The committee met at 8:47 a.m.

[B. D’Eith in the chair.]

B. D’Eith (Chair): Good morning, everyone. I’d just like to bring the Select Standing Committee on Finance and Government Services to order, Monday, October 21, 2019. Today we are doing an annual review of the statutory offices of British Columbia, three-year rolling service plans, annual reports and budgetary estimates for fiscal 2020 and 2021. We have today with us the officer of the Auditor General, Carol Bellringer.

Welcome. I just wanted to say, before we get started, that on behalf of the whole committee, I’d like to thank you so much for all your service to this office. It’s been an amazing amount of effort that you’ve put in, and we really appreciate everything that you’ve done and wish you the best with your future endeavours. We’ll miss you. [Applause.]

Now, having said that, let’s pass it over to you. Maybe you could introduce your staff, and we’ll go from there.

C. Bellringer: I will. Thanks for the opportunity to be here this morning, and thanks for those comments. Are we the first?

B. D’Eith (Chair): Yeah, number one.

Review of Statutory Officers

OFFICE OF THE AUDITOR GENERAL

C. Bellringer: Oh. So we’ll warm you up.

I’m joined this morning by a number of key staff: two Deputy Auditors General, Russ Jones — Russ has responsibility for the corporate services area that is ably assisted by John McNeill, our comptroller, who is responsible for the budget preparation; and Deputy Auditor General Sheila Dodds. Sheila has a number of responsibilities in performance audit, Russ in financial audit.

Sheila is joined by our newly appointed director of strategic human resources, Tracy Houser, who we’re thrilled to have join the office. Russ and Sheila will explain more about the detail of the request, but I’ll provide you with a short introduction.

Just in terms of catching up on the current year…. We had explained to the committee through the year that while we were taking on some risks in spending, we wanted to use up any potential for having a lapse, rather than ask you for more money. So at the moment, we’re still on track with that, but we are on track to use the appropriation.

[8:50 a.m.]

Currently, as of today, we’re predicting an overspend of $300,000, but that is if nobody were to leave and nothing was to happen. That just isn’t the way the world works. So due to the historical turnover and hiring lag, we’re expecting to balance the salary budget by year-end. The remaining operating budgets are also expected to balance as well. There have been some unexpected — or they weren’t predicted at the start of the year — professional fees for the Leg. Assembly work that we did.

We hired two forensic auditors who assisted with that work. We just found the funds from within the budget. We’re also needing more and more external assistance on international financial reporting standards, IFRS, which is the accounting standard used at all of the major Crowns, including B.C. Hydro. We’re, at the moment, able to absorb that in the current year’s budget if everything goes as predicted.

For the year coming up, one of the things we’ve really put a strong focus on…. Not that we hadn’t in the past, but it was something we wanted to pay attention to so that we can be a credible auditor of all others. We have been extremely vigilant in keeping our house in order.

We have been prudent in our recent budget requests through this committee. Our previous budgets were sufficient to cover inflationary increases, new audit work, such as the Leg. Assembly work to date. Over the last three years, the budget has only gone up in total by 3.3 percent over that full period.

We contrast it with the spending of government, which is a 16 percent increase. We haven’t kept up with that, nor with inflation. We did so to reduce the amount we were lapsing each year, because the lapses were quite large. I just couldn’t ask for more money when we could simply use what you had given us. So it took a little ingenuity to predict our spending patterns and avoid that lapse, which we’ve done.

Regarding inflation, as another comparison, had we asked for a 3 percent increase over each of the last five years, our total budget would now be at $19.3 million versus the $19.9 million in our request, just to sort of position where we see things having come from. But we have reached a point where we do need additional funds to fulfil our statutory obligations.

Just over half of our audit time is spent on financial statement audits. Those are mandatory under the Auditor General Act. The output from that work is primarily our audit opinion to assure the Legislature on the fairness, completeness and accuracy of the overall financial operations as reported by government and its organizations.

Those audits are increasingly complex. From complex, technical accounting transactions in the large audits, such as B.C. Hydro, Columbia Power Corp., the Oil and Gas Commission, just to name a few…. They are requiring more support from all of the support units in our office — professional practices, IT audit, data analytics, legal, records management. The list, actually, goes on and on.

We’re also completing several major system projects to support our audits. It requires new methodologies and training. Keeping up with professional standards that requires ongoing training is increasing overall.

We do a calculation each year of the audit time for those audits. It is up by almost 5,000 hours for this budget period over what we had estimated last year. We’re required to do that work in order to sign off on the province’s summary financial statement.

It is more cost-effective for us to hire full-time staff to do that work, even though the work is concentrated into what we refer to as “the busy season.” Contracted work would be much more expensive, and our full-time staff can be trained to do other work during the off-season. The other work we would see them doing is related to the follow-up of citizen enquiries. We have quite a volume of those coming in the office.

