The Gallant government is embroiled in another dispute with Auditor General Kim MacPherson, this time over its use of a controversial "contingency fund" in its budgeting and financial reporting.

On Thursday, MacPherson said the contingency fund, which is used by the Gallant government to absorb overspending without pushing the deficit up on paper, does not adhere to professional financial reporting rules.

She also said it will not be recognized by her in the province's upcoming audited financial statements.

"We follow public sector accounting standards," said MacPherson.

"That's not what they're doing. It's very unfortunate."

But Finance Minister Cathy Rogers disputes MacPherson's interpretation of what is allowed under national accounting standards and is making no apology for using the contingency fund.

"The auditor general does have a position that she thinks is a best practice but we feel differently on this point. We actually believe that we're being transparent," said Rogers.

Fund covers budget overruns

Finance Minister Cathy Rogers disagrees with the auditor general's view and says the government is being transparent with its figures. (CBC) Over the last two years Roger Melanson, the previous finance minister, delivered budgets that list all expected revenues and expenditures in a traditional way.

But rather than calculating the deficit at that point as previous finance ministers have done, he then tacked on a contingency fund of between $100 and $150 million for potential cost overruns.

That artificially raised the expected deficit on paper and made it virtually impossible for government to miss its inflated budget targets.

It has helped Melanson claim to be keeping deficits under budget even when spending is higher or revenues lower than expected.

Deficit better or worse?

Rogers says the former Bernard Lord government used a similar contingency fund when they were in office. But the Liberal opposition was critical of the practice as the time. (Nathan Denette/Canadian Press) Last week, Melanson, who is now head of the province's Treasury Board, announced in a first quarter update the deficit was improving even though government expenditures had ballooned $22 million more than budgeted.

A simple adjustment in the contingency fund was made to make it look like the deficit was falling instead of rising.

Similar adjustments were made last year as spending grew beyond projections.

Rogers says Ontario and British Columbia use similar accounting devices as did the former New Brunswick Progressive Conservative government of Bernard Lord.

She said she believes the practice does adhere to national public sector accounting standards.

But MacPherson said the contingency fund is not real — in part because it has no actual money in it — and mostly serves to confuse the issue of whether government finances are improving or deteriorating.

And although Rogers cites the Lord government as a precedent for the contingency fund, the Liberals strongly criticized it at the time as a gimmick and MacPherson notes former auditor general Daryl Wilson disputed its validity back then.

"He made similar comments to what I'm saying today," said MacPherson.

History of disputes

It's not the first time MacPherson has faced down the Gallant government over its bookkeeping.

Last year she refused to give the province a clean audit in a dispute over how it is accounting for the new shared-risk pension funds.

She also sparred with the government over a request for more funding so she could thoroughly investigate the former Liberal government's loss of $70 million in loans and guarantees to Miramichi construction company Atcon.