The committee met at 2:00 p.m. in the Colonial Building.

MR. CHAIRMAN (Windsor): Good afternoon, ladies and gentlemen. I now call the meeting to order. I think everybody expected here, is here, and I want to welcome all of you here today.

First of all, the media, I think, are aware of the fact that we operate under the rules of the House of Assembly here. The Standing Committee is basically an arm of the House of Assembly. You have had an opportunity to take your photos and I think you are finished; you are welcome to do that. Are you finished with your photos? Do you want another couple of minutes? You can go ahead, I can wait for the next couple of minutes while we are doing the introductions, at any rate. We are not that formal in the committee hearings.

I would like to introduce the members of the committee: to my immediate right, Mr. Danny Dumaresque, Vice-Chair and MHA for Eagle River; Mr. Alvin Hewlett, to my right, MHA for Green Bay; Mr. John Crane, MHA for Harbour Grace; Mr. Melvin Penney, MHA for Lewisporte. Absent today are Mr. Glenn Tobin, MHA for Burin - Placentia West and Mr. Oliver Langdon, MHA for Fortune - Hermitage.

Before introducing the witnesses, we have the Minutes for September 14. You have had a moment to look at them. Could I have a motion to adopt those Minutes, please?

On motion, Minutes adopted as circulated.

MR. CHAIRMAN: I would like to welcome the Auditor General and her staff. I ask the Auditor General now if she would like to introduce the people who are with her.

MS. MARSHALL: Thank you, Mr. Chairman. To my immediate left is Mr. George White, Audit Manager, and to my immediate right, Mr. Bill Drover, Audit Principal, both of whom are with my office.

MR. CHAIRMAN: Thank you very much.

Witnesses - we have Mr. House, I guess, as Chairman of the Board, and chief spokesman in this particular case. I never know whether to go to the CEO or Chairman of the Board - I usually make the wrong choice. I ask Dr. House if he would like to introduce the people who are with him.

MR. HOUSE: Thank you, Mr. Chairman. To my right is Jim Janes, President and CEO of the corporation, who, I guess, probably will be the chief spokesman for most of today's activities, although I will certainly be willing to join in, on Jim's wishes. To my left is Patrick Kennedy, Vice-President, who is in charge of the financial side of the corporation.

MR. CHAIRMAN: Thank you very much. I will now ask the Clerk to swear in the witnesses. I will just advise the witnesses, as we do this, that evidence is given under oath. It is not a trial, by any means, it is a hearing to collect evidence to report, as we must, back to the House of Assembly.

SWEARING OF WITNESSES

James Janes

Douglas House

Pat Kennedy

MR. CHAIRMAN: Thank you very much.

As I was saying, the mandate of the Public Accounts Committee, of course, is that we are really the final step in the accountability process. We normally react to items brought to the attention of the House of Assembly by the Auditor General in the Auditor General's Annual Report and this, of course, is the case here today. However, we are not limited to that - we are certainly free, as a committee, to choose other items that may be of concern to the committee, that we think are valid and worthwhile for the committee to spend some time investigating. Members of the House of Assembly, from time to time, refer matters to us or ask us to investigate matters. The committee then will decide if it is appropriate, or the House, itself, may well refer other matters to the Public Accounts Committee.

In this particular case, we are relating to section 4.4 of the Auditor General's Report of 1992. I think we are all familiar with the topics. Again, as I said, our role here today is simply to gather information, to ask for your views on the items as expressed by the Auditor General and perhaps to ask her and her staff for their views as well. Quite often these meetings, in fact, turn out to be quite productive in bringing together a meeting of minds and clearing up any misunderstandings or misconceptions of really what the Auditor General and her staff may be talking about or perhaps how various Crown corporations and agencies should be responding to the Financial Administration Act and to the Auditor General. So it is in that spirit that we welcome you. We appreciate your coming here today and giving us the benefit of your experience and knowledge on these particular matters.

Before we begin, let me ask the witnesses to speak clearly into the microphones. All of these proceedings are recorded and are transcribed by the people at Hansard in exactly the same format as used in the House of Assembly. They don't have the benefit of eyes to see who is on the other end of the tape. They know the MHAs fairly well because they listen to us ad nauseam in the House of Assembly and they get to know our voices, but as for the witnesses, particularly those who are here for the first time, they are not as familiar with them. So, I will ask you to speak clearly into the microphones and to identify yourself before you speak if I fail to do so. Generally, as I recognize you I will identify you. The main purpose for doing that is for the benefit of Hansard, so if you would do that with us. We normally go from 2:00 to 4:30 or 5:00 p.m. I believe we really need to get out of here by 4:30 - the doors in this building, I think, lock automatically at 4:45 or 5:00 p.m. and if you are not out then, you order your breakfast the next morning in here. We generally take a coffee break around 3:15 or 3:30 p.m.

So, perhaps, to introduce the topic, I will ask the Auditor General if she has some opening comments she wishes to make?

MS. MARSHALL: Thank you, Mr. Chairman.

We commenced an examination of Enterprise Newfoundland and Labrador Corporation in May, 1992. Our audit was directed primarily to those systems and transactions relating to management practices, fixed assets, purchasing and loan and equity investments. Our review was designed to assess whether management practice were adequate to provide information to management and the board of directors for decision-making and control of revenues and expenditures, to ensure that the corporation was in compliance with the Enterprise Newfoundland and Labrador Corporation Act, and to ensure effective accountability and safeguarding of public monies.

Our review was also designed to assess whether policies and procedures were adequate relating to the control and use of fixed assets; that the purchasing system was adequate to ensure monitoring and control of the purchasing function and compliance with statutory requirements; and lastly, that policies and procedures were adequate relating to the monitoring and collection activities of the corporation's loan and equity investments.

As a result of our audit, we reported as follows: In the area of management practices, we noted a number of areas in which management practices needed to be improved. Weaknesses were noted in each of the organizational, planning, budgeting, reporting, and internal audit areas. In the area of fixed assets, control over fixed assets were not adequate. In the area of purchasing, policies and procedures to ensure monitoring and control over the acquisition of materials were not documented. Several instances of non-compliance with the Public Tender Act were noted. In the area of loan and equity accounts, we noted that sufficient attention was not given to the monitoring and follow-up of loan and equity accounts. We were especially concerned that approximately 42 per cent of the corporation's recorded investments of approximately $70 million was considered doubtful as at 31 March, 1992.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you very much.

I am sure there are a number of issues there that members of the committee will want to raise. Dr. House or Mr. Janes, which one would like to make an opening comment on behalf of the corporation?

DR. HOUSE: I guess I could make an opening comment, Mr. Chairman, and maybe Jim would like to follow up on it.

I think what the committee really needs to take into account here is that the Enterprise Newfoundland and Labrador Corporation is a fairly new corporation and when we started to develop it in 1990 there was a huge task of amalgamation to be done, putting together the former Newfoundland and Labrador Development Corporation and a number of branches of the former Department of Development. I think this amalgamation process went reasonably well, was handled quite well and, of course, part of that process was the decentralization and regionalization of activities of this corporation to five regional offices, and eighteen, I think it is now, field offices of the corporation.

So there was a large organizational task that had to be undertaken initially. Together with this at the time there was, I guess, the creation of a lot of expectation of business people, would-be business people, and people involved in development throughout the Province, that they would get access to this new corporation and the services they had to offer. And they did, and I think there was a tremendous pressure on the management and staff of ENL throughout the Province during the first year or two of its operation to respond to the needs of clients in all regions of the Province. So, putting together the organization, dealing with the organizational issues that had to be dealt with, and trying to provide the best possible service that the corporation could, to its clients in the early years, really took the major part of the attention of the corporation as it was getting established.

Now, we were always aware that in the process of doing that, it was also important that the correct procedures with respect to public tendering, to financial management, to control of doubtful accounts, and so on, was a high priority. It has always been our intention to put into place the kinds of control mechanisms that we have to have in order to do that adequately, sufficiently. We are, I think, now in a position where we can say that we have actually done that.

At the time when the previous audit that the Auditor General has mentioned here was being carrying out we were only part way, to be quite honest with you, towards achieving that. That is the context, I think, in which these concerns need to be considered. They are very serious concerns and we believe that we have addressed those concerns in a serious way. As we proceed here this afternoon I think we will be able to outline to you the various steps and measures that have been taken, that I think will adequately, and are now adequately, addressing these concerns in the public interest.

Maybe I can turn it over to Jim. He might want to comment a little on sort of where we have gone in that direction.

MR. CHAIRMAN: Thank you, Dr. House.

Mr. Janes.

MR. JIM JANES: Mr. Chairman, I don't know that I really have much more to add than Dr. House has already voiced. I think, very clearly, our first year-and-a-half or so we were involved in getting this corporation going on a proper footing basis. Clearly, there were issues within management that had to be dealt with; they were, and they continue to be. As well, as we go through this committee hearing this afternoon, some of the things that ENL has been able to accomplish over the last twelve or fifteen months, I think, will allay a lot of the concerns that this committee or the Auditor General might have had back some seventeen or eighteen months ago. Thank you.

MR. CHAIRMAN: Thank you very much.

Generally, our procedure in committee is to ask members of the committee to direct questions to the witnesses or to the Auditor General and her staff. We normally go around the table, give each member a few minutes, ten to fifteen minutes each, whatever is reasonable. Committee members are very familiar with it and have been always very co-operative.

Who would like to begin? Mr. Crane, would you like to open questions this afternoon?

MR. CRANE: I don't mind. It is as well to begin as to be the last. One thing in the Auditor General's Report that came out, certainly right from the start, was that she recommended a complete set of corporate instruction manuals would be put together. At that time, in 1992, you only had one out of seven or something, I think the report says. How successful have you been in completing those instruction manuals?

MR. CHAIRMAN: Mr. Janes.

MR. JANES: At this time, we have two of our manuals just about complete. We still have significant work to be done in that area. I think the committee probably should be aware, one of the things the Enterprise Corporation stated early was that it would be a flexible organization, and that it would not be necessarily bound up with a lot of regulation and so on and that one of the things that falls out of ten or eleven or twelve instruction manuals represents basically a lot of red tape and so on.

ENL tried to be different from that. However, I can state to the committee today that with 170-odd employees, not all of those employees were basically in a position to accept a flexible approach to doing business the way that the Enterprise Corporation had intended to do. So now it is important and the corporation has recognized it as a priority to get to work on these instruction manuals to assist those employees who need that type of guidance. Today, there is still a significant amount of work to be done on the instruction manuals.

MR. CRANE: With respect to the budgeting process, the Auditor General recommended it, and you agreed that although you - for 1993-1994, completely independent of the recommendations report, you said, detailed procedures and instructions were developed and used. Are these instructions close to or in line with or compatible with what the Auditor General recommended?

MR. JANES: We feel that they are. We have had this process in place now - we are heading into our third year. A special committee of the corporation has been established to deal with that, and perhaps what I could do here is turn to Mr. Kennedy and just ask him to inform the committee of some of the details of the work that has been done in putting together a proper budget committee.

MR. CHAIRMAN: Mr. Kennedy, would you like to do that?

MR. KENNEDY: Thank you, Mr. Janes.

The finance committee that was formed in the corporation - what we have tried to adopt in developing our operating and capital budgets, is what we have used, being a bottom-up and top-down approach. The procedures that we followed were in complete compliance with the Treasury Board guidelines. We implemented a procedure whereby the regions and divisions of the corporation would submit operating and capital budget requirements, they would be challenged by this internal committee, and then we would prepare a budget document that went to our board of directors who, in turn, would challenge it as well. For 1993 - 1994, that process was effected and, in fact, we are doing it again for this particular year.

MR. CHAIRMAN: Mr. Crane.

MR. CRANE: In browsing through these reports, there is one thing that always seems to come up with Crown corporations and it is no different with yours. Nobody seems to have a handle on fixed assets, and when this was written up, apparently you people didn't have much of a handle on it either - no ledger, no tagging on a lot of your fixed assets. How in the world can a group the size of yours, ever keep a handle on it if you don't have some kind of procedure in place?

