Public Accounts — Issue No. 6 — Thursday, November 21, 2013 (HTML)

ICBC Salon, Morris J. Wosk Centre for Dialogue
580 West Hastings Street, Vancouver, B.C.

Present: Bruce Ralston, MLA (Chair); Sam Sullivan, MLA (Deputy Chair); Kathy Corrigan, MLA; Marc Dalton, MLA; David Eby, MLA; Simon Gibson, MLA; George Heyman, MLA; Vicki Huntington, MLA; Greg Kyllo, MLA; Norm Letnick, MLA; Mike Morris, MLA; Linda Reimer, MLA; Selina Robinson, MLA; Shane Simpson, MLA; Laurie Throness, MLA

Officials Present: Russ Jones, Acting Auditor General; Stuart Newton, Comptroller General

2. The following witnesses appeared before the Committee and provided a briefing on the Public Accounts of British Columbia.

3. The following witnesses appeared before the Committee and answered questions relating to the Auditor General’s Report Observations on Financial Reporting: Summary Financial Statements 2011/12 (December 2012).

4. The Committee recessed from 11:03 to 11:18 a.m.; from 11:58 to 1:01 p.m.; and 2:26 to 2:35 p.m.

5. The following witnesses appeared before the Committee and answered questions relating to the Auditor General’s Report Development Initiative Trusts: An Audit of Legislative Compliance and Public Accountability Practices in the Three Statutory Trusts (April 2012).

• Shanna Mason, Assistant Deputy Minister, Economic Development Division, Ministry of Jobs, Tourism and Skills Training

• Greg Goodwin, Executive Director, Economic Development Division, Ministry of Jobs, Tourism and Skills Training

6. The following witnesses appeared before the Committee and answered questions relating to the Auditor General’s Report School District Board Governance Examinations (April 2013).

• Paige MacFarlane, Assistant Deputy Minister, Open Government and Community Partnerships Division, Ministry of Education

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


CONTENTS
Page
Briefing: Public Accounts of British Columbia	211
S. Newton
C. Fischer
R. Jones
Auditor General Report: Observations on Financial Reporting: Summary Financial Statements 2011-12	217
R. Jones
S. Newton
B. Gilhooly
C. Fischer
Auditor General Report: Development Initiative Trusts: An Audit of Legislative Compliance and Public Accountability Practices in the Three Statutory Trusts	251
R. Jones
K. Rafiei
S. Mason
J. North
L. Robert
L. Pow
Auditor General Report: School District Board Governance Examinations	257
R. Jones
T. Anderson
P. MacFarlane
M. Gaston

B. Ralston (Chair): Good morning, Members. We're going to begin first this morning with a briefing on the public accounts of British Columbia. As you probably are aware, the audit of the government's summary financial statements is a major part of the work of the Office of the Auditor General.

We'll hear first from the comptroller general — Stuart Newton is the comptroller general, and Carl Fischer is the executive director of financial reporting and advisory services with the office — to give us some background on that, and then we'll move into consideration of the report.

What happens is that after the audit, the government responds, and then there are some observations made by the Auditor General in a report. Sometimes disagreements arise — infrequently, but sometimes — between the comptroller general and the Auditor General as to the accounting treatment of certain items in the summary financial statements. So we will have that discussion as well.

I'd ask, then, Mr. Newton, to begin. It looks like you have a presentation there, so away we go.

I'm going to first start by giving you a sense of what my office does. I know there are questions, so I'll just run through.

The roles and responsibilities of my office are set by section 9 of the Financial Administration Act. What I'm going to do is, by branch in my organization, talk about those Financial Administration Act items that I'm responsible for.

There are four areas within my organization. The first is the financial management branch. They are responsible for developing and issuing policies and guidelines, and establishing procedures for the recording, reporting of revenues, expenditures, assets, liabilities and equity of government organizations. My office also has the ability to issue directives respecting the method by which the accounts of government organizations are to be kept.

When I say government, that is government being the small consolidated revenue fund. A ministry is government but not, broadly speaking, the broader public sector Crowns. There are other mechanisms by which that occurs.

There is a corporate compliance and controls monitoring branch within my office. They do transaction testing out of our central financial system to determine whether or not transactions are meeting government policy. That's part of my role — to evaluate financial management throughout government and recommend to Treasury Board improvements that are considered necessary.

The third area, of which Carl is the executive director, is the financial reporting and advisory services area. They administer and maintain the central accounts of government, provide functional control over all financial transactions entered into the central accounting system, and prepare public accounts and other financial statements and reports required by my office, the Minister of Finance or Treasury Board.

Also, there's a clause in the act, in the roles and responsibilities, that has any other duties that are assigned to me by Treasury Board.

I do have another group within my office, very small, and they do forensic investigations. As we have concerns in areas, as individuals within government provide comments back to my office or as we do control reviews and find issues, they go to the investigations group for review and clearing to determine whether or not it's just a mistake versus a real problem.

Financial governance within the province of B.C. is guided by four key pieces of legislation. The Financial Administration Act establishes the financial framework, including the delegation of authorities and responsibilities. The FAA is the rule book for financial administration — so how you can spend money, how you can collect revenue, how you can borrow money.

The Budget Transparency and Accountability Act. The most important point in that is it integrates planning and reporting. It sets firm dates for financial reporting, establishes accountability across the government reporting entity, provides for content of the financial reports. It also identifies GAAP as the standard that government is to follow.

The Balanced Budget and Ministerial Accountability Act identifies balanced budgets as a target and establishes ministers' accountability for staying within an appropriation.

The last piece of legislation relates to key disclosures in the broader public sector. The Financial Information Act applies to broader public sector entities, and that requires them to report out annually in a publicly available way — key financial information, payments to suppliers, and salaries.

There are a variety of governance roles within government in the financial area, not just necessarily my role. Treasury Board has overall authority for fiscal and financial decision-making in government, including spending decisions as well as policies.

Treasury Board staff supports Treasury Board and manages the fiscal plan — so government's spending plan. It aggregates ministries in broader public sector estimates. It is responsible for budget implementation and
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monitoring throughout the year and provides analysis and information to Treasury Board.

B. Ralston (Chair): So cabinet ministers and some members of the government caucus.

Provincial treasury is, for want of a better word, the banker for government. They are responsible for debt management, acquiring the resources government needs when it needs to borrow. They are responsible for banking and cash management, and they also have a risk management function.

The minister within a ministry is responsible and accountable for the financial dealings within a ministry, and through the Interpretation Act, so is the deputy minister. They have a direct accountability as well. They receive the appropriation authority every year to deliver programs. They're subject to Core Policy, which is a central policy manual within government that talks about procurement, financial management, administrative matters. There are elements in there around information management and technology requirements, internal audit, as well as risk management and a few others.

This is an important piece on the public accounts preparation. They will certify back to my office on their transactions and the results of their transactions in a management representation letter to me, similar to the management representation letter that I would make to the Auditor General about the quality of the financial information and the things that we have in place to ensure that it has the right quality.

The next area is Crown agencies. They achieve outcomes through their own initiatives but are funded by operating grants from government. These would be your taxpayer-supported Crowns; your Crown corps; and your schools, universities, colleges and hospitals. They're subject to the spirit and intent of core, so government's core policy manual doesn't apply, but the expectation is that they will follow the spirit and intent. They're free to create policies on their own, in conjunction with what their board approves and allows them to do.

They also provide audited financial statements back to my office, including a certification as well, a management representation on a variety of items in relation to financial management so that I know I can rely on the financial information that I get from them, as well as their certification that it is correct.

The next level is "Government business enterprises." These would be your commercial Crowns. They are funded by their own revenue raised outside of getting money from government, and they're managed as a commercial investment of government. They, too, provide audited financial statements back to our office with a certification as to the quality of financial information within their organization.

The last piece is important in relation to financial governance. We do have an internal audit function within government that has the ability, on a risk basis, to look at areas within government where they believe there may be issues or to provide assurance and clarity back to Treasury Board on how well things are being managed.

The financial reporting process in B.C. We've been printing Public Accounts — we were just talking about this earlier — going back as far as 1883. There have been a lot of changes. I would say that as late as 1980 government's financial statements weren't a set of financial statements; they were a set of schedules of revenue and expenditure. So even in that short period of time, there's been quite an evolution to a fulsome document that has a complete set of financial statements and a discussion and analysis attached to it.

The current iteration of where we're going with financial reporting started with the Enns report that set some very specific requirements for government on how to report out. The focus was on consistent and fair reporting and the ability to compare budget to actual results.

We talk about continuity, starting with the budget and working through interim reporting till we report out in Public Accounts, and the need for consistency all the way through, so that whatever accounting policies are used to develop the budget are the same accounting policies to produce the year-end financial statement. That ensures comparability from budget to actual.

Also, consistency year over year in application of accounting policies allows government and allows taxpayers to look at financial information over time and understand it and not see drastic changes and not be able to compare the decisions and choices of government and their effect on the financial statements.

The Enns report prompted creation of a vision for financial reporting that applies to all financial reports within government, and even our move to getting everybody on a consistent basis of GAAP across the broader public sector stemmed from that period of time. That's been a key influence on how we've done financial reporting to date.

Next slide. I'll read that and a bit of this. I apologize for bouncing back and forth.

This is a good schematic that gives you an understand-
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ing of everything that rolls into our summary financial statement. There's the consolidated revenue fund. That's core government ministries. There, within ministries, are special accounts that roll up into the consolidated revenue fund.

Taxpayer-supported Crowns have a variety of organizations. They also roll up. Those are the audited sets of financial statements that I receive, as well as representation letters from those organizations.

By way of just giving you a sense of how things have changed, in 2000 we would work through about seven layers of consolidation across four different reporting frameworks to get the financial statements to be consistent with public sector accounting standards board generally accepted accounting principles. I'll use PSAB GAAP. You can ask me to keep redefining or clarifying that as I go through. That took a considerable amount of time. We had about 26 people working on doing that.

In 2013, based on the ending of a four- to five-year piece of work, all government organizations within our reporting entity are on the same basis of accounting, so that's made it easier for us to pull together the financial statements. Now we do that with approximately 18 people — to be able to pull that together.

Through going to a consistent basis of GAAP, what you get is clarity in that we're using the same basis of accounting all the way through, so you can follow things through better, and it certainly has reduced the workload and some of the differences that we've had to account for, going forward.

As I said, the budget establishes the fiscal plan, and estimates provide the financial authority for the financial period. It's very clear that the basis of accounting used to develop the budget should be the basis of accounting that we report out on so that there is comparability.

There is interim reporting throughout the year. We produce quarterly financial information that's used. That's part of the quarterly report that you would see that's put forward publicly. All consolidated revenue fund activity — that's ministries and those special accounts — is all recorded in the same central financial reporting system.

There are a lot of governments that are still, at the ministry level, using multiple systems. That was changed quite a number of years ago. How many years ago was that, Carl?

S. Newton: We've had the benefit of, at least in the ministry side, a consolidated, coordinated set of information. It also allows for testing, to be able to determine within government whether policies are being followed or not. So that has been a very useful and good development.

At the consolidated revenue fund level we're focusing on, and we do our testing on, determining whether or not payments are within appropriation authority, with ensuring that there is adequate budget to expend and that all policies were met in undertaking that expenditure. That's the testing our compliance monitoring group does.

As I said before, all Crown agencies are required to prepare entity-level audited financial statements. They'll provide the basis for what we enter into our computer program and software that we use, to be able to pull together the summary financial statements. All submissions are supported by a representation letter.

The representation letters at the ministry level are signed by the deputy minister and the ministry's chief financial officer. They are accountable for ensuring that they have systems in place that record transactions accurately, that they've got a process in place to detect and deter fraud. There are about 30 items on that list that need to be covered off that we get assertions from, as well as Crowns and SUCH-sector entities.

The benefit of the Crowns and SUCH sector entities is that we also get an independent third-party audit of their financial information from an outside firm or the Auditor General's office that we can rely on as well when we're pulling together the information. We get it draft, and then as the audit…. Because it's running simultaneously as they're audited, information is clarified and approved and signed off by their board to be included in the summary financial statements. Then we pull in the final numbers.

As you may be aware, the summary financial statements are audited by the Auditor General, I hope.

B.C. adopted public sector accounting standards — GAAP. We were the first province to formally adopt it in 2004-2005, although we were, basically, following GAAP at the summary level before then. As I said before, '12-13 was the year where we now have all the entities reporting on the same basis of GAAP. So now we have consistency.

When B.C. adopted GAAP, it was recognized that the main risk was that standards would change. That could result in a conflict between the legislative framework that sets up how financial management is governed, and it may have an impact on how we report out to the public and whether or not we can report out on a basis that provides good information to the public.

Accounting standards change as the environment changes. Normally, we expect changes to be refinements in standards. I'm certain Russ would agree that over the last period of time the changes that we are seeing are much deeper than refinements.

The public sector accounting standards board has undertaken a fundamental change in the basic concepts of accounting. My belief, and the belief of some others, is the problem is that users of financial statements haven't necessarily been involved in that process. The financial
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statements may not mean what they think it means or answer the questions that they have.

The main question most people are looking for is annual surplus deficit. The public sector accounting standards board focuses now more on the balance sheet in a term called "net debt" and the change in financial position on the balance sheet over time versus surplus and deficit.

That creates a bit of a problem when it conflicts with our legislative governance framework, which is that your authority to expend is an appropriation for an expenditure over a period of time, not an appropriation for a net change in assets over time. That appropriation requirement dates back hundreds of years in relation to accountability legislation for government to be held accountable to those who govern them.

These changes were so fundamental that there is in some areas, and I'm not going to say blanket across the board, widespread difference in understanding between preparers and auditors in Canada. I would say that certain PSAB standards at this point aren't generally accepted. You'll see that as we talk about other issues between our offices in the next little while.

In an environment of uncertainty it's important for me to proceed thoughtfully and cautiously on what we change, when we change and why we change. Otherwise, we run the risk that year over year we have financial information that's not comparable. So how do you hold government to account for significant changes over three years when, also, the accounting has changed over three years? How do get comparability?

B. Ralston (Chair): Just before you move from that one, can you explain what IFRS is, just for those who might not know.

S. Newton: Sure. IFRS is the international financial reporting standards. Within the public sector accounting standards, which sets a requirement for all public sector organizations, for commercial entities — so those that are receiving money from outside government…. I think the term we use is "government business enterprises." They are required to follow international financial reporting standards, which are commercially based financial reporting standards that any commercial or publicly traded company would be required to follow.

It has a very different focus than public sector accounting. It is truly focused on what the value of the corporation is at any point in time. The cynical view is: "What's the value of the corporation or the value of my investments so I can run out and trade?"

It is the basis for securities filings and ensuring that you're meeting an international standard. I understand the importance of it because markets are now international, so to ensure that, country to country, we're using the same basis accounting to value investments is important. That's where we got to IFRS.

IFRS only connects to public sector accounting standards in the terms of commercial public sector entities. We record those in our financial statements at their net investment value, so we're not bringing in all the detail and having to convert it across.

B. Ralston (Chair): The conversion to that standard of reporting was only very recent. Is that correct?

Just a last slide before questions: future directions for my office. Because PSAB GAAP is going through significant changes, I think we need to evaluate PSAB GAAP — whether as a standard it's achieving what it's supposed to. That's not to say that I don't believe in a national standard; nor that I don't believe in PSAB. I believe they're both important.

Actually, my colleagues across the county like a national standard. It's very important. It allows for comparability. But there are some aspects that we question, and there's a bit of a direction that needs to be looked at.

Having said that, PSAB is doing some good work. They're undertaking a review of the conceptual framework that's the basis for the PSAB standards. They are looking at items like who the users are, what they need to know, and if PSAB gives that to them, and I think that's a very positive step.

I understand there may be more coming from that committee sometime in the new year. Is that correct, Russ?

R. Jones: In the new year there should be a statement of principles that comes out that sets out what this new framework's going to look like if it's accepted by the broader community.

S. Newton: The other piece, for me, is that as technology changes — and you saw the level of entities that we need to consolidate — we'll look, within expenditure limits and what we can do, to available technologies to help us streamline that entire consolidation process and get to some more commonality across the broader public sector in how we do financial reporting. There may be opportunities there.

Certainly, we are aware of open data and the need for open data. The public accounts as an electronic data set lives on the open data website, and it's fairly well used and accessed. I think as systems evolve, because you can't use existing systems to drill down, we can look at things like drill-down capability. But these are significant investments that take a lot of time to put in place. So it's something that we're mindful of as we look at any changes in financial reporting.

The other piece is that we constantly work with our counterparts. We would meet, staff level, probably on a
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monthly basis, but the comptrollers themselves meet annually face to face twice a year, as well as conference calls on standard-setting issues. We have continued to work on: how do we coordinate better across multiple jurisdictions? I would say that at every comptrollers conference, if it's a two-day conference, the first day is PSAB — public sector accounting standards — and what those issues are, how the exposure drafts are evolving.

We have somebody from the public sector accounting standards board come out and talk to us. We had very good dialogue with the chair of PSAB at our, I think it was, January of last year meeting to discuss senior government's concerns in relation to PSAB's direction and some of the implementation of accounting standards.

That gives you a sense of what we do. I'm happy to take any questions on areas about what you think OCG does that I didn't cover or anything that you saw on the slides.

L. Throness: Just a few questions. Is your office independent, as the Auditor General is?

S. Newton: I work for…. Well, two pieces. Under legislation, under the FAA, subject to the direction of Treasury Board I will make the determination as to what the accounting treatment should be. From that perspective, I have a degree of independence. Treasury Board could direct me, but that would be a subject of a Treasury Board decision.

L. Throness: Would it be fair to say that on the four issues that we're going to talk about today, your difference with the Auditor General is a professional difference of opinion?

S. Newton: Yes, and I would say that this is something…. I've been pleased to be in this role for three years. It's been my choice as well. As I have these disagreements at the professional level, I've not experienced any will or desire on the part of government to have me have a desire a different way. Having said that, that's the independence piece.

I do work for the Ministry of Finance. I am responsible and accountable for financial management within government. I do have accountabilities within government to ensure that things are operating financially well. But as far as how you define GAAP and these professional differences, I've been really comfortable and felt well supported to make my judgment calls.

M. Dalton: Listening to your briefing, there is such a variety of different accounting ways, acts that you can use, and it seems that you can have a wide variety of outcomes.

I think in the past couple of years provincially, it really shows up with the Auditor General stating that we've got…. Like, in 2012-2013 we had a big difference as far as the deficit, as opposed to what we said, as far as what government said. Then this year we have a $2 billion surplus. It seems that there's such a divergence. It's a bit concerning.

Are they chosen for the desired outcome? What's the rationale? I mean, you could say, for example, that with the deficit and the surplus of the past couple of years, it's hard to see this using these formulas for a desired outcome. When you have a major surplus this year, if we are to follow the AG proposal, he would have said that we would have had a lot higher and that you could come down a lot lower.

B. Ralston (Chair): Doubtlessly, we'll get to this kind of debate in the next item, but I'll let them….

When we look at an accounting standard — so government transfers, and we'll get into that in more detail later — we look at our understanding of the standard and what it means. The important thing with government transfers is that that took 12 years and an unprecedented seven exposure drafts, which is seven draft pieces of "this is how the standard could work" out to the community, before they got to something that does not have universal agreement in its application currently.

So it's already a tumultuous issue. I think the basis of the difference over the two years — one of the fundamental pieces — is the transfer standard.

We have discussions with the Auditor General on the issue. We have discussions with the standard setters. I talk to my peers in the other jurisdictions. I'm also aware of where the Auditors General in some jurisdictions are leaning as well, and there is not universal agreement there.

When it comes to making a final judgment call, we have all of these pieces together — our understanding of the standards and application, what the economic substance of the transaction is, what all the other jurisdictions are doing, where other Auditors General are sitting — to make that determination.

I would believe that probably the Auditor General uses a similar process, but I'll let Russ talk to it. That's where we get to our decision to go forward.

The basis of accounting is disclosed in our financial statements. We're clear on what we're using and why. From a reader perspective, if it's something different, you at least know that it's different. But I'll let Russ answer that as well. I'm sure we'll get into this in the next item.

R. Jones: Thank you, Mr. Comptroller General. I was going to call you Stuart.
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To the member's question around the big difference, it's a bit of a technical subject that we're getting into here. I tried to point out in a bulletin that we put out after the public accounts came through that if you just looked at the impact of the change in the standard for the current year, which was '12-13, it would have only been about a $71 million difference.

The reason it was so large, in our opinion, is because the government chooses when new standards come in, such as government transfers, to treat it on what we call a prospective basis. So all of the differences are accumulated and made in the current year instead of going back and restating previous years' statements.

If that had been done — if we'd taken the new standard and gone back to the previous year and made the change — it would have only made the difference this current year about $71 million. So it wasn't a huge, huge difference. It would have reduced the deficit by about $71 million for the current year. It's a technicality in the way that changes are made.

There are choices when you come to making these changes. The government chooses to make it, as I said, "Right now, let's catch up and make the difference in one year up," whereas in a lot of other cases, you could go back and make the changes in previous years. It's a bit of a technicality. Going forward to this next year, you'll see the difference is only for the current year, and it will still be there this coming year.

Stuart did have a good point around the government transfers issue. Much like he does with the other comptrollers general across the country, I get together two to three or four times a year with the rest of the Auditors General across the country. To my knowledge, right at the current time this province and maybe Alberta are the only two that do not follow the transfers standard. All of the rest of the provinces do, in terms of implementing it, and all of the rest of the Auditors General across the country agree with that.

I might also point out that all of the firms here in this province agree with the position that PSAB has taken and the position we have taken. So I think it's a little more universal than what was pointed out.

I have a question before we move to the next presentation. You spoke about the Budget Process Review Panel, 1999, Mr. Enns, and then he did an update. I think the Finance Minister commissioned him to do an update in 2009. One of the things he talked about was the ability, the transparency of the budget process. I think maybe not all but most of us have had the sensation in the budget process and in estimates of being unable to follow an expenditure proposed in the estimates through to the summary financial statements. There's not a clear line.

I did meet with Mr. Enns. I think he said that in the long run, given advances in information architecture — I guess that's the jargon term — the goal would be to be able to track something from the budget through estimates, through the process in real time — I mean, estimates is a very archaic process, given that often we deal with it three or four months into the budget year — and then ultimately to the ultimate expenditure and its certification that it was spent in accordance with the appropriation.

Is it fair to say….? I appreciate this is a longer-term goal, but is that an accurate statement of the longer-term goal in terms of implementing the general views and vision that Mr. Enns put forward in two consecutive reports?

S. Newton: I would agree that's consistent with the vision and how we move forward. The issue is that we're dealing with summary-level documents at a very high level. Until we get to, I would say, the technology and the ability to go, "Here's detail, and here's how we undertook it," it's going to be hard to do.

The other part and one piece with the budget…. I'll just speak from private sector experience. The budget is a high-level plan. It's not, "Here's the 3 million transactions we plan to take over the course of the year," and then I will report out on those 3 million transactions. I don't think that's possible. Certainly, broad categories with some clear indication of the types of things you're planning to do would make sense, and I would agree. I think that was the point, as well — connecting the budget to financial reporting.

I think the difficulty right now…. One is the technology and the cost of the technology to do that, and the other part would be: to what level would you eventually want to get to the right trade-off of information? I don't know how much thinking has gone into that. Certainly, from my perspective, at least with the PSAB piece pulled together, there's opportunity to do further work across the broader public sector to get the chart of accounts on a consistent basis, as well, to be able to track more fulsomely through, and that may help that process.

V. Huntington: My first question follows somewhat from Bruce's, because it is frustrating not to be able to drill down. Are we able, then, to go to a ministry's financial department and ask for…? Do they have the paperwork there that would help us drill down on an issue if we needed to?

S. Newton: It should be at a transaction level in the financial system. There should be paper attached to it. The question that I don't have the answer to is: what type of request would need to be made to get it, and what level of access?

One of the things that happens with accounting,
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though — it relates to how things are reported — is that there are adjustments that are made at year-end and at month-end. If you take individual transactions all the way through, there's going to be a bit of a difference. There's some timing. There's this concept called accrual that's involved in there. So some of that won't work through, but certainly, the expectation is that every ministry has the detail to support the expenditure.

V. Huntington: You said that the public accounts were on an open data website. Is that website available to us?

S. Newton: Absolutely. I don't know what the link is. I can get the link in through the Clerk and provide it to the committee.

One other question, a really soft question. Are the service plans that are required in any way a legal requirement to the budget?

S. Newton: I think the BTAA sets out very specific requirements for service planning and performance measures related to the service planning.

C. Fischer: The resource summary is included in the service plan reports, the same as they are in the public accounts, so there's a linkage at the budget side in the service plan and with public accounts in the service plan report. It is at a fairly high level, but it is there.

B. Ralston (Chair): So then, if we can move, without anyone having to change their place, to the next item on the agenda, which would be essentially a continuation of this discussion — Observations on Financial Reporting: Summary Financial Statements 2011-12.

Perhaps just as a preface, Mr. Jones, you could explain the status of the '12-13 summary of financial statements and your observations on those.

