Public Accounts Committee

1992-08-10

Newfoundland and Labrador — Committees

August 10, 1992

[The following meeting of the Public Accounts

Committee was not recorded by Hansard. Due to the poor quality of the recorded

tapes, transcribers and editors met with much difficulty in deciphering portions

of the meeting.]

The Committee met at 10:35 a.m.

MR. CHAIRMAN: Order, please!

If the press wants to take pictures, silent

pictures, that is fine. We follow basically the same rules here as in the House

of Assembly.

I want to welcome everybody here, as well the

members of the Committee and the newly appointed Vice-Chairman, Mr. Tom Murphy,

MHA for St. John's South; Mr. Garfield Warren, of course is no stranger, the MHA

for Torngat Mountains; Mr. Dumaresque, who is on the way from coastal Labrador

and will be here before lunch I understand. Other members of the committee for

various reasons, unfortunately, were not able to attend.

I would like to welcome the Auditor General,

Elizabeth Marshall and to make mention of the fact that this is her first time

appearing before the Public Accounts Committee in her new role as the newly

appointed Auditor General. On behalf of the Committee I would like to extend our

congratulations to you on your appointment, to welcome you to the Committee and

to say particularly for the benefit of the people who are here from outside,

that the Auditor General and the Public Accounts Committee work very closely

together. We have had tremendous support from the Auditor General's Department.

The department of course provides a lot of expertise and advice to us who are

generally laymen when it comes to heavy financial matters, particularly auditing

and accounting methods and so forth, so we rely quite heavily on the advice of

the Auditor General's Department as well as of course, the officials from

various government departments who come before us. So I would like to welcome

Ms. Marshall and Mr. Drover, who has been with this department for a long time

and is no stranger to Public Account Committee meetings.

For the benefit of the witnesses here, I would like

to say that this is not a trial; this is a hearing to gather information to hear

your opinions on issues that may be of concern to the Committee and to get your

suggestions as to how things could be improved, so we are here basically to

gather information. If there is information that you do not have in your head or

at your fingertips, you are certainly at liberty to say so and we will accept

written information for every documentation that may be required later on.

Perhaps I could ask Mr. Condon, who is the chief

financial director responsible for the Labrador Stores and whom I know well, to

introduce his staff, the people who are with him and to speak slowly so that we

get a complete record of this. May I also say, before I go any further that we

have a sound system here - the microphones are on at all times so be careful of

talking to one another or anything. Nearer the microphone; try to keep rattling

of papers and glass and things on your desks to a minimum because all the

microphones are on and everything is being recorded and will be transcribed by

the Hansard staff later on, and they do not have the advantage they have in the

House of Assembly where only the mike of the person who is speaking is live.

Also, for the benefit of the Hansard staff in St.

John's who will be transcribing, it is going to be important that we identify

the speakers, so, either you identify yourselves before you speak or I will try

to remember to identify you so that the people in St. John's know who is

speaking when you start to speak. With that Brian, perhaps you would like to

introduce your staff.

MR. CONDON: Okay, I will introduce them all

now; my people will stand as I introduce them. First we have Ben Ludlow, who is

our manager or supervisor of operations for the coast. Ben operates out of Goose

Bay and co-ordinates all operations in relation to our branches. Next to him is

Antone Nochasak, manager of our Nain store; Ray Darby, manager of our Hopedale

store; Guy Prichard, manager of the Postville store; Wally Anderson, who is one

of our buyers and operates out of Goose Bay. Wally does all the buying in the

local area and co-ordinates shipments. Victor Lyall, manages the Davis Inlet

store and Snowden Parsons is the manager of the Makkovik store.

MR. CHAIRMAN: We have to officially swear in

the witnesses, you are giving information under oath. Mr. Dick Porter, who is

acting clerk today will undertake that.

SWEARING OF WITNESSES

Elizabeth Marshall

Wally Anderson

Guy Prichard

Ray Darby

Antone Nockasak

Ben Ludlow

Brian Condon

MR. CHAIRMAN: Thank you very much.

Having dispensed with that, perhaps we can move on to

invite the Auditor General, if she would like, to make some opening remarks in

introducing the topic at hand.

MS. ELIZABETH MARSHALL: Thank you, Mr. Chairman.

We received the documents from the research staff of

our Public Accounts Committee; basically the internal audit report and

documentation (inaudible).

I would like to indicate though, for the benefit of

the Public Accounts Committee, that the last audit of the retail stores was

carried out by the office of the Auditor General in March of 1984, and I would

just like to summarize what the recommendations were in that review, because

basically the recommendations contained in that review are very similar to the

recommendations made by both internal audit and (inaudible), and I am just

summarizing now.

For the year ended the 31 of March 1984 there were

major weaknesses in the system of financial management and accounting control

within these stores, and basically the recommendations of the Auditor General at

that time were: The first one was that management reporting and financial

control systems should be implemented to provide management with essential

information necessary for decision making and financial control.

The second recommendation was that a senior financial

official should be appointed to implement the management reporting and financial

control system and other recommendations.

The third recommendation was that an operations manual

should be developed to help provide an adequate system of financial control.

The fourth recommendation was that the store managers

should be trained in the retail environment to provide them with the management

tools and techniques necessary to operate.

Number five was that retail merchandise should be

purchased on a timely and economic basis.

I think, Mr. Chairman, that many of those

recommendations still prevail (inaudible). I believe some of the recommendations

were implemented and we look forward to the discussion of how the stores

(inaudible).

MR. CHAIRMAN: Thank you very much.

I should say to the witnesses, our purpose in being

here is because of some of the items addressed by the Auditor General, and some

of the concerns about financial controls in stores, particularly from a

taxpayer's point of view and from the House of Assembly's point of view, the

cost to taxpayers of operating the stores. But the Committee and the House is

fully aware of the situations, and that they are very unique in coastal

Labrador. We are not talking downtown St. John's; we are talking coastal

Labrador. The conditions are very different.

Speaking for myself - and I know Mr. Warren of course

is very familiar with the stores - we had hoped, in fact, to get out and visit

some of the stores, but time and expense precluded that. So we are looking for

you to give us, in your words, the problems with which you are faced and how you

may see that some of the concerns and recommendations made in the various

reports could be implemented - how soon the controls can be improved and how we,

as a Committee perhaps, can move forward on that.

Mr. Condon, would you like to make any opening remarks

on behalf of the department?

MR. BRIAN CONDON: Yes, Mr. Chairman.

I guess last year we had the internal audit group go

in and look at the operations at Makkovik to give us some idea of where we could

improve the efficiency of the operation; and Makkovik's store being similar to

all the other stores, that we could use the results of that report to implement

suggested changes for the other operations.

While the Auditor General mentioned that some of the

recommendations in their 1984 report are similar to the recommendations in the

internal audit report - and I am sure they are, in a lot of cases - we did put

in an operations manual, and the internal audit people said: Look, the

operations manual is fine but there are a lot of sections which are not

appropriate for a retail operation. I think the operations manual in itself was

adopted from some manual used by the northern co-ops or the northern stores -

some of those groups. I guess if we went in again next year I'm sure there'd be

other improvements we could make to the system to operate the system more

efficiently.

Over the past two or three years we've taken a hard

look at our operating expenses, especially our controllable expenses. Expenses

that we can do something about - hydro charges and salaries, expenses. We've

looked in particular at our inventory levels. In past years we've been carrying

high inventories which resulted in write-offs of a substantial amount,

especially of frozen foods at year-end, because of freezer burn, everything

else. Over the past year or so we've reduced our inventory levels quite

substantially. That has been I guess assisted to a certain extent by a subsidy

that's been recently put in place through Canada Post and the Department of

Indian and Northern Affairs, which makes it more economical now in some cases to

fly goods in and out of Goose Bay as opposed to bringing it in during the summer

and stockpiling it until it's used during the year.

In tobacco products in particular, in previous years

we've built up inventories of half a million dollars starting in November. Now

we can send in tobacco products on an as needed basis, so we don't tie up that

much in tobacco products any more. The same way with meat products, even though

we have them in heavy vacuum-sealed packs, if these are in the freezer for five

or six months, they will deteriorate. So now hopefully this year we're going to

look at flying more and more of our meat products in on a regular basis and just

try to cut down our inventory levels where we can.

Also, with respect to the inventory and certainly

controls, it's common knowledge that all retail operations have a problem with

shrinkage or pilferage or whatever you want to call it. We approached Treasury

Board recently to implement a point of sale computerized system, which will

certainly help us pinpoint where our losses will be. That was one of the

recommendations that came out in the internal audit report also. We're hoping

that this year we'll put in a pilot project in one of these stores to see how it

works in getting the bugs out of the system. Those systems now are quite cheap.

We could pay for this system in all the stores in a couple of years by reducing

spoilage and reducing losses in our inventories and keeping them at minimum

levels.

MR. CHAIRMAN: Excuse me, can you speak up a little

louder? The acoustics in this room are not great.

MR. CONDON: Maybe I'm not close enough.

MR. CHAIRMAN: I was just going to say the same

thing. My ears are not as keen as they used to be.

MR. CONDON: I was talking about the inventory

control system and the point of sale system. This is computerized and you will

see a similar system in department stores where they have scanners, and in that

system itself you can put in a minimum reorder plan. If you want your inventory

system to be twigged when you get down to twenty-five sacks of flour, or

something like that, that system will tell you: look, you've got to order now. I

think if we can get that on stream, get the bugs out of it and get that pilot

project under way, it should certainly reduce our inventory levels and provide

for a better and more efficient operation.

These are just some of the measures. Also, along those

lines, it costs us now - each store - around $2,000 a month in hydro charges. We

can take a couple of freezers out of use, lock them, and that'll reduce our

operating costs also. On the other levels, in the salaries area, in some cases

we may be overstaffed. We're looking at where people retire or leave, we're

seriously looking at whether we need to replace people in those cases. We're

looking at some of our temporary staff, because most conventional retail stores

have a lot of temporary people. With our operation they're all permanent. That's

one of the things with government.

With the ordering system over the past number of

years, I guess the government purchasing agency has been more flexible than

usual. If we have an opportunity to buy items at a discount price they'll say:

you let us know and go ahead and buy it. That's not a problem. The ordering

system takes a fair bit of time.

In

summary, we're working at it and we've shown some

results over the past year or so, and we've been able to reduce our expenditures

by $300,000 or $400,000 by cutting down on the inventory levels and having a

closer look at our controllable costs. We're proceeding in that direction.

Hopefully over the next year or two we can demonstrate that the stores at least

can break even, and that's about all we want, just to ensure that the prices are

comparable with the Goose Bay operations and that the taxpayers do not have to

subsidize the operations. I think the stores, in most cases, can operate as

viable entities.

MR. CHAIRMAN: Thank you, Mr. Condon, perhaps now

we will move on to the Committee members to direct questions at the witnesses.

Mr. Murphy would you like to begin?

MR. MURPHY: Yes thank you, Mr. Chairman.

Some of the remarks that Mr. Condon made about some of

the old systems associated with reordering and control are very interesting, I

had a chance to peruse the internal audit document and I would imagine, from

talking to the store managers, that you must find yourselves in the winter

months with inventories down on some necessary goods and services that you would

provide to a community. Of course, the buyers in St. John's would have the

ability to know and understand what the coast needs. I would have thought there

would be a better liaison to ensure that non-perishable items would be able to

get to the coast of Labrador in the fall of the year or at this time of the

year, would be in inventory and you would not have to fly them in.

I see all kinds of little things but I would suggest

that, picking up on what Mr. Condon had to say, there is obviously a necessity

for these stores to be alive and well if they are going to supply the people.

The other question of course, comes to mind in reading the Touche Report as to

how to do it and how to do it more effectively and efficiently so the costs are

reduced to protect the taxpayers. I noticed a statement from Newfoundland and

Labrador Hydro showing an outstanding balance of $18,636.97 which is over 365

days overdue. If you look at those figures, you might ask the question: why

should we pay this bill if they have not paid theirs? We are going to get into

that later I am sure in more detail.

The only thing I would like to do is to ask one of the

store managers, perhaps Mr. Lyall from Davis Inlet, just for my sake and I am

sure the Committee's sake and everybody present, to talk from your perspective

as to what the difficulties are, the day to day difficulties in operating the

store, and where problems come to light with you. We would get better knowledge

from you because you are living and working there. Perhaps in a short statement

you could tell us what the difficulties are and what your thoughts are on

solving them.

