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June

22, 2017

PUBLIC ACCOUNTS COMMITTEE

Pursuant to Standing Order 68, John Finn, MHA for Stephenville Port au Port,

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

The

Committee met at 2 p.m. in the House of Assembly Chamber.

CHAIR (Brazil):

Ladies and gentlemen, can I

have your attention. We're going to get started. This is the 48th General

Assembly of the House of Assembly, the Public Accounts Committee. We're meeting

this afternoon to address the Department of Business, Tourism, Culture and Rural

Development, particularly under

section 3.2 of the Auditor General's report.

I'll

just explain the process that we'll use here. I'll introduce the Committee, or

the Committee will introduce themselves. Then I'll ask the officials to

introduce themselves and the Auditor General's staff will introduce themselves.

I'll have the Deputy Clerk swear-in the officials and then I'll ask the Deputy

if he would like to do opening remarks regarding the AG's recommendation and the

letter that we had sent in response. Then we turn it over, I'll ask each of the

first, I'll start with the Vice-Chair to ask some questions.

There

are normally five-minute intervals, but if a conversation is going on and it's

to conclude a certain question or point, I'll allow that. And then we go back

and forth to clarify anything until we're satisfied that things are moving the

way that has been outlined. It's not a confrontational process; it's an

information-gathering process.

At the

end of it, the Public Accounts Committee does a report to the House of Assembly

indicating if we're happy with the responses and that we support the

move-forward process. And if we have any other recommendations that we'll send

back to the minister and the department about how we feel things should change

or the approach should be different than what's already outlined, to go from

that process. At the end of it, I do ask the AG if he would like to have any

comments about the information he's heard and the discussion that's gone from

there.

I'll

start by introducing myself. I'm David Brazil, the MHA for Conception Bay East

Bell Island. I'm the Chair of the Public Accounts Committee.

MR. BRAGG:

Derrick Bragg, I'm the

Vice-Chair of the Public Accounts Committee and the MHA for Fogo Island Cape

Freels.

MS. P. PARSONS:

Pam Parsons, I'm the MHA for

the District of Harbour Grace Port de Grave and a Member of the Public

Accounts Committee.

MR. FINN:

John Finn, the MHA for

Stephenville Port au Port. I'm substituting today for Mr. Scott Reid.

MS. ROGERS:

I'm Gerry Rogers and I work

for the lovely people of St. John's Centre. I'm also a Member of the Public

Accounts Committee.

MR. PETTEN:

Barry Petten, MHA for

Conception Bay South and also a Member of the Public Accounts Committee.

MR. WEATHERBIE:

Larry Weatherbie, Acting

Director for Accelerated Growth, Tourism, Culture, Industry and Innovation.

MR. LOMOND:

Ted Lomond, Deputy Minister,

same department.

MS. SKINNER:

Gillian Skinner, Director of

Regional Economic Development, TCII.

MS. DICKS:

Andrea Dicks, Acting Director of Corporate Services, TCII.

MR. PADDON:

Terry Paddon, Auditor General.

MS. RUSSELL:

Sandra Russell, Deputy Auditor General.

MS. KEATS:

Trena Keats, Audit Principal of Performance Audit.

MS. NUGENT:

Jessica Nugent, Audit Manager.

CHAIR: Okay.

I'll ask the Deputy Clerk if she'll swear in the witnesses, please.

Swearing of Witnesses

Mr. Larry Weatherbie

Mr. Ted Lomond

Ms. Gillian Skinner

Ms. Andrea Dicks

Ms. Jessica Nugent

CHAIR: Thank

you, Elizabeth.

Just to open, just a note that what we're dealing with here

are the three recommendations from the Auditor General. We've had the responses

and we've had a chance to review it. The Members will have some questions

relevant to that for clarification and some explanation as to the process you're

going to use to go forward.

I will tell you, in comparison to what we've dealt with for

the last few days, some we had, I think 30 recommendations; 29 recommendations

on one and 17 on another, so this one falls in line. There may be more general

discussion and specifics around your process forward or it might be exactly just

the specifics around what you have outlined and clarification on those. So I

appreciate that.

I'm going to start with Mr. Bragg.

Sorry, yes, Mr. Lomond. I'll give you an opportunity if you

want to talk to about an introduction to the recommendations of the AG and how

you're going to approach (inaudible).

MR. LOMOND:

Okay. Well, we didn't really prepare an opening statement, but I guess basically

there are three recommendations that came out of the Auditor General's 2015

report.

One was around government departments establishing

performance targets for all business financing programs and monitoring against

those targets. I think the

second recommendation was along the lines of taking corrective action where it

was felt necessary where you weren't achieving the targets that you've

established for the program. The third was around reporting to the House of

Assembly on the performance against your targets.

fundamentally agree with the Auditor General's three recommendations. I think

we're making good progress towards addressing those. I guess we'll maybe just

open it up for questions and get into it.

CHAIR:

Perfect. That's normally the

approach.

Okay,

Mr. Bragg.

MR. BRAGG:

Okay, perfect.

I have

one question, since it is only three headings. Once you finance a project and

you roll it out, how do you follow it up and measure its success to see if we

have a good bang for our buck or what the value was back to the province at the

end of the day?

MR. LOMOND:

Right.

There

are a couple of things I'd mention. In terms of the recommendations, of course,

that the Auditor General made, in 2013 we went through an amalgamation of

programs. We had approximately 21 programs that we brought down to two programs.

Those are programs with sort of general application.

What

the programs were meant to do would give us more flexibility in dealing with the

clients. So rather than make clients fit various sorts of criteria and jump

through various sorts of hoops, the idea was that we could provide better client

service by having more open programming. That programming would allow us to be

more dynamic in responding to changing market conditions, we'll say. There were

two programs. There was the Business Investment fund, which is the scope of what

we're talking about here today. The other program was the Regional Development

Fund.

At the

time, we undertook, basically, two parts. The first part was we said we would

engage in a model of continuous improvement. What we would do is we would go and

we would monitor our investments on an ongoing basis and then use that

information that we gather to tweak our programs and services.

The

indicators that we were using since the inception of the program would be things

like sector that the investment was in, maybe region of the province, type of

investment, type of project, by program type, those sorts of pieces. We've been

monitoring based on that information. We've been using that information to tweak

our offerings as we go.

