The committee met at 10:04 a.m.

[S. Bond in the chair.]

S. Bond (Chair): Good morning, everyone. I want to thank you very much for joining us on a Monday morning in Victoria. I appreciate seeing everyone here. Obviously, some of us are required to be here every Monday morning, so it’s not unusual for us.

I, as always, want to thank Kate Ryan-Lloyd and the Clerk’s office for all of the help they contribute. During our times when we are not meeting in public, there’s always lots of work going on behind the scenes, and I think you’ll see evidence of that work today in some of our agenda items.

[10:05 a.m.]

All of our members should certainly have an agenda in front of them. I should also point out that we are working on finalizing the draft agenda for another meeting of Public Accounts in just a few weeks from now, during the same time frame, so that we can continue to stay on top of the business that’s in front of us.

We’re going to start this morning…. I’m very pleased to see our Auditor General, Carol Bellringer, here. I know that she’ll introduce her staff, but as is our normal practice, we’re going to begin with comments from the Auditor General. The first item we’re going to consider today is the Office of the Auditor General’s Financial Statement Audit Coverage Plan, For financial statement fiscal years ending in 2020, 2021 and 2022.

We are looking way down the road here as the Auditor lays out her workplan. She is required to bring that plan here, and then, of course, if there are any fiscal implications, those are dealt with by the Finance Committee. They’re not dealt with here. It’s a chance for us to have a look at what the Auditor thinks are the next steps in her course of action for the years that I noted.

We’ll begin with the Auditor General, her comments, and I’m sure she’ll introduce her staff to us.

Good morning, and thank you for joining us.

Office of the Auditor General

FINANCIAL STATEMENT
AUDIT COVERAGE PLAN

C. Bellringer: Good morning, Members. As many of you are aware, I’m required under the Auditor General Act to table the three-year financial statement audit coverage plan for your consideration and approval. This particular one actually takes us very close to the end of my term, which is September of 2022.

The plan identifies which government entities will be audited by my office and which ones will be audited by private sector firms. The plan has been prepared in accordance with the requirements of the Auditor General Act, but it’s also designed to meet Canadian generally accepted auditing standards. It allows me to form a view on government’s summary financial statements.

You may recall from last year’s discussion that the coverage levels don’t generally vary greatly from year to year. The focus of our discussion is often on the changes. I do expect that the plan can be carried out within a budget envelope very similar to that which was recommended last year by the Select Standing Committee on Finance and Government Services.

I’ll be pleased to answer any of your questions regarding the reasons for my planned level of involvement with particular organizations. However, some of the risk assessment information may require an in-camera discussion, so we can see if we get there.

With me today from the office, at the table, is Peter Bourne, who leads the audit of the summary financial statements. He’s an executive director in our financial audit group. Denver Wigg is a senior manager also from our financial audit group. I do have to acknowledge that there’s an entourage behind me. We have quite a few people from the office who…. We’re encouraging them, when we’re in Victoria, to come over and observe so that they can see the good work of this committee.

I’ll turn it over now to Denver to give you the brief overview of the coverage plan, and then we can take any questions you may have.

D. Wigg: Thank you, Carol.

Good morning, Members. The annual audit of the summary financial statements is the largest audit performed in British Columbia. It provides assurance on whether the financial statements present fairly the financial position and operating results of the province.

The opinion on the summary financial statements is the Auditor General’s alone, but in British Columbia, the audit of a government reporting entity is accomplished through the combined work of the Office of the Auditor General and private sector auditors.

Today we are seeking three approvals: approval of the detailed plan as presented in Appendix A, beginning on page 19; approval for the Auditor General to continue as direct auditor of four entities where the term exceeds five years, page 16; and approval for the Auditor General to continue as direct auditor for one entity outside of the government reporting entity. That’s included on page 17.

[10:10 a.m.]

This plan meets professional requirements for audit coverage under generally accepted auditing standards and will allow the Auditor General to sign the audit opinion on government’s summary financial statements. These standards require us to be involved in the audit of all significant entities included in the summary financial statements.

We define our audit involvement with the 144 government entities as being either limited, oversight or direct. In deciding our level of involvement, we look at the risks involved at both the entity and sector level, as well as the capacity of our office.

We also look at new organizations, for which we are entitled, under our act, to be auditor for the first three years. For the one newly-created organization included in the government reporting entity for the first time this year, B.C. infrastructure benefits Inc., we intend to be the auditor for at least three years.

The provision in our act to request approval for extending direct involvement beyond five years recognizes the need to manage inherent audit risk where necessary. In the plan, we have to balance the benefits achieved through auditor rotation with professional standards that require us to maintain appropriate knowledge and experience in order to fulfil our mandate. For audits that exceed five years, including ministry audits, we employ senior staff rotation and other safeguards, as required by assurance standards, to ensure that objectivity is maintained.

In the preparation of this plan, we’ve reviewed each appointment exceeding five years and considered if rotation to a private sector audit firm would be necessary. In last year’s plan, we requested approval to continue as the auditor of ten entities. There are only four on this year’s list. Of those, one is a shell corporation that takes only ten hours to audit. The rationale for appointments exceeding five years is documented on page 16 of the plan.

Turning now to the detailed plan. This is the table on page 13 of the report. It summarizes our planned coverage for 144 entities over the next three years and includes financial statement for fiscal years ending in 2020, 2021 and 2022.

This is a summary of the detailed plan, as shown in appendix A of the report. The first column shows the type of entity. The second shows the expected number of entities by type for the fiscal year ending in 2019. The remainder of the table shows our planned coverage by entity fiscal year and level of involvement. For example, in 2020, we plan to have limited oversight in 16 of the 25 universities, colleges and institutes, have an oversight involvement in seven and directly audit two. As you can see from the totals, our levels of involvement do not change significantly over the course of the plan.

To give you an idea of how this plan results in our overall involvement with government expenses, this chart shows that the Auditor General had either oversight or direct involvement with 84 percent of government entity expenses for the 2018 fiscal year. Our involvement with expenses is consistent throughout the plan.

[10:15 a.m.]

We usually audit five of the 60 school districts at any given time. We also plan to have oversight on three school districts each year of the plan, although we have added one additional school district in 2020, resulting in four oversight school districts that year. We continue to rotate our involvement throughout the school districts.

So 2019 is the last year that we will audit the University of Victoria. In 2020, we take over the audit of the University of British Columbia, and 2020 is also the last year we will audit the Vancouver Community College. In 2021, we will take the audit of Capilano University. We also plan to have an oversight role in seven universities, colleges and institutes each year of the plan.

Also, 2019 will be the final year that we directly audit Van­couver Coastal Health Authority. We have been their auditors since 2013. We will continue to directly audit the Interior Health Authority for the remainder of our five-year term. When finished, we expect to rotate onto another health authority.

In 2018, we audited B.C. Clinical and Support Services Society. They are now part of the Provincial Health Services Authority, and the auditor of PSHA will be auditing those accounts. We also plan to have an oversight role in five health authorities and one hospital society each year of the plan.

The slide shows those Crown corporations we begin to audit in 2019 and 2020. Crowns that we plan to stop auditing after 2019 include the B.C. Immigrant Investment Fund, B.C. Transit and Destination B.C. We also plan to have an oversight role in seven other Crown corporations across various sectors during the three-year plan.

We plan to continue with one engagement outside of the government reporting entity — the provincial employees community services fund.

Each year we consult with organizations impacted by the plan, including where we will be changing or taking on oversight or direct audit coverage. At this time, we have met with or contacted by telephone all the affected organizations. We will follow up with a formal communication once the committee has reached a decision on the plan.

I’ll now turn it back to Carol.

