Comptes rendus: Comité permanent des comptes publics - 2004-févr.-17 - 2003 Annual Report

2003 Annual Report
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STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

Tuesday 17 February 2004 Mardi 17 février 2004

2003 ANNUAL REPORT,
PROVINCIAL AUDITOR
MINISTRY OF ECONOMIC
DEVELOPMENT AND TRADE


The committee met at 1048 in committee room 1, following a closed session.

2003 ANNUAL REPORT,
PROVINCIAL AUDITOR
MINISTRY OF ECONOMIC
DEVELOPMENT AND TRADE

Consideration of section 3.07, science and technology.

The Chair (Mr Norman W. Sterling): Mr Black, welcome to the public accounts committee. Congratulations on your appointment as Deputy Minister of MEDT, I guess it is.

The microphones come on automatically. The button is only to push them off. If you could pull the microphone in front of you when you're speaking so everyone can hear you properly, we'd appreciate it.

We normally start out by allowing the deputy to have some opening remarks and then we go to questions from the committee. We adjourn at 12 and reconvene at 1. We have normally taken to about 3 o'clock on each of the delegations so far. Mr Black, if you'd like to introduce the people who are with you and say some opening remarks.

Mr Don Black: Absolutely. Thanks for those kind words, Chair. With me today is Dr Tim McTiernan, who is the assistant deputy minister in charge of the science and technology division. I also have Diane Frith, acting assistant deputy minister of our corporate services and field division. If it pleases, I can have five or six minutes of comments and then turn it over to Dr McTiernan to do a couple of minutes as well. Is that --

The Chair: Sure, that's fine.

Mr Black: OK. As the Chair pointed out, my name is Don Black; I'm the Deputy Minister of Economic Development and Trade. I've introduced my two colleagues here.

I'd like to begin by saying thanks for the opportunity to respond to the 2003 Provincial Auditor's report, which raised a number of points and made some very useful recommendations regarding the ministry's science and tech support and investment programs.

Before we get into some of the recommendations, which I'll leave to Dr McTiernan, the auditor made some points with respect to the science and tech programs and I'd like to address head-on the issue of access to files and records.

We take these comments by the auditor pretty seriously and I want to clearly confirm our commitment to improve our responsiveness to the auditor's requests in future.

The ministry followed standard protocols and there was no intent or effort made to delay or withhold the information requested. I know the ministry tried very hard to meet all requests. Frankly, some of the internal processes we followed and the breadth of the requests led to some of those delays, however unintended.

Be that as I may, I spoke to Mr McCarter on Friday and gave him my assurances that we will do better in future. We have modified and streamlined our processes to make sure we're able to meet any future requests more quickly and more fully.

The past few years have seen an increasing recognition and emphasis of the importance of science, tech and innovation in enhancing our economy, creating good jobs with above-average wages and providing a higher quality of life for all Ontarians.

Innovation is recognized as vital to this province being globally competitive in the knowledge-based economy.

This emphasis on innovation is not just something happening here in Ontario. We need only look at what the federal government is doing and what many other jurisdictions around the globe are doing.

Ontario's recognition of the importance of innovation has resulted in the implementation of a number of significant programs that support research in our post-secondary institutions and hospitals, recognize and support excellent researchers, and facilitate the commercialization of research to provide new products, new services, new businesses and new jobs.

These programs have been welcomed by the research community and businesses and have leveraged significant investment in innovation in Ontario from the federal government as well as the private sector. These investments are beginning to enhance Ontario's capacity to innovate, so most would agree that the objectives of these programs, and the results they are delivering, are laudable.

That said, in the Provincial Auditor's report of 2003 the auditor identified a number of issues regarding the structure, administration and management of these programs and made a number of very useful and helpful suggestions for improvement. The ministry welcomes the auditor's comments and recommendations.

Let me confirm that we are in the process of reviewing all our programs and are using these recommendations to improve our policies and administrative procedures to make them more focused, more transparent, and aligned with the priorities of the current government.

We are taking concrete action to improve the operation of the ministry's programs to ensure they are delivered in a cost-effective, fair and accountable manner, one that results in good value for money for the people of Ontario.

As we continue to elaborate our science and tech strategy, we'll be modifying our programs to enhance their impact and relevance as well as improving our program delivery processes. Our guides will be the Provincial Auditor's recommendations and best practices in support for research, innovation and commercialization not just in Canada, but around the world.

We will continue to work collaboratively with the federal government on the innovation agenda to maximize complementarity, to avoid wasteful duplication, and to leverage even more investment from the federal government in science and tech in Ontario.

We can build a stronger science and technology base in our economy by working with all our partners -- the federal government, the private sector, other institutions -- with a focus on enhancing the innovation system from research to the commercialization of research discoveries; facilitating the participation of small and medium-sized enterprises in the innovation system; supporting the development of talented researchers and knowledge workers needed to support an innovation economy; and promoting the development of research-intensive clusters.

By working with our partners, the ministry's objective is to enhance Ontario's research, innovation and commercialization capacity. This will contribute to our economic growth and diversification through the creation of new companies and new high-value jobs, with consequent improvement in the quality of life in Ontario.

In conclusion, I'd like to stress that the ministry's programs have had a significant impact on Ontario's innovation capacity; the ministry is committed to delivering and managing all of its science and tech programs in a cost-effective, fair and accountable manner, and providing taxpayers with value for money; and, by incorporating the Provincial Auditor's recommendations, we will improve how these programs work, and ultimately demonstrate an enhanced impact of these programs.

Our objective, like the Provincial Auditor's, is to enhance the efficiency, impact, management and accountability of these programs.

I'd like to conclude by thanking you for this opportunity to provide a little bit of an update on where we are and how we're going to follow through on what the Provincial Auditor has said would be important for our programs.

Having said that, I'll turn it over for a little more detailed commentary to Dr McTiernan, who as I mentioned before is the ADM of our science and technology division. If that's suitable to everybody, we'll do that.

Dr Tim McTiernan: I'm pleased to be here to report on the progress we've made in implementing the Provincial Auditor's recommendations on our science and technology programs and in speaking to progress on implementing the recommendations. I'll be following the narrative track in the Provincial Auditor's report and dealing with those recommendations as they come up, in sequence.

We acknowledge the concerns expressed by the auditor and view the auditor's recommendations as a strong framework within which to enhance the accountability of our programs as we move forward with the science and technology agenda in Ontario. We are now, as a division and as a ministry, actively engaged in a variety of initiatives to improve and sharpen our policies and administrative procedures, to enhance program transparency, efficiency and accountability.

With respect to governance and accountability, I'd like to address the auditor's concerns regarding the Ontario Innovation Trust. The Ontario Innovation Trust was created in 1999 as an arm's-length organization to support investments in Ontario's research infrastructure at universities, colleges, hospitals and not-for-profit research institutes. The trust was created primarily to leverage federal government investments in research infrastructure through the Canada Foundation for Innovation. The trust receives administrative support from the Innovation Institute of Ontario, a not-for-profit organization, and to date it has committed $708 million to over 1,000 projects at 45 institutions across the province.

The auditor's report was important in helping us to address concerns around governance and accountability arising from the arm's-length structure of the trust. The trust deed limits the capacity of the ministry to work directly with the Ontario Innovation Trust. However, we have met with the board on the issues raised by the Provincial Auditor and the board has agreed to comprehensively address transparency and accountability measures in a new way.

I'm pleased to say that the Ontario Innovation Trust has agreed to adopt the same accountability processes as transfer payment agencies with respect to accountability issues. The innovation trust has committed to tabling annual financial statements and annual reports to the Legislature, appearing before legislative committees, and making their records available to the Provincial Auditor for review. We are currently working on an accountability framework to formalize these arrangements, with a target date for completion no later than July 2004. The framework will be set out in a memorandum of understanding between the innovation trust board and the ministry.

In the matter of updating the three government appointments to the seven-member innovation trust board, the ministry is in the process of preparing the documentation for confirming three new government order-in-council appointments.

The Provincial Auditor's concerns around the management of the Ontario research and development challenge fund have provided strong direction on strengthening accountability processes for that program. The research and development challenge fund funds operating costs of world-class research -- specifically research that is relevant to applications in the health, business and industrial sectors. The government's almost $480-million research and development challenge fund commitment in research has leveraged $1.2 billion from research institutions and their business partners.

The Innovation Institute of Ontario is under contract by the ministry to support the administrative function of this fund. We are working with the ORDCF board to update the memorandum of understanding, which was originally signed on March 2, 1998, by the five ministries involved in the establishment of the research and development challenge fund -- currently four ministries, with the realignment of science and technology and the Ministry of Economic Development and Trade.

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The framework for this new memorandum of understanding was developed in December 2003 and is currently being refined in draft form. It will include, among other matters, the designation of the ministry as the lead ministry in managing the program. It will clarify program objectives and define the respective roles and responsibilities of the parties to the memorandum of understanding, the Ministry of Economic Development and Trade and the board. Work on the new memorandum of understanding will be complete by the end of this fiscal year, and already some of the provisions included in the memorandum of understanding are being implemented.

With respect to project selection, the Provincial Auditor recommended improvements in the research and development challenge fund project selection process related to document retention, verification of program eligibility and timely review of applications. We're working closely with the Innovation Institute of Ontario to address these issues and we expect to have this work implemented by the end of March.

I'd now like to turn to a discussion of administrative procedures for the Ontario research performance fund and to address the recommendations of the Provincial Auditor. In keeping with the recommendations of the Provincial Auditor, this $32-million annual fund supports the indirect costs of research at Ontario institutions. It was set up following a 1999 report, Growing Ontario's Innovation System: The Strategic Role of University Research, by the then-VP of research and international relations at the University of Toronto. A key recommendation was that government establish a research performance fund to resource universities for the indirect costs associated with increasing their research capacity. The level of support was benchmarked at 40% of the total direct research costs.

I'm pleased to say that implementation of the recommendations regarding the administration of this program is complete, except for one activity which is still in the final stages of being amended. These include recommendations to retain confirmation letters, more clearly verify grant amounts and have established deadlines for confirmation of information by participating ministries and institutions, with payments.

We are also finalizing an administrative procedures manual -- this is the final item to be completed -- so that we can document internal procedures and payment processing for the Ontario research performance fund grants. This will be complete by this March, with a plain language text for general use.

The Premier's Research Excellence Awards and the Premier's Platinum Medal for Research Excellence recognize the contributions of Ontario's finest researchers who create the knowledge that fuels innovation and high-quality jobs. Both of these programs are prize programs which aim to recognize and reward excellence, and, in the case of the Premier's Research Excellence Awards, to stimulate young researchers early in their careers who have acknowledged potential.

With respect to this program, the auditor made recommendations on administrative procedures regarding record-keeping and document retention during the award selection process which are being acted upon. We are also revising program information to ensure that all potential applicants are fully informed as to the evaluation and selection criteria and procedures and that these processes are transparent. We met with the Premier's Research Excellence Awards advisory board in January and will work closely with the board to implement the program in accordance with these revised administrative procedures.

The ministry is updating the memorandum of understanding it has with the Premier's Research Excellence Awards board to reflect the board's responsibilities with respect to the Premier's Platinum Medal for Research Excellence awards. The ministry is committed to having new administrative policies and procedures, including rigorous observance of deadlines, transparency of nomination review and award selection and an enhanced document retention schedule in place before the next round of the Premier's Platinum Medal for Research Excellence.

With respect to program monitoring, we are addressing the auditor's recommendation that a monitoring mechanism is needed to confirm that Ontario research and development challenge fund grants are used for the purposes intended and that project performance is reported on and monitored. To accomplish this, we are working with the Innovation Institute of Ontario to update policies and procedures for financial and program reporting and for follow-up to take corrective action when necessary. For example, we have received and are following up on a quarterly report on those Ontario research and development challenge fund projects that have not received funds in six months because of delays in project implementation. Mitigation measures are being put in place to address undue delays in project implementation.

The Ontario centres of excellence program plays a key role in helping Ontario companies, especially small and medium enterprises, take full advantage of the commercial application and potential of research. In order to enhance the strategic alignment of the centres' programs to government economic and innovation policies, we have worked with the existing centres of excellence to restructure the governance of the program through the creation of a single organization, Ontario Centres of Excellence Inc, through which the four current centres will be operated.

As the ministry finalizes its new contract for the operations of the centre program, we will incorporate the auditor's recommendations to ensure that appropriate reporting, program monitoring and accountability measures are not only put in place but also observed. The new contract, almost complete, will be ready for execution by the end of March. Once the contract is finalized, we will set up a report tracking system, with staff reviewing and analyzing received reports.

On conflict of interest, the ministry has endeavoured to address conflict-of-interest issues within all of its current programs. However, we acknowledge the auditor's concern that we need to do so with enhanced and systematic rigour.

We have taken steps to strengthen this focus by establishing a working committee to review existing conflict-of-interest provisions and develop consistent conflict-of-interest policies that apply to the decision and advisory processes in all of our transfer payment programs. We expect updated guidelines to be prepared in time to annex to the new memorandum of understanding with the Ontario research and development challenge fund board. In the meantime, increased attention is being paid to the management of conflict-of-interest issues during board meetings.

With respect to the benefits of research projects, as recommended by the auditor, we will work to develop consistent principles with respect to intellectual property rights across all science and technology programs. To this end, a new working committee will review policies on intellectual property rights and determine the best way to optimize ministry objectives as we work with a broad array of research institutions that have their own evolving intellectual property rights policies and procedures.

Criteria to assess the programs' success in meeting these objectives will be put in place, cognizant of the significant ongoing global debate about the role of intellectual property policy in enabling early commercialization of research discoveries. The approach taken in the development of intellectual property policy options will be consistent with similar programs in competitor jurisdictions in Canada and North America. The target date for completion is the end of this year.

We are refining our focus on private sector contributions for the Ontario research and development challenge fund to more fully track and document the private sector partnership contributions to research programs. This will serve an accountability objective. More importantly, it will better document the role and involvement of the private sector in the research-based innovation and commercialization agenda.

As part of this process, we will develop policies to confirm contributions and ensure that there is independent valuation of in-kind contributions of a designated material value. I expect this to be finished also by the end of this year.

