation, someone could also have perhaps a vegetable operation as well. They

could have a son, for instance, and have them as common shareholders also into a

forage operation. That is typically common within the agricultural industry.

MR. JOYCE: Yes. Can you produce to the committee or for me, the last

time, or the last several times when three entities were in the same shares with

the same companies that have been given this amount of money?

MS MacDONALD: Yes, I can provide an example of another farm family

operation where one company is into dairy, there is another into vegetable, and

there is another into a separate enterprise. I can certainly provide an example

of that.

MR. JOYCE: Okay.

I will ask the Auditor General, on page 168, availability of existing funds.

Can you explain at the end of it here, and I will just read the last sentence.

"Given this, it was questionable whether available funds existed to approve over

$1.3 million in funding for these three related entities."

MR. PADDON: The point that we were making with that comment is that there

is a limited amount of funding available in any particular year for the program.

In both years we looked at, it is our understanding that the programs were

oversubscribed. So you had more people applying for a limited amount of money.

If you provide more money to a related group over and above the $500,000 program

maximum per applicant, then effectively what you may be doing is taking

available funds away from some other applicants who may have sort of not been

past the threshold of funds availability.

CHAIR: Mr. Joyce, I will go to a government member now.

MR. JOYCE: Oh, sure.

MR. BRAZIL: Thank you, Mr. Chair.

I am going to ask for some clarification, more so. I have gone through the

responses to the questions that were put forth. I do like the responses and I

think they do clarify certain things, but to get a better understanding I almost

need to know what was happening previously so that we get a better

understanding, that I am confident that this will address some of the issues as

we put our recommendations forward in our report.

Before I get to that, as a former civil servant and somebody who was heavily

into bilateral agreements and particularly trying to leverage the amounts of

money from the federal government, the fact here that all the money was not

fully claimed under the bilateral agreement, can you give me a little

understanding as to what happened there? What issues came forth that restricted

it? Was it a bureaucratic issue? Was it the partnership development? Was it the

fed-provincial agreement? Just so I have a better understanding, please.

MR. DEERING: Okay, thank you for the question.

I guess part of the reason why we enter into these agreements in multi-year

phases and this is a five-year agriculture policy framework agreement is

because there tends to be a little bit of movement of money across years. In

fact, in this particular case we had built into the agreement an allowance that

we could carry forward 25 per cent from year-to-year, which is only limited in

the last year of the agreement which is this year, there would not be any

carry forward permitted.

In the particular year that was reported on in fact, there may have been a

possibility of a lapsing of funds, but we had addressed that through a new

budget submission that would allow us to carry forward the money that was not

spent in that year, and again, would allow us to maximize the amount of federal

funds that were available to the Province.

As well, in the accounting process, there could be a number of circumstances

that may prohibit us from fully capturing all the accounting in any one year,

but I can assure you that all funds that were available to the Province from the

federal government have been requested and have been provided up to this point.

MR. BRAZIL: Okay, so the $465,000 that the Auditor General noted would be

part of a carry-over, carry-forward process from the federal agreement?

MR. DEERING: Yes, that is my understanding. That is a part of the issue,

yes.

MR. BRAZIL: So, will that top up this of course, this is the end of the

agreement now, is it? The five-year agreement is done.

MR. DEERING: In the final year of the agreement, if we have projects that

do not get completed on time or there are projects come in under budget, there

tends to be a risk at the end of the year that there will be money left over.

Unfortunately, in the last year of the agreement there is not much we can do

about that.

We are entering into a new agreement starting on April 1. What money we have

left on the books at the end of March unfortunately we will not be able to carry

forward.

MR. BRAZIL: So that will not be able to be added to a new agreement?

MR. DEERING: No.

MR. BRAZIL: Has that been suggested? In some cases it has been, if we

know it is going to be an ongoing bilateral agreement, there is leeway to do it.

MR. DEERING: Well, I have been participating in the negotiations for the

new framework agreement and we have had discussions on that. Unfortunately,

because it is a negotiation, our federal counterparts obviously were not able to

allow it because of their own Treasury rules. Again, at the end of the day I am

still hopeful and we are monitoring this fairly closely that we will

minimize and hopefully eliminate the possibility of any carry forward in the

next year.

MR. BRAZIL: Of any slippage. Thank you. I appreciate that.

I just want to take you through some of the responses you had. It goes back

to wanting to satisfy myself that what you have outlined here seems to be

adequate to address the issues that the Auditor General brought forward. To get

an understanding, I will give you an example, question one, "Has the Department

reviewed and modified the documentation procedures of the Implementation

Committee to ensure that decisions are better documented?"

Your response, "As of April 1, 2012 the Department has ensured that all

decisions are better documented in the minutes. All Growing Forward

Implementation Committee (IC) decisions continue to be recorded in official

Records of Decision which are included with the minutes. All minutes are signed

off by the IC Chair and one other Committee member. Minutes are then distributed

to the IC Chair". I see it as a great answer. We know the process there. We

know it will eliminate the issue we had.

Moving to the second one is where I would like some more clarification as to

what the process was before and how, what you have noted here, would improve the

process. Here is the question we had asked, "What procedures have the Department

implemented to ensure that the documentation related to applications, project

costing, and arrears checks are complete?" You went on with your answer.

Do you have a copy of the response you had sent?

MR. DEERING: Yes.

MR. BRAZIL: What you explained there makes sense to me, how the manager

would be engaged, but give me an understanding of it. Obviously the Auditor

General brought this forward because there was a gap in the ability to monitor

that properly.

What was happening before that, now, by implementing that, will improve the

process? What was lacking somewhat before that? I just need an understanding so

I am pleased or happy that this would address that issue and it would not be a

further issue down the road.

MR. DEERING: I will let Cindy expand on this, but my understanding is

that as a result of the Auditor General's report and recommendations we have

come up with a file information sheet that we basically fill in and are able to

check off a lot of the elements that were reported on in terms of whether they

were in the file, incomplete or not.

My assessment is that prior to this our system, although it probably had

mechanisms to check for some of this stuff, it was a little bit more ad hoc than

that. It might have been reported on in minutes and it may not have been.

We have made it a little bit more of a formal process now. Again, it is not

to say that it was not done in the past, because in my assessment through

various mechanisms it was. Cindy, I do not know if you wanted to expand on that.

MS MacDONALD: I think, based upon the Auditor General's comments, we are

implementing a lot more due diligence in the file. I think a lot of the comments

they had in the report was due to documentation issues in the files. Something

as simple, for instance, of whether an applicant had an environmental form

completed, sometimes we would have done the check and it would have been an

e-mail response back, but the e-mail would have been printed out or put in the

file. Things like that now, they are being checked off.

As Keith mentioned, this file information sheet, the program managers now

have to date when the piece of information is received and put in the file and

they have to initial it. Then there is a second check as well by the program

accountants to make sure that was done. As well, all the files go through a

manager of cost-shared agreements. The fourth check ends up being our Manager of

Agriculture Business Services, Janice Gill. They, along this process, will do

checks to ensure that the documentation is on file.

MR. BRAZIL: Okay.

Have there been any new resources added to the department or the Growing

Forward Program to address some of this stuff? I go to the point where if the

Auditor General has identified it, then obviously there is gap in either

somebody has not performed their duties, or the process did not work, or there

was a lack of resources there to be able to implement what you wanted to do.

Have you changed the structure of I know that you have noted the

responsibility of various people. Have there been any new resources added to it

or have you reshuffled responsibilities to make this work?

MR. DEERING: No, we have not added any new human resources to be able to

do this. We have essentially just fine-tuned our own process and tried to make

it work a little bit better.

MR. BRAZIL: Okay.

Have you done your own internal review after and I know you noted it and

you showed the documentation there, that the Auditor General had said that all

managers, all directors, all the key people sit down, some of the stakeholders,

to talk about how you better implement and better monitor the program itself?

MR. DEERING: Yes

MR. BRAZIL: Or do you have a self-monitoring process continuously going

on to improve the program and assess whether or not you are meeting the needs of

the clientele?

MR. DEERING: I do not know that I would say that we have done a formal

review. As a result of the Auditor General's report, we have made more formal

some of these processes. We have prepared a work plan to address the issues that

were identified in the report. Through mechanisms like this file information

sheet, we have made more formal a process that was previously a little bit less

formal.

MR. BRAZIL: That is shared with all the key managers, or directors, or

people responsible?

MR. DEERING: It certainly would be shared with the folks on the

Implementation Committee, I would suggest.

MR. BRAZIL: Okay, perfect.

Mr. Chair, that is all I have for right now; I will come back. Let one of my

other colleagues ask some other questions.

Thank you.

MR. MITCHELMORE: (Inaudible) on page 155, "A total of $1.306 million was

approved and paid to three related parties ($500,000, $500,000 and $306,000)."

The related parties, the IC, is required under the program guide to consider the

benefit to the industry, the amount of funding previously received, and the

availability of existing funds; however, there was no documentation to indicate

that these factors were considered.

Why was there no documentation? This is completely unacceptable when we are

talking about such a large sum of public money and highly skilled government

employees that are sitting on the IC, apparently.

MS MacDONALD: What we were doing with our decisions is we were recording

a record of decisions for every project. So it would have information on the

project description, project title, the amount approved, eligible items,

thematic areas that the project was approved under; however, our minutes were

not capturing the discussion as to why we were approving a project.

We have noted that was an issue that we need to have improvement on. Since

the Auditor General's comments, in our minutes we are now capturing, for each

project, the discussion around why the projects are being approved.

MR. MITCHELMORE: Of your 360 projects then, none of them captured any of

the discussion by members as to why they were approving funds?

MS MacDONALD: The files are assessed, like I mentioned previously, by

different staff, like development officers, farm management specialists, program

managers also do a fairly in-depth technical and financial assessments of

projects. We were using that as the background assessment as to why a project

would be approved. When the Committee actually made its decision, it did not

detail why that was being approved. At the time, then, the projects were being

supported by the staff assessments.

MR. MITCHELMORE: In these cases they were not supported by the staff and

you refused to document any reasoning why the IC is making a decision to

overturn the staff. This is a higher hierarchy and this goes against basically

any type of policy that a committee would have. This is wrong and I do

understand why you did not document the findings. There has to be something, a

reason for that.

