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AGENDA - Audit Committee - 20160628AUDIT COMMITTEE MEETING AGENDA TUESDAY,JUNE 28,2016 6 P.M. COUNCIL CHAMBERS AURORA TOWN HALL PUBLIC RELEASE June 23,2016 TOWN OF AURORA AUDIT COMMITTEE MEETING AGENDA Tuesday,June 28,2016 6 p.m. Council Chambers 1.DECLARATION OF PECUNIARY INTEREST AND GENERAL NATURE THEREOF 2.APPROVAL OF THE AGENDA RECOMMENDED: THAT the agenda as circulated by Legal and Legislative Services be approved as presented. 3.DELEGATIONS (a)Giselle Bodkin,Partner,and Andrea Nauss,Manager,BDO Canada LLP Re:Item 1 –CFS16-024 –2015 Year-End Audited Financial Statements and 2016 Year-End Audit Plan 4.CONSIDERATION OF ITEMS 5.CLOSED SESSION 6.ADJOURNMENT Audit Committee Meeting Agenda Tuesday,June 28,2016 Page 2 of 2 AGENDA ITEMS 1.CFS16-024 –2015 Year-End Audited Financial Statements pg.1 and 2016 Year-End Audit Plan RECOMMENDED: THAT Report No.CFS16-024 be received;and THAT the 2015 Audit Reports and Financial Statements for the year ended December 31,2015,be approved and published in accordance with the Municipal Act,2001,S.O.2001,c25,Section 295,on the Town’s website;and THAT the 2016 year-end Audit Plan,as proposed by BDO Canada LLP,be endorsed. AUDIT COMMITTEE REPORT No.CFS16-024 SUBJECT:2015 Year-End Audited Financial Statements and 2016 Year-End Audit Plan FROM:Dan Elliott,Director of Corporate &Financial Services -Treasurer DATE:June 28,2016 RECOMMENDATIONS THAT Report CFS16-024 be received;and THAT the 2015 Audit Reports and Financial Statements for the year ended December 31,2015,be approved and published in accordance with the Municipal Act,2001,S.O.2001,c25,Section 295,on the Town’s website;and THAT the 2016 year-end Audit Plan as proposed by BDO Canada LLP be endorsed. PURPOSE To present for approval,the audited financial statements for the year ended December 31,2015,and the auditor’s report thereon.Also,in accordance with the Audit Committee Terms of Reference,the Audit Committee is responsible to “review the 2016 audit plan and audit fee schedule for the ensuing year end”. BACKGROUND Attached hereto is the entire audit package as presented by our auditors BDO Canada LLP,which include the 2015 Year End Audit Report,Letter to the Audit Committee and the audited financial statements which can all be found under Attachment 1.The actual financial statements have been prepared by staff and audited by BDO Canada LLP.The results shown in these consolidated statements differ from the traditionally prepared year-end report card due to the inclusion of tangible capital assets and other PSAB reporting differences.They have been marked DRAFT by the auditors,as the audit cannot be technically completed until after the approval of the statements by Council.Council is required to approve these statements as part of the finalization of the audit.Once the auditors sign their final report in the coming days,the financial statements will be made publicly available by being placed on the Town website,a requirement under Section 295 of the Municipal Act,2001,S.O.2001,c.25 as amended.BDO also provides a letter to management on internal controls and other matters that they feel should be brought to their attention. TOWN OF AURORA Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -1 -1 - June 28,2016 -2 -Report No.CFS16-024 Also attached (Attachment 2)is the Audit Plan for the 2016 Year End audit as prepared by the firm of BDO Canada LLP (BDO). Representatives from BDO Canada LLP will be in attendance to present their report and findings;as well as to make a short presentation to the Committee in order to review the details of its 2016 audit plan. COMMENTS The Audited Financial Statements present a consolidation of the Town’s finances and include the combined results of the General Operations of The Town,the Library Board, and the Water/Wastewater Sewer Operations. Staff continue to monitor the Town’s financial processes in an attempt to identify further opportunities for efficiency.Any time that a change in process is considered,staff give full consideration to any impact that these proposed changes may have on the existing internal controls,and the adequacy thereof.Any deliberated changes made are approved by the Director of Corporate &Financial Services -Treasurer,and drawn to the auditors’attention during the next audit. During the course of this audit,BDO Canada LLP reviewed their previous management letter items. Also attached is a report prepared by BDO that addresses the audit plan for 2016 fiscal year end,including the scope and approach to their audit.Staff are not in a position to comment or challenge the approach that the auditors have chosen in order to fulfil their professional obligations required when rendering an audit opinion report.From the perspective of the Financial Services group,we continue to be committed to the provision of any requested documentation to the auditor in a prompt fashion in an effort to facilitate the audit in a timely manner. Audit fees are always quoted on the presumption that staff will have completed all requested schedules and support materials in advance of the audit,and that the financial statements and associated notes have been properly and fully prepared by staff.The fee also anticipates not finding any item of substance requiring extensive additional audit effort to resolve or report. The auditors are required to review all Council minutes,including closed session minutes.They are also required to review the prior year’s internal control letters and consider any concerns raised therein during their current audit,looking for continuing circumstances,weaknesses or concerns as raised in the prior year,and how such may affect the outcome of their current audit,and the opinion to be expressed therefrom. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -2 -2 - June 28,2016 -3 -Report No.CFS16-024 LINK TO STRATEGIC PLAN None:The annual audit is a statutory requirement,and is guided by professional standards applicable to all Canadian licensed audit practitioners.Preparation and publication of the annual audited financial statements supports the Strategic Plan principles of integrity,and progressive corporate excellence and continuous improvement. ALTERNATIVE(S)TO THE RECOMMENDATIONS n/a FINANCIAL IMPLICATIONS There are no financial implications in regards to the 2015 year-end audit report,the purpose of which is for its receipt by the Audit Committee as well as to obtain approval of the Consolidated 2015 Financial Statements of the Town so that the Statements may be published as required by legislation. In regards to the 2016 audit plan,the cost for this audit has been provided for within the 2016 budget. An amount of $40,900 has been budgeted for the 2016 audit with anticipated fees of $28,200 for the audit of the consolidated financial statements,excluding administration charges and taxes.Additional audit expenses from this budget include independent actuarial valuations separately commissioned by staff. CONCLUSIONS The auditors are ready to issue an unqualified opinion on the fairness and completeness of the corporation’s financial statements for the year ended December 31,2015.Staff recommend the approval of the statements.Once approved and final versions are prepared,the Mayor and Treasurer will sign the statements. In addition it is recommended that Council endorse the proposed 2016 audit plan as presented by BDO. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -3 -3 - Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -4 -4 - –“ Year End Report for The Corporation of the Town of Aurora Presented by Giselle Bodkin,CPA,CA Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -5 -5 - TABLE OF CONTENTS Where are you today? Key Performance Results .......................................................................2-7 Industry Comparison ..........................................................................9-13 Audit Committee Best Practice Recommendations...................................................14 Summary of Audit Process ............................................................................15-16 Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -6 -6 - 2 TOTAL REVENUE,EXPENSES AND ANNUAL SURPLUS (IN THOUSANDS ‘000) 2008 2009 2010 2011 2012 2013 2014 2015 Revenue 63,657 66,858 65,094 79,442 71,871 70,409 96,654 119,372 Expenses 52,594 54,065 58,877 62,547 65,071 67,315 71,543 75,537 Annual Surplus 11,063 12,793 6,217 16,895 6,800 3,094 25,111 43,835 - 20,000 40,000 60,000 80,000 100,000 120,000 140,000 Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -7 -7 - 3 ANNUAL SURPLUS PLUS AMORTIZATION AND TCA ADDITIONS 2008 2009 2010 2011 2012 2013 2014 2015 Annual Surplus +Amortization 19,578 21,512 15,257 26,541 16,804 13,618 36,018 55,494 TCA Additions 12,341 7,727 9,391 11,215 13,207 7,894 19,752 30,090 - 10,000 20,000 30,000 40,000 50,000 60,000 Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -8 -8 - 4 TOTAL NET FINANCIAL ASSETS (IN THOUSANDS ‘000) 2008 2009 2010 2011 2012 2013 2014 2015 Net Financial Assets 41,465 48,008 50,022 50,942 54,983 59,474 45,843 53,348 - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -9 -9 - 5 TOTAL ACCUMULATED SURPLUS AND TANGIBLE CAPITAL ASSETS (IN THOUSANDS ‘000) 2008 2009 2010 2011 2012 2013 2014 2015 Accumulated Surplus 384,741 400,102 406,319 423,214 428,195 437,926 444,759 489,963 Accumulated TCA 343,252 352,074 356,269 371,887 379,720 378,381 395,727 436,514 - 100,000 200,000 300,000 400,000 500,000 600,000 Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -10 -10 - 6 2015 REVENUE 2011 REVENUE 30.37% 37.13% 2.14% -1.89% 18.24% 10.24% Revenue Taxation User fees Grants Loss on disposal of TCA Assumed infrastructure assets Other 37.36% 30.26% 5.45% 0.03% 17.74% 9.16% Revenue Taxation User fees Grants Gain on disposal of TCA Assumed infrastructure assets Other Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -11 -11 - 7 FIVE YEAR EXPENSE COMPARISON (IN THOUSANDS ‘000) 2015 2014 2013 2012 2011 General government 12,006 12,078 11,677 9,076 9,433 Protection to person and property 12,654 12,254 10,875 10,386 10,090 Transportation services 8,399 8,236 7,652 7,996 7,237 Environmental services 21,478 20,176 18,714 18,539 16,981 Leisure and cultural services 19,056 16,883 16,485 17,656 17,267 Planning and development 1,944 1,916 1,912 1,418 1,539 75,537 71,543 67,315 65,071 62,547 Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -12 -12 - 8 2015 EXPENSES 2011 EXPENSES 34.07% 15.43% 6.55% 43.24% 0.22%0.50% Expenses Salaries,wages and benefits Amortization Materials and supplies Contracted services Interest on long-term liabilities Others 35.03% 15.42% 6.07% 40.86% 0.65%1.96% Expenses Salaries,wages and benefits Amortization Materials and supplies Contracted services Interest on long-term liabilities Others Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -13 -13 - 9 INDUSTRY COMPARISON NET FINANCIAL ASSETS (DEBT) TCA ADDITIONS 2008 2009 2010 2011 2012 2013 2014 Town of Aurora 41,465 48,008 50,022 50,942 54,983 59,474 48,543 Town #2 13,459 (787) (16,624) (20,479) (17,981) (14,620) (7,124) Town #3 (17,478) (22,427) (26,022) (18,168) (12,355) (15,755) (14,833) Town #4 (5,959) (4,228) (3,026) (1,529) 2,641 5,964 8,718 Town #5 33,729 33,790 33,758 40,092 50,863 60,667 61,292 (40,000) (30,000) (20,000) (10,000) - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 2008 2009 2010 2011 2012 2013 2014 Town of Aurora 17,052 20,556 14,074 25,306 15,183 7,894 19,752 Town #2 26,432 50,871 44,547 24,794 45,531 14,867 14,320 Town #3 21,422 11,999 12,017 9,994 9,396 13,125 12,197 Town #4 6,667 7,812 21,060 16,549 5,382 6,853 8,969 Town #5 - 27,284 43,754 21,455 20,782 27,714 42,018 - 10,000 20,000 30,000 40,000 50,000 60,000 Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -14 -14 - 10 REVENUE EXPENSES 2008 2009 2010 2011 2012 2013 2014 Town of Aurora 63,657 66,858 65,094 79,442 71,871 70,409 94,495 Town #2 50,257 63,545 52,196 53,320 68,232 54,398 62,527 Town #3 31,628 26,948 33,383 41,159 43,825 39,682 44,652 Town #4 41,794 39,164 52,895 54,749 44,491 46,003 51,554 Town #5 94,052 85,614 94,595 97,511 102,893 114,929 122,901 - 20,000 40,000 60,000 80,000 100,000 120,000 140,000 2008 2009 2010 