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AGENDA - Special General Committee - 20080624SPECIAL GENERAL COMMITTEE - AUDIT COMMITTEE AGENDA N0.08-23 TUESDAY, JUNE 24, 2008 7:00 PM COUNCIL CHAMBERS AURORA TOWN NALL PUBLIC RELEASE 20/06/08 AURORA TOWN OF AURORA SPECIAL GENERAL COMMITTEE MEETING AUDIT COMMITTEE AGENDA NO. 08-23 Tuesday, June 24, 2008 7:00 p.m. Council Chambers Mayor Morris in the Chair I DECLARATIONS OF PECUNIARY INTEREST II APPROVAL OF AGENDA RECOMMENDED: THAT the agenda as circulated by the Corporate Services Department be approved. III DELEGATIONS (a) Mr. John Gutteridge, Director of Financial Services/Treasurer Re: 2007 Financial Statements (b) Mr. Alister Byrne, Grant Thornton, Auditors Re: 2007 Financial Statements IV ITEM REQUIRING SEPARATE DISCUSSION V ADJOURNMENT Special General Committee Meeting No. 08-23 Page 2 of 2 Audit Committee . Tuesday, June 24,2008 AGENDA ITEMS 1. FS08-026—Year End Audited Financial Statements pg. 1 RECOMMENDED: THAT the 2007 Audit Report and Financial Statements for the year 2007 be received and be published in accordance with Section 295 of the Ontario Municipal Act. 2. ACO8-001 — Internal Audit Report Building Administration pg. 44 RECOMMENDED;. THAT the Building Administration Audit Report be received; and THAT appropriate action be taken to resolve all the issues identified and outstanding SPECIAL GC -AUDIT - JUNE 245 2008 ITEM #1 - 1 TOWN OF AURORA AURORA GENERAL COMMITTEE REPORT No.FS08-026 SUBJECT: Year End Audited Financial Statements FROM: L. John Gutteridge, Director of Finance / Treasurer DATE: May 20, 2008 RECOMMENDATIONS THAT the 2007 Audit Report and Financial Statements for the year 2007 be received and be published in accordance with Section 295 of the Ontario Municipal Act. BACKGROUND Once again we have made improvement in our year end reporting for the 2007 Audited Financial Statements.. This presentation represents the entire audit for 2007 including the management letter. Attached hereto at Attachment #1 is the entire audit package as presented by our auditors Grant Thornton. The first portion of the audit report outlines issues that related to the audit and identifies that four entries have not been booked. These items were identified during the audit process and discussed, it has been agreed not to book these entries as they do not have a material impact on the statements as presented. Appendix C on page 15 of the audit report contains the Management Letter, this is the section of the reportthat the Auditor's bring forward areas of concern identified in the audit engagement. The management letter identified 7 items in total and the report identifies the Auditors observation and their recommendation followed by Management Status Update, this allows Council to understand the issue and how management has dealt with or propose to deal with these Our Auditors will be in attendance to present their report and findings. The financial statements are present as Attachment.#2, these statements are the Town's statements as audited by our Auditors, your Treasurer will do a review of the significant changes. We are very pleased to present this report on time and on budget with most of the management items from 2006 being eliminated. We are very pleased to have achieved these results and look forward to improving again next year. We would like to take this -1- SPECIAL GC -AUDIT JUNE 24, 2008 ITEM #1 - 2 May 20, 2008 .2- Report No. FS08-026 opportunity to thank the Auditors and Financial Service Department Staff for their dedication to make this happen. COMMENTS We did provide Council with a preliminary estimate on our 2007 surplus with Financial Services Report No. FS07- 049 now that the audit is complete we can report that our 2007 consolidated surplus is $362,217. Council should be aware that this report is a consolidated report and includes consolidation of the General Operations of the town, the Library Board, and the Water/Wastewater Sewer Operations. The following is a roll up of how the surplus was derived: 2006 Operating Surplus/(Deficit) $ 519,000. Library. Board Surplusl(Deficit) $ 0. WaterMastewater Department Surplusf(deficit)$(156,783.) Town of Aurora Surplus $ 362,217. The Library Board did in actual fact have a surplus of $37,771. but it has been the practice in the past to move any surplus.to.the Library Capital Discretionary Reserve fund. Water/Wastewater Department had a deficit and this was explained in Financial Services Department Report F508-017. By removing the consolidation of the other funds and incorporating the prior years surplus the General Operating fund operated in a surplus position for the year of $519,000. A detailed breakdown of the operating surplus has been reported out in report No. FS08- 015, OPTIONS 1. As stated in the recommendations of this report. FINANCIAL IMPLICATIONS Report No. FS08-015 and FS08-017 have dealt with the disposition of surplus and deficit issues per fund. The purpose of this report is to receive the report of the audit and publish as prescribed.- There will be a cost for the publication of the Financial. Statements and these funds have been included in the budget. CONCLUSIONS All in all we are very pleased with the current results and are looking forward to -2- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 .3 May 20, 2008 - 3 - Report No. FS08-026 continued improvement in the future. LINK TO STRATEGIC PLAN Goal D: Ensure transparent, accountable and open governance in concert with informed and involved citizens Objective Cl: Maintain, respect, preserve and enhance natural environment, natural heritage and green spaces . Objective D1: Continue the commitment of fiscal responsibility and accountability Objective D3: Be accountable and transparent to residents by ensuring open and accessible information flow and accessible decision -making Objective D4: Create a respectful environment that fosters team work and open dialogue, consistent with a Character Community. These Objectives acknowledge the responsibilities required by governance that contribute to informed and involved citizens. ATTACHMENTS Attachment #1 - 2007 Audit Report Attachment #2 -2007 Audited Financial Statements PRE -SUBMISSION REVIEW Management Team Review — Wednesday, May 14, 2008 Prepared by: L. John Gutteridge, Director of Finance/Treasurer-Ext. #4111 el L. JohnlGutteridge ohn S. Rogers Director of Finance/Treasurer Chief Administrative Officer -3- SPECIAL GC -AUDIT - JUNE 24, 2008 ITEM #1 - 4 ATTACHMENT#1 w ntThorntoii Report to the Audit Committee - Communication of Audit Results The Corporation of the Town of Aurora For the year ended. December 31, 2007 -4- SPECIAL GC - AUDIT - JUNE 24; 2008 ITEM #1 - 5 0 GrantThornton May 2, 2008 Grant rhornton LLP Suita 200 15A0atale Pakway Markham, ON UR5a4 T (416) 30"100 F (905) M (006 w .Grantrhorntoa.w To the members of the audit committee of The Corporation of the Town of Aurora We are pleased to report that we have now substantially completed our audit of the consolidated financial statements of The Corporation of the Town of Aurora for the year ended becember3t 2607. We have attached our draft auditors'report. We will finalize this auditors' report once we have the opportunity to discuss the results of our audit with you. The report to the audit committee has been prepared in accordance with the assurance recommendations issued by the Canadian Institute of Chartered Accountants (CICA) entitled "Communications with Those Having Oversight Responsibility for the Financial Reporting Process". That standard recommends we communicate with the audit committee various matters including: the overall audit strategy, our responsibility as auditors, any matters arising from the audit, misstatements, significant accounting policies, and any other matters that may be of interest to the audit committee. We express our appreciation for the cooperation and assistance received from the management and staff of The Corporation of the Town of Aurora during the course of our audit. If you have anyparticular comments or concerns, please do not hesitate to raise them at our scheduled meeting. Yours sincerely Grant Thornton LLP Allister Byrne, FCA Partner cc: John Rogers, CAO L. John Gutteridge, Treasurer P Director of Finance -5- SPECIAL GC -AUDIT - JUNE 24, 2008 ITEM #1 - 6 Contents 1 Page Status of the audit 2 Audit results - 3 Reportable matters 5 Appendix A - Draft auditors' report 8 Appendix B - Draft management representation letter - 10 Appendix C - Internal control letter 15 -6- SPECIAL GC -AUDIT - JUNE 245 2008 ITEM #1-7 Report to the Audit Commiftee—Communication of Audit Strategy and Results 2 The Corporation of the Town of Aurora For the year ended December 31, 2007 Status of the audit We have substantially completed our audit of the consolidated financial statements of The Corporation of the Town of Aurora (the "Town") for the year ended December 31, M and the results of that audit are included in this report. As noted in the covering letter, we have attached our draft auditors' reports as Appendix A. The following items need to be addressed/ completed before that report is signed: • Receipt of signed management representation letter (draft has been attached