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Audit & Budget Committee
AGENDA
Thursday,August 31, 2017
Chester Municipal Council Chambers at 8:45 a.m.
151 King Street, Chester, NS
1.MEETING CALLED TO ORDER.
2.APPROVAL OF AGENDA/ORDER OF BUSINESS.
3.MINUTES OF PREVIOUS MEETING:
3.1.Audit and Budget Committee –May 18, 2017
4.MATTERS ARISING:
4.1.Request for Decision prepared by Finance Department dated August 31, 2017
regarding Consolidated Financial Statements for the year ended March 31, 2017.
a)DRAFT –Consolidated Financial Statements March 31, 2017
4.2 Presentation by Grant Thornton regarding Communication of Audit Results.
5.CORRESPONDENCE.
6.NEW BUSINESS:
6.1 Request for Direction prepared by Finance Department dated August 22, 2017
regarding Audit Committee Membership.
7.NEXT MEETING DATE.
8.ADJOURNMENT.
267
MUNICIPALITY OF THE DISTRICT OF CHESTER
Minutes of Meeting of
AUDIT AND BUDGET COMMITTEE
Held in Council Chambers at 151 King Street, Chester, NS
On Thursday,May 18, 2017
The meeting was called to order at 8:45 a.m.
ROLL CALL
Council Warden Webber Deputy Warden Shatford
Councillor Veinotte Councillor Barkhouse
Councillor Assaff Councillor Connors
Councillor Church
Staff Tammy Wilson, CAO
Matt Davidson,Director of Public Works
Malcolm Pitman, Director of Finance
Chad Haughn, Director of Recreation & Parks
Bruce Forest, Director of Public Works
Tara Maguire, Director of Community Development
Pamela Myra, Municipal Clerk
Cindy Hannaford,Executive Secretary
Jennifer Webber, Communications Officer
Christine Collicutt, Manager of Finance
Malcolm Pitman, Director of Finance/Treasurer
Bruce Forest, Director of Solid Waste
Tara Maguire, Director of Community Development
Public There were no public in attendance.
Press There were no members of the press in attendance.
APPROVAL OF AGENDA/ORDER OF BUSINESS
2017-252 MOVED by Deputy Warden Shatford,SECONDED by Councillor Church the agenda
be approved as amended. CARRIED.
Audit and Budget (continued)May 18, 2017 268
MATTERS ARISING
Councillor Assaff arrived at the meeting.
1.1 Pre-audit discussion –Georg Ernst,Grant Thornton
The Warden asked if there were any items Council wished the auditors to focus on during the
upcoming audit.
The CAO indicated that Mr. Ernst would explain the audit process and Council can determine if
there is anything in particular they wish to have reviewed.
Mr. Ernst explained how the auditors review the financial statements and determine areas of risk
commenting on:
Tax revenue as it is the largest number on income statement and receivables; they
ensure those numbers are reasonable using confirmations and recalculations, for
example.
Operating expenses are tested to ensure expenses are categorized correctly and are
appropriate.
Random testing on items that they would not have done the previous year.
Landfill revenues –not necessarily high risk as most revenue comes from other units
and they request confirmations from those units.
They focus on tax and operating expenses in most cases.
They conduct analytics, confirmations, questions,and testing across the system.
Testing and review to ensure statements are materially correct.
Fraud testing.
Journal entries.
Discussions were held regarding:
Expense claims and how this would work, i.e.per diem provincially –she assumes those
are being looked at in detail as well and noted some issues with the RDAs.
Landfill Closure underfunding –could this have been detected quicker during an audit
process? No, the estimates are based on engineering reports, and it is not an audit
function as they rely on the report.The Director of Finance is reviewing the landfill
closure costs with Grant Thornton.
Internal controls around tax billing and operating expenses that will form part of the
audit process were discussed.
Audit and Budget (continued)May 18, 2017 269
Deputy Warden Shatford asked if there has been any changes/impacts and Mr. Ernst indicated
that previously there was only the Director of Finance, Tax Collector, and Accounts Payable but
with the addition of the Manager of Finance it is much better. This position allows the Director
of Finance to focus on a higher level. It has also created some segregation of duties –an
improvement.The Manager of Finance does a very good job and is diligent as well. The
addition and changes in staff level over past few years have made a difference.
ISO and its effectiveness as an audit on the whole operation.The CAO indicated that we
will be looking at broadening the Audit Committee mandate.
4.2 a Malcolm –Income Statement March 31, 2017
The Director of Finance reviewed the Income Statement as of March, 31, 2017 and commented
on some of the highlights:
Surplus of $1.2 Million vs a balanced budget
Line items have notes explaining variances
Surplus –a lot of program areas are under budgeted due to vacancies in positions,
projects not done, etc. On their own it is not a lot but when combined the number
becomes significant in total. One item that is under budget is the landfill because
revenue is up (HRM tonnage increase). Expenses are down in maintenance –these form
a big part of the amount.
Deed transfer tax revenue is up.
Staff is beginning to get ready to work on the audit –he cautioned the numbers as staff
still must look at some of the year end numbers.They will be ensuring reserves, funding,
pre-paid expenses,and payables are properly cut off so there could still be some
adjustments.
Adjustments (highlighted in yellow)will not be the same as the audited statements due
to depreciation, interest on debentures, etc.
The CAO noted that the landfill closure liability seems to be under funded and explained the
information included in the report.
The Director of Finance indicated that,based on earlier conversation,the accumulated liability
up to the beginning of the year must increase by a big number. It is material so would mean
restating last year’s numbers.
The CAO indicated that the landfill closure approach will be discussed In Camera as it also
includes our partners as part of the contract/negotiations. Council will not come to any
Audit and Budget (continued)May 18, 2017 270
conclusions today –this is just information as the Director of Finance and Grant Thornton are
working through to make sure numbers are correct and will come back with funds available in
all reserves.This discussion must be held “In Camera”because of negotiations with partners.
There was a discussion on how the landfill closure costs are calculated which is part of the
calculation of the engineer, which then is translated to the present/future costs for closure.