We've

got the business development support management committee, for example, used

findings from that continual improvement process, that continual assessment, to

change the way we delivered our travel stipend program. We found a way of

delivering it that we felt was less onerous on the client in terms of reporting,

less paperwork, more business friendly, we'll say. That was an ongoing piece.

When we

rolled the programs out, we said that this year, 2017-2018, would be the first

full year of evaluation on the program. So we're doing that evaluation this year

and we're doing it as part and parcel to the review on business financing.

The

review of business financing is a government-wide initiative. We have every

department that provides some sort of financial assistance to companies is

participating. For example, the Department of Finance, forest and Land

Resources, Natural Resources, Research and Development Corporation, et cetera.

So all of us will be meeting and tackling this together. What we're doing there

is we're looking at the programs individually, how they function. We're also

looking at the Government of Newfoundland programs as a basket and sort of how

do they work together? Are they being effective?

The

third piece we're looking at is how those programs operate within the broader

financial ecosystem that's out there. Because when you think about it, there are

a lot of players out there. There are commercial lenders; there are community

business development corporations. There are federal government programs such as

NSERC, Export Development Canada, Business Development Canada. So we're looking

at the programs in the context of that broader ecosystem.

really we're looking at two things, I think. We're looking at the effectiveness

of our programs in terms of our outputs, our logic model outputs, and we're

looking at our efficiency in terms of our sorry, we're looking at our

efficiency in terms of our outputs, and we're looking at our effectiveness in

terms of the outcomes that we're trying to achieve using our logic model.

To give

you a sense as to what we're looking at in terms of efficiency, the outputs of

what I'm talking about is basically our investments. It could be a loan

guarantee. It could be an equity investment. It could be a conditionally

repayable loan. It could be a secured loan.

We'll

be looking at things like, have we reduced red tape? The timeliness of our

decision, are we turning around financing in a time that businesses need it? Are

our files properly documented? Is our security adequate? Are we duplicating what

another agency is doing? Are we crowding out other funding? Because that's a

real concern for us.

We want

to leverage funding from commercial lenders, federal government and others. We

don't want to supplant funding from those sources. We don't want to move the

burden of financing businesses from the taxpayer of Canada to the taxpayer of

Newfoundland and Labrador, or from the Bank of Montreal to the taxpayer of

Newfoundland and Labrador.

terms of the outcomes, we're looking at outcomes depending upon the goal of the

investment. So we're looking at GDP impact would be one of the things we'll be

looking at. Revenue generation, top-line revenue generation, cost savings,

productivity. If it's aimed at an innovation type of investment, you would

probably see us measure start-ups, scale-ups. We'd also be looking at new market

development which I think is going to be pretty important for companies,

especially as we get into talking about some of the accelerated growth

companies.

Some

companies are growing fairly quickly. They may be chewing up the domestic market

pretty fast, so our investments are meant to help open up new markets. If

they're not opening up new markets, then they may not be successful. I guess

that's sort of where we are in terms of our moving forward.

We do

project and client monitoring. We do account status reports which would be

produced, usually, I think, monthly. As part of that, we'd be grading our

investments in terms of how likely we are to get repaid, whether they're current

with their payments, 30 days, 60 days, 90 days, that sort of thing. We gather

client feedback through assessment on client feedback forms. We do financial

reports on a monthly basis that, again, our management committee, as I already

referenced.

There's

a lot in there. I'm probably going into too much here. Maybe it's better to step

back and have a follow-up.

MR. BRAGG:

Okay. No, I was more or less

thinking, if we had a project for argument's sake, I'll look at the chair in

front of me. If there was a company that came to you with a proposal they're

going to make chairs, is there a project that you might have done a final

evaluation on where there's a report that says this was done, it was a great

investment, we produced this many man hours or whatever. Is that being done or

MR. LOMOND:

It depends on the type of

program, the types of measures that are used. For example, our Investment

Attraction Fund would be very much focused on jobs. What would be done as part

of that investment is we would go in and we would do baselining in terms of

existing employment. We would look at where the employment is, what the wage

levels are. We would then put in place a conditional repayable loan where we

would then flow that money to the company based on job targets that we would

negotiate with the company.

Where

the company does not hit their job targets in that particular case, we would

recover our funding from the client because, again, it's a secured loan. In some

cases, that's the sort of piece we would be very focused on in terms of

employment creation.

When

we're doing investments in, say, more in the innovation space where you've got a

young person who's just innovated, just developed a new patent on something, our

measures might be a little bit different because it might take some time for

that company to grow. So their ability to leverage funding from other sources

might be something we would think would be important.

really depends on where the company is in terms of its stage of investment. But

we do have sort of across the board metrics such as if our funding is debt

financing, are we getting repaid? Are we getting the right sort of distribution

of funds? Based on what we've looked at, are we seeing the types of outcomes we

desire? Again, that could be employment creation. It could just as easily be

top-line revenue or market development.

We have

a stipend program that's aimed at opening up new markets. In that case, the

success is measured in terms of an evaluation form that would look at things

like whether or not the company has made sales during a trade activity, whether

or not they introduced new potential clients that they think they can develop

into customers over time, whether or not they've had to innovate their product

or service to adapt to local climatic markets or regulatory environments, those

sorts of things.

MR. BRAGG:

Thank you.

Okay,

let's move on.

CHAIR:

Mr. Petten.

MR. PETTEN:

Thank you, Mr. Chair.

I don't

have a lot of questions as you gave a lot of detail there that time, which is a

good thing.

Under

the response from Minister Mitchelmore, he states there's a committee of deputy

ministers and equivalents that have been established in various departments to,

I guess, basically to review your performance indicators. So what are the

timelines? I know the committee is in place, but what are your timelines for

developing into something tangible?

MR. LOMOND:

The committee has already started its work and the process to that, there are

various stages. One is maybe an inventory of the existing financing programs

that are out there. So looking at what different departments offer, what their

criteria is and to what extent they overlap. In some cases it has involved

bringing in people from outside to maybe educate some of the committee members

because it's not everyone unless you're into this on a daily basis dealing

with the different funding sources, you may not be fully aware of the full range

of financing programs that are out there.

