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2010-11-24 Finance Committee Minutes FINANCE CQMMITTEE CITY �F SAIIdT JOHN MINUTES MONDAY, JULY 22, 2010 - 5:00 p.m. Present: Mayor Ivan Court Deputy Mayor Chase Councillor Court Councillor Killen Councillor Mott Councillor Sulfivan Greg Yeomans Cathy Graham Kevin Fudge Hilary Nguyen Also present— Barbara Mahaffy, Recording Secretary Mr. Jon Morine anc! Mr. Yu Fung Deng of Ernst & Young were in attendance, with Ms. Gail Hamilton of Ernst & Young in attendance via telephone. 1. Approval of Minutes On motion of Councillor Court Seconded by Councillor Mott RESOLVED that the minutes of the No�ember 22, 2009 meeting be approved. Question being taken, the motian was carried. 2. Adoption of Ag�nda On motion of Councilfor Court Seconded by Councillor Mott RESOLVED that the agenda for the July 22, 2010 meeting be adopted. Question being taken, the motion was carried. 3. Audit Results - Ernst & Young Mr. Morine started his presentation by stating that Management will talk to the financia! statements at the end of their presentation of the audit results. Mr. Morine reviewed page 3 of the audit results with the Committee and also referred the Committee to Note 6 in the financial statements as well. Ernst & Young have asked the City to accrue for the back pay and this has been done {about $867,000 against the bottom line). Mr. Morine noted that th� City's financial stafement accounts were in compliance with the Municipal Financial Reporting Manual. He also reviewed the other areas of audit emphasis they identified. Mr. Morine 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 thafi there were no items on the summary of audit differences accumulated in the General Fund, the Utility Fund or the Trust Funds. He reviewed the audit and audit-related services that Ernst & Young expressed opinions on which included the Gas Tax and the Wastewater Treatment System Upgrade Project 2008-2012. They will be issuing a written letter to management describing minor suggestions for process improvement. Mr. Morine outlined the auditor's responsibilities and noted that they expect to issue an unqualified opinion on the City's financia! statements for the year ended December 31, 2009. Ques�ion: Why an unqualified opinion as opposed to a qualified opinion? Response: It was explained fhat an unqualified o{�inion means it is a "clean" opinion. If the City is not PSAB compliant by January 1, 2012, fihey wilf be issuing a qualified opinion because the City will not be in compliance. There were a few non-trivial audit adjustments noted, all of which management has corrected in the audited financial statements. They included fringe benefit clearing account, firefighters accrua! for compensation, unrestricted Deposit Account and construction holdback accruals. Mr. Morine noted that while the City was not required to adopt any new accounting policies during fisca! 2009, the province has set forth a requirement for the accounting sfiandards to comply with Public Sector Accounting (PSAB). The Finance Committee needs to focus on this. It will require a significant investment in time and money. Ms. Graham spoke to the need for dedicated resources for PSAB, particularly in regards to tangible assets. The City needs to commit internal resources (staffing) fo accomplish this compliance with PSAB. Mr. Morine reconfirmed Ernst & Young's independence in the matters outlined on page �6 of the audit results. Ms. Hamilton expressed her appreciation to everyone for their cooperation and hard work during the audit process. 4. Review of Audited Financial Statem�nts General Fund Mr. Yeomans reviewed the Financiaf Highlights document and noted that for 2009, there was a surplus of$664,587, which will be listed as a rev�nue item in 2�10. He also reviewed "Other Revenue from Own Sources" and not�d that the Parlcing Commission administers the street parking on the City's behalf. All fines from the snow ban parking come to the City. As well, the City receives a share of the Market Square parking garage revenue. The City does ha�e common area costs for Market Square. The bulk of the miscellaneous revenue consists of the recovery of Police costs. Mr. Yeomans' report (page 3 — Expenditure Analysis} focuses on budget variance items that are $1Q0,000 or more. He made note of a couple of the variances, in particular, $480,000 for storm sewers was moved into Roads & Streets. This budget items also deals with sand and gravel, equipment rental, road salt, etc. It was noted that $20Q,000 of the costs for Market Square are charged to tf�e Regional Facilities Commission. Question: Councillor Sullivan asked abouf the $925,000 variance in recreational adminisfration. Response: Ms. Graham noted that management moved from Municipal Operations to Leisure Services to handle various projects going on in Leisure Services. Mr. Yeomans wiil check on the arenas' actuals and email the Finance Committee with his findings. On page 25 of the Financial Statements, it was noted that the interest rates on long-term debenture debt were lower for 2009. Fewer debentures were issued ti�an anticipated, which resulted in less of an issue fee having to be paid. Page 4 of fhe Financial Highlights (Expenditure Analysis) showed Heart and Lung liability up by $1,512,236, as there were a number of people who went out on Heart and Lung disability. The retirement allowance was down by $217,161. Mr. Yeomans reviewed the various sections of the Underwriting Account. The auditors met with the life insurance company to validate these figures. The Transfer to UDA in the amount of $503,404 results in $'f,113,176 coming back to the City due to positive life insurance experience for the years 2003-2009. The year-end expenditure variance was $$31,311 — amount overspent on expenditures for Zoas. Deputy Mayor Chase asked that more detail be given on the miscellaneous revenue when it goes before Common Council. Mr. Yeomans agreed to provide this. Councillor Killen entered the meeting at 6:00 pm. Water and Sewera e Utilit On page 5 of the Financial Highlights document, Revenues — charges to customers — was down $731,242, due to the fact that some big customers had fewer requirements than expected, with one company closing. Question: Councillor Court asked where the !OL money was. Response: Mr. Yeomans responded that it was not in the statements. He is waiting until negotiations are completed or a forma! agreement is reached. Even though there was a decrease in revenue by $1,066,242, the Utility did manage a surplus of$150,296 fior 2009. Question: Councillor Court asked who looks out to see fhat the Utility does not overspend. Response: Mr. Yeomans responded that he ensures compliance with the procurement policies. He does not tell the Utility where to spend their money. Common Council tells them how much to spend. Mr. Yeomans lets Common Councif know in April and August of each year of any overages in s�endi�g. Mr. Groody tells Council what they need ancf Mr. Yeomans tells Council what they can afford. Question: Councillor Court asked how Municipal Operafions can get rid of a whole department or staff without going through Common Council. Response: Mr. Yeomans noted that he should ask tF�at question of the City Manager. Any spending or procurement of goods and services in the amount of $25,000 or over must have Common Council's approval_ Reserve and Trust Funds The Reserve and Trust Funcis statements were presented to the Committee for their perusa! and information. 5. Date for Presentation to Common Council On motion of Councillor Killen Seconded by Councillor Sullivan RESOLVED that the audited Financiaf Statements for the City of Saint John Generaf Fund, Water and Sewerage Utifity and Reserve and Trust Funds as at December 31, 2009 be forwarded to Common Council on August 3, 2010. C�uestion 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. Morine and Mr. Deng left the meeting shortly after its resumption. 6. Dates for Future Meetings A date wili be looked at in September for the next meeting of the Finance Committee. The meeting adjourned at 6:30 p.m. Chairperson