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2015-11-12 Finance Committee Agenda PacketCity of Saint John Finance Committee Meeting — Open Session Thursday, November 12th, 2015 Location: 111h Floor Boardroom, City Hall Time: 4:30 pm 1.1 Approval of Agenda 1.2 Approval of Minutes 1.3 Audit Plan s 1r City of Saint John Finance Meeting — Closed Session Thursday, November 12th, 2015 Location: 11a` Floor Boardroom, City Hall 1. Call to Order Si vous avez besoin des services en franrais pour une reunion de Conseil communal, veuillez contacter le bureau du greffier communal au 658 -2862. Each of the following items, either in whole or in part, is able to be discussed in private pursuant to the provisions of subsection 10.(2)(4) of the Municipalities Act and Council / Committee will make a decision(s) in that respect in Open Session: 1.1 Financial Matter 10.2(4)(c) FINANCE COMMITTEE CITY OF SAINT JOHN MINUTES WEDNESDAY, OCTOBER 28, 2015 — 4:30 pm Present: Councillors Merrithew, Reardon, MacKenzie, Strowbridge Regrets: Councillor Lowe and - J. Trail, City Manager; K. Fudge, Commissioner of Finance and Administrative Services; C. Graham, Comptroller; H. Nguyen, Assistant Comptroller; C. Lavigne, Assistant Comptroller; W. Edwards, Commissioner of Transportation and Environment Services; V. Farrah, Administrative Officer; S. O'Connor, Executive Assistant J. Mallais, Deloitte; J. Cochran, Deloitte 1. Call to Order Councillor Merrithew called the meeting to order. 2. Approval of Agenda Moved by Councillor Strowbridge Seconded by Councillor Mackenzie THAT the agenda of the October 28, 2015 meeting be approved as circulated. CARRIED 3. Terms of Reference and Role of the Finance Committee Jeff Trail, City Manager discussed the Terms of Reference and the role of the Finance Committee. The meeting adjourned at 6:30 p.m. Councillor David Merrithew, Chairperson Final Draft, 11/05/15 Deloitte. Th e Saint JOIIII 2015 -Audit Seer -ice -�11 -a For the year ending December 31, 2015 Presented to the Finance Committee of the City of Saint John November 12, 2016 Final Draft, 11/05/15 Deloitte November 12, 2015 To the Chair and members of the Finance Committee of The Cit3 of Saint John P.O. Box 1971 Saint John, NB E2L 4L1 Dear Committee Members: Audit service plan for the year ending December 31, 2015 Deloitte LLP Brunswick House 44 Chipman Hill, An Floor RO, Box 6549 Saint John NB E2L4R9 Canada Tel: (506) 632 -1080 Fax (5136) 632 -1210 www.deloitte.ca We are pleased to present our audit service plan for the Cit} of Saint John and its controlled entities ( "the City ") for the year ending December 31, 2015. This plan describes our audit approach, our team, our audit scope and our planned communications with you. It also describes how our team will create value for the City. Our audit will include an audit of the City's financial statements for the year ending December 31, 2015 prepared in accordance with Public Sector Accounting Standards ( "PSAS ") and conducted in accordance with Canadian generally accepted auditing standards ( "GAAS "). We are proud of our relationship with the City. Our objective at Deloitte is to set the standard of excellence and our team is committed to providing an efficient, high - quality audit. We will focus our efforts on higher risk areas and coordinate our activities with management and make every effort to achieve audit efficiencies. We are providing this audit service plan to the Finance Committee on a confidential basis. It is intended solely for the use of the Finance Committee and Council to assist theta in discharging their responsibilities with respect to the financial statements and is not intended for any other purpose. We accept no responsibility or obligation to any third party who may rely on this report. We look forward to discussing our audit service plan with you and answering any questions your Finance Committee may have. Yours truly, Chartered Professional Accountants Geoffrey Cochrane, CPA, CA Partner !A .T,k. =_ri_? M.L.)itt2'71)u&o :or: ::GaSu Vlrilee Final Draft, 11/05/15 Table of contents Executive summary .................................................................. ............................... ..........1 ............................ Auditscope ........................................................ ............................... Appendix A - The Deloitte risk -based audit approach ................................................... .............................10 AppendixB -Audit timeline ............................................................................................ .............................12 Appendix C — Your service team ................................................................................. ............................... 14 Appendix D — Communication requirements ................................................................. .............................15 Appendix E — Engagement letter ................................................................................. ............................... 17 0 Deloitte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan Final Draft. 11!05/15 Executive S Tun nary As your auditor, Deloitte will provide you with more than an opinion on the City's financial statements. We will also seek to provide business insights regarding the challenging issues you face, based on our understanding of your organization and industry. We will be diligent about our independence and exercise our professional responsibilities in an efficient manner. The Deloitte audit approach adheres to applicable professional auditing standards and, accordingly, is risk -based and tailored to address the risks to financial reporting —tile audit risks. Our audit approach involves consideration of the following: Audit scope The audit planning and the preliminary risk assessment activities we conduct enable us to set the scope of our audit and to design procedures tailored to that scope. The scope of this audit will include the audits of the City of Saint John Trust Funds and the City of Saint John (Consolidated), which includes the General and Utility Funds and collectively referred to as the "City ". Separate engagements will be completed for the Saint John Parking