The committee met at 10:04 a.m.

[S. Bond in the chair.]

S. Bond (Chair): Good morning. I’m going to call the meeting to order, today’s meeting of the Select Standing Committee on Public Accounts. I want to thank all of my colleagues and our participants in the process here this morning.

We have a number of items that we’re going to consider. I am going to, in a gentle way, put the committee on notice. I think the agenda time is fairly generous. I actually think that, with everything that’s happening…. I know that people are debating bills and running all over the place. Others, I know, have specific commitments around the noonhour.

So with your indulgence — and not at all suggesting we shouldn’t be lengthy in our comments…. I think that there’s probably ample time in the next hour and a half or so to get through these items. I hope you’ll help me with that, if at all possible, so that people can go about their very busy day today.

With that, the first item that we’re going to consider today is the consideration of the Office of the Auditor General report, Understanding Our Audit Opinion on B.C.’s 2017-18 Summary Financial Statements. It was published in August of 2018.

[10:05 a.m.]

Joining us today are the Deputy Auditor General, Russ Jones; the executive director, Lisa Moore; and the director of performance audit, Jane Bryant.

I’m assuming everyone is here.

R. Jones: Yes, Chair, we’re all here.

S. Bond (Chair): Nice to see you.

R. Jones: Good to see you too.

S. Bond (Chair): Glad to have you here today and to hear from you.

I know that we’ll also be hearing from the office of the comptroller general. We have Carl Fischer, who is our comptroller general, with us.

We will work our way through the process as we normally do, with a presentation on behalf of the Auditor General’s office, some comments, and then we’ll look to the comptroller general to respond. Then we’ll have some questions along the way.

Again, I think the time allocation has been quite significant, and I don’t anticipate that we’re going to need until 11:30 to discuss this report.

With that, Russ, I’m going to ask you to begin, please.

Consideration of
Auditor General Reports

Understanding Our Audit Opinion
on B.C.’s 2017-18 Summary
Financial Statements

R. Jones: Thank you, Chair. Good morning to members. It’s a pleasure to be here to go over our report on understanding the Auditor General’s opinion on the public accounts summary financial statements.

Unfortunately, Carol isn’t able to make it today and sends her regrets. She’s working with CPA Canada looking at how the profession adapts to drivers of change in the future — so a very, very important thing to be doing for the profession. She does send her regrets.

As the Chair mentioned, with me today is Lisa Moore, executive director with the financial portfolio in the office as well as the engagement lead on the B.C. Hydro financial statement audit next year, and Jane Bryant, who is director with the office’s performance audit portfolio.

This report that we’re going to look at today, understanding the Auditor General’s opinion, was published in August 2018. As the title suggests, the report explains the Auditor General’s opinion on government’s 2017-18 summary financial statements. The actual opinion can be found on pages 16 to 18 of the report.

Just before I turn it over to Lisa, I’d like to point out the importance of both preparing financial statements in accordance with accounting standards and looking at the audit opinion when you’re reading a set of financial statements you come across. Accounting standards create consistency in financial reporting and allow the financial statements of the province to be compared to other jurisdictions across the country.

In Canada, the standards for senior governments are independently set by the Public Sector Accounting Board. These standards are developed in the public interest, with a view to ensuring that the financial results for the year are presented in a manner that is both transparent and allows readers to hold government accountable for the use of resources entrusted to them.

Our audit opinion is the fastest way of determining whether the financial statements have been prepared in accordance with these standards and whether the financial statements present a true and fair picture of the financial results for the year.

Let me emphasize that where there is a qualification, it should not be taken lightly. The qualification is not something we like to issue. However, when issued, users of the financial statement should take it seriously, as it alerts them to significant concerns about the reported results.

I’m now going to turn it over to Lisa to take you through our presentation.

S. Bond (Chair): Thank you, Russ. We appreciate that introduction.

L. Moore: Good morning, Members.

As Russ just mentioned, this report discusses our audit opinion on government’s fiscal 2017-18 summary financial statements. This presentation will cover three topics: the use of generally accepted accounting principles, known as GAAP, by government; removal of our qualification from last year related to the Transportation Investment Corp.; and the two qualifications this year relating to the deferral of revenues and the use of rate-regulated accounting within the summary financial statements.

Government enacted the Budget Transparency and Accountability Act, or BTAA, in the year 2000. The act requires government to prepare its financial statements in accordance with the independently set generally accepted accounting principles, or GAAP, for senior governments in Canada. These standards are known as public sector accounting standards, or PSAS.

However, in 2010, government changed the BTAA, giving itself the ability to create regulations that can modify accounting standards. Since then, government has created two such regulations: one that defers revenue transfers from, for example, the federal government and one that circumvents the standard for rate-regulated accounting that requires an independent regulator of utility rates.

[10:10 a.m.]

Our audit report on the summary financial statements states whether government has prepared its financial statements in accordance with PSAS. A standard opinion does not include a qualification and indicates that the financial statements can be held to a higher level of reliability than those with qualifications.

For the 2017-18 summary financial statements, our audit report was once again qualified because the statements did not comply with PSAS. Governments should apply PSAS with modifications and rescind the regulations modifying GAAP. We note that the regulation that modifies accounting at B.C. Hydro has recently been rescinded.

Remove all the qualification related to the Transportation Investment Corp., or TI Corp. In the prior year, TI Corp. did not meet the criteria to be considered a self-supporting Crown corporation, since the revenue it was generating was not sufficient to cover all of its costs. As of September 1, 2017, government stopped charging tolls on the Port Mann Bridge and therefore reclassified the TI Corp. to a taxpayer-supported Crown corporation. We agreed with the assessment and, therefore, removed our qualification.

Our first qualification on the March 31, 2018 summary financial statements relates to the deferral of revenue received from other levels of government and externally restricted funds from non-government sources. This is the seventh consecutive year for this qualification.

Government’s accounting treatment for these funds is to recognize them into revenue either when the related expenditures occur or, in the case of capital assets, on the same basis they are amortized. That is recognized as an expense. This is done over a number of years, depending on the estimated time use of the assets.

This is a departure from PSAS. PSAS requires the funds to be recognized as revenue when received or receivable, unless the funding agreement creates a situation where the money received might have to be repaid. In the case of capital assets, fund should be recognized by the time the asset is purchased or built. Therefore, government generally recognizes this revenue in its financial statements later than required by PSAS, which distorts the financial statements both now and in the future.

This difference in accounting results in an overstatement of deferred revenue by $5.3 billion and an understatement of an accumulated surplus contribution revenue and surplus by the same amount. Please note that the increase in surplus does not mean that the government has additional cash. In most cases, the money was either already spent or was earmarked for specific projects.

Our second qualification relates to the use of rate-regulated accounting within the summary financial statements. This is the second consecutive year that we have qualified on this issue. Government is accounting for B.C. Hydro in its financial statements as a rate-regulated entity. In order to do so, there are three criteria that must be met.

One, rates are established by an independent third-party regulator or the entity’s own governing board empowered by statute or contract to establish rates that bind customers. Two, rates are designed to recover the cost of service. Three, in the view of the demand for the regulated services and the level of competition, it is reasonable to assume that rates can be charged to and collected from customers.

At the time of our audit, the BTAA directed B.C. Hydro to follow rate-regulated accounting but with a deviation from the standard: that is the requirement that rates be set by an independent regulator. Even though B.C. has an independent third-party regulator, the British Columbia Utilities Commission, or BCUC, government issued a number of directions that BCUC must follow in the rate-setting process.

These directions predetermine B.C. Hydro’s financial results, which government then includes in its own summary financial statements. As well, neither government nor B.C. Hydro’s governing board’s role is that of an independent regulator. Since government’s direction must be taken into account by BCUC, it is our opinion that the application of the rate-regulated accounting is not in accordance with the independence requirement.

We also found that B.C. Hydro did not meet one of the other required criteria to use rate-regulated accounting: the requirement that rates are designed to recover the cost of service. Rate design means that rates, in a given period, should be calculated to reflect the cost of services provided to customers in that period.

Normally, a utility would estimate its cost of service and apply for rates sufficient to recover these costs in a given period. This prevents utilities from over- or undercharging today’s customers or doing the same to future customers. This is a basic premise of rate-regulated accounting and provides the necessary constraint on the rate-making process. Instead, we found that government has largely predetermined B.C. Hydro’s rates, as well as B.C. Hydro’s forecast cost of service, including its allowable costs, which is used to determine those rates.

