September 10, 1997

PUBLIC ACCOUNTS COMMITTEE

The Committee met at 9:30 a.m. at the Glynmill Inn

in Corner Brook.

VICE-CHAIR (Mr. Tom Lush): Order, please!

I think we are ready to start. The Chair, Mr.

Byrne, is a few minutes late, so we will get started. I think everything is in

order, is it? There is no swearing-in, or anything, of any new witnesses?

I will just start things moving with a couple of

questions and then leave it to other members. I just want to go back to the top

of the Auditor General's Report again, following on from the former chairman's

remarks yesterday morning, when he mentioned `perception'. I want to make sure

that members are given a chance to respond in a full manner to the Auditor

General's remarks.

Perhaps we should make it clear here that I think,

for the most part, the Auditor General's Report is in reference to the old board

rather than the new one, and I want to make that distinction. The Auditor

General's Report, in my view, is certainly a condemnation of the way the Board

operated mainly in terms of its loans, in terms of the non-compliance with

government regulations, and I think we have been certainly assured here that

most of these things have been changed and that the new board is making every

attempt to govern itself by the Hospital Act, which apparently was not the case

previously, when the Board gave primacy to their own Act.

Having made that opening remark - and I would like

for somebody to respond to it - I just want to ask the Board: they certainly

must have been aware in the early 1990s of, not only the Provincial Government's

determination, but the determination of every government in Canada to wrestle

with its debt to get rid of its deficits, to have budgets that were balanced.

Considering that, knowing that that was the determination of the government and

knowing, too, in order to achieve a balanced budget that they had to have the

co-operation of all Crown agencies - you could not have Crown agencies going off

in every direction when it was the determination of the government that all

agencies, health boards included, were to have balanced budgets. And certainly,

this must have been an understanding of the health board here, and yet, we built

up a debt of borrowing $4.5 million.

In view of that, I ask the Board: Do they believe

that they were acting in accordance with government directives when they

proceeded to build up a debt of $4.5 million?

MR. JOHN MULLINS: That is a well-put question,

Sir.

I think we felt we did, and over the years, I think

we made a concerted effort. And if you look at the public furore in this area in

recent times - well, not very recent but the more remote recent times - you will

see that we did make a lot of cuts and a lot of changes.

We explained how this debt was built up. I don't

know how to respond to you. We could have, for example, I suppose, not put in

the CT scanner; I suppose we could have not done that, despite the fact that a

million dollars had been raised locally to pay for it. We had to put it in, you

know, we had to get that money, it had to go in once we had it.

Now, if government put its third in, we put our

third in and the public put its third in, but we just did not have that kind of

a chunk of money at the time. As far as the other component of that debt is

concerned, you are talking $4.5 million and the other big chunk in that, as

Dennis went through in some detail yesterday, was mainly this question of

various attempts to promote physician services in this area in Western, in

particular, in the form of loans, particularly bursaries which were a very big

item for a number of years, and again, I do not know what to say to you. We

could have stopped that, I suppose, we could have not done that, you know.

Your point yesterday, or somebody's point, was

should we not have stopped doing the fringe benefits things earlier? Perhaps we

should have, but they were done for a reason in the beginning and we felt the

reason was still valid. So, I do not know really, how to answer that question.

Yes, I suppose we could have not done these things, you know, but that money

went into services for the people of this area and the evidence is there to

substantiate it, there is no question of that. So - that does not answer your

question but I am not sure I can.

MR. LUSH: I was just wondering, you know, in

building up and accumulating that kind of a debt, did the Board not have some

plan in mind as to how they were going to recover this money?

MR. MULLINS: Well, the only plan - I am sorry;

I interrupted.

MR. LUSH: No, that's okay.

MR. MULLINS: No. Obviously, the only way we

could write off or amortize that debt was if there were substantial monies

coming from the Department of Health, I mean, we could put some money into it

because we had some minor resources. By that time, what ever money we had had

over the year, the bulk of it, anyway, was gone into various good works or

otherwise. But that is the only way I can see now, looking back on it, and I

think that was recognized at the time and we were writing it off. We did have an

allocation in our budget to write that off, which Dennis could explain in more

detail, but it was there. So that was recognized, it was not hidden. It was wide

open, everybody knew it, and there was money provided in the budget to write it

off. I do not know what more I can say about that.

MR. LUSH: The Board certainly must have

understood that if health boards and other Crown agencies were not following

government directives and were not co-operating with the government in terms of

operating in terms of operating debt-free and operating without deficits, that

the Provincial Government was never going to be able to achieve its objectives.

MR. MULLINS: The question of deficits, as I

said yesterday, and I do not know how to say it otherwise: deficits were common

in the system, although officially I never knew that, because this information

was never shared among boards. It was kept very close to people's chests, but

one knew from hall-way conversations and so forth that there were deficits

around. As I said to you yesterday, if you have a hospital going and you have a

budget, you can see, you can project - when we knew this, we could project that

we were hitting that budget or we were on budget or we were going over budget.

And most years, in my time anyway, we were on or close to budget. It was only

toward the end that we started to get deficits, as I recall, and I cannot

remember the exact -

But the question remains: What do you do - what

exactly do you do? If you have made a commitment - as I said to you yesterday,

in negotiation at the beginning of the year, you were told, or, you made a

commitment, either one and I take full responsibility, I am not going to sit

here and say, the Department of Health dictated to us, at times they did but we

agreed with what they said, after acrimonious debate, as we did in the case of

the twenty-two beds. If we agreed to shut those beds and based our budget on it

and they did not get shut, then a deficit starts building up and, not me, not

God, not the Board or anybody else could stop that, it is a process.

What do you do, go and shovel people out on to the

street? What exactly? You tell me, I do not know. I sat there at many, many

meetings and I was familiar with what was going on, I do not know what to do.

How do you turn this thing around once it starts? and, to compound it sometimes,

you would hear that we did not get a budget until well along in the year, that

was not uncommon, you would not have your budget until well into the year. It

was not uncommon, that you wouldn't have your budget approved until well into

the year. That wasn't unheard of, you know.

Again, I am not blaming anybody for this.

Circumstances sometimes do funny things. What I am saying to you is that if you

have a budget, so much of it is fixed. I know we can make a fuss and a racket

about loans and the interest on them, and which fund it should be in, but that

was not germane to the major problem. How do you turn this thing around once it

starts? How do you turn it around - I don't know - without shutting major

services?

MR. LUSH: A final question. In view of that -

you, yourself, just mentioned loans and advances, this kind of thing - in view

of those circumstances peculiar in that kind of a deficit, it seems to me that

the public perception is that carrying on those kinds of programs of advancing

loans to employees, and various other benefits, that this was a bit extravagant

under the circumstances.

MR. MULLINS: Fair enough. The loans get a lot

of play because they come up with a nice, big number, but the actual cost is

nowhere near, obviously, the interest or some portion thereof that you can

impute to that loan. The loans were all repaid, and we felt that the full range

of loans we offered were done for very valid reasons, and there is no disputing

that. The only ones that anybody around or any of you people were prepared to

dispute are any loans we may have made to employees. I don't think any of you

are going to stand on your heels and say we should not have helped doctors

locate here. Is anybody going to say that? I don't think so.

Again, I understand what you are saying. I am very

acutely aware of perception. My problem with perception is that there are

substantive major issues here and, unfortunately, some of the less substantive

issues are being mated with them, and that has been thoroughly confused. The

question alone is (inaudible) nice big number. (Inaudible).

MR. LUSH: I cease my Chairmanship of the

meeting now.

MR. MULLINS: I am sorry?

MR. LUSH: I cease my Chairmanship. Before I do,

though, I am going to recognize the first speaker, Mr. French. Then I will give

the Chairmanship over to the Chair.

MR. FRENCH: Thank you, Mr. Lush.

I listened pretty intently yesterday, and again

this morning, to comments as to maybe what should we do; what shouldn't we do?

Is this a large amount of money; is this not a large amount of money? I say, I

have absolutely no problem with paying a fee to doctors to get them to relocate

here, and I don't think anybody in this room has a problem. I guess I have a

problem with personal loans.

Somebody mentioned here yesterday that doctors had

not had a raise in so many years. Well, I can tell a few people that I know

civil servants who would love to have been in that position. I know civil

servants who take home less money today than they did five years ago, but they

are living within the guidelines that the Government of Newfoundland and

Labrador laid down, and I would suggest that this hospital board should have

done exactly the same thing. Now, whether I am right or whether I am wrong, that

is fine, but that is my opinion. I am going to stick to that opinion.

Perception is everything, and the perception I had

on reading this report, to be quite honest with you, I don't know if my mind is

really changed yet or not. And I am going to go so far this morning as to say

that, no, it has not changed.

I am going back on a question because it was

answered yesterday but it just leaves me still in a state of confusion. I am

going back to the question: the Auditor General noted it during 1994-1995 and

1995-1996, the corporation paid $374,714 for engineering services for a capital

project. I, again, want to know: number one, who received that money. And I want

to know again, so that maybe I can be a bit clearer in my mind, why we did not

go to public tender for that particular piece of work. I have been a municipal

councillor. I know a little bit about engineering fees. I know my colleague to

my right here certainly knows more about them than I do. I would just like to

know why, again, we gave this out. I would like to know who got that contract.

Again, it is totally outside of the Public Tender Act and I would really like to

know exactly why it happened.

MR. DENNIS WATERMAN: If I may try to respond to

that, Mr. French. As I mentioned yesterday, I certainly attended a number of

those meetings where that situation was discussed, the whole project and the

project you are referring to was the DVA unit. The committee, again was set up

with representatives of DVA, representatives of the provincial Department of

Health and representatives of the Board of Western Memorial Hospital

Corporation, along with representatives of the Royal Canadian Legion in the

Corner Brook, Western Newfoundland area. We essentially sat on the committee as

advisors to the group.

The decisions that were made by that committee were

joint decisions that were made around the committee table as all three parties

were vested with the authority, as we understood it, to make those decisions

around that table. The question of engineering fees, first of all, the

disclosure as to who it was, was, Atlantic Engineering. It is a corporate firm.

I cannot tell you for sure if all of the fees were paid then because I

understand there was an architect engaged from St. John's - and I cannot recall

at this point, but I can confer with some of my colleagues in the room if you

want to know the exact answer. But there was an additional architect hired from

St. John's from one of the engineering firms out there and I am sure, the cost

of those architectural services was included in the $370,000 that you mentioned.

I guess the bottom line on that one is, the Public

Tender Act as you know, is silent on that particular issue in terms of

professional services, and the group did their own research work in terms of who

was available locally, based upon the policy that we discussed yesterday as to

how we distributed engineering and like services throughout the region. The

firm, Atlantic Engineering was engaged to provide the preliminary engineering

work on the DVA unit. For those of you who are not familiar with that, the DVA

unit was a renovation of the old O'Connell Centre which is the old Western

Memorial Building that was established back in the late 1940s early 1950s, with

substantial renovation costs to redevelop the first floor and the basement floor

of that unit and the total project cost came in somewhere around $3 million. All

three parties had a contribution towards the cost of that facility.

The engineering work was carried out by the local

firm at some point after a substantial amount of money was spent on that. At the

committee level, there was a lot of discussion about it particularly with DVA

and I guess the other parties involved as well, where there had to be additional

engineering work carried out because the work that was done in the first place

did not come up to the level of satisfaction or the standards that DVA felt

should be in the unit. So, after a substantial amount of money had been spent,

there was an additional architect engaged from the St. John's area who worked

with the local engineers here in redesigning that and obviously, there was a

substantial amount of additional cost generated in that project as a result.