Commission, the Saint John Trade and Convention Center, and Harbour Station but will be audited by the City audit team referred to in this document. Refer to the group audit section below which outlines the controlled entities that are audited by other auditors that we will assess and the extent that we will need to rely on their work for the purpose of the consolidated City of Saint John financial statements. Audit approach Deloitte's audit approach is a systematic methodology that enables us to tailor our audit scope and plan specifically to address each client's unique issues. Our risk - based audit approach is designed to identify the risks of material misstatement in the financial statements by focusing on understanding your business and the environmental conditions in which you operate. Our risk -based audit approach is discussed in more detail in Appendix A. Audit risks Our audit scope reflects the risks that we have identified at the City and our planned audit response to them. The more significant risks that we identified as part of our strategic audit planning activities, together with our planned audit response, are set out in the body of this report. 0 Deloitte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan Final Draft. 1 Materiality We are responsible for providing reasonable assurance that your Financial Statements as a whole are free from material misstatement. Our preliminary estimates of materiality for the year ending December 31, 2015 for General, Utility and Consolidation are presented in the table below, and are based on projected December 31, 2015 budgeted figures. These preliminary figures will be revisited once December 31, 2015 financial results are available. The other figures are based on December 31, 2014 audit financial statement figures and will be updated once December 31, 2015 financial results are available. We will report to the Finance Committee all uncorrected misstatements greater than 5% of materiality and any misstatements that are, in our judgment, qualitatively material. In accordance with Canadian GRAS, we will request that misstatements be corrected. Preliminary materiality and the error thresholds are as follows If we suspect fraud involving management, we will communicate these suspicions to the Finance Committee and discuss the nature, timing, and extent of audit procedures necessary to complete the audit. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, it is possible that material misstatements due to error or fraud may not be prevented or detected on a timely basis. Accordingly, the assurance an auditor provides concerning the lack of misstatements arising from fraud is necessarily lower than the assurance provided concerning those arising from an error. Internal control We will obtain an understanding of internal control relevant to the audit. Although matters most controls relevant to the audit are likely to relate to financial reporting, not all such controls are relevant to the audit. It is a matter of professional judgment whether a control, individually or in combination with others, is relevant to the audit. We will communicate in writing significant deficiencies in internal control identified during the audit to the Finance Committee on a timely basis. m Deloilte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan 2 2014 2015 2015 Materiality Preliminary Error Materiality Threshold SJ — Consolidated $5,500,000 $5,700,000 $285,000 SJ — General 4,400,000 4,500,000 225,000 SJ — Utility 1,260,000 1,300,000 65,000 SJ —Trust Funds 23,600 23,600 1,180 SJ Parking 92,000 92,000 4,600 Commission Harbour Station 95.000 95,000 4,750 Commission SJ Trade and 17,000 25,000 1,250 Convention Center Fraud risk In determining our audit strategy to address the assessed risks of material misstatement due to fraud, we will inquire directly of the Finance Committee regarding its views about the risk of fraud and whether the Finance Committee has knowledge of any actual or suspected fraud affecting the City. If we suspect fraud involving management, we will communicate these suspicions to the Finance Committee and discuss the nature, timing, and extent of audit procedures necessary to complete the audit. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, it is possible that material misstatements due to error or fraud may not be prevented or detected on a timely basis. Accordingly, the assurance an auditor provides concerning the lack of misstatements arising from fraud is necessarily lower than the assurance provided concerning those arising from an error. Internal control We will obtain an understanding of internal control relevant to the audit. Although matters most controls relevant to the audit are likely to relate to financial reporting, not all such controls are relevant to the audit. It is a matter of professional judgment whether a control, individually or in combination with others, is relevant to the audit. We will communicate in writing significant deficiencies in internal control identified during the audit to the Finance Committee on a timely basis. m Deloilte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan 2 Final nmft, 11/05/15 Group audit When designing our audit strategy, we also considered: the financial significance or relative importance of controlled entities to the City as a whole • the complexity and nature of the operations, internal controls and accounting issues at controlled entities • the degree of decentralization of processes and controls including, the extent of relevant enterprise -level controls, and * the extent and nature of internal control deficiencies and financial statement misstatements identified in current and previous periods at controlled entities. Pages 7 -8 summarize the Group Audit considerations and the entities which are included in the consolidated financial statements. For those entities not audited by Deloitte, will assess their significance to the consolidated audit and group audit procedures will be performed to enable us to provide an audit opinion on the consolidated financial statements of the City. Use of the work Our audit engagement partners are supported with online resources as well as of experts practice office and national office