Alberta made more than $1.5-billion in accounting errors around a series of its energy deals in the 2019-20 financial year, including crude by rail, the Keystone pipeline expansion and the Sturgeon Refinery, according to the provincial Auditor-General.
Doug Wylie released his audit of the province’s 2019-20 financial reports Thursday, noting the level of error was “significant,” and the largest he could recall during his two decades in the office.
“In a financial statement audit you will always have observations, but in this particular year, these are significant errors that were found,” Mr. Wylie said, calling the mistakes “concerning.”
Assistant Auditor-General Brad Ireland told The Globe and Mail he has seen tens of millions of dollars of adjustments in past audits, in some cases running up to $100-million.
“But this year, what was different was definitely the magnitude. The volume of adjustments was probably similar to what we had in the past, but the magnitude of those items was definitely much larger than anything that I can remember,” he said.
The $1.5-billion in energy errors all involve the Alberta Petroleum Marketing Commission, or APMC, an arm’s-length body under the guidance of the Ministry of Energy. Kavi Bal, press secretary to Energy Minister Sonya Savage, told The Globe in an e-mail that all of the procedural accounting errors identified in the Auditor-General’s report have been fully addressed and corrected.
The APMC oversees a range of energy strategies, including divesting the province from $3.7-billion worth of contracts signed by the former NDP government for rail cars, loading and unloading capacity, logistics and other services. The crude-by-rail deal would have seen the province lease thousands of railcars to increase export capacity, thus relieving the pressure on limited pipeline space.
The United Conservative Party was critical of the deal and pledged during the 2019 election that it would rip up the contracts if it won, which it did.
In February this year, Premier Jason Kenney announced that 19 contracts were being finalized for divestment by APMC. But just eight had been sold, even though the ministry accounted for the program as if all the contracts had been divested for $1.43-billion.
“This accounting approach did not reflect the economic reality” that 11 contracts were still active, Mr. Wylie wrote – a $637-million mistake. He also noted the ministry didn’t have all the pertinent information about the rail contracts, and found that APMC inaccurately said two agreements were amended, when they hadn’t been.
The provincial government’s investment in the Keystone XL pipeline expansion also drew the Auditor-General’s attention.
Alberta announced in March it would contribute US$1.1-billion to gain an ownership stake in the pipeline, which it plans to sell back to the company after commercial operations begin. It will also guarantee US$4.2-billion of debt related to the 1,947-kilometre project.
However, Mr. Wylie wrote in his report, neither the Energy Ministry nor APMC performed analyses to assess accounting implications of the Keystone deal, and failed to note an initial contribution of approximately $100-million was actually due March 31.
“As a result,” he wrote, “APMC’s assets and liabilities were understated.”
Then there’s the Sturgeon Refinery, a $10-billion government-backed refinery besieged by delays and cost overruns, which has been a thorn in the side of three successive Alberta governments.
The refinery has been the focus of past audits. This time, Mr. Wylie found APMC failed to update the “onerous" refinery contract given the “significant impacts” on oil price and demand related to COVID-19, a Saudi-Russia price war and wildly fluctuating price forecasts.
“After we requested APMC update the model based on more current information,” he wrote, the commission had to adjust its books by $795-million. The report also found calculation errors around sunk costs and a diesel pricing methodology, which resulted in additional changes.
“Given the magnitude and complexity of the transactions at the Ministry of Energy, it is important for both APMC and the department adhere to existing controls in place to ensure that the government’s financial statements are not materially misstated,” Mr. Wylie wrote.
The report also took aim at the government’s oil and gas war room, officially branded the Canadian Energy Centre.
Mr. Wylie’s office found the arm’s-length body awarded numerous sole-sourced contracts with little transparency or oversight, including no documents detailing why vendors were chosen, whether they had conflicts of interest and why the war room failed to use a public tender process. The report also cited three separate occasions on which contractors began running up expenses before contracts were signed off by the board.
Mr. Bal, Ms. Savage’s press secretary, said in the e-mail that the largest contract was $600,000 for an “urgent national ad campaign for the Teck Frontier mine proposal” that required a tight turnaround. When the Frontier project was withdrawn, he said, the planned campaign was rolled into a different national ad strategy.
Mr. Wylie told The Globe that Thursday’s report underscored the importance of having – and following – sound financial control processes, particularly as the Alberta government tries to resuscitate the flailing provincial economy.
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