God bless Merwan Saher, Alberta’s Auditor General! He grabbed the government by the scruff of the neck and gave it a shake for dragging us into the abyss of “Enron” accounting. Sadly, the government refuses to budge and opaque financial reporting will continue.
Merwan Saher has been a government auditor for 33 years. He was promoted to Auditor General in 2010. It’s his job to audit every ministry, department, fund and agency in the province. He’s like E. F. Hutton—when he talks; people listen.
The Auditor General took a dim view of the government’s decision to change how it would present Alberta’s financial results saying that the new format makes it difficult for Albertans to hold the government accountable for its spending*.
This is an E. F. Hutton moment—Albertans need to sit up and take notice.
How bad is it, really?
Think Enron. I’m serious.
Enron’s collapse was the result of corporate greed, overly complex financial structures and confusing and misleading financial reporting that allowed Enron executives to hid billions of dollars of debt. Analysts and shareholders had no idea what was going on until Enron imploded.
Fast forward 13 years to the Auditor General who pored over Mr Horner’s financial statements and said “I can tell you, the very best minds in this office have found it challenging”.**
The “challenge” (audit-speak for “a complete and utter mess”) arises because the government passed a law allowing it to carve up the budget into three pieces, an operating budget, a capital budget and a savings budget.***
With a stroke of the legislative pen, Finance Minister Horner has the power to turn straw into gold—under the new law the $114 million deficit for 2011-12 would have been reported as a $2.5 billion surplus.
Mr Saher says, with typical understatement, “The difference between these two ways of looking at life is substantial”. No kidding! Without actually tallying up the pluses and minuses the auditors (let alone we little people) can’t tell whether the province rich or hanging by a thread.
Finance minister Horner justifies this move to greater opacity by saying that’s how corporations do it. Really???
In for a penny, in for a pound
Securities regulators are constantly passing regulations to enhance transparency. For example, corporations must use a consistent set of financial reporting methodologies so that shareholders can compare the company’s financial performance year over year. And if a corporation decides to change its methodology mid-year it must set out a reconciliation table so that shareholders can see how the corporation performed year over year—no hiding in the weeds of accounting bafflegab.
Finance Minister Horner had an opportunity to make his new methodology transparent by including a reconciliation table in his financial statements. He chose not to do so.
When the Auditor General pointed out that a comparison between last year’s budget and this year’s budgets would be difficult to understand, let alone explain, Mr Horner agreed to provide a reconciliation table—next year. The one year delay troubled the Auditor General and is of great concern at a time when the government is slashing public services on the basis of tough economic times.
So yes, corporations split out their operating and capital budgets, but they provide a trail of bread crumbs to get their shareholders from A to B. If Finance Minister Horner wishes to model his financial reporting after corporate financial reporting, he must adopt all of the corporate disclosure protocols, not just the ones that suit his fancy at a particular point in time. Sorry Minister—in for a penny, in for a pound.
Have we learned nothing from Enron?
After the collapse of Enron it took the SEC eight months to pass legislation to protect shareholders and employees from the perfidy of Big Corp CEOs and CFOs by requiring increased transparency and accountability.
After Alberta’s “bitumen bubble” blew a hole in Ms Redford’s rosy fiscal forecast, it took the Alberta government two months to pass legislation making it legal for the government to abandon the financial reporting standards of Peter Lougheed and replace them with the financial reporting standards of Alison Redford, resulting in the ludicrous situation where it’s unclear whether Alberta is sitting on a deficit of $114 million or a surplus of $2.5 billion!
It took the Auditor General just two months to cull through reams of paper which were “exponentially more complicated”** than they were last year to figure out that something has gone horribly wrong with Alberta’s financial reporting.
The Auditor General has the last word
The Auditor General Report contains many brilliant statements. Here’s my favourite: “Government accountability allows Albertans to decide whether the government is doing a good job. They can compare the costs and benefits of government action: what it spends, what it tries to do…and what it achieves…”
If the government sees fit to pass legislation that prevents its citizens from comparing actual and budgeted financial results, its citizens would be justified in concluding that the government has decided it will no long be held accountable for its financial management.