Reporting more to the Assembly on the results of our financial audits, more than just the audit opinion…. We have some examples of that, I think, coming up. Regulated accounting would be one.

We have smaller…. We call them CCR audits — compliance, controls and research audits. We’ve done a number of those, and I think Sheila will speak some more on the detail of that.

[8:55 a.m.]

As for the performance audits, I look back, and in my view, the Legislative Assembly has been well served by the Office of the Auditor General for the past 40 years. Well, it’s more than 40. So all of that time.

I analyzed the performance audit report output for the past 20 years. The number of reports in the accompanying coverage plan is in the same average range as it has been over that 20-year period, but we’re recognizing that the audits are becoming more and more complex, both from the auditing standards perspective…. The standards are more rigorous. The subject matter, as well, is more complex. And we’re finding that a number of audits are taking additional time to complete as those we audit are more engaged, and finalizing the work takes considerable time to properly involve them.

Our audit staff work diligently to try and streamline our methodology and shorten the time frames, use current techniques such as data analytics to augment the quality of the audit findings. We’re identifying hundreds of other audits which we could select each year, but we are only selecting a dozen or so per year that we believe would be the most valuable to the Legislative Assembly.

The last comment I’ll add before I hand it off to Sheila. The budget is based on a solid workforce model. If there are more vacancies than expected, we, of course, will not spend those additional amounts. It’s anticipating an expected vacancy rate based on historical actuals. We don’t practise March Madness. But it is the salary need attached to the plans that we’ve submitted.

Over to Sheila.

S. Dodds: Thank you, Carol.

Good morning. I’m going to talk about the salaries budget. The quality of the audits that we perform is dependent on having the experienced and quality staff. They’re our key resource. Salaries and benefits are the most significant part of our budget request. They have been about 73 percent for the last several years, and they are forecast to be in that range. It’s the most critical element of this budget request, and it’s a significant increase, because we are asking for $1.745 million for salaries and benefits.

This increase includes a cost-of-living increase of approximately $300,000. As Carol mentioned, we’ve absorbed the cost-of-living increase in our budget the last several years. In terms of staffing and what’s behind this increase, as Carol had mentioned, we do need additional financial auditors to be able to complete our mandatory financial audit work.

As required by generally accepted auditing standards, we do some level of audit work on all significant entities in the government reporting entity to support our opinion on the summary financial statements. Our financial statement audit coverage plan details the work that we’re doing and the entities that we’re looking at.

Although the breadth of coverage has been fairly consistent from year to year in terms of the entities we directly audit and the entities that we do audit oversight of, as Carol noted, the work has become more complex, and it’s taking more time and will be taking more time to complete that audit work. We are anticipating 5,000 hours of audit hours needed in the next year.

Our decision to include B.C. Hydro as a direct audit has increased the complexity and the time to do the financial audit work, but due to its significance to the summary financial statements, it was important for us to do more work there. Our decision to directly audit UBC has also added more time.

When we’re looking at the 5,000 hours, it’s not just 5,000 hours of staff; it’s 5,000 hours of skilled legislative financial auditors, and that’s an area that takes time to develop. Recruiting financial audit staff…. You can get them from the private sector, but there’s still training and development to build that expertise as legislative auditors.

We are also seeing more complex technical issues. A recent one was the Columbia Power Corp. and Columbia Basin Trust purchase of the Waneta expansion dam. That transaction was significant in dollars, almost $1 billion, and it had elements of both a merger and an acquisition. So a significant transaction that takes time to look at.

As Carol mentioned, our staff also need to stay current with changes in both accounting and auditing standards, and those are constantly changing. A couple examples of recent changes are the standards applying to leases and to financial instruments. So it impacts the work on all of our audits.

[9:00 a.m.]

As Carol noted, these additional staff are required to meet our mandatory financial statement auditing, but they’re also allowing us to do some more work outside of busy season and really looking at the financial controls and digging deeper into how financial resources are managed by the public sector.

After that busy season, one of the examples Carol mentioned is CCR audits. These are performance audits that are narrower in scope and focusing more on financial controls and compliance with legislation and policy, where we can further develop staff skills and also leverage their familiarity with financial accounting.

The issues that we’ve been identifying to date in some of these CCR audits have resonated beyond the individual entity. Last week we presented the CCR audit on directly awarded contracts by the Liquor Distribution Branch. That audit was done in less than 1,000 hours, and it informed a discussion around the importance of public sector procurement policy that has a broader interest than just the Liquor Distribution Branch. The comptroller general took that learning away as well.

Another area that Carol mentioned is citizen inquiries. We get a number of inquiries from the public on areas that cover a broad spectrum, but a number of them get into concerns around financial mismanagement and potential conflicts of interest. To be able to have the time to really look into some of those issues to identify if there are audit areas — indications of controls not working and systems not working that we should be auditing…. Our work in that area is limited because of the resources that we have.