The Director of Solid Waste provided some information on the situations that can play into the
numbers.He also noted that there is a generic system used in calculating those numbers but
MODC has done significant improvements and staff have a high level of comfort. The Director
of Finance is correct that if the calculation didn’t get carried through it needs to be adjusted.
Warden Webber commented that the numbers assume what the cost will be for cover and
perpetual care –the tender and numbers could be higher/lower at the time of closure; however,
based on the assumptions we should be using we are underfunded.
There was some discussion on the values to be used and the CAO indicated that staff would be
providing options to Council once the information is reviewed.
Councillor Veinotte when? Tammy Porter Dillon came in higher than SNC numbers.
Warden Webber had a report and based closure costs on –felt it was too high so asked for
another report which said it wasn’t enough. Tammy are required to do engineering study every
six years.
Warden Webber had wanted it early because wanted to decrease amount if we could.
Bruce a mix of our indigenous knowledge and their review of it.
Councillor Veinotte Valley will not be thrilled.
Warden Webber need to discuss in camera. We can justify numbers based on two engineering
reports.
2017-253 MOVED by Councillor Assaff, SECONDED by Councillor Church that the Audit and
Budget Committee recommend to Council to receive the Income Statement of
March 31, 2017 as outlined by the Director of Finance. CARRIED.
2017-254 MOVED by Deputy Warden Shatford, SECONDED by Councillor Church the meeting
convene “In Camera” as per Section 22 (2) (e) of the Municipal Government Act
(contract negotiations).CARRIED.
Audit and Budget (continued)May 18, 2017 271
Following a brief meeting held “In Camera” the Audit and Budget Committee meeting
reconvened with all members present.
Warden Webber commented that Minas Basin is still waiting on the bid outcome regarding
Atlantic Link.
1.2 2017-18 Operating and Capital Budget Presentation –Tammy Wilson, CAO
The CAO reviewed the 2017-18 Operating and Capital Budget with the following
discussions/comments held:
Sewer Rate –change from $550 to $600 (analysis included).
Impact of Tax Rate –0.02 cents = $20 for every $100 of assessment.
Service level enhancements.
Position (Strategic Initiatives Coordinator)
Strategic Priorities and Chart based on the Plan (2013-2016). When Council met in the
fall the goals remained the same however some actions have changed. What Council
approved is the Chart for this year and list of things they want to accomplish in next four
years.Council will reprioritize again in the fall.
The CAO provided a presentation and discussed/highlighted the following information included:
Budget highlights
Infrastructure to best serve our residents and businesses
Environmental Cultural and Social Resources
Leadership in Public Engagement and Communications
Economic Prosperity
Comparison of Tax Rates –Residential
Financial Condition Index
Debt Service Ratio (next year MODC will be closer to 14% because of landfill costs)
Debt Repayment
Debt Service Ratio
Reserves
Reserve Projections for 2017 to 2026
Budget Summary
Mandatory Expenditures
Where the money goes
Operating Budget
Landfill Budget
A five-minute break was held.
Audit and Budget (continued)May 18, 2017 272
The CAO reviewed the Landfill Budget which included information regarding the tipping fee
(due to landfill debt). The Scenarios provided were reviewed regarding the partners and the
expenses due to Sustane, landfill debt, etc.The peaks and valleys of the budget were reviewed
and it was indicated that MODC should be prepared to carry a deficit based on these
projections. The Valley partners will be asked to agree to the surplus approach and asked that
they let us hold the funds in reserve to offset future years.Normally, partners want the surplus
returned as they also have financial obligations to meet.
The CAO reviewed the proposed tip fee of $69.48.
The CAO continued with the presentation, reviewing the following:
Additions –Discretionary
Additions –Mandatory
Changes made since March 30, 2017 which include:
o Low Income Tax Exemption
o Halloween
o Strategic position
o Canada 150
o Equivalent Dwelling Unit change from $550 to $600
o Capital –sewers (used sewer reserve and decreased borrowing). When the Western
Shore project came in over budget the difference is being taken from gas tax.
o Planning –added $2,500 for water quality testing based on Council discussions
o Tourism Development –decreased by $18,000
o Transfers to reserve –the tip fee and EDU revenue of $78,500 transferred to reserve
o Revenue:
o No new fees
o Tipping fee
o Equivalent Dwelling Unit (EDU)rate
o Tax rate up by two cents
o Commercial $1.53
o Solid waste increases by ½ cent
o Street light rate
o Tax Revenue $18,136,888
o Non-Tax Revenue $6,015,361
Tip fees
Comfit
Transfers
Audit and Budget (continued)May 18, 2017 273
Conditional transfers
Revenue from own services
Sale of services 3%
Sewer Rate -$550 to $600 -EDU rate is status quo and covering expenses and building a
reserve.
Revenue –Increase
o General Tax Revenue
o Wind Farm
o Deed Transfer Tax
o Universal Sewer
o Solid Waste Collection
o Solid Waste Disposal Fees
o Other Revenue from Own Sources
Area Rates
o Waste collection from 0.0957 to 0.10147
o Sewer rate from $550 to $600
o Has Village Commission Rate and will bring back –in/out.
o Fire protection rates have not yet been received
o Private road improvement rates have not yet been received
Capital Budget -$9.027,100
Strategic Priorities Chart
Councillor Church asked about the refurbishment of the sewer truck to turn it into something
else. Had Council previously discussed selling it?
The Director of Solid Waste outlined that the truck body is in working order but the system is no
longer useful. The system will be removed and the truck used as a roll-off for use. It will be
used for landfill and Sustane operations.
2017-255 MOVED by Councillor Assaff, SECONDED by Councillor Veinotte that Municipal
Council approve the 2017/18 Capital Budget in the amount of $9,027,100.
CARRIED.
2017-256 MOVED by Councillor Church, SECONDED by Councillor Veinotte that Municipal
Council approve the 2017/18 Operating Budget and Business Plan in the amount of
$26,586,643. CARRIED.
