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Section I(a)

Preamble and Observations

With the world's economies changing at such an escalating pace, it is imperative smaller economies such as that of New Brunswick be constantly aware of positioning and opportunities. A central feature of any strategy, which purports to maintain "awareness" as a basic ingredient for identifying opportunities, is that awareness must include a constantly updated and objective analysis of our strengths and weaknesses as an economy. One must continually ask questions such as;

Similar questions must be asked about our weaknesses. Only once these questions are answered (to the extent possible) can a meaningful overall strategic direction for the Province be defined.

"Awareness" also means that changes are monitored and evaluated relative to the strengths and weaknesses of our Province. It follows that change has to be identified. This change/intelligence gathering exercise is now recognized as being essential to many private sector organizations and one that should be essential to public sector organizations such as the Province of New Brunswick.

Finally, "awareness", which includes an analysis of strengths, weaknesses and change, must be communicated on a timely basis to decision makers.

Observation

The Province of New Brunswick should organize and formalize an overall planning/change management function such that activities are coordinated, managed, communicated and executed. As part of this undertaking the Province should immediately begin an analysis of past, present and future strengths and weaknesses of our Provincial economy, including:

During the course of our review we had constant interactions with the Provincial Civil Service. As indicated in our covering letter, one of our dominant impressions of this group is that they are very professional and of a very high quality. However, it is our impression the average age of the Civil Service is increasing and a coordinated replacement/training program for succession does not appear to be in place. We feel that such a program should be implemented very soon if the quality of the Civil Service is to be maintained. While we do not support increasing the size of the Civil Service we do acknowledge that some short-term increase may be required to begin such a program.

Observation

It appears to us, the New Brunswick Civil Service is "greying" at a rapid rate with no coordinated plan in place for replacement of the talent and skills of the soon to be retiring individuals. The Province should consider an overall review of present and future human resource needs and proceed accordingly.

Section I(b)

Executive Summary

In accordance with the terms of our appointment to conduct a financial review of the Province of New Brunswick and based on the scope of our review procedures as outlined in the individual project sections of the accompanying report, we offer the following conclusions and resulting recommendations and observations.

Summary of Recommendations and Observations

We conclude some write-down of the carrying value of the capital assets of N.B. Power is appropriate.

Recommendations

We recommend the Government of New Brunswick accept the 1998 write-down of $450 million.

We recommend high priority be given to reassessment of the governance structure between the Government, the Board and management of N.B. Power. Recommended changes arising from the reassessment should be implemented promptly.

We recommend that the approved governance structure include appropriate Government input into the development of strategies for N.B. Power. Any strategies adopted for N.B. Power should have the strong support of the Government, the Board and management.

We have determined the Regional Hospital Corporations are accountable to the Province.

We have concluded the Regional Hospital Corporations are controlled by the Province.

Recommendation

We recommend the Regional Hospital Corporations be consolidated in the Province's financial statements in accordance with the Public Sector Accounting Handbook. Our recommendation is based solely on accounting principles and does not attempt to deal with issues such as governance, behaviour, or other matters.

Royalties Receivable

We have concluded the provision for losses as at March 31, 1999 appears adequate.

Department of Economic Development, Tourism & Culture and Provincial Holdings Limited

Recommendations

We recommend an additional provision for losses of $6.5 million be made against specific accounts.

We recommend a general provision for loan losses also be provided for in the amount of $8.9 million. This method of providing for loan losses is not consistent with the method used by the Department. If a decision is made to implement our recommendation, we further recommend that management, in consultation with the Office of the Comptroller, establish and review a general provision annually, using a methodology which segregates investments/loans by risk profile, and determines provision ratios specific to each profile.

With respect to guarantees, the allowance for loss appears adequate.

Department of Fisheries and Aquaculture

Recommendations

We recommend the loan loss provision be increased by an additional $15.9 million.

Loans should be written off when all avenues of collection have been exhausted.

Loans should be written off in cases where a vessel has been scrapped or sold.

Interest should cease to be charged to loans when they are determined to be uncollectible.

Interest should be charged on the total balance outstanding, including arrears interest.

Payments should be applied to all outstanding interest before being applied to principal outstanding.

The boat values used in setting provisions should be set at a portion of the appraised values and this discount should be monitored and adjusted periodically.

Any inshore loan that is known to be uncollectible should be fully provided for over and above the formula used to set the overall provision.

All loans should be reviewed periodically and the assessment of the loan status should be documented in the files. Consideration should also be given to obtaining future cash flow information to assist in valuing loans.

Property Taxes Receivable

Recommendations

We recommend an additional provision of $8.8 million be provided for with respect to the Hugh John Flemming Forestry Centre.