So to

help the people involved in that committee, again, to make determinations around

either the effectiveness of the program in terms of whether it's achieving what

it's desired to, is it actually growing the economy? Is it moving the needle? Is

it creating new companies? Or in terms of efficiency, are we making turnaround

times, that sort of thing?

I think

overall, we've said by the end of this year, the information that is gathered

through this process is going to inform the budget process for 2018-2019.

MR. PETTEN:

Okay.

On that

same topic, I know you have senior staff and the deputy ministers, was there any

thought given to including stakeholders outside of government officials to get

their view points, because sometimes that can be valuable as well?

MR. LOMOND:

Yes. We've had meetings with a number of individuals, including Peter Hall,

vice-president of Export Development Canada. We've had meetings as recently as,

I believe, last week or the week before with Business Development Canada; we had

Atlantic Canada Opportunities Agency. We do regular surveys of our clients. So

we have a fairly good handle on what our clients' needs are.

Moving

forward, as people know, I guess it's no secret, our department has gone through

a significant restructuring this year, which we think puts us on pretty good

footing. Now, there are a couple of things about that restructuring. One is

we've created a new Division of Sector Diversification.

This

Division of Sector Diversification is tasked with developing sector strategies.

So that's meant to sort of quantify the sector, looking at what the challenges

and opportunities are associated with the sector, looking at what the potential

for GDP impact is and employment creation within the sector. Looking at the

number of intermediaries that are out there within the sector; industry

associations, other players and looking at the types of financing that are

there.

That

sector work I think goes a long way to addressing some of the concerns the

Auditor General has made around the program overall in terms of, what are the

outcomes? What are the goalposts? What is it you're trying to achieve? I don't

think that's going to come from the program so much as it's going to come from

the sector strategies. That we're going to lay out sector strategies that are

going to set these goals.

The

other piece is we've created a Division of Sector Research, which is new. The

idea behind a Division of Sector Research is they can in real time monitor

what's happening with the sector. They can look at trends and we can revise our

assumptions. We can revise our targets based on evidence, which is something

I'm not saying we haven't done it before, but we may not have had as much

evidence as I would have liked. We would not have been doing as much primary and

secondary research. We would not be doing, as a rule, lit reviews. The looking

at what is happening in other jurisdictions and how people are dealing with

problems. So we have a Sector Research Division.

The

third division I think is of note is the division headed by my colleague here,

Larry Weatherbie, is the Accelerated Growth Division. In that case we are

targeting companies that have potential for high growth. What we've used is a

fairly firm metric. We've said companies that have demonstrated on average 20

per cent growth year over year for three consecutive years, with minimum sales

of $5 million a year. So that is meant as a lead indicator. Given that I think

right now in Canada over half the workforce currently works for what's

considered to be a rapidly growing company, we believe that's a lead indicator

to get at some of those things that I believe the Auditor General was looking

for in his report.

The

fourth change is the last one I'll mention, is we've created a new Division of

Corporate Services, and what we've done there is we've taken the people who do

the evaluation on these programs and we've combined them with the people

responsible for the analysis and the management of information within the

department. Now it seems like a small move but that hasn't been done before. It

should, in theory, make it easier for the people doing an evaluation to have

discussions with their colleagues in their division, jointly plan and use the

information management systems of the department to gather that for reporting

purposes.

CHAIR:

Perfect. Are you good?

MR. PETTEN:

No, I have one more.

CHAIR:

One more? Okay.

MR. PETTEN:

The Auditor General

recommended reporting periodically to the House of Assembly. I know in the

response the minister states to the annual report, which is pretty standard

across all government departments. The annual reports are submitted to the House

of Assembly.

Based

on a program like this with over $100 million, it's different than a lot of

other programs. Has there been any thought given to probably providing a

different reporting mechanism outside the annual report to the House to get more

detailed, based on the figure and based on the program, I guess.

MR. LOMOND:

Well, it depends. We have

the annual report that we report on by every I think it's tabled by September

30 every year. We table a strategic plan, and then we table an annual report

which measures our performance against that plan.

The

other piece we do is we file a Business Investment Corporation annual activity

report. It also comes out, is tabled by September 30. That report would also

contain information on our investments, number of applications, number and value

of applications and percentage of projected revenues collected. There's a

collection function, again, because many of the investments we make are debt

instruments. We capture that as well.

I think

as we move forward with the sector plans, we are going to be communicating

sector goals. For example, we recently did with our tourism; we said we were

going to grow double over 2009 numbers by a certain date. The plan is once these

sector strategies are developed is to set firm metrics around those as well and

communicate those so that those plans will become public documents.

They're

meant to be living documents. We want to move away from, I think, carving things

in stone. We want to create a plan that gives us something to aim for, but is

dynamic enough to respond to the realities of a changing economy as it happens.

MR. PETTEN:

Thank you.

CHAIR:

Are you good?

MR. PETTEN:

Yeah.

CHAIR:

Ms. Parsons.

MS. P. PARSONS:

Good afternoon.

Thank

you.

question is with regard to Recommendation 2 and that's: Where programs are not

meeting performance targets, the department responsible should address whether

program changes are required. As we know across our Province of Newfoundland

and Labrador, many business programs are given assistance and partnerships with

other agencies such as ACOA which is certainly a wonderful thing.

How has

the department worked with agencies to ensure proper and effective reporting

measures are in place? Now, I know you have given us a lot of information but if

you could probably elaborate on that for us.

MR. LOMOND:

Sure.

I think

one of the pieces that's upcoming, maybe one of the most current will be in the

next week, we'll be forming a regional trade network with the Global Affairs

Canada, Atlantic Canada Opportunities Agency, Export Development Canada and a

number of industry associations. So we'll be sitting at a table with everyone

jointly developing work plans, jointly talking about what we can find and what

we can support. What the limitations on our resources are and how we can work

together because again our goal is to leverage funding from other sources.

We are

too small, I think, to do all the heavy lifting ourselves and this is certainly

too small a place to work in isolation. We need to have all those players at the

table. So I think that would be a good example of where we are, of something

that is maybe current.

