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Home My WebLink AboutFND-021-10REPORT FINANCE DEPARTMENT Meeting: GENERAL PURPOSE AND ADMINISTRATION Date: SEPT 13, 2010 Resolution#: ~')oi4~~f63-/o By-law#: N/a" Report: FND-021-10 File#: Subject: 2009 AUDITED FINANCIAL STATEMENTS RECOMMENDATIONS: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report FND-021-10 be received; and 2. THAT the 2009 Draft Audited Financial Statements be approved. Submitted by: Nancy T~.ylor, Director of Fin Treasurer Reviewed by: ~.-~~-~. NT/hjl Franklin Wu, Chief Administrative Officer CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T (905)623-3379 CIc'3t"1i[~~pll REPORT FINANCE DEPARTMENT Meeting: GENERAL PURPOSE AND ADMINISTRATION Date: SEPT 13, 2010 Resolution#: By-law#: Report: .FND-021-10 File#: Subject: 2009 AUDITED FINANCIAL STATEMENTS RECOMMENDATIONS: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: THAT Report FND-021-10 be received; and 2. THAT the 2009 Draft Audited Financial Statements be approved. / ®~ Submitted by: Reviewed by: Nancy T or, B. .A., C.A. Franklin Wu, Director of Fina ce/ Chief Administrative Officer Treasurer NT/hjl CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T (905)623-3379 REPORT NO.: FND-021-10 PAGE 2 BACKGROUND: 1.0 Section 296(1) of the Municipal Act, S.O. 2001, c.25 provides that "A municipality shall appoint an auditor licensed under the Public Accounting Act who is responsible for, (a) annually auditing the accounts and transactions of the municipality and its local boards and expressing an opinion on the financial statements of these bodies based on the audit;" 1.1 Deloitte & Touche, Toronto, Ontario, were appointed as the Municipality of Clarington's auditors through report COD-001-05 for a five (5) year term to expire January 31, 2010. 1.2 Section 5751 of the Canadian Institute of Chartered Accountant's (CICA) Handbook deals with "Communications with those having oversight responsibility for the financial reporting process". At the General Purpose and Administration Committee meeting of December 5, 2005, Council approved report FND-019-05 formally appointing the Audit Review Group to include the Mayor, as Chair of Finance, the Chief Administrative Officer and the Director of Finance/Treasurer. This group has the oversight responsibility for the financial reporting process. 1.3 The Municipality of Clarington's 2009 audited financial statements were presented to the Audit Review Group on August 30, 2010. A complete copy will be circulated to Members of Council, made available for public viewing, and a condensed version posted on the Municipality's website. 1.4 A copy of the excerpts from the financial statements for 2009 are included as Attachment "A" to this report. 1.5 The Ministry of Municipal Affairs and Housing also requires an audit letter as well as specialized financial reports entitled Financial Information Returns. The ministry reviews these and provides Financial Indicator Reviews based on the information submitted and comparable municipalities. 1.6 It is important to note that the financial statements are the responsibility of the Municipality's management. The financial statements have been prepared in accordance with generally accepted accounting principles applicable to local governments, and conform with accounting standards established by the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants. Where the determination of assets and liabilities is dependent REPORT NO.: FND-021-10 PAGE 3 upon future events, amounts are based upon reasonably determined estimates and judgments (i.e. Post employment benefit liability). 1.7 The responsibility of the auditor's is to express an opinion on these statements based on their audit. A draft copy of the Auditor's Report for 2009 is included as Attachment "B"and reflects what is generally referred to as a clean audit opinion. A final report will be issued once Council approves the financial statements. CHANGES TO FINANCIAL REPORTING: 2.0 Section 294.1 of the Municipal Act, S.O.2001, c.25 provides that "A municipality shall, for each fiscal year, prepare annual financial statements for the municipality in accordance with generally accepted accounting principles for local governments as recommended, from time to time, by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants." 2.1 Effective January 1, 2009, the Municipality was required to change its accounting and financial reporting to conform to the new revised guidelines in the Public Sector Accounting Handbook on financial reporting presentation (Section PS 1200) and tangible capital accounting (Section PS 3150). These were two of the most significant changes to municipal financial reporting ever introduced and required an intense and lengthy effort by municipal staff and auditors to implement. As part of this exercise, 2008 was also required to be restated in order to be consistent and comparable to the 2009 financial information. Details of the significant policies are included in the notes to the consolidated financial statements. 