We also recommend an additional provision of $4.0 million with respect to a percentage provision for the 1998 and 1999 tax years and with respect to the treatment of secured municipal balances.

Department of Agriculture

We have concluded the provision for losses as at March 31, 1999 appears adequate.

Conclusion

Based on the information provided to us by the various departments and the Office of the Comptroller, and the recommendations in section 3050, Loans Receivable, of the CICA Public Sector Accounting Handbook, we estimate the value of the concessionary component of low interest loans on the draft financial statements of the Province of New Brunswick to be approximately $18 Million as of March 31, 1999.

Conclusions

After review of various information and analysis, we would consider the Fredericton-Moncton Highway, Centracare, and Fredericton North School leases to be correctly classified by the Province as operating leases.

It is our view, the Moncton North (Evergreen Park) School and Miramichi Youth Centre leases should be accounted for as capital leases, not as operating leases which is the present classification in the accounts of the Province of New Brunswick.

Our review was restricted to those organizations which are in or potentially could be in the reporting entity. We did not address the accounting procedures chosen to include organizations in the entity.

We reviewed the Province of New Brunswick as a reporting entity by analyzing the objectives of government financial statements, definitions of organizations to be included and also definitions for accountability, control and ownership.

Conclusion

It is our view that the financial statements of the Province of New Brunswick will represent a complete and appropriate reporting entity for year ended March 31, 1999 based upon our review of draft financial statements for the year ended March 31, 1999.

Recommendations

We believe the area of information technology management presents the single largest opportunity for the Provincial government to increase the benefit it gets from its information technology expenditures.

We believe the governance and organization of the information and information technology function requires fundamental change. It is our view that the Province should initiate an in-depth process to identify and implement an organizational structure that will use its information technology resources more efficiently.

Efficiencies to be gained from clustering different departmental services that have similar service delivery, information and information technology requirements should be identified.

The Province should review the cost/benefit of implementing stronger standards, an "evergreening" program and a centralized (or virtual) help desk.

We recommend the Province consider creating a new information technology position at the level of Deputy Minister (Deputy Minister of IT) to assist in facilitating the implementation of the aforementioned and other changes and to guide the new department in the future.

Recommendations

Personal service contracts
We recommend documentation be maintained in each employee file to support adherence to policy.

We recommend a review be performed, by department, to ensure for active personal service contracts, full time equivalent allocations are available to be charged to or determine what deficiencies exist.

We recommend policy be enforced to require full time equivalent allocations for personal service contracts.

We recommend personal service contracts related to ongoing program service delivery on a long term basis be periodically reviewed to determine if the applicable positions should, more appropriately, be regularized.

Professional service contracts
No recommendations

Recommendations

It is our view a total asset management strategy is required for both government owned and leased facilities.

We recommend a review of capital maintenance budgeting procedures with the objective of establishing acceptable performance standards and criteria for both regular and planned maintenance.

We recommend an adoption of policies for the implementation of preventative maintenance programs in all government owned facilities.

We recommend the Province of New Brunswick undertake a technical audit of all major government owned facilities to:

We recommend the Province of New Brunswick undertake a review of the education sector facilities to consider the need for technical audits and establish preventative and planned maintenance guidelines for schools.

We recommend the Province conduct a feasibility study for the renovation and upgrading of the Centennial Building. A review of government accommodation needs should form part of this feasibility study.

We recommend appropriate budget allocations be made to support a properly designed Provincial maintenance program.

Economic Development, Tourism & Culture

Generally we found the files reviewed to have been subjected to "proper process".

However, we found a number of instances where there were exceptions to policy. For example, required evidence for a request for financial assistance was not located in six files. Further, in another file a memorandum of understanding was inappropriately drafted and issued. In another instance, the New Brunswick Industrial Development Board minutes, were dated after the Records of Decision of Board of Management and Executive Council and the Order in Council, contrary to policy.

Regional Development Corporation

We noted six instances where funding announcements were made prior to the completion of the review and approval process. This again is contrary to policy.

Recommendation

In our view, $132 million of HST Transition Funds should have been recognized as revenue by the Province of New Brunswick in its 1998 fiscal year, a further $132 million should be recognized in the 1999 fiscal year and, assuming the conditions continue to be met, $66 million should be recognized in fiscal 2000 and the remaining $34 million in fiscal 2001.

Recommendations

We recommend the Province of New Brunswick write-off all of the loans.

The decision to write-off must be done in light of various administrative factors, including whether it is still appropriate to continue to charge interest on the loans.

Recommendation

We recommend the applicable receivables in the amount of $2.8 million be written off.
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