MR. DEERING: Again, from my perspective, I am not sure that there was a

specific attempt not to report on these elements. Again, what we have committed

to is an improvement in the process to make sure that the elements that the

Auditor General had identified will be clearly documented.

As Cindy mentioned earlier on to one of the previous questions, in this

particular case the staff person who would have made these comments, perhaps

they never had the full amount of information that the Implementation Committee,

for instance, would have to base their observations on. It is not common for our

field staff to have the full financial information of companies, for instance.

Cindy indicated previously that some of these observations were not correct.

Even though they were documented in the minutes that we had prepared and they

were given full consideration in the decision-making process, the Implementation

Committee had to make a higher order assessment and made an assessment that was

different from the information that came from the field staff.

MR. MITCHELMORE: Regardless of that, the Implementation Committee should

have been putting in documentation why it is approving or rejecting applications

to hold accountability to the system. This is blatant misuse of power, in my

view.

When it comes to looking at the Entity 1, Entity 2, Entity 3, I am very

interested because I worked in business development. Seeing the structure of

these companies and how they are set up, it seems very unusual that companies

would be set up this way in such a related structure.

Would they be given any recommendation by the department to form companies?

Were these new companies incorporated to apply for funding, that had received

funding previously under Growing Forward, then became incorporated, Entity 2 and

Entity 3, so that they could acquire greater public funds?

MS MacDONALD: To my understanding, these companies were in existence

prior to Growing Forward. So no, they would not have been set up just to avail

of program funding.

MR. MITCHELMORE: Because they were no new applicants, like Entity 2, when

it comes to land clearing, how would they have been qualifying for the program,

then Entity 2, if they did not have equipment and they were looking at this

program to acquire the equipment how would they have adequately qualified for

the program, I guess, is my concern?

MS MacDONALD: I am not sure if I follow the question.

MR. MITCHELMORE: You said that all of them were incorporated and were

structured; they were in business before they had qualified for any Growing

Forward funding. So, new applicants would not have to have farm sales, but

Entity 2 which purchased equipment to do land clearing would have needed the

equipment to do the land clearing. Prior to receiving funds, what type of

business were they in and how did they generate their revenues?

MS MacDONALD: Yes, sorry. They would have been into the land clearing

business; they would have been doing land clearing previously. What this one

piece of equipment is, it just allowed them to expand that capacity. They would

have had other equipment doing that sort of work previously. This one large

piece of equipment, this large-scale rock Rotoveyer, would have allowed them to

do much larger acreages on an annual basis.

MR. MITCHELMORE: At what levels what is the timeline for Entity 1,

Entity 2, and Entity 3 receiving funding?

MS MacDONALD: I do not have the details of that. I am not sure if that

was all within the same fiscal year or if that was over the two fiscal years

that the Auditor General reviewed.

MR. MITCHELMORE: I would like an answer. Could the Auditor General's

office provide documentation as to when Entity 1, Entity 2, Entity 3 received

funding?

MR. PADDON: We will take a look. I am not quite sure how much information

we would have in our file. We do not copy departments' files. We would have

certain information. We just have to check.

MR. MITCHELMORE: Okay. Maybe during break or whatnot the officials here

could contact and take a look at the files and get the information for me, when

I get a chance to question again, because I have a number of questions on this

and significant concerns.

When we look at Entity 2, it said that they had produced of the 700 acres

cleared, 560 of them were for their own related companies. One of the things we

look at is looking at competitive impact, looking at the benefits to the overall

industry. I am wondering as to, this was a comment by staff, so why would you

look at additional funding to these companies?

MS MacDONALD: One of the issues that we have in the agriculture industry

is having access to enough agricultural land for production. We look at land

development as a priority. The fact that this company was clearing a lot of land

for themselves, for their related parties, is understandable because they are

operating one of the largest farm operations in the Province, but they also

provide services then to other producers that are looking for land development.

As an Implementation Committee, we do not see it as a competitive issue

because one of the problems that we continually see with farmers in trying to

get land approved is trying to source people to clear land for them. A lot of

our land clearing projects, for instance for this year, producers are having

difficulty getting people available. By us investing in the increased

infrastructure and capacity for land development, we think that is a good

investment.

MR. MITCHELMORE: Shouldn't this company that you have approved the funds

for be clearing all of this land then if people are having difficulty getting

access? It is evident then that there is certainly an issue when it comes to

getting land clearing.

What I would like to know is how much was this land clearing equipment?

MS MacDONALD: I believe it was about $300,000 the piece of equipment.

MR. MITCHELMORE: Was 90 per cent of the cost covered for the equipment

through the Growing Forward Program?

MS MacDONALD: Seventy-five per cent.

MR. MITCHELMORE: Just the 75 per cent in this instance okay.

MS MacDONALD: All projects under the agreements are reimbursed at 75 per

cent of costs.

MR. MITCHELMORE: There are some exceptions, though, where it could go up

to 90 per cent?

MS MacDONALD: It could be, yes. You are right. For some of our

not-for-profits for training and things like that we can go up to 100 per cent

funding.

MR. MITCHELMORE: I have a number of other questions so, Mr. Chair, I

would be willing to pass it on to a government member to come back.

CHAIR: Mr. Collins.

MR. S. COLLINS: Actually, before I begin, I would certainly like to say I

have dealt with this program and some of the officials opposite on a number of

occasions. It certainly is a great program. It is quite valuable so we were are

not here today questioning the merits of the program as such, just some of the

oversight that has been given to it.

Going to the holdbacks issue, if you want to refer to page 157 of the AG

report, it says, "Holdbacks totalling $84,732 were not deducted from payments

for 3 projects. Contrary to the Program Guide and the contribution agreement, a

holdback was not deducted from a claim payment for 1 project". It goes on to

talk about that.

In your response, "The Department acknowledges your findings related to

holdbacks and due to an oversight the 10% policy holdback was not properly

applied in the three projects noted in your report."

I am just wondering: What exactly was the oversight? Because it is kind of a

broad statement to say it was simply an oversight. I am just wondering how that

would have applied. Of course, we are only looking at a small portion. When the

AG looked at this, he took a sample size and he found these three instances. It

is fair to assume that the oversight would have happened more than what we have

seen here.

I am just wondering: What would have caused that oversight, as you see it? Is

it something that can be easily addressed and is it something that has been

addressed?

MS MacDONALD: One of the projects where the hold off was not applied was

for one our secondary processing companies. There was an initial payment made.

We are allowed to do interim or progress payments, particularly for the larger

projects. It helps the applicants' cash flow of the project.

There was an initial payment made and there should have been a 10 per cent

holdback applied to that initial payment; however, the Auditor General does note

though that the final claim on that project was not paid out until the project

was fully completed and inspected. There was an oversight on that initial

interim or progress payment that there should not have been.

Now, we have a holdback-monitoring table that the administration completes.

That gets tabled with our Implementation Committee now so it helps us to monitor

and ensure that the holdbacks are being applied and that they are being applied

for those interim payments.

MR. S. COLLINS: That monitoring tool was in direct response to this issue

itself?

MS MacDONALD: Yes, correct.

MR. S. COLLINS: Okay.

Why do you think the monitoring has lacked? As I look at this, a lot of this

is just oversight in monitoring, basically. I do not see much more than this.

Most of the questions surround that.

I am just wondering: What would have caused the lack of monitoring? Would it

have been resources? Would it have been staff or those types of things as you

see it? Of course, we need to know the problem in order to address it. I am

confident you are moving in the right direction. I am just wondering: Where were

we and where are we?

MS MacDONALD: With new programs, as you get policies in place, you

tighten up your policies as you go along in the program. Sometimes it as simple

as, like I mentioned before, someone having an approval on something, but they

are just not printing it out and putting it on file. That is just pure

oversight. That is something they should have done that they just did not.

Now that it is being monitored by the managers and that program managers know

it is being monitored and it is being checked, due diligence will be applied.

MR. S. COLLINS: Okay.

Following along the same train of thought there with regard to the database,

it was also noted in the AG report that the database was found to be not

up-to-date. Is that something that is easily addressed? I am guessing you are

going to be still using the same database, but is it just simply that numbers

were not entered? Is it something as simple as that? What would explain that?

MS MacDONALD: The issue with the database is that it was a new database

we developed with Growing Forward. The information was being entered into the

database but one field in particular was whether the project was complete or

not. It was a field that the staff themselves were particularly using and they

felt they needed, which of course is still important to do. That now is being

monitored by the manager of cost-shared agreements so that as projects are

closed for this year the program managers will note when the file is closed off.

MR. S. COLLINS: I am guessing all staff that would be using this database

would be given some sort of orientation or something with regard to the usage of

it. Would that be a fair statement?

MS MacDONALD: Yes, they would be. Actually we have three of our four

program managers who are new within the last year. They are now familiar with

the new process that we have in place.

MR. S. COLLINS: Okay, great.

Finally, I just wondered with regard to the bilateral agreement, there are

six programs that fall under this and it said that they are all funded at

different levels. Can you expand a little bit on that? That was noted in amongst

page 183. That was actually in the department's response, "The Department will

continue to exercise due diligence and closely review the accuracy of claims to

the Federal Government. Growing Forward is a five year agreement funded 60% and

40% by the Federal and Provincial governments, respectively, however each of the

six programs under the Agreement is funded at different levels."

MS MacDONALD: The program overall, Growing Forward, is 60-40. Some of the

funding is actually spent directly by the federal government themselves, and it

is what is called federal attributed programming. They spend some of that money

themselves. When we are looking at doing claims and that we have to adjust to

see based upon what the federal government might have expended as well during

that period.

Then the six programs that we are delivering, that the Province is

delivering, some of those are necessarily 60-40. It depends upon how much

federal-provincial money that we put into the programs. Some of them might be

WITNESS: (Inaudible).

MS MacDONALD: Yes, some of them might be 55-45, something like that. Then

when we move money then from one year, say if there is a carry forward and move

money from one year into the new year depending upon where we move that

federal-provincial money, that also impacts the percentages as well. Overall for

the program it is 60-40, but there are slight differences amongst the programs

themselves.

MR. S. COLLINS: Okay, thank you.

That is everything now, Mr. Chair.

