Open Council

2nd Meeting of the Audit Committee

Open Council

2nd Meeting of the Audit Committee

June 14, 2023, at 12:00 PM

Original link

The meeting is called to order at 12:00 PM; it being noted that I. Cheema was in remote attendance.

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   2022 Financial Audit

2023-06-14 Staff Report - 2022 Financial Audit

Moved by S. Stevenson

Seconded by P. Cuddy

That, the following actions be taken with respect to the 2022 Financial Audit:

a) the 2022 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, 2022, BE RECEIVED; it being noted that the Audit Committee received a presentation from KPMG with respect to this matter.

Motion Passed

4.1.a   Presentation - 2022 Financial Statements Overview

2023-06-14 Presentation - 2022 Financial Statements

4.1.b   Audit Findings Report for the Year Ended December 31, 2022 - KPMG

2023-06-14 Submission - Audit Findings-KPMG

4.2   2021 Old East Village Business Improvement Area Board of Management Audited Financial Statements

2023-06-14 Staff Report - 2021 OEVBIA

Moved by P. Cuddy

Seconded by S. Stevenson

That, on the recommendation of the Deputy City Manager, Finance Supports, the report along with Appendix ‘A’, as appended to the staff report dated June 14, 2023, entitled Financial Statements of Old East Village Business Improvement Area Board of Management for the year ending December 31, 2021, BE RECEIVED for information.

Motion Passed

4.3   Briefing Note From Internal Auditor - MNP

2023-06-14 Submission - Briefing Note from Internal Auditor-MNP

Moved by P. Cuddy

Seconded by S. Stevenson

That the communication from MNP, with respect to the briefing note from the internal auditor, BE RECEIVED.

Motion Passed

4.4   Internal Audit Follow Up Activities Dashboard - MNP

2023-06-14 Submission - Internal Audit Follow Up Activities Dashboard-MNP

Moved by S. Stevenson

Seconded by J. Pribil

That the communication from MNP, with respect to the internal audit follow up activities update dashboard, BE RECEIVED.

Motion Passed

4.5   Recruitment and Selection Audit - Final Report - MNP

2023-06-14 Submission - Recruitment and Selection Audit-MNP

Moved by P. Cuddy

Seconded by S. Stevenson

That the communication dated June 2, 2023 from MNP, entitled Recruitment and Selection Audit - Final Report, BE RECEIVED.

Motion Passed

4.6   PS 3280 - Asset Retirement Obligations (ARO) Audit - MNP

2023-06-14 Submission - PS 3280 - Asset Retirement Obligations-MNP

Moved by S. Stevenson

Seconded by P. Cuddy

That the communication dated June 1, 2023 from MNP, entitled PS 3280 - Asset Retirement Obligations (ARO) Audit, Final Report, BE RECEIVED.

Motion Passed

5.   Deferred Matters/Additional Business

None.

6.   Adjournment

Moved by P. Cuddy

Seconded by S. Stevenson

That the meeting BE ADJOURNED.

Motion Passed

The meeting adjourned at 1:08 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, 12 minutes)

[5:24] Good afternoon, everyone. I am going to call the second meeting of the Audit Committee to order, and I want to begin by acknowledging that the City of London is situated on the traditional lands of the Anishinaabic, the Haudenosaunee, Lene Peiwach, and Otto Onder and people. We honor and respect the history, languages, and culture of the diverse Indigenous people who call this territory home. The City of London is currently home to many First Nations, Métis, and Inuit today, and as representatives of the people of the City of London, we are grateful to have the opportunity to work and live in this territory. I will also remind everyone watching, and here in chambers, that the City of London is committed to making every effort to provide alternate formats and communication supports for meetings upon request.

[6:07] To make a request specific for this meeting, please contact accessibilitylondon.ca, or phone 519-661-2489, extension 2425. I will note that we do have quorum of committee. Councillor Stevenson is not with us at the moment. I’ve been advised she may be arriving a little bit late, and Mr. Chima is with us via Zoom today. So I am going to start by looking for any closures of pecanary interest, and seeing none, we will move along.

[6:45] Oh, I see Mr. Chima’s videos on. No disclosures of pecanary interest from you? Nope, okay. So moving on, we have no consent items. We have no scheduled items. We do have items for direction, and we will start with item 4.1. This is the financial audit, the presentation, the 2022 financial overview statement, and I believe Mr. Collins has a slide deck to share with us on this item. Collins, we will go to you.

[7:23] Thank you, Chair. As I’m starting to share my screen on the presentation, that was part of the agenda on the city of London’s 2022 financial statement. It is a consolidated report, which represents a host of the city’s boards and commissions, three government business enterprises, and three other proportionally consolidated entities. So the reason why we’re before you is that under section 294.1 of the Municipal Act, a municipality shall, for each fiscal year, prepare a annual financial statements for the municipality in accordance with generally accepted accounting principles for local governments, as recommended from time to time by the public sector accounting board, the charter professional accountants of Canada.

[8:13] Our financial statements and our financial position aligns with Council’s 2023-2027 strategic plan, which emphasizes transparency, as well as ensuring a well-planned city. This is under the strategic area focus of a well-run city. And as indicated earlier, our financial statements just don’t reflect city of London directly, but also incorporates a number of its local boards and commissions. For the next slide, just a brief overview of what the consolidated financial statements comprise of, four main statements, the statement of financial position, which is sometimes referred to as the balance sheet, statement of operations, or sometimes commonly referred to as the income statement, statement of changes in net financial assets, or change in net debt.

[9:05] And finally, the statement of cash flows. This will probably be the last year where you’ll just see four statements coming before audit committee. In 2023, you can expect to see a new statement being added with regards to the re-measurement of gains and losses. So some of the highlights from our financial statements of note is that in 2022, we had seen our financial assets, based on what’s before you, increased by 202 million, followed our financial liabilities, increased to a tune of 33 million.

