KPMG LLP’s 2024 External Audit Plan be received for information.

44:18And we have a presentation from Mr. Bedek from KPMG.

44:24And are you with us, Mr. Bedek?

44:29We can see your presentation, but we can't hear you yet.

44:37There we go.

44:38Yeah, if you're on the phone, if you can press star 6,

44:41that shouldn't meet you.

44:47For me to be able to.

44:49We can hear you now.

44:51OK, great.

44:51Just a second for me to unmute when they allow me to do so.

44:55OK, so thank you so much.

44:57If you don't mind, I'll jump right in the story

44:59where were their staff comments and events.

45:02No comments, I believe.

45:04Right over to you.

45:06OK, great.

45:07So we'll have a quick flip through our audit planning

45:11report for this cycle, reminding committee

45:15that this is our plan for what we intend to accomplish

45:19for the audit of the 2024 financial statements,

45:23as well as several other reports as we work through.

45:26We understand that the materials were presented

45:28to committee members in advance.

45:30So we will go through this on a sort of a page by page basis,

45:33but we'll touch on some of the highlights in the presentation.

45:37So if we can scroll down, I think it's five pages.

45:45One more, please.

45:48So each year we do discuss materiality in the audit.

45:52I just want to remind committee members

45:53that we set materiality at the commencement of the audit

45:57primarily for two purposes.

45:59It sets the extent of testing and the scoping

46:02that we perform, as well as the benchmark for which we evaluate

46:06the final financial statements to ensure that we

46:08could give a clean audit opinion.

46:11We've set materiality for the consolidated financial statements

46:15for the city at approximately $9 million,

46:18which represents about 1.5% of your last year revenues.

46:25The standards require that we set up materiality

46:29on a benchmark between 1.5% and 3%.

46:33So we're sort of right in the middle of that.

46:35Being in the middle recognizes that we don't think

46:38there is a high degree of risk that

46:40requires a response of a lower materiality,

46:44but we're also conscious that we want to make sure

46:48that if there are any items that need

46:50to be corrected with the financial statements,

46:52our audit is precise enough to capture those.

46:56We do know that it is an increase from the prior year,

47:00but it's increasing more consistently

47:03with how the revenues of the city continue to increase.

47:07I can move you down to the next slide, please.

47:12Here, despite the table and the pictures above,

47:15really what we're disclosing here are the entities that

47:18are subject to audit, and it is all of the entities

47:21within the city.

47:22So we've got the city itself, as well as the boards

47:26and commissions that are subject to audit

47:28that are separate from the city activities.

47:31There are no items that aren't subject to testing

47:36in our group audit scope.

47:38If we move on to the next slide, please.

47:42So here we give a bit of a snapshot

47:43on some of the main risk areas of our audit.

47:47It's not the full listing of all the areas

47:51that we look at and all the areas we test,

47:53but some of the ones that may be a little bit more

47:56interest to this committee.

47:58I want to note, and we say this sort of towards the bottom

48:01of the slide, our risk ratings range

48:05from base to elevated to significant.

48:08So we basically have three risk categories.

48:11So the top one is the risk of fraud

48:14from the override of internal controls.

48:16And we have talked about this before.

48:18This is the presumed risk that all audits in Canada

48:21have to have and have to have a response to.

48:25And what it means is, regardless of how good

48:28any control structure is, there may be individuals

48:33within the entity that have a reason, an incentive,

48:37a rationalization to override those controls

48:40and include fictitious or fraudulent amounts

48:42in the financial statements.

48:44This is required to be a significant risk

48:47and we do have specific responses to that.

48:51Having said that, in our assessments and testing

48:54in years past, we've never found any issues.

48:56And I would say there is nothing in our preliminary work

48:59that causes us to believe that there is something

49:02over and above the presumed risk here.

49:05So just want to make sure that context is understood.

49:09For the next several items, we identify that we've assessed

49:14their risk ratings as either elevated or base.

49:18When we set a risk rating at elevated,

49:20we're looking at what inherent factors

49:23might make it more susceptible to error

49:26in the financial statements.

49:27And so the three that we've identified as elevated

49:30are post-employment benefits, obligatory reserve funds,

49:33which is primarily development charges

49:36and asset retirement obligations.

