June 15, 2022, at 12:00 PM

Original link

The meeting is called to order at 12:00 PM; it being noted that the following were in remote attendance: Councillors M. van

Holst, J. Helmer, S. Turner; and L. Higgs.

1.   Disclosures of Pecuniary Interest

That it BE NOTED that no pecuniary interests were disclosed.

2.   Consent

None.

3.   Scheduled Items

None.

4.   Items for Direction

4.1   2021 Financial Audit

2022-06-15 Staff Report - 2021 Financial Audit

That the following actions be taken:

a) the 2021 Financial Report of The Corporation of the City of London BE RECEIVED; it being noted that the Audit Committee received a presentation from the Director, Financial Services with respect to this matter; and,

b) the Audit Findings Report as prepared by KPMG for the year ending December 31, 2021, BE RECEIVED; it being noted that the Audit Committee received a presentation from KPMG with respect to this matter.

Motion Passed

4.1.a   2021 Financial Statements Overview

2022-06-15 Staff Report - 2021 Financial Statements Overview

4.1.b   Audit Findings Report for the Year Ended December 31, 2021 - KPMG

2022-06-15 Submission KPMG City of London Audit Findings Report 2021

4.2   Presentation - Internal Audit Plan - MNP

2022-06-15 Submission - Internal Audit Presentation

That the presentation from MNP, with respect to the internal audit plan BE RECEIVED.

Motion Passed

4.3   Internal Audit Charter - MNP

2022-06-15 Submission - Internal Audit Charter - Final

That the communication from MNP, with respect to the internal audit charter, BE RECEIVED.

Motion Passed

4.4   Internal Audit Follow-Up Activities Dashboard as of June 6, 2022 - MNP

2022-06-15 Submission - Internal Audit Follow-Up Activities Dashboard

That the communication on the agenda and the revised communication on the added agenda from MNP, with respect to the internal audit follow up activities dashboard as of June 6, 2022 and June 10, 2022 BE RECEIVED.

Motion Passed

4.4.a   (ADDED) REVISED - Internal Audit Follow-Up Activities Dashboard as of June 10, 2022 - MNP

2022-06-15 Submission - Internal Audit Follow-Up Activities Dashboard-Replacement

5.   Deferred Matters/Additional Business

None.

6.   Adjournment

That the meeting BE ADJOURNED.

Motion Passed

The meeting adjourned at 1:04 PM.

Full Transcript

Transcript provided by Lillian Skinner’s London Council Archive. Note: This is an automated speech-to-text transcript and may contain errors. Speaker names are not identified.

View full transcript (1 hour, 14 minutes)

Just an audio test, Sarah, can you hear another test of audio from council chambers? Michael, can you hear me? And now, yeah, is audio coming in okay on your side? Yes, it is.

Excellent, thank you. Thank you. Michael, I just joined in. Do you want to do that sound check?

I can hear you loud and clear, Ms. Korman quickly popped in to assist me with that. Can you just double check the public streams, if you could? Sure, sure, I’ll just stay in the meeting and listen in unless you feel otherwise.

I’ll leave that up to you. It should be pretty straightforward and we’ve got Deputy Mayor Morgan so we’re in good hands. All good. Okay, thanks.

Thank you. Okay, I’m just going to have committee members acknowledge their presence so I can ensure that we have quorum to start the meeting. So see councilor van Holst, there we are. Okay, so we have quorum.

We have everybody we need for the meeting. So I’m going to call the audit committee meeting to order. The city of London is committed to making every effort provide alternate formats and communication supports for council standing or advisory committee meetings and information upon request to make a request for any city service, please contact accessibility at London.ca or 509-661-2489, extension 2425. I also wanted to make a land acknowledgement.

City of London is situated on the traditional territories as of the Anishabakh, Podnashoni, and then Lene Peiwok and Adawandran. We honor and respect the history, languages, and culture of the diverse indigenous people who call this territory home. City of London is currently home to many First Nation, Métis, and Inuit people today. As representatives of the people of London, we are grateful to have the opportunity to work and live in this territory.

With that, I will see if there are any disclosures of the community interest for committee members. Okay, seeing none, we don’t have any consent items. We have no scheduled items. We have a number of items for direction.

The first is 4.1, the 2021 financial audit, including the audited financial statements. We’re gonna start off with Mr. Collins from our city staff before we move into Ms. Denbach and her team at KPMG.

So I’ll turn it over to Mr. Collins to start us off with the 2021 financial audit. Thank you, Chair. And to the committee, I would just like to acknowledge and thank the number of hours that were spent over the course of the year in preparing the financial statements that are presented before you and the work that was been done by our outside boards and commissions, as well as our external auditor through this process.

Item 4.1A provides a quick overview and quick overview, I mean a 12 pager of the consolidated financial statements that are presented to you, which is approximately 480 pages thick. And consistent with prior years, the format of that overview has remained consistent. Rather than walk the committee through each page one by one, I would like to just draw the attention to committee to some key slides, in my opinion, that are worth noting at this time. So for committee, if you were to refer to page 476 of the committee agenda or page 4 of item 4.1A, I would just like to highlight that that page provides an overview of our statement of financial position, which highlights that the city’s balance sheet for the year ending December 31st, 2021 continues to grow stronger.

