The Nova Scotia Legislature

The House resumed on:
September 21, 2017.

 

 

 

HANSARD

 

NOVA SCOTIA HOUSE OF ASSEMBLY

 

 

COMMITTEE

 

ON

 

PUBLIC ACCOUNTS

 

 

Wednesday, March 27, 2013

 

LEGISLATIVE CHAMBER

 

Department of Finance

 

 

 

 

 

 

 

 

 

 

 

Printed and Published by Nova Scotia Hansard Reporting Services

 


 

 

Public Accounts Committee

 

Hon. Keith Colwell, Chairman

Mr. Howard Epstein, Vice-Chairman

Mr. Clarrie MacKinnon

Mr. Gary Ramey

Mr. Mat Whynott

Mr. Brian Skabar

Mr. Andrew Younger

Mr. Chuck Porter

Mr. Allan MacMaster

 

[Hon. Jamie Baillie replaced Mr. Chuck Porter]

[Mr. Alfie MacLeod replaced Mr. Allan MacMaster]

 

In Attendance:

 

Mrs. Darlene Henry

Legislative Committee Clerk

 

Mr. Jacques Lapointe

Auditor General

 

Ms. Ann McDonald

Assistant Auditor General

 

Mr. Gordon Hebb

Chief Legislative Counsel

 

 

WITNESSES

 

Department of Finance

 

Ms. Liz Cody, Deputy Minister

Mr. Byron Rafuse, Associate Deputy Minister

 


 

 

 

 

 

 

 

 

HALIFAX, WEDNESDAY, MARCH 27, 2013

 

STANDING COMMITTEE ON PUBLIC ACCOUNTS

 

9:00 A.M.

 

CHAIRMAN

Hon. Keith Colwell

 

VICE-CHAIRMAN

Mr. Howard Epstein

 

MR. HOWARD EPSTEIN (Chairman): Good morning and welcome. I’m going to call the meeting of the Public Accounts Committee to order. In the absence, due to illness of the regular chairman, I will be chairing today’s meeting.

 

May I remind members that if they have cellphones with them, to either turn them off or put them to the setting of vibrate. That would be a big help, thank you.

 

The business of the committee today is to hear a briefing from the Department of Finance; following that, we have some committee business; and following that, we have an in camera briefing on the topic of home-schooling from the Auditor General, preparatory to a meeting on that topic after that.

 

May I ask the members of the committee to introduce themselves, please?

 

[The committee members and witnesses introduced themselves.]

 

MR. CHAIRMAN: Thank you and welcome to our guests. Deputy, did you or Mr. Rafuse wish to make an introductory statement?

 

 

1


 

MS. LIZ CODY: Yes, I would. Thank you, Mr. Chairman, and good morning to the committee members. I appreciate the opportunity to be here today to discuss the Auditor General’s February 2013 Report. Before I begin, I’d like to introduce my colleague, Byron Rafuse, who today has joined me. Byron is the Department of Finance’s Associate Deputy Minister and the provincial controller. I know the members of the committee know Byron quite well and have worked with him before.

 

I’d like to begin this morning by saying that the Department of Finance works very closely with the Office of the Auditor General throughout the year on a number of issues, but primarily in the preparation of the provincial budget review estimates and the year-end Public Accounts. In the Auditor General’s February 2013 Report there were several positive comments and, as expected, some areas for improvement. On a $9 billion budget there are bound to be areas where we can make improvements and the process gets stronger every year.

 

My department values the work of Mr. Lapointe’s office and takes the Auditor General’s recommendations very seriously. We have accepted all of the comments and the recommendations in his most recent report. Some have already been addressed or are well underway. From the February report, certainly the most prominent issue is Mr. Lapointe’s comments on the 2012-13 budget deficit. I’m pleased to address this issue today and I certainly hope to clear up any misunderstanding about how budget revenue estimates are put together.

 

I’ve worked for the Province of Nova Scotia for over 30 years, with the Department of Finance and Treasury Board. I can say without a doubt that Nova Scotia has some of the most transparent budget preparation and reporting processes in Canada. Aside from the presentation of the budget, forecast estimates are given at least twice a year and the fiscal year is closed with the Public Accounts. This cycle ensures that any changes to the forecast throughout the year are reported openly and clearly.

 

I want to make it clear that in the 2012-13 budget, the department looked at quarterly data that was released at the beginning of March. Based on professional opinions and the fact that it was well below the threshold of materiality, a decision was made not to include the information. As well, the lateness in receiving and assessing this information resulted in it being brought forward to Treasury Board very late in the budget process.

 

In Nova Scotia, unlike any other province, we are required to have the Auditor General’s Office review the reasonableness of the budget revenue estimates. This extra layer of scrutiny certainly stands out in Canada and makes for a tighter and more thorough review. The Auditor General’s letter, included in the 2012 Budget Assumptions and Schedules document, makes clear that our revenue estimates are presented fairly and comply with the standards of the Canadian Institute of Chartered Accountants. I’m happy to table Mr. Lapointe’s letter.

 

For our economic forecast, we hold a challenge-and-review session each year. I put the emphasis on “challenge” because our estimates are looked at in great detail by local and national experts. Last year’s session included participants from universities, banks and other prominent financial and economic organizations. I can provide the committee with a list of the experts who reviewed and validated last year’s forecasts.

 

I mention all of this because I want to make it clear that a budget is not prepared within a bubble at the Department of Finance and the Department of Treasury Board. Decisions are made using the professional judgment of the many experts within government and validated using the professional judgments of outside experts. This includes accountants, economists and a variety of other financial experts. We see this as an important part of the due diligence that goes into producing the provincial budget each year.

 

The Auditor General’s Report also looked at a number of other very important issues including financial controls within government and the provincial debt. I’d like to briefly address this issue of Nova Scotia’s debt. I know the Finance Minister has said publicly many times that she shares the concerns of the Auditor General and the public about debt. Every government wants to be able to deliver public services and the interest we pay on our debt each year affects this.

 

A context around the economic conditions that we operate in and the progress we make compared to other provinces is an important part of this important discussion. Nova Scotia’s debt has been growing since the 1950s, with the greatest acceleration during the 1980s and the 1990s. Since 2000 this growth has slowed considerably, and recently we’ve seen years like 2010-11 when the debt was actually reduced.

 

Our staff recently looked at how debt has changed for all provinces during the global economic slowdown, 2008 through to 2012. Only three provinces did not see an increase in net debt during this period: Alberta, Saskatchewan, and Newfoundland and Labrador. It’s worth noting that both Alberta and Newfoundland and Labrador recently introduced significant deficit budgets for 2013.

 

Of the seven provinces that did see an increase in net debt, Nova Scotia has the lowest percentage increase and the lowest per capita increase. As well, our net debt-to-GDP ratio remains stable over this period while many others increased. This ratio is an important indicator of economic health because it illustrates the ability of the province to maintain that debt. The long-term trend of Nova Scotia shows this ratio decreasing.

 

I’d like to thank the committee for the opportunity to address you at the start of today’s meeting. Both Byron and I look forward to discussing the Auditor General’s recent report and the work our department is doing to address Mr. Lapointe’s concerns and improve our processes. Thank you.

 

MR. CHAIRMAN: Deputy, thank you very much for your presentation. Our usual practice is to move through the three caucuses, offering them an equal amount of time to ask questions in a first round, followed by a second round. We’ll start this morning with Mr. Younger from the Liberal caucus, with up to 20 minutes.

 

MR. ANDREW YOUNGER: Thank you Mr. Chairman, and thank you for your presentation. There are obviously a number of issues in the report which relate to your department, and I appreciate you being here. I would like to - I think I’m going to largely start with them in the order that you discussed them. So let’s start with the $27 million overstatement, or error - I mean people can call it whatever they want, but the amount, I think, is largely agreed to - on the day that the Finance Minister, who is now the member for Halifax Fairview, tabled the budget and gave the provincial Budget Speech in the Legislature on April 3, 2012, did he and the department know that the budget was inaccurate by $27 million?

 

MS. CODY: I would say that the Finance Minister of the day knew that there had been a further economic estimate of the fourth quarter data that suggested that the value of the revenues would have been impacted had it been decided to incorporate that. At the time it was decided that it was not material; it was below the threshold of the Auditor General and for that reason it was decided that it would not be incorporated.

 

MR. YOUNGER: How can that possibly be “not material”? And I say this because very importantly in the Minister of Finance of the day’s speech he made it very clear in a centrepiece of that speech, as did the Premier, that the government was exceeding their back to balance targets. So while on a percentage basis perhaps it is outside of a threshold, however that $27 million actually meant that the government as a whole was not meeting the back to balance targets last year as the Finance Minister stood up. How do you define it as not being material when it actually very much affected the principle and the content of the statement that the minister made at the time?

 

MS. CODY: When we build a budget we work very closely with the Auditor General. They set the. . .

 

MR. YOUNGER: And the Auditor General told you you were wrong.

 

MS. CODY: Actually, if you allow me a minute here, what actually happened - and I’d like the opportunity to lay out the process that emerged there. When we put a budget together there are a lot of variables that go into the calculation of the revenues. In order to accommodate the process of putting a budget together there has to be a time allowed for the Auditor General here in Nova Scotia to review our assumptions and our numbers.

 

We are the only province in the country that has that process, so we have to identify a cut-off date after which we can’t accommodate change, otherwise we’re not going to be able to accommodate the process that the Auditor General needs to go through, and the logistical process of trying to put products together. Realistically there has to be a date upon which you say okay we’re going to stop here and we’ll develop the budget and approve the revenues, the assumptions, and make spending decisions in light of the pool of money we have available.

 

The date was decided to be March 1st to allow this whole other process to evolve. The information that came out was after that date and so it was not incorporated into the assumptions - and I think it is really important to understand that these are estimates and that anything that doesn’t get in before the cut-off date will logically be brought in in the first quarterly update, which is five months later.

 

It’s an evolving process and I think we need to understand how a budget works so that you understand that there has to be a cut-off date after which you’ll have to pick it up in the next reiteration of those numbers.

 

MR. YOUNGER: I understand how a budget works, and from my perspective there are two issues. One, on February 13th, Mr. Lapointe indicated that your department was notified by March 1st, and I’m happy to table that quote. In fact it says, “That would have been identified the first of March - actually seen by us on February 29th but I guess we would have been talking to them the next day.” So if your cut-off date was March 1st the Auditor General stated on February 13th that your office was notified on that date. But even if that hadn’t happened I’ll raise two different issues - one also on that date.