Another area is being able to provide additional reporting to the Legislative Assembly on information that we learn through our financial audits. So we provide our audit opinions, but there are areas that we identify as financial controls that need to be strengthened or management practices that would be important to understand. So we would be able…. It’s a priority to be able to provide that reporting on issues that we find in financial statement audits and areas of concern that are coming through as themes in the citizen inquiries.

Lastly, these additional staff would be able to support work looking at some of those complex accounting issues and those areas that we should be better explaining to the Legislative Assembly. As Carol mentioned, the rate-regulated accounting report was an area where financial audit staff dug into a financial accounting issue that is complex, important and significant to our summary financial statements and provided a report that explained that issue.

In addition to financial audit staff, what else is in this budget request? As Carol mentioned, we have hired Tracy Houser as our director of strategic HR, which is really key to recruitment, retention and that overall workforce planning.

It’s a bit of an apprenticeship model when you’re developing skilled auditors. We are a training office. We do invest in developing CPAs, but we also develop good public servants, and we train staff who move into the public service.

Two-thirds of our departures in the past two years actually went into the public service in areas as financial managers and policy analysts. Ultimately, a strategic approach to staffing will support beyond our office and will save us money in recruitment and training.

The increasing complexity in our financial audits we have spoken about also requires additional indirect audit support. We have a professional practices team that is providing more and more support and consultation on accounting and financial audit issues.

We are also continuing to develop data analytics expertise to support both our financial and our performance auditors. It’s really a critical skill set to have in this day and age with the systems and the big data that exist in the public service.

In addition, it is the resources to support performance audits. Our act permits us to conduct performance audits, and there is a lot of discretion in what we choose to do and how much, but it’s important to resource appropriately. These performance audits are providing the Legislative Assembly with important information on how well government programs are operating and identifying issues requiring improvement.

[9:05 a.m.]

The recommendations that come through in those performance audits are designed to improve the overall economy, efficiency and effectiveness of government programs, ultimately making better use of resources. They also increase our understanding of business risks and performance practices that inform our understanding of the financial audit environment.

The most recent example of the value of the performance audit work we do was last week, when we were in this room presenting to the Select Standing Committee on Public Accounts.

The discussions that we covered last week included the efforts that are currently underway to improve outcomes for community correction programs. We talked about the importance of increasing collaboration between paramedics and fire first responders and looking at how to make the best use of resources, provincial and municipal.

We talked about the necessary changes to improve government’s oversight of contracted residential services to ensure that some of the most vulnerable children in care are in placements that meet their needs. That was one of the performance audits that took a significant amount of time. That was about a 5,000-hour audit.

We also talked about the responsibility of public sector organizations to follow fair and open procurement practices that are transparent and provide competition. It’s around…. Those performance audits help inform the overall performance of the public sector and the financial management.

R. Jones: I’m going to now take everybody through the remaining 30 percent of our expenditures, which is the operating and capital that we’re asking for. I’m just going to highlight for you, within the sections that are in the estimates, some of the initiatives that we’ve taken to try and maintain our operating expenses at a low level, considering that we’ve also had to put some additional expenses in there, especially in the professional services area. But we have actually decreased, if you look closely, the amount we’re going to spend in the operating expenses and capital, in the operating expenses area anyway.

In professional services, to start with, you will note that it seems to have gone up substantially. That is because what we have done is we’ve reallocated some of our professional training costs out of operating expenses into professional services. That was approximately $200,000.

What we have had to add in, because we’ve taken on B.C. Hydro and UBC, is an amount of approximately $265,000 for expertise from the other accounting firms that we need to be able to carry out the proper look at accounting issues and auditing issues in mainly those two Crown corporations.

When we looked back, we noticed, especially with B.C. Hydro, that the accounting firm that used to have B.C. Hydro spent a fair amount of money on their expertise within Hydro, especially around financial instruments, which is really difficult. It’s something that if you’re in an accounting firm, you deal with all the time. In our office, in terms of B.C. Hydro, it’s a one-off. So we’ve had to get some expertise there.

That’s about $265,000 at the maximum, I think, that we’ll probably have to spend. This is our first year doing Hydro. Right now we haven’t had to use the expertise as much as we thought we might, but it could happen next year. Offsetting some of those costs is that we’ve reduced professional service fees in other areas across the office.

One of the other things we also do, which I think helps to keep those fees down, is we leverage off of the other big six firms. We have a monthly meeting with them. We discuss issues. We discuss both auditing and accounting issues with them. It helps to make not only their audits more efficient and effective for the public service but also the audits that we do. So good news there.

Occupancy costs. You can see there is a slight increase that’s essentially based on the…. Our lease contains a condition that says that whatever the consumer price index increase is in Victoria, it impacts our lease. That’s in there.

[9:10 a.m.]