Audit and Budget (continued)May 18, 2017 274
2017-257 MOVED by Deputy Warden Shatford, SECONDED by Councillor Veinotte that
Municipal Council approve the Reserve Transfers as noted in the 2017/18 Business
Plan for both the Capital and Operating Budget. CARRIED.
2017-258 MOVED by Councillor Assaff, SECONDED by Councillor Veinotte that Municipal
Council set the Residential rate at 0.075 per $100 of Assessment. CARRIED.
2017-259 MOVED by Councillor Barkhouse, SECONDED by Councillor Veinotte that Municipal
Council set the Commercial Rate at $1.53 per $100 of Assessment. CARRIED.
2017-260 MOVED by Deputy Warden Shatford, SECONDED by Councillor Church that
Municipal Council set the Solid Waste Rate at $0.10147 per $100 of Assessment.
CARRIED.
2017-261 MOVED by Councillor Assaff, SECONDED by Councillor Veinotte that Municipal
Council set the Sewer EDU Rate, Private Well Rates, Private Road Maintenance
Rate, Private Road Improvement Rate and Street Light Rates as noted in the
2017/18 Business Plan. CARRIED.
ADJOURNMENT
2017-262 MOVED by Councillor Assaff, SECONDED by Councillor Barkhouse the meeting
adjourn. CARRIED. (11:04 a.m.)
________________________________________________________________
Allen Webber Pamela Myra
Warden Municipal Clerk
REQUEST FOR DECISION
Prepared By:Malcolm Pitman, CPA, CA, Director
of Finance
Date August 29, 2017
Reviewed By:Date
Authorized By:Date
CURRENT SITUATION
MODC has prepared consolidated financial statements for the year ended March 31, 2017. These statements
have been audited by Grant Thornton who have expressed their unqualified opinion on the statements as to
their fair presentation.
RECOMMENDATION
That the Audit and Budget Committee recommend to Municipal Council approval of the Consolidated
Financial Statements for the year ended March 31, 2017.
BACKGROUND
Per Section 42 of the Municipal Government Act (MGA)a Council shall appoint a Municipal Auditor who will
report on the accounts and funds. The auditor’s report shall be filed with the Council and the Minister by
September 30th each year. The auditor shall report any weaknesses in internal control or other areas requiring
improvement. The financial statement shall set out the remuneration paid to each council member and the
chief administrative officer.
Per Section 44 of the MGA, the Audit Committee responsibilities include a detailed review of the financial
statements, an evaluation of any management letter with the auditor,a review of the conduct and adequacy
of the audit, matters arising out of the audit that require investigation and other matters as determined by
Council.
These financial statements are prepared in accordance with Canadian public sector accounting standards.
DISCUSSION
MODC has a strong financial position as it continues to increase non-tax revenues and increase reserves to
fund future needs versus burdening the tax base. This year the financial assets now exceed the liabilities
putting the MODC in a net asset position. As well this is the fifth straight year of having an annual surplus
showing that the MODC has the ability to manage its financial and service commitments.
The following area are discussed below:
A.Presentation changes
B.Results highlights
C.Areas for committee consideration in future meetings
REPORT TO:Audit and Budget Committee
SUBMITTED BY:Finance Department
DATE:August 31, 2017
SUBJECT:Consolidated Financial Statements for
the year ended March 31, 2017
ORIGIN:
2 Request For Decision
A.Presentation changes include the following:
Statement of financial position –Employee future benefits liability is shown separately from payables and
accruals. Tax sale surplus is shown as separate liability item in the consolidated statements versus in its
own statement.This is due to a provincial accounting rule to show the tax sale surplus as a separate item
in the consolidated financial statements.
Schedules –These are now in the pages after the notes versus before the notes.
Notes added –see #5 below for a list of new notes.
B.Highlights in the following areas will be reviewed for the results presented in the financial statements for
the year ended March 31, 2017:
1.Statement of operating results and annual surplus for 2016-17
2.Prior period adjustment for 2015-16
3.Changes in net assets (debt)
4.Statement of financial position and accumulated surplus
5.New notes to the financial statements
6.Municipal indicators
(a)Sustainability
(b)Flexibility
(c)Vulnerability
1.Statement of operating results and annual surplus for 2016-17
The annual surplus was $2,354,622 compared to a budget of $2,712,430, for negative variance of
$(357,808). Removing the capital items in the statement (grants for capital projects and loss on disposal of
assets) the remaining operating items show a surplus of $2,016,628 versus a budget of $905,209, for a
positive variance of $1,111,419. The major items making up this variance include:
Revenue Variances
168,655 Taxation revenue - deed transfer tax up $168,655 over budget
686,888 landfill closure - Valley share 86.5%of closue cost less funding Recover over future years
178,842 Landfill - HRM commercial increased tonnes/fees
(176,341)Contaminated soil - reduced tonnes/fees
142,063 Interest on reserves - not budgeted for operating fund
94,489 Conditional transfers - recreation program grants
(18,876)All other revenue variances
1,075,720
3 Request For Decision
Expenditure variances
(14,008)Gen Gov - Grants to organizations (see recreation)
242,954
83,987 Fire protection agreement - surplus transfered to reserves
109,542 Protective services - other - i.e Bldg/fire inspection $60k, by-law enforecement $17k, fire recruitment $9k
(861,435)Landfill closure expense $1,411,435 vs budget $550,000
292,708
179,230
50,000 Recreation - grants - included in Gen Gov grants
(143,336)Depreciation expense over budget - $2,357,166 vs $2,213,961
96,057 All other expense variances
35,699 Expenditure variances
1,111,419 Total variances without the capital items
(1,127,613)Grants for capital projects varaince
(341,614)Loss on disposal of assets variance
(357,808)Annual surplus variance
Gen Gov - other - ie elections $17k, conferences $17k, newsletters/ISO $22k, PO module $46k, eng. serv $15k
Environmental health other - i.e. sewer salaries $58k, waste recylcing blue bags $60k, landfill operating exp $182k
Environmental development - i.e. econ. Develop. promotion $26k, planning review/spec projects $28k, wind $14k
2. Prior period adjustment for 2015-16 (from note 2 to the F/S)
During the year,it was determined that the landfill closure liability had been understated in fiscal 2016 by
$1,098,220.The error was due to omitting the impact of inflation in the determination of the estimated
total liability.Also, as disclosed in note 17, net operating costs are shared by the Valley Region Solid Waste
Authority, therefore landfill revenue (Sales of Services) and accounts receivable were understated by
$476,210. The $622,018 impact to the accumulated surplus was shown as an annual surplus reduction of
$170,069 (from $1,912,981 to $1,742,912)and an opening equity reduction of $451,949.