 

So this year’s budget is being tabled on the 4th, I think, and that is one day later than when it was tabled last year, which was April 3rd, and yet unless this is changed, we understand from the department that the cut-off date is now much, much closer, so this closer cut-off date doesn’t seem to be an issue. Even if the cut-off date was an issue, which I’ll even accept the fact that maybe - okay, it has to get to the Queen’s Printer or whoever, to print the documents. I still don’t understand why the Minister of Finance, knowing that there’s an error or maybe a potential error, on that day or even in the four weeks or so - I think it was about four weeks that we sat in this Chamber and down in the Red Room and argued this budget - why he wouldn’t say to members of the Legislature that there may be a revenue oversight in this case.

 

I’ve seen them do it at the federal level, I’ve seen them do it in other provinces, I’ve seen them do it in municipalities across the province and I’ve seen it in school boards, where as they work through their budget process and after the budget is tabled, people responsible for finance bring additions and corrections, they bring amendments, all that sort of thing. So there’s really, even if it’s about having the printed document, I still don’t understand why the Minister of Finance would be advised to not let the public know - especially members of the Legislature who are spending 80 hours reviewing the estimates - that there may be a material change, which changes the theme of his entire speech that they were exceeding the Back to Balance targets, which it turned out they weren’t.

 

MS. CODY: Firstly, we didn’t get the information at the end of February; that wasn’t even released until the second of March. It was released by Statistics Canada, that’s a publicly known fact. So we didn’t have that information when we were working with a deadline of March 1st; it came out after that.

 

But to your point, it’s about the materiality of the number. As I’ve said, there is a threshold of materiality and this was well below it. It was one-third of one per cent of our revenues. It was considered to be non-material in the overall production of the revenue forecast. That was a threshold materiality level decided by the Auditor General; it wasn’t our own evaluation that it was material or immaterial. We were working to that, as we do every year. Every year the Auditor General gives us a materiality threshold under which they say this is not an issue that we need to accommodate in the budget.

 

MR. YOUNGER: I guess it’s all about how you define materiality. On April 3rd, the Finance Minister stood in this House and he said, “In last year's fiscal plan, the deficit for 2012-13 was projected to be $216 million. In this budget, the projected deficit is $211 million. In other words, we are almost exactly where we said we would be at this point in our Back to Balance plan.”

 

Then he went on to talk about how, in fact, they were beating it by $5 million, which maybe - he certainly thought that beating it by $5 million was material so how can the department on the one hand feel that it was material that the Back to Balance target was being beat by $5 million on the one hand but it’s not material, that in fact they were missing it by $21 million, which is four times as much as the minister thought was material for beating it?

 

MS. CODY: I would bring you back to the budget process . . .

 

MR. YOUNGER: I’m not much concerned about the printed document. What I’m concerned about is the information that is provided to members of the Legislature and the fact that we sat around here for 80 hours of debate - more than 80 hours but 80 hours in estimates - on a budget that it turned out actually the Minister of Finance, who was sitting across from us, knew was wrong.

 

MS. CODY: From the Department of Finance perspective, there’s a process we do go through. I’m not talking about binding product at that point in time, I’m talking about the evaluation of inputs that go into the revenue forecast.

 

We have some very experienced and knowledgeable individuals in the department who have been working on this file for the last 15 to 20 years. They’ve got excellent credentials. When we actually met with the outside economists and discussed the reasonableness of our economic forecast, they were aware as well about the release of this new data and considered it immaterial from their own perspective, felt that our forecast was prudent and cautious from an economic perspective.

 

In the Department of Finance’s own work and leading up to recommendations to the minister, it would have encompassed the thoughts of some very experienced and qualified individuals to say, in the grand scheme of the economic indicators, this is not material.

 

MR. YOUNGER: But do you see the difference between - see, I think the difference is materiality from a budget point of view, and saying, well, we have a threshold of a third of a per cent - whatever that threshold is decided on a given year, in co-operation with the Auditor General - and then what the Minister of Finance stands up and says in this House. Did you at any time advise the minister that he should correct that in his speech or make people aware of that in his speech?

 

MS. CODY: I wasn’t there at the time, but the way it works - I can speak to that - is that the efforts of the staff who are the experts in this whole area are all fed into the modelling, and recommendations on the implications of that on the dollar that the province has to work with are made known to the minister and in turn made known to the Treasury Board. The recommendations going forward were that the revenues that were being put forward in the budget estimates were prudent and credible, even though they did not reflect what was considered to be not material.

 

They made the minister and the Treasury Board very well aware that this was the recommendation, that this was immaterial from their own perspective and from the outside experts. That’s the role of the bureaucrats inside the Department of Finance, to inform our masters of that. As a result, we put it forward. We shared it with the Auditor General; the Auditor General gave us a letter validating what we were building into our revenues for the budget. I can table the Auditor General’s letter. It was very clear that there was a cut-off. It stated right in the letter that the cut-off was March 1st. That was before this information came out.

 

It’s well known in the Department of Finance that this is an estimate process, and that the numbers continue to change. The one thing we do know is that the budget that’s tabled will never be what it’s going to look like at the end of the day, because there are so many variables. There are over 600 variables that go into our economic model. This is one of them. Well, actually, this isn’t even one of them, because this is a quarter of the year. Our model works off of annualized economic indicators, so this is one-quarter of 2011, and the implications were determined to be non-material.

 

MR. YOUNGER: I understand that, and perhaps you can understand my concern that it would be one thing if the budget was presented that way and the minister didn’t also then stand up in this Legislature and trumpet the fact that all of the numbers showed that they were $5 million ahead of their target when, in fact, he knew that was not the case.

 

Having that information - and I understand that you were not there as the deputy minister at the time - would the department have advised the minister - at any time did the department advise the minister not to let the Legislature or the public know about the error, or was that simply a decision that would have been made by Cabinet or the minister?

 

MS. CODY: I’m sorry, but I keep going back to - you do need to establish a cut-off date for this information.

 

MR. YOUNGER: I agree, but the minister stood up and - there’s a difference between the cut-off date in the budget and the fact that the minister then stood up and said other things in the Legislature. He claimed the government was ahead of their Back to Balance target when they weren’t, and he knew they weren’t. I don’t much care that the information came on March 2nd. I don’t care if it came the day before the budget. He still had an obligation to inform the Legislature of the latest information.

 

I understand that budgets change throughout the year. I’ve been through enough of them to know that they adjust. I don’t dispute that fact. I don’t dispute the fact that sometimes there are disputes over numbers and there are different ways of calculating things. I understand all that. However, at the end of the day, Budget Speeches have largely become political exercises. Not just here, and that’s not about the Party that is in power. You just need to look at the federal budget last week. They are about claims and statements of where the province is at a given point in time, on that day. I know those speeches are reviewed and edited - sometimes up to minutes before the speech is actually given. The issue at hand here is that the minister stood and went further than the budget and said, we are exceeding our Back to Balance claims, when in fact they were not.

 

What I’m wondering is, did anybody in the department advise the minister that he probably shouldn’t claim that the government is ahead of its Back to Balance targets because, of course, when this information does get adjusted in the budget in the next quarter, or whenever as you said it would be, that’s going to be shown that it was false and that he knew it was false. Or is it just an issue that your job is to give the minister the best information possible, there is a budget target and then it’s up to him how he chooses to present that, or her as the case may be?

 

MS. CODY: I was just conferring with my colleague, he was there.

 

MR. YOUNGER: And I know it’s tough because you weren’t there.

 

MS. CODY: Basically the day before or two days before the budget was presented, the Auditor General reviewed the Budget Address and he knew that we were going to be working with the cut-off date of March 1st. All I can say is we would have advised the minister of what we felt were the most realistic revenue forecast and economic assumptions given that cut-off date and that the additional information that came out in our mind, and based on the Auditor General’s threshold, was immaterial. What the minister might have said in the House beyond that, I really can’t comment on that.

 

MR. YOUNGER: All right. Despite the cut-off date, Treasury Board was obviously informed of this, correct?

 

MS. CODY: Yes.

MR. YOUNGER: On what date did the Department of Finance inform Treasury Board - obviously the Minister of Finance, I assume, was told as soon as you knew. Is that correct?

 

MS. CODY: Yes, that’s normally the way it works. The data comes out at the beginning of March and then the modelling on the economics takes a week to 10 days to complete and then the fiscal modelling happens, so yes eventually the minister will know.

 

MR. YOUNGER: But this isn’t the kind of thing that somebody would have said, oh we don’t need to let the Finance Minister now about this.

 

MS. CODY: No.

 

MR. YOUNGER: Somebody would have . . .

 

MS. CODY: Definitely that’s all part of the process.

 

MR. YOUNGER: So when would Treasury Board, as a whole, have been advised.

 

MS. CODY: That was brought into Treasury Board on the 28th of March.

 

MR. YOUNGER: And why was there a delay? If you or your department found out on March 2nd, why would it have taken until March 28th before the Treasury Board was advised?

 

MS. CODY: Well it probably took until about March 15th or 16th to even finish the model runs, to get a handle on what we’re talking about in terms of impacts. From then until the 28th, there was only the meeting on the 21st and then the meeting on the 28th. So when you’re heading into . . .

 

MR. YOUNGER: So they’re waiting for the meeting.

 

MS. CODY: Oh yes, you’d have to get on the schedule for the meeting and you can appreciate that a few weeks before budget, which is that time frame, it was difficult to get on the agenda.

MR. YOUNGER: I can appreciate that but I can also appreciate - I would have thought that this would have been important.

 

MS. CODY: And it was, so we got on as soon as it could get on. It was only probably about a week and a half after they assess what the implications are before it got into the room.

 

MR. YOUNGER: What was the cut-off date for this year?

 

MS. CODY: It was the 19th of March, but it’s a different cut-off date that we need to talk about here. Based on the recommendations of the Auditor General when they were in here in February, they recognize that there was always a cut-off date as it related to the economics but what was missing was a cut-off date after which we wouldn’t be expected to incorporate any non-trivial issues.