MR. FRENCH: So this $374,000 was the total

engineering cost for that particular project?

MR. WATERMAN: That is my understanding, yes. I

do not recall the exact figure but I know it was in that range.

MR. FRENCH: Okay. Did I hear you correctly when

you said this was a three-million-dollar project?

MR. WATERMAN: The final landed cost of this

project was about $3 million.

MR. FRENCH: And that we shared, one-third,

one-third?

MR. WATERMAN: Roughly. It was not exactly

one-third, one-third. I do recall that DVA's contribution to it was $1.14

million, the Corporation committed I think it was $900,000 and the provincial

Department of Health committed the balance of it.

MR. MULLINS: Just to make a comment on that -

Dennis just said it but I participated in some of the earlier meetings on that

and I was kind of gone from the scene toward the end of it but, the point about

the change in the middle of this is significant in terms of the cost. We started

out with one firm who did the design, which was not acceptable to DVA, as I

recall, and another architect was brought in from St. John's who was more

familiar, we were told, with DVA's requirements and so forth and so on, and

there was considerable redesigning to meet the change and that (inaudible).

MR. FRENCH: Well, I guess hindsight is 20/20

really. If you had gone to Public Tender in the beginning here, then maybe you

would not have had to bring in somebody else. Hindsight is always 20/20.

MR. MULLINS: Indeed it is.

MR. FRENCH: I would like to move on.

I also read from the Auditor General's Report, on

page 177,

Summary of Financial Information by Department. For each expense group

it shows that outdated stock increased in 1994-1995 to $88,771 from $8,919 in

1993-1994. To me, anyway, this seems to be a massive increase.

I want to know, number one, has there been a

procedure put in place so that we don't have this amount of drugs sitting around

at the end of the year or at the end of a certain period of time we have to

discard then. I guess another question is: Why did this happen? Why was this

allowed to happen, where we would have $88,000 worth of drugs that we may have

to - and the way I read it here, we certainly did have to get rid of them, and

they were just outdated. I just want to know why we would have this amount

sitting around. It was a massive increase from the previous year. I also want to

know, has there now been an inventory management system put in place that would

actually control the drugs that are now purchased for the hospital?

MR. WATERMAN: I'm sorry, can you give me the

reference for the page on that? There are a couple of issues of inventory and I

would like to respond to each, because there are two specific issues there.

CHAIR: Page 177.

MR. WATERMAN: One seventy-seven.

CHAIR: Yes, in the top heading, 1993-1994, and

1994-1995, you come down to Item 24, Outdated Stock, Drugs. The bottom line in

1993-1994 is $8,919, and in 1994-1995 it was $88,771. I think that is what he

has referred to, Mr. French, was it?

MR. FRENCH: Yes.

MR. WATERMAN: On that particular issue, the

question of outdated drugs is, I guess, as a result really of changing treatment

protocols and so on by the various physicians throughout the organization. There

is a procedure in place which, as much as we can effect that, when drugs are

ordered and are not used for whatever reason, there is an attempt made to get

credit back from the supplier. We charge these off when they are no longer in

use or not on the active formulary of the organization. Any drugs that are

surplus to that are considered outdated stock.

It doesn't necessarily mean that they are

automatically written off or forgotten about. We do attempt to get credit back

where credit is applicable, and many times when treatments change, that is quite

possible, that we are dealing with the same drug company perhaps that is

supplying a new treatment, as opposed to the old one, and quite often we are

able to get some of these credits through. I can't say for sure that we have got

them all through, but it is an issue that happens quite frequently. Again, the

numbers are high, I will grant you that, at this particular point, but I would

suggest that it is an uncommon occurrence, that these kinds of issues normally

don't happen.

Our drug inventory is controlled substantially

well. We have never had any major concerns about the physical control of our

drugs or the accounting distribution for the cost of drugs. Our pharmacy

department is well aware of the requirements, certainly in terms of any legal

requirements in terms of narcotics and so on, and also in terms of what their

obligations are in the level of drug inventories they are able to maintain, and

how they handle any obsolesce in terms of stock and so on.

As a matter of fact, we go to great lengths at our

particular organization, certainly at the time, and we continue to do so, to

ensure that if stock is issued to the floor in terms of medications, and those

medications are not all used for whatever reason, whenever and wherever it is

practical those medications are restocked and reissued. We obviously have to

take into consideration certain packages that may be open and not able to, but

when there are those medications that can be used, we do in fact (inaudible) and

we put them in at no charge, and they are reissued on a no charge basis when

that prescription calls for it again.

We do take every concern, every control, over drug

inventory and inventory cost. The level of drug inventories is monitored on an

ongoing basis, and we try to keep our drug level overall at a certain point.

The question of what goes on the formulary is a

question that is debated amongst the various physicians that are heads of

various disciplines. They meet as a group and with the pharmacy group if they

want to introduce a new drug. That drug has to be subjected to trials, but we

have to have evidence that trials have been done so that the drugs are

available. If it is a replacement drug, then certainly the drug that it is

replacing, whenever and wherever feasible, is used up completely before that new

drug is brought in.

We go to great lengths to ensure that we don't

overstock on drugs, we don't incur any obsolescent costs, and if there are

obsolete drugs that, for whatever reason, are no long being used, we try to get

credit back from the supplier of them. I think our inventory procedures in terms

of drug control are quite adequate. They have been tested many times by external

auditors and external agencies such as the - the drug protection branch, I want

to call it, but I am not sure that is the correct name, where they come in and

do audits on narcotics and so on, and our procedures have been sound and we have

never been subjected to any undue criticism in that area.

MR. FRENCH: Are you telling me, then, that in

actual fact the outdated stock, some of that money was recovered by drugs being

returned to suppliers? Is that what you are telling me?

MR. WATERMAN: What I am saying is that our

normal procedure is that we will try and get credit for all of that. I would

have to go back and investigate to see how much we actually got it for, but I

would go out on a limb and say, yes, we have recovered some of it. I cannot tell

you whether it was 10 per cent or 90 per cent, but if it is a salient piece of

information we will certainly look into that. We can reply if you wish by a

written submission.

CHAIR: That is certainly acceptable.

MR. FRENCH: Can I just ask the Auditor General:

Did you find anywhere, when your people did the audit, any of this being

recovered?

MS MARSHALL: Any credits (inaudible)?

WITNESS: No, we didn't look at that area.

(Inaudible).

MS MARSHALL: (Inaudible).

MR. FRENCH: Then could I ask you, Mr. Waterman,

if you get a chance, if you would go back and forward to the Committee, to Mr.

Byrne, and he can certainly see that I get it. I am concerned as to if, indeed,

we did recover any of our money, or if we did not.

Again, because it was pointed out here, I trust

that there is some kind of a system now in place that would prevent it from

happening again.

MR. WATERMAN: Certainly, Mr. French. It is not

a new occurrence, as such. As I mentioned earlier, we have always been very,

very selective and careful about procedures as they pertain to drugs and drug

inventories, for a lot of obvious reasons. Certainly this built up as a result,

I would think, of some major change in treatment that we will look into and

certainly see whether or not the cost was recovered on that, and what credits we

got on it. Then we will report that accordingly and, as always, we will continue

to monitor drug levels and drug cost levels and ensure that the drug formulary

and the drug inventory itself is basically relative to national standards, which

is where we try to keep it.

MR. FRENCH: Because if you did in the end have

to write off $88,000 then, to me, it's $88,000 we did not have for health care

somewhere else. It is $88,000 that maybe we would not have had to borrow in the

$4.5 million.

I have just one other question and then I will

defer to somebody else. You said, or somebody said yesterday, you now have an

operating line of credit of $13 million, I believe.

MR. WATERMAN: Yes, Sir.

MR. FRENCH: And we had bank loans, I believe,

in the vicinity of $4.5 million; am I correct?

MR. WATERMAN: That is included in the line of

credit.

MR. FRENCH: So that would now be included in

their line of credit?

MR. WATERMAN: That is accumulative (inaudible).

MR. FRENCH: Has there been any forecasting

done, say, to the year 2000 as to what the total deficit would be for the

Western Memorial Hospital, or for the Western Memorial Board?

MR. WATERMAN: Yes, Sir. As recent as the

Finance Committee meeting of three weeks ago, we delivered a forecast to the

Board outlining where we were cash-wise, what our operating position was, what

our projected deficit position was. We rolled in the additional $2.3 million

that was committed by the Department of Health. We put forward a position as to

how we felt the Board should deal with the $4.5 million one-time working capital

infusion, and did a projection to the end of the current year based on where we

were going and what the impact of this would be if there were no significant

changes to the end of the upcoming year.

Obviously, we are looking at a projected deficit in

the current operations this year of $5.2 million, which will be lessened

somewhat by the $2.3 million that has been approved, which leaves us with

approximately $3 million for the current year which would be reduced, if nothing

else changed, to about $2.6 million next year. So if you project those numbers

forward with the operation remaining constant and no other program changes being

made, then obviously, our deficit is going to increase correspondingly to that.

Those numbers were presented to the Board with a

view to highlighting the urgency of effecting an approach to the Department of

Health and ensuring that we do get a debt management plan in place and get the

organization back on some sound financial basis as soon as possible.

MR. FRENCH: So that is now being done, a debt

management plan?

MR. WATERMAN: The debt management plan, we

understand, will be coming from the operational review, but what we have said to

the Board through the finance committee is: Let us go to the Department of

Health now and get some things moving now in terms of covering off our position

at the bank so that we do not have to continue on in this vein. First of all,

let us get our cash position in order, and secondly, start looking at some

programs that we can begin moving on now to get this thing back to some sense of

normalcy.

We are very conscious that the situation is not an

acceptable situation. It is not one we want to live with. Unfortunately, at this

point, we have to wait for, I guess, our masters, basically, or funding masters

anyway, to approve the kinds of things that need to be done.

MR. FRENCH: Is this being done in-house, or is

it being done by the Department of Health?

MR. WATERMAN: The initiative has started

in-house, and the Board at its last meeting has agreed we would approach the

department to try to move on this. A letter has already been issued by the

interim CEO on behalf of the Board to the Deputy Minister, I believe,

encouraging some movement on this already within the last couple of days. So

yes, we are aware, and it has been recognized it is an untenable situation.

MR. FRENCH: I will defer to another member now.

CHAIR: Mr. Smith.

MR. SMITH: Thank you, Mr. Chairman.

I would just like to take it in a different

direction for a while, if we could. Because one of the things we have been

listening to for the last couple of days in recounting events that took place

over a number of years - and we have had admission that there were certainly

practices identified by the Auditor General that the Board and the Board

representatives are indicating or accepting were certainly questionable now in

the light of day.

The question that comes to my mind is this. I

recognize that a board would operate with a fair degree of autonomy, but during

that whole period, what were your requirements in terms of reporting to the

Department of Health? I mean, were you expected on an annual basis to provide

audited statements, and how detailed would these be? Because one of the concerns

that I have - and I recognize the need for a certain level of autonomy, but

obviously, this case demonstrates, at least it demonstrates to me, that there is

a need for a further check. Because obviously, in this instance here, just

leaving it entirely in the hands of the Board has not been the answer, at least

in this instance. I guess, as a representative of the general public, one of the

concerns I would have is: What do we do, as I asked yesterday, to make sure that

there is not a recurrence of this sort of thing? and what more controls we can

put in place, if that is indeed necessary.