3. Changes in net assets (debt)
During the year, financial assets have increased by $3,367,440 and liabilities have reduced by $627,355 for
a reduction in net debt of $3,994,795, putting the Municipality in a net asset position of $1,509,802.
There has been a positive trend in this indicator over the last four years.This is a positive indicator of the
sustainability of the Municipality.The increase in 2014 was due to the borrowing of $4M for the capital
addition of the wind turbine.
Net Assets (Debt)
2017 2016 -restated 2015 2014 2013
$1,509,802 $(2,484,993)$(4,133,143)$(5,030,305)$(2,911,010)
4. Statement of financial position and accumulated surplus
As noted in #3 above, financial assets have increased by $3,367,440 and liabilities have reduced by
$627,355 for a reduction in net debt of $3,994,795. Non-financial assets have decreased $1,640,173 as
amortization of capital assets was greater that capital asset additions. The net result is that accumulated
4 Request For Decision
surplus has increased by $2,354,622, which is equal to the annual surplus discussed in #1 above.
Accumulated surplus is now $22,452,974 versus $20,098,352 at the beginning of the year.
5. New notes to the financial statements
Note 2 –Prior period adjustment –explains the impact of the correction of an error in the March 31, 2016
financial statements.
Note 5 –Cash and cash equivalents –discloses the cash and short term investments and the restricted
amounts.
Note 7 –Employee future benefits –Non-vested sick leave –discloses the nature of the liability and the
results of the actuarial valuation of the amount of the liability.
Note 9 –Tax sale surplus account –discloses the nature of the liability and years in which they arose.
Note 12 –Financial instruments –discloses the nature of financial instruments, their associated risks and
the Municipality’s exposure to these risks.
Note 22 –subsequent events –discloses significant contracts entered into subsequent to the year end.
Note 24 –Budgeted figures –discloses source of budgeted figures.
6.Municipal Indicators
Assessment of financial condition needs to consider sustainability, flexibility and vulnerability.
Sustainability is the degree to which MODC can maintain existing financial and service obligations without
increasing debt or tax burden.Flexibility is the degree to which MODC can change its debt or tax burden
to meet obligations.Vulnerability is the degree to which MODC is dependent outside funding sources or
is exposed to risks that could impair its ability to meet obligations.Government-specific indicators link
MODC’s financial condition to the financial statements.Government-related indicators include data that
describe the economic environment in which MODC operates. In this case,presenting financial information
in relation to changing taxable assessment.A summary of the below indicators is in Appendix A.
Municipal indicators are calculated by the Province may be slightly different to similar indicators below.
(a)Sustainability indicators -The degree to which existing financial and service obligations can be
maintained without increasing debt or tax burden.
Government specific indicators
Assets to Liabilities = (18,899,602+20,943,172)/17,389,800 =2.29 (target 1.0 or higher)
Trend: 2017 –2.29;2016 –2.12; 2015 –2.18; 2014 –2.16; 2013 –2.24
Financial assets to liabilities (net assets (debt))= 18,899,602/17,389,800 =1.09 (target 1.0 or higher)
Trend:2017 –1.09; 2016 –0.86; 2015 –0.74; 2014 –0.66; 2013 –0.78
Number of deficits in the last five years =0 (target 0)
Trend: 2017 –0; 2016 –1; 2015 –1; 2014 –1; 2013 –1
Uncollected taxes to total taxes = 1,354,097/15,242,967 =8.88%(target below 10%)
Trend: 2017 –8.9%;2016 –7.8%; 2015 –8.7%; 2014 –8.0%; 2013 –7.9%
5 Request For Decision
Government related indicators
Three-year change in tax base less CPI = (1-(1,512,854,800/1,419,367,900))-3.3% = 3.3%
Trend: 2017 –3.3%; 2016 –6.5%; 2015 –2.2%; 2014 –2.0%
Net Assets(Debt)to taxable assessment =1,509,802/1,512,854,800 =0.1%(target a decreasing trend)
Trend: 2017 –0.1%;2016 –(0.16%); 2015 –(0.28%); 2014 –(0.35%); 2013 –(0.21%)
Total expenses to taxable assessment = 19,869,861/1,512,854,800 =1.3%(target a decreasing trend)
Trend: 2017 –1.3%; 2016 –1.3%; 2015 –1.3%; 2014 –1.4%, 2013 –1.4%
Assessment -All the above sustainability indicators are on target and/or trending in a positive direction
indicating that the Municipality is in a sustainable position.The only negative trend (although within
target) is percentage of uncollected taxes to total taxes. We are in the process of conducting a tax sale,
which was not done last year due to changing personnel and position vacancy.
(b)Flexibility indicators -the degree of ability to change debt or tax burden to meet obligations.
Government specific indicators
Debt charges to own-source-revenue (net of education/corrections) = 1,920,031/16,472,141 =11.7%
(target 15% or less)
Trend: 2017 –11.7%;2016 –10.9%; 2015 –9.8%; 2014 –10.4%; 2013 –9.9%
Analysis –Most the debt is for programs that generate revenue to service their debt. When both
the debt charges and revenue for these programs (landfill and wind turbine) are removed, it
shows the debt charged serviced by the tax base (net of education/corrections)as:
2017 =$181,905/$11,932,558 = 1.5%; 2016 = $189,833/$11,767,267 = 1.6%.