[9:41] Overall though, from a financial health perspective, our net financial assets increased by 169 million, meaning our current assets increased in excess of our current liabilities. On the slide, we’ve identified some of the key areas where you may have seen some increases. And if you would like to get some more information contained within the notes of the financial statements, you will have a more breakdown of what comprises our investments, or with respect to deferred revenue development charges, what those increases were in.

[10:15] As well as employee benefits payable, there’s a note that has a number of details as to what comprises that employee benefits payable. And that can be found on note 12. Once you get past the net financial assets, another asset category in our financial position are non-financial assets. Those increased by 198 million for 2022. This is mainly comprised of our net book value of our tangible capital assets, or plainly speaking, our infrastructure.

[10:50] Roads, wastewater, infrastructure, water, buildings, et cetera. A breakdown of those assets can be found on note 14 of the financial statements. And finally, when you take into consideration our financial assets, financial liabilities, non-financial assets, you’ll note an accumulated surplus. In 2022, our surplus increased 367.9 million over what it was in 2021. What the accumulated surplus comprises of is predominantly the city’s investment in its tangible capital assets, sports infrastructure, roads, water, pipes, wastewater, buildings.

[11:36] That accounts for approximately 82% of our accumulated surplus. The rest of it predominantly relates to our reserves and reserve funds. That council has set aside for specific purpose to address our future needs in relation to ensure that our services are maintained, and that our infrastructure is successfully renewed. Breakdown of our accumulated surplus can be found on note 15 of our financial statements. As our tangible capital assets is a big component of our financial statements, I’d just like to highlight for the committee some of the key assets that were recognized within the community in 2022.

[12:22] Outlined in the table in front of you, you’ll see the downtown loop recognized for 11.1 million of what was now in service. A lot of infrastructure work being done on our water infrastructure, our sewer infrastructure, but one key highlight that is picked up on our financial statements that I don’t want to overlook is the amount of assets that are contributed to the city by its developers. In 2022, the city recognized $102.7 million of assets coming from new builds from the developers. Going back to 2009, this is the greatest amount of assets that the city has recognized from developers.

[13:04] And you can see what the developers have contributed to our community. And some of the highlights that came forward through the audit as part of putting forward our 2022 financial statements is that we’ve recognized that there were some items flagged relating to the timing, recognition, and awareness of some of the transactions that went through in 2022. Some of the items where we’ve identified need attention are how we account for our tax proceeds.

[13:40] We are needing to make an adjustment on how we categorize them within our financial statements, accounting for employee bank time, which was recognized in 2022, which has an impact on 2021. And finally, and I apologize for the typo, timelines related to the implementation of the Canada-wide Early Learning Child Care Program, which was impacted by payments and attestations. One of the items that you’ll note in our financial report is we like to have a comparator section related to five years comparing financial statements from prior years.

[14:22] It’s interesting to note that our taxes owe to the city has been maintained at 4%, our five-year average is 4%. Our long-term debt has decreased from 270 million on average down to 220 million. Our debt principal payments correspondingly have gone down from our average from the past five years. The debt issued in 2022 was much lower than our average of the coming years, as well as the amount of tangible capital assets that have been brought on, 498 million in additions came on board.

[14:56] Our surplus, as indicated before, roughly 368 million, higher than our five-year average, and then assessment growth approximately 1.4%. One of the big questions that surround municipal finance is our budget versus our financial statements. And one of the key items that you will note when you look at other municipalities in Ontario is there’s a difference on how we budget to use the modified cash basis budget versus for financial statement purposes we adhere to the public sector accounting board standards.

[15:34] The big difference here is from a budgetary process that you do three-year multi-year budget, we’re concerned with cash. The inflows of cash going into the city and the cash coming out of the city. So at the bottom of the slide, you’ll see some of the items that we don’t include in our budget, but that we do identify in our financial statements. Amortization, for example, we don’t budget for amortization in the multi-year budget, but we do recognize that as an expense in your financial statements. Our debt principle payments, the cash going out to pay for the service of a debt, we recognize that cash going out in our budget, but we don’t have that as an expense in our financial statements.

[16:18] And finally, the recognition of revenue for tangible capital assets. Now, the big item that you’ll note is how we handle our contributions to our reserves and reserve funds. Because it’s an inflow and outflow of cash in our multi-year budget, we use that as an expense as a contribution to the reserve fund. Those contributions aren’t an expense and categorized as an expense within our financial statements. So consistent with prior years when we go over our financial statements in our position, we do a comparison.

[16:55] And the next couple of slides kind of shows the ins and the outs between city budget and our financial statements. And you can see that on the city budget 2022 unconsolidated, we include grants, user fees and other revenues, transfers from capital and reserve funds, but we don’t include capital funding earned, developer contributions, reserve funds, our government business enterprises, and any of the boards and commissions surpluses, which we do incorporate in our consolidated financial statements.

[17:32] The second slide looks at it in a similar way on the expense side, where you look at the operating expenses. And as indicated a couple of slides earlier, we note we’re budgeting for our debt principal repayments, transfers to reserve funds, and our pay as you go for capital expenditures. But we don’t count for amortization, any losses on disposal of capital assets, and any of the landfill, contaminated, or employee benefits liability. That’s not budgeted in our multi-year budget, but we incorporate them as expenses within financial statements.

[18:09] The last slide on this topic is that to do a reconciliation between a committee report that corporate services would have received back in April of 2023, which talks about the City of London’s surplus. And what this slide does is walks us through what was reported to council and committee, and then what were the ads and the subtractions to get us to the 367.9 million slide. And once again, it just re-ecos those other previous slides when we speak about transfers to capital and reserve funds, our debt principal repayments, amortization, and developer contributions.