 

So the cut-off date on the economics for this year would have been January 31st, but then - and I’ll take you through a chart later on, but we acted on the Auditor General’s recommendation to institute a second cut-off date beyond which they wouldn’t be expecting us to accommodate non-trivial errors and that’s the 19th of March.

 

MR. YOUNGER: So the $27 million - on the one hand it’s non-material but on the other hand it’s non-trivial.

 

MS. CODY: Yes.

 

MR. CHAIRMAN: Excuse me, the first trench is over at the moment. We’ll move now to Mr. Baillie, on behalf of the Progressive Conservative caucus.

 

HON. JAMIE BAILLIE: Thank you, Mr. Chairman, and good morning Ms. Cody and Mr. Rafuse. Let me just say that I do respect the professionalism of your department; I’ve seen it in action. I know you’re responsible for the compilation of a $9 billion budget and inevitably there will be errors, large and small, that are unavoidable.

 

I’m not interested in discussing how mistakes happen. I believe Nova Scotians would be very forgiving of mistakes when they’re made or errors when they’re made or estimates that turn out to be wrong when they happen, if they’re told about them. So I would like to just pursue the $27 million and the non-disclosure of it, and not the fact that somewhere along the way an error was made.

 

The Auditor General in his report of February 2013, on Page 18 it states that the error, “ . . . was significant enough to be corrected.” Now I know we just talked about the accounting concept of materiality - which, of course, is a term that accountants like to use - but to me the issue isn’t whether it was material according to the accounting definition or not. The issue was whether this $27 million overstatement was significant enough to be disclosed to the owners of the province who, of course, are the people of the Province of Nova Scotia.

 

The Auditor General found that it was significant enough to be corrected. Do you agree with the Auditor General that this $27 million overstatement was significant enough to be corrected, as he says in his report?

 

MS. CODY: I apologize for repeating myself, but I would say you have to go back to process. To put a budget together, as you would know, you need cut-off dates. This was not within the time frame of the cut-off dates, this came after the fact.

Even after it was assessed at what it would be worth and the decision was made not to include it, the Auditor General still approved the revenue estimates, knowing all of this.

 

MR. BAILLIE: I understand he would do that because it’s not material and according to the accounting definition of materiality - which I’m truly not interested in debating, the concept of materiality. You said a decision was made not to include it. Who made that decision?

 

MS. CODY: It would have been a recommendation coming out of the staff, after the challenge function, after our own economists evaluated in the context of the overall value of some of these variables and a recommendation coming forward into the Minister of Finance and through the Minister of Finance into Treasury Board. There would have been a presentation made on the 20th of March, which showed them the current estimated value of revenues. It would have alerted them to some of the changes in the economics and the rationale for not making that change to the Budget Estimates assumptions.

 

MR. BAILLIE: So the decision about whether it was significant enough to correct was made by Treasury Board. Is that what I just heard you say?

 

MS. CODY: On the recommendation of the Department of Finance workers.

 

MR. BAILLIE: So you felt it was not significant. You disagree with the Auditor General on whether $27 million is a significant item or not.

 

MS. CODY: Again, we’re back to the materiality, that’s what we work it . . .

 

MR. BAILLIE: I’m sorry but we’re not talking about materiality, we’re talking about whether it’s significant.

 

Look, I used to be in your shoes in the corporate world and the auditors for every private company out there report significant errors to the companies’ owners - the shareholders or whoever they may be. Then the board or the CEO will decide whether it’s significant or not and disclose the difference even if it doesn’t meet the accounting test of materiality. I think that’s the same test that the Department of Finance and Treasury Board ought to have.

 

I’ve asked you if your opinion was whether $27 million is significant - not material but significant - and who made the decision not to disclose the $27 million. I think you said Treasury Board but I just want to make sure that’s what you said.

 

MS. CODY: First off, I’d like to go back if you would indulge me and have a little conversation about the term “error”, from an accounting perspective.

 

MR. BAILLIE: An over-statement.

 

MS. CODY: Not necessarily. I’d like to actually defer to my colleague, Mr. Rafuse, to explain from the accounting world what the term “error” means. Out in the general public people use the word “error” and “mistake” quite frequently and interchangeably and I don’t think that’s true.

 

MR. BAILLIE: Just before you do that, I’ll ask a related question and then you can confer but the Auditor General’s Report says that during his review, “We were advised there would be an error” - these are his words - “resulting in a $27 million overstatement of the revenue estimates.” He was advised of that error when he began his review of the assumptions that are in question here.

 

MS. CODY: Which is why I think it’s really important to understand what he meant by the word “error.”

 

MR. BAILLIE: You may want to confer with the Auditor General as well.

 

MS. CODY: For sure, but we’ll start here, to my left, my current adviser on accounting.

 

MR. BYRON RAFUSE: Good morning. To be precise, there isn’t really a great definition for “error” when you’re looking at forward-looking statements as an estimate or the like. Most definitions of errors pertain to past events, and so there’s generally a lack of clarity about what an error means in an accounting sense, when you’re looking at forward-looking.

 

The Auditor General would probably be looking at an error in the context of what’s defined and PSAB around prior period errors, which is less than precise. It looks at when things are left out of financial statements that should have been included, or were included that shouldn’t have been included, or might have been included and might have been inaccurate.

 

There are only two places that the Auditor General can really go to characterize something on a review: areas of professional judgment, which goes into the area of materiality. You talked about areas where the auditor and a preparer might have a difference of opinion, and those will lead to what are generally referred to as “unadjusted differences.” We don’t really have that context on a forward-looking statement like an estimate. So you get into these debates about whether an item is an error or a matter of professional judgment.

 

MR. BAILLIE: Thank you. I want to move on. In the Auditor General’s Report, on Page 18, he suggested to management at the Department of Finance - which I take to be you guys - that the Executive Council be informed of this known error, and that this was done. Can you confirm that was done? On what date was that done?

 

MS. CODY: This was not brought into Executive Council. This was brought into Treasury Board.

 

MR. BAILLIE: Okay, which is a committee of the Cabinet.

 

MS. CODY: It’s a committee of, and that would have been on March 28th that we’re talking about.

 

MR. BAILLIE: Is it normal that there would be Premier’s Office staff in attendance at the Treasury Board when budget matters are being discussed?

 

MS. CODY: The Premier’s Office staff?

 

MR. BAILLIE: Yes.

 

MS. CODY: Sometimes, if they can make it, yes.

 

MR. BAILLIE: So at that meeting where the Treasury Board was informed of the $27 million overstatement, is that the meeting where it was decided whether it was significant or not and whether to disclose it to the people of Nova Scotia or not?

 

MS. CODY: What was decided at that meeting was to approve the revenue estimates that showed up in the budget that didn’t include that amount.

 

MR. BAILLIE: And that was known to the Treasury Board? It was your department’s responsibility to inform them that there were unadjusted differences - to use Mr. Rafuse’s term - including a $27 million overstatement of revenue.

 

MS. CODY: That was brought into Treasury Board on March 28th. The decision that was made coming out of that meeting was to approve the revenues that were presented that excluded that adjustment.

 

MR. BAILLIE: So your department informed the Auditor General on or around March 1st that there was a $27 million overstatement. I know the number changed several times during that two-week period, but who else was informed about this potential significant overstatement between March 1st and the date the Treasury Board decided not to disclose it?

 

MS. CODY: As I’ve said, we didn’t know the value of this adjustment at the beginning of March. We just got the data on March 2nd. It took two to two and a half or three weeks to do the modelling run, so it was probably not until about March 15th or 16th that our modelling had been finished at that point in time.

 

MR. BAILLIE: So you told the Auditor General. Who else was informed of the error or the misstatement that was uncorrected?

MS. CODY: I would have expected that the staff would probably have approached the deputy of the day and advised . . .

 

MR. BAILLIE: The Deputy Minister of Finance?

 

MS. CODY: Yes.

 

MR. BAILLIE: Would it be normal to also inform the Premier’s Office staff, the deputy, the Premier, chief of staff, others who are involved in the budget process, that there was a potential $27 million overstatement in the budget?

 

MS. CODY: Not normally, because it fell under the materiality threshold and we were dealing with the Auditor General’s staff at the time and sharing this information after the modelling was completed.

 

You wouldn’t necessarily run to the Premier’s Office and tell them about number changes if they’re falling under a materiality threshold, no.

 

MR. BAILLIE: Do the Premier’s Office staff attend budget meetings, whether they’re Cabinet or Treasury Board?

 

MS. CODY: Sometimes, if they can. Not always, but sometimes they’re there.

 

MR. BAILLIE: In your professional opinion, is the decision whether to disclose a significant but not material item a departmental decision or is it a political decision?

 

MS. CODY: Disclose it to?

 

MR. BAILLIE: To the people of Nova Scotia.

 

MS. CODY: Again, from the department’s perspective, our mandate and our goal is to inform our political masters.

 

MR. BAILLIE: Which you did.

 

MS. CODY: Which we did.

 

MR. BAILLIE: And at that Treasury Board meeting that you referred to earlier, it was decided by the political level that it would not be disclosed at the time of the budget.

 

MR. CHAIRMAN: In fairness, I don’t think the witness said that.

 

MS. CODY: No.

 

MR. BAILLIE: That’s why I’m asking it.

MS. CODY: Could you repeat the question, please?

 

MR. BAILLIE: Ms. Cody, you said several times, it was decided that it wouldn’t be disclosed or that the budget wouldn’t be changed.

 

MS. CODY: No, actually, what I . . .

 

MR. BAILLIE: Again, who made that decision? Was it you? Was it your department? Was it Mr. Rafuse? Was it the Treasury Board? Was it the Premier? Who decided not to change the budget? I don’t think I could put it any clearer than that.

 

MS. CODY: But I think there’s a different question that you’re asking. You’re asking who decided not to disclose it. What I’m saying is the Department of Finance made a recommendation not to incorporate it, which is different because it did not meet the materiality threshold - that’s why.

 

MR. BAILLIE: But it may well meet the threshold of best practices in disclosure to tell the people who rely on the budget that it’s wrong - even if it’s not wrong in the accounting materiality sense, it’s still wrong. Who made that decision?

 

MS. CODY: I can’t answer that question.

 

MR. BAILLIE: But your department reported the $27 million overstatement to the Treasury Board and they did decide on that date to go forward with the budget as is.