Net book value of capital assets to their cost = $20,903,691/$53,691,913 =38.9%(target above 60%)
Trend: 2017 –38.9%;2016 –42.5%; 2015 –45.1%; 2014 –46.0%; 2013 –46.1%
Analysis –Aging infrastructure put MODC as risk of not being able to maintain its level of service
due to impending future capital asset repair or replacement drawing resources away from
services.
Operating reserves as ratio to total expenses = $8,400,871/$19,869,861 =42.3%(target 5% or more)
Trend: 2017 –42.3%;2016 -34.8%; 2015 –15.9%; 2014 –11.6%; 2013 –11.8%
Capital reserves as ratio to accumulated amortization =$1,659,185/$32,788,222 = 5.1%
Trend: 2017 –5.1%; 2016 –6.6%; 2015 –1.14%; 2014 –0.9%; 2013 –1.0%
Government related indicators
Own source revenues to taxable assessment =21,316,748/1,512,854,800 =1.4%(target ^ trend)
Trend: 2017 –1.41%; 2016 –1.35%; 2015 -1.28%;2014 –1.22%; 2013 –1.22%
Assessment –Over time ratios are improving, except for NBV of capital assets. The ratios that are
improving will assist in addressing the aging infrastructure by increasing MODC’s ability to fund capital
asset repair or replacement without impairing spending on other programs. In addition, a significant
portion of capital asset amortization relates to landfill assets, which will not all have to be replaced with
the implementation of the Sustane technologies. Removal of the landfill amounts from the net book
value ratio brings the ratio up to 48.0% from 38.9%. Operating and capital reserves make up another
24% of cost of these capital assets.
(c)Vulnerability Indicators -the degree of dependence on outside funding sources or exposure to risks
that could impair ability to meet obligations.
6 Request For Decision
Government specific indicators
Government transfer to total revenue (excl. capital) = $228,127/21,544,875 =1.1%(target < 15%)
Trend: 2017 –1.1%; 2016 –1.9%; 2015 –1.3%; 2014 –1.9%; 2013 –1.5%
Dependence on single business
Analysis –there are no businesses that the MODC is dependent upon. The top three commercial
assessments, when added together, represent 0.75% of the taxable assessment.
Financial Instruments i.e.Foreign currency risk
See new note 12 describing financial instruments the risk exposure that MODC has. The risk
exposure is low and it is monitored and mitigated.
Assessment –MODC is not vulnerable to the fiscal decisions of others (i.e. provincial government)as it is
not dependent on government transfers. This has the effect of improving MODC sustainability. In
addition, MODC has low vulnerability to other risk exposures.
C.Area for committee consideration in future meetings
Statement of operations –Education contribution, corrections contribution and regional housing
contribution are netted against tax revenue as Public Sector Accounting Standards (PSAS)section 3510
(12) requires a tax imposed on behalf of another government (i.e. school board),pursuant to legislation,
be treated as a flow through arrangement. Therefore, the portion of our property tax revenue rated to
pay for these payments is not recognized as tax revenue. Although required by PSAS, this may give the
appearance of an understatement, on the statement of operations, of the tax burden collected from
property owners.To be transparent, I would propose that the committee discuss,in the 2018-19 budget
deliberations,the separation of the tax rate for general operations and the portion of the tax rate
required to fund flow through arrangements.
IMPLICATIONS
Policy –n/a
Financial/Budgetary
Approval of the financial statements will ensure MODC meets its legislative obligation to file financial
statements by September 30th.
Environmental –n/a
Strategic Plan –n/a
Work Program Implications -n/a
OPTIONS
Two options:
1.Approve the financial statements as presented.
2.Approve the financial statements with amendments.
ATTACHMENTS
Appendix A –Summary of indicators
Appendix B –Audited Consolidated Financial Statements as of March 31, 2017
COMMUNICATIONS (INTERNAL/EXTERNAL)
Internal –n/a
External-File the financial statements with the Minister of Municipal Affairs and the Municipality’s banker.
Place audited financial statements on the Municipality’s website.
7 Request For Decision
Appendix A –Summary of Indicators
Description Target 2017 2016 2015 2014 2013
Sustainability indicators
Assets to Liabilities 1 or greater 2.29 2.12 2.18 2.16 2.24
Financial assets to liabilities (net
assets (debt))
1 or greater 1.09 0.86 .074 .066 .078
Number of deficits in the last five
years
0 0 1 1 1 1
Uncollected taxes to total taxes Less than 10%8.9%7.8%8.7%8.0%7.9%
Three-year change in tax base less
CPI
Positive #3.3%6.5%2.2%2.0%
Net Assets(Debt) to taxable
assessment
Reducing -# or
increasing +#
0.10%(0.16%)(0.28%)(0.35%)(0.21%)
Total expenses to taxable
assessment
Constant or
Reducing %
1.3%1.3%1.3%1.4%1.4%
Flexibility indicators
Debt charges to own-source-
revenue
15% or less 11.7%10.9%9.8%10.4%9.9%
Above ratio excluding landfill and
wind turbine
1.5%1.6%
Net book value of capital assets to
their cost
60% or greater 38.9%42.5%45.1%46.0%46.1%
Operating reserves as ratio to total
expenses
5% or greater 42.3%34.8%15.9%11.6%11.8%
Capital reserves as ratio to
accumulated amortization
5.1%6.6%1.14%0.9%1.0%
Own source revenues to taxable
assessment
Constant or
increasing %
1.41%1.35%1.28%1.22%1.22%
Vulnerability Indicators
Government transfer to total
revenue (excl.capital)
Less than 15%1.1%1.9%1.3%1.9%1.5%
CONFIDENTIAL
Report to those charged with
governance—Communication of
audit results
Municipality of the District of Chester
For the year ended March 31, 2017
Audit • Tax • Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
August 31, 2017
To the audit committee of the Municipality of the District of Chester
We are pleased to report that we have now substantially completed our audit of the
consolidated financial statements hereinafter the “financial statements” of Municipality of the
District of Chester (hereinafter the “entity”) for the year ended March 31, 2017. We enclose our
Report to those charged with governance - Communication of audit results to continue our dialogue with
the committee on the audit of the entity. This report provides an overview of the results of our
audit including comments on misstatements, significant accounting policies, sensitive
accounting estimates, and other matters that may be of interest to the committee.
