The testimony of aurel tess

Aurel Tess is (or rather was) the Provincial Comptroller for the Province of Manitoba, making him the government’s head accountant, and responsible for preparing Manitoba’s Summary Financial Statements.

And we are about to hear how remarkably relevant to this case they have become.

Before court began, Heather Leonoff asked me whether I thought that this trial was boring. I was too polite to share any opinions of what I had already seen. But holy moley, pass the cannoli, when I found out that we were going to be having the Provincial Comptroller, Aurel Tess, talk about the Province’s Financial Statements, I thought – oh yeah, this was the day I should have skipped and slept in.

As we were waiting for the judge, Garth Smorang came over to ask Aurel Tess why they use “comptroller” in the public sector, but “controller” in the private sector for the same position. “Let’s ask Mr. Google,” Mr. I’m-So-Jolly Smorang suggests.

So I did. The terms comptroller and controller were derived from the same Middle English word – countreroller. In order to avoid implying that the public accountant was “in control” of everything, countreroller was combined with the French compte (to count or an account) to end up with comptroller – someone who specializes in checking financial ledgers.

OMG, I did not need to know that, and no, it did not raise my expectations of the day to be anything other than exceptionally tedious.

Direct Examination – by heather leonoff

And then it began. Would it be better or worse if I actually had the financial statements they were referring to? I couldn’t decide.

And I couldn’t understand why on earth this guy was testifying. Who cares about variances? Who cares about how the year end statements differ from the budget? Of course they do. Budgets are estimates, and stuff happens.

I dutifully noted the details down, but I still couldn’t make much sense of most of them. But then …

disagreements with the auditor-general

“In the past two years, you [the Provincial Comptroller’s Office] have had some of disagreements with the Auditor-General, haven’t you?” Leonoff asks Tess. And yes, they have, two in fact.

The first was whether the Workers Compensation Board should be included in the Province’s Summary Financial Statements. Apparently, this depends on whether the government controls the WCB, based on a test for control according to the Public Sector Accounting Standards (PSAS), a subset of GAAP – Generally Accepted Accounting Principles. 

Almost all entities use the GAAP to report their current financial position. I think of them as anti-fudge/anti-fraud shields. They are meant to prevent certain types of accounting games.

Anyway, for some reason, the government decided that the WCB should be out of the Summary Financial Statements, while the Auditor-General thought that they should be kept in.

There was a similar dispute over whether or not to include two trusts – the Production Insurance Trust and the Hail Insurance Trust – held by the Manitoba Agricultural Services Corporation (“the MASC Trusts”). According to the Auditor-General, the MASC Trusts are assets under government control, and thus under the PSAS rules, should be included.

Leonoff kind of left it at – well, the Provincial Comptroller was “working on it” with the Auditor-General.

It left me pretty puzzled – what difference does it make what is in the Summary Financial Statements and what is not? Isn’t it all just a question of where the numbers go? Or, is this some weird way of suggesting that they are already saving with the PSSA?

All wrong. Smorang-the-Smasher is about to crush this disagreement bit to bits on cross-examination.

CROSS-EXAMINATION – BY garth smorang

As Smorang begins with some discussion of variances, my head starts to spin. This is so painfully snoring. The only thing good about Tess’s testimony so far is that it has been mercifully short. Please follow suit Garth, and finish up soon.

A professional public spanking 

Smorang-the Smasher has other plans. He is building towards a most surprising crescendo.

As Smorang starts, I cannot believe that he is actually going into how the Provincial Comptroller took the WCB and the MASC Trusts out of the Province’s Financial Statements for the past two years. How on earth could this possibly matter? It’s just tumbling numbers. Who cares?

But it’s what taking those numbers out of the Summary Financial Statements does to the bottom-line that makes it so relevant. As Smorang gets Tess to explain the consequences, I start getting it – oh my god, if you start taking these things out, it is going to affect our final financial position for that fiscal year.

Smorang now has my full attention. As he gets closer and closer to what I think I might be coming, I look over at Anna Rothney, the Manitoba Federation of Labour’s Executive Director (and economics expert), trying to catch her eye.

Anna, my friend, does this all mean that they are trying to game the size of the actual deficit reported on the Province’s Financial Statements?