Over

the last year, I think you'll see a lot more engagement with the federal

partners than you've seen. You've seen it through the Atlantic Growth Strategy

where you'll see even in the case of the Accelerated Growth program, which my

colleague here heads, we have with the federal government sort of a working

memorandum of understanding as to how we'll approach those clients. So we'll

basically approach them as more of a swat team.

Often

in business financing, people wait for their clients to come to them. It's sort

of a banker mentality, right. So what we're trying to do collectively is reach

out and find those companies that have potential for growth and work together to

provide a seamless one-stop shop for those companies to try to move them more

quickly; but it's us, the provincial government, working hand in hand with the

federal government.

In a

recent project we were involved with our department would have provided business

counselling, but we didn't have to provide any money, and we shouldn't have

because the Atlantic Canada Opportunities Agency stepped in with a $3 million

loan. That provided more than sufficient so there was no need, the company did

not need more capital. What they needed from us was advice and market

intelligence, and that's what we can provide.

that's how we're looking and how we work together. It's a mix of financial

instruments and non-financial supports, network development, business

counselling, business retention and expansion, diagnostic tools, those sorts of

things.

MS. P. PARSONS:

Right. Also, how you measure

success when a company comes forward. I use the example of Harbour Grace Ocean

Enterprises, which is located in Harbour Grace, in my District of Harbour Grace

Port de Grave, there is shipbuilding and of course they have a lot of

potential with expansion. They're very busy. There's a lot of international

business that's certainly coming up on their doorstep.

So when

a company like that reaches out to government, to this particular department,

how do you measure success with successful applicants in the past and how it

benefits our local economy all round? What can you give us, some feedback on

successful applicants who have obtained these programs?

MR. LOMOND:

Right. Normally, when a client comes in to us we do an assessment. We look at

things like competitive impact. We want to make sure that any company we support

we do not want to use taxpayers' dollars to allow one taxpayer to gain some

sort of advantage over another.

We'll

do an assessment in terms of management. We'll look at how strong the management

is in terms of financial expertise, marketing expertise, production expertise.

Can they provide the service they want to provide? Can they control their costs?

Are they able to sell the services and products they set out to do?

We do

assessments in terms of pro formas and in terms of whether or not the financing

that's provided can be debt serviced. We apply sensitivity analysis tools. So we

do those sorts of things up front to try to gain some assurance that we're going

to do a little bit better.

It's

sort of like being at a baseball game did you ever watch people who are at a

baseball game. Somebody will practice in the batting cage. They might watch a

tape of the opposing pitcher. They might do a number of things; it doesn't

necessarily guarantee a home run, but it does significantly increase the

likelihood of getting a home run. I think that's what these steps do.

Once we

get into the funding arrangement there are number of criteria used. Generally if

it's a repayable instrument, one of its success criteria is going to be us

getting money back. It's the taxpayers' money. We don't throw it around

willy-nilly. We want to make sure that it's recovered.

terms of what we look at as success criteria, it really varies by the project.

Obviously growth in exports is a big one for us. Gains in productivity would be

a big one for us.

In the

case of Harbour Grace shipyard, for example, it could very well be an initial

sale to a new client or it could be access to maybe industrial technology

benefit programs through the Atlantic Shipbuilding program. So if they haven't

availed of ITBs in the past and this project was geared toward helping them

obtain ITBs, their success in getting industrial technology benefits through the

program would be considered a success.

Again,

you're looking at things like contribution to GDP, employment creation,

employment retention, which also often gets overlooked. Obviously, we want to

see clients. We want to see businesses grow, but also we don't want to see

companies wither away either. There are a number of criteria.

I guess

what I'm trying to say is that the programs have gone from 21 to two, and

there's one business financing program. It was meant to be fairly general and

fairly open as to who can apply. Where the metrics come from are based on the

sector and where the company is in terms of their life cycle, whether or not

they're a new start-up, whether or not they're an experienced company. It pretty

much varies. It's hard for me to say without sort of going through Harbour

Grace, as an example, but I think I'm sort of getting to the in generality.

Also,

in terms of level of risk would be something else we would consider which might

shape our expectations. In some cases, it might be I'm not saying we want to

support a business to fail, we would never do that, but we don't want to become

so risk adverse that potentially good projects are getting strangled in the

crib.

MS. P. PARSONS:

Okay.

Are you

confident, too, that staff has the adequate training to get the maximum

effectiveness, if they're working with these agencies through these programs.

MR. LOMOND:

In the past year and maybe

I'll turn to my colleagues but I can only speak since August since I've been

here.

MS. P. PARSONS:

Yeah.

MR. LOMOND:

We've undertaken a program

of training. The training is really maybe in three areas. The first piece of

training was around awareness of what other programs were out there.

Often,

we work very closely with the Atlantic Canada Opportunities Agency. I think many

of our staff were comfortable with those programs, they understand them quite

well. They may not be as familiar with the Natural Sciences and Engineering

Research Council programs or the Export Development Canada pull-side programs,

those sorts of things.

We did

training where we brought in people from other departments, other agencies, to

talk about what it is they can do, how it is they do it and what we can learn

from them. So there's that piece.

The

second piece was around the actual assessment of some of these projects. This

was meant to be training for new employees and refresher training for employees

that have been there for some time. Even though everyone in the department

pretty much if you look at the profile of who works there, you'll see there

are a lot of commerce graduates, a lot of masters of business administration,

lots of chartered accountants, those sorts of things. But we can all benefit

from refreshers.

We did

a program of training with those people and looked at things like the

eligibility of investments, what exactly are criteria, but didn't get into the

desirability. Once that is criteria of exclusion, what things should we not be

doing; for example, I already mentioned competitive impact. There are certain

things maybe you don't want to do.

Then,

you may have more applications than you have resources, so how do you prioritize

and how do you rank those things. Looking at criteria around desirability,

technical assessments in terms of, again, pro forma, management capabilities,

types of security arrangements that you would take, debentures supported by

personal guarantees, fixed floating charges, those sorts of things. Look at

marketing which is, I think, one of the areas that sometimes I won't say it's

been overlooked but maybe it needs more work.

Without

solid market research, your pro forma statements are really just plug numbers.