With respect to program financial and administrative controls, we are enhancing financial and administrative controls in order to achieve program efficiencies. Over the past few years, the number and size of our science and technology programs have increased significantly. Because of the large number of complex programs, and in the context of incorporating the auditor's recommendations for enhanced accountability and transparency, we are developing a number of initiatives to improve program delivery and monitoring.

For example, we are reviewing program mandates and delivery mechanisms as well as the administrative processes for the Ontario research and development challenge fund, the Premier's Research Excellence Awards, platinum awards, centres of excellence program and the Ontario research performance fund, among other science and technology programs. We are developing explicit and transparent procedures and policies, a suite of documents, in the areas of conflict of interest, intellectual property and valuation processes for in-kind contributions. Finally, we are assessing the allocation of staffing and the introduction of enhanced technological solutions to allow us to more effectively manage our programs.

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We will continue to refine our contractual and working relationship with the Innovation Institute of Ontario in the process.

Measuring and reporting on program effectiveness: The science and technology division contributes to the mandate of the ministry by facilitating a culture of innovation, investing in people and infrastructure to create knowledge, add to high-value jobs and create a climate that fosters commercialization of research and builds strong economic clusters.

The division is actively engaged in supporting research, commercialization, and in growing the life sciences and ICT clusters in Ontario. We accept the auditor's observation that clear direction for program development and delivery, with clearly stated goals, is an important guide to help us better achieve our mandate.

We are working on the elaboration of a more detailed strategic plan for our science and technology programs that will define the relationship between research and development activities and the ministry's overall economic development mandate. This new strategy will be set out and incorporated into the ministry's strategic results-based planning process currently underway. We are committed to measuring the contribution our programs make in promoting the growth of high-paying jobs and globally competitive clusters in Ontario.

In that context, we are taking steps to improve our accountability for the use of public funds by not only reviewing our performance measures as part of our overall review of science and technology programs but by endeavouring to define and refine meaningful performance measures which allow us to gauge the true impact of our initiatives and investments.

In conclusion, the ministry has made about 30 commitments in response to recommendations made by the Ontario Provincial Auditor. To recap the key areas, we've taken immediate action to address governance and accountability issues. We're refining an overall strategy for the ministry to use as a framework for future programs. We've dedicated resources to enhance and update procedures, administrative practices, project tracking and monitoring. We're updating or developing policy frameworks regarding intellectual property, conflict of interest and performance measurement.

Mr Tony C. Wong (Markham): I will start by agreeing with the opening remarks of Mr Black that science and technology innovation programming is certainly something very important for the economic development and well-being of Ontario companies. But when we look at some of the findings and conclusions of the Provincial Auditor -- no strategic plan for S&T programming; no business case; no accountability for OIT; of course no guidelines to avoid conflict of interest; no guidelines for safeguarding the ownership of intellectual property, where appropriate; no performance measurements etc -- it certainly is extremely disappointing that these aspects were not addressed previously. In my mind, it's the former government that obviously dropped the ball.

I look at the summary of recommendations and current status of MEDT action, and I want to thank you and your staff, Mr Black, for preparing this document, because it really helps. I was listening carefully to Dr McTiernan's presentation.

My question to you, Mr Black, is that I understand that, according to page 8 of this summary, the strategic plan will not be completed until March of next year and some policies for conflict of interest, selection criteria and monitoring guidelines will be developed prior to that date. I read dates of March for some systems and processes; November, I believe, for conflict-of-interest guidelines. How are we going to deal with the ongoing aspects? Life is not going to come to a full stop before these policies and guidelines are developed, so how are we going to deal with them, Mr Black?

Mr Black: That's a very good point, and if I had it to do over again, I would probably change the dates in that memorandum I sent over. You're absolutely right that March 2005 is too far off on the horizon to wait for a strategic plan, a strategic overview for the science and tech programs.

Some of the other things we've talked about in terms of meeting deadlines -- December 31 and March 31 of this year -- we're actually going to try to beat those. Where we haven't been delayed, we're very close to finalizing a couple of those. I take your point; we are actually going to try to do much better than those timelines suggest. Certainly the government, as folks here would have heard, is embarking on a results-based budgeting exercise that essentially tries to put an acetate over the programs and policies across the government to determine whether or not they're actually delivering the way they should be. This will be one of the first ones that the government actually looks at. Certainly, in our ministry, we are embarking on that to make sure we're aligned with the kind of results the government expects and, frankly, the taxpayers of Ontario expect. Your point is taken, and we're going to do better than those timelines suggest.

Mr Wong: Thank you, Mr Black. I'm glad to hear that you and your staff will be making strong and active efforts to move these deadlines up because I really want to impress upon you and your staff that time is of the essence, that the Provincial Auditor's report has been out for some time now. I know you are new on the job, but I really hope that you would put this as one of your top priorities.

The Chair: I invite you, Mr Black, to send the committee your new target dates.

Mr Black: Thanks, Chair.

Mr Toby Barrett (Haldimand-Norfolk-Brant): I have a general question on the control function or evaluation. Where does responsibility lie, or what is the rough ratio between the ministry that is forwarding a government grant to a research organization or a hospital or a university as far as evaluation or justifying what's going on between the ministry and the organization that is spending the money? To what extent do they voluntarily monitor what they're doing, report back, send thank-you letters? What's the ratio here? Are we looking at all the responsibility lying with the ministry to chase down the use of the money?

Mr Black: I'll let Dr McTiernan answer.

Dr McTiernan: Sir, if I may, I think it's mixed. The practice has evolved over the last couple of years. I think there has been an assumption that the institutions in question will report as a matter of process because of the provisions and terms in their contracts for the projects. In many instances that is the case, but in some instances we've found that there are two sets of issues. There are delays in reporting and, when there's follow-up, the institutions will say that it's because of the balance of work on the research initiatives taking precedence over administration. We've had to pay attention to tightening up administrative procedures in those regards.

In other instances, with the start-up of some of our programs, we've discovered that some of the partnership arrangements around which the projects are based take longer to consolidate. There are time delays associated with formalizing relationships between the researchers, their parent institutions and the private sector partners. That has led to delay in reporting. For those programs that have been working longer than others, the pattern of tighter time focus and stronger ministry engagement with ensuring accountability in reporting is met. The ministry has the responsibility to check and the institutions have the responsibility to keep the reporting timelines and formats to which they've committed.

Mr Barrett: Many of these organizations would have their own control function. People employed by these organizations that get a government grant still report within that organization. There would be annual reports. Oftentimes the institution would report to government one way or another. Do you feel these organizations are up to snuff as far as the resources that they dedicate to evaluation or the expertise that they have? Is there a danger of duplication where you've got a series of job descriptions -- an evaluator, for example, in an organization doing exactly the same thing that the ministry would be doing on the same project?

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Dr McTiernan: I can't answer the latter question honestly. I think institutions are structured differently and they manage their reporting requirements differently, so there isn't a pattern one can speak to.

In terms of their general annual reporting, that's largely done to the ministry directly involved in funding, and in most instances it's the training, colleges and universities ministry. So, to the extent that research initiatives are captured in those annual reports, they would be reports that are directed to government and the Legislature through a ministry other than MEDT.

Mr Barrett: Just a final, brief question: When the money flows to various organizations, is there a certain percentage held back as an incentive for them to report back on either process or results?

Dr McTiernan: Yes, that does happen.

Mr Barrett: On occasion or in every case?

Dr McTiernan: The flow of money -- if I could just confirm with one of my colleagues before I answer you more directly.

Yes, I've been assured that in virtually every case there's a holdback to ensure reporting.

Mr Barrett: Have there been cases where the full 100% has not been forwarded just because evaluation or monitoring reports didn't come in?

Dr McTiernan: Excuse me just one moment.

Yes, we have held back money for non-reporting.

Mr David Zimmer (Willowdale): First of all, let me commend you on your impressive governance commitments made as we move ahead. My question is a bit of a historical one. The science and technology program has been in place since April 1998. It has spent $1.3 billion. Looking ahead, it has commitments totalling another $4.3 billion. My sense in reading the auditor's report is that there are real governance concerns about how the program has been administered since 1998. They break down into oversight questions, compliance questions and accountability questions.

I think it's useful to look back historically, sort of a lessons-learned exercise. My general question is, given all the talent in that ministry -- the administrators and scientists -- what was there in the administrative culture, the governance culture going back to 1998 that permitted these governance issues to go into default in such a dramatic way? How did that happen? Because I think there are lessons to be learned there as you move forward with your commitments. How did the absence of a governance culture take root and survive for five years until the auditor -- and I say this with the greatest respect -- sort of blew the whistle in 2003?

Dr McTiernan: That's a challenging question, sir, and a challenging one to answer. If I could do it perhaps overly simplistically: The focus was probably on the science at the expense of the administrative arrangements to support the program operation. The value of the Provincial Auditor's report is to sharpen everybody's attention on the need for active management of the accountability mechanisms. The pattern that emerges from the Provincial Auditor's report speaks to our obligation to actively attend to and manage the administrative processes as well as the development and implementation of an array of programs that were put in place in a fairly short period of time.

Mr Zimmer: Just following up, just to drill into it a little more, what are a couple of the things historically, going back to 1998, that in hindsight you would have done differently? If you could wind the clock back to 1998 and you're setting up the science and technology program, what would you have done differently to ensure good governance? What are a couple of the things that you would have done differently?

Dr McTiernan: Speaking from a divisional perspective, having a coherently elaborated framework in which the relationships between the programs were clearly defined; having administrative processes and procedures that were articulated in policy and paper as much as in administrative practice; having an allocation of resources that paid attention to the administrative and accountability measures associated with the programs as much as with the outreach; and working with the research community and the stakeholder community.

Mr Zimmer: I think you hit on something. Since 1990, it has been very easy to be seduced, if you will, by the science of what you were doing, and the administration of the program sort of falls into second place. Are you confident that there will be a proper balance between good administrative practices and the seduction that science can sometimes have?

Dr McTiernan: Personally, absolutely. Working with the Provincial Auditor's staff as much as addressing the recommendations of the Provincial Auditor's report was an interesting object lesson in attention to administrative matters. I think the period of time in which staff worked actively with us has changed the operating environment and culture quite a bit. I think working now in a context where the science and technology agenda is clearly captured in an economic development framework and where there's a focus on the results of research -- a focus that has grown over the last few years as programs have initiated and we look at commercialization and the impact of research and development on cluster development -- it changes the context and the approach to program administration but also to program design and program focus.

Mr Zimmer: Do you plan on having some sort of over-boss, if I can use that expression, in place on the program who can ride herd much the way the auditor has ridden herd in the last while, who can step in and say, "Look, this is not up to good governance models. This is not happening. Pay attention here. You're letting science run this and not administration"?

Mr Black: If I might answer that one, I think that's my job, actually, as deputy of the ministry. As Dr McTiernan said, the comments around not the science but the paperwork, following the money, making sure that all the pieces join together so that we know exactly where every bit is at every point in time -- that's my job and that's my commitment to the minister to do that.

The Chair: With regard to Mr Zimmer's question, the numbers he was using were on page 164 of the auditor's report, the $1.326 billion and the $4.340 billion. Do you have any breakdowns with regard to where those commitments or those monies have gone? As I understand it, ministry funding is $1.326 billion, but the Innovation Trust still had, at the end of March 2002, $500 million, so that, notwithstanding the $1.326 billion, it hasn't really been spent, in a sense.

Could you perhaps provide the committee with a breakdown of where this money has been committed and spent? Not now -- I realize that that will require a little bit of work -- but if you could do that in writing, I would appreciate it.

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Mr Black: Yes. We would be happy to do that, Chair.

Mr Gilles Bisson (Timmins-James Bay): Thank you. Welcome. Let me just say up front that I think the work you do in your ministry is probably some of the most important work we do in government when it comes to making sure our economy, at the end of the day, is able to be involved in the kinds of things that it needs to do in order to go to growth.

However, I am, as probably you are, pretty unhappy with the auditor's conclusions. I take it you're not too happy yourselves and don't like being here answering these questions, but nonetheless I have a couple of questions to ask you. How in heck did you ever get into this position of setting up trusts without oversight? Did you ever advise the government that maybe there should be oversight?

Mr Black: If I can take that on at a very high level, there was a decision taken at that moment in time back in -- 1998?

Dr McTiernan: Yes.

Mr Black: -- to structure the trust the way it was structured through the government channels at that point. It's a tough question for us to take on.

Mr Bisson: I know. I just want you to know up front, I've got the greatest respect for the work that you do. As individuals, I think the people who work for the OPS are the most professional in the civil service. However, I have a hard time believing that a ministry of your calibre, with the type of people who work where you are, wouldn't have told the government of the day that this may be politically or ideologically -- I understand what the government was trying to do. They were trying to set up a way of being able to pick projects that was removed from government and was industry-driven to a certain extent, to put it in layman's terms. From a policy perspective, all fairness to the government, that is one way of doing things. They won the election; they had the right to do that.

I have been in government before. Having worked with you people at your ministry -- because I know you do fine work -- I find it hard to believe that you wouldn't have given the government some suggestions that they needed some kind of oversight. What I'm looking for is an answer to that question. Did the ministry advise the minister or the government of the day that, "Yes, we'll do what you tell us to do, Minister, but we advise you that there should be oversight"?

Mr Black: I hate to duck that one like I'm going to duck it, but I wasn't in the ministry at that time and I don't think Dr McTiernan was either, for that matter.

The Chair: In fairness, now, there was oversight, because three members of the board were government appointees. Presumably, they represented the government's interests.

Mr Bisson: Obviously, but Chair, this is my time for my questions.

The Chair: No, it's just that I don't think you should be misleading regarding what's happened.

Mr Bisson: I understand this might be somewhat sensitive. Chair, I understand. Listen, I've taken criticism from our time in government, and I didn't like it. I understand that. But who in this room worked in that ministry at the time this program was put together? Is there anybody here? Can I ask you some questions?

Dr McTiernan: Sir, to the extent that I understand, the initiative was done out of the Ministry of Energy, Science and Technology, and none of us at the table were in that ministry at the time.

