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Parts of B.C.’s financial statements are inaccurate, auditor general says

Michael Pickup issued ‘unusual’ qualified opinion on three areas of the financial statements
B.C. Auditor General Michael Pickup issued a qualified opinion indicating that parts of government’s financial statements are not accurate. (Office of the Auditor General photo)

This article has been updated with response from the Ministry of Finance.

B.C.’s Auditor General Michael Pickup has issued a qualified opinion that parts of the government’s financial statements are not accurate.

In a news release, the Office of the Auditor General said a qualified opinion is “unusual” and should not be taken lightly. The opinion comes just one day after the government revealed a $1.3 billion budget surplus despite a forecasted $10 billion deficit.

“When auditors issue a qualified opinion, they are usually warning the users of those statements about information they should not rely on. Qualifications, like the ones in this report, represent errors or omissions the auditor considers so significant that, if uncorrected, might mislead a financial statement user.”

Pickup identified three “departures” from generally accepted accounting principles in the government’s summary financial statements.

The first is B.C.’s treatment of payments from other government and non-government sources. Pickup said that Canadian Public Sector Accounting Standards outline that such payments should be recorded as revenue, but B.C. records them as deferred revenue or liabilities.

“If the financial statements had followed this standard, the surplus would have been $6.48 billion higher, while liabilities would have been lower by the same amount.”

In response, the Ministry of Finance justified its accounting, saying deferring restricted contributions like federal funding is done by other provinces and better serves accountability to the public.

”The deferral of restricted grants means that if the federal government provided contributions to build a school, for example, the Province would build the school and use it as a school. Accounting requires us to amortize, or gradually write off, the value of that school over 40 years, reporting an expense in each of those 40 years the school is used. We recognize the federal contributions as revenue on the same basis,” the ministry said.

The second is that there are “incomplete disclosures” of agreements that commit the province to future expenditures.

“Government has chosen not to disclose many commitments less than $50 million, which omits information about significant future obligations. They also don’t disclose some larger future obligations, such as to the BC First Nations Gaming Revenue Sharing Limited Partnership.”

Pickup said the incomplete disclosures result in an understatement of contractual obligations of $708 million in 2023 and $315 million in 2014.

The third qualification is around errors in the accounting and disclosure related to the B.C. First Nations Gaming Revenue Sharing Agreement. Under the agreement, the government must pay seven per cent of the net income from the B.C. Lottery Corporation to the B.C. First Nations Gaming Revenue Sharing Limited Partnership every year. Pickup said the arrangement should be accounted for on a gross basis, meaning the net income from the BCLC that is recorded on the government’s statements should include all gaming revenues and the transfer of the seven per cent net income should be recorded as an expense in the government’s statements.

Neither the income nor the expense have been reflected in the statements.

“In my opinion, the government’s method of accounting lacks transparency. It does not accurately reflect how they’ve structured the agreement and the underlying transaction,” Pickup said. “A note in the statements calls the arrangement a ‘flow-through,’ but that is not an accurate description of the transaction.”

The result is a $91-million understatement of revenues and expenses on the government’s current statement of operations. The payments under this agreement are to be made each year for 23 years beginning in 2022. The auditor general reported that there is also a lack of disclosure on the government of British Columbia’s estimated $2 billion in contractual obligations to BC First Nations Gaming Revenue Sharing Limited Partnership.

In response, the ministry said the seven per cent figure is revenue that belongs to First Nations.

“The Province’s reported revenue does not include the First Nations’ portion because legally, it belongs to the Nations. This is consistent with generally accepted accounting principles,” the ministry said. “Our current disclosure includes all significant obligations that will result in future expense.”

Pickup will be holding a news conference at 11:30 a.m. on Thursday (Sept. 1) to answer questions from the media about the audit opinion.

READ MORE: B.C. posts $1.3B budget surplus for 2021-22, in contrast with big deficit forecast


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