Nalcor’s comeback financial statement uses uncommon and potentially questionable reporting methods, according to Ottawa accountant John Wright
A provincial energy corporation in Newfoundland and Labrador appears to be making a comeback after losing $19 million and their entire board of directors in the spring of 2015.
The board of directors was replenished quickly and the company pursued their controversial undertakings at Muskrat Falls despite protests. Although Muskrat Falls is still a work in progress, Nalcor’s financial statement indicates much of their profit has come from investments in new projects, along with lower operating costs and higher oil production.
The third quarter financial statement indicates that during the first three months of 2016 the company made $38.7 million more than they did during the same period in 2015. This quick turn-around was accounted for in both financial charts and subsequent explanatory paragraphs in the report.
According to the report, one of the primary factors contributing to the company’s financial resurrection is a reduction in operating costs. The outline in the statement says the increase to $80.9 million in operating cost revenue over the first nine months of 2016 compared to $20.3 million for the same period in 2015 is due to “lower salary and benefits expenses, professional fees and system equipment maintenance.”
These figures are represented with a superscript number one next to them, indicating more information in a footnote. The note says the numbers are recorded using uncommon accounting techniques, known as non-generally accepted accounting principles.
These methods are cause for raised eyebrows according to John Wright, senior accountant at Vaive and Associates Firm in Ottawa. Wright says these methods of financial reporting are uncommon for a reason. “If someone came to me with a non-GAAP statement, we would have to look at it very closely to find out why they used them and what it means before we made any conclusions,” Wright says.
Although they can be used for tax evasion purposes, says Wright, it generally creates more work for the company in the long run since they have to produce two financial reports. This makes it an uncommon and undesirable practice.
Nalcor officials decline to comment on the matter.
Overall, Wright cautions “don’t trust them.”
The other factors contributing to the company’s increased revenue are all recorded using common practice. Oil production for Nalcor’s third quarter brought in almost $1.5 trillion compared to the previous year’s $299 billion. This increase is due primarily to the company’s ability to purchase oil at a lower price per barrel during 2016, coupled with increased production during the year. These two aspects allowed the company to produce more for less, and to soak in the financial benefits of such.
The statement also says the company recovered lost revenue through higher customer rates for services. They outline this practice as an ‘entitlement’ in the statement.
Finally, the increase in revenue for 2016 is also attributed to the company’s decision to increase investments in hydro projects. Nalcor has a number of sister companies across the east coast of Canada including Emera which recently announced the initiation of the Atlantic Link Transmission Project – a 350-mile submarine that will deliver energy to New England. New projects such as this provide the company initial income through deal-making and the promise of additional income with the completion of the project.
In a November 2016 press release, Nalcor’s CEO Stan Marshall said “Nalcor’s financial position is very sound… We are focused on getting back on track and completing as much work as possible before the onset of winter.”