as Appendix B); • Approval of the consolidated financial statements by the Audit Committee; and • Receipt of responses to our legal inquiries. .7- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 8 Report to the Audit Committee-, Communication of Audit Strategy and Results The Corporation of the Town of Aurora For the year ended December 31, 2007 _ Audit results Our audit identified the unadjusted non -trivial misstatements noted below. Summary of misstatements Non -trivial misstatements noted during the course of our audit but not adjusted in the consolidated financial statements were as follows: We have discussed the unadjusted misstatements with management and they have concluded that, individually and in aggregate, these unadjusted misstatements are not material to the consolidated financial statements of the Town. Summary of disclosure matters Our audit did not identify any misstatements. Specific Audit Findings As apart of our 2007 audit, we examined the following 3 different areas: Rcvitavcf the (ash aileafcnpoUryy—There was no formal cash collection policy in place. However, the controls that were used for the one event where cash was collected without a cash register were reasonable and would likely detect misstatements in the cash collected. On a go -forward basis, Town staff has indicated that the new policy is such that they will not be collecting monies during events, and all events would have tickets sold in advance through the recreation complex or the town offices. We recommend this policy be formally documented and implemented. WE SPECIAL GC - AUDIT - JUNE 245 2008 ITEM #1 - 9 Report to the Audit Committee -. Communication of Audit Strategy and Results The Corporation of the Town of Aurora For the year ended December 31, 2007 Rwi%vtf theai&in-fiat cfgvrkkYids crpxkirgprn=- Again, the process of collecting cash -in -lieu is not formally written. However, we found the policy was that a building permit would not be issued until the cash -in -lieu was received. This is an adequate control, and would prevent any amounts from going uncollected, as any builder would not allow permits to not be issued, or it would impair their building/ sales progress. We recommend this policy be formally documented and implemented. Reutavefthe OMB limmigresulls- We reviewed with the Town staff how any amounts that were due to the Town as a result of OMB cases were handled. We found the practice was that the Legal Department left the responsibility with the Planning Department to follow up on amounts due, as the Planning Department was responsible for the OMB case, the Legal Department simply offered assistance. We recommend that, in future, if there are amounts receivable to the Town as a result of an OMB case, this should also be communicated to the " Finance Department by the Legal and / or Planning Department so that Finance Department can track and collect the receivable. Additional services In addition to providing an audit opinion we have been engaged to perform the following additional services: " • Report on compliance with the Federal Gas Tax Legislation for the }uar ended December 31, 2007 These additional services affected the planned nature and scope of the audit by requiring more detailed substantive procedures to be performed around the Federal Gas Tax revenues and related expenditures. WE SPECIAL GC - AUDIT - JUNE 245 2008 ITEM #1 - 10 Report to the Audit (.'ommittee-Communication of Audit Strategy and Results The Corporation of the Town of Aurora For the year ended December 31, 2007 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. Through our role as auditors of your consolidated financial statements we possess in understanding of the entity and its environment, including internal control. However, a financial statement audit is not designed to provide assurance on internal control. Professional standards do require us to communicate to the audit committee significant deficiencies and material wealmesses in internal control that have come to our attention in the course of performing the audit. Our continents and recommendations on these matters have been provided in an internal control letter and attached as Appendix C. Significant new accounting policies The following significant new accounting policies were implemented by the Town in the years Controversial, emerging or unique accounting policy issues There were no new controversial, emerging or unique accounting policies issues noted. -10- SPECIAL GC -AUDIT - JUNE 24y 2008 ITEM #1 - 11 Report to the Audit Committee - Commumcatlon of Audit Strategy and Results The Corporation of the Town of Aurora For the year ended December 31. 2e07 Sensitive accounting estimates and disclosures During the course of our audit, we noted the following sensitive accounting estimates and disclosures:. Liability for emplo= benefits, The Town has recognized liabilities of over $600,000 in employee benefits. As disclosed in Note 5 of the. financial statements, the employee benefits include health and dental benefits that are provided to early retirees, future retirees, and employees currently on a long-term disability. The objective of the accounting policy is to recognize a liability in the reporting period in which employees have provided the services that gives rise to the benefits. The amounts recorded by the Town are determined based on an actuarial valuation for post employment benefits utilizing a discount rate of 5% and an inflation rate of 2%. Cooperation during the audit We report that we received cooperation from management and the employees of the Town. To our knowledge, we were provided access to all necessary records and other documentation and any issues that arose as a result of our audit were discussed with management and have been resolved to our satisfaction. Consultations with other accountants To our knowledge, management did not seek the advice or opinion of other external accountants on financial reporting or accounting matters. Fraud and illegal acts Our inquiries of management did not reveal any fraud or illegal acts. Independence As external auditors of the Town, we are required to be independent in accordance with Canadian professional standards. These standards require that we disclose to the audit committee all relationships that, in our professional judgement, mayreasonably be thought to bear on our independence. We have provided a letter to the audit committee, dated November 7, 2007, which confirms our independence with respect to the Town. We re -confirm that we me not presently aware of any relationship or non -audit services that would impair our independence for purposes of expressing an opinion on the consolidated financial statement - 11 - SPECIAL GC - AUDIT -.JUNE 24.1 2008 ITEM #1 - 12 Report to the Audit Committee—Communicationot Audit Strategy and Results ,7 The Corporation of the Town of Aurora - For the year ended December 31, 2007 Accounting and auditing standards There has been no new accounting or auditing standards issued since our last communication with you on November 7, W. The following summarizes the effect of those accounting and auditing standard changes on the Town: • PSG-7 — Tangible Capital Assets of Local Governments —This has impacted the 2007 fmancial statements by adding note disclosure to Indicate the progress of the Town towards die compliance with PS section 3150 — Tangible Capital Assets. .12- SPECIAL GC - AUDIT - JUNE 245 2008 ITEM #1 - 13 . Report to the Audit Committee— Communication of Audit Strategy and Results II The Corporation of the Town of Aurora For the year ended December 31, 2007 Appendix A - Draft auditors' report -13- SPECIAL GC -AUDIT - JUNE 245 2008 ITEM #1 14 Auditors' report - Town To the Members of Council, Inhabitants and Ratepayers of The Corporation of the Town of Aurom GrantThomton LLp Suik 200 1SAII Parkway Markham, ON 1.3116114 T I416) 361 F [9D5) 47&89D6 .,GranlThmntanca We have audited the consolidated statement of financial position of The Corporation of the Town of Aurora as at December 31, 2007 and the consolidated statements of fmancial activities and changes in financial position for the year then ended. These consolidated financial statements are the responsibility of the Town's management. 