Right then, Smorang-the-Smasher hits the point home hard.

According to the independentimpartial, and professional opinion of the Auditor-General for the Province of Manitoba

The Province has made material misstatements its financial position, making its Summary Financial Statements inaccurate and unreliable.

Not only that, those material misstatements mean that:

The government is overstating the deficit by hundreds of millions of dollars.

What the?

THE AUDITOR-GENERAL’S OPINION

Let’s see how Norm Ricard, Manitoba’s Auditor-General, explain what a Qualified Audit Opinion means:

QUALIFIED AUDIT OPINION FOR 2019

Our audit opinion on the March 31, 2019 Summary Financial Statements of the Province was qualified for two issues. This was the second year in a row that our audit opinion on the Summary Financial Statements was qualified.

In September 2019, we released a Special Report called Understanding my Audit Opinion on Manitoba’s March 31, 2019 Summary Financial Statements to provide the Legislative Assembly additional timely information on the 2 accounting issues.

When an auditor has significant concerns that an entity’s financial statements are not presented fairly, in accordance with Generally Accepted Accounting Principles (GAAP), the auditor will qualify the audit opinion. This means that in the auditor’s opinion, the financial statements are presented fairly except for a material misstatement which would be significant to the users of those financial statements. The misstatement is explained in the auditor’s report under the heading Basis for Qualified Opinion.

Qualified opinions should be a rare occurrence and should be taken seriously.

And also why not including the WCB and the MASC Trusts are significant material misstatements:

basis for qualified opinion

Exclusion of Workers Compensation Board from the Summary Financial Statements

The Province has not included the financial position and results of operations of the Workers Compensation Board (WCB) in the Summary Financial Statements for the years ended March 31, 2019 and March 31, 2018.

In my opinion, the WCB is controlled by the Province, based on the definition of control in PSAS, and should be recorded in the Summary Financial Statements for the years ended March 31, 2019 and March 31, 2018. In this respect, the Summary Financial Statements are not in accordance with PSAS, which requires the financial position and results of operations of controlled entities to be consolidated in the Summary Financial Statements . 

Had the Province made an adjustment for this departure from PSAS, the current year equity in government business enterprises would have increased by $632 million, and accumulated deficit and net debt would each have decreased by $632 million, the net income from government business enterprises would have decreased by $53 million, other comprehensive income would have increased by $37 million, and the annual deficit would have increased by $53 million. 

Additionally, the prior year equity in government business enterprises would have increased by $658 million, and accumulated deficit and net debt would each have decreased by $658 million, the net income from government business enterprises would have increased by $82 million, other comprehensive income would have decreased by $25 million, and the annual deficit would have decreased by $82 million.

Failure to recognize controlled assets

The Province has not included the financial position and results of operations of the Manitoba Agricultural Services Corporation’s (MASC) Production Insurance Trust and the Hail Insurance Trust (the Trusts) in the Summary Financial Statements for the years ended March 31, 2019 and March 31, 2018. 

In my opinion, the Trusts are assets under the control of the Province, and the financial position and results of operations should be recorded in the Summary Financial Statements for the years ended March 31, 2019 and March 31, 2018. In this respect, the Summary Financial Statements are not in accordance with PSAS, which require that the Province account for all assets under its control. 

Had the Province made an adjustment for this departure from PSAS, the current year cash and cash equivalents would have increased by $481 million, the accounts payable, accrued charges, provisions and unearned revenue would have decreased by $9 million, and accumulated deficit and net debt would each have decreased by $490 million, the Agriculture expenses would have decreased by $222 million, the investment income would have increased by $3 million, and the annual deficit would have decreased by $225 million. 

Additionally, the prior year accounts payable, accrued charges, provisions and unearned revenue would have decreased by $265 million, accumulated deficit and net debt would each have decreased by $265 million, the Agriculture expenses would have decreased by $265 million, and the annual deficit would have decreased by $265 million.

So, what happens as a result? Yep, you know  all that financial catastrophe that awaits us if our brave Ministers of Finance don’t step up and do something?

Total crap. Our economy is doing just fine. We don’t have a deficit anymore; we’re already in surplus.