C. Bellringer: Thanks, Denver.

That concludes the presentation. This is just a summary of where it started in terms of what the three approvals are that we are taking now to the committee. These are directly linked to the Auditor General Act, as to what you’re required to approve. You don’t have to approve them. You can not approve them. But you have to look at them.

The first is the plan itself. The second is to continue as the direct auditor for more than five years at the four organizations we listed, and the third is to continue to be the direct auditor for PECSF, the one organization that’s not part of the government reporting entity.

We’ve very pleased to be here to answer any questions you might have.

S. Bond (Chair): Thank you very much. We appreciate very much, Denver, your presentation. Thank you for walking us through that. We look forward…. I’m going to start keeping a speakers list. I saw John’s hand go up first, so we’ll start there. If anyone else has questions, we’ll be happy to add you to the list.

J. Yap: Thank you, Carol and Denver, for the presentation. I may have asked this question in past years, but if you would indulge me.

On page 11 of the report, you talk about how you prepare the audit coverage plan and what goes into your risk assessment. You have a number of items here. Some are self-explanatory: delivers a core service, has a high level of public interest, high inherent risk to government, is complex, has future issues that materially impact financial statements, has other risk factors.

[10:20 a.m.]

My question is: how do you determine high level of public interest? Are there any within your plan that this particular bullet, high level of public interest, played a role in being included in the plan?

C. Bellringer: Specifically on the public interest factor, we do receive a steady stream of correspondence from members of the public, and we do monitor that. When we go to do the plan, we review it to see if there’s anything that’s come out as something that’s important to be looking into.

It plays a bigger role in identifying performance audits than it does in the…. I’d say the largest factor of all these for the financial statement coverage plan is how we get enough assurance so that we can form an opinion on the summary financial statements. That is the first driver, and then we’ll look.…

For example, we’ll collect a number of smaller ones, smaller audits. If we didn’t do them, it wouldn’t change the risk portfolio for doing the summary financial statements, but it gives our staff the opportunity to develop. So we may have junior staff who would start doing some of those smaller audits.

In the school districts, for example, they fall off-cycle from all of the rest of the audits because their year-end is different. That actually helps us in the flow of work. So those are sort of the main factors.

Now, I’m just going to ask if there was…. I can’t think of anything in this year’s financial statement coverage plan that was directly linked to….

P. Bourne: I think Hydro was the last one.

C. Bellringer: Yeah, I mean there were factors of that included in our reasons for choosing B.C. Hydro as the Crown that we have introduced for the…. We haven’t started it yet, but when we put it in, we did assess public interest. But I would say risk was a greater factor, and it was really looking at it from the perspective of summary financial statements.

You could possibly look at the Oil and Gas Commission in that context. But again, there’s a parallel between the public interest and our own interest. Again, with any kind of new operation, if there are new activities taking place within the Crown, then we are also particularly interested.

It makes some difference, for sure. But there’s less of a difference between whether we do it directly or whether we do oversight procedures. Because with oversight, we’re still attending audit committee meetings and getting all the packages that go to the audit committee and so on. Whereas if it’s less than that, then we do quite a bit less work. But when we made the decision last year, it really was taking it over the line to something we wanted to do directly.

J. Yap: Right. Thank you for that. If I may, going through the list, there are a number of entities that have blanks. So there’s limited or no involvement. These are entities which, I would assume, you’ve heard from the public or other stakeholders about.

For example, ICBC is one, and the Real Estate Council of British Columbia — two entities that, I think, have been in the public eye in recent times. Those are not included. So I’m wondering…. Again, with public interest, that also parallels, in some respects, the risk, as you mention. How would you account for the overall list that you have here, where there are some entities that have been included that, on the surface, may not seem to be very high-risk areas? For example, the Royal B.C. Museum is included here.

C. Bellringer: The museum was one of the ones in the example of a smaller…. When we looked at the smaller list to just find some that we could fit into our schedule, that was one that was brought in. It wasn’t because we thought it was a higher risk than something else.

ICBC is of continuing interest to us. We’re concerned in terms of…. There is a big dollar impact to the summary financial statements. So we watch that one very carefully.

[10:25 a.m.]

We’re not proposing to do the direct audit. It would be too much of a change in the way that we operate our office to take on both Hydro and ICBC audits. We just couldn’t do it with the existing staff complement.

One of the changes that we made this year, in terms of our participation in attending the audit committee meetings, is I’m now attending all of them myself, along with the executive director. So we have other ways that we can also increase our involvement so that we get a closer look at what’s going on, just so that we fully understand it.

We’ve also got ICBC on the performance audit coverage plan list. That plan does not need to be approved by this committee, so we have not brought it forward the same way that this one is. We actually will present it to…. The Finance and Government Services committee is the one that approves our budget. When we put the budget information in to them, we’ll provide them with a draft of both this plan as well as the performance audit coverage plan.

Once they approve the budget, we’ll then make it available to all the members and have it available publicly so you can see the full picture. If you were to request it sooner, we could provide it to you, but I’m worried a little bit about whether that makes the document public before the budget has been approved. We worked through the timing of that, thinking we were doing the most appropriate thing, but we certainly can provide you with it, if you feel otherwise.

R. Sultan: I see, with considerable interest — and to declare my own personal interest in the fact — that you’re moving from oversight to direct audit of the University of British Columbia. I can’t fail to put in a plug that recently they were rated as the No. 2 university in Canada by somebody or other of eminence. So good on UBC.

Surely, it is one of our most complicated, strategically important and most interesting entities in your audit scope, in my opinion. I’ll just mention five factors.

They continue to have access to enormous amounts of Crown land in a growing price environment, and they have monetized, in the past few years, thanks in part to the good work of my friend Bob Lee, about $1 billion — converted into a securities portfolio.

They are in the news in terms of controversy over the height of condo development on campus, it seems, and whether this is really student housing or offshore speculation, and whether the vacancy tax applies or not, I guess our friends on the other side of the aisle will have to sort out. In other words, they’re getting even further into the real estate world, as complex and controversial as that can be.

Thirdly, we see, in the press, comments about the high degree of foreign student population and differences in fee structure and access to the university.

Fourthly, there continue to be murmurings from the city of Vancouver that this entity is almost a municipality unto itself, and what, in fact, is the governance status here longer term, because it has become so enormous and influential.

Finally, we see lots of media on the possibility of a subway extension, perhaps as far as UBC. As I seem to recall from a story, UBC had offered to actually invest in mass transit to some degree — obviously, to help the students go back and forth.

This is a huge, complex, strategically vital institution for British Columbia. My question is, as you move ahead to a direct audit status, which I think is entirely appropriate, will it be strictly a somewhat narrow financial audit? Or will you at least have a chance to sort of look over the shoulders in the performance area and see what is actually going on there? Is it under control? Is it well thought? And how’s their performance? I think we would enjoy your opinions.

[10:30 a.m.]

C. Bellringer: I thought I was going to have to answer how you thought we would be able to absorb that large audit. This is the financial statement coverage plan. If there are others wondering that, we used to audit UBC some years ago, and we’ll continue to use other auditors for the subsidiaries because it’s actually quite large in relation to many of the other audits that we do.

Public accounts itself, however, is larger than the sum of all the other audits that we do, in terms of just doing the summary financial statement audit. We’re used to figuring out the complexity. But indeed, it is being designed in order to form an opinion on whether or not the financial statements are complete and accurate and not to cover all of the other issues that you listed.

There’s no doubt that when we’re doing the financial statement audit, we end up having a better feel for what other areas we think we might want to put onto the performance audit coverage plan. At the moment, there is nothing that you will see, on that list that will be coming out fairly soon, on the performance audit coverage plan, that is directly linked to UBC, but there are some education sector audits we’ve selected that do cover the full university spectrum.

