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2009-06-29 Finance Committee MinutesFINANCE COMMITTEE CITY OF SAINT JOHN MINUTES MONDAY, JUNE 29, 2009 - 4:00 p.m. Present: Mayor Ivan Court Deputy Mayor Chase Councillor Killen Councillor Mott Councillor Sullivan Greg Yeomans Cathy Graham Also present — Barbara Mahaffy, Recording Secretary Mr. Bob Crowley and Mr. Jon Morine of Ernst & Young were in attendance, with Ms. Gail Hamilton of Ernst & Young in attendance via telephone. 1. Approval of Minutes i. January 29, 2009 ii. March 10, 2009 iii. April 1, 2009 On motion of Councillor Killen Seconded by Councillor Mott RESOLVED that the minutes of the January 29, 2009, March 10, 2009 and April 1, 2009 meetings be approved. Question being taken, the motion was carried. 2. Adoption of Agenda On motion of Councillor Killen Seconded by Councillor Mott RESOLVED that the agenda for the June 29, 2009 meeting be adopted. Question being taken, the motion was carried. 3. Audit Results - Ernst & Young Ms. Hamilton started off by thanking everyone for their cooperation and hard work during the audit process. Mr. Crowley started his presentation by stating that Management will talk to the financial statements at the end of their presentation of the audit results. Mr. Morine then took the Committee through the agenda and briefly reviewed the methodology used for the audit. He noted that there were no significant changes to the audit plan and it was executed as planned. He also reported that there were no significant weaknesses in internal control and no serious control deficiencies. If controls are in place, they run a test to ensure that the controls are working properly. Mr. Morine noted that there were no serious control deficiencies found in this audit. Mr. Morine gave an overview of the audit process, outlining several matters for the Finance Committee's consideration. He also reviewed the professional standards that require the auditor to communicate certain matters to the Finance Committee, with Management being aware of such communications. Mr. Morine noted that the City of Saint John was not required to adopt any new accounting policies in 2008. He reported that they were not aware of any significant unusual transactions recorded by the City and no significant weaknesses in internal control were identified during the audit. As well, there were no significant recorded audit adjustments related to the 2008 audit. Mr. Crowley continued with the audit results at this point, noting that the City's financial statement accounts were in compliance with the Municipal Financial Reporting Manual. He also reviewed the other areas of audit emphasis they identified. Mr. Crowley noted that the audit is not designed to detect fraud, but make note of areas where there are opportunities for fraud or fraudulent concerns. During this audit, management was not aware of any incidences of fraud. Ernst & Young identified two areas where there are identified fraud risks and summarized their tests of controls implemented in these two areas. He noted that there were no items on the summary of audit differences accumulated in the General Fund, the Utility Fund or the Trust Funds. Question: What controls are in place for the budgeting process? Response: Look at the initial budgeting process. Management reporting and the budgets are compared to actuals. Question: Budget actual vs. budget outline — is this where you would note any differences? Response: They look at the process that management goes through. They should be able to explain why there is a variance. Question: Where do the savings from the wage freezes show up in the financial statements? Response: The wage freeze savings will not show up in the 2008 budget, but will show up in the 2009 & 2010 budgets. There is nothing to see in this regard in these statements. Mr. Yeomans noted that every department receives a detailed budget report each month, except January, and one is presented to Council in April, August and December. Finance looks at the overall budget and at certain lines and follow up with the departments accordingly. Mr. Crowley stated that there was no change in their fees this year. Ernst & Young feel that PSAB is the primary accounting development that may impact the 2009 financial statement audit. It will require significant resources. It did not appear that the City will be implementing PSAB for the 2009 year. Mr. Crowley recommended that the City proceed with PSAB conversion to comply with PSAB in 2010. Although the Province has not revised the legislation, he feels this to be appropriate because 1) it will be a provincial requirement; 2) current Canadian GAAP; 3) other New Brunswick municipalities are converting, so potential loss of comparability; and 4) possible future requirement of Provincial and Federal levels of government for grant funding. Question: Will we need to have two sets of audited financial statements, with the Government saying they need a separate statement which would use the old format they are used to seeing? Response: For PSAB, we will probably have to back things in and out, so we may need two sets of statements. With consolidated statements, there is the issue with compatibility and the adding of the ABC's, etc. We need to look at a redesign of the chart of accounts. Mr. Yeomans noted that they are creating a team to work on tangible capital assets as we need to get an inventory of our assets as a first step to implementing PSAB. The Provincial Government has yet to come through with any funding for this initiative. The City of Saint John has built some money into the 2009 budget for resources (consultants) to work on PSAB, but we will need to do the bulk of the work ourselves. Question: Will the City of Saint John be doing this for 2009? Response: Ernst & Young are recommending it be implemented for 2010. Mr. Crowley reminded Deputy Mayor Chase that it is at the Committee's discretion to go into an in camera session. This gives the Committee the opportunity to discuss any issues relating to the audit without Management present. Mayor Court entered the meeting at 4:40 pm. 4. Review of Audited Financial Statements General Fund Mr. Yeomans indicated that Ms. Graham will take the Committee through the