This communication has been prepared to comply with the requirements outlined in CAS 260
Communication with those Charged with Governance. The information in this document is intended
solely for the information and use of the Audit Committee, Board of Directors and
management. It is not intended to be distributed or used by anyone other than these specified
parties.
We express our appreciation for the cooperation and assistance received from the management
and staff of the entity during the course of our audit.
If you have any particular comments or concerns, please do not hesitate to raise them at our
scheduled meeting.
Yours sincerely,
Grant Thornton LLP
Jeff Sabean, CPA, CA, CBV
Partner
cc: Malcolm Pitman, CPA, CA, Director of Finance
Tammy Wilson, CAO
Audit • Tax • Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd CONFIDENTIAL
Contents
Page
Status of the audit 1
Audit results 2
Reportable matters 3
Appendix A—Draft independent auditor’s report 5
Appendix B—Draft Management representation letter 7
Appendix C—Internal control letter 9
Report to those charged with governance – Communication of audit results
Municipality of the District of Chester For the year ended March 31, 2017
1
Audit • Tax • Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd CONFIDENTIAL
Status of the audit
Outstanding items
We have substantially completed our audit of the financial statements of the entity for the year ended
March 31, 2017 and the results of that audit are included in this report.
We have attached our draft auditor’s report in the appendices. We will finalize the report once the
council has approved the financial statements. The following items were outstanding as at the date of
this report:
Receipt of signed management representation letter (draft has been attached as in the appendices);
Approval of the financial statements by council; and
Response from legal counsel regarding outstanding legal matters.
Planned audit approach
We have successfully executed our audit strategy in accordance with the plan presented to the
committee on May 18, 2017.
Report to those charged with governance – Communication of audit results
Municipality of the District of Chester For the year ended March 31, 2017
2
Audit • Tax • Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd CONFIDENTIAL
Audit results
Summary of misstatements
We have no non-trivial unadjusted misstatements to report.
There were no misstatements identified and adjusted in the financial statements by the entity as a result
of our audit procedures.
Summary of disclosure matters
Our audit did not identify any unadjusted non-trivial misstatements of disclosure matters.
Report to those charged with governance – Communication of audit results
Municipality of the District of Chester For the year ended March 31, 2017
3
Audit • Tax • Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd CONFIDENTIAL
Reportable matters
Internal control
Management is responsible for the design and operation of an effective system of internal control that
provides reasonable assurance that the accounting system provides timely, accurate and reliable
financial information, and safeguards the assets of the entity.
The audit is designed to express an opinion on the financial statements. Our understanding of internal
control is sufficient to enable us to plan the audit and to determine the nature, timing and extent of
tests to be performed. If we become aware of a deficiency in your internal control systems, the auditing
standards require us to communicate to the audit committee those deficiencies we consider significant.
However, a financial statement audit is not designed to provide assurance on internal control.
During the course of performing our audit, we identified the following significant deficiencies in
internal control:
Segregation of duties
Journal entry approval
Our comments and recommendations on these matters have been provided in an internal control letter
and attached in the appendices.
Report to those charged with governance – Communication of audit results
Municipality of the District of Chester For the year ended March 31, 2017
4
Audit • Tax • Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd CONFIDENTIAL
Significant findings from the audit
As part of the audit, we identified the following significant items we wanted to discuss:
Significant Findings Considerations and results
Significant new accounting
policies
There were no significant impacts on the financial statements arising
from new accounting policies.
Acceptable alternative
accounting policies
There were no significant impacts on the financial statements arising
from selection of alternative accounting policies.
Significant transactions There were no significant impacts on the financial statements arising
from significant transactions.
Sensitive accounting
estimates and disclosures
The accrual of landfill closure and post closure costs in accordance
with PSAS requires significant estimates. The calculation is influenced
by estimated closure and post closure costs, estimated timing of
expenditures, discount rates and estimated cell site capacity.
The report (dated July 2014) completed by SNC Lavalin, was used
along with actual tonnage received at the landfill to calculate the landfill
closure accrual in the prior year. Based on the information available,
management believed that a prior period adjustment was required, see
note 2 of the financial statements.
The report (dated June 29) completed by Dillon Consulting, was used
along with actual tonnage received at the landfill to calculate the landfill
closure accrual in the current year. Based on the information available,
we feel the estimated accrual appears reasonable.
Fraud and illegal acts There was no fraud or illegal acts identified.
Independence
We confirm that there have been no changes to our status with respect to independence since we
confirmed our independence to you on August 4, 2016.
Report to those charged with governance – Communication of audit results
Municipality of the District of Chester For the year ended March 31, 2017
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Appendix A—Draft independent auditor’s
report
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Independent auditor’s report
To the Council of the Municipality of the District of Chester
We have audited the accompanying consolidated financial statements of Municipality of the
District of Chester, which comprise the consolidated statement of financial position as at
March 31, 2017, and the consolidated statements of operations, changes in net debt, and cash
flow 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 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
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 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
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 financial statements.
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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 Municipality of the District of Chester as at March 31,
2017, and the consolidated results of its operations, changes in net debt, and its cash flows for
the year then ended in accordance with Canadian public sector accounting standards.
Emphasis of Matter
We draw attention to Note 2 of the financial statements which describes the prior period
adjustment. Our opinion is not qualified in respect of this matter.
Other Matters
Our audit was conducted for the purposes of forming an opinion on the financial statements
taken as a whole. The Supplementary schedules on pages 22 – 27 are presented for purposes of
additional information and are not a required part of the financial statements. Such information
has been subject to the auditing procedures applied, only to the extent necessary to express an
opinion, in the audit of the financial statements taken as a whole.
