The Committee met at 2:00 p.m. at the Glynmill Inn in Corner Brook.

CHAIR (E. Byrne): Order, please!

Good afternoon. Before we start, I would just like to inform the media, certainly the television media, that you have a few moments if you wish to take some more shots, and then we will ask for the cameras to be turned off, if that is okay. So whenever you are finished you can let me know.

[Pause]

CHAIR: Ladies and gentlemen, thank you for coming to the Public Accounts Committee hearing.

Some formalities first: I would just like to take the time to introduce the Committee. My name is Ed Byrne, the MHA for Kilbride, and Chair of the Public Accounts Committee. To my right is Tom Lush, MHA for Terra Nova, vice-chair of the Public Accounts Committee; a new member, the MHA for Port au Port, Gerald Smith; the MHA for Harbour Main - Whitbourne, Don Whelan; to my right the MHA for Cape St. Francis, Jack Byrne; and the MHA for Conception Bay South, Bob French. One other member couldn't attend because of previous commitments, Ms Anna Thistle, MHA for Grand Falls - Windsor. I would like to certainly recognize, as well, to the public meeting the MHA for Humber East, who I believe is in the back of the room, Robert Mercer.

Before I get into what the hearing is about and why we have called a hearing, I would ask the Clerk if she could swear in the witnesses please. Before you do that, if the witnesses could please identify themselves. If a committee member asks a question, could you identify yourselves each time, as well? Could you do that for the record, please?

DR. WATTS: Harry Watts.

JUDGE LEGROW: Bruce Legrow.

MR. MULLINS: John Mullins.

MR. WATERMAN: Dennis Waterman.

CHAIR: Thank you.

You could swear them in, please. It will just take a moment.

Dr. Harry Watts

Judge Bruce Legrow

John Mullins

Dennis Waterman

Claude Janes

CHAIR: Any other public servants here with respect to the Department of Health as well.

Ms Marshall.

MS MARSHALL: To my right is John Noseworthy, who is the Deputy Auditor General, and to my left is Mr. Claude Janes. Mr. Janes was the audit manager on the audit. In the audience are Mr. Tony Dingwell and Mr. Scott Walters, who are both auditors with the office.

CHAIR: Okay. Chris will be from the Department of Health, I think.

MR. HART: Yes. My name is Mr. Chris Hart, I'm the Assistant Deputy Minister. I have with me Kent Decker and Moira Hennessey.

CHAIR: I just want to explain to both the witnesses and certainly those people who have taken the opportunity from the general public to attend today's hearing that the Public Accounts Committee is the only standing committee of the House of Assembly. The proceedings that you are taking part in here today, by the virtue of being here, are an extension of the House of Assembly. Therefore, the rules of the House of Assembly would normally, and do, apply to the proceedings of the hearing.

What will take place is that members will ask questions of the witnesses. It will be very much an interaction exchange of the issue at hand, and it will be free-flowing that way, from the witnesses point of view.

The reason that the hearing has been called is because, as a Public Accounts Committee we are primarily and only concerned with the expenditure of public dollars. We aren't a partisan Committee, although the Committee is made up of both government and Opposition members. Our role is not to question government policy. It isn't within our mandate or the definition of what we are about. It is strictly to deal with the proper and appropriate expenditure of public dollars.

Most of our hearings result from the Auditor General's report that is tabled in the House of Assembly each year around Christmas time. There are exceptions, of course, and the Public Accounts Committee has requested the Auditor General, from time to time, to look into specific situations or circumstances that may take place.

Within our scope, I guess, or our mandate, wherever public dollars are expended or spent, certainly the Public Accounts Committee is concerned with the appropriate and proper spending of that money. There are over some 200 Crown agencies, government departments, certainly that fall within our purview.

The issue before us today deals with the Western Health Care Board as raised in the Auditor General's report of last year when tabled in the House in December. The Public Accounts Committee met shortly after the tabling of that report to decide what in that report would we like to look at. We haven't, in any way, shape, or form, singled out the Western Health Care Board, because everything in the Auditor General's report this year we have set on our priority list to look at. This is one of probably ten to twelve different hearings that we will be holding throughout the Province on a variety of issues.

In terms of witnesses that we have requested today, they certainly were in decision making positions. It is an opportunity to exchange information and to share concerns that the witnesses may have with the Auditor General's report. You may take exception to comments that the Auditor General may make or vice versa. That is what the purpose of the hearing is, to exchange ideas and to share that information for a fuller public disclosure on the issue at hand.

With that, I would like to ask the Auditor General if she has any opening comments. Ms Marshall.

MS MARSHALL: No, I have no opening comments, thank you, Mr. Chair.

CHAIR: Okay. I will certainly defer then to Judge Legrow as chair of the board, if he has any opening comments to make to the committee before we get into the actual questioning.

JUDGE LEGROW: Thank you, Mr. Chair.

Just briefly, Western Health Care Corporation, I guess, assumed control of the health care facilities in the Western region on January 1, 1996. I think the Auditor General's report covered the fiscal year April 1994 to March 1995, so mostly everything that happened, of course, in that report, would be with regards to the Western Memorial Hospital. As I say, the Western Health Care Corporation didn't get involved in the running of these organizations till January 1, 1996, so the other three gentlemen with me certainly would be in a better position to answer the questions regarding the report than I would be.

CHAIR: Fair enough. Anybody else like to -

MR MULLINS: Yes, if I may.

CHAIR: Okay.

MR. MULLINS: I'm John Mullins, and I was the chair for many years of the Western Memorial Hospital Corporation. As Bruce says, this report covers a narrow time span, but many of the things that grow out of it go back quite a number of years and involve a lot of board members besides myself.

I came here today to speak as a volunteer trustee who has been around the system a long time. I have not had occasion to confer with other board members, so I don't speak for other board members at all; I speak entirely for myself. I have no staff, nor did I ever have the staff even when I was board chairman, so what I say is largely based on what I can remember of events that are described in these reports, and the events that lead up to it.

I jotted down a few comments while I was waiting. I don't want to get into a long diatribe here on governance versus -

CHAIR: I think a lot of that will come out in the questioning.

MR. MULLINS: It will, yes.

CHAIR: In terms of your opening remarks, that is fine.

MR MULLINS: Okay. That is an important factor in some of the elements that we will be discussing, and as you say it will probably be dealt with. Fair enough.

I have perhaps two main points. I could make many others, but there are perhaps two I might like to make. I come here to say to you that the decisions we made over the many years that I was involved, I do not claim that they were right. Maybe we got 50 per cent of them right, I don't know. But I claim that we made the best decision we could in good faith with the facts that were put before us at the time. I stand by that. There may be faults and flaws and slip-ups, but I stand by that statement and don't intend to back off of it.

The other thing - again skipping perhaps some of the things I might have said - I have concerns here about process, somewhat, and about public perception. This report was put forward to the public. Our colleagues here were suspended by government. There was a thing hanging out there that somehow a great investigation would be done, they would be cleared or damned or whatever. As far as I know, that never happened. Mr. Waterman was reinstated and Dr. Watts has gone back to his clinical practice. The only people who are permanently out of the picture on this are the two board members who remained. The other board members are anonymous at this point, but the two of us who remained in the system were turfed out, as you well know.

As far as the public perception goes, many of the things in this report are, I won't say technical, but they are policy items. One can have a disagreement about them. That is not the way the public perceived this. Perhaps I could best sum that up by quoting one lady at the bingo hall who said: They must have done something wrong because their names are in the paper. How do you get around that? I think when Dennis was reinstated I got a call from a member of the media, and he asked me did I feel vindicated. I said: I don't know, I don't know what you are talking about. What do you mean, vindicated? He said: There are going to be no charges. I said: I would be almost as shocked if that were the case than I am to hear you say this.

I think there was a cloud there that related policy matters to some hint of wrongdoing. I don't stand here to admit any wrongdoing. I think the decisions we made we felt we had the right to make. One can quibble about that. We made them in good faith and I'm prepared to stand by them. That is enough for now. I could say more.

CHAIR: Just a quick response. I think that probably demonstrates the need for a process like this, that would allow for either more information to get out or to dispel things that you may think are not necessarily right or whatever the case may be.

MR. MULLINS: No, these are the issues I have.

CHAIR: Okay.

MR. MULLINS: In the report the details were we did this and that on such a day. Maybe we did, maybe we didn't, I don't know; but I stand by it. I will have more time as we go.

CHAIR: Anybody else? No? I will ask Mr. Lush if he would like to start for us.

MR. LUSH: I would just lead right off, from the top, with Mr. Mullins' statement when he mentioned perception. There is no question, perception is what we are dealing with. I was reading an excerpt from the paper at the time, and I will read it now and ask Mr. Mullins or anyone else to react to it. It was the minister's statement at the time, Mr. Matthews, and he was reacting to the Auditor General's report.

He said, and I'm quoting from the paper: The overriding concern is the inappropriate expenditure of public funds. Then he goes on to say: It is a matter of great concern that dollars provided for health care purposes were taken out of the health care system. Would you like to comment on that?

MR MULLINS: I share his concern. It is a valid concern. I don't know exactly what he means by taken out of the health care system. I think I know what he is getting at, but I share his concern, and certainly he is right. I think the extent to which that was done and the question of degree between what was health care and what wasn't is a pretty grey area, in my opinion.

MR. LUSH: I think that statement, in itself, gave the impression that there was money taken out of the system. I think, if I were a board member I would want to clarify that in no uncertain terms.

MR. MULLINS: Yes. If you want to take it in that sense, yes. When you spoke, I didn't take it in that context. I thought you were referring to using it for purposes other than health care. I'm sure that the words you used there are exactly those that registered with the public, without a doubt, and led to what I perceive is this cloud or whatever that just will never go away, no matter what you say.

MR. LUSH: Starting right from the top of the Auditor General's conclusions, when she - and I don't know what page I'm working from. I'm working from page 3 which says Conclusions, and under Management Practices. The Auditor General says: "Significant problems were identified during our review of Western Memorial Hospital Corporation and as a result, we found the Corporation's management practices were inadequate. In particular..."

The Auditor General mentions an "accumulated back debt of $4.5 million," and then went on to say that the Corporation "had loaned $4.8 million to the Board of Trustees Fund and the Special Capital Fund." The question I want to put to the members is the last statement, which says: "In addition, the Board has not determined how it will repay the $4.5 million owing to the bank."

MR. MULLINS: That isn't my reading of it, or that isn't my recollection of it. Dennis can speak in more detail than that, but as to how that debt was run up, that occurred in a relatively short time span toward the end of our mandate, perhaps five or six years. Dennis, you jump in and correct me, because I'm not prepped very well for this.

CHAIR: I just remind the witnesses, when you go to speak just say your name for the record.

MR MULLINS: (Inaudible).

CHAIR: I understand that, but for the public record we need it; so thanks.

MR MULLINS: We will get around to what that money was used for. That is on the record, and we have identified that. As I understood it, we were going to repay that by an allowance in our budget which had been discussed and agreed with the Department of Health. Dennis may wish to be more specific or refresh my memory a little better on that. Go ahead.

MR. WATERMAN: If I may, Mr. Chairman, I think the technical issue that is recorded here is certainly correct in terms of the size of the debt and so on. But the way that the debt was structured and the way the debt was incurred over a period of years certainly, I think, needs some explanation. Certainly the inference that is made from the particular comment here leads one to think otherwise.

The Board made some decisions over the years to carry out certain programs. Some programs were of an operational type nature and some programs were of a capital nature. Over the course of several years the cost of these programs certainly built up to in excess of what the Board was able to support from, let's say, it's own cash reserves. We continued on with these programs because the Board felt at the time that these programs were necessary in order to assure that the type of medical coverage available to the Western Newfoundland area was appropriate.

It carried out programs of recruitment, it carried out programs in one instance, for example, where the Board, through its private funds, paid the family practice physicians doing coverage in the emergency department a top-up to do psychiatry coverage. They paid them $150 or $105, depending on whether it was a fee-for-service physician or a salaried physician doing this coverage, for every eight-hour shift that was covered in the emergency area.

The reason we did this is because at the time there was no psychiatry coverage. We had no psychiatrists in Western Newfoundland at all, with the possible exception, and depending upon the timing, of one in Stephenville. Certainly in the Corner Brook area we had no psychiatrist at the time. We made these payments in order to provide some measure of psychiatric coverage in the emergency department. Whether it was done rightly or wrongly was a decision the Board made. This was a void in our service and it felt that it would put the private funds in to cover this service off.

The irony of this whole thing is that we had positions in our budget from MCP for three salaried psychiatrists at the time. We made several overtures to MCP to try and have this money redirected so that we could use it to at least have some basic form of psychiatry coverage. That did not happen. We were refused that money, based on the premise that MCP felt that they were already paying for the fee-for-service or the salaried physicians to provide the basic coverage there in emergency, and they would not top it up by the $150 or the $105 amount that was prescribed. Consequently, this went on for a number of years, and over the course of the years this was a sizeable contributor to the debt that was incurred, in excess of $1 million.

That was one aspect only. Another program that the Board undertook at the time was the medical sponsorship program. Again, this goes back to the lack of specialists in the area of psychiatry and in other areas throughout Western Newfoundland. We had a tremendous void in the number and types of specialists that were required to provide what was deemed to be an adequate level of service. The Board undertook to sponsor medical students to the course of over - well, in most years, spending anywhere from $200,000 to $300,000 per year. This again went on for a number of years, and again obviously depleted the cash position of the Board, but these programs continued on because again we felt that these were the necessary kinds of things that had to be done in order to assure some kind of an appropriate level of medical service for the forthcoming years.

If you take these two programs together, then certainly there were several million dollars spent by the board in support of these two programs, these programs that they felt were necessary. That, in addition to some of the capital projects the Board undertook, very quickly depleted the financial resources of the Board, but obviously were carried out for reasons that were felt to be necessary at the time.

MR. LUSH: What is the financial status of the Board now?

MR. WATERMAN: The financial status of the Board right now - are you referring to the Western Health Care Corporation?

MR. LUSH: Yes.

MR. WATERMAN: The financial status of the Board right now is in serious condition. It is a carryover of where we have been, where we have been going. We have been attempting to bring in a balanced budget under the Western Health Care Corporation, but as of the last set of negotiations with the Province, prior to the happenings on the $20 million fund which was announced last month, we were budgeting a $5 million deficit for the current year. That will be mitigated somewhat by the fact that the Province has announced at this point that it will support the organization to the tune of approximately $2.3 million for the current year, with another $600,000 to be made available for the next year.