Thank you.

MR. JOYCE: Thank you.

I will go back to the three entities again for a second. When the IC made the

decision were they aware that the three entities were related?

MS MacDONALD: Yes, we were.

MR. JOYCE: Can you tell me what three different farming operations those

three operate?

MS MacDONALD: One entity is a dairy operation.

MR. JOYCE: A what?

MS MacDONALD: A dairy farm, they produce milk. One is a dairy operation.

One is involved in land activities. The third one is into crop development; they

produce forage.

MR. JOYCE: What kind of you mentioned the second one, land development?

MS MacDONALD: Yes, land development. They are involved in land clearing

then.

MR. JOYCE: Land clearing for whom?

MS MacDONALD: They would do land development for the forage operation, as

well as land development for other producers.

MR. JOYCE: I ask the Auditor General, because I noticed there that some

of the funding was competing against other entities, is that correct?

MR. PADDON: That was the comment that was made by staff at the Agrifoods

Agency.

MR. JOYCE: Is that correct, what the staff said?

MS MacDONALD: No, I do not agree with the issue on competitiveness. This

is not the only company that we funded this type of Rotoveyer for. We do have,

under our Land Development Program under Growing Forward, we do fund and have

funded quite a bit of land development equipment everything from rock rakes,

rock windrowers, mini-excavators, limestone spreaders. We funded quite a bit of

land development equipment, so all applicants are eligible to apply for that

funding.

MR. JOYCE: In the three entities and I know they are just Entity 1, 2,

and 3 Entity 1 has 50 per cent, Entity 2 has 50 per cent, and Entity 3 has 50

per cent. Wouldn't that set off alarm bells that it is the same person? I mean,

if it was 5 per cent or 10 per cent you can say, well, they got a minor share,

but 50-50-50 for the same person, shouldn't that set off alarm bells saying that

we are funding $1.3 million, $800,000 over the recommended and allowable for the

same person, when it is the same person who obviously has controlling shares in

each company. I mean, it is so obvious there.

MS MacDONALD: Under the Growing Forward Agreement, the program does allow

us to fund related companies. As I mentioned previously

MR. JOYCE: I do not mean to cut you off, but related companies are if I

own 10 per cent of one share, and 70 per cent of another, but when someone owns

50-50-50, that is not related, that is ownership. That is not related companies.

That is complete ownership. So, one person owns those three companies,

obviously, that is not a related company. That is one person who has three

different companies and it is not related it is the same person.

MS MacDONALD: There are certainly common shareholders between the three

companies, but again, we do allow for funding between related companies.

MR. JOYCE: I ask the Auditor General: Is that against some of the

protocol that has been set up by the department that you would not fund related

companies in

MR. PADDON: I do not think there is any question that the program does

allow funding for related parties. The issue that we raised was the fact of did

the Implementation Committee adequately consider the related party issue when

they approved the funding for the three companies. Then you have the ancillary

issue: Did the fact that you paid $1.3 million to a related group crowd out

available funding for other applicants?

How companies structure themselves, you have three companies with common

shareholdings and there is 50-50, and then a spouse with fifty. I cannot really

speak to the specifics of it, but I would say based on my experience is that

people structure their affairs for a variety of reasons, and I would not suggest

that it would be unusual, necessarily, to have this kind of a corporate

structure. I do not really know the specifics about why they were set up in this

particular manner.

MR. JOYCE: Obviously there was no minutes kept of the decision, the

reason of why the decision. Were there any other letters of recommendation to

support this application put forth on the file?

MS MacDONALD: There would not be letters of recommendation, no; there are

just the staff assessments.

MR. JOYCE: Just the staff assessments.

MS MacDONALD: Yes.

MR. JOYCE: Okay.

In this three set up and I ask again, one, as you mentioned, is for land

clearing. The land that has been cleared, or if it has been cleared, which I am

assuming it was, it is being used today?

MS MacDONALD: Yes, absolutely.

MR. JOYCE: For what activity?

MS MacDONALD: For forage production. One of the major issues we have

particularly in the dairy sector is access to forage. Particularly after the

drought we had this summer, it is very expensive to import forage into the

Province. With the drought that happened on the Mainland, it is actually

difficult to even contract to buy forage. What we are trying to do is put more

land into forage so producers have access to their own forage and to their own

quality forage.

MR. JOYCE: In this round of funding, was there any other funding approved

for land clearing for people?

MS MacDONALD: Oh, absolutely, yes.

MR. JOYCE: What I mean by that was, for a company that was just set up

for land clearing, or was it tied in to the farm itself?

MS MacDONALD: No, we have a similar company here on the East Coast

actually that does the same sort of agricultural activity.

MR. JOYCE: Did they receive funding?

MS MacDONALD: Yes, they would have received funding as well.

MR. JOYCE: Were they in the same structure doing other farming?

MS MacDONALD: There would have been a similar structure, yes. There

likely would have involved another agricultural enterprise as well.

MR. JOYCE: Can you supply that? We do not want the names but just the

same type of structure.

MS MacDONALD: Yes.

MR. JOYCE: In the approval and it is mentioned as the Auditor General

mentioned on page 168, down at the bottom: Our review identified 27 producers

"1 applicant, as previously mentioned in relation to the related party policy,

was a land clearing company that did not operate a commercial farm or an

agricultural processing facility, and therefore should not have been considered

eligible." Is that correct statement that the Auditor General made?

MS MacDONALD: I think what the Auditor General is reflecting are the

comments again by a staff person in the file in their assessment. We have funded

this company in the past. They are undertaking agricultural activity. We have

funded them in the past and, as I mentioned, there is a similar operation here

on the East Coast that we have funded in the past and we have funded under

Growing Forward. We deem them to be eligible under our program because they are

undertaking agricultural activity.

MR. JOYCE: That is not a staff statement, "and therefore should not have

been considered eligible." I ask the Auditor General that is not a staff

statement, is it?

MR. JANES: No, these were based on the criteria in the previous paragraph

on page 168. We would look at the eligibility criteria and then we made that

comment related to these criteria.

MR. JOYCE: That is not staff. That is the Auditor General saying that

they were not eligible for the program based on the criteria. That was not

staff.

MS MacDONALD: As I said, we do deem that this is an eligible applicant,

for the reasons that we noted before.

MR. JOYCE: Can you show me which one of those like the eligibility,

which one there, were approved under what: operate or have ownership in a

commercial farm or agricultural processing facility within the Province

MS MacDONALD: We would consider them to be a farm operation. They are

involved in, I believe, tilling of the soil or something, as we do deem that to

be an agricultural activity.

MR. JOYCE: It is just tilling of the soil is agriculture?

WITNESS: For agriculture purposes, yes.

MR. JOYCE: What do they till the soil for? I am getting confused here

because the criteria are there. They received the funding. The Auditor General

is saying that under the criteria they were not eligible. Can you explain to me,

under Eligibility, 1B, what one did they fall under?

MS MacDONALD: Again, we do consider them as a commercial farm; we

consider them as an agricultural enterprise.

MR. JOYCE: Okay, it is no good to have guidelines. If they do not meet

the guidelines, yet you approve the funding for them and then you say well we

are going outside the guidelines because we think they are agriculture. Yet, you

assume, if you set up guidelines, you follow the guidelines and here is what you

approved, you go through the guidelines.

Obviously, and the Auditor General agrees, is that they did not fall within

the guidelines. I am still confused how you can approve them within the

guidelines and say we approve them. I am missing something, I honestly am.

MR. EVANS: I think what Cindy is referring to there is under bullet two,

our department has deemed them as an agriculture facility. Whether it is tilling

of the soil for agrifoods or agriculture would be an activity that would be

eligible under these criteria. I do not know, Cindy, if that is correct.

MR. JOYCE: For the department, wouldn't you think you would have that in

the guidelines so you could take out that type of confusion for us people whom

are not farmers and looking at it?

MS MacDONALD: Actually that is a fair comment. Based upon the comments

that the Auditor General has made, in our Growing Forward 2 program guide we are

developing language more clearly around eligibility.

This is something that we would want to fund; we see it as a priority item.

Obviously this issue is causing some confusion with regard to eligibility. I do

agree that we perhaps need to be a lot clearer, then, in their eligibility.

MR. JOYCE: These three entities, did they receive any funding prior to

this Growing Forward?

MS MacDONALD: Yes, they would have received funding under previous

programs.

MR. JOYCE: I do not know if anybody else wants it, but I would like to

have it. Can I get a copy of all the funding that those three entities received,

say, in the last seven or eight years? Is that possible? I am sure it is.

MR. EVANS: Yes, we can provide that information. I am assuming it is

available in our files.

MR. JOYCE: Yes, and I do not want to know the names of them, just the

amount to those three entities. I do not mean to be harping on it, but I hope

you can see where we are a bit confused with it when we go through it.

Under the program itself and I noticed in the Auditor General's report

later that a lot of the money for these three entities and other entities were

not held back. Is that common? Is there supposed to be a 10 per cent holdback?

MS MacDONALD: We would apply 10 per cent holdback until the project is

complete. I do not recall if there is an issue on holdback on those three

specific projects, though.

MR. JOYCE: Okay.

CHAIR: Mr. Joyce, we should move on to a government member now.

MR. JOYCE: Okay, sure.

MR. K. PARSONS: It is a new program for me. It was very eye opening when

I read it. In my district there is not a lot of farming, although there is some

farming down there.

I just want you to talk to me first about the benefits of the whole program.

I know there is $29 million spent over five years. What benefits are we seeing

from this program for the Province as a whole?

MR. DEERING: I get feedback from our producers and our processors that we

have a number of programs, obviously, that the agency offers to support the

farming community. This would be probably one of the most important programs

from their perspective to assist them to get where they need to be.

Just a little bit of background to follow up on some of the questions that

were asked earlier: We are self-sufficient in this Province in three

commodities, or almost three. We are self-sufficient in dairy, we are

self-sufficient in eggs and we actually export eggs and dairy and we are

almost self-sufficient in chicken. The reality is we do not produce nearly

enough forage to feed those commodities. Given the fact that we still depend on

importing feed from other provinces, that makes those commodities still fairly

vulnerable.

