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HomeMy WebLinkAboutFIN 11-18cif „/ DICKERING Report to Executive Committee Report Number: FIN 11-18 Date: June 18, 2018 From: Stan Karwowski Director, Finance & Treasurer Subject: 2017 Year End Recommendation: 1. That the Report to the Executive Committee on the 2017 audit as submitted by Deloitte LLP (Deloitte) be received for information; and That the 2017 draft Audited Consolidated Financial Statements for the City of Pickering be approved. Executive Summary: Attached to this report is the auditor's Report to Executive Committee on the 2017 audit and the draft Audited Consolidated Financial Statements for the year ended December 31, 2017. Again this year, the auditor has provided an unmodified audit report on the financial statements. This means that the financial statements present fairly, in all material respects, the financial position of the City and its operations, changes in its net financial assets and its cash flows in accordance with Canadian public sector accounting standards. Staff are pleased to advise that the auditor did not identify any significant deficiencies during the audit to formally report to Council and therefore has not issued a management letter. Financial Implications: The Balance Sheet continues to improve with net financial assets increasing by approximately $22.5 million which means that the City is more than capable of meeting its financial commitments. This increase is attributable to sale of land in 2017 that will assist in the financing of the construction of the new Operations Centre. The gain from the sale of land along with the total expenditures being well under budget led to an increase in the accumulated surplus of $39.1 million over prior year. The revenues reported in the Consolidated Statement of Operations are the combined revenues for operating and capital purposes. As a result, variances between budget and actual may arise due to the timing of approval in the capital budget as compared to the actual receipt of funds/recognition of revenue. FIN 11-18 June 18, 2018 Subject: 2017 Year End Page 2 Overall, the City's financial position is healthy and strong and the City is able to meet its financial commitments. Discussion: The audit of the consolidated financial statements for the year ended December 31, 2017 has been completed. The auditor's Report to Executive Committee is included as Attachment 1. This Report, prepared by Deloitte, summarizes its findings from the December 31, 2017 audit and comments on significant matters regarding the audit. Appendix 1 provides a summary of communication requirements which Deloitte is required to bring to Council's attention. The independence letter in Appendix 2 confirms that Deloitte is independent from the City. Appendix 3 is the draft management representation letter which is provided by the City to the auditors. This letter indicates that the financial statements are management's responsibility and that management has provided and disclosed all necessary information to ensure that the financial statements are not materially misstated. This letter will be signed by the appropriate authorities upon approval of the financial statements. The scope of the audit does not include an in-depth evaluation of all systems or internal controls; however, the auditors may report on matters that come to their attention during the course of their review. No significant matters came to their attention to report and therefore a management letter has not been issued. During the course of any audit, auditors may find misstatements that may or may not be adjusted due to materiality. For 2017, an uncorrected misstatement arose during the audit. During 2017 some of the useful life estimates for tangible capital assets were identified to be adjusted. For example, the vehicles' useful life was adjusted from 5 to 7 years to better reflect the City's actual retention period. Not all asset categories were able to be completed prior to December 31st which resulted in an overstatement of the amortization expense. The draft Audited Consolidated Financial Statements are included as Attachment 2. These statements are the responsibility of management and have been prepared by City accounting staff under the direction of the Director, Finance & Treasurer. The auditors are responsible to express an opinion on these Consolidated Financial Statements based on their audit. An unmodified audit report has been issued which means the auditors have indicated that in their opinion, the consolidated financial statements are fairly presented, in all material respects. In other words the City has a clean report. The Consolidated Financial Statements include the activities of the City of Pickering Public Library Board. The City's investment in Veridian Corporation is accounted for on a modified equity basis, which means the City includes its share of Veridian's income or loss in the Consolidated Financial Statements. The Consolidated Financial Statements are prepared on the full accrual basis in accordance with Canadian Public Sector Accounting Standards (PSAS), which includes reporting tangible capital assets. Tangible capital assets, such as land, building, infrastructure and equipment are capitalized (recorded) at cost on the Statement of Financial Position (Balance Sheet) and amortized (depreciated, except for land) over FIN 11-18 June 18, 2018 Subject: 2017 Year End Page 3 their estimated useful lives in current operating expenses. The Statement of Financial Position includes tangible capital assets under the non-financial asset section and shows in Accumulated Surplus. This is different than the City's budget, which notes these capital items as expenditures. Statement of Financial Position (Balance Sheet) Financial assets are those assets which could provide resources to discharge existing liabilities or finance future operations. The City's financial assets increased by approximately $49.1 million which is offset by an increase in liabilities of $26.6 million. This resulted in an increase in net financial assets of $22.5 million over the prior year which means the City is able to meet its financial commitments. As noted earlier, this net increase is primarily attributable to sale of City lands in 2017. Non-financial assets include tangible capital assets which is the net book value (cost less accumulated amortization) of City -owned assets including land, buildings, roads, bridges and sidewalks infrastructure, storm sewer infrastructure, furniture and fixtures, vehicles and equipment. Non-financial assets are not available to discharge existing liabilities and are held for use in the provision of services. They have useful lives extending beyond the current year and are not intended for sale in the ordinary course of operations. Note 10 of the Financial Statements provide a summary of the City's tangible capital assets. The December 31, 2017 gross book value of assets is $464.0 million and, after adjusting for amortization, the net book value of the assets is $240.3 million. In other words, the City has consumed a substantial amount of the life of its assets. Future capital budgets have taken into consideration the investment into and the maintenance of the City's infrastructure base as a financial priority. Statement of Operations (Income Statement) Revenue reported includes both operating and capital. Therefore, variances between budget and actual may arise due to the timing of approval in the capital budget as compared to the actual receipt of funds/recognition of revenue. This is clearly illustrated with development charges and contributions earned line item. The budget amount primarily represents development charge (DC) funding of 2017 capital projects. The actual amounts reported reflect DC funding for capital projects approved in prior year budgets because of the timing difference between when a project is approved in the budget and when it actually commences. Actual expenses are under budget in all functional areas. This illustrates City staff's commitment to controlling expenditures. There is not one specific area that stands out as a major contributor to the overall underage. The underage is reflected throughout the various cost centres. The capital budget expenditures do not show on the Statement of Operations as capital expenditures. For those expenditures that meet the definition of a tangible capital asset (TCA), the cost is reported on the Statement of Financial Position (Balance Sheet). Only a portion of the asset's cost is included as an amortization expense each year over FIN 11-18 June 18, 2018 Subject: 2017 Year End Page 4 the life of the asset in the operating expenses reported on the Statement of Operations. The amortization expense is included in operating expenses for the asset's respective functional category. For example, amortization on a fire truck is included under the Protection to Persons and Property category. Capital budget expenditures that do not meet the TCA definition are included as operating expenses under the appropriate functional category. The budget figures reported need to reflect the change in reporting for capital budget expenditures to be compliant with Public Sector Accounting Standards. Note 18 of the City's consolidated financial statements reflect the changes made to the 2017 Council approved budget to put it on a basis consistent with the full accrual basis of accounting. This means excluding capital expenditures that are deemed tangible capital assets and including amortization. Accumulated Surplus The components that make up the Accumulated Surplus are disclosed in Note 11 of the City's consolidated financial statements and are summarized below.. An accumulated surplus is the amount by which all assets (financial and physical) exceed all liabilities. It must be emphasized that these amounts are not surplus funds in the traditional sense. In other words, there is no City bank account that has a balance of $381.7 million. An accumulated surplus indicates that the City has net resources (financial and physical) that can be used to provide future services. What primarily contributes to this balance are the net tangible capital assets of approximately $240.3 million and the City's equity in Veridian Corporation of approximately $81.5 million. The accumulated surplus is comprised of the following: 2017 2016 Operating fund $ 125,237 $ 125,234 Capital fund 25,169,415 19,827,450 Reserves and reserve funds 73,136,645 46,814,053 Equity in Veridian Corporation 81,505,144 79,419,406 Tangible capital assets 240,256,987 223,836,631 Note Receivable 3,796,946 4,055,276 Post employment benefits liability (5,430,656) (4,780,500) WSIB benefit liabilities (1,862,876) (1,806,100) Internal loans (3,595,241) (3,482,113) Net long-term liabilities (31,412,982) (21,455,816) $381,688,619 $342,553,521 FIN 11-18 Subject: 2017 Year End June 18, 2018 Page 5 Attachments: 1. Auditor's Report to Executive Committee on the 2017 Audit 2. 2017 Draft Audited Consolidated Financial Statements Prnnarerl Rai• 1 ��r.ra�cu ur. Kristine Senior, CPA, CA Manager, Accounting Services Approved/Endorsed By: Stan Karwowski, MBA, CPA, CMA Director, Finance & Treasurer Recommended for the consideration of Pickering City Council Tony Prevedel, P.Eng. Chief Administrative Officer 44 zoo Deloitte The Corporation of the City of Pickering Report to the Executive Committee on the 2017 Audit June 18, 2018 ATTACHMENT L TOREPORT r#.iL Deloitte May 30, 2018 Private and confidential To the Members of Executive Committee The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 Report on audited annual financial statements Dear Executive Committee Members, Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: (416) 601 6150 Fax: (416) 601 6151 www.deloitte.ca We are pleased to submit this report on the results of our audit of the consolidated financial statements of the City of Pickering (the "City") for the 2017 fiscal year. This report summarizes the scope of our audits, our findings and reviews certain other matters that we believe to be of interest to you. We expect to issue our Independent Auditor's Reports on the financial statements of the City, the City of Pickering Library Board (the "Library") and the City of Pickering Trust Funds (The "Trust Funds"), upon approval of the financial statements. Our audits were conducted in accordance with the Audit service plan dated November 6, 2017. This report is intended solely for the information and use of Council, management, and others within the City and is not intended to, and should not be, used by anyone other than these specified parties. Accordingly, we disclaim any responsibility to any other party who may rely on it. We would like to express our appreciation for the cooperation we received from management and the employees of the City with whom we worked to discharge our responsibilities. We look forward to discussing this report summarizing the outcome of our audit with you and to answering any questions which you may have. Yours truly, 3e-go:f.t LLP Chartered Professional Accountants Licensed Public Accountants The Corporation of the City of Pickering j Table of contents Table of contents Our audits explained 1 Areas of audit risk 4 Significant accounting practices, judgments and estimates 6 Other reportable matters 8 Appendix 1 - Communication requirements Appendix 2 - Independence letter Appendix 3 - Draft management representation letter Deloitte LLP and affiliated entities. The Corporation of the City of Pickering 1 Our audits explained Our audits explained This report summarizes the main findings arising from our audits. We were engaged to perform the audits of the City's, Library's, and Trust Fund's Financial Statements as at, and for the year ended, December 31, 2017 (the "Financial Statements") prepared in accordance with Canadian Public Sector Accounting Standards ("PSAS") for the City and the Library Board and Canadian Accounting Standards for Not For Profit Organizations for the Trust Funds. Our audits were conducted in accordance with Canadian Generally Accepted Auditing Standards ("Canadian GAAS"). The terms and conditions of our engagement are described in the Master Services Agreement dated October 28, 2016. Through our risk assessment process, we have identified the significant audit risks. These areas of risk of material misstatement and our related audit responses are described in the 'Areas of audit risk' section of this report. Materiality We are responsible for providing reasonable assurance that your financial statements as a whole are free from material misstatement. Our materiality was determined as follows: • Consolidated financial statements for the City — approximately 3% of expenses, • City of Pickering Public Library Board — approximately 3% of expenses, and • City of Pickering Trust Funds — approximately 3% of fund balances. We agreed to inform you of any uncorrected misstatements detected during the audit which were greater than a clearly trivial amount of 5% of materiality and any misstatements that are, in our judgment, qualitatively material. In accordance with Canadian GAAS, we asked that any misstatements be corrected. 