Timeliness

1.1	At the time of writing of this annual Report, it appears that the 
Province’s audited financial statements for the year ended 31 March 
2003 will not be issued until at least November 2003. This would be 
more than seven months after year end. In order for information to be 
used for decision-making and accountability, it must be timely. When a 
government is already seven months into the next fiscal year, decisions 
made using this information could have limited benefit. But perhaps 
more importantly, is the fact that the taxpayers are still waiting to see 
how their money was spent. Some provinces in Canada release their 
audited financial statements before the end of June. Our own Province 
should adopt a similar reporting regime. 

This year’s Report will 
be in two volumes

1.2	The annual Report of the Auditor General normally includes a 
chapter on financial indicators. However, due to the government’s 
lateness in closing its accounts we were not able to include such 
comments in this volume. We intend to prepare a second volume of the 
Report, which will include our financial observations, and this volume 
will be released early in the new calendar year. We also plan to include 
in that volume work we have done on the management of absenteeism, 
focusing on sick leave. My Office is also doing work on the salmon 
aquaculture industry and our findings are expected to be published in 
June 2004. The Federal Auditor General’s Office and the Office of the 
Auditor General of British Columbia are also examining the salmon 
industry and we are planning a joint release of our reports.

1.3	There are a number of issues that I would like to raise in this 
chapter, some related to the projects we did this year, some related to 
operations of the Office of the Auditor General and others of a more 
general nature. I will start by emphasizing the importance of good 
governance and accountability.

Comments on this 
year’s work
  
Governance

1.4	Over the past few years, there have been a number of private 
sector scandals that have resulted in the collapse of companies like 
Enron in the U.S. and Bre-X Minerals in Canada. These scandals have 
caused an increase in the public awareness and interest in issues of 
board governance and accountability. These boards of directors did not 
represent the best interests of the shareholders who appointed them. 
Further, they added little or no value to the corporations they were 
governing and instead blindly followed the advice of, and supported the 
decisions of, senior management. 

1.5	In 2001, the Joint Committee on Corporate Governance, which 
included the Canadian Institute of Chartered Accountants and the 
Toronto Stock Exchange, had this to say in their final report:

The objective of good governance is to promote strong, viable 
and competitive corporations.

1.6	So, when examining the governance of any corporation it is 
important to have the right checks and balances in place to avoid poor 
governance. It is equally important to have the mechanisms in place to 
promote good governance.

1.7	The extent to which government services are delivered in New 
Brunswick through Crown agencies is significant. For instance, eight 
regional health authorities are responsible for the delivery of a large part 
of the Province’s health care. And Crown agencies have been created to 
look after the distribution and sale of liquor products, the provision of 
electricity needs, the delivery of regional development programs and the 
management of over $5 billion in pension fund assets. There are 
approximately thirty-five organizations listed in the government’s 
financial statements that have been given responsibility to deliver 
government services and who in turn are accountable to the Legislative 
Assembly. That is why the principles of good governance and 
accountability are so important. And this is why we undertook five 
governance-related projects between 1996 and 2000, culminating in a 
comprehensive project on Crown agency governance on which we are 
reporting this year. The results of our work are found in chapter 6. In 
total we made 19 recommendations covering practically every aspect of 
corporate governance. Action on these recommendations will without 
question improve our corporate governance culture but more importantly 
will enhance accountability and in the long run improve corporate 
performance. I hope that our observations and recommendations are 
seen in this light…. as an attempt to improve corporate performance. 

1.8	On a related matter, I am reporting in our follow-up chapter 7 
that in 1999 the board of directors of New Brunswick Liquor 
Corporation disagreed with 13 of the 19 recommendations we made as a 
result of reviewing their governance and accountability structures. I was 
surprised to learn this because in almost every instance the 
recommendation was promoting a practice that is seen to be generally 
accepted. Recently I have been informed that the current board has taken 
a number of initiatives and plans to undertake others to “promote 
effective Board Governance and provide greater accountability to our 
shareholders”. I am encouraged by this and trust that the work we are 
reporting on this year will help the Corporation, other Crown agencies 
and government improve governance practices in the Province of New 
Brunswick. 