Our financial assets increased greater than our financial liabilities, recognizing that the ratio of our financial assets to cover the city’s financial liabilities is 1.58, which is greater than it was in 2020 of 1.48. Also, our asset base grew on non-financial assets as well through 2021, mainly attributable to new additions and capital assets. Witching to the next page, page 476 of the agenda or page 5 of the agenda item provides some highlights and changes along with items that require some attention based on some items that were flagged to us by our external auditors through the 2021 audit. One item that I’d like to highlight for committee is that as part of our 2021 year in financial position, consistent with the practice that the city has done for a number of years, 2021 was a year that we had an actuarial review for our employee benefits payable.

As part of that analysis, civic administration looked at adjusting the discount rate that we used for our employee benefits payable down from 3.25% to 3%. This adjustment was worked in conjunction with our financial planning and policy division and is in keeping and consistent with other discount rates that other municipalities have been using. Further through our audit, our auditors flagged some areas of improvement that in my opinion indicates that more attention and awareness is needed on non-routine transactions and more communication and coordination is needed with our stakeholders. Through KPMG’s report on audit findings, they’ll walk you through some of those items.

Following that page is some highlights of some of our key capital projects that were added to our balance sheet in 2021. These include items such as the East Lions Community Center, Greenway Wastewater Treatment Plant and Organic Rankin Cycle System, Infrastructure Renewal for Dundas Street and Old East. And as you can tell by the list identified on that page, it identifies that the city is not only investing in new assets, but also in the renewal of existing. Following that on page seven of the agenda item or page 479 of the agenda, we provide some key items on some metrics that we follow through at our financial statement process.

Last year, a concern was raised by audit committee about the growth in our tax careers. Based on 2021, our amount of tax careers has gone down from what was identified in 2020, which was consistent with our understanding of why our tax careers grew in 2021 as a result of an operational change we made to delay tax installments of property taxes owed in 2020 in response to the pandemic. Finally, I’d like to highlight that over the past five years, we’ve seen the city’s long-term debt decrease. And currently right now, the debt per household is $1,342.

Moving along on page 480 of the agenda, three to 483 of the agenda, and page eight and page 10 of the overview, we produce traditionally a reconciliation of the city’s budget to financial statement reporting, which also includes a reconciliation of our budget surplus that’s reported to corporate services committee and to counsel back in late April. And finally, as has been concerned by audit committee and raised the past two times, page four of the agenda and page 12 of the item specifically provides a high-level overview of the work that civic administration has commenced in preparing for changes coming to our financial statements as it relates to the reporting on financial instruments and the asset retirement obligation. With that, I’d like to conclude this item and make way for the audit finding report as reported by the city’s external auditor, KPMG. Thank you.

Would colleagues like to just move into the audit finding report and then ask all your questions after or do you have some questions for Mr. Collins now? Okay, let’s do the audit finding report and then we’ll do all the questions for everybody afterwards. So I’ll turn it over to Ms.

Denbach. Thank you very much for having us here this afternoon. Through you, Mr. Chair, we’d like to present the highlights of our audit findings report for the city’s fiscal 2021 audits.

My name is Katie Denbach, the audit partner for the city of London. And I have with me, Melissa Redden, who is the audit senior manager for the city’s audit as well. So we’d like to start on page four of our audit findings report, which is the audit highlights. So I’d like to start with just a reminder to the committee of the reasons why we put this report together and bring it forward to you, which is twofold really, it’s to communicate with you everything that we’re required to communicate under Canadian auditing standards to help you in your role, your governance role over the external audit process as well to provide you with some information that we feel you will find useful, whether it’s with respect to upcoming accounting and auditing standard changes or some city specific matters that we thought we would like to bring to your attention in that role.

With regards to the status of the audit, you’ll see in our report there were a number of items that were outstanding at the date that the report got mailed out. I’m pleased to say many of those items have come off the list. At this point in time, what remains outstanding is obtaining some external and internal legal letters as well as completing our work over the legal accruals once that’s been completed. Final tie out of some of the notes to the financial statements as well as the financial report that they get attached to and then just the final manager partner and quality control review over those items.

So we don’t anticipate any issues that may arise out of those, but certainly if there were any, we would bring them forward to this committee. At that point in time, the remaining items would then be to obtain evidence of council’s approval of the financial statements, which I understand is expected to happen in early July. And then sending out and receiving the management representation letter, a copy of which has been provided in the appendix to this audit findings report. So that’s sort of where things sit.

So the audit is substantially complete with just those few remaining items. We have not made any changes to our audit approach since the audit plan that we presented to this committee earlier this year. So everything was able to be completed as planned. And the only other item I want to point out, which is on page five of this audit highlight section is just our independence with the city.

So we are required to be independent from the city. As your external auditors, we have actually drafted, although we aren’t required to do. So we have drafted an independence letter, which has also been included in this report just to confirm our independence. And without it, I’m going to hand it over to Melissa to go into a little bit more detail about the audit risks and results of our audit.

Thanks, Katie. So I’ll be starting on page six. This is where we talked about management override of controls and this being a presumed significant risk. So as this risk is not rebuttable, we do have certain procedures that we are required to perform.

We perform those procedures and we have no significant findings to note as a result of that. Moving on to the next page, the city has defined retirement and other future benefits and a liability for those of 196 million at the end of December, 2021. So we performed the procedures as indicated in our audit planning report. We’ve also included information within our report on the balances that make up that liability with the more significant ones being the post-employment and post-traumatic benefits and the WSIB accrual.

