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Auditor General has 'reservations' about BC financial reporting

For the second year in a row, Auditor General John Doyle has reproved the provincial government with three "audit reservations" about the way Victoria reports its finances.

The 62-page report, available as a PDF on the Auditor General's website, says the government has not followed Generally Accepted Accounting Practices (GAAP) in three areas:

All three of this year’s reservations were also included as reservations last year. First, oil and natural gas producer’s royalty credits are inappropriately being netted from revenue rather than being reported as expenses.

Second, government is not recording liabilities for deep-well credits owed to oil and gas producers.

The third reservation is the improper consolidation into the Summary Financial Statements of the Transportation Investment Corporation (TIC).

Correct reporting on these issues, the Auditor General said, would have resulted in a 2009/2010 deficit "$73 million greater than the amount reported."

The report also mentioned the accounting practices of B.C. Hydro, the B.C. Transmission Corporation, and the Insurance Corporation of British Columbia. They used the "modified equity method of consolidation," resulting in B.C. Hydro holding "unamortized net regulatory assets" of $1.7 billion. "These regulatory assets are, in effect, expenses that have been deferred to future years."

The Auditor General praised the government for reducing its cash balances from $7.3 billion in 2009 to $2.9 billion this year. "Although an improvement, we note that there is still a large amount of cash and cash equivalents held in the education sector -- almost $1.3 billion at March 31, 2010."

Among other issues, the Auditor General recommended that the government publicize any changes made to the financial statements of prior years. Accounting for settlements with First Nations should also be "in accordance with Canadian GAAP."

He also warned that excluding the universities from the Summary Financial Statements "would be a departure from GAAP, and would result in a reservation in our audit opinion."

The report also pointed out potential problems with the government's goal of carbon neutrality:

To achieve carbon neutrality each year, government will need to be confident both in the emission figures reported by government ministries and organizations and in the quality of the carbon offsets purchased to apply against those emissions. If there are errors in the calculation of emissions, or if there are issues with the quality of carbon offsets acquired, government’s goal of carbon neutrality may not be achieved or may not be verifiable.

...Given the emerging nature of the market we view the procurement of carbon offsets to have inherent risks that necessitate a robust procurement process to ensure quality is sufficient. Over the next few years, our Office plans to conduct work to assess the risks with respect to both the reporting of emissions and the procurement of carbon offsets.

Crawford Kilian is a contributing editor of The Tyee.

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