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

CHAIR (Bennett): Good morning. This is a meeting of the Public Accounts Committee. I am the Chair; my name is Jim Bennett.

The Public Accounts Committee is a committee that inquires into financial matters involving the Province, and today we are looking at the Growing Forward Program as it is outlined in the Report of the Auditor General. The Public Accounts Committee primarily focuses on the Auditor General's report but is not restricted to the Auditor General's report.

I will call on the Committee members to introduce themselves, and also the witnesses to introduce themselves. The evidence that we hear is given under oath; however, all of the witnesses are here voluntarily, nobody has been subpoenaed, and we appreciate their attendance to provide us with additional information.

Nothing that is said in this meeting, which really is a hearing, can be used against the individual who is providing that information. The same protections a person would receive in the House of Assembly, generally applies to the Public Accounts.

I am going to call first on the Vice-Chair to introduce himself. The other members will introduce themselves, and then I will go to the witnesses who are here, and then to our Committee staffers.

Mr. Brazil.

MR. BRAZIL: Mr. Chair.

Welcome to the witnesses from Natural Resources and the Auditor General's staff. I am David Brazil, Vice-Chair of the Committee, and I represent the District of Conception Bay East – Bell Island.

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

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

MR. CROSS: Eli Cross, Bonavista North.

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

MR. JOYCE: Eddie Joyce, Bay of Islands.

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

MR. JANES: Claude Janes, Audit Principal.

MS RUSSELL: Sandra Russell, Deputy Auditor General.

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

MS MacDONALD: Cindy MacDonald, Director of Agriculture Business Development.

MR. DEERING: Good morning, I am Keith Deering. I am the Assistant Deputy Minister for the Agrifoods Development Branch of the Forestry and Agrifoods Agency.

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

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

MR. DROVER: Craig Drover, Researcher of Committees.

CHAIR: The page who is with us today is Ryan Steeves, and we welcome Ryan to the first meeting that he has attended. Thank you.

It is customary to have witnesses sworn or affirmed, and all of the individuals, including the Auditor General and his staff are witnesses, but all of them have previously been sworn. Ms Murphy will administer the oath or solemn affirmation.

Mr. Evans

Ms MacDonald

Mr. Deering

Ms Gill

CHAIR: The way we do questioning is that each member is allocated ten-minute increments. We start with a member of the Official Opposition and then we alternate to a government member. We will go back to the member from the Third Party then back to a government member. When the members have asked all of the questions they wish to ask, then I may ask questions if there are areas I feel should be covered in more detail or something that may not have been covered previously. Members then are invited to ask further or supplementary questions.

Typically we will take a break somewhere between 10:30 a.m. and 11:00 a.m. to allow people to attend to whatever, then come back and go through until roughly around 12:30 p.m. I say approximately because if a member is in the middle of a ten-minute period, then I ordinarily would not stop that member. If somebody is asking questions on a specific item, I would not stop them in the middle of the item. It would be better for them to finish the item even if they ran over a little bit, just for continuity purposes.

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

MR. JOYCE: Thank you, Mr. Chair.

I will start on page 165 of the Auditor General's report: Related party policy not considered. It says, "A total of $1.306 million was paid to three related entities, which represents $806,000 above the maximum funding under the guidelines of $500,000 per applicant." If you go on the next page 166 you can see how the shareholders for each one has arranged by the Auditor General and put forth here. If you notice, "The $500,000 in funding to Entity 2 was approved by the IC even though staff recommended rejection of the project." Can you explain how this was done?

MR. DEERING: I guess, from my perspective, we have acknowledged the Auditor General's observations. Based on our information we can confirm that the related party's policy was contemplated by the Implementation Committee. We have taken measures to ensure that this information, when it is considered, is better documented in the decisions, the records of decisions, for the Implementation Committee. As well, we will take more formal steps in the next framework agreement to ensure that there is more adequate representation of the related party's policy in the Growing Forward 2 framework.

MR. JOYCE: So these three related companies, what part of the Province were they operating?

MR. DEERING: These three companies would have been located on the West Coast of the Province in the Codroy Valley area.

MR. JOYCE: Codroy Valley.

Can you explain, on top of page 167, "The $500,000 in funding to Entity 2 was approved by the IC even though staff recommended rejection of the project."

MR. DEERING: Obviously, from time to time, we have a lot of people that feed into our process. We engage the views of our field staff, wherever we possibly can, in terms of the information that the Implementation Committee has to contemplate.

There are examples of where staff may submit information to us or to the Implementation Committee that the Implementation Committee may decide, for a variety of reasons, to give that information obviously full consideration but may decide to make a different decision than was recommended by the staff person.

The staff are not technically on the Implementation Committee, but it is our view that the Implementation Committee is responsible to take a much broader view of the decisions that need to be made and technically consider things that are provincial in scope.

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

MS MacDONALD: The Implementation Committee, I am the Chairperson. There are two other members, one is Rick Carey, he is the Director of Land Resource Stewardship, and the third person is Roger Churchill.

MR. JOYCE: Is he in government?

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

MR. JOYCE: When these decisions were made, were they the three people who were on the committee at the time?

MS MacDONALD: Yes, correct.

MR. JOYCE: Okay.

In the next sentence down, the next paragraph: "Entity 2 was ineligible under the Program as the company did not generate farm sales; it was a land clearing company only".

How can that be approved when the Auditor General said they were not even eligible for the funding?

MS MacDONALD: I think the comment is coming from one of the staff comments that were in the file. We do deem that the applicant was eligible. We have funded them in the past under other programs and we have funded similar entities under this program as well.

We consider land development in this Province very important for the agriculture industry and this project, it was a good project. It involved the purchase of a rock Rotoveyer. Basically, it is a large piece of equipment involved in doing large-scale land development.

The entity, we considered it was eligible under the program. I think the comments that were raised by the Auditor General, which are fair comments, were comments that were concerns raised in the fall by one of the staff in their assessments.

MR. JOYCE: Can I ask the Auditor General, in here it goes on about how this company, Entity 2 was clearing land, "over the past three years, Entity 2 had developed more land for its related entities than that for local producers (560 of 700 acres cleared was for its related companies)". It goes on to other things.

Did you notice, or did the Auditor General notice that this company is just for land clearing only and not –

MR. PADDON: The comments that are being related or talked about here in those five bullets are us reiterating what we saw from staff at the Department of Natural Resources. These are not our comments. These are just us saying, here is what the staff said in terms of their input into the decision-making process. It is really internal staff raising the issue around who they have done the land clearing for in previous years.

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

MS MacDONALD: (Inaudible) take agricultural activity. The development of the land itself would be considered an agricultural activity.

MR. JOYCE: The statements here, if it came from staff, Entity 2 has to run the program as the company did not generate farm sales, it was land clearing. That is incorrect then?

MS MacDONALD: From the Implementation Committee's point of view, yes, that would be incorrect. That is a staff person's comment.

When we have applications or proposals reviewed, they can be reviewed by agricultural development officers, by farm management specialists. Sometimes commodity specialists themselves will make an assessment on the file, including the program managers for Growing Forward. When the Implementation Committee looks at an application, we are looking at sometimes as many as three or four different comments or recommendations on the file.

MR. JOYCE: Okay.

MS MacDONALD: Not always do all the staff assessments agree. Sometimes, depending on the projects, some staff are more in support of it than others. The purpose of having this Implementation Committee of three people is that we provide them to show there is equity across the Province for all the applications. This is something we would have funded in the past for an applicant. Even though one staff might have had concerns with the project, it would be something we would have funded under the program.

MR. JOYCE: Yes. I am sure it is on file and we do not need to know the name. Can you present us with the farm sales they had for about five years prior to getting this funding? Obviously, the staff here did the assessment. The company did not generate farm sales. I am sure you have it, the actual farm sales that they had.

MS MacDONALD: Yes. I would not have it with me, but it is certainly something that we can get because they are required to submit their financial statements to us.

MR. JOYCE: Yes, and that is the other thing. In the report that the staff did, the company is financially shaky but yet it was still approved. If you are looking at a financial company where the staff on the ground is stating that no, they had no farm sales, they are in financial difficulties. Yet, the funding was approved against the recommendations, which is three different companies, which are getting over $800,000 and each one is all related. It does look a bit suspicious. I am not saying there is anything, but it does look questionable.

MS MacDONALD: If I can comment on the comment regarding the weak financial position. One of the objectives of the Growing Forward Program is to strengthen both the profitability and innovative capacity of the sector. We will look at projects – even if an applicant is in a weak financial position we may fund a project because it would help their overall profitability of the operation.

For instance, you may have a dairy operation that is importing a lot of forage. That is a high cost to the farm and is impacting their overall bottom line. We will look at that. They may be in a weak financial position but our funding would help them, for instance, either put more land into development or help them with forage equipment. That would help their bottom line. If we think the project helps address either the innovative capacity or profitability, we will look at funding the project.

MR. JOYCE: Is it common for the IC to fund three different related entities at the same time?

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

MR. JOYCE: Is it normal for you to fund three different entities, which have been pointed out by the Auditor General, that are related in some fashion in shares? Is it common? When was the last time you did it?

MS MacDONALD: There are probably two or three, or four other farm situations I can think of where there are multiple farm enterprises. What is common in farming is that normally it is farm families that are farming. Typically, you could have someone for instance involved say in a dairy operation, someone could also have perhaps a vegetable operation as well. They could have a son, for instance, and have them as common shareholders also into a forage operation. That is typically common within the agricultural industry.

MR. JOYCE: Yes. Can you produce to the committee or for me, the last time, or the last several times when three entities were in the same shares with the same companies that have been given this amount of money?

MS MacDONALD: Yes, I can provide an example of another farm family operation where one company is into dairy, there is another into vegetable, and there is another into a separate enterprise. I can certainly provide an example of that.

MR. JOYCE: Okay.

I will ask the Auditor General, on page 168, availability of existing funds. Can you explain – at the end of it here, and I will just read the last sentence. "Given this, it was questionable whether available funds existed to approve over $1.3 million in funding for these three related entities."

MR. PADDON: The point that we were making with that comment is that there is a limited amount of funding available in any particular year for the program. In both years we looked at, it is our understanding that the programs were oversubscribed. So you had more people applying for a limited amount of money. If you provide more money to a related group over and above the $500,000 program maximum per applicant, then effectively what you may be doing is taking available funds away from some other applicants who may have sort of not been past the threshold of funds availability.

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

MR. JOYCE: Oh, sure.

MR. BRAZIL: Thank you, Mr. Chair.

I am going to ask for some clarification, more so. I have gone through the responses to the questions that were put forth. I do like the responses and I think they do clarify certain things, but to get a better understanding I almost need to know what was happening previously so that we get a better understanding, that I am confident that this will address some of the issues as we put our recommendations forward in our report.

Before I get to that, as a former civil servant and somebody who was heavily into bilateral agreements and particularly trying to leverage the amounts of money from the federal government, the fact here that all the money was not fully claimed under the bilateral agreement, can you give me a little understanding as to what happened there? What issues came forth that restricted it? Was it a bureaucratic issue? Was it the partnership development? Was it the fed-provincial agreement? Just so I have a better understanding, please.

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

I guess part of the reason why we enter into these agreements in multi-year phases – and this is a five-year agriculture policy framework agreement – is because there tends to be a little bit of movement of money across years. In fact, in this particular case we had built into the agreement an allowance that we could carry forward 25 per cent from year-to-year, which is only limited in the last year of the agreement – which is this year, there would not be any carry forward permitted.

In the particular year that was reported on – in fact, there may have been a possibility of a lapsing of funds, but we had addressed that through a new budget submission that would allow us to carry forward the money that was not spent in that year, and again, would allow us to maximize the amount of federal funds that were available to the Province.

As well, in the accounting process, there could be a number of circumstances that may prohibit us from fully capturing all the accounting in any one year, but I can assure you that all funds that were available to the Province from the federal government have been requested and have been provided up to this point.

MR. BRAZIL: Okay, so the $465,000 that the Auditor General noted would be part of a carry-over, carry-forward process from the federal agreement?

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

MR. BRAZIL: So, will that top up this – of course, this is the end of the agreement now, is it? The five-year agreement is done.

MR. DEERING: In the final year of the agreement, if we have projects that do not get completed on time or there are projects come in under budget, there tends to be a risk at the end of the year that there will be money left over. Unfortunately, in the last year of the agreement there is not much we can do about that.

We are entering into a new agreement starting on April 1. What money we have left on the books at the end of March unfortunately we will not be able to carry forward.

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

MR. DEERING: No.

MR. BRAZIL: Has that been suggested? In some cases it has been, if we know it is going to be an ongoing bilateral agreement, there is leeway to do it.

MR. DEERING: Well, I have been participating in the negotiations for the new framework agreement and we have had discussions on that. Unfortunately, because it is a negotiation, our federal counterparts obviously were not able to allow it because of their own Treasury rules. Again, at the end of the day I am still hopeful – and we are monitoring this fairly closely – that we will minimize and hopefully eliminate the possibility of any carry forward in the next year.

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

I just want to take you through some of the responses you had. It goes back to wanting to satisfy myself that what you have outlined here seems to be adequate to address the issues that the Auditor General brought forward. To get an understanding, I will give you an example, question one, "Has the Department reviewed and modified the documentation procedures of the Implementation Committee to ensure that decisions are better documented?"

Your response, "As of April 1, 2012 the Department has ensured that all decisions are better documented in the minutes. All Growing Forward Implementation Committee (IC) decisions continue to be recorded in official Records of Decision which are included with the minutes. All minutes are signed off by the IC Chair and one other Committee member. Minutes are then distributed to the IC Chair…". I see it as a great answer. We know the process there. We know it will eliminate the issue we had.

Moving to the second one is where I would like some more clarification as to what the process was before and how, what you have noted here, would improve the process. Here is the question we had asked, "What procedures have the Department implemented to ensure that the documentation related to applications, project costing, and arrears checks are complete?" You went on with your answer.

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

MR. DEERING: Yes.

MR. BRAZIL: What you explained there makes sense to me, how the manager would be engaged, but give me an understanding of it. Obviously the Auditor General brought this forward because there was a gap in the ability to monitor that properly.

What was happening before that, now, by implementing that, will improve the process? What was lacking somewhat before that? I just need an understanding so I am pleased or happy that this would address that issue and it would not be a further issue down the road.

MR. DEERING: I will let Cindy expand on this, but my understanding is that as a result of the Auditor General's report and recommendations we have come up with a file information sheet that we basically fill in and are able to check off a lot of the elements that were reported on in terms of whether they were in the file, incomplete or not.

My assessment is that prior to this our system, although it probably had mechanisms to check for some of this stuff, it was a little bit more ad hoc than that. It might have been reported on in minutes and it may not have been.

We have made it a little bit more of a formal process now. Again, it is not to say that it was not done in the past, because in my assessment through various mechanisms it was. Cindy, I do not know if you wanted to expand on that.

MS MacDONALD: I think, based upon the Auditor General's comments, we are implementing a lot more due diligence in the file. I think a lot of the comments they had in the report was due to documentation issues in the files. Something as simple, for instance, of whether an applicant had an environmental form completed, sometimes we would have done the check and it would have been an e-mail response back, but the e-mail would have been printed out or put in the file. Things like that now, they are being checked off.

As Keith mentioned, this file information sheet, the program managers now have to date when the piece of information is received and put in the file and they have to initial it. Then there is a second check as well by the program accountants to make sure that was done. As well, all the files go through a manager of cost-shared agreements. The fourth check ends up being our Manager of Agriculture Business Services, Janice Gill. They, along this process, will do checks to ensure that the documentation is on file.

MR. BRAZIL: Okay.

Have there been any new resources added to the department or the Growing Forward Program to address some of this stuff? I go to the point where if the Auditor General has identified it, then obviously there is gap in either somebody has not performed their duties, or the process did not work, or there was a lack of resources there to be able to implement what you wanted to do. Have you changed the structure of – I know that you have noted the responsibility of various people. Have there been any new resources added to it or have you reshuffled responsibilities to make this work?

MR. DEERING: No, we have not added any new human resources to be able to do this. We have essentially just fine-tuned our own process and tried to make it work a little bit better.

MR. BRAZIL: Okay.

Have you done your own internal review after – and I know you noted it and you showed the documentation there, that the Auditor General had said – that all managers, all directors, all the key people sit down, some of the stakeholders, to talk about how you better implement and better monitor the program itself?

MR. DEERING: Yes –

MR. BRAZIL: Or do you have a self-monitoring process continuously going on to improve the program and assess whether or not you are meeting the needs of the clientele?

MR. DEERING: I do not know that I would say that we have done a formal review. As a result of the Auditor General's report, we have made more formal some of these processes. We have prepared a work plan to address the issues that were identified in the report. Through mechanisms like this file information sheet, we have made more formal a process that was previously a little bit less formal.

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

MR. DEERING: It certainly would be shared with the folks on the Implementation Committee, I would suggest.

MR. BRAZIL: Okay, perfect.

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

Thank you.

MR. MITCHELMORE: (Inaudible) on page 155, "A total of $1.306 million was approved and paid to three related parties ($500,000, $500,000 and $306,000)." The related parties, the IC, is required under the program guide to consider the benefit to the industry, the amount of funding previously received, and the availability of existing funds; however, there was no documentation to indicate that these factors were considered.

Why was there no documentation? This is completely unacceptable when we are talking about such a large sum of public money and highly skilled government employees that are sitting on the IC, apparently.

MS MacDONALD: What we were doing with our decisions is we were recording a record of decisions for every project. So it would have information on the project description, project title, the amount approved, eligible items, thematic areas that the project was approved under; however, our minutes were not capturing the discussion as to why we were approving a project.

We have noted that was an issue that we need to have improvement on. Since the Auditor General's comments, in our minutes we are now capturing, for each project, the discussion around why the projects are being approved.

MR. MITCHELMORE: Of your 360 projects then, none of them captured any of the discussion by members as to why they were approving funds?

MS MacDONALD: The files are assessed, like I mentioned previously, by different staff, like development officers, farm management specialists, program managers also do a fairly in-depth technical and financial assessments of projects. We were using that as the background assessment as to why a project would be approved. When the Committee actually made its decision, it did not detail why that was being approved. At the time, then, the projects were being supported by the staff assessments.

MR. MITCHELMORE: In these cases they were not supported by the staff and you refused to document any reasoning why the IC is making a decision to overturn the staff. This is a higher hierarchy and this goes against basically any type of policy that a committee would have. This is wrong and I do understand why you did not document the findings. There has to be something, a reason for that.

MR. DEERING: Again, from my perspective, I am not sure that there was a specific attempt not to report on these elements. Again, what we have committed to is an improvement in the process to make sure that the elements that the Auditor General had identified will be clearly documented.

As Cindy mentioned earlier on to one of the previous questions, in this particular case the staff person who would have made these comments, perhaps they never had the full amount of information that the Implementation Committee, for instance, would have to base their observations on. It is not common for our field staff to have the full financial information of companies, for instance.

Cindy indicated previously that some of these observations were not correct. Even though they were documented in the minutes that we had prepared and they were given full consideration in the decision-making process, the Implementation Committee had to make a higher order assessment and made an assessment that was different from the information that came from the field staff.

MR. MITCHELMORE: Regardless of that, the Implementation Committee should have been putting in documentation why it is approving or rejecting applications to hold accountability to the system. This is blatant misuse of power, in my view.

When it comes to looking at the Entity 1, Entity 2, Entity 3, I am very interested because I worked in business development. Seeing the structure of these companies and how they are set up, it seems very unusual that companies would be set up this way in such a related structure.

Would they be given any recommendation by the department to form companies? Were these new companies incorporated to apply for funding, that had received funding previously under Growing Forward, then became incorporated, Entity 2 and Entity 3, so that they could acquire greater public funds?