[18:52] So finally, in terms of the public sector accounting board landscape, in 2022, there were no new public sector accounting standards implemented for the financial statements that are before you. However, in 2023, we have two significant standards that are going to be coming into play. Asset retirement obligations, which is going to be a conversation later on in today’s committee meeting, as well as financial instruments, which as identified earlier, we will be introducing a new statement of re-measurement gains and losses.

[19:32] The other item that a committee needs to be aware of is that civic administration has been actively working on preparing for the implementation of these standards, working not only with our other municipal counterparts, governmental associations, as well as with our auditors. Both our external auditors, KPMG, and with our internal auditors, MNP. And one item that is on our mind and that we’re starting to monitor is sustainability disclosure and the importance and how we account for the risks related to climate change.

[20:13] So to wrap up from the city’s perspective, I would just like to highlight that the 2022 financial statement and report was truly an enterprise-wide process that involved our colleagues in people services, legal services, solid and waste, risk management, payroll, engineering, all across the board. But beyond that, incorporated all our boards and commissions as they inputted their statements into what you see before you. So it wouldn’t be proper without me expressing thanks to all our internal services who helped achieve our timelines, get this package to audit committee, as well as the work that was invested by our boards and commissions to meet our timelines as well.

[20:59] And finally, before I turn it over to KPMG to present their audit finding report, I just would like to note that our next step on receipt by audit committee with that council will approve our consolidated financial statements, which is anticipated for June 27th. And then the final version of our statements will be made available to the public in late July. Thank you. Thank you, Mr. Collins. Colleagues, we do have a presentation from our colleagues at KPMG as well. I’m going to take a moment though to see if there are any specific questions while the presentation is fresh in your mind for Mr. Collins or other members of our staff.

[21:40] If not, we’ll proceed to the KPMG presentation. If there are questions, I will ask folks to stay very focused and tight. Some of your questions might be answered by the presentation we received from KPMG. But I don’t want to take away an opportunity for you to ask questions directly of our staff either. I am seeing nodding of heads that folks are ready to proceed. So I will turn it over then to Ms. Denbach and Ms. Reden for our presentation from KPMG, our external audit partners.

[22:17] Thank you very much, Mr. Chair. Thank you for having us here this afternoon. Melissa and I would like to walk you through the highlights of our audit findings report, which has been provided in your agenda package. So we’ll just go through page by page and really try to just tell you what the most important things are. Before we get started on that though, I always do like to give just a quick reminder of why we put this report together in the first place, and really it’s meant to help you as audit committee members in your governance role over the external audit process.

[22:51] So this report contains everything that we are required to communicate to you under Canadian auditing standards, as well as other items that we just feel you should be aware of in your roles. So on the first page, you can just see our contact information from Melissa and myself. I’ve also included Bailey Church here. He’s one of our public sector gurus who works out of Ottawa. He’s closely involved in the standard setting process and is a resource for our teams as well as for management at the city as on an as needed basis. We’ll just skip through the table of contents here to the audit highlights.

[23:29] So just a couple of things that I want to point out on this page, and then Melissa will go through them in a little bit more detail. We did present our audit plan to this committee back in February. There have been no changes to our audit plan, which was originally communicated to you. So we were able to complete the procedures that we had planned to complete as planned. So nothing really to note there. As Ian mentioned, no real changes in accounting standards. This year for the city, although there will be some for next year, there was one change in auditing standards which we had brought forward to you during our audit plan and we’ll report on it in a little bit more detail.

[24:16] And then the last piece of this slide that I just want to highlight for you is with respect to independent. So we aren’t required to, but we have issued an independence letter as part of this report, just to confirm our independence with the city and its sports and commissions, and to outline the various work that we do for the city. The next slide just shows the technology that we used in the audit, so KPMG does have a new audit platform called KPMG Clara Workflow or KCW that we utilized for the city’s audit this year actually for the first time.

[24:55] And we also utilized KPMG Clara for clients, which has been in place for a number of years, which is really just to facilitate file sharing and communication with city staff. In terms of the status of the audit, so when we prepared this report back on June 2nd, there were a number of items outstanding. I’m happy to report that most of those items have come off the list, so we just have a couple of procedures outstanding within accounts payable and obligatory reserve funds, as well as some legal testing.

[25:29] The remainder of the items on here really are sort of the administrative type wrap-up things that we would normally have outstanding at this point in time, so those include having our conversations with the audit committee here today, completing our subsequent events procedures, receiving the signed management representation letter, and you can see a copy of that in this report as well, but that letter gets dated the date of financial statement approval, so that will come into course, and then obviously obtaining evidence of council’s approval of the consolidated financial statements.

[26:06] If anything significant should come up as a result of these remaining procedures, we will certainly circle back with this committee and make sure that you’re aware of it. And with that, I’m going to hand it over to Melissa to go through some of the risks and results in a bit more detail. >> So on this first slide, we have some information relating to the risk of material misstatement due to fraud resulting from management override of controls. We would have reported on this in our planning report, but this is a risk that we’re required to consider for all entities, and there are certain procedures that we are required to perform as a result.

[26:47] We have completed our testing relating to journal entries now, which we had noted was outstanding, and we have no issues noted as a result of any of the procedures performed to address this risk. The next slide provides some information on payroll and employee future benefits. This is a larger liability on the statements, and there are assumptions and estimates used by the actuary in calculating the liability. So we did want to highlight some information relating to this. We did perform the procedures as indicated in our audit planning report, and have no significant findings to note as a result of those procedures.

[27:28] The Land for Closure and Post closure liability is another estimate that’s a significant accounting balance for the corporation, so again, we’ve highlighted the work that was performed relating to that. We do obtain an understanding of that calculation and review the analysis prepared by management, and also obtain a cooperating evidence to support management’s assumptions. Again, no issues noted in the testing that’s been performed to date relating to that. The accounts payable and accrued liabilities is another significant balance for the corporation, and it also includes the contingent liabilities.