1 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Our audits explained ce as ling mat tes We expect to be in a position to render our audit opinions on the financial statements of the City, the Library Board, and the Trust Funds following their approval, and the completion of the following procedures: • Receipt of signed management representations letters • Receipt of legal responses, and « Update of our subsequent events procedures. Uncorrected misstatements The only misstatement aggregated by us during the audit results from revised estimates related to the useful lives of tangible capital assets. Some capital assets' useful lives were adjusted, however, some asset classes still made use of old useful life estimates in the determination of current year amortization. This has resulted in an overstatement of amortization expense and understatement of the net book value of tangible capital assets by approximately $1.27 million in the current year. Uncorrected misstatements Uncorrected disciosur misstatements Going concern Management has completed its assessment of the ability of the City and the Library to continue as a going concern and in making its assessment did not identify any material uncertainties related to events or conditions that may cast significant doubt upon the City's ability to continue as a going concern. We agree with management's assessment. 2 Internal CO tnt - During the course of our audits, we examined certain of the accounting procedures and internal controls related to the financial reporting processes at the City and the Library. As a result of this examination, we did not identify any significant deficiencies in internal control. Uncorrected disclosure misstatements In accordance with Canadian GAAS, we request that all disclosure misstatements be corrected. There are no significant disclosure misstatements aggregated by us during the current engagement and pertaining to the latest period presented to report. © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Our audits explained A summary of the results of our audit procedures designed to address the risk of material misstatement in the financial statements relating to fraud is provided in the `Areas of audit risk' section of this report. Independence We have developed appropriate safeguards and procedures to eliminate threats to our independence or to reduce them to an acceptable level. We confirm that we have complied with relevant ethical requirements regarding independence. Our annual independence letter is included in Appendix 2. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's current judgments. These judgments are normally based on knowledge and experience about past and current events, assumptions about future events and interpretations of the financial reporting standards. See pages 6 and 7 for further details. Conclusion In accordance with Canadian GAAS, our audits were designed to enable us to express an opinion on the fairness of the presentation of the financial statements prepared in accordance with Canadian Public Sector Accounting Standards ("PSAS") for the City and the Library Board and Canadian Accounting Standards for Not -For -Profit Organizations for the Trust Funds. No restrictions have been placed on the scope of our audits. In performing the audits, we were given full and complete access to the accounting records, supporting documentation and other information requested. We expect to issue an unmodified Independent Auditor's Report on the financial statements of the City, Library Board and Trust Funds for the year ended December 31, 2017 once the outstanding items, referred to previously in this report, are completed satisfactorily and the financial statements are approved. 3 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Areas of audit risk Areas of audit risk Revenue recognition* Assurance standards include the presumption of a fraud risk involving improper revenue recognition. (Revenue/deferred revenue). Management override of controls* Assurance standards include the presumption of a significant risk of 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 and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. Our audit response • Significant revenue streams are a presumed area of audit risk. We tested the design and implementation of controls in these revenue streams and performed substantive analytic procedures and detailed testing in these areas, and • Substantive testing to determine if restricted contributions (i.e., development charges), and government transfers had been recognized as revenue in the appropriate period. (Revenue vs. deferred revenue). Our audit response To address the risk of management override of controls we: • Engaged in periodic fraud discussions with certain members of senior management and others • Considered the potential for bias in judgments and estimates, including performing retrospective analysis of significant accounting estimates • Evaluated the business rationale for any significant unusual transactions • Evaluated the City's fraud risk assessment and consider entity - level internal controls and internal controls over the closing and reporting process, and • Tested journal entries that exhibit characteristics of possible management override of controls *These areas were identified as areas of significant risk. Audit results We obtained sufficient audit evidence in this area and are satisfied with the results of audit procedures performed. Audit results Our procedures did not indicate any evidence of management override of controls. 4 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Areas of audit risk Management estimates Estimates require management judgments (Le., provision for significant property tax appeals, contingent liabilities, estimated accrued liabilities, etc.) Our audit response • Obtained documentation on management's controls over the development of accounting estimates for any significant management estimates and assess risk • Focused review of calculations and support • Discussions with management • Analytic review of related accounts, and • Assessed the outcome of retrospective review of estimates from prior years. Audit results We obtained sufficient audit evidence in this area and are satisfied with the results of audit procedures performed. 5 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Significant accounting practices, judgments and estimates Significant accounting practices, judgments and estimates The accounting policies of the City, the Library Board and the Trust Funds are set out in Note 1 of their respective financial statements. In the course of our audits of the financial statements, we considered the qualitative aspects of the financial reporting process, including items that have a significant impact on the relevance, reliability, comparability and understandability of the information included in the financial statements. Significant accounting policies In the current year, the City changed their accounting policy with respect to the treatment of actuarial gains and losses relating to their WSIB benefits liability. Whereas in the past, anyactuarial gains and losses were recognized immediately in expense for the year, the City has now adopted a policy to amortize such gains and losses over the expected average remaining service life of the employees. The impact of this change did not result in any material impact to the financial statements. There were no other changes to previously adopted accounting policies or their application at the City, the Library Board or the Trust Funds. In our judgment, the significant accounting practices and policies, selected and applied by management are, in all material respects, acceptable under PSAS for the City and the Library Board, under Accounting Standards for Not For Profit Organizations for the Trust Funds and are appropriate to the particular circumstances of the City, the Library Board and the Trust Funds. Management judgment and accounting estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management's current judgments. These judgments are normally based on knowledge and experience about past and current events, assumptions about future events and interpretations of the financial reporting standards. During the year ended December 31, 2017, management advised us that a preliminary draft capital management plan (CMP) was completed, resulting in the adjustment of useful lives for many tangible capital assets. Management has utilized the updated useful lives for many of the tangible capital assets as they reflect management's best estimate at this time. Certain asset classes, however, were not adjusted due to a delay in updating the City's current capital assets policy. This resulted in the uncorrected misstatement as noted on page 2. There were no other significant changes in accounting estimates or in judgments relating to the application of the accounting policies. In our judgment, the significant accounting estimates made by management (with assistance from the City's actuary as appropriate) are, in all material respects, free of possible management bias and of material misstatement. The disclosure in the consolidated financial statements with respect to estimation uncertainty is in accordance with PSAS and is appropriate to the particular circumstances of the City. 6 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering 1 Significant accounting practices, judgments and estimates Significant estimates include: 2016 Post -employment benefits liability $5,609,656 $4,959,500 WSIB benefits liability $1,862,876 $1,806,100 Allowance for doubtful accounts $5,000 $5,000 Provision for property tax assessment appeals $743,671 $1,047,562 7 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Other reportable matters Other reportable matters The following summarizes the status and findings of key aspects of our audits. In the appendices to this report, we have provided additional information related to certain matters we committed to report as part of the audit service plan. Comment Changes to the audit service plan The audits were conducted in accordance with our Audit service plan, which was communicated to the Executive Committee. We confirm that there have been no significant amendments to the audit scope and approach communicated in our Audit service plan. Significant difficulties encountered in performing the audit We did not encounter any significant difficulties while performing the audits. There were no significant delays in receiving information from management required for the audits nor was there an unnecessarily brief timetable in which to complete the audits. Related party transactions Related party transactions or balances have been properly disclosed in the financial statements. We have not identified any related party transactions that were not in the normal course of operations and that involved significant judgments by management concerning measurement or disclosure. Disagreements with management During the course of our audits, we did not have any disagreements with management about matters that individually or in the aggregate could be significant to the financial statements. Consultation with other accountants Management has informed us that the City and the Library Board have not consulted with other accountants about auditing or accounting matters. Legal and regulatory compliance Management is responsible for ensuring that the City's operations are conducted in accordance with the laws and regulations applicable to the City. The responsibility for preventing and detecting non-compliance rests with management. The auditor is not and cannot be held responsible for preventing non-compliance with laws and regulations Our limited procedures did not identify any areas of material non-compliance with laws and regulations by the City, the Library Board and the Trust Funds. Subsequent events At the date of finalizing this report, we are not aware of any significant subsequent events that would require adjustment or disclosure in the financial statements at December 31, 2017. 