I guess before getting to that, could you just

inform me and the Committee as to what were the requirements. What were you

required to do in terms of reporting to the Department of Health during that

period?

MR. WATERMAN: The Department of Health has

prescribed a standard reporting that each organization is required to comply

with on an annual basis, on a monthly basis as well. There is a monthly

submission of information which generally goes from the organization into the

department so that the department is able to compile its financial position

vis--vis, I presume, its budget as it pertains to each organization.

Up to the time this particular audit was done we

were certainly on line in terms of our monthly reporting. I grant you, because

of circumstances we talked about yesterday, we are somewhat delinquent in it

right now because of reorganization but, that is not necessarily salient to the

issue.

The reporting requirements from the Department of

Health require the submission of the annual audited statements of the

Corporation into the department, a copy of the management letter from the

external auditors, the HS1 and HS2 calculations. The HS2 is basically a

financial report which is done on a national reporting format for Statistics

Canada. A copy of that is submitted into the department as well, along with a

detailed breakdown of expenditures by particular cost centres. That must

obviously reconcile with the audited statement.

That information is filed on an annual basis. I

think the Auditor General's department gets a copy of the statements and the

management letter as well. I cannot speak for sure on that, but my understanding

is that (inaudible). As I said, the monthly reporting does take place on a

routine basis as well.

MR. SMITH: During that period, the independent

auditors, I would assume, having tremendous respect for that group, would have

picked up on some of the things that appear in the Auditor General's report. Can

you confirm that?

MR. WATERMAN: Again, without being specific,

(inaudible) but yes, I mean (inaudible) were certainly picked up. Again, those

things were identified for the most part anyway. I cannot say that they were

all, as per the Auditor General's report, identified. Many of the issues

certainly were identified in management letters as well. So these management

letters were -

MR. SMITH: We can assume then that the Board

would have been aware on an ongoing basis that these concerns were being

expressed by your external audit and these things would have been identified.

MR. WATERMAN: At the risk of generalizing, I

can say some of these concerns certainly, but I cannot say these concerns in

general. Because again, I am not sure which ones you are referring to

specifically.

MR. SMITH: During that period in time, were

there questions that were coming back from the Department of Health? Was the

Board being challenged on some of these things? Was it being asked? What are you

planning to do in this particular instance about some concerns here? Was there

any follow-up from the Department of Health?

MR. WATERMAN: Yes there was. The follow-up was

not necessarily of an official nature, but certainly, in discussions that we

had, and periodically we would meet with officials from the Department of

Health. We would talk obviously about budgets and various negotiations and so on

in terms of the funding levels that were provided. Certainly, the financial

situation of the Corporation was an issue which came up from time to time and we

recognized that that had to be dealt with.

I certainly don't want to speak on behalf of the

department, but I think it is fair to say the department recognized there were

financial difficulties in that area. We had some discussions with the Deputy

Minister on this, and I'm sure the correspondence indicates that there was some

concession made by the Deputy Minister as an attempt, at the end of two

particular years anyway, to help alleviate the situation.

CHAIR: Could I just ask a fairly quick

question? The Department of Health's involvement from the financial analysis

point of view: Is there a systematic or regular or consistent sort of

relationship between the financial administration of the Western Health Care

Board and the Department of Health's financial analysis division that would, I

guess, generally have an overview of what the financial situations of certainly

not only this Board but all hospitals in the Province would be? Do you meet

regularly? Do you get together with the Department of Health, say, every quarter

or every two months for a day or two days to go through the financial operations

of the Western Health Care Board? If you do not, why not?

MR. WATERMAN: There is certainly a relationship

between the Corporation and the Department of Health in that we certainly have

many discussions back and forth on a formal and informal basis. In terms of a

quarterly review as you suggested, where we sit down with the Department of

Health, no, that hasn't happened on a routine basis. It has happened on a

periodic basis from time to time -

CHAIR: Periodic. By periodic do you mean once a

year or once every three years?

MR. WATERMAN: Probably it would be about once a

year or so, and generally tied in with budget discussions.

CHAIR: It would be around your budget times in

terms of - yes, okay.

MR. WATERMAN: Yes, and many other times on an

ad hoc (inaudible) arrangement if issues came up. Certainly, the level of

co-operation offered by the Department of Health has been great. We have never

had any problems that way. We have often had problems in terms of determination

of the numbers, and discussion and arguments there, but in terms of meeting with

the department and the department being amenable to suggestions that we might

put forward, I think the level of co-operation has been quite good. We certainly

as a Board, and as, I guess, an administrative part of the Board, we have never

had any major concerns about our relationship with the department in that

respect.

CHAIR: Prior to the Auditor General's report,

then, would it be fair to say that the relationship between the Board and the

Department of Health would have been somewhat an arm's length relationship,

inasmuch as the Department of Health would not have routinely or occasionally

come in and looked at your financial situation and determined what had caused

certain financial (inaudible) and made their own determinations. They would not

have gotten that directly involved. Would that be a fair assumption?

MR. WATERMAN: That is a fair assumption - not

on a routine basis, but - and again, I do not want to speak for and criticize

the department, but there is an auditing program that the department undertakes.

I guess, like all agencies and so on, that was not done (inaudible).

CHAIR: I am not looking for anybody to

criticize the department. I am trying to determine for myself what was the

nature of the relationship.

MR. WATERMAN: the bottom line -

CHAIR: Could some of the practices that the

Auditor General had found in her report been picked up or uncovered or dealt

with at an earlier date that may have caused some of the concerns raised here,

and admittedly by the people before us called as witnesses, that may in fact not

happen. I'm trying to get some understanding of what the relationship between

the Department of Health and the Corporation was - that probably they would have

seen some of this and raised red flags with the executive and possibly with the

Board with a view of stopping it, you know?

MR. MULLINS: I would like to speak to that a

little bit. It depends on what you are talking about. This is essential to what

I said from the beginning here. If you are talking about the question of a

deficit or negotiating a new budget, yes, we were very close. I do not know if

`very close' are the right words for it. From a board's point of view, we would

not be in every month to see the Minister of Health. I went in to see the

Minister of Health on a number of occasions over the years when there was some

particular issue, or generally around budget times when there were cutbacks in

the air, and one went in and fought one's position, this sort of thing; or when

there was some other issue that it was felt necessary you had to go right to the

minister.

We did that many times over the years, but there

was no routine for it. I do not know how there could be. At one time there were

some fifty or sixty boards.

WITNESS: Thirty-seven. Whatever.

MR. MULLINS: The individual in that chair would

not see very much if he were going to see everybody on a monthly or even a

quarterly basis, you know, so there was no routine.

From the Board's perspective, obviously, I did not

personally have time to be in there, anyway. The executives went in - I mean,

there was hardly a day, I suppose, that there was not somebody from our senior

management in St. John's at the Department of Health doing something or other,

something related to health care. It hardly ever happened, I suppose, a day went

by, but that was not the case with the Board members. We just could not do it.

So there was no formal system in place of routine

regular checks. It was certainly my impression over the years, without a shadow

of a doubt, the Department of Health was aware of the major issues facing us.

They were not aware that an expense account was in arrears; that they were not

aware of, in fact, I was not aware of it until a certain point - but that type

of thing. The details of the loans, they would not have known.

CHAIR: That is more (inaudible) in terms of

(inaudible).

MR. MULLINS: There are two layers of things

here.

CHAIR: That is exactly right.

MR MULLINS: The second layer they would not

have known - some of it, perhaps. There was an ongoing discussion, as Dennis

outlined, some detail yesterday, on the question of salary augmentation, fringe

benefits, et cetera. That went on for quite a period of time. There were

exchanges of letters and discussions and so forth. I can remember meeting with a

minister on that subject at one time some years ago. There was quite a bit of

that sort of thing that would not have been routinely drawn to their attention,

I do not think. I think I would be right in saying that.

The major issue of deficits, potential changes to

the operation, bed closures and budget positions, I think we had a reasonable

rapport with them. I think we knew roughly where we stood and what the problems

were. I think, and that is fair, you know. At least it was from my point of

view. Maybe I was completely wrong.

CHAIR: Fair enough. The Auditor General?

MS MARSHALL: Yes, I would like to make a couple

of comments, both with regard to your questioning and Mr. Smith's questioning.

MR. SMITH: If I could, could I just ask you -

because I have a couple of other questions and I wanted you to respond. Mr.

Chairman, if I could, I would like to just complete my questioning. Because I

think there may be some other things you might want to include.

CHAIR: Fair enough. Go ahead.

MR. SMITH: If I could just go back to the line

of questioning that I was doing. You asked me to be specific, and I will be

specific in terms of the external audit. Did the external audits picked up on

the practice of salary advances and loans? Was that identified in any of the

external audit reports?

MR. WATERMAN: Yes it was.

MR. SMITH: Now, did the Department of Health

follow up with you at that point in time questioning these practices?

MR. WATERMAN: Not to my recollection. I don't

recall it having been a subject that we discussed with the Department of Health.

MR. SMITH: You do not ever recall the

Department of Health coming back and questioning that particular practice?

MR. WATERMAN: No, Sir, I do not, until such

time, obviously, as the Auditor General's report became an issue. Prior to that,

I do not recall it.

MR. SMITH: I would now defer to the Auditor

General. The only other thing I would ask the Auditor General as well in terms

of the review of the operation of this particular Board, that, you know, I guess

the concern I have in terms of being able to make recommendations - because it

appears to me that there is a concern here that there is a weakness inherent.

And if we do not have a mechanism in place whereby these things can be picked

up, and the only time is if your office comes in to do an audit, which is not

going to be on a regular basis, we need - and, of course, this case has clearly

demonstrated - that there is a need for an additional check and balance to try

to ensure that this sort of thing is not happening on a regular basis.

It has been identified here, but we don't know,

there may be indeed the other areas where this is happening. And if we are not

picking it up until five or six years down the road, we have debt accumulating

that ultimately the taxpayers of this Province are responsible for. I guess that

is what we are about and that is what we are trying to deal with here. In light

of that, I would ask the Auditor General if she could just speak to that issue

generally.

MS MARSHALL: Sure, I can make several comments.

First of all, we did not see any evidence that the issues that have been raised

in my report were also raised by the external auditors. I am not saying that

these (inaudible) -

MR. SMITH: They were not?

MS MARSHALL: We saw no evidence of that in our

review. In fact, the external auditors did some special work for the Corporation

back into the early 1990's. The date on the report is March 31, 1991 - it is a

supplementary report to the Board of Directors - and there is nothing in that

report which would indicate items similar to the items that I had disclosed in

my report.

Another issue I would like to mention is that of

the interface with the Department of Health. I have always been of the opinion

that the Department of Health does not do enough detailed work within the boards

of the various hospitals. While there may be interaction and discussion on

various issues, I have always felt that there should be representatives of the

Department of Health visiting the institutions and using detailed audit work.

I usually visit these organizations about once

every ten years, so if I am not going out and doing the work, and the external

auditors are not picking it up, then who is going out and reviewing the hospital

boards?

MR. SMITH: I have a question for you. Does it

surprise you that this was not picked up by the external audit?