You’ve drawn out a limitation to every financial statement audit that we do, which is that we don’t form an opinion broader than whether or not the statements are presented fairly. Having said that, we do have an obligation. When we come across something that is not appropriate in any organization that we’re doing the financial statement audit of, we need to draw that to the attention of the appropriate party. In some cases, it’s management, for them to remedy something. If we don’t see management taking the right action, we elevate it to the minister and to the Legislature.

It does give us that viewpoint — if something very specific is not being done in accordance with a regulation or a law that we’re aware of and that impacts the entity. In the case of UBC, if we found something, we would report it.

A. Olsen: Just really simply, I think that it would be of benefit for us to see…. Well, we don’t have any authority to see it, but it would provide the full picture, I think, if we saw that performance plan at some point, when the Auditor is able, once it’s public. I wouldn’t suggest that we need to see it before it’s public. It would just, I think, help paint the full picture as to what the full plan is. Of course, we have to take a look at the one piece of it, but it would be helpful to see both.

S. Bond (Chair): Did you want to comment on that, Carol?

C. Bellringer: If you are requesting it, I will provide it to the Clerk. If there’s anything that you’re worried about…. In terms of timing, I would just like to know whether you want to see it before or after it goes to the Finance and Government Services Committee. This may be a question for the Chair or the Clerk, in terms of whether I can provide it to you before it you before it goes public.

I’m comfortable to provide it to you. There’s nothing at all…. It’s going to the members through the other committee, but I just don’t want it to sound like a presumption that it has been approved when the budget approval hasn’t gone through.

S. Bond (Chair): I think it’s an important question, so I’m going to ask Kate to give her recommendation. I think she has a process that would address Adam’s concern.

K. Ryan-Lloyd (Deputy Clerk and Clerk of Committees): Thank you, Madam Chair. Good morning, Members.

I would suggest, perhaps after the Select Standing Committee on Finance and Government Services receives your budget proposal and produces its report, which is expected in early December, that the performance audit coverage plan could be submitted to this committee as an information item. We could perhaps set aside a brief amount of discussion time at an upcoming meeting — perhaps in December or January, as your schedule provides — so that members can ask questions.

[10:35 a.m.]

The alternative to that would be to submit it to before it is reviewed by the Finance Committee but, since it’s not a decision point for this committee to formally adopt the performance coverage plan, I would suggest that you simply schedule it for a discussion into December or the early new year.

S. Bond (Chair): Carol, I know you want to just respond to that.

C. Bellringer: Well, just because I know it’s in both of them. I mean, there is some information in there that would give you some of the context around the full sector coverage. It would be a different aspect of it. Even within the plan, even after the budget is approved, we do make changes through the year and so on, so it’s not…. They don’t actually approve the plan at the Finance and Government Services Committee. They approve the budget that supports the plan.

There may be a — I hadn’t really thought that part through — reason why you could see it if you recognized that it’s not yet approved.

S. Bond (Chair): To this point, John.

J. Yap: Yes.

You mentioned earlier in your presentation, almost in passing, the comment that we could approve or not approve this. I just want to be clear. Does it matter if this is approved, or do you require an approval from this committee of this financial audit plan?

C. Bellringer: The Auditor General Act requires your approval.

J. Yap: Okay, so that’s required.

C. Bellringer: It isn’t…. What I was referring to was you can say no, and then ask us to go back and change something. Then we would come back to you with that change. You’re not required to approve it. You’re required to review and approve it. I didn’t know how to say that.

J. Yap: With regard to the performance reviews, performance audits, that’s not specifically within the approval purview of this committee. Is that right?

C. Bellringer: That is one that is left completely to our independent selection.

S. Bond (Chair): I think to Adam’s point, which I think is a good one, it does give context to some of the issues that may be raised here. I think what we’ll do is take that as an action item, to sort out the best pathway for us to get that compatible information.

Of course, we want to be thoughtful about whether it’s public or not and how all of that works, but I think the point has been made that it might add some additional context for some of the decisions that the audit coverage plan lays out.

I don’t think you’re arguing with that. I think it’s just a matter of saying: “How do we do it? And what is the best and most efficient way?” While it doesn’t require our approval — that is under your jurisdiction — it would be a good companion piece to the work that we’ve seen here.

C. Bellringer: Yes.

S. Bond (Chair): Let’s put that on our to-do list, and perhaps with the Clerk’s office, we’ll figure out the best way that we could provide that to Public Accounts.

C. Bellringer: Thank you.

S. Bond (Chair): Anyone else?

B. Ma: In terms of the context of the full scope of work, is it possible to find out what has been audited previously — as in not only what is being audited going into the future but what’s already been? Just in a table format or something like that so that we know…. I mean, I’ve only been around for a year and a half, so I don’t necessarily know all of the agencies that have been under your watch.

C. Bellringer: Is that a question around the financial statement audits or all of the audits, including performance audits?

B. Ma: At this time, I was only referring to the financial statement audits.

C. Bellringer: There’s an easy access to it on our website. It’s always made public every year. They’re all there. But we can certainly send, through the Clerk, the link to all of those previous reports.

S. Bond (Chair): I think, again, Bowinn’s point is simply that we’re seeing a future-looking plan and wondering why some things may not be contained in that future-looking plan. Perhaps they’ve been…. You know, we’re just on the completion of the five years or whatever.

I think it’s just giving that broader picture. If there’s an efficient way, perhaps, by just sending us the link to the historic cycle of audits, that would be good context.

C. Bellringer: Within this report, you’ve got 2018-19. Any idea of how far back you’d like us to go? I mean, we can go back a long time, but we can certainly do a quick summary of the same appendix for five years, ten years.

[10:40 a.m.]

B. Ma: It’s a five-year cycle. Is that right, generally?

C. Bellringer: You approve three, and we tend to take the audits on for five. After five, it requires your approval. But every year it’s going to be a different group of audits that will show in, and there’ll be audits coming on and going off. Probably ten.

S. Bond (Chair): Yeah, I was going to say it gives you a bit more context. Why don’t we try for ten years? The most effective way…. Obviously, we don’t want to be walking out of here with binders full of paper, but if there are ways to find an efficient way for us to give just a bit of a sense of what the overarching picture has looked like for the last decade, I think that would be most helpful.

C. Bellringer: I am assuming it’s at the entity level that you’d be able to see the picture more clearly than if we…. I mean, we can give you the summary chart of how many in each sector, but that’s pretty summarized. So would you like it at the entity level?

S. Bond (Chair): Yes, I think we want to be able to see. Because when you see…. As John pointed out — and the point Bowinn is making — you see a particular entity with a long blank line, so we’re not sure whether it’s been done recently. All of us are new, other than a couple of my colleagues, to the process. Okay. I think that’s a constructive suggestion. Again, we don’t want to…. You have a lot on your plate. We don’t expect this to take up a pile of work or effort but just whatever makes it most efficient.

All right. I don’t see anyone else on the speakers list. I have a couple of questions I just wanted to walk through.

I do want to remind committee members that there are three things we’re being asked to do, and probably the most substantive is the proposed plan. It’s listed in appendix A. So if you have any concerns about that, we need to make sure you’re looking at it. There are four entities where the Auditor will be exceeding the term of five years. There were some notes provided as to why those four. Then, of course, the Auditor General is continuing as a direct auditor for one entity outside of the GREs. Those are the three things. Once we accept the report, we’re going to be approving those three things.