It will also look at other measures to reduce the deficit, let's say the cumulative affect of the deficit, because it is going to be late this year to obviously initiate any programs to reduce the deficit in the current year. But it will bring in measures to reduce the deficit and recover the deficit over the next couple of years. This, of course, is contingent upon the recommendations coming from the operating review which is currently under way.

MR. LUSH: Finished for the moment, Mr. Chair.

CHAIR: Mr. Byrne.

MR. J. BYRNE: Yes, thank you.

When I read the report, it seemed to me - at least it appeared to me - to be a pretty dire, I suppose, indictment of the workings of the Health Care Corporation. Mr. Mullins made a statement that the perception, if people read that - that is certainly the impression I got when I read it. I believe, to be quite honest with you - and I understand that you were a volunteer at the time and what have you - it was right that people would have that perception from the readings of the report itself.

From my perspective, being on the Committee, I think what we have to look at now is the problems that were there. We did have responses from the board, and probably asked questions along the lines of: What has been done to correct the problem, and possibly get to the bottom of why these things happen in the first place?

One question I have: The Auditor General mentioned that there was a $4 million line of credit. I'm wondering now is that is still in place. What is the (inaudible)?

MR. MULLINS: I'm no longer on the board, so you had better...

MR. WATERMAN: Yes, Mr. Byrne. Currently we have an operating line of credit in excess of $4 million. It is currently at $13 million as a result of the ongoing operations since this took place. We have a line of credit in place with the minister's approval to this level.

MR. J. BYRNE: So, I think from that department (inaudible). Now, we may appear to jump all over the place with respect to the report itself, but on page 8, I remember reading that sometimes with respect to the collection of bills, in particular from people who have been in the hospital and what have you, you were talking about getting a collection agency in place. What is the story on that now?

MR. WATERMAN: We followed up on that, Mr. Byrne. Obviously, at the time when the March 1995 audit was done, and the subsequent audit by the Auditor General's department, we did have a high amount of receivables. Some of that was as a result of some software problems in billings to Workers' Compensation. That isn't the only issue obviously, but that was part of it. We were developing a new billing system to comply with the requirements of Workers' Compensation. We did that get completed by the end of the fiscal year, but obviously at that time we had an accumulation of a large number of billings which were subsequently collected in the next fiscal year. That was part of the issue there at the time.

Again, as far as the collection procedures are concerned, we have had a revision of policies in the financial services area. Accounts now basically that are deemed to be difficult to collect will go to a collection agency.

MR. J. BYRNE: With respect to that collection agency, I think I also read in the report that when you are hiring or contracting outside help, professionals, what have you, there were some problems along that line too. What have you done along those lines?

MR. WATERMAN: I am sorry!

MR. J. BYRNE: With respect to the collection agency: If you were going to contract that work out to a collection agency, how did you determine who would get that work?

MR. WATERMAN: We developed a set of specifications and did a tender call.

MR. J. BYRNE: Okay. Also in the report I noticed that there were loans and advances given to employees.

MR WATERMAN: Yes.

MR. J. BYRNE: I think that has been addressed in the response there. Can you give us some criteria that was being used at that time to give the advances and/or loans?

MR. WATERMAN: In response to that, several different types of loans were available. First of all, I will address the issue of physician advances. As part of the recruitment program, in order to attract physicians to the area and to assist that physician when setting up and purchasing the necessary equipment, finding the appropriate office space, providing up-front expenditures and so on to get his practice in shape, the corporation agreed that it will provide a loan of $20,000 to each physician on an interest-free basis for two years, after which the loan would be repaid in full or an appropriate amortization will be set up with an interest factor.

CHAIR: So again that was used as an incentive to get physicians for the area? Is that correct?

MR. WATERMAN: That was used as an incentive to get physicians, yes. That is correct. That was one aspect of it.

The other aspect was an Employee Assistance Program which was set up to provide financial assistance to those employees who were deemed to need such after going through a thorough evaluation by a social worker on site, and after being subjected to a financial, sort of credit counselling agency on the outside with recommendations back to a CEO. When those recommendations came back to provide some measure of financial assistance, the corporation undertook that it would set up a loan agreement with that individual to provide such financial assistance to him, again with a recovery period based on the individual's ability to be able to repay. That was one part of it.

The other part was the executive advanced salary which came in back in 1983, and that was as a measure of remuneration to the executive group back in 1983, whereby there were no salary increases granted in that particular year. After consideration by the board, I guess an approach by senior management at the time, the board agreed that it would provide a salary advance of six months to each executive which would be paid back over the course of that six months and fully repaid, at which time the individual would be able to draw down another six months salary; so that was a part of it as well. I think that pretty well constitutes the kinds of loans that were available.

MR. J. BYRNE: I am getting pretty specific here. I notice here it says: Interest rates charged on loans and advances vary from 0 per cent to 11.5 per cent. What was used to determine if I were going to get a loan at 1 per cent or if Mr. Jones were going to get a loan at 3 per cent, 5 per cent or 8 per cent?

MR. WATERMAN: Basically, Mr. Byrne, the rates may vary but they are based on the principal, and interest was applicable to it at the then prime rate at the bank plus 2 per cent. So they may vary depending on how prime was at the time. Essentially, those loans that were granted to physicians were, as I mentioned earlier, on an interest-free basis, and basically, most of the EAP loans, unless they were very long term for any reason - and there were one of two of those - were subjected to an interest factor.

CHAIR: Mr. Lush.

MR. LUSH: The question asked by Mr. Byrne, when we were talking about the loans and the advances, what is the status of these now? Are there any outstanding loans, are they all paid or being recovered?

MR. WATERMAN: Mr. Lush, the status of all these loans is: Number one, the executive advances have been discontinued for several years. Well, the process of granting them has been discontinued for about two years and the last one was paid six months after that, so they have been fully repaid. The EAP loans are, for the most part, repaid with the minor exception of one or two long-term ones for which we have mortgages on properties and so on available. There were a couple instances when some of our employees were in danger of losing their homes for private circumstances and the board undertook to provide mortgage funding which was property security and so on and it is duly registered. So some of those have not been fully repaid but will be. They are on schedule in terms of the amortization schedule, but yet they have not been fully repaid and we expect they will be. The bulk of the EAP loans have been repaid.

The physician advances, as they come due, are being repaid. At this particular point, all of them, with the exception of one I can think of, are being repaid on a regular schedule. The other one, we have had to pursue one individual, but we are getting payment on that. I think we are within a couple thousand dollars now of depleting that balance in full. So, for all intents and purposes, those loans have been repaid.

MR. LUSH: Is that a normal practice in the Department of Health, to grant EAP loans?

MR. WATERMAN: Again, I really cannot comment on what is normal in other sectors. This is a program that we undertook as a corporation, after due study of the problem and from recommendations that were provided by, I think, the Occupational Health and Safety Committee at that time. We developed a program in-house which we thought would be suitable for addressing those types of concerns that our particular employees were bringing forward. I guess, whether or not it was too generous from a financial point of view is a question of interpretation. Certainly, it was felt at the time that the numbers we were using for those types of situations, when people were in dire circumstances, were appropriate for those particular programs.

MR. LUSH: Who are the people? What types of people qualified for these loans?

MR. WATERMAN: Any staff member who had any particular financial, emotional or any other kind of problem. It was a program that was more than just financial in nature but we did respond to financial concerns. Any staff member, basically, and that could have been a nurse, a housekeeper, dietary staff, whomever. We did have a system set in place, and it is still in place with the exception of the financial component, where if anybody had a particular concern, then there was an anonymous method for them to consult the EAP counsellor to try and seek some relief for that particular problem.

MR. LUSH: I am interested in finding out whether this program was prevalent in private industry or whether it was something unique to this particular board, and the board thought that this program was necessary.

MR. WATERMAN: To my knowledge, Mr. Lush, thinking back to when the program was set up, it was, I guess, an evolving kind of program in many industries across the country. I think a lot of the private sector had similar programs. I cannot say they were exactly the same as ours but they did have similar EAP type programs available for their employees. I feel quite certain that there are a fair number of publicly funded organizations that also have these types of programs in place. These programs are still in place, but they vary somewhat from one organization to the other. I certainly cannot comment on anybody else's organization, but for our own, we still have this program in place.

We do not provide the level of financial assistance any more. Our financial assistance is limited to $50 and that would be in dire circumstances, where an individual presents and perhaps has no money to buy groceries for his family over the next week or so. We will provide funding up to that level with the knowledge that it will be recovered from the next pay day for which the employee is eligible. We do provide psychological counselling and other types of services, social work counselling and so on, to those employees who need it.

Again, we have information only on the (inaudible) numbers on this program; as you can appreciate, these programs are kept strictly confidential between the individual employee and the case counsellor who administers the program.

MR. LUSH: Just a final question. Back again, just following up on the line of questioning by Mr. Byrne: I think, in response to Mr. Byrne's question, re the line of credit of $4 million, did you say it is now in excess of that? Did I hear the right figure?

MR. WATERMAN: That is right, sir. We do have a line of credit at this point of $13 million approved through the minister's office. As you can appreciate, this is an accumulation of some deficit operations for the last year and the ongoing deficit for the current year to which I referred earlier. This is a matter that we have had many discussions with the permanent help on and hopefully we will be able to work with the department in resolving this issue. We go on record as advising the department and the Western Health Care Corporation, that we obviously need to make some program adjustments to get down to a balanced-budget situation. We obviously cannot make those program adjustments until such time as we have a general agreement with the department to do that. Currently, those matters are under discussion. As I said earlier, there is an operational review underway, which I am sure everybody has heard of, and we expect the recommendations from that review sometime this fall. Presumably, they will point out some program changes which will allow for, let us say, a lessening of the deficit that we are currently experiencing.

CHAIR: Okay, just a final quick question, and then I am going to defer to the Auditor General.

In terms of the line of credit, the $13 million operating line of credit: Does that have a lot to do with the fact that provincial monies that have been allocated through the Budget are late in coming or, as a result of your daily expenditures or monthly expenditures, that the monies coming from the Province are delayed in any way shape or form? Does it deal with any aspect of that?

MR. WATERMAN: Yes. In fact, it does deal with some of that, but certainly I think the main contributing factor to this is the ongoing current deficit in our operations. We do have a current deficit. We have attempted to deal with this deficit. At this point, we have not been successful in dealing with it because we have not been successful in discussions or negotiations with any particular program changes. That is basically where we are at this point.

Presumably, when the operational review report comes down, and that will be delivered to Cabinet, there will be recommendations made to Cabinet whereby the operation of Western Health Care Corporation will be affected to some degree, such that presumably we will be able to deal with the deficit through those programs.

CHAIR: I will go to the Auditor General.

MR. WATERMAN: I think that is part of the mandate that is given to the operational review consultants, to deal with not only program restraints but also a debt management plan.

CHAIR: Go ahead.

MS MARSHALL: Yes, Mr. Chair. I would just like to make a few comments on the testimony.

First of all, the line of credit of $4.5 million. The concern that I have is that at some point in time the hospital is going to have to repay that $4.5 million, even if the Department of Health funds a portion of that. It will have to dip into existing programs in order to come up with the money to repay that $4.5 million.

The other concern that I have is I've been trying to track exactly what their line of credit is, and we haven't seen a set of audited financial statements from the Corporation for the past two years. The only such statements I've seen are the ones we looked at back in 1996, which was for the year ended 31 March 1995. There are two years of audited financial statements missing.

With regard to the physician loans, I would just like to make a couple of comments on that. First of all, we could not locate any board policy that provided for those physician loans. With regard to the limit of $20,000, there were loans there which were far in excess of that $20,000. The other concern I have about these loans is that the Corporation didn't have the money really to lend out this money to physicians or to employees. It already had a debt of over $4 million. Effectively, what they were doing was they were borrowing from the bank so they could lend the money out. That of course was a concern to me.

With regard to the loans to the employees, about $36,000 was for the employee assistance program. There were many loans there to employees; some were quite high. We had one here for about $22,000. There was another one there for $15,000. I don't think that is appropriate use of public monies.

With regard to the executive advances, that was approved by a policy back in 1983. My interpretation of the policy is that it provided for a one-time advance just for that particular year. These advances were given out up to 1996, which is thirteen years after that policy is mentioned in the board minutes. I don't think that is appropriate either. In any event, as I said earlier, the Corporation didn't have the money to provide advances or loans, so effectively it was borrowing so it could carry out these practices.

CHAIR: Would you like to respond to those comments? Either member of the board or -

MR. WATERMAN: Again, the numbers that Ms Marshall is quoting, I can't comment on those at this point or be specific. There were instances where physicians were granted in excess of $20,000. That I do recall, and there were special circumstances for those.

With respect to the policy coming out in 1983, again this was an ongoing policy which we were following. I guess it was a practice at the point after 1983. Looking back on the reference for it, it perhaps should have been solidified more in terms of a specific policy. We did use that as the ongoing policy, and certainly that was done with the full knowledge of all involved.

CHAIR: In terms of the two years' audited financial statements, are they on their way?

MR. WATERMAN: I'm sorry, yes. If I may comment on that.

The problem here arises from the consolidation of the various boards that took place effective January 1, 1996. At that point, Western Health Care Corporation came together as a result of the merger of, I think, seven different boards, each of which were operating on their own, independently, and filing their own financial statements.

With the merger of operations we experienced considerable problems in bringing together the financial records to the point where we had some serious delays and we ran into, again, some personnel related problems with the individuals who were working in those areas. The Director of Financial Services at the time resigned from the organization, and his second in command basically left the organization as well and left us without an individual in that position for a period of up to almost six months before we had a replacement there.

We went through the process of recruiting through the system in the region, across the Province, both of which failed to come up with a suitable candidate. By the time we went public and finally got a suitable candidate, that individual worked his notice back at his then current place of employment before he came with us, and that took just about a six-month period. As you can appreciate, with the merger and the lack of personnel in that area for that time, it did create a lot of confusion.

I can tell you that as of today we have finished a nine-month financial statement for December 31, 1995, for all of the independent boards prior to the merger. We have the March, 1996 statements essentially finished. There are a few final touches to be done on that, but they are pretty well in draft form at this point. The March, 1997 audit is well underway, and we have a time frame as of the end of October to have those statements finalized and submitted to the Department of Health. Again, we have been in constant discussion with the Department of Health on these matters. They are very aware of our circumstances, and again I think it is somewhat similar to other organizations in the Province as a result of the merger issues and so on. We do expect that we will have all of the financial statements tendered well before the end of the current calendar year, and our financial status brought up to date.