Auditor General Report:
Observations on Financial Reporting:
Summary Financial Statements 2011-12

The most recent report on the 2012-13 public accounts will be issued next Friday, a week tomorrow, on the 29th. As we do each year, we make sure that all the recommendations that we have in there get cleared through the comptroller general's office and through the deputy minister and Minister of Finance, of course. Each year we keep striving to get it out earlier, and we always seem to end up in late November. So I think Stuart and I are going to try and make a bit of a commitment to get this report out much earlier next year. There shouldn't be as much of a holdup as there is. It's just one of those things.

I don't want to point any blame at anyone in particular. I think it's between the two of us to make sure that we get this report out on a much more timely basis. We're going to try and commit to doing that for next year.

B. Ralston (Chair): Just on timing, I think the act requires that the summary financial statements are issued within ten business days of the end of June, I believe. Ordinarily, they've come out in the first week or two of July in recent years.

S. Newton: Under legislation, the requirement is to issue the year-end financial statements, the summary financial statements, by August 31 of that year. As a performance measure — I think this dates back to our predecessors — there was a June 30 target that was put in and was met. I think it has been getting harder to meet because of the complexities in the changing in accounting and some of the issues that we've had to work through.

B. Ralston (Chair): Just thinking in terms of timing, then, you have to have the statements before you can comment on them — correct, Mr. Jones? So there's the issuance of the statements, then your analysis of the statements and exchange with the Ministry of Finance, and then the ultimate issuance of this report. Is that the sequence, roughly?

R. Jones: Yes, Chair, that is the sequence. On a number of issues that we have in that report we can do, I think, as an office a better job of starting earlier on writing them up, because they really don't end up changing, other than the final numbers. But normally, yes, we like to wait until the statements are complete and fulsome.

B. Ralston (Chair): Okay. Well, I'll turn it over to you, then, to introduce the topic.

R. Jones: Chair, Deputy Chair and members, with me today on the other side of Carl is Bill Gilhooly, whom you've met before. He's the assistant Auditor General in charge of the financial portfolio.

As Stuart has said, the audit of the summary financial statements of the province is the largest financial statement audit carried out in the province. Our office probably spends close to 40,000 hours on it. When you add in the number of hours that are spent by the private sector audit firms and the comptroller general's office, it is
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a very large undertaking and, as you can well imagine, is quite a significant undertaking to get done by the end of June, as was pointed out.

Just to highlight that fact, I think this province is maybe No. 2 or 3 in terms of getting the public accounts out. There are a number of other provinces that haven't even got them out yet for last year. So it is, I think, a significant accomplishment that this province gets it done on a timely basis.

As the comptroller general pointed out, the entity is composed of a number of different types of entities. The Legislature is in there, eight legislative officers, the Office of the Premier, all the ministries and over 150 other organizations. Many of them are in the SUCH sector — schools, universities, colleges and health authorities.

There are a number of Crown corporations which are made up of government business enterprises, such as Lottery Corporation and Hydro, and then other government organizations such as PavCo make up the balance. And then a whole bunch of subsidiaries. It's not just the…. For instance, at Columbia Power Corporation you have the corporation, but then you've got six or seven subsidiaries that get rolled up into those accounts. So a lot of entities make up the public accounts.

The statements, to me, are an important document for the people of B.C., as they indicate the financial health of the province. As I mentioned, thousands of hours are spent on it, and my thanks go out to the comptroller general and his staff for the cooperation and the constructive discussions that we do have around our differences in providing the audit of these statements.

R. Jones: The report that you've got in front of you provides details of former Auditor General John Doyle's opinion on government's 2011-12 summary financial statements, which I also endorse. There are eight recommendations in the report. Four of them address the qualifications that were on those summary financial statements, and then others relate to government's application of accounting standards and financial management frameworks.

The report also contains a status update on the 62 recommendations in the office's reports on the public accounts since 2007, a summary of control issues that we felt were appropriate to put in this report — from across the government reporting entity — which we gather each year, and then future changes in accounting standards and potential impacts of those changes.

As the comptroller general has pointed out, if we thought that the changes were decreasing, they're probably going to be increasing more than decreasing.

I'd be happy during the discussion…. If you do have any questions around what the Public Sector Accounting Board is doing, I can help answer those, since I am a member of that board currently.

B. Gilhooly: Good morning, everyone. As Russ mentioned, this is a report for last year's public accounts, which was the 2011-12 fiscal year. As you know, the 2012-13 fiscal year is already finished, and the report we have on that ready to go isn't quite ready yet for a couple of weeks. I think some of our comments may stray into some more current issues related to the public accounts issues, so we'll accommodate for that.

This is a report we've done for at least 20 years. It's basically kind of like a value-added management letter for the whole public accounts. The idea of it is to bring to readers' attention issues that we've had with the public accounts and concerns but also areas where we think we can provide advice to government, encourage them to improve their reporting and continuously improve it. Over the years there've been cases where government and our office have been on the same page on many of the issues and have improved the quality of the financial reporting in government. This is what I'm going to talk about for a few minutes here.

The report format is generally the same every year. We talk about key issues, other issues, as well as management letters and a status state of outstanding recommendations.

This report…. We have three key issues that we felt were the most important to bring forward — they're listed in detail on page 10 of the report — and resulted in four recommendations.

As we've already talked about this morning, there are significant changing standards both now and in the future. Government is a complex organization, and the accounting policies chosen to record and report transactions should reflect best practices.

Best practices in accounting is accomplished by following Canadian generally accepted accounting principles, or GAAP. As you've heard, the public sector accounting standards board sets accounting standards for the public sector and establishes GAAP for governments and government organizations. In B.C. government organizations were directed to use public sector accounting standards, while schools, universities, colleges and hospitals were asked to implement them starting in 2012.

We noted in this report that over 100 organizations in the SUCH sector would be transitioning to public sector accounting standards. These organizations typically record significant deferrals of government transfers they receive.

We noted in this report that most SUCH-sector audit reports issued in fiscal 2012-13 would need to be either non-GAAP compliance opinions or modified — that is, qualified-GAAP opinions — and this did turn out to be
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the case.

B. Gilhooly: Those are not-for-profit standards. That's what this SUCH sector was following until this last fiscal just ended. It's additional level of complexity that I think we'd rather not get into. Stuart's nodding his head on that.

The Budget Transparency and Accountability Act requires government and its organizations to conform to the set of standards and guidelines that make up GAAP for senior governments in Canada. As you heard, several years ago the act was amended, and this allowed government to modify GAAP. In July 2011 government amended a regulation to the BTAA, and based on the amended regulation, B.C. Hydro will implement U.S. accounting standard — here's another acronym — FAS 980 as of April 1, 2012. The implications of this change are discussed on page 11 of the report.

The second modification to GAAP has to do with how government transfers are accounted for. Changes to PSAB standards meant that the historical way government accounts for transfers was no longer in compliance with GAAP. The result for 2011-12 was that some organizations received a compliance opinion stating their accounts were in compliance with government's regulation as opposed to an opinion that stated they complied with GAAP.

We noted in this report there would likely be many more compliance opinions in 2012-13 due to the SUCH sector transitioning to public sector accounting standards. This turned out to be the case. Almost all SUCH-sector organizations received compliance opinions for the 2012-13 fiscal cycle.

As a result of these changes, we made the recommendation that government report to the public fully in accordance with accounting standards developed by independent Canadian standards-setters.

The second part of our report on key issues is understanding financial performance. The first relates to the financial statement discussion and analysis that's contained in the public accounts. Its purpose is to enhance users' understanding, help demonstrate accountability and financial stewardship. To government's credit, some improvements have been made over the years such as including key indicators of financial condition. However, in our view, it does not tell a fulsome story of government's performance. Readers need to go to other documents, like the budget and fiscal plan and the annual economic review, to try and make sense of it all, rather than in one place.

The second area deals with balanced-budget issues. To meet this objective, government requires organizations to report an operating surplus each year. This can result in excess working capital in some government organizations and an overly high focus on short-term performance.

We reported on this in 2010 and have done two self-assessment follow-ups where government measured its progress, and we are preparing a detailed follow-up for release early in the new year.

We made two recommendations for this issue. One was that government provide all relevant information within the financial discussion and analysis, supported by financial statement results, to explain how it performed as fiscal stewards of government funds. And also, that government review how accountability frameworks, including balanced-budget requirements, interact to influence decision-making across the government reporting entity.

The third area related to unresolved control issues. I think there were some issues in regards to management letters discussed earlier this week in this sort of area, around IT. Any significant issues of control identified by the Auditor are brought to management's and the board's attention via a management letter. Management has the responsibility to weigh the cost of implementing proposed solutions. We expect there to be an assessment of whether there's agreement by management with each point, an assessment of the urgency of the point and an estimate of how long any changes would take.

When we collated all these management letters for the 2011-12 fiscal year, we found that about 20 percent of them were not responded to. We also found that there's no process yet in central government to track all outstanding issues or hold entities to account for resolving them. Therefore, we recommended that government implement a process to ensure that all management letter points are followed up and resolved on a timely basis.

We've touched briefly on these, and I think we've also talked about some of these issues in prior years on this report. There were four qualifications, as Russ had mentioned. The first was the Transportation Investment Corporation….

B. Ralston (Chair): Just before you proceed, can you just explain for the non-initiated what a qualification is and what its implications are?

B. Gilhooly: Okay. Well, generally, the Auditor's opinion provides the readers some assurance that the financial statements are fairly presented in accordance with the standards that are promulgated by, in this case, the Public Sector Accounting Board. If there are significant transactions or disclosures that, in the Auditor's view, are not in compliance with that framework, the Auditor has a duty to report that through the wording in the Auditor's opinion so that readers can make their assessment and adjust for that in their understanding and interpretation of the financial results.

D. Eby: Mr. Chair, just to follow-up on that point. When my organization was audited, they used a materiality standard. Is that similar to what you're talking about in the qualification — that's when you report on the qualification? If so, what is the materiality, for the purpose of this?

B. Gilhooly: The materiality is the threshold that readers would be potentially influenced by in their decision-making. So depending on the organization, the Auditor will make a determination of what they propose the materiality to be — so based on the risks and other aspects of the organization. They'll disclose what their proposed materiality will be for the purposes of the audit. The governing boards, who are the receivers of the opinion, are welcome to engage with the Auditor to assess whether that's an appropriate figure or not. At the end of the day, it's the Auditor's choice. For instance, if the board thinks that a lower materiality threshold may be warranted, the Auditor may go with that, but it would require more work to be done and potentially an adjustment to the contracted rate for the audit.

There's an overall materiality for government that we work to, but each organization also has its own materiality. The smaller the organization goes, the smaller the materiality sequence is for each organization.

B. Gilhooly: Well, for instance, the public accounts. If it was 1 percent of all expenditures, then that would be the threshold at the summary level that, in the Auditor's opinion, readers would be influenced in their decision-making by. So the Auditor would plan the extent of their work based on that 1 percent figure. That would determine….

If you're looking, for instance, at a stream of transactions, you would do a representative sample, taking into account that 1 percent threshold so that if, say, several errors were found in that transaction stream, the Auditor would have a basis to extrapolate it up to that materiality amount. Hopefully, I didn't….

B. Ralston (Chair): Okay. Go ahead. Sorry for the interruptions, but I think that's helpful to members.

B. Gilhooly: Okay. As I said, there are four qualifications for 2011-12. The first one was for the Transportation Investment Corporation. It was consolidated using a modified equity method, which applies to government business enterprises, rather than being consolidated on a full line-by-line basis.

In the Auditor General's view, this is a departure from Canadian generally accepted accounting principles, and the correct consolidation would show a significant change to the summary financial statement line items, as you can see on page 21 of the report.

The second was a failure to provide for deep-well credits. This was not an issue for the 2011-12 year, because the significance of the error had decreased. But it was an issue for the three years prior. This was also an issue that wasn't reported on for '12-13 in the public accounts for the same reason.

The third was inappropriate deferrals of government transfers. Again, this was not a qualification back in 2010-11 due to the significance of the dollars involved, but for 2011-12 the numbers were much higher. The government is deferring certain transfers that should be brought into revenue as received, under GAAP. And for 2012-13, the fiscal year just ended, the numbers were again much higher due to all of the 100 or so such entities that were coming under the public sector accounting standards, as we mentioned earlier.

The final one was a failure to disclose government business enterprise financial information. In 2011-12 government failed to disclose required information about the financial position and results of operations of subsidiaries of some government organizations. The results of this can be seen on page 24. However, this was a one-time issue that did not occur for 2012-13.

There are a number of other matters that we discussed with government, starting on page 26. There are eight items listed here. Four items on this list we've already covered, and in the interest of time, I think I'll only speak to items 5 and 6.

During our audit we discovered a number of errors in the summary financial statements, but this is not unusual in any audit. In any audit, you will find anywhere from a few to many errors, depending on the control environment and other factors. So it's not unusual.

However, we expect them to be corrected unless there is disagreement with our correction. For the 2011-12 fiscal year we reported 93 errors to government at the summary level. Some 35 of these were corrected, and 19 were disagreed with, leaving 39 with no action.

As I mentioned earlier, we continue to note in this report that there are large amounts of cash and temporary investments being held by entities outside of central government. Government borrows money to fund some of its expenditures, so it does not make financial sense to incur borrowings in order for funds to sit unused in a bank account. This situation still exists today in the
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SUCH sector.

Turning now to management letters. As I mentioned, they're required by auditors to management and governing boards about weaknesses in internal controls in financial statement audits. We found a large number of issues were ones that had not been resolved from the prior year — around 20 percent. And in looking at the themes from year to year, we also found increases in the areas of accounting policies, system controls and IT system security. Further information on these management letters can be found in appendix 2 to the report.

As an aside, in the 2012-13 year just ended, we've noted significant improvement in the number of issues reported and cleared with management.

In the five previous reports on the public accounts we made 62 recommendations. Of those 62, 14 were made in more than one year. We decided not to pursue another six, and 30 are still outstanding. These are ones where government generally has not agreed with our recommendation. The full list can be seen in appendix 3 to the report.

As an aside again, for the fiscal year just ended, we've seen quite a bit of progress on some of these issues since then. The list is getting smaller.

In summary, we had three key issues since the report, which resulted in four recommendations. We also had four qualifications for the 2011-12 fiscal year. We discussed eight issues of significance with management, and 54 percent of the management letters issued in the prior year were still outstanding at that time. Of the 62 previous recommendations in previous observation reports, 30 remained outstanding from the 2011-12 fiscal year.

R. Jones: Just one thing I might bring to members' attention. A report that hasn't come to this committee, which is more like an information bulletin that we put out each year, is on our website. You might be interested in taking a look at it. It's called Audit Opinions Are Important. That report you can get on our website. I can maybe get the link to Kate, and she can get it to each one of you. It's helpful in there because it does have some definitions around what "material" means and what a "qualification" means and what an "opinion" means.

I would encourage you to take a look at it. If you have questions, by all means, give me a call.

B. Ralston (Chair): Thank you. Now we'll turn it back to Mr. Newton for a response.

S. Newton: Next slide, page 2. Despite the disagreements, there is tremendous value, and I derive tremendous value, from having the audit done. It does a number of things. It helps confirm the credibility of the financial information that's in there, regardless of the reporting differences that we'll have. I gain some assurance on the credibility of the financial information.

We do get to debate all these issues. And Bill alluded to it in the coming year: we do slowly sometimes get to a better place, both of us. It usually helps with the dialogue I have with my counterparts across the country as far as: how do these things really need to be accounted for? So despite the disagreements that we'll work through, there is good value. I don't want to leave people with the impression that there isn't.

An audit opinion with a reservation is a concern. We take that very seriously. We spend a lot of time — even with the same reservation in a subsequent year — reviewing and working with colleagues across the country and standards-setters, and even having further discussions with the Auditor General's office around: "Where are we going with this? How can we get to a common ground?" And there are times, and you get to experience them in our discussions, where we disagree.

The issue right now in relation to the qualifications in a lot of the issues are based on professional judgment, and my professional judgment on how these transactions need to be accounted for. I have a responsibility to my profession and to my counterparts in other jurisdictions to do that to the best of ability. When I'm signing the financial statements — and you can see my signature on there — I'm signing that they meet the requirements of generally accepted accounting principles.

I don't take that lightly. That's my professional credibility on the line when I sign. It's the same for the auditors. I'm not diminishing Russ's signing as well.

We're into a place of pretty technical disagreement, and standards are continuing to evolve. I think, as they evolve, we will periodically, over time, get to these points and ease off these points as well. We will continue to work, coordinating with the Auditor's office and with our counterparts and standards-setters.

V. Huntington: Stuart, could I just ask how it is possible to be signing off and mean that you believe the statements meet generally acceptable accounting principles when there is such a disagreement? How does that work through the system?

Questions through the Chair, please. Perhaps we could just reserve that and let Mr. Newton finish his presentation. That is a very legitimate question and a big issue.

So if we could just hold off on the questions. Thank you. I know everyone here is very keen to get at this.

S. Newton: It brings a tear to my eye. I think that's what the previous Auditor General said about people wanting to actively engage in discussions on accounting, right?

S. Newton: Slide 2. First: "Reservation: basis of consolidation of the Transportation Investment Corporation." We believe that the Transportation Investment Corporation is best disclosed as a government business enterprise under the modified equity basis of accounting. I can describe that later if we need to do that.

The Transportation Investment Corp does not receive subsidies from the provincial government to maintain its operations. There is an initial investment of land at the beginning to set up the investment corp, as you would have with any other investment. It's just a disclosure issue. The effect right now would be….

Currently, in note 7 of our financial statements we've got a nice clean line that says: "Investment in Transportation Investment Corporation," the amount we invested and what the changes are over time. If we don't disclose it as a government business enterprise, this just disappears into a variety of line items in the government's financial statements. I think that would misrepresent both the intent in relation to the Transportation Investment Corp to be operated based on tolls, and it would misrepresent the intent that it's actually being subsidized.

Actually, that's a quicker version of doing it than my notes. I'll go on to the next one.

Deep-well credits, as Bill alluded to…. This was not a qualification on the '12-13 year-end. With work with the Auditor as we moved forward, we were able to come to a mutual understanding of how to present this in the financial statements. It was, as the Auditor General pointed out, an original qualification for a couple of years. In the year 2010 there was no qualification. However, the value of credits actually went up in that year, from 445 to 469.

The first two years the qualification was done on an incremental basis, being that there should only be a $70 million adjustment. But in 2011-2012 the Auditor General's office took the tack that it should be a prospective adjustment and requested a $702 million adjustment to the financial statements. Unless we get into detail, I'm not going to get into the support for why we do it this way, because I think it's now off the table.

B. Ralston (Chair): Let's leave that for questions. There may very well be questions, because it's certainly not instantly comprehensible in this form.

S. Newton: Okay, next item: "Deferral of government transfers revenue." I mentioned this before. PSAB worked on this standard for over 12 years. We have been consistent in our treatment of government transfers since we started following pure PSAB and including government transfers and how we treat government transfers as a liability on our summary financial statements since early 2000s.

We've not changed how we've accounted for it. We've used pure PSAB, and we've used pure PSAB and the definition of a liability to set that up. So there's been absolutely no change in how we account for this in more than ten years.

OAG is recommending a material financial change even though there's been no change in economic substance of the transaction.

Just to clarify, in this audit year Alberta and Ontario were both in the same place as us, and the Auditor General of Ontario was in the same place as us. The Auditor General of Ontario has changed, and so there's the potential that the Auditor General's opinion in Ontario for years going forward would support our Auditor General. From Russ's comments, I don't doubt that he believes that that Auditor General will follow what he has as a treatment. But at that point in time both Ontario and Alberta's auditors were agreeing with our treatment, and a number of comptrollers across other jurisdictions also agree with that treatment.

The bigger issue than these transactions is a huge shift in principle that will affect the treatment of a whole class of funding transactions. As you saw, in the '12-13 year — a $3 billion shift.

The problem with the transfers is it creates a bit of a timing issue in that we get funding and we are responsible and accountable based on that funding to do certain things out into the future. That's what creates the liability in my mind — to be able to have to show neatly in our financial statements that we have an ongoing obligation to expend those funds. Otherwise, you get to the place where you get a really nice revenue hit in one year. You still have the obligation without the revenue to be able to spend. So it's important that that obligation be recognized in the financial statements and then reduced as it's discharged.

The standard recognizes that a form of transfer arrangements can vary widely. That's part of the reason why it took so long to get to a standard. The standard actually allows that the determination of whether a liability would arise for a recipient government would be influenced by the stipulations of the transfer — so the reasons why they're doing the transfer in the requirements — and the
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recipient's own actions.

The difference right now across the country is very broad and very significant. Our concern is that the Auditor General's office — this was a discussion with the previous Auditor General; I haven't had the discussion with Russ yet — felt that the standard was too flexible and required a little narrowing in order to make it work. So the Auditor General's office has added three additional criteria to the existing standard in order to apply it to government transfers.

GAAP does not support this position. The effects are material and significant. Canadian comptrollers and legislative auditors, I'm aware, have asked PSAB to be able to take a look at the standard and deal with some of the inconsistencies.

I think when we talk about what the accounting community thinks in relation to some of the things that we put in place, in relation to the deferral RAG and government transfers…. The accounting community, at least in the article that's referenced in the report on public accounts…. If you read the actual article, it's related to: could senior governments and the standards-setters get on the same page? It doesn't necessarily mean they support us or support Russ. They just want it clarified, because it affects their ability to do business.

Next slide. This issue, as was mentioned by Bill, has gone away. This was "Disclosure of subsidiary…." This is technical. We've got government business enterprises — Crown corps — that are self-funded, and we record those separately. Then, we've got taxpayer-supported Crowns that might have a self-funded subsidiary. That self-funded subsidiary had never been recorded separately in the financial statements. It was just rolled up in the financial statements of those taxpayer-supported Crowns.

There's no guidance on this. Nobody else does this. The Auditor General's office felt strongly about this in that year. We did not in the two-week period of time that we were made aware of the issue have the time to be able to adjust. So subsequent to the year-end we've worked with the Auditor General and actually corrected that. We've also provided the information to PSAB, the public sector accounting standards board, as food for thought for potentially maybe putting some guidance in that area to clarify and enhance reporting in that. So this was more of a timing across year-end and how we deal with the issues, but it's been resolved.

There is concern about, and I think a statement was made, on government modifying accounting standards. As we were moving forward with concerns that the accounting community had on rate-regulated accounting, and depending on which standard you were looking at, there was the thought that the ability to do rate-regulated accounting was going to go away.

The standards-setters in Canada set a very short time window, thinking it would be resolved in that time frame. It wasn't. So not this year but the previous year the Auditor's office had made a very clear statement that rate-regulated would go away and we wouldn't be allowed to use it. Subsequent to that, events have changed. Industry regulators are all on the same page. Rate-regulated is allowed, and the international financial reporting standards group is actually looking at how they can update the standards.

So this issue has gone away. I'd just highlight that there's no longer, at this point in time, a problem. It may be, as we move forward, that the standards-setters may choose something different.

In that environment, one of the things we needed to do in order to ensure consistency and comparability was be able to clearly define what's expected in relation to rate-regulated accounting, given that there was going to be…. It looked like a period of time where it might not be allowed. Then our expectation was that would resolve itself and it would be allowed. So the regulation was put in place directing B.C. Hydro to follow that U.S. standard that Bill referred to. That allowed us to gain consistency and comparability. We're still reporting on the same basis that we reported out before.

With government transfers, as the government transfer standard was starting to be implemented, one of the issues that was coming up very clearly was that there was disagreement on how the standards should be applied. There were some firm statements that there's no way you would ever be able to record a government transfer as a liability and then expense it over time.

In that environment of that level of uncertainty, we felt it was important to clarify our understanding of what generally accepted accounting principles would allow us to do, and so we put in place a second RAG in relation to deferrals.

Now, as we were doing this, we were doing this consistently with our counterparts in Ontario who had similar concerns. I know there are concerns in other jurisdictions where they may not have taken the same step, but we both felt it was important for consistency and comparability and understandability to maintain that through the transition. So that's what we did. It sparked more debate among accounting firms and auditors on how to apply the government transfer standard, and I think that's a good thing.

It gives us a degree of stability while the government transfers…. It's still actively debated. This is a live issue, and I think what we've done is created a moment of stability through this issue until it's resolved.

Next slide — financial statement discussion and analysis. We have over the years worked with the Auditor and taken advice to change and enhance our disclosure. We've got some anecdotal advice that our statement disclosure in relation to other jurisdictions is really quite good on the financial statement discussion and analysis.

If we go back to some of the comments that I made
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earlier about the Enns report and its reporting requirements around, you know, service plan, economic review, reporting out against your service plan, those kinds of things, a lot of the information that you would get, let's say, from a private company, which has an annual report and a set of financial statements, is spread out over more than one document.

To my mind, I wouldn't want to duplicate the information. I believe that the summary financial statements, frankly, are thick enough. Everybody's memorized it, right? You've been through it all. Because those other documents exist and those documents all exist in tandem, we're covering off…. I think the comment was that it's there; it's just in different pieces. I think that's more appropriate. It's showing different accountabilities at different times related to different accountability documents. And the information is available to the public.

