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HomeMy WebLinkAboutAFC 2015-05-04 AgendaCityCityCityCity of Maple Ridgeof Maple Ridgeof Maple Ridgeof Maple Ridge Audit & Finance CommitteeAudit & Finance CommitteeAudit & Finance CommitteeAudit & Finance Committee May 4May 4May 4May 4, 2015, 2015, 2015, 2015 8:308:308:308:30 AAAA....MMMM.... Blaney RoomBlaney RoomBlaney RoomBlaney Room Chairperson:Chairperson:Chairperson:Chairperson: Councillor Masse Committee Members:Committee Members:Committee Members:Committee Members: Mayor Read; Councillors: C. Bell; T. Shymkiw 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 Manager of Financial Planning T. Thompson Manager Sustainability & Corporate Planning L. Benson GuestGuestGuestGuest 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 March 16March 16March 16March 16, , , , 2015201520152015 3.3.3.3. Next meetingNext meetingNext meetingNext meeting • To be decided 4.4.4.4. 2014 Audit Update2014 Audit Update2014 Audit Update2014 Audit Update • Overview of 2014 audit results by external auditor 5.5.5.5. Private Private Private Private committee committee committee committee meeting witmeeting witmeeting witmeeting with auditorh auditorh auditorh auditor “Original signed by Catherine Nolan”____ Agenda submitted by: C. Nolan, CPA, CGA Manager of Accounting CityCityCityCity of Maple Ridgeof Maple Ridgeof Maple Ridgeof Maple Ridge Audit & Finance CommitteeAudit & Finance CommitteeAudit & Finance CommitteeAudit & Finance Committee Meeting MinutesMeeting MinutesMeeting MinutesMeeting Minutes March 16, 2015 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, March 16, 2015 at 8:00 a.m. PRESENTPRESENTPRESENTPRESENT Committee MembersCommittee MembersCommittee MembersCommittee Members Municipal StaffMunicipal StaffMunicipal StaffMunicipal Staff Councillor Masse, Chair J. Rule, Chief Administrative Officer Mayor Read P. Gill, General Manager, Corporate & Financial Services Councillor Bell F. Quinn, General Manager of Public Works and Development Councillor Shymkiw K. Swift, General Manager of Community Development, Parks and Recreation Services C. Nolan, Manager of Accounting T. Thompson, Manager of Financial Planning L. Benson, Manager of Sustainability and Corporate Planning GuestsGuestsGuestsGuests Councillor Speirs Mitch Stripp, Electronics Technician Malcolm McDougall, Groundskeeper - Fields The meeting was called to order at 8:00 a.m. 1. Approval of agendaApproval of agendaApproval of agendaApproval of agenda MOVEDMOVEDMOVEDMOVED by Councillor Bell and SECONDEDSECONDEDSECONDEDSECONDED by Councillor Shymkiw that the agenda be approved as circulated. CARRIEDCARRIEDCARRIEDCARRIED 2. Approval of minutes of Approval of minutes of Approval of minutes of Approval of minutes of February 2February 2February 2February 2, 2015, 2015, 2015, 2015 MOVEDMOVEDMOVEDMOVED by Mayor Read and SECONDEDSECONDEDSECONDEDSECONDED by Councillor Shymkiw that the minutes of February 2, 2015 be approved. CARRIEDCARRIEDCARRIEDCARRIED Audit & Finance Committee Meeting Minutes March 16, 2015 Page 2 3. Preliminary Year End Update (General Revenue)Preliminary Year End Update (General Revenue)Preliminary Year End Update (General Revenue)Preliminary Year End Update (General Revenue) The Manager of Accounting provided a presentation reviewing preliminary results in the General Revenue Fund. Next steps: Consolidated Statements to be presented at Council Workshop on April 20 and be on the April 28 Council agenda for acceptance by Council as per audit requirements. The auditor will attend the next Audit and Finance Committee meeting to review the audit results and Management Letter. 4. Fiscal Impact Model (Presentation)Fiscal Impact Model (Presentation)Fiscal Impact Model (Presentation)Fiscal Impact Model (Presentation) The Manager of Sustainability and Corporate Planning provided a presentation about the information provided by a fiscal impact analysis. Next steps: To work with the Planning Department to provide a sample analysis of a local scenario; also, provide a list of “boxed” fiscal impact analysis tools. Councillor Speirs joined the meeting at 9:00 a.m. 5. Financial Overview Report Financial Overview Report Financial Overview Report Financial Overview Report The General Manager of Corporate and Financial Services reviewed the Financial Overview report. Next steps: Tax Rates and Financial Plan bylaws incorporating the essence of the Financial Overview report to be brought forward to Council in coming months. 