And so we have no significant findings that we noted during the course of our testing of this account. Moving on to page nine, the landfill closure and post closure liability is another significant account balance for the city and there’s judgment and estimation that is required by management. We perform the procedures that we had noted within our report and have no significant findings to note as a result of the testing that was performed. Accounts payable and accrued liabilities is another account with a significant balance and it also includes contingent liabilities.

So at any point in time, the city is subject to a number of matters which could potentially result in the determination of a contingent liability. So we’ve highlighted the procedures that we performed over this area within our report as well. We haven’t identified any significant findings for the testing that has been performed to date. There is some minor work outstanding as noted earlier.

So we will complete that as we receive the required information and if anything soon came out from our testing, we would advise you of that. The corporate, the city also has a large number of tangible capital assets. So we perform those procedures that we had also indicated in our planning report for this area. We have no significant findings that were noted in our testing.

We do also perform some additional data analytics routines that we highlight in an appendix and we do have certain findings that were noted as a result of the performance of those procedures which we will go into a little bit more detail later on. On page 13, we provide some information on the taxation user charges and transfer payments revenue as well as debt issuances. So these are again, some more significant accounts. So we perform the procedures as indicated in our planning report and again, no significant findings noted during our testing.

On the next page, we highlight another matter that we just want to provide some additional information on this year that came up during the course of the audit. So disclosed in the financial statements is vacation entitlements liability. And we’ve noticed that there’s been an upward trend in this accrual over the past several years. There are several risks associated with maintaining a high level of vacation accruals.

So we discussed with management just recommending that they carefully assess the vacation entitlements and also just as an elite in practice and as a fraud prevention measure, we note that it is important to ensure the staff are taking their annual vacation and that another employee performs their work and their absence. So management is aware of this trend and note that this has primarily been influenced by the impact of COVID-19 and managing the operations of the city. They’re currently considering the best way to manage vacation going forward and considers this topic a priority for the near future. Making onto page 16, we did note certain uncorrected auto misstatements as well as correct auto misstatements during the course of the audit and those have been included in our management representation letter which is included in an appendix.

We also have on page 17 some information on the uncorrected auto misstatements. These were misstatements from prior periods that management identified during 2021 and corrected them. So this results in the statement of operations being misstated in the current year period as a result of an out of period adjustment. But it does result in the statements being correct on a go forward basis.

For controlled efficiencies, we do know that there were no significant controlled efficiencies that were noted. And then on page 19, we just have one other control observations related to a finding for holdbacks. So we did identify a holdback that was no longer considered payable at the end of the year and should have been removed from accounts payable and accrued liabilities. It was a long standing holdback and was overlooked when the account was reviewed in preparation of the year in financial statements.

So we do recommend that this account be carefully reviewed, especially those items that have been on the listing for a number of years. On page 20, we provide some initial information on financial statement presentation disclosure. We have no issues that have been noted. And we do want to note that there were no new public sector accounting standards or amendments effective for this year.

However, there are several that are upcoming in the next couple of years. Management has created working groups to begin the process of determining the impact of the changes and determining the appropriate measurement. So at this point, we have no concerns regarding the future implementation of these standards. And then in the appendices, we’ve included for you some other areas of required communication, including our management representation letter, independence letter, a copy of our draft auditor’s report, which at this time we anticipate will be able to issue with a clean or an unmodified audit opinion.

We’ve included some information on the technology that we use in our audit, including the data and analytics routines that Melissa was mentioning. And that’s where the control observation with the hold back was identified. And then the last four appendix really are current developments for you, for your information. So these include upcoming changes to public sector accounting standards and upcoming change to the auditing standards, which will be applicable for next year, as well as some thought leadership on asset retirement obligation specifically, since that will be a big one that is top of mind for the city and what role the audit committee should play in that implementation, as well as an appendix with live links in it to take you to some areas that we’re seeing be of topic or of interest amongst boards and audit committees.

So just some additional reading for you there. We also, one item I just wanted to point out that will be a little bit different from what you’ve seen in the past. In the technology and the audit appendix, we did actually run one additional routine, which we hadn’t run in the past, which was around the journal entries that are posted for the city. And this is more just to provide maybe a different way of looking at things for you.

So you can see what the finance team across the city is up to. And so in that appendix, you can see we’ve actually broken out the number of journal entries that are booked by the city, by their dollar values. And interesting, but not unique, I would say to note that you can see there that of all of the journal entries that are posted about 87% of them are less than $100,000 in value. So kind of an interesting picture to show that there are, there is probably a lot of time and effort that goes into booking small dollar items.

And so we just wanted to point that out in case it’s worth conversation or consideration with respect to some of the processes and where time and effort is being spent. And with that, those are really the highlights of our audit findings report, would be happy to take any questions that the committee might have. Okay, I’ll go to the committee for questions. Councilor Turner.

Oh, I get to have all this fun because I’m doing all of this in school right now. So I’m learning lots. So my apologies if I ask weird questions. Ms.

Dembaka, it was good to hear that the recommendation will be an unqualified and clean opinions. So I was looking for that in there. But the first question I had was with respect to our accounts receivables on page 37 of the Consolidated Financial Statements as the Consolidated Statement of Financial Position. We heard from Mr.

