15 August 2006

Legislature financial scandal bigger than previously revealed

MHAs overspent constituency allowances by more than half million in '05 alone

[Update: See explanatory note at end]

Financial statements released on Monday by the provincial finance department showed that the House of Assembly overspent member's allowances - the subject of a current scandal - by more than $550,000 in Fiscal Year (FY) 2005 even though Budget 2006 released in March, 2006 reported the expenditures were exactly on the budgeted amounts approved by the legislature.

Fiscal Year 2005 ran from 01 April 2005 to 31 March 2006.

Expenditure in FY 2005 for the line item "Allowances and Assistance" under the House of Assembly operations was budgeted at $5, 090, 800 with actual spending reported at the end of the fiscal year (31 Mar 06) as the same number.

Revised figures released Monday by the finance department show the actual expenditure for members' constituency and other allowances was actually $5, 648, 119, a difference of $557,319. (page 41)

Monday's revised financial statement contains a line called "amended estimates" but the figure given under that column - approximately $5.4 million - is not contained in the Budget 2006 estimates. 1

The "amended" figures have apparently not been released before. Government's website contains only the Budget 2006 documents, including the estimates, as originally released.

The Budget 2006 Estimates figures for the House of Assembly in virtually every line show expenditures matching budget forecasts to the penny, a circumstance that never occurs. The only variation is an additional $375, 000 for unspecified "Professional Services" under revised spending for FY 2005. In the Estimates, "revised" is supposed to mean the year-end actual spending.

In Monday's financial statement, the professional services amount is shown as actually having been about $374, 000 but no indication is given as to what professional services were purchased.

Government likely knew of problems earlier than previously admitted

The unusual way of reporting House of Assembly spending in the 2006 estimates suggests very strongly that the provincial government was aware of financial problems in the House of Assembly for FY 2005 at least as early as March 2006 and possibly weeks or months earlier.

The House of Assembly spending scandal was revealed in June, 2006 with the premier's announcement that Government House Leader and natural resources minister Ed Byrne had resigned as a result of an audit conducted by John Noseworthy, the province's auditor general.

The original news release makes no mention of the date when Noseworthy began working, but in subsequent media interviews Premier Danny Williams appeared surprised that financial problems existed until advised of the allegations against Byrne.

Auditor General's first reports left hundreds of thousands in spending missed or unexplained

Noseworthy's reports on certain suppliers and on two current members (Wally Anderson and Randy Collins) of the legislature show questionable payments totaling $769, 058 for FY 2005. However, Noseworthy reported only $116, 765 in overpayments on members' allowances for that year before announcing his review was completed, the first time. Monday's new financial statements show an additional $440, 554 in constituency allowance spending that was completely unaccounted for or unexplained by Noseworthy's previous work.

In a surprise announcement in late July, government announced that Noseworthy would conduct a new review of some House of Assembly spending, despite his earlier claim that his work was completed. His revised mandate does not include any period after 31 March 2004, however.

Monday's financial statements may be evidence that Noseworthy is getting a second chance to review some spending, but only on year's that do not call into question claims by the premier and others that the House of Assembly financial problems do not extend past the end of FY 2003.

Order-in-Council 2006-295, dated 19 Jul 06, invites the Auditor General John Noseworthy to carry out:

- annual audits of the accounts of the House of Assembly from Fiscal Years 1999/2000 to 2003/2004; and

- a review of constituency allowances between 1989 and 2004 further to the Morgan Commission Report, to determine whether overspending occurred at the constituency level beyond funds which were approved, authorized or provided through the Internal Economy Commission policy.
Budget 2006 estimates also cast increased doubt on repeated claims by the Speaker of the House of Assembly, the Auditor General, the finance minister and the Premier that financial problems in the House of Assembly did not continue past March/April 2004.


1 Explanatory Note: The Public Accounts are the statements of provincial government financial accounts. These account statements are required to be made public under the Financial Administration Act and must be auditted by the Auditor General.

Typically they are compiled after 31 March and tabled in the legislature, as required by the FAA, by the fall of the same year. The publication contains several volumes of figures and explanatory notes. For example, Fiscal Year 2004 ended on 31 March 2005. By Fall 2005, the Public Accounts for FY 2004 were produced and made made public.

The Public Accounts reflect the complete and accurate record of the previous fiscal year based on a detailed review and allocation.

Keeping of the public accounts is vested under the FAA in the Comptroller General.

Estimates are the annual budget estimates compiled by the government and laid before the House of Assembly for approval each year. They contain, among other things, a report of the previous fiscal year's budget and actual performance at the end of the fiscal year.

The column labelled "amended estimates" or "amended in Volume III of the Public Accounts should be the same number contained in the budget and presented as "revised" for the previous fiscal year.

For example, a line item in Budget 2004 Estimates may have ben given as 1,000 to be spent in FY 2004. In the Estimates presented for 2005, the 2004 results would have shown "Budget" as $1, 000 and a figure labelled "Revised" that would be the actual amount spent under that line item.

The "revised" from the Estimates is the spending at the end of the fiscal year as shown by all government financial records including those maintained by the Comptroller General.

The "Amended" figure contained in Volume III of the Public Accounts should be the "revised" figure from the most recent budget. Volume II will provide an accurate figure in addition to this which shows what the final financial position of the province is with respect to that line item. It is the result of a detailed calculation by the Comptroller General as reviewed and approved by the Auditor General.

In the past two budgets, FY 2005 and FY 2006, the line item for House of Assembly allowances and assistance is consistently misreported. However, the figures were known or ought to have been known to the Comptroller General and the finance minister at the time the budget estimates were tabled in the legislature for approval.

In previous fiscal years, the variation between the Estimates and the Public Accounts is comparatively small, including for the allowances and assistance item. In FY 2005 and FY 2006, the results are under reported by $450,000 and $550, 000 respectively and inexplicably.

Both the Estimates and the Public Accounts are compiled by the same officials using the same information databases. Both documents are made public since approval of spending by the Crown is a fundamental way the elected representatives of the people of Newfoundland and Labrador hold government accountable on behalf of electors.

Minor variations occur, however, the misreporting of the accounts and estimates - advertent or inadvertent - for the past two fiscal years is of such a magnitude (10% of the line time total amount) that the discrepancy and the consistency of the misreporting are cause to raise serious questions.

The report released on Monday is described in a way that suggest they are intended to replace Volume II of the Public Accounts. However, Monday's report has not been auditted. Volumes I and II of the Public Accounts will apparently be published at a later date.