[10:15 a.m.]

Because the rates directed by government were lower than that required to cover B.C. Hydro’s forecast costs, government also directed the deferral of a large number of these costs through regulatory accounts. This is why B.C. Hydro’s regulatory account balances have built up since fiscal 2012.

We also found that government had prohibited the BCUC from rebalancing rates between B.C. Hydro’s different customer classes — that is, (1) residential, (2) light industrial and commercial and (3) large industrial. Cost of service means designing rates to meet the entity’s overall revenue requirement, but this also means that, to the degree possible, rates for each customer class should be designed to recover the costs of providing service to that group.

Finally, we also found that government direction has effectively predetermined that B.C. Hydro earn a specified profit amount. In fiscal 2016-17, government disagreed with our findings related to rate-regulated accounting. In fiscal 2017-18, government changed its position in response to our qualification in the previous year and made a $950 million adjustment to this year’s summary financial statements.

This means that rather than recognizing the full $5.4 billion of B.C. Hydro’s net regulatory assets in the summary financial statements, government recognized $4.5 billion instead. As a result, our qualification is on the remaining $4.5 billion that government continues to recognize as regulatory assets.

We note that government has taken steps to address this matter. Since issuing our audit opinion, government rescinded the part of the BTAA regulation that removed the requirement for an independent third-party regulator. Government is also conducting a comprehensive review of B.C. Hydro.

That concludes our summary of this report.

S. Bond (Chair): Thank you very much for laying out the report with those details. We appreciate that.

At this time, we’re going to ask the comptroller general to provide some remarks. We have a PowerPoint, as well, that I think Carl will be walking through.

Carl, perhaps a reminder that we do need to have your staff’s name read into the record, if you don’t mind. Thank you.

C. Fischer: Thank you very much, Chair. I’m Carl Fischer. I’m the comptroller general. I have Diane Lianga with me today. Diane is the executive director of financial reporting. That means that she is the accounting authority for the province and works with ministries and Crown agencies to support government’s accountability to the public for financial matters.

We have prepared a brief presentation. In view of a desire to move forward quickly, we will jump right into it.

D. Lianga: Good morning, everyone. Thank you very much for the opportunity to discuss the Auditor General’s report on their audited opinion on the 2017-18 summary financial statements.

The audit opinion on the 2017-18 public accounts includes two points of qualification. The first qualification is related to the deferral of government transfers revenue, which is a qualification that has been identified each year since 2011-12.

The second qualification was regarding the application of rate-regulated accounting, specifically related to B.C. Hydro. The qualification regarding the Transportation Investment Corporation that was included in the previous year’s audit opinion was resolved during the 2017-18 fiscal year.

The deferral of restricted government transfers has been a qualification since a new standard on government transfers was issued by the Public Sector Accounting Board in 2011. The Auditor General’s position is that the restricted funding received for capital assets should be recorded as revenue when the asset is purchased or built and the related expense should be recognized over future periods as the assets are amortized and used to deliver services and programs.

[10:20 a.m.]

This means that future operating results will not reflect that those contributions were restricted for the purpose of delivering future programs or services and does not disclose government’s obligation to use those assets to provide programs and services as stipulated in the agreements.

B.C., like other provinces, continues to recognize restricted contributions when the service delivery obligation is fulfilled. This approach better matches the economic substance of the restricted funding and avoids the artificial mismatch of when cash is provided and services are given. This allows actual results to be directly compared to budgets and spending authorities and transparently represents the province’s obligation to stakeholders, both the contributors and those that are going to receive the services.

As the Auditor General notes in the report, there are differences in application of the government transfers standard across senior jurisdictions in Canada. Those provinces focusing on sustainability apply the standard the same as B.C., while other provinces record revenue when received.

B.C. is the only province that receives a qualification on deferred government transfers. The Public Sector Accounting Board did review the issue in 2016 and concluded there was sufficient flexibility within the standard to support either approach.

The second qualification item relates to the application of rate-regulated accounting at B.C. Hydro. This issue was included as a qualification in the previous year’s audit opinion. The Auditor General’s office undertook additional work during the 2017-18 fiscal year and was able to further define the Auditor General’s concern that by self-directing regulatory actions, it is not possible to determine whether all regulatory assets arise from the costs of services provided. The Auditor General’s office was unable to estimate what the impact of those directions was on the regulatory asset balances.

An adjustment of $950 million was made in the 2017-18 public accounts in response to the previous year’s qualification. The estimate was made by the office of the comptroller general and was based on analytical modelling that considered the impact of government direction on the regulatory account balances.

Since the release of the 2017-18 public accounts, the transitional regulation on accounting standards has been repealed, and B.C. Hydro will fully adopt international financial reporting standards this year. Government will be addressing any required changes to directives provided to the British Columbia Utilities Commission, and B.C. Hydro and the regulator are working to develop a transitional regulatory framework. We will continue to work with the Auditor General, the regulator and B.C. Hydro.

Since adopting generally accepted accounting principles as the basis of accounting in 2004-05, there have been 11 items of qualification, and we have successfully resolved nine without financial adjustment to the financial statements.

The $950 million adjustment made in the 2017-18 summary financial statements and the repeal of the transitional accounting standard regulation are positive steps forward to resolving the issue on rate-regulated accounting. But as the Auditor General mentions in her report, there is more work to be done, and we will continue to engage with the Auditor General as this progresses.

The comptroller general and the Auditor General have agreed to take an objective review of our respective positions on the deferred government transfers issue and to work towards identifying a resolution that works with B.C.’s legislated framework. We are also proactively working together to address proposed changes that will have a significant impact on the way financial statements report financial performance to the public and the Legislature.

That concludes this presentation, and we’d be happy to take any questions.

S. Bond (Chair): Thank you very much. Again, we appreciate the detailed presentation. It helps us, as we’ve done our homework, and now we get to confirm that we actually understood what we were reading. That’s a very good thing.

Does anyone have any questions?

Ralph, we’ll start with you this morning.

[10:25 a.m.]

R. Sultan: Yes, a question for the comptroller general.

Over the years, we have been intrigued and somewhat mystified, at least in my case, about the preference of the government to be very cautious about recognizing revenue received. One purpose of this committee is to see when governments are playing hanky-panky, trying to present a more favourable picture than, in fact, is reality. Here we have the opposite condition where, over the years — and it has been commented on many times — the government is understating its financial performance, if you will.

I’m just curious about the motivation of governments. We don’t ask you to analyze the politicians, and none of us really can very well. But why is this bias continuing?

C. Fischer: Thank you, Mr. Sultan.

It does seem a bit odd. I think anyone can see that there will be a preference in the short term to maximize revenue and be able to pursue programs or services or represent good financial management. It does take a lot of discipline to think about the long-term impact, and that’s really what this is about.

Government transfers are, effectively, financing transactions. We call them government transfers or grants, but they’re virtually the same in the public sector as a forgivable loan or any other cash-up-front strategy to help different levels of government achieve program outcomes that are in the public interest.

If we do follow-up process of eagerly recognizing revenue as soon as possible, what we’re not doing is we’re not matching the contribution, whether it’s from federal government or municipal authorities, with the period in which the service is actually delivered. It goes back to the very core of accrual-basis accounting.

The reason that governments recognize capital assets, whether they’re schools or hospitals or anything else that’s used in program delivery, is to represent the service capacity that they provide. When we receive contributions from other levels of government — for example, the federal government or even municipal governments, in the case of regional hospital districts — we have to be very thoughtful about what that contribution really means. When it’s restricted for a specific purpose, like a school or a hospital or a road or a bridge, we have to be very thoughtful about the obligation to actually deliver that program or service over its useful life.

The obligation that government has to use that contribution…. It doesn’t end when the money is in the bank, then government can take the money and use it for some other purpose. It doesn’t end when the asset is constructed or acquired. What’s really important is that that asset is put into place for program delivery to serve the people of the province over its useful life.

Conceptually, there should be no difference between the federal government donating a hospital, with a useful life of 40 years, or the cash to build a hospital. In accounting, an asset is an asset.