Mr Bisson: That's convenient. Can you have anybody before this committee this afternoon who would have been here at the time it was structured? That's my first request.

Mr Black: We can certainly try.

Mr Bisson: All right, let's move on to the other questions.

I remember when this announcement was made, and quite frankly I'm quite happy with the direction. The program itself is not the problem. I think we can all agree as legislators that the money we invest in these types of activities pay back our economy and our people a hundredfold. That's not my argument. I just want to understand something. The commitment that you originally got, was that for 10 years, five years? The $4.3 billion was for how long? I don't remember. I remember the announcement; I just don't remember how long it was.

Dr McTiernan: I believe the $4.3 billion you're referring to is the cumulative commitments over the array of programs, some of which are 10 years, some of which are shorter than 10 years.

Mr Bisson: I'm trying to remember the announcement. I remember there was an announcement. It was done as a multi-year thing, which I thought made some sense back then -- if you can refresh my memory. For example, on the Ontario Innovation Trust, was that a five-year commitment, a 10-year commitment?

Dr McTiernan: Excuse me, sir, while I --

Mr Bisson: Yes, that's fine.

Dr McTiernan: I have no record of it having a timeline. It was created in 1999.

Mr Bisson: I think you've got an answer.

Dr McTiernan: It was 10 years.

Mr Bisson: It was. That's what I was trying to remember. OK. So just to refresh my memory, this $750 million that we talk about was over a 10-year period, right?

Dr McTiernan: Yes.

Mr Bisson: That was the commitment. How did that flow -- on request or was it cut off in 10 segments? How was that $750 million devised?

Dr McTiernan: On request. There was an initial $500-million commitment, and then that was augmented by an additional $250 million in a later budget. The pattern of expenditures on the trust has ramped up over the years. In 1999-2000, for example, there were 119 project awards. It increased over the next couple of years.

Mr Bisson: But that's not my question. We're going somewhere different. The money got flowed when? How much money got flowed and when was it flowed to the trust?

Dr McTiernan: Oh, to the trust?

Mr Bisson: Yes.

Dr McTiernan: It was flowed in two lumps.

Mr Bisson: Two lumps: $500 million and $250 million. That has been done now?

Dr McTiernan: Yes.

Mr Bisson: All right, so now the government flows over $750 million, puts it into a trust. Did you at any time have any concerns about not having any oversight over the Ontario Innovation Trust? That's a lot of money, for you and me put together. I'm not saying these people did something criminal or wrong; that's not my assertion here. However, my question is, at any time did the ministry feel that there needed to be a bit more oversight on the trust, considering the comments by the auditor that there was no process to hold that trust accountable? At one point did you guys advise the minister that maybe we should be doing something to make this more accountable?

Dr McTiernan: With the trust established, we had no direct legal means of influencing accountability. There was, as the Chair indicated, the involvement of three government appointees on the trust board and --

Mr Bisson: That's not my question. Listen, if I'm the government and I put my appointees, I think they're going to do what I ask them to do. That's not my question. Obviously from what the auditor said, there was no accountability for the money that was put in that trust. My question to you is, did the ministry at any time have any concern or reason for concern about that situation, or did that all of a sudden become an issue when the auditor raised it?

Mr Black: Again, I'll just go back to the point that the government of the day made a decision to set up the trust at arm's length, which I think Dr McTiernan says essentially keeps us out of it. Are there concerns? I think those concerns that were raised by the Provincial Auditor are being addressed by some of the things the board has decided.

Mr Bisson: That ain't my question. Prior to the auditor raising this, did anybody in the ministry have any concern about $750 million, in this example, sitting in a trust without any oversight?

Mr Black: I can't answer that question. I wasn't at the ministry then.

Mr Bisson: You are the most professional staff, I must say.

Mr Black: I appreciate that.

Mr Bisson: You guys are good. You're very good. However, I understand the position you're in, and I understand why you're being cautious in your approach to me. But I, as a taxpayer and a legislator, have a hard time believing that the ministry at no time indicated to the government that there probably was good reason to have some kind of oversight. Because even if nothing wrong happened -- and I'm not saying there is. These are probably very legitimate expenses and everything was done properly. I don't know. The only thing is that you put $750 million of taxpayers' money in a trust and the government doesn't have any oversight -- I think that's reason for concern.

I go back to you and repeat this questioning. I'm going to let you think about it over lunch, because I'm going to come back to it after lunch. Did the ministry at any time indicate to the government that it probably would be a good idea when we set this thing up, first of all, to have some type of oversight, or at any time after was there a concern that there should be some form of oversight? Do you want to try to answer now or after lunch?

Mr Black: I might be able to take that on after a bite of food.

Mr Bisson: All right. Let's hope you have a good lunch.

Just another question: I take it that this is an accounting issue, or is it what I think it is? The auditor points out that in one particular example, a person who received money from the fund, the Ontario research performance fund, was overpaid by $147,000; another one was underpaid by $277,000. I take it that that's an accounting issue.

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Dr McTiernan: Yes.

Mr Bisson: I can't believe that anybody who was underpaid by $277,000 wouldn't come knocking at your door.

Dr McTiernan: It was purely an administrative error, sir.

Mr Bisson: By the ministry or by the fund?

Dr McTiernan: By the ministry. I think you're referring to the research performance fund, which is a program that is administered outside of the ministry. The error was with the ministry. The auditors caught it, thankfully, and pointed it out. It was corrected. It has also resulted in a new administrative procedure so that there's a double-check in place so the errors won't be repeated.

Mr Bisson: How many staff did you lose post-1995 when we were doing the government downsizing? Did you lose quite a bit of staff? About what numbers, roughly?

Ms Diane Frith: It was probably about 1,000 staff. With S&T back now -- because S&T was over at MEST for a while -- we're down to 450.

Mr Bisson: It was about half; that's what I remember. In your estimation, was that part of the problem, not having the staff necessary to oversee some of this stuff, your accounting problems etc? Did that have a cost? Was the lack of staff an issue, in your view, in the oversight of some of this stuff?

Ms Frith: I think, as Dr McTiernan said, certainly in retrospect the allocation of resources for administration needed to be enhanced. With that, the issues that were found in the audit probably wouldn't have happened. That's in retrospect, looking back. One of the issues is that the number of S&T programs grew so quickly. In 1995 we were down to a little over $60 million and now we're up around $200 million, so you can see the growth of the programs over that period of time.

Dr McTiernan: If I could pick up on that point, I think the real issue that underlines the Provincial Auditor's comments is that, in the balance between implementation and administrative focus, the balance of work with the staff complement went toward implementation issues. In retrospect, there should have been a tight focus on the administrative aspect.

Mr Bisson: I just make the point because I'm a firm believer that public service is not a bad thing. Public service is a good thing, and if we're going to do it, let's do it right. If it means that you need staff, get staff. I never agreed with the reduction in staff, but that was a decision by somebody else.

How much time do I have, Chair?

The Chair: You have four minutes left.

Mr Bisson: Keep your answers short, because I have three quick questions.

The challenge fund is one of the items raised by the auditor. According to ministry documents, the ministry did not issue a request for proposal on the administration contract for that. How did that happen, and how much was the contract? How much was the contract, first of all?

Dr McTiernan: Currently, the administrative contract with the research and development challenge fund in this fiscal year is $1.35 million.

Mr Bisson: How in heck did you ever do that without an RFP?

Dr McTiernan: There was a decision made to pursue alternative service delivery. We outsourced.

Mr Bisson: I understand that. You outsourced. But how did you do that without an RFP?

Dr McTiernan: Through approval through the Management Board of Cabinet process.

Mr Bisson: Interesting. Isn't there a policy in place that you have to have an RFP on things over a certain amount?

Dr McTiernan: There is a mechanism for approving exceptions.

Mr Bisson: Did it strike you as odd that there was no RFP in a contract of over a million dollars?

Mr Black: It did go through Management Board. It was a decision that was taken.

Mr Bisson: I hear you. OK, moving on to the next question: There was no conflict of -- I'll leave that one for next time.

We said that we found the marks on the ministry's summaries of the Premier's Research Excellence Awards competition did not agree with the reviewers' original score sheet. What happened there? Was that administrative or was that someone changing the outcome, or the final decision?

Dr McTiernan: At the risk of complicating a procedure, one of the challenges with that program -- it's the Premier's Research Excellence Awards -- is that you have an array of nominations that go from Shakespearean literature quite --

Mr Bisson: Literally.

Dr McTiernan: Literally. I was going to say that.

Mr Bisson: It's OK; we're all friends and countrymen here.

Dr McTiernan: And sometimes Romans -- through to engineering research, through to biological research. The way in which the nominations were assessed was that the board members, in pairs, got a sheaf of nominations and they went through their own ranking. Then they got together collectively as a board to compare rankings and compare notes across very different applications. In the first couple of review processes I can expect that people's sense of weighting, people's sense of evaluation changed as the discussion on the merits of the different initiatives came forward.

Mr Bisson: Does that happen often?

Dr McTiernan: We had a discussion last night with the program officer responsible for this and he was quite firm in the fact that the administrative procedures, based on the experience of the board, are a lot tighter now.

Mr Bisson: Could it be that certain members of the board wanted a certain outcome and that's why the marks changed?

Dr McTiernan: It's impossible to say, but I expect not. I expect this was done very much in the context of an academic peer review process. The informal as well as the formal rules in that process are quite rigorous, as you know.

The Chair: Thank you, Mr Bisson.

Mr Bisson: You're quite welcome, Mr Chair.

Mrs Liz Sandals (Guelph-Wellington): I must preamble this by saying I'm also quite supportive of the intent of this and of the whole idea of research and partnerships hopefully leading to commercialization and innovation in our economy. But it struck me as I read through all of this that the Ontario Innovation Trust seems to be structured quite differently from the other programs that have been set up to administer various funds. I wonder if you can comment, first of all, on why the whole model of a trust fund was chosen, as opposed to the more direct administration that one sees in some of the other boards and some of the other grant programs. Why this unusual trust format?

Dr McTiernan: I expect the decision at the time was influenced very much by the recent establishment of the Canada Foundation for Innovation, which is a federal funding trust established under legislation. One of the primary intents of the Ontario Innovation Trust -- not the sole, but one of the primary intents -- is to match funding available through the Canada Foundation for Innovation and essentially to lever federal funding into Ontario. It is noticeable that the general operating framework of the two bodies -- one federal, one provincial -- is quite similar.

Mrs Sandals: if this was something that did have some justifiable reasons, why would there not have been any submission to cabinet? Why would there not have been any business plan? Why would those sorts of normal procedures not have been followed out in establishing the trust? What I'm hearing you say is that there are some legitimate reasons that you might want to go that route. Why was it not followed through, then, with submissions to cabinet and business plans and the normal sorts of things we would see? We are talking about $1 billion here.

Mr Black: If I might; this actually gets back to what Mr Bisson was asking earlier. It would be speculation on our part because we weren't there, but I think it's safe to say that the government wanted to move fairly quickly to take advantage of the newly announced CFI program at the federal level. A decision was taken that the best structure was one that was similar to the federal program, which was at arm's length, completely separate from the other programs and quite different from some of the other programs that had been run in the ministry and, frankly, run at the federal level. It would be speculation on our part and I wouldn't want to go into how that decision was made, only to say a decision was taken at that time that it would be set up that way.

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Mrs Sandals: Given that you've obviously been in various other ministries, would there be any other instance where you were involved in a program, where you were going to fund somebody to the tune of $1 billion and there was no submission to cabinet?

Mr Black: In my experience, I can say that I haven't seen that. That's not to say it hasn't happened.

Mrs Sandals: Could we talk a bit about the structure of the trust and what the relationship is between the trust and the government? I guess I'm still trying to wrap my head around this $1 billion that is sort of sitting out there. Is this a time-limited arrangement or does this thing go on somewhere out there forever? How is this structured?

Dr McTiernan: The $750 million that is currently being transferred to the trust will be spent over the 10-year time frame of the trust. Over $700 million of that $750 million has already been committed. The trust has also earned some interest, which is available for funding.

With the total funding committed in the trust, at whatever point, the commitments equal the total amount of money available in the trust. The trust will manage projects through to completion and wind down once all of the funded projects have been completed and accounted for. Most of the projects are capital projects or longer-term projects, so the expenditures on a project-by-project basis will be over several years.

Mrs Sandals: So potentially it could go on longer than 10 years.

Dr McTiernan: I would expect, assuming a fixed amount in the fund, the funding commitments will be made well within the 10 years, and then the projects managed through the 10-year cycle.

Mrs Sandals: What happens if there's any money left in the fund when the projects come to fruition or in the case we've talked about that in fact some of the projects just go off the rails and are never fully funded?

Dr McTiernan: For projects that go off the rails during the lifespan of the trust, the money would remain with or return to the trust. Should the trust have any residual funds at the end of the trust period, I believe legally the proceeds are distributed among the beneficiaries. If I could just refer to a document with respect to the distribution on termination, "If this agreement terminates on the 10th anniversary of its execution by the sponsor, the trust fund shall be distributed by the trustee, as directed by the board, among such eligible recipients in such amounts or proportions for greater certainty to the complete exclusion of any eligible recipients, as the board in its unfettered discretion shall determine, provided that such eligible recipients to whom such amounts are distributed shall be registered charities under the Income Tax Act of Canada."

Mrs Sandals: So in fact, if there's money left over at the end, the money doesn't come back to the government as funder; it goes to wherever the board decides to send it.

Dr McTiernan: That is correct.

Mrs Sandals: That is very strange.

Let's talk, then, about the trustee and the board, and the relationship between the trustee and the board. Who is the trustee? It just simply says here in the auditor's report that it's a private sector corporation.

Mr Black: If I might, I'll just introduce Neil McCallum, who is the legal director at our ministry.

Mr Neil McCallum: When the trust was established, it was established by agreement with a financial institution. The trust company at the time, if I recall, was the Royal Trust Corp of Canada. The trustee: There is provision in the agreement for that to change. In all candour, I'm not able to tell you just at the moment which financial institution is acting as trustee. But the structure of the trust operates such that the trustee is the caretaker of the corpus of the trust monies and is charged with the requirement of distributing that money on the direction of the board, as set out in the trust indenture.