MR. LYALL: I do not know what to say.

MR. CHAIRMAN: Perhaps there are more specific

questions you could ask him.

MR. MURPHY: I noticed that the internal audit

brings out security problems and different situations with cash flow which need

to be addressed, monies going through the mails et cetera. Do you have any

suggestions as to how you would improve the security in your store? Do you have

much pilferage, do you know?

MR. LYALL: (Inaudible).

MR. MURPHY: Are you satisfied yourself that the

locking procedure of the store and the system within the store is adequate?

MR. LYALL: (Inaudible).

MR. MURPHY: Yes, so at any given time you would

have sometimes I suppose twenty-five to thirty people in the store?

MR. LYALL: Oh yes.

MR. MURPHY: That could happen and you would have a

staff on the floor of probably two or three?

MR. LYALL: Yes, sometimes one.

MR. MURPHY: Sometime one, so it would be almost

impossible to watch people if they were inclined to take something and it would

be very difficult for you to secure your goods.

MR. LYALL: (Inaudible).

MR. CHAIRMAN: Mr. Lyall would you come a little

closer to your microphone, your voice is not being picked up?

MR. MURPHY: I notice in the internal audit the

system that was put in place is down. I think it is down in most of the stores

but they suggested that this operation be put back in. Do you think you could

tighten it up, that you could tighten up the security and tighten up what goes

on in the store without a great deal of expense?

MR. LYALL: I think so. (Inaudible).

MR. MURPHY: That would make your task obviously

more difficult if you have people off sick and so on. So you do not have any

part-time capability under the structure that is there now? Perhaps one of the

other store managers might like to comment from the standpoint of security or

some other area? It seems to be highlighted that the security situation is not

what it should be. At the end of the year when you do inventory control and you

look at the amount of goods that have been paid for and the amount of goods that

have actually been sold I guess it gives you some idea as to what kind of loss

you have due to people removing products without paying for them. Mr. Condon

overall is that a large amount?

MR. CONDON: I am just trying to recall the way the

stores are set up. I think there is a turnstile at the entrance to most of the

stores. Is that correct?

AN HON. MEMBER: There was one.

MR. CONDON: There was one. I do not see any large

amount of goods going out because there is only probably the manager and the

assistant manager who may have a key to the store. There is only one entrance

used and people go through the turnstile, if they are in operation. I do not see

a lot of pilferage going on but certainly as Vic indicated if you have people

off and there is only one person on the floor you could have a problem. On

Friday afternoon you have a concentration of people and I guess there is

certainly an opportunity for people to pilfer. It is probably not a major

problem but I am sure as with most retail operations it is done and there is

obviously things that we can do to correct it. If we can pinpoint what is being

done then we can implement some measures to control that.

For example if you have cigarettes out in the open

where people can gain access to them it is quite easy to put a package in your

pocket. Cigarettes are very expensive so in most cases we try to keep the

cigarettes inside the counter where the clerk is.

When they mentioned security in the report they talked

about putting chain locks on the doors. Now all these heavy aluminium doors have

keys fitted into them but in most cases they never worked very well so in a lot

of cases we had to change them around anyway. For example in the Nain store I

think you could put the bolt across but you could shake it and the bolt would

fall open. In a lot of cases we had to revert to putting chains on the doors for

additional security. There has been a kind of security system in the stores that

monitors any movement and is supposed to set off an alarm, but in some of the

stores those are not operating efficiently so we have some of the technical

people from Goose Bay looking into that now. A gentleman by the name of Sheppard

is going up to the area to have a look at the stores' security systems. There

are safes in all stores and no cash or anything is left around in the tills or

anything like that but we do carry a substantial amount of cash in the safe.

This is certainly a major concern, because people could get in and get those

things open and take $50,000 or $100,000.

MR. MURPHY: Have you ever had an instance of that

happening?

MR. CONDON: No, other than cases where people have

gotten into a store and beat up on a safe for an hour or so and then tried to

break into the cash registers but there was no cash in them anyway so they

didn't get anything. But there have been cases where they got in and just stole

some cigarettes. In the case of cash I don't think you can ever have enough

control over it. People can get in and access that money but I guess the

remoteness of the location may be to our benefit, because in most cases you

can't just jump a car or plane and get away.

MR. CHAIRMAN: Perhaps, Mr. Murphy, I could just

ask a question on this. Mr. Condon, can you give us an idea of what percentage

you might be losing each year? Does your inventory control give you any idea

what percentage of loss there may be through various causes?

MR. CONDON: Well you talk about pilferage and

shrinkage and deterioration, each year we have to probably write off maybe, I

don't know, a couple of per cent, for example in meats that get freezer burn or

some of the old stock that's -

MR. CHAIRMAN: I'm talking more about loss through

theft or weak controls. Can you give us a handle on that?

MR. CONDON: I would have no idea, to be honest

with you. I could say less than 1 per cent -

MR. MURPHY: It's difficult -

MR. CONDON: It's difficult to know. I'm sure

there's no wholesale theft going on. There's nothing going out the back doors

because the back doors are not open. So if there are people pilfering anything,

it's going to obviously have to go out through the front door and they have to

pass by the cashiers.

MR. CHAIRMAN: Mr. Murphy.

MR. MURPHY: Yes, thank you, Mr. Chairman. Let me

move from something negative to something more positive. I noticed in the

internal audit that a lot of the safes that are in the stores now, the

combinations have been the same for six or seven years and you've turned over a

fair number of staff who would know that combination. Perhaps it might be just

worthy of note that if you have somebody down there who knows what they're doing

they could change them and update them, and what have you. It might avoid

trouble.

Leaving that alone, I noticed the Cardex system. I

just envisage in my own mind the problems that must cause the store managers.

Because if it's not constantly looked after and updated then obviously your

inventory is going to suffer and you're going to find yourself in trouble. What

kind of a move have you made in that regard?

You made mention, Mr. Condon, of some kind of an

updating system, some kind of a computerized system where at the end of the day

the cash register would record a coded name or whatever the case may be which

would give all the store managers and the buyers a clearer indication as to what

has left your warehouse and what you might be getting short on. I think that in

1992 we need to move away from Cardex and get into some kind of a more

sophisticated method to ensure that folks have a better opportunity to pick up

what they need. Perhaps you might want to address that.

MR. CONDON: This is probably going back a couple

of years but we went to Treasury Board at the time with a fairly elaborate plan

where we were going to spend $250,000 - that was a lot of money at the time - to

put this point of sales systems in all the stores. I guess Treasury Board said:

look, maybe that's a bit too rich at this point in time. So it's been deferred.

Right now those type of systems are fairly cheap. We could install a system in,

say, Hopedale, for example, for $15,000, and that includes all the software, the

scanner, and the guy coming up and installing the system and training our people

for a couple of weeks.

This is the way we would like to go. You may not be

able to determine how much pilferage or anything is going on, but at least with

this system you'll determine that if there was supposed to be ten cartons of

cigarettes left and you go to your inventory and you count and there's only

nine, then you know that there's a problem in that particular area, otherwise

you don't. Like I mentioned before, it's hard to gauge how much is going out the

back door and how much you're losing in other ways.

It takes a full time employee almost all day to

maintain the Cardex system. That's all they do. They take this report and they

write down the amount received and the amount going out to the stores from the

warehouse. There's supposed to be a balance there. On a monthly basis, the

manager would take a number of those cards and go back into the stockroom and

say: okay, we're showing 500 bags of sugar on the Cardex system, where are they?

Now that's supposed to be spot-checked on a monthly basis. But if the person

who's doing the recording misses a few entries here and there, the whole system

is thrown out of whack. I think that is probably one of the problems, the system

probably could be maintained a little bit better, or maybe monitored a bit

better than in the past.

MR. MURPHY: So what I hear you say is, not only

would an updated system do well for inventory control and would put a better

handle on shortages, but it would also be very beneficial in security.

MR. CONDON: Yes.

MR. MURPHY: Okay. Mr. Chairman, I will have a few

more specific questions later on.

MR. CHAIRMAN: Thank you, Mr. Murphy. Mr. Warren,

if you would like to ask some questions.

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

guess almost everybody knows me since I spent some time working with the stores

during the past years.

I would like to ask the managers a couple of questions

- probably beginning about April and up to now. Perhaps I will start with Mr.

Parsons. I would like to ask each manager a simple question: How often has your

cash been checked by somebody outside the depot, before April of this year? And,

how many times since you have been a manager has your cash been checked by head

office staff or Goose Bay staff?

MR. SNOWDEN PARSONS: In the two-year period that I

was manager in Davis Inlet, I would say, Mr. Glen Ludlow, my supervisor,

performed a cash check at least six times. However, when I was transferred to

Makkovik from March 1991 up until the period in question, as you say, in April,

I did not have any cash checks at all - no cash count performed. But in Davis

Inlet I had quite a few.

MR. WARREN: Victor?

MR. LYALL: Up 'til when - April?

MR. WARREN: Before April, going back the last

three years.

MR. LYALL: In the seventeen months I was there we

had it done twice.

MR. WARREN: Twice in seventeen months. Guy?

MR. GUY PRICHARD: I think about twice, yes.

MR. WARREN: Ray?

MR. RAY DARBY: Same.

MR. WARREN: Antone?

AN HON. MEMBER: (Inaudible).

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

notice in the internal report that was done here, it shows that there is some

lack of control from either head office or from the Goose Bay office. I would

ask, probably, Mr. Condon, financial adviser: each store probably has $100,000

cash floating around. Why aren't there more periodic checks done with the cash?

I am noticing, too, that the safes are open during most of the day in most of

the stores, because if you have to use the combination every five minutes for

changing cheques, it is going to be difficult - especially for the manager to be

there all the time. So is there some reason why there are not more checks being

carried out?

MR. CONDON: Well, I guess, the physical counter:

there are cash counts, I guess, whatever you want to call them - that is just

one measure of internal control we use over the cash. We have a number of

systems in place through which, I guess, we are reasonably sure that there are

no problems with our cash. It is counted on a daily basis with the manager and

assistant manager, I think, probably signing forms. Am I correct in that, Guy? -

on a daily basis. There are weekly reports submitted to our financial officer in

St. John's which reconciles the cash to what is supposed to be on hand.

The surprise cash counts - and I guess Mr, Warren is

quite aware of it - there are not too many times you can get into any of the

communities on a surprise basis. It is very rarely that Ben can go up and nobody

knows he is coming. From time to time when he does go up he will do a cash

count. I guess, in other cases, if we suspected there may be some problems or we

had a request from one of the managers to do a cash count, then we would do them

more often. I guess that is essentially what it comes down to.

MR. WARREN: Earlier, in your answer to Mr.

Murphy's question, in talking about security at the stores, you indicated that

the doors are not that secure. Is this the blame of the managers, or is it the

blame of the Goose Bay office, or the blame of the St. John's office?

I understand that one particular store has been

waiting for some repairs for seven or eight months. If this is the case, how far

can the manager go when making requests for something to be done to improve

security? What is there to say this security is being carried out? I guess

dollars is probably one of the factors, but when we are talking about a

$3,000,000.00 business, $10,000 or $12,000 should be more important to look

after than that $3,000,000.00 in seven or eight months. I noticed it has taken

that long to get some things done.

MR. CHAIRMAN: Mr. Condon.

MR. CONDON: I can honestly say I am not aware of

particular cases. For example, in the Hopedale store, which is a new store that

was built only a couple of years ago, we had glass doors put in and I guess it

was in the contract to put them in. A few days later the glass was broken out,

and I don't know if the door locked properly at that time. We had to end up

welding a piece of metal over that particular door and secure it by some other

means.

I don't know if Ben has anything else to add to that.

I know most of the doors are fancy doors, but they don't function that well.

Maybe it is the climate or something. I am not sure. They are all sealed doors

or aluminium type doors with bolt locks. In most cases the key doesn't work or

the bolt doesn't hold and we end up putting big chains and big padlocks on it.

There are outside doors and there are inside doors. I mean most stores do have

that. The outside door is probably the one we have the chain on, and the inside

door may have a lock.