However, we’ve taken some initiatives to help reduce costs to other government entities within the public service. We’ve given some space in our third floor of our office to the Human Rights Commissioner. Whenever she’s over in Victoria, or two or three of her staff, they have a space in our office. That’s probably saving them close to $30,000 a year, because they haven’t had to rent any space in Victoria.

We also rent out our training facilities. We’ve rented out 25 to 30 days this year to various ministries, which has saved them having to go out and find spaces, and probably estimate close to $25,000 in savings there. We will continue to do that going into the future.

We also have secured, over in Vancouver — because we do have now, as you saw from our presentation, four staff that work out of Vancouver — space with the Auditor General of Canada. They will provide us, as a home base for those four people, space free of charge, which is really, really good. It’s close by to Hydro, which is where a number of our staff are working, and it’s also very close to catch the bus and whatnot to get up to UBC. So it’s really good. It provides our staff over there a place to go when they need to meet, and when we go over to visit, we can meet there too. So good news there.

That moves us into travel. One of the good things about having four people over in Vancouver is, with the amount of time we have to travel to do UBC, and Hydro especially, we estimate that it costs pretty close to $1,200 a week per person to have people travel from Victoria over there. Having them live over there and work out of there helps save that amount. When we’re spending probably 30 weeks of time over there with people, it is a significant savings. We’re also continuing to try and cut back on our travel, so we’re looking to reduce by about another 5 percent if we can.

Information technology. Overall we’ve actually asked for a decrease in our funding from last year’s request. Several of the projects that we had started are going to be deferred and completed next year. But what we’ve also done is we’ve taken a really hard look at what is critical for us to have in place to be able to carry out our operations. We’ve prioritized and taken into account what we have to do next year and then what we can defer to the following years, because IT is changing every year anyway. We’re just taking a real close look at that.

We’re also taking a look at putting some of our applications on the cloud — we already have done two or three — and moving away from sort of yearly amounts where we pay to a subscription service, which is slightly cheaper. We still do need some funding for our critical support systems, because without it, we will have major problems. And maintenance and network repairs, as across government, is needed.

Our office and business expenses. We’re looking at achieving about a 10 percent reduction on discretionary spending costs. We’re working at that and don’t see any problem in coming up with that number.

That leads us to the final request that we have, which is around capital spending. We have two servers that, unfortunately, are about to die. Servers are not a cheap thing to replace. The reason we have our own servers in the office is for the confidentiality of the data that we get, and we do need to have some servers there to keep that data confidential. The two servers are probably going to cost close to $100,000 to replace.

We’re also trying to reduce…. As part of our travel reductions, we’re trying to get a communications software, a collaboration software, in place so that we can do more of our meetings without actually attending in person at some of the entities that we deal with.

Then the final thing in capital. Because we had to move our HR people out of the area where the Human Rights Commissioner is, in order to supply her with some space, we’re looking at rearranging, possibly, the office slightly.

[9:15 a.m.]

We’ve put in an amount of $70,000 that we think might be needed for leasehold improvements to not only give HR a secure area to deal with, with our staff but also to try and find some efficiencies across the office as well, which may need a few extra walls put up or whatever. But right now we’re just in the very preliminary planning stages of that, and it may or may not come to pass in the coming year.

That takes us, I think, through what we’re requesting.

B. D’Eith (Chair): Great. Well, thank you very much. I really appreciate the detail. I also wanted to say that I’m sure I could echo the entire committee and applaud your office for taking those steps to deal with the staffing challenges that you’ve had and actually dig in. It seems like, especially hiring Tracy, these things…. I think we all appreciate it. That’s something that we had encouraged that maybe we could get a handle on, and you’ve, obviously, taken some really great steps towards that. So thank you so much for that.

I think Mitzi had a question.

M. Dean: Thanks for your work and your presentation this morning. Thank you for all of the work of your office. I am the vice-Chair of the Public Accounts Committee, and I know how intense the work is and how important it is.

Sheila, as you were saying, some of the matters that we were diving into deeply last week are really significant for across the whole of government. So it’s really important work and really appreciated. Thank you.

I just had a couple of questions. The office is paid by the agencies that you audit. Is that correct? Could the increase that you’re asking for…? Is that going to then be charged to UBC and B.C. Hydro and the agencies where you see that they’re creating the increased demand?

C. Bellringer: I’ll give you the quick answer, and perhaps there’s more to it.

Some of it might be charged, but anything we do charge is brought directly into general revenue. It doesn’t go into our bank account, and we can’t spend it.

The ones that we’re selecting to do directly, where we’re doing the audit and charging them an audit fee…. That audit fee is set pretty much at what they were paying an external firm before. We tend to not vary it significantly during the year. We haven’t really…. You know, Hydro might be a big enough number that we should, in fact, charge some of it back. But if we do, it’s still going to just go into general revenue. We won’t be able to use it.