Mrs Sandals: So the government would then presumably have virtually no relationship with the trustee but it has a relationship with the board. Is that correct?

Mr McCallum: Yes. That's absolutely correct.

Mrs Sandals: Let's talk about the board, then. What sort of relationship, if any, does the ministry have with the board?

Mr McCallum: The government of Ontario has the capacity under the trust document to appoint three members to the board. I believe the total complement is seven, and there are three government representatives appointed by order in council.

Mrs Sandals: Which I take it from the auditor's report in fact hadn't happened recently, that those positions were vacant and it is now in the process of getting those filled. How long had those positions been vacant?

Mr McCallum: I think, with respect to any one of the individuals, the period of time might have been as long as two or three years. However, I want to be sure the committee understands that the fact that the board appointees' terms were not extended or that the persons were not replaced resulted in any failure in the operation of the board of the trust. The trust deed itself provides that on any termination of the term of a board member, the board member shall continue as a member of the board with the duties and obligations of a board member until a successor is appointed.

Mrs Sandals: So these people had been previously appointed and then, rather than taking them back through the normal order-in-council process, the government of the day had just left them sitting there, rather than going through the order-in-council process again?

Mr McCallum: I think that's a fair result. I'm not sure to what extent the people would have turned their minds specifically to it, but certainly the result is that although the order-in-council term may have expired, the people who were appointed to the board continued to serve.

Mrs Sandals: Just one quick question, because we're just about to get some lunch: If I'm understanding you correctly, on paper at least the only legal connection between the ministry or the government of Ontario and this trust is the ability to appoint three board members. Otherwise it's totally at arm's length?

Mr McCallum: Yes. I think that's a fair statement from a reading of the trust document. The government of Ontario is styled in the trust document as the sponsor of the trust, and the sponsor is excluded except to the extent that the sponsor has the capacity to appoint the three members to the board of the trust. That having been said, however, the trustees have the normal fiduciary obligation of any trustee to deal with the obligations set out in the trust document to handle the distribution of the corpus of the trust to the beneficiaries in accordance with the trust document, and in doing that they are not precluded, for example, from entering into arrangements with the government of Ontario. I think, as Dr McTiernan and Deputy Black have indicated earlier, the members of the board of the trust have engaged with the ministry in determining what would be better arrangements than those that would appear strictly on the face of the trust document.

Mrs Sandals: But if you go back to what the legal role of the government of Ontario is strictly on paper, in fact this has been set up at sufficient arm's length that we're dependent on the goodwill of the board in order to exercise some tighter control over this $1 billion.

Mr McCallum: I would say that's correct. The sponsor's participation in the trust on the board is confined to the appointment of those three members.

Mrs Sandals: Thank you very much for the information.

The Chair: On a clarifying point, perhaps you could provide us with the provisions as to how the other four are appointed to the trust.

Mr McCallum: Yes, certainly. The appointments to the board are made under article VIII of the trust deed.. The composition of the board is three individuals appointed by the Lieutenant Governor in Council -- those are Ontario's representatives, obviously; two individuals who are appointed by the Council of Ontario Universities; one member appointed by the Ontario Hospital Association; and one member appointed by the Association of Colleges of Applied Arts and Technology of Ontario.

The Chair: Thank you very much. We're going to reconvene at 1 o'clock.

The committee recessed from 1202 to 1305.

The Chair: Mr Fonseca, do you have some questions?

Mr Peter Fonseca (Mississauga East): Mr Deputy, I have to say, as the group has brought up, innovation and creativity, especially from our government's end -- we believe in a knowledge-based economy, and this program would be something that would be very dear to us, and that's why we want to make sure that it has sustainability and longevity and is governed in an appropriate manner. It is going to be getting fixed, but when you look at when the program started, in 1998 -- and I understand you had to jump on opportunity from the feds, as you brought up, what was presented to you, but that was 1998. That was five years ago. The previous government brought up many a time how they were business people, great managers, and what we see here is a lot of mismanagement -- business mismanagement is what I'm saying, because over a five-year period not to have a business plan, a strategic plan looking for certain outcomes and having those outcomes in place, just doesn't make sense to me.

I tried to think of this in a corporate model, and I'm not sure if it would apply. I thought of a company like 3M, where they're all about innovation and they have within their corporate structure a number of entrepreneurial units. I guess this would be working in a similar type of system. Now, they have outcomes in terms of, hey, they've got to make a profit with some of these innovative products and services that come out of that corporation. I think the same thing relates back here, because we're talking about generating funds and revenue for the people of Ontario.

Deputy, I know you brought up that good jobs and above-average wages and new creative jobs have come from this program. What I want to know is if you can give me a shining star that has come from this program in terms of jobs created that have had offshoots and the type of revenues that have come from one of those shining stars over the five years.

Mr Black: Thanks for the question, Mr Fonseca. I'll let my colleagues actually go to find that shining star for you, but let me take on a couple of the points you made. It's not as if the ministry or the government of the day did not have a strategic plan around science and technology. There was a fairly well-articulated plan that essentially went through that chain from research to commercialization.

I think it's fair to say that the new government has stressed quite clearly that it wants to improve the results of the kinds of programs we find in the science and tech area, and that's exactly what we're embarking upon now as we get ready for the next budget and beyond. So I think it would be a mistake to think that there wasn't some kind of strategy; there was. I think we need to heighten the focus on results, commercialization, that far end of the spectrum.

I should also make it pretty clear that as poorly as some of the areas seem to have been followed in terms of the paper management between the ministry and some of the programs, I think it's pretty safe to say that within the programs themselves, within that scientist performance side of things -- and this was what Mr Zimmer was getting at, that the science sort of held lord over the administration. I think that's a fair characterization; maybe the balance I would have put a little bit more even than maybe his comments suggested. It's fair to say that the Provincial Auditor has essentially said we need to do more on the administrative side. But there's a lot of peer review that goes on within these programs, highly qualified, highly specialized scientists who look at this stuff to make sure that the proposals that are coming forward are the right kinds of things that actually do have some benefit. So I think that side of the equation should not be missed, that there is a lot of accountability within the programs themselves. It's just that I think we need to do a better job in our relationship between the ministry and some of the programs from our end of the world.

In terms of the --

Mr Fonseca: The accountability as a business is kind of where I was getting to.

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Mr Black: That's a fair comment. I agree we need to do a better job on that end, and I think from the comments you heard this morning, we're headed that way. The shining star?

Dr McTiernan: I'll give two examples, one of a large-scale project and one of a small-scale project. Both speak about potential rather than actuality. To pick up on Deputy Black's point, the initial phase of the research initiatives was to focus on the quality of the research being funded and the scope and scale of the research being funded. The peer review process, often with international peers, spoke to the quality of the research. As Deputy Black said, it is now the time, in the context of our current economic priorities, to look at application, to look at commercialization and to look at ways in which the results of the research can be quickly brought to market where possible.

I'll give you a small-scale example that strikes us in the division as being good on a number of different fronts. A little more than a year ago, the Centre for Information Technology in Ontario, one of the centres of excellence, funded, for the first time, a call for proposals for applied research in the information communication technology area that was directed specifically at colleges, which are looking more and more at applied research as an area of activity and are beginning to develop expertise in that area. The call for proposals was, in science funding terms, a modest half-a-million-dollar call for proposals. There were 15 applications from colleges. Five colleges were successful in meeting the criteria of excelence and relevance. In an informal report back a couple of weeks ago, four out of those five projects look like they're in the pre-commercial phase with commercial application. It's a good-news story. That's a huge success rate, if they're successful in all of those stories. Colleges are involved as well as universities, and it's on information and communication technologies, which is one of the areas that government continues to be interested in for high-value jobs. That's an example of a new approach to involve a broader array of researchers that may have some immediate potential.

An example of a project in the health area that translates into jobs immediately in terms of 60 researchers involved in an initiative in Toronto, coupled with an equivalent number of researchers at the University of Oxford -- something that may have a hugely greater potential for medical discoveries and medical applications as the project goes ahead -- is a proteomics initiative by Dr Aled Edwards at the University of Toronto. My understanding of genetics research is quite limited, but proteins are attached to DNA molecules and they affect the way in which they operate. They're a potential key for new medicines. Dr Edwards has a $90-million, multi-year research project bridging a research community here and a research community in the United Kingdom to essentially do for proteins what has been done for the DNA molecule in analyzing the structure, information and components of the DNA molecule, which may have direct effects on the type of medicines produced and their applications.

I give you those as ranges of the types of research that's funded.

Mr Fonseca: That $60 million came from where?

Dr McTiernan: It was $90 million. There was money from the federal government, there was money from the Innovation Trust, the Research and Development Challenge Fund and GlaxoSmithKline through the Wellcome Trust, and the Wellcome Trust have funded a large share of the research as private sector partners.

Mr Fonseca: Who owns the IP for all of that stuff?

Dr McTiernan: I don't know the specifics in this particular case, but IP ownership for initiatives funded through Ontario government programs tends to be determined by the recipient institution for the grant. There is a range of IP policies and procedures across Ontario's universities and research community running from the traditional approach, where institutions have owned the intellectual property, to approaches where some of the international trends are being mirrored by Ontario institutions. That is where a lot more of the IP is owned by the principal investigator.

There is a trend in the United States on intellectual property that is being picked up by other countries involved in the research enterprise. A couple of dozen years ago the United States essentially had a government-owned IP approach which has migrated to institutions-owned IP, to a series of arrangements now across a great many research-intensive institutions in the United States, where the principal investigator owns the IP and works with the institution on protecting the academic pathway of conference papers and stuff like that, while developing and applying IP with business assistance from business development arms of the institution in question. A lot of our institutions are moving in the same direction.

Mr Fonseca: Can I just ask, where is this organization housed? Is it housed somewhere?

Dr McTiernan: The one that I just spoke about?

Mr Fonseca: No, the OIT, the Innovation Institute of Ontario. Where is the bricks and mortar? Is there bricks and mortar?

Dr McTiernan: Yes, on College Street, just west of University.

Mr Fonseca: So right down here?

Dr McTiernan: Yes.

Mr Fonseca: OK, and who owns the bricks and mortar?

Dr McTiernan: It's leased space. The question of who owns the building -- I'm not quite sure.

Mr Fonseca: Aren't we building it right now? Isn't the construction going on down there?

Dr McTiernan: The construction that's going on on the southeast corner is the MARS facility, the medical and related sciences facility. That will ultimately house wet lab space, incubator space, office space for a variety of business initiatives and research space for researchers.

Mr Fonseca: Thank you.

Mr Bisson: Welcome back. Did you manage to find somebody who was working there at the time that this program was created?

Mr Black: Let me answer that question in a different way. I'll probably frustrate you with my answer a little bit, but let me try it and you can come back at me.

Mr Bisson: I'm sure you will.

Mr Black: Mr Bisson, you had asked this morning about the structure of the OIT, how it was set up. It's a little bit different from other programs you might have heard of.

Mr Bisson: That wasn't my question. My question was, had you raised the alarm bell?

Mr Black: That was my second point: Did anybody give the minister or the government any advice as to whether or not this was a good idea or appropriate or something like that? Let me take this on and I'll give you four or five responses. You'll probably want a supplementary.

Mr Bisson: I'm sure I will.

Mr Black: The committee will know that when civil servants give advice either to a minister or the government, that advice is confidential and stays between the civil service and the government. So even if I knew what the answer to your question was, I couldn't tell you.

To get more specific with the OIT and how that was structured, it was set up quickly, as we mentioned earlier, to respond to an opportunity for matching funds at the federal level through the Canada Foundation for Innovation, which too was an arm's-length trust. So the structure of the OIT in many ways mirrors what the federal government was doing, and that was one of the reasons it looks like it does.

The government also wanted some flexibility, I believe, to be able to take advantage of some of the longer-term partnerships that might be available through such a structure. So it's money that was flowed out over a stretch of time, as opposed to a one-year kind of program or a single-year funding for a program.

I think it's fair to say that it's a well accepted and appropriate approach to fund R&D infrastructure. There's not much sense in giving money to researchers to have them not have equipment, not have a place to do that kind of research.

Mr Bisson: What was the last point? I didn't quite catch your last point.

Mr Black: On the flexibility for multi-year?

Mr Bisson: No. It was set up as an R&D structure. I didn't quite follow.

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Mr Black: I'm sorry. The last two points I'll make relate to the accountability within the framework of the OIT and how it works within the government relationship. I was trying to make the point that it's important to fund the infrastructure, not just the salaries or the overhead. The OIT does that.

Within that kind of accountability framework for that R&D expenditure, there is the Canada Foundation for Innovation peer review, which is quite stringent, quite scientific in its approach. The result is that deserving, qualified top scientists are actually getting the support they need to do that research. So it's not as if there isn't some kind of accountability within how that money is expended.

The last point I'd make is, yes, maybe there were some -- the question has come, how come it took five years to get to the point where we have a different kind of relationship with the OIT? We take the point, and we take it seriously, and that's exactly what the auditor was saying. The OIT has offered, and we've accepted, to essentially treat them as, and they're going to act as if they were, a transfer partner, where they will table reports in the Legislature, they will come and appear at committee and they will open up their books to the Provincial Auditor.

I think it's safe to say that it's a relationship that is changing I think for the better, according to what the Provincial Auditor has suggested would make sense in terms of value for money and accountability.

Mr Bisson: Do you find that somewhat scary? Only after the auditor finds that there is a problem, all of a sudden the ministry is embracing better accounting methods of monies that are flowed to these various organizations. Does that concern you? It would seem to me that within the ministry there would be a process or a structure or a mechanism so these things could have popped up a heck of a lot before the auditor showed up.

Mr Black: That's a fair comment. I'd be more afraid of the fact that we weren't responding in a way that makes sense. But having said that, I think it's fair to say that the ministry has been working on something for some time. It's now coming through, but I take your point.

Mr Bisson: I don't want to talk about where you're going; I want to talk about where you've come from. So before you use my time for those kinds of answers, don't.

The Chair: Come on, Mr Bisson.

Mr Bisson: Chair, it's my time.