The reason that we’re very concerned about this is that in British Columbia, since 2001, we have worked under a balanced budget regime. You know, the broader requirements of the Budget Transparency and Accountability Act seek to ensure that government is accountable for making prudent, sustainable financial decisions and being accountable to the public through financial reporting. If we recognize the revenue in year 1, when it’s received, and the expenses over the ten, 20, 30 or 40 years that the program is in place, we’re unable to match those up for the information of the public.

Two real, serious problems that we do have is that there is, so far, no way to make the budget match actual results, unless you appropriately match the revenues and expenses underlying the program. The other problem is that eventually, the economy will turn. We won’t be doing as well. Government transfers that waterbed each other year over year may no longer be there. At that time, under our current budgetary framework, we would be suffering from less revenues, but all of those expenses that are commitments from previous government transfers would still be there.

[10:30 a.m.]

The effect will be to artificially restrain government spending on the programs and services that people in the public require. So it’s sometimes desirable, I think, to look at plugging a budgetary hole by recognizing this revenue. But in the long term, it really impacts the public that depends on services and programs.

S. Bond (Chair): Ralph, you can have a follow-up.

R. Sultan: Yes, a second question relating to deferral accounts again, to the office of the comptroller general. Am I to conclude from the slide presentation that the policy decision has been made to phase out, perhaps expeditiously, the use of deferral accounts, which now are in the range of $5 billion with B.C. Hydro. Is that in fact the case?

C. Fischer: I would like to clarify that a little bit. “Deferral accounts” is a term of art that’s used to describe regulatory accounting, and it refers to regulatory assets that are established to recognize the ability of the utility to collect fees from ratepayers in the future. The reason I try to clarify that is that the use of deferral in the context of government transfers and regulatory assets sometimes creates confusion.

Government certainly took a look at the issue after the Auditor General entered or introduced the qualification in ’16-17. Being a new government at that time, they were interested, as you know, in some large Crown corporations, including ICBC and B.C. Hydro. There was a lot of consideration taken to what had happened in the past. Was that consistent with the expectations of a sound regulatory framework? And what should the policy direction be in the future?

Over the past year, we’ve had the opportunity to work with the Office of the Auditor General, and we have kind of gone beyond the initial perception of this being an issue of required independence. The standard doesn’t actually require an independent regulator.

More importantly, it’s about what happens when governments self-direct regulatory action. When that happens, as the Auditor General has pointed out, it’s no longer possible to determine how much of these regulatory assets are related to the actual cost of service of the utility and how much is related to the regulatory actions of government.

Effectively, that kind of ambiguity has a real serious consequence that can ultimately put at risk the financial sustainability of Hydro, and that would impact everyone in the province. So it is an important issue.

The direction government has taken is to respond to the Auditor General’s comments to, first of all, remove the transitional accounting regulation that was implemented, necessarily, in 2010 but has since then become kind of an excuse, a purpose it was never intended for. We have done that.

Government will also be considering necessary amendments to previous directions to the Utilities Commission. That is ongoing as we’re speaking. And government has directed B.C. Hydro to work with the Utilities Commission to develop an integrated rate plan that meets the expectations of the Auditor General, the Utilities Commission and government, ultimately to support public interest and the financial sustainability of B.C. Hydro.

R. Sultan: One final question, or one final observation. Don’t we have today a virtual exit info marriage of convenience here? We have $5 billion of unrecognized revenue, and we have $5 billion of unrecognized expense. Couldn’t the government just make the appropriate offset and remove the reason for having the Auditor General’s reservations on the financial statements of this government in one fell swoop?

[10:35 a.m.]

C. Fischer: It might be expeditious to do so, if you were thinking very short-term. But if the objective is to establish a financial management framework that ensures sustainability for the public over the long term, there is no easy answer, and we do have to roll up our sleeves and do the hard work. That helps organizations and governments and budgets work together over the long term.

S. Bond (Chair): That’s a fantastic way to capture it. “There is no easy answer” seems to be the debate between the two representatives.

Russ, did you want to comment?

R. Jones: For the benefit of the members, just to make it quite clear, we had no concerns with the use of regulatory accounting. Regulatory accounting is something that’s allowed across North America. It’s not the use of the regulatory accounting that’s a problem; it’s the application within the province that is the problem, as Carl mentioned, in terms of the directives and other things that government has put in place. So regulatory accounting is fine.

Deferral accounts. There is a place for them in utility accounting, and it’s just the application where we have the concern.

M. Dean (Deputy Chair): Thanks, everybody. I’m interested in the view of the Auditor General’s office. Back to the deferral of government transfers: when you’re at the federal-provincial-territorial table, what is the discussion there? What would the federal Auditor General say, for example? How do you think that you can work with the comptroller to reach an alternative solution that is acceptable and takes the qualification out of the financial statement?

R. Jones: At the federal-provincial table, as has been pointed out, there are a couple of provinces that tend to agree with the way that B.C. is looking at government transfers. The federal government has the same interpretation as we do, as well as most of the other provinces.

It’s really an issue…. Well, at this point, there is no way of breaking the logjam, because it is a fundamental issue in terms of the application of the standard.

We disagree that there is a liability created when funds are forwarded as a government transfer to, say, a health authority to build a hospital. Other than the fact that the mandate of that health authority is to provide health services through a hospital, there is no liability to any particular organization. There may be a liability — not a liability but an obligation — in terms of making sure health services are provided, but that’s part of what government does.

Until the regulation is taken off that stipulates that these government transfers need to be setup as a liability on the statement of financial position, we believe the application that’s being used by the province is incorrect. That’s the way it is.

S. Bond (Chair): Now we’re going to have the comptroller general weigh in, which is why, as was pointed out, this is not a simple fix.

C. Fischer: It seems like we are in some kind of dire opposition. In actual fact, 99 percent of this issue we fully agree on. We do have different perspectives.

I have spoken with the Auditor General. We agree that it’s a really good time to get together outside of the public process and really challenge our positions and our perspectives to examine what we’ve learned over the past few years dealing with this issue, both in British Columbia as well as the other provinces, and try to fully understand what the impact of the accounting standards and that conflict with the requirements of the Budget Transparency and Accountability Act are, what they result in, and to see if there is a way forward.

At the end of our presentation, we talked about a commitment to collaborate with our friends at OAG in relation to two very significant fundamental accounting standards changes — the first being a new conceptual framework.

[10:40 a.m.]

The need for the new conceptual framework, I would argue, arises out of these kinds of conflicts and exceptions that have emerged during the last big transition in accounting and a new reporting framework that is focused on how we can, as an accounting community, try to help the public understand financial performance and financial accountability of governments.

Even if we’re not, today, able to get to a common agreement on the government transfers issue, if we can look at it as a long-term issue, in the context of those evolutions, then we’re doing the best work that we can do.

We do disagree — a very few times and only on significant events. We don’t take it lightly. The Auditor General doesn’t take it lightly. The purpose of publicly disclosing the audit opinion and having these debates about the position are to make sure that we’re fulfilling our obligation to the public and to the Legislature to be accountable for the work that we do, and to demonstrate that we are thoughtful and to challenge ourselves to maintain our focus on the public interest.

There are ways forward. It isn’t a simple situation, but quite frankly, I think that in British Columbia we have probably the best experience in Canada around tackling complicated issues and coming up with solutions that, ultimately, our broader environment in Canada benefits from. We’re committed to keep doing that, and though it seems to take a long, long time, that’s the work that we have to do.

M. Dean (Deputy Chair): Thank you. That’s good to hear.

J. Yap: That’s a good segue to my question.

Roughly half the provinces defer revenue, and the other half don’t. Is the trend line towards deferring revenue or the other way? I’m just curious if we’re among the group of provinces that are going in that direction or the group that are being left behind.

C. Fischer: Well, I have my theory. I can try and explain that. Maybe Russ has a different perspective.

The provinces that continue the traditional practice of deferring restricted transfers are British Columbia, Alberta, Ontario, Quebec and Nova Scotia. The other provinces — Saskatchewan, Manitoba, the Atlantic provinces — choose to recognize revenue immediately.

The other consistency between those two groups is that those that defer tend to have a commitment or a requirement towards a balanced budget approach of sustainability. Governments and the public debate are highly focused on demonstrating to the public in those jurisdictions, like we are here, that government is not spending more than it can afford. Now, the one thing that both OAG and OCG agree on is annual surplus deficit is not a great measure for determining that, but it is something that the public resonates with.

