Select Standing Committee on Public Accounts

2000 Legislative Session: 4th Session, 36th Parliament
SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS
MINUTES AND HANSARD

SELECT STANDING COMMITTEE ON
PUBLIC ACCOUNTS

Tuesday, June 6, 2000
8:30 � 10:00 a.m.
Douglas Fir Committee Room
Parliament Buildings, Victoria

Present: R. Thorpe, MLA (Chair); E. Gillespie, MLA (Deputy Chair); P. Calendino, MLA; R. Kasper, MLA; S. Orcherton, MLA; D. Streifel, MLA; D. Zirnhelt, MLA; M. Coell, MLA; J. Weisbeck, MLA; J. Weisgerber, MLA

Unavoidably Absent: E. Walsh, MLA; G. Farrell-Collins, MLA

Officials: W. Strelioff, Auditor General; A. van Iersel, Comptroller General

1. The Chair called the Committee to order at 8:35 a.m.

2. The Committee heard testimony from Gary Mitchell, Provincial Archivist and Chair, Public Documents Committee regarding the proposed records retention and disposal authorities resolutions.

3. Resolved, that the Committee adopt the proposed resolutions as put forward in the report of the Provincial Archivist. (E. Gillespie)

4. The Committee continued its consideration of Report on Government Financial Accountability for the 1998/99 Fiscal Year � Part 1 � Report on the 1998/99 Public Accounts. The following witnesses appeared before the Committee:

Office of the Auditor General:
o    Wayne Strelioff, Auditor General
o    Keyvan Ahmadi, Senior Principal, Financial Audit Unit

Office of the Comptroller General:

o    Arn van Iersel, Comptroller General

5. The Chair announced that the Committee�s report Protecting Drinking-Water Sources would be tabled in the Legislative Assembly in the afternoon.

6. The Committee adjourned to the call of the Chair at 9:55 a.m.

Rick Thorpe, MLA
Chair

Craig James
Clerk of Committees and
Clerk Assistant

The following electronic version is for informational purposes only.
The printed version remains the official version.

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE
ON PUBLIC ACCOUNTS

TUESDAY, JUNE 6, 2000

Issue No. 86

Clerks:

Craig James
Kate Ryan-Lloyd

Committee Staff:

Kelly Dunsdon (Committee Researcher)

R. Thorpe (Chair): Ladies and gentlemen, we'll get started. The first item on the agenda is the records retention and disposition authorities. We have Gary Mitchell with us today, and I've received the appropriate letter from Gary with respect to these issues. Gary, did you want to make a few comments, and then any members who had questions. . . ?

G. Mitchell: Good morning. On behalf of the Public Documents Committee, I am pleased to submit our recommendations with respect to government records retention and disposition.

The committee wishes to table, for your review and consideration, ten recommendations. One is an amendment to the administrative records classification system. This classification system covers all of the administrative or housekeeping records for the British Columbia government.

There's an operational classification system -- i.e., the mandated records of an agency. We have those to cover the coroner service; Transportation Financing Authority; science, technology and telecommunications division; some ISTA; and the PEP program, the provincial emergency program. We have an amendment to the office of the comptroller general classification system that updates the new responsibility that office has held. We have the aboriginal health program in the Ministry of Health. We have Pharmacare, and we have the local government department of Municipal Affairs. Our last recommendation will cover a governmentwide records schedule for year 2000 project documentation and test data.

I'd like to add that the estimated annual accumulation of records created under this schedule would be approximately 550 cubic feet, which, if we allowed for filing space, would cover this room.

R. Thorpe (Chair): One of the questions I have, Gary. . . . I don't know whether other members had the same question. Reading through the resolutions, I notice that resolution No. 10 was worded just a little bit differently than the previous nine. I was just wondering if you could explain to me why that is.

G. Mitchell: When the archives -- our record service colleagues -- were looking at the material collected under the Y2K projects within government, we had a concern that upon the successful completion of the projects, many of the records would be destroyed. So what we did with our cross-government colleagues was establish a special schedule which states how long the records are to be retained and what the final disposition would be. This will allow government -- one, two, three parliaments from now. . . . If there are issues relating to any of the information systems that have survived Y2K, we can prove due diligence and, hopefully, also prove what we may or may not have done wrong. In many ways it's a security measure. So we're not managing the records, because the projects are finished. What we're doing is asking them to either destroy certain types of records or transfer them to the custody of the archives.

A. van Iersel: I do, Chair -- just to say that I'm a member of the Public Documents Committee working with Gary. I've reviewed these, as has Endre Dolhai from the office of the auditor general. We support these. As Gary says, one of them represents my own office in terms of having to have had updates required as a result of reorganization and change in responsibility. So I'm comfortable with it.

R. Thorpe (Chair): Does anyone else have any other questions? We do have all the binders in the Clerk's office for any member that would like to go through them. They're quite extensive. I have in the past gone through them, and I would encourage members to do so if they wish.

I guess in the past we have. . . . We can pass a motion. Traditionally, we've passed it in the week following this meeting. Does that continue to be the wish of this committee? Evelyn?

E. Gillespie (Deputy Chair): I would suggest that, given that we've had this material and it's very straightforward, we have a motion now.