[28:10] So we have highlighted our planned approach on the slide relating to the accrued legal liabilities. And this is an instance where we haven’t noted any significant findings during the testing performed to date. However, we do have certain procedures over legal accruals that are ongoing. With regards to the tangible capital assets on the next slide, another large balance on the statement of financial position. So we always like to highlight this is an item.

[28:44] So we did perform the procedures as indicated in our audit planning report, and as well consistent with our other areas, there are no significant findings noted as a result of the testing performed. For the taxation, user charges and transfer payments revenue. These revenue streams amounted to more than $1.4 billion for the corporation, and there is some information on how those are split up on the financial statements within this slide. We perform the procedures as indicated in our audit planning report, and no significant findings noted.

[29:19] For the gross, long-term liabilities and debt recoverable from local municipalities, we note that the debt issuances at the corporation have historically been for significant amounts with the total debt balance being 218 million at the end of December 2022, in which 21 million was obtained during the fiscal year, our testing in this area was focused on the long-term debt and its repayments, and no significant findings were noted as a result of our testing and the procedures performed. This next slide provides some additional information on the new auditing standard that came into place this year.

[29:57] This related to identifying and assessing the risks of material misstatement. As a result of this new auditing standard, our risk assessment and documentation of our understanding of the city’s processes was more detailed than in prior years, particularly in terms of required documentation. So this is really just some information that we wanted you to be aware of, and that did result in some additional effort on our part in some new inquiries to management, but we performed this additional work and no issues or anything to note with regards to that.

[30:38] Our next slide provides some information on uncorrected audit misstatements noted during the course of the audit, and it also highlights the impact on certain captions at the bottom, but I am going to flip to the next page, which has more detail to tie back into that slide. So during the course of the audit, we did note some uncorrected audit misstatements. The first item relates to an overstatement of expenses as a result of vacation liability adjustment. So this was really a correction of a prior period error that was identified by the city and that they corrected through the current period.

[31:17] So this results in the statements being correct on a go forward basis. However, because it was an out of period adjustment, it has an impact for the current year. So again, just want to highlight that the statement of finished position and the statements going forward will be correct. It’s just that income impact as a result. The other item that we’ve noted here on this slide relates to an overstatement of childcare revenue in relation to the Canada-wide Early Learning Child Care Program. And then we had one other item that came up during our review since preparing this report.

[31:57] So we identified a reclassification of 7.9 million related to taxes and the grouping of accounts on the statement of financial position. This will remain uncorrected for this year. However, I do want to point out that it will have a nil net effect on the net financial assets and the annual surplus and this will be added to our final representation letter as well. This next slide provides some information on control deficiencies. We didn’t have anything to bring to your attention but did want to highlight some of the information and definitions and considerations relating to internal controls over financial reporting deficiencies as well as what would be considered a significant deficiency.

[32:44] Our next slide provides information on significant accounting policies and practices. There was really nothing to note here. There were no new accounting policies or practices that were selected and applied during the period. On the next slide, we have some information relating to the new upcoming standards that management has noted. The one of those is the asset retirement obligations which is effective for next year as well as the financial instruments. So there is some information on this slide on what that entails as well as the cities where they are in that process at the moment.

[33:22] But as noted, the city is well underway in determining and quantifying the impact to prepare for the 2023 year end. Okay, and then on this next slide, we’ve just included some information for you on how we manage audit quality at KPMG. So really just some additional information. And on this slide, there are a couple of items that we look at as audit quality indicators. So the types of things where if they are not managed may result in poor audit quality.

[33:57] So just kind of reporting back to you on a few of those audit quality indicators, again, with no significant matters to report. In the appendices, you will see a copy of the draft auditor’s report that we anticipate issuing. So I will note this is a standard or unmodified auditor’s report. So we do anticipate being able to issue a clean audit opinion once all of these outstanding matters are wrapped up. We’ve also included a copy of our management representation letter which we will be asking management to sign before we finalize the auditor’s report.

[34:38] And as Melissa noted, it does contain the summary of audit misstatements which will be updated for that additional misstatement that has been noted. The reclassification Melissa just spoke to. In Appendix C, we’ve included an independence letter for the committee. So this outlines the scope of work that we provide to the city and its various boards and commissions and contains a statement that we are independent of all of those entities. In this appendix, we’ve just included this more for your information because I think it really speaks to the work effort that goes into managing the financial accounts of the city.

[35:23] So we took a look at the journal entry data that the city provided us with and noted that the total number of journal entries booked was over 40,000 during the year. And we sort of broke that down to show how much work effort is being placed by dollar value of journal entries. So just something we thought you might find of interest. You can see there is a significant amount of journal entries being posted that are quite small dollar value in nature.

[36:04] Appendix C gives some more details on the new asset retirement obligation and financial instrument standards that are going to be applicable starting next year, as well as some other standards that are coming down the pipeline. So we’ve provided this here for your information. This slide contains some live links to some other hot topics we are seeing discussed around the audit committee and board tables. Some more information for you on technology and how we use it as part of our audit.

[36:41] And then last but not least, as Ian mentioned, sustainability reporting is something that is being monitored. So we have included some information here just on the importance of sustainability reporting. So that is the highlights of our audit findings report. Happy to take questions if anyone has them. Thank you, both Ms. Denmark and Ms. Redden. So before we move into questions, I’d like to have committee get the motion on the floor that these be received.

[37:15] Once that’s on the floor to frame our discussion, we can have questions and answer. We’ve got a mover and Councillor Stevenson and a seconder and Councillor Cuddy. So now we will move forward with any questions for our staff or for our auditors. Councillor Pribble. Through the chair to the staff. I have few questions and I’m gonna start. It’s actually the KPMG report, but it’s related questions for more or four hours staff. And what I will start on page 22, we talk about the corporate vacation.

