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2008-08-20 Finance Committee MinutesFINANCE COMMITTEE CITY OF SAINT JOHN MINUTES WEDNESDAY, AUGUST 20, 2008 - 4:00 p.m. Present: Mayor Ivan Court Deputy Mayor Chase Councillor Killen Councillor Mott Councillor Sullivan Greg Yeomans Cathy Graham Kevin Fudge Hilary Nguyen Also present — Barbara Mahaffy, Recording Secretary Mr. Bob Crowley and Ms. Kerri Stevens of Ernst & Young were also in attendance. 1. Finance Committee Terms of Reference Mr. Yeomans stated that the Terms of Reference were distributed to everyone present in their package and asked if anyone had any questions or concerns. There were none. 2. Appointment of Chair On motion of Councillor Mott Seconded by Councillor Killen RESOLVED that Deputy Mayor Chase would serve as Chair of the Committee. Question being taken, the motion was carried. Following a brief discussion, it was agreed that the Nominating Committee should set staggered terms for each Councillor on the Committee. There was some discussion as to the frequency of the Finance Committee meetings, with the preference being to meet more than the required once a year. It was agreed to discuss this at the end of this meeting. 3. Approval of Minutes — May 9, 2007 On motion of Councillor Mott Seconded by Councillor Sullivan RESOLVED that the minutes of the May 9, 2007 meeting be approved. Question being taken, the motion was carried. 4. Adoption of Agenda On motion of Councillor Sullivan Seconded by Councillor Killen RESOLVED that the agenda for the August 20, 2008 meeting be adopted. Question being taken, the motion was carried. 5. Audit Results - Ernst & Young Mr. Crowley started his presentation by outlining the process that is usually followed, which is a bit out of sync this year due to various extenuating circumstances. Mr. Crowley noted that they met with Management prior to reporting to the Finance Committee and that they report to Common Council through the Finance Committee. The auditors then report, at a high level, at the Common Council meeting where the audited financial statements are presented. Mr. Crowley asked the Councillors present to make notes of things that they want to follow up on at the later Planning Meeting. Mr. Crowley reviewed the methodology of the audit and provided the Committee with an overview of their audit approach. He outlined that there are two general approaches to auditing, the first being the substantive approach where they go through every piece of paper, and secondly, the control -based audit where they look at the internal controls that are in place, the latter of these two approaches being used for the City's audit. If controls are in place, they run a test to ensure that the controls are working properly. Mr. Crowley noted that there were no serious control deficiencies found in this audit. Ernst & Young are required to confirm annually their independence and Mr. Crowley indicated that they have done so and have no conflicts of interest. Mr. Crowley outlined the letter of representations, which is still outstanding, but should be received in the next few days. He gave an overview of the audit process, outlining several matters for the Finance Committee's consideration. He reviewed the professional standards that require the auditor to communicate certain matters to the Finance Committee, with Management being aware of such communications. Mr. Crowley did mention that the implementation of PSAB will cause deficiencies every year as it evolves. Mr. Yeomans outlined the various changes that will take place when PSAB comes into effect. Mayor Court inquired about provincial funding available to assist with this transition to PSAB. Mr. Yeomans responded that there is no extra funding provided for this. It will be challenging as the City may need to hire resources to get where we need to be, as the Province wants us to be PSAB compliant by January 1, 2009. It will be very difficult for the City to comply with this deadline. Mayor Court felt strongly that we should be looking for transitional funding for PSAB and indicated that a resolution should be drawn up and put forward at the upcoming Cities of New Brunswick Association meeting on September 19. Mayor Court, Deputy Mayor Chase and Mr. Yeomans will meet to ensure that this issue is on the Common Council agenda for the September 2nd meeting. On motion of Mayor Court Seconded by Councillor Sullivan RESOLVED that the Finance Committee recommend that Common Council request transitional funding from the Province for PSAB implementation and further that the support of the Cities of New Brunswick Association be solicited in this regard. Question being taken, the motion was carried. Mr. Crowley reviewed the Pension Plan Accounting findings in response to a question from Mayor Court about solvency. In response to a question from Mayor Court concerning the $8,100 (General Fund — net income understatement), Mr. Crowley noted that when dealing with $100 million budget, $8,100 was not a concern and that management was made aware of this difference. Mr. Crowley noted that the Gas Tax audit is not yet completed and is being conducted to ensure that the money is being spent on what it should be. Mayor Court inquired as to the yearly amount (of gas tax) the City is receiving now. Mr. Yeomans responded that it is in the $5 million range and that he will confirm this figure for the Mayor. Mr. Yeomans, at this point, informed