Wayne Strelioff, CA
Auditor General of British Columbia
ICABC luncheon
Speaking notes – opportunities and challenges
October 22nd, 2002 in Vancouver
Thank you for those kind words of introduction. And, thank you for inviting me to talk to you today and answer your questions.
It is always a pleasure for me to meet with my professional colleagues as we share so many common interests particularly as those pertaining to a healthy profession, and a well-performing provincial public sector.
For all of us, the force of technological change shows no sign of abating – moving us to a global world full of greater interdependencies, competition, and expectations.
Both wonderful and daunting!
From the perspective of someone who is in the assurance providing business – we indeed live in interesting times!
Our stakeholders are becoming more demanding and impatient. They expect our help in ensuring a more meaningful opportunity to scrutinize and challenge decisions, decision making and decision makers.
In this environment, relevant cost and performance information is essential to public confidence in all forms of organisations including our institutions of government.
With these thoughts in mind, I plan to focus my comments today on what I believe represent three challenges, which translate into three opportunities to make a difference.
Each of these opportunities can strengthen public confidence in our institutions of government. Each opportunity is having a significant impact on the work and priorities of my office.
The first pertains to adopting a sound financial information framework so that the government’s financial story is told in a complete and clear manner. This opportunity presents itself because the government is required by law to adopt generally accepted accounting principles no later than April 2004.
The second opportunity relates to the growing demand for results-focused performance information - - information that focuses more on costs, results and alternatives and less on rules, compliance and the status quo.
This opportunity comes at the right time because finally there is consensus developing in Canada on guiding principles for performance reporting.
The third opportunity pertains to the government’s intention to underwrite an Olympic bid.
A challenging time to be in the assurance business and to be your Auditor General!
With me today is my colleague Peter Bourne. Peter helps lead our examination of the government’s overall financial results.
Also, at your table, you should have a pamphlet in which we set out key parts of today’s presentation.
Adopting and implementing generally accepted accounting principles within the government’s financial plan and annual financial statements represents a particularly important opportunity.
A complete accounting of financial results provides the foundation required by government managers to improve the quality of the cost and performance information they use and report publicly.
The foundation required by legislators to hold government accountable.
By law, such an accounting is to be put in place no later than April 2004.
As you might know, in my audit opinion on the government’s financial statements, I report those statements are significantly incomplete because they do not include the full financial results of the government’s health and education programs. For the year ended March 31st, 2002, for example, the annual deficit is overstated by some $225 million. Liabilities and assets are both understated.
The government agrees with my assessment.
As it moves to a full accounting, a significant opportunity emerges for government to strengthen the management discussion and analysis it provides in its annual financial report called the public accounts.
Currently, the analysis is incomplete and in my view very difficult to understand. The focus is on explaining transfers amongst government organisations and complex accounting adjustments. Many of these explanations are needed because a complete accounting is not provided in the first place.
As a result – unfortunately – less attention is given to explaining the government’s overall financial results in terms of trends and comparisons.
And, anyone trying to assess trends in education and health costs or in debt and deficits will find that task particularly difficult because the accounting information is so complex.
In our recent report titled ‘monitoring the government’s finances’, we set out a framework of financial information we think would enable a more informative discussion and analysis.
In the framework, we use the information provided in the government’s financial statements. However, we organise that information in a more complete and what we think is a more reader-friendly manner.
One of the reasons we set out this framework of financial information is to respond to a suggestion made at my meeting with you last year. At that luncheon meeting, I pointed out the complexity of the government’s financial statements. Someone suggested we provide a more understandable presentation. So, we did.
In our framework, we include a full accounting of health and education financial results. We show the total revenue, expenses, assets and liabilities of government. And, we distinguish between those activities of government financed by general revenues – general programs like education and health - from those activities financed by direct charges – government enterprises like BC Hydro and ICBC.
In the pamphlet provided to you today, we include three exhibits from our recent report that I find particularly useful.
In the first exhibit, we show overall trends in financial results for the past six years. We could not go back further because reliable and comparable information is just not available.
For those like me who look for more specific information, we do provide a more detailed display of this information in our report.
In the second exhibit, we show the province’s per capita gross domestic product and compare it with three other provinces and with Canada as a whole. Six years ago, our per capita GDP was right on the Canadian average, now it is well below the Canadian average.
In the third exhibit, we show the ratio of a government’s net liabilities and its gross domestic product. Net liabilities is a key measure of financial position and is about the only financial statement measure that can now be used to make comparisons with other Canadian jurisdictions in a reliable manner.
When combined with gross domestic product as we do in that exhibit, we can begin to assess the accumulated financial demand placed on the BC economy by government and compare that demand to other points in time and to other jurisdictions.
As you know, financial statements are complex and getting more so as standard setters, regulators, investors and other groups demand better and more disclosure.
As a result, large organisations including governments are using the management discussion and analysis part of their annual financial reports to tell their financial stories in a more clear, concise and reader-friendly way.
It is with this need and trend in mind that we recommend government consider using this framework of financial information. In our report on monitoring the finances, we use this framework of information to show the types of trends and comparisons the government could provide in its annual financial report.
