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EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 17, 1995

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[English]

The Chairman: We'll call the meeting to order.

We welcome this afternoon from the Office of the Auditor General of Canada, Larry Meyers, deputy auditor general; and Hugh McRoberts, principal, audit operations branch.

We welcome you, gentlemen. I understand you have a short presentation and then we'll go to questions.

Mr. D. Larry Meyers (Deputy Auditor General of Canada): Thank you, Mr. Chairman. We are pleased to be here today to discuss with the committee our chapter on the audit of federal transportation subsidies.

I have with me Mr. Hugh McRoberts, the audit principal responsible for the chapter. Hugh has been responsible for the audit of the Department of Transport for the past eighteen months, but prior to that he was responsible for the audit of the Department of Agriculture for roughly five years. He brings a depth of knowledge of the subject over the years.

Before Hugh briefs you on the chapter, as Parliament's auditor there are a couple points I would like to raise about our discussion today. First, we cannot introduce new material. While we would be pleased to elaborate on the matters we have raised in the chapter, we cannot provide, for example, additional cases to support a point or discuss subjects that are not contained in the chapter.

Second, we focus our audits on the implementation of policies and programs. We do not express opinions on political issues associated with them. Our audits are carried out against existing policy, although from time to time reports may raise issues that affect policy and related political debate.

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In other words, we're terribly delighted to be here to explain our chapter, but to the extent that we have to go beyond our chapter you're going to find us becoming a little bit uncomfortable and reluctant in any comments we might make.

The Chairman: In other words, you don't want us to ask which way to go in the future.

Mr. Meyers: Something like that. We don't want to find ourselves between two parties in a political debate. That is what we'd like to avoid.

Before turning to Hugh to explain the findings of our audit, I would like to briefly set out our rationale for doing and reporting this audit.

The Department of Transport spends about $1.6 billion on direct subsidies to transportation. Two of the largest subsidies are the Western Grain Transportation Act payments, which amounted to $633 million in 1993-94, and the Atlantic Region Freight Assistance Act subsidies of $106 million. We last audited these programs in 1987. In 1993 the report of the National Transportation Act Review Commission was sharply critical of the transportation subsidies and called for further review of them. We felt that in the circumstances such a review was timely, so we began our audit.

On February 27 this year in the budget the government announced the termination of both programs. We decided to continue with our report notwithstanding, because we believed that in so doing we would assist Parliament in its deliberations on the termination legislation, provide information for accountability to Parliament, and draw attention to matters needing consideration during the wind-up or transition phases of these programs.

I will turn to Mr. McRoberts now, who will explain the program.

I might point out that these programs are distinct and comments we make about one do not in any way apply to the other program. Thank you, Mr. Chairman.

The Chairman: You may start, Mr. McRoberts. The subcommittee has only five members. For those who are standing, feel free to change the positions of the chairs.

Mr. Hugh McRoberts (Principal, Audit Operations, Office of the Auditor General of Canada): Thank you, Mr. Chairman.

I will turn now to the Western Grain Transportation Act. The first thing we found as a strength of the system was that the National Transportation Agency has in place appropriate controls to ensure that the payments to the railways are correct. However, the controls on system efficiency and effectiveness were less well implemented.

In the case of the Grain Transportation Agency, we found that its implementation of the performance monitoring part of its mandate was inadequate. Notwithstanding the requirements of the WGTA, the agency based its performance measurement on a single performance indicator, the number of car unloadings, which does not track the performance of each of the system participants.

The NTA is required to conduct an annual review of railway investment plans and a quadrennial costing review of the railway's grain carrying costs. As part of these reviews, they must assess the degree to which the investments and the costs contribute to a rail grain transportation system that is adequate, reliable and efficient. The NTA states that it has done this, and that it has concluded the investments and expenditures meet these goals, but it has done so on a judgmental basis rather than on an analytical basis. As a result, we cannot confirm in either instance whether its conclusions are correct.

We note that some of the problems associated with the Western Grain Transportation Act will continue to need to be addressed under the new regime. These include the continuing need to manage the hopper car fleet and to monitor its performance using, for example, car cycle times, and the need to examine the problem of demand peaking and to try to address it. Finally, it will be important to ensure that the information necessary for the wind-up study of the program in 1999 is available. We have made recommendations to deal with each of these matters.

I will turn now to the Atlantic region freight assistance program. ARFA is a program that provides a subsidy to most commodities moving by truck or rail westward out of the select territory or moving within the select territory. The select territory includes the island of Newfoundland, the maritime provinces and the south shore of Quebec east of Lévis. Trucking has become the dominant transportation mode subsidized by the program.

[Translation]

In our 1987 audit, we recommended that the program be examined. A briefing book entitled Atlantic Region Freight Assistance Program was completed and published in 1994. We examined this briefing book and can confirm that, considering the limits of this kind of report, this one is reliable.

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[English]

Our major concern relates to the control of the subsidies paid to carriers that are operating in a non-arm's length relationship with a shipper. Our information indicates that since the deregulation of trucking rates in 1988, payments for movements carried out involving non-arm's length shipper-carriers have grown to over 30% of the total program, and that the rates for some of these carriers have grown much more rapidly than trucking rates in general: 40% growth versus 8% growth. The subsidy is paid as a percentage of the rate.

The NTA has felt that it was not able to investigate the rates submitted for subsidy by these carriers because it believed it did not have the authority to challenge them. Even though the program will end on July 1, we have recommended that the agency seek a clear authority to reject claims where it is unable to satisfy itself as to the reasonableness of the freight charges submitted to it.