Again, just for background, the operation we have been talking about

previously in the three related parties, this would be one of the biggest dairy

operations in Atlantic Canada, if not the country. Therefore, it is a complex

structure that probably involves even more entities than the three that are

outlined here. The point I am trying to make is that right now the agriculture

footprint in this Province, when you think about the food security question, is

about 25 per cent of where it needs to be in order for us to realize the full

potential, limit import displacement, and things like that in this Province.

The Growing Forward Program, to get to the root of your question, has done a

lot to bring us even up to 25 per cent. We still have a ways to go before we get

where we think we need to be. It certainly has done a lot. I will just give you

some metrics around some of the programs.

It is a national agriculture framework to co-ordinate agriculture policy

across all of the provinces and territories. It does bring some level of

consistency with the other provinces in terms of how these things are delivered.

In Growing Forward 1 the successor to this one is Growing Forward 2 $29.58

million is provided to the agriculture and agrifoods industry to promote

commercialization, innovation, and profitability.

We have done things as basic as land clearing, which, hopefully, we have been

able to demonstrate is completely necessary to further develop the agriculture

industry. When we are only occupying about 25 per cent of current footprint,

then we need to do a lot more of that in order to get us where we think we need

to be.

We have funded things as complex as not through this particular program

anaerobic digesters to produce electricity from animal waste. It has kind of

reached out to a large scope in terms of the very basic to the most complex

elements of the sector.

What else can I say about it? It began in 2008-2009 and it will end this

year. I guess the first four years of the agreement there was about $23.56

million administered. We will not know the final accounting for this year until

the end of March, but in total we have developed about 593 projects throughout

the life of the agreement, which is pretty significant.

MR. K. PARSONS: I have to say that looking at the Auditor General's

report and looking at your responses it is obvious that you guys recognize that

there were some problems. I have to say in every one of them, your responses,

you addressed your responses in saying ways that you were going to improve and

make the program a little bit better with your monitoring of the documentation

and different forms that you showed us here this morning.

I would like to ask the Auditor General: What do you think of the responses

so far? I know you will do a review in two years' time, but how do you feel?

MR. PADDON: Again, I have only had a chance to briefly review the

responses this morning. Based on my read and just from the flavour of the

discussion here this morning, I sense that the department's sort of look at this

and looking forward it has been positive, they have taken the recommendations

seriously, and it appears that they are taking the appropriate action to improve

it.

Ultimately, the Report of the Auditor General is designed to encourage and

promote sort of best practices, better practices in terms of accountability and

those sorts of things. I guess my initial blush on this is that it is fairly

positive.

In two years' time, I guess that is an open question because the program will

be over in two year's time. There will be a new program, hopefully

MR. K. PARSONS: Hopefully there will be a program 3.

MR. PADDON: Pardon me?

MR. K. PARSONS: Maybe there will be a Growing Forward 3.

MR. PADDON: Clearly we will do some work to follow up; there is no doubt

about it.

MR. K. PARSONS: Okay.

The last question I have for you guys: Do you deal with other jurisdictions

right across the country? Do you monitor what they are doing and in practices

they are putting in place also?

MR. DEERING: Yes, we are involved in multilateral discussions with all

the other provinces, both in the monitoring and review of the existing program

as well as, more importantly, the development of criteria for the next program.

There is a will at that table to ensure there is consistency across the

country on the various programs we develop. There is consistency for cross

compliance on some of the elements mentioned here. Obviously, as Cindy mentioned

earlier, the successor to the initial program certainly would be much better

informed from our experience with this first program, and improvements and

fine-tuning would be made to it as a result of that.

MR. K. PARSONS: Thank you very much.

MR. MITCHELMORE: I have some questions. The 360 applications were

approved over the three-year period in the report. How many applications were

actually received during those three years? We are given the financial value,

but we are not given the total number of applications.

MS MacDONALD: I do not have with me what the total of applications would

have been during that period of time. It is something we can get for you though.

MR. MITCHELMORE: So you keep all of your applications on file?

MS MacDONALD: Yes, we have an electronic database so, as applications

come in, they are registered.

MR. MITCHELMORE: I question then on page 168 the availability of existing

funds which the Auditor General has made reference to a couple of times in

return comments. Because in the year ended March 31, the department received

$9.8 million in funding requests but only had $6.2 million. Then again in 2011,

there was $13.2 million for requests and only $7 million available, and then

again $19.2 million in requests, but only $7 million available.

We are seeing an even more than a doubling of requests for funds. There is

quite an amount of money that is being requested. You are looking at over $40

million in three years that has been requested, but only $20 million available.

When you look at that, the Auditor General has made the statement, "it was

questionable whether available funds existed to approve over $1.3 million in

funding for these three related entities."

Why would you approve funds that could have gone elsewhere to a number of

your other applicants?

MR. DEERING: Our observation is that it is a five-year agreement and we

try to reach out to as many people as we possibly can throughout the life of

that five-year agreement.

Just for clarity, what the Auditor General is suggesting here and you have

highlighted is given the fact we had given these three related companies $1.3

million when, in their view it, was questionable whether or not we should have,

resulted in less funds being available for other people.

At the end of the day, even companies that are not funded in one year could

be funded in subsequent years based on their submission. Even though they may

not have been funded this year, it is quite possible they were funded

subsequently.

MR. MITCHELMORE: Given what you have stated here today, though, you are

saying this is one of the largest milk producers in the Province, they should

certainly have the capacity, especially looking at their own financial being

the Auditor General stated that Entity 2 is in a very weak financial position.

I am just wondering why preference would be given to such a large company

that probably did have the financial means to expand anyway versus looking at

new entrants to grow the farming industry, where we are weak. I am very startled

or concerned because there is no documentation by the IC stating as to why they

would approve or reject.

MR. DEERING: Just for clarity, the applications and submissions are

processed in the order in which they were received for this program. In fact,

these three related companies would have found their place in that queue based

on when they submitted their proposal and they would have been processed based

on that order.

MR. MITCHELMORE: It is more of a first-come, first-served basis, not best

value type of thing and there could have been applications that were sitting on

somebody's desk that did not actually get processed?

MR. DEERING: I would suggest that one of the criteria is the order in

which it is received, but certainly once it is received usually there is an

ongoing dialogue between us and the proponent, in terms of further developing

that proposal or clarifying elements within it. It does not stop us from

processing others in the meantime. One of the criteria we do use upfront is

first-come, first-served. Yes, that is correct.

MR. MITCHELMORE: Did you receive any other applications for land clearing

development during those fiscal years that were not approved?

MS MacDONALD: We get a lot of applications for land development

equipment, so I would suspect, yes, there would have been applications in the

system for land development.

MR. MITCHELMORE: There could have been money allocated to another company

that was not related that could have been strictly geared towards looking at

expanding the industry versus expanding these other two entities, because that

is what it looks like based on this report.

MS MacDONALD: As Keith mentioned, we do deal with the applications, and

it is clearly in the guide that we do deal with the applications in the sequence

in which they are completed. For instance, if we had $100,000 in savings this

month in the program and, say, if we had fifty applications, we would not then

give every applicant $2,000. We would look at the next application in the system

as to whether we thought that was an eligible project, whether it was a

worthwhile project, and whether or not we would fund it.

MR. MITCHELMORE: Yes, because two of these entities received the maximum

amount. Did they receive what they applied for? Two of them received the maximum

and the other received $306,000. Did the other company apply for more than

$306,000 and only receive $306,000, or did these applications receive what they

applied for?

MS MacDONALD: I could not tell you. I do not know if they had applied for

more than that or not offhand without going back and looking at that specific

application.

MR. MITCHELMORE: Okay.

These three entities reflect less than 1 per cent of all your project

applications 0.83 per cent yet they received almost 10 per cent of all the

funds over the three-year time period 8.7 per cent of all funds. That is a

significant contribution of public money to these companies that are

significantly related very closely related. That is of concern when you are

looking at a number of other applicants that are in the queue and not getting

processed, or not getting looked at or even considered.

Is there something being changed to improve the system rather than a

first-come, first-served basis? There should be other eligibility criteria and

strategic goals that the department would have to grow certain sectors of the

industry, if they have applications for it, whether it be looking at mushroom

production or looking at wild berry production, or looking at other types of

vegetables.

We have such a food insecurity in the Province here. This seems very, very

interesting how the process is currently in play.

MS MacDONALD: Under Growing Forward 2 we are in the process of developing

program criteria and guidelines around that. One of the things we are looking at

is the applicant eligibility under the program. I think based upon the first

Growing Forward Program there was a lot of demand on the program. So, looking at

that program limit is certainly something that we are considering for Growing

Forward 2.

MR. MITCHELMORE: Okay.

It said: A total of $1.34 million was approved for five projects, even though

the documentation to support expected project costs of $272,779 was inadequate.

Examples include the absence of quotes, the inclusion of HST, and the incorrect

application of exchange rates, both of which were ineligible costs. Although

included in approved funding, the HST and the incorrect exchange amounts were

not paid out when the funding was dispersed.

These are evidence of very poor controls in the system. Can you further

explain what you have done to tighten controls to ensure that when things are

paid out they are acceptable, they do qualify?

MS MacDONALD: The examples that are used here we request quotes under

the program for a couple of reasons; one, we want to ensure that the applicant

has properly costed the project; and we also want to ensure that if we are

approving funding that we are not over approving funds for a project so that we

end up lapsing and an applicant does not actually need that full amount.

So, that is why we request quotes on the projects, where it is available. In

some cases you may not always be able to get a quote, but we certainly stress,

where quotes are available, that they do provide that, because we want to ensure

that they properly costed the project.

The example used for HST, unfortunately in this project, when the program

manager calculated the amount of eligible funding for the project, they had

included a HST amount, which is not typically included, it is not eligible, and

sometimes on quotes they do not always itemize out whether HST is included or

not. You will also note, though, the Auditor General did note that the amount

was not paid out. So, though HST was inadvertently included in the approval

amount, when it came to the actual claim to pay out to the applicant, HST was

not paid out to the applicant.

MR. MITCHELMORE: I guess the application was adjusted, or something else

was included, they spent money on something else.

MS MacDONALD: Yes, assuming they would have paid out less, that HST

amount would not have been included.