MS MacDONALD: To my understanding, these companies were in existence prior to Growing Forward. So no, they would not have been set up just to avail of program funding.

MR. MITCHELMORE: Because they were no new applicants, like Entity 2, when it comes to land clearing, how would they have been qualifying for the program, then Entity 2, if they did not have equipment and they were looking at this program to acquire the equipment – how would they have adequately qualified for the program, I guess, is my concern?

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

MR. MITCHELMORE: You said that all of them were incorporated and were structured; they were in business before they had qualified for any Growing Forward funding. So, new applicants would not have to have farm sales, but Entity 2 which purchased equipment to do land clearing would have needed the equipment to do the land clearing. Prior to receiving funds, what type of business were they in and how did they generate their revenues?

MS MacDONALD: Yes, sorry. They would have been into the land clearing business; they would have been doing land clearing previously. What this one piece of equipment is, it just allowed them to expand that capacity. They would have had other equipment doing that sort of work previously. This one large piece of equipment, this large-scale rock Rotoveyer, would have allowed them to do much larger acreages on an annual basis.

MR. MITCHELMORE: At what levels – what is the timeline for Entity 1, Entity 2, and Entity 3 receiving funding?

MS MacDONALD: I do not have the details of that. I am not sure if that was all within the same fiscal year or if that was over the two fiscal years that the Auditor General reviewed.

MR. MITCHELMORE: I would like an answer. Could the Auditor General's office provide documentation as to when Entity 1, Entity 2, Entity 3 received funding?

MR. PADDON: We will take a look. I am not quite sure how much information we would have in our file. We do not copy departments' files. We would have certain information. We just have to check.

MR. MITCHELMORE: Okay. Maybe during break or whatnot the officials here could contact and take a look at the files and get the information for me, when I get a chance to question again, because I have a number of questions on this and significant concerns.

When we look at Entity 2, it said that they had produced of the 700 acres cleared, 560 of them were for their own related companies. One of the things we look at is looking at competitive impact, looking at the benefits to the overall industry. I am wondering as to, this was a comment by staff, so why would you look at additional funding to these companies?

MS MacDONALD: One of the issues that we have in the agriculture industry is having access to enough agricultural land for production. We look at land development as a priority. The fact that this company was clearing a lot of land for themselves, for their related parties, is understandable because they are operating one of the largest farm operations in the Province, but they also provide services then to other producers that are looking for land development.

As an Implementation Committee, we do not see it as a competitive issue because one of the problems that we continually see with farmers in trying to get land approved is trying to source people to clear land for them. A lot of our land clearing projects, for instance for this year, producers are having difficulty getting people available. By us investing in the increased infrastructure and capacity for land development, we think that is a good investment.

MR. MITCHELMORE: Shouldn't this company that you have approved the funds for be clearing all of this land then if people are having difficulty getting access? It is evident then that there is certainly an issue when it comes to getting land clearing.

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

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

MR. MITCHELMORE: Was 90 per cent of the cost covered for the equipment through the Growing Forward Program?

MS MacDONALD: Seventy-five per cent.

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

MS MacDONALD: All projects under the agreements are reimbursed at 75 per cent of costs.

MR. MITCHELMORE: There are some exceptions, though, where it could go up to 90 per cent?

MS MacDONALD: It could be, yes. You are right. For some of our not-for-profits for training and things like that we can go up to 100 per cent funding.

MR. MITCHELMORE: I have a number of other questions so, Mr. Chair, I would be willing to pass it on to a government member to come back.

CHAIR: Mr. Collins.

MR. S. COLLINS: Actually, before I begin, I would certainly like to say I have dealt with this program and some of the officials opposite on a number of occasions. It certainly is a great program. It is quite valuable so we were are not here today questioning the merits of the program as such, just some of the oversight that has been given to it.

Going to the holdbacks issue, if you want to refer to page 157 of the AG report, it says, "Holdbacks totalling $84,732 were not deducted from payments for 3 projects. Contrary to the Program Guide and the contribution agreement, a holdback was not deducted from a claim payment for 1 project". It goes on to talk about that.

In your response, "The Department acknowledges your findings related to holdbacks and due to an oversight the 10% policy holdback was not properly applied in the three projects noted in your report."

I am just wondering: What exactly was the oversight? Because it is kind of a broad statement to say it was simply an oversight. I am just wondering how that would have applied. Of course, we are only looking at a small portion. When the AG looked at this, he took a sample size and he found these three instances. It is fair to assume that the oversight would have happened more than what we have seen here.

I am just wondering: What would have caused that oversight, as you see it? Is it something that can be easily addressed and is it something that has been addressed?

MS MacDONALD: One of the projects where the hold off was not applied was for one our secondary processing companies. There was an initial payment made. We are allowed to do interim or progress payments, particularly for the larger projects. It helps the applicants' cash flow of the project.

There was an initial payment made and there should have been a 10 per cent holdback applied to that initial payment; however, the Auditor General does note though that the final claim on that project was not paid out until the project was fully completed and inspected. There was an oversight on that initial interim or progress payment that there should not have been.

Now, we have a holdback-monitoring table that the administration completes. That gets tabled with our Implementation Committee now so it helps us to monitor and ensure that the holdbacks are being applied and that they are being applied for those interim payments.

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

MS MacDONALD: Yes, correct.

MR. S. COLLINS: Okay.

Why do you think the monitoring has lacked? As I look at this, a lot of this is just oversight in monitoring, basically. I do not see much more than this. Most of the questions surround that.

I am just wondering: What would have caused the lack of monitoring? Would it have been resources? Would it have been staff or those types of things as you see it? Of course, we need to know the problem in order to address it. I am confident you are moving in the right direction. I am just wondering: Where were we and where are we?

MS MacDONALD: With new programs, as you get policies in place, you tighten up your policies as you go along in the program. Sometimes it as simple as, like I mentioned before, someone having an approval on something, but they are just not printing it out and putting it on file. That is just pure oversight. That is something they should have done that they just did not.

Now that it is being monitored by the managers and that program managers know it is being monitored and it is being checked, due diligence will be applied.

MR. S. COLLINS: Okay.

Following along the same train of thought there with regard to the database, it was also noted in the AG report that the database was found to be not up-to-date. Is that something that is easily addressed? I am guessing you are going to be still using the same database, but is it just simply that numbers were not entered? Is it something as simple as that? What would explain that?

MS MacDONALD: The issue with the database is that it was a new database we developed with Growing Forward. The information was being entered into the database but one field in particular was whether the project was complete or not. It was a field that the staff themselves were particularly using and they felt they needed, which of course is still important to do. That now is being monitored by the manager of cost-shared agreements so that as projects are closed for this year the program managers will note when the file is closed off.

MR. S. COLLINS: I am guessing all staff that would be using this database would be given some sort of orientation or something with regard to the usage of it. Would that be a fair statement?

MS MacDONALD: Yes, they would be. Actually we have three of our four program managers who are new within the last year. They are now familiar with the new process that we have in place.

MR. S. COLLINS: Okay, great.

Finally, I just wondered with regard to the bilateral agreement, there are six programs that fall under this and it said that they are all funded at different levels. Can you expand a little bit on that? That was noted in amongst page 183. That was actually in the department's response, "The Department will continue to exercise due diligence and closely review the accuracy of claims to the Federal Government. Growing Forward is a five year agreement funded 60% and 40% by the Federal and Provincial governments, respectively, however each of the six programs under the Agreement is funded at different levels."

MS MacDONALD: The program overall, Growing Forward, is 60-40. Some of the funding is actually spent directly by the federal government themselves, and it is what is called federal attributed programming. They spend some of that money themselves. When we are looking at doing claims and that we have to adjust to see based upon what the federal government might have expended as well during that period.

Then the six programs that we are delivering, that the Province is delivering, some of those are necessarily 60-40. It depends upon how much federal-provincial money that we put into the programs. Some of them might be –

WITNESS: (Inaudible).

MS MacDONALD: Yes, some of them might be 55-45, something like that. Then when we move money then from one year, say if there is a carry forward and move money from one year into the new year depending upon where we move that federal-provincial money, that also impacts the percentages as well. Overall for the program it is 60-40, but there are slight differences amongst the programs themselves.

MR. S. COLLINS: Okay, thank you.

That is everything now, Mr. Chair.

Thank you.

MR. JOYCE: Thank you.

I will go back to the three entities again for a second. When the IC made the decision were they aware that the three entities were related?

MS MacDONALD: Yes, we were.

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

MS MacDONALD: One entity is a dairy operation.

MR. JOYCE: A what?

MS MacDONALD: A dairy farm, they produce milk. One is a dairy operation. One is involved in land activities. The third one is into crop development; they produce forage.

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

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

MR. JOYCE: Land clearing for whom?

MS MacDONALD: They would do land development for the forage operation, as well as land development for other producers.

MR. JOYCE: I ask the Auditor General, because I noticed there that some of the funding was competing against other entities, is that correct?

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

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

MS MacDONALD: No, I do not agree with the issue on competitiveness. This is not the only company that we funded this type of Rotoveyer for. We do have, under our Land Development Program under Growing Forward, we do fund and have funded quite a bit of land development equipment – everything from rock rakes, rock windrowers, mini-excavators, limestone spreaders. We funded quite a bit of land development equipment, so all applicants are eligible to apply for that funding.

MR. JOYCE: In the three entities – and I know they are just Entity 1, 2, and 3 – Entity 1 has 50 per cent, Entity 2 has 50 per cent, and Entity 3 has 50 per cent. Wouldn't that set off alarm bells that it is the same person? I mean, if it was 5 per cent or 10 per cent you can say, well, they got a minor share, but 50-50-50 for the same person, shouldn't that set off alarm bells saying that we are funding $1.3 million, $800,000 over the recommended and allowable for the same person, when it is the same person who obviously has controlling shares in each company. I mean, it is so obvious there.

MS MacDONALD: Under the Growing Forward Agreement, the program does allow us to fund related companies. As I mentioned previously –

MR. JOYCE: I do not mean to cut you off, but related companies are if I own 10 per cent of one share, and 70 per cent of another, but when someone owns 50-50-50, that is not related, that is ownership. That is not related companies. That is complete ownership. So, one person owns those three companies, obviously, that is not a related company. That is one person who has three different companies and it is not related – it is the same person.

MS MacDONALD: There are certainly common shareholders between the three companies, but again, we do allow for funding between related companies.

MR. JOYCE: I ask the Auditor General: Is that against some of the protocol that has been set up by the department that you would not fund related companies in –

MR. PADDON: I do not think there is any question that the program does allow funding for related parties. The issue that we raised was the fact of did the Implementation Committee adequately consider the related party issue when they approved the funding for the three companies. Then you have the ancillary issue: Did the fact that you paid $1.3 million to a related group crowd out available funding for other applicants?

How companies structure themselves, you have three companies with common shareholdings and there is 50-50, and then a spouse with fifty. I cannot really speak to the specifics of it, but I would say based on my experience is that people structure their affairs for a variety of reasons, and I would not suggest that it would be unusual, necessarily, to have this kind of a corporate structure. I do not really know the specifics about why they were set up in this particular manner.

MR. JOYCE: Obviously there was no minutes kept of the decision, the reason of why the decision. Were there any other letters of recommendation to support this application put forth on the file?

MS MacDONALD: There would not be letters of recommendation, no; there are just the staff assessments.

MR. JOYCE: Just the staff assessments.

MS MacDONALD: Yes.

MR. JOYCE: Okay.

In this three set up – and I ask again, one, as you mentioned, is for land clearing. The land that has been cleared, or if it has been cleared, which I am assuming it was, it is being used today?

MS MacDONALD: Yes, absolutely.

MR. JOYCE: For what activity?

MS MacDONALD: For forage production. One of the major issues we have particularly in the dairy sector is access to forage. Particularly after the drought we had this summer, it is very expensive to import forage into the Province. With the drought that happened on the Mainland, it is actually difficult to even contract to buy forage. What we are trying to do is put more land into forage so producers have access to their own forage and to their own quality forage.

MR. JOYCE: In this round of funding, was there any other funding approved for land clearing for people?

MS MacDONALD: Oh, absolutely, yes.

MR. JOYCE: What I mean by that was, for a company that was just set up for land clearing, or was it tied in to the farm itself?

MS MacDONALD: No, we have a similar company here on the East Coast actually that does the same sort of agricultural activity.

MR. JOYCE: Did they receive funding?

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

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

MS MacDONALD: There would have been a similar structure, yes. There likely would have involved another agricultural enterprise as well.

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

MS MacDONALD: Yes.

MR. JOYCE: In the approval and it is mentioned as the Auditor General mentioned on page 168, down at the bottom: Our review identified 27 producers – "1 applicant, as previously mentioned in relation to the related party policy, was a land clearing company that did not operate a commercial farm or an agricultural processing facility, and therefore should not have been considered eligible." Is that correct statement that the Auditor General made?

MS MacDONALD: I think what the Auditor General is reflecting are the comments again by a staff person in the file in their assessment. We have funded this company in the past. They are undertaking agricultural activity. We have funded them in the past and, as I mentioned, there is a similar operation here on the East Coast that we have funded in the past and we have funded under Growing Forward. We deem them to be eligible under our program because they are undertaking agricultural activity.

MR. JOYCE: That is not a staff statement, "…and therefore should not have been considered eligible." I ask the Auditor General that is not a staff statement, is it?

MR. JANES: No, these were based on the criteria in the previous paragraph on page 168. We would look at the eligibility criteria and then we made that comment related to these criteria.

MR. JOYCE: That is not staff. That is the Auditor General saying that they were not eligible for the program based on the criteria. That was not staff.

MS MacDONALD: As I said, we do deem that this is an eligible applicant, for the reasons that we noted before.

MR. JOYCE: Can you show me which one of those – like the eligibility, which one there, were approved under what: operate or have ownership in a commercial farm or agricultural processing facility within the Province –

MS MacDONALD: We would consider them to be a farm operation. They are involved in, I believe, tilling of the soil or something, as we do deem that to be an agricultural activity.

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

WITNESS: For agriculture purposes, yes.

MR. JOYCE: What do they till the soil for? I am getting confused here because the criteria are there. They received the funding. The Auditor General is saying that under the criteria they were not eligible. Can you explain to me, under Eligibility, 1B, what one did they fall under?

MS MacDONALD: Again, we do consider them as a commercial farm; we consider them as an agricultural enterprise.

MR. JOYCE: Okay, it is no good to have guidelines. If they do not meet the guidelines, yet you approve the funding for them and then you say well we are going outside the guidelines because we think they are agriculture. Yet, you assume, if you set up guidelines, you follow the guidelines and here is what you approved, you go through the guidelines.

Obviously, and the Auditor General agrees, is that they did not fall within the guidelines. I am still confused how you can approve them within the guidelines and say we approve them. I am missing something, I honestly am.

MR. EVANS: I think what Cindy is referring to there is under bullet two, our department has deemed them as an agriculture facility. Whether it is tilling of the soil for agrifoods or agriculture would be an activity that would be eligible under these criteria. I do not know, Cindy, if that is correct.

MR. JOYCE: For the department, wouldn't you think you would have that in the guidelines so you could take out that type of confusion for us people whom are not farmers and looking at it?

MS MacDONALD: Actually that is a fair comment. Based upon the comments that the Auditor General has made, in our Growing Forward 2 program guide we are developing language more clearly around eligibility.

This is something that we would want to fund; we see it as a priority item. Obviously this issue is causing some confusion with regard to eligibility. I do agree that we perhaps need to be a lot clearer, then, in their eligibility.

MR. JOYCE: These three entities, did they receive any funding prior to this Growing Forward?

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

MR. JOYCE: I do not know if anybody else wants it, but I would like to have it. Can I get a copy of all the funding that those three entities received, say, in the last seven or eight years? Is that possible? I am sure it is.

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

MR. JOYCE: Yes, and I do not want to know the names of them, just the amount to those three entities. I do not mean to be harping on it, but I hope you can see where we are a bit confused with it when we go through it.

Under the program itself – and I noticed in the Auditor General's report later that a lot of the money for these three entities and other entities were not held back. Is that common? Is there supposed to be a 10 per cent holdback?

MS MacDONALD: We would apply 10 per cent holdback until the project is complete. I do not recall if there is an issue on holdback on those three specific projects, though.

MR. JOYCE: Okay.

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

MR. JOYCE: Okay, sure.

MR. K. PARSONS: It is a new program for me. It was very eye opening when I read it. In my district there is not a lot of farming, although there is some farming down there.

I just want you to talk to me first about the benefits of the whole program. I know there is $29 million spent over five years. What benefits are we seeing from this program for the Province as a whole?

MR. DEERING: I get feedback from our producers and our processors that we have a number of programs, obviously, that the agency offers to support the farming community. This would be probably one of the most important programs from their perspective to assist them to get where they need to be.

Just a little bit of background to follow up on some of the questions that were asked earlier: We are self-sufficient in this Province in three commodities, or almost three. We are self-sufficient in dairy, we are self-sufficient in eggs – and we actually export eggs and dairy – and we are almost self-sufficient in chicken. The reality is we do not produce nearly enough forage to feed those commodities. Given the fact that we still depend on importing feed from other provinces, that makes those commodities still fairly vulnerable.

Again, just for background, the operation we have been talking about previously in the three related parties, this would be one of the biggest dairy operations in Atlantic Canada, if not the country. Therefore, it is a complex structure that probably involves even more entities than the three that are outlined here. The point I am trying to make is that right now the agriculture footprint in this Province, when you think about the food security question, is about 25 per cent of where it needs to be in order for us to realize the full potential, limit import displacement, and things like that in this Province.

The Growing Forward Program, to get to the root of your question, has done a lot to bring us even up to 25 per cent. We still have a ways to go before we get where we think we need to be. It certainly has done a lot. I will just give you some metrics around some of the programs.

It is a national agriculture framework to co-ordinate agriculture policy across all of the provinces and territories. It does bring some level of consistency with the other provinces in terms of how these things are delivered. In Growing Forward 1 – the successor to this one is Growing Forward 2 – $29.58 million is provided to the agriculture and agrifoods industry to promote commercialization, innovation, and profitability.

We have done things as basic as land clearing, which, hopefully, we have been able to demonstrate is completely necessary to further develop the agriculture industry. When we are only occupying about 25 per cent of current footprint, then we need to do a lot more of that in order to get us where we think we need to be.

We have funded things as complex as – not through this particular program – anaerobic digesters to produce electricity from animal waste. It has kind of reached out to a large scope in terms of the very basic to the most complex elements of the sector.

What else can I say about it? It began in 2008-2009 and it will end this year. I guess the first four years of the agreement there was about $23.56 million administered. We will not know the final accounting for this year until the end of March, but in total we have developed about 593 projects throughout the life of the agreement, which is pretty significant.

MR. K. PARSONS: I have to say that looking at the Auditor General's report and looking at your responses it is obvious that you guys recognize that there were some problems. I have to say in every one of them, your responses, you addressed your responses in saying ways that you were going to improve and make the program a little bit better with your monitoring of the documentation and different forms that you showed us here this morning.

I would like to ask the Auditor General: What do you think of the responses so far? I know you will do a review in two years' time, but how do you feel?

MR. PADDON: Again, I have only had a chance to briefly review the responses this morning. Based on my read and just from the flavour of the discussion here this morning, I sense that the department's sort of look at this and looking forward – it has been positive, they have taken the recommendations seriously, and it appears that they are taking the appropriate action to improve it.

Ultimately, the Report of the Auditor General is designed to encourage and promote sort of best practices, better practices in terms of accountability and those sorts of things. I guess my initial blush on this is that it is fairly positive.

In two years' time, I guess that is an open question because the program will be over in two year's time. There will be a new program, hopefully –

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

MR. PADDON: Pardon me?

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

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

MR. K. PARSONS: Okay.

The last question I have for you guys: Do you deal with other jurisdictions right across the country? Do you monitor what they are doing and in practices they are putting in place also?

