2010-07-22 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