MR. CHAIRMAN: Mr. Ludlow, do you want to add

something to this?

MR. LUDLOW: Yes. We had a security check done,

which we do fairly often by the RCMP. The locks that were on the doors, the

original locks, were not in their term 'secure locks'. So as we replaced them we

replaced them with chains and padlocks which in their opinion were a more secure

lock for these doors. They could open these other doors with a knife or credit

card, I suppose, or whatever.

MR. CHAIRMAN: These locks and these doors were

designed by a consultant?

MR. LUDLOW: Yes.

MR. CHAIRMAN: Were they approved by the Department

of Public Works?

MR. LUDLOW: Yes, we obtained whatever approval

needed.

MR. CHAIRMAN: Who supervised the construction?

Were they a qualified construction company?

MR. LUDLOW: Yes, an engineering firm.

MR. CHAIRMAN: Some of the doors installed -

MR. LUDLOW: Were not supervised. We had to change

over the system in the Nain store. We had a problem with that store shortly

after it was built.

MR. CHAIRMAN: Did they not meet the specifications

with respect to this issue?

MR. LUDLOW: We couldn't go back to the contractor

and say you have to upgrade this.

MR. CHAIRMAN: You could have done that with the

consultant. I realize this is natural role which (inaudible).

MR. LUDLOW: I did. I contacted the consultant, and

we ended up doing the job ourselves.

MR. CHAIRMAN: Mr. Murphy.

MR. MURPHY: Mr. Ludlow, it would seem to me we put

a great deal of emphasis on doors. When we are talking about security, are the

windows just standard windows? If you throw a rock through the window can you

enter the store?

MR. LUDLOW: Most of the windows have been

eliminated. We have very few glass windows left in any of the stores now.

MR. MURPHY: Okay, so rather than the glass windows

you put in place some other more secure material because of the problems you

were having. But originally, as the Chair said, everything was up to a standard,

and what is obviously taking place is that you had to change a lot of it.

MR. LUDLOW: I had to replace -

MR. MURPHY: And the RCMP tell you that this is as

secure as anything else that they know of.

MR. LUDLOW: Well, yes.

MR. MURPHY: So where there was glass what have you

put there now? If a window was this type of window originally when the store was

built and the glass was broken, would you nail up plywood?

MR. LUDLOW: No, it is being replaced by metal -

MR. MURPHY: So it would be very hard to access the

building through old windows and what have you?

MR. LUDLOW: Somebody can usually find a way in.

MR. MURPHY: Yes.

MR. LUDLOW: In Nain just recently there was a

cooling system that had a small outlet for the air in the basement, cut through

the concrete basement. A couple of days ago we had to take the unit out and put

cement in the hole. You would never dream that anyone could get in through it.

These are the things that happen from time to time. We

correct them as they are found.

MR. MURPHY: Sure.

MR. CHAIRMAN: Perhaps before we get back to Mr.

Warren, because we interrupted his line of questioning, we will just ask maybe

any and all of the managers: Do we have any problems now with stores being

broken into? Are these measures that you have taken now working? Have you

resolved the problem?

MR. LUDLOW: Yes, somewhat. There have been quite a

few years when we did not have any break-ins at all, or very seldom - attempts

probably, but people not getting in; but this last few months there has been a

rash of attempts and actual break-ins - mostly in the Nain facility.

MR. CHAIRMAN: Thank you, Mr. Warren.

I am sorry to have interrupted you.

MR. WARREN: No problem, Mr. Chairman.

I was just wondering if the managers have a copy of

this report. There are several questions I would like to ask the various

managers, but if they do not have the report it is very difficult for them to

respond.

Mr. Condon, maybe after lunch if you could get a copy

of this report for the managers, there are several questions that I wish to ask

them. It is very difficult for them to respond if they do not have a copy of

this.

MR. CHAIRMAN: If I could just interrupt for a

second. I should have mentioned earlier, we have a list of outstanding accounts,

and I know the members of the committee have some questions. In asking those

questions can we omit the names, in order to protect the individuals? Some of

these may be in dispute, so we just will not have individuals names used

publicly. Refer to the list and ask the question hopefully without using the

names.

Mr. Warren.

MR. WARREN: Last year, the end of 1991, all the

stores combined lost $553,000. That was the combined loss among all the stores.

In Makkovik, the lost was $131,000.

Snowden, can you see any reason why we lost $131,000

in Makkovik? Can you see some ways of reducing that deficit in the coming year?

What is going wrong where we have a store in Makkovik that is serving 350 people

and we are losing $130,000?

What recommendations can you give to the Public

Accounts Committee and the Legislature to see this deficit being reduced?

MR. CHAIRMAN: Mr. Parsons.

MR. PARSONS: There are several reasons for the

loss showing on the books for Makkovik last year. Number one was the economic

downturn there. We had from March, up until some time in November, people with

very little income in the village of Makkovik. That fall the government

introduced, as you know, the works program for Makkovik, and people made a few

dollars on that then had to wait until sometime in January or February before

they even saw UIC. They had no money to spend. We still had our operating costs.

Mr. Condon just alluded to the fact that we have six employees in Makkovik, and

sales dropped down as low as $40,000 a month, everybody should understand we do

not need six employees but with the system the way it is, we had to keep six

employees; so that was one reason why we showed a loss there of such magnitude -

the operating costs were severe in comparison to the income.

Another reason for the loss in Makkovik was that, when

I went to Makkovik, my supervisor, Ben Ludlow, asked me if I could clear up the

warehouse on the dock, the old warehouse, this kind of thing - which I did. I

also took the responsibility upon myself, without too much authority from my

supervisor, to check all inventory in Makkovik. I found in that store, inventory

in the food line as much as thirteen years old, so I took it upon my shoulders

to get rid of it at a very cheap price or even to take it to the dump to be

destroyed.

I think my depreciation and markdowns last year came

to a total of somewhere around $50,000 or $60,000. It had to be done. Maybe my

head will be put on the block someday for doing something like that but I felt

it had to be done, and I think that since I have done this, things have changed

in the cost versus income in Makkovik. With the upswing now in the fishery

there, God bless, we have some turbot coming in, we have a lot of salmon this

year and people are working, I think when you see the report from 1992 to 1993,

you will see a vast difference in the loss, if any, in Makkovik. Right now in

the Makkovik store, besides fishing gear or hardware which does not go bad, I

doubt if you could find a $1,000 worth of old product. I do not have to reduce

prices anymore on the product to get rid of it and I do not have to take it and

throw it away. We have new product there, people are happy with the new product

and they are not asking for reduction in prices, so within this fiscal year you

will see a major change in the net income or loss or whatever - a net result in

the Makkovik store.

MR. CHAIRMAN: Thank you, Mr. Parsons. Mr. Warren.

MR. WARREN: Victor, do you want to look at Davis

Inlet, you lost $108,000. Why?

MR. LYALL: I do not know. I guess an increase in

the operating costs (inaudible).

MR. WARREN: Can you see any way of improving it?

MR. LYALL: Not really, no.

MR. WARREN: So you have obviously been operating

at a deficit?

MR. LYALL: Yes, until (inaudible).

MR. WARREN: Until what?

MR. LYALL: There are not too many people working

now.

MR. WARREN: But if any business is operating at a

loss of $100,000 every year they are not going to stay in business very long, so

why do you think the taxpayers should keep Davis Inlet going?

AN HON. MEMBER: (Inaudible).

MR. WARREN: Guy Prichard. No, I am sorry. You are

Postville. Sorry about that. One hundred and nineteen thousand. You are talking

about a population of 220 people and the store losing $119,000 of taxpayers'

money.

MR. PRICHARD: Well there wasn't much money around

the community.

MR. CHAIRMAN: Could you come closer to the

microphone?

MR. WARREN: What I am trying to show, Mr.

Chairman, is these are the managers in the stores, these are the guys who are

operating those businesses and these are the people who are supposed to have the

responsibility of delivering a good service to communities. Therefore, if we are

showing a deficit in each community - I am not saying there is anything wrong

with the managers but there is something wrong with the system, and I think we

as a public accounts committee should try to find out what is wrong with the

system. This is why we like for you people to tell us which ways to improve it.

Do we have to get rid of the stores, turn them over to some private enterprise,

or do taxpayers in the Province of Newfoundland and Labrador have to continue

spending a half million dollars a year to keep those stores afloat? This is why

I am asking the question.

MR. CHAIRMAN: Mr. Prichard.

MR. PRICHARD: Yes, well we can cut down on our

operating costs by not bringing in meat like Mr. Condon explained, we can have

so much brought in. Then shut down one of our walk-in freezers. That is one

part. Use part-time staff two or three days a week.

MR. WARREN: How many employees do you have?

MR. PRICHARD: I have four.

MR. WARREN: You have four employees in a small

store for 200 people. Can you do it with less?

MR. PRICHARD: Two or three days a week we can do

it with probably three. Three staff, probably even two.

MR. CHAIRMAN: Obviously you can't go with

part-time staff. Most small grocery stores or general stores operate with the

majority of part-time staff called in as needed. They have seven in the store on

Friday and two on Monday and Tuesday, because you are tied into government

hiring practices and procedures and unions I guess. I assume some of these

people are members of a union, therefore they don't have that flexibility.

This is obviously one of the problems that has been

identified in the various studies. You are not talking apples and apples here,

you can't compare the operation of these stores with an operation in downtown

St. John's or even in Goose Bay where it is in a commercial competitive sort of

position and where business is in control, management is in control of the staff

and this sort of thing. We recognize this.

Mr. Condon, you wanted to make a comment.

MR. CONDON: Yes, just one point. Our stores

operate from 9:00 to 5:00 Monday to Friday, and most retail stores are open

Friday night, Saturday night or whatever.

MR. CHAIRMAN: In a report that came out of

meetings in the communities, that was one of the problems identified by the

people of the community, that the hours of service were not necessarily

appropriate. Is it possible to change that within the restraints of the public -

MR. CONDON: Well we have in some cases, I think,

accommodated people. I think Thursday nights now the (inaudible) stores are

open. Last year, I think, in Davis Inlet we spoke to the Band Council Chief. He

suggested that maybe we should open stores on a Saturday. We gave it some

thought and found it wasn't feasible under the circumstances to open the store.

But where possible if the Community comes to the stores or comes to the manager

and says: We would like to see the store open Friday night. We will do whatever

we can to accommodate them.

In some cases if fresh goods come in Friday night we

open the store on Saturdays.

MR. CHAIRMAN: You know maybe this is one of the

problems. Let me just interrupt for a moment. In reading the report it

identifies the fact that in certain communities, not all of them, there is some

competition from private enterprise. If they are open on Friday nights and

Saturday, maybe it is time for these stores to be operated more on a competitive

basis. Maybe we should be closed Wednesdays, Thursdays or whatever day depending

on the nature of the community.

MR. CONDON: There is something else I might add

too. Over the years, going back probably a few years, the stores were looked on

as performing a social good. If someone in the community said: government don't

carry cigarettes any more because I am going to open a little store now and I

think I could make a few dollars in cigarettes. Well the government would say:

that is fine. We won't carry cigarettes any more. Now we don't carry any pop, we

don't carry any chips and we don't carry any bars because we are in competition

with people in the community. It has gone that way over the years. If someone

else came to the manager or to the government and said: Yes, you take a little

portion of it. I guess that hurts us over here. We have seen in Makkovik in

particular, a private sector eating away at our business. In Makkovik we have

maybe 400 or 500 people. There is probably not enough room for three stores.

Somebody has to obviously suffer. At one point in time I guess we probably had

the monopoly there. Government had the only store, but now we see private

enterprise spring up and there is a bit of competition and their prices are as

good as ours.

MR. CHAIRMAN: That is a policy matter and not

strictly an issue for public accounts other than looking at the efficiency of

the stores. Maybe though the department needs to re-examine their policy, why do

we not compete? We are trying to be efficient, we are trying to break even at

least and not necessarily make a profit. I do not think that is government's

mandate. Obviously if we start making a profit then private enterprise should be

in there and we should help. We recognize the social role that these stores play

in these communities. However there are policy changes that can allow you to be

more competitive.

MR. WARREN: Mr. Darby, I think you are celebrating

your 25th year as manager of a store.

