Auditors cast doubt on accuracy of Charlottetown's financial figures

The accounting firm brought in as external auditors to look at the City of Charlottetown's 2017 financial statements said it couldn't confirm the value of the surplus reported by the city or its cash flow position.

In an unusual move, accountants from MRSB provided a "qualified opinion" on the city's financial documents, essentially placing caveats on their endorsement that those documents provide a fair representation of the city's financial position.

Auditors said there were no observed year-end inventory counts for 2016 or 2017 for either the city or the Charlottetown Water and Sewer Corporation.

Because of that, they wrote in their audit report that they were "unable to determine whether adjustments might have been necessary in respect of the net surplus for the year … and the net cash flows from operating activities reported."

The documents don't say how much the figures might be off, or whether adjustments would improve or worsen the city's financial position.

'Going forward, it will be a smoother ride'

In another caveat placed on the books, the report says auditors were "unable to satisfy ourselves that tangible capital assets had been properly recognized" for three consecutive fiscal years going back to 2015.

Auditors said that could have also affected the city's stated surplus, along with millions in capital funding listed as receivable by the city.

The city's operating surplus for 2017 — revenues minus operating expenses — is listed in the documents as $25,452. 

The surplus the city announced in November was a much beefier $11.3 million. That figure, listed in the reports as the "annual surplus" as opposed to the "operating surplus," includes millions in additional revenue in the form of capital funds from other levels of government.

The day the statements came out, the chair of the city's finance committee Melissa Hilton said part of the delay in releasing them was due to "the fact that we do have new accountants, and just meeting our standards… So, making sure that everything is up to snuff and accurate. And going forward, it will be a smoother ride for those in city hall and also our accountants."

'Errors' in previous years

The 2017 financial statements were the first to be audited by MRSB.

The firm also flagged more than a dozen of what it said were "errors" included in previous years' financial statements for the city and for the Charlottetown Water and Sewer Corporation.

Among the errors and adjustments:

• Auditors said the city had been overstating both its pension assets and pension obligations by tens of millions of dollars because accounting standards had not properly been applied.

• Liabilities were added to the 2015 fiscal year totaling more than $5 million, representing remediation costs and ongoing monitoring related to the closure of the East Royalty landfill site.

• A further liability of $455,000 was added in 2016 to cover costs for the decommissioning of the East Royalty lagoon.

CBC asked the current chair of the city's finance committee, Coun. Terry Bernard for an interview. Bernard, who was a member of the finance committee under the previous council, declined, saying he was new to the position of chair, and noted that the audited financials had been completed and approved.

When CBC contacted city hall requesting an interview, city communications staff provided a written statement attributed to CAO Peter Kelly.

City says it's working on compliance

"While preparing the most recent financial statements, City of Charlottetown finance staff identified a number of accounting items that needed to be addressed," the statement reads.

"The city worked with its finance, audit and tendering committee, staff and auditors to adjust the financial statements to further comply with accounting standards for the public sector, as required by the Municipal Government Act. The city will continue its efforts to further its level of compliance with current accounting standards for the public sector."

The Municipal Government Act requires all Island municipalities follow public sector accounting standards as developed by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada.

The act also requires all municipalities have audited financial statements completed by June 30 of each year.

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