CHAIR: I have a couple of questions in terms of the follow-ups that have been asked.

With respect to loans given to executives: The Auditor General identified that there were no T-4s or T-4As associated with it which would put, I guess, the corporation in direct contravention of the Income Tax Act. Have there been any repercussions as a result of that? If so, what are they? What is the nature of that now? If you could just elaborate on that a bit.

MR. WATERMAN: First of all, as I mentioned previously, it is not an issue at this point because it is not in effect any more. At the time, when these matters were current, we had many discussions with the Revenue Canada individual who does the audits on our particular organization, and he was certainly aware of this. Those loans that were outstanding, it is my understanding that he basically wrote each individual and advised them of the tax liability that they had incurred on that.

CHAIR: So it became the individual's responsibility, then, to report it from an income purpose.

MR. WATERMAN: Yes, it was certainly an issue of which Revenue Canada, through their auditor, was very much aware.

CHAIR: So the board brought that to their attention, and brought it to the individual's attention; is that what you are saying?

MR. WATERMAN: Well, we brought it to the attention of the Revenue Canada auditor in our discussions with him.

CHAIR: Okay, Jack Byrne, you want one quick question as a follow-up. Then I am going to go to Gerald Smith.

MR. J. BYRNE: I want to get something clear in my mind. I don't want to appear to be beating a dead horse, but I am back to the $13 million line of credit. Am I clear in thinking that you would be using that now to finance the deficit that you have built up; and, if that is the case, then in actual fact, because of the operations of the Health Care Corporation in the past, what will happen in the future under the operational review is that the people in this area will end up losing services in the health care facilities in this area of the Province because of that?

MR. WATERMAN: If I may, no, Sir, I think that is a misinterpretation of the intention here. The operational review, as I understand it, will bring forward recommendations under the allegation that essentially Western Newfoundland is over-serviced in terms of hospital beds and other services. They have done a review. We understand that they will be bringing forward recommendations which will, I guess, highlight that there can be a reduction in certain services, bed sizes, with corresponding reduction in some services, which will allow for program reductions and subsequently less cost, which will obviously decrease the ongoing deficit.

The problem, of course, is that at this point we have $5 million less income than we have an expenditure base at this point, and unless that problem is curtailed, and that accumulates over the years which it has done for the last year or so, then obviously it will continue to build. As I say, we are in discussions with the department, awaiting the operational review issues as well, to actually determine which program changes will be made. That is something which at this point is outside of our control, until this in fact does happened.

I did mention that in the $20-million reserve that the government brought forward last month, there is $2.3 million available to the corporation as a baseline increase for the current year, and discussions about a $4.5 million one-time working capital injection into the organization as well. So those measures will certainly help, and in concert with the operational review recommendations and any actions that may be coming out of that, presumably will allow the corporation to bring forward a balanced budget, hopefully with some kind of a debt-management, debt-recovery program over the next couple of years, to bring this back to a normal situation.

CHAIR: Just one quick question here.

It is not a situation that is unique to the Western Health Care Corporation. We have just discovered, for example, the St. John's Health Care Corporation is going to be in a deficit situation of about $4 million or $5 million this year. Next year, they are anticipating $6 or $7 million. The year after that they are anticipating a $10 million deficit.

The Department of Health has informed that corporation that, by the year 2000 they will not be allowed to run a deficit. Has the Department of Health also informed the Western Health Care Board that by the year 2000, the board will not be allowed to be in a debt situation, and that if you are, or you are running a deficit, you will have to clear that up for that particular year, or by that year?

MR. WATERMAN: To the best of my knowledge, we have had no official correspondence from the Department of Health on that particular matter. We do understand that deficits are really not technically permitted. We know that we have a serious deficit problem that we have to address, and we continuously put forward suggestions and recommendations as to perhaps how these matters might be handled if we have the approval to make the program adjustments. We have not had the approval to do that. We have been told essentially to put things on hold, carry on until such time as the review is completed. At that point, we anticipate, with the program reductions, resulting cost savings and the debt-recovery program, that given a certain point in the future, be it year 2000 or whatever - we are not sure until we know what the actual size of the program reductions might be - we fully expect that we will have a balanced budget with a reasonable debt-recovery program involved in it.

We know we cannot carry on this way. The board is aware of that. We have made our representation to the Province that we want to get back to a balanced-budget situation, and hopefully that will happen before the start of the next fiscal year.

CHAIR: I will get back to some of it in a minute.

Mr. Smith.

MR. SMITH: Thank you, Mr. Chairman. I am Gerald Smith, the MHA for Port au Port.

As a person who represents an area within the western region that is served by the Western Health Care Corporation, I am somewhat familiar with the concerns being discussed here today. I should say, at the outset, that I am hoping that this process will serve to clear up some of the confusion that is out there. There is no question, in my opinion, that the Western Health Care Corporation took a serious hit when this report was released, in terms of credibility.

The people in my district, many of them, have raised concerns with me and have asked me questions as to what has happened with some of the things that are contained in the report. I know there were some efforts made by the current Chairman, Judge Legrow, to address these concerns and lay them to rest. But that is still out there, it is certainly still out there among the people of the Province whom I talked to. So I think we should welcome this opportunity, through this process, hopefully to lay some of these concerns to rest. I think the only way we can do that is to really deal head-on with the issues that are contained within the report.

The thing that people are really concerned about, the people with whom I spoke, is the way the monies were used, especially the advances and the loans. The ordinary people with whom I spoke, find it hard to understand that. You know, I hear your explanation, for example, that in order to attract qualified people to our region we have to put some of these things in place. I am I'm not disputing that. My question to you right now - and I would also ask, perhaps, the Auditor General to respond. I understand that this practice of making loans and salary advances available has been or was in place for some years. Is this common practice within the health care field?

MR. WATERMAN: Again, Mr. Smith, it is not an area that I can comment on, because I really can't comment on anybody else's -

MR. SMITH: Okay, maybe the Auditor General. Are you aware if this is a standard practice?

MS MARSHALL: No, this is not standard practice in any health care institutions that we have audited. This was unusual.

MR. SMITH: So you have not seen this in other -

MS MARSHALL: No, I don't recall seeing it. I don't know if you would (inaudible), Claude.

MR. JANES: Not to this extent.

MR. SMITH: Going back to what my colleague, Mr. Lush, said at the beginning, when he was quoting the minister's statement in the paper, I suspect what Mr. Matthews was referring to when he was talking was the $500,000 - because if there was $500,000 there in outstanding loans or advances or whatever, then presumably that is $500,000 that was not available to the board of the day to use directly in health care. I guess that is what he was referencing.

That is the kind of concern I get from people out there. I know we have said today we aren't here to rehash what (inaudible), but I think unless we are able to lay it to rest - and we are told now that has been taken care of and it won't happen again.

Just to go to page 18 in the report, and quoting from the report: "Corporate credit cards were used for personal expenses. In 1990, an internal Corporation memo indicated that approximately $33,000 in personal expenses were charged to an employee's corporate credit card and paid by the Corporation from April 1989 to March 1990. This amount was recorded as an account receivable; however, no payments have been made by the employee." I think it has been indicated since then that that amount has in fact been recovered. Can you confirm that for us today?

MR WATERMAN: Yes, it has.

MR. SMITH: Thank you.

Further on there: "Our review of 1994-95 credit card transactions disclosed that the same employee charged $5,689 for personal accommodations in Japan to his corporate credit card. This amount was paid by the Corporation and was neither recovered nor recorded as an account receivable." When I read this report, that certainly causes me concern on two points. For example, the fact that it indicates here that it isn't even recorded as an account receivable: Can you speak to that?

MR. WATERMAN: If at the time that was in fact so, then that was subsequently changed. There could have been an accounting error, but that was recognized as a personal expenditure by the individual involved. That was accumulated with the other balance of the $35,000 approximately that was shown there earlier. As a matter of fact, we did have an agreement put in place for the repayment of that amount by the individual, and that agreement was amended I think to reflect that as well. It certainly was recognized as being a receivable of the individual. There was no intent to do otherwise with that. The problem was that particular charge came in after the agreement had been established for the repayment of the balance of $35,000.

MR. SMITH: To that point: Perhaps as well I could maybe suggest to the present board chair, that I think in all fairness to the individual concerned something needs to be said to that point as well. I'm hoping the fact that it has been stated here today - because there is still concern out there among the general public that that money has not been recovered.

MR. WATERMAN: If I may, Mr. Smith, I can say categorically that that money has been recovered in full from the individual within the last year.

MR. SMITH: Thank you. That needs to be said and it needs to go on the record, because it isn't out there, it isn't common knowledge, and people are raising it with me.

The other question, I guess, that I have when I read that is more in terms of the internal controls and auditing controls as such. What reassurance can you give right now to the people of the Western region that the internal auditing procedures and everything that we have in place to protect the public, and to ensure that public funds being allocated to the Western Health Care Corporation, are in fact going to be used for that intention?

For example, as an ordinary citizen reading that, I would be concerned when a report says that this is not even set up as a receivable. You can see the concern of the ordinary person looking at that and saying that this is a significant amount of money. It seems to me that that should have been picked up right away. One would think it would be.

MR. WATERMAN: I think it was a matter of timing, Mr. Smith, since when the charge came in it was picked up. I can't say exactly when. If it were done other than set up in the receivable, that error was picked up reasonably timely after that. As I said earlier, there was certainly no intent for that to go otherwise, and it was certainly recognized as a receivable from the individual.

MR. SMITH: Again, all I can go on is the basis that the Auditor General has produced a report which has drawn attention to this. Maybe you might want to just elaborate on that.

MS MARSHALL: I have to clarify it so that you understand what I'm saying here. The $33,000 went up to March, 1990. The statements between March, 1990 up to 1994, we didn't look at those statements; they weren't readily available. There may be charges on loans that were personal in nature; I don't know. We didn't review them for that purpose. We did look at the 1994-1995 statements, and that is where we identified this $5,689. That was picked up by the auditors.

There is a comment there on page 18 that I just want to bring to your attention. It says: "Due to the weak controls over corporate credit card usage, other personal employee charges may have been paid by the Corporation and not recovered or recorded." At the time of the audit, Mr. Noseworthy did meet with Mr. Waterman, and I don't think anybody could give us any assurance that all personal charges had been picked up. Now, there may not have been any more personal charges, but we did not look at those statements for that four-year period. I don't have a lot of faith in the internal controls.

CHAIR: If I could just ask the board to respond to that.

JUDGE LEGROW: As you indicated earlier, the board certainly took a hit credibility-wise when the Auditor General's report was released. Since then I met with the Auditor General, of course, and I guess her comment to me with regards to our board is that we weren't involved in what had happened in the past, that we would be judged on how we addressed some of the concerns raised. That was a concern of our board.

Since that time, in fact, our finance and audit committee, as its main mandate, has taken all the recommendations of the Auditor General in her report, and at our last board meeting, basically - we have now, I think, addressed all of the concerns that she has raised to ensure that in future we do indeed comply with Treasury Board policy with regards to salaries, benefits, the management, et cetera, that the Public Tender Act has complied with. All of the other recommendations mentioned in the Auditor General's report will be complied with.

From the Western Health Care Corporation, that is all I can say. We addressed the issues, we have dealt with all of them, and all I can do today is try to ensure the general public that the concerns raised by the Auditor General have been addressed by the present board.

MR. SMITH: One further question with regards to this, and then I will defer to someone else: In terms of the last statement that Ms Marshall just referenced here, that in fact the suspicion may have been - I mean, in the absence of not being able to conclude one way or the other - that there may have been other employees who were in a similar situation, did the subsequent review of this - after the Auditor General's staff were asking these questions, I would have assumed that internally someone would have gone back and started checking these records to see were there, in fact, any other employees who were identified in a similar situation?

MR. WATERMAN: As you are aware, Mr. Smith, I was personally suspended by the corporation at the time when this came down. There may have been two months when this was a very hot topic. It is my understanding that the Department of Health officials came out and carried out an audit. I know they did, because obviously by the time I came back and was reinstated I dealt with the Department of Health officials in meetings. It is my understanding that they carried out a fairly intensive audit of travel expenses as it pertained to myself and any other executive. To the best of my knowledge, at this point, that audit came up clean. I cannot say that there was nobody else, but to the best of my knowledge there was not.

MR. SMITH: Okay, thank you.

Thank you, Mr. Chair.

CHAIR: Mr. French?

MR. FRENCH: I think probably Mr. Mullins said it right, that perception, I guess, is everything in a lot of places sometimes. I had the same concerns as my colleague, Mr. Byrne, when I read this report. As a matter of fact, a colleague of mine said to me, "How do we get a job there?" That is how much they perceived what they had read.

I am glad to hear that some of these things are now in place, but I am still going to ask some questions as they relate to money because it really bothers me. While the minister and I may not agree on a lot of things, I do agree with him that it is money that I feel we certainly should have had for health care.

I notice on page 3, in 1996 two computers costing $14,646 were purchased by the corporation on behalf of a senior employee who already owed the corporation $40,538 for personal expenses and $11,447 for salary advances. There was no interest being charged on these amounts, and the $14,446 was being repaid at $250 a pay period. My question is: Have all of those debts now been taken care of, and was there, in fact, any interest charged on any of this while the person was paying off those loans?

MR. WATERMAN: Yes, Mr. French, I would like to address that particular question.

First of all, let me just say that the debts have been repaid; but let me just talk about, for a minute, the nature of these particular debts. I know the reputation of one of our senior officials has taken a terrific beating in the media and throughout the Province, and I think that has been unjustified in many, many areas. This is one circumstance where this individual, because of the integrity that he showed, said: Look, I need to buy these personal computers for basically business purposes, but because there is some element of me having to take these home from time to time, take them on the road with me, to carry out the work of the corporation, it may be misconstrued that these are personal. Therefore, I will buy them as personal; however, what I would like to do is put them through the corporation records and we will set up a payroll deduction program where we can pay for these computers over a reasonable period of time, which I think was about a year-and-a-half or so; and there was a record set up for that. That individual - again, this was not a personal expenditure of his. This was a true corporate expenditure, but because there was some possible misconstruing of how that might be used, he did agree that he would pay for those personally.

After this became an issue, my advice to him was: Look, why don't you just put them through the corporation books, take back the money that you have paid on them - he had paid several thousand at that point - be refunded the money that you have paid, and show them as a true corporation asset.