MR. JANES: Mr. Crane, at this point in time, we do have a well documented fixed asset ledger. All of our assets have now been labelled or stamped, as is the custom of government departments and other agencies of government, and all of that ledger has been computerized and the actual policy on fixed assets now forms part of that instruction manual that I talked about a minute ago, plus one final thing; we do have people in the field as of this time, instructing all of our staff in the regional offices who are involved with fixed assets, as to how these entries are dealt with and so on, so that we have, in place at this time, proper accounting for our fixed assets.

MR. CRANE: That is a good job, Sir, I would say. You are really on the ball according to that.

One other question which has to do with purchasing policies. I was looking through a list of some of the purchases made, such as display booths, and what hit me was, there was only one supplier for a display booth. I can see that on some things like licences and software, but it struck me as being strange, in the case of supply booths, that you would be able to find only one supplier. Can you explain what was so specific about that?

MR. CHAIRMAN: Mr. Janes.

MR. JANES: We had need for a certain type of display booth for various manufacturers' shows and other things that we do from time to time, and we had some requirements that, based on the information given to me, there was only supplier in St. John's who could handle that, but I will ask Mr. Kennedy if he could just give us some more of the details.

MR. KENNEDY: At the time the display booths were purchased, we did, in fact, tender for the supply of the display booths for the corporation and we awarded the tender to the lowest bidder. The point in question in respect to the supplemental equipment, was that the supplier we had to get it from was the original supplier of the display booths to begin with, so the only way we could get the equipment to be compatible, was to go back to that lone supplier.

MR. CRANE: There are several other questions here but I will turn them over to Melvin.

MR. CHAIRMAN: Before you leave, could you just clarify that for me, because as I read through the documentation here, these display booths were for different offices, so you are saying that these regional offices each had a certain number of display booths and that these, in order to add on to them, had to be compatible? Is that the situation?

MR. KENNEDY: No, what we tried to do was to have uniformity, in fact, Mr. Windsor, with respect to the display booths for all of our regional offices, and the display booth that we purchased was like a table-top type of display, and they were uniform right across the corporation, so it wasn't a question of having different display booths in different regional offices. The idea was that the graphics and some of the enhancements that had to be made to the display booths, once we committed to that type of display booth, we had to be uniform in how we could get the equipment to properly match up to it.

MR. CHAIRMAN: And this was the only supplier who could supply something that would be compatible?

MR. KENNEDY: We did put out tender requests from several suppliers to supply a display booth for us. The one we chose, originally, was the lowest bid, and in getting into other peripherals or add-ons to it, we had to go back to the original supplier, since that was the only place where we could get the equipment to match.

MR. CHAIRMAN: Mr. Hewlett, would you like to carry on?

MR. HEWLETT: Thank you, Mr. Chairman.

There are some considerable figures in here with regard to written off accounts, and the category, doubtful accounts, is in the tens of millions of dollars. Is this an excessively high number, when you think, for instance, the 1992-1993 doubtful accounts category increased from $29 million to $37 million? In 1993, at the end of March, there was $7.3 million written off as bad debt, basically. I am just wondering if I can get some commentary from the corporation as to the size of these doubtful accounts in terms of the overall accounts that are on the books of the corporation.

These numbers, at least to myself as a layman, seem to be rather high in terms of - I believe you have your $70 million or so loan and equity investments out at any given time. The write-off, for instance, was 10 per cent of that total, and you are talking about nearly half when it comes to doubtful accounts. I was just wondering if I could get a comment on that.

MR. JANES: Mr. Hewlett, what we are dealing with - you talked about $70 million; that was in March, 1992. Today we have, as at March 31, 1993, about $85 million, and the amount of allowances basically from 42 to 43 per cent.

What you have, I think, is a position that is indicative of a development agency dealing in one of the worst economies, if not the worst, in Canada, attempting to provide funds to various entrepreneurs who want to start a business or, at the same time, work to keep some existing businesses alive, and I think we have done a share of both of that.

I made enquiries across Canada last year at the OCED conference here in St. John's. I spoke to representatives from the U.K., who indicated very clearly that their experience in that part of the world was very similar to ours - somewhere between 40 per cent and 45 per cent.

When you look at the allowances you are also having to look at three categories that are very important to consider. We have about $12 million to $14 million of our portfolio that is in the fishery-related sector of the Province. We have some $8 million in equity contributions to small and medium-sized businesses, and we have almost a like amount in the venture capital sector of our portfolio.

Fisheries - I think we all know what that is about, particularly today with the moratorium, and no real indication in sight as to when that might turn around.

Equity - for all of the committee members there should never be any doubt that equity is the riskiest part of any deal and, as we are all aware, it is part of the mandate of Enterprise Newfoundland and Labrador Corporation to be involved in equity participation to the various clients of our corporation.

Venture capital is an older program that was part of NLDC, carried over, and it has had its share of problems as well. It has a seven-year interest moratorium arrangement, no payments, and a lot of the early venture capital fundings were to single project types of proposals; and those, again, are perhaps the riskiest, because if you are dealing with a true venture capitalist, there is a tendency to basically average the risk out over a number of investments or a number of ventures. When you get into single project, of course, you are into a basic proposition of either it works or it doesn't.

MR. DUMARESQUE: I am sorry, Mr. Janes -

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: If I could interrupt just on a point of information there as it relates to NLDC: Do you have any idea of the amount of doubtful accounts that have been associated with NLDC? You mentioned $12 million to $15 million, and $8 million for equity and so forth.

MR. JANES: Yes.

MR. DUMARESQUE: Of that $70 million, what part of it would have come from NLDC and maybe the rural development board?

MR. JANES: I will just ask Mr. Kennedy if he could provide those to you, Mr. Dumaresque.

MR. KENNEDY: The allowance for doubtful accounts for March 31, 1993 totalled $37.1 million, and the breakdown between the Newfoundland and Labrador Development Corporation and the Rural Development Authority and ENL is as follows:

NLDC, $19.3 million; the Rural Development Authority, $5.2 million; and enterprise corporations, $12.6 million.

MR. CHAIRMAN: Mr. Hewlett.

MR. HEWLETT: Just looking at those numbers, NLDC and the Rural Development Authority were in existence for many years and we are talking about $19 million. In ENL, a relative newcomer on the scene, we are already up to $12.6 million.

Mr. Janes mentioned the fishery. Can we expect, in sort of the next year or so, because of the disaster in the fishery, a significant increase in the number of accounts that are basically marked down as bad debt rather than just doubtful?

MR. JANES: I think what we have done, Mr. Hewlett, is captured a good sense of what this fisheries component of our portfolio is all about, and that what you see is basically the extent of our problems. If things change in the fishery over the next short while, maybe there are some arrangements here that can be made to restructure or otherwise deal with those but, depending on the outcome of the fishery over the next number of years, give you a better picture then as to what might happen to these accounts.

I should say one thing, Mr. Chairman, before I finish. Mr. Hewlett did have a two-part question previously, one dealing with the allowances, the other with write-offs. I should advise the Committee that the write-off position we have had presented to our board in recent weeks covers a period going back to 1986. NLDC and ENL had provided information to the Department of Development, which is our department of government; we are a part of that department. And, while we had advised them of what had been formally written off during the year, going back to 1986, no action was taken on those various advices. So what we are dealing with today are write-offs, in effect, going back to at least 1986.

So you don't get, necessarily, a true picture in the write off of an ENL proposition, but Mr. Kennedy also has some numbers - some current numbers, Pat, on the write-offs?

MR. CHAIRMAN: Can you give us some examples of the types of current items that you have written off and why they were written off? Mr. Hewlett, do you mind if I interrupt?

MR. HEWLETT: No, go ahead, Mr. Chairman.

MR. KENNEDY: I have a list of the write-offs here. The amount of write-offs at March 31, 1993 is $9.006 million. The breakdown, again, between the three agencies is as follows: Newfoundland and Labrador Development Corporation, $5.9 million. The Rural Development Authority, $3 million. Enterprise Corporation, $180,000.

Some of the accounts, Mr. Chairman - for example, in 1986 there was a write-off in respect of a company named Atlantic Printing Limited, and that was for $79,000. The big ones are in the fisheries sector. On December 2, 1991, Notre Dame Bay Fisheries Limited, there was a write-off of $1,023,000 approved by the board. A big one also is another fish company, Cape Race Enterprises Limited, on May 10, of 1990, for $141,000, and on October 12, 1989, a company whose name was Atlantic Power Tongs Limited, $557,000.

MR. CHAIRMAN: What was that? Atlantic who?

MR. KENNEDY: Atlantic Power Tongs. That was a company formed to deal with drilling, offshore rigs. They had clamps to turn the tubing that goes into the hole to drill the drill holes. That was $557,000. There was a company on December 2, 1991, Atlantic Challenge Limited, $154,000. Do you wish me to keep on going with names?

MR. CHAIRMAN: I think that is okay. The $180,000 ENL money - what sorts of items would that cover?

MR. KENNEDY: The big ones from ENL, the $179,000 - basically that was one particular company, if I can find it.

MR. CHAIRMAN: So you have only had one company that has been written off since ENL was formed?

MR. KENNEDY: Yes, Sir, it is actually represented by three amounts. There is an amount of $714, an amount of, I think, $158, and one big one for something like $170,000. I will try to find the name for you and let you know what that is.

MR. CHAIRMAN: So those would be the only three that ENL has written off from its current portfolio?

MR. KENNEDY: Yes, Sir, that is correct.

MR. CHAIRMAN: Mr. Janes.

MR. JANES: Mr. Chairman, I should remind you that this information is to March 31, 1993.

MR. CHAIRMAN: I'm sorry, for what?

MR. JANES: To March 31, 1993.

MR. CHAIRMAN: 1993.

MR. JANES: So there are other write-offs -

MR. CHAIRMAN: Since then.

MR. JANES: - that have taken place since then, absolutely.

MR. WINDSOR: Are they of significant numbers?

MR. JANES: I don't think there are any significant numbers. I will tell you what we have done, Mr. Chairman, and that is basically go through and start to clean up some of this portfolio now so that a lot of the RDA accounts - in particular, the smaller items that basically represented a very significant number of accounts have been cleaned up, particularly where there is no likelihood at this point in time of ever recovering any money. So we have done some cleaning up of that.

MR. HOUSE: Mr. Chairman, could I just add an observation or two -

MR. CHAIRMAN: I recognized Mr. Dumaresque first. I will get back to you Dr. House.

MR. DUMARESQUE: I want to also make an observation from the information that I have seen. There are a number of accounts that - people have gone bankrupt, personal bankruptcy or whatever and in these cases they would be part of the reasons why they have been written-off, I would assume, is that a fair statement?

AN HON. MEMBER: Yes.

MR. DUMARESQUE: When Mr. Windsor asked what is written-off I think he also asked why these other - 99 per cent of the accounts that are written-off under NLDC and RDA, were there any real outstanding issues as to why these accounts would be written-off as opposed to the issue that I just raised?

MR. JANES: Mr. Dumaresque when you say are there any outstanding issues, can you just -

MR. DUMARESQUE: Well I am just wondering -

MR. CHAIRMAN: I think they are primarily fishery related. I think that is the question that you are asking.

MR. JANES: A lot of those that he talked about were indeed related to the fishery. But, the write-offs that we've had are not solely concentrated in that area. It is just that some of the larger ones, in reference to the NLDC portfolio, pertained to the fisheries.

MR. DUMARESQUE: Mr. Kennedy do you have a comment on that?

MR. KENNEDY: Yes, the only comment I would add to that would be in terms of declaring an account to be written-off, it was something that was not done quickly. The corporation worked with the clients as best we could to try and work them through their hard times. It was only when things got to the point where there was no more chance for salvation that such action was taken. On some of the big ones that I just mentioned, the large amounts, they were actually put through former receiverships and efforts were made to recover as much of the secured as we possibly could and so on. So it is a question - we've had some situations in NLDC, particularly where accounts would be in arrears for periods of up to two and three years, we worked with those clients and they eventually rebounded and brought their loans current and we worked on with them. So these are situations where they were kind of down and out last ditch before the action was taken to recommend write-off to our board.