[37:50] And I was just wondering, what is actually our corporate vacation policy in terms of our staff? How long would period we accrue it for? How long do they have to take it within a year? Or what’s the period of time? Thank you. I saw some body language that suggests Ms. Barbone might be able to speak to that for you. So we’ll go to Ms. Barbone. Thank you through the chairs. So the city does have a vacation policy and there is a cap on what can be carried over. So that is assessed in January as per the policy and payouts are done in January of the following year for anything that is over the cap.

[38:28] Thank you, Ms. Barbone, Councillor Pribble. Thank you, that answers my first question. Page 27 and that has to do with the municipal taxation. And that’s plus $32 million. And I just want to ask you, do we know the amount in terms of, does it include, because I know it says net, does it include both increase in taxation and also the new bills? And if it does, what is the ratio? Through the chair to the committee member, that is a combination quite correctly of the increase related to the tax levy from rates, which would have been approved during budget deliberations and then further by tax policy.

[39:13] But added to that is assessment growth, which was approximately 1.38%, which is the new bills, the new properties that are taxable in the year of 2022. So 3% relates to the tax levy from rate increase for existing properties. 1.38% of what I believe is a 4.1% increase overall on that tax line that you’ve just identified relates to assessment growth. And the modest 0.3% relates to supplementary tax revenue where there are new bills that occur throughout the year if a property was to put a new accessible building or property or an addition to their house, our property owners will receive a supplementary tax bill.

[40:01] So that incorporates that component too. And then also, we also need to take into consideration payments and lieu of taxation. There was a minor decrease there, but that was offset by the supplementary tax revenue. So that gets that 4.1% increase that you alluded to on that tax line item. The bulk of it is the tax levy increase from rates that gets informed by municipal budget discussions. Thank you, Mr. Collins. Councilor Pervall. Thank you. And once again, from sort of chair to the staff, page 34, it’s mentioned that in spring 2023 that there will be an internal audit done.

[40:41] And I just want to make sure the internal audit that starts on page 85, is that the one that’s mentioned there or are we, is there gonna be another internal audit? Thank you. I’m just gonna give staff a moment to identify the page you’re speaking to, Councilor Pervall, and then we’ll go to Ms. Barboon. If I could, through the chair, just to confirm that that page number, when I pull it up, I’m trying to confirm exactly what’s on that page. So if you could refer to the item, it can maybe hold it up if you can. Councilor Pervall.

[41:18] It’s the KPMG presentation to be clear. Okay, thank you. So through the chair, just to confirm what that is. So those are two new standards that are going forward. So that is KPMG’s report that they did for you today. Those list the two standards that are coming forward that will be implemented for next year. One of them happens to be on the internal audit plan, which is the subject of today’s agenda item later on. The other item is not on the approved internal audit plan. Yes, and just to provide some additional clarity, the item on the agenda later on is 4.4, correct?

[42:00] So that’s the item later in her agenda. Councilor Pervall. Okay, and I have a couple of questions in your guidance, it’s draft, and is this the time to talk about it now? Or will it be later as well if I have questions to this? No, perfect. So I just want to, if we go into this big book, page 12, and I was looking at the population, and the population number, quite different. And the reason why I’m saying it, because I like to do a lot per household and per capita. And on this, on the page 12, we have kind of a population five, over half a million.

[42:38] And then we go to later pages, I think it’s page 28, then we go back to 460. I just want to know page 12, is it some broader outside London, or if you can please explain that, because then we do per capita, the numbers are different, thank you. Sorry, Mr. Collins, did you wanna answer that one? Through the chair to committee, different data points. The one that you had seen later on, but our population is city proper based on census data and information coming from our planning staff.

[43:14] The page 12, under the economic overview, is based on information that we sourced from the conference board of Canada, based on the data points that they’re using. I would suspect that their population is based on London’s CMA, not just London proper, the outskirts. So consistent to what you had said, that’s taken a little broader more. So the population number that we used later on in the document is just city of London proper. Conference board is using a different measure. Thanks.

[43:49] Thank you, Mr. Collins. Okay, thank you for that. And page 12, when it has total housing starts, and I wanna look at, because when I look at our projection, and kind of what we are trying to accomplish with the next 10 years and the units, does this include these projections? Does it include only truly the new builds? Or for example, if you were to do it from a single home to a duplex, what is being included plus one unit as well? Thank you, Mr. Collins. Through the chair to the committee, this forecasting or projection is based on the conference board of Canada’s extrapolation, based on it, so it would not take into consideration from my understanding.

[44:35] The city of London’s anticipated growth, this is based on their studies and their economic consultants to see what our growth rate would be. So it’d be separate from any of the targets or work that city planning is doing now as part of the London plan and the growth forecast that are coming for committee through planning. Thank you. Thank you, Mr. Collins. Councilor Pribble. So based on your comment, how confident do we feel then if the page 12 is through the conference board of Canada?

[45:10] Or sorry, maybe I messed up the name. But anyways, no conference board of Canada. How comfortable are we or how confident are we with these numbers, us as a city? Ms. Vermon or Mr. Collins? Thank you through the chair. So because this is very specific to CMHC housing data, it would not take into account the city’s plan. So if you recall as part of our development charges, the population and some of the work on the background studies where we did those forecasts that are specific to the city of London that is based on very, very detailed analysis.

[45:48] So that was, I’m trying to remember how many months ago that that came forward through SPPC. Those would be the numbers that council should be relying on not the CMHC data. This would be for the broader census area. So it would be beyond the city of London. So from looking at this, this would include areas outside of the population of the city of London and would not be relevant in the analysis when we’re looking at the city of London’s housing starts and movement forward. So not to be useful information from a broader economic perspective, which is why we included here, but not something to be relied upon in terms of the number of housing starts that we would be anticipating here in the city.