The Chair: Mr Bisson, we also have to treat our witnesses with respect.

Mr Bisson: I am. But the way you're running this is that the opposition gets a very finite time to ask questions, and I have to change how I do my questions, given the way you're chairing this committee. Normally there are 20 minutes per caucus and you're able to work this out.

The Chair: Mr Bisson, you've only been here for a couple of days, and the committee has worked fine.

Mr Bisson: I was been on this committee a long time before most people have been around here, so don't start.

The Chair: Well, I've been here a lot longer than you too, Mr Bisson. Treat our witnesses with respect or I'll call you to order.

Mr Bisson: Very good, Chair. I hope you're having a good day.

My question to you, going back to the beginning, is that on the issue -- I understand what you're saying in the first part of your answer, that the advice you give to government is confidential and is the relationship that a government has with its bureaucracy. I understand that; there's a professionalism to that. I hear what you're telling me.

But I can't believe for a second that the ministry would have put itself in a position of transferring $750 million in this particular case to an agency, that it didn't have oversight. Do you find that contrary to normal procedures you would find within the ministry?

Mr Black: I think it's safe to say that, as we said this morning, it's a different kind of structure than you would find in most cases, but it's a structure that the government chose to use to move quickly to take advantage of some of those opportunities. There was a decision that was taken to look that way.

Mr Bisson: I understand. But my question is, is that out of the ordinary? Was the process that was followed here out of the ordinary? If government today, or government 10 years ago, would have come to your ministry and said, "We want you to establish such a trust," do you think the way this was carried out was a bit out of step with what normally would have happened?

Mr Black: As I said, it's a different kind of structure, but it's one that has worked at the federal level. It's one that the government decided it wanted to do.

Mr Bisson: I have no argument with the structure. My argument is not that. I think there's some validity to having an outside group do this kind of work. That's not my argument. I just have a very hard time accepting that we would set up a pot of money of $750 million, give it to a trust and not have, as government, a way of ensuring that those dollars are properly accounted. I have no doubt they did what they were supposed to do. I have no reason to believe they did anything wrong. What I have a hard time understanding is that the ministry would not have tried to put in place those mechanisms to have the assuredness that we need. My question is, the very fact that there were not checks and balances put in place as far as accountability, was that, would you say, out of step with what normally happens when a ministry sets up such programs?

Dr McTiernan: I think I could answer that in two ways -- perhaps not to your satisfaction -- but I'll take two stabs at it. One is that as the trust was established and operated, the ministry did confirm that the trust was doing two things, that it was adhering to rigorous peer review processes in the evaluation of applications. In fact, there was a double, if you like, oversight measure in that regard, because many of the projects -- not all -- were already approved under the Canada Foundation for Innovation. The second part of the first part of my answer is that the trust was publishing regular reports on its Web site and accounting for its activities in a public manner, and that was material we were able to access.

The second part of my answer deals with the development over time of an informal working relationship, given that we didn't have any formal ability to oversee the operations of the trust that kept us informed and aware of the activities of the trust, particularly those activities as they related to the management of the other related and complementary science and technology programs that we managed.

Mr Bisson: I understand what you're telling me, and I go back to your original answer, which was that advice is confidential between the government and the ministry. I accept that at face value. Just for the record, I want to say again that I really find it odd that the ministry would not have given advice to the minister -- or whomever -- that there needed to be better accountability. I just really have a hard time believing the ministry wouldn't have done that. I understand that you can't answer that, or you won't answer it. That's fine. We'll move on from there.

Some of the other stuff that I worry about is that, if this government, or a future government, was to go to you as the deputy minister today and say, "Here's a pot of $500 million and we want you to set up a trust," would you do it differently? Would you advise the government differently?

Mr Black: I think it's fair to say that we would put an array of options together that essentially would go from A to Z. One of those options would be the trust. There might be some different ways that we would suggest --

Mr Bisson: But I'm saying, if we were to go to a trust again -- and my argument is not with the trust, it's on the accountability -- knowing the experience you've gone through now, can I be assured, as a legislator and a taxpayer, that the ministry has learned something through this exercise that the auditor has brought them through? Would you advise the minister that we need to have better accountability if you had to do it again?

Mr Black: Actually, the answer to that question is fairly easy. I'd only have to look at the Provincial Auditor's report to say that obviously what we had in place was not working. The Provincial Auditor essentially picked apart some of the pieces that needed to be fixed. That would be my advice to the minister, that we would essentially follow those kinds of recommendations.

Mr Bisson: Here's the difficulty we have as legislators -- because you're right. I thought you were going to answer that this morning when I asked you the question, which is, it's confidential information between the minister and the ministry and you're not in a position to tell me what those discussions were about. But the difficulty we have is that because of that very rule, we need to have some sort of a mechanism to make sure that the spending of dollars by government through a ministry or an agency or a trust of that ministry is done in an accountable way. I'm wondering if you have any suggestions about how the public could be more assured by way of some mechanism that there is a proper accounting of that money should we ever be in that position again. Do you have a recommendation to us that the ministry should undertake something, or should we extend the rules of the auditor to include monies that go into these types of agencies as something that he is able to do by way of his office and properly account for?

Mr Black: I think what the auditor has told us -- and maybe the way to look at this -- is it's a template kind of a look that we can apply to any future program that might look like this or is somewhat different. He's clearly pointed out that there are some deficiencies in what it is we've been doing, and that's what we are addressing.

On the other side of this, the trust has come forward and said, "We're going to act as if we're a transfer partner and essentially table reports, come to committee and have the Provincial Auditor be available to look at the books."

We're getting to where I think your question is going. I'm not so sure that our answer is satisfactory, but the answer I would give you is that I think we've got a template we would use to apply to any kind of programming in the future, yes.

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Mr Bisson: My direct question is, would you favour the powers of the auditor to be extended to be able to audit organizations such as the Ontario Innovation Trust?

Mr Black: Probably from a personal and professional opinion, I would say yes.

Mr Bisson: The answer was yes, for the record.

On this particular issue, with regard to people on advisory boards who apparently may have been in conflict and didn't declare a conflict when they got into whatever conversation or decision that was made, do you have any sense of how often that happened?

Dr McTiernan: I can speak to that from the two years' experience I've had now around the operation of some of the boards. It was, in my judgment, very seldom that those incidents happened. The pattern of behaviour at the boards is quite meticulous about the declaration of conflict, and there is generally a formal record of that. Our assessment from a divisional point of view of the observations of the Provincial Auditor is that there may have been instances that weren't minuted that ought to have been minuted, but the Ontario research and development challenge fund board, which I'm using as an example, essentially has adopted the conflict of interest principles that a corporation would have in place. There is a parade in and out of the room on a regular basis by people who for one reason or another have --

Mr Bisson: Has there been a change in the way the boards operate when it comes to the issue of declaring conflict?

Dr McTiernan: The observations of the Provincial Auditor have resulted in the introduction of much more rigour. There have been suggestions around conflict of interest that the Provincial Auditor has made that will be reflected in new guidelines that we're actively developing right now. It will involve not just behaviour at and during meetings but also a periodic declaration of interests so that there are sort of benchmarks throughout the person's tenure on a board against which conflict can be generally judged and assessed.

Mr Bisson: My overall observation of this whole thing is that here we were -- probably with good intent, the government decided to create things like the Ontario Innovation Trust, which in the long run is probably not a bad thing, but we were in an odd position where the auditor didn't have the powers, and still doesn't have the powers, to audit the trusts themselves; the ministry didn't have the safeguards in place to assure itself that the monies being expended by the trusts and how they were being allocated was done in a way that invoked a lot of confidence; and we had a situation where people on the board were acting in situations where they were potentially in conflict. So you can understand why the auditor and others are somewhat critical of the ministry for this situation we find ourselves in.

I just have to say, it's not your doing, and I don't blame the bureaucracy for this. Please understand me, my attack isn't on you. What I'm trying to surface is how a government ever allowed that to happen in the first place. I don't understand, in all conscience, how you can set something up like that and not require and demand the protection of the taxpayers' money in a way that we can be really clear that there is no conflict, that it is clean, that there is no danger.

At the end of the day, I have to believe that the work they did was all good, but how is the public ever to have confidence in government and in the political institutions we have if we don't have good accountability? That's my point around this whole thing. I've got to say, I give the government of the day failing grades on that.

The last question -- because I take it I'm running to the end of my time, Chair, or your patience. Which one first?

The Chair: My patience first, but your time is second, so you have two more minutes.

Mr Bisson: I go back to the issue of the RFP. We just got into that at the end of this morning. What is the current policy? I don't remember what it was, but there is a dollar amount. If a contract is being let out for more than a certain amount of dollars, you need some sort of an RFP.

Mr Black: It's $25,000.

Mr Bisson: So in this case we allowed the management of these services to be contracted out at over $1 million without an RFP. How did that ever happen? What's the explanation?

Mr Black: Again, probably an unsatisfactory answer, the government decided that it was going to do it this way. It went through the Management Board process to ensure that there was some rigour around how the money was going to be spent. It was different than some of the rules, but there are exceptions to those rules, as you will maybe remember yourself.

Mr Bisson: If I was your minister and I was to do that, would you advise me to do an RFP; if I was your minister and we were having a private conversation?

Mr Black: I don't think I can answer that question, actually.

Mr Bisson: You're good. Is this contract still being managed by the same people?

Dr McTiernan: Yes.

Mr Bisson: To the auditor, have we audited that, the work that they do? I don't know the answer.

The Chair: Which contract?

Mr Bisson: With regard to the challenge fund.

Mr Gerard Fitzmaurice: We looked at the challenge fund.

Mr Bisson: And?

Mr Fitzmaurice: It's throughout the report --

Mr Bisson: Again, I say it's pretty darn odd that a contract of over $1 million is let out for the management of something like that. I have to believe in my own mind that the ministry must have given some advice and at the end of the day government decided to do otherwise, and I just say it's a failing grade again on the part of the government to have done so. I'll tell you, if people don't have confidence in government, this is one of the reasons.

The Chair: Mr Dunlop is next, but could I just ask you a question? In terms of these boards and the peer review teams and the committees and whatever, my understanding, and you can correct me on this, is that it would be very natural that there would be conflicts occurring all of the time because of the expertise needed to review the applications and allocate the money and in many cases there is not a huge number of experts in certain areas. Would that be a correct characterization of why conflicts would be common in this kind of an endeavour?

Dr McTiernan: That is the case, Mr Chair. There are conflicts, and conflict is defined in terms that relate to institutional interests and research project interests and on the part of some board members in terms of personal investments or personal interests they may have in industrial partners. So there are a range of conflicts across the academic research domain and across the industry partnership domain that do crop up quite frequently. Once it's clear that a research proposal under review is one about which a board member or a panel member may have an interest, either academically or economically, the conflict is declared and the person leaves the room until the decision is made.

The Chair: Many of the people who sit on these committees, if they are paid at all, they're not paid very much, many of them. Would a preponderance or a great number of them come from universities that would be applying for grants?

Dr McTiernan: On the review panels it's a mix, but yes, there is a large proportion of people from universities that are research intensive. There's a bit of a funnel effect. We have close to four dozen research institutions that one way or another have benefited from some of these programs. But by far, the greatest number of projects rests with half a dozen of those institutions, and they tend to be the institutions from which one selects panel reviewers and often board members.

The Chair: OK. Mr Dunlop.

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Mr Garfield Dunlop (Simcoe North): Are you prepared to answer questions on Ontario exports?

The Chair: That wasn't really part of the auditor's report, Mr Dunlop, so we'd prefer to keep it focused on --

Mr Dunlop: I'm sorry. Then I don't have any questions. But I did want to get around to that at some point.

Ms Laurel C. Broten (Etobicoke-Lakeshore): You've said a couple of times today that we moved quickly on the establishment of the trust because of the fact that the CFI had been established and that we mirrored in some ways the establishment of the CFI. I just wanted to clarify that the CFI was established through legislation. The OIT was not established through legislation, right?

Dr McTiernan: That's absolutely correct, yes.

Ms Broten: The CFI funds: Was there some risk that we needed to move at lightning speed or we were going to miss an opportunity?

Dr McTiernan: The CFI funding is generally distributed across the country. They have calls for proposals in a variety of their programs periodically, like our programs do. If a jurisdiction or institutions in a jurisdiction can't attract matching funding from their own jurisdiction, they're at risk of not receiving CFI funding.

Ms Broten: Right, but we could have taken a little bit more time. We weren't at the expiration date of the CFI matching availability.

Dr McTiernan: I can't answer the specifics of that question in terms of the round that might have been at play at that time, but I can check and get back to you.

Ms Broten: OK. You'll let us know.

The trust agreement is dated March 31, 1999. I guess one of my questions is, is that a real date or not? Having drafted many documents -- sometimes the date on the document isn't the real date. This was announced in a May budget. What is the timing as to when it was really entered into? When was the trust settled? When did the money flow?

Dr McTiernan: Excuse me for a minute, please. We have no reason to believe that March 31 wasn't the date.

Ms Broten: When did the money flow? When did the first money flow into this trust, to essentially settle the trust because the funds came in?

Dr McTiernan: I was going to make an assumption, and it's probably not a good thing to make an assumption. Let me check and see if I have that. We can't answer with 100% certainty at the moment.

Ms Broten: Perhaps you can let us know when the money flowed into the trust.

Dr McTiernan: Yes. I'd be happy to do that.

Ms Broten: Thanks.

So we're at March 31, 1999, the day the agreement is signed. We've got a couple of directives: the accountability directive, September 30, 1997, and the transfer payment accountability directive, September 29, 1998. So those are in place. What I'm trying to determine is, was a conscientious decision made that these were not applicable, or did no one turn their mind to the applicability of these documents which govern government accountability?

Mr Black: Can we get back to you on that one as well?

Ms Broten: Sure.

I want to ask about our government appointees on the board. We have three appointees on the board, right?

Dr McTiernan: Yes.

Ms Broten: I don't need names, but who are these individuals?

Mr Black: I think it would be deputy minister status.