MR. DUMARESQUE: Would you know of any of these that would be associated with the venture capital area associated with the seven year moratorium aspect of it? Is there now a programme in place where there is a seven year moratorium as it was under the old NLDC programme? Does that still exist today?

MR. JANES: Mr. Dumaresque, the Venture Capital Program continues. It has been changed from when it was implemented through NLDC. It is now a funding programme that has an upper limit of $500,000 rather than $1 million. It requires a minimum of two investments rather than a single project proposal that we had dealt with in the past. So the Venture Capital Program continues and the interest moratorium for seven years continues. The two changes have been; (1) the upper limit of investment and (2) the venture capital list will do two investment deals rather than one which was the case many times in the past.

MR. CHAIRMAN: Mr. House you want to make a comment?

MR. HOUSE: Thank you, Mr. Chairman.

Just to add to Jim's comment first of all on the venture capital thing. One other change that has been introduced is that previously we argued that the venture capital list would sort of have the freedom to choose the investing company and that ENL would not do its own investigation of the viability in its estimation of the investing company. We have now moved away from that. We want to feel secure that the investing company is a good investment ourselves before we agree to the investment. So that is a third change that has been made there.

The more general comments I was going to make, if I may at this point or would you -

MR. CHAIRMAN: Sure, go ahead.

MR. HOUSE: I was just going to make two more general comments, Mr. Chairman. I think the first one is very important for putting the activities in context here and that is an economic development agency, like Enterprise Newfoundland and Labrador Corporation, is always kind of in a dilemma in trying to find the right balance between encouraging economic activity to happen, being supportive of local business people - and we have lots in this Province who are attempting to make things happen at a time when we really need economic activity - on the one hand, and therefore to be as liberal, small "L", as you can be in dealing with your clients, but on the other hand, of having this responsibility to the public to manage its funds properly.

You have to find the right line. We're in the danger on the one hand of being accused by people of being too much like a bank. I'm sure you've probably heard people say that. That ENL is too much like a bank. These are usually people who are clients who have attempted to get funding who haven't been able to get it. On the other hand, of being too ready to take risks. We've got to find the right balance between those two.

We've been very aware of that at the board of directors level. One of the things that we've done over the last few years is we've looked around, both internationally and with other agencies in Canada. Basically we've found that the sort of write-off provisions and bad debts and so on that we've encountered in our corporation are pretty much in line. When you take into account the recessionary nature of the economy over the past couple of years, and particularly the difficulties in the fishing industry, I think that our record compares quite well internationally and nationally in that respect. There's always that kind of line, the balance that we've got to find between those two extremes. We think that we're pretty good there.

The second general comment I would like to make is that - and I would like to give credit to Mr. Janes and Mr. Kennedy and the staff of the corporation over the past year or so on this one - and that is, in addition to having to deal with all of the organizational start up challenges that the corporation faced, we also found over time that we had inherited a situation in which there had been this kind of strange situation. Where over the years, you know, that NLDC had sent off these letters to the Department of Development saying a certain amount needs to be written off, and so on, but it hadn't actually happened. There's a certain amount of cleaning up work that has had to go on and I think that the staff have been doing that over the past year. I think that what you'll find, Mr. Chairman, is that in subsequent years the situation will be a lot clearer and a lot more straightforward. It will be a lot easier to answer a lot of the kind of queries that this Committee and the Auditor General might have.

Thank you.

MR. CHAIRMAN: Thank you very much, Dr. House. Let me say that if the corporation were more like a bank we'd have no need of you. The banks are not giving anybody any money today. Mr. Hewlett, you've been most patient. I interrupted you about fifteen minutes ago. Would you like to carry on?

MR. HEWLETT: Just one other point. The gentleman from the Enterprise Corporation mentioned the recessionary nature of our economy. As industry critic for the Opposition I constantly get press releases come across my desk from the Minister of Industry, Trade and Technology singing the praises of the Enterprise Corporation, and outlining, usually on a project-by-project basis, the number of jobs created, the amount of funding given particular companies, and so on.

But we're into I suppose what can be described as the creation, in any given few months or a year or so, of hundreds of jobs. This economy of ours needs thousands I suppose, for want of a better phrase. You are a development corporation, of a sort. I was wondering if any member of the panel there would care to speculate: are we making any progress in addressing the job creation needs of this economy? Significant progress in terms of putting a real dent in the nature and the depth of the recession which seems to have a grip on us.

I of course have always stated that government and/or its agencies need to be more pro-active in the chasing down of economic opportunities and so on. It's one thing to be a bank. It's another thing to be out there dragging them in by the hair of the head. I was wondering if the panel would have any comment on the role and the prospects of your organization in creating thousands of jobs.

MR. CHAIRMAN: Dr. House?

DR. HOUSE: I guess there are a couple of comments I would like to make on the very important and very fundamental question that's been asked here.

I think the first one is that we have to recognize that Enterprise Newfoundland and Labrador Corporation itself is only one part of what has to be a wider response by government to the present difficulties in the economy. ENL is specifically geared to small and medium size enterprises, and really in Newfoundland it is basically geared to small enterprises.

ENL has had so much demand for its services in the first couple of years of its operation that it kind of used up all of its energies just to be reactive, Mr. Hewlett, to the demands on it. Now that has changed a little bit during the past six months probably, and we are finding that there is now a little bit more of an opportunity for some of our project officers and people working in the regions to become a little bit more proactive in trying to get out there and make business deals happen as it were.

We have recently put into place the business opportunities data base, through the ACOA enterprise network, which identifies a whole series of business opportunities that people contacting our offices can be introduced to and we hope that we can interest them in pursuing.

So the first part of my answer is that yes, ENL should become more proactive. It is beginning to be. Just the practical demands on its energies and resources in the first couple of years of its operation made that, in practice, very difficult, but it is becoming a bit more that way.

The second answer is that there are other agencies of government which have been taking a more proactive approach to making business development happen.

Within the Economic Recovery Commission itself we have a group that we call our business initiatives group, and they are essentially a proactive group trying to make business deals happen - business start ups, joint ventures, attract outside investment, help work with companies that are currently in trouble to stabilize and therefore to save jobs, because a job saved is worth as much as a job earned although it is not as visible. So that is one agency of government that has been very proactive, but again it is only a small group of people and I would suggest if you wanted to get more information about that you might want to follow it up with David French who heads up that group within the ERC.

In addition to that, within the Department of Industry, Trade and Technology we, the government, have recently put into place what they call a ministerial prospecting group which has the explicit mandate to be proactive in attempting to attract outside investment into the Province. In the first year of their operations they have mainly been laying the groundwork in identifying sectors to be focusing on, identifying specific opportunities and so on, so we are hoping to see a lot more success in terms of proactive investment attraction coming out of that group in the next while.

So part of the answer is that ENL was very difficult to be proactive at first, but is becoming more so now. The second part of the answer is that there are other agencies of government that are charged with that and are being proactive.

Thank you.

MR. CHAIRMAN: Thank you very much. Mr. Hewlett?

MR. HEWLETT: Thank you very much. Mr. Chairman, I pass.

MR. CHAIRMAN: Mr. Penney, would you like to carry on, Sir?

MR. PENNEY: Thank you, Mr. Chairman.

MR. CHAIRMAN: Before you start, let me say that although we are in the House of Assembly, we are a little less formal. If you would care to remove your jacket or have a coffee, we will take a break in fifteen or twenty minutes, but if you want to have a coffee or go to the washroom or something, feel free to do so.

Mr. Penney?

MR. PENNEY: Thank you, Mr. Chairman.

I would like to go back to the topic of doubtful accounts for a moment. The figures that you provided us with, that $37.1 million, were the doubtful accounts for 1993, and of that $12.6 million was from ENL as compared with $2.6 million from ENL for the previous year. Mr. Hewlett mentioned this. He brought it to your attention that this was a fairly large figure, $12.6 million, for a corporation that was a couple of years old, compared to the $20 million that NLDC had there when you took it over.

Now that is an increase in one year from $2.6 million to $12.6 million. That is an increase of $12 million. It has increase five fold. Now certainly this is not indicative of what we could expect for successive years. Could you give me some idea what your projection might be? Now I realize you cannot predict the future, but based on the information that you have and the data that is available to you today, could you project for us, please, what you might expect that figure to be as of March, 1994, and probably as of March, 1995? Will the figure continue to escalate or will it level off?

MR. JANES: Mr. Penney, we believe that the figure in the 42-43 per cent range will continue. What you will see take place of course over time is the NLDC, which was a heavier portion of this portfolio when ENL commenced, will suddenly start to decline; and the ENL position, because all of the funding that is now taking place through that corporation, will continue to move along. There's no question about that. If you believe that 42 or 43 per cent is going to be the number then there has to be a diminishing of NLDC and an increase of ENL.

One thing I should mention is that the figure of NLDC that we gave, the nineteen point some million dollars, excluded the $5 million, Mr. Kennedy, for the write-offs?

MR. KENNEDY: Yes.

MR. JANES: So that indeed, Mr. Penney, the NLDC position prior to write offs was some $24 million, rather than the $19 million. It was diminished by the amount of the write-offs that we also had put forward as of March 31. As a final position, I think that this Committee, or government, Department of Industry, Trade and Technology, will probably continue to see the risk portion of our portfolio continuing at the 42-43 per cent range for the next year and for the year after.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: I can appreciate that. I can also appreciate the fact that we are trying to perform in pretty difficult financial times. Recessionary times. I can also appreciate the fact that you have a difficult role to play, when most of your clients who come to you have already been turned down by the banking establishments. Could you give us some idea - recognizing those factors - how many people have in fact come to ENL for assistance? How many people have come requesting that you assist them in starting a small or medium size business? Can you give us some idea how many of them you have in fact been able to assist? How many of those applicants have been successful in getting into business, or probably how many jobs have been created as a result of ENL?

MR. CHAIRMAN: Dr. House.

DR. HOUSE: We can give you those figures. We can get them and give you pretty exact figures on that, but I don't think that we can do that right at this moment.

MR. CHAIRMAN: I neglected to advise you earlier that if questions are asked that you don't have information here on, you can certainly give that to us in writing subsequently.

DR. HOUSE: I would prefer to do that rather than to make a guess which could be wildly wrong.

MR. KENNEDY: The corporation reconciles on a monthly basis what loans we've done, to whom and so on. That information is readily available. I don't have it here with me this afternoon but I can certainly make it available later.

MR. CHAIRMAN: Perhaps we can ask that you make that available to each member of the Committee as soon as possible.

MR. KENNEDY: Sure, no problem.

MR. CHAIRMAN: Thank you.

MR. PENNEY: On that topic for a moment. The information that we have been presented with suggests that for the year 1992 there were 8,000 people who came to ENL requesting assistance. That was for the year 1992. I'm not looking for anything specific. I recognize that you don't have that with you and you can provide us with it. That's fine. How would that figure compare with the number of people who came for assistance in 1993?

MR. JANES: The number 8,000 covers both the funded and non-funded clients of ENL. What we have found through the statistics keeping that we do on a month-to-month basis is that 10 per cent of that number is clients who are looking for funding assistance, and the other 90 per cent are looking for non-funded, or the soft support services that we provide in ENL. That's the type of services we talk about as far as business plans, going out and doing the books for rural development associations, those types of things where we're hand-holding and attempting to bring various clients along.

As a matter of fact, it was just the last board meeting that we had where some information came forward at a year over year basis. What we're finding is that the number of clients coming into ENL looking for funding is probably down about 15 per cent. I say that approximately 15 per cent from last year. Whereas the number of clients that are coming in looking for support services is probably up about 40 per cent. So there's that kind of a switch that's going on.

I think I can probably state it this way. In the first two years we were open I think most of the people in this Province wanted to find out about ENL, what they had to offer, what was going as far as ENL and ACOA and so on. That's all been covered now. What they found out is that ENL provides funds and expects to get it back. Whereas ACOA in the past provided grants. We don't provide grants to our clients. So that you've got a kind of a situation where a lot of that's been covered now. Clients who are coming in to see us are those who need some support, to look into their business activities, what is happening, where have they gone wrong or, where they have some strengths and where they might continue to exploit that.

MR. PENNEY: More or less guidance?

