Kim MacPherson slams Gallant government's financial accounting

New Brunswick's auditor general has issued a scathing critique of how the Gallant Liberals are accounting for public-sector pension plans, saying the provincialgovernment's math isn't credible and its 2014-15 deficit figure isn't accurate.

Kim MacPherson notes in her statement that it's the first time in 17 years that a New Brunswick auditorgeneral hasn't been able to deliver a "clean audit" of the provincialgovernment's public accounts.

The provincial government released its final public accounts for 2014-15 on Wednesday, showing a deficit of $388.6 million for the fiscal year.

But the auditor generalsays she can't give an unqualified audit of the numbers, including the deficit figure, because the accounting the provincial governmentis using is "not in compliance" with public-sector standards.

"The public should be concerned," she told CBC News.

In an explanatory document released to the media, MacPherson says a "qualified audit" means that "some of the information presented is either misleading or not auditable."

She calls the issue "more than a disagreement among accountants" and says "it brings into question the credibility of the numbers."

MacPherson says the $388.6-million deficit "would be different" if the provincial governmenthad done proper accounting of the pension plans. But it's impossible to say how different it would be without the provincial government giving her more information.

4 pension plans

There are four shared-risk public-sector pension plans in place in New Brunswick: for civil servants, for teachers, and for two groups of hospital employees, including nurses.

The provincial governmentis using "defined contribution" accounting, which means it shows how much money it is putting into the shared-risk pension fund this year.

Last year, the Progressive Conservativegovernment used "defined benefit" accounting, something MacPherson agreed to at the time.

Finance Minister Roger Melanson says the provincialgovernment is taking the advice of the Office of the Comptroller, the government's in-house accounting office.

"One of the goals [of switching to a shared-risk system] was to account for what was being spent in the pension plan," he said.

"That's exactly how we accounted for it. Every single dollar we spend in this new pension, we account for it. And we are accounting for it in the fiscal year it was spent."

The comptroller, Paul Martin, likened pension funds to a bank account.

He told reporters that once the provincial governmentputs its contribution into the fund, the fund's board manages the money and pays out benefits. That means the only point in time the province must account for the money is during the fiscal year it makes the contribution.

But MacPherson says that "constitutes a departure" from acceptable standards.

Exposure to financial risk

The provincial governmentis still exposed to financial risk because in some scenarios, it might have to make increased contributions "that cannot be considered limited or minor."

Those potential costs should be reflected as long-term liabilities in the books, MacPherson says, but the Liberal decision means they're not.

The $388.6-million deficit for 2014-15, in which the Progressive Conservatives governed for part of the year until they lost power to the Liberals, is $2.5 million less than what the PCs budgeted.

But it's also much higher than the $255-million deficit the Liberals were forecasting earlier this year in its third-quarter update.

Melanson says increasing spending kept the deficit high, despite unexpectedly higher revenue from federal tax transfers and NB Power profits.

The $301 million in extra spending was:

• $229 million for the shift to a new pension system for teachers, a figure the province hadn't calculated at the time of the third-quarter update.

• $20 million for infrastructure repairs because of two winter storms.

• $20 million for the value of roads transferred to the newly amalgamated regional municipality of Tracadie.

• $33 million that the PC government planned to cut from education when it released its budget but that it did not cut.

MacPherson says had the province used the proper accounting, the $229 million expense might have been less last year and the deficit would have been lower.

The amount represents what the government spent to pay off the liabilities in the previous teacher pension plan, a sum that would have been spread over several years under proper accounting rules, she said.

But over time, the government's decision will more likely conceal larger deficits because it will not reflect other pension liabilities.

The public accountsalso showaccelerated spending on infrastructure, part of the government's effort to stimulate the economy.

"It's creating some good conditions for the private sector being able to invest," Melanson said.

"If there's a return on investment, it's not an expenditure. It's an investment. If it's creating wealth, incremental wealth, we'll make that decision every day."

The provincial government's cumulative debt increased to $12.4 billion in 2014-15.

Melanson says his goal remains a surplus.

"Our first budget got us closer to that situation, and our second budget will get us even closer," he said.

"I want to be in a position where we have surpluses. I want to be in a situation where we can invest, long-term and strategically."

In last year's election, the Gallant Liberals promised a balanced budget in six years.