We still, and we will as we go forward in subsequent years, work with the Auditor as he'll come up with another suggestion. I know the Auditor General's office is doing plenty of work in relation to working capital. As items come up there, where maybe there is a more appropriate measure that might make more sense for the financial statement discussion and analysis, I'm happy to consider those as well. So it's an evolving thing.

Accounting isn't affected by balanced-budget legislation. Our accounting policies have remained consistent and comparable since we started reporting at the summary level in 1999. There have been minor changes resulting from changes in GAAP, but the whole point of accounting is to remain conceptually consistent regardless of changes in fiscal management.

Governments decide the best way to manage the fiscal plan, and it seems the B.C. public as well other jurisdictions internationally think balanced budgets are the way to go. What we have to do is report against whatever measure is chosen — fairly, consistently and transparently, regardless of what that measure is.

To be effective, accountability reports have to be conceptually consistent with the measure, and that is where we run into conflict. Government authority is based on expenditures over an annual appropriation cycle, not the net change in assets over a period of time.

That's where we're getting into a bit of conflict with where we see public sector accounting standards going. There's a lot of thinking behind the choice to go that way in relation to: is net change of assets or net liabilities a better measure? I think the important piece that's getting lost and I think will be picked up in the conceptual framework review is: what do users need, and how can accounting meet users' needs, not necessarily a theoretically purist view of accounting?

One of the concerns we have about accounting standards changes and their effect on the accountability framework is we don't get a lot of insight into what's actually occurring at that accounting standards level. IFRS, the international financial reporting standards — all of their deliberations are open. PSAB is closed. We get the decisions, but we don't see the debate. So it gets more difficult to understand, as we're working with accountability frameworks in government, what the basis of thinking is in PSAB.

We get some output, and I think it's appropriate that they do provide a basis for decision. They have instituted in the last year a discussion group in order to facilitate dialogue, but I think open and more transparent decision-making at PSAB would help us understand some of what we're dealing with.

Next page — management letters. We talked a bit about this, management letters, yesterday or the day before — it's starting to blur — on the IT controls. Each organization is responsible and accountable to their board for the implementation of these issues. As Bill had mentioned earlier, they're responsible and accountable for determining: is this change needed, what's the risk associated with it, and the cost-benefit analysis associated with whether they actually implement the change or not.

We do look at broad issues to determine whether those broad issues are actually causing something problematic that we can talk to the Crowns about, but it is the responsibility and accountability of those entities with their boards. At most, we can suggest and state that maybe they want to do something.

As Bill noted, it is getting better. I think that through the discussion we can get to a better place of being able to follow up. We're always working on ways to improve that.

B. Ralston (Chair): We'll turn to questions from members. I'd ask members to indicate whether you're asking the comptroller general or the Auditor General or both, just for clarity in the question.

S. Simpson: I've got to say this is complicated business. I have a range of questions. I'll start with a couple, and then we can move on to other people, and I'll come back.

I guess the first thing I want to start with is the key issues that were identified, and we'll work from there.

As I understand it, when I read through the implications of changing standards and the GAAP principles as being key to credible statements, the Public Sector Accounting Board sort of sets the standard for GAAP as it relates to government. While the PSAB isn't mandatory, governments…. I think it goes on to say that the summary financial statements of the federal and provincial governments are all currently prepared in accordance with PSAB standards. That's what the report says on page 11. It then goes on to talk about challenges as they relate to GAAP and that.

It says here that one of the things that British Columbia did was amend the Budget Transparency and Accountability Act to allow the government to modify Canadian GAAP as it chooses to. Presumably it allows British Columbia to stray outside of what the Public Sector Accounting Board has established as the GAAP rules for government.

It goes on to identify two particular areas. I'll kind of just touch on these and then ask the question there. The first one, of course, is around this question of rate-regulated accounting. The question I have here…. I think the comptroller general has said there's been some change of thought on this. It says that one of the things that has been done is that it's omitted the requirement that the regulator must be independent from those being regulated.

I'd look, as part of my question, for some explanation of how that's an issue in British Columbia. Is there self-regulation going on here in some fashion, or is there independent regulation? This suggests that there's self-regulation going on here in some way. Also, it raises this question of "historical practice of deferring government transfers. Doing so…has prevented several government organizations from complying with PSAB standards for such transactions" — just using those as the couple of examples of regulatory changes British Columbia has made.

I go back to the question here of where the comment is made that "the summary financial statements of the federal and provincial governments are all currently prepared in accordance with PSAB standards." If this is the case, in fact, are British Columbia's financial statements prepared in accordance with PSAB standards? If they're not, is PSAB in a place, as an independent authority, to make comment on that, or do they comment on what specific governments do or don't do, based on their standards?

S. Newton: I'll take a shot at that first, and I know you'll have an answer as well.

Currently, in this particular year, rate-regulated accounting is allowed. There's no divergence with PSAB accounting in relation to rate-regulated accounting. The reg was put in place on the anticipation that rate-regulated accounting wouldn't be allowed. What that would have done was put B.C.'s hydroelectric utility on a different basis than the entire North American grid. Ontario did the same thing and put in the same reg. When we talk about GAAP and adjustments, I think those were done in tandem. It was to ensure that our hydros were on the same basis across the North American grid.

Currently, since we put the reg in place, that change didn't happen. Although the reg is in place, PSAB and even the securities regulator allow for rate-regulated accounting, so that's not offside.

The other piece, in relation to the deferrals — that reg was actually drafted using PSAB requirements as the basis for drafting the reg. I would argue that that reg was never intended to be a departure from GAAP. It was merely a clarification of how you can actually use GAAP, currently existing. The only reason why it's in a reg is because we were getting differences of application across multiple organizations within government, including differences of opinion with auditors.

Going back to the broader question: yes, the legislation has the ability for the province to regulate changes from GAAP and actually operate on a basis of GAAP that is unique to the province. Currently, in this environment, I do not believe that's the case, although those two regs are in place.

R. Jones: As Stuart has mentioned, yes, the rate-regulated one has changed significantly since this report was done. It does appear that the international standards are moving towards trying to come up with some resolution, because most utility companies in North America just weren't going to accept not having rate-regulated accounting in place.

I think our concern maybe still exists around — if the new standard, or whatever gets approved, does come in — this idea of the independence of the regulator. I think at some point we will need to have that discussion and analysis done if the new standard, when it is put in place, does determine that you need to have an independent regulator. That discussion we'd have to have and do an analysis of.

We have no concerns that the accounting that's being used is okay at this point in time for B.C. Hydro. You may not agree with rate-regulated accounting, but the way it's being done is in accordance with the standards at the moment.

When it comes to government transfers…. I think one thing that we need to go back and take a look at is that the old standard that was being used was based on a private sector model. It was based on a profit-oriented model — the way that government transfers were being handled.

The move to get to a new standard for the public sector was to recognize that the public sector is different and that these transfers are handled differently than they would be in the private sector, where you might, as, I don't know, General Motors, get a government transfer to use in your organization to…

R. Jones: …keep it afloat. And there were usually, in those cases, conditions attached to those grants that would require General Motors to repay it if they didn't use it appropriately.

The public sector is different when it comes to government transfers. We could get into a whole debate around that, but suffice it to say that the public sector standards
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board and governments across the country thought that there was a need to have a new standard in place that clarified it a bit more.

Currently the regulation that was put in place for this province is offside. I don't agree that it's a clarification. I think it is offside with what the intent of the standard is that's currently there.

Now, the comptroller general has brought up another good point, which is that there's a lot of debate about the application of this standard. The standard is in line with what is currently the conceptual framework, the asset-liability model that the public sector is supposed to follow.

I think one of the big problems that we're having at PSAB and across the country with Auditors General and with comptrollers general is the application of this standard and how it's applied. That is one thing that, as the comptroller general mentioned, we are going to be dealing with at the public sector board in December.

We'll see how that all turns out. But there is a recognition that better guidance is needed on how to apply this standard. At the current time there is still a disagreement between us.

The Public Sector Accounting Board cannot enforce the standards on government. They are supposed to be GAAP for government. We hope — I'll take off my Auditor General hat and put on my board hat — that they're accepted across the country because we think they are the best standards for public sector to apply, but we cannot enforce it.

As the comptroller general mentioned, what has been set up to try and address some of these issues, such as the government transfers one…. From a board's perspective, it's not good to see divergence across the country, because it does take away from comparability. It does take away from transparency in appointing. It doesn't result in the best financial reporting across the country.

The board has set up this discussion group to get users of the standards together to address these issues, and the application of this standard is one of those issues that is being addressed on an ongoing basis. We had our first meeting in September, and I happened to be in that discussion group as well. It came back to the board in September, and that's why we're dealing with it in December.

There's ongoing dialogue around this. From an Auditor General's point of view, it doesn't change my mind about the way that it's being applied in this province.

Just to clarify, we have not added new criteria around this standard. What we have done, because these standards that are coming out now from the Public Sector Accounting Board are more…. They're not rules-based any longer. They're principle-based. As soon as you introduce something that's principle-based, you're going to have greater judgment around how to apply that standard.

What we did, what the other firms in the province have done, and what OAG Canada has done is we've taken a look at the standard and said, "Where are some of the areas where judgment could be applied?" and have tried to put out there some principles that we can apply to make the determination as to whether there's a liability or whether it should be revenue.

It is very, very difficult, the way the standard is currently set up, to ever get to the liability approach, where there's a liability. It's not impossible, but it's very difficult. To give some context, when we had the discussion group where we had all these users come together, we asked the question: "Can you give us an example of where you think a liability would come into play?" Nobody around the table could come up with anything, and there were 20 people there. Many of those were from the user groups. So it's sort of telling when you hear that.

I think one of my broader concerns is that there are a number of new standards coming. It's a bit concerning to me that there's the ability, if you don't like it, to put something in place that you do like to get a result, because you don't think the standard is getting you the right result you want to get. I'm not saying that would ever occur again, but we have a new financial instruments standard that's coming in, which is concerning. We have a number of other standards that are going to be coming into play. Each one of those is going to have a significant impact on the way things are accounted for across the country.

It is a concern when we see, not only from my standpoint as the Auditor General but from an accounting standards board perspective, provinces bringing in legislation or regulations to modify what we're trying to put forth as a standard across the country. As the comptroller general mentioned, Ontario did the same thing. There could be other provinces that do it as well.

It's not something that's taken lightly by the Auditors General or by the Accounting Standards Board.

I appreciate the concern. I think it is concerning. I understand the difference between being principles-based versus rules-based and that that provides a different degree of flexibility. But I accept the argument that it would be good to have some kind of consistency that everybody knows is playing on the same set of rules, whatever those rules are. That's a bit problematic.

My second question goes to the understanding of financial performance. A bit of an observation, then a specific question.

I certainly would agree that…. Since I've been elected, in 2005, I've looked at budgets and the budget documents and that, and they have become increasingly difficult to understand. They have become increasingly challenging in terms of being able to glean information out of those documents. Much of it relates to service plans, which
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I know are a bit separate from the summary financial statements, but I do see it as a package. It's certainly a challenge.

A simple observation. There used to be a time when you could look at these documents and determine how many FTEs there were in a ministry. You can't do that today, generally. To find out, to get that information, is almost impossible. I can think about estimates. It probably took eight or ten questions in estimates to drag out of the minister the number of FTEs. It wasn't clear there. That's just one example.

I guess the observation I would make is that it is my belief, having gone through this since '05, that it is getting increasingly challenging for people to understand, based on the information that's released, what exactly the state of the financial situation in the province is. I kind of agree with Mr. Newton that I wouldn't want a single document that looks like this if you tried to consolidate it all, but putting it in one place or pretty close to one place would certainly be helpful. That's a bit of an observation.

The question I have relates to page 14 of the report. It's the example that's given around the lack of updates to financial forecasting. Let me just quote the report. It says:

"The Budget and Fiscal Plan 2012/13–2014/15 forecast a deficit of $2.497 billion. Given how close the date of the plan’s publication," which was February 2012, "was to the financial year-end, March 2012, this forecast should have been reasonably accurate. However, the actual reported deficit in the public accounts totalled only $1.84 billion — a difference of over $650 million. Neglecting to explain this type of variance is a serious oversight by government, potentially leaving users uneasy and doubting the validity of government’s future forecasts and budgets."

We're all happy that, you know, the deficit was $650 million less than was originally projected, but it is a bit disconcerting that the mark was missed by that much when these two reports came out essentially a month apart. I'd be happy for either of our experts to explain: how does this happen that you get that level of discrepancy in this report? And how problematic is that, in terms of people having confidence that the documents you see in fact are going to give you information that you can rely on as you try to project forward?

S. Newton: I think we're comparing two different things. One is a forecast update, so it's at a point in time where government believes it's going to end up, versus what we're doing — a year-over-year actual comparison. In that forecast is a series of choices that government is making as far as what they're going to do between that point in time and year-end.

As to the difference, when it comes to preparing the financial statements, we're just looking at the year-over-year change and looking at what was recorded in the financial results at that point in time. I think the year-end service plan report and then the minister's update in relation to Q3 to Q4 is the place where that would come out.

As far as why they were off, that's more of a budget question in relation to…. Remember when I was describing Treasury Board staff as monitoring the fiscal plan? That would be a better place for that question, because frankly, in the Q3 to Q4, from my perspective, we're just looking at where we are landing annually for a year-over-year financial statement comparison. There are probably some policy decisions and choices in that forecast to go forward, then what actually happened.

R. Jones: I think one of the points that we were trying to make was that — as we discussed in the discussion and analysis that's in the front of the financial statements — that might be a good place to discuss why something like this would change. It would then, I think, help the users understand, you know, "Here's what was forecast, and here's where it ended up" or: "Here's what was budgeted, here's what ended up, and this is why." It's a matter of just explaining better, for the users of the statements, why something like that could happen.

S. Simpson: Just to follow up, and then I'll come back later with other questions…. It seems to me that a big part of the responsibility in the role of the Auditor General, because of the work that you do, is to provide people with certain confidence that what we're looking at here, the documents and everything, are exactly what they say they are. You provide us, the public and elected representatives, with that confidence when you do your work and you then say: "Yes, this essentially is what it looks like." I think that's critical, obviously, for us and for people in this province.

The question I have is: does it begin to challenge or undermine that confidence? When it appears that the decisions made to release a budget and fiscal plan with numbers in there that obviously the folks who prepared that knew those numbers were going to be different — or should have known, if they had an idea what the actual budget numbers were going to look like a month later — and then to have released those documents with the $650 million discrepancy regardless, does that begin to create a problem or undermine that confidence that we all know is critical to the success of good public administration?

R. Jones: One of the things that we have been trying to do, and an area that we wanted to get into, was taking a look at how the budgets have been prepared and to possibly provide some assurance around those budget numbers when they come out.

Since the previous Auditor General has left, I have managed to have a meeting with the Minister of Finance and Deputy Minister of Finance to pursue allowing us to do that. Right now we're in the process of developing an audit plan to take a look at the revenue projections that are going to be coming out in the next budget and pro-
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vide assurance around whether the assumptions underlying those numbers were complete and plausible and provide the taxpayer and the Leg with some assurance around those budget numbers.

Hopefully, if this process works well, we can maybe move to a point where we will be giving some assurance around the entire budget, in the future. It is not in our act something that we're allowed to do; it is something that we think we should be doing. We're pursuing that right now. So hopefully, you know….

S. Simpson: Well, I guess, as we know, forecasting is what it is and things change, and forecasts can never be determined to be entirely accurate. It doesn't matter what it is. But I do think some sense that there's been oversight and due diligence in the preparation of those forecasts makes sense and that somebody can say: "This makes sense." If it goes sideways, it goes sideways. Those things happen. But that would be worthwhile.

Again, I have a number of other questions, but I'm going to go back, and I'll come back again.

M. Dalton: My question relates to the outside credit agencies. I'm just wondering if these agencies shared your concerns, Auditor General, as far as the deficit, the projections and just the impact. Obviously, there's money involved and there are reputations involved. I'm just wondering what the comments were with regards to the ratings.

R. Jones: I'll let Bill answer this one because he actually has had discussions with some of the rating agencies around this, so I'll let him take that one.

B. Gilhooly: Stuart or Carl may also chip in on this. Each year the rating agencies come around and meet with government and get information to update their ratings. In some cases we'll approach them or they'll approach us and meet with us to get a bit of detail about some of the issues around the qualifications.

To our knowledge, they haven't factored any of the qualifications into their rating numbers, but we just pointed out in the report that, drawing on what would happen in the private sector, there is a risk that at some point they may look at the actual numbers in the development of their ratings. But to our knowledge and awareness, it hasn't impacted that at all.

S. Newton: Prior to the release…. Actually, I think that the first time a number of these issues came up as a qualification, there was discussion between the comptroller's office and the rating agencies on the basis of the qualification and the impact and the effect.

I think, fundamentally, that's because a lot of the qualifications are not around fundamental transactional problems; they're reporting problems, so how you characterize the transaction in the financial report. The rating agencies are looking at things like cash flow, ability to service debt and a number of other indicators. So they would be well aware of the qualification and the impact in order to make their determination. As Bill said, they were not concerned with the qualifications.

M. Dalton: I think this is important because, you know, for the layman hearing this big discrepancy, the public would think: "Well, is everything on the up and up?" Obviously, if the agencies are supportive, they understand, then to me that lends credibility to the government position. But it seems that there is an ongoing discussion.

You had a comment. I had another question, but if you want to share something with us….

R. Jones: Thank you, Member. I was just going to mention that, in a number of cases as well — and this is sort of an aside — the rating agencies also factor in organizations such as B.C. Ferries, which is technically not part of government, but they do take a look at it as well.

M. Dalton: Just on another issue. It was brought up as a concern that a number of the different agencies were not on the…. In the statements, Stuart, you did mention that it seems to be…. That's been cleared? Everything is okay as far as the understanding about that? Also, did it impact the balance sheet?

S. Newton: This is the reference to the government business enterprise qualification, where we have subsidiaries…? Yeah. It was a non-balance adjustment, so they're either reported as part of the SUCH-sector balances or pulled out of the SUCH-sector balances and reported separately on another schedule. There's no change in bottom line to do that. We've rectified that disclosure problem from this current year. So in the '12-13 year-end there is no qualification for that.

M. Dalton: My last question has to do with the Port Mann Bridge project. You mentioned that it's being subsidized. I know that the government is giving good interest, you know, very low-interest loans and all that, but I never was under the understanding that it's being subsidized. Can you clarify that, please? Or did I mishear you?

B. Ralston (Chair): What about the reduction of the tolls? The buyout of the….

S. Newton: The reduction of the tolls — that's a busi-
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ness decision at TI Corp. There are no funds flowing to TI Corp to be able to support them. They made a business decision, I think to enhance users of the bridge by providing a short-term reduction in tolls, hopefully to spike the volumes.

S. Gibson: As a new person here, I've really appreciated this information. It's been very helpful and illuminating. It's really helpful to me as a new MLA.

I think some of the discussion that we have — if I may make these anecdotal comments — to do with what the Auditor General was saying a moment ago about how trying to get more involved in the budget process is, to some extent, more of an art than a science is, in my estimation, because it's the very nature of how governments want to exercise policy through the use of financial resources.

By necessity, at times it's going to be hard to examine it because governments operate diligently, but they also operate in a political realm, outside of some of the strictures or the constraints of financial accountability to the extent that they want to exercise policy. I don't know if I'm saying it….

For example, the comment you made earlier about because of the pursuit of balanced budget, in some ministries there's excess working capital. That would seem to be a lament that would be a necessity. I don't see that being corrected. That's my comment. Maybe perhaps it can be. So some of those assumptions there….

One question I would like to ask is…. A friend of mine is a commercial lender, and he's been doing this for 30 years. If an applicant comes in for a business loan, he can look at that thing in about ten seconds and decide whether they're going to get the loan or not, because his eyes are so good at looking. You folks do that as well, but in a much bigger way, I believe.

My question to either the comptroller general or the Auditor General is: do you have alarms attached to what you're looking at? So if there's a sudden change or a trend, or something happens in the various ministries, you can spot that, like my commercial lender buddy. Are there things you can look at, when you're looking at the financial statements, where right away you say: "Ding, ding, ding. I see something"?

How do you do that? How do you exercise that? It seems to me, as someone who is elected, that ultimately, I'm accountable. We're all accountable for how the finances are done, but you folks are the ones in the trenches. How do you do that in such a way that is measurable, so that you see things? I guess it kind of relates a little bit to Shane's question earlier on. That's my question.

It's all part of our training, basically, and the same with comptroller general's office. As we are trained to be either CAs, CGAs, CMAs, there are certain aptitudes, I think, that we develop in terms of understanding financial statements, understanding what to look for in terms of changes, red flags that are raised. We do that through our normal audit process. The comptroller general does it on an ongoing basis as well, when they're looking at statements that come in to them from outside organizations.

As someone pointed out, accounting is more an art than a science, in a lot of cases. And it is. It's something that we develop, I think, over years of looking at these statements and understanding what makes up each of the accounts that are there — how they're put together and things.

What we do also, as auditors, is take a look at the budget process that's in each of these organizations, just to determine how the budgets are prepared and how accurate they seem to be, and then compare them to the actual results. That's why, in public sector statements, which aren't the same in private sector statements, you see a column in the operating statement that shows the budget. That's required under the standards for public sector. You have to show the budget, and then you have the actual numbers. What you would expect to see in the financial analysis at the front, which everybody puts there, is an explanation of why those changes occurred.

It is an ability, what we call analytics, when we take a look at the various numbers and try and determine whether they make sense.

For year-end purposes, as the Auditor General has described, we're looking at the information that we're getting. On an ongoing basis I've got people testing transactions. I have people providing policy advice to ministries. We get oddball questions in the door. You start to develop a feel of who may be having a problem and what might need to be looked at, so we can go talk to their executive financial officer, chief financial officer or, occasionally, deputy.

Carl's group. They start getting quarterly information in and, as Russ talked about the importance of the budget, start looking at what we are getting compared to what we should be getting at this point in time in the year. We consult with Treasury Board staff as well, to see whether things are on or off so that at any point in time, if we're starting to see numbers coming in that are different than expected or unexplained, then we start digging in and working through that.

Certainly, as we see issues with broader public sector entities, we can connect with the Auditor General's office, because in some of those entities they audit or sit on the board. The Auditor General and myself, in our biweekly communications, can talk about: "Here's what we're seeing. How are you planning to address it from an audit perspective?" Or he's looking at me going: "Well, you've
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got a problem. How are you going to deal with it?" So there are enough eyes on the process.

I think there is no way ever to stop a motivated individual who is very intent on doing something very purposeful, specific and bad. But outside of that, I think there are a lot of very good processes in place.

One of the things the Auditor General and I have worked on, and I think the tone is carrying through in our office, is to coordinate a lot more so that we become more aware of issues, bizarre accounting treatments — those kinds of things that are coming up within government — to be able to talk about how we think we're going to address it. If we address it from both sides, both from the audit side and the government preparation side, we stand a better chance of getting to the right place and avoiding any problems.

S. Gibson: A quick supplementary. I find that very helpful and comforting, frankly. With 115 people on your staff, Mr. Auditor General, you've got a huge team there, and I'm sure you've got a huge group of people as well.

Is there software or are there programs that are available that can analyze, do some of the work for you, to spot alarming trends? If suddenly things are going like this in the ministry of something, can you spot that? Are there little ways that you can do that so that it's not purely, as you mentioned, invigilating manually to some extent?

S. Newton: I can talk briefly about what we do with continuous controls monitoring. We've been able to, with some transaction types, have full 100 percent verification through a series of analytics. That spits out problematic transactions. It fires them back to the ministry's senior financial officer to review, and that should be the first place that it happens. Should an unsatisfactory answer come back or a more robust problem come through, then we can take further progressive action.

That's the automated side. We do have a system that polls sampling transactions for us to be able to have live-person follow-up on the documentation as well.

B. Gilhooly: On the audit side we have a few sources of information. One thing we do is that when we go out and plan our audits, we meet with management. We get their year-to-date numbers. We compare them to the budget, and we compare them to the prior year. Where there are significant variances, we follow that up to see if those are specific areas of risk that'll help us scope out the audit. We will do extra work there.

We also, at the end of the year, do detailed variance analysis to be comfortable that the changes make sense and that the audit work we've done is consistent and helps us support the opinion on each individual entity.

There isn't any software, unfortunately. Every organization has their own way of accounting and reporting their information. Outside the CRF each organization would have their own accounting software, their own analytic software. There isn't a broad-based type of software that would facilitate it. What you're thinking of, perhaps, is a dashboard-type system kind of reporting.

R. Jones: Member, I will add that in our audit process, we do use what we call computer-assisted audit techniques that will mine the data that's out there to look for unusual transactions. We do that as a normal course of auditing. I guess an example might be if we were looking at payroll in a large ministry or a large Crown corporation, we might put a request through their data to look for any amounts paid out over $10,000. Then we would take that into account in terms of our audit techniques to make sure that those payments were legitimate. We do use an awful lot of automated techniques in our auditing.

B. Ralston (Chair): Thank you. It's just after 11. I'm going to suggest we take a brief recess and then come back. I have a long list of questioners.

I apologize to those who are on the next paper, because I don't get the sense we're going to be finished before the early afternoon. I guess you've just been treated to a seminar in public accounts, but there you are.

