agenda audit committee - st. john's...councillor bruce tilley councillor tom hann mr. harold...

AGENDA

Audit Committee

Tuesday, December 3, 2013 12 noon

Conference Room A 4th Floor, City Hall

AGENDA

Audit and Accountability Committee Tuesday, December 3, 2013 at noon

Conference Room A, 4th Floor, City Hall 1. Call to Order

2. Adoption of the Agenda 3. Adoption of the Minutes – November 12, 2013 4. Business Arising 5. New Business

a. Audit Results Report 2012

b. 2012 Financial Statements

i. Letter re: discussion and analysis

ii. Consolidated financial statements

6. Other Business

7. Adjournment

Minutes

Audit and Accountability Committee Tuesday, November 12, 2013 at noon

Conference Room A, 4th Floor, City Hall

Present: Deputy Mayor Ron Ellsworth, Chairperson Councillor Danny Breen (12:10 pm)

Councillor Bruce Tilley Councillor Tom Hann Mr. Harold Squires, Citizen Representative Mr. Neil Martin, Deputy City Manager, Corporate Services – City Clerk Mr. Robert Bishop, Deputy City Manager, Financial Management Derek Coffey, Manager, Budget and Treasury Mr. Sean Janes, City Internal Auditor Mr. Nathan Barrett, Manager – Accounting Services Ms. Maureen Harvey, Recording Secretary

1. Adoption of the Agenda The agenda was accepted as presented.

2. Adoption of the Minutes – July 18, 2013

On a motion by Mr. Harold Squires and Councillor Bruce Tilley, the minutes of the meeting held July 18, 2013 were adopted as tabled.

3. Business Arising 4. New Business

a. Confirmation of revised committee mandate and committee membership

The Committee considered a document prepared by City Clerk which outlined the proposed mandate of the Committee based on the revised committee structure approved by Council. The document was reviewed with changes discussed and agreed upon. The revised mandate is shown below: City of St. John’s Audit and Accountability Standing Committee Mandate

Purpose The Audit and Accountability Standing Committee is appointed by Council to assist Council in fulfilling its oversight responsibilities with respect to: Overseeing the City’s financial reporting process including internal control processes, procedures for financial reporting, and the monitoring of the integrity and appropriateness of the City’s financial statements; • Ensuring and monitoring the adequacy of financial, operational and compliance

internal controls and risk management processes designed to manage significant

business risk exposures; • The selection, compensation, independence and performance of the external

auditors; and • Monitoring of compliance against corporate business and strategic plans and

budgetary objectives.

Membership Membership shall be comprised of a minimum of two members of Council and two citizen representatives. The term of the Committee shall coincide with the term of Council.

Qualifications The citizen representative shall have an accounting and/or auditing designation and have experience in the public sector, either directly or indirectly as a consultant or auditor. The Citizen Representative must be independent of the City and the City’s internal and external auditors.

Meetings The Committee shall meet once a month. Additional meetings may be authorized at the request of management, any member of the Committee, or at the request of the external or internal auditors.

Reporting Minutes shall be kept of each meeting and supplied to Council at its next meeting.

RESPONSIBILITIES The Committee is responsible for the following: Financial Statements

• Review significant accounting and reporting issues, including complex or

unusual transactions and highly judgmental areas, and recent professional and/or regulatory pronouncements, and understand their impact on the financial statements.

• Review with management and the external auditors the results of the audit, including any difficulties encountered.

• Review the annual financial statements, and consider whether they are complete, consistent with information known to committee members, and reflect appropriate accounting principles.

• Review other sections of the annual report before release and consider the accuracy and completeness of the information. Review with management and the external auditors all matters required to be communicated to the committee under generally accepted auditing standards.

• Understand how management develops interim financial information, and the nature and extent of internal and external auditor involvement.

MINUTES – Audit and Accountability Committee November 12, 2013 Conference Room A, 4th Floor, City Hall Page 2 of 5

• Review interim financial reports with management and consider whether they are complete and consistent with the information known to committee members.

Internal Control

• Consider the effectiveness of the City’s internal control system, including information technology security and control.

• Understand the scope of internal and external auditors' review of internal control over financial reporting, and obtain reports on significant findings and recommendations, together with management's responses.

Internal Audit • Review with management and the City Internal Auditor the charter,

activities, staffing, and organizational structure of the internal audit function.

• Review and recommend approval of the annual audit plan and all major changes to the plan.

• Ensure there are no unjustified restrictions or limitations, and review and concur in the appointment, replacement, or dismissal of the City Internal Auditor.

• At least once per year, review the performance of the City Internal Auditor. • Review the effectiveness of the internal audit function. • On a regular basis, meet separately with the City Internal Auditor to discuss any

matters that the committee or internal audit believes should be discussed privately.

External Audit • To satisfy itself as to the existence and terms of an Engagement Letter from the

external auditors. • Review the external auditors' proposed audit scope and approach, including

coordination of audit effort with internal audit, including the materiality limits incorporated into the audit.

• Review the performance of the external auditors, and recommend approval on the appointment or discharge of the auditors.

• Review and confirm the independence of the external auditors by obtaining statements from the auditors on relationships between the auditors and the City, including non-audit services, and discussing the relationships with the auditors.

• To review the auditor’s report and audited financial statements and to satisfy itself that these financial statements present fairly the financial position and results of operations and that the external auditors have no reservations about them and to make such recommendations thereon to Council as deemed necessary by the Committee.


• To satisfy itself that there are no unresolved issues between management and the external auditors, which could affect the financial statements and that generally, there is a good working relationship between management and the auditors.

• To review the external auditors’ management letter together with the implementation plans as advised by management.

• On a regular basis, meet separately with the external auditors to discuss any matters that the committee or auditors believe should be discussed privately.

Compliance

• Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management's investigation and follow-up (including disciplinary action) of any instances of non-compliance.

• Review the findings of any examinations by regulatory agencies, and any auditor observations.

• Review the process for communicating the code of conduct to City personnel, and for monitoring compliance therewith.

• Obtain regular updates from management and City legal counsel regarding compliance matters.

Risk Management

• Review and discuss with management their responsibility for assessing and managing the City’s exposure to business risk.

• Review policies governing risk management. • Review and discuss with management the City’s major business risk exposures.

Business and Strategic Plan Monitoring

• Review the corporate business and strategic plans as prepared by management and approved by Council.

• Meet with management on a semi-annual basis and review compliance with corporate business plans.

• Meet with management on an annual basis and review compliance with the corporate strategic plan.

Reporting Responsibilities

• Regularly report to Council about committee activities, issues, and related recommendations.

• Provide an open avenue of communication between internal audit, the external auditors, the senior management team and Council.

• Review any other reports the City issues that relate to committee responsibilities.

Other Responsibilities • Perform other activities related to this mandate as requested by Council. • Institute and oversee special investigations as needed.


• Review and assess the adequacy of the Audit Charter annually, requesting Council approval for proposed changes.

• Confirm annually that responsibilities outlined in this mandate have been carried out.

The Committee recommends approval of the revised mandate for the Audit and Accountability Committee as shown above which reflects the revised committee structure previously approved by Council. As the revised mandate includes a second citizen representative, it was agreed that qualifications be reviewed and an advertisement seeking expressions of interest be issued.

b. Confirmation of meeting schedule The Committee agreed with the proposed schedule for meetings of the Audit and Accountability Committee, that being the first Tuesday of every month at noon. It was agreed that while the meetings will be scheduled for this date and time, agenda items will dictate whether or not a meeting is required.

c. Appointment of external auditors The Committee considered a memorandum from the Deputy City Manager – Financial Management, the Manager of Accounting Services and the Manager of Budget and Treasury dated August 19, 2013 outlining the responses to the request for proposals for audit services for the years 2013-2017 along with an analysis which considered pricing, qualitative factors and rating. It was moved by Councillor Bruce Tilley, seconded by Councillor Danny Breen that Grant, Thornton be appointed the external auditors for the City of St. John’s for a five year term commencing with the December 31, 2013 year end. 5. Other Business a. 2012 Audited Financial Statements The Committee was informed that the 2012 Audited Financial Statements are being finalized and should be available for the next meeting of the Committee which is December 3, 2013

6. Adjournment There being no further business, the meeting adjourned at 12:35 pm


Year-end communication Results of 2012 Audit City of St. John’s

For the year ended December 31, 2012 Presented to the Audit Committee December 3, 2013

Deloitte LLP 10 Factory Lane Fort William Building St. John's NL A1C 6H5 Canada Tel: 709-576-8480 Fax: 709-576-8460 www.deloitte.ca

November 29, 2013 The Audit Committee of the City of St. John’s P.O. Box 908 St. John’s, NL A1C 5M2 Private and confidential

To the Chair and members of the Audit Committee

Dear Audit Committee Members:

Report on audited annual consolidated financial statements As agreed in our engagement letter dated February 15, 2013, We have performed an audit of the consolidated financial statements of the City of St. John’s (the “City”) as well as Robin Hood Bay Regional Waste Management Facility, Regional Water Supply System, Regional Fire Department, Regional Wastewater System, Accommodation Tax Account and Urban Living Non-Profit Housing Fund collectively referred to as (the “Municipality” or the “City”) as of and for the year ended December 31, 2012, in accordance with Canadian GAAS and expect to issue our audit report thereon upon approval of financial statements by the Audit Committee, Members of Council and resolution of the outstanding items noted in this report

This report summarizes our findings during the audit to date. Use of our report These reports are intended solely for the information and use of the Audit Committee and City Councillors’ and are not intended to be, and should not be, used by anyone other than these specified parties. Accordingly, we disclaim any responsibility to any other party who may rely on it.