8 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Appendix 1 - Communication requirements Appendix 1 -Communication requirements The table below summarizes our communication requirements under Canadian GAAS. Comimen s Audit service plan 1. Our responsibilities under Canadian GAAS, including forming and expressing an opinion on the financial Master Services Agreement dated statements October 28, 2016 2. An overview of the overall audit strategy, addressing: a. Timing of the audit b. Significant risks, including fraud risks, and c. Planned responsibilities of other independent public accounting firms or others that perform audit procedures in the audit. Audit service plan presented to the Executive Committee on November 6, 2017 We received the reporting requested from the independent auditor of Veridian Corporation 3. Significant transactions outside of the normal course of business, including related party transactions None noted Enquiries of those charged with governance 4. How those charged with governance exercise oversight over management's process for identifying and Covered when presenting the Audit service responding to the risk of fraud and the internal control that management has established to mitigate plan these risks 5. Any known suspected or alleged fraud affecting the City None noted 6. Whether the City is in compliance with laws and regulations Refer to 'Other reportable matters' section of this report Yearend communication 7. Fraud or possible fraud identified through the audit process None noted 8. Significant accounting policies, practices, unusual transactions, and our related conclusions See page 6 9. Alternative treatments for accounting policies and practices that have been discussed with management Nothing of significance during the current audit period 10. Matters related to going concern None 11. Management judgments and accounting estimates See pages 6 and 7 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering 1 Appendix 1 — Communication requirements COM I 12. Significant difficulties, if any, encountered during the audit None 13. Material written communications between management and us, including management representation Management representation letter is letters attached in Appendix 3 14. Other matters that are significant to the oversight of the financial reporting process None 15. Modifications to our Independent Auditor's Reports. None 16. Our views of significant accounting or auditing matters for which management consulted with other We are not aware of any such consultations accountants and about which we have concerns 17. Significant matters discussed with management None 18. Illegal or possible illegal acts that come to our attention None noted 19. Significant deficiencies in internal control, if any, identified by us in the conduct of the audit of the No significant deficiencies noted financial statements 20. Uncorrected misstatements and disclosure items See page 2 21. Any significant matters arising during the audit in connection with the City's related parties None noted ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering Appendix 2 — Independence letter Appendix 2 - Independence letter © Deloitte LLP and affiliated entities. Deloitte May 30, 2018 Private and confidential The Members of the Executive Committee The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 Dear Executive Committee Members, Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca We have been engaged to audit the consolidated financial statements of The Corporation of the City of Pickering (the City) for the year ended December 31, 2017. You have requested that we communicate in writing with you regarding our compliance with relevant ethical requirements regarding independence as well as all relationships and other matters between the City, our Firm and network firms that, in our professional judgment, may reasonably be thought to bear on our independence. You have also requested us to communicate the related safeguards that have been applied to eliminate identified threats to independence or reduce them to an acceptable level. In determining which relationships to report, we have considered relevant rules and related interpretations prescribed by the appropriate provincial regulator/ordre and applicable legislation, covering such matters as: a. Holding a financial interest, either directly or indirectly, in a client, b. Holding a position, either directly or indirectly, that gives the right or responsibility to exert significant influence over the financial or accounting policies of a client. c. Personal or business relationships of immediate family, close relatives, partners or retired partners, either directly or indirectly, with a client. d. Economic dependence on a client. e. Provision of services in addition to the audit engagement. We confirm to you that the engagement team and others in the firm as appropriate, the firm and, when applicable, network firms have complied with relevant ethical requirements regarding independence. We have prepared the following comments to facilitate our discussion with you regarding independence matters arising since May 31, 2017, the date of our last letter. We are not aware of any relationships between the Deloitte Entities and the City and its affiliates, or persons in financial reporting oversight roles at the City and its affiliates, that, in our professional judgment, may reasonably be thought to bear on independence, that have occurred from May 31, 2017 to May 30, 2018. We have been engaged to provide non -audit services with respect to advising the City in its Enterprise Resource Planning (ERP) selection. This includes the development of financial system specifications and RFP proposal and vendor selection. We have also provided services on behalf of the shareholders of Veridian Corporation with respect to a peer review of the business case for the potential merger with Whitby Hydro Energy Corporation. The Corporation of the City of Pickering May 30, 2018 Page 2 We hereby confirm that we are independent with respect to the City in accordance with the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario as of May 30, 2018. This letter is intended solely for the information and use of council, management, and others within the City and is not intended to be and should not be used for any other purposes. Yours truly, ,3,&,z_ LLp Chartered Professional Accountants Licensed Public Accountants The Corporation of the City of Pickering Appendix 3 — Draft management representation letter Appendix 3 -Draft management representation letter © Deloitte LLP and affiliated entities. [Organization letterhead] June 18, 2018 Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Dear Ms. Jesty, Subject: Consolidated financial statements of The Corporation of the City of Pickering for the year ended December 31, 2017 This representation letter is provided in connection with the audit by Deloitte LLP ("Deloitte" or "you") of the consolidated financial statements of The Corporation of the City of Pickering (the "City" or "we" or "us") for the year ended December 31, 2017 and a summary of significant accounting policies and other explanatory information (the "Financial Statements") for the purpose of expressing an opinion as to whether the Financial Statements present fairly, in allmaterial respects, the financial position, results of operations, changes in net financial assets and cash flows of the City in accordance with Public Sector Accounting Standards ("PSAS"). We confirm that, to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves: Financial statements 1. We have fulfilled our responsibilities as set out in the terms of the Master Services Agreement between the City and Deloitte dated October 28, 2016 for the preparation of the Financial Statements in accordance with PSAS. In particular, the Financial Statements are fairly presented, in all material respects, and present the financial position of the City as at December 31, 2017, and the results of its operations, changes in its net financial assets and its cash flows for the year then ended in accordance with PSAS. 2. Significant assumptions used in making estimates, including those measured at fair value, are reasonable. In preparing the Financial Statements in accordance with PSAS, management makes judgments and assumptions about the future and uses estimates. The completeness and appropriateness of the disclosures related to estimates are in accordance with PSAS. The City has appropriately disclosed in the Financial Statements the nature of measurement uncertainties that are material, including all estimates where it is reasonably possible that the estimate will change in the near term and the effect of the change could be material to the Financial Statements. The measurement methods, including the related assumptions and models, used in determining the estimates, including fair value, were appropriate, reasonable and consistently applied in accordance with PSAS and appropriately reflect management's intent and ability to carry out specific courses of action on behalf of the entity. No events have occurred subsequent to December 31, 2017 that require adjustment to the estimates and disclosures included in the Financial Statements. Deloitte LLP June 18, 2018 Page 2 There are no changes in management's method of determining significant estimates in the current year. 3. All related party relationships and transactions have been appropriately accounted for and disclosed in the Financial Statements in accordance with the requirements of PSAS. 4. We have determined that the Financial Statements are complete as of the date of this letter as this is the date when there are no changes to the Financial Statements (including disclosures) planned or expected. Financial Statements have been approved in accordance with our process to finalize financial statements. 5. We have completed our review of events after December 31, 2017 and up to the date of this letter. All events subsequent to the date of the Financial Statements and for which PSAS requires adjustment or disclosure have been adjusted or disclosed. Accounting estimates and disclosures included in the Financial Statements that are impacted by subsequent events have been appropriately adjusted. 6. The Financial Statements are free of material errors and omissions. We believe that the effects of any uncorrected Financial Statement misstatements pertaining to the current period presented, are immaterial, both individually and in the aggregate, to the Financial Statements taken as a whole. A list of the uncorrected misstatements aggregated by you is attached in Appendix A. Information provided 7. We have provided you with: a. Access to all information of which we are aware that is relevant to the preparation of the Financial Statements, such as records, documentation and other matters. b. All relevant information as well as additional information that you have requested from us for the purpose of the audit; and, c. Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence. 8. Except as listed in Appendix A, all transactions have been properly recorded in the accounting records and are reflected in the Financial Statements. 9. We have disclosed to you the results of our assessment of the risk that the Financial Statements may be materially misstated as a result of fraud. 10. We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects the entity and involves: a. Management; b. Employees who have significant roles in internal control; or c. Others where the fraud could have a material effect on the Financial Statements. 11. We have disclosed to you all information in relation to allegations of actual, suspected or alleged fraud, or illegal or suspected illegal acts affecting the City. 12. We have disclosed to you all communications from regulatory agencies concerning non-compliance with or deficiencies financial reporting practices and all known instances of non-compliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing the Financial Statements. Deloitte LLP June 18, 2018 Page 3 13. We have disclosed to you the identity of the entity's related parties and all the related party relationships and transactions of which we are aware, including guarantees, non -monetary transactions and transactions for no consideration and participation in a defined benefit plan that shares risks between group entities. 14. We acknowledge our responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud and error. 15. We have disclosed to you all known, actual or possible litigation and claims, whether or not they have been discussed with our lawyers, whose effects should be considered when preparing the Financial Statements. As appropriate, these items have been disclosed and accounted for in the Financial Statements in accordance with PSAS. Independence matters For purposes of the following paragraphs, "Deloitte" shall mean Deloitte LLP and Deloitte Touche Tohmatsu Limited, including related member firms and affiliates. 16. Prior to the City having any substantive employment conversations with a former or current Deloitte engagement team member, the City has held discussions with Deloitte and obtained approval from the Executive Committee of the Council 17. We have ensured that all services performed by Deloitte with respect to this engagement have been pre -approved by the Executive Committee in accordance with established approval policies and procedures, if any. Communications with taxation and regulatory agencies 18. We have disclosed to you all communications from: a. Taxation authorities concerning assessments or reassessments that could have a material effect on the Financial Statements; and b. Regulatory agencies concerning noncompliance with or potential deficiencies in, financial reporting requirements. Deficiencies in internal control 19. We have communicated to you alt deficiencies in internal control of which we are aware. We have disclosed to you any change in the City's internal control over financial reporting that occurred during the current year that has materially affected, or is reasonably likely to materially affect, the City's internal control over financial reporting. Work of management's experts 20. We agree with the work of management's experts in evaluating the valuation of post -employment benefits liability and WSIB benefits liability and have adequately considered the capabilities of the experts in determining amounts and disclosures used in the Financial Statements and underlying accounting records. We did not give any, nor cause any, instructions to be given to management's experts with respect to values or amounts derived in an attempt to bias their work, and we are not aware of any matters that have impacted the independence or objectivity of the experts. Liabilities and contingencies 21. We have disclosed to you all liabilities, provisions, contingent liabilities and contingent assets, including those associated with guarantees, whether written or oral, and they are appropriately reflected in the Financial Statements. Deloitte LLP June 18, 2018 Page 4 Loans and receivables 22. The City is responsible for determining and maintaining the adequacy of the allowance for doubtful notes, loans, and accounts receivable, as well as estimates used to determine such amounts. Management believes the allowances are adequate to absorb currently estimated bad debts in the account balances. Employee future benefits 23. Employee future benefit costs, assets, and obligations have been properly recorded and adequately disclosed in the Financial Statements including those arising under defined benefit plans as well as termination arrangements. We believe that the actuarial assumptions and methods used to measure defined benefit plan assets, liabilities and costs for financial accounting purposes are appropriate in the circumstances. Government transfers 24. We have disclosed to you all correspondence relating to government transfers that the City has had with the funding body. 25. We have assessed the eligibility criteria and determined that the City is an eligible recipient for the government transfers received. 26. We have assessed the stipulations attached with the funding and have recognized the revenue in accordance with meeting the stipulations required. 