Financial reporting errors increasing across Manitoba government departments: auditor general

The Manitoba government will face a new audit examining its financial management and accounting oversight practices after a recent auditor general's review found what were described as "an increasing number of control deficiencies and errors."

Provincial Auditor General Tyson Shtykalo said the rise in deficiencies and "control lapses" has been flagged to government for the past two or three years, but action isn't being taken.

"Manitobans provide a lot of money to the province and entrust them with the stewardship of those funds. In return, I think it's fair to expect accountability and transparency for that," he told CBC News, following the release of his report Thursday.

Shtykalo's findings are detailed in a 32-page report released Thursday.

An audit of the province's 2021-22 public accounts found "significant control and accounting deficiencies throughout the government departments we audit, including poor compliance with controls over purchases and expenses, inadequate accounting processes, and other control environment weaknesses," the report says.

The audit found accounting issues related to estimates, accruals and reconciliation, along with other risks, including manual entry of financial information, the report says.

Due to concerns stemming from the accounting review, his office will be auditing the Manitoba government's comptrollership model in the new year in an effort to get to the root of some of the financial management issues, he said.

"If the auditor general is saying that we're detecting a number of control lapses and errors during the course of our financial statements, that's cause for concern," Shtykalo told CBC.

"These control deficiencies, not only do they affect our ability to rely on numbers and audit them, but it also indicates that the financial information that's being used by the departments and by the government are not subject to robust controls," he said.

"There may be decisions that are being made on incorrect or incomplete information."

A sample of six provincial departments were audited in this case. Shtykalo said it wouldn't be fair to identify which at this time, though he suggested the comptroller audit could reveal which specific departments are having the most problems.

Shtykalo said there exceptions when it's permissible to bypass internal electronic logging processes tied to purchases, such as situations when a government department needs to spend money in the case of an emergency.

Identifying which department expenditures fell within and outside of those bounds was part of the audit.

"What we found over the past years is the number of purchases and expenditures circumventing this internal control has increased, and secondly, we're finding the number of instances where there wasn't a sufficient or timely review of the expenditure being made increasing," said Shtykalo.

Job vacancies, lack of expertise cited

During the course of the audit, government employees cited job vacancies, turnover rates and a lack of accounting expertise in some departments among the reasons for some of the issues.

With the province's current decentralized approach to managing finances, department heads are responsible for performance, compliance and internal checks and balances in their divisions, the auditor general said.

In response to the findings, Manitoba's Treasury Board Secretariat told the auditor general the provincial comptroller's office would follow up with executive financial officers with each department found to have compliance weaknesses to ensure they're addressed.

The secretariat also acknowledged its decentralized model doesn't work as intended at a time of "weakened staffing in departments," according to the report.

The secretariat said the comptroller's office provides high-level financial oversight to departments, "but does not have the staffing levels that will address the pervasive issue of noncompliance in routine matters," the report said.

There are fewer than 25 core staff members in the comptroller's office, compared to about 700 dedicated financial positions in government and more than 2,400 across government services that have some kind of financial role.

A spokesperson for Finance Minister Cameron Friesen said the province welcomes the audit.

In a statement, the spokesperson reiterated that high vacancy rates — due to retirements and skilled workers leaving the workforce "faster than the intake of new professionals" — are a factor.

Proposed changes

The comptroller's office plans to provide more direction to departments regarding their financial responsibilities and deadlines, review high-risk departments through an audit by an outside firm and beef up training for new financial staff.

Among other proposed changes, the comptroller's office also plans to review the qualifications of staff involved in financial matters and set a new standard to ensure each department has at least one chartered professional accountants in a senior financial role.

Minister Friesen's office says the province is looking to hire more certified professional accountants and will have funding to cover costs associated with that certification, and will consider increasing wages to be more competitive.

It will also modernize its accounting software to ensure it has more financial controls built in, the minister's spokesperson said.

The coming review of the comptrollership model will focus on whether the current system includes effective checks and balances.

The province is also facing a set of new accounting standards in 2023 that will require "significant time and effort" on its part to implement, according to Shtykalo, but he's concerned about whether the province will meet the required deadlines.