D. Eby: I've been travelling around to colleges and universities across the province and trying to wrap my head around some of the issues that they're facing — in particular, projects which are self-sustaining financially. Examples are residences where the rents from the students will pay for the project, a student union building at SFU where a student levy is going to pay for the building.

The school by guaranteeing the levy has created debt. They're not allowed to do that. They're not allowed to get a mortgage to build a residence. They tell me that if they have a lean year for international students or some other unexpected shortfall, they have to actually cut programs to avoid running a deficit. A senior administrator at a major university told me they're shovelling cash into accounts for future employee benefit liabilities that comes at the expense of actual programs for students.

I'm trying to wrap my head around the accounting rules that lead us to this place. Imagine my delight in reading the Auditor General's report and seeing some of these rules actually set out and that there is discussion about them.

I'm trying to imagine the people in the back offices making decisions about things that seem to be completely
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intuitive to everybody else: that while it may be nice to have that safeguard around employee benefits, the priority should be making sure that our students are educated. While it may be an issue to have a university borrow some money, the project is self-sustaining, so why wouldn't we let them do it?

I would like very much to understand, between the two offices, the comptroller general and Auditor General, on the issues of excess of working capital — that is, school districts having $1 billion, universities and colleges having $800 million that they can't use; on the issue of the deficit rule that prevents schools from planning over a five-year period, for example, if they have an unexpected shortfall in that particular year; and on the issue of why schools are not allowed to use the not-for-profit standards, which I understand would address some of this issue of them having to shovel all this cash into bizarre accounts that just sit there.

So those three issues. If you could help me understand some of the discussion around this and where the problem is.

I was really happy to see the comptroller general's presentation where he said: "It should not be a particular accounting standard that dictates what strategies or objectives should be." I agree with that 100 percent. Also, I know in the throne speech in 2010 the government said: "Legislation will be introduced enabling our universities to remove themselves from the government reporting entity. We cannot let accounting policies stand in the way of our students' interests or hold our universities back from pursuing their unique areas of excellence in partnership with others."

It seems like we're all there. The question that I have for you today is: what is stopping us from fixing this?

S. Newton: In relation to no deficits in relation to a school or a university, that is a policy choice on how government wants to manage funding with that organization, not an accounting year-end financial reporting choice. That's an accountability mechanism that's set up with government to hold the school accountable for what they spend.

That's that piece. It's not accounting driving that. That's actually a policy choice on how you plan to manage.

Sorry. You're going to have to remind me of the other elements of your question.

D. Eby: The excess of working capital issue with $1 billion in grade schools and high schools and $800 million in our universities.

S. Newton: Excess of working capital. Cash and cash flow and expenditure are two different things. Any organization's ability to expend money is based on an annual appropriation. So let's say you gave me a million bucks to do something over the course of the year. A number of those items that I'm going to do or spend on will be cash items, like salaries and whatever else. A portion of the appropriation that you gave me to spend will be for non-cash items — depreciation on my assets, those kinds of things.

What's happened with schools is there is a requirement — I believe it's in the School Act — that we flow all the funds out. So there's a legislative requirement there. They get their annual appropriation. All the funds flow out. We're actually paying cash for non-cash expenditures, so that creates a cash balance that increases. That's part of why the cash balance is increasing.

There has been some work done by provincial treasury in order to address that. I don't think — the Auditor, I think, will state that — that it's been wildly successful. It's certainly the right approach and at least the way to start.

I think fundamentally there has to be a look — this is a policy or legislation choice — in relation to funding non-cash items and why you do that so that I think going forward there is a better appreciation of how funds flow to these entities so that we're not funding non-cash items with cash. There's still the legacy issue of how you eat up all that cash.

For a university or a school that has $800,000 sitting here…. To spend money, you need an appropriation for it. If you already have an appropriation for the year of your $1 million — that you've got an extra $800,000 here — you're still limited to your $1 million because that's what's reported out against for a variety of reporting purposes. That's where cash and expenditure are different.

In relation to ideas that are good that will be self-funded — that we should be able to do it and have them self-fund — those entities actually have to be a self-supported or self-contained entity.

For example, if you look at residences and universities, a university could have a government business enterprise that's solely in the business of providing residences for students. The revenue would pay for itself, and it would be considered self-supported debt. It wouldn't be part of the taxpayer-supported debt cap. That is possible, and there has been discussion with universities on that.

In relation to the universities out…. There were several discussions around that, I believe, for a variety of reasons, part of which may be in relation to apportionment of the debt, that that wasn't seen as a viable option for anybody. That wasn't necessarily an accounting issue on that part.

I think, in a lot of these issues, a little bit more needs to be teased to get to what the underlying accounting problem is, but if we use the example of self-supported residences, it is possible to be able to do that. It's just a matter of working through the accounting a little bit more. We have had discussions with post-secondary institutions on that.
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D. Eby: Is there a single example of a school that's successfully done that in British Columbia?

C. Fischer: Actually, most of the big universities have. Good examples are UBC Properties Trust, the Simon Fraser University Community Trust. UNBC has a new community development organization starting up.

We've had discussions with UBC and Simon Fraser about establishing self-supported entities to support future student housing development or student life organizations. We're in support of that. They do have to meet the test of being independent, and that means being fully segregated from the other operations of the university, but it's certainly possible.

D. Eby: Maybe I can just ask the Auditor General to reflect on some of what we've heard here.

R. Jones: Thank you, Member. I'll touch on a couple of these. Bill is currently working on this whole working capital issue, so I'll let him sort of try and paint a picture for you around that. When it comes to the not-for-profit standards, they are changing. I think you will see, probably in the next year or two, that what used to be allowed for schools and health authorities and colleges will no longer be allowed. They will be moving — I believe, anyway — to the standards that are currently in the public sector for not-for-profits to public sector accounting standards.

One of the things the comptroller general mentioned earlier was moving everybody to public sector standards for consistency of reporting and whatnot, and it makes it easier when you consolidate and everything else. I think it was a brilliant move on the part of the government to do that with the NPOs, because that's where it's going anyway. So it's just made it quicker.

Yes, unfortunately, there is out there a concern, I think, with schools and colleges, even in the health authorities, that these new statements that they all of a sudden are seeing are mysterious and not understandable. I think that's a concern, and that's something that our office is currently trying to address.

We're coming up with a document that will give boards 20 questions they should be asking of their financial people on how to take a look at these statements and understand them and make it more useful for the boards in these areas. That's going to be coming out in the new year as well, and it's probably going to be used across Canada. That was that one.

You know, I often hear people say that the accounting policies are driving decision-making. I think the comptroller general has actually almost answered what I was going to say by saying a lot of these are policy decisions of government, in terms of having balanced-budget legislation and whatnot. It can happen that accounting policies can drive some, maybe, different decision-making than you'd like to see, but I think one of the issues is that it's the narrow constraint that's put on financial statements in terms of some of the policies that are in place with balanced-budget legislation and whatnot that create the problems more than the actual accounting policies themselves.

B. Gilhooly: Right. We pointed out in a report we did in 2010 that there was roughly a billion dollars, mostly in the SUCH sector, that was basically trapped in entities financial statements — as Stuart pointed out, largely due to funding non-cash items, such as amortization. Over time, that amount has built up to a large number.

We reported that some of the things we believed were the causes were that there were legislative issues that resulted in the overfunding and also that the organizations couldn't access this cash, so it was essentially trapped. Given that, it also might have created some lack of incentives for how that actual cash that's pooled out there was managed. So were the incentives in the right place to actually use it — you know, to invest it appropriately and have appropriate investment policies?

We reported that out in 2010. Government has provided a couple of self-assessment follow-ups about that. Now it's 2013, and we've decided to do what we're calling sort of a value-added follow-up. We're not redoing the audit, but we're going back and talking to the people that we did from the original work, updating the data and reporting out again on what the status is as of 2013. We hope to have that published by the end of January.

That is, perhaps, a segue into something else that's on the agenda about what the role of follow-ups is. This is an example where we're doing some enhanced follow-up work so that, hopefully, that will be more useful to everyone involved.

D. Eby: The federal transfer rule changes — the report suggests that the government will adopt these rules prospectively. I wonder if there's been a date set for the government adopting that new standard.

S. Newton: We've been reporting out on government transfers straight through, as liabilities, since 2003. So although the transfer standard has come into play, the impact or effect is negligible because of the manner in which we've been producing it. I think the comment from the Auditor General is because, when the standard came in, we didn't restate the past for all the adjustments that the Auditor General feels are necessary. The assumption
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is it's a prospective, going-forward change, so let's make the adjustments all going forward.

There was never an intention to make any adjustments, because we disagreed with the application. So there isn't a date. The standard is already in place. It's required, and how we're following it and how we believe we follow GAAP is how it's presented in the financial statements.

D. Eby: Thank you. Yeah, I understood that there was an opinion that certain federal government transfers do not create an obligation, that revenues should not be deferred and that there would be a date on which the government would be doing that. And the answer is: "The government is already doing that"?

R. Jones: No. What we were saying, in our opinion, was that the new transfer standard has come into effect. What we were told was that if the government had adopted the standard, they would have adopted it prospectively. They're not going to — unless something happens in the next year. But we still have a disagreement on how to account for these transfers.

Had they adopted it, we were told it would have been done prospectively. I tried to make it a little clearer before, but it's a difficult concept. You have a choice. You can either do it prospectively, which is all at once, or….

D. Eby: Then, had they adopted the change last year, you said it would have meant an additional $113 million in revenue. Do you know, for '13-14 fiscal, what the effect would have been on revenue if they had adopted it?

R. Jones: Thank you, Member. I'll clarify this. Unfortunately, this is two years ago, and moving forward, the number would have been much, much bigger because, at that point in time, there were only certain organizations that had adopted the standard back in 2011-12. Then in 2012-13 all of the rest of the public sector entities were coming in, such as the schools, health authorities and whatnot. So at that point in time, it was a much smaller number. Now it's a much bigger number.

R. Jones: We have it in our bulletin. It was, I think, close to $2 billion, if it had been done prospectively.

What I was trying to point out earlier was if you just looked at it for the current year, it would have only been about $71 million if the accounting treatment had been done retroactively — not properly, just in a different way.

K. Corrigan: I wanted to comment on and ask a question about B.C. Hydro and rate-regulated accounting.

The allowance for rate-regulated accounting has been pushed, in terms of dates. Instead of March 31, 2012, the Canadian Institute of Chartered Accountants has extended the provision until 2014. But in the meantime, the provincial government passed the regulation which directed B.C. Hydro to use the U.S. standard.

I have concerns about this. I understand that the purpose of rate-regulated accounting is basically to flatten out the ups and downs, I think, for utilities. But one of the things that the previous Auditor General expressed concerns about was that it wasn't an up-and-down that seemed to be happening in British Columbia. What has happened is that the rate-regulated accounting has resulted, as of March 31, 2012, in $2.5 billion in expenses being deferred. By government's own estimate, that's expected to grow to $5 billion by 2017. I think that was part of the concern that was expressed.

I'm wondering if we could have a bit of an update on and comment on the use, because I think it is another example where what government is doing, although it's okay right now, is overriding the standards.

The other thing I'd like a comment on would be this idea of the separation. Shane talked a little about it earlier. In the U.S. standard, the regulator has to be independent of those being regulated. And because rate-setting has been taken away from the Utilities Commission now, I guess that separation is not there anymore.

R. Jones: I'll just start. As the comptroller general mentioned, at the time this report was done, the 2011-12 year, there still was a great deal of uncertainty around what was going to happen with rate-regulated accounting. Since then there has been a lot of movement in the international area to take a relook at the arguments around whether or not this is acceptable accounting in the utility sector or any sector where there's rate regulation applied.

It looks as though there is a movement towards putting a standard in place that will allow it.

I mean, yeah, we could spend the rest of the afternoon discussing what rate-regulated accounting is and whether it's good, bad or indifferent.

R. Jones: We won't do that. But you will, in February of this coming year, get an update from our office around what B.C. Hydro is doing to address the amounts that are in those rate-regulated accounts — whether they have a
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plan in place to get rid of them and over what time frame. The report will try and better describe for everybody that whole area of accounting and what it means — so another scintillating report that we're going to put out that you can look forward to.

R. Jones: As I mentioned before, we do have some concerns. If, say, the international standard comes out and says that the regulatory body must be independent, then that will be something that both the comptroller general's office and our office will look at to determine whether or not B.C. Utilities Commission is really independent. I wouldn't want to preface our finding at this point in time.

Something that is actually in the public accounts itself is the contractual obligations. I note that in these statements the contractual obligations for the year ending March 31, 2012, is up to what I think is a pretty staggering $96 billion of long-term obligations. That total is a lot.

But the other thing that I think is important is that for the year 2013 in these statements it was projected that the cost for one year to service those obligations was $8.3 billion, which is actually about 1/5 of the budget of the province. I know the previous Auditor General had spoken at times, sort of as an aside, about concerns about the public policy space that was being lost and that perhaps the office was, at some point, going to do some work on this.

I'm just wondering if the Auditor General has any comment, from an accounting perspective, on whether or not there are any accounting concerns — not policy concerns but accounting concerns — when so much of the budget is caught up in servicing contractual obligations. I know we've talked about some of the contracts and stuff and had some interesting discussions over the last few days.

I'm not sure. I'm not looking for policy comments but more accounting. No comment?

R. Jones: From a strict accounting standpoint, this note meets the accounting standards. It sets out what the obligations are over the next few years. They are large. Yeah, they're very big. And it does tie up a certain amount of cash going forward or budget room going forward to meet those obligations. There's no doubt about that.

We have not at the present time got a project plan in place to take a look at the whole area of contractual obligations. It is something that's in our three-year plan that we might take a look at.

But it is what it is in terms of the nature of long-term agreements — P3s, ASDs. I think, on one hand, it does provide some certainty around some payments that are going forward — $96 billion worth. You sort of know those are ones you're going to be meeting.

It does narrow the room for additional amounts, unless you can raise additional revenues to allow you to go forward. But all that does…. The comptroller general weighed in on this one as well.

S. Newton: The disclosure is very unique in that the idea behind the disclosure was to give financial statement readers a sense of: "Are there any large or unusual contracts coming up?" That's the way the disclosure was built. It's evolved in its current state here to be a more complete and fulsome statement of: "What do we think contract obligations are, going forward?"

Any organization has an ability to carry out their work through direct staff or contractors. I would say that the requirements we may have for direct staff, given a lot of our existing agreements, would amount to way more than this as far as payments that government would have to make into the future.

The best place to get a sense of what we're going to achieve in relation to services related to these contracts is to look at a service plan which covers "here's what we're planning to achieve," and it's got both contract and staff payments already included in that.

I think it provides useful information. I think contracting is a choice that you make in order to get either some stability in service provision or whatever the policy choice is. This just provides a clearer indication. As a financial statement reader, you're seeing risk. So that's what this communicates to people as well.

R. Jones: Member, I'll just follow up. Bill just reminded me, and I don't know how I could have forgotten it, that we are in discussions right at the moment with the Minister of Finance and the deputy minister. We're thinking of doing, and we've started planning, a piece on fiscal sustainability and intergenerational equity in the province.

It's very similar to what was done at OAG Canada. It's still in the very formative stage right now of trying to get agreement around what we should be looking at, because it is slightly outside of what we normally do.

But we think that would be a very useful piece not only for government but for everybody to have something like that done. We're in the planning stages of that right now, and we'll keep you informed on that as we go forward.

K. Corrigan: I'm going to ask another question, but just on the comment from the comptroller general that there are staff that probably represent bigger obligations on a year-to-year basis…. The difference with these contracts is that many of them are 25 or 30 years, as opposed to, you know, three or four years depending on what the
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contract is. I think it does take away some flexibility for the future.

The next thing I wanted to ask about was the failure to fully consolidate the Transportation Investment Corporation. We've dealt with this year after year. One of the things that I thought was interesting is that in your statement about this qualification you said, Auditor General, that the financial model developed by the Transportation Investment Corporation forecast, that the entity, will not be profitable before 2017-18 and then that there are variables that could affect the future revenue estimates in the financial model.

Tolls are coming in now, and I know we were talking a little about that earlier. Is this not going to be coming off, this qualification? Are you suggesting that this qualification will not be coming off for a few years, until the corporation is profitable?

R. Jones: Thank you for the question, Member. This is unfortunately the disadvantage of not having the report that's coming — a week tomorrow — out yet.

R. Jones: One of the things, and it is part of the standards that you look at when you're trying to determine whether or not it's a government business enterprise or an organization in terms of whether or not it's going to be consolidated on modified equity or whether it's line by line, is: can the organization, with its revenues, meet its operating expenditures?

It really doesn't have anything to do with profitability. That's the test. Can the revenues meet the operating expenditures? This past year, as you well know, TIC, Transportation Investment Corporation, has brought in the tolls. They started, I think it was, in December. They seem to be getting tolls. We know that.

The model does have forecasts in it for a number of variables that are sensitive to making sure that the revenues will exceed the operating expenses of the organization, such as traffic volumes. Are the tolls going to stay the same? Are they going to go up? Are they going to go down? Those types of things.

When we were in discussions with the comptroller general this year we still left the qualification there, because right at this point in time I can't, for certain, say that I'm happy that there's a track record to show that that is going to occur. What we have agreed to look at over the next year is, as we have history, does it look like that is going to happen?

Hopefully, if everything goes correctly, I would anticipate that at this time next year we may not have that qualification there, because if we do have a track record that allows me to say yes, it looks like government or the organization is following the policies it says it was and that traffic volumes are in line with what they say they were going to be, then it can allow me to maybe get rid of that qualification next year.

K. Corrigan: So when you're saying it's still on this year, you're not talking about 2011-12. You're talking about 2012-13.

R. Jones: It is still in the 2012-13 one, yes. But I temper the discussion in there around the qualification by saying we're just looking for some of that stability into the future. It's one of those ones where we're working through it, and hopefully we can get rid of it.

S. Sullivan (Deputy Chair): I had a couple of questions. I think in light of the time and the other delegates, I'll just make a comment that I recall in school a couple of decades ago there was a lot of skepticism that the provincial government would ever accept GAAP. GAAP was something that you impose on others but not what you do yourself.

It's just a miracle to see how it's come along. I just congratulate all of you for the work in bringing better accounting principles to the government.

L. Throness: Having understood about a third of what has gone on so far…. And that's dropping rapidly, I might add.

L. Throness: I have some fairly simple questions to put. There were four qualifications on this last report. Is that common across Canada? Do other governments in Canada regularly report qualifications like that?

L. Throness: Okay. In the upcoming report, will you be reporting qualifications? You just talked about one.

R. Jones: Yes, there will be still the two — the one that's not going away, which is government transfers, and the TIC Corp.

L. Throness: Okay. And the question that maybe I don't want to know the answer to: how will the new ac-
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counting standards affect deficit or surplus for this year?

R. Jones: That will be an interesting question. Our qualification will…. And we, the comptroller general and I, have had this discussion. As I mentioned, if the qualification had been that we put in for 2012-13, for the current year, it would have been $71 million. Given all the other discussions we've had around prospective and retroactive treatment and whatnot, the impact on the 2012-13 year would have been about $71 million and would have actually reduced the deficit.

I can't at this point in time speculate what that might be for the current year, because it depends on whether there are any new transfers that come in from outside of government.

It is something that needs to be considered, I think, going forward, because if our qualification — heaven forbid — took a modest surplus, say, of $5 million and turned it into a $25 million deficit, what does that do to the balanced budget? We're going to be working through that over the year to address it, and it will be what it is. If that's what happens, it happens. And then there might be some interesting dialogue.

M. Morris: This has been a great discussion this morning. One of your comments that raises a flag for me, I guess, probably because of my background and whatnot, is compliance. I'm quite surprised at the level of non-compliance with management letters and, you know, some of the outcomes.

Is there a cumulative effect — resulting from successive non-compliance with similar issues that have been raised in your previous audits — that is problematic, that is showing up for you? Or do these things kind of disappear in time if they're not…? You know, if nobody pays attention to them, they disappear, and then the next audit raises something else. I'm just curious as to your response with regard to any cumulative effect of this non-compliance.

R. Jones: I'll start off, and I think Bill is itching to get his thoughts in here too.

As far as management-letter points with the Crown corporations, those normally do disappear eventually. I mean, that's one of the key, I think, accountability mechanisms that is in place with audit committees in the Crown corporations: they take it very seriously when we put forth management-letter points or when private sector auditors put forth management-letter points, and they expect to have those cleared. They don't want them sitting around there for years and years and years.

I think we're seeing most of the audit committees take a much stronger view of those. I certainly have noticed it at the school districts. They take it very seriously, and they're starting to make sure that their management does, where they can, make changes.

There are some circumstances that will come up where, for whatever reason, we may have some concerns around an IT system or lack of controls in a system and the organization is taking a couple of years or three years to get those controls looked at. They tackle the most serious ones first and then go down the line. They take the serious ones very seriously and try and deal with those.

From my perspective in the Crown setting, I think they're getting better. We also push the private sector firms quite hard to make sure that they hold the management of the organizations they look at accountable and get those cleared. So we're doing our best.

B. Gilhooly: I agree with what Russ said. The benefit of having management letters is that it continuously improves the control environment of the organizations as they clear them, and that's a good thing. So you'd expect — say, if you took over an audit, and say you had seven or eight points in the one year — by year 2 or 3 to have zero, because if they've adopted your recommendations in those control areas, then you shouldn't expect them to be recurring. That's what I think we've seen in the last year just ended.

We've actually seen a good clearance and pushdown of getting management to fix those control gaps and put them in place. It did ride up to a fairly high number for '11 and '12. But the themes you see in our report…. Sometimes we'll look at those themes and start separate sectoral-type work and looking at controls to see if it's a broader issue. I know Stuart's office is also interested in those systemic issues that might arise.

Sometimes it's the governance, the governing boards as they turn over. It really depends on their attitudes about control. Some have, as Russ said, very strident views about having a strong control environment. In some boards you have less financial literacy or interest in those types of issues, so they tend to get less pushed down to management to deal with those issues in a timely way.

The Auditor can only recommend that the control gaps be fixed. We have a duty to report the gaps that we find to the governing boards. Management is present in the room, and we have these discussions. But we can't make them, force them. We have no powers in that regard. All we can do is let the governing boards discuss with management whether it's cost effective to invest resources to close those gaps, whether they're willing to live with those risks. That's basically what we bring to their attention — control gaps expressed as risks.

B. Ralston (Chair): It's two minutes to 12. I'm going to suggest we recess for lunch and come back at one o'clock.

B. Ralston (Chair): Good afternoon, Members. We're continuing discussion of the report of the Auditor General on Observations on Financial Reporting: Summary Financial Statements 2011-12. The next MLA I had on the schedule for questions was Vicki Huntington.

V. Huntington: Thank you, Mr. Chair. A number of my questions have been answered, so I'll move on to No. 3.

Primarily to the Auditor General, I guess. In previous meetings, in previous audits, there has been an indication that there was real concern in the Auditor General's office with the way in which deep-well credits worked, yet this year there is no reservation. I wonder if you could, first of all, describe the issue that the Auditor General's office had with deep-well credits and the reason for the withdrawal of the reservation.

R. Jones: You're right. In the report on public accounts to come out next week, there is no reservation around the deep-well credits. The issue was around…. Oil and gas companies are allowed to get a credit for drilling down deep into the ground to access oil and gas. This credit is given before they actually start withdrawing the oil and gas. They get credit for the amount they've spent to do the drilling.

Our issue was that this program's been going on for a number of years, and when that drilling is done, we felt that that created a liability on behalf of the government to have to pay out those credits at some point in the future. That point in the future, of course, did depend on whether any oil or gas is actually taken out of each of the wells. Our issue around that was that there has been history around how much of those credits have been paid and that there was a way of estimating what that liability should be.

The government disagrees with our interpretation of that, so in the past we have put a qualification in place. This year the government agreed to disclose that amount in a note to the financial statements, and while we would still like to see it show up on the balance sheet of the province or the statement of financial position as a liability, we felt that the users of the financial statements were provided with enough information that they could determine what that liability actually was. It's in the note, and I forget the exact amount. Stuart's going to give it to me. It's $913 million. It's in there, and it describes what those credits were for and that they will be applied against revenue in the future.

B. Ralston (Chair): The obligation doesn't crystalize until there is a royalty to be paid. Isn't that right? It's not just that you drill and you get a credit for drilling. There has to be a result and a royalty paid, and it's deducted against the royalty.

R. Jones: That is correct. That's why, in discussions with the comptroller general and myself this year — because that is one of those areas where there's a slight disagreement in terms of whether or not, on behalf of the government, there's actually a liability — in our office we felt that this was a good compromise at this point in time.

V. Huntington: Thank you. If I recollect, it was more than a slight disagreement. There was a pretty strong discussion on how this was being handled. I'm surprised that the compromise was reached, because that number….

We realize the future is going to be filled with drilling, and deep-well drilling to boot. Will these credits begin to accumulate in a much faster fashion, as we go forward with the oil and gas or with the gas programs? How long do you anticipate each well will absorb the credits before it starts paying off the royalties? And how long is it going to take to pay down these increasing numbers of credits and the value of them?

R. Jones: Thank you, Member. Good questions. In theory, if drilling and everything increases because there's a market out there and the companies start taking out the gas or the oil from those wells, those credits will be drawn down immediately.