Collins a little bit about the taxes receivable and the reduction in that. But I know that the other receivables are actually three times what our tax receivables are. So tax receivables are about 22 million and the other receivables are about 76 million. So they’re fairly large.

They’ve come down a little bit from 2020 from your previous. But it was any testing done on the aging of those receivables and what that poses in terms of our financial position for the city. Yes, absolutely. So when we consider receivables as a whole as part of our audit, the valuation or collectability of those is always something that we consider.

So depending on the nature of the receivable, there may be more or less risk associated with that collectability. So if you’ve got, for example, grants receivable from other levels of government, those are generally considered to be collectible and probably less audit focus being made on those. But then where you have items like, like you mentioned the tax interrears or user fees that remind you those tend to be smaller dollar values. But we certainly do perform testing over the aging and collectability of those as part of our audit procedures.

Great, thank you, Mr. Chair. One of the things that was noticed and identified was about the vacation accruals and where they exist in any given year, they’re a funded liability, but where they carry over to the following year, the change in rate of pay creates the unfunded liability. At $19 million on a carryover, assuming a kind of average market of around 2% increase in salaries that represents close to $400,000 in an unfunded liability, is there a manner that the city addresses that gap?

And as years go on, that gap can increase. Perhaps that’s stuff from Ms. Pervone or Mr. Collins, Mr.

Collins, sorry. Go ahead, Mr. Collins. Through the chair to the committee, monitoring our unfunded liability, as you would phrase it, we monitor on an annual basis and as part of our year-end policies with respect to contributing to an unfunded liability reserve fund is taking consideration to offset that liability that we have in our book.

So it’s something that city administration, as well as municipal council, has taken a look at over the years and continues to contribute that to mitigate that gap between funding available versus the liability. And as mentioned earlier in the presentation, when we looked at our financial assets over our financial liabilities, we currently have a very strong ratio of 1.58 of financial assets covering our financial liability. So it’s something that we continue to monitor. And I note that Ms.

Pervone is on ready to provide, supplement my response. Thank you. Thank you, Ian. I just also wanted to add that obviously through our year-end monitoring reports, this is something that, and through our mid-year monitoring as well, that we always keep a very good eye and have a process to be able to ensure that we are adding to those reserve funds to ensure that those liabilities are covered in the future as well, because obviously it grows.

Certainly we have processes that have been over time employed with our policies to keep those vacation balances down. Obviously COVID and a number of staff were unable to take vacations that were regularly booked in spite of trying to keep our lights on and our services connected. So this is something that we have taken a very concerted effort to implement processes. We’ve been a little lenient over the last two years, given the challenges that the staff particularly management were trying to work through.

But it is something that we have all determined plans and trying to ensure that those vacation liabilities are reduced and have short-term targets that we are looking to reduce those in the future. Thank you, Mr. Chair, can I just check my math? Is this a notional deficit or is it an actual deficit on $19 million, I think?

Is the value of that carryover? And if there is that salary increase average of around 2%, does that actually translate to a functional deficit on year-on-year of about $400,000? I guess 19 times 0.02 gets us to 380,000. My napkin math anyway.

Thank you, through the chair. So essentially, as people are taking it, that liability is being extinguished within their working days throughout the year. So that is certainly first and foremost what we are trying to do. The alternative is also vacation payouts where the vacation balance is such that we are unable to create a plan.

Where it can be utilized in the short-term. So it’s more a functional deficit and our notional deficit, I should say, as opposed to the reality, but certainly something that if we had to do a payout tomorrow, which is unlikely to occur, we would need to have the funds to be able to support that. So certainly our intent is to ensure that those balances are utilized so that the notional deficit does not actually occur. All right, well, thank you.

Final question, if I might, Mr. Chair, just on page 27, we have the municipal reserve funds are stated under the total long-term debt. I’m wondering how that’s phrased. Normally, I would see the reserve funds as an asset because it would be a crude account where we placed surpluses or budgeted amounts in order to be able to provide funds for different programs and as reserve funds are allocated.

Is this debt that we’re using to fund the reserve funds? And I raise it only because it’s a fairly market difference between years previous. It’s a state of 30 million in previous years, around 70 to 90 million. So it’s a fair difference there and just wondering how we’re managing that.

Through the chair, could you repeat those page references again? Councillor? Absolutely. It’s the five year review and general statistics.

It’s page 27 of the consolidated financial statements. And it just identifies under the total long-term debt category. It’s got four items and the fourth one is municipal reserve funds. And so I’m just kind of curious about how we’re trading a reserve fund as a debt versus an asset.

So I think Mr. Collins, actually, he’ll be me too. Go ahead. Through the chair to the committee, good question.

Within some of the obligatory reserve funds that we have, there are some debt taken out on behalf of those reserve funds. For example, in our development charges of reserve funds, as we look to match the income coming in with the longevity of the asset in some instances, debt is taken out through those reserve funds. Thank you. Great, thanks.

So that makes sense. It addresses that stabilization that we’ve talked about through SPPC and planning committee as well for some of those. So that’s helpful. Overall, my comments, a great, great audit.

And thank you to the auditors for giving us the thorough colonoscope into our finances and for also painting the picture of good financial management and continued improved performance here on year. So thank you and well done. Councilor Vanholst. Thank you, Mr.

Chair and through you, I wanted to ask for a little more detail on the uncorrected audit misstatements. So just how it happens that the adjustment made in 2021, relating to 2020 funding could result in that overstatement. Sure, I’m happy to answer that through you, Mr. Chair.