27. All government transfers that have been recorded as deferred revenue give rise to an obligation that meets the definition of a liability. Those liabilities have been properly recorded and presented in the Financial Statements. Tax Revenues 28. We have appropriately recorded tax assets and revenues when they meet the definition of an asset in accordance with Section PS 1000, Financial Statement Concepts, when they are authorized and when the taxable event occurs. These amounts have been appropriately measured in accordance with PS 3510, Tax Revenue, and have not been grossed up for any amount of tax concessions. Tangible capital assets 29. Tangible capital assets have beercrecorded properly and consistently according to the standards in Section PS 3150, Tangible Capital Assets. 30. Contributed tangible capital assets have been appropriately recorded at fair value, unless fair value is not reasonably determinable, and in such case, have been recorded at an appropriate nominal value. All contributed tangible capital assets have been appropriately disclosed. 31. We have assessed the useful lives of tangible capital assets and have determined all tangible capital assets contribute to the City's ability to provide goods and services and therefore do not require a write down. Environmental liabilities/contingencies 32. We have considered the effect of environmental matters on the City and have disclosed to you all liabilities, provisions or contingencies arising from environmental matters. All liabilities, provisions, contingencies and commitments arising from environmental matters, and the effect of environmental matters on the carrying values of the relevant assets are recognized, measured and disclosed, as appropriate, in the Financial Statements. Deloitte LLP June 18, 2018 Page 5 Government Business Enterprises and Government Partnerships 33. The City has appropriately classified its investments in Veridian Corporation as a Government Business Partnership. With regard to the City's investment in Veridian Corporation, we have disclosed to you any events that have occurred and facts that have been discovered with respect to such investment that would affect the investment's value as reported in the financial statements. Liabilities for contaminated sites 34. We have evaluated all of our tangible capital assets that we have direct responsibility for or accept responsibility for, and have not identified any sites in which contamination exceeds an environmental standard. Other matters 35. We have disclosed to you all the documents that we expect to issuethat may comprise other information, in the context of CAS 720, The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements. 36. The City has satisfactory title to and control over all assets, and there are no liens or encumbrances on such assets. We have disclosed to you and in the Financial Statements all assets that have been pledged as collateral. 37. We have disclosed to you, and the City has complied with all aspects of contractual agreements that could have a material effect on the Financial Statements in the event of non-compliance, including all covenants, conditions or other requirements of all outstanding debt. Yours truly, The Corporation of the City of Pickering,, Stan Karwowski Director of Finance and Treasurer Tony Prevedel Chief Administrative Officer Appendix A The Corporation of the City of Pickering Summary of uncorrected financial statement misstatements Year ended December 31, 2017 As part of our audit, we identified the following uncorrected financial statement misstatement: DR Accumulated amortization $1,270,101 CR Amortization expense $1,270,101 To correct overstatement of amortization expense for the year as a result of revisions to best estimates of useful lives of tangible capital assets for the year. eloitte www.deloitte.ca Deloitte, one of Canada's leading professional services firms, provides audit, tax,,consulting, and financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. © Deloitte LLP and affiliated entities. ATTAC M ENT # TO REPORT # 11 Consolidated financial statements of The Corporation of the City of Pickering December 31, 2017 DRAFT AS AT 05/30/2018 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering December 31, 2017 Table of contents Independent Auditor's Report 1-2 Consolidated statement of financial position 3 Consolidated statement of operations 4 Consolidated statement of change in net financial assets 5 Consolidated statement of cash flows 6 Notes to the consolidated financial statements 7-27 Deloitte.. Independent Auditor's Report To the Members of Council, Inhabitants and Ratepayers of the Corporation of the City of Pickering DRAF bgitg /30/2018 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca We have audited the accompanying consolidated financial -4a ements_of the Corporation of the City of Pickering, which comprise the consolidated statement of financial position as at, December 31, 2017, and the consolidated statements of operations, change in net financial assets,vai d cash flows for the year then ended, and a summary of significant accountingpolicies and other information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and flair presentation 'of these consolidated financial ,,y statements in accordance with Canadian public sector accountingtstandards, and for such internal control as management determines is necessary to enable the preparation of consolidated 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 consolidated 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 risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control 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. Member of Deloitte Touche Tohmatsu Limited DRAFT AS AT 05/30/2018 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation of the City of Pickering as at December 31, 2017 and the results of its operations, changes in its net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants Licensed Public Accountants June 18, 2018 Page 2 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Consolidated statement of financial position as at December 31, 2017 2017 2016 Financial assets Cash and cash equivalents Investments (Note 3) Taxes receivable Accounts receivable Note receivable (Note 17) Investment in Veridian Corporation (Note 4 (b)) Promissory notes receivable (Note 5) Land held for resale 89,766,742 78,673,206 82,226,068 48,857,964 16,571,391 15,733,430 4,780,330 3,089,630 3,796,946 4,055,276 53,393,124 51,307,386 25,069,000 25,069,000 294,531 275,898,132 226,785,892 Liabilities Accounts payable and accrued liabilities Other current liabilities Deferred revenue (Note 6) Long-term liabilities (Note 9) Post -employment benefit liability (Note 8 (a)) WSIB benefit liabilities(Note 8 (b)) Net financial assets Non-financial assets Tangible capital assets (Note 10) Prepaid expenses Inventory :,.,26,414,563 , 4,694,538 65,194,413 31,412,982 609;656 1,862,876 135,189,028 19,683,527 133,307 60,501,567 21,455,816 4,959,500 1,806,100 108,539,817 140,709,104 118, 246,075 240,256,987 223,836,631 295,196 248,303 427,332 222,512 240,979,515 224,307,446 Accumulated surplus (No#e/11) 381,688,619 342,553,521 The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement. Page 3 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Consolidated statement of operations year ended December 31, 2017 2017 2016 Budget (Note 18) Actual Actual Revenue Residential and farm taxation 47,281,909 47,468,880 44,950,264 Commercial and industrial taxation 10,798,600 10,793,717 10,845,299 Taxation from other governments 8,383,281 8,644,938 8,740,388 User charges 9,576,564 11,082,163 10,825,327 Government grants and fees 6,230,677 6,356,344 3,218,352 Other contributions and donations 2,601,000 2,189,348 1,022,571 Development charges and developer contributions earned 11,182,834 1,468,880 2,099,895 Contributed tangible capital assets 5,014,463 3,480,656 Investment income 320,000 941,197 565,808 Penalties and interests on taxes 2,315,000 2,362,493 2,379,422 Fines 852,000 855,391 839,035 Interest on promissory notes 1,229,138 1,229,138 1,229,138 Sale of land 2,650,000 - - Equity share of Veridian Corporation earnings (Note 4 (c)) 4,179,608 4,252,377 Other 320, 26 358,861 1,206,986 Gain on disposal of tangible capital assets 22,927,289 - 103741,629 125,872,710 95,655,518 Expenses (Note 19 ) General government Protection to persons and property Transportation services Environmental services Social and family services Recreational and cultural services Planning and development Loss on disposal of tangible capital assets 17,963,501 24,934,241 13,277,102 3,722,393 816,363 27,166,151 3,508,811 16,298,488 15,638,335 23,979,527 22,938,397 12,296,200 12,032,596 3,624,256 3,441,978 765,708 793,371 27,190,180 26,572,990 2,583,253 2,682,724 91,388,562 214,114 86,737,612 84,314,505 Annual surplus Accumulated surplus, beginning of year Accumulated surplus, end of year 12,353,067 39,135,098 11,341,013 342,553,521 342,553,521 331,212,508 354,906,588 381,688,619 342,553,521 The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement. Page 4 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Consolidated statement of change in net financial assets year ended December 31, 2017 2017 2016 Budget (Note 18) Actual Actual $ $ $ Annual surplus 12,353,067 39,135,098 11,341,013 Acquisition of tangible capital assets (44,594,580) (31,772,704) (21,134,606) Amortization of tangible capital assets 10,119,677 10,800,559 10,169,146 (Gain) loss on disposal of tangible capital assets Proceeds on disposal of tangible capital assets (22,927,289) 214,114 23,501,156 36,100 (22,121,836) 18,736,820 625,767 Transfer of assets under construction to tangible capital assets Assets under construction expensed Acquisition of inventory of supplies Use of inventory of supplies Acquisition of prepaid expenses Use of prepaid expenses Change in net financial assets Net financial assets, beginning of year Net financial assets, end of year 3,762,471 2,523,484 215,451 25,591 3,977,922 2,549,075 222) (532,060) 3,402 639,544 (295,196) (248,906) 248,303 367,985 (251,713) 226,563 (22,121,836) 22,463,029 3,401,405 1183246,075 118,246,075 114, 844,670 96;124,239 140,709,104 118,246,075 The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement. Page 5 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Consolidated statement of cash flows year ended December 31, 2017 2017 2016 Operating transactions Annual surplus Non cash items 39,135,098 11,341,013 Amortization of tangible capital assets 10,800,559 10,169,146 (Gain) loss on disposal of tangible capital assets (22,927,289) 214,114 Equity share of Veridian Corporation (4,179,608) (4,252,377) Contributed tangible capital assets recorded in revenue (5,014,463) (3,480,656) Change in non-cash operating items Taxes receivable (837,961) (213,466) Accounts receivable (1,690,700) (438,051) Accounts payable and accrued liabilities 6,731,036 3,422,472 Other current liabilities 4,561,231 10,103 Deferred revenue 4,692,846 4,234,046 Post -employment benefit liability r 650,156 295,700 WSIB benefit liabilities 56,776 33,000 Inventory 204,820) 107,484 Land held for resale:; (294,531) - Prepaid expenses (46,893) 119,079 31,431,437 21,561,607 Capital transactions Acquisition of tangible capital assets (net of transfers and contributions) Proceeds on disposal of tangible capital assets Investing transactions (Increase) decrease in investments Dividends received from Veridian Corporation (22,780,319) (15,104,875) 23,501,156 36,100 720,837 (15,068,775) (33,368,104) 565,194 2,093,870 1,947,090 (31,274,234) 2,512,284 Financing transactions Proceeds from debentures issued" Principal repayment of debentures Decrease in note receivable 12,941,000 6,473,000 (2,983,834) (2,734,714) 258,330 251,018 10,215,496 3,989,304 Increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 11,093,536 12,994,420 78,673,206 65,678,786 89,766,742 78,673,206 Cash and cash equivalents consists of Cash Cash equivalents 11,376,673 18,182,861 78,390,069 60,490,345 89,766,742 78,673,206 The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement. Page 6 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 1. Significant accounting policies The consolidated financial statements ("the financial statements") of The Corporation of the City of Pickering (the "City") are the representations of management prepared in accordance with accounting standards established by the Public Sector Accounting Board ("PSAB") of Chartered Professional Accountants of Canada (CPA Canada). Significant accounting policies adopted by the City are as follows: (a) Reporting entity (i) Consolidated financial statements The consolidated financial statements reflect the assets, liabilities, revenues and expenses of the reporting entity. The reporting entity is comprised of the activities of all committees of Council and the City of Pickering Public Library Board which is controlled by the City. All material inter -fund transactions and balances are eliminated on consolidation. (ii) Investment in Veridian Corporation The City's investment in Veridian Corporation is accounteii for on a modified equity basis, consistent with Canadian public sector accounting standards for investi ents in government business partnerships. Under the modified equity basis, Veridian Corporation's accounting policies are not adjusted to conform to those of the City>and inter -organizational transactions and balances are not eliminated. The City recognizes its equity interest in the annual earnings or loss of Veridian Corporation in its consolidatedstatementof operations with a corresponding increase or decrease in its investment asset account Dividends that the City may receive from Veridian Corporation and other capital transactions are reflected as adjustments in the investment asset account. (iii) Operations of School Boardsv'and the Region off2firham The taxation, other revenues, ekpenditures, assets and liabilities with respect to the operations of the school boaj'ds and-theyRegion of Durham (the "Region") are not reflected in these consolidated financial statements. (iv) Trust funds Trust funds and their related operations administered by the City are not consolidated, but are reported separately on the Trust Funds Statement of Financial Activities and Statement of Financial Position. (b) Basis of accounting (i) Accrual basis of accounting Revenue and expenses are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues as they are earned and measurable; expenses are recognized as they are incurred and measurable as a result of the receipt of goods and services and the creation of a legal obligation to pay. (11) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash. Cash equivalents have a short-term maturity of three months or less from the date of acquisition. (iii) Investments Long-term