[46:26] Thank you, Ms. Vermon. Councilor Pribble, and I’m just going to advise, we’ve got Councilor Cudi on the list too. So— Class two questions. We’re quite deep into your list of questions. I’d like to give other Councilors an opportunity as well. Page 21 and when we look at the Minnesota plan education taxation last two years, the education portion has decreased. I just want to make sure, is that due to the education portion, forgiveness for the commercial properties, is that what it’s about? Thank you. Mr. Collins. Mr. Chair, Councilor Pribble, you are correct.

[47:01] There was a big decrease to the commercial property owners when the business education tax was equalized for them, saving on an annual basis, $21 million. And Councilor Pribble. And last, no more questions. Thank you very much for answering all my questions. But one thing is in the comment, the, as was stated by Mr. Collins, $102.7 million assets from the developers. I think that’s fantastic. I think it’s great. And I’m glad to see such great cooperation we have.

[47:34] And I think that’s really truly amazing. So thank you very much for answering all my questions. Thank you. So just to add, I really think that there will be a great information also to add and share with our community the input local developers have for our city in addition to the other things they do. Thank you. Well, Councilor Pribble, just before I go to Councilor Cuddy, I would just share that nothing prevents a Councilor from taking a screenshot of a page in a public document and sharing it out through their own social media.

[48:08] So part of that communication out to the community always falls to us. So by all means that this is a public document. So that can be shared as you see fit. Councilor Cuddy. Thank you, Chair, and through you and to staff, one of our pillars as you know, would know well is a well-run city. And when you look at this, it’s a financially well-run city. And I wanna thank Ms. Livingston and Ms. Barbone and Ms. Collins, your entire staff for the great work you’ve done.

[48:41] This is wonderful. I do have a question for Mr. Collins. I’m a non-financial guy, so I need some help. Can you help me the difference between the financial liabilities and the net financial assets? Because I’m not quite sure. Is one gross one net? Is that the way it works? Mr. Collins? Sorry. Through the Chair to the community member, quite correct. When you look at our financial assets and then you subtract out our financial liabilities, you end up with the net financial assets, meaning that our assets are greater than our liabilities.

[49:19] So our cash, our current assets, cash investments that are far exceed our liabilities, WO. Councillor Cutty, you’re good, okay? And I’m just looking online. Mr. Chima, go ahead. Thank you, Mr. Chair. Through you, I have a couple of questions for our auditors and the response can be in conjunction with our city colleagues. So this relates more to the financial statements.

[49:54] My first question is, in looking over the discount rate set that we’re used by the mercy evaluation for most retirement obligation, I’m seeing that the discount rate from December 2021 and 2022 remained at 3%. And I wanted to understand the reason or the reasoning behind that and the other procedures that were done on that. My understanding is that the overall interest rate environment was very different between December 2021 and 2022. And the second part of that same question is, the last evaluation was done in December 21.

[50:34] What is the period or the rollover period for a full evaluation was a refresh done at December 2022 or were the same numbers used? And if a refresh was done, when does the next full evaluation do? I think we’re gonna start with Ms. Denbach and then we’ll see if there’s any additional information from others, Ms. Denbach, go ahead. Thank you, through you to Mr. Chima. Thank you for the questions. I can say with respect to the discount rates, the requirement under public sector standards when it comes to discount rates is that they are calculated at a weighted average cost of capital.

[51:15] So you don’t see them fluctuate quite as much given the overall cost of capital for the city. So it takes time, I guess, I would say for them to kind of catch up to the current market rates. When it comes to the audit procedures performed over those, we do look at benchmarking across other municipalities as well as we perform a sensitivity analysis to determine how significant would a fluctuation in those interest rates be if we note differences between sort of what an expected discount rate would be.

[51:52] But we also review that weighted average cost of capital calculation and compare it to that as well. With respect to the evaluation, the requirement is for evaluation to be done every three years. And so the December 31st, 2021 valuation contained projected numbers for 2022 and those are what have been used. Thank you, Ms. Denbach. Mr. Collins, did you have something to add? Through the chair to committee member, we do go out to our actuary periodically every three years to get a reassessment done of what those numbers are and we predicate three years of that of those numbers to help inform what goes into our financial statements.

[52:38] Along with that, we do actively look at the discount rate on an annual basis and then if there’s a drastic change, we will then engage our actuary to update the numbers going forward so that we’re as current as possible. We are right now, I believe in the second year of that actuarial study. So we have one more year before we go out again to have our numbers re-looked at, thank you. Thank you, Mr. Shima. Thank you, thank you for that.

[53:09] And continuing through you, Mr. Chair, a couple of questions on the audit procedures. Four, one is for classification of expenditures in capital accounts. So if I could just get a high level overview of some of the procedures that were done on ensuring that CAPX and OPX delineation is appropriate. And the second thing is if there were any analytics done over the reasonability of taxation revenue, seeing as it is one of the most significant revenue lines.

[53:46] Ms. Dunbok. Thank you and through you to Mr. Shima. With respect to capital versus operating, we do a number, we perform a number of audit procedures over capital expenditures specifically, including substantive procedures so vouching over capital additions, disposals, transfers in and out of whip accounts, during which all of that testing would include ensuring that the items that are being included are capital in nature.

[54:17] And then on the flip side of things, we perform testing to ensure that there are no capital items, or items that should be capitalized that have been expense. So we do that through a combination of substantive analytic procedures as well as vouching. To answer your question about the taxation revenue, we absolutely perform a substantive analytic using the various rates. And we come up with an independent expectation of what taxation revenue is. And I will tell you, I’m always shocked at how close that falls out every year given the dollar value that we’re speaking of.