They don't really mean anything. They'll show that your debt will get repaid or

that the company is going to grow, but you really need to get under and

challenge the sort of assumptions on which the pro formas are based. Marketing,

I think, is one of the big ones. Looking at how you validate the market

information, I think, is another piece.

Find

out what we would seek in terms of financial commitments from the companies.

What we would look for in types of investment, whether it would be direct

shares, shareholder loans, personal loans, intercompany loans, those sorts of

things; looking at all the sort of pieces around that.

would do a fair bit of assessment or training in that area with staff. I think

it's as good for the person who has 20 years' experience as a chartered

accountant, as it does for somebody that's new.

The

third piece I'll just mention around training gets into our service standards,

which is new. It is another piece, I should have mentioned, in terms of public

reporting. The question was asked: Are there other forms of public reporting

that we should do in addition to our annual report.

Another

piece we do is we were the first department in government to set service

standards. We've now set a service standard of seven weeks, once all the

information has been received, to process a financing application. We've set a

target or made a commitment within two days of being approached by a client to

arrange a business counselling session.

Those

targets have been communicated publicly; they are on our department website. We

have committed to report on them on a yearly basis on our website, whether or

not we've been meeting the targets that we've set. To do that work we would have

engaged in baseline with the employees in terms of what the processes are now.

It would involve process mapping and would involve very close monitoring in

terms of where are the bottlenecks. At what stages in the assessment processes

are things getting slowed down, or maybe we're not getting the information we

need from the client because maybe we haven't been as clear as we should be,

those sorts of things.

MS. P. PARSONS:

Thank you.

CHAIR:

Okay, Ms. Parsons.

Ms.

Rogers.

MS. ROGERS:

Great.

Thank

you very much.

That's

a lot of information. It's great to hear.

Can you

tell us a little bit now because you said when we look at the sector

diversification, sector research, so decisions can be made based on evidence

the accelerated growth division targeting companies with potential for growth,

the new division of Corporate Services. Can you give us sort of a global

picture, an overall picture of where you really want to see investment going?

What are some of the industry areas, what are some of the targets, where is some

of the potential growth, where are our accelerated growth areas? What are you

looking at for the province in the near future and perhaps even further afield?

MR. LOMOND:

All right. Well, in the case of firm types, I'll say maybe there are different

types of entrepreneurs, right. So you have entrepreneurs out of necessity,

somebody who works for a plumbing business that goes out of business but they

still own their tools, so they start doing plumbing work on their own we'll say.

We've got main street businesses, restaurants, dry cleaners, other businesses

that would operate, and maybe if they ceased to operate somebody else might

naturally move in to take over that share.

Another

type of entrepreneur, which is the one I think we're increasingly interested in

and we've committed to working on, on an Atlantic Canada basis, is around

scalable entrepreneurs, those businesses that have potential for rapid growth. I

believe one of the companies that we've I think we've maybe announced; I'm

pretty sure we've announced two of these companies publicly and people would be

familiar with them, would be Bluedrop and Dynamic Air Shelters.

These

are companies that are operating in Newfoundland and Labrador, have shown an

ability to grow and create jobs, meaningful jobs, well-paying jobs for

Newfoundlanders and Labradorians. So the question becomes, how do you help those

companies grow faster? How do you proactively seek them out and work with them?

If you operate as a bank, if you sit back and wait for people to come in through

the door to meet with you, if you're letting your clients find you, you may not

be getting those companies that have potential for rapid growth.

Maybe a

poor analogy I'll use might be like a marriage counsellor, that some of the

people coming in through the door may not have the strongest relationships with

a marriage counsellor, the same way some of the companies that may be

approaching our economic development staff, while they are still valuable in the

overall economy and while we will still support them and help them with business

counselling, they may not be the companies that have the potential to create

significant amounts of employment in the province and wealth in terms of moving

the GDP needle and whatnot. So will be seeking those companies out and working

with them on a proactive basis. That is one area of focus I think you'll see,

and that's by company type.

terms of sector, what the sector diversification piece is meant to do is to help

us put some metrics around the sectors and what the potential for those sectors

are and what types of investments are needed. Again, I think, and I don't want

to speak for the Auditor, but I think the Auditor General, when he's talking

about the outcomes that he would like us to talk about that he would like to

see evidenced in our programming, are those sorts of things that are based on

evidence. It's not a case of us just through producing numbers through systemic

interaction and us talking to each other, it's about us working very closely

with industry. It's about us doing literature reviews. It's about us gathering

all the information that's needed.

Moving

forward, I think what we'll be doing is we'll be prioritizing sectors and we'll

be prioritizing some of those sectors for investment. That means we are not

shutting down to other sectors, but it means we're proactively seeking clients

in that space. At this point in time the piece of work is still ongoing. So I

don't want to get out ahead of it and prejudge what's going to come out of it,

but that's what we've tasked everyone with doing.

Right

now we have a number of sectors we support. Are we being effective? I don't

know. How big are our sectors now? If we don't have that sort of base data, it's

very difficult to measure your success.

MS. ROGERS:

So at this point you're

saying you really don't have targeted sectors. I guess my question is because

I would think it's probably not just piecemeal. Oh, there's a nice business

there, there's a nice business there, but there might be an understanding of

this is a sector that's a potential growth area that would work well with our

geography, with our skill level, with our time in history.

Where

is the direction right now? Because you don't want to simply sit as a bank and

wait for people to come. So I assume you are doing outreach, you are doing work

and trying to encourage certain sectors. Do you have a sense of what that is?

What, sort of, your overall plan is

MR. LOMOND:

Yes.

MS. ROGERS:

and a direction that the province, the business community is going in that is

healthy for the province and healthy for our public monies to be invested in?

MR. LOMOND:

Sure.

We have

programs in place with maybe seven or eight industry associations: the

Newfoundland and Labrador Environmental Industry Association, the Newfoundland

Alliance of Technical Industries, Canadian Manufacturers & Exporters,

Newfoundland and Labrador Organization of Women Entrepreneurs, OceansAdvance.

There are a number of areas.

In the

case, for example, of OceansAdvance, oceans are an area we feel we have some

advantage in. We are an island; a lot of our employment is created through

ocean-related activities, whether that's offshore oil and gas, fishing,

aquaculture. We are part of an Atlantic Canada cluster initiative proposal

looking at the recently announced $950 million federal government proposal. We

have a short document being prepared.