6. Next MeetingNext MeetingNext MeetingNext Meeting – May 4, 2015May 4, 2015May 4, 2015May 4, 2015 AdjAdjAdjAdjournmentournmentournmentournment –––– 9:409:409:409:40 a.m.a.m.a.m.a.m. ____________________________________________ B. Masse, Chair The City of Maple Ridge Audit Results and Communications Report to the Audit and Finance Committee and Council For the fiscal year ended December 31, 2014 I BDO City of Maple Ridge 2 Direct Line: 604-443-4716 E-mail: bcox@bdo.ca April 23, 2015 Members of the Audit and Finance Committee and Council The City of Maple Ridge 11995 Haney Place Maple Ridge, BC V2X 6A9 Dear Members of the Audit and Finance Committee and Council: We are pleased to present the results of our audit of the financial statements of the City of Maple Ridge (the “City”) for the year ended December 31, 2014. The purpose of our report is to summarize certain aspects of the audit that we believe to be of interest to the Members of the Audit and Finance Committee and Council and should be read in conjunction with the draft financial statements. Our audit and therefore this report will not necessarily identify all matters that may be of interest to the Audit and Finance Committee and Council in fulfilling its responsibilities. This report has been prepared solely for the use of the Audit and Finance Committee and Council and should not be distributed without our prior consent. Consequently, we accept no responsibility to a third party that uses this communication. We wish to express our appreciation for the co-operation we received during the audit from the City’s management and staff that assisted us in carrying out our work. We look forward to discussing the contents of this report and any other matters that you consider appropriate. Yours truly, Bill Cox, CPA, FCA Partner through a corporation BDO Canada LLP Chartered Accountants BC/lcz Tel: 604 688 5421 Fax: 604 688 5132 vancouver@bdo.ca www.bdo.ca BDO Canada LLP 600 Cathedral Place 925 West Georgia Street Vancouver BC V6C 3L2 Canada BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. I BDO City of Maple Ridge 3 TABLE OF CONTENTS Executive Summary 4 Independence 6 Materiality 6 Audit Findings 6 Fraud Discussion 10 Internal Control Matters 11 Appendix A - Other Required Communication 12 Appendix B – Draft Independent Auditor’s Report 14 Appendix C – Representation Letter 15 Appendix D – Management Letter 19 IBDO City of Maple Ridge 4 EXECUTIVE SUMMARY Audit Results Our audit of the financial statements was designed to obtain reasonable, rather than absolute, assurance as to whether the financial statements are free of material misstatement. A detailed description of our audit results has been included on page 7. Status of Audit As of the date of this final report, we have substantially completed our audit of the December 31, 2014 financial statements pending the completion of the items highlighted below. These items will need to be completed prior to issuance of our audit report on the financial statements:  Receipt of the signed management representation letter  Subsequent events review through to financial statement approval date  Approval of financial statements by Council Audit Risks In accordance with our audit plan, our procedures focused on the following areas that we identified as containing risks of material misstatements:  Revenue Recognition  Risk of Management Override  Cash and Investments  Staff Salaries  Tangible Capital Assets and Accumulated Amortization We have summarized the results of our audit procedures for each of these risk areas, beginning on page 7 of this report. Internal Control Over Financial Reporting We did not identify any significant deficiencies in internal controls over financial reporting during the year ended December 31, 2014 that we considered to be material weaknesses. Fraud and Illegal Activities We developed procedures within our audit plan as recommended by CAS 240 – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Based on these procedures, we have not encountered any illegal activities or fraudulent events with respect to the City. Significant Events As of the date of this letter, we have not identified any significant events which we believe should be brought to your attention. Significant Accounting Policies The City’s significant accounting policies are listed in the financial statements. We believe management’s selection of accounting policies is appropriate under Canadian public sector accounting standards. IBDO City of Maple Ridge 5 Estimates Accounting estimates are an integral part of the financial statements and are based on management’s current judgments. These judgments are based on knowledge and experience about past and current events, assumptions about future events and interpretations of the financial reporting standards. Our comments on the significant estimates included in the financial statements are included on page 9 of this report. Audit Adjustments and Unadjusted Differences Our final materiality level of $1,850,000 changed from our planning materiality of $2,200,000 in our audit planning letter presented to the Audit and Finance Committee and Council on January 21, 2015. There are no unadjusted misstatements for the year ended December 31, 2014. There were no year end audit adjustments. Disclosures There are no material omissions with respect to the disclosures in the financial statements for the year ended December 31, 2014 that we have noted. Independence We have developed appropriate safeguards and procedures to mitigate threats to our independence. Canadian generally accepted auditing standards (GAAS) no longer require that we communicate formally to you in regard to independence matters; however, we consider it to be a good practice. As such, we would report to you regarding all relationships between the City and our firm that, in our professional judgment, may reasonably be thought to bear on our independence. We