49:38And these are elevated, at least the post-employment benefits

49:42in the asset retirement obligations

49:44because there are complexities in these calculations

49:47as well as significant judgments and estimates.

49:49And anytime you have any one of those things,

49:52the risk that there's an error in that account

49:54certainly is elevated.

49:56And our response to that is we do make sure we go through,

50:00we take extra diligence and perform additional procedures

50:03to make sure that that risk is appropriately responded to.

50:06Portangential capital assets, we do include this at base.

50:10We do know that while the accounting

50:12for tangible capital assets is not complex,

50:16and for the most part doesn't require

50:17a lot of estimate and judgment,

50:19there is some estimate in determining

50:21the estimated usable lives of those assets.

50:24So we consider that as well.

50:26The total balance of the financial statements

50:28is quite significant.

50:29It's the largest single item

50:31on the state of the financial position.

50:33So we do wanna make sure we have a specific response to that.

50:37On the next two slides,

50:39we go through our responses to these.

50:42I will go through them in detail.

50:44It is fairly consistent with what we've done in prior years,

50:47as well as consistent with how we perform our audits

50:50for any municipality in the province volunteer.

50:55Moving on, two more slides, please.

50:58We have our overall timeline for the year.

51:01So we commence our planning and risk assessment

51:05a little bit earlier this year,

51:06and that continues through the fall

51:09and interim work before Christmas.

51:12And then in March to June,

51:14we will commence our year-end testing.

51:16We'll be on site at the city to perform those testing,

51:19conducting our interviews and inquiries

51:21with various staff members,

51:23and then completing our reviews of the financial statements

51:26and ultimately reporting to this committee

51:29on the results of our work.

51:33The remainder of our presentation are various dependencies,

51:37which I will go through in detail,

51:38but now I can pause and hand it back over to the chair

51:42if there are any questions or comments.

51:45Thank you, Mr. Badek.

51:46I'll go over to Councillor Gibson.

51:49Go ahead, Dan.

51:50Thank you, through you, Chair Goller, to Mr. Badek.

51:54Thanks for explaining to us the $9 million threshold.

51:59I was just wondering if you could expand a little bit more.

52:01I know that there's a generally accepted range,

52:05but what would be a change of scope

52:10to direct you to do a lower threshold or a lower,

52:15say we wanted the bar at $3 million for the audit purpose?

52:19Could you explain to me what the difference

52:20in workload would be?

52:22Yeah, so if we were to lower that,

52:25then certain parts of our audit would take more time

52:30because we would increase either the extent of testing

52:34or the precision of the testing we performed.

52:37So in some instances, we performed statistical samples

52:41based on the size of the population.

52:43So it's easier to say if we had reduced,

52:45if we'd done from $9 million and cut it in half

52:48to $4.5 million, that would double the amount of tests

52:51that you would have to do.

52:52So for example, we would test additions to fixed assets.

52:57Typically, we'd be looking at sample sizes

52:59in the range of 25 to 30.

53:01That would double to 50 to 60.

53:05We perform other tests where we refer to them

53:09as analytical calculations.

53:12So say, for example, water and wastewater revenue.

53:17So we've got the ability to understand

53:19like how much water was sold to residents

53:24and we know the rates.

53:26And so we do a calculation of volume times rate

53:30and we compare that to what's been recorded

53:32in the financial statements.

53:34And based on the materiality level,

53:36that sets the sort of tolerable difference

53:38that we're allowed to be out by.

53:39So we're doing sort of a rough calculation.

53:42And so as long as it's within, in our case,

53:45say $3 million, we're able to conclude

53:48that that count is fairly stated.

53:51If we were to lower materiality,

53:53that threshold would have to get lowered as well.

53:56And so if we're then outside of that,

53:58we would have to take a more precise test,

54:01perhaps disaggregating amongst types of customers

54:05or other types of information.

54:06So we would see an increase in workload there as well.

54:10Was that helpful?

54:11Yeah, no problem.

54:12And I guess that's set out in the terms of conditions

54:15in the contract.

54:15My other question, you did speak to the auditing.