We are

hopeful that, as Atlantic Canada, we'll be successful in leveraging that

investment in the industry, but it's about developing new technologies, new

sorts of sensors, integrated operations, ocean data, innovative uses of

genomics. So, yes, that's somewhere where we feel we have some strength. I think

that is somewhere, as we've already indicated, that we're looking at in a

serious way.

terms of some of the other sectors, you have to be careful. The sectors

themselves are so broad. For example, if I were to talk about environmental

industries, that could encompass everything from clean coal, back to sensor

technologies, or environmental effects monitoring.

There

may be areas within that sector that we would have competitive advantages. For

example, I would think waste water management would be an area within the

environmental sector that we've got some potential because we have a number of

companies in that sector that have cutting-edge technology. We are living on an

island, so we're pumping a lot of stuff into the ocean that we have to treat. So

we have to get good at it.

We have

new federal regulations that are coming in place that are increasing waste water

standards, in terms of what can be raised. We have considerable federal

government investment in clean tech. I think that, for example, might be an area

we would go in.

I guess

what I'm saying is even within the sectors themselves there might be a bit more

refinement in terms of what we're looking at than what we've had in the past.

MS. ROGERS:

Right.

Because

we're dealing with public funding, I just want to look at, sort of, one area in

particular. Last year, in 2016, the minister indicated that $3.8 million

invested in Gray Aquaculture has most likely been lost. That was an investment.

Now, government is considering a $45 million equity investment to Grieg Aqua.

It's a $230 million aquaculture project, around that.

Going

forward on a project like that, what would be the safeguards? That looks like

that's money that's gone in terms of we've lost that investment in Gray Aqua.

Going forward in potential with investment for instance because I believe

aquaculture is a targeted area for growth and investment. What safeguards are in

place to ensure we will not lose that investment of $45 million, for instance,

in Grieg Aquaculture?

MR. LOMOND:

I guess a couple of points.

First, just as a disclaimer, I'll say that the aquaculture investment is made

through Fisheries and Lands and whatnot.

MS. ROGERS:

Yes.

MR. LOMOND:

But I will say that in terms

of how we would manage risk in that type of project for example, you're really

dealing with two types of risk: you're dealing with technical risk and you're

dealing with financial risk. If you're looking at technical risk, you're dealing

with things like whether or not the fish can survive in the types of water

conditions that you have, what are your stocking assumptions, can you fit that

number of fish in a pen, are there supporting veterinarian services in the area,

is there complimentary those sorts of technical issues.

You

would try to mitigate the technical issues, I think, as you go. You would try to

look at at least we would provide advice on how you might manage those, to

some extent, with a lot of that advice coming from the line department itself

because they would have the aquaculture specialists and whatnot.

terms of financial risk, there would be a number of things you would try to do.

Obviously, security is one we've talked about before. It's not uncommon for us

to take security on an investment. Another thing you can look at doing is try to

match the investment to return on Treasury. You can try to look at when are the

investments flowing and when are the returns to Treasury accruing? There may be

opportunities to match the outflow of capital with the anticipated inflows to

Provincial Treasury thereby negating the risk to the taxpayer, because if the

activity didn't happen, the taxpayer wouldn't be the benefits wouldn't happen

either.

The

other thing we would look at is terms of the overall funding program. Again,

like I mentioned before in terms of our own training, you want to make sure the

company has the management expertise, the technical expertise and marketing

expertise to pull off a project like that. You're looking for international

market connections and you're looking for capital.

This is

one of the things, I think, you might want to look at or you might consider on

that type of project. You would want to make sure the proponent's money flowed

before yours or worst case, flowed pro-rated with yours, so that you're not in

any circumstance getting Government of Newfoundland and Labrador money into a

company before the investor themselves is committed and has skin in the game

sort of piece.

Another

thing you might do is you might build it back to your technical risks, you

might build off-ramps. You might say we're going to stage gate this project and

we're going to flow money over maybe a four- or five-year period or a six-year

period. Based on performance metrics, if you have not hit certain targets, then

we may say we're out until such time as you're able to do this.

Gillian has a company and she says she's going to have a barge and pen work

completed by December 31, and it's December 31 and the work is only half done,

before any more money flows from the Crown they have to put in place a plan to

address that and we wait for that work to be completed. I think that's the

point. You would see that in a lot of the commercial financing as well.

That's

another thing we would look for is commercial financing at the table, because I

think that brings an extra level of due diligence. You'll see those companies

also build off-ramps into their funding programs, so you would try to parallel

those off-ramps. I think those are just some of the things you might do.

MS. ROGERS:

Okay.

The

Auditor General is looking and addressing the issue of performance targets as

well. Both, I imagine for the financial assistance to the programs but then also

to individual companies that are financed through some of the programs.

You

were saying it's too soon to do a full-scale evaluation because we've only just,

in the past two years, consolidated all the number of departments. Where are we

this year in terms of getting the money out through the door in terms of the

budgets that have been allocated? You're looking forward in terms of what we

might see by the end of the fiscal year, how is that?

MR. LOMOND:

I think it would vary based

on program type. I would think under the Investment Attraction Fund the bulk of

the money would already be committed. I think the cultural funding generally

flows pretty quickly. People have developed an expectation around the funding

they use for different programs.

terms of our Business Investment Corporation, that's a revolving fund. We're

collecting funds and those funds are coming in, there are funds coming out. We

have the capacity to handle varying amounts of activity but, I guess, to your

question, even though maybe oil prices are not as high as people would hope and

there are people that are no doubt feeling the pain as a result of that, we have

not seen a decline in approaches to us, not yet. And I don't think we've seen

about the first quarter review?

WITNESS:

(Inaudible.)

MR. LOMOND:

Okay. The first quarter

review actually is just about to be undertaken. Gillian will be part of that.

But I haven't seen yeah.

MS. ROGERS:

Can you speak a little bit

about the accelerated

CHAIR:

Ms. Rogers, sorry, do you

have much left on this?

MS. ROGERS:

No, my last question.

CHAIR:

Okay.

Last

question, then I'll go to Mr. Finn.

Okay,

that's perfect. You can go ahead.

