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HomeMy WebLinkAboutFND-016-12 FINANCE Clarftwn REPORT Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE Date: June 25, 2012 Resolution#: By-law#: Report#: FND-016-12 File#: Subject: 2011 AUDITED FINANCIAL STATEMENTS RECOMMENDATIONS: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report FND-016-12 be received; and 2. THAT the 2011 Draft Audited Financial Statements for the Municipality, its Trust Funds, the Clarington Public Library and the Business Improvement Areas be approved. `y7 Submitted by: �� � Reviewed by: Nancy�aylor, A, CA, Franklin Wu, Director of Chief Administrative Officer Finance/Treasurer NT/blm CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T 905-623-3379 REPORT NO.: FND-016-12 PAGE 2 1. 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 Grant Thornton, Markham, Ontario, were appointed as the Municipality of Clarington's auditors through RFP2010-6 for a five (5) year term to expire January 31, 2015. 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 2011 audited financial statements were resented to the Audit Review Group on June 18, 2012. A complete copy will be circulated to Members of Council, made available for public viewing, and posted on the Municipality's website. The Clarington Public Library statements will be submitted for ratification by the Clarington Library Board at their next applicable meeting. 1.4 A copy of the excerpts from the financial statements for 2011 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 REPORT NO.: FND-016-12 PAGE 3 Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants. Where the determination of assets and liabilities is dependent 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 2011 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. Details of the significant policies are included in the notes to the consolidated financial statements. Further enhancements to our internal accounting procedures continued in 2011 to assist in streamlining this process. 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 prior to the changes 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. REPORT NO.: FND-016-12 PAGE 4 HIGHLIGHTS OF 2011 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 includes tangible capital assets with a net book value of approximately $391 million at December 31, 2011. 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 $596 million) and accumulated depreciation (approximately $205 million). 3.1 The second item of note on the Consolidated Statement of Financial Position is the accumulated surplus of $433 million at December 31, 2011. 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 18. 3.2 For clarity for Council it is worthwhile to expand on the surplus/deficit issue. The actual year end accumulated surplus at December 31, 2011 based on the former financial reporting methodology was approximately $2.0 million. As per approved Council policy, this will be transferred into the Rate Stabilization Reserve Fund in 2012. The 2011 surplus relates primarily to penalty and interest on taxes, supplementary taxation revenue and building permit revenue, which were very unpredictable in 2011 due to the prevailing economic climate. The penalty and interest on taxes should reduce in the coming years as we have seen positive activity in the reduction of tax arrears. There was also unanticipated additional Provincial Offences Act revenue in 2011. 3.3 Also worthy of note, the municipality's debt has reduced to $24.2 million at December 31, 2011. Our long-term debt is at a very reasonable level and is significantly lower than Ministry guidelines for debt capacity. Cash flow issues around development charges were in place for 2011 but are likely to lessen in the future. REPORT NO.: FND-016-12 PAGE 5 3.4 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 $11.7 million is not the same as determined under previous financial reporting methodology. The $11.7 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. 3.5 Ultimately, the financial statements reflect a strong financial position for December 31, 2011. 4.0 CONCURRENCE: Not Applicable 5.0 CONCLUSION 5.1 It is recommended that the 2011 audited financial statements (complete set distributed under separate cover) be approved including those of the Trust Funds, Clarington Public Library (subject to Library Board approval) and Business Improvement Areas and the auditor's be thanked for their assistance and support provided throughout the year as various issues arose. CONFORMITY WITH STRATEGIC PLAN The recommendations contained in this report conform to the following priorities of the Strategic Plan: Promoting economic development X Maintaining financial stability Connecting Clarington Promoting green initiatives Investing in infrastructure Showcasing our community Not in conformity with Strategic Plan Staff Contact: Nancy Taylor, B.B.A., C.A., Director of Finance/Treasurer Attachments: Attachment "A" - Consolidated Statement of Financial Position — 2010/2011 Attachment "B" - Independent Auditor's Report - 2011 List of Interested Parties to be advised of Council's decision: None Attachment "A" The Corporation of the Municipality of Clarington Consolidated statement of financial position as at December 31, 2011 2011 2010 Financial assets Cash and cash equivalents 42,483,052 30,488,537 Investments (Note 5) 22,480,347 24,640,255 Accounts receivable 7,220,249 9,035,957 Taxes receivable (Note 4) 10,918,627 12,255,738 Inventories for resale 47,883 39,326 Land for resale 146,409 146,409 Promissory notes receivable (Note 6) 8,321,000 8,321,000 Investment in Veridian Corporation (Note 7) 14,088,566 13,639,630 Total financial assets 105,706,133 98,566,852 Liabilities Accounts payable and accrued liabilities 9,404,572 11,034,278 Employee future benefits liabilities (Note 11) 5,441,135 4,721,719 Net long-term liabilities (Note 12) 24,205,167 29,539,932 Deferred revenue -general 7,463,930 5,461,019 Deferred revenue-obligatory reserve funds (Note 8) 18,612,066 13,815,939 Total liabilities 65,126,870 64,572,887 Net financial assets 40,579,263 33,993,965 Non-financial assets Tangible capital assets (Note 17) (Schedule 1) 391,413,291 386,323,159 Prepaid expenses 624,846 590,813 Inventory supplies 327,147 337,509 Total non-financial assets 392,365,284 387,251,482 Accumulated surplus (Note 18) 432,944,547 421,245,447 Clarington F5-schedules,'61712012,'12.34 PM The Corporation of the Municipality of Clarington Consolidated statement of operations year ended December 31, 2011 2011 2010 Budget (unaudited) Actual Actual Revenues Taxation and user charges Property taxation 39,771,565 40,137,797 38,082,181 Taxation from other governments 3,069,556 3,221,290 3,266,401 User charges 8,011,499 12,058,349 9,805,861 Grants Government of Canada - 416,648 2,735,275 Province of Ontario 75,000 719,315 3,003,323 Other Deferred revenue earned 8,637,260 11,335,731 9,572,950 Investment income 216,893 2,198,269 2,167,020 Penalty and interest on taxes 1,200,000 1,782,915 1,833,647 Fines 132,500 413,135 219,987 Donations and contribution from others 607,300 2,561,021 182,629 Veridian Corporation Equity share of net income - 1,273,096 1,153,416 Contributed tangible capital assets 6,577,189 6,577,189 4,163,541 Other income - - 460,645 (Loss)on disposal of tangible capital assets - (308,582) (878,739) Total revenues 68,298,762 82,386,173 75,768,137 Expenses General government 10,309,196 10,520,631 10,110,357 Protection to persons and property 11,991,408 12,507,343 11,773,255 Transportation services 20,613,509 21,228,920 19,649,216 Environmental services 1,161,694 1,373,682 1,163,370 Health services 223,654 255,423 222,893 Recreational and cultural services 18,656,184 20,951,238 19,029,450 Planning and development 3,969,765 3,849,836 3,862,551 Total expenses 66,925,410 70,687,073 65,811,092 Annual surplus 1,373,352 11,699,100 9,957,045 Accumulated surplus,beginning of year 420,044,021 421,245,447 411,288,402 Accumulated surplus,end of year 421,417,373 432,944,547 421,245,447 Clarington FS-schedules,,61712012,12:34 PM Attachment "B" Report to the Audit Corrtniittee-Coinrn Lin lcatlon of aUdit r SUItS the Municipality For the year ended December 31,2011 Da Independent auditor's report To the Members of Council,Inhabitants and Ratepayers of the Corporation of the Municipality of Clarington We have audited the accompanying financial statements of The Corporation of the Municipality of Clarington ("the Municipality"),which comprise the consolidated statement of financial position as at December 31,2011,and the consolidated statements of operations and accumulated surplus, change in net financial assets and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information Management's responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards,and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement,whether due to fraud or error. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment,including the assessment of the risks of material misstatement of the financial statements,whether due to fraud or error. In making those risk assessments,the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management,as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Audit•Tax•Advisory Giant 1 iiow;n 11r.R L?narf<;»M reseal,I Gram'0„rnLn Inruu:xFauu;i Li•3 Report&u the Audit tommittoe-Communicmtiwnvxov'it reSUmo 10 the WilliCipality For the year ended oeoomberm.aO11 Opinion In our opinion, thocousolidate6finaucialntatements present fairly,in all material respects,the financial position oE the Municipality unutZ}ccooz6cr 31,2O1l'and its financial performance and its cash flows for the year then ended iu accordance with Canadian public sector accounting xtuuJar6o. Other matters Without modifying our report ve draw attention to the budgeted figures which are provided for comparative purposes only.They have not been subject to audit procedures.Accordingly,vmJonot express uu opinion ou the budget figures. Markham, Canada Chartered Accountants 12012 Licensed Public Accountants Audit-Tax