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 eve plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated fmancial statements present fairly, in all material respects, the fmancial position of the Town as at December 31, 2007 and the results of its operations and changes in financial position for the year then ended in accordance with Canadian generally accepted accounting principles. Budget figures are provided for comparative purposes and have not been subject to audit procedures. Accordingly, we do not express any opinion regarding the budget figures. Markham, Canada April 4, 2008 Chartered Accountants Licensed Public Accountants all ll romlon LLR A Con elm fill di Thunlm ln0.m alimal Ltd -14- SPECIAL GC -AUDIT - JUNE 24y 2008. ITEM #1 - 15 Report to the Audit Committee- Communication of Audit Strategy and Results to The Corporation of the Town of Aurora Ror the year ended December 31, 2007 Appendix B - Draft management representation letter -15- SPECIAL GC -AUDIT - JUNE 24, 2008 ITEM #1-16 May 2, 2008 Grant Thornton LLP 15 Allstate Parkway Suite 200 Markham, ON MR 5R4 Dear Sir: We are providing this letter in connection with your audit of the consolidated financial statements of The Corporation of the Town of Aurora (the "Town') as of December 31, 2007, 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 the Town in accordance with Canadian generally accepted accounting principles. _ We. acknowledge that we are responsible for the fair presentation of the consolidated financial statements in accordance with Canadian generally accepted accounting principles 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 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 fit 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 April 4, 2008, 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 December 31, 2007 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. Completeness ofinfonnation 2. We have made available to you all financial records and related data and all minutes of the meetings of shareholders, directors, and committees of directors. Summaries of actions of recent meetings for which minutes have not yet been prepared have been provided to you. All significant board and committee actions are included in the summaries. -16- SPECIAL GC -AUDIT - JUNE 245 2008 ITEM #1 - 17 3. 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. 4. 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. S. 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. 6. 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. 7. You provided a non -attest service by assisting us with drafting the consolidated financial statements and related notes. In connection with this non -attest service, we confirm that we have made all management decisions and perforated all management functions, have the knowledge to evaluate the accuracy and completeness of the consolidated financial statements, and accept responsibility for such consolidated financial statements, Fraud and error 8. 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. 9. We have no knowledge of any allegations of fraud or suspected fraud affecting the entity's financial statements communicated by employees, former employees, analysts, regulators or others. 10. We believe that the effects of the uncorrected financial statement misstatements summarized in the accompanying schedule are immaterial, both individually and in the aggregate, to the consolidated financial statements taken as awhole. - Recognition, measurement and disclosure 11. We believe that the significant assumptions 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. _ 12. We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities reflected in the consolidated financial statements. 13. All related party transactions have been appropriately measured and disclosed in the consolidated financial statements. -17- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 18 14. The nature of all material measurement uncertainties has been appropriately disclosed in the consolidated financial statements, including all estimates whore 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. 15. Any business combination that occurred during the year has been properly accounted for with appropriate consideration of amounts that should be allocated to goodwill and other intangible assets. 16. Any goodwill or intangibles on the books of the entity are evaluated annually to determine whether or not they have been impaired, and an appropriate loss provision is provided in the accounts where there has been a permanent impairment. 17. We have informed you of all outstanding and possible claims, whether or not they have been discussed with legal counsel. 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. No derivative financial instruments were purchased during the year. 21, 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. 22. 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. 23. 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. 24. 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. 25. Employee future benefit costs, assets, and obligations have been determined, accounted for and disclosed in accordance with the requirements of PSAB Section 3250 Employee Future Benefits of the Canadian Institute of Chartered Accountants Handbook — Accounting. -18- SPECIAL GC -AUDIT - JUNE 24, 2008 ITEM #1 - 19 26. There have been no events subsequent to the date of the financial statements 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. Other 27. The entity has obtained all consents and authorizations under law in respect of the personal information, if any, of employees, customers and other individuals provided to you in the course of your audit, and you are authorized to use such'personal information required for your workpapers. Yours very truly, John S. Rogers Chief Administrative Officer John Gutteridge Director of Finance/ Treasurer -19- SPECIAL GC -AUDIT - JUNE 24y 2008 ITEM #1 - 20 Report to the Audit Committee — Communieation of Audit Strategy and Results 15 The Corporation of the Town of Aurora For the year ended December 31, 2007 , Appendix C - Internal control letter -20- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 21 Y ri @p "y i GrantThorntion Members of the Audit Committee The Corporation of the Town of Aurora 1 Municipal Drive, Box 1000 Aurora, ON 1,46, 6J1 May 2, 2008 Dear Committee Members: . Internal control findings from the 2007 andif Grant Thomton LLP Suite 200 15 Allstate Parkway Markham, ON L3R 594 T 1416) 3Wn00 F )005) 4758906 w .GranlThornron.ca Receiving observations and findings on your financial reporting processes and controls is one benefit of the annual audit of The Corporation of the Town of Aurora (the "Town"), Grant Thornton LLY has fully implemented processes and technology to address the changing standards of conducting a financial statement audit. This includes an increased emphasis on internal control. The standards of the public accounting profession require, us to report annually to you our findings on weaknesses and deficiencies in your internal controls. In the attached Appendix, we have identified the items that we wish to bring to your attention. - Our -audit is planned and conducted to enable us to express an audit opinion on the annual financial statements of the Town. The matters dealt .with in this letter came to our attention during the conduct of our normal examination, and as a result, this letter may not necessarily include all matters that would be uncovered through a more extensive examination. 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. The matters discussed in the attached Appendix are those that have been noted as of the date of our Auditors' report, April 4, 2008, We have not updated our procedures regarding these matters subsequent to that date. AWit;rax I AdWh pant➢wmlm UP.ACmMlmh6m ldCanlnOMOn InlanaWaILld -21- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 22 Granffhornton 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. Thank you for the opportunity to contribute to the present and future success of the Town. Yours very truly, Allister Byrne, F.C.A. Partner cc John S. Rogers, Chief Administrative Officer L. John Gutteridge, Director of Finance/ Treasurer -22- SPECIAL GC -AUDIT - JUNE 245 2008 ITEM #1 - 23 A. Findings Arising From This Year's Audit 1. Old outstauding amounts payable Obsvwniar In November 2007, the Town passed a policy to deal with the unclaimed deposits and refunds. During the audit, we noted that there remains a number of unclaimed deposits and refund of taxes payable, some of them dating back to 1987. If these amounts were brought into income, it would bring over $100,000 into revenue for operational purposes. Rernvnadat at We recommend.that management make use of the policy and perform the steps to bring the unclaimed deposits into income as described in the policy. MtmaVr M CMW2 Asper the policy passed we are preparing a list of all outstanding deposits and refunds to be published in the local paper with the intent of bringing this matter right up to date to allow us to maintain this in the future. This will be done before the end of the summer, 2. Periodic Re viewofAccessPrivileges Ob rn", Management does not perform a review of access privileges granted to system users. No review is conducted of access granted to applications, the network and databases. I 'aRicn . If user access privileges are not regularly reviewed, there exists a risk that users may have more system access privileges then they require. This may result in unauthorized access to and exposure of confidential information. Ramm�ad mms Establish a process to 'regularly review user access privileges, for the network, applications and databases, to ensure access levels are still suitable. Evidence of these regular reviews should be maintained. Mcnw�mmt Reperare IT Services is establishing a procedure for conducting regular reviews of the network, application and database user access privileges to ensure the privileges are accurate and relevant. Reports will be distributed to Senior Management Team senu-annually for the purpose of validating the accuracy of the access privileges. -23- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 24 A. Status of findings in Pievious Management Letters i. r1m Grant Oluatxatiat An unconditional Fine Services Training grant was received on April 1, 2005 for $155,000 to be used for fire training. To date the funds have not been expended and are recorded as deferredrevenue. Revmuw�claliat The grant should be taken into revenue and put in a Reserve fund. Manctmrait Camnert A report has been prepared for the establishment of a Reserve Fund as suggested by the Auditors. 