experts who assist them with more complex technical, accounting, auditing and reporting issues. Reliance on third The City employs a third party service organization, AON, for actuarial services party service related to post - employment benefits and compensated absences. organizations We intend to rely on the reports issued by the third party service organization for purposes of our audit. If our assessment of those reports does not provide us with sufficient appropriate audit evidence, we will be required to perform additional audit procedures to address the risks of material misstatements in the financial statements. Audit team We are committed to continuing to serve the City with quality and distinction. We refer you to Appendix C for an outline of our engagement team. Timetable We have summarized our Audit timeline in Appendix B. Engagement The terms and conditions of our engagement are included in the engagement letter, letter included in Appendix E. Separate engagement letters will be sent for all other controlled entities for which the Deloitte team completes the financial statement audit. Fees We estimate that our fees as follows, which includes our 7% administrative charge, excludes applicable taxes (such as Harmonized Sales Tax): The City of Saint John (Consolidated) $63,140 The City of Saint John —Trust Funds $1,590 Fees for Parking Commission, Harbour Station Commission and Saint John Trade and Convention Center will be communicated in separate engagements letters to the specific entities. Complete Upon the satisfactory completion of our audit, we will provide you with an audit engagement report on the financial statements of both The City of Saint John (Consolidated) and reporting The City of Saint John — Trust Funds. We will also provide reports to the Finance Committee to assist it in fulfilling its responsibilities, as required by applicable auditing standards. Communications We have summarized our required communications with the Finance Committee in Appendix D. We expect to enjoy open and forthright communications with both management and the Finance Committee and will be pleased to respond to questions that are within our competencies as your auditor. 0 Deloitte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan 3 Final Draft, 11/05/15 Independence We have developed important safeguards and procedures to protect our independence and objectivity. We are independent of the City and we will reconfirm our independence in our final report to the Finance Committee. Management We will obtain written and oral representations from management to complement representations our audit procedures. These representations are intended to confirm the information that is provided to us and reduce the possibility of misunderstanding. Client service Deloitte's client service principles are designed to help us exceed the expectations commitment of the City and its Finance Committee. These principles are our framework for providing guidance to members of our engagement team and identifying our clients' unique preferences regarding the ways they want to work with us. We will provide management and the Finance Committee with access, through a specially designed portal, to Deloitte's knowledge and other value -added resources. These resources are designed to provide you with valuable insights and support an efficient audit. We are prepared to provide other assistance regarding the City's needs that may be required, if appropriate given our professional responsibilities. As part of our client service commitment to you, we have developed a communication calendar that depicts our action plan to deliver outstanding client service. The calendar identifies the meetings required to support both the efficient and effective execution of our audit processes and deliver additional benefits through the audit relationship. The calendar is presented in Appendix B. Our client service principles are below. We will: make and meet our commitments to you understand your business and what is important to you provide value and build trust through technical competence and consistent results professionalism through effective interaction and communications provide a o surer• s� experience We invite you to assess our, performance against these principles through our Client Feedback process. ® Deloitte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan 4 Final Draft, 11/05/15 Audit scope; Designed to obtain reasonable assurance and address the risks of material misstatements. An audit is designed to search for potential misstatements that, individually or collectively, are material. This is done by determining a specific threshold for each engagement and considering other qualitative factors. The threshold amount is also used to evaluate the significance of uncorrected misstatements ( "passed" misstatements and reclassifications). Compliance with PSAS The audit enables us to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with PSAS. The audit also includes evaluating the appropriateness of accounting policies and the reasonableness of accounting estimates made by management, and evaluating the overall presentation of the financial statements. Our report on the financial statements and communications required by Canadian GRAS will be in accordance with our findings. Risk assessment We compile information from a variety of sources, including discussions with management and the Finance Committee, to identify risks to the City's financial reporting process that may require attention Our preliminary risk assessment took into account: • key business developments and transactions (internal and external), • current business, regulatory and accounting pronouncements and developments, key management strategies and business plans, and • areas of significant judgment and risk. Our audit planning activities and our preliminary identification of audit risks enables us to set the scope of our audit and to design audit procedures tailored to the identified risks to financial reporting. The table below sets out the more significant risks to financial reporting that we have identified, with management's support, during our preliminary planning activities. The table also includes our proposed response to each risk. Our planned audit response is based on our assessment of the likelihood of a risk's occurrence, the significance should a misstatement occur, our determination of materiality and our prior knowledge of the City. m Deloille LLP and affiliated entities. The City of Saint John —2015 Audit Service Plan 5 Final Draft. 