That provides a brief summary of the chapter. We will be happy to answer questions related to it. Thank you very much.

The Chairman: Thank you, gentlemen. I believe most members have been provided with a copy of chapter 6 as well, so we will likely be referring to that in detail.

Mr. Landry.

[Translation]

Mr. Landry (Lotbinière): I would like to ask a question concerning the southern part of Quebec, west of Lévis. Is it possible to get an explanation as to why the Maritimes provinces are included in the select territory whereas the south part of Quebec, west of Lévis, is not included for the purpose of the grain transportation subsidies?

[English]

Mr. McRoberts: Excuse me; I misspoke myself. I was referring to the south shore of Quebec east of Lévis. There's an error in the statement. Does that clarify it for you?

Mr. Landry: It's okay.

Mr. McRoberts: Thank you very much.

The Chairman: Mrs. Cowling.

Mrs. Cowling (Dauphin - Swan River): Thank you, Mr. Chairman.

Thank for your presentation. It's interesting to see it stated in the report, especially coming from a farm background, as I do, that the Senior Grain Transportation Committee preferred a much less rigorous and less specific monitoring of the railway's performance in relation to the act.

It is of concern if the railways are not meeting existing legislated standards of performance, and that leads me to a specific question with respect to what standards of performance will be accepted under a deregulated regime. That's my first question.

Mr. Chairman, I have a series of questions. What might be appropriate? Do I have ten minutes?

The Chairman: Yes.

Mrs. Cowling: I'll go on to my next question and then perhaps you can answer.

The report also indicated that target unloads are not adequate for measuring the overall operation of the system. What impact has this had on inadequacy, coupled with the fact that the railroads are not meeting standards of performance on the movement of grain? What would be more effective means of measuring the overall effectiveness of the system?

I'll raise my other questions later.

Mr. McRoberts: Perhaps just to clarify, we indicated in the report that the target unload is not a bad measure of overall system performance. Our concern was that as a measure we believed it was not responsive to the requirements of the Western Grain Transportation Act with respect to the development of a performance measurement system.

The act required that a system be developed that allowed the performance of system participants to be tracked and that the system would provide a valid basis for, initially, a system of notional rewards and sanctions, which it was anticipated might ultimately be proposed to the minister and brought to Parliament for implementation as an actual system of rewards and sanctions. In essence none of those subsequent events unfolded. So that one has a measure, target unloads do give you an overall notion of how well the system is performing overall.

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To try to respond to the rest of your questions, even under the revised regime, because we will still have substantial elements of the system as an administered system, I think the Department of Transport and its successor, should the industry-managed body proposed in the budget announcement ultimately be established, should consider developing a system of performance measurement to assist in managing the system. In particular, we direct attention to car-cycle times and the sub-components of car-cycle times. We believe, as a start towards a more detailed system of performance measurement, in looking at car cycles and the components of car cycles.

So you would look at how long a car was spotted empty at the country elevator, how long it sat loaded there and, once it was loaded, how many days elapsed until it was delivered to the port terminal elevator, how long it sat loaded at the port terminal elevator, how long the car then sat empty at the port terminal elevator, and, ultimately, how long it took to move it back to the country elevator again, completing the cycle.

This would not constitute a complete system. It would be a step forward.

There are other measures. For example, use could be made of information that is already gathered for other purposes. One of the things that is very important for country elevators, in addition to loading the car in a timely manner, is to ensure that the car is loaded with the right grain of the right grade. Significant errors in either the type of grain or the grade of grain loaded can cause very real bottlenecks at the terminal elevator.

This information is in fact gathered for other purposes and could be added as part of a system of performance measures.

Mrs. Cowling: As a grain farmer, I understand the concepts of what should go into the system and how you arrive at some of that.

Was an analysis undertaken as to whether freight rates adequately reflect the costs of moving grain? And does the rate that the farmers and the government pay actually reflect the real costs of the movement of that grain across the country? Does that reflect exactly what's happening out there?

Also, was there an analysis of cross-subsidization in the rail transportation system or subsidization of one region of the country or another?

Mr. McRoberts: Within the parameters of the requirements of the quadrennial costing review carried out by the National Transportation Agency, yes, it was. Under the act they were required every four years to pick a year for which data are available and to carry out a detailed costing review, looking at whether or not the costs involved in moving grain were actually incurred by the railways. So the railways submit the costs in accordance with an accounting procedure approved by the National Transportation Agency.

The National Transportation Agency in essence audits those costs to determine whether or not they were in fact incurred by the railways.

It is supposed to look at whether or not those costs contributed directly to an adequate, reliable, and efficient grain transportation system. It is also required to assess the degree to which those costs will continue to be required for such a system in the future.

In our audit we found that they had done the first job and had substantially documented it. We found examples where they had in fact identified and challenged costs that were not going to be recurring and had had those removed from the cost base.

Unfortunately, the working papers on the other part, the determination of the extent to which those costs were directly related to an adequate, reliable, and efficient system, were such that we were ultimately unable to make a determination on whether or not their conclusions in that area were warranted.

Mrs. Cowling: On page 6-28, the report says that the savings for abandoning a mile of track would be in excess of $10,000. What would be a more accurate figure on that?

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On cars, it's crucial that there be an adequate complement of cars to get grain and oilseeds to the export position. I think it's on page 6-23 that car allocation is inefficient and that this is a systemic problem. What is causing those inefficiencies and how can this be addressed?