2. Remote access auth" icatiow Ohsot-rrtiaz - - Remote access to the Town's IT environment still requires only a. single level of authentication (i.e. the LAN password). i h'auicn Using a single authentication mechanism, such as a password, is generally not considered a sufficient level of security to protect sensitive corporate systems when providing remote access. The reason is that, under normal circumstances, when a user accesses the corporate systems they are physically present in the organization's premises. This provides a level of verification of the user over the submission of a password, since non -corporate personnel would have to overcome physical safeguards such as locked doors, windows, and open office environment, before they could have physical access to a computer terminal in order to submit or guess a user ID and password. In order to compensate for the removal of this physical safeguard it is appropriate to consider using extra forms of authentication for remote access. In general, an authentication mechanism can be something you know (i.e. your password), something you have (such as a "token") or, something you are (for example, a biomctric (such as a fingerprint)). Rmarvnevlatim We recommend that the Town analyze its information security risks related to remote access. Then a decision can be made to either accept the increased risk of weak authentication for remote access or decide to select and implement another, extra form of authentication, such as tokens. Generally accepted information security practices for remote access to systems is to have twafactor authentication. Two -factor authentication is described in ISO 17799 ("Information Technology - Security Techniques - Code of Practice for Information Security Management"). MmiaMm, R�xnsc As part of our IT Risk Assessment conducted in late 2006 a suggestion was to utilize tokens as an extra layer of authentication for our remote access users. This has been identified as a project on the 2008 IT project list and will be implemented by year end. -24- SPECIAL GC - AUDIT - JUNE 24r 2008 ITEM #1 - 25 3. Password Conhvls O&souaticn Applications such as Vadim and Class have weak password features i.e. passwords do not expire, have no maximum age and are not complex. The Town has been informed by the vendors that there no plans to enhance the password security features of these applications I iorticn Weak password security increase the risk that unauthorized users can figure out passwords and gain unauthorized access to the system and its data.. Ravivnrnclnfiais . We recommend that the Town should compensate for the weak password security at the applications level by enhancing the domain level controls by. • Increasing the change frequency (from the present 60 days to 30 days) • Increasing password history to 15 passwords remembered ManW2" Ra _ IT Services has further investigated the password features of the applications in question. We have reset the Class passwords in an attempt to reduce risk. Vadim does not and will not revise their position on password expiration. The IT Steering Committee will review the possibility of changing the frequency of password changes and will present this to Senior Management Team as a consideration going forward. 4. Intormation securi0pollefes and procedures OduMaticn Formal IT Governance policies and procedures do not exist. in The lack of approved documented policies and procedures increase the risk that IT procedures and related controls may not be properly understood, executed and evidenced with audit trails and applied on a consistent basis to the IT operations. Rmirnneidrfiai The following are policies and procedures management should consider creating: • - Acquisition and maintenance of hardware, software, and infrastructure • Security policy, including access Control --new hires, modifications, terminations • Change management • Configuration management • Data management • Help desk • Anti -virus management • - IT document management • Backup tape procedures • Information security policy • End -user conduct policy - 25 - SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 26 M�uvxispxr�sn _ There are a few policies that are currently in place that are not broad enough to cover various IT related topics and procedures. Senior IT staff are currently expanding the policies to cover off the range of IT related topics and technologies identified above and some that are not identified above. Draft samples have been provided to the auditors as evidence of this work, It is the intention of having a Spring staff information session to review the policies as well as to conduct a seminar on Information Technology Security focusing on social engineering. Your weakest link from a security perspective are staff resources, educating the staff on ways to avoid security piffalls is very important and needs to be reviewed. .5. Control actfvfdes are not documented Ohwiaiaz During our audit we observed that a number of control activities and procedures are undocumented, including: • The review of fn ewall logs, security events, and security configurations • The results of operating system and database level patch testing ianiars The lack of documented or implemented polices, processes, and evidence of execution of IT control activities, limits the ability of management to ensure: • The controls procedures were performed on a timely basis, and by the appropriate individuals; • Exceptions were handled appropriately; and, • Sufficient evidence of the design and operational effectiveness of IT general controls is available for IT Governance Rex meulota: Management shotdd continue to develop and implement IT general control based policies and processes. Mcmaganeu Realxrem Log files are automatically generated by various security system elements generated from our firewall, ISA and Barracuda appliance are reviewed daily. The firewall logs, security event logs and configurations are monitored regularly by our Network/ Security Administrator. A form for acknowledging the Network/ Security Administrators review has been created and will be implemented. -26- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 27 ATTACHMENT#2 Consolidated Financial Statements The Corporation of the Torun of Aurora December 31, 2007 -27- SPECIAL GC -AUDIT - JUNE 24, 2008 ITEM #9 - 28 Contents Page Auditors' Report 1 Consolidated Statement of Financial Position 2 Consolidated Statement of Financial Activities 3 Consolidated Statement of Changes in Financial Position 4 Notes to the Consolidated Financial Statements 5. 12 Schedule of Operating Fund Activities —Schedule 1 13 Schedule of Capitaf Fund Activities— Schedule 2 14 Schedule of Reserves and Reserve Funds Activities — Schedule 3 15 Granffhornton -28- SPECIAL GC -AUDIT - JUNE 245 2008 ITEM #1 - 29 0 GrantThornton Auditors' report To the Members of Council, Inhabitants and Ratepayers of The Corporation of the Town of Aurora Grant Ttromlaa LLP Suite 200 15A0alate Parkway Markham, ON L3R594 T (416) 3GO-01 00 F(905)475-6906 www.OrenlThoraton.ca We have audited the consolidated statement of financial position of The Corporation of the Town of Aurora as at December 31, 2007 and the consolidated statements of financial activities and changes in financial position for the year then ended. These consolidated financial statements are the responsibility of the Town's management. Our responsibility is to express an opinion on these consolidated financial statements based rot our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Town as at December 31, 2007 and the results of its operations and changes in financial position for the year then ended in accordance with Canadian generally accepted accounting principles. Budget figures are provided for comparative purposes and have not been subject to audit procedures. Accordingly, we do not express may opinion regarding the budget figures. Markham, Canada April 4, 2008 Auih+ra% WE m G,unlThornlmllP.ACeueJlan MemberolGanl ThwnbnlnlnreOoriNLIE Chartered Accountants Licensed Public Accountants -29- SPECIAL GC - AUDIT - JUNE 245 2008 ITEM #1 - 30 uoflsoiwatea Jtatement oT f inanclali rosmon As at December 31 2007 2006 Assets Cash and cash equivalents (Note 1) $ 31,907,130 $ 41,789,424 Temporary Investments (Note 2) 33,210,366 16,779,672 Taxes receivable 5,579,100 5,831,161 User charges receivable 3,674,091 2,390,428 Accounts receivable 1,830,957 2,054,320 Investment in Borealis Hydro Electric Holdings Inc. (Note 3) 1 1 -- 76.201..645 ' 68.845.006 Liabilities Accounts payable and accrued liabilities 7,442,170 6,901,022 Deposits and deferred revenue 3,895,709 3,476,604 Deferred revenue - Obligatory reserve funds (Note 4) 10,769,471 6,346,464 Employee future benefits liabilities (Note 5) 649,146 588,121 Long term debt (Note 6) 14,483,031 15 723.531 37.239.527 33.035.742 Net Financial Assets $ 38,962,118 $ 35,809,264 MUNICIPAL POSITION Fund Balances Operating. Fund (Page 13) $ 362,217 $ 301,717 Capital Fund (Page 14) 9,728,285 6,527,021 Reserves and Reserve Funds (Page 15) 43,354,646 44,704,056 Equity in Borealis 1 1 53,445,149 51,632,795 To be recovered from future revenues (Note 6) (14,483,031) (15,723,531) Municipal position $ . 