MS MARSHALL: Yes, I was surprised. I was

surprised that the Department of Health never picked it up.

I would like to make one more comment that I think

is really relevant. The last set of audited financial statements that I have

seen from this health care board is 31 March 1995. I have not seen any audited

results on that corporation for the last two-and-a-half years, other than the

work which I have done. The testimony here at this meeting indicates that the

operating line of credit continues to increase, yet nobody has seen any audited

financial statements. I cannot believe that for two-and-a-half years, given the

contents of my report, and the financial position of the Corporation - even if

everything was operating perfectly within a corporation and they only had a

problem with their deficit and their operating line of credit, somebody should

be reviewing the financial results of that corporation.

I have not seen statements. The Department of

Health, I understand, has not seen statements. There is a special review being

carried out on the Western Memorial Hospital Board, and that is held up because

the audited statements are not available. I just find that is completely

unacceptable. I do not understand why that line of credit is going up so much. I

would really like to see a set of statements, and I cannot believe that nobody

is demanding them.

MR. MULLINS: Just one minor comment. I think

you have to recognize and keep in mind that there is a division here between the

old regime and the new, and that distinction is about March, 1995 roughly, the

end of 1995.

MR. WATERMAN: Can I make a comment on that?

CHAIR: Go ahead, Mr. Waterman.

MR. WATERMAN: I think we went through,

yesterday, the reasoning behind where we are and why we have delays in the

submission of financial statements. At this point, under the directive of the

new Corporation, we did an audit - had an audit done, I should say - as of

December 31, 1995, which was the termination audit of all the old boards prior

to the merger. That audit has been complete. March, 1996, that was a nine-month

audit, obviously.

In March, 1996, there was a consolidated audit done

on the Western Health Care Corporation. That audit is essentially complete, with

the exception of maybe one or two small issues which hopefully are out of the

way at this point. We have met with the auditors recently to just go through

those issues, so that audit essentially is complete.

The March, 1997 audit, which is basically the

current year, I suppose, in terms of reporting requirements, is well under way.

We set an objective that by the end of October we will have those finished and

available to the Board.

The plan at this point was to submit these

statements to t

the Board as an entity so that we can clear them

all at the one time and get back on a current basis, and by the end of October

or early November we should be in a position to do that.

There are a number of reasons why we are in delays

on audits. I will not go back through those again, but I think I did state

yesterday what they were, and it is a very unfortunate situation.

CHAIR: So you feel comfortable that the audited

statements for the past two years - because the Auditor General makes a very

valid point.

MR. WATERMAN: Absolutely.

CHAIR: And in terms of the concerns raised in

her report - and I understand the structure has changed and there are a number

of different institutions down there that are within the umbrella of the Western

Health Care Board - but in terms of the continuing growth of a line of credit,

in view of the fact and the circumstances surrounding the release of her report,

you are comfortable that the audited statements she has referred to that we have

not seen or nobody has seen will be ready by the end of October-November for the

Board? That is correct, is it?

MR. WATERMAN: Yes.

MS MARSHALL: Could I make one final comment?

CHAIR: Yes, and then Mr. Waterman.

MS MARSHALL: If this were a board of directors

of a private business, that board of directors would not be satisfied to wait a

year-and-a-half for a set of audited financial statements. It is just not

acceptable. I mean, this is public money. It is not acceptable.

WITNESS: (inaudible) an observation.

MR. WATERMAN: We have certainly talked to our

Board. The whole of the Board is well aware of what the situation is. they are

well aware of what the circumstances are. We have detailed our position with

respect to these audits with the Minister of Health. She currently is fully

aware of the position, at least in terms of correspondence having been filed

with the department. While nobody is saying that this is right or acceptable, it

is a situation that we have found ourselves in, and we have put a significant

number of resources into trying to get this finalized. As I said, we are pretty

well on track on it now, but it is unfortunate that it did happen this way.

We would certainly have loved to have been able to

meet the requirements, but again, talking from hearsay more than anything, I am

sure if you checked some of the other major corporations that have been

established in the last year, a lot of those are going through a lot of the same

issues. It is not a problem that is unique to this organization.

I would like to comment a little bit on a point

that the Auditor General made earlier with respect to the special work that was

done. That was done on a pilot project basis as commissioned by the Department

of Health at the time to establish some additional reporting which would have

been available to the Province, presumably, which would get beyond just the

issues of financial reporting, but would look more into the substantive issues

that are required to be available before settlements are done. The terms of

engagement for the auditors were defined by the Department of Health. That was

done on a supplementary basis, and the report for that was provided to the Board

and to the department.

That was to be used, essentially, as a pilot for

facilitating the settlement process between the corporations and the department.

We engaged in that on a two-year basis, for which we received additional funding

to pay the cost of it. At that point - again, I cannot speak for what happened

to it, but it was discontinued and we cut back to just doing the regular audits.

I believe that was the years that you referred to.

MS MARSHALL: But it did not achieve the results

that were intended.

MR. WATERMAN: Again, I cannot speak for that,

because, essentially, that was an issue which was decided upon in consultation

with ourselves and the Department of Health of the time.

CHAIR: Could you elaborate on that for me,

please?

MS MARSHALL: What they were looking for was

supplementary information along the lines of the type of information I would

gather doing my audit. Some of these loans actually existed back around that

period of time, but the review never picked up the fact that the loans were in

existence. So, effectively, the review did not achieve the objectives that were

intended.

MR. WATERMAN: With all due respect, the

objectives were established by the Department of Health at the time. The review,

as we saw it, and my conversations with the Department of Health at the time, is

that it did in fact meet their objectives. Whether they were in line with your

objectives, I cannot speak for.

MS MARSHALL: Yes.

MR. WATERMAN: Certainly, there was a level of

satisfaction at the point, at that time, that this supplementary audit did in

fact address many of the issues that would have been used for settlement

purposes. Whether they would have provided the kind of disclosure of information

that you would need in order to compile this type of report, again, I cannot

speak for that.

MS MARSHALL: The issue is, you know, when will

information be provided on the Health Care Corporation if I am not in doing my

work. I am only in doing it once every ten years. If the Department of Health is

not doing any audit work, and the external auditors are not picking up the

issues, then who is going to pick up the issues? Who is going to identify the

problems?

MR. WATERMAN: Again if I may, Mr. Chair, I

think we have complied with the reporting requirements in the past, certainly up

to the time this particular audit was done. We had complied with the reporting

requirements as set out by the Province.

CHAIR: Mr. Smith has one last question.

MR. SMITH: Yes, one more question for the

Auditor General, if I could. Just following in line with that. As I suggested,

Mr. Chair, I think we do have some officials here from the Department of Health,

and I think it would be of interest to hear from some of these people shortly.

Because I am really curious about this whole thing. I would ask the Auditor

General: In terms of what we are hearing here now, in trying to give a level of

comfort, I guess, to the citizens of the Province who have been watching this

event unfold over the last number of months, to give them a level of comfort

that this sort of thing is in hand, that we can control it, and from what I am

hearing right now, personally, I do not have a level of comfort that we have the

controls in place. I would ask the Auditor General if she has any thoughts as to

what needs to happen in terms of trying to ensure that the controls are in place

that would not allow or at least, would make it difficult for a repeat of this

sort of thing in the future.

MS MARSHALL: Well, I think the Department of

Health has a real role here to play. I think they should be visiting the

hospital boards more frequently, carrying out audit work and reporting back to

the minister. They are the agency that is providing the funding and they are the

agency to make sure the money is being expended for the purpose intended. So I

do not think they can just hand out the money and then, you know, not look for

some sort of accountability from the organization in terms of financial

statements and financial reviews.

MR. SMITH: On a regular, systematic basis?

MS MARSHALL: On a regular, systematic basis.

CHAIR: It is a good point. I would like to

(inaudible) before we take a break because, recently, in your reviews as well,

in the St. John's Health Care Corporation, it was discovered that the Department

of Health's financial analysis of that Corporation had been minimal, they are

non-existent over a three-year period.

Gerald, have you finished your questioning?

MR. SMITH: Yes, that is fine.

CHAIR: Okay. I do not know if you would like to

comment on it, because it is a valid question and -

MR. MULLINS: (Inaudible).

CHAIR: - public dollars, $50 million or $60

million are being handed out to various corporate entities that are funded by

public monies and there is no sort of framework in place for accountability or

routine sort of interaction between the funding agency, being the Department of

Health, and those people, in this case, yourselves, who are responsible for the

administration of the money in terms of providing health care services. Go

ahead.

MR. MULLINS: I make this comment.

If you wished the kind of detailed accountability

that this lady is asking for, you can have it, but it comes with a price. Now,

we at Western over the years - and I will address this at some point in this

gathering because I have things to say in this area - we cut back in staff and

amalgamated jobs and so forth and so on. I think the Department of Health has

been likewise decimated. Now, if you want this, you can have it. You can have

any detail of surveillance you wish, but you must be prepared to pay for it. It

is not going to come by driving somebody from the Department of Health out here

and expecting him to work around the clock. You have to put the staff there and

spend the money to do it. And one of my regrets when I see all this break upon

us now, one of my regrets in my term as Chairman, is that I went along with the

idea of amalgamating and trying to cut back, and we should have put plenty of

oversight and so forth in place and perhaps the Department of Health should do

the same thing.

CHAIR: Mr. Mullins, may I ask you a question:

What good are external auditors for if it is not to pick up those sorts of

things?

MR. MULLINS: External auditors are not going to

pick up, I do not think - look, I am not an accountant -

CHAIR: Well, what are we paying them for?

MR. MULLINS: I do not think they are going to

pick up the kind of detail that you talk about here.

CHAIR: As a Corporation, we are going to spend

x number of dollars of public funds to external auditors to come in to have a

look at how we financially operate and to make recommendations to us. If they

are not going to do that and provide that level of service, then what are we

paying them for in the first place?

MR. MULLINS: Well, you have to look at how much

you are paying external auditors. Maybe if you paid them a lot more you would

get a lot more, you know. I am just saying that it is one thing to sit here and

say the Department of Health should do this and do that but, that has to be paid

for, you know, it has to be paid for.

CHAIR: I understand.

MR. MULLINS: The lady spoke about private

industry; I have worked all my life in private industry and I know, I went

through changes of ownership, boards and so forth, and I know the kinds of

resources that went into doing some of these things. You know, they were fairly

sizeable, believe me, and if you want that kind of stuff and that kind of detail

and that kind of reporting, you have to put the systems in place to do it. Now,

that is it. You can talk until you are blue in the face.

MR. SMITH: I would just like to make another

comment on that.

All I would say to that, is that I guess what we

have to look at - I mean, it is always a matter of choice. In terms of the

Auditor General's report and where we are coming from today, it would appear to

me that there has been a significant amount of money that over the years has

been expended. There is debt that has accumulated, and if by paying this money

up front, it means that we run a tighter ship, that we can get a bigger bang for

the buck, then obviously, in the final analysis, to me, it is a good investment.

And it is a viewpoint - I guess we could debate it, but obviously, it appears to

me, as an outsider looking in on this, there are certainly concerns here.

I guess, the concerns we have, in this instance

they have been identified. We know the problem in this area, we are looking at

that and we are trying to redress that. The concern I have as a citizen of the

Province is that, you know, is this being replicated elsewhere in the Province?

