By a miraculous coincidence the Auditor General’s report on the Kenney government’s first year in office landed smack in the middle of the American election.
Well, the election is over. Mr Biden won. Agriculture minister Devin Dreeshen can put away his MAGA hat and we can turn our attention back to where it belongs, on the Auditor General’s report which itemized over $1.6 billion (that’s billion) of accounting errors and highlighted Cabinet’s slack oversight of those responsible for implementing the government’s policies.
The purpose of an independent financial audit is to ensure the government is presenting a true and fair picture of its financial performance. Consequently, it is chilling to read this audit report which is peppered with the words “material misstatement” and “material error.”
That means it’s bad.
And it’s really, really bad in the Department of Energy (specifically its subsidiary the Alberta Petroleum Marketing Commission (APMC)) which is responsible for $1.5 billion of the material errors.
Here’s a taste of what went horribly wrong.
Before Mr Kenney was elected he swore he’d rip up the crude-by-rail contracts entered into by the Notley government. On Feb 11, 2020 he delivered on that promise with the triumphant announcement that his government had unloaded all 19 crude-by-rail contracts. One small problem: this was not true.
APMC unloaded (or “divested” to use the AG’s term) only eight contracts. Nevertheless, APMC booked the remaining 11 contracts as if they too had been divested. APMC’s rationale was the government “intended” to divest them, so it was ok. The AG said this is bad accounting practice because it didn’t reflect “economic reality.” Fair point, we thought the government’s bean counters were supposed to reflect reality, even if it’s not aligned with what the premier said.
In the business world, Mr Kenney’s announcement could be interpreted as a material misstatement and the APMC accounting entry reflecting Mr Kenney’s statement could be interpreted as a material misrepresentation, both of which could land the government, were it a corporation, in front of the securities regulators.
Keystone XL pipeline
On Mar 31, 2020 Mr Kenney proudly announced that like Justin Trudeau, he was buying a pipeline; okay, he didn’t mention Justin by name and he’s only buying part of a pipeline, temporarily, but you get my drift.
Mr Kenney said he’d finalized an agreement with TCPL (now TC Energy) for a $1.5B equity interest in the Keystone XL pipeline and $6B in loan guarantees. He didn’t mention that $100M of the equity investment was due that day.
For some reason APMC (and the Dept of Energy) saw no reason to disclose the $100M even though they were required and ultimately forced to do so by the AG.
Mr Kenney also said the $6.5B deal was a great investment because he’d sell our equity interest at a profit and the net return for this investment would be over $30B through royalties and higher prices for Alberta oil for the next 20 years. This is what’s known as a forecast under securities laws, a smart CEO would never say such a thing because he/she can’t predict oil prices 20 years out.
The AG report says one year after the completion of the project TCPL will pay APMC the value of its equity contribution and “accretion earned thereon” and will pay out the loan guarantee fee as the debt guarantees are released.
Which raises the question, what happens if TCPL doesn’t complete the project?
Mr Biden is now president-elect. He’s promised to revoke the KXL presidential permit. Without the permit the project will never be completed and Alberta will not get its investment back.
In his statement congratulating Mr Biden on his victory Mr Kenney reminded the president-elect that “US energy security is dependent on Alberta as the United States’ largest source of oil imports [and] much of the American economy is fuelled (sic) by Alberta energy.” I suspect Mr Biden knows that 94% of America’s petroleum is produced domestically, only 3% is imported, and Canada produces 49% of that 3%. But hey, Mr Kenney has it covered.
APMC manages contracts relating to the Sturgeon refinery. The government is obligated to pay $26.4B in toll payments over 30 years. The AG said the cash flow model to value this contract was flawed because it failed to include the impact of covid-19 and the OPEC oil price war on oil prices and financial risk.
Failed to include the impact of covid-19 and the OPEC oil price war? See above re: material misstatement.
Oh, and there’s the small matter of the calculation error which ran to $121M.
Canadian Energy Centre (aka War Room)
Kenney created the CEC to foster energy literacy and correct misinformation about the energy sector. (And here you thought it was all about plagiarizing corporate logos and running around pretending they’re journalists).
The CEC relies on contractors for everything from story content to IT support. In Q1, contractors accounted for $1.3M of the $2M the CEC spent on operating expenses.
The CEC doled out these contracts on a sole-sourced basis. This is contrary to the government’s contracting policy and a violation of the CEC’s own draft expenditure and procurement policy which the AG said had not been approved by the CEC board.
The AG said the failure to implement effective contract management processes may result in wasted public funds, potential conflicts of interest and an increased risk that Albertans aren’t getting the best value for the investment of public dollars.
It may also create the perception the CEC is a taxpayer funded boondoggle for the premier’s friends and loyal supporters.
This is not a rounding error
Any board of directors in the private sector would go ballistic if it received an audit report riddled with material misstatements and material errors totaling $1.6 billion. The board would haul the CEO up on the carpet, insist he/she fire the executive(s) in charge of the out-of-control department(s) and threaten to fire the CEO if he/she failed to carry out their wishes.
Sadly, Mr Kenney and his cabinet ministers are elected officials and notwithstanding the assistant AG’s comment that he’d never seen deficiencies of this magnitude, they can’t be fired.
However, they can be demoted to the backbench (this includes Mr Kenney if his party gets tired of his incompetent leadership).
At least back there they’d be harmless until 2023 when Albertans could vote them and the rest of their incompetent caucus out of office.