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HomeMy WebLinkAboutAFC 2013-05-06 AgendaCorporation of the District of Maple RidgeCorporation of the District of Maple RidgeCorporation of the District of Maple RidgeCorporation of the District of Maple Ridge Audit & Finance CommitteeAudit & Finance CommitteeAudit & Finance CommitteeAudit & Finance Committee May 6,May 6,May 6,May 6, 2013201320132013 8888:00AM:00AM:00AM:00AM Blaney RoomBlaney RoomBlaney RoomBlaney Room Chairperson:Chairperson:Chairperson:Chairperson: Councillor M. Morden Committee Members:Committee Members:Committee Members:Committee Members: Councillors: C. Bell; R. Masse; Mayor Daykin Staff:Staff:Staff:Staff: Chief Administrative Officer: J. Rule GM – Corporate & Financial Svc: P. Gill GM – Public Works & Development F. Quinn GM – Community Dev. Park & Rec K. Swift Manager of Accounting: C. Nolan Guest:Guest:Guest:Guest: External Auditor (BDO Canada LLP) B. Cox Recording Secretary:Recording Secretary:Recording Secretary:Recording Secretary: Amanda Gaunt AGENDAAGENDAAGENDAAGENDA 1.1.1.1. Approval ofApproval ofApproval ofApproval of aaaagendagendagendagenda 2.2.2.2. Approval of Approval of Approval of Approval of mmmminutes of inutes of inutes of inutes of April 22April 22April 22April 22, 2013, 2013, 2013, 2013 3.3.3.3. 2012 Audit Update2012 Audit Update2012 Audit Update2012 Audit Update • Overview of 2012 audit by external auditor 4.4.4.4. InvestmentsInvestmentsInvestmentsInvestments • Review of investment listing and ROI information “Original signed by Catherine Nolan” ____________________________________________ Agenda submitted by: C. Nolan, CGA Manager of Accounting District of Maple RidgeDistrict of Maple RidgeDistrict of Maple RidgeDistrict of Maple Ridge Audit & Finance CommitteeAudit & Finance CommitteeAudit & Finance CommitteeAudit & Finance Committee Meeting MinutesMeeting MinutesMeeting MinutesMeeting Minutes April 22, 2013 The Minutes of the Audit and Finance Committee Meeting held in the Blaney Room of the Municipal Hall, 11995 Haney Place, Maple Ridge, BC on Monday, April 22, 2013 at 8:00 a.m. PRESENTPRESENTPRESENTPRESENT Committee MembersCommittee MembersCommittee MembersCommittee Members Municipal StaffMunicipal StaffMunicipal StaffMunicipal Staff Councillor Morden, Chair J. Rule, Chief Administrative Officer Mayor Daykin P. Gill, General Manager, Corporate & Financial Services Councillor Bell K. Swift, The General Manager of Community Development, Councillor Masse Parks and Recreation Services C. Nolan, Manager of Accounting GuestsGuestsGuestsGuests T. Thompson, Manager of Financial Planning Councillor Hogarth L. Benson, Manager of Sustainability and Corporate Planning Councillor Ashlie C.K. Lee, Accountant A. Gaunt, Confidential Secretary The meeting was called to order at 8:00 a.m. 1.1.1.1. Approval ofApproval ofApproval ofApproval of aaaagendagendagendagenda MOVEDMOVEDMOVEDMOVED by Mayor Daykin and SECONDEDSECONDEDSECONDEDSECONDED by Councillor Bell that the agenda be approved as circulated. CARRIEDCARRIEDCARRIEDCARRIED 2.2.2.2. Approval of Approval of Approval of Approval of mmmminutes of inutes of inutes of inutes of March 18March 18March 18March 18, 2013, 2013, 2013, 2013 MOVEDMOVEDMOVEDMOVED by Mayor Daykin and SECONDEDSECONDEDSECONDEDSECONDED by Councillor Bell that the minutes of March 18, 2013 be approved. CARRIEDCARRIEDCARRIEDCARRIED Audit & Finance Committee Meeting Minutes April 22, 2013 Page 2 3.3.3.3. 2012 Consolidated Financial Statements2012 Consolidated Financial Statements2012 Consolidated Financial Statements2012 Consolidated Financial Statements The Manager of Accounting reviewed the staff report. She gave a PowerPoint presentation which provided information on the process involved in the formulation of the financial statements. She explained the audit process and reviewed the consolidated financial statements. The Manager of Accounting outlined the conclusions for 2012 and highlighted a Council resolution accepting the 2012 Consolidated Financial statements, advising that this procedure is now an audit requirement. 4.4.4.4. ReservesReservesReservesReserves The Manager of Accounting gave a PowerPoint presentation providing information on Reserves including updates on accumulated surplus amounts in the revenue funds, reserve funds, reserve accounts and restricted revenues. Detailed information was provided on the Equipment Replacement, Capital Works and Fire Department Capital Acquisition Reserve Funds. The General Manager of Corporate and Financial Services spoke to the intent of the Capital Works Reserve and the intent behind keeping monies in that account. 5.5.5.5. Next MeetinNext MeetinNext MeetinNext Meetingggg • May 6th Post audit meeting with BDO AdjournmentAdjournmentAdjournmentAdjournment––––8:52 a.m.8:52 a.m.8:52 a.m.8:52 a.m. ____________________________________________ Councillor Morden, Chair Corporation of the District of Maple Ridge Audit Results and Communications Report to: The Audit Committee and Council For fiscal year ended: December 31, 2012 I BDO 600 Cathedral Place 925 West Georgia Street Vancouver, BC, Canada V6C 3L2 Telephone: (604) 688-5421 Telefax: (604) 688-5132 E-mail: vancouver@bdo.ca Web: www.bdo.ca April 23, 2013 Members of the Audit Committee The Corporation of the District of Maple Ridge 11995 Haney Place Maple Ridge, BC V2X 6A9 Dear Members of the Audit Committee: We have completed our audit of the financial statements of the Corporation of the District of Maple Ridge [the “District”] for its fiscal year ended December 31, 2012. We take this opportunity to present our findings to you. The responsibility for producing financial statements and ensuring adequate internal controls and sound business practices is the responsibility of Council through management and is a part of management's overall responsibility for the ongoing activities of the District. Policies and procedures developed by the District to safeguard its assets and to provide reasonable assurance that errors and irregularities or illegal acts are promptly identified, must be properly monitored to ensure that all staff are complying with the guidelines provided. The objective of an audit is to obtain reasonable assurance whether the financial statements are free of any material misstatement. Auditors must be completely independent and objective in the application of their testing. We received full support from management and staff throughout our work and the scope of our audit was not restricted in any way. Our audit opinion is without reservation indicating that our audit tests and procedures yielded reliable results. Should you have any questions or concerns in regard to any of the items mentioned in this report, please do not hesitate to contact us at any time. Yours truly, Bill Cox, CA Partner through a corporation of BDO Canada LLP Chartered Accountants BC/ I BDO Contents   Audit Findings ....................................................................................... 1  Audit Reporting ..................................................................................... 2  Auditor Independence ............................................................................. 3  Possible Misstatements ............................................................................ 4  Management Representations .................................................................... 5  Appendix A – Management Letter ................................................................ 6  Appendix B – Letter of Representation ........................................................ 