Mr. McRoberts: Turning to the first point, page 6-28, paragraph 6.101, what we have noted here is that as we understand it, the intention in the act is to decrease the freight rates based on a deemed railway saving of $10,000 per mile of abandoned track. Analyses we have seen, however, have led us to believe the savings to the railways could in fact be substantially higher.

I'm sorry, I cannot give you an exact number. I will check, and if we can, perhaps I could get back to you.

Mrs. Cowling: Excellent. That would be great.

Mr. McRoberts: On the other one, there are a number of dimensions to the car problem. We have looked at two. Some of these lie outside of everybody's control, including the North American car supply, for example, which can be variable. However, one thing we believe would help the situation is to make better use of the cars we now have. That is why we are recommending closer attention to the management of car cycle times. We would note that the government has also moved to encourage the more efficient use of cars and to discourage some of the practices that have led to attenuated car cycle times through its intention in the reform to introduce the possibility of demurrage charges, which will provide a real disincentive, for example, for people to use these cars, which are a scarce resource, as a form of horizontal storage.

The other main problem we have identified, and the government has identified as well, is the demand peaking problem. Again, this puts a severe strain on the system. It is likely that were the demand to be spread out more evenly over the whole year, we could probably get by with a smaller overall car fleet.

Again, before the decision to announce the termination of the program, the Grain Transportation Agency had planned to do a study of demand peaking to see what sorts of policy responses could be made to that problem. We are recommending that its successor, the Department of Transport, should pick up that ball and the Department of Transport has indicated it will do so.

The Chairman: Could I follow up on that question? Did you find anything in that rail car situation about using the fleet to full capacity, anything about cars not being filled - in other words, coming off lighter branch lines not full to capacity and therefore travelling all the way to export position and not making best utilization of the capacity of the car in that way? It's a complaint that's been issued by some of the short lines, actually, that they're able to fill those cars up and go at a slower speed on lighter-steel tracks and hit the main line with full cars.

Mr. McRoberts: We have been informed by the Grain Transportation Agency that it was aware of instances of that happening. We did not see any statistical information on that.

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Mrs. Cowling: Can you tell us who owns the fleet of cars?

Mr. McRoberts: Yes. Referring to paragraph 6.70, we have a total of 19,000 government-owned or controlled cars. It breaks down that 13,000 are owned by the Government of Canada; the Wheat Board owns 2,000 and leases another 2,000, which are paid for by the Department of Transport; and then each of the Provinces of Alberta and Saskatchewan own 1,000 cars, which they add to the fleet. So that is the core government fleet.

Then to that is added a fleet of I think around 8,000 to 9,000 cars owned by the railways, who then supplement that fleet to bring it up to the peak demand period by going onto the North American market to lease cars.

Mr. Hoeppner (Lisgar - Marquette): I'm glad to see you here, gentlemen. I would like to start with point 6.5 on page 6-5:

Now, who do you mean by ``others''?

Mr. McRoberts: The other system participants. The requirement in the act is that the railways and the others -

Mr. Hoeppner: The grain companies, the Wheat Board?

Mr. McRoberts: The grain companies, the Wheat Board, the pools, the terminal producers, terminal elevator operators, and also the private grain companies.

Mr. Hoeppner: Why haven't they cooperated? What is the reason that they haven't fulfilled their mandate?

Mr. McRoberts: Their explanation is that they took the requirements of the act to the Senior Grain Transportation Committee and sought its advice. That committee established a subcommittee - this goes back to 1984 - which studied the problem. They recommended a single central measure, target unloads, and a number of subsidiary measures. The agency implemented the target unloads and did not implement the remainder, they explained.

Could I direct your attention to a somewhat lengthy explanation on page 6-21, the material in italics following paragraph 6.69. That is the agency's explanation for its actions. Those are their words, and I would be loathe to summarize them for them.

Mr. Hoeppner: I was wondering, the big thing we were addressing last year as a subcommittee on car allocation was the backtrack. You know what the feeling was of this subcommittee on backtracking - they said it's illegal and should be stopped. It has never been stopped. I put this question to the briefing under the estimates committee.

Can you in any way tell us what kind of costs were involved with that backtracking? Are you capable of getting that information, because I am determined to find that out. I've done an investigation on my own. The cost of the subsidies is not the big thing, but the disruption in our grain movement is such that western farmers have lost millions and millions of dollars because they're unable to deliver some of the higher-priced special crops.

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People in my area are very upset about this backtracking issue, and I would sure like to get to the bottom of it. When I see that the railways have to submit costs to the NTA...how do they do that? I always thought they submitted costs to the Wheat Board on what kind of grain was moved and then they got the subsidies. Am I wrong there?

Mr. McRoberts: No, the costs go the the NTA. I'll answer your last question very briefly first and then backtrack.

The way in which the cost is calculated is that every four years the NTA receives from both of the railways a very detailed accounting of their costs in accordance with the railway costing rules established by the NTA. So the NTA sets up how they have to do this accounting. The NTA in essence -

Mr. Hoeppner: Those are their input costs?

Mr. McRoberts: Yes, both their fixed and variable costs. Those are put in and the NTA then analyses those, and I'm simplifying things a little bit, but they arrive at an overall cost for moving grain. The Grain Transportation Agency each year is then responsible for generating an annual grain transportation forecast, which basically arrives at an estimate of the number of tonnes of grain that will have to be moved to an export position in the upcoming year.

