The B.C. government meets most of the basic requirements of financial reporting, but a few missteps resulted in the 2011/12 deficit being underreported by more than half a billion dollars, says the province’s Auditor-General.
John Doyle shared his observations on the 2011/12 Summary Financial Statements in a report released Tuesday. He found the majority of missteps could be traced back to the government’s deviation from Canadian “generally accepted accounting principles” (GAAP) in preparing its financial statements.
“Had government prepared and reported its Summary Financial Statements in full accordance with GAAP, the deficit for the year would have been $520-million higher, at [$2.36-billion],” Mr. Doyle wrote in the report.
He listed four qualifications – potentially misleading deviations from the GAAP – in this year’s audit opinion, including the improper consolidation of the Transportation Investment Corporation. While most government organizations are consolidated on a line-by-line basis, the Transportation Investment Corporation, responsible for constructing and managing the new Port Mann Bridge, was consolidated on a modified equity basis as a government business enterprise (GBE). This means only the government’s initial contribution of money was included in financial statements. Mr. Doyle said this is improper as it does not yet qualify as a GBE.
Had the corporation been fully consolidated, the provincial deficit would have been greater by $79-million, Mr. Doyle found. This item has been an audit qualification every year since 2008/09.
“While qualified audit opinions are rare in the private sector, government has had 13 audit qualifications in its summary financial statements in the last 17 years,” Mr. Doyle wrote in his report. “The persistence of qualifications has a relatively straightforward solution: Government merely needs to comply with the standards set by the Public Sector Accounting Board.”
Mr. Doyle made eight recommendations in his report, four of which relate to qualifications in this year’s audit opinion. They include consolidating the Transportation Investment Corporation on a line-by-line basis; reporting to the public in accordance with accounting standards developed by Canadian independent standard setters; and implementing a process to ensure management letters issued to government entities are followed up and resolved in a timely manner. (In 2011/12, about 20 per cent of letters – which dealt with matters such as transactions not being reviewed by the appropriate person and computer passwords not expiring – did not receive responses.)
In a response included in the report, B.C.’s comptroller general, Stuart Newton, said changes in accounting standards are “inevitable” but should be undertaken only after due process.
“My approach is to work actively with standard setters and other jurisdictions to understand how changes relate to historical practice, to identify conflicts that indicate problems with past practice or new guidance, and to plan for implementation so that financial statements are reported on the same basis,” he said. “I take this conservative approach because the risk of taking an accounting approach that is later changed would undermine the long term usefulness of financial reporting.”
Mr. Newton also defended the decision to disclose the Transportation Investment Corporation as a GBE under the modified equity basis of consolidation.
“We both agree that the Transportation Investment Corporation will support its operations from toll revenue over the life of the program, but have a difference of opinion about when the organization should be reported as a GBE,” he said.
“Because the government’s stated policy has been to fund the project through user tolls, and objective evidence indicates tolls will fully fund the project, I do not believe it would be correct to disclose the Transportation Investment Corporation as a taxpayer supported entity, then change the disclosure to a self-supported entity at an arbitrary point when annual revenues exceed annual expenses on the accrual basis.”
The provincial government’s Summary Financial Statements reports consolidated financial results of all government operations, including Crown corporations, ministries, school districts and the office of the premier. It is the largest audit conducted in B.C. each year.