2.2 The sheer magnitude of the changes and work required cannot be emphasized enough. It is critical to note that the financial statements are dramatically different than what was required in prior years and may take some time for all parties to become familiar with both the pros and cons of the new reporting requirements and the impact of the tangible capital assets on the financial statements. HIGHLIGHTS OF 2009 FINANCIAL STATEMENTS: 3.0 The first statement included in Attachment "A" is the Consolidated Statement of Financial Position. There are several items of note. This statement now includes tangible capital assets with a net book value of approximately $380 million at REPORT NO.: FND-021-10 PAGE 4 December 31, 2009. Schedule 1 of the complete financial statements distributed under separate cover provides the breakdown of tangible capital assets by infrastructure category and between cost (approximately $559 million) and accumulated depreciation (approximately $179 million). 3.1 The second item of note on the Consolidated Statement of Financial Position is the accumulated surplus of $413 million at December 31, 2009. It is critical to note that this is not the "traditional' surplus in former financial reporting formats where the objective was to determine any surplus or deficit pertaining to operations that needed to be recovered in the subsequent budget year. The surplus now incorporates tangible capital asset implications and reserves and reserve funds and capital fund together as an overall number. Details on the surplus can be found in the complete financial statements under note 19. 3.2 For clarity for Council, as this is a transition year, it is worthwhile to expand on the surplus/deficit issue. The actual year end accumulated surplus at December 31, 2009 based on the former financial reporting methodology was approximately $1.5 million. As per approved Council policy, this will be transferred into the Rate Stabilization Reserve Fund in 2010. This surplus was a result of several conditions that have been reported to Council through various mechanisms throughout 2010. In future years, we will continue to track the annual surplus or deficit from an operational perspective as it is a key factor in budget processes. 3.3 As Council is aware, specific steps were approved by Council in August 2009 via report CAO-004-09. While it is not a standard municipal practice to revisit the annual budget process once adopted, due to the circumstances at the time, this was the direction chosen by Council. The ultimate result was that the intent of the report was successful in that the accumulated deficit from year end 2008 (primarily snow clearing) was offset, and any in-year deficit from 2009 economic circumstances was averted. 3.4 Components that triggered the accumulated surplus at year end, 2009 included such items as winter maintenance savings (approximately $500,000), energy savings due to mild winter conditions (approximately $310,000), supplementary taxation revenue and education retained combined (approximately $430,000), penalty and interest on taxes (approximately $310,000), and various revenues that performed better than expected. 3.5 Also worthy of note, the municipality's debt has reduced to $32.3 million at December 31, 2009. Our long-term debt is at a very reasonable level and is REPORT NO.: FND-021-10 PAGE 5 significantly lower than Ministry guidelines for debt capacity. Cash flow issues around development charges were in place for 2010 but are likely to lessen in the future. 3.6 The Consolidated Statement of Operations is the second item included in Attachment "A". Again, it is critical to be aware that the annual surplus noted of approximately $4 million is not the same as determined under previous financial reporting methodology. The $4 million annual surplus reflected on this statement is inclusive of contributed assets (i.e. assumed roads/subdivision works), amortization of tangible capital assets, changes to reserve and reserve fund balances, as well as typical operating impacts and capital activities. 3.7 Ultimately, the financial statements reflect a strong financial position for December 31, 2009. 2010 BUDGET IMPLICATIONS: 4.0 As a result of the changes in financial reporting, there is a related implication for budget processes. As Council is aware, the budget process is centered on determining the ultimate tax levy requirement. Issues such as amortization expenses are not included as a component in the historical budget approach as is not a "cash" requirement that would be levied from taxpayers. 4.1 In order for appropriate accountability and comparability to occur in the financial reporting process, the 2009 budget was restated to conform to the new reporting model and the effect of tangible capital assets. This is described in the notes to the financial statements. If this was not done, the budget values would have no meaningful or useful purpose in comparing to actual values that include items such as amortization of assets. 4.2 For future budget years, the Province has passed Ontario Regulation 284/09 entitled Budget Matters- Expenses. In future years, the budget will have to be provided to Council in both formats, that is based on the determination of the tax levy or "cash" requirements and then amended to incorporate the impact of tangible capital assets for financial reporting purposes. 