I wanted to just ask a question about the extension beyond five years. I thought there was a really healthy portrayal of one of the reasons why you don’t tend to continue beyond five years. The relationships…. You even rotate staff and do a variety of other things. Is there a general reason, or are they very specifically targeted to the audited organizations, as to why you would want to extend beyond the five years?

C. Bellringer: Yes, it is very specific to each of the organizations. For the period I’ve been here, there’ve been more than the four that we’ve carried on with. There’s always a reason, but we did challenge it a little bit more rigorously this year, to say maybe it is time to not do some of these audits. The discussion we had internally was much more the other way. The ones that we’ve left on — there’s a really logical reason as to why we are proposing that we keep them on.

For the ones that we took off the list, it was harder to say yes, it’s okay to not do those direct audits any longer, for one reason or another. It actually raised a much bigger issue that we really haven’t drawn out in this report for you. But it’s something to consider going forward — as to whether or not five years is the right time frame.

When the legislation was written and that five-year term was put in there, there were a lot of discussions within the auditing community about auditor rotation. There’s auditor rotation in terms of which individuals work on the job, and then there’s firm rotation in the private sector as to whether or not you can even reappoint the firm of accountants.

I think that’s where the five years got picked up. It’s quite logical, and it’s good to have that rotation. But we’ve got a lot of processes in place internally to make sure that the same individuals don’t work on the audit for too long. You’ve also got the rotation of the Auditor General him- or herself. It’s now an eight-year appointment, and that is what gives you the protection over the rotation at the public accounts itself, the summary financial statement level.

[10:45 a.m.]

I mean, in terms of the ones that we leave on here, B.C. Enterprise Corp. is the shell corporation that Denver referred to before. Columbia Power Corp. is one where they have a close relationship with Columbia Basin Trust. We became the auditor of Columbia Basin Trust for the 2019 year-end. It makes sense — and they are asking — that we be the auditor of both.

The Oil and Gas Commission. With the increase in LNG within the province and an increasing number of orphan sites that we’re seeing within the Oil and Gas Commission, that was a particular reason on that one.

The Transportation Financing Authority is very much the only way that we can ensure we have coverage within the sector.

Those are the reasons for the ones that remain.

S. Bond (Chair): Thank you for that.

On page 14 of the report, it talks about the percentage of direct or oversight audits being at 84 percent in 2017-2018. There is a reference, at the beginning of the report, obviously, about…. I think the phrase is actually “limited capacity.” Is there a sense that that has remained fairly consistent — that 84 percent of the audits are either direct or oversight; or has that become a more significant percentage because of the complexity, or…? I’m just trying to get a sense of: is there a shift in the Auditor’s office in terms of who does them, and what does that look like historically?

C. Bellringer: Peter may want to jump in on this one.

It is consistent with the previous coverage. We don’t go to figure out what percentage we want it to be but, rather, whether the organization’s level of activity is over a certain amount. Then once we’ve pulled that list together, that’s what it turns out to be.

The internal discussion does end up in terms of whether or not we have enough staff to get the work done, which will start to move it back and forth between direct and whether it’s oversight. But that may affect one or two audits, not the full list.

S. Bond (Chair): Okay. I think that’s a fair answer. The issue, obviously, that I’m concerned about is workload, managing it, and whether or not workload is actually determining or shaping the audit coverage plan. There are entities that require and should have a direct audit. So I appreciate that.

I think it would be good to know, and it is good to know, that you basically come to the place of how that will be done, without one of the major considerations — you said there was tweaking — being “We can’t do that because we simply can’t do that. We don’t have enough capacity.” I think that’s a very important piece of information because we don’t want direct audits not being undertaken because of capacity issues.

You’re saying that there’s a series of criteria that you look at, that it points in a particular direction and that while there might be some tweaking of who does it or how many you can manage, you are not eliminating direct audits because of capacity issues. Are you?

C. Bellringer: There was one that we thought of last week…. It’s a very complex process to finally pull the budget together as it relates to the plans. We also have to take into account all of the other work of the office — the performance audits, the IT audits — and we have to try to figure out what the appetite is for growth in our office. We know that if we can’t get the financial statement audits done, it’s going to take away from the time we have available for other things. We don’t take it off the list and say: “Well, we just can’t do it.” We have to do it.

I don’t want to give the example, because it doesn’t really…. The organization wouldn’t know we were talking about this. We got into a discussion around one in particular, where we’re going: “If we did this, where would the hours come from? It’s going to take our budget…. We don’t have the hours. And we don’t have it during that period.” We’re looking out a year, so we also have to anticipate how many vacancies we’re going to have. Are we going to be able to fill them? How are we going to fill them?

[10:50 a.m.]

All of that comes together when we pull the plan together. So it looks quite simple when it’s all done, but it is considering all of those various things.

The assurance I can give you is that we would never take it off the list without saying that…. The first line would be that we would have to go back to the Finance and Government Services Committee and say: “We absolutely cannot get the work done that we need to get done without an increase to cover the costs that are attached to it.” But we first look at all the other things we’re doing and say: “Is there any of that that we’re doing that’s not as high a priority? We don’t need to do it.” We can move the money over from our performance audit area into financial statement. It does move back and forth slightly.

That’s what we did in that one particular case. We’ve made sure we have enough staff to get this done. We know that we are anywhere from three to five staff short during the busy season, for this period, but we’re risk-managing the vacancies and not asking for more money just in case we need it. We think we can do it with the budget envelope we’ve got.

S. Bond (Chair): I appreciate that.

I wanted to ask about the direct audits in the case of school districts and universities. I gather that pretty much on a yearly basis, you would do five direct on the school district side and two on the university-college side. I understand that you look at emerging risks and you try to manage all of those things, which we appreciate.

Is it possible that an institution could go without a direct audit for an extended period of time? Or does the rotation basically give some confidence that they’re going to get a direct audit, or certainly an audit that includes oversight, at some point, in a reasonable time frame?

That’s probably a little bit of where Bowinn is headed with her thinking. Do we have institutions, for example, sitting out there that have never had one in two decades? Or is there a regularized schedule which occasionally may be altered, depending upon emerging risks at a particular institution?

I hope I’ve captured that. I was thinking about: could an institution basically escape — I use that in a kind way — an audit for an extended period of time?

C. Bellringer: It’s probably a good reflection of how they feel when they’re not on the list.

It is possible, with 60 and doing five. I mean, it would be 12 years to get through all of them. There would be some that would never see the list.

Having said that…. First of all, they are getting a financial statement audit done externally by a private sector firm. We also are in contact with all of the firms.

There are different things that we do to also make sure that we have a communication with all of the school districts — including, for example, when we did that compliance, controls and research piece that came here on the executive expenses. That would be something we’d then communicate with all the school districts about: “Here’s something interesting.” We go, when they have an annual meeting, and speak to the finance officers. So there are other ways we touch all of them and make sure that that happens.

I could probably argue that we don’t need to do any of them to be able to sign off on the public accounts. But we would then lose our understanding of how the school districts operate. There are some risk areas within all of the school districts. We certainly are much more aware of what they are by looking at some of them.

I don’t know that the coverage, in and of itself, will give the full picture of it, but it is, for sure, one part of it.

S. Bond (Chair): I think the important point that you’ve made is that it’s not like they’re not having an audit; it’s just that you are not involved with the institution. I think that’s a critical point, because British Columbians want to make sure that…. Of course, it happens. I mean, any of us who’ve served on other organizations like school boards know full well that there is an audit process.

[10:55 a.m.]

Two quick things, then. On page 31, it talks about geographic balance to the audits. As someone who lives a long way from here, we have to work hard to have our voices heard. Can someone describe for me how geography plays a role in this?