E. Gillespie (Deputy Chair): I'll make that motion -- that we adopt the resolutions in the report of the. . . . I haven't got my glasses on.

E. Gillespie (Deputy Chair): The ten resolutions, as put forward by the archivist. That's right.

R. Thorpe (Chair): So we'll resume consideration of the auditor general's report on government financial accountability for 1998-99. Does anybody recall where we are? I'm not sure we have finished the first part. I think Mr. Calendino had a question.

If I recall, we were just nearing the completion of part 1, and I think Mr. Calendino had a comment or some questions. So perhaps we could resume there.

P. Calendino: Thank you, Mr. Chair. I wish I could remember what my question was. Maybe I can make one up here.

I guess we were discussing the SUCH component of the reporting entity. The table that was given to us showed that every province has a different way of reporting. Many provinces report part of it. The colleges. . . . Other provinces may report none of it. Other provinces may report all of the education, health, etc.

I guess my issue here -- and we discussed this before in here -- is that beginning with. . . . You have elected bodies

Education systems. . . . When I was a trustee in Burnaby, for example, we used to have a lot of available space that we rented out, which produced revenue. The district decided how to use and how to best implement that. Obviously there is no control from the provincial government regarding those things. So when the auditor general decides that he wants to include that, how do you separate all those items as well?

W. Strelioff: Thank you, and good morning, Chair and members and Mr. Calendino.

I'm sure you've heard in the past that applying generally accepted accounting principles to government is difficult and complex, and the governments of the day have to decide how best to apply generally accepted accounting principles. The auditor and the comptroller argue about how best to apply those policies. As far as the SUCH sector. . . .

R. Thorpe (Chair): Excuse me, Wayne. Perhaps you could speak a little bit louder and into the microphone. Thank you.

W. Strelioff: Okay. Usually I'm advised to speak less loudly, not more loudly, but that's okay.

W. Strelioff: So applying generally accepted accounting principles for governments is not a simple task. Deciding how best to reflect the SUCH sector within the government's financial statements is a difficult task that requires a lot of judgment and discussion amongst all the affected parties.

As far as I know, no one is arguing that the government of the day is not accountable for the overall finances of the health system or the school system. The key debate is: how do you properly reflect the finances of the health system and the education system within the government's financial statements and at the same time ensure that there's local responsibility and accountability for decisions of the day that affect individual school districts or individual hospitals? That's always a tough discussion and a difficult decision. But in terms of the government's financial statements, their purpose is to reflect the overall responsibility of the government of the day, and certainly the government has been provided the authority and the responsibility for the overall finances of the health system and the education system. The financial statements are one vehicle where governments show that responsibility. Then you as legislators can come in and ask them questions about how they're carrying out that responsibility.

P. Calendino: I guess the reality is that the statements of health boards and school boards are audited externally every year, and they are submitted to the provincial government. The global expenditures are then included in the summary accounts. So what is the issue here? Is it that the auditor wants to put his fingers in the individual school boards and the individual health boards? What is lacking in the audited statements that are being submitted to the provincial government?

W. Strelioff: As you would expect, since the government are responsible for the overall finances of school districts and health authorities, they do receive the individual financial statements of those health authorities and school districts. That would be consistent with their responsibility. What is not included in the summary accounts, or the summary financial statements of the province, are the overall revenues and expenses of all health districts and health authorities in a total sense. You only get a partial reflection in the audited summary financial statements of the total health care costs and education costs. That's the issue that has been debated within B.C. How best to report those results is what's under ongoing discussion.

P. Calendino: I guess I need a clarification of the amounts that are not included in the audited statements. Are you just saying that they're not complete audited statements that are being submitted? Are we discussing here fundraising revenues that health boards and school boards manage to raise every year? Obviously those are not within the control of the provincial government if they are locally raised and have nothing to do with taxation.

W. Strelioff: Members, the amounts that are voted as an appropriation to health authorities and to education authorities are included in the government's financial statements. Where health districts are also asked or take on initiatives of raising their own revenues through direct charges -- whether it's tuition fees, or all sorts of other fundraising measures -- those amounts, which of course are increasing year by year, are not included in the government's financial statements. So you don't get a good, overall sense of the total magnitude of the revenues and expenses that are being managed in the health sector -- or the extent to which the trend lines are changing, the extent to which the appropriation amounts are funding the health system or the education system and the extent to which the health system or education system has to go out on their own fundraising measures or charge tuition or fees for services.

W. Strelioff: That's correct. The individual audited statements of health authorities and school districts should include all their revenues and expenses. I assume that since individual accounting firms are signing off on those statements, they do.

However, those are the audited financial statements of individual health authorities and school districts. Those amounts are not added up in the summary financial statements of the government. There is where the missing link is. Also, because that missing link is there, my office provides you with advice that you're not getting the complete story. So your ability to hold the government accountable for how it carries out its responsibilities for the overall health system or the overall education system is less effective because of that.