38,962,118 $ 35,809,264 Contingencies (Note 11) Approved by: See accompanying notes to the consolidated financial statements. GrantThornton 2 -30- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 31 The Corporation of the Town of Aurora Consolidated Statement of Financial Activities Budget Actual Actual Year Ended December at 2007 2007 2006 (Unaudited) Revenues Taxation (Note 7) $ 23,508,769 $ 23,503,783 $ 22,084,678 User charges 19,488,485 20,550,537 15,453,337 Grants 748,516 832,427 1,045,802 Other (Note 8) 6,344,037 7,736,034 8,142,160 50,089 807 52,622,731 46.725,977 Expenditures Operating General government 5,731,144 5,264,080 4,978,281 .Protection to persons and property 7,861,091 7,650,207 6,145,523 Transportation services 2,856,364 3,218,341 2,609,604 Environmental services 11,425,421 9,730,413 9,591,956 Leisure and cultural services 11,993,163 11,653,286 11,428,788 Planning and development 1,245,247 1,201,492 1,206,617 41,112,430 38,717,819 35.960.769 Capital General government 675,575 218,608 509,642 Protection to persons and property - - 329,429 Transportation services 5,766,576 5,971,067 3,839,910 Environmental services 2,182,979 1,899,820 1,146,241 Leisure and cultural services 6,466,137 2,518,008 4,524,704 - Planning and development 170,00 83,581 87,792 15.261 267 10,691,084 10.437,718 Total expenditures (Note 9) 66.373 697 49,408,903 46,398,487 Net revenues (expenditures) (6,288,890) 3,213,878 327,490 Financing and transfers Principal repayment of long term debt (1,240,500) (1,240,500) (11191,470) Changes in employee benefit obligation (61,025) (36,099) Change in fund balances $ (7,524,390) $ 1,912,353 $ (900,079) See accompanying notes to the consolidated financial statements. GrantThornton -31- 3 SPECIAL GC -AUDIT - JUNE 24, 2008 ITEM #1 - 32 D The Corporation of the Town of Aurora Consolidated Statement of Changes in Financial Posit Year Ended December31 2007 2006 Increase (decrease) in cash and cash equivalents Operating activities Net revenue $ 3,213,878 $ 327.490 Uses: Increase: in user charges receivable (1,283,663) - Increase in temporary investments (16,430,694) Decrease in accounts payable and accrued liabilities - - (4,892,723) Decrease in deposits and deferred revenues (1,190,933 (11,714,357) (6,083,65 Sources: - Decrease in taxes receivable 252,061 858,513 Decrease in user charges receivable 64,181 Decrease In temporary Investments - 14,675,725 Decrease in accounts receivable 223,363 1,474,003 Increase in obligatory reserve funds 4,423,007 4,803,712 Increase in accounts payable and accrued liabilities 541,148 - Increase in deposits and deferred revenues 419,105 5,858,684 21,776,134 Net cash from operations (8,641,793) 16,019,968 Financing Principal repayment of longterm debt (1,240,500) (1,191 470) Net increase in cash during the year _ - (9,882,294) 14,828,498 Cash and short term investments, beginning of year 41,789,424 26,96Q,926 Cash and shod term investments, end of year $ 31,907,130 $ 41,789,424 See accompanying notes to the consolidated financial statements. GrantThornton 4 -32- SPECIAL GC - AUDIT - JUNE 245 2008 ITEM #1 - 33 The Corporation of the Town of Aurora U Notes to the Consolidated Financial Statements December 31, 2007 The Corporation of the Town of Aurora (the "Town") is a municipality in the Province of Ontario. The Town conducts its operations guided by the provisions of provincial statutes such as the Municipal Act, Municipal Affairs Act and related legislation. 1. Summary of significant accounting policies The consolidated financial statements of the Town are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments as recommended by the Public Sector Accounting Board ("PSAB") of The Canadian Institute of Chartered Accountants. Significant accounting policies adopted by the Town are as follows: Basis of consolidation The consolidated financial statements reflect the assets, liabilities, revenues, expenditures and fund balances of the Town, and except for government business enterprise which are accounted for by the modified equity basis of accounting, comprise all of the. organizations that are accountable for the administration of their financial affairs and resources to the Town and are owned or controlled by the Town. The Aurora Public Library Board is fully consolidated in these consolidated financial statements. All inter -organizational and inter -fund transactions and balances are eliminated. The taxation, other revenues, expenditures, assets and liabilities with respect to the Boards of Education within the Regional Municipality of York are not reflected in the Town's consolidated financial statements. Basis of accounting Revenues and expenditures are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. Cash Equivalents Cash equivalents consist of Government of Canada treasury bills, provincial government treasury bills and promissory notes, bankers' acceptances and bearer deposits that mature within 90 days. They are recorded at cost, which approximates their quoted market value. Inventories Expenditures on materials and supplies are reported as an expenditure on the consolidated statement of financial activities in the year of acquisition. Non -financial assets Non -financial assets are recorded in the period the goods or services are acquired. GrantThornton -33- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 34 The Corporation of the Town of Aurora U<1tYrt�u Notes to the Consolidated Financial Statements December 31, 2007 Summary of significant accounting policies (continued) Capital assets The historical cost and accumulated amortization of capital assets are not recorded for Town purposes. Capital assets acquired are reported as an expenditure on the consolidated statement of financial activities in the year of acquisition. Pensions agreements The Town makes contributions to the Ontario Municipal Employees Retirement Fund (OMER5), a multi -employer public sector pension fund, based on the principles of a defined benefit plan, which specifies the amount of the retirement benefit to be received by the . employees on the basis of predefined retirement age, length of eligible service and rates of remuneration over a fixed period of time. Employee future benefits Employee future benefits include health and basic dental coverage that the Town pays on behalf of its current and retired employees. The Town records these future benefits as they are earned during the employee's tenure of service. The Town also estimates future benefits . relating to accumulated sick credits and overtime as they are earned. The present value of the cost of providing employees with future benefit programs is expensed as employees earn these entitlements through service. The cost of the benefits earned by employees is actuarially determined using the projected benefit method prorated on service and management's best estimate of retirement ages of employees and expected health care and dental costs. Vacation entitlements are accrued for as entitlements are earned. Deferred revenue Deterred revenues represent user charges and fees which have been collected but for which the related services have yet to be performed. These accounts will be recognized as revenues in the fiscal year the services are performed. The Town receives development charges under the authority of provincial legislation and Town by-laws. These funds, by their nature, are restricted in their use and, until applied to specific capital works, are recorded as deferred revenue. Use of estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financlal statements, and the reported amounts of revenues and expenditures during the period. Actual results could differ from these estimates. GrantThornton 6 -34- SPECIAL GC - AUDIT JUNE 24, 2008 ITEM #1 - 35 The Corporation of the Town of Aurora Ut1L' Notes. to the Consolidated Financial Statements December 31, 2007 Summary of significant accounting policies (continued) Budget figures The approved operating and capital budgets for 2007 are reflected on the Consolidated Statement of Financial Activities. The budgets established for the capital fund operations are on a project -oriented basis, the costs of which may be carried out over one or more years and, therefore, may not be comparable with the current year actuals. Reserves and reserve funds Certain amounts, as.approved by the Town Council, are set aside in reserves and reserve funds for future operating and capital purposes. Transfer to/from reserves and reserve funds are an adjustment to the respective fund when approved. Subdivision infrastructure Subdivision streets, lighting, sidewalks, drainage and other infrastructure are required to be provided by subdivision developers. Upon completion they are turned over to the municipality. The municipality is not involved in the construction and does not budget for either the contributions from the developer or the capital expenditure. . Investment income Investment income earned on surplus operating funds, capital funds, and reserves and reserve funds are reported as revenue in the period earned. Investment income earned on development charges (obligatory reserve funds) is added to the fund balance and forms part of the deferred revenue balance. 