Ms Broten: Deputy minister status. OK. Because it's not unusual in a corporate structure to have appointees on someone else's board. They have obligations back to the organization that appointed them, to report back and to look after the interests of the organization that put them there in the first place. Through all of this, it's not clear to me that there were any obligations for those three individuals to report back and make sure that we as their appointees -- who knew what was going on over there in terms of a report-back obligation. Was there one?

Dr McTiernan: I would have assumed, in terms of their role as deputies, that would have been a corporate responsibility to government. I think the interesting challenge for deputies is balancing their fiduciary responsibility as trust board members with their responsibility as deputies in that regard.

Ms Broten: But certainly, then, from your assumption, information was flowing, but that requirement is not documented anywhere. It's not documented in the trust agreement, for example. I haven't seen the trust agreement, so I don't know what is in it, but there's no formalized documentation of a reporting obligation back.

Dr McTiernan: No.

Ms Broten: There are some obligations set out in the trust agreement that appear -- it sort of indicates that to us when we look at the auditor's report, obligations as to providing quarterly updates and other types of account-back obligations. I was wondering if you could just go through what the obligations were. It seems to me that the very few obligations and accountability mechanisms that were in place weren't even followed. So we're talking today about what more should have been there. The auditor indicates, I think, that we didn't receive even what we could have received.

Dr McTiernan: If we could take a moment just to review our table of contents here.

Ms Broten: Sure.

Mr Black: Would the committee be fine if our legal director, Neil McCallum, sat down?

The Chair: Sure.

Mr McCallum: I wonder if perhaps you could clarify what part of the auditor's report you're looking at. The trust deed I don't believe has any formal reporting mechanisms back to the government. I just want to be absolutely sure I'm clear on the question.

Ms Broten: Sure. I'm reading the paragraph on page 169 of the auditor's report, section 3.07, which says, "In order to try and ensure that the trust is in compliance with the accountability framework established in the March 31, 1999 trust agreement, the ministry will:" and it lists out a number of things that they're going to do. So that leads me to believe that there is some kind of accountability framework in the document, which I haven't seen.

Mr McCallum: The mechanism that's being referred to I believe would be the objects of the trust, the eligible costs that are capable of being funded, eligible recipients and so on, and the responsibility of the trustee to disburse on the recommendation of the board, which has the fiduciary responsibility to do the analysis and choose the projects.

Ms Broten: OK. That being said, I guess my question is still the same question. Clearly we're all in agreement that we have a trust agreement that is extremely lacking in accountability mechanisms.

Mr McCallum: The accountability to the sponsor in my view is not there. That is, the trust, the trustee and the board of the trust do not have an obligation to report to the sponsor of the trust. That's my reading of the trust document. I think that's yours as well.

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Ms Broten: OK. The process for all of us is a little bit frustrating because it is not news to anybody that there are problems with the structure that was initially chosen in terms of accountability mechanism. There was a committee of our colleagues that would have sat around asking many of these same questions in 2001. It's been repeatedly examined by the auditor, and here we are in 2004 asking the very same questions about the settlement of this trust in 1999. I appreciated your comments that you're going to move forward and put in many of these mechanisms. My questions are, when did this start in terms of putting in the mechanisms, because even the most recent auditor's report says, "The ministry will," and it was in the future -- clearly, it had not started yet at that time -- and how are we going to ensure that we're not all going to be sitting around here again in three or four years from now, talking about these same concerns? Is this a salvageable structure? Can we put sufficient mechanisms in place under the structure that's been established?

Mr Black: I'll try to answer those questions. I think the ministry was working on some of the accountability mechanisms back in the fall. So within the last two or three months we started to essentially put in place a process that starts to get at a bit of what you're talking about.

It's also clear that the trust has agreed to act in a different way, delivering much more transparent and accountable kind of information, throwing itself open to discussions at committee, tabling reports in the House and the like. So I think it's a good start.

To answer your question as to three or four years from now, I would hope that with the kind of relationship we're building with the trust, we wouldn't have to talk about this in three or four years. I can't guarantee that, but part of my job is to make sure that we don't have to come back here and answer that same question.

Ms Broten: OK.

Mr Bill Mauro (Thunder Bay-Atikokan): On the bottom of page 185 there's a comment under "ministry response" that says, "The ministry agrees that there should be openness, fairness, and transparency in the conduct of the science and technology programs." It says that "there should be." S can I assume from that comment from the ministry that in the past there has not been openness, fairness and transparency in the conduct of these programs?

Dr McTiernan: Speaking from the divisional perspective, as we were drafting that, the better grammar might have been "there will be," speaking to a general intent on behalf of the ministry staff to work toward --

Mr Mauro: "There will be" because there hasn't been?

Dr McTiernan: No, I think that's a broader interpretation than we might have put on it. We were responding to the recommendation. We certainly understand the need to improve administrative procedures around transparency and accountability.

Mr Mauro: I think the question was asked earlier, to put a bit of a finer point on it, if you were to re-establish the program today, you would do some things differently around accountability, performance measurement, reporting procedures, that all of those things would be changed or addressed?

Mr Black: Yes.

Mr Mauro: There seems to have been during the course of the day a consistent justification for the set-up of the program and the manner in which it was, which we all seemed to agree had lots of flaws in it from a business management perspective, that it was necessary to do it that way because of the CFI funding that was coming federally and that we were in this rush. But clearly we would have been able, I would assume -- and I'm asking you -- to tap into that federal funding through some other mechanism, that we didn't need to rush this trust agreement into place to make sure we were able to tap into those funds? Was there another way we could have done it until we had this right and proper? I just have a bit of a problem with this consistent justification of the flaws in the fund, that we had to do it this way so that we could tap into this federal funding.

Dr McTiernan: There would have been, I assume, a number of options, as we have in the establishment of any program, to start up a new initiative and to manage it in a variety of different ways.

Mr Mauro: Was your program oversubscribed? I mean, if you had $750 million allotted, did you receive program submissions for more than that dollar value?

Dr McTiernan: Excuse me. I'll need to check on that one.

Mr Mauro: It's not important. If you don't have it, it's not important.

Dr McTiernan: There is a possibility that the Innovation Trust could be oversubscribed by next April, in terms of applications relative to cash available.

Mr Mauro: OK. When you receive the applications to the program, is there any allowance made for geographic distribution of the funds? Did the trust have a mandate to try and disperse the funds across the breadth of the province, or was there any consideration given to anything like that?

Dr McTiernan: The principle criterion for funding on a science basis is the excellence of the science. In practice, expertise in institutions across the province has been able to tap in based on the quality of the expertise. So northern universities, as an example, have been able to build on their reputations for forestry research and for mining and technology research to access the funds.

Mr Mauro: You know where I'm going with that a little bit. I understand your response, but at the same time -- and I'm sure Mr Bisson probably might share my concern on this -- I do have a concern with a pot of money this substantial in size not being available to be spread across the province, even though I'm certainly not asking you to give out money to programs that don't have the expertise or aren't going to be able to spend it wisely.

I would like to follow up a little bit on the sole sourcing that occurred here. There seems to be a bit of a consistent theme. A week or so ago Monday when we were dealing with court services, we discussed a case where a courthouse renovation morphed from about a $100,000 sole-source contract into a $30-million or $40-million job to the same contractor. I see now again something similar here; I'm not saying those are the same dollar values. But I would like to ask you a little bit more about the Innovation Institute of Ontario. I think it's fair to say it's a subsidiary of the Ontario Institute of Technology -- created by who, the ministry or by the trust itself?

Dr McTiernan: My understanding of the origins of the Innovation Institute of Ontario is that it was a not-for-profit corporation set up to provide administrative support for the Ontario Innovation Trust. It then assumed responsibility for the research and development challenge fund through our contractual arrangement and provides a range of support services to --

Mr Mauro: Who set it up, though? Was the contractual arrangement between the Innovation Institute and the trust or the Innovation Institute and the government?

Dr McTiernan: For the administration of the research and development challenge fund, the contractual arrangement was between the Innovation Institute and the government. For services to the Innovation Trust, and the initial purpose for which the Innovation Institute was set up, it was between the Innovation Institute and the trust.

Mr Mauro: So there are two contracts, then?

Dr McTiernan: Yes, there are separate service arrangements.

Mr Mauro: And do we know the value of those contracts?

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Dr McTiernan: We know the value of the one we have.

Mr Mauro: Can you tell me what that is?

Dr McTiernan: Currently, it's $1.35 million.

Mr Mauro: OK. I think this question was asked earlier: There was no RFP or public tender process to try and find somebody to do that work?

Dr McTiernan: For the initial contract, no. There are annual --

Mr Mauro: This is $1.35 million annually?

Dr McTiernan: The annual allotment has varied, depending upon the negotiated arrangements for services.

Mr Mauro: And that $1.35 million is between the Innovation Institute and the government.

Dr McTiernan: Yes.

Mr Mauro: So do we know the value of the contract between the Innovation Institute and the trust?

Dr McTiernan: No, not offhand, but that is information that, in our disclosure arrangements --

Mr Mauro: So if it was of a similar value, then we could estimate maybe another $1 million or so, so maybe $2-plus million annually since 1998 or 1999. When was the Innovation Institute created? I'm not sure. It's more recent than the trust.

Dr McTiernan: Let me check. It's 2000 --

Mr Mauro: So we're going on to a fourth year at maybe $2 million a year. Is this something that we plan on addressing as we move forward, in terms of who gets to do this work? Will this possibly change, Mr Black?

Mr Black: I think it's something that we'll look at, yes. That's fair to say.

Mr Mauro: I'd like to ask you a little bit about the intellectual property rights as well, if you could expand on that for me a little bit. The whole point of the program is, as I understand it, to create an economy in the province of Ontario. If we don't have control of that intellectual property, clearly the whole focus and point of the program -- while it will gain some benefit to the economy, the longer-ranging implications and hoped-for results quite possibly could be lost. Can you once again please give me an explanation of how things stand right now in that regard?

Dr McTiernan: Yes. The four research contracts -- the intellectual property is vested, dependent upon the intellectually property policy and guidelines of the institution it questions. So the University of Toronto rules would apply for a University of Toronto principle investigator; the Waterloo rules would apply for the University of Waterloo; the McMaster rules would apply for McMaster.

Mr Mauro: So their rules would give them some ownership of the intellectual property.

Dr McTiernan: Yes.

Mr Mauro: What happens at that point? If they own them, then they can sell them? They could export it?

Dr McTiernan: Basically, most universities now have business development arms, either as divisions within the university or as incorporated units affiliated with the university. They're basically in the business of looking for investors in the intellectual property and bringing products to market. There are some very successful models out there. In answer to your question --

Mr Mauro: I guess my concern -- I'm sorry?

Dr McTiernan: Sorry, your question was about whether it stays in Ontario.

Mr Mauro: Yes, I think that's what we want to happen. It looks like this potentially, even if they're business partners, could be out of country. The work, the R&D, the commercialization could all be exported and not occur in the province.

Dr McTiernan: The intent is to keep it in the province.

Mr Mauro: I understand the intent; I'm asking if our framework of accountability right now would guarantee that that would happen.

Dr McTiernan: No. To be honest, it doesn't, because a lot of the capital needed to invest in the front-end commercialization is not necessarily Ontario capital.

Mr Mauro: So is it something we want to chase?

Dr McTiernan: I think in a number of different ways, as we look at commercialization initiatives and at cluster building as we go down the road, we need to look at ways programmatically and from a policy perspective of anchoring intellectual property here, because the objective, as you say, sir, is to ensure that Ontario benefits, Ontario grows jobs and Ontario grows value.

One of the initiatives that hopefully will be helpful in anchoring intellectual property into Ontario is to look at commercialization in the context of cluster development. Regional clusters and economic clusters tend to build local networks, local relationships and attract the type of management expertise, the type of capital and the type of support that will allow local initiatives to stay regional.

Mr Mauro: We've talked a lot today about the peer review that goes on before an application is approved, and part of an approved application, I think, is supposed to be that there is a guarantee for industry support, a private sector funding component to an approved application. Is that correct?

Dr McTiernan: Yes.

Mr Mauro: All right. And I believe the auditor's report points out that the existing framework does not allow anybody in the government to know whether or not those private sector components are in fact in place. Is that an accurate statement?

Dr McTiernan: I think what the Provincial Auditor is suggesting is that we haven't had a formal record-keeping system to confirm that the private sector arrangements are in place.

Mr Mauro: Do we know of any examples where the private sector component has not been there on projects that have been approved?

Dr McTiernan: We know of examples where approved projects have fallen apart because of misunderstandings about the availability of private sector funds or the nature of the private sector partnership. Where that has happened, we've taken remedial action, either to ensure that alternative private sector arrangements are in place or the project is terminated.

Mr Mauro: I guess as we're going forward here, as my last question, there is, I believe, another $300 million or so that is supposed to flow to this fund. Is that correct?

Dr McTiernan: There was $300 million identified for the Ontario Innovation Trust in the previous budget. It would need to be reconfirmed.

Mr Mauro: All right. What's the status of the trust right now? Given the damning report that we received from the auditor on the bad money management and business management that has gone on with this trust, is it still business as usual today? Are they out there operating and approving program applications today as we speak?

Dr McTiernan: The trust is continuing to respond to the activities, such as federal initiatives for calls for proposals. It is also working with us actively to address some of the accountability and transparency measures.

Mr Mauro: Is it approving programs as we speak?

Dr McTiernan: Yes.

Mr Mauro: All right. Do we think that's a good idea? I'm curious. Has there been any discussion about whether or not the rest of the money will flow until we have a different framework in place that everybody is more comfortable with? Or will the money continue to flow, and then we're all going to hope that the framework gets put in place?

Dr McTiernan: I think our attention at the moment is to the framework.

Mr Mauro: But programs are still being approved?

Dr McTiernan: Yes, for research runs that are already underway.

Mr Mauro: Thank you, Mr Chair.

The Chair: With the committee's indulgence, could I just ask a couple of questions?

Ms Broten: Do you want me to take the chair for you?

The Chair: Sure.

Mr Norman W. Sterling (Lanark-Carleton): Can I ask you a question in terms of the outcomes? I view this in a very, very different light. I think this is one of the most successful programs a government that I have ever been involved with in my 26 years as a member of the Legislature has ever brought forward. I agree that there are accounting, recording-keeping problems with the way things have evolved over the last little while.

