An Audit Too Far

The Stelmach government pledged accountability until Fred Dunn discovered their billion-dollar giveaway.

By Sheila Pratt

Auditor General Fred Dunn, a studious and exacting accountant, leaned forward in his office chair to take a closer look at Hansard on his computer screen. An intriguing exchange during question period in that unusual late-August legislature session caught his eye. It was 2006, Premier Ralph Klein’s last days in the venerable old chambers. The building’s thick sandstone walls had kept the late summer heat at bay, but they weren’t insulating the Conservative government from the biggest political issue simmering on the barbecue circuit: royalty rates.
With oil and gas prices—and company profits—hitting record highs, exasperated Albertans wanted to know: were they getting their fair share in royalties? Had anyone done a royalty review to find out? In July a cranky Klein had told reporters he didn’t know about any royalty review, and didn’t give “a tinker’s damn. We’re getting our pound of flesh.” Minister of Energy Greg Melchin, in true Tory fashion, kept his cards close to his chest. Trust me, he told reporters. I’ve looked into it and the rates are fine.
But the controversy followed Klein and Melchin into the legislature. On August 24 a lean, tall Tory backbencher from Grande Prairie, Mel Knight, stood up in question period and asked for more details. Minister Melchin’s response surprised just about everybody. A review was “ongoing,” he told the house, the government’s first such admission. The minister said he wanted to address that nagging “fair share question.” He said that it’s true industry was “making substantially greater profits,” but assured the house that Albertans were “benefiting substantially from the increased profits.”
Knight pressed on. Could the minister provide the rationale for his decisions? “We will be bringing forward additional information to the public with regard to these programs and the royalty review in due course,” replied Melchin.
Fred Dunn, the public’s eyes and ears on government spending, quickly zeroed in on Melchin’s reference to the elusive royalty review, the one document that would answer the public’s uneasy questions about their “fair share.” It would also speak to Dunn’s chief concern: Was the government collecting sufficient royalties to meet its own revenue targets? “I said to my staff, I’d like to read that review,’” Dunn recalls. So the AG’s office made a straightforward request on a high-profile issue involving government finances, the AG’s bailiwick. But the request would land Dunn in hot water and start a backlash against the AG’s office at the highest levels of the Tory government.
By mid-October 2006 the Department of Energy still hadn’t handed over a report on royalties. A frustrated Dunn (the usually measured accountant accused senior bureaucrats of giving him “the runaround”) concluded that a comprehensive royalty review had not actually been undertaken, so he decided to do the job himself. A year later, on October 1, 2007, Dunn’s report hit the headlines. It revealed that the government was failing to collect $1-billion a year because royalty rates had not kept pace with rising oil and gas prices. Moreover, the report charged, successive energy ministers had repeatedly ignored advice from their own officials to raise the rates.
Dunn’s report was the second of a one-two punch on royalties that autumn. Ed Stelmach’s very own—and also very public—royalty review had finally wrapped up just a few weeks earlier and its panel had come to a similar conclusion: royalties were too low. The Calgary oilpatch was furious about both reports. Energy giants such as Encana howled that higher royalty rates would cost them billions of dollars. Calgary Tory MLAs immediately felt the heat.
Dunn couldn’t know it at the time, but he had hit on the critical and defining issue for the Stelmach government—and for the Auditor General himself. Royalty rates would bring a heap of political trouble to the new premier and would dog his government for the next four years (and counting). Dunn had stepped into sacred territory—the Tories’ close relations with the powerful oilpatch—and that was risky business. Ed Stelmach and crew would soon be looking for ways to rein in this independent voice.
After years in private-sector auditing, Fred Dunn took the job as Auditor General of Alberta in 2002. His reports were generally known for their dense “bureaucratese,” which frustrated reporters looking for a clear angle for their stories. A principled professional, Dunn took seriously his duty to the legislature, even when it meant pointing out embarrassing failings by the government, as did his 2005 report on seniors care and nursing homes. But none of his reports sparked the kind of controversy and backlash that his 2007 royalty report did.
