Canada's major cities are failing to reflect actual spending in their annual budgets, according to a report by the C.D. Howe Institute.
The 24-page document, released Wednesday, which compares the budgets of 24 cities from 2003 to 2012, shows that some municipalities appear to overspend, or underspend, by as much as 20 per cent.
"The bottom line is that city governments are doing their budgets in one way, and financial reports in another way," said Benjamin Dachis, a senior policy analyst for the public-policy research institute. "It makes it impossible for a non-expert to compare them."
Mr. Dachis says the problem is that most municipalities use cash-based accounting in their budgets instead of accrual accounting, which is preferred by the provincial and federal governments. The main difference between the two systems is when they identify revenue and expenses. A cash-based budget would count the full cost of a new bus in the year it was purchased, but an accrual system would divide the total cost over the number of years that bus is expected to operate.
"The way they are accounting on a cash basis compels them to overcharge for projects upfront," Mr. Dachis said.
Toronto and the Waterloo region are the only areas to match their annual budgets with actual spending within a gap of 5 per cent on average. The Halton region is the worst on the list with a gap of 22 per cent. Montreal, Vancouver and Ottawa all have gaps around 10 per cent.
While Toronto tops the list for Canadian cities, Mr. Dachis points out that it would place only eighth out of all Canadian governments, including federal and provincial administrations.
To improve the spending accuracy and financial transparency of all cities, he recommends that they switch to accrual accounting methods for both budgets and financial statements.