54:20Maybe you could just expand a little bit

54:22on your work plan for auditing

54:24sort of interpretive charges

54:27like development charges or sort of subjective charges

54:30that maybe aren't hard and fast.

54:32How would you go about completing the audit

54:35with a materiality of 9 million?

54:36I can't think of many projects

54:38that have that many dollars attached

54:41to development charges.

54:43Yeah, so we would take all of the,

54:45so for development charges, it's a very unique process.

54:48So we look at all the development charges that come in

54:51and so we will test a sample of those collections

54:53that happened during the period.

54:55And then as you know, those,

54:58the DCs when they come in,

54:59they go into a DC reserve fund

55:01and the funds are released out of the reserve fund

55:05as those development projects are undertaken.

55:08And so again, we would test to see that the money

55:12the project that those are funding

55:14were in fact expenses that were incurred

55:17and were development related projects

55:19that were consistent with the ultimate bylaw

55:23for setting those DCs additionally.

55:25So that's a very specific thing.

55:27Where we do have other programs,

55:29we might aggregate all those programs together

55:34to your point where none would meet the 9 million threshold

55:38but we aggregate them all together.

55:40Maybe that would be sort of 20 million in total costs

55:42or total revenues and we do testing on that whole bucket.

55:46And so just to be clear,

55:47just because we've set materiality at 9 million,

55:49I know the mayor asked me this question every year,

55:52every single transaction that the city has undertaken

55:55is subject to testing.

55:57So it's not that we're not looking at anything

55:59below that figure.

56:02And in many cases, we are testing lots of transactions

56:04below that figure, even down to,

56:07an expense report that somebody issues for a cup of coffee

56:11could be subject to testing.

56:14Okay, that puts my mind at ease.

56:15Because although it is only 1% to 3% of our annual revenue

56:20or our annual budget,

56:229 million dollars just seem high.

56:24And from the materiality that I've heard from other companies

56:26when they do their financial statements every year,

56:29I've heard people setting the materiality at $10,000

56:31because they want every transaction under,

56:33any transaction under $10,000 is okay, but above that,

56:37we wanna know that we're crossing all our cheese

56:41and dotting all our I's.

56:43Thanks very much for spending some time

56:46answering my questions, appreciate it.

56:48You're welcome.

56:50Thank you for that, Councillor Gibson.

56:51I'll go over to Councillor O'Rourke

56:53and then Councillor Katelyn.

56:55Thanks very much, Chair Goller.

56:57Just a quick question, Mr. Bettock,

56:59I have a question for you every year.

57:01I'm wondering what the role of AI is in audits.

57:06So how is that changing?

57:08Does it speed up the process for an audit?

57:12What is it that us as a board of governors

57:14with a few fiduciary responsibility

57:16need to know about the role of AI in this audit?

57:21So we are continuing to use digital tools in our audit.

57:27AI is a very wide term,

57:34and so there's lots of things

57:35that sort of can qualify for AI.

57:39Very specifically, one tool that we are rolling out,

57:42and I'm not sure that we will use it

57:45for the CEQOLF this year,

57:47but we do have what's called transactional scoring.

57:51And when we do that, what we'll take

57:54is the entire population, usually of expenses,

58:00that you paid for through invoices

58:03or other types of contracts.

58:05And that population is run through a series of filters,

58:09and it's looking at outliers or high-risk items.

58:13When we go through that,

58:14then that focuses our testing on those high-risk or outliers.

58:19And so that's one way that sort of AI is impacting audits,

58:24is creating an opportunity to focus on areas

58:28that are more likely to have risk.

58:32I've explained in the past, or I've discussed in the past,

58:36we will also test journal entries

58:40as part of our fraud risk response.

58:42And in that, again, we'll take the entire set of transactions

58:46for the entire year,

58:47and we'll set a number of parameters,

58:50and we have some digital tools that,

58:52using those parameters,

58:53we'll seek out, again, high-risk items

58:57to make sure that we do a full testing on those

59:00and make sure there's nothing untoward going on.

59:06Thank you.

59:06And through you, Chair Goller,

59:08if I could ask a secondary question.

59:10So that's the tech side and the automation side to a degree.