2. Temporary Investments Temporary investments are recorded at cost which approximates their quoted market value. These investments consist of interest -bearing certificates that are liquid in nature and are included as part of temporary investments. These investments have a term beyond 90 days in length. 3. Investment in Borealis Hydro Electric Holdings Inc. The Town's investment in Borealis Hydro Electric Holdings Inc. is as follows: 2007 2006 Share capital Borealis Hydro Electric Holdings Inc. - 1,000 common shares $ 1 $ . 1 Retained earnings Long term debt — unsecured promissory note Total investment $ 1 $ 1 GrantThornton -35- SPECIAL GC -AUDIT - JUNE 24, 2008 ITEM #1 - 36 The Corporation of the Town of Aurora Notes to the Consolidated Financial Statements December 31, 2007 3. Investment in Borealis Hydro Electric Holdings Inc. Details of the continuity of the investment are as follows: Balance, beginning of year $ 1 $ 1 Net income for the year - - - Proceeds on sale of Hydro investment Balance, end of year $ 1 $ 1 4. Deferred revenue— Obligatory reserve funds A requirement of PSAB is that obligatory reserve funds be reported as deferred revenue. This requirement is in place as provincial legislation restricts how these funds may be used and, under certain circumstances, how these funds may be refunded. Obligatory reserve funds consist of the following: - 2007 2006 Development charges $ 1,313,147 $ (525,183) Park purposes 6,714,692 4,668,703 Building Code Act, 1992 1,160,042 668,653 Federal Gas Tax 181,870 174,224 9,369,751 4,986,397 Development charges transferred to.capital but unexpended at the and of the year 1,399.720 1,360,06 $ 10,769,471 $ 6,346,464 5. Employee future benefit obligations - 2007 2006 Employee future benefits $ 486,731 $ 425,706 Accrued sick leave 131,715 131,715 Accrued overtime 30.70D 30,700 $ 649,146 $ 588,121 Employee future benefits are health and dental benefits that are provided to early retirees, future retirees, and employees currently on a long term disability. The Town recognizes these post -retirement costs as they are earned during the employee's tenure of service. The last actuarial valuation carried out was December 31, 2007. GrantThornton [7 -36- SPECIAL GC - AUDIT - JUNE 245 2008 ITEM #1 - 37 The Corporation of the Town of Aurora (Votes to the Consolidated Financial Statements December 31, 2007 5. Employee future benefit obligations (continued) Information about the Town's post retirement benefits plan is as follows: 2007 Employee future benefits payable $ 486,731 Employee future benefits, beginning of year $ 425,706 Add: Benefit expense 45,642 Interest cost 25,932 - Less: Expected benefits paid for the period (10,549) 2006 $ 425,706 $ 389,607 22,211 23,747 (9.85 Employee future benefits, end of year $ 466,731 $ 425,706 The main assumptions employed for the actuarial valuation prepared at December 31, 2007 are as follows: General Inflation Future general inflation levels were assumed to increase at 2.0% per year. Interest (discount) rate The present value of the post employment benefit liability was determined using a discount rate of 5.0%. Health costs Health costs were assumed to increase at an average increase of 7.7% per year reducing to 4.0% per year over 11 years. Dental costs Dental costs were assumed to increase at an average increase of 4.0% in 2008 and thereafter. Actuarial evaluations for accounting purposes are performed every three years using the projected benefit method prorated on services. The most recent actuarial report was prepared at December 31, 2007. - GrantThornton -37- 9 SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 38 The Corporation of the Town of Aurora Notes to the Consolidated Financial Statements December 31, 2007 6. Long term debt , Debenture, bearing interest at rates varying from 3.1% to 4.1%, maturing in September 2015. Principal is repayable in annual instalments and interest is payable in half yearly instalments. Debenture, bearing interest at 4,37%, maturing in September 2025, Principal and interest is repayable in half yearly instalments of $160,272. 2007 2006 $ 10,517,000 $ 11,615,000 3,966,031 4,108,531 $ 14,483,031 $ 15,723,531 The debentures were issued by The Regional Municipality of York, on behalf of the Town, tc fund the construction of the Town's new recreation complex. Principal repayments for each of the next five years and thereafter are as follows: 2006 - $ 1,289,796 2009 1342,372 2010 1:397,237 2011 1,453,406 2012 1,511,892 Thereafter 7,488,328 $ 14,483,031 7. Net taxation charges 2007 2006 Total taxes levied by the Town $ 82,163,712 $ 77,505,488 Less: Taxes levied on behalf of the Boards of Education 203355,890 26,372,955 Taxes levied on behalf of the Region of York 32,304,039, 30,047,855 . $ 23,503,783 $ 22,084,678 8. Other revenue 2007 2006 Operating Penalties and interest on taxes $ 782,678 $ 757,463 Fines 502,878 477,233 Rents and leases 1,830,024 1,870,746 Interest income 1,351,043 1,227,649 Other 676,502 593,587 5,143,125 4,926,678 Graaffhornton 10 -38- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 39 The Corporation of the Town of Aurora Notes to the Consolidated Financial Statements December 31, 2007 D 8. Other revenue (continued) 2007 2006 Capital Proceeds from other municipalities (62,158) 1,064,659 Proceeds from developers. (93,524) 247,000 Other 634 302 265,187 _ 478,620 1,576 846 Reserves and Reserve Funds - Interest income 1,953,279 1,614,461 Other 161,010 _ 24.175 - 2,114 289 1,638,636 - $ 7,736,034 $ 8,142,160 9.. Classification of expenditures by object 2007 2006 Expenditures by object consist of the following: Salaries, wages and benefits $ 15,512,565 $ 14,526,143, Interest on long term debt 650,372 644,970 Contracted services 17,714;893 16,820,753 Materials and supplies 5,446,224 3,968,903 Capital and other 10,084,849 10,437 718 $ 49,408,903 $ 46,398,487 10. Pension agreements The Town makes contributions to the Ontario Municipal Employees Retirement System ("OMERS"], which Is a multi -employer plan, on behalf of all full-time members of Its staff. OMERS is a defined benefit plan which specifies the amount of the retirement benefits to be received by the employees based on the length of service and rates of pay. Contributions in 2007 ranged from 6.5 % to 10,75% depending on the level of earnings. The 2007 operating expense for OMERS was $746,847 (2006 - $705,763). 11. Contingencies The Town is subject to various legal claims arising in the normal course of its operations. The ultimate outcome of these claims cannot be determined at this time, therefore, no amounts have been recorded in these financial statements. The Town's management believe that the ultimate disposition of these matters will not have a material adverse effect on its financial position. Grant7hornton -39- 11 SPECIAL GC - AUDIT - JUNE 245 2008 ITEM #1 - 40 The Corporation of the Town of Aurora U� Notes to the ConsolidatedFinancial Statements December 31, 2007 12. Central York Fire Services Effective January 1, 2002, the Town entered into a Joint Venture Agreement with the Town of Newmarket with respect to the provision of Fire and Emergency services. Under the .Agreement, the Town of Newmarket assumed responsibility for the combined Central York Fire Services. The cost of these services is shared between the two municipalities on the basis of a pre -defined cost sharing formula. The Town's share of costs for the year was $5,911,870 (2006 - $5,600,878). 13. Insurance coverage The Town is self insured for insurance claims up to $10,000 for any individual claim and for any number of claims arising out of a single occurrence. Claim costs during the year amounted to $64,487 (2006 - $53,614). The Town has made provisions for reserves for self insurance claims under $10,000 to be used for those claims that exceed the sum provided for in the annual budget. These reserves are reported on the Consolidated Statement of Financial Activities under reserves set aside by Council. As at December 31, 2007, these reserves amounted to $270,361 (2006 - $261,109). The Town is a member of the Ontario Municipal Insurance Exchange which became a licensed group for liability insurance coverage on October 1, 1996. Contributions have been made to the fund for claims in excess of $10,000 and under $50,000,000. These contributions have been reported as' expenditures on the Consolidated Statement of Financial Activities. 