Such a government has lost the right to govern.
*Report of the Auditor General July 2013
**Calgary Herald, July 11, 2013, A14
***Fiscal Management Act
Susan on the Soapbox 
The government is NOT a corporation (is it?), it isn’t run like a corporation (even if they have “profit centres” and “clients”) nor should it!
I would hazard a guess that there are a few billion dollars set aside for something really “special”. There has NEVER been a shortage of money for political gain so lets wait for it.
I’m sorry if I’m being a bit negative here but I am really not happy/pleased about this AND nobody that should care, cares!
You’re absolutely right, the government is not a corporation, nor should it try to operate like one. Citizens, unlike shareholders, are captive to their governments—at least for the 4 years between election cycles. They cannot replace inept cabinet ministers at Annual General Meetings, let alone win a seat on the board. Consequently they have absolutely no impact on how the government carries out its strategy. Like a passenger on the Titanic we’re simply along for the ride. I’m glad you’re passionate about this…I wish more people were!
I have always believed people, companies and government need to “walk the talk”. Our provincial government appears to have established a set of rules, procedures and explanations that only it can follow…anyone else attempting this sort of fiscal skullduggery would be hauled before a tribunal and be sent away to keep Mr. Skillings company. This notion of “Do as I say, not as I do” just exacerbates the increasing loss of trust and respect our citizenry has for the provincial government. But we can’t give up and let it continue as if we don’t care. Given this government talks about acting more like private business, it is a shame we can’t use the same legal remedies as if it were private company. However, we can, should and must exercise our right to vote for a government that we have confidence in and one that equally has confidence in us by telling us the truth.
Ah yes, wouldn’t it be lovely if we had a government that treated Albertans like mature adults instead of sliding around the corners of the truth with “explanations” like the mythical bitumen bubble. The Auditor General’s Report issued a crystal clear warning to Albertans: this government is paying lip service to transparency and accountability while at the same time passing legislation that allows it to be even more opaque than ever. What I want to know is this: if the old accounting/financial reporting system was good enough for Peter Lougheed, why isn’t it good enough for Alison Redford? Could it be she has something to hide?
“Bafflegab” – new favourite word. Great post, as always!
Thanks Dani…isn’t it interesting that we all know what “bafflegab” means in relation to Mr Horner’s budget, but the brightest and best minds in the Auditor General’s office can’t make heads nor tails of it. And they wonder why voters are cynical!!
Nice work!
Talk about sleight-of-hand accounting… perhaps we should be changing the good minister’s title: “The Great Horndini?” (Do we still have to call him “Honourable” ?)
Of course the real picture is deeper and more disturbing. Consider that Saher had no choice but to work with the numbers provided i.e., without full-cost accounting that would include so-called “externalities.”
Econ-speak for offloads, “externalities” are the very real but unaccounted costs that are conveniently ignored in the immediate accounting—but in actuality are deferred to victims and future generations. These offloads include everything from decaying public assets (resources, infrastructure, etc.) to pollutions, and general health and wellbeing of Albertans, our communities, and our physical and economic environment.
We all pay, of course — victims with their lives and livelihoods, all of us for costs of healthcare, cleanup, loss of public systems assets, and so on — thus subsidizing the parties responsible.
But hey… don’t be negative. A wave of Minister Horndini’s magic pen, and PRESTO: Problem deferred! (Prosperity offloaded… to various invisible accounts in the Caymans, etc., but don’t tell anyone.)
Darrel, great point. I’m accustomed to thinking about the cost of “externalities” in the private sector context, for example, T shirt companies can sell their products cheaply in North America because they are manufactured in Bangladesh which has lower or non-existent health and safety standards, a lower standard of living (hence lower wages) and no unions. I hadn’t given much thought to this from a government perspective. Thanks for providing a fresh perspective…and welcome to the Soapbox.
Sorry folks, I have nothing left to say as I didnt think it would ever get to financial fuzzifying. I have only one more comment on this “hold onto your hats, you are in for the ride of your life”
“financial fuzzifying”…a perfect description! Thanks Tom.