2011 2012 2013 2014 Town of Aurora 52,594 54,065 58,877 62,547 65,071 67,315 71,543 Town #2 26,299 30,619 35,165 40,128 43,987 46,352 50,092 Town #3 22,722 23,984 29,480 32,199 33,514 34,393 36,676 Town #4 39,461 38,772 39,649 44,486 45,410 47,006 50,387 Town #5 77,707 82,127 85,326 89,907 93,817 98,182 103,576 - 20,000 40,000 60,000 80,000 100,000 120,000 Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -15 -15 - 11 ANNUAL SURPLUS (DEFICIT) ACCUMULATED SURPLUS 2008 2009 2010 2011 2012 2013 2014 Town of Aurora 11,063 12,793 6,217 16,895 6,800 3,094 25,111 Town #2 23,958 32,884 19,934 13,193 24,245 8,046 12,435 Town #3 8,906 2,964 3,903 8,960 10,311 5,341 7,975 Town #4 2,333 392 13,247 10,239 (1,774) (1,175) 1,158 Town #5 17,374 9,494 12,753 8,514 10,446 16,747 20,871 (5,000) - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 2008 2009 2010 2011 2012 2013 2014 Town of Aurora 384,741 400,102 406,319 421,395 428,195 437,926 444,356 Town #2 139,199 171,601 192,269 205,462 229,707 237,753 250,189 Town #3 108,720 111,684 115,588 129,898 140,209 145,550 153,500 Town #4 336,394 336,786 350,030 358,867 357,093 357,093 357,076 Town #5 443,284 452,778 465,531 472,638 483,084 499,831 520,702 - 100,000 200,000 300,000 400,000 500,000 600,000 Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -16 -16 - 12 2014 TOWN OF AURORA REVENUE 2014 INDUSTRY AVERAGE REVENUE 36.42% 42.03% 2.58% -0.07% 8.90% 10.00%Revenue Taxation User fees Grants Loss on disposal of tangible capital assets Assumed infrastructure assets Other 43.88% 30.78% 2.87% -0.16% 13.75% 8.56%Revenue Taxation User fees Grants Loss on disposal of tangible capital assets Assumed infrastructure assets Other Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -17 -17 - 13 2014 TOWN OF AURORA EXPENSE 2014 INDUSTRY AVERAGE EXPENSE 34.91% 15.25%6.24% 42.71% 0.32% 0.58%Expense Salaries,wages and benefits Amortization Materials and supplies Contracted services Interest on long-term liabilities Other 43.23% 16.70% 10.82% 24.64% 1.82% 2.79%Expense Salaries,wages and benefits Amortization Materials and supplies Contracted services Interest on long-term liabilities Other Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -18 -18 - 14 Audit Committee Best Practice Recommendations Financial Reporting The Committee should receive monthly internal financial statements and ensure that the financial statements clearly reflect the true performance of the Organization. The Committee should review audit adjustments made and those waived because of immateriality. The Committee should review and approve the draft audited financial statements. Is there a financial expert on the Committee?The financial expert would have the following 5 attributes: Understanding of the financial statements and accounting principles used to prepare the issuer's financial statements; Ability to assess the application of such accounting policies; Experience preparing,auditing,analyzing or evaluating financial statements,or experience supervising individuals engaged in preparing,auditing,analyzing or evaluating financial statements; An understanding of internal controls and procedures for financial reporting; An understanding of audit committee functions Risks and Controls The Committee should create the right tone at the top to foster growth of suitable controls. The Committee should have a sufficient understanding of the risks at the Organization. The Committee should analyze the internal control system to ensure that the risks are adequately mitigated. Audit Function The Committee should ensure that the external auditor selected has sufficient knowledge of and experience in the Organization’s industry. The Committee should review the audit fee and ensure that it is in line with the scope of the audit. The Committee should confirm and discuss the auditor’s independence. The Committee should keep an open line of communication with the external auditors, including such items as: The auditor's responsibility under Canadian Auditing Standards. The quality of the accounting principles followed by the Organization. Disagreements with management. Difficulties in performing the audit. Major issues management discussed with the auditors before their retention. Other Issues to Consider: Is the Committee independent from the Organization? Is the Committee sufficiently financially literate? Are there clear position descriptions for directors? Is there orientation and continuing education for all directors in place? Is there a written code of business conduct and ethics? Is there a nominating committee? Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -19 -19 - 15 Summary of Audit Process Overall Approach Attain an understanding of processes and controls within the departments by performing system descriptions and walkthroughs. Attain an understanding of internal IT and software,through discussions with the IT department and our systems descriptions. Identify specific areas of the financial information which contain risk,and significant judgment. From these initial stages,we determine what procedures to be performed on the specific areas of the financial statements. Income Statement Approach Revenue Taxation –we obtain the annual by-law and compare to the revenue recorded following-up on significant differences. Grants and government transfers –we obtain a sample of revenue received and agree to the funding documents,following up on differences. Interest income –Interest reasonability tests are performed on tax interest, reserve interest,bank and investments. Assumed infrastructure assets –we obtain the asset registers and recalculate. We take a sample of additions and trace to the supporting documentation to ensure the amounts agree.We then compare the overall asset registers to that recorded and follow-up on any significant differences. Gain on disposal of tangible capital assets –we review the disposals and compare to the asset registers to ensure the cost was removed appropriately. Also,if the assets were sold we obtain documentation on the proceeds to ensure the calculation of the gain/loss is appropriate. User fees,fines,licenses,permits