2014-07-23 Finance Committee MinutesFINANCE COMMITTEE
CITY OF SAINT JOHN
MINUTES
WEDNESDAY, JULY 23, 2014 — 4:30 p.m.
Present:
Councillor Merrithew
Councillor Strowbridge
Councillor Lowe
Councillor MacKenzie
Councillor Reardon
Greg Yeomans
Cathy Graham
Hilary Nguyen
Craig Lavigne
Emily Hartford — Deloitte
Lloyd Foote — Deloitte
Also present — Sherry O'Connor, Recording Secretary
2013 Consolidated Financial Statements
Greg Yeomans opened the meeting and reviewed the Agenda.
Items carried over from the June meeting are the General Fund Surplus and the Water
Utilities Surplus.
Financial Statement highlights were discussed.
There will be a resolution to take these statements forward to Common Council for
adoption and the report to be signed by the Chair of the Finance Committee.
Approval of Minutes
Moved by Councillor MacKenzie
Seconded by Councillor Strowbridge
THAT the minutes of the June 27, 2013 meeting be approved as circulated.
CARRIED
General Fund Surplus - $5.9 million
In June it was discussed that $5 million of the General Fund surplus would be used to write
down the deferred pension expense. Since June there have been no major entries to the
General Fund therefore the recommendation is to increase the deferred write off by
$420,000. That will show a surplus of $ 571,000 in 2013 for the General Fund.
Approval of Motion
Moved by Councillor Merrithew
Seconded by Councillor Lowe
THAT the deferred write off be increased by $420,000.
CARRIED
Water and Seweraae Utilitv Surplus
Greg discussed the Water and Sewer Utility surplus. The discussion at the last meeting
was to take the surplus into capital with Councillor Lowe wanting to know how to lower the
rates using that money ... what do we do? At that time it was suggested to direct the City
Manager, Greg Yeomans and Mr. Edwards to have a discussion which they have done.
The recommendation is to stay consistent with the process that is in the Municipalities Act.
The advantage is still there as it helps to smooth out the impact on the rates.
The Consolidated Financial statements go to Council on August 5, 2014.
Accrued Pension Liability shows $600,000. Those are the contributions due to the plan at
the end of the year. The whole pension liability of the shared risk model is not reflected in
these statements. In 2012, the auditors qualified the audit opinion because of this.
The challenge was that it could not be calculated to anybody's satisfaction. When it was a
defined benefit plan the actuary could provide a calculation based on 2% per year.
Under the Shared Risk Plan if the plan suffers financially the contributions can go up for
both parties or the benefits can go down and based on that model the actuaries are not
able to provide a number that accurately reflects the liability.
Deloitte
The auditors have been appointed to provide an objective, independent opinion on the
numbers included in the consolidated financial statements and the related disclosures.
The undertaking is to obtain evidence, to assess risk of material misstatement as well as
the appropriateness of the accounting policies.
Deloitte discussed the elements as far as the significant components of the audit are
concerned. Some months ago the auditors presented the audit plan and now are reporting
back on the execution of this audit plan. The auditors reported on the risks that are related
to the audit scope and no new risks were identified.
Materiality was reported to previously and nothing has changed with respect to the context.
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The auditors are satisfied that the accounting policies selected and used by the City are
appropriate under PSA standards.
The issue for the qualification on the audit report is related to the shared risk model and it
not being defined under public sector. The attributes from the consideration would lean
itself to be a defined benefit plan and as such the disclosures associated with a defined
benefit plan are significantly different as they would be under the defined contribution plan.
The auditors do not want the interpretation being that the City has done something wrong;
there has been an assessment as it relates to what is in the best interest as far as its
employees and the path going forward. In doing so, the shift to the shared risk model
controls the cost that the City has going forward. The auditors are not as concerned about
that as this maybe the right decision however, the accounting standards have not
addressed how to deal with this model.
No difficulties were encountered in the form of the audit or access to the information and
complete cooperation was provided. With respect to fraud and illegal acts, Deloitte was
pleased to report they did not identify any such issues or activities and there are no
matters to report as far as significant deficiencies in internal control. They will be looking at
reporting out on this at a later date.
Legal and regulatory compliance were assessed for non - compliance and the auditors are
not aware of any departures there.
In the execution of the audit, the auditors did rely on certain experts. The auditors have
specialists related to information technology and the risk associated with the computerized
environment and also reached out to internal subject matter experts as it relates to the
pension accounting.
There are no issues with respect to the going concern matter as it relates to subsequent
events. The auditors are obligated to make inquiries of management with respect to any
matters that have surfaced that either affect the accounts or disclosures in the accounts
between the time of the year end, December 31, 2013, until the date that the auditors
actually issue the auditors' report. The auditors will be coordinating with Greg and his staff
related to that for the purposes of the council meeting.
Under part 2 of the Pension Benefit Act of New Brunswick, the City has concluded that the
shared risk model is a defined contribution plan. Unfortunately, the auditors were unable
to obtain sufficient appropriate audit evidence to conclude that accounting for the shared
risk model as a defined contribution plan is compliant with the PSA standards. A qualified
audit opinion was provided because of this. The auditor report goes on to say, that in their
opinion except for this particular matter, the financial statements present fairly in all
material respects the financial position of the City of Saint John as at December 31, 2013.
It would be preferable not to have this qualification but do not believe that it detracts from
the overall reporting by the City with respect to its accounting practices and procedures.
There was discussion around risk. The statements are really large and are very complex.
One risk that was identified was the risk around the completeness and accuracy of the
disclosures that are required by the PSA Standards. The audit response includes
reviewing the significant accounting policies that have been selected by management to
make sure they are appropriate to these circumstances.
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The auditors review and obtain supporting documentation for all the disclosures that are
included in the statements. They have also considered the appropriateness of judgments
and estimates in coming to conclusions as well as any unusual transactions that were
identified during the year.
The auditors concluded that the financial statement presentation and disclosures are
compliant with PSA Standards except for the matter identified previously in regards to the
shared risk model.
Mr. Foote brought to the attention of the Committee Current Note — 14 on page 24. There
has been a revision related to that note as a result of discussions with Mr. Nugent. On
page 24, the second paragraph — of that contingency exposure wherein in the final
sentence it reads "The City is aware of a potential claim(s) related to the Estabrooks
matter." In discussion with Mr. Nugent, the auditors have been updated with respect to
this matter and the statement of claim has been filed. It is proposed that the note be
modified to reflect this.
The meeting adjourned at 6:30 p.m.
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Councillor David Merrithew, Chairperson