 

MS. CODY: Yes, with the revenue estimates excluding that amount.

 

MR. BAILLIE: And the Premier’s Office staff are in attendance for important Treasury Board meetings that involve the final compilation of the budget.

 

MS. CODY: I can’t say that for sure. I’d have to go back and look at the attendees in place because they’re busy people at that time of year, too, so I can’t tell you for sure.

 

MR. BAILLIE: Is there something more important on March 28th than the presentation of the estimates to the people of Nova Scotia? That’s not a question - we’ll leave that one out there.

 

Ms. Cody, on April 2nd at 7:10 p.m. there were five pages of the assumptions to the budget changed at the request of your department. That’s well after every cut-off date that you’ve listed for us today or previously. Why is it okay to make those changes but not to change the $27 million overstatement?

 

MS. CODY: I’m not aware of what the change content was on those pages. Sometimes at the last minute, as anybody who has been in government knows, sometimes there are last-minute changes. Sometimes it’s because the government of the day makes a decision to pursue or to implement a budget measure. You can’t announce a budget measure if you don’t accommodate it and account for it in the budget. So there have been times in the past where there have been those last-minute changes because, like I said, if you don’t have the fiscal costing of a particular measure in the budget, you can’t really announce it.

 

In this particular case, it’s not that we didn’t have an economic forecast in the budget. It was the assumptions around it and the key cut-off dates. The reality is, this is an estimate and we know very clearly that that estimate will continue to evolve and the next opportunity would be the first quarter to change that. So in order to accommodate the production - not just the production, I’m not talking about that in the context of products; I’m talking about it in the context of decisions on spending. In order to facilitate that, you have to have a cut-off date.

 

MR. BAILLIE: Your cut-off date, I’m sorry, you said earlier was March 1st, I think. Your department was inviting submissions from Nova Scotians for that particular budget up until March 16th. Was that a false consultation with Nova Scotians because you had already established a cut-off date?

 

MS. CODY: No, not at all actually. You have to have a sense of what your fiscal plan is in order to finalize your expenditure. I’m not saying that the expenditure decisions were all made at the beginning of March; I’m saying that defining the true value of your revenue pool that you have available to fund decisions as part of your budget has to be established early in the game, so that you know the decisions you can afford to make. So that doesn’t mean that you can’t consider and accommodate decisions that you may hear through that month.

 

MR. BAILLIE: So you could make changes at least up until that date. As we know from our own freedom of information request, changes were made to the budget documents, in particular the assumptions - which are actually what we’re discussing here this morning - as late as 7:10 p.m. on April 2nd. Who decides what changes are okay to make at the last minute and which ones are not?

 

MS. CODY: You know that’s a really interesting and important question because the ability to accommodate changes at the last minute like that differ depending on the significance of changes or how extensive they permeate throughout all the budget products. If you have a one-number change as a true error and you need to correct that, that’s easier to do than to go back into all the pieces and layers of a budget that has been put together to re-examine . . .

 

MR. BAILLIE: So the Auditor General says in his report that all information was available to support the change in sufficient time to revise the estimates - do you agree with his finding in his report on that?

 

MS. CODY: That’s a difficult question to answer. I also heard him say you could do it in a day, and I think that’s totally unrealistic. So it depends on what government was prepared to do, or if government was prepared to do anything, the extent to which they wanted to accommodate it. Knowing that the Auditor General didn’t feel it was material and that they weren’t going to change things at that point in time, I think that’s a question I can’t answer.

 

MR. BAILLIE: Well let me ask the Auditor General, if I may, Mr. Chairman. Would it be, in your opinion as an accounting professional, a best practice to change a public document when you know it contains an overstatement of $27 million, even if that amount is significant but not meeting the definition of accounting materiality?

 

MR. JACQUES LAPOINTE: Well to answer that I should point out that this concept of materiality is merely a number that we use to determine whether or not we would qualify our opinion on the financial statements or the budget after it is issued. Our number in this case was approximately $90 million.

 

We take the view, and have stated many times that regardless of that, all non-trivial errors that are found during the audit or review process should be corrected, and made that recommendation. We made the recommendation on the 15th that all these errors should be corrected, so in fact the numbers had been run by the department at that time through the model in order to calculate the impact. This is, you understand, a number of different little changes in inputs, in errors, and other types of economic changes that work their way through the models to come up with a financial number at the end. That had been worked out by the department on the 12th and presented to us.

 

MR. BAILLIE: Thank you . . .

MR. LAPOINTE: The first cut-off, I might add, was not a cut-off, that was the date of the assumptions approval that we used for our opinion.

 

MR. BAILLIE: So if I understand you correctly, this whole concept of materiality is not a guide, it’s only a principle used to assist you in reaching an opinion on whether the estimates, the revenue estimates, are compiled in compliance with Generally Accepted Accounting Principles, but separate from that is the issue of disclosure to the public of an accurate set of estimates, accurate to the best of the department’s and the government’s ability.

 

In the area of disclosure as separate from accounting, would it be appropriate for a government to report significant errors or, in fact, not report them but to correct its estimates no matter what date they come to light in order to properly inform the public of the state of the province’s finances?

 

MR. LAPOINTE: I don’t think I’m in a position to say what is appropriate or not appropriate for a government to disclose. We were reviewing the documents. We did feel, however, that the amount should be disclosed at some point. That’s why we reported ourselves.

 

MR. CHAIRMAN: Excuse me. The second trench of questioning is finished now. We’ll move to the NDP caucus. Mr. Whynott.

 

MR. MAT WHYNOTT: Thank you very much, Mr. Chairman, and glad to have the witnesses in today to discuss some very important issues around the Auditor General’s Report.

 

I certainly find it ironic, the political rhetoric coming from the Liberal Party - in particular around their decisions in the 1990s around P3 contracts, their decisions around borrowing $650 million to pay off health authorities and the debt that they had - and in fact, their $500 million worth of platform commitments in the 2009 election, all of which they probably wouldn’t be able to do. I’d also remind Nova Scotians that the vast majority of the debt that we have in this province is because of the Progressive Conservatives and the Liberals.

 

Ms. Cody, I understand you’ve been around the Department of Finance and Treasury Board for a number of years.

 

MS. CODY: Yes.

 

MR. WHYNOTT: In fact, I understand it’s pretty close to your entire career?

 

MS. CODY: Yes.

 

MR. WHYNOTT: Let’s take a step back here. Could you please walk us through the process of preparing a budget and exactly what that entails, starting from the very beginning of when the budget documents begin to be pulled together?

 

MS. CODY: Certainly, thank you. The budget process itself really starts in earnest in the Fall. At that point in time, you’re in a pretty good place to update the revenues and the spending since the budget was tabled, so that’s the first time you really have a chance to have a good look at your fiscal plan. So in the Fall, in October or November, you’re working on your capital decisions on the budget. Recommendations are going in to the Treasury Board on the size of the dollars for capital spending that you might have available in the upcoming year and the projects that are already underway, or new ones that are on the docket to be considered. Those decisions are made through October and November, and in the last few years they have released a report in December advising Nova Scotians about what their upcoming year’s budget will look like as it relates to capital. It’s not actually voted on until the Spring with the regular budget.

 

After the capital is completed, or behind the scenes at the same time, we’re working closely with the departments to get a sense of how they are tracking on their spending levels for the current year, and basically given targets for what the upcoming year’s expenditure levels for those particular departments are likely to be, and being asked for the implications of those targets on their departments.

 

By December and January you’re looking for the departments to report back to the Treasury Board on what the implications of certain spending levels on the department will be. You’re also receiving more revenue information as it relates to your income taxes coming out of Ottawa. You would have received your estimate of equalization on the upcoming year just prior to Christmas. So things are starting to shape up; you’re starting to get a better feel for what your fiscal plan for the upcoming year is going to look like.

 

As we proceed through January and February, the departments are getting a sense from the Treasury Board as to what they feel they are going to be able to accommodate. This year was an exception, but normally you’d also see the federal budget come down by the third week in February, so you’d have a sense of how that’s going to impact you. As we go through the February period, as we’ve been talking about, you’re getting a sense of those economic indicators. You’re starting to re-estimate your revenue picture so that you can help to update your fiscal plan for the upcoming year for the Treasury Board.

 

Once you get through the February period, you’re really down into close-to-final decisions on spending. Now you have a better sense of what your fiscal numbers are looking like; you’ve updated your revenues based on your economics. So basically, you’re getting final decisions made.

 

As that’s happening and as you’re close to final, you’re already starting production of certain budget documents. You’re starting to document what your key assumptions are that you’re building behind your revenue stream, your economic assumptions, and you’re starting to work those things through, even your liability management, your debt borrowing.

 

So when the final decisions are made, which I’d say is close to the third week in March, on the spending side you are able to start to lock down what your budget numbers are finally looking to be and start to produce in final form some of your documentation.

 

MR. WHYNOTT: So there are two things that I want to take out of what you just said; one was around capital expenditures and the decision to release a copy of the capital plan prior to Christmas, prior to December - usually November, is my understanding. I know in the past it has always been, let’s wait until the budget is passed - why is it such an important thing? Why is it such an important release of information to the public?

 

MS. CODY: It’s important because it signals to the construction sector the kind of projects that we’re going to be looking at. Clearly the building and that whole construction period in Nova Scotia is very short, given the weather and the restraints around all that. So it was determined a few years back that it would be much more feasible to release the plans in advance so that the construction sector can start to get ready and be prepared so that when it’s all final and approved we’ve got everything under the gate as quickly as possible.

 

MR. WHYNOTT: The other thing you mentioned was about spending levels. In the last three years am I correct in saying that every department, except for a few because of some purchases of land, is my understanding, has come in under budget - every year for the last three years?

 

MS. CODY: Yes.

 

MR. WHYNOTT: Has that happened in recent history?

 

MS. CODY: Well, since the government came into place and the decision was made to get back to balance and the expenditure management plan has been launched, all the government departments have been pursuing, with a lot of rigour, how it can achieve increased efficiencies and savings - so in many past periods, not always. Definitely there would be more and more dollars being looked to, but given the importance and the significance of reaching the balanced budget, they’ve definitely been really focusing on how they can achieve those cost savings and coming in under budget.