MR. MITCHELMORE: I want to ask about the $1.97 million that was approved

for the nine projects, and that there were no checks done to see if they were

arrears with government departments. I worked with lending previously, you did a

credit check, you did check on workers' compensation, on a number of government

agencies to see if there were arrears with the CRA and things like that. Why was

such a simple step and a checklist missed?

MS MacDONALD: The arrears check is not a requirement of the Growing

Forward framework agreement as such; it is more of a Treasury directive within

government that we do an arrears check to see if the applicant is in arrears

with government. In these cases, unfortunately, that step was missed.

CHAIR: Thank you, Mr. Mitchelmore. I am going to go to a government

member.

Mr. Cross.

MR. MITCHELMORE: Okay.

CHAIR: Or we can take a morning break.

MR. CROSS: That is the reason why I looked

CHAIR: I like to get every member in before break. We are meeting again

after the break.

We can take a break right after Mr. Cross

MR. CROSS: Just by saying Bonavista North, we are not a big farming area,

I guess; we complement rocks and wind. No matter what, I am sort of all ears in

the sense of what is happening here because there are a few people in my

district who are actually trying to get involved in farming on the rocky land

that is there, and it is a struggle to say the least.

In looking at this whole picture this morning, what I have been looking at is

the documentation. On the side of the documentation with regard to eligibility

on page 169-170: Applications are required to be completed for the appropriate

program and manner and whatever. As part of the approval process there is a

Record of Decision. When we get to page 171, there were some indications where

this Record of Decision was not part of the minutes for some of the meetings.

I guess I would like to learn a little more about what this actual Record of

Decision would look like or be a part of this, and what actions are there for

improvements such that it is included, in future?

MS MacDONALD: The Records of Decisions to each project that was approved

or rejected had an individual Record of Decisions. It would include the

applicant's name, the project title, what it was they had requested, the

semantic area, the area of eligibility under Growing Forward. It would have the

amount that was approved, the eligible items, and the ineligible items. It would

include any items if there are any conditions on the project, such a project

report or something.

Each project had its own separate signed off Record of Decision. The comments

from the Auditor General are that although those Records of Decisions were kept

with our minutes, they were not a formal part of our minutes. So based upon

their recommendation, what we are doing now is those individual Records of

Decisions are included with our minutes but as well in the minutes they

individually note each project. Previously the minutes were more of a policy

discussion with the Committee and the actual approvals were on a separate Record

of Decision.

MR. CROSS: Are all of these paper forms?

MS MacDONALD: Yes.

MR. CROSS: Is there a database that all this can be included in and

easier to keep it together?

MS MacDONALD: Yes, the Records of Decisions are actually created off our

database system. There is both an electronic and paper copy of the Record of

Decisions.

MR. CROSS: That would monitor and it would keep closer contact to

incomplete applications and the documentation for the cost of the projects and

the arrears checks, all of this would fit into the one

MS MacDONALD: Yes, and the minutes now are signed by two of the Committee

members and circulated to the Committee members. The Committee members also

receive the Records of Decisions. Those minutes get scrutinized after each

meeting. They are prepared by our clerk typist, but they then go through our

manager of cost-shared agreements, they go through our manager of business

services, and then they come to me as well. We scrutinize the minutes to ensure

the information is properly contained in the minutes.

MR. CROSS: That is the theme I wanted to work through here. I have some

questions later on but it is under a different area. I am content there.

CHAIR: Thank you.

We can recess for a morning break and we will resume at 11:05 a.m.

I am advised we have coffee in the Government Members' Caucus Room.

Recess

CHAIR: We are ready to resume with Mr. Joyce.

MR. JOYCE: I will just go to page 162 at the bottom. I am just getting

some clarity there. Application process "Applications for funding are sent to

the Program Manager responsible for that particular program. The Program Manager

reviews the application and requests a separate assessment from the Agriculture

Development Officer for the area, and if deemed necessary, a Specialist. Once

these assessments are received, the Program Manager completes a project

assessment and a recommendation is made to the IC that the project be accepted,

rejected, or deferred."

In the case of the three entities, was that the process that was done?

MS MacDONALD: Yes.

MR. JOYCE: Obviously, from the reports from the staff that was reported

by the Auditor General, once the recommendation came up for rejection they were

just I should not say dismissed, but they were definitely not adhered to. Can

you explain why they were not adhered to?

MS MacDONALD: The Implementation Committee did not necessarily agree with

all of the comments made in the assessments. For the majority of files and

applications that we review, the assessments made by staff, we would agree with

the comments. In this case, we did not agree with it. Again, to us a land

development is a priority within the sector. It is something we thought was an

important project to be funded. We funded other applicants for the same thing.

From the Committee's standpoint, we felt it was a worthwhile project. As I

said, we agree with the Auditor General's comments that in this case we should

have better documented the reasons why the Implementation Committee did not

agree with the staff members and why we decided to fund the project.

MR. JOYCE: I just ask for clarity more than anything. Did the IC go back

and ask for any other reports from the staff or they just took the information,

which you felt was complete, and then made your recommendation or did you go

back and ask for any clarity or anything?

MS MacDONALD: I do not believe we went back for more clarity, no.

We are quite familiar with the operations. These operations have been in

existence for awhile. We have all visited those operations. We are familiar with

them. Three of the members on the Committee have a really good understanding of

the industry and the needs of the industry. Based upon that and our knowledge,

we had approved the project.

MR. JOYCE: When it was rejected, was it ever relayed to the staff the

reason why or was it just a decision that was made?

Just as an observer reading this, it is almost like the staff made the

decision. There are three people here saying no, we do not agree with that, and

just making the decision, no minutes taken, and no explanation for the reason

why.

MS MacDONALD: Well, there was a Record of Decision. When you say there

are no minutes, there would have been a Record of Decision on that project

discussion. The staff were present at the meetings. When the Implementation

Committee meets, their program managers are present so they actually present the

files to us. Like I said, for the majority of files, we would agree with the

recommendations of the staff.

MR. JOYCE: I will ask this and I know the answer already is no. There are

no other letters of recommendation from outside for any of these projects or any

verbal recommendations outside the staff?

MS MacDONALD: No, not that I can recall.

MR. JOYCE: Okay.

On page 166, the three entities are there. All those three entities are right

in the Codroy Valley. Am I correct that you said that earlier?

MR. DEERING: Yes, this is my understanding is that they are all centered

around the Codroy Valley area.

MR. JOYCE: Okay.

It was said earlier that one is for dairy. What were the other two for?

MS MacDONALD: One is for dairy. One is forage production; they grow hay,

silage, corn silage, so it is forage production. The other one was involved in

land development.

MR. JOYCE: Land development for

MS MacDONALD: For either those related companies or for other farmers.

They are in the business then of going out and clearing land.

MR. JOYCE: Okay.

Now I do not mean to harp on it and I am sorry if I am, but if that is just

for the land development and this is where I missed it earlier and I was not

sure and I wanted to come back. If this was just for land development, growing

nothing, just for land development for someone else, why would you approve

$500,000 when the Auditor General and the staff are already saying that there

are people there you can go and you can rent or get a tender, or a contract to

go and do the land? This is where I am missing why you would give extra funds if

it is just for land development.

MR. DEERING: You may have been out, Mr. Joyce, when we talked about this

previously. I mentioned earlier on that one of the key elements of agriculture

development in this Province and in order to achieve food security we need to

develop a lot more land. We currently occupy, by our estimate, about 25 per cent

of the footprint that we think we need to occupy to grow enough forage and

produce enough vegetables to feed the livestock that is producing the milk, the

chickens, the beef, and all those sorts of things.

Land development in our view and this is echoed in our strategy as well,

not connected to the Growing Forward piece is that land development is

critical. We consider land development for the purposes of agriculture

production, which involves some very specialized equipment, different from

forestry operations we will say, when it comes to land clearing. We consider

land development to be a key agricultural process.

MR. JOYCE: You just mentioned that one was for dairy, one was for

foraging, and one is for land clearing.

MR. DEERING: Right.

MR. JOYCE: My question is, with the report which said there is already

equipment in the area that can clear land, I am sure that equipment is not

working twenty-four hours a day, or seven days a week. I am sure that equipment

could be used to clear some land.

It just raises the question, if there is already equipment there and you

mentioned the three entities, dairy, foraging, and clearing land. If there is

other equipment there that can clear land, why would government take $500,000

and give it to somebody else to clear the land? I am sure that machine he bought

for $500,000 is not operating forty hours a week. I am sure there is equipment

out there that could have cleared land. That $500,000 was taken away from some

other group. It just does not make sense to me why you would give $500,000 to

clear someone's land when there is already equipment over there that can do it.

MR. DEERING: Although equipment can be moved from one location to the

other, this particular piece is a very large piece of equipment. It is a

Rotoveyer. It is for picking rocks up out of the soil, and obviously it becomes

cumbersome. We do have this type of equipment in other locations of the

Province, but you are a little limited in terms of your ability to be able to

move it long distances.

MR. JOYCE: Is this the only piece of equipment on the West Coast now?

MS MacDONALD: No. Actually, we bought a similar Rotoveyer for another

farmer in Cormack.

MR. JOYCE: I do not mean to harp on it, but I just want I know most

governments, or anybody, you put it out on a tender, if somebody needs land

cleared, to come in for a week, two weeks, three weeks, you clear the land. One

machine, you pay for it and you move on, but $500,000 to clear the land. The

machine, I am sure, is not working on a regular basis. It is not out in Codroy

Valley clearing land forty hours a week, I am sure of that, because the Codroy

Valley is not that cleared.

MS MacDONALD: If I can add.

MR. JOYCE: Yes.

MS MacDONALD: The thing with land development, there is, sometimes, a

very short window of development for land development. If you get a really rainy

summer and fall, that is not a good time for land development because the

equipment will get stuck in the land. So, you normally have a short time window.

When the time is right, a lot of people like to do land development in the

fall. It is a little bit of a drier period of time. They are not so busy then

with their other farming activities. Then there is usually the demand, people

particularly want the equipment at the same time. Usually, then you are trying

to wait for some things. As we said before, this is a very large agricultural

operation. They are clearing not just ten, twenty acres a year; they are

clearing a couple of hundred acres a year. So they want to have access to this

equipment when they are able to use it and when the weather permits.

