AG slams GN over Crown corporations

Senior managers at Nunavut Power Corp. received “performance bonuses” worth $670,000 without the approval of the corporation’s board of directors, despite widespread financial incompetence within the corporation during its first two years of operating independently from the old Northwest Territories Power Corp.

That’s just one of a long list of financial gaffes committed by the people who run Nunavut’s five Crown corporations, cited in the Auditor General of Canada’s latest report on the Nunavut government’s finances, tabled this week in the legislative assembly.

In that report, the auditor general, Sheila Fraser, says financial screw-ups at Nunavut’s five Crown corporations are so bad they pose “significant risks” to the entire territorial government.

She cites the decentralization of government jobs to small communities as one of several reasons for the financial incompetence displayed within the GN’s Crown corporations.

“We are not questioning the government’s decentralization policies, however with the current high demand throughout Canada for trained accountants, it is difficult for Nunavut Crown corporations in smaller communities to compete for trained staff,” Fraser’s report says.

She devotes three chapters to Crown corporations, taking special aim at the Nunavut Power Corp. and the Nunavut Business Credit Corp.

The money-losing power corporation is now “financially vulnerable,” because of a series of blunders committed since its creation on April 1, 2001, Fraser said.

“The corporation has been weak overall in financial management and accounting expertise. The senior people who should have been aware of the corporation’s health were not,” the report says.

Finance Minister Leona Aglukkaq said the auditor general’s findings don’t mean that the Nunavut government can’t be trusted.

“We’ve done a very good job at meeting the expectations of the people, and that is to maintain programs and services. But the Crown corporations are one area that we need to address and we will do that,” Aglukkaq said.

Aglukkaq pointed out that Rick Blennerhasset, the power corporation’s first president, has been replaced, as has its financial vice president, and that the cabinet has set up a committee to oversee Crown corporations.

In her report, the auditor general pointed out that in 2001-02 and 2002-03, there were “huge discrepancies” in management expectations. Although corporation staff projected profits of $2.1 million and $1.6 million for those fiscal years, the corporation actually lost $13 million.

She also found that the corporation isn’t collecting enough money from customers to cover recent fuel price increases, and it should have applied for rate increases within the life of the last legislative assembly.

Fraser said that by March 31, 2003, the power corporation should have collected an extra $9 million to cover extra fuel costs, but didn’t because it dropped a “rate rider” on power bills that would have produced the needed cash.

Those fuel-cost losses could rise to $14 million for the fiscal year ending 2003-04, the report says.

Some of the more serious problems at the power corporation include:

* A net loss of $13 million since the Nunavut Power Corporation began operating independently of the Northwest Territories two years ago;
* Electrical power rates in Nunavut – set in 1997 – are too low, and don’t cover the corporation’s costs, especially the rising cost of fuel;
* The power corporation doesn’t collect its bills on time, forcing it to borrow money from the bank to get enough cash to operate;
* The corporation ran up $857,000 in bad debts in its first two years;
* Though the company’s “head office” is supposed to be located in Baker Lake, senior managers lived and worked in Iqaluit, creating added costs for travel, communications and accounting;
* In 2002, the corporation issued numerous incorrect bills to customers;
* The corporation’s board of directors, and its senior managers, did not provide competent financial oversight in the corporation’s start-up years;
* The corporation’s board of directors do not have sufficient experience in financial issues;
* By March 31, 2003, the corporation borrowed $19 million more than it is legally allowed to borrow;
* Various forms of financial incompetence produced a whopping $17.8 million in extra transition costs in the corporation’s first two years;

As for the Nunavut Business Credit Corporation, the auditor general found “extraordinary” problems in the completion of the corporation’s financial statements, and suggest that with its three-person staff, the credit corporation may be too small to protect itself against error or fraud.

The credit corporation is an organization set up to lend money to Nunavut businesses that can’t get loans from the bank.

In her report, the auditor general found the following problems with the credit corporation:

* Four of six loans made in 2001-02 were done without proper approval from its board of directors;
* The credit corporation does not adequately monitor its collection of loans;
* The credit corporation does not have an adequate accounting system for bad debts;
* The credit corporation has “extraordinary” problems in producing financial statements and annual reports on time.