We would like to express our appreciation for the cooperation we received from the management and employees of the City with whom we worked to discharge our responsibilities.

We look forward to discussing these reports summarizing the outcome of our audit with you and answering any questions you may have.

Yours truly,

Chartered Accountants

© Deloitte LLP and affiliated entities. City of St. John’s i

Table of Contents

Audit Scope and Findings ............................................................................................................................. 1

Audit Risks .................................................................................................................................................... 5

Appendix 1 – Draft version of our Auditor’s Report ...................................................................................... 7

Appendix 2 – Draft Independence Letter .................................................................................................... 10

Appendix 3 – Management Letter ............................................................................................................... 13

Appendix 4 – Draft Management Representation Letter ............................................................................ 17

© Deloitte LLP and affiliated entities. The City of St. John’s 1

Audit Scope and Findings

This report summarizes the main findings arising from our audit

Audit scope matters

Audit strategy and scope

The audit planning and the preliminary risk assessment activities we conduct enabled us to set the scope of our audit and to design procedures tailored to that scope.

Materiality Materiality is the magnitude of misstatements, including omissions, in the financial statements that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the financial statement users. Judgments about materiality are made in light of surrounding circumstances, and are affected by our perception of the information needs of the financial statement users, and by the size or nature of a misstatement, or a combination of both. We are responsible for providing reasonable assurance that your financial statements, as a whole, are free from material misstatement. Materiality levels were determined based on expenses. Our materiality for the year ended December 31, 2012 was $3,000,000 (2011 - $2,500,000). Our report includes any corrected or uncorrected adjustment to the consolidated financial statements identified during the year that would be greater than $150,000 (2011 - $125,000). Note that a separate full scope audit for St. John’s Sports & Entertainment and St. John’s Transportation Commission has been completed based on a materiality’s based on their operations, but any adjustments greater than $150,000 have been included in this report.

Audit risks Our procedures focused on the following areas that we identified as significant risks in the current year: Financial statement disclosure and presentation Revenue recognition/valuation of receivables Employee future benefits and pension accruals Accounting for environmental liabilities Accounting for and valuation of tangible capital assets, including accounting for

donated streets Accounting for landfill closure and post-closure liabilities Non-routine transactions and management estimates Management override of controls We have summarized the results of our audit procedures for each of these risk areas later in this report.

Use of the work of experts

As planned, Deloitte IT specialists assisted in the audit to the extent we considered necessary:

IT specialists In evaluating internal controls and in using our computerized audit applications.


Audit scope matters

Audit results In accordance with Canadian GAAS, our audit is designed to enable us to express an opinion on the fairness of the presentation of the consolidated financial statements of the City of St. John’s (the “City”) as well as Robin Hood Bay Regional Waste Management Facility, Regional Water Supply System, Regional Fire Department, Regional Wastewater System, Accommodation Tax Account and Urban Living Non-Profit Housing Fund prepared in accordance with Public Sector Accounting Standards (“PSAS”) or the basis of accounting as described in the respective financial statements.

Status of our audit

We expect to be in a position to render our unqualified audit opinion on the consolidated financial statements of the City following approval of the financial statements by Council and the completion of the following outstanding procedures:

Receipt of signed management representations letter Update of legal confirmation to audit report date Confirmation of subsequent events Completion of the Engagement Quality Control review Other minor documentation

Internal control over financial reporting

Our audit included reviews and evaluations of various aspects of the City’s systems and internal controls. The nature and extent of tests and other procedures that we performed are designed to formulate an opinion on the consolidated financial statements on an efficient and effective basis and any observations that we may have on internal controls are a by-product of our audit. Because our procedures are selected for the purpose of our financial statement audit, they will not necessarily detect all weaknesses, errors or other irregularities that might have occurred and are not sufficient to allow us to express an opinion on the effectiveness or efficiency of the design and operation of particular systems. For the current year we did test the operating effectiveness of controls for both the payroll and operating expenditures business cycles for the period we audited. We did not test the operating effectiveness of any other significant business cycles based on discussions with management. Our audit was not designed to provide a high degree of assurance that deficiencies, if any, would be detected. Accordingly, we do not provide an opinion on the effective operation of internal control over financial reporting (“ICFR”), but nothing of a material nature has come to our attention, which has allowed us to rely on the operating effectiveness of controls in the current year for the City’s payroll and operating expenditures business cycles.

However, as noted in Appendix 3 there are items that do not indicate a significant deficiency but we recommend management address these points going forward.

Fraud and illegal acts

Based on the procedures we performed as recommended by CAS 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, we are not aware of any illegal acts or fraudulent events with respect to the City during the year.

Related party transactions

We have not identified any related party transactions that are not in the normal course of operations and that involve significant judgments made by management concerning measurement or disclosure.


Audit scope matters

Significant accounting policies

The City’s significant accounting policies are set forth in Note 1 to December 31, 2012 financial statements.

We believe management’s selection of accounting policies to be appropriate under PSAS.

Management judgment and accounting estimates

Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. These judgments are normally based on knowledge and experience about past and current events, assumptions about future events and interpretations of the financial reporting standards. Significant estimates include:

Employee future benefits and pension accruals Robin Hood Bay landfill post-closure costs Valuation of Pleasantville land parcels contributed from Federal Government Economic lives of capital assets Impairment of capital assets Valuation of donated streets and other assets Allowance for doubtful accounts Accrual for claims and other various items

During the year ended December 31, 2012, management advised there was an estimate made on the valuation of two parcels of land contributed by the Federal Government. The value of the land was recorded based on the recommendation from the Federal Government and no independent third party appraisal was completed by the City. The fair value was reviewed internally and no further adjustments were recorded. We audited management’s assessment of this fair value and conclude that valuation of the land appears to be reasonable and is not materially misstated.

Otherwise, there were no changes in accounting estimates or in judgments relating to such estimates, as confirmed by our audit procedures.

Audit adjustments and uncorrected misstatements

In accordance with Canadian GAAS, we request that all misstatements be corrected. We have aggregated all uncorrected misstatements greater than $150,000 (2011 - $125,000) and those that are quantitatively insignificant but qualitatively significant. Refer to Appendix A in the attached rep letter for a listing and description of uncorrected adjustments. We believe these adjustments are not material to the consolidated financial statements.

We will update the Audit Committee accordingly, if we identify any additional uncorrected or corrected adjustments upon resolution of our outstanding items.

Corrected errors identified by Deloitte

In accordance with Canadian GAAS, we request that all misstatements be corrected. We have aggregated all corrected misstatements identified by Deloitte as follows;

(1) Accrued Retirement Benefits was understated as the year-end entry was not made by the client. This entry resulted in an increase of liabilities and expenses of $950,261.

(2) Railway Coastal Museum (RCM) – The City identified and recorded an asset addition and subsequent increase to revenues for the acquisition of the RCM which they had previously acquired back in 2004. However, the amount was recorded in 2012 fiscal year and should have been in the 2011 fiscal year. The client removed this from the 2012 financial statements and restated the 2011 statements as per Note 2 of the financial statements.

We will update the Audit Committee accordingly, if we identify any other misstatements upon resolution of our outstanding items.


Audit scope matters

Adjusted and unadjusted disclosure deficiencies

As of the date of our report, we have one disclosure deficiency. Public sector accounting standards require that the budgeted statement of financial position and reconciliation of actual revenues over expenditures compared to budget be presented in the City’s consolidated financial statements.

We will update the Audit Committee accordingly, if we identify any other disclosure deficiencies upon resolution of our outstanding items.

Legal and regulatory compliance

Our audit procedures did not identify any areas of material non-compliance with laws and regulations by the City. Note that our legal letters are outstanding and we will update the Audit Committee if something of a material nature affects the consolidated financial statements as a result of receiving these letters.

Post-balance sheet events

Management is responsible for assessing subsequent events up to the date of the release of the consolidated financial statements.

At the date of finalizing this report, we are not aware of any significant post balance sheet events.

Independence We have developed appropriate safeguards and procedures to eliminate threats to our independence or to reduce them to an acceptable level.

As required under GAAS, we will formally report all relationships and other relevant matters that, in our professional judgment, may reasonably be thought to bear on our independence and will confirm our independence to the Audit Committee for the year ended December 31, 2012. A draft of our letter that we plan to issue is in Appendix 2.

Conclusion We intend to issue our audit report on the consolidated financial statements of the City for the year ended December 31, 2012 once the outstanding items referred to above are satisfactorily completed and the financial statements are approved by the Audit Committee and by the Council.

A draft version of our Auditor’s report is included in Appendix 1.


Audit Risks

During the planning stage of our audit we identified certain areas which we refer to audit risks. The results of our audit work on these risks are set out below:

Areas of focus

Areas of risk Our audit response Our conclusion

Financial statement disclosure and presentation Financial statement disclosure and presentation are incomplete or misleading.