14. Tangible Capital Assets Effective January 1, 2007, the Town adopted Accounting Guideline 7 (PSG-7) of the Public Sector Accounting Handbook of the Canadian Institute of Chartered Accountants ("GICA") with respect to the disclosure of tangible capital assets of local governments. PSG-7 provides transitional guidance on presenting information related to tangible capital assets until Section 3150 - Tangible Capital Assets of the Public Sector Accounting Handbook comes into effect on January 1, 2009. During 2007, the Town continued to work towards compliance with the new recommendations for accounting for tangible capital assets. As of December 31, 2007, the Town has not yet completed a listing of assets and their values. The accumulation of data is currently underway. 15. Comparative figures Certain comparative figures in these financial statements have been reclassified to conform with the presentation adopted for the current year. GrantThornton 12 �IM SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 41 The Corporation of the Town of Aurora Ul Schedule of Operating Fund Activities Schedule 1 Budget Actual Actual Year Ended December 31 2007 2007 2006 (Unaudited) Revenue Taxation (Note 7) $ 23,508,769 $ 23,503,783 $ 22,084,678 User charges 15,938,475 17,026,660 13,719,928 Grants 723,516 795,427 997,802 Other (Note 8) 6,046,637 5,143,125, 4,926,678 46,217,297 46,468,995 41,729,086 Expenditures General government 5,731,144 5,264,080 4,978,281 Protection to persons and property 7,861,091 7,650,207 6,145,523 Transportation services 2,856,364 3,218,341 2,609,604 Environmental services 11,425,421 9,730,413 9,691,956 Leisure and cultural services 11,993,163 11,653,286 11,428,788 Planning and development 1,245,247 1,201,492 1,206617 41,112,430 38,717,819 35,960,769 Net revenue 5,104,867 7.751.175 5.768.317 Financing and transfers Principal payment of long term debt (1,191,470) Change in employee benefit obligations (61,025) (36,099) Transfer to Reserves and Reserve Funds (2,408,289) (4,609,255) (4,201,461) Transfer to Capital Fund (2,696,628) (3,020,396) (1,328,212 (5,104 867) _(7,690,676) (6,757,242 Change in Operating Fund - 60,500 (988,925) Operating Fund balance, beginning of year. 301,717 301,717 1,290,642 Operating Fund balance, end of year $ 301,717 $ 362,217 $ 301,717 See accompanying notes to the consolidated financial statements. GrantThornton 13 -41- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #1 - 42 The Corporation of the Town of Aurora UI Schedule of Capital Fund Activities Schedule 2 Budget Actual Actual Year Ended December 31 2007 2007 2006 (Unaudited) Revenue User charges $ 3,550,010 $ 3,721,611 $ 2,186,258 Grants 25,000 37,000 48,000 Other (Note 8) 297,500 478.620 1,576 846 3,872,510 4,237,231 3,811104 Expenditures General government 675,575 218,608 509,642 Protection to persons and property - 329,429 Transportation services 5,766,576 5,971,067 3,839,910 Environmental services 2.182,979 1,899,820 1,146,241 Leisure and cultural services 6,466,137 2,518,008 4,524,704 Planning and development 176,000 83,581 87.79 15261,267 10,691,084 10,437,718 Net expenditure (11,388 757) (6,453,853) (6,626,Q14) Financing and transfers Principal payment of long term debt (1,240,500) (1,240,600) Transfer from Operating Fund 2,696,628 3,020,396 1,328,212 Transfer from Reserves 5,094,538 3,266,469 2,061,712 Transfer from Reserve Funds 4838,091 4,608,752 _ 1322839 11,$88 757 9,655,117 4,732,763 Change in Capital Fund balance 3,201,264 (1,893,851) Capital Fund balance, beginning of year 6,527,021 6,527,021 8,420,872 Capital Fund balance, end of year $ 6,527,021 $ 9,728,285 $ 6,527,021 See accompanying notes to the consolidated financial statements. Grant7hornton 14 -42- SPECIAL GC -AUDIT - JUNE 24, 2008 ITEM #1 - 43 The Corporation of the Town of Aurora Schedule of Reserves and Reserve Funds Activities Schedule 3 Actual Actual Year Ended December31 2007 2006 Revenue User charges $ 7,794,924 $ 6,394,704 Net change in obligatory Reserve Funds (7,992,657) (6,847,553) Other (Note 8) 2.114.289 1,638,636 11916,556 1,185,787 Financing and transfers Transfer from Operating Fund 4,609,255 4,201,461 Transfer to Capital Fund (7,875,221) (3,404,551) (3,265,966) 796,910 Change in Reserve and Reserve Fund balance (1,349,410) 1,982,697 Reserve and Reserve Fund balance, beginning of year 44,704056 42.721,359 Reserve and Reserve Fund balance, end of year $ 43,354,646 $ 44,704,056 Reserves and Reserve Funds are comprised of: Reserves, set aside by Council for specific purposes Acquisition of capital assets $ 2,613,992 $ 1,334,444 Contingencies 1,429,759 2,008,640 Engineering 3,333,805 2,075,563 Discretionary - 32,884,021 33,734,395 40,261,577 39,153,045 Reserve funds set aside for specific purposes by legislation, regulation or agreement 3,093,069 5,551,011 $ 43,354,646 $ 44,704,056 See accompanying notes to the consolidated financial statements. GrantThornton -43- 15 SPECIAL GC -AUDIT - JUNE 24, 2008 ITEM #2 - 1 r� TOWN OF AURORA AURORA AUDIT COMMITTEE REPORT No. AC08-001 SUBJECT: Internal Audit Report Building Administration FROM: L. John Gutteridge, Director of Finance/Treasurer DATE: June 24, 2008 RECOMMENDATIONS That the Building Administration Audit Report be received and That appropriate action be taken to resolve all the issues identified and outstanding. BACKGROUND In 2005 the Town entered into an agreement with the Region of York to provide internal Audit Services to the Town of Aurora. This agreement was subsequently renewed in 2007. The attached "Building Administration Audit Report" is presented to the Audit Committee for information. COMMENTS This report has be reviewed by both the Director of Building Administration and the Director of Finance and comments from both are presented within the report. OPTIONS 1. As presented in report. FINANCIAL IMPLICATIONS Some of the recommendations have a cost to implement and staff involvement. CONCLUSIONS As can be seen in the reports they have identified issues and made recommendations to improve the process, this is followed by management's comments and timeline for resolution. Not all of the policies have been developed at this time due to prolonged absence of the -44- SPECIAL GC -A UDiT - JUNE 245 2008 ITEM #2 - 2 June 24, 2008 - 2 - Report No. AC08-001 Director's involved, however, processes have been implemented to address the concerns outlined in the report. LINK TO STRATEGIC PLAN Goal D: Ensure transparent, accountable and open governance in concert with informed and involved citizens Objective D1: Continue the commitment of fiscal responsibility and accountability Objective D2: Enhance customer service Objective D3: Be accountable and transparent to residents by ensuring open and accessible information flow and accessible decision -making Objective D4: Create a respectful environment that fosters team work and open dialogue, consistent with a Character Community. These Objectives acknowledge the responsibilities required by governance that contribute to informed and involved citizens. ATTACHMENTS Attachment #1 — Building Administration Audit Report PRE. -SUBMISSION REVIEW Prepared by., L. John Gutteridge, Director of Finance/Treasurer -Ext. #4111 ohn Gutteridge . Rogers Director of Financ easurer Chief Administrative Officer Techa van Leeuwen Director of Building Administration -45- SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #2 - 3 Town of Aurora Building Administration Audit Report December 2007 Internal Audt Report -46- SPECIAL GC AUDIT - JUNE 243,2008 ITEM #2 -"4. Town of Aurora — Building' Administration Audit Report ' December 2007 TABLE OF CONTENTS Section , Page No. 1.0 MANAGEMENT SUMMARY ....:............: 2.0 INTRODUCTION.......................................................................................................................................... 2 3.0 OBJECTIVES AND SCOPE ............................. .. 4.0 DETAILED OBSERVATIONS AND RECOMMENDATIONS ................ 4.1 FORMALIZATION OF POLICIES AND PROCEDURES ....................... :................................ ......................... 4 4.2 RESULTS OF DETAILED TESTING ....................... .................. ...................... ................. ............ :............... 4 4.3 CASH HANDLING PROCEDURES .............. Internal Audit Report Page I .47. SPECIAL GC - AUDIT - JUNE 24, 2008 ITEM #2 - 5 1.0 Management Summary Town of Aurora -Building Administration Audit Report December 2007 We have completed an audit of the Town of Aurora's Building Administration department. The focus of our review was.to determine whether controls were in place to ensure that revenues were complete and properly accounted for and that there was compliance with Ontario Building Code .in the processing of permit applications and inspections; The scope of the audit included a review of cash handling and permit processing procedures in place, and detailed testing of a sample of 20 permit applications through to final inspection. Based on the work we performed, we conclude .that the Town is generally complying with . Ministry requirements in the processing of permit applications in a satisfactory manner. Opportunities for internal. control improvements were noted and discussed with management. These improvements relate to formalization of policies and procedures for the permit application process, the frequency of receipts balancing and deposits to the bank, the processing of voided transactions, and ensuring that a Notice of Refusal is issued for incomplete applications. We have provided our recommendations in the body of the report. A draft copy of this report has been discussed with Building Administration management, who have provided us with their comments and who have agreed to take the necessary action to implement the recommendations. Should the reader have any questions or require a more detailed understanding of the risk assessment and sampling decisions made during this audit, please contact the Director, Audit Services. Audit Services would like to thank the Town's Building Administration and Finance management and staff for their cooperation and assistance. 