That information is then communicated by the Grain Transportation Agency to the National Transportation Agency. It's a little more complicated than this, but basically it divides the cost information by the tonnage information to arrive at the freight rate.

Mr. Hoeppner: I understand that, but when I look at the Wheat Board report to Parliament, they've added some transportation costs and it's because of extra distance to Prince Rupert and these things. What I'm asking is this. When the railway asks for so many tonnes of subsidized money, they have to submit a report that they've moved this grain. Am I right?

Mr. McRoberts: Yes, they do.

Mr. Hoeppner: To whom do they report that?

Mr. McRoberts: They report that to the National Transportation Agency, which then verifies that information using other information, and based on that it then makes the payment of the subsidy, on behalf of the producers or the shippers, to the railway.

Mr. Hoeppner: Could the NTA then ask them to separate the costs on this backtracking from the other costs? It's a very specific part of moving that grain. My question has been - and I am getting more confused - when you get the subsidy for backtracking to Winnipeg and you turn south, where does the subsidy stop? Does it stop at Emerson or does it go directly to the end user? This is the information I haven't been able to get.

Mr. McRoberts: That I think you would have to ask the NTA. That's getting fairly down deep into their internal systems.

Mr. Hoeppner: Are they subject to the information act?

The Chairman: We will be asking the NTA to come before the committee. They're not enamoured about coming, but we'll get them here.

Mr. Hoeppner: I'd appreciate that, Mr. Chairman, because I think it's important. I heard the gentleman on the briefing the other day mention the backtracking specifically, so I guess it is of concern to you.

Mr. McRoberts: Yes, it was something we had initially planned to look at. We identified this as a problem. But, as you know, last fall the minister at the time - now it's Mr. Goodale - announced that the government, along with the intention to introduce demurrage, was going to deal with the backtracking issue. As it was then a sole problem, we directed our audit attention onto other matters.

Mr. Hoeppner: How do you cross-examine the tonnage that goes through the Wheat Board and grain companies? Some of the reports on what has been exported or on domestic use - is there any way you can double check those? Is there a double filing type of document where you can verify that it's correct, or do you just take figures and accept them?

Mr. McRoberts: We don't do that checking, although for audit purposes we do some. There is also independent information produced and maintained by the Canadian Grain Commission, which is responsible for checking the quality and nature of the grain shipped by the cars. So they also have the information. That provides an independent check on the railway tapes.

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Mr. Hoeppner: What do you find if you cross-check?

Mr. McRoberts: We did some limited testing, and things seem to balance.

Mr. Hoeppner: Okay. In my own investigation I have found charges on freight where I personally know no freight has gone. So I'm just wondering if there's some way in which you can double-check that.

It concerns me deeply, because farmers will have to bear the total cost from here on. Subsidies won't be paying for it. I would surely like to get some answers, and I would like your direction on how I can get them if I need them.

Mr. McRoberts: I'm not sure I can give you a great deal more help. I believe the Wheat Board might also be able to answer some of those questions.

Mr. Hoeppner: Well, you know how open they are.

Mr. McRoberts: Unfortunately, we do not audit them.

Mr. Collins (Souris - Moose Mountain): I quickly went through your document, and on page 3, in paragraph 10, you finish with the final statement: ``As a result, we cannot confirm in either instance whether its conclusions are correct''.

Could I observe from that that you could accept the converse?

Mr. McRoberts: Yes, simply that in the working papers, the analysis the agency had done was such that we were unable to establish an audit trail that allowed us to work from the work they had done to the conclusions they reached.

Mr. Collins: Would it be reasonable to assume, then, that you could conclude the converse?

Mr. McRoberts: We really cannot tell.

Mr. Collins: I guess the concern is that we have you here and you're under the Auditor General's department. We want some direction as to who the hell is doing what, and are they doing it right?

As I read through this document - and I've gone through only a few pages - either they're not responsible, they're not capable, they don't know what they're doing.... I have a problem with the whole process we've got here.

I go to page 4, on number 15. Your observation is that the NTA has felt that it was not able to investigate the rates. How do we go about getting them to be able to investigate the rates?

Mr. McRoberts: As part of our reports, we have recommended that the NTA should write to the Department of Transport and seek for the agency a clear authority to reject those claims where it's unable to satisfy itself that the rates submitted to it are reasonable. The agency has responded that it agrees with this and that it has written to the Department of Transport to seek clear authority to do this.

Mr. Collins: Will you proceed to do it?

Mr. McRoberts: You would have to ask the agency that.

Mr. Collins: Do you report quarterly, semi-annually, or yearly?

Mr. McRoberts: It's a bit more complicated than that, but I think we now report up to four times a year.

Mr. Collins: What does that mean? Does that mean quarterly?

The Chairman: Up to quarterly.

Mr. Collins: The only reason why I say that is there's no use in our waiting six months to do corrective surgery when it should be done in three. I appreciate what you're doing here, because we have to facilitate one another so we will stop this paper chase, which is about as far as that water will run, and then it gets a little bit heavier.

I'm not sure we're having success. I'll be gone and my friends opposite will be gone and somebody else will be sitting here asking these same questions, over and over again. We sat on the committee and we made recommendations about how we would improve the transportation system, and then I find myself hearing, don't worry about it, because it's all changed.

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I'm concerned. Are we going to see our product being moved? I know that my farmer friend opposite, for his welfare, is really concerned. Is the product going to move to port? Is it going to be efficient? Or are there going to have demurrage charges in place against those people who don't produce properly?