10  District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 1 Audit Findings There were a number of matters that arose during the audit that we would like to bring to your attention, although nothing that was detrimental to the audit. Each of these matters is summarized briefly below. We would be pleased to discuss any of these items in more detail at our upcoming meeting. Auditor’s considerations of possible fraud and illegal activities Our audit procedures were performed for the purpose of forming an opinion on the consolidated financial statements and although they might bring possible fraudulent or illegal activities to our attention, our audit procedures were not designed to detect fraudulent or illegal activities. In any event, we did not detect any fraudulent or illegal activities, or material misstatements resulting from fraudulent or illegal activities during our audit. Disagreements with Management There were no significant disagreements with management. Litigation Proceedings We have communicated directly with the District’s legal counsel. We have received all of the legal letter replies. There are a number of outstanding claims and we are required to obtain an update from legal counsel up to the date the financial statements are approved by Council. Significant Accounting Policies, Estimates and Judgments Management is responsible for determining the significant accounting policies. The choice of different accounting policy alternatives can have a significant effect on the financial position and results of operations of the District. The application of those policies often involves significant estimates and judgments by management. The most significant estimates are used in regard to useful life of tangible capital assets, which determines amortization expense, legal claims, which determine legal expense and liability and various estimates in determining the employee future benefits liability and expense. We are of the opinion that the significant accounting policies, estimates and judgments made by management are reasonable in the context of the financial statements taken as a whole. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 2 Audit Reporting Materiality In our Audit Committee Planning Letter dated January 18, 2013, we discussed that materiality for planning purposes was $1,900,000 based on 1.5% of prior year’s revenues and that performance materiality was set at $1,425,000 based on 75% of materiality. Furthermore, trivial errors were set at 1% of materiality, $19,000. The level used based on normalized actual results was $1,900,000 based on 1.5% of revenues. Performance materiality was set at $1,450,000 and the trivial error level was $19,000 based on 1% of materiality. The level is the same as stated in the Audit Committee Planning Letter. Our Audit Opinion We did not detect any evidence of misstatements that would have a material effect on the consolidated financial statements and, accordingly, we plan to issue an unqualified audit report. Management Letter Our audit provides insight into many of the District’s financial operations and control systems. Points that come to our attention along with recommendations for improvement are reported to you in this format. This letter is included as Appendix A of this report. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 3 Auditor Independence At the core of the provision of external audit services is the concept of independence. We are communicating matters that, in our professional judgment, may reasonably be thought to bear on our independence for the audit of the District. In determining which relationships to report, we have considered the applicable legislation and relevant rules of professional conduct and related interpretations prescribed by the Institute of Chartered Accountants of BC covering such matters as the following:  holding of a financial interest, either directly or indirectly in a client;  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;  personal or business relationships of immediate family, close relatives, partners or retired partners, either directly or indirectly, with a client;  economic dependence on a client; and  provision of services in addition to the external audit engagement. We have prepared the following comments to facilitate our discussion with you regarding independence matters. We are not aware of any relationships between the District and us that, in our professional judgment, may reasonably be thought to bear on our independence. We hereby confirm that we are independent with respect to the District within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of BC as of the date of this letter. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 4 Possible Misstatements During the audit we keep a list of differences between the financial statements and our audit findings from third parties or other sources. This list, known as “Possible Misstatements”, is totaled to ensure that the differences are not material. Should the list total become close to materiality, it is necessary to do further audit work on the differences to determine if there really is an error in the financial statements. The existence of items on our Possible Misstatements listing is normal and does not necessarily mean that the financial statements contain errors. After considering both quantitative and qualitative factors with respect to the likely aggregate misstatements, we agree with management that the financial statements are not materially misstated. Uncorrected misstatements aggregated during the audit are summarized as followed:  $485,000 overstatement of current year revenue related amounts that should have been recorded as revenue in a prior period. This related to utility connection revenue that should have been recorded upon completion of the project. Finance was not provided with a project status update and therefore did not have the information to support recognizing the revenue until the current year. It is important to note that this impacts only timing of revenue recording between years. The financial position at the fiscal year end is accurate.  $152,000 unrecorded liability. This is in relation to a final settlement offer of for greater compensation regarding the expropriation by the District. We will extend the previous inquiries of your lawyers and insurers to the date when the financial statements are approved by the Audit Committee and Council. It is likely that we may find additional difference from their estimates of contingencies and what you have booked. However, we do not expect that this difference, when added to the above, will create a material level of misstatement. (Were it to, there would have to be an adjustment made to the financial statements.) After considering both quantitative and qualitative factors with respect to the likely aggregate misstatements attached, we agree with management that the financial statements are not materially misstated. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 5 Management Representations During the course of an audit, management made many representations to us. These representations were verbal or written and therefore explicit, or they were implied through the financial statements. Management provided representations in response to specific queries from us, as well as unsolicited representations. Such representations were part of the evidence gathered by us to be able to draw reasonable conclusions on which to base the audit opinion. These representations were documented by including in the audit working papers memoranda of discussions with management and written representations received from management. Management's representations included, but were not limited to: a) matters communicated in discussions with us, whether solicited or unsolicited; b) matters communicated electronically to us; c) schedules, analyses and reports prepared by the entity, and management's notations and comments thereon, whether or not in response to a request by us; d) internal and external memoranda or correspondence; e) minutes of meetings of the mayor and councillors; f) a signed copy of the financial statements; and g) a representation letter from management. We obtained management's written confirmation of significant representations provided to us during the engagement (Sample in Appendix B). Such a confirmation included matters that are: a) directly related to items that are material, either individually or in the aggregate, to the financial statements; b) not directly related to items that are material to the financial statements but are significant, either individually or in the aggregate, to the engagement; or c) relevant to management's judgments or estimates that are material, either individually or in the aggregate, to the financial statements. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 6 Appendix A – Management Letter Direct Line: (604) 443-4716 E-mail: bcox@bdo.ca 03-9320 April 23, 2013 Mr. Paul Gill, General Manager Corporate and Financial Services The Corporation of the District of Maple Ridge 11995 Haney Place Maple Ridge, BC V2X 6A9 RE: Auditor’s Management Letter As your external auditors we are engaged to provide an audit opinion on your year-end financial statements. An external audit requires testing of transactions and balances and review of those internal control systems upon which we may place reliance. A positive opinion on the financial statements does not necessarily mean that your internal control systems are all operating effectively. This is because we review only those internal control systems where we feel that failure in those systems could result in a material error on the financial statements. With those systems that we do review, our focus is on the assertions necessary to meet our financial statement audit objectives. Our review of systems, transactions and balances as well as discussions with staff at various levels throughout the District gives us a unique insight into your operations. While conducting this work we make note of items that come to our attention where we feel that improvement could be made or alternatives could be considered. We are fortunate in that we work with a great number of clients and observe a wide variety of processes. We see firsthand any procedures that are emerging as best practices. As matters come to our attention we make note of these for subsequent follow-up. For minor matters we discuss directly with the staff involved. More important matters are brought forward in this letter (known as a “management letter”). It is always worth noting that we almost always come up with points for all clients. The existence of points does not mean that there are significant problems with your systems or staff. They are just recommendations to make good systems better. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 7 Status of Prior Year Recommendations There were a few carry-forward points from the prior year’s management letter. We track these points to ensure that recommendations are followed up and implemented. Recommendation Status Developer Contributed Assets We recommend that Finance review the controls over access and change in the GIS system. Management has considered our recommendation and this is currently in progress. Engineering reviewed the data in 2012, resulting in the need for some prior period adjustments. Engineering and Finance will continue to work together to ensure that data capture meets both departments’ needs and that controls in place help ensure data integrity. Lost and Found Items We recommend that the District consider developing guidelines to help determine the preferred disposition method for various categories and conditions of goods received. Management has considered our recommendation and this was sufficiently dealt with in 2012. Current Year’s Observations and Recommendations 1. Presentation of Investment Reports Observation During our audit fieldwork we noted the most recent presentation of investment reports was in June 2011. The District’s Investment Policy #13 states that the Audit and Finance Committee will receive, at least quarterly, a report summarizing the investment holdings, returns and deviations from policy. This is an effective governance practice to monitor the District’s resource allocation on a timely manner. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 8 Recommendation We recommend that the Investment Report summarizing the investment holdings, returns and deviations from policy be presented to the Audit and Finance Committee on a regular basis. Management Comments: Agreed. Investment reports will be provided to the Audit & Finance Committee on a regular basis. There were no deviations from policy as at December 31, 2013. 2. Deferred Revenue Tracking Observation During our audit fieldwork we noted that included in the 2012 utility connection revenue, there is revenue previously deferred in the amount of $485,000 which should have been recognized in the past. This is due to the project completion reports not being made available to the Finance department until the current year. Recommendation We recommend that the Public Works and the Finance departments coordinate to ensure the Finance department has the updated project status and that the completion reports are forwarded to the Finance department upon project completion. Management Comments: Agreed. The process is already in place along with regular cross checking of records to minimize the risk of Finance not receiving completion reports in the future. 3. CRA Regulation 105 Observation This regulation from the CRA is not new but has recently shown up as a hot point in CRA audits. This regulation requires that any entity paying a non-resident person or company a fee in respect of services rendered in Canada must withhold 15% of the payment and remit this to the Government of Canada. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 9 Where this is seen most often is in training and in computer software installations. Often a Canadian entity may deal with a Canadian sales office and may not appreciate the trainer coming up from Florida or the computer installers from Washington are being contracted directly and should therefore be subject to withholdings. The duty of care lies with the Canadian entity and not with the non-resident service providers. The Canadian entity would be responsible for the withholdings and penalties and interest in situations where they did not withhold. Recommendation The point is more of an informational item than a suggestion that transactions have been handled incorrectly in the past. However, when dealing with any person or company providing services you should ensure that they are Canadian residents or else withhold 15% of the payment. In most cases, this would be obvious from review of the contract or the invoices but where uncertain you should dig deeper to ensure that you have met your responsibilities. The area does get complicated with services such as web-training so you may want to touch base with tax experts (such as ourselves) in any areas where you are uncertain. We received excellent cooperation from everyone at the District of Maple Ridge during the audit. We thank Catherine Nolan and all of the Finance Department staff for their assistance in making the audit process as efficient as possible. Please do not hesitate to contact us should you wish to further discuss any of the matters discussed in this letter. Yours truly, Per: Bill Cox, CA Partner through a corporation of BDO Canada LLP Chartered Accountants BC/ c.c. Audit Committee/Council District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 10 Appendix B – Letter of Representation April 23, 2013 BDO Canada LLP Chartered Accountants and Advisors 600 Cathedral Place 925 West Georgia Street Vancouver, BC V6C 3L2 Canada Dear Sir: This representation letter is provided in connection with your audit of the financial statements of The District of Maple Ridge for the year ended December 31, 2012, for the purpose of expressing an opinion as to whether the financial statements present fairly, in all material respects, the financial position as at December 31, 2012, and the results of its operations and cash flows for the year ended December 31, 2012 of The District of Maple Ridge in accordance with Public sector accounting standards. Financial Statements 1. We have fulfilled our responsibilities, as set out in the terms of the audit engagement letter (last updated December 21, 2011), for the preparation of the financial statements in accordance with Public sector accounting standards; in particular the financial statements are fairly presented in accordance therewith. 