MR. DEERING: Yes, we are involved in multilateral discussions with all the other provinces, both in the monitoring and review of the existing program as well as, more importantly, the development of criteria for the next program.

There is a will at that table to ensure there is consistency across the country on the various programs we develop. There is consistency for cross compliance on some of the elements mentioned here. Obviously, as Cindy mentioned earlier, the successor to the initial program certainly would be much better informed from our experience with this first program, and improvements and fine-tuning would be made to it as a result of that.

MR. K. PARSONS: Thank you very much.

MR. MITCHELMORE: I have some questions. The 360 applications were approved over the three-year period in the report. How many applications were actually received during those three years? We are given the financial value, but we are not given the total number of applications.

MS MacDONALD: I do not have with me what the total of applications would have been during that period of time. It is something we can get for you though.

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

MS MacDONALD: Yes, we have an electronic database so, as applications come in, they are registered.

MR. MITCHELMORE: I question then on page 168 the availability of existing funds which the Auditor General has made reference to a couple of times in return comments. Because in the year ended March 31, the department received $9.8 million in funding requests but only had $6.2 million. Then again in 2011, there was $13.2 million for requests and only $7 million available, and then again $19.2 million in requests, but only $7 million available.

We are seeing an even more than a doubling of requests for funds. There is quite an amount of money that is being requested. You are looking at over $40 million in three years that has been requested, but only $20 million available.

When you look at that, the Auditor General has made the statement, "…it was questionable whether available funds existed to approve over $1.3 million in funding for these three related entities."

Why would you approve funds that could have gone elsewhere to a number of your other applicants?

MR. DEERING: Our observation is that it is a five-year agreement and we try to reach out to as many people as we possibly can throughout the life of that five-year agreement.

Just for clarity, what the Auditor General is suggesting here and you have highlighted is given the fact we had given these three related companies $1.3 million when, in their view it, was questionable whether or not we should have, resulted in less funds being available for other people.

At the end of the day, even companies that are not funded in one year could be funded in subsequent years based on their submission. Even though they may not have been funded this year, it is quite possible they were funded subsequently.

MR. MITCHELMORE: Given what you have stated here today, though, you are saying this is one of the largest milk producers in the Province, they should certainly have the capacity, especially looking at their own financial being – the Auditor General stated that Entity 2 is in a very weak financial position.

I am just wondering why preference would be given to such a large company that probably did have the financial means to expand anyway versus looking at new entrants to grow the farming industry, where we are weak. I am very startled or concerned because there is no documentation by the IC stating as to why they would approve or reject.

MR. DEERING: Just for clarity, the applications and submissions are processed in the order in which they were received for this program. In fact, these three related companies would have found their place in that queue based on when they submitted their proposal and they would have been processed based on that order.

MR. MITCHELMORE: It is more of a first-come, first-served basis, not best value type of thing and there could have been applications that were sitting on somebody's desk that did not actually get processed?

MR. DEERING: I would suggest that one of the criteria is the order in which it is received, but certainly once it is received usually there is an ongoing dialogue between us and the proponent, in terms of further developing that proposal or clarifying elements within it. It does not stop us from processing others in the meantime. One of the criteria we do use upfront is first-come, first-served. Yes, that is correct.

MR. MITCHELMORE: Did you receive any other applications for land clearing development during those fiscal years that were not approved?

MS MacDONALD: We get a lot of applications for land development equipment, so I would suspect, yes, there would have been applications in the system for land development.

MR. MITCHELMORE: There could have been money allocated to another company that was not related that could have been strictly geared towards looking at expanding the industry versus expanding these other two entities, because that is what it looks like based on this report.

MS MacDONALD: As Keith mentioned, we do deal with the applications, and it is clearly in the guide that we do deal with the applications in the sequence in which they are completed. For instance, if we had $100,000 in savings this month in the program and, say, if we had fifty applications, we would not then give every applicant $2,000. We would look at the next application in the system as to whether we thought that was an eligible project, whether it was a worthwhile project, and whether or not we would fund it.

MR. MITCHELMORE: Yes, because two of these entities received the maximum amount. Did they receive what they applied for? Two of them received the maximum and the other received $306,000. Did the other company apply for more than $306,000 and only receive $306,000, or did these applications receive what they applied for?

MS MacDONALD: I could not tell you. I do not know if they had applied for more than that or not offhand without going back and looking at that specific application.

MR. MITCHELMORE: Okay.

These three entities reflect less than 1 per cent of all your project applications – 0.83 per cent – yet they received almost 10 per cent of all the funds over the three-year time period – 8.7 per cent of all funds. That is a significant contribution of public money to these companies that are significantly related – very closely related. That is of concern when you are looking at a number of other applicants that are in the queue and not getting processed, or not getting looked at or even considered.

Is there something being changed to improve the system rather than a first-come, first-served basis? There should be other eligibility criteria and strategic goals that the department would have to grow certain sectors of the industry, if they have applications for it, whether it be looking at mushroom production or looking at wild berry production, or looking at other types of vegetables.

We have such a food insecurity in the Province here. This seems very, very interesting how the process is currently in play.

MS MacDONALD: Under Growing Forward 2 we are in the process of developing program criteria and guidelines around that. One of the things we are looking at is the applicant eligibility under the program. I think based upon the first Growing Forward Program there was a lot of demand on the program. So, looking at that program limit is certainly something that we are considering for Growing Forward 2.

MR. MITCHELMORE: Okay.

It said: A total of $1.34 million was approved for five projects, even though the documentation to support expected project costs of $272,779 was inadequate. Examples include the absence of quotes, the inclusion of HST, and the incorrect application of exchange rates, both of which were ineligible costs. Although included in approved funding, the HST and the incorrect exchange amounts were not paid out when the funding was dispersed.

These are evidence of very poor controls in the system. Can you further explain what you have done to tighten controls to ensure that when things are paid out they are acceptable, they do qualify?

MS MacDONALD: The examples that are used here – we request quotes under the program for a couple of reasons; one, we want to ensure that the applicant has properly costed the project; and we also want to ensure that if we are approving funding that we are not over approving funds for a project so that we end up lapsing and an applicant does not actually need that full amount.

So, that is why we request quotes on the projects, where it is available. In some cases you may not always be able to get a quote, but we certainly stress, where quotes are available, that they do provide that, because we want to ensure that they properly costed the project.

The example used for HST, unfortunately in this project, when the program manager calculated the amount of eligible funding for the project, they had included a HST amount, which is not typically included, it is not eligible, and sometimes on quotes they do not always itemize out whether HST is included or not. You will also note, though, the Auditor General did note that the amount was not paid out. So, though HST was inadvertently included in the approval amount, when it came to the actual claim to pay out to the applicant, HST was not paid out to the applicant.

MR. MITCHELMORE: I guess the application was adjusted, or something else was included, they spent money on something else.

MS MacDONALD: Yes, assuming they would have paid out less, that HST amount would not have been included.

MR. MITCHELMORE: I want to ask about the $1.97 million that was approved for the nine projects, and that there were no checks done to see if they were arrears with government departments. I worked with lending previously, you did a credit check, you did check on workers' compensation, on a number of government agencies to see if there were arrears with the CRA and things like that. Why was such a simple step and a checklist missed?

MS MacDONALD: The arrears check is not a requirement of the Growing Forward framework agreement as such; it is more of a Treasury directive within government that we do an arrears check to see if the applicant is in arrears with government. In these cases, unfortunately, that step was missed.

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

Mr. Cross.

MR. MITCHELMORE: Okay.

CHAIR: Or we can take a morning break.

MR. CROSS: That is the reason why I looked –

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

We can take a break right after Mr. Cross –

MR. CROSS: Just by saying Bonavista North, we are not a big farming area, I guess; we complement rocks and wind. No matter what, I am sort of all ears in the sense of what is happening here because there are a few people in my district who are actually trying to get involved in farming on the rocky land that is there, and it is a struggle to say the least.

In looking at this whole picture this morning, what I have been looking at is the documentation. On the side of the documentation with regard to eligibility on page 169-170: Applications are required to be completed for the appropriate program and manner and whatever. As part of the approval process there is a Record of Decision. When we get to page 171, there were some indications where this Record of Decision was not part of the minutes for some of the meetings.

I guess I would like to learn a little more about what this actual Record of Decision would look like or be a part of this, and what actions are there for improvements such that it is included, in future?

MS MacDONALD: The Records of Decisions to each project that was approved or rejected had an individual Record of Decisions. It would include the applicant's name, the project title, what it was they had requested, the semantic area, the area of eligibility under Growing Forward. It would have the amount that was approved, the eligible items, and the ineligible items. It would include any items if there are any conditions on the project, such a project report or something.

Each project had its own separate signed off Record of Decision. The comments from the Auditor General are that although those Records of Decisions were kept with our minutes, they were not a formal part of our minutes. So based upon their recommendation, what we are doing now is those individual Records of Decisions are included with our minutes but as well in the minutes they individually note each project. Previously the minutes were more of a policy discussion with the Committee and the actual approvals were on a separate Record of Decision.

MR. CROSS: Are all of these paper forms?

MS MacDONALD: Yes.

MR. CROSS: Is there a database that all this can be included in and easier to keep it together?

MS MacDONALD: Yes, the Records of Decisions are actually created off our database system. There is both an electronic and paper copy of the Record of Decisions.

MR. CROSS: That would monitor and it would keep closer contact to incomplete applications and the documentation for the cost of the projects and the arrears checks, all of this would fit into the one –

MS MacDONALD: Yes, and the minutes now are signed by two of the Committee members and circulated to the Committee members. The Committee members also receive the Records of Decisions. Those minutes get scrutinized after each meeting. They are prepared by our clerk typist, but they then go through our manager of cost-shared agreements, they go through our manager of business services, and then they come to me as well. We scrutinize the minutes to ensure the information is properly contained in the minutes.

MR. CROSS: That is the theme I wanted to work through here. I have some questions later on but it is under a different area. I am content there.

CHAIR: Thank you.

We can recess for a morning break and we will resume at 11:05 a.m.

I am advised we have coffee in the Government Members' Caucus Room.

CHAIR: We are ready to resume with Mr. Joyce.

MR. JOYCE: I will just go to page 162 at the bottom. I am just getting some clarity there. Application process – "Applications for funding are sent to the Program Manager responsible for that particular program. The Program Manager reviews the application and requests a separate assessment from the Agriculture Development Officer for the area, and if deemed necessary, a Specialist. Once these assessments are received, the Program Manager completes a project assessment and a recommendation is made to the IC that the project be accepted, rejected, or deferred."

In the case of the three entities, was that the process that was done?

MS MacDONALD: Yes.

MR. JOYCE: Obviously, from the reports from the staff that was reported by the Auditor General, once the recommendation came up for rejection they were just – I should not say dismissed, but they were definitely not adhered to. Can you explain why they were not adhered to?

MS MacDONALD: The Implementation Committee did not necessarily agree with all of the comments made in the assessments. For the majority of files and applications that we review, the assessments made by staff, we would agree with the comments. In this case, we did not agree with it. Again, to us a land development is a priority within the sector. It is something we thought was an important project to be funded. We funded other applicants for the same thing.

From the Committee's standpoint, we felt it was a worthwhile project. As I said, we agree with the Auditor General's comments that in this case we should have better documented the reasons why the Implementation Committee did not agree with the staff members and why we decided to fund the project.

MR. JOYCE: I just ask for clarity more than anything. Did the IC go back and ask for any other reports from the staff or they just took the information, which you felt was complete, and then made your recommendation or did you go back and ask for any clarity or anything?

MS MacDONALD: I do not believe we went back for more clarity, no.

We are quite familiar with the operations. These operations have been in existence for awhile. We have all visited those operations. We are familiar with them. Three of the members on the Committee have a really good understanding of the industry and the needs of the industry. Based upon that and our knowledge, we had approved the project.

MR. JOYCE: When it was rejected, was it ever relayed to the staff the reason why or was it just a decision that was made?

Just as an observer reading this, it is almost like the staff made the decision. There are three people here saying no, we do not agree with that, and just making the decision, no minutes taken, and no explanation for the reason why.

MS MacDONALD: Well, there was a Record of Decision. When you say there are no minutes, there would have been a Record of Decision on that project discussion. The staff were present at the meetings. When the Implementation Committee meets, their program managers are present so they actually present the files to us. Like I said, for the majority of files, we would agree with the recommendations of the staff.

MR. JOYCE: I will ask this and I know the answer already is no. There are no other letters of recommendation from outside for any of these projects or any verbal recommendations outside the staff?

MS MacDONALD: No, not that I can recall.

MR. JOYCE: Okay.

On page 166, the three entities are there. All those three entities are right in the Codroy Valley. Am I correct that you said that earlier?

MR. DEERING: Yes, this is my understanding is that they are all centered around the Codroy Valley area.

MR. JOYCE: Okay.

It was said earlier that one is for dairy. What were the other two for?

MS MacDONALD: One is for dairy. One is forage production; they grow hay, silage, corn silage, so it is forage production. The other one was involved in land development.

MR. JOYCE: Land development for –

MS MacDONALD: For either those related companies or for other farmers. They are in the business then of going out and clearing land.

MR. JOYCE: Okay.

Now I do not mean to harp on it and I am sorry if I am, but if that is just for the land development – and this is where I missed it earlier and I was not sure and I wanted to come back. If this was just for land development, growing nothing, just for land development for someone else, why would you approve $500,000 when the Auditor General and the staff are already saying that there are people there you can go and you can rent or get a tender, or a contract to go and do the land? This is where I am missing why you would give extra funds if it is just for land development.

MR. DEERING: You may have been out, Mr. Joyce, when we talked about this previously. I mentioned earlier on that one of the key elements of agriculture development in this Province and in order to achieve food security we need to develop a lot more land. We currently occupy, by our estimate, about 25 per cent of the footprint that we think we need to occupy to grow enough forage and produce enough vegetables to feed the livestock that is producing the milk, the chickens, the beef, and all those sorts of things.

Land development in our view – and this is echoed in our strategy as well, not connected to the Growing Forward piece – is that land development is critical. We consider land development for the purposes of agriculture production, which involves some very specialized equipment, different from forestry operations we will say, when it comes to land clearing. We consider land development to be a key agricultural process.

MR. JOYCE: You just mentioned that one was for dairy, one was for foraging, and one is for land clearing.

MR. DEERING: Right.

MR. JOYCE: My question is, with the report which said there is already equipment in the area that can clear land, I am sure that equipment is not working twenty-four hours a day, or seven days a week. I am sure that equipment could be used to clear some land.

It just raises the question, if there is already equipment there – and you mentioned the three entities, dairy, foraging, and clearing land. If there is other equipment there that can clear land, why would government take $500,000 and give it to somebody else to clear the land? I am sure that machine he bought for $500,000 is not operating forty hours a week. I am sure there is equipment out there that could have cleared land. That $500,000 was taken away from some other group. It just does not make sense to me why you would give $500,000 to clear someone's land when there is already equipment over there that can do it.

MR. DEERING: Although equipment can be moved from one location to the other, this particular piece is a very large piece of equipment. It is a Rotoveyer. It is for picking rocks up out of the soil, and obviously it becomes cumbersome. We do have this type of equipment in other locations of the Province, but you are a little limited in terms of your ability to be able to move it long distances.

MR. JOYCE: Is this the only piece of equipment on the West Coast now?

MS MacDONALD: No. Actually, we bought a similar Rotoveyer for another farmer in Cormack.

MR. JOYCE: I do not mean to harp on it, but I just want – I know most governments, or anybody, you put it out on a tender, if somebody needs land cleared, to come in for a week, two weeks, three weeks, you clear the land. One machine, you pay for it and you move on, but $500,000 to clear the land. The machine, I am sure, is not working on a regular basis. It is not out in Codroy Valley clearing land forty hours a week, I am sure of that, because the Codroy Valley is not that cleared.

MS MacDONALD: If I can add.

MR. JOYCE: Yes.

MS MacDONALD: The thing with land development, there is, sometimes, a very short window of development for land development. If you get a really rainy summer and fall, that is not a good time for land development because the equipment will get stuck in the land. So, you normally have a short time window.

When the time is right, a lot of people like to do land development in the fall. It is a little bit of a drier period of time. They are not so busy then with their other farming activities. Then there is usually the demand, people particularly want the equipment at the same time. Usually, then you are trying to wait for some things. As we said before, this is a very large agricultural operation. They are clearing not just ten, twenty acres a year; they are clearing a couple of hundred acres a year. So they want to have access to this equipment when they are able to use it and when the weather permits.

MR. JOYCE: Has this equipment been rented out, do you know, as part of the business, his business, or is it just for personal use?

MS MacDONALD: They also do land development for other farmers in the area. I believe that was part of the comments of the Auditor General that so much of the land – now, the majority of the land is certainly for their operations, their related businesses. That is just because of the shear size of their company, but they also do land development. That equipment has been used for other clearing on other farms as well.

MR. JOYCE: My last question on that is, in the report that the staff made, they recommended rejection because they are competing against other entities. What other entities were they talking about when they said they are going to be competing against other people for clearing land?

Obviously, they felt this is a land-clearing operation. They felt there are other entities that can do this work. If the staff recognized it on the ground, what entities were they talking about?

MS MacDONALD: I did not agree with the staff comments but I think what the staff was trying to say was that rather than funding this operation to say clear land for other producers, that the other producers could avail of land development equipment on their own. We funded them because we knew the majority of the land development they did would be for their own related parties, but they also would provide that service to other farmers.

What other farmers do, we did not see the competitive disadvantage there at all because other farmers do have the right to apply for that funding and have applied for funding for land development. We have invested quite a bit of money under Growing Forward in land development activities.

MR. JOYCE: On page 167, probably right in the middle there, when you go through the $500,000 that was approved for Entity 2. I will just go through the list of things there, and I am assuming this one of the Auditor General is from the staff's report that they reviewed.

"Entity 2 was ineligible under the Program as the company did not generate farm sales; it was land clearing only; over the past three years, Entity 2 had developed more land for its related entities than that for local producers (560 of 700 acres cleared was for its related companies)" – which is a significant amount of land. That is what Entity 2 did three years prior.

"Other producers had their own equipment for developing land. For example, another producer had funding approved for the same type of equipment on 21 December 2009, less than one month before the application was received from Entity 2 on 10 January, 2010;

"Entity 2 was in a weak financial position; and funding to Entity 2 created unfair competition for other entities engaged in land improvement."

After you read that, if I was a manager and I read all of that, how could you approve $500,000 to give them after your staff went out and made this report?

MS MacDONALD: If I could address those issues?

MR. JOYCE: Please.

MS MacDONALD: The first item there, we do respectfully disagree with the Auditor General on whether or not it was an eligible applicant. We do feel it is an eligible applicant. As I said, we funded them in the past and we funded similar operations to this company.

The fact that they cleared 700 acres, I think that is outstanding. Most farms are clearing ten, twenty acres a year. The fact that they did 700 acres, to me that is a really good investment on our part. The fact that most of it was for their own operation, we would expect that as, again, they are one of the largest operations of their sector in Atlantic Canada.

The fact that we did provide funding for another producer for similar equipment, we do that. We did provide this Rotoveyer; we have provided funding to another operation in Cormack. It is the same kind of situation. It is a very large operation. They are doing a lot of their own land development. They want to have access to their own equipment to do this land development.

The issue about the company being in a weak financial position, as I mentioned previously, one of the objectives of Growing Forward is to increase the profitability and the innovative capacity of industry. We will often fund projects to farms to help them to improve their profitability. It could be an investment in training; it could be an investment in land development to increase their production. It could be an investment on farm mechanization, all sorts of areas that we would fund to help the farms improve their profitability. We want to fund operations so they can become more successful.