There's no use in going through with this charade if in the end we have one passing it on to the other, who really doesn't want to worry about it in the first place.

I notice here - and I don't know how we do this, but you people will likely be able to tell me - that you cannot audit the Canadian Wheat Board. Now, I know the term for that, Mr. Chairman, will be that they're at arm's length. Everybody we want to get hold of is either at arm's length or in a quasi-judicial position. What the hell does that mean? If they're acting improperly, how do we get it straightened around? I ask you to please tell me so I won't be quite so frustrated when I come here next time.

You can both have half of the question if you like.

Mr. Meyers: I don't know that we can give you the answer. But the first step, of course, is to call these people in front of the committee and ask them what they intend to do.

What we've done as part of our report is make the recommendation -

Mr. Collins: I agree.

Mr. Meyers: - and ask them to reply, which they have in the specific case of the transportation agency. Where we've made the recommendation, they've said they're going to take certain action.

The next step would presumably be for your committee or for this subcommittee to call the National Transportation Agency in front of you. I believe that could work with any of the other players, including the Wheat Board, even though we don't audit them. That doesn't preclude the committee from calling the Wheat Board and seeing what happens.

Mr. Collins: Is it reasonable to assume that if the Senior Grain Transportation Committee is made up of industry participants these participants impose a less rigorous monitoring on themselves than the act provides for? Is that true?

Mr. McRoberts: Yes, it is, sir.

Mr. Collins: I appreciate your observation. How do we correct it?

Mr. McRoberts: The responsibility for doing that ultimately lies with the commissioner of the Grain Transportation Agency, or with the Grain Transportation Agency. I think you would have to ask them, and again, I think you would have to call them before the committee and ask them to explain their reasons.

They have laid out those reasons in summary form on page 6-21, following paragraph 6.69. Were you to call them, I think they would be pleased to elaborate on their explanation.

Mr. Collins: Mr. Chairman, I'm not sure whether this is under the jurisdiction of the Auditor General, but where we get into removing the caps, is it reasonable for us to have that reverse onus provision continue so that at the end of 1999 railways don't have the lid blown off and up the rates holus-bolus without anybody having a control over it?

Mr. McRoberts: I don't think I can really answer that question. That was a policy choice by the government.

Mr. Collins: But from the Auditor General's position.... Let me pretend you're not there for a moment. How do we ensure that my farming friend is going to be protected after 1999?

You see, if it's reasonable to assume that over the next five years the levies and rates are going to be reasonable, why don't we continue to proceed on that basis rather than saying, well, now we'll lift the ceiling off and they can kind of go up at any level?

Mr. McRoberts: That again, sir, is really a policy option.

Mr. Collins: I know.

Mr. McRoberts: We have noted the importance of the termination study and we have recommended to.... We're very concerned that the data and expertise be there to do that job properly.

The Chairman: I think in fairness to the witnesses, Bernie, they've indicated they can't deal with future policy.

Mr. Collins: I understand.

The Chairman: But as you indicate in your report, with the system we've had in place, we haven't even had that evidence. What are you going to do if you don't have a system in place, or have much of a system?

Bernie.

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Mr. Collins: About all the cars we do own, the 13,000 and so on, there is a considerable concern out there about who might continue to have jurisdiction over those. Have you given some direction on where that ownership may be retained?

Mr. McRoberts: That really is ultimately a policy decision about where those cars are best placed. We realize, however, that it is an important issue, and that's why we've drawn attention to it.

The Chairman: Turning to chapter 6, under section 6.71, at the top of page 6-22 you indicate there is the perception that the market structure for grain transportation by rail is not sufficiently competitive. What's that perception based on? It's one of the things we've been.... Certainly one of the things we're dealing with as a committee in terms of a number of the witnesses before us is the almost natural monopoly position the railways may find themselves in, which relates directly to that point. I was wondering what basis that statement is made on.

Mr. McRoberts: The view expressed here is that of the explanation given to us by the Grain Transportation Agency, and I think that is a perception that they hold based on the potential position of the railways. They are also reflecting, I think, a view of many of the participants with whom they hold discussions. Beyond that, I think you should ask them to elaborate on the basis for that statement.

The Chairman: Okay. On 6.78, combined with 6.79, it's really dealing with the rail car shortage problem last year. Certainly the railways have done a much better job this year. But you do indicate - I guess it's the agency that indicates - the lack of timely response by the railways was one of the reasons for the system problems. In your analysis, did you come up with anything that could be utilized to push the railways to a more timely response in those situations?

Mr. McRoberts: No, we didn't. We again accepted the existing policy environment and the role of the agency and the railways in responding to that.

The Chairman: On 6.94, which is on page 26, the last part of that is an extremely important point. You say the quality of the NTA's documentation of its qualitative analysis of the effect of investments in an adequate, reliable, and efficient grain transportation system was such that you were unable to conclude whether or not the agency's opinion was warranted and should be relied on by the minister. Could you expand on that finding?

Mr. McRoberts: Very simply, Mr. Chairman, what we have here is what auditors call a ``denial'' of an opinion. In an audit you have three basic outcomes. There is sufficient information and you can conclude that everything is fine, or there is sufficient information and you observe there is a problem. In this instance we fell into the third case, that the nature of the information...the paper trail we were able to audit was such that we ultimately concluded we did not have sufficient evidence to conclude that the conclusion was wrong, nor did we have sufficient evidence to conclude it was right. So we were simply reporting that because of the lack of documentation, we ultimately cannot give you an answer.