the Committee that it has the right to have a discussion with the auditors without staff members present, if they so wished. Deputy Mayor Chase noted that every 4t" year (Leap Year), there is an extra week of payroll and he inquired as to whether or not this has been corrected. Mr. Yeomans responded that a day per year is accrued to allow for this. The audit looks at this practice to ensure the accuracy of this procedure. Deputy Mayor Chase asked if City employees were paid more than they actually earned every 4 years and the answer was no. Councillor Sullivan inquired as to why the City pays their employees on a weekly basis, with Mr. Yeomans responding that this is part of the union contract. Staff members left the meeting for about 20 minutes so that the Committee could speak to the auditors. Mr. Crowley and Ms. Stevens left the meeting shortly after its resumption. There was some discussion regarding the frequency of the Finance Committee meetings. Deputy Mayor Chase inquired how much work it would be for staff to have monthly financial statements available. Mr. Yeomans responded that it was not possible to have monthly statements, but he could certainly provide quarterly statements for the Committee. Deputy Mayor Chase requested that Mr. Yeomans provide the Committee with a reasonable schedule of meeting dates, preferably quarterly, as the Committee would like to meet more frequently. Mr. Yeomans asked the Committee members to let him know what they would like to see at each meeting and he will ensure that it is ready for them. Councillor Sullivan noted that there is more opportunity for discussion and questions at Committee meetings. Mr. Yeomans also stated that if the meetings are more frequent, there is less chance that there will any surprises at the end of the year. On motion of Councillor Sullivan Seconded by Councillor Killen RESOLVED that the Finance Committee meet in September 2008 for planning purposes and to review the Terms of Reference. Question being taken, the motion was carried. It was determined that there would be an Audit Planning Meeting in October. 6. Review of Audited Financial Statements Before she proceeded with the review of the financial statements, Mrs. Graham asked for feedback from the Committee as to what they want to hear. She outlined the various reasons for the lateness of the statements this year. The financial statements are the City's scorecard as to where we stand financially and are important to review. She then reviewed the results of the financial statements for the General Fund, specifically the Statement of Revenue and Expenses, noting the year -end deficit of $69,292. Continuing, she provided a detailed review of the Schedule of Revenue Items, as well as the Schedule of Expense Items. Councillor Sullivan queried as to whether departments tend to go over budget and if they do so, do they have to go through Common Council to do so. Mr. Yeomans responded that the Finance Committee reports to Common Council and knows where and why each department goes over budget. Each department knows where they are going and analyze their monthly reports so as to avoid going over budget. They do not need Common Council approval to do this. Councillor Sullivan questioned where is the accountability for someone running over budget, to which the response was they are accountable to Common Council through their reporting. Councillor Sullivan left the meeting at 6:05 pm. Mayor Court inquired about PSAB — will we be responsible to do internal auditing when it is implemented? Mr. Yeomans responded by stating that we will still have to have external auditors conduct any audits. Councillor Killen noted that on the Schedule of Expense Items, everything looks to be in line until one gets to the City Market expenses and they are up significantly in comparison. In response, the City Market did major repairs this year and hired more cleaning staff, which caused their expenses to increase. Councillor Killen asked what the formula is that determines what each community pays towards the regional facilities. Mr. Yeomans replied that it is determined by the assessment base. The City of Saint John is responsible for the capital and the Regional Facilities Commission determines how much each community contributes to the regional facilities. There was brief discussion on property tax vs. assessment base. Councillor Killen asked if the financial statement results could be presented in tangible terms, such as what has been achieved with the money received. Mr. Yeomans responded that the City is going towards performance measurement so that eventually the City will be able to apply these measurements to each item. This is an evolving goal that is being aimed for. On motion of Councillor Mott Seconded by Councillor Killen RESOLVED that the audited Financial Statements for the City of Saint John General Fund, Water and Sewerage Utility and Reserve and Trust Funds as at December 31, 2007 be forwarded to Common Council on September 2, 2008. Question being taken, the motion was carried. There was a brief discussion about the Pension Plan, with Mr. Yeomans reviewing how the liability is arrived at. Mayor Court asked what the maximum is that the Income Tax Act allows employees to pay towards a pension plan. Mr. Yeomans responded 9 %. The City had to put in a request to Revenue Canada to increase the contributions to 10.5 %. The meeting adjourned at 6:50 p.m. Chairperson