2. Significant assumptions used by us in making accounting estimates, including those measured at fair value are reasonable. 3. Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of Public sector accounting standards. 4. All events subsequent to the date of the financial statements and for which Public sector accounting standards require adjustment or disclosure have been adjusted or disclosed. 5. The consolidated financial statements of the District use appropriate accounting policies that have been properly disclosed and consistently applied. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 11 Information Provided 6. We have provided you with: - 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; - additional information that you have requested from us for the purpose of the audit; and - unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence. 7. We are responsible for the design, implementation and maintenance of internal controls to prevent, detect and correct fraud and error, and have communicated to you all deficiencies in internal control of which we are aware. 8. We have made available to you all: - minutes of the meetings of the Council, Audit Committee, closed meeting minutes and committee of the whole minutes. 9. The minute books of the District are a complete record of all meetings and resolutions of Council, Audit Committee, closed meeting minutes and committee of the whole minutes throughout the year and to the present date. 10. We have disclosed to you all significant matters contained in the minutes of all meetings and resolutions of Council, Audit Committee, closed meeting minutes and committee of the whole minutes throughout the year and to the present date. 11. All transactions have been recorded in the accounting records and are reflected in the financial statements. 12. We have disclosed to you all known instances of non-compliance or suspected non- compliance with laws and regulations whose effects should be considered when preparing financial statements. 13. We have identified to you: - guarantees; - indemnifications against damages, liabilities, costs, charges or expenses suffered or incurred by officers or directors as a result of their service, and/or by any subsidiaries; and - non-monetary transactions and transactions for no consideration. 14. We have disclosed to you the identity of the entity's related parties and the related party relationships and transactions of which we are aware. 15. We are aware of the environmental laws and regulations that impact our District and we are in compliance. There are no known environmental liabilities or contingencies that have not been accrued for or disclosed in the consolidated financial statements. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 12 Fraud and Error 16. 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, and have determined such risk to be low. 17. 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: - management; - employees who have significant roles in internal control; or - others where the fraud could have a material effect on the financial statements. 18. We have disclosed to you all information in relation to allegations of fraud, or suspected fraud, affecting the entity’s financial statements communicated by employees, former employees, analysts, regulators, or others. 19. We believe that the effects of unadjusted misstatements are immaterial, both individually and in the aggregate, to the consolidated financial statements taken as a whole. Existence, Completeness and Valuation of Specific Financial Statement Balances 20. All assets, wherever located, to which the District had satisfactory title at the year end, have been fairly stated and recorded in the financial statements. There are no liens or encumbrances on the District’s assets. 21. All financial instruments have been appropriately recognized and measured in accordance with Public sector accounting standards. Significant assumptions used in arriving at fair value of financial instruments are reasonable and appropriate in the circumstances. 22. Where the value of any asset has been impaired, an appropriate provision has been made in the consolidated financial statements or has otherwise been disclosed to you. 23. The inventories as set out in the financial statements represent all of the inventories to which the District held title as at the balance sheet date. Inventories do not include any goods consigned to the District, merchandise billed to customers or any items for which the liability has not been provided in the books. Appropriate provisions have been made for obsolete, slow-moving and defective inventories. 24. The employee future benefit costs, assets and obligation have been determined, accounted for and disclosed in accordance with Public sector accounting standards. The source data and plan provisions provided are complete and accurate. The plans included in the valuation are complete. The determination of the discount rate and the use of specific actuarial assumptions are our best estimate assumptions. We feel that the extrapolations are accurate and have properly reflected the effects of changes and events occurring subsequent to the most recent valuation that had a material effect on the extrapolation. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 13 General Representations 25. The nature of all material uncertainties have been appropriately measured and disclosed in the financial statements, 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. 26. There were no direct or contingent liabilities (including those associated with guarantees or indemnification provisions), unusual contractual obligations nor any substantial commitments, whether oral or written, other than in the ordinary course of business, which would materially affect the consolidated financial statements or financial position of the District, except as disclosed in the consolidated financial statements. 27. We have informed you of all outstanding and possible claims, whether or not they have been discussed with legal counsel. When applicable, these claims have been appropriately disclosed in the consolidated financial statements. 28. We confirm that there are no derivatives or off-balance sheet financial instruments held at year end that have not been properly recorded or disclosed in the financial statements. 29. We have disclosed to you all significant customers and/or suppliers of the District who individually represent a significant volume of business with the District. We are of the opinion that the volume of business (sales, services, purchases, borrowing and lending) done by the District with any one party is not of sufficient magnitude that discontinuance would have a material negative effect on the ongoing operations of the District. 30. There have been no plans or intentions that may materially affect the carrying value or classification of assets and liabilities. 