The Auditor-General of Ontario released her report on the province’s public accounts and it is a bloody big deal. This fall, the government was late releasing its Consolidated Financial Statements because there was an ongoing difference of opinion between the Treasury Board Secretariat and the auditor regarding the treatment of pension assets.
The A-G kicks off her report by stating the following: “For the first time in the 23 years since the Province adopted Canadian generally accepted accounting standards for governments, the government received a qualified audit opinion on the Province’s consolidated financial statements.” I thought to myself, ‘time to pop some popcorn, because this is going to be entertaining.’
But rather than be entertained, I am frightened. As an academic who specializes in accountability and transparency, I have long held the view that audits should be used for improvements to public services rather than exacting a political toll on government. Audits, in my view, ought to be written and used in ways that are seen as not political. The language used ought to be judiciously selected and that audits should stick to the facts.
There will be no doubt that the government will view this audit as crossing that line, and they will attempt to discredit the auditor as acting beyond her role. The report clearly states that this is a top-of-mind interpretation of the public spat: “The actions taken by the Government in releasing the consolidated financial statements late and without the audit opinion of the Auditor General, while also publicly disagreeing with an accounting issue before providing the Auditor General with information needed for her to issue an audit opinion, could be perceived by some as an attempt to undermine the role of the Office of the Auditor General.” As far as foreshadowing goes, it can’t get more ominous.
This blatant attempt to release the statements without an audit opinion is serious. The report states: “Going forward, our Office will need to approach the audit of the consolidated financial statements with increased professional skepticism and will assess the need for expanded audit procedures.” This issue isn’t going away.
The lack of audit opinion means that the public cannot have confidence in the Consolidated Financial Statements. While the government used the auditor’s opinion on recording assets in this fiscal year, the issue is that the government did not restate its fiscal position for the previous year, which means that you cannot compare apples to apples in the data, which is important when you make claims of meeting or beating targets.
In addition, there are major issues in accounting practices that need to be carefully watched. The Auditor bases her assessment using the PSAB standard, but she questions why the government legislated certain accounting practices that were different than PSAB.
The report states: “We continue to caution that the use of legislated accounting treatments by the government on future transactions, or the introduction of further legislated accounting treatments, could increase the risk that the future financial results of the province may not be fairly stated.” The problem that arises is that the government has given itself a legislative ability to pass a regulation detailing how an asset can be recorded. Via regulation, if a government wishes to record an asset/liability that is worth several billion, as having no value, it has the ability to do so, which are contrary to PSAB principles used by governments across Canada. In other words, legislating its own accounting standards allows the government to possibly cook the numbers.
More evidence on inconsistent accounting standards can be found in the government’s treatment of hydro assets. The government included financial statements for Hydro One and Ontario Power Generation using the American GAAP standard instead of the internationally accepted PSAB. The report states: ”We believe that the differences between the two standards could lead to material accounting differences, potentially as early as the 2016/17 fiscal year.” Wait a second… that’s this year!
The government may take exception to some of the language used in the audit as being overtly political, the auditor isn’t saying what appears to be the underlying theme of this year’s report: namely, that the government is shirking on its accounting responsibility (discussed in the management vs. auditor in Chapter 2 Section 3.2 of the report) but doesn’t go on to say the reason she thinks this might be the case. We are left to speculate that the government is doing so for politically motivated reasons, and there is ample support to draw that conclusion.
In the world of auditing, using consistent standards ensures that comparisons can be made and benchmarks established. By switching accounting standards, the government can basically use whatever number best suits its narrative. Worse still, it has given itself unfettered legislative ability to write off assets and liabilities through regulation instead of accounting standards. This is what post-truth looks like.
This is happening far more than it should. Take a look at the following chart (see attached) related to the deficit projections. If you read footnote 2, it’s a confusing mess where the government is picking and choosing numbers so that it can make the claim that it has beaten its fiscal forecast for 7 straight years. It’s a comms job and a con job. If the government is not going to beat its target, it just sets up a new one so their election ads can say they beat their projections for almost a decade.
The political implications of this are obvious. In 2004, the government passed the Fiscal Transparency and Accountability Act, which means that in advance of an election, the Auditor is asked to look over the books and state whether the assumptions in the fiscal plan are sound and accurate. I have written about the flaws in that document elsewhere (http://www.robleone.com/is-ontario-ignoring-its-own-fiscal-transparency-law/), but it is important to note that the Auditor is also fixated on loopholes in the legislation (see page 96 of the report). The Ministry of Finance Response to Recommendation 10 was that they are not changing the law.
What voters are left with is a squabble they very well won’t understand. The government in using different accounting standards so it can claim its following sound accounting principles which will be contrasted by an apolitical auditor saying the government needs to use the same one everyone else uses. Voters will be too confused so they’ll move on to the next shiny object such as, say, the invasion of the so-cons. Oh, that sounds so much more interesting, doesn’t it?
Bait. Switch. Win. It’s the obvious Liberal playbook. #WhatPostTruthIs
This article appeared in Queen’s Park Briefing. Visit QPBriefing.com to subscribe to this publication and stay on top of all things related to Ontario government and politics!