The committee met at 7:18 p.m.

[P. Milobar in the chair.]

P. Milobar (Chair): Good evening, everyone. We’ll get started. I know MLA Tegart is on her way, but we do have quorum, so we might as well get started.

My name is Peter Milobar. I’m the MLA for Kamloops–​North Thompson and Chair of the Select Standing Committee on Public Accounts. Tonight we have two Auditor General reports, both to do with summary financial statements of the province, so we’ll deal with each of those individually.

First up, we have the Summary Financial Statements Audit: Supporting the Role of MLAs dated November of 2023.

With that, I will turn it over to the Auditor General, and then the Ministry of Finance as well.

Consideration of
Auditor General Reports

Summary Financial Statements Audit:
Supporting the Role of MLAs

M. Pickup: I’ll start by acknowledging with respect that at the office of the Auditor General, we conduct our work on Coast Salish territories.

[7:20 p.m.]

The team and I welcome the opportunity to discuss our financial audit of the province of British Columbia’s 2022-23 summary financial statements. As you know, we produced two reports on our audit work. The first report was tabled in November. It’s titled Summary Financial Statement Audit: Supporting the Role of MLAs.

After we’ve gone through that one and answered your questions, we’ll turn to the second report. It was released in March of this year and is called The Audit of B.C.’s 2022-23 Summary Financial Statements: Areas of Interest. I’ll provide a very brief high-level overview of each report before turning to the team’s presentations.

Let’s start with our first report and how it supports you as MLAs. In the last fiscal year, when you look at all of the provincial government’s financial activities, revenue and expenses were each about $80 billion. That represents all of the public sector, including ministries, Crown corporations, health authorities and schools.

In all, as a reminder, there are more than 160 organizations in the government reporting entity, and they are included in the consolidated summary financial statements. The Auditor General Act requires my office to conduct an independent audit of those statements. I report to the Legislative Assembly on whether they are fairly presented in accordance with generally accepted accounting principles. The report is included in the public accounts, which came out last August.

The report we’re addressing tonight serves as a link. It connects our independent audit report with MLA’s examination of government’s financial reporting. That’s why we called the report, in part, Supporting the Role of MLAs. It’s because it explains our audit and gives you valuable context. It shows you what we found, and it emphasizes why it matters.

For example, it explains why we issued a qualified independent audit report for the 16th consecutive year. It also explains why government has received 38 qualifications over the past 16 years, and it gets to the overriding im­por­tance, which is this. Sound economic decisions, of course, depend on the best available financial information and reporting. That’s what is at the heart of our concerns that we raised, both in our independent audit report and in the detailed report before you this evening. Our concerns focus on three areas, which we are here to guide you through.

Before turning it over to my knowledgable and talented colleagues on my team, I want to thank and introduce the financial audit team that worked on the reports. They are, to my left, Lisa Moore, who is now the acting assistant auditor general; Priscilla Lai, to my right, who is a principal; and Molly Pearce, next to Priscilla, who is also a principal, who you’ve probably met in the past as well.

Of course, some of the team members are not with us tonight, but I also want to thank and recognize them, including Christopher Thomas, Laurie Selwood, Stuart New­ton and a former colleague, Mark Castator.

I also want to express our appreciation to the team at the office of the comptroller general for their cooperation and professionalism during our audit and in the preparation of these reports. To you, I say thank you.

Now I will turn it over to Lisa Moore, who will lead our team’s first presentation.

L. Moore: Thank you, Michael.

Good evening, Chair, Vice-Chair, Members of the committee.

The Public Sector Accounting Board issues standards and guidance to serve the public interest by strengthening accountability in the public sector through developing, recommending and gaining acceptance of accounting and financial reporting standards of good practice. Accounting standards are in place to allow users of the financial statements, such as yourselves, to have the best information available in understanding the financial results of government activity for the fiscal year.

You will note that government’s response to our report refers to extracts of Canadian public sector accounting standards. Conclusions on the appropriate accounting cannot be reached based on these extracts alone. Accounting standards are complex and require training and experience to interpret and apply and audit financial statements against. Our office adheres to Canadian auditing stan­dards, which deal with independent auditors’ overall respon­sibilities when conducting an audit of financial state­ments.

Public accounting firms also follow the Canadian auditing standards. Similar to public accounting firms, we have a professional practices team in our office who are not part of our financial audit teams but who have expertise in the professional standards and provide advice on interpreting and applying the accounting and auditing standards.

[7:25 p.m.]

Similar to public accounting firms, we also have access to a national professional practices team, who are a resource for our staff.

When our auditors identify a situation where financial information is not presented in accordance with public sector accounting standards and the difference between what is reported and what should be reported is significant and may result in a qualification in our auditor’s report, we rely on our professional practices team to provide an independent consultation that tests our assumptions and conclusions.

We qualified our independent auditor’s report on the province of B.C.’s 2022-23 summary financial statements based on three material misstatements where the financial statements do not adhere to Canadian public sector ac­counting standards.

These three qualifications were the result of extensive audit work, challenge and consultation. Generally, qualified reports are rare. However, you will see in appendix B on page 27 of our report that in the each of the past 16 years our independent auditor’s report has been qualified and what the reason for the qualifications were.

MLAs and other users of the province’s summary financial statements cannot depend on the accuracy of the statements without considering them statements described in our qualifications. Without going into a huge analysis of the standards, I will attempt to walk you through the “Report at a glance” on pages 4 and 5 of our report and provide highlights of our assessments concluding that the accounting or disclosure of certain transactions were not in accordance with Canadian public sector accounting standards and the significance of these departures which resulted in the three material misstatements.

In the following comments I make, I may refer to Canadian public sector accounting standards as either PSAS or the standards.

The first material misstatement is the accounting for revenue subject to restrictions. A Treasury Board regulation was issued in 2011 that most entities, such as school districts, health authorities, universities and the like, in the government reporting entity follow for accounting for revenue subject to restrictions, which is different from what is required under PSAS.

As a result, private sector audit firms do not issue an independent auditor’s report that concludes on the reporting being in accordance with PSAS. Instead, the private sector audit firms issue a compliance audit report, concluding that the financial statements are prepared in accordance with section 23.1 of the Budget and Transparency Accountability Act.

One hundred four of the 141 organizations in the government reporting entity received compliance audit reports for the fiscal year 2022-23. A list of these entities can be found in appendix C on page 30 of our report.

Appendix C, on page 29 of our report, provides an example of wording included in these compliance audit reports. In the emphasis of matter paragraph, the private audit firm states that there is a significant difference between the reporting being used by the entity and PSAS. As well, appendix C on page 30 shows that the entities disclose, in the notes to their financial statements, that the accounting policy requirements under the regulation are significantly different from the requirements of PSAS and the accounting would be recorded differently had they been following PSAS.

As required by the Auditor General Act, the Auditor General issues an independent auditor’s report that states whether the accounting and disclosure in the province’s summary financial statements is in accordance with GAAP, and GAAP for senior governments in Canada is PSAS. The qualification in our independent auditor’s report called “deferral of revenues” brings to attention the same issue private sector firms do in their compliance audit reports: that accounting for revenue subject to restrictions is not in accordance with PSAS.

For example, when money is received under agreement from the federal government or from other non-provincial sources for a specific purpose, such as building a new hospital, this is a restricted contribution. When determining what period to be recognized the revenue was received over, the agreement has to be analyzed against the standards. Per the standards, revenue can be recognized over a period of which a stipulation is in place. If the agreement only requires the funds to be used to build a hospital then the standards require the funds to be counted as revenue as soon as that hospital is built.