MS. ROGERS:

Okay.

Can you

talk to us a little bit about the Accelerated Growth division and what areas you

see where there's a potential for accelerated growth?

MR. LOMOND:

We can refer back and forth

I guess.

MS. ROGERS:

Yeah.

MR. LOMOND:

In terms of what we see is

companies that grow rapidly often face similar challenges. Somebody who's

running a company with say 15 or 20 people might be able to run that company

just by being very knowledgeable about their product offering, being very

enthusiastic and about wanting to make their company work. When companies get

larger they often require systems to run. They may require ISO systems; they may

require Lean Manufacturing systems. Generally, we see there's a need for some

sort of management improvement with rapidly growing firms.

We also

see issues around working capital. Companies that are growing rapidly are

pumping money into inventory development, new equipment, those sorts of things.

They may reach a point where they're tight on cash and we don't want that

tightness around cash to stall their development.

Another

piece you'll see is around market development. If a company is growing rapidly

locally and is based in, say, an Atlantic Canada market I'll go back to waste

water treatment systems, there are only so many communities that can afford a

certain scale of waste water treatments. You can eat up the domestic market

pretty quick, so you need to find ways to help that company diversify into new

markets.

Again,

back to the example of, say, Harbour Grace shipyard; it may be in the case of

industrial technology benefit agreement transactions done through national

shipbuilding, it might be through opening up of international markets through

our trade activities. It might mean piggybacking on top of some of the

consultancy work that would be supported through the department by maybe marine

institutes and others through maybe things that are funded through the World

Bank or the Inter-American Development Bank, those sorts of things. That, I

think, would be three areas you see where there would be needs for management

improvement, working capital, and market diversification would be some. Again,

it very much depends on the company.

Some of

the companies we are talking to, highly qualified personnel becomes a real issue

for some of them. If they have a certain type of coding they might be doing or a

specialized computer technology-related skill that's not readily available, they

can pretty well eat up who is available here and then they have to recruit.

MR. WEATHERBIE:

Is it all right if I ?

CHAIR:

Yeah, sure.

ahead.

MR. WEATHERBIE:

Well, there's been significant work done under the Business Innovation Agenda

and there's been significant stakeholder consultation. Publicly, there were

round tables that took place over the last I'm going to say about a year. I'm

just new in this position, so I don't quite have the timetable worked out. But

anyway, in that there were a number of questions that were asked of the

stakeholders.

So in

answer to your question about financing, one of the questions was access to

capital. We are now currently evaluating those responses in consultation with

The Way Forward and the more

effective business financing. So it's a puzzle that's fitting together about the

overall business financing and how government has access to capital for not only

scalable high-growth, high-impact firms, but also in various sectors as well.

We've

done significant work in the department through market development, and to Ted's

example, talking about waste water; there were repeated missions to the

Caribbean where they do have a need for this particular development. So we look

at the markets, and when you look at these types of companies that we're talking

about, the scalable high-impact, for the most part the sales aren't coming from

here. They're coming from elsewhere.

MS. ROGERS:

From outside.

MR. WEATHERBIE:

So we have a significant ocean tech conference or trade mission that goes on in

China and UK, we will be participating in and bringing companies to. We provide

the foundation for these companies to break into new markets and, of course, it

helps when government is escorting them or bringing them along.

MS. ROGERS:

Are there any particular

company projects right now that you're really excited about in terms of looking

into the future and what it might mean for business here in the province, or ?

MR. WEATHERBIE:

Well, the two examples raised earlier by Mr. Lomond, talking about Bluedrop as

well as Dynamic, that company came to Grand Bank a number of years ago and it

has scaled itself up. We have been there at the very beginning, working with the

company financially as well as providing advisory services wherever needed. We

have local economic development officers there who have a connection with the

vice-president of the operation there. So we have a very, pardon the pun,

dynamic relationship with that company.

Bluedrop; well, I remember dealing with Emad Rizkalla back in the early 90s when

he just got out of university and he had lots of ideas. He had various companies

throughout. One company branched off into two, and now he's gone into Bluedrop.

He's, again, a very interesting, very successful entrepreneur, and that's the

type of individuals and companies we're seeking.

MS. ROGERS:

Okay.

CHAIR:

Thank you, Ms. Rogers.

Mr.

Finn, anything that hasn't been covered?

MR. FINN:

Yes, thank you very much, Mr. Lomond, a very thorough, in addition to Minister

Mitchelmore addressing the three recommendations in his letter that's

certainly some great context there. I guess a lot of it was primarily around

reporting performance targets, and it sounds like you've certainly had a number

of targets.

Just for clarification, the number of programs you said, it

was 20-odd down to ?

MR. LOMOND:

Twenty-one.

MR. FINN: Okay.

Yes, very good.

MR. LOMOND:

Twenty-one programs reduced to two; one of those being primarily a business

financing program, the other one dealing with non-commercial. So you would often

see community-based infrastructure that might support commercial development in

some cases, but that would

be through the other program.

MR. FINN:

Okay. So in terms of the

Auditor General's recommendation on performance targets and measurability and

success and what have you, it's certainly a lot easier for you folks with two

instead of 21, I guess.

MR. LOMOND:

It depends, because based on the I'll turn it over to the Auditor General

there in a minute but I think that maybe in terms of, if the programs are very

compartmentalized it may be easier to put very specific performance targets

around the program. The problem then becomes is that you end up with sort of a

range of programs that are kind of confusing for the client. You end up with

money that you need in one program, but that's unattainable for a good client in

another. So you end up in those sorts of things.

I guess

the trade-off has been now that we've gone to a more open, flexible process, is

to make sure we do the other piece of work, which I'm talking about in terms of

sector strategies and the sector research piece, to give us those targets that

we can benchmark against and report on in terms of our performance. So we're

looking at in terms of ocean cluster development, that's going to impact us in

a number of ways. It's going to impact it will be setting targets and it will

be influencing our thinking across a range of programs.

For

example, in terms of investment attraction, we may not do broad-based investment

attraction. We may be looking for specific firms to complement or round out that

sector, because again, if it's something that would add to the critical mass of

companies in the region that would give us a competitive edge as a province or

region, we might reach out on that specific piece. We may look at targeting

investments towards high-growth firms again in a particular sector. So it's very

much being driven by the sector strategies.

