The arm of B.C's financial services watchdog in charge of credit unions has left a third of its staffing positions vacant for the past three years – despite budget surpluses of millions of dollars – because the government has stopped the body from raising its pay to attract new hires, the provincial Auditor-General says.

The Auditor-General's concerns emerged after the head of the Financial Institutions Commission of B.C., or FICOM, warned in July that one in four positions throughout her agency were unfilled. In addition to credit unions, FICOM oversees mortgage brokers, pension funds and the real estate industry – some of which are facing scrutiny for their roles in fuelling Metro Vancouver's housing affordability crisis.

The Finance Ministry says the situation, both within the credit union division and throughout FICOM, will change by the end of this year, when the province updates the pay scales for all public servants, allowing the agency to raise salaries to compete with the more-lucrative private sector.

Story continues below advertisement

"Across the board, there won't be significant increases – they will be modest – but in the case of specific situations like FICOM the [new pay] framework will give new flexibility," said Jamie Edwardson, communications director for the Ministry of Finance.

Mr. Edwardson was responding to an update from the Auditor-General's office Wednesday that once again pointed the finger at the provincial government for holding the agency back from properly staffing itself.

Lisa Moore, an executive director at the Auditor-General's office, told the parliamentary standing committee on public accounts that the watchdog has lost a few more employees since a 2014 audit found it had a staffing vacancy rate of 35 per cent.

The province has not yet begun a search for a new CEO of the body after its former leader left in July to take a position at the federal bank regulator. The agency has had surpluses of $3.5-million to $5-million over the past several years and that money goes back into the province's general revenues, the Auditor-General's office told the committee.

"This is not a funding issue. FICOM is funded entirely by credit unions and the other financial entities it regulates," Ms. Moore said, according to Hansard notes published online. "Therefore, it can afford to pay competitive salaries without new funding from government."

"All FICOM needs is the approval from government to step outside current pay scales."

The agency's interim CEO, an assistant deputy minister of finance, told the committee that it has spent money hiring external contractors to do credit union audits. But it has largely stopped such outsourcing as those contractors too often provided poor quality work because their "primary goal is to get through the work as quickly as possible in order to get on to the next assignment."

Story continues below advertisement

The Auditor-General reported this July that the agency's staffing woes meant it will not meet its intended target of reviewing every one of B.C.'s 42 credit unions – which hold more than $58-billion in deposits and serve more than 1.9 million members – every two to three years.

Before FICOM's former CEO left in July, she told The Globe and Mail her greatest regret was that she was unable to improve the pay at the agency to draw in more employees.

Mr. Edwardson said the watchdog has always been part of the public service and, as such, "their compensation needs to be consistent with the rest of the public service."

New Democrat housing critic David Eby said FICOM should be made independent from any ministry, such as other provincial watchdogs, so that it can use its surpluses to fix its chronic understaffing.

Mr. Edwardson said doing so is a complex and challenging process.

"We have the resources and we have the ability to address problems without taking that particular step at this time," Mr. Edwardson said.

Story continues below advertisement

Mr. Eby said the watchdog's responsibilities may sound obscure to the public, but its proper functioning is integral to the health of the province.

"This is the regulator that ensures that you're not ripped off and your money is safe," he said. "It's a very important and little-known office."

Editor's note: A previous version of this story identified the Financial Institutions Commission of B.C. as having a third of its positions left vacant for the past three years. In fact, the credit union division has a third of its positions left vacant, while the wider investigative divisions had a vacancy rate of 26 per cent, according to a July update from the commission's outgoing CEO.