Review, with management, all significant accounting policies and disclosures to ensure compliance with PSAS. Obtain documentation in support of, and review for all financial statements and reports. Further, our audit process has embedded a number of steps to ensure compliance with PSAS.

Based on our review of the consolidated financial statements that were provided to Deloitte, as of the date of this report, the consolidated financial statements contain required material disclosures for fair presentation, subject to the clearance of the outstanding items noted.

Revenue recognition / valuation of Receivables Inappropriate recognition and overstatement of receivables due to uncollectible amounts.

We audited the processes and related accounting to ensure revenue recognition is appropriate. In particular, we focused on cut-off issues at year end and the collectability of aged receivables and grants received during the year.

We are satisfied with the City’s revenue cut-off process and year end accruals. Accounts receivable are not materially misstated. Further, we are satisfied that the city’s allowance for doubtful accounts balance is not materially understated. In addition, any grants received during the year have been appropriately recorded as revenue.

Employee future benefits and pension accrual Accounting for employee future benefits and pension liabilities is materially misstated.

We have audited the City’s accounting for employee future benefits and pension liabilities including reviewing the related actuarial reports.

We are satisfied that the City has properly accounted for and presented these liabilities, cost and required disclosures in its consolidated financial statements. The consolidated financial statements include a restatement of the 2011 balances as a result of an error identified by the actuary which has been disclosed in Note 2 of the consolidated financial statements.


Areas of risk Our audit response Our conclusion

Accounting for environmental liabilities Understatement of environmental liabilities.

Assessment of management’s process to ensure all environmental liabilities are appropriately recorded and disclosed.

Based upon our audit and our discussions with management, we are satisfied that appropriate provisions have been made in these consolidated financial statements for all known environmental liabilities.

Accounting for and valuation of tangible capital assets, including donated streets Inappropriate costs have been capitalized and costs exceed recoverable amounts.

We have audited costs that have been added to tangible capital assets and discussed with management their process for assessing impairment. We audited management’s process for accounting relating to donated streets and balances recorded.

Our audit of costs capitalized to tangible capital assets, including donated streets and other assets and found that costs were appropriately capitalized in accordance with the City’s capitalization policy and that there was no impairment that would have a material misstatement on the consolidated financial statements.

Accounting for landfill closure and post-closure liabilities Understatement of liabilities relating to the closure of Robin Hood Bay landfill site.

We have audited the City’s accounting for landfill closure and post-closure costs in accordance with PSAB 3270 of the CICA Handbook and ensure the required disclosures are contained in the consolidated financial statements.

Based upon our audit and discussions, we are satisfied that, given the City’s intention to continue with current operations over the long term, there are no further liabilities to account for or disclose at this time.

Non-routine transactions and management estimates Complex or non-routine transactions not correctly recorded or Management estimates or judgments not adequately supported.

We have audited all significant non-routine transactions and significant management estimates to ensure that transactions are recorded and disclosed properly. We obtained sufficient support for all significant non-recurring transactions to ensure that they transactions are recorded appropriately.

Based upon our audit and discussions, we are satisfied that, the City has appropriately recorded and disclosed non-routine transactions areas that required significant management judgment.


Appendix 1 – Draft version of our Auditor’s Report

Our report on the consolidated financial statements is expected to be in the following form. However, the final form may need to be adjusted to reflect the final results of our audit.



Independent Auditor’s Report

To His Worship the Mayor and Councilor’s,

City of St. John’s

We have audited the accompanying consolidated financial statements of the City of St. John’s which comprise the consolidated statement of financial position as at December 31, 2012 and the consolidated statement of operations and accumulated surplus, changes in net debt and cash flows for the year then ended, and a summary of significant accounting policies, attached schedules and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


Opinion

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the City of St. John’s as at December 31, 2012 and the results of its operations, changes in net debt and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Chartered Accountants December 16, 2013


Appendix 2 – Draft Independence Letter



December 16, 2013 The Audit Committee City of St. John’s New Gower Street St. John’s, NL A1C 5M2 Dear Audit Committee Members: We have been engaged to audit the consolidated financial statements of City of St. John’s (the “City”) for the year ended December 31, 2012. You have requested that we communicate in writing with you regarding our compliance with relevant ethical requirements regarding independence as well as all relationships and other matters between the City, our Firm and network firms that, in our professional judgment, may reasonably be thought to bear on our independence. You have also requested us to communicate the related safeguards that have been applied to eliminate identified threats to independence or reduce them to an acceptable level. In determining which relationships to report, we have considered relevant rules and related interpretations prescribed by the appropriate provincial institute / ordre and applicable legislation, covering such matters as: a) holding a financial interest, either directly or indirectly, in a client; b) holding a position, either directly or indirectly, that gives the right or responsibility to exert

significant influence over the financial or accounting policies of a client; c) personal or business relationships of immediate family, close relatives, partners or retired partners,

either directly or indirectly, with a client; d) economic dependence on a client; and e) provision of services in addition to the audit engagement. We confirm to you that the engagement team and others in the firm as appropriate, the firm and, when applicable, network firms have complied with relevant ethical requirements regarding independence. We have prepared the following comments to facilitate our discussion with you regarding independence matters arising since October 25, 2012, the date of our last letter. We are not aware of any relationships between the City and our Firm, including any network firms that, in our professional judgment, may reasonably be thought to bear on independence, that have occurred from October 25, 2012 to December 16, 2013. The total fees charged to the City for audit services billed were $102,085 and for non-audit services were $6,650 during the period covered by the dates noted in this letter. The Appendix provides an analysis of these services allocated into the categories of services and dollar ranges agreed with you.


This report is intended solely for the use of the Audit Committee, council members, management, and others within the City and should not be used for any other purposes.

We look forward to discussing with you the matters addressed in this letter Yours truly, Chartered Accountants


Appendix 3 – Management Letter



November 29, 2013 Mr. Robert Bishop Deputy City Manager, Financial Management City of St. John’s P.O. Box 908 St. John’s, NL A1C 5M2 Dear Mr. Bishop: Pursuant to the completion of our audit of the accounts of the City of St. John’s (the “City”) for the year ended December 31, 2012, we are writing to outline our observations with respect to the internal control and other audit related matters identified during the course of our audit. Our audit included a review of the system of internal control and testing of transactions and year-end balances to the extent we considered necessary to support our professional opinion. While we do not have any significant internal control recommendations to report arising from the 2012 audit, there are a few matters which we felt warranted your attention which is addressed herein. 1. Observation and Implication:

Through the course of the past several years the Finance Group has invested significant amounts of time and effort in compiling continuity schedules for all capital assets held by the City. This task was initiated in fiscal 2007 to facilitate compliance with public sector accounting standards. As a result, detailed capital asset schedules are now maintained in support of general ledger balances. In the current year, management identified a controlled business (Railway Coastal Museum) of which the assets should have been recorded on the schedule since 2004. As a result, the City had to restate the PY statements to reflect the increase in assets. While we acknowledge that the City staff has made significant progress in a short time in this area, the reliability of these schedules is very important given the significant investment the City has in tangible capital assets as errors have the potential to result in materially misstated financial statements. Recommendation: We recommend that management should put a review policy in place for all entities under the City’s control to ensure they are accurately tracking all capital transactions.


2. Observation and Implication: There is no formally documented change management policy. A change management policy will help enforce a change methodology/ process to guide the development/ modification/ maintenance of application systems, databases, networks, communication software and systems software, including the policies and procedures to enforce management’s approval of changes/ testing procedures. It was noted there were no exceptions identified regarding requirements and test plans in our 2012 testing of the City of St. John’s change management process. The lack of a formally documented change management process may contribute to Information Services personnel making changes without adhering to the change management process. Not enforcing the testing and/or approval of changes increases the risk of employees making unauthorized changes. The consequences of not having an effective change process may include: - Incompatibility of data and systems; - Increased support effort; and/or, - Inconsistent, unsatisfactory, or erroneous management reporting. Testing decisions that are not based on requirements may be arbitrary and increase the risk that application changes will not be tested adequately to ensure they function as intended. Test plans ensure that testing covers the scenarios that will be encountered in production, which reduces the likelihood of introducing errors into the production environment. Recommendation: Information Services should formally document the established change management process generally followed to manage the implementation of modifications to, or new, application systems, databases, network and communications software, systems software and hardware. Policies should address responsibilities and requirements, such as a description of the necessary management approvals, timing of approvals, the development of test plans and the use of a test environment to perform testing prior to implementation in production. In addition, the procedure should clearly detail the documentation to be completed and retained. Management should also consider identifying a means to generate system reports of changes to applications and periodically reviewing such a report to ensure that unauthorized changes are not being made in the production environment. It is understood that Information Services has a change management policy created, but is still awaiting appropriate sign-off and approvals before being implemented.

3. Observation and Implication:

Terminations are entered through the Track-It! helpdesk system; however, the helpdesk gives a minimum two-week ‘expected completion date’ timeline. To avoid untimely execution of the termination process, termination work orders should have ‘expected completion date’ set to one week, at a minimum. Track-It automatically sets an ‘Expected Completion’ date at least two weeks from the date a work order is entered. Where terminations are entered as work orders, they are treated the same unless an extra notification is given by the helpdesk to the business systems analyst. If possible, the terminations process would be more effective if the helpdesk set ‘expected completion date’ to less


than a week for all terminations. This will reduce risk of inappropriate access and the security issues that arise from it. Recommendation: Information Services should implement the practice of identifying termination work orders as ‘urgent’ and ensure that they are given an ‘Expected Completion’ date of a week or less. The current minimum Expected Completion’ date is two weeks, which is not leading practices that we have seen in other organizations.