 

MR. WHYNOTT: You talked about the process here in Nova Scotia; can you talk about the differences between our pre-budget process compared to other provinces? I mean we have to know what other provinces do; I think Nova Scotians need to know. My understanding is that some of our processes are much different than other provinces.

 

MS. CODY: I can tell you what I know. I do know that we are the only province in the country that has the Auditor General come in and look at our assumptions on economics and on revenues, to review the reasonableness of them. It’s not an audit; it’s looking at them in the context of what do you know and is it reasonable. We’re the only province that goes through that.

 

All the other provinces have cut-off dates, since we’re talking about cut-off dates. We’ve been looking at how close to budget those cut-off dates are and I think it’s important to note - I can just run down for the provinces that we’re aware of: Newfoundland and Labrador, two weeks before their budget they lock everything down; New Brunswick, three weeks; Quebec, two months; Ontario, three weeks; Alberta, five weeks; and British Columbia, two months. So prior to tabling their budgets, these were their lockdown dates.

 

In our case, we have a lockdown date but then we have the Auditor General’s process on top of that. The Auditor General’s Office needs 20 days to do their work, so after we lock down our cut-off date, you have to account for 20 days to ensure that they have the opportunity to go through and evaluate. That’s why, when you lock it down on March 1st, you’re according the Auditor General the period of time in the month of March to do their work so that we can have some confidence in the numbers that we’re coming out with.

In addition to that - and I don’t know to the extent other provinces do this - we have a real challenge function on our economic forecast. Over the years it has changed. It used to be, and it’s going on for a long time, it used to be that we would contact these outside economists and invite them in to meet with the minister prior to budget, probably about three to four weeks before budget, and we would want to hear what their forecasts of our economy were looking like, and nationally. Over the last few years there has been a whole lot more rigour built into that whole process. I had the opportunity this year to sit in on one and things have changed a lot - we’ve actually shared with them in advance, under a signed document of confidentiality, the details around the economic forecast and they have them to scrutinize.

 

It used to be we were asking what their forecast was and now they have access to the details of our forecast. So when we meet with them they would have already studied the ins and outs of our forecast and then we present it to them and they challenge us on it, or they say it looks reasonable and consistent with what they think is in store for the economy.

 

I don’t know the extent to which other jurisdictions do that function, but we find it to be extremely beneficial. In this case, they agreed that what came out in terms of data at the last minute last year was immaterial to the overall picture of the province.

 

MR. WHYNOTT: When we talk about the challenge session, how many different organizations are involved - and can you tell us who?

 

MS. CODY: Actually, I have it right here if you’d like me to table it.

 

MR WHYNOTT: Sure

 

MS. CODY: We have different banks: the Bank of Montreal, the Bank of Nova Scotia, the CIBC; we have the Conference Board; we have some academics too - Acadia, Dalhousie, Saint Mary’s; we have the Royal Bank, St. F.X., the TD Bank; we have APEC - we have a whole host of folks, both academic, private sector. These are the economists who forecast for us and for the country as a whole and we bring them all in.

 

This year we had them on conference call, those from Toronto who didn’t come down - but they’re all very engaged in the whole process

 

MR. WHYNOTT: It sounds like a pretty rigorous process is involved to bring those other people in from outside to talk about that. I understand the department has taken what the Auditor General has said in his report and have begun a process from here on in to change the process that has happened in the past. Could you comment a little bit about that?

 

MS. CODY: Absolutely. Actually, if I might, I could table another product which is - and actually I have copies, I don’t know if you want to have them now before I talk about it, but it lays out the timelines for this year. This was one of the recommendations in the Auditor General’s Report in February, that we need to have a clear schedule to work from. What it does is it lays out for this year’s budget where we started the journey on January 25th, it shows the cut-off for those economic assumptions and the fact that it works through January and into February. This is the economics that the staff would be gathering from Statistics Canada releases through the month of January, it would be factoring those indicators into the economic models, and then mid-February it’s transferring those to the revenue forecasting models.

 

Basically, this is this first part, January 25th to February 22nd, and it shows you the whole process that goes through between the economic and fiscal modelling. On February 25th, in terms of deliverables to the Auditor General, the economic input is relayed to the Auditor General from the first materials that we were using on our cut-off of January 25th.

 

There was only one extra piece that came out and this is the data that came out last year that’s in question - the March 1st and the March 4th to 5th. This was the 2012 fourth quarter economic data that was factored into our modelling. By March 1st it came out. It was our Nova Scotia labour income, the Canadian GDP data, and it was received by our staff at the Economic and Statistics Division. On March 4th, we got additional residential construction investment data that has also been factored into our model.

 

In discussion with the Auditor General, we agreed that the incorporation of this data by the 4th and 5th would be the cut-off for this year for the economic data going into the 2013-14 budget - that’s the economic data. So then that economic data, after it has run through the models, gets turned over to the fiscal modelling group. So as you will see going through the timetable on the next page, by the 8th the revised economic assumptions are completed and worked through to the fiscal models and so that’s the cut-off on the fiscal models. So now we have two cut-offs - the 4th for the economic, the 8th for the fiscal.

 

Then there’s one more cut-off. Now we’re onto the 19th cut-off. That gives the Auditor General time to receive all this information from our staff to analyze it, pour through it and ensure that the assumptions are valid and they’re in keeping with the data that has come out on the economy and the fiscal models are in keeping with the economic information.

 

So now it has been decided - and this is the new piece for this year that has never been done before - the cut-off on the 19th for reaching and recording all non-trivial errors. After the 19th, according to this schedule, if the Auditor General does come upon a significant non-trivial issue, this deadline has stopped the clock there. So now we’re into the production processes as opposed to revisiting our models. Anyway, that’s the process.

 

What we’ve done this year is the first and I want to draw your attention down the bottom of the timelines and deliverables. There’s a reference on bullet three. These are the errors that are being defined by the Auditor General when we talk about incorporating errors. They’re inaccurate inputs or not using updated economic data receipt after that cut-off of March 4th or not using updated fiscal data on inputs received as of March 8th. If they’re there before the 4th and if they’re there before the 8th, you’ve got to include them; if you don’t, they’re going to consider that an error. If it’s after that, it’s a different story.

 

MR. WHYNOTT: What you mentioned about the final revenue estimates provided to the Office of the Auditor General on the 19th - according to this schedule - how does that differ from last year? What was the date for last year?

 

MS. CODY: Well, as you will see in this product, which I can table, is the Auditor General’s letter from last year. If I might read here, “The estimates of revenue for the fiscal year ending March 31, 2013 are the responsibility of the Department of Finance and have been prepared by departmental management using assumptions with an effective date of March 1, 2012 or earlier.” That’s the comparable date for last year.

 

MR. WHYNOTT: Fair enough. Also in your package here - Mr. Chairman, I’d like to ask the Auditor General a question. You’ve seen this updated schedule and you agree with it?

 

MR. LAPOINTE: Certainly. As you can see, in fact, they have attached an e-mail in which I responded that it was acceptable to us and was reasonable.

 

MR. WHYNOTT: So in your e-mail you state “. . . listing of key dates with respect to the revenue estimates and tabling of the Estimates, as attached. The timeline and dates indicated are reasonable and are perfectly satisfactory for my Office’s review of the revenue estimates.” Thank you.

 

MR. CHAIRMAN: If that’s an end to the questioning from the NDP caucus, we now move through the second round of questioning. I think we have enough time for 14 minutes for each caucus. Mr. Younger.

 

MR. YOUNGER: Thank you, Mr. Chairman, we’ll see how good your math is now. Let me first say that the member for Hammonds Plains-Upper Sackville forgot, in his list of things that he thought should be considered, the fact that the current NDP Government has added more debt faster than any other government in Nova Scotia history. He forgot that. He probably ran out of time and didn’t have time to mention that at the end. I’m sure that if they were given the chance, which I doubt people will, to stay in power longer, they could far exceed any other government in history’s record for added debt and probably in a faster time, as their current rate has shown - and has been noted by a number of independent groups, incidentally.

 

I think I would like to start by following up on something my colleague was asking about earlier. This is for Mr. Lapointe, the Auditor General, you stated in The Halifax ChronicleHerald - and I was just looking to see if I had that exact quote, which I think I do have here somewhere; I’ll find it in a second - that you felt there was no reason that the most up-to-date information couldn’t be and shouldn’t be included in a government’s budget, and that was the reason for your recommendation in your report. Was that an accurate reflection?

 

MR. LAPOINTE: Yes, that’s correct. We had recommended, on March 15th, I believe, that the changes all be made. We felt it was reasonable at the time that they could be.

 

MR. YOUNGER: Okay, thank you. I’m wondering, from the point of view of the Department of Finance - I mean, it’s great that you’ve implemented this year. In practical terms, the reason that the Auditor General’s Report made the recommendations they did is they felt that this is what you should have been doing last year, right? Is that a fair - I mean, I know you’re doing it this year and that’s fabulous.

 

MS. CODY: The reality is the budget process is an evolving process, so we get better as we go. We’ve been building upon recommendations of the Auditor General for a long time now. So yes, this is an improvement for us, and we are more than happy to work with the Auditor General’s Office to deliver on this for this year.

 

MR. YOUNGER: So this $27 million - there’s a March 19th date for the cut-off of recording all non-trivial errors. If this was this year, would that have been a non-trivial error?

 

MS. CODY: Well, we’d have to see what the Auditor General would say about that. Is it under his materiality threshold or not? I mean, that’s who we would look to to define what is a non-trivial error.

 

MR. YOUNGER: Maybe I’ll ask the Auditor General. If this had been last year and we had this in place, would this be - we’ve decided it’s a non-material error. Would this be a non-trivial error?

 

MR. LAPOINTE: I should reiterate that materiality is irrelevant for correcting of errors. It has to do with whether or not we qualify our opinion and we’re looking at a much higher threshold.

 

MR. YOUNGER: I appreciate that. Thank you.

 

MR. LAPOINTE: So in terms of a non-trivial error, yes, we would consider this to be - if this were occurring this year - a non-trivial error. We considered it a non-trivial error last year and considered that there was time to correct it.

 

MR. YOUNGER: Thank you. I think that’s important, because we’ve heard the Premier and the Minister of Finance and the Department of Finance say, well, the Auditor General gave us an unqualified opinion. I don’t think that means that the $27 million wasn’t important, as you pointed out. That just meant that it was under the threshold that would qualify the opinion.

