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Audit Committee
AGENDA
Thursday,September 19, 2019
(Following Committee of the Whole Meeting)
Chester Municipal Council Chambers
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 Committee –July 25, 2019
4.MATTERS ARISING
5.CORRESPONDENCE
6.NEW BUSINESS
6.1 Request for Decision prepared by Finance Department dated September
17, 2019 regarding Consolidated Financial Statements for the year ended March
31, 2019.
a)DRAFT Consolidated Financial Statements for the year ended March 31,
2019.
b)Report to Audit Committee/Audit Results –Grant Thornton.(TBC)
6.2 Committee Meeting with auditors without staff.
7.ADJOURNMENT
REQUEST FOR DECISION
Prepared By:Malcolm Pitman, CPA,CA, Director
of Finance
Date September 17, 2019
Reviewed By:Dan McDougall, CAO Date September 17, 2019
Authorized By:Dan McDougall, CAO Date September 17, 2019
CURRENT SITUATION
MODC has prepared consolidated financial statements for the year ended March 31, 2019. 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 Committee recommend to Municipal Council approval of the Consolidated Financial Statements
for the year ended March 31, 2019.
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. For the second year in a row the financial assets exceed the
liabilities putting the MODC in a net asset position. As well this is the sixth 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.Policy changes
B.Presentation changes
C.Results highlights
REPORT TO:Audit Committee
SUBMITTED BY:Finance Department
DATE:September 19, 2019
SUBJECT:Consolidated Financial Statements for
the year ended March 31, 2019
ORIGIN:
2 Request For Decision
A.Policy changes include the following:
No changes, however, the municipality choose to early adopt public sector accounting section PS 3280,
asset retirement obligation, using prospective application. This replaces PS 3270, solid waste landfill
closure and post-closure liability.This was recommended by the Audit Committee on July 25, 2019 and
approved by Council on August 8, 2019.Early adoption will not occur until the 2020-21 fiscal year
(required to start by 2021-22) as there are accounting issue impacts, unrelated to the landfill, that need to
be investigated before adoption of PS 3280.
B.Presentation and disclosure changes include the following:
No presentation changes.
Notes added –see note #18 added on “Compensation Disclosure Act” which follows the follows the
Public Sector Disclosure Act for the purposes of transparency as the Municipality is not required to
disclose this information.
C.Highlights in the following areas will be reviewed for the results presented in the financial statements for the
year ended March 31, 2019:
1.Statement of operating results and annual surplus for 2018-19
2.Changes in net assets (debt)
3.Statement of financial position and accumulated surplus
4.Municipal indicators
(a)Sustainability
(b)Flexibility
(c)Vulnerability
1.Statement of operating results and annual surplus for 2018-19
The annual surplus was $3,613,028 (2018 -$6,272,717)compared to a budget of $1,813,348 (2018 -
$4,221,564), for positive (negative)variance of $1,799,680 (2018 -$2,051,153).
The budgeted surplus of $1,813,348 is a balanced operating budget as follows
Budget per statements $1,813,348
Less: TCA amortization expense 2,489,220
Add: transfers (to) from other funds (2,864,736)
Add: principal payments on debt exp (1,437,832)
0
The major items making up this variance include:
Variances with budget 2018-19 2017-18
Revenue variances $ (786,761)$ 822,570
Expenditure variances 2,320,442 1,228,583
$ 1,533,681 2,051,153
The 2018-19 variance details are on the following page.
3 Request For Decision
Revenue Variance Variance Explaination
16,125 Deed transfer tax Slightly higher than budget by 1.6%
12,713 Taxes - residential Slightly higher than budget by 0.1%
15,589 Taxes - commercial Slightly higher than budget by 1.1%
3,965 Fines revenue Dept of Justice
83,281 Interest income general fd Rates have increased and higher monthly balance
(6,853)Interest on unpaid taxes Outstanding taxes also down
69,674 Waste collection Waste collection fees for Annapolic County $72k
(1,551,309)Landfill revenue Tonnage up; Insurance rev. $122k; less Valley share of surplus $2.1M
(44,329)Wind turbine More turbine downtime than previous years
(60,900)Conditional transfers Recreation $49,200; Other 11700
321,578 Capital grants Infrastructure $292,046;
316,893 Interest income Reserve funds' interest income
36,812 Other revenue variances
(786,761)Revenue variance
Expense Variance
28,430 Gen gov - CAO Staff salaries - Temporary vacancy
62,140 Gen gov - CAO Professional consulting budget for asset management not spent
55,916 Gen gov - CAO Operating expnses (excl consulting) generally unbudget
28,943 Gen gov - Finance Computer service & mtce - PO module project not yet initiated
26,435 Gen gov - Info. Services Computer service and maintenance
37,937 Gen gov - Mun. property Underspent in Chester Basin wharf and Duke St. sidewalk drainage
4,280 Protective - Bldg inspection Building permits revenue
9,095 Protective - Policing RCMP expenses ubder budget
(3,267)Protective - Bldg inspection Salaries
40,606 Protective - Bldg inspection Shared services software purchases delayed
3,035 Protective - Fire inspection Salaries underbudget
44,750 Transportation - Roads Maintenance provincial contract
(277,082)Transportation - Roads Maintenance provincial contract - highway 3 upgrade
25,218 Transportation - Roads Maintenance municipal roads
(5,775)Transportation - Roads Sidewalks maintenance municipal roads
7,455 Transportation - Roads Sidewalks snow removal
2,020,053 Enviromental Health -
Landfill expenses
Sustane fees delayed $668; capital out rev $(118)k; fire exp $(163)k; Equip.