I think you've probably seen…. This is just speculation on my part, because I'm not in the oil and gas industry. There was a slow down, I think, in the last couple of years. There were a lot of wells being drilled, but not a lot of product coming out. That could be a factor of natural gas prices being so low — a number of things like that.

As the Chair has pointed out, because these credits are applied as the gas is taken out of the ground, until it happens, there really is nothing to offset against. How long will that take? In previous years it's been a very low number, so I guess if the industry picks up, you could see those disappear very quickly. Once the credits have been applied against the royalties for the gas that's been taken
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out, then you'll start seeing revenue coming in.

V. Huntington: Mr. Comptroller General, do you know what the credit is? I'm assuming that this credit will basically be applied to almost every gas well that will be drilled in the northeast from here on in, because all of them are deep wells for fracking purposes. So we have to assume that this credit is basically a universal one for the gas business, as we go forward.

C. Fischer: In general terms, the credits are solely an allowable deduction in the calculation of royalties for a particular well. They are limited to the particular well. They are based on a unit measure, specifically how deep the well is below 2,500 feet, I think the measure is. It just goes into the calculation, what the eventual royalties are.

V. Huntington: So it's not considered a subsidy. It's not a fancy word for subsidy.

C. Fischer: No, it's applicable to anyone, and the purpose is to recognize the incremental cost of drilling wells that are very deep and encouraging industry to leverage that resource for economic gain.

V. Huntington: Then to follow up, has there been a difference of opinion between the previous Auditor General and yourself on how to handle this? You say, "Well now it's a note, so we're satisfied," but is the problem not still there?

R. Jones: Thank you, Member. I'm not so sure there's a disagreement. A note disclosure isn't sufficient, normally, to offset a difference in the accounting treatment. I think part of the rationale of taking the qualification off this year was the fact that this is probably, if I remember, the only province that was going to treat it as a liability.

In other provinces, as Mr. Fischer has pointed out, it was treated more as part of the royalty-setting structure, so it went into how much was going to be charged on a royalty. We still don't agree with that treatment. We still think it is more like a subsidy.

Again, with the principle-based approach that the standard-setters are taking, there is room for judgment around when the actual liability does crystalize.

In the end, I took the position that it's better to have it in the note so that it's there, so that people can see it, than get caught up in a technical aspect of it. We still put in our report that we would like to see it recorded as a liability, but the note does point to the fact that this is going to be a liability in the future.

R. Jones: In this case, I think there is enough judgment involved that you could argue either way. Unfortunately, with the principle-based approach, that can happen.

V. Huntington: We were briefly discussing…. I think Marc asked the question about ratings. Was it you who asked the…? No. Somebody asked questions about how the ratings impacted the budget.

I was interested in the response from the comptroller general. I was watching a documentary a few weeks ago, and the discussion around ratings was quite interesting. I was stopped in my tracks when the company who makes or issues the ratings said: "Under no circumstances should the rating be considered an opinion on the financial health of the institution." Now, I just thought: "Well, it sounds like Wall Street talk again, and are we in for a crash?"

Could you explain how they come to the rating and why it's not considered an opinion on the financial health of the entity?

S. Newton: I don't know if I can speak clearly for the ratings. Certainly, the rating agency, as an investor, is looking at your organization or any organization for its ability to pay back debt. They'll look at things like cash flow over time, amount of debt and whether or not that would be paid off. I don't think they're looking at: "Will this business survive well into the future?" I think they're looking at: "Will this business survive long enough to pay off my debt?"

I think it is very much focused on the quality of the debt and the indicators within the organization that would tell you, over a period of time, that you could rate them quite high. Now, when they do look at that, they are looking at things like an organization's ability to meet targets, meet objectives, do what they say, meet financial performance indicator targets as well. I think there's a bit of a….

Although that's not their purpose, I think you can take some degree of comfort, at least in relation to financial health, but I do not believe that they would be certifying anything related to that going forward. I think they are very self-interested in the organization's ability long term to be able to manage and pay off a debt from an investor perspective.

V. Huntington: Mr. Chair, could I go back to the question that I so inappropriately barged in with earli-
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er, which was: how can the comptroller general sign off that he has complied with GAAP when, in fact, there's a dispute about whether or not GAAP has been complied with in certain instances? What is the rationale behind your signature?

S. Newton: I'm signing because I honestly believe that the financial statements are prepared in accordance with GAAP. So the fundamental disagreement between the Auditor and myself is he believes that they are not. I have to make that determination myself, and I take in a variety of bits of information to allow me to exercise that judgment when I sign.

The reason why I get a qualification is because the Auditor's office disagrees with my application of GAAP. It's not going to provide a basis for why there's the disagreement, but I'm pretty comfortable, having done the work and having the backup that we've got and the discussions that we've had, to be able to sign these, that they meet GAAP.

V. Huntington: It's basically — and I don't mean this disparagingly at all — the wiggle room of principle-based accounting.

S. Newton: The Auditor General has explained this a few times, around standards, professional judgment and looking at the principle-based standard and how you would apply that and what conclusions you would come to.

I think, over time, we've actually resolved a few issues by finding some middle ground between the both of us to be able to work within GAAP. There are some choices, to me, that would fundamentally change the nature of the financial statements in relation to GAAP that I can't do. Where there is that opportunity, that's where I think in a principle-based environment with professional judgment we have been able to solve some of those problems, let alone all the problems that never make it in here that we solve long before the audited financial statements ever come up.

S. Robinson: I, too, am really pleased that I chose the profession that I chose, and I thank you for confirming that for me today.

I have two areas of questions. One has to do with the management letters. In the Auditor General's report it talks about the concern about the lack of process by government to deal with management letters, indicating that weaknesses remain uncorrected and that this is starting to get larger. The response from government really doesn't address that, and I just want to know what the comptroller general's plan might be to address this mounting list of management letters that really are not being accounted for over the long term.

S. Newton: Responsibility and accountability to address the management letters on the part of…. Out of the 192, about 160 of them rest with those boards and those entities. As the Auditor General has described and I think Bill described as well, those entities, audit committees or boards will hold management to account to actually clear those items over a period of time. Some items take more than one year to clear.

Management and the boards are well within their rights to look at the control concern that the Auditor General's office has provided to them, look at it and determine what the level of risk is, determine the timing that they would take to deal with it. They are even free to determine that they disagree with the management letter item and feel that the risk is not prevalent or they've got another compensating control in place to be able to deal with it, to address or not address it.

As far as what my office does, we actually get all of the management letters. We get them all complete, a full set. The other piece is that we do follow up on trends with some organizations that are particularly problematic. As you saw in the listing, it very clearly states there are probably a few problematic organizations. So we can work with those organizations, but we can't say: "Do it." It will be their board that needs to do it. I think what we can do is if I truly believe it's going to affect the quality of the financial statements, like create a qualification or create problems with our auditors, we will have discussions on how they need to treat this in order to avoid the problem.

S. Robinson: Is there an opportunity for them to feed back about why they are not following through on these items — for example, if they deem that it's not fiscally responsible to do so, that the costs would outweigh the benefits — so that we can track? Is there a response back?

S. Newton: The expectation would be, at the board level, that that's the kind of information the board should be receiving from management. As far as central government having that board and management be accountable, let's say, to my office for that information, to provide it to me, I think that kind of runs counter to the current governance model.

S. Robinson: But they could, theoretically, say, provide some accountability back to say: "Well, fiscally, it doesn't make any sense." But every year it's going to keep showing up because nothing changes.

S. Newton: Part of that is covered off, and I think the
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Auditor General mentioned that in the IT control discussion we had, through the audit process. In the next year the auditor is looking to the entity — and this is where management and the board need to be accountable, because the audit's recurring again — to have cleared those items.

I think the comment was that 90 percent over time are cleared. So I think you've going to get spikes and drops as organizations take too much time to get to something, or, as the Auditor General said, they'll do the easy ones first and leave the harder ones for later.

The other piece is that these items are management control concerns that did not materially affect the audited financial statements. So from a whole of government preparing the year-end financial statements…. We still can rely on the audited financial statements to put it together.

I've always looked at the management letters as the value-add support that the Auditor's office provides to an entity they've just audited. Given that they've looked at everything — I mean, they pretty much tore it apart to figure out how it works — they would have a unique perspective on how they might improve.

It is a perspective. It's not a definitive, thorough, final opinion on what the exact answer is. It still requires management to do an assessment, and I would expect that the Auditor General would let management know they've still got to do their due diligence on this as well to determine what they're going to do about it.

B. Ralston (Chair): Before we go to Russ, the other 32 that you spoke about…. You spoke about 160, and they were under the purview of boards. Are those other 32, then…? Is it fair to conclude that those are under your purview as part of direct government?

B. Ralston (Chair): So I guess the question would be: what do you do about those?

S. Newton: I follow up with each ministry's chief financial officer and their letter from the Auditor General and have them walk me through what they're doing in order to resolve those. I also bring a whole bunch of other things to that meeting related to control.

That helps me get an assessment on behalf of the chief financial officer — how much reliance I can place when I get their assertion letter to my office — as well as the opportunity to be able to provide feedback as far as what I think needs to be done. They'll still work within their ministries to determine, because they know their business best, how best they're going to meet some of these items.

I think, on average, a number of items spend a couple of years as partially complete before they get completed just because it takes time.

R. Jones: Just to the member's question, as well, for any of you who haven't been fortunate enough to see one of these management letters, I'll try and let you know what they look like a little bit. It think it's fairly common with our office and the firms as to what it looks like.

What we would do is that we might find a control deficiency. We would say: "Here's the problem. Here's why it's something that you should be addressing, because here's the impact that could occur. And here's our recommendation."

That goes to management. Before that management letter point would go to the audit committee to be looked at, management puts a response at the bottom that says: "Here's what we're going to do about it." I think that's pretty common everywhere. We get the same response from ministries as well.

The board audit committee will discuss it. They'll ask management to make sure they do it. At that point in time, when we come back either midway through the next year or at the end of the next year, we will have asked management for an update on where they're at in their progress, and we will have audited that update and provided an update of our own on that point.

Often in other cases it'll say "still in progress," because, as I mentioned before, it could be an IT solution that needs a couple of years to get done. But that is the normal process for these management letter points.

The management letters are quite informative. They do give you information around what management has said they're going to do and updates on an ongoing basis. Is that clear?

S. Robinson: I've seen them. When they don't get cleared, it's sort of like: "What's going on, and why aren't they getting cleared?" That's the part that's curious, for me.

The other question, if I might, goes back to Shane's question earlier, on page 14, about the budget fiscal plan 2012-13 and then 2014-15 and forecasting the deficit and how that changed and how the variance was deemed an oversight by government, "potentially leaving users uneasy and doubting the validity of government's future forecasts and budgets."

I wanted to understand…. I've been on a city council. Whenever our financial manager would come in every quarter to sort of…. You know, usually it was a bad-news story, and then it sort of got better as the year went on because she felt a little easier as numbers rolled through. But if there was a variance one way or another, she would usually come in with an explanation, "This is where we went wrong," so we, as policy- and decision-makers, could say, "Oh gee, we better not make those assumptions again" — helping us be really well informed for the
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next budget forecast, which, certainly in part, is an art.

I am, I guess, curious about why a government wouldn't explain such a variance. Why wouldn't you do that?

S. Newton: I don't think it's a question of whether it's not explained. The question is whether it belongs in the year-end financial statement. These are a year-over-year set of financial statements. All of our financial discussion and analysis are dealing with year-over-year annual trends. In this particular issue it's a difference between a quarterly forecast and a year-end. We don't do Q3 to Q4 in this document. This is budget to actual. So it wouldn't be in this particular document. From a financial reporting perspective, there isn't an answer there.

There are other documents in which government accounts for where it got to over the course of the year. I think one of the highlights — at least, in doing the release of the public accounts — is that the minister does do a quarterly update on where they went from the quarter to year-end in that venue. But certainly, the financial statements have not contemplated quarter-to-quarter changes or variances. It's a year-over-year annual report.

S. Robinson: If I can just hear from the Auditor General — who's sort of made the suggestion in here that the explanation of this variance is an oversight by government — and how that compares to what the comptroller general just said.

R. Jones: I think I go back to what I stated previously, which is: the financial statement discussion and analysis part of the public accounts is an opportunity for those things to be discussed in. It would be a good place to highlight where there have been differences throughout the year, where risks have changed — and to bring to the attention of the reader.

I think our suggestion has been, in the past, that this financial statement discussion and analysis needs to be a bit more robust and provide a bit more information. It's something that, hopefully, we can get to in the future — that these types of things get discussed in there.

S. Robinson: One more follow-up question. Back to the comptroller general. If somebody picks up that document, reads it, and says, "Hey gee, I don't understand this," is there direction on where they go to get further explanation about why the numbers are different?

S. Newton: Yeah, I think there is also the ability to contact my office in there. It's in the intro. There's also the government's fiscal and economic review that would have a fulsome discussion around how things have changed over time and be able to address that.

S. Newton: The other piece that Carl was just referencing is that the third-quarter forecast isn't included anywhere in here. So if we had discussion on it, you wouldn't have a reference number to go to in relation to this. We're always mindful to keep summary at a summary level and keep the document at a reasonable size, given there are other documents that have that.

S. Robinson: That would be on a website, and that would be referred to in there…?

S. Newton: It's on the website. I don't know if it's referred to. We don't refer to it on here.

G. Heyman: I paid particular attention to the issue of the number of management letters, because in receiving statements that would be presented to the couple of different boards that I was responsible for, that was always a concern of mine: what was in the management letter that would draw their attention and require me to either explain or respond?

There's a range of issues here, but one that particularly struck me was in appendix 2, on "Governance and accountability findings in 2011/12." In the "Governance practices," there's this statement:

"We found 49 instances of inadequate governance practices. Of these, 28 were unresolved from prior years." That's well over half — or over half, in any event. "Several issues are limiting the ability of some government entities to govern effectively. These include policies that are not being reinforced or are missing" — and we've seen that show up in some of the Auditor General reports we discussed over the last few days; "incomplete oversight" — again, that has been an issue; "unclear roles and responsibilities, and lack of communication."

The final statement with respect to this letter is: "Weak governance is at the heart of many public sector failures and may lead to the loss of public trust." And of course, the purpose of this committee is to reinforce public trust and ask the kinds of questions and receive the kinds of assurances that lead to public trust.

So I'd like to ask the comptroller general: what measures are normally put in place to address concerns, particularly concerns with respect to governance practices or oversight, that are flagged in the management letter? How can it be that over half of the issues raised one year are repeat issues from a previous year or years?
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S. Newton: Without a detailed breakdown of the specific organizations that these relate to…. It would be different for each organization. Certainly, if it was within the province of B.C., within the ministry envelope, those would be discussions that I would have with CFOs to look at what they have in place within their organizations and whether or not they're fixing that.

Within the broader public sector, it is the responsibility and accountability of each of those boards to deal with those issues. The expectation would be that the deficiencies, as described by the Auditor, be it lack of policy, incomplete oversight — maybe somebody is not reviewing what they should be, or maybe the organization is not looking at the information that they need to look at — would be rectified on an ongoing basis.

The fact that some of them are there for more than one year…. It may be that those organizations have determined that they don't see the risk. Or they do see the risk, but there are a couple of things they need to put in place that might take a bit more time.

G. Heyman: Before I ask the Auditor General if he can shed a bit more light on this, let me first ask: within the consolidated government ministries where there isn't more control, how hard would this be driven? Now, I understand it would vary with the nature of what you thought the significance of the particular oversight was.

Then, in other entities which are governed by boards, most of these boards are appointed by government. Is there a process in place to hold these boards to account, given that they're all in one way or another responsible to the public of B.C. and the taxpayer, and are dealing with taxpayer dollars? This goes to the next issue I'm going to raise on that.

S. Newton: Well, the boards are accountable to the board chair. The chair is accountable to the minister for the operation and conduct of the organization. Within a particular board, if the board is not measuring up and is not meeting the requirements that it needs to meet — subject to the legislation and the tools that are available in the legislation — the minister can step in and do whatever mechanism the particular piece of legislation allows him to do in relation to the conduct of the board.

My understanding with these items is they are resolved quite extensively, based on the Auditor General's comment that around 90 percent are covered off over the course of a couple of years. Year over year, you will have some that stay, either because organizations haven't thought them high-risk enough, or frankly, some of them might not have done what they were supposed to do.

Within government we can push pretty hard. If there's a substantial management or governance failure within an organization, I've got the ability to go talk to any member within the ministry — usually starting with the financial folk but even the deputy — to say, "We've got a serious problem that needs to be resolved," and look to having it resolved.

Year over year, when I get the management letters again, that's part of the discussion that I have with the chief financial officer around where these issues are going so that we'd be able to note them and address them.

G. Heyman: Should I take from your comments that there is actually an active tracking of what happens to the concerns that are raised through management letters, particularly the ones that are most significant?

S. Newton: In the CRF, yes. More broadly, we're looking for broader trends in the broader public sector and looking at what we may need to do in relation to the quality of financial reporting to be able to deal with it.

G. Heyman: There's another statement that says: "Additionally, we continue to notice in some areas a lack of policy for managing cash held by organizations to maximize return." On the one hand, it may seem like a small thing but probably isn't, given the significant amount of money we're dealing with. Presumably, most of these organizations have people with the expertise to actually plan and develop a strategy to manage cash in the most responsible way possible with respect to maximizing return.

Given this comment in the management letter, has there been any framework or guideline or directive put together for various entities to help guide them both to pay attention to this and to take the measures necessary to maximize return?

S. Newton: I think the report comment relates to — the Auditor General can clarify if I'm wrong — the stranded cash in a number of these organizations and whether or not there's a clear policy on how we're going to deal with that.

There is work being done out of provincial treasury in order to address the stranded-cash issue to ensure that it's used in the most optimal way. I think the progress will be re-evaluated by the Auditor General shortly to be able to get a sense.

Because we're dealing with entities that are separate and distinct from government and they have elected boards, the thought that government is going to be handling their cash and be able to manage it centrally is a difficult issue to work through.

There have been some pilots in place on how government can manage the cash centrally to reduce borrowing. There's more work to be done. But I think that's what that relates to, and I think the Auditor General can clarify if that's not my understanding.

G. Heyman: As you clarify that, let me also ask you to
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address the question about whether you think I'm reading too much into the repeat of unresolved issues or the number of unresolved issues, or if this is…. Well, it was in a management letter, so I assume it's of concern.

R. Jones: Thank you for the good questions, Member. I'll address that question, and I'll let Bill, because he's doing some work around the working capital and whatnot, address the cash one.

I think it is a concern — most of these governance issues. As the members have probably seen, two of our reports later this afternoon deal with governance, so we take governance very seriously across the broader public sector.

A couple of examples that I can give you around governance-related management letter points that maybe haven't been addressed are…. As some of you may be aware, for some of the Crown corporations we would like to see the board be independent. That's not always the case.

In the case of Transportation Investment Corporation, the deputy minister is the chair of the board. Because we don't think that is good governance…. It is government policy, though, so we can't really comment on the policy, but from a governance perspective, we may put a management letter point in that says: "We think the board should be completely independent."

Another one that comes to light is around something like the Liquor Distribution Branch. It's run and treated much like a Crown corporation, so we have for years put a management letter point that says government should look at maybe making it a Crown corporation and having an appropriate governance regime in place.

Another group of ones that maybe come to the fore is around school districts. I know school districts are very different, and they are elected officials that are on the boards.

But one of the points we tend to try and make is that it might be useful for the finance and audit committee of the school districts, made up of the trustees, to try and get some outside financial advice to come in and sit and advise on financial statements.

That doesn't happen in all the school districts, but it could happen in some of the smaller ones where you may not have that expertise.

Those are some of the ones that are repeats. In most of the other ones, the ones that are addressed and have come off the list…. It would be around: is there a code of ethics in place or isn't there? We found some places where there isn't, so we put that in the management letter — a pretty simple thing to fix, hopefully, in one year.

Some of these are…. It is promoting good governance. All of our reports that deal with governance, as well, are trying to promote that across the public sector. While we're out there doing our financial audits, we take a look at those things too.

This is digressing a bit, but when we're developing our audit plan, one of the key things we look at in terms of risk within an entity is: is there good governance? Is there good oversight? Does it give us a happy feeling that the financial statements and financial transactions and internal controls are being looked at from an oversight point of view?

If we see anything in there that isn't, in terms of good governance, we'll put it in a management letter point.

G. Heyman: Of the repeats, would you say any of them were issues that were…? I mean, I understand with some of the issues there's just a simple disagreement, or government isn't going to put the Liquor Distribution Branch into a Crown corporation unless it wants to. But are there ones that you think are outside of that policy realm, if you like, that you think needed to be addressed that weren't? If so, do you deal with that slightly differently in your management letter than you do with the ones that are in the realm of disagreement or of a lower order of importance?

R. Jones: I think, as I've mentioned previously, anything we put in that management letter we consider to be significant.

R. Jones: I'd just like to reinforce that. We just don't put them there for the heck of it. I would say we take each one of them very seriously. There are some, as you've just pointed out, where it's a little more difficult to deal with because it may revolve around government policy. But we take them all very seriously.

I think maybe what we could do for the committee, if it's your pleasure, is take a look at these ones that are still outstanding and provide you with a list of what types of items they are.

B. Gilhooly: I just want, first of all, to make one clarification. The results of these management letters and these rollups into themes — you shouldn't read too much into them. These weren't audits. This is just a scorecard of the items that we collated. You can't draw broad conclusions necessarily from the numbers that are in there.

When we do find what we think are systemic issues, we may start a broader piece of work that's assurance-based. For instance, we've been each year now cycling
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through the SUCH sector doing governance reviews that Malcolm Gaston from our office has been leading. That's where you can get more definitive, conclusive information about the nature of the findings, where the issues may lie and what we recommend some of the fixes are for the findings and the causes of those.

The other one is regarding your comments on managing cash. That was to do with the SUCH sector. What we noted when we did that work in 2010 and since then was that a number of organizations didn't have a policy for managing investments. Either they didn't have one or it wasn't very robust — especially, I think, in the advanced education sector.

What that ties into was we observed that there appeared to be a lack of appropriate incentives for managing that cash because the organizations felt, in their words, that it wasn't their cash. So they didn't have the incentives to have a robust investment management plan in place with appropriate returns based on their risk appetite.

However, government did, to its credit, go out there and survey all those organizations. What I understand now is they all have investment management policies in place in that sector.

S. Newton: And then that's part of that other broader piece of work, which is to deal with stranded cash.

G. Heyman: I don't know whether to be thankful that investment management policies are now in place or to be appalled that they weren't previously, but I'll figure that out later.

I look forward to the categorization of some of the management letter concerns. You'll appreciate, I'm sure, that we've had a large volume, in this particular set of reports, to look at. If I've missed anything that would have made the answer more obvious to me, maybe next time I'll catch it.

S. Simpson: I've got some quick yes-or-no questions, maybe. I've got three yes-or-nos, and then one that's a little more.

S. Simpson: No. So they are attached to that particular drill. Any royalties coming off of that well, should it go into production — they can't transfer them, sell them or use them for another well that they may be using themselves.

S. Newton: No, they're not transferable, nor are they refundable, which means they don't work unless there is….

S. Simpson: So unless there's a royalty regime put in place because they're producing product.

S. Simpson: This is for the Auditor General. Now that the Transportation Investment Corporation is realizing revenue…. I know the dispute before. Now that it's got the revenue coming in off the Port Mann, does it qualify as a GBE in the eyes of the Auditor General?

S. Simpson: Tell me why, because I thought the primary issue was that it didn't have a revenue stream.

R. Jones: Okay. One of the things we're looking for is some trending as to whether or not a number of the factors that go into producing this revenue are going to come into fruition. The model that was put in place that has been discussed before has certain assumptions around traffic volume, type of traffic going over, collection rates, rebates, tolls at a certain level and whatnot to generate enough revenue to cover the operating expenses.

We felt that at this point in time there was only about three months worth of history around that, and it was an unusual sort of time frame as well. There were some incentives put in place to get people to start using the bridge, so it maybe wasn't totally representative of what was going to happen in the future.

What I'm hoping over this current year is that there is some sort of indication to us that things are progressing along what was in that model. If so, I would have to really seriously take a look at the end of next year as to whether or not a qualification would still be appropriate.

S. Simpson: You need more of a track record before you're prepared to move from the current position. Fair enough.

On page 33 under "Disclosure of capital lease obligations," you list about $184 million of capital lease obligations that the government currently has. There you note that the government has only provided details about one of these leases, PHH Vehicle Management Services, which is about $11 million, or 6 percent of that total.

You then make some comment, but down in the fourth paragraph you say: "We recognize that it is impractical to provide details of all leases throughout the reporting
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entity, but we pointed out that the government needed only to provide details from three additional specific leases, and they would have covered almost 90 percent of the total obligation."

Am I to understand that there are three leases out there that have about $150 million of value between them? If so, do we know who they are?

R. Jones: I don't know offhand. I don't have that information in front of me. Carl might, though.

C. Fischer: Yes. The big one is, I think, the Gordon and Leslie Diamond Centre. The reason that we haven't included additional disclosure on that item is that we don't have the information from the Vancouver Coastal Health Authority, or we didn't at that time. We have been working with OAG and the entity to gather up the information for a sufficient period so that we can expand the disclosure.