MR. DARBY: It will be 25 in October.

MR. CHAIRMAN: As manager of a store?

MR. WARREN: Yes.

I think he has been at Davis Inlet twenty-five years.

He is an old hand at it and I guess he has seen many changes during all those

years and he is probably the better person to ask. The stores have gone from the

60s, to the 70s, to the 80s, to the 90s, have you seen any improvement for

customers, or have you seen more frustration for the managers? What is your

synopsis of the operations during the last twenty-five years? Do you have more

autonomy? Do you control the store or is the store controlled by outside forces?

MR. DARBY: A bit of both Garfield. I think our

stores are still back in the 60s. I just do not think we went ahead with the

times because of government regulations.

MR. WARREN: Where can you improve your deficit

position?

MR. DARBY: Well, there is one thing, we deal with

the GPA. A private company can buy the stuff and get five or ten cases free but

that is not available to us. There is a lot of stuff like that that we could

bring in. Like Mr. Condon said there are various things that are money making

items that we do not deal with, pop, candies and stuff like that. We do not

touch anything like that. If we had it there I am sure people would shop in the

stores more often because right now they have to go to all the private stores

around to pick up this stuff.

MR. WARREN: And you still have the same operating

costs?

MR. DARBY: Yes.

MR. WARREN: At the bigger store in fact you only

lost $60,000 last year. Is it that you did a good job or are there more people

shopping at the store in Nain? Or is it that the competition is not so strong?

What do you think?

AN HON. MEMBER: (Inaudible).

MR. WARREN: That answers my question. There have

been a lot of concerns expressed and maybe my colleague might like to ask more

questions.

MR. CHAIRMAN: Thank you, Mr. Warren. Perhaps I'll

just ask a couple of questions, from a general point of view, on the operation

of the stores, since we've been talking specifically about the stores up until

now and want to get into the purchasing and shipping procedures and all that

sort of thing perhaps a bit later. Perhaps we'll just stick with the stores for

a moment.

Can you tell us, whoever wishes to address this, Mr.

Ludlow or any of the managers, what can we do to improve inventory control? We

talked about the inefficiencies in the Cardex system, it doesn't seem to be

working well. Surely the computerized system Mr. Condon talked about would be an

advantage, at least you would know what's going out. Computers only give

information depending on what you put into them. There's nothing magical about

computers, they simply organize the information, the data, that you give them.

Unless we have a system on a regular basis filling the data into a computer you

still don't know where you are. What sort of controls can be put in place in

addition to just computerized cash registers?

MR. CONDON: Maybe just a quick comment on that.

Going back a number of years, suppliers I guess maybe took advantage of the

operations, the remoteness of them. At the end of the year they'd ship us up

stock that was outdated, expired. Things we never even ordered would end up

coming to the stores. I guess the buyers, knowing that this was the last boat of

the year, were stuck with it. We've gotten after the suppliers and said: if you

ship up anything that we haven't ordered, or ship any dated merchandise, it's

going back at your expense.

So we've addressed that end of it. Suppliers right now

are treating government as a customer. It's no longer a case of: we can throw

the old stuff to the government. Now they view us as a customer and they like

our business. We've gotten after some of them and said: look, if you don't

follow those lines we'll advise GPA to take you off the tender list altogether,

and GPA has cooperated. So the suppliers have kind of fallen in line. We have a

number of good suppliers we get most of our stuff from, but we've had problems

with some of the others over the years.

So we've talked to the suppliers. We've tried to get

them to ship all of their stock in one shipment rather than a case here and a

case there, because every piece of stuff that goes on costs us twenty-six

dollars. So if you send nine cases it will cost us twenty-six dollars and if you

send us one case it will still cost us twenty-six dollars. So we've got them to

try to get all their shipments together and send them up at one time. When it

gets to the store we have asked the guys who handle the freight to keep their

eyes open for any damaged merchandise so we can make a claim against Marine

Atlantic or CN Marine. That part of it seems to be working quite well.

We're trying to refine our ordering so we don't run

out of the staple items - the flour, the sugar, and things that are heavy. The

other stuff, as I mentioned earlier, the meats and the fruits and things like

that, we can ship in now to Goose Bay, as we do, by air freight on a weekly

basis. These are just a few of the measures we're looking at to improve our

level of inventory control. These are outside the Cardex system and the

computerized system.

The consultants' report mentioned a number of little

things we could do, like putting the things that move regularly closer to the

door in the warehouse, and rotating your stock. In the case of milk we've asked

our managers to turn the milk over a couple of times a year, because apparently

if you leave milk for seven or eight months it all settles down at the bottom

and comes out in a little blob.

So little things like that don't cost us a great

amount of money, but we can impress on the suppliers and the managers that they

can save money in the long run if they do this. These are just some of the

measures we're looking at to improve our control over the inventory.

MR. CHAIRMAN: Some of the things Mr. Parsons told

us with regard to the Makkovik store and the things he has done since he was

transferred there were somewhat refreshing in a sense. Mr. Parsons, what efforts

are to be made in other stores to do that sort of thing? Do we have old

inventory there, do we know how many tins of beans are going to sell this year?

Does that influence your purchasing decisions, or is it on an ad hoc basis as

the reports seem to indicate? There does not seem to be a professional approach

to knowing how much of a commodity is expected to be sold, obviously there are

always some variances but maybe we can estimate them within reason. But if you

have had something there for thirteen or fourteen years, somebody has not been

looking after the inventory and has not been managing well, I guess that is the

only way you can put it. How about the other stores, Mr. Parsons, do you want to

comment?

MR. PARSONS: I found that by getting rid of this

old product and going back to the stock cards that were there for five or six

years, that I was able last year in my summer order and fall order to reduce the

requirements for the store as per cards by $175,000. That is a lot of money by

which to decrease your order. Now naturally some of that was through

consultation with my supervisor regarding meats, we did not bring in as much, we

flew meats in from Goose Bay as needed. I also found that in Makkovik, and

everybody who has been up there will bear with me on this and understand what I

am saying, people tend to make a lot of their own foods and they do not want

soups brought in, they do not want beans brought in. I found there was a large

supply of beans there that people were not buying. People were not buying canned

soups, people were not buying packs of Sloppy Joe mix, people were not buying

tons of Shake and Bake, so these things were all taken off my order. As I said,

I reduced my order by $175,000, and this year we still had a good supply of food

in Makkovik when the boat came.

MR. CHAIRMAN: For the benefit of the committee,

Mr. Ludlow or Mr. Anderson may be able to tell us, do the managers order the

goods that they need or is there control from the Goose Bay office, the main

purchasing office? I understand there is one in Goose Bay and one in St. John's.

Is there any body which looks at how many cans of beans were sold in the last

five years in each one of the stores and how many are being ordered this year

and whether or not they need that many cans of beans? With today's computer

technology, Mr. Condon, it would take you about fifteen minutes with a Lotus

program to get yourself a graph which would show you very clearly whether you

are within reason or not. Is there that kind of an approach?

MR. LUDLOW: Yes, this is being done from both the

St. John's office and from the Goose Bay office. Not as much from here because

the orders do not come through here, but if the buyers are looking at something

in there and they question something, they send it back through here. I contact

the managers in some cases and in some cases it is done directly by the buyers,

but in some cases it does come through this office and we monitor these. Let us

go back to these cards. They use this card system to do their purchasing.

MR. CHAIRMAN: How did we get goods that are

fourteen years old in the store then and I assume they are still ordering more?

MR. LUDLOW: No sir -

MR. CHAIRMAN: No, but prior to your changes there.

MR. PARSONS: Before I went there I cannot say what

was ordered because the orders are sent to St. John's and there are no copies

here so I cannot say if some of those old products were re-ordered each year or

not but I know once I got rid of them I did not re-order them.

MR. CHAIRMAN: Do you have records in your stores

of how much of each commodity you used each year for the last five years? Is

that available to you?

MR. PARSONS: Yes, that is available.

MR. CHAIRMAN: You do have that at your fingertips?

MR. PARSONS: Yes.

MR. CHAIRMAN: So you know how much you have used.

So obviously you look at that and head office looks at that as well. I am

curious as to how we have such inventory built up. Is there any mechanism to

cross reference the inventory that is in the stores with those numbers, with the

projected sales? I mean you must have some idea how much you are going to sell.

MR. LUDLOW: That is all on this card system, the

amount that comes in, the amount that is sold - all this is recorded on the card

system.

I fail to see where there was inventory in Makkovik

fourteen years old. I have to be honest with this because every item, every food

item in Makkovik, was destroyed about four or five years ago. There was nothing

moved from the warehouse into the new store.

MR. PARSONS: In answer to Mr. Ludlow's question on

the bulk food, Mr. Ludlow is right in saying that the food was destroyed in

Makkovik. But there was food transferred in from other depots at that time, and

I clearly saw marked on the cases: summer of this year; fall of this year, or

whatever. I have listings of foods - I did not bring with me now; I have it here

in Goose Bay with me - I have listings of foods that are from five to thirteen

years old. I have a list of it all, but it was not Makkovik's food. It was

transferred in from other depots. Mr. Ludlow is right in that.

MR. CHAIRMAN: Mr. Murphy, you wanted to ask

something along this line?

MR. MURPHY: Yes, I certainly do.

While we are talking about depreciation of

merchandise, if you look in most stores you can see great variances. Obviously

the operating expenses have a great deal to do with the profit. If you look in

Nain, for instance, depreciation of merchandise was $7,771 in 1991; $12,920 now,

but if you look over in Hopedale you will see that depreciation of merchandise

was $10,000 in 1991, but $36,770 now. This would indicate to me that the Cardex

system obviously is not working very well, when you see that tremendous amount;

and you can move on into the other stores and, as the Chair brought out, the

$36,000 in 1990, impacting on $161,000 of net loss, would certainly be - I am

not saying that you can save it all, but it would seem to me that $37,000 for

depreciation of merchandise is a tremendous amount of money when you look at a

system that should be looking after rotation and/or depreciation of merchandise.

If you go over into Davis Inlet you will see the

figure is much, much lower. In Makkovik it seems to be consistent in 1991 at

$7,000, perhaps that makes a little more sense. If you look at the operating

expense total in Nain, in 1991 it was $359,000 and in 1990, $278,000. If you

look at the different columns you will find that salaries went up $24,000. There

is a tremendous amount of difference. Fuel and light has gone from $36,000 to

$76,000. Repairs and maintenance went from $13,000 in 1990 to $33,000.

The other one that shakes me a little bit is

janitorial services. In 1990 costs were $468.00; in 1991 it went to $5,200. Did

we buy new vacuum cleaners, did we put in a new system or what?

If you look at these columns you will see, of course,

depreciation of merchandise went down in 1991 to $12,920; but if you look at all

the stores and total up depreciation, it would indicate to me that there is a

tremendous amount of money there.

As Mr. Warren said, when you look at the total of

$556,000 - which is half a million dollar loss - stock rotation and depreciation

of old stock, and putting it on sale, even at a loss, rather than having to take

it to the dump and destroy it, would seem to me to be much more logical.

So obviously the Cardex system, Mr. Ludlow, is really

not working very well when you look at what is taking place in depreciation of

merchandise.

MR. LUDLOW: Yes, I fully agree that this Cardex

system is not working. I do not think there is any logical way to make it work.

Until we get into a point of sale system where everything is recorded in and out

through the cash registers I do not see where or how we can improve this Cardex

system. It is definitely not working.

MR. MURPHY: What happened to the fuel and light,

Mr. Condon? It looks like somebody gouged you.

MR. CONDON: Sometimes it is with government

accounting again and with the payment of bills. The deviations are probably not

that great. I know that sometimes we get bills from Hydro at a certain time of

the month and if they do not get paid for that month, then it falls into the

next fiscal year so -

MR. MURPHY: But look at Davis Inlet in 1990- 1991,

fuel and lights. You have $17,000, so even if you carried thirteen months in

1991 and only eleven months in 1990, how would you go from $17,700 to $43,000?