However, the province has been reporting the funds differently, instead counting a portion of the revenue in each year over the hospital’s working life. This accounting treatment may be okay in the instances if the agreement includes a stipulation requiring the funds be used to run the hospital over such a period as its working life.

We found $6.97 billion in agreement amounts that have been audited and do not include stipulations that would allow government to recognize revenue of the period that they currently are. As a result, B.C. appears to have financial obligations of $6.97 billion greater than it does, and revenue is understated by the same amount.

[7:30 p.m.]

The second material misstatement is the understatement of future financial commitments. These future financial commitments, also known as contractual obligations, represent costs government has committed to incur in the future by way of signed agreements or contracts. Government only discloses contractual obligations over $50 million in the summary financial statements. A threshold of $50 million is significantly higher than the threshold used by the federal government of Canada, which, per the Public Accounts of Canada, is $10 million.

Accounting standards do not set a reporting threshold for disclosure. However, for an organization the size of the provincial government, it makes sense to set a reporting threshold to ensure the most significant contractual obligations are disclosed while avoiding excessive administrative effort. However, the threshold needs to be practical with supporting transparency and accountability of reporting.

For our audit of whether the contractual obligation disclosures are not materially misstated, we used a threshold of $20 million or more. Using that threshold, the summary financial statement disclosures of the money the government is currently committed to spend, we found it being understated by $4.9 billion.

That $4.9 billion includes $2.4 billion under the B.C. First Nations gaming revenue sharing agreement, $2.3 billion under physician contracts and $0.2 billion for contracts between our $20 million and government’s $50 million reporting threshold. As a result, government’s disclosure of money already committed to be incurred in future years is significantly understated, and the users of the summary financial statements do not have the full picture of these costs.

The third and final material misstatement was the mission of revenues earned and transferred under the B.C. First Nations gaming revenue sharing agreement in the summary financial statements. In 2020, the province entered the B.C. First Nations gaming revenue sharing agreement. This agreement requires 7 percent of the annual net income of the British Columbia Lottery Corp. be paid to the B.C. First Nations Gaming Revenue Sharing Limited Partnership.

PSAS requires that the full amount of B.C. Lottery Corp. net income be recorded as revenue in the summary financial statements and the portion transferred to the B.C. First Nations Gaming Revenue Sharing Limited Partnership as an expense. However, government chose to record these transactions as a flow-through arrangement and therefore, both the revenues and expenses are understated in the summary financial statements by $114 million.

Under PSAS, when revenue is collected on behalf of others, it may be okay to net the amounts. An example of a revenue collected on behalf of others is the collection of fuel taxes on behalf of TransLink. This is done because the province has the infrastructure in place to do so, and then the funds are transferred to TransLink in a flow-through arrangement.

Despite the name of the agreement under the B.C. First Nations gaming revenue sharing agreement and the amendments to the Gaming Control Act, B.C. First Nations are entitled to a share of B.C. Lottery Corp. net income, not revenue — net income being the difference in what B.C. Lottery Corp. recorded as revenue less expenses in a fiscal year, assuming in that year that the revenue is greater than the expenses.

Providing a portion of the net income is not collecting revenue on behalf of B.C. First Nations. Had, for example, an amount of each lottery ticket sale been determined and used as a basis, then accounting for this revenue collected on behalf of others may be reasonable. As a result, we found government’s presentation not as transparent as it could have been and the picture of the money the government received and spent being incomplete.

In summary, our material misstatements reduce the reliability of the financial reporting. MLAs and other decision-makers should be able to be confident in the completeness and accuracy of the disclosures in the province’s financial reporting. Both restricted revenues and contractual obligations provide important information about the financial resources available to government in future spending decisions.

[7:35 p.m.]

Our independent auditor’s report also includes key audit matters. These are areas that are particularly difficult to audit, such as complex accounting estimates that are subject to a high degree of uncertainty. This year, those items that we highlighted were tax revenue estimates of personal and corporate income tax, pension plans for the valuation of the plan assets and pension benefits, asset retirement obligations and financial instruments.

That concludes our remarks, and I turn it back to Michael.

M. Pickup: Thank you, Lisa.

I think, Chair, that was it for us for our opening comments on the first report.

P. Milobar (Chair): Okay. Thank you for that.

My apologies. Our new comptroller general is here, and I totally zoned out coming in at the end of a long day to start this meeting.

Nicole Wright is our new comptroller general.

Welcome to the committee. I’m not sure if you have anything to add before the ministry does their presentation as well.

N. Wright: Thank you, hon. Chair. Good evening.

As the Chair said, my name is Nicole Wright. I am the new comptroller general for B.C. I was appointed to this position on January 15 of this year after the previous comptroller general retired from the public service.

I have two witnesses with me today. I’d like to introduce Heather Wood, the Deputy Minister of Finance, and Diane Lianga, the executive director of financial reporting and advisory services at the office of the comptroller general.

We are here today to discuss the two reports from the Office of the Auditor General regarding the audit of the 2022-23 summary financial statements that were released as part of the public accounts on August 30, 2023.

Diane is here today, and she will be giving our presentation.

D. Lianga: Thank you, Nicole.

Good evening, Members and Chair. Today I’ll provide a review of the context of the public accounts, government’s financial reporting framework, and I’ll also speak to the audit qualifications on the 2022-23 summary financial statements.

The public accounts are government’s main accountability document to the public. It involves an accounting consolidation process that conforms and collates the financial reporting of over 200 business units or entities, including ministries, Crown corporations and agencies, school districts, post-secondary institutions and health organizations.

The consolidation into the summary financial statements is complex, as we conform each entity’s year-end results. The accounting process that we undertake ensures that the reported results are accurate and complete. The independent audit conducted by the Auditor General’s office tests those results to ensure the statements are fairly presented.

The production of the public accounts takes about three months in total. There are four publications released as part of the public accounts. The main public accounts volume includes a plain language summary of the financial results and impacts for the fiscal year, the audited summary financial statements, and additional statements and schedules, including those related to the consolidated revenue fund and to provincial debt. Two additional volumes are published online that contain a detailed level of information on core government revenue and expenses. The last report released with public accounts is the report on ministerial accountability.

The public accounts are prepared following a legislated financial reporting framework. The Budget Transparency and Accountability Act prescribes the rules for preparing and producing the public accounts. The act assigns Treasury Board the authority to set the accounting policies of government. These accounting policies are based on Canadian public sector accounting standards and are often referred to as generally accepted accounting principles or GAAP. The act also gives Treasury Board the authority to make regulations that align with existing GAAP. There is one Treasury Board regulation in effect regarding restricted contributions.

The Financial Administration Act assigns responsibility for preparing the public accounts and other financial reports required by statute to the comptroller general. The comptroller general prepares the public accounts in accordance with those accounting policies set by Treasury Board.

Under the Auditor General Act, the Auditor General is the auditor of the government reporting entity with a mandate to report to the Legislative Assembly on the financial statement audit. The Auditor is held separate from the policy setting structure to ensure their independence to audit.

The 2022-23 public accounts were prepared consistently with prior years.

[7:40 p.m.]

The public accounts followed the same basis of accounting which is prescribed in the Budget Transparency and Accountability Act — that is, generally accepted accounting principles for senior governments in Canada supported by Treasury Board regulations.

The form of the public accounts remained relatively the same as in past years, and there were no changes to the financial framework. New accounting standards were implemented during the year related to financial instruments and asset retirement obligations. I note that the audit opinion continued to include three qualifications related to two subject areas: the deferral of restricted contributions and the First Nations gaming revenue sharing arrangement.