We don't have any problem with the recommendation or the disclosure. It's one of those items that we didn't have a process in place to kind of identify those situations across the government reporting entity to identify where significant leases were.

C. Fischer: Off the top of my head, I don't recall. But the Diamond Centre is the big one.

R. Jones: We have it. We just found it in the current public accounts. Thompson Rivers University has a lease agreement, and it's for land and student residences. The Diamond Centre was the other one. Those are the three big ones.

S. Simpson: So they'll be in the report that comes out the next go-round, or that report there.

R. Jones: Yeah, that concern has gone away now because it is now being disclosed.

S. Simpson: Great. Then I have one other question, and it comes on page 51 of the report, "Status of prior years' recommendations." There I see there are about 30 recommendations that have been listed by the Auditor General that are still outstanding and that there's been no action on from previous reports.

I'm sure that we could all be interested in a number of them, but I'm interested in one particular one, which is the "Transparency and utility of contracted obligation disclosures." Essentially what this says, and it's been noted in at least three places here, is: "We recommend that government provide more complete disclosure of the anticipated payments to be made after five years so that stakeholders can fully appreciate the duration and timing of these obligations." Then it essentially repeats those recommendations a couple more times.

I'm assuming that this would include things like private power. It may include things like alternate service delivery arrangements. Could maybe the comptroller general or the Auditor General flesh out what we are talking about here? If the obligations are for longer than five years, why isn't the information available telling us what those obligations are past the five-year plan?

C. Fischer: Okay. In the Public Accounts, in note 26 on page 77 is the schedule of contractual obligations. You'll see that in accordance with PSAB GAAP, we've disclosed the estimated future payments under all these types of contracts for the next five years and then from 2018 and beyond, so we do include the information. I think the Auditor General's point a few years ago — I think that was about three years ago — was, "Maybe you can expand that and provide annual breakdowns," I guess for each year for a longer period.

We have looked at the issue. There is a cost to doing that. Estimating the future cash requirements arising out of long-term contracts is kind of outside the existing set of transactions or systems that govern accounting. Really, to be able to do that consistently over the GRE, we're looking at a corporate contract management system which had the capacity to address contractual obligations.

There are no other trends in financial statement reporting. This existing disclosure going to five years and then into perpetuity is pretty much well beyond any of the other future-oriented information there. We don't have any position on additional disclosure of contractual obligations, including details in the out-years, major terms of contracts, any of the other recommendations that have come up. We just won't see them as being best served within the narrow confines of summary financial statement disclosure.

B. Ralston (Chair): If someone wanted those details…. For example, in (a) it says "key renewal and termination options." You're saying that you support the disclosure of those details of the contracts because then you could provide those to a member of the public or even a member of the Legislature, if they were to ask.

C. Fischer: Theoretically it could be done. The big problem now at this point is that it's impractical to do it. It would be extremely expensive, and there's no immediate-term solution in the nature of that system that would allow that information to be aggregated and easily accessible and available.
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I think whenever there is a question related to long-term contracts, we do have to go back to the entity that holds and manages the contract to get that answer. I've never experienced a situation where people have been unwilling to answer them.

You know, we did make the attempt to provide a bit more detail in a schedule that we include on our website, which I think the committee has all seen over the past few years. That largely has answered most of the questions from the public that we have received. Beyond that, that's currently the limitations of the technology and the resources we have to deal with the issue.

S. Simpson: I guess the concern here is…. I can't recall what the exact number is, but it's tens upon tens of billions of dollars on private power and B.C. Hydro and what's incorporated in the obligations and commitments. We're talking billions upon billions of dollars of commitments here.

I accept that there are some challenges, but I find it hard to believe that we — whether it be B.C. Hydro or the government or individual ministries — made commitments out 25, 30 years for tens of billions of dollars without having a pretty good idea of what it was going to cost every year heading out, or some kind of idea. If they signed those agreements without knowing that, that raises a whole other question about whether due diligence was done. So I have a bit of a problem with the answer in the sense that it's, you know, inconvenient.

My question, then, to the Auditor General is: could the Auditor General comment about the importance in terms of public confidence and the importance in terms of proper financial planning to be able to know what those numbers look like heading out year after year? I'm assuming that's why these recommendations have been put here — so that we would have some certainty. If I'm wrong about that, I'd love to hear the answer about why these are of concern to the Auditor General.

R. Jones: Thank you, Member. One of the other things that we did recommend, as well, in these recommendations was to put comparative numbers in so that on a year-over-year basis you could compare. Looking at note 26, it doesn't seem to have that in there, so that's something that's also missing.

I mean, it's very important, I think, for people to be able to understand what types of contractual obligations are out there. Whether that's…. That wouldn't be best served putting into this report, because it would be many, many, many pages. But it would be, as we've suggested, a supplementary schedule of some sort that would give the information that would allow somebody to mine through that data and get a sense of what the contractual obligations are that are out there, even if it was maybe done by sector. How much of it relates to the natural resource sector and whatnot might be very useful for people to take a look at.

S. Newton: In relation to contractual obligations, we know the contracts. We know the amounts. We know, over the life of the contract, what's expected to be paid. The difficulty is if the contract is based on volumes that occur in any period of time. What Carl was referring to is the ability to actually estimate, in any given year, what we think that set of expenditures would be.

I don't want to leave you with the impression that we're letting contracts and have no concept of what they would cost over the long term. We do.

The issue is that some of these are for services, and so the question is: how much service would be delivered in any particular year versus another particular year? We'd have a rough idea but no clear, exact sense. I think, from a public reporting perspective, on a set of financial statements we would want to have a firmer number.

Certainly, I would…. Just something that the Auditor General said. That is not part of what we would include in a financial statement note. That's well beyond the financial statement, so it's an issue for something other than financial statements.

S. Simpson: I appreciate that. I know, though, the government…. We see the documents all the time — forecasting documents — where the government forecasts out and projects out two, three, four, five years ahead. There are always some of those uncertainties. You know, we see them all the time when we see budgets that don't turn out to be quite what we thought they would be, when you realize them, because of changed circumstances.

So it may be that it needs to be put in a different kind of document, as the Auditor General has suggested. But I believe, as you said, you know what your expectations are or what the range is and what you expect. It would be fair to put that together with the caveat that these are forecasts and that forecasts always are open to the realities of the situation when it's realized.

I just think it would be very helpful to know what that information is, because it's an awful lot of money, and it's an awful lot of financial commitment and obligation to the taxpayers of British Columbia — potentially hundreds of billions of dollars. It would be worth knowing what we're looking at.

L. Reimer: Thank you very much for your detailed presentations, both of you. I can't imagine what it would be like to be you.

B. Ralston (Chair): That's not required to be on the
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committee. It's not an obligation of a committee member.

L. Reimer: Given that we're all here to increase…. George mentioned it — increasing the public trust — and Shane also mentioned it, actually, and we're also here to increase transparency and accountability to our public. I'm trying to think, with everything that's gone on today and the complexity of everything and the fact that you're not able to agree on, necessarily, interpretation of standards and what have you…. We also saw that to some extent with the Pacific Carbon Trust file.

Are you both feeling like we are moving forward towards transparency and accountability? When we're having to deal with all these complex issues and new standards coming out, etc., are we moving in the right direction? Are we accomplishing what we want to accomplish for our public? If you look at where we were ten years ago compared to today, are we in a better place?

S. Newton: Compared to ten years ago, yes, I would say we were in a better place. Certainly, I think the way both our offices are working together, we are trying to get to some more commonality so that we can decrease, sort of, the differences. That enhances the credibility of the financial statements.

The issue I have with the way some of the standards are going, though…. Although from an accounting perspective they may be addressing some issues, I think the interface with the user is not there as well as it could be, so there could be issues in relation to transparency.

However, having said that, looking at the work that PSAB is doing in relation to the conceptual framework and looking at how standards are set up and what they're designed to do to help users, I think we'll eventually get to that place. I think there will be some hiccups along the way, would be my rough guess.

R. Jones: Thank you, Member. I'll use two hats here — first, my Auditor General hat. I'm encouraged from the discussions that I've been having with Auditors General across the country. I think most of us are fairly close together in agreement on everything that's going on. You know, this province is a leader when it comes to implementing generally accepted accounting principles, and I would say that the Office of the Auditor General of Canada and a couple of the other provinces are right there as well. There are other provinces that aren't quite there, but I think we're in a good place.

Putting my Public Sector Accounting Board hat on, the board is made up of a number of different types of users of financial statements. It's not just Auditors General, or it's not just comptrollers general. There's myself and the Auditor General of Canada. There are a couple of comptrollers general. There are people from the municipal area as well — there are three of them — and there are actually a couple of people from Treasury Board in various provinces across the country.

The intent is to make the standards useful to readers of financial statements, to get the right information into those financial statements so that governments can manage well, that there's transparency and just to make them very, very useful when they're put out and that they're comparable across the country. I think that's a key thing. As the comptroller general mentioned in his opening remarks, comparability is really important.

As I've stated before, one of my concerns is…. If different governments, for some reason, don't like what the standard is trying to do and decide to go and try and modify it or adjust it to suit whatever purpose they're looking to suit it for, I think that's not healthy for not only province that you're in, but it's not healthy for across Canada either.

I really think the environment out there, from the Accounting Standards Board point of view, is that we want to make this useful. We don't want to be bringing in standards that aren't going to help the decision-makers and the users of these financial statements.

The due process that's gone through when a new standard is being thought about at the Accounting Standards Board is one that can go anywhere from two to four years. In some cases, with government transfers, it took about eight.

It's not looked at lightly, and we always seek the input from all parts of government before we go ahead with these standards. It's not something that the ten of us on the board just do. There is a lot of due process.

L. Reimer: Just one follow-up question to that pertaining to comparability with other provinces in Canada. Are we also looking at other countries that may have similar types of political systems as we do?

R. Jones: Thank you for that question. It was probably something we should have mentioned right off the top.

The international sort of comparator to our standards here in Canada, the public sector accounting standards, is what they call IPSAS, which are international public sector accounting standards. Whenever the accounting standards are being looked at, at a board level, we look to those standards to see whether they have anything in place that we might borrow or improve upon.

I'm not saying their standards are…. From my standpoint, our standards are a bit better than theirs, but I'm a Canadian, not an international person. But they are good standards as well, and they do provide some useful information.

When we're developing standards in this country, we also take a look at the international financial reporting
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standards, which you've heard discussed before, for government-reporting entities or business entities — that's what they use — because there's some useful information there. We also look to the U.S. to look at what's in their standards.

It's trying to take the best of everything and integrate it into Canadian standards so that there is comparability internationally as well.

D. Eby: On page 30 of the report, Mr. Jones, your predecessor wrote: "Our office has requested written analysis to support government's accounting position for government transfers. Our first request was over a year ago. We have not yet received it."

Have you received that written justification for the government transfer position of government?

C. Fischer: Over the years I think we've shared an awful lot of written work and had an awful lot of discussions. I don't believe that we've taken the position of having a standard that is different than that described in PSAB.

D. Eby: I guess I was just asking…. "Our first request was over a year ago" implies — and I don't know if that's accurate — there was more than one request for this document, which is a written analysis that justifies the government's accounting position on government transfers. The answer is that you have not received that.

Then the reason, from the comptroller general, that you haven't sent that justification or that there's not a written analysis.

S. Newton: I would say that the level of dialogue between the two offices, including the work that was done on the paper that the Auditor General has on their website in relation to government transfers…. It's pretty clear, between our two offices, the basis of our opinion and conclusions.

S. Newton: No. There's discussion back and forth, and there have been edits and dialogue around government transfers, at least in relation to the write-up that the Auditor General had.

As far as a written analysis, I don't know if that would enhance any of the discussion thus far. I think it would be….

Would a written analysis enhance your understanding of the government's position, or would it be beneficial for us to understand why the government takes this position?

B. Ralston (Chair): Sounds a little less than sincere, that thank-you. [Laughter.]

R. Jones: No, it's a very good question. I'm just trying to think of how best to answer that for you.

One of the things we were requested to do was to provide our position to the comptroller general, to say why we disagreed with the position they were taking in the regulation that was released.

The regulation that's been released is what it is. It says: "Use the old standard." Would a paper explaining why that was the case help? It certainly wouldn't hurt. It would be useful to understand why the comptroller general thinks that using an old standard that was based on a private sector model still makes sense.

B. Gilhooly: I just wanted to clarify. Normally, the way the process works is if we identify an issue at the summary level, we'll prepare an analysis with our recommendation for the adjustments that would be needed to these statements. That goes to the comptroller's office. They look at it. They'll write their written analysis.

Most of the time we agree to agree, and the issue is either adjusted in the accounts, or we agree that perhaps we didn't have all the information to clarify the particular issue. In other instances, where there are new standards coming down, we'll look for some initial analysis from the comptroller's office, and then we'll do our due diligence and our interpretation of that and pass that back. That's usually how the process works.

I think a good example is…. We did that recently for endowments in universities. That's sort of the normal process — where we got to the right place, and we were both satisfied.

This was an anomaly, and it was very significant. It is a document that we did request early on, before the standard was in place, so we could understand the implication of what that would be on our audits and the audit
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opinions in the system.

D. Eby: In the report it also says: "We have…noticed other unintended consequences of balanced-budget legislation, including the buildup of excess working capital and the focus on short-term financial performance."

I'm wondering if there are other examples of unintended consequences of the balanced-budget legislation, other than the buildup of excess working capital and the focus on short-term financial performance, that this committee should be aware of.

R. Jones: Thank you, Member. I'm just trying to think off the top of my head. I think the working-capital one is definitely one of the larger ones, and very important. That buildup of excess cash is that.

In the past one might…. You've probably heard the saying March Madness, in terms of spending, to try and get rid of the money because if you don't spend it, you can't carry it over. I'd love to say that that doesn't happen anymore. I'm pretty sure it probably still does.

One of the things that we have noticed is…. I won't mention the name of the organization, but in the education sector, as you may well know, there are foundations that will provide bursaries to colleges and whatnot.

Something was brought to my attention not long ago where the organization was trying to determine how they could move money back from the college to the foundation so that it could be used in the following year, because it couldn't be used if it was left in the post-secondary education sector. Those are the types of things.

You know, as long as there is that pressure from balanced-budget legislation there, I'm sure organizations — there are some pretty smart accountants out there that are in these organizations — will try and figure out a way of freeing up some of this cash to be able to use it, because money is tight.

D. Eby: My last question, which follows from that…. I think that everybody around this table has an interest in financial responsibility and in balancing budgets. On page 17 you say that other jurisdictions and large organizations focus on an array of financial indicators to ensure cash flow is being managed and that the organization is living within its means over both the shorter term and the longer term. That's all the detail that you provide there.

I wonder if you could expand on that a little bit in terms of what this committee should be aware of in terms of longer-term and shorter-term planning that might be preferable or that might be more accurate than what we're doing right now.

R. Jones: Thank you, Member. I think this gets back to…. That's one of the reasons why we want to take a look at the whole fiscal sustainability of the province. Unfortunately, sometimes this balanced-budget legislation or need to balance the budget will promote short-term decisions that may not always be in the best interests.

One of the things that I've been thinking about anyway was…. The balanced-budget legislation, it is a good piece of legislation, I think. Most of the provinces now, I think, have embraced the concept anyway. The legislation is fairly old. It has been around for a long time. Accounting standards have changed significantly since it was brought in, and I'm not so sure that it's keeping pace with the way the standards are changing. Maybe it's time to go back and see if there are some mechanisms that can be put in there that would promote better long-term thinking.

B. Ralston (Chair): Last questioner, not question. I would expect you might have more than one question, but not a lot more.

Following on the questions that Shane was asking about the status of prior years' recommendations with regard to contractual obligations, we do have — with the P3s anyway, and I would assume that probably something similar exists for the big independent power projects — at the time that the project is being considered the comparison of the expected cash flows year by year right through the length of the contract for the public sector option versus the private option.

I have asked for that information and have received that information for a number of projects. I think that information being publicly available, at a start, would be useful information, because we do have the projection when we get to the year — there may be a change — or maybe even a couple of years ahead when things are changing somewhat.

I've been looking at those cash flows, and the actual money going out — you can look retrospectively — is somewhat different in some years. But even looking ahead, what the expectation is, I think, would be very useful.

I also think it's useful to be able to look at individual projects. Now you can do that. You can go electronically and see the individual projects year by year, what is being paid out, and that's useful. But I think having that easily available is important.

The question I had, though, also refers to something that Shane said about the accounts becoming more difficult to read. That's his sense of it. I know that in these prior years' recommendations, repeatedly a number of recommendations have been made by the Auditor
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General that would help with that — for example, the disclosure of changes in budgets, so that you can have a more transparent idea of what is happening.

The complete disclosure of prior year adjustments, on page 51. Those would help people, particularly those that are not financially or fiscally literate, understand the year-over-year budgets.

I'm just wondering if perhaps the comptroller general could let us know whether or not it would be possible to have, for example, the comparative cash flows so that we could understand that and then why it is that those recommendations — with regard to disclosure of changes in budgets and other provisions that would make it easier to understand year over year what's happening with the financial statements — have not been implemented.

S. Newton: Related to the cash flows, I'd have to look into how we can do that. So I don't know if I can answer your question yet about the ability to do that, but we'll take a look and see what is possible.

C. Fischer: GAAP requires a comparison of the original or authoritative budget amounts in both the statement of operations and in the detail throughout the schedule. The Auditor General three years ago, I think, recommended that there was a notational update or an update for comparative purposes in one of the interim periods and suggested that that update might be included as the budget column.

GAAP is pretty specific. It says that the budget amount is the comparator and no updated amounts for notational purposes, as opposed to the authoritative budget that is authorized by legislation. It's a pretty easy decision. We do have to stick with the budget amount.

In various other documents, the quarterly and interim reports, Treasury Board staff provide update information and changes to originally budgeted amounts and the nature of the forecasts. They also do a pretty good job in the annual financial and economic review of running through the year and providing tables of how forecast estimates change from quarter to quarter throughout the year.

We haven't conceived of including that in the public accounts information because it relates to the budget rather than the financial statements at the end of the year. I don't know off the top of my head that we would have any opportunity to satisfy that information requirement in this document.

R. Jones: Thank you, Member. I was just going to comment that one of the major issues we had in this past year, which we found interesting anyway, was with school districts.

As Carl has mentioned, the standards require the approved budget to be the budget that's used in the financial statements. School districts, of course, change their budgets after about nine months to reflect enrolment and other things. We had an interesting time trying to remind them that it was the original budget that should be in the statement of operations. Whatever the original one was, you compare it to the actual.

Many of those school districts put the revised one in and, in order to avoid getting a qualification in their financial statements, in the notes described why there was a difference between the original and the one that they put in those statements. It is one way, I guess, of getting around the concern about changing budgets and whatnot. In that case, that was good disclosure. That was good information.

I believe that in the public accounts — I can't put my finger on it — there is in one of the notes, if I'm not mistaken, a reconciliation where if the original estimate has changed throughout the year, it shows what the change was. I don't know if it actually says why it changed, but there is a reconciliation to the revised estimate if there is one.

B. Ralston (Chair): Great. Thanks very much. I think we're finished on this report.

I want to thank the Auditor General and the comptroller general for their presentations and their answers to the questions of members.

R. Jones: Just a quick point of clarification. I was reminded that that's in the ministerial accountability report, I think — that reconciliation — which is still good that it's there.

And earlier I had mentioned that if the treatment of the government transfers standard…. I think I erroneously said it was $1.9 billion. It was $2.9 billion that the difference would have been, prospectively — my mistake.

B. Ralston (Chair): As we've done with others, we'll adjourn debate, in terms of dealing with recommendations in the future, if we get to that point. Other than that, thank you very much.

We'll take a couple of minutes to switch over to the next item, which is the Development Initiative Trusts: An Audit of Legislative Compliance and Public Accountability Practices in Three Statutory Trusts.

B. Ralston (Chair): We're about to begin our consideration of a report of the Auditor General, Development Initiative Trusts: An Audit of Legislative Compliance and Public Accountability Practices in the Three Statutory Trusts. I gather there are representatives — I think the CEO in each case — of the three trusts concerned and a couple of people from government who will be introduced shortly.

I'd turn it over to Mr. Jones as the Auditor General to initiate the discussion.

Auditor General Report:
Development Initiative Trusts:
An Audit of Legislative Compliance
and Public Accountability Practices
in the Three Statutory Trusts

R. Jones: Thank you, Chair, Deputy Chair and Members. With me today and who will be doing the presentation is Keyvan Rafiei. He was the lead auditor on the report. Morris Sydor had to leave. He was here. He was the assistant Auditor General that oversaw this report.

The Auditor General Act authorizes the office to conduct audits outside of the government reporting entity when public funds are involved. In other words, we can follow the dollar, if we need to, to any organization outside of government in terms of making sure the funds are used appropriately.

This is one of those rare circumstances. This report represents the first time my office followed public funds that were provided to organizations outside of government control. It brings together three audits of not-for-profit corporations that are independent of government: the Northern Development Initiative Trust, the Southern Interior Development Initiative Trust and the North Island–Coast Development Initiative Trust.

I would like to thank the boards of each of the trusts for their cooperation and willingness to have us come in. It's, I'm sure, a daunting thing to know that the Auditor General wants to come in and take a look at things.

While we have some recommendations in this report that will further improve the accountability, the results of this audit, of all three audits, is very, very positive, I think, and reflects some good practices for public accountability reporting by agencies that are receiving government funds.

If anybody ever thought we didn't do some good reports and report some good things, this is one of those. Other arm's-length organizations, I think, can benefit from these recommendations and best practices in this report.

I'm going to let Keyvan take you through our slides, and then look forward to hearing from the three trusts.

The publicly funded Northern, Southern Interior and North Island–Coast Development Initiative Trusts, which we have referred to as statutory trusts in our report, were enacted in 2004 and 2006 to support economic development and job creation in their regional communities. Under this new funding model, $285 million in provincial funds were provided to these trusts. These funds came, in part, from the sale of B.C. Rail. This model leverages provincial representatives and local government to make decisions at the local level.

The map of B.C. that you see here shows the regional boundaries of each trust. These trusts are governed efficiently by volunteer boards that are made up of provincial and regional representatives that are committed to their regions.

The illustration you have here, which you can also see on page 26 of our report, in appendix B, identifies the types of entities that typically receive funding from government. The three statutory trusts are situated on the left-hand side of this graph, which places them outside of government.

Even though these trusts are outside of government, they were set up with provincial funds. As a result, we conducted our audits under section 11(6) of the Auditor General Act, which empowers the Auditor General to audit an individual or an organization concerning a grant received from the government. The purpose of such audit is to ensure that the terms and conditions of the grant have been fulfilled.

This report represents the first time that the Auditor General's office has followed public funds outside of government control. We carried out our audit to determine whether the three statutory trusts are complying with the requirements of their legislation and also to determine whether they meet public accountability reporting standards.

Our audit criteria were based on the trusts' governing legislation as well as recognized good practices that currently exist and are used in B.C. We noted, however, that these good practices were not legislated requirements for the trusts. The good practices that we used in development of our audit criteria were the B.C. reporting principles and our office's guidelines for developing relevant key performance indicators, or KPIs.

Based on the work we performed, we concluded that all three are substantially meeting the key requirements of their legislation. We also concluded that the strategic plans and annual reports issued by the trusts reflect some positive public accountability practices. However, as there is always room for further improvement, we stated that the trusts could focus on the quality of their public reporting.

As our first objective, we assessed each statutory trust's
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compliance with all aspects of its enabling legislation. We did this to determine whether these trusts were established and operating as government had intended.

In carrying out our work, we found that all three statutory trusts are substantially in compliance with the key aspects of their legislation. This means that they have all established their governance structure with accordance with the legislation, they have created accounts and managed their finances within their legislated purpose, and finally, they produced the required strategic plans and annual reports.

For our second objective, we assessed the statutory trusts' public accountability practices. Public accountability is achieved through timely communication of relevant information to stakeholders. As these trusts were set up with provincial funds, they're not only accountable to the regional stakeholders, but they're also accountable to all British Columbians.

In our work, we noted that each trust issues annual three-year strategic plans as well as annual reports that address goal-setting and progress made. While the trusts have not used the B.C. reporting principles as guidance in preparing these documents, they showed that they're open to incorporating them. We're confident that doing so will only help to further improve their public accountability.

Furthermore, to meet good practices in public accountability reporting, goals and related measures of performance should be relevant to the stakeholders. To determine this, we assessed the statutory trusts against our office's KPI relevancy guides. We published this guide in December of 2010, and it's available on our website, if you would like to see additional details on that.

We found that while all three exhibit many good practices in their approach to annual goal-setting, there are further areas for improvement. As an example, we noted that none of the trusts had their non-financial information independently audited. In our report, we've stated that the trusts should consider the costs and benefits of having their key non-financial performance information independently audited and included in their reports.

Finally, based on our work, we made three recommendations to the trusts. We recommended that all three include discussions in their public accountability reports on how they are complying with their legislative requirements. We also recommended that the three incorporate the B.C. reporting principles in preparation of their annual reports. Finally, we recommended that the three develop and report annual goals and KPIs that can be used to monitor the progress towards achieving their goals.