MR. CONDON: I would say there are probably a

couple of months of 1990 in 1991 because of the timing. There obviously were a

couple of increases in Hydro charges; increases in usage in the stores but

certainly not enough to bridge that gap. I would say there were a couple of

months in 1991 that should have been paid -

MR. MURPHY: Well if you look at 1989, the $34,000,

you saved $17,000, then all of a sudden you were $26,000 in variance, it does

seem like quite a bit of money. If you look at the rest of them, there is also

quite a deviation in fuel and light; now I do not know but I guess that is your

cost, I mean you only pay what you are billed.

MR. CONDON: Exactly, and as I have said, if at

certain times of the month we do not get the invoices over to finance or finance

is late, it may be the following month so you might (inaudible) fiscal year when

a couple of the bills are paid, but certainly there should not be that much of a

deviation.

MR. CHAIRMAN: Before we continue this morning

there is coffee in the back of the room. I am not proposing to take a coffee

break. I would say that we would probably stop for lunch around 12:30 and come

back again, so anybody who wants coffee, please feel free to wander out and help

yourself. Mr. Warren.

MR. WARREN: Well I could probably see some

deviation in the fuel and lights because of the fiscal year but surely goodness

this would not happen with janitorial and maintenance? I mean you have gone up

from $29,000 to $44,000 and we have the same five stores, the same space to

clean, and you have an increase of about 40 per cent in salaries paid to the

janitors. Have we hired on more janitors or are we making sure our floors are

cleaner or using more detergent because that is an awful amount of increase in

cleaning the stores from one year to the other year.

MR. CONDON: I can only speculate that there may be

some changes in where we apportion the costs. Sometimes, if we were using

detergent from the stores or things like that, janitorial expenses might have

been charged to repairs and maintenance or sundries, for example, and we may now

have put it back into janitorial expenses. That might be one of the reasons. I

do not know why we have that big a deviation from one year to the next. I think

we contract out most of our janitorial services, if I am correct.

MR. WARREN: In all the stores, or in all the

depots with the exception of Nain, the manager's house and the store - those are

the two buildings we maintain with heat, light and fuel. In Nain I think we have

an extra house.

MR. CONDON: Yes, and in Davis Inlet also.

MR. WARREN: So this would be the reason for the

increase in the Nain fuel and light over the other depots?

MR. CONDON: That could be part of it, but that

would be consistent. We have had the manager's house in Nain, and the assistant

manager's, for years, the same as in Davis Inlet, so there should not be that

much of a difference.

MR. WARREN: In Davis Inlet there are two

residences, right?

MR. CONDON: Yes.

MR. WARREN: Then comparing Nain's fuel and light

and comparing Davis Inlet's fuel and light, they are way off course, right?

MR. CONDON: Yes, but then Davis Inlet sales are

probably $700,000 while Nain's are probably close to $2 million, so you have a

much bigger capacity of freezer space and things like that. There would be

higher usage in Nain, certainly, with larger freezers, more freezer space, and

bigger inventories of frozen foods.

MR. CHAIRMAN: Mr. Murphy.

MR. MURPHY: Thank you, Mr. Chairman.

Perhaps, Mr. Condon, if you look in the column of

salaries in the last three fiscal years, you might want to give us a little

comment on them. In 1989, permanent salaries went from $477,000 to $637,000 in

1991, an increase of $150,000. Overtime seems fairly consistent. Perhaps you

would want to comment on why in 1989 other earnings and what they are were

$62,000 and they closed out in 1991 at $102,000 which is $50,000 more.

I see that temporary employees salaries actually have

gone down; but perhaps you would want to comment on the overall salaries

increasing $150,000, and why would other earnings would go up.

MR. CONDON: The salaries, I guess, are dictated by

the union contracts. I do not think the increases were certainly as large as

that, but again it could be a timing thing, a year end thing, where I guess the

last payday is sometime in March, but if it gets into the new year -

Other earnings - that relates to Labrador allowances?

Am I correct in that? Again that is set by the union contract. The substantial

jump in it from 1990 versus 1991, I have no explanation for that - why it has

almost doubled.

MR. MURPHY: Is that consistent even for people on

the coast who work in the stores? Do they get the same situation? Is the same

salary situation offered to local people as opposed to people you might bring in

from outside?

MR. CONDON: I do not follow you, Mr. Murphy.

MR. MURPHY: What I am saying is: If you are saying

to me that this is a northern allowance of $102,000 that has gone up nearly

$40,000 - that $40,000 in a year, when you look at it, is almost 40-odd per cent

of an increase. Are you saying to me that all of a sudden there is a great

amount of northern allowance that has come to light?

MR. CONDON: I think the Labrador allowance or

northern allowance is paid a couple times a year?

MR. PARSONS: We get our northern allowance with

each cheque, however we do get a travel allowance that would account for some of

the increase there and that comes I think in March or April, somewhere around

there.

MR. MURPHY: But would that be in other earnings?

MR. PARSONS: On our pay cheques it is considered

as other earnings.

MR. MURPHY: But this is your own travel, it is not

travel on behalf of the stores?

MR. PARSONS: No, no. This is an allowance we get

and on the stub it states other earnings.

MR. CONDON: Mr. Porter was good enough to provide

me with a bit of information here and it says on this, and I guess this came

from one of our financial people: For your information the Labrador travel

allowance is at the rate of $275 for each employee and each member of the

employee's family. It is usually paid to the employee the first pay period of

April of each year, so you could imagine if there is a timing difference between

March and April, we would have that showing twice in the same fiscal year, for

example. Do you follow?

MR. MURPHY: Yes. I think I understand, or if

somebody was married and there were a lot of babies or something in that year.

But it does seem to be a substantial jump.

MR. CONDON: Yes, it is quite an extensive jump.

MR. MURPHY: I mean overtime is basically

consistent in business when you look at the columns, but that column stands out.

MR. CONDON: I can follow up on that just to get an

explanation as to why there is a substantial increase over -

MR. MURPHY: Somebody in NAPE might want to ask

why, from 1989 to 1990, there is an $150,000 increase in wages? Someone might

want to ask: why an increase up here and no increase somewhere else?

Okay, thank you Mr. Chairman.

MR. CHAIRMAN: Mr. Warren, do you still want to

question?

MR. WARREN: I still have a lot of questions, Mr.

Chairman. Again, it is very difficult when the manager does not have this book.

However, I understand, reading here, Mr. Condon, that the financial statements

which are compiled by head office, I gather that the managers do not receive

copies of them?

MR. CONDON: They do receive them now, Mr. Warren,

and I guess for your information, managers have received a copy of that sometime

ago when it came out first from internal audit, so I do not know how good your

memory of that document is, but they have all seen it and I guess gone through

it.

MR. WARREN: Well they do not have part of this

because this was only compiled the last two weeks -

MR. CONDON: Yes, that is the appendix -

MR. WARREN: Well this is what I am referring to -

MR. CONDON: Sorry about that.

MR. WARREN: So that is why this afternoon I would

like to at least see the waybills and things like that because -

MR. CONDON: Actually we have had the secretary

over at the office running off copies but time prevented us from picking them up

MR. WARREN: So the managers now receive financial

statements -

MR. CONDON: - on a monthly basis -

MR. WARREN: - on a monthly basis. For the record,

what do the financial statements contain? In earlier discussions it seems a lot

of things were not done. So what do the financial statements contain when some

things are not completed?

MR. CONDON: Well, I guess it is the normal

financial information. In addition to that, and as recommended in the internal

audit report, we are going to include a variance report. As you know, we have a

budgeted amount for each expenditure. For fuel and light we have a budgeted

amount and we have our actual amount, so the managers could see: look, this is

what we budgeted for fuel and light, this is what we actually spent, and it will

show how much of a variance. These are things that at least they can address.

The normal financial statement is a combined statement for all the stores and

then individual statements which break down in our accounting system, the

operation, the sales, the discounts, the markdowns and the operating costs

including the salaries, freight, transportation. And it breaks down sales by

each commodity like fruit and hardware and fishing supplies and so on.

MR. WARREN: Do you have a copy of the last

statement that you could supply to the committee?

MR. CONDON: I do not have a copy with me but

certainly I can supply a copy - Dick do you have a copy?

AN HON. MEMBER: (Inaudible).

MR. CONDON: Okay, I can get that when I go back to

the office. Len has a statement run off for June.

MR. WARREN: Do you have a copy also of the last

cashed cheques by -

MR. CONDON: The last cashed -

MR. WARREN: Yes. Can you supply us with the last

couple of cash accounts?

MR. CONDON: We can supply those too, yes.

MR. WARREN: I notice that on page eight of your

report you took Makkovik as an example of a store you wanted to do a trial basis

audit on. Who performed those duties? Was it yourself or some auditor?

MR. CONDON: No, we had asked the internal audit

division over in the Department of Finance to do that. So they had their own

people come in. They got some information from Ben in Goose Bay and they got

some information from our accounting people. They looked at it all before they

came in. They spent two or three days in Makkovik, went away and did that report

and sent it over to us. These are suggestions or recommendations that they make

so you can improve you operations.

MR. WARREN: Thank you, Mr. Chairman. I have a

question for the Auditor General. The last audit was done in 1984, we are

talking about eight years ago. What would be the logical reason why, with a $3

million business year by year, the Auditor General has not deemed it necessary

to review those stores on a more periodic basis?

MS. MARSHALL: (Inaudible)

MR. CHAIRMAN: Excuse me. Could you pull your mike

in and try to speak a little louder?

MS. MARSHALL: We try to

schedule the audits on a

regular basis. There are a lot of Crown corporations also responsible for

auditing so it is done (inaudible).

(TECHNICAL DIFFICULTIES WITH RECORDING).

MR. CHAIRMAN: Perhaps we should move that

microphone up in front there. Mr. Drover.

MR. DROVER: The last review as I recall was done

at the request of the former Deputy Minister of Rural Agriculture and Northern

Development. I think it was Cyril Goodyear at the time and it was an unusual

review for us to do. We sent five auditors into each one of the stores. One

person went to each one of the stores and we sent our Corner Brook audit manager

into Happy Valley - Goose Bay to co-ordinate the effort and the report was then

written up in St. John's.

From the standpoint of salaries and that sort of thing

we will cover that from our review of the general service payroll expenditures

through the department, our review of the central. I guess to get to the coast

again would probably require evidence of the planning process. The Auditor

General herself would establish the priority, whether it be at the request of

this committee or whether it be at the request of the deputy minister. Most of

our work, as I said, is centralized in the public accounts of the Province,

which is about $3.5 Billion worth of expenditures. Right now I think we are

required to look at some 100 to 128 agencies within the Province, so all of the

school boards, all of these come into play there. I would say normal getting

around into the departments would be about a five year process. This one has not

come back because I think there has been some discussion ongoing. Although we

were not privy to it we knew that this review here was on the go and we did not

think it would serve any purpose for us to get into the coast when the internal

audit people had been in there. Certainly if a request comes from this group or

the deputy minister then I think the Auditor General would have to at least

considerate it at that point in time. In our normal course of work it would

probably take - if these had not taken place, these two reviews, one of internal

audit and one of Deloitte & Touche we would probably be back in the current time

frame, probably this year or next year. These two reports have taken place and I

am not sure that our people can tell you anything different than these two

studies did and both of them are fairly recent.

I do not know, Mr. Chairman, if that answers the

question but I am speaking again from memory which is about seven or eight years

ago.

MR. CONDON: Mr. Chairman, if I could just add

something?

MR. CHAIRMAN: Mr. Condon.

MR. CONDON: I just want to add something to Mr.

Drover's statement. All the expenditures for the stores are audited, too, as

part of the public accounts expenditures. All of these invoices where we pay

suppliers for goods or pay somebody to fix our furnaces, that is all part of the

public expenditure. The Auditor General has access to those and I guess in his

reviewing of the expenditures sometimes those expenditures are selected I would

assume, in a random sampling there would be some of those in there, so if we

spent $3.5 million some of that has already been audited as part of an ongoing

process.

MR. CHAIRMAN: Mr. Drover.

MR. DROVER: Mr. Chairman, in order to express an

opinion on the financial statements of the Province we use a big computer

program. We dump the whole $3.5 billion worth of expenditure into one big

program and we go in without any - we tell them the direction as far as

materiality; we tell the program what confidence we have; then we turn around

and whatever comes out we audit. So Brian is quite right. Over the last eight or

ten years, anytime that anything came up regarding the Department of Development

we would have to follow that to an extent in order for the Auditor General to

express an opinion on the financial statements of the Province. That is what is

called generally accepted auditing standards. That is the same as any firm would

do to express the opinion of that.