It was not an intention of buying a personal computer for personal use through this method. It was a matter, I think, of a man's integrity, of saying, `Because it can be construed that way, I would like to take this most prudent route'.

MR. FRENCH: What you are saying to me now is that all of this money has now been recovered?

MR. WATERMAN: Yes, Sir, it has all been recovered.

MR. FRENCH: Okay.

DR. WATTS: If I could, that person is me. Exactly, as Dennis said, I did not want to charge them off against - when we didn't have (inaudible). How could I say that my computer was (inaudible) and yet I was doing two functions. I was doing work many hours after hours. I was on the road continually. A portable computer was the only way I could communicate and do things. My secretary wasn't only my own personal secretary; she was secretary to two other people in the office. She didn't have time, so I did my own reports. I was expected to turn them out. I did a newsletter for the corporation, which I think Judge Legrow would say went out in a timely fashion. I did that on my own, and if I didn't have that kind of material to support me, how was I going to do it? Therefore, I had said that I would take (inaudible). At the same time, I was making donations to a foundation in the insignificant amount of $2,000 a year out of my payroll deduction. I don't think that I was trying to (inaudible) at the time.

MR. FRENCH: It is certainly not meant that way, but again I say that the Auditor General pointed it out in this report as a flaw. Maybe, as she says in other parts of the report, information was not readily available; and that is said in various other places in this report. If that information had been available then maybe this section would never have been written. I say that to you as well.

MR. WATERMAN: If I may again just comment on that, we did have some discussions with the particular auditors on that particular issue. We did point out to the auditors the nature of that particular expenditure, and why it was set up that way; however, it showed up in the report the way it did and I cannot comment as to how that - we did make out points. We did explain to them what was going on and why it was set up that way. Again, why it showed up the way it did, I -

CHAIR: Bob, if I may interject.

Elizabeth.

MS MARSHALL: In effect, it was an asset belonging to an employee of the corporation.

MR. WATERMAN: Yes, ma'am.

MS MARSHALL: And it was set up on the corporation's books, and if that employee left he would take that computer with him. I don't think it is appropriate that personal transactions and corporate transactions be intermixed.

MR. WATERMAN: I understand the comment you are making, but again I can only allude to the fact that it was deemed to be a personal business transaction as such, where the computer was a personal computer but was being used, for the most part, for business matters. Under other circumstances that certainly would have been a capital asset of the corporation and recorded as same.

MS MARSHALL: Yes.

MR. WATERMAN: But this was different.

MS MARSHALL: Well, if it was an asset that belongs to the corporation and is going to be used by the corporation for corporation business, then the corporation should have purchased the computer.

MR. WATERMAN: Well that is probably true, Ms Marshall. We recognize that. Again, as I mentioned earlier, Dr. Watts did indicate that there was certainly a personal aspect to this, where he was taking it out of the office, on the road, and perhaps even using it for personal business from time to time - that may be most likely - but certainly the bulk of the business that particular computer was used for was certainly corporation business. I can attest to that personally, having been on the road several times preparing for meetings with Dr. Watts, doing preparation using his computer, developing reports, developing scenarios and papers and proposals and so on using that computer. That happened several times to myself, and I know the way Dr. Watts travelled. He certainly used that for business purposes as much as possible; however, he chose to pay for it personally and that was the method we used. I understand it was not appropriate in terms of the financial regulations, and perhaps we should not have done it that way, but that is the way it ended up.

CHAIR: Okay. We are just going to take a ten-minute break. There is some coffee and tea in the back for those who wish to have it. We will start back at 3:20 p.m., and we will start with Mr. French.

CHAIR: Order, please!

If I can get everybody's attention for just a second, the hearing is now reconvened and we will go back to Mr. French for some more questions he has. Bob?

MR. FRENCH: Thank you, Mr. Chairman.

I would like to ask a couple of more questions and then I will defer to my colleague, Mr. Whelan.

I guess as we go on today and tomorrow we will be back and forth talking about money, but I would just like to get on to something else here.

The Auditor General also pointed out, which is something that intrigues me a great deal, having been out to Port aux Basques and Corner Brook and attended a couple of health care meetings, and concerns that were raised - one of the things that the Auditor General points out on page 4: A waiting list for surgery is not maintained by the hospital to provide information on the demand of its services in this area. Has that now been corrected? If somebody is expected to go for whatever type of surgery, do we now have a waiting list, and is that list now prioritized so that we get the person needing the medical attention first and so on? Has that now been done? Has that now been corrected?

MR. WATERMAN: If I may - and I am sure Dr. Watts will want to make some comments on this as well - the practice at Western Memorial Hospital at the time was not to maintain an organizational waiting list. We have a number of ORs and OR slates that are available to various surgical specialists on a routine kind of basis. What we do is allow the various surgeons to prioritize their own listing so they can bring in their patients as they deem necessary, and they have the prescribed times at any time during the week. So, we don't make the decision as to who comes in, who has surgery, or what type of surgery. That decision is left with the particular surgeon for his own patients on his own priority listing.

If we need to get information at any given time as to what the particular waiting list might be for any particular discipline, any particular type of surgery that is required, or whatever the circumstances might be, then we have a mechanism of going back to the particular physician's office and getting a recompiling of a particular list. So the priorities are done by the surgeons, and I think that is probably the most effective way to do this to ensure that those persons who need particular attention get it, based on the priority that their own surgeon puts on.

I don't know, Dr. Watts, if you want to comment on that.

DR. WATTS: Yes. Waiting lists are the most useless method of saying what the demand for services is. We do have waiting lists. If some physicians, some surgeons, wished to have them there, they were kept there. We have had some who, particularly for (inaudible) surgery, who were on the list for two and three years, and we would call them and find they had had their surgery some place else, they didn't want to have it done or whatever. Yet they were shown on the list as being in demand for service and they didn't want it.

The issue is that the physician or the surgeon involved is probably the best person to determine who should get the priority. Anyone who is emergent or urgent would be put on that short list. That is not a really long waiting list because you don't want to hang around very long if you are emergent or urgent. They would be put into a very short waiting list to say that these have to be fitted in.

Emergents were done when they had to be done, urgents would be done within twenty-four to forty-eight hours, and they would be done in the open room space, open timing was done. If they couldn't be accommodated that way, they would be accommodated hours after the regular surgery. From the point of provision of services, of the actual keeping of a waiting list, it was done if the particular surgeon wished it to be maintained in the admitting office, but most of them did their own and they would determine who did it.

MR. FRENCH: I would just like to ask this. Again on page 4 the Auditor General says: "We found instances of non-compliance with the Public Tender Act. Five of 24 purchases reviewed were not tendered and the Minister of Works, Services and Transportation was not informed in contravention of the Act. In addition, four purchases that were tendered referred to a specific model of equipment or equivalent and thus gave an unfair advantage to certain suppliers."

I just wonder have we now done anything to correct that in this particular instance. Because I do note - and there are some questions here on that - that there are cases whereby if we specify a certain amount of equipment then we eliminate, maybe, some other people. We have found in some instances - and I'm sure we are going to find as we stay on this Committee and go through it - that there may well be reasons as to why that is done.

I have had phone calls from people in the medical field who have said to me: I supply the same piece of equipment. This piece of equipment does the same job. I just wonder: Are we now sticking to the Public Tender Act, and have we refrained from specifying equipment if there is other equipment out there that is just as suitable?

MR. WATERMAN: Yes, Mr. French, we certainly are complying with the Public Tender Act in every way that we certainly can. As you know, the Act is very restrictive in many areas, and as much as we can comply with the Act we certainly intend to do so.

The two instances that you mentioned: There were five particular tenders or purchases which were not in accordance with the Public Tender Act. I've provided an explanation, I think, in the brochure for all of them. All of them are for certain specific reasons which the Public Tender Act provides the latitude to work within. The thing we did not do, which was done sometime after the fact, and I agree should have been done at the time, was a form B should have been filed with the House of Assembly, with the minister, to indicate that we did not follow the Public Tender Act, as it were, for the particular reasons that would have been outlined on form B. Both form Bs were filed after the fact, and that again was an oversight in our materials management department which was brought to our attention.

On that particular issue, we did follow the Public Tender Act specifically because most of these were sole suppliers, emergency suppliers and so on, and the detail has all been outlined. Unless you want me to go through the detail that is there in the file, I think it is explained fairly well.

The other aspect that you mention: When a particular piece of equipment was used, let's say, as a specification for a tender call, again, my understanding on this is that this is not a normal process, but it is a process which happens from time to time; which not necessarily says that we are going to buy that piece of equipment, but a piece of equipment, or a purchase for a piece of equipment, can be called for using certain features that one particular brand of equipment would have. They would say: Features similar to XYZ piece of equipment that this would offer.

Again, we had some discussions with our materials management people on this. We understand that this happens quite frequently in the health care business where routine specifications for certain new types of equipment, certain pieces of technology, may not be immediately available. There is a piece of equipment which is held out as being a standard, and what they have done is call for quotations based on the features found on that particular piece of equipment, with the piece of equipment having been mentioned as a standard. It does not, in any way at all, prohibit the purchase of any other particular piece of equipment that can supply those types of features that have been asked for. So while we use it as a standard, it does not mean that we would purchase only that piece of equipment.

MR. FRENCH: So you can assure me today that any purchases made now, that are outside the Public Tender Act, the reasoning for this is being reported to the Minister of Works, Services and Transportation? All of us, as a committee, certainly every so many months, I believe it is three times, get a report in the House of everything that has been awarded without going to public tender. So you can assure me now, that any of these things that do not go to public tender will certainly appear in our report?

MR. WATERMAN: Mr. French, certainly that is the policy of the organization and we expect our senior staff to comply with that policy. If a form needs to be filed, then it should be filed within the prescribed time frame. Again, we check periodically with those people and make sure that it is done and, to the best of my knowledge, we will carry that out.

CHAIR: I have one more question.

The Auditor General, in her Report in a number of instances, talks about contravention of the Hospitals Act, which governs the Province. I understand that an act which was put through the House of Assembly recently (inaudible) dealing with health care, is still something that you as a group, not you personally, operate under in terms of its legislative compliance, the regulatory regime that is associated with it that would govern the activities and management of the board.

Do you have any comments on that? Because it would seem that there are two sets of standards by which you are being judged; one being interpreted by the corporation at the time in terms of what gave it life, in terms of the legislation of the Province, and the other is in terms of the Hospitals Act. Do you see any merger of that taking place? Has there been any discussion with the Department of Health that would consolidate that, that would give probably a clearer focus or clearer direction to the board in terms of actually what governs, ultimately, the actions of the board and its executive and all employees?

MR. WATERMAN: The issue you raise is certainly one of the most salient points I think that needs some discussion at this particular hearing.

Western Memorial Hospital was set up by an Act of the Newfoundland Legislature in 1989. It was a specific act which was amended several times over the course of the years, which gave the authority to a board to be established in Western Newfoundland for the purpose of operating Western Memorial Hospital Corporation. That act was very specific in many ways in terms of the board's composition and the powers and authority that were conferred to the board.

The board operated under that act right up until December 31, 1995. At least, as far as the board was aware, that was a particular piece of legislation by which it should have been operating. We were advised by the Auditor General that the Hospitals Act which came in in 1971 superseded any other act, and we should have been operating under the Hospitals Act as of the date it came in. That very well may be, but certainly over the course of the years, every document that we filed with any regulatory body, the Department of Health or whomever -

CHAIR: From 1971 to 1995: You are talking about that period of time?

MR. WATERMAN: Yes, the whole period from 1949 right up to 1995.

CHAIR: When the Hospitals Act became enacted through the Legislature in 1971, that is the act the Auditor General said should have been governing the operations of the board.

MR. WATERMAN: Yes. I was not an employee of the corporation in 1971 when the act came in, but it is my understanding that there was never any information conveyed to the board from 1971 up to 1995 saying that it was operating under the wrong piece of legislation; so the corporation continued to operate under the scope of the Western Memorial Hospital Act which, as I say, provided the board with some different powers from the Hospitals Act.

CHAIR: No Minister of Health, irrespective of Party, from 1971 to 1995, ever informed the board of that, that you should be operating under the Hospitals Act. Is that what you are saying?

MR. WATERMAN: To the best of my knowledge, that is correct. As I say, any document that we filed was under the reference to the Western Memorial Hospital Act. We, in fact, carried out discussions with the Department of Health in the mid-80s with a view to consolidating the Western Memorial Hospital Act and the Hospitals Act in general. Those discussions were carried out over a period of a couple of years and were never completed as such; and at some point in the late eighties I guess they were let go for whatever reasons, but I presume it was because at some point we were looking at regionalization of services anyway which presumably would change the whole structure. Up until the mid-eighties there were discussions going on between the Department of Health and the corporation with a view to merging the Western Memorial Hospital Act into the Hospitals Act. As I say, they were never completed and the corporation continued to operate under the scope of the Western Memorial Act.

CHAIR: Mr. Mullins, I think you wanted to make a comment.

MR. MULLINS: I was really only going to say what Dennis has said, but since I was a board member through a good deal of this time I would just like to reiterate what he said. We operated under the Western Memorial Hospital Act which actually was formulated in '47 to build the hospital you see up on the hill there. To be fair to everybody, the Department of Health and everybody else, and successive ministers through the years, I could sit here and say, well, nobody ever told me, and that is true, but at the same time I don't recall that much occasion arose for anybody to tell me, if you will, until rather late in, say, the eighties; and at that time there were lengthy discussions about bringing Western under the Hospitals Act. That went on for two or three years back and forth, what would be changed, how we would do it, and this and that, and eventually that all became mute because the board was abandoned and a new board set up. So it never did happen, but we operated as though we were under the Western act.

Looking back at it, I don't remember, especially in the early days, if it ever became an issue, if you know what I mean by that.

CHAIR: Dr. Watts.

DR. WATTS: Thank you, Mr. Chairman.

We had negotiations that originally started - I think there were a number of hospitals which did not completely fall under the Hospitals Act. There were certain areas that were different. Grand Falls was one in Central Newfoundland, the General Hospital. I think Grand Falls was the first to negotiate an agreement to become fully under the Hospitals Act. That is certainly how it was to apply. There were a number of discussions held with Western Memorial. One of our previous board members on our legal council gave us advice that there were areas in that agreement that we should maintain the ability to have some financial control of the western region to do the kinds of things were felt to be necessary. That was one of the issues, and there were a number of proposed agreements for codicils.

CHAIR: Issues that would have been particular to this region of the Province, you are saying?