W. Strelioff: In the discussions and questions this morning and the matters I listened to in previous meetings. . . . Some of those issues are very relevant to me right now in carrying out my new responsibilities for auditing the government's summary financial statements and providing you with advice and reports on those statements. Certainly part of my responsibility to you is to ensure that rigorous measures of surplus and deficit are a key part of your discussions and questions. Of course, rigorous measures of surplus and deficits provided to you by the government -- it's one of my responsibilities to you.

My understanding is that one important purpose of Bill 2 is to help ensure that the public, and you as legislators, are provided with rigorous measures of the government's planned and actual deficits or surpluses, as well as its total assets, liabilities, revenues and expenses.

R. Thorpe (Chair): I wasn't sure where this discussion was going to go, but I believe that the entity issue is defined in Bill 2. That legislation is currently before the House. It's being debated in the House; it started last night. We'll probably continue today. I believe, on the advice of the Clerk, that for us to get into this discussion on the entity issue at this point in time would be inappropriate, because legislation is before the House. That's where that legislation should be debated and discussed; therefore I think the committee should move on to other issues at this point in time.

I'd like to first introduce, if I may, Kit Chapman from my office -- the director of corporate financial accounting -- who has responsibility for the production of the public accounts. You've seen Kit from time to time.

Both our office and the office of the auditor general were asked to deal with three items, although I've actually come back with four. They were: the investment to buy the consolidated revenue fund in Columbia Basin Trust, guidelines for the capitalization of expenses relating to acquisition of parkland, and the implementation of new accounting policies for school districts. The office of the auditor general has just touched on that, but I think I'd like to go a little further. Then the fourth item, which you didn't ask for. . . . Based on Mr. Weisgerber's questions, I wanted to respond a little more fully with respect to why we capitalize. There's some information provided on that as well. I didn't provide as full an answer as I had hoped to last time, and I wanted to address that.

These are all contained in a letter that I sent to Craig James; hopefully, members have that letter. I'll just briefly take you through it.

Going to the first question, if I may, the question on Columbia Basin Trust was how this is recorded in the consolidated revenue fund. The first thing I should say is that with the move away from the CRF statements themselves, this issue is going to have less prominence in the sense that we're focusing on the summary. At the summary level what we do between the various parties is obviously still relevant but doesn't have an impact. The investment is, in effect, removed.

Columbia Basin Trust, as I mentioned last time, goes back to 1996, when an amount of $45 million was provided to that organization, in effect, as an endowment. If you look at the financial statements for Columbia Basin Trust. . . . And those are available in the hard copy that we give you every year, with the relevant public accounts. They still do indeed have monetary assets on their books -- assets that are like securities -- related to the original endowment that we gave. So it's an endowment intended to be used for particular purposes. Some were related to power projects. In the case of this $45 million. . . . It was related to non-power projects.

The difference between the auditor general's office and myself is not a summary issue but a CRF issue: whether or not our providing the $45 million should be considered an investment. We've chosen to make it an investment on the basis that we think CRF investments of this kind do not necessarily have to have a financial return.

The CRF does provide money. This is an endowment. It does provide moneys from time to time, and there are many things that we put forward that are not purely financial, in the sense that there's a return, like on a bond. We believe we've done the correct thing here, but even if there is a difference, as I say, on the summary basis, it's not an issue. That whole transaction is reversed, because we're related entities. When you do the consolidation, that has to be unwound.

The next question was with respect to parkland as part of capitalization. Parkland is one of the asset classes that we've worked on with the auditor general in terms of putting the value on our books. I just want to repeat what I said last time. We're not talking about indigenous land here. We're talking about land that we've paid something for, or exchanged something for, which is a much smaller subset of what the province obviously is. There was some question as to whether or not we had done anything in policy to reflect a discussion that we had on the creation of a park going back to 1998-99, and we did.

What we did was provide guidance. I would say that in most cases the office of the comptroller general decides these itself. It's not as if we're relying on ministries to interpret this, but usually the ministries come to us for advice. What we've said is:

Obviously, though, we need to analyze it carefully, because we don't want to roll in to the cost of the land things which are really intended as economic development. If we had decided, on the one hand, to do a power line and that was the sole basis, that would be an economic development type of expenditure. However, if it was related. . . . And this is the confusion around this transaction, the documentation: where do you draw the line? Do you draw the line simply at what you had to pay Royal Oak for their assets and compensating for that, or do you also include the power line? So that was the nature of the discussion that we had between our two offices in terms of how you divide costs being expensed or those that are capitalized. We've included this in our policy. We did that immediately after our last conversation. Obviously we're going to use this in future, should we ever have transactions where things are not quite as clear as we would like.

By having an asset, those people that are charged with the custody of those assets and seeing that they're on the financial statements and have value are more inclined now to make sure they are properly maintained. They make sure, when someone offers to buy them or to exchange them, that there's a value; there's a reference point. Having assets in that sense eliminates what could have been perceived in the past as free goods, in the sense that you paid for it ten years ago. Who knows if it still has value? Now, if it's an asset that lasts longer than ten years, we know it has some value.

We follow generally accepted accounting principles in terms of writing down that value over time. It does enforce accountability, because the assets are there. They have to be responsible. The statements have to be prepared every year, and there are controls over those assets because they're part of our financial affairs.

