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1. ERNST & YOUNG LLP 2009 AUDIT PLAN PLAN DE VÉRIFICATION DE
2009 de Ernst & Young LLP |
That Council receive the
attached report from Ernst & Young LLP for information.
Recommandation
du Comité
Que le Conseil municipal prenne connaissance du
rapport ci-joint de Ernst & Young LLP.
DOCUMENTATION
1. City
Treasurer’s report dated 13 October 2009 (ACS2009-CMR-FIN-0046)
2. Extract of Draft Minutes from 20
October 2009 meeting of ABFC.
Audit, Budget and Finance Committee
Comité de la vérification, du
budget, et des finances
and Council / et au Conseil
Submitted by/Soumis par : Marian
Simulik,
City Treasurer/Trésorière municipale
Contact
Person/Personne ressource : Mona Monkman, Deputy City Treasurer Corporate
Finance /Trésorière muncipale adjointe- contrôleur finance
Finance
Department/Département de finance
(613)
580-2424 x,41723,Mona.Monkman@ottawa.ca
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Ref N°:
ACS2009-CMR-FIN-0046 |
SUBJECT:
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OBJET :
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That the Audit, Budget and Finance Committee and Council receive the attached report from Ernst & Young LLP for information.
Que le Comité de la vérification, du budget, et
des finances et le Conseil municipal prennent connaissance de ce rapport de
Ernst & Young LLP ci-joints.
The Municipal Act, 2001 requires that the City prepare annual audited financial statements in accordance with accounting policies prescribed by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. These audited financial statements must be published publicly.
On September 13, 2006, Ernst & Young LLP was appointed as the external auditors of the City of Ottawa for the five-year term ending December 31, 2010. As part of the 2009 audit, Ernst & Young LLP is providing a planning memo for the information of Audit, Budget and Finance and Council that outlines the scope and key issues affecting the audit (Document 1).
The 2009 audit plan includes one time conversion work associated with the implementation of tangible capital asset reporting for the City.
No public consultation was required
There are no legal/risk management implications to receiving this
report. Section 294.1 of the Municipal Act, 2001 requires the City
to prepare an annual audited financial statement in accordance with generally
accepted accounting principles for local governments as recommended from time
to time by the Public Sector Accounting Board of the Canadian Institute of
Chartered Accountants.
Fees are fixed as part of a five-year contract. Funds are available to fund one time fees associated with the implementation of tangible capital asset reporting.
Document 1 - Ernst & Young LLP 2009 Audit Plan
Management will take appropriate action as described
ERNST & YOUNG LLP 2009 AUDIT PLAN
PLAN DE VÉRIFICATION DE 2009 de Ernst &
Young LLP
ACS2009-CMR-FIN-0046 city-wide / À l’Échelle de la ville
Ms. Marian Simulik, City Treasurer, introduced this item, noting that new requirement relating to tangible capital assets would change the way financial statements were reported and provide a more balanced perspective in the future. She remarked that each year, staff brought forward a report such as the current one but that, because of the changes in reporting requirements, this year would be different in terms of how financial statements would be report. She introduced the representatives from Ernst & Young who were in attendance: Ms. Deanna Monaghan and Mr. Steven McIntyre.
Ms. Mona Monkman, Deputy City Treasurer, Corporate Finance, spoke to slides 1 to 9 of the PowerPoint presentation, which served to provide an update on the accounting of tangible capital assets, an overview of the work completed to-date, present some preliminary numbers with respect to the City’s capital assets, explain the impact of this change on the City’s balance sheet and discuss the next steps. Ms. Deanna Monaghan, Managing Partner, Ernst & Young, then spoke to slides 10 to 13 of the PowerPoint presentation, which served to explain materiality, the 2009 audit approach and the significant areas of focus for this audit. A copy of the presentation is held on file with the City Clerk.