The other jurisdictions are traditionally more dependent on transfers from outside, be they equalization payments or other programs that support their program and service requirements. The public debate in those jurisdictions is usually not so much about, “Did you spend more than you took in?” but: “How did you do in terms of managing the deficit? Did you minimize the impact on the public in each year-to-year basis?”

In terms of the trend line going forward, my fear, or concern, worry, doubt, is that, if the economy does turn and there is less prosperity and less opportunity for government transfers to support provincial programs, a lot of jurisdictions that have been happy to bring in that revenue in the past will be sorry, and the federal government in particular will have to dramatically revise their approach or their consideration to funding provinces — in order to avoid falling into that same kind of artificial accounting deficit situation.

R. Jones: Thank you for the question. I agree with Carl on Alberta and Ontario.

Just to, I think, clarify for members as well, it’s not that we here in this province consider every single government transfer to be revenue right off the bat.

[10:45 a.m.]

If there are stipulations within the agreements that might require a repayment of those funds — which there are, some, from the federal government in terms of roads and other things — those are allowed to be set up as deferred capital contributions under the standards. That is the way that Quebec also approaches it. While they say they don’t totally agree with our office’s view of recognizing it immediately, they do take a look in the same manner that we do. If there are restrictions that create a liability, then they would set them up as deferred capital contributions.

Nova Scotia. It agrees with us. I hate to disagree with you but…. I am the chair of the strategic matters committee of all the provinces, in terms of the Auditor General’s offices. We did a survey, and Nova Scotia completely agrees with the way that we interpret the standard. So there really is just Alberta and Ontario that are totally against it.

I don’t know that there is anything that…. We tend to agree that the reporting model, currently, is in need of fixing, and that’s why there is a…. The Public Sector Accounting Board has a project out there to do that.

One of the things, unfortunately, that setting up these deferrals on the statement of financial position does is it overstates the net-debt position of a province or of an organization that sets them up artificially.

We, in our meetings with many of the Crown corporations in the province, have to take a lot of time in trying to describe to an organization, such as a school board or a school district, where it shows they have net debt, but they actually don’t have net debt. If you reverse out these deferred capital contributions, they actually have net assets. A net-debt position, to try and put it as plain as I can, actually tells the organization that, in future, they need to find revenues to offset that net-debt position, when, in effect, most school districts have net assets, so they don’t have to do that in the future.

It tends to distort the statement of financial position. It also impacts the cash flow statement and also, in our view, impacts the statement of operations in terms of trying to understand what the true cost of providing services is to the province.

J. Yap: I have a supplemental, Chair.

On value-raised equalization payments, is deferred revenue and the potential impact on the bottom line, the deficit or surplus position…? Is that a factor or a consideration in the calculation? I know there’s a formula that’s used to figure out equalization for a province, whether you’re a recipient or a payer. Does this have any impact at all on that?

C. Fischer: There wouldn’t be a direct impact. That level of precision would be much finer than the federal government statistical approach uses to determine equalization.

A. Olsen: It really is quite something to see accountants locked in disagreement. It’s very kind and very pleasant.

I think, for the most part, my questions have been answered, as I’m trying to understand what the dispute…. It’s a philosophical dispute, I think, in terms of how things are accounted for or how money is accounted for in the province. I’m just kind of picturing it in the most basic — the ledger…. I’ll probably get nods or headshakes as to whether or not this is correct or not, but as to when something actually goes into that ledger….

What I’m wondering is where…. If we receive money from the federal government for X, if we’re not accounting for it until we do that, then where does it officially…? Where is it? If we’re not taking it and just putting it directly into the ledger….

[10:50 a.m.]

We get $5 from the federal government for X, and then we’ve got somebody who marks that down. If we’re not actually marking it down, then where…? Are we not marking it…?

C. Fischer: Well, we’re certainly marking it down, I hope.

S. Bond (Chair): Thank you, Adam, for making this a conversation most British Columbians can understand, because at this point….

A. Olsen: I’m very basic in this.

S. Bond (Chair): Thank you. I appreciate it. I know that British Columbians do as well.

C. Fischer: It does get to the point, though. When we receive that $5 from the federal government, we would record increased cash of $5 and establish a liability, or an obligation, for $5, because the federal government has said: “Here’s $5. We want to use it for this program.”

Our approach, which has been the approach in Canada since we started accrual accounting, has been to not recognize that as revenue earned right away, because we haven’t done what we have to do, but to recognize it over that period where those programs or services are delivered. It is matching. Definitely one of the big bugaboos that we have in accounting is…. A while ago standards-setters thought the principle of matching was no longer relevant, and that created a move towards unequal recognition — in this case, of the assets and the liabilities. That continues to be a frustration to our respective perspectives.

Going forward, we do have to address that issue with the standards-setters. They do need to understand that if it’s important for the public to be able to compare the budget to the actual results and make a meaningful comparison, then you have to consider what part of the matching principle is important and necessary to do that.

If we were free, like other organizations, to create a budget on one basis and financial statements on another, we could make this issue go away, except for that unfortunate period of time in the future where government transfers dry up. We still have a stream of expenses stretching into the future, and we’ve already recognized the good news, or the revenue in the past. So it really is a point only of recognition. What period do you recognize that revenue in? It doesn’t change the amount of money.

It’s an argument about what is important for the public to know. Does the public need to…? Can they wrap their heads around the principle of net debt of an organization, or is it more important for the public to understand that a school district gets funded by the province? They receive money to build schools. They’re required to build a school, put it in operation and manage that asset. Our position is that it’s better for the public to understand the source of the funds, what the funds are to be used for and the period in which they are supporting the school district.

A. Olsen: If I may, just maybe a comment rather than a question. I think that it’s….

I’m going to leave it. Maybe Mr. Jones has a comment.

R. Jones: Thank you, Member. I was just going to follow on from what Carl mentioned. It’s true. It gets recognized as cash. It gets set up as a liability. In our world, that liability is no longer in place once the money has been used for what it was given to the organization for.

If it was to build a school, once the school is built, that’s when you recognize it, unless there’s something in the agreement from whoever was giving the funds that says: “But you have to use it for the next 30 years as a school, or you have the give us the money back.” This would be a very strange thing, I think, to have in the agreement. But substance over form is…. It’s going to be used as a school.

The problem that results when you’re looking at the financial statements — and we’ll use the school district as a good example — is that when you get down to the bottom line on the statement of financial position, that shows a surplus or deficit. Because you’ve got this deferred capital contribution number up in the liabilities, the school districts….

[10:55 a.m.]

What they have been used to in the past, most not-for-profit organizations, is that the bottom line actually shows you what their investment in assets is within their organization. Right now, unless you do a whole lot of manipulation of the numbers, you can’t see that by looking at the statement of financial position. One of the things we keep having to explain to a lot of the not-for-profit organizations is that if you take out that number from net debt, or from the liabilities, the bottom-line net assets at the bottom actually show you your surplus or deficit for the year, which would be fairly small, plus what you’ve invested in capital assets, which is really quite important to not-for-profit organizations.

As we’ve pointed out, there is a new reporting model that’s being looked at, at Public Sector Accounting Board, and a new financial conceptual framework. So hopefully, those are going to get addressed. It’ll make our jobs easier in terms of both of us trying to explain these things.

S. Bond (Chair): All right.

R. Glumac: Everything I’ve heard and read about this…. You’ve been talking about school districts, but the real issue is with B.C. Hydro. My understanding is that the growth of these deferral accounts has been on an unsustainable track. One of the reasons for that is the government’s interference, putting cabinet orders in giving direction to, I guess, or limiting what the Utilities Commission can do in terms of its oversight.

I just wanted to hear…. I mean, we’re talking a lot about whether it’s appropriate or not to use deferral accounts, but really, it seems to me that the issue is the lack of ability of the Utilities Commission to do appropriate oversight. Is that a fair statement?

R. Jones: Thank you, Member.

Going back again just briefly…. I mean, Carl pointed out that these are two separate issues: the deferral of government transfers and the setting up of regulatory accounts.

Yeah, as I said, we don’t disagree with the fact that regulatory accounting is allowed. It is. It’s definitely allowed out there, and it’s for a very specific purpose. Basically, if you want to put it in its simplest terms…. If Hydro has budgeted, say, for storm damage, which happens every year, of $2 million, yet their actuals are $5 million, then they’re allowed to put the $3 million difference into a regulatory account that will then be recovered over five years, as an example. It’s perfectly good accounting — no problem there.

