January 28, 2003

Blinding the Watch Dogs

The Auditor General is the Officer of the Legislature who can put the most pressure on government. The Auditor's reports, especially his opinion on the financial statements of government, can affect the interest rate paid on billions of dollars of government debt. Other Officers depend on appealing to the public for support.

The attention, or lack thereof, that BC Ombudsman, Howard Kushner, has received with his January 24th news release dramatically demonstrates his lack of power. The Ombudsman wrote that due to a 35% budget cut his office will no longer be able to investigate complaints about some public agencies. As is the case with any issue taken on by the Ombudsman, the power of the Office is ultimately determined by its ability to embarrass government. Whether the Office is investigating inappropriate behaviour by a bureaucrat or outrageous funding cuts, the outcome depends on whether government feels heat from the public and backs down. Those who care about the accountability the Office of the Ombudsman brings to government need to let their local MLA know that the cuts are unacceptable. Government is betting that news stories carrying screams of protest from the Ombudsman will have far fewer legs than stories about Campbell's Hawaiian escapades. Many cynics will write it off as a one day news story.

The Information and Privacy Commissioner occasionally has a little more power than the Ombudsman. The Commissioner can have his orders upheld by the Supreme Court although the Campbell government recently demonstrated that it is willing to amend the legislation when it finds itself in a dispute with the Commissioner. As the record shows, not many cases make it to the stage of being tested in the courts. In order to succeed in an appeal to the Commissioner, a person requesting information must be able to establish that documents exist. That can be difficult if the government wants to play games. I recently requested a copy of the communication plan for the health advertisements that are being run by the government. Playing games with what constitutes a "communication plan", government responded saying that "… the Office of the Premier has no records that are responsive to your request." Appeals to the Commissioner are useless unless one can produce evidence that what obviously must exist does in fact exist. In this case I dropped the appeal in recognition that it was wasting valuable resources from an Office which, like the Ombudsman, was having its budget cut by 35%.

The Auditor General can also be frustrated. Thanks to work by the Auditor General, government adopted the concept of "service plans" or "performance plans" that require government to clearly set out objectives and measurements for whether or not those objectives are being met. When the Auditor asked the Campbell government for resources to audit whether the information in government's service plans is accurate, government said no. For those types of frustrations, the Auditor is in the same weak position as the Ombudsman and the Freedom of Information and Protection of Privacy Commissioner. Resources will not be provided for the purpose of holding the government accountable unless enough people complain directly to their MLA.

The Auditor's opinion on the government's financial statements is not like any other report. It is read by bond rating agencies, and it can directly affect the interest rate on government debt. The BC Utilities Commission recently allowed BC Hydro to change its accounting practices on foreign exchange reserves in such a way that government was able to raid Hydro's rate stabilization fund. All of this was done in a manner that is contrary to generally accepted accounting principles. When the Auditor's report is issued on the 2002-03 financial statements, it will be interesting to see whether this matter is noted. Of course, in the grand scheme of over $25 billion in consolidated revenue fund (narrow government) spending, a matter like the Hydro rate stabilization fund may not warrant attention, or in the language of accountants, it may not be "material".

Government's P3 experiments involve substantial sums. The capital cost alone for the Ambulatory Care Centre is estimated to be $90 million and the capital cost for the Abbotsford Hospital will probably exceed $200 million. In addition to the capital cost, government intends to enter into 20 year contracts for operation and maintenance that will mean substantial future liabilities for government. Those sums are likely to be judged to be material and the Auditor should examine the contracts and determine that they are equivalent to derivatives, fancy financial contracts for spreading risks and costs out over time. The Auditor could rule that government must set up the costs of the P3 contracts as a debt on government's books, and if it doesn't, he may "qualify" government's financial statements. In other words, the Auditor could say that in the absence of proper accounting for the P3s, the financial statements are not consistent with generally accepted accounting principles.

The financial implications of the reorganization of BC Ferry Corporation are even bigger than the first two P3s. The promise of "no new public debt" for the new company might not survive after the Auditor General examines how accounting will be handled. Does anyone believe that the government would allow ferry service to be disrupted because of a bankruptcy? The new corporation will be established in fiscal year 2003-04. In the summer of 2004 the Auditor's opinion will be issued and BC will see how much wool government was able to pull over the public's eyes.