The other thing it does is disclosure. The assets are now on the balance sheet. You never previously saw that. So you can see what we've paid for in terms of capital items that have value going into the future.

The approach. Again, we had a little bit of a discussion last time about isn't there risk in terms of going from a cash basis, expense basis, to full accrual and capitalization. Yes, I agreed there was a risk in the sense that people could try to ramp up. I mentioned that my office has been very vigilant in informing people that if you ramp up, you have higher amortization costs. You must make sure those are part of your budget projections.

There were also some factors that were working with us. These were some things we got advice from the auditors on, and I whole-heartedly agree with it. As I say in my note, there was no holiday period in the sense that when we brought on a capital asset class, we didn't start from that day forward in capital items; we went back in time. For any assets that were previously expensed but still had value in terms of having a five-year life or a ten-year life, we've brought that value onto the books. What that means is that the ministry that had custody of that asset had to do the amortization for assets that in effect had already been written off. That sort of counterbalanced, in a sense, the freeing up of their budgets in terms of going from a pay-as-you-go basis, a cash basis, to a full capitalization.

A. van Iersel: For example, highways. We had highways that were previously on the books that had to be set up. We had personal computers. They have a much shorter life. We say they have a life of only three years. But for any computers that predated that -- go back two years or more -- we brought the value of those computers on. Ministries had to take depreciation on those assets, even though I had many conversations with program managers who said: "I paid for that two years ago." In effect, that was the discipline of going into capitalization: we're not giving you any break here. You have to treat it as if capitalization had always been the case.

The other thing I mentioned last time was that we did it on a phased-in basis. We didn't want to go big bang, so we phased in capitalization going back to 1995-96 and rolled it out forward. That minimized the opportunity for people to try and say: "We're going to use this window to ramp up capital expenditures."

The last item was generally accepted accounting principles for school districts. In your package, there's a letter from Jacquie Kendall, who's the director of school finance, to all the secretary-treasurers of those districts.

As was said by my colleague in the office of the auditor general, there is change coming. We've clarified that for sure. From my reading of this particular correspondence, it looks as if it's going to take two years to implement. It won't all get done in the current fiscal year. But they are starting on that road and gathering some information, particularly as it revolves around vacation pay, accruals and benefit accruals, and so forth.

I'm happy to report that there is change afoot. This is something that was in the auditor general's report in the

I probably went a little longer than you wanted, but I did want to come back to that.

R. Thorpe (Chair): Thanks, Arn, and thank you for getting back so quickly on these issues that members raised at the last meeting. I know all members appreciate that.

Based on what Arn said, did the auditor general's office have any comment at all on any of those things, or are you guys okay with that?

K. Ahmadi: Good morning, Chair, members. Yeah, I'd like to confirm in fact that the accounting standards for school districts are underway. From what I understand, the current fiscal year, which is the year 2000-01, will eventually, at the end of the year, be adjusted to show the standards currently being developed.

As for the contribution to Columbia Basin Trust, I have provided members with some information about the dollars and how they have been spent. I will not go through those.

The concept in here is that this type of payment by the consolidated revenue fund is very, very much similar to another, different kind of economic development payment that the government makes from time to time. We do not see that to be a type of investment. There is no legal definition of investment that I know of. However, amongst ourselves and the office of the comptroller general, at some point we reached a consensus that usually investment means an outlay of money being returned.

Now, if this return is in the form of cash or a financial return or reward, that would be very clearly identified as a return. However, if the return is a way of creating jobs and other kinds of social services, then that kind of return would be very similar to the type of return that payments for economic development outlays would bring.

This is the reason why we believe that it should not be an investment. However, as Arn had mentioned, this matter is only affecting the consolidated revenue fund financial statement. When it comes to the summary financial statement, it will not really be an issue.

W. Strelioff: Yes, thank you very much. The third point that Arn was discussing was the treatment of capital assets and inclusion in the financial statements. I know from reading past Hansards that this committee has discussed this issue quite often. As my colleague the comptroller said, recording assets on the statement of financial position does increase management's focus. I think, without a doubt, having them in the financial statements makes sure that they get managed more rigorously. Also, when you have transactions that involve land or other assets that were not recorded, it's likely that some people will view those land costs as being as being a free part of the transaction. Recording them does help that.

Also, make sure that you know the impact of depreciation compared to acquiring capital assets. Governments can provide some information reconciling the change in annual net debt, so that you know the impact of a government acquiring capital assets compared to the depreciation. So there are some mechanisms in place that can help you understand what's going on more fully.

S. Orcherton: This is actually quite a fascinating topic. I've been thinking for some time about these kinds of questions around accountability. First of all, I think it's desirable for the taxpayer to understand where dollars are going. I come from that kind of a perspective.

Having said that, it seems to me that all of these things hinge on the authority of different bodies. What is the authority that they have, what is the accountability, and where lies the responsibility on financial decisions both economic and social? For instance, if they take a school board or a health district, the province funds both of those entities to a large degree. While there are avenues for additional revenues to be received, the bulk of the funding really comes from the province.

However, health boards and health councils and school boards have more or less their own authority in dealing with those dollars. They deal with issues around capital; they deal with issues of maintenance of capital; they deal with programming -- what they're going to deliver in terms of what they believe the public needs.