Conclusion We want to thank you and your staff for the courtesy extended to us during our audit and we value the opportunity to be of service. Yours truly,

Chartered Accountants


Appendix 4 – Draft Management Representation Letter


December 16, 2013 Deloitte LLP Fort William Building 10 Factory Lane St. John’s, NL A1C 6H5 Dear Sirs: Subject: Consolidated financial statements for the year ended December 31, 2012 This representation letter is provided in connection with the audits by Deloitte LLP (“Deloitte” or “you”) of the consolidated financial statements of the City of St. John’s, as well as Robin Hood Bay, Regional Waste Management Facility, Regional Water Supply System, Regional Fire Department, Regional Wastewater System, Accommodation Tax Account and Urban Living Non-Profit Housing Fund (the “Municipality ” or “we” or “us”) for the year ended December 31, 2012 including any restated balances for the year ending December 31, 2011, and a summary of significant accounting policies and other explanatory information (the “Financial Statements”) for the purpose of expressing an opinion as to whether the Financial Statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the Municipality in accordance with Public Sector Accounting Standards (“PSAS”). We confirm that, to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves: Financial statements 1. We have fulfilled our responsibilities as set out in the terms of the engagement letter between the

Municipality and Deloitte dated February 15, 2013 for the preparation of the Financial Statements in accordance with PSAS. In particular, the Financial Statements are fairly presented, in all material respects, and present the financial position of the Municipality as at and the results of its operations and cash flows for the year then ended in accordance with PSAS.

2. Significant assumptions used in making estimates, including those measured at fair value, are reasonable.

In preparing the Financial Statements in accordance with PSAS, management makes judgments and assumptions about the future and uses estimates. The completeness and appropriateness of the disclosures related to estimates are in accordance with PSAS. The Municipality has appropriately disclosed in the Financial Statements the nature of measurement uncertainties that are material,


including all estimates where it is reasonably possible that the estimate will change in the near term and the effect of the change could be material to the Financial Statements. The measurement methods, including the related assumptions and models, used in determining the estimates, including fair value, were appropriate, reasonable and consistently applied in accordance with PSAS and appropriately reflect management's intent and ability to carry out specific courses of action on behalf of the entity. No events have occurred subsequent to December 31, 2012 that require adjustment to the estimates and disclosures included in the Financial Statements. There are no changes in management’s method of determining significant estimates in the current year.

3. We have determined that the Financial Statements are complete as of December 16, 2013 as this is the date when there are no changes to the Financial Statements (including disclosures) planned or expected; all final adjusting journal entries have been reflected in the Financial Statements and the Financial Statements have been approved in accordance with our process to finalize financial statements.

4. We have completed our review of events after December 31, 2012 and up to the date of this letter. All events subsequent to the date of the Financial Statements and for which PSAS requires adjustment or disclosure have been adjusted or disclosed. Accounting estimates and disclosures included in the Financial Statements that are impacted by subsequent events have been appropriately adjusted.

5. The Financial Statements are free of material errors and omissions.

We believe that the effects of any uncorrected Financial Statement misstatements pertaining to the current period presented are immaterial, both individually and in the aggregate, to the Financial Statements taken as a whole. A list of the uncorrected misstatements aggregated by you is attached in Appendix A.

6. The Municipality has satisfactory title to and control over all assets, and there are no liens or

encumbrances on such assets. We have disclosed to you and in the Financial Statements all assets that have been pledged as collateral.

Information provided 7. We have provided you with:

a. Access to all information of which we are aware that is relevant to the preparation of the Financial Statements, such as records, documentation and other matters. All financial statements and other financial information provided to you accurately reflect the activities and expenses of the Municipality and do not reflect any activities or expenses of any other person or entity;

b. All relevant information as well as additional information that you have requested from us for the purpose of the audit; and,

c. Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence.

8. Except as listed in Appendix A, all transactions have been properly recorded in the accounting records and are reflected in the Financial Statements.

9. We have disclosed to you the results of our assessment of the risk that the Financial Statements may be materially misstated as a result of fraud.


10. We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects the entity and involves: a. Management; b. Employees who have significant roles in internal control; or c. Others where the fraud could have a material effect on the Financial Statements.

11. We have disclosed to you all information in relation to allegations of fraud, or suspected fraud, affecting the entity’s Financial Statements and all knowledge of concerns or allegations of potential errors in the selection of accounting policies or the recording of transactions affecting the Municipality that have been communicated by employees, former employees, or others, whether written or oral.

12. We have disclosed to you all communications from and all known instances of non-compliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing the Financial Statements.

13. We have disclosed to you the identity of the entity’s related parties and all the related party relationships and transactions of which we are aware, including guarantees, non-monetary transactions and transactions for no consideration and participation in a defined benefit plan that shares risks between group entities.

14. We acknowledge our responsibility for the design, implementation and maintenance of internal

control to prevent and detect fraud.

15. We have disclosed to you all known, actual or possible litigation and claims, whether or not they have been discussed with our lawyers, whose effects should be considered when preparing the Financial Statements. As appropriate, these items have been disclosed and accounted for in the Financial Statements in accordance with PSAS.

16. We have disclosed to you all liabilities, provisions, contingent liabilities and contingent assets, including those associated with guarantees, whether written or oral, and they are appropriately reflected in the Financial Statements.

17. We have disclosed to you, and the Municipality has complied with all aspects of contractual agreements that could have a material effect on the Financial Statements in the event of non-compliance, including all covenants, conditions or other requirements of all outstanding debt.

Independence matters For purposes of the following paragraph, “Deloitte” shall mean Deloitte LLP, Deloitte s.e.n.c.r.l. and Deloitte Touche Tohmatsu Limited, including related member firms and affiliates. 18. Prior to the Municipality having any substantive employment conversations with a former or current

Deloitte engagement team member, the Municipality has held discussions with Deloitte and obtained approval from the Audit Committee.

Other matters 19. We have disclosed to you all plans or intentions that may materially affect the carrying value or

classification of assets and liabilities reflected in the Financial Statements.


Loans and receivables

20. The Government is responsible for determining and maintaining the adequacy of the allowance for doubtful notes, loans, and accounts receivable, as well as estimates used to determine such amounts. Management believes the allowance is adequate to absorb currently estimated bad debts in the account balances.

21. We have identified to you all forgivable loans and loans with concessionary terms and have

appropriately reflected these instruments in the financial statements.

Inventories held for resale 22. Provision has been made to reduce inventories held for resale to the net recoverable amount. All

inventories are the property of the Government and do not include any items consigned to it, any items billed to customers, or any items for which the liability has not been recorded.

Environmental liabilities/contingencies 23. We have considered the effect of environmental matters on the Government and have disclosed to

you all liabilities, provisions or contingencies arising from environmental matters. All liabilities, provisions, contingencies and commitments arising from environmental matters, and the effect of environmental matters on the carrying values of the relevant assets are recognized, measured and disclosed, as appropriate, in the Financial Statements.

Employee future benefits

24. Employee future benefit costs, assets, and obligations, as applicable, have been properly recorded and

adequately disclosed in the Financial Statements including those arising under termination arrangements. We believe that the actuarial assumptions and methods used to measure defined benefit plan assets, liabilities and costs for financial statement purposes are appropriate in the circumstances.

Accounting policies

25. The accounting policies selected and application of those policies are appropriate.

26. The Government’s accounting policies and their method of application have been applied on a basis consistent with that of the audited Financial Statements as of and for the year ended December 31, 2011.

Management’s responsibilities 27. All transactions and events have been carried out in accordance with law, regulation or other

authority.

Communications with taxation and regulatory agencies 28. We have disclosed to you all communications from:

a) taxation authorities concerning assessments or reassessments that could have a material effect on the Financial Statements; and

b) regulatory agencies concerning noncompliance with or potential deficiencies in, financial reporting requirements.


Deficiencies in internal control 29. We have communicated to you all deficiencies in internal control of which we are aware. We have

disclosed to you any change in the Government’s internal control over financial reporting that occurred during the current year that has materially affected, or is reasonably likely to materially affect, the Government’s internal control over financial reporting.

Work of management’s experts 30. We agree with the work of management’s experts in evaluating the employee future benefits and

pension liability and have adequately considered the competence and capabilities of the experts in determining amounts and disclosures used in the Financial Statements and underlying accounting records. We did not give any, nor cause any, instructions to be given to management’s experts with respect to values or amounts derived in an attempt to bias their work, and we are not aware of any matters that have impacted the independence or objectivity of the experts.