We also, in addition to that, go in and evaluate the

programs of the various departments on an ongoing two, three, five year basis.

We try to make it a three year basis, but because of the additional work that

has been added to the role of the office in recent years, that is now getting up

to about a four year basis. The standard across the country is about five. You

come back to the program every four or five years. I will give you an example.

Three or four years ago we did a major review of the

Department of Justice, and a major review of the Department of Social Services.

We would not be back in the current year. We would probably be back in the next

year or the year after. That is the way the big program works. So they are

audited twice; first to express what is called the short funding opinion on the

financial statements of the Province. They are subject to audit. They go into

the big pool - the $3.5 million pool.

Secondly, in order, on a three to five year basis, to

get some information on the programs, we would evaluate a specific program. If

we are evaluating the program of the Labrador Services, if we can obtain

sufficient information in St. John's that would be acceptable to us, it is not

necessary that we send the auditors in and do a special report, because a

special report is very similar, as I pointed out earlier, to what Deloitte &

Touche did, or the internal audit people. I think that would have to come as a

request from either the deputy minister or a resolution of this committee to the

Auditor General to send us into those.

Again, Mr. Chairman, I hope that enlightens you on

some generally accepted auditing standards.

MR. CHAIRMAN: Thank you, Mr. Drover. I appreciate

that.

I just have a question. Perhaps, Mr. Condon, from a

policy point of view, as the report points out, the stores have not been

accepting coupons that are promotional coupons. Very few households go to the

supermarket today without a purse full of coupons and stand in line dishing them

out. Has that policy been changed? Are you now accepting them? If not, why not?

And what would be the administrative problems, Mr. Condon?

MR. CONDON: I am glad to announce that we are

accepting coupons. I do not know if any of the managers have received any,

though. I stand to be corrected, but we did put that in place, that if any of

the customers came in with coupons we would gladly accept them. I do not know if

any of the managers can enlighten me. Has anybody actually shown up at the

stores with some coupons for redemption?

MR. CHAIRMAN: Perhaps I can ask some of the

managers: Has this been a problem? Have there been requests from the community?

Have there been a number of coupons show up since the policy has been changed?

Are the people aware that the policy has been changed?

Mr. Parsons, do you want to comment?

MR. PARSONS: The coupons that I have received to

date for redemption are Pampers coupons. Those are the only ones I have

received. I have contacted the redemption firm, I think in New Brunswick

somewhere - I am not sure; I cannot remember now. I have had the forms come and

I have returned the coupons to this company and they have redeemed them; but to

date it has only been Pampers coupons.

MR. CHAIRMAN: For my own general information,

perhaps the people of these areas do not get the same junk mail that we do in

their mailboxes every day? Some of this is worth money.

MR. PARSONS: There is some junk mail coming in -

the stuffed envelopes - but I think on the coast people are more educated in

junk mail than we are from the Island portion. They take them and throw them in

the garbage where they belong.

AN HON. MEMBER: Very quickly.

MR. CHAIRMAN: Mr. Murphy?

MR. MURPHY: Thank you, Mr. Chairman.

Some of the questions that have been asked this

morning in relation to reducing some of the losses would indicate to me that

maybe purchasing and/or the buying of goods for the stores would provide some

answers. Some of the information that has been provided would indicate in the

dry goods area that the store managers don't requisition and the field doesn't

requisition, but St. John's picks up everything and decides. Now is that not

true?

MR. PARSONS: Not now. That has changed.

MR. MURPHY: It has changed. Okay, so what you are

telling me now is that the store managers actually fill out the requisition for

dry goods and what have you.

MR. PARSONS: I do anyway. I think all the rest do.

MR. NOCHASAK: No.

MR. MURPHY: No. The store manager from Nain says

no.

MR. NOCHASAK: (Inaudible).

MR. MURPHY: Do you sell dry goods in Nain?

MR. NOCHASAK: We have some.

MR. MURPHY: You have some there. So you open a box

and get a surprise. Is that what you are telling me? It could be whatever. It

seems to me there is a tremendous inventory of gloves on the coast.

MR. NOCHASAK: Gloves and socks.

MR. MURPHY: Gloves and socks, yes. But let me ask

a further question about purchasing. When you do purchase, is there any

deviation from store manager to store manager? If you write a requisition for so

much flour and things that are important on the coast in the winter, is there a

deviation in those kind of requisitions? Does somebody shoot down the quantity

or increase the quantity? Off the top of your head is that a problem for you as

store managers?

MR. PARSONS: For the staple items that is not a

problem. I get everything I ask for in the staple items. I did this year have to

contact Mr. Ludlow with regards to some minor things that were changed. I will

give you one item. I decided to bring in some shepherds's pie, it is just a

little snack thing, and I ordered twenty-five cases. When my order came back it

recommended ten. I called the person who recommended ten and asked him why, and

he said he didn't think we could sell twenty-five cases. I asked if shepherds's

pie had been sold in Labrador before and he said he couldn't remember. So I

contacted Mr. Ludlow and that was corrected. So I got my twenty-five cases of

shepherds's pie and next week I won't have one left.

AN HON. MEMBER: (Inaudible).

MR. PARSONS: So that was corrected, and for a few

other items.

MR. MURPHY: When we talk about depreciation of

merchandise and dumping of merchandise it would seem unlikely to me that a

manager who knows his store and knows what the consumers are looking for would

bring in $37,000 worth of goods that over time would depreciate and either have

to be dumped or written off. So the first question that would come to my mind

is: are most of these items being sent by a buyer in St. John's who doesn't know

the circumstance or is it just the store manager taking a chance? It would seem

to me that the store manager should know exactly - well not exactly, but

certainly should come close - as to why they are writing off all these goods as

time goes on. I mean is it purchasing at either Goose Bay or St. John's that is

causing the problem, or are the store managers buying things and hoping to sell

them? Perhaps you might want to address that, Mr. Condon.

AN HON. MEMBER: A difficult question.

MR. CONDON: It is, yes.

AN HON. MEMBER: Everybody is pointing fingers.

MR. CONDON: Admittedly a few years ago the

department did get into buying a fair amount of dry goods, let's say, and I

don't think there was a lot of input from the managers at the time. So they did

get dry goods and probably said: How are we going to sell this kind of stuff? So

I guess maybe we have backed away from that now altogether. Right now the system

is that we get information in from different buyers, and we send it along to the

managers and say: Is there anything in this booklet that is of interest to you?

I think that is the way it should be. I mean we have

to let the managers manage the stores. I can't determine what is going to sell

in Makkovik or Nain. I have no idea.

MR. MURPHY: No.

MR. CONDON: With some of the old inventory, I

think a lot of the write-offs were related to maybe old meats and stuff. I think

that it is just human nature. For example, if we have a lot of meat on hand

going into June and July and a new shipment comes in, people in the store push

the old stuff in further and start selling off the new stuff. People know there

is a new supply of meat in so they do not want to buy the old stuff. I guess

after a couple of years you get meat there that is only fit for the dump. So I

think in Mr. Parson's case he found instances where some of the meats had been

there a couple of years and had deteriorated to the point where they were only

good for dog food or whatever and certainly they were not fresh, they were

freezer-burned and I think maybe that is one of the reasons why we wrote off a

lot years ago.

MR. MURPHY: But, Mr. Condon, you know it would

indicate to me that if the store manager or the staff were aware that in June

there was a new supply of fresh meat coming in, that April or May would be a

good time to probably put on a sale of the meats that were still there, rather

than have those meats pushed inside by people to get at the new meats? So I mean

that comes down to, I would think, inefficiency in managing the store or the

staff not doing what needs to be done. So honestly I look at it another way. You

know you hear of rotation of stock, and I suppose that is a buzzword in your

business, all of your businesses. Rotating stock, codes and serial numbers so

you know when it was made, when it was purchased and everything else that the

customer may not know. So that is why I asked the question: is purchasing

sometimes getting in the way of the efficiency of the stores? That is what I am

asking.

MR. CONDON: Maybe I am getting a bit off the

point, but I guess over the years maybe we have not allowed the managers to

manage the stores, maybe we have made too many decisions for them. With respect

to meats, some years there is a lot of caribou around so if we bring in a large

inventory of meat and there is plenty of caribou, then we are stuck with a lot

of meats. Right now we let the managers do pretty well all the ordering and as I

said, sometimes we do second guess things, especially as Snowden mentioned,

things that are not staple items and that is our prerogative I agree. Every

order comes in and I will have a look at it and some of our buyers will have a

look at it and we do not have a problem with going back to the manager and

saying: Do you need this, do you think you can sell it?

MR. MURPHY: Thank you, Mr. Condon; thank you, Mr.

Chairman.

MR. WARREN: I would like to ask Ray a question.

Ray, you put in your requisition as the other managers did this year, probably

two or three months ago; so far probably two or three or four ships have gone

into Hopedale, can you name some items that you have not received as of -

MR. DARBY: I could not tell you that, Garfield. I

have been out of Hopedale for the last month.

MR. WARREN: How long does it take you to receive a

commodity that goes through the regular process; one month, two months, three

months, four months?

MR. CHAIRMAN: Mr. Prichard.

MR. PRICHARD: Well it is a bit better this year

because we are getting the products early. We usually send our requisitions in

March and the DUKE OF TOPSAIL was in this weekend. I was not there so I do not

know what freight we received but I would say that I will have about 80 per cent

of my order in by the time summer is over.

MR. WARREN: Well, Mr. Condon, from the time you

receive that requisition in St. John's, how long does it take GPA to go to a

tender call? I think this is the problem on the coast, the customers are not

being served because of GPA's problems and government bureaucracy, so can you

explain the process?

MR. CONDON: Yes, yes. There is a certain time

delay. We ask the managers to try to have their orders in by the end of March

for example, so that our guys would have a chance to look through the orders, to

combine all orders on one large sheet or whatever and send it down to GPA. Now

that might take a couple of weeks. When GPA gets them, they have to put them on

tender I think for three weeks, so they get the tenders back and there may be

3,000 items for example and they go through every item. I think this year there

were twenty different suppliers who made offers and it may take GPA another two

or three weeks to sort out who got what and then they apply this provincial

preference number or whatever so they have to do that and then they notify the

suppliers but nothing happens anyway unless the Marine Atlantic vessels are

going down. This year in particular we are all ready, the suppliers are all

ready. I think this happens most years, we have everything ready to go pending

the Marine Atlantic sailing and I guess the ice conditions and everything

dictates that. There is a couple of months time lag for sure from the time the

managers send in their orders to the time the suppliers are ready to ship the

stuff.

MR. WARREN: And this all ties into Mr. Murphy's

question earlier about why the manager has not ordered stock because by the time

you get it two or three months of the year are gone, so this is a case of one

problem mushrooming into another problem.

MR. CONDON: That is right. And the managers do

have to do up their orders in March. They have another three or four months

while the store operates which could deplete some of the stock so before their

first order comes by the end of July or August they might run short of something

else, so there is that delay. If you were just an ordinary store you could phone

up Lewisporte Wholesalers and say, I want so much of this and they would send it

in and you would have it, I suppose now, in two or three days, but with our

system we have to go through the public tender process and it does take time.

MR. MURPHY: Mr. Chairman, it must be much more

difficult for all the managers to play guessing games. As you say if there is

somebody in St. John's, Lewisporte, or Corner Brook, they know what they will

probably sell that week and if they do not they will move to the next week and

they do not have to over-order,

whereas in your case once it is in it is very

difficult to get out. You do not have the same ability to rotate stock or

material. That is very understandable. Just off the top of your head, Mr.

Condon, I noticed a column in 1991, just so I know what it is, if you look at

other income, there is $27,000 there, did somebody pay up some old bills or

something or did you chase somebody?

MR. CONDON: Some of that probably relates to

rented space up in Nain for Canada Post, they use a part of the store for a post

office. Also I guess the rental rates for houses for the managers was increased

over the previous year. I guess that accounts for a fair bit of it.

MR. MURPHY: Maybe we should get the post office

involved everywhere. However, it is just a new figure there.

MR. CHAIRMAN: Thank you.

