Elbert K. Paul, Chartered Accountant
P.O. Box Z-9
1645 Whitesails Drive
Bowen Island, B.C., V0N 1G0
Telephone: (604) 947-9130 Fax: (604) 947-9150

2 December, 1997

George Morfitt, FCA
Auditor General
8 Bastion Square
Victoria, BC
V8V 1X4

Dear Mr. Morfitt:

I am a Chartered Accountant and an active member of the Bowen Island Ferry Fares Strategy Committee.

This letter has been prompted by concern over:

The BC Ferry Corporation (The Corporation) is one of the largest systems in the world. It has been a source of pride to British Columbians. It is now becoming a source of concern. The taxpayers of BC need some assurance that the corporation is allowed to operate in a manner that will ensure its future success and the maintenance of this essential “highway” link to many coastal communities.

PURPOSE

The purpose of this letter is to request a full value-for-money audit of the BC Ferry Corporation that will be of benefit to the corporation and its stakeholders.

BACKGROUND

The British Columbia Ferry Corporation was created on January 1, 1977, by the Ferry Corporation Act to “establish. operate, administer and maintain a ferry, shipping and related service.” The corporation grew out of the BC Ferry Authority that was set up in 1960 with two vessels to operate a frequent ferry service between the Lower Mainland and Vancouver Island. By March 31, 1997, the corporation has 40 vessels serving 43 terminals on 25 routes. This makes it one of the largest ferry operations in the world.

In 1996/7, the corporation's fleet caried 22.3 million passengers and 8.2 million vehicles. Revenue generated that year were $360.2 million (which included an operating grant of $26.5 million received from the Province) and expenses incurred were $389 million. In addition, there was an $8.6 million expenditure for training and infrastructure for fast ferries.

In its Annual Report, the corporation presents it mission as “dedicated to satisfying customer, community, and government needs for safe, efficient, effective and reliable ferry transportation services.”

KEY FACTORS AND ISSUES

The following are factors that influence the performance of the corporation.

Major Factors

Minor Factors

I have identified the following urgent issues within the corporation which need to be addressed:

Tariff and Subsidy Policy

Does the corporation have a clear, reasonable and transparent subsidy policy in place to ensure that route cross subsidization is taking place on a fair and equitable basis and that some areas are not bearing a disproportionate share of the load? Does the corporation's subsidy policy result in coherent and stable rate increases? Does the tariff policy adequately address the issue of elasticity of demand?

Capital Program

If the corporaton is expected to operate without a subsidy—be commercially self-sufficient—as would seem to be the case, given the reduction in government subsidies, is it incurring “public policy” costs? Are the assets being acquired under the current ten-year capital plan offering the best value-for-money to the users of the system? Do they include unreasonable public policy cost (e.g. The development of a shipbuilding infrastructure in BC, that should be borne by the government and not by the users of the ferry system)? Other questions would deal with the appropriateness of the asset mix and the effective allocation of these assets to meet the mandate of the corporation.

Are service levels responsive to the real needs (not necessarily wants) of the public? Have service levels been optimized from a cost effectiveness perspective?

Labour Cost Control

Is the corporation managing its human resources in an efficient and effective manner consistent with legal requirements as well as safety and operating objectives?

Operating Efficiency

Is the corporation appropriately structured and does it operate in an efficient and effective manner which permits the generation of an appropriate level of service revenue from both tariff and non-tariff sources, the minimization of costs and, consequently, the establishment of a tariff structure that is reasonable and promotes a high level of usage?

Again, is the corporation obligated to respond to public policy requirements in a manner that is in conflict with its evolving commercial objectives (e.g. Carrying seniors, students etc. at no cost)?

Does the corporation have adequate systems in place to monitor and maximize the efficiency and effectiveness of its performance?

Stakeholder Input

The corporation has recently gone through an extensive and expensive consultation process. Has it given reasonable consideration to this input in its decision making process? Was this nothing more than “smoke and mirrors”?

In summary, the key questions to be addressed include:

SCOPE AND PURPOSE OF VALUE-FOR-MONEY AUDIT

Please note that I am not defining the exact scope and purpose of this proposed value-for-money audit. However, I am confident that once the above issues and concerns have been thoroughly examined, an approproate scope and purpose could be finalized by your office.

I would like to reassure you that I am aware your performance audits are not designed to question government policies. Nor do they assess program effectiveness. The Auditor General Act directs the Auditor General to assess whether the programs implemented to achieve government policies are being administered economically and efficiently. Performance audits also evaluate whether members of the Legislative Assembly and the public are provided with appropriate accountability information about government programs.

CONCLUSION

In summary, I look forward to your assessment of the issues raised and your response to my request for a value-for-money audit of the BC Ferry Corporation.

Please feel free to contact me if you have any questions relating to this matter. I would be pleased to meet with you personally in Victoria should you so desire.

Yours truly,

[Signed]

Elbert K. Paul, C.A.
Bowen Island Ferry Fares Strategy Committee

cc:
Mr. Thomas Ward, President, B.C. Ferries
The Honorable Dan Miller, MLA,
Mr. Mike de Jong, MLA
Mr. Richard Neufeld, MLA
Mr. Doug Symons, MLA
Mr. Ted Nebelling, MLA
Mr. Frank Rhodes, Past President, BC Ferries


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