What has happened is that BCUC…. It’s a long process to go through the whole thing and describe to you what actually happens. BCUC needs to be allowed to regulate, to take a look at each one of the expenditures and requests for rate increases that Hydro is coming up with and be able to say yes or no, and then set the rates that Hydro should be able to assess to the ratepayers or to the people using hydro to recover all the costs that they’ve identified.

Over the last few years, they’ve been restricted in being able to do that. Government has, in a number of cases, said: “You must allow them to earn $712 million or something in that income. You must allow them to only have a rate increase of 2 percent,” even though, in order to meet their revenue requirements for the year, they may have needed 8 percent.

In doing that, it doesn’t take into account, as we’ve said, one of the key factors, which is determining what the actual cost of service is for the organization. It prevents BCUC from looking at that type of thing. There have been directives, as well, that have basically said: “BCUC, you can’t get involved in looking at the costs of certain transmission lines or whatever. You just have to allow them to go forward.”

[11:00 a.m.]

What we’re saying is: “Don’t interfere in the regulatory process, which BCUC should be able to do, and let BCUC determine what rates are applicable and appropriate for the province.”

S. Bond (Chair): Thank you for those comments.

I do want to remind us of the scope of this discussion. It’s about the accounting treatment and the qualified opinions.

I want to just quickly end the discussion with a couple of questions. In the response from the office of the comptroller general, on page 6 of the report, in the final paragraph, the comptroller general refers to an “ongoing comprehensive review in this area.”

Is that referring to this audit process, or is there something that is layered on top of that that there’s some additional review underway, or is it talking about the process that we go through every year and then end up, basically, coming and hearing the two opinions that are presented here? Could you just explain what the context of that review is?

C. Fischer: That refers specifically to a review that government has directed, to be undertaken by the Ministries of Finance and Energy, Mines, and Petroleum Resources and B.C. Hydro, to review the financial position or strategy of B.C. Hydro and determine a policy direction forward.

S. Bond (Chair): By the time we get to next fall’s opinion, it may well have had some further changes related to the policy direction provided. Is that accurate?

C. Fischer: Yes, that’s accurate. The first step, of course, was repealing part 3 of regulation 257/2010, which moved Hydro fully onto international financial reporting standards.

S. Bond (Chair): I guess the other thing that…. I think that it is important, and obviously there are differences of opinion here, that we reiterate that regulatory accounting is permissible. Governments actually get to do that. It’s the other issues related to this that, obviously, your two organizations will need to sort out, and the government will have a decision to make about that.

I wanted to just also reference…. I think that the Auditor General’s office talked about other provinces. On page 3, it talks about this issue being under discussion across Canada, in terms of deferred revenues. It’s clear that other jurisdictions are grappling with this issue alone. British Columbia is not standing on its own, and in fact, the report talks about five other provinces that are grappling with this issue. Can you just confirm that that’s still accurate?

C. Fischer: Yes, that is accurate, though Russ discussed earlier that he would interpret Quebec’s approach a little differently, and we don’t agree on Nova Scotia. We can share their financial statements with you.

There is constant debate, and it’s not just about this issue. It is about the underlying principles and the mismatch between the definition of an asset and the definition of a lia­bility and what that means for the long-term health of the financial model.

S. Bond (Chair): Well, thank you very much for your discussion. Thank you to my colleagues for their questions. I think, probably, the comptroller general summed it up best: there is not a simple solution here.

The encouraging part is that there appears to be ongoing discussion. Government is taking a look at the policy framework, in particular around hydro and energy, those kinds of things. We would hope to see…. Perhaps we’ll see a unified presentation next year when this comes forward. Again, thank you for your presence here today and for the information that you’ve shared.

With that, we’re going to move on to the second report that we’re going to consider today. We’ll just ask the participants to take their places at the tables. Obviously, a Deputy Auditor General will be continuing to participate at the table, along with the executive director, Lisa Moore.

The report that we’re going to look at today is the consideration of the Office of the Auditor General’s report: An Independent Audit of Citizens’ Services Real Estate Asset Sales Management. It was produced in July of 2018.

We will also have representatives — I believe, perhaps, the deputy minister is here — from Citizens’ Services. We’ll allow everyone to get set up, and then we’ll use the same format that we have just used with the previous report.

[11:05 a.m.]

Maybe just noting that we will have some members coming and going, because, obviously, it’s private members’ time as well, and there are a variety of other bills coming up this afternoon. So please don’t take it personally if people get up and leave during your presentation. It’s a very busy morning in the Legislature today.

Is the Deputy Auditor General ready to go?

R. Jones: Yes, Chair.

S. Bond (Chair): Perfect. Why don’t you make some opening comments? We will hear from you, and then we’ll work our way through to the Ministry of Citizens’ Services.

An Independent Audit of the
Ministry of Citizens’ Services
Real Estate Asset Sales Management

R. Jones: Thank you, and good morning again. We undertook this audit — it’s an independent audit of the Ministry of Citizens’ Services real estate asset sales management — to determine whether government designed and followed appropriate processes to obtain the stated benefits of the release of assets for economic generation initiative, which was commonly referred to as the RAEG initiative, of course, through the sales of surplus real estate assets in fiscal years 2013-14 and 2014-15.

The RAEG initiative had three stated benefits: revenue generation, cost savings and economic activity generation. Selling assets to raise revenue is not a new idea. The government always has and always will buy and sell real estate assets. That said, the RAEG initiative was different because it was designed to bring a centralized and coordinated focus to selling government real estate assets.

Many ministries were part of the RAEG initiative, but for our audit, we focused on the Ministry of Citizens’ Services because it planned and carried out the initiative on behalf of government. We concluded that the ministry’s initiative team designed and followed appropriate processes to obtain one of the three stated benefits of the initiative. We concluded that the ministry’s initiative team designed and followed appropriate processes to achieve the revenue target, but there was room for improvement in those processes. We also concluded that the ministry’s initiative team did not set targets or design a system to identify and assess potential economic activity generation and cost savings during the two-year period of the initiative.

We made seven recommendations in this report, including a recommendation for the ministry to assess the costs and benefits of selling versus holding surplus assets prior to their sale. Given that real estate asset sales will continue in government, it is critical that the government have expert knowledge and judgment about when and how best to buy, maintain and sell real estate assets to meet current and future provincial needs.

With me today, as you have mentioned, is Lisa Moore, executive director. She was the one that took the lead on the audit work. I’ll turn it over to Lisa to take you through our brief overview of the report.

L. Moore: Good morning, Members, again. In this audit, we looked at whether the Ministry of Citizens’ Services had set up appropriate processes to manage the sales of surplus government real estate assets during its two-year initiative called the release of assets for economic generation, or RAEG for short. We also looked at whether the ministry obtained the three stated benefits of the initiative, which were revenue generation, cost savings and economic activity generation.

Overall, we found the RAEG team designed and followed appropriate processes to achieve their revenue target, with room for improvement in the processes. The team working with the participating ministries should have done more to assess the costs and benefits of selling versus holding surplus assets prior to their sale. More specifically, the Ministry of Citizens’ Services only focused on the revenue target, which was just one of the three planned benefits.

The provincial government is responsible for billions of dollars of assets. By assets, we mean things like land, the buildings, highways, vehicles, computers and a variety of other things that government has either purchased or built. Government uses these assets to deliver and support public services. For example, when a hospital is built, health care can therefore be provided.

When government assets are no longer needed, they can be sold to generate revenue. This is what happened in 2012, when they established the two-year RAEG initiative. As mentioned, the sale of assets to raise revenue isn’t a new idea. Government has and always will do this. In fact, they have sold almost 1,500 surplus government properties since 1981. That said, the RAEG initiative was designed to bring a centralized, coordinated focus to selling government real estate assets.

[11:10 a.m.]

The purpose of the initiative was to sell unused or underutilized provincial land and buildings so that government could raise revenue to help balance the provincial budgets in the fiscal years 2013-14 and 2014-15. Alongside revenue generation, the other stated benefits of the initiative were to save the cost of holding and maintaining the unused or underutilized land and buildings and to create jobs and stimulate economic activity on the surplus lands.