So we’ve established that this would be non-trivial. Hypothetically - now, hopefully this process eliminates these options, but if we had a $27 million - somebody found out something next week - more information comes from the federal budget and we find that there’s going to be a shift in transfer payments of $20 million or something like that, you might not be able to change the budget by next Thursday. Is that something you would bring forward as a last-minute amendment or something, as you did with a number of items last year, as my colleague noted? Or would you at the very least suggest that the Minister of Finance make the Legislature aware of an impact like that that comes up at the last minute? I’m just wondering what your advice to the minister would be. It’s her choice whether she would take it, obviously.

 

MS. CODY: Absolutely. So if we found out - but clearly we’re past the 19th, this year’s key cut-off date, and we know the federal budget’s out the door and we know our numbers, so that’s not an issue, realistically. But sure, if we were aware that there was something that came out afterward, we’d certainly make her aware of it. Whether we would factor it into the numbers is a totally different question.

 

MR. YOUNGER: Yes, and I think there is a difference between factoring it into the numbers that we see on the page and the Minister of the Crown making the public aware. To me, there is a difference. You can say, listen, this is going to be corrected - and we’ve heard this before, in previous governments. This is not out of the blue or some new process. We have seen governments of various stripes and governments at different levels say, listen, there is going to be a correction or an adjustment in the numbers leaving - we see it in the private sector all the time. You see it in their market guide, saying there is going to be a correction, these are the numbers that we had on the cut-off date. They have the same sort of thing that you just read to the member for Hammonds Plains-Upper Sackville, where it said, these are the numbers as of March 1st. Well, we see that all the time in the private sector in publicly-traded companies, where they say, this is it, but by the way there will be an adjustment coming forward because we had layoffs or whatever, or there is an amortization expense, or all kinds of things like that.

 

In terms of the process, we’ve heard that it went to the Treasury Board on March 28th. The Treasury Board made a decision. Maybe there were people from the Premier’s Office there; maybe there weren’t. We know from the freedom of information request that those minutes were passed to the Premier’s Office, whether there was somebody at that meeting or not. To follow up on - because my colleague had run out of time on this - at the end of the day the decision on the budget is made by the Treasury Board, but it’s also made by the whole Cabinet. Correct?

 

MS. CODY: In terms of the process, these kinds of decisions are made in Treasury Board. That’s their mandate. That’s their job. They make those decisions around spending and details around assumptions and revenue levels. That’s their job. Clearly . . .

 

MR. YOUNGER: The Cabinet would have to be advised . . .

 

MS. CODY: Of course.

 

MR. YOUNGER: I mean, you can’t have ministers walking around not realizing that we’re $27 million short that we’ve got to find.

 

MS. CODY: I guess my point I was trying to make is, you don’t then take it all in and go in and ask and go through all the detail and expect the Cabinet would then supersede the Treasury Board. I mean, their mandate is to make those kinds of decisions and then bring it in and inform government - the rest of the government members - as to what the budget looks like.

 

MR. YOUNGER: But one would expect that the Cabinet - and the Premier is a member of the Cabinet - would be aware of that. I can’t imagine . . .

 

MS. CODY: Be aware of what?

 

MR. YOUNGER: Well, that there is an error in the budget before it’s presented.

 

MS. CODY: Again, back to the error issue. It’s about materiality. Does the Premier get alerted to every change in the details? I don’t know. I can’t imagine that he would, frankly, as I’m sure he is a very busy man.

 

MR. YOUNGER: But this is a pretty big change. I mean, this means that you’re not meeting the targets.

 

MS. CODY: In terms of materiality?

 

MR. YOUNGER: But it’s a non-trivial error.

 

MS. CODY: Play on words.

 

MR. YOUNGER: Really, this is an important enough error - or if you don’t want to call it an error - this is an important enough adjustment that it has now been determined that even on your new schedule, on March 19th, it would now be included.

 

MS. CODY: These are estimates, we can’t forget that.

 

MR. YOUNGER: I know, but we want . . .

 

MS. CODY: These are estimates that will continue to change . . .

 

MR. YOUNGER: Of course it will, but we want the best estimates possible.

 

MS. CODY: At the next opportunity, definitely it would be brought in - if it’s still real by that time. There are a lot of other factors that will change and may be mitigated by the time the first-quarter report comes out in September, but if it, in fact, was still there, it would come up.

 

MR. YOUNGER: Well, okay, let’s get to that. It can change, but in this case is it not true that by the time we hit December the revenue numbers were actually even worse than that, right? They were down I think - doing it by memory - it was like $90 million or something.

 

MS. CODY: Yes.

 

MR. YOUNGER: It wasn’t even $27 million by that point.

 

MS. CODY: But for different reasons.

 

MR. YOUNGER: Oh, I know it was for different reasons, but what I’m saying is it can go both ways.

 

MS. CODY: It can definitely go both ways. Absolutely. I’ve seen it.

 

MR. YOUNGER: Right, and so in the end, the day the budget was presented we knew it was out by $27 million, and then it actually got worse than that, and by the time December - and I’m not suggesting they would have known it was going to be out by $90 million, don’t get me wrong. But what I’m saying is that it can go both ways. It could have gotten better too.

 

MS. CODY: That’s all I was trying to say, that’s right.

 

MR. YOUNGER: Yes, and all I’m saying is that I think when the minister presents the estimates to the Legislature and to the public, they should be the absolute best estimates that they’re aware of, even if they’re aware of something on that very day. We go through a vote on every department’s estimates. One of the members of the government makes a motion both in here and they do it in the other room, saying these are the right estimates.

 

Let me give you an example. The Minister of Finance - if I remember correctly, those estimates were in the Red Room, and I don’t think they were there very long because it’s usually not as many questions - but the Minister of Finance or their surrogate would have made a motion in the Red Room saying approve our revenue estimates for this section of the budget. So they were actually making a motion that they knew was wrong - is that not . . .

 

MS. CODY: I could ask Byron to speak to this.

 

MR. YOUNGER: Sure. Actually, he was probably there.

 

MR. RAFUSE: Just a clarification. I think in appropriation, the resolutions are only on the expenditure side, there is not a resolution for the revenues.

 

MR. YOUNGER: Okay, that was the motion in here.

 

MR. RAFUSE: The motion in the House would be to approve the Department of Finance’s expenses.

 

MR. YOUNGER: All right. I stand corrected on that and thank you. But at the end of the day - so it wasn’t in the Red Room. Actually, now that you say that, I think you’re probably right. But in here we still voted on something that - fine, we voted against it, but that’s immaterial. The fact of the matter is that we’re sitting here making suggestions, saying well, you know, you say you have this much money, and I think where the problem is, now that we have a budget coming next Thursday, is frankly nobody knows if the person sitting in the Finance Minister’s chair will tell us if they found out something the night before. Even if they can’t change the document - and I don’t much care whether the document is changed - I don’t know whether they would tell us.

 

I’m not sure, and I guess this is the question, how are members of the public in Nova Scotia - forget about members of the Legislature - how is someone out in the public supposed to have faith in the fact that it just isn’t a budget that somebody hopes there will be an election before the next Auditor General’s Report comes out so it won’t matter, or that they’ll find a way to make up for that? (Interruption) It is a question.

 

How does one have faith after knowing that people seem to think it’s okay that nobody was advised? I don’t think people care about the fact that it came in on March 2nd, they’re still wondering why somebody would stand up in a speech and say, we’re meeting this when they knew we actually probably weren’t.

 

MS. CODY: I think probably we have a whole lot more process to protect against that than any other province in the country. So if we have our Auditor General going through this whole process with the rigour . . .

 

MR. YOUNGER: I agree, you have the Auditor General going through the whole process, and he sat there and he said on the 15th you really should make this change but you didn’t follow it. So at the end of the day . . .

 

MS. CODY: Your question was about this year; let’s talk about this year. Let’s assume we’re working towards a positive resolution to the Auditor General’s review of our revenues this year and our economic assumptions. Now that we have this added cut-off deadline and all that process built in in response to the Auditor General’s recommendation, I would say with confidence that we have more credibility to Nova Scotians than many other jurisdictions do that have nobody asking the kinds of questions that the Auditor General asks when they put their revenue picture together.

 

MR. CHAIRMAN: We’re finished with this round. Thank you for the questions and the answers. We move to Mr. Baillie, 14 minutes.

 

MR. BAILLIE: I’d like to switch gears for just a moment and then come back to this topic. I do want to ask a few questions about the upcoming budget. Ms. Cody, in your introductory remarks you indicated you have gone through the Auditor General’s February report and that your department is implementing his recommendations - I think you said all of them. One of them, Recommendation 2.1, is “The Department of Finance should include all revenues of the consolidated entity, including all agencies’ third party revenues, for the 2013-14 budget.”

 

In previous years the health authorities and school boards and others are not consolidated or not included in the estimates - they are in the Public Accounts - but in order for the Auditor General to provide a clean opinion in the future, he has made this recommendation for this upcoming year - is that one of the recommendations your department is implementing this year?

 

MS. CODY: I’d like to turn to Byron to talk about that.

 

MR. CHAIRMAN: Excuse me, just before we get the answer to this, let me note that we’re straying onto territory that is somewhat ambiguous as to propriety, but I’m sure the controller will keep in mind that disclosure of budget items in advance of its presentation in the House is not appropriate.

 

MR. BAILLIE: Mr. Chairman, all I’m asking is if they’re implementing the Auditor General’s recommendation.

 

MR. CHAIRMAN: I understand the question, I’m just noting where we are.

 

MR. BAILLIE: I don’t want to know if our taxes are going up and down. I can wait for the day, but I think I’d be interested to hear the answer.

 

MR. RAFUSE: If you recall that the government did commission a study. They looked at four options to address this recommendation. One of those options has been explored with the Office of the Auditor General and included in this year’s revenue assumption will be a listing of third party revenues, or revenues, entities, that we consolidate that they’ve received from outside the provincial sources, as per that recommendation.

 

We’re hoping that that qualification aspect of the Auditor General’s opinion will be removed and that will be to a clean audit opinion on all the revenues.

 

MR. BAILLIE: For this upcoming year?

 

MR. RAFUSE: For this upcoming year.