investments are recorded at cost and any loss in value which is considered other than temporary is recorded as appropriate. Any premium or discount at purchase of an investment is amortized over the life of the investment. Page 7 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (iv) Tangible capital assets ("TCA') Tangible capital assets are recorded at cost less accumulated amortization. Cost includes all costs directly related to acquisition or construction of the tangible capital asset including transportation costs, installation costs, design and engineering fees, legal fees and site preparation costs. Amortization is recorded on a straight-line basis over the estimated life of the tangible capital asset commencing once the asset is available for use as follows: Buildings 15 to 45 years Machinery and equipment 2 to 25 years Vehicles 5 to 15 years Infrastructure - Roads 10 to 50 years Infrastructure - Storm sewers 5 to 100 years Infrastructure - Sidewalks 20 to 40 years Infrastructure - Parks ;�10 to.40years Information technology hardware 4 to.Syears Library collection materials 4`to'7 years Furniture and fixtures 10 to 50 years One-half of the annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are notamortized until the asset is available for productive use. Land is not amortized. fir;. Tangible capital assets received as contributions are,,recorded at their fair value at the date contributed, and that amount is also recorded>as revenue. (v) Accounting for Property Tax Capping Provisions resulting from the Ontario Fair Assessment System The net impact ori property taxes as,a result of the application of the capping provisions does not affect the Cotis'olidated:Statement..of Operations as the full amounts of the property taxes were levied However, the capping adjustments are reported on the Consolidated Statement of Financial Position as a receivable/payable from/to the Region. (vi) Deferred revenue Deferred revenues representiser charges and fees which have been collected but for which the related services have, -yet to beperformed. These amounts will be recognized as revenues in the fiscal year the services are performed. In addition, any contributions received with external restrictions are,deferred until the related expenditures are made. (vii) Post -employment benefits The present value of the cost of providing employees with future benefit programs is recognized as employees earn these entitlements through service. Actuarial gains and losses are amortized over the average remaining service period ("ARSP"). The actuary determined ARSP to be between 11 to 13 years, depending on the employee group. For WSIB benefit obligations that arise from specific events that occur from time to time, the cost is recognized immediately in the period the events occur. Actuarial gains and losses are amortized over the average remaining service period of 15 years. (viii) Inventory Inventory is valued at the lower of cost and replacement cost. Cost is determined on a weighted -average basis. Page 8 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (ix) Government transfers Government transfers are recognized as revenue by the City in the period in which the transfers are authorized and any eligibility criteria are met, unless they are restricted through stipulations that require specific actions to be carried out in order to keep the transfer or discharge the liability. For such transfers, revenue is recognized when the stipulation has been met. (x) Tax revenue Tax revenue is recognized on all taxable properties within the City that are included in the tax roll provided by the Municipal Property Assessment Corporation, using property tax values included in the tax roll or property tax values that can be reasonably estimated by the City as it relates to supplementary or omitted assessments, at tax ratesauthorized by Council for the City's own purposes in the period for which the taxis levied (xi) Intangible assets Intangible assets are not recognized as assets in (xii) Contaminated sites Contaminated sites are the result of contamination being introduced into air, soil, water or sediment of a chemical, organic, or radioaetive txaterial or live organism that exceeds an environmental standard. A liability for remediation of contaminated sites is recognized, net of any expected recoveries, when all of the following criteria are met: (a) an environmental standard exists; (b) contamination exceeds the environmental'standard; (c) the City is directly responsibleor.accepts responsibility for the liability; (d) future .economic benefits will be given up; and (e) a reasonable estimate of the liability can be made. A liability is recorded only forsites that are not in productive use or if there was an unexpected event that resulted in contar ination. Changes in estimates are recorded in the City's statement of operations. The City' do not have any liability for contaminated sites recorded in the consolidated financial statements. (xiii)Land held for resale Land permanently removed from service that meet the criteria for inventory held for resale are recorded as "land held for resale" on the Consolidated Statement of Financial Position and is recorded at the lower of cost and net realizable value. Those that do not meet these criteria continue to be recorded as part of "tangible capital assets" on the Consolidated Statement of Financial Position. (xiv)Use of estimates The preparation of financial statements in conformity with Canadian public sector accounting standards requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Accounts involving significant estimates include allowance for doubtful accounts, certain accrued liabilities, post -employment benefits liability, WSIB liabilities and estimates relating to the useful lives of tangible capital assets. Actual results could differ from these estimates. Page 9 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 2. Operations of school boards and the Region of Durham Further to Note 1 (a) (iii) requisitions are made by the Region of Durham and School Boards requiring the City to collect property taxes and payments in lieu of property taxes on their behalf. The amounts collected and remitted are summarizes as follows: 2017 2016 Region School board Region School board Taxation Payments in lieu of taxes 106,559,478 45,352,981 102,922,914 44,092,112 6,457,366 381,700 6,603,046 389,819 113,016,844 45,734,681 109,525,960 44,481,931 3. Investments 2017, 2016 Cost MarketVal u Cost Market vaule Investments 82,226,068 81,919,658 $ $ 48, 857, 964 48, 824, 214 Investments are comprised of deposit notes, bonds and guaranteedi"nvestment certificates. 4. Investment in Veridian Corporation (a) Veridian Corporation is owned by the City of Pickering, Town of Ajax, Municipality of Clarington and the City of Belleville. The City has a 44 per cent interest in Veridian Corporation. Veridian Corporation, as a government businss partnership, is accounted for on the modified equity basis in these consolidated financial statem%V entseridian Corporation serves as the electrical distribution ber utility for a numof communities,including:the four noted above and conducts non-regulated utility service ventures through its subsidiaries. Page 10 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 4. Investment in Veridian Corporation (continued) The following table provides condensed supplementary consolidated financial information for the corporation and its subsidiaries for the year ended December 31. All amounts in tables are disclosed in thousands of dollars: 2017 2016 (000's) (000's) $ $ Assets Current 77,555 89,713 Capital and intangibles 269,380 252,736 Other 1,097 4,058 Regulatory balances Liabilities Current Long-term debt Other Shareholders' equity Share capital Contributed capital Accumulated other comprehens Retained earnings 348,032 346,507 2,852 2,530 350,884 349,037 116,129 101,166 65,021 85,532 29,765 26,814 210,915 213,512 67,260 67,260 25 25 (316) (340) 63,258 58,195 130,227 125,140 Regulatory balance; 9,742 10,385 350,884 349,037 Comprehensive income Commodity revenue280,206 338,009 Commodity expenses (277,975) (331,487) Distribution reenue 52,225 52,264 Other income 2,630 3,171 Operating expenses (41,620) (40,220) Other expense (2,593) (4,469) Other comprehensive income (loss) 24 (77) Net moements in regulatory balances, net of tax 965 (3,372) Income tax expense (3,668) (3,448) 10,194 10,371 Page 11 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 4. Investment in Veridian Corporation (continued) (b) City of Pickering's investment represented by: 2017 2016 Promissory notes receivable (Note 5) 25,069,000 25,069,000 Investments in Veridian Corporation Initial investment in shares of the Corporation Accumulated earnings Accumulated dividends received Adjustment to value of investment 30,496,196 30,496,196 50,579,682 46,400,074 (28,498,462) (26,404,592) 815,708 815,708 53,393,124 51, 307, 386 (c) Equity in Veridian Corporation 2017 2016 Balance, beginning of year Equity share of net earnings for the year Dividend received from Veridian Corporation Balance, end of year (Note 11) v. . 79,419,406 77,114,119 4,179,608 4,252,377 (2,093, 870) (1,947,090) 81,505,144 79,419,406 (d) Contingencies and guarantees of Veridian Corporation (the "Corporation) as disclosed in their consolidated financial statements arias follows: (i) Insurance claims The Corporation is a membe(of the Municipal Electric Association Reciprocal Insurance Exchange(` VIEARIE") which Was created on January 1, 1987. A reciprocal insurance exchange may be defined as a group of persons formed for the purpose of exchanging reciprocal contracts of mderrmndy or inter= nsurance with each other. MEARIE provides general liability insurance'. to member'ellectrjc utilities. MEARIE also provides vehicle and property insurance to the Corporation.'" Insurance premiums charged to each member utility consist of a levy per $1,000 of service revenue subject to a credit or surcharge based on each electric utility's claims experience. The maximum coverage is $30,000,000 per occurrence for liability insurance, $21,000,000 for vehicle insurance and $119,736,000 for property insurance, plus $10,000,000 excess coverage on top of the regular liability and vehicle coverage. (ii) Contractual obligation - Hydro One Networks Inc. ("HONI) The Corporation's subsidiary, Veridian Connections Inc. ("VCI"), is party to a connection and cost recovery agreement with HONI related to the construction by HONI of a transformer station designated to meet VCI's anticipated electricity load growth. Construction of the project was completed during 2007 and VCI connected to the transformer station during 2008. To the extent that the cost of the project is not recoverable from future transformation connection revenues, VCI is obligated to pay a capital contribution equal to the difference between these revenues and the construction costs allocated to VCI. The construction costs allocated to VCI for the project are $9,975,000. The Corporation has recorded a liability and a corresponding intangible asset for $1,212,000 as at December 31, 2017 (2016 -$1,212,000), based on management's best estimate of the future transformation connection revenue shortfall. HONI is expected to perform a true -up based on actual load at the end of the tenth and fifteenth anniversaries of the in-service date. Page 12 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 4. Investment in Veridian Corporation (continued) (d) Contingencies and guarantees of Veridian Corporation (the "Corporation') as disclosed in their consolidated financial statements are as follows: (continued) (iii) General claims From time to time, the Corporation is involved in various lawsuits, claims and regulatory proceedings in the normal course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Corporation's consolidated financial position and results of operations or cash flows. (e) Lease commitments Future minimum lease payment obligations under operating leases are as follows: 2018 2019 2020 2021 2022 Thereafter 5. Promissory notes receivable Promissory note receivable from Veridian Corporation maturing December -31, 2018 and bearing interest at the greater of 6% or the Ontario Energy Board deemed long term debt'rate on an annual basis to maturity Promissory note receivable from Veridian Connections Inc. maturing Noember 1, 2039 and bearing interest at the Ontario Energy Board deemed long-term debt rate for each successie five year period thereafter (4.47% effecti\e January 1, 2015) $ (000's) 41 33 32 24 2 58 190 2017 2016 7,095,000 7,095,000 17,974,000 17,974,000 25,069,000 25,069,000 Interest revenue earned from these notes receivable totaled $1,229,138 (2016 - $1,229,138). The promissory note from Veridian Corporation is convertible into common shares at the rate of one common share for every $1,000 of principal amount, at the option of the City. The note from Veridian Connections Inc. is no longer convertible but the City may demand full or partial repayment with six months' notice with certification that the funds are required for municipal purposes. The City has signed an inter -creditor agreement confirming the subordinated ranking of these promissory notes to the senior debt financing issued by Veridian. On November 20, 2014, the Ontario energy Board's deemed long-term rate has been established for the five year period commencing January 1, 2015 until December 31, 2019 at 4.47%. This rate will be reset on January 1, 2020. Page 13 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 6. Deferred revenue 2017 2016 Obligatory Reserve Funds Development charges Parkland Federal gas tax Third party/Developer's Contributions Reserve Fund Public benefits 48,100,585 43, 318,105 4,532,056 3,994,401 5,654,549 8,261,976 2,957,593 2,962,791 141,387 Other unearned revenues 61,386,170 58,537,273 3,808,243 1,964,294 65,194,413 60, 501, 567 Continuity of deferred revenue is as follows: Balance, beginning of year Restricted funds received General funds received Interest earned (restricted funds) 2017 2016 $ $ 60,501,567 56,267,521 9,169, 370 7,879,649 2,900,813 873,338 830,571 856,244 12,900,754 9,609,231 Earned restricted revenue transferred to, Earned revenue transferred to operations rations 7,151,044 4,660,574 1,056,864 714,611 8,207,908 5,375,185 Balance, end of yea 65,194,413 60,501,567 7. Interfund loans As a means of funding various capital acquisitions, funds are borrowed by the Capital Fund from Development Charges deferred revenue (obligatory reserve funds). These funds are secured by promissory notes with interest rates