Right now, the Auditor General cannot give me a level of comfort that we do not

have other corporations out there who are in a similar situation, and that

causes me concern. I think what we need to do, is to make sure that we have some

controls, some checks and balances in place. At least we know, and knowing about

it, maybe then we can do something about it.

MR. WATERMAN: Mr. Smith, I do not think anybody

is going to argue with what you are saying. I do not think anybody in our

organization has ever fought against the issue of controls, reporting, audits,

whatever the case might be. I would like to make one comment, perhaps in defence

of the external auditors. And this goes back to the question of legislation that

we talked about yesterday.

The auditors will basically complete their audit

based on the policies that are in effect and the legislation that is in effect

governing those policies. A lot of the issues that we are talking about here,

were issues that were approved by the Board under what it deemed to have

authority to make particular decisions under. The auditors would complete their

audit based on that and would report to the Board accordingly. The question now

is whether or not that legislation was relevant or not. So I think in defence of

the external auditors, they were perhaps caught in a bit of a mire on this,

unknown to themselves at the time, as to which particular piece of legislation

was relevant here.

MR. MULLINS: I think that is a valid point, but

I stick to what I said earlier.

CHAIR: I feel for board members in situations

as a - you know, throughout our process as a Committee, and in other sorts of

things that we have looked at. I mean, we run into volunteers who have given,

you know, umpteen hours of their time, energy and everything, back to the

community in some way, without any real direction being provided in terms of:

What is our job? What are we supposed to do? What is the nature of our doing?

And, you know, the notion of restructuring that we have undergone and are

continuing to undergo within the health care field, I mean, is massive, I

understand that. But the question still needs to be asked and I still think that

we have not come up with a sufficient answer in terms of, you know, what do we

learn from the report here? Where do we go from today, forward with that, based

on this hearing, if we are going to bring some sort of closure to the issue of

number one, and some sort of assurance to the public in this region who depend

on the service that, to the best of our ability, all of us, the service will be

provided?

Now, what sorts of accounting mechanisms or

accounting frameworks can we put in place and maybe, base - whatever comes out

of the operational view may be the answer in terms of what it recommends. Who

knows? We do not have that before us, unfortunately. But I am looking for a

comment generally and even specifically in terms of maybe recommendations from

yourself, Dennis, too, because you are the Financial Officer for the institution

now. Where do we go from here to ensure that audited statements are completed in

a timely manner and that the public has access to them, that management

practices are transparent to the extent that people have an assurance of the

service in health care that they expect, and are getting, and that we are

getting the best bang for our dollar? Where do we have to go from here to ensure

that happens, from your point of view?

MR. WATERMAN: I think what you have raised

certainly are valid concerns, Mr. Chair. Certainly, they are issues that we have

no argument against whatsoever and would support to the nth degree. There is no

question that we will provide whatever level of accountability is required by

whatever regulatory body demands it. We are a publicly-funded institution and we

have an accountability to the public and especially to our funding providers.

And if it is deemed that the level of reporting at this point, is not

acceptable, does not provide for enough disclosure, we are certainly prepared to

work with the Department of Health or any other agency that wants to -

CHAIR: It is not that it does not provide

enough disclosure. I do not think it provides anything. I do not think this is

unique to your board either, and do not take it as such, but I do not think that

we have developed a system or some sort of systematic way that would guarantee

that it would not take the Auditor General once every ten years - and the reason

why she has to come in once every ten years is because there are over 200

agencies at your disposal -I mean, that it would not take the Auditor General's

visit once every ten years to say: My God, we have problems here, and that

somehow, as my colleague, Mr. Smith has said, these issues could have been

identified earlier and as a result probably a better system of controls have

been put in place.

I am not suggesting anything other than the fact

that I do not know if we have anything in place yet. I have not heard that from

the process yet today, that would give me that assurance.

MR. WATERMAN: Mr. Chairman, I think you are

right in saying that the system has not changed in any dramatic way in the last

year or two in terms of the reporting requirements. Certainly, we were

co-operating with the Department of Health, and working with the Department of

Health, in many ways, in trying to expand the reporting so that the

accountability aspect is addressed more appropriately. We have introduced the

new national MIS standards for accounting throughout the region. Our people have

been working with the department people in establishing how that could best be

done, the level of reporting that is required, the types of issues that should

be disclosed with that, but I think that is only part of it. There are a lot of

issues, certainly, that we need to be looking at specifically. And I do not

think, speaking for the Western Health Care Corporation, that this Corporation

is going to have any problem in living with that. Whatever level of reporting is

required, in terms of full disclosure of any of these issues, I think we can

certainly comply with that, and not only comply; we would certainly be prepared

to work with the department in developing that kind of reporting.

In terms of the actions that are taken from that,

certainly if the information is provided to the department through this kind of

reporting mechanism, obviously, there needs to be some kind of a follow-up from

time to time to ensure that not only is the Corporation meeting its own

objectives, but those objectives are in line and interfaced with the

department's objectives. I think that has to be done, and that is a question

again, as Mr. Mullins referred to, of resources, not only necessarily on our

part as a Corporation, but certainly on the Department of Health.

I understand they have many issues to deal with as

well, and certainly, to add this to their level of issues would require, I would

think, some additional resources on their part. So there has to be some kind of

ongoing monitoring. Perhaps, as Mr. Smith has suggested, it might need to be

done on a quarterly basis so that we can do some kind of an interim quarterly

settlement type of process, not only settlement, but full disclosure of all of

the issues that are contained in the financial position at that point. I do not

think that would be a real problem.

Certainly, operating under the Hospitals Act, this

Corporation is aware now of what its responsibilities are in terms of how it

takes action and its accountabilities to the department and any other particular

body. So I do not think we will find any problem in trying to comply with that.

The question is how we develop that system so that it meets the requirements of

everyone; and I would not want to point out what I am going to do there.

CHAIR: I am not so sure it is ultimately your

responsibility. I think you are a stakeholder in developing that system, but I

am not so sure that ultimately you are 100 per cent responsible to this

corporation for doing it. I think you have a responsibility in terms of taking

the initiative to do it, but equally - at least equally - maybe more, the

Department of Health, in terms of all of the operations it finances, it is the

largest piece of the budgetary pie in health care in the Province that had a

larger role in developing this. So you are one institution of many in the

Province that may be going through the exact same sort of contortions that, when

an Auditor General visits: Well, what is all of this about and where do we go

from here?

I understand the feelings associated with that, but

I think you have a responsibility as a stakeholder in developing that system to

ensure accountability for what public monies are given, but I think the

Department of Health has to take a larger role and a leadership role in this

area again to ensure the public that public monies are being expended properly

and that health care, whatever we can purchase for those monies, that we are

getting the best we can from that.

MR. WATERMAN: I think that kind of a program

can be set up. How we go about doing it is something we need to sit down and

discuss with the Department of Health, but certainly I think that can be done.

It can be routinely reported. If we can pick what are deemed to be sensitive

areas and report on those on a routine basis, I do not see any particular

problem in doing that. It does call for an expansion in the level of reporting

that is currently in place.

CHAIR: We are going to take a break in a few

minutes because I know other committee members have a lot of questions, but Mr.

Lush, I understand you are going this afternoon, so you can have a couple of

quick questions and then we will take a break.

MR. LUSH: Thank you very much, Mr. Chair.

External audits and external checks aside, it seems

to me that the points identified, the major management inadequacies identified

by the Auditor General, fall under two main categories. They are these: One,

that decisions were made without the approval of the Board, or without

documentation that indicated the Board was involved in many decisions. Number

two, if it weren't that way, it was that decisions were made in contravention of

public policy, in contravention of government acts or the Hospital Act or

whatever, for example, the tendering act.

Keeping in mind these two main categories under

which the Auditor General identifies management inadequacies, based on that, I

ask this question - I think it has something to do with the point that the

Chairman was making: To what extent are Board members familiar with the act

under which they operate?

MR. MULLINS: The Board members are in an

awkward position. I cannot speak for all Board members. I was familiar with the

act, having been around for quite some time, but I am sure some of our other

Board members who are professional people who would - certainly, if someone were

a lawyer, he would not have much trouble interpreting the act. But, in the main,

I would say, yes, they are familiar with the act, but they do not eat and sleep

with it, live with it every day.

For many boards, for myself, as I said yesterday,

just repeating myself, as Chairman, I was consulted on a lot of things, I was on

many committees, even though I was very busy in my own life. But for many Board

members, this boils down to maybe a once or twice a month's operation. For them

to come in and interpret all this, it is extremely difficult. This is a problem

- and I said this yesterday, too - not only in public boards, but in industrial

and private boards, very much a problem, an issue.

MR. LUSH: (Inaudible).

MR MULLINS: But for them to come in and

interpret all this mass of stuff that is put before you and understand it, it is

very difficult. It is a very difficult chore. In health care it is particularly

difficult because, I mean, we are all experts in schooling, we all have somebody

going to school or something or other, but when you are dealing with health care

you are responsible for everything. We are here talking today about an

accounting situation or a monetary situation. We could well be here talking

about a major surgical or medical kerfuffle like, for example, they have in

Halifax at the moment. Board members are equally responsible, it is right there

in black and white, right up to their necks.

MR. LUSH: But in a very general -

MR MULLINS: How much do they know that?

MR. LUSH: In a very general sense, could you

say that Board members are generally familiar with the general direction in

which they -

MR MULLINS: Sure they are. They are

conscientious, dedicated, interested people who want to do their best. The

people we have had over the years, I have nothing but good things to say about

them.

MR. LUSH: They would quite obviously be aware

that there are certain requirements with respect to the Public Tender Act. Just

about every Newfoundlander recognizes that stuff. (Inaudible).

MR. MULLINS: If you brought a - I'm sorry, I

did not mean to interrupt.

MR. LUSH: That is okay. If there were a new

board appointed today, would there not be some orientation and telling Board

members: We are now operating this Board, we are operating under the rules of

the Department of Health? It seems to me that every member would be generally

informed.

MR MULLINS: That is correct. But, at the same

time, how much can you absorb, as I said, on a once-or-twice-a-month thing? And

that is the reality of it. You can say it is not, but it is the reality of it.

If you were a board member and you attend nine meetings a year, say you miss

two, which is quite reasonable, given your personal life and so forth, I mean,

it does not take much to get you - and if you asked me, in all the years I

served, to recite the Hospitals Act to you, I would have to run and get the

bloody thing. I know generally what is in it but I cannot recite it to you, and

I am sure there are many Board members who have seen it and that is all, you

know.

Generally the people I've dealt with are decent,

hard-working people who want to do a good job, who are keenly interested, but

there is a limit to what they can do.

MR. LUSH: Boards operate in different fashion I

am sure, in different regions, different places. How, would you say, Mr.

Mullins, your board operates from the point of view that, the Board is totally

in control, that it made the policies and that they were from the top down or,

would you suggest that management had a fair amount of authority?

MR. MULLINS: Management had a fair amount of

authority and it cannot be any other way. I mean, it is not any other way in

industry; you look in industry - do not tell me that boards run things in much

detail, I know differently, you know. Management runs the operation.

MR. LUSH: How would you account for the fact

that the Auditor General suggests that many decisions were made without the

approval of the Board and went on to say certainly without -

MR. MULLINS: The record may show that, but as I

said again yesterday in my

preamble, at no time did I feel, or did our board

feel any lack of confidence in our executives or that they were doing anything

they should not have done. I state that now, I stated it then, and I stand by

it. I want to make another point and go back to a theme I started yesterday,

then I will stop for a little while.