Okay. There are a number of other issues that we need

to discuss. No doubt we want to get into some of the outstanding amounts and

what efforts are being taken to try to collect some of these.

This appears to be an excellent opportunity to take

lunch. Does the committee agree?

You need some time to look through the documents with

your managers over lunch.

MR. MURPHY: And we need to get copies of them.

MR. CHAIRMAN: We will give you an hour and a half.

Will that be sufficient time for you to get a flummy dum and a cup of tea, to

look at your documents and come back again?

AN HON. MEMBER: Yes, that gives us plenty of time.

MR. CHAIRMAN: So, we will meet at two o'clock.

I might say though before we adjourn that there are

only three members of the committee and we do not have a quorum, we can receive

evidence but we do not have a quorum to vote. We are hoping Mr. Dumaresque will

arrive and be here after lunch.

Thank you. We will adjourn now for lunch at 2 o'clock.

Recess

MR. CHAIRMAN: If everyone is here, I would like to

call the meeting back to order.

I would like to welcome Mr. Danny Dumaresque, the

Member for Eagle River, who has arrived from the coast of Labrador finally. He

has joined us for the balance of the meeting. Danny, I have just a couple of

details. The mikes are live all the time, so the less noise you make the better

because it will all be recorded. You have to speak very closely to the

microphone for the recording equipment to pick it up. Also either identify

yourself or I will identify you for the record for Hansard's purposes so that

they can properly transcribe later since we don't have that kind of recording

taking place.

I welcome everybody back after a brief lunch. Who

would like to begin questioning this afternoon? Danny, if you are not ready yet

I will go on to someone else since you just arrive.

Mr. Dumaresque.

MR. DUMARESQUE: Thank you, Mr. Chairman. If you

wouldn't mind, I am not sure what has already been asked. I have done a fair

amount of reading on this, so I will be asking some questions later.

MR. CHAIRMAN: Okay, we want to get into some of

the outstanding balances. You don't have those yet do you?

AN HON. MEMBER: I have a copy of them here.

MR. CHAIRMAN: Perhaps we can get on with that

area. Does somebody wish to begin, or will I -

AN HON. MEMBER: (Inaudible).

MR. CHAIRMAN: Mr. Murphy.

MR. MURPHY: Thank you very much. I suppose just a

few comments and maybe a few questions. I certainly don't have any intention of

asking anybody why or relating any names to this. The one that I see here that

baffles me is in Makkovik where I see an outstanding balance. I guess it is over

365 days. It would need an explanation, its Newfoundland and Labrador Hydro. It

looks like their initial amount owing was $19,124.00 and they got a credit of

$487.00 leaving an outstanding balance of $18,637.00. How would Newfoundland

Hydro, number one, get into the store in Makkovik and why would they leave that

balance outstanding for so long?

MR. CHAIRMAN: Mr. Ludlow.

MR. LUDLOW: I think I probably better explain that

one. When Newfoundland and Labrador Hydro took over the operation of the power

plants up there they assumed that they took over all the equipment and the

supplies that were in the store. But these were inventory items that were in the

store that Newfoundland and Labrador Hydro did take from the building and were

using, but some of it was never ever used. Some of it would still be around

there yet. They assumed that they had taken over all of these items. That has

been an ongoing controversy ever since they took over the plants and there has

been attempts made to collect that, but they say no it was their property.

MR. MURPHY: How long was this outstanding, Mr.

Ludlow?

MR. LUDLOW: I don't quite remember the number of

years. It was much longer than 365 days.

MR. MURPHY: Still and all on the balance sheet you

folks are still carrying this.

MR. LUDLOW: We are still carrying this. There has

been requests made to have it written off, but that has not happened either.

MR. MURPHY: Then you must ask yourselves would

they write off a power bill to you fellows, you know. With some of the others I

was wondering -

MR. CHAIRMAN: Are you saying therefore that it is

in dispute and that you have now decided that there is no way to collect that?

Has there been any attempt to resolve this with Hydro?

MR. LUDLOW: It is not my decision to decide

whether or not -

MR. CHAIRMAN: Mr. Condon, maybe you could tell us.

What action was taken with Hydro to determine whether this is a valid charge or

not?

MR. CONDON: The department operated power plants

on the coast for a number of years, and I suppose ten years ago or even maybe

more than that - I am just thinking from memory some of the stuff I have read in

the files - Hydro took over whatever we had. The amount here is for

miscellaneous inventory items that were related to the power plant. I guess they

were nuts, bolts, couplings, and all of that stuff. We said: Look, Hydro, take

it all over. The $18,000 was shown on our books as an inventory item, and hydro,

I guess, accepted the stuff and said: You know, at $18,000 - that is junk. That

is old stuff that has been there for years. It is no good to the plant; it is no

good to us; and I guess the dispute has been ongoing - probably there is not

much happening on it recently, but I understand, going back several years, there

has been quite a bit of correspondence going on with hydro.

We went to Treasury Board a couple of years ago to

have a lot of the amounts written off, and that one in particular they asked us

to have another look at before they - we are trying to dig through some of our

old documentation on these items right now to see if we can reconstruct

anything. Maybe in a few months time we might be able to resolve this, or we

might be able to probably say to the hydro people: We will not pay your Hydro

bills.

MR. CHAIRMAN: Mr. Murphy:

MR. MURPHY: Thank you, Mr. Chairman.

The other thing then, obviously, that I see here that

might need some answering, or would require some explanation - are associations

and construction companies such as - now without naming those; some of them I

guess are probably no longer functioning, but I see quite a few, like the

Department of Mines and Energy, and the Department of Fisheries, and large

construction companies that, to my knowledge, are still operating, and

recreation committees. Even our friends, the RCMP, owe you $1.57.

For the life of me, I cannot understand why these

people do not pay. Are they invoiced every month? Do you add interest to them?

Is there a logical reason why they are still on the books?

MR. PARSONS: I have checked into some of those

departmental ones, and the reason they are giving me as to why they have not

been paid is because they were not invoiced properly in the beginning.

If you notice - I am sure you know - on mostly all

departmental purchase orders it says: Two copies of your invoice must accompany

this purchase order. They also require an itemized list. A lot of those accounts

here were invoiced with a single invoice and just marked to goods. This is why

they refuse to pay, because there is no indication of what goods were received

or why they were given.

MR. MURPHY: That brings up another question.

Is this somebody from the department who walked in and

ordered something because they needed it from the store in Makkovik, or is it a

purchase order actually from the government?

MR. PARSONS: Some of these are from employees of

the departments concerned, with a purchase order, but still the department has

refused to pay.

MR. MURPHY: And you would reference the PO number

on the invoice?

MR. PARSONS: Yes.

MR. MURPHY: And they still refused to pay?

MR. PARSONS: Yes.

MR. CHAIRMAN: They refused to pay because of

improper documentation is what you are telling us?

MR. PARSONS: Exactly.

I have checked with number forty-six, and that is not

an amount outstanding. It is incorrect debits and credits in the account.

I have gone back through the accounts and dug out some

invoices and whatnot. Here again, signatures on the invoices are not

recognizable by the company, so therefore they are refusing to pay.

They are refusing to pay this amount, saying: Look, we

do not owe this money, and I do not think they do owe that money.

MR. CHAIRMAN: Were there purchase orders issued

for those?

MR. PARSONS: No, there were no purchase orders.

What happened was that the company placed money on the account, and it was

charged against the money on account. However there are some invoices that are

not legible - the signature - and there are mistakes in addition and subtraction

of debits and credits in the ledger accounts.

Some time ago I did a complete reconciliation of all

those accounts and for some reason, when one of the monthly statements was

submitted, the corrections in debits and credits was not passed on to our

accountant, Mr. Rowe. Mr. Rowe came back to the assistant manager, who then

re-reported those accounts without my corrections of debits and credits - it is

all mixed up again, but this account that you see here in front of you for March

30, is not as high as it is here; there are mistakes that have been corrected,

that I have corrected, however -

MR. MURPHY: So what you are saying, in reality a

lot of this has been corrected and -

MR. PARSONS: There have been some corrections

made; yes. The large ones, yes, that stands as it is.

MR. MURPHY: Fifty-six, I would suggest that

credits (inaudible) -

MR. PARSONS: Fifty-six, yes, that -

MR. MURPHY: (Inaudible).

MR. PARSONS: - back and forth, right?

MR. MURPHY: Right. And what would that $862 - the

indicator is that it is over 365, the $862 left in that Department of Social

Services, so does that mean that that is a discrepancy also?

MR. PARSONS: No. That would not necessarily mean a

discrepancy however, I did find some irregularities with the account. Mr. Ludlow

had them checked out and they were verified as being okay, but what this would

be here is, where maybe a cheque has been issued to a recipient and our

reimbursement from that department has not been received yet, that is no

problem, that happens all the time but that account does not show any bad debts.

MR. MURPHY: No.

MR. WARREN: Mr. Chairman, page 27 of the report

talking about social services, it says that there is a transaction taking place

but there is no documentation.

MR. PARSONS: Are you referring to the internal

audit?

MR. WARREN: Yes.

MR. PARSONS: That, Mr. Warren was when I started

to go through this account and tried to reconcile it. There were some entries

messy, this is what I just referred to where I went to Mr. Ludlow who went back

through the Department of Social Services and these figures have been verified

and they are okay.

MR. MURPHY: If I may, Mr. Chairman, another

broader question in a sense. I see that there are some cheques, some NSF cheques

outstanding; is there a store policy, Mr. Ludlow or Mr. Condon, that addresses

cheques in large amounts? I know it is difficult to get them certified for one

reason or another but even after they come back, what is the procedure in place

to try and collect these monies?

MR. CHAIRMAN: Mr. Parsons.

MR. PARSONS: The procedure that I am following

with NSF cheques is that if I receive one, I go to that person and give them a

chance to pay for it either by another cheque or by cash. If the next cheque is

returned NSF, I take no more cheques from them. The only cheque that I take

right now from anybody, a personal cheque, is for payment of goods that they

receive; I do not cash any more personal cheques for cash only. Even if a girl

goes out and baby-sits for somebody and she is paid by a personal cheque, I will

refuse to take that cheque for cash. If you look up the NSF ledger in Makkovik

right now you will find that the NSF outstanding I think is somewhere around

$200 to $300.

MR. MURPHY: The amounts that are outstanding,

would they be cheques or would they be charges?

MR. PASONS: This here?

MR. MURPHY: Yes.

MR. PARSONS: For Makkovik here, they are charges.

I think the only time that we are asked to submit an NSF cheque statement is at

the end of the year, that is the only time that I have ever done one. During the

year I keep a check on it myself and watch it, if one comes in I make sure it is

paid and as I said, Makkovik is well - off NSF wise. I looked through some of

the other accounts in Davis Inlet and I have noticed one or two there that I

know are NSF cheques and it's put in as an account receivable right now, but the

only time we are asked to report is at the end of the year.

MR. MURPHY: Is there any policy as such, either by

the department in Goose Bay, to you managers on cheques and NSF cheques? Is

there anything in a policy manual or procedural manual?

MR. PARSONS: We have a memo stating that we are

not allowed to take personal cheques for cash. We are only to take personal

cheques for payment of groceries.

Also, it states in our - I guess it is government

policy - that managers can be held responsible for any cheque that goes NSF, and

it can be deducted from our pay cheque. So there is a system of checks and

balances.

MR. MURPHY: Thank you, Mr. Chairman.

MR. CHAIRMAN: Mr. Warren?

MR. WARREN: Thank you very much, Mr. Chairman.

I want to follow up with Mr. Parsons' answer to your

last question. Probably I will ask Mr. Condon: The managers have a memo saying

that they cannot take a personal cheque from somebody for $50 or $100, but they

can take a personal cheque for the amount of the goods. You could lose both

ways. You could also lose the goods plus the cheque by taking it for the goods.

If you just take the cheque for the guy who is in Makkovik and needs $100, you

will not take the chance on giving him the $100 but you will take a chance on

taking his cheque for $300, which could bounce and also he would have the goods

too.

MR. CONDON: I guess the stores perform a little

bit of a banking service in a lot of the communities. We will cash payroll

cheques, UIC cheques, or any government cheques for people. As Mr. Parsons

mentioned, we do not accept personal cheques for cash, but since we are in the

business of providing a service, if anybody - and a lot of people do business by

cheque up in communities, so we will accept a cheque as payment for the

groceries.