Government recognizes revenue related to restricted contributions as the obligation is satisfied. The Auditor would like to see revenue for capital contributions recognized earlier, when the assets are purchased or built. Secondly, government does not recognize revenue for the First Nations right to gaming revenue that has been conveyed through legislation. The Auditor would like to see gaming revenue and a grant expense recognized. They would also like to see an estimate of the future First Nations revenue amounts disclosed as a contractual obligation. I’ll go through these qualification items in more detail in the following slides.

I’ll start with the deferral of revenue, which we’ve discussed for the last 12 years. The Auditor proposes that contributions restricted for capital assets would be more appropriately recognized as revenue when the asset is bought or built. The Treasury Board has established the accounting policy and issued a regulation under their authority in the Budget Transparency and Accountability Act that revenue be recognized as the stipulation to use the asset to provide services is met.

For example, if government receives a federal contribution towards a school, that contribution would be deferred and recognized over the period the school is used to deliver services, estimated to be about 40 years. Over those 40 years, revenue is recognized to demonstrate that external sources, not tax revenue, paid for that asset. And a liability is reported to show the obligation over those 40 years to deliver those school services using that federal contribution.

This accounting policy is consistent with the Canadian public sector accounting standards, as you can see on the extract on slide 6. The accounting standards for government transfers recognize that obligations for service delivery can arise from capital grants.

The Public Sector Accounting Board, who sets the ac­counting standards, continues to confirm that the account­ing policy established by the Treasury Board is appropriate under the standards — most recently in their basis for conclusions for the conceptual framework project, which I’ve provided in an excerpt in appendix A to the slide deck.

Additionally, we see that other provinces that pursue a sustainability strategy and follow public sector accounting standards like B.C. also defer restricted contributions. However, they do not receive an audit qualification.

We cannot agree with the Auditor’s suggested recognition for restricted contributions, because it does not align with the accounting policies established by the Treasury Board under the Budget Transparency and Accountability Act and it would misrepresent the financial position of government. Adopting the Auditor’s suggestion would make the financial position and surplus of the year look nearly $7 billion better than it actually was.

The only way for government to access that $7 billion would be to incur future deficits over the service life of the asset, the 40 years in my example. That directly conflicts with the sustainability strategy that you as legislators have put in place through our financial legislation.

On slide 7, we start with the two qualifications related to the First Nations gaming revenue sharing arrangement. The Gaming Control Act, amended in 2019 and as seen on slide 7, conveys the right to 7 percent of B.C. lottery net income to First Nations. This means that 7 percent of B.C. lottery net income is First Nations revenue.

This arrangement is the same as when legislative powers are used to provide revenue rights to other levels of government, like fuel tax or accommodation tax that has been ceded to local governments. This approach is distinct from a grant, because it conveys a right to revenue rather than just giving an amount at the discretion of government. In this case, government is not gifting these funds to First Nations.

The Auditor General suggests that recognizing this First Nations revenue as provincial revenue and then as a subsequent grant to First Nations is more appropriate.

[7:45 p.m.]

We are unable to agree with the Auditor’s recommendation because public sector accounting standards explicitly prohibit us from doing so. Last year I went through each section of guidance with you, and I have provided those excerpts of the accounting standards in appendix B of the slide deck. The guidance is clear. Government cannot recognize revenue or a government transfer for amounts that are collected on behalf of another level of government. The law has conveyed this revenue to First Nations.

It is important that we consider the economic substance of the new relationship with First Nations, as set out in the law through the Declaration on the Rights of Indigenous Peoples Act, when we represent these transactions to the public. This revenue-sharing arrangement embodies government’s commitment to shift from transactional short-term agreements to long-term arrangements that support First Nations’ self-determination as a government and their economic independence.

The last qualification is related to disclosing future amounts of First Nations gaming revenue as a contractual obligation as if it were a grant. Those future revenue-sharing amounts do not meet the definition in the standards as seen on slide 8 because there is no liability against provincial funds to be provided to First Nations arising from this arrangement. These rights have been conveyed through law. Just as there is no liability against provincial funds to provide municipalities their accommodation tax or their fuel tax, we cannot see any reasonable basis to single out the First Nations’ right to gaming revenue.

The Auditor would also like to see the disclosure threshold for contractual obligations reduced. Treasury Board has set the threshold for these and other obligations, including capital projects, at $50 million, which does capture the significant contracts and agreements of government.

The last area of the Auditor’s report is their key audit matters, which I have on slide 9. Key audit matters are chosen by the Auditor and are described as areas of complex auditing. The Auditor discusses the use of experts in gaining assurance over tax estimation, pension valuation and disclosure relating to the new accounting standards. The Auditor General goes into more detail on tax estimation and the new accounting standards in their second report, so I’ll provide additional context then.

That concludes my presentation for this report.

P. Milobar (Chair): Okay. Thank you.

I think that’s it for presentations. Just on to questions then. There’s nothing else to add.

Questions for anyone?

S. Chandra Herbert: I guess I’d like to first start with the unresolvable debate, Public Sector Accounting Board standards, PSAS. When is it a liability, when is it not, and when do you claim it?

I guess what I’m trying to understand…. This is a debate I know we’ve engaged in before, as have you. In reading the Public Sector Accounting Board’s article “Staying the Course on Government Transfers” from August 22, 2016, what struck me — and maybe there’s some clarity that I can get from both sides; maybe not — is why, when the board said we can be flexible in how we account for this money….

I know in 2011 there was a decision that the Auditor General would take on this, but in 2016 they seemed to have said: “Well, we’ve debated this.” I think the quote says: “Debate was not resolved after nine years of consultation with constituents.”

I’m assuming that’s accountants. Nine years of debate to try and get this, and here we are at 12 years of debate over the same issue.

Why can’t we get this resolved? I guess that’s my question to the Auditor General specifically.

If other provinces have determined through their auditors that it is okay to be flexible in this way, that it is okay to account for the money spread over the term of service, as opposed to take it all in year 1, what is so different about what B.C. is doing compared to other provinces that have decided it is okay to go with the Public Sector Accounting Board flexibility, as suggested here?

M. Pickup: I will make an initial comment, and then my colleagues can add to that as well.

Firstly, of course, I’m always careful to remember we are the auditor of B.C. summary financial statements and not the auditor of other provinces’ financial statements.

[7:50 p.m.]

What the details of transactions might look like in other provinces, what the conditions of those are, I wouldn’t know, and nor would it be my place to know, so I wouldn’t comment on that.

I would remind us, though, as Lisa pointed out and as the report points out, this is not just the Auditor General pointing this out either. This is accounting firms in British Columbia pointing out, as the auditor of some of those government reporting entities across the government of B.C., that they are giving it a compliance opinion in accordance with the budget transparency act, according with those regulations and saying: “Yes, you’re following that.” But if you were following public sector accounting standards, you wouldn’t have a clean opinion. We wouldn’t think you were following that.

We want to be careful here that it’s not just the Office of the Auditor General out there with this view in B.C. that these private sector firms, who are reaching these conclusions on their own, are only giving clean opinions because they’re compliance opinions on following the regulations. It would be different if I was mandated to give an opinion in accordance with following government regulations, but that’s not what I’m mandated to do. The Auditor Gen­eral acts as given opinion in accordance with the generally accepted accounting principles and public sector accounting standards, so there is that.