and other revenue –we performed a detailed comparison of current year to the prior five years and budget on an account by account basis,using a threshold to determine the significant changes.We then review the significant changes with management and obtain supporting documentation. Expenses Salaries,wages and employee benefits –we perform test of controls on a cyclical basis.This tests various input and output controls for salaries.With regards to benefits we perform a reasonability test based on yearly percentages of CPP,EI,and benefits as a percentage of salaries.These are compared to the stated rates and differences are followed up. Materials and supplies,contracted services and other –we perform substantive tests on these expenses and vouch to supporting documentation on a sample basis,following up on any differences. Interest on long-term liabilities -we review the various debenture contracts and agree the interest expensed to the interest indicated in those. Amortization –we recalculate the amortization on a test basis and compare to the actual amounts recorded,following up on any significant differences. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -20 -20 - 16 Balance Sheet Approach Assets Cash –test of controls are performed on bank reconciliations,and a bank confirmation is sent to the bank and agreed to the general ledger. Taxes receivable –we perform a detailed five year comparison by aging following-up on significant differences.We also perform a large arrears check and follow-up to determine what the approach is to collect from that resident. User fees and accounts receivable –we obtain the various accounts receivable account details and for significant balances agree to the supporting documentation or calculations.We also perform reasonability tests on various specific balances.We perform cut-off tests to ensure that amounts have been recorded in the proper period.We also check for deferred revenue or amounts that have been outstanding for significant periods of time and ensure they should not be written off. Portfolio investments –Confirmations are sent to the investment advisors and review of investment certificates and continuity schedules is performed. Land listed for sale –we obtain the current year listing and for any purchases or sales obtain the agreement and agree the amounts and recalculate any gains/losses. Tangible capital assets and tangible capital assets under construction –we obtain the asset registers and recalculate.We take a sample of additions and trace to the supporting documentation to ensure the amounts agree.We then compare the overall asset registers to that recorded and follow-up on any significant differences. Prepaid expenses –we obtain supporting documentation for any material items included in prepaid. Liabilities Accounts payable and accrued liabilities –we obtain supporting documentation for significant liabilities outstanding.We perform cut-off testing to ensure they have been recorded in the proper period.We test to ensure that accruals are reasonable. Deposits –we review the deposits and ensure that amounts received should not be recognized through a sample of items,following up with the specific departments. Deferred revenue –we obtain the continuity schedule.For additions we test the supporting grant funding letters,test the calculation of developer charges and the reasonability of interest.For decreases we ensure they are approved in the budget. Employee benefits liabilities –we obtain the actuarial report,and review the assumptions made and ensure they are reasonable.We then ensure that the appropriate accounting method has been applied.We follow-up with both the actuary and the Town’s Finance department on any unusual items,differences. Net long-term liabilities –we obtain third party confirmation on the balance, terms and interest rate,following up on any significant differences. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -21 -21 - Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -22 -22 - Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -23 -23 - Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -24 -24 - Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -25 -25 - Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -26 -26 - Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -27 -27 - DRAFT-subjecttochangeAudit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -28 -28 - DRAFT-subjecttochangetototototototototototototototototototototototoAudit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -29 -29 - Independent Auditor's Report To the Mayor and Councillors of The Corporation of the Town of Aurora We have audited the accompanying consolidated financial statements of The Corporation of the Town of Aurora,which comprise the consolidated statement of financial position as at December 31,2015,the consolidated statements of operations and accumulated surplus,change in net financial assets and cash flows for the year then ended,and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian public sector accounting standards,and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement,whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards.Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error.In making those risk assessments,the auditor considers internal controls relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management,as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion,these consolidated financial statements present fairly,in all material respects,the financial position of The Corporation of the Town of Aurora as at December 31,2015 and the results of its operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. 