For the most part we have very little problem with

accepting cheques in this regard. Most of our problems would come from

construction companies - companies that are in doing some work there, and there

might be five or six people from the community hired. They will give them their

payroll cheque and we will cash the cheques for them. Then, all of a sudden the

construction company is gone out and a month later we get these cheques back

NSF; so we have to track down some of these construction companies.

As far as the general public is concerned - I do not

know if the managers might have anything to add - we have very little problems

with accepting cheques for the purchase of groceries. I would say there are a

fair number of people who use cheques for the purchase of groceries. I think

that if we did not we would have a lot of hue and cry from the residents.

MR. CHAIRMAN: You are not getting a high

percentage of NSF cheques then?

MR. CONDON: No.

MR. CHAIRMAN: Is that accurate for pretty well all

stores?

MR. CONDON: For Makkovik especially, yes; there

are very, very few.

MR. LUDLOW: Some of these NSF cheques, or most of

them - mostly all of them, I guess - are not written intentionally to be NSF,

but the length of time that it takes for our cheques to get in and get through

the bank, this person is probably already to the bank when he writes the cheque.

By the time this cheque gets in there, which would be a month to a month and a

half afterwards, then that account has probably dwindled away and next month is

back up again; so if they write another cheque it is probably alright. There is

not a problem with collecting, but this is one of the reasons why we do get NSF

cheques.

MR. CHAIRMAN: Mr. Warren.

MR. WARREN: Thank you, Mr. Chairman. On page 29

and 30 of the report it says that a majority of those accounts - and it

mentioned Makkovik in particular - but I would think that the other five depots

would be in the same boat, and they go back pre 1986. Earlier Mr. Parsons

mentioned what he has done in the past year or so to identify the thirty-odd

accounts in Makkovik. Now looking at Nain, for example, or Hopedale or Davis

Inlet, we have similar problems. I would like to stay away from particular names

as much as I can. We see a person here in Nain who is employed, and we have over

$3,400 outstanding. I guess probably Antone could advise us as to how far back

this $3,400 goes? How much correspondence has taken place between you as the

manager and your field supervisor? How much correspondence has taken place

between the field supervisor and the St. John's head office, to make a

collection from a person who is fully employed? Has anything been done? When was

the last time number six was given the notice that he owes $3,400 to the

government of taxpayers' money? When did you advise him of that? When do you

advise your field supervisor? When did the head office advise him? Does this guy

still know he owes $3,400 or does he care?

MR. NOCHASAK: I can't understand.

MR. CHAIRMAN: I guess what Mr. Warren is trying to

get at is what methods are used to try to collect these amounts that have been

outstanding now for some time. I understand - I will just clarify it first of

all before we answer that part - in general that the policy has changed since

1986, that you are not now issuing goods on credit anymore to individuals. So

many of these items that are outstanding are prior 1986. What are we doing to

try to collect these amounts?

MR. NOCHASAK: We send out a statement at the end

of every month.

MR. CHAIRMAN: The end of each month?

MR. NOCHASAK: The end of every month, like this,

to every person and company. Now I just wonder what it was before it got to me.

MR. WARREN: Yes, I know because it was a number of

years ago. Every month now this particular person here gets a statement from

you.

MR. NOCHASAK: They get a statement every month.

MR. WARREN: Of just $3,400. Nothing else.

MR. NOCHASAK: Just the amount owing.

MR. WARREN: It doesn't say what it is?

MR. NOCHASAK: (Inaudible).

MR. WARREN: Mr. Condon, have any of you attempted

maybe to attach income?

MR. CONDON: No. Actually we requested Treasury

Board to write off a lot of this stuff, and they have indeed, but they came back

with the balance of what is left here now. I think these are probably the more

current of the list. They said go back through your records and see if you can

get some backup statements on this. We were thinking about turning them over to

a collection agency and before you can do any of that you need backup

documentation. That is what we have asked the managers to do, to try to dig

through their old files and see where these charges originated. I guess sending

statements out month after month without people acknowledging them, maybe those

people haven't come back, they are becoming old, or maybe they are arguing that

they don't owe it. I don't really know. We are hoping that over the next few

months we will be able to look at each one of those and determine whether it is

collectable or not.

Maybe at some point in time we would have to turn them

over to the Department of Justice for some type of legal action.

MR. CHAIRMAN: Can you tell us generally how an

individual would be allowed to accrue $3,400 in credit for groceries in a store?

That is probably the best part of a year's supply of groceries.

MR. LUDLOW: Yes -

MR. CHAIRMAN: That is only one example; I am not

interested in any one individual.

MR. LUDLOW: What happened here I expect, is that

these accounts, most of them, or all of them I dare say, go way back to years

ago when we had given out credit to fishermen. With a bad summer fishing, they

accumulated a lot of debt there and could not pay it back and I guess we could

not collect it in other years either, because of social policy too, the next

year we would supply the fishermen with supplies again so these things kept

building up and building up. After a few bad years you end up with a lot of

balances.

MR. CHAIRMAN: Is there any interest charged on

them?

MR. LUDLOW: No. A lot of these balances go back to

people in Nain. I do not think you will find any documentation on them because

it was destroyed in the fire in 1972, and most of them are back before then.

MR. CHAIRMAN: Mr. Condon, do you want to -

MR. CONDON: Yes, just one point, Mr. Chairman. I

think at one point in time the department financed engines and boats; managers

probably could remember some of those days when I guess pretty well anything

that went on up there, the department would finance.

MR. WARREN: I would think that $3,400 could be a

skidoo or a boat.

MR. CONDON: Yes.

MR. PARSONS: Excuse me, Mr. Warren. If you look at

Makkovik you will see in number two and number three, it clearly states, a stove

and motor; number five, a washer and motor, so some of these things are for

household appliances.

MR. WARREN: I notice in the Nain one too, the Nain

Fishermans Committee. (Inaudible) set up in the various communities all over

Newfoundland and Labrador, but when you see a balance of $4,400, was this for

some kind of work project?

AN HON. MEMBER: Maybe some of the managers might

be familiar with that one.

MR. LYALL: That was a program we had in Nain

(inaudible), and we cashed the paycheques. Those are all bounced cheques

(inaudible).

MR. WARREN: All bounced cheques from?

MR. LYALL: From the project, they overspent

(inaudible).

MR. WARREN: So what attempt was made to collect?

MR. LYALL: (Inaudible).

MR. CHAIRMAN: The Nain Fishermans Committee issued

cheques in excess of what they had available and they are responsible for it and

should be held responsible for it.

MR. MURPHY: I think, Mr. Chairman, Canada Works

Project, on the next page, Mr. Warren, shows the same thing in Nain for a

$1,045.52; that probably would fall in the same category or, I do not know,

maybe it was I have no idea, it could be picks and shovels or whatever the case

might be, but there is still an outstanding bill of $1,045.52, so you are asking

the taxpayers of the Province to subsidize this Canada Works Project. I mean,

the bottom line is that, that is the bottom line, and I do not know how old that

is, there is no date on it but when you see something it is like a neon light

that goes on and off and the same thing that committee member Warren talks

about. I mean if you look through it you will see different groups and what have

you. Anyway, I do not know what that Canada Works Project is, but one would I

suppose, assume that these people overspent also and left a bill on the ledger

in Nain that is uncollectible.

MR. WARREN: It is roughly $200,000 in the supply

depots and practically all of it is more than 365 days old. Eighty per cent of

it probably is more than seven years old.

MR. CONDON: I would say it was, yes.

MR. WARREN: I would like to go back again to my

original question. Do you believe there has been enough effort put into trying

to collect some of this? Where is the breakdown on this, is it with Treasury

Board in St. John's or is it with your department in St. John's? Other than

sending out a little slip to Mr. so and so saying he owes us $35.00 what else is

done to Mr. so and so?

MR. CONDON: Probably not much else. Treasury

Board's only input into this is that we went to Treasury with a number of these

and said: look, these have been outstanding for five years, can you write them

off for us? They said: well, we will write off some of them for you but there

are a lot more there that you might collect on. So they have thrown them back in

our lap. What we are trying to do now is dig through our files and piece

together the information and if indeed there are legitimate charges and people

do not pay up then we will go to the Department of Justice. On anything current

we have taken a pretty hard line with people who have given us NSF cheques. We

have written letters to them, mentioned the Department of Justice and we have

been quite successful, but on these I can only speculate. If we do find out the

information on them we will then pursue it but until then we have very little to

go on. Like Antone said we will send another statement.

MR. WARREN: In a number of cases here they are

employees of government, both federally and provincially, and there are avenues

open where collection can be made, at least in those instances. I am surprised

to see employees of departments owing bills going back over the years.

MR. CONDON: I can assure you that when we get the

information back we are going to pursue it. Even some of our own employees, if

they are on that list, we will take the necessary action to recover the amounts

if indeed it is deemed they are legitimate.

MR. CHAIRMAN: Are your saying, Mr. Condon, that we

have this list before us that is five or six years old and we do not know if

they are legitimate claims or not? Have we not made any attempt to determine

that?

MR. CONDON: Not that I am aware of, Mr. Chairman.

We have these statements come in every month and it is only over the past couple

of years that we send them over to Treasury Board to get rid of a lot of them -

we are back eight to ten years - that we have made a determined effort to sort

our whether they are legitimate or not and what type of action we can take to

recover them. They have been there with just a statement sent out from time to

time. I do not think there was any concerted effort. Now maybe Ben can elaborate

on that but I am not aware of any concerted effort to collect them other than

the normal monthly statement type of thing. I have not seen anything in our

files where we got the Department of Justice writing letters or anything else.

MR. CHAIRMAN: Mr. Ludlow.

MR. LUDLOW: The only effort that has been made has

been through the managers and ourselves and not through any legal channels. It

has never been pushed through any legal channels - they have been threatened at

times.

MR. WINDSOR: I guess the obvious question is, why

not? There is a couple of hundred thousand dollars of the taxpayer's money

outstanding, plus whatever has been written off already by Treasury Board for

various reasons. Obviously, Treasury Board, perhaps wisely has said: why write

this off? Why have we not asked the Department of Justice to pursue it and why

have we not asked permission to put it to a collection agency, or any other

remedies available to us?

MR. LUDLOW: I do not have an answer.

MR. CONDON: Mr. Chairman, I can only speculate

that some of these cases, the Nain fisherman's Committee and some of those other

ones, for various social reasons or whatever, government deemed it not prudent

to pursue them.

MR. CHAIRMAN: In that case government should have

said: We do not want to pursue them. They should have, in that same order, given

you permission to write them off.

In the absence of such permission on file, we have to

question: Why are we not pursuing it?

MR. DUMARESQUE: Mr. Chairman, just a quick run

through the statements there. I find there are some thirty accounts that are

either federal or provincial departments. Surely there is no need for government

to not say to somebody, in a federal or provincial department, pay up. You

cannot be concerned about social costs to somebody who has a government account

there.

Earlier we said that there was some discrepancy or

dispute over the actual balances - the ones in Makkovik in particular - but am I

to assume that all of these thirty accounts, federal and provincial departments

or organizations, are all disputed accounts? If so, can this still happen now?

MR. CONDON: I do not know if Antone might want to

add to this. I know we had a situation this year that, I think, in Nain the

Department of Social Services owed us some money. Some money, I guess from their

office, came to the store with a purchase order, and I guess Antone said: Well,

boys, we are not giving you anything. Pay us up or that is it.

Is that correct Antone? It was only after there was

intervention at higher levels, and they came across with their money and squared

off the account.

So we are, I guess, addressing those receivables and

the outstanding charges, especially with our own provincial departments and

agencies.

MR. PARSONS: I started procedures in Davis Inlet

to collect some NSF cheques through the small claims court. I was told by the

previous director of our dep

Document details

Collection	Newfoundland and Labrador — Committees
Citation	1992-08-10
Type	committee
Volume / chapter	committees_standingcommittees_publicaccounts_ga41session4_1992-08-10_pac_.htm
Language	en
Format	html
Source	PROVINCIAL
Identifier	c162e1dbd1c16d560883392943f0ae79e4123dfd

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