So because both of the adjustments, the uncorrected differences that were noted, they both related to prior periods. So items that should have been recorded in 2020, but that were missed and were therefore recorded in 2021. And so what that does is it actually corrects the statement of financial position. So that at the end of 2021, those items are correct.

But in doing so, you have to push the adjustment through the statement of operations in 2021. But because that amount actually should have been recorded in 2020, it’s considered an uncorrected adjustment and it’s required just by virtue of the fact that it’s an amount that’s being corrected out of period. Thank you. My next question is regarding the other control observations.

So there was the item on page 19 and it was suggested that that was a long-standing item. And I wondered how long that was or particularly which, you know, what year? Because I know that we had something similar happen in an interaction with the city and the water boards. And so I’m wondering if the timeframe is around the same.

Bear with me, and I don’t have that year. Oh, Ian, please go ahead. Yeah, through the chair to the committee to provide some context to this hold back. This hold back relates to the Southeast Reservoir and that unique situation, it did go back a number of years coming to mind at least 2012.

There’s been an ongoing item that has been on our list for well over a decade, looking at it as at 2022 right now. So coming forward in 2021. So through the chair to committee, I hope that provides context to this item here. Thank you.

Okay, it does thank you. So those years don’t match up. And so I’m not looking to see if there was something just in the timeframe that we should look further in. And the last thing perhaps I could ask through you, Mr.

Chair, to our auditors regarding the technology in the audit. So that was on page 28. So very interesting to look through this, but I also hope for a comment, I suppose from our auditors or from our staff that we’ve got about $1.5 billion worth of income expensive, but $18 billion worth of journal entries. And how does that happen?

I’m happy to provide some context to this. So not all of your journal entries, first of all would impact your revenue or expense line items. So especially some of the larger ones, which we see being around tangible capital assets, those would go into your statement of financial position. So as well, if there are items that are sort of cash inflows and cash outflows, I don’t know that you could necessarily reconcile the dollar value of journal entries directly to the statement of operations.

There would also be journal entries that are booked for consolidation purposes, for example, which get eliminated when the consolidated financial statements are prepared. So there could be a number of other items in there in those journal entries that would make up those dollar values aside from just what you see on the statement of operations. Thank you very much. It certainly indicates that there’s a lot of work that’s gone into this entire process.

And for that reason, maybe my last question on this, seeing as we do this annually, have we done anything this year to streamline this process? Through the chair to committee, financial services is consistent with the rest of civic administration continues to look at continuous improvement opportunities. The one major improvement that was flagged to audit committee about two years ago was the implementation of the financial statement tool to automate the process for financial statements moving forward, which would take away a very lengthy process involving Excel. So we have successfully implemented case wear.

And we started last year, bringing out the joint water boards along with HTC on board. This year was the first year that our consolidated financial statements were prepared in case wear. So we continue to look for opportunities for improvement. And with what has been flagged to us by KPMG about the number of journal entries and the dollar thresholds is something that will be taken away by a financial services to see how we can further streamline our process moving forward.

Thank you. Okay, well, Bravo. And Mr. Chair, that’s the end of my questions.

Okay, any further comments or questions from committee members? Councillor Halmer. Thank you. Through the chair, I wanted to return to the issue about choosing most appropriate discount rate.

I know that there’s an adjustment that’s being made in these financial statements for 2021 compared to previous years. But I wanted to explore a little bit more why we think 3% is the appropriate number, just glancing around at some of our peer municipalities. Some of them, especially the larger ones have lower discount rates than 3% that they’re using to calculate these kinds of obligations. And I wanna make sure that this is an appropriate rate for London.

I recognize off the top that there could be a range of reasonable discount rates. It’s not like there’s one answer, but I wanted to just give you a chance, both finance staff and the auditors to talk about the process for choosing and testing the reasonableness of that discount rate, ‘cause it does seem to move the size of the obligations quite substantially. Even small changes in the discount rate can have big getbacks on the financial statements. So.

Through chair to committee, a very astute observation by the audit committee chair or by the member of audit committee and consistent to the question that was asked earlier about what civic administration and financial services doing to continually improve our processes. This year based on what we were seeing in other municipalities, we took a deep dive in our discount, arriving at our discount rate approach. And historically, we tied our discount rate to the weighted average cost of borrowing. And normally when we look at discount rates, we look at what are our obligations moving forward.

So we were actually using a prailing factor, right? Using what we issued that previously on for potential obligations down the road. So in working with our counterparts in financial planning and policy, we believe that a better metric would have been what we plan to achieve through our long-term investments. So we aligned our discount rate, what we anticipate in getting through our long-term investments that our cash management and treasury management team handle.

And through that exercise, we identified that a discount rate in between 2.7% and 3.3% is roughly our target for our long-term investments. So when we weighed that rate, that target, along with what we’re seeing and our weighted cost of borrowing, we landed at 3%. And at that time, it seemed consistent with what we had seen other municipalities use in their 2020 financial statements and their 2019 financial statements, as well as in looking at some other discount rates used by other organizations. And looking at the 3% rate now, and given the current market in terms of interest rates in general going up, I believe that the, in my opinion, that the discount rate that we’ve used at 3% is consistent with what we’re seeing the markets move in right now.