DR. WATTS: Right, and there were a number of different sort of codicils which were going to be included if Western Memorial had agreed. So there was an ongoing debate with the Department of Health and it never got concluded. As I say, I think really in the whole issue of looking at joint management and consolidation, which started with The Royal Commission and moved on to the various (inaudible). So, our advice was that these were what we operated on. Whether that was right or wrong, I cannot say. I am not a legal person.

CHAIR: Auditor General, do you have a comment on that?

MS MARSHALL: There is a section in the Hospitals Act that says: Where this act - meaning the Hospitals Act - conflicts with the Department of Health Act or any other act, this act shall prevail. So it appears that the hospital should have complied with the Hospitals Act.

CHAIR: In your investigation you didn't, I guess, uncover anything - and I mean that in a positive sense, not that there is anything to cover up - in terms of any discussions with the Department of Heath over the year to -

MS MARSHALL: No.

CHAIR: I see a problem in that if a board is operating under an assumption - and has for some time - without being given clear direction, that there would be a cause for confusion, even though there are two acts. It causes some concern in terms of decisions that would have been made, probably, based upon what is in the act.

MS MARSHALL: I am not aware of any direction or any of the discussions between the hospital and the Department of Health, but the issue that we identified related to the debt of the corporation, and whether it received the approval of the minister.

CHAIR: Okay, fair enough. Thank you.

MR. MULLINS: To follow up on that, we are not arguing at all that we didn't know it was there or anything.

CHAIR: No, I understand.

MR. MULLINS: As I say, it never became an issue at all.

CHAIR: It is a question of concern.

MR. MULLINS: It was fairly late in the game when these discussions took place, and they came to nothing because it seemed to become academic after the new boards were announced.

CHAIR: Why I ask it, and why it concerns me, is because if we are operating under two sets of standards, supposedly one assumption or perception is that you should be operating under the Hospitals Act (inaudible) then it does cause some concern. It may be an academic question or a moot point, but only when something occurs or a decision is made that contravenes one act is when it really becomes necessary and when it becomes more to the point to question, why is that so. I just clarify that.

I will pass it on to Don Whelan.

MR. WHELAN: Thank you, Mr. Chairman.

I would like, if I could, to get some idea, some grasp, on the working relationship between the board and the administration. I'm wondering how close the board monitored the day to day or the week to week or the month to month operation of the Western Memorial Hospital. One of the reasons I'm asking that question is because of the comments made by the Auditor General on page 17.

She noted that during 1994-1995, 1995-1996, the Corporation paid $374,714 to consultants "...for engineering services for a capital project..." That is a fairly substantial amount of money. In her report the Auditor General found "there was no written contract" between the firm and the Corporation, that there was no call for proposals, and that "the Board did not approve the selection of the engineering firm." That makes me wonder: What was the working relationship between the Board and the administration, and how closely was the day to day or the week to week or even the year to year operation of the hospital monitored?

MR. MULLINS: When I made a little preamble at the beginning, this was what I was alluding to, the question of governance versus management. It is a problem in public sector institutions, which we are talking about here, but if you follow the business press you will see it is also very much a problem with the corporate sector. What do board members know, and when do they know it, and how do they control it?

I was chairman for most of it so I knew more of what was going on than the average board member. I was perhaps consulted more often, I sat on more committees, but even I had a private life too and a demanding job, and I was limited in the amount of time I could put into it. Put yourself in the position of an ordinary board member who shows up once a month and has a stack that high in front of him, and he is there till midnight trying to get through all this material.

The only thing you can do, from the point of view of the board - and there is quite a bit of literature on this and discussion on how this should be done, theories - is see to it that systems are in place. You cannot monitor it yourself. You can't do that, I don't think. You can't manage it. The last thing a board member wants to become is a manager. If you are an engineer like I was, you are sorely tempted to go up and plunge into the (inaudible). You can't do that sort of thing. You have to let the system present itself to you in some fashion.

MR. WHELAN: At what point in time would you have found out about an expenditure like that?

MR. MULLINS: Which one? I'm sorry.

MR. WHELAN: At what point in time, how long after the actual -

MR. MULLINS: I think - Dennis may want to contradict me, I'm getting a little rusty - we would have know through the (inaudible), I think, roughly where that stood. We were not aloof from that. We sat on committees that dealt with that project. It was a shared project. There were others as well besides Western. We would more or less have known along the way, you know. The same way with many of these things.

The only expenditure here that I was completely in the dark on till it was brought to my attention was the infamous expense account. I don't want to go back to that, but that is a fact. In the main, we were aware of the things. I have to say that up front, that I don't wash my hands and say: Management people did this. I don't do that. I was there, I was responsible, and I take my share of the credit or the blame, whichever.

MR. WHELAN: What was the rationale behind the expenditure without any proposal?

CHAIR: Mr. Waterman, did you want to make a comment here?

MR. WATERMAN: I would like to respond to that one. That is a certain particular issue for which the board was one partner of three involved in this particular capital project. This project involved the development of the DVA unit at the O'Connell Centre. Involved in that obviously was the DVA department, and the Department of Health was involved, along with representatives from the Board and administration at Western Memorial at the time. The Royal Canadian Legion, I should also say, were involved in that committee as advisors, more or less.

We had a tripartite agreement, along with the Royal Canadian Legion, which met and basically made all decisions pertaining to the development of that particular project. While I think the comment is stated there that the board was not informed, that is certainly an issue where not only was the board informed as to what went on there, but the board took an active part in the planning and the decision making that came out of that particular project.

The reference there to the engineering services. First of all, as you are quite aware, professional services are not covered under the Public Tender Act, and so obviously we didn't have to public tender that. However, we were delinquent. We should have had a specific policy in place to handle, I guess, the issuance of contracts for professional services. We didn't have it in place at the time; we do now.

However, looking at engineering services, as you are quite aware, any engineering work in the Province is carried out under a prescribed fee set by the Association of Professional Engineers of Newfoundland. So regardless, if you got an engineering firm from Corner Brook, one from West Street, Corner Brook, versus one from the west side of Corner Brook, versus one from downtown Corner Brook, you are going to pay the same rate because it is a prescribed fee that they are all going to charge.

What we essentially had decided to do, as a corporation, was to share the work for engineering services around to local engineering firms whenever we possibly could, whenever the expertise was available within the community to do so. Many times that was not so. If speciality engineering or architectural requirements were called for, we often times had to go outside the city; but whenever we could, within the city, we would engage any of the local engineering firms that had the necessary expertise to carry out the work for us.

In this particular case, we did engage one particular firm, and that was certainly made known to all three parties involved plus, as I say, the advisory group from the Legion, so it was certainly something of which the board was aware. The committee minutes are well documented as to all of the issues pertaining to the engineering services, and the issues pertaining thereto.

I am not sure exactly how it was reported to the Western Memorial board at the time, because Western Memorial was one of three parties involved in the decisions on it.

CHAIR: Judge Legrow.

JUDGE LEGROW: Mr. Chairman, I guess from Western Health Care Corporation's point of view, as Mr. Mullins indicated, the role of board versus management is certainly a difficult one. Governance is an issue with which we are presently dealing. In fact, the board is in the process of adopting, I guess, a new role of governance model, called a Carver model, where basically the board has one employee, that being the CEO. It is very difficult, as Mr. Mullins indicated, for board members with certain expertise to want to get involved in management. That certainly is not the role of the board.

With regard to, I guess, monitoring, this model of governance also underlines where specific decisions of the CEO are monitored regularly by the board so that there is certainly regular monitoring by all the decisions of the CEO.

From a board point of view, and I guess a chairperson's point of view, I frequently get calls, say, from press, with regard to a specific decision made. I will say, "Well, I don't know anything about that". They will say, "Why? You are the board chair". But that is a management decision. I cannot get involved in the management of the Western Health Care Corporation. I have a full-time job. It is difficult for the public and the press to try to appreciate the role of the board and that of management, and it is certainly a very confusing area. Board sets the policy and management carries that policy out, and it is a difficult concept to sell.

MR. WHELAN: Mr. Legrow, just for public clarification, could you give us your views as to what role the board has to play in the health care system in Western Newfoundland?

JUDGE LEGROW: Okay. In a nutshell, as I indicated, the board sets the policy. In other words, the board will say: Look, this is the standard of health care that we are going to have in the western region. Whether it be primary care all over and secondary care will be carried out in Stephenville, in Corner Brook, or whatever, we establish policy. We say to management: Here is the service you have to provide; you go provide it.

I guess that is the way - the board does not get involved in the hiring of an accountant here or a nurse there, or things like that. A lot of management decisions that happen, in a sense, are no business of the board because it is a day-to-day running of the operation, in which really board trustees cannot get involved.

CHAIR: If I could just interject, I wonder if the Auditor General could make a comment on the board versus management, because it is an important issue. It is a grey area, and it is -

MS MARSHALL: I agree with Judge Legrow regarding the role of the board in establishing policy. The problem we have with this particular item is that there was no board policy established. So I was wondering, how did that particular firm get selected? Especially when you are talking about consultants, where there is a significant amount of money spent - in this case it was about $375,000 - I question: How was that firm selected? Why was that one picked to receive this job?

In the absence of a board policy, I inquire: Well, did the board select and approve this particular firm? Who exactly selected them? Was it clerical, or a manager, or a director? Who, exactly, and what is the policy of the board regarding consultants? That was the issue with which I had concerns.

CHAIR: Would you like to respond to that, because it is the question that comes to the point, I think.

MR. WATERMAN: Certainly.

The issue of policy is one where there is no specific written policy; we will agree with that. Also, the fact that -

CHAIR: Even to this day, Mr. Waterman?

MR. WATERMAN: Pardon me?

CHAIR: Is there a policy today?

MR. WATERMAN: Yes, there is. There is a policy which has been formulated and is in place. We have a particular division of our organization that is responsible for engineering services, for facilities mainly, which covers off engineering services. We do have a policy which will cover us from here on in, but at the time, as it was not covered under the Public Tendering Act, the decisions were made in consultation with the director of that particular area in consultation with the various engineering firms, to determine basically those who were able to carry out the work, and to select one which would be acceptable to this tripartite committee. The recommendations were brought forward to this committee. I cannot vouch for the wording, but at a committee meeting they were accepted, that this engineering firm would carry out the work.

CHAIR: When you say that consultations were carried out with various engineering firms, can you elaborate on that?

MR. WATERMAN: Not having been directly involved, Mr. Chairman, my understanding on that is that the individual brought forward recommendations to the committee based upon discussions with the engineering firms, presumably on hours and so on that it would take to do this, with some discussion about the scope of the job to be undertaken. After due consultation, he brought back some recommendations to the committee. That is my understanding of it.

I should qualify that by saying I was not party to all those committee meetings but I was very much aware of the project being undertaken. Perhaps Dr. Watts or Mr. Mullins may wish to comment on that.

MR. MULLINS: That is essentially correct.

CHAIR: Don, do you have a question on that?

MR. WHELAN: What do you feel is your responsibility, Mr. Legrow, when you see a health board or the hospital system running a debt of approximately $5 million? It goes against the hospital act, as far as I understand. The Board is not supposed to run a debt. What action should you or should you not have taken when you saw that type of thing happening?

JUDGE LEGROW: In fact, Mr. Mullins might be the right one in that. As I say, from the Western Health Care Corporation's point of view, it was a debt we inherited when we took over the -

WITNESS: (Inaudible).

JUDGE LEGROW: Yes, the other institutions.

MR. WHELAN: Maybe it would have been more appropriate for Mr. Mullins to -

MR. WATERMAN: Can I ask for clarification? Are we referring to the current level of deficit that the Corporation's undertaken, or the ongoing accumulated debt?

MR. WHELAN: Well, it was accruing for a number of years.

MR. MULLINS: Yes, but the question of deficits is not new. I think I said a little earlier that somebody in the media called me at the beginning of this ruckus and asked: Is it common to have deficits? My answer was: I knew unofficially it bloody well was common, but officially I don't know, because you aren't supposed to have deficits. You are forbidden to have deficits.

The problem that arises, however, is the patients keep coming to the door. So what do you do? When you get to the limit of your deficit do you go down and turn the sign over like the barber does and say: We're closed? That is the problem. I know we are sitting here now and we are talking about loans and all these things which get a very high profile, but at the end of the day they don't cost very much money and they don't matter a whole hell of a lot to your operating deficit. That is a fact. If you are going to make a major impact on a deficit of $5 million or $6 million, you better do something major in operations. You just can't do it.

Seventy-five per cent of your cost is labour, labour benefits, so you have to attack that area. There is nothing else you - what can you do? You have to shut something. The way deficits are arrived at in many ways, one of the classics is that you go through the budget negotiating process, which probably will get discussed here somewhere, and you agree a number with the government, or rather you are told what the number will be. In general, one agrees with that. We have debates behind closed doors which are acrimonious at times, but nevertheless a number is arrived at.

Now, if the year goes on, if you go through your fiscal year and you hit that number and you start to go beyond it, and you made certain commitments - for example, a few years ago here we had an awful ruckus about the twenty-two bed closure. As I recall now, and Dennis or Harry can correct me, but I believe that was built into our budget, that we would have twenty-two beds down. We didn't get them down in time, for a variety of reasons. There were legitimate reasons, there was great public pressure, but every day they stayed open was a nail in our coffin budget-wise. I don't know how you cope with that decision. What do you do? You trim some small things, but to get a big chunk of money you have to (inaudible). Am I answering you?

MR. WHELAN: Yes, it is giving me an understanding of the situation you find yourself in. I appreciate it now.

MR. WATERMAN: Can I make a comment on the process of that too, having been involved in the process with the board and senior officials many times over the years? Certainly, the whole issue of a balanced budget is one that is taken quite seriously at the board level. We undertake a very rigorous planning process to try and come up with the appropriate methods to ensure that we come up with a balanced budget. What we essentially do is develop these programs and we come up with an impact statement as to what it means to implement these kinds of programs on the general level of health care throughout the region.

This impact statement is vetted through our senior management, it is vetted through our finance committee, and it is vetted through our board before it goes anywhere. Once the board accepts this impact statement as being the route that we should take to try and curtail deficits, or to bring our operation back to a break-even basis, then we enter into discussions with the government, with the Department of Health - I should say the Department of Health because it is not necessarily the government - and from there, depending on the nature of those programs, we may or may not be able to implement them totally or at all in some cases. So if we are not able to implement we have to go back to the drawing board and try to come up with more. So it becomes a source of ongoing discussion from time to time as to the route we take.

