Open Council

Audit Committee

Open Council

Audit Committee

February 14, 2024, at 12:00 PM

Original link

The meeting is called to order at 12:01 PM.

1.   Call to Order

1.1   Disclosures of Pecuniary Interest

That is BE NOTED that no pecuniary interests were disclosed.

1.2   Election of Vice Chair for the term ending November 30, 2024

Moved by P. Cuddy

Seconded by J. Pribil; and

That Councillor S. Stevenson BE APPOINTED as Vice Chair for the term ending November 30, 2024.

Motion Passed

2.   Consent

None.

3.   Scheduled Items

None.

4.   Items for Direction

4.1   Briefing Note From Internal Audit - MNP

2024-02-14 Submission - Briefing Note-MNP

Moved by P. Cuddy

Seconded by J. Pribil; and

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

Motion Passed

4.2   Internal Audit Follow Up Activities Dashboard - MNP

2024-02-14 Submission - Dashboard-MNP

Moved by P. Cuddy

Seconded by J. Pribil; and

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

Motion Passed

4.3   Downtown Closed Circuit Television Program - KPMG

2024-02-14 Submission - CCTV Report

Moved by P. Cuddy

Seconded by J. Pribil; and

That the KPMG Report on Specified Auditing Procedures for the London Downtown Closed Circuit Television Program, for the year ending December 31, 2023, BE RECEIVED.

Motion Passed

4.4   Audit Planning Report - KPMG

2024-02-14 Submission - Audit Planning Report-KPMG

Moved by J. Pribil; and

Seconded by P. Cuddy

That the KPMG LLP Audit Planning Report, for the year ending December 31, 2023, BE APPROVED.

Motion Passed

5.   Deferred Matters/Additional Business

None.

6.   Confidential (Enclosed for Members only.)

Moved by P. Cuddy

Seconded by J. Pribil; and

That the Audit Committee convenes In Closed Session to consider the following: 

6.1  Security of Property

A matter pertaining to the security of the property of the municipality or local board.

Motion Passed

That the Audit Committee convenes In Closed Session from12:27 PM to 12:40 PM.

6.1   Security of Property

7.   Adjournment

Moved by P. Cuddy

Seconded by J. Pribil; and

That the meeting BE ADJOURNED.

Motion Passed

The meeting adjourned at 12:40 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 (40 minutes)

[4:39] Audio test for council chambers. Just one more test. Ms. Hunt, can you hear council chambers adequately? Yes, I can hear you just fine. Thank you. A little bit morning.

[7:37] Good morning, Mr. Nijazi. Good morning. I believe the time that I will be speaking is gonna be, I think, further down the road to you and me and so I’ll be meeting myself unless I’m called upon or summoned. Thank you. Good afternoon, everyone.

[15:21] The city of London is situated on the traditional lands of the Nachenabek, Hodeshone, Lenapuok, and Adwondren. We honor and respect the history and language and culture, the diverse indigenous people who call this territory home. The city of London is currently home to many First Nation, 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. This is the first meeting of the audit committee for everyone’s information. I’m now the chair of this committee, so thank you for joining me. Councillor Stevenson and Chima have sent the regrets and they’re absent today and chambers.

[15:59] I do have Councillors Cuddy and Pribbles, so we do have Quorum and can proceed. The city of London is committed to making every effort to provide alternate formats and communication supports for meetings upon request. To make a request for specific to this meeting, please contact accessibility@london.ca or 519-661-2489, extension 2425. As I call this meeting to order, I looked to committee members for disclosures of pecuniary interest. Seeing none on our agenda today is the election of Vice Chair for the term ending November 30th, 2024.

[16:39] Councillor Stevenson and I did speak before today as they were gonna be absent, and they are interested in letting their name stand for Vice Chair, looking to members of committee to see if anyone else is interested in serving Vice Chair or if someone wishes to move Councillor Stevenson’s name. Councillor Cuddy. Thank you. You Madam Chair, I’ll nominate Councillor Stevenson. Thank you. I’ve been mover and seconder in Councillor Pribbles. Any questions or comments? Sorry, we don’t eat.

[17:14] I’m used to the E-Scribe. So just a hand vote of all in favor of Councillor Stevenson for Vice Chair. That motion carries. Thank you. Consent items, we have none. Scheduled items, we have none. And our items for direction, we do have four. My advice to committee is to handle 4.1 and 4.2 together as it’s received to those reports. And then, so looking for a mover and a seconder of items 4.1 and 4.2. Moved by Councillor Cuddy, seconded by Councillor Pribble. And I know there are some questions, so I’ll start my speaker’s list with Councillor Pribble.