Mayor O'Brien requested Ernst & Young’s perspective on the City’s 1% materiality in terms of how it compared to other organizations. Ms. Monaghan stated that Ernst & Young followed Canadian standards for audit assurance engagement. She advised that there were different materiality basis specified for different types of organizations and that for municipalities, the range was .5% to 2%. She felt 1% was an appropriate basis for the City of Ottawa and she advised that this was consistent with other municipalities audited by her firm.
Councillor El-Chantiry wondered how the City of Ottawa compared with other municipalities in terms of its assets. Ms. Monkman advised that to date, not many municipalities had published their numbers but that staff had looked at the Niagara Region and the City of Montreal to see whether Ottawa’s numbers were different. She reported that the numbers were not very different to those of Montreal in terms of asset values and annual amortization, though there were differences in types of assets. As an example, she remarked that Montreal did not have nearly as much land mass as the City of Ottawa, but it had a Metro system.
Responding to a follow-up question from the Councillor, Ms. Monkman confirmed that it was fair to say the City’s strong assets and low debt levels allowed it to maintain its Triple A credit rating.
Councillor El-Chantiry posed a question with respect to the slide 13 and its reference to “consolidation”. He recalled previous reports where staff outlined the balances of various capital project budget enveloped. Ms. Simulik indicated the consolidation referenced on slide 13 referred to the City’s need to consolidate its financial statements with Business Improvement Areas (BIAs), the Library Board, the Ottawa Community Housing Corporation, etc. With respect to capital expenditures, she explained that what showed on the financial statements were the amounts spent during the year, not the project authority.
In reply to a follow-up question from the Councillor, Ms. Simulik confirmed that staff reported annually on any adjustments needed to capital projects. In addition, staff had started reporting on works-in-progress as part of the quarterly status reports and this became part of the information Council received when developing the budget.
Councillor El-Chantiry felt this was a good news story and he hoped the City would be able to communicate that effectively to residents. He then referenced the stimulus package and asked if it would follow the same format next year. Ms. Simulik explained that all stimulus projects had to be completed by March 31, 2011 and that until that date, those projects would continue to be funded 1/3 from each level of government.
Councillor El-Chantiry wondered if it would be wise for the City to borrow money to invest in infrastructure. Given that these investments were needed and that upper tier levels of government were contributing equally, he submitted that borrow money to make these investments would allow the municipality to get caught up on its list of infrastructure project needs. Ms. Simulik indicated Council had, in fact, approved debt for its portion of all infrastructure stimulus projects. Further, she advised that staff had been able to negotiate about $26M of that debt from the CMHC at very favourable rates.
Mayor O'Brien referenced the $2B worth of land reflected on the balance sheet and he asked for staff’s best estimate of that land’s current market value. Ms. Monkman explained that in order to attach the $2B value to the land, staff had to identify all the plots of land in the City, value them based on what it would cost to acquire them in the current market and then discount back to when the land was actually acquired. She advised that the initial gross number was $20B.
Mayor O'Brien stated that for the first time since being elected, he saw numbers to support the fact that the City was in a very strong financial position and he believed it was destined to get stronger.
Councillor Cullen referenced page 14 of the audit plan (page 17 of the Agenda package), which talked about Pension accounting. He wondered if there would be some commentary on pension funds’ exposure to stock market fluctuations. Ms. Monaghan stated that Ernst & Young conducted its audits in accordance with generally accepted accounting standards and reported for the corporation. With regards to the solvency of pension plans, she explained this would be done through an actuarial evaluation performed by management and that it was generally done every three years. She advised that although Ernst & Young would not be looked at the pension plans from a solvency perspective, there would be quite a bit of note disclosure in the statements. Adding to this, Ms. Simulik indicated there were two pension plans for which the City was wholely obligated; the City of Ottawa Superannuation Fund and OC Transpo. In terms of solvency evaluations, she reported that these were performed every year and, under the rules established by the Superintendent of Pensions, the City had to file every three years. For COSF, the next filing would be in 2012 whereas for OC Transpo, the next filing would be next year. She informed Committee that at this time, staff expected a solvency deficit in the OC Transpo fund as a result of changes in the stock market and that this would be addressed as part of the Transit budget.
