Auditor general to review government investments

Canada’s auditor general will investigate the Yukon government’s $36.5-million investment in asset-backed commercial paper.

Canada’s auditor general will investigate the Yukon government’s $36.5-million investment in asset-backed commercial paper.

An investigation is needed “in light of the significant amount of the investment,” wrote auditor general Sheila Fraser in a letter to Liberal leader Arthur Mitchell.

Mitchell requested a probe into the matter, believing the government had breached the Financial Administration Act.

It states investments must be guaranteed by a government, a bank, or receive the highest investment rating by at least two security-rating institutions.

The trusts were not guaranteed by any government and have not been covered by the liquidity agreement with the bank.

And only one agency, Dominion Bond Rating Service, rated the trusts.

“The letter means that the auditor general feels that this issue is one that warrants her attention,” said Mitchell on Tuesday.

“We’re pleased because we feel she will help provide some clarity over this issue.”

“The auditor general is fully cognizant of the government’s investment policy,” acting Finance Minister Elaine Taylor told the legislature last week.

“And (Fraser) was advised in detail of the third party asset-backed investments as well as the proposed restructuring.

“In her opinion, the transactions of the government that have come to her notice have in all significant respects been in accordance with the Financial Administration Act.”

Fraser’s office signed off on the accounts for the fiscal year ending March 31. This was well before the investments were made in July and August.

The auditor general will report her latest findings in a separate report to the Yukon Legislative Assembly in early 2008.

The public accounts committee may also investigate the investments, said Mitchell.

“The more oversight that there is on this issue, the better the chances for the public to get a full understanding.”

The seven members of the committee will look into the asset-backed loans as well as the government’s investments as a whole, he said.

Since the international crisis in these investments, potential buyers of the frozen commercial paper have been only offering 50 cents on the dollar.

On Monday, National Bank announced it would take a $575-million hit after revaluing its paper. The bank bought back all investments it issued under $2 million.

So far, this is the biggest writedown among Canadian banks.

The Yukon government invested in two separate trusts, Opus and Symphony, which are both created by Newshore Capital Group, a third party investment firm.

The trusts were supposed to mature in August and September, but were frozen when the market crashed on August 13.

A consortium of banks, asset providers and investors are currently negotiating a new maturity date for the frozen investments.

The once short-term commercial paper could be restructured to pay out in five to 10 years.

A final decision will be reached by December 14, the government has been told.

Even if the government is able to retrieve all of its money, Mitchell will continue to push for an investigation of the government’s investment policies.

“The issue is not if we get paid back in full — if we get lucky or not,” said Mitchell.

“It’s like drinking and driving, its wrong even if you don’t get into an accident.”