31. We confirm that operating segments are appropriately identified and disclosed in accordance with Public sector accounting standards. 32. No significant matters, other than those disclosed in the consolidated financial statements, have arisen that would require a restatement of the comparative financial statements. District of Maple Ridge 2012 AUDIT RESULTS AND COMMUNICATION PAGE 14 33 We have made the following additional significant representations to you during the course of your audit which we understand that you have relied upon: All tangible capital assets and inventory have been recorded and additions for the year are complete and accurate. Amortization based on the expected useful life of the tangible capital asset and residual value is our best estimate for the consumption of a portion of the tangible capital asset for the year. Where the value of any tangible capital asset has been impaired, an appropriate provision has been made in the financial statements or has otherwise been disclosed to you. Yours truly, Signature Position Signature Position District of Maple RidgeDistrict of Maple RidgeDistrict of Maple RidgeDistrict of Maple Ridge TO:TO:TO:TO: His Worship Mayor Ernie Daykin MEETINGMEETINGMEETINGMEETING DATE:DATE:DATE:DATE: May 6, 2013 and Members of Council FROM:FROM:FROM:FROM: Chief Administrative Officer MEETING:MEETING:MEETING:MEETING: Audit and Finance Committee SUBJECTSUBJECTSUBJECTSUBJECT: 2012 Investment Reports EXECUTIVE SUMMARY:EXECUTIVE SUMMARY:EXECUTIVE SUMMARY:EXECUTIVE SUMMARY: Money held by the District, that is not immediately required, is invested and prudently managed in order to achieve the objectives of safety, liquidity and return. The District’s Investment Policy outlines parameters to manage the investments within. It also calls for regular updates to the Audit and Finance Committee summarizing the investments and any deviations from policy. The Investment Portfolio Summary for 2012 is attached. It highlights that the investment portfolio at year end has no deviations from the Investment Policy. The Investment Portfolio Return on Investments indicates earnings of over $4 million dollars and a return on investment of 3.07%, over double the benchmark return. RECOMMENDATION(S):RECOMMENDATION(S):RECOMMENDATION(S):RECOMMENDATION(S): NoneNoneNoneNone required. For information onlrequired. For information onlrequired. For information onlrequired. For information onlyyyy.... DISCUSSION: DISCUSSION: DISCUSSION: DISCUSSION: a)a)a)a) Background Context:Background Context:Background Context:Background Context: Investment returns generate a significant amount of revenue for the District and more importantly they are invested in a way to protect the public funds ensuring that they are safe and available when required. Council last adopted the Investment Policy in June of 2011. There is currently no need to amend the policy it is attached for easy of reference. More frequent reporting to the Audit and Finance Committee the investment holdings and any deviations from policy as well as returns is prudent. Attached are the 2012 investment summary and the 2012 return on investments (ROI). The investment holdings have no deviations from the Investment Policy. Reports will be prepared and circulated for April, July and October. MAf'LE RI DGE ------rtr11=., C.l,11Ttj 1 b)b)b)b) Business Plan/Financial Implications:Business Plan/Financial Implications:Business Plan/Financial Implications:Business Plan/Financial Implications: A significant portion of the funds invested are monies from Reserve Funds, Reserve Accounts, Development Cost Charges (DCCs) and Water and Sewer Utility Funds. The interest that is earned in each of those areas assists with addressing inflationary costs. Investment returns are conservatively budgeted. A more aggressive reliance on investment earnings in the Financial Plan is not advised. CONCLUSIONS:CONCLUSIONS:CONCLUSIONS:CONCLUSIONS: The return on investment for 2012 far exceeded the benchmark returns. Active management of the investments and the valuable advice and market insight that our investment contacts provide is a key success factor in achieving above average returns and ensuring that the funds are invested appropriately. The reports attached highlight that no deviations from policy exist at year end. As noted in the Investment Policy, as we approach the property tax due date we often have percentages that deviate from the Investment Policy for a couple of months. “Original signed by Trevor Thompson” _______________________________________________ Prepared by: Trevor ThompsonTrevor ThompsonTrevor ThompsonTrevor Thompson, , , , BBA, CGABBA, CGABBA, CGABBA, CGA Manager of Financial PlanningManager of Financial PlanningManager of Financial PlanningManager of Financial Planning “Original signed by John Bastaja” _______________________________________________ Approved by: Paul Gill, BBA, CGAPaul Gill, BBA, CGAPaul Gill, BBA, CGAPaul Gill, BBA, CGA General Manager General Manager General Manager General Manager ---- Corporate Corporate Corporate Corporate and Financial Servicesand Financial Servicesand Financial Servicesand Financial Services “Original signed by Jim Rule” _______________________________________________ Concurrence: J.L. (Jim) RuleJ.L. (Jim) RuleJ.L. (Jim) RuleJ.L. (Jim) Rule Chief Administrative OfficerChief Administrative OfficerChief Administrative OfficerChief Administrative Officer Category Category Category Category IssuerIssuerIssuerIssuer Book ValueBook ValueBook ValueBook Value % Holdings% Holdings% Holdings% Holdings Policy Max.Policy Max.Policy Max.Policy Max.Within PolicyWithin PolicyWithin PolicyWithin Policy Credit UnionsCredit UnionsCredit UnionsCredit Unions (was $10M, 1 year)*YESYESYESYES Envision Financial 15,190,521 11%* None Prov. BC Guarantee YESYESYESYES Vancity 16,446,436 12%* None Prov. BC Guarantee YESYESYESYES Westminster Savings 60,523,430 44%* None Prov. BC Guarantee YESYESYESYES BanksBanksBanksBanks Schedule I CIBC 24,549,589 18%25%YESYESYESYES National Bank 2,765,417 2%25%YESYESYESYES TD 17,779,973 13%25%YESYESYESYES Schedule II 0 25%, $10M, 3 yrs.YESYESYESYES Gov't (Fed., Prov., Muni.)Gov't (Fed., Prov., Muni.)Gov't (Fed., Prov., Muni.)Gov't (Fed., Prov., Muni.)0 0%YESYESYESYES MFA Pooled InvestmentsMFA Pooled InvestmentsMFA Pooled InvestmentsMFA Pooled Investments 0 0%25%YESYESYESYES Total InvestmentsTotal InvestmentsTotal InvestmentsTotal Investments $137,255,366$137,255,366$137,255,366$137,255,366 100% Term RemainingTerm RemainingTerm RemainingTerm Remaining HoldingsHoldingsHoldingsHoldings % Holdings% Holdings% Holdings% Holdings Policy Max.Policy Max.Policy Max.Policy Max.Within PolicyWithin PolicyWithin PolicyWithin Policy District of Maple RidgeDistrict of Maple RidgeDistrict of Maple RidgeDistrict of Maple Ridge Investment Portfolio Summary Investment Portfolio Summary Investment Portfolio Summary Investment Portfolio Summary as at December 31, 2012 Term RemainingTerm RemainingTerm RemainingTerm Remaining HoldingsHoldingsHoldingsHoldings % Holdings% Holdings% Holdings% Holdings Policy Max.Policy Max.Policy Max.Policy Max.Within PolicyWithin PolicyWithin PolicyWithin Policy Short Term (0 to 1 yr)110,708,393 81%None YESYESYESYES Mid Term (>1 to 3 yrs)5,961,760 4%40%YESYESYESYES Long Term (>3 yrs to 10 yrs)20,585,213 15%35%YESYESYESYES Total InvestmentsTotal InvestmentsTotal InvestmentsTotal Investments 137,255,366137,255,366137,255,366137,255,366 100% Term RemainingTerm RemainingTerm RemainingTerm Remaining HoldingsHoldingsHoldingsHoldings Avg. Term Avg. Term Avg. Term Avg. Term Policy Max.Policy Max.Policy Max.Policy Max.Within PolicyWithin PolicyWithin PolicyWithin Policy Short Term (0 to 1 yr)110,708,393 155 days none YESYESYESYES Mid Term (>1 to 3yr)5,961,760 2.6 years none YESYESYESYES Long Term (>3yrs)20,585,213 