audited financial statements and answer any questions that the Committee members may have. He also reviewed the Operating Fund Balance Sheet with the Committee. Question: Please explain the significant difference in the amount shown in the Water & Sewerage Capital and Loan Fund between 2007 & 2008. Response: This is an inter -fund account. Non -cash items were never cleared out and have accumulated over the last few years. Entries need to be made on an annual basis and this was not being done. This is a reconciliation at this point in time. It is more of a technology issue — it was the way the application was tracking the cost - and is not an accounting issue. Ms. Graham then reviewed the results of the financial statements for the General Fund, specifically the Statement of Revenue and Expenses, noting the year -end surplus of $382,488. Continuing, she provided a detailed review of the Schedule of Revenue Items, as well as the Schedule of Expense Items. Councillor Sullivan entered the meeting at 4:50 pm. Question: Where is the retroactive pay (for Fire) reflected in the 2009 statements? Response: It would show up on the 2009 statements only if it is settled in 2009. There is an estimate in their budget number. If the settlement is more than was estimated, it will be shown in the 2009 expenses. Mayor Court had some concerns regarding the pump price reduction we receive from Irving Oil. Some discussion ensued and he was assured that we do receive a reduction in pump price (1.5 %) which is applied to the bills we receive. Question: Are we going to get a discount on self - serve, as we have been getting on full serve, now that most Irving stations are mainly self - serve? Response: Ms. Graham is to verify this with Purchasing. Question: Can we build up a fund for the perpetual care and maintenance of Harbour Passage? Response: Mr. Yeomans responded that this would add to the tax rate. We are always trying to reduce our expenses. Mayor Court would like to see the various groups build in money to a Trust Fund, specifically for repairs and maintenance. Mr. Yeomans stated that this is a challenging issue and we need to ask how we get where we need to be. Question: What is the approval process when a department goes over budget? Response: Mr. Yeomans responded that the Finance Committee reports to Common Council and knows where and why each department goes over budget. It is each Department Manager's responsibility to know where they are going and to analyze their monthly reports so as to avoid going over budget. They do not need Common Council approval to do this. They are accountable to Common Council through their reporting. When a department goes over budget, the City Manager should be made aware of it, as well. There is little discretionary spending in the budget. Question: Revenue vs. expenses for Recreation — How much do we subsidize arenas and sports fields and is it an appropriate amount? Response: Mr. Yeomans noted that one cannot take it as a whole. He then reviewed the over budget and under budget years. Mr. Yeomans reviewed the Debenture Debt, as well as the Statement of Source and Application of Capital Financing. Mr. Yeomans noted that the surplus of $382,488 will be a revenue item for us in 2010. Under the Notes to Financial Statements, the aggregate amount of principal payments for the debentures and other long -term debt is going down because we do not know what we are going to be borrowing over the next few years. Mr. Yeomans reviewed the remaining Notes to Financial Statements and there being no further questions, proceeded on to the Water and Sewerage Utility statements. Water and Sewerage Utility Ms. Graham reviewed the Balance Sheet and the Statement of Revenue and Expenses. She noted that the Utility is short on revenue by over $1 million. This is due to under consumption on the meter charge. Question: Where does the under consumption come from? Response: Our assumptions have assumed that consumption was going to go up, but it has not. Any reduction would come from metered customers. On the expense side, the overall operation is over budget by $100,000. This is due to various issues including flooding and water main breaks, which caused the station to be revamped. Costs for the wastewater project have been pushed back due to the late signing of the agreement. These costs will show up in later statements. Question: When will staff let Common Council know when water expenses will cause the rate to increase substantially? Response: Mr. Yeomans responded that they are always looking at affordability when it comes to the water rates and what are acceptable rates. It is included in the budget over multi - years. Reserve and Trust Funds The Reserve and Trust Funds statements were presented to the Committee for their perusal and information. 5. Date for Presentation to Common Council On motion of Councillor Sullivan Seconded by Councillor Court 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, 2008 be forwarded to Common Council on July 20, 2009. Question being taken, the motion was carried. Staff members left the meeting for about 5 minutes so that the Committee could speak to the auditors. Mr. Crowley and Mr. Morine left the meeting shortly after its resumption. 6. Audit Proposal Mr. Yeomans recommended a 2 -3 year extension on Ernst & Young's contract with the City, which is up for renewal. He noted that they have core knowledge of our organization that a new auditor would not have. We work well with them and know them well. On motion of Councillor Court Seconded by Councillor Killen RESOLVED that the Commissioner of Finance request a proposal from Ernst & Young for the next five years, which proposal will be brought back to the Finance Committee, who will then make a recommendation to Common Council. Question being taken, the motion was carried. 7. Dates for Future Meetings The next meeting of the Finance Committee will take place on Monday, July 13, at 4:00 pm. It was noted that the Commissioner of Finance, Deputy Mayor Chase and the City Manager have to sit down to discuss the Terms of Reference for the Finance Committee, before they can be brought forward to the Finance Committee for their review. The meeting adjourned at 6:00 p.m. Chairperson