Notwithstanding that, I want to ask you a question: Do you believe that the outcomes we have now achieved through these programs would be very much different if in fact we had been doing everything that the auditor had asked and recommended in his report?

Dr McTiernan: With respect to the scientific outcomes of the projects?

Mr Sterling: Yes, the benefits that we have received as a society in Ontario.

Dr McTiernan: Sir, I don't think the design of the research and the execution of the research would have changed had there been a different funding structure.

Mr Sterling: In terms of doing that, you believe very much, then, that the money that we have promised and that we have spent for research in Ontario has been spent as prudently as we possibly could, in terms of taking taxpayers' dollars and putting them toward research for the good of the province, in terms of the goals that we might have to encourage research, development and those kinds of things?

Dr McTiernan: I think it can be demonstrated that there is some world-class research happening in Ontario that has benefited from government funding.

Mr Sterling: I just want to counter perhaps what Mr Mauro just put forward, that this should be put forward on a geographic basis. I represent the west end of the city of Ottawa and Lanark county. I've also got a bit of a technical background. I studied engineering a long, long time ago. I do believe that this money and these research efforts should go to where the excellence is, regardless of whether it lands in the area I represent or it doesn't land in the area I represent. I don't think this is the kind of program you can divide on a geographic basis. It would be nice if we could have a research institute set up in Lanark village, which is crying for economic development, but I just know that the kind of project you are looking at can't be manned in that particular community. I just wanted to state that. I counter very much the notion that you can geographically set out this particular program.

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Mr Mauro: Madam Chair, just a point of clarification: There seems to be an assumption going on on the part of Mr Sterling that I was suggesting this should have some geographic distribution attached to it. I did ask where the money was going and if it was in fact part of their mandate, but I didn't suggest that it should be.

The Acting Chair (Ms Laurel C. Broten): I understand that. I don't think we want to get into a debate among those of us who are questioning the folks who are here today to answer our questions.

In terms of the next question on the speakers' list, Mr Zimmer.

Mr Zimmer: This question may have been asked while I was out for about 20 minutes this morning; if it was, don't answer it. It has to do with the Ontario research and development challenge fund. That was set up in 1997, a 10-year program to promote research and so on. Subsequent to that, a challenge fund board was created to provide independent advice and recommendations to the government on research and development proposals.

I understand that in 1999 the ministries and the board signed an MOU as to how that relationship was going to work. That MOU was to be reviewed every two years. The Provincial Auditor points out that as of March 2003 those reviews, even the first of them, had not been completed. The auditor recommended on page 171 of the report, on a priority basis, as I understand it, that the MOU be updated between the challenge fund and the ministries. My question is, just as an indication of how things that deal with these governance issues are moving along, as of today, has that MOU been updated?

Dr McTiernan: Mr Zimmer, as you will note from our response, we had committed to having that updated by December 31 of last year. We did in fact have a framework MOU completed in December. We're currently going through the legal drafting of that MOU. I believe we're on the penultimate draft or close to the penultimate draft and we will have it in place by the end of this fiscal year.

Mrs Sandals: I wonder if we could look at the issue of program monitoring of some of the funds that are mentioned by the auditor, starting at page 179, in terms of tracking the money once one has determined that a project is there and the requirements for getting information back about how the money is spent. In fact, it would appear that in a lot of cases -- I'm looking at the challenge fund right now -- it would seem that projects that are supposed to be active aren't necessarily getting money, and programs that are getting money haven't been submitting reports in a timely fashion.

I understand, coming from a university town, that trying to get university faculty members to do paperwork in a timely fashion is like herding cats, so I do have some sympathy here. Nevertheless, when you're dealing with this sort of money, there is a need to make sure that the research funds are actually being spent in the way in which they are intended, because there is also often a huge temptation to spend them in slightly different ways than they were intended.

I wonder if you could talk a little bit about what your ministry is planning to do in terms of cleaning this up, in particular because I take it, in the case of the challenge fund, that the challenge fund has contracted this out to the IIO. So you've now got your oversight function sort of once removed. If you could give us some idea on what is clearly a problem and how you're going to work through that problem.

Dr McTiernan: If I could do it in two steps, please. I appreciate your comments about some of the issues involved in the administrative details of the program.

Mrs Sandals: I used to do administrative programming at a university and I know administering these things is a nightmare, so I do have some sympathy.

The Chair: I think she said "herding cats."

Mrs Sandals: Herding cats.

Dr McTiernan: I used to run a college, and even in that context it was -- the first thing we've tackled, and we're doing it with the Innovation Institute of Ontario, using their record-keeping process, is to actually do a project detail report for every single project that captures the title, a description of the project, some tombstone data about what it's about and whom it involves, and then there is a list of variables from project budget to project flow and reporting procedures and whether we have the reports in a timely manner. That's being kept and updated and it's kicking out information about projects that need to be tracked and monitored. We've received the first comprehensive project detail report that will be used for monitoring purposes. That's work that we'll refine. Administrative processes and procedures will be more tightly defined at the front end of projects to reflect our accountability mechanisms needed here.

The second issue, and I can comfortably talk about this, because it has nothing to do with the Provincial Auditor's report but it has everything to do with the change in fiscal management structure in government, is that accrual accounting will place a different obligation on us as program managers to deal with project principles and the management of the financial flow for projects. We essentially have been managing the research and development challenge fund on a call-for-funds basis. As the work gets completed, the invoices are sent in and we've been paying upon proof of work.

Mrs Sandals: So you're essentially reimbursing for money spent.

Dr McTiernan: We're reimbursing for work done. We do flow money at the beginning of projects in many cases. We've been managing the expenditure of funds on a cash basis over fiscal years, and timing hasn't been an issue, but it's been a manageable issue in that context. With accrual accounting, we're going to have to pay for work done in-year and any sort of delay in payment accrues back to the time in which the work was done. So as we structure our contractual arrangements as we move forward, we're going to have to pay much more attention to timing and deliverables so that we manage project budgets within a much more contained time frame. We'll need to look at a variance recording procedure in a very formal sense around that. I don't understand the mechanics of how we'll do that yet, and I'll need to rely very heavily on my colleague for advice on that. That conversion in our accounting process as government drives a different set of requirements around money management, which in turn will feed back into the accountability arrangements.

Mrs Sandals: In terms of the beginning of the accountability process, because you can't know whether you're paying for the correct things if you don't know what you're supposed to be paying for, when you set up the initial contract with a successful project applicant, do you in fact lay out quite a detailed budget that lays out exactly what it is that the government will be funding, or how is that --

Dr McTiernan: Yes, it is.

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Mrs Sandals: It's one thing to get invoices, but then how do you recognize whether you should be paying for them?

Dr McTiernan: Yes, we do set out a detailed budget in milestones. It's not like a block transfer, "Here is $2 million; go and work actively and assiduously."

Mrs Sandals: OK. The Ontario centres of excellence: It sounds as though they've got their act pretty much in gear.

Dr McTiernan: Yes.

Mrs Sandals: And then we move on to the research excellence awards, where we get similar sorts of comments to the challenge fund, and that's being administered directly by you, I take it?

Dr McTiernan: That's us, the ministry, yes.

Mrs Sandals: So the comments you just made would apply there.

Dr McTiernan: I feel quite comfortable that we've addressed the issues in the auditor's report head-on with the board, and our administrative processes are in hand to approve record retention.

Mrs Sandals: I wish you luck in chasing down the details.

Dr McTiernan: The reports, that is a challenge, but we now are tracking the receipt of reports. Sorry, I was paying attention to the front end, but you're quite correct, Mrs Sandals. It's the back end with the reports that will be an ongoing work in progress, but we are more activist now.

Mrs Sandals: In terms of getting an update, not just on the money part but also what has been achieved in terms of the research and the outcomes there?

Dr McTiernan: Yes.

Mrs Sandals: What I don't see in the monitoring section is any reference to monitoring the program trust in the sense -- it talks about the challenge fund and it talks about the centres of excellence and it talks about the Premier's awards. I assume that's because the ministry has a more direct relationship with those things.

Dr McTiernan: Yes.

Mrs Sandals: When it comes to doing a similar monitoring for the innovation trust, what mechanisms are in place? The auditor seems to be silent on that, or maybe I'm just missing something here.

Dr McTiernan: No. Because of the different relationship with the trust, I think it has been treated differently in the auditor's report. But the trust has volunteered and we will be working with them to provide and file annual financial statements, an annual report --

Mrs Sandals: Excuse me, if I can interrupt. When that says an "annual financial statement," is that an annual financial statement for the trust or is that an annual financial statement for each of the projects being funded by the trust?

Dr McTiernan: I would suspect, as we work through this with them, they're referring here to the trust. In their annual reports we will be working with them on projects. Our interest will be in getting sufficient material in detail on projects that we're comfortable with.

Mrs Sandals: But the status to date has been, on these things that you have more control over, that while they've been quite truant in getting the information to you, the information may eventually show up. On the innovation trust side, because of the structure, the information simply wasn't coming at all. It wasn't a question of it being truant; it was just not structurally there at all.

Dr McTiernan: I think it may be fair to say that the relationship of the researchers or the project recipients was to the trust. What we need to do and what the trust has committed to working with us on is to ensure that there is a flow-through of that information.

Mrs Sandals: But once again we have this situation where the original legal structure in fact didn't provide any accountability reports back to the government, unlike the things that are more directly administered by the government.

Dr McTiernan: Correct.

Mrs Sandals: Thank you.

The Chair: Monsieur Bisson.

Mr Bisson: Merci, monsieur Sterling. Comment ça va ?

Before I get to the question, just a couple of comments. In something that was raised I think by Mr Mauro, or was it something you had commented on -- there has certainly been some progress when it comes to looking at ways to increase our R&D in Ontario. But we have to admit we are lagging far behind most other nations when it comes to both the activities in the value-added industries and R&D overall. There's still more that needs to be done, I think you would agree, for the record.

Mr Black: Right.

Mr Bisson: The other thing is the comment around investing the money from these trusts in geographic areas. For the record -- and I'm sure that's not what Mr Sterling was saying. I understood that Mr Sterling was saying that we need to make sure the money goes where the best scientific minds are to do the type of research we need, but we also have to take a look strategically at how we invest those dollars and in what sectors -- and I think that's the point Peter tried to make -- so that different regions of the province get the attention they need, when it comes to R&D, to establish and build their industries or help grow their industries; for example, forestry and mining in my part of the world, agriculture in other parts of the province, and pharmaceuticals, I would argue, probably in a place like Toronto. Just for the record, I'm a proponent of the fact that you have to have an overall global strategy, as a government, as to where you're going to do this investment, so that there is not necessarily an equal amount of money being invested in the different regions, but sectorally it makes some sense to support all regions of the province so that their sectors are able to do well.

Just on the last comment by my friend Mr Sterling, who is the dean of the Legislature: The argument Mr Sterling made is that even if all of the issues that were addressed by the auditor in his report had not been issues and had been addressed at the very beginning, does it change anything as far as the overall outcome in programs? I want to remind people of an old saying that the results never justify the means. At the end of the day we need to make sure there is proper accounting for any dollar.

My question is to the auditor. I'm not sure you can even answer this, but we have all kinds of agencies that we fund as a government through various ministries. I understand most of them are audited internally. If you transfer money to a children's aid, the children's aid society won't get audited by --

Mr McCarter: They have a financial statement from an outside auditor; that's correct.

Mr Bisson: Exactly; they have outside auditors. This situation we had with the ministry, where we had trust funds in which we didn't have a clue as taxpayers what was going on, has that happened in other ministries, potentially?

Mr McCarter: I'd have to say this particular trust fund was somewhat unusual in the way it was set up. We had expressed some concerns back as far as 1999 with respect to it. Also, it gets into some of the accounting issues with respect to it. I gather from what the ministry is saying, they're going to be giving us access. They're going to be providing information. They're going to be doing basic --

Mr Bisson: That's fair, but my question is, could this situation exist in funding from other ministries and other agencies that are not necessarily audited as stringently as we think they should be? Your powers as an auditor go only so far.

Mr McCarter: That's right. We don't have access to the OIT. Theoretically, could it happen? Yes, it could. If there were significant dollars involved, I think we would have picked it up on our radar screen.

Mr Bisson: I'm just trying to get a sense of it, because my sense is that there are probably other areas in government where a similar situation could be happening. I guess it builds the argument as to why the auditor should have the right to audit any dollars that are disbursed from the provincial government. I think most of us, as members, would agree with that. I know the previous government didn't agree, but I think -- you were going to say something?

Mr McCarter: I forget the bill number, but the current government has actually tabled a new act which would certainly extend our powers into following the dollars out in the broader public sector.

Mr Bisson: That's why I'm just speaking in support of that. I'm just saying I'm hoping -- it wouldn't be fair to say what the Chair was indicating, but I would hope all members would support that, because I think this is a good example of where the auditor can do work that's for the public good. Again, I want to put on the record, I don't think you guys went out and tried to do anything wrong; I think you were put in a situation -- quite frankly, the government should never have put you in that position. The advice given should have been taken by the government. I don't believe that you didn't give the government advice on how to properly account for that, because I know you're professional in what you do.

One of the ways we can safeguard so this doesn't happen again is to make sure that our auditor has the right to audit those things in a much better way so that if these kinds of things happen, there is at least an oversight to the decisions at the end and we don't find ourselves in that --

The Chair: Just a point, Mr Bisson: I don't think you should come to a conclusion for the committee in terms of where everybody sits on it.

Mr Bisson: I stand corrected.

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The Chair: It would depend on the quantum of the transfer as to whether or not various members of the committee might feel differently if the government was giving a transfer of 5% of the total of a trust. They might say, "We don't think the Provincial Auditor should be there," or whatever. There are a lot of variables in it.

That's why I was shaking my head in the negative when you said that if there are any government dollars going in, then the Provincial Auditor should have as much access as he should when there's 100% dollars. I think there might be a debate on that in this committee. I think we heard that on days when you were not here, when we were discussing other business.