confirmed our independence to the Audit and Finance Committee and Council for the year ended December 31, 2014 in our Planning Report dated January 21, 2015. We confirm that we are still independent as of the date of this letter. Representation Letter A draft version of the representation letter to be signed by management is included in Appendix C. Conclusion We intend to issue an unmodified audit report on the financial statements for the year ended December 31, 2014 once the outstanding items referred to above are satisfactorily resolved and the financial statements are approved the Council. IBDO City of Maple Ridge 6 INDEPENDENCE At the core of the provision of external audit services is the concept of independence. Canadian generally accepted auditing standards (GAAS) no longer require that we communicate formally to you in regard to independence matters; however, we consider it to be a good practice. As such, we would report to you regarding all relationships between the City and our firm that, in our professional judgment, may reasonably be thought to bear on our independence. We have confirmed our independence to the Audit and Finance Committee and Council for the year ended December 31, 2014 in our Planning Report dated January 21, 2015. We confirm that we are still independent as of the date of this letter. MATERIALITY Misstatements, including omitted financial statement disclosures, are considered to be material if they, individually or in aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. We communicated to you our planning materiality levels in our Planning Report to the Audit and Finance Committee and Council. Our materiality levels have changed slightly from our audit planning letter presented to the Audit and Finance Committee and Council on January 21, 2015. Final materiality was $1,850,000 based on 1.5% of normalized revenues. This decrease from planning materiality of $2,200,000 resulted from differences between estimated and actual annual results for the year ended December 31, 2014. There were no corrected and uncorrected misstatements identified during our audit which we determined to be above “clearly trivial”. Misstatements are considered to be clearly trivial for purposes of the audit when they are inconsequential both individually and in aggregate. AUDIT FINDINGS Based on our knowledge of the City’s operations, our past experience in this area, and knowledge gained from management and the Council, we have identified the following significant risks; those risks of material misstatement that, in our judgment, require special audit consideration. Significant risks arise mainly because of the complexity of the accounting rules, the extent of estimation and judgment involved in the valuation of these financial statement areas, and the existence of new accounting pronouncements that affect them. As part of our ongoing communications with you, we are required to have a discussion on our views about significant qualitative aspects of the City’s accounting practices, including accounting policies, accounting estimates and financial statement disclosures. IBDO City of Maple Ridge 7 ACCOUNTING AND AUDIT MATTERS Revenue Recognition Risk Approach Results Accounting standards have changed in this area and are complex and open to interpretation. There is a risk that revenue may be incorrectly deferred into future periods. Verified a sample of deferred revenue balances by examining supporting documentation to validate the accounting treatment. Reviewed the agreements to ensure that revenue is being recognized in accordance with latest revenue recognition standards. Reviewed minutes to determine whether any contributions received should be deferred and whether any grants had not yet been recorded. All audit testing in this area was executed as planned and no errors were noted. Management Override of Controls Risk Approach Results Management is in a unique position to perpetrate fraud because of management’s ability to directly or indirectly manipulate accounting records, and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. This risk is required for all audits pursuant to Canadian audit standards. We tested the appropriateness of journal entries recorded in the general ledger and other adjustments made in the preparation of the financial statements. All audit testing in this area was executed as planned and no errors were noted. IBDO City of Maple Ridge 8 Cash and Investments Risk Approach Results Due to its nature, cash and investments are almost always considered to be a risk area in any audit. We reviewed the year end reconciliations and obtained third party confirmations. All audit testing in this area was executed as planned and no errors were noted. Staff Salaries Risk Approach Results A significant single type of expenditure that cover many employees and departments. As a municipality, this figure is often of particular interest to financial statement users (taxpayers). We applied computer audit testing to analyze all payroll transactions in the year. We performed system testing, tests of controls and analytical review of staff salaries. All audit testing in this area was executed as planned and no errors