MR. JANES: Yes. The mentoring, the hand holding, that type of service I think has become more predominant these days.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: Mr. Chairman, I have a few more specific questions. I am assuming that everybody here has been provided with a copy of the same material that we have, and, if I may direct your attention gentlemen to page 8 of this document. The Auditor General is referring to internal audit procedures and the notation there in the middle of the page: An audit committee of the board of directors has not been established. The internal audit function is directed by a group consisting of the president, the vice-president of corporate services and the internal auditor; and then the next line says: the internal audit function does not have a mandate or terms of reference.

If I may, Mr. Chairman, direct the first part of my question to the Auditor General. Ms. Marshall could you please explain to us your concern that our committee was structured in the way that it has been, that it did not consist of members of the board of directors but it was a group consisting of the president, the vice-president and the internal auditors; could you explain to us how this compares with the internal auditing procedures of other Crown corporations and what your concern would be with this procedure that had been put in?

MR. CHAIRMAN: Ms. Marshall.

MS. MARSHALL: Most large corporations would have an internal audit committee of the board of directors. The committee that was established by ENL was comprised of officers of the company and the internal auditor himself. Really there should be a reporting structure whereby the internal auditor would report to people who are independent of the day-to-day operations of the company, so if there are any concerns about the operation of the company there would be access to somebody outside. Most large corporations would have this type of internal audit committee, and the concern that I had was ENL was disbursing such large sums of money that I felt that it would be appropriate to have an audit committee of the board of directors.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: I note in the reply to the Auditor General's comments, that the corporation acknowledges the concerns and agrees and recognizes that the changes are necessary. Could you please, gentlemen, give us an update; what has in fact changed with that structure since the Auditor General's Report?

MR. CHAIRMAN: Mr. Janes.

MR. JANES: Mr. Penney, the committee that we had in the corporation at the time the Auditor General visited was a transitional committee. The internal audit function had started in 1991 and it continues to this day. While I say it was transitional, it was transitional awaiting board approval of an appropriate committee and I should advise this committee today, that a proper audit committee exists in ENL today and the members are: Mr. David French, Chairman; Mr. Gilbert Gill, Vice-chairperson; Miss Joan Pinsent, member; so that those three individuals are members of the board of directors of ENL. In addition the president of the corporation and the internal auditor are called from time to time to that committee as is appropriate, and that indeed it has been structured, established, ratified by the board, a mandate has been approved by the board and the basic scope of the internal auditors requirements have been approved by the board as well, so that we can say today that all of that has been done.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: Within the same document, Mr. Chairman, page 12, at the bottom of the page, the heading is: Guidelines for the Hiring of Consultants, and the Auditor General's comment is: Our review disclosed that the corporation does not have a documented policy or guidelines for the hiring of consultants.

Would one of you gentlemen explain to me what policy you have been using prior to this report being submitted?

MR. JANES: Mr. Penney, the guidelines that we followed would basically be those of Treasury Board and that while the corporation at the time of the visit of the Auditor General did not have a formal policy in place and documented in its manuals, it does today have a policy on hiring consultants that is, I would say, 99 per cent consistent with the guidelines that have been established by Treasury Board. Those guidelines have now been approved by the board of directors.

MR. CHAIRMAN: Mr. Penney.

MR. PENNEY: The same document again, Page 15, Mr. Chairman. I draw your attention to the corporation's response at the top of the page. It says the corporation's board of directors and executive have taken dramatic timing and comprehensive action to deal with the area of the corporation's activities. At the present time an internal committee chaired by the president and chief executive officer is in the process of doing a 100 per cent review of the corporation's investment portfolio. The mandate of the committee, which is also acting under authority of the board of directors, is to complete this review by mid-December 1992 and to make firm recommendations to the board of directors regarding future management of the investment portfolio. The first question: was this achieved by mid-December 1992, and secondly, what were these firm recommendations that were made?

MR. JANES: Mr. Penney, the internal committee that carried out this account-by-account review completed its work in January of this year. It was somewhat pass the date that we had established but close enough that it was current in any event. That work was presented to the board of directors, the full board, during a meeting in early April 1993 and the board ratified at that time what we call our loan administration policy within the corporation. It was approved to be implemented and effective as of July 1, 1993, and that did happen, so that today within ENL there is a proper account administration policy dealing with collections, risk rating of accounts, establishing allowances for accounts, and so on.

The issue here, of course, the important issue, is that as Dr. House has indicated earlier, when the doors of ENL first opened there was a lot of emphasis placed on clients coming through the door looking for assistance and there was probably too much emphasis placed in that area. Of course the main issue at the time was providing good service to those people. What we now have in place is a better balanced approach, balanced from the point of view of when you put it out you are also expected to get it back, so that it is not heavily skewed towards meeting client's needs for funding and basically letting it go at that. Today we have a proper policy in place to see that the recovery of funds is given every bit of attention that it should. The missing ingredient today in having that fully effective is the redeployment of several people within the corporation to beef up the collection activity, and that is to take place very, very quickly so that all of the recommendations that came out of that committee's report to the board as far as loan portfolio management has been accepted and ratified by the board and is now in place as of July 1, 1993 as a current operating policy of ENL.

MR. CHAIRMAN: Dr. House did you want to interject here?

DR. HOUSE: Mr. Chairman, there is just one addition to Jim's comment here and again it is a matter of balance, I think. Initially the demand for service was so great that we were kind of caught in this pattern of getting the money out and satisfying the clients in that sense. We are now paying more attention to collections but I do not want people to get the impression that we are suddenly mainly focusing on being a collection agency. What we are really trying to do now is put more emphasis on better follow-up and after care with the clients and hopefully by providing continuing after care services to clients we can help more of them turn the corner into becoming successful viable enterprises and therefore collections will not be necessary. The main emphasis is still on trying to make businesses succeed, however, when it becomes clear that they are not going to succeed then the collection side of the enterprise's activities will be emphasized.

Thank you.

MR. CHAIRMAN: Mr. Janes.

MR. JANES: There is just one final point. We have also, as part of this policy, requested that all regional offices do a review of their portfolios on a quarterly basis and to submit that information to the corporate office for consolidation and further analysis so that the system is starting to work now where the people in our regional offices who are responsible for the day-to-day contact with clients are becoming more familiar with these requirements. As I mentioned, you put it out, you also have to get it back, so the idea today is to try to improve that side of the corporation's activity that was probably a little bit wanting in the past.

I should say finally, the numbers that we have achieved over the last couple of years, our total collections went from some $7.2 million at the end of 1992 to $10.4 million or $10.5 million, and based on statistics to this date we are probably heading for about $12-million-worth of recoveries this year. So I think, in looking at the transactions in the corporation, there is a steady improvement all the way through, being mindful of what Dr. House has said, that we are not a collection agency or a high-powered collection agency. We are trying to balance the day-to-day activities of what happens at ENL.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you very much.

MR. PENNEY: Mr. Chairman, if I may follow up on that.

MR. CHAIRMAN: Mr. Penney, we will hear one more question from you before we move on.

MR. PENNEY: I would like to stick with this topic for a moment. I think we all recognize that you are not a collection agency, and the comment that was made by ENL in reply to the Auditor General's Report states: We don't see ourselves as a collection agency, but when a client is behind on a payment we will remind him that they owe us money and we are expecting payment.

Unfortunately, many people are not as concerned about owing government money as they are, say, a bank or a utility. I think we have to recognize that is pretty accurate. So you owe the government money, so what? Big deal. It is our money to begin with, and if you don't repay it, what are they going to do to us? We know what the bank is going to do if you don't repay your loan.

So could you just explain to us generally: What do you do? How do you collect? What do you do with me when I don't pay? Obviously you just don't write it off every time, so what procedures do you use?

MR. CHAIRMAN: Mr. Janes.

MR. JANES: Mr. Penney, I think what we do is basically done in stages, and the first approach would be to find out what is happening to your business, whether or not some things have to be changed. So that is kind of a counselling approach that we take first. If there are issues within your corporation, your small business, that need some redefining or restructuring, we work with you, as a client to do that. We basically give you another chance, and I should say that in a lot of cases we give clients more than one or two or three chances, and we will continue to work with you to make sure that you are on the right track; but if, for any number of reasons, your business fails and you are unable to pay back ENL, a number of issues will be dealt with; first of all, of course, whether or not receivership is the proper option, whether or not the sale of the business could be another option, so that we will continue to work with these situations all the way through.

We have found, and I believe it is probably the most reasonable approach, that only as a last resort will we put a company out of business. It is our intention to keep that company going. We have invested so many dollars, and so much time of our people, into a business, that it behooves us to do what we can to make sure it survives. The very last step would be basically to put it out of business.

MR. CHAIRMAN: Dr. House, you wanted to add something to that?

MR. HOUSE: Thank you, Mr. Chairman.

Mr. Penney, I think, one of the things I am really struck by with respect to ENL and its activities is that there is what I can only call an important business education function that ENL and other agencies within government have to play, and it is part of this larger problem of dependency that we find ourselves in, in this Province.

It is true there are a number of people who have felt in the past that almost by right they can come in to an agency such as ENL and expect to be given a grant or a loan or some equity investment, whether or not they have a viable business proposal. One of the things we are trying to do is to spread this public education, I guess, function, to change that way of thinking.

ENL should not be in the business of simply giving out grants or loans for which it never expects to get paid back, so every time we make an investment, whether it be an equity investment or a loan, we want to do it on as businesslike a basis as possible and we want to get our clients to buy into the idea that this is not free money. Money from government is money from other people, other taxpayers, and it is just as much a responsibility to manage that money properly as any other money they may get access to. So we see that as being an important part of the function of the corporation, to move people to that more businesslike and more professional way of developing business opportunities. That is the only way they are going to work in the long run.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you very much, Dr. House.

Mr. Penney, we will get back to you again a little later on if you have other questions. I am going to move on to Mr. Dumaresque, but so as not to interrupt him - it is just about 3:15 p.m. - perhaps we will take a ten-minute coffee break and Mr. Dumaresque can carry on afterwards.

Recess

MR. CHAIRMAN: Order, please!

We shall continue now. Let me first of all thank the witnesses for changing their schedules. We were originally scheduled for this morning but because of the long weekend some of the committee members found it difficult to get back from their districts. Two of them are not back yet. Because of other commitments, they called and said they couldn't be here today. We appreciate your changing your schedules. Hopefully, we will finish this afternoon, if not we will have to do so another time.

Now, Mr. Dumaresque, if you would like to carry on.

MR. DUMARESQUE: Thank you, Mr. Chairman. Most of the questions that I had have already been asked, but I would like to ask a couple of questions.

First of all, I would like to take this opportunity to commend the corporation on the work you have done to date, and particularly on the fiscal responsibility that you have exercised. Because if there were a criticism that I would align myself with it would be more to the fact that you are a little bit too much like a bank, from some of the experiences I have had. As we have seen, where you have only 2 per cent of your bad debts being actually written off, it certainly shows that you are like a dog with a bone, you are not about to give up on that business. I think that is one of the things for which you should be commended.

The other aspect of your operation that I have found very useful as a member from Labrador is the flexibility you have shown. As I said, I would like to see a little bit more, but the flexibility that you have shown, in my view, has absolutely, no doubt, resulted in jobs being maintained and jobs being created in Labrador where they would not have been created if it wasn't for your ingenuity and if it wasn't for your ability to reflect the unique needs of some areas of this Province, particularly in Labrador.

I note some of the areas that you have invested in, for instance, in Labrador, that we have had a lot of problems getting investment in before: the bakeapple processing operation in Forteau; some of the adventure tourism aspects that you are involved with in Northern Labrador and Western Labrador as it relates to the caribou industry; the use of labradorite under Mr. Goudie there in Northwest River. The aspect of being involved with the Credit Union and the Co-operative as they work to give financial services to remote areas of Labrador has certainly not only found the services there, but you have also created long-term meaningful jobs in that area. Certainly, also, there is the assistance with local transportation companies in Labrador, of which the Mary's Harbour one comes to mind, where we have been able to find a little niche there to address the freight services for that area.

