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2009-11-12 Finance Committee MinutesFINANCE COMMITTEE CITY OF SAINT JOHN MINUTES THURSDAY, NOVEMBER 12, 2009 - 4:20 p.m. Present: Mayor Ivan Court Deputy Mayor Chase 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, Mr. Jon Morine and Mr. Yufeng Ding of Ernst & Young were in attendance, with Ms. Gail Hamilton of Ernst & Young in attendance via telephone. There were 3 members of the media present. 1. Approval of Minutes — October 7/09 On motion of Councillor Court Seconded by Councillor Mott RESOLVED that the minutes of the October 7, 2009, meeting be approved. Question being taken, the motion was carried. 2. Adoption of Agenda On motion of Councillor Court Seconded by Councillor Mott RESOLVED that the agenda for the November 12, 2009 meeting be adopted. Question being taken, the motion was carried. 3. Audit Plan for Year End 2009 — Ernst & Young Ms. Gail Hamilton thanked the City of Saint John for the extension of their contract. Mr. Bob Crowley reviewed the 2009 Financial Statement Audit Plan with the Committee. He spoke to the Audit deliverables. He noted that they also offer an opinion on the gas tax and infrastructure funding. They will also make note of any weaknesses in internal control identified during the audit in writing to Management and the Finance Committee for review and discussion. Mr. Crowley noted that the credit crisis is not a significant issue; however, it does affect government funding. He noted that there have been positive signs in the marketing conditions surrounding pension funding, but it is still a concern on an ongoing basis for the City. Mr. Crowley noted that they take a control based audit approach and gave a brief overview. They need to rely on internal controls in order to produce a more efficient and effective audit. They are in the process of completing an interim audit and have seen nothing so far that will alter their audit plan. PSAB was briefly reviewed, with Mr. Crowley noting that it will require significant resources from the City to implement. It has little to do with the current year's audit. PSAB is not legislation as yet and there may be delays in its implementation. Future government funding may require municipalities to be PSAB compliant before any funding will be released. Mr. Crowley stated that the financial statements are in compliance with the Municipal Report Manual, with the 2009 report looking similar to the previous year's. They will review the inter -fund accounts with Management. There are required steps they perform every year to evaluate the risk of fraud, including the risk of management override, as well as to evaluate the actions management has taken to respond to these risks. They would deal with Management and talk to the Finance Committee if fraud was discovered. Mr. Crowley then discussed the timetable for completing certain aspects of the audit, with the actual year -end dates to be determined. Mr. Yeomans noted that the audit will be pushed back until the budget is approved by Common Council, which will, hopefully, get approval before Christmas. Then the audit can be completed by the middle of April. If the budget is not approved until January, then the audit completion will be into May. Question: Councillor Court asked who audits the various Boards and Commissions. Response: Mr. Yeomans responded that each Board and Commission has their own auditor(s), who conduct independent audits. Ernst & Young do the audit for the Saint John Parking Commission only. Mr. Crowley noted that Appendix A contains the Engagement Letter and, if acceptable to the Committee, it can be signed by Deputy Mayor Chase and Mr. Yeomans. Appendix B indicates the timing of required communications. Question: Councillor Court asked Mr. Crowley to explain Management override. Response: Mr. Crowley explained that management can override any figure put into the system via a journal entry or through Access or Excel. Question: Councillor Court asked if the Saint John Parking Commission has the same spending restrictions. Response: Mr. Yeomans responded that their approvals come from their Board after a certain level. Off- street parking falls under their Board, whereas they administer on- street parking for the City of Saint John through Common Council. Question: Deputy Mayor Chase noted that possible risk is capital projects. In 2009, Common Council undertook a large amount of capital spending. He asked at what point would Ernst & Young come to the Finance Committee and throw up a red flag on spending. Response: Mr. Crowley said that Ernst & Young do not audit capital projects unless they are asked to look at a special project(s). Any discussion with them concerning capital spending would be based on where the cash flow is going, borrowing