The Chairman: I don't want to ask you a question that's unfair, but in looking at the future, we're seeing the WGTA go, so the GTA and so on. There's going to be quite a number of changes.

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How does Parliament ensure that those paper trails necessary to do proper auditing in all areas related to the transportation system are in fact there in the future? Now, if it's an unfair question, I don't expect you to answer, but we have to find some way of ensuring that there is reliable information and that it's assessable.

Mr. McRoberts: I think Parliament will have to make its specific needs known to those who are now administering the system.

It's perhaps worth noting that under the termination or the reform of the program, there will be no more investment reviews and no more quadrennial costing reviews. Both of those elements have been removed from the reform system. We will be dealing in the future with a relatively straightforward process for rate adjustment over the next five years, although there will still be some need for assurance there.

The Chairman: Paragraph 6.97 actually goes on in somewhat the same area, and three-quarters of the way down you indicate:

I guess the question is, the Attorney General found that the NTA indicated that while it did not document this aspect of its analysis, the assessment of those costs for their contribution to be adequate, to be an adequate, reliable and efficient system.... Has the Auditor General ever seen these analyses, and is this an unusual procedure, not to provide such data?

Mr. McRoberts: We have not seen such an analysis. The act required that it be done, but we have not seen an example where it has, in looking at either the investment reviews or this review.

In terms of the quadrennial costing review, I should note that the bulk of our audit work and all of our detailed examination was focused on the most recent quadrennial costing review, which was completed last year and which looked at the 1992 transportation year.

The Chairman: I guess maybe it's because I'm a rookie member of Parliament. Maybe this goes on all the time, but when certain things are supposed to be done, and the act requires it to be done - and it may be an unfair question to you, too, but it really relates to what Bernie was saying earlier in terms of his frustration - what recourse is available to Parliament when these things have not in fact been done as they're supposed to be?

Mr. McRoberts: As Mr. Meyers said, I guess we have a role to play there in drawing these matters to your attention. Then from there, you must call the parties involved and ask them to explain their decisions to you.

The Chairman: That's a good point. Maybe that puts the onus where it should be. Maybe we should put the onus on the minister in charge. Do you have any recommendations that could better ensure that data is provided in those kinds of cases, or is it, as you say, mainly up to us?

Mr. McRoberts: We have made three recommendations in the grain transportation area. Two of them do relate to performance monitoring and performance measurement.

The first is paragraph 6.90, where we are urging that the department:

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The department has agreed with that recommendation, so we think that will help to provide more detailed information on system performance.

Again, in paragraph 6.109 we recommend that the department and the NTA should work together to ensure that both the information and the expertise.... The railway costing information is both voluminous and complex and requires a fair amount of expertise simply to understand. It's important that those elements be preserved and planned for now to ensure that as we move towards the 1999 review, the ability to measure what has really changed over that period will be there.

The Chairman: I think those are good recommendations, but in terms of 6.90, has that recommendation been made the way it is in part because of the changes to the WGTA?

I don't know if you're aware of this, but I think Mr. Hoeppner mentioned earlier that we met as a subcommittee last year on back-hauling and a number of other issues. It was the subcommittee's feeling that - in fact, I think we said it in the letter - there was a lot of incompetence in the GTA. I don't believe we suggested the gentleman be fired, although we thought it, but we did say there should be another set-up, a different kind of an arrangement made.

So is this recommendation made the way it is in part because of the change to the WGTA?

Mr. McRoberts: Yes, it is. In essence, were there not the change we would have directed the recommendation to the Grain Transportation Agency, but our understanding is that the Budget Implementation Act will essentially abolish that agency and that in the interim its duties will be transferred to the Department of Transport. Essentially, as we understand the timetable, it will be the Department of Transport that is best placed to pick up the ball on this one and to run with it.

The Chairman: Maybe it's in here and without my doing extensive analysis to find it.... We don't want to end up with the Department of Transport taking on this new role and also taking on the shortcomings or the lack of information the GTA has been operating under. Is there anywhere in here where you recommend or do you have any recommendations on how the Department of Transport should accommodate some of those requirements that were in fact under the WGTA and other areas?

Mr. McRoberts: No. We decided not to do so because as part of the budget announcement the government also announced the intention to ultimately transfer the duties of the GTA, particularly those related to the car fleet allocation and management, to basically an industry-led and managed body. The intent is that there will be a body of people from the industry who will be responsible for taking on these duties and separating them from the department. My understanding is that the allocation within the department is intended to be only a transitional measure.

The Chairman: I think that's correct, but regardless of whether it's the Department of Transport or the industry committee, is there anywhere we can find the ABCs of what those duties ought to be so that we as members of the subcommittee can ensure that those recommendations are made and that the industry committee or Department of Transport or whoever is operating under those kinds of guidelines and principles?

Mr. McRoberts: No, we have not made recommendations at that level of detail in our report. Again, that would really be getting into management's prerogative and into policy.

The Chairman: Thank you. I have a couple of other questions. I'll come back to them later.

Mr. Hoeppner.

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Mr. Hoeppner: Going back to what my good friend Mr. Collins said about a paper trail, sometimes they're good, but I've found that once you catch up with a paper trail, it disappears. What do you do then? Paper trails are not always bad. Being a hunter, I love to track. When you get close to the prize, it will zigzag or something. I've found that to be the case. So I'm a bit confused right now as to whether I should love paper trails or not.

What I was going to ask you, in proximity to that, is if you would suggest that all crown corporations should fall under the information act.