The other comment I would make is that these standards are complicated for accountants and auditors. Public sector accounting standards are complicated for all of us. That’s just a reflection, I think, of the inherent nature of the profession. I’m always cautious to say we can take one line out of a standard, or two lines out of a standard, or extract something on its own and say: “That, alone, can support a conclusion.” It is the totality of it, and it is looking at all of it, both from all of the standards and also from all elements of the transaction.

Lisa or Molly?

L. Moore: I’m not sure what I have to add, Michael. You were pretty comprehensive on what I was thinking.

S. Chandra Herbert: If I can just follow that up.

What I’m trying to understand is, if it’s money from other levels of government…. So federal government gives money to the B.C. government for schools, as I think was the example. They also do that in other provinces. I can’t imagine that the agreements they have with B.C. are so different than they would have with other provinces that we would come to such different conclusions.

A qualification on audit is important, and I think you’ve laid out why it’s important. I guess I’m just trying to understand where we as legislators should be concerned or where it’s more of a technical difference over if the i’s should be dotted in this way or should be dotted in that way. I’m just trying to understand that, because I don’t understand why it’s so different here than elsewhere.

M. Pickup: Let me give you this thought. If B.C. gets money to do something like build a school and the federal government, perhaps, gives them this money to build a school…. If the agreement said that this money is to build a school, operate it for 38 years, and if you don’t operate it for 38 years, you’re giving us the money back, prorated, then we can see a liability. That’s not what they’re doing. They’re giving you the money, and they’re saying: “If you close that school next year, the money is yours.”

To suggest there’s this huge liability there — that if you sold these assets, closed these assets, are you going to pay the federal government back? No. The money is yours. If you spent that in general expenses or you spend that on anything else, the money is gone. The federal government is not taking that money back. Otherwise, the accounting would be different on all ends.

That’s sort of how I would explain this to non-accoun­tants. And the $7 billion, remember, is not this year. That’s the accumulation of all of these years. In one year, it might be $700 million or $800 million. In another year, it might be a bit more. So the $7 billion is accumulated to now, but that’s not in one year.

S. Chandra Herbert: I won’t take much more on this, but I did wonder if the comptroller wanted to add anything else, because I think…. The arguments you made — I understand them. I’ve read the articles. I’m trying to get up to PS 3410 and all the other ones that….

[7:55 p.m.]

N. Wright: Well, thank you. If you figure it out, let us know.

S. Chandra Herbert: Well, I like your work. I’m not sure I want to become an accountant.

N. Wright: I thank you for your questions, because they’re questions that we ask as well. We consult with other jurisdictions on how they account for things, as a matter of course, across different types of revenues and expenses and government transfers that we account for.

I agree with the Auditor General that this is a complex situation. We have, as Diane said, over 200 entities that we’re collating and summarizing. There are multiple thousands of agreements across all of those entities that need to be taken into account. To make sure that we’re being consistent year over year and consistent across the entities, we have to make some…. I won’t say assumptions, but we have to take in that context and, as you say, the totality of the transactions and what our financial statement users are using this information for.

I think that’s one of the reasons why we’re so stuck on making sure that the revenues that we’re getting from the federal government, for example, are matched to the service obligation and the cost of those service obligations when the school or the hospital is being built. While, technically, it might be true that we could close the school the next year, we do have legislation in place that prevents or at least directs such sector entities to use the funds in the way they’re intended when they’re contributed.

If I’ve misrepresented that, Diane, please correct me. I’ve only been on the job a couple months.

D. Lianga: Yeah. I think the only thing I would add to that is that experience has shown us that if we receive contributions from the federal government, it is for a purpose. It’s not simply the action of building a school. When government receives a contribution for a school, like in my example, the full expectation and government’s commitment to the public — through news releases, through capital plans, through service delivery — is that we’ll build the school, operate the school and provide that service to the public in that region.

I can’t imagine a situation where we would build a school and leave it empty. I’m pretty sure the federal government would come back and if not demand the money, somehow take it in a different way, by deducting it from something else. I think the financial transaction would be the same.

Within our context, I think the important part here is that B.C. operates on a sustainability approach, right? The revenues we take in, we only spend in expenses going out. That’s the way we’ve been doing business for over 20 years, as came out of the Enn’s report back in the late 90s. That was the recommendation, and that is the basis for the financial framework that we have in place now. I think that’s an important consideration.

The standard, as we’ve said, does have flexibility, not just in this but in other areas as well. When there is a choice, it comes down to: well, who has the authority to choose? We know that the Budget Transparency and Account­ability Act gives that authority to Treasury Board.

In this instance, Treasury Board went as far as to issue a regulation just to be clear that this is the way and to be accountable and transparent to the public that this is the choice we’re making.

P. Milobar (Chair): I have one question around the contractual obligations. At $4.9 billion of contractual obligations, it sounds like the vast majority, if not all, are operational contracts with doctors. We would expect that they would expect that the Crown is going to make good on what they’re owed for billing and their services. I would think First Nations are expecting that the Crown will make good on an agreement for revenue to come their way.

I guess the question is: you have ministers of the Crown, when they make these agreements, announcing with great fanfare what the cost is expected to be for these new agreements, yet financially, the Ministry of Finance doesn’t want to actually account for them, it sounds like. Again, they’re operational.

I guess I could understand, especially on the gaming or with the doctors, the fee, if you slot in $100 million and it turns out to be $113 million or it’s $96 million, at least you’re in the ballpark. But to not put anything in seems to….

[8:00 p.m.]

I don’t understand why you would want to understate what your potential expenses are, moving forward, when you have ministers that repeatedly talk about these agreements publicly and attach a dollar figure to them. So why does the ministry not want to actually properly reflect what is an operational expense when we’re already faced with an operational deficit, funding-wise, within government?

I can understand why there’s a bit of a concern by the Auditor General when it comes to understating some of those contractual obligations. We’re not going to tell doctors: “You’re not getting paid this month.” We’re not going to, regardless of political stripe, tell the Indigenous communities they’re not going to get their contractual agreement of gaming revenue transferred over to them.

Why not properly account for a much better approxi­mation of what those costs would be, much more keeping in line with what the ministers responsible for those various areas keep publicly talking about anyways?

N. Wright: I’ll let you answer the physician side of the equation. I think from a First Nations’ perspective, we’re shifting the way we’re accounting for these transactions. They were short-term contractual obligations where the first two years we wrote this as an interim contract. It was treated as a government transfer and recorded as such.

That was until the legislation was changed to reflect the direction that we’ve been given under the Declaration Act to align legislation and allow First Nations the inherent right to self-govern and participate in their share of the economy. One of the earliest agreements that we made was for the gaming revenue-sharing arrangement.

The longer-term arrangement that was signed was meant to convey that this is a share of revenues. Basically, the B.C. Lottery Corp. no longer gives the provincial government 100 percent of those revenues. Seven percent is now inherently given, as a right, to First Nations. If there is no net income, there is no money going to First Nations. Just like there’s no money going to the government.

I think what we’re trying to say is we’re moving into representing these arrangements in a new way. Recognizing that First Nations have our level of government, we need to be able to say and show that that’s not our revenue. It should not be an expense on our books. It’s not a liability to the province. The B.C. Lottery Corp. accounts for that and discloses that in their statements so that we can be as transparent as we can be to say that this isn’t our revenue. It’s not something that we will change. It’s legislated.

P. Milobar (Chair): And the $2.3 billion we’re going to pay doctors? I mean that’s…. We’re paying doctors. We’re not going to say no.

D. Lianga: Maybe I’ll take that one. I think an important concept with contractual obligations is that it is note disclosure. So it’s not accounting for that transaction in the past fiscal year, which is what the summary financial statements’ income statement will tell you about. This is note disclosure about what commitments have been made that would draw on future resources should certain events occur.