[54:56] So we do have full recalculation of expected taxation revenue and compare that to actual and had no issues noted. Thank you, Ms. Denbach. Mr. Shima. Thank you. I just wanted one last question. I don’t know if I missed this, but I wanted to understand the impact of CAS 315 on not only on the audit itself, but was there any implications of that in terms of preparing the financials?

[55:29] Is there an additional burden of work on city staff ‘cause of that? Ms. Denbach, did you wanna take that one? Sure, thank you, and certainly invite management to chime in about the burden on them as well. I will say it sort of started with almost an entirely new approach to how we assess risk at the various levels. So risk often was sort of assessed at a financial statement caption level. The new CAS 315 standard now requires us to assess risk at the assertion level for each significant financial statement account.

[56:08] So the risk assessment was much more involved than it had been in the past, but that allowed us to sort of isolate areas where there may be higher risk related to only a specific assertion rather than an entire account balance. It also more fully incorporated IT into the risk assessment process. So getting a better understanding of the various IT components that would go into an account balance or recording transactions and incorporating that into our risk assessment as well.

[56:43] So I will say on our end, it was a lift as far as work goes. It didn’t drastically change the procedures that we performed, but in terms of documentation of each of those considerations, when it came to each assertion and each significant balance, it definitely was a lift on our end. I would suspect that management felt that to some degree as well because there were some additional questionnaires, additional questions that we had to go through with them, additional walkthroughs of processes and whatnot just to help us gain that understanding.

[57:20] And Ms. Barbone or Mr. Collins, did you want to add any additional comment? Just building on the processes that were utilized this year, it did keep administration on its toes in a good way with the advancement of some of the reviews, the process review, the walkthroughs as they were referred to, they were upfront and it did provide the opportunity for a different way to look at some of the analysis. So it kept management and administration on its toes, but it was well informed and you see the results before you.

[58:00] Thank you. Thank you, Mr. Collins. Mr. Chima. Now is it, I just want to thank City staff for all the work on this and the responses from KPMG as well. Thank you. Thank you, sir. I don’t have any, I do have Councillor Stevenson on the speaker’s list. Councillor Stevenson, go ahead. Thank you. I just had a question regarding one of the notes to the Consolidated Financial Statements, number 12. It said that the last available report for the Omer’s pension plan reported a $6.68 billion actuarial deficit.

[58:37] Last year it was 3.13. So that deficit has doubled in one year from 3 billion to 6 billion. And I just wondered at what point that becomes a concern to the auditors or to the corporation. Start with Ms. Denbach. Thank you for the question through you, Mr. Chair. Good observation. I wish I had some insight into the Omer’s operations themselves, but the disclosure that’s included in the financial statements is the required disclosure in terms of the operating results, things that the readers of the City’s financial statements should be aware of.

[59:26] I certainly know there are many, many municipalities in this same situation. I don’t know if there’d be a specific threshold. So obviously that deficit is in its entirety, right? For the entire Omer’s program. So I don’t know if there would be a specific threshold, especially knowing that things change somewhat drastically, as you said year to year. And it has gone both ways in the past. So based on obviously performance of investments and whatnot.

[1:00:01] And so without there being a solid sort of liability required on the part of the City to increase contributions as identified or required by Omer’s, I can’t see that it would change the way that we conduct our audit too much. Hopefully that answers your question. Thank you for that, Ms. Denbach. I’m just gonna check and see if City staff want to dead. Anything to that? Through the Chair, the only thing I would add is certainly this is where that has traditionally occurred in the past could result in higher city and employee and city share that might need to be contributed into the future.

[1:00:46] So that’s certainly something we’re keeping an eye on, noting that obviously that is a multi-employer, many municipalities would be in the same boat. So certainly we know COVID and some of the economic data has had a bit of an impact. And something that we do keep an eye on and we do have discussions with the Omer’s folks that do come and have discussions with us in terms of what their economic outlook is. So certainly not a concern yet, but something that we would be monitoring as it could have a financial impact in the future should the rates need to increase to cover it.

[1:01:20] Thank you, Ms. Bourbon. Councillor Stevenson. Yeah, thank you for that. As I noticed from 2020 to 2021, it stayed around the three billion. So there was a doubling in one year. I don’t know if how extraordinary that is. You said it’s gone different ways in the past. So is the risk being monitored by Omer’s then? Is it, ‘cause it doesn’t seem like it’s a concern of the auditors and is the city going based on, like Omer’s will decide when that threshold has been reached and the payments need to change?

[1:01:53] Ms. Bourbon. Thank you through the chair. So yes, Omer’s has its board. It has got the system that it has its own governance. And that obviously is something that they would have a grave concern in terms of how they’re managing the pension plan assets. So that would be a decision that would be made. Typically the board of Omer’s would give us some notice so that it’s not sprung on us. They try to give some advanced warning, but certainly it’s up to their discretion as to how to manage the pension fund ultimately.

[1:02:28] Thank you, Ms. Bourbon. Councilor Stevenson, anything further? No. So I will just very briefly from the chair echo, my thanks for all the work done. I have to say, quite honestly, this is my least favorite committee to attend because like Councilor Cuddy, I am not a financial guru and some of these things can be hard to digest, but I appreciate the work that both our staff and our partners at KPMG do to put this in a form that’s digestible, even to someone like me who did not excel in some of his math courses.

[1:03:01] So I do appreciate all the work that’s gone into that. And I know it’s not just our finance department as well. I know that our legal team, our HR folks, sorry, enterprise support folks all have a role to play in this, so I appreciate that there is a massive effort year after year after year to make sure that we’ve got good, transparent accounting of both our income and expenses. So thank you for bringing this forward. And with that, I am going to call the vote. This is not, although you can see the vote in Eastcribe, we are not set up to vote through Eastcribe today.

