July 18, 2008

One-Two Punch from the Auditor

If Wednesday's scathing criticism from BC's new Auditor General with respect to the Campbell government's failure to protect the public interest when it allowed Western Forest Protects to remove lands from three tree farm licenses wasn't enough, on Thursday the Public Accounts for fiscal year 2007-2008 were released with a qualified audit statement.

The 7 qualifications itemize concerns about:

• Scope Limitation - B.C. Timber Sales program ($294 million in dispute)
• Failure to recognize a portion of a First Nation settlement ($175 million in dispute)
• Failure to provide for deep-well credits ($59 million in dispute)
• Inappropriate netting of oil and natural gas producer royalty credits ($445 million in dispute)
• Inappropriate disclosure or failure to disclose essential information with regards to leased assets ($277 million in dispute)
• Inappropriate classification of land as highway infrastructure ($1 billion in dispute)
• First Nation loan guarantees ($343 million in dispute)

The 2008/09 - 2010/11 Service Plan for the Ministry of Finance includes Performance Measure 5: "The timely release of the Public Accounts with an unqualified audit opinion from the Office of the Auditor General". They accomplished that on July 11, 2007, and the service plan stated that they expected to accomplish that again on or before June 30, 2008, but the Campbell government has now failed to satisfy that performance measure. In consideration of the difference of opinion between the Auditor and the government, it is questionable whether that goal will be achieved in the foreseeable future. Watch for the goals to change when they are updated in February 2009.

British Columbians will not see another set of Public Accounts until after the next election, and it may be a long time after that before it sees an unqualified audit opinion if the Campbell government remains in power and remains as stubborn as it has been in recent months.

My suggestions for the new Auditor are on two matters, not related to the qualifications in his audit: 1) his acceptance of booking $439 million in "climate action dividends" to fiscal year 2007-08 (Public Accounts, page 75, note 31), and 2) his comments, or lack thereof, on P3s and other contractual obligations.

The $100 climate action payments were made in June 2008, fiscal year 2008-09, and they were justified by legislation that said they were a refund of overpayments of taxes for calendar year 2006. Nevertheless, they were booked to 2007-2008. The hands of the Auditor were probably tied by the legislation which authorized the payments, but I am disappointed that nothing was said about this type of Enron style accounting.

Footnote 24(d), part of the note on Contingencies and Contractual Obligations, on page 72 of the Public Accounts says: "The government has entered into a number of multiple-year agreements for the delivery of services and the construction of assets." It then provides a table showing that, for contracts with values over $50 million, there are $54.7 billion in obligations outstanding! That figure is a simple sum, not discounted to present value, and it is no doubt subject to a number of qualifications and uncertainties, but it is greater than the total taxpayer and self-supported debt of $51.9 billion (Public Accounts, page 22). It would be interesting to compare the $54.7 billion figure for "agreements" with the corresponding figure when Gordon Campbell assumed power. For fiscal year 2003-2004, the footnote on contingencies included a statement on the convention centre expansion, but it did not yet include anything comparable to the note in the 2008 accounts. The 2003-2004 note said the cost to the province for the convention centre expansion would be $230 million (less than 25% of the cost known in 2008). In the Public Accounts for fiscal year 2004-2005, not made available until after the 2005 election, the footnote on contingencies first included a statement about public-private partnerships (page 60). It mentioned the Abbotsford hospital, an ambulatory care facility at Vancouver General Hospital, and a water treatment plant at the Britannia mine site, for a total of about $500 million (less than 1% of the 2008 figure). Footnote 25(d) on page 65 of the Public Accounts for fiscal year 2005-2006 first provided a table similar to the one found in the 2008 Accounts. It indicated that contracts over $50 million for multiple-year agreements for the delivery of services and the construction of assets totaled $27.586 billion. That note did not include the estimate of obligations for self-supported crown corporations, but the subsequent Public Accounts for 2006-2007 rectified that oversight in its note 25(d) which indicated $55.2 billion in such obligations. So there is no time series available on how commitments to P3s and other contractual obligations have grown to exceed the total provincial debt, but from what little information can be gleaned from the last few years of Public Accounts, we know that those obligations stayed roughly the same at around $55 billion for the last two years. Future governments will be as confined by those obligations as they will be by any burden of debt. The Public Accounts should be expanded to make far more information available on those obligations, and both the government and the Auditor should say more about a footnote that covers $55 billion in contingencies and contractual obligations.