In the guidance, there is a section that specifically excludes compensation arrangements from being disclosed because government has that discretion to change the level of services that will be provided.

Now in the area of doctors, we know there is a unique relationship. They’re not technically employees of government. They are independent, and they do have a contract, but they are a fee-for-service organization.

[8:05 p.m.]

As that level of service is determined in each fiscal year, then that will be accounted for in the year that the service is being provided. It’s very similar to compensation to nurses. We don’t include that in our contractual obligation — BCGEU compensation. We have contracts with them as well. But because service can be adjusted at the discretion of government going forward, it’s not included as a contractual obligation under the standard.

P. Milobar (Chair): I don’t mean to harp on this. Over $2 billion, I think you said, were part of the First Nations gaming number, of the 4.9, and $2.3 billion was with doctors. It left a few hundred million dollars on various other agreements. But, surely, all these other agreements you just referenced, nurses and others, for that same length of time would be more than a couple hundred million dollars. You’re accounting for some form of payment for nurses, I’m assuming.

I don’t understand how we get to 4.9, then, if $2.3 billion is doctors, and another couple billion is the First Nations gaming agreement. I don’t see how that remainder would remotely cover everything else that was just referenced, if we’re not accounting for anything within the numbers.

D. Lianga: Right. Do you want me to answer that? It’s your qualification, but….

For the disclosure, there are three components. The first is the First Nations gaming revenue-share arrangement. That’s the right conveyed in legislation. There’s no agreement other than administrative. Your cheque is going to be received on a certain day.

Then there are the doctors, the doctors’ contract.

The amount that’s left over is for those contracts that are under $50 million, which is our disclosure threshold, and the $20 million that the Auditor General referred to in their remarks on the report.

S. Chandra Herbert: Just a question for the Auditor.

If the amount guaranteed to First Nations was gross, not net, would that change the qualification? I’m just trying to understand how a direct transfer from one government to another, under the accounting principles, when it’s a different government, doesn’t get captured, but when it’s First Nations, it does. Is it a net thing? I know there was mention of fuel taxes. It’s just the total. It’s not administered. Is that the qualification? Why is one treated one way, and one the other?

L. Moore: It’s not to do, necessarily, with them being levels of government, in our view. It’s the nature of the underlying agreements and what’s being transferred. For TransLink, which is a dedicated fuel tax revenue stream, it is revenue that is collected on behalf…. There is a flow-through arrangement that works with that. Basically, it’s a convenient administrative thing.

The province is collecting the fuel tax anyway. They collect the portion for TransLink, and because it’s TransLink, it gets transferred to them. So it’s recorded on the net. It’s never the province’s revenue in that case, whereas with the First Nations arrangement that’s currently in place, where they receive a portion of B.C. Lottery Corp.’s net income, the province, as in B.C. Lottery Corp., takes in revenue from the sales of lottery tickets, pays employees and pays administrative costs.

Whatever bills it has come to a net amount or the net income for the year. Whatever that dollar amount is, then there’s a percentage that gets paid, under the agreement, to the First Nations. When the government goes through their extensive consolidation process, we’re saying that they should be consolidating in that full amount, not consolidating in a portion, like the amount minus the 7 percent, because, in our view, the revenue is the revenue of the province.

There isn’t a specific, dedicated portion of the revenue. As we’ve gone through the agreements, it’s a portion of net income that’s being spent. So we gave an example. There may be a possibility or a way that there is an option to have a flow-through arrangement. We have not analyzed the agreements to see that an actual flow-through arrangement works in this case.

[8:10 p.m.]

We’re not seeing something where there is specifically…. Like a fuel tax will be a tax per litre, or whatever the case may be; maybe it’s five cents a lotto ticket, whatever the case may be. It’s a portion of Lotteries’ net income.

Lotteries, the province, is making all their revenue from their sales but, at the end of the day, transferring a portion of what’s left over, what they actually take in as income. It’s not a portion of actual revenue. It’s kind of confusing, with the name of the agreement.

M. Pickup: Part of how I try to understand it, just on how it’s set up, remembering that we’re not questioning how it’s set up…. Government has set it up how they want it set up, and we’re not questioning intent or purpose of this. All we’re really doing is auditing the substance of the transaction on how the contract was set, not how it might have been set. There was no discussion with us about how it was set up. We’re coming and auditing how it is actually set.

The First Nations gaming group is not going to B.C. Lotteries and saying: “You sold $1 billion in tickets. Give us our percentage of the tickets that you sold.” That’s not how it’s set up. It’s based on net income that comes into government and then, a percentage of it is going to the First Nations gaming.

All we’re saying is to show the transaction in its completeness. There’s no bottom-line impact. It’s showing it in revenue and showing it in expenses. There’s no difference in the bottom line. That is how the transaction is set up. It’s not directly from Lotteries; it’s flowing through government. It’s coming through government and going out that way.

R. Leonard: Just on that point, in my understanding, what we heard is that it goes directly from B.C. gaming to First Nations. It doesn’t flow through government’s hands on the way to First Nations.

I wanted to ask, too…. I know there’s talk about selling tickets, but there’s more to gaming than that, like being able to say a portion of a ticket. If you’re playing blackjack and you’re winning by so many chips — you can tell I’m not a gambler — trying to tease it out that way just sounds impossible.

I hear us using the word “transactional” a lot. As has been explained, the intention under the Declaration Act is to move away from those transactional relations to something different. I don’t know if the standards can wrap its head around it or if they need to start to address this in a different way.

N. Wright: I can make a comment.

The legislation does say that B.C. Lottery is to pay First Nations 7 percent of their net income. We, as a province, administratively receive the funds into the CRF on behalf of the First Nations, and we pay out, administratively, that 7 percent to the partnership.

I think that’s what we’re trying to represent. The Crown does a bunch of stuff and generates revenue. They have costs of doing business, which we do not want to impact, so that brings us down to the net profit, in this case. We specify net income, not net loss. It’s net income. From there, the province gets 93 percent into the CRF. That’s what we’re recognizing as revenue. The 7 percent we’re collecting on behalf of the First Nations is not our revenue; that’s what we’re trying to represent.

R. Leonard: The Lottery Corp. — is that within your reporting? So it should be shown through that institution.

N. Wright: We show the revenue as the 93 percent net that comes on to our statement.

R. Leonard: Where does the 7 percent show, or does it?

[8:15 p.m.]

N. Wright: It doesn’t. It’s notated that it goes to the First Nation partnership in the B.C. Lottery Corp.’s financial statement notes.

R. Leonard: Okay.

P. Milobar (Chair): I think, at its core, the difference of opinion comes in…. The Auditor General feels that there’s…. If you talk to anyone at Lotteries, they refer to the government as the shareholder. There is no one else that the money goes to, from B.C. Lotteries, in terms of government.

I think the Auditor General is saying all of it should just be shown on the government books. They sign the contract with the Indigenous nations. They also deal with the revenues and any net or loss of B.C. Lotteries as well, which is where that difference of opinion is coming. It’s not fundamentally changing the books per se, as opposed to just how it’s being shown.

Is that a fair assessment of how everyone is disagreeing?

M. Pickup: Are you sure you’re not an accountant?

P. Milobar (Chair): No, no.

Okay. I don’t think we have any more….

Oh, Spencer, you have one on this report?

S. Chandra Herbert: Sure.

I guess the question, really, and it relates to both the qualifications, is it seems like there’s a good-natured disagreement today. Last year it was not quite so good natured.

