John L. Noseworthy, C.A., Auditor General, today released his Report to the House of Assembly on the Audit of the Financial Statements of the Province of Newfoundland and Labrador for the Year Ended 31 March 2005.

The report provides information on the financial condition of government and comments on government's compliance with generally accepted accounting principles and adherence to principles of sound financial accountability.

Financial Condition of Government - For the year ended 31 March 2005, government recorded a deficit of $489 million, debt expenses totaling $940.2 million and a net debt of $11.9 billion. Compared to other provinces in Canada, Newfoundland and Labrador has:

• the highest net debt per capita at approximately $23,000 for each Newfoundlander and Labradorian;
• the highest net debt as a percentage of GDP at 60.8 per cent;
• the highest interest costs as a percentage of total revenue at 21 per cent; and
• the lowest credit rating.

Mr. Noseworthy stated: "There seems to be a sense of optimism that recent developments related to the new Atlantic Accord Agreement and increased oil revenues will continue to provide improvements in the province's fiscal performance. While this may be the case, especially with recent projections of a modest surplus for 2006, we must not lose sight of past deficits, and enormous debt and debt expenses that we still face in this province� prudent fiscal management has to continue and a debt reduction plan has to be developed and followed before the financial condition of the province is turned around."

$2 Billion Atlantic Accord (2005) Advance Payment - In July 2005, the province received a $2 billion advance payment from the Government of Canada as a 100 per cent offset against reductions in Equalization payments resulting from offshore resource revenues. To date, government has placed the money in temporary investments with interest rates varying from 2.6 per cent to 3.03 per cent. However, the province currently pays approximately 7.5 per cent on its unfunded pension liability and interest rates ranging from 5.25 per cent to 11.625 per cent on its debenture debt. Mr. Noseworthy stated: "While government has various options (spend or pay-down debt) for utilizing the $2 billion, significant savings could be realized by reducing the province's debt."

• Pensions - The unfunded pension liability at $3.93 billion continues to be a significant issue for government. This liability increased by $188.1 million during the year, even though government made a special payment of $156 million. Of particular note is the Teachers' Pension Plan. The province's actuary has indicated that the Teachers' Pension Plan is expected to run out of funds in 2014, with any negative cash flow (deficiency) becoming the amount government will have to pay in order for plan members to receive their pensions. Mr. Noseworthy stated: "Addressing the unfunded pension liability should remain a priority for government."
   
• Retirement Benefits other than Pensions - At 31 March 2005 the province's net liability relating to group health and life insurance benefits was $1.159 billion and is expected to total $1.552 billion by 2009. Mr. Noseworthy stated: "Government should carefully manage its liability relating to group health and life insurance benefits."

Accounts Receivable - Government does not do a good job in collecting amounts owed to it. At 31 March 2005, government departments were owed $471 million of which $180 million (38.2%) is considered to be uncollectible. Mr. Noseworthy stated: "Government should be more diligent in collecting amounts owed to it and take action to implement all initiatives identified by Treasury Board to improve collection of accounts receivable."

Environmental Liabilities - There is no complete central inventory of contaminated sites and there is no liability recorded on the province's financial statements for the cost of remediating these sites. Mr. Noseworthy stated: "Government should undertake a process to identify all contaminated sites in the province for which it is potentially liable, determine its share of remediation costs and record any resulting liability in the province's financial statements."

Government Reporting Entity - The province's Consolidated Summary Financial Statements are required to include all organizations that are controlled by government. However, government has never included Memorial University of Newfoundland in the province's financial statements. Mr. Noseworthy stated: "I am pleased to report that government has approved including Memorial University of Newfoundland in the Consolidated Summary Financial Statements commencing next year - 31 March 2006."

Mr. Noseworthy�s report is available on the Office of the Auditor General Web site at //www.gov.nl.ca/ag/reports.htm

Media contact: John L. Noseworthy, C.A., Auditor General, (709) 729-2700

2005 11 29                     3:00 p.m.