There are two things in that report, or one thing

in particular, that you keep coming back to; everybody here has had a kick at it

now - and that is the question of salary advances to a limited number of

management personnel. If that were not in that report and if the question of

Harry's expense account were not in there, it would be an entirely different

situation we would be talking about. Everybody comes back to that issue, that

one issue. You know, if you look at the things that have gotten a big play here,

the Public Tender Act - you know, I could make the statement that as far as I

can see, nobody is in compliance with the Public Tender Act if I can believe

what I see in the press, the government included.

Now, I think we were in compliance with the Public

Tender Act but we did not do a very good job of the paperwork. That, is my

feeling on that, and there are a number of things here like that. But if you

take out those two things, it changes the complexion of this report entirely.

The question of deficit and debt, I mean, that was known -

MR. LUSH: But it was in contravention of the

Act?

MR. MULLINS: Oh yes, but everybody who runs a

deficit is in contravention. I would say, at one time on another, every board in

the Province that ran a deficit was in contravention as I understand it; I think

that is right. As I said yesterday, I do not know how you stop that, what the

heck do you do? Shut the door, you know?

MR. LUSH: Well, I do not want to - that is -

MR. MULLINS: The Public Tender Act, too, I

would make a comment - I am not very familiar with that, we have no such

document in our private business, but to me, it looks like an excellent

instrument for buying potatoes but perhaps not the best device in the world for

buying, say, a CT scanner or something like that; but that is a personal

observation and has nothing to do with the Board. Carry on.

MR. LUSH: The Board rationalizes its position,

its stand for the actions it took, that is the right word. The government

rationalizes its actions on the fact that it was operating under its own Act.

Which Act takes primacy now?

MR. MULLINS: Well, the other one does not exist

anymore, so it is irrelevant now.

The old Western Act arose, as I said yesterday, out

of the drive to build a new hospital here in the 1940s, and a group of citizens

got together, formed a board, raised money, browbeat the government - they were

substantial citizens, had a lot of clout. Monty (inaudible) was the Chairman,

you know, a substantial name in the Corner Brook district. And that board was

unique in the Province. It had an unique make-up, it had one-third of its

members elected, for example, and I do not think there were many boards in the

Province that had elected members, but they did, and they had provision for

certain groups in the community to nominate members. The minister always

appointed. So it was unique in that respect and it was unique in its charter, as

well, and I know we operated over the years according to that, and I think that

grew out of the tradition that existed in the past. I was aware of the Hospitals

Act and aware of the restriction there; nevertheless, we operated according to

that Act in the substantial matters and particularly in the business of

borrowing and debt.

MR. LUSH: A final question. You raised the very

question that the Provincial Government and all governments have to deal with:

In terms of the expectations of people, particularly in health care, what do we

do? Do we throw our arms up in the air and say, we just have to let this debt

balloon and burgeon, or do we take action?

MR MULLINS: I speak now as a private citizen, I

am not involved anymore, but what I am saying again here - I do not want to get

talking about what the government policy is going to be because we made salary

advances to employees and to some senior management in Corner Brook. That is

irrelevant to the major problem that exists with relation to health care. The

standard answer which you would get from most people is you have to do things

differently, but that is a kind of a pat, textbook answer. I guess that is what

you are going to have to do. You are going to have to do things differently.

MR. LUSH: Well, we are certainly going to have

to do them within our means, aren't we?

MR MULLINS: Yes, Sir. Yes, I am a taxpayer,

(inaudible) -

MR. LUSH: We are going to have to do it within

the budget, as given.

MR MULLINS: I am a taxpayer, and the tax

situation in Canada, as everybody knows, is onerous, and in Newfoundland it is

even moreso. I agree, absolutely, but I think we will (inaudible) let's flog

everybody here about the expense account and beat the heck out of them, let's

beat the heck out of them about the salary advances. But that is not going to

solve your problem with delivering health care at a price you can afford. It is

a major problem that has to be addressed.

CHAIR: We are going to take a fifteen-minute

break for coffee, which is located just outside. We will reconvene at 11:15 a.m.

Recess

CHAIR (E. Byrne): Order, please!

We will now reconvene the meeting. It is a little bit

later than anticipated, but we would like to get on. I am going to ask the three

witnesses if they could just grab a set in the back of the room, because I have

spoken with officials from the Department of Health and they are going to take,

I guess, the witness stand there just for twenty minutes, or half-an-hour or so,

to get into some questions vis--vis the Department of Health's involvement and

ongoing involvement with the Health Care Corporation.

Before I ask our Clerk to swear you in, I just remind

you that when you are sworn in you are operating under oath. If you are

responding to any questions, or speaking, please state your name and position

for the record each time so that our audio person and the publications that come

out after will know exactly who is speaking.

Elizabeth, would you swear them in, please?

SWEARING OF WITNESSES

Mr. Kent Decker

Mr. Chris Hart

Ms Moira Hennessey

CHAIR: When we adjourned for coffee break, I spoke

to officials from the Department of Health and they wanted an opportunity to, I

guess, put a point of view across and address some of the concerns that had been

made, so what we can do is just open up the floor to yourselves first. Take

whatever time you feel necessary to address anything that you have heard in the

public hearing here this morning. Certainly, then, any questions that may come

your way will be entertained by members. The floor is yours.

MR. HART: Thank you very much, Mr. Byrne. My name

is Chris Hart. I am with the department in the role of Assistant Deputy Minister

of Finance, basically. With me, for anybody else who did not catch it earlier,

is Moira Hennessey. She is representing the operational side of the Department

of Health. She looks after issues such as staffing, nursing, and that sort of

thing. Kent Decker is the Director of Institutional Financial Services.

We have been in the back of the room for the last day

or so listening to the evidence, and I am glad to have the opportunity to put

forward to the Committee the departmental perspective relating to this hearing.

I was a little bit perturbed, I guess, in the sense that it was coming across as

if the department had a very distant interest and there was a lack of

involvement in terms of monitoring activities of boards, and that sort of thing.

I would like to say, just as a background, that I

worked, prior to moving out to the Department of Health, with the Auditor

General's office. I come from a strong accountability background and we are very

cognizant of the importance of accountability of our funding that goes out to

the boards. We do not believe that once the cheques are issued that is the end

of the accountability process. We believe very strongly that we have to monitor

within available resources and ensure that those funds are spent appropriately.

With that in mind, we have, over the last number of

years, developed - and it is an ongoing process, I should say. We learn from

instances like this and put in additional controls as we see appropriate. Some

of the processes that we have in place right now I would like to carry you

through.

One of the first things that we have done is develop a

formalized reporting process, and I don't think that came across very clearly,

but there is a special list of items that we require on an ongoing basis from

the boards.

For example, we ask for copies of their audited

financial statements and management letters, and management letters are probably

more critical, in a sense, than the financial statements. The financial

statements generally don't tell you the whole picture, but a management letter

which accompanies the financial statements generally would point out any

significant matters that were noted during the audit.

We would get those and we reviewed them, and if we see

anything there that raises any concerns, we immediately review those and get

back to the boards in question and ask. The other part of that, the Board itself

has to respond to this management letter. If they get a letter in from their

external auditors and there are any significant items raised there, the Board

itself has to respond to those concerns. We ask for a copy of those responses as

well. There is much other information that we ask for in the reporting

requirement, but that is the primary thing.

We do not have a specific internal audit division in

the department. Kent's area - as Director of Institutional Financial Services,

he is responsible for the monitoring of health care associations, health care

boards. As part of that responsibility, we do internal audits on an ability to

do so. Obviously, we would like to do more, but we do have a three-year audit

plan and we try to design that to make it as efficient as possible. We talk to

the Auditor General's office to find out which audits it is doing so that we do

not cross the same territory, so that we can get exposure to as many boards as

possible.

Obviously, if resources were unlimited, we would like

to be able to get out and do them every day. I think the Auditor General made a

comment that we should be doing more detailed work at board level. Again, we

have a staff, in Kent's area, of half a dozen people. I don't know what the

audit department's staff is now, but it is difficult for her to get around once

every ten years. You can imagine when you put in the audit duties in relation to

all the other activities going, that is a very small part of what the

Institutional Financial Division does.

We have a budget monitoring process where we get

monthly reporting from each of the boards, and we do projections of where they

are on an ongoing basis. We prepare for our executive - the minister, overviews

of where the department is financially, not only on board-operated facilities,

but all of our program areas, whatever they are.

I just wanted to make sure it is very clear that the

department does take very seriously the accountability of these board

expenditures. We had, as I said, been developing this and improving it since - I

have been with the department for the last five years, and I think we have made

some significant improvements in that whole monitoring process. Some of the new

things that we are now in the process of doing, and this rose primarily out of

this particular audit, one of the biggest concerns we had had here, I guess,

apart from - a lot of the issues are significant, but you see them happening in

most operations; public tender violations, which are generally lack of

documentation rather than intent to circumvent the Public Tender Act and that

sort of thing.

The ones that caused us the most concern were the use

of board funds for personal benefit and not in compliance with policies and

directives of the department. Those are the ones that really cause us concern.

As a result of that, we have initiated an extension of our current audit where

we will be doing a review of administrative areas within all boards within the

Province. That will be designed to look at areas where it would be most

susceptible to personal gain or personal benefit. We would look at areas of

travel expenditures, corporate credit card usage, salary issues, salary

supplements, that sort of thing.

I think that covers pretty well - just to give you an

impression as to how the department is going in terms of monitoring these health

care boards. One other major initiative, and I think I am going to let Kent

speak to that - he has been more directly involved in it -that is the

implementation of MIS guidelines, which essentially is a computerized system

that ensures consistent and comparative information coming from all boards in

all areas, not only consistent within the Province but consistent nationally, so

that we can see and analyze how we are doing in relationship to other

jurisdictions, and that sort of thing. Kent can probably add something to it in

closing.

MR. KENT DECKER: I will just expand a bit on the

MIS guideline system. It is a national system developed for health care that

involves the reporting of financial and statistical information on a regular

basis to the department. It compiles information on all the major cost area of

an organization. It would have all of your salaries, all of your expenditures in

different areas broken out. It is basically a cost-accounting system whereby we

collect information not only of a financial nature but also of a workload

nature, so it enables you to determine not only what you spent but what you got

for that. For example, in a lab you would look at the cost of the lab but it

would also provide you with the lab units produced. So it is a cost-accounting

system that is based on national standards.

The system is nearing the final stages of

implementation right now. It started about four or five years ago. All of the

boards have adopted it through the Hospital Association of the Province, and we

are at this point receiving electronic submissions from the boards on a

quarterly basis.

It has been a fairly large project for us to

implement. It has involved the complete writing of systems at our level to

accept the information, and it has also involved a fairly extensive amount of

work at the board level to determine how they are going to implement it to make

sure it is consistent across boards and across the national standards.

We view this system as one of the main areas that we

will be able to use to monitor the activities of boards, since it will be a

standardized system that you can use to compare one board to the next. For

example, if you are looking at the dietary area of a board you will be able to

compare things like meal days and the cost per meal days across the Province, so

you can get some idea of the efficiency of boards.

Again, that might not deal with issues such as

management bonuses or loans or whatever, but it is an area that we feel will

improve our monitoring of the boards through an evaluation of the efficiency of

what is being done at the board level.