Unfortunately time goes on and you don't just cut your expenditures overnight if you have to make some program changes. There are all kinds of collective agreement issues to which you have to adhere. These things cost money. It is like trying to turn around a tanker out in the Bay of Islands. You cannot do it in five minutes. You have to have programs in place. You have to allow for the additional cost over time until these programs can be fully implemented. People who are displaced from programs have to be, by virtue of collective agreements, handled in some other part of the organization. That costs money. You cannot lay off people in certain areas immediately. Collective agreements tell you, in certain cases, that if an individual has x number of years of service, if you are going to try and displace that individual, you are going to have to pay up to thirty to forty weeks' salary just to be able to do that.

All of these things cost money, so it is not an easy task to try and turn around an organization such as one the size of the Western Health Care Corporation, or Western Memorial at the time. It is a big organization and we are impeded every step of the way in terms of trying to take these kinds of actions.

I think the committee should be aware that it is not an issue we take lightly. It is an issue on which we spent an inordinate amount of time in planning and coming up with programs, program changes, to try and meet that balanced budget condition. It is not always within the purview of the corporation of the board to be able to make those decisions. It is a joint kind of issue and a very tough issue to come to grips with, especially when you are dealing with a deficit as high as we are dealing with right now.

JUDGE LEGROW: Mr. Chairman.

CHAIR: Go ahead.

JUDGE LEGROW: It is also an issue that can draw, I guess, public wrath. As Mr. Waterman indicated, an impact statement is prepared with regard to - as an example, I guess, in 1995-'96 we were told that we had to take a significant amount out of our budget. Dr. Watts prepared an impact statement, presented it to the board, and basically the discussion was that this amount was significant, that you could not just take bits and pieces out of here, that to take that amount of dollars out of the system would result in significant changes, whether it be closing an institution here or there.

Of course, you are all aware of the fact that that document got released to the press, and two weeks later we had 800 people - Mr. Smith will remember - at the Arts and Culture Centre in Stephenville, saying that the board was going to close down Sir Thomas Roddick Hospital. We had no intention of closing down Sir Thomas Roddick Hospital. What we had done was indicate to government: Look, if you want us to take this number of dollars out of our system, this is what we are going to have to do.

CHAIR: This is what the impact will be.

JUDGE LEGROW: Yes, would be, if that is what we had done. Of course, as I say, the process got sidetracked by the fact that the document was leaked to the press and to the public. It goes to show what can happen in the process.

We do take deficits fairly seriously, but it is difficult, almost impossible, to address them, to get rid of them. Certainly, you have to face facts; government is going to have to bail us out. Let's face facts now. We have a deficit of $6 million.

CHAIR: If that doesn't happen, then the reduction in services will be -

JUDGE LEGROW: Obviously significant.

CHAIR: They will be swift and immediate; is that what you are saying?

JUDGE LEGROW: That is the only way you can do it now.

CHAIR: Dr. Watts?

DR. WATTS: Thank you, Mr. Chair.

I think that one of the issues - you have talked about governance and what the boards did and so on, one of the directions the board at Western Memorial Hospital gave to us, as senior staff, was that we were to, when making reductions, spare direct services to patients, and that our function was to provide services. Therefore, we tried to be innovative in the way we did things at Western and to cut out issues which were not going to affect patient care, or as little as possible.

These are the kind of things that we would do, as Dennis has said. We would put together a package, we would talk to the board about it, they would agree, and then we would go talk to the department about what we were into. So we did a number of things.

One of the earliest things I can remember, there was a big kerfuffle about Western cutting out the uniform allowance. Now it hurts the people who are buying and so on, et cetera. That doesn't sound like much, but as Mr. Mullins has said, 75 per cent of our costs in the health care system are basically wages and benefits. We felt that, you know, saying that people didn't have to wear a specific uniform in the contracts would be one way of saying that. I think it was at that time $35 a month.

MR. WATERMAN: I think $130 a year.

DR. WATTS: So for the number of employees we had that saved. But once that kind of money has been taken out, the next year you cannot save that again. It might have been simpler, from the budgeting point of view, to reduce services at that time, because that has a major ongoing savings, and then the next time it came down we might have been able to reduce, say, the taking out of the uniform allowance.

We had reduced the number of support staff. In areas like administration, we reduced significantly the number of people that were there. We reduced significantly the number of people who were involved in, say, the accounting department, at the same time taking on greater responsibilities. I guess, maybe we cut too far there, but our direction from the board was to try and put forward a plan which would not hurt patient services, and we tried to keep those going as long as we could.

There was always a trade-off of how much do you do, how far do you go with these types of services, what can you reduce in other areas. Some of them become very unproductive over time. You can cut out maintenance for a short period of time, but if you leave it for any length of time then your whole capital projects are going to go. We tried to be innovative, and a lot of the things that we did came with that (inaudible).

One of the things was the EAP program we talked about earlier on. We felt that if we had people who were able to work, employees who were able to work, who were not stressed, that they gave a much better level, and it has obviously worked. In the literature it showed that that worked. We felt that putting money out to provide those services, whether it be in services in counselling or whether it be to help them through their debt problems, particularly for the hard to recruit specialists - some of these areas that we are talking about were paramedicals and medical people who were in trouble and they were not able to function. So we helped to maintain the services that that (inaudible).

That was one of the board directions that was given to us; try to do things which are not going to impact on the service level, to impact on the supports and so on, to try and do as much with the dollars that were there.

MR. MULLINS: I just want to go back to a point I made earlier, probably for the third time. This is an area, as I said, where we could get in trouble. We are talking about this deficit thing. From this report one draws the conclusion that all these problems would be resolved if the expense account hadn't been run up, if we hadn't made loans to employees, doctors and so forth. People jump from that to the fact that we have currently a $6 million deficit.

That isn't true. Those things didn't cause it, and to correct it requires a hell of a lot more than that. That is a very important point that has to be taken into account there. I think you people should thoroughly understand that. There is no easy way; there is no quick fix. You can only put so much water in the soup. After that you have to think a lot about it.

CHAIR: I will let Dr. Watts just clue up fairly quickly, and then we will go on to Mr. Whelan. Do you have another question?

MR. WHELAN: I think I will reserve my other questions probably until tomorrow.

CHAIR: Okay. Did you want to clue up quickly on that point, Dr. Watts?

DR. WATTS: Yes. I think you have to recognize where some of these issues of the debt came from. A lot of them have payment mechanisms built into them. Western Memorial Hospital Corporation originally operated the Western Memorial Hospital, and that was it. Back in the early 1980s Western Memorial Hospital assumed the operation of the cottage hospital in Burgeo.

There were a number of significant problems which we had to deal with in Burgeo, one being that it was a very inefficient plant. It was eventually decided that the board, to save dollars on the operating costs, would insulate the building and put on new siding and so on. For two reasons: One, in that there was a great fear that this was Corner Brook taking over Burgeo, and they had to see some positive things that were going to come out of this realignment, from their point of view; and two, it would save dollars on the maintenance side, which would be able to amortize the cost of that. That would have to be set up as debt which then had to be paid down. That is one type of thing.

We were then given the operation of the Bonne Bay area. There was a clinic there in which the physician was operating where he could not talk to a patient without the other patients hearing. If he wanted to get into his filing cabinet he had to break down the examining table. It was a very rudimentary operation, and I don't think it is acceptable in this day and age for physicians, and it was one of the problems of maintaining people there. So the board, in its wisdom, decided that if we were going to operate that then we had to provide some sort of service, and they built a clinic. It is amazing, when you start to build a clinic, what the expectations are, because we had consultations with the public there. They had some people who were wheelchair dependent, and they wished to have it. We wanted to have a physio service system. We were fortunate enough to have a physiotherapist in the Bonne Bay area, so there was an area to be built for that. Then it had to be built onto it.

Getting land was difficult. Eventually we got some land there which we developed. Then it required a second storey, but it had to be wheelchair accessible and it had to have an elevator, and the cost of that particular - but the Hospital Corporation said, we need to do this to provide the kinds of services, and we have a method of paying that off, which was basically: when we took over the operation there, the physician had been providing medications. We said that we didn't think that was appropriate, that we would provide the medications but they should not be subsidized; they should pay the same rate as you would pay in a pharmacy in Corner Brook, and that the monies, the profits that were made from that, would be used to pay down for that operation. Again, that was set up as part of the debt.

The same thing happened in Jackson's Arm when we were there. Then, as this grew, the financial picture, then it came to: Well, we will cut back. Rather than cutting out services we will slow down the repayment process for some of these, and that is where a lot of it came from. So they were done providing services to the rural areas, services here in Corner Brook, that we wanted to maintain. Then that showed up as more of the kind of debt that was being carried.

CHAIR: A quick question. The Auditor General, in her report, identified - and I am quoting from her report - "On 23 September 1991 the Minister of Health informed hospitals of a Government decision to request all hospitals to eliminate the provision of monetary and non-monetary supplements to management staff. Our review indicated that the Corporation did not comply with this for the 1994-95 fiscal year as follows: 100 per cent of the premiums on the executive and managers' long-term disability insurance was paid at a cost of $75,050. Of this amount, $37,525 was charged to the shareable funds as regular employee benefits to be funded by the Province while the remaining $37,525 was charged to the Board of Trustees Fund. 100 per cent of executives' group health, group life, and voluntary insurance was paid at a cost of $9,853. The Corporation also matched its managers' dental plan premiums at a cost of $28,242."

The Auditor General goes on to say that, "If the Corporation had complied with the Government directive, they should have paid only $3,500 of the insurance premiums. As a result, the Corporation contravened Government policy and provided monetary supplements..." - to its executive staff - "...totalling approximately $109,645".

That is a significant amount of money. The question is: Can you comment on this point? Why was that decision made? You have just talked about reducing supplements for staff on uniforms. As Mr. Mullins alluded to, if you are trying to save money, 75 per cent of your budget goes toward staff and salaries and operations. Could you comment on why that decision was made, number one, how it came about; and, number two, what is the current board's current policy on this?

MR. WATERMAN: If I may comment on that, first of all I will comment on the current board's policy.

CHAIR: Okay.

MR. WATERMAN: Essentially, all of these issues have been dealt with to the point that none of them are in place at this point. There has been a new set of management policies accepted by the board which precludes payment of any of these issues; so that is over, finished, at this point.

I should like to go back to the comment that you made about the minister's letter, and I think you referenced September, 1991, as -

CHAIR: That is what is contained in the Auditor General's Report, in the information that we have.

MR. WATERMAN: Yes.

CHAIR: Again, I think, from the point of view of my colleague, as Gerald Smith has said, it is important to ask the question so that some closure can be had with this, you know?

MR. WATERMAN: I would like to comment on the whole issue of the use of board funds. This has been an issue which has been ongoing for a number of years between the Minister of Health and the various boards; not only with Western Memorial Hospital Corporation, but certainly with all the other hospital corporations throughout the Province. I can comment on that because previously I acted for a term as the president of the Newfoundland and Labrador Health Care Association, and this was an issue which was current at that particular time. I'm talking perhaps only two years ago.

The Minister of Health, over the years, has issued a number of directives with respect to the use of board funds. Each of these directives were challenged from time to time by the various boards saying that, in essence, the boards should retain the right to use board funds for their specific purposes as long as they felt that they were using them in the best interests of health care.

In terms of the monetary supplements, that hasn't been an issue with the Western Memorial Board for quite a few years. There was a time when there was a non-shareable supplement, a board supplement, paid to certain individuals within the organization, and they were based on a need to recruit basis, but those were all eliminated at least ten years ago, if not longer.

Some of these programs came in over time. The board felt that within the scope of the legislation under which it was operating, and with respect to the lack of clarity with respect to the minister's directives on the use of board funds, and the fact that these were challenged by the system and were never accepted by the system as being the directive, the board felt it was still within its scope to be able to continue on these particular funds. This has only recently been settled.

I would refer you to page 331 of the document which shows the document from the department which is, again, "Guidelines Respecting the Use of Board Funds." This was issued in January 1997, the current year. It is as a result, as a matter of fact, of discussions that took place between the Association and the Department of Health through its liaison meetings back and forth about the particular tenets of this particular guideline. Some of these the various members of the Association felt were not appropriate, and they shouldn't have to be restricted by some of the issues that were there. In the final analysis, when it was all said and done, after a number of discussions, the association did accept these as being the guidelines. Again, that was only in January 1997. Prior to that, over the years, the minister issued a letter from time to time with respect to the use of board funds, but every time a letter was issued there was a challenge issued back, and the thing was never totally resolved at any point in between.

I think it is safe to say, at this point the system has accepted the January 1997 guidelines and it's prepared to live by them. Prior to that, the board felt that it still had the right to spend those monies as they deemed fit.

CHAIR: So the board considered the minister's directive as not being applicable in this instance because you were spending board funds. I would like to ask the Auditor General if she would make a comment on what her feelings are on that.

MS MARSHALL: I would interpret the minister's policy and check to ensure that the organization complied with the policy as prescribed by the minister. I wouldn't make any allowance for the board, whether it felt that the policy was right or not.

The amount of money that goes into those board funds primarily does come from resources that are public resources. For example, if the Department of Health pays you your advances in advance and you earn interest on it, that is what goes into the board funds. If someone is in a private or semi-private room, some of that revenue goes into board funds. Almost all that goes into board funds gets generated from public resources. I don't see that as being in dispute, that the minister can't prescribe some sort of policy over those funds.

MR. WATERMAN: That may in fact be, and certainly the source of the funds has never been in question. We do recognize that the income that has been generated in the board fund over the years, when there was money available for investments, was certainly part of the source of the private funds of the board. The one differential is there is a prescribed amount on every dollar that is paid for a private or semi-private room which the board is able to retain for its private funds.

We also, as Dr. Watts mentioned, ran a retail pharmacy operation on the Northern Peninsula. The surplus from that area was part of the board's private funds. We also ran parking meters on a property which were purchased from board funds which generated $60,000 to $70,000 a year in income. These were part of the board funds. There were other commissions and so on that were paid for, smaller items, but it mounted up to probably $10,000 a year. In the good, years all these particular revenue sources were part of the board funds. I grant you, some of it did come from the use of the investment of the advances when cash flows were in a much better position.

There was always a question of the use of the interest that was generated on those funds. There was never a directive that I'm aware of, or never a directive that the Board accepted - and I think I can go on record as saying that the system in general accepted - as to the minister having particular control over the use of these particular funds. It was challenged continuously by the boards and the health care system in general.