rental $(49)k; closure $1,659k
22,193 Env Dev - Planning Salaries - Temporary vacancy
16,811 Env Dev - Planning Planning review expenses - Some work carried over to 2019-20
47,033 Env Dev - Planning Operating expnses (excl plan review) generally unbudget
(89,874)Env Dev - Eco Park Anerobic digestion expenses
21,027 Env Dev - Wind turbine Misc exp and environmental mgmt exp underbudget $19k
12,893 Recreation - wages
182,189 Other expense variances Including $63,620 positive variance for amortization of TCA
2,320,442 Expense variance
1,533,681 Variance (Budgeted surplus $1,813,348; actual surplus $3,347,029)
4 Request For Decision
2. Changes in net assets (debt)
During the year, financial assets have increased by $3,328,530 (2018 -$3,388,907)and liabilities have
decreased by $918,482 (2018 –increase $2,065,030) for an increase in net assets of $4,247,012 (2018 -
$1,323,877), increasing the Municipality’s net asset position to $7,080,691 (2018-$2,833,679).
There has been a positive trend in this indicator over the last five years.This is a positive indicator of the
sustainability of the Municipality.The decrease in 2014 was due to the borrowing of $4M for the capital
addition of the wind turbine.
Net Assets (Debt)
2019 2018 2017 2016 2015 2014 2013
$7,080,691 $2,833,679 $1,509,802 $(2,484,993)$(4,133,143)$(5,030,305)$(2,911,010)
3. Statement of financial position and accumulated surplus
As noted in #2 above, financial assets have increased by $3,328,530 and liabilities have decreased by
$918,482 for an increase in net assets of $4,247,012. Non-financial assets have decreased $899,983 as
amortization of capital assets was more than capital asset additions. The net result is that accumulated
surplus has increased by $3,347,029 (2018 -$6,270,971), which is equal to the annual surplus discussed in
#1 above. Accumulated surplus is now $32,070,974 (2018 -$28,723,945).
4.Municipal Indicators
Assessment of financial condition needs to consider sustainability, flexibility and vulnerability.
(a)Sustainability is the degree to which MODC can maintain existing financial and service obligations
without increasing debt or tax burden.
(b)Flexibility is the degree to which MODC can change its debt or tax burden to meet obligations.
(c)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.
These above indicators are divided into two groups.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:
5 Request For Decision
Assets to Liabilities = (25,617,039+24,990,283)/18,536,348 =2.73 (target 1.0 or higher)
Trend:2019 –2.73;2018 –2.49%;2017 –2.29;2016 –2.12; 2015 –2.18;2014 –2.16; 2013 –2.24
Financial assets to liabilities (net assets (debt))= 25,617,039/18,536,348 =1.38 (target 1.0 or higher)
Trend:2019 –1.38;2018 –1.15;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:2019 –0;2018 –0;2017 –0; 2016 –1; 2015 –1; 2014 –1; 2013 –1
Uncollected taxes to total taxes = 1,138.858/16,899,541 =6.7%(target below 10%)
Trend:2019 –6.7%;2018 –8.1%;2017 –8.9%;2016 –7.8%; 2015 –8.7%; 2014 –8.0%; 2013 –7.9%
Government related indicators
Three-year tax base change less CPI = (1-(1,571,902,200/1,509,852,500))-4.5% =<0.39>%(Target + #)
Trend:2019 2018 –4.1%;2017 –3.3%; 2016 –6.5%; 2015 –2.2%; 2014 –2.0%
Net Assets (Debt)to taxable assessment =7,080,691/1,571,902,200 =0.45%(target improving trend)
Trend:2019 –0.45%;2018 –0.18%;2017 –0.10%;2016 –(0.16%); 2015 –(0.28%); 2014 –(0.35%);
2013 –(0.21%)
Total expenses (incl. education, corrections, housing)to taxable assessment = (13,855,006 +
5,131,223)/1,571,902,200 =1.21%(target a decreasing trend)
Trend:2019 –1.21%;2018 –1.22%;2017 –1.3%; 2016 –1.3%; 2015 –1.3%; 2014 –1.4%, 2013 –
1.4%
Assessment –All except one of 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 indicator
is the “3-year change in tax base less CPI” due a reduction in % growth in tax base and an increase in NS
CPI.