ranging from 1.83% to 2.64% and various payment terms ranging from 5 years to 10 years. The financing arrangements and ultimate repayment are approved by Council through the current budget process. Although these notes have payment terms as noted above, they are repayable on demand. The following is a summary of the related interfund loans: 2017 2016 Roads and streetlights Community facilities, libraries and parks Protection sendces Stormwater system 1,226,910 773,631 1,385,745 1,700,707 337,226 64,004 645,360 943,771 3,595,241 3,482,113 Page 14 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 8. Post -employment benefits liability (a) Post -employment benefits liability The City makes available to qualifying employees who retire before the age of 65, the opportunity to continue their coverage for benefits such as post-retirement extended healthcare benefits. Coverage ceases at the age of 65. The City also provides full time and permanent part-time employees a sick time entitlement and any unused entitlement is accumulated year to year. This accumulated entitlement is not vested and is forfeited at the time of retirement or termination. The most recent actuarial valuation of the post -employment benefits was performed at December 31, 2017. In the current year, a plan amendment was made to provide dental benefits to union retirees effective July 12, 2017. The impact of this plan addition has been recognized immediately as a plan amendment cost and shown as part of the prior period cost line in the table below. Information about the City's benefits liability is as follows: Accrued benefits liability, beginning of year Plan amendment Current service costs Interest on accrued benefits Amortization of actuarial losses Benefits paid during the year Accrued benefits liability, end of year' 2017 2016 ,959,500 4,663,800 384,991 - 416,276 402,200 223,108 226,800 186,200 186,200 (560,419) (519, 500) 5,609,656 4,959,500 Accrued benefit obligation Unamortized actuarial:168S Accrued benefits liability, end ofyear 11,126,073 6,446,600 (5,516,417) (1,487,100) 5,609,656 4,959,500 The main actuarial assumptions employed in the actuarial valuations are as follows: (i) Discount rate The present value as a -December 31, 2017 of the future benefits was determined using a discount rate of 3.75%(2016 - 3.5%). (ii) Dental costs The dental cost trend rate was 3.75% (2016 - 3.75%) increase per annum. (iii) Health costs Health costs were assumed to increase at 6.75% (2016 - 6.50%) and decrease by 0.33% (2016 - 0.25%) increments per year to an ultimate rate of 3.75% per year in 2027 and thereafter. (b) Workplace Safety and Insurance Board (WSIB) benefit liabilities Effective January 1, 2001, the City became a Schedule II employer under the Workplace Safety & Insurance Act and follows a policy of self-insurance for the risk associated with paying benefits for workplace injuries for all its employees. The WSIB administers the claims related to workplace injuries and is reimbursed by the City. The most recent actuarial valuation of the WSIB benefits was performed at December 31, 2016. Page 15 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 8. Post -employment benefits liability (continued) (b) Workplace Safety and Insurance Board (WSIB) benefit liabilities (continued) Information about the City's WSIB liability is as follows: 2017 2016 Accrued WSIB liability, beginning of year Current service cost Interest on accrued benefits Amortization of actuarial losses Benefits paid during the year 1,806,100 1,773,100 124,773 108,600 89,144 63,400 30,254 (187,395) (139,000) 1,862,876 1,806,100 Accrued benefit obligation Unamortized actuarial losses Accrued benefits liability, end of year 2,286,427 2,259,905 (423, 551) (453, 805) 1,862, 876 1,806,100 The main actuarial assumptions employed in the actuarial -valuations are as follows: (i) Discount rate The present value as at December 31; of the future benefits was determined using a discount rate of 4.0% (2016 - 3.5%). (ii) Inflation ratet The rate of inflation was assumeto be 1.75% (2016 - 2.0%) per annum. (iii) WSIB Administration Liabilities for WSIB benefits have been increased 38% to reflect the administration rate charged by WSIB. A WSIB Reserve Fund was established -in 2001. The Reserve Fund balance at December 31, 2017 was $3,209,349 (2016=$3,001,701). In addition, the City purchased two insurance policies that protect thetCity'against significant claims. The occupational accident insurance pays loss claims up to $500,000 per work related accident. The excess workers compensation indemnity insurance has a $500,000 deductible and will pay for claims up to and including $15,000,000 per work related accident. 9. Long-term liabilities (a) The balance of long-term liabilities is made up of the following: 2017 2016 The municipality is responsible for the payment of principal and intrest charges on long-term liabilities issued by the Regional Municipality of Durham on the City's behalf. At the end of the year the outstanding principal amount of this liability is 31,412,982 21,455,816 Page 16 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 9. Long-term liabilities (b) The above long-term liabilities have maturity dates of July 12, 2021 and 2022, November 21, 2018, October 15, 2020, September 29, 2021, October 16, 2018 and 2023, July 2, 2019 and 2029, October 17, 2021, 2026 and 2031 and October 13, 2022, 2027, 2032 and 2037 with various interest rates ranging from 1.10% to 5.20%. Principal repayments are summarized as follows: $ 2018 5,598,009 2019 2,693,986 2020 2,720,344 2021 2,883,385 2022 1,907,998 Thereafter 15,609,260 31, 412, 982 (c) Long-term liabilities include principal sums of $582,000 (2016 2,000) which may be refinanced by the issuance of debentures over a further period dot to -exceed 10 years, :and $2,415,000 (2016 - $2,415,000) which may be refinanced by the;ssuance of debentures over a further period not to exceed 5 years. (d) The above Tong -term liabilities have been approved by Councilby-law. The annual principal and interest payments required to service these habiIties are within the annual debt repayment limit prescribed by the Ministry of Municipal f Afajrs and'Housirig, (e) Interest expense recorded in the year relating to 4hese long-term liabilities is $715,544 (2016 - $625,740). 10. Tangible capital assets Information relating totangible capital assets isos follows: (1) 422, Contributed tangible capital assets The City records tangible capital assets contributed by an external party at fair value on the date contributed. Typical examples are;roads, storm sewers and sidewalks installed by a developer as part of a subdivision or development agreement. Contributions of tangible capital assets in 2017 amounted to $5,014,463 (20'(6 - $3,480,656). Tangible capital assets recognized at nominal value Land under roads are assigned a nominal value of one Canadian dollar because this land only supports or is intended to support road infrastructure and the majority of land acquired supporting road allowances was acquired at no cost. (iii) Works of art and historical treasures The City has a museum which holds various historical treasures and historical buildings pertaining to the heritage and history of the City of Pickering. These items are not recognized as tangible capital assets in the financial statements because a reasonable estimate of the future benefits associated with such property cannot be made. Any acquisition or betterment of these assets is recognized as an expense in the financial statements. (iv) Other The net book value of tangible capital assets not being amortized because they are under construction is $18,379,602 (2016 - $11,233,428). During the year, there were no write-downs of assets (2016 - $Nil) and no interest was capitalized during the year (2016 - $Nil). Page 17 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 10. Tangible capital assets (v) Gain on sale of tangible capital assets The gain on disposal of tangible capital assets includes the sale of multiple City land parcels, for net proceeds of $23,379,228, which had carrying values of $459,852 at the time of the sales, resulting in a total gain of $22,919,376. Page 18 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated fmancial statements December 31, 2017 10. Tangible capital assets (continued) Machinery Infrastructure and Storm Land Buildings equipment Vehicles Roads sewers Sidewalks Information Library Furniture Assets technology collection and under Parks hardware materials fixtures construction 2017 Cost Balance, beginning of year Add Additions during the year Less Disposals/transfers during the year Balance, end of year $ r,ys� 55,691,303 80,777,919 9,045,684 13,167,746 127,621,696 90,761,058 i5,217, 739. 33,672,422 1,565,764 2,466,112 646,134 11,233,428 441,867,005 470,067 1,275,576 973,931 768,350 12,800,729 3,035,362 302;173 w347,717 242,427 347,502 84,674 - 11,124,096 31,772,704 498,379 409,126 869,665 592,738 2,778,560 55,662,991 81,644,369 9,149,950 13,343,358 137,643,865 3,055 '401, 93,793 365 r;^ 15,519,74 ��l 38,818 23,070 455,245 - 3,977,922 9,646,846 1,785,121 2,358,369 730,808 18,379,602 463,992,863 33,981,321 Accumulated amortization Balance, beginning of year Add Amortization Less Accumulated amortization on disposals Balance, end of year Net book value of tangible capital assets 42,337,115 5,143,393 6,931,337 81,649, 2,095,387 658,435 940,521 3,035 2 56,123.754 9 2,519 2,119,588" 350,855 14,104,952 1,052,167 933,755 200,817 1,252,263 282,879 427,924 38,075 397,886 821,391„ i„ 592,738 2,762,586 3,055 268 38,818 23,070 455,245 44,034,616 4,980,437 ?;x»:,, 7,279,120 81,92011 58,240,287 9,503,106 14,999,889 1,229,914 1,224,942 320,954 218,030,374 10,800,559 5,095,057 223,735, 876 55,662,991 37,609,753 4,169,513 6,0647238 55,721,254 35,553,078 6,016,638 18,981432 555,207 1,133,427 409,854 18,379,602 240,256,987 Page 19 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 10. Tangible capital assets (continued) Land Machinery Infrastructure and Storm Buildings equipment Vehicles Roads sewers Sidewalks Information Library Fumiture Assets technology collection and under Parks hardware materials fixtures construction 2016 Cost Balance, beginning of year 55,672,263 78,333,857 8,497,113 11,278,173 124,662,143 88,496,409 Add Additions during the year 73,037 3,690,764 683,111 3,001,372 Less Disposals/transfers during the year 53,997 1,246,702 134,540 3,266,409 1,111,799 306,856 Balance, end of year 55,691,303 80,777,919 9,045,684 13,167,746 127,621,696 Accumulated amortization Balance, beginning of year Add Amortization Less Accumulated amortization on disposals 00 c 085,186 1,446,463 2,538,389 598,173 7,170,032 426,691,724 90,4910 15,217,7 - 41,401,394 4,665,193 7,105,511 79,340,6 2,028,126 610,959 937,625 1,092,405 40661,401 • 33,672,422 3,732 13,256,658 119,301 418,643 47,961 6,612,471 21,134,606 490,920 2,549,075 5,959,325 1,565,764 2,466,112 646,134 11,233,428 441,867,005 881,303 1,296,189 2,082,69 ' 348,662 911,306 170,864 446,994 132,75 ' 1,111,799 --$9266 7,606 35,281 249,577 - 211,021,264 33,302 10,169,146 490,920 3,160,036 Balance, end of year - 42,337,115 5,143,3p 6,931,337 81,6 95 56,123,754 9,124,788 14,132,683 1,052,167 1,252, 263 282,879 - 218,030,374 Net book value of tangible capital assets 55,691,303 38,440,804 3,902,291 6; E;i409 5 ,701 34,637,304 6,092,951 19,539,739 513,597 1,213,849 363,255 11,233,428 223,836,631 Page 20 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 11. Accumulated surplus The City's accumulated surplus is comprised of the following: 2017 2016 Capital fund Operating fund Equity in Veridian Corporation Tangible capital assets Post -employment benefits liability Internal loans Net long-term liabilities Note receivable soccer facility WSIB benefit liabilities Reserves set aside for special purposes by Council Working capital Self insurance Replacement of capital equipment Contingencies Rate stabilization City's share for development charge Continuing studies Vehicle replacement Easement settlement Eastern. branch Land purchase Seaton development re ne Financial systems'r Senior centre Accessibility initiats Winter control Sustainability initiatives` Duffin Heights Facilities Accelerated infrastructure program Fence Minor buildings replacement Financial Impact Agreement Reserve funds set aside for special purpose by Council Recreation programs and facilities Acquisition of tangible capital assets WSIB Animal shelter Men's slow pitch Operations Centre Roads & bridges Stormwater management Ontario Community Infrastructure Fund Seaton infrastructure 25,169, 415 125,237 81,505,144 240,256,987 (5,430,656) (3,595,241) (31,412,982) 3,796,946 (1,862,876) 400,000 69;293 04, 790 1,632,591 16,823,997 6,884,793. 448,190 1,426,438 390 99,403 1,641,805 1,068,647 450,000 31,944 700,000 51,376 3,660,177 258,645 519,500 150,000 100,000 210,745 174,873 293,371 3,209,349 417,706 152,227 25,773,590 2,417,954 1,354,597 55,761 54,493 19,827,450 125,234 79,419,406 223, 836,631 (4,780,500) (3,482,113) (21,455,816) 4,055,276 (1,806,100) 400,000 869,293 1,321,737 1,616,554 15,053,798 4,018,582 362,088 1,247,455 390 67,458 99,403 1,741,987 861,638 375,000 31,944 700,000 43,585 3,889,593 203,345 557,000 172,615 289,583 3,001,701 369,306 150,262 6,771,136 2,039,410 559,190 381,688,619 342, 553, 521 Page 21 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 12. Pension agreement The City makes contributions to the Ontario Municipal Employees Retirement Fund (OMERS), which is a multi-employer plan, on behalf of the members of its staff. The plan is a defined benefit plan which specifies the amount of the retirement benefit to be received by the employees based on the length of service and rates of pay. OMERS provide pension services to over 482,000 active and retired members and about 1,000 employers. Each year an independent actuary determines the funding status of OMERS Primary Pension (the "Plan") by comparing the actuarial value of the invested assets to the estimated present value of all pension benefits that members have earned to -date. The most recent actuarial valuation of the Plan was conducted as at December 31, 2017. The results of this valuation disclosed total actuarial liabilities as at that date of $94,431 million in respect of benefits accrued for service with actuarial assets at that date of $89,028 million indicating an actuarial deficit of $5,403 million. Because OMERS is a multi-employer plan, any pension plan surpluses or deficits are a joint responsibility of Ontario municipal organizations and their employers. As a result, the City does not recognize any share of the OMERS pension surplus or deficit. Contributions made by the City to OMERS on account ofpurrent sere ce for 2017 were $3,834,325 (2016 $3,725,946).'' 