Bridgewater, Canada
August 31, 2017 Chartered Professional Accountants
Licensed Public Accountants
Report to those charged with governance – Communication of audit results
Municipality of the District of Chester For the year ended March 31, 2017
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Appendix B—Draft Management
representation letter
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Management Representation Letter
August 31, 2017
Grant Thornton LLP
4th Floor, Dawson Centre
197 Dufferin Street
Bridgewater, NS
B4V 2G9
Dear Sir or Madam:
We are providing this letter in connection with your audit of the consolidated financial statements of
Municipality of the District of Chester as of March 31, 2017, and for the year then ended, for the
purpose of expressing an opinion as to whether the consolidated financial statements present fairly,
in all material respects, the financial position, results of operations, and cash flows of Municipality of
the District of Chester in accordance with Canadian Public Sector Accounting Standards.
We acknowledge that we have fulfilled our responsibilities for the preparation of the consolidated
financial statements in accordance with Canadian Public Sector Accounting Standards and for the
design and implementation of internal controls to prevent and detect fraud and error. We have
assessed the risk that the consolidated financial statements may be materially misstated as a result of
fraud, and have determined such risk to be low. Further, we acknowledge that your examination was
planned and conducted in accordance with Canadian generally accepted auditing standards (GAAS)
so as to enable you to express an opinion on the consolidated financial statements. We understand
that while your work includes an examination of the accounting system, internal controls and related
data to the extent you considered necessary in the circumstances, it is not designed to identify, nor
can it necessarily be expected to disclose, fraud, shortages, errors and other irregularities, should any
exist.
Certain representations in this letter are described as being limited to matters that are material. An
item is considered material, regardless of its monetary value, if it is probable that its omission from or
misstatement in the consolidated financial statements would influence the decision of a reasonable
person relying on the consolidated financial statements.
We confirm, to the best of our knowledge and belief, as of August 31, 2017, the following
representations made to you during your audit.
Financial statements
1 The consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the entity as at March 31, 2017 and the results of its operations and its cash
flows for the year then ended in accordance with Canadian Public Sector Accounting Standards,
as agreed to in the terms of the audit engagement.
Completeness of information
2 We have made available to you all financial records and related data and all minutes of the
meetings of council, and committees of council, as agreed in the terms of the audit engagement.
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Summaries of actions of recent meetings for which minutes have not yet been prepared have
been provided to you. All significant council and committee actions are included in the
summaries.
3 We have provided you with unrestricted access to persons within the entity from whom you
determined it necessary to obtain audit evidence.
4 There are no material transactions that have not been properly recorded in the accounting
records underlying the consolidated financial statements. The adjusting journal entries which
have been proposed by you are approved by us and will be recorded on the books of the entity.
5 There were no restatements made to correct a material misstatement in the prior period
consolidated financial statements that affect the comparative information.
6 We are unaware of any known or probable instances of non-compliance with the requirements
of regulatory or governmental authorities, including their financial reporting requirements.
7 We are unaware of any violations or possible violations of laws or regulations the effects of
which should be considered for disclosure in the consolidated financial statements or as the basis
of recording a contingent loss.
8 We have disclosed to you all known deficiencies in the design or operation of internal control
over financial reporting of which we are aware.
9 We have identified to you all known related parties and related party transactions, including sales,
purchases, loans, transfers of assets, liabilities and services, leasing arrangements guarantees, non-
monetary transactions and transactions for no consideration.
Fraud and error
10 We have no knowledge of fraud or suspected fraud affecting the entity involving management;
employees who have significant roles in internal control; or others, where the fraud could have a
non-trivial effect on the consolidated financial statements.
11 We have no knowledge of any allegations of fraud or suspected fraud affecting the entity’s
consolidated financial statements communicated by employees, former employees, analysts,
regulators or others.
12 We acknowledge our responsibility for the design, implementation and maintenance of internal
control to prevent and detect fraud.
Recognition, measurement and disclosure
13 We believe that the significant assumptions used by us in making accounting estimates, including
those used in arriving at the fair values of financial instruments as measured and disclosed in the
consolidated financial statements, are reasonable and appropriate in the circumstances.
14 We have no plans or intentions that may materially affect the carrying value or classification of
assets and liabilities, both financial and non-financial, reflected in the consolidated financial
statements.
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15 All related party transactions have been appropriately measured and disclosed in the consolidated
financial statements.
16 The nature of all material measurement uncertainties has been appropriately disclosed in the
consolidated 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
consolidated financial statements.
17 All outstanding and possible claims, whether or not they have been discussed with legal counsel,
have been disclosed to you and are appropriately reflected in the consolidated financial
statements.
18 All liabilities and contingencies, including those associated with guarantees, whether written or
oral, have been disclosed to you and are appropriately reflected in the consolidated financial
statements.
19 All “off-balance sheet” financial instruments have been properly recorded or disclosed in the
consolidated financial statements.
20 With respect to environmental matters:
a) at year end, there were no liabilities or contingencies that have not already been disclosed to
you;
b) liabilities or contingencies have been recognized, measured and disclosed, as appropriate, in
the consolidated financial statements; and
c) commitments have been measured and disclosed, as appropriate, in the consolidated
financial statements.
21 The entity has satisfactory title to (or lease interest in) all assets, and there are no liens or
encumbrances on the entity’s assets nor has any been pledged as collateral.
22 We have disclosed to you, and the entity has complied with, all aspects of contractual agreements
that could have a material effect on the consolidated financial statements in the event of non-
compliance, including all covenants, conditions or other requirements of all outstanding debt.
Refer to Note 6 in the consolidated financial statements.
23 The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) transactions recorded by
the entity are in accordance with the federal and provincial regulations. The GST and HST
liability/receivable amounts recorded by the entity are considered complete.
24 Employee future benefit costs, assets, and obligations have been determined, accounted for and
disclosed in accordance with the requirements of Section 3461 Employee Future Benefits of the
Chartered Professional Accountants of Canada (CPA Canada) Handbook Part II– Accounting.
25 There have been no events subsequent to the balance sheet date up to the date hereof that would
require recognition or disclosure in the consolidated financial statements. Further, there have
been no events subsequent to the date of the comparative financial statements that would require
adjustment of those financial statements and related notes.