Many ministries were part of the RAEG initiative, but for our audit, we focused on the Citizens’ Services Ministry because it planned and carried out the initiative on behalf of government.

The Ministry of Citizens’ Services acts as the full-service real estate and property management services for government as it relates to their ministry’s owned real estate assets and also works with other ministries and agencies to support the sale of real estate assets. For the RAEG initiative, the Ministry of Citizens’ Services had a final revenue target of $421 million. It surpassed it when it generated $435 million.

We looked at 14 of the 101 sales in our audit. This represented 75 percent of the RAEG sales proceeds. Excluding the Burke Mountain lands in Coquitlam, of the 14 sales we reviewed, government obtained on average 97 percent of their appraised value.

In 2014, government offered for sale 21 parcels of Crown land comprising approximately 584 acres on Burke Mountain in Coquitlam. We examined the sale of these lands in more detail than the others because it represented a large portion of the final profit of the RAEG initiative, and it was an anomaly in terms of sales price versus appraised value.

For the sale of the Burke Mountain lands, government received bids in two formats: individual and group sales of land parcels. This means that someone could have put an individual bid forward for each parcel of land, or they could have grouped multiple parcels of lands in a single bid.

Government felt that doing this would create more competition for each property, but it also meant that the direct comparability of the price offered for each parcel was not possible. Had government required bidders to provide a breakdown for each parcel as part of the bidding process, it would have better been able to compare bids and identify low bids for individual parcels.

In the end, 14 of the 21 parcels were awarded to one party for $85 million, or 66 percent of the appraised value, and four parcels were sold to another party for $11.83 million, or 80 percent of the appraised value. The other three parcels were not sold.

In conclusion, we made seven recommendations in this report, including assessing the costs and benefits of selling versus holding surplus assets prior to this sale. We also include a recommendation for comprehensive public reporting to demonstrate how selling surplus assets can be in the best interests of the province.

The RAEG initiative continued past the initial two years as an ongoing program in the Ministry of Citizens’ Services until recently, when it was replaced with a surplus properties program. Given that real estate asset sales will continue in government, expert knowledge and judgment about when and how best to buy, maintain and sell real estate assets to meet current and future provincial needs is critical.

That is the summary of our report.

S. Bond (Chair): Thank you very much. We appreciate that. We’re going to ask the representatives from Citizens’ Services to move in the speakers’ chairs, and we will review the PowerPoint that has been provided by Citizens’ Services. If you could introduce yourselves for the record, that would be fantastic.

J. Kot: Good morning. Thank you for inviting us here. We’re very pleased to be here to respond to this audit. My name is Jill Kot, and I’m the deputy minister of the Ministry of Citizens’ Services. With me is my colleague Sunny Dhaliwal. Sunny is the assistant deputy minister responsible for the real property division, which provides oversight to this program.

CITZ very much appreciates and acknowledges the work done by the Auditor General to complete this audit, and the ministry accepts all the recommendations that have been provided through this audit. We believe that these recommendations will help us strengthen the program and provide a more robust oversight on this surplus properties program.

[11:15 a.m.]

As we know, in the audit, there were seven recommendations that were made to us. We said that we’ve accepted them all. Of the seven, five have been completed and were completed by October 30, 2018 — so just completed. The other two remaining recommendations are in progress and will be completed by the end of the fiscal year, by March 31, 2019.

For further details, and moving on to the next slide, I’m going to ask Sunny Dhaliwal to walk through the remainder of the material, as he’s the expert in this area.

S. Dhaliwal: I’ll again summarize some of the key findings which Lisa mentioned earlier. Overall, the OAG report found that though the project team followed appropriate processes, there was room for improvement.

There were two recommendations that specifically spoke about ministries and agencies being required to complete a proper cost-benefit analysis so that we can have a good idea whether property should be held or sold off. There were two recommendations which spoke about improving public accountability and, in particular, how the government’s decision to sell or not sell surplus lands would either save taxpayer dollars or generate economic activities.

There was one recommendation by which we were asked to hire an independent consultant to come and have a look at the program and then to recommend further improvements to the program. There were two recommendations which spoke about strengthening oversight and controls, specifically to prevent collusion or bid rigging and ensure that the province gets best value for its properties.

A number of actions have been taken to ensure that we comply with the recommendations and implement them as soon as possible. As Jill mentioned, five of them have already been recommended.

One of the first steps we did was to create a very comprehensive process manual which would outline specific details about what processes are required to be followed by the agencies and the ministries. Madam Chair, I’ve got some copies of the process manual, in case you or any member would like to have a look at those.

Within the process manuals, we have put a template for a cost-benefit analysis which would be required to be done by all the ministries and agencies before they want to sell properties. Ministries and agencies will also be required to submit a readiness checklist that would demonstrate that due diligence has been done before a property has been put up for sale.

Ministries and agencies will also be required to demonstrate controls which they have put in place to prevent and detect real or perceived bias, bid rigging or collusion when selling real estate. Ministries and agencies will now also be required to submit their bids to our ministry and, in some cases, after our review, will also be putting up these bids with our analysis to the secretary of Treasury Board before the properties are sold.

All these proactive measures would ensure that we get the best value for properties. We have also worked with all the landholding ministries on a communication and rollout plan and providing training to the employees who are engaged with the selling of real property.

Of the two recommendations that are still in the works, one is to hire an independent consultant, who, through a process of RFP, has been hired. Colliers project leaders are doing a review of our program and then, before the end of this fiscal, would be making recommendations on how we can improve public reporting, how we can improve transparency and how we can improve and strengthen the program.

In conclusion, I would just reiterate what Jill mentioned. I think that with this audit and the recommendations we’ll be implementing, it’s only going to strengthen the program. We appreciate and acknowledge the long work, spread over a few years, that was done by the staff of the OAG for this audit. We’ll make sure all these recommendations are implemented by the end of this fiscal.

That’s all we had. Now we’re open to questions.

S. Bond (Chair): Thank you very much. We appreciate that.

R. Glumac: Thank you for your presentations. I had a question. In the Auditor General’s comments early on, she said that more should have been done to assess the costs and benefits of selling versus holding surplus assets prior to their sale. I wanted to understand.

[11:20 a.m.]

Has this been addressed? There’s a specific example — well, many examples, actually — I think, that you can refer to. One is in Port Moody and Coquitlam. Coronation Park school land was sold. It was sold at a time when the municipality was undergoing deliberations on the future of that area, which can affect the future value of that land significantly.

If the sale was delayed until that decision was made, tens of millions of dollars more could have been received by the school district on the sale of that land. The early sale of it cost the school district a lot of money.

I’m wondering if that kind of scenario now is being addressed and if you had any comment about that. There are other examples of that, where decisions may be pending that could affect the future value, and whether there’s consideration of that future value when a sale is made. If there’s anticipation that the value will rise significantly, which has happened in many cases, is there consideration of that?

S. Dhaliwal: Thanks, Member. Yes. The short answer is yes.

As part of the process manual, we have created what I mentioned earlier — a cost-benefit analysis template. We’ll be requesting each of the ministries and agencies that will be selling the property to do a thorough cost-benefit analysis, based on triple bottom line. So in addition to just the financial cost, they’ll be commenting on the environmental and social impact of buying versus selling.

There will be inputs required there about what the cost of holding the current property is versus selling. So that piece would be taken into consideration.

The only piece which we have not put into the template is the future cost of land. We are working with the consultant. The reason for that is that we don’t want to put something that is based on speculation. The real estate has been strong in Vancouver, but it’s sometimes difficult to speculate on a piece of property which is in a place like Coquitlam or downtown Vancouver versus that which is on the side of the road. But a lot of inputs that can be reasonably imagined and different scenarios will be taken into consideration when we do this cost-benefit analysis.

The second thing which has changed is that we are not forcing any entity to sell properties. In some of the previous years, we had some very specific targets that the properties had to be sold. But now, sale of properties is being delinked a little bit from the budget process.

While we’ll still sell properties where it makes economic sense as part of effective portfolio management, we’ll have much more time to do due diligence before we sell a property.

R. Glumac: Okay. What I’m hearing from you is that the future costs of land are not being considered in these sales, so that hasn’t been addressed. I mean, you’re talking about triple bottom line and all of that. That’s great, but in a scenario where there’s very clearly a municipal decision that is pending, that kind of scenario, you’re saying, is not necessarily being taken into consideration going forward?