For example, I think one school district was eliminated and another was added, and the rationale was geographic balance. So what role does geography have to play in the way audits are conducted?

C. Bellringer: I’m going to ask Peter to give you a more fulsome answer on that one. We do map it out and look at making sure that we’ve got good coverage.

I will say that we’ve recently also looked at whether our staff are located in the right place. We are taking advantage of new ways of working. We’re experimenting in Vancouver, for example, with an employee who won’t have a physical office and will be able to work remotely so that we can start to get outside of Victoria.

P. Bourne: As far as choosing geographically, particularly for the school districts, we do map out where they all are. Of course, to do only five each year, it would take us, actually, about 60 years to get through them all. For example, this year, on the page, we decided not to do the Peace River North school district. That was in Fort St. John.

One of the reasons we took that off is because we are already doing the Oil and Gas Commission, which has activities up in Fort St. John. As well, as Carol alluded, the number of staff that we have that can travel or not travel plays a factor in this. We have taken on a couple of large audits in Vancouver which are requiring travel outside of Victoria.

We do have audits in the Kootenays. We have had suggestions on school districts from the Ministry of Education as to which school districts we could or should take on. We’ve received a handful of suggestions, and we are working those into our plan.

S. Bond (Chair): I appreciate that. I just think it is important to reflect on the fact that the way entities operate in more remote and rural places is very different. So it is important to continue to audit and reflect on those practices despite the fact that….

Fort St. John is, really, pretty much just above the middle of the province. There are people, you know, in Fort Nelson and Dease Lake…. I’m not suggesting you need to be engaged in every audit, but things do operate differently because of dispersed locations and how expenses….

Often the criticisms we hear are things about funding formulas, so there is a direct fiscal tie related to geography and those circumstances. I think what you’re saying is that you try to find a way to balance the need to send staff off to “far-flung places,” but they do reflect differently on the fiscal framework than urban communities.

P. Bourne: The other aspect to that is that we not only do the audits directly ourselves; we also perform oversight procedures. We tend to do those on a two-year rotation, so we’re able to move more quickly through the different school districts. That doesn’t mean that we’re going in and having to send staff there, but some more senior staff are involved with the auditor and with the audit committee. So we’re able to have an impact that way.

S. Bond (Chair): Thank you, Peter. I appreciate your input. I have one last question, and then I think Ralph has got one to wrap it up.

It’s unusual. Well, perhaps it’s not. There were a couple reflected in the report. I noted that Destination B.C. asked you to continue to be their auditor. Can you explain why?

C. Bellringer: I can’t.

S. Bond (Chair): Well, that’s honest.

C. Bellringer: Do you know why?

P. Bourne: I could take a stab at it. We have been their auditor for a number of years — 2012 or 2013. There are issues going on there. The same staff are involved with doing both Columbia Power Corp. and Columbia Basin Trust, so it makes sense that we do them together.

C. Bellringer: It’s Destination B.C.

P. Bourne: Sorry, did you say Destination B.C.? I’m sorry. I heard Columbia Power Corp.

[11:00 a.m.]

Destination B.C., I think, just asked us to do the audit for one more year. It was more a question that they weren’t ready themselves to be able to go out to an RFP to request new audit services. They did ask us to stay one more year, and we obliged them.

S. Bond (Chair): Is there a monetary benefit? I mean, if they had to go to an RFP…? Is there a fiscal reality to that, from Destination B.C.’s perspective?

C. Bellringer: It’s possible but unlikely, because we do bill for all of the audits that we do, so that it can keep it even whether it’s us or an outside firm. I think it really was that they were used to us, liked having us there. We agreed to do the one more year, but after that, we’re no longer going to be their direct auditors.

S. Bond (Chair): Thank you for that. We’ve sparked a whole new line of thinking here. We’ll do Ralph and then John, and then I’m going to be prepared to entertain a motion, hopefully. I think Mitzi is prepared to make that once we get through these final comments or questions.

R. Sultan: On page 16 of the report under the section requesting permission to stay on as a direct auditor in excess of five years, you point out, with respect to the Columbia Power Corp., that it “plays a significant role in energy infrastructure” if the corporation develops, owns and operates hydropower projects in the Columbia Basin. “Management of these projects can have a large impact on stakeholders in the province. The risks” — ah, that’s always a word that catches our attention — “associated with this corporation’s operations warrant our continued direct involvement.”

What sort of risks do you have in mind, Auditor General?

C. Bellringer: Can we go in camera?

S. Bond (Chair): We certainly can. What we will do…. That means that everyone in the chairs will have to leave, if we do that. There is, obviously, precedent to do that.

Ralph, would you just allow me to have John’s questions answered?

R. Sultan: Of course.

S. Bond (Chair): Then if anyone else has a specific issue about a particular audit with those kinds of questions, now would be the time to raise that, because if we’re going to go in camera, we might as well deal with any that anyone has at that point in time. We don’t want to be there for a long period of time, but hopefully we can deal with that issue at the Auditor’s request.

Okay. John, you have one more?

J. Yap: It just occurred to me, as I was going through the list again in appendix A, that the Legislative Assembly is listed here, and it’s a direct audit. One of the officers of the Legislature, the Office of the Representative for Children and Youth, is specifically listed. I assume that’s because of the legislation regarding that officer. How about the other officers of the Legislature? Are they covered within the Legislative Assembly audit?

C. Bellringer: No, the other officers are included within the public accounts, so within the summary financial statements. It’s only the Representative for Children and Youth that is required by its legislation to have a separate audit, audited by us.

I’m looking to the comptroller to just make sure he nods that I’ve said that correctly, and to Peter. I’m 99.9 percent sure that’s correct. Okay. Yes.

J. Yap: The other statutory officers are audited by your office? Or are they audited by private firms?

C. Bellringer: We have our financial statements audited by an outside auditor. Otherwise, the only time it would be looked at would be within the context of the summary financial statements, which we’re auditing. So we have an outside auditor, but I don’t believe anybody else does.

C. Fischer: The Public Guardian and Trustee has an external audit, because of their trust funds.

C. Bellringer: The Ombudsperson? The Representative for Children and Youth?

C. Fischer: The Ombudsperson I don’t believe does. The other offices are included in the ministry’s audit. Effectively, as part of the CRF audit, you do audit them.

C. Bellringer: When I was considering the Ombudsperson…. The Representative for Children and Youth is here, the Information and Privacy Commissioner….

[11:05 a.m.]

We’re not aware of any outside audits of their financial statements. Their numbers would be included within the public accounts, and we would audit those as a part of the whole.

J. Yap: Okay, good. That was my specific question.

In going through the list, I don’t see the B.C. Investment Management Corp. Is that not part of the entity, which, I believe, manages the pension funds for the province — B.C. Investment Management?

C. Bellringer: The comptroller and Peter both, I think, would like to answer that one, because they probably can say it more eloquently than I can, but they’re not part of the government reporting entity.

C. Fischer: Both the B.C. Investment Management Corp. and the Pension Corp. are independent. They are governed by their collective client base. They’re not directly controlled by government. So we don’t include them in the government reporting entity.

J. Yap: I expected that answer. But would they not ultimately fall within the risk of the province? If there was a need to backstop the fund, would not the province be liable? You’re shaking your head.

C. Fischer: No. There’s no liability directly for government to backstop or vouchsafe either the pension plans or any other investment funds placed with BCIMC. BCIMC operates as an independent fiduciary investment agent for all of their client base.

C. Bellringer: I’d just add that there are two elements of that that we do look at. We would be looking within the context of the summary financial statements to make sure — in the event that government did have a role in any transaction or an arrangement or an agreement — that that was all reflected within the public accounts statements. Also, we have a project in our performance audit coverage plan around oversight of pensions that we are looking at separately.