Again, from Ricard’s official report:

So, according to the professional opinion of the independent, impartial Auditor-General who’s job it is to figure these things out:

For the Fiscal Year 2017/2018

– Government’s Reported Deficit:         $694 Million

– Actual Deficit:                                                      $347 Million       

Overstatement:  $347 Million

For the Fiscal Year 2018/2019

– Government’s Reported Deficit:         $163 Million

– Actual Deficit: None.      Surplus of:         $9 Million

Overstatement:  $172 Million

This was not a mere disagreement. This was the Auditor-General spanking the Province for getting their accounting materially and seriously wrong.

I don’t understand, Mr. Minister of Finance.  This is good news. Don’t you want the deficit to be gone?

“WORKING WITH” THE AUDITOR-GENERAL

Uh boy. Now we find out what the government thinks “working with” the Auditor-General means. Heather had mentioned some of this during direct, but now Garth dives into the scurrilous details.

Apparently, in order to resolve these “disputes” the Province just kept writing to the Auditor-General arguing why they were right and the Auditor-General was wrong. But the government’s arguments didn’t seem to be that convincing.

The government claimed that since the Worker’s Compensation Board didn’t meet the control test in the Public Sector Accounting Standards, it was entirely proper to take the WCB out. The Auditor-General replied that when there had been a thorough review of the status of the WCB vis-a vis the Province in 2005, the conclusion was that the WCB was controlled by the government. Thus, the WCB had continued to be included in the Province’s Financial Statement ever since.

So Ricard asked, what’s different now?  Has anything changed in the relationship that would lead to a change in the nature of the government’s control of the WCB, something that might lead to a different conclusion on the control test, and thereby justify taking the WCB out of the Province’s Summary Financial Statements?

I gather that the response was – no, no change in the nature of the relationship, just accept our arguments that the WCB doesn’t belong anymore.

And then Smorang went into the draft legislation the Province has proposed to fix this. Somewhere in some act the Government of Manitoba is going to enact:

Section X: The Workers Compensation Board is hereby deemed not to be under the control of the Province of Manitoba.

Uhm, so you can’t win the argument (because apparently you don’t have one), so you are just going to deem a new reality in?

That’s like as though the Minister of Finance has been caught speeding down Kenaston Blvd every Friday. And well, he cannot win the argument with the police’s radar, so, they will just make it law that:

Section Y: The Minister of Finance’s speed on Kenaston Blvd is hereby deemed to be 50 km/hr (no matter what the radar says).

As for the MASC Trusts, there have been some discussion, but they are still working on it.

This is making me tired of shaking my head. What are you doing and why are you doing it?

The Trial Begins

Setting the scene in Courtroom #210 as the trial of MFL v. Manitoba begins. We get some background and meet the players.

Opening Statements

The proceedings begin with opening statements. Here, the lawyers for each side give us an outline of the course they are going to take (and why it is going to take 13 days to get there).

The Testimony of Kevin Rebeck

The President of the Manitoba Federation of Labour testifies about consultations between the government and some Labour leaders prior to the PSSA being passed. They weren’t very fruitful, and there seems to have been some question as to whether the government was being truthful.

Passed but Not Proclaimed?

Why is the government waiting to proclaim the PSSA? I thought there was a financial emergency, and dire warnings of our precarious fiscal position. But it has been 2 1/2 years. Don’t they need it yet?

The Testimony of Elizabeth Carlyle

Elizabeth Carlyle gets cross-examined about what happened in a negotiation between CUPE and the Winnipeg School Division. It wasn’t a lot, and it doesn’t sound as though it was very good.

The Testimony of Dr. Mark Hudson

Remember when the faculty at the University of Manitoba when on strike in November of 2016? Dr. Mark Hudson is here to tell us why it happened. And he fills us in on what was happening between the University and the Province behind the scenes.

The Testimony of Tom Paci

Tom Paci appears on behalf of the Manitoba Teachers Society. His story? A quest for justice for Manitoba’s 15,000 teachers and an appeal to the gods of justice – how can we be bound by the PSSA when it is not law?

Indirect Taxing & Discriminatory Taxation

If a tax by any other name would be as taxing, could wage freezes be indirect taxation? And if members of public sector unions are paying more in taxes to support public services, would this qualify as discriminatory taxation?