11/05/15 Significant areas of audit ris'k, Our proposed Consolidation for controlled entities We will test the design and implementation of controls Description: Accounting for controlled specific to this risk. entities is a requirement of PSAS and The City of Saint John is considered a Group Audit under there is a risk that the completeness of Canadian Auditing Standards due to the existence of the consolidation is not performed controlled entities. As the Group Auditor, we will gain an correctly and that disclosures are understanding of the complexity and nature of the operations incomplete. of controlled entities audited by other accounting firms and Financial statement impact: Financial will obtain the audited financial statements to ensure the statements as a whole. City's disclosures are complete and accurate. We will review management's determination of controlled entities and method of consolidation under PSAS. Testing of the consolidation, including elimination entries, will be performed and reviewed by senior members of the engagement team who have experience auditing consolidations. Retirement, post - employment and We will test the design and implementation of controls other employee benefits specific to this risk. Description: Accounting for shared -risk We will audit management assumptions and estimates and pension plans and other employee the accounting for the City's shared -risk pension plan, post - benefits is complex and involves the use employment benefit plans and other employee benefits. of estimates. We placed reliance on the actuarial reports obtained from Financial statement impact: Pension management's actuarial experts for post - employment and and other liabilities. other employee benefits, other than the shared risk pension plan. We will confirm balances directly with the actuaries and assess actuary's competencies. We will gain an understanding of any developments with respect to accounting for shared -risk pension plans and will use our internal pension experts to audit the City's conclusions with respect to accounting for shared -risk pension plans, as considered necessary. We will also assess compliance with disclosure requirements under PSAS. Accounting for tangible capital assets We will test the design and implementation of controls specific to this risk. Description: There is the risk that We will test additions of tangible capital assets by agreeing to tangible capital assets include amounts source documentation such as invoices. not eligible for capitalization and that the We will also perform a recalculation of depreciation expense commencement of depreciation does not and validate that depreciation has commenced when the reflect the date when the asset was put asset is available for use. into service. We will perform testing of transfers from Work in Progress to Financial statement impact: Tangible tangible capital assets and ensure that the transfer is properly capital assets and depreciation expense. recorded and depreciation commences when the asset is available for use. m Deloitte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan 6 Final Draft, 11/05/1'5 Revenue recognition for material revenue streams other than unconditional grants and property taxes. Description: Revenue recognition is an area of audit focus to address assertions related to completeness, validity, recording accuracy and cut -off. Financial statement impact: Revenue. We will test the design and implementation of controls specific to this risk. We will confirm revenues from the unconditional grant and property tax assessments with the Province of New Brunswick. Other material revenues streams will be tested through a combination of analytical review procedures and detailed testing. We will also audit on a sample basis journal entries posted to revenue accounts. Management override of controls We will test the design and implementation of controls Description: Management is in a specific to journal entries. We will select journal entries unique position to perpetrate fraud based on characteristics of audit interest. Our audit tests the because of management's ability to appropriateness of those journal entries and other directly or indirectly manipulate adjustments made in the preparation of financial statements. accounting records and prepare fraudulent financial statements by We will audit accounting estimates for biases and evaluate overriding controls that otherwise appear whether the circumstances producing the bias, if any, to be operating effectively. represented a risk of material misstatement due to fraud. Financial statement impact: Financial statements as a whole Group audit considerations Our audit is designed to search for potential misstatements that, individually or collectively, are material to the consolidated financial statements of the City of Saint John. Some of the factors we will consider include: • the existence of significant risks at each controlled entity, • a consideration of significant accounts and disclosures using materiality levels that are appropriate to support our audit opinion on the City's consolidated financial statements, • the complexity and nature of the operations, internal controls and accounting issues at each controlled entity, + the degree of centralization or decentralization of processes and controls, including the extent of relevant enterprise -level controls, and • the extent and nature of internal control deficiencies and financial statement misstatements identified in current and previous periods at each controlled entity. We will communicate the scope of work we consider necessary for each controlled entity to provide an appropriate basis for our audit opinion on the consolidated financial statements. At this time, we anticipate full -scope audits being performed by other external audit firms using materiality levels approved by us for the controlled