MR. JOYCE: Has this equipment been rented out, do you know, as part of

the business, his business, or is it just for personal use?

MS MacDONALD: They also do land development for other farmers in the

area. I believe that was part of the comments of the Auditor General that so

much of the land now, the majority of the land is certainly for their

operations, their related businesses. That is just because of the shear size of

their company, but they also do land development. That equipment has been used

for other clearing on other farms as well.

MR. JOYCE: My last question on that is, in the report that the staff

made, they recommended rejection because they are competing against other

entities. What other entities were they talking about when they said they are

going to be competing against other people for clearing land?

Obviously, they felt this is a land-clearing operation. They felt there are

other entities that can do this work. If the staff recognized it on the ground,

what entities were they talking about?

MS MacDONALD: I did not agree with the staff comments but I think what

the staff was trying to say was that rather than funding this operation to say

clear land for other producers, that the other producers could avail of land

development equipment on their own. We funded them because we knew the majority

of the land development they did would be for their own related parties, but

they also would provide that service to other farmers.

What other farmers do, we did not see the competitive disadvantage there at

all because other farmers do have the right to apply for that funding and have

applied for funding for land development. We have invested quite a bit of money

under Growing Forward in land development activities.

MR. JOYCE: On page 167, probably right in the middle there, when you go

through the $500,000 that was approved for Entity 2. I will just go through the

list of things there, and I am assuming this one of the Auditor General is from

the staff's report that they reviewed.

"Entity 2 was ineligible under the Program as the company did not generate

farm sales; it was land clearing only; over the past three years, Entity 2 had

developed more land for its related entities than that for local producers (560

of 700 acres cleared was for its related companies)" which is a significant

amount of land. That is what Entity 2 did three years prior.

"Other producers had their own equipment for developing land. For example,

another producer had funding approved for the same type of equipment on 21

December 2009, less than one month before the application was received from

Entity 2 on 10 January, 2010;

"Entity 2 was in a weak financial position; and funding to Entity 2 created

unfair competition for other entities engaged in land improvement."

After you read that, if I was a manager and I read all of that, how could you

approve $500,000 to give them after your staff went out and made this report?

MS MacDONALD: If I could address those issues?

MR. JOYCE: Please.

MS MacDONALD: The first item there, we do respectfully disagree with the

Auditor General on whether or not it was an eligible applicant. We do feel it is

an eligible applicant. As I said, we funded them in the past and we funded

similar operations to this company.

The fact that they cleared 700 acres, I think that is outstanding. Most farms

are clearing ten, twenty acres a year. The fact that they did 700 acres, to me

that is a really good investment on our part. The fact that most of it was for

their own operation, we would expect that as, again, they are one of the largest

operations of their sector in Atlantic Canada.

The fact that we did provide funding for another producer for similar

equipment, we do that. We did provide this Rotoveyer; we have provided funding

to another operation in Cormack. It is the same kind of situation. It is a very

large operation. They are doing a lot of their own land development. They want

to have access to their own equipment to do this land development.

The issue about the company being in a weak financial position, as I

mentioned previously, one of the objectives of Growing Forward is to increase

the profitability and the innovative capacity of industry. We will often fund

projects to farms to help them to improve their profitability. It could be an

investment in training; it could be an investment in land development to

increase their production. It could be an investment on farm mechanization, all

sorts of areas that we would fund to help the farms improve their profitability.

We want to fund operations so they can become more successful.

As for the issue of unfair competition, again, I did not agree with the

staff's comment that it was unfair competition. Other applicants have been

funded for this piece of equipment and we have funded many other operations for

land development equipment under Growing Forward.

MR. JOYCE: One last question and then I will pass it on; 560 to 700 acres

of land was cleared for its related companies. Obviously, they can clear the

land. If that much land was cleared, "over the past three years, Entity 2 had

developed more land for its related entities than that for local producers (560

of 700 acres cleared was for its related companies)".

If they already had the ability to do it, how much more land would this

equipment clear for this person? If he cleared that much, what do you need this

big piece of equipment for? According to the staff it is done for his own

entities.

MR. DEERING: Again, this is certainly the largest dairy operation in the

Province. I would say the largest agricultural operation in the Province, one of

the largest dairies in Atlantic Canada, and I would argue as well, in terms of

scale, it is one of the largest across the country.

Although we are self-sufficient in dairy in this Province, we are

significantly not self-sufficient in terms of forage production to feed those

animals. An operation this size, for instance, still requires acreage in the

several thousands in order to meet their own self-sufficiency for that

operation. That piece of equipment probably has a lot more utility left, even

within their own operation, outside of the other farmers operating in that area

as well.

MR. JOYCE: Okay.

Thank you.

CHAIR: Mr. Brazil.

MR. BRAZIL: I just want to clarify a few things and a couple of

observations as part of it. Just so I am clear and that we would have it on the

record, it is agreed that on a go-forward basis, in the minutes or as part of a

report, you would have outlined the justification for the decision to fund a

specific project. Do we understand that now would be your go-forward process to

be used? From now on, any project that goes through it would be signed off as to

why it was justified as a legitimate project that would benefit the partners

that you are involved with.

MS MacDONALD: Correct. In the minutes now we have a

section for

dissenting opinion. I am not sure that is how it is termed, but basically it is

an area that if there is a staff person because sometimes a staff person might

have approved something that we do not think is eligible because we have not

approved it across other regions. We have agriculture development officers, so

they do not necessarily always come up with the same recommendation. We will

note then if there is a difference between the IC's decision and what the staff

recommendations are, yes.

MR. BRAZIL: Good. That will clarify it if it ever does come back to a

setting like this again as to how that process went forward.

I noticed in some discussion about the targets not being met, but can you

clarify a little bit more so as we make our recommendations to the House how you

have improved on that from a targeted point of view. If there is another

agreement put in place, how you would address meeting the targets that you

outline or do you pull back on the targets initially. Was it too premature or

too, I guess, optimistic of what you would do, or did you run into some

obstacles that nobody could foresee?

MS MacDONALD: When the targets were originally developed with Growing

Forward, we allocated funding by program and where we thought the uptake in the

industry would be. Based upon that, we developed our indicators and targets.

Obviously, depending on industry demand and need, they may actually for instance

apply for more funding under innovation than they would under mitigating risk.

We actually have the ability then to transfer money from one program to the

other within Growing Forward, and we will do that because we do not want to end

up lapsing the money. Rather than holding our money, say, in one program where

it is not being spent we will actually move it. For the first year of the

agreement where it was a late rollout of the program we did not adjust the

targets in that year. We did adjust the targets for the 2011-2012 year. We did

make those adjustments in the targets.

MR. BRAZIL: So the targets would reflect the amount of money in each pot

to handle what you would think the uptake would be on that?

MS MacDONALD: Right. As the program went along and we had a better

understanding of where industry need would be for, we made the adjustment on the

targets.

MR. BRAZIL: Fair enough.

One of the ones here that is noted by the Auditor General, "An amount of

$6,750 was paid to 1 applicant for site development and video production". The

point here is, "This should not have been paid as it was a pre-payment and

therefore, was not in compliance with the contribution agreement."

Now, maybe I am missing something here, but I would think maybe it is not

here or maybe it is not the practice that in funding some of these, there

would have to be some pre-payments in advance for some of these businesses that

either require a service or a piece of equipment. How does that payment process

work?

MS MacDONALD: In this case, the applicants paid for the costs and we

reimbursed with a 10 per cent holdback. We reimbursed them for what costs they

actually incurred and then we did not release the 10 per cent holdback until the

actual video was completed.

MR. BRAZIL: There is no upfront advanced payment prior to either a

service being implemented or a piece of equipment being purchased?

MS MacDONALD: The only advances we would provide would be for some of the

not-for-profits. For instance, for the Federation of Agriculture who are

undertaking a large project where there is salary is involved for the project

manager. We would give them an advance on a quarterly basis. For the typical

applicant doing on-farm work, we would not provide advances. We would allow for

progress or interim payments as the project proceeds based upon their actual

incurred costs.

MR. BRAZIL: Okay, fair enough.

This will go to you guys, too, but probably to the Auditor General, and it

just picks up on what one of my colleagues said about the three entities which

are connected by common shareholders being able to receive the money. I want to

be clear. I cannot say it does not smell right the optics does not look

exactly right, but I do understand there are entities out there that are

connected and should be funded based on the merits of the projects.

Again, I just need some more clarification from the Auditor General there

that is not a serious or a real violation of the intent of the program, or is

it.

MR. PADDON: My understanding is that the program clearly contemplates

that you can provide funding to related parties. The issue that we had was, in

terms of making a decision, the program guidelines would say you should consider

the related party factor in your funding decision. In the particular case we are

talking about there was no documentation to indicate that the related party

issue was contemplated in the funding decision.

We did not take exception with the fact that they paid to a related party,

per say, because that is clearly within the program guidelines, it is a question

of the documentation and decision-making process around it and was it adequately

considered in that decision making process.

MR. BRAZIL: Fair enough.

Again, you understand the Auditor General's concern there and even our

concern. From what I read from your responses, the practice would be that this

would all be documented. From what I understand, you do take into account the

fact of the connection or the collaboration between existing entities to whether

or not they are compliant to, under the jurisdiction that you can fund. That

will be a standard practice from now on to really look at it and document that

while there may be common shareholders, they are different entities, doing

different types of jobs that fit under different funding sources. Just so we are

clear on that.

MS MacDONALD: Correct.

MR. BRAZIL: Okay, perfect.

The last question I had there, I noted that there was a few there that were

late I come from a bureaucratic background that late means there could be a

million factors relevant to that. It is not do or die or the end of the world

when we make payments after the fact, but it is if it becomes on ongoing

practice as the part of that.

Just give me a little idea of and I know you noted it how you will

address to make sure that those are or some of the factors. There may be

extreme circumstances that even the Auditor General would have to nod and say

yes, we note that it should not be practised, but there are circumstances that

happen, be it a business, illnesses, invoicing, weather forecasting, whatever it

may be that do it. Or if indeed this is because it is just a lack of resources,

a bureaucrat, the participant not doing their job as part of it, how do we put a

safeguard in to make sure that we push that to the time frames that we set or

are the time frames too stringent.