5.4 years 6 years YESYESYESYES Total InvestmentsTotal InvestmentsTotal InvestmentsTotal Investments 137,255,366137,255,366137,255,366137,255,366 Within PolicyWithin PolicyWithin PolicyWithin Policy Foreign Currency InvestmentsForeign Currency InvestmentsForeign Currency InvestmentsForeign Currency Investments $0 Approval Required YESYESYESYES Terms in excess of 10 yearsTerms in excess of 10 yearsTerms in excess of 10 yearsTerms in excess of 10 years $0 Approval Required YESYESYESYES * The Province of BC has guaranteed deposits at BC Credit Unions. With this guarantee regular policy limits of $10 million per credit union can be exceeded. I I I I I I I I I I I TermsTermsTermsTerms InvestmentsInvestmentsInvestmentsInvestments Dist'nDist'nDist'nDist'n EarningsEarningsEarningsEarnings ROIROIROIROI BenchmarkBenchmarkBenchmarkBenchmark Short Term 75,817,431 56%1,363,840 1.80%1.03% Mid Term 21,937,988 16%603,828 2.75%1.35% Long Term 37,956,346 28%2,195,166 5.78%2.41% Total 135,711,765 100%4,162,834 3.07%3.07%3.07%3.07%1.47%1.47%1.47%1.47% TermTermTermTerm is the term when purchased not term left to maturity. District of Maple RidgeDistrict of Maple RidgeDistrict of Maple RidgeDistrict of Maple Ridge Investment Portfolio Return on Investment (ROI)Investment Portfolio Return on Investment (ROI)Investment Portfolio Return on Investment (ROI)Investment Portfolio Return on Investment (ROI) for the year ended December 31, 2012 For example, a 7 year investment bought in 2007 would always be classed as Long Term even through in 2012 it has only a few years to maturity EarningsEarningsEarningsEarnings are calculated differently than accounting standards as unrealized capital gains (losses) are included. By taking market price fluctuations into account, the management of the investments are better measured. Benchmarks are calculated on the same basis allowing for a more relevant comparison. Page 1 of 10 Policy 5.44 POLICY MANUALPOLICY MANUALPOLICY MANUALPOLICY MANUAL Title: INVESTMENT OF MUNICIPAL FUNDSTitle: INVESTMENT OF MUNICIPAL FUNDSTitle: INVESTMENT OF MUNICIPAL FUNDSTitle: INVESTMENT OF MUNICIPAL FUNDS Policy No : 5.44Policy No : 5.44Policy No : 5.44Policy No : 5.44 Revised VersionsRevised VersionsRevised VersionsRevised Versions: 5.44 (2001): 5.44 (2001): 5.44 (2001): 5.44 (2001) Authority: Authority: Authority: Authority: Legislative Legislative Legislative Legislative OperationalOperationalOperationalOperational Approval: Approval: Approval: Approval: Council Council Council Council CMT CMT CMT CMT General Manager General Manager General Manager General Manager Effective Date: June 15, 2011Effective Date: June 15, 2011Effective Date: June 15, 2011Effective Date: June 15, 2011 Review Date: June Review Date: June Review Date: June Review Date: June 2012201220122012 Policy Statement:Policy Statement:Policy Statement:Policy Statement: It is a fiduciary responsibility to protect public funds and to prudently manage investments in order to achieve the investment objectives of safety, liquidity and return. Purpose:Purpose:Purpose:Purpose: Provide guidelines for the prudent investment of the municipality’s cash in all Funds and Reserves. 1.01.01.01.0 PRUDENCEPRUDENCEPRUDENCEPRUDENCE Investments shall be made with judgement and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the safety of their capital as well as the probable income to be derived. 1.11.11.11.1 Standard of Prudence Standard of Prudence Standard of Prudence Standard of Prudence used by investment officials shall be the “prudent person” standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy, and exercising due diligence shall be relieved of personal responsibility for an individual security’s credit risk or market price changes, providing deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. 2.02.02.02.0 OBJECTIVEOBJECTIVEOBJECTIVEOBJECTIVE The investment of District funds must reflect a conservative management philosophy based on three fundamental objectives, in order of priority; Safety, Liquidity and Return. MAPLE RIOGE ------S; ,1~• ( :1 l 11T1 IU ~ □ ~ □ □ Page 2 of 10 Policy 5.44 2.12.12.12.1 Safety Safety Safety Safety of principle is the foremost factor to be considered during each investment transaction. Safety in investing refers to minimizing the potential for loss of principle, interest or a combination of the two due to two types of risk, Credit Risk and Market Risk. 2.1.12.1.12.1.12.1.1 Credit RiskCredit RiskCredit RiskCredit Risk, defined as the risk of loss due to failure of the issuer of a security, shall be mitigated by only investing in very safe “investment grade” securities and diversifying where feasible. (see section 6.0 Authorized Investments and 7.0 Diversification) 2.1.22.1.22.1.22.1.2 MMMMarket Riskarket Riskarket Riskarket Risk, defined as market value fluctuations due to overall changes in interest rates, shall be mitigated by structuring the portfolio based on liquidity needs as to avoid the need to sell securities prior to maturity. Also, limiting the term of the investments and, when it makes sense, diversifying the holdings to include investments that values are not correlated. 2.22.22.22.2 Liquidity Liquidity Liquidity Liquidity in the investment portfolio will remain sufficient to enable the District to meet all cash requirements, which might be reasonably anticipated. The degree of liquidity is measured by the time required to convert a security into cash with a minimal risk of capital loss. This is achieved by, wherever possible, matching maturities to cash requirements. Liquidity is further enhanced by holding a portion of the portfolio in cash and readily marketable short term investments. 2.32.32.32.3 Return Return Return Return on Investment is a highly important factor as a significant amount of revenue is generated through investment earnings. The investment portfolio shall be designed with the objective of maximizing return subject to criteria of safety and liquidity. 3.03.03.03.0 DELEGATION OF AUTHORITYDELEGATION OF AUTHORITYDELEGATION OF AUTHORITYDELEGATION OF AUTHORITY Authority to manage the District’s investment program is derived from Section 149 of the Community Charter, as follows: Financial OfficerFinancial OfficerFinancial OfficerFinancial Officer One of the municipal officer positions must be assigned the responsibility of financial administration, which includes the following powers, duties and functions: (b)(b)(b)(b) ensuring the keeping of all funds and securities of the municipality or regional district (c)(c)(c)(c) investing municipal funds, until required, in authorized investments; 3.1 Management Responsibility3.1 Management Responsibility3.1 Management Responsibility3.1 Management Responsibility for the investment program is hereby delegated to the Manager of Financial Planning who shall establish and maintain written procedures for the operation of the investment program consistent with this investment policy. Procedures should include references to safekeeping, buy/sell agreements, communication of instructions to custodial bank, cash management techniques, and accounting entries related to investment transactions. Such procedures shall include explicit delegation of authority to persons responsible for Page 3 of 10 Policy 5.44 investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established. The Manager of Financial Planning shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of others who have delegated authority. 4.04.04.04.0 ETHICS AND CONFLICT OF INTERESTETHICS AND CONFLICT OF INTERESTETHICS AND CONFLICT OF INTERESTETHICS AND CONFLICT OF INTEREST Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Investment employees and officials shall disclose to the District any material financial interests in financial institutions and/or investment dealers that conduct business with the District. Investment officers and employees must conduct themselves in compliance with the District’s Code of Conduct and Code of Ethics established by the GFOA, LGMA and professional accounting bodies. 