entities that are individually significant to the consolidated financial statements. C Deloitte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan 7 Final Draft, 11/05/15 Controlled entity The City of Saint John General Operating Fund (includes Saint John Police Commission) Component Significance Significant Performed by Deloitte The City of Saint John Capital and Loan Fund Significant Deloitte The City of Saint John Water and Sewerage Utility Operating Fund Significant Deloitte The City of Saint John Water and Sewerage Utility— Capital and Loan Fund Significant Deloitte Saint John Parking Commission Significant Deloitte Harbour Station Commission Significant Deloitte Saint John Transit Commission Significant Teed Saunders Doyle Saint John Non Profit Housing Inc. Significant Teed Saunders Doyle Saint John Development Corporation Significant Ernst & Young Saint John Trade and Convention Centre Non - Significant Deloitte Saint John Industrial Parks Inc. Non- Significant Teed Saunders Doyle Lord Beaverbrook Rink Non - Significant Frank Ashe Saint John Aquatic Centre Commission Non - Significant Cumming & Associates Saint John Jeux Canada Games Foundation, Inc. Non - Significant Teed Saunders Doyle Saint John Free Public Library Non - Significant Ernst & Young The controlled entity of the Power Commission of Saint John has been deemed significant and is accounted for using the modified equity method; this controlled entity is tested through our year end consolidation process, which referral instructions being sent to their auditors. Audit procedures The timing of our audit procedures is dependent upon a number of factors including the need to coordinate with management for the provision of supporting analysis and other documentation. Generally, we perform our audit procedures to allow sufficient time to identify significant issues early, thereby allowing more time for analysis and resolution. For example, we anticipate performing audit procedures on account balances and disclosures involving significant and complex transactions or adoption of new accounting pronouncements, as they occur. ® Deloitte LLP and affiliated entities. The City of Saint John —2015 Audit Service Plan • Property tax as • Unconditional g • Accounts receii • Debt •Cash • Employee futun benefits Final Draft, 11/05/15 sessment rants • Revenue and expenses • Other income • Payroll • Allowance for doubtfu. accounts -Bank reconciliations • Payables and accrued liabilities -Tangible capital assets ition V evenues and accrued iabilites r, expenses and ayables -Tangible capital assets -Budget and financial reporting -Journal entries C Deloitte LLP and affiliated entities. The City of Saint John - 2015 Audit Service Plan 9 Final Draft, 11/05/15 op en, dix - The Deloit ��� _�� �. -� A as4a auGat a-p-pl-roach & -A- A consistent approach that supports a dynamic environment Deloitte's audit approach is a systematic methodology that enables us to tailor our audit scope and plan specifically to address each client's unique issues. Our risk -based audit approach is designed to identify the risks of material misstatement in the financial statements by focusing on understanding your business and the environmental conditions in which you operate. Our approach is: The audit plan is driven by our partners' experience and detailed knowledge of the client's business. Significant input will be obtained from Geoffrey at all stages of the audit engagement. We will identify risks relating to significant account balances, classes of transactions and disclosures. We will respond by designing appropriate audit procedures that focus on these risks. We are committed to provide an uncompromisingly high level of professional and technical quality. We will interact with the City's management and the Finance Committee and respond to your needs and expectations in a timely manner and appropriately. Additionally, we will tailor our audit plan to respond to your changing circumstances as required. Our audit approach reflects our commitment to providing timely service that avoids last - minute surprises. This approach includes timely interaction and consultation on significant business and accounting developments. We will not surprise you at the last minute with issues or unexpected fees. As an example, we will be updating management on a regular basis during fieldwork on the status of the audit progress and progress against budget. There are four key phases within our systematic approach: i initial planning 2 assessing and responding to risk of material misstatement 3 developing and executing the audit plan reporting and assessing performance Deloitte LLP and affiliated entities. The City of Saint John —2015 Audit Service Plan 10 Final Draft, 11/05/15 These steps are not necessarily sequential nor are they mutually exclusive. For example, once we've developed our audit plan and the audit is being performed, we may become aware of a risk that was not identified during the planning phase. Based on that new information, we would reassess our planning activities and adjust the audit plan accordingly. The key steps in executing our audit are outlined in the diagram below: Final �I..nr+ inn Evaluating audit evidence Considering appropriateness of accounting pyiicies Responding to risks of material miastatemen Adding value to the City Determining the engagement team and involvement of experts Identifying areas of special audit consideration Assessing risks of material misstatement Determine materiality Identifying material classes of transactions, account balances and disclosures Performing and assessing results of preliminary analytical review Internal control evaluation @ Deloitte LLP and affiliated entities. The City of Saint John - 2015 Audit Service Plan 11 Final Draft, 11/05/15 Appendix B - Audit timel do e This calendar indicates our various procedures and meetings as planned throughout the year, as well as our key deliverables to management and the Finance Committee: Planning Update our understanding of the business, control environment (including computer controls) and accounting I processes. I Determine the level of control reliance I Determine materiality —.