J. Yap: Okay, thank you.

S. Bond (Chair): All right. I need to entertain a motion that we move to in camera.

Motion approved.

The committee continued in camera from 11:07 a.m. to 11:17 a.m.

[S. Bond in the chair.]

S. Bond (Chair): Now I would like to entertain…. Mitzi, I believe you’re prepared to make a motion.

M. Dean (Deputy Chair): I move:

[That that the Public Accounts Committee endorse the three recommendations listed on page 5 of the Financial Statement Audit Coverage Plan for the fiscal years 2019/20 through 2021/22, as required by sections 10 and 14 of the Auditor General Act.]

S. Bond (Chair): Any discussion?

Motion approved.

S. Bond (Chair): Thank you very much for laying out your plan for years that…. Some of us have no idea where we will be at those periods of time, but it’s good to know work will continue.

We also want to recognize the fact that at this point, I remember, last year, we had a very healthy discussion about finances and the implications. You’ve made it clear that this work can very likely be conducted within the fiscal framework that you’ve been given. So we thank you for that and appreciate the presentation today.

Consideration of
Auditor General Reports

Understanding Tax Expenditures

S. Bond (Chair): With that, we’re going to move on to our second item, which really, I think, could be characterized as some advice about best practice. I don’t anticipate this will be a hugely controversial discussion, but we’re going to move on to that item.

The item is called Understanding Tax Expenditures. It was released in October of this year. The Auditor General will certainly make some remarks, and we have a number of staff that will be joining her. I’m sure she’d be happy to introduce them.

We will also be hearing a response from the Ministry of Finance, because obviously, this is about best practice, and the advice is related to transparency. So we will welcome, in just a few minutes, the Deputy Minister of Finance, Lori Wannamaker, who will respond on behalf of government to the recommendations.

Giving members a heads-up, we’ve obviously received a couple of items of correspondence. I don’t intend for that to be a lengthy discussion, unless you have specific questions. Then we have two information items. We’ll perhaps just give you a bit of context, but I don’t anticipate that this portion or those other items….

[11:20 a.m.]

I know there are some other things happening during the lunch hour, and I would very much like to make sure that you can get there should you want to attend them.

With that, we’ll turn it over to our Auditor General and ask Carol to make some comments and introduce her staff. Then we’ll shift it up, and we’ll have the government provide their response.

C. Bellringer: Thank you very much. I’m actually going to pass it over immediately to Sheila Dodds, who’s one of the Deputy Auditors General in the office and who is responsible for this report. She’ll introduce the rest of the group.

S. Dodds: Good morning, Chair and committee members. Thank you for inviting us to present a summary of our report Understanding Tax Expenditures. With me, I have Mark Castator and Stephen Abercrombie. Mark was the engagement director for this report, and Stephen was the engagement manager. They are both members of our compliance, controls and research team, which is a newer work unit in our office, conducting narrow-scope performance audits and research projects.

This report, which is the result of our research into the topic of tax expenditures, is the second report completed by the compliance, controls and research team. Our intention with this report was to highlight the significance of tax expenditures in the context of overall provincial spending and to highlight how understanding tax expenditures can help inform budget debates. The report also provides insights on the types of information that would be informative to legislators and some information on how some other jurisdictions are reporting tax expenditures.

I will now turn it over to Mark Castator to provide a more detailed overview of that report.

S. Bond (Chair): Welcome. We look forward to your comments. You can just begin.

M. Castator: Thank you, Madam Chair.

In this information report, we looked at government’s tax expenditures, how they relate to direct spending and how they are reported. Tax expenditures are tax breaks offered by government in support of its policy objectives. Tax expenditures are forgone revenue: money that government doesn’t collect but could if it didn’t offer the tax exemptions, allowances, rate reductions, deferrals or non-refundable credits. In 2016-17, the B.C. government reported over $7 billion in tax expenditures.

The main purpose of the tax system is to raise funds to pay for government programs and services and to pay for the administrative costs of government. Through tax expenditures, the tax system can also be used to further a government’s policy objectives. Tax expenditures can be used to help support government’s social, economic and environmental objectives. For example, B.C. does not charge PST on sales of bicycles. In 2016-17, this resulted in an estimated $23 million of forgone revenues. However, forgoing these revenues supports government’s environmental policy objectives.

B.C.’s direct spending is reported annually in the summary financial statements. Estimates of tax expenditures, in comparison, are reported in an appendix to the government’s annual budget and fiscal plan. To properly evaluate the effectiveness of tax expenditures, legislators should understand the purpose and policy objective for the tax expenditure, when it came into effect, when it was last reviewed for effectiveness and the amount of tax revenue forgone. Currently only the amount is reported.

Government debates on its budgeted direct spending annually. In contrast, tax expenditures are only voted on when tax legislation is enacted or changed. Some tax legislation and associated tax breaks may be decades old.

As mentioned earlier, in 2016-17, B.C. reported over $7 billion in tax expenditures. In comparison, direct spending for the year was $48.7 billion.

For this report, we looked at tax reporting for a number of other governments. In particular, we found that the Canadian federal government had recently enhanced its reporting to include, for each tax expenditure, eight years of tax expenditure amounts, the purpose of the tax expenditure and links to the underlying legislation. We found that governments were making use of the guidance provided by the IMF and OECD to enhance their tax reporting. The appendix D to our report showed a comparison of tax ex­pen­diture reporting across jurisdictions.

The last time our office reported on tax expenditures was 25 years ago, in our report on the public accounts. In that report, we made recommendations on how government could improve its reporting on tax expenditures. At that time, government took steps to enhance its tax expenditure reporting. However, there have been minimal changes since then, and the government can be doing more to enhance its tax expenditure reporting.

[11:25 a.m.]

In this report, we urge the government to review its tax expenditure reporting. More comprehensive reporting of tax expenditures would increase the government’s awareness of tax expenditures and their impacts on government’s overall fiscal plan.

S. Bond (Chair): Thank you very much.

We’re going to, I think, now move to the response from government. The Deputy Minister of Finance, Lori Wanamaker, is here. She can introduce her staff that is with her and take a spot at the table. We’ll walk through what government had to say.

L. Wanamaker: May be able to score the fastest two presentations ever before Public Accounts Committee.

S. Bond (Chair): I can assure you: we usually find a way to make them longer. But we will try to honour your request, Lori.

L. Wanamaker: Thank you for inviting us today to respond to the Auditor General’s report. As Sheila laid out, this was the second compliance, controls and research report done by the Office of the Auditor General. From the ministry’s perspective, it was a very good process. It was very interesting and educational.

Tax expenditures are a reduction in taxes that government makes. Primarily, tax expenditures support social policy or economic development policies of government. A good example of this is the training tax credit.

This tax credit recognizes the cost to employers of training trades apprenticeships and encourages people to complete the program. It’s a refundable tax credit. It has a legislative expiry date so that we can evaluate it over time, and it fulfils both social policy and economic development policy objectives.

Tax expenditures are seen as a very efficient and effective way to achieve policy outcomes. A point-of-sale exemption of sales tax for children’s clothing is an example of this. You avoid the process of saving receipts, submitting applications and applying for a refund. All of the administrative costs are reduced.

There is little formal guidance on the disclosure of tax expenditures, and there are no requirements, although I think it bears saying that Canada’s disclosure is quite comprehensive and probably a model.

For over 25 years, British Columbia has been seen as a leader in this area. We made significant changes after the first Auditor General’s report in 1995, and if you look at page 14 of the Auditor General’s report, you’ll see the timeline and a number of changes that have occurred over the years. Generally, we record tax expenditures that are the equivalent of spending programs, excluding most programs that have a revenue value of less than $2 million.

