08/08/2013 02:41 EDT | Updated 10/08/2013 05:12 EDT

B.C. Surplus Recorded At $1.75 Billion, Deficit Math Wrong: Report

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VANCOUVER - Recently updated financial reporting rules have failed to convince the British Columbia government to bring its practices in line with standard accounting principles, despite the auditor general's claim the province's most recent financial report was off by nearly $3 billion and the government should have reported a surplus, not a deficit, the auditor said Thursday.

Auditor general Russ Jones released a report offering a detailed explanation of an earlier finding, issued last month, that concluded B.C. actually ran a $1.75-billion surplus in 2012-13, rather than a deficit of more than $1 billion. The discrepancy doesn't mean the province has any additional money, but rather, it relates to how and when revenue for capital spending is accounted for.

But B.C's finance minister insists the issue is merely a difference of opinion among accountants.

The discrepancy has to do with how the province accounts for transfers from other governments, primarily Ottawa, and funding from non-government sources, such as donations to universities, when that revenue is used to build capital projects such as buildings, roads and bridges.

Currently, the province defers such revenue and spreads it out over the lifetime of a project. For example, if the federal government provided $4 million to build a new bridge that was expected to last for 40 years, the province would record $100,000 of that funding every year for four decades, rather than accounting for it in the fiscal year in which the bridge was built.

The auditor general argues new accounting rules, introduced in 2012, require such revenue be accounted for when it is received and spent — in other words, once a project is built, all of the funding should be on the books.

The province released its 2012-2013 summary financial statements late last month, offering the final public accounting for the fiscal year. It reported a deficit of $1.146 billion.

Jones released a report at the same time that said if the government had used his numbers, the province would instead have had a surplus of $1.7 billion.

The debate is over how to interpret the new rules, known as public-sector accounting standards. Jones insists his interpretation is the correct one.

"That's not only our opinion, that's the opinion of the six major (auditing) firms here in the province," Jones said in an interview.

"The new standard is supposed to provide better accountability and more transparency."

Finance Minister Mike De Jong said it would have be difficult to explain to the public why the province had suddenly posted a mysterious surplus, especially when, in practical terms, the province has been operating in the red.

"The upshot of what the auditor general is saying is that I would have appeared a few weeks ago and revealed, somewhat surprisingly to the world, that British Columbia had a $2-billion surplus," said de Jong.

"If anyone has an interest in announcing that the budget has been moved into surplus, it's me. Based on all the available advice, information and analysis, it would have been irresponsible for me to do that."

Last month, Jones reviewed the summary financial statements and included three qualifications, something he described as a "rare" step to indicate his opinion that the government's statements didn't meet generally accepted accounting principles.

The auditor's report Thursday said such qualifications in the private sector could trigger credit downgrades or hurt a company's stock price.

"According to the public-sector accounting standards of the Chartered Professional Accountants Canada, 'governments are held to a higher standard of accountability than a business or a not-for-profit organization,'" says Thursday's report.

"However, this does not seem to be the case in British Columbia, where the accountability for not complying with (generally accepted accounting principles) appears to have had little impact on government."

De Jong downplayed the dispute with the auditor general, suggesting the best way to record government finances is still a subject of debate.

He described it as "a difference of opinion between two accounting professionals that is indicative of a larger difference of opinion that seems to exist within the accounting profession."

Jones' assessment of the latest financial statements marks his first major report since becoming auditor general.

Jones replaced John Doyle, who left the position earlier this year after a legislative committee failed to unanimously agree to rehire him after his term was finished.

Doyle's departure prompted accusations the Liberal government was attempting to silence a vocal critic and prompted the introduction of eight-year, single-term limits for future auditors general, including Jones.

Despite the fact that his latest report is clearly at odds with the government, Jones said he has so far had a productive relationship with the province and the comptroller general's office.

"I would say we're interrelating with each other in a very professional matter," said Jones.

"We continue to have monthly meetings and we're making progress. This one, it's definitely a difference of opinion and will probably stay a difference of opinion for a bit of time."

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