Accountability

1.9	This year we also undertook an audit on the accountability of 
psychiatric hospitals and psychiatric units. The genesis for this audit was 
similar to that of Crown agency governance, in that more and more 
services are being delivered outside the direct control of a government 
department. For instance, many health services such as addiction 
services, extramural care, cancer care, cardiac care and mental health 
services are under the management of the Regional Health Authorities. 
With growing control at the regional level and more money being spent 
to support regional operations, it becomes increasingly important to 
have central mechanisms in place to ensure the government is achieving 
its objectives in these programs. The results of work in this area are 
found in chapter 4. Our overall conclusion was that the Department of 
Health and Wellness does not have appropriate accountability processes 
in place for the operations of psychiatric hospitals and psychiatric units. 
In other words it is not receiving sufficient information to evaluate 
performance. My Office’s work in this area will be of even greater value 
to the government and Legislative Assembly (and ultimately to the 
citizens of the Province) if it is used as a basis to evaluate other 
situations where service is being delivered outside the direct control and 
supervision of a department.

Child day care facilities

1.10	The Legislative Assembly has passed legislation, and the 
government has established standards for child care facilities in the 
Province of New Brunswick. We thought the Members would be 
interested in knowing whether or not the Department of Family and 
Community Services has appropriate policies and procedures to ensure 
there is compliance with the legislation and standards. We found that 
while the Department has established processes for approving and 
inspecting day care facilities, they are not adequate and they do not 
always ensure compliance with legislation and standards. The results of 
this work are found in chapter 2.

Tax expenditures

1.11	In chapter 3, we make some observations and recommendations 
concerning tax expenditures. “Tax expenditures” is the term given to 
foregone revenues due to special exemptions, deductions, or rebates that 
reduce the amount of tax that would otherwise be payable to the 
Province. For instance, the sales tax exemptions on gasoline used by 
farmers and fishermen would be a tax expenditure. As a result of our 
work, we have noted that tax expenditures do not receive the same 
annual scrutiny and approval by the Legislative Assembly as ordinary 
expenditures. Furthermore there is no public reporting on the 
effectiveness of these programs.

Management of insurable 
risks

1.12	In the late 1980s the government decided to no longer insure 
provincial buildings, meaning that all losses related to events such as fire 
would be borne by the taxpayers. We were interested in determining 
how the Department of Supply and Services manages the risks for the 
public buildings it is responsible for. In other words, what steps are 
being taken to minimize the risk of a loss occurring to one of our 
buildings? The results of our work are found in chapter 5.

Comments on action taken 
to address 
recommendations of prior 
years

1.13	I will highlight a number of issues from our follow-up chapter 7 
on prior years’ recommendations. Our policy is to track the disposition 
of our recommendations for a period of four years after they first 
appeared in our Report.

In some cases there have been 
few recommendations adopted

1.14	This is the last year we will be reporting on our 1999 work on 
the Department of Health and Wellness’ role in food safety standards, 
and on governance at New Brunswick Liquor Corporation. In 1999 we 
made 36 recommendations related to the Department’s role in ensuring 
food service establishments comply with food safety standards. Only 
four recommendations have been implemented since that time. I am very 
disappointed to see such slow progress in an area that is directly related 
to the safety of our citizens. All of the recommendations that have not 
been acted upon are listed in chapter 7. The thirteen recommendations 
that were not agreed to by the New Brunswick Liquor Corporation are 
also listed in chapter 7.

There has been a very positive 
response to some audit 
recommendations

1.15	Most of our follow-up findings have been positive. In 2001 we 
made 74 recommendations as a result of an audit of the Pupil 
Transportation Branch within the Department of Education. In two years 
the Department has implemented fifty recommendations and partially 
implemented another fourteen. This is a significant accomplishment. 
Also the Department of Agriculture, Fisheries and Aquaculture has 
implemented all eight recommendations related to an audit of controls 
over cash handling and inventory and the Department of Finance has 
implemented all six of our recommendations related to a review of a new 
automated accounts receivable system.

Adoption of some 
recommendations is beyond the 
responsibility of one 
department

1.16	I draw the attention of the Members of the Legislative Assembly 
to four recommendations that we made in 2000 as a result of a review of 
legislation in the Department of Agriculture, Fisheries and Aquaculture. 
These recommendations were made with the objective of assisting the 
Legislative Assembly in fulfilling its responsibility of ensuring 
legislation is being effective and relevant. While the recommendations 
were made initially to the Department they are applicable to all 
departments that are responsible for administering legislation. The four 
recommendations are found in paragraphs 7.98 to 7.102. I hope that 
both the Legislative Assembly and the government will see the value in 
these recommendations and that appropriate action will be taken.

New appendix

1.17	I have added a new feature this year to our annual Report and 
that is a brief description of all significant audits we have conducted in 
departments and Crown agencies over the past six years. This 
information has been grouped by department and agency and is found in 
Appendix 1.