Notionally I think the idea is that communities have a better sense of how best to expend those dollars. The authority is there, yet we're discussing wherein the accountability should be. I guess, on a notional level, the accountability says that the province funds; the province should be accountable. The accountability has to be tied to the authority, in my view. So as I said, it's desirous to determine where dollars are being expended and if they are being expended appropriately, both on a social and economic basis, but it's a difficult question when the government doesn't have the absolute direct responsibility for making the decisions on expenditures of dollars.

A few years ago, government did have direct responsibility on the health side and funded directly. While there were boards in place for different hospitals and those kinds of things, really, the funding responsibility was direct to government. Years ago on the education side, superintendents of schools were paid by the provincial government. There was that responsibility and that authority; there was a clear link back to the provincial government.

Today, we're not in that kind of a situation. It's murky water, I think, to say the least. I wondered if you had any

It seems clear that the government of the day is accountable for the overall system of Health and also the overall state of Health finances. The summary statements are an important vehicle to reflect that responsibility. On the other hand, the day-to-day management decisions made by individual health authorities and school boards. . . . Those school boards and health authorities are responsible for making those individual decisions. There are mechanisms in place to hold them accountable for those individual decisions.

It seems like the nub of the problem is: how do you keep the discussion of the government of the day's responsibility to the overall health or education system and the state of finances and revenue trends and, at the same time, ensure that the responsibility and accountability for specific decisions are left to the individual boards and authorities? I suppose that until those individual decisions become more systemic issues, the provincial government has to step in. But the overall finances. . . . It seems clear that the government of the day is responsible for that, and the government's financial statements are one vehicle for expressing that responsibility.

S. Orcherton: How do you bridge that gap? I mean, the fact is that the province funds health boards and school districts. The fact is that health boards and school districts make decisions that they, in theory, are accountable for. But in reality, what we're arguing about here is that the province becomes accountable for it. How do we bridge that gap? I mean, are we. . . ?

Let me use another example. Municipal governments are a creature of the provincial government. We fund, to a degree, municipal governments. Municipal governments have the authority to tax and raise their own revenues. We are not discussing and debating the accountability and the authority of municipal governments, but we are talking about other levels -- quasi-government levels -- of the province.

It's an easy situation to say: "Okay, the provincial government should be accountable for all expenditures and should know where all expenditures are going -- and health councils and health boards all around the province and each and every school district." It would be easy to say that, if indeed there was a superintendent that worked for the provincial government or somebody from the provincial government directly on each of those school boards and in each of those health regions.

Without some kind of direct link to those agencies, how can the government ever be accountable? How can the government account for -- not to be facetious -- garage sales and cupcake sales in schools and those kinds of issues? Those bodies have the authority to deal with some of those revenue generation questions, but they have pretty well all the authority in terms of program delivery -- albeit confined within a box that's in place. But they can move within the box and deal with that.

I think it would be most appropriate for members to take their questions and their views with respect to some of these issues, because we're getting very, very close to some of the stuff that is in the legislation. . . . I would really like to strongly urge members to move on and leave interpretation of entity issues for the debate that's currently before the House in Bill 2.

Taking that into account, Mr. Strelioff, would you like to comment briefly on Mr. Orcherton's question or comments?

W. Strelioff: Yes, the issue of municipalities. . . . One key difference, of course, as you pointed out is that municipalities have the power to tax. When you have the power and responsibility to tax, you also are normally accountable for how those moneys are being used. It makes sense to keep those responsibilities and accountabilities separate.

It still seems like the issue is yes, the government is accountable and responsible for the overall finances of the health system and the education system, and yes, we have created individual boards and districts who are responsible for specific day-to-day decisions and should be held accountable for those decisions. How do you balance the two? The purpose of the summary statements -- one key purpose -- is to show the government's overall financial responsibilities. So flowing from that, it seems relevant to put the overall finances of the health system in there. But will that lead to trying to hold the government accountable for specific decisions made in school districts? That's a balance that members have to somehow judge the best.

S. Orcherton: Maybe I can just follow this up. I apologize to the Chair. It's not my intention to discuss legislation that's before the House, and I don't think I am. I'm talking about the larger reporting practices that we're discussing here at this committee and how the auditor general and others see that moving forward in the future.

Let me give you an example. It's a personal one, but it's one I think that's illustrative of the problem in terms of accountability and responsibility and who has the authority. The capital health region here in our area makes decisions around what kind of programs they're going to deliver and what kind of health services are going to be delivered in this region. I trust they put some value judgment on that and do the best they can.

From time to time, and more often than not recently, they have made decisions that have flown in the face of what the public believes should be the priorities for the health care system in this region. In each of those instances, it was not the

From a personal perspective, that's fine. If I've been part of the decision-making around those decisions, I'm prepared to justify the position that I've taken, and the authority, then, would rest with me. But I haven't been part of the decision-making. I haven't been at those board meetings. I'm not part of the capital health region. The decisions have been taken, so the direct line -- who has the authority and who doesn't have the authority -- is not in place.