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Other
26 We have considered whether or not events have occurred or conditions exist which may cast
significant doubt on the Municipality’s ability to continue as a going concern and have concluded
that no such events or conditions are evident.
Yours very truly,
Tammy Wilson, CAO
Malcolm Pittman, CPA, CA, Director of Finance
Report to those charged with governance – Communication of audit results
Municipality of the District of Chester For the year ended March 31, 2017
9
Appendix C—Internal control letter
Grant Thornton LLP 4th Floor, Dawson Centre 197 Dufferin Street Bridgewater, NS B4V 2G9 T +1 902 543 8115 F +1 902 543 7707 www.GrantThornton.ca
Audit • Tax • Advisory
Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
August 31, 2017
Warden Allen Webber
Municipality of the District of Chester
151 King Street
Chester NS B0J 1J0
Dear Warden Webber:
Re: Internal control findings from the 2017 audit
Receiving observations and findings on your financial reporting processes and controls is one
of the benefits of an annual financial statement audit. Over the past years, Grant Thornton LLP
began implementing new processes and technology to address the changing standards of
conducting a financial statement audit. This approach includes an increased emphasis on
internal control. Our procedures identified a number of items that we need to bring to your
attention.
Our audit is planned and conducted to enable us to express an audit opinion on the annual
financial statements. The matters dealt with in this letter came to our attention during the
conduct of our normal examination, and as a result, this letter does not necessarily include all
matters that would be uncovered through a more extensive or special engagement.
The standards of the public accounting profession require us to report annually to you our
findings on certain weaknesses and deficiencies in your internal controls. We have categorized
our findings as follows:
• Material weaknesses (individual or aggregated deficiencies that could result in a
material misstatement in the financial statements due to fraud or error)
• Significant deficiencies
• Other deficiencies and advisory comments
Material weaknesses
There were no material weaknesses identified during audit procedures.
2
Audit • Tax • Advisory
Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
Significant deficiencies
1. Segregation of Duties
The Municipality continues to improve its segregation of duties controls, as evidenced by
placing access rights on accounting software that control who can post general journal entries.
However, the Municipality still has some duties that are not adequately segregated. The staff of
the finance department performs various tasks, such as approvals and reconciliations, for which
they prepared and approved the original transactions or entries. Ideally, the following processes
should be performed by different individuals: initiation, recording, reporting, authorization and
custody of assets. A lack of segregation of duties increases the risk of errors and fraud going
undetected. The Municipality has mitigated this concern from previous years by utilizing
additional staff.
It was also noted in the current year that Journal entries are no longer being individually
reviewed and approved. The implication is that a material misstatement, either due to fraud or
error, could go undetected.
As the Municipality continues to move forward and address changes in its internal controls and
internal processes, we are available to assist the Municipality in designing new processes to help
meet its changing needs.
It is management’s responsibility to weigh the costs of implementing controls against the
benefits that the controls will achieve. The purpose of this letter is to provide you with the
information related to the identified risks so that you can make the necessary decisions.
Observations not addressed from the prior year have been repeated to allow management to
challenge past judgments in the current operating environment.
Often there are practical ways for Municipalities, such as yours, to improve their financial
reporting process. As your auditor and advisor, it would be a pleasure to further discuss our
findings with you and provide you with appropriate guidance to improve your controls.
The matters discussed herein are those that have been noted as of our audit date, August 31,
2017. In addition, this communication is prepared solely for the information of management
and is not intended for any other purposes; we accept no responsibility to a third party who
uses this communication.
To complete our files, please provide us with a copy of your response to our comments.
3
Audit • Tax • Advisory
Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
Thank you for the opportunity to contribute to the present and future success of the
Municipality of the District of Chester.
Yours sincerely,
Grant Thornton LLP
Jeff D. Sabean, CPA, CA, CBV
Partner
REQUEST FOR DIRECTION
Prepared By:Malcolm Pitman, CPA, CA, Director
of Finance
Date August 22, 2017
Reviewed By:Date
Authorized By:Tammy Wilson, MURP, MCIP, CAO Date August 23, 2017
CURRENT SITUATION
An Act to amend chapter 18 of the Municipal Government Act (MGA) received first reading in April 2017.
Clause 5 of the Act amended section 44 of chapter 18 by adding that an audit committee must include a
minimum of one person who is not a member of council or an employee of the municipality.It is widely
regarded that it is best practice to include an independent member on the audit committee. Although the
amendment is not yet in effect this is current the practice in some NS municipalities.
RECOMMENDATION
That the Audit and Budget Committee recommend to Municipal Council that membership in the Audit and
Budget committee be expanded to include a person who is not a member of council or an employee of the
municipality and to advertise to recruit a person for this position.
BACKGROUND
Per Section 44 of the MGA, the Audit Committee responsibilities include a detailed review of the financial
statements, an evaluation of any management letter with the auditor,a review of the conduct and adequacy
of the audit,matters arising out of the audit that require investigation and other matters as determined by
Council.
Section 44 currently states that the council shall annually appoint an audit committee, but it does not give
direction on the membership.The amendment to require inclusion of an independent member is best practice
to strengthen audits and audit committees.
DISCUSSION
As inclusion of an independent member on the audit committee is best practice and will strengthen the audit
and audit committee is would be in MODC best interest to agree to early adoption of the amendment to
section 44 of the MGA.
REPORT TO:Audit and Budget Committee
SUBMITTED BY:Finance Department
DATE:August 31, 2017
SUBJECT:Audit Committee Membership
ORIGIN:Bill No. 84 –MGA amended
2 Request For D
IMPLICATIONS
Policy –n/a
Financial/Budgetary –Would require advertisement to recruit an independent member for the audit
committee.
Environmental –n/a
Strategic Plan –n/a
Work Program Implications -n/a
OPTIONS
Two options:
1.Recommend early adoption of the amendment to the MGA section 44.
2.Wait for passage of bill no. 84 to adopt the amendment on the effective date of the legislation
REFERENCES
Link to Bill 84
COMMUNICATIONS (INTERNAL/EXTERNAL)
Internal –n/a
External-advertisement for an independent member of the audit committee