While the government basks in the glory of a balanced budget for the first time in 28 years, a troubling issue ferments beneath the surface.

The issue at hand is the accounting treatment of the Millenium Scholarship fund. The feds have booked the $2.5 billion expenditure for this scholarship program in the 1997/98 fiscal year, even though this money won't be spent until the year 2000.

Auditor General (AG) Denis Desautels has pointed out that this method of bookkeeping violates section PS3410 of the Canadian Institute of Chartered Accountants Handbook. In simple terms, money that is booked for a fiscal year, should be spent in that same fiscal year.

Imagine a taxpayer trying to claim a $2500 RESP deduction on his 1997 tax return but not planning to actually make the same contribution until the year 2000. Revenue Canada would put the kibosh on this in short order.

But this is exactly what the government is trying to do with the Millennium Fund. This is fundamentally wrong and runs contrary to the work that has been done to set clear reporting standards for government finances. Indeed, public sector audit and accounting professionals have spent over 20 years to develop standards that ensure the integrity of the nation's financial statements.

But the Finance Minister continues to ignore the Auditor General. And this is the third time in as many years that the government has booked costs in one year but planned to spend them in another. Previously this feud arose between the AG and the government on the issue of GST/PST harmonization (1996) and the Innovation Foundation (1997).

It is no wonder that the AG made his concerns public in an Ottawa Citizen article on March 11.

In response, the Martin Mafia swiftly and publicly rebuked the Auditor General. We speak of Scott Clark, the DM of Finance, and Peter Harder, Secretary of the Treasury Board, who chastised the AG in their letter to Mr. Desautels on March 12.

Martin's strongmen state "your position confuses a legitimate difference of opinion about the appropriate application of accounting standards, thereby, affecting the credibility of the financial statement of the government."

It's a shame that our Finance Minister and his officials fail to realize that it is their questionable accounting practices that bring the credibility of the financial statement of the government into question.

But Mr. Desautels refuses to budge. In his response to Mssrs. Clark and Harder on March 18th, the AG notes "I would point out that my deep concern with the government's recent departures from objective accounting standards has been clearly and forcefully reported to Parliament in my observations on the government's 1996 and 1997 financial statements and discussed in some detail with the Public Accounts Committee during two related public hearings."

The AG has stated that he intends to devote an entire chapter in his April report to Parliament covering the issue of questionable accounting practices of the government.

It's too bad the warnings will fall upon deaf ears. Previous reports of the AG that question accounting practices and highlight billions in waste and mismanagement continue to gather dust on government bookshelves.