What I'm trying to wrestle with in my mind is how we can put in place a system where the public understands who has the authority, who has the responsibility and, ultimately, who has the accountability around the decisions that are taken. And right now we've got a mix of both worlds. I think your office is trying to put a balance on those questions in terms of the accountability issue, but it's not there yet. And so that's just a personal comment from my perspective.

There are individual influences on the social side that say: "Was this a good investment or wasn't it?" I'm concerned when generally accepted accounting practices are being argued on the social side. It's an easy argument, and I accept it on the fiscal side. But when we get into trying to quantify the social value of what's going on in terms of taxpayer expenditures, it does become extremely subjective. I know there are checks and balances that are trying to be put in place. But it's a very, very difficult question for me. For every argument you can make that it's a positive social investment and a positive social return, I can make an argument that it's negative. And for every argument you make that it's negative, I can make an equally as good argument that it's positive.

So I wonder about the value of that at the end of the day. And at the end of the day, really, those questions on social investments and the social returns on those investments are political policy decisions, and I'm very concerned when I see generally accepted accounting practices being applied in those kinds of instances.

W. Strelioff: Thank you, members. I think, as the comptroller mentioned earlier, that the complexities of issues when you're dealing with the consolidated revenue fund and transactions with related parties, as I think the phrase was, do raise unnecessarily complex issues. I'm very pleased with the notion that we're moving away from making decisions and thinking about decisions in the context of the consolidated revenue fund and moving it to the summary financial statements, where those kinds of complexities just go away. That's a good step forward.

D. Streifel: I'm going to take your direction on this with your obvious anxiety to stay within the rules on the legislation. Having sat in the chair often enough, I know exactly what that means.

I'm going to try something here. In an exchange of letters that was shared by the comptroller general, there's one line in there that references school-generated funds. Would it be out of order to try to get a definition of that? That's where my nerve endings start to tingle.

D. Streifel: Well, no. What is a school-generated fund? I witness my own school district or my college or the health district raise little bits and large amounts of money through their own activities. For instance, a car wash might raise $150, yet a concerted effort to raise $25,000 to send the whole French class to Quebec is a large amount of money. Are these the kinds of efforts we are looking at taking over responsibility for the expenditure of, on behalf of the public at large in British Columbia -- on behalf of the taxpayer? Or are these items left forever within the purview of a school or a hospital? Somebody bequeaths a $20,000 life insurance policy to buy wheelchairs for a hospital; the hospital doesn't do that. Is it then the provincial government's responsibility to answer the question why?

This seems to be where this is leading us -- the finite responsibility for every dollar spent with little or no authority, because the same public that wants the absolute accountability financially doesn't want to be bothered with the provincial government making the decisions. They want those local, autonomous decisions left with themselves. Maybe that is what Steve was getting at. But how does that then fold together in this brave new world of owning but not controlling every nickel that's spent?

D. Streifel: I believe that through this whole process, that's probably where, for most of us, the biggest stumbling block is going to be. That's why I wanted to throw that out.

A. van Iersel: I do not have a specific definition of what those words mean in the opinion of the writer, but I will research and get back to the committee as to what is meant.

My understanding, just to deal with it quickly, is that there are not significant sums of money outside of funds provided through the province. We do know, however, that there are two types of money used in the schools. One is. . . .

We have core school funding, which primarily comes from the province, that is augmented in some respects by school districts putting on extra levies for this or that. Then there's the whole notion of funding for trips and extracurricular items, which fund themselves, but outside of the school books. We will check and see what was meant in the context of that.

D. Streifel: I have one more quick kick at this one, Chair, if you don't mind.

D. Streifel: I realize that both Steve and I have focused on the car wash or the cupcake sale. This letter referenced school-generated funds. I'd be curious to have the issue of funds that are raised by the regional health board or by the university college board as well. In the community I come from, there have been significant funds generated at the college from outside sources -- IBM for one -- as donations. It's over $3 million now, from different business entities in the community, that goes toward specific projects like theatres and gyms. That's significant money, but it's not viewed in any way, shape or form by the community as taxpayers' money.

Every time the MLA shows up with even a half-hearted friendly suggestion on how something should run, I am usually run out of there with my tail between my legs, because it's the community project. I think that community would be offended to their soul if we were to take on the responsibility of accounting for that out of this building, where they have little trust anyway.

A. van Iersel: If I may, just one quick comment on that as well. In the Public Accounts, while we don't include the SUCH sector in our formal statements, as has been said here before, we do have the practice of including the impact of the SUCH sector on pages A72 and A73 for the year in question.

I can tell you that in terms of beyond schools, this doesn't break it out by each of those entities, but in total, there is a revenue increase of $1.7 billion. So there are obviously substantial revenues beyond what is considered to be part of a reporting entity.

What we will do, based on the comments from the member, is that we will go back and identify for the group what makes up that extra revenue. We'd be pleased to do that.

J. Weisgerber: To get back to this notion of capitalization, I'm really trying hard to wrap my mind around it. I guess it brings to mind the saying that it's hard to teach an old dog new tricks. This is one trick I'm having a lot of trouble getting my mind wrapped around.