But I turn it over to KPMG to respond to the other part of your question. Thanks. Thank you. And so as auditors, we reviewed management’s process for, you know, the reasons for the change, what went into that, as well as any assumptions that were involved in determining that change.

We also, as we do every year, you know, we compare the discount rate to the weighted average cost of borrowing, ‘cause that is really the PSAB requirement that underlies the discount rate analysis. We do some benchmarking against municipal comparators to see if it looks reasonable based on what other comparator municipalities are using. And we do some sensitivity analysis as well. So we conducted all of those audit procedures and we agreed that the discount rate being used by management was appropriate.

Thanks very much. Any further questions? Perhaps I could have the clerk read out the motions that we would make related to the staff presentation as well as the financial audit. And then I’ll look for a mover and a seconder after that wording is read out.

Thank you, through the chair. The following actions be taken A, that the 2021 financial report of the Corporation of the City of London be received. But being noted that the audit committee received a presentation from the director of financial services with respect to this matter. And B, the audit findings report as prepared by KPMG for the year and in December 31st, 2021 be received.

But being noted that the audit committee received a presentation from KPMG with respect to this matter. Thank you. I look for mover, Councillor Vanholz, seconder, Ms. Higgs.

Any discussion on that? Okay, all those in favor of that motion by hand. That motion carries. All right, thank you very much to our staff.

Thank you to Ms. Stembach and her team at KPMG for all of that great work. We appreciate everything you’ve done. And with that, we will turn to the next sections of our items for direction.

There are three. My intent is to deal with these in two separate parts. You’ll see that we have the internal audit plan and the internal audit charter. Both of these items are back because the committee provided some feedback and suggestions or some updates to them.

However, we have already essentially approved them, but we have that before us today. So you can see those changes. So I will have our friends at MMP go over those two. And then after that’s done we get all the questions answered on that.

We’ll go to the dashboard, which is our first time seeing a fully populated dashboard in this format. So I anticipate colleagues might have some questions. So I don’t know if I’m going to, who I’m going to on the first two items. Mr.

Rodriguez, go ahead. Thank you. And through you Mr. Chair, good afternoon to the committee.

It’s a pleasure to see you all again. So in terms of the first couple items, items 4.2 and 4.3, the internal audit plan and charter, I will cover off those as they were presented previously. I’ll just cover off the changes and clarification points that were mentioned in our last audit committee meeting. So with respect to the internal audit plan itself, which you’ll find on page 559 of your package, the two changes in particular, one of them being the records management audit.

There was the request to have the records management audit moved out from this year to be completed over the next fiscal year being fiscal year, 2023. So you’ll see in your package on page 562 that that audit has now been moved out to fiscal year 2023. Just wanna make one minor correction on that slide itself in terms of the time and column. You’ll see that say Q2 2022, that should read Q2 2023.

We’ve made that adjustment on our copy of the document and I just wanted to point that out to the committee, but you will see that that is in the fiscal year, 2023 internal audit plan. The second item which is on page 561 of your package has to do with the neighborhood decision making program and the value for money audit that is to be completed against that. We have, you’ll see in terms of the scope itself, we’ve further enhanced the scope to include looking for opportunities to optimize and expand the scope of the program itself where practical. I believe that was the discussion point we had last time to include that item in the scope, which we’ve now done so.

So those are really the only two changes that were requested of the plan itself. And moving on to just quickly the internet audit charter itself on page 566 of your package. You’ll see section three authority piece there on page 567 of the package. There was a request to confirm the following that internet audit has full and unrestricted access to all city activities, records, property, personnel and information.

So this is just us clarifying and validating for the committee that that item is in there and is in the charter as it was discussed. On section four of the same page and the package under independence, we’ve furthermore confirmed that all internet audit activities remain free of influence. Next, in terms of the charter itself, under section five on page 568 of the package, annual planning and execution, there was a request around the internet audit plan and the flexibility and agility around that. So we’ve changed the wording on that to say develop and implement an annual rolling three-year internal audit plan.

That was to confirm that this is not a static plan and we’ll get updated and adjusted each year as the risks evolve and change. The only final item was based on the approval of last audit committee. We’ve added a date to the bottom of that, just to show the date that that was effectively approved, just so we can track that for version control as well as noting when the next changes are gonna be made which will be in the years time. So really those are the adjustments and clarification points that we requested to look back at.

I’ll open it up to the committee through your Mr. Chair on any questions or further comments on that. Yes, and I’ll just add for committee members or public members, if you would have pulled the original agenda, you’ll wonder why we’re talking about pages 500 and something. It’s the added agenda, which includes this big binder in it which adjusts all the numbers.

So if you’re working off the original agenda, 4.2 starts on page 88, 4.3 starts on page 95. So just for colleagues working digitally off of the added agenda, that doesn’t matter. But I just thought I’d add that in case your kiss or some blank stares on the large page numbers and the differences between the mail that agenda if you got that in a hard copy. Questions?

  • Thank you, Mr. Chair. Yeah, no problem. Questions for Mr.

Rodriguez or his team? No, if not, both of these are for receipt. Then I would look for a mover and seconder. I see Councillor Van Holst moving.

I see Councillor Turner seconding. I don’t think there’s any further debate. So we will move our open voting for receipt on this by hand. All those in favor?

  • Motion carries. Okay, back to you, Mr. Rodriguez. You’re on to the activities dashboard.