As I said, the system is nearing the final stages of

implementation. Most boards are now at a stage where they are reporting to us

electronically on a quarterly basis. As you can appreciate, the amount of

information that comes over a system like that is extensive considering the

number of GL accounts and things that you would have at a board level.

We also have committees in place that are looking at

how we are going to use that information and what type of comparisons we want to

look at, and when we will actually use the information. There are discussions as

to whether or not this information should be available to all the boards in the

Province. For example, a board might want to do a comparison of its lab to other

labs in the Province. So we see it as a tool for boards, as well, to improve

their own efficiency evaluation.

CHAIR: Okay.

MR. KENT DECKER: There are a lot of issues, I

guess, I could get into covering the whole thing but I will probably now leave

it to your Committee members for any specific questions.

CHAIR: Before we start questioning, does the

Auditor General have any comments to make?

MS MARSHALL: Yes, just one.

Most of the things that Mr. Decker spoke about are

things in process. This does not reflect what has gone on in the past, does it?

Because we just finished an audit of the St. John's Health Care Corporation, and

as a result of that audit we did look at involvement by the Department of

Health, and we concluded that there has been very little presence with regard to

the Department of Health in the health care boards over the last three years.

Just to quote from that report, I have said: On-site financial reviews of health

care facilities have been minimal to non-existent over the last three years.

Audit coverage is not sufficient, and a multi-year plan has not been developed

based on risk.

Some of the issues that you are identifying there are

really things that you are taking action on now and which will apply in the

future, but it is not reflective of what has gone on in the past. I would not

want to leave that impression with the Committee, because I certainly have not

been convinced that the Department of Health involvement in the hospitals has

been sufficient in the past.

MR. HART: If I may respond to it.

CHAIR: Sure.

MR. HART: In terms of the Auditor General's

comments, I would say, as I mentioned earlier, that it is an ongoing process we

are continually trying to improve. For the most part, the elements of this

monitoring process have been in place and have been done over the years. Even

before I came to the department, the audits were going on. We prepared the

schedule which shows our audit activity, and which was forwarded to the office

of the Auditor General.

We did agree that over the last couple of years, our

audit activity has been to a lesser extent than in earlier years, and the reason

for that was largely because we were going through this major restructuring

process. We were bringing all of the health boards across the Province together

under eight new boards. We just felt from a management perspective it would be

much better to let these boards get up and running and be operational before you

get in and complicate their lives even more than they are already complicated.

That was a decision that was made internally, that the extent of our audit would

be better cut back there and our resources used in other directions to help

facilitate this consolidation process.

I guess the newest initiative that is just now getting

up and running is the MIS guidelines. These other issues such as reporting

requirements, providing management letters, audited financial statements -

actually all we are going out and doing now, that has been in place for a number

of years. So the system is essentially in place and has been for a number of

years.

CHAIR: Mr. Smith.

MR. SMITH: I do not want to be hogging the time

from my colleagues I only want to get into - but certainly this is relevant to

my line of questioning prior to our break. In terms of the concerns that were

identified in the Auditor General's report, which of these was the department

aware of? Which of these had the department picked up on prior to the Auditor

General's report?

MR. HART: The Auditor General, I am not sure

exactly when she started her audit, but it was sometime in the summer, I guess.

MS MARSHALL: Early in 1996.

MR. HART: Early in 1996.

MS MARSHALL: Yes.

MR. HART: Prior to that, if I can go through our

reporting requirements. We had asked for a supplementary audit, as was mentioned

earlier, from the external auditors. I think somebody referenced why we would

even bother engaging external auditors if we do not get any good information

from them. I think, in their defence, I would like to say that what you have to

keep in mind is that they are primarily doing a financial audit, and that

financial audit is designed to talk about financial controls in place and that

sort of thing. What the Auditor General's office gets involved in largely is

legislative compliance: compliance with policy and legislation and that sort of

thing.

You had the external auditors management letters,

which didn't really raise any concerns of the nature presented in the Auditor

General's report. The supplementary audit that we requested clearly indicated

that the Corporation was primarily in compliance with legislative, so we had no

reasons to think there were any problems there at all.

The issue that came up that was probably one of the

most serious findings in the report, the fact of these supplements, advance

executive wages being paid - the minister of the day had issued a directive, as

came up here earlier, back in 1991 or 1992. Basically, that directive said that

the boards could not use board funds to supplement salaries or benefits of

management staff, and as a follow-up to that, the department requested, on

several occasions, responses from each of the boards in the Province asking if,

in fact, there were any supplements at their boards and if so, to disclose them

to us and that process did not reveal that there was in fact any of these items

going on, so -

CHAIR: So, are you saying that you directly asked

the management to report that to you?

MR. HART: We asked our boards to -

CHAIR: In this particular sense of the Western

Health Care Board, were there any supplements and you did not receive any

response or that you did receive a response?

MR. HART: We received responses from the Board in

this particular instance, actually, I think, on three separate occasions - but I

have to go back and check my files - and I think, under three different

ministers, basically. I think the original one was Mr. Decker, I believe, and

then later, Mr. Matthews, and Dr. Kitchen, I believe, was the other one. But in

each case we pointed out clearly again, or the minister did, that the boards

were expected to comply with this directive, and then we asked them to disclose

any such arrangements that were in place, and there was never any indication of

any executive advances or anything of that nature.

Now, maybe the Board did not construe those as being

salary supplements, however, I have some problem with that

interpretation. I

mean, to me, that is a direct supplement.

CHAIR: I do not mean to be (inaudible) but it is

an important question.

MR. HART: Yes.

CHAIR: So on three separate occasions, management

and the Board itself were asked if there were any activity going on outside of

the directive of the minister in terms of supplements to physicians, in terms of

MR. HART: Not physicians, management staff.

CHAIR: To management - not physicians, just

management staff, and there was no answer forthcoming? Is that what you are

saying?

MR. HART: There was a response.

CHAIR: What was it?

MR. HART: I do not remember exactly, but

essentially it was minimal disclosure of any such arrangements, there was no

reference to advance salaries. There was no reference to personal use of credit

cards but I guess at that time the credit cards were used for business purposes

so there was no indication of any abuse of credit cards or anything like that.

But there was no reference - the one that I think, probably in retrospect,

should have been there was the issue of the program they had in place for

advancing executive salaries on a six-month basis.

CHAIR: Thank you.

Gerald.

MR. SMITH: So basically, the short answer to my

question is that the system that was in place prior to the Auditor General's

report did not pick up on any of the irregularities that are contained in the

report?

MR. HART: That is correct.

MR. SMITH: Okay. My other question is: You started

off in your statement outlining for us some of the initiatives that are ongoing

within the department. Can you give this Committee, and through this Committee,

the people of the Province, some assurances that the action being taken by the

Department of Health right now, will provide the necessary safeguards to ensure

that these sorts of things are picked up on and we do not have to wait ten years

before these things are picked up?

MR. HART: Thank you for the question.

We have a system in place that we feel is adequate to

pick up any major deficiencies that may be going on out in the system but, at

the same time, we are, as I said, continuously trying to improve those. The

system is, as it has to be, I guess, based on a level of trust. When you ask a

specific question or for a specific report, you anticipate that you will get the

information you are asking for, but now, that has to supplemented by actually

going out and auditing as well. So, to answer your question directly, I think

essentially the system is adequate to ensure that this would not go on without

some knowledge of the department.

MR. SMITH: One final question. In terms of the

external audits, I mean, the concern has been expressed here today that at least

with regard to this particular organization, the external audits were not

providing the kinds of information that would have enabled people like yourself

to pick up on this. Have steps been taken now to ensure that the audit

requirements now are more reflective of the kinds of concerns that are out

there, so that at least, in terms of your being able to do your work, that you

will be able to pick up on that sort of thing?

MR. HART: Well, I guess it goes back to the

external auditors reporting to the boards. They are independent auditors who

report independently. It is only as a result of requiring, as part of their

monitoring of the boards, that they provide us with copies of the audited

statements and the management letters, that we have access to those at all. I

think what really needs to happen there is that the boards should consider

expanding the mandate of external auditors.

I think, in fairness to the external auditors - I

mean, they are mandated to go in and do a review of the financial controls and a

review of - that they receive value for the money they are paying out, that sort

of thing. If they get a piece of equipment they look at the documentation and

make sure that they are paying based on invoice and that sort of thing. As a

normal course of action, they would not go in and look to see if there was a

compliant issue with the Hospitals Act or with the Public Tender Act and that

sort of thing. We can play a role in that, I guess, and we will in terms of our

discussions with the Board, that is, to look at the expansion of that

legislative side in the audit.

Now, another thing that we have talked about within

the department is having some form of report from the Board to the department,

confirming that they are in compliance with the appropriate legislation that

governs those boards. That is a process that we have talked about as an

enhancement to the current structure we have in place.

MS MARSHALL: Could I just clarify something for

the benefit of the Committee?

CHAIR: Sure, go ahead.

MS MARSHALL: I still maintain that the reviews

carried out by the Department of Health in the past (inaudible). I still

maintain that if the Department of Health were reviewing the audited financial

statements of the hospital as they came in, they would have seen that the

hospital had this huge bank loan so they could finance the activities of the

other funds, that they were, in fact, borrowing money to lend to the other

funds.

The other issue is that if you look at the notes of

the financial statements of the Board of Trustees Fund for the year ended 31

March, 1995, and it is on page 94 of the document, you will see that there is a

receivables disclosed there, from employees and associates, of over

half-a-million dollars. So it is there in the statements, and if somebody were

going through the statements and analyzing them, they would have picked it up.

It would have been picked up.

The other comment I have to make is, it did not come

out during the audit of this hospital, but with regard to the Health Care

Corporation, the information that is being retained or recorded at the

Department of Health, while they may be getting a lot of information and

recording it and using it and whatever, when we were looking at the St. John's

Health Care Corporation, I was looking for two basic figures. One was the salary

budget of the Health Care Corporation for 1995-1996 and also the budget for

salaries for 1996-1997. I mean, those are very basic numbers. The Health Care

Corporation could not give me those numbers and the Department of Health could

not give me those numbers. So, while they may be retaining and recording

information, adequate information is not being retained, and I still maintain

that the oversight provided by the Department of Health is not adequate. It is

not.

MR. HART: I understand the comments of the Auditor

General and I guess just to clarify it, as I said, we are in a continuous

process of upgrading our systems; I am not saying that it was perfect. One of

the other aspects that we have implemented is a mode - essentially the reviews

that we did, we have gotten more into the management letters which should

highlight any significant issues. In terms of looking at a financial statement,

we felt when we looked at it, that we could improve in that area and since then

we have developed a checklist where we have actually gone through the audited

financial statements and noted specific areas.

I am saying that the department has had in place a

monitoring system that has been evolving over the last number of years, and we

are trying to improve it continuously.

In terms of the receivables from employees mentioned

there, $500,000 from employees and associates, that would not necessarily raise

any concerns. There could be many valid reasons for it in terms of, as we talked

about earlier, the recruitment of doctors and the employee assistance loans, and

that sort of thing. So, by itself it would not necessarily cause one to be

concerned. But as a result of this particular instance, what we have done, as I

said, one of the other issues we have done, is we have developed this checklist

to review financial statements, noting specific areas and looking for those

specific areas.