These things are put together when the nice neat budget and the nice neat cash forecasting and all of these things are not readily available, cannot be obtained. You have been flexible. You have given these circumstances the merit that they deserve, and I want to congratulate you on that.

MR. CHAIRMAN: If I had known you were going to say all that I would have let the camera stay on. You could have sold them a commercial.

AN HON. MEMBER: I wish you had!

MR. DUMARESQUE: No, I mean, you don't get many chances to say these things to people who are there for you.

MR. CHAIRMAN: May we have a list of those projects approved in the Eagle River district?

MR. DUMARESQUE: Northern Labrador, Western Labrador, Goose Bay, Northwest River - I don't know if there are any approved in Eagle River district, but I don't mind that.

The other services that you have provided to a lot of people in Labrador have really been of interest to me. Because I have found, where ENL has become a one-stop shop you have taken a number of people who have come to me looking for assistance, brought them in, given them technical assistance, and certainly been able to give them a lot of the information that would say: `okay, you are not supposed to be here anyway.' But you have done that. I guess that was the first question that I wanted to put to you.

With the preponderance of funding agencies out there - in Labrador, for instance, Labrador Venture Capital, ACOA, different aspects of ACOA, and other community futures - with the preponderance of these organizations, do you see yourselves in the future as an organization that might be more involved with some of these other services that you have been able to provide to the business community, as opposed to directly providing money? If so, why do you see that as being more important?

MR. CHAIRMAN: Dr. House.

DR. HOUSE: Mr. Chairman, I guess I could start on that one. Let me just make two comments. The first is that there is now a general recognition by both orders of government that there are a lot of agencies - business support agencies and economic development agencies that work in this Province and other provinces as well. And I think you will see over the next period of time, over the next year or two, some consolidation taking place so that we won't have too much duplication and overlap in different government agencies providing economic and business development services. I think that would be a good thing and that, as you suggest, Mr. Dumaresque, it would allow more free time to some of the staff people at Enterprise Newfoundland and Labrador for some of the other kinds of services we have already been performing but to do them more in terms of the non-financial support services, not just directly to business people but also to economic development agencies, development associations, development corporations and, in some cases, municipalities now trying, as well, to sort of carve out a niche for themselves. You can see the importance of their involvement in supporting economic development. So I would certainly hope that ENL will always continue to be, first and foremost, an economic development agency and view its business support and its financial support services to business as just one tool in its tool kit, if you will, for that broader issue.

MR. CHAIRMAN: Mr. Dumaresque?

MR. DUMARESQUE: The other question I had, I guess I should direct to the Auditor General. In light of the answers that the officials have given here today and the information they have provided to you as late as 27 September, how do you feel now that the corporation has met some of the issues you raised eighteen months ago?

MS. MARSHALL: Based on the discussions I have had with officials of ENL, I feel that they are addressing the concerns raised in the report. With regard to the establishment of the audit committee, I would like to indicate that I have met with the newly-formed audit committee and reviewed my concerns with them, and we will be going in at some future date to make sure that action has been taken on our recommendations.

MR. DUMARESQUE: I have no further questions at this time.

MR. CHAIRMAN: Thank you, Mr. Dumaresque. Perhaps I will just move around the table again because I have a few questions of my own, all from a fairly general point of view. You talk about a flexible corporation. Could you tell us a little bit about the structure of the corporation for the benefit of the committee and perhaps for the benefit of the news media? As I understand it, you have five regional offices and eighteen satellite offices. It seems everywhere I go in rural Newfoundland, I see an Enterprise sign. It is nice to see, I might say, but do you want to tell us just a little bit more about it?

MR. JANES: That was the other good thing I was going to mention.

MR. CHAIRMAN: You forgot one, yes.

MR. JANES: Mr. Chairman, the Enterprise Corporation was primarily established from employees of NLDC, The Newfoundland and Labrador Development Corporation and some operating divisions of RAND, the sections that were attached to the Department of Development back in 1990.

When ENL opened its doors, the consolidated number of positions was roughly 150. We added about thirty-five new positions to give us about 185 and then, of course, in July of 1982 the crafts division of ENL moved over to Tourism and Culture. So that brought us to a position of 172 employees. Those 172 employees are spread throughout the Province on a regional basis. We have five regional offices, at St. John's, Clarenville, Gander, Corner Brook and Goose Bay. We have eighteen other field offices and these are primarily one person offices, with the exception of Grand Falls - Windsor and Marystown where we have two or three employees in each of those two units.

The regions, to date, show probably the most activity in the Avalon region. Roughly 50 per cent of the businesses and business activity take place within the Avalon region. Corner Brook would follow that as far as business activity is concerned - Central Labrador and Eastern. Most of our activities in our smaller regions are involved with soft services or support services vis-à-vis, what takes place on the Avalon because of the concentration of business.

We have a number of specialists. We have regional consultants who are basically our `first stop' people you come in to visit; ENL offices backed by a consultant who will basically take you through all the various processes. We also have in our regional offices specialists in marketing, in engineering, in accounting-bookkeeping services, and that group of people basically forms the nucleus of a working group in assisting businesses to get off the ground, or assisting businesses change direction, or correct some of the inefficiencies or ineffectiveness that has taken place in the business.

In our corporate office, we have basically our corporate services, that is, providing services through the corporation for legal accounting and so on. We have our enterprise services which is an additional support to some of our larger and more complicated proposals that come to us from time to time. These are people with considerable experience in looking at larger proposals. Our human resources department is a small group of three or four people, involved in day-to-day activities with personnel matters and so on.

I think, Mr. Chairman, that gives you a little bit of a flavour of what we are all about.

MR. CHAIRMAN: Thank you, very much.

Dr. House.

MR. HOUSE: Mr. Chairman, I would just like to add a little bit in terms of the origins of ENL that might be of some interest to members of the committee and possibly the media here. For me, it goes back further, back, really, to 1985, as a member of the Royal Commission on Employment and Unemployment, travelling around and holding public hearings throughout the Province. One of the most common concerns that we had expressed to us by people in all parts of Newfoundland and Labrador was the concern that everything happened east of the overpass and any decision that had to be made and any business or economic development proposal they had, they had to go to St. John's in order to get the decision. It was really in response to that need that was felt out there in the regions that one of our recommendations in the 1986 report was that there should be established regional economic development agencies. Really, what ENL is, to a large extent, is the form that has been taken in implementing that recommendation. Obviously, it is very pleasing to me, personally, to see something that you felt had to be done in response to what people were saying is now actually in place, is working, and is actually accomplishing the end you had in mind. And we are not getting those kinds of complaints anymore with respect to the availability of business support services. It now looks kind of more generally in terms of government services that this kind of regionalization and decentralization of decision-making and providing better services to people on the ground is going to be followed by government in other of its activities.

MR. CHAIRMAN: Thank you very much. That leads exactly into where my next question is leading. I think Mr. Janes mentioned soft support services some time ago. No doubt, those are very valuable, particularly in rural Newfoundland where there is probably not available the same level of expertise or professional consulting advice as there might be within the periphery of the St. John's area or the larger urban areas. I can see that working very, very well in those areas. How about the decision-making process as relates to financing, though? For example, do those little field offices have authority to approve financing? Is that done at the regional level or perhaps, for larger amounts, is it done at the corporate office level? Could you explain that system to us?

MR. JANES: Mr. Chairman, the authorities presently in place within Enterprise Corporation are as follows. The regional offices have decentralized authority up to $150,000. Now, I should say in clarification that the $150,000 has been approved except that it has not been implemented at this point because of all of the various aspects of the loan administration policy that we are trying to get in place, the collections and so on. That has been intentionally withheld until we are satisfied on an operating basis that that increased authority could work its way into the regions. But indeed, the authority has been approved, it is there. Above $150,000 to $500,000 is handled by a corporate transaction committee, and that corporate transaction committee will handle everything, as I said, from $150,000 to $500,000.

Above $500,000 to $1 million, it is handled by the full board of directors of ENL. Anything above $1 million would find its way to Cabinet with a recommendation of support or non-support by the board of directors of ENL.

MR. CHAIRMAN: Dr. House.

DR. HOUSE: Mr. Chairman, just to clarify a point there. The regional offices do now have authority up to $100,000. What Jim is talking about is we are changing it to increase it to $150,000, but they do now have authority up to $100,000.

MR. CHAIRMAN: That brings us to the point, I guess, and the point that the Auditor General has made, as it relates to having a comprehensive management manual. With so many people involved, with requests coming in to so many regional offices and field offices, surely then, that makes it that much more important to have policies of the board, which become policies of the corporation, clearly documented so that everybody in all of those twenty-three offices is consistent, while being flexible, by all means. As it relates to the ideas that you are prepared to look at, there must be consistency in approving funding. I think this is obviously where the Auditor General is getting at, from the point of view of approving funding, but also from management procedures, be it vacation, sick leave, or whatever else, all of these things, accounting practices, monitoring practices.

Three years, the corporation has been in place, and you still don't have those management - except for two almost completed. You have been in basically since 7 December 1990. We still don't have the management manuals, which, to me, would almost seem to be first step. I think that is what the Auditor General is saying as well. Let's get the structure in place, clearly define the policies laid down, the guidelines in place, then turn our twenty-three offices loose on the world.

MR. DUMARESQUE: If I could just make a point, Mr. Chairman.

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: The twenty-three offices: Is it my understanding that there are only five offices, the regional offices, that have the authority, for instance, to spend $100,000 - not all twenty-three?

MR. CHAIRMAN: There are many other things, though, that would be in a management manual besides just funding. Do you want to respond, Mr. Janes?

MR. JANES: Mr. Chairman, yes I will. It is correct, as Mr. Dumaresque has just mentioned, that there are only five offices in our system that have the authority to do any funding. Then, of course, you go to the corporate office or the board. The issue that you talked about, the manual, I think I have made reference to, in particular, the policy pertaining to loan administration or portfolio administration. Clearly, that is the most fundamental, the most important part of our operations as it relates to funding activities. As you mentioned - you talked about policies pertaining to human resources, personnel benefits, and so on, which are things that have to be done as well, and to a great extent, they are in place.

The loan administration policy is clearly the one that we have now in place, as of April this year, effective July 1, and it continues to be the guiding instrument as far as consistency and the treatment of the portfolio in general throughout ENL is concerned. That one key element is in place. The rest of the issues within the manuals will build on that.

MR. CHAIRMAN: Well, certainly, Mr. Janes, I accept that that obviously is the most important one, the one that would, I guess, cause greatest concern, maybe second only to financial management. I assume there is some reasonable policy in place for accounting processes and so forth, and that is very important. Still, there were hundreds of millions of dollars, I guess, portfolio, dealt with during the period of time when that manual was being developed.

MR. JANES: Hundreds of millions?

MR. CHAIRMAN: How much have you given out?

MR. JANES: Mr. Chairman, the thing is -

MR. CHAIRMAN: What was it - $70 million -

MR. JANES: - we had last year a total of $70 million outstanding, and this year, to the end of March 1993, $85 million. So those positions are an extension of what we assumed or acquired on January 1, 1991, and indeed, there was in excess of $40 million in a consolidated position that we assumed from the other agencies when we started on January 1. So the numbers, hundreds of millions, I don't think, Mr, Chairman, are applicable.

MR. CHAIRMAN: Well, nevertheless, tens of millions.

MR. JANES: Tens of millions would be more appropriate, yes.

MR. CHAIRMAN: Nevertheless, tens of millions have been put out through loans, equity, whatever, without clear policies being in place in the form of a comprehensive manual. There may be management memos and so forth. Dr. House, do you want to respond to that?

DR. HOUSE: Yes, Mr. Chairman, I would like to pick up on your last point there. You have sort of taken the words out of my mouth, and that is to say that although there hasn't been a comprehensive manual for everybody in the corporation on all corporate policy since ENL has started, we are working on putting that in place now.

People should not get the impression that there hasn't been any policy or any guidelines or any regulations that govern the behaviour of the members of the corporation. That isn't the case. When the corporation started, it inherited the policies that had already been in place at NLDC, and the Department of Rural, Agricultural and Northern Development, as it had been under the Department of Development, so really what we have been doing over the past few years is building on those policies through a series of board decisions and so on, and now what we need to do is to consolidate and to formalize those policies into this instruction manual.