As for the issue of unfair competition, again, I did not agree with the staff's comment that it was unfair competition. Other applicants have been funded for this piece of equipment and we have funded many other operations for land development equipment under Growing Forward.

MR. JOYCE: One last question and then I will pass it on; 560 to 700 acres of land was cleared for its related companies. Obviously, they can clear the land. If that much land was cleared, "over the past three years, Entity 2 had developed more land for its related entities than that for local producers (560 of 700 acres cleared was for its related companies)".

If they already had the ability to do it, how much more land would this equipment clear for this person? If he cleared that much, what do you need this big piece of equipment for? According to the staff it is done for his own entities.

MR. DEERING: Again, this is certainly the largest dairy operation in the Province. I would say the largest agricultural operation in the Province, one of the largest dairies in Atlantic Canada, and I would argue as well, in terms of scale, it is one of the largest across the country.

Although we are self-sufficient in dairy in this Province, we are significantly not self-sufficient in terms of forage production to feed those animals. An operation this size, for instance, still requires acreage in the several thousands in order to meet their own self-sufficiency for that operation. That piece of equipment probably has a lot more utility left, even within their own operation, outside of the other farmers operating in that area as well.

MR. JOYCE: Okay.

Thank you.

CHAIR: Mr. Brazil.

MR. BRAZIL: I just want to clarify a few things and a couple of observations as part of it. Just so I am clear and that we would have it on the record, it is agreed that on a go-forward basis, in the minutes or as part of a report, you would have outlined the justification for the decision to fund a specific project. Do we understand that now would be your go-forward process to be used? From now on, any project that goes through it would be signed off as to why it was justified as a legitimate project that would benefit the partners that you are involved with.

MS MacDONALD: Correct. In the minutes now we have a section for dissenting opinion. I am not sure that is how it is termed, but basically it is an area that if there is a staff person – because sometimes a staff person might have approved something that we do not think is eligible because we have not approved it across other regions. We have agriculture development officers, so they do not necessarily always come up with the same recommendation. We will note then if there is a difference between the IC's decision and what the staff recommendations are, yes.

MR. BRAZIL: Good. That will clarify it if it ever does come back to a setting like this again as to how that process went forward.

I noticed in some discussion about the targets not being met, but can you clarify a little bit more so as we make our recommendations to the House how you have improved on that from a targeted point of view. If there is another agreement put in place, how you would address meeting the targets that you outline or do you pull back on the targets initially. Was it too premature or too, I guess, optimistic of what you would do, or did you run into some obstacles that nobody could foresee?

MS MacDONALD: When the targets were originally developed with Growing Forward, we allocated funding by program and where we thought the uptake in the industry would be. Based upon that, we developed our indicators and targets. Obviously, depending on industry demand and need, they may actually for instance apply for more funding under innovation than they would under mitigating risk.

We actually have the ability then to transfer money from one program to the other within Growing Forward, and we will do that because we do not want to end up lapsing the money. Rather than holding our money, say, in one program where it is not being spent we will actually move it. For the first year of the agreement where it was a late rollout of the program we did not adjust the targets in that year. We did adjust the targets for the 2011-2012 year. We did make those adjustments in the targets.

MR. BRAZIL: So the targets would reflect the amount of money in each pot to handle what you would think the uptake would be on that?

MS MacDONALD: Right. As the program went along and we had a better understanding of where industry need would be for, we made the adjustment on the targets.

MR. BRAZIL: Fair enough.

One of the ones here that is noted by the Auditor General, "An amount of $6,750 was paid to 1 applicant for site development and video production…". The point here is, "This should not have been paid as it was a pre-payment and therefore, was not in compliance with the contribution agreement."

Now, maybe I am missing something here, but I would think – maybe it is not here or maybe it is not the practice – that in funding some of these, there would have to be some pre-payments in advance for some of these businesses that either require a service or a piece of equipment. How does that payment process work?

MS MacDONALD: In this case, the applicants paid for the costs and we reimbursed with a 10 per cent holdback. We reimbursed them for what costs they actually incurred and then we did not release the 10 per cent holdback until the actual video was completed.

MR. BRAZIL: There is no upfront advanced payment prior to either a service being implemented or a piece of equipment being purchased?

MS MacDONALD: The only advances we would provide would be for some of the not-for-profits. For instance, for the Federation of Agriculture who are undertaking a large project where there is salary is involved for the project manager. We would give them an advance on a quarterly basis. For the typical applicant doing on-farm work, we would not provide advances. We would allow for progress or interim payments as the project proceeds based upon their actual incurred costs.

MR. BRAZIL: Okay, fair enough.

This will go to you guys, too, but probably to the Auditor General, and it just picks up on what one of my colleagues said about the three entities which are connected by common shareholders being able to receive the money. I want to be clear. I cannot say it does not smell right – the optics does not look exactly right, but I do understand there are entities out there that are connected and should be funded based on the merits of the projects.

Again, I just need some more clarification from the Auditor General there that is not a serious or a real violation of the intent of the program, or is it.

MR. PADDON: My understanding is that the program clearly contemplates that you can provide funding to related parties. The issue that we had was, in terms of making a decision, the program guidelines would say you should consider the related party factor in your funding decision. In the particular case we are talking about there was no documentation to indicate that the related party issue was contemplated in the funding decision.

We did not take exception with the fact that they paid to a related party, per say, because that is clearly within the program guidelines, it is a question of the documentation and decision-making process around it and was it adequately considered in that decision making process.

MR. BRAZIL: Fair enough.

Again, you understand the Auditor General's concern there and even our concern. From what I read from your responses, the practice would be that this would all be documented. From what I understand, you do take into account the fact of the connection or the collaboration between existing entities to whether or not they are compliant to, under the jurisdiction that you can fund. That will be a standard practice from now on to really look at it and document that while there may be common shareholders, they are different entities, doing different types of jobs that fit under different funding sources. Just so we are clear on that.

MS MacDONALD: Correct.

MR. BRAZIL: Okay, perfect.

The last question I had there, I noted that there was a few there that were late – I come from a bureaucratic background that late means there could be a million factors relevant to that. It is not do or die or the end of the world when we make payments after the fact, but it is if it becomes on ongoing practice as the part of that.

Just give me a little idea of – and I know you noted it – how you will address to make sure that those are –or some of the factors. There may be extreme circumstances that even the Auditor General would have to nod and say yes, we note that it should not be practised, but there are circumstances that happen, be it a business, illnesses, invoicing, weather forecasting, whatever it may be that do it. Or if indeed this is because it is just a lack of resources, a bureaucrat, the participant not doing their job as part of it, how do we put a safeguard in to make sure that we push that to the time frames that we set or are the time frames too stringent.

Give us a little idea of how you are going to address that and what you think is the real issue here, please.

MS MacDONALD: That is concerning the issue of the project claim forms being submitted late?

MR. BRAZIL: Yes.

MS MacDONALD: In our program guide we say that claim forms must be submitted within thirty days after the project completion. The reason we are doing that is we want to encourage early claiming and timing of claims back in. Particularly, we want to identify if there is any project savings because if there is project savings, we want to be able to reallocate that back out there again.

As you noted, there are reasons why applicants do not always meet within the thirty days. It could be weather. It could be they are busy harvesting. There are all sorts of reasons. It is a difficult one, and we had really good conversations with Claude and his staff over this issue, actually, about the late claims and how do we deal with it.

We, as an administration, certainly want to process the claims if we have the administrative capacity to do that. If someone is a day late on a claim, do we as a government want to say: Well no, sorry, you are a day late and we are not going to reimburse you for your $300,000? We do not want to do that. There is also a point where we can no longer process. Obviously, once government's books are closed off we can not process, and if they are late then, obviously they are not going to get their funding. So, we are putting "you must submit within thirty days", because we are trying to encourage that early claiming as much as possible.

So, what we do is that the program managers are pretty proactive with the clients. As a project is nearing an end they will be contacting them, reminding them about the thirty days, make sure that they get their claims in. Particularly, then, if they go over the thirty, they still can contact them to encourage them as much as possible, and even help them in some claims with getting it ready, so that they can submit them in a timely basis.

It is an ongoing issue, because I cannot say that next year we will never have one claim submitted late. Unless we go to a very strict one-day late, you do not get reimbursed. It is kind of an issue, and we had really good discussions with Claude and his staff over that. We do not want to put the language in the contracts that you have sixty days or ninety days, because that just kind of drags out the process more. I do not know if that answered your question or not.

MR. BRAZIL: Fair enough. I do agree; you do not want to be so stringent that you put people out of business because two days late, something happened, and they did not get their claim in.

Mr. Chair, I am pleased with the responses that I have had, relevant to the questions asked, and I know my colleagues will probably have some other ones, but right now I am content.

Thank you, sir.

CHAIR: Mr. Mitchelmore.

MR. MITCHELMORE: I would like to ask about the department's performance report submitted by the federal government for 2009-2010 that indicated that twenty-six of the thirty-four program targets were not met, and only three of the twenty-six targets had comments to indicate why they were not met. It seems that the program has a very poor track record of documentation and keeping records and really providing thorough explanations. So, I would like further clarification on those comments.

MR. DEERING: I think Cindy indicated earlier on that the specific circumstance that this is referencing was into the first year of the program. We were late getting the program rolled out and we had concurrence with our federal colleagues that they were aware that the targets were not being met and were not surprised by that. We did endeavour in subsequent years to sort of clean that up, and we did.

MR. MITCHELMORE: What about the $465,046 less than the eligible amount claimed to the federal government based on the percentages that you are using? What happened there? It is nearly $500,000. You did not claim the full amount eligible for the program.

MR. DEERING: As Cindy indicated earlier, the different programs within the Growing Forward Program have different funding levels, different percentages. I think I mentioned earlier on that one of the reasons why we have five-year agreements is to have the ability to be able to reconcile these things at the end of the year, where we have projects that are not quite finished and/or have come in cheaper than the anticipated cost. The multi-lateral framework gave us the ability to be able to move money forward by 25 per cent.

In this particular year the reconciliation still had not been completed. Since that time I can assure you that the full amount that we could have claimed from the federal government has been claimed. In actual fact, we submitted a budget submission last year to give us enough provincial dollars to ensure that we were able to do that. Really, that provincial portion was a carry forward of money that was not spent in those projects in previous years.

MR. MITCHELMORE: Why did the reconciliation not take place?

MR. DEERING: That is a real good question. I do not know if it was a factor of it being late in the year. I do not know, Cindy, if you can shed any light on that.

MS MacDONALD: Janice?

MS GILL: I guess you cannot really do reconciliation until you start some spending going. We started the reconciliation in late-2011, and when we realized that the full amount was not claimed, we did it right away.

MR. MITCHELMORE: Okay.

Do you take all rejected applications to the IC? Staff make recommendations. In instances here, some were recommended for rejection. Do you take every rejected application to your IC by staff?

MS MacDONALD: Yes – Janice can correct me – all the applications for rejections have to be made by the Implementation Committee. The only thing with that would be if it is an incomplete application. Sometimes we will just get an application and it is barely even filled in; it is basically a name to it. Those, the program managers will just write back to the applicants and say that your application was incomplete.

MR. MITCHELMORE: Applications that are submitted, because you had stated that you do a first-come, first-served basis, are they kept on file or are they just purged or not looked at for the new fiscal year?

MS MacDONALD: No, the applications are kept on file and they are moved forward. The applicants will get a letter asking if their application on file for last year, if they want that application brought forward and considered for the new fiscal year.

MR. MITCHELMORE: Okay.

Because there was $40 million applied and there was only about $20 million available, typically that would mean that anybody that applied for, in the third year, would not get any approval money. Is that the case? I am just trying to clarify your process as to you approve applications, select them, and how they move through the system.

MS MacDONALD: Certainly, the applications being submitted this year likely –

MR. MITCHELMORE: It is no good for anybody to apply for an application this year because you are dealing with backlog.

MS MacDONALD: It depends upon the area. We hold money, for instance, for human resource applications. We hold about $100,000 for that. If someone wanted to do training, for instance, if one of the organizations wanted to do a workshop or a conference, we would hold money for those, so those projects will be approved.

Yes, we do look at the applications that, for instance, were submitted last year. We would bring those forward and give them first consideration. Sometimes, they might have gone ahead and did the project or they might have decided not to do the project.

MR. MITCHELMORE: What about if an application is submitted and it is incomplete, then does it start over?

MS MacDONALD: No. The queue starts when the application is deemed to be complete. Again, that encourages the applicants to fully complete their application.

MR. MITCHELMORE: What type of tracking system do you use to ensure that this process is being followed because in many instances the database was not up-to-date?

MS MacDONALD: I think the database was not up-to-date with regard to whether the project was closed or open. As for the applications, as they are received in Corner Brook we have a staff person who registers those applications right away. We maintain a listing of the applications that we review so at any one time we will know where in the queue we are with our approvals, how many applications are still pending, what the volume of applications are, what the volume of requests are, so we know where in the system we are with the program.

MR. MITCHELMORE: Okay.

What happens is you have different sites or different staff people who are responsible for entering applications and making sure they are getting through the system.

Could there have been an instance where there was somebody who was just letting applications sit on their desk for quite awhile and not get processed?

MS MacDONALD: No. We have a manager of cost-shared agreements who manages that spreadsheet on applications. That spreadsheet is also reviewed by Janice. That queue, what we call the spreadsheet, is also brought to the Implementation Committee.

We will go through that spreadsheet and we will ask: What is the status? A lot of them, if they are deferred or if they are awaiting information, we will ask: What is the status of that project? Have you contacted the applicant? A lot of times, we will make sure to give them thirty days to submit the information. If not, then we close the file. We are pretty proactive in ensuring that is done.

MR. MITCHELMORE: I understand that land development is absolutely critical to advancing the agriculture industry in the Province for sure, and Mr. Deering has made commentary to that. This past spring session, though, I asked in the House of Assembly about the legal land survey program. It was $100,000 in the Budget that was there to assist new entrants get into acquiring and accessing Crown lands for farm production. That was cut. It just questions the whole priority of the department around allowing new people to get in and develop farming with that program being cut.

CHAIR: Mr. Mitchelmore, that might be more of a policy question. We are actually dealing with the Auditor General's report in the Growing Forward program. You may be able to rephrase into something that gets more down to the dollars and cents.

MR. MITCHELMORE: When we look at the land clearing – and Mr. Joyce has talked about it – for the related companies, 80 per cent of the land clearing was done for this company and only 20 per cent for others.

How much more land does this company look at in the long-term plan, looking at clearing and the actual use of the equipment? That would have been in the business plan. Are they meeting their targets? Is this being monitored and tracked? I can see a real competitive disadvantage that other companies would have.

MR. DEERING: I would not suggest that I am aware it is specifically related to their business plan, but I can say we have a separate process with these companies to identify what their land requirements are. We have these identified on maps.

I am not exactly sure where they are today, Mr. Mitchelmore, in terms of what they have already cleared this year for instance, and what they have left, but my sense is that they are certainly somewhere between 1,500 and 2,000 acres left to go to make themselves forage self-sufficient for their operation.

MR. MITCHELMORE: Okay.

Could this land-clearing equipment be used for residential or commercial development of land clearing? Does it have that capability?

MR. DEERING: Not this particular piece. This is a piece of equipment for picking up large rocks out of the soil to prepare it for tilling.

MR. MITCHELMORE: Would the company, the entity have the capabilities to be doing residential and commercial land clearing and this asset be a subsidiary or a complement to it?

MR. DEERING: Not in my assessment, no.

MR. MITCHELMORE: Okay.

I would like to ask about, you have listed three people who are sitting on the Implementation Committee and there is an evident conflict of interest policy with government. I am wondering, could you explain the policy and how it is being adhered and updated on a regular basis? Because there could be instances where there would be a conflict of interest arise when you are making a decision on applications based on a relationship or anything like that. I would like an explanation of the conflict of interest policy.

MR. DEERING: The appointments to the Implementation Committee are made at the minister's level. Essentially, any conflict of interest issues evident at that time would be contemplated when these appointments are made. Clearly, there is a responsibility for disclosure for government employees. If something changes in their circumstances, they would be required to disclose that and it would be further contemplated at that time.

MR. MITCHELMORE: Has there been an incidence of conflict of interest being acknowledged in any of these situations, the 360 approved applications?

MR. DEERING: Maybe I misunderstood your question. I thought you were speaking specifically to the membership on the Implementation Committee. Was I correct?

MR. MITCHELMORE: Yes. When you are approving an application there could be an evident conflict of interest. Are there situations where there is a conflict of interest and the person states that, out of the 360 approved applications?

MR. DEERING: I understand.

Cindy, can you speak to that?

MS MacDONALD: From my recollection, there has been no conflict of interest between the three Implementation Committee members and the projects that are approved.

MR. MITCHELMORE: Can I just ask one very brief…?

CHAIR: Yes, finish the subject.

MR. MITCHELMORE: If a conflict of interest arises, then you have three members on the committee with one member. Would those two people have the ability to approve it and have that authority?

MS MacDONALD: Correct, yes.

MR. MITCHELMORE: I just wanted clarification.

Thanks.

CHAIR: Mr. Collins.

MR. S. COLLINS: Mr. Joyce raised a good point there earlier with regard to the equipment on the West Coast. I am just wondering, as it relates to the pieces that were sponsored by government. You mentioned that there are windows of opportunity for clearing land. To be honest with you, I have absolutely no idea the logistics of clearing land. Maybe a little bit of telling us exactly how that happens.

I am just wondering, are you confident that these pieces of equipment were being used concurrently? All of them were being used and if you were to take one piece and try to share it over the course that it would cause delays for all the operations involved. Is there a need for three pieces, basically, is the question?

I frame that by saying, first off, I have no idea about clearing land. If you could explain how that works. I am assuming it is not a quick process, that there is quite a bit of work involved with clearing land. I am wondering if you could speak to that just briefly.

MS MacDONALD: Sure. With land development, what they typically do is they will go in and cut down the trees. They will go in and remove stumps from the land; they will remove the large rocks. They will go back in then and do some land enhancement. They will use these Rotoveyers to actually help lift – I think the Rotoveyers can go down like twelve inches into the ground and actually lift some of these larger rocks.

As you are aware of land in Newfoundland, it is very, very rocky. We are at a disadvantage compared to a lot of other provinces. That is why we make these investments. It is a fairly costly initiative to undertake land development. There is a lot of back and forth on the land once you put in these rock Rotoveyers. This rock Rotoveyer, particularly the one that we are talking about, it will actually go down and make a pass down on the land. All the rocks will get collected up on a chain system and it will dump it into a collection system on the equipment itself. Then with the tractor, you could drive off to the side of the field and you dump your rocks.

If you have ever been out on a farmland you will always see rocks along the edges of the fields or in the windrows, and those are the rocks that they are taking off the field. The reason why it is so important to remove the rocks, of course, it is very expensive and very damaging on your equipment, whether it is your seeders, your plows, your forage harvesters, if you are constantly hitting rocks with the equipment. That is why producers put a lot of effort in removing as much of the rock out of the land as possible.

They will plow up the land; they will lime the land because they want to increase the PH of the soil. They will fertilize it and they will get it ready then for seeding for the following year. It is a fairly in-depth, costly process for them to do.

With regard to, is there a need for more than one? Absolutely! Like I said, if you are into a wet period of the year, your tractors, your equipment, will get bogged down, and you do not want that happening. They typically try to do it when it is a bit drier. Even particularly when you are doing things like removing roots out of the soils, you want it when it is fairly dry so the soil falls away from the roots so that all your soil is not being pushed into your windrows, which are the places in between the fields. You want to retain as much of that soil in the fields as possible. Because that is another area where we are at a disadvantage in this Province, is that we do not have a lot of good topsoil.

That is why we make the investments in this equipment. So, for these operations, the one in Cormack, the one there in the Codroy Valley, they are doing quite a bit of land development a year. They are expanding, so they would not be able to share that piece of equipment. They just would not be able to have the acreage cleared that they need to have cleared.