The Testimony of Michelle Gawronsky

The leader of the Manitoba Government and General Employees Union recounts her experiences since the advent of the PSSA. Everything she says about her automatic approach to understanding concerns and finding ways to solve problems makes me think ” leader, leader, this is a great leader.”

The Super Six Speak

Six experienced union negotiators come to tell us about what has been happening in their collective bargaining worlds. We learn more about what the PSSA means for public sector unions and their collective agreements.

Labour’s Collective Bargaining Expert

Dr. Robert Hebdon testifies about the impact of the PSSA on collective bargaining in Manitoba’s public sector. It isn’t good.

The Testimony of Sheila Gordon

We end the union tales of collective bargaining under the PSSA in passed-but-not-proclaimed limbo with MGEU’s GEMA. Sheila Gordon, MGEU’s senior negotiator was there. And she is here to tell us how those negotiations did not go anywhere.

Labour’s Read-ins and One Last Reveal

You never know what read-ins from discovery might reveal.

The Testimony of Richard Groen

Richard Groen, an Assistant Deputy Minister from the Ministry of Finance, testifies about the Province’s budgets and such.

I was expecting him to demonstrate what all the financial fuss in 2017 was about, you know, why our financial ship was sinking so much that we needed all hands on deck. But …

A No-Compete Treat for the Labour Market?

I don’t understand why the government doesn’t think it should have to compete in its own labour market. It does everywhere else.

The Testimony of Garry Steski

Is it wrong to admit that before this I didn’t really know what a bond market was? Well, I do now, and we learn a little about how Manitoba’s bonds were affected by the fiscal challenges in 2016. Or not.

Bean Counters, Businessmen & Business of Government

If businessmen go into government to bring the principles of good business to government, then shouldn’t they act like good businessmen when they get there?

The Government’s Collective Bargaining Expert

It is best to talk about what happened here as little as possible. So we’ll talk a bit about the importance of turkey instead.

The Testimony of Aurel Tess

How a short day of seemingly tedious technical testimony on Manitoba’s Summary Financial Statements turned into a most unpleasant surprise.

Politicizing the Provincial Comptroller

Ok, Manitoba. Politicizing the Office of the Provincial Comptroller?

That takes the poop-cake.

The Government’s Economics Expert

The government’s economics expert, Dr. Livio Di Matteo, has a motto he lives by: Agimus Meliora – Let us do better.

It makes me wonder, Manitoba, can’t we do better than the PSSA?

Labour’s Economics Expert

Dr. Eugene “the Earnest” Beaulieu testifies that the PSSA is not only not necessary, it is a harsh measure that puts an unfair burden on public employees.

Bye Bye, Dumbo

Let’s take one last look at the Elephant in the Room, and then say goodbye.

The Mandamus Application

A day of argument about whether a statute that says “the Minister SHALL FORTHWITH” means that the Minister can decide not to do something and make up his own reasons for why he shouldn’t.

Decision on the Mandamus Application

Justice Keyser, the judge on the Mandamus Application, has spoken. Here’s a hint – MGEU wins.

Bill 9: We’re Gaming Again …

Before we begin all the good stuff, Garth Smorang has some objections to yet another litigation game the Government of Manitoba is playing.

Labour’s Final Argument

Labour’s last stand. Shannon-the-Hammer and Smorang-the-Smasher pull it all together and wrap it all up.

There is an awful lot of it, so Labour’s final arguments have been separated into four separate posts, which start here …

Butt-First Buffoonery

How did the Government of Manitoba get to such an embarrassing PSSA place? They backed into it.

The Government’s Final Argument

Forget the Elephant-in-the-Room.The Government of Manitoba has got many other ways to try to move the goalposts, as they try to change the game.

Kind of seems like they know they are losing.

Labour Replies

The Finale of the Finale. Labour replies.

(This means we are finally done. At least with the evidence and arguments.)

The Onion of Outrage

Why am I here? Why spend so much watching lawyers and judges and reading endless cases? It’s a pretty simple answer.

I was mad.

The Decision is In!!!

The Honourable Justice Joan McKelvey has ruled. Labour won. The PSSA is unconstitutional.

This is what she decided and why.

What Have We Learned?

There’s lots to discover from considering Justice McKelvey’s decision, and not just for labour lawyers. Let’s take a look at what we have learned.