Comments on the 
operations of my Office

1.18	There are three issues concerning the operations of the Office of 
the Auditor General that I am bringing to the attention of the Legislative 
Assembly. I believe these issues are extremely important because they 
relate directly to the Legislative Assembly’s responsibility to hold the 
government of the day accountable and the ability of the Auditor 
General to act independently. And they can only be resolved by the 
Legislative Assembly. The issues are:

•	the process for approving the annual budget of the Office of the 
Auditor General;

•	my Office’s current budget situation; and 

•	the method of appointing the Auditor General.

The process for approving the 
annual budget of the Office of 
the Auditor General

1.19	Section 17(1) of the Auditor General Act requires the Auditor 
General to submit a budget request annually to the Board of 
Management. The Board of Management, which is a sub-committee of 
Cabinet, makes the final determination of the amount included in the 
Main Estimates for the operations of the Office. So, in effect, the body 
we are mandated to audit determines the amount to fund our operations.

1.20	It is interesting to note that section 4(4) requires the Auditor 
General to determine the manpower requirements of the Office, but of 
course this has no meaning if the funding is not provided. Of greater 
concern, however, is that the body I report to, the Legislative Assembly, 
is not involved in the process at an early enough stage to allow it to 
significantly influence the outcome.

1.21	The budgets of at least seven audit offices are submitted directly 
to committees of the Legislative Assembly for approval in compliance 
with the legislation of those provinces. In one jurisdiction (Ontario), the 
budget is submitted initially to the government, then to a committee of 
the Legislative Assembly. In this case, there is provision for the chair 
and vice-chair of the Public Accounts Committee to attend meetings of 
the Board of Management when the budget of the audit office is 
reviewed. 

1.22	The independence of the Office would be greatly enhanced and 
the Legislative Assembly would have increased assurance that the Office 
was capable of fulfilling its responsibilities, if the Legislative Assembly 
or a legislative committee was involved in the budget review process.

1.23	In my 2001 annual Report I pointed out that, since I am an 
Officer of the Legislative Assembly, I should have a legislative 
committee that I can approach on matters of an administrative nature. 
Reviewing my Office’s annual budget could be one of those 
administrative matters.

My Office’s current budget 
situation

1.24	As a result of the current arrangement, the Legislative Assembly 
is not aware of any requests for increased personnel or funds which are 
not accepted by the Board of Management. While my Office has on a 
number of occasions accepted government budget guidelines, we have 
on other occasions requested extra staff and associated funding. They 
were not approved. As a result, my current funding supports a staff of 
23, whereas seven years ago it supported 27.

1.25	For the 2004-05 fiscal year I will be requesting, under 
subsection 4(4) of my Act, two additional senior auditors and under 
subsection 17(1) an increase of $200,000 in funding. The extra staff is 
necessary to provide more extensive audit coverage in health, education, 
the environment and automated systems, areas of financial significance 
that have an impact on all New Brunswickers. The extra funding is to 
cover the cost of the extra staff, and to provide adequate funding for 
training, technology and other support services.

Method of appointing the 
Auditor General

1.26	The Auditor General is an Officer of the Legislative Assembly 
who by legislation is granted a term of office between five and ten years 
and can only be removed from the position on a two-thirds vote of the 
Legislative Assembly. This provides important independence to the 
Auditor General, but there is a serious shortcoming surrounding the 
method of appointment. Section 3(1) of the Auditor General Act gives 
the Lieutenant-Governor in Council the responsibility to appoint the 
Auditor General. There is no provision in the Act for government to 
consult with the other parties in the Legislature. In effect the power to 
appoint the auditor has been given to the body that the auditor will be 
auditing. This should be of concern to the Legislative Assembly which 
looks to the Auditor General for objective information and independent 
advice.

1.27	Since the Auditor General must be a non-partisan appointment, 
there should be some involvement of all political parties in the process. I 
understand that this has been done in the past as a matter of courtesy, but 
there is no requirement to do so. In British Columbia, the appointment 
follows a recommendation from a special committee of the Legislative 
Assembly and the Legislative Assembly itself. The Legislative Assembly 
is also directly involved in the appointment in Alberta, Ontario, Quebec 
and Newfoundland. In Saskatchewan and Ontario, there is consultation 
with the Chair of the Public Accounts Committee. The Auditor General 
must be independent and be seen to be independent. I ask that action be 
taken to ensure there is involvement by the Legislative Assembly in the 
appointment of all future Auditors General.