MR. S. COLLINS: Okay, so it just simply would not be practical to assume –

MS MacDONALD: Correct.

MR. S. COLLINS: Okay, fair enough.

Something I am always interested in is we know what we are doing here in this Province, but it is interesting to note what others are doing in other provinces, especially as it relates to this being a bilateral agreement and federal government involvement. I am sure you folks have – I think it was brought up by my colleague here, Mr. Parsons, with regard to conversations with other provinces regarding this, I believe you had mentioned.

I am just wondering: As it relates to best practices and challenges met by other provinces, are there a lot of similarities? If you look at this program in other provinces, are there a lot of similarities with the challenges we are seeing here today, as there are with others? Have you learned things from other provinces that can be applied here to maybe make the system a little bit better? Have you seen anything over the course of this program?

MR. DEERING: From my perspective, what I have learned in the negotiation process and through my observation of the scope and magnitude of the farming sector in other provinces, particularly in Quebec and Ontario and some of the Prairie Provinces, is that they are very large. The hog sector in Quebec, for instance, represents several thousand hog producers, whereas in this Province we only have two.

The reality is that they have a lot more folks competing for these funding programs than even we do here. If we have thirty or forty people on our wait-list waiting for their turn in the queue, in some of these other provinces, there would be several thousand, I think. So, yes, they do share some of the same challenges that we do, but certainly at a much larger scale, in a lot of cases.

MR. S. COLLINS: Okay, fair enough. That is everything for now, Mr. Chair.

Thank you.

CHAIR: Mr. Joyce.

MR. JOYCE: I am sorry, guys; I am going to go back to that entity, because I have to get it straight in my own head – sorry about that. Can you tell me, the three entities, how much each applied for and what the breakdown was, what they received? The first entity – I do not know which one is which, but it says in the Auditor General's report, Entity 1.

MS MacDONALD: Entity 1 received $500,000. I do not have their application here, Mr. Joyce, but I expect they would have applied for the program maximum, which was $500,000. They rarely would have applied for more because they would have known what the program maximum was. I would suggest they likely applied for that $500,000.

MR. JOYCE: Entity I – $500,000. Did they receive $500,000?

MS MacDONALD: Yes, they did.

MR. JOYCE: How much did Entity 2 receive?

MS MacDONALD: Entity 2 also received $500,000.

MR. JOYCE: Entity 3, I guess it is $300,000.

MS MacDONALD: Yes, based on the Auditor General's report here, it was $306,000.

MR. JOYCE: So, Entity 2 was the land clearing?

MS MacDONALD: Correct.

MR. JOYCE: How much did that piece of equipment cost?

MS MacDONALD: I am thinking that the total project cost for that was about $300,000.

MR. JOYCE: I do not know if the Auditor General – was it $280,000 for the piece of equipment?

MR. JANES: I am not sure, but I will check that out what we have on the file.

MR. JOYCE: So, it was $300,000. What was the other $200,000 for? Because if it was for clearing equipment and you got the equipment, what was the other $200,000 for?

MS MacDONALD: I would have to go back and check that, Mr. Joyce, to see what projects were included in that $306,000.

MR. JOYCE: No, not the $306,000, the $500,000 one.

MS MacDONALD: Oh, in the $500,000, sorry. The same thing, I have to go back and check what was included in that $500,000.

MR. JOYCE: If the equipment was only $300,000, obviously, there was more to it than clearing land.

MS MacDONALD: It might have been another similar piece of land development equipment, but I would have to check the actual project to let you know what the pieces of equipment were.

MR. JOYCE: I am just assuming, lunchtime – we will be able to get that back after lunch.

CHAIR: Are you able to provide that at lunchtime or if that is too soon, could you give it to us in a letter if you are unable to locate it lunchtime?

WITNESS: Yes.

CHAIR: Thank you.

MR. JOYCE: The other question on this here: Are you aware or was there ever any follow-up that this piece of equipment for Entity 2 was ever used to compete somehow or clear other land for other people around the area for a fee or be hired out, tendered out?

MS MacDONALD: I would say that the majority of the land cleared would have been for their related companies, but there probably would have been some land that other producers who do not have the capacity to do their own land clearing – like, they would not have that equipment. There likely would have been some land cleared for other producers in the area.

MR. JOYCE: My last small question on that is: In the staff's report that was sent out, it said that they would be competing against other entities in the area. You may have to just go on recollection. Can you tell us what types of equipment in other areas would be there? If you are getting equipment and it is only $300,000 and obviously, he is not doing all of his own land, if he is out competing, would that be a direct – if you get a piece of equipment for your farm, wouldn't you assume that you would keep it for your farm because once you get outside your farm then you are competing against other people who have to go to the banks to clear land?

I know, in business, when you do applications the first thing any government says: Are you competing against anybody? If you are competing against another existing business in the area, they say no, we cannot fund you because this person had to go to the bank to go through the procedure and pay interest, pay on the loan, on the equipment. Was there any follow-up to see if they are out competing, which was one of the concerns of the staff?

MS MacDONALD: The Implementation Committee again, we did not agree with the issue of competition. All producers have access to the Growing Forward Program to apply for funding. So if they wanted to apply for funding for root rakes, rock rakes, rock windrowers, any equipment they need for land development, they could have applied for funding. We did not agree with the comment being made by that staff person regarding competition, and I do not see it as an issue in this case.

MR. JOYCE: You do not? Okay.

I noticed back in the Report of the Auditor General that there was not follow-up and I am not sure if it department policy to follow up. What I would ask is: On these three entities, were there any follow-up to ensure that funding for $500,000 for Entity 1 was spent as it was deemed to, and Entity 2 and Entity 3?

MS MacDONALD: Yes, as the project claims are submitted, we send out an agriculture development officer who actually inspects the project. They have to go out and actually see that the work was done. That inspection would have been done.

MR. JOYCE: Okay, because in the Auditor General's report there were a number that were not done; so we can say for certain that these three were definitely done?

MS MacDONALD: Yes, absolutely. I have personally been on those locations and personally viewed those projects myself.

MR. JOYCE: Okay, thank you.

On page 168, I will just go back to this again about the staff. In the report, when you go in on page 181, and this may clarify it when I read it, "All three companies were in separate lines of business and all three companies were agricultural operations that reported farming income to the Canada Revenue Agency, and therefore based on the program's related companies policy the Implementation Committee approved funding." Those three companies did receive farming income?

MS MacDONALD: They did report it, yes.

MR. JOYCE: They did report it.

The amount of this land clearing one, they reported it: How can you report farming income if you are just clearing land?

MS MacDONALD: It is considered agricultural activity. Any income you receive, whether you are doing custom work, whether you are raising or selling livestock, whether you are raising or growing a crop, whether you are selling a secondary processed product, whether you are selling wreaths. It does not necessarily have to be something that you are growing, as long as it is an agricultural activity. So this would be included.

MR. JOYCE: Clearing land, I can go clear land and say I am in the agriculture business.

MS MacDONALD: In this case, we look at the fact that these are related companies that are involved in farming and these are farming businesses, right. We would not fund, say for instance, a construction company that is out doing residential land development if they wanted to get into land development on the side. We restrict this funding for people who are involved in the agricultural sector.

MR. JOYCE: How long were those companies in operation?

MS MacDONALD: I could not say offhand. I know the farm families themselves are multi-generational. They are probably into their second or third generation of families.

MR. JOYCE: Those three companies were always set up?

MS MacDONALD: Not necessarily those three legal entities but the farms themselves have been in –

MR. JOYCE: Yes, I visited the farm, actually.

MS MacDONALD: As for when the companies were actually incorporated?

MR. JOYCE: I am sure you would have that on file somewhere. Can you, if you have time over lunch, find out when those three were set-up? If they were set-up fifteen, twenty years prior then obviously they have been into it, but if they were set-up recently I do not know.

I do not know if the Auditor General has seen any documentation of when the companies were set-up, the dates they were set-up?

CHAIR: It should be a matter of public record on Companies and Deeds Online. That would mean we would need to know who they are to look them up. Anybody can do a search at lunchtime and determine the establishment and date of those companies, whether they are amalgamated or who the directors are and where they are located. That might be helpful.

MR. JOYCE: Just if you can get it.

On page 170, right at the top, "The three related parties that received more than the maximum $500,000, as discussed previously, had information missing regarding their ownership interest in other companies. In at least one instance, it was evident that Department staff should have known there was a related party missing in the application; however, staff failed to request that the applicant complete this information". Can you explain that?

MS MacDONALD: I believe what happened is that these individuals also have other businesses as well beyond agriculture. In this case, from what I read from this, is that in the application they are also required to list out their holdings in other companies.

Sometimes what happens is when producers fill in one application, they fill it in completely. The second time, if they send in another project application, they may not fill in all the information on their other related companies. I suspect that is probably the case here.

MR. JOYCE: I would ask the Auditor General's office, when this statement was made is this more so related to the three companies, that when one application was put in say for Entity 1, Entity 2 holdings was not declared or vice versa?

MR. PADDON: I am not quite sure the reason or whether it was that particular circumstance. The application clearly asks about related parties, so there is a place to fill in any information about related companies. I guess it was an instance where the information was not there. The circumstances about why it was not there, I really could not say.

MR. JOYCE: Okay.

The committee that made the final decision knew about the partnership in the three companies anyway. That is the application itself, because you knew the industry and you knew the people involved.

WITNESS: (Inaudible).

MR. JOYCE: Okay.

CHAIR: Mr. Joyce, can we go to a government member?

MR. JOYCE: Sure.

MR. K. PARSONS: I just have one question that I would like to ask. We are speaking a lot about this enterprise that is in the Codroy Valley. How huge are they? What percentage do they produce with dairy products right across the Province?

We talked this morning about 306 applications and they received so much money, but how big is this? You talked about it being one of the biggest ones in Atlantic Canada; the main thing they do is dairy. What percentage of the dairy produced in the Province do they produce?

MR. DEERING: We have approximately thirty-two dairy producers in the Province. We have two that are very large scale, but this particular one I am estimating is probably producing about half the Province's milk.

Cindy, I do not know if that is –

MS MacDONALD: I am not sure what percentage it would be. It would be a high percentage. I do not think it would be half, but it would certainly be a fairly high percentage.

The typical size of milking dairy cows would be, about 120 dairy cows that a dairy farm would be milking. I think at this operation they are milking 1,100. It is quite a bit larger than the average. Even 110 dairy cows they average for the Province is large by Canadian standards, actually. We have fewer dairy farms, but we have very large dairy farms.

MR. K. PARSONS: That is all I have. That is all I wanted to know.

Thank you.

CHAIR: Mr. Mitchelmore.

MR. MITCHELMORE: Entity 2, which was the land clearing company that received $500,000 and which was stated to be in a very weak financial position by staff because with the applications they have to submit financial records.

Since they were approved for $500,000, a 75 per cent contribution, 25 per cent would have had to have been contributed as well. That would have been about $175,000. Where did they come up with the money to fund their portion?

MS MacDONALD: Applicants can finance their share of the funding or they can use their own personal sources of funding.

We do not see where their 25 per cent is coming in to. What we check to see is: Did they actually incur the cost for the project? They could get financing either through chartered banks or through Farm Credit Canada.

MR. MITCHELMORE: The business itself does not necessarily need to contribute and finance its own business activities, that entity?

MS MacDONALD: Could you repeat that?

MR. MITCHELMORE: Entity 2 does not need finance its own operations. I mean, you have no way of knowing that the specific company contributed 25 per cent, only that the bills were paid for the project. It may have come from Entity 1, or Entity 3, or a personal bank account to be able to get the 25 per cent contribution.

MS MacDONALD: Yes, what we confirm is that the company actually incurred the cost for that project.

MR. MITCHELMORE: Okay.

How would you know they would be eligible for 25 per cent financing of a project? They have to have a contribution and if somebody has a weak position, a company, then applications are usually rejected based on it is not financially viable that they can come up with the 25 per cent obligation. Unless it was looked at as a broader picture that we are looking at the overall capacity of the company and the shareholders and the relationship here.

MS MacDONALD: What we look at, again, we only reimburse after the fact, so once they have incurred the cost right. They could have financed it. With regard to the weak financial position, again, the investments we were making are to try to improve that financial position of the applicants.

MR. MITCHELMORE: What if a company gets approved funding and they cannot come up with their 25 per cent? How does that work?

MS MacDONALD: If they do not proceed with the project, the project will be cancelled.

MR. MITCHELMORE: They could proceed with the project, spend money, but not have 25 per cent and get paid.

MS MacDONALD: They would actually have to show – for instance, with a cancelled cheque, show that they actually purchased that piece of equipment.

MR. MITCHELMORE: Right.

In instances like where they use things that are in kind, or labour, there has been instances here where they have not provided cheques, not necessarily this application, but it has not been documented and it has been accepted by the department that this work was done or whatnot by labour, and it just shows poor documentation.

MS MacDONALD: We do not accept in kind resources under the program. They would have to show some documentation.

MR. MITCHELMORE: Somebody could state that they hired somebody for labour work and if there is no cheque to prove that, the department still has been approving –

MS MacDONALD: Well, we request cancelled cheques for labour. I think in the case noted here it was a project that was into March where the cancelled cheques were not available, so we went based upon the payroll records. The cancelled cheques were subsequently submitted and put on file with the project. For things like labour we would not accept in kind, but they would have to show proof of actual payment for labour.

MR. MITCHELMORE: I have questions around the fact that this is really an integrated business model, it is a company that has different divisions, they have set up separate companies so they could avail of in excess of a million dollars of government funding, public money, because you look at, you have your dairy farm – and I understand how that works, that you would want to have the farmland and the hay to be able to work it all out. They would not have been eligible if they did not have different companies set up for funding, that is quite clear, they were maxed out at their half million dollars, right?

MS MacDONALD: If it was one entity, they would have only been eligible for the $500,000.

MR. MITCHELMORE: Right, so there is nothing stopping this farm, this entity, from saying well, I am going to grow cabbage on my land, so I want another half million dollars, I am going to get into, now, the berry production on this aspect, I want another half million dollars, et cetera, and putting those applications forward.

Is your department looking at maybe closing the gap on some of its approvals to related companies? Because it could be, at the end of the day, that one entity could be getting millions and million dollars, and that significantly puts larger companies and people who are getting the funds at a more competitive advantage on a larger scale. That cannot be denied.

MR. DEERING: There are two answers to the question. The first one is that yes, we are having a closer look at the related companies piece for implementation in the next framework agreement, which is still being negotiated; secondly, in the example you quoted, if entity A, for instance, decided he did want to get into cabbage production or berry production, those are two commodities that we are still not self-sufficient in, in this Province. Again, if someone was able to build a strong case that they wanted to be into this type of business and could demonstrate a business case for it as a separate entity I think it would be a good project.

MR. MITCHELMORE: Well, farming is very capital intensive, it is very expensive to get started, to acquire land, to have access to Crown lands and things like that, and there are certainly a lot of barriers for farmers. I can see why we are not self-sufficient, based on policy, and the Chair had noted that we are certainly not here to debate policy.

The comment that was made about the producers having access, that commentary, not everybody has equal access if it based on a system that you have and how you are managing applications. It is based on first-come, first-served. There may have been another application for equipment such as this land-clearing piece of equipment by another applicant in the area.

Would the department look at approving more land-clearing equipment in the Codroy Valley or the Cormack area now that equipment already exists? Is that an opportunity lost for another entity that wanted to get into it that certainly would not look at land clearing as a farming activity or a separate business model where they could get $500,000?

I am very curious as to the whole process. Looking at these related entities shows there is a real problem with how your Implementation Committee has approved the process. It does not look very open and transparent at all.

MR. DEERING: I certainly cannot speak to what interest may be out there, to use this specific example in the Codroy Valley, for land clearing if they have not made representation to us.

What I can say is that the farming community is generally very aware of what the process is for applying to Growing Forward. I am not aware that we have had any specific complaints about where folks land themselves in the queue. People are aware it is first-come, first-served. Again, I really cannot speak to how we could even implement, as part of our process, interest that may be out there that have not come forward. I would not know how to quantify that.

MR. MITCHELMORE: Yes, but applications that have not been looked at, that are sitting on desks and things like that, that are part of this queue, are not being cross listed to maybe say – well, you made the comment berries and vegetables not being something we are self-sufficient in, that we are food insecure in, in the Province. Maybe some of that money could have been used for applications that were putting forward berry and vegetable production versus an entity, especially one of these entities which certainly has the capacity – maybe all of them have the capacity, obviously, if they have been able to contribute almost $500,000 of their own funds, to come up with their contribution, or $400,000 of their own funds, to this project. I am wondering if this work would not have been with or without the funding.

My concern is: Is the Growing Forward Program really for the large farmers in the Province or is there a focus on new farming and new entrants at all?

MR. DEERING: We have close to 600 applications and projects we have approved throughout the lifetime of this framework agreement. Certainly a vast majority of those have been smaller projects. We have done lots of horticulture. We have done lots of berries and lots of vegetables. At the end of the day we have received very positive feedback on what we have been able to accomplish with the program.

MR. MITCHELMORE: I want to ask about – yes, Mr. Chair?

CHAIR: We will go to a government member.

MR. MITCHELMORE: Okay.

CHAIR: Unless you are in a subject matter you want to finish?

MR. MITCHELMORE: I wanted to go to something that Mr. Joyce had asked about, the percentage of common ownership. I can come back to that.

CHAIR: We will go to Mr. Cross and then we will wind up for lunch.

MR. CROSS: Okay. The second theme I sort of looked at as I was studying through this was the completeness of projects and the monitoring of events that were undertaken.

I am looking at page 179, and it seems like a startling statistic on the surface. It says, "24 of the 25 projects included File Completion Checklists but did not have these forms fully completed." It does not go on to say how many items are on the checklist. If these are five items on the checklist and they only have half of them filled out, then the statistic is different than if there were forty items on the checklist and only one or two were not filled out.

In monitoring all of the targets you are trying to meet and all the projects that are there, the question five that was asked – and I have read through it and I probably want to get you on record – is what improved project monitoring procedures have you implemented? Is it showing good success?

MS MacDONALD: For the File Completion Checklist we have designed a new form to go with the files. That checklist now requires, for instance if the application is complete, that the program manager actually date and initial it. It is not just someone had to check, but then we know when it was done and who initialled it.

It also has a second check by the accountants as well, when they receive the file for their work to make sure that yes, they note it in the file that this is done and a copy is in the file. It is also done by the manger of cost-shared agreements when the files go through her desk.

The fourth check is with the manager of agriculture business services, who is very diligent based upon the comments the Auditor General has made with regard to the concerns about documentation of the file. She is very diligent in ensuring that the documentation is in the file and that this checklist is being completed.

MR. CROSS: Okay.

It appears in the checklist it is relatively short but each is a very important stage to get done. Having one part incomplete does mean a greater deal than if it was self done.

What is the percentage of projects that are submitted on time now? Is there anyway we can monitor that or you know the information –

MS MacDONALD: The percentage of projects?

MR. CROSS: Yes.

MS MacDONALD: Of the project reports?

MR. CROSS: Of the projects that are applied for, the ones that are completed on time, finished on time and prepayments and holdbacks are all complete, so that when you are done you are done.

MS MacDONALD: I do not know if we have tracked the percentage of claims that are coming in within the thirty days or not. We do have a project monitoring sheet though that we manage. For those projects requiring project reports, the program managers compile this project monitoring. So for each project we know if a project report was due and when it is due.

I will say there is still an issue with – if you are dealing with clients, the reports sometimes are not submitted on time; however, what we do is we have the program managers file a follow-up with the applicants. Even in some cases help them in preparing the project reports.