Interjection.

S. Chandra Herbert: I guess I’m trying to figure out, well, where do you go from here?

Obviously, we, as MLAs…. It would be great if we could have unqualified accounts. That would be better for the province and all sorts of things. We would have other things to talk about in this room.

I’m trying to figure out how to help. If it is a matter of gross versus net when it comes to the Indigenous gaming revenues, if it’s a matter of…. Well, the federal government needs to have in their contract…. We, as a province, need to write back to the federal government and say: “Geez, thanks for the money. We will guarantee we use it for a school.” And that would end the qualification.

I’m trying to figure out…. It seems silly to me, at least — and I’m not an accountant, as you can tell — why this is so fiercely fought over, over all these years. I guess it goes to show. The accountants couldn’t agree amongst themselves over nine years. Here we are, as the non-accountants, and we’re debating it over 12 years.

Is there something that we can do? Otherwise, we’re just going to keep having this conversation every April when we come back here and meet with you.

M. Pickup: I will give my thoughts, Nicole.

In fairness to Nicole, she’s doing the job. She started in January. I think we’ve already had — how many meetings? — a number of meetings to try to say: how do we engage on this?

We want out of these qualifications, obviously. There’s no interest for us in having qualifications at all. I would like to be out of this business, for sure. But we’ve got to be able to reach, as you suggest, some sort of solutions that say: how do we all win, and how are we all happy that we’re doing that? We’re trying to have those discussions, I think.

If it is on the table, I guess, from a government perspective and an openness to saying what these transactions might look like…. Particularly two of them, I think, are easy. I think the First Nations gaming…. I mean, it’s really very much a presentation disagreement, as you summarized, right? So if we could get to a place on there….

I think the bigger one is the deferred revenue. I think if there was some openness…. It’s not for me to tell government what to do, obviously. So I’m trying to respect that as well. If there was an openness to having a discussion around…. What is something that could change to make it…? We’re comfortable, yet the accountants for government are still comfortable they’re protecting the set-up on the contracts and all of that kind of stuff.

I’m happy to engage in that kind of a discussion. I don’t speak for Nicole, but I’m sure she would like to see the qualifications gone as well, as would Heather.

Those are my thoughts.

H. Wood: I guess what I would say on the deferral of revenue…. This is a long-standing disagreement.

I’m not an accountant either. I note the flexibility in the standard. I, similarly, would be happy to have discussions with the teams to understand the distinctions that are being made. To me, the standard appears to provide that flexibility that you referenced at the outset.

[8:20 p.m.]

On the First Nations gaming revenue sharing, I think we have to remember there is legislation here. That is the foundational piece to this arrangement. It is not simply an agreement that government has entered into with a partnership.

Absolutely, there can be discussions. I absolutely defer to the independence of the comptroller general on these fronts. It is the comptroller general who advises government. Where there is legislation involved that has been authorized by the Legislative Assembly…. That is a foundational piece, and I don’t see those pieces shifting.

J. Tegart: Not an accountant; definitely not an accoun­tant, but I’m wondering if it’s appropriate for this….

I’ve sat here a lot of years and listened to the debate, as animating as it is. I wonder if it’s appropriate for this group to pass a motion asking for the two parties to meet and bring back a solution where we will actually see some sort of movement in regards to…. How do we have an unqualified report?

If it’s not possible at all, if wording in legislation needs to change, if new legislation needs to happen, whatever…. To be here another ten years, with any good luck, and to be discussing the same thing is, for a non-accountant…. It’s a show I’d want to miss.

I’m wondering. I don’t know. Is it appropriate, Mr. Chair, for us to pass a motion asking…? We’re very concerned about the qualifications. Is it possible to request that the two parties or three parties take a look and say: “How do we provide what the committee is looking for?”

P. Milobar (Chair): I’m not entirely sure. It strikes me…. They’re a little unique in that we’re dealing directly with the Ministry of Finance itself.

Typically, this would be the equivalent of some of the other ministries who choose to not invoke certain recommendations from the Auditor year after year after year. We have them present, and then we wonder why things aren’t moving on a certain thing. So I’m not sure.

It has been suggested that, perhaps, myself and the Deputy Chair confer with the Clerk’s office. If need be, we can bring it back at the next meeting, if we figure out how to, potentially, procedurally do something like that.

S. Chandra Herbert: I’d certainly be interested, for sure.

It sounds like there is a willingness between the sides to try and work things out. It also sounds like there may be some things that are just intractable, perhaps, based on the legislation. I think, certainly from looking at folks’ faces here…. They can understand what we want to happen, but it’s a question of how it can happen. That relates to legislation. That relates to a whole bunch of other factors, including ones out of our own control.

P. Milobar (Chair): Well, Treasury Board too.

S. Chandra Herbert: Yeah, that too.

H. Wood: And Treasury Board. The comptroller general has independent responsibilities under the Financial Ad­min­istration Act. Those are independent of me as well. That just has to be understood and respected.

P. Milobar (Chair): We’ll sign it with a please.

S. Chandra Herbert: A smiley face.

P. Milobar (Chair): Okay, recognizing that it is getting on in the evening, we’ll move on to the second report here.

The Audit of B.C.’s 2022-23
Summary Financial Statements:
Areas of Interest

M. Pickup: Okay, moving on to the second report that was tabled on March 11.

In this report, we bring forward three matters of importance that arose from our work. It outlines the challenges related to income tax revenue estimation. It also looks at the potential impact of government directions on B.C. Hydro accounting. Finally, it considers important new accounting standards and government’s implementation. These are big-ticket items.

As we’re going through this material, you may ask yourself: “Why does the Auditor General put these things in a formal report to the Legislative Assembly?” I would respond mainly by saying that the reason is…. It is part of the mandate under the Auditor General Act. The members of the Legislative Assembly decide how to use this work in holding government accountable. They can ask questions in relation to the issues and to the points we make.

[8:25 p.m.]

If I were in the private sector and I was the auditor of the Royal Bank or the Home Depot, for example, I would be going to the board of directors. I would report on how the audit unfolded, in addition to any specific accounting and audit findings. The type of reporting we provided to you in these reports also happens in the private sector, where it is an important tool that boards may use in their oversight of management.

As I don’t report to the Minister of Finance or government itself, my reporting on these matters is to the entire Legislative Assembly. That’s the way it works. It’s also a critical opportunity for elected members, including this committee, to ask questions of government on the ac­tual numbers themselves and any inherent issues that are worthy of attention.

A lot of time gets spent, as you know, on the estimates process, and those estimates are unaudited. Our indepen­dent audit reports on the actual numbers, after much verification and checking by our teams. That’s why these reports are meant to be accessible to non-accountants and relevant to the province’s financial position.

I will now turn it over to Priscilla Lai, who will lead through our second presentation.

P. Lai: Thank you, Michael.

Good evening, Chair and committee members.

Our second report describes matters that came up in our audit that warrant attention because of the potential influence on the government’s future financial results.

Estimating income tax revenue is challenging. Personal and corporate income tax revenues provided $26.5 billion, or 32 percent, of provincial revenues in 2022-23. Over the nine years we examined during our financial statement audit, the government’s method of estimating income taxes has resulted in significant adjustments, averaging around $1.1 billion per year. The most significant adjustment occurred in November of fiscal year 2022-23. Government added $4.3 billion in additional revenue related to 2021-22.

For fiscal year 2022-23, in consultation with our office, the government updated the year-end estimate by using federal tax return filings as of June 30, 2023. This resulted in government’s year-end surplus being $1.86 billion lower than its initial estimate.

