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Ontario Auditor-General Bonnie Lysyk speaks at Queen's Park in Toronto on Nov. 30, 2016.Christopher Katsarov/The Globe and Mail

Ontario’s Auditor-General says the Liberals have understated the province’s projected deficits by billions of dollars, casting doubt on the government’s fiscal forecast weeks ahead of a spring election.

It’s the latest development in a long-running dispute between Bonnie Lysyk and Canada’s second-largest government. Finance Minister Charles Sousa repeated his assertion on Wednesday that the Liberals had delivered a small surplus for the fiscal year ended March 31 – the first balanced budget in Ontario since the financial crisis of 2008-09. However, during the release of last month’s budget, he projected deficits of more than $6-billion over each of the next three years and further shortfalls for the following three.

Ms. Lysyk presented a much different picture on Wednesday when she released her review of last month’s pre-election report, a financial document that the government is obliged to present to Ontarians before an election. She concluded that the report substantially understated expenses and deficits and “is not a reasonable presentation of Ontario’s finances.”

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Using proper accounting, she said, this fiscal year’s deficit should have been forecast at $11.7-billion, or 75 per cent higher than the government’s estimate of $6.7-billion. By 2020, Ms. Lysyk’s estimate of the deficit is nearly double that supplied by the government.

Ms. Lysyk warned that understated deficits could lead officials to authorize new spending “when the money is actually needed to pay for expenses they’ve already incurred.”

The discrepancies arise from two distinct issues. The first is the Fair Hydro Plan, introduced last year to lower electricity rates for Ontario consumers. Ms. Lysyk said the government will now have to borrow to pay power generators for providing electricity. But neither those expenses nor the resulting interest costs, she said, were included in the pre-election report’s estimates, resulting in distortions that add up to more than $2-billion each year over the next three years. Ms. Lysyk said last year that the government deliberately structured the rate-reduction plan to avoid showing a deficit and rising debt on its books.

The second issue involves how the government calculates pension expenses. The Auditor-General says the government is erroneously recording revenue from the Ontario Teachers’ Pension Plan, and “insufficient” expenses from the Ontario Public Service Employees’ Union Pension Plan.

Eleanor McMahon, president of the Treasury Board, Mr. Sousa and Ms. Lysyk met on Tuesday to discuss their differences; all three characterized the discussions as respectful, but no resolution was reached. “Our opinion hasn’t changed,” Ms. McMahon said.

Mr. Sousa defended the government’s financial presentation. “Ontario has been noted for having the most transparent numbers by the Conference Board of Canada,” he told reporters. “Nothing is hidden.”

The Conference Board said it doesn’t rank provincial governments on transparency or quality of financial reporting. “I’ve talked to all different people, and nobody seems to know where this is coming from,” spokeswoman Yvonne Squires said. “We don’t have research in this area.”

The C.D. Howe Institute, which does rank provincial financial reporting, said Ontario scored very well relative to other provinces until a couple of years ago. “And now it is on the decline,” research director Alexandre Laurin said. “They‘re not going to be on top at all” in C.D. Howe’s next ratings, expected in the coming weeks. “They’re being downgraded.”

Mr. Sousa said the Auditor-General’s arguments were not with his government, but rather the large accounting firms the government consulted in designing the plan on reducing Hydro rates. He asserted that those firms had “prepared and provided for the structure that we have before us − and affirmed by them.”

“Trust KPMG. Trust Deloitte. Trust E&Y,” Mr. Sousa urged Ontarians. “Trust the professional accountants and the professional civil service that have provided for these initiatives.“

But the accounting firms themselves have taken issue with the government’s characterization of their work.

KPMG had confirmed that it was consulted by the government about accounting matters relating to the rate-reduction plan. “While KPMG was among those consulted, we are not the auditors, and we do not have a formal role in the selection or approval of accounting policies or practices of the Province,” it said in a statement to The Globe and Mail in March.

Deloitte, meanwhile, has disputed previous government statements that it had approved the plan; the firm clarified in a statement to The Globe earlier this year that it provided an opinion on whether a public-sector entity could use a technique known as “rate regulated accounting” under Canadian government accounting standards, which was employed in the plan. “The Deloitte Report did not include in its scope an assessment of the specific regulatory assets or liabilities recognized,” it stated.

Ms. Lysyk said Mr. Sousa’s statements were unfair to the accounting firms involved. “That’s passing the buck,” she said. “I think you need to accept responsibility for your own decisions and your own financial statements.”

Opposition parties hammered the government for producing what they said were unreliable books. “It shows that Kathleen Wynne and the Liberals can’t be trusted,” said Vic Fideli, the Conservative Party’s finance critic. “I believe they deliberately misled the people of Ontario and the legislature.”

NDP finance critic John Vanthof said, “It’s obvious to us that the government is doing everything it can to portray the books in a way that’s advantageous to the current Liberal government, but not open and transparent to the people of Ontario.”

Apart from the two contentious issues, the Auditor-General said the government’s estimates on revenue, expenses and interest costs in their pre-election report were based on “cautious assumptions.”

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