Auditor general's Vestcor fight may have to be settled in court

New Brunswick Auditor General Kim Adair-MacPherson has support in some accounting and auditing circles for the merit of her request to gain access to the financial records of the pension investment and management body Vestcor, but her office is not saying if she is prepared yet to escalate the effort into a legal fight.

"The Auditor General respectfully declines to comment at this time," wrote spokesperson Jolyne Roy about whether a court application is under consideration.

Adair-MacPherson appeared before the legislature's Crown corporations committee last week and gave a lengthy presentation to MLAs about her effort to gain access to the internal financial documents of Vestcor.

Vestcor is the Fredericton-based organization set up to manage what is now $18 billion in New Brunswick government pension and other funds.

It used to be a Crown agency, but in 2016 was reorganized as an independent body to allow it to solicit outside accounts and contends it is no longer subject to Adair-MacPherson's authority.

She disputes that on several grounds, but Premier Blaine Higgs has sided with Vestcor and said his government will not pass special legislation Adair-MacPherson has requested to require the body to submit to her oversight.

Adair-MacPherson told MLAs last week that if government took that position she might be forced to mount a legal challenge to assert her right to audit Vestcor.

"Depending on how this plays out and what the response is to our recommendations, eventually it might have to be a decision made in the courts," she said.

"If they don't agree, then the option to the auditor general is to go the legal route, which I would find very unfortunate."

On Thursday, Higgs told CBC News Vestcor no longer has ties to the provincial government and the province has no more responsibility to oversee its affairs than the affairs of any outside body like a big bank.

"Vestcor was set up as an independent operation not unlike other financial institutions," said Higgs. "I don't have any responsibility for TD either or the Bank of Nova Scotia."

But Adair-MacPherson told MLAs that in her view Vestcor maintains strong connections to the provincial government that make it essential she be allowed to oversee its operations.

She said it was created by a special act of legislature and given unique non-profit status by lawmakers. In addition, she said it was handed billions of dollars in government employee pension dollars to manage without having to compete for the business.

Vestcor is jointly owned by the province's two largest public pension funds serving civil servants and teachers. Those funds each have provincial government representation on their boards of trustees, which adds to the connections, she believes.

"There are just so many components to it that when I sit back and look at it, to me, it should be held accountable to the public," said Adair-MacPherson.

"My office, I feel, should be able to have access the same as we always did in the past to do both financial audit work and performance audits."

Steven Salterio, the current Stephen J.R. Smith Chair of Accounting and Auditing at Queen's University in Kingston, Ont., said Adair-MacPherson will have difficulty winning the right to look into Vestcor's operations, but there is merit in the argument she is making.

"I think the auditor general is correct in that she should have the mandate to deal with this newly privatized corporation from the point of view this is strictly a government entity," said Salterio.

"This is a lot of provincial money going into an organization that is not accountable to the auditor general."

According to New Brunswick's public accounts, the province paid Vestcor $327.9 million last year as its share of employee pension contributions.

Adair-MacPherson has said she is interested in testing Vestcor claims that it is meeting and beating its investment targets and looking into whether incentive and bonus programs for Vestcor executives are reasonable.

In 2019, the last full year it published an annual report, Vestcor posted investment returns of 11.76 percent, which placed it in the bottom quarter of Canadian pension funds for the year, according to a ranking by the Royal Bank of Canada.

Still, Vestcor reported those results were $107 million higher than its "benchmark" targets, helping to boost bonuses and incentives to its employees to $5.3 million, including $882,721 to its president, John Sinclair. Sinclair's base salary is $375,000.

"We would do a performance audit to determine whether [bonuses] are reasonable given the business they are in," said Adair-MacPherson.

"We would audit to determine whether in fact we agree with the claims that they're making in their annual report, but right now there's no way to do that."

Salterio said in hindsight the time for the auditor general to win access to Vestcor was back in 2016 while legislation that created the body was being debated and adopted.

He said performance audits can be grueling and he's not surprised Vestcor is doing whatever it can to escape that level of scrutiny.

"You certainly wouldn't volunteer to give the auditor general a mandate if you were a private-sector organization," said Salterio.

"But at the same time you have to have it set up so that the legislative intent is clear and as far as I can see there is no legislative intent that the auditor general have a mandate."

New Brunswick's Auditor General Act grants broad powers to look at any "auditable entity," which can include "a service provider" to government or "a funding recipient."

Adair-MacPherson told MLAs her office believes that is enough legal authority for her to gain access to Vestcor without an amendment to legislation, although that would be the easier route.

"It might have to be a decision made in the courts, but I surely hope it doesn't come to that because that's a costly, lengthy exercise," she said.