At the time this article was
written Russ Francis was news editor of
Monday Magazine in Victoria.
article looks at a recent controversy in British Columbia over the format of
the Public Accounts in that province. The heart of the issue is whether the summary
financial statements – the most detailed listing of the government’s financial
position – should include schools, universities, colleges and hospitals (the
so-called SUCH sector).
Just how much information should
be included in a province’s annual Public Accounts? A bitter debate on this
question raged last summer and fall at meetings of the British Columbia
legislature’s Public Accounts Committee, chaired by Deputy Opposition Leader,
Fred Gingell. As of the end of last November, it appeared that B.C. Auditor
General George Morfitt would preface the Public Accounts for the 1996-97 fiscal
year with an adverse audit opinion, on the grounds that they “do not present
fairly the financial position and results of operations of the government,” to
use the words that Mr. Morfitt employed at a meeting of the committee on July
Entity Expanded for 1995-96
The 1995-96 Public Accounts, for
the first time, included schools, universities, colleges and hospitals in the
summary financial statements, and the Auditor General praised the government
for doing so. At the time, there were 75 school districts, 120 health care
organizations and related corporations, 29 regional hospital districts, and 25
colleges, institutes and universities.
We are pleased to see that,
after consideration of the issue over the years and discussion with our Office,
the government has broadened its financial reporting entity. This means that
all organizations that are accountable for the administration of their
financial affairs and resources either to a minister of the government or
directly to the legislature, and are owned or controlled by the government, are
now included in the government’s financial statements.”2
The B.C. Auditor General argued
that according to the recommendations of the Public Sector Accounting and
Auditing Board (PSAAB) of the Canadian Institute of Chartered Accountants, the
government reporting entity should include organizations that are:
- accountable to the government
- owned or controlled by the government
School boards, colleges,
institutes, universities and health authorities meet both of these criteria
said Mr. Morfitt, and hence should be listed in the summary financial
According to the government’s
explanation of the reporting entity in the 1995/96 Public Accounts:
These financial statements
include the accounts of organizations which are accountable for the
administration of their financial affairs and resources either to a minister of
the government or directly to the Legislature, and are owned or controlled by
It is interesting to note that
it is not a matter of whether the financial information is published at all.
Under the Financial Information Act, these organizations, as well
as municipalities, are required to publish annually an even more detailed
listing of their finances – including, for instance, payments made to all
employees which exceed $50,000 annually.
However, they are not centrally
available – even the B.C. Legislative Library does not keep copies of all of
them. The Auditor General regarded the fact that the information is scattered throughout
hundreds of publications as significant. As he put it to the committee:
I don’t think it’s reasonable to
expect the public or members of the assembly to plow through all of those
documents and try and get an overview of what the government is into and what
Reduced Entity for 1996-97
Following the May, 1996
provincial election, which returned the NDP to power with a reduced majority, the
new Minister of Finance, in a letter dated April 22, 1997, told Public Accounts
Committee Chair Fred Gingell that he wanted the entity question reviewed.
Until the issue was resolved,
the government would revert to its previous policy of including the
Consolidated Revenue Fund, the Crown corporations and the Capital Financing
Authorities in the summary financial statements – but not schools,
universities, colleges and hospitals. (The “SUCH” sector)
Although the expanded entity is
recommended by the Auditor General I am concerned that the accountability,
budgetary and other issues associated with the expanded entity need to be more
The Deputy Minister of Finance,
Gerry Armstrong, held stronger views on the topic. In a letter to the Auditor
General dated August 15, 1997, he commented on the Auditor General’s use of the
[T]he entity question is a
public policy issue, with the potential for real life impacts on government
funded programs. As such it should indeed be debated and decided by publicly
elected officials rather than a self-selected group of technical accounting
He also criticized the Auditor
General’s claim–based on a survey by his office–that other Canadian
jurisdictions plan to expand their entities to include some or all of the SUCH
In our view, much of that
agreement was in response to pressure from provincial auditors to conform to
the expanded entity in the 1995/96 British Columbia Public Accounts. Now that
British Columbia has decided to return to an entity without the SUCH sector, I
would suggest that a number of other jurisdictions may also reconsider their
In their respective
presentations to the committee last November, the Auditor General and
Finance Ministry officials even disagreed as to what was the practice in other
provinces. According to a chart provided the committee by the Auditor General,
Nova Scotia was looking to expand its entity.8 But a similar table which
the Finance Ministry presented to the committee said Nova Scotia planned no
While their Liberal colleagues
generally backed the position of the Auditor General, NDP members of the Public
Accounts Committee lined up behind Finance Ministry officials, including
Comptroller General Alan Barnard, in supporting the return to a smaller entity.
This is surprising because including the SUCH sector would have the effect of
reducing the accumulated deficit by $2.3 billion and its annual deficit by $62
The NDP government is under
heavy criticism from the Opposition and business groups for the size of its
debt – which now stands at more than $30 billion – and for repeated failures to
bring in a balanced budget.