Tax measures that reduce taxes owing in B.C. generally fall in four key areas. The largest category by far are the tax expenditures under the income tax that are solely driven by federal policies. Because of the B.C.-Canada tax agreement, the federal government has the sole responsibility for determining income subject to tax, including the allowable deductions. This is followed by the small business corporate income tax rate, which is a 2 percent rate, as opposed to the general rate of 12 percent; the homeowner grant, which has grants that range between $570 and $1,045 a year; and the PST exemption on basic groceries.

Starting in 2012, we changed our reporting approach. Up until this time, we recorded both our refundable and non-refundable tax credits in the budget and fiscal plan. Beginning in 2012, we broke out the refundable credits and recorded them in the annual estimates as a voted appropriation within the Ministry of Finance.

[11:30 a.m.]

Tax expenditures are generally reported in the budget and fiscal plan as both refundable and non-refundable because of the importance for an economic perspective of disclosing them in this way. In this way, we produce not only valuable historical information, but we also provide a comprehensive overview of both the refundable and non-refundable.

That said, we take the points the Auditor makes on these credits, and in the 2019 budget, we will be identifying clearly the refundable tax credits, although we will continue to disclose both in the appendix. We’ve begun work to review the disclosure in other jurisdictions and will continue to identify and adopt good practices in disclosure.

Again, I’d like to thank the Auditor General and her staff for the work on the report.

S. Bond (Chair): Thank you, Lori. I appreciate your comments. We’re going to start what may well be a brief discussion.

A. Olsen: I just want to say I appreciate being on this committee, because I get the opportunity to take a look into government in areas that otherwise I would not. This is one of those things that I think….

I remember sitting down with a constituent of mine who’s an accountant and having a conversation about how we could just simplify the tax code and perhaps achieve all of the things that are being outlined in here, through simplification of it. Yet it goes back to the conversation that I think we had in the last session around the pile-on principle, where we can just continue to add on the work and add on these tax expenditures based on politics, based on the political environment at the time. You know, add a credit here, add a credit there, and then not really have any good, solid way of taking a look at the….

I’ll give you an example of this. I started to look at these numbers. I was looking at the very large ones first. I’d go, “There’s a big one; there’s a big number,” and realized that actually, it’s the accumulated impact of all the little ones. Then I thought: “Okay, now I should start taking a look in a little more detail into what the smaller ones are.” I think that is one of the primary challenges we have here in government — that is, trying to understand the impact on society of all of the big decisions and all the tiny little decisions that we make and try to find that balance and where that balance is.

I appreciated the opportunity to take a look at this. I appreciated the response from the ministry that we’re going to continue to try to improve our reporting on this and would strongly encourage that. I appreciated the opportunity to dive into this a little bit deeper with this report.

I’m going to leave it at that for now.

M. Dean (Deputy Chair): Thanks so much for the work. It’s really interesting. I appreciate that there will be an increase in transparency, but one of the things that struck me about this report was that a tax policy decision can be made at a certain point in time, and then there’s not necessarily an automatic review of that. So I’m really interested in all of those decisions that have been taken that have led to the current tax regime that we have now. How and when are those decisions put under review?

L. Wanamaker: First of all, I’d like to introduce Paul Flanagan, who is a senior advisor on tax policy. I didn’t introduce him at the outset.

You’ll find that most of our newer tax credits are all passed into legislation with an automatic expiry date. That requires us to go back before renewing and review the tax credit to make sure that it is achieving the policy objectives that were laid out at the outset. That doesn’t necessarily address tax credits that have existed for a long period of time. However, some of the larger ones, like homeowner grants, for example, are reviewed on a periodic basis as we adjust the threshold for application.

For the historical credits, it’s at the direction of the Minister of Finance or the cabinet.

[11:35 a.m.]

S. Bond (Chair): I think what’s been really interesting about this report is that it really is about research. I actually think that when we see what comes before Public Accounts, this is one of the things that is a good thing for us, as Public Accounts, to be discussing, because our job is to make sure that we see the kind of framework that allows for transparency. It is non-partisan. It is basically: “How do we do a better job in government?”

I think this is one of the places that we can say…. I do think it’s important to point out that British Columbia does report. The issue is more about how it reports and: can you do that in a different way? I think it’s always good to have continuous improvement.

I loved reading through the appendix of tax expenditures in 1994-95. It was an interesting thing. If you looked at what the comparable list would look like today, it would be interesting to see even just the policy thinking that is behind those decisions.

I think the other piece that I really paid attention to was that the practices varied across jurisdictions. There wasn’t one that was…. Although, now Canada is sort of being held up as being further ahead. I think it’s safe to say that it wasn’t non-existent. There is reporting. It’s how it’s done. And can we do that in a better way?

I think that our job is to endorse those kinds of things. We want to thank the Ministry of Finance for being receptive to these ideas. We look forward to seeing the format that will occur in the next budget year.

Ralph, did you have a question? Your hand was slowly going up there.

R. Sultan: Well, I was just wondering if I would have an opportunity to make a question.

S. Bond (Chair): Absolutely, Ralph.

R. Sultan: I sensed you were winding up.

S. Bond (Chair): I was. I was going to wrap it, but I saw your hand just quivering a tiny bit, and I thought you must want to jump in here.

R. Sultan: Let me blurt out my question. I share the Chair’s curiosity in reading the two appendices. I found the 1995 report much more interesting, perhaps because of the detail in which it went. I guess, like a lot of people, my eyes glaze over. I see big numbers, but I can’t quite associate it with somebody buying a bicycle.

Two things. One is: is there any technical reason why we could not, starting more or less immediately, in our budget reporting, revert to the level of detail annually that we saw in 1995? That’s my first question.

The second question is: who is the wise person who decides what is actually a tax expenditure? It seems to me this is a great philosophical, metaphysical, theoretical construct of what we could tax but do not tax. For example, the progressive income tax. We could say: “Well, everybody earning less than $1 million a year or whatever is getting a terrific tax break, because they’re not paying as much as that guy at the top.”

This is hardly accounting science, in my opinion. There’s a good deal of personal judgment involved in defining what a tax break is. Maybe you have a greater insight into that dilemma than I do.

A Voice: Go ahead.

S. Bond (Chair): I think Paul is going to give that a try.

Are you?

P. Flanagan: Yeah, I’ll give it a try.

The member is quite right. It is complicated, and there are differences of opinion all over the place on what constitutes a tax reduction, tax expenditure.

One example is in sales tax. The way the provincial sales tax is structured is that it taxes tangible personal property, but it also taxes some services that are deemed to be taxable personal property. Repair services, for example, is one. But we don’t report engineering services as a tax expenditure, because it’s just not part of the base.

For each of the different types of taxes, we sort of have to go back to basics and say: what is the information that is really relevant? Maybe we should be reporting an exemption for engineering services, even though it’s not really, technically, an exemption. So we sort of have to look at each statute and go into a lot more detail.

[11:40 a.m.]

The income tax measures are largely federal, with the exception of the provincial refundable credits, which are also reported in the estimates. Most of the income tax measures are driven by federal tax policy. They do reduce the provincial taxes by a shotgun approach, so we report an estimate of what the impact is on B.C. revenues.

R. Sultan: We could revert to reporting annually that level of detail that we have enjoyed in the past.

P. Flanagan: Oh, sure. There are a number of things….

R. Sultan: It’s only our political embarrassment that discourages you from doing so.

P. Flanagan: Well, the federal approach, as Sheila pointed out, reports many years of tax expenditures and also categorized them by what they are attempting to do. I think that’s the part that might be of more interest to people. There’s a set of tax expenditures, for example, for the disabled, and it may make sense to group those all together and look at them from that perspective. Others are more economic development–type measures.