Thank you, Mr. Chair. And so on page 585 over that same package, item 4.4, you’ll see here is where we have our presentation on the follow-up tracking. And as the Chair eloquently pointed out, we have now implemented our internal formal methodology around how we track open audit items in order to keep that level of transparency.

And I’d say insight for the committee in terms of where previously ported audit findings are and the progress that are made against them as well as closure. So in terms of the follow-up activities that we’ve been tracking, there’s been 13 in total observations that really are across a number of previous audit reports. And we’ve been validating and I would say addressing them with management to understand where they’re at and also looking to validate to close those items. So based on our review overall, we do believe that management is doing well towards implementing the management action plans that were previously committed to with those audit reports.

But with that and wanting to dig in a little bit further into the details before turning over if any questions or comments, I’ve got my colleagues Phil Racco and Deepak Jazzwell on the line. So with that, I’ve developed over the Deepak Jazzwell to give further depth in terms of the tracker itself and walk you through how we’ve developed it and how you can read it and interpret it. Thanks Jeff and good afternoon everybody. So as Jeff kind of alluded to, the internal audit tracker really allows us to see management’s progress on implementing agreed to items arriving, sorry, arising from previously reported audit observations.

We look to track the progress made on high and medium rate observations. We don’t generally look at the low level observations. These are generally considered to be more leading practice of nature and the person at risk really do sit with the high and medium rate observations. So we look to track their 13 open action items across five different reports.

So you’ll see on page 585, we looked at the SAS application review, fire process assessment audit, fleet allocation and utilization management assessment, advanced traffic management system, project review and the dayless home process assessment. Five action items were considered closed and complete based on our validation activities and three items were targeted. In terms of the validation activities, what we like to do is speak with all of the respective owners of the actual management action items, get a sense of where they are. And if items have been completed, we do look to get a formal validation and we do that through a documentation or desktop review of items received.

And then we also speak with management in terms of progress made. So for the three items are retargeted, based on the management’s progress, based on our understanding of what remains and management’s priorities in terms of getting these over the line that we do look to kind of make sure we have a retargeted date to ensure that the committee is aware in terms of whether they’re anticipated to be completed. In terms of the three retargeted items, you’ll note that two of them were put in to the dearest home process assessment and one for the advanced traffic management system. Overall, again, as draft validity, we were very pleased in terms of the progress made by management.

I think one thing I do want to just quickly highlight is in terms of the table, which shows the mental time the open management action item is outstanding, which is on page 585. This is actually a reflection of the date that the report was issued. So what you’ll see here is there is six observations that have aged between four and six months and two that have aged for over 12 months. As an example, the dearest home process assessment is the one that has two observations open longer than 12 months.

However, although the report was issued back in 2020, the actual recommendations will not tune into a 2021. So as you’ll see in terms of the six open items for four to six months, five of those are actually due to be completed at a later date. But what we’re looking to do is just keep line of sight in terms of how these have aged and then we’d go into a lot more depth later on within the tractor itself. So that’s a quick high level overview.

I appreciate there may be some questions, so I’ll open it up to the committee. Questions, don’t see any, now I see some. I’ll go to Ms. Higgs first.

Thank you through the chair to MMP. Thanks for the overview of the dashboard. I guess my questions relate to the items that are retargeted. And I see in the appendix, you’ve noted the retargeted date, but I’m wondering if there’s a way that you can disclose to the audit committee what the original target date was and then the retargeted.

And if there’s subsequent retargeting so that we see a continuity. And I guess the reason I ask, and I may not be recalling this properly, but I feel like the Dearness Home report did already have some that had been retargeted from the original date. So I’m just trying to get a sense of, do we have any recommendations for followup that have had multiple retargeting and how far are we beyond the original target dates? Great question.

And through the chair, in terms of the Dearness process assessment, the date that we had looked at based on Deloitte’s latest update was actually March 2021 for a lot of these items. In terms of the other items, they’re all recently actually reported items as of January. And the SaaS application review is one that’s been closed off. But in terms of the way we can display this, absolutely.

What we can like to do is moving forward. We do capture in the far right column the number of times that items been retargeted. Obviously, it’s the first time we’ve kind of populated the dashboard at once taking over from Deloitte. So moving forward, could anything be retargeted further time?

We will most definitely capture that date. But perhaps what we can do is we can also keep the original date to display the length of time from the retargeted date. So that’s a great point. And we’ll look to move that forward for the next quarter.

Thank you. Yes, I agree. I think that’s a great suggestion. So I think what we can do, to your point, Deepak, is we’ll keep identifying the number of times retargeted, but I think we’ll also put the duration around the retargeted.

So you can see the length of time. And when was last time that was targeted? I think that’s a great suggestion. Thank you.

Councilor Van Wollst. Thank you, Mr. Chair. I was just looking to get some brief details on the items themselves.

So looking through that looks like we closed the investigation on software as a service challenges. And I wondered what some of the bigger challenges were in that area that were reported out to staff. In terms, so the IT security, yes, so through the chair, what we did know was there was some very good communications that were shared, not just with staff, but with management via emails update to make the policies to raise awareness. I think that was the biggest component.

So what we did is I is to speak with the individuals. And that day being one, we took a look at the information that was shared. I think that was, which was shared, was actually quite good in terms of raising awareness and allowing individuals to get a sense of some of the precautions that they do need to take for SaaS applications. So that’s some of the stuff that we did in terms of validating and confirming.