4.3 Ultimately, the 2010 budget is a transition year. The municipality could not provide the restatement for financial reporting purposes at the time of approval of the 2010 tax levy based budget. O. Reg 284/09 states that the municipality must report to Council about the excluded (non-tax levy related) expenses within 60 REPORT NO.: FND-021-10 PAGE 6 days after receiving its audited financial statements for 2009. As Council is receiving the statements at this meeting, the 60 day time frame occurs in mid- November. Due to the election in 2010, this report will be provided to Council at the earliest opportunity in January 2011. The 2011 budget will be structured to conform at the time it is presented to Council for deliberations in 2011. CONCLUSION: 5.0 It is recommended that the 2009 audited financial statements (complete set distributed under separate cover) be approved and the auditor's be thanked for their assistance and support provided throughout the year as various issues arose. Attachments: Attachment "A" -Excerpts from Financial Statements for 2009 Attachment "B" -Draft Auditors Report for 2009 CONFIDENTIAL REPORTS ~GPA o COUNCIL ~ITRC~ /1') C/1/ /q~~p REPORT NO. ~N~ -Oai ~~~ DATE OF REPORT ~~e~-. '13, ao ~ c~ Attachment "A" The. Corporation of the Municipality of Clarington Consolidated statement of financial position as at December 31, 2009 zoos as restated 2009 Note 2 Financial assets Cash and cash equivalents 29,801, 6 36,3 ,438 Investments, (Note 6) 25,03 ,899 24 54,090 Accounts receivable- current 6,8 9,999 ,612,529 ~ Taxes receivable (Note 5) 11 1 75 9,985,973 Inventories for resale , 52,474 Land for resale 223,521 249,057 Promissory notes receivable (Note 7) 8,321,000 8,321,000 Investment in Veridian Cor oration Note 8 13 196,19 12,815,618 Total financial assets . - 95 335,5 98 842 179 Liabilities Acrnunts payable and accrued liabilities 9, 7,072 8,012,140 Employee future benefits liabilities (Nbte il) ,822,465 '3,352,951 Net long-term liabilities (Note 12) 2,348,198 34,536,404 Deferred revenue -general 5,533,704 5,103,422 Deferred revenue - obli ato reserve funds ofe 9 li 778,692 13,202,663 Total liabilities 62,820,131 64,207,580 ~ Net financial assets 32,515 392 34 634,599 Nonfinancial assets Tangible capital assets (Note 18 Schedule l) 379,806,672 373,640,318 Prepaid expenses ~ 609,743 575,146 Dec 3f, 2009 (#39402j' 9/3/2014' B37AM Page 2 FOR DISCUSSION PURPOSES ONLY The Corporation of the Municipality of Clarington Consolidated statement of operations year ended December 31, 2009 . zoos zoo8 Budget as restated (Note 21} (Note 2) ' (unaudited) Actu Actua $ $ Revenues Taxation and user charges Property taxation ~ 35,742,796 3 ,132,168 34 48,144 Taxation from other governments 3,224,926 ,367,444 ,337,237 User charges 7,976,563 , 04,223 9,519,957 Gents Government of Canada - 32,052 1 71 72,860 Province of Ontario ~ 327,8 535,19 8,087,150 Other Deferred revenue earned 7,69 ,997 8,61 ,613 6,852,272 Investment income 1, 3,133 2, 1,30E ~ 3,335,464 Penalty and Interest on taxes 5 00 59,214 1,465,160 Fines 245,209 225,252 Donations and contribution from others , 99 504,521 1,134,479 Veridian Corporation 'Equity share. of net inmme ~ - 1,495,777 1,185,749 ConMhuted tangible capital assetr. 5,747,8 5,747,821 5,259,560 Other Income - 274,188 47,000 Gafnon disposal of tangible capital assets - 10,256 24,682 Expenses General government 9,565,539 8,635,853 9,187,260 Protection to persons and property -~ 10,159,500 11,703,512 .10,696,290 Trensportation services 20,266,045 20,267,828 21,525,495 Environmental services 992,789 1,045,006 948,120 Health services ~ 232,250 197,528 230,880 Recreational and cultu2l se is 19,279,444 18,710,583, 18,31fi,823 Plannin and deveio men 4,800,531 4,984,031 3,842,870 Total expenses 65 296 098 65644,341 - 64,747,736 Annual surplus (1,211,101) 4,038,468 10,247,248 2210.2Ovingfon ConmJidotmif s-Oec 3{ 2W9 (#3149aj~ 9/.s/IO12~ 1:mvM Page 3 FOR DISCUSSION PURPOSES ONLY Attachment "B" - ---7- - Deloate & Touc LlP 5140 Yonge reef Suite 1700 Toronto M2N 6L7 Canad Tel: 16-601-6150 F 416801.6151 Auditors' Report To the Members of Councff, Inhabitants and Ratepayers of the Corporafiosofthe Municipality of Clarington We have audited the consolidated statement of financial of Clarington as at December 31, 2009 and the consolid financial assets and of cash flows for the year then ends/ responsibility of the Municipality's management. Our~e financial statements based pn our audit. / We conducted our audit in accordance with C 'a standards require that we plan and perform statements are free of material misstatEm . An out supporting the amounts and disclosures ' the financ accounting principles used and signific t estimates overall financial statement pr~esentati n. Tn-our opinion, these consol position of the Municipality forthe year then ended in ar Chartered Licensed P August 30, ~, Corpo tion of the Municipality of o erations, changes in net al ffitements arethe express an opinion on these generally epted auditing standards. Those ' onable assurance whether the fmancial ~ c ud examining, on atest basis, evidence s ants. An audit also includes assessing the by management, as well as evaluating the s present fairly, in all material respects, the financial and the results of its operations and its cash flaws generally accepted accounting principles. DoarnNRix 2210.1.Lkringlon Lortsolidated FS-Osc 3{ 2009 (,• 9/UIQ' 52:39 PM FOR DISCUSSION PURPOSES ONLY