Committee of the Whole

2:25Good afternoon. I would like to call us to order for the Committee of Whole meeting of

2:32Tuesday, December the 5th, 2023. It is 2 p.m. And at this point, I would please ask that

2:39we stand for O Canada. Thank you. At this point, we will pause for a moment of silent

4:12reflection. Thank you very much. The Indigenous Territorial Acknowledgement. As we gather,

4:40let us take time to reflect on our privilege to live and work in Guelph, a city built over

4:45rich Indigenous histories. We are guests here, and we should reflect upon the responsibility

4:50to care for this land, the people who live here today, and the generations to come. If

4:56our actions today can move us toward reconciliation, we should take pause and make those decisions

5:01with intention and gratitude. This place we call Guelph has served as traditional lands

5:07and a place of refuge for many peoples over time, but more specifically, the Atterwanderank

5:14and the Haudenosaunee. This land is held as a treaty land and territory with the Mississaugas

5:19of the Credit First Nation. Guelph lies directly adjacent to the Haldeman Tract and is part

5:26of the long-established traditional hunting ground for the six nations of the Grand River.

5:31Many First Nations, Inuit and Métis people who have come from across Turtle Island call

5:37Guelph today. I would like to point out that we have joining us online Councillor Goller,

5:45Councillor Caiten and Councillor Billings. I believe we have regrets from Councillor

5:51Gibson and I believe that Mayor Guthrie is with us from Dubai. I was wondering where

5:57Mayor Guthrie was and I see Councillor Chew is also present now as well. Welcome to those

6:02of you who are joining us on the big screen. At this point too, I would also ask for any

6:07disclosure of pecuniary interest or a general nature of pecuniary interest. And seeing none,

6:16I shall move immediately to the service area which is Audit and for which I am the Chair.

6:22We have essentially one item on the agenda which is the 2023 External Audit Plan and

6:31a presentation from Mr. Matt Betik of KPMG. We have a recommendation that the Audit Plan be

6:39received for information. And so Mr. Betik wherever you are, I would love for you to come

6:44and join us and our financial staff as well. Good afternoon. Committee or Council is either

7:07or fine. I'm at the end of our presentation. Can it be advanced to the beginning without me

7:18pushing the button? 50 times. Mr. Chair, we'll just move the slides back for Mr. Betik. Just

7:28give us one moment. Perfect. Thank you. So we're here to present our Audit Plan for the Audit

7:44of the Financial Statements of the City of Guelph for the year-ended December 31st, 2023. I'll

7:50take our plan as at least skimmed by most of the Councillors and so therefore I'll just touch on

7:57the highlights as we go. As usual, I can be stopped anytime throughout the presentation for

8:01questions, but I will have a moment or time at the end to address questions as well. So moving

8:08through touching on some of the highlights, I will sort of get there. So each year we discuss

8:17with Committee the impact and the setting of materiality in the financial statements. So

8:23auditors are required to set an initial materiality for their audits based on a handful of benchmarks.

8:30We use the benchmark of total revenue which is consistent with other audits of municipalities

8:35in the province of Ontario and other entities within the public sector. The audit standards

8:40require us to set materiality at approximately half to 3% of that benchmark and we've done so at

8:46approximately 1.5% which recognizes that we don't believe there's a significant risk that requires

8:53specific response. So it could be on the higher end for that perspective, but we also want to

8:59make sure we have enough precision in our work. When we set materiality that drives the level of

9:05testing, the extent of testing that we do in our audit, as well as it allows us to evaluate if there

9:10are any uncorrected errors that we find in the year-end financial statements and we'll report

9:15back in the spring on that topic. You'll see that we've set materiality at $8 million which is

9:23comparable with the prior year which does make sense given there's sort of a general similar

9:27level of activity year to year. I often get questions about whether you know a materiality

9:33number of $8 million feels pretty high and I agree that the staff and council will sort of manage

9:43the operations of the city to a much you know more precise level than that, but when we look at this

9:48in the context of the financial statements I'm going to ask you if your revenues or your expenses

9:53were sort of higher or lower by an amount less than $8 million. When somebody reading those financial

9:59statements come to a different conclusion as to the size and scope of the city's operations and

10:04when we take it in that context I don't believe so. Furthermore we will report to this committee

10:10any item that we find any difference whether it be corrected or uncorrected that is 5% of that

10:16figure so much lower and that does show that we use a much lower level of precision in doing our

10:22tasks throughout the audit. Just trying to advance. So here we've identified the various

10:32entities that are within scope of the audit this is consistent with the prior year noting that these

10:38entities are consolidated into the city with one notable exception being the Wellington Dufferin

10:46Guelph Public Health. The city only picks up your portion of the health unit through the

10:52consolidation process. So on this page we do have a summary of our risks for the key areas of the

11:02financial statement on it. There are other areas but we just haven't highlighted them here. Oh where

11:06did it go? This is the chair's favorite slide. Here we go. So I want to highlight the first level

11:18here and this is the risk of management override of controls and here we've identified this is a

11:22fraud risk and said that the risk is rated as significant. So as I've said to this committee

11:28before every audit within Canada is required to presume that there'll be a risk of fraud

11:35from the override of internal controls. So regardless of how good any internal control

11:40structure is there is opportunities incentives and potentially rationalizations within the

11:46management team to override those controls in order to achieve some sort of outcome. Again the

11:51noting of significant is for all audits that's not unique to the city of Guelph. We've done our own

11:57risk assessment as well and tried to identify if there are further areas of risk that require

12:03special response and we found none. So while we're required under the standards to call it

12:07significant we haven't identified any factors that would make it sort of more significant.