Responding to a follow-up question from the Councillor, Ms. Monaghan confirmed that the City’s investments would be evaluated as part of the audit.
Councillor Cullen remarked that it was unusual to have communications plan around the audit report. However, he hoped if there were substantial changes on some parts of the City’s position, that the City would be pro-active in communicating this to residents.
In response to questions from Councillor Holmes with respect to the new reporting requirements, Ms. Monkman explained the requirements were coming from the Public Sector Accounting Board and would apply to all cities across the country.
Councillor Holmes expressed her pleasure over this, noting that residents did not previously have this kind of information and therefore did not truly understand the City’s financial situation. She wondered if the figure quoted for roads included the transitways and rail corridors. Ms. Monkman responded affirmatively.
Responding to a follow-up question, Ms. Monkman explained that buses were included in the line for “vehicles”.
Councillor Holmes wondered why the statements did not reflect replacement values as she believed this would be easier for residents to understand. Ms. Monkman explained the notion was to reflect what the municipality had spent and match it over time to how that money was used to provide a service. Therefore, it was based on cost rather than replacement value.
In reply to a follow-up question from the Councillor, Ms. Monkman talked about a follow-up project being undertaken, as part of the tangible capital asset review, to assess the state of the City’s assets and how well these assets were serving the public’s needs. She advised that within the next year, staff would begin reporting on this and such reports would include an analysis of how well the assets were being maintained and whether the City was providing for them adequately in its budgeting.
Councillor Holmes wondered if Ernst & Young had the capacity to do sustainability costing; to look at air and/or water quality and cost that out over the long-term. Further, she wondered if any other municipalities had expressed an interest in this. Ms. Monaghan confirmed that Ernst & Young had an environmental group and specialists who looked at such areas. However, she was not aware of it coming up with any municipalities with which the firm was involved. She indicated she would have to look into it in order to provide an accurate answer.
Mayor O'Brien asked staff to comment on the fair market value of the City’s assets. Ms. Simulik advised that when the City completed its most recent Long Range Financial Plan, it included an estimated replacement value of the municipality’s assets and at that time, the estimated value was $36B. Further, she indicated that while the rules prohibited the City from presenting tangible capital assets other than book value, staff would be making an effort to also disclose fair market values in the statements so that people would understand the distinction.
Councillor El-Chantiry asked that, as other municipalities released reports on their tangible capital assets, that members of Council be provided with this information in order to get a sense of the City of Ottawa’s comparative position.
Councillor Feltmate asked about landfill closure costs. Ms. Simulik explained that post-landfill closure costs became a liability for the City and would be disclosed in the financial statements. However, she reminded Committee that through the 2007 Long Range Financial Plan, Council had addressed how this liability was to be funded and the City had been contributing annually into that liability account so that future generations would not have to pay for a benefit going to current users.
Responding to a follow-up question from the Councillor with respect to the municipality’s readiness to fulfill the new reporting obligations, Ms. Monkman indicated changes to the Municipal Act would require that, by the 2011 budget cycle, Council would need to adopt on funding for tangible capital assets prior to passing its budget. She confirmed that the City of Ottawa would be ready to meet this timeline. As for reporting tangible capital assets on their financial statements, all municipalities would have to do so in 2010 and again, she confirmed that the City of Ottawa would be ready.
Mayor O'Brien thanked staff and the representatives from Ernst & Young for getting the City to the current point. He indicated he had seen a lot of balance sheets and he believed that by the time this new process was fully implemented, the City would have a balance sheet that any private sector organization would envy.
Following these exchanges, Committee voted to receive the report.
That the Audit, Budget and Finance Committee and
Council receive the attached report from Ernst & Young LLP for information.
RECEIVED