Mr. McRoberts: I don't know, sir. I don't know the extent to which they do now, so I can't answer that.

Mr. Hoeppner: There are some that don't - I know that - and one is the Wheat Board.

Would you not have a better ability to look at whether good jobs were done if you had at least that authority? I gather that now you don't have it, in the same way as I don't.

Mr. McRoberts: The provisions that provide for the audit of crown corporations are actually in the Financial Administration Act, where the crown corporations audited by our office are listed and the ones not audited by our office are listed. A number are not audited by our office, and the Canadian Wheat Board is one of them.

Mr. Hoeppner: Don't you think it would help your department if you were able to audit it? I'm sure that would take some suspicion away.

Mr. Meyers: That's really a political decision, and it was debated at some length when the Financial Administration Act was amended. At that point in time we argued that it would be appropriate for us to audit all crown corporations that were dependent on government subsidies or government funding, and the Wheat Board was one that was mentioned as, in our view, being one that was appropriate to be audited by the Office of the Auditor General. That wasn't the decision that was taken.

Mr. Hoeppner: Could you give me just a bit of insight into why that wouldn't be taken? I would think government would want to be responsible in that way. Is it because of special interest groups?

Mr. Meyers: I really can't argue the other side. I believe the Wheat Board thought it needed the independence and felt that our doing the audit of the Wheat Board would in some way threaten that.

Mr. Hoeppner: Yes, but surely it would trust you not to disclose information that was confidential, even if you audited it?

Mr. Meyers: I'm sure we'd be trusted, but we also have a responsibility to report to Parliament. As you've seen in this report, we do so.

Mr. Hoeppner: If that were made possible, then through the information act we could probably get it through you. Is that what it's afraid of?

Mr. Meyers: Well, we don't have anything to do with the information act.

Mr. Hoeppner: Yes, but if you had the information available, would you be subject to giving it to us or not?

Mr. Meyers: No, we're not covered by the information act, and certainly we wouldn't be in regard to confidential information of crown corporations that we audit that themselves weren't covered by it.

Mr. Hoeppner: Then there would be absolutely nothing wrong with your auditing the Wheat Board or the other crown corporations that don't fall under that act, as far as you're concerned, taking the politics out of it?

Mr. Meyers: That would be as far as that particular act is concerned, but we have a responsibility when we audit crown corporations - as do private sector auditors that audit crown corporations - to report to Parliament after we've done a special examination or after we've done the attest audit if we think something should be drawn to Parliament's attention.

Mr. Hoeppner: My concern is - and I think it goes back to Mr. Collins' concern - that, sure, we can see that everybody gets his costs recovered, but we always forget that there's a farmer at the end of the line who's struggling to stay alive. When I see $20 or $30 in extra cost being put on the farmer's shoulders next year and I hear staff from Statistics Canada telling me that $100 million of advance-payment money hasn't been refunded between the years 1990 and 1993, my hair starts standing on end and I say: why do we worry about a transportation system, because we won't need it if there are no farmers left. We won't need it because no small communities will be left.

So it's a very serious issue, and I would certainly like every bit of help from any government agency to try to correct this somewhat. I've seen countries where the producer has been eliminated, and, boy, it's a sad sight after a while.

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Mr. Collins: Mr. Chairman, if I might go to page 6-23, it's under paragraph 6.77, in the last part of the last paragraph:

What are the systemic problems that haven't been addressed?

Mr. McRoberts: First, it's not a problem, but we have lying behind us a steadily growing export crop, so the amount of grain to be moved each year continues to grow and we have to some extent a system with a fixed capacity. I guess the two key problems we've identified are sales peaking, which really puts a strain on that system every fall, and the inefficient use of grain cars - the fact that the resource we now have is not being used as best as it can be.

Mr. Collins: With the findings of the subcommittee last year, do you think our recommendations had some merit in terms of what we were saying to the railways and to everybody? We wanted all the players in the system to come to the reality that there is a problem.

When I took a look at the figures for last year, I think they showed that for car movements and unloads it was a rather spectacular year. But why should it be up to this committee to be the driving force to bring them to the reality that they have to do some corrective surgery? Now I'm afraid we've made some recommendations that may be shelved again.

The Chairman: That's our problem.

Mr. Collins: I know. I'd hate to see it come back in here and they'd spot it again and say they told us that before, and before. Somebody's not hearing very well.

Somewhere in there is a figure of $10,000 for each mile of savings. Is there going to be a control kind of figure? We heard from short-line rails yesterday, and they said they maybe wouldn't mind buying up some of that line, but how do they know it will be sold at salvage rates and the price won't be jacked up so it makes the operation of a short line impossible?

Are there any controls that can be worked into the system other than...?

Mr. McRoberts: We really didn't look at that aspect of the system, so I'm afraid I can't answer you.

Mr. Collins: I must say I want to commend you for what you did look at. As I've said before, it's a shortcoming on our part and not yours that we receive these documents in short order and then have to do some quick assessment of what you've said. But I want to assure you we do take very seriously the identification of any problems and commendations you make.

I just hope that quarterly means quarterly and we will continue to have the opportunity to get the assurance that, on a quarterly basis where recommendations should be dealt with and we can facilitate it, we should be doing it. I want to thank both of you for the input your department has placed on this very serious business in the transportation field. Thank you.