With that said, I would also like to thank the trusts — the boards and the management — for their openness and for helping me, especially, learn about their operations.

B. Ralston (Chair): Thank you very much. I would take it that Shanna Mason, as the assistant deputy minister, is the lead in the response.

S. Mason: Yes, thank you very much, Chair and Deputy Chair, and to the members, thank you for allowing us to come and present.

Just as my colleague Greg Goodwin pulls up the PowerPoint presentation, because this was a unique approach in terms of having three external bodies coming into this particular setting, we agreed that I would give a brief overview, in terms of the response to the audits, in the efficiency of time. Then the CEOs here, which I'll introduce in just a moment, are available for answering questions that might pertain to each of their trusts.

With me I have Janine North, who's the CEO of the Northern Development Initiative Trust; I have Luby Pow, who's the CEO of the Southern Interior Development Initiative Trust; and I have Line Robert, who's the CEO of ICET, which is the North Island–Coast Development Initiative Trust. Also with me I have Greg Goodwin.

Again, thank you for allowing us to be part of today and to learn so much about financial auditing and accounting in the earlier sessions — more than I ever thought I'd know.

S. Mason: All right. A little bit of this is a repeat, so I won't belabour it, but I do think it's important to understand the nature of the relationship between our ministry and the three economic trusts.

The trusts, as was said by the Auditor, were created as statutory trusts independent of government and as individual, not-for-profit corporations. Those trusts were established between 2004 and 2005 and, I think, for the most part operational by 2006, with a funding contribution of $285 million in total.

A couple of things that I think, to add onto what was shared with you earlier. The mandate of the trusts as established in their legislation is to stimulate regional economic development, investment and job creation — and with a specific focus in the areas of forestry; pine beetle recovery; transportation; tourism; mining; at the time, Olympics; small business; economic development in general; energy; and agriculture. It's a fairly large area of responsibility.

The trusts are prescribed in the legislation in terms of some of the structure around them — in terms of the establishment of boards, the membership of boards and, as well, in terms of the establishment of regional advisory committees.

It was purposeful at the time that those boards and those regional advisory committees would be comprised
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of municipal and regional and provincial officials in various aspects and functions of the board, with the idea being that those folks that live and work and reside in those communities in those regions and that are answerable to the public that they serve will be the ones to operate the trust, to determine what the priorities are for the trust and to focus the trust.

I think the other thing is that in legislation each of the trusts were enabled to decide their own operating models, and that was done through discussion of the members of the boards and the communities. Each of the CEOs can answer more questions on those.

In terms of the relationship with the Ministry of Jobs, Tourism and Skills Training and, to a large extent, a number of the other ministries, we work really collaboratively with the trusts. We serve the same stakeholders in communities. We have the same goals in mind in terms of growing and supporting the economy of those communities on a local and regional and provincial level, and really have, I think, a close working relationship.

It gives us the opportunity, within the Ministry of Jobs, Tourism and Skills Training, to get a real sense on the ground of the feeling of the communities and of the services and supports that are being provided through the trusts. It also allows us an opportunity to share best practices across those areas and to share information that may otherwise not be shared. It's, I think, a very collegial and very positive working relationship that we have.

You've already seen this map. As you can see, between the three trusts, they cover most of the province of B.C. Again, the focus at the time that the trusts were established was to focus on areas outside of the urban setting. I'm sure there was quite a bit of discussion and dialogue at the time of establishing the trusts in terms of where those regional areas and boundaries are. Those are established in regulation and in terms of the communities and regions that are served by the trust.

We can go on to the next one. This just gives you an overarching idea of the magnitude of the impact of the trusts. On the left-hand column, collectively between the three trusts there's been an investment to date — since, let's say, 2006, when they were operating — of $201 million. That's funding that has come directly from each of the three trusts.

There has been some analysis provided by the trusts that would give you sort of a job creation equivalent of over 10,000 jobs and also a real focus on supporting students and engaging students in that, and then a leveraging in terms of looking for funding and matching funding partners to leverage their dollars of over $1.4 billion. Again, the CEOs can answer more detailed questions.

We'll go on to the next slide. In terms the recommendations, I'm happy to report…. Well, maybe I'll go on to the next slide, because this is just a restatement of it.

I do need to clarify one thing on this slide — that is the self-assessment report to the Auditor General. It wasn't a determination by the Auditor General; it was a self-assessment from each of the trusts. The trusts have either substantially or fully implemented the recommendations of the Auditor. I think a number of folks have gone on to look at the reports that have been generated since then — either updates to the strategic reports or the annual reports — and I think you can see, in those, significant differences between the reports prior to the audit and the reports now and the focus that they have in satisfying the three recommendations of the Auditor.

B. Ralston (Chair): Great. Thanks very much. I have a couple of people who have indicated they want to ask questions.

S. Simpson: Thank you for the report. Generally, it is a good news story. There's not much question about that.

I just have a couple of questions in relation to the comments. In the Auditor General's comments — Mr. Doyle at the time — on page 2, the last paragraph, he said: "We also heard concerns from the trusts' boards with respect to timeliness of board member appointments by the board resourcing and development office. These concerns parallel our findings in a recent governance audit, to be released this spring," which I'm assuming is out, since this is April 2012. "My office will consider conducting additional work regarding board appointments."

So I guess it's a bit of a question. One is to kind of get a sense from the boards about how that's going in terms of improving the timeliness of appointments and whether that's improving, and also, from the Auditor General, any observations that they had on the governance audit that was done by the office.

J. North: Perhaps I could answer on behalf of the CEOs. In our experience, we've had two appointments since the Auditor General's report. Both of those were done on a much more timely basis, and I believe the experience of the other trusts has been positive as well.

R. Jones: Thank you, Member, for the question. I think that since our follow-up audit things have improved. I think when we were…. Recently one of the concerns we had with B.C. Transit was around the timeliness of board appointments. That was raised in that report as well.

Generally, I'm hearing that it's improving, and it is something that government is addressing.
[ Page 254 ]

S. Simpson: Just so I understand. So there are 13 members on a board; eight are local folks, and they are appointed through the board resourcing office. Their application's in, and they're appointed by local government — makes its own choices and selects those people however that makeup works. Then there are five provincial appointees who are appointed by the provincial government directly.

What's the relationship of local elected officials to what the trusts do? MLAs, for example — provincial elected people. Is there any relationship? Is there any formal conversation? I know they're not part of the decision-making, but is there a conversation that goes on here? How does that work?

J. North: Absolutely. Members of the Legislature, from both sides of the House, sit on the regional advisory committees which advise the boards of the three trusts. There is a very strong, respectful regard for the recommendations of the regional advisory committees on any of the projects coming forward. I think that with all three trusts you'll find very close alignment between those recommendations and then the decisions made by the board.

K. Corrigan: Often when we have reports we have a lot of questions, and the reason we have a lot of questions is that there are a lot of questions that need to be asked about the reports and concerns that are expressed. You spent all day listening to a lot of questions. So you're probably not going to get as many questions, but that's not because we're not impressed. It's because we are impressed. This is good news.

I was really interested to read about the three audits in the report and really interested in the work that you all do. I've been learning from our Auditor General. I decided I would do a little spot check, so last night I decided I would randomly pick one of the three trusts and take a look at their most recent annual report.

I was really impressed. I just happened to pick the Interior report, and I was very impressed at how extensive it was and, going back and looking at the report, how well it reflected the recommendations that had been made. I was fascinated by the types of projects.

I think this is a great example of really taking advantage of local knowledge and local interests, and doing it in a collaborative way. It seems that that is what happens on the boards because of the mix of local — and input, as well, from all the local municipalities, which I think is terrific.

One of the things that the trusts have been given control over, which is interesting, is control of the financial model. I note that the Vancouver Island trust has made the decision to provide more substantive support over the last few years, and the decision was made that, essentially, the trust would be drained — not drained, but there's not much left in it, a few million dollars — whereas the other two trusts made the choice that they were going to be sustaining.

I'm wondering about that. I'd be interested in a perspective on the decision by Vancouver Island to take that approach and whether, now that the money's almost gone, you regret it — probably not — and just a perspective, as well, on how that decision was made in each one of the trusts.

B. Ralston (Chair): I should say, just before you get started…. You're relatively new. As I recall, you presented to the Finance Committee last year, and I think you had just started then.

I'm not sure that she was there when the decision was made, but I'm sure she's aware of the background.

L. Robert: Yes. The decision was made for the Island Coastal Trust at a two-day conference, which included all of the regional advisory committee officials, economic development. There were presentations made by sectoral representatives. It was a very formal process which united the entire community to decide what the priorities ought to be and what the emergencies were.

You also have to place yourself in the economy of the time and the marching orders that were given by government of the day. If you look at Hansard, when it comes to our trust, there was an acknowledgment that there was a great need for infrastructure on the ground. So it was expected that we would address that need for infrastructure on the ground.

The reality is that the three regions here have very different economies and very different needs. What has worked for us may not have worked in another region, and vice versa. So these decisions were made given the economy of the day and the specific needs of the region.

We're really very, very pleased with the way this has turned out, with the results that we have, the jobs that have been created. We have created 2,100 long-term jobs. What we have done is we've put the money in the ground, right now. That was what was needed in our region, and it helped the region make it through the recession better and come out of the recession with a stronger economy.

I will tell you that our board has no regrets about the decision that was taken. The reality is that if we, with the $50 million that we had, had chosen to invest it, investing only the interest that we could make on $50 million, we would not have had the impact that we've had.

We've had significant projects affecting our transportation, which is huge on the Island, affecting industry productivity and tourism, as far as diversification. And we have had our economist calculate that our investments will be generating, by the time all the projects are operational, $9.8 million in provincial government revenue going into provincial coffers. Those are the benefits of the
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decisions that we've made.

J. North: Northern Development Initiative Trust has 14 programs that were compelled by communities and First Nations in terms of the needs of four areas. Partnerships and networking, being able to bring more money to bear into the north…. About $1.15 billion in projects has happened, and I'll provide you with the information.

Only 2.67 percent of that funding came from the province, in addition to the original amount of the trust. The rest came from business, First Nations, non-profits, the federal government and communities. The leveraging has been very high.

In the northern rural region there was a great need for economic development capacity-building. We are pleased, for example, with one program, the grant writer program, which provides grant writers for every community and many of the First Nations that request it as well.

That particular program this year funded over 70 grant writers, who wrote about $77 million in grant applications to other levels of government, foundations and non-profits. So it's essentially helping the north shake the money tree and move opportunities in terms of funding from foundations, non-profits and senior levels of government into communities, where it can make a difference.

K. Corrigan: The report talks about the independence and the arm's-length relationship with government, but I heard comments earlier about MLAs being respected, and so on. We know that earlier this year there was some media over the suggestion that…. I think, Ms. North, you had written that there was some pressure from cabinet ministers in order to support a particular project.

I don't want to get into that. That's done. But my question is: how do you manage that tension between having not just MLAs but local communities that will probably lobby in some way, want their project over here instead of over there? How do you manage that tension, and how do you retain your independence?

I'm wondering if the Auditor General has any comment or concerns about that as well, about how independence is maintained in order to make sure that decisions are very clean.

J. North: Well, we find that decision-making is best done with very structured programs, strong policy guidelines and very good due diligence. Of course, elected officials, whether they are local government or provincial in nature, advocate. But when it comes to decision-making, that follows the program guidelines.

There also is a great tension that occurs through having both business people and elected officials on a board. I would perhaps not have said that there was pressure, but there is advocacy. There's advocacy all the time from both proponents and elected officials at all levels. The key is the due diligence, which shows what the impact will be of that particular project in an economic development manner and the metrics that the trust uses. That's what the board uses for decision-making.

L. Robert: I'd just like to add something to what my colleague Janine has said. I agree with her comments.

I would like to say that another factor is strong leadership at the executive level and at the board level. That is one of the ways that that is managed very adeptly.

Personally, I have not had any significant incidences of any type, and I owe that to the strong leadership of our chair and our previous chair.

R. Jones: I must admit I was around when this was set up back in 2004 to 2006. That was one of the concerns that we had with the way the money was going out, until we took a look — in conversation with Arn van Iersel, I think it was at the time, as comptroller general — at the method that had been put in place to ensure that there was strong leadership within each of the trusts and that the influence of government would be as minimalized as possible.

If we had thought that there was going to be stronger influence, we probably would have insisted that these three organizations stayed within the government reporting entity. At the time we concluded that it appeared as though the boards were set up strong enough to avoid that problem.

But the proof is in the pudding. You can put it on paper that that's what it's going to look like. I think that over the years, having looked at what's gone on in these three trusts, it does appear as though — to me, anyway — they have maintained their independence and have invested in projects that they wanted to invest in for their regions.

K. Corrigan: I mentioned that as a tension, but I do want to reiterate that I was really…. It was one of the more interesting reports I've read in terms of good work that's being done around the province, so I did appreciate it. It was good learning experience as well, so thank you very much.

I just wanted to ask a question of Mr. Rafiei, if I could. I just wanted to make sure I heard you correctly. We have not been provided audited financial statements by the three trusts. Is that correct? And that formulates a part of your recommendation? Did I hear that correctly?
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K. Rafiei: Thank you, Member. The trusts do provide audited financial statements. However, we had stated in our report that the key non-financial information…. For example, you'll notice that they have metrics such as number of jobs created. We have suggested that they consider the costs and benefits of having those figures audited as well.

L. Reimer: Okay, so it was the non-financial. You have been receiving the financials, so I heard that wrong.

J. North: If I might make a comment, Chair, on the non-financials. We've gone from a 10 percent internal audit of all projects — and our projects have to report for up to five years — to a 100 percent internal audit of all of the projects from the previous year. We have not noticed any trends that would concern us around non-financials, and we ask for things like payroll to validate jobs.

L. Robert: If I may also add. We have our non-financials — well, all of the economic job numbers — done by a consulting economist. So we feel that there's a certain level of standardization there and utilization of industry standards for accounting.

We also feel that the fact that our board of directors and our regional advisory committees are all formed of locally elected officials also provides another level of oversight that you might not have in another type of non-profit entity.

L. Pow: In the southern Interior we require that our proponent companies, investee companies, provide us with review engagement financial information, and we verify the non-financial results with their financial statements. So there's a very high degree of accuracy there.

M. Dalton: Just looking at page 11, it says that for Island Coastal Economic Trust, the fund balance is $33 million, but there's a note saying that $3.4 million is unallocated. I'm just wondering where that is.

L. Robert: Well, it all depends. I'll give you today's numbers. That'll make it all simpler. Right now we're at approximately $47-point-some million which has been committed. That means we've made engagements to projects. But projects don't get underway immediately, and we only pay out on approved invoices once the project is underway.

The amount of money that we actually have out the door is a little over $40 million. This report was done almost two years ago now, so the numbers are dated.

The money that's actually been disbursed is over $40 million. The amount of money that we have left in the original $50 million is about $2.3 million, and we also have some operating interest income that is still sitting there, which would likely be reallocated to projects once we hit the $50 million.

We expect that if trends go as they go, with a regain in energy in our communities recently — a lot more projects coming through the door, and we're getting a lot more calls — we'll probably be at about $50 million of committed, not yet out the door, by March 31 — if not, quite close.

M. Dalton: Just a question to you on Northern Development and Southern Interior. Are you holding onto the seed money and basically using the interest at this point? That's the question. Also, what are your rates of return like?

J. North: Northern Development. Our rate of return this year is slightly over 12 percent. For the last four years it has averaged over 9 percent. The long-term rate of return is closer to 6 percent on a balanced portfolio, which is a very low-risk balanced portfolio — nothing below a double-A bond rating.

The board has determined that it will disburse the investment returns of a capital fund that has leased $175 million, but it will use the capital base, as well, in terms of loan guarantees and loans to communities and not-for-profits. It does that actively.

The long-term return on the trust, if you look at the roughly $115 million that's been disbursed so far over the original capital base of the trust, has been a return over 5 percent in terms of the government investment over the long term.

Auditor General, do you have legislative authority to do these kinds of audits, or was this a voluntary thing on the part of the trusts?

R. Jones: Thank you, Member. We do have the authority to follow the dollar. Since all of the funding was done from government money from the sale of B.C. Rail, we felt that we had the ability to go do it.

In all cases we were happy to hear that the three trusts were willing to let us come in. You never like to go into a situation where you're not welcome, so we did make sure that there was going to be a good working relationship before we entered.

R. Jones: Yes, and I would like to say that even though both Keyvan and I mentioned that this was the first time
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we've done this, it actually isn't.

This is really dating how long I've been with the office, but back about 20 years ago we actually did an audit of gaming grants in the province and followed the money out to Legions and other places to see if they were using the money properly. This is sort of our second foray into that environment.

L. Throness: A question for the trusts. Is there any principled reason why Northern Trust got $185 million and the other two, $50 million? Or was that just a political decision?

S. Mason: It's probably more directed to me. I don't know that the trusts necessarily were part of that discussion at the time.

To be honest, I think the right answer to that, and the fair answer, is that that was a decision of government at the time, in the day. I'm sure that both the values and the geographic areas that were going to be served were hotly discussed and were something that government made as a policy decision.

L. Throness: Okay. And just one final question. It won't be a scandal if MLAs were to write on behalf of their communities to support certain projects? That happens all the time?

J. North: That is a discussion that we welcome around the regional advisory committee table. That local knowledge brings a huge level of robustness to the discussion between elected officials and MLAs and informs the staff of the trust in their due diligence when they go to provide recommendations to the board. So it's very much welcomed.

L. Robert: I can speak that MLAs do sit around our regional advisory committee table, which for us is the stage 1 process, so the first look at projects, and they advise the board on whether they feel they should recommend them or not.

The MLAs' voices are heard on the same level as everyone else's. So when they're in that room, their voice doesn't hold any more weight than the other people in the room in the discussions. They don't have a vote, but they are heard, and they bring some very interesting points to the table.

One of our regional advisory committees has regular representation from some MLAs. The other has a bit less. Some MLAs come all the time; some come sometimes. It varies. They're definitely a part of the equation, but they don't carry more weight than anyone else in the discussion.

L. Pow: We often receive and welcome letters of support from MLAs on various projects in their areas.

B. Ralston (Chair): Great. That's all the questions I have, so thank you very much. Thank you to the CEOs for attending. I do apologize for making you wait so long, but that was an unfortunate side effect of the process. Thank you very much for coming, and thank you to Keyvan for presenting as well.

I'd just ask to stay in your seats, and we'll make a quick switch to the next one.

Although on the agenda it says the next report is the Public Sector Board Use of Information, I'm going to suggest that we go to the School District Board Governance Examinations. We have Paige MacFarlane, who's an assistant deputy minister from the ministry, here. The other one, No. 4, is simply some of the people who are already here. So I'd like to convenience the assistant deputy minister, if I could.

R. Jones: Thank you, Chair and members. With me today to present this report is Tara Anderson on my far left. She's a director in our performance audit group and is involved in a number of these governance projects as well as many other projects in our performance area. She's with me — and Malcolm Gaston, the acting Deputy Auditor General, who is in charge of this area.

This examination took a look at the board governance practices of three school boards across the province: Cariboo-Chilcotin, which is school district 27; Surrey, school district 36; and Mission, which is school district 75. We also took a look at the Ministry of Education.

We looked at the board governance structure, the board roles and responsibilities, and ministry oversight and collaboration with the school boards.

Governments produce some excellent board governance guidelines and materials which, along with other good practice guidance, formed the basis of our criteria in taking a look at governance examinations.

We found evidence of some very good practices related to board governance being exercised by the boards we examined as well as some areas for improvement. We noted that trustees need to be made fully aware of all of the good practice guidance that government has developed to support their governing boards or else they risk becoming overly dependent on school districts' administrators, especially in the areas we identified as needing improvement.

This is just one in a series of governance reports that we put out on a regular basis.

I shall turn it over to Tara to take you through the slides that we have.
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Governance refers to the structures and processes that direct, control and hold an organization to account. For most organizations, the governing body is a board of directors, or trustees in this case, comprised of people elected or appointed to provide organizational oversight.

In the public sector the Legislature, the responsible minister, government ministries, central government agencies and public stakeholders also play a role in governance.

Good governance is the foundation from which an organization can achieve its objectives. Good governance ensures that an organization is allocating resources wisely and serving the public interest openly and transparently.

Active board governance is key to ensuring effective Crown agency governance. Establishing and maintaining effective board governance is an important responsibility for government and for the approximately 140 Crown agency governing boards. These agencies are established by government to serve the public interest and to advance overall public policy objectives. At the same time Crown agencies operate with a degree of autonomy to deliver services and make decisions without direct, day-to-day control by government ministers.

Our office has reviewed Crown agency board governance in the past. Last year we reviewed board governance at four Crown agencies: B.C. Transit, Camosun College, University of Northern British Columbia and the Vancouver Coastal Health Authority. We identified some areas of good practice and also some areas for improvement.

This year we decided to focus on school district board governance. The Auditor General mentioned the three that we chose to focus on: Cariboo-Chilcotin, school district 27; Surrey, school district 36; and Mission, school district 75. Here, too, we documented some good practices but also some areas for improvement.

Very similar to the board governance examination we conducted last year, all three school districts were assessed using those same three examination objectives.

The first objective, board governance structure, examined whether board composition and evaluation practices are used to identify and develop board capacity to fulfil governance roles and responsibilities.

The second objective, board governance practices, examined whether boards are taking the necessary steps to fulfil their roles and responsibilities, thereby providing effective governance for the school district.

The third objective, government's performance expectations, examined whether government made its performance expectations of the organizations clear, monitored for compliance and worked collaboratively with school districts to resolve any issues.

We developed our examination criteria based on the B.C. government's Best Practices Guidelines and checklists produced by the board resourcing and development office and the Crown agencies resource office, as well as on good practice guidance developed and published by our office in 2008, titled Public Sector Governance: A Guide to the Principles of Good Practice.

In terms of some of the examples of good governance practices we found, they included: Cariboo-Chilcotin's good documentation of board roles and responsibilities; Surrey's proper delegation of responsibility between the board and management; and Mission's documented code of conduct and ethical standards. Overall, it was very encouraging to observe that board members were engaged and dedicated to their public service role.

While our examinations found good governance practices, we also found areas for improvement. The following areas for improvement are applicable to all three school districts examined. The individual findings, which varied by district, are also included in the report, with specific recommendations on those findings made to those individual school districts.

Ensuring that boards are comprised of members with the skills and experience needed to provide effective organizational oversight is a key component of board governance. In B.C., government good practice guidelines direct boards to develop and maintain board competency matrices and needs assessments.

We found that boards we examined have not developed formal, up-to-date board competency matrices and board needs assessments are not being conducted, which increases the risk that boards will not have all of the skills and experience required to provide effective oversight.

In all of the board examinations we found that boards were not conducting annual evaluations in keeping with best practices as identified in the guidelines provided by the board resourcing and development office.

A board's evaluation of its performance is important to enable it to identify strengths, areas for improvement and to implement strategies to address challenges. They are also important for identifying areas for improvement for individual board members.

Boards are also not annually evaluating the performance of superintendents, the boards' one employee. One district does, however, conduct a thorough review of its superintendent every three years.

Although orientation and professional development is provided to trustees and they are generally satisfied with the training that is provided, we found that trustees are not sufficiently aware of the good practice guidelines developed by the B.C. government for governing boards and, as a result, need to strengthen their practices in some key areas.

For example, good practice guidelines identify that the most common core committees for boards are on finance, governance, human resources and compensation,
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and audit. Board committees varied by school district, with all having a finance and budget committee but none having an audit committee. Overall, we found the boards favoured operating as committees of the whole. It is important that boards understand good practices regarding the use of committees and work to establish the right balance based on the needs of the board and the district.

As well, good practice guidance calls for boards to ensure that management has a formal risk management framework in place to ensure that appropriate systems of control are in place to manage risks. This is an area where all three school districts were found to need improvement.

With regards to the ministry and our third objective, we found that more direct communication between the ministry and boards is required to clearly establish and communicate good practice expectations for school board governance.

Looking ahead, we will be following up with the three school districts and the ministry in one year to review their progress and report publicly on the status of the recommendations. We intend to conduct additional board governance examinations in the future to identify further opportunities for improved governance at the organization level and to assess whether there are issues that require coordinated action by central government.

Just of note, we are actually in the conducting phase of another board governance examination in the university sector.

Then over to the assistant deputy minister, Paige MacFarlane. I think it's assistant deputy minister, open government and community partnerships division, Ministry of Education. I just wanted to make sure we had the full description on the record.

As we've heard, the Office of the Auditor General conducted their examination to assess how well school board governance structures and activities are designed and how effectively they're operating. The review included three school districts, as we've heard, and had three specific objectives, which we have already gone through. I'm not going to belabour that.

The report identified both good practice and areas for improvement, with four key areas common to all three boards that were part of the review. It also identified one area specific to the ministry — that of communication between the ministry and boards.

The specific recommendations. Three of them were specific to the Ministry of Education, all under that general theme of improving communication. Each of the three school districts has between one and three recommendations: two recommendations for school district 27 — that's Cariboo-Chilcotin; one for school district 36, Surrey; and three for school district 75, Mission. I will focus my comments on the recommendations specific to the ministry, but I'll try to link the ministry's actions to the relevant school district recommendations as well.