M. Dean: The kind of hidden value of the space and the Human Rights Commissioner having space and that — will that arrangement change at some point? Obviously, she’s going to be coming to us with her budget. Are we expecting to see that she’s going to put real costs in so that it’s really transparent how much each office actually costs taxpayers?

J. McNeill: I can comment on that, Carol.

I met with the director of finance for children and youth, who’s kind of working as director of finance for the Human Rights Commission. We discussed this number together, about what we thought it might be, and agreed that it would be about $30,000. As far as transparency, we could actually charge them, but then there’s kind of an administrative cost. We would have to work with our landlord to change our lease to have a sublet.

Right now, because they’re just starting out, we don’t know where they might be three years from now. So until their office really settles into what they’re going to do, I think we’re going to leave it more informal until such a time as everyone’s really certain that this is exactly how the arrangement’s going to be, going forward.

Really, by leaving it informal, we’re giving the Office of the Human Rights Commissioner a little bit of flexibility and breathing space as they start their office up. But you’re right. The benefits of it being informal — it being easy and everything being able to happen with a lot of agility — does have some negatives in that that lease number isn’t being reflected directly on their financial statements and then as a reduction directly on ours.

[9:20 a.m.]

We’re hoping, due to it being a smaller amount — $30,000 — that it’s not as much of an issue right now. Once everyone’s established and we don’t need that agility of having agreement or not having agreement, then it would probably make sense to make it a formal agreement and change our leases so that that $30,000 is being accurately reflected in our financial statements and not just as kind of something that we mention to you and that you have to keep in the back of your heads as savings that are being realized.

M. Dean: Thank you. Thank you for your partnership with them as well. I think that’s really important.

Just one final one. Carol, I know you have good working relationships with all the other Auditors General across the country. Could you give the committee a sense of where British Columbia sits in terms of how much we spend on the office relative to any comparable provinces?

C. Bellringer: We tried to do that with a fair amount of detail about three years ago and realized that it’s very difficult to do because the mandates are quite different. Even if you do it on a per-capita basis, it doesn’t work. The biggest factor for that difference is the extent to which the office is doing financial statement work versus performance audit work. We’re not quite half-and-half. It’s a little bit more financial audit than performance audit, but we’re close to the halfway mark.

Alberta would have a good amount of performance audit work, but they do all the financial statement audits, and then they have to control that whole package of financial statement audits. Saskatchewan is almost all financial audit. Manitoba is half-and-half. Ontario is almost all performance audit and very little financial audit. And then Canada has such a huge office that they can do it all.

It became something we couldn’t compare, which is why I went back to the 20 years here to say: “Well, if you’re satisfied with the work the office has been doing, what kind of volume of output did it take to get that?” So that’s what we used as the base.

I’m sorry I don’t have better comparators on that.

B. D’Eith (Chair): No, it makes sense. You need to be able to compare apples and apples.

C. Bellringer: Sometimes people will draw out that Alberta has such a huge budget compared to ours for the audit office. It’s actually not a fair comparison because theirs includes a lot more financial audit work that, in British Columbia, is done by the external firms.

B. D’Eith (Chair): Just to pick up a little bit on what Mitzi was asking. I mean, it’s really great the way that the different independent officers work together and share space and do things like that, but it also potentially creates a risk. Let’s say the Human Rights Commissioner, having the informal relationship…. If that changed, all of a sudden they’d have to go rent space, and that’s not in their budget. So that potentially sets up a risk for them.

I think it’s still important. I mean, you’ve presented it. It’s in Hansard. It’s transparent. We know about this. But I’m wondering if we need to make sure that those informal relationships are at least disclosed so everybody’s aware. So if, let’s say, a Human Rights Commissioner comes back and says, “Hey, look. We need an extra amount for rent because things have changed,” then at least we were aware of it. Things like that.

It’s great that these relationships are happening. They do present…. There’s a positive and a negative. The positive is that this is great. It saves money for, as you’ve mentioned, sharing these services. On the other side, it might be a potential for risks. I’m not sure how we would deal with that with all the different commissions.

Maybe, John…?

J. McNeill: I’m really glad that you mentioned that. One of the things that we have with them is, like, an MOU, a memorandum of understanding. Right now if somehow the relationship isn’t working, each party can give each other notice for 90 days. But maybe that’s something I can go and talk to them about and say, “Well, maybe instead of 90 days, we wait until the next budget cycle,” just to make sure that they’re not left out in the cold.

B. D’Eith (Chair): Sure. Just mitigating the potential risk. Just not knowing and then them having to come back to us for more money when it might have been foreseeable. Things like that.

R. Leonard: I’m frustrated. I read all of these documents on my iPad, and speaking of clouds, I now can’t access it because I can’t remember the password. So I’m just working from memory and from what you’ve been talking about.

[9:25 a.m.]

I remember when you came to take on the Hydro piece, which was a big chunk. Can you remind us how you planned to manage that within the…? I can’t remember if there was an expectation that your office was going to have to grow significantly, or if there were other things that were going to be balanced off with the taking on of the Hydro piece.