[17:48] Thank you, Chair. And through you to the staff, on page nine, when we have the Management Actions Plan, there is one that states number one, Mender Management Office. And it’s creating high and remediation status is closed. And I want to get the kind of update on this one because the way it is, first of all, the budget hasn’t been approved. And even currently, P73 is not included in Mayor’s budget. So I just want to ask you, in terms of that, we are considering it closed if we should reevaluate it and still have it open.

[18:26] If I can get a feedback from the staff, please. Thank you, Ms. Barbara. Thank you, through the chair. So civic, the recommendation was that the city should consider this and should look to put forward a business case. So from an action item, from some management, we have created the business case, we have done the evaluation, and we put that forward through the multi-year budget process. Should Council wish to fund that, then it would proceed. If Council does choose not to fund that ultimately when the budget is final and it is not put forward, then the vendor management office cannot proceed because we don’t have the resources to implement it.

[19:05] So certainly when the internal audit report came forward, we had identified that if in the event that it wasn’t funded, we would certainly do our best to try to implement and move that forward with the policy reviews. And we have lots of work that is currently underway. However, there would not be an office established if the Council ultimately does not fund that through the budget process. Councilor? Thank you and follow up. Do we have current existing resources or can we introduce certain internal controls or anything that we could address this issue without B73?

[19:45] Ms. Birbal? Thank you through the chair. So I think through the recommendations that are there that are still listed with items number two to five, though are through two to six, we are certainly, we’ve already initiated some work. Obviously the capacity is very limited to the extent to which we can have the time to implement it. But our intent is to, through the policy review, we have a consultant that is reviewing all of the processes with the intent to put forward recommendations that we would look to implement over time.

[20:24] So it means the work will happen but very, very slowly because it is done on the side of our desks and we don’t have resources that are dedicated to do this work, primarily they’re there to try to support the business and the procurement work that they’re at capacity given the volume that is already there for the staff we have. Councilor? Thank you. And thank you for the replies. No more questions? Looking for their questions or comments? Call on the question of all in favor of receipts of item 4.1 and 4.2.

[20:59] Motion carries. Thank you. This is item 4.3 now, the downtown closed circuit television program with KPMG. This one’s also for receipts. So looking for a mover and a seconder of receipt. Moved by Councillor Cuddy. Seconded by Councillor Pervall. Looking to see if there’s any questions or comments in regards to 4.3. Councillor Pervall? Just a quick question. I know it’s at that you have selected 48 recordings for testing throughout the year.

[21:34] Would the 48 recordings be kind of the standard number or do you think that sufficient number or should there be additional actions taken? I think you can walk through you, Madam Chair. 48 is the number that was agreed upon when we were engaged to perform this work. It’s not a matter of judgment on our part. It’s whatever management or the committee feels is acceptable. So 48 was the agreed upon number and has been for a number of years now. If there is appetite to increase that or decrease that, we can certainly accommodate.

[22:13] Thank you Councillor. Thank you for the answer. No more questions? Okay, looking to see if there’s any further questions or comments on items 4.3. If not, receipt has been moved and seconded. Call on the question. And motion carries. Thank you, this brings us to item 4.4 being the audit planning report from KPMG. This one was larger. So looking to committee to see if you would like an overview provided by KPMG before we start our questions or if you want to just go into questions. Okay, yep, so I’ll turn it over to KPMG and your team.

[22:52] You can divvy up your time as you like, just ideally I keep these to five minutes or less. Okay, thank you and through you Madam Chair. Thank you for having us here. Just by way of reminder, my name is Katie Dembach. I’m the external audit partner for the city of London and the boards and commissions. And with me today is Melissa Redden, who is a senior manager, has been also the senior manager on the city for a number of years now. And we will walk you through the highlights of the audit plan that we’ve put together and try to keep to your five minute timeline here.

[23:26] So we’ll really just hit the highlights. So starting on page four of our audit plan that we provided, really I just wanted to give a reminder to the committee, this plan is put together in order to help you in your oversight role over the external audit process. We’ll go through a couple of key items mainly being the materiality that we anticipate using for our audit, some significant risks that we’ve identified that will be addressed through our audit procedures, as well as just a note for the committee that we are independent of the city and its boards and commissions and will remain.

[24:02] So as we are required to be, that’s what allows us to issue an independent auditor’s report. I’m gonna skip through to page seven of our plan, which goes over the group materiality. So because we do issue an audit opinion over a consolidated set of financial statements, this is considered what we call a group audit. So the materiality level that we use, anticipate using for fiscal 2023 is $22 million. And just a reminder, that’s sort of the highest level that we use to scope and do our risk assessment.

[24:40] What is more important for this committee, in my opinion, is our audit misstatement posting threshold, which is $1.1 million. And that’s the level at which we would come back to you through our audit findings report to report any corrected or uncorrected misstatements that are identified during the course of the audit. On page eight, we’ve also identified the component materiality. So that’s the materiality level we use for the city of London on a non-consolidated basis. And again, for the same purpose. Page nine highlights some of the other experts that are used in the course of our audit.