requirements, legislative criteria, etc. Mr. Yeomans noted that he works with all the departments on their capital spending, as well as with the provincial and federal governments. Question: Deputy Mayor Chase stated that, given their experience with the budget, is there anything that they will be looking for this time around. Response: Mr. Crowley responded that program payments for all capital projects will be looked at to ensure that everything is accrued at the end of the year, etc. There is nothing in review of particular concern this year. He noted that perhaps there may be some disclosure on pension but that remains to be seen. In terms of their experience, there is nothing that they are aware of. Question. Deputy Mayor Chase asked Mr. Crowley to expand on the pension disclosure. Response: Mr. Crowley noted that the City will be required to have a valuation done on December 31, 2009. The pension disclosure will be done 6 -8 months after the valuation is done. If there is a new valuation, their assumptions are likely to change and they would have to see what impact the change would have on those assumptions. Timing may be an issue getting information from the actuary. We need to know what the key assumptions are that we will be allowed to make now. Disclosure also has an impact on the operation of the City. Mr. Crowley also noted that the accountability mechanism from the Provincial government will have no impact on 2009 budget, but will impact the 2010 revenue budget. Mr. Yeomans said that the province is to look at this mechanism for the tax rate. He will be explaining how this accountability mechanism will work to Common Council. Question. Councillor Killen asked Mr. Crowley to help him understand materiality. Response: Materiality is based upon revenue and managing expenses to the revenue stream. It allows for "wiggle room ". Their audit methodology provides flexibility. They usually take 50% for the threshold which changes depending on the account and determines how much work they actually do. Anything exceeding the 50% materiality threshold would be brought to the Finance Committee's attention for their action. It was noted that Mr. Yeomans and Ms. Graham have signed the letter of representation indicating that everything has been discussed and there are no errors, etc. They usually make any adjustments the auditors recommend. This avoids problems later on. Question: Councillor Court asked if it was a good or bad idea to lock into a long -term contract. Response: Mr. Crowley said it depended on the type and timing of the contract. From a financial point of view, one should look at the terms and conditions of the contract and what and where it should be accruing and the disclosures that go along with it. Staff members left the meeting for about 10 minutes so that the Committee could speak to the auditors. Mr. Crowley, Mr. Morine, Mr. Ding and Ms. Hamilton left the meeting shortly after its resumption. Mayor Court entered the meeting at 5:05 pm. 4. Review of August 2009 Operating Results Mr. Yeomans reviewed the General Fund. The year -end variance projected in disbursements was $800,000 over budget. He reviewed the various year -end variance figures, noting that, based on the results of reports presented to the Finance Department for the period ended August 31, 2009 and along with departmental projections to December 31, 2009, the year -end variance projection is $543,000 over budget. Mr. Yeomans is optimistic that we will do better than these figures by the end of the year. Question. Councillor Sullivan asked if there was anything major significantly up or down in the various departments. Response: Mr. Yeomans responded that solid waste collection always needs to be monitored. The fleet administration budget has over variances built into their operating results, due to snow removal costs, if necessary. He noted that most departments are holding to their budgets so far. Mr. Yeomans then reviewed the utility results. It is estimated that Saint John Water will be under budget by approximately $603,000. Over the last few years, the utility tended to be up or down by $200- 300,000. Any surplus /deficit is brought forward each year. Mr. Yeomans noted that once the treatment plant gets up and running, the water rates will escalate and this needs to be watched. Mr. Yeomans stated that he will come back to the Finance Committee if anything untoward comes up. He reported that Kevin Fudge is working on a new reporting process, which the Management team will talk about and then put out to the departments for their input. He hopes to have this new process in place in the New Year. 5. Dates for Future Meetings Future meetings will be set by the Commissioner of Finance, as needed. The meeting adjourned at 5:25 p.m. Chairperson