C. Bellringer: Just a quick comment about the financial audit. The financial statement audit coverage plan did go to the Public Accounts Committee last week. They see it, and there’s a certain element of how we stopped doing one thing and started doing another. There was an element of that. For example, picking up UBC, we dropped UVic, but UBC has got more hours in it. Russ can get into the details on the numbers.

We did have an increase in our salaries in the year that we were picking it up. I’m going to look to John for a sec to dig out the numbers, to tell you which year, how it hit the number part. We did know that there would be an additional number of hours that would be required. We didn’t know just how many. It has been more than we thought it was going to be — several thousand more than we thought it was going to be.

I’d say the only way I can really describe that part of it…. I appreciate your asking about the history. I’m giving them a minute to look up the numbers. As legislative auditors, we keep our eyes open for more than just: are the numbers right? When we stumble across things that are of interest, we spend time looking at them. That’s partly where, to a large degree, we need to spend more time in making sure that we’re reporting those out to the assembly.

R. Jones: Hydro is very, very large, and a number of things have happened since we first came to the committee saying that we were going to take it on — and the number of staff we might require. They now have moved into applying international financial reporting standards completely, which they weren’t doing at the time that we decided to take it over.

They’re also now more under the control of BCUC, which was not necessarily in place at the time that we decided to take it over. That was part of the reason why we wanted to do that.

We guessed at what we thought the budget was going to be that would be needed for our office to take it on — not too far off. But we’re doing interim financial statements every quarter, which the previous firm was doing as well — something that we don’t normally do all the time.

It’s a bit of a learning curve this first year. It’s going fairly well. It is amazing, the number of issues that Hydro has on an ongoing basis, in terms of very difficult accounting practices.

We had also asked to hire a director for Hydro that would be specifically related to that area and that had some international financial reporting experience. We’d got a really good one; we just lost the really good one about two months ago. He was offered a partnership by one of the firms. Surprise, surprise. That’s how good he was. We’re still trying to find that person to take over as well.

On UBC, as Carol mentioned, what we had done in our coverage plan was to divest ourselves of certain audits to try and work within the number of hours that we need. We now only do one health authority instead of two. Still, as Sheila and Carol have pointed out, because they’re both very complex organizations, the overall hours we’re spending now on financial audit have increased slightly, by about 5,000 hours.

[9:30 a.m.]

UBC is amazing; it’s amazingly complex. We actually have to, this year — lucky us — prepare their Canadian set of financial statements in accordance with U.S. financial standards, which is very, very different. We’re having to do that, in addition to just doing the audits of UBC.

Overall, we had a good plan in place, and we still do, and the hours are relatively close. But because of the amount of extra work we’re doing, not only on UBC and Hydro but on the government’s financial statements because they’re getting bigger…. Organizations like the Liquor Distribution Branch, with cannabis now being thrown into the mix, has increased our numbers there as well. The 5,000 hours is….

C. Bellringer: I think she’s asking about the year that we picked it up as well. I think John….

J. McNeill: We were going to pick up B.C. Hydro. We were given $375,000 to start hiring staff related to that audit. Russ was mentioning one of the people that we had hired and now have lost.

Does that answer the question about how much we’ve received already, related to B.C. Hydro?

R. Leonard: Well, I was interested in how it actually was rolling out and where we’re at now, compared to what you had anticipated.

One of the things I’m hearing you talk about is the hiring of experts in private audit firms. I’m wondering if…. The whole idea was to bring it in-house under the Auditor General to do the audits, but you’re still having to rely on the expertise outside of the in-house.

I’m just wondering if it’s rolling out as you anticipated.

R. Jones: It actually is rolling out as we anticipated. We did know, at the time, that we would have to bring in some expertise from outside because of a couple of the areas I mentioned earlier — financial instruments, which is very, very complex. Some of them are….

As Sheila mentioned, who knew that we would have to deal with a merger and acquisition at Columbia Power Corp. and Columbia Basin Trust? That doesn’t happen in the government that often. Because they’re using international financial reporting standards, it’s very complex, when you’re doing through those standards, to try and work out all of the impacts that that merger and acquisition had. But we certainly learned from it too.

D. Ashton (Deputy Chair): This may be a blunt question. Have you made a difference to the entities that you’ve taken on, not only for the entity but also for the people of British Columbia?

R. Jones: I would say yes, always.

D. Ashton (Deputy Chair): Can I ask how?

R. Jones: Well, I can give you…. I mean, there are a number of examples. With B.C. Hydro, we’ve been working with them to take them through the movement to international financial reporting standards. We’re always there to help them with any of the complex accounting issues that they come up with. They come up with the issue. They send it to us. We take a look at it. We get back to them.

It’s not costing an arm and a leg for us to provide that information because we include it in our overall cost estimate to them, whereas the firms would charge extra.