[25:14] So those include Mercer and KPMG’s actuarial specialists when it comes to assessing employee future benefits, as well as facilities personnel for the asset retirement obligation standards specifically, which Melissa will get into shortly, as well as legal personnel within the city to help assess the appropriateness of accruals. Slides nine and 10 really just talk about what’s changed significantly year over year. And I think the really big thing to note for the committee are the requirement for the city to implement two new accounting standards for fiscal 2023.

[25:50] So those are the asset retirement obligation standard, as well as the financial instruments suite of standards. And Melissa will talk shortly a little bit more on the asset retirement obligation standard. Slide 12 just talks about group scoping. So this shows that through our main financial statement audit, we cover 88% of the total assets. And 93% of the total revenues are subject to our audit procedures. The boards and commissions, we do issue standalone audit opinions on as well to their own standalone level of materiality.

[26:26] So the scope of work has not changed from previous years. And I’ll hand it to Melissa to talk through some risk assessment. Sorry. So moving on to our risk assessment summary, this slide and the next slide are a summary of the risk areas that we will cover over the next few slides. And just wanting to note that we do rebut the presumed risk relating to fraudulent revenue recognition consistent with a prior year. We do also note a couple of additional risk areas this year due to the implementation of the new accounting standards.

[27:03] Moving on to slide 15. This discusses the management override of controls. This is a presumed risk that cannot be rebutted and that is present in all entities. There are certain procedures that we are required to perform to address this risk, which are listed on this slide, and which will be performed during the course of the audit. On the next slide, it talks about new significant risk this year relating to the implementation of the asset retirement obligation. This is a new standard effective for the current year. And it’s a complex accounting standard, which requires the application of professional judgment and will result in significant changes to the city’s financial statements.

[27:42] This is an estimate, so we have assessed this as a significant risk given its nature. And we’ve noted on the slide the procedures that are to be performed over this balance, as well in quite a bit of detail. The next several slides go over the main areas of focus for the audit. The implementation of financial instruments is the first that’s noted on slide 17. There will be additional procedures performed here, as well, due to the new accounting standard, with the main focus being on identifying those areas that are within the scope of the standard and ensuring that they align with the new measurement and reporting requirements.

[28:18] The other areas of focus on the next few slides are consistent with the prior year, and they have been included for your reference. We’re not going to go into detail on these, and we’re going to skip to slide 24. This slide provides information on the timing of certain work that is performed. Planning and risk assessment procedures were completed in December and January, with fieldwork starting in April, and wrapping up in June with final reporting. That brings us to our appendices. So just going to highlight a few key areas here, but skip over them relatively quickly.

[28:54] The first appendix is just some links to information on quality inspection results over the past couple of years. Appendix B is some, KPMG players are audit platforms, so just some further information for you relating to that. Appendix C and D is some information on how we deliver audit quality. Specifically in Appendix D, it has audit quality indicators that we will report back on in our audit findings report in June, and these are the ones that we consider critical when we are considering audit quality. Appendix C are the new audit quality standards that are effective for the current year and notes that, and then there is a revised standard relating to group audits that will come into effect next year.

[29:35] Appendix F provides some information on upcoming changes in accounting standards. So in the earlier slides, we discussed the changes in the accounting standards for the current year and the impact to the audit as a result of those. Next year, there will be three additional standards that come into effect, and then there will also be a couple of additional standards that are coming down the pipeline, but those wouldn’t be impacting the city until fiscal 2027. So just some high-level detail on those in Appendix F. Appendix G is a report on indicators of financial performance. This is one that we update each year and focuses on sustainability, flexibility, and vulnerability through a few key financial indicators.

[30:15] You can see on some of the, I think slide three, that there’s a summary of the financial indicators that have been included in the report and which of these areas they fall under. A detailed description of the indicator is included on the relevant slide, and just highlighting that this analysis is based on 2022 data with comparative information for 2018 to 2021. It does include comparator municipalities consistent with those determined in prior years, and the analysis shows that there are generally consistent results for London and a continuation of trends seen in prior years.

[30:48] Again, not going to go into any detail as you would have all had this report in advance, but if there are any questions, we’d be happy to respond to those at the end of our report. Moving along to Appendix H. Again, just some information on lean process mapping. We typically do offer a session a year over a financial reporting process to our clients, so just some information relating to that. Appendix I provides links to some additional thought leadership and information that we thought may be of interest to counsel. Appendix J has some information relating to fraud.

[31:25] It’s been a hot topic, so just some information here on one of the key members assisting with this in our office. Moving on to the next several slides, a few other hot topics relate to climate risk and the impact on the financial statements, as well as ESG and generative AI, so we thought that may be of some interest. And again, it’s just some additional information for counsel, and that concludes our report. Thank you for that.