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RESPONSIBILITIES It is important for the Audit Committee to understand the responsibilities that rest with the external auditor and the responsibilities of those charged with governance.BDO’s responsibilities are outlined within the annual engagement letter.The oversight and financial reporting responsibilities of the Audit Committee as they pertain to the annual audit are summarized below. Oversee the work of the external auditor engaged for the purpose of issuing an auditor’s report. Pre-approve all non-audit services to be provided to the Municipality by the external auditor. Facilitate the resolution of disagreements between management and the external auditor regarding financial reporting matters,if any. Refer to Appendix E for full details on the responsibilities of the Audit Committee. ENGAGEMENT OBJECTIVES Express an opinion as to whether the consolidated financial statements present fairly,in all material respects,the financial position,and results of operations and cash flows of the Municipality in accordance with Public Sector Accounting Standards (PSAB). Present significant findings to the Audit Committee including key audit and accounting issues,any significant deficiencies in internal control and any other significant matters arising from our work. Provide timely and constructive management letters.This will include deficiencies in internal control identified during our audit. Consult regarding accounting and reporting matters as requested throughout the year. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -56 -56 - THE CORPORATION OF THE TOWN OF AURORA 4 AUDIT STRATEGY Refer to Appendix B for our audit strategy. MATERIALITY Misstatements,including omitted financial statement disclosures,are considered to be material if they,individually or in aggregate,could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Judgments about materiality are made in light of surrounding circumstances and include an assessment of both quantitative and qualitative factors and can be affected by the size or nature of a misstatement,or a combination of both. For purposes of our audit,we have set preliminary materiality at $1,450,000 and a preliminary performance materiality at $1,087,500. Our materiality calculation is based on the Municipality’s preliminary results.In the event that actual results vary significantly from those used to calculate preliminary materiality we will communicate these changes to the Mayor and Council as part of our year end communication. We encourage management to correct any misstatements identified throughout the audit process. RISKS AND PLANNED AUDIT RESPONSES Based on our knowledge of the Municipality’s business,our past experience,and knowledge gained from management and the Audit Committee,we have identified the following significant risks;those risks of material misstatement that,in our judgment,require special audit consideration. Significant risks arise mainly because of the complexity of the accounting rules,the extent of estimation and judgment involved in the valuation of these financial statement areas,and the existence of new accounting pronouncements that affect them.We request your input on the following significant risks and whether there are any other areas of concern that the Audit Committee has identified. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -57 -57 - THE CORPORATION OF THE TOWN OF AURORA 5 RISKS AND PLANNED AUDIT RESPONSES (CONTINUED) Audit Risk Proposed Audit Approach Management Override of Controls Management is in a unique position to perpetrate fraud because of management’s ability to directly or indirectly manipulate accounting records prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. Our planned audit procedures test the appropriateness of journal entries recorded in the general ledger and other adjustments made in the preparation of financial statements. We will also obtain an understanding of the business rationale for significant transactions that we become aware of that are outside the normal course of operations for the Municipality,or that otherwise appear to be unusual given our understanding of the Municipality and its environment.We will review accounting estimates for biases and evaluate whether the circumstances producing the bias,if any,represented a risk of material misstatement due to fraud. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -58 -58 - THE CORPORATION OF THE TOWN OF AURORA 6 FRAUD RISK Canadian generally accepted auditing standards require us to discuss fraud risk with the Audit Committee on an annual basis.We have prepared the following comments to facilitate this discussion. Required Discussion BDO Response Question to Audit Committee Details of existing oversight processes with regards to fraud. Through our planning process,and based on prior years’audits,we have developed an understanding of your oversight processes including: Audit Committee charters; Discussions at Audit Committee meetings and our attendance at those meetings; Review of related party transactions;and Consideration of tone at the top. Are there any new processes or changes in existing processes relating to fraud that we should be aware of? Knowledge of actual, suspected or alleged fraud. Currently,we are not aware of any fraud. Are you aware of any instances of actual, suspected or alleged fraud affecting the Municipality? Refer to Appendix F for our considerations of possible fraud and illegal activities during the performance of our audit. FINAL ENGAGEMENT REPORTING As part of our final reporting to the Audit Committee,we will provide a communications package to support the committee in discharging their responsibilities.This communication will include any identified significant deficiencies in internal controls.See Appendix H for a comprehensive list of communication requirements throughout the audit. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -59 -59 - THE CORPORATION OF THE TOWN OF AURORA 7 OTHER MATTERS Audit Fees We propose fees of $27,500 (2015 - $27,500)for the audit of the consolidated financial statements,excluding administration charges and taxes.Refer to Appendix D for circumstances that could potentially affect our fees. Timing The following schedule has been agreed to with management: Weeks of January 11,2017 and January 18,2017 –Interim audit work Weeks of April 4,2017 and April 11,2017 -Final audit work Independence Our annual independence letter has been included as Appendix G. Management Representations As part of our audit finalization we will obtain written representation from management,a copy of these representations will be included as part of our final report. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -60 -60 - THE CORPORATION OF THE TOWN OF AURORA 8 APPENDIX A –Your BDO Engagement Team Name Role Years on Engagement Email Giselle Bodkin,CPA,CA Engagement Partner 4 years gbodkin@bdo.ca Andrea Nauss,CPA,CA Assurance Manager 3 years anauss@bdo.ca Tom Wolfenden Assurance Senior 4 years twolfenden@bdo.ca Felix Yeung Assurance Intermediate 2 years fyeung@bdo.ca Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -61 -61 - THE CORPORATION OF THE TOWN OF AURORA 9 APPENDIX B –Audit Strategy Our overall audit strategy involves extensive partner and manager involvement in all aspects of the planning and execution of the audit and is based on our overall understanding of the Municipality. We will perform a risk based audit which allows us to focus our audit effort on higher risk areas and other areas of concern for management and the Audit Committee. To assess risk accurately,we need to gain a detailed understanding of the Municipality’s operations and the environment it operates in. This allows us to identify,assess and respond to the risks of material misstatement. To identify,assess and respond to risk,we obtain an understanding of the system of internal control in place in order to consider the adequacy of these controls as a basis for the preparation of the consolidated financial statements. We then determine whether adequate accounting records have been maintained and assess the adequacy of these controls and records as a basis upon which to design and undertake our audit testing. Based on our risk assessment,we design an appropriate audit strategy to obtain sufficient assurance to enable us to report on the consolidated financial statements. We will choose audit procedures that we believe are the most effective and efficient to reduce audit risk to an acceptably low level.The procedures are a combination of testing the operating effectiveness of internal controls,substantive analytical procedures and other tests of detailed transactions. We will perform audit procedures maintaining an appropriate degree of professional skepticism,in order to collect evidence to conclude whether or not the consolidated financial statements are presented fairly,in all material respects in accordance with PSAB. It is important that we maintain effective two-way communication with the Audit Committee throughout the entire audit process so that we may both share timely information.The audit Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -62 -62 - THE CORPORATION OF THE TOWN OF AURORA 10 process will conclude with an audit meeting and the preparation of our final report to the Audit Committee. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -63 -63 - THE CORPORATION OF THE TOWN OF AURORA 11 APPENDIX C –Management Responsibilities All facets of a Municipality’s internal controls including those governing the accounting records, systems and financial statements will be impacted by the Municipality’s complexity,the nature of risks,and the related laws,regulations,or stakeholder requirements.It is management’s responsibility to determine the level of internal control required to respond reasonably to the Municipality’s risks. The preparation of the Municipality’s financial statements including all disclosures in accordance with PSAB is the responsibility of management.Among other things,management is responsible for: 1.Design and implementation of internal controls over financial reporting to enable the preparation of financial statements that are free of material misstatements; 2.Inform the Municipality’s auditors of any deficiencies in design or operation of internal controls; 3.Update the Municipality’s auditors for any material change in the Municipality’s internal controls including if the individual responsible for the controls have changed; 4.Identification of and compliance with any laws,regulations,and/or agreements which apply to the Municipality; 5.Any adjustments required to the consolidated financial statements to correct material misstatements; 6.Safeguarding of assets; 7.Provide the auditor with all financial records,and related data which may be related to the recognition,measurement and or disclosure of transactions in the consolidated financial statements; 8.Provide accurate copies of all minutes of the meetings of the Mayor and Council or committees of directors; 9.Provide timely,accurate information as requested for the completion of the audit; 10.Allow unrestricted access to persons,or information as requested as part of the audit; 11.Notify the auditor of any circumstances which arise between the date the audit work is completed and the approval date of the consolidated financial statements. Representation Letter We will make specific inquiries of the Municipality’s management about the representations embodied in the consolidated financial statements and internal control over financial reporting.During the completion of our audit documentation,we will require management to confirm in writing certain representations in accordance with Canadian generally accepted auditing standards.These representations are to be provided to us in the form of a representations letter which will be provided as near as practicable to,but not after the date of our auditor’s report on the consolidated financial statements. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -64 -64 - THE CORPORATION OF THE TOWN OF AURORA 12 APPENDIX D –Circumstances Affecting Timing and Fees The fee quote for the audit is based on careful consideration of the time required to complete the required work.Circumstances may arise during the engagement which could significantly impact the targeted completion dates and or our fee estimates.As a result,additional fees may be necessary.Such circumstances include,but are not limited to,the following: Significant Issues 1.Changes in the design or function of internal controls can impact the audit and result in additional substantive testing; 2.Significant number of proposed adjustments which are identified during the audit work; 3.Significant changes are required to the format or information contained in the consolidated financial statements; 4.New issues resulting from changes to: a.Accounting standards,policies or practices b.Special events or transactions which were not contemplated in the original budget c.The financial reporting process or systems involved d.Accounting personnel or availability of accounting personnel e.The requirement to include specialists in the audit work 5.Changes to the scope of the audit. Audit Execution 1.Audit schedules are not provided in a timely manner,are not mathematically correct, or do not agree to the underlying accounting records. 2.There are significant delays in responding to our requests for information or responses require significant further investigation. 3.The quality of the supporting information for the audit work has deteriorated from our previous experience. 4.A complete working paper package is not provided on the agreed upon date. 5.There is a limitation of access to the financial staff required to complete the audit. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -65 -65 - THE CORPORATION OF THE TOWN OF AURORA 13 APPENDIX E –Audit Committee Responsibilities General Responsibilities It is the Audit Committees responsibility to provide oversight of the financial reporting process. This includes management’s preparation of the consolidated financial statements,monitoring of the Municipality’s internal controls,overseeing the work of the external auditor,facilitating the resolution of disagreements between management and the auditor,as well as the final review of the consolidated financial statements and other annual reporting. Significant Audit Findings Based on the work we perform,any significant identified deficiencies in internal control will be reported to you in writing.The purpose of our audit is to express an opinion on the consolidated financial statements.While our audit includes a consideration of the internal control structure of the Municipality,our work is focused on those controls relevant to financial reporting.As such our work was not designed to provide an opinion on the effectiveness of the internal controls. We will communicate our views regarding any significant qualitative aspects of the Municipality’s accounting practices.This would include the selection and application of accounting policies,estimates and financial statement disclosure.If during our audit we feel that the selected policies,estimates or disclosures are not appropriate for the Municipality under its reporting framework,we will communicate these matters to the Audit Committee. In addition,we will communicate: Any significant difficulties which arose during the audit; Any reasons identified which may cause doubt as to the Municipality’s ability to continue as a going concern; The written representations we will request from management; Any identified unadjusted misstatements; Any identified or suspected fraudulent activities. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -66 -66 - THE CORPORATION OF THE TOWN OF AURORA 14 APPENDIX F –Auditor’s Considerations of Possible Fraud and Illegal Activities We are responsible for planning and performing the audit to obtain reasonable assurance that the consolidated financial statements are free of material misstatements,whether caused by error or fraud,by: Identifying and assessing the risks of material misstatement due to fraud; Obtaining sufficient and appropriate audit evidence regarding the assessed risks of material misstatement due to fraud,through designing and implementing appropriate responses;and Responding appropriately to fraud or suspected fraud identified during the audit. The likelihood of not detecting a material misstatement resulting from fraud is higher than the likelihood of not detecting a material misstatement resulting from error because fraud may involve collusion,as well as sophisticated and carefully organized schemes designed to conceal it. During the audit,we will perform risk assessment procedures and related activities to obtain an understanding of the entity and its environment,including the Municipality’s internal control system,to obtain information for use in identifying the risks of material misstatement due to fraud and make inquiries of management regarding: Management’s assessment of the risk that the consolidated financial statements may be materially misstated due to fraud,including the nature,extent and frequency of such assessments; Management’s process for identifying and responding to the risks of fraud in the Municipality,including any specific risks of fraud that management has identified or that have been brought to its attention,or classes of transactions,account balances,or disclosures for which a risk of fraud is likely to exist; Management’s communication,if any,to those charged with governance regarding its processes for identifying and responding to the risks of fraud in the Municipality;and Management’s communication,if any,to employees regarding its view on business practices and ethical behaviour. In response to our risk assessment and our inquiries of management,we will perform procedures to address the assessed risks,which may include: Inquiry of management,the Mayor and Council,and others related to any knowledge of fraud,suspected fraud or alleged fraud; Perform disaggregated analytical procedures and consider unusual or unexpected relationships identified in the planning of our audit; Incorporate an element of unpredictability in the selection of the nature,timing and extent of our audit procedures;and Perform additional required procedures to address the risk of management’s override of controls including: Testing internal controls designed to prevent and detect fraud; Testing the appropriateness of a sample of adjusting journal entries and other adjustments for evidence of the possibility of material misstatement due to fraud; Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -67 -67 - THE CORPORATION OF THE TOWN OF AURORA 15 Reviewing accounting estimates for biases that could result in material misstatements due to fraud,including a retrospective review of significant prior years'estimates;and Evaluating the business rationale for significant unusual transactions. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -68 -68 - THE CORPORATION OF THE TOWN OF AURORA 16 APPENDIX G –Independence Letter Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -69 -69 - Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -70 -70 - THE CORPORATION OF THE TOWN OF AURORA 18 APPENDIX H –Communication Requirements Required Communication Audit Planning Presentation Audit Results Presentation Communication Completed 1.Our responsibilities under Canadian GAAS Y 2.Our audit strategy and audit scope Y 3.Fraud risk factors Y 4.Going concern matters N 5.Significant estimates or judgments N 6.Audit adjustments N 7.Unadjusted misstatements N 8.Omitted disclosures N 9.Disagreements with Management N 10.Consultations with other accountants or experts N 11.Major issues discussed with management in regards to retention N 12.Significant difficulties encountered during the audit N 13.Significant deficiencies in internal control N 14.Material written communication between BDO and Management N 15.Any relationships which may affect our independence Y 16.Any illegal acts identified during the audit N 17.Any fraud or possible fraudulent acts identified during the audit N 18.Significant transactions with related parties not consistent with ordinary business N 19.Non-compliance with laws or regulations identified during the audit N 20.Limitations of scope over our audit, if any N 21.Written representations made by Management N 22.Any modifications to our opinion, if required N Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -71 -71 - THE CORPORATION OF THE TOWN OF AURORA 19 APPENDIX I –Resources and Services OTHER BDO SERVICES Solutions BDO Solutions provides municipalities with the accounting software management tools need to run a better operation.Our expert team understands the complex reporting requirements municipalities must adhere to,as well as the limited resources they have to address these needs.Spend more time serving your constituents,better manage budgets,allocate time and resources more effectively and improve your ability to focus on the work that really matters to your Municipality. For more information,please visit the following link: http://www.bdosolutions.com/ca/ Succession Planning Having a strong strategic plan,such as a succession plan for key employees and strategic planning for the Board,is critical to a municipality’s success.With our succession planning services,we can help your municipality with: Planning for a change in leadership Setting a strategic direction for the Municipality Develop a strategic business plan for operations Aligning all three groups of stakeholders (Municipality,employees and members)and enhancing communication For more information,please visit the following link: http://www.bdo.ca/en/Services/Advisory/Business- Transition/pages/default.aspx Risk Advisory As Canada’s leading financial advisory firm,BDO helps municipalities and their management teams effectively assess,develop and manage strategic initiatives. Visit the following link to find out more: http://www.bdo.ca/en/Services/Advisory/Financial- Advisory/pages/default.aspx Outsourcing Our dedicated team of professional bookkeepers across Canada combined with our powerful Microsoft cloud technology platform can provide you and your Town with a world class bookkeeping solution that gives you anytime access to your financial information.Our BDO Client Portal provides you with access to comprehensive business management functionality and enables you to make proactive and informed decisions for your municipality. Visit the link below to find out how we can create a customized bookkeeping solution for your municipality: http://www.bdo.ca/en/Services/Outsourcing/Bookkeeping/pages/default.aspx Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -72 -72 - THE CORPORATION OF THE TOWN OF AURORA 20 Indirect Tax Municipality’s operating in Canada are impacted by commodity taxes in some way or another.These include GST/HST,QST,PST,various employer taxes, and unless managed properly,can have a significant impact on your municipality’s bottom line.The rules for municipalities can be especially confusing,and as a result many Towns end up paying more for indirect tax then they need to. Municipalities must keep on top of changes to ensure they are taking advantage of the maximum refund opportunities.At BDO,we have helped a number of municipalities of all sizes with refund opportunities,which can reduce costs for the municipality and improve overall financial health. For more information,please visit the following link: http://www.bdo.ca/en/Services/Tax/Indirect-Tax/pages/default.aspx BDO PUBLICATIONS BDO’s national and international accounting and assurance department issues publications on the transition and application of Public Sector Accounting Standards (PSAB).In addition,we offer a wide array of publications on Accounting Standards for Private Enterprises (ASPE), International Financial Reporting Standards (IFRS),and Accounting Standards for Not-for-Profit Organizations (ASPNO). For additional information on PSAB,including links to archived publications and model financial statements,refer to the link below: http://www.bdo.ca/en/library/services/assurance-and-accounting/pages/default.aspx. MYPDR Class is in session!Meeting Your Professional Development Requirements (MYPDR)is an educational program designed to support our clients,contacts and alumni in achieving their ongoing professional development requirements. Through the MYPDR program,we are committed to providing timely,relevant topics that can support you in meeting your ongoing professional development needs.For more information on the MYPDR program or to register,please visit http://www.cvent.com/d/34qqxp. Audit Committee Meeting Agenda Tuesday,June 28,2016 Item 1 Page -73 -73 -