It’s a tried-and-true tactic in politics—if you don’t like the message, shoot the messenger. The energy minister in late 2007, none other than Mel Knight, took the first shot at Dunn on the same day the AG’s royalty report was released. Dunn’s report was a “personal attack,” said an angry Knight, dismissing its findings. In the next salvo, the Tories accused the AG of going beyond his mandate and into the sphere of policy-making (despite a disclaimer in the report which read: “This is education and information, not policy advice”). That line of attack was picked up outside government too. A Calgary broker ranted in the Edmonton Journal that Dunn had overstepped his bounds and “irresponsibly poured gasoline on the funeral pyre of Alberta’s free-market boom.”
Dunn took it all with professional calm, and he didn’t back down. As for any accusations about meddling in policy, Dunn was clear: “The minister exercises the authority to determine public policy,” he told reporters at the time. “He can change the rates or leave them. He can raise or lower the 25 per cent revenue target. But he should make those decisions public. That’s called being accountable.”
Pushback came quickly. A month after the report was released, a Tory-dominated legislature committee refused Dunn’s request for $20,000 to publish his report twice a year. In 2008 the same committee cut the AG’s budget, forcing Dunn to postpone or cancel about a third of 80 projects for the year. Then, for the first time ever, the government rejected a portion of the AG’s recommendations with the telltale phrase: “Policy matters are outside the purview of the Auditor General.” In 2009 many backbench MLAs refused to fill out Dunn’s annual satisfaction survey. Then, in April of this year, Speaker Ken Kowalski—supposedly a non-partisan officer of the legislature—circulated a report that called for restrictions on the independence of the Auditor General. The battle was finally out in the open, just as Dunn was preparing to retire.
The report, written by Ron Hicks and entitled “An Auditor General Who Is Both Independent and Accountable,” is a stark, almost alarmist critique of the AG office. The Auditor General has expanded his powers, it states, “to the point [he] now usurps the role of the elected members of the legislature.” The report carries considerable weight in government circles. Hicks was a highly respected senior civil servant whose career spanned 28 years. In his final four years (2004–2008) he was the top civil servant in the premier’s office, as deputy minister to cabinet. A politically sensitive post, this gave him an insider’s view of the relations between the AG and government.
Hicks, who retired in 2008, says he began to notice a growing hostility to the Auditor General inside government after 2006. “I saw the attitude changing in government and among MLAs,” he says. “It wasn’t helpful.” The AG wouldn’t be effective, he says, if the government took to ignoring most of his recommendations. In 2009, for instance, the government accepted only 78 per cent of the AG’s recommendations, down from almost 100 per cent in the previous year, notes Hicks, who wrote his report as part of his new position in the University of Alberta’s Western Centre for Economic Research.
More than 75 per cent of the AG’s work involves straightforward financial audits; looking at the government’s books, checking for fraud and good accounting practices. The trouble comes with so-called “system audits” or “value for money audits,” says Hicks. These broader audits, which started 30 years ago at both the federal and provincial level, evaluate the costs and benefits of government programs using three standards: economy, efficiency and effectiveness. Under these audits, the Auditor General expands his powers “even to propose policy and program alternatives,” claims Hicks. By criticizing government policy and suggesting alternatives, he argues, the AG is interfering with ministerial responsibilities.
Then, when the AG calls for more effective or new programs, “he’s trying to drive spending decisions, and those are the purview of the legislature,” says Hicks. That poses a challenge to Alberta’s Westminster model of government.
Hicks also believes the Auditor General’s media profile is too high, that he gets too much exposure before MLAs have even read his reports. Hicks proposes several remedies, starting with limits on the AG’s independence—for example, requiring him to seek the “non-partisan” advice of the legislature about what he can look into. The focus of his audits should be narrowed. There should be “new rules” on how the AG engages with the media.