We also ran into some practical difficulties that maybe Pat Kennedy could elaborate on in terms of a serious accident to the employee in the corporation who was taking a lead for us in putting all of this together, and that led to some delay in getting the thing formalized, but we do have policies in place and those policies are what guides the behaviour of people working in the corporation.

MR. CHAIRMAN: Nevertheless, two-and-a-half years seems like a long time to finally get a manual put in place. I accept what you are saying. I understand where you are coming from here, and don't want to belabour it, but maybe you could tell us, then, what sorts of policies are in place as it relates to the types of things that the corporation does get involved in? What sorts of things do you provide loans for? What types of industries, for example, do you get involved in, in equity positions? How do you differentiate between the two? Could you give us some idea of the sorts of things there?

Venture capital, you told us you basically give to a venture capital company and let them decide, but now you have some handle on that. I might just say I am pleased to see that because it was effectively a blank cheque you were giving them before, and they were taking taxpayers' dollars and deciding in which companies they would invest. I had some real problem with that, so I am pleased to see that you have tightened up on that and have some control of it.

Could you tell us a little bit more, then, about the types of industries that you are prepared to look at? What policies are in place, or have you simply followed through from the rural development policies and NLDC policies and the Department of Development policies?

Mr. Janes.

MR. JANES: Mr. Chairman, we basically look at just about any proposal that would come in through our door. I mean, there is nobody turned away arbitrarily.

We have concerns today about the fisheries. Clearly, at this point in time, we have to do triple the work on the fisheries to make sure that it is a new enterprise that can deal with value-added and underutilized species and so on but, by-and-large, fisheries is an area with which we would be very concerned.

The ERC, as you are aware, put out within the last year a strategy of growth opportunities - there are eleven of those, and I would say today that the Enterprise corporation keys in on those as the important areas of the economy that we would look at - adventure tourism, crafts, high tech industries and so on. Those are the areas that we see and we have basically mandated within ENL as the areas that we will look at in the future as far as new business opportunities are concerned.

MR. CHAIRMAN: So your prime area of concern - certainly, I can appreciate your concern about the fishing industry. It would have to be a high risk industry, I guess, today, and I guess you have to wonder, in fact, if we need expansion of any infrastructure there, but I would think there is a big opportunity here for diversification, getting into secondary and tertiary processing of fish products. That would be an area that I would say the corporation would want to look at.

MR. JANES: Yes, we have. As a matter of fact, some of the areas within the mussel-growing operations, and one, in particular, that I think we have some great potential in is the SCB fisheries operation in Bay d'Espoir. There were some early hurdles we had to get over but we have found now in the last couple of years that every pound of product produced down there is sold. Without question, they are developing a very good aquaculture operation in Bay d'Espoir, and I think, moving from last year's harvest of 600,000 or 700,000 pounds, the eventual potential in that area is probably as much as 4 million pounds of fish coming out of the waters around Bay d'Espoir, Roti Bay and so on, so that those are the areas where we talk about the new fishery, I guess. It is on a new fishery, the aquaculture area and so on that ENL has concentrated some of its more recent efforts.

MR. CHAIRMAN: How about the service sector? You mentioned tourism. You are supporting the tourism sector as well?

MR. JANES: Mr. Chairman, yes we are. We continue to support tourism. We have a very close working relationship with the people in the Department of Tourism and Culture. As far as upgrading existing facilities, looking at new opportunities, adventure tourism, particularly in the Labrador region, we are working closely with people in that area, and yes, we view tourism obviously as one of the important opportunities in this Province.

MR. CHAIRMAN: Dr. House.

MR. HOUSE: Mr. Chairman, I would just like to elaborate a little bit on this question of service sector activity and the flexibility that ENL needs and, I think, should continue to have as a developmental agency. Let me just talk about retail, the retail sector, for a minute. For the most part, we do not invest in retail activity. In particular, we don't do that in situations where there is already somebody servicing a marketplace and we don't want to use government funds to create unfair competition for somebody who has gotten in there through his own or her own hard work. However, we don't want to have a hard and fast rule that there is going to be no support for retailing because sometimes in some places you can serve a real developmental need. Let me just give you one example that arose recently. We had a request up in Labrador, again, from a budding entrepreneur in Davis Inlet who wanted to set up a little - selling food kind of operation, a retail operation. So here is an example of a service that is not now being provided by anybody. It is being offered by a budding entrepreneur, in a community that really needs economic development. So in that kind of situation we would think it appropriate that we would provide support for that kind of activity in that kind of situation.

MR. CHAIRMAN: If we have a government-owned store we would be happy to sell them that, Doctor.

MR. HOUSE: Absolutely. So I mean there are cases - you want to be a little bit careful not to lay down hard and fast rules that can defeat the purpose of the enterprise.

MR. CHAIRMAN: Yes, well, certainly I agree. Davis Inlet, Hopedale and Makkovik are places where we operate these government stores. However, we are finding there that - as sort of an aside now; you may have more up-to-date information than I do - we were finding over the last few years that there were some private stores starting up there and it has been the policy of government, I don't know if it has changed under the new regime, but certainly it was our policy not to compete unfairly with private enterprise. So we got into areas where private enterprise wanted to provide a service and we stayed away from it with the government stores. I know, in our hearings in Happy Valley, Goose Bay last year when we met with the five managers, the regional managers of those stores, we found, in fact, that the stores now are less competitive because we are staying away from some of the high-volume products, the popular products that we were providing, the essentials, fresh fruit and that kind of thing, that we were trying to get in there. Somewhere we have to get a transition to get over into that area. That may be an area where enterprise might get involved with an entrepreneur and help them buy out the government store rather than choking us to death and having us lose millions in the meantime and still having demands from the private sector up there to keep those stores alive as a government service they don't want to give up.

Let me get on to your question, Doctor, your comment as it relates to retail. We had some concerns a year or so ago - and you provided some information to the House as it relates to some of the types of things that you had funded. We had some debate in the House of Assembly on it. But a number of those sorts of things here we would have to question. Maybe you would like to comment on some of those. I know, there are fast food take-outs, convenience stores and lounges not in areas where - like Davis Inlet, your valid point, that if there is not a service provided, then there is nothing wrong with government helping private enterprise start up something that would otherwise, without government assistance, not be viable or where they couldn't get the financing. But how do you justify some of these things, like a chicken take-out or a lounge in an area where you already have those types of things? I can use your sheets here to give you a specific example if you wish, but I think you know what I am talking about. Would you like to respond to that and tell us if that policy is still in place now?

Let me just say before you start, it has always been my understanding that government does not normally fund a competitive market. It is no benefit to the economy, Dr. House, as I am sure you know. It is no benefit to the provincial economy to fund one service station across the street from an existing service station or one supermarket across the street from an existing supermarket or one chicken take-out across the street from an existing chicken take-out. You are not going to sell any more chicken and you are not going to sell any more gas, you are simply spreading the business there. What is the policy of the corporation as it relates to that and how do you explain these types of things?

MR. HOUSE: Just a couple of things there. First of all, one of the features of a regionalized, decentralized agency is that, even as a board of directors, you do not have direct control over every decision that is made, which is as it should be. What you are doing is, you are giving to your managers within their regions the responsibility to make decisions as they see fit within the guidelines established by the board of directors. And it may be - and I don't know, because you would really need to have the regional vice-presidents here to answer the question - it may be that some of the examples you point to fit under that category. That's one comment. So there are some decisions that are made that we, as a board of directors, do not control, nor should we, because of the nature of our decentralized organization.

The second comment is that you can point to one or two examples such as you have mentioned - and there may be specific reasons for those; I am sure there are. But, on the whole, if you look at the distribution of the funding that has been done by Enterprise Newfoundland and Labrador Corporation, you will find that the great majority of businesses we have supported are in manufacturing, tourism, resource industries, things that are new enterprises that create new wealth for the Province and really do contribute something new to the provincial economy. I think that the overall picture, is very clear, that that is the emphasis of the corporation.

MR. DUMARESQUE: I would like also to make a comment here, Mr. Chairman.

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: Would it also be a fair comment to make that ventures you have invested in, as you have provided to the House of Assembly for the last couple of years, have not been absolutely different, deviates totally from business ventures that were entered into under the Rural Development Agreement or the board and NLDC? Would that be a fair comment? I know a couple of them come to mind, and it certainly appears that they would be in the same area. Is it fair to say there has been no great deviation, as has been in the past?

MR. JANES: Mr. Chairman. I think what has happened - you bring up a couple of examples, and I know I have heard those before. Because when that information went to the House the question was raised and we did investigate that and found out that indeed, the decision was based on independent analysis that was done of a particular (inaudible) and that that did not really affect the spirit of squaring with the competition. That is what we have always used in this corporation. Anything that has come to my attention has always been: if it is done we cannot do it. We have that as a policy.

As Mr. Dumaresque said, when you get into rural Newfoundland, what you have there in the continuation of small business would obviously be an extension of what took place in the past, particularly with the Rural Development Authority and the RAND section of the Department of Development - that small business is small business in Labrador, in the Northern Peninsula, the South Coast of Newfoundland, and so on. So, we did carry on the traditions to a great extent. We have our program that provides very small interest charges on proposals that are within a certain dollar limit and are confined to certain types of industries, so that we do recognize the small town, the rural aspect of Newfoundland, in making some of these fundings.

I think, in response to the point that you made, Mr. Chairman, about competition, we do try as best we can - as best we can. You have to remember that when you get into the regions there are four or five other independent thinkers who are involved, who are basically analyzing the information and making a decision from a competition point of view. We try to the extent that we can to stay away from creating enterprises that will impact on somebody else. Why create a job if you are going to close one down on the other side of the street? We avoid that to the extent we can.

MR. CHAIRMAN: Well, that is the reason I asked the question. I was always under the impression that was the policy. But I look at some of these. I would suggest we have a free thinker in Labrador. We have a weight reducing salon in Labrador City, a beauty service in Labrador City, musical instruments and sheet music service, retail fashion and fabric store, buy-out of an existing grocery, retail and gas bar operation in my friend's district and, as I recall, the explanation for that was that he was the only one in the area and needed to be continued.

I can live with that one. It gets back into the same category as Davis Inlet, although I think there are quite a number of services up there now. A take-out service in Makkovik - perhaps there wasn't a take-out service in Makkovik. I can live with those sorts of things. But there were quite a number here that I would have to say were quite contrary to what we always considered to be the normal, non-competitive policy that you have just talked about. This is why I asked the question: Is it still in place? And, if so, doesn't this again point out the need for this comprehensive policy manual? So that the regional offices know - you know, within their own realm of flexibility, but there are certain guidelines that we shouldn't go outside of, that you people are going to answer to right here, and to your minister in the House.

Dr. House.

DR. HOUSE: Mr. Chairman, first of all, the guidelines are already there. People know what they are. But there is another factor that has come into the situation now, and it may make it a little bit different from what it was even three or four years ago; that is, in a lot of regions of the Province right now it is becoming very difficult even for established businesses to get the kind of normal funding support that they would expect to get from the banking system. There are therefore some situations in which our people in the field find themselves where there is what appears to be a very legitimate business need for some funding. And maybe it is in a business or something that is not one we would ideally want to be supporting. But in terms of the local economy in that particular - you know, whether it is Labrador West or wherever it might be, it could be very important.

So there is another function that ENL is being almost forced into performing in some places, of being rather kind of a substitute for a commercial bank, that it really shouldn't be doing. But is it better to do that, or is it better to let the business shut down and just not have that service being provided in the community? I think, in a lot of cases, we would say it is better that it play that role.

Again, the need for flexibility in responding to the particular conditions and needs of local economies is a very important strength of ENL and I would be very concerned, myself, if we were to go too much the other way, and say: We are going to build up this big set of rules and regulations and so on, and everyone out there working for the corporation has to stick to the letter of the law all the time. I think that you would find that the service to clients could deteriorate as response to that.

Again, it is a fine line, but we have to keep finding that balance, and I think we are doing a pretty good job on it so far. Although I do agree with you, we do need to have those guidelines and those regulations formalized and put in place and applied to everybody.