In some cases the project report may be submitted; however, it does not meet all the requirements of the contribution agreement, everything that we are asking for. So we will send it back out to the applicant and give them another thirty days to provide the additional information in the report. There is more monitoring ongoing with regard to that.

CHAIR: Okay. We can stop now for lunch.

I would like to come back at 1:45, and I do not think we can go past 4:00 o'clock today because we have at least three members and a witness or more who have to catch a 5:00 o'clock flight. If we could come back at 1:45 we may conclude this afternoon.

I think in the interest of time we may not break this afternoon, depending on how we are going, and we may well conclude. I do not think we can stay past 4:00 today in any event. If we do not conclude we will have to go over to another day, but hopefully we will conclude.

Thank you.

CHAIR: We will resume, and Mr. Joyce will resume questioning.

MR. JOYCE: Thank you, Mr. Chair.

That company over in Cormack that was set up and received the other piece of equipment the same as Cormack, is that the only company they have in Cormack?

MS MacDONALD: No, there would also be related parties with common shareholders.

MR. JOYCE: Would they have two or three different companies set up or just one?

MS MacDONALD: I know of two.

MR. JOYCE: Okay.

When the application was filed, did the same person own both companies?

MS MacDONALD: There would be common shareholders between those two related companies.

MR. JOYCE: Did the second company ever receive any funding from the –

MS MacDONALD: Yes.

MR. JOYCE: They did?

MS MacDONALD: Yes.

MR. JOYCE: On page 170, please, more for clarification than anything. Right in the middle: Documentation for project costs not adequate. It says, "5 of the 27 projects totalling $1.34 million in approved funding did not have adequate documentation to support the project costs." They gave some specifics, "Quotes for project costs of $262,349 were not available for 3 projects that were approved for a total of $784,715 in funding." Can you explain that?

MS MacDONALD: Under the program we request quotes for a couple of reasons. I think I mentioned previously that one is to ensure that the applicants have properly costed their project. As well as to ensure that the amount of funding that we are approving, that we are not over committing, that the project is properly costed, so that the amount of funding we offer is realistic with what the scope of the project is going to be; however, not in all cases can quotes be provided. In this case, I think it was more of an oversight on the part of the program manager in that quotes were not provided with the application.

MR. JOYCE: Are there steps being made now to ensure that does not happen again?

MS MacDONALD: Yes, as part of that project file sheet that we are using the program manager would have to sign off and date and initial that the project quotes are submitted.

MR. JOYCE: Okay.

I assume this is for the other two projects also?

MS MacDONALD: Yes, in that case we had mentioned previously that the program manager in the calculation of the eligible amount for the project had incorrectly included the HST in the approval amount.

MR. JOYCE: Okay.

MS MacDONALD: When it came to actually payout on the project, when the claim was submitted, that the HST was not paid out.

MR. JOYCE: Okay.

On page 173 at the top – and again, I will just go through it because I am sure that there are already steps taken – "For 1 project approved for $500,000, the contribution agreement required that a report be submitted by 31 October 2010, eight months after the invoice eligibility date. However, on 31 March 2010, the full $500,000 in funding was paid, and therefore, 10% or $50,000 should have been held back until submission of the report."

Are there steps in place now to ensure that does not happen again?

MS MacDONALD: Yes, the program managers are managing a project holdback spreadsheet for us now so that we can manage which projects we have holdbacks on. In this case, it was some investment in some greenhouse technology we made. A staff person, the program manager, was actually working with the applicant over quite a period of time to get a report submitted to make sure the right information was included in the report.

MR. JOYCE: On page 177, right at the bottom: Project reports or follow-up not always completed. I mentioned that this morning about the one out in Codroy, but here: "Our review identified that up to 23 projects that did not require final reports, such reports or Department follow-up on 15 of these projects could have provided beneficial information, had they been completed.

"All 15 projects identified project deliverables in their applications and assessments such as savings on fuel and labour, increases in capacity or other efficiencies as a result of the funding provided. However, there was no follow-up by the Department to determine if these deliverables were ever achieved."

Has that changed now or is that still part of the protocol?

MS MacDONALD: Depending upon the project, we may or may not request a project report. Some projects are fairly standard, whether it is land development or the acquisition of forage equipment. In those cases we would not request a project report, but if it is investment into something like new technology or if it is something we think there is some benefit of sharing the information to a broader sector of the industry, we will request the project report.

MR. JOYCE: Okay, thank you.

Can I ask the Auditor General: Do you feel that is adequate or do you think there should be follow-ups?

MR. PADDON: I would suggest that in the case where it is fairly standard, for instance the rock clearing equipment we talked about this morning, perhaps the discretion that is provided by the department could be used not to require a follow-up report.

The point we were making in the report is that even with something like that there may be some benefit to determining, subsequently, what the benefit of providing $500,000, for argument's sake, for rock clearing was: What was the anchorage that was cleared, those sorts of things? I think that was the point we were trying to make.

Where is the line in terms of where you are probably putting too much of an onus on the applicant to provide information and where you are not? It is difficult to say in the absence of something specific. We would still think that perhaps there are opportunities for additional information by requiring follow-up reports.

MR. JOYCE: Mr. Chair, we mentioned earlier that there may have been some information during lunchtime. Did you have time to get that information?

MR DEERING: We do have dates of incorporations for the three entities in the related company's piece and we also have the timing of payments that were related to those three entities.

Entity 1 would have been incorporated in September, 2004. Entity 2 was incorporated in August, 2003. Entity 3 was incorporated in September, 2004, as well.

MR. JOYCE: Okay.

Thank you.

MR. DEERING: The timing of the payments; Entity 1 would have received funds under Growing Forward in 2009-2010. Entity 2 is the same thing, in 2009-2010. Entity 3 was 2010-2011.

MR. JOYCE: Thank you.

On page 178, again, this is just to have it on the record, "2 project files did not include the completion of all approved items. Specifically, for 1 project, instead of purchasing the four greenhouses that were approved, three greenhouses were purchased at a higher cost per greenhouse, and an approved building and electrical work were not completed for another project. Even though these items were not completed, the amount of funding paid was not fully reduced for the amounts estimated in the proposals as the savings were used to cover overruns in other areas of the project."

Are there mechanisms in place now to help with that, on-site visits or –

MS MacDONALD: What we are doing now, if there is a change in the project scope, the program managers will bring that project back to the Implementation Committee for an amendment to the project. In this case, had the producer submitted the claim, and instead of doing four greenhouses had did three, in that case that project would be brought back to the Implementation Committee to see whether or not we would approve that amendment or not.

MR. JOYCE: Okay.

So there are procedures in place now.

MS MacDONALD: Yes. If the project scope changes, the program managers have to bring it back to the committee.

MR. JOYCE: Okay. Thank you.

Are there on-site visits or any way to ensure that it is brought back to the project manager? Sometimes if the work was done, then it is better to ask for forgiveness than permission sometimes.

MS MacDONALD: We have eight agricultural development officers across the Province. On a regular basis they are out visiting the farms in the area. They are monitoring and managing when projects are starting. They let us know as well if a project is not proceeding.

All the projects that we pay out on require an on-site inspection. They would actually go out and note the activities and they take pictures of those – whether it is building construction or if it is equipment, they take pictures of that and they complete a project inspection form.

MR. JOYCE: Okay. Thank you.

I know my time is up. I will come back.

CHAIR: Yes.

Government member, Mr. Brazil, do you have questions?

MR. BRAZIL: Thank you.

After reviewing the written submission by the department and going through the verbal discussion today, the questions asked by my colleagues and the answers given, I am satisfied the department realizes the concerns that the Auditor General had and have taken diligent steps to rectify that. I am happy to be able to say that I have enough information, enough understanding that when we are ready to write our report to the House of Assembly, I will be able to contribute enough based on what the program is all about.

At this point, I have no further questions for the witnesses.

CHAIR: Mr. Mitchelmore, would you –

MR. MITCHELMORE: Yes, I have further questions.

On page 161, the Program budget on Figure 3; 2010 Federal Revenue was $641,000 and in 2011 Federal Revenue was in excess of $4 million. Can there be an explanation for this?

MS GILL: Yes, I can address that.

In 2010, that would be 2009-2010, the $641,000 was some claim from 2008-2009 that was not received until 2010-2011. The actual 2009-2010 claims were submitted, but they may not have been received until the 2010-2011 fiscal year. That is why it is $4 million in 2010-2011 and only $641,000 in 2009-2010.

MR. MITCHELMORE: Okay.

The Grants and Subsidies then on 2010 and 2011 reflect both provincial and federal grants and subsidies that were disbursed, or is it just provincial?

MS GILL: It would come out of the provincial budget, but after we spend it then we claim it to the federal government for reimbursement.

MR. MITCHELMORE: So, the $641,000 is all that was reimbursed for that program?

MS GILL: Yes. It is federal revenue that we claimed and was reimbursed, yes.

MR. MITCHELMORE: For the program?

MS GILL: Yes.

MR. MITCHELMORE: Is there potential unclaimed revenue or revenue that is lost because of failure to submit claims under this program?

MS GILL: No, there is no revenue lost, but when you submit claims, for example in March, they cannot turn it around fast enough to get it back to us in that same fiscal year. We will get it probably in April or May. So it goes into the provincial government books as being received in 2010-2011.

MR. MITCHELMORE: Okay. Thank you for that clarification.

I want to move forward a little bit on my questioning. Before we broke I was on page 170. "The three related parties that received more than the maximum $500,000, as discussed previously, had information missing regarding their ownership interest in other companies. In at least one instance, it was evident that Department staff should have known there was a related party missing in the application; however, staff failed to request that the applicant complete this information".

This certainly is very questionable. I would like an explanation from the department head as to why staff failed to ask for information to be complete.

MS MacDONALD: I think it might be an instance where if there are several applications coming in, the applicant, when they sent in their initial application, may fill in the information for the related companies but perhaps in the second or third application they do not fill that in. So, it is certainly an oversight on behalf of the program manager to ensure whether it is the second or third application, that all the applications are completed fully.

MR. MITCHELMORE: Do you do a search or anything of people and their business affiliation through CADO to determine if they are affiliated with other agriculture or other business entities?

MS GILL: We do a CADO search for when they declare what companies in their application – we will go to CADO and confirm that that company exists and who their directors are. CADO does not list shareholders; they just list directors.

MR. MITCHELMORE: Is there any recourse when an individual or an applicant does not submit information? If an individual did not submit information, they are holding back information that could have impacted maybe receiving funding or not, right? That is pretty standard.

MS MacDONALD: It would be, yes, if one of the related parties was in arrears with government. That is really what the check is done for, to see whether they are in arrears with the Province or not.

MR. MITCHELMORE: Yes, but if somebody is in arrears then they have still received funding or they can still receive funding.

MS MacDONALD: No, I believe the directive is that we cannot enter into contract with them if they are in arrears. Sometimes it is something as simple as a Crown land lease or something that they are owing to the government. The most cases we found, it has been something simpler like that.

MR. MITCHELMORE: In this report it said that not all the checks were done to see if companies were in arrears.

MS MacDONALD: Yes, that is true.

MR. MITCHELMORE: There is a flaw or there is something systemic wrong with how this program is being administered.

MS MacDONALD: At the time there were certainly cases where, particularly with some of the related parties, that arrears check was not done. Again, with the new procedure that is in place, that arrears check is being done and then it is being verified by the managers within Growing Forward.

MR. MITCHELMORE: We are not talking about small sums of money in many instances here. We are talking $500,000. You are talking about not doing a check or a search on an individual to see if they are in arrears. They might owe hundreds of thousands or millions of dollars in arrears to the CRA or to the provincial government. A simple credit check and other checks through the department can validate that and could probably identify if there is information being withheld. That should be one of the number one things being done when you are looking at doing the job and the assessment.

Is there not a staff checklist that this should be done and recourse or anything on this matter?

MS MacDONALD: There is a checklist with regard to the arrears check being done, yes.

MR. MITCHELMORE: In situations like this that are identified, you have nothing in your system to say that a credit check was done or nobody signed off on it, a senior person, to review the file? Somebody should be responsible in this matter.

MS MacDONALD: We do not do credit checks, but we do the arrears check, which is a directive of government.

MR. MITCHELMORE: Whose responsibility is it to ensure that the arrears check is being done? Is it the front-line staff, is it a management position, or is it a deputy position? Where does it go? Where does the buck stop, basically?

MS MacDONALD: The arrears check is done by the program manager who has that file. They will note it in the file, they will initial it, that it has been done, and it then gets checked by the program accountant, and that check will also get looked at again by the Manager of Cost-Shared Agreements, and they will do a fourth check, actually, when the Manager of Agriculture Business Services also looks at the file.

MR. MITCHELMORE: Okay.

On page 166 Entity 1, 2, and 3, we see that Entity 3 are the spouses of A, B, and C, but they are managed by B and C. B and C would have a 50 per cent stake in Entity 1, and B has a 50 per cent stake in Entity 2. I am curious as to why the requirement to have this company managed by B and C. Is it because they needed to meet the educational requirement to be able to qualify for funding?

MR. DEERING: I guess from my perspective it would not be appropriate for me to comment on why they set up their management structure the way they did. I would not be able to give you an accurate reason why they made those choices.

MR. MITCHELMORE: Okay.

It said that there was information being withheld. Was this information provided on the applications that the company was going to be managed by B and C, or within the business plan so that people would know of, I guess, basically all the related stakeholders?

MS MacDONALD: I think the comment with regard to managed by B and C is that in relation to the contact when staff are working back and forth with applicants, I think most of the contact would have been made by B and C, as opposed to the spouses, so I think that is where the comments from the Auditor General is coming from.

MR. MITCHELMORE: Were there information not reported on Entity 3 from the Auditor General's findings in the application process? Was there information withheld with Entity 3?

MS MacDONALD: I would have to check their actual application to respond to that.

MR. MITCHELMORE: Because based on what was said, Entity 3 and Entity 1 were approved in the same funding year, and they would basically almost involve all related parties at that time. If it was a first-come, first-served basis, the applications were probably submitted in very close relation to each other, and if that information was not submitted to show that significant relationship between all of these stakeholders, I am wondering if the people on the IC have the best knowledge put forward, the best information, to be able to make the appropriate decisions when it comes to spending public money to such a few individuals.

MS MacDONALD: I would have to actually review those separate applications before I could make comment as to what information may or may not have been missing.

MR. MITCHELMORE: I want to go to page 171: IC decisions not adequately documented. I referenced it a bit earlier, but on the Record of Decision it said, "The ROD was then filed in the applicant's project file" and it was done by the program manager. "This process was inadequate as the documentation on the file only showed approval by the Chair of the IC, not all members of the Committee. Furthermore, since the decisions of the IC and the ROD were not part of the minutes, there was no opportunity for the members of the IC to review the official decision and correct any discrepancies."

There could be many, many more errors beyond just this small sampling of the Auditor General. What does your IC have to say about its process here?

MS MacDONALD: There are no identified errors with the Records of Decisions. The way the Records of Decisions are prepared is after the meeting the Records of Decisions are prepared by the program manager. They then go to the Manager of Cost-Shared Agreements. It then goes to the Manager of Agriculture Business Services. It would then come to me as the Chair of the Committee prior to signing it. I actually review each individual Record of Decision against my own handwritten notes for that meeting. There has been no discrepancy in the Records of Decisions.

The comment from the Auditor General – which we think is a good comment and that we accept – is that the Records of Decisions should be made a formal part of the minutes, which we are now doing since the recommendation. Before we kept them with the minutes in a separate binder as such, but we now actually amend those as part of the actual minutes.

MR. MITCHELMORE: On the applications, though, why would you not have the Chair, yourself, and another member – or all of the members, since there are only three, sign off on the documentation just for verification and record?

MS MacDONALD: It probably had more to do with a timeliness of getting the Records of Decisions done. One member is in St. John's. They both have their own individual jobs as such. Waiting for a Record of Decision to be signed by three individual people would have slowed down the approval process.

Currently, though, with the minutes, the minutes now are signed by two members of the Implementation Committee. All three members of the Implementation Committee get copies of the minutes and all the Records of Decisions.

MR. MITCHELMORE: So you do not necessarily meet in person then when you review applications?

MS MacDONALD: The member from St. John's typically would join by conference call.

MR. MITCHELMORE: Okay.

You are keeping minutes now, but you were not keeping minutes for the documentation of some of these applications previously, of the discussions.

MS MacDONALD: Our minutes previously were mostly policy discussion minutes and the project decision was done on the record. The Record of Decision was an individual Record of Decision by project, but now the minutes also include the decision on the individual projects plus they amend the individual project Record of Decision with the minutes now.

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

MR. MITCHELMORE: Sure.

CHAIR: Mr. Collins, any questions?

MR. S. COLLINS: No, not at this point.

CHAIR: Mr. Parsons?

Mr. Cross?

Then we will go to Mr. Joyce.

MR. JOYCE: Thank you.

On page 169, right at the top, "1 applicant had not completed an EFP…". Can you explain what that is?

MR. DEERING: EFP stands for an Environmental Farm Plan and it is a requirement, I guess, for farms that do access this fund to have an Environmental Farm Plan produced. It can contain elements of mitigation and identify risks and things like that that might be associated with that particular operation. Yes, that is it in a nutshell.

MR. JOYCE: Was that one of the stipulations to receive funding was to have that environmental plan completed?

MS MacDONALD: Yes, one of the requirements of the program is that we are trying to encourage good environmental farm planning on farms, so to access funding you have to have an Environmental Farm Plan completed within the five years prior to funding. In this case, the applicant did have an Environmental Farm Plan done previously but it had expired, unfortunately, within that five-year period.

The purpose of the program, what we basically know is whether or not the EFP was completed. It is a confidential process as such. We do not actually get to see what is in the Environmental Farm Plan, but we just get to know whether or not it was completed.

MR. JOYCE: That was not one of those three people in those entities? I am sure it wasn't.

MS MacDONALD: Pardon?

MR. JOYCE: That group there – and I m just putting it down for the record – that did not complete the Environmental Farm Plan, that was not one of the three that was in that entity out –

MS MacDONALD: No, I do not believe it was.

MR. JOYCE: Okay.

It goes on to say, "In addition, 6 more projects did not have the confirmation on file at the time of our review that an EFP had been completed; however, subsequent to our enquiry, the confirmations were placed on file".

Just a question on that: Is it now standard and mandatory to have it on file on a regular basis, if they are going to apply for funding?

MS MacDONALD: Yes, sir. What was happening previously is that our program managers would contact environmental farm planners and ask them, in the case of the applicant's name, was the environmental plan completed. So they were getting an e-mail response. In those six cases, they had actually checked it, but they did not print out the e-mail and that was not placed in the applicant's file. So that is now being done. That was one of the recommendations from the Auditor General as well. That approval –yes, the Environmental Farm Plan was done. That is actually now being placed in the file.

MR. JOYCE: Okay.

Can I ask the Auditor General just one question? Do you feel a lot of the recommendations that you made are being followed up on, or the department showed indications that yes, they are going to be followed and looked at?

MR. PADDON: Based on what I have seen from the response in July, plus the commentary here, it would appear that the department has taken the recommendations seriously and are in the right direction in terms of following up and implementing. It would remain to be seen, based on the follow-up review, to say categorically that they are, but certainly it would appear so.

MR. JOYCE: Just on page 179 – oh, wait now, before I go any further, on those three entities, is that going to be changed some way now whereby – because just on the surface, for someone like me, who has been in government, if you have fifty applications and there is only a certain amount of money, yet one group who is 50 per cent owner of three companies gets more, and there are lot refused.

It just does not seem fair. When you look at from my point of view, and just the general public, I would assume, it does not seem fair that one person can get three projects approved, even though he is 50 per cent owner for three, yet there are another fifteen or twenty here who cannot even get in on the program. Are there guidelines set up for that, or have you changed your criteria, because it just does not seem fair to me?