MS MARSHALL: But these are public resources, and I think that the minister is entirely within his right to prescribe the policy. I don't think that those funds would be left up to the boards to exercise discretionary decisions over.

MR. WATERMAN: That very well may be, with all due respect, madam, but it was an issue. It was an issue that we dealt with, and the boards felt that their position was opposite from what has just been expressed, and that they did, in fact, have a right to spend that money. They did challenge the minister's decision many times in the past on that. As I say, it was never a situation that was fully resolved until January of this year in this particular document, which came out originally in the fall of 1996 or probably even the summer of 1996. It was discussed among the various boards and, in fact, went to the association as well.

I do recall some discussions with the Department of Health on this as to certain parts of this particular guideline that we felt were not acceptable. In the final analysis we did concede to it and said: Fine, we will accept it as a system, and the system then advocated that we would accept the position of the minister and carry on with these directions respecting the use of board funds. That is the first time that I'm aware of that it has ever been accepted in this manner by the system in total.

CHAIR: Who would have been part of the decision to disregard the minister's directive, or to interpret that it didn't apply in this instance? Who would have ultimately looked at this, whether it be a person or group or a number of people at the executive level, and said: We have interpreted this directive as not being applicable to us when we use board funds, and that topping up the executives health care premiums, dental premiums, to the tune of $109,000 would be appropriate? Who would have made that decision?

MR. WATERMAN: As I say, I don't think there was ever a decision to say that we were going to disregard the minister's directive as such. These programs were in place, and when issues came up from the minister's office, when the proposed directives came out -

CHAIR: So these programs were already in place and running?

MR. WATERMAN: Yes.

CHAIR: Okay. Go ahead.

MR. WATERMAN: They were not discontinued, because again the direction that came from the minister was challenged, in that there was I guess an ethical or philosophical issue here as to who really had the final say as to how these private funds were to be expended.

CHAIR: Somebody must have looked at the directive and said: No, this doesn't apply, and for the following reasons. Who would have said that and then let the system continue in terms of paying for premiums, health premiums, dental premiums, letting that continue as it is? Somebody must have made that decision.

MR. WATERMAN: The issues would have come forward to the CEO or the board chair in terms of correspondence from the minister. General protocol is that the minister would correspond for the most part with the board chair.

CHAIR: Mr. Mullins, any comment on that?

MR MULLINS: No. I think the Board has to take responsibility for that. (Inaudible) taken that responsibility. I would like to say that this was a grey area through a number of years. I recall us starting out this type of business which dealt with salary augmentation, we used to call it, because in the old days there was a fair bit of this. People were given a civil service salary, the equivalent in the health system, and then that salary was topped up. There was a lot of that done across the system, not just here. That was discontinued a long time ago. For a long while, from my memory now, the emphasis was on that aspect of it. Then eventually it led into these other areas, particularly the fringe benefit thing. I'm not sure that it was ever - I don't remember making a conscious decision to ignore it. In fact, if it was ignored it was the board's responsibility (inaudible).

CHAIR: I would just like, if I could, to turn the Committee's attention to another aspect of it, because I know that Chairman Legrow won't be here tomorrow because of commitments that he has work-wise. I know this is an issue that I'm sure the Committee would be primarily concerned with, and certainly the public as well, in terms of the detailed assurances of - and I think it is important to be as detailed as possible, from the board's point of view. The many concerns raised in the Auditor General's report in terms of the present board's interpretation of it: What steps have been taken as a board, what policies are you putting in place, to ensure that to the greatest extent possible, on the one hand, the service that people expect to be provided in health care is being provided, and that the monies being allocated through public resources are being spent in a proper fashion with probably more controls?

Could we focus it on that, because you won't be here tomorrow, and I think it is important? We will conclude the hearing about 5:00 p.m. for today and reconvene again tomorrow morning, but I think if we can focus it on that for the remainder of the hearing it will be important.

JUDGE LEGROW: I think the timing is good, Mr. Chairman. As I indicated earlier, I think at our last Board meeting a document was prepared by our finance and audit committee which addressed all of the issues and concerns raised by the Auditor General. I guess the best thing for me to do is pass this over to you as Chairman of the Committee. It is called Response to Actions 1996 Re. Auditor General's Report.

As I say, it outlines here all the issues raised by the Auditor General and the appropriate action taken by the Western Health Care Corporation. With regard to this aspect of it, as Mr. Waterman has indicated, we have adopted a new management and benefits policy. Those guidelines indicate that we comply with all Treasury Board policy with regards to benefits now being received by our management team, bearing in mind that we do come under the hospitals act. As I say, we are complying with Treasury Board policy with regards to all aspects and concerns raised by the Auditor General.

Other than to say that, as indicated a number of times, all debts owed to the Corporation have been repaid. That is about all I can do. I can present this document to you, as I say, which does indeed address all the concerns raised by the Auditor General, and I feel that the Western Health Care Corporation has dealt appropriately with them all.

CHAIR: When is the time frame being looked at for the operational review to be completed?

JUDGE LEGROW: There has been another delay. Let's say the end of the year now, I think.

CHAIR: You have said yourself there has been another delay. Is that frustrating?

JUDGE LEGROW: Well, from their point of view it is. Everybody is waiting for it.

CHAIR: Yes, because that is the point. From what has been raised, and even if the Auditor General didn't present a report and forgetting that it is here, because of the new structure in this area, in this region - and in every region there is a new structure - there is a lot of change going on, a lot of balls are being juggled in terms of service to the public. That is hopefully what it is about. Why the delays? In your view, are they legitimate delays? When do you anticipate it ultimately coming before the board to be dealt with?

JUDGE LEGROW: Certainly it is, I guess, government's report. It was commissioned by the Minister of Health. As Dennis indicated, the delay now is with regards to collating the financial aspect of it. As soon as the audits are completed and the operational review gets the financial information it will conclude its report. That is what is holding it up now.

CHAIR: I will ask you another question, then I will turn it over to any other member. Again, it is an opinion. I'm not trying to nail you down to a specific answer as board chairman. Do you believe it is inevitable that certain aspects of health care in the Province, as a result of the continuing pressure on the system to provide the same level of service that the public has come to expect while we are experiencing dramatic reductions in the amounts of monies available to boards, do you anticipate certain aspects of health care to be privatised; the laboratory services, management services? Do you see that as being inevitable; assuming, of course, that the present level of funding remains the same? It is an issue the board is going to have to deal with at some point.

JUDGE LEGROW: I think there are certainly still inefficiencies in the system. I feel that the operational review will identify some of those. If the right structure and policies are then put in place - throughout all of this, I think one thing: you don't get too many patients complaining about the service they are being provided in the hospital. In fact, it is the other way around. It is not unusual to get letters from patients saying: Look, despite the fact of all that is going on, we received great treatment.

I think the public should be aware of the fact that there is still good service being provided in the system. You will get delays in some aspects of it, a waiting list and a shortage of doctors, but all of that put aside, once a patient gets in a hospital there is good service being provided.

I feel that if we can get rid of our debt, or our deficit, then we are on a level playing field and we can provide quality service here basically with the amount of dollars we are being provided.

You know, it is very frustrating from a board point of view because you have public expectation, and they have a right to demand: Look, this is the quality of service we want. You have certain restraints and, in a sense, the board is caught in the middle because, as Mr. Mullins said, I guess the issue of salary to doctors was a big issue. This region, I guess, probably has almost a greater shortage of doctors than any. Salary has been part of that, and government has dealt with that and increased the salary. From a board point of view it has been very frustrating in that we have been accused of not trying to recruit doctors, and things like that. It is not pleasant being a board member. It is no fun.

CHAIR: I appreciate your comments.

MR. MULLINS: Just a comment.

CHAIR: Go ahead.

MR. MULLINS: This is something I often say to people, and (inaudible) to say it here. When we talk about the system and the demands that are made on it, that Bruce just alluded to, the demands are going up exponentially almost and resources are not going up exponentially. I always like to say, when I first came to this board, this business, our budget was around $4.5 million. When I left it, it was approaching $50 million. That is a tenfold increase, and about double the rate of inflation if you work it out. During that period we built a new hospital, we started a chronic care business, we assumed responsibility for Burgeo and Bonne Bay. All this went on, and still the demand out there has not seemed to be met. There seems to be no limit to it. How far it could have gone without the term `cutback' used, and that is a legitimate term and it fits nicely in - I was going to say into a headline, but that is not fair.

I think a better term might be `restriction' or `restraint'. What happened to the system, certainly in this region, is it went like that and then there was a plateau reached where restraint was started to be applied. I don't know that our budget ever went down year over year. I am not sure if it did or not - I don't believe it did - but we entered into this period of restraint, and I don't know where it would have gone without some form of restraint. It is not quite as simple as it is often made to be. There are lot of bucks that have been spent; a lot of bucks.

As far as doctors go, I hear what Bruce is saying. I think he is talking mostly about primary care physicians, but in terms of specialists here at Western, and perhaps at Stephenville - and I am not entirely familiar with their case - we have never been as well off as we are at the present time, or we were recently; never, and I have been around through that period. We have never been in the situation we have been the last few years, and I give Harry Watts some credit for that.

CHAIR: As a result, some of the debts were incurred - and correct me if I am wrong - in terms of some of the programs that you talk about, in terms of psychiatric care and those sorts of things.

MR. MULLINS: I don't know if there is a direct correlation, but I can assure you that in my time here we have never been in the situation we are in now. We have never been as good as we are now. There is no question about that. Nobody can challenge that.

CHAIR: Mr. Waterman, do you want to say something?

MR. WATERMAN: I do think it is fair to say that the amount of money that the board spent in medical bursaries over the years had a pay-off.

CHAIR: How so?

MR. WATERMAN: Because it is through the sponsorship of individuals through residency programs in various specialties that we have been able to attract these - not attract them, but contract them back to this area to provide service over given periods of time, depending on the amount of sponsorship they received. By so doing that we were able to get a fair number of specialists back into this area, in particular specialties for which we had problems recruiting before that.

As Mr. Mullins mentioned, in recent years, in terms of specialities, this region is fairly well off, especially as compared to perhaps seven or eight years ago when in almost every area we had a deficiency in the number of specialists that were required to service these areas.

I think the bursary program that the board undertook, albeit it may have been expensive and contravened some funding principles, it certainly had a pay-off in terms of the level of medical services that are available to the region right now.

CHAIR: Mr. Lush.

MR. LUSH: Well, it is certainly nice to know that we are addressing a majority of the concerns addressed by the Auditor General. I think the next thing is that you people need a visit with the Minister of Finance to help you out.

I just want to bring up another point that I don't think has been mentioned by the Auditor General, and it has to do with the inter-fund debt. This has to do with the three main agencies, I think, the Western Memorial Hospital Corporation, the Board of Trustees Fund, and the Special Capital Fund. Somehow we have been sort of working internally with these funds. I think what was found was that the Province was financing the purchase of capital expenditures not funded by the Department of Health. For example, the amount of interest incurred on this particular debt was $167,000, which was incurred by the Shareable Divisions Fund, while at the same time the Board of Trustees Fund had investments of (inaudible) which earned interest of $81,000, and this was not shareable since it was not in the Shareable Divisions Fund. Can the board explain why this took place, and the circumstances behind it?

MR. WATERMAN: I will try to explain that as simplistically as I can. Essentially, the corporation maintained one general cash account, one general bank account to which all funds were deposited and, for the most part, all cheques were drawn, with the exception of some minor account trust funds and so on, obviously, but one major account from which most of the expenditures of the corporation were drawn.

The Non-Shareable Fund, which is the board's private fund, was established. The Special Capital Fund was also established, and obviously the Operating Fund, which is a main fund from which most of the expenditures are drawn, was also established, and that has been an ongoing kind of thing.

When there was an expenditure from one fund - let's use the Non-Shareable Fund as an example - when there was an expenditure from that fund, the expenditure was recorded in that fund. The cash was drawn out of the general bank account and an inter-fund entry was set up to establish the liability of one fund to the other. This was carried on over the years. Whenever any expenditure was, let's say, booked from any particular area, the cash came out of that fund but the particular fund to which the expenditure applied, be it capital or operating - private operating of the board - it was established in those funds as an expense. Therefore, in order for this to balance out, we use the inter-fund account, which established a liability in the board fund for the use of the cash from the Operating Fund, and that worked its way to the various funds of the corporation.

I don't know if that adequately explains it, but essentially we were using one cash account and setting up the liability for the fund from that to the particular fund in which the liability and the expenditure was booked.

CHAIR: Would you like to make a comment, Ms Marshall?

MS MARSHALL: I was just going to say that the board fund and the capital fund were effectively cash poor.

MR. WATERMAN: Yes.

MS MARSHALL: So what they did was borrow money from the shareable fund.

MR. WATERMAN: That is correct.

MS MARSHALL: But the shareable fund was cash poor, too, and they went out and borrowed from the bank so they could lend to these other funds.

MR. WATERMAN: That is essentially correct, that everything flowed through the one account.

CHAIR: (Inaudible).

MR. WATERMAN: Mr. Chair, if I may, I would just like again to make some comments upon the capital nature because the board undertook some significant capital programs over the years as well. That money, albeit there was no particular government provided funding for it, the board did agree to a commitment to those funds from what it deemed to be the equity in the board fund. It may not have had cash, but it certainly had some equity left in the fund. It essentially used leverage on that equity to provide some of the capital programs that it got involved in.

The Board's contributions to the DVA unit, we can go back to the CAT scanner days, and many others in between, the building that Dr. Watts referred to in the Cow Head area of a clinic up there: All these areas were certainly done as Board initiated privately funded operations because government money was not available. Albeit we ended up borrowing the money from the operating fund to do that, through the inter-fund accounts, and obviously that overdrew the operating account, and that obviously had to be supplemented through borrowings. So, yes, that is correct, but that was certainly done with the full knowledge of the Board at the time.

MR. LUSH: Is this allowable under the Department of Health regulations, or is it just again peculiar to the Western Memorial hospital act?

MR. WATERMAN: Again, I think as long as the expenditures were properly reflected in the particular accounts, then I think that was our responsibility. Any comments about using the operating fund were never, I guess, visible until such time as this particular audit was done. Certainly it is not something that was covered in any respect when the financial statements were presented each year to the department, and obviously these were issues that were in there.

I do recall over the years when the Board did have funds that we would from time to time pay through the operating fund to pay down the liability from one to the other, through the inter-fund rather.