School districts over the past five years. One area that I think we’ve done a lot of interesting work for them…. When we first started doing them, we went out and actually looked at how money in the various high schools and whatnot was handled. Were there proper controls in place to handle the money that was coming into those school districts?

Now every school district, because of what we did, has got procedures in place to ensure that those moneys are being handled properly and reported properly. It may sound minor, but when you add up all of that money that’s out there, it’s significant.

Those are just two. But every day in our financial audits, we’re providing good advice and value to them, whether it’s around controls, whether it’s around, as Sheila mentioned, looking at executive expenses, looking at the direct awards at the Liquor Distribution Branch. All of that helps to increase financial management across the province.

[9:35 a.m.]

D. Ashton (Deputy Chair): I thank you for that. I really do. So if it is making a difference…. That’s what I think the entity, your entity, should be doing for the people of British Columbia. So thank you.

C. Bellringer: The one thing I’ll add…. What distinguishes us from…. You can get a financial statement audit done by an accounting firm. We’re obliged and, through the Auditor General Act, required to report to the Legislative Assembly. It’s a significant difference.

We’re not hired by the organization to go in and do an audit for their board of directors or their audit committee. We’re hired by the Legislative Assembly to report to you. That’s where the public interest is best protected. I’m not suggesting they’re not looking out for the public interest, but it is a different dimension that they’re not required to do. That’s our job.

The problem we get into when we’re relying on the work of the firm, as opposed to doing the work directly ourselves, is that they will see the day to day, and we won’t. We’ll get enough of a summary so that we can have confidence in the overall numbers coming in to the financial statements, but we don’t get to see what’s really going on behind the scenes. That’s the biggest difference with why we have seen a difference in looking at things directly ourselves, versus that reliance externally.

B. D’Eith (Chair): Did you want to add something, Russ?

R. Jones: I guess this is a selfish plug for our office, but one of the secretary-treasurers at one of the school districts this past year, when I was up chatting with him, just came to me, and he said, “I just want to let you know that every school district in this province would be lucky if they had your office doing the audits on them, not only from the point of view that you’ve helped us with setting up appropriate controls,” but also that the school trustees have gotten a lot more out of what we provide them with than what normally is done.

J. McNeill: That’s not even mentioning the performance audits that we do. You know, that’s a very quantitative impact, but think about the qualitative impact, like residential children in care. That was something, a topic, I think, that was brought to our office that someone else, one of the other legislated offices, wanted us to do. Think about the impact to those children — right? — as the government implements those recommendations and, hopefully, the system improves for them. That’s something that the Auditor is doing.

R. Coleman: You sort of get this “in a vacuum” budget request, right? So the budget’s going up 5,000 more hours, what have you. The question gets asked: “Well, does Hydro pay?” Yeah, they do. But it goes to general revenue.

I’d like to know what income you bring in to general revenue, so it’s like a balance for me to understand. We increase some money because we take on Hydro. You’re not allowed to actually book the revenue you can book against Hydro. So we, as a committee, give you an approval for an increase in the budget, which is obviously there, but we don’t know the back end of it.

If I’m looking at a company, the first thing I always look at is revenue, expenses, balance sheet, what have you — when I’m looking at a company for someone. But you can’t look at these financial statements because you’re a statutory office.

We know that you’ve got this increased amount of work, but on the back end, general revenue is getting some revenue. It would be kind of nice to know what that offset is, even though you’re not getting it to your office and to your budget. But at least government’s getting the offset. I think that would be a bit more helpful to me.

C. Bellringer: John, do you have the number with us?

J. McNeill: B.C. Hydro….

C. Bellringer: No. Well, do you have the total? The total that we pick up in…. We only charge for the financial statement audits outside of the public accounts, obviously, and we don’t charge for performance audits. Just as one of the overall comments to position some of this, the statutory work we will have to do. The part that will not get done would be the performance audits.

I appreciate that that’s not what you’re asking, but just that part of it is where we ran into a bit of a problem with: “Do we give it to you in packages? If you give us this, then these are the audits you’ll get. If you give us this other amount, then you’ll get this different list.”

[9:40 a.m.]

Then it became a bit of a…. How do we balance that with our ability to remain independent and select those performance audits without it being: “Well, you’ve driven the decision. Yeah, sure. We don’t want you to do an audit of whatever it is, so great. We like that set better”?

It is a little bit of a…. I appreciate the vacuum element of that, because we weren’t able to say: “Well, for $200,000, we won’t do the audit of….” I’m not even going to say it out loud. That’s the problem on the performance audit side.

Sorry, you don’t have the number with you for the total?

J. McNeill: I don’t have it on hand, but I can get it. There’s kind of a further complication. I was actually going to bring it up at the earlier question. Our fee is for the audit fee only. A lot of these accounting specialists services that we incur the expense for, normally a firm would charge for those services. The entity would get an audit fee plus extra consulting fees. We only charge for the audit fee, and then we absorb any of these extra consulting fees.