�- Perform preliminary analytical review ! I procedures Asses risk at account and potential error level Plan the audit procedures including tests — of control and substantive tests - !- Meeting with management, Finance I I Committee and Common Council to present the Audit Service Plan, including documentation required from City staff. I � i I I I I Key Client Deliverables Beginning Engagement Letter Audit Service Plan i- Listing of schedules to be completed by �� I city staff (client assistance package) I ' Year End Perform substantive analytical procedures ;- T! ^ Perform test of details (— Perform consolidation audit procedures Review draft financial statements ® Deloitte LLP and affiliated entities. The City of Saint John - 2015 Audit Service Plan 12 Final Draft, 11/05/15 Conclude and Report Review all final financial audit reports and financial statements Perform subsequent events review Obtain management representations, sign audit reports Meeting with management to discuss audit results and obtain management's ° I responses to management letter points ! i raised I I Meeting with Finance Committee and Common Council to discuss audit results and present management letter Key Client Deliverables Audited statements to Finance Committee Audit results communication , a Audit opinions Management letter i I ® Deloilte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan 13 Final Draft, 11/05/15 ko-pend, ix C — Y our L.- We have assembled a team of professionals with a strong commitment to deliver outstanding professional services to the City of Saint John. ® Deloitte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan 14 Final Draft, 11/05/15 Appeiidix I-) — Communication regnre.f_ m eats The table below summarizes our communication requirements under Canadian GAAS and other communications that we Relieve would help us achieve an effective audit. 1. Our responsibilities under Canadian GAAS • 2. Our audit strategy and scope, including our approach to auditing financial information of components of the group audit and our planned a involvement in work performed by component auditors 3. Management judgments and accounting estimates 0 4. Financial statement adjustments • 5. Uncorrected misstatements • 6. Significant accounting policies • • 7. Alternative treatments for accounting policies and practices that have been discussed with • management during the current audit period 8. Our views about significant qualitative aspects of the City's accounting practices, including 0 accounting policies, accounting estimates and financial statement disclosures 9. Disagreements with management • • 10. Our views about significant matters that were the 0 subject of consultation with other accountants 11. Major issues discussed with management relating 0 to our retention 12. Significant difficulties, if any, encountered during 0 the audit 13. Significant deficiencies in internal control, if any, identified by us during the interim period in the • conduct of the audit of the financial statements 0 Deloitte LLP and affiliated entities. The City of Saint John —2015 Audit Service Plan 15 Final Draft, 11/05/15 14. Material written communications between • management and us 15. All relationships between the City and us that, in our professional judgment, may reasonably be • thought to bear on independence 16. A statement that, in our judgment, the engagement team and others in our firm and, when applicable, • network firms have complied with relevant ethical requirements regarding independence 17. Illegal or possibly illegal acts 18. Fraud or possible fraud identified through the audit process 19. Significant transactions inconsistent with ordinary business, including related party transactions • s • 20. Non - compliance with laws and regulations that • come to our attention 21. Limitations placed on our scope 11 22. Written representations we are requesting • 23. Discussion of management letter comments e 24. A discussion of the City's annual audited consolidated financial statements with the Finance • Committee © Deloitte LLP and affiliated entities. The City of Saint John — 2015 Audit Service Plan 16 Final Draft, 11/05/15 Append ix E-5. — Engarn Deloitte November 12, 2015 Private and confidential The City of Saint John Mr. Kevin Fudge Commissioner of Finance and Administration services 15 Market Square P.O. Box 1971 Saint John, NB E2L 4L1 Dear Mr. Fudge: Deloitte LLP Brunswick House P.O. Box 6549 44 Chipman Hill, 7th Floor Saint John NB, E2L 4R9 Canada Tel: 506 -632 -1080 Fax: 506- 632 -1210 www. deloitte.ca You have requested that Deloitte LLP ( "Deloitte" or "we" or "us ") audit the consolidated financial statements of the City of Saint John (the "City ") and the financial statements of the Trust Funds of the City of Saint John as at and for the year ending December 31, 2015 (the "Financial Statements "). We understand that the services to be performed under this engagement letter have been pre- approved by Common Council in accordance with its established pre- approvaI policies and procedures. We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Deloitte and the City agree that the executed engagement letters dated May 1, 2014 as well as its accompanying appendices (collectively, the "Prior Engagement Letters ") apply to the services under this engagement for the year ending December 31, 2015 and that the provisions of the Prior Engagement Letter, except for the General business terms attached thereto, are hereby incorporated by reference into this letter. Appendix A, accompanying this letter, sets forth the General business terms governing these engagements for the year ending December 31, 2015. Fees We estimate our fees as follows, which includes our 7% administrative charge, excludes applicable taxes (such as Harmonized Sales Tax): City of Saint John — Consolidated Audit $63,140 City of Saint John —Trust Funds $1,590 These fees are outlined in the financial proposal component of Request for Proposal 2012- 092204P — Professional Audit Services approved by resolution of Common Council on October 9, 2012 and are 0 Deloitte LLP and affiliated entities. The City of Saint John —2015 Audit Service Plan 17 Final Draft, 11!05/15 based upon our understanding of the unchanged engagement scope outlined within the Prior Engagement