Issues with internal auditing
Underestimating revenue by tens of millions limits provincial programs: auditor general
In his 2024 annual report, P.E.I.’S auditor general found issues with internal auditing, Fiona relief funding and revenue estimates.
Much of the province’s revenue comes from taxes, particularly the personal income, corporate income and sales taxes. While these streams make up about 40 per cent of P.E.I.’S income each year, the province has underestimated the totals by millions the last two years.
Darren Noonan, P.E.I.’S auditor general, says these “conservative budget estimates” lead to a reduction in services and programs because there appears to be less money available.
“Tax revenues were underestimated by $200 million in 2022-23 and $190 million in 2021-22. While we understand that the province uses the most recent federal projections to budget its tax revenues, these estimates have proven to be inaccurate,” Noonan said in the audit of the consolidated financial statements chapter from the report.
During a recent Saltwire interview, Noonan outlined the equation – which the province knows – for estimating revenues.
“It really shouldn’t be that difficult, I don’t think, to come up with a reasonable or a closer number. I think governments are cautious, and they tend to be conservative in their estimates,” he said. “The problem with being too cautious is you don’t budget for expenditures.”
The finance department releases numbers throughout the year on how spending and income match up to the budget.
These statements show the trend reaches back to the Liberal government years under Premier Wade Maclauchlan, with corporate taxes, in particular, being low-balled for six of the last seven years. At the same time, the tax base was growing at a historic rate.
NEW BUDGET
The 2024-2025 operating budget, which was released Feb. 29, however, appears to show a change.
The budget is making its way through the latest sitting of the legislature, but draft numbers show estimates for the three taxes Noonan mentioned are all higher than the previous year’s actual numbers. The opposite was true in the past.
The auditor general report was released the same day as the draft budget, so Noonan did not comment on this. But he did say during interviews the province had been working on a new budgeting process.
INTERNAL AUDIT
Noonan notes at one point in the report P.E.I. is the only provincial government without an internal auditor.
Hiring someone to do this could help the province look at how reliable the government’s financial information is, the effectiveness of programs and whether government operations are in line with laws and standards.
“The internal audit function could also help address some of the issues that have been identified in this report, specifically related to audit readiness, completeness of estimates and quality of information provided for audit,” the report said.
FIONA RELIEF
After post-tropical storm Fiona, P.E.I. needed tens of millions of dollars in federal aid, some of it through the disaster financial assistance arrangements program.
The province could have followed better practices with getting this money into their coffers, the report said.
Payment can take 12 months from the federal program, but P.E.I. should have been eligible for quarterly instalments because of the seriousness of damage, the report said.
“An advance payment was not requested by the province within the specified timeline. A lack of resources was cited as the reason why supporting documentation could not be submitted for an advance claim request in the 12 months following the storm.”
In addition, $3.8 million in “cleanup program spending” was not eligible for federal coverage because a program was set up wrong, the report said.
“The province had not required time logs as part of the claim submission process, which significantly reduced the amount of funding eligible through DFAA.”