As is noted in the report itself and as you all know, boards of education are publicly elected. They're not appointed by government. As such, they are quite different than other boards. There are approximately 425 locally elected school trustees in 60 school districts across the province, with elections, as you know, taking place every three years. The latest stats that we have from BCSTA, which is the School Trustees Association, indicate that about 60 percent of trustees currently sitting on boards have served for more than one term.

Trustee roles and responsibilities are outlined in the School Act. Broadly speaking, there are two areas of responsibility: student achievement at the district level and sound fiscal management of the district.

Trustees are responsible for representing the community's voice in public education. They set local policy, employ school district staff, prepare and approve the district's budget, and approve local courses and resource materials, among many other duties.

The Ministry of Education and boards of education then co-govern the education system. As the report itself says, good governance is an essential foundation for delivering high-quality effective education programs to students all across the province — particularly so in a system with shared governance responsibilities.

So while the ministry doesn't speak for boards, we do maintain a really close working relationship with the B.C. School Trustees Association, or the BCSTA — and that provincial organization represents all 60 school boards — to ensure that various elements of co-governance and performance expectations at the provincial and the local level are well understood.

Good practices. In terms of the findings for the ministry, communication of government expectations is noted as a good practice. Government sets expectations of school districts in two broad areas, as I've mentioned: expectations around student achievement and expectations around fiscal responsibility.

The report found that the ministry provides public documents, accessible on line, with clear information on government performance expectations and the accountabilities of school districts, both for student achievement and financial oversight.

This was confirmed by trustees who said they agree that the ministry clearly communicates the accountabilities expected on both the student achievement and fiscal responsibility sides.

The second area of good practice found was monitor-
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ing school district performance. The review found that the ministry has several methods in place to monitor school district performance, including robust data collection, monitoring of reporting systems and accountability framework that consists of a number of required reporting elements, including annual achievement contracts and annual superintendent reports.

We do monitor each school district through regular ongoing communication between superintendents at the district level and superintendents of achievement, who are employed by the ministry, and as mentioned, achievement contracts, superintendents' reports on student achievement, all of which are publicly available and many other relevant documents.

On the financial side the ministry monitors school district performance through financial reports that the districts must submit to the ministry, and there is also an audit function that examines specific district funding allocations.

The third area of good practice is around resolving performance issues. The education system is a co-governed system, meaning the ministry has responsibility for broad provincial regulatory oversight and recognizes the authority at the district level of those 60 locally elected boards of education — 400-plus trustees.

Within this context, the ministry works collaboratively with school districts to resolve performance issues. Again, performance issues being both on the student achievement side and on the financial responsibility side.

It was again noted in the report that the ministry has a robust database through which issues with student achievement can and are identified and monitored. When those issues are identified, we work with senior district staff to ensure that student achievement issues are addressed.

In the case of persistent educational or financial issues where results are not meeting expectations, where improvement is not forthcoming and where there may be either an inability or an unwillingness to address those issues, as a last resort, the minister does have the authority to appoint a special adviser or an official trustee.

Areas for improvement with the ministry. This is the communication issue between the ministry and board. The report found that ministry communication is primarily with district management and not directly with boards. So while communication can always be improved, as a matter of protocol the way it currently works is that the ministry generally communicates in an official or formal capacity at the staff-to-staff level rather than the staff-to-political-leadership level.

In terms of information flow, as a general rule in direct staff communication, the ministry expects that it's up to district staff to brief up and provide that information to their political leadership in much the same way that ministry staff provide information up to the minister. So it's staff to staff, minister to board. That's the way it currently works.

Through the OAG report some trustees noted they would like to see a more direct communication link established between ministry staff and the board. We are certainly willing to look at options about what might work more effectively there, but currently it is the staff to staff, as a general rule.

The OAG report states that insufficient direct communication between the ministry and boards can lead to miscommunication and misunderstandings in some cases and noted that more direct communication between ministry staff and boards may help to clearly establish and communicate good practice expectations for school board governance.

So as I've said, we're certainly willing to look at those options, and we'll be working with the BCSTA to examine what that might look like.

Three specific recommendations, then, for the ministry under the broad topic of improving communication. First is that the Ministry of Education work with the board resourcing and development office, BRDO, to customize and communicate expectations for school board governance practices, including financial and risk management, competency assessment, and board and superintendent evaluation.

In terms of action on this recommendation, as I've mentioned, the ministry has a strong working relationship with BCSTA. I know we've all been handed the letter that BCSTA put forward to the committee. This letter outlines BCSTA's response to the Auditor General's report.

From the perspective of the ministry, in terms of the education sector, many of the support functions that BCSTA provides to boards of education are similar to what BRDO provides in other sectors. So we tend to see our relationship with BCSTA as perhaps similar to that in some other ministries with BRDO. Given their similar roles, there's likely much that BRDO and BCSTA can learn from one another. Certainly, the ministry is happy to facilitate that kind of sharing of information, if that would be useful.

Recommendation No. 2 is that the ministry look at enhancing orientation and professional development opportunities for trustees concerning good practice in board governance, in collaboration with stakeholders such as the School Trustees Association.

Again, we work very closely with BCSTA. We actively participate in BCSTA-led activities. And as outlined in this letter from the School Trustees Association, they do offer a number of services intended to improve the competencies of school trustees: specific training, annual academies, access to a pretty comprehensive suite of on-line services and resources that provide a comprehensive guide to trusteeship. So there are a number of resources available through BCSTA to assist with building compe-
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tencies and capacities of school trustees.

Ministry staff and the minister are often active participants in BCSTA academies and work together to strengthen the system.

Recommendation No. 3 is that the Ministry of Education improve its direct communication with school boards to ensure that school district performance expectations are clearly understood. Again, we continue to work closely with BCSTA staff to identify opportunities for improving communication with school boards, and we'll be happy to look at other opportunities as they come up.

Part of this ongoing discussion with BCSTA and ministry staff involves ongoing examination of the co-governance role and how it can be embodied most effectively by parties at both levels.

Key planning for the districts. The report highlights good practice in each of the three districts. I know you've all taken a look at the report itself. I won't go into this in great detail. As well, the report recommends that the districts reviews strengthen several areas: board competency assessments, annual board evaluations, orientation documentation and pro-D, the use of committees, financial and risk management and conducting annual superintendent evaluations.

There are responses from each of the three districts reviewed in the report itself. Each of the three expresses their appreciation for the report's findings and indicates that they are prepared to consider all recommendations.

The purpose of the audit report being to examine board governance structure, roles and responsibilities, government oversight and collaboration with school districts, at its heart we would all agree that effective governance is about effective accountability at all levels.

As noted, public education is co-governed by the ministry and the 60 elected boards, who are ultimately accountable to the public. The ministry continues to work with BCSTA and other key stakeholders to fully implement the recommendations in the report and will also look to the findings of the board use-of-information progress report to continually strengthen board governance decision-making and accountability.

I'd just like to reiterate on behalf of the Ministry of Education that we welcome the report from the Office of the Auditor General on school district board governance. Governance is an essential foundation to delivering a high-quality, effective education system across the province.

So while the specific findings and recommendations are focused on the ministry and three specific boards of education, we believe that all boards can benefit and take guidance from this report, both in terms of sharing their effective practices, because there's much that they're all doing well, and in learning from one other as we strive to make improvements in effective governance, both at the provincial and at the board levels.

M. Dalton: Thank you for the presentations. Just some questions specifically regarding Mission. Out of all the three school districts, that one has the most recommendations.

To begin with, I'm wondering how extensive the audit was for Mission — personnel, time. What did it involve?

T. Anderson: This was an examination, but all the findings in the report are an audit level of assurance. We had a team of two staff that went out. We conducted interviews. We had a survey of all the board members. The interviews were a sample of the board members, including the board chair and senior management. Then, obviously, analyzing the documents, minutes from meetings and that type of thing.

M. Dalton: Okay. How long was the period you were examining for? Also, we have the summary of the findings here. Do we have the actual report that was submitted to them? Is that available? You have a more extensive report than this right here, I would imagine — more elaborate. Is that correct or not?

T. Anderson: This is the report that was submitted to them, but in the case of Mission, there was also a detailed management letter, if my memory is correct.

M. Dalton: Okay. It says under "Financial management" that "We found the district's financial management framework is missing key components, such as assurance over internal controls and adequate information systems." Throughout this right here, it doesn't seem to be getting a very high grade.

I mean, the situation is that with the new board, there was a gutting of the administration of the board. One of the recommendations is that you need to have more information coming from the team — the superintendent, etc. — to the board, but they were pretty much…. Most of them were either laid off or fired, and there are lawsuits involved. It was pretty much gutted.

So that recommendation is pretty self-evident. Nobody could report because they were mainly let go.

T. Anderson: At the time of our examination, there were senior management in place — I think the person that you're referring to — acting on their behalf. The information that we reviewed was during a big enough period of time that we could see a change.

M. Dalton: Okay. Just under "Professional conduct" it says: "Trustees were unable to achieve consensus on school board business." They're now beginning to "establish collaborative relations. This is a good sign…and
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these efforts should continue."

I'm just wondering. You mentioned that there's going to be a follow-up to these recommendations. Can you verify this is going to happen, and when would this happen?

M. Gaston: Well, as with all these reports, it would be part of our follow-up process. Unfortunately, we didn't have time to have a discussion around our follow-up process yesterday. But this is probably one where if we were taking more of a risk-based approach and doing more work around where we'd assess risk has been higher, then I suspect that this is one school district that we would be doing a higher level of work on than maybe some of the other ones.

M. Dalton: Do you have collaboration with your results, your findings, with the ministry and with the different school boards? I'm thinking specifically with Mission. Is there working together with these…? You obviously have submitted this back to the school board. It's gone to the ministry also. Is there a conversation that's come out of this?

M. Gaston: Any of our findings are discussed with each of the individual organizations that we audit just to make sure that we've got our facts right and hopefully to get to a place where everybody agrees with what the situation actually is.

Similarly, there would have been conversations coming out of the work at each of the three districts with ministry staff as well.

S. Robinson: I'm particularly interested in the, I guess, more global issues that affect school boards, and particularly when you notice themes happening. For example, performance review of superintendent — if that's sort of a trend across many school boards, how does it get communicated to 60 different school boards that: "We're seeing this, and by the way, this is something that we expect you to do"?

R. Jones: One would hope that since this report has gone to the ministry and, I'm sure, the ministry has seen the same common themes, they would ensure that that got out to the various school districts.

P. MacFarlane: It absolutely does, yes. You're right. Performance management of superintendents is something that we are trying to keep an eye on and we are keeping an eye on. Again, we would most effectively, I think, work with BCSTA to have those conversations and ensure that the information is then provided throughout the system, both from the ministry and through BCSTA.

R. Jones: Just may I also say, Member, as you know, we audit five or six directly, so we take these issues forward to those direct audits, as well, to the various boards.

S. Robinson: In your experience, when you do follow-up, do they get with the program? Do they understand that that's part of the expectation? Does that happen?

R. Jones: I would think in most cases it should. You know, we look at the self-assessment that comes in for the follow-up process. I'm assuming that, hopefully, it will say: "We have done something." If not, we would probably ask them why not.

M. Gaston: Just some additional comments. Probably one of the best examples recently is the work that we did with the Langley school district. There was quite a critical report came out, but we continued to work with Langley school district. We conducted several follow-ups, and they invited us in to have a session with their board around governance practices. It'd be fair to say that we've seen quite a change since then.

S. Robinson: That's really good to hear, because recognizing that even though, in a traditional board structure, you want to take a look at your competency matrices, these are elected officials, and the electorate doesn't always take a look at competency matrices. You're left with perhaps a whole group of, let's say, social workers, who know nothing about accounting principles, who are now responsible for some of the finances. That becomes, I think, a real challenge.

In an ideal world we would be able to do that. But I don't know that the electorate…. Because it's an elected position, it has some different implications.

My last question related to this has to do with this idea of audit committees. Does that mean that performance audits aren't happening? Or are they happening in a committee of the whole?

I appreciate that there might be a preference for an audit committee, but if the audits are happening, if they choose to do it as a committee of the whole, is that really problematic — as long as these performance audits are happening?

R. Jones: Best practice is that it would be nice to have a finance and audit committee, separate. I know, as you say, in a lot of school districts it is the committee of the whole.

S. Robinson: Why is it best practice? I guess I'm trying to understand: why is it best to have just a handful
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of your board doing that rather than your whole board?

R. Jones: Well, in a normal governance arrangement with a Crown corporation or whatever, you would have different skills on the board. Some of those would be a finance background. It is so that you can ensure that the best minds are brought to bear on the financial aspects of the organization. I think we've had this discussion over the last few days around the challenges with school districts.

One of the things that we have — I think I mentioned this before — chatted with a number of the school districts about is: "We recognize that you don't have the expertise. Maybe there's some wonderful accountant within the town or whatever that would be willing to sit as a volunteer to help out when the financial statements come to bear. Maybe explore that and see if you could do that." Otherwise, much of the reliance is put on the superintendent or the secretary-treasurer to ensure that the right information is getting to the board.

My question to the board was: "Would you know whether that is the right information?" That's the difficulty.

S. Robinson: Coming from school district 43, we know exactly how that plays out. But again, it's elected, so….

B. Ralston (Chair): Okay. You used the term "performance audit" there. I think you meant "financial audit," because performance audit is a very specialized audit.

K. Corrigan: I find this a very interesting report, given that I spent nine years on a school board in the Burnaby board of education.

One of the things that seems clear is that there is a real variation in the capabilities of boards at any given time. Some of that has to do with the size of the district — it's who gets elected — and a lot of it has to do with the staff that is providing information to the board. I do think there are variations.

One of the benefits of having elected boards that wasn't talked about is that there is that accountability to the local community, and there's good engagement with stakeholders. I know that's one of the variables that has been talked about as being important.

I know that in our district, for example, the school trustees did, and continue to, attend every district parent advisory committee meeting — so there's a real exchange of knowledge there — and other things as well, like going to PAC meetings at the various schools. I think that local accountability and responsiveness are something that add to boards, and I think it's a good reason to have elected boards.

One of the things that happened several years ago when I was on the Burnaby board was that the ministry quite frequently brought all the board chairs together to do workshops. Now, there was a certain political tinge to it. I think certain initiatives, possible initiatives, were being run up the flagpole at times. Nevertheless, it was a chance for there to be direct contact. You'll probably remember that. I do think that that was worthwhile to find out what was going on and to get feedback from board chairs as well.

I don't know if that's happening anymore. I'm not aware that it's happening, other than some contact that might happen at the trustees academy or at the AGMs, but I think that was valuable, to some degree.

I also want to point out…. This hasn't got directly to do with governance, but just to remember that in terms of the roles that the local school district has, as opposed to the ministry, many of the best educational initiatives have started at the local level. There is a great deal of value to having the organization like it is. The local school districts, headed up by the boards, are, I think, the source of many, maybe even most…. Those are the people who on a day-to-day basis are working with children and are professionals.

One of the things that I also found — and I like to hear the recommendation that there needs to be more direct contact between the ministry and individual school boards — is that there was a feeling among board members and staff for years, and I hope this has improved, that a lot of the decisions were very much centralized, top-down, "this is what we're doing this week, and we're changing directions 180 degrees." It felt, at times, like it was a whim.

It may not be true now, but really, there was a feeling, certainly, at our board that, you know: "This week we're changing directions." Of course, it created a great deal of angst, because school districts had to spend a lot of energy changing directions. Again, that doesn't have directly to do with board governance.

It's an interesting report. I looked through some of the things that were listed as deficiencies or things that could be improved upon. I know that at our board…. I could go through that list and say: "Well, yeah. We did evaluate the superintendent every year. We did this, and we did that." But I think I was really lucky. I know I was in a terrific district.

To get back to the beginning, there are variations, and I don't know how you address those variations in competencies, but some boards are fabulous.

B. Ralston (Chair): Unless there's comment, I'm going to move to the next questioner. I think it's — what?
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— two minutes to four. So I think people will…. We've still got a couple of questioners here. I don't want to cut it off, but I'm mindful of the hour.

S. Gibson: I'll keep this brief. I know we're running out of time, and thanks for that reminder, Mr. Chairman.

I, too, represent a portion of Mission in my riding of Abbotsford-Mission. To some extent I look at the word "governance…." With respect, I think it's a euphemism. It's kind of like "collateral damage." As I see governance, I see it…. As you unwrap it, if speaks to the whole culture of a school district. If the trustees are embracing a certain model that's not necessarily consistent with what the province would like to see — that's my estimation, translating — then I think it has to be dealt with. But I'm not sure if it goes to governance.

I come out of a local government experience, and I've watched many school trustees over the years in my tenure on Abbotsford council. You have folks that have the right motives, and then there are others at times. But for the most part, out of all the elected offices in our country, the school trustees, I think, are the most undervalued, unfortunately, because they don't hit the radar as much as city councillors, mayors, MLAs or MPs. I do value them a lot.

I guess my question — I know you're looking for a question here — goes to the heart of governance. If we've got 60 school districts and we've got all these trustees…. My colleagues across the way here — MLA Robinson in particular just a moment ago — talked about the kinds of people who are attracted to serve on boards. That's a part of it as well.

In many cases…. This is not a criticism. It's an acknowledgment. You're getting people, in some cases, that have past educational experience. You have former teachers or spouses of teachers — not necessarily negative. But they bring to the table issues of concern — not necessarily totally of concern to education but also to do with the culture of working with teachers and that kind of thing. I want to acknowledge that.

I guess my question is: in terms of the report, and looking at Mission, how can we effect change without tampering with the democratic ideal? We saw what happened in Cowichan. That was kind of a worst-case scenario. I'm looking forward to seeing some progress in Mission school district. I know my colleague Marc is as well. How do we go about effecting change where the community says: "Yes, we're into that"?

Ultimately, why do we have school boards? To work with the parents, to effect good education so that we have progress so children do well and go on and contribute and have meaningful lives in our province. It's kind of a grand question, but I do lament when I hear that school boards are struggling, because if we're not careful it'll filter down to the little people that we care for and love, in those little desks — tomorrow's leaders, tomorrow's MLAs and tomorrow's Auditors General and comptrollers general. So that's my question — a big question, I know.

M. Gaston: Just some general comments, then. The first thing that I know from the conversations that I had with the teams when they came back from visiting these three school districts was a huge respect for the elected officials, first of all, and absolutely no doubt about the level of commitment. You only have to look at how often school boards meet. You know, they usually meet much more frequently, for example, than a Crown corporation board would.

Some of that comes into the fact that they don't use committees, but in terms of their time commitment and so on, it really is quite significant.

Some of it comes to: what support are they getting? When somebody is newly elected as a trustee, then what sort of orientation do they get? What sort of training do they get? And it's not so that we squish them into a particular-shaped box, but it's so that they can understand the principles of good governance.

Regardless of whether somebody is elected or appointed, the same principles apply in terms of: what is my job here? What is it I'm supposed to be doing in terms of the running of this organization, oversight of management, making sure that key decisions are being taken in an appropriate way? What kind of support are they getting?

Having a process which elects someone, as opposed to appoints someone, means that you're getting people who are coming from a variety of backgrounds and appreciations of what a board member's role is. We see that coming through, I think, to an extent with the board use of information report as well. We've had two runs at that.

Unfortunately, school districts tend to come out lower down. These reports are based on surveys of board members, so that's school trustees self-assessing themselves alongside board members on other organizations. I think some of that may come through, may be partly due to the level of orientation, training and support that they're getting. I think if they had more, then it would help them.

L. Reimer: I appreciate these reports, and the school boards that you audited, I believe, appreciated these reports.

I read with interest the BCSTA letter. I don't know if you've had a chance to read it. They've done wonderful work, obviously. I wasn't sure, in reading it, that they fully understood some of the recommendations that were in the report. You mentioned that you're going to be working with BCSTA. I'm wondering if it would be helpful for the Auditor General's office to also meet with you and BCSTA in addition.

I didn't see any of "we will try to assist boards in fur-
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ther implementing these recommendations." I didn't see that statement in this particular letter. But they do ask for further dialogue, and I think if they could meet directly with the Office of the Auditor General it would be very helpful for them in providing assistance to boards.

P. MacFarlane: I think there are definitely some opportunities there. The ministry absolutely continues to work with BCSTA, and I believe that the Auditor General's office may, in fact, already have spoken directly with BCSTA. If there are opportunities to work jointly, we would be happy to do that.

R. Jones: Just to let the member know, yes, we'd be quite happy to work with BCSTA. I think they're having one of their two-day academies the weekend of December 7 and 8, if I'm not mistaken.

V. Huntington: I have a slightly different perspective on how resolving this issue might be looked at.

Given the limitations on guaranteeing competency within the democratic structure and process, yes, the board members should receive all of the orientation, training and support they can get from the system. I think that has to be beefed up and carried on. But I think, too, that the system has to start looking at how it can create guidelines for the officials — the finance officers and the superintendents — for reporting out to the boards. You would then audit those reports to the board.

If you're looking at a board that may not have the competency, they will not know what to ask. They will not know how to judge. They won't know the questions. There will be fear. We all have been in the position, at least local governments and school boards — goodness, as MLAs. You're told it's this way, and you may not believe it. You walk away doubting it but knowing that's all you're going to get.

I think you have to be fairly creative and turn over a creative way of ensuring that the board gets the proper information and making sure that the comptroller general, the Auditor General and the ministry are confident that they're getting that information in a knowledgable — well, not simplified — manner which is consistent. If the superintendents are not required to report fully, then they're not going to report fully.

There needs to be something in the system that takes advantage of that fact, I think. So it's a different way of looking at what you might be auditing.

R. Jones: Thank you, Member. I'll just reiterate one of the items that we have underway currently within our office. It deals with financial results within a school district that will be useful. It's this 20 questions that we're putting together that boards should ask their CFO, superintendent, secretary-treasurer — about information in the financial statements and what information they should be asking for.

V. Huntington: But I think that needs to go to the superintendents and the financial officers.

V. Huntington: And they need to prepare those reports to the board fully and completely.

B. Ralston (Chair): I just had a quick comment. I notice in the letter of the BCSTA that they do seem to reject the suggestion about what's called competency and skills matrices to assess who should be on the board. I think what they're saying is that that may be more appropriate — and I think they say that explicitly later on — in a corporate model of a board, where you would seek out certain skills and professional skills to complete the array of skills on a board. But I think, given that the democratic process is primary here, you take who you get.

I do recall…. I think it was William F. Buckley, who was a conservative columnist and speaker in the United States, who said he'd rather be governed by 100 people selected at random from the Cambridge, Massachusetts, phone book than by the entire faculty of Harvard University.

I think that speaks to the importance of democracy. I know that sometimes professionals are impatient with the democratic process and the perceived or alleged incompetence or lacunae in the competencies of board members or members of the Legislature. But if we believe in the democratic process, generally there is a collective wisdom that emerges from that, and I think that particular perspective is a bit missing in this report, if I might say.

I think we're finished, then. Thank you very much for the four days — a bit of a marathon.

We will be in touch. The follow-up questions that were asked will be compiled and sent out to you, and then the vice-Chair and I will be in discussion about our next meetings. Thank you very much. We're adjourned.

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Chair:	* Bruce Ralston (Surrey-Whalley NDP)
Deputy Chair:	* Sam Sullivan (Vancouver–False Creek BC Liberal)
Members:	* Kathy Corrigan (Burnaby–Deer Lake NDP)
	* Marc Dalton (Maple Ridge–Mission BC Liberal)
	* David Eby (Vancouver–Point Grey NDP)
	* Simon Gibson (Abbotsford-Mission BC Liberal)
	* George Heyman (Vancouver-Fairview NDP)
	* Vicki Huntington (Delta South Ind.)
	* Greg Kyllo (Shuswap BC Liberal)
	* Norm Letnick (Kelowna–Lake Country BC Liberal)
	* Mike Morris (Prince George–Mackenzie BC Liberal)
	* Linda Reimer (Port Moody–Coquitlam BC Liberal)
	* Selina Robinson (Coquitlam-Maillardville NDP)
	* Shane Simpson (Vancouver-Hastings NDP)
	* Laurie Throness (Chilliwack-Hope BC Liberal)
	* denotes member present
Clerk:	Kate Ryan-Lloyd
Committee Staff:	Ron Wall (Committee Researcher)

Witnesses:	Tara Anderson (Office of the Auditor General)
	Carl Fischer (Ministry of Finance)
	Malcolm Gaston (Deputy Auditor General)
	Bill Gilhooly (Office of the Auditor General)
	Greg Goodwin (Ministry of Jobs, Tourism and Skills Training)
	Russ Jones (Acting Auditor General)
	Paige MacFarlane (Ministry of Education)
	Shanna Mason (Ministry of Jobs, Tourism and Skills Training)
	Stuart Newton (Comptroller General)
	Janine North (CEO, Northern Development Initiative Trust)
	Luby Pow (CEO, Southern Interior Development Initiative Trust)
	Keyvan Rafiei (Office of the Auditor General)
	Line Robert (CEO, Island Coastal Economic Trust)

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