MR. CHAIRMAN: I appreciate where you are coming from. Your point is a very valid one. But I think you are going to be hard-pressed to convince me that the financing of a lounge in Clarenville is a great social need in Clarenville. Maybe it is an exception, maybe it is one that slipped through. If that is the case, fine. All I am trying to establish here is that we do have strict policies in place. Otherwise, I would like to know if it is open. Because I have thousands of my own constituents, and people from all around the Province, who are calling me asking: Is there funding available for this? I say: Look, don't waste your time and money, government is not going to fund a retail operation. I have sent hundreds of people away. The next thing they call me back and ask: How come this guy got funding for a chicken take-out or a lounge or a beauty parlour? I say: I can't answer that.

If it is going to be an open-door policy, if we are going to finance any and every type of business that comes in, then let's do so, and let people know that.

AN HON. MEMBER: It is not an open-door policy.

MR. CHAIRMAN: We, as members of the House, for years have been saying: Sorry, we just don't fund you to put somebody else out of business. My friend would be pretty upset if we funded somebody across the street in Lewisporte and put up another drugstore, and so he should be. But if we are going to fund somebody else to do something, then let's put up another drugstore.

MR. DUMARESQUE: Mr. Chairman, if I could ask a question.

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: Mr. Chairman, maybe to put this in perspective - how many people, would you say, have come to you as a result of decisions you have made and said: `Look, this is absolutely wrong, and I have gone out of business because you have done this'? I certainly haven't heard the Member for Menihek, in particular, talk about these things not being done or that they shouldn't be done in his area, neither have I heard very much public criticism, if any, of the decisions that you made. Have you been confronted with any significant number of people coming to you and saying: I have gone out of business because you have done this down the street?

MR. JANES: Mr. Dumaresque, I would say that I could count on one hand the number of comments, the number of enquiries, that have come to my office in that respect where we have provided funding to somebody that another operator took exception to and said that this was now going to be severe for him.

MR. DUMARESQUE: Yes, and were these business then eventually eliminated in the Province?

MR. JANES: I haven't heard of any that have actually gone out of business, but I have been on the receiving end of enquiries about: `Why did you do this because of' - and I would think it is restricted to perhaps a handful of situations that have come across my desk. Again, Mr. Chairman, when you talk about competition, that whole matter is one, really, of common sense. The thing is, when you talk about creating a job and putting another out of business, or eliminating that job, you are down to the point, really, of common sense. You really are, because whatever way you say it, whether it is five different ways or one way, the point is that competition and the impact on competition through the granting of public funds is something that, as I have mentioned earlier, we try to minimize to the extent possible.

It is the policy of ENL not to create enterprises that create jobs that will, in the very short run or the long run, eliminate jobs of people doing similar things in other enterprises.

MR. CHAIRMAN: Well, the point is made and your arguments are well taken, but there is still some room for concern, I am sure.

Your comments, Dr. House, in relation to banks, I would love to get on, but we would be here all night if I gave you my view on the banking fraternity today. Perhaps we should start moving on, and I will get back again later.

Mr. Crane, do you have some further questions?

MR. CRANE: No, I don't have any other questions.

MR. CHAIRMAN: Mr. Penney?

MR. PENNEY: Thank you, Mr. Chairman.

Somewhat like yourself, if I were to get into some of the questions we could probably be here and talk about the philosophy of it for another couple of days, but I am quite satisfied with the answers I have been given to the questions I have asked.

I would like to take the opportunity to commend these gentlemen for the manner in which they have answered our questions, and also to compare them to the other Crown agencies that have come before this committee since I have been a member. I think they fare quite well and they are to be commended.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Mr. Hewlett?

MR. HEWLETT: Thank you, Mr. Chairman. I don't have much. My line of questioning was to be with regard to the autonomy, etcetera, of regional offices, but I think you have headed me off at the pass on that one.

I, too, have some concerns with regard to these offices, the possibility of subjective or even politically influenced decision-making, but I think the points you made were well made and basically cover the issue.

You mentioned a few specific examples that were tabled in the House of Assembly. I had one that came my way as industry critic there, I guess it was about a month ago. I received my usual press release from the Minister of Industry, Trade and Technology, Mr. Furey, outlining a bunch of businesses that had been funded by ENL, and one of them happened to be a picture framing, matting, organization.

At that particular time I had to go get a certificate framed at a local existing business here in town, so I brought along the press release from the minister and showed it to that particular businessman. He was quite upset because he is in the business. There are several framing and matting services in and around the city, and he was shocked to find out that his tax dollars had gone to finance some competition for himself - at least from his point of view.

He will mutter that to me, and he will mutter that among his colleagues in the business, but I don't think he will say anything publicly about it because there is always the possibility that you may have to go and try to get financing sometime from a corporation, so it is not good to burn your bridges.

I would ask someone from the corporation how, in an urban setting such as this, in St. John's, where there are several framing and matting services, does the corporation finance such a new operation?

MR. CHAIRMAN: Mr. Janes?

MR. JANES: Mr. Chairman, Mr. Hewlett, that particular situation that did take place just recently was a proposal that was very carefully evaluated by our marketing people out of the Avalon region, if I am not mistaken, and the proponent was found to be substantially different from a framing and matting store that you find around the various malls and so on. This business was one that was providing materials on a wholesale basis to some of the larger stores, K Mart, Woolco, and so on, and the equipment they had was not isolated down to custom-made orders as you would find in some of these smaller framing and matting places, but rather was there to service the bigger clients around here who otherwise would be bringing these supplies in from the mainland and selling them across the counter through these bigger stores.

Now, the question obviously arose at the time: Would this impact upon the other stores around the area? and the answer we received was no, that the amount of material impact on people like Hi-Lite Framing and so on was not going to be that important. As a matter of fact, it was minimal. The major benefit was basically the ability to access the bigger department stores, K Mart, Woolco and so on, to sell to them to replace the imports that were coming in from other parts of Canada.

MR. CHAIRMAN: Mr. Hewlett.

MR. HEWLETT: Do we reasonably expect that the K Marts of the world will give up on their volume purchasing in the national or international schemes they have on the go? Do we expect them to buy from a local wholesaler when, for the most part, they are part of national chains that would probably be availing of the services of a wholesaler, but on a far larger scale than anything we would foresee in this Province?

MR. JANES: Mr. Hewlett, the information we received, the analysis and research that was carried out, satisfied our people in our Avalon region that this new client had a good opportunity to succeed at the business that he was contemplating.

MR. HEWLETT: I guess it is too early to tell.

MR. JANES: Right.

MR. HEWLETT: Thank you, Mr. Chairman.

MR. CHAIRMAN: Mr. Dumaresque, have you some questions?

MR. DUMARESQUE: No, Mr. Chairman, The questions I asked earlier were answered and I am quite happy.

MR. CHAIRMAN: Just to follow on, stemming from the line of questioning you had earlier, could you tell us something about monitoring of projects after funding has been approved? You have told us a little bit about chasing up on doubtful accounts or outstanding or overdue accounts and so forth. Tell us about the monitoring of a project. Somebody comes in - and I have seen some examples of that and have some suspicions of them, that is why I raise this question. As you know, I have helped some constituents of mine go through your system. I know the types of analysis that your people go through, and the detail of the proposal that you request, and rightly so. But I am not aware that there is a strong monitoring policy or program afterwards.

In other words, somebody gets put through the mill to get some money approved. Then, when they get that money, is there anybody really following up to see if they spent that money for the purposes, which are fairly narrowly defined by the corporation, as the sorts of things you will fund? You won't fund vehicles. You won't fund this, you won't fund that, but you will fund this and you will fund that. So anybody generally coming in with a proposal to you, you may well find that: we won't fund this 50 per cent of your cost but we will fund that 50 per cent of the cost. Who, then, determines that the money was actually spent on those items for which they were approved in accordance with your guidelines? I am led to believe that is fairly weak. Can you comment on that, Mr. Janes?

MR. JANES: Mr. Chairman, the consultants in our regional offices across the Province are identified as the contact people who are responsible for that phase of our operation. When a proposed project is approved, that regional consultant - let's say it is in Gander, in the Central region - has a responsibility to see that the funding takes place as authorized by the committee or by the board.

If there is a need for technical involvement, one of our engineers - and we have two in-house and three more through the NRC service - would become involved in providing technical support to make sure that the plans were followed, and so on. And to the extent that the project is followed up on, at the time it's complete, and the operation is moving ahead, the regional consultant has that client then, on his or her list, to continue to visit and to see how things are going.

Now, I am not about to tell you that we are perfect in that area - far from it, but I have given you basically a description of how these things are supposed to be. If you have had a number of examples where people have come to you and said, well, this wasn't followed, and so on, then I suppose, to a great extent, that would be the lack of compliance. To the extent that we can fulfil that, our internal auditor visits the regional offices at least once a year, sometimes twice a year, and it is that person's job to go through every one of the funded client arrangements for the period that he is auditing and to make sure that all aspects of that authorization have been followed.

If you're going to ask: Does he go and verify the bills that were paid to a hardware store? No, he doesn't, he verifies the authority that was given to the region in order to provide funding to a client. And, in cases, he would make a visit to that just to see that the store is there in operation, or whatever it is. That basically is the process that we follow through.

MR. CHAIRMAN: Tell me more about these regional consultants. Are they in-house consultants, or external consultants you have engaged? How do they operate?

MR. JANES: The regional consultants are all permanent employees of Enterprise Newfoundland and Labrador.

MR. CHAIRMAN: Okay.

MR. JANES: They operate in-house. They are basically the person who is the first-stop arrangement for ENL and clients who come to visit us, whether it is for funding or non-funding arrangements.

MR. CHAIRMAN: So the same people who do the analysis for the funding are responsible for follow-up to ensure that the funding is expended in accordance with the approvals that were given and for the purposes given?

MR. JANES: The regional consultant is the person who would follow up. Let me explain it this way. When they come in, you would make the application to this consultant. If there is a requirement to do financial analysis, we have people in our support services area, accountants, bookkeepers and so on, who would review that. If there is a marketing component that has to be tested, that consultant would turn it over to the specialists in marketing and they would do their part of the evaluation. If there is a building program and there are plans, specifications, we would turn it over to one of the two in-house engineers, who would look at that and test it for reasonableness and so on. Then, it would find its way through our account management area into the board, into the regional authority for approval. When it is approved, the thing comes back to the regional consultant as the point of the contact person who would then carry out the monitoring and so on to see that the funding would take place in accordance with the authorization that was given. So there are a number of people involved in the process. The consultant doesn't normally take it and carry things all the way through to a conclusion and then continue to monitor after the fact. There are other people involved who would test various parts of that application and then it would go back, once it has been approved, to the regional consultant, and they go on from there.

MR. CHAIRMAN: Let us assume that one of these clients goes in default and is in arrears to the corporation, and subsequently, in looking at that, it is found that monies were expended for other than the purposes for which they were approved. Do you deal with that client in a way different from a client who did everything he or she said they were going to do when they applied for the money, but for other reasons, perhaps beyond their control, the business didn't succeed? As you have already said, these are high-risk normally and there is going to be a certain failure rate, obviously. If there wasn't then the banks would be happy to have them.

MR. JANES: When you ask: Do you treat these people differently? what do you mean by that?

MR. CHAIRMAN: Do you view the default differently and what procedures do you have then to follow-up? If client A comes in and says, `I want to do A, B, C and D, and here are the amounts of money I want,' and you say, `Yes, these are all legitimate under our guidelines and we will approve monies for A, B, C, and D; here is your money - go to it', he goes in default because something changes in the economy or the thing just didn't fly, the market just didn't take it. Client B says I want money for A,B, C, and D and you approve it for that purpose. He goes in default and you find out subsequently that they didn't spend their money on A, B, C, and D but spent it on other things for which you would not have approved, say, they bought vehicles, which is one thing you specifically will not finance. What do you do with that person? That person then has defaulted but he has also broken the agreement he had made with you. He has broken his contract to take ENL money, taxpayers' money, and do these certain things because your analysis indicates that is a reasonable project and has a reasonable possibility of surviving, but he has done something different with it. Is there a difference in how you deal with those two clients?

