Despite accounting’s boring reputation, stories about it often end up as front page news.
We can thank Enron for that.
The latest is about how the Yukon received failing grades in “fiscal accountability” from the CD Howe Institute, one of Canada’s most prestigious think tanks. CD Howe ranked the quality of financial reporting for Canada’s 14 senior governments, the 10 provinces, three territories and federal government.
They looked at five major areas. On forecasting government spending, the Yukon ranked 14th out of 14 on both “bias” and “accuracy.” On forecasting revenues, 11th and 9th. In making it easy for citizens to match budget plans with what actually happened (known as the “public accounts” to accounting whizzes) the Yukon got an “F.” On reconciliations and explaining deviations, a “D.” And on timeliness of producing audited public accounts, they described all three territories as “conspicuously poor.”
What does all this mean? At the risk of putting readers to sleep (fortunately the Yukon News doesn’t do podcasts, so there’s no risk of someone slumping over the steering wheel and driving off the road), what CD Howe did was look at the difference between spending and revenue forecasts, and what actually happened. The “accuracy” grade is a measure of how close to the mark the forecasts were, while the “bias” one measured whether there was a systematic deviation.
In the Yukon’s case, our spending “bias” is towards large overruns, which we have seen in nine of the last 10 years. It’s likely to happen again this year, since no sooner had the ink dried on this fiscal year’s budget than it emerged that salary increases to public servants would tip the territory into deficit.
The point CD Howe is trying to make, adopting the report card shtick to attract more media attention, is that if citizens are to hold their governments accountable then they need accurate and timely financial information. This is difficult in the Yukon, as demonstrated by the swirling debate over how big our debt actually was when the hospital corporation and Yukon Energy announced plans to borrow millions of dollars; plans that didn’t show up in the budget numbers.
As technical stuff this is important, but it wouldn’t be so critical if we had a government we could trust.
Instead, Premier and Finance Minister Dennis Fentie has developed an impressive ability to obfuscate. His main tactic is the “scared squid” method of political communication. When threatened, he squirts out a cloud of confusing financial factoids and scuttles away to hide again. By the time reporters and citizens sort through accrual surpluses versus cash deficits, consolidated versus legal entity borrowing and surprise spending announcements that aren’t in the budget, the news cycle has moved on to the next story.
As a result, there are a bunch of important issues where the citizen is in the dark.
What is our $36 million of asset backed commercial paper really worth? When Yukonomist mentioned to a friend on Bay Street the Yukon government was still claiming it would get all its money back, he laughed uproariously.
We also just had the surreal spectacle of the annual budget debate, where everyone participating knew the supposed surplus of $2.9 million would never happen. Negotiations with the teachers and government employee unions were at an advanced stage and would entail millions of extra spending. Furthermore, some ministers were said to be telling aggrieved interest groups not to worry that their favourite projects weren’t in the budget; there were plans to do a supplementary budget later. So the budget plan was outdated and inaccurate even before tabled in the house.
It’s worth noting that if the CFO of a major Canadian corporation issued financial forecasts that did not include material information known at the time, they would probably be prosecuted.
Another topic is dependency on the federal government. According to Fentie in his latest budget speech in March, “we have a growing, diversified private-sector economy that, year by year, is supplanting the ‘old’ economy dependent upon federal transfer payments and government spending.” Yet his own department’s statistical reports show that the number of government jobs created from March 2004 to August 2009 was over 1,000, versus just 400 for the private sector.
Generally speaking, when you stop trusting your accountant you should get a new one. Since we can’t do that with our minister of Finance, at least as long as the rest of cabinet keeps backing him, we should insist on financial transparency.
Hiring an independent budget officer like they have in Ottawa and Washington would be the place to start.
Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s