MR. BAILLIE: What effect will that have on the budget, the consolidation of these health authorities and school boards and others on the revenue estimates?

 

MR. RAFUSE: It will have no effect on the revenues. If you recall the way in which the government previously reported these items, we made an assumption that these revenues were all set by equal amounts of expenditures and are included in the estimates to the consolidating adjustment line.

 

What we’ve decided to do to accommodate this recommendation is these revenues are now listed in a separate report that will be shown in the assumptions document. They are not added to the revenues of the government. The reason for that is that they do not support expenditures coming out of the general revenue fund and it wouldn’t be appropriate to include those revenues in that perspective, but we do include them in the total revenues of the government.

 

MR. BAILLIE: So for the estimates, they won’t be included in the general revenue fund. I understand that, but in the line item related to consolidated entities like the health authorities and school boards, what effect will this change have on the budget overall?

 

MR. RAFUSE: It will have no effect at all because these amounts are based on the revenues these entities would have received in the past with known adjustments. These entities continue to receive these revenues as they have in the past. They used them to support expenditures that are not supported by grants or other amounts coming out of appropriations out of the general revenue fund.

 

So they are there for information purposes. They don’t affect the revenues of those organizations, they don’t affect the revenue of the province because we always did include these when we reported our consolidated Public Accounts - they were always included as our revenues. They are there for information purposes and it doesn’t expand the expenditure base of the province at all.

 

MR. BAILLIE: At the same time, are there any accounting rule changes recommended by the Financial Accounting Standards Board, or other boards, that will take effect in the 2014 estimates around tangible capital assets, intergovernmental transfers, that do affect the revenues of the consolidating entities?

 

MR. RAFUSE: There are two changes in accounting standards which do affect the entities of which we consolidate. Those actually came into effect in the fiscal year 2012-13. Those would be the ones around government transfers and the way in which organizations treat those government transfers.

 

The other one would be around the underlying accounting principles which entities use. Previously, organizations like the district health authorities followed what were called the not-for-profit rules. Not-for-profit rules do not exist anymore and so those entities, government and not-for-profit organizations, were directed towards public sector accounting rules that came into effect in the current year.

 

As far as the impact of those two changes, they will impact those entities’ statements and how they report, particularly around capital transfers, and whether or not they defer them. But on a consolidated basis for the province, that has no impact because we would have eliminated those differences when we consolidated these entities to convert them essentially to PSAP anyway, even though they would have been reporting as individuals on a different basis.

 

MR. BAILLIE: And you do that when you actually compare the Public Accounts, I understand, but for the purpose of the 2013-14 estimates, this will be the first year that those accounting changes, the two that you spoke of, would be part of the estimate process - so will they be part of the estimate process for this year?

 

MR. RAFUSE: Yes, the impact of those changes are incorporated in the estimates.

 

MR. BAILLIE: And what is that impact, in dollar terms?

 

MR. RAFUSE: The impact would be negligible because we reported on a consolidated basis and since those impacts were eliminated previously, there should be no impact. The impact would be on the individual statements and how they report those end transactions.

 

MR. BAILLIE: Did your department, or your office, provide any direction to the health authorities, school boards, and others about how they are to account for these changes to governmental transfers and capital assets?

 

MR. RAFUSE: Certainly for the school boards, there was little direction to give them; they were already following Public Sector Accounting Principles anyway. For the health authorities, as there is for all the government and not-for-profit organizations, there was a possibility to use a portion of the previous not-for-profit rules - so it was PSAP plus a portion of it. We gave them direction to go directly to PSAP and not to hang on to a portion of the old not-for-profit rules. They would have had to convert in two years anyway and we decided to get them to do it immediately.

 

MR. BAILLIE: Would those changes make it easier for the budget to ultimately be balanced when it’s presented next week?

 

MR. RAFUSE: Actually it should have no impact on to balance or not to balance. It’s really that the budget is presented in a consolidated perspective anyway; the impact should be eliminated.

 

MR. BAILLIE: Will you be presenting the estimates under both the old rules and the new rules if there is a difference.

MR. RAFUSE: We don’t actually present the budgets for the health authorities. What is presented in the estimates are the grants that the Department of Health and Wellness gives those entities and so that won’t change; there won’t be a presentation impact. If anything, it would come through that consolidated adjustment line and for the most part we believe that to be minimal.

 

MR. BAILLIE: Could you provide us with a copy of the direction that you did give to the health authorities and others, around how to account for these changes?

 

MR. RAFUSE: Certainly I can provide the committee that.

 

MR. BAILLIE: Okay thank you. I do want to go back to the $27 million if I may. The Auditor General in an answer a few moments ago stated that materiality is irrelevant for the correcting of errors; errors, when they are known, ought to be corrected. I believe that your advice to the Treasury Board was that it’s not material, which concerns me since that’s not really the point.

 

I do take your point that we have to judge whether an error is significant or not and I do just have to say for the record that who decides whether it’s significant or not - whoever made that decision should make it based on what the users of the estimates consider to be significant. The users of the estimates are the people of Nova Scotia, ultimately, who rely on them to know whether what the state of the province’s finances is. I just want to assure everyone $27 million is significant by any typical Nova Scotian’s definition; $270 would be significant to a lot of Nova Scotian families today.

 

I want to return to the very basic question of who ultimately decided not to change the budget in time to present it to the people of Nova Scotia, and/or who decided that $27 million was not significant?

 

MR. CHAIRMAN: I think that question goes to the deputy, is it?

 

MR. BAILLIE: Yes.

 

MS. CODY: Okay, I thought I answered this but I’ll try again. The recommendation on whether it was material - we deal with the materiality when we’re dealing with producing economic and revenue forecast. We deal closely with what the Auditor General’s materiality clauses are saying. We did not feel that it was material and so our recommendation on our revenue forecast and revenue assumptions, once we discussed that as well with our external challenge was that it was immaterial, we made them aware of the implementations . . .

 

MR. BAILLIE: I’m sorry, who is them in this case?

 

MS. CODY: Government.

 

MR. BAILLIE: And more specifically than that?

 

MS. CODY: Treasury Board.

 

MR. BAILLIE: And more specifically than that?

 

MS. CODY: All the members who were in the room at the time. I’m sorry, I don’t have the attendance record for who was in the room at the time but it would have been the Finance Minister, it would have been the chairman and I’m not sure who else at that time.

 

MR. BAILLIE: Were there any others besides Treasury Board that you made this information known to?

 

MS. CODY: Finance would have made it known to the Finance Minister. The Finance Minister and the relevant staff would have gone into the Treasury Board on the 28th and made that presentation to the Treasury Board room. So the ministers of the Treasury Board - that’s as far as Finance would have taken that.

 

MR. BAILLIE: So when you say “we” made the recommendation and “they” decided, “they” is the Treasury Board, the committee of Cabinet.

 

MS. CODY: Yes.

 

MR. BAILLIE: Okay.

 

MS. CODY: They made the decision to accept the recommended revenue estimates.

 

MR. BAILLIE: Their job, with all due respect, is to decide whether to accept the recommendation or not, and they should be guided by whether $27 million is significant to the ultimate users of the information, which is the people of Nova Scotia.

 

They decided, apparently, to not make the change, and secondly, not to disclose the change, for political purposes, because as has been pointed out, they had a wish to communicate - wrongly, as it turned out - that they were on track when, in fact, they were not on track.

 

I say this with respect to you and Mr. Rafuse, because that is not a departmental decision to make. That’s a political decision to make. Either they decided it wasn’t significant, which puts them offside with every single Nova Scotian who would consider $27 million to be significant, or puts them offside with appropriate disclosure practices under accounting, because the Auditor General has said that materiality has nothing to do with whether you correct errors or not.

 

I just want to make sure I’m quoting the Auditor General correctly when I say that materiality has nothing to do with this decision. I believe that’s what you said. Is that correct?

 

MR. LAPOINTE: Yes, that’s correct. We use materiality - in this case $90 million, roughly - to determine whether or not we qualify the opinion on our reports. That is to say, if there was an error greater than $90 million, we would give a qualified opinion.

 

MR. BAILLIE: Thank you. Ms. Cody, you said you informed the government about the error. The Premier says that he had no idea. How do you account for that discrepancy, where he said, and I quote, it’s “simply not true,” when he was asked if his government was informed prior to tabling the budget? Again, he answered, “Absolutely not.”

 

MR. CHAIRMAN: I don’t think she said she informed - she said the department informed. We haven’t even been told whether she was present at those meetings of the Treasury Board.

 

MR. BAILLIE: Okay, so the same question; the department informed the government, and the Premier says he didn’t know. He’s a member of the government. How do you account for that discrepancy?

 

MS. CODY: The department informed the Treasury Board. The Premier is not a member of the Treasury Board. It did not present this. The staff of the department did not present this to Executive Council.

 

MR. BAILLIE: The Premier’s Office staff normally attend Treasury Board meetings, isn’t that right?

 

MS. CODY: When they can - not always, but when they can, for sure.

 

MR. BAILLIE: When the agenda includes approving the revenue estimates or the budget for the year, I think it’s hard to imagine that the Premier’s Office wouldn’t have an interest in that meeting. I know you’re not able to confirm whether they were there. We’ll pursue that somewhere else.

 

It just seems to me, Mr. Chairman, that having a Premier in the dark about a budget with a $27 million hole - either he knew and allowed it to proceed, as the head of the government, or he didn’t know, which has its own problems because he, through neglect, allowed the people to be misinformed about a significant error in a budget that was presented to them by his Finance Minister.

 

MR. CHAIRMAN: Thank you. The questioning from the PC caucus is finished. We now move to the NDP caucus for its round of 14 minutes, and we have Mr. Ramey.

 

MR. GARY RAMEY: Thank you very much, and thanks for coming in this morning. I guess I want to talk about something we haven’t talked very much about at all, but it’s important to me, and I think to my colleague from Pictou East as well, and that is debt. We know that in Canada - at least we’ve been hearing that individual Canadians are carrying a lot of it, and we know that provinces are carrying a lot of it. It’s my understanding - and I may have this wrong, but I think many of the provinces in Canada are carrying significant deficits as well as debt. I think I heard the other day that the Province of Alberta, which is always held up as the great shining star, was forecasting a deficit of about $866 million, and they think it might be $1.6 billion. That’s a lot of dough, in my opinion.