Previously that hasn’t been much of an issue in terms of dollar amount, because the entities have been smaller. But this year, with B.C. Hydro and UBC, it’s much larger. If I was to give you an estimate of how much revenue we invoice or that we could invoice, that would take a little bit of work, because I’d have to include the audit invoice plus all of our contracting fees for specialist accounting services.

B. D’Eith (Chair): Is that something that we would like to see as a committee, then?

At least after, if you wouldn’t mind, as a supplementary, just maybe send a letter to me that I could share with the committee. I’d appreciate that.

Is that all right, Rich, to get those numbers?

R. Coleman: I think the helpful piece would be…. You’ve taken on two real complex organizations. One is a multi-billion-dollar corporation, whose accounting principles have been guided by 30 or 40 years of government policy, not as a public sector company. What they call a deferral account on the John Hart dam is actually a construction loan that’s paid for by the mortgage on that dam, because the revenues go up over the next 50 years, and it pays for itself in 11. But we call it a deferral account in government, not a construction loan. We, in the private sector, call it a construction loan. So you have that. It’s a complex entity.

UBC’s got a ton of complexities, because they’ve also got their real estate trust piece that they’ve set up where they’re doing their developments. You’re now moving into an area where they’re going to get a deal, frankly, which is fine. They’re in the entity anyway.

It would be nice to know the benefit we’re getting for your work, so when we look at your budget, we can say: “This is really good value for money, for the taxpayer, because Hydro is saving this, the expertise piece, or UBC is.” At the same time, we’re being able to say to ourselves…. We look at this. We have no trouble raising the budget. The Auditor General is taking on more work. We just want to know what the benefit is on the overall scheme of things. Then it’s really easy for us to justify.

R. Leonard: I have one other question. You talked about public inquiries, and you’re getting more than you have in the past. Can you give us a little bit of colour around that? What is it looking like? How many are you picking up? Where are they coming from? Where are they targeted? What’s going on? And what percentage of it does it look like, in terms of in the end with priorities for what you choose to audit?

C. Bellringer: What I wish I could think of right at this moment is the exact number that we’re getting in. We took the position….

Last year we had 483 public inquiries. We responded to 164 of them. There were 89 audit requests in that list. We look at all of them, and we get back to everyone who’s brought something to us. If it’s really big, it goes into our planning for a big audit. If it’s something where we can direct them to somewhere else, that’s usually what happens.

Often they just need someone to…. We don’t have a responsibility to answer to individual concerns, and we explain that to them. But they do bring up concerns about something that might have gone astray that is systemic in nature and it deserves us to find out. We rely on the ministry to go and look at the situation and determine what the outcome is and then report back to us and to report back to the person who might be impacted by it, if that’s the case — or if it’s just a general thing, to deal with it.

[9:45 a.m.]

We would like to do more reporting on that so that we can tell the assembly, basically, what we’ve done. We’d like to do more of them.

In the last year, we will have…. Some of the audits we selected will have…. Some of that would have been built into it, but we don’t have a concrete number on that.

Is there anything else that jumped to mind that you want to add?

Sheila runs that area. I’m just….

S. Dodds: I would just add that when we start to look at them, when we can put a bit of time into it, you start to see themes. As Carol pointed out, there might be a systemic issue. When you get one inquiry that somebody feels there is a concern that impacted them personally, which is…. We don’t look at issues on a personal level. But if we look at the system piece behind and we start to see common themes, there’s an opportunity to look at…. Is that an area where we should be looking at a system of financial controls as a CCR audit potentially? Or maybe we don’t do it as an audit, but it would be nice to do some work there.

There are issues that come up. Given that we’re the Auditor General’s office, there are issues around, concerns around, fees, financial mismanagement, sometimes how transactions work, where there are jurisdictional issues and what the responsibility of the province is. There are areas — I would say probably about 10 percent of them — where you’d really like to be able to dig down to understand what’s going on there, to know that there isn’t something that we should be building in to other work.

B. D’Eith (Chair): Right. Well, keeping an eye on the clock, we’re actually just coming up on when we need to wrap. If I could have a two-minute recess.

Again, thank you for all your work. I really appreciate the thorough presentation and all the efforts done to really give us a thorough understanding of the complexities of your budget. Thank you so much.

Members, we’re just going to have a very short in-camera — very short.

The committee recessed from 9:47 a.m. to 9:48 a.m.

[B. D’Eith in the chair.]

B. D’Eith (Chair): All right. Motion to go in camera.

Motion approved.

The committee continued in camera from 9:48 a.m. to 9:50 a.m.

[B. D’Eith in the chair.]

B. D’Eith (Chair): We’re out of in camera.

Motion to adjourn?

Motion approved.

The committee adjourned at 9:50 a.m.