S. Bond (Chair): Lori, did you want to say something?

L. Wanamaker: I just wanted to add that if the member goes to this booklet, he will see disclosure, which is quite similar to the disclosure in 1995 in the appendix to that, as well as details on the annual tax measures in the body of the report. I think one of the points that the Auditor makes is that the disclosure has not become dramatically more fulsome in the last 25 years, and the recommendation is that we explore a more complete, comprehensive reporting.

S. Bond (Chair): I think the interesting part of seeing some of those years captured just in one place was the prior­ities and how it really is a policy-based decision in terms of the foregone revenue. It was interesting to watch, for example, the quantum related to food and the expenditures related there and how that had increased quite dramatically over a couple of the terms.

Thank you very much. You’ve sparked some progress in the Finance Ministry, and you’ve certainly given us a lot to think about. So thank you to the Auditor’s office, and thank you, obviously, to Lori and Paul for presenting on behalf of Finance today.

Correspondence

MINISTRY OF ATTORNEY GENERAL

S. Bond (Chair): With that, the rest of our items today are simply a reminder of the correspondence. We’ve started to make those public now. It’s important that you have a chance to reflect on those, should you want to.

We had correspondence from James N. Harvey, who is the Assistant Deputy Attorney General, Ministry of Attorney General. That was dated July 24, 2018. That was related to B.C. Housing’s non-profit asset transfer program.

OFFICE OF THE AUDITOR GENERAL

S. Bond (Chair): We also had correspondence from the Auditor related to An Independent Audit of Executive Ex­penses at School District 61.

M. Dean (Deputy Chair): I had a question on the correspondence from the Auditor General.

S. Bond (Chair): All right. Certainly. Just go ahead and ask.

M. Dean (Deputy Chair): On the table on the second page, there is a list of performance audits that were going to be coming up. In there was listed Vancouver Island University, auditing the international student planning and fees for them.

This is an issue that comes up at the Finance and Government Services Committee a lot. We hear a lot from stakeholders from across advanced education about the increase in numbers of international students and the increase of their fees as well. So I’m really interested in what standards you’re going to apply to actually measure the audit. What standards are you actually auditing the university against?

C. Bellringer: Conveniently, Sheila is still in the room. These are the CCR audits, so I’m going to ask her.

Do you have an answer for that at this point?

S. Dodds: We are in the planning stages at this point. Our team has gone up to Vancouver Island University a couple of times to meet with staff and just look at the accounting. But what we’re looking at is: what are the costs that are being looked at to provide the education for international students and the relationship to the tuition?

In terms of what we’re going to measure against, that’s part our planning. When we’ve completed the plan, we will have an articulated objective and criteria that we’ll measure against.

M. Dean (Deputy Chair): That’s really interesting. I’ll be really interested in seeing that as it moves along.

Can I just clarify: is that public information at the moment? Is it generally known? No?

[11:45 a.m.]

C. Bellringer: Sorry. Which aspect?

S. Dodds: The audits that are in conducting or reporting are listed on our website, and that’s publicly known. The projects that are in earlier stages of planning are not.

The list that was provided for the committee includes a couple of small audits that are in the planning stage, and they’re not publicly listed on our website. That would be the direct-awarded contracts — the liquor distribution branch, the B.C. PavCo economic benefits and the international student tuition.

M. Dean (Deputy Chair): Thank you very much.

C. Bellringer: We have quite a few more that we’re considering. We limited this list, at this point, to those where the organization is very much aware of the fact that we’re doing the audits. So we were comfortable with the lists being provided.

As Sheila pointed out, it’s a regular practice in the office as soon as we’ve hit the conducting part. Planning is done. Now we’ve had sign-off by the most senior person in the organization as to how we will measure something. Then it goes on to the website for all the public to see.

S. Bond (Chair): Thank you for that, Mitzi. I appreciate that clarity, as well, from the Auditor’s office.

All right. That covers off our correspondence section. The last two items that I wanted to bring to your attention…. They are information items; however, we’re going to assign a tiny bit of homework.

Mitzi and I have had the opportunity to review the draft communication plan. We’ve had a chance to take a look at that, but we would very much like you to do the same thing.

Canadian Council of Public Accounts
Committees Conference

S. Bond (Chair): I want to begin by recognizing and thanking the team from our Public Accounts Committee and support staff from the Clerk’s office. Obviously, the Auditor and her team were at the conference in Charlottetown.

I think it’s fair to say that we had broad representation. Our members participated as speakers, and the Auditor spoke as well. Kate is obviously highly revered in the organization. She was up many times and helping direct traffic and keeping people organized and keeping the conference moving.

We’ve provided for you a summary of what occurred there. You should have a copy of that. I hope you will feel that you were well represented, if you were not there. I think British Columbia looked and sounded good while we were there. Certainly, people do look to us as a leader.

We now go on to have a membership on the executive — I guess you would describe it in that way — of the organization, so we will look forward at some point in the not-too-distant future to hosting the group here. We thought it was important to be transparent about what happened, who said what and who presented.

Then one of the key items that generated a lot of discussion and some really terrific speakers was the whole issue of transparency related to the business of public accounts and who knows what we do and why we do it. I think it was fair to say that everyone who attended thought that Public Accounts was the most important committee yet certainly, wasn’t likely captured that way in the hearts of British Columbians, in our case.

Draft Communications Plan

S. Bond (Chair): I think that we’ve tried to reflect that in a potential draft communications plan. Mitzi and I are hoping that you will take it away, give it some thought and think about what you can do to be part of this process.

We’ve seen some really good work done by the Finance Committee, as they’ve been out on the road. Certainly, I know that we’ve had members participate in some joint videos to talk about the work, so we’ve sort of taken that as a guidepost.

So a little bit of homework. You are welcome to speak to Mitzi, Kate or myself about the draft plan. Then we’re going to start figuring out how we actually do something. It’s nice that it’s a draft, but it would be really good for people to understand the role of Public Accounts.

I think the strongest message that I certainly came away from Charlottetown with was the way members grapple with the fact that this is a non-partisan committee and that, despite everything that goes on in the chamber and everywhere else, we come to this place together to try to bring improvements to how government generally operates.

To be honest, I think we all shared that we felt that we have done a pretty good job of that in this particular iteration of the committee. It may not have always been the case, and it may not be going forward, but I’m very proud of the fact that we stick to the agenda and try to improve the process.

[11:50 a.m.]

It’s fair to say that many jurisdictions are not in that place. Anyone who was there can tell you that there was a lot of contention. You know, people would be running out of Public Accounts and holding press conferences and…. I felt really glad that we were from British Columbia. We can still improve, but I want to compliment each member who comes here each time we meet with what I think is a very constructive and collaborative attitude to what our job is.

Those are the last two items of our agenda today.

We hope to meet again on, I think…. I have the date because Kate always has it: Monday, November 26. I realize this does cause some awkwardness for members who would rather be in the House debating, but it really was the most convenient time, as we asked all of you. So Monday, November 26, at 10:05. We have the draft agenda. We do not have the materials yet.

That’s it for today. Thank you very much to the Auditor General and her staff for being here, and obviously, Carl, we appreciate your attendance and participation today as well.

With that, I’d entertain a motion to adjourn. Excellent. Everyone’s in hearty agreement on that fact. Usually that’s the most energetic response we get.

Thank you. We will reconvene, then, on the morning of the 26th.

The committee adjourned at 11:51 a.m.