MR. DEERING: I guess, Mr. Joyce, for the purpose of this particular agreement, we have not modified the related company's policy for this particular agreement. What I can say is that we have had discussions internally, and as well at the negotiating table for the new framework agreement, and it probably would not be appropriate for me to speak to that at this point, because negotiations are still ongoing – but it is part of our discussions, yes.

MR. JOYCE: When does this agreement expire?

MR. DEERING: This current agreement expires March 31.

MR. JOYCE: This year?

MR. DEERING: Yes, 2013.

MR. JOYCE: So, the chances of this happening between now and 2013 are a bit slim, if there is any funding left?

MR. DEERING: The chances of modifications within the current framework?

MR. JOYCE: Yes, like if there is any slippage comes through.

MR. DEERING: I would suggest that for most purposes the lion's share of the allocation of funding for this year was already known. We may have some projects that we need to try to get out the door depending on if we have money come back or if projects do not get completed on time. Largely, I think we pretty much know where the money is going to be allocated this year.

MR. JOYCE: Okay.

MR. DEERING: Again, for the purposes of modifying our thinking on related companies in the future, from my perspective it would be limited to the discussion for the next framework agreement, which we are having those discussions.

MR. JOYCE: Okay, page 179, "24 of the 25 projects included File Completion Checklists but did not have these forms fully completed. The File Completion Checklist provides a record of tasks to be performed and documents that are required to be filed throughout the funding process to prevent funding from being disbursed prior to all tasks being completed…".

Is there a checklist now or procedures put in place so that does not happen?

MR. DEERING: Yes, sir. As a result of the Auditor's report we again have developed this new file information sheet which is being applied to projects this year and has been since the Auditor's report came out. It does include a pretty comprehensive list including Environmental Farm Plans, arrears checks and all the things we have been talking about here today.

MR. JOYCE: Okay.

On page 181, "The Department had developed a policy for funding applicants with common ownership in response to an audit recommendation from the Office of the Auditor General in 2007."

Is that true?

MR. DEERING: I guess the Auditor General can speak to this as well, but from my knowledge the current related party policy was developed as a result of the previous Auditor's report.

MR. JOYCE: This was saying that you can give funding to multiple companies, even if someone owns or has majority shares in each company.

MR. DEERING: Correct. I think the Auditor General himself has spoken to that a couple of times already. Yes, the process does permit funding to related parties.

MR. JOYCE: I will just keep going down. I am just reading because I made no notes of it. "No company received funding above the maximum permitted under the program as suggested by the OAG. All three companies were in separate lines of business and all three companies were agricultural operations…"

Earlier we heard – again, I have to make it clear. So clearing land is agriculture? I guess it is for the record more than anything. Can you tell me what is being done on that land now that this piece of machinery was used for? What is being used on that land now? I am sure there was follow-up.

MR. DEERING: It is a long process, the land development piece. As Cindy indicated earlier, it involves removal of the tress, removal of the understory cover and moss and the forest floor. It involves removing of stumps. In fact, this particular piece of equipment was engineered for removing large rocks up to one foot beneath the surface. Obviously, it has a very limited use in terms of the land clearing activity and obviously it is only one element of those several activities.

MR. JOYCE: Is this land being used now or is it –

MR. DEERING: I would suggest land that may have been cleared this year, for instance, may possibly, in some cases, be developed for next year but I would suggest a lot of the land that was in question when this report was being written is being used, yes.

MR. JOYCE: That was the other thing, Mr. Chair, I mentioned earlier is that in Entity 1 there was $500,000, in Entity 2 there was $500,000, but the piece of equipment was only about $280,000, $300,000. You were going to check and see if you could find out what the other $200,000-and-something was for, for clearing of land.

MR. DEERING: Yes, we were going to check into those details. I do not think we managed to find out that information through lunch but we did commit to checking into that and getting back to you.

MR. JOYCE: Obviously, if the equipment is only, say at the high end $300,000, there is $200,000 still there for clearing land. If the machine is used for it, what was the other $200,000? Then Entity 3 was given $306,000. Can you also tell me what that was given for, Entity 3?

MR. DEERING: We could probably do that if you would give us a few minutes.

MR. JOYCE: Yes, no rush.

MS MacDONALD: I do not have a listing. I have amounts but I do not have the details of what each project specifically was. We can provide that to you though, as to what items were funded under those projects.

MR. JOYCE: Yes, and what the Entity 2, the extra $200,000 was used for.

MS MacDONALD: Yes. It definitely would have been land development equipment, but I would have to check to give you the specific type of equipment that was purchased. It certainly would have been land development equipment to go along with the rock Rotoveyer.

MR. JOYCE: In conjunction with the –

MS MacDONALD: Yes, it would have been part of the whole land development equipment infrastructure.

MR. JOYCE: It would not be tractors or?

MS MacDONALD: No, we do not fund tractors under Growing Forward, but it could be something like a rock rake or a root rake. Sometimes they will purchase even rock windrows. It is a piece of equipment that pulls behind a tractor that all the rocks go down in a line so it is easier for picking the rocks up. It could have been something like that but I would have to check the actual project file to let you know exactly what was purchased.

MR. JOYCE: This is just subjective, looking at the Auditor General's report in the way someone like myself, who is not into agriculture, would look at this. Can you see how we would ask questions like why one company, one person who owns major shares in three companies would get three lots of funding and other people not get any? Do you think that should change with the department?

I know you said you are going to try to change it in the next round. Do you think the department, or even who is on the IC, will ensure that people are given a fair shake? I am not saying they have not been, but the optics does not look like it. When you dig down further, it looks like these three companies: okay, you guys got it, but fifteen or twenty more have not.

Would the committee making the final decision ensure that other companies are given a greater opportunity? You get three for one and, as the Auditor General mentioned, there are a lot of companies that never received any funding.

MR. DEERING: We discussed this morning about the process for submission of applications, and the order in which they are received has a significant influence on the order in which they are processed, obviously. I can say we have done just about 600 projects and we have reached out to a lot of people throughout this program.

I will reiterate the companies that we are talking about represent, collectively, the largest farming operation in the Province. I am not trying to justify that it makes them deserving of this much money but certainly there are a number of factors that play into it, including the order in which the applications are received.

CHAIR: Mr. Joyce, can we go to a government member now if one has a question?

Mr. Mitchelmore.

MR. MITCHELMORE: When it comes to the actual detailing, I would be quite happy to get that information as well, but looking at Entity 2 receiving $500,000 in Growing Forward funds, they would have also had to contribute $175,000 almost of their own funds. So, we are really looking at closer to $700,000. If the equipment only cost $300,000, there is certainly a substantial amount of money to be looking at beyond just $200,000.

On page 173 it lists, "In 1 project file, there was no proof of payment for $27,117 in third party labour costs. Subsequent to our enquiry, the documentation for proof of payment was placed in the file. In addition, a number of invoices did not have the applicant's name on the invoice and one invoice did not have the supplier contact information as required in the contribution agreement."

When you are looking at paying out money like that, why was it not on file at the time when it was paid? Was it misplaced or was it not requested? Was it we will trust you and cut you a cheque for $27,000?

MR. DEERING: From my perspective we have agreed with the Auditor General's findings, that we need to improve and fine tune our process. We certainly have committed to that and done that in a lot of cases.

In this particular case, I would not suggest that we did not know for instance that this proof of payment was there. For some reason it just was not part of the file when it was submitted to the Auditor General. Obviously, as the report has documented here, it was made available during the course of the audit.

MR. MITCHELMORE: Okay.

When you look at labour costs, third party labour costs, do they have to provide just a cheque stub? What is the proof showing that the labour work was actually done and complete? What sufficient documentation?

MS GILL: We require a cleared cheque. It has to show that it has gone through the bank.

MR. MITCHELMORE: Okay.

Can payment be made to individuals who are related as long as they are not shareholders or directors? How do you confirm that this money is not going back into the same people who own companies, because labour in kind is not acceptable? What is the protocol there?

MS GILL: Again, they have to show that they actually did pay the person, whether they are related or not. We look for proof that the cheque went through the bank, so that there is proof they were paid.

MR. MITCHELMORE: There is a proof that people were paid but not necessarily knowing if they are complying with the actual regulations, that is my point.

Funding paid before work was complete. Has this stopped?

On page 173 onward, there are a number of instances that payments were made. On page 174: The contribution agreement states that "all purchases must be fully utilized in the project within the term of invoice eligibility".

Clearly, this one that was listed for the video production was not. It was obviously a means to pay for it so that you can use budget money before it is lost. I believe Mr. Brazil had commented about that. Why would you prepay if the regulations say no, we do not prepay, we even have to have a holdback?

MS MacDONALD: We do fund interim or progress payments. As an applicant has incurred the cost, we will reimburse them the cost to help them cash flow the project. In this case, there was a 10 per cent holdback against this project. That was only released once the video was completed.

MR. MITCHELMORE: It was just a 10 per cent holdback for the video, which was a much smaller sum of money. I believe the video was $2,000, was it, the actual production of the video? There was something that was $6,000-and-some, as well, for the overall.

So, you are not talking about holding back $50,000, 10 per cent of the overall project. It is that there is no incentive. If a company received a lot of money and they only had a few hundred dollars held back, could that have been a reason why it took so long for the video to get processed?

MS MacDONALD: No. The issue with the video in this case, actually, the applicant had a lot of problems with the videographer they had hired. They had a lot of issues with the weather at the time, being able to use the piece of equipment. It took a lot longer than what they had intended to do.

One of the other things, if I can add, with regard to encouraging applicants – you are saying that 10 per cent is too low. Sometimes what we will do if the applicant is taking longer than what we think should be realistic to complete that last portion of the project to get their holdback, we will actually hold program funding from other programs to that applicant.

We also manage other provincial programs. If it is another Growing Forward application that they would have, we would hold that funding as a bit of an incentive or whatever to ensure that they complete the original project.

MR. MITCHELMORE: Okay.

Further down on that list it talked about $8,000 for site development. The payment is $1,000 per acre under the provincial agriculture assistance or the Agriculture Land Development Program there, but it did not state how many acres were actually cleared. That is an issue.

Some of these things may seem small but unless there is clarification, why would $8,000 have been paid out? Someone will be checking to say: Well, this is our standard policy. It is $1,000 per acre. We do not know how many acres.

Why would you just pay $8,000? It could have been one acre cleared or it could have been fifty.

MS MacDONALD: In this case, it actually was not paid out as an acreage payment as land development. If it is land development that is approved we will approve so many acres, say at $1,000 or $2,000 an acre. The inspectors would go out and measure the land with GPS. They will measure it to make sure of the exact amount of land that was cleared.

In this case, the $8,000 was part of the cost of demonstrating the utilization of this piece of equipment and for the cost of getting the video done. This is a case of a project where we thought there was some benefit of assuring that information to other producers in the industry, which is why we wanted to have the video done.

That $8,000 was to help defray some of the costs of the applicant of getting the work done and using that piece of equipment on the land. It was not paid out. It was not intended to be paid out as an acreage payment. Therefore, there was no reference in the file as to the acreage, the number of acres that were cleared.

MR. MITCHELMORE: Okay.

In the case of Entity 2, which is the land clearing company, there was an inspector sent out on site to measure off the 700 acres to verify that they had done their farming activity?

MS MacDONALD: All land development under Growing Forward, if someone is approved say for twenty acres or 100 acres, once they are ready for that project to be inspected we would send out an agriculture development officer. They have a GPS unit and they will actually walk the boundary of the land and map it. So that GPS unit will give us a very accurate determination of the actual land that was cleared.

MR. MITCHELMORE: Right.

I am a little confused on the fact of this land clearing company because they are providing more of a service than anything. Would they or would they not be required to be reviewed under this inspected for land that they have actually cleared or not? Was that part of the application or was it just for the equipment? Did they receive money to actually clear land and have that responsibility as well?

MS MacDONALD: The entity that is involved in the land developments, I believe their funding would have been just for the equipment purchase.

MR. MITCHELMORE: Okay.

Yes, I really would like to know then what the other $400,000 would be for.

MS MacDONALD: Yes.

MR. MITCHELMORE: The "Project claim forms late" is there anything being done to further encourage people to get their claims in, in a quicker manner? There has to be something that can be done for this. Do the staff do follow-up with people?

MS MacDONALD: Yes, they do. Both our agriculture development officers and the program managers monitor the projects.

As they are coming close to expiry – for instance, with land development, they normally set September 30 for land development. They will be monitoring the projects to see how close they are, if they have proceeded or not. As it comes close to the deadline, staff will call and contact the applicants to remind them about the deadlines with regard to submitting claims late.

MR. MITCHELMORE: How many on-site visits does staff do? Are these done by the agriculture development specialists on your team or is there a variety of people who do the on-site visits?

MS MacDONALD: No, the on-site visits, the inspections are primarily done by those eight agricultural development officers.

MR. MITCHELMORE: Okay.

How often do they do inspections?

MS MacDONALD: It would depend upon the project. Some projects may only require one inspection once the work is done, for instance, if it is land development. If it is a project for instance, like facility construction, it is a larger project, they might do interim inspections throughout. That is for the program.

In their general job duties they are responsible for the overall agricultural development in their regions. They would be out on farms daily, weekly basis. They are always keeping an eye on projects and how projects are proceeding.

MR. MITCHELMORE: Okay.

CHAIR: Mr. Mitchelmore, unless a government member has a question, I will go back to Mr. Joyce.

MR. MITCHELMORE: Sure.

MR. JOYCE: Yes, I just have a few more small questions.

On page 181, Assessment and Approval, right at the bottom, "The Record of Decision notes the project decision, project number, applicant, project title, project description, eligible and ineligible activities, funding level, project conditions, commodity, meeting date, project start date, and applicable Growing Forward strategic outcome among other project details. The Department will further document the Implementation…"

Was that in place or is that going to be in place from here on in?

MS MacDONALD: The Record of Decision was always done. Every project, from day one under Growing Forward, had its own separate Record of Decision, including that information. What is being done now as a result of the Auditor General's recommendations is that Record of Decisions are now including with the minutes – they are tabled, I guess, with the minutes you can say. As well, the minutes now more reflect individual project decisions as well, as opposed to what we were doing previously, which is more of a policy discussion is what the minutes were capturing.

MR. JOYCE: I think Mr. Mitchelmore mentioned earlier Entity 2 – your staff mentioned that they were in some financial difficulty. After the IC reviewed it – it was mentioned earlier that the staff do not see all of the financials. Is it safe to say that after review by IC that Entity 2 was not in financial trouble? One of the recommendations not to fund Entity 2 was because they were in financial trouble. It is in the AG report here. Someone mentioned earlier that the staff does not see all of the financial records.

MS MacDONALD: The comment from the staff person, that person would have seen the financial statements. Some of the staff do not. If it is a commodity specialist and we are looking for a technical assessment on something, whether it is an environmental issue, or whether it is food safety, those technical commodity specialists would not necessarily see the financial statements, but agricultural development officers, they would see those financial statements.

MR. JOYCE: If they saw the financial statements and the recommendation was not to approve it because they have financial troubles, someone had to say well, they are wrong, or we are going to take our chances on it.

MS MacDONALD: Right.

The Implementation Committee has certainly noted the weak financial position of the company, but as I think we have mentioned previously, one of the objectives of Growing Forward is to help improve the profitability of farm businesses and improve their innovative capacity. We will likely fund projects, whether it is increasing their land so they can put more crop in, increase their revenue, whether we buy them forage equipment so that they have less reliance on imported feed, they can grow their own feed more economically. We will make those investments to help improve the profitability of the business.

MR. JOYCE: I just find it strange because someone mentioned over there that they are one of the biggest companies in the Province. I can see why they are staying big if they are getting the funding even though one of the companies is a bit financially strapped and other companies who are trying to get up to a certain level cannot get the funding to help them. It just seems a bit odd to me, I have to say.

I am not saying there was anything with the decision. It is just me as an outsider looking at it, especially after the department and officials who reviewed the file said they are in financial trouble. Yet you go ahead and fund them anyway.

In most departments, if someone is in financial trouble, you have to show your statement of income to ensure you are going to be viable, instead of being viable on government money. Once you become viable on government money, the company usually does not make it to be viable.

I asked this earlier this morning, "All three companies were in separate lines of business and all three companies were agricultural operations that reported farming income to the Canada Revenue Agency, and therefore based on the program's related companies policy the Implementation Committee approved funding.".

There is no need to explain, but were you guys given the copy of the Canadian Revenue Agency T4s or their agriculture that you would have on file? Do you have that on file to show that?

MS MacDONALD: Yes, we would have copies of their financial statements and the corporate T2 returns.

MR. JOYCE: You do have that on file?

MS MacDONALD: Yes. For the case of the issue where there is concern about whether or not it was an eligible applicant, we do have a copy of their corporate tax returns.

MR. JOYCE: Three of them?

MS MacDONALD: Parson?

MR. JOYCE: The three different entities?

MS MacDONALD: I cannot say three. The one you are questioning, I certainly checked on that.

MR. JOYCE: Actually, it says here, "All three companies were in separate lines of business and all three companies were agricultural operations that reported farming income…".

You do not need to give it us or to me, but can you just confirm that, yes, three of them did make separate to the Canada Revenue Agency?

MS MacDONALD: Yes, they would fall separately as three separate corporations.

MR. JOYCE: Do you have a copy of that?

MS MacDONALD: We would have their financial statements, yes. That is a requirement of the program, that they submit their financial statements to us.

MR. JOYCE: Does that include the T4s or T2s you have to send to Revenue Canada?

MS MacDONALD: It certainly does for one of them. I can tell you that I have seen that one. I cannot comment without checking the file again myself whether the T2 was submitted for the other two.

Specifically, it is the financial statement we will ask for. In the case, say, of a dairy operation they are clearly in an agricultural business and they are clearly reporting milk sales. That is clearly an agricultural commodity.

MR. JOYCE: When you send in what the additional funds were for Entity 2, would you also include confirmation that you do have the T4s for the three of the companies that were given funding?

It does state here that three of them are in agriculture and three of them showed they do have revenue. I am sure you would have it on file.

CHAIR: Ms MacDonald, if you are reviewing any of these documents to release anything, I would not insist or recommend that you send anything that might violate the Privacy Act without getting a clearance from the Privacy Commissioner.

That is not to say that we should not have the information generically, but anything that could identify the individual I think that if we as a Committee thought we could ask for something that went against the act we might face a challenge which might unnecessarily delay things. If any information that would indicate the individuals is deleted, whatever you are comfortable with, and if not then I would say get a clearance from the Privacy Commissioner.

MR. JOYCE: On page 183 under monitoring, "The Department will consider implementing improved project monitoring procedures and will continue to work with applicants to ensure that project reports are submitted in a timely manner." The only words there "will consider", is that something you will do, considering we could be back here in four years' time and say we considered but we did not do it? Will that be put into place for part of the strategy for the department?

MR. DEERING: Yes, at the time that this response was written for the Auditor General's report, concurrently we would have been sitting down internally to develop a work plan to address some of this stuff. I can say that the improved procedures and practices have already been put in place within this agreement and certainly will continue for the next.

MR. JOYCE: Okay.

That is my questioning for now, Mr. Chair.

CHAIR: Unless there is a question from a government member, I will go back to Mr. Mitchelmore.

MR. MITCHELMORE: I would like to pick up right there where Mr. Joyce is around the monitoring piece. It says out of thirty project files, only seven of the project files required the submission of reports. There were some instances – of those seven, there was four that had, I guess, issues surrounding them. That is a high number of problems with reports required, not on file. There was one that was not submitted. One was submitted five months late and the other required annual reports for two of the three, but they were not adequate.

Has there been anything done to ensure that those reports were rectified, that the one that was not submitted was? What are you doing to ensure that there adequacies of the reporting process, that they are meeting their requirements?