Government’s direction on electricity rates can impact accounting options available to B.C. Hydro. In B.C., rate regulation helps electricity customers avoid volatility in the rates charged by energy providers. B.C. Hydro’s rates must be reviewed and approved by the British Columbia Utilities Commission, the BCUC, for rate-regulated ac­count­ing to apply.

When government issues directions about B.C. Hydro to the BCUC, it interferes with the independent regulation of electricity rates. It may mean that rate-regulated accounting can’t be applied to some transactions, which leads to financial impacts for B.C. Hydro and the province.

Since our removal of the qualification on the province’s summary financial statements in 2018-19, government has issued and extended a number of directions about B.C. Hydro to the BCUC. In the fall of 2022, government directed the BCUC to order B.C. Hydro to issue a $320 million credit to residential and commercial customers. Every residential customer, including non–B.C. Hydro customers, received a $100 credit.

As the auditor of B.C. Hydro, we raised the concerns about using rate-regulated accounting for the household credit, because it wasn’t independently reviewed by the BCUC. We issued a qualified report on B.C. Hydro’s third-quarter financial statements. Prior to the end of the fiscal year, B.C. Hydro changed its approach by restoring the deferral account balances and taking the credit payment from net earnings accounts instead.

We recommend the government consult relevant parties, including the BCUC, B.C. Hydro and the office of the comptroller general when they plan to issue directions to BCUC through the Utilities Commission Act, to understand if they impact B.C. Hydro’s ability to apply rate-regu­lated accounting and assess how such directions could affect the summary financial statements.

[8:30 p.m.]

We also recommend B.C. Hydro continue to assess the impact of government directions, both individually and collectively, on the use of rate-regulated accounting stan­dards, and alert government when instructions are likely to impact B.C. Hydro’s ability to use rate-regulated ac­counting.

New accounting standards. Better planning and communication would reduce the risk of reporting errors. Government applied new accounting standards for asset retirement obligations and financial instruments in fiscal 2022-23. We identified significant departures from the new standards. Early engagement with us would have ensured that implementation of the new standards met requirements and reduced year-end corrections. Lessons from last year can be useful when two more new standards for revenue and public-private partnerships are applied for fiscal 2023-24.

Asset retirement obligations. The asset timing obligation standards came into effect in fiscal 2022-23, four years after it was issued in 2018. Government’s guidance to public sector organizations included inconsistencies with the standard, which increased the risk of material error.

Financial instrument–related standards didn’t apply to B.C.’s financial statements until fiscal 2022-23. However, they have been required in all other organizations in the government’s reporting entity since 2012 and’13. Government corrected three significant departures from the standards, including one incomplete statement that we identified.

At this point, thank you for your attention. I will turn it back to the Auditor General for his closing remarks.

M. Pickup: Thank you, Priscilla. That was it for us for opening comments.

P. Milobar (Chair): Anything from the other side of the equation?

N. Wright: Yes, Diane has some remarks on this report.

D. Lianga: Thank you.

We do have a presentation within your deck there. In this presentation, I will review the three areas of interest discussed in the Auditor General’s report on the 2022-23 public accounts.

Starting on slide 2, the first area of interest chosen by the Auditor in their report is the estimation of personal and corporate income tax revenues. This area of estimation is complex, notably because of the long duration between January 1 of the tax year and the time that the final tax results are provided by the Canada Revenue Agency, which spans three fiscal years. For example, results for the 2023 tax returns, which we’re each filing by the end of this month, will not be received until next February, so February of 2025.

Tax estimation is also complex because of the intricacies of the actual tax calculations themselves. For the past three tax years before fiscal ’23, income tax results have been even more difficult to estimate. Economists drew on historic experience to gauge how the pandemic would impact income, expenditures and the various complex factors that go into economic modelling. Layer on that government support programs, strong and unexpected consumer spending during that period and the delayed processing of tax returns, and it really is no surprise that the last three tax years — 2020, ’21 and ’22 — yielded results that just differed from our expectations.

Focusing in on slide 3, for 2022-23, government agreed to use a different approach to estimating income tax revenues arising from concerns of the Auditor on the vola­tility in those preceding years. Government adjusted income tax revenues downward by $1.86 billion, based on interim reports received from the Canada Revenue Agency for the 2022 tax returns that had been processed by June 30.

However, now that those final tax results have been received, we’ve found that that late adjustment was almost $1 billion too much. That means if we had not made that late adjustment, our income tax estimates for 2022-23 would have been $1 billion too high, but now with the adjustment, it’s $1 billion too low. So waiting for that June report just did not yield a better estimate.

We continue to review our calculations, work with our colleagues in other jurisdictions, because we’re all struggling with the same issue, and with the auditors to come to an agreeable estimation methodology, going forward.

Moving on to slide 4. The second area of interest noted by the Auditor General in this report relates to government directions to the rate regulator for B.C. Hydro.

[8:35 p.m.]

In the year, government issued direction for the issuance of credits on customers’ accounts. Initial concerns were raised about how that direction would impact the deferral accounts at B.C. Hydro. Those concerns were addressed through discussions, and B.C. Hydro appro­priately accounted for these credits in their financial statements. Concerns about directions from government is not a new item, having been raised as a qualification in 2017 and ’18. Government continues to take the necessary action to ensure that the application of rate-regulated accounting within B.C. Hydro is appropriate.

Moving on to the new accounting standards on slide 5. Now, consistency is important in accounting, consistency over time and consistency within the financial statements. Accounting standard setters do not make changes to the standards very often, because it challenges that consis­tency. For example, for the public sector standards, there have only been five standards implemented in the ten years prior to fiscal year 2023.

In 2023, new standards were implemented related to financial instruments and asset retirement obligations. Both topics were substantial, and they required a great deal of research, collaboration with other jurisdictions and coordination across our entity as we worked through implementing these standards and their implications across our 200-entity consolidation.

I would like to acknowledge the financial staff across the government reporting entity that worked through the investigation and calculation of asset retirement obligations; to my colleagues in the provincial treasury for their time and effort to implement the financial instrument standards; and to my staff in financial reporting, who were able to successfully execute implementation plans for these complex standards and create concise, useful disclosure that resolved the Auditor’s concerns over the course of the audit.

The financial instrument standard was particularly challenging. It had been under development since April 2003. That’s 20 years before it was actually implemented. Senior governments were unable to accept the first iteration of the standard because it simply just did not meet the public interest. It took a great deal of consultation with senior governments over the course of ten years before the Public Sector Accounting Board had to make a final decision on the standard in July 2021, just six months before implementation.

The asset retirement obligation standard had impacts across our broad entity. In each instance, it took time to coordinate and work through our normal process to be able to provide sufficient information for Treasury Board to exercise its authority under the BTAA to establish the accounting policies required to implement these standards.

The Auditors were kept informed throughout the implementation process, and once the policy was approved and the year-end results received from our 200 entities, the Auditor concerns over disclosure were discussed and successfully resolved.

That concludes my presentation for today.

P. Milobar (Chair): Great. Thank you.

Any questions from anyone? Anyone at all?

We might have worked it all out of our system on the first one.

R. Leonard: On the issue around asset retirement obli­gations, does that relate to asset management and the changes that have happened in public accounting to make us a little more sustainable in our budgeting, or am I way off base?

D. Lianga: The asset retirement obligation is not about asset management. It’s simply a way of accounting for the costs associated with retiring an asset at the end of its life. Previously when the asset was retired, you would incur the cost at that time. The accounting standards have now changed to recognize that you can capitalize that cost up front and amortize it over the useful life of the asset. So as that asset is providing the service, you’re recognizing that cost instead of just at the end.