And then obviously, if there are any additional supporting procedures that we can kind of support with moving forward, that’s something we have looked to do. And across the other observations as well, where I can help, I went more than happy to provide some support on that too. OK, thank you. Am I fine to proceed, Mr.

Chair? Yes, go ahead. OK, thank you. So on page 104 of the written agenda, we’re looking at the new fire KPIs.

And I wonder what might have been a couple that you thought were significant? Take a look, sorry, bear with me. Just noting they were developing KPIs, and I wonder what— Yes, I did. Point in time, sorry, I was taking a look.

I was trying to get to the page on the other computer, but given the timelines for that, we had preliminary discussions with management, and given the due dates at a later time, we were looking to get into these discussions at a deeper point in time. But I have personally have not had a chance to look at those at this point in time. So I need to flip through the actual agenda and give a deeper review before we can provide more insights on that. I’m not opening up to the team.

I’m not sure if Jeff or Phil, you’ve had an opportunity to take a look at those. So through you, Mr. Chair, in terms of the progress around that specific recommendation on KPIs, as you mentioned, Deepak, looking to the timing in terms of when that’s due being December, really what we were looking to is the process that management’s been following in terms of action that to get to December. And there were steps taken, which we’ve noted in the quarterly update.

We didn’t look at specific KPIs yet, but that certainly will be done prior to the December deadline to ensure that we’re comfortable with those KPIs. OK, thank you very much. And on page 106, we’re talking about our fleet program. And this may be a question for staff, but it’s talking about delegation of authority.

And I wonder if that is that delegation of councils oversight or the administrations? Through the chair. So I can answer that. This has within administrations.

It is where I have delegated authority of what I am normally would sign off with respect to the purchasing policy, that we are able to assign that to my director to be able to sign off on things under my jurisdiction. So very much administrative and to ensure that there is a very clear process in writing that shows how that will all be laid out with respect to administrative things that are within civic administration’s purview. OK, thank you. It also talks about adequately preserving subject matter expertise.

And I wonder what was meant by that. Sorry, through the chair. Is that— are you referring still to the fleet audit or to another item? Yes, to the fleet still.

Can you refer me to the chair? It’s under the management action plan considerations. It says, procedures must adequately preserve the service area of subject matter expertise as it relates to their vehicle equipment requirements. Certainly wouldn’t want to— but I believe the intent there is in terms of succession and ensuring that there’s resilience and continuity around individuals in that particular area.

But certainly, I’ll let management respond. Yes, thank you. I was trying to find the reference of exactly what it was referring to, so appreciate it. And I think Jeff and Mr.

Rodriguez already answered exactly very much. I mean, this is about ensuring. And particularly, we have succession planning and movement throughout the areas of retaining good documentation and ensuring that longevity and where we have people that are passing on have that ability to have it documented and understanding of what the standards are and how we are moving to accomplish those. So it’s very much a retaining of knowledge with clear documentation of the management team and staff that do the work in that area.

Thank you. And I noticed there was the telematics. And I wondered if we had an idea of which implementations would have the most likely payback. That was something that was mentioned in there.

Those were the ones we were going to be looking at. I wonder if we know at this time what those might be. Thank you through the chair. So as you note, those are all very much future dates.

And there’s a great deal of work and analysis that we need to go in and complete to identify those very items to see whether the cost benefit of pursuing this makes sense. Lared on top of that, we have a technology investment strategy that we would need to go through as all of the priorities and the implementations of any technology throughout the corporation are then weighted and are being able to identify what can be achieved within the resources that we have and within the timeframe. So that is certainly something that will feed into our strategic plan, looking at the technology investments that need to go forward. This is the first piece of work that we will be looking at to see in developing the business case that will then go forward to identify what will ultimately be determined and put forward as part of our strategic plan and the next multi-year budget.

Okay, thank you. So I think I’ve got a pretty good idea about where we are in the process now. And I think we’re asking the right questions here. So thank you for the work.

And three years to chair, I do fully appreciate the comment and the observation around that. And you’ll note on top of what management just responded, internal audit ourselves are still trying to get very familiar with these particular observations because as Ms. Sorbonne indicated, there does seem to be a lot of inherent complexity and I guess a need to do it in a thoughtful, methodical and measured fashion. So in terms of the due itself, you’ll notice we even put in parenthesis around the retarget date that at which time internal audit will assess progress and update the timeline accordingly because I do fully believe that there will be a number of moving parts here and we’ll really need to get our heads around the progress being made.

And I guess the systematic manner in which it’s being done. Thank you very much. And Mr. Chair, I’m gonna have to excuse myself, have another meeting to be a part of, but I wanna thank staff and our auditors for the opportunity to ask these questions and for all the work that they’ve done.

Yeah, thank you. Are there any further questions on this item? If there aren’t then I’m gonna look for a motion to receive this. Councilor Turner, seconded by Councilor Van Holst.

All those in favor, by hand? Madam Chair. Okay, with that, let me just say thank you to our friends at MNP for providing an update on those three items. We have no deferred matters.

I don’t believe any colleagues have any additional business. I see none, then all I need is a motion to adjourn. I’ll look for Councilor Helmer and Councilor Turner. All those in favor of adjournment?

Madam Chair, yes. Okay, thank you, we’re adjourned. Thanks for your time today.