Give us a little idea of how you are going to address that and what you think

is the real issue here, please.

MS MacDONALD: That is concerning the issue of the project claim forms

being submitted late?

MR. BRAZIL: Yes.

MS MacDONALD: In our program guide we say that claim forms must be

submitted within thirty days after the project completion. The reason we are

doing that is we want to encourage early claiming and timing of claims back in.

Particularly, we want to identify if there is any project savings because if

there is project savings, we want to be able to reallocate that back out there

again.

As you noted, there are reasons why applicants do not always meet within the

thirty days. It could be weather. It could be they are busy harvesting. There

are all sorts of reasons. It is a difficult one, and we had really good

conversations with Claude and his staff over this issue, actually, about the

late claims and how do we deal with it.

We, as an administration, certainly want to process the claims if we have the

administrative capacity to do that. If someone is a day late on a claim, do we

as a government want to say: Well no, sorry, you are a day late and we are not

going to reimburse you for your $300,000? We do not want to do that. There is

also a point where we can no longer process. Obviously, once government's books

are closed off we can not process, and if they are late then, obviously they are

not going to get their funding. So, we are putting "you must submit within

thirty days", because we are trying to encourage that early claiming as much as

possible.

So, what we do is that the program managers are pretty proactive with the

clients. As a project is nearing an end they will be contacting them, reminding

them about the thirty days, make sure that they get their claims in.

Particularly, then, if they go over the thirty, they still can contact them to

encourage them as much as possible, and even help them in some claims with

getting it ready, so that they can submit them in a timely basis.

It is an ongoing issue, because I cannot say that next year we will never

have one claim submitted late. Unless we go to a very strict one-day late, you

do not get reimbursed. It is kind of an issue, and we had really good

discussions with Claude and his staff over that. We do not want to put the

language in the contracts that you have sixty days or ninety days, because that

just kind of drags out the process more. I do not know if that answered your

question or not.

MR. BRAZIL: Fair enough. I do agree; you do not want to be so stringent

that you put people out of business because two days late, something happened,

and they did not get their claim in.

Mr. Chair, I am pleased with the responses that I have had, relevant to the

questions asked, and I know my colleagues will probably have some other ones,

but right now I am content.

Thank you, sir.

CHAIR: Mr. Mitchelmore.

MR. MITCHELMORE: I would like to ask about the department's performance

report submitted by the federal government for 2009-2010 that indicated that

twenty-six of the thirty-four program targets were not met, and only three of

the twenty-six targets had comments to indicate why they were not met. It seems

that the program has a very poor track record of documentation and keeping

records and really providing thorough explanations. So, I would like further

clarification on those comments.

MR. DEERING: I think Cindy indicated earlier on that the specific

circumstance that this is referencing was into the first year of the program. We

were late getting the program rolled out and we had concurrence with our federal

colleagues that they were aware that the targets were not being met and were not

surprised by that. We did endeavour in subsequent years to sort of clean that

up, and we did.

MR. MITCHELMORE: What about the $465,046 less than the eligible amount

claimed to the federal government based on the percentages that you are using?

What happened there? It is nearly $500,000. You did not claim the full amount

eligible for the program.

MR. DEERING: As Cindy indicated earlier, the different programs within

the Growing Forward Program have different funding levels, different

percentages. I think I mentioned earlier on that one of the reasons why we have

five-year agreements is to have the ability to be able to reconcile these things

at the end of the year, where we have projects that are not quite finished

and/or have come in cheaper than the anticipated cost. The multi-lateral

framework gave us the ability to be able to move money forward by 25 per cent.

In this particular year the reconciliation still had not been completed.

Since that time I can assure you that the full amount that we could have claimed

from the federal government has been claimed. In actual fact, we submitted a

budget submission last year to give us enough provincial dollars to ensure that

we were able to do that. Really, that provincial portion was a carry forward of

money that was not spent in those projects in previous years.

MR. MITCHELMORE: Why did the reconciliation not take place?

MR. DEERING: That is a real good question. I do not know if it was a

factor of it being late in the year. I do not know, Cindy, if you can shed any

light on that.

MS MacDONALD: Janice?

MS GILL: I guess you cannot really do reconciliation until you start some

spending going. We started the reconciliation in late-2011, and when we realized

that the full amount was not claimed, we did it right away.

MR. MITCHELMORE: Okay.

Do you take all rejected applications to the IC? Staff make recommendations.

In instances here, some were recommended for rejection. Do you take every

rejected application to your IC by staff?

MS MacDONALD: Yes Janice can correct me all the applications for

rejections have to be made by the Implementation Committee. The only thing with

that would be if it is an incomplete application. Sometimes we will just get an

application and it is barely even filled in; it is basically a name to it.

Those, the program managers will just write back to the applicants and say that

your application was incomplete.

MR. MITCHELMORE: Applications that are submitted, because you had stated

that you do a first-come, first-served basis, are they kept on file or are they

just purged or not looked at for the new fiscal year?

MS MacDONALD: No, the applications are kept on file and they are moved

forward. The applicants will get a letter asking if their application on file

for last year, if they want that application brought forward and considered for

the new fiscal year.

MR. MITCHELMORE: Okay.

Because there was $40 million applied and there was only about $20 million

available, typically that would mean that anybody that applied for, in the third

year, would not get any approval money. Is that the case? I am just trying to

clarify your process as to you approve applications, select them, and how they

move through the system.

MS MacDONALD: Certainly, the applications being submitted this year

likely

MR. MITCHELMORE: It is no good for anybody to apply for an application

this year because you are dealing with backlog.

MS MacDONALD: It depends upon the area. We hold money, for instance, for

human resource applications. We hold about $100,000 for that. If someone wanted

to do training, for instance, if one of the organizations wanted to do a

workshop or a conference, we would hold money for those, so those projects will

be approved.

Yes, we do look at the applications that, for instance, were submitted last

year. We would bring those forward and give them first consideration. Sometimes,

they might have gone ahead and did the project or they might have decided not to

do the project.

MR. MITCHELMORE: What about if an application is submitted and it is

incomplete, then does it start over?

MS MacDONALD: No. The queue starts when the application is deemed to be

complete. Again, that encourages the applicants to fully complete their

application.

MR. MITCHELMORE: What type of tracking system do you use to ensure that

this process is being followed because in many instances the database was not

up-to-date?

MS MacDONALD: I think the database was not up-to-date with regard to

whether the project was closed or open. As for the applications, as they are

received in Corner Brook we have a staff person who registers those applications

right away. We maintain a listing of the applications that we review so at any

one time we will know where in the queue we are with our approvals, how many

applications are still pending, what the volume of applications are, what the

volume of requests are, so we know where in the system we are with the program.

MR. MITCHELMORE: Okay.

What happens is you have different sites or different staff people who are

responsible for entering applications and making sure they are getting through

the system.

Could there have been an instance where there was somebody who was just

letting applications sit on their desk for quite awhile and not get processed?

MS MacDONALD: No. We have a manager of cost-shared agreements who manages

that spreadsheet on applications. That spreadsheet is also reviewed by Janice.

That queue, what we call the spreadsheet, is also brought to the Implementation

Committee.

We will go through that spreadsheet and we will ask: What is the status? A

lot of them, if they are deferred or if they are awaiting information, we will

ask: What is the status of that project? Have you contacted the applicant? A lot

of times, we will make sure to give them thirty days to submit the information.

If not, then we close the file. We are pretty proactive in ensuring that is

done.

MR. MITCHELMORE: I understand that land development is absolutely

critical to advancing the agriculture industry in the Province for sure, and Mr.

Deering has made commentary to that. This past spring session, though, I asked

in the House of Assembly about the legal land survey program. It was $100,000 in

the Budget that was there to assist new entrants get into acquiring and

accessing Crown lands for farm production. That was cut. It just questions the

whole priority of the department around allowing new people to get in and

develop farming with that program being cut.

CHAIR: Mr. Mitchelmore, that might be more of a policy question. We are

actually dealing with the Auditor General's report in the Growing Forward

program. You may be able to rephrase into something that gets more down to the

dollars and cents.

MR. MITCHELMORE: When we look at the land clearing and Mr. Joyce has

talked about it for the related companies, 80 per cent of the land clearing

was done for this company and only 20 per cent for others.

How much more land does this company look at in the long-term plan, looking

at clearing and the actual use of the equipment? That would have been in the

business plan. Are they meeting their targets? Is this being monitored and

tracked? I can see a real competitive disadvantage that other companies would

have.

MR. DEERING: I would not suggest that I am aware it is specifically

related to their business plan, but I can say we have a separate process with

these companies to identify what their land requirements are. We have these

identified on maps.

I am not exactly sure where they are today, Mr. Mitchelmore, in terms of what

they have already cleared this year for instance, and what they have left, but

my sense is that they are certainly somewhere between 1,500 and 2,000 acres left

to go to make themselves forage self-sufficient for their operation.

MR. MITCHELMORE: Okay.

Could this land-clearing equipment be used for residential or commercial

development of land clearing? Does it have that capability?

MR. DEERING: Not this particular piece. This is a piece of equipment for

picking up large rocks out of the soil to prepare it for tilling.

MR. MITCHELMORE: Would the company, the entity have the capabilities to

be doing residential and commercial land clearing and this asset be a subsidiary

or a complement to it?

MR. DEERING: Not in my assessment, no.

MR. MITCHELMORE: Okay.

I would like to ask about, you have listed three people who are sitting on

the Implementation Committee and there is an evident conflict of interest policy

with government. I am wondering, could you explain the policy and how it is

being adhered and updated on a regular basis? Because there could be instances

where there would be a conflict of interest arise when you are making a decision

on applications based on a relationship or anything like that. I would like an

explanation of the conflict of interest policy.

MR. DEERING: The appointments to the Implementation Committee are made at

the minister's level. Essentially, any conflict of interest issues evident at

that time would be contemplated when these appointments are made. Clearly, there

is a responsibility for disclosure for government employees. If something

changes in their circumstances, they would be required to disclose that and it

would be further contemplated at that time.

MR. MITCHELMORE: Has there been an incidence of conflict of interest

being acknowledged in any of these situations, the 360 approved applications?