Letter. All invoices shall be due and payable when rendered. Please sign and return the attached copy of this letter to indicate your acknowledgement that it is in accordance with your understanding of the arrangements for our audit of the Financial Statements for the year ending December 31, 2015. Yours truly, Chartered Professional Accountants Geoff Cochrane, CPA, CA Partner Enclosure The services and terms set forth in and incorporated into this letter are accepted and agreed to by The City of Saint John management: Signature Title Date 0 Deloitte LLP and affiliated entities. The City of Saint John —2015 Audit Service Plan 18 Final' Draft, 11/05/15 Appendix A General business terms The City of Saint John December 31, 2015 The following general business terms (the "Terms ") apply to the engagement except as otherwise provided in the specific engagement letter agreement (the "engagement letter ") between Deloitte LLP ( "Deloitte ") and The City of Saint John. (the "City ") to which these Terms are attached. 1. Timely performance - Deloitte will not be liable for failures or delays in performance that arise from causes beyond Deloitte's control, including the untimely performance by the City of its obligations. 2. Termination - Either Deloitte or the City may terminate this Agreement and any Services for convenience on 30 days' written notice to the other party. Should either party fail to fulfill their responsibilities under the Agreement, the other party may terminate this Agreement on 30 days' written notice. The City will pay for time and expenses incurred by Deloitte up to the termination date together with reasonable time and expenses incurred to bring the Services to a close in a prompt and orderly manner. 3. Fees - Any fee estimates take into account the agreed -upon level of preparation and assistance from the City and City personnel. Deloitte will advise the City on a timely basis should this preparation and assistance not be provided or should any other circumstances arise which cause actual time to exceed that estimate. 4. Billing - All invoices shall be due and payable when rendered. Interest shall be calculated at a simple daily rate of 0.0493% (equivalent to 18% per annum). Interest shall be charged and payable at this rate on any part of an invoice which remains unpaid from 30 days after the invoice date to the date on which the outstanding invoice is paid. To the extent that as part of the Services to be performed by Deloitte as described in the Agreement, Deloitte personnel are required to perform the Services in the United States of America ( "U.S. Business "), the City and Deloitte agree to assign performance of the U.S. Business to Deloitte Canada LLP, an affiliate of Deloitte. All Services performed by Deloitte Canada LLP shall be performed under the direction of Deloitte which shall remain responsible to the City for such Services. Deloitte Canada LLP shall invoice the City- with respect to the U.S. Business and Deloitte will invoice for Services performed in Canada ( "Canadian Business "). Payment for U.S. Business and/or Canadian Business can be settled with one payment to Deloitte. 5. Governing law - The Agreement will be governed by the laws of the Province where Deloitte's principal office performing the Services is located and all disputes related to the Agreement and Services shall be subject to the exclusive jurisdiction of the courts of such Province. b. Working papers - All working papers, files and other internal materials created or produced by Deloitte related to the Services are the property of Deloitte. In the event that Deloitte is requested by the City or required by legal or regulatory process to produce its files related to the Services in proceedings to which Deloitte is not a party, the City will reimburse Deloitte for its professional time and expenses, including legal fees, incurred in dealing with such matters. 7. Third parties - Deloitte's Services are not planned or conducted in contemplation of, or for the purpose of, reliance by any third party- (other than the City and any party to whom Deloitte's report is addressed) or with respect to any specific transaction. Therefore, items of possible interest to a third party will not be addressed and matters may exist that would be assessed differently by a third party, possibly in connection with a specific transaction. The City shall use the advice, opinions, reports or other work product of Deloitte solely for the purposes specified in this Agreement and, in particular, shall not, without the prior written consent of Deloitte, use any advice, opinion, report or other work product of Deloitte in connection with business decisions of any third party or for advertisement purposes. All Services are only intended for the benefit of the City and any party to whom Deloitte's report is addressed. The mere receipt of any advice, opinions, reports or other work product by any other persons is not intended to create any duty- of care, professional relationship or any present or future liability between those persons and Deloitte. As a consequence, if copies of any advice, opinions, reports or other work product (or any information derived therefrom) are provided to others 0 Deloitte LLP and affiliated entities. The City of Saint John — 2016 Audit Service Plan 19 Final Draft, 11/05/15 under the above exclusions, it is on the basis that DeIoitte owes no duty of care or liability to them, or any other persons who subsequently receive the same. 8. Privacy - Deloitte and the City agree that, during the course of an engagement, Deloitte may collect, use and disclose personal information about identifiable individuals ( "Personal Information "). Deloitte's Services are provided on the basis that the City has obtained any required consents for collection, use and disclosure to Deloitte of Personal Information required under applicable privacy legislation. The City and Deloitte agree that Deloitte may collect, use, transfer, store, disclose or otherwise process Personal Information on behalf of the City solely for purposes related to completing the Services or as otherwise permitted by this Agreement. 