The Chairman: Going back to the report, in paragraph 6.99 you found that the NTA has failed to define what would ``constitute an adequate, reliable and efficient railway transportation system for the movement of grain''. You go on to say that:

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If you look at this paragraph, the NTA apparently responded by stating that it believes to assess the adequacy, reliability, and efficiency of the system quantitatively is tantamount to second-guessing the railway management decisions, which is not the role of the transport regulator in the 1990s. Do you concur with that point? Do you stand by the position that the NTA is not in a position to reach the conclusions it has? I ask that question because it's important for where we're going.

Mr. McRoberts: I think we stand by our view. You may want to have a discussion with the NTA about what the role of a transportation regulator is in the 1990s. Our view is that as Parliament's auditors...our job is to audit against the legislation in effect. If there has been a change in the role, that should have been reflected in a change in the legislation, and one might argue that the current legislation does deal with that by removing the NTA's role.

The Chairman: Thank you for that response. I assure you the NTA will be before this committee even if we have to subpoena them.

Under paragraph 6.103...the GTA recommended that following the car shortage of 1993-94 there be an annual adjustment to the base rate to reflect the costs to the railways of making necessary leasing arrangements. Under the proposed changes in Bill C-76, the railways will no longer be able to anticipate recovering these additional costs. You say in here it may make them more reluctant to incur such costs during periods of peak demand.

What regulatory changes can be suggested or implemented in this regard which, if not undertaken, could leave grain shippers at a serious disadvantage?

Mr. McRoberts: I think that fairly quickly would lead me into the area of policy. We have pointed out the difficulty. There are perhaps a variety of ways the government might solve the problem.

The Chairman: Which are?

Mr. McRoberts: That again is getting beyond my role.

The Chairman: I guess we'll have to find someone to wangle that variety of ways out of.

Under paragraph 6.105, you point out that there has never.... I am really surprised, being involved in the transportation system as much as I have been, that you have pointed out that there has never really been a comprehensive program evaluation of the WGTA. The conclusion expressed by Howard Migie, with Agriculture Canada, in his statement before the finance committee, when he described the WGTA as ``an ineffective policy'' and one that was ``not supporting the economic development of the country''.... Would you agree with that conclusion?

Mr. McRoberts: Because I have not been in a position to review the evidence on which he would arrive at that conclusion, I'm not in a position to agree or disagree, sir.

The Chairman: You should be in court.

Mr. Hoeppner: I've been telling the Liberals that for a year.

The Chairman: I had one other question, really related to the Atlantic Region Freight Assistance Act, and that's under paragraph 6.133.

On page 36 you conclude that the paper produced by Transport - and this is a controversial issue in my area, I'll admit - entitled Atlantic Region Freight Assistance Program, Information Paper, is a sound and reliable study and you say you have found the data to be reliable.

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The Atlantic Provinces Transportation Commission in their March 1995 statement made the following observation with respect to the database: that the study of the Atlantic Region Freight Assistance Program ``portrayed the freight assistance in a very negative light'' and ``failed to recognize the fundamental importance to manufacturers and producers'' in Atlantic Canada of that program.

In other words - although they don't say it in this particular paper - in the many phone calls I had from some of the transporters in Atlantic Canada they said they really believe that the study was done the way it was to encourage the cancelling of the Atlantic region freight assistance program.

You seem to be of the view that it's a reliable study, and I'm just wondering why you do qualify it as reliable. I want to relay that.

Mr. McRoberts: We looked at the study, we felt it was an important evaluation, an important study of the program, and we set out to systematically test the data, to look at the way the study was done and to establish whether or not the data was reliable and the conclusions were supported by the data. We found that in significant respects they were. That doesn't mean that the study is perfect or that the data are perfect, but our conclusion is that the errors we did find would not have made any material difference in the conclusions drawn.

Now, perhaps others might criticize the study saying, well, if the study had done something different, we might also have found something else. We did not audit that. We looked at the study on its own terms.

The Chairman: I don't have any further questions for the moment.

Mr. Hoeppner, do you have any further questions?

Mr. Hoeppner: Yes, but I don't think the gentleman wants to answer it or that he can answer it. I'm told that the NTA is going to do some assessment on branch lines but that the hearings will be closed. Is that correct?

Mr. McRoberts: I'm afraid I can't answer that. You'd have to ask the NTA.

Mr. Hoeppner: That concerns me a bit.

The Chairman: We'd better mark that for the NTA. We're getting quite a list of questions, Mr. Hoeppner.

Mr. Collins.

Mr. Collins: Mr. Chairman, I have only one. After we go through this review, would it be possible, if need be, that we could have them return? Would that be acceptable?

The Chairman: It's possible, isn't it?

Mr. Meyers: We'd be honoured.

Mr. Collins: I apologize, but I've been given this rather cursory passover and now I want to get a little in-depth and prepare some further questions if necessary.

The Chairman: Yes. We're not sure, Bernie, when the NTA is coming, but they will be.

During our first week back here we're intending to meet from 3:30 p.m. to 9 p.m. three days running to try to push us along.

Mr. Collins: I won't be back.

The Chairman: You'd better be - the first week back after next week's break.

Mr. Collins: What's that phrase ``denial of -

The Chairman: You'll have to ask the witnesses for the proper wording to get out of such things.

If no one has any further questions, I certainly want to congratulate the Auditor General on the report. I think there's a tremendous amount of material in that report and there's a lot of stuff to digest. I think we have a lot of work to do as well. I certainly thank you for coming and meeting with us today and giving us what answers you could. I do understand you can't get into the political area, but some of us should be able to. Thank you very much, gentlemen.

The meeting is adjourned.

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