were noted. Tangible Capital Assets and Accumulated Amortization Risk Approach Results Almost 5 years have passed since original estimates were made of the useful lives of tangible capital assets owned by the City and estimates will need to be re-evaluated to determine if they are still accurate. This involves a high level of estimation and coordination of the finance department with other departments. We performed tests of control for appropriate authorization of purchases combined with substantive testing of additions and disposals and amortization calculations. Useful lives of existing assets were reviewed. All audit testing in this area was executed as planned and no errors were noted. IBDO City of Maple Ridge 9 PRIOR PERIOD ADJUSTMENT During the year, the engineering department performed an assessment on the City’s roads and as a result, more accurate data was available on the roads. This resulted in an increase to asset costs previously reported in the City’s financial statements. Management has recorded the increase as a prior period adjustment and it is discussed in note 16 of the financial statements. We have reviewed documentation provided to substantiate the prior period adjustment and its effect on amortization in the comparative and current year financial statements. Based on the audit work that we have performed, we believe the accounting treatment of the increased asset value is appropriate. SIGNIFICANT ACCOUNTING ESTIMATES Management is responsible for determining the City’s significant accounting policies. The choice between accounting policy alternatives can have a significant effect on the financial position and results of the organization. The application of those policies often involves significant estimates and judgments by management. Based on the audit work that we have performed, it is our opinion that the estimates in the financial statements are reasonable and the disclosures relating to accounting estimates are in accordance with Canadian public sector accounting standards. UNADJUSTED DIFFERENCES There were no significant unadjusted differences or disclosure omissions identified through the course of our audit engagement. AUDIT ADJUSTMENTS There were no year end audit adjustments. MANAGEMENT REPRESENTATIONS During the course of our audit, management made certain 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 our audit opinion. These representations were documented in our audit working papers through memoranda of discussions with management, as well as by written representations received from management. A copy of the representation letter we have requested from management is included in Appendix C of this report. IBDO City of Maple Ridge 10 FRAUD DISCUSSION Canadian auditing standards require us to discuss fraud risk with the Audit and Finance Committee and Council on an annual basis. We discussed it in our Planning Report dated January 21, 2015. Currently, we are not aware of any actual, suspected or alleged fraud. If you aware of any instances of actual, suspected or alleged fraud affecting the City since the date of our previous discussion, please advise us at bcox@bdo.ca. AUDITOR’S RESPONSIBILITIES FOR DETECTING FRAUD We are responsible for planning and performing the audit to obtain reasonable assurance that the financial statements are free of material misstatements, whether caused by error or fraud. The likelihood of not detecting a material misstatement resulting from fraud is higher than the likelihood of not detecting a material misstatement resulting from error, because fraud may involve collusion as well as sophisticated and carefully organized schedules designed to conceal it. During our audit, we performed the following procedures in order to fulfill our responsibilities:  Inquire of management, Council, and others related to any knowledge of fraud, suspected fraud or alleged fraud;  Perform disaggregated analytical procedures and consider unusual or unexpected relationships indentified in the planning of our audit;  Incorporate an element of unpredictability in the selection of the nature, timing and extent of our audit procedures; and  Perform additional required procedures to address the risk of management’s override of controls including; o Testing internal controls designed to prevent and detect fraud; o Examine a sample of journal entries and other adjustments for evidence of the possibility of material misstatement due to fraud; o Review accounting estimates for biases that could result in material misstatements due to fraud, including a retrospective review of significant prior years’ estimates; and o Evaluate the City’s rationale for significant unusual transactions. IBDO City of Maple Ridge 11 INTERNAL CONTROL MATTERS During the course of our audit, we performed the following procedures with respect to the City’s internal control environment:  Documented operating systems to assess the design and implementation of control activities that were relevant to the audit.  