Num­bers don’t add up

Be­ware watch­dogs who swal­low up bil­lions

The Hamilton Spectator - - COMMENT - Martin Regg Cohn’s po­lit­i­cal column ap­pears in Torstar news­pa­pers. MARTIN REGG COHN

An au­di­tor gen­eral is a pil­lar of democ­racy and ac­count­abil­ity. Across Canada they are cult he­roes, call­ing out in­com­pe­tence and cor­rup­tion in gov­ern­ment.

But even a watchdog can lose the scent — and bark up the wrong tree. Or worse, miss the fis­cal for­est for the trees.

For the job re­quires not just in­de­pen­dence but con­text. To be truly cred­i­ble, an au­di­tor gen­eral must fear­lessly ex­pose gov­ern­ment boon­dog­gles but also fess up to her blun­ders.

On­tario’s au­di­tor gen­eral, Bon­nie Lysyk, has been call­ing out gov­ern­ment waste and wrong­do­ing for years. But she is get­ting bogged down in bat­tles that stray from gen­er­ally ac­cepted ac­count­ing prin­ci­ples, wan­der­ing into un­charted ter­ri­tory and mak­ing it up as she goes along.

Now, she has been caught out in a $10.7-bil­lion mis­cal­cu­la­tion.

This is not an ar­cane ac­count­ing exercise. If the au­di­tor re­fuses to re­vise her opin­ion, it could po­ten­tially raise our bor­row­ing costs at the ex­pense of all tax­pay­ers.

In an un­prece­dented re­buke, an out­side panel of in­de­pen­dent ex­perts — top spe­cial­ists in ac­count­ing, ac­tu­ar­ial and pen­sion stan­dards — re­viewed the au­di­tor’s work and found it want­ing. Their ver­dict, re­leased Mon­day, is that she was dead wrong to de­mand the gov­ern­ment deduct all those bil­lions from the books.

Lysyk’s lack of dili­gence — now over­due — is a damn­ing in­dict­ment of an au­di­tor gone awry.

Her mis­take was to con­clude that the gov­ern­ment’s share of on­go­ing sur­pluses in two jointly spon­sored pub­lic pen­sion plans could never be counted as bud­getary as­sets. She ar­gued that any pen­sion deficit would, of course, count as a li­a­bil­ity on the gov­ern­ment’s books but not the re­verse.

This was a 180-de­gree re­ver­sal of the pre­vi­ous au­di­tor’s rul­ing in 2002 that the Pro­gres­sive Con­ser­va­tive gov­ern­ment of the day could count any sur­plus as an as­set. Oddly, Lysyk dropped her multi­bil­lion-dol­lar bomb ahead of the spring bud­get dead­line, set by the Lib­er­als long ago to elim­i­nate the deficit — putting them in an aw­fully awkward spot with a 2018 elec­tion loom­ing.

It’s dif­fi­cult for any sit­ting gov­ern­ment to take on an au­di­tor’s god­like sta­tus di­rectly, so the Lib­er­als as­sem­bled a four-mem­ber out­side panel of unim­peach­able ex­per­tise. It is led by Tri­cia O’Mal­ley, a mem­ber of both the Cana­dian Ac­count­ing Stan­dards Over­sight Coun­cil and Cana­dian Ac­tu­ar­ial Stan­dards Over­sight Coun­cil (which she for­merly chaired).

Her panel re­viewed Lysyk’s anal­y­sis, con­sid­ered the counter-ar­gu­ments of civil ser­vants, and reached its own con­clu­sion: Of course a sur­plus counts as an as­set.

Not be­cause the gov­ern­ment can plun­der a pen­sion fund at will — it can’t. But a sur­plus gives an em­ployer the op­tion to re­duce its con­tri­bu­tions in fu­ture years — pro­vided there’s enough money to go around (bear­ing in mind that gov­ern­ments don’t go out of busi­ness, so there is no real risk of pen­sion de­ple­tion).

Not count­ing that sur­plus as an as­set would be a dis­tor­tion of the gov­ern­ment’s true fi­nan­cial pic­ture, the panel con­cluded. Ex­perts at OPTrust, one of the joint pen­sion plans with a sur­plus, reached a sim­i­lar con­clu­sion last week. Yet Lysyk is stick­ing to her stance — so far. On Mon­day, her of­fice an­nounced she wouldn’t make any com­ment un­til fur­ther no­tice. Yet she has been sit­ting on their re­port for more than two weeks, and re­ceived an ad­vance brief­ing from the pan­el­lists.

When I con­tacted Lysyk for a column last week on the panel’s find­ings, she re­mained un­equiv­o­cal: “We did our home­work,” she in­sisted.

But she failed the real test. O’Mal­ley told re­porters Mon­day that her panel also did its home­work, and that the au­di­tor’s of­fice was caught off guard when more ex­ten­sive in­ter­na­tional ac­count­ing rules were brought to their at­ten­tion.

An au­di­tor gen­eral can en­joy god­like le­git­i­macy in Canada. But in­de­pen­dence isn’t in­fal­li­bil­ity — not when the num­bers don’t add up.

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