[1:03:41] So the clerk’s advice that we’ll be doing hand votes. So all those in favor. Motion carries. Thank you colleagues, moving on to item 4.2. This is the 2021 Old East Village Improvement Area Board of Management Audited Financial Statements. I will note that Ms. Pastors is with us via Zoom. Should we have specific questions for her as the director of that organization? You do have the staff report in front of you. We, I don’t think we need to have a presentation on this one.

[1:04:19] I hope everybody’s had a chance to read it. I’m going to go directly to committee to see if there are any questions on this one. I’m seeing a lot of shaking of heads, no. So I’m going to look to see if we have a mover and a seconder to receive these reports. Moved by Councillor Cudi and seconded by Councillor Stevenson. Ms. Pastors, it looks like you’re going to get off easy today on Zoom. We, I don’t think we have any questions for you. Since I have no one on the speakers list, I am by hand going to call the question. All those in favor?

[1:04:54] Motion carries. Thank you, moving on. Item 4.3 is our briefing note from the internal auditor. The communication is there. You know, again, the motion is to be received. I will see if colleagues have any questions before we get that motion on the floor. And Councillor Stevenson, you’ve got your hand up, so we’ll go to you first. Just give me one minute. And I just want to, sorry, I just want to note, we do have Ms. Carari, sorry if I mispronounced your name there and Mr. Jazwal from MNP on Zoom with us today.

[1:05:41] Thank you. My question was regarding the audit plan. So it says on this page that the existing internal audit plan will be determined. And I just wondered, given the reports that have come out from the auditor general for Ontario and the federal government on the value for money audit on homelessness and the severity really of the results of that value for money audit on homelessness with the final conclusion being that municipalities also did not have effective processes to monitor third party service providers and did not have sufficient consolidated information confirming whether people who are homeless and provided needed supports and services.

[1:06:32] There also wasn’t the ability to evaluate the effectiveness of programs. So I just was curious, in the internal audit plan, whether a value for money audit has ever been done on the homelessness services or whether that is in the plan or something that’s being discussed. So let’s go to our MNP representatives. Mr. Jazwal, did you wanna start with that?

[1:07:06] Yeah, thank you, Mr. Chair, and through you and thank you Councillor for the question. Absolutely. So we have performed a value for money audit over the neighborhood decision-making program, which was presented to the committee last quarter. And we do have a value for money audit on the agenda for the remaining balance of the year. As for moving forward, as we perform our risk assessment and take a look at all the leading literature out there, including any feedback from the AG and speaking with various deputy managers, the city manager and members of the committee and other key resources.

[1:07:38] We can most definitely look at the different risk-facing city and be evaluate them. And the plan that will come forward next year will reflect that. So if there is an opportunity and it is one of the key risk-facing city, then absolutely it could make its way onto the plan. Councillor Stevenson. Thank you. And into your knowledge, has there been a value from any audit done on the homelessness services for London? I do not believe it has been, but maybe I can defer that to Ms. Barboon to confirm. Ms. Barboon.

[1:08:12] Thank you through the chair. So there was one done I believe in 2017 with respect to the homelessness prevention process assessment. So that did get presented to the audit committee, but there has not been one since that time. Thank you for that. Councillor Stevenson. Thank you. And if I heard you correctly, that was processes not value for money. Ms. Barboon. It was processes, controls, and there was a value for money component of it at that time. Thank you.

[1:08:46] Councillor Stevenson. Thank you. So just two comments. One, if I could get a copy of that, that would be great. And the other is if I could just put it on the record that given the response from the auditor general around the concerns and that came out for 2021 in the end of 2022, if I could just put that on the record that’s for senior management and the internal auditors to look seriously at that, I would really love to see that in the next internal audit plan.

[1:09:22] Thank you, Councillor Stevenson and Ms. Barboon. I’m sure that you can provide that document to the Councillor electronically. And I’m seeing an audit of the head. So that will get sent to you, Councillor. Any other questions on this item? Seeing none, then again, by hand, I will ask for a motion to receive by Councillor Cudi and seconded by Councillor Stevenson. And we will call the vote on that. All those in favor? Motion carries.

[1:09:56] Thank you, colleagues, moving on to item 4.4. This is the internal audit follow-up activities dashboard, which was referenced in our earlier conversation. And again, this is from MNP. With respect to the internal audit, I will look to colleagues to see if they want to have any comments from MNP before we move forward. ‘Cause I know there was some related questions earlier in our conversation on item 4.1. No, I’m seeing a head shaking of no.

[1:10:32] So then we just need a motion to receive the report. Move by Councillor Stevenson and second by Councillor Pribble. And by hand, again, we will call the question, all those in favor. Motion carries. Thank you, colleagues, moving on. 4.5 is the recruitment and selection final report from MNP. And this is, again, a report for receipt. We do have representatives on the line.

[1:11:07] Should we have any questions? So I’ll look to see now if colleagues have any questions. Just checking Zoom, Mr. Chima, we’ve lost your video. So if you have any questions, if you can just use the note shaking your head, no, okay, I can see you again. Then I will look for a mover and a seconder. Move by Councillor Cuddy and seconded by Councillor Stevenson. And by hand, all those in favor.

[1:11:43] Motion carries. And our last item on today’s agenda is 4.6. This is another communication from MNP. This is the asset retirement obligations audit final report for receipt. So I will look to see if there are any questions on this for our auditors. And I am seeing none. So I will look for a mover and a seconder. Move by Councillor Stevenson and seconded by Councillor Cuddy. And by hand, all those in favor?

[1:12:20] Motion carries. Thank you, colleagues. That concludes the full agenda for the second meeting of the audit committee. We have no deferred matters in additional business. So all we need now is a motion to adjourn. And that’s moved by Councillor Cuddy and seconded by Councillor Stevenson in a very close race to get their hands up first. And by hand, all those in favor? Motion carries. Thank you, everyone. We are adjourned.