 

I want to share my time with my colleague from Pictou East, so I was wondering if you could just give me a very quick encapsulation, maybe just bullet points, on the historical perspective on the province’s debt, going back maybe 20 years and coming up to now. I don’t know if that’s even a fair question for you, but where we were and where we are, that sort of thing.

 

MS. CODY: Sure, I’ll do my best. Back in the 1980s - in 1981-82, let’s start there - our net debt level was $1.4 billion. Five years later it had grown to $3.2 billion; five years after that it had grown to $4.7 billion, and you can see it ramping up here; and five years after that it jumped to $8.7 billion. So between 1990-91 and 1995-96, it went from $4.7 billion to $8.7 billion. Then it crept up to 1998-99 and 2000: it was $10.2 billion in 1998-99; in 2000 it was $12.1 billion. Since that time it has stayed in the $12.2 billion, $12.3 billion volume. We actually put a payment down on the debt at a certain point and that took it down again, but currently, as of 2011-12, it’s about $13 billion. This is net debt. You can see in the 1980s and the 1990s that it really started to ramp up, but since 2000 it has been $12 billion and slowly creeping, so the growth rate has really modified at that time.

 

In terms of debt to GDP, which I think is a really important aspect of debt you have to think about, and that’s our ability to sustain our debt - so, how big is our economy and how robust is it relative to that? - when we look back at the recession time at 2008, between 2008 and 2012, we look at Nova Scotia and how it has changed relative to other provinces. The percentage increase in our net debt over that period of time in Nova Scotia was 9.3 per cent, between 2008 and 2012.

 

When you compare that to the other jurisdictions there has been a much more aggressive growth in their debt to GDP. In their debt levels, the percentage increase in British Columbia was 58.9 per cent; in Alberta, 39.8 per cent; in Ontario, 50.4 per cent; in Quebec, 34 per cent; in New Brunswick, 42 per cent; P.E.I. was 37 per cent; and Nova Scotia was 9.3 per cent. So when you compare how much our debt grew over that five-year period, it did grow, but it was definitely not at a pace that we saw other jurisdictions grow by. When you look at our debt per person, the increase was similarly a lot less on a per-person basis.

 

So yes, it did grow during that period because of what was going on in the economy, the need to incur the expenditures to keep the economy moving - that’s where we saw a lot of our shovels-in-the-ground activity going on with the federal government - everybody was doing it. But we were at the same time trying to ensure that it didn’t grow more aggressively than it needed to and to keep our other expenditures in line.

 

I think we’re feeling like, yes, the debt level has grown; it slowed in the past decade - it has definitely slowed down in its growth - but in the context of our debt to GDP, it has really come down. We were at one point, where our debt-to-GDP history saw us, back in 1998-99, at almost 50 per cent of our debt to GDP. We’re currently down to about 35 per cent.

 

MR. RAMEY: I have two quick questions and then I promised to hand it off to my colleague. How much was the debt payment? You mentioned we made a payment on the debt. What year and how much?

 

MS. CODY: We can certainly get that for you. I don’t think we have it at our fingertips right now.

 

MR. RAMEY: The second thing that I’d just like you to comment on very quickly, if you don’t mind, is would you describe the last - I don’t know, I’ll say four years - as among the worst, in terms of the world economy, one of the worst recessions we’ve had since the Great Depression, or do you think it’s just a minor blip?

 

MS. CODY: I don’t think it’s a minor blip. Whether it’s the worst since the Great Depression, I don’t think I’m qualified to say that. We all thought it was destabilizing back in 2008 and it has been a very slow recovery for everyone. It has been very difficult in our forecasting about how robust our economy is going to be when we’re still seeing industry struggling to regain the ground they lost as a result.

 

MR. RAMEY: So to control adding to the debt in very difficult economic times is a challenge but it seems like one that’s being met here in the province right now, or reasonably well.

 

MS. CODY: Yes, we’re working really hard on it but we recognized that we needed to keep fuelling the engine during the recession to keep the economy moving. To do that you have to invest those dollars but manage it in a way that we’re not going to be further debt-laden dramatically as a result of coming out of that.

 

MR. RAMEY: Understood and agreed. I’ll pass it off to my colleague, Mr. MacKinnon.

 

MR. CHAIRMAN: Mr. MacKinnon.

 

MR. CLARRIE MACKINNON: The member for Lunenburg West has extracted some of the information that I was looking for, for sure. But one of the things that I want to zero in on is that net debt is usually used as the measure of financial health, is that correct? We’ve already indicated that Nova Scotia has done better than seven other provinces by a great, great number of percentage points; in fact, over 40 percentage points higher in at least one jurisdiction and many others close to that. Is the health indicator the net debt usually?

 

MR. RAFUSE: The net-debt indicator is one that’s recommended by PSAB, the Public Sector Accounting Board. In fact, they actually refer to their model of accounting as a “net debt” model, the indicator that they recommend the government should use for comparison to one another. So it is the one which is not only an indicator, but the leading indicator they recommend for comparison from one to another.

 

MR. MACKINNON: I want to jump back to the economic assumptions and the reviews that have actually taken place. I was very impressed with the list that you presented, deputy, in relation to the number of parties, the number of banks and economists, to a large extent in jurisdictions far beyond Nova Scotia. You indicated that a conference call was even used with some of the leading bank people and so on. With the Conference Board of Canada and APEC and all these economists, have we not heard words like “prudent”, “cautious” and, heaven forbid, “conservative” - but fortunately it’s a small “c” - are those not words that have been used? Can you elaborate on that a bit? I think that’s fundamentally important when people of a leading calibre are using those kinds of words.

 

MS. CODY: That’s true. They did this year and they did last year as well. After their thorough scrutiny of our economic assumptions, they did use words that would support the level of assumptions that we were building in, that they were very reasonable and prudent.

 

MR. MACKINNON: I think it’s fair to say that we always take the AG’s recommendations very, very seriously, and I understand that the Department of Finance and the minister and all parties are prepared to accept and implement most of the AG’s recommendations, and many of them have already been addressed is my understanding. Do you want to expand on that?

 

MR. RAFUSE: Certainly, if you look at the Auditor General’s Report of February of this year, of all the recommendations that were in that report, the department has agreed with his recommendations and has either implemented or is about to implement them. The one in relation to the timelines of the revenue estimates, the deputy has already spoken quite a bit about the recommendations to include the timelines. We have moved on to reporting on third-party revenues and the inclusion of those amounts in the revenue estimates, and you’ll see that for the first time in the revenue estimates tabled next week. There is another series of recommendations around controls and improvements to internal controls, and we have agreed with those recommendations and are moving forward on them.

MR. MACKINNON: The chairman has already indicated that we can’t really talk about the 2013-14 budget, but I think it is very fair to ask the department if you have confidence in the accuracy of the 2013-14 budget and the process.

 

MS. CODY: I would say absolutely. Based on the information that we’re working with and we’re aware of today, I feel very confident that we have reflected it as accurately as we can. I think we’re not naive to think that the world won’t keep moving and new data will come out and we’ll have to reassess it, but we will do that absolutely in our first quarterly update in the Fall. But the material that we’re working with now and the decisions that are made around that, I am very confident that we’re on the right track.

 

MR. MACKINNON: In relation to the AG’s recommendations the current government has committed to keeping Nova Scotians informed about the progress of its efforts in implementing the AG’s past recommendations. I think we’re doing that with more frequency and, in fact, laid down a plan in relation to doing this. Every six months new reports are posted and they are posted on-line for all Nova Scotians to see. Certainly the recommendations that have come forward in relation to Finance will be posted and the large percentage that you have implemented will be known to all Nova Scotians. Is that correct?

 

MS. CODY: Byron, would you speak to that?

 

MR. CHAIRMAN: If we could get a very brief answer because I think our time . . .

 

MR. RAFUSE: Certainly you’ll see that on the semi-annual reports coming out, we’ll see that progress as we will on the Auditor General’s follow-up reports, which is a view of two years or older - you should see some improvements on the Department of Finance’s follow-ups on those as well.

 

MR. MACKINNON: Thank you very much for the leadership that you’re showing.

 

MR. CHAIRMAN: Thank you to our questioners and our witnesses. I’ll remind the department witnesses that there was an undertaking to provide the committee with a copy of the letter of advice for direction that was sent to the health authorities with respect to the presentation of their budgets for input, the overall provincial budgets this year. If you could supply that to the committee clerk that would be very useful. The second point of information was with respect to the year and amount by which the provincial debt was paid down within the last few years. Again, if both of those items could be supplied as quickly as possible, it would be a big help. Deputy, did you have any closing remarks for us?

 

MS. CODY: Thank you. On behalf of Byron and myself, I’d like to thank the Public Accounts Committee for the opportunity to address some of the topics the Auditor General highlighted in his most recent report. In closing, I’d simply like to reiterate that the Department of Finance maintains a very good relationship with the Auditor General’s Office. We value the work of Mr. Lapointe and his staff, which complements our department’s efforts to be continually improving and strengthening our processes. Thank you.

 

MR. CHAIRMAN: Thank you, deputy, and thank you, Mr. Rafuse - a couple of items by way of committee business. I would just like to note that certain information that was requested from the Department of Transportation and Infrastructure Renewal, stemming from the February 27th meeting, was received and was distributed to all members of the committee. I just wanted to make sure that this information, which had to do with local road projects and is called Paving Priority Scoring Sheet, along with a priority list is the item in question.

 

Second, I would note that our next meeting date is set for April 3rd, that will have to do with the Department of Education, home-schooling. We will meet from 9:00 until 11:00 a.m. and this is one of the topics stemming from the Auditor General’s Report.

 

I should also note that the staff of the committee is trying to organize a subcommittee meeting for April 24th from 11:00 a.m. until 11:30 a.m. and will be consulting with all caucuses as to the availability of that, but I would ask that the members consider that and if at all possible hold that time, April 24th, 11:00 a.m. until 11:30 a.m. for a subcommittee meeting.

 

Our next item of business today will be a brief in camera session with the Auditor General and with that, I thank members and ask for a motion to adjourn.

 

MR. MACKINNON: So moved.

 

MR. CHAIRMAN: I thank all members for their participation today. Thank you very much. We are adjourned.

 

[The committee adjourned at 10:56 a.m.]