[32:01] I will start my speakers list, I’m sorry, my speakers list with Council approval. Thank you, Mr. Chair. Thank you for that speedy report. By the way, is there a process or let’s say if we wanted to give more than five minutes for next time, what is the process that we can do because I really think this is a very fast sprint? Yeah, they did use eight and a half, I certainly didn’t stop another five. I usually tend to use the five-minute benchmark ‘cause not everyone has meaningful dialogue in their five minutes.

[32:39] And that’s why I just try to keep it to five. Next, I’m now knowing, I certainly could have said 10, or I don’t stop them, but we can certainly have that conversation going forward of we would like to receive. I think you said there was a June update coming. If we want to give direction now that it could be allotted and noted that we’d like a 10-minute presentation, a 15-minute presentation, that they would plan accordingly. So we’d like 10 to 15 going in June, just so we can plan accordingly. I personally would love to have 15. Yeah, so that’s noted by KPMG and as Chair in June, I’ll note a 10, that for 15 minutes, so thank you.

[33:18] Perfect, thank you. So I do have a few questions, and I love the financial indicators, and thank you for that. And I know it was mentioned that the other five municipalities, that it’s historical, but besides historical, are these the municipalities that you are auditing as well, or is this from your getting the figures, the numbers from some statistical data? So through you, Madam Chair, some of these are audit clients of KPMG. However, all of the information that we use in this analysis is pulled from publicly available FIR data.

[33:53] So that’s where that information comes from. There might be a couple slides that use publicly available census data, but for the most part, it’s what’s being reported through the FIRs. Councillor? Thank you, and to follow up, financial limitations, and I think that those are some really great points. But what I was looking for, where would be more for me, kind of the positive stuff, the potential opportunities? And is this something that you go beyond this, that especially if you are auditing some of these municipalities as well?

[34:32] Are there certain opportunities that we are living on the table and we could take more advantage of? Do you go beyond that? Because the potential limitations, it’s more negative, but the positive, let’s learn from it, and how can we learn from the best, so we are the best in everything. Dan Bach? Through you, Madam Chair. So this report, we provide sort of as a conversation starter for the Committee or for Council. It’s not really a byproduct of our audit. We just thought, we added it in several years ago in order to add some value to the conversations that we were having.

[35:09] It’s not part of the scope of work that we’ve been engaged to do to sort of look for opportunities. Our focus is really on the fairness of presentation of the financial statements as a whole. That being said, it’s not beyond the scope of what we could possibly do, not part as the financial statement audit engagement, but as a service provider to the city to comment further on opportunities that may be out there. Certainly, I’m in constant communication with management of the city if I do become aware of opportunities that the city should be aware of.

[35:44] Thank you, and the last question. Does he say it is beyond or it is not beyond the scope? It is beyond the scope of what we have been engaged to do. Thank you very much. No more questions? Thank you. I did have one, he’d allow me as chair, through the chair. Ms. Redden did mention, I think it was additional training, I believe that’s on page 72, and it’s the KPMG is your ESG performance driving real value and it was the program overview slide.

[36:23] Is this included with what we’ve contracted for? Is an extra fee for service just verifying? Yeah, so the ESG Discovery document in here, it’s an additional service that KPMG is available to provide, but does not currently fall within the scope of the audit of the financial statements. Thank you for that clarification. Looking to see if there’s any other questions or comments from chambers, since we have nobody online. Hey, it’s been, it has not been moved and seconded, I’ve been terrible as a chair.

[36:57] So I need a mover and a seconder for approval of the audit planning report from KPMG, moved by Councillor Pribble, seconded by Councillor Cuddy. All in favor? Madam motion carries. Thank you, that concludes that item. We will see you back in June with a 15 minute presentation and Q and A as well. I have no deferred matters and additional business that I’m aware of. I don’t see anyone raising anything in chambers. We do have one item for confidential session, so I will thank KPMG and wish you luck and happy Valentine’s Day with your day.

[37:32] And any other staff that is not required for the confidential item, please also go and enjoy your day and productiveness. And we are staying in chambers for confidential session. So just, sorry, mover and seconder to go into confidential move by Councillor Pribble, seconded by Councillor Cuddy. All in favor? That’s carried. Okay, thank you. We’re just gonna secure chambers. And for the public record, the reason for going in camera is as indicated on the public agenda. Recording in progress.

[40:24] Hey, we’re now back in open session. Looking at Councillor Cuddy to report out for me? Thank you, Madam Chair and through you. Committee met in closed session from 12/20 to 12/40. We made progress on matters that were discussed in confidence. Thank you. Thank you. That concludes the entire agenda, which can bring us to item seven for adjournment. Motion to adjourn, move by Councillor Cuddy, seconded by Councillor Pribble. All in favor of adjournment? No motion to answer. Thank you everyone and have a wonderful day. Thank you everyone. Thank you.