Earlier this month, members of a legislative committee called the standing committee on public accounts supported my recommendation.
We have a limited supply of our reports here if you’d like one, or you can leave your business card and we can send you a copy. Or, you can obtain the complete version of our report by going to our web site, which is noted on the handout.
The second opportunity I want to bring to your attention relates to the growing demand for results-focused performance information.
On this front again, BC legislators have taken a significant leadership position by directing government:
With this direction put into law and with a more active system of standing committees in place, our elected representatives have set the stage for what I believe can be a significant advancement in public sector management and accountability practice.
I support these measures fully and whole heartedly.
Now, no doubt many of you have heard similar best intentions before. I certainly have!
What is different this time I think is that progress is taking place at the same time consensus is emerging across Canada on guiding principles for public performance reporting.
The consensus building has been led by the CCAF, a national research and education foundation previously known as the Canadian Comprehensive Auditing Foundation.
Many of you are likely familiar with the work of the Foundation, its core interest centres on the role that information plays in a variety of public sector governance, accountability, management and assurance settings.
A robust, cohesive set of reporting principles has been under development for several years.
The proposed principles have gone through much consultation with elected officials, management groups, and auditors. The proposal consists of nine principles that I think provide a firm foundation on which to build on in a sustainable manner. These are listed in your handout.
In following the principles, an organization would:
A working draft is circulating amongst those leading public sector performance reporting in each jurisdiction of Canada.
Discussions are also being held by the CICA’s public sector accounting board on how best to begin the arduous, long-term work of moving to more formal guidance and standards.
Recently, we used this framework of principles to guide our examination of the annual performance report of the Public Guardian Trustee. This was the first time we opined on a complete performance report.
We are also working with government officials to develop consensus as to how to apply the CCAF’s principles as part of the performance management and accountability expectations across the BC public sector.
We plan to discuss this development with legislators later this year in the context of our assessment of the quality of the most recent annual performance reports of government.
I also want you to know that providing assurance on the quality of performance information is a priority of all Canadian auditors general.
During the past year, we have been working on a simultaneous examination of a health indicator report required to be prepared by each province and the federal government.
The reports, which were published on September 30th, include fourteen groups of 67 health indicators covering a wide range of significant issues such as survival rates for breast and prostrate cancer, waiting times for cardiac surgery, and patient satisfaction levels.
Each of these health indicator reports includes a statement from the Auditor General of the related jurisdiction advising Canadians and their elected representatives on the consistency and accuracy of the health indicator information reported by their governments.
This is the first time that the Canadian legislative audit community has carried out simultaneous examinations.
This development and other planned work will make it more likely that our governments use sound performance information when making decisions and when reporting on the performance of our health system.
Our work on the accounting front I discussed earlier is a companion effort intended to ensure rigorous program cost information is maintained and is then linked to results achieved. Much work is required on both of these fronts.
As I noted, the proposed principles for performance reporting include explaining key risks, the levels of risk accepted and the impact on decisions. While practice develops on how best to report on risk management in the public sector, our Office continues to examine directly risk management practices of government.
Since I met with you last year, we completed work on and, in most cases, have already held discussions with legislators on how government manages risks related to:
Current examinations pertain to:
Our current work on risk management also includes the government’s announcement that it will underwrite an Olympic bid.
Next July, the IOC decides on the winning bid for the 2010 Winter Olympic Games.
At the invitation of the Bid Corporation and with the support of government, we decided to step forward in our role as the auditor of public money.
We do not intend to judge the merits of the bid to host the Olympics, but we do want to seek assurance that the major financial obligations being agreed to – and to be borne by taxpayers – are fully disclosed.
Hosting these Games would be a significant financial undertaking for our province. To date, the provincial government has committed to:
Some of these costs will be borne in partnership with the federal government.
The work we are doing right now has two general themes.
First, we are examining the reasonableness of the Bid Corporation’s estimate to stage the Games.
Second, we are examining the reasonableness of the provincial government’s estimate of its overall financial undertaking.
This work leads us to more specific issues, such as:
We plan to release our findings in a public report this Spring.
Taking on this examination moves us closer to real time examinations.
Currently, we are doing our work and bringing issues to the attention of officials of the Bid Corporation and of government so that those issues are addressed in real time. Our hope is that all significant issues will be addressed in the preparation of the Bid and in determining the overall provincial financial undertaking.
We are using a strong group of people within our office and have hired outside expertise to help us assess such issues as the projected economic benefits associated with hosting the Games.
In addition, we are making good use of the work done by our Australian colleagues in the Office of the Auditor General of New South Wales. That Office has done much good work on the Sydney Olympics and is providing us with their perspective on what to do and what to look out for.
I think the key contribution we will make relates to the due diligence carried out and the adequacy of public disclosure by government of the total financial undertaking.
It would be great if we could report publicly earlier but we need a final Bid before we can complete our work. And, the final Bid is not in place until early January.
We live in interesting times!!
Much is going on. I have described three of the more significant opportunities and challenges that I think you might find particularly interesting:
I thank you for taking time out of your busy schedules to attend today’s luncheon. I appreciate your interest and support. Now, if you have questions, I will try to answer them.