Various matters 31. The following have been properly recorded and, when appropriate, adequately disclosed and

presented in the Financial Statements: a. provisions for future removal and site restoration costs; b. financial instruments with significant individual or group concentration of credit risk, and related

maximum credit risk exposure; c. arrangements with financial institutions involving compensating balances or other arrangements

involving restriction on cash balances and line-of-credit or similar arrangements; Plans or intentions affecting carrying value/classification of assets and liabilities 32. We have disclosed to you all plans or intentions that may materially affect the carrying value or

classification of assets and liabilities reflected in the Financial Statements. Fair value 33. With regard to the fair value measurements and disclosures of certain assets and liabilities, we believe

that: a. The completeness and adequacy of the disclosures related to fair values are in accordance with

PSAS. b. No events have occurred subsequent to December 31, 2012 that require adjustment to the fair

value measurements and disclosures included in the Financial Statements. c. They appropriately reflect management's intent and ability to carry out specific courses of action

on behalf of the Government when relevant to the use of fair value measurements or disclosures.

Investments 34. All investments have been appropriately classified as either temporary investments or portfolio

investments. 35. With regard to the Government’s investments, we have disclosed to you any events that have

occurred and facts that have been discovered with respect to such investment that would indicate impairment of the investment’s value.


36. The Government has used the appropriate valuation allowances to reflect the temporary investments

at their net recoverable amount or other appropriate value. 37. The Government does not hold any investments in Master Asset Vehicle notes (which replaced third

party non-bank asset-banked commercial paper). Solid waste landfill closure and post-closure liability

38. We have disclosed to you all solid waste landfill sites that we own and operate. We have recorded a

liability which represents our best estimate of the future costs required for closure and post-closure care related to these sites.

Employee future benefits

39. Employee future benefit costs, assets, and obligations, as applicable, have been properly recorded and

adequately disclosed in the Financial Statements including those arising under termination arrangements. We believe that the actuarial assumptions and methods used to measure defined benefit plan assets, liabilities and costs for financial statement purposes are appropriate in the circumstances.

40. We have disclosed to you any intentions of terminating any of our pension plans that could result in

an effective termination or reportable event for any of the plans. We have disclosed to you any occurrences that could result in the termination of any of our pension to which we contribute.

Adjusting journal entries 41. We have reviewed and approved the year-end adjusting entries, including all related supporting

schedules, and the financial statements and acknowledge our responsibility for their accuracy. While discharging our responsibility we may have requested your assistance or input in certain areas such as: a. Recording of transactions for which we have determined or approved the appropriate account

classification; b. Posting transactions to the general ledger; c. Preparing financial statements; d. Posting journal entries to the trial balance; e. Performing non-custodial payroll services; f. Preparing taxation returns; and, we acknowledge our responsibility for the above listed items and confirm that we have authorized, reviewed and approved all of the above items.


Uncorrected misstatements detected that relate to the prior year

42. We believe the effects of the uncorrected financial statement misstatements detected in the current

year (as summarized in Appendix A) that relate to the prior year presented, when combined with those misstatements aggregated by you during the prior-year audit engagement and pertaining to the prior year presented, are immaterial, both individually and in the aggregate, to the Financial Statements for the prior year ended December 31, 2011, taken as a whole.

Yours truly, The City of St. John’s Robert Bishop Deputy City Manager, Financial Management Bob Smart City Manager


Appendix A City of St. John’s Summary of uncorrected misstatements Year ended December 31, 2012

The table below summarizes the uncorrected misstatement identified by Deloitte in the course of our review. The effect of the uncorrected misstatement is not material to the consolidated financial statements. Note that there were no uncorrected adjustments individually or in the aggregate for St. John’s Sports & Entertainment and St. John’s Transportation Commission to report that were above our $150,000 threshold.

Effect of Unadjusted Audit Differences – dr/(cr)

Assets $

Liabilities

$

Equity

Opening $

Net Income $

Ending $

Current year misstatement Over-statement of revenues and understatement of opening retained earnings due to recording claims receivable relating to 2011 but not recorded until 2012.

- - (1,626,480) 1,626,480 -

- - (1,626,480) 1,626,480 -


Appendix B City of St. John’s Summary of disclosure items passed Year ended December 31, 2012

Disclosure Title

Description of omitted or unclear disclosure

Authoritative literature reference

Dollar amount of omitted or unclear

disclosure (if applicable)

PSAS Presentation Requirements

PSAS requires that the budget be shown in the statement of operations and the statement of change in net debt

1200.122-.123 N/A

www.deloitte.ca Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services through more than 7,600 people in 57 offices. Deloitte operates in Québec as Samson Bélair/Deloitte & Touche s.e.n.c.r.l. Deloitte & Touche 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.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

© Deloitte & Touche LLP and affiliated entities.

TABLE OF CONTENTS

I. Introduction 2

II. Financial Statement Discussion and Analysis 3

(a) Operating Results 5

(b) Financial Position 10

(c) Consolidated Statement of Cash Flow 14

(d) Consolidated Statement of Change in Net Debt 14

(e) Comparison to Budget 15

(f) What the Financial Statements Mean 16

III. Responsibility for Financial Reporting 18

IV. City of St. John’s 2012 Consolidated Financial Statements

INTRODUCTION

These documents comprise the City of St. John’s

financial reporting for the fiscal year ended December

31, 2012.

The Consolidated Financial Statements are the

primary document, however much additional detail

and explanation is provided in the “Financial

Statement Discussion and Analysis” which should be

read in conjunction with the Consolidated Financial

Statements for a full understanding of the City’s

financial operations in 2012 and its financial position

at December 31, 2012.

2

FINANCIAL STATEMENT

DISCUSSION AND ANALYSIS

YEAR ENDED DECEMBER 31, 2012

3

I am pleased to present the City of St. John’s (the “City”) 2012 Annual Financial Report, which has been prepared by the management of the City. This Report for 2012 demonstrates the progress the City has made in working towards the highest standards of performance measurement, accountability, transparency, and service delivery. The discussion and analysis of the financial performance of the City should be read in conjunction with the audited consolidated financial statements and their accompanying notes and schedules, which are prepared in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants. The Consolidated Financial Statements of the City (the “Statements”) provide information about the economic resources, obligations and accumulated surplus of the City. They include the City’s operating departments, as well as City agencies such as the St. John’s Transportation Commission, the City of St. John’s Non-Profit Housing Fund, St. John’s Sports & Entertainment Ltd. and the Railway Coastal Museum. A brief description of the City’s major funds and agencies follows. The City’s Sinking Fund contains the principal payments on the City’s debenture financed long term debt, as well as the income earned on those payments. The City uses 20 year Sinking Fund bond issues to finance most capital borrowing. Under the terms of those bonds the City pays interest on the principal to the issuer semi-annually and at the same time pays a set percentage (typically 2.5% per annum) of the principal into the Sinking Fund. The money in this Fund is then invested in financial instruments authorized under the Trustee Act in order to safely accumulate the funds required to repay the lender on maturity. The City’s Non-Profit Housing Fund owns rental properties in projects located around the City. The properties were financed and constructed in conjunction with the Canada Mortgage and Housing Corporation, however the City is fully responsible for managing and maintaining the properties, which are financed by mortgages paid out of the rental revenue. The Province of Newfoundland and Labrador provides support for these projects through annual operating grants. In 2012 the City entered into agreements with the Federal and Provincial governments for the construction of additional units in Pleasantville.

The St. John’s Transportation Commission, which operates as Metrobus, is a City agency overseen by seven Commissioners appointed by Council, of whom two are elected Councillors. The Commission has its own management and staff and operates independently. It receives an operating subsidy from the City and its annual budget as approved by the Commission is presented to and approved by the City. St. John’s Sports & Entertainment Ltd. (“SJSEL”) is a corporation without share capital, incorporated by the City to own and operate Mile One Centre and the St. 4

John’s Convention Centre. The nine person Board of Directors is appointed by Council and includes one elected City Councillor and two City staff as ex-officio non-voting members. Similar to the Transportation Commission, SJSEL receives an operating subsidy from the City and its annual budget as approved by the Board, is also presented to and approved by the City. The Railway Coastal Museum is operated by the Newfoundland Railway Coastal Museum Foundation Inc. The Foundation is a registered charity however it is considered to be controlled by the City of St. John’s because the Chair and three members of the seven member Board of Directors are appointed by the City. The remaining three members are appointed by the C.N. Pensioners Association. The Foundation owns the former C.N. Railway Station in St. John’s and adjacent property and operates a museum on site. The City rents the upper storeys of the former station building for the City Archives at an annual rent of $ 137,640. Separate financial statements are prepared annually for the Non-Profit Housing Fund, the St. John’s Transportation Commission and St. John’s Sports & Entertainment Ltd. In addition, separate financial statements are prepared for the St. John’s Regional Fire Department, the St. John’s Regional Water Supply System, the St. John’s Wastewater System, and the Robin Hood Bay Regional Waste Management Facility. All of these regional services are owned and operated by the City of St. John’s and their operations are included in the City’s Consolidated Financial Statements. The actual cost of operations is allocated to all users of the services which include several other municipalities in the Eastern Region of the Province, as well as commercial users. Those costs billed out to the other municipalities and to commercial users are included as revenue under “Sales of Goods and Services”.

The City’s 2012 Consolidated Financial Statements include restated 2011 Consolidated Financial Statements (see Note 2 to the Consolidated Financial Statements) which correct an error in the December 31, 2009 pension valuation and pick up the tangible capital assets of the Newfoundland Railway Coastal Museum Foundation Inc. The comparative numbers cited throughout this document include the effects, if any, of the restatement.