MR. FINN:

Excellent.

Thanks

very much.

CHAIR:

Okay, thank you.

I'm

just going to make a few last comments, and then the normal process is to ask

the AG if he has any comments.

I'm

pleased to hear you've moved things forward, particularly around stakeholder

engagement, particularly around setting standards and timelines. I think it's

very important for businesses to know exactly if they've got an idea, if

they've got a plan, the time frame to meet with somebody to see if it's viable

and then the time plan to know whether or not they can move forward. Because, as

you know, most businesses have a multitude of partners and different

stakeholders they have engaged. It could be a municipality; it could be another

financing partner.

particularly also like the note of not working in isolation. Those days are

gone. There are too many partners out there that have the same stake in the game

and would like to obviously partner with you guys. So I think that's a great

move forward.

The

fact, too, that you're looking at why spend taxpayers' money in Newfoundland and

Labrador if there's another funding source that can take the risk, and that you

guys can spend your time and effort and your expertise in supporting the

business in other ways. So I think that's another positive that addresses some

of the issues here that will get to achieving what the Auditor General had noted

were some concerns, particularly around evaluation and determining best return

on the investment.

I also

like the fact that the divisions are broken down. They would have specific needs

or specific talents, but at the same time don't work in isolation, that there's

a collaborative approach. As a former civil servant, I always advocated that

everybody has to have their niche and have their role. You only confuse people,

if everybody gets in a room everybody wants to have their say.

Once

you get to a point where you've found you can help a particular business, then

you bring in all the experts from different divisions and see how you

collaboratively can do that. So I thought that was a very positive thing.

Hearing things about evidence-based and collecting data, it's the only way at

the end of the day we'll know whether or not we're going in the right direction.

If we need to have to go left or right along the way, or don't fix what's not

broken. If it's working, keep it moving that way.

So I

see this as a positive. It's an older report; it's a two-year report. So there

was an expectation that you guys would have moved it. We can see some real

movement in the last year, particularly around what's changed within the

department. I know whenever you redesign a department, reallocate, there's

always a lull there until everybody gets comfortable with what they're doing and

the connections.

What

you've outline here, if you continue on that path I think we as a Committee will

be very happy when we make our recommendations to the House of Assembly the fall

around that this path forward will be a benefit to achieving the goals of the

department.

that's from my perspective. The last word I'll give to the AG before we thank

everybody for coming.

MR. PADDON:

Okay. Thanks, Mr. Chair.

I have

just some general comments on this particular issue. Then with your indulgence,

I have two other things I'd just like to mention to the Committee.

CHAIR:

Yes.

MR. PADDON:

Generally, I think what we found is that departments do a pretty good job on the

day-to-day management of the portfolios and those sorts of things. I don't think

that was really the issue.

As a

general theme over the five years I've been AG, I found we do a good job putting

programs in but we don't do a good job of evaluating the effectiveness of the

programs, and really that's what the theme of this is. If you don't know what

you want out of a program at the beginning, how do you know whether you're

successful? So having effective targets and objectives and those sorts of

things, I think is key to ensuring that we have a quality program at the end of

the day that achieves what we want to achieve.

Mr.

Lomond was just talking about how to structure the objectives and those sorts of

things. Really, whatever makes sense for the department, how you segment it,

that's really your call as to what's the most effective way to deal with that. I

don't want to be too prescriptive around that. We'll have a follow-up, as you

know, within a year or two. So we'll report back to the Legislature on our

findings on the implementation, the recommendations.

Just on

two other things, somewhat separate; I did mention to some Committee members,

but I'm not sure if I mentioned to all of them, that tomorrow we will be

releasing our annual report, similar to the one we're talking about here. It

will be available 9:30; I'll table it with the Speaker at 9:30. It will be

available on the website, but a hard copy will be with the Speaker as well. So

I'll be doing some media around 11 o'clock.

Last,

but probably most significant and important for me, I visited the Speaker today

and handed him my letter of resignation. I'll be leaving at the end of October.

I have five years under my belt. I talked to my wife, I'm ready to go.

This

could be my last Public Accounts Committee hearing. I have enjoyed every bit of

it and going to miss it, but not miss it that much.

CHAIR:

Well, I know on behalf of

the Committee I can say, and I'm the longest standing one going back to your

tenure, it's been a privilege working with you. It's been a good collaborative

debate back and forth. Sometimes we've had witnesses where we've attacked in the

House of Assembly. Other times, like we have I have to give credit. The last

two days have been very indulging and very positive I think for the line

departments coming back, showing that they're very proactive in moving things

forward.

We'll

miss you, but we will have New Brunswick you will still make that trip, I

assume?

MR. PADDON:

Well, my timing was selected purposely (inaudible).

CHAIR:

For a reason, yeah, that's

late September, you leave in October.

MR. PADDON:

Yeah.

CHAIR:

Anyway, I do want to thank

the department and the officials for coming out, Mr. Lomond, and I do thank the

Auditor General and his staff. We'll have an opportunity to say goodbye

officially down the road.

I thank

the Committee and Elizabeth here at the table.

The

last two days have been consuming, but some good information. Again, we look

forward to putting our report to the House of Assembly the fall and

acknowledging that things are moving forward, and we may have some

recommendations around how we encourage things to go. As Terry has said, we're

also the watchdog. So in a year or so when there's a follow-up, because yours is

a two-year old report, we're looking forward to being able tick that one off and

say everything is aligned the way it should be and keep doing what you guys are

doing.

Anyway,

thank you guys, have a great day.

motion to adjourn oh, before I do that, I need to adopt the minutes from

yesterday.

Mr.

Petten, Ms. Parsons.

All in

favour of accepting the minutes?

SOME HON. MEMBERS:

Aye.

CHAIR:

Opposed?

Motion

carried.

motion, minutes adopted as circulated.

CHAIR:

Motion to adjourn?

Ms.

Parsons, Mr. Petten.

All

those in favour, 'aye.'

SOME HON. MEMBERS:

Aye.

CHAIR:

Opposed, 'nay.'

Motion

carried.

Thank

you.

motion, the Committee adjourned.