Mr Bisson: I hear you and that's fair, but all I can tell you, in my four terms that I've been here I've become more and more convinced -- I remember this argument when I first sat on public accounts as a new member in 1990. I remember this argument being raised by the predecessor to Mr Peters -- I forget the previous auditor's name.

Mr McCarter: Doug Archer.

Mr Bisson: That's right. Doug Archer was raising the whole issue of wanting to extend his rights as an auditor. I remember the natural knee-jerk reaction of myself as a new member was that I wasn't too sure that it needed to be done. I can tell you, after 14 years in this place, I've become convinced that the auditor's office is one of the most important offices we have for making sure that the decisions we make as politicians and carried out by our ministry staff -- I don't call you "bureaucrats" because I think that's a bit demeaning -- needs a great amount of oversight because it may be that government, in its zeal, in order to advance a particular policy issue, will be a little bit too zealous in trying to enact something and may get tripped up and may set themselves up and may set up the taxpayer for something that, quite frankly, they shouldn't be set up for. Anyway, I look forward to the debate on that new bill because I think that's something that, over the years, I've very much changed my mind about.

I just have to ask you this one question. I don't want to be combative. I don't want you guys thinking I don't like you, because I think you do a good job. To the deputy: I find you have a good sense of humour, so that helps. In one of the things the auditor says that the auditor's staff did not receive "adequate access to all the information" they requested from the ministry. It goes on to say that the auditor asked for information; you guys didn't provide it all. It was your opinion that the auditor didn't need it. What in heck was that all about?

Mr Black: I'll take that one. I don't know if you were in the room when I started off this morning, but I phoned Mr McCarter on Friday and said, "Let's clear the air on this one." I think there were some mistakes made at our end. We followed protocols that probably slowed us down. We've changed those protocols. We've streamlined our processes. My commitment to the auditor is to essentially do better the next time a request like the one that he put through last fall comes.

Mr Bisson: I believe your honesty and integrity on that. I've talked to the staff of the auditor on this and they seem to be satisfied that you're going in that direction, but what were people thinking of? What was in people's minds not to give the information to the auditor? Was it because you were caught up in a certain way of doing things?

Mr Black: I think it's partly that. I think it was the breadth of the request; busy people, busy time, lots on the go; one of those things that just --

Mr Bisson: But you guys had been audited before, as a ministry?

Mr Black: Have we?

Mr Bisson: I would think it wasn't the first time.

Mr McCarter: We'll fix that.

Mr Bisson: For the record, the auditor says, "We'll fix that."

Mr McCarter: Just kidding.

Mr Black: I guess I asked for that one, didn't I?

Dr McTiernan: I believe it was the first science and technology audit. We were slow on things, particularly because we were dealing with records across two ministries. We'd just moved from energy, science and technology into the old ministry of enterprise, opportunity and innovation. We also were working, we thought, appropriately within protocols that had been set out for processing and forwarding information. It was slower than anybody would have liked.

Mr Bisson: But you do understand the repercussions of something like this. God forbid there was any money that was spent that wasn't supposed to be spent, or was spent inappropriately. That is a pretty damning indictment. It would lead somebody to believe, if something as big a fiasco as what we are seeing federally with -- what do you call that fund, again?

Mr Black: The sponsorship fund.

Mr Bisson: The sponsorship fund. Imagine being in a situation with something of that magnitude happening within one of these programs and you see something like this. Somebody could make the argument that the bureaucracy was trying to protect the government. That's why I kept on coming back to it. I'm not saying that happened, but that's how somebody could construe this. It seems to me that, hopefully, you've learnt a lesson out of this thing. When the auditor's office calls, you've got to be pretty darn co-operative or else you're going to get nasty people like me on committee and, God forbid, the public pretty mad. I fail to understand how a ministry as professional as yours -- because I've dealt with you guys for years, and I say that in all honesty -- would take that position. I'm just wondering, given your answer -- I don't know if you want to expand on it -- how you can ever put yourself in that position.

Mr Black: That's a fair comment, Mr Bisson, and I appreciate your quite kind remarks about the bureaucracy. As the rookie in the ministry, I've come to appreciate exactly what you're saying about the professionalism.

I will also say that day five on the job was when I picked up the phone and talked to Mr McCarter, precisely for those reasons. I wanted to clear the air to make sure it was absolutely clear that this wasn't intended and it won't happen again, for the very reason that you point out: that the optics of it are probably worse than what's really happening.

Mr Bisson: That's the problem. The optics of this report are pretty damning. I just have to hope that nothing ever comes out of this, in the sense of expenses or how money was used. If it ever comes out that there was a problem, I think your ministry and your political masters -- they're no longer there, but there would be some questions that need answering.

Just to your document that you provided to the auditor, and through him to us, you've got "Status of Ministry Actions." In a whole bunch of places -- I could take the time and get cute and ask you a single question on every one of them. On most of them you're saying that by March 2004, you're going to have most of this stuff. Can I expect by March 2004 that you've actually done what you said what you were going to do in your document given to us, dated February 13, 2004?

Mr Black: Yes.

Mr Bisson: So I'm not going to see you before the auditor or this committee again with the same kind of situation?

Mr Black: I didn't know I had a choice. That's our intention, to actually beat those timelines as much as we can.

Mr Bisson: Are there any of these timelines in any of these programs -- again, I don't want to go through every one of them, because we could be here a whole day doing that -- that you're concerned that you may have to take a little bit more time with?

The Chair: We asked this morning that he would refine those times and give them to us.

Mr Black: In fact, in many cases beating the timeline that we've put here, because there was one that talked about the strategic overview for science and technology that was a year from now, which is far too long. We're bringing that forward.

Mr Bisson: For those that may be longer than March 2004, what's the longest we can expect? Just so I understand what you said, we're going to get an update on each of these things of where they are time-wise?

The Chair: No. The deputy said that he was going to do better than these in his original statement, so I asked him to provide us -- go back on reflection and say, "When can you deliver?" He's going to provide that to the committee.

Mr Black: Right.

Mr Bisson: So you're fairly confident that most of these timelines can be met, but won't be next year or anything like that?

Mr Black: Right. We're moving those ones forward, where it is indicated too far off in the future.

Mr Bisson: I guess that's it for me.

Ms Broten: I have a couple of questions about the IP ownership. You indicated earlier that that was governed, in many respects, by the post-secondary institution policy. Would there ever be circumstances where the applicant or the recipient of the funds would not be governed by a post-secondary institution policy?

Dr McTiernan: With the way in which our current programs are structured, the money flows through a recognized institution. To try and grapple with your question, one area we are going to continue to have to look at how IP is managed is where we get more and more institutions involved in multi-institutional research projects. That's beginning to happen quite a lot now in the biomedical area, in particular, but in other areas as well. So there'll always be a need to address the application of the policy and to update to best practices as new relationships and new research networks are built.

Ms Broten: Do we take the step of confirming that the post-secondary institution has a policy with respect to IP ownership that will govern the process? Is that something that we undertake to confirm?

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Dr McTiernan: The reason I hesitate on that is I'm assuming we do, because most of them are so sort of out there with their IP policies. Let me just check on some of the institutions that receive funds but not on a regular basis.

Yes, we do.

Ms Broten: In response to an earlier question, you said that the design of the research would not have been different, and research benefited from the funding.

Dr McTiernan: Yes, in terms of the scientists' construction of their proposals and what it is they would look at.

Ms Broten: Certainly none of us around the table would suggest that's not a good outcome. It is certainly a good outcome, but as someone who is looking after the interests of the greater public, one of the outcomes that we need to do a better job measuring is what the outcomes are for the benefit of the province. Are we getting those jobs? Do we see cluster development? Are we seeing economic development? That remains an area of concern in terms of, "We can't currently measure that now, because we have not collected that type of information." Correct?

Dr McTiernan: It's a concern, if I could offer a comment, in two ways. The measurement of the impact is something that we need to continue to work on. The other area is that as we begin to see researchers and networks of researchers developing, with the private sector, we're beginning to uncover and understand better some of the factors other than the research outcomes that are affecting commercialization and contribution to jobs and to cluster development, access to capital, having research supported not just to the finding stage but to the proof-of stage, so that you take the findings and you develop a proof of concept to a point where it might be much more attractive for an investor or for an industry looking at commercial application.

So there are a number of issues related to the research endeavour but not specific to it that we need to address both from a measurement and from a support point of view.

Ms Broten: Up to this point, that's been something that we haven't really focused on, is my understanding.

Dr McTiernan: The initial thrust in research across Canada, actually, in the late 1990s and early parts of this decade was to build research capacity and to step up to a level of activity that was commensurate with activity that was taking place elsewhere across the world: in Europe, in the United Kingdom in particular, and in the United States.

With a lot of work now resourced and under way, the questions naturally arise as projects reach their maturity: What are the benefits? What are the applications? What are the next steps? I think we're well positioned in Ontario to look at commercialization in a number of areas because of the research strengths in Ontario that have come out of the history of our institutions.

Ms Broten: Sure. I notice on your chart that one of the things under section 6.2, which is relating to this effectiveness reporting, is that the ministry is undertaking the interjurisdictional review and looking for best-practice approaches. I would assume that this is an issue that we're not the only jurisdiction grappling with, and I was wondering whether or not you could share with us what jurisdictions would receive this best-in-class award that we might want to look at and recognize the measurement criteria that they've put in place.

Dr McTiernan: There are two examples that I'll use. I know a little bit more about one -- but I'm not an expert on it -- than I do on the other.

Massachusetts is an example of a jurisdiction that, through government and through some of its associations, has paid attention to measurement and outcomes in research and has done a lot in the biotech, biomedical area in that regard. We have been looking to what's happening within institutions, what's happening in the state and what's happening with the state government on measurement, on indices of performance, but also on how they support the research endeavour.

We're also beginning to pay more attention to the United Kingdom, which has a strong focus on performance measurement and results reflected in its research funding programs, but also in a lot of other activities that are undertaken by the UK government. They have had a number of years of experience now. In the research area they seem to have shaped both the focus and the quality of research in a number of institutions by taking a results-based approach to the administration and management of their programs.

Ms Broten: One last question: Are there other jurisdictions we can look to with respect to what is now our understanding that research is great, but now we need to bring that research to the market and capitalize on that for our provincial investment? I'm sure other jurisdictions are battling with that same challenge. Are there vehicles or mechanisms out there that other jurisdictions have put in place to make sure they support the bringing of the research to the marketplace?

Dr McTiernan: We are in discussions with Pennsylvania and North Carolina, and we have contact in the ministry with Georgia and a number of US jurisdictions that have paid attention. We are beginning to look at some of the state programs and initiatives that may not be well-advertised but that are focused for a specific period of time on a specific question around the commercialization and growth agenda, and looking at how they can inform options for us as we move forward.

Ms Broten: Thank you.

The Chair: Do we have any other questions at all?

I'd like to thank you for coming today and invite you to write to the committee for any clarifications you might think of after the committee meets. The researcher will be doing some work before March 22.

Mr Bisson: Chair, I have a quick question after you're done.

The Chair: OK, sure.

We won't really be deliberating on the report until the House resumes on March 22, so you do have some time to respond; during that period between now and March 22 would be our preference.

Yes, Mr Bisson?

Mr Bisson: Just a quick question. It comes back to what I asked earlier this morning --

Interjection.

Mr Bisson: No, it's OK; it's nothing bad. It's always the last question you worry about, right? I just thought I should let you let your guard down. Now I'll go after you. No.

In regard to staffing, one of my concerns is that your ministry, like MNR and a few others, undertook a pretty big hit in reductions of staff. In your division you're at about 50 people. In your view, is that adequate to really monitor and do what has to be done when it comes to administering all these various trusts? Are you guys finding it a bit of a challenge because of staffing levels?

Dr McTiernan: I think one of the things we've looked at as we've been responding to the Provincial Auditor's report is how we can better deploy the folks we have working with us on some of the priority areas. Alignment with program management and administration issues is something we are actively looking at.

Mr Bisson: That then reflects back to you.

Dr McTiernan: Yes.

Mr Bisson: OK. Thank you.

The Chair: We're adjourned. Thank you very much.

The committee continued in closed session at 1448.

CONTENTS

Tuesday 17 February 2004

2003 Annual Report, Provincial Auditor: Section 3.07, science and technology P-141

Ministry of Economic Development and Trade P-141
Mr Don Black, deputy minister
Dr Tim McTiernan, assistant deputy minister, science and technology division
Ms Diane Frith, acting assistant deputy minister, corporate services and field division
Mr Neil McCallum, legal director

STANDING COMMITTEE ON PUBLIC ACCOUNTS

Chair / Président

Mr Norman W. Sterling (Lanark-Carleton PC)

Vice-Chair / Vice-Présidente

Mrs Julia Munro (York North / -Nord PC)

Ms Laurel C. Broten (Etobicoke-Lakeshore L)
Mr Jim Flaherty (Whitby-Ajax PC)
Mr Peter Fonseca (Mississauga East / -Est L)
Ms Shelley Martel (Nickel Belt ND)
Mr Bill Mauro (Thunder Bay-Atikokan L)
Mrs Liz Sandals (Guelph-Wellington L)

Ms Monique Smith (Nipissing L)

Mrs Julia Munro (York North / -Nord PC)
Mr Norman W. Sterling (Lanark-Carleton PC)
Mr David Zimmer (Willowdale L)

Substitutions / Membres remplaçants

Mr Toby Barrett (Haldimand-Norfolk-Brant PC)
Mr Gilles Bisson (Timmins-James Bay / Timmins-Baie James ND)
Mr Garfield Dunlop (Simcoe North / -Nord PC)
Mr Tony Wong (Markham L)

Also taking part / Autres participants et participantes

Mr Peter Kormos (Niagara Centre / -Centre ND)
Mr Jim McCarter, assistant Provincial Auditor
Mr Gerard Fitzmaurice, director,
economic development portfolio, Office of the Provincial Auditor

Clerk / Greffière

Ms Anne Stokes

Staff / Personnel

Ms Elaine Campbell, research officer,
Research and Information Services

Comptes rendus
Communiquer avec un député
Participation aux comités
Regarder l'Assemblée législative à l'œuvre
Utilisation des jardins
Pétitions