I fully appreciate the notion that with capitalization, you can level out expenditures, that you can somehow normalize large expenditures and spread them over time. I like the notion that you somehow eliminate a free-good perception, although I think personal history has always shown that if you pay for something up front, there's very little likelihood that you will ever conceive of it as a free good. Perhaps someone in a future generation might consider it as a free good, but I think the person who paid for it is unlikely ever to think of it in that respect.

I have even greater difficulty thinking how the Parks ministry would somehow deal differently with a park that had to be paid for, as opposed to a park that was created in a wilderness area in lands that had always been public lands. Try as hard as I can, I can't imagine the ministry saying: "We bought that park, so let's put a picnic table and a washroom in it. Aw, gee, we've always had that other one. Let's take them away. It doesn't really matter." Maybe there is something there, as I reflect on it more.

But seriously, is there something I'm missing here? I'm genuinely trying to wrap my mind around it. I just don't see the ministries having the reaction that both of you seem to think would happen. Perhaps I've just missed something, but I'm confused. I just don't see it.

A. van Iersel: One thing I talked about some time ago at this committee was land as an example of where it makes sense to capitalize. I did that in the sense that the province, for many years, has donated land and provided it for very good purposes. One of the questions that's always troubled me was that when you do that, and it has no value, people don't pay the same attention that they should, had it been an asset on the books that had a dollar value associated with it and could represent a potential expense.

So what that does is, where you're giving away an asset. . . . Land is, I think, the most common form of this over the many years. I'm not speaking against doing that. I'm just saying that there is a case where you have something that's tangible, that has value. It has value to the beneficiary; it has value to you in terms of alternate uses. By capitalizing that land and putting a value on the books, a decision now that's made to bequeath that, to sell it for less than what it's worth, has a financial consequence that never appeared before.

That's one of the things we're trying to do with capitalization -- to say that all these assets that we've paid for, or otherwise acquired, have value. If you choose to ignore their maintenance or if you choose to give them away or sell them for some relatively small value, that's a cost, and that cost should show as an expense in the books of the province. That

J. Weisgerber: If I could just interrupt you, my understanding is that the land would only be capitalized if you bought it -- that if, in fact, it had historically been Crown land, you don't capitalize. That's where my problem is.

A. van Iersel: We're working on this as we go. You're correct in the sense that we don't intrinsically put value on our books for a mountain or anything like that. We do have land -- land that we bought for highways acquisition and haven't given away; we have bequeathed it to various purposes. So even if you ignored the native land, what I'm saying still holds true.

The other thing we're moving towards is taking land that we hold, and when somebody says, "I would like to have that land," we then try and assess the value on it. We have an equal and offsetting entry in the books of the province for disclosure purposes, which says: "That land that's requested by party A is worth $3 million." So we write up the value in the books to $3 million; then the donation is an expense of $3 million.

Regarding more day-to-day assets in terms of desks and computer systems, I think it enforces discipline in a system. In the past, if you had money in your budget, people tended to spend it towards the end of the year -- I'm not telling you any tales out of school -- because it was there and the appropriation would lapse.

Now I've had people phone me and say: "Arn, this capitalization has a positive impact, in the sense that there isn't that incentive anymore. If I need extra PCs, it doesn't matter if I buy them in April or buy them in March." With some fine-tuning here, they're still going to pay the amortization charge. So there's no longer an essence of squeezing things through at the last minute. They have to decide what that asset will cost in their long-term budget and recognize the amortization value. So there are changes.

The other thing that happens is on disposals. For many years, people used to take assets and say: "Well, we need a new asset, so let's just dispose of this asset through the Purchasing Commission." They had no reference point as to what that asset was worth, although in many cases, the original purchaser may have been in that branch. In many cases, that purchaser is long gone. Nobody knows, and no one checks the records -- if they can find them -- as to what it was, because they're not part of the financial records.

Now when you go for disposal, there are some discussions I see taking place that never happened before -- between the Purchasing Commission and the people that are wanting to replace the assets -- saying: "I'm not getting enough." Or: "Your costs relative to the disposal aren't making sense to me. That asset's worth millions; you're telling me I'm getting $50,000." I'm exaggerating, obviously. I don't think the discrepancy ever gets quite that large. But those are the kinds of things that I see happening as a result of capitalization.

It's not a made-in-B.C. phenomenon; I'd like to emphasize that. This is something that goes back to the early and mid-1990s when the Public Sector Accounting Board was struggling with what should be done, because it saw some of the things that I'm talking about. A task force was created, including my predecessor, Alan Barnard. They came out with a couple of different options in terms of how to treat capitalization. Those are now being reviewed again to determine where things are heading. If you look internationally -- New Zealand, Australia -- they've gone the whole way in terms of capitalization of assets and so forth. We think, based on our review of international standards for government, that's true as well.

R. Thorpe (Chair): I just want to say we've got about 18 minutes left to go. We've been going on this for some time, and we wanted to try to get through a draft report. So if everybody could maybe tighten up their questions and tighten up their answers, we may be able to get through some things here.

W. Strelioff: I agree with much of what Arn said. It seems like what gets recorded does get measured and does get managed better, including the capital asset information in financial statements. It will give you, as legislators, signals on whether capital gain maintenance is being deferred on capital. There'll be signals on that over time that you'll be able to get used to. Also, capitalization does give a better measure of the cost of programs on an ongoing basis.