S. Dhaliwal: What I said was that whatever we know, say, as of now — whatever inputs are available as of now — those inputs will be taken into consideration when we make a decision on selling versus buying. For example, if you have a piece of property in Surrey. We know that there’s going to be a new development coming on that side and the property value is going to be so much, we’ll take those factors into account.

Whereas if we are holding a piece of property which could be part of the ALR, which we think is going to be out of the ALR down the road and then the property can escalate, those things we are not taking into consideration. But wherever we can make a reasonable guess based on some facts, we’ll take those factors into consideration when making these decisions.

R. Glumac: Then another question.

My comment on that is that that is still something that is concerning, because there is a lot of speculation that occurs in the development industry. If we’re not fully considering that, then I think that’s concerning.

The other question I had was around recommendation No. 3. What was the impetus of that recommendation? It mentions perceived bias and bid rigging and collusion. I guess this is a question not for the ministry but for…. What initiated that recommendation?

[11:25 a.m.]

Was it just the allegations that were outstanding, particularly in regards to the Burke Mountain properties and how they didn’t receive the assessed value? Was there any evidence that was uncovered or concerns that were raised during this audit that went into that recommendation?

L. Moore: Thank you, Member. We’ll state we did not find any evidence of such matters as bid-rigging, collusion or fraud. It is certainly good and best practice to make sure that those kinds of factors are controlled, especially in a real estate market that’s selling properties. And too, it helps in the sense of the province being able to demonstrate that they are obtaining the best value for property when they’re selling so that when they go and put it on the market in open competition, there aren’t a bunch of individuals working behind the scenes that could maybe make deals with each other.

We can’t do absolutely everything to prevent those things from happening, but as long as the province has the controls in place to mitigate that from happening, it lends itself towards making sure they are getting best value for money when they sell properties.

It’s not anything that we found. It’s just part of good controls in selling real estate.

S. Bond (Chair): Thank you for those questions, Rick.

Thank you for your presentation today.

Oh, I’m sorry. Is there anyone else?

M. Dean (Deputy Chair): Just a quick question of the Auditor General. You picked 75 percent of the sales. How did you pick the sales that you did? Did you feel that picking only 75 percent gave you sufficient to be representative? I’m just curious about what was left behind.

L. Moore: Thank you, Member. Yes, we did pick 14 of 101. It seems like a small number. However, those sales were representative from a variety of ministries, as well as Crown entities such as schools that were selling properties at the time. So it was a good cross-representation of the different entities, and their processes, that were being sold.

But saying that, I do want to bring it back to the fact that we were focusing the audit not on all the details of how a school or how each individual ministry was selling but how the Ministry of Citizens’ Services was bringing together a coordinated approach as a focus for the government as a whole. So our audit really was focused on the processes at the ministry.

S. Bond (Chair): Thank you, Mitzi.

Maybe just before we wrap up, I have a couple of questions that I wanted to ask.

It talks about the ability for agencies like school districts and others to either use the government process or embark on their own and sell. Can you tell us how many organizations…? Or the vast majority of the way this is done — is it done through the government?

S. Dhaliwal: Thank you for the question, Chair. Currently what we’re doing is that all of the ministries — basically all of the consolidated revenue fund entities — would be following this process. We are also encouraging other agencies like B.C. Hydro and ICBC or B.C. Rail to follow the same process as well. But currently, they are not part of this process.

For example, if ICBC wants to sell a property, it will not be part of the surplus properties program, and I’ll not be overseeing this. But what we are requesting is that the ministries who oversee these agencies to recommend and ensure that the same best practices are followed by their agency as well.

S. Bond (Chair): So the lessons learned in this case would be shared as best practice with agencies that do not utilize the government process?

S. Dhaliwal: That’s correct.

S. Bond (Chair): I also wanted to point out or ask for clarity…. School districts require permission of the minister before they sell anything. Is that correct?

S. Dhaliwal: That’s right.

S. Bond (Chair): So in that ask to the minister to, say, dispose of a piece of land or a property or whatever it happens to be, is there not a case made to the minister?

[11:30 a.m.]

I’m sure they don’t just call up the minister and say: “We’d like to sell a piece of property.” The report focuses quite significantly on cost-benefit analysis. Is there none of that done when a school district comes to the minister to say: “We’d like to sell this property”? I’m sure the Ministry of Education asks hard questions about that. So to characterize this process and suggest that there perhaps is no cost-benefit analysis…. I would be very surprised by that.

Could someone explain what kind of case the school district, for example, needs to make to the minister?

S. Dhaliwal: You are right that it was not that the cost-benefit analysis was not done. But the process was not formalized. In some of those cases — the example that you gave — I’m sure the school district would come with a thorough cost-benefit analysis. Similarly, when we sold south block, there was a cost-benefit analysis which was done, but it wasn’t that the process wasn’t formalized and there was room for improvement.

What we’ve now done is formalized that process and made it very prescriptive, which will just improve and strengthen the process which is already existing.

S. Bond (Chair): I actually think that’s quite a different characterization than “cost-benefit analysis didn’t happen.” It actually does happen. What happens is it is not a formalized process. I think what the point of the audit is, is to say: “We need to make sure that in every case, and in this format, this manner, to this standard….” That argument needs to be made. Would that be an accurate description of what happens?

S. Dhaliwal: I think that’s an accurate statement.

S. Bond (Chair): The last thing I would just like to reiterate is, because when one reads this report…. There is a big giant block called “The definition of bid-rigging, collusion and bias.” I think what’s important to point out, as the Auditor General’s office has pointed out, there was no evidence of that. Is that correct?

S. Dhaliwal: That’s correct.

S. Bond (Chair): I do want to just also highlight that the issue of perceived bias…. All of us know what that’s like, in our personal careers. When it comes to pecuniary interests, a lot of it is about perception and all of those things.

Having said that, I just wanted to note that where bias was considered…. From my perspective — on page 20, the issues related to bias — all of us want to ensure that that does not happen. We want to be sure that there is a very transparent, very public process here. It was interesting that the places noted, the perceived bias that was recognized, were in the Legislature and in the media.

Now, I can assure you that there are a lot of issues discussed in the Legislature and the media that would have a purpose behind them. Were there any other sort of formal complaints or things that raised the issue of perceived bias, or was it basically in question period and in media outlets?

L. Moore: I have nothing further to add. We have not gotten specific complaints, if that’s….

J. Kot: Nor have we.

S. Bond (Chair): Okay. Well, I just think that’s an important context to remember here — that there are things that happen in both of those places that have a definite flavour to them.

No one is arguing that we need to have a formalized, standardized process in place, but we do know that…. I know, specifically, that school districts build a case for selling their property. They don’t simply roll up to the minister’s desk and say: “I’m going to dispose of this property.” There is a very significant process before a minister grants approval.

I think those pieces of context are very important to this discussion.

L. Moore: I was just going to add to that, and Sunny did mention it too. I think to be concerned that…. We were looking at property sales in a very specific period of time under an initiative where there was an impetus to sell properties as part of balancing a budget in those two years, so there were some properties that did not have the due diligence that they should have had due it.

As they’ve noted, they put in place — not that we’ve audited past this point — manuals and more prescriptives to make sure that those things are captured. I’m not saying school districts during that time period didn’t do that, but there definitely were properties at that time that did not have the due diligence they should have had done during that period of audit.

S. Bond (Chair): Well, I think it’s been characterized in the report, actually, by saying: “Overall, we found the…team designed and followed appropriate processes…but there was room for improvement.”

L. Moore: Correct.

S. Bond (Chair): I think that’s a very important characterization of the report and the context in which it’s presented.

[11:35 a.m.]

Thank you for your time today and for the work that you have done. Thank you to Citizens’ Services for the work that’s being done to formalize and improve the standards that are recommended by the Auditor General’s office.

Thank you to all of you. We very much appreciate your being here.

I do want to, especially, on behalf of the committee, thank the deputy for being here. We have worked very hard to look at how important these meetings are, and occasionally, we are very fortunate to have a deputy minister that steps up and appears here. We just wanted to recognize that and thank you for your time here today. So thank you for that.