All the nice words about this government’s competency have already been said and I do not like repetitions. To me Roy’s ‘….anyone else attempting this sort of fiscal skullduggery would be hauled before a tribunal and be sent away to keep Mr. Skillings company.’ says it all.
Somehow this does not happen. Governments allied with the most powerful companies and elites in the country chose whatever is beneficial to their idealogical objectives. Most people now running for public office are political psycopaths and so the situation is getting disturbing.
We may have fun with blogs and nice articles but many people are paying the price for this lack of competency and respect for the public good and the levels of frustration are growing as well as financial difficulties. The results of that are obvious to anyone except to the psycopaths that do not have the natural ability to empathize.
The concept of ‘The World does not have a society’ first invented by brilliant Margaret Tathtcher to the news today that an Italian MP called an African doctor someone that reminded him of an Orangutang and all the stories in between, are without a doubt going through a political, moral and ethical crisis.
I will end this by saying that my Dad use to tell me that when people get older one thing happens for sure – they become more conservative. It was one of the things he was not right for our era. I am more radicalized than ever. I am disgusted with what I am witnessing. Despite Canada and in this case Alberta being one of the richest places on Earth we are corrupt, unethical and even with one of the best judicial systems in the world, our governments fail to respect the law that applies to all other citizens.
What are we waiting for? AUPE is now putting quite a bit of pressure on the government with their Education Campaign and I am sure we can find a way to help along.
For those of you that do not know visit http://www.albertapostsecondary.com and participate.
It is a mess in Alberta isn’t it?
I think it will improve slowly.
I think that if we are all willing to be patient until this Titanic hits the iceberg of the next provincial election, things will get better.
The only bright side to the dumb decision of citizens like myself to rehire the Tories in the last election is that we have finally woken up from the sleep of forty years (at least I have).
From arrogant acts such as the non-transparent budget given to us–I have learned a great deal about the corruption of democracy in Alberta. In fact I’m quite shattered in terms of illusions—- from the all the lessons provided by Redford and crew, Harper and crew and Mandel and crew.
I know these lessons provided by the Alberta government have impacted folks quite a bit and caused suffering.
I only hope that the lessons will remain in our heads in the next election and we’re not stampeded into voting for the even worse Wildrosies.
I can never understand why we think that the National Energy Program was a bad thing when we have daily proof that the Tories worse than any other political party could ever be.
The Tories are very poor fiscal managers. I mean can the Liberals and NDP be any worse than this group of lazy politicians who do not represent citizens?
The Heritage Trust Fund is emptied, the federal debt carried by each citizen increases and yet we are to believe that the Tories —at all levels—are wonderful fiscal managers.
We really need to go left in Alberta but what with the great propaganda machine of the Tories and the provincial Synergy groups flourishing at taxpayer expense— plus that Action Plan program at the federal level also paid out of the public purse, I feel it is doubtful that ordinary citizens will wake up.
We are being scammed and getting poor returns on our non-renewable resources and yet folks continue to believe these folks in government; it’s a real mystery to me and I can only think that they are either benefiting from the Tories in government or they are true believers (indoctrinated).
The failure to get the right royalty rate of our bitumen is a scandal.
All the oil companies are making profits like crazy and we can’t pay for our public services. But we are to believe that we deserve to give away our resources.
Soon we will just let them squat on the land and frack it all for free.
Our water will be used up.
Our lands will be polluted.
And when will those tailings ponds be cleaned up? I’m guessing never.
Our grandbabies will pay for whatever toxic clean up is possible and big oil will ship out as soon as the money is made.
But there you go. We have government we deserve.
We have an oil industry front party that we–ourselves elected— and we have only ourselves to blame for this situation.
Next time, let us do better.
It is a sad state of affairs.
The obscure and laughable budget is just one of many arrogant acts of a government that simply doesn’t give a darn about citizens.
Julie, you and Carlos raise some interesting and perplexing points with respect to the electorate. Why do we believe what the politicians tell us, especially when they’re running for office? Redford made a number of promises, including increased transparency, but the minute the economy failed to live up to her overblown promises of wealth and prosperity (surprise surprise) she enacted the Fiscal Management Act to obscure the mess the PCs had made of the economy and to make it even more difficult for Albertans to figure out what was happening to their tax dollars.
