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2008-12-03 Finance Committee MinutesFINANCE COMMITTEE CITY OF SAINT JOHN MINUTES WEDNESDAY, DECEMBER 3, 2008 - 4:35 p.m. Present: Deputy Mayor Chase, Chair Councillor Court Councillor Killen Councillor Mott Councillor Sullivan Greg Yeomans Cathy Graham Kevin Fudge Hilary Nguyen Also present — Barbara Mahaffy, Recording Secretary Mr. Bob Crowley and Mr. Jon Morine of Ernst & Young were also in attendance. 1. Approval of Minutes — August 20, 2008 On motion of Councillor Killen Seconded by Councillor Court RESOLVED that the minutes of the August 20, 2008 meeting be approved. Before the question was taken, Mr. Yeomans noted a need for clarification under Item 5 in the minutes of "the substantive approach" when conducting audits. Mr. Crowley explained that when an audit is done using the substantive approach, various controls are looked at and which ones they test is based on statistics and guidelines. They do not rely on the controls. The minutes will be amended to reflect his comments. A question was raised as to how the auditors look at a cheque. Mr. Crowley responded by saying that they look at the payee and who the authorized signers were and the limit they are allowed to authorize. If they find an exception, they look into it further and it can affect their decision as to how they conduct the rest of the audit. There was some discussion on the contract for the City Market cleaners and the timing of when it went before Common Council. On motion of Councillor Killen Seconded by Councillor Mott RESOLVED that the minutes of the August 20, 2008 meeting be approved, as amended. 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 December 3, 2008 meeting be adopted. Question being taken, the motion was carried. 3. Audit Plan - Ernst & Young Mr. Morine of Ernst & Young reviewed the 2008 Financial Statement Audit Plan document. He outlined the items that they can express opinions on, noting that any major exceptions would be reported first to management and then to the Finance Committee. The preparation of the financial statements is the responsibility of management. Ernst & Young's responsibility is to express an opinion on the statements. In December of this year, they will be documenting the City's processes and controls to ensure that they are working properly. Mr. Morine then outlined what the audit includes. He noted that the auditors work with management but report to Common Council. Councillor Court asked who manages the fuel use by the City. Materials Management keeps an eye on the cost and consumption of fuel. Purchasing is also involved with this. This would relate to the internal controls that the auditors look at during their audit. Mr. Morine reviewed the business and industry risk considerations and how they are audited. He also outlined their internal control strategy, which ensures that controls are in place. They tend to look at managerial level and higher level controls. They also conduct an IT based audit to ensure that things are working from an IT perspective. This usually takes place near year end. Mr. Morine outlined the upcoming accounting and auditing developments, such as capital disclosure. He was asked if the definition of capital has changed. Mr. Yeomans noted that capital is not as in fixed assets. It is capital in terms of how corporations finance their business — their equity and borrowing base. There was some discussion concerning Public Sector Accounting Board (PSAB). The City is governed by the Municipal Accounting Act and is audited in accordance with current legislation. Municipalities are being required to report with new accounting rules (PSAB), with the deadline for doing so being the end of the year 2009. This will require a very large resource requirement from the City in terms of people and money. Mr. Yeomans outlined where the City of Saint John is in the planning for PSAB and noted that it is a very challenging process. If the City is not compliant, it may not be eligible for infrastructure funding. He noted that his department is currently in the process of working on PSAB but have no resources to commit to this full -time. He estimated that it could cost the City approximately $200,000 to implement PSAB. Mrs. Graham suggested that the Finance Committee hold a separate meeting specifically devoted to PSAB. This meeting will be scheduled for mid - January. Mr. Morine explained that the audit is not designed to detect fraud; however, they do discuss with management if they have any areas where the auditors see there could be an opportunity for fraud. They identify where there may be risk and what needs to be done to mitigate that risk. Councillor Court asked what controls were in place concerning the sale of city vehicles. The response was that Purchasing has a process in place to ensure this is done properly. Mr. Yeomans outlined the purchasing procedure, the procurement controls in place and the cheque generating and release procedures. Mr. Morine reviewed the Communications timeline and Mr. Crowley reviewed the fees and mentioned that they will be reporting to the Performance Management Team in the next week or so. Mr. Morine briefly reviewed the Appendices to the Audit Plan, which included the timing of the required communications, the Independence Letter and a draft of the Engagement Letter. Ms. Nguyen mentioned that the Harbour Clean Up Project will need to be audited next June. Mr. Crowley noted that they will need to do up a separate audit engagement letter to cover this. Mr. Yeomans discussed the Harbour Clean Up audit requirements and he will have further discussions with Ernst & Young about this audit. Deputy Mayor Chase asked about value for money audits. Mr. Crowley responded that Ernst & Young have not been asked to quote on this yet. They need to know what the City wants this audit to cover and how in depth they want to go. Deputy Mayor Chase asked if Ernst & Young could provide an in- service on this. Mrs. Graham will include information on a value for money audit for the January meeting. Mr. Yeomans noted that we need to have Common Council define what they mean by a value for money audit and provide some direction as to what they are looking for. He will need some information but will not spend any money until it is added into the budget; however, there is no money available yet to fund this. Ernst & Young are starting the interim audit work on December 8/08. Councillor Mott excused himself from the meeting at 5:35 pm as he had a prior engagement. Mr. Crowley and Mr. Morine left the meeting at 5:35 pm. 4. Review August Results Mrs. Graham reviewed the August results. She noted that projections were up on the overall budget. She was asked if the various departments' budgets are tracked in any way. The response was that there are no controls in place to check this but there is very little discretionary room in our budget. Departments do have to explain their budgets each year to Common Council. Councillor Court asked how much can be spent before it comes to Common Council. Mr. Yeomans responded that single purchases over $25,000 must go before Council and that purchases of this amount usually goes through a tender call or three quotes are obtained prior to the purchase so that the City gets the best price possible. Department heads can approve purchases up to $15,000, with anything over that amount going to the City Manager who can approve purchases up to $25,000. Mrs. Graham noted that departments report in April, August and December. Any surplus or deficit must be carried forward to the second following year — an accounting entry as opposed to cash. Councillor Killen left the meeting at 5:55 pm. Deputy Mayor Chase asked if there was a report available for tracking capital projects, indicating a summary of what has been spent so far and listing any upcoming projects. Mr. Yeomans responded that he is working on how to track this information on a recurring basis, as capital tracking is challenging. Deputy Mayor Chase noted that he would like a report on the capital expenditures for the next regular meeting of the Committee. On motion of Councillor Sullivan Seconded by Councillor Court RESOLVED that the August 2008 Interim Financial Results for the City of Saint John General Fund and Water and Sewerage Utility be sent to Common Council. Question being taken, the motion was carried. Deputy Mayor Chase asked if the Fire figures included a possible wage increase and was told they did, to some extent. The meeting adjourned at 6 :15 p.m.