OPERATING RESULTS

The Consolidated Statement of Operations and Accumulated Surplus reports the City’s economic resources, obligations and accumulated surplus, on a comparative basis. The annual revenues exceeded expenditures resulting in an increase in accumulated surplus. In 2012, the City recorded consolidated revenues of $298.92 million (2011 - $280.56 million), an increase of 6.5% over 2011. Consolidated expenditures totalled $246.53 million in 2012 (2011 - $239.54 million), resulting in an increase in accumulated surplus of $52.39 million. 5

CONSOLIDATED REVENUESFor the years ended December 31 (in thousands of dollars)

2012 2011 Change(As Restated)

Taxation 164,971 55% 160,537 57% 4,434 Grants in lieu of taxes 4,329 1% 4,244 2% 85 Grants and transfers 63,674 21% 57,016 20% 6,658 Sales of goods and services 42,161 14% 38,618 14% 3,543 Other revenue from own sources 23,784 8% 20,146 7% 3,638

298,919 280,561 18,358

Details of the types of revenue making up the broad categories shown in the Consolidated Statement of Operations and Accumulated Surplus can be found in Schedule 5, beginning on Page 27 of the Consolidated Financial Statements. Overall revenues increased by approximately $18.36 million from 2011 to 2012 with the increase spread across most revenue categories. Taxation increased by approximately $4.4 million with the increase split almost evenly from property taxes and water tax. The increases in property tax were entirely the result of increases in the taxation base as neither rates nor assessed values changed in 2012. Water tax on the other hand increased partially as a result of a 6% increase in rates to cover increased water and sewer operating costs. Grants in lieu of taxes increased slightly because of the increase in Water Tax rates also being applied to the Water Tax grant (in lieu of tax) from the Provincial government for provincially owned properties such as Memorial University, schools and hospitals, which are not metered. Provincially owned properties such as the Confederation Building which are metered, are charged the commercial rate for water Grants and transfers consist mainly of grants from other governments and are mainly for capital expenditures rather than operating expenditures. Capital grants tend to rise and fall depending on the capital grants programs provided by the Federal and Provincial governments. In 2012 the total “Grants and Transfers” revenue category increased by $6.7 million but included a $6.7 decrease in the Municipal Capital Grant from the Provincial government as the Province scaled back capital funding to municipalities in 2011 and 2012. Offsetting this, is the recognition as revenue under current accounting standards for local governments, of the value of infrastructure transferred to the City from the developers of both residential and commercial subdivisions. This includes in-ground infrastructure such as water and sewer pipes, as well as the land underlying streets and sidewalks and the streets and sidewalks constructed on the land. This increased by $8.4 million over 2011 and is more evidence of the City’s growth. Sales of goods and services is a revenue category that takes in such things as commercial water sales, cost recoveries from other municipalities for regional 6

services as well as the consolidation of revenues from St. John’s Sports & Entertainment Ltd. (Mile One Centre and the St. John’s Convention Centre) and the Railway Coastal Museum. The major increases here were on cost recoveries on Regional Water and increased revenues for St. John’s Sports & Entertainment Ltd., largely attributable to increased revenues from several major entertainment events as well as the revenues (primarily food and beverage related) derived from the first full year of AHL operations in Mile One Centre. “Other revenue from own sources” is a category of revenue derived from direct City operations. Major sources of revenue include interest, fines, permits and all of the revenue generated by Metrobus. Permits as a result of new development and increased Metrobus passenger fares (2011 saw a lengthy strike with no transit service) were the main contributions to a $3.6 million increase in the category. CONSOLIDATED EXPENSESFor the years ended December 31 (in thousands of dollars)

2012 2011 Change(As Restated)

General government services 45,416 18% 42,481 18% 2,935 Fiscal services 18,081 7% 18,553 8% (472) Transportation services 49,937 20% 46,463 19% 3,474 Protective services 29,602 12% 30,443 13% (841) Environmental health services 37,620 15% 36,702 15% 918 Recreation and cultural services 28,275 11% 29,128 12% (853) Environmental development services 5,370 2% 5,368 2% 2 Amortization and allowances 32,228 13% 30,399 13% 1,829

246,529 239,537 6,992

Consolidated expenditures totalled $246.53 million in 2012 (2011 - $239.54 million), an increase of $6.99 million over 2011. The rising expenditure was primarily owing to increases in expenses in general government services (up by $2.94 million), transportation services ($3.47 million), and amortization and allowances ($1.83 million). Details of the expenditures making up the broad categories shown in the Consolidated Statement of Operations and Accumulated Surplus can be found in Schedule 6, beginning on Page 29 of the Consolidated Financial Statements.

General government services include the cost of the Mayor and Councillors” offices, general administration including the Finance, Human Resources and Corporate Services Departments, as well as maintenance of City buildings. The $1.56 million increase in general government is attributable to a wide range of escalating costs including employee compensation and increased technology costs. The other significant increase in this category is in Pensions and Employee Benefits as the City increased its contributions to the City pension plans. 7

Transportation services include road transport, street lighting, the St. John’s Transportation Commission and Para-Transit System, and parking meters. The major cost increase compared to 2011 was in public transit, as shown in Schedule 5 to the Consolidated Financial Statements. This is a result of Metrobus operating for the full 2012 calendar year rather than the reduced operation resulting from the labour dispute in 2011. Recreation and cultural services decreased by $853,000 compared to 2011. This category takes in the operations of the City’s Recreation Department, the Parks Division of the Public Works and Parks Department, the operations of St. John’s Sports & Entertainment Ltd. (Mile One Centre and the St. John’s Convention Centre), as well as other recreational and cultural services. While there are increases in recorded expenditures in this category for 2012 there are significant decreases as well in Parks and in Recreation both related to large capital contributions in 2011. It should be noted that the increase in expenditures for St. John’s Sports & Entertainment Ltd. covers all the operating expenses for that organization for the year, just as all the revenue for SJSE is shown under revenues in Schedule 5 under “Sales of goods and services”. The significant increase is, like the increase in St. John’s Sports & Entertainment Ltd. revenues, attributable to major entertainment events and a full year of AHL hockey operations. Amortization and allowances include provisions for uncollectible accounts, provision for obsolete inventory, loss on disposal of tangible capital assets and amortization. Amortization of assets rose by $2.54 million from the previous year and was primarily responsible for the increase in expenses under this category. Amortization is a charge to operating expenses in each year of a portion of the capitalized cost of fixed assets. The purpose of this amortization is to allocate the cost of tangible capital assets to all the years the assets are used in City operations rather than just in the year acquired or in which capital expenditures were made. Note 5 and Schedule 1 of the Consolidated Financial Statements provide more details on the City’s tangible assets.

REGIONAL SERVICES_____________________________________________ The City of St. John’s provides extensive services to neighbouring municipalities as well as to its own taxpayers. These services are shared and governed on a variety of bases ranging from Provincial legislation to mutual agreement. The services provided include the treatment and supply of water, treatment and disposition of wastewater, fire protection, public transit and solid waste management. Separate audited financial statements are prepared for each regional service however all the revenues and expenses of the regional services are included in the City’s audited consolidated financial statements.

Regional Water In addition to water reservoirs and treatment plants at Windsor Lake and Petty Harbour-Long Pond (still under construction) which serve only the City of St. 8

John’s, the City owns and operates the reservoir and water treatment plant at Bay Bulls Big Pond which provides water to the City of Mount Pearl and the towns of Paradise, Portugal Cove-St. Philips and Conception Bay South, as well as the western portion of St. John’s. All operating costs are billed out to the participating municipalities on a cost recovery basis, adjusted annually on a cost per cubic metre used basis.

Regional Fire Services The St. John’s Regional Fire Department is responsible for fire protection and fire fighting in St. John’s, Mount Pearl, Paradise and Petty Harbour-Maddox Cove. In addition, the Fire Department has agreements in place to respond to fire events as requested by officials in other neighbouring municipalities. For this service these municipalities pay an annual retainer and hourly-based fees for any services actually required. Public Transit Public Transit is not strictly a regional service under the same criteria as the other services described here as the St. John’s Transportation Commission, operating as Metrobus, is responsible only to the City of St. John’s but does provide a limited service on a fee-for-service basis to the City of Mount Pearl. Similar arrangements apply to the City’s Para-Transit Service with each participating municipality, as well as Provincial government agencies, paying for their own services provided on a negotiated basis with the contracted service provider, MVT Canadian Bus, Inc. Wastewater The City of St. John’s, the City of Mount Pearl and the Town of Paradise participated in the capital and participate in the operating costs of the Riverhead Sewage Treatment Plant. The net operating costs are allocated annually to each municipality in accordance with the metered flows attributed to each. Solid Waste Management The City has owned and operated the Robin Hood Bay Waste Management Facility for many years and provided a waste disposal service for the City, surrounding municipalities and commercial operations. In 2007 the Provincial government decided that Robin Hood Bay would be the solid waste management facility for the entire Avalon Peninsula, and possibly some adjacent areas. Working with the Eastern Regional Services Board (operating as Eastern Waste Management) the City operates the Robin Hood Bay facility on a cost recovery basis with any surpluses or deficits incurred on annual operations carried forward into the calculation of the per ton tipping fees charged for waste disposal. The Robin Hood Bay facility continues to be owned and operated by the City and the City has 50% of the positions on the Board of Directors of the Eastern Regional Services Board.