Other comments of a 
general nature
  
Risk management

1.28	In two of our audits this year we made recommendations 
concerning risk management. For instance in our audit of child day care 
facilities we said the Department of Family and Community Services 
“... should use a risk management approach or have a standard method 
of prioritizing inspection work for the Day Care Services Program.” 
And in our audit of risk management for buildings, we recommended 
that the Department of Supply and Services “develop and document a 
risk management plan. The plan should identify all significant risks to 
each of its buildings … and document what procedures are required to 
identify risk factors in each building.”

1.29	Last year in our work on environmental inspections we stated, 
“to aid in the enforcement of their legislation, the Department should 
use a risk management approach and develop an inspection strategy and 
an inspection plan. The inspection plan should identify the required 
inspection work, both the areas for inspection and the frequency of 
inspection.”

1.30	In 2001 one of our recommendations on pupil transportation was 
that, “the Department should clearly discuss the major risks of bus 
safety in its training material provided to students. The Department 
should consider the use of national accident statistics as a method of 
informing both children and parents where the risks are.” 

1.31	And in 1999 when we did our work on food safety we had this to 
say. “By doing risk assessments of food service establishments, 
inspectors will be able to determine the required inspection frequency, 
plan the necessary activities and then schedule them accordingly. Risk 
assessments should be updated on an annual basis….To use resources 
more effectively, higher-risk food service establishments should be 
targeted as having priority in the schedule.”

1.32	From the work we did this year and previous years there appears 
to be a significant need for risk management training and skills. The 
need to identify and manage risks undoubtedly extends to most if not all 
departments. Because of this I see it as a central government issue and 
would look to Board of Management for the necessary leadership in 
providing this training.

New Brunswick’s local 
governments do not follow 
PSAB

1.33	The Public Sector Accounting Board (PSAB) has been 
established by the Canadian Institute of Chartered Accountants (CICA) 
to issue recommendations and guidance with respect to matters of 
accounting in the public sector. The government of New Brunswick 
follows PSAB recommendations for its financial statements but has not 
required municipalities to do so. I believe the quality of financial 
reporting by local governments would be greatly improved if they were 
required to follow these recommendations. PSAB recognizes that 
financial statements should provide evidence of accountability and 
“report the information required by legislators and other users to help 
them make assessments and judgments concerning government financial 
operations and management.”

1.34	Local governments in New Brunswick currently follow the 
Municipal Financial Reporting Manual in reporting their financial 
results. The Manual was developed in 1993, and while there have been a 
couple of updates since that time, it is not as comprehensive as PSAB, 
nor does it have the authoritative standing of a national independent 
standard setter. I have been informed by the Department of the 
Environment and Local Government that they “plan to fully review the 
PSAB recommendations in 2004 in order to determine the extent of 
further study required prior to conducting a complete Reporting Manual 
revision in 2005.” 

1.35	While I understand there may be challenges to be faced in 
accepting PSAB for local governments, I would encourage the 
Department and government to do so. At the present time the provinces 
of Ontario, Manitoba, Saskatchewan, Alberta and British Columbia have 
adopted PSAB for their local governments.

About our Office

1.36	In most of our work we examine the extent to which a 
department or Crown agency has commented on its performance, either 
in delivering a service or in meeting annual objectives or performance 
indicators. We make recommendations when we believe they are 
warranted.

1.37	We are constantly reminded of our own responsibility in this 
area, because we too must be efficient and accountable. Chapter 8 
represents our annual accountability report, which we believe is in 
compliance with the government’s annual report policy. There we report 
on our goals, performance indicators and results.

1.38	A key indicator of our performance has traditionally been the 
survey results from members of the Public Accounts and Crown 
Corporations Committees. This year, due the provincial election, the 
committees did not meet to discuss our Report until late in 2003 and for 
this reason we did not conduct the surveys.

1.39	This year we made a significant effort to finalize our 2003-2008 
strategic plan. The new strategic plan identifies three main goals that we 
will be concentrating on over the next five years. These are:

•	the Legislative Assembly and the public are aware of and value all 
the work that we do, and have confidence in our ability to provide 
timely, objective and credible information;

•	departments and agencies accept and implement our 
recommendations; and

•	our stakeholders – the Legislative Assembly, the public, auditees 
and our employees – view us as leading by example.

1.40	These goals have related objectives and actions. The strategic 
plan has also resulted in us identifying new performance measures. A 
more full discussion on our strategic plan is found in chapter 8.

Acknowledgements

1.41	This Report is the culmination of a lot of hard work by the staff 
in my Office. Once again I am indebted to their professional advice and 
dedication.



Daryl C. Wilson, FCA

Auditor General