Even as a loyal Tory, Ken Chapman had an unusual willingness speak his mind. So, in 2007, the Edmonton lawyer turned public policy consultant found himself defending Fred Dunn and the royalty report that so upset his fellow Tories. Chapman rejected the accusations that Dunn was going beyond his mandate. He believed Dunn was simply stating the facts—that since 2004 Albertans’ share of royalties had fallen below the government’s 25 per cent target. Chapman also noted that Dunn clearly states in his report that “the minister of energy has the final responsibility” for policy on royalties.
These days, Chapman takes a dim view of proposals to weaken the independence of the Auditor General. And he’s clear about where the pressure comes from. “The Auditor General speaks truth to power,” says Chapman. “Unfortunately, power has its own agenda.” In other words, politics, not good governance, is behind the move to rein in the AG.
That impulse is the same one, it seems, that led the Tories to dump another officer of the legislature who dared to expose incompetence—Chief Electoral Officer Lorne Gibson. Gibson’s report on the 2008 provincial election pointed out serious deficiencies in how the election was run (including the fact that 25 per cent of eligible voters were not on voting lists). Gibson also unearthed evidence of illegal campaign contributions and proposed more than 100 ways to run elections better. A Tory-dominated legislature committee sent him packing rather than renew his contract.
Chapman says that to suggest Alberta’s Auditor General could threaten ministerial responsibility is a bit rich. The PCs have never taken the principle of ministerial responsibility very seriously, he says. When was the last time anyone resigned from cabinet on principle or for breaking trust with the people? “What we have is selective application of the Westminster model,” says Chapman, who did not renew his Tory party card last year. He instead launched Reboot Alberta, a grassroots group advocating for a stronger democracy, including more respect for the independence of the office of the Auditor General.
Perhaps another clue to the government’s motives can be found in an interesting dust-up last spring among members of the legislature’s public accounts committee. The committee, the only one headed by an opposition member, oversees spending by government departments and reviews the AG’s reports. Tory backbencher Verlyn Olson, Wetaskiwin–Camrose, decided the PCs needed more control of this committee too, and proposed a new rule. Chairman and Liberal MLA Hugh MacDonald would be required to obtain the signature of the Tory vice-chairman on every letter sent out—letters that require cabinet ministers or agencies to appear before the committee. The PC majority on the committee promptly passed the rule, giving themselves a
de facto veto on who and what would be investigated.
MacDonald’s hands were suddenly tied. He was shocked. “It was totally contrary to the standing orders of the committee, which clearly give the chair the power to run the committee—as is the case with every legislature committee,” he says. Two weeks later Olson suddenly asked the committee to rescind his rule. The PC majority reversed itself. “I’m a strong believer in public accounts committees, and in the end I decided my point had been made,” Olson announced. He didn’t elaborate on what exactly his point was.
Not surprisingly, a gun-shy MacDonald is convinced that recent discussion about reining in the Auditor General is motivated by the government’s wish to mute dissenting voices. The AG has exposed too many embarrassing missteps, but most especially with the royalty report, says MacDonald. “That royalty report did it. It proved what citizens sensed at the time—that the government was knowingly not collecting all the royalties we deserved.” Such critical voices are not welcome in Alberta, says MacDonald. “Mr. Stelmach likes silence,” he says, especially when it comes to the affairs of government and the oilpatch.
Fred Dunn certainly did have a higher profile than his quieter predecessors. He usually reported twice a year, instead of just once. In press conferences, he would sometimes go beyond the dry accounting language of his reports to more pointed talk. But to say he strayed beyond his mandate—rather than straying onto sensitive ground for Alberta Tories—is dubious. The Auditor General Act, in section 29, clearly states that the AG may “provide advice relating to the organization, systems and proposed course of action of the department.”
The Klein government, with the Teflon Ralph at the helm, took a different approach in a different era. No matter how critical the AG’s report, Klein had no patience for ministers who tried to shoot the messenger. In 2005, when Dunn produced a highly critical report on seniors care, Health Minister Iris Evans paid respect: “We want to thank the Auditor General for his [report], which was thorough and thoughtful.” Later, when cabinet colleague Lyle Oberg suggested Dunn, an accountant, wasn’t qualified to investigate nursing homes, Klein jumped to Dunn’s defence. “That’s what makes government whole and that’s what makes us better is to abide by his recommendations,” said Klein. “So I discount what the minister said.”