MR. DEERING: Maybe I misunderstood your question. I thought you were

speaking specifically to the membership on the Implementation Committee. Was I

correct?

MR. MITCHELMORE: Yes. When you are approving an application there could

be an evident conflict of interest. Are there situations where there is a

conflict of interest and the person states that, out of the 360 approved

applications?

MR. DEERING: I understand.

Cindy, can you speak to that?

MS MacDONALD: From my recollection, there has been no conflict of

interest between the three Implementation Committee members and the projects

that are approved.

MR. MITCHELMORE: Can I just ask one very brief?

CHAIR: Yes, finish the subject.

MR. MITCHELMORE: If a conflict of interest arises, then you have three

members on the committee with one member. Would those two people have the

ability to approve it and have that authority?

MS MacDONALD: Correct, yes.

MR. MITCHELMORE: I just wanted clarification.

Thanks.

CHAIR: Mr. Collins.

MR. S. COLLINS: Mr. Joyce raised a good point there earlier with regard

to the equipment on the West Coast. I am just wondering, as it relates to the

pieces that were sponsored by government. You mentioned that there are windows

of opportunity for clearing land. To be honest with you, I have absolutely no

idea the logistics of clearing land. Maybe a little bit of telling us exactly

how that happens.

I am just wondering, are you confident that these pieces of equipment were

being used concurrently? All of them were being used and if you were to take one

piece and try to share it over the course that it would cause delays for all the

operations involved. Is there a need for three pieces, basically, is the

question?

I frame that by saying, first off, I have no idea about clearing land. If you

could explain how that works. I am assuming it is not a quick process, that

there is quite a bit of work involved with clearing land. I am wondering if you

could speak to that just briefly.

MS MacDONALD: Sure. With land development, what they typically do is they

will go in and cut down the trees. They will go in and remove stumps from the

land; they will remove the large rocks. They will go back in then and do some

land enhancement. They will use these Rotoveyers to actually help lift I think

the Rotoveyers can go down like twelve inches into the ground and actually lift

some of these larger rocks.

As you are aware of land in Newfoundland, it is very, very rocky. We are at a

disadvantage compared to a lot of other provinces. That is why we make these

investments. It is a fairly costly initiative to undertake land development.

There is a lot of back and forth on the land once you put in these rock

Rotoveyers. This rock Rotoveyer, particularly the one that we are talking about,

it will actually go down and make a pass down on the land. All the rocks will

get collected up on a chain system and it will dump it into a collection system

on the equipment itself. Then with the tractor, you could drive off to the side

of the field and you dump your rocks.

If you have ever been out on a farmland you will always see rocks along the

edges of the fields or in the windrows, and those are the rocks that they are

taking off the field. The reason why it is so important to remove the rocks, of

course, it is very expensive and very damaging on your equipment, whether it is

your seeders, your plows, your forage harvesters, if you are constantly hitting

rocks with the equipment. That is why producers put a lot of effort in removing

as much of the rock out of the land as possible.

They will plow up the land; they will lime the land because they want to

increase the PH of the soil. They will fertilize it and they will get it ready

then for seeding for the following year. It is a fairly in-depth, costly process

for them to do.

With regard to, is there a need for more than one? Absolutely! Like I said,

if you are into a wet period of the year, your tractors, your equipment, will

get bogged down, and you do not want that happening. They typically try to do it

when it is a bit drier. Even particularly when you are doing things like

removing roots out of the soils, you want it when it is fairly dry so the soil

falls away from the roots so that all your soil is not being pushed into your

windrows, which are the places in between the fields. You want to retain as much

of that soil in the fields as possible. Because that is another area where we

are at a disadvantage in this Province, is that we do not have a lot of good

topsoil.

That is why we make the investments in this equipment. So, for these

operations, the one in Cormack, the one there in the Codroy Valley, they are

doing quite a bit of land development a year. They are expanding, so they would

not be able to share that piece of equipment. They just would not be able to

have the acreage cleared that they need to have cleared.

MR. S. COLLINS: Okay, so it just simply would not be practical to assume

MS MacDONALD: Correct.

MR. S. COLLINS: Okay, fair enough.

Something I am always interested in is we know what we are doing here in this

Province, but it is interesting to note what others are doing in other

provinces, especially as it relates to this being a bilateral agreement and

federal government involvement. I am sure you folks have I think it was

brought up by my colleague here, Mr. Parsons, with regard to conversations with

other provinces regarding this, I believe you had mentioned.

I am just wondering: As it relates to best practices and challenges met by

other provinces, are there a lot of similarities? If you look at this program in

other provinces, are there a lot of similarities with the challenges we are

seeing here today, as there are with others? Have you learned things from other

provinces that can be applied here to maybe make the system a little bit better?

Have you seen anything over the course of this program?

MR. DEERING: From my perspective, what I have learned in the negotiation

process and through my observation of the scope and magnitude of the farming

sector in other provinces, particularly in Quebec and Ontario and some of the

Prairie Provinces, is that they are very large. The hog sector in Quebec, for

instance, represents several thousand hog producers,

whereas in this Province we

only have two.

The reality is that they have a lot more folks competing for these funding

programs than even we do here. If we have thirty or forty people on our

wait-list waiting for their turn in the queue, in some of these other provinces,

there would be several thousand, I think. So, yes, they do share some of the

same challenges that we do, but certainly at a much larger scale, in a lot of

cases.

MR. S. COLLINS: Okay, fair enough. That is everything for now, Mr. Chair.

Thank you.

CHAIR: Mr. Joyce.

MR. JOYCE: I am sorry, guys; I am going to go back to that entity,

because I have to get it straight in my own head sorry about that. Can you

tell me, the three entities, how much each applied for and what the breakdown

was, what they received? The first entity I do not know which one is which,

but it says in the Auditor General's report, Entity 1.

MS MacDONALD: Entity 1 received $500,000. I do not have their application

here, Mr. Joyce, but I expect they would have applied for the program maximum,

which was $500,000. They rarely would have applied for more because they would

have known what the program maximum was. I would suggest they likely applied for

that $500,000.

MR. JOYCE: Entity I $500,000. Did they receive $500,000?

MS MacDONALD: Yes, they did.

MR. JOYCE: How much did Entity 2 receive?

MS MacDONALD: Entity 2 also received $500,000.

MR. JOYCE: Entity 3, I guess it is $300,000.

MS MacDONALD: Yes, based on the Auditor General's report here, it was

$306,000.

MR. JOYCE: So, Entity 2 was the land clearing?

MS MacDONALD: Correct.

MR. JOYCE: How much did that piece of equipment cost?

MS MacDONALD: I am thinking that the total project cost for that was

about $300,000.

MR. JOYCE: I do not know if the Auditor General was it $280,000 for the

piece of equipment?

MR. JANES: I am not sure, but I will check that out what we have on the

file.

MR. JOYCE: So, it was $300,000. What was the other $200,000 for? Because

if it was for clearing equipment and you got the equipment, what was the other

$200,000 for?

MS MacDONALD: I would have to go back and check that, Mr. Joyce, to see

what projects were included in that $306,000.

MR. JOYCE: No, not the $306,000, the $500,000 one.

MS MacDONALD: Oh, in the $500,000, sorry. The same thing, I have to go

back and check what was included in that $500,000.

MR. JOYCE: If the equipment was only $300,000, obviously, there was more

to it than clearing land.

MS MacDONALD: It might have been another similar piece of land

development equipment, but I would have to check the actual project to let you

know what the pieces of equipment were.

MR. JOYCE: I am just assuming, lunchtime we will be able to get that

back after lunch.

CHAIR: Are you able to provide that at lunchtime or if that is too soon,

could you give it to us in a letter if you are unable to locate it lunchtime?

WITNESS: Yes.

CHAIR: Thank you.

MR. JOYCE: The other question on this here: Are you aware or was there

ever any follow-up that this piece of equipment for Entity 2 was ever used to

compete somehow or clear other land for other people around the area for a fee

or be hired out, tendered out?

MS MacDONALD: I would say that the majority of the land cleared would

have been for their related companies, but there probably would have been some

land that other producers who do not have the capacity to do their own land

clearing like, they would not have that equipment. There likely would have

been some land cleared for other producers in the area.

MR. JOYCE: My last small question on that is: In the staff's report that

was sent out, it said that they would be competing against other entities in the

area. You may have to just go on recollection. Can you tell us what types of

equipment in other areas would be there? If you are getting equipment and it is

only $300,000 and obviously, he is not doing all of his own land, if he is out

competing, would that be a direct if you get a piece of equipment for your

farm, wouldn't you assume that you would keep it for your farm because once you

get outside your farm then you are competing against other people who have to go

to the banks to clear land?

I know, in business, when you do applications the first thing any government

says: Are you competing against anybody? If you are competing against another

existing business in the area, they say no, we cannot fund you because this

person had to go to the bank to go through the procedure and pay interest, pay

on the loan, on the equipment. Was there any follow-up to see if they are out

competing, which was one of the concerns of the staff?

MS MacDONALD: The Implementation Committee again, we did not agree with

the issue of competition. All producers have access to the Growing Forward

Program to apply for funding. So if they wanted to apply for funding for root

rakes, rock rakes, rock windrowers, any equipment they need for land

development, they could have applied for funding. We did not agree with the

comment being made by that staff person regarding competition, and I do not see

it as an issue in this case.

MR. JOYCE: You do not? Okay.

I noticed back in the Report of the Auditor General that there was not

follow-up and I am not sure if it department policy to follow up. What I would

ask is: On these three entities, were there any follow-up to ensure that funding

for $500,000 for Entity 1 was spent as it was deemed to, and Entity 2 and Entity

MS MacDONALD: Yes, as the project claims are submitted, we send out an

agriculture development officer who actually inspects the project. They have to

go out and actually see that the work was done. That inspection would have been

done.

MR. JOYCE: Okay, because in the Auditor General's report there were a

number that were not done; so we can say for certain that these three were

definitely done?

MS MacDONALD: Yes, absolutely. I have personally been on those locations

and personally viewed those projects myself.

MR. JOYCE: Okay, thank you.

On page 168, I will just go back to this again about the staff. In the

report, when you go in on page 181, and this may clarify it when I read it, "All

three companies were in separate lines of business and all three companies were

agricu