MR. J. BYRNE: I have a question.

CHAIR: Go ahead, Mr. Byrne.

MR. J. BYRNE: Then no more questions. I want to get back to a comment the Auditor General just made. I want to see if I'm clear on this. The operating fund and the shareable fund: They borrowed from the shareable fund for the operating costs, at a certain interest, I presume, and they went out and borrowed from the banks say (inaudible). It cost them more when they borrowed, $167,000 or something, compared to $80,000-something. In actual fact, they were hurting themselves by doing what they did, in the long haul.

MS MARSHALL: That is right. They were borrowing money, and some of the money that was borrowed was being used to finance these things like employee benefits and loans and things like that. But where the money was borrowed from this operating fund, which had borrowed the money from the bank, they ended up paying $167,000 in interest. That comes out of your health programs.

MR. J. BYRNE: So in this particular instance alone, okay - I won't refer to the rest of them - it is basically like what I refer to as a crisis management in that particular instance?

MS MARSHALL: I didn't get the impression that it was a crisis management thing. They were doing it over a long period of time. It just seemed to be a normal way of operating for the Corporation. It was inappropriate because these loans, which are really being financed by the public purse, shouldn't be used for these types of transactions.

CHAIR: Mr. Waterman, you wanted to make just a brief comment on that, I think.

MR. WATERMAN: Yes, just a brief comment. Mr. Chair, most of these programs were initiated in the days when there was a little more cash in the organization. I guess the unfortunate thing is once these programs get started they are difficult to curtail, especially if they are deemed to have some benefit. When the cash was depleted down to where it was, then obviously it was difficult to get out of some of these programs, so we continued on on that basis as described.

I think the one thing to mention here as well is that interest expenses have never been deemed to be shareable expenses either, so in the settlement process with the Province those interest costs would have been charged back as a private cost to the board in the final analysis, once a settlement was -

MS MARSHALL: The only thing is, even though they are not charging the shareable fund, there is no other fund that has any money to pay for those.

CHAIR: At the end of the day the public fund will have to pay off the interest.

MR. WATERMAN: I recognize there would have been another charge against any equity that was left in the board.

MR. J. BYRNE: I have no more questions, but one comment. Mr. Mullins mentioned earlier that he wanted us to understand that the expenditures with respect to the loans and different points brought up by the Auditor General didn't cause the deficit as you have it today. From my point of view, from what I can see, some of the policies of the board and the management practices which were questioned by the Auditor General certainly appear to have contributed to the deficit. There is no doubt of that, and I think you would have to agree with that statement.

MR. MULLINS: Yes, (inaudible) made a contribution. That wasn't my point.

MR. J. BYRNE: No, I know what you are saying.

MR. MULLINS: My point was that if they had not existed we would still have had a very big (inaudible). That is the bottom line. One is being attributed to the other, and that is not correct.

MR. J. BYRNE: I can understand that.

MR. MULLINS: Your point is well taken, and I agree with it.

MR. J. BYRNE: I have a question for Dr. Watts, and it goes back to the point of the waiting list for surgery. It is a matter of simple logistics in my mind. I can understand the answer you gave, and it is quite logical, but when you answered the question it came to my mind - I made a note here - that if the different doctors had their different lists, and they make a decision about who is coming in, the question that immediately popped into my mind was: Do all of the doctors have the same time allotments for surgery? Would that create a problem anywhere along the line?

DR. WATTS: Our policy was that, new surgeon, when they came on, was given a day in the OR, and there were certain rules about how they could divide that up between in-patients and out-patients, depending on the number of in-patient beds which were applied to them; but they determine what they have. If they had nothing really required to go in at that time, then it became open space that anybody else could use if they wished to take it. A lot of people were not available because they had other things books, but if they had an emergency, or urgent things, then they would be put into that slot.

MR. J. BYRNE: I have another question for Mr. Waterman.

On page 4, the Auditor General mentioned, "Travel expenses of approximately $340,000 in 1994-95 exceeded that budgeted by 111 per cent; however, no written explanations for variances were provided to the board." Do you wish to comment on that?

MR. WATERMAN: Yes, Sir.

We do take issue with that particular area, and we have had our accounting people go back and do some analysis on that. There is a schedule which I filed with the information that we submitted which indicates that while it appears that we were - I am guessing at the numbers - roughly $160,000 over budget in the travel area, there were certain items that were charged there, indicated in that particular expenditure, which belong to other parts of the budget. These had to do with - I am fumbling here now for that, but there is a schedule provided here that I would like to get to which basically indicates yes, we were over, but instead of being 100-and-some-odd per cent over, we ended up being about 30 per cent over, overall. There is a schedule here indicating those amounts, and if I can find it I would certainly like to go through it with you.

WITNESS: Page 323?

MR. WATERMAN: Yes, Sir, it is on page 323. It shows the overall travel expenditure of $340,000 against a budget of $160,000, indicating a variance of $180,000; but included in that expenditure, or not budgeted, or budgeted to other programs which should normally have been distributed out, were a number of items which bring that deficit down, or that variance down, to $38,000, which is 24 per cent over budget, and not over 100 per cent as you indicated.

MR. J. BYRNE: Okay. I have a question for Mr. Legrow.

CHAIR: Jack, if I could just interrupt you. I think the Auditor General wanted to make a point on that.

MS MARSHALL: The only comment I wanted to make there is, what you are saying is that you have travel related expenditures included in your program budgets, right?

MR. WATERMAN: Yes.

MS MARSHALL: But they should be broken up separately.

MR. WATERMAN: That may be, but we have a separate allocation, for example, for nursing escorts.

MS MARSHALL: Yes, but, you see, if you have travel within a program then the travel should be broken up separately; otherwise, how are you going to monitor it? When we approached the officials at the corporation to explain why there was this big variance, nobody could tell us at the time. Obviously it is because there are travel expenditures budgeted in some of your program expenditures, but they should really be broken up separately so you can monitor your expenditures.

MR. WATERMAN: We understand that, and under normal circumstances certainly that would have been done; but again, with some of the issues that we were undergoing at the time, there was some confusion on that with the groupings having been done. Which is why, when I looked at that number with our people, I said there had to be something wrong because we would not normally be over for that travel, per se. So there are components of other programs in it. You can see the nursing access program, the nursing escorts. The access program, for those who are not familiar, was travel undertaken by nursing instructors to Labrador, and for students from Labrador to attend the nursing program here in Corner Brook. The nursing escorts: Obviously, that is the cost of travel for nursing escorts from Corner Brook, or some part of the region, into a tertiary care centre. Medical recruitment: Again, that is the cost of moving physicians around on a locum basis or on a permanent basis. Presumably that is the total budget for Bonne Bay Hospital travel which would have a separate allocation, and the same thing now for O'Connell and Burgeo, Western Linen, and even some foundation money which would have been taken out of this and charged up again as an expenditure of the foundation.

There should have been adjustments done, I grant you that. Our staff should have recognized these, and before that was finalized those transfers should have been done; but certainly the overall actual picture is not as it was presented.

CHAIR: If I could just interrupt. Jack, I will allow one more question because we are getting close to the end of our time and some other members may want to ask some questions before the day is over; so I will allow one more question.

MR. J. BYRNE: On page 5 - I think this would probably be for Mr. Legrow - the first column, it says, "Inventory controls are inaccurate in a number of areas. The computerized systems for the Pharmacy and Stores departments are not used to determine minimum quantities for reordering..." and it goes on. I would imagine that has been addressed in what you presented here today.

JUDGE LEGROW: I would assume, Mr. Byrne, that every concern raised by the Auditor General would be addressed in this.

MR. J. BYRNE: There are lots more.

MR. WATERMAN: I could comment on that one extensively, but I think what the co-Chair has said is essentially correct in that we are trying to address that. However, again, it is a resource issue and there is a whole history behind that. I think the comment itself is slanted somewhat from what the actual situation truly is. We do have perpetual inventory systems in all our main stores areas.

CHAIR: Maybe we can save that for tomorrow, because we are getting close to the end of the day, but I think it is an important point so if we could save that for tomorrow.

MR. SMITH: One quick question. First of all, under patient receivables, what exactly are you referring to? What would be patient receivables? Maybe you can indicate what has happened to this outstanding amount. There certainly seems to be a significant amount of money highlighted in this report as well.

MR. WATERMAN: Patient receivables cover a whole gambit of areas. Obviously, under a normal business practice, before you get into a receivables situation, you have a credit checking kind of arrangement and so on. Certainly in the health care system that is not always appropriate and not always available to us, so we end up building up receivables from several different sources.

First of all, there are some simple things like the ambulance fees, for example. That would enter into the receivables area. There would be the question of room differentials, and that is the private and semi-private component if it was charged on a room. There would be non-resident stays. Anybody from outside the Province or outside the country is charged a particular rate for each day that they are admitted to the hospital, or each encounter they would have with our out-patient emergency department.

We also have different insurance agencies that we bill up for. If, for example, you were admitted to the hospital as a result of an industrial accident which was covered by workers compensation, then that is not covered under the hospital insurance program and we, in fact, bill that directly to workers compensation. There are a significant number of those, and a significant number of days. In addition to that, we developed a program for workers compensation called a WARP program, the Work Assessment and Rehabilitation Program, which generated a couple of hundred thousand dollars of activity in the course of a year.

As I mentioned earlier, we did have a problem in billing that one because workers compensation wanted their billings done on a certain format and we had to do some significant software changes and programming changes with our computer system to accommodate it. We got it done, but it was at the end of the year. There is a whole gambit of things that make up that issue of patient receivables.

I guess, with respect to insurance claims, if you, for example, were a member who subscribed to a particular insurance policy and you were admitted to the hospital, then your insurance company would be charged the full amount for your cost, whatever the applicable charges might be outside of the hospital insurance program. Those charges would be set up as a receivable from you until such time as they are cleared from the insurance company. That may, in fact, require some time, from the time the billing is done until the cash is actually received, perhaps as much as sixty days to ninety days sometimes, to clear those. Those would bill up to be looking like employee receivables, which in fact they would be in the final analysis, because our contract is with you, the individual. Until such time as the insurance company settles the thing, that would be shown on our books as an employee receivable.

MR. SMITH: Have we improved the bottom line with regards to this?

MR. WATERMAN: Yes we have. We have taken significant measures first of all to ensure that the billings are done as quickly as possible, that there is more follow up, and that if things are not collected in a reasonable period of time then they are submitted out for collection. We do work them through as much as we can until...

MR. SMITH: Yes. One other question, and it is kind of a broad question. I have been listening today to the evidence that we have been receiving here in response to the Auditor General's report. Perhaps Mr. Mullins, as a former chairman, as the person who was chairman during much of this time, may be the most appropriate person to speak to it. We are talking about an accumulated debt right now of some $6 million. I recognize it has accumulated over a number of years and it is coming from various operations, but I think that a significant part of that would have been from the Western Memorial Hospital.

I'm just curious; during that whole period of time we are talking about accumulating debt year after year, yet at the same time, for example, we hear Mr. Waterman say today that a directive from the minister - obviously from my interpretation, looking at that - as a way for the board to save money is being challenged by the board at a time that the board is accumulating debt. Obviously, we have to recognize, just as I in my own budget have to recognize, that if after year after year I'm exceeding what I have to work with, then the day is going to come when someone is going to challenge me on that.

I guess I phrase the question from that point of view, because if we don't learn anything from this process, then we are going to be doomed to repeat it. I would hope that with the new board that is there that we aren't going to see ourselves in this kind of situation again. I'm just curious; during that period of time, Mr. Mullins, when you were chairman and this was happening, and you indicated to us today that you were aware the debt was accumulating, and these things were coming forward, how could you justify in terms of not saying, for example: We can save money here, we can save $100,000. It might not be a lot of money, but if we can make some kind of movement - because right now we are at a stage where obviously we are going to have to go to the general taxpayers of the Province and ask them to look after that $6 million in order for the new Western Health Care Corporation to get started off on a level footing.

I would just like to have you respond to that, because as part of that as well, if I could, just to make sure I cover the entire thing and I don't lose my train of thought, I'm curious that you as chairman and the board members, were you getting the information from your management staff, I mean, that you were totally aware? I guess this is the concern that I have. I don't want to see Judge Legrow, who is presently the Chairman of the Health Care Corporation, finding himself in a similar situation because he didn't have the necessary information to make the kinds of decisions that were made. I wonder if you could respond to that.

MR. MULLINS: First of all, debt and deficit are not the same thing, and we are using the two interchangeably. They aren't quite the same thing. On the deficit aspect of it, were we informed? Yes, I think I have to say for myself, I certainly was. Now whether all board members fully appreciated it, I can't speak for them. I would boast that I certainly did. While the impression is given here that there weren't records and so forth, that isn't true, because we were presented each month, until fairly recently anyway, with a projection of where our cost was related to the budget, and where it would be at the end of the year unless something drastic changed. That was put before us once a month; I know that. Without a doubt for many years that was the case. Yes, we knew that.

Both the deficit and the debt did not quite - the timing I'm a little weak on, but certainly neither one occurred, I don't think, over a long period of time. Both occurred, I believe, in a fairly short period of time toward the end there. I think that is particularly true of the debt part of it. Am I right in that? I think that is very true; maybe five years, something like that, at most.

Again, you are really asking me: Faced with that debt or deficit, whichever, why didn't we go to take out some of these items that we could have taken out? We could have taken them out, but we chose not to. That is all I can say, you know. Whether we did that by default or consciously it is hard for me to - I can reconstruct it to suit myself now. The fact is we didn't. What can I say? We didn't. We could have, we could have gone in and taken out, I suppose, the (inaudible) or the dental thing. We did take out many things. I don't know what else to say to you.

MR. SMITH: That's fine for now.

CHAIR: That brings this afternoon to a close. I would like to thank the witnesses for attending. I know there wasn't much choice in the matter, but thank you for answering the questions that have been put forward today.

We will reconvene 9:30 tomorrow morning here. We would certainly welcome anybody in the public to return. Once again, thank you for this afternoon.

JUDGE LEGROW: Mr. Chair, further to that, I would ask your permission to be excused tomorrow. As I indicated, I was able to adjust my schedule to be here today, but it is impossible to do it again tomorrow.

CHAIR: I understand.

JUDGE LEGROW: Mr. Waterman, who is our current ACEO for corporate affairs and Mr. (inaudible), our interim CEO who is in the audience, certainly should be able to answer any questions from the committee tomorrow.

CHAIR: Fair enough. Thank you.

The Committee adjourned.