S. Chandra Herbert: I think I heard correctly that both the auditors and the comptrollers are trying to work with colleagues across Canada to figure out this question of revenues — of tax revenues, income tax revenues. Yeah, it was quite a surprise, I think, to everybody to see how…. We’ve seen variations before but nothing quite as extreme as we more recently saw.

[8:40 p.m.]

It does make it very difficult to plan for the future. You think you’re out of balance; you’re in balance. You think you’re in balance; you’re out of balance. Yeah, very difficult.

Is there a strategy beyond “we’re talking,” or does it look like there’s a better approach out there than what we’ve been using?

Whoever wants to take it. It’s an easy question.

N. Wright: I can take that one.

We do agree, based on new information and where we’re sitting in today’s economy, that it’s worth having another look at the model to see if there are other options out there other than the one that we tried last year. We are looking to have a third party come in and do a bit of a review and assessment to provide some independent options that maybe we haven’t thought of or, potentially, that the auditor hasn’t thought of. Lots of smart minds are trying to figure this out. Lots of economists are in the mix, and I’m not one of those, and I respect them so much.

There’s always going to be a measure of uncertainty, because it is an estimate. We use the best…. We use the information that we have at the time that year-end comes. If we can get that estimate a little bit tighter, everybody will be happy.

So yeah, we’re definitely talking about how we can look at this particular issue.

P. Milobar (Chair): Okay. Anything else?

M. Pickup: Yeah, if I can say something positive…. This is an example, I think, of one of those issues where we ended up where we didn’t have a qualification and we didn’t have a scope limitation, in the sense that we couldn’t get a lot of work. We worked together over last summer, and it was a tough summer, as we worked until mid-August to get to a point.

This could have been worse. It’s not ideal, and it’s difficult, and it’s challenging. Like you said, as the comptroller general said, there have got to be ways forward. But it could have been worse. I mean, we got to a point where there was no qualification. That’s the upside of it.

J. Tegart: I don’t want to make light of the work that you do. I certainly appreciate the work and how difficult change is. A 20-year process to make changes shows how difficult it is and how we don’t want to make significant change that doesn’t provide the kind of transparency and continuum to compare — so that we can take a look at the numbers and compare apples to apples, etc.

I want to say that we really appreciate the work you’re doing and the support that you give to us as we try very hard to make numbers come alive.

I have one question in regard to B.C. Hydro. We, again, are facing a refund from B.C. Hydro. The impact, obviously, is outlined here of the last time. It raises concerns for me in regard to what impact that will have on B.C. Hydro as we attempt to look at affordability and services to people. Any comment in regard to that?

M. Pickup: My only comment would be, and Priscilla can correct/adjust, as can the comptroller general…. I think, in any of these cases, what we’re talking about…. We’re not talking about the merits of that policy or the decision to do that. We’re talking about the accounting.

Really, it comes down to when these decisions are made and how they flow through with the regulator. Does it impact the ability to use what we call rate-regulated ac­counting, which is what Hydro wants to use and does use, so that you can do certain things with accounts in order to make the accounting better for you? That’s what we’re talking about.

Each of these transactions, like this new one, would be evaluated in the current year’s audit. It’s not a matter of sitting — this won’t surprise you — for ten seconds and saying: “Oh yeah, that’s okay; that’s not okay.”

[8:45 p.m.]

In the context of this year’s financial audit, the auditors will look at it and say, “does that impact the ability to use rate-regulated accounting?” in the Auditor’s opinion.

Priscilla, did you want to add anything?

P. Lai: Thanks, Michael.

We haven’t finished our work yet. We did want to point out that B.C. Hydro had engaged us in a conversation. We still have the work to do to review the transaction and what their plans are. Until we complete our assessment and work…. Then we can conclude on: is it an appropriate transaction, or what impacts can it be?

H. Wood: I want to acknowledge, on the shift that government made in response to the concerns that were raised by the Office of the Auditor General, that those were very fair and valid concerns that were raised. We’ve fully accepted them in the Ministry of Finance. That has certainly informed the way that government intends to implement the newly announced rebate.

I just want to acknowledge that and say that we agree. We agree with those recommendations.

P. Milobar (Chair): Okay, any other questions? No.

Thank you so much for those reports.

Referral of Matter to
Public Accounts Committee

CLEANBC GO ELECTRIC PROGRAM

P. Milobar (Chair): We do have one other piece of business, and that’s a motion from Jackie.

I don’t know if you want to read it, and then we can discuss it or vote on it.

J. Tegart: I move that pursuant to subsection 13(2) of the Auditor General Act, the Select Standing Committee on Public Accounts request the Auditor General undertake an examination of the government of British Columbia’s CleanBC go electric program, including but not limited to the commercial vehicle innovation challenge and the advanced research and commercialization program administered by MNP LLP, with a view to examining any potential conflict of interest relating to program administrators charging success fees to successful appli­cants who use their advisory services.

P. Milobar (Chair): Okay, any discussion by the committee?

S. Chandra Herbert: Question. Has this request gone to the ministry specifically — that they look at this issue? I don’t know anything about this issue. I haven’t seen any research. I haven’t seen any paperwork on it. I’m curious, because it’s a big request to make without any of that background, for me, because I know the auditor has a very busy schedule, lots to look at, and certainly I know is interested in taking requests like this from individual MLAs to consider.

It’s hard for me to judge one way or another. Even if I judge one way or another, I know it’s up to the auditor to make a decision on their own if they want to pursue this.

I’m curious. Has this gone to the ministry specifically?

J. Tegart: No, certainly not to the ministry specifically. But we have been informed by a number of people that there is a possibility of a conflict of interest. These people would like to stay anonymous. I think it’s an appropriate request that this examination happen by the Auditor General.

P. Milobar (Chair): Yeah, it’s unfolding, and that’s why we are aware that some government ministers are aware of concerns and have done nothing, frankly, about this.

We were kind of scratching our heads on how best to advance this. The only person that we figure has the actual legislative authority to actually dig into this properly would be the Auditor General. That’s why it’s in front of us here: to try to shine a light on it both for the public interest but also to try to get some direction taken on the program to make sure that what we’ve heard is or is not actually taking place.

Any other discussion?

S. Chant: I’m a little concerned that the Auditor General probably has a work plan set out for this year. As an independent officer, my understanding is that the Auditor General determines where they’re going to focus and, as my colleague to my right indicated, that if it’s brought forward by an individual, then that’s one thing, but as a committee, we’re maybe overstepping our boundaries by asking for a specific focus.

I just wanted to express that concern.

[8:50 p.m.]

P. Milobar (Chair): Fair enough. My understanding is we’re not overstepping our boundaries. In fact, these are the exact boundaries that we do have as a committee. One of the tasks that we’re charged with is to take these types of steps, as we tried last year, I believe it was, with a different audit around Lytton. In this case, this one is much more clean-cut in terms of…. It is 100 percent a provincial government program administered and funded through the provincial government and their various ministries. So that’s why we feel it’s appropriate that we’re completely in the purview of this.

To be clear, I would have brought this motion forward. Jackie is helping me out because I can’t as the chair and with Karin not here this evening as well. That’s why I’m willing to answer a few other questions as well as Jackie.

Any other questions?

Motion negatived.

P. Milobar (Chair): Okay. Any other new business?

Okay. Motion to adjourn.

Motion approved.

The committee adjourned at 8:51 p.m.