5.05.05.05.0 AUTHORIZED INVESTMENT DEALERS AND INSTITUTIONSAUTHORIZED INVESTMENT DEALERS AND INSTITUTIONSAUTHORIZED INVESTMENT DEALERS AND INSTITUTIONSAUTHORIZED INVESTMENT DEALERS AND INSTITUTIONS A list of financial institutions and investment dealers authorized to provide investment services, will be approved by the Audit and Finance Committee. The Investment Policy will be provided to these institutions and dealers to ensure they understand the District’s risk profile and the type of investments that the District is able to purchase. 6.06.06.06.0 AUTHORIZED INVESTMENTSAUTHORIZED INVESTMENTSAUTHORIZED INVESTMENTSAUTHORIZED INVESTMENTS The District is empowered by Section 183 of the Community Charter to invest in certain types of securities. Section 183 reads as follows: Money held by a municipality that is not immediately required may be invested or reinvested in one or more of the following: (a) securities of the Municipal Finance Authority; (b) pooled investment funds under section 16 of the Municipal Finance Authority Act;. (c) securities of Canada or of a province; (d) securities guaranteed for principal and interest by Canada or by a province; (e) securities of a municipality, regional district or greater board; (f) investments guaranteed by a chartered bank; (g) deposits in a savings institution, or non-equity or membership shares in a credit union; (h) other investments specifically authorized under this or another Act. 6.1 Internal Financing:6.1 Internal Financing:6.1 Internal Financing:6.1 Internal Financing: The District may, as approved by bylaw, internally finance borrowings. Such internal financing shall be for a period not to exceed 10 years, unless otherwise stated in the bylaw, and shall bear interest at the market rate. The loan and debt payments will be created through transfers in the Financial Plan. The reserve lending the funds will benefit from the earnings or interest payments. Page 4 of 10 Policy 5.44 7.07.07.07.0 DIVERSIFICATIONDIVERSIFICATIONDIVERSIFICATIONDIVERSIFICATION The District will diversify its investments by security type and institution. With the exception of securities issued and/or guaranteed by the Government of Canada and the Province of British Columbia, not more than 25% of the District’s total investment portfolio will be invested with the Municipal Finance Authority or a single province, regional district or financial institution. 7.1 Limitations on Schedule7.1 Limitations on Schedule7.1 Limitations on Schedule7.1 Limitations on Schedule I Chartered Banks:Chartered Banks:Chartered Banks:Chartered Banks: Schedule I banks are domestic banks. Each investment will have minimum credit rating of R-1 (low) or A by DBRS. A list, approved by the Audit and Finance Committee, of eligible Schedule I banks will be maintained. 7.2 Limitations on Schedule 7.2 Limitations on Schedule 7.2 Limitations on Schedule 7.2 Limitations on Schedule II Chartered Banks: Chartered Banks: Chartered Banks: Chartered Banks: Schedule II banks are foreign bank subsidiaries. A list, approved by the Audit and Finance Committee, of eligible Schedule II banks will be maintained. The aggregate of Schedule II banks shall not exceed $10,000,000. Investment in Schedule II banks must: (a) be fully guaranteed by the parent bank (b) have a maximum term to maturity of three years (c) be rated a minimum of R-1 (low) by BDRS 7.3 Limitations on Credit Unions: 7.3 Limitations on Credit Unions: 7.3 Limitations on Credit Unions: 7.3 Limitations on Credit Unions: Deposits in credit unions are limited to a maximum term of one year and an aggregate limit of $10,000,000. A list of eligible credit unions will be approved by the Audit and Finance Committee. 8.08.08.08.0 PORTFOLIO CONSTRAINTS PORTFOLIO CONSTRAINTS PORTFOLIO CONSTRAINTS PORTFOLIO CONSTRAINTS The District may operate a Money Market portfolio, an Intermediate portfolio and a Bond portfolio. To the extent possible, the District will match its investments with anticipated cash flow requirements to the next taxation date. 8.1 Money Market Fund: 8.1 Money Market Fund: 8.1 Money Market Fund: 8.1 Money Market Fund: The maximum maturity of securities in this fund is one year. 8.2 Intermediate Fund: 8.2 Intermediate Fund: 8.2 Intermediate Fund: 8.2 Intermediate Fund: The maximum term to maturity in the intermediate fund is three years. The maximum investment permitted is 40% of the investment portfolio. 8.3 Bond Fund: 8.3 Bond Fund: 8.3 Bond Fund: 8.3 Bond Fund: The maximum term to maturing in this fund is ten years from the date of purchase. The weighted average maturity of the Bond Fund will not exceed six years. The bond portfolio shall not exceed of 35% of the total investment portfolio. In the months just prior to collection of property taxes, the holdings in the Intermediate and Bond Funds will likely be overweight. This temporary ‘out of balance situation’ is expected, and is necessary to retain the longer term positions, and is consistent with the investment strategy. All funds will be pooled for investment purposes to improve the yield rate and reduce administration costs through portfolio management. The General Revenue Fund will pay interest income to the funds, unless contrary to reserve policies or practice, at the Page 5 of 10 Policy 5.44 average effective monthly rate for the period, less 50 basis points (0.5%). Interest will be paid and compounded each period based on the closing balance of the prior accounting period. Funds in a negative balance will be charged interest on the same method as above but at the prime borrowing rate available at the District’s bank on the first day of each month. All transactions will be in Canadian dollars unless approved by the Audit and Finance Committee. Investments of longer than ten years may be advantageous if the timing of the cash needs has a long term horizon. Any such investment would require the approval of the Audit and Finance Committee. 9.09.09.09.0 COMPETITIVE BIDSCOMPETITIVE BIDSCOMPETITIVE BIDSCOMPETITIVE BIDS The District shall solicit competitive quotations for the purchase and sale of securities when it is prudent to do so. This policy recognizes that from time to time, offerings of value may require immediate action. Under such circumstances, competitive bids may not be sought provided that value can be substantiated by market data information services. 10.010.010.010.0 SAFEKEEPING AND CUSTODYSAFEKEEPING AND CUSTODYSAFEKEEPING AND CUSTODYSAFEKEEPING AND CUSTODY All security transactions entered into by the District shall be conducted on a delivery- versus payment (DVP) basis. Settlement may take place at the main branch of the District’s bank in any Canadian city. Securities shall be held by the District’s custodial bank or alternatively, shall be registered with the Central Depository for Securities (CDS). 10.1 Authorization: 10.1 Authorization: 10.1 Authorization: 10.1 Authorization: The custodial bank shall not accept delivery or payment without prior authorization and instructions from the District. 