9

Summary of Regional Operations

SUMMARY OF REGIONAL SERVICES OPERATIONS(for the year ended December 31, 2012)

Gross Recoveries From Net CostExpenditure Third Parties to City

Regional Water Treatment and Supply 7,946,003$ 4,177,910$ 3,768,093$ Regional Fire Services 23,839,154 5,266,626 18,572,528 Regional Wastewater Treatment 6,128,174 337,546 5,790,628 Regional Solid Waste Management 10,258,696 8,340,042 1,918,654

Total Regional Operations 48,172,027$ 18,122,124$ 30,049,903$

FINANCIAL POSITION

The Consolidated Statement of Financial Position reports the City’s financial and non-financial assets and liabilities, and accumulated surplus as at December 31, 2012, on a comparative basis to the restated results for 2011. This statement, read in conjunction with the referenced notes, is used to evaluate the City’s ability to finance its operations and to meet its obligations and commitments. The accumulated surplus, which represents the net assets of the City, is one of the key indicators on the Consolidated Statement of Financial Position. The annual change in the accumulated surplus is equal to the yearly excess of revenues over expenses for the year, which was $52.39 million in 2012. This increase in surplus is primarily attributable to the capital contributions from other levels of government and from developers, which must be recorded as revenue in the year received. As previously discussed, additional operating revenues were generated by increases in sales of goods and services, grants and transfers, and earnings from taxation. As shown in Note 13 to the Consolidated Financial Statements the accumulated surplus from past revenues and contributions has been used to create reserves (appropriated surplus) under various accounts/projects. The majority of these reserves are earmarked for future capital expenditures and for stabilizing significant variances in operating expenditures and revenue levels from year to year. In 2012, the City’s reserve balances increased overall by $7.2 million over the previous year. Sinking fund reserve for retirement of debentures accounted for the largest amount under reserve, which increased (net of a debenture retirement of $11,000,000) by $1.63 million in 2012. Some of the important items in the Consolidated Statement of Financial Position are discussed in the following section. CASH & CASH EQUIVALENTS Cash and cash equivalents decreased slightly by $1.53 million in 2012 with the biggest change being in the Public Transit Fund as it declined from over $4.4 million as construction continued on the new Metrobus Depot. Other significant items under the cash and cash equivalent account includes accommodation tax, 10

advance payments from developers, and the replacement reserve fund for the City’s non-profit housing projects. The amount reserved for closure and post-closure costs at the Robin Hood Bay Waste Management Facility increased to $4.67 million in 2012 while a further $430,000 has been set aside for equipment replacement at Robin Hood Bay. These monies are collected as part of the tipping fees paid by all users of the Facility. This item is explained in detail in Note 17 to the consolidated financial statements.

SHORT TERM INVESTMENTS Short term investments amounted to $14.25 million in 2011 but these funds were on hand only because the City borrowed $70 million in 2011 to refinance various capital works projects which had not been completed to the point of payment in 2011. This balance declined to zero through 2012 as these projects were completed. ACCOUNTS RECEIVABLE The current portion of accounts receivable increased by $2.0 million in 2012 over 2011, partly because of an increase in receivables from other governments, the vast majority of which consists of capital costs incurred under cost-sharing programs. At the same time other current accounts receivable decreased by almost $1.1 million to $10.28 million. This category includes receivables from a wide variety of sources including other municipalities, commercial water users and tipping fees. Accounts receivable – long term consists mainly of amounts receivable from the provincial government for funds borrowed to finance the provincial share of cost shared capital projects. Accounts receivable – long term declined by a further $5.49 million as the Provincial Government continues paying off its share of older loans and pays its share of cost-shared projects out of its own current revenues. PORTFOLIO INVESTMENTS Portfolio investments (sinking funds) increased by $12.63 million in 2012 from the previous year and were reduced by $11 million as funds were used to repay a matured debenture, leaving a net increase for the year of $1.63 million. Sinking funds are established under the terms of the City’s Debenture debt borrowings and are used to accumulate the principle payments required each year. These typically consist of payments of 2.5% of the originally borrowed amount of each bond issue per year, plus the income earned as these amounts are invested. This process ensures that sufficient funds are on hand to pay off the bonds (debentures) on maturity. The total amount of the Sinking Funds must be offset against the Debenture debt total to provide the net debt outstanding at year end. PAYABLES & ACCRUALS The payables and accruals consist of deposits and prepayments, trade, accrued interest, and obligations to other governments. The substantial increase of $5.66

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million at year end is almost entirely attributable to capital works projects paid for subsequent to year end. DEBT The City has two major types of debt obligations—debenture debt and long-term debt. The largest debt component is the sinking fund debentures, which totalled $275.50 million as at December 31, 2012 (see Schedule 2 to the consolidated financial statements). The annual requirements until 2017, relating to sinking funds (less debt charges recoverable from the Province of Newfoundland and Labrador), range from $5.78 million down to $5.43 million as older bonds mature. The long-term debt consists of various mortgages and other loans including those for urban living non-profit housing, sewage treatment plants, and other capital projects. The City’s net debt payable at the end of December 2012 is $196.60 million, as summarized in the table below. DEBT(for the years ended December 31)

2012 2011 ChangeDebenture debt 275,500,000 286,500,000 (11,000,000) Long term debt 34,587,915 37,447,114 (2,859,199)

310,087,915 323,947,114 (13,859,199) Less: Accounts receivable - long term 36,206,506 41,654,772 (5,448,266) Portfolio investments (Sinking Funds) 77,277,098 75,642,202 1,634,896 Net debt payable 196,604,311 206,650,140 (10,045,829)

EMPLOYEE BENEFITS

The City provides pension, sick leave, and severance pay benefit plans for qualifying employees. The cost of these plans is actuarially determined each year, based on best estimates of a number of assumptions. Past experience and future economic and investment outlook lay the foundation for the assumptions; hence, future uncertainty may derail some of the projections. Variance between actual experience and assumptions (and revisions in assumptions) will almost certainly lead to adjustments in pension, severance, and/or sick leave benefit expenses in future. Some important assumptions relate to such factors as the long-term expected rate of return on plan assets, inflation, increase in salaries, discount (interest) rates, and employee related factors such as retirement age, mortality, turnover, used sick leave, etc. The City contributes to a defined benefit pension plan for employees as well as to a supplementary retirement plan for the members of Council, both providing benefits based on length of service and average annual income. The consolidated financial statements also incorporate the two pension plans in place for the St. John’s Transportation Commission (see Note 11). The aggregate employee benefits obligation increased to $147.74 million at December 31, 2012 compared to $132.89 million at December 31, 2011. The largest amount, explained in more detail in Note 12, is for post employment health and life insurance benefits, which is the current calculation of the future cost of paying 12

the premiums for these benefits for current employees after their retirement. This is an extrapolation with no funding required on a current basis. As disclosed in Note 11 to the Consolidated Financial Statements, the required triennial actuarial valuation of the City’s employee pension plan was completed as of December 31, 2012. The actuarial valuation produced reported pension plan liabilities of $261,748,000 versus plan assets of $179,249,502, leaving a going concern funding deficiency of $82,498,498, up from the extrapolated deficiency at December 31, 2011 of $63,813,663. The reasons for the significant increase in pension fund liabilities include low investment returns since 2008, low interest rates, which boost actuarial liabilities, new mortality tables which reflect the fact that people are living longer and plan provisions which allow for early retirements with unreduced pensions. The impacts of the valuation include higher special payments of $8 million per year in each of the next three years and higher employer contributions for current service. The City has undertaken a project to put the employee pension plan on a sustainable basis to ensure its continued existence at an affordable price. Subsequent to year end, the Mayor and Councillors’ Pension Plan was closed to new entrants and will, over time, disappear. TANGIBLE CAPITAL ASSETS Tangible capital assets include the City’s physical assets such as land, buildings, equipment, vehicles, roads, underground networks, etc. These assets are recorded at cost, which includes all amounts that are directly attributable to acquisition, construction, and/or development of the assets. The cost, less estimated residual value of the assets are amortized on a straight-line basis over the assets’ estimated useful lives, ranging from 5 to 100 years. In 2012, the City made total capital investments of $155.91 million under various projects. Major outlays were in buildings and permanent improvements; equipment, vehicles and moveable plant; and in work in progress of projects from earlier years. The ending book value of the City’s tangible capital assets stood at $1.105 billion as at December 31, 2012, after taking into account the impact of the restatement discussed in Note 2 to the consolidated financial statements. FINANCIAL INDICATORS

The financial condition of the City is measured by its ability to meet its existing financial obligations to employees, creditors, and other stakeholders, while continuing to provide high quality service to the public. The City manages debts and its credit efficiently which contributes to its good credit standing. The City was first rated by two ratings agencies in 2011; the first time the City had sought a formal credit rating. The ratings obtained were Aa2 Stable by Moody’s and A+ Stable by Standard and Poors. These credit ratings enable the City to market its bonds to a larger market and provide us with better (lower) 13

interest rates. These ratings have been confirmed in 2012 and subsequently in 2013. Contributing factors in the favourable ratings include vigorous contract management, purchasing rules, and the financial controls in place to ensure proper financial checks and balances.