On the other hand, I'll be working to make sure that some of the more traditional financial indicators are in the financial statements and you don't lose track of it, so that you can better balance the difference between what a government acquires in terms of highways and buildings versus what it records as depreciation.

E. Gillespie (Deputy Chair): A very quick question. I talked about the qualification the last time, and the one question I didn't ask was: does the auditor's qualification have any effect on the credit rating of the province?

W. Strelioff: Members, I've been asked this question quite often over the last 15 to 20 years, and I've answered that question. No, it doesn't have any impact, because credit raters have access to a wealth of information that goes beyond the financial statements. Even if it isn't in the financial statements, they have access to it, and so what you receive does not impact the credit rating of the province. And I've asked that question of credit raters themselves as well.

R. Kasper: School boards also raise taxes. Municipalities and the provincial government collect roughly 10 percent of the per-pupil block funding on behalf of school boards. That's a line item on everybody's tax notice. So a school board does collect taxes, and those moneys are forwarded directly to the school board.

Municipalities, as school boards, when they approve their budgets, have to forward their budgets for approval to the province. Municipalities send their budgets to the inspector of municipalities, who is responsible to the Minister of Municipal Affairs. And the school boards in turn forward their budget for approval.

So there is a large degree of similarity with the two groups or organizations. I think that, based on what I've said, you should revisit the issue in that context, because if one is going to throw out arguments as to why one is different. . . . I can give you examples of where they are identical and very much similar in what their powers are and in their reliance on provincial government funding in some way, shape or form.

Also, when you look at municipalities, when they do do their budgets, they do capitalize virtually everything that they have on their books or in their possession. They do it for accounting purposes. In many respects, they have been leaders in embracing "acceptable accounting standards," because most of them have all their audits done by the private sector. They will apply private sector business practices in doing their audits and determining what the line item shall be.

I guess the bulk of what I said is more or less a comment. My last question is: is land capitalized when the B.C. Assessment Authority attaches a folio number to Crown land and places a value on it? Or is the land capitalized if for some reason a road went through Crown land and there was a new legal description applied to that land -- because a right-of-way was established -- thus necessitating a new registration in the land titles office?

So hopefully, somebody can answer my last question and then clearly demonstrate to me why school boards and municipalities should be treated differently, based on the examples that I have given as to what their statutory obligations are with the Crown, for the budget purposes -- and also the fact that school boards do in fact collect taxes. Municipalities collect the money on their behalf and forward that money, as does the surveyor of taxes in unorganized territories in British Columbia.

W. Strelioff: Members, I can try the first question on school boards versus municipalities. The school board property taxes go to the province, and then the province decides what allocation goes to the school boards. Municipalities. . . . Money, when they tax, goes to municipalities. My understanding is that the minister responsible determines the mill rate for school property taxation, and those are key differences in starting on the question. But as far as the Crown land and highways, my colleague the comptroller might have a. . . .

A. van Iersel: Thank you, Chair. Yes, as I said earlier, the capitalization of land is not related to the activities of B.C. Assessment Authority in terms of what they might do. Sometimes they are linked, because there's a transaction that has taken place. But my general understanding is that we do not capitalize land unless we have exchanged it or paid for it. I believe that's also true on all highways. I will double-check that to make certain.

Seeing no other questions, we can conclude part 1. We do have the schedule. . . . Our agenda does call for us to take a look at training and development in the British Columbia public service. We have about ten or 11 minutes left here. Kelly, do you want to walk us through this, please?

D. Streifel: That offer that we would defer that one to the next meeting. . . . Do you think we could get it done in five minutes?

R. Thorpe (Chair): Well, we have ten. Kelly, how long do you think it'll take us to walk through this?

D. Streifel: But then. . . . Again, is there going to be discussion after that? Or is this just for presentation purposes?

E. Gillespie (Deputy Chair): I would suggest that we start our next meeting with this, so that we can have time for discussion, along with Kelly's commentary.

R. Thorpe (Chair): If that is the wish of committee members, that's what we'll do.

J. Weisgerber: Yeah, I'm not hung up on it. But I would be happy for the opportunity. . . .

Chair:	* Rick Thorpe (Okanagan-Penticton L)
Deputy Chair:	* Evelyn Gillespie (Comox Valley NDP)
Members:	* Pietro Calendino (Burnaby North NDP) * Rick Kasper (Malahat-Juan de Fuca NDP) * Steve Orcherton (Victoria-Hillside NDP) * Dennis Streifel (Mission-Kent NDP) Erda Walsh (Kootenay NDP) * David Zirnhelt (Cariboo South NDP) * Murray Coell (Saanich North and the Islands L) Gary Farrell-Collins (Vancouver-Little Mountain L) * John Weisbeck (Okanagan East L) * Jack Weisgerber (Peace River South Ind)

REPORT OF PROCEEDINGS (Hansard)

SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS

REPORT OF PROCEEDINGS
(Hansard)

SELECT STANDING COMMITTEE
ON PUBLIC ACCOUNTS