The seniors report also illustrates why, in a one-party state, the office of the AG takes on heightened profile. A small opposition can do little to force the massive PC majority to take action. The government doesn’t need to listen to them. For many government-funded community agencies, it’s simply too risky to criticize government. So who can effectively raise issues the government would rather bury? An officer of the legislature with a legal mandate to call it as he sees it—the AG—is one of the few independent voices in Alberta and an appeal of last resort for citizens.
That’s what happened in 2005. When worried citizens couldn’t direct the government’s attention to the poor level of care in nursing homes, they sent letters to Dunn’s office telling of neglect and staff shortages. Dunn sent teams out to investigate 25 facilities, public and private alike—a fraction of the province’s 179 nursing homes. Inspectors made surprise visits in the middle of the night. Dunn found that only seven of the 25 facilities fully met the basic standards of care and that those standards were too low in the first place. Moreover, the province had no inspection system to check up on compliance.
The Alberta Tories’ recent hostility toward the office of the Auditor General is in stark contrast to the approach of their federal cousins, who have shown great respect for the independence of Sheila Fraser, Canada’s Auditor General. The federal Tories also put great store in the independence of the federal public accounts committee.
No one knows this better than John Williams, the former MP for Edmonton–St. Albert. He was chairman of public accounts for eight years, including the years it uncovered the Liberal government’s sponsorship scandal. So he was shocked this spring to watch the provincial Tories try to “muzzle” Alberta’s public accounts committee by tying the hands of the chairman. It was little more than an attempt to “consolidate power and eliminate dissent—the kind of thing that happens in Thailand,” says Williams. “It was a backdoor attempt to block awkward investigations that might embarrass the government.”
Williams is also skeptical of the suggestions to rein in Alberta’s Auditor General outlined in the Hicks report. If the AG has to get approval from a legislature committee for his investigations, he’s no longer independent, says Williams, who retired from politics in 2008. And if you restrict his access to the media, he’s no longer independent. “You can’t have restrictions and call [the AG] independent.” Williams’s fundamental point is this: the AG reports to the legislature, and through it, to the people—not to the government of the day.
After eight years of service, Fred Dunn retired in February of this year. In July Merwan Saher stepped into the shoes of his former boss. After 30 years in the AG’s office, a long-time insider is taking the top job.
Saher, who speaks in careful, deliberate language, is well aware of—and so far unruffled by—the politics swirling around the office and the Hicks report. In fact, he calls the report “a blessing in disguise,” as it will provoke debate. Saher comes to the job with plans to consult more with MLAs of all parties about his investigations. He also wants to set up a committee of outside experts to do an audit of the auditor’s office, the latest trend in policy. But he’s adamant that the AG was not guilty of straying beyond his mandate into policy.
“I don’t see any evidence of that at all,” he says. The government creates policy and sets out the results it wants to achieve, he says. The AG is concerned with how well policy is executed. Value-for-money audits—20 per cent of the work in Alberta’s $23-million AG office—must be preserved “because we really feel we can add an awful lot of value.”
The veteran public servant is philosophical about the days ahead. “I’ve been here long enough to know everyone has a different angle,” says Saher. “To me, the job is to be true to fact and I think that’s what I and my colleagues will try to do. If we stick to the facts, we’ll be all right.”
In his early days, Ed Stelmach talked a lot about tackling the democracy deficit and bringing more openness and accountability to government. But when Dunn brought a measure of that accountability to his government in 2007 on the all-important royalty issue, Stelmach’s ministers and caucus made it clear they weren’t pleased. The premier then quietly let resistance to the Auditor General get established. How the premier handles the Hicks report will be an indication of just how large he’s willing to let that democracy deficit grow.
Sheila Pratt started in journalism in the late 1970s. She is now a senior feature writer at the Edmonton Journal.




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