9. Confidentiality - To the extent that DeIoitte comes into possession of Personal Information or any - proprietary or confidential information of the City (collectively, "Confidential Information "), Deloitte will not disclose such information to any third party without the City's consent, except as may be required or permitted by law, regulation or professional obligations or as otherwise permitted by this Agreement. Also, Confidential Information may be disclosed by Deloitte to its affiliates and to member firms of Deloitte Touche Tohmatsu Limited and their respective subsidiaries and affiliates ( "Deloitte Entities ") and third parties that provide services to Deloitte. Confidential Information may be used, processed and stored outside Canada by Deloitte, Deloitte Entities and third party service providers. Deloitte is responsible to the City for causing Deloitte Entities and third party service providers to comply with the obligations of confidentiality set out in this section. Confidential Information may be subject to disclosure in accordance with Iaws applicable in the jurisdiction in which the information is processed or stored, which Iaws may not provide the same level of protection under Canadian law. The City also agrees that Deloitte may aggregate Confidential Information and use and disclose that information as part of research and advice, including, benchmarking services, provided that all such information will be rendered anonymous and not subject to association with the City. 10. Limitation on liability - The City and Deloitte agree to the following with respect to Deloitte's liability to the City: a. The City agrees that Deloitte shall not be liable to the City for any claims, liabilities, or expenses relating to this Agreement and any Services for an aggregate amount in excess of three times the fees paid by the City to Deloitte in the twelve months preceding the incident giving rise to the claim. b. In no event shall DeIoitte be liable for consequential, special, indirect, incidental, punitive or exemplary loss, damage, or expense relating to this Agreement or any Services for any loss of revenue or profit, loss of opportunity, loss of data, or any other commercial or economic loss or failure to realize expected savings. c. In any action, claim, lass or damage arising out of this Agreement and any Services, the City agrees that Deloitte's liability will be several and not joint and several and the City may only claim payment from Deloitte of Deloitte's proportionate share of the total liability based on the degree of fault of Deloitte. The provisions of this section shall apply to the fullest extent of the law, whether in contract, statute, tort (such as negligence), or otherwise. This section shall survive termination or expiry of the Agreement. The provisions of this section shall not apply to any liability which by the governing law of the Agreement is unlawful to limit or exclude. In furtherance of the foregoing, from time to time, For purposes of this section, "Deloitte" shall mean Deloitte LLP and its directors, officers, partners, professional corporations, employees, subsidiaries and affiliates and to the extent providing Services, any Deloitte Entities and all of their partners, principals, members, owners, directors, staff and agents; and in all cases any successor or assignee. The City agrees that any claims that may arise out of this Agreement or any Sen•ices will be brought solely against Deloitte as the contracting party and not against any other Deloitte Entities. 11. Assignment - Except as provided herein, no party may assign, transfer, or delegate any of its rights or obligations relating to the Agreement without the prior written consent of the other party. Deloitte may assign its rights and obligations under this Agreement to any affiliate or successor in interest to all or substantially all the assets or business of the relevant Deloitte practice. ® DeIoitte LLP and affiliated entities. The City of Saint John —2015 Audit Service Plan 20 Final Draft, 11/015/15 12. Deloitte Entities and subcontractors - Deloitte may use the services of any Deloitte Entities, component auditors, or other subcontractors (including those operating outside Canada) to assist Deloitte in providing any Services. Deloitte remains responsible to the City for Services performed by Deloitte Entities and subcontractors. 11 Survival - Any clause that is meant to continue to apply after termination of the Agreement will do SO. I4. Entire Agreement - The Agreement forms the entire agreement between the parties in relation to the Services and supersedes all other oral and written representations, understandings or agreements related to the Services. 15. Severability - If a court or regulator with proper jurisdiction determines that a provision of this Agreement is invalid, then that provision will be interpreted in a way that is valid under applicable law or regulation. If any provision is invalid, the rest of the Agreement will remain in effect. 16. Qualifications - Notwithstanding anything herein to the contrary, Deloitte may use the name of the City, refer to this Agreement and the performance of Services in marketing, publicity materials and other material, as an indication of its experience, and in internal data systems. 17. Electronic messaging - In accordance with Canadian anti -spam legislation, the City consents to Deloitte contacting the City and its personnel through electronic messages relating to Deloitte's Services, products and other matters of interest to the City after the completion of this Agreement. The City may withdraw any such consent by contacting Deloitte at unsubscriue(�deloit`e.ca. 18. Language - The parties have requested that this Agreement and all communications and documents relating hereto be expressed in the English language. Les parties ont exig6 que la pr6sente convention ainsi que taus les documents s'y rattachant soient r6diges dans la langue anglaise. 0 Deloitte LLP and affiliated entities. The City of Saint John — 2015 Audit Servioe Plan 21 Final Draft, 11/05/15 ,�� 6Mda'7 TYp EmPle�rs M�� •. IMAl+ www.deloitte.ca Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.cleloitte.com /about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. 0 Deloitte LLP and affiliated entities