2.D Introduction In June 2005 the Town of Aurora and York Region entered into a memorandum of understanding for the delivery of audit services. To determine which areas would benefit most from audit services, an Audit Plan was developed by the Audit Services Branch using a Risk Assessment Methodology that helps to define the different risks associated with the various processes at the town. It is one tool that Audit Services uses in assessing where best to allocate audit resources. Audit Services randomly selected 20 permit applications from 2006 and 2007 which had completed the final inspection process. The selection was performedjudgmentally and covered permits for commercial, industrial and residential for various types of work including demolition, additions and renovations, signs, temporary tents, new homes, decks, pools and hot tubs. The permit application files were reviewed to ensure that documentation for the application and subsequent inspections was complete, and accurately entered into Cityview, and that payments were received and accurately processed on a timely basis. Infernal Audit Report ._ -48- SPECIAL GC -AUDIT - JUNE 24, 2008 ITEM #2 - 6 Town of Aurora Building Administration Audit Report December 2007 3.0 Objectives and Scope The objectives of this engagement included: • Ensuring that policies and procedures in place are adequate to ensure the completeness of revenues. • Ensuring that fees were accurately calculated. • Ensuring that cash receipts/revenues were accurately processed and accounted for. • Ensuring that documentation supporting the permit application process and - subsequent- inspections -were-complete and on file. • Ensuring that administrative requirements per the Provincial Building Code are adhered to by the Municipality. The audit objectives were accomplished through: • Detailed testing of a sample of 20 permit applications through to final inspection. • Detailed testing of cash receipts for the 20 permits reviewed. + Review of permit application files and other documentation as necessary. • Interviews with appropriate personnel. Report - Page 3 -49- SPECIAL GC -A UMT - JUNE 245 2008 ITEM #2 - 7 Town of Aurora — Building Administration Audit Report December 2007 4.0 . Detailed Observations and Recommendations 4.1 Formalization of Policies and Procedures Observation There are no formally documented policies and procedures for the permit application and inspection process. . Recommendation Management should draft and implement formal policies and procedures which should be distributed to staff to ensure that expectations are understood and adhered to. Management Response In January of 2006 Bill 124 amended the Ontario Building in many significant areas with a focus on streamlining, accountability and knowledge. Process and procedures required change to meet the legislative requirements. The building industry province wide have been experiencing growing pains and making adjustments. In January of 2006 I joined the Town of Aurora as the Director of Building Administration and Chief Building Official and brought my experience and visions to the department. Since January of 2006 we have developed written policies and procedures 4o deal with specific issues. To date we have 9 established policies and procedures including "payment of fees", designer qualifications and "work, no permit required". We have also been working on developing checklists for plan review and inspections and to date have completed a building code housing checklist and a zoning review checklist. It is my understanding through discussion with the Senior Internal Auditor, the policies and procedures referred to in this document are to address roles -and responsibilities of specific jobs categories and work flow. There are opportunities to attach to the policies documents such as checklists to ensure consistency and quality assurance Implementation Date: April 30. 2008 4.2 Results of Detailed Testing Observation A review of 20 permit application files revealed the following: One file did not have evidence of review/approval of the drawings by Zoning and Building. No Notice of Refusal was issued for 4 complete applications which were determined to have issues related to the drawings. Internal Audit Report Page 4 -50- SPECIAL GC - AUDIT - JUNE 245 2008 ITEM Town of Aurora — Building Administration Audit Report December 2007 • A.plumbing inspection had taken place but it had not been entered into Cityview. Recommendation Policies and procedures for the processing of applications should be reviewed with staff to ensure that they are understood and adhered to. A file completion checklist should be developed and usedlsigued off for each permit application to ensure that all approvals, required documentation, and entry into Cityview are completely and accurately completed. Management Response Manual checklists are in the process of being developed. An application checklist for application submission is in draft form. A zoning and plan review checklist for housing has been developed and is in final form. The department has been engaged in ajoint projectwith the IT Division to enhance and customize Cityview with automated checks, balances and securities. For example, applicable law approvals that are required for the issuance of a building permit will be a mandatory process in Cityview. Therefore _Cityview will not allow a permitto be issued unless the examiner has reviewed and checked the applicable laws list. An established workplan has been the guiding document for the project. Target dates for tasks have been set. Staff training is key for success of the project. Staff is currently being trained on the first phase of implementation with final training and migration to the next version scheduled for March/April. Implementation date: April 30, 2008 4.3 Cash HandlingProcedures Observation 1. Daily receipts are only balanced and sent to the bank once per week. Since the Building department accepts payments for Cash in Lieu of Parkland, Town and Regional Levies and Development Charges, receipts are quite significant. The average weekly.deposit based on our sample was $218K. 2. The Accounts Payable clerk in Finance receives and verifies the deposit from the Building department and prepares the bank deposit. This further delays the negotiables reaching the bank. 3. The password to void a cash receipt is shared between the cashiers which compromises the control over voided trattsactions. Recommendation 1. Daily receipts should be balanced and deposited on a more frequent basis (twice weekly) to enhance cash management and reduce the likelihood of loss. Internal Audit Report -f Page 5 _ -51- SPECIAL GC - AUDIT - JUNE 24, 2008. ITEM #2 - 9 Town of Aurora — Building Administration Audit Report December 2007 2. The Building department should prepare the bank deposit and place it a sealed bank envelope and sent directly to the bank. The Director of Finance has agreed to train the Building department cashiers on how to prepare a batik deposit which is to be taken to Finance in a bank provided sealed deposit bag twice weekly (Monday and Thursday) to be taken directly to the bank for deposit. 3. To help ensure the appropriateness and validity of voided transactions, the password to authorize voided transactions should be held by a supervisorlmanager, and one other person as a backup. Management Response (T. Van Leeuwen — Director — Building) Recommendation 1 - Bi-weekly deposits will be implemented immediately. Recommendation 2—This recommendation will be implemented as soon as Finance is available to provide training to Building Administration staff. Recommendation 3—limmediate implementation. Management Response (J. Gutteridge— Director— Finance) The Building department should prepare the bank deposit and place it in a sealed bank envelope. The Director of Finance has agreed to train the Building department cashiers on how to prepare'a bank deposit which is to be taken to the Financial Services Department in a bank provided sealed deposit bag twice weekly, (Monday and Thursday); or more often if the cash drawer threshold outlined in the Building Department Receipting Policy is exceeded. Financial Services Department will be responsible to have funds deposited and verified by the bank, Training will be provided to Building Administration staff by March 30, 2008: h�i 1 l,Pll r'. Ceti ,. L L,C. T. Van Leeuwen J. Gutteridne Director -- Building ✓`Paul J.J. Duggan Director — Audit Services - Regional Municipality of York . Treasurer and Director - Finance P Page 6 e oR -52-