J. Kot: Thank you, Chair. My pleasure.

Draft Communications Plan

S. Bond (Chair): We’ll just allow people to reorganize on that end. Then what we’d like to do is spend a couple of minutes with my colleagues just talking about the communications strategy. I’m hoping you’ve had a chance to take a look at that. We want to look at whether or not we’re going to move forward and how we’re going to take advantage of that report.

R. Sultan: I’ve looked at the communications plan, and I commend the authors of the plan. I think this body, this Public Accounts Committee, is the Legislature at its best, with the benefit of very sophisticated analysis, looking at key areas of government to make sure that the taxpayer resources are being well expended — and prudently, with wisdom and with very close oversight.

I don’t think this story is sufficiently communicated or understood, and I think, particularly in these times, we should have renewed effort to get the word out about the hard work that goes on here at the Legislature. It’s something to be very proud of.

S. Bond (Chair): Thank you, Ralph.

Other comments?

G. Begg: Perhaps I can validate, for lack of a better word, what Ralph has just said. I feel exactly like he does. I think the work that is done here is valuable. It’s specific. It’s very broad-based and very important. What we do lack is hopefully addressed by this draft.

I think we do our work mostly in isolation, if not silence. So the benefit of it is not readily apparent or available to the rest of the community here in the Legislature and in the public. Like Ralph, I’m heartened by the communications plan. It’s long overdue.

S. Bond (Chair): Thank you to both of you. Certainly, Mitzi, I’d love for you to comment.

I know this has been something really important to her, and there’s been a lot of good work done.

Mitzi, would you like to make some comments?

M. Dean (Deputy Chair): Thank you. Yes, I agree. I think it’s such a privilege to serve on this committee as well.

Sitting on the Finance Committee, too, we’ve had some experience of doing some short videos, and it’s been really good fun, because we’ve made them really mixed, and it’s about all of us celebrating our work and wanting to get the message of our work out to British Columbians. We saw a bit of that today — of the range of questions that were asked. I think it will really build our work together as a committee, as well, if we can be working on something like this that’s a shared project.

S. Bond (Chair): I couldn’t agree more. I think that we have seen that British Columbia, actually, for the most part, leads with best practice across the country. We saw that in our work. Certainly, our Clerk is highly regarded across the country, and that is very evident and very appreciated.

I’m going to ask if Kate wouldn’t mind…. You can imagine that her schedule is extraordinarily busy at the moment, but if she wouldn’t mind commenting on the strategy and next steps….

I do want to give a shout-out to the Finance Committee. I think that those…. I actually looked at them, and I thought they really sort of humanized the process. The work here is tough, as you say. Today we watched the debate between…. As Adam pointed out, trying to bring it back down to where British Columbians understand the transparency and the importance of this committee. I think the more we can do some how-tos…. What is it we do?

Ralph, your comments were also much appreciated.

Kate, with that, why don’t I turn this over to you for a moment?

K. Ryan-Lloyd (Acting Clerk of the Legislative Assem­bly): Thank you. Good morning, Members. Thank you very much for your comments with respect to the Legislature and the good work that is done within parliamentary committees.

We’re really pleased to receive some feedback from you with respect to the communications draft plan. I look forward to working with members of the subcommittee — the Chair and the Deputy Chair, Bowinn and John — to fine-tune how to approach the different elements of the plan.

[11:40 a.m.]

You’ll see that it’s divided into a summary of current activities and potential new activities that we could undertake on a short-term basis and more towards the medium term.

I look forward to trying to celebrate the very good work that is done with your committee and helping committee staff reflect some of the good work, as Mitzi mentioned, that the Finance Committee has already established.

We’ll do what we can to approach that work, because some of the suggestions might require a bit more resourcing and further consideration. But the key thing is to know that the plan in general has received your support. We look forward to refining it in the weeks ahead with your help.

S. Bond (Chair): Kate, to you and Lisa and members of your team, we really appreciate it. We know that you have a lot on your plate with committees, and you always do an exceptionally professional job.

I’m going to put the subcommittee on notice, because while our business may end here in the next couple of days, this is really something that I would like to pursue before we, over the next couple of months…. Really bring back to our colleagues some good ideas and some examples of how we can work together to tell the story.

I think it was interesting. When we were in P.E.I., those of us who were fortunate enough to go, everyone was grappling with how to tell the story. There were some good examples shared by other jurisdictions about what they do and how they get the information out.

I would hope very much…. We’ll certainly compare calendars, but I would very much like to have this work have some momentum behind it so that we don’t come back in February, and here we are starting all over again. It would be good. It would be a chance for us to talk about some of the, perhaps, videos or whatever we want to do during that period where we’re working in our constituencies.

Are there any other comments? Kate?

K. Ryan-Lloyd (Acting Clerk): I do, and John as well.

S. Bond (Chair): Oh. Would you like to go?

K. Ryan-Lloyd (Acting Clerk): It’s actually a different topic.

S. Bond (Chair): John, is it about the strategy?

J. Yap: Yes.

S. Bond (Chair): Okay, why don’t you go ahead, then.

J. Yap: Sure. Thanks for this plan. I think it does look like a very doable outline.

The only thing I would add is…. Under “Goal,” it talks about the goal is “to increase public awareness and understanding of the work” of the select standing committee, etc. We want to see an increase. We want to see change over time.

The only thing I would add is some kind of a measurement from where we are today. I don’t know if you have thought about some kind of a survey or way of determining what is our current level. Then when we embark on this down the road six months, 12 months, we can measure whether this plan worked.

S. Bond (Chair): I think that’s always an important aspect. You know, it would be interesting. We could probably…. I wonder how many of us have our colleagues come and ask us about what the agenda at Public Accounts is. Garry is shaking his head.

Most of us are…. We’re in it. We’re doing our homework. We’re asking the questions. I would guarantee that probably members of our caucus are not…. Any of the three parties really fully understand that this is a place where light gets…. There’s a lot of transparency discussed here.

Maybe part of our strategy is to even canvass our colleagues, John, to say who knows what about public accounts and why it matters. It’s not about justifying our jobs here. It’s about making sure that good, tough questions are asked and that this is about improving government practice. That’s a pretty important thing in this day and age.

Kate and everyone involved — Mitzi and I certainly want to thank you. This was an idea we discussed. We’re very pleased to see this kind of strategy, and we look forward to moving it forward.

With that, I’ll give you the last word on whatever topic it is you plan to chat with us about.

Other Business

K. Ryan-Lloyd (Acting Clerk): Thank you very much, Members. Just before your meeting began, I did receive some follow-up information from the Office of the Auditor General with respect to your consideration of the financial statement audit coverage plan.

Later this afternoon I will be sending out to you some detail from the audit office with respect to historic coverage of audited entities within the fFinancial statement audit coverage plan. I’m just advising you that I did receive that before the meeting, but I didn’t have a chance to share that with you before your meeting.

Also, for the information of members, in addition to the work with the subcommittee on your preliminary communications plan, the subcommittee will also be focusing their mind in the weeks ahead on a new proposal from the Office of the Auditor General and comptroller general to also enhance the action plan. That the progress reports that you routinely would receive in context of your audit report considerations — there is a proposal that’s been put forward that will be considered by your subcommittee in the coming weeks.

[11:45 a.m.]

S. Bond (Chair): Thank you for the reminder about that. I know, over the course of our time together, that has been one of the most significant issues that all of you have expressed concerns about. We see a report here, we provide feedback, and then the question is: what happens next? Where does it go?

We do have a follow-up process in place, which is more than many jurisdictions across the country, we learned. In fact, they asked us about how that worked. This is a chance and a suggestion from the Auditor General’s office.

The subcommittee will take a look at that. We will try to convene a meeting at some point in the not-too-distant future to work through both of those things and then, obviously, bring back ideas for your input and feedback.

With that, are there any other items of business for the committee today?

Hearing none, we will accept a motion to adjourn. Thank you, Mitzi.

Motion approved.

S. Bond (Chair): Thank you. I can’t imagine any of you being opposed to that on this day.

We should just express our gratitude, once again, to the Clerk of Committees and the team that works on our behalf. It’s a really big task. We appreciate it.

I just want to wish all of my colleagues the very best of the holiday season. Thank you for your collegiality. You ask hard questions. That’s your job. You do your homework, and I’m very pleased about that.

With that, we will adjourn today’s meeting.

The committee adjourned at 11:46 a.m.