13. Trust Funds Trust funds administered by the City amounting to $361,263 (2016 $355,149) have not been included in the Consolidated Statement of Financial Position norhave their operations been included in the Consolidated Statement of Operations. 14. Related party transactions Veridian Corporation The City of Pickering is a principalsharehoide in Veridian Corporation (Note 4). The City receives electricity and services fjom n c Veridiaorporation and its subsidiary. ) 2017 2016 Transactions Revenues Interest on promissory notes 1,229,138 1,229,138 Property taxes levied 49,993 44,749 Expenses Electrical energy and services 2,153,292 2,723,275 Balances Accounts payable and accrued liabilities 468,782 582,917 Promissory notes receivable 25,069,000 25,069,000 15. Guarantees In the normal course of business, the City enters into agreements which contain guarantees. The City's primary guarantees are as follows: (i) The City has provided indemnities under lease agreements for the use of various facilities or land. Under the terms of these agreements the City agrees to indemnify the counterparties for various items including, but not limited to, all liabilities, loss, suits, and damages arising during, on or after the term of the agreement. The maximum amount of any potential future payment cannot be reasonably estimated. Page 22 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 15. Guarantees (continued) (ii) The City indemnifies all employees and elected officials including Library employees and board members for various items including, but not limited to, all costs to settle suits or actions due to association with the City, subject to certain restrictions. The City has purchased liability insurance to mitigate the cost of any potential future suits or actions. The term of the indemnification is not explicitly defined, but is limited to the period over which the indemnified party served as an employee or elected official of the City. The maximum amount of any potential future payment cannot be reasonably estimated, (iii) The City has entered into agreements that may include indemnities in favour of third parties, such as purchase and sale agreements, confidentiality agreements, engagement letters with advisors and consultants, outsourcing agreements, leasing contracts, information technology agreements and service agreements. These indemnification agreements may require the City to compensate counterparties for losses incurred by the counterparties as a result of breaches in representation and regulations or as a result of litigation claims or statutory, sanctions that may be suffered by the counterparty as a consequence of the transaction. The terms,ofttiese indemnities are not explicitly defined and the maximum amount of any potential reimbursement cannot be reasonably estimated. The nature of these indemnification agreements prevents; the City from making areasonable estimate of the maximum exposure due to the difficulties in assessing the amount of Robiltty which stems from the unpredictability of future events and the unlimited coverage offered to counterparties. Historically, the City has not made any significant payments under such or similar.indemnification agreements and therefore no amount has been accrued in the balance 4i:00 with respect to these agreements. 16. Contingent liabilities Litigation The City has been named as a defendant in certain legale tions in which damages have been sought. The outcome of these actionsis not determinable as at the date of reporting and accordingly, no provision has been made in these consolidated financial statements for any liabilities which may result. 17. Contractual arrangement The City entered into a provisional license agreement with the Pickering Soccer Club (PSC) for the PSC to occupy and operate the<Pickering Indoor Soccer Facility (the Facility). The term of the agreement is 15 years from November 5-;',2'014 to November 4, 2029. Under the terms of the agreement, the PSC will repay 52.25% of the City's total cosf of purchasing the land, constructing the Facility and the related improvements. In 2015, the City a receivable from PSC in the amount of $4,550,000 based on preliminary project cost figures, with a 15 year repayment term at a variable interest rate ranging from 1.2% to 3.8%. This amount will be adjusted for the total project construction costs, once the agreement is finalized. The City has received all of the required payments to date based on the preliminary figures. PSC has commenced its soccer program operations and is operating the Facility at its own expense including all repairs and maintenance. Once a final form of agreement is executed the total amount of the PSC's obligation will be re -calculated, as agreed, to reflect any adjustments to the total project construction costs. Page 23 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 18. Budget figures The 2017 Budget adopted by Council on February 27, 2017 was not prepared on a basis consistent with that used to report actual results. The budget was prepared on a modified accrual basis while Public Sector Accounting Standards require a full accrual basis of accounting. The budget figures treated all tangible capital asset acquisitions as expenditures and did not include amortization expense on tangible capital assets or post -employment benefits expenses on a full accrual basis. As a result, the budget figures presented in the Consolidated Statements of Operations and Change in Net Financial Assets represent the budget adopted by Council on February 27, 2017 with adjustments as follows: 2017 2017 Post - Council Non TCA employment Budget approved expenditures benefits/ presented in budget from capital am ortization statements Revenue Taxation 66,463 790 Capital 21,492,334 Other 15,785,505 66,463,790 21,492,334 15,785,505 103,741,629 103,741,629 Expenditures General government 17,086 342 , 270;500 606,659 17,963,501 Protection to persons and property 24,066,123 40,000 828,118 24,934,241 rt, Transportation services 9,555,484 - 3,721,918 13,277,102 Environmental services 1,600,051 2,122,342 3,722,393 Social and family services 816,363 r r3' 816,363 Recreational and cultural services 23,720-1 239,000 3,198,138 27,166,151 Planning and development __ 3,507,909 902 3,508,811 80,360,985 549,500 10,478,077 91,388,562 Annual surplus (defic)t) 23,380,644 (549,500) (10,478,077) 12,353,067 Capital expenditures (45,144,080) 549,500 (44,594,580) Transfers from reserve arld reserve funds 17,502,408 Dividend fromVeridian Corporation 1,927,000 Principal repayment of debt (4,124,472) Principal repayment of PSC note 212,000 Debt proceeds 6,121,500 Prior year operating fund surplus (125,000) 19. Segmented information The City of Pickering is a diversified municipal government that provides a wide range of services to its residents. Distinguishable functional segments have been separately disclosed in the segmented information. The nature of the segments and the activities they encompass are as follows: General government This item relates to revenues and expenses of the City itself and cannot be directly attributed to a specific segment. Protection to persons and property Protection includes fire services, animal control, bylaw services, building inspection and enforcement of the building code to ensure the safety and protection of all citizens and their property. Page 24 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 19. Segmented information (continued) Public works services Public works includes construction and maintenance of the City's roadways, including snow removal, sidewalk repairs, street lighting and maintenance of the storm water system. Social and family services Social services for assistance or services for seniors. Recreation and culture services Recreation and cultural services include recreation programs, maintenance and rental of facilities and parks, operation of the City's museum and library services. Planning and development Planning and development provides a number of services including municipal planning and review of all property development plans. Segmented information has been provided in the following pages: Page 25 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 19. Segmented information (continued) 2017 Protection to persons and property Public works Recreational Planning and services and cultural development Social and family General services government Consolidated Revenue Grants User charges Tax related revenues Developer revenue Contributed tangible capital assets Equity share of Veridian Corporation Gain (loss) on disposal of tangible capital assets Other revenues 9,877 5,489,553 3,848,727 45,432 199,275 741,431 4,564,443; 159,605 114,264 6,356,344 (1,842 54,457 765,965 11,082,163 - 69,270,028 69,270,028 17,700 86,468 1,468,880 5,014,463 4,179,608 4,179,608 (19,810) 32,435 " 31,646 22,883,018 22,927,289 1,20,5,3(1 1221;210 597,655 54,598 - 2,495,839 5,573,935 5,243,702 8 2,093,,504, 7,742,112 784,140 214,062 99,795,190 125,872,710 Expenses Salaries and wages 20,074,847 , 71,298 15,744,394 2,220,477 349,285 9,692,750 52,853,051 Materials and supplies 2,194,3033',606,212 6,481,518 214,166 149,187 4,817,022 17,462,408 Contracted services 808.5 1,273,691 731,558 136,700 90,440 990,566 4,031,472 Amortization 731,859; 6,042,866 3,480,211 2,065 - 543,558 10,800,559 Other 170,001 226,389 752,499 9,845 176,796 254,592 1,590,122 23,979,527 15,920,456 27,190,180 2,583,253 765,708 16,298,488 86,737,612 Annual (deficit) surplus (18,735,825) (3,826,952) (19,448,068) (1,799,113) (551,646) 83,496,702 39,135,098 Page 26 DRAFT AS AT 05/30/2018 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2017 19. Segmented information (continued) 2016 Protection to persons Public works and property services Recreational Planning and and cultural development Social and family General services government Consolidated Revenue Grants User charges Tax related revenues Developer revenue Contributed tangible capital assets Equity share of Veridian Corporation Other revenues 8,332 1,192,283 3,765,491 56,634 86,304 1,287, 948 3,480,656; 1,347,377 443,1`11 5,207,504 6,460,636 53,902 758,621 170,341 36,699 207,040 $ 219,989 754,989 66, 915, 373 100,000 4,252,377 2,823,058 75,065,786 3,218,352 10, 825, 327 66, 915, 373 2,099,895 3,480,656 4,252,377 4,863,538 95,655,518 Expenses Salaries and wages Materials and supplies Contracted services Amortization Loss (gain) on disposal of tangible capital assets Other 19,29 2,2 : , 542 . 551,701 717,316 155' 22, 919, 99 624 15, 054, 280 6,538,346 909,674 3,374,699 X62 292, 939 591,869 19,998 186,880 15, 494, 572 216,729 695,991 26,789,719 2,303,012 165,930 202,067 1,770 9,945 2,682,724 315,925 207,444 102,551 167,451 793,371 8,907,197 4,824,890 1,205,822 483,492 50,607,229 17, 626, 414 4,264,754 10,169,146 (4,213) 214,114 216,934 1,432,848 15,634,122 84,314,505 Annual (deficit) surplus (17,712,493) (9,033,936) (18,833,788) (1,924,103) (586,331) 59,431,664 11,341,013 Page 27 Financial statements of City of Pickering Public Library Boa December 31, 2017 City of Pickering Public Library Board December 31, 2017 Table of contents Independent Auditor's Report 1-2 Statement of financial position 3 Statement of operations 4 Statement of change in net debt 5 Statement of cash flows 6 Notes to the financial statements 7-11 Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Independent Auditor's Report To the Members of The City of Pickering Public Library Board, Members of Council, Inhabitants and Ratepayers of the City of Pickering We have audited the accompanying financial statements of the City of Pickering Public Library Board, which comprise the statement of financial position as at December 31, 2017, and the statement of operations, change in net debt 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 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 financial statements based on our audit. We conducted our audit in accordance with Canadiangenerally 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 evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Member of Deloitte Touche Tohmatsu Limited Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the City of Pickering Public Library Board as at December 31, 2017 and the results of its operations, changes in its net debt and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants Licensed Public Accountants June 18, 2018 Page 2 City of Pickering Public Library Board Statement of financial position as at December 31, 2017 2017 2016 Financial assets Cash Accounts receivable Due from the Government of Canada Due from City of Pickering 1,225 2,225 1,333 371 14,927 15,404 162,706 109,079 180,191 127,079 Liabilities Accounts payable and accrued liabilities Due to City of Pickering Post -employment benefits liability (Note 2) 202,851 207,274 14,793 452,568 382,100 �ry670,212 589,374 Net debt Non-financial assets Tangible capital assets (Note 4) Prepaid expense Accumulated surplus (Note 5) 0,021,), (462,295) 1,494,740 37,453 1,532,193 1,042,172 1,527,727 80,195 1,607,922 1,145,627 The accompanying notes to the financial statements are an integral part of this financial statement. Page 3 City of Pickering Public Library Board Statement of operations year ended December 31, 2017 2017 2016 Budget (Note 6) $ $ $ Revenue City of Pickering grants 5,855,893 5,781,879 5,617,847 Federal grants - 6,881 Province of Ontario grants 213,083 210,280 234,827 Fines and other receipts 172,500 152,398 178,658 6,241,476 6,144,557 6,038,213 Expenses Operating Salaries Salaries and wages Fringe benefits Material, supplies and utilities Books Utilities Other supplies 3,483,038 970 148 4,45,3,186 3,437,699 950,275 4,387,974 000 208,582 190,654 227,402 241,830 0 54,963 74,174 9,723 490,947 506,658 Services Repairs and maintenance " 296,421 394,908 280,030 Insurance 27,918 25,918 30,300 Travel 4,250 7,308 5,394 Consulting and professional 24,195 41,951 64,821 Advertising 23,500 20,782 25,088 Conference 14,000 15,594 11,360 Postage ' 2,800 3,078 3,231 Telephone 75,466 60,431 64,977 Seminars and education 22,300 32,187 34,899 Software/hardware maintenance 130,701 123,405 104,243 Vehicle repairs and maintenance 3,943 3,527 3,326 Minor capital purchases 62,000 79,757 121,538 Miscellaneous 21,530 21,950 22,342 709,024 830,796 771,549 Amortization of tangible capital assets 482,290 473,083 485,579 6,226,466 6,248,012 6,151,760 Annual surplus (deficit) 15,010 (103,455) (113,547) Accumulated surplus, beginning of year 1,145,627 1,145,627 1,259,174 Accumulated surplus, end of year 1,160,637 1,042,172 1,145,627 The accompanying notes to the financial statements are an integral part of this financial statement . Page 4 City of Pickering Public Library Board Statement of change in net debt year ended December 31, 2017 2017 2016 Budget (Note 6) Annual surplus (deficit) 15,010 $ $ (103,455) (113,547) Acquisition of tangible capital assets Amortization of tangible capital assets Change in prepaid expense Change in net debt Net debt, beginning of year Net debt, end of year (563,000) (440,096) (432,332) 482,290 473,083 485,579 (80,710) 32,987 53,247 42,742 (3,141) (27,726) (63,441) (462,295) (398,854) (490,021) (462,295) (65,700) (462,295) (527,995),, The accompanying notes to the financial statements are an integral part of this financial statement. Page 5 City of Pickering Public Library Board Statement of cash flows year ended December 31, 2017 2017 2016 Operating transactions Annual deficit (103,455) (113,547) Non-cash items Amortization of tangible capital assets 473,083 485,579 369,628 372,032 Change in non-cash operating items (Increase) decrease in accounts receivable (962) 114,189 Decrease (increase) in due from Government of Canada 477 (7,473) Increase in due from City of Pickering (53,627) (193,375) (Decrease) increase in accounts payable and accrued liabilities , (4,423) 89,775 Increase in deferred revenue �.'' 