Discussed and considered potential audit risks. The results of these procedures were considered in determining the extent and nature of substantive audit testing required. We are required to report to you in writing, significant deficiencies in internal control that we have identified during the audit. A significant deficiency is defined as a deficiency or combination of deficiencies in internal control that, in the auditor's professional judgment, is of sufficient importance to merit the attention of those charged with governance. As the purpose of the audit is for us to express an opinion on the City’s financial statements, our audit cannot be expected to disclose all matters that may be of interest to you and, as a result, the matters reported may not be exclusive. As part of our work, we considered internal control relevant to the preparation of the financial statements such that we were able to design appropriate audit procedures. This work was not for the purpose of expressing an opinion on the effectiveness of internal control. DEFICIENCIES IN INTERNAL CONTROL Deficiency Issue and Impact None noted. None noted. While there are no significant deficiencies in internal controls noted, we do take the opportunity to comment on non-critical matters in our management letter that is included in Appendix D. IBDO City of Maple Ridge 12 APPENDIX A – Other Required Communication Required Communication Audit Planning Presentation Audit Results Presentation Auditor Comments 1. Our responsibilities under Canadian Auditing Standards (CAS)  Included in our engagement letter dated December 2, 2014. 2. Our audit strategy and audit scope  Included in our Planning Report which was presented to the Audit and Finance Committee and Council on January 21, 2015. 3. Fraud risk factors  Included in our Planning Report which was presented to the Audit and Finance Committee and Council on January 21, 2015. 4. Going concern matters  None. 5. Significant estimates or judgments  See Page 9. 6. Audit adjustments  None noted. 7. Unadjusted differences  None noted. 8. Omitted disclosures  None noted. 9. Disagreements with management  There were no disagreements with management. 10. Consultations with other accountants or experts  No external experts were consulted during this engagement. 11. Major issues discussed with management in regards to retention  None. 12. Significant difficulties encountered during the audit  No significant difficulties were encountered during our audit. 13. Significant deficiencies in internal control  No significant deficiencies were noted. IBDO City of Maple Ridge 13 Required Communication Audit Planning Presentation Audit Results Presentation Auditor Comments 14. Material written communication between BDO and management  No material written communications were noted. 15. Any relationships which may affect our independence   No independence issues noted. 16. Any illegal acts identified during the audit  No illegal activities identified through the audit process. 17. Any fraud or possible fraudulent acts identified during the audit   No fraud identified through the audit process. 18. Significant transactions with related parties not consistent with ordinary business operations  None noted. 19. Non-compliance with laws or regulations identified during the audit  No legal or regulatory non- compliance matters were noted as part of our audit. 20. Limitations of scope over our audit, if any  None. 21. Written representations made by management  See Appendix C. 22. Any modifications to our opinion, if required  Please see our draft independent auditor’s report included in Appendix B. IBDO City of Maple Ridge 14 APPENDIX B – Draft Independent Auditor’s Report INDEPENDENT AUDITOR’S REPORT To the Mayor and Council of the City of Maple Ridge We have audited the accompanying consolidated financial statements of the City of Maple Ridge, which comprise the Consolidated Statement of Financial Position as at December 31, 2014, and the Consolidated Statements of Operations, Change in Net Financial Assets and Cash Flow for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated 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, the consolidated financial statements present fairly in all material respects, the consolidated financial position of the City of Maple Ridge as at December 31, 2014 and its consolidated results of operations, cash flows, and changes in net financial assets for the year then ended, in accordance with Canadian public sector accounting standards. Chartered Accountants Vancouver, British Columbia April 28, 2015 IBDO City of Maple Ridge 15 APPENDIX C - Representation Letter April 28, 2015 BDO Canada LLP Chartered Accountants 600 Cathedral Place 925 West Georgia Street Vancouver, BC V6C 3L2 Dear Sirs/Mesdames: This representation letter is provided in connection with your audit of financial statements of the City of Maple Ridge (the “City”) for the year ended December 31, 2014, 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, 2014, and the results of operations and cash flows for the year ended December 31, 2014 of the City of Maple Ridge in accordance with Canadian public sector accounting standards. We confirm that to the best of our knowledge and belief: Financial Statements 1. We have fulfilled our responsibilities, as set out in the terms of the audit engagement dated December 2, 2014, for the preparation of the financial statements in accordance with Canadian 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 financial statements of the City use appropriate accounting policies that have been properly disclosed and consistently applied. 