For the fiscal year ending March
31, 1998, Finance Minister, Mr. Petter said on November 27, 1997 that the
government expects a $185 million deficit,10 which would be the NDP
government’s sixth consecutive deficit. Adding the SUCH sector would have moved
the government closer to a balanced budget, which is arguably a necessary
predecessor in political terms for the NDP to win a third consecutive term in
The reason for the reduced
accumulated deficit is that though the government’s liabilities would increase
by almost one billion dollars and loans payable by $4.7 billion, its assets
would increase by more than $8 billion. The annual deficit would decrease
because the government takes in more from tuition fees, patient fees and other
sources of SUCH revenue than it spends on items like professors’ and nurses’
One argument advanced against
the larger entity by Mr. Barnard, and NDP members of the Public Accounts Committee
was that if schools, universities and health organizations are going to be
included, why not municipalities? All four types of organizations are both
accountable to and controlled by the government. For instance, the Municipal
Act governs most B.C. municipalities and places strict limits on their
powers, including how they raise and spend money. Yet adding B.C.’s 179
local governments would be a nightmare for Barnard and his Finance Ministry
colleagues, and would make the summary financial statements unwieldy. Hence,
goes the argument, the SUCH organizations should not be included. This is how
NDP MLA Rick Kasper (Malahat–Juan de Fuca) put it.
I know the Ministry of Finance
doesn’t want to include municipalities; I know that for a fact. And I don’t
think you want to, either. But if we’re going to take the standards or the
criteria that are laid out through PSAAB as to how we determine what ownership,
control and accountability mean, then we should really revisit this issue on
The Auditor General, however,
quoting from PSAAB material, rejected this argument:
While a province may have the
authority to create a local government, that local government may be
determining the level of taxation to be raised and the amount of debt it is
willing to incur to finance the levels of services and capital expenditures.
So, while the constitution may place the responsibility of municipal affairs on
the province, it does not necessarily follow that the province should be held
accountable for a municipality’s financial position and results.13
Finance Ministry officials
claimed there was another problem with expanding the reporting entity, beyond
the fact that they would become too unwieldly.
The Finance Ministry was
concerned about the relationship between the central government and
organizations once removed such as schools and universities. As Assistant
Deputy Finance Minister Trumpy put it:
The second set of arguments is
around whether or not an expanded entity would lead to sort of more intrusive
management of the broader public sector. Just to use an example, if the
government were to have a budget which included the spending of all the
post-secondary institutions and the universities, and the government at some
point in the year decided that maybe revenues were weakening a little bit and
that it had to do something on the spending side to achieve its budget targets,
would we have a situation where the government would go to the post-secondary
institutions ... and demand that they cut back spending when they have
significant revenue sources that are non-government? What would be the
behavioural implications of an expanded entity?14
The Auditor General, however,
had an answer to this. How and what is reported in the Public Accounts cannot,
according to him, affect the nature of the various relationships between
the government and the organizations which it to some degree funds or controls.
Are there potentially negative
behavioural issues from including these entities in the statements? My view is
that excluding them presents accountability issues for the minister. If they
are indeed accountable for how the schools are supposed to operate in this
province, then they should be in. If they’re not accountable, take them out.
But just including the financial aspects of entities in the summary financial
statements, I suggest, shouldn’t drive negative behaviour.15
This argument was strengthened
somewhat by new legislation. During its last session, the legislature amended
the Municipal Act, removing some of the provisions requiring local governments
to seek the approval of the provincial government. As of last November 30, Mr.
Morfitt had yet to make a final decision on whether to place an adverse audit
opinion on B.C.’s Public Accounts.16
Despite the intensity of debate
over their content, the B.C. Public Accounts are hardly a best seller. Of the
1,200 copies printed annually, only 150 are distributed outside the government itself,
and many of those go to libraries and researchers. Nevertheless the debate will
likely be followed by other jurisdictions considering changes to the
format of the Estimates or the Public Accounts.
1. British Columbia, Proceedings,
Select Standing Committee on Public Accounts, July 29, 1997, p. 402.
2. Auditor General of British
Columbia, 1997 Annual Report, p. 31.
3. Ministry of Finance and
Corporate Relations, 1995/96 Public Accounts, Vol. 1, Notes to Summary Financial
Statements, p. A20.
4. British Columbia, Proceedings,
Select Standing Committee on Public Accounts, November 4, 1997, p. 417.
5. Reprinted in: Auditor General of British
Columbia, The Government Reporting Entity – Briefing Book for the Select Standing
Committee on Public Accounts, October 1997.
8. Auditor General of British Columbia, The
Government Reporting Entity–Briefing Book for the Select Standing Committee on
Public Accounts, October 1997, p. 29.
9. Ministry of Finance, The
Reporting Entity of the Province of British Columbia – Presentation to the
Select Standing Committee on Public Accounts, November 4, 1997. (No page
10. Andrew Petter, Minister of
Finance and Corporate Relations, Press Release, November 27, 1997.
11. Auditor General of British
Columbia, The Government Reporting Entity – Briefing Book for the Select
Standing Committee on Public Accounts, October 1997, pp. 21-22.
12. British Columbia, Proceedings,
Select Standing Committee on Public Accounts, November 4, 1997, p. 429.
13. Ibid., p. 429.
14. Ibid., p. 415.
15. Ibid., p. 435.
16. On December 18, 1997, the
1996-97 Public Accounts were released. In the Auditor General’s report on the
Summary Financial Statements, he listed three reservations, including one on
the government’s decision to exclude the SUCH organizations. See: Ministry of
Finance and Corporate Relations, 1996/97 Public Accounts, Report of the
Auditor General of British Columbia, p. A16.