MS MacDONALD: I have mentioned previously, we have the project monitoring spreadsheet that the program managers are monitoring, and which gets tabled with the Implementation Committee. We look at that spreadsheet and we look at which projects out there require reports. When are those reports due? Have the reports been submitted on time? If they are late, what are we doing to help encourage the applicants to submit them sooner? Sometimes it involves one of our program managers actually helping the applicants to put the reports together.

Through that project monitoring practice, that is helping it as well. Also, as part of overall evaluation for the agreement, we did do a program evaluation which was required under the agreement. Within that we have provided some more details and staff did some assessments on some individual projects. Even though those projects and their contracts may not have required a project report, we went out and did some further analysis on some projects and highlighted some of the projects that we funded under the agreement.

MR. MITCHELMORE: Okay.

I am intrigued by Figure 8 on page 177, which lists Project 1, Project 2, year 2010, 2011 and their variances, which has a significantly high variance. I would like an explanation, if you have the financial means to do so, to explain why the budgetary and the actual amounts differ so greatly.

MS MacDONALD: Yes. Project 1 is actually referring to our On-Farm Food Safety program that the department delivers. Basically, we provide outreach services to producers, to applicants to help them, to give them training and advice on improving on-farm food safety.

Project 2 is referring to our Environmental Farm Planning initiative that we do, in which we go out again with outreach activities. We help producers complete their environmental farm planning workbooks.

In the case of why there is a variance, with regard to Project 1 with food safety, we actually had a vacancy in the project. One of the employees left for another position in government. Because of that there was a reduction in salary. Of course, with the person gone there would have been a lower than anticipated use with other operating costs, like salary.

The same thing is with the Environmental Farm Planning, Project 2 there. The same thing, there was a vacancy at one point in the year. Again, you will end up having a lower than anticipated related travel cost as well. You will note there for Project 2, there is a much lower variance there in 2011 compared to 2010. That is just because they would have had both environmental farm planning co-ordinators hired on during that period.

MR. MITCHELMORE: Are the positions filled that were vacant during those times?

MS MacDONALD: Yes, both of our food safety co-ordinator positions are filled at the moment. With environmental farm planning, both positions are filled. One individual is temporarily reassigned to another position, I think for about a two-month period. It is a bit of a promotion opportunity for him, but he will be returning to that position in November, I believe.

MR. MITCHELMORE: Will that have impacts on applicants getting their farm plan done?

MS MacDONALD: No, I do not think so.

The environmental farm planning co-ordinators are really timely and very quick if someone needs them to come out on a farm. If they need to have their (inaudible) of the farm plan done, or the workbook completed, they are very quick to go out and offer assistance to producers.

MR. MITCHELMORE: One of the requirements, and it was mentioned, was about having the financial statements submitted. What level is accepted? Are those audited financial statements we are talking about?

MS GILL: Yes, for corporations it is audited financial statements. For individuals it would be their tax returns.

MR. MITCHELMORE: Would individuals qualify under the program?

MS GILL: If it is a sole proprietor, yes they would.

MR. MITCHELMORE: Okay. So it is not necessary that an individual be incorporated to access $500,000.

MS GILL: That is correct.

MR. MITCHELMORE: Okay.

I would be interested to know why some of the entities then, like the related entity would not look at just applying as sole proprietorships to seek funds. There are benefits to incorporating as well, especially if you have a lot of capital investment.

Are the statements that you have for these related companies audited financial statements or are they just internal submissions that are on file? That makes a big difference.

MS MacDONALD: No, they are definitely not internally generated statements that someone would generate themselves through their own tax offer or something like that. They are prepared by a licensed accountant, and I am not sure if the term is audited. I think there is –

WITNESS: (Inaudible).

MS MacDONALD: Yes. The financial statements are certainly prepared by a licensed accountant.

MR. MITCHELMORE: They are prepared by a licensed person based on the information that is supplied, not necessarily true audited statements?

MS MacDONALD: Correct, yes.

MR. MITCHELMORE: I just want to make that clear.

Why was there no follow-up done on "2 of the 15 projects were for the purchase of equipment for land clearing… to determine if the equipment was used for land clearing activities"? That is on page 178.

It says, "The Department inspected the equipment upon delivery but no follow-up was completed to ensure that this equipment was used to clear the acreage stated in the application. The contribution agreement required that all purchase inputs must be used during the term of invoice eligibility. Without follow-up, it is unknown whether this condition was met by the client."

MS MacDONALD: We do not, for every project, go back out and do a second or third inspection. We have implemented a compliance inspection of so many projects that we fund. We did that for 2008-2009 and 2009-2010. We went back to ensure the asset is still being used for its intended purchase. I think we checked about 20 per cent or 25 per cent of the projects to ensure that the assets were still being used for its intended purpose.

MR. MITCHELMORE: We certainly do not want to over regulate this type of program to a point that staff are so overburdened, they are not able to get the work done; the applications continue to pile up. There has to be a fine balance.

I am wondering if in negotiations you would consider looking at a different type of agreement based on the financial means or sales of a company, where a large corporation would not necessarily qualify for a 75-25 split, the same as an individual. Maybe they would qualify for a lower percentage of public money versus a new entrant who does not necessarily have the capital and needs a greater boost to expand farming on a different scale. That might be an option.

That might be something you may want to look for in negotiations. I am not sure if that is something you are considering or would consider in negotiations. It is just a comment, because I think that might help.

MR. DEERING: I could respond to that, Mr Mitchelmore.

MR. MITCHELMORE: Sure.

MR. DEERING: Yes, I can affirm that most of the dynamics you just mentioned are certainly part of our discussions in the new framework agreement.

MR. MITCHELMORE: Okay, that is great.

"Projects not completed as proposed" on page 178, when it comes to the greenhouses and things like that. It is at discretion to have some variance and even – time is kind of rigid, and we seen that where you have had to either try and get money out the door, has been stated, or trying to get things completed quickly or doing a prepay.

When a project definitely does not meet the requirement or it is not completed at all, is there recourse where the government seeks to recoup some of the funds it has disbursed?

MS MacDONALD: If the project was not completed at all?

MR. MITCHELMORE: Well, in part, and it never generates any farm sales or it does not go anywhere. The company looks at: Well, I just got a 75-25 split. I can sell my equipment now and make a profit. What types of regulations are in place to protect the public purse?

MS MacDONALD: The contribution agreements that we enter into with the applicants, they are required to keep the assets for its intended purpose for a period of three years.

MR. MITCHELMORE: Okay.

MS MacDONALD: So they cannot dispose of it; they cannot sell it. That is part of that compliance audit that I mentioned earlier to ensure that the asset is still being used for its intended purpose.

MR. MITCHELMORE: If they go bankrupt, would they lose the asset – would that be used as collateral?

MS MacDONALD: We do not take security on the assets but the way the contribution agreements are drafted is that the applicant, if they do not meet that clause with regard to utilization of the asset, they are required to pay back government the full amount of funding that was provided, with interest.

MR. MITCHELMORE: Would it be wise to look at taking security over core things like equipment that have serial numbers and things like that just as a precaution, you can release the security as need be, if the public is primarily paying for it on a 75-25 split, just to have some protection.

MS MacDONALD: These are non-repayable contributions that we are providing. It is not like, say, if it was with a lending agency where you are requiring the applicant to repay and then, obviously, in that case you would want to have security on the asset in the likelihood that the applicant did not repay, you have some recourse there to get your money back through the sale of the asset.

With our programs, it is a non-repayable contribution. We provide that contribution after they have already paid for the full asset. We would only then go back and seek funding back if they sold the asset for instance. If we bought them a piece of equipment in year one and in year two they went and sold the piece of equipment, then yes, in that case we would put them on government's arrears listing and we would go back and get them to repay the funding.

MR. MITCHELMORE: It would be much easier if you avoided that step and had the security there. Would it not? If I had a rock picker, I qualified under this funding, I do not comply with my agreement and I have $100,000 worth of different types of equipment that have serial numbers and I have sold them all, which was $75,000 paid for by public money and you have no security and the company goes bankrupt, then there is really very little that can be done to recoup this agreement, this money. You can put somebody on the arrears list, but if it a company and it does not exist any more, it is going to be very, very difficult.

MS MacDONALD: It could be in the case where if a company went bankrupt that there may not be any assets there for which we could get our funding back from. I think that would be in such a rare case, based upon the history of the programs that we have I would be more concerned on the other side of it, the administrative burden, perhaps, of putting security in place on all assets that we fund.

CHAIR: Mr. Mitchelmore, we could go to another member now if another member has questions.

MR. MITCHELMORE: Sure.

CHAIR: Does any government member have questions?

Mr. Joyce, do you have any questions?

MR. JOYCE: I have no questions. I am just going to make a quick comment.

CHAIR: Okay.

MR. JOYCE: Thank you very much for coming here today. I know it is tough sitting down and going through all of this here. In hindsight, I always said that the best quarterback is the Monday morning quarterback. We are here to hopefully make recommendations to the House of Assembly and to the department to help improve this for the public.

I just want to thank the four of you, the Auditor General's staff, and the staff of the House, for coming here and being so forthright and frank with us, and taking our questions in a polite, very civil and forthright manner. I just want to thank you for that.

We are doing our duty, as the Auditor General mentioned in his report. We just go through different ones; this is the fifth one that we will be doing. I just want to thank you for that and understand that our role is to try to make improvements in the system to the department.

Thank you.

CHAIR: Mr. Mitchelmore, do you have more questions?

MR. MITCHELMORE: I have a few more questions, yes.

I would just like to, I guess, talk a bit more about the administrative burden of listing security, because if you are doing a check and you are doing things like that, listing an asset is not a huge cost. I guess that would be something that would be looked at for review.

If most people are in compliance and you are doing your regular visits, you might have more protection in being able to list the security, release it when the time comes, but not necessarily have to have your staff then out travelling, out assessing these sites as frequently and you may have more people in offices being able to deal with applications and make sure that record and reporting is done in a more efficient manner because that is something that came out significantly in this Auditor General's report.

I just think the consumer, the public in Newfoundland and Labrador, needs to have a little more protection when it comes to looking at public dollars, especially large sums of money, in some cases where it is up to $500,000.

I am curious about the non-profit sector that you provide to. Do you have a number of applicants of your 600-plus that are non-profits?

MS MacDONALD: I would not know offhand, but we can certainly get that information to you. By far, the majority would be commercial enterprises, but we do fund some of the non-profits: the Federation of Agriculture, Dairy Farmers of Newfoundland and Labrador.

MR. MITCHELMORE: Okay.

Are other government entities available to avail of this? Would other things like some government-owned cranberry farms or other initiatives be something that could qualify for funding?

MS MacDONALD: The government-owned cranberry farm, no, would not be eligible for this. The only two projects that government delivers as such under Growing Forward were the food safety project and the Environmental Farm Planning project that I mentioned earlier.

MR. MITCHELMORE: Okay, great.

There is not a lot more that I have to say. I think that we certainly need to be investing in agriculture in the Province, agrifoods. We have such food insecurity in the Province. I like a lot of comments that were made around our land and land use and how we get about there.

I think we need to reduce some of the barriers and some of the things for new entrants. There are a lot of people who have an interest in farming, but you do need to have some experience as well with doing it. It is not easy to wake up one day and say you are going to be a farmer. It is a bit of a process, and I can see why you look at lending to established businesses as well.

I would just like to thank you for your time and being able to put forward all of this information about this program of Growing Forward. I hope you are successful in securing additional funds when it comes to the next round, and that this continues.

Thank you.

CHAIR: Yes, I will have a few questions.

Of the slightly over $29 million, how much of the money will actually be used by the end of the five-year period?

MR. DEERING: Again, our hope is that by the end of March this year, ideally we will have it all spent. We might have a better answer to that question as we approach the end of March. There is a possibly like in previous years that we may have some projects that either have project savings and/or do not get completed. Our hope is that we will be very close to the $29 million that was prescribed.

CHAIR: The reference in the report of up to 25 per cent that could be reprofiled if there was no uptake in a particular year, has that happened, even in the first year?

MR. DEERING: It has happened each year since the program has started, but it cannot happen in the final year of the program.

CHAIR: Has there been any year when there was more than 25 per cent?

MR. DEERING: No.

CHAIR: Not even from the first year?

MR. DEERING: No.

CHAIR: Do you know if the federal government has any guidelines that would deal with the related companies?

I understand from the questioning that even though it was pointed out that certain related companies had maximized on the amount, it would seem to circumvent the cap. The cap is $500,000. It seemed like that was being done for that purpose.

Do you know if the federal government, as your partner, has any view on that?

MS MacDONALD: I am not sure if they have a specific policy on related companies, but our program guide, which describes what our policy is, actually gets approved by the federal officials. They would have been aware of what the policy was.

CHAIR: Do the federal officials approve these project by project as well as yourselves?

MS MacDONALD: No, they do not. The federal government under Growing Forward, by their own decision, do not want to be involved in the individual project decisions.

CHAIR: At the end of the year do you remit, for want of a better word, a bill to the feds and say: This is how much we used; give us back the 60 per cent?

MS MacDONALD: Yes. The claims are actually made on a quarterly basis.

CHAIR: Has there been a case where they have denied a claim?

MS MacDONALD: No, never.

CHAIR: I am somewhat troubled. Earlier you were saying it is first-come, first-served on an applicant basis. Presumably, you would want to advance money to the best applicants and the most applicants.

If you go first-come, first-served, could it not happen that you might have approved somebody early in the year, run out of funds, and you could have approved somebody better later in the year?

MS MacDONALD: Well, first-come, first-served is based upon the sequence of completed applications. It is really up to the applicant, if they are looking to do a project that year, that they submit their application early. I know in some provinces the Growing Forward funding is actually committed very early in the year, as early as April, the first month of the program. So really the onus is on the applicants to submit an application early.

We particularly would like to commit the program funds as early in the year as we can. The longer we hold out committing the project funds and waiting for something that may or may not come in increases our likelihood of perhaps lapsing some of that federal funding.

CHAIR: Okay.

For better or worse, most of the questions that I would have asked were asked by my colleagues. I suppose that is a good thing.

On page 178, you were asked about projects not completed as proposed. In the bottom half of the page is a reference to four of the thirty project files. Then underneath that it says: Two of the project files did not include the completion of all approved items. Specifically, for one project, instead of purchasing the four greenhouses that were approved, three greenhouses were purchased.

Are you able to relate to us what happened there? It seems like somebody applied for something, it was approved for, did not do it, and may have used the money for something else. Are you able to tell us what happened?

MS MacDONALD: I think what happened is that sometimes when producers apply at the beginning of the year and they supply a quote from one supplier, sometimes, particularly if there is a piece of equipment, when they go to actually purchase that, once they get approval and they go to purchase it that specific piece of equipment may not be there at that supplier, so they may have to go to another supplier or in the meantime they may find a local supplier of something.

I think what happened in the case of the greenhouses is that the farmer actually found a local supplier, so he did build the greenhouses. It was not like it was a total change in project scope that he went out and bought a tractor or he bought something else. He did purchase greenhouses; he got them from a local supplier. The issue of course that the Auditor General raised, which is a good issue, is the fact that we had approved four, but he ultimately only ended up purchasing three.

Those three greenhouses would have cost more, I guess, on a cost basis, then the four that he originally had quoted. As I noted before, in the case of this now, an instance like that would now be brought back to the Implementation Committee because we consider that now a change in project scope. If someone said they were going to buy four of something and they buy three, the program manager would have to bring that back to the Implementation Committee now to get that change in project scope approved.

CHAIR: So where it says the savings were used to cover overruns in other areas of the project, are you saying that would not happen now? Because that looks like the funds were diverted from their original intent.

MS MacDONALD: No, my understanding is that project would have been used totally to pay for the cost of the greenhouse purchase and construction. I am not aware it was used for anything other than the cost attributed to that project.

CHAIR: Even though it says "…the savings were used to cover overruns in other areas of the project."

MS MacDONALD: I am not sure what that specifically is referring to.

MS GILL: I am not sure either, but the three greenhouses that were purchased were almost the same size in total as the four greenhouses that were on the quote for their square footage totals. Do you understand what I mean? The three of them together were almost the same size as the four.

CHAIR: Are you saying that three cost as much as the four, but three were as big as the four square footage wise?

MS GILL: Basically.

CHAIR: Okay.

Because then it says "…the savings were used to cover overruns in other areas of the project." Is that what that means, different sizing of greenhouses, or is it something entirely different?

MS MacDONALD: The other costs of the project – again, without looking at the file, it could have been something like an irrigation system for the greenhouse; it could have been like a heating or ventilation system for the greenhouse. The actual package of the greenhouse itself may have been higher or lower, but there would have been other infrastructure related with the greenhouse that might have –

CHAIR: Okay.

MS MacDONALD: Sometimes that happens, from the quote, from when they actually use another supplier. Sometimes there is a shift in certain aspects of the project. Again, I am guessing. Without checking the file, I am assuming that is what that was used for. For instance, if we approved a greenhouse, we would not have paid out funding if he ended up doing land development or if he did another project.

CHAIR: I will ask the Auditor General staff, are you satisfied with that response?

MR. PADDON: Yes, I think the way – the funding that was used from the savings was directed towards other elements of the same project. It was not directed to a different project, it is just different costs on different elements of it.

CHAIR: Are you able to provide to the committee a list without names of the projects that you have approved and funded with the amounts? You could do it chronologically, although by amount might be more meaningful to the committee.

You had some questions earlier about the percentage of the overall allocation that was received by one or two, or three related parties, yet you have maybe 600 or so applicants. It might be useful to the committee to be able to see how widespread the funds were distributed. You probably have that on a spreadsheet or spreadsheets. If you could do it by year, whether you do it in amount or chronology in the year, we could sort it out from there, but I think it would be beneficial for us in our report.

MS MacDONALD: So, you are looking for the list of project expenditures perhaps more so than approvals?

CHAIR: Yes.

MS MacDONALD: By expenditures by project, then.

CHAIR: Will you know that by March 31?

MS MacDONALD: Well, we can certainly give you now the previous four years. We definitely would have within our database who received funding, by applicants, within the first four years.

CHAIR: If you could do that that would be ideal. We have to do our report to the House of Assembly by the end of March, which is the end of the project.

MS MacDONALD: Yes.

CHAIR: It may be useful for us to be able to review the scope of the program, even though this only deals with the first three years. If you could provide us with the four, then we can do the fifth year as an addendum if it is required. That might give us the nuts and bolts of what happened in the program.

If you have 600, then obviously you (inaudible) $30 million, that would give us some sort of an idea of how the funds were expended.

MS MacDONALD: Yes, and the final year, the fifth year, that total expenditure would not be available until April, once we close off the books for the program as such.

CHAIR: If we have the four, it would complete the file for us, to have any additional that would come in at the end. I understand it is a practice of the Auditor General to review matters a few years later. If we had that, that would help us with any completion.

I have no more questions. Did the Auditor General, or any staff, is there anything you would like us to cover that we have not covered?

MR. PADDON: No, Mr. Chair.

I think it has been a fairly comprehensive review. I think by and large the questions and the answers have covered the substance of our report.

CHAIR: Okay.

Do any members have any further questions?

MR. BRAZIL: Other than I want to thank the department representatives and the Auditor General's staff.

Mr. Chair, we are confident we have the information that we can use to show that there has been due diligence, and this will alleviate some of the concerns of the Auditor General as we put our report forward. Thank you for that.

CHAIR: If there are no further questions, I will entertain –

MR. JOYCE: I just – it has nothing to do with this – want to welcome Ryan to the House. It is his first day working as a Page here in the House of Assembly.

SOME HON. MEMBERS: Hear, hear!

CHAIR: If we can have a motion to adjourn, I suppose we need that.

MR. BRAZIL: So moved.

CHAIR: Mr. Brazil.

Thank you for coming. You have been most helpful.

On motion, the Committee adjourned.