(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) = 1,732,552/16,123,297 =10.7%
(target 15% or less)
Trend:2019 –10.7%;2018 –10.1%;2017 –12.0%;2016 –11.5%; 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:
2019 -$209,378/$13,213,927 = 1.6%;2018 -$205,588/$12,546,653 = 1.6%;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 = $24,782,989/$62,057,031 =39.9%(target above 60%)
Trend:2019 –39.9%;2018 –42.4%;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 repl acement drawing resources away from services.
See “assessment” below.
Operating reserves as ratio to total expenses = $12,204,463/ ($13,855,006+$5,131,223)=64.3%(target
≥5%)
6 Request For Decision
Trend:2019 –64.3%;2018 51.1%; 2017 –42.3%;2016 -34.8%; 2015 –15.9%; 2014 –11.6%; 2013 –
11.8%
Capital reserves as ratio to accumulated amortization = $2,620,840/$37,274,042 =7.0%
Trend:2019 –7.0%;2018 –6.3%;2017 –5.1%; 2016 –6.6%; 2015 –1.14%; 2014 –0.9%; 2013 –
1.0%
Government related indicators
Own source revenues to taxable assessment =(16,123,297+5,131,223)/1,571,902,200 =1.35%(target ^
trend)
Trend:2019 –1.35%;2018 –1.39%;2017 –1.37%; 2016 –1.30%; 2015 -1.28%;2014 –1.22%; 2013
–1.22%
Analysis –slight decrease in 2018-19 due to large landfill surplus due back to Valley Waste
Assessment –Trend shows that 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 cap ital
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 46.3% from 39.9%. Operating and capital reserves make up another 31.2% of
cost of these capital assets (excluding landfill).Therefore, we have an NBV of 46.3% and reserves that
could be used to replace another 31.2%,for a total of 77.5%. MODC has the financial flexibility to meet its
obligations.
(c)Vulnerability Indicators -the degree of dependence on outside funding sour ces or exposure to risks
that could impair ability to meet obligations.
Government specific indicators
Government transfer to total revenue (excl. capital) = $141,010/16,266,807 =0.87%(target < 15%)
Trend:2019 –0.87%;2018 –0.86%;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 note 11 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.
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.
7 Request For Decision
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, 2019
COMMUNICATIONS (INTE RNAL/EXTERNAL)
Internal –n/a
External-File the financial statements with the Minister of Municipal Affairs , the NS Municipal Finance
Corporation and the Municipality’s banker.Place audited financial statements on the Municipality’s website.
8 Request For Decision
Appendix A –Summary of Indicators
Description Target 2019 2018 2017 2016 2015 2014 2013
Sustainability indicators
Assets to Liabilities 1 or greater 2.73 2.49 2.29 2.12 2.18 2.16 2.24
Financial assets to
liabilities (net assets
(debt))
1 or greater 1.38 1.15 1.09 0.86 .074 .066 .078
Number of deficits in the
last five years
0 0 0 0 1 1 1 1
Uncollected taxes to total
taxes
Less than
10%
6.7%8.1%8.9%7.8%8.7%8.0%7.9%
Three-year change in tax
base less CPI
Positive #(0.4)%4.1%3.3%6.5%2.2%2.0%
Net Assets (Debt) to
taxable assessment
Reducing -#
or increasing
+#
0.45%0.18%0.10%(0.16%)(0.28%)(0.35%)(0.21%)
Total expenses to taxable
assessment
Constant or
Reducing %
1.21%1.22%1.3%1.3%1.3%1.4%1.4%
Flexibility indicators
Debt charges to own-
source-revenue
15% or less 10.7%10.1%12.0%11.5%9.8%10.4%9.9%
Above ratio excluding
landfill and wind turbine
1.6%1.6%1.5%1.6%
Net book value of capital
assets to their cost
60% or
greater
39.9%42.4%38.9%42.5%45.1%46.0%46.1%
Operating reserves as ratio
to total expenses
5% or
greater
64.3%51.1%42.3%34.8%15.9%11.6%11.8%
Capital reserves as ratio to
accumulated amortization
7.0%6.3%5.1%6.6%1.14%0.9%1.0%
Own source revenues to
taxable assessment
Constant or
increasing %
1.35%1.39%1.37%1.30%1.28%1.22%1.22%
Vulnerability Indicators
Government transfer to
total revenue (excl. capital)
Less than
15%
0.87%0.86%1.1%1.9%1.3%1.9%1.5%