MR. JANES: Mr. Chairman, yes, indeed there is a difference. The client that would take public money from ENL and go and deal with it other than on the basis that the money was granted, we would definitely treat that person differently. As a matter of fact, one of the first things we look at is the recovery of funds. Clearly, we have a client who is not trustworthy, and I can tell you that in recent months we have gone to our legal counsel and explored ways and means to recover that money, even to the extent of taking legal action against them. So we do treat them differently, there is no question about that, and we do what we can to recover the money, because that is the issue. Now, if there were a clear breaking of the law, then we have had situations over the last number of months that come right to our board, where we have reviewed the aspect of turning it over to the police department to investigate the possibility of criminal charges and so on against the parties involved. We are following all of those aspects to the extent that we can.

MR. CHAIRMAN: Well, that was basically part of my next question: What procedures do you put in place? You will take legal action, you do have internal people who do collections or attempt to recover.

MR. JANES: Yes.

MR. CHAIRMAN: Do you use external collection agencies? I think I read in some of the briefing notes that you might have from time to time.

MR. JANES: We feel that we have the capabilities, skills, and experience in our corporation to look after the collection of our accounts. We are not a high-powered collection agency but we want to make it our business to ensure that we do get our money back, there is no question about that. We have a section of our corporation - and this is the balance that I talked about earlier, putting it out and getting it back, the need to have our account managers become more proficient in the recovery of funds. And I can tell the committee this, that in the past when accounts of various clients were at basically the point where they were headed for the ditch, where there was no real hope of recovery, government in the past had a tendency to kind of close the books on that. We have started a new process in ENL that is called undischarged debtors, in that today, we will do internal transactions for those various clients but we will not relieve them of the legal responsibility to pay back this money to government. What we will do is every year, as a minimum, our account managers will contact those clients in a further effort to recover money and that will continue with the hope that the financial circumstances or fortunes of those people will change to the extent that at least we can recover some of our money, even if it is through a compromise or a settlement. But, those not declaring bankruptcy or those who have not been put out of business through receivership, where we have basically recognized a very difficult situation with the prospect being very, very remote for recovery in the short-term, we will deal with it internally. But we will continue to carry it as an undischarged debt, something that we will go back and visit again every year in an attempt to recover these funds.

MR. CHAIRMAN: Okay. I don't know how we are doing for time - we are out of time. Mark, do we have to be out of here exactly at 4:30 p.m.? I know the doors close at a certain hour. Are we okay for a little while? There are a few more things I wanted to get into. I don't know if other members have other questions. I appreciate, Mr. Janes, your comments there.

There are a few other things that I wanted to get into. There were some things here on tenders, the lack of public tenders, some items that were purchased without proper tenders. I noticed some purchase orders. We already talked about the display booths and so forth. I am just looking at some of the dates, and my copies are not very clear. On page 114 of the documents, there is a purchase order there and - the date, I can't see it, the 24th of something, I don't really know - again, that is for those display booths.

MR. KENNEDY: Mr. Chairman, that is January of 1992.

MR. CHAIRMAN: What is it?

MR. KENNEDY: January 20, 1992.

MR. CHAIRMAN: January 20, 1992?

MR. KENNEDY: Yes.

MR. CHAIRMAN: Well, that is interesting, because that is the purchase order and the quote is dated February 17, or am I wrong?

AN HON. MEMBER: No, it was actually paid on February 18.

MR. CHAIRMAN: It was paid on February 18. There is a memo here from Mr. Grinling, on the 18th, saying that he has purchased these. Purchase orders were issued on January 20 but the quote - I don't see the quote anymore now. I thought it was here - we don't have a quote. I think that is the problem. We don't have a previous quote in writing for these items. The first thing we have from Expotech, who provided these, was dated February 17, basically referring to three purchase orders that had been issued, I assume, back in January. I assume they were all - a couple of them were February 4, and again, another I can't see.

AN HON. MEMBER: Yes, that was the one, under one vendor.

MR. CHAIRMAN: Yes, there was just one vendor, apparently.

MR. KENNEDY: The memo that you referenced from Mr. Grinling to Ms. Schinagl is a request for 50 per cent of the total amount that was owing as a pre-payment.

MR. CHAIRMAN: - because of the change in companies.

MR. KENNEDY: - because of the change in companies, yes.

MR. CHAIRMAN: But I don't see a written quote here. Was there not a written quote for this particular item? How are they purchased? Mr. Grinling indicates he purchased them - it appears the purchase order was issued on 20 January.

MR. HEWLETT: There is reference to that on page 11, too, Mr. Chairman. The grand total of the display booths - $11,000.

MR. CHAIRMAN: Yes, $11,718.

MR. HEWLETT: I was wondering if these were additional add-ons.

MR. KENNEDY: The $11,000 figure is the total amount of the order and the cheque for $5,800 was half of it, the 50 per cent deposit that was required.

MR. CHAIRMAN: Yes, but I am looking for a quote, a written quote before a purchase order was issued.

MR. CRANE: Earlier, he said there was no quote for these, because they bought them before and the only one they could get them from went bankrupt. When I asked him the question -

MR. CHAIRMAN: Even if there was only one supplier, would we not get a written quote?

MR. KENNEDY: What happened here, in terms of non-compliance with the Public Tendering Act, is that when only one quote or not more than three quotes are received, there is a form that is supposed to be filled out and sent to the Minister of Works, Services, and Transportation for subsequent tabling in the House, and that particular form wasn't filled out and mailed in. That was where the issue of non-compliance basically arose.

In terms of the booths, themselves, the three purchase orders in total was where the $11,000 figure arose.

AN HON. MEMBER: Yes.

MR. KENNEDY: So the non-compliance issue was one of - we didn't complete the necessary administrative forms to do it. That was the problem we had.

MR. CHAIRMAN: Well, $11,000 was outside, too. I guess you could go to three quotes though, couldn't you?

MR. KENNEDY: Basically, with anything less than $5,000, we should be getting three quotes.

MR. CHAIRMAN: Yes.

MR. KENNEDY: Anything greater than $5,000, you are supposed to go to public tender.

MR. CHAIRMAN: Yes.

MR. KENNEDY: The only exception is that if, for circumstances that he or she feels are either peculiar to the particular circumstances or unique to the nature of what is being purchased, the department head can waive tendering up to $30,000, but the necessary Form 10 has to be filled out and filed with the Minister of Works, Services and Transportation for subsequent tabling with the Legislature.

AN HON. MEMBER: That is what happened.

MR. KENNEDY: In this particular case that was not done.

AN HON. MEMBER: Right.

MR. KENNEDY: That is correct.

MR. CHAIRMAN: So the failure to advise the minister, basically, is the big problem here.

MR. KENNEDY: That is correct, Sir, yes.

MR. CHAIRMAN: I think, in reading the documentation there, the corporation is aware - obviously, the corporation is subject to the Public Tender Act. I don't think there is any question about that.

AN HON. MEMBER: There is no doubt about that, Sir.

MR. CHAIRMAN: I raise that because the committee, in the past, almost without exception, have had Crown corporations tell us that they really weren't aware it applied to them. That has been one of the biggest problems we have dealt with, and perhaps one of the benefits of these hearings is letting these corporations know that they are, indeed, accountable, and that we are accountable, basically, as members.

MR. KENNEDY: Mr. Chairman, anybody involved in the corporation with purchasing of any kind, we have conducted formal training sessions with these people and the necessary administrative follow-up and so on is done in its entirety.

MR. CHAIRMAN: Okay.

The hour is late. I could go on, but unless the board or the committee want to hold this business over and come back to it another day, I will not hold it up for my own purposes, although there were other things that I would like to get into. We will get another opportunity, I guess, when the Estimates come up.

I just want to ask one more question, though. I understand, Mr. Janes, that you are leaving the corporation, or have left the corporation, and that you have just agreed to come back today?

MR. JANES: Yes, Mr. Chairman, that is correct. I have developed a reasonably severe lung problem that was not the result of environment, at all, but rather hereditary, and it takes its toll over time. It is, indeed, correct that I have had to vacate my position at ENL as of September 30, under the advice of my doctor.

MR. CHAIRMAN: Well, on behalf of the committee, I am sure, and the House of Assembly, we wish you good health, the best you can, and obviously, your priority is to look after yourself.

This is not an appropriate time to ask these questions. I don't want to infer any connection here at all, but we had heard of some problems within management, some disagreements between regional offices and head office, and again, I want to emphasize that I am not inferring any connection between that and your health problems. Have there been problems in the past? Have they been resolved? Are you satisfied now that the structure is functioning well and that there are no major internal problems that the committee should know about?

MR. JANES: Mr. Chairman, in response to your enquiry about whether or not all of the internal situations that have surfaced over the last period of time have been corrected, I would say that there is a goodly 95 per cent of those situations that are about to be corrected if they have not been already.

I think you and the rest of the committee would understand that in a new corporation, from time to time, there are differences of opinion. I think that has been rather healthy, that it is something that is to be expected. When government is attempting a brand new approach to dealing with economic development in this Province, there are obviously differences of opinion, and I can assure you that those have existed in ENL, and I hope that they will continue to exist, because it is what drives this corporation to be something better than it was yesterday.

We believe now, that the Enterprise corporation, the way it is structured, is firmly established to continue to provide good quality service to the people of this Province in respect of economic development, there is no question about that. I believe that there will be appropriate announcements made by our minister in due course as these things are finalized, and more details will be made available to everybody at that point. I think we are past the early days or the months of growing, the growing pains of ENL. I think we are now mature enough to get on with the job that we were mandated to do, and that there is a cohesive and consistent voice within ENL to make sure that happens.

MR. CHAIRMAN: Thank you, Mr. Janes. Dr. House, by way of closing comments, do you have anything that you would like to add before the committee comes to a close?

DR. HOUSE: Mr. Chairman, I would like to add one comment, and it is a comment of appreciation. In coming to the corporation and so on, I guess my role in Enterprise Newfoundland and Labrador has been very much from the economic development side of things, and the business development side, of being one of the people there who are trying to make things happen. I think we have put in place at ENL, a very good balance between people of that ilk and people who have to provide the kinds of financial expertise and services and control that that corporation, that deals with a large amount of public funds, has to have.

I appreciate better, I guess, than I did before, the role that people with that kind of financial expertise play in an organization such as ours. I think it is very important that we continue to have both an economic development thrust to the corporation and, at the same time, have the right financial services and controls in place. I would like to give some credit to the Auditor General and her office for the role that they have played in this. I think, the review they carried out and the comments they made, and to give credit to Jim and Pat and others in the corporation, the response that people in the corporation have made to those criticisms and suggestions, have been positive for the corporation.

I would just like to close by expressing my appreciation to the Auditor General's office, to people in my own corporation, and to the committee here today, for carrying out its important function in this whole process. I would just like to close on that kind of appreciative note, if I may. Thank you.

MR. CHAIRMAN: Thank you very much, Dr. House. Ms. Marshall, have we any comments or closing remarks from you, or any other questions?

MS. ELIZABETH MARSHALL: I would like to thank Dr. House for his comments. It is not very often the auditors get a compliment.

MR. CHAIRMAN: For good reason, I say.

SOME HON. MEMBERS: Hear, hear!

MS. MARSHALL: I would like to say that the corporation was extremely responsive to our recommendations.

MR. CHAIRMAN: Thank you very much. With that, on behalf of the Committee, let me thank particularly the witnesses who were here today. Mr. Janes, we wish you well in whatever you may pursue, and if it be retirement, good luck in fishing and whatever you chose to do. We look forward, obviously, to the success of the corporation and hearing in subsequent years the measure of success that you have been able to have in helping to develop the economy.

Let me thank the Auditor General and her staff once again for her assistance, to members of the staff of the House of Assembly, and members of the committee, and the news media, for being here. The Committee will just recess for a couple of moments. The Vice-Chair has asked for a brief meeting in camera, so we will just adjourn for a couple of minutes and allow the witnesses and the news media to retire. If any of the news media want some interviews, if you will give us five or ten minutes, we will be available after that.

With that, thank you very much, all of you.

The meeting stands adjourned.