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. IBDO City of Maple Ridge 16 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. The minute books of the Council are a complete record of all meetings and resolutions of the Council throughout the year and to the present date. 9. We have disclosed to you all significant matters contained in the minutes of all meetings and resolutions of Council throughout the year and to the present date. 10. All transactions have been recorded in the accounting records and are reflected in the financial statements. 11. We have disclosed to you all known instances of non-compliance or suspected noncompliance with laws and regulations whose effects should be considered when preparing financial statements. 12. 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. 13. 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. 14. We are aware of the environmental laws and regulations that impact the City and we are in compliance. There are no known environmental liabilities or contingencies that have not been accrued for or disclosed in the financial statements. Fraud and Error 15. 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. 16. 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. 17. 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. 18. We have reviewed and approved all journal entries recommended by the auditors during the audit. 19. The effects of unadjusted misstatements are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. A list of the uncorrected misstatements is attached to the representation letter. IBDO City of Maple Ridge 17 Existence, Completeness and Valuation of Specific Financial Statement Balances 20. All assets, wherever located, to which the City 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 organization'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 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 organization held title as at the balance sheet date. Inventories do not include any goods consigned to the City, 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 Canadian 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. 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 contingencies or provisions (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 financial statements or financial position of the City, except as disclosed in the financial statements. 27. We have informed you of all outstanding and possible claims, whether or not they have been discussed with legal counsel. Since there are no outstanding or possible claims, no disclosure is required in the 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 organization who individually represent a significant volume of business with the organization. We are of the opinion that the volume of business (sales, services, purchases, borrowing and lending) done by the City with any one party is not of sufficient magnitude that discontinuance would have a material negative effect on the ongoing operations of the organization. IBDO City of Maple Ridge 18 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 Canadian public sector accounting standards. 32. No significant matters, other than those disclosed in the financial statements, have arisen that would require a restatement of the comparative financial statements. 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 IBDO City of Maple Ridge 19 APPENDIX D – Management Letter Direct Line: 604-443-4716 E-mail: bcox@bdo.ca April 23, 2015 Paul Gill, General Manager Corporate and Financial Services City of Maple Ridge 11995 Haney Place Maple Ridge, BC V2X 6A9 Dear Mr. Gill: 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 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 worth noting that we have management letter comments for virtually all audits of 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. Status of Prior Year Recommendations 1. Contaminated Sites We had previously mentioned to you the new public sector accounting standard that comes into force in 2015 known as “Liabilities for Contaminated Sites”. This standard requires that a government entity record a liability in regard to any properties that are not in use where there is environmental contamination above the legal standard. Importantly, the standard requires the government to methodologically review its properties to determine those properties at risk, and potentially to conduct environmental testing on high-risk properties. Since the approach that this standard takes makes it quite onerous because of the requirement to actively go beyond just what you are already aware of, we encouraged them to continue to move the project forward early in the 2014 fiscal year. IBDO City of Maple Ridge 20 We are pleased to report that preliminary plans are underway for the implementation of PS3260 “Liability for Contaminated Sites” and the need to work on this has been incorporated into the business plans of departments that will play a role in its implementation. 