59:14On the human side is a portion of the audit

59:18still conducted on site?

59:21Oh, yes, absolutely.

59:22And I would say the vast majority is conducted on site

59:26and it is sort of conducted in a human way.

59:31That's not gonna change for a long, long time.

59:37I've been doing audits now for over 30 years.

59:42This is just another problem.

59:44Like, when we started doing audits,

59:45we brought in Excel as a tool.

59:48This is just sort of the next generation of tools.

59:53Yeah, so through you, Chair Goller,

59:55I asked the question because through COVID,

59:57things were being done remote,

59:59but my husband's an accountant

1:00:01and who's done his share of public accounting no longer,

1:00:05but it has.

1:00:06And there's value in having the audit team on site

1:00:11and getting a sense of the team

1:00:14and how the team works together

1:00:16and the responses and all those things.

1:00:17So I understand that there are usually now

1:00:20some aspects of remoteness,

1:00:22but it's good to know that there's also a component

1:00:25where you are on site

1:00:26because that human component's important.

1:00:27Thanks.

1:00:28Yes, yes.

1:00:30Thank you for that, Councillor O'Rourke.

1:00:32I'll go over to Councillor Caitlin.

1:00:36Thank you, through you, Chair Goller.

1:00:39I was just interested in our development charges

1:00:43versus our reserves.

1:00:45Is there a way to be able to tell historically

1:00:49how the development charges

1:00:51and the way that we've been able to collect them

1:00:53and the amounts have affected our reserves?

1:00:56Does that change historically

1:00:58or do we just look at them as a snapshot year after year?

1:01:03So for our purpose,

1:01:04and I think part of this question

1:01:07should maybe go to Shanna and staff,

1:01:11for the purpose of the audit financial statements,

1:01:13we're really looking at the continuity

1:01:17of development charges for the year.

1:01:19So we're sort of more looking at the facts,

1:01:22what came in, what went out,

1:01:25and did what go out,

1:01:27was that the proper amount to go out?

1:01:30So we're not really evaluating the sufficiency

1:01:35of those collections,

1:01:37whether that DC Reserve Fund has got enough ability

1:01:41to pay for the ongoing development-related projects.

1:01:46So we are sort of looking at it as a snapshot,

1:01:49it's a picture,

1:01:50but it's what happens just sort of within the year.

1:01:56Great, thank you very much.

1:01:57You're welcome.

1:01:59Thank you for that.

1:02:00Were there any other questions from staff

1:02:02or any comments, any questions from councillors

1:02:05or any comments from staff at this point?

1:02:08Go ahead.

1:02:09Thank you, Chair Goller.

1:02:10I can just build on Mr. Bettick's response

1:02:13on the reserve piece.

1:02:14We do have an annual report that goes in May.

1:02:18On the use of all of the reserves and reserve funds,

1:02:21and the balances,

1:02:23especially in those DC Reserve Funds,

1:02:25there's a treasurer statement related to the collection

1:02:28and use of development charges.

1:02:30As well, new this year,

1:02:31we've started reporting quarterly

1:02:33on development charge collections and exemptions

1:02:36in our budget monitoring reports,

1:02:38and that's a big focus at budget time as well,

1:02:41is looking at those projections of collections coming in

1:02:45based on our development charge background study,

1:02:47and spending going out

1:02:48based on the approved capital budget.

1:02:50And that's all of that works together

1:02:53to bring that picture together

1:02:55from a planning and strategy perspective.

1:03:00Perfect, thank you very much for that.

1:03:02Seeing no other questions,

1:03:03may I have a motion to receive

1:03:06the external audit plan for information?

1:03:09Moved by his worship, Mayor Guthrie,

1:03:11and seconded by Councillor Richardson.

1:03:14With nothing else, I'll call the question.

1:03:17All those against, please raise your hand.

1:03:21Seeing none, that is passed unanimously.

1:03:24Thank you, everyone.

1:03:25Are there any announcements from finances at this point?

1:03:29No, no announcements.

1:03:30I'll turn it over to you, your worship.

1:03:32Great, thanks, Chair Gowar.

1:03:34Moving into the governance service area,