10.2 Evidence: 10.2 Evidence: 10.2 Evidence: 10.2 Evidence: All transactions shall be evidenced by a contract advice from the investment dealer, as well as a settlement advice from the custodial bank. 10.3 Registration:10.3 Registration:10.3 Registration:10.3 Registration: All securities that are able to be registered shall be registered in the name of the District of Maple Ridge, or the nominee of the District’s custodial bank. 11.011.011.011.0 INTERNAL CONTROINTERNAL CONTROINTERNAL CONTROINTERNAL CONTROLLLL As part of the annual audit, a review by the external auditor will be done to assure compliance with internal controls and policy. Page 6 of 10 Policy 5.44 12.012.012.012.0 PERFORMANCE MEASUREMENTPERFORMANCE MEASUREMENTPERFORMANCE MEASUREMENTPERFORMANCE MEASUREMENT The investment portfolios will be designed to maximize the rate of return, taking into account the District’s investment risk constraints, cash flow requirements and active management strategy. This policy recognizes that the reliability of performance evaluation (i.e. comparison to benchmarks) increases with the duration of the measurement period. Returns, when there is a current market value available, will be reported on a total return basis, including both realized and unrealized gains. The benchmark rates of return shall be: 12.1 Money Market Fund: 12.1 Money Market Fund: 12.1 Money Market Fund: 12.1 Money Market Fund: The average of the DEX 30-Day Treasury Bill Index and the yield of the Municipal Finance Authority (MFA) Money Market Pool. 12.2 Intermediate Fund: 12.2 Intermediate Fund: 12.2 Intermediate Fund: 12.2 Intermediate Fund: The average of the DEX 365-Day Treasury Bill Index and the yield of the MFA Intermediate Pool. 12.3 Bond Fund: 12.3 Bond Fund: 12.3 Bond Fund: 12.3 Bond Fund: The average of the DEX Short Term Index and the yield of the MFA Bond Pool. 13.013.013.013.0 REPORTINGREPORTINGREPORTINGREPORTING The Audit and Finance Committee will receive, at least quarterly, a report summarizing the investment holdings, returns and deviations from policy. Investment performance will be reported in the Annual Report. 14.014.014.014.0 INVESTMENT POLICY ADOPTIONINVESTMENT POLICY ADOPTIONINVESTMENT POLICY ADOPTIONINVESTMENT POLICY ADOPTION The District’s investment policy shall be approved by Council. Any modification must be approved by Council. Page 7 of 10 Policy 5.44 APPENDIX 1APPENDIX 1APPENDIX 1APPENDIX 1 GLOSSARY OF TERMSGLOSSARY OF TERMSGLOSSARY OF TERMSGLOSSARY OF TERMS BANKER’S ACCEPTANCE (BA):BANKER’S ACCEPTANCE (BA):BANKER’S ACCEPTANCE (BA):BANKER’S ACCEPTANCE (BA): A short-term debt investment by a major corporation, which is guaranteed (endorsed) by a bank. It is sold at a discount, with issue periods of between 30 and 365 days and in face value multiples of $100,000. BOND:BOND:BOND:BOND: An IOU from the borrower to the lender. It refers to any interest bearing government or corporate security that obligates the issuer to pay a particular sum of money at specified intervals and the repay the principal amount of the loan upon maturity. A secured bond is backed by collateral that may be sold by the bondholder if the bond issuer fails to pay interest and principal as due. Any specific collateral does not back a debenture or unsecured bond. CALLABLE SECURITIES: CALLABLE SECURITIES: CALLABLE SECURITIES: CALLABLE SECURITIES: Securities redeemable by the issuer prior to the scheduled maturity date. CERTIFICATE OF DEPOSIT (CD): CERTIFICATE OF DEPOSIT (CD): CERTIFICATE OF DEPOSIT (CD): CERTIFICATE OF DEPOSIT (CD): An interest bearing non-redeemable deposit certificate issued by a chartered bank or credit union with maturity generally between 1 and 5 yrs. Denominations may vary and will range upward from $5,000; interest is paid semi-annually. CENTRAL DEPOSITORY FOR SECURITIES (CDS):CENTRAL DEPOSITORY FOR SECURITIES (CDS):CENTRAL DEPOSITORY FOR SECURITIES (CDS):CENTRAL DEPOSITORY FOR SECURITIES (CDS): A national clearing house for securities trading owned by the major banks, investment dealers and trust companies. CDS is regulated directly by the Provincial Securities Commissions and indirectly through the Federal Regulations of Financial Institutions. It manages the recording and clearing of Canadian stocks, bonds, and coupons on a book basis. The physical securities are stored in vaults of CDS and the Bank of Canada. DEBENTURE: DEBENTURE: DEBENTURE: DEBENTURE: A form of long term corporate debt that is not secured by a pledge of specific assets. Security is usually based only on the earning power of the firm. DELIVERY VERSUS PAYMENT: DELIVERY VERSUS PAYMENT: DELIVERY VERSUS PAYMENT: DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DIVERSIFICATION: DIVERSIFICATION: DIVERSIFICATION: DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. Page 8 of 10 Policy 5.44 LIQUIDITY: LIQUIDITY: LIQUIDITY: LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. MARKET VALUE: MARKET VALUE: MARKET VALUE: MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MONEY MARKET:MONEY MARKET:MONEY MARKET:MONEY MARKET: The market in which short-term (one year or less) debt instruments (treasury bills, commercial paper, bankers acceptances, etc.) are issued and traded. PORTFOLIO: PORTFOLIO: PORTFOLIO: PORTFOLIO: Collection of securities held by an investor. PRUDENT PERSON RULE: PRUDENT PERSON RULE: PRUDENT PERSON RULE: PRUDENT PERSON RULE: An investment standard commonly used to establish fiduciary responsibility. It gives authority to the investment manager to invest in a security if it is one, which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and the preservation of capital. RATING RATING RATING RATING Evaluation of the likelihood of default by a security issuer. Canada Bond Rating Service and Dominion Bond Rating Service are the primary bond and money market security rating agencies in Canada. Standard and Poors, and Moody’s Investor Service are American bond rating firms that also rate Canadian issuers. SAFEKEEPING: SAFEKEEPING: SAFEKEEPING: SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables are held in the bank’s vaults for protection. TREASURY BILL (TTREASURY BILL (TTREASURY BILL (TTREASURY BILL (T----BILL): BILL): BILL): BILL): A discount promissory note issued by the Federal or Provincial Government with a maturity of less than one year; issued in bearer form and have an active secondary market. YIELD: YIELD: YIELD: YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) COUPON YIELD is the rate of annual payments to the lender expressed as a percentage of the par value of the security. (b) YIELD TO MATURITY is the interest rate that will make the present value of future cash flows from a security equal to the current price or market value of the security. Page 9 of 10 Policy 5.44 APPROVED INVESTMENTSAPPROVED INVESTMENTSAPPROVED INVESTMENTSAPPROVED INVESTMENTS Approved Schedule I BanksApproved Schedule I BanksApproved Schedule I BanksApproved Schedule I Banks Money Market, Senior Debt, Subordinate Canadian Imperial Bank of Commerce (CIBC) RS-1(high), AA, AA(low) Bank of Montreal (BMO) RS-1(high), AA, AA(low) Scotiabank (Bank of Nova Scotia) (BNS) RS-1(high), AA, AA(low) RBC Royal Bank (RY) RS-1(high), AA, AA(low) TD Bank Financial Group (TD) RS-1(high), AA, AA(low) National Bank of Canada (NBC) A Manulife Bank of Canada AA Canadian Western Bank (CWB) *limit $10,000,000 and 1 year term Approved Schedule II BanksApproved Schedule II BanksApproved Schedule II BanksApproved Schedule II Banks HSBC Bank Canada AA(low) Citibank Canada AA(low) Credit Unions Credit Unions Credit Unions Credit Unions Central 1 (formerly BCCU) RS-1(low) VanCity RS-1(low) Coast Capital RS-1(low) Any Credit Union where deposit is fully and unconditionally guaranteed by Central 1 Page 10 of 10 Policy 5.44 APPROVED INSTITUTIONS & BROKERSAPPROVED INSTITUTIONS & BROKERSAPPROVED INSTITUTIONS & BROKERSAPPROVED INSTITUTIONS & BROKERS Term Deposits through any of the approved Banks & Credit Unions Institutions or brokers that securities can be bought (DVP) and held by our custodian bank: BMO Nesbitt Burns Inc. CIBC (Wood Gundy) World Markets Inc. HSBC Securities (Canada) Inc. RBC Dominion Securities Inc. TD Securities Inc. Scotia Capital Blackmont Capital Inc. Canaccord Capital Corporation Edward Jones First Canada Capital Partners Inc. Global Securities Corporation Jennings Capital Inc. PA Investments Inc. Wolverton Securities Ltd.