14,793 - Increase in post -employment benefits liability 70,468 60,300 Decrease (increase) in prepaid expense w �'�_- 42,742 (3,141) 69,468 60,275 439,096 432,307 Capital transactions Net acquisition of tangible capital assets Net change in cash Cash, beginning of year Cash, end of year (440,096) (432,332) (1,000) (25) 2,225 2,250 1,225 2,225 TThe accompanying notes to the financial statements are an integral part of this financial statement. Page 6 City of Pickering Public Library Board Notes to the financial statements December 31, 2017 1. Significant accounting policies The financial statements of the City of Pickering Public Library Board (the "Library Board") are the representations of management prepared in accordance with Canadian public sector accounting standards established by the Public Sector Accounting Board ("PSAB") of Chartered Professional Accountants of Canada. Significant accounting policies adopted by the Library Board are as follows: Basis of accounting a) Accrual basis of accounting Revenues and expenses are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues as they are earned and measurable; expenses are recognized, as they are incurred and measurable as a result of the receipt of goods and services and the creation of a legal obligation to pay. b) Non-financial assets (i) Tangible capital assets Tangible capital assets are recorded at cost lessaccu ulated amortization. Cost includes all amounts that are directly attributable to acquisition development or betterment of the asset. The cost of the tangible capital asset is amortized on a straight-line basis over the estimated useful life as follows: Machinery and equipment Information technology hardware Library collection materials Furniture and fixtures 0,25 years to ftyears 8'1 years � 50 years One-half of the annual amortization is charged in the year of acquisition and in the year of disposal. Other major assets including the Librabuildings are owned by the City and are not reflected in these financial statements. (10 Contribution/donation of tangible capital assets Tangible capital assets received as contributions or donations are recorded at their fair value at the date of receipt, and: that fair value is also recorded as revenue. (iii) Intangible assets Intangible assets are not recognized as assets in the financial statements. c) Post -employment benefits The present value of the cost of providing employees with future benefits programs is recognized as employees earn these entitlements through service. Any actuarial gains or losses are amortized on a straight-line basis over the average remaining service period (ARSP) of employees. The actuary estimated the ARSP to be 13 years. d) Government transfers Government transfers are recognized as revenue by the Library Board in the period in which the transfer is authorized and any eligibility criteria are met, unless they are restricted through stipulations that require specific actions to be carried out in order to keep the transfer. For such transfers, revenue is recognized as the stipulation has been met. Page 7 City of Pickering Public Library Board Notes to the financial statements December 31, 2017 1. Significant accounting policies (continued) Basis of accounting (continued) e) Use of estimates The preparation of financial statements in conformity with Canadian public sector accounting standards requires management to make estimates and assumptions that affect the reported amount of assets, liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Balances which require significant estimates include tangible capital assets, which are based on estimated useful lives, and post -employment benefits. 2. Post -employment benefits liability The Library Board makes available to qualifying employees who retire before the age of 65, the opportunity to continue their coverage for benefits such as post employment extended healthcare benefits. Coverage ceases at the age of 65. The Library Board also,provides full time and permanent part-time employees a sick time entitlement and any unused entitlement is accumulated year to year. This accumulated entitlement is not vested and thereforeis forfeited at the time.of retirement or termination. The post -employment benefits obligation at "December 31 :2x17 and the changes in the accrued benefit obligation for the 2017 fiscal year was determined by actuarial valuation prepared as at December 31, 2017. «� Information about the Library Board's post-emp o, enefits liability is as follows: Post -employment benefits liability, be Current service costs Amortization of actuarial Interest expense Benefits paid during the year Post -employment benefits liability ming of yea Accrued post -employment benefits obligation Unamortized actuarial gain (loss) Post -employment benefits liability 2017 2016 382,100 321,800 44,147 42,700 18,900 18,900 19,458 18,600 (12,037) (19,900) 452,568 382,100 2017 2016 351,533 539,900 101,035 (157,800) 452,568 382,100 The main actuarial assumptions employed in the actuarial valuation are as follows: a) Discount rate The present value as at December 31, 2017 of the future benefits was determined using a discount rate of 3.75% (2016 - 3.5%). b) Dental cost The dental cost trend rate was 3.75% (2016 - 3.75%) per annum. Page 8 City of Pickering Public Library Board Notes to the financial statements December 31, 2017 2. Post -employment benefits liability (continued) c) Health costs Health costs were assumed to increase at 6.75% (2016 - 6.50%) and decrease by 0.33% (2016 - 0.25%) increments per year to an ultimate rate of 3.75% per year in 2027 and thereafter. 3. Pension agreement The Library Board makes contributions to the Ontario Municipal Employees Retirement Fund (OMERS), which is a multi-employer plan, on behalf of eligible members of its staff. The Plan is a defined benefit plan that specifies the amount of the retirement benefit to be received by the employees based on the length of service and rates of pay. OMERS provide pension services to over 482,000 active and retired members and about 1,000 employers. Each year an independent actuary determines the funding status of OMERS Primary Pension ("the Plan") by comparing the actuarial value of the invested' assets to the estimated present value of all pension benefits that members have earned to-date.;The host recent actuarial valuation of the Plan was conducted as at December 31, 2017. The results of this,valuation disclosed total actuarial liabilities as at that date of $94,431 million in respect of benefitsaccrued,for service with actuarial assets at that date of $89,028 million indicating an actuarial deficit of $5,403 milion Because OMERS is a multi-employer plan, any pension plan surpluses or deficits area joint responsibility of Ontario municipal organizations and their employers. As a result, the Library Board=does not recognize any share of the OMERS pension surplus or deficit. Contributions in the amount of $ 278,157 (201, members during the year. 4. Tangible capital assets (TCA) Machinery nformation Library Furniture Assets end; technology collection and under quipment.',hardware materials fixtures construction ' 2017 were paid to OMERS on behalf of its Cost Balance, beginning of year Additions during the year Disposals/transfers to TCA during the year Balance, end of year 23,681 $ $ 204,157 2,466,112 329,648 - 3,023,598 51,193 347,502 21,111 20,290 440,096 - 455,245 - - 455,245 23,681 255,350 2,358,369 350,759 20,290 3,008,449 Accumulated amortization Balance, beginning of year 8,178 98,883 1,252,263 136,547 - 1,495,871 Amortization 2,368 31,095 427,924 11,696 - 473,083 Accumulated amortization on disposals - - 455,245 - - 455,245 Balance, end of year 10,546 129,978 1,224,942 148,243 - 1,513,709 Net book value 13,135 125,372 1,133,427 202,516 20,290 1,494,740 Page 9 City of Pickering Public Library Board Notes to the financial statements December 31, 2017 4. Tangible capital assets (TCA) (continued) Machinery Information Library Furniture and technology collection and equipment hardware materials fixtures 2016 Cost Balance beginning ofyear 9,992 204,157 2,538,389 329,648 3,082,186 Additions during the year 13,689 - 418,643 - 432,332 Disposals/transfers to TCA during the year 490,920 - 490,920 Balance, end ofyear 23,681 204,157 2,466,112 329,648 3,023,598 Accumulated amortization Balance, beginning of year 6,494 72,622 1,,296,f89 125,907 1,501,212 Amortization 1,684 26,261 446,994 10,640 485,579 Accumulated amortization on disposals - 490,920 - 490,920 Balance, end ofyear 8,178 98,883 ,, 1,252,263 1,36,547 1,495,871 Net book value 15,503 105,274 4,213,849-193,101 1,527,727 5. Accumulated surplus Accumulated surplus consists of the followin Invested in capital asses, Post -employment benefits liabilt' 2017 2016 1,494,740 1,527,727 (452,568) (382,100) 1,042,172 1,145,627 Page 10 City of Pickering Public Library Board Notes to the financial statements December 31, 2017 6. Budget figures The 2017 budget was not prepared on a basis consistent with that used to report actual results. The budget was prepared on a modified accrual basis while public sector accounting standards require a full accrual basis of accounting. The budget figures treated all tangible capital asset (TCA) acquisitions as expenditures and did not include amortization expense on tangible capital assets or post -employment benefits expenses on a full accrual basis. The following provides a reconciliation from the approved budget to the budget numbers presented in the financial statements. 2017 Council approved budget Post -employment benefits / Amortization/ City Assets/ Capital budget adjustment 2017 budget presented in statements Revenue City of Pickering Federal and provincial grants Fines and other receipts Expenditures Salaries and benefits Material, supplies and utilites Services Amortization Annual surplus (defici Capital expenditures/ additions 29,729 539,723 709,024 5,678,476 683,000 (683,000) 65,700 482,290 547,990 (667, 990) 120,000 5,855,893 213,083 172,500 6,241,476 4,495,429 539,723 709,024 482,290 6,226,466 15,010 (563, 000) Page 11 Financial statements of City of Pickering Trust Funds December 31, 2017 The Corporation of the City of Pickering Trust Funds December 31, 2017 Table of contents Independent Auditor's Report 1-2 Statement of financial activities and fund balances 3 Statement of financial position 4 Notes to the financial statements ... 5 Independent Auditor's Report To the Members of Council, Inhabitants and Ratepayers of The Corporation of the City of Pickering Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca We have audited the accompanying financial statements of The Corporation of the City of Pickering Trust Funds, which comprise the statement of financial position as at December 31, 2017, the statement of financial activities and fund balance 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 financial statements in accordance with Canadian accounting standards for not-for-profitorganizations, 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 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 evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Member of Deloitte Touche Tohmatsu Limited Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of The Corporation of the City of Pickering Trust Funds as at December 31, 2017 and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. Chartered Professional Accountants Licensed Public Accountants June 18, 2018 Page 2 The Corporation of the City of Pickering Trust Funds Statement of financial activities and fund balances year ended December 31, 2017 2017 2016 Revenue Interest Fund balance, beginning of year Fund balance, end of year 6,114 7,134 355,149 348,015 361,263 355,149 The accompanying notes to the financial statements are an integral part of this financial statement. Page 3 The Corporation of the City of Pickering Trust Funds Statement of financial position as at December 31, 2017 2017 2016 Assets Cash and investments 356,700 335,633 Interest receivable 4,563 19,516 361,263 355,149 Trust Fund position 361,263 355,149 The accompanying notes to the financial statements are an integral part of this financial statement. Page 4 The Corporation of the City of Pickering Trust Funds Notes to the financial statements December 31, 2017 1. Significant accounting policies The financial statements of The Corporation of the City of Pickering Trust Funds are the representations of management prepared in accordance with Canadian accounting standards for Not -for -Profit Organizations. Significant accounting policies adopted include: Revenue recognition Interest revenue is recorded as earned. Investments Investments are recorded at amortized cost. The cost of investments plus accrued interest approximates their fair value. 2. Dorothy Card Estate The City of Pickering administers a trust fund for the Dorgthy Car destitute elderly. The fund balance is comprised of investments°an $361,263 (2016 - $355,149). Statement of cash flows A statement of cash flows has not been presented as the information is readily determinable from the financial statements presented. state for the care and upkeep of the accumulated interest amounting to Page 5