2. Policy on Council Training, Conferences and Association Building During our review on Council’s expenses, we noted expenses for some Council members exceeded the annual amount set under the policy in 2013 and 2012 and could exceed the combined three year amount at the end of the current term of Council. We recommended that the Council expense policy should be re-evaluated. We are pleased to report that our recommendation was considered and none of the Council’s expenses exceeded the 2014 annual budget amount. Current Year Observations 1. Security Deposits During the audit, we noted that there were instances in which refundable security deposits collected were not refunded back to the person/entity whose name was on the bill issued. This increases the risk of fraud or error as the security deposits can be misappropriated. Recommendation We recommend that a policy be instituted that when the refundable security deposits are required, the person/entity to whom the deposit should be refunded should be verified at the time the bill is issued. Management Comments Staff will review current practices for opportunities to improve processes. 2. Saving for Replacement of Infrastructure – Best Practice The North America-wide infrastructure deficit has many municipalities and regional districts reconsidering their plans in regard to saving for replacement of assets. While this is a very complex area that requires detailed planning, some general best practices are emerging. As a starting point, it is important to realistically evaluate those assets that will have to be replaced through savings. There are groups of assets for which replacement is not planned unless there can be funding raised from third party sources such as senior government, developers, or other sources. However, it is a best practice to regularly review these assets to consider if circumstances have changed. In many cases, infrastructure assets originally considered to be “nice extras” are now integral to the services provided for the community. If any of these assets are now critical to the community, they should also be considered as infrastructure to be replaced from own funds. The cautious use of debt is an integral part of planning for funding of replacement of assets. Again, however, assumptions change and could have an impact on original asset replacement plans. In particular, as estimates of useful life of infrastructure changes it can be the case that several major infrastructure items will require replacement at about the same time. This may make the use of debt either impossible (due to limitations on allowable debt levels) or at least highly impractical. It is important to recall that using debt is always more expensive than saving for replacement. The use of debt has its place to be certain, but it should be used strategically as part of a well-managed overall plan. IBDO City of Maple Ridge 21 For most infrastructure assets, it is likely that savings will represent the a significant portion of funding for replacement at the end of the economic life of the asset – indeed, the City currently has over $22 million in its equipment replacement and capital works reserves for this purpose. But due to economic conditions and pressures from taxpayer groups, it has been difficult for local governments to raise rates (requisitions, user rates, and other charges) to a level necessary to increase savings rates. The City of Maple Ridge is certainly aware of this issue and its importance and has been working towards updating and improving its replacement plans. Long-term planning for infrastructure is fairly advanced and the impact of this on user rates considered. We recommend that these plans be formalized by undertaking the key steps noted above:  Determine assets that will be required to be replaced with latest estimate of replacement date and value  Consider where debt or other funding can be used in lieu of saving for replacement – but with a conservative view  Update savings plans and adjust rates as necessary to allow for funding Management Comments The City has a number of projects underway to assess infrastructure management and future replacement requirements. A portion of annual property taxation is dedicated to closing the gap between current and required annual infrastructure funding. Staff acknowledge that additional work is needed to address this issue. This communication is prepared solely for the information of management and those charged with governance and is not intended for any other purposes. We accept no responsibility to a third party who uses this communication. We would like to express our appreciation for the co-operation and assistance which we received from you, Catherine Nolan and the rest of the Finance Department during the course of the audit. Our experience is that the Finance Department is well-prepared for the annual audit, which is a significant contributor to keeping audit costs down. We shall be pleased to discuss with you further any matters mentioned in this letter at your convenience. Yours truly, Bill Cox, CPA, FCA Partner through a corporation BDO Canada LLP Chartered Accountants BC/lcz cc: Audit and Finance Committee and Council IBDO