CHAIR: Are you confident that, had the Auditor

General not gone in and done an audit on this agency of the people, of the

Crown, that you would have uncovered it yourselves as a department, uncovered

the concerns that are raised, that have been raised?

MR. HART: I guess, in answer to that, I should say

that the department undertook, itself, to do a financial review of the Western

Health Care Corporation, and our review was driven -

CHAIR: When was this?

MR. HART: This was completed in - 1996, was it?

WITNESS: Yes.

MR. HART: October or November of 1996.

CHAIR: Was it after the Auditor General's report

had been tabled, or previous to that?

MR. HART: It was prior to that.

CHAIR: Prior to that? Okay.

MR. HART: The reason we did it, that it came

about, was as a result of discussions during the budget process with the Board,

and they were identifying budgetary shortfalls and the fact that they could not

- the briefing we got from them showed that they were projecting a deficit for

1996-1997 of some $4.5 million, and similar amounts over the next couple of

years, and they had recommended a course of action that would be required to

deal with those numbers.

We were not comfortable with service reductions. We

felt that everything should be looked at before getting into direct patient care

issues, so we decided to carry out a financial review of the Western Health Care

Corporation. That was the main purpose for starting on the review. While

involved in the review, the Auditor General's draft report came available to us

again, so at the same time we were doing the financial review, we looked at some

of the significant issues in her report, as well, to confirm the issues as we

saw them, and some of the problems that were there. In terms of whether it would

have been picked up or not, I guess that is a difficult question to answer.

CHAIR: Okay.

Previous to having any knowledge, or any documentation

from the Auditor General's audited statements, did your own review pick up any

of the concerns that subsequently became available by the Auditor General's

Department?

MR. HART: Our review picked up most of the issues

of the Auditor General's report and, in addition, some other ones as well that

were not picked up.

CHAIR: So the department, then, had previous

knowledge of the concerns that were raised by the Auditor General even prior to

dealing with the Auditor General's report or speaking with the Auditor General,

because of your own review.

MR. HART: Well, when we went through that review,

and in conjunction with the Auditor General's report, the actions were taken

forward to our deputy minister and then onward to the minister of the day; and

at that time, as a result of that, there were actions taken by the department,

including suspension of the individuals involved in relation to that. So the two

reports were supplemental to each other basically. They were occurring almost

coincidentally at the same time.

MS MARSHALL: But, Mr. Hart, I have to clarify, the

Department of Health did not start that detailed review until we were in the

Corporation and had identified a lot of these issues. I do not recall, ever, the

Department of Health being in there and running a review parallel to our review.

MR. HART: No, I did not mean to say that we had.

What I said was that our review was started by the budgetary problems that came

forward to us. We wanted to go in and see for ourselves what was happening

there, whether there were any suggestions we could make to improve their

financial situation without impacting on patient care. At the same time, you

know, having - I can tell you that I personally was not aware of the findings in

your report. I made some efforts in terms of trying to monitor and see what is

happening. You like to keep on top of it. There was no information relayed to me

in terms of what the findings were.

CHAIR: Mr. Whelan.

MR. WHELAN: Yes, to the Auditor General. Over the

past day or so you have been mentioning yourself that there are a number of

records and quite a bit of information that was not readily available, or not

available at all, to you. I am wondering, in light of that fact, are you

completely satisfied with your own report?

MS MARSHALL: Oh yes. I stand by the report, and I

would like to make some further comments on it, especially when I reflect on the

testimony that has been heard here the last couple of days.

First of all, there is the impression that the loans

to the employees were employee assistance loans.

MR. WHELAN: You mean they were not?

MS MARSHALL: No, they were not. There was $36,000

of the $137,000 of the employee loans that were employee assistance loans. The

other $100,000 were loans. The $425,000 in loans to the doctors, regardless of

what was said here at the meetings, no, there is no policy. There was no policy

on loans to doctors, there was no policy on loans to employees.

CHAIR: No Board policy, you are saying? You did

not uncover any Board policy.

MS MARSHALL: There was no Board policy. I would go

further and say, even if there was a policy, the Board did not have the

authority to use public monies to lend out to employees or doctors or anybody

else.

With regard to the policy on salary advances, somebody

quoted a 1983 policy. Yes, we saw the Board Minutes from 1983. Those Minutes

reflect a one-time salary advance, in my opinion. In discussions that the Deputy

Auditor General had with Mr. Waterman, he himself agreed that that did not cover

employee advances over the long term. So there is a policy back in 1983 for a

one-time advance, for advances for that particular year, and for some reason,

that got stretched into being the authority to provide advances to executive

employees in 1996.

MR. WHELAN: Could you be a bit more explicit about

the types of loans that were given out, just to give us some idea as to what was

done there.

MS MARSHALL: I cannot tell you what the loans were

for, but some of the employee loans - you know, I can just give you dollar

amounts. For example, there is one here: At the time we did our review the

balance in the loan was - this for an employee - $22,948. There is another here

to an employee, the balance is $15,234. Now, those are the large ones. There is

one there -

MR. WHELAN: Would it be inappropriate to ask who

these loans were given to?

MS MARSHALL: I cannot provide you with names.

CHAIR: No, well, I guess from the witnesses from

the Health Care Corporation, Mr. Whelan. Those are questions you can put

directly to the people who made decisions at the time.

MS MARSHALL: With regard to the loans to the

doctors, there was mention of a policy saying you could lend the doctors

$20,000. There are balances here to doctors for - there is one there for

$50,000.

CHAIR: If I can cut in on the Auditor General just

for a second. I am not trying to limit your comments, but in terms of the

Department of Health's role, I just want to ask any Committee members do they

have any more questions for officials from the Department of Health? Because I

would like to continue, obviously, to give the Auditor General her time. But

with respect to the Department of Health's involvement.

Mr. Byrne.

MR. J. BYRNE: Mr. Decker mentioned MIS program and

efficiencies. Is that program strictly geared to financial reporting?

MR. DECKER: It is financial and statistical, so it

reports the workload side of it as well.

MR. J. BYRNE: I had another question with respect

to the efficiencies of the department. I know, in St. John's in the Health Care

Corporation, the Janeway in particular, and maybe the whole Corporation, it has

gone to a program-directed system as compared to a departmentally-directed

system. I am just wondering, is that Province-wide now or is it going to be

Province-wide? Because, I may be wrong in this, but I have some information that

says, I think, another province, possibly Alberta, went with that system some

years ago, and they are actually now trying to go back to departmental, is that

correct, according to you people in the know, in that situation?

MR. DECKER: In terms of going to a program and

going back, I am not familiar with what is going on in Alberta. I guess that is

a management decision at the Health Care Corporation that I am not really

familiar with.

MR. J. BYRNE: So it is not a fair question to ask

you people.

MS HENNESSEY: We are Health you see, the

Department of Health. I cannot comment with respect to what is happening in

Alberta. I do not know, with respect, what is happening in this Province. The

Health Care Corporation is the only corporation, the one in St. John's, which

has approached the department with respect to changing to a program management

approach.

CHAIR: Mr. French.

MR. FRENCH: Yes. If I follow this correctly, then

you did say, I think, that at no time were these advances or whatever reported

to you people. I have trouble with audit sometimes - this is in private industry

- and the reason is because I was in a position at one time where somebody came

in - a very reputable firm I might add - and, at the end of the day, said: What

do you want in the management letter? I said: Write the truth. I don't care what

you put in, don't tell me. Give me the letter when it is done - I don't want to

see it. But the question to me was: What do you want? And I guess, at no time

for advances were you people notified, and the external audit - I guess the

question I am trying to ask is: I have a great deal of concern that if the

Auditor General had not gone in, we would never have known what we know today.

Am I correct in assuming that?

MR. HART: It is a difficult question to answer,

Mr. French, but I think what happened here probably would have been picked up at

some point in time, but it is hard to say exactly when that might have been. The

Auditor General's audit obviously brought attention to it and whether it would

have been picked up separately in our financial review, is difficult to say.

MR. FRENCH: Because, we heard here once today - I

heard the statement today that, if it were not for these advances, nobody would

care, or words to that effect. Well, I care. I have a great deal of concern for

taxpayers' dollars, whether it is in Public Tender or loans to people or

whatever, of buying things and so on. And, you know, when somebody can flick

three or four figures here and say: Well, there is $10,000 or $15,000 - and you

know, a budget as large as yours, somebody might say, well, it is insignificant,

but it is not insignificant to me. I do not care if it is fifty cents, it is

fifty cents that we did not have for health care in this Province. And since

yesterday afternoon, I am going to say this, if it had not been -

WITNESS: (Inaudible).

MR. FRENCH: Yes, but had it not been for the

Auditor General - and again I ask Mr. Hart this, and maybe he cannot answer me.

Your department, the Department of Health request for information and so on - we

would never have found out any of these things that were going on if the Auditor

General had not gone in. Am I safe in assuming that?

MR. HART: No, I do not think so. I mean, you are

asking a theoretical question in a sense, but I think the system would have

picked it up at some point in time and I think it would have been picked up in

the course of the financial review that we were doing. It was picked up there

and I cannot even say now whether it was picked up - I would think it was as a

result of having a look at the Auditor General's draft report, and we checked

some of those areas as well.

One clarification I guess I would like to make here,

which I think it is important to realize - and it was mentioned earlier in the

testimony - is in relation to the board funds and the way that has been

interpreted. A lot of discussion has gone on about board funds over the last

number of years, long before I came to the Department of Health, and there are

two schools of thought on it. One is that board funds are within the ambit of

the Board and they can spend them in any manner they see reasonable. The other

approach is that board funds are public funds for the most part and therefore

should be subject to the same scrutiny. So I think a lot of the actions that the

Board took were in relation to how they spent those board funds. Having said

that, I think that even in this case there was no guideline that said they could

not spend board funds in any manner other than very specifically it said they

could not be used to supplement salaries.

CHAIR: Other than that there was no guidance

given.

MR. HART: There were general guidelines in the

Board of Trustees manual which indicated the types of amounts that went into

those board funds.

CHAIR: Okay.

MR. HART: For example, they consisted of interest

on advances, as came out yesterday. They included incentive amounts that - we

had a program in place whereby if a hospital board had a surplus in a specific

year, they would retain a portion of that surplus, and that surplus money would

go into this board fund and then it could be used at their discretion. Since

then it has come out in testimony, the department has issued guidelines on the

appropriate expenditure of board funds, and that would include, for example,

that board funds cannot be used for the personal benefit of the Board members or

management. As a principle, we did not get down to the specifics as to how they

should be done.

We also said that board funds have to be spent in

accordance with departmental policy and Treasury Board policy, and any

applicable legislation, and that sort of thing.

CHAIR: That was a directive to all health care

facilities and health care boards in the Province, was it?

MR. HART: Yes.

CHAIR: Okay.

MR. HART: They were issued - I cannot remember

exactly the date - some time ago, and a copy was provided to the Auditor

General's office.

While I do not agree that it was an appropriate way

that the funds were spent, I think this is the approach that the boards were

using, that these were their own funds and they could basically do with them as

they wished. My own feeling is that public money is public money and should have

the same scrutiny.

CHAIR: How do you feel about the testimony that

has been given that the Board felt, based upon years of practice and tradition,

that they were operating under a separate Act, not necessarily the Hospitals

Act, which probably gave them the authority - because this is what it seemed to

me; I could be wrong, but - in their minds gave them authority to the

discretionary use of board fun