I think Julie is right, many of the electorate who voted PC in the last election won’t make that mistake again. The big question is which way will they swing? To the Wildrose or a progressive party? If it’s a progressive party, will the fragmentation of the Liberals, the NDP, the Greens and the Alberta Party undercut any progressive candidate’s chances to actually win a seat. (I’m with Carlos, I don’t really care what the party name is, I just want someone in the Legislature who truly cares about Albertans, not Big Oil, to be at the helm for a change).
Finally, I like Julie’s message of hope…we have learned our lesson and it will get better, we need to stay the course and make it so.
Thank you both.
Julie you are absolutely right. I do not believe that any party deserves our full support until they show us what their real policies are. I personally do not care if they are Liberals or Tories or whatever. To me the important thing is that they represent citizens and love our country and provinces rather than oil companies and foreign interests and their bank accounts.
This is happening around the democratic world and it is a clear failure of the democratic process versus human greed. These people do not care what you and I think because they believe that they are doing the right thing, which is favoring their friends in high places who in turn compensate them in many different forms.
Great post Julie – thank you. We do have the government we deserve. Most people do not care about it and so this is the result. I find it appaling that a respected auditor tells them this is not the way to go and they simple respond with ‘tough luck’ meaning this is the way we get ahead and talk a walk. We keep reelecting them.
Talk about becoming a radical – here is a very good article worth your time
http://thetyee.ca/Opinion/2013/07/15/Extreme-Capitalism-Crisis/
Carlos, the Extreme Capitalism article was excellent. I’ve noticed more and more articles in the mainstream and not-quite-mainstream press which conclude that the existing system cannot continue and that there will be “domestic resistance”. The connection to the whistle-blower Edward Snowden at the end was interesting. If I were an extreme capitalist I wouldn’t take much comfort in the thought that the massive invasion of privacy and violation of civil liberties exposed by Edward Snowden would protect extreme capitalists from the wrath of a population who’s had enough.
Another comment that caught my attention was this: “For years many assumed that the smart people who ran the system and benefited from it would find a practical way to fix it.” This blind faith in the “smartest guys in the room” is lunacy. We’ve seen their economic models and investment constructs crash and burn too many times to believe that someday someone somewhere will find a way to right the ship. Hello Titanic.
Yes that comment is quite interesting and honestly these people have access to example after example in history and they know that sooner or later there is NO MORE and the consequences are drastic. People are resentful and we all know what happens. We are witnessing it right now in Egypt, Brazil …etc. Even our brilliant prime minister has lost control of his troops and is unravelling. Everyday is a mini scandal now. Cirque du Soleil should change the name to Cirque du Harper.
It is to the point where soon Jean Chretien’s main show before the fall of the last Liberal era is just light entertainment compared to this.
This kind of behaviour is now daily – give me a baseball bat please 🙂
http://ca.news.yahoo.com/blogs/canada-politics/pmo-withholding-wright-duffy-email-rcmp-report-150036865.html
We are now descending into a true Banana Republic – what an amazing display of disrespect for the law and citizens.
Agreed! I’m glad to see that the police and the press have not let go of this one, even in the wake of Harper’s cabinet shuffle, a momentary distraction…let’s keep our eyes on the ball, because it’s really really important! Thanks Carlos.
I keep my eyes on the ball believe me. Actually the way things are going here and in the US, I think that there are way more CSIS people keeping their eyes on this blog as well. LOL
🙂 🙂 🙂
Carlos, that was priceless! Thank you! 🙂
The Tyee – Oh, To Be a Harper Enemy The Tyee July 17, 2013 By Steve Burgess
With a nod to Nixon, the PM proves that you’re nobody in politics ’til somebody hates you.
http://thetyee.ca/Opinion/2013/07/17/Stephen-Harper-Enemy/
This blew me away…if we ever needed proof that the PM is a paranoid nutcase, this was it! Thanks Carol!