12:14The other areas that are touched on here I will touch on over the course of the presentation.

12:21So in this slide there's a lot packed in here and so I'll sort of try to boil it down in as

12:25few words as possible. The area of post-employment benefits so these are the benefits that are

12:30provided to employees either upon retirement or during a compensated absence. So this could

12:37include WSIB it could include post-employment health and dental and other things like that.

12:44This is a complex area that requires the use of an actuary to determine these calculations and set

12:49the liabilities and our work consists of communicating and working with the actuary as well as

12:56assessing the assumptions that are used and testing the underlying population data that they use.

13:02The second item are tangible capital assets so these are the roads buildings and all the assets

13:07that the city uses in deploying services to the community. It's the largest single item in the

13:13financial statements. Here we're testing to make sure items that are included in tangible capital

13:18assets are capital in nature and do meet the definition and we're testing to make sure that

13:22the depreciation expense that's been recorded year after year is in line with both the policies

13:27and makes sense relative to the useful lives of those assets. The third item are obligatory reserve

13:32funds and deferred revenue and so this is commonly the development charge. We note that in historically

13:38the recording of development charge revenue does not necessarily follow the collection of cash.

13:44Under the accounting standards recording a revenue from deferred from development charges

13:49happens when the city spends the money on the appropriate expenditures that are development

13:54related. So there's a bit of a mismatch between timing of receipts and recognition of revenue.

13:59This creates an elevated risk because it requires offline processes to make sure it's recorded properly.

14:06The final item that I'll identify here are asset retirement obligations. So this is a new standard

14:11this year that requires the city to record in its financial statements liabilities related to

14:16retiring or decommissioning assets that are owned and operated by the city. This includes the landfill

14:22site but it may also include any number of properties that have specific decommissioning

14:28or retirement obligations. The most common that we're seeing in the municipal sector is the removal

14:33of asbestos from city-owned buildings. Where that is the case the city will have to record a liability

14:38for the eventual removal of that product. We also note that there will be changes in how the landfill

14:44liability is calculated likely resulting in an increase. On the next slide here we just identify

14:54the timing of our work. We've already commenced initial risk assessment and planning performed

14:59interim audit steps and we'll be back in March to complete our work and then in June to report to

15:05committee. This is consistent with previous years. There are a handful of other appendices

15:12included with our report which I won't go through but they're there for your information so I'll

15:16pause at this time to the chair to take any questions. Thank you very much Mr. Bick and with

15:22that I will pass it over to the council for any questions that might arise. I have Councillor

15:29Gowler on screen. Councillor Goller. Thank you for the presentation. I wanted to ask in the appendixes

15:40there is a mention of the lean-in audit. Is this something that is normally performed and will

15:46you be coming back? I see here if I understand that correctly it talks about reporting on redundant

15:52or not essential activities. Yeah so lean-in audit is a process that we may undertake as part of the

16:01audit. One of the things we're required to do in an audit is develop a thorough understanding of the

16:07financial processes that build into the financial statements. So for example say user fee charges

16:15through recreation so we'll take from the beginning to the end and understand you know how

16:21transactions are initiated, processed and ultimately reported. Lean is a way of doing that through

16:30workshopping and identification of key steps along the way and when we take a lean approach to that

16:38we do look for potential redundancies in the process. So we've had in years past some preliminary

16:45discussions on this. I don't think we've adopted any lean processes yet with our audit for the city

16:49but you know certainly that's something we can take away. So at this point the fact that it's

16:54included in the appendix does that mean that it's like a menu and this is something that we can

17:00choose to add in to the base level of the audit? Correct because that would be sort of we either

17:07do it as an over and above or sometimes we'll sort of do one process a year or something like that as

17:14an additional value add but it's really there for information at this time. Okay thank you,

17:21appreciate that. Thank you Chair. Thank you Councillor Goller. Are there any other questions

17:27of the auditor at this point? I am not seeing any but before I dismiss you Mr. Bedeck is there

17:35any reason that you believe that we should meet enclosed with the minimum staff present? No there

17:41isn't. Thank you. Is there anyone on council who would wish to meet with the auditor enclosed to

17:46ask any questions? Seeing none I would then ask please that somebody please move the recommendation

17:58that this be received for information moved by Councillor Richardson seconded by Councillor Downer

18:05and if there is any discussion I would be prepared to take that at this point.

18:10And seeing none just one comment that I have I appreciate you identifying management override

18:17risk of fraud and pointing out that this is a standard practice that concerns are about

18:22rationalization and overriding and this would occur on virtually any audit in Canada this is

18:28not because of anything that you've identified as being of concern. Thank you. Correct and if I could

18:35is there anybody who is opposed to accepting the recommendation? Seeing none I will declare that

18:43passed and at this point I don't really have any service area chair announcements but there might

18:50be a staff announcement. Ms Baker you have a I believe a new face in front of us today do you?

19:00No but I will introduce so Michael is our senior corporate analyst of financial reporting and

19:08he's been with us and leading the internal process related to the external audit for

19:15two years now and so yeah maybe you'll be seeing a little bit more of him as you know he's getting

19:23a little more comfortable with the process here and leading this process so thank you.

19:29Thank you very much and hello Michael from All On Council hoping that when we see you it's all

19:35good news thank you and with that I would look for a motion of adjournment and Councillor Richardson

19:42and Councillor Busuttil is there anyone opposed to adjournment at this point? Seeing none I declare

19:49them the meeting adjourned and we will resume again in about 10 minutes for a special council meeting

19:55thank you very much.