An analysis of the comparative Consolidated Financial Statements for 2012 and 2011 reveals the City’s financial state. One of the key indicators of financial health is the sustainability ratio. It measures the degree to which the City can maintain its existing service and financial commitments without increasing the relative debt or tax burden on the taxpayers. A critical measure of sustainability is the assets-to-liabilities ratio. At December 31, 2012, the City had an assets-to-liabilities ratio of 2.15, a slight decline from the 2.19 figure at December 31, 2011, but still showing that the City has sufficient assets in place to cover its existing liabilities. It has to be kept in mind that much of both the assets and liabilities relate to the infrastructure required to be in place and maintained to ensure that the City has the capability and capacity to provide its mandated services. The City’s financial assets-to-liabilities ratio sits at 0.33 at December 31, 2012 compared to 0.37 at December 31, 2011, a slight decrease attributable to the level of cash on hand in 2011 as discussed above. These levels are to be expected as most financial liabilities are long term debt repayable over the next twenty years. CONSOLIDATED STATEMENT OF CASH FLOW The Consolidated Statement of Cash Flow summarizes how the City’s cash position changed during the year by highlighting the City’s sources and uses of cash. The statement is useful in determining the short-term viability of the City, particularly its ability to pay bills. The statement reconciles the cash position of the City over the fiscal year ended December 31, 2012 by starting with income earned during the year, adding back amortization of tangible capital assets as well as other non-cash expenditures, adding cash provided by borrowing and other financing activities, and deducting capital expenditures and principal payments on debt. As at December 31, 2011, the City’s cash position stood at $21.75 million, a small decrease of $1.5 million over the previous year. The composition of cash on hand is set out in Note 3 to the consolidated financial statements and discussed above.

CONSOLIDATED STATEMENT OF CHANGE IN NET DEBT The City relies on borrowed funds to finance some of its capital expenditures as there is a gap between capital expenditure needs and ongoing revenue sources. However, debt has remained at sustainable levels. The Consolidated Statement of Change in Net Debt reconciles the net debt of the City, year-on-year, where net debt is the City’s financial assets (cash and equivalents) less financial liabilities. The statement reports on the extent to which expenditures (as opposed to expenses) in the year have been met by revenues recognized in the year. Expenditures include both payments on debt principal in the year as well as the costs of acquisition of tangible capital assets, items that require the outlay of 14

cash but are not considered expenses for the year. This statement essentially reports how these expenditures are financed.

In 2012, the City’s net debt increased by $23.9 million (2011, increased by $9.0 million). It should be noted that the City’s Long Term Debt Policy allows borrowing only for capital projects where at least 50% of the cost is borne by third parties or where there is a dedicated new source of revenue sufficient to cover the City’s cost. That policy also provides that the City’s total general obligation debt service (eg. paid from property tax) shall not exceed 17.5% of the City’s net operating revenue. That ratio as of December 31, 2012 is at approximately 11.5%.

COMPARISON TO BUDGET

In accordance with the City of St. John’s Act, the City prepares its annual budget on a cash basis rather than the full accrual basis now mandated for its annual consolidated financial statements by Canadian generally accepted accounting principles for local governments. There are many differences between the cash basis financial results derived from the cash budget and the results provided by accrual based financial statement accounting. In order to compare the City’s operating results to the approved budget for 2012 we must do it on a cash basis. The following schedule provides that comparison. CITY OF ST. JOHN'SCash Basis Statement of Revenue and ExpenditureYear ended December 31, 2012

2012 2012Actual Budget Variance

RevenueTaxation 179,496,631$ 177,850,088$ 1,646,543$ Grants from other governments 27,139,728 26,669,181 470,547 Grants in lieu of taxes 4,328,765 4,195,000 133,765 Sales of goods & services 20,729,041 17,076,895 3,652,146 Other revenue own sources 12,712,600 9,531,650 3,180,950 Other transfers 2,123,581 4,195,923 (2,072,342)

Total Revenue 246,530,346 239,518,737 7,011,609

ExpenditureGeneral government services 32,480,619 31,907,111 573,508 Protective services 25,987,307 27,724,489 (1,737,182) Transportation services 45,617,480 45,829,749 (212,269) Environmental health services 59,096,627 59,841,231 (744,604) Environmental development services 10,726,786 10,082,870 643,916 Recreation and cultural services 18,044,802 19,221,643 (1,176,841) Fiscal services 27,874,280 28,362,544 (488,264) Transfers to reserves & other funds 23,001,075 16,549,100 6,451,975

Total Expenditure 242,828,976 239,518,737 3,310,239 Net cash operating surplus 3,701,370 0 3,701,370

As shown, City operations in 2012 resulted in an operating surplus of approximately $3.7 million. When this is added to the accumulated cash surplus from prior years less $10 million of surplus allocated to capital projects in 2012, 15

the accumulated cash surplus from operations at December 31, 2012 amounted to approximately $6.44 million. Contributing factors in the operating surplus for 2012 were numerous positive variances in both revenues and expenditures as discussed above.

The following schedule provides a reconciliation of the City’s surplus on operations as reported in the Consolidated Financial Statements to the cash basis surplus calculated in accordance with the City’s approved budget. RECONCILIATION OF OPERATING SURPLUS FROM ACCRUAL BASIS TO CASH BASIS(for the year ended December 31, 2012)

Surplus on operations per Consolidated Financial Statements 52,390,236$

Add: Gross expenditures - St. John's Transportation Commission 17,580,444 Gross expenditures - St. John's Sports & Entertainment Ltd. 9,018,989 Amortization of tangible capital assets 31,014,804 Provision for employee post-retirement benefits 14,850,046 Management expenses, Non-Profit Housing 512,340 Other - net 131,108

125,497,967

Less: Gross revenues - St. John's Transportation Commission 6,111,748 Gross revenues - St. John's Sports & Entertainment Ltd. 8,695,731 Operating subsidy - St. John's Transportation Commission 10,474,020 Operating subsidy - St. John's Sports & Entertainment Ltd. 1,000,000 Capital contribution - St. John's Sports & Entertainment Ltd. 477,118 Net surplus, Non-Profit Housing 5,584,690 Interest earned, Sinking Funds 4,239,135 Principle portion of debt service 8,713,228 Contribution to capital out of revenue 21,787,931 Contribution to capital - third parties 54,712,996

121,796,597

Surplus on operations on cash basis 3,701,370$

WHAT THE FINANCIAL STATEMENTS MEAN The City of St. John’s prepares its annual consolidated financing statements in accordance with Canadian generally accepted accounting principles for local governments as noted above. These consolidated financial statements are therefore prepared on the full accrual basis which requires the City to, amongst other things: (a) record capital grants from third parties, primarily the Provincial and

Federal governments, as revenue in the year received;

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(b) record as revenue the value of subdivision common areas transferred to the City by developers;

(c) exclude the purchase or construction cost of fixed assets from the

Statement of Operations and the inclusion of amortization of those fixed assets as disclosed in Schedule 1 to the consolidated financial statements; and

(d) exclude from expenditure, payments made on the principal balances of

long term debt. Readers of these financial statements must therefore understand that the high revenues and substantial operating surpluses recorded are almost entirely attributable to the receipt and recording as revenue of capital grants and actual physical assets. The consolidated financial statements as presented indicate the following:

- the City has spent a great deal of money on the acquisition of fixed or tangible assets in recent years, primarily basic infrastructure, and has received substantial capital contributions towards those expenditures from the Federal and Provincial governments;

- the surplus which has been generated is based on tangible capital

assets which are held indefinitely and used to provide services to residents. They are not for sale and are not used to directly generate revenue; and

- the City maintains a cumulative cash surplus on operations and is

maintaining a good financial position. The primary goal of a municipality’s financial statements is accountability. This includes not only the basic handling of cash funds provided by tax payers and by other levels of government but also how those funds are used to ensure that the municipalities’ physical assets are maintained as required, replaced as appropriate and financed responsibly. These statements are intended to provide that information to current and future readers and to provide an objective measure of the City’s performance in achieving accountability for all its assets. Robert G. Bishop, C.A. Deputy City Manager, Financial Management 17

RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying Consolidated Financial Statements and all other information contained in this Annual Report are the responsibility of the management of The City of St. John’s. The preparation of periodic financial statements involves the use of estimates and approximations because the precise determination of financial information frequently depends on future events. These Consolidated Financial Statements have been prepared by management within reasonable limits of materiality and within the framework of Canadian generally accepted accounting principles for governments established by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. In carrying out its responsibilities, management maintains appropriate systems of internal and administrative controls designed to provide reasonable assurance that transactions are executed in accordance with proper authorization, that assets are properly accounted for and safeguarded and that financial information produced is relevant and reliable. Prior to their submission to Council, the Consolidated Financial Statements have been reviewed and approved by the City’s Audit Committee. Deloitte & Touche LLP, Chartered Accountants, as the City’s appointed external auditors, have audited the Consolidated Financial Statements. The Auditors’ Report is addressed to the Mayor and Councillors and appears in the following pages. Their opinion is based upon an examination conducted in accordance with Canadian generally accepted auditing standards, performing such tests and other procedures as they consider necessary to obtain reasonable assurance that the Consolidated Financial Statements are free of material misstatement and present fairly the financial position and results of operations of the City in accordance with Canadian generally accepted accounting principles. Robert G. Bishop, C.A. Deputy City Manager, Financial Management

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